Exhibit 10.1

 

 

 

LOAN AGREEMENT

Dated as of July 31, 2008

among

MERUELO MADDUX – 845 S. FLOWER STREET, LLC,

a Delaware limited liability company,

as Borrower

and

CANPARTNERS REALTY HOLDING COMPANY IV LLC,

a Delaware limited liability company,

as Lender

$84,000,000.00 Loan

717 West Ninth Street

Los Angeles, California 90015

 

 

 

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

TABLE OF CONTENTS

 

           Page ARTICLE 1    DEFINITIONS    1

1.1

   Defined Terms    1

1.2

   Use of Defined Terms    18

1.3

   Accounting Terms    18

1.4

   Exhibits and Schedules    18 ARTICLE 2    LOAN    18

2.1

   General Provisions Regarding Loan and Borrowing Procedures    18

2.2

   Principal and Interest    19

2.3

   Late Payments    19

2.4

   Computation of Interest and Fees    20

2.5

   Manner and Treatment of Payments    20

2.6

   Funding Sources    20

2.7

   Failure to Charge Not Subsequent Waiver    20

2.8

   No Revolving Facility    20

2.9

   Purpose of Loan    20 ARTICLE 3    CONDITIONS PRECEDENT TO LOAN    20

3.1

   Loan    20

3.2

   Property Information    23 ARTICLE 4    REPRESENTATIONS AND WARRANTIES    23

4.1

   Existence and Qualification; Power; Compliance With Laws    23

4.2

   Authority; Compliance With Other Agreements and Instruments and Government
Regulations    24

4.3

   No Governmental Approvals Required    25

4.4

   Environmental and Industrial Hygiene Compliance    25

4.5

   Financial Statements; Income and Expense and Capital Expenditure Statements.
   25

4.6

   No Other Liabilities; No Material Adverse Changes    25

4.7

   Title to and Location of Property and the Separate Property    26

4.8

   Litigation    26

4.9

   Binding Obligations    26

4.10

   ERISA    26

4.11

   Regulations G, T, U and X; Investment Company Act    27

4.12

   Disclosure    27

4.13

   Tax Matters    27

4.14

   Fiscal Year    27

4.15

   Insolvency and Related Matters    27

4.16

   Intangible Assets    28

4.17

   Use    28

 

i

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

TABLE OF CONTENTS

(continued)

 

           Page

4.18

   Pending Property Litigation    28

4.19

   Forfeiture    28

4.20

   Payment of Fees    29

4.21

   Contracts    29

4.22

   Design    29

4.23

   No Other Loans    29

4.24

   No Breach of Acts Under Contracts or Licenses, Permits and Approvals    29

4.25

   Licenses, Permits and Approvals    29

4.26

   Parking    30

4.27

   Zoning    30

4.28

   Violations    30

4.29

   Leases    30

4.30

   Patriot Act    30

4.31

   Management Agreements    31

4.32

   Loan Proceeds And Adequacy    31

4.33

   Construction Matters    31

4.34

   Borrower’s Required Equity    33 ARTICLE 5    CONSTRUCTION COVENANTS    33

5.1

   Commencement and Completion Of Construction    33

5.2

   Construction Schedule    35

5.3

   Construction Budget    37

5.4

   Prime Contracts    39

5.5

   Design-Build Prime Contracts    40

5.6

   Design Agreements    41

5.7

   Plans And Specifications.    42

5.8

   Contractor/Subcontractor/Construction Information    43

5.9

   Prohibited Contracts    44

5.10

   Liens And Stop Notices    44

5.11

   Construction Responsibilities    45

5.12

   Delay    45

5.13

   Inspections    45

5.14

   Surveys    45

5.15

   Set Aside Letters    46

5.16

   Loan-In-Balance    46

5.17

   Construction Consultant    47

5.18

   Stored Materials    47

5.19

   California Civil Code Section 3110.5    47 ARTICLE 6    AFFIRMATIVE COVENANTS
   48

6.1

   Payment of Taxes and Other Potential Liens    48

6.2

   Preservation of Existence    48

6.3

   Maintenance of Properties; Compliance with Agreements    49

6.4

   Compliance With Laws    49

 

ii

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

TABLE OF CONTENTS

(continued)

 

           Page

6.5

   Inspection Rights    49

6.6

   Keeping of Records and Books of Account    50

6.7

   Maintenance of Insurance    50

6.8

   Operation of Property    50

6.9

   Single Purpose Entity Requirements    51

6.10

   Copies of Notices to Lender    51

6.11

   Maintenance of Property    51

6.12

   Management Agreement    52

6.13

   Reserves    53

6.14

   Furniture, Fixtures and Equipment    53

6.15

   Estoppels    54

6.16

   Reports    54

6.17

   Inspection; Books and Records    54

6.18

   Compliance with Contracts    55

6.19

   Title Exceptions    55

6.20

   Injunction Defense and Notice    55

6.21

   Lender’s Expenses    55

6.22

   Further Assurances    56

6.23

   No Further Liens    56

6.24

   Americans With Disabilities Act Compliance    56

6.25

   Compliance    56

6.26

   Mechanic’s Liens and Other Encumbrances    56

6.27

   Legal Proceedings    57

6.28

   Additional Equity    57

6.29

   Separate Collateral    58

6.30

   General Condominium Covenants    58 ARTICLE 7    NEGATIVE COVENANTS    61

7.1

   Hypothecation or Disposition of the Property or the Separate Property    61

7.2

   Mergers    62

7.3

   ERISA    62

7.4

   Change in Nature of Business/Ownership of Other Assets    63

7.5

   Change in Fiscal Year    63

7.6

   Additional Debt    63

7.7

   Dissolution    63

7.8

   Affiliate Transactions    63

7.9

   Franchise or License Agreement    63

7.10

   Affiliate Payments    63

7.11

   Transfers and Pledges    63

7.12

   Use of Loan Proceeds    64

7.13

   Amendment of Contracts, Etc.    64

7.14

   Patriot Act    64

 

iii

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

TABLE OF CONTENTS

(continued)

 

           Page ARTICLE 8    CASH MANAGEMENT/RESERVES    64

8.1

   Budgets    64

8.2

   Tax and Insurance Reserve    65

8.3

   Interest Reserve    65

8.4

   Construction Reserve    66

8.5

   Construction Draw Account - General    67

8.6

   Construction Draw Account – Draw Requests    68

8.7

   Construction Draw Account – Retainage    71

8.8

   Construction Draw Account – Stored Materials    71

8.9

   Additional Equity Reserve    74

8.10

   All Reserves as Additional Security and Source of Payment    74 ARTICLE 9   
INFORMATION AND REPORTING REQUIREMENTS    75

9.1

   Financial and Business Information    75

9.2

   Financial Reporting for Guarantor    77 ARTICLE 10 EVENTS OF DEFAULT;
REMEDIES    77

10.1

   Events of Default    77

10.2

   Remedies    80

10.3

   Lender’s Cessation of Construction    82 ARTICLE 11    MISCELLANEOUS    82

11.1

   Cumulative Remedies; No Waiver    82

11.2

   Amendments; Consents    82

11.3

   Costs, Expenses and Taxes    83

11.4

   Nature of Lender’s Obligations    83

11.5

   Reliance Upon Representations and Warranties    83

11.6

   Notices    83

11.7

   Participations and Securitization    85

11.8

   Counterparts    86

11.9

   Binding Effect; Assignment    86

11.10

   Indemnity by Borrower    86

11.11

   Lender's Discretion    87

11.12

   Nonliability of Lender    87

11.13

   No Third Parties Benefited    87

11.14

   Further Assurances    87

11.15

   Integration    88

11.16

   Governing Law    88

11.17

   Severability of Provisions    88

11.18

   Headings    88

11.19

   Time of the Essence    88

11.20

   WAIVERS.    88

11.21

   Hold Harmless    89

 

iv

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

TABLE OF CONTENTS

(continued)

 

           Page

11.22

   Attorneys’ Fees; Enforcement    89

11.23

   Waiver of Statute of Limitations    90

11.24

   Survival of Representations and Warranties    90

 

v

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

EXHIBITS AND SCHEDULES

 

Exhibit A-1:    Legal Description of the Property

Exhibit A-2:

   Legal Description of Separate Property

Exhibit B:

   Sources and Uses

Exhibit C:

   Construction Budget

Exhibit D:

   Reserved

Exhibit E:

   Draw Request Materials

Exhibit F:

   Form of Notice of Loan

Schedule 1.1(A):

   Loan Documents

Schedule 1.1(B):

   Plans and Specifications   

Part I: Items Complete as of Closing

  

Part II: Items to be Prepared or Completed after Closing

Schedule 1.1(C):

   Designers   

Part I: Designers under Contract as of Closing

  

Part II: Design Agreements to be Entered into after Closing

  

Part III: Terminated Designers

  

Part IV: Designers whose work has been Completed

Schedule 1.1(D):

   Prime Contractors   

Part I: Prime Contractors under Contract as of Closing

  

Part II: Prime Contracts to be Let after Closing

Schedule 1.1(E):

   Design-Builders   

Part I: Design-Builder’s under Contract as of Closing

  

Part II: Design-Build Prime Contracts to be Let after Closing

Schedule 3.1(a)(23)

   Bonded Prime Contractors and Design-Builders

Schedule 4.8:

   Litigation Affecting Borrower Parties

Schedule 4.10:

   Employee Benefit Plans Subject to ERISA

Schedule 4.18:

   Litigation Affecting Property or Separate Property

Schedule 4.20:

   Permitted Affiliate Fees

Schedule 4.21:

   Agreements Relating to the Collateral

Schedule 4.25:

   Remaining Permits

Schedule 4.29:

   Leases

Schedule 4.33(i)

   Preliminary 20 Day Notices

Schedule 4.33(j)

   Subcontracts

Schedule 4.34:

   Borrower’s Required Equity

Schedule 5.2:

   Construction Schedule

 

i

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

LOAN AGREEMENT

This LOAN AGREEMENT is made as of this 31st day of July, 2008, by and between
MERUELO MADDUX – 845 S. FLOWER STREET, LLC, a Delaware limited liability company
(“Borrower”), and CANPARTNERS REALTY HOLDING COMPANY IV LLC, a Delaware limited
liability company (together with its successors and assigns, and the holder,
from time to time, of the Note (as defined below), the “Lender”), with respect
to the following matters:

R E C I T A L S

Borrower has requested a loan from Lender in the maximum principal amount of
Eighty Four Million Dollars ($84,000,000.00) (the “Loan”), upon the terms and
conditions hereinafter set forth, which will be secured by, inter alia, the
Deeds of Trust (as hereinafter defined) encumbering all of Borrower’s interest
in the Property (as hereinafter defined) and all of Separate Property Owner’s
(as hereinafter defined) interests in the Separate Property (as hereinafter
defined).

NOW, THEREFORE, in consideration of the mutual covenants and agreements herein
contained and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto do hereby agree as follows:

ARTICLE 1

DEFINITIONS

1.1 Defined Terms. As used in this Agreement, the following terms shall have the
meanings set forth respectively after each:

“Acceptable Temporary Certificate of Occupancy” means one (1) or more temporary
certificate or certificates of occupancy, which individually or in the aggregate
cover the entire Project, issued by the applicable Governmental Agency and a
punchlist of items to be completed which are necessary to obtain a final
certificate of occupancy for the entire Project, provided that the cost to
complete such items does not exceed $1,000,000 in the aggregate.

“Accommodation Pledge Agreements” means, collectively, all agreements pursuant
to which any Person pledges to Lender any equity interests any other Person as
additional security for the Loan, including, without limitation, (a) that
certain Accommodation Pledge Agreement (Membership Interests in Borrower),
executed by Pledgor in favor of Lender and the related Consent executed by
Borrower; and (b) that certain Accommodation Pledge Agreement (Membership
Interests in Separate Property Owner), executed by Pledgor in favor of Lender
and the related Consent executed by Separate Property Owner.

 

1

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

“Accounts Pledge Agreement” means that certain Pledge Agreement (Accounts)
executed by Borrower in favor of Lender, granting to Lender a duly perfected
Lien on all of Borrower’s right, title and interest in and to the Reserves.

“Additional Equity Reserve” has the meaning set forth in Section 8.9(a) hereof.

“Affiliate” means, as to any Person, (a) any other Person which, directly or
indirectly through one or more intermediaries, controls, or is under common
control with, or is controlled by, (i) such Person or (ii) any general partner
or member, director or officer of such Person; (b) any other Person five percent
(5%) or more of the equity interest of which is held beneficially or of record
by (i) such Person or (ii) any general partner or member, director or officer of
such Person, or (c) any general partner, limited partner, director or officer or
member of (i) such Person or (ii) any partner, limited partner or member,
director or officer, of such Person. As used in this Agreement, “control” (and
its correlative meanings, “controlled by” and “under common control with”) means
possession, directly or indirectly, of the power to direct or cause the
direction of management or policies (whether through ownership of securities or
partnership or other ownership interests, by contract, family relationship or
otherwise).

“Agreement” means this loan agreement, as it may from time to time be
supplemented, modified, amended, restated or extended pursuant to Section 11.2
hereof.

“Approved Budgets” has the meaning set forth in Section 8.1 hereof.

“Architect” means Manuel Funes, an employee of Funes Architecture, LLC, and/or
such other architect or architects acceptable to Lender which are certified,
registered and/or licensed in the State of California.

“Architect Certification” means a certification to Lender by the Architect in
form and substance acceptable to Lender certifying that the Plans and
Specifications conform to all applicable Laws and to such other matters as
Lender shall require.

“Assignment of Architectural Plans and Specifications” means that certain
Assignment of Architectural Plans and Specifications, executed by Guarantor,
whereby those portions of the Plans and Specifications prepared by the Architect
and its consultants are assigned to Lender to secure, among other things, the
due, prompt and complete performance of each and every obligation of Borrower
arising under the Note, this Agreement and each of the other Loan Documents.

“Assignment of Construction Management Agreement” means that certain Assignment
and Subordination of Construction Management Agreement, executed by Borrower and
the related Consent executed by Construction Manager, whereby the Construction
Management Agreement (a) is subordinated to the Loan, and (b) is assigned to
Lender to secure, among other things, the due, prompt and complete performance
of each and every obligation of Borrower arising under the Note, this Agreement
and each of the other Loan Documents.

 

2

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

“Assignment of Design Agreements” means that certain Assignment and
Subordination of Design Agreements, Plans, Specifications, and Related
Documents, executed by Borrower and with a related Designer’s Consent,
Subordination, Estoppel Certificate and Amendment to the Design Agreement
executed by each Designer listed in Part I of Schedule 1.1(C) hereto (excepting
only those Designers, if any, for which such consents may be expressly waived in
writing by Lender, any such waiver being at Lender’s sole and absolute
discretion), whereby, among other things, the applicable Design Agreement (a) is
subordinated to the Loan, and (b) is assigned to Lender to secure, among other
things, the due, prompt and complete performance of each and every obligation of
Borrower arising under the Note, this Agreement and each of the other Loan
Documents.

“Assignment of Design-Build Prime Contract” means each Assignment and
Subordination of Design-Build Prime Contract Agreement, executed by Borrower and
with the corresponding Consent, Subordination, Estoppel Certificate and
Amendment to the Prime Design-Build Contract Agreement executed by each
Design-Builder, whereby, among other things, (a) the applicable Design-Build
Prime Contract is subordinated to the Loan, and (b) Borrower’s interest in and
rights under such Design-Build Prime Contract and in any portion of the Plans
and Specifications prepared by such Design-Builder is assigned to Lender to
secure, among other things, the due, prompt and complete performance of each and
every obligation of Borrower arising under the Note, this Agreement and each of
the other Loan Documents.

“Assignments of Leases” means, collectively, all assignments pursuant to which
Borrower or Separate Property Owner assigns to Lender any of their rights
pursuant to the Leases, including, without limitation, (a) that certain Absolute
Assignment of Leases, Rents and Income, executed by Borrower in favor of Lender,
in recordable form; and (b) that certain Absolute Assignment of Leases, Rents
and Income, executed by Separate Property Owner in favor of Lender, in
recordable form.

“Assignments of Licenses and Contracts” means, collectively, all assignments
pursuant to which Borrower or Separate Property Owner assigns to Lender any of
their rights pursuant to the Licenses, Permits and Approvals or the Contracts,
including, without limitation, (a) that certain Assignment of Permits, Licenses,
Approvals, Agreements and Documents, executed by Borrower in favor of Lender,
and (b) that certain Assignment of Permits, Licenses, Approvals, Agreements and
Documents, executed by Separate Property Owner in favor of Lender.

“Assignment of Management Agreement” means an Assignment of Management
Agreements, Security Agreement, and Subordination and Recognition Agreement, on
Lender’s standard form, executed by Borrower and any Manager as and when
required under Section 6.12(b) hereof.

“Assignment of Prime Contract” means each Assignment and Subordination of Prime
Contract Agreement, executed by Borrower and with the corresponding Contractor’s
Consent, Subordination, Estoppel Certificate and Amendment to the Prime Contract
executed by each Prime Contractor, whereby, among other things, the applicable

 

3

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

Prime Contract (a) is subordinated to the Loan, and (b) is assigned to Lender to
secure, among other things, the due, prompt and complete performance of each and
every obligation of Borrower arising under the Note, this Agreement and each of
the other Loan Documents.

“Bankruptcy Code” means the United States Bankruptcy Code, Title 11, United
States Code, as amended.

“Bonded Work” has the meaning set forth in Section 5.15 hereof.

“Borrower” has the meaning set forth in the preamble to this Agreement.

“Borrower Parent” has the meaning set forth in the definition of “Mezzanine
Borrower”.

“Borrower Party” means Borrower, Separate Property Owner, Pledgor, Guarantor, or
any other guarantor of any or all of the Obligations (collectively, the
“Borrower Parties”).

“Borrower’s Required Initial Equity” means an amount equal to Seventy Three
Million Dollars ($73,000,000.00).

“Borrower’s Requisition Spreadsheet” has the meaning set forth in
Section 8.6(b)(2) hereof.

“Business Day” means any day other than a Saturday, Sunday or other day on which
commercial banks in Los Angeles, California are authorized or required by Law to
close.

“Capitalization Deficiency” means the amount by which Total Capitalization Costs
exceed Committed Capital.

“Closing” means the initial funding of the Loan.

“Closing Date” means the earlier of the date that the initial funding of the
Loan occurs or any of the Deeds of Trust are recorded.

“Closing Instruction Letter” means joint escrow instructions signed by Borrower,
Lender and Title Company, with respect to disbursement of Loan proceeds, the
funds provided by Borrower, title matters and other escrow matters as Lender
shall elect in its discretion.

“Code” means the Internal Revenue Code of 1986, as amended.

“Collateral” means all of the property, real or personal, which is now or may
hereafter become subject to a Lien in favor of Lender as security for the Loan,
including, but not limited to, the Property and the Separate Property.

 

4

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

“Committed Capital” means the sum of (i) the amount of the Loan
($84,000,000.00), plus (ii) the actual amount of equity previously invested by
Borrower in the Property as verified by Lender, which, as of Closing shall not
be less than $73,000,000.00.

“Commitment Fee” means the sum of One Million Two Hundred Sixty Thousand Dollars
($1,260,000.00).

“Common Elements” means those elements of the Condominium designated as common
area.

“Completion Guaranty” means that certain Completion Guaranty of even date
herewith executed by Guarantor for the benefit of Lender.

“Condominium” means the condominium to be formed with respect to the Property
pursuant to the Condominium Documents and the Condominium Act.

“Condominium Account” has the meaning set forth in Section 6.30(h) hereof.

“Condominium Act” means the Davis-Sterling Common Interest Development Act, Cal.
Civil Code Sections 1350 et seq., as amended, modified or supplemented from time
to time and all rules and regulations promulgated thereunder.

“Condominium Association” means any association relating to the Condominium and
formed pursuant to the Condominium Documents or the Condominium Act.

“Condominium Board” means the board of directors or other governing board for
the Condominium Association.

“Condominium Declaration” means the condominium declaration approved by Lender
to be recorded pursuant to Section 6.30 hereof, including, without limitation,
the by-laws, rules and regulations attached thereto.

“Condominium Documents” means all documents (and any amendments and supplements
thereto) required under applicable Laws (a) to create a valid and operational
condominium regime with respect to the Property, and (b) to market and sell
Condominium Units to the public and all other documents (and all amendments and
supplements thereto) otherwise relating to the submission of the Property to the
provisions of the Condominium Act or to the regulations, operation,
administration or sale thereof, including, without limitation, (i) surveys,
(ii) floor plans and plot plans, (iii) the Condominium Declaration, including,
without limitation, the by-laws and rules and regulations attached thereto,
(iv) all articles of incorporation, by-laws and rules and regulations of the
Condominium Association, (v) any sales agency agreements, marketing agreements
and purchase and sale contracts, and (vi) the offering plan and any other public
offering statement, prospectus or other disclosures required in connection with
the sale of Condominium Units in the City of Los Angeles, County of Los Angeles,
and/or State of California, in each case, in form and substance satisfactory to
Lender.

 

5

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

“Condominium Unit” means residential or commercial unit created by the
Condominium Documents.

“Construction” means the construction of the Improvements on the Property in
accordance with the Contract Documents.

“Construction Budget” means that certain construction budget attached hereto as
Exhibit C, signed by Borrower and approved by Lender setting forth a detailed
itemized schedule of the costs and expenses estimated to be incurred by Borrower
in connection with the Construction, as may be amended from time to time by
change orders permitted hereunder or as otherwise approved by Lender.

“Construction Consultant” means Levien-Rich Associates, Inc., or such other
construction consultant or consultants retained by Lender in connection with the
underwriting of the Loan and the review of any proposed amendments or
modifications to the Contract Documents, the Operating Budget, the Construction
Budget, Approved Budgets and other construction related matters.

“Construction Costs” means the Hard Costs and Soft Costs of the Construction as
set forth in the Construction Budget.

“Construction Draw Account” has the meaning set forth in Section 8.5(a) hereof.

“Construction Draw Account Control Agreement” means that certain Account Control
Agreement by and among Lender, Borrower and Construction Draw Account Bank.

“Construction Draw Account Bank” means East West Bank.

“Construction Management Agreement” means that certain Standard Form of
Agreement Between Owner and Construction Manager (AIA Document B801 CMa-1992)
dated as of December 1, 2006, by and between Borrower and Construction Manager.

“Construction Manager” means KSC West, Inc., a Delaware corporation, as assignee
of Kajima Construction Services, Inc., a Delaware corporation.

“Construction Reserve” has the meaning set forth in Section 8.4(a) hereof.

“Construction Schedule” has the meaning set forth in Section 5.2(a) hereof.

“Contingent Obligations” means, as applied to any Person, any direct or indirect
liability or obligation of that Person, the payment or satisfaction of which is
contingent upon the occurrence of some future event or condition other than the
passage of time, as determined in accordance with GAAP.

“Contract Documents” means the Prime Contracts and the Design-Build Prime
Contracts and their exhibits, the Plans and Specifications, other documents
listed in the

 

6

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

Prime Contracts and the Design-Build Prime Contracts and change orders or other
written modifications to the Prime Contracts and Design-Build Prime Contracts
issued after execution of the Prime Contracts and Design-Build Prime Contracts.

“Contracts” means the instruments, agreements, contracts, licenses and franchise
agreements of Borrower for the Property and of Separate Property Owner for the
Separate Property, or of any Borrower Party otherwise affecting the Collateral,
in each case with related documents, all of which instruments, agreements,
contracts, licenses, franchise agreements and related documents are listed on
Schedule 4.21 hereto. The Design Agreements, the Prime Contracts, and the
Design-Build Prime Contracts are Contracts.

“Cost Saving” has the meaning set forth in Section 5.3(f) hereof.

“Deeds of Trust” means, collectively, all Deeds of Trust pursuant to which
Borrower or Separate Property Owner prior to the Closing Date or from time to
time thereafter may grant to Lender a security interest in any part of the
Collateral, including the Property and Separate Property, including, without
limitation, (a) that certain Deed of Trust and Security Agreement, Assignment of
Leases and Rents and Fixture Filing of even date herewith executed by Borrower,
as trustor, for the benefit of Lender, as beneficiary, encumbering the Property;
and (b) that certain Deed of Trust and Security Agreement, Assignment of Leases
and Rents and Fixture Filing of even date herewith executed by Separate Property
Owner, as trustor, for the benefit of Lender, as beneficiary, encumbering
Separate Property.

“Default Interest” has the meaning set forth in the Note.

“Default Rate” has the meaning set forth in the Note.

“Design Agreements” means any and all agreements other than the Design-Build
Prime Contracts to which Borrower or its predecessor in interest may have been,
may now be, or may in future be party and pursuant to which a counterparty
agrees to, or under which such counterparty has provided, is providing, or may
provide engineering or other design or design-related services in relation to
the Construction, including without limitation (a) those certain agreements for
such services between Borrower (or Borrower’s predecessor in interest) and the
Designers identified in Part I of Schedule 1.1(C) hereto, and (b) any of the
anticipated post-closing Design Agreements described in Part II of Schedule
1.1(C) hereto. All Persons providing engineering or other design or
design-related services pursuant to any Design Agreement shall be qualified to
provide such services in accordance with Borrower’s covenant at Section 5.6(f)
hereof.

“Design-Builders” means, collectively or individually as the context may imply,
those contractors who have performed, are performing, in future perform, or at
any time are under contract to perform any part of the Construction pursuant to
a Design-Build Prime Contract under which such contractor also agrees to
provide, or in relation to

 

7

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

which such contractor does provide, engineering or other design or
design-related services in relation to the Construction.

“Design-Build Prime Contract” means any and all agreements to which Borrower or
its predecessor in interest may have been, may now be, or may in future be
party, and pursuant to which any counterparty performs, is performing, or may
perform any part of the Construction pursuant to an agreement under which such
counterparty also agrees to provide, or in relation to which it does provide,
engineering or other design or design-related services in relation to the
Construction, including without limitation (a) any contracts for design-build
services in relation to the Construction between Borrower (or Borrower’s
predecessor in interest) and those certain Design-Builders identified in Part I
of Schedule 1.1(E) hereto, and (b) any of the anticipated post-closing
Design-Build Prime Contracts described in Part II of Schedule 1.1(C) hereto. All
Persons performing any part of the Construction or providing engineering or
other design or design-related services in relation to the Construction pursuant
to any Design-Build Prime Contract shall be qualified in accordance with
Borrower’s covenants at Section 5.4(f) or Section 5.6(f) (as referenced from
Section 5.5(f)) hereof, as applicable.

“Designers” means, collectively or individually as the context may imply, those
civil, structural, geotechnical, environmental and other engineers and design
professionals who have provided, are providing, or in future provide engineering
or other design or design-related services in relation to the Construction
pursuant to a Design Agreement.

“Dollars” or “$” means United States Dollars.

“Draw Request” has the meaning set forth in Section 8.6(a) hereof.

“Environmental Laws” means all federal, state or local laws, statutes, common
law duties, rules, regulations, ordinances and codes, together with all
administrative orders, licenses, authorizations and permits of, and agreements
with, any Governmental Agency, in each case relating to environmental, health
and safety matters, including, without limitation, the Resource Conservation and
Recovery Act of 1976, 42 U.S.C. § 1801 et seq.; the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, 42 U.S.C. § 9601 et seq., as
amended by the Superfund Amendments and Reauthorization Act of 1986; the
Hazardous Materials Transportation Act, 49 U.S.C. § 1801 et seq.; the Federal
Water Pollution Control Act, 33 U.S.C. § 1251 et seq.; the Clean Air Act, 42
U.S.C. § 741 et seq.; the Clean Water Act, 33 U.S.C. § 7401 et seq.; the Toxic
Substances Control Act, 15 U.S.C. § 2601 et seq.; the Occupational Safety and
Health Act, as amended, 29 U.S.C., Sections 651, the Emergency Planning and
Community Right to Know Act of 1986, 42 U.S.C. § 80, et seq., the Safe Drinking
Water Act, 42 U.S.C. §§ 300f-300j; and all comparable state and local laws, all
as the same may be hereafter amended including all similar or related laws of
the State of California, and all environmental regulations, cleaning or control
laws of the State of California, all as the same may be amended from time to
time.

“EO13224” has the meaning set forth in Section 4.30 hereof.

 

8

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

“Equity Certificates” means, collectively, certificates evidencing ownership of
each interest made subject to any of the Accommodation Pledge Agreements,
executed by the issuer of such interest and including an endorsement-in-blank
executed by the pledgor(s) under and otherwise in conformance with the
requirements of such Accommodation Pledge Agreement, including, without
limitation, (a) a certificate pursuant to that certain Accommodation Pledge
Agreement (Membership Interests in Borrower) executed by Pledgor in favor of
Lender, evidencing the 100% interest in Borrower pledged thereunder, executed by
Borrower and with endorsement-in-blank executed by Pledgor; and (b) a
certificate pursuant to that certain Accommodation Pledge Agreement (Membership
Interests in Separate Property Owner) executed by the Pledgor in favor of
Lender, evidencing the 100% interest in Separate Property Owner pledged
thereunder, executed by Separate Property Owner and with endorsement-in-blank
executed by Pledgor.

“ERISA” means the Employee Retirement Income Security Act of 1974, and any
regulations issued pursuant thereto, as amended or replaced and as in effect
from time to time.

“Event of Default” has the meaning set forth in Section 10.1 hereof.

“Final Completion” means the date that all of the following shall have occurred:
(i) Borrower shall have caused Substantial Completion; (ii) Borrower shall have
satisfied all of the conditions to the disbursement of all retainage under
Section 8.7(d) hereof and (iii) Borrower shall have caused each of the matters
described in Section 5.1(c) hereof to have been completed.

“Final Completion Date” means December 31, 2009.

“Final Disbursement Date” has the meaning set forth in Section 2.1(d) hereof.

“Financial Statements” has the meaning set forth in Section 4.5(a) hereof.

“Fiscal Quarter” means a fiscal quarter of Borrower.

“Fiscal Year” means a fiscal year of Borrower.

“Force Majeure” means an actual delay in the construction or installation of the
Construction directly caused by or attributable to (a) fire, earthquake, flood,
wind, landslide, hurricane, tsunami, unusual weather conditions or other acts of
God, or (b) strikes, lockouts or labor disputes, acts of public enemy, riots,
insurrection, war, or (c) inability to obtain an adequate supply of materials,
fuel, water, electricity, labor or other supplies despite the commercially
reasonable efforts of Borrower to obtain such supplies or (d) governmental
regulation on the sale or transportation of materials, supplies or other
governmental action or inaction, but excluding in all instances the lack of
funds to observe or perform any obligations hereunder.

“GAAP” or “generally accepted accounting principles” means generally accepted
accounting principles consistently applied, set forth from time to time in the
opinions and

 

9

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

pronouncements of the Accounting Principles Board and the American Institute of
Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board (or agencies with similar functions and of comparable
stature and authority within the accounting profession), or in such other
statements by such other entity as may be in general use by significant segments
of the U.S. accounting profession which are applicable to the circumstances as
of the date of determination.

“Governmental Agency” means (a) any international, foreign, federal, state,
county or municipal government, or political subdivision thereof, (b) any
governmental or quasi-governmental agency, authority, board, bureau, commission,
department, instrumentality or public body, or (c) any court, administrative
tribunal or public utility.

“Guaranties” means, collectively, the Repayment Guaranty and the Completion
Guaranty.

“Guarantor” means Meruelo Maddux Properties, Inc., a Delaware corporation.

“Hard Costs” means, collectively, all costs and expenses set forth in the
Construction Budget which are denominated as “Hard Costs”.

“Hazardous Materials” means all those substances which are regulated by, or
which may form the basis of liability under, any Environmental Law, including
all substances identified under any Environmental Law as a pollutant,
contaminant, hazardous waste, hazardous constituent, special waste, hazardous
substance, hazardous material, or toxic substance, or petroleum or petroleum
derived substance or waste.

“Holder” has the meaning set forth in Section 11.7(b) hereof.

“Improvements” means all improvements and amenities related to or constructed
upon the Property or the Separate Property, as applicable, whether now existing
or hereafter constructed.

“Indemnitees” has the meaning set forth in Section 11.10 hereof.

“Indemnity Agreements” means, collectively, all agreements pursuant to which any
indemnitor agrees to indemnify Lender against any (or all) losses related to
(a) the presence of Hazardous Materials on or near the Property or the Separate
Property, including without limitation any failure to obtain or maintain
required permits in association with such materials, or (b) violations of
Environmental Laws in relation to the Property or the Separate Property,
including, without limitation, (x) that certain Environmental Indemnity
Agreement (Property) of even date herewith, executed by Borrower and Guarantor
in favor of Lender, and (y) that certain Environmental Indemnity Agreement
(Separate Property) of even date herewith, executed by Separate Property Owner
and Guarantor in favor of Lender.

“Initial Tranche” means the first Tranche of the Loan to be disbursed by Lender.

“Initial Maturity Date” has the meaning set forth in the Note.

 

10

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

“Intangible Assets” means assets that are considered intangible assets under
GAAP, consistently applied, including, without limitation, goodwill, patents,
trademarks, trade names, copyrights and other intangible property, including,
without limitation, all names and/or logos used or proposed to be used by
Borrower.

“Interest Rate” has the meaning set forth in the Note.

“Interest Reserve” has the meaning set forth in Section 8.3(a) hereof.

“Land” means, with respect to the Property, the land more particularly described
on Exhibit A-1 hereto and, with respect to the Separate Property, the land more
particularly described on Exhibit A-2 hereto.

“Laws” means, collectively, all international, foreign, federal, state and local
statutes, treaties, rules, regulations, ordinances, codes and published
administrative or judicial precedents.

“Leases” means, collectively, all leases, subleases, guaranties, licenses and
other agreements affecting the use, enjoyment or occupancy, now or hereafter in
existence with respect to the Property or the Separate Property, as applicable.

“Lender” has the meaning set forth in the preamble to this Agreement.

“Licenses, Permits and Approvals” means all government permits, exemptions,
variances, licenses, dedications, subdivision maps and related rights,
entitlements and other governmental approvals relating to the Construction, use,
ownership, alteration, development or operation of the Property or the Separate
Property, any applications for the foregoing which are pending or have been
denied, all rights, benefits and interests under all zoning laws and ordinances,
variances, licenses, permits, approvals, dedications, subdivision maps and
entitlements promulgated, issued, approved or granted by any Governmental Agency
having jurisdiction over the Property or the Separate Property and/or Borrower
or the Separate Property Owner, including, without limitation, the State of
California, the County of Los Angeles or the City of Los Angeles, or otherwise
in connection with the Property or the Separate Property; any and all
development rights and other intangible rights, titles, interests, privileges
and appurtenances owned by Borrower or the Separate Property Owner and in any
way related to or used in connection with all or any part of the Property and
the Separate Property and its development, construction or operation; all
licenses, consents, easements, rights of way and approvals required from private
parties to make use of utilities and to insure vehicular and pedestrian ingress
and egress to the Property and the Separate Property or any part thereof; and
all disposition, redevelopment and development agreements, site approvals,
environmental impact reports, traffic and other mitigation and impact studies
and reports, maps and all other documents, agreements and/or instruments,
private or public, affecting the Property and the Separate Property or any part
thereof.

“Lien” means any mortgage, deed of trust, pledge, hypothecation, security
interest, encumbrance, lien or charge of any kind, whether voluntarily incurred
or arising by operation of Law or otherwise, affecting the Property, the
Separate Property and/or

 

11

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

other Collateral, including, without limitation, any agreement to give any of
the foregoing, any conditional sale or other title retention agreement, any
lease in the nature thereof, and/or the filing of or agreement to give any
financing statement under the Uniform Commercial Code or comparable Law of any
jurisdiction.

“Loan” has the meaning set forth in the recitals to this Agreement.

“Loan Documents” means, collectively, this Agreement, the Note, the Deeds of
Trust, and the other documents listed in Schedule 1.1(A) hereto, together with
any other documents, agreements or instruments now or hereinafter evidencing,
securing or relating to the Loan, in each case as the same may from time to time
be supplemented, modified, amended, restated or extended.

“Management Agreements” means any agreement between Borrower and/or the Separate
Property Owner and a Manager concerning the management of the Property and the
Separate Property or any part thereof by such Manager.

“Manager” means a property management company or garage operator approved by
Lender in accordance with this Agreement. As of the Closing, Borrower or an
Affiliate of Borrower shall manage the Property and the Separate Property Owner
or an Affiliate thereof shall manage the Separate Property.

“Material Adverse Effect” means (a) a material adverse effect upon the business,
operations, properties, assets or condition (financial or otherwise) of
Borrower, the Separate Property Owner, any other Borrower Party, the Property,
the Separate Property or the value of the Collateral (b) the material impairment
of the ability of any Borrower Party to perform its obligations under any Loan
Documents, or (c) the impairment of the ability of Lender to enforce or collect
any of the Obligations. In determining whether any individual event would result
in a Material Adverse Effect, notwithstanding that such event does not of itself
have such effect, a Material Adverse Effect shall be deemed to have occurred if
the cumulative effect of such event and all other then occurring events and
existing conditions would result in a Material Adverse Effect.

“Maturity Date” has the meaning set forth in the Note.

“Maximum Rate” has the meaning set forth in the Note.

“Mezzanine Borrower” means the borrower under the Mezzanine Loan, which shall be
an entity that directly owns 100% of the interests in another entity (the
“Borrower Parent”) that, directly or indirectly, owns 100% of the interests in
Borrower.

“Mezzanine Lender” means a financing institution acceptable to Lender providing
a Mezzanine Loan to the Mezzanine Borrower.

“Mezzanine Loan” means the mezzanine financing made by the Mezzanine Lender in
an amount not less than the excess of the Capitalization Deficiency over the
additional equity raised by Borrower under Section 6.28 hereof and deposited
into the Additional Equity Reserve.

 

12

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

“Mezzanine Loan Documents” means all documents and instruments given by
Mezzanine Borrower or others for the purpose of evidencing, securing, perfecting
and/or guaranteeing the Mezzanine Loan, as the same may from time to time be
supplemented, modified, amended, restated or extended.

“Multiemployer Plan” means an employee benefit plan of the type described in
Section 4001(a)(3) of ERISA.

“Note” means the Promissory Note executed and delivered by Borrower to Lender,
in the principal amount of $84,000,000.00 and any promissory note that may be
issued in substitution, renewal, extension, replacement or exchange therefor.

“Obligations” means all present and/or future obligations of every kind or
nature of any Borrower Party at any time and/or from time to time owed to Lender
under any one or more of the Loan Documents, whether due or to become due,
matured or unmatured, liquidated or unliquidated, or contingent or
noncontingent, including obligations of performance as well as obligations of
payment, and including interest that accrues after the commencement of any
bankruptcy or insolvency proceeding by or against Borrower or Guarantor.

“Obligee” has the meaning set forth in Section 5.15 hereof.

“OFAC” has the meaning set forth in Section 4.30 hereof.

“Offsite Location” means any site other than the Property where any building
materials intended to be incorporated into any Improvements on the Property are
either stored or assembled.

“Offsite Materials” has the meaning set forth in Section 8.8(b) hereof.

“Operating Budgets” means the operating budgets for the Property and the
Separate Property for the current and next calendar years, in form, substance
and level of detail satisfactory to Lender.

“Operating Revenues” means, without duplication, with respect to the Property or
the Separate Property, as applicable, all revenues and receipts from operations
for the applicable period in accordance with GAAP, including, without
limitation, all revenues collected from apartments, parking and recreational
facilities, health club membership fees, food and beverage wholesale and retail
sales, service charges, convention services, special events, audio-visual
services, telephone charges, laundry services, vending machines and otherwise,
all rents, revenues and receipts now existing or hereafter arising or created
out of the sale, lease, sublease, license, concession or other grant of the
right of the possession, use or occupancy of all or any portion of the Property
and Separate Property or personalty located thereon, or rendering of service by
Borrower, the Separate Property Owner, or any operator or manager of commercial
space (including, without limitation, from the rental of any retail space or
other space, stores and deposits securing reservations of such space (only to
the extent such deposits are not required to be returned or refunded to the
depositor)), proceeds from rental or business interruption

 

13

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

insurance relating to business interruption or loss of income for the period in
question and any other items of revenue.

“Opinion of Counsel” means the written legal opinion or opinions of the counsel
to each Borrower Party, each in form and substance satisfactory to Lender and
Lender’s counsel, together with copies of any factual certificates relied on in
rendering such opinions.

“PBGC” means the Pension Benefit Guaranty Corporation or any successor thereof
established under ERISA.

“Permitted Encumbrances” means, with respect to the Collateral, (a) all liens,
security interests, pledges, mortgages and other encumbrances in favor of Lender
arising under this Agreement and the other Loan Documents; and (b) all other
liens, restrictions and other title limitations approved by Lender or Lender’s
counsel in writing as permitted exceptions to the title of the Property and the
Separate Property.

“Person” means any individual or entity, whether a trustee, corporation, limited
liability company, general partnership, limited partnership, joint stock
company, trust, unincorporated organization, bank, business association, firm,
joint venture, Governmental Agency or otherwise.

“Plan” means any employee benefit plan subject to ERISA and maintained by
Borrower or the Separate Property Owner or to which Borrower or the Separate
Property Owner is required to contribute on behalf of its employees.

“Plans and Specifications” means the plans, specifications, addenda, designs,
renderings, calculations, reports, analyses, surveys and other documents and
information prepared or to be prepared by the Architect, the Designers and the
Design-Builders, and their subconsultants, in the design of the Improvements for
the Construction, including, without limitation, those items listed in Part I of
Schedule 1.1(B) hereto and those items described in Part II of Schedule 1.1(B)
hereto, in each case as such documents or information may be modified pursuant
to the terms of this Agreement.

“Pledgor” means MMP Ventures, LLC, a Delaware limited liability company.

“Policies” has the meaning set forth in the Deeds of Trust.

“Prepayment Fee” has the meaning set forth in the Note.

“Prime Contract” means any and all agreements other than the Design-Build Prime
Contracts to which Borrower or its predecessor in interest may have been, may
now be, or may in future be party, and pursuant to which any counterparty
performs, is performing, or may perform any part of the Construction, including
without limitation (a) any contracts to perform any part of the Construction
between Borrower (or Borrower’s predecessor in interest) and those certain Prime
Contractors identified in Part I of Schedule 1.1(D) hereto, and (b) any of the
anticipated post-closing Prime Contracts described in Part II of Schedule 1.1(D)
hereto. All Persons performing Construction

 

14

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

pursuant to any Prime Contract shall be qualified to perform such construction
in accordance with Borrower’s covenant at Section 5.4(f) hereof.

“Prime Contractors” means, collectively or individually as the context may
imply, those contractors who have performed, are performing, or in future
perform the Construction pursuant to the Prime Contracts.

“Prohibited Person” has the meaning set forth in Section 4.30 hereof.

“Project” has the meaning set forth in Section 6.30(a) hereof.

“Project Application and Certificate for Payment” means the compilation of each
of the various Prime Contractors’ or Design-Build Prime Contractors’ various
applications and certificates for payment prepared and reviewed by the
Construction Manager in accordance with the Construction Management Agreement,
including, without limitation, Paragraph 2.3.11 of the Construction Management
Agreement.

“Property” means the real property and improvements commonly known as 717 West
Ninth Street now or hereafter located thereon, located at 845 – 847 South Flower
Street in the City of Los Angeles, County of Los Angeles, State of California,
and more particularly described on Exhibit A-1 hereto.

“Punchlist Items” means, collectively, minor or insubstantial details of
construction, decoration, mechanical adjustment or installation that remain to
be completed upon achievement of Substantial Completion, the non-completion of
which does not prevent the use and occupancy of the Improvements at the Property
for their intended purposes.

“Registrar” has the meaning set forth in Section 11.7(b) hereof.

“Repayment Guaranty” means that certain Repayment Guaranty of even date herewith
executed by Guarantor for the benefit of Lender.

“Reserve” means any one of the Reserves.

“Reserves” means, collectively, the Tax and Insurance Reserve, the Construction
Reserve, the Interest Reserve and the Construction Draw Account.

“Reserve Accounts Control Agreement” means that certain Reserve Accounts Control
Agreements of even date herewith among Borrower, Lender and Reserve Bank.

“Reserve Bank” means City National Bank.

“Second Tranche” means the second Tranche of the Loan to be disbursed by Lender.

“Separate Property” means that certain real property and improvements thereon
commonly known as 129 College Street, with any improvements thereon, located in
the

 

15

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

City of Los Angeles, County of Los Angeles, State of California, and more
particularly described on Exhibit A-2.

“Separate Property Owner” means Meruelo Chinatown, LLC, a California limited
liability company, and any successor to any or all of its interests in the
Separate Property.

“Set Aside Letter” has the meaning set forth in Section 5.15 hereof.

“Soft Costs” means, collectively, all costs and expenses set forth in the
Construction Budget which are denominated as “Soft Costs”.

“Sources and Uses Statement” means that certain Sources and Uses Statement
attached hereto as Exhibit B signed by Borrower and approved by Lender detailing
the immediate and prospective sources of funds and uses of all proceeds of the
Loan and the Reserves, including, without limitation, a detailed itemized
schedule of the Construction Costs.

“Stored Materials” means materials purchased by Borrower at or prior to the date
of a Draw Request for use in the Construction, and stored at the Property and
not yet installed or incorporated into the Improvements at the Property
(“Unincorporated Materials”). Stored materials shall include materials not yet
delivered to the Property to the extent the conditions set forth in
Section 8.8(a)(1) hereof are satisfied. Stored Materials shall cease to be
Stored Materials only when the same are installed or incorporated into the
Improvements at the Property.

“Substantial Completion” or “Substantially Complete” means that point in time
when (a) the Improvements at the Property are sufficiently complete and
functional in accordance with the Contract Documents such that the Project is
ready for residential occupancy, or ready to be utilized for its intended
purpose, except for Punchlist Items; provided, however, that as a condition
precedent to the achievement of Substantial Completion: (i) all certificates of
occupancy (or temporary certificates of occupancy, as applicable) and any other
permits, approvals, licenses and other documents from any governmental authority
having jurisdiction over the Property, as necessary for the beneficial occupancy
or use of the Property and Improvements, or designated portion thereof, shall
have been issued; and (ii) the mechanical and HVAC systems shall be fully
commissioned, operational and in compliance with the Contract Documents and
applicable Laws and can further be operated within manufacturer’s recommended
limits without damage to the Improvements, the Property or any other property,
and without injury to any person (if any applicable temporary certificate of
occupancy obtained for any portion of the Improvements is invalidated at any
time after its issuance and prior to the issuance of a final certificate of
occupancy, such Improvements, or portion thereof, shall not be considered
Substantially Complete); and (b) all of the other covenants specified in
Section 5.1(b) hereof have been fully satisfied.

“Substantial Completion Date” means the date the Construction is required to
have achieved Substantial Completion, which is September 30, 2009.

“Surety” has the meaning set forth in Section 5.15 hereof.

 

16

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

“Surveys” means, collectively, an ALTA survey of each of the Property and each
parcel of the Separate Property satisfactory to Lender, certified to Lender and
the Title Company, prepared by a licensed surveyor satisfactory to Lender,
together with a surveyor’s certificate satisfactory to Lender.

“Tax and Insurance Reserve” has the meaning set forth in Section 8.2(a) hereof.

“Terminated Designers” has the meaning set forth in Section 4.33(c) hereof.

“Title Company” means First American Title Insurance Company and such co-insurer
acceptable to Lender as may be arranged through Liberty Title Agency Co., as
co-insurers.

“Title Policies” means ALTA mortgagee’s policies of title insurance insuring the
lien of the Deeds of Trust (one for the Property and one or more as required to
protect all security interests in the Separate Property granted pursuant to the
Deeds of Trust) subject only to the Permitted Encumbrances and with endorsements
required by Lender, all in form and substance acceptable to Lender and its
counsel, issued by the Title Company in favor of Lender, each in the principal
amount of the Note with a tie-in endorsement aggregating the liability limits
under both policies to the amount of the Loan.

“To the best knowledge of” means, when modifying a representation, warranty or
other statement of Borrower, that the fact or situation described therein, with
the exercise of reasonable due diligence and inquiry under the circumstances (in
accordance with the standard of what a reasonable Person in similar
circumstances would have done) should have been known by Borrower.

“Total Capitalization Costs” means the total aggregate direct and indirect costs
to achieve Final Completion as determined by Lender from time to time. As of the
date hereof, it is estimated that the Total Capitalization Costs are
approximately $157,000,000.00.

“Tranche” means each of the two (2) tranches of the Loan to be disbursed by
Lender under Section 2.1 hereof.

“UCC Financing Statements” means, collectively, appropriate financing statements
sufficient when filed in the office of the appropriate governmental agency or
agencies to perfect a Lien in favor of Lender in and to each item of Collateral
in which such a Lien can be so perfected, including, without limitation, (i) the
Property and the Separate Property described in the Deeds of Trust, (ii) the
membership interests in Borrower and the Separate Property Owner, and (iii) the
Reserves.

“UCC Policy” means the UCC lender’s policy or policies with endorsements
required by Lender, all in form and substance acceptable to Lender and its
counsel, issued by Title Company in favor of Lender in the amount of the Loan
and insuring all security interests in membership interests in Borrower or
Separate Property Owner granted to Lender pursuant to the Accommodation Pledge
Agreements.

 

17

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

“Unincorporated Materials” has the meaning set forth in the definition of
“Stored Materials”.

“Work” means the work of the Construction.

1.2 Use of Defined Terms. Any defined term used in the plural shall refer to all
members of the relevant class, and any defined term used in the singular shall
refer to any one or more of the members of the relevant class.

1.3 Accounting Terms. All accounting terms not specifically defined in this
Agreement shall be construed in conformity with, and all financial data required
to be submitted by this Agreement shall be prepared in conformity with sound
property accounting practices in effect from time to time, and applied on a
consistent basis, except, as otherwise specifically prescribed herein.

1.4 Exhibits and Schedules. All exhibits and schedules to this Agreement, either
as originally existing or as the same may from time to time be supplemented,
modified or amended, are incorporated herein by this reference.

ARTICLE 2

LOAN

2.1 General Provisions Regarding Loan and Borrowing Procedures.

(a) Subject to the terms and conditions set forth in this Agreement and the
other Loan Documents, Lender shall make the Loan to Borrower.

(b) The Loan shall be evidenced by the Note and secured by, among other things,
the Deeds of Trust and the other Loan Documents.

(c) Upon the satisfaction of the conditions precedent to the disbursement of the
Loan, as set forth in Article 3 hereof, Lender shall disburse the Loan proceeds
of the Initial Tranche in the amount of $42,000,000.00, which shall be used only
for the purposes set forth in Section 2.9 hereof, less any unpaid portion of the
Commitment Fee, the estimated fees and disbursements (subject to adjustment upon
final accounting) of Lender’s counsel, as provided in Section 3.1(e) hereof,
which estimated fees and disbursements shall be paid by Lender to Lender’s
counsel directly and shall be considered a part of the Loan and evidenced by the
Note and the other Loan Documents and secured by, among other things, the Deeds
of Trust. Upon final accounting, Borrower shall pay directly to Lender’s counsel
the amount, if any, by which the actual fees and disbursements of Lender’s
counsel exceed the estimated fees and disbursements previously paid or Lender
shall cause Lender’s counsel to pay to Borrower any amount by which the
estimated fees and disbursements previously paid, exceed the actual fees and
disbursements of Lender’s counsel. Borrower shall separately pay all other costs
and expenses associated with the Loan not intended to be paid out of Loan
proceeds, including, but not limited to, the costs and expenses required to be
paid by Borrower pursuant to Section 11.3 hereof.

 

18

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

(d) After disbursement of the Initial Tranche, upon Borrower’s written request,
provided, that (i) no Event of Default exists or any uncured default under this
Agreement or any other Loan Document exists of which Borrower has been notified
by Lender in writing, and (ii) Lender shall have received title searches for the
Property and the Separate Property and title endorsements to the Title Policies
indicating that the Property and the Separate Property remains free from all
liens, claims and other encumbrances other than Permitted Encumbrances, Lender
shall disburse the second and final Tranche to Borrower within twelve
(12) Business Days of Borrower’s request and satisfaction of the conditions
thereto in the amount designated by Borrower in such notice; provided that the
amount of the Second Tranche shall be in the amount of $42,000,000.00. Borrower
shall request the disbursement of the Second Tranche under the Loan and satisfy
the conditions to such disbursement on or before the date six (6) months
following the Closing Date (the “Final Disbursement Date”). In the event
Borrower fails to request the disbursement of the full amount of Loan proceeds
and satisfy the conditions to such disbursement by the Final Disbursement Date,
then any time on or after the Final Disbursement Date, Lender may disburse the
remaining amount of Loan proceeds into the Construction Reserve and such
disbursement shall be treated as indebtedness owing under the Loan to the same
extent as if Borrower had requested such disbursement and Lender shall have no
obligation to cause the disbursement of any funds from the Construction Reserve
or the Construction Draw Account until satisfaction of all conditions to the
disbursement of the Second Tranche, in addition to those conditions to
disbursement from the Construction Draw Account under Section 8.6 hereof.

(e) All proceeds of the Loan to be disbursed to Borrower under this Agreement,
except to the extent retained by Lender for payment of fees, costs and expenses,
shall be deposited into the Reserves in accordance with Article 8 hereof.

2.2 Principal and Interest.

(a) Interest shall be payable on the outstanding daily unpaid principal amount
of the Loan hereunder as provided in the Note. Borrower agrees to pay interest
from the date Lender receives capital from its investors for funding each
Tranche, regardless of when the funds are actually disbursed into or released by
escrow or received or utilized by Borrower. Interest accruing under the Note
shall compound monthly and be calculated pursuant to Section 2.4 hereof.

(b) Portions of the principal indebtedness evidenced by the Note shall be
payable at such times and in such amounts as provided in the Note with all
outstanding principal indebtedness, interest, charges and fees under the Note
being due and payable on the Maturity Date, as the same may be accelerated
pursuant to the terms of this Agreement or extended pursuant to Section 2.4 of
the Note.

2.3 Late Payments. Should any installment of principal or interest or any fee or
cost or other amount payable under any Loan Document to Lender not be paid
within five (5) days after the date when due, it shall thereafter bear Default
Interest as provided in the Note; provided, however, to the extent that funds
are available for such payments in the Interest Reserve at the time when due, no
late charge or Default Interest shall accrue by reason of the failure to pay
when due.

 

19

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

2.4 Computation of Interest and Fees. All computations of interest and fees
shall be calculated on the basis of a three hundred sixty (360) day year and the
actual number of days elapsed, unless use of a three hundred sixty (360) day
year would result in collection of interest in excess of the Maximum Rate, in
which case interest shall be calculated based on and strictly limited to the
Maximum Rate.

2.5 Manner and Treatment of Payments. Each payment hereunder or under the Note
or under any other Loan Document shall be made to Lender at the place and
time(s) provided herein or in the Note. All payments shall be made in lawful
money of the United States of America.

2.6 Funding Sources. Nothing in this Agreement or in the Note shall be deemed to
obligate Lender to obtain the funds for the Loan in any particular place or
manner or to constitute a representation by Lender that it has obtained or will
obtain the funds for the Loan in any particular place or manner.

2.7 Failure to Charge Not Subsequent Waiver. Any decision by Lender not to
require payment of any interest (including, without limitation, Default
Interest), fee, cost or other amount payable under any Loan Document on any
occasion shall in no way limit or be deemed a waiver of Lender’s right to
require full payment of any other interest (including, without limitation,
Default Interest), fee, cost or other amount payable under any Loan Document on
any other or subsequent occasion.

2.8 No Revolving Facility. This Loan is a not a revolving loan. Any loan
proceeds repaid hereunder are not available for re-borrowing.

2.9 Purpose of Loan. The purpose of the Loan is (i) to finance the development
and construction of the Project in excess of Borrower’s Required Initial Equity,
and when funded, the Additional Equity Reserve, if any, and the Mezzanine Loan,
if any; (ii) to pay for reasonable approved closing costs incurred in connection
with the Loan, including loan fees; and (iii) to fund the Reserves.

ARTICLE 3

CONDITIONS PRECEDENT TO LOAN

3.1 Loan. The obligation of Lender to make the Initial Tranche and the Second
Tranche is subject to the following conditions precedent, each of which shall be
satisfied prior to the disbursement of the proceeds of each such Tranche (unless
Lender, in its sole and absolute discretion, shall agree in writing otherwise):

(a) Lender shall have received all of the following, each of which shall be
originals unless otherwise specified, each properly executed by Borrower and/or
others, each dated as of the date hereof and each in form and substance
satisfactory to Lender and its legal counsel:

(1) this Agreement, executed by Borrower;

(2) the Note, executed by Borrower, payable to the order of Lender;

 

20

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

(3) the Deeds of Trust, executed by Borrower and the Separate Property Owner, as
applicable, in recordable form;

(4) the Assignments of Leases, executed by Borrower and the Separate Property
Owner, as applicable, in recordable form;

(5) the Assignments of Licenses and Contracts, executed by Borrower and the
Separate Property Owner, as applicable;

(6) the Assignment of Design Agreements, executed by Borrower, and each of the
related consents executed by each of the Designers identified on Part I of
Schedule 1.1(C) hereto pursuant to Section 5.6(d) hereof;

(7) the Assignments of Prime Contract in respect of the Prime Contracts with
each of the Prime Contractors identified in Part I of Schedule 1.1(D) hereto,
executed by Borrower, and the related consents executed by each such Prime
Contractor pursuant to Section 5.4(d) hereof;

(8) the Assignments of Design-Build Prime Contract in respect of the
Design-Build Prime Contracts with each of the Design-Build Prime Contractors
identified in Part I of Schedule 1.1(E) hereto, executed by Borrower, and the
related consents pursuant to Section 5.5(d) hereof executed by each such
Design-Builder, excepting only such consents as may be expressly waived in
writing by Lender (any such waiver being at Lender’s sole and absolute
discretion);

(9) the Assignment of Construction Management Agreement, executed by Borrower
and Construction Manager;

(10) the Reserve Accounts Control Agreement, executed by Borrower, Lender and
Reserve Bank;

(11) the Construction Draw Account Control Agreement, executed by Borrower,
Lender and Construction Draw Account Bank;

(12) the Accommodation Pledge Agreements, executed by Pledgor and including
consents executed by each entity in which interests are pledged thereunder;

(13) the Indemnity Agreements executed by Borrower and the Separate Property
Owner as applicable and by Guarantor;

(14) the Completion Guaranty executed by Guarantor;

(15) the Repayment Guaranty executed by Guarantor;

(16) the Accounts Pledge Agreement executed by Borrower;

(17) fully executed copies of (i) the Design Agreements with each of the
Designers listed in Part I, Part III and Part IV of Schedule 1.1(C) hereto,
(ii) the Prime

 

21

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

Contracts with each of the Prime Contractors listed in Part I of Schedule 1.1(D)
hereto, and (iii) the Design-Build Prime Contracts with each of the
Design-Builders listed in Part I of Schedule 1.1(E) hereto;

(18) the Assignment of Architectural Plans and Specifications executed by
Guarantor and the related consent executed by the Architect;

(19) the UCC Financing Statements;

(20) the other Loan Documents executed by the parties thereto, in recordable
form, as applicable;

(21) the pro forma Title Policies, evidencing Title Company’s irrevocable
commitment to issue the Title Policies with all required endorsements;

(22) the pro forma UCC Policy, evidencing Title Company’s irrevocable commitment
to issue the UCC Policy with all required endorsements;

(23) payment and performance bonds (with dual-obligee riders in favor of Lender
to the extent requested by Lender) with respect to each of the Prime Contractors
and Design-Builders listed on Schedule 3.1(a)(23) hereto;

(24) the Surveys;

(25) the Opinion of Counsel;

(26) the fully executed Architect Certification;

(27) the Sources and Uses Statement executed by Borrower;

(28) the Construction Budget executed by Borrower;

(29) the Operating Budgets;

(30) establishment of the Reserves at the Reserve Bank with deposits in the
amounts required under this Agreement;

(31) establishment of the Construction Draw Account at the Construction Draw
Bank;

(32) the Closing Instruction Letter;

(33) copies of all preliminary 20-day notices (given under California Civil Code
Section 3097) received by Borrower with respect to the Project prior to Closing;
and

(34) all such other documents, instruments, certificates, opinions, assurances,
consents or approvals as Lender or its counsel may request or require.

 

22

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

(b) The representations and warranties of Borrower (and, as and to the extent
subscribed to pursuant to the Deeds of Trusts, of the Separate Property Owner)
contained in Article 4 shall be true and correct;

(c) The Borrower Parties shall be in compliance with all the terms and
provisions of this Agreement and the other Loan Documents and no Event of
Default shall have occurred in any of the Loan Documents and there shall be no
event in existence which, with the giving of notice or the passage of time, or
both, would constitute a default;

(d) Lender shall have received the Commitment Fee from the proceeds of the Loan;

(e) The estimated fees and disbursements (subject to adjustment upon final
accounting) of outside legal counsel to Lender, shall have been paid to such
counsel and any and all other fees and expenses required to be paid by Borrower
pursuant to this Agreement shall have been paid;

(f) The Deeds of Trust and the Assignments of Leases shall have been duly
recorded; and

(g) No Material Adverse Effect shall then exist.

3.2 Property Information. Notwithstanding anything to the contrary contained in
Section 3.1, the obligation of Lender to make the Loan and to disburse the
proceeds thereof is subject to the further condition that Lender shall have
received such additional information relating to the Property, the Separate
Property and the other Collateral as Lender may reasonably request or require.

ARTICLE 4

REPRESENTATIONS AND WARRANTIES

Borrower represents and warrants to Lender, as of the date hereof that:

4.1 Existence and Qualification; Power; Compliance With Laws.

(a) Borrower is a limited liability company duly formed and validly existing and
in good standing under the Laws of the State of Delaware. Borrower is qualified
to do business in and otherwise in good standing under the laws of the State of
California. Borrower has all requisite power and authority to conduct its
business, to own and lease its properties and to execute, deliver and perform
its obligations under the Loan Documents. Borrower has not failed to comply with
any Laws. Borrower has received no written notification from any Governmental
Agency of any violation by Borrower of any Law. Borrower is not in breach or
default under any order, writ, judgment, injunction, decree, determination or
award naming Borrower, nor under any contract. Borrower has not failed to obtain
any Licenses, Permits and Approvals when and as required, nor failed to
accomplish all filings, registrations and qualifications related to the
foregoing with (or obtained exemptions therefrom) any Governmental Agency that
are necessary for the transaction of Borrower’s existing business in connection
with the Property and the performance of its obligations under the Loan
Documents.

 

23

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

Borrower was formed for the sole purpose of owning the Property, does not engage
in any business unrelated to the Property, does not have any assets other than
the Property or any indebtedness other than as may be expressly permitted under
the Loan Documents, has its own books, records and accounts separate and apart
from any other Person, and holds itself out as being a legal entity, separate
and apart from any other Person.

(b) The Separate Property Owner is a limited liability company duly formed and
validly existing and in good standing under the Laws of either the State of
Delaware or the State of California. The Separate Property Owner is qualified to
do business in and otherwise in good standing under the laws of the State of
California. The Separate Property Owner has all requisite power and authority to
conduct its business, to own and lease its properties and to execute, deliver
and perform all of its obligations under the Loan Documents. The Separate
Property Owner has not failed to comply with any Laws. The Separate Property
Owner has not received any written notification from any Governmental Agency of
any violation by the Separate Property Owner of any Law. The Separate Property
Owner is not in breach or default under any order, writ, judgment, injunction,
decree, determination or award naming the Separate Property Owner, nor under any
contract. The Separate Property Owner has not failed to obtain any Licenses,
Permits and Approvals when and as required, nor failed to accomplish all
filings, registrations and qualifications related to the foregoing with (or to
obtain exemptions therefrom) any Governmental Agency that are necessary for the
transaction of the Separate Property Owner’s existing business in connection
with the Separate Property and the performance of its obligations under the Loan
Documents. The Separate Property Owner was formed for the sole purpose of owning
the Separate Property, does not engage in any business unrelated to the Separate
Property, does not have any assets other than the Separate Property or any
indebtedness other than as may be expressly permitted under the Loan Documents,
has its own books, records and accounts separate and apart from any other
Person, and holds itself out as being a legal entity, separate and apart from
any other Person.

(c) Pledgor is the sole member of Borrower and of the Separate Property Owner.
Pledgor is a limited liability company duly formed and validly existing under
the laws of the State of Delaware. Pledgor has all requisite power and authority
to conduct its business, to own and lease its properties and to execute, deliver
and perform its respective obligations under the Loan Documents. Pledgor is not
in breach or default under any order, writ, judgment, injunction, decree,
determination or award naming Pledgor, nor under any contract.

4.2 Authority; Compliance With Other Agreements and Instruments and Government
Regulations. The execution, delivery and performance by Borrower, the Separate
Property Owner, and Pledgor of each Loan Documents to which such Borrower, the
Separate Property Owner or Pledgor is a party have been duly authorized by all
necessary action, and does not and will not:

(a) require any consent or approval not heretofore obtained of any Person;

(b) violate or conflict with any provision of Borrower’s, the Separate Property
Owner’s, or Pledgor’s formation documents;

 

24

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

(c) result in or require the creation or imposition of any Lien or rights of
others (other than as provided under the Loan Documents) upon or with respect to
the Collateral;

(d) violate any provision of any Law, order, writ, judgment, injunction, decree,
determination or award presently in effect, having applicability to any Borrower
Party and by which such Borrower Party is bound; or

(e) result in a breach of or constitute a default under, or cause or permit the
acceleration of any obligation owed under, or adversely affect the rights of
Borrower or the Separate Property Owner under, any contract to which Borrower,
the Separate Property Owner or Pledgor is a party.

4.3 No Governmental Approvals Required. No License, Permit or Approval from, or
filing, registration or qualification with, or exemption from any of the
foregoing, from any Governmental Agency is or will be required to authorize or
permit under applicable Law the execution, delivery and performance by Borrower
of its Obligations or of the Separate Property Owner of its obligations under
the Loan Documents.

4.4 Environmental and Industrial Hygiene Compliance. No notice of any violation
of any Environmental Law with respect to any part of the Property or the
Separate Property has been received by Borrower, the Separate Property Owner, or
Pledgor from any Governmental Agency and any investigation of the Property or
the Separate Property has not indicated the generation, manufacture, storage or
disposal of Hazardous Materials on, under or about the Property or the Separate
Property.

4.5 Financial Statements; Income and Expense and Capital Expenditure Statements.

(a) Borrower has furnished to Lender a copy of the financial statements of
Borrower, the Separate Property Owner, Pledgor, and Guarantor for Fiscal Years
2006 and 2007 (collectively, the “Financial Statements”). The Financial
Statements fairly and accurately present the financial condition of such Persons
as at such date and for such periods and have been prepared (except as noted
therein) in accordance with GAAP.

(b) All financial statements and information prepared by Borrower, its
Affiliates or Manager and provided to Lender regarding the Property, the
Separate Property, Borrower, the Separate Property Owner, Pledgor, and Manager
are true, accurate and complete copies of the originals of such financial
statements and information, and all financial statements, information and all
other documents prepared by third parties and provided by Borrower to Lender
related to the transactions contemplated hereunder and under the other Loan
Documents are, to the best knowledge of Borrower, true, accurate and complete
copies of the originals of such financial statements, information and other
documents.

4.6 No Other Liabilities; No Material Adverse Changes. There are no liabilities
or Contingent Obligations not reflected or disclosed in the Financial Statements
or in the notes thereto. Since the date(s) of the Financial Statements, none of
Borrower, nor the Separate Property Owner, nor Pledgor has suffered any one or
more changes in its condition (financial or otherwise) or its assets,
properties, liabilities or prospects, which alone or in the aggregate would be
materially adverse to any of such Persons.

 

25

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

4.7 Title to and Location of Property and the Separate Property.

(a) Borrower has good and indefeasible title to the Property, free and clear of
all Liens, other than the Permitted Encumbrances.

(b) The Separate Property Owner has good and indefeasible title to the Separate
Property, free and clear of all Liens, other than the Permitted Encumbrances.

(c) Pledgor has, or will have, on the Closing, good and indefeasible title to
one hundred percent (100%) of the membership interests in Borrower and in the
Separate Property Owner, in each case free and clear of all liens.

4.8 Litigation. There are no actions, suits or proceedings served or, to the
best knowledge of Borrower or the Separate Property Owner, threatened against or
affecting any Borrower Party in any court of law or before any Governmental
Agency except as listed on Schedule 4.8 hereto.

4.9 Binding Obligations. Each of the Loan Documents, when executed and delivered
by the Parties thereto, will constitute the legal, valid and binding obligations
of the Parties thereto, enforceable against such Parties in accordance with
their respective terms, subject, as to enforcement, only to bankruptcy,
insolvency, reorganization, moratorium or similar laws then in effect affecting
the enforceability of the rights of creditors generally and the exercise of
judicial discretion in accordance with general principles of equity.

4.10 ERISA.

(a) Except as disclosed in Schedule 4.10 hereto there are no Plans;

(b) With respect to each Plan, if any, described in Schedule 4.10 hereto:

(i) such Plan complies in all material respects with ERISA and any other
applicable Law;

(ii) such Plan has not incurred any material “accumulated funding deficiency,”
as that term is defined in Section 302 of ERISA;

(iii) no “reportable event” (as defined in Section 4043 of ERISA) has occurred
that could result in the termination or disqualification of such Plan; and

(iv) Borrower has not engaged in any “prohibited transaction” (as defined in
Section 4973 of the Code).

(c) Neither Borrower nor the Separate Property Owner is or has been a party to
and does not have any employees who are covered by any Multiemployer Plan; and

(d) Borrower and the Separate Property Owner are in compliance with each
covenant contained in Section 7.3 hereof.

 

26

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

4.11 Regulations G, T, U and X; Investment Company Act. Borrower is not engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of “purchasing” or “carrying” any “margin stock” or
“margin security” within the meanings of Regulations G, T, U or X, respectively,
of the Board of Governors of the Federal Reserve System. If requested by Lender,
Borrower will furnish Lender with a statement or statements in conformity with
the requirements of Federal Reserve Forms G-3 and/or U-1 referred to in
Regulations G or U of said Board of Governors. No part of the proceeds of the
Loan will be used to purchase or carry any such “margin security” or “margin
stock” or to extend credit to others for the purpose of purchasing or carrying
any such “margin security” or “margin stock” in violation of Regulations G, T, U
or X of said Board of Governors. Borrower is not or is not required to be
registered under the Investment Company Act of 1940.

4.12 Disclosure. All reports, documents, information and forms of evidence
delivered to Lender by Borrower and prepared by Borrower or its Affiliates
concerning Borrower, Pledgor, Mezzanine Borrower, the Separate Property Owner,
the Property, any part of the Separate Property or any other Collateral, and to
the best knowledge of Borrower, all such reports, documents, information and
forms of evidence delivered to Lender and prepared by parties other than
Borrower or its Affiliates, are accurate, correct and sufficiently complete to
give Lender true and accurate knowledge of their subject matters and do not
contain any untrue statement of a material fact or omits a material fact
necessary to make them not misleading. There is no fact which Borrower has not
disclosed to Lender in writing which materially and adversely affects the
business, operations, properties, profits or condition (financial or otherwise)
of Borrower, Pledgor, Mezzanine Borrower, the Separate Property Owner, the
Property, any part of the Separate Property or other Collateral, or the ability
of Borrower, the Separate Property Owner, or Pledgor to perform its respective
Obligations.

4.13 Tax Matters. Each of Borrower, the Separate Property Owner, and Pledgor has
duly filed, or caused to be filed, on a timely basis all appropriate foreign,
federal, state and local tax returns and reports for income taxes, sales taxes,
withholding taxes, employment taxes, property taxes, business taxes and all
other tax returns of every kind whatsoever required to be filed in connection
with the ownership, operations and business of such Borrower, the Separate
Property Owner, or Pledgor as applicable, and all such tax returns and reports
accurately reflect all taxes owing for the periods indicated. All taxes,
interest, penalties, assessments or deficiencies shown to be due on such tax
returns and reports in connection with the ownership, operations and business of
each Borrower, the Separate Property Owner, or Pledgor as applicable, or claimed
to be due by any such taxing authority, except for any such taxes as are being
contested in good faith and by appropriate proceedings, has been paid in full by
such Borrower, the Separate Property Owner or Pledgor, as applicable. The
charges, accruals and reserves on each of Borrower’s, the Separate Property
Owner’s, and Pledgor’s Financial Statements in respect of taxes are adequate.

4.14 Fiscal Year. Borrower and the Separate Property Owner operate on a fiscal
year ending on December 31.

4.15 Insolvency and Related Matters. Each of Borrower, the Separate Property
Owner, and Pledgor is able to pay its debts as they mature, and has not (a) made
any assignment for the benefit of creditors; (b) admitted in writing its
inability to pay its debts as they mature; (c)

 

27

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

applied for or consented to the appointment of a receiver, trustee or similar
official for its affairs; or (d) been the subject of any bankruptcy, insolvency,
reorganization or liquidation proceeding, or any other proceeding for relief
under any bankruptcy law or any law for the relief of debtors or benefit of
creditors. After giving effect to the execution and delivery of the Loan
Documents and the making of any disbursements under this Agreement and the Note,
none of Borrower, the Separate Property Owner, or Pledgor will be “insolvent”
within the meaning of such term as defined in the applicable laws of the State
in which such entity was formed, or as defined in Section 101 of the Bankruptcy
Code, or be unable to pay its debts generally as such debts become due, or have
insufficient capital for its purposes.

4.16 Intangible Assets. Borrower and the Separate Property Owner own, or possess
the unrestricted right to use, all trademarks, trade names, copyrights, patents,
patent rights, licenses and other Intangible Assets that are used in the conduct
of their respective business as now operated, and no such Intangible Asset
conflicts with the valid trademark, trade name, copyright, patent, patent right
or Intangible Asset of any other Person to the extent that such conflict would
have a material adverse effect on the business, operations or condition
(financial or otherwise) of Borrower.

4.17 Use. No written notice has been received by Borrower or the Separate
Property Owner, or to the best knowledge of Borrower, by any other Person, from
any Governmental Agency alleging any violation by the Property or the Separate
Property or any part thereof of any applicable Laws, including Environmental
Laws.

4.18 Pending Property Litigation. There are no actions, suits or proceedings
pending or, to the best knowledge of Borrower, threatened in any court or before
any Governmental Agency or arbitration board or tribunal (a) relating to (i) the
Construction or the zoning of the Property or the Separate Property or any part
thereof, (ii) any Licenses, Permits and Approvals issued with respect to the
Property or the Separate Property or any part thereof, (iii) the condemnation of
the Property or the Separate Property or any part thereof, (iv) the condemnation
or relocation of any roadways abutting the Property or the Separate Property,
(v) the denial or limitation of access to the Property or the Separate Property
or any part thereof from any point of access to the Property or the Separate
Property, (vi) Borrower, the Separate Property Owner, or Pledgor or
(vii) Pledgor’s membership interests in Borrower or the Separate Property Owner;
(b) asserting that (i) any such zoning and/or Licenses, Permits and Approvals do
not permit the Construction or the operation of the Property or the Separate
Property or any part thereof, (ii) any improvements cannot be built or located
on the Property or the Separate Property or operated with their intended use or
(iii) the operation of the Property or the Separate Property or any part thereof
is in violation of any Law; or (c) might affect the validity or priority of this
Agreement or any other Loan Document. Neither Borrower, nor the Separate
Property Owner, nor Pledgor is aware of any facts or circumstances which may
give rise to any actions, suits or proceedings described in the preceding
sentence.

4.19 Forfeiture. Neither Borrower, nor the Separate Property Owner nor Pledgor,
nor any of their respective principals or directors (if applicable), is or has
been charged or are under investigation for, possible violations of the
Racketeering, Influenced and Corrupt Organizations Act, the Continuing Criminal
Enterprises Act, the Controlled Substance Act of 1978, the Money

 

28

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

Laundering Act of 1986, the Anti-Drug Abuse Act of 1986, or similar law
providing for the possible forfeiture of any of their respective assets or
properties.

4.20 Payment of Fees. Neither any Borrower Party nor any Affiliate of any
Borrower Party is receiving or is being paid a fee or royalty during the term of
the Loan or is receiving any proceeds of the Loan, except as expressly set forth
in Schedule 4.20 attached hereto.

4.21 Contracts. Other than (a) the Design Agreements with the Designers listed
in Part I, III and IV of Schedule 1.1(C) hereto, (b) the Prime Contracts with
the Prime Contractors listed in Part I of Schedule 1.1(D) hereto, (c) the
Design-Build Prime Contracts with the Designers listed in Part I of Schedule
1.1(E) hereto, and (d) the Contracts identified on Schedule 4.21 hereto, no
instruments, agreements, contracts or documents affect or relate to the
Property, the Separate Property, or any other Collateral, and no other
instruments, agreements, or documents affect or relate to all or any portion of
Pledgor’s membership interests in Borrower or the Separate Property Owner.
Borrower has delivered to Lender true, accurate and complete copies of the
Contracts. There exist no amendments or modifications to any of the Contracts.
Borrower or the Separate Property Owner, as applicable, has obtained all
required consents from any Person for the pledge of Pledgor’s membership
interests in Borrower and the Separate Property Owner to Lender in accordance
with the terms of the Accommodation Pledge Agreements.

4.22 Design. The Plans and Specifications do not incorporate any plans,
specifications, renderings, data or work product of any Person other than:
(i) those prepared by the Architect, (ii) those prepared by a Designer listed in
Schedule 1.1(C) hereto (other than those listed in Part III thereof) and
(iii) those prepared by a Design-Builder listed in Part I of Schedule 1.1(E)
hereto.

4.23 No Other Loans. There are no currently outstanding loans made by any Person
to Borrower or the Separate Property Owner, nor any liens on any of the
Property, the Separate Property, or any other Collateral, other than the Loan
and the liens arising under the Loan Documents and such other loans, and the
liens relating thereto, that may be made by Lender or any of its Affiliates to
Borrower. Other than the Mezzanine Loan when made, there are no loans to
Pledgor, and there are no liens on all or any portion of the membership
interests of Pledgor in Borrower or the Separate Property Owner. Other than the
Mezzanine Loan and the liens arising out of the Mezzanine Loan Documents, there
are no liens on all or any portion of the membership interests of Mezzanine
Borrower in Pledgor.

4.24 No Breach of Acts Under Contracts or Licenses, Permits and Approvals. There
exists no default, violation or other breach under any of the Contracts or
Licenses, Permits and Approvals.

4.25 Licenses, Permits and Approvals. All Licenses, Permits and Approvals of any
Governmental Agency or any other entity which are necessary for the ownership of
the Property, the Construction, and/or the operation of the Improvements at the
Property have been obtained by Borrower and are final and unappealable and will
not be appealable with the passage of time, except as disclosed on Schedule 4.25
hereto. The Separate Property Owner has obtained all Licenses, Permits and
Approvals of any Governmental Agency or any other entity which are

 

29

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

necessary for the ownership of the Separate Property and the Improvement
thereon, and all such Licenses, Permits and Approvals are final and unappealable
and will not be appealable with the passage of time. All such Licenses, Permits
and Approvals are current and in full force and effect and there is no pending
threat of (i) modification or cancellation of any of the same, (ii) breach by
Borrower or the Separate Property Owner thereof, or (iii) any failure to satisfy
any conditions for approval thereof. Neither all nor any part of either the
Property or the Separate Property depends on any variance, special exception or
other special municipal approval for its continued legality.

4.26 Parking. The Property has or will have upon Substantial Completion
sufficient parking spaces to comply with all applicable Laws. The Separate
Property currently has sufficient parking spaces to comply with all applicable
Laws.

4.27 Zoning.

(a) The Property is duly and validly zoned for use as a residential apartment or
condominium project with ground floor retail with the number of units
contemplated by the Plans and Specifications and for commercial uses, as the
case may be. Such zoning is unconditional and no attacks or challenges are
pending or to the best knowledge of Borrower, threatened with respect thereto.
Neither such zoning nor any other right to construct or use the Property is in
any way dependent upon or related to any real property other than the Property.

(b) All of the Separate Property is duly and validly zoned for its present use.
Such zoning is unconditional and no attacks or challenges are pending or to the
best knowledge of Borrower or the Separate Property Owner, threatened with
respect to thereto. Neither such zoning nor any other right to construct or use
any legally separate parcel or part of the Separate Property is in any way
dependent upon or related to any real property other than such legally separate
parcel or part.

4.28 Violations. No written notice has been received by Borrower or the Separate
Property Owner from any Governmental Agency alleging any violation by or on the
Property or any portion of the Separate Property of any applicable Laws,
including Environmental Laws.

4.29 Leases. There are no leases or occupancy agreements affecting the Property
or the Separate Property other than the Leases described on Schedule 4.29
hereto.

4.30 Patriot Act. Neither Borrower nor the Separate Property Owner nor any of
their respective officers, directors, shareholders, partners, members or
affiliates (including the indirect holders of equity interests in Borrower or
the Separate Property Owner) is or will be an entity or person: (i) that is
listed in the Annex to, or is otherwise subject to the provisions of Executive
Order 13224 issued on September 24, 2001 (“EO13224”); (ii) whose name appears on
the United States Treasury Department’s Office of Foreign Assets Control
(“OFAC”) most current list of “Specifically Designated National and Blocked
Persons” (which list may be published from time to time in various mediums
including, but not limited to, the OFAC website,
http://www.treas.gov/ofac/t11sdn.pdf); (iii) who commits, threatens to commit or
supports “terrorism”, as that term is defined in EO13224; or (iv) who is
otherwise affiliated with any

 

30

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

entity or person listed above (any and all parties or persons described in
clauses (i) – (iv) above are herein referred to as a “Prohibited Person”).

4.31 Management Agreements. There currently exist no Management Agreements with
respect to the Property or the Separate Property or any portion thereof.
Borrower or an Affiliate of Borrower will manage the Property and the Separate
Property Owner or an Affiliate thereof will manage the Separate Property as of
the Closing.

4.32 Loan Proceeds And Adequacy. The undisbursed Loan proceeds, together with
funds in the Construction Reserve and the Construction Draw Account, and funds
required to be deposited into the Additional Equity Reserve pursuant to
Section 6.28 hereof, are sufficient to construct and complete the Improvements
in the Construction in accordance with the terms and conditions of this
Agreement and the other Loan Documents.

4.33 Construction Matters.

(a) Except as disclosed in Part II of Schedule 1.1(B) hereto, the Plans and
Specifications set forth all of the plans and specifications in sufficient
detail as is necessary for Final Completion, and when construction is completed
in accordance with the Plans and Specifications, the Property shall contain all
the Improvements contemplated by the Construction. The copies of the Plans and
Specifications delivered to Lender reflect all change orders made or implemented
by Borrower prior to Closing which, by their nature affect the Plans and
Specifications. As of Closing Borrower has not issued any construction change
directives to Construction Manager, any Prime Contractor or any Design-Builder
which directives are not fully reflected in such change orders and in such Plans
and Specifications as delivered.

(b) Except as disclosed in Part II of Schedule 1.1(D) hereto or in Part II of
Schedule 1.1(E), as applicable, the Prime Contracts with the Prime Contractors
and the Design-Build Prime Contracts with the Design-Builders, considered in the
aggregate, cover all labor, material and equipment required by the Plans and
Specifications to complete the Improvements in accordance with the Contract
Documents and the Loan Documents.

(c) Excepting only the Designers listed in Schedule 1.1(C) hereto, neither
Borrower nor any predecessor in interest to Borrower has entered into any
contract or agreement with any Person pursuant to which such Person agreed to
provide design or design related services in relation to the Construction or to
perform any part of the Construction, or did provide such services or perform
such Construction.

(d) Borrower has entered into agreements, including informal time and material
billing arrangements, with secondary consultants who have provided
various ancillary services in relation to the Project, including without
limitation (i) WET Enterprises, Inc., (ii) Citadel Consulting Incorporated,
(iii) Energy Code Works Inc., (iv) C.S. Caulkins Co., Inc., (v) Fuscoe
Engineering, Inc., (vi) Simpson Gumpertz Heger, Inc., (vii) Southwest Certified
Construction, Inc., (viii) Special Inspection Services, Inc., and Alice Cottrell
Interior Design. Except as disclosed and included in the Construction Budget,
all such secondary consultants have completed their work and have been paid in
full for any services provided to Borrower or in relation to the Project. No
part of any work performed by any such secondary consultant (i) is

 

31

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

included in the Plans and Specifications, or (ii) has been or will be
incorporated into or relied upon for purposes of completion of the
Project. Notwithstanding the foregoing, Borrower hereby acknowledges assignment
to Lender, pursuant to the Assignments of Licenses and Contracts, of any right
of Borrower pursuant to any agreement with any such secondary consultant in
relation to the Project, including any rights to any design, drawing,
calculation, or other document prepared by such secondary consultant in relation
to the Project. Lender herby waives any requirement that any such secondary
consultant consent to such assignment.

(e) Services under any Design Agreements with any of the Designers listed in
Part III of Schedule 1.1(C) (“Terminated Designers”) have been terminated, such
Terminated Designers have been paid in full for any services provided prior to
such termination, and no part of any work performed by any such Terminated
Designer (i) is included in the Plans and Specifications, or (ii) has been or
will be incorporated into or relied upon for purposes of completion of the
Project. Notwithstanding the foregoing, Borrower hereby acknowledges assignment
to Lender, pursuant to the Assignment of Design Agreements, of any residual
rights of Borrower pursuant to the terminated Design Agreement with each of the
Terminated Designers, including any rights to any design, drawing, calculation,
or other document prepared by such Terminated Designer in relation to the
Project. Lender hereby waives the requirement that any Terminated Designer
consent to such assignment.

(f) Services under any Design Agreements with any of the Designers listed in
Part IV of Schedule 1.1(C) have been completed and such Designers have been paid
in full for any services provided.

(g) Subject only to payment of fees reflected in the Construction Budget, all
utility and municipal services required for the Construction, occupancy, and
operation of the Property, including, but not limited to, water supply, storm
and sanitary sewage disposal systems, gas, electric and telephone facilities,
are or will be available for use and tap on at the boundaries of the Property,
and written permission has been or will be obtained from the applicable utility
companies or municipalities to connect the Improvements to each of said
services.

(h) The storm and sanitary sewage disposal system, water system and all
mechanical systems of the Property do (or when completed in accordance with the
Plans and Specifications will) comply with all applicable Laws, including,
without limitation, all Environmental Laws. The applicable environmental
protection agency, pollution control board and/or all other governmental
agencies having jurisdiction over the Property have, to the extent required by
applicable Law, issued their permits for the construction, tap on and operation
of those systems.

(i) When completed in accordance with the Plans and Specifications, no
Improvements will encroach upon any building line, set back line, sideyard line,
or any recorded or visible easement (or other easement of which Borrower has
knowledge).

(j) Except as disclosed by Part II of Schedule 1.1(B) hereto, the Plans and
Specifications are complete in all material respects, containing all detail
required for the Construction and the Improvements, when built and equipped in
accordance therewith, shall be

 

32

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

ready for the intended use thereof and shall comply with the requirements of the
Loan Documents.

(k) Upon Substantial Completion, the use, occupancy and operation thereof will
not violate: (a) any Laws applicable to the Property or the Construction, use,
occupancy or operation thereof, or (b) any contractual arrangements of Borrower
with third parties or any covenants, conditions, easements, rights of way or
restrictions of record. Neither Borrower nor any agent of Borrower nor (to
Borrower’s actual knowledge) any other Person has received any notice, written
or otherwise, alleging any such violation. Upon Substantial Completion in
accordance with the Contract Documents, the Property will be in full compliance
with all then applicable Laws, including zoning requirements (including, without
limitation, those relating to setbacks, height, parking, floor area ratio and
percentage of land coverage) and will be constructed in accordance and in
compliance with any and all Licenses, Permits and Approvals. No right to any off
site facilities is necessary to insure compliance by the Property with all Laws
(including, but not limited to, environmental protection, public highway, water
use, zoning, building, fire, health, safety or similar statutes, Laws,
ordinances, codes, rules, regulations, orders and decrees) applicable to the
Property.

(l) Borrower has delivered to Lender copies of all preliminary 20-day notices
(given under California Civil Code Section 3097) received by Borrower prior to
the Closing Date, whether from a Prime Contractor, Design-Builder, any of their
subcontractors or any other person. Such preliminary 20-day notices are listed
on Schedule 4.33(i) hereto.

(m) To Borrower’s best knowledge, after due and diligent inquiry of the Prime
Contractors and the Design-Builders, attached as Schedule 4.33(j) hereto is a
true and complete listing of all subcontractors engaged by the Prime Contractors
and the Design-Builders with respect to the Project.

(n) Borrower as contracting owner party to each of the Prime Contracts and the
Design-Build Prime Contracts, whether by assignment or otherwise, is exempt from
the security requirements of California Civil Code Section 3110.5 pursuant to
paragraph (f)(2) of such section. In this regard, Borrower is a qualified
private company within the meaning of such paragraph.

4.34 Borrower’s Required Equity. Prior to the date hereof and as more
particularly itemized on Schedule 4.34 hereto, Borrower has invested an amount
not less than Borrower’s Required Equity in cash equity into the acquisition and
development of the Property and the Construction.

ARTICLE 5

CONSTRUCTION COVENANTS

5.1 Commencement and Completion Of Construction.

(a) As of Closing, Borrower has commenced Construction. Within five (5) Business
Days after Closing, Borrower shall inform each Prime Contractor listed in Part I
of Schedule 1.1(D) hereto, each Design-Builder listed in Part I of Schedule
1.1(E) hereto, each Designer listed in Part I of Schedule 1.1(C) hereto and each
of their subcontractors of the

 

33

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

Closing and the address and identity of Lender in the form of Exhibit F hereto
of which Borrower is aware after due inquiry. Every additional Prime
Contractors, Design-Builders, or Designer who may be engaged in relation to the
Project pursuant to Section 5.4(e), Section 5.5(e), or Section 5.6(e) as
applicable shall be informed of the address and identity of Lender, by delivery
of a writing in similar form to such Exhibit F, prior to or at the time of
execution of the relevant additional Prime Contract, Design-Build Prime
Contract, or Design Agreement.

(b) By the Substantial Completion Date, Borrower shall cause the following to
occur:

(1) The Construction of the Property and the Improvements will have been
Substantially Complete;

(2) Borrower will have furnished Lender with unconditional lien waivers,
subordination of liens and sworn statements from each Prime Contractor, each
Design-Builder, each Designer, the Architect and their subcontractors and
material suppliers covering all work under their respective agreements other
than retainage amounts and amounts necessary to pay for Punchlist Items;

(3) Borrower shall have furnished Lender with: (i) a temporary or final
certificate of occupancy for the Property from the applicable governmental
authority having jurisdiction thereof (provided that if a temporary certificate
of occupancy is obtained, Borrower shall have a continuing obligation hereunder
to diligently pursue the issuance of the final certificate of occupancy
thereafter and shall renew, if applicable, the temporary certificate until the
final certificate of occupancy is obtained); and (ii) such other certificates,
approvals, licenses and permits of any governmental authority required (or
customarily procured) concerning the then existing development, construction,
use, occupancy and operation of the Property;

(4) Borrower shall have furnished to Lender a certificate from Borrower,
currently dated, certifying that: (a) no notices from any Governmental Agency of
any claimed violations of applicable Laws arising from the Construction,
development or operation of the Property which have not been cured were served
upon Borrower or, to the best of Borrower’s knowledge, any contractor or
subcontractor or their respective agents or representatives and (b) Borrower is
not aware of any circumstances which could give rise to the issuance of any such
notice of claimed violation;

(5) Borrower shall have furnished to Lender a certificate from the Architect
and/or the Designers, as applicable, stating that: (i) the Property has achieved
Substantial Completion, and (ii) the Improvements as so completed complies with
all Laws applicable to the performance by Architect and the Designers of the
scope of their duties;

(6) Borrower shall have furnished to Lender a title continuation letter in the
full amount of the Loan and the applicable Title Policy shall otherwise conform
with the requirements of this Agreement;

 

34

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

(7) Borrower shall have caused the Condominium Documents to be completed and
approved by Lender and shall have otherwise created a valid condominium regime
at the Property in compliance with Section 6.30 hereof under the Condominium
Act;

(8) Borrower shall have filed a notice of completion as contemplated by
California Civil Code Section 3093.

(9) Borrower shall have commenced the sale or rental of Condominium Units
subject to the terms and conditions of this Agreement.

On or before the Substantial Completion Date, Lender shall be satisfied that all
elements of the definition of Substantial Completion shall have been completed
and performed, which determination shall be based in part upon a certificate
from the Construction Consultant, in form and substance satisfactory to Lender,
that the Property has achieved Substantial Completion.

(c) On or before the Final Completion Date, Borrower shall:

(1) Cause all Punchlist Items for the Property to be 100% completed and fully
paid for and shall have received final unconditional lien waivers in the form of
Exhibit E-8 attached hereto from each Prime Contractor, Design-Builder,
subcontractor and materialman involved in the Construction, including, without
limitation, the Punchlist Items, without any outstanding liens, demands or
claims.

(2) Cause each document or instrument to have been recorded or filed as
necessary under applicable Law to commence, shorten or terminate any period for
statutory liens of mechanics with respect to the Improvements.

(3) Deliver to Lender either a Los Angeles Department of Building and Safety
Inspection Record/Final Permit Card or a final certificate of occupancy for the
Property from the applicable governmental authority having jurisdiction thereof
if only a temporary certificate of occupancy was delivered under
Section 5.1(b)(3) hereof.

(4) Deliver to Lender a full set of ‘as-built’ Plans and Specifications for all
completed Improvements.

(d) If Borrower has not delivered a final certificate of occupancy for the
Property under subparagraph (c)(3) above, then Borrower shall deliver a final
certificate of occupancy for the Property from the applicable governmental
authority having jurisdiction thereof on or before the date nine (9) months
following the Substantial Completion Date.

5.2 Construction Schedule.

(a) Completion. Attached hereto as Schedule 5.2 is a projected schedule for the
Property (the “Construction Schedule”) for the progress of development and the
Construction, including, without limitation, a trade by trade break down of the
anticipated periods of the progress of Construction and Substantial Completion
and setting forth the monthly projected disbursements from the Construction Draw
Account throughout the construction period

 

35

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

and a construction progress schedule reflecting, among other things, the
anticipated dates of completion of and the timing of disbursements of
incremental amounts of various subcategories of the construction budget, all in
such form and containing such detail as Lender shall reasonably require.
Borrower shall not amend or modify the Construction Schedule, except in
accordance with the provisions of this Section 5.2.

(b) Lender Approval. The Construction Schedule includes appropriate allowance
for the Lender’s review and approval where and as required by the Loan
Documents, including without limitation approval of all additional agreements
with Designers, Prime Contractors, or Design Builders required for the
completion of the Plans and Specifications and/or completion of the
Construction, all of which agreements are described in either Part II of
Schedule 1.1(C) hereto, Part II of Schedule 1.1(D) hereto, or Part II of
Schedule 1.1(D) hereto. Borrower acknowledges and accepts (a) the obligation,
pursuant to the Loan Documents (including without limitation Sections 5.4(f)
5.5(f), and Section 5.6(f) hereof, as applicable) to employ only properly
qualified, certified, registered and/or licensed designers and contractors in
relation to the Construction, and (b) Lender’s rights, pursuant to the Loan
Documents (including without limitation Sections 5.4(e), 5.5(e), 5.6(e), 5.8(b),
and 6.18 hereof, as applicable) to prior approval of any new agreement or
modification to any existing agreement with any Designer, Prime Contractor, or
Design-Builder.

(c) Amendment to Construction Schedule. The Construction Schedule shall provide
that the Construction contemplated by the Contract Documents will be
Substantially Complete on or before the Substantial Completion Date. It shall
constitute an Event of Default hereunder, and Lender shall no longer be
obligated to make disbursements hereunder, in the event that (i) Construction is
not proceeding in accordance with and is behind the Construction Schedule,
subject to subparagraph (d) below, and Borrower fails to cause the Construction
to conform to the Construction Schedule within thirty (30) days of Lender’s
notice to Borrower of such delay, or (ii) Lender determines in its commercially
reasonable discretion that Borrower will not likely achieve Substantial
Completion on or prior to the Substantial Completion Date or Final Completion by
the Final Completion Date, subject to subparagraph (d) below.

(d) Force Majeure. If the progress of the Construction is directly affected and
delayed by Force Majeure, Borrower must notify Lender in writing within ten
(10) days after Borrower obtains actual knowledge of the event which causes the
Force Majeure, which notice shall specify in sufficient detail the events
causing the Force Majeure, Borrower’s best estimate of the delay in construction
to be caused by the Force Majeure and how Borrower intends to respond to the
event of Force Majeure. So long as (i) no Event of Default has occurred and is
continuing, and (ii) such Force Majeure shall not cause or result in a default
violation by Borrower under any Management Agreement, any Prime Contract or any
of the Licenses, Permits and Approvals, Lender shall extend the Substantial
Completion Date, by a period of time equal to the period of the Force Majeure if
and only if Borrower deposits into the Interest Reserve any amount determined
necessary by Lender to cause the balance in the Interest Reserve to be
sufficient to pay debt service under the Loan during the period of delay (but in
no event shall said relief exceed ninety (90) days in the aggregate). Any such
extension, however, shall not affect the time for performance of, or otherwise
modify, any of Borrower’s other obligations under this Agreement or any other
Loan Document or the Maturity Date.

 

36

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

(e) Insignificant Setbacks. So long as the Construction is less than ten
(10) days behind the Construction Schedule and Borrower reasonably anticipates
that Borrower will achieve Substantial Completion by the Substantial Completion
Date, Borrower shall have no obligation to inform Lender or the Construction
Consultant or to revise the Construction Schedule. If the Construction is ten
(10) Business Days or more behind the Construction Schedule, Borrower shall
inform Lender and the Construction Consultant and shall prepare for Lender’s
approval, by delivery to Lender and Construction Consultant within three
(3) days after Borrower recognizes, or should have recognized the delay, a
revised Construction Schedule, which shall identify with specificity Borrower’s
requested changes and shall be accompanied by Borrower’s written statement of
the reason for each change. Lender shall approve or disapprove the revised
Construction Schedule within five (5) Business Days of receipt of Borrower’s
complete submission in accordance with the preceding sentence. If Lender’s
approval of the revised Construction Schedule is required pursuant to this
Section, Lender need make no further disbursements of the Loan or the Reserves
unless and until Lender approves the revised Construction Schedule; provided
that, if Lender approves a change order, and such change order contemplates a
modification to the Construction Schedule, such modification to the Construction
Schedule shall be deemed approved upon Lender’s approval of the change order.

5.3 Construction Budget.

(a) Budget. The Construction Budget delivered by Borrower prior to the execution
of this Agreement contains a detailed full cost preliminary budget for the
Construction and the Final Completion, setting forth a breakdown and itemization
of all costs and expenses of every kind and nature to be incurred in order to
complete the Construction, in accordance with the Contract Documents
(segregating on a line item by item basis) all direct construction costs and
indirect construction costs which are otherwise necessary to make the Property
ready for its full use, occupancy and operation, together with a trade payment
breakdown containing details of amounts anticipated to be payable for each
category of work to be performed and materials to be supplied in connection with
the Construction, containing a contingency in the amount of not less than
$5,037,644.30 with respect to Hard Costs and $545,405.00 with respect to Soft
Costs, and otherwise in such form and containing such other details and
information as Lender shall reasonably require, as same may be amended from time
to time pursuant to the provisions of this Agreement with Lender’s prior written
consent as provided herein.

(b) Completion of Plans and Specification; fees and costs of Additional
Designers, Prime Contractors, or Design Builders. The Construction Budget
properly and fully accounts for all fees and costs associated with portions of
the Plans and Specifications not yet complete, all of which are disclosed by
Part II of Schedule 1.1(B) hereto, and with the completion of the Construction,
including without limitation fees, overhead costs, reimbursable expenses and
other charges of any Designer, Prime Contractor, or Design Builder not yet under
contract which Borrower, Construction Manager, or, to the best of Borrower’s
knowledge, any Designer, Prime Contractor, or Design Builder currently under
contract expects to employ in association with the completion of the Plans and
Specifications or the performance of the remaining work of Construction, all of
which are disclosed by either Part II of Schedule 1.1(C) hereto, Part II of
Schedule 1.1(D) hereto, or Part II of Schedule 1.1(D) hereto.

 

37

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

(c) Fees to Affiliates. The Construction Budget shall not contain any line items
payable to and no portion of the proceeds of the Loan shall be paid to Borrower
or any Affiliate of Borrower except as set forth on Schedule 4.20 hereto.

(d) Contingency Line Items. Subject to the prior written approval of Lender,
Borrower may revise the Construction Budget from time to time to move
(i) amounts available under any line item for Hard Costs that are designated as
“Contingency” to other line items for Hard Costs in the Construction Budget,
and/or (ii) amounts available under any line item for Soft Costs that are
designated as “Contingency” to other line items for Soft Costs in a Construction
Budget provided that Lender may require that Borrower maintain a minimum
contingency at all times until Substantial Completion of not less than five
percent (5%) of remaining Hard Costs and four percent (4%) of the remaining Soft
Costs or such lesser amount that Lender may approve in its sole and absolute
discretion.

(e) Cost Savings. If there is a Cost Saving in a particular line item of a
Construction Budget, and if such Cost Saving is substantiated by evidence
reasonably satisfactory to Lender and verified by the Construction Consultant,
then Borrower shall have the right, upon prior written approval of Lender, to
reallocate such Cost Saving to another line item with respect to which
additional costs have been or may be incurred in the Construction Budget or to a
“Contingency” line item in that Construction Budget; provided, however, that
Borrower shall in no event or under any circumstances have the right to:

(1) reallocate any portion of the line items for interest, fees and other
expenses payable hereunder prior to Final Completion;

(2) reallocate any savings in any line item for Hard Costs to a line item other
than another Hard Costs line item, without in each instance obtaining the prior
approval of Lender and verification by the Construction Consultant, which
approval may be withheld in the sole and absolute discretion of Lender; or

(3) cause a reallocation to occur that in the opinion of Lender, its counsel or
Title Company will be in contravention of applicable Law with respect to Liens,
or that in the opinion of Lender, its counsel or Title Company will adversely
affect or impair in any manner whatsoever the lien or the priority of lien of
the applicable Deed of Trust.

(f) Determination of Cost Savings. For the purposes hereof, “Cost Saving” shall
be defined and determined as follows:

(1) if the component of the Construction (other than interest on the Loan
payable hereunder) which is the subject of a line item shall be determined by
Lender and verified by the Construction Consultant to have been completed
without the expenditure of the entire amount allocated in the Construction
Budget to such line item, and all Prime Contractors, Design-Builders,
subcontractors and other Persons have been paid in full for work performed and
materials provided with respect to the component of the Construction which is
the subject of such line item other than applicable retainage, the difference
between the amount of such line item in the Construction Budget and the

 

38

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

amount so expended for such line item (including applicable retainage) shall be
deemed to be a Cost Saving.

(2) if prior to the completion of the component of the Construction which is the
subject of a line item with respect to the Property (other than the line item
for interest payable hereunder or any line item designated as “Contingency”),
Borrower shall demonstrate to Lender’s and the Construction Consultant’s
satisfaction that upon completion of such component, a Cost Saving will be
realized pursuant to clause a. above with respect to such component, the amount
of such Cost Saving which is demonstrated to Lender’s satisfaction shall be
deemed to be a Cost Saving.

(3) Borrower shall not be permitted to create any new line items without
Lender’s prior written consent and, if created with Lender’s consent, the line
item designated ‘Contingency’ may not be reallocated to any such new line item,
without Lender’s prior written consent. To the extent not paid for by
reallocating the line item designated as “Contingency” or Cost Savings, any new
line items shall be paid for by Borrower from sources other than Loan proceeds.

5.4 Prime Contracts.

(a) Existing and Additional. Borrower and the Prime Contractors listed in Part I
of Schedule 1.1(D) hereto have entered into Prime Contracts, pursuant to which
such Prime Contractors are to perform portions of the Construction, and Borrower
shall enter into certain additional Prime Contracts, all of which are described
in Part II of Schedule 1.1(E) hereto, with other Prime Contractors, pursuant to
which such Prime Contractors will perform other portions of the work as
necessary to complete Construction.

(b) Delivery. Borrower has delivered to Lender full, accurate and complete
copies of the Prime Contracts with each of the Prime Contractors listed in Part
I of Schedule 1.1(D) hereto, and Borrower shall deliver to Lender, promptly upon
Borrower’s execution thereof, full, accurate and complete copies of (i) any
amendment, addendum, supplement, or other modification or addition to any such
contract, and (ii) any other Prime Contract, including without limitation those
described in Part II of Schedule 1.1(D) hereto.

(c) Performance. Borrower shall require each Prime Contractor to perform in
accordance with the terms of its Prime Contracts and shall not terminate, amend,
modify or alter the responsibilities of any Prime Contractor under its Prime
Contract without Lender’s prior written consent.

(d) Assignment and Consent. Borrower shall execute an assignment of each Prime
Contract, including an such contract entered into after the Closing Date,
assigning to Lender all of Borrower’s rights under each Prime Contract, as
security for Borrower’s obligations under this Agreement and the other Loan
Documents and shall deliver to Lender consents to each such assignment
(excepting only such consents as may be expressly waived in writing by Lender,
any such waiver being at Lender’s sole and absolute discretion) executed by each
Prime Contractor party to any Prime Contract in form acceptable to Lender.

 

39

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

(e) Additional Contracts. Borrower shall not enter into any additional Prime
Contract, including without limitation any contract described in Part II of
Schedule 1.1(D), without the prior written consent of Lender, which consent
shall not be unreasonably withheld. Lender shall respond to Borrower’s request
for approval of additional Prime Contracts within five (5) Business Days after
Borrower’s written request and submission of (i) the form of proposed Prime
Contract, (ii) an assignment of such contract, executed by Borrower, in form
acceptable to Lender, (iii) a consent to such assignment (with provisions
subordinating such Prime Contractor’s rights under the relevant Prime Contract
to Lender’s rights under the Loan Documents and with an estoppel in respect of
the terms and conditions of and amounts payable to such Prime Contractor in
relation to such Prime Contract), executed by the Prime Contractor party to such
agreement, in form acceptable to Lender, (iv) evidence of required insurance
coverage, (v) a dual-obligee performance bond (if and as required), and
(vi) such other evidence of capacity, qualifications, or other relevant matters
as Lender may reasonably require.

(f) Qualifications. Every Person performing any part of the Construction shall
perform such construction pursuant to a Prime Contract or a Design-Build Prime
Contract approved by Lender and shall at all relevant times be a contractor
qualified and appropriately (and currently) certified, registered and/or
licensed to perform such construction in the State of California.

5.5 Design-Build Prime Contracts.

(a) Existing and Additional. Borrower and the Design-Builders listed in Part I
of Schedule 1.1(E) hereto have entered into Design-Build Prime Contracts,
pursuant to which such Design-Builders are to provide design services to certain
portions the Construction and to perform such portions of the Construction, and
Borrower shall enter into certain additional Design-Build Prime Contracts, all
of which are described in Part II of Schedule 1.1(E) hereto, with other
Design-Builders, pursuant to which such Design Builders will provide design
services related to other portions of the Construction as necessary to complete
the Plans and Specifications and perform such other portions of the work as
necessary to complete the Construction.

(b) Delivery. Borrower has delivered to Lender full, accurate and complete
copies of the Design-Build Prime Contracts with each of the Designer-Builders
listed in Part I of Schedule 1.1(E) hereto, and Borrower shall deliver to
Lender, promptly upon Borrower’s execution thereof, full, accurate and complete
copies of (i) any amendment, addendum, supplement, or other modification or
addition to any such contract, and (ii) any other Design-Build Prime Contracts,
including without limitation those described in Part II of Schedule 1.1(E)
hereto.

(c) Performance. Borrower shall require each Design-Builder to perform in
accordance with the terms of its Design-Build Prime Contracts and shall not
terminate, amend, modify or alter the responsibilities of any Design-Builder
under its Design-Build Prime Contract without Lender’s prior written consent.

(d) Assignment and Consent. Borrower shall execute an assignment of each
Design-Build Prime Contract, including an such contract entered into after the
Closing Date,

 

40

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

assigning to Lender all of Borrower’s rights under each Design-Build Prime
Contract, along with any and all Plans and Specifications not or hereafter
prepared pursuant to such contract, as security for Borrower’s obligations under
this Agreement and the other Loan Documents, and shall deliver to Lender
consents to each such assignment (excepting only such consents as may be
expressly waived in writing by Lender, any such waiver being at Lender’s sole
and absolute discretion) executed by each Design-Builder party to any
Design-Build Prime Contract in form acceptable to Lender.

(e) Additional Contracts. Borrower shall not enter into any additional
Design-Build Prime Contract, including without limitation any contract described
in Part II of Schedule 1.1(E), without the prior written consent of Lender,
which consent shall not be unreasonably withheld. Lender shall respond to
Borrower’s request for approval of additional Design-Build Prime Contracts
within five (5) Business Days after Borrower’s written request and submission of
(i) the form of proposed Design-Build Prime Contract, (ii) an assignment of such
contract, executed by Borrower, in form acceptable to Lender, (iii) a consent to
such assignment (with provisions subordinating such Prime Contractor’s rights
under the relevant Prime Contract to Lender’s rights under Loan Documents and
with an estoppel in respect of the terms and conditions of and amounts payable
to such Prime Contractor in relation to such Prime Contract), executed by the
Design-Builder party to such agreement, in form acceptable to Lender,
(iv) evidence of required insurance coverage, (v) a dual-obligee performance
bond (if and as required), and (vi) such other evidence of capacity,
qualifications, or other relevant matters as Lender may reasonably require.

(f) Qualifications. Provisions of either Section 5.6(f) hereof or Section 5.4(f)
hereof, as applicable shall apply to Person providing service in relation to the
Construction or performing any part of the Construction pursuant to a
Design-Build Prime Contract.

5.6 Design Agreements.

(a) Existing and Additional. Borrower and the Designers listed in Part I of
Schedule 1.1(C) hereto have entered into Design Agreements, pursuant to which
such Designers are to provide services in relation to the Construction, and
Borrower shall enter into certain additional Design Agreements, all of which are
described in Part II of Schedule 1.1(C) hereto, with other Designers pursuant to
which such other Designers will provide other services in relation to the
Construction as necessary to complete the Plans and Specifications.

(b) Delivery. Borrower has delivered to Lender full, accurate and complete
copies of the Design Agreements with each of the Designer-Builders listed in
Part I of Schedule 1.1(C) hereto, and Borrower shall deliver to Lender, promptly
upon Borrower’s execution thereof, full, accurate and complete copies of (i) any
amendment, addendum, supplement, or other modification or addition to any such
contract, and (ii) any other Design Agreements, including without limitation
those described in Part II of Schedule 1.1(C) hereto.

(c) Performance. Borrower shall require each Designer to perform in accordance
with the terms of its respective Design Agreements and shall not amend, modify
or alter the responsibilities of the Designers under such agreements or
contracts without Lender’s prior written consent.

 

41

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

(d) Assignment and Consent. Borrower shall execute the Assignment of Design
Agreements assigning all Design Agreements and any Plans and Specifications now
or hereafter prepared pursuant to any Design Agreement to Lender as additional
security for Borrower’s performance under this Agreement and the other Loan
Documents, and shall deliver to Lender consents to such assignment executed by
each Designer party to any such Prime Contract in form acceptable to Lender
(excepting only such consents as may be expressly waived in writing by Lender,
any such waiver being at Lender’s sole and absolute discretion).

(e) Additional Agreements. Borrower shall not enter into any additional Design
Agreement, including without limitation any agreement described in Part II of
Schedule 1.1(C), without the prior written consent of Lender, which consent
shall not be unreasonably withheld. Lender shall respond to Borrower’s request
for approval of additional Design Agreements within five (5) Business Days after
Borrower’s written request and submission of (i) the form of proposed Design
Agreement, (ii) a consent to the assignment of such agreement to Lender (with
provisions subordinating such Designer’s rights under the relevant Design
Agreement to Lender’s rights under the Loan Documents and with an estoppel in
respect of the terms and conditions of and amounts payable to such Designer in
relation to such Design Agreement), executed by the Designer party to such
agreement, (iii) evidence of required insurance coverage, and (iv) such other
evidence of capacity, qualifications, or other relevant matters as Lender may
reasonably require.

(f) Qualifications. Every Person providing engineering or other design or design
related services in relation to the Construction shall provide such services
pursuant to a Design Agreement or a Design-Build Prime Contract approved by
Lender and shall at all relevant times be an engineer or other design
professional qualified and appropriately (and currently) certified, registered
and/or licensed to provide such services in the State of California.

5.7 Plans And Specifications.

(a) Existing and Additional. The Architect, the Designers listed in Part I of
Schedule 1.1(C) hereto, and the Design-Builders listed in Part I of Schedule
1.1(E) hereto have prepared the Plans and Specifications described in Part I of
Schedule 1.1(B), in accordance with which the Construction has been and is being
performed, and the Borrower shall cause the Architect, the Designers, and the
Design Builders to prepare certain additional documents and instructions, all of
which are described in Part II of Schedule 1.1(B) hereto, as necessary to
complete the Plans and Specifications so as to set forth all of the plans and
specifications in sufficient detail as is necessary for Final Completion and to
assure that the Improvements, when built and equipped in accordance therewith,
shall be ready for the intended use thereof and shall comply with the
requirements of the Loan Documents.

(b) Changes; Lender Consent. Except as otherwise provided in this Agreement,
Borrower shall not make any changes in the Plans and Specifications without
Lender’s prior written consent if such change: (i) constitutes a change in the
building material or equipment specifications, or in the architectural or
structural design, value or quality of any of the Improvements; (ii) would
result in an increase of construction costs in excess of $50,000 for any single
change or in excess of $250,000 for all such changes with respect to the
Property; (iii) would affect the structural integrity, quality of building
materials or equipment, or overall

 

42

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

efficiency of operating systems or utility systems of the Improvements;
(iv) would reduce the square footage of the Improvements or the number of
apartment units or any parking garage or areas of the Property or the number of
parking spaces of the Property; or (v) would change the Construction Schedule.
Without limiting the above, Lender agrees that Borrower may make minor changes
in the Plans and Specifications without Lender’s prior written consent, provided
that such changes do not violate any of the conditions specified herein and
Borrower provides immediate written notice thereof to Lender. Borrower shall at
all times maintain, for inspection by Lender, a full set of working drawings of
the Improvements.

(c) Changes; Submission Requirements. Lender shall approve or disapprove any
requests under this Section 5.7 within five (5) Business Days after receipt of
Borrower’s request and all information required hereunder or Lender determines
is otherwise necessary for Lender to make an informed decision on such request.
Borrower shall not implement any change order that requires Lender’s consent
hereunder unless Lender consents to such change order. Borrower shall not
implement any change order which affects the Plans and Specifications without
delivering to Lender updated Plans and Specifications reflecting such change
order, regardless of whether Lender’s consent to such change order is required.
Requests for any change which requires consent shall be accompanied by working
drawings to the extent appropriate to the nature of the requested change order
and a written description of the proposed change, submitted on a change order
form acceptable to Lender, signed by Borrower and by the Architect and the
Construction Manager. At its option, Lender may require Borrower to provide:
(i) evidence satisfactory to Lender of the cost and time necessary to complete
the proposed change; (ii) a deposit in the amount of any increased costs into
the Construction Reserve; and (iii) a complete set of “as built” Plans and
Specifications for completed Improvements to the extent then available.

(d) Consent Process. Any delay in Lender’s review and approval beyond the date
required under subparagraph (b) above when Lender has received all information
required in connection with Borrower’s request may extend the Substantial
Completion Date but only to the extent that such delay actually causes a delay
in the progress of the Construction and so long as the Substantial Completion
Date is not, was not or would not have been delayed by any other cause for which
Borrower is not entitled to an extension of time hereunder.

(e) Limitation on Person Preparing Plans and Specifications. No part of the
Plans and Specifications, including without limitation those documents to be
prepared or completed after Closing listed in Part II of Schedule 1.1(B) hereto,
shall at any time incorporate any plan, specification, rendering, data or work
product of any Person other than: (i) those prepared by Architect, (ii) those
prepared by a Designer, or (iii) those prepared by a Design-Builder, in each
case in accordance with all relevant provisions of this Loan Agreement.

5.8 Contractor/Subcontractor/Construction Information.

(a) Within ten (10) days of Lender’s written request, Borrower shall deliver to
Lender and Construction Consultant from time to time in a form acceptable to
Lender: (a) a list detailing the name, address and phone number of each Prime
Contractor, Designer, Design-Builder, subcontractor and material supplier to be
employed or used for the Construction known to Borrower after due and diligent
inquiry of the Prime Contractors and Design-Builders;

 

43

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

(b) copies of each contract and subcontract identified in such list, including
any changes thereto, redacted to eliminate any financial information;
(c) certificates of insurance from each Prime Contractor, Design Builder,
Designer, subcontractor and material supplier to be employed or used for the
design of the Improvements or the Construction; (d) a cost breakdown of the
projected total cost of constructing the Improvements, and that portion, if any,
of each cost item which has been incurred; and (e) a construction progress
schedule detailing the progress of construction and the projected sequencing and
completion time for uncompleted work, all as of the date of such schedule.

(b) To the extent Borrower has the right to approve any subcontract or any
subcontractor, Borrower shall not grant any such approval without Lender’s prior
written approval. Borrower agrees that Lender may, to the extent Borrower has
such right under the Prime Contracts, Design Agreement and Design-Build Prime
Contracts, disapprove any Designer, consultant, contractor, subcontractor or
material supplier which, in Lender’s determination, is deemed financially or
otherwise unqualified or which is inadequately insured or bonded; provided,
however, that the absence of any such disapproval shall not constitute a
warranty or representation of qualification by Lender. Lender may contact any
such Prime Contractor, Design-Builder, Designer, subcontractor or material
supplier with Architect or Borrower’s construction representative to discuss the
course of construction.

5.9 Prohibited Contracts. Without Lender’s prior written consent, Borrower shall
not contract for the purchase or leasing of any materials, furnishings,
equipment, fixtures or other parts or components of the Improvements, if any
third party shall retain any ownership interest (other than lien rights created
by operation of law) in such items after their delivery to the Property and
Improvements. Borrower shall have five (5) days to effect the removal of any
such retained interest. In the event Lender approves any such purchase or lease,
Borrower shall provide Lender with an estoppel and a recognition agreement from
such third party allowing Lender to acquire or lease such materials,
furnishings, equipment, fixtures or other parts or components of the
Improvements upon a foreclosure of the Deeds of Trust or transfer in lieu of
foreclosure.

5.10 Liens And Stop Notices.

(a) If a claim of lien is recorded which affects the Property or Improvements or
any portion of the Separate Property or a bonded stop notice is served upon
Lender, then Borrower, to the extent such lien or notice relates or purports to
relate to the Property or Improvements thereon, and the Separate Property Owner,
to the extent such lien or notice relates or purports to relate to the Separate
Property, shall, within thirty (30) calendar days of Borrower’s or the Separate
Property Owner’s receipt of notice of claim of lien or service: (a) pay and
discharge the claim of lien or bonded stop notice; (b) effect the release
thereof by recording or delivering to Lender a surety bond in sufficient form
and amount; or (c) provide Lender with other assurances which Lender deems, in
its sole discretion, to be satisfactory for the payment of such claim of lien or
bonded stop notice and for the full and continuous protection of Lender from the
effect of such lien or bonded stop notice.

 

44

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

(b) Within three (3) Business Days of receipt, Borrower shall deliver to Lender
copies of any preliminary 20-day notices (California Civil Code Section 3097)
received by Borrower.

5.11 Construction Responsibilities. Borrower shall cause all Improvements to be
constructed in a workmanlike manner according to the Contract Documents and the
recommendations of any engineering report approved by Lender. Borrower shall
comply with all applicable laws, ordinances, rules, regulations, building
restrictions, recorded covenants and restrictions, and requirements of all
regulatory authorities having jurisdiction over the Property or Improvements.
Borrower shall be solely responsible for all aspects of Borrower’s business and
conduct in connection with the Property and Improvements, including, without
limitation, for the quality and suitability of the Plans and Specifications and
their compliance with all governmental requirements, the supervision of the work
of construction, the qualifications, financial condition and performance of all
architects, engineers, contractors, material suppliers, consultants and property
managers, and the accuracy of all applications for payment and the proper
application of all disbursements. Lender is not obligated to supervise, inspect
or inform Borrower or any third party of any aspect of the Construction or any
other matter referred to above.

5.12 Delay. Subject to Section 5.2(d), Borrower shall promptly notify Lender in
writing of any event causing delay or interruption of Construction, or the
timely completion of Construction in accordance with the Construction Schedule.
The notice shall specify the particular work or portion of Construction delayed,
and the cause and period of each delay.

5.13 Inspections. Lender shall have the right to enter upon the Property and the
Separate Property at all reasonable times to inspect the Improvements and any
construction work to verify information disclosed or required pursuant to this
Agreement provided that Lender shall not unreasonably interfere with such work
or Construction. Any inspection or review of the Improvements by Lender is
solely to determine whether Borrower and the Separate Property Owner are
properly discharging their obligations to Lender and may not be relied upon by
Borrower, the Separate Property Owner, or any third party as a representation or
warranty of compliance with this Agreement or any other agreement. Lender owes
no duty of care to Borrower, the Separate Property Owner, or any third party to
protect against, or to inform Borrower, the Separate Property Owner, or any
third party of, any negligent, faulty, inadequate or defective design or repair,
remodeling, renovation or construction of the Improvements as determined by
Lender.

5.14 Surveys. Upon Lender’s written request, Borrower shall promptly deliver to
Lender and Construction Consultant, with respect to the Property: (a) upon
completion of the foundations of the Improvements, a survey showing the location
of the Improvements on Property and confirming that the Improvements are located
entirely within the Property and do not encroach upon any easement, or breach or
violate any governmental requirement; and (b) upon Final Completion, an as-built
survey acceptable to a title insurer for purposes of issuing an ALTA policy of
title insurance. All such surveys shall be performed and certified by a licensed
engineer or surveyor acceptable to the Title Company.

 

45

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

5.15 Set Aside Letters. If, at Borrower’s request, Lender issues any letter or
letters (“Set Aside Letter”) to any governmental agency (“Obligee”) or bonding
company (“Surety”) whereby Lender agrees to allocate Loan proceeds for the
construction of off-site, common area, or other improvements required by any
governmental agency or for which bonds or letters of credit may be required
(“Bonded Work”) in connection with the development of the Property, Borrower
represents, warrants, covenants and agrees as follows:

(a) The sum which Borrower requests Lender to allocate for the Bonded Work shall
be sufficient to pay for the construction and completion cost of the Bonded Work
in accordance with any agreement between Borrower and Obligee and a copy of such
agreement shall be furnished to Lender by Borrower prior to and as a condition
precedent to the issuance by Lender of any Set Aside Letter.

(b) Lender is irrevocably and unconditionally authorized to disburse to the
Obligee or Surety all or any portion of said allocated Loan proceeds upon a
demand of such Surety or Obligee made in accordance with the terms and
conditions of the Set Aside Letter.

(c) Any disbursements or payments which Lender makes or may be obligated to make
under any Set Aside Letter, whether made directly to the Surety, Obligee, or to
others for completion of all or part of the Bonded Work, shall be deemed a
disbursement under this Agreement to or for the benefit or account of Borrower.

(d) BORROWER SHALL DEFEND, INDEMNIFY AND HOLD HARMLESS LENDER FROM ANY CLAIM,
DEMAND, CAUSE OF ACTION, DAMAGE, LOSS OR LIABILITY, INCLUDING, WITHOUT
LIMITATION, ANY COURT COSTS AND ATTORNEYS’ FEES AND EXPENSES, WHICH LENDER MAY
SUFFER OR INCUR AS A DIRECT OR INDIRECT CONSEQUENCE OF ITS ISSUANCE OF OR
COMPLIANCE WITH ANY REQUESTED SET ASIDE LETTER. BORROWER SHALL PAY ANY
INDEBTEDNESS ARISING UNDER THIS INDEMNITY TO LENDER IMMEDIATELY UPON DEMAND OF
LENDER. BORROWER’S DUTY TO DEFEND, INDEMNIFY AND HOLD HARMLESS LENDER HEREUNDER
SHALL SURVIVE THE RELEASE AND CANCELLATION OF THE NOTE AND THE FULL OR PARTIAL
RELEASE OR RECONVEYANCE OF THE MORTGAGE OR OTHER LOAN DOCUMENTS.

(e) Lender shall have no obligation to release any collateral or security under
the Loan Documents unless and until Lender has received a full and final written
release of its obligations under each Set Aside Letter.

5.16 Loan-In-Balance. At all times prior to May 1, 2009, any undisbursed Loan
funds, plus all sums in the Construction Reserve and the Construction Draw
Account, plus the amount of Capitalization Deficiency, shall be equal to or
greater than the amount which Lender from time to time determines necessary to:
(a) pay, through Final Completion, all costs of the Construction in accordance
with the Construction Budget, the Contract Documents and the Loan Documents; and
(b) enable Borrower to perform and satisfy all of the covenants of Borrower
contained in the Loan Documents through the Final Completion (other than those
obligations for which other Reserves are maintained under this Agreement). At
all times on and after May 1, 2009, any undisbursed Loan funds, plus all sums in
the Construction Reserve, the Construction

 

46

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

Draw Account and the Additional Equity Reserve shall be equal to or greater than
the amount which Lender from time to time determines necessary to: (a) pay,
through Final Completion, all costs of the Construction in accordance with the
Construction Budget, the Contract Documents and the Loan Documents; and
(b) enable Borrower to perform and satisfy all of the covenants of Borrower
contained in the Loan Documents through the Final Completion (other than those
obligations for which other Reserves are maintained under this Agreement). If
Lender determines at any time that there are insufficient funds under the
foregoing provisions of this Section 5.16, Borrower shall deposit the amount of
such deficiency into the Construction Reserve within twenty-one (21) days of
Lender’s written demand given in accordance with Section 11.6 hereof. Lender’s
estimates of the amounts necessary to pay the foregoing amounts shall be binding
and conclusive provided it is made in good faith and absent manifest error.

5.17 Construction Consultant. Borrower shall deliver to Construction Consultant
copies of any item to be delivered to Lender by Borrower with respect to any
matter pertaining to the Construction or Substantial Completion or Final
Completion. Borrower acknowledges that (i) Construction Consultant has been
retained by Lender, to act as a consultant and only as a consultant to Lender,
in connection with the Construction and has no duty to Borrower, (ii) the
Construction Consultant shall in no event or under any circumstance have any
power or authority to make any decision or to give any approval or consent or to
do any other act or thing which is binding upon Lender, and any such purported
decision, approval, consent, act or thing by the Construction Consultant on
behalf of Lender shall be void and of no force or effect, (iii) Lender reserves
the right to make any and all decisions required to be made by Lender under this
Agreement and to give or refrain from giving any and all consents or approvals
required to be given by Lender under this Agreement and to accept or not accept
any matter or thing required to be accepted by Lender under this Agreement, and
without being bound or limited in any manner or under any circumstances
whatsoever by any opinion expressed or not expressed, or advice given or not
given, or information, certificate or report provided or not provided, by the
Construction Consultant to Lender or any other person or party with respect
thereto, (iv) Lender reserves the right in its sole and absolute discretion to
disregard or disagree, in whole or in part, with any opinion expressed, advice
given or information, certificate or report furnished or provided by the
Construction Consultant to Lender or any other person or party, and (v) Lender
reserves the right in its sole and absolute discretion to replace the
Construction Consultant with another construction consultant at any time and
without approval by or prior (but with subsequent) notice to Borrower.

5.18 Stored Materials. Borrower shall only be entitled for funds under Draw
Requests with respect to Stored Materials in accordance with Section 8.7(a)
hereof. Within three (3) Business Days after receipt of ownership or possession
of any materials to be incorporated into the Construction, Borrower shall
deliver to Lender photographs of the materials showing the Off Site Location
where such materials are stored or being assembled. Within three (3) Business
Days after any of such materials are moved to any other Off Site Location,
Borrower shall deliver new photographs of such materials showing the new
Off-Site Location.

5.19 California Civil Code Section 3110.5. Borrower shall at all times remain in
compliance with California Civil Code Section 3110.5, as amended. Borrower shall
provide to Lender within three (3) Business Days of Lender’s written request
from time to time, written evidence of compliance with such Section 3110.5 in
form and substance satisfactory to Lender.

 

47

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

ARTICLE 6

AFFIRMATIVE COVENANTS

As long as the Loan remains unpaid, or any other Obligation remains unpaid or
unperformed, unless Lender otherwise consents in writing:

6.1 Payment of Taxes and Other Potential Liens.

(a) Borrower shall pay and discharge promptly all taxes, assessments and
governmental charges or levies imposed upon Borrower, upon Borrower’s property
or any part thereof (including, but not limited to, the Property) and, upon
Borrower’s income or profits or any part thereof, except that Borrower shall not
be required to pay or cause to be paid any tax, assessment, charge or levy that
is not yet past due, that would otherwise by paid from funds in the Tax and
Insurance Reserve but for Lender’s failure to disburse such funds if obligated
to do so under this Agreement, or is being contested in good faith by
appropriate proceedings, so long as Borrower has established and maintains
adequate reserves for the payment of the same and by reason of such nonpayment
and contest no material item nor portion of any property of Borrower, nor any
portion of the Property, is in jeopardy of being seized, levied upon or
forfeited.

(b) The Separate Property Owner shall pay and discharge promptly all taxes,
assessments and governmental charges or levies imposed upon the Separate
Property Owner, upon the Separate Property Owner’s property or any part thereof
(including, but not limited to, the Separate Property) and, upon the Separate
Property Owner’s income or profits or any part thereof, except that the Separate
Property Owner shall not be required to pay or cause to be paid any tax,
assessment, charge or levy that is not yet past due, or is being contested in
good faith by appropriate proceedings, so long as the Separate Property Owner
has established and maintains adequate reserves for the payment of the same and
by reason of such nonpayment and contest no material item nor portion of any
property of the Separate Property Owner, nor any portion of the Separate
Property, is in jeopardy of being seized, levied upon or forfeited.

6.2 Preservation of Existence.

(a) Borrower shall preserve and maintain its existence as a single purpose
entity, preserve and maintain its respective licenses, rights, franchises and
privileges in the jurisdiction of its formation and all authorizations,
consents, approvals, orders, licenses, permits, or exemptions from, or
registrations with, any Governmental Agency that are necessary for the
transaction of its business, and qualify and remain qualified to transact
business in each jurisdiction in which such qualification is necessary in view
of its business or the ownership or leasing of its properties. Borrower will
cause its organizational structure to include an independent manager whose vote
is required for each of the following: (a) Borrower engaging in any business
activity other than the operation of the Property; (b) causing the dissolution
or liquidation of Borrower, in whole or in part (except as otherwise permitted
by the Loan Documents); (c) consolidating or merging Borrower with or into any
other entity or convey or transferring Borrower’s property and assets
substantially as an entirety to any entity; (d) instituting proceedings for
Borrower to be adjudicated bankrupt or insolvent, or consenting to or otherwise
acquiesce in the institution of bankruptcy proceedings or any related
proceedings

 

48

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

against Borrower, or taking any action in furtherance of any such action; or
(e) amending any provision of the organizational documents of Borrower relating
to the foregoing matters.

(b) The Separate Property Owner shall preserve and maintain its existence as a
single purpose entity, preserve and maintain its respective licenses, rights,
franchises and privileges in the jurisdiction of its formation and all
authorizations, consents, approvals, orders, licenses, permits, or exemptions
from, or registrations with, any Governmental Agency that are necessary for the
transaction of its business, and qualify and remain qualified to transact
business in each jurisdiction in which such qualification is necessary in view
of its business or the ownership or leasing of its properties. The Separate
Property Owner will cause its organizational structure to include an independent
manager whose vote is required for each of the following: (a) the Separate
Property Owner engaging in any business activity other than the operation of the
Separate Property; (b) causing the dissolution or liquidation of the Separate
Property Owner, in whole or in part (except as otherwise permitted by the Loan
Documents); (c) consolidating or merging the Separate Property Owner with or
into any other entity or convey or transferring the Separate Property Owner’s
property and assets substantially as an entirety to any entity; (d) instituting
proceedings for the Separate Property Owner to be adjudicated bankrupt or
insolvent, or consenting to or otherwise acquiesce in the institution of
bankruptcy proceedings or any related proceedings against the Separate Property
Owner, or taking any action in furtherance of any such action; or (e) amending
any provision of the organizational documents of the Separate Property Owner
relating to the foregoing matters.

(c) Pledgor shall preserve and maintain its existence as a separate entity,
preserve and maintain its respective licenses, rights, franchises and privileges
in the jurisdiction of its formation and all authorizations, consents,
approvals, orders, licenses, permits, or exemptions from, or registrations with,
any Governmental Agency that are necessary for the transaction of its business,
and qualify and remain qualified to transact business in each jurisdiction in
which such qualification is necessary in view of its business or the ownership
or leasing of its properties.

6.3 Maintenance of Properties; Compliance with Agreements. Borrower shall
maintain, preserve and protect all of Borrower’s properties and equipment in
good order and condition, subject to ordinary wear and tear; not permit any
waste of Borrower’s properties; and comply at all times in all material respects
with all material contracts so as to prevent any loss or forfeiture thereunder.

6.4 Compliance With Laws. Borrower, the Separate Property Owner, and Pledgor
shall each observe corporate formalities in the conduct of its business; comply
with the requirements of all applicable Laws and orders of any Governmental
Agency, noncompliance with which could materially adversely affect the business,
operations or condition (financial or otherwise) of it or the ability of it to
perform its Obligations.

6.5 Inspection Rights.

(a) Borrower shall, at any time during regular business hours, upon not less
than one (1) Business Day telephonic notice to Borrower, and as often as
requested, permit Lender, or any participant or co-lender in the Loan, or any
employee, agent or representative of

 

49

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

Lender or said participant or co-lender to examine, audit and make copies and
abstracts from the records and books of account of, and to visit and inspect the
Property and the Improvements of Borrower and to discuss the affairs, finances
and accounts of Borrower with any of its officers and key employees, and, upon
request, furnish promptly to Lender true copies of all financial information and
such other information in Borrower’s possession and control as Lender may
require from time to time. Lender shall have free and full access to the
Property and Improvements for the purposes of determining compliance with the
terms of the Loan Documents including, without limitation, compliance thereof
with Environmental Laws. Borrower shall provide adequate facilities for
inspection by Lender and other authorized representatives of Lender, and full
access to the Property and Improvements shall be afforded to Lender and such
persons as may be designated, from time to time, by Lender.

(b) The Separate Property Owner shall, at any time during regular business
hours, upon not less than one (1) Business Day telephonic notice to the Separate
Property Owner, and as often as requested, permit Lender, or any participant or
co-lender in the Loan, or any employee, agent or representative of Lender or
said participant or co-lender to examine, audit and make copies and abstracts
from the records and books of account of, and to visit and inspect any portion
of the Separate Property and the Improvements of the Separate Property and to
discuss the affairs, finances and accounts of the Separate Property Owner with
any of its officers and key employees, and, upon request, furnish promptly to
Lender true copies of all financial information and such other information in
Borrower’s possession and control as Lender may require from time to time.
Lender shall have free and full access to the Separate Property and the
Improvements thereon for the purposes of determining compliance with the terms
of the Loan Documents including, without limitation, compliance thereof with
Environmental Laws. The Separate Property Owner shall provide adequate
facilities for inspection by Lender and other authorized representatives of
Lender, and full access to the Separate Property and the Improvements thereon
shall be afforded to Lender and such persons as may be designated, from time to
time, by Lender.

6.6 Keeping of Records and Books of Account. Borrower and the Separate Property
Owner shall keep adequate records and books of account reflecting all financial
transactions in conformity with GAAP consistently applied, and in material
conformity with all applicable requirements of any Governmental Agency having
regulatory jurisdiction over Borrower or the Separate Property Owner; maintain
books and records and bank accounts separate from its Affiliates, and file its
own tax returns.

6.7 Maintenance of Insurance. Borrower and the Separate Property Owner shall, at
its own expense, insure its property and businesses against such losses,
casualties and contingencies (including builders’ all-risk extended coverage
insurance, public liability, property damage and liability for defamation,
libel, slander and invasion of privacy), and in such amounts as is customary in
the case of Persons engaged in similar businesses as Borrower or the Separate
Property Owner, as applicable, or, if provided for in any other Loan Document,
as provided in such Loan Document(s).

6.8 Operation of Property.

 

50

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

(a) Upon Final Completion, Borrower will lease, manage, operate and maintain the
Property in a first class manner at least consistent with newly constructed
class “A” residential apartment and condominium projects in downtown Los Angeles
and shall maintain or cause to be maintained in good repair, working order and
condition all material property used in the business of Borrower, including the
Property, and will make or cause to be made all appropriate repairs, renewals
and replacements thereof. Without limitation of the foregoing, Borrower will
operate and maintain the Property in accordance with the applicable Operating
Budget. All Work required or permitted under this Agreement shall be performed
in a workmanlike manner and in compliance with all applicable laws.

(b) The Separate Property Owner will operate and maintain the Separate Property
in a first class manner and shall maintain or cause to be maintained in good
repair, working order and condition all material property used in the business
of the Separate Property Owner, including the Separate Property, and will make
or cause to be made all appropriate repairs, renewals and replacements thereof.
Without limitation of the foregoing, the Separate Property Owner will operate
and maintain all portions of the Separate Property in accordance with the
applicable Operating Budget.

6.9 Single Purpose Entity Requirements. Supplementing the foregoing provisions
of this Article 6, for as long as the Loan remains unpaid, or any other
Obligation remains unpaid or unperformed, or any portion of the Loan remains
outstanding, in order to preserve and ensure its separate and distinct identity,
Borrower and the Separate Property Owner shall conduct its affairs in accordance
with the single purpose entity provisions set forth in the Deeds of Trust.

6.10 Copies of Notices to Lender. Borrower and the Separate Property Owner shall
immediately deliver to Lender any and all notices of default, potential default
or orders to show cause or other alleged violations with respect any Laws,
Licenses, Permits and Approvals or documents, instruments or agreements related
to the Property or the Separate Property or the other Collateral that any of
them may receive.

6.11 Maintenance of Property.

(a) Borrower shall cause the Property to be maintained in a good and safe
condition and repair. Except in connection with the Construction, the Property
shall not be removed, demolished, or materially altered (except for normal
replacement of personal property, furniture, fixtures and equipment) without the
consent of Lender. Borrower shall promptly repair, replace or rebuild any part
of the Property which may be destroyed by any casualty or become damaged, worn
or dilapidated and shall complete and pay for any structure at any time in the
process of construction or repair on the Property except as otherwise permitted
by Lender. Borrower shall not initiate, join in, acquiesce in, or consent to any
change in any private restrictive covenant, zoning law or other public or
private restriction, limiting or defining the uses which may be made of the
Property or any part thereof. If under applicable zoning provisions the use of
all or any portion of the Property is or shall become a non-conforming use,
Borrower will not cause or permit the non-conforming use to be discontinued or
any improved portion thereof to be abandoned without the express written consent
of Lender.

 

51

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

(b) The Separate Property Owner shall cause the Separate Property to be
maintained in a good and safe condition and repair. The Separate Property shall
not be removed, demolished, or materially altered (except for normal replacement
of personal property, furniture, fixtures and equipment) without the consent of
Lender. The Separate Property Owner shall promptly repair, replace or rebuild
any part of the Separate Property which may be destroyed by any casualty or
become damaged, worn or dilapidated and shall complete and pay for any structure
at any time in the process of construction or repair on the Separate Property
except as otherwise permitted by Lender. The Separate Property Owner shall not
initiate, join in, acquiesce in, or consent to any change in any private
restrictive covenant, zoning law or other public or private restriction,
limiting or defining the uses which may be made of the Separate Property or any
part thereof. If under applicable zoning provisions the use of all or any
portion of the Separate Property is or shall become a non-conforming use, the
Separate Property Owner will not cause or permit a non-conforming use of the
Separate Property to be discontinued or any improved portion of the Separate
Property to be abandoned without the express written consent of Lender.

6.12 Management Agreement.

(a) At all times, except as provided in Section 6.12(b) hereof, the Separate
Property Owner, or an Affiliate thereof, shall manage the Separate Property, and
at all times from and after Final Completion, except as provided in
Section 6.12(b) hereof, the Property shall be managed by Borrower or an
Affiliate of the Borrower.

(b) In the event Borrower or the Separate Property Owner desires to engage a
Manager as the manager of the Property or the Separate Property, as applicable,
Borrower or the Separate Property Owner, as applicable, may engage such Manager,
provided that (i) Lender has approved the Manager selected by Borrower or the
Separate Property Owner, as applicable, (ii) the terms of the management
agreement are reasonably satisfactory to Lender, and (iii) the proposed Manager
agrees to subordinate the Management Agreement, and executes an Assignment of
Management Agreement.

(c) Borrower and the Separate Property Owner, as applicable, shall diligently
perform, observe and enforce all of the terms, covenants and conditions of any
Management Agreement on the part of Borrower or the Separate Property Owner to
be performed, observed and enforced, to the end that all things shall be done
which are necessary to keep unimpaired the rights of Borrower or the Separate
Property Owner under such Management Agreement, and shall immediately send to
Lender copies of any notice to Borrower or the Separate Property Owner of any
default or potential default by Borrower or the Separate Property Owner in the
performance or observance of any of the terms, covenants or conditions of such
Management Agreement on the part of Borrower or the Separate Property Owner to
be performed and observed. Neither Borrower nor the Separate Property Owner
shall (i) surrender any Management Agreement, (ii) consent to the assignment by
a Manager of its interest under any Management Agreement, (iii) without the
prior written consent of Lender, terminate or cancel any Management Agreement,
or (iv) without the prior written consent of Lender, change, supplement, alter
or amend any Management Agreement in any respect, either orally or in writing.

 

52

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

(d) Borrower hereby, and the Separate Property Owner pursuant to the Deeds of
Trust, together assign to Lender as further security for payment of the
Obligations, all the rights, privileges and prerogatives of Borrower and the
Separate Property Owner, individually or collectively, to surrender any
Management Agreement, or to terminate, cancel, modify, change, supplement,
alter, or amend any Management Agreement in any respect without such prior
written consent of Lender and each such surrender of any Management Agreement,
or termination, cancellation, modification, change, supplement, alteration or
amendment of any Management Agreement without such prior consent of Lender shall
be void and of no force and effect.

(e) If Borrower or the Separate Property Owner shall default in the performance
or observance of any term, covenant or condition of any Management Agreement on
the part of Borrower or the Separate Property Owner to be performed or observed,
then, without limiting the generality or the other provisions of this Loan
Agreement, and without waiving or releasing Borrower or the Separate Property
Owner from any of its obligations hereunder, Lender shall have the right, but
shall be under no obligation, to pay any sums and to perform any act, or take
any action as may be appropriate to cause all of the terms, covenants and
conditions of such Management Agreement on the part of Borrower or the Separate
Property Owner to be performed or observed to be promptly performed or observed
on behalf of Borrower or the Separate Property Owner to end that the rights of
Borrower or the Separate Property Owner, as applicable, in, to and under such
Management Agreement shall be kept unimpaired and free from default. In such
event, Lender and any person designated by Lender shall have, and are hereby
granted the right to enter upon the Property or the Separate Property, as
applicable, at any time and from time to time while such default remains uncured
for the purpose of taking any such action. If a Manager shall deliver to Lender
a copy of any notice sent to Borrower or the Separate Property Owner of a
default under any Management Agreement, such notice shall constitute full
protection to Lender for any action taken or omitted to be taken by Lender in
good faith, in reliance thereon.

(f) Borrower and the Separate Property Owner shall, from time to time obtain
from the Manager under any Management Agreement to which any of them is a party
such certificates of estoppel with respect to compliance by Borrower or the
Separate Property Owner, as applicable, with the terms of such Management
Agreement as may be reasonably requested by Lender.

(g) Any sums expended by Lender pursuant to this Section 6.12 shall bear
interest at the Default Rate from the date such cost is incurred to the date of
payment to Lender, shall be deemed and constituted a portion of the Obligations,
shall be secured by the Lien of the Deeds of Trust and the other Loan Documents
and shall be immediately due and payable upon demand by Lender therefor.

6.13 Reserves. Borrower shall maintain the Reserves in accordance with the
Reserve Accounts Control Agreement and the other Loan Documents, and only permit
expenditures of revenues from the operation of the Property in accordance with
the Loan Documents.

6.14 Furniture, Fixtures and Equipment. Borrower shall furnish and equip the
common areas of the Property and shall equip the individual units with such
fixtures, fittings,

 

53

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

appliances and other personal property as shall be appropriate for the complete
and comfortable use, enjoyment, occupancy and operation of the Property as a
residential apartment or condominium complex, all of which shall be subject to
Lender’s approval.

6.15 Estoppels. Borrower shall deliver to Lender, within ten (10) Business Days
after Lender’s request, estoppel certificates from (a) all tenants under any
Lease demising any portion of the Property, (b) any Manager, or (c) Borrower,
all of which shall be reasonably satisfactory to Lender.

6.16 Reports. Borrower shall furnish such data and information relating to the
affairs, assets and liabilities of Borrower, or the construction, renovation,
operation or marketing of the Property as Lender may from time to time
reasonably request.

6.17 Inspection; Books and Records.

(a) Borrower shall keep, at its principal place of business or at the Property,
the records, books of accounting and all other applicable documents, reports and
papers relating to the Construction, development, marketing, leasing and
operation of the Property. Lender shall be entitled, at any time, upon one
(1) Business Day’s notice, to inspect the Property, all records relating
thereto, and the books and other financial records of Borrower, wherever
located, and Borrower shall cooperate with Lender in enabling Lender to
accomplish such inspection and permit Lender to make such copies as Lender may
request; provided, however, Lender’s inspection shall not unreasonably interfere
with Borrower’s operations at the Property. This authority is for Lender’s
protection only and Lender shall not be deemed to have assumed any
responsibility to Borrower or any third party as a result of any such action. If
no Event of Default has occurred and is continuing, nor any event or
circumstance exists, which with the passage of time or the giving of notice,
would constitute an Event of Default exists, Lender shall endeavor to give
Borrower prior written or oral notice of such inspection at a site other than
the Property, but Lender’s failure to give such notice shall not be a default by
Lender or a limitation on Lender’s right to inspect.

(b) The Separate Property Owner shall keep, at its principal place of business
or at the Separate Property, the records, books of accounting and all other
applicable documents, reports and papers relating to the construction,
development, marketing, leasing and operation of the Separate Property. Lender
shall be entitled, at any time, upon one (1) Business Day’s notice, to inspect
the Separate Property, all records relating thereto, and the books and other
financial records of the Separate Property Owner, wherever located, and the
Separate Property Owner shall cooperate with Lender in enabling Lender to
accomplish such inspection and permit Lender to make such copies as Lender may
request; provided, however, Lender’s inspection shall not unreasonably interfere
with the Separate Property Owner’s operations at the Separate Property. This
authority is for Lender’s protection only and Lender shall not be deemed to have
assumed any responsibility to Borrower, the Separate Property Owner, or any
third party as a result of any such action. If no Event of Default has occurred
and is continuing, nor any event or circumstance exists, which with the passage
of time or the giving of notice, would constitute an Event of Default exists,
Lender shall endeavor to give the Separate Property Owner prior written or oral
notice of such inspection at a site other than the Separate Property, but
Lender’s failure to give such notice shall not be a default by Lender or a
limitation on Lender’s right to inspect.

 

54

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

6.18 Compliance with Contracts. Without the prior written consent of Lender,
neither Borrower nor Separate Property Owner shall enter into any (a) equipment
lease, (d) agreement regarding marketing or advertising of the Property or the
Separate Property, or (e) other Contract with a term of more than one year or
which obligates Borrower or the Separate Property Owner to pay more than $50,000
in any annual period or more than $250,000 in the aggregate. All Contracts
entered into by Borrower or the Separate Property Owner shall conform to the
financial strictures of the Approved Budgets. Borrower and the Separate Property
Owner shall comply with the terms of all Contracts. Borrower and the Separate
Property Owner shall deliver to Lender copies of all amendments or changes to
the Contracts. Lender shall approve or disapprove any requests under this
Section 6.18 within five (5) Business Days after receipt of Borrower’s or the
Separate Property Owner’s request and all information required hereunder or
Lender determines is otherwise necessary for Lender to make an informed decision
on such request.

6.19 Title Exceptions. Other than the Permitted Encumbrances and any Condominium
Documents approved by Lender under Section 6.30 hereof, neither Borrower nor the
Separate Property Owner shall impose any restrictive covenants, easements,
rights of way or encumbrances upon the Property or the Separate Property without
the prior written consent of Lender.

6.20 Injunction Defense and Notice. If any proceedings are filed seeking to
enjoin or otherwise prevent or declare invalid or unlawful either (a) the
Construction, (b) any Improvement, (c) any other improvements of any part of the
Property or the Separate Property, or (d) the occupancy, maintenance or
operation of the Property or the Separate Property or any portion thereof,
Borrower, if in respect of the Property, and the Separate Property Owner, if in
respect of the Separate Property, will give prompt written notice thereof to
Lender and will cause such proceedings to be vigorously contested in good faith
and, in the event of any adverse ruling or decision, prosecute all allowable
appeals.

6.21 Lender’s Expenses. Borrower shall pay all expenses directly or indirectly
incurred by Lender or its participants in connection with the Loan and its
documentation, closing, administration and enforcement, including, without
limitation, travel costs, all recording costs, title insurance premiums, escrow
charges, costs of surveys, appraisal fees, inspection fees, legal fees, release
or reconveyance expenses, fees and costs of all other consultants to Lender or
its participants engaged in connection with the underwriting of the Loan and the
review of budgets, insurance, operation or management issues, draw requests,
change order requests and other construction and management and operation
matters and the expenses and disbursements of special counsel to Lender or its
participants. All such fees and expenses shall be paid promptly upon the
submission of statements therefor from time to time. To the extent possible, all
legal fees for the preparation and completion of this Agreement and the other
Loan Documents, and recording of security documents, shall be paid from the
proceeds of the Loan as a reimbursement of costs incurred by Lender or its
participants, and Lender is authorized to disburse all such amounts from the
Loan directly to Lender, its participants and/or to the persons or entities
providing such services. Borrower shall pay all costs and expenses of any
appraisal or reappraisal of the Property, the Separate Property and Improvements
as required by Lender’s policies or laws or regulations affecting Lender.

 

55

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

6.22 Further Assurances. Borrower and the Separate Property Owner will, at the
request of Lender, execute, deliver and furnish such documents or take such
further action as Lender may deem necessary or desirable to evidence the Loan,
perfect the security therefor, or otherwise carry out the terms of the Loan
Documents and any of the other documents delivered to Lender in connection
therewith.

6.23 No Further Liens. All equipment, personal property, fixtures and other
property subject to the lien of any security interest granted to Lender in the
Deeds of Trust shall be fully paid for by Borrower, if in relation to the
Property, and by the Separate Property Owner, if in relation to the Separate
Property, and no Lien, other than Permitted Encumbrances, shall exist thereon.
If Borrower or the Separate Property Owner enters into any equipment lease,
regardless of whether Lender’s consent is required thereto, Borrower or the
Separate Property Owner, as applicable, shall provide Lender with a copy of such
equipment lease within fifteen (15) Business Days of execution thereof and
Borrower or the Separate Property Owner shall execute and deliver to Lender
(and/or cause the lessor thereunder to execute and deliver to Lender) such
documents and instruments reasonably requested by Lender to create and perfect a
first priority security interest in the equipment lease and to ensure Lender’s
ability to assume the equipment lease and use the leased equipment upon any
foreclosure of the Deeds of Trust.

6.24 Americans With Disabilities Act Compliance. All costs of ADA compliance and
reporting shall be the sole responsibility of the Borrower, if in relation to
the Property, and of the Separate Property Owner, if in relation to the Separate
Property.

6.25 Compliance. The Improvements will not violate any applicable public or
private restrictions and will not encroach upon or overhang any easements,
rights-of-way, or land of others.

6.26 Mechanic’s Liens and Other Encumbrances.

(a) In the event that Borrower or the Separate Property Owner, as applicable,
shall fail to pay or discharge (or bond in a manner reasonably acceptable to
Lender) any mechanic’s lien, bonded stop notice or other encumbrance as provided
in Section 5.10(a) hereof, Lender, in addition to such other rights as may be
available to it, may pay and discharge such mechanic’s lien, bonded stop notice
or other encumbrance or deposit in escrow an amount sufficient to do so, and the
amount so paid or deposited shall be treated as an advance of the Loan from
Lender to Borrower or the Separate Property Owner, as applicable.

(b) Borrower or the Separate Property Owner shall not be required to pay,
discharge or remove any Lien relating to the Property or the Separate Property,
as applicable, so long as Borrower or the Separate Property Owner, as
applicable, contests in good faith such Lien or the validity, applicability or
amount thereof by an appropriate legal proceeding which operates to prevent the
collection of such amounts and the sale of the Property or any portion thereof,
so long as: (i) no Event of Default shall have occurred and be continuing,
(ii) Borrower or the Separate Property Owner, as applicable, shall have given
Lender prior written notice of its intent to contest said Lien; (iii) Borrower
or the Separate Property Owner, as applicable, shall have deposited with Lender
(or with a court of competent jurisdiction or other appropriate body approved by
Lender) such additional amounts as are necessary to keep on deposit at all
times, an

 

56

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

amount equal to at least one hundred twenty-five percent (125%) (or such higher
amount as may be required by applicable law) of the total of (x) the balance of
such Lien then remaining unpaid, and (y) all interest, penalties, costs and
charges accrued or accumulated thereon; (iv) no risk of sale, forfeiture or loss
of any interest in the Property, the Separate Property, or any part thereof
arises, in Lender’s reasonable judgment, during the pendency of such contest;
(v) such contest does not, in Lender’s reasonable determination, have a Material
Adverse Effect; and (vi) such contest is based on bona fide, material, and
reasonable claims or defenses. Any such contest shall be prosecuted with due
diligence, and Borrower or the Separate Property Owner, as applicable, shall
promptly pay the amount of such Lien as finally determined, together with all
interest and penalties payable in connection therewith. Lender shall have full
power and authority, but no obligation, to apply any amount deposited with
Lender under this subparagraph to the payment of any unpaid Lien to prevent the
sale or forfeiture of all or any part of the Property and the Separate Property
for non-payment of such Lien, if Lender reasonably believes that such sale or
forfeiture is threatened. Any surplus retained by Lender after payment of the
Lien for which a deposit was made shall be promptly repaid to Borrower or the
Separate Property Owner, as applicable, unless an Event of Default shall have
occurred, in which case said surplus may be retained by Lender to be applied to
the Obligations. Notwithstanding any provision of this Section to the contrary,
Borrower or the Separate Property Owner, as applicable, shall pay any Lien which
it might otherwise be entitled to contest if an Event of Default shall occur and
be continuing, or if, in the reasonable determination of Lender, all or any part
of the Property and Separate Property is in danger of being forfeited or
foreclosed. If Borrower or the Separate Property Owner, as applicable fail to
pay any such Lien within ten (10) days of Lender’s demand, Lender may (but shall
not be obligated to) make such payment and Borrower or the Separate Property
Owner, as applicable, shall reimburse Lender on demand for all such advances
with interest thereon at the Default Rate from the date of Lender’s payment.

6.27 Legal Proceedings. Borrower and the Separate Property Owner shall cooperate
fully with Lender with respect to any proceedings before any court, board or
other Governmental Agency which may in any way affect the rights of Lender
hereunder or any rights obtained by Lender under any of the Loan Documents and,
in connection therewith, permit Lender, at its election, to participate in any
such proceedings.

6.28 Additional Equity. On or before May 1, 2009, Borrower shall either:
(i) deliver to Lender an unconditional written commitment from a financial
institution acceptable to Lender to refinance the Loan in full on or before the
Initial Maturity Date, or (ii) satisfy the Capitalization Deficiency by either:
(A) delivering to Lender an unconditional written commitment from a Mezzanine
Lender acceptable to Lender to make the Mezzanine Loan on or before the Initial
Maturity Date in an amount equal to the Capitalization Deficiency;
(B) depositing funds from additional equity contributions to Borrower in the
amount of the Capitalization Deficiency; or (C) satisfying a combination of
clause (A) and (B) such that the sum of the amount of the committed Mezzanine
Loan and the amount of equity funds deposited into the Additional Equity Reserve
equals or is greater than the amount of the Capitalization Deficiency. If any
portion of the Capitalization Deficiency is to be satisfied by a Mezzanine Loan,
(i) the Mezzanine Loan Documents shall be acceptable to Lender; (ii) the
Mezzanine Loan Documents shall not encumber the Property or the Separate
Property or any other collateral of Lender, but may encumber the equity
interests of the Mezzanine Borrower in the Borrower’s Parent; (iii) the
Mezzanine Lender shall execute a subordination and intercreditor agreement with
Lender in form and substance

 

57

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

acceptable to Lender prior to closing of the Mezzanine Loan; and (iv) the
Mezzanine Loan shall be fully funded on or before the Initial Maturity Date.

6.29 Separate Property. Lender will release the Separate Property upon Borrower
obtaining an Acceptable Temporary Certificate of Occupancy for the entire
Project. Lender may realize upon the Separate Property upon an Event of Default.

6.30 General Condominium Covenants.

(a) The term “Project” as used herein shall be deemed to include all of
Borrower’s right, title and interest in and to the Property and each of the
Condominium Units, the Common Elements, the ownership interests in any
Condominium Association and all rights, privileges and benefits provided to
Borrower under any and all Condominium Documents.

(b) Borrower shall submit the Property to the provisions of the Condominium Act
and shall satisfy all of the requirements thereof and of any other applicable
Law or restriction necessary to create a valid condominium regime, provided that
the form and substance of the Condominium Documents, including the Condominium
Unit designations, descriptions, floor plans, sale prices and proposed form of
contract of sale for the Condominium Units, as well as the description of
Comment Elements and breakdown of common interests appurtenant to each
Condominium Unit, shall all be subject to the written approval of Lender prior
to the recordation of the Condominium Declaration or the Condominium Map, which
approval may be withheld in Lender’s reasonable discretion. Lender shall respond
to Borrower’s request for approval of any Condominium Document within ten
(10) Business Days after Borrower’s written request for Lender’s approval and
delivery to Lender of the subject proposed Condominium Document. Borrower shall,
upon receipt of the same, deliver to Lender a certified copy of the recorded
Condominium Declaration.

(c) Lender shall not be required to join in any Condominium Documents, except to
the extent required by applicable Law and pursuant to documentation satisfactory
to Lender.

(d) Borrower shall submit all Condominium Documents to Lender for its review,
comment and approval, before such Condominium Documents are submitted to any
Governmental Agency Project. All such Condominium Documents shall be subject to
Lender’s approval, which may be withheld in its reasonable discretion.

(e) Borrower promptly shall observe and perform all of Borrower’s obligations
under the Condominium Documents.

(f) Borrower shall take all necessary actions to ensure that the Project
(including all Condominium Units and all Common Elements) are covered by
casualty insurance and commercial general liability insurance conforming to the
standards of this Agreement, whether carried by Borrower or by the Condominium
Board.

(g) Borrower shall not, without the prior written consent of Lender, do, permit
to be done or consent to: (1) make any substantive amendment or supplement to or
termination or waiver of any provision of the Condominium Documents once
approved by Lender; (2) any

 

58

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

appointment to or change in the Condominium Board; or (3) any action (by
Borrower, the Condominium Board or otherwise) which would have the effect of
causing the insurance coverage covering the Project to fail to comply with the
standards of this Agreement.

(h) All assessments collected by the Condominium Board (or Borrower on behalf of
the Condominium Board) shall be deposited by Borrower within five (5) Business
Days of receipt thereof into a segregated account (“Condominium Account”)
established in the name of the Condominium. The Condominium Account shall be
maintained with a bank acceptable to Lender and funds in such account may be
invested only as approved by Lender. Further, funds in such account shall be
held and applied only in accordance with applicable Laws, the Loan Documents and
the Condominium Documents.

(i) Borrower shall, and shall cause the Condominium Board to (i) make such
repairs and replacements and perform such maintenance to the Project as the
Condominium Board or Borrower is required to make or perform pursuant to the
Condominium Documents, so as to maintain the Project in good condition and
repair, (ii) pay as and when the same become due and payable any obligations for
which the Condominium Board or Borrower is responsible, (iii) to perform all
other obligations of the Condominium Board or Borrower under the Condominium
Documents, and (iv) ensure that the obligations of the Condominium Board or
Borrower’s level of service and maintenance is at a standard consistent with or
higher than that expected of comparable projects. Borrower shall within five
(5) days from receipt of the same, furnish to Lender copies of all financials,
reports, statements, information, reporting disclosures, budgets and other
documents received under or pursuant to any of the Condominium Documents or
Laws, including the Condominium Act, including financial information relating to
any Condominium Association. Borrower shall pay all assessments for common
charges and expenses and all real estate taxes and assessments and insurance
premiums made against or relating to the portion of the Property then owned by
Borrower as required by the Condominium Documents, whether pursuant to such
declaration of condominium, any by-laws of the condominium adopted in connection
therewith or otherwise, as the same shall become due and payable. Borrower shall
(1) promptly notify Lender of all matters of which it has received written
notice that a default by Borrower or the Condominium Board or Condominium
Association under, or noncompliance with, any of the Condominium Documents
exists, and shall do all such acts and undertake all steps and institute all
such proceedings as shall be necessary to cure or avert such default and shall
forward to Lender any notices it receives in regard to any of the foregoing
matters within five (5) days after receiving the same; (2) not, without the
prior written consent of Lender, exercise any right it may have to vote for or
permit its representatives on Condominium Board to vote or take any action
whatsoever respecting: (A) the nature and amount of any insurance covering all
or a part of the Improvements and the disposition of any proceeds thereof; the
manner in which any condemnation or threat of condemnation of all or a part of
the Property shall be defended or settled and the disposition of any award or
settlement in connection therewith, (B) any election to repair or restore (or to
not repair or restore) the Improvements or any other portion of the Property,
(C) any additions or improvements to the common elements of the Condominium,
(D) any partition of all or a part of the Property subject to the Condominium
Declaration, (E) the construction of any additions or improvements to the
Property or any repair, rebuilding or restoration of all or a portion of the
Property requiring an expenditure of an amount greater than the lesser of
(1) $10,000 or (2) an amount that when aggregated with all such prior costs
(other than any such amount previously approved by Lender

 

59

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

in its discretion) would exceed $50,000, (F) the payment of any amount in excess
of insurance or condemnation proceeds available in connection therewith, (G) the
assessment of any expenses, (H) the acquisition of any interest pursuant to any
purchase option or right of first refusal or offer in the applicable Condominium
Documents, (I) any removal of all or any portion of the Property from the
provisions of the Condominium Documents and (J) all questions relating to the
amount of payment of common charges thereunder; and (3) not (A) permit any
prospective purchaser to make or post all or any part of its deposit pursuant to
a letter of credit or any other form of payment other than cash or (B) use or
permit the use of any of the deposits for construction or development purposes.

(j) Borrower shall cause the Project at all times to be in compliance with the
requirements of Laws which are applicable to the Project. Borrower shall ensure
that the creation of the Condominium and the sale of the Condominium Units
(i) will not constitute a sale of securities for purposes of any Law, (ii) will
not constitute a regime which is regulated by any timeshare Laws and (iii) will
comply with all applicable Laws, including the federal Interstate Land Sales
Disclosure Act if applicable, (and promptly furnish such evidence of compliance
therewith as Lender may request). Without limiting the generality of the
forgoing, (x) each prospective purchaser under a sales agreement approved by
Lender shall timely be furnished with a property report prepared pursuant to the
rules and regulations of the office of Interstate Land Sales Regulation, U.S.
Department of Housing and Urban Development in advance of such prospective
purchaser signing its purchase and (y) Borrower shall make all necessary filings
with (and such filings, if any, shall be unconditionally approved) by the office
of Interstate Land Sales Regulation, U.S. Department of Housing and Urban
Development such that Borrower is exempt, under the federal Interstate Land
Sales Disclosure Act from an outside date for delivering and closing sales under
such sales agreement and otherwise deliver to the U.S. Department of Housing and
Urban Development all documents required to be delivered thereto pursuant to
applicable Law, including annual activity reports, financial statements and
amendments and pay to U.S. Department of Housing and Urban Development all
amounts required to be paid thereto pursuant to applicable Law, including
amendment fees.

(k) Borrower shall, immediately upon recordation of the Condominium Declaration
(and as a condition to such recording) obtain an endorsement to its title
insurance policy insuring Borrower’s title to the Property in form and substance
reasonably acceptable to Lender, which endorsements shall include insurance
against losses arising as a result of the invalidity of the Condominium, with
premium and costs related to the title examination and issuance of such
endorsements to be paid by Borrower;

(l) Borrower shall not do, permit or suffer any act or omission which would
constitute a violation of, or give any Person any right to maintain any action
for rescission of any sale of, or agreement to sell, any Condominium Unit.
Borrower shall comply with and fulfill all provisions of Law and any other
documents in connection with the Condominium Units on the part of Borrower to be
complied with or fulfilled. An escrow agent selected by Lender shall hold and
maintain in strict accordance with all applicable Law all of the Condominium
Unit deposits received by Borrower. Borrower shall not permit the use of such
deposits in any manner which would violate applicable Law and shall cause such
deposits to be remitted to prospective purchasers as and when required under
applicable Law.

 

60

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

(m) Borrower shall not enter into an agreement or contract for the sale of any
Condominium Unit or Units without the prior written approval of Lender, which
may be withheld in its sole and absolute discretions.

(n) Nothing contained herein shall be construed to require Lender to release its
Lien on any Condominium Unit except in connection with a full repayment of the
Loan.

(o) On or before recordation of the final Condominium Documents, Borrower shall
comply with condition no. 19 of Tentative Tract Map No. 53965-M1 by preparing
and executing a covenant and agreement on Los Angeles City Planning Department
General Form CP-6770 in a manner satisfactory to Los Angeles City Planning
Department to limit the development of the improvements on the Property, as
expressly set forth in said condition no. 19, and either terminate that certain
Covenant and Agreement Regarding Maintenance of Building recorded on January 13,
2006, as Instrument No. 06-0096300 in the Official Records of Los Angeles
County, California or amend said document to conform it to the development
limitation requirements of such condition no. 19.

ARTICLE 7

NEGATIVE COVENANTS

As long as the Loan remains unpaid, or any other Obligation remains unpaid or
unperformed, or any portion of the Loan remains outstanding, unless Lender
otherwise consents in writing:

7.1 Hypothecation or Disposition of the Property or the Separate Property.
Neither Borrower, nor the Separate Property Owner, nor Pledgor shall sell,
assign, exchange, transfer, lease, sublease or otherwise dispose of the
Property, the Separate Property, or any other Collateral, nor create, incur,
assume or suffer to exist any Lien of any nature or pledge or encumbrance upon
or with respect to the Property, the Separate Property, or any other Collateral,
except:

(a) liens securing taxes, assessments or governmental charges or levies or the
claims or demands of materialmen, mechanics, carriers, warehousemen, landlords
and other like Persons not yet delinquent and Liens which are being contested
pursuant Section 6.26(b) hereof;

(b) easements, rights of way, restrictions and other similar charges or
encumbrances on the Property or the Separate Property that do not interfere with
the orderly conduct of its business or materially detract from the value of the
Property or the Separate Property;

(c) the Permitted Encumbrances;

(d) with the prior written consent of Lender, entering into Leases;

(e) subject to Section 6.29 hereof, the sale of the entire Property or the
Separate Property to a third party and, concurrently therewith, the payment of
all Obligations to Lender under the Loan Documents including, without
limitation, any applicable Prepayment Fee.

 

61

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

7.2 Mergers. Neither Borrower nor Separate Property Owner shall merge,
consolidate or amalgamate with or into any Person. Neither Guarantor nor any
Pledgor shall merge, consolidate or amalgamate with or into any Person unless
the financial condition, including, without limitation, net worth, of the
merged, consolidated or amalgamated entity is at least as favorable as that of
the Guarantor or Pledgor, as applicable, prior to such merger, consolidation or
amalgamation.

7.3 ERISA.

(a) Neither Borrower, nor the Separate Property Owner, nor Pledgor shall, at any
time, maintain, or be or become obligated to contribute on behalf of its
employees to, any Plan, other than those Plans disclosed in Schedule 4.10
hereto.

(b) Neither Borrower, nor the Separate Property Owner, nor Pledgor shall, at any
time, permit any Plan to:

(i) engage in any “prohibited transaction”, as such term is defined in
Section 4975 of the Code;

(ii) incur any material “accumulated funding deficiency”, as that term is
defined in Section 302 of ERISA; or

(iii) terminate in a manner that could result in liability of Borrower or the
Separate Property Owner to the Plan or to the PBGC or the imposition of a Lien
any part of the Property or the Separate Property or on any other Collateral
pursuant to Section 4068 of ERISA.

(c) Neither Borrower, nor the Separate Property Owner, nor Pledgor shall, at any
time, assume any obligation to contribute to any Multiemployer Plan, nor shall
Borrower, the Separate Property Owner, or Pledgor acquire any Person or assets
of any Person which has, or has had at any time from and after January 2, 1974,
an obligation to contribute to any Multiemployer Plan.

(d) Neither Borrower, nor the Separate Property Owner, nor Pledgor shall fail to
notify Lender of the occurrence of any “reportable event” (as defined in
Section 4043 of ERISA) or of any “prohibited transaction” (as defined in
Section 4975 of the Code) with respect to any Plan to which Borrower, the
Property Owner, or Pledgor has at any time been obligated to contribute on
behalf of its employees, or with respect to any trust created under such a Plan.
Upon request by Lender, any Borrower Party shall promptly furnish to Lender
copies of any reports or other documents filed by such Borrower Party with the
United States Secretary of Labor, the PBGC and/or the Internal Revenue Service,
with respect to any Plan.

(e) Neither Borrower, nor the Separate Property Owner, nor Pledgor shall, at any
time, permit any Plan to which such Borrower, the Separate Property Owner, or
Pledgor has at any time been obligated to contribute on behalf of its employees
to fail to comply with ERISA or other applicable Law in any material respect.

 

62

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

7.4 Change in Nature of Business/Ownership of Other Assets. Neither Borrower nor
the Separate Property Owner shall make any material change in the nature of its
business as conducted and presently proposed to be conducted or own any assets
(including the ownership interest in any entity) other than the Property or the
Separate Property, as applicable, or make any loans (secured or unsecured) to
any Person.

7.5 Change in Fiscal Year. Neither Borrower, nor the Separate Property Owner,
nor Pledgor shall change its Fiscal Year, or the fiscal months thereof.

7.6 Additional Debt. Neither Borrower nor the Separate Property Owner shall
create, incur, assume or suffer to exist any debt of any nature (including,
without limitation, loans from Guarantor or Pledgor) other than (i) the Loan,
(ii) other indebtedness owed to Lender, (iii) trade payables incurred by
Borrower or the Separate Property Owner in the ordinary course of business
consistent with the Approved Budgets which are outstanding for not more than
thirty (30) days after the date incurred, (iv) development related payables
incurred by Borrower in the ordinary course of business consistent with the
Approved Budgets which are outstanding for not more than fifty-nine (59) days
after the date incurred, and (v) the Permitted Encumbrances. Other than the
Mezzanine Loan when made, Pledgor shall not incur any indebtedness or contingent
liabilities.

7.7 Dissolution. Neither Borrower, nor the Separate Property Owner, nor Pledgor
shall commence proceedings to dissolve or wind up Borrower, the Separate
Property Owner, or Pledgor, as applicable, in whole or in part.

7.8 Affiliate Transactions. Except for the agreements described on Schedule 4.20
hereto, neither Borrower nor the Separate Property Owner, nor Pledgor shall
enter into any agreement related to all or any part of the Property or the
Separate Property with any other Borrower Party or Affiliate of a Borrower Party
without the prior written consent of Lender. Any such agreement approved by
Lender shall be for goods or services rendered in the ordinary course of
business and shall contain terms and conditions at least as favorable to such
Borrower, the Separate Property Owner, or Pledgor as applicable, as the terms
and conditions which could have been obtained in a similar arm’s length
transaction with a Person other than such other Borrower Party or Affiliate.

7.9 Franchise or License Agreement. Neither Borrower nor the Separate Property
Owner nor Manager shall enter into any franchise or license agreement with
respect to all or any part of the Property or the Separate Property without the
prior written consent of Lender.

7.10 Affiliate Payments. Neither Borrower nor the Separate Property Owner shall
make any payments, dividends or distribution of cash flow, income or capital (in
cash or in like or in kind) to any other Borrower Party or Affiliate of a
Borrower Party except for the fees, payments and compensation expressly
described on Schedule 4.20 hereto.

7.11 Transfers and Pledges. Except for the Permitted Encumbrances or any other
transfer or pledge expressly permitted under this Agreement, neither Borrower
nor the Separate Property Owner shall cause or suffer to occur or exist,
directly or indirectly, voluntarily or involuntarily, by operation of law or
otherwise, any sale, transfer, mortgage, pledge, Lien or

 

63

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

encumbrance of (i) all or any part of the Property or the Separate Property or
any interest therein, or (ii) any direct or indirect ownership or beneficial
interest in Borrower, the Separate Property Owner, Pledgor, or Mezzanine
Borrower, provided that the foregoing shall not restrict the sale, transfer,
mortgage, pledge, Lien or encumbrance of any equity interest in Guarantor.

7.12 Use of Loan Proceeds. Borrower shall not use any proceeds of the Loan for
purposes other than that set forth in Section 2.9 hereof.

7.13 Amendment of Contracts, Etc. Neither Borrower nor the Separate Property
Owner shall amend, modify or otherwise alter any of the Contracts which would
require Lender’s consent to enter into under this Agreement or any Licenses,
Permits and Approvals without the prior written consent of Lender. Neither
Borrower nor the Separate Property Owner will terminate any of the Contracts or
Licenses, Permits and Approvals or accept a surrender thereof, or waive, excuse,
condone or in any manner release or discharge any party to any of the Contracts,
Licenses, Permits and Approvals from the obligations and agreements of such
party to be performed thereunder without the prior written consent of Lender.

7.14 Patriot Act. Neither Borrower nor the Separate Property Owner nor any of
its officers, directors, shareholders, partners or members nor any of Borrower’s
Affiliates controlled by Guarantor will: (i) conduct any business, nor engage in
any transaction or dealing, with any Prohibited Person, including, but not
limited to, the making or receiving of any contribution of funds, goods, or
services, to or for the benefit of a Prohibited Person; or (ii) engage in or
conspire to engage in any transaction that evades or avoids, or has the purpose
of evading or avoiding, or attempts to violate, any of the prohibitions set
forth in EO13224. Borrower further covenants and agrees to deliver (from time to
time) to Lender any such certification or other evidence as may be requested by
Lender in its sole and absolute discretion, confirming that: (i) neither
Borrower nor the Separate Property Owner nor any of their respective officers,
directors, shareholders, partners, members or affiliates (including the indirect
holders of equity interests in Borrower or the Separate Property Owner) is a
Prohibited Person; and (ii) neither Borrower nor the Separate Property Owner,
nor their respective officers, directors, shareholders, partners, members or
affiliates (including the indirect holders of equity interests in Borrower) has
engaged in any business, transaction or dealings with a Prohibited Person,
including, but not limited to, the making or receiving of any contribution of
funds, goods, or services, to or for the benefit of a Prohibited Person.

ARTICLE 8

CASH MANAGEMENT/RESERVES

8.1 Budgets. Prior to Closing, (a) Borrower shall submit to Lender for approval
an Operating Budget for the Property for the remaining portion of calendar year
2008, if any, and for calendar years 2009 and 2010, a Construction Budget for
the Property and (b) the Separate Property Owner shall submit to Lender for
approval an Operating Budget for the Separate Property for the remaining portion
of calendar year 2008 and for calendar years 2009 and 2010. Upon Lender’s
approval thereof, the Operating Budgets and the Construction Budget shall be the
“Approved Budgets”. On or before December 1 of each year during the term of the
Loan (a) Borrower shall submit for Lender’s approval a revised Operating Budget
for the Property for the next following calendar year and an updated
Construction Budget and (b) the Separate

 

64

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

Property Owner shall submit for Lender’s approval a revised Operating Budget for
the Separate Property for the next following calendar year. Upon Lender’s
approval, such revised and updated Operating Budgets and the Construction
Budget, shall be the effective Approved Budgets for the next following calendar
year. Neither Borrower nor the Separate Property Owner shall modify any of the
Approved Budgets.

8.2 Tax and Insurance Reserve.

(a) Concurrently with the execution of this Agreement, Borrower shall establish
at the Reserve Bank a reserve account with a deposit of $1,026,660.00 from the
Initial Tranche to be governed by this Section 8.2 (the “Tax and Insurance
Reserve”).

(b) In the event that Lender determines that the Tax and Insurance Reserve is
insufficient to pay for all taxes and insurance premiums as and when the same
shall be due and owing through the Maturity Date (as the same may be extended
under the Note), then upon demand by Lender, Borrower shall deposit into the Tax
and Insurance Reserve the amount reasonably determined by Lender to cure such
deficiency.

(c) The Tax and Insurance Reserve shall meet the standards for custodial
accounts as required by Lender from time to time. Lender shall not be
responsible for any losses resulting from investment of the Tax and Insurance
Reserve or for obtaining any specific level or percentage of earnings on such
investment. All interest and other proceeds paid on the funds deposited in the
Tax and Insurance Reserve shall accrue to the benefit of Borrower under
Borrower’s tax identification number and shall remain in the Tax and Insurance
Reserve as collateral for Borrower’s obligations under the Loan Documents.

(d) Borrower, promptly after receipt and in each event no later than fifteen
(15) days before the same are due and payable, shall deliver to Lender a copy of
all tax bills and assessment notices and invoices regarding insurance premiums
for insurance required under the Loan Documents, and Lender shall, within ten
(10) Business Days of receipt of such notice, authorize a disbursement from the
Tax and Insurance Reserve to pay such amounts, but only to the extent of funds
in the Tax and Insurance Reserve. Notwithstanding the foregoing, in no event
shall Lender be obligated to authorize the disbursement of funds from the Tax
and Insurance Reserve if an Event of Default exists under this Agreement
(including, without limitation, Borrower’s failure to pay in full any fees,
costs and expenses then due and payable under this Agreement) or under any of
the other Loan Documents, or if an act, event or condition shall have occurred
and then be existing that with notice and/or the lapse of time would constitute
an Event of Default hereunder or under any of the other Loan Documents. From and
after the date that Borrower fails to pay any property tax liability or required
insurance premium, Lender may, in Lender’s sole and absolute discretion, but
without any obligation, pay, in whole or in part, such unpaid real property
taxes and assessments and/or insurance premiums using the funds in the Tax and
Insurance Reserve.

8.3 Interest Reserve.

(a) Concurrently with the execution of this Agreement, Borrower shall establish
at the Reserve Bank a reserve account with an initial deposit of $7,686,000.00
from the

 

65

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

Initial Tranche, which amount is projected to pay all interest accruing on the
Initial Tranche during the term of the Loan, which reserve account shall be
governed by this Section 8.3 (the “Interest Reserve”).

(b) A portion of the proceeds of the Second Tranche advanced pursuant to
Section 2.1(d) hereof shall be deposited directly into the Interest Reserve in
the amount determined by Lender necessary to cause the balance of the Interest
Reserve to be equal to the amount of interest projected to accrue and be payable
during the remaining term of the Loan.

(c) Beginning on May 1, 2008, and on the first day of each month thereafter, the
amount of Borrower’s monthly interest payment that becomes due and payable under
the Note shall be periodically disbursed directly to Lender from the Interest
Reserve. Lender is hereby authorized to charge the Interest Reserve directly for
such interest payments when due. Depletion of the Interest Reserve shall not
release Borrower from any of Borrower’s obligations under the Loan Documents,
including, without limitation, payment of all accrued interest due under the
Note and other Loan Documents. Borrower shall commence payment of interest due
under the Note and other Loan Documents upon the depletion of the funds in the
Interest Reserve.

(d) The Interest Reserve shall meet the standards for custodial accounts as
required by Lender from time to time. Lender shall not be responsible for any
losses resulting from investment of the Interest Reserve or for obtaining any
specific level or percentage of earnings on such investment. All interest and
other proceeds paid on the funds deposited in the Interest Reserve shall accrue
to the benefit of Borrower under Borrower’s tax identification numbers and shall
remain in the Interest Reserve as collateral for Borrower’s obligations under
the Loan Documents.

(e) In no event shall Lender be obligated to authorize the disbursement of funds
in the Interest Reserve if an Event of Default exists under this Agreement
(including, without limitation, Borrower’s failure to pay in full any fees,
costs and expenses then due and payable under this Agreement) or under any of
the other Loan Documents, or if an act, event or condition shall have occurred
and then be existing that with notice and/or the lapse of time would constitute
an Event of Default hereunder or under any of the other Loan Documents.

8.4 Construction Reserve.

(a) Concurrently with the execution of this Agreement, Borrower shall establish
at the Reserve Bank a reserve account with an initial deposit of $17,726,669.80
from the proceeds of the Initial Tranche to be governed by this Section 8.4 (the
“Construction Reserve”). All proceeds of Second Tranche shall be deposited
directly into the Construction Reserve, except to the extent retained by Lender
for payment of fees, costs and expenses.

(b) Lender shall make disbursements from the Construction Reserve to the
Construction Draw Account pursuant to Section 8.5(b) hereof.

(c) The Construction Reserve shall meet the standards for custodial accounts as
required by Lender from time to time. Lender shall not be responsible for any
losses resulting from investment of the Construction Reserve or for obtaining
any specific level or percentage of

 

66

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

earnings on such investment. All interest and other proceeds paid on the funds
deposited in the Construction Reserve shall accrue to the benefit of Borrower
under Borrower’s tax identification number and shall remain in the Construction
Reserve as collateral for Borrower’s obligations under the Loan Documents.

(d) In no event shall Lender be obligated to disburse funds from the
Construction Reserve if an Event of Default exists under this Agreement
(including, without limitation, Borrower’s failure to pay in full any fees,
costs and expenses then due and payable under this Agreement) or under any of
the other Loan Documents, or if an act, event or condition shall have occurred
and then be existing that with notice and/or the lapse of time would constitute
an Event of Default hereunder or under any of the other Loan Documents.

8.5 Construction Draw Account - General.

(a) Concurrently with the execution of this Agreement, Borrower shall establish
at the Construction Draw Account Bank a reserve account, to be governed by this
Section 8.5 (the “Construction Draw Account”) and shall deposit the sum of
$5,000,000.00 therein.

(b) Whenever Lender determines the amount of funds to be disbursed from the
Construction Draw Account in payment of any Draw Request in accordance with the
terms and conditions of Section 8.6 hereof, Lender shall cause funds in such
amount to be transferred from the Construction Reserve to the Construction Draw
Account to be utilized to fund such Draw Request. The Construction Draw Account
shall have a balance of not less than $5,000,000.00 until such time as the funds
remaining in the Construction Reserve and the Additional Equity Reserve are
insufficient to fully fund a Draw Request.

(c) The Construction Draw Account shall meet the standards for custodial
accounts as required by Lender from time to time. Lender shall not be
responsible for any losses resulting from investment of the Construction Draw
Account or for obtaining any specific level or percentage of earnings on such
investment.

(d) Disbursements for payment for Construction Costs shall be made by Lender
from the Construction Draw Account no more frequently than once per month
(unless Lender agrees to more frequent disbursements) upon satisfaction by
Borrower of each of the following conditions set forth in this Agreement with
respect to each such disbursement. In no event shall Borrower have the right to
any disbursement from the Construction Draw Account if an Event of Default
exists under this Agreement (including, without limitation, Borrower’s failure
to pay in full any fees, costs and expenses then due and payable under this
Agreement) or under any of the other Loan Documents, or if an act, event or
condition shall have occurred and then be existing that with notice and/or the
lapse of time would constitute an Event of Default hereunder or under any of the
other Loan Documents.

(e) Lender may make disbursements from the Construction Draw Account to the
Construction Manager, Prime Contractors, Designers, Design-Builders and/or any
of their respective subcontractors or any other payee directly. Such direct
disbursements may be made individually or jointly with Borrower and/or
Construction Manager, as Lender may elect. The

 

67

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

execution of this Loan Agreement by Borrower shall, and hereby does, constitute
an irrevocable direction and authorization to so disburse the disbursements. No
further direction or authorization from Borrower shall be necessary or required
for such direct disbursements and all such disbursements shall satisfy pro tanto
the obligations of Lender hereunder and shall be secured by the applicable Loan
Documents as fully as if made directly to Borrower, regardless of the
disposition thereof by Construction Manager, any Designer, any Prime Contractor,
any Design-Builder, any trade contractor or any other Person.

(f) Lender shall not be obligated to make any disbursement from the Construction
Draw Account unless Lender is satisfied that the applicable conditions precedent
to the making of such disbursement, as set forth in this Article 8, have been
satisfied by Borrower (or waived in writing by Lender in its sole discretion).

(g) Lender shall have no obligation to make disbursements that aggregate in
excess of an amount equal to the sum of, (i) Soft Costs actually incurred by
Borrower in accordance with the Construction Budget, (ii) Hard Costs actually
incurred by Borrower for work in place as part of the Construction, as certified
by the Construction Consultant, less a sum equal to the aggregate of (a) the
aggregate deficiency which has been funded by Borrower under Section 5.16
hereof, if any, and (b) the retainage held by Lender under this Agreement.

(h) Borrower shall submit a Draw Request to Lender in sufficient time prior to
Closing to enable Lender to fully review such Draw Request that would pay all
outstanding trade, construction or development payables under the Construction
Management Agreement, Prime Contracts, Design-Build Contracts, Design Agreements
and any other Contracts, including, without limitation, any previously cancelled
or terminated agreement, contract or understanding, such that, if such Draw
Request is fully funded, Borrower will have no outstanding payment obligations
to any Person as of the date of Closing other than with respect to retainage and
to Lender under the Loan.

8.6 Construction Draw Account – Draw Requests.

(a) Borrower shall submit to Lender and Construction Consultant a draw request
(a “Draw Request”) in the form required pursuant to this Section 8.6 not more
than one time per calendar month. Each Draw Request shall specify the Hard Costs
and Soft Costs to be paid from the proceeds of the requested disbursement. Such
Draw Request shall specify the amount of any retainage previously withheld and
which has then become payable by Borrower with supporting documentation
describing in reasonable detail the basis for any such disbursements. All Draw
Requests shall have been approved by Borrower and Construction Manager and
recommended for payment by Construction Consultant. If Borrower submits a
complete Draw Request with all supporting documentation required by this
Agreement, then Lender shall fund the Draw Request to the extent approved by
Lender by the date fourteen (14) days following receipt of such Draw Request and
supporting documentation.

(b) Each Draw Request submitted hereunder shall include the following:

(1) a requisition letter in the form set forth in Exhibit E-1 hereto, which
shall be executed by an authorized representative of Borrower;

 

68

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

(2) a requisition spreadsheet (“Borrower’s Requisition Spreadsheet”) in the form
set forth in Exhibit E-2 hereto;

(3) an executed borrowing certificate in the form set forth in Exhibit E-3
hereto;

(4) a written schedule of payees (including the Construction Manager, as
applicable, along with all Prime Contractors, Design-Builders, Designers,
subcontractors and consultants) to be funded by the Draw Request in detail
satisfactory to Lender;

(5) with respect to any Draw Request for payment for Hard Costs, the following:

(i) a complete Project Application and Certificate for Payment in the form
attached hereto as Exhibit E-4 hereto for each Prime Contractor and
Design-Builder executed by the respective Prime Contractor and Design-Builder
and approved by Construction Manager, the Construction Consultant and the
Architect;

(ii) Sworn Contractor’s statements from each of the Prime Contractors and
Design-Builders in compliance with the Mechanic’s Lien Statute of the State of
California, including, without limitation, a list identifying the Prime
Contractor and the Design-Builder and each of its subcontractors, the total
amounts of subcontractors let or to be let, the amount previously paid to the
Prime Contractor or Design-Builder and each subcontractor, the amount to be paid
to the Prime Contractor or Design-Builder and each subcontractor from the Draw
Request, and the amount to become due to each through contract completion;

(iii) with respect to the then last preceding disbursement an “Acknowledgment of
Receipt” from the Construction Manager and each of the Prime Contractors and
Design-Builders in the form of Exhibit E-5 hereto and duly executed,
unconditional waivers and releases of mechanics lien from Construction Manager,
the Prime Contractors, the Design-Builders and any applicable trade contractors,
all subcontractors and all other Persons who were paid from the proceeds of such
disbursement, dated on or about the date of such Draw Request, in form and
substance reasonably acceptable to Lender covering all work done and all sums
received through the date of the then last preceding disbursement;

(iv) a completed confirmation in the form attached as Exhibit E-6 hereto
executed by the Architect and by either the Designer or Design-Builder, as
applicable;

(v) a conditional waiver of lien with respect to the current Draw Request from
Construction Manager, each Prime Contractor, Design-Builder, designer and any
other applicable trade contractors, all subcontractors and all other Persons who
to be paid from the proceeds of such disbursement, dated on or about the date of
such Draw Request, in form and substance reasonably

 

69

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

acceptable to Lender covering all work done and all sums received through the
date of the Draw Request

(vi) evidence of insurance against loss or casualty of any goods or material
stored off site for which Borrower has included in the disbursement being
requested;

(vii) a list of all trade contracts executed by Borrower since the date of the
then last preceding disbursement, together with a statement by Borrower that
copies of such trade contracts and all other contracts with any contractor or
subcontractor involved with the Construction executed by Borrower since the date
of the then last preceding disbursement have been submitted to the Construction
Consultant prior to the date of such Draw Request;

(viii) a list of all change orders that have not yet been submitted to Lender on
the date of such Draw Request, together with a statement by Borrower that copies
of the same have been submitted to the Construction Consultant prior to the date
of such Draw Request, together with a list of all change orders then to date and
a list of all contemplated change orders;

(ix) evidence reasonably satisfactory to Lender that the full amount of the
portion of the proceeds of the then last preceding disbursement have been paid
out by Borrower or Construction Manager to the Persons with respect to whom such
disbursement was disbursed and otherwise in accordance with this Loan Agreement;

(x) such other information and documents as may be reasonably requested or
required by Lender or the Construction Consultant with respect to the Hard Costs
covered by such Draw Request; and

(6) with respect to any Draw Request for payment for Soft Costs, the following:

(i) reasonable evidence as Lender shall reasonably request that such Soft Costs
have been properly incurred and are due and payable and are within the amounts
budgeted therefor in the Construction Budget;

(ii) evidence reasonably satisfactory to Lender that the full amount of the
portion of the proceeds of the then last preceding disbursement have been paid
out by Borrower or Construction Manager to the Persons with respect to whom such
disbursed was disbursed and otherwise in accordance with this Loan Agreement;
and

(iii) invoices, statements or such other information and documentation as Lender
shall reasonably request or require with respect to such Soft Costs covered by
such Draw Request.

 

70

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

(c) At Lender’s option, Lender may, at Borrower’s cost and expense, engage the
Construction Consultant in connection with Lender’s review of the materials
submitted in Borrower’s Draw Request.

8.7 Construction Draw Account – Retainage.

(a) The amount of any disbursement disbursed on account of any Hard Costs to any
Prime Contractor or Design-Builder shall be reduced by the retainage amount
applicable to such Hard Costs as provided in subparagraph (b) below. Subject to
Law, no retainage shall be released to a Prime Contractor or Design-Builder
prior to the date of substantial completion of that part of the Project
applicable to the services of such Prime Contractor or Design-Builder
(“Applicable Part of the Work”). Subject to Law and except as provided in this
Agreement, in no event will Lender be required to disburse any funds held on
account of retainage prior to the time such sums are payable pursuant to the
applicable Prime Contract.

(b) The amount of retainage to be withheld for all Hard Costs prior to
substantial completion of the Applicable Part of the Work shall not be less at
any time than the total of ten percent (10%) of the aggregate Hard Costs already
incurred by Borrower with respect to such Prime Contractor or Design-Builder for
work in place in completing Construction; provided that (i) for DK Mechanical
Contractors and Architectural Glass & Aluminum Co., such retainage shall only
apply to the first fifty percent (50%) of the work to be performed and shall be
zero percent (0%) of the aggregate Hard Costs actually incurred by Borrower with
respect to DK Mechanical Contractors and Architectural Glass & Aluminum Co. for
work in place in completing Construction of the last fifty percent (50%) of the
work to be performed by DK Mechanical Contractors and Architectural Glass &
Aluminum Co., as applicable, as verified from time to time by the Construction
Consultant pursuant to the provisions of this Loan Agreement, (ii) for Helix
Electric such retainage shall only apply to the first fifty percent (50%) of the
work to be performed and shall be five percent (5%) of the aggregate Hard Costs
actually incurred by Borrower with respect to Helix Electric for work in place
in completing Construction of the last fifty percent (50%) of the work to be
performed by Helix Electric, as verified from time to time by the Construction
Consultant pursuant to the provisions of this Loan Agreement, and (iii) with
respect to any other Prime Contract or Design-Build Agreement, Lender shall only
require and shall disburse retainage as necessary for Borrower to comply with
each Prime Contract and Design-Build Agreement approved by Lender.

(c) One-half (1/2) of retainage that relates to work or materials supplied by
any Prime Contractor or any Design-Builder shall be disbursed subject to any
other conditions to disbursement set forth in this Agreement, provided the
following are satisfied (or waived by Lender in its sole discretion):

(1) no Event of Default then exists;

(2) such Prime Contractor or Design-Builder has substantially completed the
Applicable Part of the Work substantially in compliance with such Contractor’s
Prime Contract or Design-Build Agreement and substantially in conformity with
the Plans and Specifications; provided that the remaining retainage shall not be
less

 

71

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

than one hundred fifty percent (150%) of the cost of any remaining Punchlist
Items to be completed by such Prime Contractor or Design-Builder;

(3) such Prime Contractor or Design-Builder executes and delivers conditional
lien waivers with respect to all payments made, including such portion of the
retainage;

(4) in any event if required by applicable law or by final, non-appealable order
of a court of competent jurisdiction.

(d) All remaining retainage that relates to work or materials supplied by any
Prime Contractor or any Design-Builder shall be disbursed subject to any other
conditions to disbursement set forth in this Agreement, provided the following
are satisfied (or waived by Lender in its sole discretion):

(1) no Event of Default then exists;

(2) such Prime Contractor or Design-Builder has completed one hundred percent
(100%) of its work for the Improvements and has supplied one hundred percent
(100%) of all materials substantially in compliance with such Contractor’s Prime
Contract and substantially in conformity with the Plans and Specifications
including, without limitation, any Punchlist Items to be completed by such Prime
Contractor or Design-Builder;

(3) such Prime Contractor or Design-Builder will be paid in full for its work on
the Improvements upon the release of such portion of the Retainage;

(4) such Prime Contractor or Design-Builder executes and delivers final
conditional lien waivers in the form of Exhibit E-7 hereto;

(5) in any event if required by applicable law or by final, non-appealable order
of a court of competent jurisdiction.

8.8 Construction Draw Account – Stored Materials.

(a) Lender shall make disbursements for Stored Materials (whether on-site or
off-site) to be utilized in connection with the Construction upon satisfaction
of the following criteria:

(1) Aggregate disbursements for Stored Materials to be utilized in connection
with the Construction shall in no event at any time exceed the actual Hard Costs
incurred by Borrower for such materials as verified by the Construction
Consultant pursuant to the provisions of this Loan Agreement or the amount
allocated to such materials in the Construction Budget, as may be modified under
this Agreement from time to time. In addition to the foregoing limitations,
disbursements on account of Stored Materials shall be subject to the other
provisions of this Loan Agreement, and prior to any disbursement for Stored
Materials being made, Lender must have received the following, in form and
substance satisfactory to Lender:

 

72

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

(i) evidence that the Stored Materials are appropriate for purchase during the
then current stage of construction;

(ii) evidence that the Stored Materials are securely stored on site at the
Property or at a location off-site satisfactory to Lender, properly inventoried,
and clearly stenciled or otherwise marked to indicate that they are the property
of Borrower;

(iii) evidence that the Stored Materials have been paid for and are owned by (or
upon payment of the amounts to be disbursed in such Draw Request shall be paid
for and owned by) Borrower free of all lien rights or claims of the vendor or
any third party (provided, however, that Borrower shall be permitted limited
disbursements, in the discretion of Lender, with respect to deposits and down
payments for Stored Materials to the extent approved by Lender and the
Construction Consultant);

(iv) Lender has obtained a perfected, first-priority security interest in such
Stored Materials, unless waived by Lender in its sole discretion;

(v) as to the Unincorporated Materials, the Construction Consultant shall have
certified to Lender that such Unincorporated Materials are secured at the
Property in a manner reasonably satisfactory to the Construction Consultant and
that the Unincorporated Materials at the Property are not in excess of such
building equipment and materials as would be kept at the Property in accordance
with good construction practice for current installation or incorporation;

(vi) Lender has been provided with a certificate or binder of insurance from
Borrower or the supplier, fabricator or other subcontractor, reasonably
satisfactory to it and covering it as a named insured and loss payee against
casualty, loss and theft with respect to the Unincorporated Materials, in a
manner reasonably satisfactory to Lender;

(vii) Lender has received a lien waiver or other proof of payment satisfactory
to Lender from the supplier or fabricator of any Stored Materials, the cost of
which is, in whole or in part, payment for all amounts covered by any prior Draw
Request; and

(viii) If required by Lender in its reasonable discretion, Architect or
Construction Consultant shall certify that it has inspected said materials and
they are in the condition required under the applicable trade contracts.

(b) In the event a Draw Request includes the cost of materials stored at a
location other than the Property (“Offsite Materials”), such Draw Request shall
include each of the following: (A) evidence that the Offsite Materials have been
purchased by Borrower, have been segregated from other materials in the facility
and have been appropriately marked to indicate Borrower’s ownership thereof and
Lender’s security interest therein; (B) evidence that the Offsite Materials are
insured as required by this Agreement; (C) evidence that the warehouse or other
facility where such Offsite Materials are stored is bonded in a manner
satisfactory to

 

73

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

Lender and (D) at Lender’s request, a security agreement, financing statement
and/or subordination agreement in form and substance reasonably satisfactory to
Lender executed by the supplier of the Offsite Materials, and/or such other
persons as Lender determines may have an interest in or claim to the Offsite
Materials, together with such other additional documentation and evidence as
Lender may reasonably require to assure itself that it has a perfected first
priority lien on the Offsite Materials.

8.9 Additional Equity Reserve.

(a) Concurrently with the execution of this Agreement, Borrower shall establish
at the Reserve Bank a reserve account to be governed by this Section 8.9 (the
“Additional Equity Reserve”). No funds are required to be deposited into the
Additional Equity Reserve until Borrower has raised additional equity as
required by Section 6.28 hereof. All additional equity or the proceeds of any
Mezzanine Loan made to satisfy such additional equity requirement shall be
deposited into the Additional Equity Reserve.

(b) Once funds are deposited into the Additional Equity Reserve, such funds
shall be disbursed into the Construction Draw Account prior to any further
disbursements of the Construction Reserve. Such funds shall be disbursed into
the Construction Draw Account in the same manner as funds from the Construction
Reserve in accordance with Section 8.5(b) hereof.

(c) The Additional Equity Reserve shall meet the standards for custodial
accounts as required by Lender from time to time. Lender shall not be
responsible for any losses resulting from investment of the Additional Equity
Reserve or for obtaining any specific level or percentage of earnings on such
investment. All interest and other proceeds paid on the funds deposited in the
Additional Equity Reserve shall accrue to the benefit of Borrower under
Borrower’s tax identification numbers and shall remain in the Additional Equity
Reserve as collateral for Borrower’s obligations under the Loan Documents.

(d) In no event shall Lender be obligated to authorize the disbursement of funds
in the Additional Equity Reserve if an Event of Default exists under this
Agreement (including, without limitation, Borrower’s failure to pay in full any
fees, costs and expenses then due and payable under this Agreement) or under any
of the other Loan Documents, or if an act, event or condition shall have
occurred and then be existing that with notice and/or the lapse of time would
constitute an Event of Default hereunder or under any of the other Loan
Documents.

8.10 All Reserves as Additional Security and Source of Payment.

(a) Borrower hereby assigns and grants to Lender a security interest in the
Reserves as additional security for all of Borrower’s obligations under the Loan
Documents. Upon an Event of Default, Lender shall have the rights and remedies
accorded to Lender with respect to the Reserves as set forth in the Accounts
Pledge Agreement. The Reserves are solely for the added protection of Lender and
entail no responsibility on Lender’s part beyond allowing the due credit for
sums actually deposited therein.

(b) If the Reserves are insufficient to pay the sums required when the same
shall become due and payable, Borrower shall immediately deposit the full amount
of any such deficiency in the respective Reserve.

 

74

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

(c) The Reserves shall be subject to the terms of the Reserve Accounts Control
Agreement.

(d) Each of the Reserves shall be invested in a money market or other demand
deposit account with Reserve Bank.

ARTICLE 9

INFORMATION AND REPORTING REQUIREMENTS

9.1 Financial and Business Information. As long as the Loan remains unpaid, or
any other Obligation remains unpaid or unperformed, Borrower and the Separate
Property Owner, at Borrower’s and the Separate Property Owner’s sole expense,
shall keep (or cause Manager to keep) adequate books and records in form
reasonably acceptable to Lender, in accordance with GAAP, and shall deliver the
following reports to Lender:

(a) As soon as practicable, and in any event, on or prior to the twenty first
(21st) day of each calendar month during the term of the Loan, separate monthly
financial statements for the Property. The monthly financial statements shall
include the following schedules: (i) a cash summary detailing all cash activity
and reconciling beginning and ending cash balances; (ii) a schedule of aged
accounts payable and aged accounts receivable for the preceding calendar month;
(iii) reconciliations of the cash accounts to the cash balances recorded on the
balance sheet for the preceding calendar month together with copies of the
corresponding bank statements; (iv) a supplemental schedule that lists all
capital expenditures; (v) a monthly rent roll in form required by Lender
(commencing, for the Property, with the first monthly report to be submitted
after the first rental of apartment units or other space at the Property), and
(vi) such other reports in respect of the financial condition and operation of
the Property as Lender may reasonably request. Each financial statement provided
pursuant to this paragraph shall be certified by an officer of Borrower as
fairly presenting the financial condition, results of operations and changes in
financial position of the Property in accordance with generally accepted
accounting practices, consistently applied, as at such date and for such
periods, subject only to normal year-end audit adjustments.

(b) As soon as practicable, and in any event, within twenty-one (21) days after
the end of each calendar quarter during the term of the Loan, separate quarterly
balance sheets and profit and loss statements for the preceding calendar quarter
for the Property and for the Separate Property. Such quarterly financial
statements shall set forth in comparative form the corresponding figures for the
same month and year-to-date period for the preceding calendar year, and in
comparison with the then current Approved Budgets, as applicable and such other
reports in respect of the financial condition and operation of the Property and
the Separate Property as Lender may reasonably request. Each financial statement
provided pursuant to this paragraph shall be certified by an officer of Borrower
or the Separate Property Owner, as applicable, as fairly presenting the
financial condition, results of operations and changes in financial position of
the Property or the Separate Property, as applicable, in accordance with
generally accepted accounting practices, consistently applied, as at such date
and for such periods, subject only to normal year-end audit adjustments.

 

75

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

(c) As soon as practicable and, in any event, within ninety (90) days after the
close of each Fiscal Year of Borrower and the Separate Property Owner, separate
annual financial statements for the Property and for the Separate Property. Such
financial statements shall include at least the following: (i) a balance sheet
and profit and loss statement, setting forth in comparative form the
corresponding figures as at the end of the preceding Fiscal Year; (ii) a
comparison of the actual cash flow activity for the previous year to the
Approved Budgets together with a written explanation for material variances, as
reasonably determined by Lender; and (iii) such other reports in respect of the
financial condition of the Property and the Separate Property as Lender may
reasonably request. Each financial statement provided pursuant to this paragraph
shall be certified by an officer of Borrower or the Separate Property Owner, as
applicable, as fairly presenting the financial condition, results of operations
and changes in financial position of the Property or the Separate Property, as
applicable, in accordance with generally accepted accounting practices,
consistently applied, as at such date and for such periods.

(d) As soon as practicable and, in any event, within one hundred twenty
(120) days after the close of each Fiscal Year of Borrower, (i) an audited
balance sheet of Borrower as at the end of such Fiscal Year, setting forth in
comparative form the corresponding figures as at the end of the preceding Fiscal
Year; (ii) an audited profit and loss statement of Borrower, setting forth in
comparative form the corresponding figures for the previous Fiscal Year;
(iii) an audited statement of Pledgor’s equity, setting forth in comparative
form the corresponding figures for the previous Fiscal Year; and (iv) an audited
statement of cash flows of Borrower, all in reasonable detail. An opinion
rendered by the independent accounting firm to the effect that the auditor
concludes that Borrower’s financial statements do not present Borrower’s
financial position, results of operations, and cash flows in conformity with
GAAP shall be deemed to be an Event of Default under this Agreement. Borrower’s
independent auditing firm shall be approved by Lender.

(e) As soon as practicable, and in any event within thirty (30) days prior to
the end of each calendar year in which the Loan remains outstanding, a
projection of gross revenues, operating expenses, capital expenditures, and debt
service for the Property and the Separate Property and Borrower and the Separate
Property Owner on a month by month basis for the next succeeding calendar year,
together with all supporting schedules certified by officers of Borrower and the
Separate Property Owner, as applicable, to be true, correct and complete. This
projection shall be in substantially the same form as the Approved Budgets and
shall be subject to Lender’s approval. Such statements shall contain all
information reasonably required by Lender.

(f) Promptly after request by Lender, copies of any detailed third party reports
submitted to Borrower in connection with the accounts or books of Borrower or
the Separate Property Owner or any audit of any of them, if any.

(g) Within one (1) Business Day of becoming aware of the existence of any
condition or event which constitutes an Event of Default, a written notice
specifying the nature and period of existence thereof and what action is being
taken with respect thereto.

 

76

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

(h) Within five (5) days of receipt, Borrower or the Separate Property Owner
shall provide to Lender copies of all reports and notices delivered to Borrower
or the Separate Property Owner by the Manager or to Manager by Borrower of the
Separate Property Owner.

(i) Within five (5) days after the commencement of each calendar month, Borrower
shall deliver to Lender a written narrative report in form, detail and scope
acceptable to Lender describing the status and recent developments concerning:
(i) Borrower’s efforts to procure the Mezzanine Loan and any additional equity
required under Section 6.28 hereof; (ii) Borrower’s marketing and advertising
plans and activities; (iii) Borrower’s leasing and/or condominium sales
activities; (iv) Borrower’s actions, if any, to sell the Property (or any part
thereof) or the Separate Property Owner’s actions, if any, to sell the Separate
Property (or any part thereof) and (v) the refinancing of the Loan at maturity
or earlier. Borrower shall inform Lender in writing of any material developments
concerning any of the foregoing matters within three (3) Business Days of the
occurrence of such development and shall provide to Lender copies of all letters
of intent, term sheets, applications, offers or commitments or any other
material correspondence received or delivered by Borrower with respect to
thereto and all marketing and advertising plans and brochures or other marketing
and advertising materials within five (5) Business Days of Borrower’s receipt or
delivery thereof, as applicable.

(j) Such other data and information as from time to time may be reasonably
requested by Lender.

9.2 Financial Reporting for Guarantor. Borrower shall cause Guarantor to provide
to Lender on a timely basis the financial reports required to be provided by
Guarantor to Lender under the terms of the Guaranties.

ARTICLE 10

EVENTS OF DEFAULT; REMEDIES

10.1 Events of Default. The existence or occurrence of any one or more of the
following events shall constitute an event of default hereunder (an “Event of
Default”):

(a) Borrower fails to pay all or any portion of any installment of principal or
interest due under the Note or under the Loan Documents or the full repayment of
the Loan upon maturity or any other fee or other amount when due for which the
due date is scheduled in or ascertainable from the Loan Documents including,
without limitation, any required deposit into any of the Reserves; or

(b) Borrower fails to pay any fee or other amount due to be paid to Lender under
any Loan Document not described in subparagraph (a) above within five
(5) Business Days of Lender’s written demand therefor; or

(c) Borrower fails to perform or observe any term, covenant or agreement
contained in this Agreement within the time period provided in this Agreement
(other than any term, covenant or agreement otherwise addressed in another
paragraph of this Section 10.1, for which Borrower will have the grace periods
(if any) and notice rights (if any) set forth in such other paragraphs),
provided, however, that if no time period is stated in this Agreement, then
Borrower shall have a cure period of thirty (30) days after written notice from
Lender of

 

77

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

Borrower’s failure to perform such term, covenant or agreement, provided,
however, that if such breach is not reasonably susceptible of cure within said
thirty (30) days, then such period shall be extended so long as Borrower is
diligently and actively pursuing such cure to completion, up to a maximum of
sixty (60) days from the date of Lender’s initial written notice of breach; or

(d) A breach or default shall occur and continue beyond any applicable grace or
cure period with respect to any indebtedness of Borrower to any Person which
breach or default could have a material adverse effect on the financial
condition of Borrower, Borrower’s ability to perform its Obligations, the
Construction or operations of the Property or the Separate Property; or

(e) Any insurance policy required under the Deeds of Trust or any other Loan
Documents shall lapse, cancel, or terminate for any reason, or Borrower shall
fail to obtain any insurance policy required under the Deeds of Trust or any
other Loan Document, or any such insurance policy shall fail to name Lender as
additional insured and/or the sole loss payee; or

(f) Any representation or warranty in this Agreement or any other Loan Document,
including the Guaranties, or in any certificate, agreement, instrument or other
document made or delivered pursuant to or in connection with any Loan Document,
proves to have been materially incorrect or incomplete when made, and if the
misrepresentation was unintentional and is susceptible to cure, Borrower fails
to cure such breach of representation or warranty within ten (10) days after
notice from Lender; or

(g) Any Loan Document, at any time after its execution and delivery and for any
reason other than the agreement of Lender or satisfaction in full of all the
Obligations, ceases to be in full force and effect or is declared by a court of
competent jurisdiction to be null and void, invalid or unenforceable in any
respect, or any party thereto wrongfully denies that it has any or further
liability or obligation under any Loan Document, or wrongfully purports to
revoke, terminate or rescind same; or

(h) A final judgment against Borrower is entered for the payment of money in
excess of $100,000 and such judgment remains unsatisfied without procurement of
a stay of execution within thirty (30) days of the rendering of such judgment;
or

(i) Any Borrower Party (i) is the subject of an order for relief in a bankruptcy
case, or is unable or admits in writing its inability to pay its debts as they
mature, or makes an assignment for the benefit of creditors; (ii) applies for or
consents to the appointment of any receiver, trustee, custodian, conservator,
liquidator, rehabilitator or similar officer for it or for all or any part of
the Property or the Separate Property; (iii) is a Person for whom any receiver,
trustee, custodian, conservator, liquidator, rehabilitator or similar officer is
appointed without the application or consent of that Person and the appointment
continues undischarged or unstayed for forty-five (45) calendar days;
(iv) institutes or consents to any bankruptcy, insolvency, reorganization,
arrangement, readjustment of debt, dissolution, custodianship, conservatorship,
liquidation, rehabilitation or similar case or proceedings relating to it or to
all or any part of the Property or the Separate Property under the Laws of any
jurisdiction; (v) any similar case or proceeding is instituted without the
consent of such Borrower Party and continues undismissed or unstayed for
forty-five (45) calendar days; or (vi) any judgment, writ, warrant of attachment

 

78

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

or execution or similar process is issued or levied against all or any material
part of the property of any Borrower Party and is not released, vacated or fully
bonded within forty-five (45) calendar days after its issue or levy; or

(j) Except as otherwise expressly permitted by any Loan Document or agreed to by
Lender, at any time after the execution and delivery of any Loan Document and
for any reason other than satisfaction in full of all Obligations, the Lien
intended to be created by said Loan Document ceases or fails to constitute a
valid, perfected and subsisting Lien on the Collateral purported to be covered
thereby with a Lien priority as set forth in such Loan Document; or

(k) Borrower, the Separate Property Owner, or Guarantor shall fail to deliver to
Lender any of the financial statements and information or federal or state tax
returns as and when due hereunder or under the Guaranties after fifteen
(15) days written notice from Lender either to Borrower or to such
non-delivering Borrower, the Separate Property Owner, or Guarantor of such
failure to deliver; or

(l) Any failure by any Borrower Party to perform any of its covenants or
obligations under any of the Contracts and/or Licenses, Permits and Approvals
after fifteen (15) days written notice from Lender either to such non-performing
Borrower Party or to Borrower of such failure to perform; or

(m) Borrower, the Separate Property Owner, or Pledgor is dissolved or liquidated
or all or substantially all of the assets of Borrower, the Separate Property
Owner, or Pledgor is sold or otherwise transferred in violation of the
provisions of this Agreement or the other Loan Documents without the written
consent of Lender or Guarantor dissolves or is liquidated; or

(n) (i) there is any material deviation in the Construction from the Plans and
Specifications or governmental requirements or the appearance or use of
defective workmanship or materials in constructing the Improvements, and
Borrower fails to remedy the same to comply with the Plans and Specifications or
applicable governmental requirements within ten (10) days of Lender’s written
demand to do so, provided, however, if such deviation or defect is not
reasonably susceptible to cure within ten (10) days, then such cure period shall
be extended if within said ten (10) days Borrower submits to Lender a plan to
cure such deviation or defect which is reasonably acceptable to Lender and
Borrower commences action to cure such deviation or defect within twenty
(20) days following Lender’s initial written demand so long as Borrower is
actively and diligently pursuing such cure to completion, provided that such
cure period shall in no event extend beyond sixty (60) days following Lender’s
initial written demand; (ii) there is a cessation of the Construction prior to
Final Completion for a continuous period of more than fifteen (15) days, subject
to Section 5.2(d) hereof; (iii) the failure to cause Substantial Completion by
the Substantial Completion Date; (iv) the failure to cause Final Completion by
the Final Completion Date; (v) the Construction in accordance with the Loan
Documents is prohibited, enjoined or delayed for a continuous period of more
than thirty (30) days, subject to Section 5.2(d); or (vi) utilities or other
public services necessary for the full occupancy and utilization of the Property
or the Separate Property and the Improvements thereon are curtailed for a
continuous period of more than thirty (30) days, subject to Section 5.2(d)
hereof; or

 

79

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

(o) (i) Borrower or the Separate Property Owner, as applicable, fails to pay or
discharge, effect a release or provide assurance with respect any claim of lien
or bonded stop notice as and within the time period required by Section 5.10(a)
hereof; (ii) the condemnation, seizure or appropriation of any portion of the
Property, the Separate Property or the Improvements thereon, other than a de
minimis portion of the Property or the Separate Property; (iii) the occurrence
of an uninsured casualty with respect to any portion of the Property, the
Separate Property or the Improvements thereon unless within fifteen
(15) Business Days of the casualty Borrower, acting where applicable on behalf
of the Separate Property Owner, deposits into the Construction Reserve one
hundred twenty-five percent (125%) of the amount determined by Lender necessary
to repair or to restore the Property, the Separate Property, and/or the
Improvements thereon; or (iv) the sequestration or attachment of, or any levy or
execution upon any of the Property, the Separate Property or the Improvements
thereon, any other Collateral provided by Borrower under any of the Loan
Documents or in any of the Reserves, or any substantial portion of the other
assets of Borrower, which sequestration, attachment, levy or execution is not
released, expunged or dismissed prior to the earlier of thirty (30) days or the
sale of the assets affected thereby; or

(p) An event of default under any of the other Loan Documents and the expiration
of any applicable grace or notice and cure period contained therein; or

(q) A decrease in the net worth of the Guarantor by fifty percent (50%) or more
from its net worth as of the date of the most recent financial statement
delivered to Lender prior to the date hereof; or

(r) A material adverse change in the financial condition of Guarantor which may
have a materially adverse impact on Guarantor’s ability to discharge its
obligations under its Guaranties.

10.2 Remedies. Upon the occurrence of any Event of Default hereunder, in
addition to any other rights or remedies available to it hereunder or under the
Note, the Deeds of Trust or any of the other Loan Documents or at law or in
equity, Lender may exercise any or all of the following rights and remedies as
it may deem necessary or appropriate without further notice or action:

(a) declare the outstanding principal balance of the Loan, together with all
accrued and unpaid interest thereon and all other sums due hereunder or under
any of the other Loan Documents, to be immediately due and payable in full.

(b) cease making any further disbursements or advances hereunder whether from
the proceeds of the Loan, or any Reserve, including, without limitation, the
Construction Reserve and the Interest Reserve.

(c) set off all property of Borrower now or hereafter at any time in Lender’s
possession in any capacity whatsoever including, but not limited to, any balance
or share of any deposit, trust or agency account, as to all of which property
Borrower hereby grants Lender a lien and security interest.

 

80

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

(d) enter upon the Property and into possession of the Property and any other
property (and exclude Borrower and any other persons therefrom) and cause Final
Completion of the Improvements substantially in accordance with the Plans and
Specifications, with such changes therein as Lender or Lender’s representative
may from time to time deem appropriate, all at the sole risk, cost and expense
of Borrower. Lender or Lender’s representative shall have the right, at any and
all times, in its sole discretion to discontinue any work commenced by Lender or
Lender’s representative with respect to the Construction or to change any course
of action undertaken by it and shall not be bound by any limitations or
requirements of time whether set forth herein or otherwise. Upon acceleration of
the Loan, Lender or Lender’s representative shall have the right and power (but
shall not be obligated) to assume all or any portion of the obligations of
Borrower under any or all Prime Contracts as Lender or Lender’s representative
may elect and to take over and use all or any part or parts of the labor,
materials, supplies and equipment contracted for by or on behalf of Borrower,
whether or not previously incorporated into the Property. In connection with any
portion of the Construction undertaken by Lender or Lender’s representative
pursuant to the provisions of this Section, Lender or Lender’s representative
may do any or all of the following in its sole discretion or, at the direction
of the Lender, may elect to:

(i) engage builders, general contractors, general and trade contractors,
suppliers, architects, engineers, inspectors and others for the purpose of
furnishing labor, materials, equipment and fixtures in connection with the
Construction;

(ii) amend, modify or terminate any then existing contracts between Borrower and
any of the persons described in the preceding clause (i);

(iii) pay, settle or compromise all bills or claims which become Liens against
the Property, or which have been or may be incurred in any manner in connection
with the Construction or for the discharge of liens, encumbrances or defects in
the title of the Property; and

(iv) take such other action (including the employment of watchmen and the taking
of other measures to protect the Property) or refrain from acting under this
Agreement as Lender or Lender’s representative may in its sole and absolute
discretion from time to time determine without any limitation whatsoever.

(v) For these purposes, Borrower irrevocably appoints Lender as its
attorney-in-fact, which agency is coupled with an interest. As attorney-in-fact,
Lender may, in Borrower’s name, take or omit to take any action Lender may deem
appropriate, including, without limitation, exercising Borrower’s rights under
the Loan Documents and all contracts concerning the Property and/or Improvements
thereon.

(e) Enter upon the Separate Property or any portion thereof and into possession
of the Separate Property and any other property thereon (and exclude the
Separate Property Owner and any other persons therefrom). Pursuant to the
provisions of this Section, Lender or Lender’s representative may do any or all
of the following in its sole discretion or, at the direction of the Lender, may
elect to:

 

81

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

(i) pay, settle or compromise all bills or claims which become Liens against the
Separate Property, or which have been or may be incurred in any manner in
connection with any improvement, repair, maintenance, or operation thereof or
for the discharge of liens, encumbrances or defects in the title of the
Property; and

(ii) take such other action (including the employment of watchmen and the taking
of other measures to protect the Separate Property) or refrain from acting under
this Agreement as Lender or Lender’s representative may in its sole and absolute
discretion from time to time determine without any limitation whatsoever.

(iii) For these purposes, Borrower irrevocably appoints Lender as its
attorney-in-fact, which agency is coupled with an interest. As attorney-in-fact,
Lender may, in Borrower’s name, take or omit to take any action Lender may deem
appropriate, including, without limitation, exercising Borrower’s rights under
the Loan Documents and all contracts concerning the Separate Property and/or
Improvements thereon.

10.3 Lender’s Cessation of Construction. If Lender reasonably determines at any
time that the Improvements are not being constructed in accordance with the
Contract Documents and all governmental requirements, Lender may immediately
cause all construction to cease on any of the Improvements affected by the
condition of nonconformance. Borrower shall thereafter not allow any
construction work, other than corrective work, to be performed on any of the
Improvements affected by the condition of nonconformance until such time as
Lender notifies Borrower in writing that the nonconforming condition has been
corrected.

ARTICLE 11

MISCELLANEOUS

11.1 Cumulative Remedies; No Waiver. The rights, powers, privileges and remedies
of Lender provided herein or in the Note or the other Loan Documents are
cumulative and not exclusive of any right, power, privilege or remedy provided
by Law or equity. No failure or delay on the part of Lender in exercising any
right, power, privilege or remedy may be, or may be deemed to be, a waiver
thereof; nor may any single or partial exercise of any right, power, privilege
or remedy preclude any other or further exercise of the same or any other right,
power, privilege or remedy. The terms and conditions of Article 3 hereof are
inserted for the sole benefit of Lender and Lender may waive them in whole or in
part, with or without terms or conditions, without prejudicing Lender’s rights
to assert them in whole or in part at any future time.

11.2 Amendments; Consents. This Agreement, including the defined terms and all
Exhibits, Schedules and Addenda, if any, attached hereto embodies the final and
complete agreement between the parties hereto and supersedes all prior and
contemporaneous negotiations, offers, proposals, agreements, commitments,
promises, acts, conduct, course of dealing, representations, statements,
assurances and understandings, whether oral or written, including that certain
term sheet executed by Canyon Capital Realty Advisors LLC and Guarantor, dated

 

82

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

February 21, 2008 and may not be varied or contradicted by evidence of any such
prior or contemporaneous matter or by evidence of any subsequent oral agreement
of the parties hereto. The parties hereto expressly acknowledge and agree that,
with regard to the subject matter of this Agreement and the transactions
contemplated herein, there are no oral agreements between the parties hereto.
The provisions of this Agreement and the other Loan Documents may be amended or
waived only by an instrument in writing signed by the Parties hereto and
thereto.

11.3 Costs, Expenses and Taxes. Whether or not the transactions contemplated in
this Agreement actually close, Borrower shall pay on demand the actual costs and
expenses of Lender and its participants in connection with the negotiation,
preparation, execution and delivery of the Loan Documents, and of Lender and its
participants in connection with the amendment, waiver, refinancing,
restructuring, reorganization (including a bankruptcy reorganization), and
enforcement or attempted enforcement of the Loan Documents, and any matter
related thereto, including, without limitation, filing fees, recording fees,
title insurance fees, appraisal fees, search fees, travel expenses, and other
out-of-pocket expenses and the fees and out-of-pocket expenses of any legal
counsel, independent public accountants and other outside experts retained by
Lender or its participants, and including, without limitation, any costs,
expenses or fees incurred or suffered by Lender or its participants in
connection with or during the course of any bankruptcy or insolvency proceedings
of Borrower. Borrower shall pay any and all documentary and other taxes (other
than income or gross receipts taxes applicable to Lender or its participants)
and all costs, expenses, fees and charges payable or determined to be payable in
connection with this Agreement, any other Loan Document or any other instrument
or writing to be delivered hereunder or thereunder, or in connection with any
transaction pursuant hereto or thereto, and shall reimburse, hold harmless and
indemnify Lender from and against any and all loss, liability or legal or other
expense with respect to or resulting from any delay in paying or failure to pay
any such tax, cost, expense, fee or charge or that any of them may suffer or
incur by reason of the failure of any Borrower Party to perform any of its
Obligations. Any amount payable to Lender or its participants under this
Section 11.3 shall bear interest from the sixth (6th) day following the date of
demand for payment at the Default Rate until such amount is repaid in full.

11.4 Nature of Lender’s Obligations. Nothing contained in this Agreement or any
other Loan Document and no action taken by Lender pursuant hereto or thereto
may, or may be deemed to, make Lender a partner of a partnership, an associate
of an association, or a joint venturer of a joint venture or other entity,
either with Borrower or any Affiliate of Borrower and, at all times, the
relationship between Lender and Borrower shall be that of a lender and a
borrower, respectively.

11.5 Reliance Upon Representations and Warranties. All representations and
warranties contained herein or in any other Loan Document, or in any certificate
or other writing delivered by or on behalf of any one or more of the Parties to
any Loan Document, have been or will be relied upon by Lender, notwithstanding
any investigation made by Lender or on its behalf.

11.6 Notices. Any notices to be given under this Agreement or any of the other
Loan Documents must be in writing and shall be (a) delivered personally, or
(b) mailed by certified or registered mail, return receipt requested, or
(c) sent via nationally recognized overnight courier

 

83

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

(e.g. Federal Express), or (d) transmitted by facsimile, in each case to the
parties at the following addresses or fax numbers:

 

If to Borrower:

   Meruelo Maddux – 845 S. Flower Street, LLC    c/o Meruelo Maddux Properties,
Inc.    761 Terminal Street    Building 1, Second Floor    Los Angeles, CA 90021
   Attn: Richard Meruelo or John Maddux    Facsimile: (213) 627-5979

With a copy to:

   Meruelo Maddux Properties, Inc.    761 Terminal Street    Building 1, Second
Floor    Los Angeles, CA 90021    Attn: Todd Nielsen    Facsimile: (213)
291-2830

With a copy to:

   Meruelo Maddux Properties, Inc.    761 Terminal Street    Building 1, Second
Floor    Los Angeles, CA 90021    Attn: Andrew Murray    Facsimile: (213)
291-2830

If to Lender

   Canpartners Realty Holding Company IV LLC    c/o Canyon Capital Realty
Advisors LLC    2000 Avenue of the Stars, 11th Floor    Los Angeles, California
90067    Attn.: Mr. K. Robert Turner              Mr. Jonathan P. Roth   
Facsimile: (310) 272-1501

With a copy to:

   Canpartners Realty Holding Company IV LLC    c/o Canyon Capital Realty
Advisors LLC    2000 Avenue of the Stars, 11th Floor    Los Angeles, California
90067    Attn.: Head of Asset Management    Facsimile: (310) 272-1501

With a copy to:

   Sidley Austin LLP    555 West Fifth Street, 40th Floor    Los Angeles,
California 90013    Attn.: Bruce W. Fraser, Esq.    Facsimile: (213) 896-6600

 

84

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

Any party hereto may change its address and/or fax number for service of notices
by giving notice to the other parties in the manner provided in this Paragraph.
Any such notice shall be deemed to have been received: (a) when the notice is
received by the recipient or when delivery to said address is attempted but
refused or on the date of attempted delivery if the address is no longer valid
if sent by registered or certified mail or overnight courier, (b) on the date of
sending by facsimile to said fax number if sent during business hours on a
Business Day (otherwise on the next Business Day), and (c) on the date of
delivery by hand if delivered during business hours on a Business Day (otherwise
on the next Business Day).

11.7 Participations and Securitization.

(a) Borrower acknowledges that Lender may elect from time to time in its sole
discretion, on or after the date of this Agreement, to sell, assign or grant
participations in the Loan and/or interests in the Loan to one or more Persons
at the expense of Lender. Borrower acknowledges that Lender may distribute to
such Persons all documents and information (including, but not limited to,
financial information), which has been or is hereafter provided or known to
Lender with respect to the Property and its operation and any party connected
with the Loan. In the event of any such sale, assignment or participation,
Lender and any such Persons shall share in the rights and obligations of Lender
as set forth in the Loan Documents only as and to the extent that they agree
among themselves. In connection with any such sale, assignment or participation,
Borrower further agrees that the Loan Documents shall be sufficient evidence of
the obligation of Borrower to each purchaser, assignee or participant and, upon
written request by Lender, Borrower, at no expense to Borrower shall enter into
such amendments or modifications to the Loan Documents as may be required by
Lender in order to evidence any such sale, assignment or participation so long
as such amendments or modifications do not increase the liabilities or
obligations of any Borrower Party under the Loan Documents and shall be
completed at no expense to any Borrower Party. The indemnity obligations of
Borrower and Guarantor under the Loan Documents shall also apply with respect to
any purchaser, assignee or participant.

(b) Borrower hereby acknowledges and makes each Note a registered obligation for
United States withholding tax purposes. Borrower shall be the registrar for the
Note (the “Registrar”) with full power of substitution. In the event the
Registrar becomes unable or unwilling to act as registrar under this Agreement,
Borrower shall reasonably designate a successor Registrar. Any party which
acquires a beneficial interest in the Loan (a “Holder”) who is a foreign person,
by its acceptance of the Note, hereby agrees to provide Borrower with a
completed Internal Revenue Service Form W-8 (Certificate of Foreign Status) or a
substantially similar form for such Holder, participants or other affiliates who
are holders of beneficial interests in the Note. Notwithstanding any contrary
provision contained herein or any of the other Loan Documents, neither the Note
nor any interests therein may be sold, transferred, hypothecated, participated
or assigned to any Person except upon satisfaction of the conditions specified
herein. Each Holder, by its acceptance of the Note, agrees to be bound by the
provisions of this section and to indemnify and hold harmless the Registrar
against any and all loss or liability arising from the disposition by such
Holder of the Note or any interest therein in violation of this section. The
Registrar shall keep at its principal executive office (or an office or agency
designated by it by notice to the last registered Holder) a ledger, in which,
subject to such reasonable regulations as it may prescribe, but at its expense
(except as specified below), it shall

 

85

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

provide for the registration and transfer of the Note. No sale, transfer,
hypothecation, participation or assignment of the Note or the interest therein
shall be effective for any purpose until it shall be registered on the books of
the Registrar to be maintained for such purpose. In the event of a sale,
transfer, hypothecation, participation or assignment of the Note or any interest
therein, each Holder, prior to such sale, transfer, hypothecation, participation
or assignment of the Note or any interest therein shall provide the Registrar
with notice of such transaction at the time of such transaction. The Registrar
shall record the transfer of the Note on the books maintained for this purpose
upon receipt by the Registrar at the office or agency designated by the
Registrar of (i) a written assignment of the Note being assigned (or the
applicable interest therein), (ii) funds sufficient to pay any transfer taxes
payable upon the making of such transfer as well as the cost of reviewing the
documents presented to the Registrar, and (iii) such evidence of due execution
as the Registrar shall reasonably require. The Registrar shall record the
transfer of the Note on the books maintained for such purpose at the cost and
expense of the assignee.

11.8 Counterparts. This Agreement and any other Loan Document may be executed in
any number of counterparts and any party hereto or thereto may execute any
counterpart, each of which when executed and delivered will be deemed to be an
original and all of which counterparts of this Agreement or any other Loan
Document, as the case may be, when taken together will be deemed to be but one
and the same instrument.

11.9 Binding Effect; Assignment. This Agreement and the other Loan Documents
shall be binding upon and shall inure to the benefit of the parties hereto and
thereto and Borrower may not assign its rights hereunder or thereunder or any
interest herein or therein without the prior written consent of Lender, which
may be given or withheld in Lender’s sole discretion.

11.10 Indemnity by Borrower. Borrower agrees to indemnify, defend, save and hold
harmless Lender and its participants, directors, officers, agents, attorneys and
employees and their respective successors and assigns (collectively, the
“Indemnitees”) from and against: (a) any and all claims, demands, actions or
causes of action that are asserted against any Indemnitee by any Person (other
than Lender or a participant) if the claim, demand, action or cause of action
directly or indirectly relates to a claim, demand, action or cause of action
that such Person has or asserts against Borrower, any Affiliate of Borrower or
any officer, director or principal of Borrower and arises out of or relates to
the relationship between Borrower and Lender under any of the Loan Documents or
the transactions contemplated thereby; (b) any and all liabilities, losses,
costs or expenses (including attorneys’ fees and disbursements and other
professional services) that any Indemnitee suffers or incurs as a result,
directly or indirectly, of any event, circumstance or matter occurring by reason
of Lender making the Loan and/or with respect to the Property, the Separate
Property or other Collateral; and (c) any and all liabilities, losses, costs or
expenses (including attorneys’ fees and disbursements and other professional
services) that any Indemnitee suffers or incurs as a result of the assertion of
any foregoing claim, demand, action or cause of action; provided that no
Indemnitee shall be entitled to indemnification for any loss caused by its own
gross negligence or willful misconduct. Each Indemnitee is authorized to employ
counsel of its own choosing in enforcing its rights hereunder and in defending
against any claim, demand, action or cause of action covered by this
Section 11.10. Any obligation or liability of Borrower to any Indemnitee under
this Section 11.10 shall be and hereby is covered and secured by the Loan
Documents and the Collateral, and shall survive the expiration or

 

86

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

termination of this Agreement and the repayment of the Loan and the payment and
performance of all other Obligations owed to Lender.

11.11 Lender’s Discretion. Whenever pursuant to this Agreement, Lender exercises
any right given to it to approve or disapprove, or any arrangement or term is to
be satisfactory to Lender, the decision of Lender to approve or disapprove or to
decide whether arrangements or terms are satisfactory or not satisfactory shall
(except as is otherwise specifically herein provided) be in the sole and
absolute discretion of Lender.

11.12 Nonliability of Lender. Borrower acknowledges and agrees that:

(a) Any inspections of the Property or the Separate Property made by or through
Lender are for purposes of administration of the Loan only and Borrower is not
entitled to rely upon the same;

(b) By accepting or approving anything required to be observed, performed,
fulfilled or given to Lender pursuant to the Loan Documents, including any
certificate, financial statement, insurance policy or other document, Lender
shall not be deemed to have warranted or represented the sufficiency, legality,
effectiveness or legal effect of the same, or of any term, provision or
condition thereof, and such acceptance or approval thereof shall not constitute
a warranty or representation to anyone with respect thereto by Lender; and

(c) The relationship between Borrower and Lender is, and shall at all times
remain, solely that of a borrower and lender; Lender shall not under any
circumstance be construed to be a partner or joint venturer of Borrower or its
Affiliates; Lender shall not under any circumstance be deemed to be in a
relationship of confidence or trust or a fiduciary relationship with Borrower or
its Affiliates, or to owe any fiduciary duty to Borrower or its Affiliates;
Lender does not undertake or assume any responsibility or duty to Borrower or
its Affiliates to select, review, inspect, supervise, pass judgment upon or
inform Borrower or its Affiliates of any matter in connection with the Property,
the Separate Property, any Collateral held by Lender or the operations of
Borrower or its Affiliates; Borrower and its Affiliates shall rely entirely upon
their own judgment with respect to such matters; and any review, inspection,
supervision, exercise of judgment or supply of information undertaken or assumed
by Lender in connection with such matters is solely for the protection of Lender
and neither Borrower nor any other Person is entitled to rely thereon.

11.13 No Third Parties Benefited. This Agreement is made for the purpose of
defining and setting forth certain obligations, rights and duties of Borrower
and Lender in connection with the Loan, and is made for the sole protection of
Borrower, Lender and Lender’s successors and assigns. Except as provided in
Section 11.9 and in this Section 11.12, no other Person shall have any rights of
any nature hereunder or by reason hereof.

11.14 Further Assurances. Borrower shall, at its expense and without expense to
Lender do, execute and deliver such further acts and documents as Lender from
time to time reasonably requires for the assuring and confirming unto Lender of
the rights hereby created or intended now or hereafter so to be, or for carrying
out the intention of facilitating the performance of the

 

87

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

terms of any Loan Document, or for assuring the validity, perfection, priority
or enforceability of any Lien under any Loan Document.

11.15 Integration. This Agreement and the Exhibits and Schedules hereto,
together with the other Loan Documents, comprise the complete and integrated
agreement of the parties on the subject matter hereof and thereof and supersede
all prior or contemporaneous agreements, written or oral, on the subject matter
hereof or thereof. In the event of any conflict between the provisions of this
Agreement and those of any other Loan Document, the provisions of this Agreement
shall control and govern; provided that the inclusion of supplemental rights or
remedies in favor of Lender in any other Loan Document shall not be deemed a
conflict with this Agreement. Each Loan Document was drafted with the joint
participation of the respective parties thereto and shall be construed neither
against nor in favor of any party, but rather in accordance with the fair
meaning thereof.

11.16 Governing Law. Except to the extent otherwise provided therein, each Loan
Document shall be governed by, and construed and enforced in accordance with,
the local Laws of the State of California without giving effect to its conflict
of laws principles. The parties stipulate and agree that the State of California
has a substantial relationship to the underlying transaction related to this
Agreement and to the parties involved.

11.17 Severability of Provisions. Any provision in any Loan Document that is
held to be inoperative, unenforceable or invalid as to any party or in any
jurisdiction shall, as to that party or jurisdiction, be inoperative,
unenforceable or invalid without affecting the remaining provisions or the
operation, enforceability or validity of that provision as to any other party or
in any other jurisdiction, and to this end the provisions of all the Loan
Documents are declared to be severable.

11.18 Headings. Article and Section headings in this Agreement and the other
Loan Documents are included for convenience of reference only and are not part
of this Agreement or the other Loan Documents for any other purpose.

11.19 Time of the Essence. Time is of the essence of this Agreement and the
other Loan Documents.

11.20 WAIVERS.

(1) JURY WAIVER. TO THE FULLEST EXTENT PERMITTED UNDER APPLICABLE LAW, IN
CONSIDERATION OF LENDER’S AGREEMENT TO THE PROVISIONS OF THIS AGREEMENT AND THE
OTHER LOAN DOCUMENTS, BORROWER AND LENDER HEREBY EXPRESSLY AND UNCONDITIONALLY
WAIVE, IN CONNECTION WITH ANY SUIT, ACTION OR PROCEEDING BROUGHT BY LENDER OR
BORROWER IN CONNECTION WITH THE LOAN AND/OR THIS AGREEMENT, ANY AND EVERY RIGHT
IT MAY HAVE TO A TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW
OR HEREAFTER EXIST WITH REGARD TO THIS AGREEMENT, THE NOTE OR THE OTHER LOAN
DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION
THEREWITH INCLUDING, BUT NOT LIMITED TO THOSE RELATING TO

 

88

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

(A) ALLEGATIONS THAT A PARTNERSHIP EXISTS BETWEEN LENDER AND BORROWER; (B) USURY
OR PENALTIES OR DAMAGES THEREFOR; (C) ALLEGATIONS OF UNCONSCIONABLE ACTS,
DECEPTIVE TRADE PRACTICE, LACK OF GOOD FAITH OR FAIR DEALING, LACK OF COMMERCIAL
REASONABLENESS, OR SPECIAL RELATIONSHIPS (SUCH AS FIDUCIARY, TRUST OR
CONFIDENTIAL RELATIONSHIP); (D) ALLEGATIONS OF DOMINION, CONTROL, ALTER EGO,
INSTRUMENTALITY, FRAUD, REAL ESTATE FRAUD, MISREPRESENTATION, DURESS, COERCION,
UNDUE INFLUENCE, INTERFERENCE OR NEGLIGENCE; (E) ALLEGATIONS OF TORTIOUS
INTERFERENCE WITH PRESENT OR PROSPECTIVE BUSINESS RELATIONSHIPS OR OF ANTITRUST;
OR (F) SLANDER, LIBEL OR DAMAGE TO REPUTATION. THIS WAIVER OF RIGHT TO TRIAL BY
JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY BORROWER AND LENDER, AND IS INTENDED
TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO
A TRIAL BY JURY WOULD OTHERWISE ACCRUE. LENDER IS HEREBY AUTHORIZED TO FILE A
COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER
BY BORROWER.

(2) ADDITIONAL WAIVERS. TO THE FULLEST EXTENT PERMITTED UNDER APPLICABLE LAW, IN
CONSIDERATION OF LENDER’S AGREEMENT TO THE PROVISIONS OF THIS AGREEMENT AND THE
OTHER LOAN DOCUMENTS, BORROWER HEREBY EXPRESSLY AND UNCONDITIONALLY WAIVES, IN
CONNECTION WITH ANY SUIT, ACTION OR PROCEEDING BROUGHT BY LENDER IN CONNECTION
WITH THE LOAN AND/OR THIS AGREEMENT, ANY AND EVERY RIGHT IT MAY HAVE TO
(i) INTERPOSE ANY COUNTERCLAIM THEREIN, EXCEPT TO THE EXTENT THAT SAID
COUNTERCLAIM MUST BE ASSERTED PURSUANT TO APPLICABLE LAW OR OTHERWISE BE BARRED
FROM BEING ASSERTED IN ANY OTHER ACTION AND (ii) HAVE THE SAME CONSOLIDATED WITH
ANY OTHER OR SEPARATE SUIT, ACTION OR PROCEEDING. NOTHING HEREIN CONTAINED SHALL
PREVENT OR PROHIBIT BORROWER FROM INSTITUTING OR MAINTAINING A SEPARATE ACTION
WITH RESPECT TO ANY ASSERTED CLAIM.

11.21 Hold Harmless. Borrower represents and warrants to Lender that there are
no commissions, finder’s fees, brokerage fees or financial advisory fees arising
out of the transactions contemplated by this Agreement. Borrower shall indemnify
and hold Lender harmless from and against any and all liabilities, claims,
demands, damages, costs and expenses, including, without limitation, attorneys’
fees and court costs, in connection with claims for any such commissions,
finders’ fees, brokerage fees, or financial advisory fees arising out of the
inaccuracy of the foregoing representations and/or warranties of Borrower.

11.22 Attorneys’ Fees; Enforcement. Borrower shall reimburse Lender for all
actual attorneys’ fees, costs and expenses, arising from and after the date
hereof, incurred by Lender in connection with the enforcement of Lender’s rights
under this Agreement and each of the other Loan Documents, including, without
limitation, actual attorneys’ fees, costs and expenses for trial, appellate
proceedings, out-of-court negotiations, workouts and settlements, and for
enforcement of rights under any state or federal statute, including, without
limitation, actual attorneys’ fees, costs and expenses incurred in bankruptcy
and insolvency proceedings such as

 

89

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

(but not limited to) in connection with seeking relief from stay in a bankruptcy
proceeding. The term “expenses” means any expenses incurred by Lender in
connection with any of the out-of-court, or state, or federal or bankruptcy
proceedings referenced above, including but not limited to the fees and expenses
of any appraisers, consultants and expert witnesses retained or consulted by
Lender in connection with any of those proceedings. Lender shall also be
entitled to its actual attorneys’ fees, costs and expenses incurred in any
post-judgment proceedings to collect and enforce the judgment. This provision is
separate and several and shall survive the merger of this Agreement into any
judgment on this Agreement.

11.23 Waiver of Statute of Limitations. Borrower hereby waives all rights to
plead or assert at any time any statute of limitations as a defense or bar to
any action or proceeding brought to enforce this Agreement or any of the other
Loan Documents or any Obligations hereunder or thereunder.

11.24 Survival of Representations and Warranties. All representations and
warranties contained herein or in any other Loan Document, or in any certificate
or other writing delivered by or on behalf of any one or more of the Parties to
any Loan Document, shall survive the making and repayment of the Loan hereunder
and have been or will be relied upon by Lender, notwithstanding any
investigation made by or on behalf of Lender.

[SIGNATURES FOLLOW ON NEXT PAGE]

 

90

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

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

 

BORROWER: MERUELO MADDUX - 845 S. FLOWER STREET, LLC, a Delaware limited
liability company By:   /s/ John Charles Maddux Name:   John Charles Maddux Its:
  President

[SIGNATURES CONTINUE ON NEXT PAGE]

LOAN AGREEMENT

 

Signature Page 1

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

LENDER: CANPARTNERS REALTY HOLDING
COMPANY IV LLC, a Delaware limited liability company By:   Canyon Capital Realty
Advisors LLC,   a Delaware limited liability company By:   /s/ K. Robert Turner
Name:   K. Robert Turner Title:   Managing Partner

LOAN AGREEMENT

 

Signature Page 2