Exhibit 10.4

 

CONSTRUCTION LOAN AGREEMENT

 

$21,742,500.00 Interim Construction Loan

by

TEXAS CAPITAL BANK, NATIONAL ASSOCIATION,

a national banking association

(“Lender”)

to

GGT AHC FAIRFIELD TX, LLC,

a Delaware limited liability company

(“Borrower”)

 

Provide Financing for:

1.    Purchase of 12.8 acre tract for construction of

294-unit Class A multifamily project

located at the SW corner of Cypresswood Drive and Mason Road in

[Unincorporated] Harris County, Texas;

Parcel ID No. 1299-660-030-001 (being replatted);

(the “Property”)

and

2.    Payment of the Utility Impact Fee regarding the

Harris County Municipal Utility District No. 322 (the “MUD #322”)

Utility Fee Reimbursement

 

Dated effective as of September 24, 2013

(“Closing”)

 

CONSTRUCTION LOAN AGREEMENT

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INDEX

 

         Page  

SECTION I DEFINITIONS

     1   

 1.1

 

 Defined Terms

     1   

 1.2

 

 Additional Definitions; Other Interpretive Provisions

     10   

 1.3

 

 ERISA Provisions

     11   

SECTION II TERMS, CONDITIONS AND PROCEDURES FOR BORROWING

     11   

 2.1

 

 The Loan

     11   

 2.2

 

 Advances, Payments, Recoveries and Collections, Books and Records

     13   

 2.3

 

 Offsite Materials

     23   

 2.4

 

 Extension Options

     23   

SECTION III REPRESENTATIONS AND WARRANTIES

     24   

 3.1

 

 Plans

     24   

 3.2

 

 Utility Services

     25   

 3.3

 

 No Commencement

     25   

 3.4

 

 Disclaimer of Permanent Financing

     25   

 3.5

 

 Budget Correct

     25   

 3.6

 

 Compliance with Zoning and Other Requirements

     25   

 3.7

 

 Experience

     25   

 3.8

 

 No Assignment

     25   

 3.9

 

 Not a Broker or Dealer

     25   

 3.10

 

 Compliance with Laws

     26   

 3.11

 

 Further Assurance

     26   

 3.12

 

 Notice of Final Agreement

     26   

 3.13

 

 Certification Regarding Anti-Terrorism Laws

     27   

 3.14

 

 Foreign Assets Control Regulations and Anti-Money Laundering

     28   

 3.15

 

 Patriot Act

     28   

SECTION IV AFFIRMATIVE COVENANTS

     29   

 4.1

 

 Preservation of Existence, Etc.

     29   

 4.2

 

 Further Assurances; Financing Statements

     29   

 4.3

 

 Insurance

     29   

 4.4

 

 Compliance with ERISA

     29   

 4.5

 

 Compliance with Environmental Laws

     30   

 4.6

 

 Commencement and Completion

     30   

 4.7

 

 Advances

     30   

 4.8

 

 Defects and Variances

     30   

 4.9

 

 Estoppel Certificates

     30   

 4.10

 

 Independent Consultant

     30   

 4.11

 

 Personalty and Fixtures

     31   

 4.12

 

 Affidavit of Commencement

     31   

 4.13

 

 Affidavit of Completion

     31   

 4.14

 

 Advertising by Lender

     31   

 4.15

 

 Approval of Lease Form Required

     31   

 4.16

 

 Correcting Defects

     31   

 

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 4.17

 

 Safe Storage

     32   

 4.18

 

 Reporting Covenants

     32   

 4.19

 

 Debt Service Coverage Ratio

     33   

 4.20

 

 Utility Fee Reimbursement

     33   

SECTION V NEGATIVE COVENANTS

     34   

 5.1

 

 Changes

     34   

 5.2

 

 OFAC

     34   

 5.3

 

 Changes of Ownership

     35   

SECTION VI EVENTS OF DEFAULT AND REMEDIES

     35   

 6.1

 

 Events of Default

     35   

 6.2

 

 Remedies

     36   

 6.3

 

 Discretionary Credit and Credit Payable On Demand

     36   

SECTION VII ASSIGNMENTS

     37   

 7.1

 

 Assignment of Construction Contract and Architectural Contract

     37   

 7.2

 

 Assignment of Plans

     37   

SECTION VIII LENDER’S DISCLAIMERS - BORROWER’S INDEMNITIES

     38   

 8.1

 

 No Obligation by Lender to Construct

     38   

 8.2

 

 No Obligation by Lender to Operate

     38   

 8.3

 

 Borrowers Indemnity

     39   

 8.4

 

 No Agency

     40   

SECTION IX MISCELLANEOUS

     40   

 9.1

 

 Taxes and Fees

     40   

 9.2

 

 Governing Law; Venue; Service of Process

     40   

 9.3

 

 Audits of Mortgaged Property; Fees

     41   

 9.4

 

 Costs and Expenses

     41   

 9.5

 

 Notices

     41   

 9.6

 

 Further Action

     41   

 9.7

 

 Successors and Assigns; Participation

     41   

 9.8

 

 Indulgence

     42   

 9.9

 

 Amendment and Waiver

     42   

 9.10

 

 Severability

     42   

 9.11

 

 Headings and Construction of Terms

     42   

 9.12

 

 Independence of Covenants

     42   

 9.13

 

 Reliance on and Survival of Various Provisions

     42   

 9.14

 

 Effective On Execution

     43   

 9.15

 

 Time of Essence

     43   

 9.16

 

 No Third Party Beneficiaries

     43   

 9.17

 

 Standard of Conduct of Lender

     43   

 9.18

 

 No Partnership

     44   

 9.19

 

 Conflicts

     44   

 9.20

 

 Permitted Successors and Assigns; Disclosure of Information

     44   

 9.21

 

 Exhibits and Schedules

     45   

 9.22

 

 Waiver of Jury Trial

     45   

 9.23

 

 Oral Agreements Ineffective

     45   

 

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 9.24

 

 Counterparts

     46   

 9.25

 

 USA Patriot Act Notice

     46   

 9.26

 

 Special Purpose Entity Covenants

     46   

 

CONSTRUCTION LOAN AGREEMENT -- PAGE iii

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CONSTRUCTION LOAN AGREEMENT

This CONSTRUCTION LOAN AGREEMENT (this “Agreement”) is made and delivered
effective as of the 24th day of September, 2013 (the “Effective Date”), by and
between GGT AHC FAIRFIELD TX, LLC, a Delaware limited liability company
(“Borrower”), and TEXAS CAPITAL BANK, NATIONAL ASSOCIATION, a national banking
association (“Lender”).

RECITALS

The following provisions are true and correct, are a part of this Agreement, and
form the basis for this Agreement:

A.        Borrower desires to obtain certain credit facilities from Lender, and
Lender is willing to provide those credit facilities to and in favor of
Borrower.

B.        Those credit facilities are subject to the terms and conditions set
forth in this Agreement and in every other Loan Document.

NOW, THEREFORE, in consideration of the premises and the mutual promises in this
Agreement, Borrower and Lender agree as follows:

SECTION I

DEFINITIONS

1.1        Defined Terms.  As used in this Agreement, the following terms have
the meanings set forth below:

“Accounts” has the meaning set forth in the UCC.

“Advance” means a disbursement by Lender of any of the proceeds of the Loan, any
insurance proceeds, or deposit to Borrower’s Depository Account by any method,
including, without limitation, journal entry, deposit to Borrower’s Depository
Account, check to third party or otherwise.

“Advance Request” means a completed, signed Advance Request on the form set
forth on Exhibit “F”, or in such other form as may be satisfactory to Lender.

“Affidavit of Commencement” means an affidavit in form and substance as set
forth on Exhibit “D”.

“Affidavit of Completion” means an affidavit in form and substance as set forth
on Exhibit “E”.

“Affiliate” means when used with respect to any Person, any other Person that,
directly or indirectly, controls, is controlled by, or is under common control
with that Person. For purposes of this definition, “control” (including, with
correlative meanings, the terms “controlled by” and “under common control with”)
means possession, directly or indirectly, of the power to direct or cause the
management and policies of that Person, whether through the ownership of voting
securities, by contract, or otherwise.

“Agreement” means this Construction Loan Agreement, together with all exhibits
and schedules, as it may from time to time be amended, supplemented, or
restated.

 

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“Allocations” means the line items set forth in the Budget for which Advances of
Loan proceeds may be made.

“Appraised Value” means the fair market value of the Mortgaged Property (or any
applicable portion thereof as required hereunder) as indicated by the appraisal
prepared by an appraiser designated by Lender, in Lender’s sole discretion, and
presented and based upon such standards as may be reasonably required by Lender
and satisfying the requirements of Section 2.2(i)(iv)(K) hereof; provided,
however, that (i) Lender shall be entitled to obtain a new or updated appraisal
when (a) the Appraised Value is required to be determined under this Agreement,
including, but not limited to upon extension of the Loan, or (b) upon an Event
of Default; and (ii) the reasonable cost of any such new or updated appraisal is
to be borne solely by Borrower.

“Approved Tenant Leases” means bona fide new lease agreements with third party
tenants pursuant to a residential lease form acceptable to Lender. Lender hereby
approves the form of apartment lease provided by the Texas Apartment
Association, Inc. (the “TAA”).

“Architect” means WALLACE GARCIA WILSON, Architexts, and any other architect
engaged by Borrower in connection with the Improvements.

“Architect’s Agreement” means a written agreement, substantially in the form
attached hereto as Exhibit “I”, duly executed by Architect in favor of Lender:
(a) consenting to the assignment and encumbrance hereunder of the Plans and of
Borrower’s rights in the Architectural Contract, if any, to Lender; (b) agreeing
to continue performance under the Architectural Contract, if any, at the request
and for the benefit of Lender; (c) subordinating all Liens and claims of
Architect against the Mortgaged Property, Borrower and the Plans, to those of
Lender under the Loan Documents; and (d) respecting such other matters as Lender
may require.

“Architectural Barrier Laws” means all architectural barrier laws including,
without limitation, the Americans with Disabilities Act of 1990, P.L. 101-336,
and the Architectural Barriers Act, Texas Government Code § 469.001, et seq., as
they may from time to time be amended.

“Architectural Contract” means a written agreement between Borrower and
Architect for architectural services pertaining to construction of the
Improvements, as applicable.

“Borrowers Equity” means the amount shown in the Budget on the line item
designated Borrower’s Equity, which amount is anticipated to be paid at the same
time as the Initial Advance, but, in any event, is required to be contributed by
Borrower to the Project Costs before any Advance by Lender under this Agreement
(other than an amount of ONE THOUSAND AND NO/100 DOLLARS ($1,000.00) required to
perfect Lender’s lien and the amounts described in Sections 2.1(k) and 2.1(l),
below) and which amount shall not total less than ELEVEN MILLION SEVEN THOUSAND
FIVE HUNDRED AND NO/100 DOLLARS ($11,007,500.00).

“Budget” means a schedule in the form of Exhibit “C” prepared by Borrower in
form and substance approved by Lender in writing from time to time, that
reflects the estimated cost of each item of work or material required to
construct the Improvements substantially in accordance with the Plans, together
with estimates of all other Project Costs and expenses, including, without
limitation, interest and professional fees to be incurred with respect to the
Project during the applicable period, subject to permitted reallocations as
provided herein.

“Business Day” means a weekday, Monday through Friday, except a legal holiday or
a day on which banking institutions in Dallas, Texas, are authorized or required
by law to be closed.

 

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“Cash Collateral Account” means a blocked, restricted account opened with Lender
by Borrower in the initial amount of ONE MILLION FIVE HUNDRED THOUSAND AND
NO/100 DOLLARS ($1,500,000.00) which shall be pledged against and serve as
additional Collateral for the Loan, as further described in Section 2.1(e)
hereof.

“Change of Control” means the occurrence of the failure of Borrower to be
Controlled by one or more Qualified Equityholders, as further described in
Section 5.3 hereof.

“Charges” means all fees, charges, and other things of value, if any, contracted
for, charged, received, taken, or reserved by Lender in connection with the
transactions relating to the Note and the Loan Documents that are treated as
interest under applicable law.

“Closing” means the closing of the Loan and Borrowers purchase of the Land
pursuant to Purchase and Sale Agreement dated March 4, 2013, as amended,
currently scheduled to occur on September 24, 2013.

“CNL” means CNL GROWTH PROPERTIES, INC., a Maryland corporation

“Commencement Date” means any day after the Deed of Trust is filed for
recordation in the appropriate records of the county where the Land is located,
but not later than October 1, 2013, subject to delays for force majeure events
(as defined in Section 6.1 hereof).

“Company Agreement” means the written agreement of the members of a particular
limited liability company concerning the affairs or the conduct of the business
of the limited liability company.

“Completion” means the full and complete performance of all work (including all
punch list items) required to fully construct and equip the Improvements in
accordance with this Agreement and all Legal Requirements and substantially in
accordance with the Plans.

“Completion Date” means the date which is eighteen (18) months after the
Commencement Date, subject to delays for force majeure events.

“Construction Contract” means any and all written or oral contracts,
subcontracts, and agreements (as each may from time to time be amended,
supplemented, or restated) between Borrower and any other party, and between
parties other than Borrower, in any way relating to the construction of the
Improvements on the Land or the supplying of material (specially fabricated or
otherwise), labor, supplies, or other services therefor.

“Contingency Allocation” means the Allocation related to “contingencies,”
miscellaneous or other non-specific purposes.

“Contractor” means AHC CONSTRUCTION, LLC, a Texas limited liability company, or
other general contractor engaged by Borrower and approved by Lender, and any
other “original contractor” (as defined in Section 53.001 of the Texas Property
Code) with whom Borrower contracts for the development, construction, and
Completion of all or part of the Improvements.

“Contractor’s Agreement” means a written agreement, substantially in the form
attached hereto as Exhibit “J”, duly executed by Contractor in favor of Lender:
(a) consenting to the assignment and encumbrance hereunder of the Construction
Contracts to Lender; (b) agreeing to continue performance under the Construction
Contracts at the request and for the benefit of Lender; (c) subordinating all
Liens and claims of each Contractor against the Mortgaged Property or Borrower,
to the Liens and claims of Lender under the Loan Documents; and (d) respecting
such other matters as Lender may require.

 

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“Contracts” has the meaning set forth in the Deed of Trust.

“Control” means possession, directly or indirectly, of the power to direct or
cause the management and policies of any Person, whether through the ownership
of voting securities, by contract, or otherwise. “Controlling,” “controlled by,”
and “under common control with” shall have correlative meanings.

“Days” means, unless otherwise provided, calendar days.

“Debt” means as of any applicable date of determination, all items of
indebtedness, obligation, or liability of a Person, whether matured or
unmatured, liquidated or unliquidated, direct or indirect, absolute or
contingent, joint or several, including, without limitation, all items that
should be classified as liabilities in accordance with GAAP. In the case of
Borrower, the term “Debt” shall include, without limitation, the Indebtedness
and the Obligations.

“Debt Service Coverage Ratio” shall have the meaning set forth in Section 4.19
of this Agreement.

“Debtor Relief Laws” means Title 11 of the United States Code, as now or
hereafter in effect, or any other applicable law, domestic or foreign, as now or
hereafter in effect, relating to bankruptcy, insolvency, liquidation,
receivership, reorganization, arrangement, or composition, extension, or
adjustment of debts, or similar laws affecting the rights of creditors.

“Deed of Trust” means the Deed of Trust entered into on or about the date of
this Agreement pursuant to which Borrower grants a first and prior deed of trust
lien to Lender covering the Mortgaged Property to secure the Loan, as same may
be amended, supplemented, or restated.

“Default Rate” means at any time of determination with respect to the applicable
portion of the Indebtedness, a per annum rate of interest equal to the sum of
the Base Rate (as defined in the Note) that would apply to that portion of the
Indebtedness if the Default Rate was not then in effect, plus four percent (4%),
such Default Rate not to exceed the Maximum Rate allowed by the laws of the
State of Texas as further described in Section 2.2(f) hereto.

“Depository Account” means an account opened with Lender by Borrower from which
Borrower will operate the Project.

“Design Professional” means each engineer, interior designer, space planner,
landscape designer, or other person or entity with whom Borrower contracts for
the providing of planning, design, engineering, or other similar services
relating to the Improvements.

“Disbursement Date” means the date on which Lender makes an Advance under this
Agreement.

“Documents” has the meaning set forth in the UCC.

“Environmental Indemnity Agreement” means that certain Environmental Indemnity
Agreement executed by Borrower and Guarantor AHI (defined herein) on or about
the date of this Agreement.

 

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“Environmental Law” has the meaning set forth in the Environmental Indemnity
Agreement.

“Equipment” has the meaning set forth in the UCC together with all of the
following to the extent same are not included within that definition: all
machinery, equipment, furniture, furnishings, fixtures, and other tangible
personal property (except Inventory) including, without limitation, data
processing hardware and software, motor vehicles, aircraft, dies, tools, jigs,
and office equipment, as well as all of those types of property that are leased
and all rights and interests under those leases to the extent such lease does
not prohibit or require a consent to the creation of a Lien in favor of Lender
(including, without limitation, options to purchase) together with all present
and future additions, accessions, replacements, components, and auxiliary parts
and supplies used in connection therewith, and all substitutes for any of the
above, and all manuals, drawings, instructions, warranties, and other rights
wherever any of the above are located whether they are now owned or later
acquired by Borrower and if any other Loan Party grants or purports to grant a
Lien on any of the foregoing as security for any portion of the Indebtedness.

“ERISA” means the Employee Retirement Income Security Act of 1974, 29 U.S.C.
§ 1001, et seq., as amended, and all successor statutes.

“Event of Default” has the meaning set forth in Section 6.1 of this Agreement.

“Fairfield” or the “Fairfield Community” means the Fairfield Master Planned
Community of which the Mortgaged Property is a part and to which Borrower will
pay an assessment.

“Financial Statements” means all balance sheets, income statements, statements
of cash flow, statements of sources and uses of funds, and all other financial
data, statements, and reports (whether of Borrower or any Guarantor) that are
required to have been, or may from time to time be furnished to Lender under
this Agreement, the transactions contemplated under this Agreement, or any of
the Indebtedness. The Financial Statements are not required to be audited.

“Financing Statements” means the financing statement or financing statements (on
Standard Form UCC-1 or otherwise) utilized in connection with the Loan
Documents.

“Fixtures” has the meaning set forth in the UCC.

“GAAP” means generally accepted accounting principles as promulgated by the
Financial Accounting Standards Board.

“Governmental Authority” means the United States, each state, each county, each
city, and each other political subdivision in which all or any portion of the
Mortgaged Property is located, and each other political subdivision, agency, or
instrumentality exercising jurisdiction over Lender, any Loan Party, or any
Mortgaged Property.

“Guarantors” means each Person (other than Borrower) who guarantees or otherwise
is or will be obligated for the repayment of all or any part of the
Indebtedness, and “Guarantor” means any one of the Guarantors. Initially the
Guarantors shall be AHC CONSTRUCTION, LLC, a Texas limited liability company
(“AHCC”), and ALLEN HARRISON INVESTMENTS, LLC, a Texas limited liability company
(“AHI”).

“Guaranty” means each Guaranty Agreement now or hereafter in effect from
Guarantors to Lender guaranteeing (a) Losses incurred by Lender as a result of
certain acts of Borrower or Guarantor; (b) the performance and Completion of the
construction of the Improvements, and (c) such other amounts as provided
therein.

 

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“Hard Costs” means all costs identified and approved by Lender in the Budget as
“Hard Costs.”

“Improvements” means the Improvements identified on the attached Exhibit “G”,
and more particularly described in the Plans, and shall not include Tenant
Improvements.

“Indebtedness” means (i) the principal of, interest on, or other sums evidenced
by the Note or the Loan Documents; (ii) any other amounts, payments, or premiums
payable under the Loan Documents; (iii) such additional or future sums (whether
or not obligatory), with interest thereon, as may hereafter be borrowed or
advanced from Lender, its successors, or assigns in connection with the
Mortgaged Property; and (iv) any and all other indebtedness, obligations, and
liabilities of any kind or character of Borrower to Lender in connection with
the Mortgaged Property, now or hereafter existing, absolute or contingent, due
or not due, arising by operation of law or otherwise, direct or indirect,
primary or secondary, joint, several, joint and several, fixed or contingent,
secured or unsecured by additional or different security or securities,
including indebtedness, obligations, and liabilities to Lender of Borrower and
any and all renewals, modifications, amendments, restatements, rearrangements,
consolidations, substitutions, replacements, enlargements, and extensions
thereof, it being contemplated by Lender and Borrower that Borrower may
hereafter become indebted to Lender with respect to the Mortgaged Property in
further sum or sums. Notwithstanding the above, the term “Indebtedness” shall
not include any other loan, advance, Debt, obligation, or liability with respect
to which Lender is by applicable law prohibited from obtaining a Lien on real
estate, nor shall this definition operate or be effective to constitute or
require any assumption or payment by any Person of any Debt or obligation of any
other Person if it would violate or exceed the limit provided in any applicable
usury or other law.

“Independent Consultant” means any architectural or engineering firm or other
Person retained by Lender at Borrower’s expense for the purpose of: approving
the Plans and each Construction Contract; verifying the Budget; and performing
inspections as construction progresses to verify that the Improvements are
constructed to Completion (a “Third Party Inspector”), in substantial accordance
with the Plans and this Agreement.

“Initial Advance” means the first Advance of Loan proceeds made under this
Agreement other than the One Thousand and No/100 Dollars ($1,000.00) Advance
made at Closing under Section 2.2(l)(viii), plus those amounts described in
Sections 2.1(k) and 2.1(l), to be made at Closing subject to the terms and
conditions set forth in Section 2.2, including, without limitation,
Sections 2.2(i), 2.2(j), and, if applicable, Section 2.2(l) of this Agreement.

“Initial Loan Amount” means an amount up to ONE MILLION THREE HUNDRED THOUSAND
AND NO/100 DOLLARS ($1,300.000.00) to cover the Utility Impact Fee (herein
defined) and related Loan closing costs not to exceed THREE HUNDRED FIFTY
THOUSAND AND NO/100 DOLLARS ($350,000.00).

“Instruments” has the meaning set forth in the UCC.

“Interest Reserve” has the meaning set forth in Section 2.1(a).

“Inventory” has the meaning set forth in the UCC.

 

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“Land” means that certain real property described in Exhibit “A”, being a
portion of land located at 28550 Northwest Fwy., [Unincorporated] Harris County,
Texas 77429; Tax Parcel ID No. 1299-660-030-001.

“Leases” means all leases, master leases, subleases, licenses, concessions, or
other agreements (whether written or oral) that grant to third parties a
possessory interest in or the right to use or occupy the Mortgaged Property.

“Legal Requirements” means (a) any and all present and future judicial
decisions, statutes (including Architectural Barrier Laws and Environmental
Laws), rulings, rules, regulations, permits, certificates, or ordinances of any
Governmental Authority in any way applicable to Borrower, any Guarantor, or the
Mortgaged Property, including, without limitation, the ownership, use,
occupancy, possession, construction, operation, maintenance, alteration, repair,
or reconstruction thereof; and (b) any and all covenants, conditions, and
restrictions contained in recorded instruments that relate or are applicable to
the Mortgaged Property and/or Improvements with respect to the ownership, use,
occupancy, possession, construction, operation, maintenance, alteration, repair
or reconstruction thereof.

“Lien” means any valid and enforceable interest in any property securing an
indebtedness, obligation, or liability owed to or claimed by any Person other
than the owner of that property, whether that indebtedness is based on the
common law, statute, or contract, including, without limitation, liens created
by or pursuant to a security interest, pledge, mortgage, deed of trust,
assignment, conditional sale, trust receipt, lease, consignment, or bailment for
security purposes.

“Loan” means the Indebtedness evidenced by the Note pursuant to this Agreement.

“Loan Amount” means TWENTY-ONE MILLION SEVEN HUNDRED FORTY-TWO THOUSAND FIVE
HUNDRED AND NO/100 DOLLARS ($21,742,500.00), including the Utility Impact Fee,
but not to exceed the Maximum Loan Amount (as herein defined).

“Loan Documents” means collectively, this Agreement, the Note, the Deed of
Trust, the Environmental Indemnity Agreement, the Pledge Agreement, the
Financing Statements, two Guaranty Agreements and all other documents now or
hereafter required by Lender and executed by Borrower or any Guarantor in
connection with the Loan, the payment of the Indebtedness, or the performance of
the Obligations under this Agreement.

“Loan Party” means Borrower, any signatory to this Agreement that executes this
Agreement on Borrower’s behalf that is a corporation, general partnership,
limited partnership, joint venture, trust or other type of business
organization, and each other Person, including Guarantors, that is liable for
the payment of all or any part of the Indebtedness, the performance of the
Obligations, or who owns any property that is subject to (or purported to be
subject to) a Lien that secures all or any portion of the Indebtedness and the
Obligations.

“Loan-to-Value Ratio” is the quotient of (i) the Loan Amount divided by (ii) the
Appraised Value of the Mortgaged Property.

“Material Adverse Event” has the meaning set forth in the Deed of Trust.

“Maturity Date” means the date that is three (3) years from the Effective Date,
which date may be conditionally extended pursuant to Section 2.6.

 

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“Maximum Rate” means, at all times, the maximum rate of interest which may be
charged, contracted for, taken, received or reserved by Lender in accordance
with applicable Texas law (or applicable United States federal law to the extent
that such law permits Lender to charge, contract for, receive or reserve a
greater amount of interest than under Texas law). The Maximum Rate shall be
calculated in a manner that takes into account any and all fees, payments, and
other charges in respect of the Loan Documents that constitute interest under
applicable law. Each change in any interest rate provided for herein based upon
the Maximum Rate resulting from a change in the Maximum Rate shall take effect
without notice to Borrower at the time of such change in the Maximum Rate.

“Maximum Loan Amount” means the lesser of (i) TWENTY MILLION FOUR HUNDRED
FORTY-TWO THOUSAND FIVE HUNDRED AND NO/100 DOLLARS ($20,442,500.00),
(ii) sixty-five percent (65%) loan-to-cost, or (iii) sixty-five percent
(65%) loan-to-value based on “as stabilized” value in accordance with the Lender
approved Appraisal; plus the amount of the Utility Fee Reimbursement (for an
estimated amount of TWENTY-ONE MILLION SEVEN HUNDRED FORTY-TWO THOUSAND FIVE
HUNDRED AND NO/100 DOLLARS ($21,742,500.00)).

“Mortgaged Property” means the Land, Improvements, and all other property,
assets, and rights in which a Lien or other encumbrance in favor of or for the
benefit of Lender is or has been granted or arises or has arisen, or may
hereafter be granted or arise under, or in connection with, any Loan Document,
or otherwise.

“MUD” or “Municipal Utility District” means a political subdivision authorized
under the Texas constitution to levy taxes, charge for services, and issue debt
for infrastructure such as water, sewer, and drainage, within limited
geographically defined areas for the purpose of providing the initial capital,
and shifting the burden to a developer, for infrastructure development. The
Mortgaged Property lies entirely within the Harris County Municipal Utility
District No. 322 created on June 10, 1987 (“MUD 322”).

“MUD Bonds” means bonds issued by MUD 322 after the Effective Date to finance
the construction of water, sewer, and related facilities in undeveloped areas in
MUD 322, including within the Mortgaged Property, with all or a portion of the
proceeds of the sales of such bonds being paid to Borrower, which proceeds have
been pledged to Lender (the “MUD Bond Proceeds”).

“Net Operating Income” or “NOI” means the Project’s annual gross income
(including rental and other income) less operating expenses incurred in the
operation and maintenance of the Project (including repairs and maintenance,
insurance, management fees, utilities, supplies and property taxes, but
excluding principal and interest, capital expenditures, depreciation, income
taxes and amortization).

“Note” means the promissory note, executed on or about the Effective Date by
Borrower in the principal sum of the Loan Amount, payable to Lender, evidencing
the Loan, as it may from time to time be amended, supplemented, restated,
renewed, extended, or increased.

“Note Rate” means with respect to the Indebtedness from time to time outstanding
under the Note the rate or rates provided in the Note as the Note Rate.

“Obligations” means any and all of the covenants, conditions, warranties,
representations, and other obligations (other than repayment of the
Indebtedness) made or undertaken by Borrower, any Guarantor (pursuant to any
Guaranty), or any Loan Party to Lender or others in the Loan Documents.

“Origination Fee” means the sum of TWO HUNDRED SEVENTEEN THOUSAND FOUR HUNDRED
TWENTY-FIVE AND NO/100 DOLLARS ($217,425.00) to be paid by Borrower to Lender
pursuant to Section 2.2(i)(v) of this Agreement.

 

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“Partial Release” has the meaning set forth in Section 2.7 of this Agreement.

“Patriot Act” means the USA Patriot Act (Title III of Pub. L. 107-56 (signed
into law October 26, 2001), as amended.

“Permitted Exceptions” has the meaning set forth in the Deed of Trust.

“Person” means any individual, corporation, partnership (general or limited),
joint venture, limited liability company, association, trust, unincorporated
association, joint stock company, government, municipality, political
subdivision, agency, or other entity of whatever nature.

“Plans” means the plans and specifications for the development of the Land and
construction of the Improvements, prepared by the Architect or the Design
Professional and approved (a) by Lender as required in this Agreement, (b) by
all applicable Governmental Authorities, and (c) by any party to a purchase or
construction contract with a right of approval, as they may, with the approval
of Lender, be amended or modified, together with all related design,
engineering, or architectural work, test reports, surveys, shop drawings, and
related items.

“Pledge Agreement” means that certain pledge agreement dated as of the Effective
Date from Borrower to Lender granting to Lender a security interest and lien
upon the Cash Collateral Account, the MUD Bond Proceeds and other collateral
therein provided.

“Project” means the acquisition and development of a 12.8 acre tract and
construction of 294 units of Class A multifamily residences on the Land, located
at 28550 Northwest Fwy., [Unincorporated] Harris County, Texas 77429, to be
known as “Remington Fairfield”.

“Project Costs” means the total of the costs, expenses and fees required for the
purchase and development of the Land and construction of the Project as set
forth in the Budget, including (a) Land acquisition costs; (b) costs of labor
and materials for construction and Completion of all Improvements;
(c) reasonable architectural, engineering, interior and landscape design, legal,
consulting, and other related fees; (d) taxes on Land and Improvements; (e) bond
and insurance costs; and (f) commitment fees, interest, and other financing
charges, all of which are included in the Budget.

“Purchase Price” means Borrower’s acquisition cost for the Land, which Borrower
represents and warrants to be THREE MILLION ONE HUNDRED EIGHTY-SEVEN THOUSAND
TWO HUNDRED SIXTY-FOUR AND 08/100 DOLLARS ($3,187,264.08).

“Qualified Equityholder” means CNL, successor entities to CNL resulting from a
public offering, sale of publicly-traded shares, “privatization”, merger,
reverse merger or similar event.

“Regulatory Authority” has the meaning set forth in Section 2.1(h)(ii).

“Request for Advance” means a written request or authorization for an Advance
that shall be in the form of Exhibit “F”, or in such other form as may be
acceptable to Lender.

“Security Agreement” means all security agreements, whether contained in the
Deed of Trust, a separate security agreement, or otherwise creating a security
interest in all personal property and fixtures of Borrower (including
replacements, substitutions, and after-acquired property) located or to be
located on the Land or in or on the Improvements, or used or intended to be used
in the operation of the Land or Improvements, to secure the Indebtedness and the
Obligations.

 

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“Secured Parties” means the collective reference to Lender and any other Person
the Obligations owing to which are, or are purported to be, secured by the
Collateral under the terms of the Security Documents.

“Security Documents” means the Deed of Trust, the Pledge Agreement, each and
every Security Agreement, pledge agreement, mortgage, deed of trust or other
collateral security agreement required by or delivered to Lender from time to
time that purport to create a Lien in favor of any of the Secured Parties to
secure payment of the Indebtedness or performance of the Obligations or any
portion thereof.

“Soft Costs” means all architectural, engineering, interior design, landscape
design, legal fees, consulting fees, other related fees, taxes on the Land and
the Improvements, bond costs, insurance costs, the Commitment Fee, interest, and
other financing charges, all as set forth and approved by Lender in the Budget.

“Subsidiary” means, as to any particular parent entity any corporation,
partnership (general or limited), limited liability company, or other entity
(whether now existing or hereafter organized) in which fifty percent (50%) or
more of the outstanding equity ownership interests having voting rights as of
any applicable date of determination are owned directly or indirectly by that
parent entity.

“Survey” means a survey of the Land and Improvements, if any, consisting of a
plat and field notes, among other things, prepared by a licensed surveyor
acceptable to Lender and the Title Company, and satisfying the requirements set
forth on Exhibit “B”.

“TCEQ” means the Texas Commission on Environmental Quality.

“Title Company” means the Title Company (and its issuing agent, if applicable)
acceptable to Lender, in its sole and absolute discretion, that is issuing the
Title Policy.

“Title Policy” means a loan policy of title insurance in a form acceptable to
Lender, in its sole and absolute discretion, issued by the Title Company, on a
coinsurance or reinsurance basis (with direct access endorsement or rights) if
required by Lender, in the maximum amount of the Loan Amount insuring that the
Deed of Trust constitutes a valid first and prior lien covering the Land and
Improvements, subject only to those exceptions that Lender may approve in
writing and containing those endorsements that Lender may require.

“UCC” means the Uniform Commercial Code as adopted and in effect in the State in
which the Mortgaged Property is located, as it may from time to time be amended,
supplemented, or restated.

“Utility Impact Fee” means, as regards the Mortgaged Property, a fee of
$1,300,000.00 that is imposed by MUD 322 on the Project to pay for all or a
portion of the costs of providing infrastructure such as water, sewer, and
drainage utilities to the new development on the Mortgaged Property.

“Utility Fee Reimbursement” means the reimbursement by MUD 322 of the Utility
Impact Fee paid by Borrower for Project infrastructure development, which amount
is estimated to be a sum not less than ONE MILLION THREE HUNDRED THOUSAND AND
NO/100 DOLLARS ($1,300,000.00). Borrower shall request a reimbursement of such
utility costs from the MUD 322 which will file a bond application with the TCEQ.
The TCEQ will review the application and, if approved, the MUD Bonds are issued
and sold and the proceeds from such sale shall be paid to Borrower.

1.2        Additional Definitions; Other Interpretive Provisions.    All
capitalized terms not otherwise defined in this Agreement shall have the same
meaning given to those terms in the Deed of

 

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Trust. The definitions of terms herein shall apply equally to the singular and
plural forms of the terms defined. Whenever the context may require, any pronoun
shall include the corresponding masculine, feminine and neuter forms. The words
“include,” “includes” and “including” shall be deemed to be followed by the
phrase “without limitation.” The word “will” shall be construed to have the same
meaning and effect as the word “shall.” Unless the context requires otherwise,
(a) any definition of or reference to any agreement, instrument or other
document (including any organization document) shall be construed as referring
to such agreement, instrument or other document as from time to time amended,
restated, supplemented, or otherwise modified (subject to any restrictions on
such amendments, supplements or modifications set forth herein or in any other
Loan Document), (b) any reference herein to any Person shall be construed to
include such Person’s successors and assigns, (c) the words “herein,” “hereof”
and “hereunder,” and words of similar import when used in any Loan Document,
shall be construed to refer to such Loan Document in its entirety and not to any
particular provision thereof, (d) all references in a Loan Document to Articles,
Sections, Exhibits and Schedules shall be construed to refer to Articles and
Sections of, and Exhibits and Schedules to, the Loan Document in which such
references appear, (e) any reference to any law shall include all statutory and
regulatory provisions consolidating, amending, replacing or interpreting such
law and any reference to any law or regulation shall, unless otherwise
specified, refer to such law or regulation as amended, modified or supplemented
from time to time, and (f) the words “asset” and “property” shall be construed
to have the same meaning and effect and to refer to any and all tangible and
intangible assets and properties, including cash, securities, accounts and
contract rights.

1.3         ERISA Provisions.   If, after the date hereof, there shall occur,
with respect to ERISA, the adoption of any applicable law, rule, or regulation,
or any change therein, or any change in the interpretation or administration
thereof by any Governmental Authority, then either Borrower or Lender may
request a modification to this Agreement solely to preserve the original intent
of this Agreement with respect to the provisions hereof applicable to ERISA, and
the parties to this Agreement shall negotiate in good faith to complete such
modification.

SECTION II

TERMS, CONDITIONS AND PROCEDURES FOR BORROWING

2.1         The Loan.

    (a)        Agreement to Lend. Lender agrees to lend up to, but not in excess
of, the Loan Amount to Borrower, and Borrower agrees to borrow up to that amount
from Lender, subject to the terms and provisions of this Agreement. The amounts
borrowed by Borrower under this Agreement shall be evidenced by and be payable
in accordance with the Note. No principal amount of the Loan which is repaid may
be re-borrowed. Borrower’s liability for payment of interest on the Loan is
limited to and calculated with respect to Loan proceeds actually disbursed
pursuant to the terms of this Agreement and the Note from and after the
Disbursement Date. Lender shall disburse the Loan proceeds to pay the interest
which becomes due on the Note so long as there is money in the Interest Reserve
(defined herein), conditions to Advance have been met, and no Event of Default
exists. Lender may, in Lender’s discretion, disburse Loan proceeds by journal
entry from the Depository Account to pay interest and financing costs, including
but not limited to an interest reserve in the amount of TWO HUNDRED TWENTY-FIVE
THOUSAND NINE HUNDRED SIXTY-TWO AND NO/100 DOLLARS ($225,962.00) (the “Interest
Reserve”). Borrower shall not be liable for late charges and/or default interest
if Lender is required to do so hereunder and fails to timely make any such
journal entry. Loan proceeds disbursed by Lender from the Depository Account
shall constitute Advances to Borrower. Lender acknowledges that the Interest
Reserve is included in the Loan Amount.

 

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(b)        Advances.    The purposes for which Loan proceeds are allocated and
the respective amounts of those Allocations are set forth in the Budget (subject
to Borrower’s right hereunder to make reallocations). Advances shall be made not
more frequently than monthly during the term of the Loan.

(c)        Project Costs.  The Advances shall be disbursed only for the purposes
set forth in this Agreement and only for payment of the Project Costs set forth
in the Budget (subject to Borrower’s right hereunder to make reallocations).
Lender shall not be obligated to make an Advance for any Project Cost set forth
in the Budget if, after disbursement of that Advance, the sum of Advances made
for Project Costs would exceed the total of the Project Costs set forth in the
Budget unless Borrower funds all excess Project Costs or deposits such sums in
the Depository Account for funding by Lender prior to any such Request for
Advance.

(d)        Limitation on Advances. If the Loan proceeds disbursed by Lender
pursuant to the Budget are insufficient to pay all costs required for the
acquisition, development, construction, and Completion of the Improvements,
Borrower shall pay the excess costs with funds derived from sources other than
the Loan by depositing into the Depository Account an amount sufficient to cover
the deficiency that Lender reasonably deems to exist. Under no circumstances
shall Lender be required to make any Advance of Loan proceeds if the sum of all
Advances of Loan proceeds made would thereby exceed the Loan Amount. Under no
circumstances shall Lender be required to disburse any proceeds of the Loan, in
excess of the Initial Loan Amount (or, after Borrower qualifies for and has
received an Advance of the Earnout Allocation, in excess of the Loan Amount).

(e)        Cash Collateral Account. At or prior to Closing, Borrower will open
with Lender a blocked, restricted account in the amount of ONE MILLION FIVE
HUNDRED THOUSAND AND NO/100 DOLLARS ($1,500,000.00) which shall be pledged
against and serve as additional Collateral for the Loan. Notwithstanding
anything to the contrary contained in this Section II, Borrower may make
periodic withdrawals from the Cash Collateral Account for the purpose of paying
Project Costs to complete construction up to and including an amount of SEVEN
HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS ($750,000.00). The balance in the Cash
Collateral Account may be withdrawn to pay lease-up deficits incurred on the
Project. Upon Completion and achievement by Borrower of a 1.20X Debt Service
Coverage Ratio, any remaining cash in the Cash Collateral Account shall be
released to Borrower at Borrower’s written request provided no Event of Default
exists.

(f)        Reallocations.  Lender reserves the right, at its option, to disburse
Loan proceeds allocated to any of the Project Costs for such other purposes or
in such different proportions as Lender may, in its sole discretion, deem
necessary or advisable. Borrower shall not be entitled to require that Lender
reallocate funds among the Project Costs. Provided, however, upon completion of
and payment by Borrower for all matters covered by any line item in the Budget
constituting Project Costs, and provided no Event of Default exists, with
written notice to Lender, any remaining amounts allocated to that line item may
be reallocated to any Project Costs excluding developer fees. In addition,
provided that prior written notice of any such reallocation is provided to
Lender:

(i)        Amounts in the Soft Cost Contingency Allocation may be reallocated to
any other line items of the Budget relating to Project Costs excluding developer
fees; and

(ii)        Amounts in the Hard Cost Contingency Allocation may be reallocated
to any other Hard Cost line items of the Budget.

Further, upon Completion of and payment by Borrower for all matters covered by
any line item in the Budget constituting Project Costs, and provided no Event of
Default exists, and provided fifty percent

 

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(50%) or more of the Project has been completed, with written notice to Lender,
Borrower shall be entitled to reallocate funds from Hard Costs contingency line
items in the Budget based upon the percentage of completion of the Project. For
example, if fifty percent (50%) of the Project has been completed, Borrower
shall have access to fifty percent (50%) of the Hard Costs.

(g)        Intentionally Omitted.

(h)        Withholding on Advances.

Lender may withhold from an Advance an amount as may be reasonably necessary to
protect Lender from: (i) defective work not remedied; (ii) requirements of this
Agreement not performed; (iii) Liens filed or reasonable evidence indicating
probable filing of Liens against the Mortgaged Property; (iv) failure of
Borrower to make payments to subcontractors for materials or labor; or (v) a
reasonable doubt by Lender that the construction can be completed for the
balance of the Loan Amount then undisbursed. When all deficiencies have been
cured (including, in the case of liens, by bonding in accordance with the Texas
Property Code), Advances of the amount withheld may be made upon satisfaction of
all conditions precedent to those Advances set forth in this Agreement.

(i)         Intentionally Omitted.

(j)         Repayment of and Interest on Loan.    The Indebtedness outstanding
under and evidenced by the Note shall bear interest at a rate per annum equal to
the Note Rate which shall be computed on the principal balance of the Note which
exists from time to time, shall be computed with respect to each Advance only
from the date of each Advance, and shall continue until the occurrence of an
Event of Default and during the continuance thereof at the Default Rate and
shall otherwise be repaid in accordance with the terms of the Note.

(k)        Payment and Repayment of Utility Impact Fee. Lender will finance the
payment of one hundred percent (100%) of the Utility Impact Fee up to the sum of
ONE MILLION THREE HUNDRED THOUSAND AND NO/100 DOLLARS ($1,300,000.00) and will
advance funds up to such amount at Closing. Immediately upon its receipt of all
or part of the Utility Fee Reimbursement, Borrower shall immediately pay to
Lender one hundred percent (100%) of such Utility Fee Reimbursement up to the
total Utility Impact Fee advanced by Lender, to be applied in its entirety by
Lender to Loan principal; provided, however, if the Applicable Rate of a Portion
of the Note is then bearing interest based upon LIBOR, Lender shall deposit the
Utility Fee Reimbursement into the Depository Account to be applied to the
prepayment of Loan principal on the last day of the relevant LIBOR Interest
Period to prevent a Funding Loss from occurring.

(l)         Payment of Loan Closing Costs.  At Closing, Lender will advance from
the Loan proceeds an amount up to THREE HUNDRED FIFTY THOUSAND AND NO/100
DOLLARS ($350,000.00) to pay such Closing costs deemed by Lender to be
reasonable and appropriate, including, but not limited to, any Closing costs
related to payment of the Utility Impact Fee.

2.2     Advances, Payments, Recoveries and Collections, Books and Records.

(a)        Advance Procedure.

Except as provided below, Borrower may request an Advance by submitting to
Lender a Request for Advance signed by an authorized representative of Borrower,
subject to the following:

(i)        each Request for Advance shall include, without limitation, the
proposed amount of that Advance and the proposed Disbursement Date, which
Disbursement Date must be a Business Day and must be at least five (5) Business
Days after the date of delivery to Lender of the Request for Advance;

 

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(ii)         a Request for Advance, once communicated to Lender, shall not be
revocable by Borrower;

(iii)        each Request for Advance, once communicated to Lender, shall
constitute a representation, warranty, and certification by Borrower as of the
date of that Request for Advance that:

(A)        both before and after the making of that Advance, all of the Loan
Documents are valid, binding, and enforceable against each Loan Party, as
applicable;

(B)        all terms and conditions precedent to the making of that Advance are
satisfied, and shall remain satisfied through the date of that Advance;

(C)        the making of that Advance shall not cause the aggregate principal
amount of all Advances under the Note to exceed the Loan Amount;

(D)        no Event of Default has occurred which is continuing, and no Event of
Default exists or arises on the making of that Advance;

(E)        the representations and warranties contained in this Agreement and
the other Loan Documents are true and correct in all material respects and to
Borrower’s knowledge will be true and correct in all material respects as of the
making of that Advance; and

(F)        the Advance does not violate the terms or conditions of any contract,
indenture, agreement, or other borrowing of any Loan Party.

Lender shall not be obligated to make any Advance under this Agreement more than
once in any thirty (30)-day period. Except as set forth in this Agreement, all
Advances are to be made by direct deposit into the Depository Account.

(b)        Time and Place of Advances.

All Advances are to be made at the office of Lender or at any other place that
Lender may designate or into the Depository Account, as determined by Lender.
Lender must receive each Request for Advance in proper form not less than five
(5) Business Days before the date requested for the making of any such Advance,
and will make all reasonable efforts to make such Advance on the date requested
by Borrower provided all conditions to Advance are met.

(c)        Lender’s Books and Records.

The amount and date of each Advance under this Agreement, the amount from time
to time outstanding under the Note, the Note Rate with respect to the Loan, and
the amount and date of any repayment under this Agreement or under the Note
shall be noted on Lender’s books and records, which, absent manifest error,
shall be conclusive evidence of each such Advance; provided, however, that any
failure by Lender to make that notation or any error in that notation, shall not
relieve Borrower of its obligation to pay to Lender all amounts owed to Lender
when due under the terms of the Loan Documents.

 

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(d)        Payments on Non-Business Day.

If any payment of any principal, interest, fees, or any other amounts payable by
Borrower under any Loan Document is due on any day that is not a Business Day,
the due date shall be extended to the next succeeding Business Day, and, if
applicable, interest shall continue to accrue and be payable at the Note Rate
during the extension.

(e)        Payment Procedures.

Unless otherwise expressly provided in a Loan Document, all sums payable by
Borrower to Lender or pursuant to any Loan Document, whether principal,
interest, or otherwise, shall be paid directly to Lender in immediately
available United States funds, and without setoff, deduction, or counterclaim at
the office of Lender identified on the signature page of this Agreement, or at
any other office of Lender that Lender may designate in writing to Borrower.
During the continuance of an Event of Default, Lender may, in its discretion,
charge any and all deposit or other accounts (including, without limitation, any
account evidenced by a certificate of deposit or time deposit) of Borrower
maintained with Lender for all or any part of any Indebtedness then due and
payable; provided, however, that such authorization shall not affect Borrower’s
obligation to pay all Indebtedness, when due, whether or not those account
balances maintained by Borrower with Lender are sufficient to pay any amounts
then due.

(f)        Maximum Interest.

It is the intent of Borrower and Lender at all times to comply strictly with the
applicable Texas law (or applicable United States federal law to the extent that
it permits Lender to contract for, charge, take, reserve, or receive a greater
amount of interest than under applicable Texas law) governing the maximum
non-usurious rate or non-usurious amount of interest payable on the Note or the
Obligations. If the applicable Texas law is ever judicially interpreted so as to
render usurious any amount (i) contracted for, charged, taken, reserved or
received pursuant to the Note, any other Loan Documents, or any other
communication or writing by or between Borrower and Lender related to the
Indebtedness or to the transaction or transactions that are the subject matter
of the Loan Documents; (ii) contracted for, charged, taken, reserved, or
received by reason of Lender’s exercise of the option to accelerate the maturity
of the Note and/or the Obligations; or (iii) Borrower has paid or Lender has
received by reason of any voluntary prepayment by Borrower of the Note and/or
the Obligations, then it is Borrower’s and Lender’s intent that all amounts
charged in excess of the Maximum Rate shall be automatically canceled, ab
initio, and all amounts in excess of the Maximum Rate that have been collected
by Lender shall be credited on the principal balance of the Note and/or the
Obligations (or, if the Note and all Obligations have been or would thereby be
paid in full, refunded to Borrower), and that the provisions of the Note and the
other Loan Documents immediately be deemed reformed to reduce the amounts
thereafter collectible under the Note and other Loan Documents, without the
necessity of the execution of any new document, to comply with the applicable
law, but to permit the recovery of the fullest amount otherwise called for;
provided, however, if the Note has been paid in full before the end of the
stated term of the Note, then Lender shall, with reasonable promptness after
Lender discovers or is advised by Borrower that interest was received in an
amount in excess of the Maximum Rate, either refund such excess interest to
Borrower and/or credit such excess interest against any Obligations then owing
by Borrower to Lender. As a condition precedent to any claim seeking usury
penalties against Lender, Borrower agrees that it shall provide written notice
to Lender, advising Lender in reasonable detail of the nature and amount of the
violation, and Lender shall have sixty (60) days after receipt of such notice in
which to correct such usury violation, if any, by either refunding such excess
interest to Borrower or crediting such excess interest against the Note and/or

 

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the Obligations then owing by Borrower to Lender. All sums contracted for,
charged, taken, reserved, or received by Lender for the use, forbearance, or
detention of any debt evidenced by the Note and/or the Obligations shall, to the
extent permitted by applicable law, be amortized or spread, using the actuarial
method, throughout the stated term of the Note and/or the Obligations (including
all renewal and extension periods) until payment in full so that the rate or
amount of interest on account of the Note and/or the Obligations does not exceed
the Maximum Rate from time to time in effect and applicable to the Note and/or
the Obligations for so long as Debt is outstanding. The provisions of
Chapter 346 of the Texas Finance Code (which regulates certain revolving credit
loan accounts and revolving triparty accounts) shall not apply to the Note
and/or the Obligations. Notwithstanding anything to the contrary contained
herein or in any of the other Loan Documents, it is not the intention of Lender
to accelerate the maturity of any interest that has not accrued at the time of
such acceleration or to collect unearned interest at the time of such
acceleration.

To the extent that Lender is relying on Chapter 303 of the Texas Finance Code to
determine the Maximum Rate payable on any such Note and/or any other portion of
the Indebtedness, Lender shall utilize the weekly ceiling from time to time in
effect as provided in such Chapter 303. To the extent United States federal law
permits Lender to contract for, charge, take, receive or reserve a greater
amount of interest than under Texas law, Lender shall rely on United States
federal law instead of such Chapter 303 for the purpose of determining the
Maximum Rate. Additionally, to the extent permitted by applicable law now or
hereafter in effect, Lender may, at its option and from time to time, utilize
any other method of establishing the Maximum Rate under such Chapter 303 or
under other applicable law by giving notice, if required, to Borrower as
provided by applicable law now or hereafter in effect.

(g)        Receipt of Payments by Lender.

Whether or not Lender has authorized payment by mail or in any other manner, any
payment by Borrower of any of the Indebtedness made by mail will be deemed
tendered and received by Lender only on actual receipt thereof by Lender at the
address designated for that payment, and that payment shall not be deemed to
have been made in a timely manner unless actually received by Lender in good
funds on or before the date due for that payment, time being of the essence.
Borrower expressly assumes all risks of loss or liability resulting from
non-delivery or delay of delivery of any item of payment transmitted by mail or
any other manner. Acceptance by Lender of any payment in an amount less than the
amount then due shall be deemed an acceptance on account only; any failure to
pay the entire amount then due shall constitute and continue to be an Event of
Default under this Agreement and shall be subject to the notice and cure periods
specified in Section VI, hereof. Lender shall be entitled to exercise any and
all rights and remedies available under any Loan Document or otherwise available
at law or in equity upon the occurrence and during the continuance of any Event
of Default. Before the occurrence of an Event of Default, Borrower shall have
the right to direct the application of any and all payments made to Lender under
this Agreement to the Indebtedness evidenced by the Note. Borrower waives the
right to direct the application of any and all payments received by Lender under
this Agreement at any time after the occurrence and during the continuance of an
Event of Default. Borrower further agrees that after the occurrence and during
the continuance of any Event of Default (or prior to the occurrence of any Event
of Default if Borrower has failed to direct that application), Lender may apply
and reapply any and all payments received by Lender at any time against the
Indebtedness in the order and the manner as Lender may, in its sole discretion,
deem advisable, notwithstanding any entry by Lender on any of its books and
records, including, without limitation, those payments that are voluntary
payments, proceeds from any Mortgaged Property, offsets, or otherwise. If Lender
receives any payment or benefit of or otherwise upon any of the Indebtedness and
any part of that payment or benefit is subsequently invalidated, set aside,
declared fraudulent or preferential, or required to be repaid to a trustee,
receiver, or any other Person under Debtor Relief Laws, state or federal laws,
common law, equitable causes or otherwise, then, the Indebtedness, or part
thereof, intended to be satisfied by that payment or benefit shall be revived
and continued in full force and effect as if that payment or benefit had not
been made or received by Lender, and, further, the repayment by Lender shall be
added to and be deemed to be additional Indebtedness.

 

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(h)        Security.

Payment and performance of the Indebtedness shall be secured by Liens on all of
the assets and properties of Borrower that Lender may require and shall be
guaranteed by the Guarantors to the extent set forth in each Guaranty.

(i)        Conditions Precedent to the Initial Advance.

The obligation of Lender to make the Initial Advance pursuant to this Agreement
is subject to the satisfaction of all of the conditions precedent set forth in
this Section 2.2(i). If any condition precedent is not satisfied but Lender
nevertheless elects to make the Initial Advance, then that election shall not
constitute a waiver of that condition and the condition shall be satisfied
before any subsequent Advance. The conditions precedent to the Initial Advance
are:

(i)          All of the Loan Documents shall be in full force and effect,
binding, and enforceable obligations of Borrower and of each other Person who
may be a party thereto or bound thereby.

(ii)         All actions, proceedings, instruments, and documents required to
carry out the borrowings and transactions contemplated by this Agreement or
under any Loan Document incidental thereto, and all other related legal matters,
are satisfactory to and are approved by legal counsel for Lender, and that
counsel has been furnished with certified copies of actions and proceedings and
those other instruments and documents as they have requested.

(iii)        Each Loan Party has performed and complied with all applicable
agreements and conditions contained in the Loan Documents and that are then in
effect.

(iv)        Borrower has delivered, done, or caused to be delivered or done, to
Lender’s full and complete satisfaction, each of the following:

(A)      this Agreement (together with all addenda, schedules, exhibits,
certificates, opinions, financial statements and other documents to be delivered
pursuant to this Agreement), the Note, the Deed of Trust, each Guaranty, the
Pledge Agreement and all other Loan Documents duly executed, acknowledged (as
provided), and delivered by Borrower and any Person who is a party thereto;

(B)      a consent of architect to the assignment of the Plans to Lender and the
consent of contractors to the assignment of construction contracts to Lender
both in form and content satisfactory to Lender;

(C)      (1) copies of resolutions of the board of directors, partners, members,
or managers (as applicable) of each Loan Party, evidencing approval of the
borrowing under this Agreement and the transactions contemplated by the Loan
Documents, and authorizing the execution, delivery, and performance by each Loan
Party of each Loan Document to which it is a party or by which it is otherwise
bound, which resolutions have been certified by a duly authorized officer,
partner, or other representative (as applicable) of each Loan Party as of the
date of this Agreement as being complete, accurate, and in full force and
effect; (2) incumbency certifications of a

 

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duly authorized officer, partner, or other representative (as applicable) of
each Loan Party, in each case identifying those individuals who are authorized
to execute the Loan Documents for and on behalf of each Person, respectively,
and to otherwise act on behalf of each Person; (3) certified copies of each
Person’s articles of incorporation and bylaws, partnership agreement,
certificate of limited partnership, articles of organization, regulations, or
operating agreement (as applicable) as each may from time to time be amended,
supplemented, or restated; and (4) certificates of existence, good standing, and
authority to do business (as applicable) certified substantially
contemporaneously with the date of this Agreement, from the state or other
jurisdiction of each Person’s organization and from each state in which the Land
is located.

(D)       proof that appropriate security agreements, financing statements,
mortgages, deeds of trust, collateral, and those additional documents or
certificates required by Lender or required under the terms of any Loan
Document, and those other documents or agreements of security and appropriate
assurances of validity, perfection, and priority of lien that Lender may request
have been executed and delivered by the appropriate Persons and recorded or
filed in those jurisdictions and all other steps shall have been taken as
necessary to perfect, subject only to Permitted Exceptions and the Liens granted
thereby;

(E)       an opinion of Borrower’s, each Loan Party’s, and Guarantor’s legal
counsel, dated as of the date of this Agreement, and covering those matters that
are required by Lender and that is otherwise satisfactory in form and substance
to Lender and Lender’s Counsel;

(F)       to the extent applicable as of the date of the Initial Advance, copies
of each authorization, license, permit, consent, order, or approval of, or
registration, declaration, or filing with any Governmental Authority or other
Person obtained or made by Borrower or any other Person in connection with
transactions contemplated by the Loan Documents that is material to the
financial condition of Borrower, that other Person, or the conduct of either’s
business, or the transactions contemplated under this Agreement or the Mortgaged
Property, including, but not limited to, building permits;

(G)       if requested by Lender, UCC, tax lien, and judgment lien record
searches, disclosing no notice of any Liens or encumbrances filed against any of
the Mortgaged Property, other than the Permitted Exceptions and no tax liens or
judgments against Borrower or any Guarantor;

(H)       evidence of insurance coverage as required by this Agreement and the
Deed of Trust;

(I)        the Title Policy (or the Title Company’s unconditional commitment to
issue the Title Policy on recordation of the Deed of Trust) and a Survey;

(J)       Phase I environmental report (jointly addressed to Borrower and Lender
or accompanied by a reliance letter addressed to Lender acceptable to Lender)
covering the Land, in form and content and conducted and prepared by an
environmental consultant acceptable to Lender. Borrower agrees that Lender may
disclose the contents of the environmental report to Governmental Authorities
(to the extent required by applicable Legal Requirements) and Borrower shall
deliver to Lender the written consent to the disclosure from the respective
environmental consultant;

 

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(K)       an appraisal conducted and prepared by an appraiser acceptable to the
Lender covering the Mortgaged Property commissioned by and addressed to Lender,
in form and content acceptable to the Lender, in its sole discretion. The
appraisal shall comply with all appraisal requirements of the Lender and any
applicable Governmental Authority and shall reflect an Appraised Value
“As-Stabilized” of not less than THIRTY-ONE MILLION FOUR HUNDRED TWENTY THOUSAND
AND NO/100 DOLLARS ($31,420,000.00), which appraisal has been received and
approved by Lender prior to the date of this Agreement;

(L)       evidence that none of the Land is located within any designated flood
plain or special flood hazard area or, in lieu thereof, evidence that Borrower
has applied for and received flood insurance covering the Improvements in an
amount acceptable to Lender;

(M)      a full-size, single sheet copy of all recorded subdivision or plat maps
of the Land approved by all applicable Governmental Authorities (to the extent
required by applicable Legal Requirements) and legible copies of all instruments
representing exceptions to the state of title to the Land, including, without
limitation, a copy of the recorded Replat as required pursuant to Section 3.17
of the Deed of Trust;

(N)       an original or a copy of each proposed Construction Contract and of
any Architectural Contract;

(O)       a copy of the Plans;

(P)       evidence that all applicable zoning ordinances and restrictive
covenants affecting the Land permit the intended use of the Improvements and
have been or will be complied with in all respects;

(Q)       current Financial Statements of Borrower and each Guarantor;

(R)       if requested by Lender, a soils and geological report issued by a
laboratory approved by Lender in form and substance satisfactory to Lender
covering the Land, including a summary of soils test borings; and

(S)       a third party cost review of the Project construction and renovation
budgets (including sufficient contingencies), the construction contract, and a
Property Condition Report (“PCR”) with respect to the Phase I environmental
report, such review to be paid by Borrower and approved by Lender;

(v)         Lender has received payment of the Origination Fee;

(vi)        Borrower has opened and fully funded the Cash Collateral Account
with Lender;

(vii)       Borrower has opened a Depository Account with Lender;

 

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(viii)    Lender has received all of those other instruments, documents, and
evidence (not inconsistent with the terms of this Agreement) that Lender may
have requested in connection with the making of the Loan under this Agreement,
and all instruments, documents, and evidence are satisfactory to Lender in form
and substance; and

(ix)      Lender has received from Borrower and approved the final Budget.

(j)        Condition to First Hard Cost Advance.

Lender has no obligation to make the first Advance for the purpose of paying
Hard Costs, unless on or after the Commencement Date Borrower has furnished
Lender an Affidavit of Commencement executed by Borrower and the general
Contractor, that: (i) has been sworn to before and acknowledged by a Notary
Public for the State of Texas; and (ii) was recorded in the appropriate county
real property records after recordation of the Deed of Trust and within thirty
(30) days after the Commencement Date.

(k)        Conditions to Subsequent Advances.

Lender has no obligation to make any Advance subsequent to the Initial Advance
unless Lender has received the following:

(i)        a down date endorsement to the Title Policy (or if an endorsement is
not available, an abstractor’s certificate or other evidence from the Title
Company) showing “nothing further” of record affecting the Land from the date of
recording of the Deed of Trust, except those matters that Lender specifically
approves or are permitted under the Loan Documents;

(ii)       waivers signed and acknowledged (notarized) by each Contractor that
has done work included within any prior Advance Request that the respective
Contractor has been paid in full (except for required retainage) for and is
waiving any mechanic’s and materialman’s lien rights with respect to all work
done for which reimbursement has previously been requested; and

(iii)      an inspection report prepared by an Independent Consultant certifying
that: (A) the amount of the Advance included in the Advance Request does not
exceed the cost of the work completed, less prior Advances and required
retainage; (B) the undisbursed Loan proceeds, together with other funds provided
by Borrower, are sufficient to complete all of the Improvements; (C) the
Improvements have been constructed substantially in accordance with the Plans;
and (D) it has reviewed all city inspection reports.

(l)         Conditions to All Advances.

In addition to any other terms and conditions set forth in this Agreement,
including, without limitation, those set forth in Section 2.2(i) through
Section 2.2(k), inclusive, of this Agreement, the obligation of Lender to make
any Advance under this Agreement, including, without limitation, the Initial
Advance under this Agreement, is further subject to the satisfaction of each of
the following conditions precedent on or before the Disbursement Date for that
Advance:

(i)        all Loan Documents are in full force and effect and are binding and
enforceable obligations of each Loan Party;

(ii)       each of the representations and warranties of each Loan Party under
any Loan Document is true and correct in all material respects;

 

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(iii)      no Event of Default has occurred and is continuing;

(iv)      Borrower has delivered to Lender an Advance Request that complies with
Section 2.2(a) of this Agreement, and all accompanying documents required by
that Section;

(v)       the Improvements have not been materially damaged by fire or other
casualty (unless Borrower is proceeding to restore the Improvements in
accordance with Section 8.2 of the Deed of Trust);

(vi)      no Lien for the performance of work or supplying of labor, materials
or services has been filed against the Land and remain unsatisfied or unbonded;

(vii)     no condition or situation exists at the Land which, in the reasonable
determination of Lender, constitutes a danger to or impairment of the use or
value of the Land or Improvements or presents a danger or hazard to the public;
and

(viii)    the Budget identifies funds required to be contributed by Borrower
toward the purchase of the Mortgaged Property and construction costs, not
including Closing costs, as Borrower’s Equity. Borrower shall pay all Project
Costs incurred out of Borrower’s Equity until the funds for Borrower’s Equity
are fully spent before any Advance by Lender, except for an advanced sum of ONE
THOUSAND AND NO/100 DOLLARS ($1,000.00) required to perfect Lender’s lien and
the amounts identified in Section 2.1(k) and Section 2.1(l) above. However, each
advance out of Borrower’s Equity must be reviewed and approved by Lender as if
it were an Advance of Loan proceeds, which approval shall not be unreasonably
withheld or delayed. If Lender believes that the cost to complete uncompleted
work on a construction item under the Plans exceeds the unadvanced Loan proceeds
allocated to that item in the Budget after permitted reallocations hereunder,
Lender may require Borrower to pay any difference before Lender Advances
additional funds for that item.

(m)      Additional Matters.

Borrower shall allow Lender from time to time to inspect all books and records
relating to Borrower’s financial condition and to the Indebtedness, and to make
and take away copies of those books and records. If Borrower is a corporation,
limited liability company, partnership, joint venture, trust or other entity,
Borrower shall provide Lender with all financial statements and other documents
and make all disclosures to Lender with respect to any of the Loan Parties, as
Borrower is required to provide and make, and in the manner required to be
provided and made, with respect to Borrower pursuant to this Section 2.2(m).

(n)       Conditions to the Final Advance of Hard Costs Related to the
Improvements.

Lender has no obligation to make the final Advance of Hard Costs related to the
Improvements, including any retainage, unless Lender has received the following:

(i)       certificates of occupancy, compliance or completion, as applicable (or
their equivalent) issued by all appropriate Governmental Authorities for all
portions of the Improvements;

(ii)      an “as-built” Survey approved in writing by the Lender;

 

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(iii)        a written certification from the Independent Consultant in the form
of AIA Document G704, executed by the Contractor and the Owner, certifying
(A) that Completion has occurred; (B) the date of Completion; and (C) that
direct connection has been made to all appropriate utility facilities;

(iv)        a complete set of “as-built” plans and specifications for the
Improvements, certified as accurate by each Contractor;

(v)         an affidavit of bills paid in the form of AIA Document G706 executed
by each Contractor and any other Person the Lender requires;

(vi)        an endorsement or written commitment to endorse the Title Policy
deleting all exceptions related to “completion of the improvements” and “pending
disbursements;” except for such exceptions relating to Tenant Improvements, and
evidencing that there are no Liens against any of the Mortgaged Property other
than Permitted Exceptions;

(vii)       a complete inventory certified by Borrower of the furniture,
furnishings, fixtures, and equipment owned or leased by Borrower and used in the
operation of the Improvements, with leased items, if any, designated as such;

(viii)      Intentionally Omitted;

(ix)        evidence that thirty (30) days has elapsed from the later of (A) the
date of Completion of the Improvements, as specified in Texas Property Code
§53.106, if the Affidavit of Completion provided for in this Agreement is filed
within ten (10) days after that date of Completion; or (B) the date of filing of
that Affidavit of Completion if that Affidavit of Completion is filed ten
(10) days or more after the date of the completion of the Improvements as
specified in Texas Property Code §53.106;

(x)         Intentionally Omitted; and

(xi)        any other evidence or information concerning Completion that Lender
reasonably requires.

(o)       Advance Not A Waiver.

No Advance shall constitute a waiver of any of the conditions of Lender’s
obligation to make further Advances, nor, if Borrower is unable to satisfy any
condition, shall the Advance preclude Lender from then declaring that inability
to be an Event of Default.

(p)       Special Deposit.

If Lender, at any time and from time to time prior to Completion of the
Improvements, in its reasonable discretion, deems that the undisbursed proceeds
of the Loan plus any amounts deposited in Borrower’s Depository Account are
insufficient to meet the costs of completing construction of the Improvements
(plus the costs of insurance, ad valorem taxes, and other costs of the
Improvements as reflected in the Budget after all permitted reallocations),
Lender may refuse to make any additional Advances to Borrower under this
Agreement until Borrower has deposited into Borrower’s Depository Account with
Lender an amount sufficient to cover the deficiency that Lender deems to exist.
Such monies shall be disbursed by Lender to Borrower pursuant to the terms and
conditions of this Agreement as if they constituted a portion of the Loan.
Borrower shall deposit with Lender the amount specified by Lender within fifteen
(15) days of written demand from Lender. Unless required by Legal Requirements,
Lender shall not pay interest on such special deposit to the Depository Account.

 

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(q)       Advance Not An Approval.

The making of any Advance or part thereof shall not be deemed an approval or
acceptance by Lender of the work theretofore done. Lender may, but has no
obligation to, make any Advance or part thereof during the existence of any
Event of Default, but shall have the right and option to do so; provided,
however, that if Lender elects to make that Advance, the making of the Advance
shall not be deemed to be either a waiver of the Event of Default or of the
right to demand payment of all or part of the Indebtedness and shall not
constitute an obligation to make any other Advance.

(r)      Retainage.   Except as otherwise approved by Lender, an amount equal to
ten percent (10%) of the Hard Costs of each Advance shall be retained by Lender
until fifty percent (50%) of the Hard Costs have been disbursed, which retainage
shall be held by Lender until Completion and paid over by Lender to Borrower as
a part of the final Advance with respect to the Hard Costs of the Improvements
subject to the provisions of Section 2.2(n) of this Agreement. There shall be no
further withholding of retainage from Advances after fifty percent (50%) of the
Hard Costs have been disbursed. Except in connection with the final Advance
under this Agreement for Completion of the Improvements, the amount of each
Advance for Hard Costs, together with the amount of all prior Advances for Hard
Costs, shall not exceed ninety-five percent (95%) of the total amount of Hard
Costs shown on the Budget without Lender’s prior written approval (which may be
evidenced by approval of a Construction Contract requiring payment of one
hundred percent (100%) of the Hard Costs thereunder prior to Completion of the
Improvements). Lender acknowledges that no retainage shall be held with respect
to the costs described on Schedule 2.2(r), attached hereto, provided that
Borrower specifically identifies such costs in each Request for Advance.

2.3     Offsite Materials.   Lender shall have no obligation to make any Advance
for the payment of the cost of materials to be stored offsite except for
(i) deposits on appliances or similar items, and (ii) to the extent such
materials are safely and securely stored and fully insured against theft or
destruction.

2.4     Extension Options.

Subject to the following conditions, Lender hereby grants Borrower two (2) one
(1)-year (each an “Extension Term”) extension options following the original
Maturity Date or first extension period, as the case may be (individually, an
“Extension Option”). During each such extension, principal and interest payments
shall be payable in accordance with Section 2.1(b) of the Note.

(a)       To exercise the first Extension Option (“Extension Option 1”), the
following conditions must be met:

(i)       Borrower must give Lender written notice of exercise of Extension
Option 1 (an “Extension 1 Notice”) not less than forty-five (45) days before the
Maturity Date;

(ii)      Borrower must have achieved a Debt Service Coverage Ratio of 1.15x
calculated as of the end of the calendar month preceding the date Borrower
delivers the Extension 1 Notice;

 

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(iii)      The Loan-to-Value Ratio shall not exceed sixty-five percent (65%),
based upon a current Appraised Value of the Project reflected in a new
appraisal;

(iv)       No Event of Default shall have occurred and be continuing and no
condition has occurred which, with notice or the passage of time, would
constitute an Event of Default; and

(v)        Borrower shall have paid Lender a quarter percent (0.25%) extension
fee in cash (which may be from Loan proceeds if included in the Budget) based on
the outstanding, unpaid principal balance of the Loan Amount.

  (b)         To exercise the second Extension Option (“Extension Option 2”),
the following conditions must be met:

(i)        Borrower must give Lender written notice of exercise of Extension
Option 2 (an “Extension 2 Notice”) not less than forty-five (45) days before the
Maturity Date, as previously extended by the first extension period;

(ii)        Borrower must have achieved a Debt Service Coverage Ratio of 1.25x
calculated as of the end of the calendar month preceding the date Borrower
delivers the Extension 2 Notice;

(iii)      The Loan-to-Value Ratio shall not exceed sixty-five percent (65%),
based upon a current Appraised Value of the Project reflected in a new
appraisal;

(iv)       No Event of Default shall have occurred and be continuing and no
condition has occurred which, with notice or the passage of time, would
constitute an Event of Default; and

(v)        Borrower shall have paid Lender a one-half percent (0.50%) extension
fee in cash (which may be from Loan proceeds if included in the Budget) based on
the outstanding, unpaid principal balance of the Loan Amount.

Notwithstanding anything to the contrary contained herein, Borrower shall be
allowed to pay down the Loan in order to meet the Debt Service Coverage Ratio
and the Loan-To-Value requirements in this Section 2.4.

SECTION III

REPRESENTATIONS AND WARRANTIES

Borrower represents and warrants to and for the benefit of Lender as follows:

3.1     Plans.  Prior to Lender’s funding of the Initial Advance, the Plans
shall be satisfactory to Borrower, will be in compliance with all Legal
Requirements, and, if required by Legal Requirements or any effective
restrictive covenant affecting the Land, will be approved by each Governmental
Authority and by the beneficiaries of any restrictive covenant affecting the
Land.

 

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3.2     Utility Services.  Prior to Lender’s funding of the Initial Advance,
Lender must receive satisfactory evidence that all utility services necessary
for the construction and use of the Improvements for their intended purposes are
available in sufficient size and capacity for the intended use of the Project
and upon Completion of the Improvements, and will be located at the property
line(s) of the Land for connection to the Improvements, including, without
limitation, potable water, storm, sanitary sewer, gas, electric, and telephone
facilities.

3.3     No Commencement.  As of the date of this Agreement, no steps to commence
construction on the Land have been taken, including, without limitation, steps
to clear or otherwise prepare the Land for construction or the delivery of
material for use in construction of the Improvements; and no contract or other
agreement for construction has been entered into for furnishing materials for
that construction or for any other purpose, the performance of which by the
other party thereto could give rise to a Lien on the Mortgaged Property.

3.4     Disclaimer of Permanent Financing.  Borrower acknowledges and agrees
that Lender has not made any commitments, either express or implied, to extend
the term of the Loan past its stated maturity date, except as expressly stated
in this Agreement, or to provide Borrower with any permanent financing beyond
the terms expressly stated in this Agreement.

3.5     Budget Correct.  The Budget is correct, complete and reflects Borrower’s
best good faith estimate of all of the direct and indirect costs of completing
the Improvements pursuant to the Plans, the Loan Documents, and all Legal
Requirements.

3.6     Compliance with Zoning and Other Requirements.  The current and
anticipated use of the Mortgaged Property complies with applicable zoning
ordinances, regulations, and restrictive covenants affecting the Land. All use
and other requirements of any Governmental Authority having jurisdiction over
the Mortgaged Property have been satisfied. No violation of any law exists with
respect to the Mortgaged Property.

3.7     Experience.    The principals of Borrower are knowledgeable business
persons with experience in real estate transactions and real estate financing.
In its transactions with Lender, Borrower and its principals have been
represented by (or have had the opportunity to be represented by) legal counsel
independent of Lender and independent of counsel for Lender.

3.8     No Assignment.  Borrower has made no previous assignment of its interest
in the Plans or any Construction Contract.

3.9     Not a Broker or Dealer.  No Loan Party is a “broker” or a “dealer”
within the meaning of the Securities Exchange Act of 1934, as amended from time
to time, and under any rules or regulations promulgated thereunder.

 

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3.10     Compliance with Laws.  Upon Completion of construction of the
Improvements in accordance with the Plans, the Improvements shall comply with
all applicable Legal Requirements and restrictive covenants, including, without
limitation, zoning laws, building codes, handicap or disability legislation, and
all rules, regulations and orders relating thereto, and all Environmental Laws,
and the use to which Borrower is using and intends to use the Land and
Improvements complies with or shall comply with such laws, rules and
governmental regulations. Borrower has obtained or will obtain prior to
commencement of construction of the Improvements all consents or approvals for
the construction of the Improvements and use of the Land and Improvements
necessary to comply with all Legal Requirements.

The foregoing representations and warranties, together with the representations
and warranties contained in the other Loan Documents, shall be deemed to be
continuing representations and warranties as long as Lender has any commitment
or obligation to make any Advances under this Agreement, and as long as any of
the Indebtedness remains unpaid and outstanding.

3.11     Further Assurance.  In the event any of the documents evidencing and/or
securing the Loan misstate or inaccurately reflect the true and correct terms
and provisions of the Loan and said misstatement or inaccuracy is due to
unilateral mistake on the part of Lender, mutual mistake on the part of Lender
and Borrower, or clerical error, then in such event Borrower shall, upon request
by Lender and in order to correct such misstatement or inaccuracy, execute such
new documents or initial such corrected original documents as Lender may deem
necessary to remedy said inaccuracy or mistake. Borrower’s failure to initial or
execute such documents as requested or Guarantor’s failure to initial or execute
such documents as required under the Guaranty shall constitute a default under
the Loan. Nothing contained herein nor any acts of the Lender or parties hereto
shall be deemed or construed by Borrower as creating the relationship between
Lender and Borrower of: (a) principal and agent; (b) a partnership, or (c) a
joint venture.

3.12     Notice of Final Agreement.  Borrower and Lender, hereinafter referred
to together as the “Parties” have entered into the Loan and in relation thereto,
have executed the Loan Documents. It is the intention of the Parties that this
disclaimer be incorporated by reference into each of the Loan Documents. The
Parties warrant and represent that the entire agreement made between the Parties
is contained within the Loan Documents, as amended and supplemented hereby, and
that there exist no oral or other written agreements or promises between the
Parties that are not reflected in the language of the Loan Documents.

The Parties hereby take notice of and agree to the following:

PURSUANT TO SUBSECTION 26.02(b) OF THE TEXAS BUSINESS AND COMMERCE CODE, A LOAN
AGREEMENT IN WHICH THE AMOUNT INVOLVED THEREIN EXCEEDS $50,000.00 IN VALUE IS
NOT ENFORCEABLE UNLESS THE AGREEMENT IS IN WRITING AND SIGNED BY THE PARTY TO BE
BOUND OR BY THAT PARTY’S AUTHORIZED REPRESENTATIVE.

PURSUANT TO SUBSECTION 26.02(c) OF THE TEXAS BUSINESS AND COMMERCE CODE, THE
RIGHTS AND OBLIGATIONS OF THE PARTIES TO THE LOAN DOCUMENTS SHALL BE DETERMINED
SOLELY FROM THE LOAN DOCUMENTS, AND ANY PRIOR ORAL AGREEMENTS BETWEEN THE
PARTIES ARE SUPERSEDED BY AND MERGED INTO THE LOAN DOCUMENTS.

 

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THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES.

THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

  In the event that any portion of this Notice of Final Agreement is found by a
court of competent jurisdiction to be unenforceable in any respect, then the
unenforceable provision will be modified to the extent necessary to be
enforceable and to, as reasonably possible, reflect the intent of the Parties as
reflected in this notice.

3.13     Certification Regarding Anti-Terrorism Laws.  Borrower represents,
warrants, and undertakes that:

(a)        Borrower, and to Borrower’s knowledge, none of Borrower’s officers,
directors, shareholders (excluding any Person to the extent such Person’s
interest is through an entity whose securities are listed on a national
securities exchange or quoted on an automated quotation system in the U.S., or a
wholly owned subsidiary of such an entity), partners, members, managers,
associates, or trustees, and no other direct or indirect holder of any equity
interest in Borrower (collectively “Applicable Party”) is an entity or person:
(i) that is listed in the Annex to, or is otherwise subject to the provisions of
United States Presidential Executive Order 13224 issued on September 24, 2001
(“Executive Order”) as may be further supplemented or amended; (ii) whose name
appears on the U.S. Department of the Treasury, Office of Foreign Assets
Control’s (“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, www.treas.gov/ofac/;
(iii) who commits, threatens to commit or supports “terrorism.”, as that term is
defined in the Executive Order; or (iv) who is otherwise affiliated with any
entity or person listed above (any and all parties or persons described in
clauses (i) through (iv) above are herein referred to as a “Prohibited Person”).
Borrower covenants and agrees to use commercially reasonable efforts to ensure
that any Applicable Party will not: (i) conduct any business, or 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 the
Executive Order, the Uniting and Strengthening America by Providing Appropriate
Tools Required to Intercept and Obstruct Terrorism Act of 2001 (“US PATRIOT
ACT”), the Bank Secrecy Act (31 U.S.C. 5311 et, seq.) as amended by the US
PATRIOT ACT, or the International Emergency Economic Powers Act (50 U.S.C.A.§
1701-06). On request by Lender from time to time, Borrower further covenants and
agrees to deliver promptly to Lender any such certification or other evidence as
may be requested by Lender in its sole and absolute discretion, confirming that,
to Borrower’s knowledge, no violation of this Section shall have occurred. To
this end Borrower has furnished to Lender customer identification information,
verification and such other information and supporting documentation regarding
Borrower and each Applicable Party as Lender shall require for purposes of
complying with this Certification. Borrower

 

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acknowledges and understands that Lender may be required, and hereby authorizes
Lender, to obtain, verify and record information that identifies Borrower or any
other Applicable Party which information may include the names and addresses of
such parties and other information that will allow Lender to identify such
parties in accordance with the requirements of certain Anti-Terrorism Laws as
listed above or which may become effective after the date hereof.

(b)        Borrower will furnish all of the funds, if any, for the construction
of Improvements on the Mortgaged Property subject to the Loan, other than funds
supplied by Lender, and such funds will not be from sources that are described
in 18 U.S.C.A. §§ 1956 and 1957 as funds or property derived from “specified
unlawful activity.” None of Borrower nor any Applicable Party, (i) is a
Prohibited Person, or (ii) has violated any Anti-Terrorism Laws. No Prohibited
Person holds or owns any interest of any nature whatsoever in Borrower or any
Applicable Party, as applicable, and none of the funds of Borrower or any
Applicable Party have been derived from any activity in violation of
Anti-Terrorism Laws.

(c)        Neither Borrower nor any Applicable Party is a “foreign person”
within the meaning of §1445(f)(3) of the U.S. Internal Revenue Code of 1986, as
amended.

(d)        The covenants contained in this Section 3.13 shall not apply to any
Person to the extent such Person’s interest is through (i) a non-listed,
publicly reporting real estate investment trust, or (ii) an entity whose
securities are listed on a national securities exchange or quoted on an
automated quotation system in the U.S., or a wholly owned subsidiary of such an
entity.

3.14     Foreign Assets Control Regulations and Anti-Money Laundering.

Borrower is and will remain in compliance in all material respects with all
United States economic sanctions laws, Executive Orders and implementing
regulations as promulgated by the United States Treasury Department’s Office of
Foreign Assets Control (“OFAC”), and all applicable anti-money laundering and
counter-terrorism financing provisions of the Bank Secrecy Act and all
regulations issued pursuant to it. Neither Borrower nor any Affiliate of
Borrower (a) is a Person designated by the United States government on the list
of the Specially Designated Nationals and Blocked Persons (the “SDN List”) with
which a United States Person cannot deal with or otherwise engage in business
transactions, (b) is a Person who is otherwise the target of United States
economic sanction laws such that a United States Person cannot deal or otherwise
engage in business transactions with such Person, or (c) is controlled by
(including without limitation by virtue of such person being a director or
owning voting shares or interests), or acts, directly or indirectly, for or on
behalf of, any person or entity on the SDN List or a foreign government that is
the target of United States economic sanctions prohibitions such that the entry
into, or performance under, this Agreement or any other Loan Document would be
prohibited under United States law.

3.15     Patriot Act

Borrower and each of its Affiliates are in compliance with (a) the Trading with
the Enemy Act, and each of the foreign assets control regulations of the United
States Treasury Department (31 CFR, Subtitle B Chapter V, as amended), and all
other enabling legislation or executive order relating thereto, (b) the Patriot
Act, and (c) all other federal or state laws relating to “know your customer”
and anti-money laundering rules and regulations. No part of the proceeds of any
Loan will be used directly or indirectly for any payments to any government
official or employee, political party, official of a political party, candidate
for political office, or anyone else acting in an official capacity, in order to
obtain, retain or direct business or obtain any improper advantage, in violation
of the United States Foreign Corrupt Practices Act of 1977.

 

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SECTION IV

AFFIRMATIVE COVENANTS

Borrower covenants and agrees that, as long as Lender is committed to make any
Advance under this Agreement, and until all instruments and agreements which
condition Advances on the Lender’s discretion are fully discharged and
terminated, and from then on, as long as any Indebtedness remains outstanding,
Borrower shall, or shall cause each Loan Party within its control, as
appropriate, to:

4.1       Preservation of Existence, Etc.  In regard to Borrower, (a) preserve
and maintain its existence as a single asset entity formed in the State of
Delaware; (b) preserve and maintain those rights, licenses, and privileges as
are material to the business and operations conducted by it; (c) qualify and
remain qualified to do business in each jurisdiction in which the Land is
located and where that qualification is material to its business and operations
or ownership of its properties; (d) continue to conduct and operate its business
substantially as conducted and operated during the present and preceding
calendar year as modified with respect to the progress of construction; and
(e) from time to time make, or cause to be made, all needed and proper repairs,
renewals, replacements, betterments, and improvements.

4.2       Further Assurances; Financing Statements.

In regard to Borrower, furnish Lender, on Lender’s request and at Borrower’s
expense, in form and substance satisfactory to Lender (and execute and deliver
or cause to be executed and delivered), those additional pledges, assignments,
mortgages, lien instruments, or other security instruments, consents,
acknowledgments, subordinations, and financing statements covering any of the
Mortgaged Property pledged, assigned, mortgaged, or encumbered under any Loan
Document (of every nature and description whether now owned or later acquired by
Borrower or any other Person pertaining to the Mortgaged Property), together
with those other documents or instruments as Lender may require.

4.3       Insurance.

In regard to Borrower, obtain and maintain at Borrower’s sole expense all
insurance policies required under Section 4.7 of the Deed of Trust and on
Exhibit “H” to this Agreement, including, without limitation, the all-risk
insurance in “Builder’s Risk” (non-reporting form) until Completion of
construction of the Improvements.

4.4       Compliance with ERISA.

In regard to Borrower, any of Borrower’s Affiliates, or any Loan Party which
maintains or establishes a Pension Plan subject to ERISA, (a) comply in all
material respects with all requirements imposed by Title IV of ERISA, as
amended, including, but not limited to, the minimum funding requirements;
(b) promptly notify Lender on the occurrence of a “reportable event” or
non-exempt “prohibited transaction” within the meaning of ERISA, or that the
PBGC or any Loan Party has instituted or shall institute proceedings to
terminate any Pension Plan, together with a copy of any proposed notice of that
event that may be required to be filed with the PBGC; and (c) furnish to Lender
(or cause the plan administrator to furnish Lender) a copy of the annual return
(including all schedules and attachments) for each Pension Plan covered by Title
IV of ERISA, and filed with the Internal Revenue Service by any Loan Party not
later than thirty (30) days after the report has been filed.

 

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4.5       Compliance with Environmental Laws.

Comply, and shall cause all Contractors to comply, with all Environmental Laws
in connection with the work done on the Land and the construction of the
Improvements.

4.6       Commencement and Completion.

Cause the construction of the Improvements (a) to commence by the Commencement
Date (subject to force majeure events); (b) to be performed in a good and
workmanlike manner, within the perimeter boundaries of the Land and within all
applicable building and setback lines in substantial accordance with the Plans
and all Legal Requirements; (c) to be prosecuted with diligence and continuity;
and (d) to be completed in all material respects in substantial accordance with
the Plans on or before the Completion Date (subject to force majeure events),
free and clear of Liens, claims for Liens for materials supplied, and claims for
Liens for labor or services performed in connection with the construction of the
Improvements, other than Permitted Exceptions.

4.7       Advances.

Receive the Advances and hold them in trust for the purpose of paying (a) the
cost of construction of the Improvements, and (b) costs related to the Mortgaged
Property provided for in this Agreement that are not related to construction of
the Improvements, all as set forth in the Budget. Borrower shall apply the
Advances promptly to the payment of the costs and expenses for which each
Advance is made and shall not use any part thereof for any other purpose.

4.8       Defects and Variances.

Following demand by Lender and at Borrower’s sole expense, correct any
structural defect in the Improvements or any material variance from the Plans
that is not approved in writing by Lender and any material non-compliance with
Legal Requirements.

4.9       Estoppel Certificates.

Within ten (10) business days after receipt of a written request from Lender,
deliver to Lender estoppel certificates or written statements, duly
acknowledged, stating the amount that has been advanced to Borrower under this
Agreement, the amount due on the Note, and whether to Borrower’s knowledge any
offsets or defenses exist against the Note or any of the other Loan Documents.

4.10     Independent Consultant.

Pay the reasonable fees and expenses of and cooperate with the Independent
Consultant and cause the Design Professional and each Contractor to cooperate
with the Independent Consultant in connection with the performance of the
Independent Consultant’s duties. Without limiting the generality of the
foregoing, Borrower shall furnish or cause to be furnished the following items
as working details: the Plans and details thereof; samples of materials;
licenses; permits; certificates of public authorities; zoning ordinances;
building codes; and copies of any contracts between that person and Borrower (if
applicable). Borrower shall permit Lender, the Independent Consultant, and their
representatives to enter on the Land and wherever else any of the Mortgaged
Property is located for the purposes of inspecting same; provided that such
parties shall not unreasonably interfere with construction of the Improvements.
Borrower acknowledges that the duties of the Independent Consultant run solely
to Lender and that the Independent Consultant has no obligations or
responsibilities whatsoever to Borrower, Contractor, the Design Professional, or
to any of Borrower’s or Contractor’s agents, employees, contractors, or
subcontractors.

 

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4.11     Personalty and Fixtures.

Deliver to Lender, within ten (10) business days after receipt of a written
request from Lender, any contracts, bills of sale, statements, receipted
vouchers, or agreements under which Borrower claims title to any Equipment,
Fixtures, or other items of personal property incorporated into the Improvements
or subject to the lien of the Deed of Trust or to the security interest of the
Security Agreement.

4.12     Affidavit of Commencement.

Within ten (10) days after the Commencement Date, but not before construction of
the Improvements has actually begun, file or cause to be filed in the
appropriate records of the county in which the Land is situated, an Affidavit of
Commencement duly executed by Borrower and Contractor. The date of commencement
of work set forth in the Affidavit of Commencement shall not be the date of or
before the date on which the Deed of Trust was recorded.

4.13     Affidavit of Completion.

Within ten (10) days after construction of the Improvements has been completed,
file or cause to be filed in the appropriate records in the county in which the
Land is situated, an Affidavit of Completion; provided that failure to timely
file such Affidavit of Completion shall not be a default hereunder if such
failure to file such Affidavit of Completion shall be cured within ten (10) days
after Lender delivers to Borrower written notice of such failure to file.

4.14     Advertising by Lender.

Permit Lender to erect and maintain on the Land until payment in full of the
Indebtedness one or more advertising signs furnished or approved by Lender
indicating that the financing for construction of the Improvements has been
furnished by Lender.

4.15     Approval of Lease Form Required.

Obtain the prior written consent of Lender as to the form of the Leases to be
utilized in leasing the Land or Improvements, or any part thereof, prior to
entering into any Lease, which approval will not be unreasonably withheld,
conditioned, or delayed. Once approved, Borrower shall utilize the Lender
approved form Lease in leasing all or any part of the Improvements. Other than
approval of the form, no further approval of Lender shall be required for
Borrower to enter into Leases.

4.16     Correcting Defects.

Correct: (a) any structural defect in the Improvements; (b) any material
departure from the Plans not approved in writing by the Lender; (c) other than
Permitted Exceptions, any encroachment by any part of the Improvements or any
other structures or improvements over or on any set-back line, easement,
adjoining property, or other restricted area which is not permitted by the
instrument creating such set-back line, easement, boundary line, or other
restricted area; (d) other than Permitted Exceptions, any encroachment of any
adjoining structure on the Land which any Survey or inspection reflects and
which encroachment is not permitted by recorded instrument; and (e) any material
non-compliance with any Legal Requirement. The making of any Advance by Lender
shall not constitute a waiver of Lender’s right to require compliance with this
Section 4.16.

 

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4.17     Safe Storage.

  Store all equipment, supplies, and materials owned by Borrower not affixed to
or incorporated into the Improvements on the Land or in a bonded warehouse
reasonably acceptable to Lender, in each case under adequate safeguard to
minimize the possibility of loss, theft, damage, or commingling with other
property. Within ten (10) business days after receipt of Lender’s written
request, Borrower shall furnish an inventory of all equipment, supplies, and
materials owned by Borrower and stored off the Land, specifying their location.

4.18     Reporting Covenants.

(a)      Borrower’s Financial Statements.  Within sixty (60) days after the last
day of each calendar quarter, beginning with the calendar quarter that ends
September 30, 2013, and, upon the occurrence of an Event of Default, at such
other times and for other documentation as may be reasonably requested by
Lender, Borrower shall provide Lender Financial Statements. All such Financial
Statements shall show the financial position and results of operations of
Borrower as of, and for the quarter ended on, such last day, together with the
certificate of an authorized officer or representative of Borrower that all of
such Financial Statements present fairly the financial position of Borrower and
the results of the operations and cash flow of Borrower for the quarter then
ended. Each such Financial Statement shall contain at least a balance sheet of
Borrower as at the end of such quarter and statements of income, cash flow,
retained earnings, and contingent liabilities.

(b)      Rent Roll.      Commencing with the calendar quarter in which the
Improvements are occupied by the first tenant, thereafter within sixty (60) days
after the last day of each calendar quarter, and following the occurrence of an
Event of Default, at such other times as may be requested by Lender, Borrower
shall provide Lender with the current rent roll, certified by an authorized
officer or a representative of Borrower as being true, correct and complete in
all material respects.

(c)      Property Operating Statements.  Commencing with the calendar quarter in
which the Improvements are occupied by the first tenant, thereafter within sixty
(60) days after the last day of each calendar quarter, and following the
occurrence of an Event of Default, at such other times as may be requested by
Lender, Borrower shall provide Lender with the current Project operating
statement, certified by an authorized officer or a representative of Borrower as
being true, correct and complete in all material respects.

(d)      Guarantor: AHCC.   Within sixty (60) days after the last day of each
calendar quarter, beginning with the calendar quarter that ends September 30,
2013, within ninety (90) days after the last day of each calendar year,
beginning with the calendar year that ends December 31, 2013, and at such other
times and upon the occurrence of an Event of Default, for other documentation as
may be reasonably requested by Lender, Borrower shall cause AHCC to provide
Lender with Financial Statements showing the financial position and results of
operations of AHCC as of, and for the quarter or calendar years ended, together
with the certificate of an authorized officer or representative of AHCC that all
such Financial Statements present fairly the financial position of AHCC and the
results of the operations and cash flow of AHCC for the quarter or calendar year
then ended. Each such Financial Statement shall contain at least a balance sheet
of AHCC as at the end of such quarter or calendar year and statements of income,
cash flow, retained earnings, and contingent liabilities.

 

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(e)      Guarantor: AHI.    Within ninety (90) days after the last day of each
calendar year, beginning with the calendar year that ends December 31, 2013, and
at such other times and for other documentation as may be reasonably requested
by Lender, Borrower shall cause AHI to provide Lender with Financial Statements
showing the financial position and results of operations of AHI as of, and for
the calendar years ended, together with the certificate of an authorized officer
or representative of AHI that all such Financial Statements present fairly the
financial position of AHI and the results of the operations and cash flow of AHI
for the calendar year then ended. Each such Financial Statement shall contain at
least a balance sheet of AHI as at the end of such calendar year and statements
of income, cash flow, retained earnings, and contingent liabilities.

4.19     Debt Service Coverage Ratio.  The Debt Service Coverage Ratio or “DSCR”
is defined as (i) annualized actual rents received (cash) by Borrower under
Leases in the Project occupied by tenants for the reporting period (including
forfeited deposits plus any additional rental income such as contractual parking
or utility reimbursements), less the greater of (a) actual annualized operating
expenses of the Project for the reporting period (including monthly prorations
for taxes and insurance as well as a replacement reserve of TWO HUNDRED FIFTY
AND NO/100 DOLLARS ($250.00) per unit or (b) EIGHT THOUSAND SIX HUNDRED
TWENTY-FIVE AND NO/100 DOLLARS ($8,625.00) per apartment unit (which amount is
inclusive of the same monthly prorations for taxes and insurance and replacement
reserve), divided by (ii) the projected annualized Debt payment for the Loan
principal amount outstanding, plus the committed but not yet advanced balance of
the Loan on the applicable date of determination based upon the greater of
(a) the then-current Note Rate in effect, (b) the ten (10)-year Treasury Bill
rate plus three percent (3.00%) per annum, and (c) six and three-quarters
percent (6.75%) per annum, using a thirty (30)-year amortization. Such test,
which will begin immediately prior to the first extension period, shall be
calculated based on a trailing three (3)-month NOI, annualized for the first
Extension Term, and a trailing six (6)-months’ NOI for the second Extension
Term.

4.20     Utility Fee Reimbursement.  Borrower shall timely request a
reimbursement of the utility costs from the MUD 322 which will file a bond
application with the TCEQ. The TCEQ will review the application and, if
approved, the MUD Bonds shall be issued and sold and the MUD Bond Proceeds from
such sale shall be paid to Borrower. Immediately upon its receipt of all or part
of the Utility Fee Reimbursement, Borrower shall immediately pay to Lender one
hundred percent (100%) of such Utility Fee Reimbursement up to the total Utility
Impact Fee advanced by Lender, to be applied in its entirety by Lender to Loan
principal.

 

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SECTION V

NEGATIVE COVENANTS

Borrower covenants and agrees that, as long as Lender is committed to make any
Advance under this Agreement and until all instruments and agreements evidencing
the Indebtedness that require payment on demand or that condition Advances on
the Lender’s discretion are fully discharged and terminated, and from then on,
as long as any of the Indebtedness remains outstanding or any of the Obligations
remain unsatisfied, Borrower shall not and shall not allow any Loan Party within
its control or under common control to, without the prior written consent of the
Lender:

5.1     Changes.

Amend, alter, or change (pursuant to change order, amendment, or otherwise) the
Plans in any material respect unless those changes have been approved in advance
in writing by Lender, by all applicable Governmental Authorities, by any party
to a purchase or construction contract with a right of approval, and by each
surety under payment or performance bonds covering any Construction Contract or
any other contract for construction of all or a portion of the Improvements if
approval is required thereunder. Notwithstanding anything in this Agreement to
the contrary, Borrower shall be allowed to make changes to the Plans on and
subject to the following conditions and requirements:

(a) any single change shall not increase the Project Costs by more than FIFTY
THOUSAND AND NO/100 DOLLARS ($50,000.00);

(b) all changes, including the currently requested change and all prior changes,
shall not increase the Project Costs in the aggregate, by more than TWO HUNDRED
THOUSAND AND NO/100 DOLLARS ($200,000.00);

(c) any change, by itself and when considered with all prior changes, shall not,
in Lender’s reasonable discretion, cause or be likely to cause the Completion to
occur after the Completion Date;

(d) any change, or all changes in the aggregate, shall not materially and
adversely affect any structural components of the Improvements and shall not
materially and adversely affect, in Lender’s reasonable discretion, the value,
structural integrity, utility, or appearance of the Improvements;

(e) should the changes trigger the need for a deposit by Borrower to the
Depository Account, Borrower shall deposit sufficient funds to the Depository
Account, sufficient to cover all costs associated with the requested change and
all increases in the Project Costs of the Improvements anticipated by those
changes, as determined by Lender in its reasonable discretion;

(f) Borrower shall have submitted to Lender, the Independent Consultant, and the
applicable Contractor the requested change, together with changes in the Plans
necessary to accomplish that change and a change order to the Construction
Contract reflecting that change; and Lender has received the approval of that
change by the Independent Consultant as well as the approved and signed change
order from the applicable Contractor reflecting the increase in cost of
construction of the Improvements; and Borrower shall have received Lender’s
written approval; and

(g) the change has been approved by, to the extent applicable, any party to a
purchase or construction contract with a right of approval, all sureties under
payment or performance bonds covering the Construction Contract, and all
Governmental Authorities.

5.2     OFAC.

Fail to comply with the laws, regulations and executive orders referred to in
Section 3.13 and Section 3.14 of this Agreement.

 

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5.3     Changes of Ownership.

Allow transfers in ownership of Borrower or any other Loan Party within
Borrower’s control or under common control to, except for the following such
transfers which Lender hereby approves as permitted transfers provided that no
Event of Default is continuing:

  (a)        any transfers of membership interests in Borrower;

  (b)        any transfers of membership interests in either Guarantor between
Paul Forbes and Will Harper pursuant to buy-sell provisions in the respective
Company Agreement of such Guarantor, provided that Paul Forbes or Will Harper,
individually or collectively, remain the only Manager(s) of the respective
Guarantor and continue to own at least a fifty-one percent (51%) controlling
interest in the respective Guarantor;

  (c)        any transfers of minority membership interests in either Guarantor
to any third party or parties, provided that Paul Forbes or Will Harper,
individually or collectively, remain the only Manager(s) of the respective
Guarantor and continue to own at least a fifty-one percent (51%) controlling
interest in the respective Guarantor; and

  (d)        any transfers of direct and/or indirect equity interests in
Borrower provided that:

 (i)        other than in connection with a transfer, conveyance or pledge of a
direct interest in a Qualified Equityholder, as defined below, and except as
(A) may be otherwise prohibited by applicable law or (B) a transfer or transfers
of publicly traded stock, and issuances of stock to the public which is the
subject of or is exempt from filing(s) with the U.S. Securities and Exchange
Commission, Borrower shall provide not less than ten (10) days prior written
notice to Lender; and

 (ii)      no such transfer shall result in a Change of Control.

For the avoidance of doubt, equity transfers of interests in Borrower among
Affiliates of CNL shall be permitted without the consent of Lender subject to
the other terms set forth herein.

  (e)        Notwithstanding anything to the contrary contained herein, without
the prior written consent of Lender, Borrower shall be and must remain during
the term of the Loan a “single purpose entity” (“SPE”), the only business of
Borrower being the financing, ownership, development, maintenance and operation
of the Mortgaged Property and other assets directly related to the operation of
the Mortgaged Property, and always be in compliance with the Company Agreement
of Borrower and with Section 9.26 of this Agreement.

SECTION VI

EVENTS OF DEFAULT AND REMEDIES

6.1     Events of Default.

The occurrence or existence of any one or more of the following conditions or
events shall constitute an “Event of Default” hereunder:

(a)        the occurrence of any “Event of Default,” as defined in the Deed of
Trust; or

(b)        the construction of the Improvements is (i) discontinued, at any
time, for a period of thirty (30) or more consecutive days excluding days upon
which a force majeure event occurs; or (ii) not completed by the Completion Date
(subject to extension for force majeure events); or

(c)        if Borrower is unable to satisfy any condition precedent to
Borrower’s right to receive Advances under this Agreement for a period in excess
of thirty (30) days after Lender’s refusal to

 

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make an Advance unless Borrower is diligently pursuing the satisfaction of such
condition and such condition is satisfied within ninety (90) days after the date
Lender refused to make the applicable Advance; or

(d)        any of the materials supplied for the construction of the
Improvements fails to comply in any material respects with the Plans or any
Legal Requirement and such failure of compliance is not corrected by the first
to occur of (i) thirty (30) days after written notice from Lender or (ii) the
applicable deadline imposed by any Governmental Authority or Legal Requirement;
or

(e)        any Advance, or any part thereof, shall have been diverted to a
purpose other than the purpose for which the Advance was made.

For purposes hereof, “force majeure event” shall mean an event causing a delay
in the progress of the work including labor disputes, fire, unusual delay in
deliveries, adverse weather conditions and the consequences thereof, unavoidable
casualties or any causes beyond the control of Borrower or Contractor.

6.2     Remedies.

(a)         The remedies available to Lender under Section 7 of the Deed of
Trust are fully incorporated herein by reference as if they were listed in this
Section 6.2. On the occurrence of an Event of Default and during the continuance
thereof, Lender may, in its sole discretion, exercise any one or more remedies
available to it under the Deed of Trust, this Agreement, the other Loan
Documents, or at law or in equity.

(b)         On the occurrence of any Event of Default and at any time during the
existence or continuance of any Event of Default, but without impairing or
otherwise limiting the right of Lender to make or withhold financial
accommodations at its discretion, any commitment by Lender to make any further
Advances to Borrower under this Agreement, to the extent not yet disbursed,
automatically terminates without any requirement of notice or demand by Lender
to Borrower, each of which is expressly waived by Borrower; provided, however,
that should the Event of Default be cured to Lender’s satisfaction, Lender may,
but shall be under no obligation to, reinstate that commitment by written notice
to Borrower. Lender may, without waiving any Event of Default, advance Loan
proceeds to correct Borrower’s violation, including, without limitation,
advancing Loan proceeds to complete construction of the Improvements. Any Loan
proceeds advanced may, at Lender’s sole option, be evidenced by the Note or
constitute Indebtedness of Borrower to Lender payable on demand, bearing
interest at the Default Rate from the date advanced by Lender. All such demand
indebtedness is a part of the Indebtedness and is secured by the liens and
security interests of the Loan Documents. The foregoing rights and remedies are
in addition to any other rights, remedies and privileges Lender may otherwise
have or that may be available to it, whether under this Agreement, any other
Loan Document, by law, or otherwise.

6.3     Discretionary Credit and Credit Payable On Demand.

   To the extent that any of the Indebtedness is payable on demand, nothing
contained in this Agreement or any other Loan Document, shall prevent Lender
from making demand, without notice and with or without reason, for immediate
payment of all or any part of that demand Indebtedness whether or not an Event
of Default has occurred or exists. If a demand is made under the provisions of
this Section 6.3 in relation to any portion of the Indebtedness and Borrower
fails to pay such amount within five (5) days after receipt of such demand,
Lender may terminate any commitment by Lender to make any further Advances to
Borrower under this Agreement or otherwise. If any Loan Document authorizes
Lender, in its discretion, to make or to decline to make financial
accommodations to Borrower, nothing contained in this Agreement or any other
Loan Document shall limit or impair that discretion or otherwise obligate the
Lender to make any such financial accommodation.

 

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SECTION VII

ASSIGNMENTS

7.1        Assignment of Construction Contract and Architectural Contract.

As additional security for the payment of the Indebtedness, Borrower transfers
and assigns to Lender all of Borrower’s rights and interest, but not its
obligations, in, under, and to each Construction Contract and Architectural
Contract on the following terms and conditions:

   (a)        Borrower represents and warrants that the copy of each
Construction Contract and Architectural Contract Borrower has furnished or shall
furnish to Lender is or shall be (as applicable) a true and complete copy
thereof, including all amendments thereto, if any, and that Borrower’s interest
therein is not subject to any claim, setoff, or encumbrance;

   (b)        neither this assignment nor any action by Lender constitutes an
assumption by Lender of any obligations under any Construction Contract or
Architectural Contract. Borrower shall be liable for all obligations of Borrower
under any Construction Contract or Architectural Contract. Borrower shall
perform all of its obligations under each Construction Contract and
Architectural Contract. Borrower agrees to indemnify, defend, and hold Lender
harmless from any loss, cost, liability, or expense (including, without
limitation, attorney’s fees) resulting from any failure of Borrower to perform
except to the extent such failure is due to Lender’s breach of its obligations
under the Loan Documents or due to Lender’s gross negligence or willful
misconduct;

   (c)        before the occurrence of an Event of Default and exercise by
Lender of its rights under each Construction Contract or Architectural Contract,
Borrower may exercise its rights as owner under each Construction Contract or
Architectural Contract; provided, however, that Borrower shall not cancel or
amend any Construction Contract or Architectural Contract or do or suffer to be
done any act that would impair the security constituted by this assignment
without the prior written consent of Lender; and

   (d)        this assignment shall inure to the benefit of Lender, Lender’s
successors, Lender’s assigns, any purchaser on foreclosure of the Deed of Trust,
any receiver in possession of the Mortgaged Property, and any entity Affiliated
with Lender that assumes Lender’s rights and obligations under this Agreement.

7.2        Assignment of Plans.

As additional security for the Indebtedness, Borrower transfers and assigns to
Lender all of Borrower’s right, title, and interest in and to the Plans and
represents, warrants, and agrees with Lender as follows:

   (a)        each schedule of the Plans delivered or to be delivered to Lender
is a complete and accurate description of the Plans in all material respects as
of such date;

   (b)        to Borrower’s knowledge, the Plans will be complete and adequate
for the construction of the Improvements and there have been no modifications
thereof except as described in such schedule. After approval thereof, the Plans
shall not be modified without the prior written consent of Lender (except as
expressly permitted herein);

 

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      (c)        Lender may only use the Plans for any purpose relating to the
Improvements, including, without limitation, construction inspections and the
Completion of the Improvements;

      (d)        Lender’s acceptance of this assignment shall not constitute
approval of the Plans by Lender. Lender has no liability or obligation in
connection with the Plans and no responsibility for the adequacy thereof or for
the construction of the Improvements contemplated by the Plans. Lender has no
duty to inspect the Improvements. If Lender inspects the Improvements, Lender
has no liability or obligation to Borrower or any other party arising out of
that inspection. No inspection nor any failure by Lender to make objections
after an inspection is a representation by Lender that the Improvements conform
with the Plans or any other requirement, nor is it a waiver of Lender’s right to
insist that the Improvements be constructed pursuant to the Plans or any other
requirement; and

      (e)        this assignment shall inure to the benefit of Lender, Lender’s
successors, Lender’s assigns, any receiver in possession of the Mortgaged
Property, and any entity Affiliated with Lender that assumes Lender’s rights and
obligations under this Agreement.

SECTION VIII

LENDER’S DISCLAIMERS - BORROWER’S INDEMNITIES

8.1        No Obligation by Lender to Construct.

Lender has no liability or obligation in connection with the Land, Improvements,
or the development, construction, completion, or work performed on or in
connection with them. Lender’s sole obligation is to disburse the Loan proceeds
to the extent required under this Agreement. Lender is not obligated, not
liable, and under no circumstances shall Lender be or become liable (a) to
inspect the Improvements; (b) for the performance or default of any contractor
or subcontractor; (c) for any failure to construct, complete, protect, or insure
all or part of the Mortgaged Property; (d) for the payment of any cost or
expense incurred in connection therewith; or (e) for the performance or
nonperformance of any obligation of any Loan Party to Lender or, without
limitation, any other person, firm, or entity. Upon request from Borrower,
Lender will promptly provide Borrower with copies of all inspection reports
prepared by the Third Party Inspector. No action or statement by Lender,
including, without limitation, any disbursement of Loan proceeds, disbursement
of Borrower’s Deposit, or acceptance of any document or instrument, is or shall
be construed as an express or implied representation or warranty on Lender’s
part.

8.2        No Obligation by Lender to Operate.

Notwithstanding any term or condition of any of the Loan Documents to the
contrary, Lender has no, and by its execution and acceptance of this Agreement
expressly disclaims, any obligation or responsibility for the management,
conduct, or operation of the business and affairs of any Loan Party. Any term or
condition of the Loan Documents that permits Lender to disburse funds, whether
from the proceeds of the Loan, Borrower’s Deposit, or otherwise, or to take or
refrain from taking any action with respect to any Loan Party, the Mortgaged
Property, or any other collateral for repayment of the Loan, is solely to permit
Lender to audit and review the management, operation, and conduct of the
business and affairs of any Loan Party, and to maintain and preserve the
security given to Lender for the Loan, and may not be relied on by any other
Person. Further, Lender has no, has not assumed any, and by its execution and
acceptance of this Agreement expressly disclaims any, liability or
responsibility for the payment or performance of any indebtedness or obligation
of any Loan Party and no term or condition of the Loan Documents shall be
construed otherwise.

 

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8.3        Borrowers Indemnity.

BORROWER HEREBY INDEMNIFIES AND AGREES TO DEFEND, PROTECT, AND HOLD HARMLESS
LENDER, LENDER’S PARENTS, SUBSIDIARIES, DIRECTORS, OFFICERS, EMPLOYEES,
REPRESENTATIVES, AGENTS, SUCCESSORS, ASSIGNS, AND THE TRUSTEE UNDER THE DEED OF
TRUST FROM AND AGAINST ALL LIABILITIES, DAMAGES, LOSSES, COSTS, OR EXPENSES
(INCLUDING, WITHOUT LIMITATION, REASONABLE ATTORNEY’S FEES AND EXPENSES),
ACTIONS, PROCEEDINGS, CLAIMS, OR DISPUTES INCURRED OR SUFFERED BY THE FOREGOING
PARTIES SO INDEMNIFIED WHETHER OR NOT AS THE RESULT OF THE NEGLIGENCE (BUT NOT
THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT) OF ANY PARTY SO INDEMNIFIED OR
ARISING IN STRICT LIABILITY, WHETHER VOLUNTARILY OR INVOLUNTARILY INCURRED OR
SUFFERED, IN RESPECT OF THE FOLLOWING:

(a)        ANY LITIGATION CONCERNING THIS AGREEMENT OR, THE OTHER LOAN
DOCUMENTS, UNLESS BORROWER IS THE PREVAILING PARTY, OR THE MORTGAGED PROPERTY,
OR ANY INTEREST OF BORROWER OR LENDER THEREIN, OR THE RIGHT OF OCCUPANCY THEREOF
BY BORROWER OR LENDER, WHETHER OR NOT THAT LITIGATION IS PROSECUTED TO A FINAL,
NON-APPEALABLE JUDGMENT;

(b)        ANY DISPUTE, INCLUDING DISPUTES AS TO THE DISBURSEMENT OF PROCEEDS OF
THE NOTE NOT YET DISBURSED, AMONG OR BETWEEN ANY LOAN PARTY OR OTHER PARTNERS OR
VENTURERS OF BORROWER IF BORROWER IS A GENERAL OR LIMITED PARTNERSHIP, OR AMONG
OR BETWEEN ANY EMPLOYEES, OFFICERS, DIRECTORS, SHAREHOLDERS, MEMBERS, OR
MANAGERS OF BORROWER IF BORROWER IS A CORPORATION, LIMITED LIABILITY COMPANY, OR
PARTNERSHIP, OR AMONG OR BETWEEN ANY MEMBERS, TRUSTEES, OR OTHER RESPONSIBLE
PARTIES IF BORROWER IS AN ASSOCIATION, TRUST, OR OTHER ENTITY;

(c)        ANY ACTION TAKEN OR NOT TAKEN BY LENDER OR TRUSTEE THAT IS ALLOWED OR
PERMITTED UNDER THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS RELATING TO
BORROWER, THE MORTGAGED PROPERTY, ANY LOAN PARTY, OR OTHERWISE IN CONNECTION
WITH THE LOAN DOCUMENTS, INCLUDING, WITHOUT LIMITATION, THE PROTECTION OR
ENFORCEMENT OF ANY LIEN, SECURITY INTEREST, OR OTHER RIGHT, REMEDY, OR RECOURSE
CREATED OR AFFORDED BY THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS; AND

(d)        ANY ACTION BROUGHT BY LENDER AGAINST BORROWER UNDER THIS AGREEMENT OR
THE OTHER LOAN DOCUMENTS, WHETHER OR NOT THAT ACTION IS PROSECUTED TO A FINAL,
NON-APPEALABLE JUDGMENT UNLESS BORROWER IS THE PREVAILING PARTY IN SUCH ACTION.

LENDER MAY EMPLOY AN ATTORNEY OR ATTORNEYS TO PROTECT OR ENFORCE ITS RIGHTS,
REMEDIES, AND RECOURSES UNDER THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, AND
TO ADVISE AND DEFEND LENDER WITH RESPECT TO THOSE ACTIONS AND OTHER MATTERS.
BORROWER SHALL REIMBURSE LENDER FOR ITS REASONABLE ATTORNEYS’ FEES AND EXPENSES
(INCLUDING EXPENSES AND COSTS FOR EXPERTS) WITHIN THIRTY (30) DAYS FOLLOWING
RECEIPT OF WRITTEN DEMAND FROM LENDER, WHETHER ON A MONTHLY OR OTHER TIME
INTERVAL, AND WHETHER OR NOT AN ACTION IS ACTUALLY

 

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COMMENCED OR CONCLUDED. ALL OTHER REIMBURSEMENT AND INDEMNITY OBLIGATIONS UNDER
THIS AGREEMENT SHALL BECOME DUE AND PAYABLE WHEN ACTUALLY INCURRED BY LENDER.
ANY PAYMENTS NOT MADE WITHIN THIRTY (30) DAYS AFTER WRITTEN DEMAND FROM LENDER
SHALL BEAR INTEREST AT THE DEFAULT INTEREST RATE FROM THE DATE OF THAT DEMAND
UNTIL FULLY PAID. THE PROVISIONS OF THIS SECTION 8.3 SHALL SURVIVE REPAYMENT OF
THE INDEBTEDNESS AND PERFORMANCE OF THE OBLIGATIONS, THE RELEASE OF THE LIEN OF
THE DEED OF TRUST, ANY FORECLOSURE (OR ACTION IN LIEU OF FORECLOSURE), THE
TRANSFER BY BORROWER OF ANY OF ITS RIGHT, TITLE, AND INTEREST IN OR TO THE
MORTGAGED PROPERTY, AND THE EXERCISE BY LENDER OF ANY OR ALL REMEDIES SET FORTH
IN THIS AGREEMENT OR IN ANY OTHER LOAN DOCUMENT.

8.4        No Agency.

Nothing in this Agreement shall make or constitute Lender as the agent of any
Loan Party in making payments pursuant to any construction contracts or
subcontracts entered into by any Loan Party for construction of the Improvements
or otherwise. The purpose of all requirements of Lender under this Agreement is
solely to allow Lender to check and require documentation (including, without
limitation, lien waivers) sufficient to protect Lender and the Loan contemplated
under this Agreement. Borrower may not rely on any procedures required by
Lender. Borrower has sole responsibility for constructing the Improvements and
paying for the work done in accordance therewith. Borrower has solely, on
Borrower’s own behalf, selected or approved each contractor, subcontractor, and
materialman. Lender has no responsibility for the quality of the materials or
workmanship of those persons or entities.

SECTION IX

MISCELLANEOUS

9.1        Taxes and Fees.

Unless otherwise prohibited by applicable law, should any stamp, court,
documentary, intangible, recording, filing or similar taxes or fees imposed by
any Governmental Authority that arise from any payment made under, from the
execution, delivery, performance, enforcement or regulation of, from the receipt
or perfection of a security interest under, or otherwise with respect to any
Loan Document become payable by Lender, Borrower shall pay and hold Lender
harmless for those taxes (or, on demand, reimburse Lender), together with any
interest and penalties. For the avoidance of doubt, Borrower shall not be liable
for any taxes imposed as a result of a present or former connection between
Lender and the jurisdiction imposing such tax (other than connections arising
solely from Lender having executed, delivered, become a party to, performed its
obligations under, received payments under, received or perfected a security
interest under, engaged in any other transaction pursuant to or enforced any
Loan Document, or sold or assigned any interest in the Loan or any Loan
Document).

9.2        Governing Law; Venue; Service of Process.

THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF TEXAS; PROVIDED THAT LENDER SHALL RETAIN ALL RIGHTS UNDER FEDERAL
LAW. THIS AGREEMENT HAS BEEN ENTERED INTO IN DALLAS COUNTY, TEXAS, AND IS
PERFORMABLE FOR ALL PURPOSES IN DALLAS COUNTY, TEXAS. THE PARTIES HEREBY AGREE
THAT ANY LAWSUIT, ACTION, OR PROCEEDING THAT IS BROUGHT (WHETHER IN CONTRACT,
TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO ANY OF THE LOAN

 

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DOCUMENTS, THE TRANSACTIONS CONTEMPLATED THEREBY, OR THE ACTIONS OF THE LENDER
IN THE NEGOTIATION, ADMINISTRATION, OR ENFORCEMENT OF ANY OF THE LOAN DOCUMENTS
SHALL BE BROUGHT IN A STATE OR FEDERAL COURT OF COMPETENT JURISDICTION LOCATED
IN DALLAS COUNTY, TEXAS. BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY
(A) SUBMITS TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS, (B) WAIVES ANY
OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH LAWSUIT,
ACTION, OR PROCEEDING BROUGHT IN ANY SUCH COURT, AND (C) FURTHER WAIVES ANY
CLAIM THAT IT MAY NOW OR HEREAFTER HAVE THAT ANY SUCH COURT IS AN INCONVENIENT
FORUM. EACH OF THE PARTIES HERETO AGREE THAT SERVICE OF PROCESS UPON IT MAY BE
MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED AT THE ADDRESS
FOR NOTICES CONTAINED IN THE SIGNATURE PAGE OF THIS AGREEMENT.

9.3        Audits of Mortgaged Property; Fees.

During the continuance of an Event of Default or in the event Lender has a
reasonable basis to believe that Borrower has misapplied Project funds or
Advances, Lender may, from time to time in such events, audit the books and
records related to the Mortgaged Property. Borrower agrees to reimburse Lender,
on demand, for customary and reasonable fees and costs incurred by Lender for
such audits.

9.4        Costs and Expenses.

Borrower shall pay Lender, on demand, all costs and expenses, including, without
limitation, reasonable attorney’s fees and legal expenses (whether inside or
outside counsel is used), incurred by Lender in perfecting, revising,
protecting, or enforcing any of its rights or remedies against any Loan Party or
any Mortgaged Property, or otherwise incurred by Lender in connection with any
Event of Default or the enforcement of the Loan Documents or the Indebtedness.
Following Lender’s demand for the payment of those costs and expenses, and until
they are paid in full, the unpaid amount of those costs and expenses shall
constitute Indebtedness and shall bear interest at the Default Rate.

9.5        Notices.

Whenever any notice is required or permitted to be given under the terms of this
Agreement, the same shall, except as otherwise expressly provided for in this
Agreement, be effective when given in accordance with the terms and provisions
of Section 12.5 of the Deed of Trust.

9.6        Further Action.

Borrower, from time to time, on written request of Lender, shall promptly make,
execute, acknowledge, and deliver, or cause to be made, executed, acknowledged,
and delivered, all those further and additional instruments, and promptly take
all further action as may be reasonably required to carry out the intent and
purpose of the Loan Documents, and to provide for the Loan thereunder and
payment of the Note, according to the intent and purpose expressed in those
agreements.

9.7        Successors and Assigns; Participation.

This Agreement is binding on and shall inure to the benefit of Borrower and
Lender and their respective successors and assigns. The foregoing shall not
authorize any assignment or transfer by Borrower, of any of its respective
rights, duties, or obligations under this Agreement, those assignments or
transfers being expressly prohibited hereunder or under the Deed of Trust
(except as otherwise

 

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expressly provided herein). From and after Completion of the Improvements and
payment of the final Advance for Hard Costs in connection therewith, Lender may
freely assign its rights and obligations under this Agreement, whether by
assignment, participation, or otherwise; provided that notwithstanding anything
to the contrary in any of the Loan Documents, Lender shall not assign this
Agreement or the Loan or enter into any participation agreement in connection
therewith, prior to Completion of the Improvements and payment of the final
Advance for Hard Costs in connection therewith and no such participation shall
increase the costs or obligations of Borrower. Lender may disclose to that
assignee or participant (or proposed assignee or participant) any financial or
other information in its knowledge or possession regarding any Loan Party or the
Indebtedness.

9.8        Indulgence.

No delay or failure of Lender in exercising any right, power, or privilege under
this Agreement or under any of the Loan Documents shall affect that right,
power, or privilege, nor shall any single or partial exercise thereof preclude
any further exercise thereof, nor the exercise of any other right, power, or
privilege available to Lender. The rights and remedies of Lender under this
Agreement are cumulative and are not exclusive of any other rights or remedies
of Lender.

9.9        Amendment and Waiver.

No amendment or waiver of any provision of any Loan Document, nor consent to any
departure from a Loan Document by any Loan Party, is effective unless it is in
writing and signed by Lender, and that waiver or consent is effective only in
the specific instance(s) and for the specific time(s) and purpose(s) for which
they are given.

9.10        Severability.

If any one or more of the Obligations of any Loan Party under any Loan Document
is declared invalid, illegal, or unenforceable in any jurisdiction, the
validity, legality, and enforceability of the remaining Obligations of that Loan
Party shall not in any way be affected or impaired, and that invalidity,
illegality, or unenforceability in one jurisdiction shall not affect the
validity, legality, or enforceability of the Obligations of the Loan Party under
any Loan Document in any other jurisdiction.

9.11        Headings and Construction of Terms.

The headings of the various subsections of this Agreement are for convenience of
reference only and shall in no way modify or affect any of the terms or
provisions of this Agreement. Where the context in this Agreement requires, the
singular number shall include the plural, and any gender shall include any other
gender.

9.12        Independence of Covenants.

Each covenant under this Agreement shall be given independent effect so that if
a particular action or condition is not permitted by that covenant, the fact
that it would be permitted by an exception to, or would be otherwise within the
limitations of, another covenant shall not avoid the occurrence of any Event of
Default.

9.13        Reliance on and Survival of Various Provisions.

All terms, covenants, agreements, indemnities, representations, and warranties
of any Loan Party made in this Agreement and any other Loan Document, or in any
certificate, report, financial

 

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statement, or other document furnished by or on behalf of any Loan Party in
connection with any Loan Document, may be relied on by Lender, notwithstanding
any investigation made by Lender or on Lender’s behalf, and those covenants,
agreements, indemnities, representations, and warranties (together with any
other indemnities of Borrower contained elsewhere in any Loan Document) shall
survive the termination of this Agreement and the repayment in full of the
Indebtedness. All representations and warranties set forth in the Loan Documents
with respect to any financial information concerning any Loan Party shall apply
to all financial information delivered to Lender by such Loan Party or any
Person purporting to be an authorized officer or other representative of such
Loan Party regardless of the method of transmission to Lender or whether or not
signed by such Loan Party or such authorized officer or other representative.

9.14        Effective On Execution.

This Agreement is effective on the execution of this Agreement by Lender and
Borrower, and shall remain effective until the Indebtedness under this
Agreement, the Note, and the related Loan Documents has been repaid and
discharged in full and no commitment to extend any credit under this Agreement
(whether optional or obligatory) remains outstanding.

9.15        Time of Essence.

Time shall be of the essence for each provision of this Agreement of which time
is an element.

9.16        No Third Party Beneficiaries.

The benefits of this Agreement shall not inure to any third party. This
Agreement shall not make or render Lender liable to any materialmen,
subcontractors, contractors, laborers, or others for goods and materials
supplied or work and labor furnished in connection with the construction of the
Improvements or for debts or claims accruing to those persons or entities
against Borrower. Lender shall not be liable for the manner in which any
Advances under this Agreement may be applied by Borrower, Contractor and any of
Borrower’s other contractors or subcontractors. Notwithstanding anything
contained in the Loan Documents, or any conduct or course of conduct by the
parties to this Agreement, before or after signing the Loan Documents, this
Agreement shall not be construed as creating any rights, claims, or causes of
action against Lender or any of its officers, directors, agents, or employees in
favor of any contractor, subcontractor, supplier of labor or materials, any of
their respective creditors, or any other person or entity other than Borrower.
Without limiting the generality of the foregoing, Advances made to any
contractor, subcontractor, or supplier of labor or materials, pursuant to any
Requests for Advances (whether or not that request is required to be approved by
Borrower) is not a recognition by Lender of the third-party Lender status of
that person or entity.

9.17        Standard of Conduct of Lender.

Nothing contained in this Agreement or any other Loan Document shall limit the
right of Lender to exercise its business judgment or to act, in the context of
the granting or withholding of any Advance or consent under this Agreement or
any other Loan Document, in a commercially reasonable manner under the
circumstances. Borrower and Lender intend by the foregoing to set forth and
affirm their entire understanding with respect to the standard pursuant to which
Lender’s duties and obligations are to be judged and the parameters within which
Lender’s discretion may be exercised hereunder and under the other Loan
Documents.

 

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9.18        No Partnership.

Nothing contained in this Agreement shall be construed in any manner to create
any relationship between Borrower and Lender other than the relationship of
borrower and lender and Borrower and Lender shall not be considered partners or
co-venturers for any purpose on account of this Agreement.

9.19        Conflicts.

If any of the terms, conditions, or provisions of any of the other Loan
Documents are inconsistent with or in conflict with any of the terms,
conditions, or provisions of this Agreement, the applicable terms, conditions,
and provisions of this Agreement shall govern and control.

9.20        Permitted Successors and Assigns; Disclosure of Information.

       (a)        Each and every one of the covenants, terms, provisions and
conditions of this Agreement and the Loan Documents shall apply to, bind and
inure to the benefit of Borrower, its successors and those assigns of Borrower
consented to in writing by Lender, and shall apply to, bind and inure to the
benefit of Lender and, subject to recording in accordance with Section 9.20(d),
the endorsees, transferees, successors and assigns of Lender, and all Persons
claiming under or through any of them.

       (b)        Borrower agrees not to transfer, assign, pledge or hypothecate
any right or interest in any payment or advance due pursuant to this Agreement,
or any of the other benefits of this Agreement, without the prior written
consent of Lender, which consent may be withheld by Lender in its sole and
absolute discretion. Any such transfer, assignment, pledge or hypothecation made
or attempted by Borrower without the prior written consent of Lender shall be
void and of no effect. No consent by Lender to an assignment shall be deemed to
be a waiver of the requirement of prior written consent by Lender with respect
to each and every further assignment and as a condition precedent to the
effectiveness of such assignment.

       (c)        Lender may sell or offer to sell the Loan or interests therein
to one or more assignees or participants in accordance with Section 9.7;
provided, however, that (i) Borrower shall not be responsible for any cost or
expense in connection with any such participation and (ii) Borrower shall not be
obligated to communicate or provide any financial information to any
participant. Borrower shall execute, acknowledge and deliver any and all
instruments reasonably requested by Lender in connection therewith, and to the
extent, if any, specified in any such assignment or participation, such
assignee(s) or participant(s) shall have the same rights and benefits with
respect to the Loan Documents as such Person(s) would have if such Person(s)
were Lender hereunder, provided that in the case of a participation (i) Lender’s
obligations under this Agreement shall remain unchanged, (ii) Lender shall
remain solely responsible to the Borrower for the performance of such
obligations, and (iii) Borrower shall continue to deal solely and directly with
Lender in connection with Lender’s rights and obligations under this Agreement.
Lender may disseminate any information it now has or hereafter obtains
pertaining to the Loan, including any security for the Loan, any credit or other
information on the Mortgaged Property (including environmental reports and
assessments), Borrower, any of Borrower’s principals, or any Guarantor, to any
actual or prospective assignee or participant, to Lender’s affiliates, to any
regulatory body having jurisdiction over Lender, or to any other party as
necessary or appropriate in Lender’s reasonable judgment.

       (d)        Lender, acting solely for this purpose as an agent of
Borrower, shall maintain at its office in Dallas, Texas, a register for the
recordation of the names and addresses of the lenders, and the commitments of,
and principal amounts of the loans owing to, each lender pursuant to the terms
hereof from time to time (the “Register”). Notwithstanding any provision in the
Note to the contrary, the entries in the Register shall be conclusive and
binding for all purposes, absent manifest error, and Borrower shall treat the
Person whose name is recorded in the Register pursuant to the terms hereof as a
lender hereunder

 

CONSTRUCTION LOAN AGREEMENT -- PAGE 44

(CYPRESS/FAIRFIELD)

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for all purposes of this Agreement. The Register shall be available for
inspection by Borrower and any lender at any reasonable time and from time to
time upon reasonable prior notice. The obligations of Borrower under the Loan
Documents are registered obligations and the right, title and interest of Lender
and its assignees in and to such obligations shall be transferable only upon
notation of such transfer in the Register. This Section 9.20(d) shall be
construed so that such obligations are at all times maintained in “registered
form” within the meaning of Sections 163(f), 871(h)(2), and 881(c)(2) of the
Code and any related regulations (and any other relevant or successor provisions
of the Code or such regulations).

9.21        Exhibits and Schedules.

The following Exhibits, and Schedules are attached to this Agreement and are
incorporated into this Agreement by reference and made a part of this Agreement
for all purposes:

 

Exhibits:      

Schedule 2.2(r)

     

Retainage Release

Exhibit “A”

   -   

Legal Description of the Land

Exhibit “B”

   -   

Survey Requirements and Certificate

Exhibit “C”

   -   

Budget (including Project Costs)

Exhibit “D”

   -   

Form of Affidavit of Commencement

Exhibit “E”

   -   

Form of Affidavit of Completion

Exhibit “F”

   -   

Form of Request for Advance

Exhibit “G”

     

Miscellaneous Information Regarding Construction

Exhibit “H”

     

Insurance

Exhibit “I”

     

Form of Architect’s Agreement

Exhibit “J”

     

Form of Contractor’s Agreement

9.22        Waiver of Jury Trial.

TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, LENDER AND BORROWER HEREBY
IRREVOCABLY AND EXPRESSLY WAIVE ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION,
PROCEEDING, OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT, OR OTHERWISE)
ARISING OUT OF OR RELATING TO ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS
CONTEMPLATED THEREBY OR THE ACTIONS OF LENDER IN THE NEGOTIATION,
ADMINISTRATION, OR ENFORCEMENT THEREOF. EACH PARTY HERETO (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER
PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS
SECTION 9.22.

9.23        Oral Agreements Ineffective.

THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

 

CONSTRUCTION LOAN AGREEMENT -- PAGE 45

(CYPRESS/FAIRFIELD)

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9.24       Counterparts.

This Agreement may be executed in any number of counterparts, each of which
shall be considered an original for all purposes; provided, however, that all
such counterparts shall together constitute one and the same instrument.

9.25       USA Patriot Act Notice.

Lender hereby notifies Borrower that pursuant to the requirements of the Patriot
Act, Lender is required to obtain, verify and record information that identifies
Borrower, which information includes the name and address of Borrower and other
information that will allow Lender to identify Borrower in accordance with the
Patriot Act.

9.26       Special Purpose Entity Covenants.

Borrower represents to Lender and agrees that Borrower shall be and must remain
during the term of the Loan a “single purpose entity” as follows:

(a)         Purpose.  With respect to the nature of Borrower’s business and of
the purpose to be conducted and promoted, Borrower is to engage solely to
acquire certain parcels of real property, together with all improvements located
thereon, in Harris County, Texas, as described on Exhibit “A” hereto (the
“Property” or “Mortgaged Property”), on which it will construct, operate and
maintain a 294-unit, Class A multi-family apartment complex.

(b)         Certain Prohibited Activities.    Borrower shall only incur
indebtedness in an amount necessary to acquire, construct, operate and maintain
the Property. For so long as any deed of trust lien in favor of Texas Capital
Bank, National Association, a national banking association, or its successors or
assigns (the “First Mortgage”), exists on any portion of the Property, Borrower
shall not incur, assume, or guaranty any other indebtedness. Borrower shall not
dissolve or liquidate, or consolidate or merge with or into any other entity, or
convey or transfer its properties and assets substantially as an entirety or
transfer any of its beneficial interests to any entity. For so long as the First
Mortgage exists on any portion of the Property, Borrower will not voluntarily
commence a case with respect to itself, as debtor, under the United States
Bankruptcy Code or any similar federal or state statute without the unanimous
consent of all of the members of Borrower. For so long as the First Mortgage
exists on any portion of the Property, no material amendment to the certificate
of formation or operating agreement of Borrower may be made without first
obtaining the written consent of the mortgagee holding the First Mortgage on any
portion of the Property.

(c)         Separateness Covenants.  For so long as the First Mortgage exists on
any portion of the Property, in order to preserve and ensure its separate and
distinct identity, in addition to the other provisions set forth in the
certificate of formation and/or operating agreement of the Borrower, Borrower
shall conduct its affairs in accordance with the following provisions:

(i)         It shall establish and maintain an office through which its business
shall be conducted separate and apart from that of any of its members or
affiliates or, if it shares office space with its parent or any affiliate, it
shall allocate fairly and reasonably any overhead for shared office space.

(ii)        It shall maintain records and books of account separate from those
of any member or affiliate.

(iii)       It shall observe all limited liability company formalities.

 

CONSTRUCTION LOAN AGREEMENT -- PAGE 46

(CYPRESS/FAIRFIELD)

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

(iv)        It shall not commingle assets with those of any member or affiliate.

(v)         It shall conduct its own business in its own name.

(vi)        It shall maintain financial statements separate from any member or
affiliate (notwithstanding the consolidated financial statements which may be
maintained by its Operating Member and/or its Managing Member, as defined in
Borrower’s Company Agreement).

(vii)       It shall pay any liabilities out of its own funds, including
salaries of any employees, not funds of any member or affiliate.

(viii)      It shall maintain an arm’s length relationship with any member or
affiliate.

(ix)        It shall not guarantee or become obligated for the debts of any
other entity, including any member or affiliate, or hold out its credit as being
available to satisfy the obligations of others.

(x)         It shall use stationary, invoices and checks separate from any
member or affiliate.

(xi)       It shall not pledge its assets for the benefit of any other entity,
including any member or affiliate.

(xii)      It shall hold itself out as an entity separate from any member or
affiliate.

For purpose of this Section 9.26, the following terms shall have the following
meanings:

“affiliate”  means any person controlling or controlled by or under common
control with Borrower including, without limitation (i) any person who has a
familial relationship, by blood, marriage or otherwise with any employee of
Borrower, or any affiliate thereof and (ii) any person which receives
compensation for administrative, legal or accounting services from Borrower, or
any affiliate. For purposes of this definition, “control” when used with respect
to any specified person, means the power to direct the management and policies
of such person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms “controlling” and
“controlled” have meanings correlative to the foregoing.

“person”  means any individual, corporation, partnership, limited liability
company, joint venture, association, joint stock company, trust (including any
beneficiary thereof), unincorporated organization, or government or any agency
or political subdivision thereof.

(d)         Voting.  When acting on matters subject to the vote of one or more
of the managers or members, notwithstanding that the Borrower is not then
insolvent, such managers or members of Borrower shall take into account the
interest of the Borrower’s creditors, as well as those of the members.

 

CONSTRUCTION LOAN AGREEMENT -- PAGE 47

(CYPRESS/FAIRFIELD)

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Notwithstanding the foregoing provisions of this Section 9.26, as long as the
Borrower is a disregarded entity for federal income tax purposes, Borrower may
file a consolidated tax return. In addition, the covenants contained in this
Section 9.26 shall terminate upon repayment of the Indebtedness.

REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.

SIGNATURE PAGE FOLLOWS.

 

CONSTRUCTION LOAN AGREEMENT -- PAGE 48

(CYPRESS/FAIRFIELD)

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

WITNESS the due execution of this Agreement as of the day and year first above
written.

 

BORROWER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT CONTAINS CERTAIN
INDEMNIFICATION PROVISIONS (INCLUDING, WITHOUT LIMITATION, THOSE CONTAINED IN
SECTION 8.3 OF THIS AGREEMENT) WHICH, IN CERTAIN CIRCUMSTANCES, COULD INCLUDE AN
INDEMNIFICATION BY BORROWER OF LENDER FROM CLAIMS OR LOSSES ARISING AS A RESULT
OF LENDER’S OWN NEGLIGENCE OR WHICH ARISE IN STRICT LIABILITY.

   

LENDER:

   

 

TEXAS CAPITAL BANK, NATIONAL ASSOCIATION,

a national banking association

   

 

 

By:

 

 

 

  /S/ Robert N. Delph

     

  Robert N. Delph, Executive Vice President

   

 

Address:     2000 McKinney Avenue,

   

                   Suite 700

   

                   Dallas, Texas 75201

   

Attn:           Robert N. Delph

   

 

Facsimile No.:      214-932-6607

 

 

 

GGT AHC FAIRFIELD TX, LLC,

 

a Delaware limited liability company

 

 

  By:

 

 

    AHC Fairfield Operator, LLC,

   

    a Texas limited liability company,

   

    its Operating Member

   

 

 

    By:

 

 

 

  /S/ Paul Forbes

     

 Paul Forbes, Manager

 

 

          Address:

 

 

          1800 Augusta Drive, Suite 150

 

          Houston, Texas 77057

 

          Attention:       Paul Forbes, Manager

 

          Facsimile No.:  713-808-1235

Signature Page

Construction Loan Agreement

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

Schedule 2.2(r)

RETAINAGE RELEASE

 

[Omitted as not necessary to an understanding of the Agreement]

 

SCHEDULE 2.2(R), RETAINAGE RELEASE-- PAGE 1      

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

EXHIBIT “A”

LEGAL DESCRIPTION OF THE LAND

 

[Omitted as not necessary to an understanding of the Agreement]

 

EXHIBIT A, LEGAL DESCRIPTION -- PAGE 1      

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

EXHIBIT “B”

SURVEY REQUIREMENTS

[Omitted as not necessary to an understanding of the Agreement]

 

EXHIBIT B – SURVEY REQUIREMENTS - PAGE 1      

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

EXHIBIT “C”

BUDGET

(including Project Costs)

 

[Omitted as not necessary to an understanding of the Agreement]

 

EXHIBIT D – AFFIDAVIT OF COMMENCEMENT, PAGE 1      

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

EXHIBIT “D”

FORM OF AFFIDAVIT OF COMMENCEMENT

 

[Omitted as not necessary to an understanding of the Agreement]

 

EXHIBIT A

TO

AFFIDAVIT OF COMMENCEMENT

Description of Land

[Omitted as not necessary to an understanding of the Agreement]

 

EXHIBIT B

TO

AFFIDAVIT OF COMMENCEMENT

Original Contractors

 

[Omitted as not necessary to an understanding of the Agreement]

 

EXHIBIT D – AFFIDAVIT OF COMMENCEMENT, PAGE 1      

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

EXHIBIT “E”

FORM OF AFFIDAVIT OF COMPLETION

 

[Omitted as not necessary to an understanding of the Agreement]

Exhibit A to Affidavit of Completion

Description of the Real Property

[Omitted as not necessary to an understanding of the Agreement]

 

EXHIBIT E – AFFIDAVIT OF COMPLETION, PAGE 1      

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

EXHIBIT “F”

FORM OF REQUEST FOR ADVANCE

 

[Omitted as not necessary to an understanding of the Agreement]

 

EXHIBIT F – REQUEST FOR ADVANCE, PAGE 1      

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

EXHIBIT “G”

MISCELLANEOUS INFORMATION REGARDING CONSTRUCTION

 

[Omitted as not necessary to an understanding of the Agreement]

 

EXHIBIT G – MISCELLANEOUS INFORMATION REGARDING CONSTRUCTION, PAGE 1

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

EXHIBIT “H”

INSURANCE

 

[Omitted as not necessary to an understanding of the Agreement]

 

EXHIBIT H – INSURANCE, PAGE 1      

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

EXHIBIT “I”

FORM OF ARCHITECT’S AGREEMENT

 

[Omitted as not necessary to an understanding of the Agreement]

EXHIBIT A

TO

ARCHITECT’S AGREEMENT

Description of Land

[Omitted as not necessary to an understanding of the Agreement]

 

EXHIBIT I – FORM OF ARCHITECT’S AGREEMENT, PAGE 1   

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

EXHIBIT “J”

FORM OF CONTRACTOR’S AGREEMENT

 

[Omitted as not necessary to an understanding of the Agreement]

EXHIBIT A

TO

CONTRACTOR’S AGREEMENT

Description of Land

[Omitted as not necessary to an understanding of the Agreement]

 

EXHIBIT J – FORM OF CONTRACTOR’S AGREEMENT,  PAGE 1   2