**Exhibit 10.10**

 

 

LOAN AGREEMENT

 

Dated as ofJanuary 27, 2005

 

between

 

CORUS BANK, N.A.

 

 

(“Lender”)

 

and

 

COMSTOCK PENDERBROOK, L.C.,a Virginia limited liability company

 

 

(“Borrower”)

 

 

LOAN:  $67,000,000

 

 

----

 

**TABLE OF CONTENTS**

 
| RECITALS     |                                       |   |
|--------------|--------------------------------------------|--------|
|         |                                       |   |
| I.           | Borrower                                   |   |
|         |                                       |   |
| II.          | The Land                                   |   |
|         |                                       |   |
| III.         | The  Project                               |   |
|         |                                       |   |
| IV.          | The  Property                              |   |
|         |                                       |   |
| V.           | The Loan                                   |   |
|         |                                       |   |
| ARTICLE I    | DEFINITIONS                                |   |
|         |                                       |   |
| SECTION  1.1 | Definition of Terms Used in This Agreement |   |
|         |                                       |   |
| ARTICLE II   | BASIC LOAN TERMS                           |   |
|         |                                       |   |
| SECTION  2.1 | The Loan                                   |   |
|         |                                       |   |
| SECTION  2.2 | Maturity Date                              |   |
|         |                                       |   |
| SECTION  2.3 | Loan Fees                                  |   |
|         |                                       |   |
| SECTION  2.4 | Loan Expenses                              |   |
|         |                                       |   |
| SECTION  2.5 | Loan Documents                             |   |
|         |                                       |   |
| SECTION  2.6 | Borrower’s Equity                     |   |
|         |                                       |   |
| SECTION  2.7 | Voluntary Prepayment                       |   |
|         |                                       |   |
| SECTION  2.8 | Exit Fee                                   |   |
|         |                                       |   |
| ARTICLE III  | REPRESENTATIONS AND WARRANTIES             |   |
|         |                                       |   |
| SECTION 3.1  | Status of Documents                        |   |
|         |                                       |   |
| SECTION  3.2 | Due Organization; Authority                |   |
|         |                                       |   |
| SECTION  3.3 | Enforceability                             |   |
|         |                                       |   |
| SECTION  3.4 | Pending Litigation                         |   |
|         |                                       |   |
| SECTION  3.5 | No Violation                               |   |
|         |                                       |   |
| SECTION  3.6 | No Conflict                                |   |
|              |                                            |        |  |  |

 

----

 
| SECTION  3.7  | No Consent                                                   |   |
|---------------|--------------------------------------------------------------|--------|
|          |                                                         |   |
| SECTION  3.8  | Truth of Financial Statements; Financial  Condition Warranty |   |
|          |                                                         |   |
| SECTION  3.9  | Access                                                       |   |
|          |                                                         |   |
| SECTION  3.10 | Project Budget                                               |   |
|          |                                                         |   |
| SECTION  3.11 | Leases                                                       |   |
|          |                                                         |   |
| SECTION  3.12 | Business Purpose                                             |   |
|          |                                                         |   |
| SECTION  3.13 | Material Facts                                               |   |
|          |                                                         |   |
| SECTION  3.14 | Title                                                        |   |
|          |                                                         |   |
| SECTION  3.15 | Brokerage Fees and Commissions                               |   |
|          |                                                         |   |
| SECTION  3.16 | Conditions Preventing Compliance                             |   |
|          |                                                         |   |
| SECTION  3.17 | Taxes                                                        |   |
|          |                                                         |   |
| SECTION  3.18 | ERISA                                                        |   |
|          |                                                         |   |
| SECTION  3.19 | Regulations G, U and X                                       |   |
|          |                                                         |   |
| SECTION  3.20 | Government Regulation                                        |   |
|          |                                                         |   |
| SECTION  3.21 | Principal Place of Business and Chief  Executive Office      |   |
|          |                                                         |   |
| SECTION  3.22 | Ownership Structure                                          |   |
|          |                                                         |   |
| SECTION  3.23 | Priority and Perfection                                      |   |
|          |                                                         |   |
| SECTION  3.24 | Condominium Contracts                                        |   |
|          |                                                         |   |
| SECTION  3.25 | Condominium Documents                                        |   |
|          |                                                         |   |
| SECTION  3.26 | Borrower’s Equity; Advances                             |   |
|          |                                                         |   |
| SECTION  3.27 | Patriot Act                                                  |   |
|          |                                                         |   |
| SECTION  3.28 | Solvency                                                     |   |
|          |                                                         |   |
| SECTION  3.29 | Single Purpose Entity                                        |   |

 

ii

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| SECTION  3.30 | Indebtedness                                                                                |   |
|---------------|---------------------------------------------------------------------------------------------|--------|
|          |                                                                                        |   |
| SECTION  3.31 | Representations and Warranties to be  Continuing                                            |   |
|          |                                                                                        |   |
| SECTION  3.32 | Acknowledgment of Lender’s Reliance                                                    |   |
|          |                                                                                        |   |
| ARTICLE IV    | CLOSING DELIVERY CONDITIONS; CONDITIONS TO  INITIAL DISBURSEMENT                            |   |
|          |                                                                                        |   |
| SECTION  4.1  | Conditions to Loan Closing; Closing Date                                                    |   |
|          |                                                                                        |   |
| ARTICLE V     | OTHER PROVISIONS CONCERNING ADVANCES                                                        |   |
|          |                                                                                        |   |
| SECTION  5.1  | General Terms and Conditions for Advances                                                   |   |
|          |                                                                                        |   |
| SECTION  5.2  | Payout Conditions and Deliveries                                                            |   |
|          |                                                                                        |   |
| SECTION  5.3  | Final Advance                                                                               |   |
|          |                                                                                        |   |
| SECTION  5.4  | Payment of Interest; Interest Reserve                                                       |   |
|          |                                                                                        |   |
| ARTICLE VI    | PROJECT BUDGET, BORROWER’S EQUITY, LOAN  BALANCING, AND CHANGE ORDERS                  |   |
|          |                                                                                        |   |
| SECTION  6.1  | Project Costs and Project Budget                                                            |   |
|          |                                                                                        |   |
| SECTION  6.2  | Change Orders and Changes to the Project  Budget                                            |   |
|          |                                                                                        |   |
| SECTION  6.3  | Loan Balancing                                                                              |   |
|          |                                                                                        |   |
| SECTION  6.4  | Accounts                                                                                    |   |
|          |                                                                                        |   |
| SECTION 6.5   | Deposits for Real Estate Taxes                                                              |   |
|          |                                                                                        |   |
| ARTICLE VII   | CERTAIN COVENANTS BY BORROWER                                                               |   |
|          |                                                                                        |   |
| SECTION 7.1   | Inspection                                                                                  |   |
|          |                                                                                        |   |
| SECTION 7.2   | Mechanics’ Liens, Real Estate Taxes and  Condominium Homeowner’s Association Dues |   |
|          |                                                                                        |   |
| SECTION 7.3   | Compliance; Construction; Operation                                                         |   |
|          |                                                                                        |   |
| SECTION 7.4   | Transfers; Changes in Organization                                                          |   |
|               |                                                                                             |        |  |

 

iii

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| SECTION 7.5   | Leases                                                   |   |
|---------------|----------------------------------------------------------|--------|
|          |                                                     |   |
| SECTION 7.6   | Management Agreement                                     |   |
|          |                                                     |   |
| SECTION 7.7   | Financial and Other Reports and Deliveries               |   |
|          |                                                     |   |
| SECTION 7.8   | Insurance Requirements                                   |   |
|          |                                                     |   |
| SECTION 7.8.1 | Insurance                                                |   |
|          |                                                     |   |
| SECTION 7.8.2 | Policy Requirements                                      |   |
|          |                                                     |   |
| SECTION 7.8.3 | Notice of Policies                                       |   |
|          |                                                     |   |
| SECTION 7.8.4 | Insurance Review                                         |   |
|          |                                                     |   |
| SECTION 7.9   | Borrower’s Indemnities                              |   |
|          |                                                     |   |
| SECTION 7.10  | Single Purpose Entity                                    |   |
|          |                                                     |   |
| SECTION 7.11  | Further Assurances                                       |   |
|          |                                                     |   |
| SECTION 7.12  | ERISA                                                    |   |
|          |                                                     |   |
| SECTION 7.13  | New Appraisals                                           |   |
|          |                                                     |   |
| SECTION 7.14  | Contract Maintenance; Other Agreements                   |   |
|          |                                                     |   |
| SECTION 7.15  | Liens                                                    |   |
|          |                                                     |   |
| ARTICLE VIII  | CONDOMINIUM MATTERS                                      |   |
|          |                                                     |   |
| SECTION 8.1   | Condominium Contracts                                    |   |
|          |                                                     |   |
| SECTION 8.2   | No Modification or Termination of  Condominium Contracts |   |
|          |                                                     |   |
| SECTION 8.3   | Performance under Condominium Contracts                  |   |
|          |                                                     |   |
| SECTION 8.4   | Sale Activity                                            |   |
|          |                                                     |   |
| SECTION 8.5   | Minimum Unit Sales Price                                 |   |
|          |                                                     |   |
| SECTION 8.6   | Condominium Documents                                    |   |
|          |                                                     |   |
| SECTION 8.7   | Condominium Sales; Release of Units                      |   |
|               |                                                          |        |  |  |

 

iv

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| SECTION 8.8  | Establishing the Condominium Regime                                                           |   |
|--------------|-----------------------------------------------------------------------------------------------|--------|
|         |                                                                                          |   |
| SECTION 8.9  | Application of Unit Release Payments                                                          |   |
|         |                                                                                          |   |
| SECTION 8.10 | Upgrades                                                                                      |   |
|         |                                                                                          |   |
| ARTICLE IX   | CASUALTY AND CONDEMNATION                                                                     |   |
|         |                                                                                          |   |
| SECTION 9.1  | Insurance and Condemnation Proceeds                                                           |   |
|         |                                                                                          |   |
| SECTION 9.2  | Disbursement of Property Proceeds                                                             |   |
|         |                                                                                          |   |
| SECTION 9.3  | Reduction in Secured Obligations                                                              |   |
|         |                                                                                          |   |
| ARTICLE X    | EVENTS OF DEFAULT                                                                             |   |
|         |                                                                                          |   |
| SECTION 10.1 | Events of Default                                                                             |   |
|         |                                                                                          |   |
| ARTICLE XI   | REMEDIES                                                                                      |   |
|         |                                                                                          |   |
| SECTION 11.1 | Accelerate the Note                                                                           |   |
|         |                                                                                          |   |
| SECTION 11.2 | Terminate Lender’s Obligations                                                           |   |
|         |                                                                                          |   |
| SECTION 11.3 | Take Possession of the Property and  Complete the Project (Borrower’s Power of Attorney) |   |
|         |                                                                                          |   |
| SECTION 11.4 | Offset                                                                                        |   |
|         |                                                                                          |   |
| SECTION 11.5 | Default Interest                                                                              |   |
|         |                                                                                          |   |
| ARTICLE XII  | MISCELLANEOUS PROVISIONS                                                                      |   |
|         |                                                                                          |   |
| SECTION 12.1 | Agreement Binding Only Upon Execution by  Lender                                              |   |
|         |                                                                                          |   |
| SECTION 12.2 | Entire Agreement                                                                              |   |
|         |                                                                                          |   |
| SECTION 12.3 | No Waiver                                                                                     |   |
|         |                                                                                          |   |
| SECTION 12.4 | Amendments                                                                                    |   |
|         |                                                                                          |   |
| SECTION 12.5 | No Third Party Benefits                                                                       |   |
|         |                                                                                          |   |
| SECTION 12.6 | Successors and Assigns                                                                        |   |
|              |                                                                                               |        |  |

 

v

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| SECTION 12.7  | Participations and Assignments                              |   |
|---------------|-------------------------------------------------------------|--------|
|          |                                                        |   |
| SECTION 12.8  | All Advances Obligatory and Secured                         |   |
|          |                                                        |   |
| SECTION 12.9  | Publicity                                                   |   |
|          |                                                        |   |
| SECTION 12.10 | Notices                                                     |   |
|          |                                                        |   |
| SECTION 12.11 | Form of Documents                                           |   |
|          |                                                        |   |
| SECTION 12.12 | Severability                                                |   |
|          |                                                        |   |
| SECTION 12.13 | Lender Not Partner of Borrower                              |   |
|          |                                                        |   |
| SECTION 12.14 | Joint and Several Obligations                               |   |
|          |                                                        |   |
| SECTION 12.15 | Survival                                                    |   |
|          |                                                        |   |
| SECTION 12.16 | Time of the Essence                                         |   |
|          |                                                        |   |
| SECTION 12.17 | Conflicts                                                   |   |
|          |                                                        |   |
| SECTION 12.18 | Waiver of Subrogation                                       |   |
|          |                                                        |   |
| SECTION 12.19 | Governmental Regulation                                     |   |
|          |                                                        |   |
| SECTION 12.20 | Counterparts; FAX                                           |   |
|          |                                                        |   |
| SECTION 12.21 | Partial Release                                             |   |
|          |                                                        |   |
| SECTION 12.22 | Governing Law; Jurisdiction; Venue; and  Service of Process |   |
|          |                                                        |   |
| SECTION 12.23 | Waiver of Punitive and Consequential  Damages               |   |
|          |                                                        |   |
| SECTION 12.24 | Written Credit Agreements                                   |   |

 

vi

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LOAN AGREEMENT

 

This Loan Agreement (this “Agreement”)is made and entered into as of January 27, 2005, by and between COMSTOCK PENDERBROOK, L.C., a Virginia limitedliability company (“Borrower”) andCORUS BANK, N.A. (“Lender”).

 

R E C I T A L S

 

Borrower hereby represents, warrants and covenants toLender as follows:

 

I.              Borrower.  Borrower is a Virginia limited liabilitycompany which is wholly-owned and controlled by Comstock HomebuildingCompanies, Inc., a Delaware corporation (“Comstock”) and Comstock is the solemember and manager of Borrower as set forth on Exhibit D attachedhereto.

 

II.            The Land.  Borrower owns, or will own as of the ClosingDate, in fee simple that certain parcel of real property commonly known as Fair Oaks Penderbrook, as moreparticularly described on Exhibit Aattached hereto, and all easements, licenses, agreements, rights, hereditamentsand privileges appurtenant to that parcel of real property (the “Land”). The Land is located at 3905 Penderview Drive in Fairfax, Virginia.

 

III.           The Project.  The existing improvements on the Land consistof an 18-building apartment complex (the “Building”) with 424 unitscomprising no less than 327,396 square feet of net saleable space(collectively, “Residential Units”) and no less than 637 parking spaces(collectively, “Parking Units”).  The net saleable square footage shall bemeasured from the outside of exterior walls and from the middle of wallsseparating Residential Units and shall exclude balconies, hallways and allcommon areas.  The Building, all otherimprovements and construction to be made to the Land, and all fixtures,machinery, furnishings, equipment, supplies, and all other property of any kindinstalled or used at the Land are collectively called the “Project”.

 

IV.           The Property.  The Land and Project are collectively calledthe “Property”.

 

V.            The Loan.  Borrower desires to arrange financing for thepurpose of providing funds for the acquisition of the Property, conversion ofthe Project to condominiums and for certain other Project expenses specified inthis Agreement. Lender has agreed to lend to Borrower and Borrower has agreedto borrow an amount not to exceed $67,000,000 (the “Loan”),on the terms and conditions set forth in this Agreement.

 

THEREFORE, in consideration of the foregoing and ofthe various agreements set forth in this Agreement, Lender and Borrower agreeas follows:

 

----

 

# ARTICLE I

 

# DEFINITIONS

 

## SECTION 1.1                  Definitionof Terms Used in This Agreement. Unless the context shall otherwise require, capitalized terms used andnot defined herein shall have the meanings assigned thereto in Appendix A attached hereto for all purposes ofthis Agreement.  The rules ofinterpretation set forth in Appendix A tothis Agreement shall apply to this Agreement and all of the other LoanDocuments.

##  

# ARTICLE II

 

# BASICLOAN TERMS

 

## SECTION 2.1                  TheLoan.  Subject to the termsand conditions of this Agreement, Lender agrees to lend and Borrower agrees toborrow sums up to the maximum amount of the Loan.  The Loan will be used for the acquisition,renovation and conversion of the Project into condominiums and other ProjectCosts as set forth in the Project Budget or elsewhere in this Agreement.  The Loan is evidenced by the Note.  The Loan shall bear interest as set forth inthe Note.  All disbursements made byLender pursuant to the terms of this Agreement shall be added to theoutstanding principal balance of the Note.

##  

## SECTION 2.2                  MaturityDate.  Borrower will makepayment in full of all unpaid principal and interest on the Note and all otheramounts owing in connection with the Loan on the Maturity Date, or earlier uponacceleration of the Loan.

##  

## SECTION 2.3                  LoanFees.  In consideration ofLender’s making the Loan to Borrower (and in addition to other amounts payableunder this Agreement and the other Loan Documents), Borrower shall pay to Lendera fee in an aggregate amount equal to $670,000, of which: (a) $50,000 (the “Application Fee”) was paid (and Lender herebyacknowledges receipt) upon issuance of the Application Letter; (b) $150,000(the “Commitment Fee”) shall be due andpayable upon Borrower’s acceptance of the Commitment Letter; and (c) $470,000shall be due and payable on the Closing Date (the “ClosingFee”, the Application Fee, the Commitment Fee and the Closing Fee,collectively, the “Loan Fees”) and shall bereferred to as the Loan Fee on the Project Budget attached hereto as ExhibitB).

##  

## SECTION 2.4                  LoanExpenses.

##  

#### (a)           Borrowershall pay all fees, costs and expenses paid or incurred by Lender in connectionwith the Loan, including:  (i) all costsof closing, administering and enforcing the Loan, including all unpaid LoanFees; (ii) all costs of preparation, negotiation and execution of the LoanDocuments and all closing or Loan administration documents; (iii) all costs ofthe Title Commitment, the Title Policy, date downs to any existing TitleCommitment or Title Policy and any and all endorsements to any of theforegoing, the Survey and any and all additions or updates to the Survey,escrow charges, title charges, UCC, tax lien and judgment and all similarsearches and reports which Lender may require in assessing the status of thesecurity for the Loan in each

 

2

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of the foregoing cases, as such items may be required from time to timein the discretion of Lender; (iv) all fees and expenses of any consultantsengaged by Lender in connection with this Loan, including cost-estimators,construction inspectors, consulting architects, appraisers, insuranceconsultants, environmental consultants, investigators and Lender’s Project Consultant;(v) all Project Costs; (vi) brokerage commissions (if any); (vii) recording andfiling fees, and taxes, levies or fees required to be paid with respect to theNote, the Deed of Trust or any other of the Loan Documents or the filing orrecordation thereof, even if such taxes, levies or fees are levied or assessedagainst, or under applicable Laws are to be borne by, Lender; and (viii) all ofLender’s travel and lodging costs relating to Property site inspections.  With respect to travel expenses, airfare foreach officer or analyst who inspects the Project as part of Lender’s duediligence will be charged to Borrower. If Lender employees utilize a commercial airline, the amount chargedwill be the actual expense incurred.  Inthe event Lender utilizes a private aircraft, the amount charged will be $800per individual.

####  

#### (b)           Borrowershall also pay all reasonable fees and disbursements of Lender’s attorneys(whether charged by outside or “in-house” counsel) in connection with the Loan,including fees and disbursements related to: (i) preparing and negotiatingdocumentation for the Loan; (ii) Loan administration items (such as reviewingitems to be approved during the term of the Loan); (iii) enforcing orexercising Lender’s rights or remedies connected with the Loan; and (iv) anylitigation or threatened litigation or the preparation therefor which in anyway whatsoever relates to the Loan, the Loan Documents or the Property. Theterms “attorneys fees,” “legal fees and expenses” or other terms of such importwhether used herein or in any other Loan Document shall include, withoutlimitation, the fees charged by Lender for its in-house counsel, provided suchfees are within the range of fees charged by attorneys of similar experience atmedium to large sized law firms located in the City of Chicago, Illinois.

####  

#### (c)           Allamounts payable by Borrower under this Section 2.4which are known as of the Closing Date shall, unless Lender agrees otherwise,be paid by Borrower, as a condition to the closing of the Loan.  Otherwise all amounts payable under this Section 2.4 shall be: (i) payable upon demand,(ii) shall bear interest as provided in the Note for sums advanced under thisAgreement from the date of demand until payment in full and (iii) shall be aSecured Obligation under this Agreement, secured by the Deed of Trust and otherLoan Documents.  Borrower herebyauthorizes Lender to deduct the same from Loan proceeds as they aredisbursed.  If the actual amount ofcharges are not ascertainable as of the Closing Date, Borrower herebyauthorizes Lender to charge any applicable line item of the Project Budget topay or to reimburse Lender for any amounts payable under this Section 2.4 and Borrower shall pay ondemand any excess monies due. Any such disbursement, if made, shall be added to the outstandingprincipal balance of the Note.  Theauthorization hereby granted shall not obligate Lender to make suchdisbursements.

####  

## SECTION 2.5                  LoanDocuments.  The Loan shall beevidenced and secured by the Loan Documents.

 

## SECTION 2.6                  Borrower’s Equity.  On or prior to the Closing Date, Borrowershall furnish to Lender evidence establishing to Lender’s sole satisfactionthat Borrower has invested Eighteen Million One Hundred Thirty-Five Thousandand No/100 Dollars ($18,135,000) to pay for approved Project Costs contained inthe Project Budget (“Borrower’s Minimum Equity

 

3

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Investment”).  Borrower’s Minimum Equity Investment shallbe: (i) subject to such verification as requested by Lender in its solediscretion and (ii) subject to increases as a result of any increases to theProject Budget.  In addition, Borrowershall make additional equity contributions from time to time as may be requiredto keep the Loan In Balance as required in Section 6.3(“Borrower’s Additional Equity”; Borrower’s MinimumEquity Investment and Borrower’s Additional Equity are collectively referred toherein as “Borrower’s Equity”). It isunderstood and agreed that Lender shall not be required to disburse any proceedsof the Loan which shall be used to reimburse Borrower for Borrower’sEquity.  In the event Borrower or anyother party invests more than Borrower’s Minimum Equity Investment, the amountof the Loan shall be permanently reduced by the amount of such excess depositunless either: (x) such amount is Borrower’s Additional Equity required to beinvested pursuant to Section 6.3 and isused in accordance with the terms thereof, or (y) Borrower delivers to Lender awritten request for a reimbursement of such excess within thirty (30) days ofsuch excess investment, but in no event shall a request be required sooner thanthirty (30) days after the Closing Date. In order to qualify to Borrower’s Equity, Borrower must receive theBorrower’s Minimum Equity Investment as a contribution to capital fromComstock.  Comstock is also referred toherein as a “Contributor”.  Borrower may not be indebted to any of theContributors or any other entities for the contribution to capital.  Any contributors of equity shall be subordinateto Lender and to general unsecured creditors of Borrower and, if requested byLender, shall execute a subordination agreement evidencing such subordinationin form and substance satisfactory to Lender in its sole discretion.

##  

## SECTION 2.7                  VoluntaryPrepayment.  In the eventBorrower repays the Loan in whole or in part prior to the Maturity Date from asource other than Unit Release Payments, Borrower shall pay Lender a prepaymentfee in an amount equal to two percent (2%) of the amount being prepaid or, inthe event of prepayment in full, whether by acceleration of otherwise, twopercent (2%) of the amount prepaid plus any unfunded commitment under the Loan(“Prepayment Fee”).  ThePrepayment Fee payable pursuant to this Section shall be in addition to allother Secured Obligations (including Costs and the Exit Fee) due pursuant tothe terms hereof.  The Prepayment Feeshall be applicable to all prepayments of principal, from any source of funds(other than Unit Release Payments) or cause of prepayment, including but notlimited to voluntary prepayments, mandatory payments made after an Event ofDefault and acceleration (or shall be included as principal due in the event ofa judgment of foreclosure), and payments made by Guarantor or any other Personpursuant to the Environmental Indemnity Agreement, the Guaranty orotherwise.  Any amounts prepaid may notbe reborrowed.

##  

## SECTION 2.8                  Exit Fee.  In consideration of Lender’s making the Loanto Borrower (and in addition to other amounts payable under this Agreement andthe other Loan Documents), Borrower shall pay to Lender a fee (the “Exit Fee”) equalto $335,000.  The Exit Fee will bedue and payable as follows:  (a) $5,000per individual Residential Unit (the “Individual UnitExit Fee”) shall be due and payable in connection with the sale andrelease of each Residential Unit and (b) a final payment, equal to thedifference between the Exit Fee less the sum of any previously paid IndividualUnit Exit Fees, shall be due and payable at the earlier of (i) payment in fullof the Loan for any reason (which shall be deemed to include Borrower’scancellation or termination of the Loan prior to the funding of any Advances);or (ii) at Loan Maturity, whether by acceleration or otherwise.  In no event, however, shall the aggregate sumof Individual Unit Exit Fees exceed the aggregate amount of theExitFee.

 

4

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ARTICLE III

 

# REPRESENTATIONSAND WARRANTIES

 

The Recitals set forth above are made a part of thisArticle and constitute representations, warranties and covenants ofBorrower.  Borrower further represents,warrants, covenants, and agrees as follows:

 

## SECTION 3.1                  Statusof Documents.  Each of (a) theOrganizational Documents and (b) the Management Agreement are in full force andeffect and are free from any default on the part of Borrower.  Such documents are hereinafter sometimescollectively called the “Basic Agreements”.  Borrower has provided Lender with true,correct and complete copies of the Basic Agreements which are in effect as ofthe Closing Date.

##  

## SECTION 3.2                  DueOrganization; Authority.

##  

#### (a)           Borroweris a limited liability company qualified to do business and in good standingunder the Laws of the Commonwealth of Virginia and any other jurisdiction in whichBorrower is required to qualify to do business and maintain its good standingtherein.  Borrower has been dulyauthorized by all necessary corporate, limited liability company or partnershipaction and has all requisite power and authority to carry on its business, tohold title to the Property, to execute, deliver, borrow money under andotherwise perform this Agreement and the Loan Documents, and to consummate thetransactions contemplated thereby.

####  

#### (b)           EachBorrower Party is a corporation, partnership or limited liability company, asthe case may be, duly organized and validly existing in the State of itsincorporation or formation (as the case may be), and is qualified to dobusiness and in good standing under the Laws of the State where the Property islocated and any other jurisdiction in which such Borrower Party is required toqualify to do business and maintain its good standing therein.  Each Borrower Party has been duly authorizedby all necessary corporate, partnership or limited liability company action (asthe case may be) and has all requisite corporate, partnership or limitedliability company power and authority to carry on its business and to execute,deliver and perform, for itself and on behalf of Borrower the Loan Documentsentered into by such Borrower Party either for itself or on behalf of Borrowerin connection with the Loan.

####  

## SECTION 3.3                  Enforceability.

##  

#### (a)           ThisAgreement is, and all other Loan Documents executed by Borrower, on theexecution and delivery thereof, will be, the legal, valid and bindingobligation of Borrower enforceable in accordance with their terms;

####  

#### (b)           ThisAgreement is, and all other Loan Documents executed by each Borrower Party onbehalf of Borrower, on the execution and delivery thereof, will be, the legal,valid and binding obligation of such Borrower Party enforceable in accordancewith their terms; and

####  

#### (c)           TheGuaranty, the Environmental Indemnity and each other Loan Document executed byGuarantor, on the execution and delivery thereof, will be, the legal, valid andbinding obligation of Guarantor enforceable in accordance with their terms.

 

5

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## SECTION 3.4                  PendingLitigation.  Except asdisclosed on Exhibit C attached to thisAgreement, no actions, suits, or proceedings (including condemnation or eminentdomain proceedings) are pending or, to Borrower’s knowledge, threatened againstor affecting Borrower, any Borrower Party, Guarantor, the Property or any otherassets subject to the Loan Documents. None of the items (if any) listed on Exhibit Cor disclosed to Lender in writing during the term of the Loan will have aMaterial Adverse Effect.

##  

## SECTION 3.5                  NoViolation.  There exists noviolation, or default with respect to any of the Basic Agreements or of anymortgage, deed of trust, indenture or any other material contract, agreement orinstrument applicable to Borrower, Guarantor or the Property, or by which anyof the foregoing is bound.  Theexecution, delivery and performance of the Loan Documents will not result inany such violation, conflict or default, or result in the creation of any Lienon any of the assets of Borrower, any Borrower Party or Guarantor, other thanthe Permitted Exceptions.

##  

## SECTION 3.6                  NoConflict.  The Loan and allother transactions contemplated by the Loan Documents will not conflict with orresult in a breach or violation of any Governmental Approval applicable to anyof Borrower, any Borrower Party, Guarantor or the Property.

##  

## SECTION 3.7                  NoConsent.  No consent,approval, or authorization of, or registration, declaration or filing with anyGovernmental Authority is required and has not been obtained in connection withthe execution, delivery and performance by Borrower, any Borrower Party orGuarantor of each of the Loan Documents to which it is a party or any of thetransactions contemplated in the Loan Documents.

##  

## SECTION 3.8                  Truthof Financial Statements; Financial Condition Warranty.  Any Financial Statements delivered to Lenderby Borrower, any Borrower Party or Guarantor prior to or after the date of thisAgreement: (a) are materially true, correct and complete and (b) fairly presentin a manner internally consistent and consistent with prior statementssubmitted to Lender the respective financial conditions of the subjects thereofand for the periods referenced therein. All charges payable with respect to the Project are current and not indefault.  Borrower further warrants that except as disclosed toLender in writing, neither Borrower, any Guarantor, any manager/director ofBorrower, any equity owner of Borrower nor any of their respective Affiliates:(i) has ever been the subject of any criminal proceedings, other than minortraffic violations; (ii) has ever been the owner, whether directly orindirectly, of a parcel of real property which was the subject of foreclosureproceedings (whether judicial or non judicial); (iii) has ever been a partydirectly or indirectly, to a deed in lieu of foreclosure; and (iv) is notcurrently a party to any material pending litigation or administrativeproceedings, or subject to any judicial or non-judicial orders or consentagreements.

##  

## SECTION 3.9                  Access.  The Property is contiguous to public streets,roads or highways, and vehicular and pedestrian access from the Property ispermitted to such streets, roads or highways.

##  

## SECTION 3.10                ProjectBudget.  The Project Budget ingood faith estimates all material costs and expenses which will be incurred byBorrower in the acquisition, development, renovation, conversion and operationof the Project through the Maturity Date.

 

6

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## SECTION 3.11                Leases.  All Leases are in full force and effect andare free from any default on the part of Borrower.

##  

## SECTION 3.12                BusinessPurpose.  Borrower will usethe proceeds of the Loan solely for business purposes.

##  

## SECTION 3.13                MaterialFacts.  Neither thisAgreement, nor the other Loan Documents, nor any other document, financialinformation, certificate or statement required by any Loan Document to befurnished to Lender by Borrower, any Borrower Party or the Guarantor contains,or will contain, at the time of submission, any untrue statement of a materialfact or intentionally omits to state a material fact necessary to make thestatements therein, in the light of the circumstances under which they aremade, not misleading.

##  

## SECTION 3.14                Title.  Borrower has good and marketable fee title tothe Property, subject only to the Permitted Exceptions.

##  

## SECTION 3.15                BrokerageFees and Commissions.  NeitherBorrower nor any Person claiming by, through or under Borrower, has dealt withany Person in connection with the Loan in a manner that would entitle suchPerson to any brokerage fee or commission.

##  

## SECTION 3.16                ConditionsPreventing Compliance.  To theknowledge of Borrower, no conditions exist which would prevent Borrower, anyBorrower Party or Guarantor from complying with the provisions of the LoanDocuments within the time limits set forth in the Loan Documents.

##  

## SECTION 3.17                Taxes.  Each of Borrower, Guarantor and each BorrowerParty has filed all tax returns and reports required by law to have been filedby it, and each has paid all taxes, assessments and governmental charges leviedupon each of them and any of its assets which are due and payable.

##  

## SECTION 3.18                ERISA.  Neither Borrower, any Borrower Party, norGuarantor is an “employee benefit plan” (within the meaning of section 3(3) ofERISA) to which ERISA applies and neither Borrower’s, any Borrower Party’s norGuarantor’s assets constitute assets of any such plan.

##  

## SECTION 3.19                RegulationsG, U and X.  Borrower is notengaged in the business of extending credit for the purpose of purchasing orcarrying margin stock, and no proceeds of the Loan will be used for a purposewhich violates, or would be inconsistent with Federal Reserve System Board ofGovernors’ Board Regulations G, U or X. Terms for which meanings are provided in Federal Reserve System Board ofGovernors’ Board Regulations G, U or X or any regulations substituted therefor,as from time to time in effect, are used in this Section with such meanings.

##  

## SECTION 3.20                GovernmentRegulation.  Neither Borrower,any Borrower Party nor Guarantor is: (i) an “investment company” or a company“controlled” by an “investment company” within the meaning of the InvestmentCompany Act of 1940, as amended; (ii) a “holding company” or a “subsidiarycompany” of a “holding company” or an “affiliate” of either a “holding company”or a “subsidiary company” within the meaning of the Public Utility

 

7

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Holding Company Act of 1935, as amended; or (iii) subject to any otherfederal or State Law or regulation which purports to restrict or regulate itsability to borrow money.

##  

## SECTION 3.21                PrincipalPlace of Business and Chief Executive Office.  The principal place of business and chiefexecutive office (as such term is defined in Article 9 of the UCC) of Borroweris located at c/o Comstock Homebuilding Companies, Inc., 11465 Sunset HillsRoad, Suite 510, Reston, Virginia 20190. The state of organization of Borrower is Virginia.  The federal employment identification numberof Borrower is [20-2176975] and the organizational identification number ofBorrower, as designated by the Commonwealth of Virginia is [S 139465-1].  Borrower shall not change its State oforganization without Lender’s prior written consent.

##  

## SECTION 3.22                OwnershipStructure.  The ownershipstructure of Borrower (including the ownership interests) is accurately setforth on Exhibit D hereto.

##  

## SECTION 3.23                Priorityand Perfection.  As of theClosing Date, Lender has a first priority, perfected security interest in theProperty, in each item thereof, and in each other item of property  (tangible or intangible) given to Lender byBorrower or Guarantor or any other party pursuant to any of the Loan Documentsas security for the Loan. From and after the Closing Date, Borrower will nottake any action which has any effect on Lender’s first priority perfectedsecurity interest in the Property.

##  

## SECTION 3.24                CondominiumContracts.  Upon the executionand delivery thereof, all Approved Condominium Contracts shall be in full forceand effect and shall be in compliance with Section 8.1.  No event of default, or any event which, withthe passage of time or the giving of notice, or both, would constitute an eventof default, has occurred pursuant to the terms of any of the ApprovedCondominium Contracts, upon the execution and delivery thereof, on the part ofBorrower or, to Borrower’s knowledge, the other parties thereto.

##  

## SECTION 3.25                CondominiumDocuments.  Borrower hasdelivered (or will deliver) to Lender true, correct and complete copies of eachCondominium Document and each Condominium Document is (or will be) incompliance with applicable Laws.

##  

## SECTION 3.26                Borrower’sEquity; Advances.  Borrowerhas used (or will use) all of Borrower’s Minimum Equity Investment, all ofBorrower’s Additional Equity and all Advances solely for purposes set forth in,and consistent with, the Project Budget.

##  

## SECTION 3.27                PatriotAct.  Neither Borrower,Guarantor, nor any of their respective officers, directors, shareholders,partners, members or Affiliates (including the indirect holders of equityinterests in Borrower or Guarantor) is or will be an entity or person: (i) thatis listed in the Annex to, or is otherwise subject to the provisions ofExecutive Order 13224 issued on September 24, 2001 (“EO13224”);(ii) whose name appears on the United States Treasury Department’s Office ofForeign Assets Control (“OFAC”) mostcurrent list of “Specifically Designated National and Blocked Persons” (whichlist may be published from time to time in various mediums including, but notlimited to, the OFAC website, http:www.treas.gov/ofac/t11sdn.pdf); (iii) whocommits, threatens to commit or supports “terrorism”, as that term is definedin EO13224; or (iv) who is otherwise affiliated with any

 

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entity or person listed above (any and all parties or persons describedin clauses [i] – [iv] above are herein referred to as a “ProhibitedPerson”).  Borrower covenantsand agrees that neither Borrower, Guarantor, nor any of their respectiveofficers, directors, shareholders, partners, members or any Affiliates(including the indirect holders of equity interests in Borrower or Guarantor)will: (i) conduct any business, nor engage in any transaction or dealing, withany Prohibited Person, including, but not limited to, the making or receivingof any contribution of funds, goods, or services, to or for the benefit of a ProhibitedPerson; or (ii) engage in or conspire to engage in any transaction that evadesor avoids, or has the purpose of evading or avoiding, or attempts to violate,any of the prohibitions set forth in EO13224. Borrower further covenants and agrees to deliver (from time to time) toLender any such certification or other evidence as may be requested by Lenderin its sole and absolute discretion, confirming that: (i) neither Borrower,Guarantor, nor any of their respective officers, directors, shareholders, partners,members or Affiliates (including the indirect holders of equity interests inBorrower or Guarantor) is a Prohibited Person; and (ii) neither Borrower,Guarantor, nor any of their respective officers, directors, shareholders,partners, members or Affiliates (including the indirect holders of equityinterests in Borrower or Guarantor) has engaged in any business, transaction ordealings with a Prohibited Person, including, but not limited to, the making orreceiving of any contribution of funds, goods, or services, to or for thebenefit of a Prohibited Person.

##  

## SECTION 3.28                Solvency.  Borrower: (i) is now and at all times during the term of this Agreement shall begenerally paying its debts as they mature; (ii) now owns, and at all timesduring the term of this Agreement shall own, property which, at a fairvaluation, is greater than the sum of its debts; and (iii) now has and at alltimes during the term of this Agreement shall have capital sufficient to carryon its business and transactions and all business transactions in which it isabout to engage.

##  

## SECTION 3.29                SinglePurpose Entity.  Borrowershall remain a Single Purpose Entity.

##  

## SECTION 3.30                Indebtedness.  Borrower has and shall have no indebtedness,other than the Secured Obligations evidenced hereby or indebtedness arising inthe ordinary course of its business (which indebtedness is not indebtedness forborrowed money).

##  

## SECTION 3.31                Representationsand Warranties to be Continuing. All of the representations and warranties in this Agreement shall betrue, correct and complete in all respects at the Closing Date and the date ofthe Initial Disbursement, and will continue to be true, correct and complete inall respects throughout the term of the Loan as if remade at all timesafterwards.  All representations andwarranties made in this Agreement, the Commitment Letter, the Loan Documents orin any other document delivered to Lender by or on behalf of Borrower, anyBorrower Party or Guarantor shall survive the making of the Loan and shall continuein full force and effect as long as there remains unperformed any SecuredObligation to Lender under any of the Loan Documents.

##  

## SECTION 3.32                Acknowledgmentof Lender’s Reliance. Borrower acknowledges that the Loan will be made by Lender in reliance uponthe representations, warranties, and agreements contained in the Loan Documentsor any certificate delivered to Lender pursuant to

 

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the Loan Documents.  Lender shallbe entitled to such reliance notwithstanding any investigation which has beenor will be conducted by Lender or on its behalf.

 

ARTICLE IV

 

# CLOSINGDELIVERY CONDITIONS; CONDITIONS TO INITIAL DISBURSEMENT

 

## SECTION 4.1                  Conditionsto Loan Closing; Closing Date. Prior to and as a condition to the closing of the Loan and disbursementof the Initial Disbursement, Lender must have received and approved the itemsspecified in this Section 4.1 on or beforethe Closing Date.  These items must befully executed where applicable, and all submissions which are not originalsmust be true and complete copies of these items and if requested by Lender,must be so certified by Borrower or Guarantor or any of such parties (as thecase may be). In the event that Lender agrees to close the Loan without requiringBorrower to have satisfied each and every condition set forth in this Section 4.1 or otherwise (it being understoodthat Lender shall have no obligation to do so), then each and every conditionnot so satisfied as of the Closing Date shall be a condition to the funding ofany additional Advance unless and until Borrower shall have satisfied suchcondition or Lender shall have expressly agreed in writing to permanently waivesuch condition.

##  

#### (a)           Loan Documents. The Loan Documents and the Commitment Letter.

####  

#### (b)           UCC Searches. Federal, state and local tax and judgment lien searches and searches ofthe appropriate Uniform Commercial Code filing offices showing no Liensaffecting the Property or Borrower, other than the Permitted Exceptions.

####  

#### (c)           Insurance. Borrower shall provide, at least four (4) Business Days prior to theClosing Date, evidence that the insurance required under Section7.8 is in effect.

####  

#### (d)           Formation, Authority and Good Standing Documents.  The following items: (i) evidence of the dueorganization or incorporation and good standing of Borrower, its members andGuarantor (if a legal entity), as certified by the Secretary of State of suchparty’s State of organization or incorporation, the Secretary of State of theState where the Property is located and any other jurisdiction where such partyis required to qualify to do business and maintain its good standing therein;(ii) true, correct and complete copies of all Organizational Documents; and(iii) evidence of the due authorization of this transaction by Borrower, itsmembers and Guarantor, including, without limitation, corporate, partnership orlimited liability company resolutions specifically authorizing this transactionand incumbency certificates with original specimen signatures for the officerssigning the Loan Documents.  Theforegoing organizational documents must demonstrate that the ownership,management and capital structure of the Borrower is consistent with Recital Iof this Agreement.

####  

#### (e)           Opinions of Borrower’s and Guarantor’s Counsel.  Legal opinions from Borrower’s andGuarantor’s counsel, whose identity must be satisfactory to Lender, addressingcorporate, partnership and limited liability organization, authority and goodstanding, the enforceability of the Loan Documents, usury and such othermatters which Lender may reasonably request.

 

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#### (f)            Financial Statements.  The most current financial statementsavailable for Borrower and Guarantor, certified as required in and meeting theother requirements of Section 7.7.

####  

#### (g)           Representations. All representations and warranties of Borrower contained in thisAgreement and in all of the other Loan Documents shall be true and correct asof the Closing Date.

####  

#### (h)           Event of Default. No Default or Event of Default shall have occurred and be continuing.

####  

#### (i)            Adverse Change. There shall be no material adverse change in the financial condition ofBorrower or Guarantor or the condition of the Property.

####  

#### (j)            Casualty; Condemnation.  Neither the Property nor any part thereofshall have suffered any casualty or be subject to any existing or threatenedcondemnation or taking by eminent domain proceedings or otherwise.

####  

#### (k)           Pending Litigation.  There shall be no pending or threatenedlitigation against Borrower, Guarantor or the Property known to Borrower or itscounsel.

####  

#### (l)            Commitment Letter.  There shall have been full compliance byBorrower with all of the terms and conditions of the Application Letter and theCommitment Letter.

####  

#### (m)          Compliance with Laws.  Lender shall have received evidencesatisfactory to it that the Property is in compliance with all Laws (includingall local, State and federal environmental laws), including a copy of the finaltract map or other Governmental Approval by each planning commission or otherGovernmental Authority with jurisdiction over the lawful development of theProject, and that there are no conditions existing currently or likely to existduring the term of the Loan that require or are likely to require clean-up,removal or other remedial action pursuant to any of the aforesaid environmentallaws.

####  

#### (n)           Appraisal. A current appraisal of the Property addressed to Lender, which must be acceptable to Lender in its solediscretion. Acceptability shall be predicated upon, among other things:(a) a stated “as-is” value of the Property of noless than $75,000,000, (b) a stated “as-completed” value of the Project on thebasis of a gross retail sell-out as condominiums of no less than $99,000,000,(c) a stated bulk sale upon completion value for the Project as condominiums ofno less than $79,000,000, (d) a logical and consistent presentation, and (e)conformance with federal regulations governing the content of the appraisal.

####  

#### (o)           Title Policy. The Title Policy.  The TitlePolicy shall not contain any exceptions relating to the use by Borrower of anyContract Purchaser’s deposit with respect to Upgrades as funds with respect tothe conversion of the Project.

####  

#### (p)           Survey. The Survey which shall be prepared and be certified in accordance withthe survey certification attached as Exhibit F.

 

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#### (q)           Environmental Report.  A complete Phase I environmental reportaddressed to and approved by Lender, prepared in such detail as Lender mayrequire by a firm approved by Lender in its sole discretion, together withcomplete copies of all existing environmental and hazardous material studiesand reports, and any disclosure document required pursuant to the laws of theState where the Property is located.

####  

#### (r)            Licenses and Permits.  A certificate of occupancy for theProperty.  Prior to the Closing Date,Borrower shall provide Lender with satisfactory evidence that Borrower hasobtained all Permits and Governmental Approvals necessary for conversion of theProject, except for Permits required for the Upgrades to each Unit, includingappropriate building permits, and application for Permits for the Projectissued by the appropriate Governmental Authorities.

####  

#### (s)           Zoning. Evidence, in the form of a zoning endorsement and letters or approvalsfrom any Governmental Authorities having jurisdiction over the zoning of theProperty, confirming that the development and planned use of the Project is incompliance with all applicable zoning Laws and other applicable GovernmentalApprovals.

####  

#### (t)            Utilities.  Evidence that all sewer, water, electrical,telephone and any other utility services are available at the Property inadequate supply for the Project.  Thisevidence shall include letters from the applicable utility providers.

####  

#### (u)           Management Agreement.  A true correct and complete copy of theManagement Agreement, together with a subordination of the Management Agreementin form and substance acceptable to Lender.

####  

#### (v)           Agreements. Copies of all Basic Agreements andany other development, redevelopment, reciprocal easement or other materialagreements relating to the Property certified by Borrower.

####  

#### (w)          Wetlands Compliance. Evidence that any “wetlands”on the Land have been identified, and that any such wetlands will be preserved,replaced or otherwise dealt with in compliance with all Governmental Approvals.

####  

#### (x)            Tax Bill. A copy of the most recent real estate tax bills for the Property.

####  

#### (y)           IRS Form. An Internal Revenue Service tax return verification form (Form 4506T)executed by Borrower and Guarantor.

####  

#### (z)            Formof Condominium Contract.  Lendershall have received and approved the form of Condominium Contract to be usedfor the Property, which shall be attached hereto as Exhibit G.

####  

#### (aa)         Borrower’s Equity.  Evidence that Borrower has investedBorrower’s Minimum Equity Investment.

####  

#### (bb)         Project Budget. The Project Budget.  The Project Budget shall not containany line items payable to Borrower, Guarantor or any Affiliate of Borrower orGuarantor, except for

 

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the Production Overhead line item in the amount of $392,000.  Borrower warrants that, except as set forthin the preceding sentence, no other Advances of the Loan shall be made to anyAffiliates of Borrower or Guarantor.

####  

#### (cc)         PriceList.  Borrower shall have providedLender with the Price List, which must be acceptable to Lender in itsreasonable discretion. Approval of the Price List will be predicated onLender’s evaluation and opinion, in its reasonable discretion, of thereasonableness of the proposed prices, provided that the proposed prices mustaverage at least $300 per net saleable square foot, excluding any Upgradesand/or extras, in the Project.  Noreduction to the Price List shall be made without Lender’s prior writtenapproval if the result of such decreases would be to reduce the average priceof the Units to less than $300 per net saleable square foot.

####  

#### (dd)         PatriotAct.  All documents and informationdeemed necessary by Lender to comply with Section 326 of the USA Patriot Actand regulations promulgated pursuant to such Law.

####  

#### (ee)         Ownership,Management and Capital Structure.  The ownership, management and capital structure ofBorrower must be acceptable to Lender and any material change to the ownership,management or capital structure of Borrower or any material modification to theownership or management of the members of Borrower (whether direct or indirect)following the Closing Date shall be subject to Lender’s prior written approval;provided however, Lender acknowledges that the sole member of Borrower is apublicly traded company and hereby approves of its securities being traded onthe NASDAQ market.

####  

#### (ff)           ProjectSchedule.  Lender has received andapproved the Project Schedule.

####  

#### (gg)         Conditionsfor Advances.  Borrower has satisfiedall conditions for Advances set forth in Section 5.1 and Section 5.2.

####  

ARTICLE V

 

# OTHERPROVISIONS CONCERNING ADVANCES

 

This Article contains terms, conditions and deliveryrequirements which pertain to Advances under this Agreement other than theInitial Disbursement.  These terms,conditions and delivery requirements are in addition to those set forthelsewhere in this Agreement.

 

## SECTION 5.1                  GeneralTerms and Conditions for Advances. Each Advance shall be subject to the following general terms andconditions:

##  

#### (a)           No Event of Default.  The representations, warranties and covenantsof the Guarantor in the Guaranty, the Environmental Indemnity and each otherLoan Document to which it is a party and of Borrower in this Agreement and theother Loan Documents to which it is a party shall be true and correct in allmaterial respects on and as of the date of such Advance and no Event of Defaultor Default shall have occurred and be continuing.  Each request for an Advance by Borrowershall, except as otherwise disclosed to Lender in writing, be deemed to be acertification of the foregoing.

 

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#### (b)           Article IV Conditions.  All requirements set forth in Article IV ofthis Agreement as a condition precedent to the Closing Date shall have beensatisfied, including, but not limited to, the delivery of evidence satisfactoryto Lender that Borrower has invested Borrower’s Minimum Equity Investment andany required Borrower’s Additional Equity into the Project.

####  

#### (c)           Notice, Frequency and Amounts.  Lender shall use commercially reasonablyefforts to fund requests for Advances within ten (10) Business Days; provided,however, that all requests for Advances must be orderly, complete and inwriting and must include all submissions required under this Agreement beforethe ten (10) Business Day period begins to run. Advances shall not be made more frequently than once a month.  Borrower shall pay Lender a processing fee of$500 for each Advance, which shall be payable from Loan proceeds.

####  

#### (d)           Purposes and Payees.  All disbursements of Loan proceeds must beapproved by Lender in its sole but reasonable discretion based on costsexpended on the condominium conversion as contained in the Project Budget.  Provided no Default or Event of Default thenexists, Lender will allow monthly Advances of the Production Overhead up to$16,333 per month until the Production Overhead line item is exhausted. Theamount of the requested Advance shall not exceed the cost of work in place andother amounts actually paid or payable by Borrower for Project Costs.  Upon confirmation of all requirementsspecified herein and upon receipt of the Title Insurer’s commitment to issue adate down to the Title Policy insuring the funds about to be disbursed, Lendershall wire transfer the Advance directly to Borrower at such location asBorrower may direct, who will then disburse directly to the general contractorsor subcontractors as applicable.  After aDefault or Event of Default, if, in Lender’s reasonable opinion, its positionwill be impaired if it does not make the Advance, Lender may (but shall not beobligated to make) make Advances from any Project Budget category (whether ornot such Advances are consistent with the Project Budget) to or for any of thefollowing parties or purposes:  (a)directly to any Person or Persons, including Lender, who in Lender’s reasonablejudgment is entitled to payment for Project Costs, (b) for payment or performanceof any of Borrower’s Secured Obligations under any of the Loan Documents,including fees, costs, expenses owing to Lender or its consultants, or (c) tothe Title Insurer or any Lien claimant for the indemnity over or settlement ofany claim for Lien other than a Permitted Exception.  Lender may make Advances under the priorsentence without further authorization by Borrower, but Lender will usereasonable efforts to give Borrower notice of such an Advance within ten (10)Business Days after making such an Advance. Lender’s failure to give such notice shall not be regarded as a defaultby Lender or impair any of Lender’s rights. Such Advances shall be treated as an Advance of the Loan as set forth inSection 12.8 below.  This paragraph shall not limit Lender’srights to make Advances under other provisions of the Loan Documents.

####  

#### (e)           Balancing Compliance.  The Loan must be In Balance as required underSection 6.3 below, and the Loan proceedsmust be for the purposes set forth in and must be applied in compliance withthe Project Budget.

####  

#### (f)            Title Insurance Endorsements.  Lender shall have received a “datedown”endorsement to the Title Policy extending the coverage to include the date andamount of the requested Advance.  Thedatedown endorsement shall show no exceptions to title other than the PermittedExceptions.  Any new exceptions must beapproved by Lender in writing, acting reasonably.  Upon such approval, such new exception shallbe considered a Permitted Exception.

 

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Lender shall also be furnished a mechanic’s lien endorsement to theTitle Policy in the form and substance acceptable to Lender.

####  

#### (g)           NOI.  It is expressly understood and agreed thatBorrower shall use all available NOI from the Project for Project Costs withinthe Project Budget prior to the use of any Loan proceeds.  Each request for an Advance by Borrower shallbe deemed to be a certification from Borrower that NOI is insufficient to coverthe Project Costs set forth in any requested Advance.

####  

#### (h)           Casualtyor Condemnation.  No casualty hasoccurred or condemnation proceeding has been initiated, which in Lender’s soleand absolute discretion, could have a Material Adverse Effect.

####  

#### (i)            MaterialAdverse Effect.  No event or seriesof events shall have occurred which has resulted in a Material Adverse Effect.

####  

## SECTION 5.2                  PayoutConditions and Deliveries. Prior to each Advance other than the Initial Disbursement, Borrowershall submit to Lender or Lender shall have received by the time required in Section 5.1(c) the following documents, each ofwhich must be approved by Lender:

##  

#### (a)           Foreach request for an Advance, a complete set of the “Requestfor Advance Documents” which shall include:

####  

##### (i)                                     Awritten request for Advance from Borrower which shall cover and address allwork for which disbursement is to be made to a date specified therein;

#####  

##### (ii)                                  Followingthe occurrence of an Event of Default, with respect to Advances for Hard Costsonly, Contractor’s, subcontractors’, architect’s, engineer’s, materialsupplier’s and other design professional’s waivers of liens, subordinations ofliens and all other statements and forms required for compliance with themechanics’ lien or similar laws of the State where the Property is locatedthrough the date such contractor, subcontractor, architect, engineer, materialsupplier or other design professional has been paid, substantiating each drawrequest; provided, however, that in the event conditional lien waivers areprovided to substantiate such draw request, then Borrower shall also provide anunconditional lien waiver covering all prior draw requests made;

#####  

##### (iii)                               Astatement, in form reasonably prescribed by Lender, executed by Borrowerstating among other things: (1) the names and addresses of all contractors withwhom Borrower has contracted, (2) the amount of each contract, (3) amounts paidto date under each contract and (4) the amounts of current payment under eachcontract, retainage and balances due, broken down in a consistent manner (“Sworn Owner’s Statement”), together with copiesof all subcontracts and proof of payment under such subcontracts as may berequired by Lender; and

#####  

##### (iv)                              Withrespect to Advances for Hard Costs only, a statement, in form reasonablyprescribed by Lender, executed by the contractor of the Project stating amongother things: (1) the names and addresses of all suppliers, contractors and itsown

 

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##### forces contracted to work, (2) the amount of eachcontract, (3) amounts paid to date under each contract, (4) change orders  and (5) the amounts of current payment undereach contract and balances due, broken down in a consistent manner (“Sworn Contractor’s Statement”; the Sworn Owner’sStatement and the Sworn Contractor’s Statement are collectively referred toherein as the “Sworn Statement”); and

#####  

##### (v)                                 Borrower’sapplication and certification for payment executed by Borrower.

#####  

#### (b)           Title Insurer Documents.  Borrower shall have furnished, and covenantsand agrees to furnish, to the Title Insurer the sworn statements, lien waiversand all other documents required by the Title Insurer for it to furnish theendorsements referred to in Section 5.1(f)above, including, but not limited to, a written certification by Borrower ofthe work completed to date on the Project which will be covered by such titleendorsement.  Upon request by Lender,Borrower shall furnish copies of these items to Lender.

####  

#### (c)           Soft Cost Backup. For each request for an Advance for Soft Costs, copies of bonafide thirdparty invoices, contracts and other documents and verification of such expensesin Lender’s reasonable discretion.

####  

#### (d)           Site Inspection. Lender may rely on the advice of Lender’s Project Consultant, who shallbe retained by Lender at Borrower’s expense.  Lender, through Lender’s Project Consultant orits own employees, may perform a site inspection to confirm that progress withthe conversion of the Project to a condominium property conforms to the SwornStatement and is progressing within the Project Budget.  In no event, however, shall the opinion ofLender’s Project Consultant be binding on Lender.

####  

#### (e)           Change Orders. All change orders (including pending change orders), regardless ofwhether or not Lender’s approval is required under Section6.2.

####  

#### (f)            Other Items. Such other documents and information as Lender may reasonablyrequest.  These may include copies of anynew contracts or subcontracts which Borrower may have entered into respectingthe Project; bonds pertaining to these subcontracts as may be required byLender; and certifications from the structural, mechanical and electricalengineers.

####  

## SECTION 5.3                  FinalAdvance.  Lender shall makethe final Advance for costs of construction for the Project upon Borrower’sdelivery to Lender of the following items, each to be reasonably satisfactoryto Lender.  These conditions shall be inaddition to those set forth in Section 5.1 and Section 5.2 andelsewhere in this Agreement.

##  

#### (a)           Requestfor Advance Documents, which include certifications from Borrower that theProject has been completed;

####  

#### (b)           Afinal mechanic’s lien endorsement for the current Advance and deletion of thepending construction exception to the Title Policy, together with such otherendorsements as may be reasonably requested by Lender;

 

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#### (c)           Followingthe occurrence of an Event of Default, final lien waivers from any contractorand all subcontractors and materialmen; provided, however, that in the eventconditional lien waivers are provided to substantiate such draw request, thenBorrower shall also provide an unconditional lien waiver covering all priordraw requests made and shall provide a final unconditional lien waiver no laterthan 30 days following the final Advance; and

####  

#### (d)           Anupdate of the tax, judgment lien and Uniform Commercial Code financingstatement searches obtained pursuant to Section 4.1(b)showing no matters which are not Permitted Exceptions.

####  

## SECTION 5.4                  Paymentof Interest; Interest Reserve.

 

#### (a)           Aportion of the proceeds of the Loan in the amount of One Million Seven HundredThirty-One Thousand and No/100 Dollars ($1,731,000) shall be designated in theProject Budget as the Interest Reserve for the payment of interest on theNote.  In the event the Property, in anymonth, achieves a positive NOI, then such monthly NOI shall be applied to coverthe Monthly Payment under the Note prior to the use of any Advances from theInterest Reserve line item of the Project Budget, and Lender is herebyauthorized to apply any funds in the Operating Account to cover the MonthlyPayment.  Either upon Borrower’s deliveryof a request for an Advance from the Interest Reserve or, if such request isnot timely delivered by Borrower, then upon Lender’s determination, in itsdiscretion, that NOI held in the Operating Account is insufficient to cover theMonthly Payment, then, provided that no Event of Default shall have occurredand be continuing, Lender shall disburse to itself from the Interest Reserve anamount sufficient to pay all such accrued but unpaid interest.  Borrower hereby acknowledges that Lender isauthorized to charge interest monthly against the Interest Reserve line item ofthe Project Budget, irrespective of whether Borrower has made a request forsuch advance.  Nothing contained in this Section shallrelieve Borrower of the absolute and unconditional obligation to pay accruedinterest on Note as provided herein and in the Note and other LoanDocuments.  If the funds under theInterest Reserve are insufficient or are otherwise unavailable for disbursement(as the result of positive NOI for such month or an Event of Default), thenBorrower shall pay or cause to be paid, directly to Lender the accrued interestthen due and payable from Borrower’s funds and not from the proceeds of theLoan.

####  

ARTICLE VI

 

# PROJECTBUDGET, BORROWER’S EQUITY,LOAN BALANCING, AND CHANGE ORDERS

 

## SECTION 6.1                  ProjectCosts and Project Budget.

##  

#### (a)           Project Costs. The proceeds of the Loan shall be used solely for the costs of acquiringthe Property and the payment of Project Costs in accordance with the ProjectBudget.  Borrower shall hold all Advancesin trust to be spent for the Project Costs for which such Advance wasmade.  For the purposes of thisAgreement, “Project Costs” shall mean allHard Costs and Soft Costs of the Project which have been or will be incurred inconnection with this Agreement and consistent with the Project Budget, asapproved by Lender in its sole discretion. Borrower shall pay all Project Costs as they become due and owing, notwithstandingthat Lender

 

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may not be obligated to make an Advance hereunder or that the amount ofany particular Advance may be insufficient to pay such costs and Borrower shallpay from its own funds any deficiency as Borrower’s Additional Equityhereunder.

####  

#### (b)           Project Budget. The Project Budget is attached as Exhibit B.Borrower must obtain Lender’s prior written approval before any modificationsor amendments are made to the Project Budget. The amount which Lender shall be obligated to disburse for any item ofProject Costs shall not be in excess of the amount shown for that item on theProject Budget.  In the event the totalactual Project Costs are less than the amount set forth in the Project Budget,the Loan shall be reduced by the amount of the savings.

####  

## SECTION 6.2                  Change Orders and Changesto the Project Budget.

##  

#### (a)           Modifications and Changes Orders.  Borrower shall promptly notify Lender of any anticipated changes inHard Costs or Soft Costs line items, which if approved by Lender, would resultin a net increase in the total amount of the Hard Costs or Soft Costs lineitems (collectively, “Change Orders”). Any agreement between Borrowerand any contractor regarding Change Orders shall be made only after theLender’s prior written approval, which approval shall not be unreasonablywithheld.  If as a result of anysuch change, when taken together in the aggregate with any prior changes, theLoan will be Out of Balance, then Borrower must also comply with therequirements of Section 6.3.

####  

#### (b)           Interest Reserve and Production Overhead. Thereshall be no reallocations to or from the Interest Reserve line item of theProject Budget and no reallocations to or from the Production Overhead line ofthe Project Budget, without the prior written consent of Lender.

####  

#### (c)           SoftCost Contingency.  The Soft CostContingency line item of the Project Budget may be reallocated to pay otherSoft Costs, subject to Lender’s prior written approval, to be determined in itsreasonable discretion.

####  

#### (d)           Reduction Based on Savings. In the event thefinal cost to renovate and convert the Project is less than the amount setforth in the Project Budget, the Loan amount shall be reduced by the amount ofsuch reduction in cost.

####  

## SECTION 6.3                  LoanBalancing.

##  

#### (a)           In Balance; Out of Balance.  Notwithstanding anything to the contrarycontained herein, it is expressly understood and agreed that the Loan shall atall times be in “In Balance”.  The Loanshall be deemed to be “In Balance” only atsuch time, and from time to time, as Lender may determine, in its reasonablediscretion, that the remaining amount available under the Loan equals orexceeds the Total Project Costs. Conversely, the Loan shall be deemed to be “Out of Balance” at such time, and from time totime, as Lender may determine, in its reasonable discretion, that the remainingamount available under the Loan does not equal or exceed the Total ProjectCosts.

####  

#### (b)           Reallocationof Line Items. In determining whether the amount of the undisbursed Loanproceeds are sufficient to pay Total Project Costs, line items of the ProjectBudget shall be reallocated only in strict compliance with Section 6.2and any surplus funds in line items which

 

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are not available for reallocation shall not be considered.  For greater certainty, and not in limitationof the foregoing, in determining whether the Loan is In Balance, Borrower shallnot be permitted to make any reallocation to or from the Interest Reserve lineitem or the Production Overhead line item of the Project Budget to or from anyother line items of the Project Budget.

####  

#### (c)           Deficiency Deposit.  If Lender determines that the Loan is Out ofBalance, then, within ten (10) days after written notice thereof from Lender toBorrower, Borrower shall deposit, in immediately available funds, an amount ofcash equal to the amount Lender reasonably estimates will be sufficient toplace the Loan In Balance (the “Deficiency Deposit”).Thereafter, the Deficiency Deposit will be disbursed by Lender prior to anyfurther Advances of Loan proceeds and shall be used for Project Costs, subjectto Borrower’s compliance with all conditions which would be applied to anAdvance for the same Project Budget items to which the Deficiency Deposit willbe applied. Any Deficiency Deposits shall be added to and made a part ofBorrower’s Equity in the Project and no interest shall be paid to Borrower withrespect to any such amounts.  Failure todeposit the Deficiency Deposits shall constitute an Event of Default.  Lender shall make no further disbursements ofthe Loan at any time the Loan is Out of Balance.

####  

## SECTION 6.4                  Accounts.

##  

#### (a)           ProjectAccount.  As and when required byLender during the time of the Loan, Borrower covenants and agrees to establishand thereafter (until the Secured Obligations have been paid in full) shallmaintain with Lender, one or more (as determined by Lender) deposit accountsinto which all of Borrower’s Additional Equity, Deficiency Deposits and RealEstate Tax Deposits shall be deposited (collectively, the “Project Account”); provided however, Lenderacknowledges that Advances of the Loan may be made from the Real Estate Taxesline item of the Project Budget to pay Real Estate Taxes in accordance with Section6.5.

####  

#### (b)           OperatingAccount.  Borrower covenants andagrees to establish the Operating Account with Lender on or before the ClosingDate.  Borrower covenants and agrees todeposit, or cause to be deposited, all NOI with respect to the Property intothe Operating Account and the failure to deposit all NOI into the OperatingAccount shall constitute an Event of Default. All available NOI in theOperating Account shall be used by Borrower first for the payment of monthlyinterest due on the Loan in accordance with Section 5.4, and then shallbe used for other Project Costs prior to any further Advances of Loan proceeds.Disbursements from the Operating Account will be subject to Lender’s approvalbased upon Borrower’s compliance with all conditions which would be applied toan Advance for the same Project Budget items to which the NOI will be applied.

####  

#### (c)           Pledgeof Accounts.  To secure the paymentand performance of the Secured Obligations, Borrower hereby pledges and assignsto Lender, all of Borrower’s right, title and interest in, and hereby grants toLender, a security interest in and right of set-off against (said right ofset-off shall not be exercised until the occurrence of and during thecontinuance of an Event of Default): (i) the Project Account and the OperatingAccount; (ii) all cash, instruments, securities, investments and other propertyfrom time to time transferred or credited to, contained in or comprising theOperating Account and the Project Account; (iii) all statements, certificates,passbooks and instruments representing the Project Account and the OperatingAccount or any

 

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of the foregoing; (iv) any and all substitutions or additions of orwith respect to any of the foregoing; and (v) any and all proceeds and productsof any of the foregoing, whether now owned and existing or hereafter acquiredor arising, including, without limitation (A) interest, principal, dividendsand other amounts or distributions received with respect to any of theforegoing and (B) property received upon the sale, exchange or otherdisposition of any of the foregoing.  Allamounts held in the Accounts shall be held by Lender to be irrevocably appliedfor the purposes for which made as herein provided, and shall not be subject tothe direction or control of Borrower.

####  

#### (d)                                 NoOther Accounts.  Borrower covenantsand agrees that, except for the Operating Account, the Project Account and anyother account maintained with Lender pursuant to the terms hereof, it will notmaintain or permit any property manager to maintain any bank or depositaccounts (of any kind or nature) with respect to the Property.  Notwithstanding he foregoing, the Managershall be allowed to maintain an independent operating account.

####  

#### (e)                                  Default.  Upon the occurrence of a Default or Event ofDefault hereunder, and in addition to all other rights, powers and remedies ofLender under this Agreement or under any other Loan Document, Lender may, atits option, without being required to do so and to the extent permitted by Law,apply any amounts in the Accounts on hand to any of the Secured Obligations, insuch order and manner as Lender may elect in its discretion.  When the Secured Obligations have been fullypaid and performed, as the case may be, amounts held in the Accounts shall bepaid to Borrower.

####  

## SECTION 6.5                                                       Deposits for Real Estate Taxes.

##  

#### (a)                                  AllReal Estate Taxes shall be paid from Advances from the Real Estate Taxes lineitem in the Project Budget, provided such line item has not beenexhausted.  After the Real Estate Taxesline item in the Project Budget has been depleted, Borrower shall thereafter onthe first (1st) day of each and every month during the term of the Loan depositan amount equal to one-twelfth (1/12) of 100% of the annual Real Estate Taxesnext to become due upon the Property to be held in the Project Account for thepayment of Real Estate Taxes when due; provided that in the case of the firstsuch deposit there shall be deposited, in addition, an amount which, when addedto the aggregate amount of monthly sums next payable under this Section 6.5, will result in a sufficient reserveto pay the Real Estate Taxes next becoming due one month prior to the date whensuch Real Estate Taxes are, in fact, due and payable pursuant to applicableLaw.  If Lender determines at any timethat monthly payments are not adequate to fund the next installment of RealEstate Taxes due, Borrower shall make an additional deposit in an amount equalto the expected deficiency.  The amountof the deposits described in this paragraph (herein generally called “Real Estate Tax Deposits”) shall be based uponLender’s reasonable estimate as to the amount of Real Estate Taxes next to bepayable.  Failure of Borrower to make themonthly Real Estate Deposits shall constitute an Event of Default.

####  

#### (b)                                 Subsequent to the Mass Closing, if requiredpursuant to Section 6.5(a) Borrower shall continue to make monthly RealEstate Tax Deposits equal to one-twelfth of one hundred percent (100%) of theannual estimated Real Estate Taxes due with respect to the unsold Units in theProject into the Project Account. Provided an escrow balance is built up which in Lender’s sole butreasonable discretion is sufficient to pay Borrower’s future Real Estate Taxobligations with

 

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respect to the Project, the Real Estate Tax Deposits may cease.  However, if Lender subsequently determines atany time that the remaining tax escrow balance is not sufficient to payBorrower’s future Real Estate Tax obligations with respect to the Project,Borrower shall make one or more additional Real Estate Tax Deposit in amountsequal to the expected deficiency in the manner required by Lender.  Failure of Borrower to make such Real EstateTax Deposits shall constitute an Event of Default.

####  

#### (c)                                  Theaggregate of the monthly Real Estate Tax Deposit, if required, together withmonthly payments of interest and/or principal and interest payable on the Noteshall be paid in a single payment each month, to be applied, so long as noDefault or Event of Default has occurred hereunder and is continuing, topayment of Real Estate Taxes subject to the provisions of Section 6.5(d) below.

####  

#### (d)                                 Itshall be the responsibility of Borrower to furnish Lender with the bills forthe Real Estate Taxes not later than the date that is thirty (30) days (or suchlater date if Borrower does not receive the tax bill from the taxing authorityby such date) prior to the date on which the same are due and payable withoutpenalty or premium of any kind.  If thetotal Real Estate Tax Deposits on hand shall not be sufficient to pay all ofthe Real Estate Taxes when the same shall become due, then Borrower shalldeliver to Lender at the time of the submission of the bills to Lender asdescribed above an amount equal to the deficiency.  If the total of such Real Estate Tax Depositexceeds the amount required to pay the Real Estate Taxes, such excess shall becredited against subsequent payments to be made for such deposits.

####  

ARTICLE VII

 

# CERTAINCOVENANTS BY BORROWER

 

## SECTION 7.1                                                       Inspection. Borrower will permit Lender and Lender’s consultants to inspect theProperty and all matters relating to the development and operation of theProperty.  Borrower will cooperate andwill cause its agents and contractors to cooperate to give Lender and itsconsultants full access to the Property. Lender will endeavor to minimize interference with the activities at theProperty in connection with any such inspection.  All inspections by Lender and its consultantsshall be for the sole benefit of Lender for its Loan administration purposesonly.  Neither Lender nor its consultantsassumes any liability to Borrower or any other Person by reason of Lender’s orits consultant’s inspections, except as a result of such party’s grossnegligence or willful misconduct. Neither Borrower nor any other Person may rely on Lender’s inspectionsfor any purpose (including stage of completion, adequacy or workmanship,compliance with Governmental Approvals, or other matters related to design,construction and operation).  Lender’sinspection of an item shall not result in any waiver of Lender’s rights in theevent such item does not conform with this Agreement.  Borrower shall keep books and records fairlyreflecting all of its business affairs and transactions.  Borrower shall grant Lender access toBorrower’s books and records during normal business hours and will permitLender to make copies of Borrower’s books and records.

##  

## SECTION 7.2                                                       Mechanics’ Liens, Real Estate Taxes and CondominiumHomeowner’s Association Dues. Borrower shall keep the Property free from all Liens, includingmechanics’ and materialmen’s liens. Borrower shall pay before delinquent allReal Estate Taxes

 

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and its portion of the condominium homeowner’s association dues againstthe Property. Failure of Borrower to pay its portion of condominium homeowner’sassociation dues prior to delinquency at any time shall constitute an Event ofDefault. Upon request, Borrower will furnish Lender with receipts indicatingthat all Real Estate Taxes have been paid currently.

##  

## SECTION 7.3                                                       Compliance; Construction; Operation.  Borrower shall cause all construction to bedone free of defects in a good and workmanlike manner with materials which arenew and of high quality. Borrower will promptly correct any defects inconstruction. The Project will be equipped with furnishings, fixtures andequipment which are new and of high quality. Borrower shall comply with allGovernmental Approvals pertaining to the construction of the Project and theuse and operation of the Property. Borrower will not commence any phase ofconstruction or operation until it has secured all required Permits, licensesor other authorizations from the applicable Governmental Authorities. Allmaterials and labor purchased and employed for the Project shall be used solelyfor the Project and for no other purpose.  Borrower shall perform all of its obligations under the BasicAgreements, all Leases, all covenants, conditions and restrictions of recordand all other material agreements affecting the Property.  Except as otherwise provided elsewhere inthis Agreement, Borrower shall not make or permit any material modification toor termination of any of the Basic Agreements without Lender’s consent.  Prior to the conversion of the Property, theProject shall be operated in a first-class manner as a residential apartmentbuilding and following conversion of the Project the Project shall be operatedin a first-class manner as a residential condominium building. Borrower shallnot apply for or permit to occur any material annexation, zoning or subdivisionchange respecting the Property.

##  

## SECTION 7.4                                                       Transfers; Changes in Organization.

##  

#### (a)                                  Borrowershall not cause or permit any Transfer of (i) any of its rights under thisAgreement or any other Loan Documents, (ii) any of its interest, legal orbeneficial, in any part of the Property, except as otherwise permitted by thisAgreement or the other Loan Documents or as may be consented to by Lender inwriting.

####  

#### (b)                                 Borrowershall not permit any Borrower Party to cause or permit any Transfer of any ofits interest as a Borrower Party in Borrower.

####  

#### (c)                                  Borrowershall not permit any shareholder or other owner of an interest in any BorrowerParty to cause or permit any Transfer of any of its shares or other ownershipinterests in such Borrower Party; provided however, Lender acknowledges thatthe sole member of Borrower is a publicly traded company and hereby approves ofits securities being traded on the NASDAQ.

####  

#### (d)                                 Borrowershall not, nor shall Borrower permit its members or Guarantor, to make anymaterial amendments to its respective Organizational Documents, withoutLender’s prior written consent.

####  

## SECTION 7.5                                                       Leases.

##  

#### (a)                                  Borrowershall not enter into any Lease that is not for a market rent and that is notterminable on 90 days notice or less, without Lender’s prior written consent.

 

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#### (b)                                 Borrowershall, at its own cost and expense: (a) except as otherwise consistentwith prudent residential apartment management practices, faithfully abide by,perform and discharge each and every obligation, covenant and agreement underany Lease to be performed by the landlord thereunder; (b) except asotherwise consistent with prudent residential apartment management practices,enforce or secure the performance of each and every obligation, covenant,condition and agreement in any Lease by the tenant thereunder to be performed;(c) not borrow against, pledge or further assign any rentals due under anyLease; (d) not permit the prepayment of any rents due under any Lease for morethan ninety (90) days in advance nor for more than the next accruinginstallment of rents, nor anticipate, discount, compromise, forgive or waiveany such rents; (e) except as otherwise consistent with prudentresidential apartment management practices, not waive, excuse, condone or inany manner release or discharge any tenant of or from the obligations,covenants, conditions and agreements by said tenants to be performed under anyLease, unless in connection with the exercise of remedies against such tenant;(f) except as otherwise consistent with prudent residential apartmentmanagement practices, not terminate any Lease or accept a surrender thereof ora discharge of the tenant, unless in connection with the exercise of remediesagainst such tenant; and (g) not consent to a subordination of theinterest of any tenant to any party other than Lender, and then only ifspecifically consented to by Lender.

####  

#### (c)                                  ShouldBorrower fail to perform, comply with or discharge any obligations of Borrowerunder any Lease, or should Lender become aware of or be notified by any tenantunder any Lease, of a failure on the part of Borrower to so perform, complywith or discharge its obligations under said Lease, Lender may, but shall notbe obligated to, remedy such failure. Any such action by Lender shall not waive or release Borrower from anyobligation contained in this Agreement. Any amount expended by Lender in such performance or attemptedperformance shall be deemed to be Costs.

####  

## SECTION 7.6                                                       Management Agreement.  (a) Borrower covenants and agrees as follows:

##  

##### (i)            Borrowershall duly perform and observe all of the terms and conditions on its part tobe performed and observed under the Management Agreement.

#####  

##### (ii)           Borrowershall use commercially reasonable efforts to cause Manager to manage andoperate the Property in accordance with the Management Agreement.

#####  

##### (iii)          Withoutthe prior written consent of Lender which shall not be unreasonably withheld ordelayed, Borrower will not terminate, materially modify or amend (or permit tobe terminated, materially modified or amended) the Management Agreement.

#####  

#### (b)           Withoutlimitation of the provisions of paragraph (a) above, if the ManagementAgreement terminates or is terminated, Borrower shall promptly enter into areplacement Management Agreement with a replacement Manager, which ManagementAgreement and Manager shall be subject to Lender’s prior written approval(which approval shall not be unreasonably withheld, conditioned ordelayed).  Borrower shall also cause suchreplacement Manager to enter into a subordination agreement satisfactory toLender.

 

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## SECTION 7.7                                                       Financial and Other Reports and Deliveries.  Borrower shall furnish (or cause to befurnished) to Lender, the following financial statements and information at thefollowing times:

##  

#### (a)                                  Financial Statements.  Within 90 days of the end of each fiscalyear, completed, signed and dated, internally prepared, annual financialstatements (including income statements and balance sheets and suchverifications, supporting schedules or additional statements necessary tosubstantiate any information contained in such financial statements), forBorrower, Guarantor and the Property, certified by an officer of Borrower orGuarantor, as applicable, as being accurate. Within 30 days of the end of eachmonth, an internally prepared statement of income and expenses for the Projectindicating sources and uses of funds, and such other statements as Lender mayreasonably require, certified by an officer of Borrower or Guarantor, asapplicable, as being complete, true and correct in all material respects.

####  

#### (b)                                 Required Notices. Borrower shall promptly notify Lender in writing of the occurrenceof:  (i) any Event of Default or Default;(ii) any event which materially and adversely affects the ability of Borrower,any Borrower Party or Guarantor to perform any of its respective SecuredObligations hereunder or under any of the Loan Documents; (iii) any event whichadversely affects the priority of Lender’s first lien on the Property; (iv) anyjudgments, litigation or other proceeding filed or threatened against anyBorrower, Guarantor or the Property; (v) any material change in the financialcondition of Borrower or Guarantor not previously described in the financialreports delivered to Lender pursuant to this Section7.7; (vi) the institution of any steps by Borrower, any BorrowerParty, Guarantor or any other person to terminate any Pension Plan, or thefailure to make a required contribution to any Pension Plan if such failure issufficient to give rise to a lien under Section 302(f)of ERISA, or the taking of any action with respect to a Pension Plan whichcould result in the requirement that Borrower, any Borrower Party or Guarantorfurnish a bond or other security to the PBGC or such Pension Plan, or theoccurrence of any event with respect to any Pension Plan which could result inthe incurrence by Borrower, any Borrower Party or Guarantor of any materialliability, fine or penalty, or any material increase in the contingentliability of Borrower, any Borrower Party or Guarantor with respect to anypost-retirement Welfare Plan benefit; (vii) as soon as possible after Borrowershall have received knowledge thereof, notice that an amendment shall berequired or desirable to the Project Budget; or (viii) any notices alleging amaterial default (by any party thereto) under any of the Basic Agreements orthe Management Agreement.

####  

#### (c)                                  Furnishing Reports and Notices.  Upon request by Lender, Borrower shallprovide Lender with copies of: (i) all inspections, reports, test results andother information received by Borrower from time to time from its employees,agents, representatives, architects, engineers, contractors and any otherparties involved in the Project and (ii) any notices pertaining to the Projectwhich Borrower has received from any Governmental Authorities or any insurancecompany providing insurance in connection with the Project.

####  

#### (d)                                 Tax Returns. On or before April 30 of each yearduring the term of the Loan, true, correct and complete copies of Borrower’sfederal and state income tax returns, Guarantor’s federal and state income taxreturns and the federal and state tax returns for all entities reporting incomeand expenses on the Project; provided, that if an extension is filed by anysuch party with the Internal Revenue Service or applicable state revenuedepartment, then if Lender is provided a

 

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true, correct and complete copy of such extension, Borrower may deliversuch income tax returns to Lender simultaneously upon the filing thereof.

####  

#### (e)                                  SalesReports.  The Sales Report as andwhen required by the terms of Section 8.4.

####  

#### (f)                                    CondominiumContracts.  Upon execution thereof, completecopies of all Condominium Contracts.

####  

#### (g)                                 Homeowner’sAssociation Dues.  Within 15 days ofthe end of each month,  evidencereasonably satisfactory to Lender verifying that Borrower’s portion of thecondominium homeowner’s association dues have been paid.

####  

#### (h)                                 Books and Records.  Borrower shall maintain complete books ofaccount and other records for the Property, and the same shall be madeavailable for audit, inspection and copying by Lender and its agents atreasonable times and upon reasonable prior notice.

####  

#### (i)                                     Other. Borrower shall also furnish Lender such other material financialinformation or verifications concerning the Property, Borrower, any BorrowerParty or Guarantor as Lender may reasonably request from time to time. Lendermay retain an investigator to research the public records and reputation of anyprincipal of Borrower or Guarantor.

####  

## SECTION 7.8                          Insurance Requirements.

##  

### SECTION 7.8.1                 Insurance. Borrower, at its sole cost and expense, shall insure and keep theProperty insured against such perils and hazards, and in such amounts and withsuch limits, as Lender may from time to time reasonably require at all timesduring the term of the Loan, including, but not limited to the insurancecoverage set forth below.  Unlessotherwise expressly defined herein, capitalized terms set forth in this Sectionare terms of art, as used in and understood in the insurance industry or aredefined terms elsewhere in this Agreement.

###  

#### (a)                                  Casualty/“All Risk”.  Borrower shall maintainor obtain insurance against loss customarily included under standard “All Risk”insurance policies including Flood, Earthquake and such other insurable hazardsas, under good insurance practices are insured against for other property andbuildings similar to the Property in nature, use, location, height, and type ofconstruction (the “All Risk Insurance”).  The amount of such insurance shall be notless than one hundred percent (100%) of the replacement cost of theimprovements of the Property.  Suchinsurance policy shall contain an agreed amount endorsement. Flood andEarthquake sublimits shall be at least 25% of the replacement cost of theProperty, but not less than $5,000,000 each per occurrence and in the annualaggregate, unless the risk is located in a Mercalli Zone VII or greater or aFlood Zone “A”, as defined by the National Insurance Flood Plan.  If the Property is located in an EarthquakeMercalli Zone VII or greater, Borrower shall maintain Earthquake limitsproviding for 75% of the replacement cost, with a deductible not greater than5% of the replacement cost.  If theProperty is located in a Flood Zone “A”, Borrower shall maintain Flood limitsproviding for 20% of the replacement cost, with a deductible not greater than 3%of replacement costs.  Such insuranceshall cover increased cost of law or ordinance insurance, costs of demolitionand increased cost of construction, with a sublimit of not less than

 

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$1,000,000. If coverage is provided under a blanket policy, Lendershall be named as sole Loss Payee and Mortgagee for the Property.

####  

#### (b)                                 IntentionallyDeleted.

####  

#### (c)                                  Commercial General Liability. Commercial GeneralLiability Insurance, including, but not limited to, coverage for Owned (ifany), Hired and Non-Owned Auto Liability, and Umbrella Liability coverage forPersonal Injury, Bodily Injury, Death, Accident and Property Damage, providingin combination no less than $10,000,000 per occurrence and in the annualaggregate, per location.  Thepolicies described in this paragraph shall cover, without limitation:elevators, escalators, independent contractors, contractual liability andProducts and Completed Operations Liability coverage.

####  

#### (d)                                 Worker’s Compensation. Worker’s compensationinsurance covering Borrower and its employees at the Property to the extentrequired, and in the amounts required by applicable Laws.

####  

#### (e)                                  Business Interruption. Upon Lender’s reasonablerequest, business income and extra expense insurance, against the perilsinsured by the All Risk Insurance, for a period of indemnity of twelve months.

####  

#### (f)            DramShop. Upon Lender’s reasonable request or prior to any tenant sellingalcoholic beverages on any part of the Property, Borrower either itself orthrough the tenant shall provide evidence of so-called “Dram Shop” insuranceagainst claims or liabilities arising directly or indirectly to Persons orproperty on account of the sale or dispensing of alcoholic beverages.  Coverage shall include loss of means ofsupport.  Limits shall equal those limitsas may be required by applicable Laws or as Lender may reasonably specify.  If state Law allows, Lender shall be named asan additional insured on such policy.

####  

#### (g)           Other.Such other insurances as may be reasonably requested by Lender.

####  

### SECTION 7.8.2                 Policy Requirements.

###  

#### (a)           Allinsurance policies shall be issued by an insurer or insurers with an A.M. Bestrating of A:IX or better or a Standard and Poor’s rating of “AA”, or equivalentrating from another agency acceptable to Lender and be authorized in the Statewhere the Property is located.  Allinsurance acquired pursuant to this Agreement shall be in form, amounts andwith coverage and deductibles satisfactory to Lender, in Lender’s solediscretion.

####  

#### (b)                                 TheAll Risk insurance required pursuant to Section 7.8.1(a) and (b)shall name Borrower as the insured and shall also name Lender as Loss Payee andMortgagee, under a non-contributing standard mortgagee clause.  Without Lender’s prior written consent,Borrower shall not name any Person other than Lender as loss payee under anyproperty insurance policies that Borrower is required to insure pursuant to anyLease.

 

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#### (c)                                  TheCommercial General Liability, Auto Liability and “Dram Shop” insurance set forthin Sections 7.8.1(c) and (f), shall name Lender, its directors,officers and employees as an Additional Insured.

####  

#### (d)                                 Theamount of any deductible under any insurance policy must be reasonablyacceptable to Lender.

####  

#### (e)                                  Borrowermay provide required insurance under blanket policies.  Borrower shall not maintain any insurance onthe Property that does not name Lender as Loss Payee.

####  

#### (f)                                    Borrowershall pay the premiums for the insurance policies as the same become due andpayable.  Borrower shall deliver toLender certified copies of the insurance policies required to be maintainedpursuant to this Agreement within sixty (60) days after the Closing Date, orten (10) days after the issuance of the policies by the insurer, whichever islater, but in all events, no later than ninety (90) days after the ClosingDate, and failure to do so will be an immediate Event of Default.  Notwithstanding the foregoing, Lender shallnot be deemed by reason of the custody of such insurance policies to haveknowledge of the contents thereof. Borrower also shall deliver to Lender, within ten (10) days of Lender’srequest, a certificate of Borrower or Borrower’s insurance agent setting forththe particulars as to all such insurance policies, that all premiums duethereon have been paid currently and that the same are in full force andeffect.  BORROWER SHALL DELIVER ACERTIFICATE OR OTHER EVIDENCE OF INSURANCE ACCEPTABLE TO LENDER EVIDENCING THEINSURANCE REQUIRED HEREUNDER ON THE CLOSING DATE, TOGETHER WITH RECEIPTS FORTHE PAYMENT OF PREMIUMS THEREON.  ALLCERTIFICATES FOR PROPERTY INSURANCE MUST BE ON ACCORD FORM 27 or theequivalent;  ACCORD 25 certificates areacceptable for liability insurance.  Notlater than fifteen (15) days prior to the expiration date of each of the insurancepolicies Borrower shall deliver to Lender a certificate of insurance evidencingrenewal of coverage as required herein. Within ten (10) days after such renewal, Borrower shall deliver toLender evidence of payment of premium satisfactory to Lender.  Not later than ninety (90) days after therenewal of each of the insurance policies, Borrower shall deliver to Lender anoriginal or certified copy (as required pursuant to this Section) of a renewalpolicy or policies.

####  

#### (g)                                 Eachinsurance policy shall contain a provision whereby the insurer agrees that solong as the Loan is outstanding, such policy shall not be canceled or fail tobe renewed, lapsed or materially changed without, in each case, at least thirty(30) days prior written notice to Lender, except ten (10) days prior writtennotice to Lender of non-payment of premium.

####  

#### (h)                                 Inthe event any insurance policy (except for general and other liability andWorkers Compensation insurance) shall contain breach of warranty provisions,such policy shall provide that with respect to the interest of Lender, suchinsurance policy shall not be invalidated by and shall insure Lender regardlessof: (A) any act, failure to act or negligence of or violation of warranties,declarations or conditions contained in such policy by any named insured; (B)the occupancy or use of the Property for purposes more hazardous than permittedby the terms thereof; or (C) any foreclosure or other action or proceedingtaken by Lender pursuant to any provision of this Agreement or the other LoanDocuments.

 

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#### (i)                                     Anyinsurance maintained pursuant to this Agreement may be evidenced by blanketinsurance policies covering the Property and other properties or assets ofBorrower or its Affiliates; provided thatany such policy shall in all other respects comply with the requirements ofthis Section.  Lender, in its reasonablediscretion, shall determine whether such blanket policies contain sufficientlimits of insurance.

####  

#### (j)                                     Anyinsurance carried by Lender shall be for its sole benefit and shall not inureto the benefit of Borrower and insurance required from Borrower shall beprimary to any available, if any, to Lender.

####  

#### (k)                                  Allrequired policies, other than professional liability, shall provide thatinsurers have waived rights of subrogation against Lender.  The required insurance shall be primarywithout right of contribution from any insurance which may be carried byLender.

####  

#### (l)                                     Therequired limits are minimum limits established by Lender and nothing containedherein shall be construed to mean the required limits are adequate orappropriate to protect Borrower from greater loss.

####  

### SECTION 7.8.3                 Notice of Policies.  Any notice pertaining to insurance andrequired pursuant to this Section 7.8 shallbe given in the manner provided in Section 12.10below at Lender’s address stated above.

###  

### SECTION 7.8.4                 Insurance Review. At Lender’s option, but not more often than annually, Borrower shallprovide Lender with a report from an independent insurance consultant ofregional or national prominence, acceptable to Lender, certifying thatBorrower’s insurance is in compliance with this Section7.8.

###  

## SECTION 7.9                                                       Borrower’s Indemnities.  Borrower shall indemnify, protect, defendLender and each of its stockholders, directors, officers, employees and agents(each, a “Lender Party” and collectivelythe “Lender Parties”) and hold LenderParties harmless from and against any and all actions, suits, losses,liabilities, damages, claims, costs and expenses of any kind whatsoever(including reasonable attorney’s fees and disbursements) actually paid,incurred or suffered by or asserted against the relevant Lender Party(irrespective of whether such Lender Party is a party to the action for whichindemnification is sought) (collectively, “Losses”)as a result of or arising out of:

##  

#### (a)                                  anymatter financed or expected to be financed with the proceeds of the Loan;

####  

#### (b)                                 theentering into and performance of this Agreement and any other Loan Document byany of Lender Parties (including any action brought by or on behalf of Borroweror any other party as the result of any determination by Lender pursuant tothis Agreement not to fund any Advance);

####  

#### (c)                                  anyinjury, damage or liability to persons or property at or about the Property orotherwise occurring in connection with the construction of the Project or theownership, operation or maintenance of the Property;

 

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#### (d)                                 theconstruction of the relationship between Lender and Borrower contrary to Section 12.13 below; and

####  

#### (e)                                  anyclaim of a broker’s or finder’s fee against Lender by any person or entity inconnection with any of the transactions herein contemplated, except for anysuch indemnified liabilities arising for the account of a particular LenderParty by reason of the relevant Lender Party’s gross negligence or willfulmisconduct.  If and to the extent thatthe foregoing undertaking may be unenforceable for any reason, Borrower herebyagrees to make the maximum contribution to the payment and satisfaction of eachof the indemnified liabilities which is permissible under applicable law.Borrower acknowledges that the indemnified Lender Parties may defend any mattercovered by the above indemnification by counsel of the relevant Lender Party’schoice, and the costs of such defense (including reasonable attorney’s fees)are part of the costs covered by the indemnity;

####  

#### provided,that the foregoing indemnification obligations set forth in (a)-(e) above shallnot include any obligation to indemnify any Lender Party for Losses sustainedor incurred by such Lender Party as a result of such Lender Party’s grossnegligence or willful misconduct.

####  

The foregoingindemnification obligations shall survive repayment of the Loan as set forth inSection 12.15 below.

 

## SECTION 7.10                                                 Single Purpose Entity.  Borrower will at all times remain a SinglePurpose Entity.

##  

## SECTION 7.11                                                 Further Assurances.  Borrower shall, from time to time, uponLender’s request, execute, deliver, record and furnish such documents and dosuch other acts as Lender may reasonably deem necessary or desirable to: (i)perfect and maintain valid liens upon the security contemplated by the LoanDocuments, (ii) correct any errors of a typographical or other manifest naturewhich may be contained in any of the Loan Documents, (iii) evidence Borrower’scompliance with the Loan Documents, and (iv) consummate fully and carry out theintent of the transactions contemplated under this Agreement.

##  

## SECTION 7.12                                                 ERISA. Borrower hereby covenants to Lender for so long as the Note remainsunpaid, Borrower will not be an “employee benefit plan” (within the meaning ofSection 3(3) of ERISA) to which ERISA applies and Borrower’s assets will notconstitute assets of any such plan.

##  

## SECTION 7.13                                                 New Appraisals. Borrower acknowledges Lender’s right to obtain a new appraisal (orupdate of an existing appraisal) at any time while the Loan or any portionthereof remains outstanding (a) when, in Lender’s reasonable judgment, such anappraisal is warranted (at a minimum, a reappraisal will be required threeyears from the date of value cited in the original appraisal report), and/or(b) to comply with statutes, rules, regulations, or directives of GovernmentalAuthorities having jurisdiction over Lender. Borrower hereby agrees to pay, upon demand, all reasonable appraisers’fees and related expenses incurred by Lender from time to time in obtainingappraisal reports.

##  

## SECTION 7.14                                                 Contract Maintenance; Other Agreements.  Borrower will, for the benefit of Lender,fully and promptly keep, observe, perform and satisfy each obligation,

 

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condition, covenant and restriction affecting the Property or imposedon it under any agreement between Borrower and a third party relating to theCollateral or the Secured Obligations, so that there will be no defaultthereunder and so that the Persons (other than Borrower) obligated thereonshall be and remain at all times obligated to perform for the benefit of Borrowerand Lender.  Except as expresslycontemplated in the Loan Documents, Borrower will not permit to exist anycondition, event or fact which could allow or serve as a basis or justificationfor any such Person to avoid such performance.

##  

## SECTION 7.15                                                 Liens. Neither Borrower nor Guarantor shall take any action that would impairthe Liens created under this Agreement or any other Loan Document.  Borrower shall not be permitted to have anyLiens on the Property other than the Liens created by the Loan Documents, andPermitted Exceptions without the prior written consent of Lender, which priorconsent may be granted or withheld in Lender’s sole but reasonable discretion.

##  

ARTICLE VIII

 

# CONDOMINIUMMATTERS 

 

## SECTION 8.1                                                       Condominium Contracts.  Except as set forth in the immediatelyfollowing sentence, without the prior written consent of Lender, Borrower shallnot, and shall not cause, permit or suffer any other Person acting on behalf ofor as agent for Borrower, to enter into a contract for the sale of any Unit (eacha “Condominium Contract” and collectively,“Condominium Contracts”).  Notwithstanding the foregoing, provided noEvent of Default has occurred, Borrower may enter into a bonafide, third partyCondominium Contract if each of the following conditions is satisfied (eachsuch Condominium Contract which satisfies such conditions is referred to as an“Approved Condominium Contract” andcollectively as the “Approved Condominium Contracts”):

##  

#### (a)                                  Suchagreement shall be evidenced by a form of purchase agreement, together withform riders or approved modification language, which are attached hereto as Exhibit G (the “FormCondominium Contract”);

####  

#### (b)                                 TheContract Buyer must be a third party not related to or affiliated, directly orindirectly, with Borrower, Guarantor or any principal of Borrower and which hasno direct or indirect interest in the Property, unless said CondominiumContract is approved by Lender and meets or exceeds all release requirementscontained herein, and is purchasing the Unit for his own use and not forinvestment, unless approved by Lender;

####  

#### (c)                                  Unlessconsented to by Lender, the Contract Buyer under said Condominium Contract has(in the aggregate with all its Affiliates) not contracted to purchase more thantwo (2) Residential Units;

####  

#### (d)                                 Theearnest money deposit required thereunder is no less than one percent (1%) ofthe Base Purchase Price of such Unit;

####  

#### (e)                                  Thereare no unexpired contingencies thereunder, including a mortgage contingency;

 

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#### (f)                                    TheBase Purchase Price for each Unit shall be greater than or equal to thefollowing calculations, as applicable to such Unit: (1) if Upgrades arerequired for such Unit and such Unit is included in the Mass Closing, then theBase Purchase Price for such Unit shall be greater than or equal to the MinimumUnit Sales Price for such Unit; (2) if such Unit is included in the MassClosing but the Unit is to be sold “as-is” with no required Upgrades, then theBase Purchase Price for such Unit shall be greater than or equal to 95% of theMinimum Unit Sales Price for such Unit; or (3) if such Unit is not included inthe Mass Closing, then the Base Purchase Price for such Unit shall be greaterthan or equal to 95% of the Minimum Unit Sales Price for such Unit; and

####  

#### (g)                                 All  conditions of applicable Laws to thecontracting for the sale of such Unit have been satisfied.

####  

#### Borrower will cooperate fully with Lender as to anyverification Lender requires with respect to an Approved CondominiumContract.  It is expressly understood andagreed that each Approved Condominium Contract shall provide for the sale andconveyance of one Parking Unit in connection with the sale and conveyance ofeach Residential Unit.

####  

## SECTION 8.2                                                       No Modification or Termination of Condominium Contracts.  Borrower shall not, and shall not cause,suffer or permit any Borrower Party or any other Person acting on behalf of oras agent for Borrower to: (i) modify or amend any Approved Condominium Contractother than non-material modifications; or (ii) cancel, terminate or surrenderany Approved Condominium Contract except, if no Event of Default shall haveoccurred, upon the default of the Contract Buyer thereunder.  Any default, breach or violation of this Section 8.2 shall be an automatic Event ofDefault (without any notice, grace or cure period).

##  

## SECTION 8.3                                                       Performance under Condominium Contracts.  Borrower shall: (i) observe and perform allthe obligations imposed upon the seller under the Approved CondominiumContracts and applicable Laws and not do or permit to be done anything toimpair the value of any of the Approved Condominium Contracts; (ii) promptlysend copies to Lender of all notices of default which Borrower or its agents orrepresentatives shall send or receive thereunder; (iii) enforce all of theterms, covenants and conditions contained in the Approved Condominium Contractsupon the part of the Contract Buyer thereunder to be observed or performed;provided, however, without the prior written consent of Lender, Borrower shallnot (A) cancel, terminate or surrender any Approved Condominium Contract exceptas set forth in Section 8.2 above or (B)execute any other assignment of the seller’s interest in any of the ApprovedCondominium Contracts or the purchase price payable thereunder, except pursuantto the Loan Documents.

##  

## SECTION 8.4                                                       Sale Activity. Borrower shall use commercially reasonable efforts to market and sellall Units in the Project for a Base Purchase Price not less than the MinimumUnit Sales Price.  Borrower shall provideLender within ten (10) days of the end of each month a current certified SalesReport. Within ten (10) days after written request from Lender, Borrower shallalso provide Lender with any information reasonably requested by Lenderregarding sales activity at the Project.

 

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## SECTION 8.5                                                       Minimum Unit Sales Price.  Attached hereto as ExhibitE is a price list that provides a detailed breakdown of the size,type, location and Minimum Unit Sales Price for each Residential Unit and/orParking Unit (the “Price List”).

##  

## SECTION 8.6                                                       Condominium Documents.  Without the prior written consent of Lender,Borrower shall not, and shall not cause, suffer or permit any Borrower Party orany other Person acting on behalf of or as agent for Borrower to: (i) enterinto any Condominium Document; (ii) record any Condominium Document; (iii)modify or amend, in any material respect any Condominium Document or the formthereof submitted to and approved by Lender in accordance with Section 8.8;or (iv) cancel, terminate or surrender any Condominium Document.  Notwithstanding the foregoing, this Sectionshall not apply to any Condominium Contract, the subject matter of which isgoverned by Sections 8.1, 8.2 and 8.3. Anydefault, breach or violation of this Section shall be an automatic Event ofDefault (without any notice, grace or cure period).  It is expressly understood and agreed thatthe Declaration of Condominium may not be recorded other than immediately priorto the sale and conveyance of the first Residential Unit.

##  

## SECTION 8.7                                                       Condominium Sales; Release of Units.

##  

#### (a)                                  Initial Condominium Closing Conditions. Prior tothe transfer of title of the first Residential Units or Parking Units, Borrowershall, in addition to and not in limitation of any other requirements set forthherein, and the requirements of applicable Laws, satisfy each of the followingconditions (“Initial Condominium Closing Conditions”):

####  

##### (i)                                     AllOffering Materials shall have been approved by Lender and shall contain alldocuments and instruments by which Residential Units and Parking Units will betransferred to Contract Buyers, including, without limitation, the Declarationof Condominium pursuant to which the Property shall be converted to condominiumownership; the bylaws and other governing instruments pursuant to which theAssociation shall be created and governed; and the form of the deed by whichthe Units shall be conveyed to Contract Buyers.

#####  

##### (ii)                                  Borrowershall have filed and recorded the Declaration of Condominium and the Plat ofCondominium immediately prior to the first conveyance of a Unit, and Lendershall have executed a document or documents, prepared by Borrower at Borrower’sexpense but subject to Lender’s approval in its reasonable discretion,subordinating the lien of the Deed of Trust and the UCC Financing Statements tothe Declaration of Condominium, the condominium bylaws and the Plat ofCondominium.

#####  

##### (iii)                               Borrowershall have obtained a temporary or permanent certificate of occupancy or otherevidence reasonably acceptable to Lender that a certificate of occupancy shallbe issued, covering the Residential Units or the Residential Unit proposed tobe transferred.

#####  

##### (iv)                              Ifrequired by Lender, at Borrower’s expense, Lender shall have received from theTitle Insurer or another title insurance company duly licensed to do businessand

 

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##### in good standing in the Commonwealth of Virginia acopy of a written bulk commitment from such title insurance company toprospective purchasers of the Residential Units committing to insure title ofpurchasers of such Units who desire such insurance.

#####  

##### (v)                                 Borrowershall have satisfied any other conditions required to be satisfied prior tosuch transfer of title pursuant to the Loan Documents and applicable Laws.

#####  

##### (vi)          Borrower must provide proof acceptableto Lender in its sole discretion that (i) Borrower has received fully executedApproved Condominium Contracts for at least 100 Units comprising at least 77,000net sellable square feet and constituting minimum aggregate gross sale proceeds(excluding Upgrades) of at least $23,000,000 and (ii) Borrower will be able toclose on at least 90 of the foregoing Units over a 90 day period (“MassClosing”).  Each and everyResidential Unit involved in the Mass Closing must:  (A) have a gross selling price of at leastthe Minimum Unit Sales Price for such Residential Unit as set forth in ExhibitE (exclusive of any extras and/or Upgrades) and (B) generateproceeds satisfying the Unit Release Payment criteria set forth in Section8.7(c).

#####  

#### (b)                                 MassClosing Timeframe.  Borrowercovenants and agrees that it will complete the Mass Closing within the MassClosing Timeframe.  In the event the MassClosing is not achieved by the earlier of the expiration of the Mass  Closing Timeframe or the twelve (12) monthanniversary of the Closing Date, Borrower shall immediately make a principalreduction payment on the Loan in an amount equal to (a) $4,000,000 multipliedby (b) (one (1) minus (the number of Units closed during the Mass ClosingTimeframe divided by 90), from additional cash equity and not from any proceedsderived from the Property together with payment of the Prepayment Feeapplicable to such prepayment.

####  

#### (c)                                  Condominium Closings.  No less than ten (10) Business Days prior tothe sale of each Residential Unit or Parking Unit pursuant to an ApprovedCondominium Contract, Borrower shall deliver notice to Lender (a “Closing Notice”) which Closing Notice shall: (i)specifically identify the Residential Unit(s) and Parking Units to be conveyed;(ii) state the purchase price to be paid therefor, specifically identifying theportion thereof applicable to the Residential Unit, Upgrades, if any, and theParking Units and specifically stating if such purchase price is less than theMinimum Unit Sales Price; (iii) be accompanied by a copy of the draft closingstatement indicating the amount, if any, of any proposed holdback and theprovisions pursuant to which such holdback shall be released to Lender; and(iv) be accompanied by the form of the partial release to be executed by Lenderin order to release its security interest under the Deed of Trust in theapplicable Residential Unit and/or Parking Units to be sold and containing adescription of the Residential Unit and/or Parking Units, as applicable, to bereleased, which partial release shall be prepared by Borrower at Borrower’ssole cost and expense (“Unit Releases”).Notwithstanding the foregoing, Lender is willing, so long as the same isacceptable to the Title Insurer, to deliver groups of partial releases inarrears. In no event shall the consideration payable to Lender from theproceeds of such closing be less than the Unit Release Payments.  Lender shall approve or disapprove the adequacyof the items identified in the Closing Notice within five (5) Business Daysafter receipt thereof.

 

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#### (d)                                 Release of Units. Upon receipt of a Closing Notice and satisfaction of all conditions precedentset forth in Section 8.7(a) and this Section 8.7(c) and upon the confirmation of theclosing of a sale of a Residential Unit and Parking Units pursuant to anApproved Condominium Contract, Lender shall release the applicable ResidentialUnit, Parking Units and its appurtenant undivided interest in the commonelements, from the lien of the Deed of Trust and the other Loan Documents onthe condition that Lender shall have received payment of the Unit ReleasePayment for each Unit so sold.  As usedherein, “Unit Release Payment” means thegreatest of: (i) 100% of the Net Sales Price for such Residential Unit and/orParking Unit(s), as the case may be, (ii) 93% of the Base Purchase Price forsuch Residential Unit and its Parking Units, plus 100% of any Upgrade Profits,or (iii) 90% of the Minimum Unit Sales Price. Borrower shall cause the Title Insurer, as escrowee, to pay the proceedsof sale in an amount of not less than the Unit Release Payment directly toLender by wire-transfer of immediately available funds. The proceeds of saleshall be applied in accordance with the provisions of Section8.9 of this Agreement.

####  

## SECTION 8.8                                                       Establishing the Condominium Regime.

 

#### (a)                                  Condominium Documents. Borrower hereby covenantsand agrees to cause to be prepared the Declaration of Condominium, the Plat ofCondominium, the Association bylaws, and all other documents and instrumentsrequired to convert the Property to a condominium form of ownership under theLaws of the Commonwealth of Virginia (the “Condominium Regime”) and toprepare the offering of the Residential Units and Parking Units to the publicin conformance with the requirements of all applicable Laws.  At least twenty (20) days prior to the MassClosing, Borrower shall furnish to Lender, for Lender’s approval, theCondominium Documents, which include, without limitation, the proposedDeclaration of Condominium and all other declarations of covenants, conditions,restrictions or easements that affect the Property. All of the CondominiumDocuments are subject to the approval of Lender. Borrower hereby covenants toinclude in the Offering Materials all disclosures regarding the Propertyrequired by all applicable Laws. To secure payment and performance of allSecured Obligations, and to the extent permitted by applicable Law, Borrowerhereby collaterally assigns to Lender and grants a security interest to Lenderin: (i) Borrower’s interest as declarant under the Declaration of Condominiumand all other Condominium Documents and (ii) all Condominium Contracts. Onceall of the Condominium Documents have been approved by Lender, the Declarationof Condominium, the other Condominium Documents and all other documents shallnot be revised or amended without Lender’s prior written approval, except forsuch non-material modifications as may be necessary to comply with applicableLaw.

####  

#### (b)                                 Reciprocal Easements. Borrower shall deliver toLender, for Lender’s review and approval, in Lender’s reasonable discretion:(i) a plan of subdivision and declaration of reciprocal easements for partywall rights, access, ingress, egress, support, encroachment, utilities, commonusage, and such other matters for all portions of the Property, as Lender shalldeem necessary or desirable, in Lender’s reasonable discretion; and (ii) evidencethat said plan of subdivision complies with all requirements of Law.

####  

#### (c)                                  Recording of Condominium Documents.Notwithstanding the foregoing, Borrower shall not permit or cause: (x) theDeclaration of Condominium, (y) the Plat of Condominium, or (z) all otherdocuments, and instruments required by applicable Laws to be

 

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duly recorded in the appropriate office in the Commonwealth of Virginiawithout the prior written approval of Lender. Borrower shall not be entitled torecord the foregoing documents prior to the Mass Closing and if an Event ofDefault has occurred and is continuing at the time of such proposedrecording.  Not later than the date ofthe Mass Closing (or on such earlier date as may be required by applicable Lawsand approved in writing by Lender) Borrower shall cause: (x) the Declaration ofCondominium, (y) the Plat of Condominium and (z) all other documents, andinstruments required by applicable Laws to be duly recorded in the appropriate officein the Commonwealth of Virginia.

####  

#### (d)                                 InterstateLand Sales Full Disclosure Act.  Inconnection with the conversion of the Property to a Condominium Regime,Borrower will comply with the Interstate Land Sales Full Disclosure Act (15U.S.C. § 1701, *et seq.*)and the rules and regulations associated therewith (in this Section onlycollectively, the “Land Act”), and will deliver to the U.S. Departmentof Housing and Urban Development (“HUD”) two (2) copies of the finalprinted version of the Offering Materials upon preparation thereof and will atall times thereafter during the term hereof, file the Annual Report of Activityand all amendments and supplements thereto, as required pursuant to 24 CFR1710.310, and will thereafter take all action necessary or desirable to complywith the Land Act.  Borrower shalldeliver copies of all such filings to Lender within ten (10) days after thefiling thereof, together with all notices, requests, correspondence, anddemands delivered by HUD to Borrower. Failure by Borrower to comply at all times with the Land Act, whenapplicable, shall constitute an Event of Default.  Notwithstanding anything to the contrarycontained in this Section, Borrower shall not be required to comply with theprovisions of this Section in the event Borrower is exempt from therequirements of the Land Act.

####  

## SECTION 8.9                                                       Application of Unit Release Payments; Cash CollateralAccount.  Upon Lender’sreceipt of Unit Release Payments, so long as no Event of Default exists, suchfunds shall be applied by Lender as follows: (i) first, to pay Lender theIndividual Unit Exit Fee for each Unit released, (ii) second, to repay theprincipal balance of the Loan outstanding from time to time, (iii) third, topay all of Lender’s costs and expenses which may be outstanding from time totime, (iv) fourth, to pay accrued but unpaid interest on the Loan, and(v) fifth, to all other Secured Obligations, until the Loan is paid infull.  In the event that a Unit is soldand the proceeds thereof are paid on a date when Lender has a commitment tofund additional Loan proceeds, but there are no Secured Obligations then dueand owing, an amount equal to such Unit Release Payment shall be deposited intoa cash collateral account. Borrowers grant to Lender a first, perfected securityinterest in such cash collateral account to secure all Secured Obligations.Provided no Event of Default or Default shall have occurred and be continuing,Borrowers shall have the right, as part of any request for an Advance, todirect Lender to disburse funds in the cash collateral account to pay ProjectCosts set forth in the Project Budget, in lieu of disbursements of Loanproceeds to pay said Project Costs. Any amounts so disbursed by Lender shall bedisbursed in the manner and subject to the satisfaction of the conditionsprecedent set forth herein for disbursements of Loan proceeds and the Loanshall be reduced by the amount of any disbursements from such cash collateralaccount.

##  

## SECTION 8.10                                                 Upgrades.  Borrower may enter into Approved CondominiumContract (or amendments thereto) requiring Upgrades which are in addition tothose contemplated to be funded by the Unit Upgrades line item of the ProjectBudget (“Additional

 

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Upgrades”) on the condition that allUpgrades shall be paid for by the Contract Buyer as consideration payable inaddition to the Minimum Unit Sales Price. Additional Upgrades shall be subject to Lender’s prior approval, whichshall not be unreasonably withheld.  Inthe event the sum of any deposit for the cost of Additional Upgrades made bythe Contract Buyer plus available funds in the Unit Upgrades line item of theProject Budget (provided that the available funds in the Unit Upgrades lineitem shall be allocated in an amount of $8,021 per Residential Unit) isinsufficient to cover the cost of the total Upgrades for such Units, then theLoan shall be deemed Out of Balance by an amount equal to such shortfall andBorrower shall be required to make a Deficiency Deposit in the amount of suchshortfall no later than 45 days after the date of execution of the ApprovedCondominium Contract containing such Upgrade. Thereafter, the Deficiency Deposit will be disbursed by Lender prior toany further Advances of Loan proceeds and shall be used for Project Costs,subject to Borrower’s compliance with all conditions which would be applied toan Advance for the same Project Budget items to which the Deficiency Depositwill be applied. Failure to deposit said funds within said 45 day period shallbe an Event of Default.

##  

ARTICLE IX

 

# CASUALTYAND CONDEMNATION

 

## SECTION 9.1                                                       Insuranceand Condemnation Proceeds.  (a)Borrower covenants and agrees that Borrower shall pay or cause to be paid toLender the following:  (i) all awards ofdamages and all other compensation payable directly or indirectly by reason ofa condemnation affecting the Property, (ii) all other claims and awards fordamages to, or decrease in value of, the Property, (iii) all proceeds of anyinsurance policies payable by reason of a loss sustained to the Property and(iv) all interest which may accrue on any of the foregoing (collectively, the “PropertyProceeds”).  Borrower agrees toexecute and deliver from time to time such further instruments as may bereasonably requested by Lender to confirm the foregoing assignment to Lender ofthe Property Proceeds.  Lender is herebyirrevocably constituted and appointed the attorney-in-fact of Borrower (whichpower of attorney shall be irrevocable so long as any indebtedness securedhereby is outstanding, shall be deemed coupled with an interest, shall survivethe voluntary or involuntary dissolution of Borrower and shall not be affectedby any disability or incapacity suffered by Borrower subsequent to the datehereof), with full power of substitution, subject to the terms of this Article IX, to collect and receive any suchawards, damages, insurance proceeds, payments or other compensation from theparties or authorities making the same, to appear in any proceedings thereforand to give receipts therefore.  Borrowercovenants and agrees to notify Lender within five (5) Business Days of theoccurrence of any event that may result in Property Proceeds.  Subject to applicable Law, Lender may (at itsdiscretion) apply all or any portion of the Property Proceeds that it receivesto its reasonable expenses in settling, prosecuting and defending any claimrelated thereto and may apply the balance of the Property Proceeds to theSecured Obligations in any order, and/or Lender may release all or any part ofthe Property Proceeds to Borrower upon any conditions Lender may reasonablyimpose. Lender may commence, appear in, defend and prosecute any action relatedto the Property Proceeds and may adjust, compromise, settle and collect allProperty Proceeds, provided that, prior to the occurrence of an Event ofDefault, any adjustment, compromise and settlement shall only be withBorrower’s reasonable consent.

 

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## SECTION 9.2                  Disbursement of PropertyProceeds.  Notwithstanding anythingto the contrary contained in Section 9.1, if the loss or damage due to acasualty or condemnation is less than 25% of the outstanding Loan balance, asdetermined by Lender in its reasonable discretion, Lender shall permit PropertyProceeds held by Lender to be used for repair or restoration but may imposesuch conditions thereon as Lender may determine to be appropriate, including,without limitation: (i) that no Event of Default exists (and no event hasoccurred that with the giving of notice or the passage of time (or both) wouldconstitute an Event of Default); (ii) the deposit with Lender of suchadditional funds which Lender determines are needed to pay all costs of therepair or restoration; (iii) the establishment of an arrangement for lienreleases and disbursement of funds reasonably acceptable to Lender; (iv) thedelivery to Lender of plans and specifications for the work, a contract for thework signed by a contractor acceptable to Lender, a cost breakdown for the workand a payment and performance bond for the work, all of which shall beacceptable to Lender; (v) the delivery to Lender of evidence reasonablyacceptable to Lender that the reconstruction of the Property will be completedat least six (6) months prior to the Maturity Date; (vi) evidence that, uponcompletion of the work, the size, quality and functionality of the Propertywill be at least as great as those which existed immediately before the damageor condemnation occurred; (vii) all of the then executed Approved CondominiumContracts remain in full force and effect and will remain in full force andeffect notwithstanding any delays resulting from such casualty; (viii) theInitial Condominium Closings have not occurred; and (ix) the delivery to Lenderof evidence reasonably acceptable to Lender (A) that after completion of thework the income from the Property will be sufficient to pay all expenses forthe Property, (B) that upon completion of the work, the size, quality andfunctionality of the Property will be at least as great as it was before thedamage or condemnation occurred, and (C) of the satisfaction of any additionalconditions that Lender may reasonably establish and that are customarilyimposed by Lender.  In addition to theconditions set forth above, if Lender permits Property Proceeds to be used byBorrower to restore or repair the Property after the occurrence of a casualtyor a taking as provided above, the disbursement of all insurance proceeds orcondemnation awards by Lender to Borrower shall be conditioned upon the samegeneral terms and conditions as those set forth in ArticleV respecting the funding of Advances. If the loss or damage due to acasualty or condemnation is greater than 25% of the outstanding Loan balance,as determined by Lender in its reasonable discretion, then release of theProperty Proceeds held by Lender shall be at Lender’s sole discretion. Borroweracknowledges that the conditions described above are reasonable.

##  

## SECTION 9.3                                                       Reduction in Secured Obligations.  Any reduction in the Secured Obligationsresulting from Lender’s application of any sums received by it hereunder shalltake effect only when Lender actually receives such sums and applies such sumsto the Secured Obligations and, in any event, the unpaid portion of the SecuredObligations shall remain in full force and effect and Borrower shall not beexcused in the payment thereof.  IfLender requires Borrower to restore or repair the Property after the occurrenceof a casualty or the occurrence of a taking, Borrower shall promptly anddiligently, at Borrower’s sole cost and expense and regardless of whether theProperty Proceeds shall be sufficient for the purpose, restore, repair, replaceand rebuild the Property as nearly as possible to its value, condition andcharacter immediately prior to such casualty or taking in accordance with theprovisions of this Article and Borrower shall pay to Lender all reasonableout-of-pocket costs and expenses of Lender incurred in administering paymentson account of said rebuilding, restoration or repair, provided that Lendermakes the Property Proceeds available for such purpose.

 

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ARTICLE X

 

# EVENTSOF DEFAULT

 

## SECTION 10.1                                                 Events of Default.  Below are listed the events which constitutean Event of Default under this Agreement. The notice and/or cure periods, if any, applicable to each item ofDefault is listed with the subparagraph pertaining to such item of Default.  If no notice or cure period is listed, thenno notice or cure period shall apply. The notice and/or cure period provided for any specific item of Defaultshall control over the notice and/or cure period provided for any more generalcategory of Defaults even though the general category includes the Default thatis specifically listed separately.  Eachof the following shall constitute an “Event of Default”under this Agreement:

##  

#### (a)                                  Non-Payment. Borrower fails to pay when due, whether by acceleration or otherwise,(i) the principal, any installment of interest (except for the failure ofLender to advance available funds from the Interest Reserve line item of theProject Budget (to the extent available for use by Borrower pursuant to theterms and conditions of this Agreement and the other Loan Documents)), or anyother charge or amount due under the Note, or (ii) any other monetaryobligation to Lender under this Agreement or the other Loan Documents(including, without limitation, any obligation to contribute Borrower’s Equityor the Real Estate Tax Deposits as and when required under this Agreement orthe other Loan Documents) and, in the case of (i) or (ii), such failurecontinues for fifteen (15) days after Borrower’s receipt of notice of suchfailure;

####  

#### (b)                                 Representations. Any representation, warranty or certification made by Borrower, anyBorrower Party or Guarantor in or pursuant to any of Loan Documents is orbecomes materially false or misleading at any time when such representation,warranty, or certification is required to be operative;

####  

#### (c)                                  Other Breaches. Borrower, any Borrower Party or Guarantor breaches or defaults under anyother term or provision in any of the Loan Documents, and such breach ordefault continues for thirty (30) days after receipt of notice thereof byLender;

####  

#### (d)                                 Other Events of Default.  The occurrence of any other matter designatedas an Event of Default or Default under any of the Loan Documents;

####  

#### (e)                                  Balancing; Deficiency Deposits.  Borrower fails to contribute all or anyportion of any Deficiency Deposit in accordance with the terms hereof;

####  

#### (f)                                    Bankruptcy, Insolvency, etc.  Any of Borrower, its members or Guarantorshall: (i) become insolvent or generally fail to pay, or admit in writing itsinability or unwillingness to pay, debts as they become due; (ii) apply for,consent to, or acquiesce in, the appointment of a trustee, receiver,sequestrator or other custodian for itself or a substantial part of itsproperty, or make a general assignment for the benefit of creditors; (iii) inthe absence of such application, consent or acquiesce, permit or suffer toexist the appointment of a trustee, receiver, sequestrator or other custodianfor itself or for a substantial part of its property, and such trustee,receiver, sequestrator or other custodian shall not be discharged within 60days, provided that Lender is

 

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hereby expressly authorized to appear in any court conducting anyrelevant proceeding during such 60-day period to preserve, protect and defendits rights under the Loan Documents; (iv) permit or suffer to exist thecommencement of any bankruptcy, reorganization, debt arrangement or other caseor proceeding under any bankruptcy or insolvency law, or any dissolution,winding up or liquidation proceeding, in respect of any of Borrower orGuarantor, and, if any such case or proceeding is not commenced by Borrower orGuarantor, such case or proceeding shall be consented to or acquiesced in byBorrower or Guarantor, or shall result in the entry of an order for relief orshall remain for 60 days undismissed, provided that Lender is hereby expresslyauthorized to appear in any court conducting any such case or proceeding duringsuch 60-day period to preserve, protect and defend its rights under the LoanDocuments; or (v) take any corporate, partnership, trust or other similaraction authorizing or in furtherance of any of the foregoing;

####  

#### (g)                                 Attachment. There is an attachment, execution or other judicial seizure of anyportion of Borrower’s or Guarantor’s assets and such seizure is not dischargedwithin thirty (30) days of such attachment, execution or other judicialseizure, as the case may be;

####  

#### (h)                                 Suspension of Business; Death; Dissolution.  Borrower or Guarantor suspends thetransaction of business, dissolves, terminates its existence, or (if a naturalPerson) dies;

####  

#### (i)                                     Material Adverse Change.  There is a material adverse change in thefinancial position of Guarantor or Borrower;

####  

#### (j)                                     Basic Agreements. There is a default by Borrower under any of the Basic Agreements whichis not cured within any applicable cure period, or any of the Basic Agreementsare terminated or amended without obtaining the approval of Lender, if suchapproval is required by the Loan Documents;

####  

#### (k)                                  Due on Sale; Insurance; Condominium Documents.  Borrower breaches or defaults under Sections 7.4, 7.8,or 8.6 of this Agreement;

####  

#### (l)                                     Destruction. Any material part of the Project is damaged or destroyed by fire orother casualty, and, in the reasonable judgment of Lender, the loss is notadequately covered by insurance actually collected or in the process ofcollection, and Borrower fails to deposit with Lender the deficiency (orprovide acceptable security for the deficiency) within ten (10) Business Daysof Lender’s written request for such deposit, or if Lender agrees to disburseinsurance proceeds for Borrower to rebuild and restore pursuant to ArticleIX and, within ten (10) days after the giving of notice that Borrower isfailing to satisfy the conditions for disbursement, Borrower otherwisecontinues to fail to satisfy the conditions for rebuilding or restoring theProperty;

####  

#### (m)                               Condemnation. Proceedings are commenced by any public or quasi-public body to acquirethe Property, or any portion of the Property by eminent domain, condemnation orother power, which acquisition would materially jeopardize the economicviability of the Project or would otherwise materially impair Lender’ssecurity, and such proceedings are not dismissed within sixty (60) days andLender determines that the anticipated award together with any Borrower Equityis not sufficient to satisfy all of the Secured Obligations;

 

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#### (n)                                 Lien.  AnyLien or notice of Lien of any kind (whether for the performance of work, thesupplying of materials, a judgment lien, a tax lien, or otherwise) is filed orserved against any part of the Property, and Borrower fails either to satisfyor cause such Lien to be released as a lien against the Land or bonded over tothe satisfaction of Lender within the earlier of the time necessary to stayenforcement of the Lien or thirty (30) days after the date of filing or servingof such Lien or notice of Lien;

####  

#### (o)                                 Other Debt. If Borrower  or Guarantor shallfail to pay any debt owed by it to Lender or any other party or is in defaultunder any agreement with Lender or any other party (other than a failure ordefault for which such party’s maximum liability does not exceed $10,000.00)and such failure or default continues after any applicable grace periodspecified in the instrument or agreement relating thereto;

####  

#### (p)                                 Judgments. Any judgment or order for the payment of money in excess of $100,000.00not otherwise covered by insurance (with deductibles not to exceed $100,000)shall be rendered against Borrower or Guarantor and either: (i) enforcementproceedings shall have been commenced by any creditor upon such judgment ororder; or (ii) there shall be any period of ten (10) consecutive days duringwhich a stay of enforcement of such judgment or order, by reason of a pendingappeal or otherwise, shall not be in effect;

####  

#### (q)                                 ERISA.  Ifat any time during the term of the Loan Documents: (i) Borrower is in breach ofany of its representations and warranties in Section3.18 or (ii) Borrower is in breach or fails to perform any of itscovenants, agreements and obligations in Section 7.12,or (iii) upon delivery of written notice to Borrower of a determination byLender that it is more likely than not Borrower is or will be in breach of anysuch representations, warranties or covenants; provided however, there shall beno default if (i) Borrower can demonstrate to Lender, within thirty (30) daysof delivery of such notice based upon the opinion of Borrower’s counselsatisfactory to Lender, that such representations, warranties or covenants havenot been and will not be breached, and (ii) Borrower provides to Lender suchadditional representations, warranties and covenants to be made a part of thisAgreement which are reasonably satisfactory to Lender; or

####  

#### (r)                                    Impairment of Security; Loss of Priority.  Any Loan Document, or any Lien grantedthereunder, shall (except in accordance with its terms), in whole or in part,terminate, cease to be effective or cease to be the legally valid, binding andenforceable obligation of any obligor party thereto; or Borrower, any BorrowerParty, Guarantor, or any other party shall, directly or indirectly, contest inany manner such effectiveness, validity, binding nature or enforceability; orany Lien securing the Loan shall, in whole or in part, cease to be a perfectedfirst Lien, subject only to the Permitted Exceptions.

####  

ARTICLE XI

 

# REMEDIES

 

Upon the happening of any Event of Default, Lendershall have the power, in addition to all the remedies conferred upon Lender bylaw or equity or the terms of any of the Loan

 

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Documents, to exercise any or all of the following remediesconcurrently or successively without notice to Borrower:

 

## SECTION 11.1                                                 Accelerate the Note.  Lender may declare the Note and all otheramounts payable under the Loan Documents to be, and the Note and all otheramounts payable under the Loan Documents shall thereupon become, immediatelydue and payable without presentment, demand, protest or notice of any kind, allof which are hereby expressly waived.  Ifany Event of Default described in Section 10.1(f)shall occur, the Note and all other amounts payable under the Loan Documentsshall automatically be and become immediately due and payable, withoutpresentment, demand, protest or notice of any kind, all of which are herebyexpressly waived.

##  

## SECTION 11.2                                                 Terminate Lender’s Obligations.  Lender may terminate at any time itsobligation to make Advances and all of Lender’s other obligations under thisAgreement.  If any Event of Defaultdescribed in Section 10.1(f) shall occur,then the obligations of Lender to make Advances and all of Lender’s otherobligations under this Agreement shall automatically terminate.

##  

## SECTION 11.3                                                 Take Possession of the Property and Complete the Project(Borrower’s Power of Attorney). Lender may, on its own behalf, or as attorney-in-fact for Borrower,enter upon, take possession of and use the Property and all material at theProperty and elsewhere ordered for or appropriated to the construction of theProject, for the purpose of completing the Project, and otherwise satisfyingall of Borrower’s Secured Obligations under this Agreement and the LoanDocuments.  Borrower hereby grants toLender such power of attorney, with full power of substitution, to performthose items set forth above and below in this Section11.3, which power shall be deemed to be coupled with an interest andshall be irrevocable until all of Borrower’s Secured Obligations under the LoanDocuments are paid and satisfied in full.

##  

To accomplish the foregoing purposes, Lender maywithout limitation:  (a) act by itself orthrough its designees, representatives, agents, licensees or contractors; (b)pay or settle all bills and expenses incurred to accomplish the foregoingpurposes; (c) use any funds of Borrower, including any undisbursed balance ofthe Loan; (d) procure the performance of any construction contract and eachsubcontract, or let new contracts with such contractors, subcontractors,employees, agents, architects, engineers, watchmen, managers, consultants andinspectors as Lender may deem appropriate; (e) execute all applications,certificates or instruments in the name of Borrower which in the opinion ofLender may be or are required by any Governmental Authority or any contract;(f) enter into or enforce Leases of the Project; (g) take such action andrequire such performance under any surety bond or other obligation, and executein the name of Borrower such further bonds or obligations, as may be reasonablyrequired in connection with the work; (h) prosecute and defend all actions orproceedings affecting the Property; (i) do any and every act which Borrowermight do in its own behalf; and (j) do any and every act which Lender deemsreasonably necessary or desirable to accomplish the completion of the Project.

 

All funds advanced by Lender pursuant to this Section 11.3 shall be expenditures to which theterms of Section 12.8 below apply.

 

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## SECTION 11.4                                                 Offset. Lender may apply to payment of the Note or other amounts due under anyof the Loan Documents any and all balances, credits or funds of Borrower, anyBorrower Party or Guarantor then or thereafter held by Lender.

##  

## SECTION 11.5                                                 DefaultInterest.  Lender may charge interestat the Default Rate if permissible pursuant to the terms as set forth in theNote, whether or not Lender has accelerated the Note.

##  

ARTICLE XII

 

# MISCELLANEOUSPROVISIONS

 

## SECTION 12.1                                                 Agreement Binding Only Upon Execution by Lender.  The submission of the Loan Documents toBorrower for examination or execution does not constitute a commitment (or anoffer to make a commitment) by Lender for a Loan to Borrower.  The Loan Documents shall become effective asa commitment by Lender only upon execution and delivery by both Lender andBorrower.

##  

## SECTION 12.2                                                 Entire Agreement. The Loan Documents when and as executed constitute the entire agreementof Borrower and Lender with respect to the Loan.  There are no oral or written representationsor agreements which modify or purport to modify the terms of suchdocuments.  The Loan Documents supersedeall prior agreements and understandings, written or oral, relating to the Loanincluding the Commitment Letter.

##  

## SECTION 12.3                                                 No Waiver. No waiver, consent or approval of any kind by Lender shall be effectiveunless contained in a writing signed and delivered by Lender.  Lender’s waiver of any condition or covenanthereunder shall not be construed as a continuing waiver.  No waiver will be implied from any delay orfailure by Lender to take action on account of any Event of Default or Defaultby Borrower.  Lender’s consent to any actor omission of Borrower will not be construed to be a consent to any other orsubsequent act or omission or to waive the requirement for Lender’s consent tobe obtained in any future or other instance. In addition, the closing of the Loan or Lender’s making of any Advanceprior to the fulfillment by Borrower of one or more of the conditions set forthin the Loan Documents shall not constitute a waiver by Lender of any suchcondition, and Lender reserves the right to require the fulfillment of eachsuch condition prior to making any subsequent Advance.  No failure by Lender to exercise, or delay byLender in exercising, any right, power or privilege under any of the LoanDocuments shall operate as a waiver thereof, nor shall any single or partialexercise of any right, power or privilege under any such Loan Documentspreclude any other or further exercise thereof, or the exercise of any otherright, power or privilege.  The rightsand remedies provided to Lender in the Loan Documents are cumulative and notexclusive of any right or remedy provided by law.  Without limiting the foregoing, no Advance byLender after an Event of Default or an Default shall constitute a waiver of anyof Lender’s remedies or shall oblige Lender to make any further Advances norshall any such Advance preclude Lender from declaring an Event of Default andpursuing its remedies under the Loan Documents and at law.

##  

## SECTION 12.4                                                 Amendments. No amendment, modification, discharge or other change in the terms ofany of the Loan Documents shall be valid unless in writing and signed by

 

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the party against which enforcement is sought, and then only to theextent specifically set forth therein.

##  

## SECTION 12.5                                                 No Third Party Benefits.  By their execution of the Loan Documents,Lender and Borrower do not intend to create any rights of any kind in any thirdparties (other than any participants and successors and assignees ofLender).  Lender shall not be deemed tobe in privity of contract with any contractor, subcontractor or other providerof services or materials to the Project, nor shall any payment of fundsdirectly to any such Person be deemed to create any third-party beneficiarystatus or recognition of the same by Lender. Without limiting the foregoing, Lender shall not owe any duty whatsoever(i) to any claimant for labor performed or material furnished in connectionwith the construction of the Project to apply any undisbursed portion of theLoan to the payment of any such claim or to exercise any right or power ofLender under the Loan Documents, or (ii) to any purchaser, licensee, tenant,invitee or user of all or any part of the Project.  Any approval or inspection of theConstruction Documents or any other documents or any part of the constructionof the Project or any other action taken by Lender or its consultants shall bemade exclusively for the benefit of Lender, and no third party shall have anyright to rely thereon in any way.  Lendershall not in any way be estopped or prejudiced by any approval or inspectionfrom requiring reconstruction of any portion of the Project where constructiondoes not conform to any requirements of the Loan Documents.

##  

## SECTION 12.6                                                 Successors and Assigns.  Subject to the restrictions on Transferscontained in Section 7.4 above andelsewhere in the Loan Documents, the Loan Documents shall be binding upon andinure to the benefit of the parties hereto and their respective successors andassigns (including any participants or assignees of Lender).

##  

## SECTION 12.7                                                 Participations and Assignments.  Lender may, at any time and from time totime, sell, transfer or assign this Agreement, the Note, the Deed of Trust andthe other Loan Documents, or grant participations therein, or issuecertificates or securities evidencing a beneficial interest therein in a ratedor unrated public offering or private placement, and Lender may forward to anypurchaser, transferee, assignee, service, participant, investor or creditrating agency rating such securities (collectively, an “Investor”) orprospective Investor all documents and information in Lender’s possession withrespect to Borrower, any members or partners of Borrower, any Borrower Party,Guarantor, the Property and the Loan Documents as such Investor or prospectiveInvestor may request.  Upon any suchsale, transfer or assignment, Lender shall be automatically released from anyliability hereunder.

##  

## SECTION 12.8                                                 All Advances Obligatory and Secured.  Any and all disbursements, payments andamounts reasonably expended by Lender pursuant to the Loan Documents, and allother Lender Loan expenses shall as and when advanced or incurred:  (a) be deemed obligatory for Lender,regardless of the Person to whom such amounts are furnished, (b) satisfy dollarfor dollar the obligations of Lender hereunder, (c) be evidenced by the Note(except to the extent that such amounts exceed the full amount of principal andinterest thereunder), (d) be secured by the Deed of Trust and the otherapplicable Loan Documents, whether or not the aggregate of such indebtednessshall exceed the face amount of the Note or the principal amount of theindebtedness set out in the Deed of Trust and such other applicable LoanDocuments and (e) bear interest at the rate provided in the Note (including theDefault Rate if an Event of Default has occurred under any of the LoanDocuments).  A statement on behalf ofLender signed by an

 

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officer as to the amount of such disbursements, payments andexpenditures and the reasons for the same shall be presumptive evidence of thesame in any court or other proceeding. The burden of proving to the contrary shall be upon Borrower.

##  

## SECTION 12.9                                                 Publicity. Lender shall have the right to publicly announce in print or otherwisethat Lender has made the Loan to Borrower. In connection therewith, Lender shall have the right to describe theLoan, including the Borrower’s name, the type of the Loan (i.e., construction,bridge, mini-perm, etc.), and the amount of the Loan and to identify theProperty and the location thereof, by way of description and/or photographs ofthe Property.  Borrower shall cooperatewith Lender in the erection of appropriate signage at the Property advertisingthe financing of the Project by Lender.

##  

## SECTION 12.10                                           Notices. Except for any notice required under applicable law to be given inanother manner, any notice that Lender or Borrower may desire or be required togive under this Agreement to any other party hereto shall be in writing andshall be deemed to have been properly given, served and received: (i) ifdelivered by hand, when delivered; (ii) if sent by reputable overnight courier,the Business Day following delivery to such courier; and (iii) if mailed byUnited States certified or registered mail, postage prepaid, return receiptrequested, on the third Business Day after mailing, to the following addresses:

 
| If to Borrower: |                                                        |
|-----------------|-------------------------------------------------------------|
|            | c/o Comstock Homebuilding Companies, Inc.                   |
|            | 11465 Sunset Hills Road, Suite 510                          |
|            | Reston, Virginia 20910                                      |
|            | Attention: Christopher Clemente                             |
|            | Facsimile Number: (703) 760-1520                            |
|            |                                                        |
| with a copy to: |                                                        |
|            | Bankert &  Associates, P.C.                             |
|            | 3025 Hamaker Court,  Suite 501                              |
|            | Fairfax, Virginia                                           |
|            | Attention: Joseph E.  Bankert, Esq.                         |
|            | Facsimile Number: (703)  876-4628                           |
|            |                                                        |
| If to Lender:   |                                                        |
|            | CORUS Bank, N.A.                                            |
|            | 3959 N. Lincoln Avenue                                      |
|            | Chicago, Illinois 60613                                     |
|            | Attention: David H. Krischke, Assistant Vice President |
|            | Facsimile Number: (773) 832-3553                            |

 

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| with a copy to: |                               |
|-----------------|------------------------------------|
|            |                               |
|            | CORUS Bank, N.A.                   |
|            | 3959 N. Lincoln Avenue             |
|            | Chicago, Illinois 60613            |
|            | Attention: Joel C. Solomon, Esq.,  |
|            | General Counsel                    |
|            | Facsimile Number: (773) 832-3626   |
|            |                               |
| and:            |                               |
|            |                               |
|            | Andrea J. Cummings, Esq.           |
|            | Sidley Austin Brown & Wood LLP |
|            | 1501 K Street, N.W.                |
|            | Washington, D.C. 20005             |
|            | Facsimile Number: (202) 736-8711   |

 

Any party may change theaddress to which notices may be sent by notice to the other party or parties asprovided herein.  Except as may beotherwise specifically required herein, notice to Borrower of the exercise ofany right or option granted to Lender by this Agreement is not required.

 

Notwithstandinganything to the contrary contained in this Agreement or any other LoanDocument, except as expressly directed in a writing addressed to Borrower afterthe date hereof, any and all communications or notices by Borrower or any otherloan party to Lender concerning disputed debts, obligations or liabilities,whether arising under this Agreement or otherwise, including without limitationany instrument tendered as full satisfaction of a debt, shall be delivered toCorus Bank, Department 311, Attention RosaPaz, 3959 N. Lincoln, Chicago Illinois 60613 in addition to the aforementionedparties.

 

## SECTION 12.11                                           Form of Documents.  All documents and other matters required byany of the provisions of the Loan Documents to be executed by Borrower orLender or to be submitted or furnished to Lender shall be in form and substancesatisfactory to Lender and its counsel.

##  

## SECTION 12.12                                           Severability. Invalidation of any one or more clauses in any provision or any entireprovision of any of the Loan Documents by judgment, order or decree of State orfederal court shall in no way affect any other clause or provision in any ofthe Loan Documents, all of which shall remain in full force and effect.

##  

## SECTION 12.13                                           Lender Not Partner of Borrower.  Neither the execution nor the performance ofany of the Loan Documents by Lender, nor the exercise by Lender of any of itsrights, privileges or remedies conferred under the Loan Documents or underapplicable Law shall be deemed to render Lender a partner or a joint venturerwith Borrower, any guarantor of the Loan or any other Person, or to renderBorrower an agent of Lender for any purposes. Borrower shall indemnify and hold Lender harmless from any and alldamages resulting from such a construction of the parties and theirrelationship.  All of such actions willbe exercised by Lender solely in furtherance of its role as a secured lenderadvancing funds for use by Borrower as provided in the Loan Documents.

##  

## SECTION 12.14                                           Joint and Several Obligations.  If Borrower, Guarantor or any other signatorof any of the Loan Documents shall be more than one Person, each SecuredObligation

 

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of such signators shall be the joint and several Secured Obligation ofall of the Persons constituting such signators.

##  

## SECTION 12.15                                           Survival. All agreements, representations, warranties and covenants made in theLoan Documents shall survive the execution and delivery of the Loan Documentsand the making of the Loan, and shall remain in full force and effect until theNote is paid in full and all Secured Obligations under the Loan Documents aresatisfied, or until such other time as specified in any relevant provision ofsuch Loan Documents.  Notwithstanding theforegoing or anything else contained in the Loan Documents, the SecuredObligations of Borrower under Section 7.9shall survive any termination of the Loan Documents, the repayment of the Loanand the satisfaction of all of the other Secured Obligations under the LoanDocuments.

##  

## SECTION 12.16                                           Time of the Essence.  Time is of the essence for Borrower’s andGuarantor’s performance of each provision of this Agreement and the LoanDocuments.

##  

## SECTION 12.17                                           Conflicts. In the event of a conflict or inconsistency between the provisions ofthis Agreement and the provisions of any other Loan Document, the provisions ofthis Agreement shall govern, unless any such provision in any Loan Documentprovides that such provision governs regardless of any other terms in thisAgreement or the other Loan Documents. This Agreement supersedes the Commitment Letter.  In the event another Loan Document addressesa particular issue and this Agreement does not address such issue, or in theevent that they both address a particular issue but do not directly conflict,such event is not to be construed as a conflict between the provisions of thisAgreement and those of such other Loan Document.

##  

## SECTION 12.18                                           Waiver of Subrogation.  Borrower, until the Loan is paid in full andall funding obligations under the Loan Documents are terminated, hereby waivesany and all rights of subrogation to Lender’s rights or claims to the extentaffecting the Property or any other security for the Loan.

##  

## SECTION 12.19                                           Governmental Regulation.  Notwithstanding anything in the LoanDocuments to the contrary, Lender shall not be obligated to lend money to Borrowerin violation of any limitation or restriction contained in any applicable Law,statute or regulation.

##  

## SECTION 12.20                                           Counterparts; FAX.  This Agreement may be executed by differentparties in separate counterparts.  Eachcounterpart when so executed shall be deemed to be an original.  All counterparts taken together shallconstitute a complete agreement. For purposes of negotiating and finalizingthis Agreement and the other Loan Documents (including any subsequentamendments thereto), any executed or certified document, including theCommitment Letter, the Loan Documents and all other statements andverifications transmitted by facsimile machine (“FAX”) shall be treatedin all manner and respects as an original document.  The signature of any party by FAX shall beconsidered for these purposes as an original signature.  Any such FAX document shall be considered tohave the same use, force and binding legal effect as an original document.  In addition, Borrower agrees to provideLender with the original of all executed or certified documents within areasonable time following the FAX transmittal. At the request of either party, any FAX document subject to thisAgreement shall be re-executed by both parties in an original form.  The undersigned parties hereby agree thatneither shall raise the

 

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use of the FAX or the fact that any signature or document wastransmitted or communicated through the use of a FAX as a defense to theformation of this Agreement.

##  

## SECTION 12.21                                           Partial Release. Lender shall from time to time deliver Unit Releases pursuant to and inaccordance with the provisions of Section 8.7of this Agreement.

##  

## SECTION 12.22                                           Governing Law; Jurisdiction; Venue; and Service of Process.

##  

#### (a)                                  CHOICE OF LAW. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (OTHER THAN THOSE CONTAININGA CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE CONSTRUED IN ACCORDANCEWITH THE INTERNAL LAWS (WITHOUT REGARD TO THE CONFLICT OF LAWS PROVISIONS) OFTHE COMMONWEALTH OF VIRGINIA, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TONATIONAL BANKS.

####  

#### (b)                                 CONSENT TO JURISDICTION. THE PARTIES TO THISAGREEMENT AND THE OTHER LOAN DOCUMENTS HEREBY IRREVOCABLY SUBMIT TO THENON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR VIRGINIA STATE COURTSITTING IN THE COMMONWEALTH OF VIRGINIA IN ANY ACTION OR PROCEEDING ARISING OUTOF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS AND SUCHPARTIES HEREBY IRREVOCABLY AGREE THAT ALL CLAIMS IN RESPECT OF SUCH ACTION ORPROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVEANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT,ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS ANINCONVENIENT FORUM.  NOTHING HEREIN SHALLLIMIT THE RIGHT OF LENDER TO BRING PROCEEDINGS AGAINST BORROWER, ANY BORROWERPARTY AND/OR GUARANTOR IN THE COURTS OF ANY OTHER JURISDICTION.  ANY JUDICIAL PROCEEDING BY BORROWER, ANYBORROWER PARTY AND/OR GUARANTOR AGAINST LENDER OR ANY OTHER LENDER PARTYINVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF,RELATED TO, OR CONNECTED WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT SHALLBE BROUGHT ONLY IN A COURT IN THE COMMONWEALTH OF VIRGINIA. BORROWER HEREBYIRREVOCABLY DESIGNATES AS AGENT FOR SERVICE OF PROCESS CHRISTOPHER CLEMENTEWITH OFFICES PRESENTLY AT 11465 SUNSET HILLS ROAD, SUITE 510, RESTON, VIRGINIA20190 AS ITS AGENT TO RECEIVE SERVICE OF ANY AND ALL PROCESS AND DOCUMENTS ONITS BEHALF IN ANY LEGAL PROCEEDING IN THE COMMONWEALTH OF VIRGINIA

####  

#### (c)                                  WAIVER OF JURY TRIAL.  THE PARTIES TO THIS AGREEMENT HEREBYKNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT THAT SUCH PARTY MAYHAVE TO A TRIAL BY JURY IN ANY LITIGATION ARISING IN ANY WAY IN CONNECTION WITHTHIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, OR ANY OTHER STATEMENTS ORACTIONS OF THE OTHER PARTY TO THIS AGREEMENT.

 

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####  

#### (d)           INCORPORATION OF PROVISIONS. BORROWERACKNOWLEDGES THAT BORROWER’S AGREEMENT TO COMPLY WITH THE PROVISIONS SET FORTHIN THIS SECTION 12.22 IS A MATERIALINDUCEMENT FOR LENDER TO ENTER INTO THIS AGREEMENT AND EACH SUCH OTHER LOANDOCUMENT, AND THAT THESE PROVISIONS SHALL BE EFFECTIVE AS TO EACH OF THE OTHERLOAN DOCUMENTS AS IF FULLY INCORPORATED THEREIN.

####  

## SECTION 12.23              Waiver of Punitive andConsequential Damages.  In no eventshall Lender be liable to Borrower for punitive, exemplary or consequential damages,including, without limitation,lost profits, whatever the nature of a breach by Lender of itsobligations under this Agreement or any of the Loan Documents, and Borrower,for itself and Guarantor, waives all claims for punitive, exemplary or consequential damages.

##  

## SECTION 12.24              Written Credit Agreements.  Borrower expressly agrees that for purposesof this Agreement and each and every other Loan Document: (i) as a debtor,Borrower may not maintain an action on or in any way related to a credit agreementunless the credit agreement is in writing, expresses an agreement or commitmentto lend money or extend credit or delay or forbear repayment of money, setsforth the relevant terms and conditions, and is signed by the creditor and thedebtor; (ii) no creditor shall be liable to a person not in privity of contractwith the creditor for civil damages arising out of a credit agreement, or anyconditions precedent thereto, except for acts or conduct by the creditor thatconstitute fraud against the person; (iii) this Agreement and each and everyother Loan Document shall be a “credit agreement” for purposes of interpretingthe foregoing clauses, (iv) the provisions of this Section apply to thistransaction including, but not limited to, the execution of this Agreement andeach and every other Loan Document; and (v) any action on or in any way relatedto this Agreement and each and every other Loan Document shall be governed bythe provisions of this Section.

##  

## SECTION 12.25              Accordand Satisfaction; Disputed Debt. Borrower hereby expressly waives any and all rights to effect an accordand satisfaction of any secured obligation or any other debt of Borrower toLender in accordance with section 3-311 of the UCC.  Notwithstanding anything to the contrarycontained in this Agreement or any other Loan Document, except as expresslydirected in a writing addressed to Borrower after the date hereof, any and allcommunications or notices by Borrower or any Guarantor to Lender concerningdisputed debts, obligations or liabilities, whether arising under thisAgreement or otherwise, including without limitation any instrument tendered asfull satisfaction of a debt, shall be delivered to Corus Bank,Department 311, Attention Rosa Paz, 3959 N. Lincoln Avenue, Chicago Illinois60613.

##  

[REMAINDER OF PAGEINTENTIONALLY LEFT BLANK]

 

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IN WITNESS WHEREOF, the parties have executed thisAgreement, as of the date first above written, pursuant to proper authorityduly granted.

 
| ** ** | **BORROWER**:                         |
|------------|---------------------------------------|
|       |                                  |
|       | COMSTOCK PENDERBROOK, L.C.,           |
|       | a Virginia limited liability  company |
|       |                                  |   |
|       | By:                                   | Comstock Homebuilding  Companies, Inc., |
|       |                                  | a Delaware corporation, |
|       |                                  | Its Manager |
|       |                                  |   |
|       |                                  | By: | /s/ Christopher Clemente |   |
|       |                                  | Name: | Christopher Clemente |
|       |                                  | Title: | Chief Executive Officer |
|       |                                  |
|       |                                  |
| ** ** | **LENDER**:                           |
|       |                                  |
| ** ** | **COR****US****BANK,  N.A.**          |
|       |                                  |
|       |                                  |
|       | By:                                   | /s/ David H. Krischke |   |
|       | Name:                                 | David H. Krischke |
|       | Title:                                | Assistant Vice President |
|            |                                       |  |  |  |  |  |

 

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TABLE OF EXHIBITS

 

Appendix A -Definitions and Interpretation

 

Exhibit A - The Land

 

Exhibit B - Project Budget

 

Exhibit C - Pending Litigation

 

Exhibit D - Ownership Chart

 

Exhibit E - Minimum Sales Guidelines

 

Exhibit F – Certification of Surveyor

 

Exhibit G – Form of Condominium Contract

 

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APPENDIX A

 

DEFINITIONS AND INTERPRETATION

 

INTERPRETATION

 

In this Agreement and in each other Loan Documentwhich incorporates or uses the definitions set forth in this Appendix A, unless a clear contrary intentionappears, the following rules of interpretation shall apply:

 

A.            Amendments Included.  Definitions contained in this Agreement orany other Loan Documents which identify documents, including this Agreement orany other Loan Documents, shall be deemed to include all amendments,modifications, supplements, restatements, renewals, and replacements to suchdocuments which may be entered into from time to time in compliance with therequirements of this Agreement or otherwise with the consent of Lender.

 

B.            Use of “Including”.  When the term “include” or “including” isused in this Agreement, it shall be construed to mean “include” or “includingbut not limited to” the things specifically mentioned.

 

C.            Captions. Captions and headings used in this Agreement and the other LoanDocuments are for convenience of reference only, and shall not affect theconstruction or interpretation of this Agreement or the other Loan Documents.

 

D.            Gender, Number, Etc.  Any word in this Agreement which is expressedin the masculine, feminine or neuter gender shall be deemed to include themasculine, feminine and neuter genders. Any word herein which is expressed in the singular or plural numbershall be deemed, whenever appropriate in the context, to include the singularand the plural.  Any Exhibit, Schedule orother item referred to herein as being “attached” to this Agreement shall beconstrued to mean “attached to and made a part of this Agreement”.

 

E.             Laws. Reference to any Law means such Law as amended, modified, codified,replaced or reenacted, in whole or in part, and in effect from time to time,including rules and regulations promulgated thereunder and reference to anysection or other provision of any Law means that provision of such Law fromtime to time in effect and constituting the substantive amendment,modification, codification, replacement or reenactment of such section or otherprovision.

 

DEFINITIONS

 

“Account” means, collectively and individuallyas the context may require, with such determination made in the sole discretionof Lender, the Project Account and Operating Account.

 

“ADA” means theAmericans with Disabilities Act of 1990, 42 U.S.C. 12101, as from time to timeamended, together with any and all comparable Laws of any Governmental Authority.

 

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“Advance” meansany advance or disbursement of Loan proceeds made by Lender pursuant to thisAgreement.

 

“Affiliate” meansany Person directly or indirectly controlling, controlled by, or under commoncontrol with the identified Person or any Person owning a material interest insuch identified Person, either directly or indirectly.

 

“Agreement” meansthis Loan Agreement by and between Borrower and Lender, as may be amended,extended, restated, replaced, modified or supplemented from time to time.

 

“All Risk Insurance”shall have the meaning ascribed thereto in Section7.8.1(a).

 

“Application Fee”shall have the meaning ascribed thereto in Section 2.3.

 

“Application Letter” means that certain applicationletter between Lender and Borrower dated January 12, 2005, respecting the termsand conditions under which Lender is prepared to make the Loan; it being agreedthat in the event of any conflict between the terms and conditions of the LoanDocuments and the terms and conditions of the Commitment Letter, the terms andconditions of the Loan Documents shall govern and control.

 

“Approved CondominiumContracts” shall have the meaning ascribed to such term in Section 8.1 of this Agreement.

 

“Association” meansthe condominium association for the Property formed pursuant to the Declarationof Condominium.

 

“Bankruptcy Code”means the Bankruptcy Reform Act of 1978 (11 USC § 101-1330) as now or hereafteramended or recodified.

 

“Base Purchase Price”means the price (after deducting therefrom the costs of any Upgrade or extras)to be paid by a Contract Buyer under a Condominium Contract for a ResidentialUnit and/or a Parking Unit.

 

“Basic Agreements”shall have the meaning ascribed thereto in Section 3.1.

 

“Borrower” meansthe entity defined as the “Borrower” in the introductory paragraph of thisAgreement and any of its permitted successors and assigns.

 

“Borrower Party”means Comstock and any of its permitted successors and assigns.

 

“Borrower’s Additional Equity”shall have the meaning ascribed to such term in Section2.6.

 

“Borrower’s Equity”shall have the meaning ascribed thereto in Section 2.6.

 

“Borrower’s Minimum EquityInvestment” shall have the meaning ascribed to such term in Section2.6 of this Agreement.

 

“Building” shallhave the meaning ascribed thereto in Recital III of this Agreement.

 

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“Business Day”means any day other than Saturday or Sunday that Lender is open for business.

 

“Change Orders” shallhave the meaning ascribed to such term in Section6.2(a).

 

“Closing Date”means the date that all conditions precedent to the closing of the Loan setforth in Section 4.1 of this Agreement have been satisfied and Lenderhas authorized the Title Insurer to record the Deed of Trust.

 

“Closing Fee”shall have the meaning ascribed thereto in Section 2.3.

 

“Closing Notice”shall have the meaning ascribed thereto in Section8.7(b).

 

“Collateral” meansthe Property and any and all other property (real, personal or intangible) inwhich a security interest has been granted to secure the Secured Obligations.

 

“Collateral Assignment of Developer’s Rights”means that certain Collateral Assignment of Developer’s Rights and Agreementwith Respect to Condominium Documents, dated as of the date hereof, made byBorrower in favor of Lender, as may be amended, extended, restated, replaced,modified or supplemented from time to time.

 

“Commitment Fee”shall have the meaning ascribed thereto in Section 2.3.

 

“Commitment Letter”means that certain commitment letter between Lender and Borrower dated on orabout the date hereof, respecting the terms and conditions under which Lenderis prepared to make the Loan; it being agreed that in the event of any conflictbetween the terms and conditions of the Loan Documents and the terms andconditions of the Commitment Letter, the terms and conditions of the LoanDocuments shall govern and control.

 

“Completion Guaranty” means that certainCompletion Guaranty, dated as of the date hereof, made by Guarantor in favor ofLender, as may be amended, extended, restated, replaced, modified orsupplemented from time to time.

 

“Comstock” shall have the meaning ascribedthereto in Recital I of this Agreement.

 

“Condominium Act” means the Virginia CondominiumAct, and all amendments and modifications thereof.

 

“Condominium Contract”shall have the meaning ascribed to such term in Section8.1.

 

“Condominium Documents”mean, collectively and individually, the Plat of Condominium, the Declarationof Condominium, all plans, schedules and other details defining the Units andthe general common elements and the limited common elements, the bylaws of thecondominium unit owner’s association or board of managers, the rules andregulations, the management agreement between the condominium unit owner’sassociation or board of managers and the firm that will be managing theProperty, the sales agency agreement, the form of purchase agreement(s) to beused for the sale of Units and, all sales and promotional materials

 

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to be used in connection with the sale of condominium Units, and eachexhibit thereto, together with any amendments and attachments to any of theforegoing.

 

“Condominium Regime”shall have the meaning ascribed to such term in Section8.8(a).

 

“Construction Documents”means any contract, agreement, warranty, service agreements, maintenancecontracts or other agreement entered into by Borrower, any Borrower Party,Guarantor or any Affiliate of Borrower, any Borrower Party or Guarantorproviding for the design, development, engineering, construction, provisioning,equipping, furnishing, use, occupancy, repair and service of the Project,whether presently existing or entered into after the date hereof.

 

“Contract Buyer” means a purchaser of a Unit.

 

“Contributor”shall have the meaning ascribed to such term in Section2.6.

 

“Costs” means any and all costs, fees orexpenses which Borrower or Guarantor is obligated to pay pursuant to thisAgreement or any of the other Loan Documents, including, but not limited to,those costs and expenses described in Section 2.4(a) and Section2.4(b) of this Agreement.

 

“Declaration of Condominium”means the form of condominium declaration for the Property and all related formation,organization and operation documents, which shall be in form and substancereasonably acceptable to Lender.

 

“Deed of Trust”means that certain Deed of Trust with Absolute Assignment of Leases and Rentsand Security Agreement and Fixture Filing, of even date, by Borrower in favorof Lender, as may be amended, extended, restated, replaced, modified orsupplemented from time to time.

 

“Default” meansany occurrence which, with notice or the passage of time or both, wouldconstitute an Event of Default under this Agreement or any other Loan Document.

 

“Default Rate”means the rate of interest designated in the Note as the Default Rate.

 

“Deficiency Deposit”shall have the meaning ascribed thereto in Section6.3(c).

 

“Environmental IndemnityAgreement” means the Environmental Indemnity Agreement, dated as ofthe date hereof, made by Borrower and Guarantor, jointly and severally, for thebenefit of Lender, as may be amended, extended, restated, replaced, modified orsupplemented from time to time.

 

“EO13224” shallhave the meaning ascribed to such term in Section 3.27.

 

“ERISA” meansEmployee Retirement Income Security Act of 1974, as amended from time to time.

 

“Event of Default”shall have the meaning ascribed to such term in Section10.1.

 

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“Exit Fee” shallhave the meaning ascribed to such term in Section 2.8.

 

“FAX” shall havethe meaning ascribed to such term in Section 12.20.

 

“Financial Statements”means the financial statements of Borrower and Guarantor delivered to Lenderpursuant to Section 4.1(f) of thisAgreement and relied upon by Lender in making this Loan, as well as thosestatements subsequently delivered in connection with Section7.7 of this Agreement.

 

“Form Condominium Contract”shall have the meaning ascribed to such term in Section8.1(a).

 

“GAAP” meansgenerally accepted accounting principles.

 

“Governmental Approval”means any Law of any Governmental Authority, including, without limitation, anyzoning, subdivision or building ordinance or environmental protection law orregulation or any requirement of any kind which must be complied with inconnection with the construction or operation of the Property or for theissuance or continuing effectiveness of any Permit of any kind required by anyGovernmental Authority in connection with the transactions contemplated by thisAgreement and the other Loan Documents.

 

“Governmental Authority”means the United States of America, any State, including the State where theProperty is located and the State of Borrower’s organization, any politicalsubdivision of the United States of America or any State, including any city orcounty in such States, and any department, commission, board, bureau, court oradministrative, regulatory, adjudicatory, or arbitrational body or otherinstrumentality or agency of any kind or any of them having jurisdiction in anyway over the Property, Borrower, any Borrower Party or Guarantor or any of theother parties or documents referred to in this Agreement or the other LoanDocuments.

 

“Gross Operating Income” means, for any periodof time, all receipts, revenues, income and proceeds of sales of every kindactually received in connection with the operation of the Property as a rentalapartment complex, and shall include, without limitation: rent or otherpayments received from tenants, licensees, and occupants of commercial, office,retail or residential space; the proceeds of insurance with respect to use andoccupancy or business interruption insurance; deposits forfeited and notrefunded; and any amount recovered in any legal action or proceeding orsettlement thereof pertaining to rents or other income which arose out of theoperation of the Property.  GrossOperating Income shall exclude all sales and excise taxes and any similar taxescollected as direct taxes payable to taxing authorities; gratuities or servicecharges collected for payment to and paid to employees; proceeds of insurance(except for proceeds of insurance with respect to use and occupancy or businessinterruption insurance); proceeds of sales of depreciable property; andproceeds of condemnation.

 

“Guarantor” meansComstock Homebuilding Companies, Inc., a Delaware Corporation. Each singularreference to “Guarantor” shall jointly and severally refer to Guarantor ifthere is more than one.

 

“Guaranty” shall mean, collectively andindividually, the Completion Guaranty and the Limited Guaranty.

 

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 “Hard Costs” means any and all costs directlyrelated to and incurred in connection with the construction of the Project,including, without limitation, the cost of all labor, materials and equipmentincurred pursuant to any construction contract and any subcontracts, butexcluding any fees for architectural and engineering services, marketing fees,financing costs and other similar fees and costs.

 

“HUD” shall havethe meaning ascribed to such term in Section 8.8(d).

 

“In Balance” shallhave the meaning ascribed to this term in Section6.3(a).

 

“Indebtedness”means with respect to any Person, at a particular time: (i) all obligations onaccount of money borrowed by, or credit extended to or on behalf of, or for oron account of deposits with or advances to, such Person; (ii) all obligationsof such Person evidenced by bonds, debentures, notes or similar instruments;(iii) all obligations of such Person for the deferred purchase price ofproperty or services other than trade payables incurred in the ordinary courseof business and on terms customary in the trade; (iv) all obligations securedby a lien on property owned by such Person (whether or not assumed), and allobligations of such Person under capitalized leases (without regard to anylimitation of the rights and remedies of the holder of such lien or the lessorunder such capitalized lease to repossession or sale of such property); (v) theface amount of all letters of credit issued for the account of such Person and,without duplication, the unreimbursed amount of all drafts drawn thereunder,and all other obligations of such Person associated with such letters of creditor draws thereon; (vi) all obligations of such Person in respect of acceptancesor similar obligations issued for the account of such Person; (vii) allobligations of such Person under a product financing or similar arrangement;(viii) all obligations of such Person under any interest rate or currencyprotection agreement, interest rate or currency future, interest rate orcurrency option, interest rate or currency swap or cap or other interest rateor currency hedge agreement; and (ix) all obligations and liabilities withrespect to unfunded vested benefits under any “employee benefit plan” or withrespect to withdrawal liabilities incurred under ERISA by Borrower or any ERISAAffiliate to a “multiemployer plan”, as such terms are defined under theEmployee Retirement Income Security Act of 1974.

 

“Individual Unit Exit Fee”shall have the meaning ascribed to such term in Section2.8.

 

“Initial Condominium Closing”shall mean the closing of the first Approved Condominium Contract followingsatisfaction of the Initial Condominium Closing Conditions.

 

“Initial Condominium ClosingConditions” shall have the meaning ascribed to such term in Section 8.7(a) of this Agreement.

 

“**InitialDisbursement**” means an amount equal to $57,000,000.

 

“Interest Rate”means the rate of interest designated in the Note as the Interest Rate.

 

“Interest Reserve”means a reserve for the payment of interest on the Loan, set forth as a lineitem in the Project Budget and to be established and applied as set forthherein and in the Note.

 

“Investor” shallhave the meaning ascribed thereto in Section 12.7.

 

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“IRC” meansInternal Revenue Code of 1986, as amended from time to time.

 

“Land” shall havethe meaning ascribed thereto in Recital II of this Agreement.

 

“Land Act” shallhave the meaning ascribed to such term in Section8.8(d).

 

“Laws” meanscollectively, all federal, State and local laws, statutes, codes, ordinances,orders, rules and regulations which have been duly authorized and are currentlyin effect and/or hereinafter enacted, including judicial opinions orprecedential authority in the applicable jurisdiction, and including, withoutlimitation, all environmental laws, the Condominium Act, all rules andregulations relating to life safety and the ADA.

 

“Leases” means allleases, tenancies, licenses or occupancy agreements relating to the Property.

 

“Lender” means theentity defined as the “Lender” in the introductory paragraph of this Agreementand any of its successors and assigns.

 

“Lender Parties”shall have the meaning ascribed thereto in Section 7.9.

 

“Lender’s Estimate ofConstruction Costs” means Lender’s estimate (in Lender’s reasonablediscretion), from time to time, of the cost to complete the marketing andconversion of the Project to condominiums. Initially, Lender’s Estimate of Construction Costs shall be based uponthe Project Budget; provided, that Lender may make such allowances for reservesand contingencies as Lender shall deem appropriate in its reasonablediscretion. Thereafter, Lender’s Estimate of Construction Costs will take intoaccount all Change Orders approved by Lender, other contracts and purchaseorders entered into by Borrower and other considerations which Lender, in itsreasonable judgment deems relevant or likely to have an impact upon the cost toconvert the Project into a condominium building.

 

“Lender’s Project Consultant”means the Person or firm employed by Lender to review and report to Lender onthe progress of construction of the Project.

 

“Lien” means anymortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance,lien (statutory or other), or other security interest, security agreement orpreferential arrangement of any kind (including any conditional sale or othertitle retention agreement, any financing lease involving substantially the sameeconomic effect as any of the foregoing, and the filing of any financingstatement under the Uniform Commercial Code or comparable law of anyjurisdiction).

 

“Limited Guaranty” means that certain Carve-OutGuaranty dated of even date herewith made by Guarantor in favor of Lender, asmay be amended, extended, restated, replaced, modified or supplemented fromtime to time.

 

“Loan” means aloan to be made by Lender to Borrower and to be disbursed in accordance withthe terms hereof in an amount not to exceed $67,000,000.

 

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“Loan Documents”means this Agreement, the Note, the Deed of Trust, the Environmental IndemnityAgreement, the Limited Guaranty, the Completion Guaranty, the CollateralAssignment of Developer’s Rights, the UCC Financing Statements, and any otherdocument evidencing, pertaining to or securing the Loan which Lender may requireto be executed and delivered by Borrower, any Borrower Party, Guarantor or anyAffiliate thereof from time to time, as each of the same shall be amended,restated, modified, replaced or supplemented from time to time.

 

“Loan Fees” shallhave the meaning ascribed in Section 2.3.

 

“****Loan Maturity****”shall mean the time at which Borrower is required to pay the Loan in full,whether by acceleration or by expiration of the term of the Loan.

 

“Losses” shallhave the meaning ascribed to such term in Section 7.9.

 

“Management Agreement”means any property management, leasing, development services or other similaragreement respecting the development, marketing, leasing, sale, management oroperation of the Project entered into between Borrower or any Borrower Party,Guarantor or their respective Affiliates (as the case may be) and any otherPerson, whether presently existing or entered into after the date of thisAgreement.

 

“Manager” meansLegum & Norman Realty, Inc., together with any subsequent property managers which have been approved by Lender inaccordance with the terms of this Agreement.

 

“Mass Closing” shall have the meaning ascribedto such term in Section 8.7(a)(vi).

 

“Mass Closing Timeframe” means thetime period commencing with the sale and conveyance of the first ResidentialUnit, subject to the satisfaction of the Initial Condominium ClosingConditions, and ending on the date which is 89 calendar days following the saleand conveyance of the first Residential Unit.

 

“Material”, “material”, “Materially”and “materially” mean material to: (i) thefinancial position, business, assets or results of operations of Borrower orGuarantor, (ii) the ability of Borrower, any Borrower Party, Guarantor or anyAffiliate of such party to observe and perform its obligations under the LoanDocuments to which it is a party, or (iii) the value, condition, use or usefullife of the Property.

 

“Material Adverse Effect”means an event which has the effect of: (i) materially adversely affectingBorrower’s ability to perform its obligations under this Agreement or any otherLoan Document to which it is a party; (ii) materially adversely affectingGuarantor’s ability to perform its obligations under any Guaranty,Environmental Indemnity Agreement or any other Loan Document to which it is aparty; (iii) materially adversely affecting Borrower’s ability to construct,develop and market the Property in accordance with the Project Budget, or toown, manage, sell or lease the Property upon the completion of the constructionof the Project; (iv) impairing or reducing the value of the Property by anamount greater than Two Hundred Fifty Thousand Dollars ($250,000); (v)impairing the validity of the security interest in the Property or any otherCollateral; or (vi) materially adversely affecting the rights or remedies ofLender under the Loan Documents.

 

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“Maturity Date”shall mean the twenty-four (24) month anniversary of the Closing Date.

 

“Minimum Unit Sales Price”means, with respect to each Unit, the amount in U.S. dollars shown on Exhibit E for such Unit (exclusive of anyUpgrades or extras).

 

“Monthly Payment”shall mean the monthly payment of interest due and payable in accordance withthe provisions of the Note.

 

“Net Sales Price”means with respect to the sale of any Unit (A) the Base Purchase Price for suchUnit, less (B) customary closing costs,reasonable warranty reserves, brokerage commissions, expenses and prorationspaid by Borrower as shown on the RESPA statement for such sale and approved byLender.  The Net Sales Price for any Unitshall not include the amount of any assessments or working capital paid to theAssociation.

 

“NOI”means, for any applicable period, Gross Operating Income minus OperatingExpenses.

 

“Note” means thePromissory Note of even date herewith made by Borrower to Lender in theoriginal principal amount of the Loan, as may be amended, extended, restated,replaced, modified or supplemented from time to time.

 

“OFAC” shall havethe meaning ascribed to such term in Section 3.27.

 

“Offering Materials”  means any public report required to be filedwith Fairfax County, Virginia or other Governmental Authority in theCommonwealth of Virginia pursuant to the Condominium Act and any otherdisclosure materials required by applicable Law to be made available toprospective purchasers of a Unit.

 

“Operating Account” means a non-interestbearing account to be established with Lender, in the name of Borrower orBorrower’s designee, into which all Gross Operating Income will be deposited.

 

“Operating Expenses” means, for any period oftime, the normal and customary expenses incurred operating the Property forsaid period of time. Said expenses shall include: (a) management fees inan amount not to exceed three percent (3%) of the Gross Operating Income forsuch period and (b) reasonable prorated reserves for Real Estate Taxes andinsurance premiums, but said expenses shall not include (i) any payment ofprincipal or interest on the Loan, (ii) amortization, depreciation, incometaxes or any other similar expense of a noncash nature or (iii) income taxes.

 

“Organizational Documents”means all documents, instruments and other papers constituting the entireorganizational documents of Borrower, all Borrower Parties, all Guarantors andany and all amendments thereto including without limitation, Borrower’s, eachBorrower Party’s and Guarantor’s respective certificates of formation,incorporation or limited partnership, articles of organization or incorporationand such party’s respective partnership agreement, operating agreement, bylaws,code of regulations or other governing documents.

 

“Out of Balance”shall have the meaning ascribed to such term in Section6.3(a).

 

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“Parking Unit”shall have the meaning ascribed to such term in Recital III of this Agreement.

 

“Pension Plan”means a “pension plan”, as such term is defined in section 3(2) of ERISA, whichis subject to Title IV of ERISA (other than a “multiemployer plan” as defined insection 4001(a)(3) of ERISA), and to which Borrower or any corporation, tradeor business that is, along with Borrower, a member of a “Controlled Group”, mayhave liability, including any liability by reason of having been a substantialemployer within the meaning of section 4063 of ERISA at any time during thepreceding five years, or by reason of being deemed to be a contributing sponsorunder section 4069 of ERISA.

 

“Permits” mean allbuilding permits, certificates of occupancy and other governmental orquasi-governmental permits, licenses and authorizations, including, withoutlimitation, all State, county and local occupancy certificates, and otherlicenses, in any way applicable to the Property or any part thereof or to thedevelopment, construction, ownership, use, occupancy, operation, maintenanceand leasing of the Property.

 

“Permitted Exceptions”means those matters acceptable to Lender in its sole discretion listed in theTitle Policy to which the interest of Borrower in the Property may be subjectas of the Closing Date and any other title exceptions or objections, if any, asLender, or its counsel, may approve in writing after the Closing Date,including matters over which the Title Insurer has agreed to insure Lenderpursuant to endorsements to Lender’s Title Policy (which endorsements shall bein form and substance satisfactory to Lender), if the latter matters areapproved in writing by Lender.

 

“Person” means anynatural person, partnership, limited liability company, corporation, firm, association,trust, Governmental Authority, or any other entity, whether acting in anindividual, fiduciary or other capacity.

 

“Plan Asset Regulations”means regulations promulgated by the Department of Labor in 29 C.F.R. Section2510.3-101, as amended from time to time.

 

“Plat of Condominium”means the plat of condominium to be recorded as part of the Initial CondominiumClosing Conditions.

 

“Prepayment Fee” shall have the meaningascribed to such term in Section 2.7.

 

“Price List” shall have the meaning ascribed tosuch term in Section 8.5.

 

“Production Overhead” means an amount equal to$392,000 payable to Comstock Homes of Washington, L.C., as set forth in theProduction Overhead line item of the Project Budget.

 

“Prohibited Person”shall have the meaning ascribed to such term in Section3.27.

 

“Project” shallhave the meaning ascribed thereto in Recital III of this Agreement.

 

“Project Account”shall have the meaning ascribed to such term in Section6.4(a).

 

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“Project Budget”means the Project Budget attached as Exhibit B, showing all sources offunds to be used (including Borrower’s Equity), all costs and expenses to beincurred, and all reserves to be maintained in connection with the Projectduring the term of the Loan.

 

“Project Costs”shall have the meaning ascribed thereto in Section6.1(a).

 

“Project Schedule” means a schedule for thecompletion of conversion of the Project, including, without limitation, atrade-by-trade breakdown of the estimated periods of commencement andcompletion of the specific work to be completed on the Project.

 

“Property” shallhave the meaning ascribed thereto in Recital IV of this Agreement.

 

“Property Proceeds” shall have the meaningascribed to such term in Section 9.1.

 

“Real Estate Tax Deposits”shall have the meaning ascribed thereto in Section6.5(a).

 

“Real Estate Taxes”means all taxes and assessments, general or special, and any and all levies,claims, charges, expenses and liens, ordinary or extraordinary, governmental ornon-governmental, statutory or otherwise that may be levied, assessed, made, imposed or charged on or against theProperty.

 

 “Request for Advance Documents” shall have themeaning ascribed thereto in Section 5.2(a).

 

“Residential Unit”means a unit which is designed and intended for a single-family dwelling, orsuch other uses permitted by the Declaration of Condominium, but specificallyexcluding a Unit constituting a Parking Unit, as more particularly described inRecital III of this Agreement.

 

“Sales Report”means a report certified by Borrower disclosing information requested by Lenderconcerning sales activity for each Unit, including (i) the Residential Unitnumber and the Parking Unit number and whether the Unit has been conveyed to aContract Buyer or is under contract, (ii) the Minimum Unit Sales Price for suchUnit, (iii) the square footage for such Unit, and (iv) with respect tocompleted sales or Units under contract, (A) the date of the associatedCondominium Contract, (B) the date such Condominium Contract was closed (or isscheduled to be closed), (C) the Person to whom such Unit was sold (or is to besold), (D) Upgrades selected by such purchaser, (E) the Base Purchase Price forsuch Unit plus the Upgrade prices for Upgrades selected by the Contract Buyer;and (F) the amount of the earnest money deposit for such Unit(s).

 

“Secured Obligations”means (i) the principal of and interest on the Note and/or this Agreement; (ii)all other Indebtedness of any kind arising under, and all amounts of any kindwhich at any time become due or owing to Lender under or with respect to anyLoan Document; (iii) all of the covenants, obligations and agreements ofBorrower, Guarantor or any other Borrower Party in, under or pursuant to anyLoan Document; (iv) all Costs (including without limitation, Costs incurred byLender to protect any or all of the Collateral, perform any obligation ofBorrower, Guarantor or any Borrower Party or under any Loan Document, orcollect any amount owing to Lender); (v) all fees due and payable by Borrowerto Lender,

 

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including, without limitation, the Exit Fee, the Prepayment Fee and anyother fees payable pursuant to the Loan Documents; (vi) any and all otherliabilities, obligations and Indebtedness, howsoever created, arising orevidenced, direct or indirect, absolute or contingent, recourse or nonrecourse,now or hereafter existing or due or to become due, owing by Borrower to Lender;and (vii) interest on all of the foregoing to the extent it accrues under thisAgreement or the Note, including, without limitation, interest accruing afteran Event of Default, acceleration and/or judgment at the Default Rate.

 

“Single Purpose Entity”means that Borrower shall: (a) not own any asset or property other than (i) theProperty and all improvements thereon, and (ii) incidental personal propertyrelating to the ownership or operation of the Property; (b) not enter into anycontract, agreement or other undertaking to provide services to any Person; (c)in its organizational documents, limit its purpose to the acquiring,constructing, owning, operating, maintaining and leasing the Project and otherlawful activities incidental thereto; (d) not engage in any business other thanthe acquisition, construction, ownership, operation, maintenance and leasing ofthe Property, and other lawful activities incidental thereto; (e) not make anyloans or advances to any Person; provided however, that nothing shall prohibitBorrower from managing it payables and other monetary obligations (other thanSecured Obligations) in a prudent manner and paying such obligations in theordinary course; (f) shall not own a subsidiary and shall not acquireobligations or securities of any other Person, other than certificates ofdeposit, money market accounts or similar short-term investments; (g) pay itsdebts and liabilities (including, as applicable, shared personnel and overheadexpenses) only from its own assets as the same shall become due, or as may beprepayable; (h) do all things necessary to observe organizational formalitiesand preserve its existence, and shall not, and shall not permit any member to,amend, modify or otherwise change any of the Organizational Documents ofBorrower or such member in any manner not permitted by the provisions of thisAgreement without the prior written consent of Lender, such consent to not beunreasonably withheld, conditioned or delayed; (i) maintain all of its books,records and bank accounts separate from those of any other Person; (j) be, andat all times shall hold itself out to the public as, a legal entity separateand distinct from any other entity, shall correct any known misunderstandingregarding its status as a separate entity from that of its members and any otherPerson, and shall conduct business in its own name, shall not identify itselfas a division or part of any other Person; (k) maintain adequate capital forthe normal obligations reasonably foreseeable in a business of its size andcharacter and in light of its contemplated business operations; (l) not seekthe dissolution, winding up, liquidation, consolidation or merger in whole orin part, of Borrower, nor transfer or otherwise dispose of all or substantiallyall of its assets, nor change its legal structure, without, in each case,Lender’s prior written consent; (m) not commingle the funds and other assets ofBorrower with those of any other Person; (n) maintain its assets in such amanner that it shall not be costly or difficult to segregate, ascertain oridentify its individual assets from those of any other Person; (o) not holditself out to be responsible for the debts or obligations of any other Personand shall not assume, guarantee or pay the debts or obligations of any otherPerson; (p) prepare separate tax returns and financial statements, or if partof a consolidated group, then Borrower shall be shown as a separate member ofsuch group; (q) allocate and charge fairly and reasonably any common employeeor overhead shared with any other Person; and (r) transact all business withAffiliates on an arm’s length basis, provided that Lender acknowledges that themanagement fees contained in the Management Agreement as of the date hereofshall be deemed in compliance with the foregoing requirement.

 

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“Soft Costs” meansall costs incurred or to be incurred in connection with the Project other thanHard Costs, including, without limitation, interest on the Loan, all feesincurred in connection with the Loan and payable to Lender, commissions,appraisal fees, architectural and engineering fees, title and recordingcharges, counsel fees, real estate tax reserves and interest reserves, realestate taxes and special assessments becoming due and payable during the periodof construction, Real Estate Taxes, marketing fees and those costs (other thanHard Costs) set forth in the Project Budget.

 

“State” means anystate or commonwealth in the United States of America.

 

“Survey” means acurrent survey of the Land, prepared by a surveyor licensed in the State wherethe Property is located and reasonably acceptable to Lender and the TitleInsurer as having been prepared in accordance with the “Minimum Standard DetailRequirements for ALTA/ACSM Land Title Surveys,” jointly established and adoptedby ALTA, NSPS and ACSM  in 1999,including items 1, 2, 3, 4, 6, 7(a), 7(b-1), 7(c), 8, 9, 10, 11(a), 13, 14, 15and 16 of Table A thereof, which shall include a certification from the surveyorpreparing the survey as set forth in Exhibit Fto this Agreement.  Without limitation ofthe foregoing, the Survey shall show (i)the legal description of the Project; (ii) dimensions and locations ofbuildings, fences, and other improvements; (iii) locations of all visible orrecorded easements (and recording numbers, to the extent recorded), setbacklines, rights of way, water courses, drains, sewers, utility lines, public andprivate roads (including the names and widths thereof and recording numbers forthe dedications thereof); (iv) if the Project comprises more than one parcel,interior lines and other data sufficient to insure contiguity; (v) if theProject is located in a flood plain; and (vi) such additional information whichmay be reasonably required by Lender or the Title Insurer.

 

“Sworn Contractor’s Statement”shall have the meaning ascribed to this term in Section5.2(a)(iii).

 

“Sworn Owner’s Statement”shall have the meaning ascribed to this term in Section5.2(a)(ii).

 

“Sworn Statement”shall have the meaning ascribed to this term in Section5.2(a)(iii).

 

“Title Commitment”means a commitment from the Title Insurer to issue to the Title Policy. TheTitle Commitment shall include all underlying documents referenced therein.

 

“Title Insurer”means Lawyers Title Insurance Corporation or any other nationally recognizedtitle insurance company approved by Lender.

 

“Title Policy”means an ALTA Mortgagee’s Policy (1992) of title insurance, with extendedcoverage, issued by the Title Insurer in the maximum amount of the Loan,containing, to the extent such endorsements are available under the laws of theState where the Property is located: (i) extended coverage, (ii) Lender’scomprehensive, (iii) access, (iv) creditors’ rights, (v) survey (accuracy ofsurvey), (vi) location (survey legal matches title legal), (vii) separate taxlot, (viii) plat act/subdivision or legal lot, (ix) zoning 3.0, (x) contiguity(if applicable), (xi) special restrictions (if applicable), (xii) utilityfacility endorsement, (xiii) street address, (xiv) variable rate, (xv) usury,(xvi) pending construction disbursement, (xvii) doing business, (xviii)foundation, (xix) condominium endorsement, and (xx) such other endorsements asLender may

 

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require based upon its counsel’s review of the Title Commitment andSurvey, insuring the Deed of Trust on the Property as a valid first prioritymortgage lien thereon, subject only to the Permitted Exceptions, and namingLender as the mortgagee insured.

 

“Total Project Costs”means the sum of, without duplication (and specifically excluding all costs ofconstruction already paid for): (A) all Hard Costs for work done and nottheretofore paid for or to be done through completion of the Project inaccordance with the Project Budget, based upon Lender’s Estimate ofConstruction Costs; (B) all Soft Costs and other costs and expenses payable byBorrower through completion of the Project, including, but not limited to,those costs to equip, fixture, furnish, develop, market and operate the Projectprior to the Maturity Date (including, but not limited broker’s fees, marketingfees, and condominium association dues); (C) all other unpaid costs set forthin the Project Budget; (D) all condominium assessments (not theretofore paidfor) with respect to unsold Residential Units or Parking Units; (E) all amountsdue to Lender under the terms of this Agreement, including, without limitation,Costs, and interest due or to become due and payable (and not theretofore paidfor) prior to the completion of the Project, but excluding payment of principaldue on the Maturity Date; (F) all Real Estate Taxes to be due and payable priorto the Maturity Date, as estimated and determined by Lender, in its reasonablediscretion; and (G) all other amounts as Lender, in its reasonable discretion,deems necessary or reasonable to complete the Project in accordance with theConstruction Documents, and to pay all liabilities and perform all obligationsof Borrower under the Loan Documents.

 

“Transfer” meansany sale, lease, exchange, assignment (either outright or collateral),conveyance, transfer, pledge, mortgage, trade, or other encumbrance of anyright, title or interest in all or any portion of the Property (whether legalor equitable), or any interest therein, or all or any part of the direct orindirect legal or beneficial ownership interest in Borrower (or any otherPerson as specifically referenced in this Agreement), whether voluntarily, byoperation of law or otherwise.

 

“UCC Financing Statements”means the UCC Financing Statements naming Borrower, as debtor, and Lender, assecured party, to be filed in: (a) the county in which the Property is located,but only if the Deed of Trust alone does not constitute a fixture filing insuch jurisdiction or if local counsel so advises, (b) the office of theSecretary of State of the State of Borrower’s organization and (c) in suchother jurisdictions as Lender may determine, as the case may be, in connectionwith the personal property described in the Deed of Trust and other LoanDocuments.

 

“Uniform Commercial Code”and “UCC” each mean the Uniform CommercialCode as in effect in any applicable jurisdiction, as amended from time to time.

 

“Unit” means aResidential Unit or a Parking Unit.

 

“Unit Release Payment”shall have the meaning ascribed to such term in Section8.7(c).

 

“Unit Releases”shall have the meaning ascribed to such term in Section8.7(b).

 

“Upgrade” meansany alteration, additional or extra work or change in or to the applicableResidential Unit, including changes or alterations to fixtures, appliances,equipment,

 

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hardware, the basic floor plan or other base construction standard withrespect to the applicable Residential Unit.

 

“Upgrade Profit” means an amount equal to thedifference between the consideration payable by a Contract Buyer for an Upgradeand the actual cost to Borrower to construct such Upgrade.

 

“Welfare Plan”means a “welfare plan”, as such term is defined in Section3(1) of ERISA.

 

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EXHIBIT A

 

THE LAND

 

All that certain lot, piece or parcel of land, withthe buildings and improvements thereon erected, situate, lying and being in theCounty of Fairfax and the Commonwealth of Virginia and being more particularlydescribed as follows:

 

Beginning at a point on the easterly right-of-way lineof West Ox Road (Route 608), said point marking the P.C. of a 55 foot radiusreturn at the southeasterly intersection of the said West Ox Road andPenderbrook Drive (Route 6558); thence with the said return, a curve to theright, whose chord is N 43°l0’OO”E, 81.21 feet, an arc distance of 91.36 feetto a point on a southerly right-of-way line of the said Penderbrook Drive;thence with the said right-of-way line of the said Penderbrook Drive thefollowing courses: with a curve to the right, whose radius is 729.95 feet andwhose chord is S64°26’02”E, 612.64 feet, an arc distance of 632.22 feet;S39°37’20”E, 395.59 feet; with a curve to the left, whose radius is 576.00 feetand whose chord is S57°32’30”E, 354.44 feet, an arc distance of 360.29 feet toa point marking the P.C. of a 25 foot radius return at the southwesterlyintersection of the said Penderbrook Drive and South Penderbrook Drive (Route7963); thence with the said return, a curve to the right, whose chord isS33°24’42”E, 33.49 feet, an arc distance of 36.69 feet to a point on thewesterly right-of-way line of the said South Penderbrook Drive; thence with thesaid right-of-way line of South Penderbrook Drive with a curve to the left,whose radius is 476.00 feet and whose chord is S02° 1 6’57”E, 180.35 feet, anarc distance of 181.45 feet and S 13° 12’ 1 0”E, 483.33 feet to a point markingthe northeasterly corner of Penderbrook, Section 7-A; thence running with thenortherly and westerly lines of Penderbrook, Section 7-A the following courses:with a curve to the left, whose radius is 28.50 feet and whose chord isN68°08’37”W, 18.32 feet, an arc distance of 18.65 feet; with a curve to theright, whose radius is 121.50 feet and whose chord is N78°32’30”W, 35.28 feet,an arc distance of 35.40 feet; N70°l 1 ‘36”W, 43.08 feet; N84°49’33”W, 73.50feet; N71°38’22”W, 36.91 feet; with a curve to the right, whose radius is936.00 feet and whose chord is N67°19’29”W, 93.69 feet, an arc distance of93.72 feet and S28°55’50”W, 188.50 feet to a point on a northerly boundary ofFairfax County Board of Supervisors; thence with the said boundary of FairfaxCounty Board of Supervisors N84°32’18”W, 122.85 feet and with a curve to theright, whose radius is 300.00 feet and whose chord is N74°l6’20”W, 106.93 feet,an arc distance of 107.51 feet to a point on an easterly right-of-way line ofWest Ox Road (Rt. 608); thence with the easterly right-of-way line of West OxRoad (Rt. 608) and continuing with the easterly and northerly lines of FairfaxCounty Board of Supervisors N13°09’12”W, 885.23 feet and S62°09’05”W, 236.69feet to a point on the aforementioned right-of-way line of West Ox Road; thencewith the said right-of-way line of West Ox Road the following courses: with acurve to the left, whose radius is 2919.79 feet and whose chord is N28°55’18”W,83.50 feet, an arc distance of 83.50 feet; N29°44’27”W, 251.91 feet; with acurve to the right, whose radius is 899.93 feet and whose chord is N18°01’27”W,365.50 feet, an arc distance of 368.06 feet and N06°l5’OO”W, 29.66 feet to thepoint of beginning, containing 19.38373 acres of land.

 

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EXHIBIT B

 

PROJECT BUDGET

 
| **PURCHASE PRICE**                     | ** ** | **$**         | **75,000,000** | ** ** |
|----------------------------------------|------------|---------------|----------------|------------|
|                                   |       |          |           |
| **SOFT COSTS**                         |       |          |           |
| Appraisal, Environmental, Market Study |       | 15,000        |           |
| Insurance                              |       | 14,000        |           |
| Title                                  |       | 125,000       |           |
| Recordation & Tax Stamp Costs      |       | 405,000       |           |
| Legal, Organizational & Condo Docs |       | 50,000        |           |
| Marketing                              |       | 715,000       |           |
| Production Overhead                    |       | 392,000       |           |
| Real Estate Taxes                      |       | 103,000       |           |
| Sales Management                       |       | 51,000        |           |
| Loan Fee                               |       | 670,000       |           |
| Other Fees/Costs                       |       | 196,000       |           |
| Interest Reserve                       |       | 1,731,000     |           |
| Soft Cost Contingency                  |       | 140,000       |           |
| **TOTAL SOFT COSTS**                   | ** ** | **4,607,000** | ** **     |
|                                   |       |          |           |
| **HARD CONSTRUCTION COSTS**            |       |          |           |
| Unit Upgrades                          |       | 3,400,837     |           |
| Common Area Upgrades                   |       | 2,127,163     |           |
| **TOTAL HARD COSTS**                   | ** ** | **5,528,000** | ** **     |
| ** **                             | ** ** | ** **    | ** **     |
| **TOTAL PROJECT BUDGET**               | ** ** | **$**         | **85,135,000** | ** ** |

 

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EXHIBIT C

 

PENDING LITIGATION

 

Open Matters as of1/24/05

 

1.                                       Kosarskiv. Comstock Homes of North Carolina, L.L.C.

- Litigation filed bypurchaser of one of our homes alleging failure to complete punchlist items postsettlement.  Amount in controversy isapproximately $9000 plus claimed attorneys fees and costs.

 

2.                                       KenHinkle Associates, Inc. v. Comstock Homes, Inc.

- We have been servedwith a motion to compel arbitration as a result of withholding payment fromsubcontractor whose work we deemed inferior. Withheld payment is in the amount of $67,656.30.

 

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EXHIBIT D

 

OWNERSHIP CHART

 

 

Borrower is 100% owned byComstock Homebuilding Companies, Inc.

 

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EXHIBIT E

 

MINIMUM SALESGUIDELINES

 

[See attached]

 

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EXHIBIT F

 

CERTIFICATION OFSURVEYOR

 

To:                              [BORROWER];CORUS BANK, N.A., together with its successors and assigns; and[TITLE INSURANCE COMPANY]

 

I hereby certify that:

 

(a)   this survey was prepared byme or under my supervision in accordance with the “Minimum Standard DetailRequirements for ALTA/ACSM Land Title Surveys,” jointly established and adoptedby ALTA and ACSM and NSPS in 1999 and includes Items 1 through 4, 6 though 11and 13 through 16 of Table A thereof and was prepared pursuant to the accuracystandards (adopted by ALTA and ACSM) of a Class A Survey, as defined therein;

 

(b)   this survey which wasestablished by a transit-tape (instrument) field survey actually made on theground pursuant to the record description is true, correct and accurate as tothe boundaries and areas of the subject property and the location and number ofparking spaces, size, location, dimension and type of buildings andimprovements thereon (if any), and as to the other matters shown hereon, itshows the location and dimension of all improvements, rights-of-way, easementsand any other matters affecting the subject property;

 

(c)   there are no party walls orencroachments on adjoining Property, streets or alleys by any buildings, structures,or other improvements located on the subject property and there are noencroachments on the subject property by buildings, structures or otherimprovements situated on adjoining property, except as shown on the survey andset forth as a Field Note;

 

(d)   adequate ingress to andegress from the subject property is provided by [NAME OF STREETS], the samebeing paved, dedicated public right(s)-of-way maintained by [NAME OFMAINTAINING AUTHORITY];

 

(e)   the subject property doesnot serve any adjoining property for drainage, ingress and egress or any otherpurpose except as shown on the survey and set forth as a Field Note;

 

(f)    the undersigned hasreceived and examined a copy of Title Insurance Commitment No.           ,issued by                                     Title Insurance Company, and of each instrument listed therein; the location ofeach such easement, right-of-way, servitude and other matter affecting title,to the extent it can be located, has been shown on the survey with appropriaterecording reference; and all matters that cannot be located have been listedhereon as a Field Note; the subject property shown on the survey is theproperty described in the Title Insurance Commitment;

 

(g)   all required buildingsetback lines on the subject property are located as shown hereon and thelocation of all improvements (if any) on the subject property are in accordancewith minimum setback provisions and restrictions of record referenced in theTitle Insurance Commitment and required by zoning and building ordinancesapplicable in the State, City and County in which the subject property issituated;

 

(h)   the survey correctly shows:(i) the zoning classification for the subject property, (ii) the permitted useswithin such classification; and (iii) the sources of such information;

 

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(i)    I have consulted the U.S.Department of Housing and Urban Development, Federal Insurance AdministrationFlood Hazard Boundary Map, Community Number                       ,Sheet Number                       revised                     ,and found that the subject property is not located in a special flood hazardarea according to the map;

 

(j)    the undersigned expresslyunderstands and agrees that: (a) this Certificate is made to induce CORUS BANK, N.A. (together with its successors andassigns, “Lender”) to extend credit secured by a deed of trust, deed to securedebt or mortgage lien covering the subject property and to induce [TITLEINSURANCE COMPANY] (“Title Insurer”) to issue a policy of title insuranceinsuring the validity and priority of such lien; (b) both Lender and TitleInsurer are entitled to rely upon this plat of survey as being true andaccurate in all respects and upon this Certificate as being true and accurate;and (c) the consideration paid to the undersigned for the preparation andcertification of such survey has been paid, in part, for the benefit of Lenderand Title Insurer and in anticipation of their reliance hereon.

 
|                   | (Signature of Surveyor) |
|------------------------|-------------------------|
| (Surveyor’s Seal) | Registered Surveyor,    |
|                   | State of:               |
|                   |                    |   |
|                   | Registered No.          |
|                   |                    |   |
|                   |                    |   |
|                   | Date of Survey:         |
|                   | Date of Last Revision:  |
|                        |                         |  |  |

 

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EXHIBIT G

 

FORM OFCONDOMINIUM CONTRACT

 

[See attached]

 

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