Document:

exv10w2

 

EXHIBIT 10.2

Loan No. 1686410

CONSTRUCTION LOAN AGREEMENT

Between

SAN DIEGO NATIONAL BANK,

a national banking association
(“Lender”)

And

SCIENCE PARK CENTER LLC,

a California limited liability company
(“Borrower”)

CONSTRUCTION LOAN AGREEMENT

        IN
CONSIDERATION of the covenants contained in this Agreement, Lender agrees to
lend to Borrower, and Borrower agrees to borrow from Lender, up to the full
amount of the Loan hereinafter described, upon and subject to the following
provisions and conditions. 

ARTICLE 1 - FUNDAMENTAL PROVISIONS

        1.1   Purpose.  This
Article 1 sets forth certain fundamental provisions for purposes of this
Agreement. The captions of this Article are used as defined terms in this
Agreement. 

        1.2   
 Date of this Agreement.  September 25, 2003.

        1.3   
Lender.  SAN DIEGO NATIONAL BANK,  a national banking association.

        1.4   
 Borrower.  SCIENCE PARK CENTER LLC, a California limited liability company.

        1.5   
 Peony.  PEONY ACQUISITIONS LLC, a Delaware limited liability company.

        1.6    Loan.  A
construction loan to be made by Lender to Borrower, in the principal amount of up to $60,600,000.00, together with any additional
advances related thereto, upon and subject to the provisions and conditions of this Agreement and the other Loan Documents.

 

        1.7   
Guarantor.  NEUROCRINE BIOSCIENCES, INC., a Delaware corporation.

        1.8   
Construction  Loan Fee.  A fee for the Loan in the amount of  $518,250. $100,000  of the  Construction
Loan Fee has  already been paid by Borrower to Lender pursuant to the provisions and conditions of Borrower’s
application letter to Lender.

        1.9   
Extension Fee.  A fee payable by Borrower in consideration of the extension of the term of the
Loan from the Initial Maturity Date to the First Extended Maturity Date, in the amount of one half of one percent
(0.50%) of the sum of the principal balance outstanding as of the date the applicable Extension Notice is delivered.

        1.10   
Land.  That certain real property located in San Diego, California, as more particularly
described on Exhibit “A” attached hereto and incorporated by
this reference, consisting of Parcel A and Parcel B.

        1.11   
Parcel A.  That certain real property located in San Diego, California, as more particularly
described on Exhibit “B” attached hereto and incorporated
herein by this reference, constituting a portion of the Land.

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        1.12   
Parcel B.  That certain real property located in San Diego, California, as more particularly
described on Exhibit “C” attached hereto and incorporated
herein by this reference, constituting a portion of the Land.

        1.13   
Improvements.  A two-building, approximately 205,117 square foot office/lab/research and
development project, with associated parking, common area and other improvements.

        1.14   Closing Date.  The date upon which all of the conditions set forth herein relating to and for
the Initial Disbursement have been satisfied.

        1.15   Commencement Date.  The date upon which construction of the Improvements has commenced.

        1.16   Completion Date.  January 1, 2005.

        1.17    Initial Maturity Date.  September 25, 2005.

        1.18   First Extended Maturity Date.  The date which is twelve (12) months after the Initial Maturity Date.

        1.19   Estimated Total Project Cost.  $71,668,996.00

        1.20   Required  Borrower  Invested Funds.  An amount equal to the difference  between the Estimated Total Project Cost and the amount
of the Loan.

        1.21   Borrower’s Funds at Recordation.  $ 0.

        1.22   Change Order Amount.  $100,000.

        1.23   Aggregate Change Order Amount.  $500,000.

        1.24   Architect.  Dowler-Gruman Architects.

        1.25   General Contractor.  Ledcor Petty Construction, L.P.

        1.26   Title Insurer.  Chicago Title Insurance Company.

        1.27   Address for Notices to Lender.

	 	San Diego National Bank
	 	1420 Kettner Boulevard
	 	San Diego, California 92101
	 	Attention: Mr. James Holliman

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        1.28   Address for Notices to Borrower.

	 	Science Park Center, LLC
	 	10555 Science Center Drive
	 	San Diego, California 92121
	 	Attn: Paul Hawran
	 	 
	 	With a copy to:
	 	 
	 	Neurocrine Biosciences, Inc.
	 	10555 Science Center Drive
	 	San Diego, California 92121
	 	Attn: Margaret E. Valeur-Jensen

        1.29   Borrower’s U.S. Taxpayer Identification Number:  33-0745791

ARTICLE 2 - ADDITIONAL DEFINED TERMS

        2.1   Captions as Defined  Terms.  The captions  appearing in Article 1 and in the balance of this Article 2 will be used as defined
terms in this Agreement.

        2.2   Applicable Interest Rate.  The interest applicable to the Note, as specifically set forth therein.

        2.3   Architect Contract.   An architecture agreement between Architect and Owner for the design of the Improvements.

        2.4   Architect Warranty,
Agreement and Consent to Assignment.  The Architect Warranty, Agreement and
Consent to Assignment to be executed by Architect in favor of Lender with
respect to the Project substantially in the form of Exhibit “D”
attached hereto and incorporated herein by this reference with such
modifications as may be approved by Lender in its reasonable discretion.

        2.5   Assignment of
Architect Contract.  The Assignment of Architect Contract to be executed by
Guarantor, as agent for Peony, in favor of Lender in connection with the Loan in
the form of Exhibit “E” attached hereto and incorporated herein
by this reference.

        2.6   Assignment of
Construction Contract.  The Assignment of Construction Contract of even date
herewith, executed by Peony in favor of Lender in connection with the Loan.

        2.7   Assignment of
Development Agreement.  The Assignment of Development Agreement of even date
herewith, executed by Peony and Guarantor in favor of Lender in connection with
the Loan.

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        2.8   Assignment of
Leases.  The Assignment of Rents and Leases of even date herewith, executed
by Peony in favor of Lender in connection with the Loan.

        2.9   Assignment of Leases
(Guarantor).  The Assignment of Rents and Leases to be executed by Guarantor
in favor of Lender in connection with the Loan in the form of Exhibit “F” attached hereto and incorporated herein by this reference.

        2.10   Assignment of
Permits and Deposits.  The Assignment of Permits and Deposits of even date
herewith, executed by Peony in favor of Lender in connection with the Loan. 

        2.11   Assignment of Plans
and Specifications.  The Assignment of Plans and Specifications of even date
herewith, executed by Peony in favor of Lender in connection with the Loan.

        2.12   Borrower’s Funds.
  The funds, if any, required to be deposited by Borrower with Lender pursuant to this Agreement.

        2.13   Borrower’s
Funds Account.  A special interest-bearing account, with and controlled by
Lender, into which all Borrower’s Funds shall be deposited pending
disbursement pursuant to this Agreement. All funds in the Borrower’s Funds
Account shall be disbursed prior to the disbursement of any funds then in the
Undisbursed Loan Account, except as may otherwise be agreed by Lender in
writing.

        2.14   Business Day. 
Any day other than a Saturday or Sunday, which is not a legal holiday in the
state of California and which is not a date on which national banks in the state
of California are authorized to close.

        2.15   Change Order. 
Any material amendment or modification of the Plans, the General Contract or any
subcontract. All Change Orders shall be in writing. Certain Change Orders
require Lender’s prior written approval pursuant to this Agreement. 

        2.16   Completion.  The
date upon which all of the following conditions are met to the satisfaction of
Lender: (a) Architect certifies that the Improvements have been substantially
completed substantially in accordance with the Plans; and (b) a certificate of
occupancy has been issued for the Improvements or other evidence of completion
satisfactory to Lender in its sole discretion.

        2.17   Completion
Guaranty.  The Lien-Free Completion Guaranty executed by Guarantor in favor
of Lender, guaranteeing, without limitation, the lien-free completion of the
Improvements. 

        2.18   Construction
Contract.  That certain Contract for Construction, AIA Document A201-1997
(1997 Edition), dated September 19, 2003 between Peony and General Contractor.

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        2.19   Construction
Schedule.  A construction progress schedule, in a form acceptable to Lender,
showing the progress of construction and the projected sequencing and completion
time for uncompleted work, all as of the date of such schedule, together with
such updates thereof as Lender may request.

        2.20   Cost Breakdown. 
The itemized schedule of costs on a line item basis set forth on Exhibit
“G” attached hereto and incorporated herein by this reference,
covering all costs of constructing and completing the Improvements, together
with such amendments to the schedule as may have been approved in writing by
Lender in accordance with this Agreement.

        2.21   Deed of Trust. 
The Construction Deed of Trust, Security Agreement and Fixture Filing of even
date herewith executed by Peony, as Trustor, in favor of Lender, as Beneficiary,
encumbering the Property, given to secure the Note and other obligations of
Borrower related thereto.

        2.22   Deed of Trust
(Guarantor).  The Construction Deed of Trust, Security Agreement and Fixture
Filing, executed by Guarantor in favor of Lender in connection with the Loan in
the form of Exhibit “H” attached hereto and incorporated herein
by this reference.

        2.23   Deposits.  Any
and all of Borrower’s rights to the reimbursement or payment of money,
refunds, cost savings and deposits relating to the Property, whether now or
later to be received from third parties or deposited by Borrower with third
parties (including all utility deposits).

        2.24   
Disbursement or Disbursements.  All advances made by Lender from time to time under the Loan.

        2.25   
Disbursement  Schedule.   The schedule  set forth on Exhibit “I” attached hereto and  incorporated  herein by this  reference,
governing Disbursements from the Undisbursed Loan Account and Borrower's Funds Account.

        2.26   
Disclosure Re Hazard  Insurance  Coverage.   The  Disclosure Re Hazard Insurance Coverage of even date herewith  executed by
Borrower in favor of Lender in connection with the Loan.

        2.27   
Environmental Indemnity.   The Unsecured Environmental Indemnity  of even date  herewith  executed by Guarantor in favor of
Lender with respect to the Project.

        2.28   Environmental
Indemnity-Borrower.  The Unsecured Environmental Indemnity-Borrower of even
date herewith executed by Borrower in favor of Lender with respect to the
Project. 

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        2.29   Environmental
Laws.  Any and all present and future federal, state and local laws,
ordinances, regulations, permits, orders, rules, approvals, guidance
documents, policies, and any other requirements of all governmental agencies, departments,
commissions, boards, bureaus, or instrumentalities of the United States, states,
and political subdivisions thereof and all applicable judicial, administrative,
and regulatory decrees, judgments, and orders relating to health, safety, the
environment or to any Hazardous Substances or Hazardous Substances Activity,
including, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (“CERCLA”), the Resource
Conservation Recovery Act (“RCRA”), the Hazardous Materials
Transportation Act, the Toxic Substance Control Act, the Clean Water Act, the
Endangered Species Act, the Clean Air Act, the Occupational Health and Safety
Act and the applicable provisions of the California Health and Safety Code and
the California Water Code, and the rules, regulations and guidance documents
promulgated or published thereunder. 

        2.30   Environmental Losses. 
Losses suffered or incurred at any time by Lender arising out of or as a result of:

        
        2.30.1   any Hazardous
Substance Activity that occurs or is alleged to have occurred in whole or in
part on or prior to the Transfer Date; 

        
        2.30.2   any violation on or
prior to the Transfer Date of any applicable Environmental Laws relating to the
Property or to the ownership, use, occupancy or operation thereof; 

        
        2.30.3   any demand,
requirement, investigation, inquiry, order, hearing, action, or other proceeding
by or before any governmental agency in connection with any Hazardous Substance
Activity that occurs or is alleged to have occurred in whole or in part on or
prior to the Transfer Date; 

        
        2.30.4   any investigation,
monitoring and(or) clean-up activities conducted at any time by Guarantor
and(or) Borrower upon the Property as part of its efforts to clean up any
Hazardous Substance relating to or arising from any Hazardous Substance Activity
that occurs or is alleged to have occurred in whole or in part on or prior to
the Transfer Date; 

        
        2.30.5   personal injury or
injury to property or natural resources occurring upon or off of the Property,
including, without limitation, lost profits and the cost of demolition and
rebuilding of any improvements on real property, relating to or arising from any
Hazardous Substance Activity that occurs or is alleged to have occurred in whole
or in part on or prior to the Transfer Date;

        
        2.30.6   the preparation of
any feasibility studies or reports or the performance of any cleanup,
remediation, removal, response, abatement, containment, closure, restoration or
monitoring work in connection with any Hazardous Substance Activity that occurs
or is alleged to have occurred in whole or in part on or prior to the Transfer
Date and is required by any federal, state, or local Governmental Authority or
political subdivision, or reasonably necessary to make full economic use of the
Property or any other property;

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        2.30.7   diminution in the
value of the Property, or the loss of business and(or) restriction on the use
of, or adverse impact on the marketing of, rentable or usable space or of any
amenity of the Property, relating to or arising from any Hazardous Substance
Activity that occurs or is alleged to have occurred in whole or in part on or
prior to the Transfer Date; or

        
        2.30.8   any claim, demand or
cause of action, or any action or other proceeding, whether meritorious or not,
brought or asserted against any of the indemnified parties which directly or
indirectly relates to, arises from or is based on any of the matters described
in clauses 2.30.1, 2.30.2, 2.30.3, 2.30.4, 2.30.5, 2.30.6 or 2.30.7 or any
allegation of any such matters. 

        Environmental
Losses shall include Losses suffered or incurred by Lender or any of such other
indemnified parties after the Transfer Date that would not have been incurred or
suffered but for any matter described in clauses 2.30.1, 2.30.2, 2.30.3, 2.30.4,
2.30.5, 2.30.6, 2.30.7 or 2.30.8 or any allegation of any such matters,
including, without limitation, Environmental Losses incurred by any of the
Indemnified Parties arising out of or as a result of (i) the introduction or
release of a Hazardous Substance which is discovered or released at the Property
or any portion thereof after the Transfer Date, but which were introduced at the
Property prior to the Transfer Date, and (ii) the continuing migration or
release of any Hazardous Substance introduced in, on or under the Land or
surrounding property prior to the Transfer Date; provided that Environmental
Losses shall not include Losses arising from Lender’s or an indemnified
party’s gross negligence or willful misconduct. 

        2.31   Estoppel
Certificate.  The Estoppel Certificate completed and executed by Guarantor in
favor of Lender, on or before the Title Transfer Date in connection with the
Property Lease, in the form of Exhibit “J” attached hereto and
incorporated herein by this reference. 

        2.32   Event of Default. 
 Any one of the events of default specified in Article 11 herein captioned “Default.”

        2.33   Extension
Notice.  Written notice delivered by Borrower to Lender pursuant to Paragraph
3.7, stating Borrower’s election to exercise its Extension Option. The
Extension Notice shall also contain Borrower’s certification that all
representations and warranties of Borrower in this Agreement are true and
correct as of the date the Extension Notice is delivered and shall continue to
be correct as of the Initial Maturity Date. 

        2.34   Extension
Option.  Borrower’s right, upon and subject to the provisions and
conditions set forth in Paragraph 3.7, to extend the term of the Loan from the
Initial Maturity Date to the First Extended Maturity Date. 

        2.35   Extension Term. 
 The period following the Initial Maturity Date until the First Extended Maturity Date.

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        2.36   Final Disbursement.   The payment of sums retained from  Disbursements to be made after the Completion of the Improvements and
upon satisfaction of the conditions precedent set forth in Paragraph 4.4.

        2.37   Financial
Statements.  Financial statements of Borrower, Guarantor and such other
Persons as may be required by Lender, as more particularly set forth herein. So
long as the Guarantor is subject to the reporting provisions of the Securities
Exchange Act, as amended (the “Exchange Act”), the timely filing
(including all permissible extension periods provided under Rule 12b-25 under
the Exchange Act) on the Securities and Exchange Commission’s EDGAR system
of the Guarantor’s quarterly report on Form 10-Q for such period and annual
report on Form 10-K for such period will be deemed to satisfy all of the
foregoing requirements of this Section. 

        2.38   Force Majeure. 
Only an action of the elements, war, riot, civil unrest, terrorism, flood,
earthquake, other acts of God or labor strike; provided, however: (a) a delay
caused by Force Majeure shall not be recognized unless Borrower notifies Lender
in writing of the existence of the event of Force Majeure within ten (10) days
after the commencement thereof, explaining in detail the nature of the event of
Force Majeure and the manner in which the event of Force Majeure has prevented
Borrower from performing its obligations, (b) in no event shall the cumulative
periods of Force Majeure exceed ninety (90) days, and (c) in no event shall any
Force Majeure event impair or relieve any payment obligation of Borrower, Peony,
Guarantor, or any other Persons, as required by Lender under any of the
documents listed in Paragraph 3.4 of this Agreement, or act to release or impair
any security held by Lender under said documents. 

        2.39   GAAP.   Generally accepted accounting principles.

        2.40   General Contract.   The applicable  contracts between Peony and General  Contractor for construction of the  Improvements,  as
specifically identified in the Assignment of Construction Contract.

        2.41   General Contractor
Warranty, Agreement and Consent to Assignment.  The General Contractor
Warranty, Agreement and Consent to Assignment to be executed by General
Contractor in favor of Lender with respect to the Project.

        2.42    Governmental
Authority.  The United States, the State of California, the County of San
Diego, the City of San Diego, and any other political subdivision located
therein, and any agency, department, commission, board, bureau or
instrumentality of any of them. 

        2.43   Governmental Requirement. 
 Any law, ordinance, order, rule, regulation or requirement of a Governmental Authority.

        2.44   Guaranty. 
 The Guaranty executed by Guarantor in favor of Lender,  guaranteeing the Borrower’s  performance of its obligations
under all of the Loan Documents.

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        2.45   Hazardous Substance. 

        
        2.45.1  any substance the presence of which requires investigation or remediation under any federal, state
or local statute, regulation, ordinance, order, action, policy, or common law;

           
     2.45.2  any chemical, compound, material, mixture or substance that is now, or at any time in the
future becomes, defined or listed in, or otherwise classified pursuant to any
Environmental Laws as a “hazardous substance,” “hazardous
material,” “hazardous waste,” “extremely hazardous
waste,” “acutely hazardous waste,” “radioactive waste,”
“infectious waste,” “biohazardous waste,” “toxic
substance,” “pollutant,” “toxic pollutant,”
“contaminant,” or “waste,” including but not limited to, the
Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C.
§9601 et seq.), the Resource Conservation and Recovery Act (42 U.S.C.
§6901 et seq.), the California Health and Safety Code (§25281(f)), or
the California Water Code (§13050(d)); 

        
        2.45.3  any substance,
chemical, compound, material, mixture or formulation which is toxic, explosive,
corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic, or
otherwise hazardous and is, or at any time in the future becomes, regulated by
any Governmental Authority, agency, department, commission, board, or
instrumentality of the United States, the State of California, or any political
subdivision thereof; 

        
        2.45.4   any substance the
presence of which on the Property causes or threatens to cause a nuisance,
trespass, or waste upon the Property or to adjacent properties or poses or
threatens to pose a hazard to the health or safety of persons on or about the
Property; 

        
        2.45.5   without limitation
any substance which contains petroleum, natural gas, natural gas liquids,
liquefied natural gas, synthetic gas usable for fuel (or mixtures of natural gas
and such synthetic gas), ash produced by a resource recovery facility utilizing
a municipal solid waste stream, and drilling fluids, produced waters and other
wastes associated with the exploration, development or production of crude oil,
natural gas or geothermal resources; 

        
        2.45.6  asbestos in any form;

        
        2.45.7   without limitation
any substance which contains ureal formaldehyde foam insulation, polychlorinated
biphenyls (PCBs), radon gas; and 

        
        2.45.8   any other chemical,
material or substance that, because of its quantity, concentration or physical
or chemical characteristics, is controlled or regulated for health and safety
reasons by any Governmental Authority, or which poses a significant present or
potential hazard to human health and safety or to the environment if released
into the workplace, atmosphere, soil, surface waters, or groundwater. 

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2.46   Hazardous Substance Activity.   Any actual, proposed or threatened use, storage, holding,
existence, release (including any spilling, leaking, pumping, pouring, emitting,
emptying, dumping, disposing into the environment, and the continuing migration
into or through soil, surface water or groundwater), emission, discharge,
generation, processing, abatement, removal, disposition, handling or
transportation to or from the Property of any Hazardous Substances from, under,
in, into or on the Property or surrounding property, including, without
limitation, the movement or migration of any Hazardous Substance from
surrounding property or groundwater in, into, onto or under the Property or from
the Property to surrounding property or groundwater. 

        
2.47   Initial Disbursement.  The Disbursement made upon the Closing Date which: (a) pays to
Borrower these amounts consistent with the Cost Breakdown approved by Lender;
and (b) pays to Lender the remaining amount of the Construction Loan Fee and
Lender’s fees and costs pursuant to Paragraph 3.3 hereof. 

        2.48   Inspection
Agent.  An inspecting architect, engineer or other agent of Lender’s
choice designated by Lender to perform, at Borrower’s sole cost and
expense, the inspection services set forth in Subparagraph 7.6.3. Lender has
initially selected Real Estate Engineering, Inc., as its Inspection Agent,
however Lender shall be entitled to replace such Inspection Agent as it deems
appropriate in its sole discretion. 

        2.49   
Interest Reserve Amount.  The amount set forth on the Cost Breakdown,  against which interest  disbursements  shall be drawn or
credited as provided in the Disbursement Schedule. 

        2.50   List of
Contractors.  A complete list stating: (a) the name, address and telephone
number of each contractor, subcontractor and supplier of materials and services
to be employed or used in connection with the construction of the Improvements;
(b) the dollar amount of each contract and subcontract, including any amendments
thereto; and (c) the portion thereof paid through the date of such list. 

        2.51   Loan Documents. 
This Agreement, the Note, the Deed of Trust, the Environmental Indemnity and all
other documents, if any, now or hereafter executed by Borrower, Guarantor, Peony
or any surety (certain of which are secured and certain of which are unsecured)
in connection with or to evidence or secure the payment of the Loan, any
interest, costs and other charges associated therewith, or any performance
required by this Agreement or any other such document. 

        2.52   Losses.  Losses
means any and all losses, liabilities (including strict liability), damages
(whether actual, consequential, punitive or otherwise denominated), demands,
claims, actions, judgments, good faith settlements, causes of action,
assessments, penalties, fines, interest, encumbrances, liens, expenses of
investigation, assessment or remediation, and any other costs and expenses
(including, without limitation, attorneys’ fees and expenses, expert and
consultant fees, laboratory fees, and disbursements), of any and every kind or
character, foreseeable or unforeseeable, liquidated and contingent, proximate
and remote, including, without limitation, any of the foregoing caused by the
negligence of any indemnified party; provided, however, Losses shall not include
any of the foregoing arising out of the gross negligence or willful misconduct
of any indemnified party. 

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        2.53   LTV Ratio.  The
loan-to-value ratio, which for purposes of this Agreement shall mean the
percentage that the maximum principal amount of the Loan bears to the value of
the Property, based on the Lender-approved appraisal, including a valuation
estimate of the Property. 

        2.54   Manager Warranty,
Agreement and Consent to Assignment.  The Manager Warranty, Agreement and
Consent to Assignment executed by Guarantor in favor of Lender with respect to
the Project. 

        2.55   Note. 
 The Promissory Note of even date herewith executed by Borrower in favor of Lender in the principal amount of the Loan.

        2.56   Organizational
Documents.  With respect to any Person who is not a natural person,
memorandum of association, articles of association, trust agreement, articles of
incorporation, bylaws, partnership agreement, limited partnership agreement,
certificate of partnership or limited partnership, limited liability company
articles of organization, limited liability company operating agreement or any
other organizational document, and all shareholder agreements, voting trusts and
similar arrangements with respect to its stock, partnership interests,
membership interests or other equity interest. 

        2.57   Pardee Homes
Letter.  The Pardee Homes Letter, which shall be delivered to Lender
regarding the purchase option in favor of Pardee Homes, a California
corporation, with respect to the Property, and which shall be in form and
substance acceptable to Lender. 

        2.58   Permitted
Encumbrances.  (a) Claims, liens and encumbrances shown in the Title Policy,
together with such other matters as Lender has specifically consented to in
writing; (b) Impositions (as defined in the Deed of Trust) not yet due and
payable or which are being contested in accordance with Paragraph 4.11(d) of the
Deed of Trust; (c) liens for materials supplied or for labor or services
performed not yet due or payable or which are being contested in good faith and,
to the extent applicable, in accordance with Paragraph 4.20 of the Deed of Trust
or secured by a bond or other security reasonably acceptable to Lender; (d)
other liens incurred in the ordinary course of business that do not in the
aggregate exceed $100,000 or materially impair the use, development,
construction or operation of the Property or the value thereof; (e) any
materialmen’s or mechanics’ lien or similar encumbrance that does not
cause a breach of the covenant set forth in Paragraph 7.9 or is otherwise
permitted under the Loan Documents; (f) applicable zoning and building
regulations and ordinances in effect from time to time that do not materially
effect the use of the Property; and (g) the claims, liens and encumbrances
created by the Loan Documents. 

        2.59   Person.  Any
individual, general partnership, limited partnership, limited liability company,
joint venture, trust, estate, corporation, association or other entity. 

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        2.60   Personal Property.   The personal property described as such in the Deed of Trust.

        2.61   Plans.  The
plans and specifications for construction of the Improvements in their state of
completion as of the Closing Date, approved as required in this Agreement, as
the same may be modified, amended or supplemented in accordance with this
Agreement. 

        2.62   Post-Closing
Agreement.  The Post-Closing Errors and Omissions Agreement of even date
herewith executed by Borrower, Guarantor and Peony in favor of Lender. 

        2.63   Project.   Borrower’s  development of the Property with a two-building,  approximately 205,117 square foot  office/lab/research
and development building.

        2.64   Project Costs. 
The amount required: (a) to pay all costs of acquisition of the Land and
development and construction of the Improvements; (b) to pay all sums which may
accrue under the Loan Documents before repayment of the principal amount of the
Loan in full, including, without limitation, all interest, and the amount
necessary to fund any account for Interest Reserve Amounts required by Lender in
relation to the Loan; and (c) to enable Borrower to perform and satisfy all of
its other covenants contained in the Loan Documents. 

        2.65   Project Cost
Schedule.  An itemized schedule on a line-item basis, covering the projected
total Project Costs (including, without limitation, all cost items shown on the
Cost Breakdown), specifying: (a) those portions of each Project Cost item which
have been incurred; and (b) those portions of each Project Cost item which have
been paid, all as of the date of such schedule, together with such updates
thereof as Lender may request. 

        2.66   Property.   The Land and the Improvements.

        2.67   Property Lease. 
That certain Lease to be executed on or before the Title Transfer Date by
Borrower, as landlord thereunder, and Guarantor, as tenant thereunder, which
shall be on market terms and shall be subject to Lender’s approval (which
approval shall not be unreasonably withheld or delayed) (it being acknowledged
that Borrower shall be responsible for Lender’s attorneys’ fees and
costs for review of the Property Lease). 

        2.68   Recordation. 
The date on which the Deed of Trust is recorded in the Official Records of San
Diego County as a first-priority lien upon the Property. 

        2.69   Remaining  Costs.   The amount that Lender from time to time  determines,  in its  judgment,  to be necessary  to pay,  through
Completion, all unpaid Project Costs.

        2.70   Security Agreement.   The Security Agreement of even date herewith executed by Guarantor in favor of Lender.

12

 

        2.71   Subordination and Standstill  Agreement.   The Subordination and Standstill Agreement executed by Guarantor,
 as second lender, and Lender, as first lender, in connection with the Loan.

        2.72   Subordination,
Non-Disturbance and Attornment Agreement.  The Subordination, Non-Disturbance
and Attornment Agreement executed by Lender, Borrower and Guarantor on or before
the Title Transfer Date, in connection with the Property Lease, in the form of
Exhibit “K” attached hereto and incorporated herein by this
reference. 

        2.73   Subsequent
Disbursements.  Each Disbursement after the Initial Disbursement, except for
the Final Disbursement, to be made upon satisfaction of the conditions precedent
set forth in Paragraph 4.3. 

        2.74   Tangible Net
Worth.  Shall mean, at any date, the excess of total assets over total
liabilities (other than contingent liabilities) of an individual or entity
determined in accordance with sound accounting principles consistent with those
applied in preparing the financial statements of such individual or entity
delivered to Lender prior to the date of this Agreement, excluding from the
determination of total assets all assets which would be classified as intangible
assets under GAAP. 

        2.75   Title Policy. 
The policy of title insurance issued by Title Insurer to be provided by Borrower
to Lender pursuant to Paragraph 10.1, together with all endorsements thereto
required under this Agreement or any of the other Loan Documents. 

        2.76   Title
Restrictions.  All covenants, conditions, restrictions, reservations,
easements, licenses, agreements and other matters, whether or not of record,
affecting the condition of title to the Property. 

        2.77   Title Transfer Date.   On or before November 26, 2003.

        2.78   Transfer Date. 
Means the date on which Lender (or its affiliate) acquires fee title to the
Land, the Improvements or any portion thereof pursuant to power of sale or
judicial foreclosure of the lien of the Deed of Trust, or by receipt of a deed
in lieu of such foreclosure, and all redemption rights which Borrower may have
expired, so long as a period of ninety-one (91) days have elapsed since the date
on which fee title vests in Lender (or its affiliate) and during such period no
bankruptcy or other insolvency proceeding is filed by or against Borrower. If
Borrower should remain in possession of the Property after the Transfer Date, or
if Borrower should engage in any Hazardous Substance Activity on or at the
Property after the Transfer Date, the Transfer Date shall be deemed to be the
date after which Borrower is no longer in possession of the Property and has
ceased to engage in any Hazardous Substance Activity on or at the Property. 

13

 

        2.79   UCC-1 Financing
Statement.  Prior to the Title Transfer Date, the Form UCC-1 Financing
Statement of even date herewith, naming Peony, as debtor thereunder, and Lender,
as secured party thereunder, in connection with the Loan, which shall be
replaced by a Form UCC-1 Financing Statement no later than the Title Transfer
Date, naming Borrower, as debtor thereunder, and Lender, as secured party
thereunder, in connection with the Loan. 

        2.80   Undisbursed Loan.   The amount of the Loan that has not been disbursed.

        2.81   Undisbursed Loan Account.   An internal  bookkeeping entry of Lender for Loan proceeds
 maintained by Lender for administration pursuant to this Agreement.

ARTICLE 3 - THE LOAN

        3.1   Application. 
Borrower proposes to construct, or provide funds for Peony to construct, the
Improvements on the Land in accordance with the Plans, and has applied to Lender
for the Loan for that purpose. 

        3.2   Loan; Consent for
Peony.  Lender hereby agrees to lend to Borrower, and Borrower hereby agrees
to borrow from Lender, up to the full amount of the Loan, to finance the
construction of the Improvements and for other purposes specified in the Loan
Documents, upon and subject to the provisions, conditions, representations,
warranties and covenants contained in this Agreement. Borrower hereby consents
to Peony’s encumbrance and record legal ownership of the Property in
connection with the Loan. 

        3.3   Loan Fees.  In
consideration of Lender’s agreement to make the Loan, upon and subject to
the provisions and conditions hereof, the Construction Loan Fee shall be due and
payable to Lender upon execution of this Agreement by Borrower and Lender.
Lender allowing the collection of the Construction Loan Fee to be deferred, for
a limited period of time, until the Closing Date shall not limit Borrower’s
obligation to pay the Construction Loan Fee. In addition, Borrower shall also
pay Lender’s appraisal fee, title insurance and recording fees, cost
analysis fees, survey fees, property inspection fees, all costs of Lender’s
legal counsel in preparing loan documentation and any and all other
out-of-pocket costs incurred by Lender. Lender acknowledges receipt of the
amount of $100,000 from Borrower under the Borrower’s loan application to
pay for said out-of-pocket costs incurred by Lender. To the extent that
Lender’s out-of-pocket costs then exceed the amount so deposited by
Borrower with Lender, then Lender is authorized to reimburse itself for the same
from the Initial Disbursement. 

        3.4   Conditions Precedent
to Closing Date.  Prior to the Closing Date and the concurrent funding of the
Initial Disbursement, and as conditions precedent thereto, Lender shall have
received (each executed, acknowledged and(or) certified by the applicable
parties thereto, where required as the case may be) and Lender, in its sole
discretion, shall have approved the content of the following documentation: 

        
        3.4.1      This Agreement.

        
        3.4.2      The Note.

14

 

        
        3.4.3      The Deed of Trust.

        
        3.4.4      The Assignment of Leases.

        
        3.4.5      The Environmental Indemnity.

        
        3.4.6      The Environmental Indemnity - Borrower.

        
        3.4.7      The Guaranty. 

        
        3.4.8      The Completion Guaranty.

        
        3.4.9      The Security Agreement.

        
        3.4.10     The Assignment of Construction Contract.

        
        3.4.11     The Assignment of Development, Construction and Property Management Agreement.

        
        3.4.12     The General Contractor Warranty, Agreement and Consent to Assignment.

        
        3.4.13     The Manager Warranty, Agreement and Consent to Assignment.

        
        3.4.14     The Assignment of Permits and Deposits.

        
        3.4.15     The Assignment of Plans and Specifications.

        
        3.4.16     The Subordination and Standstill Agreement.

        
        3.4.17     The Post-Closing Agreement.

        
        3.4.18     The Disclosure Re Hazard Insurance Coverage.

        
        3.4.19     The Pardee Homes Letter.

        
        3.4.20     Attornment Agreement (Purchase Agreement).

        
        3.4.21     Collateral Assignment (Deed of Trust).

        
        3.4.22     Collateral Assignment (Purchase Agreement).

        
        3.4.23     Estoppel Certificate (Peony - Parcel A Lease).

        
        3.4.24     Estoppel Certificate (Borrower - Development Agreement).

        
        3.4.25     Estoppel Certificate (Neurocrine International - Parcel B Lease).

        
        3.4.26     Estoppel Certificate (Neurocrine - Parcel A Lease).

15

 

        
        3.4.27     Estoppel Certificate (Neurocrine - Purchase Agreement).

        
        3.4.28     Estoppel Certificate (Pardee - Parcel B Lease).

        
        3.4.29     Estoppel Certificate (Pardee - Purchase Agreement).

        
        3.4.30     Estoppel Certificate (Peony - Parcel B Sublease) With Landlord Consent.

        
        3.4.31     Estoppel Certificate (Peony - Development Agreement).

        
        3.4.32     Leasehold Deed of Trust, Security Agreement and Fixture Filing.

        
        3.4.33     Leasehold Assignment of Rents and Leases.

        
        3.4.34     Subleasehold Deed of Trust, Security Agreement and Fixture Filing.

        
        3.4.35     Subleasehold Assignment of Rents and Leases.

        
        3.4.36     Subordination Agreement (Development Agreement).

        
        3.4.37     Subordination Agreement (Parcel A Lease).

        
        3.4.38     Subordination Agreement (Call and Put Option Agreement).

        
        3.4.39     A set of the Plans.

        
        3.4.40   Original insurance
certificates satisfactory to Lender for the insurance required by Article 10.
Original insurance policies for said insurance shall be provided by Borrower to
Lender within ninety (90) days of the Closing Date. 

        
        3.4.41   A current ALTA
survey of the Property, including dimensions, delineations and locations of all
easements thereon, satisfactory to Title Insurer. 

        
        3.4.42   As applicable to
Borrower and Guarantor, an opinion from Borrower’s and Guarantor’s
counsel addressing the matters set forth in Paragraphs 6.2 through 6.10 of this
Agreement and such other matters as may be required by Lender. 

        
        3.4.43   Letters from local
utility companies or applicable Governmental Authorities (or other evidence
satisfactory to Lender in its sole discretion) stating that electric, gas,
sewer, water, telephone and other utility services and facilities necessary for
the development of the Land will be available to the Land upon Completion of the
Improvements. 

        
        3.4.44   A soils investigation report from a soils engineer acceptable to Lender.

16

 

        
        3.4.45   An environmental
site assessment of the Land from an environmental or hazardous materials
consultant acceptable to Lender and reviewed by Lender’s environmental risk
management staff. 

        
        3.4.46   An appraisal of the
Property from an appraiser acceptable to Lender documenting a minimum value for
the Property upon Completion of not less than $67,000,000. 

        
        3.4.47   Evidence
satisfactory to Lender, including without limitation an independent cost review
of the same undertaken at Borrower’s expense, that the Cost Breakdown
accurately reflects all costs associated with the Improvements and that the Loan
will be no greater than the lesser of: (a) $60,600,000; or (b) ninety percent
(90%) of the Project Costs. 

        
        3.4.48   Certified copies of
Borrower’s, Peony’s and Guarantor’s Organizational Documents,
evidence satisfactory to Lender that Borrower and Guarantor have been duly
organized and are validly existing, and borrowing authorizations and(or)
resolutions as specified by Lender. 

        
        3.4.49   All zoning and land
use approvals, building permits, construction licenses and all other approvals
required to undertake and complete construction of the Improvements and the
occupancy thereof by Guarantor in accordance with the Plans, Construction
Schedule and Cost Breakdown, excluding any building permits that are not
required for any stage of construction that is underway. 

        
        3.4.50     The license, financial statements and resume of General Contractor.

        
        3.4.51     Copies of Borrower’s contracts with General Contractor.

        
        3.4.52     The 2002 Federal tax return of each of Borrower and Guarantor.

        In
addition, on or prior to the Closing Date and the concurrent funding of the
Initial Disbursement, and as a condition precedent thereto, Title Insurer shall
have issued or committed to issue the Title Policy. 

        3.5   Undisbursed Loan
Account.  Upon the Closing Date, Lender is authorized to create the
Undisbursed Loan Account, from which Lender shall disburse the Loan proceeds at
the time, in the manner and subject to the limitations set forth in this
Agreement. Interest shall accrue on such Loan proceeds at the rate specified in
the Note with respect to each Disbursement from and after the date on which such
Disbursement is made. Until disbursed, Loan proceeds shall neither bear nor earn
interest. All Loan proceeds shall be evidenced by the Note, and shall be secured
by the Deed of Trust and other applicable Loan Documents. 

17

 

        
3.6   Term of Loan.  The Loan shall mature, and all amounts due from Borrower to Lender shall be due
and payable in full on or before: (a) the Initial Maturity Date, if the
Extension Option is not validly exercised; or (b) the First Extended Maturity
Date, if the Extension Option is validly exercised. Borrower acknowledges and
agrees that subject to its valid exercise of its Extension Option pursuant to
Paragraph 3.7 below, Borrower is and shall be solely responsible for arranging
funds necessary to pay Lender in full on or before: (a) the Initial Maturity
Date, if the Extension Option is not validly exercised; or (b) the First
Extended Maturity Date, if the Extension Option is validly exercised. 

        
3.7   Extension Option.  Borrower shall have the right to exercise its Extension Option at
its sole option, but subject to the satisfaction or waiver of each of the
following conditions precedent, which are solely for the benefit of, and may be
waived solely by, Lender: 

        
        3.7.1   Borrower shall
exercise the Extension Option, if at all, by delivery of the Extension Notice to
Lender no later than thirty (30) days prior to the Initial Maturity Date. 

        
        3.7.2   Borrower shall pay
the Extension Fee to Lender concurrently with delivery of the Extension Notice.
The Extension Fee shall be fully earned by Lender for its commitment to extend
the Loan and shall not be applicable to principal or interest outstanding under
the Loan. 

        
        3.7.3   No uncured Event of
Default shall have occurred on or before the date of the Extension Notice and no
event or circumstance shall exist as of the date of the Extension Notice which
with notice, passage of time or both would constitute an Event of Default. 

        
        3.7.4   No material adverse
change shall have occurred in the financial condition of the Borrower or the
Guarantor, as determined in the sole and absolute discretion of Lender. 

        
        3.7.5   Title Insurer shall
have issued, at Borrower’s sole cost and expense, such endorsements as are
satisfactory to Lender in its sole discretion to insure the continuing validity
and first priority of the lien of the Deed of Trust. 

        
        3.7.6   Borrower shall have
paid all costs and expenses incurred by Lender, including without limitation any
attorneys’ and appraisers’ fees, in connection with the
Borrower’s exercise of the Extension Option, whether or not the term of the
Loan is in fact extended beyond the Initial Maturity Date. 

        3.8   Disbursements  After  Initial  Maturity  Date.   There  shall be no  further  disbursements  under the Loan  after the  Initial
Maturity Date.

ARTICLE 4 - CONDITIONS PRECEDENT TO DISBURSEMENTS

        4.1   General Conditions
Applicable to All Disbursements.  Lender shall not be obligated to make any
Disbursement, or take any other action under the Loan Documents, unless and
until all of the following conditions precedent are satisfied at the time of the
proposed action: 

18

 

        
        4.1.1   All of the conditions precedent set forth in Paragraph 3.4 hereto have been satisfied.

        
        4.1.2   Recordation shall have taken place.

        
        4.1.3   On or before the
Initial Disbursement, Peony shall have delivered to Lender a UCC-1 Financing
Statement; Lender shall thereafter cause the same to be filed with the Secretary
of State for the State of Delaware. 

        
        4.1.4   For Disbursements
after the Title Transfer Date, Borrower shall have delivered to Lender a UCC-1
Financing Statement; Lender shall thereafter cause the same to be filed with the
Secretary of State for the State of California. 

        
        4.1.5   There shall exist no
uncured Event of Default or any event, omission or failure of a condition which
would constitute an Event of Default after notice or the lapse of time or both. 

        
        4.1.6   All representations
and warranties of Borrower made in this Agreement or in any of the other Loan
Documents shall be true and correct in all material respects as of the date of
the proposed action with the same effect as if made on such date. 

        
        4.1.7   Except for the
Initial Disbursement and any Subsequent Disbursements of Interest Reserve Amount
only, the aggregate amount of the Undisbursed Loan and the amount in the
Borrower’s Funds Account as of the date of the proposed action shall be not
less than the amount which Lender then determines to be required to pay for all
Remaining Costs. 

        
        4.1.8   Borrower shall have
delivered to Lender all funds, documents, instruments, policies, evidence of
satisfaction of conditions and other materials required by Lender under the
provisions and conditions of this Agreement or any of the other Loan Documents. 

        
        4.1.9   As applicable, requirements for Disbursement set forth in the Disbursement Schedule shall have been satisfied.

        
        4.1.10   As applicable, requirements for Disbursement set forth elsewhere in this Agreement shall have been satisfied.

       
        4.1.11   There shall have
been no material adverse change in the financial condition of Borrower,
Guarantor or the condition of the Property, or the ability of Borrower to
complete the Project in accordance with the Plans and the Loan Documents. 

19

 

       
        4.1.12   Neither the
Property, nor any part thereof, shall have suffered any casualty (with a cost of
repair and(or) replacement, net of any reasonably expected insurance proceeds,
equal to or greater than $3,000,000) or be subject to any existing condemnation
or taking by eminent domain proceeding or otherwise which would have a material
adverse effect on the Property. 

       
        4.1.13   There shall be no
pending or threatened litigation, arbitration, or investigation against
Borrower, or involving the Property, which has not been previously disclosed to
Lender and approved by Lender in writing. 

       
        4.1.14   The Property,
Borrower and Guarantor shall be in compliance with all zoning, building,
Environmental Laws and the laws, ordinances, rules, regulations, decisions and
other requirements of any Governmental Authority, except where the failure to do
so would not have a material adverse effect on the Borrower, the Guarantor or
the Property. 

        
        4.1.15   There shall be no Hazardous Substance Activity, except as fully disclosed to and approved by Lender in its sole discretion.

        4.2   Initial
Disbursement.  Lender shall fund the Initial Disbursement, when the
conditions precedent set forth in Paragraph 4.1 have been satisfied. 

        4.3   Subsequent Disbursements.   Prior to each Subsequent Disbursement, and as conditions precedent thereto:

        
        4.3.1   All conditions precedent set forth in Paragraphs 3.4 and 4.1 shall have been satisfied.

        
        4.3.2    If required by
Lender, Title Insurer shall have agreed to issue an endorsement to the Title
Policy insuring Lender that: (a) since the previous disbursement by Lender or
issuance of insurance related thereto, there has been no change in the condition
of title except as may be provided by this Agreement or as may be consented to
in writing by Lender; (b) there are no intervening liens or encumbrances which
may then or thereafter take priority over the Disbursement to be made; and (c)
there are no survey exceptions not theretofore approved by Lender. Lender hereby
acknowledges and approves that some of the Improvements will be constructed on
two separate lots. 

        
        4.3.3   Prior to the first
Subsequent Disbursement for any purpose other than the Interest Reserve Amount,
Borrower shall have deposited with Lender, as Borrower’s Funds, cash or
collateral satisfactory to Lender, in the amount estimated by Lender to be
necessary to pay for all Remaining Costs, to the extent that the aggregate
amount of the Undisbursed Loan and the amount in the Borrower’s Funds
Account is insufficient therefor, in Lender’s reasonable judgment. 

        
        4.3.4    Prior to the first
Subsequent Disbursement, Borrower shall have provided to Lender an executed copy
of the architect’s contract for services in a form reasonably approved by
Lender, together with an Assignment of Architect Contract and an Architect
Warranty, Agreement and Consent to Assignment. 

20

 

        
        4.3.5    Lender shall have
satisfied itself that the Improvements with respect to which the Disbursement
has been requested have been constructed substantially in accordance with the
Plans. 

        
        4.3.6    Either Lender shall
have received unconditional lien releases in accordance with California law from
the General Contractor and from each other contractor, subcontractor and
supplier of materials and services with respect to whom any previous
Disbursement has been made by Lender, confirming each such Person’s receipt
of its proper share of each such previous Disbursement and its waiver of any
further claim to the extent thereof, or the aggregate value of unconditional
lien releases outstanding (the amount paid to each subcontractor or material
supplier for whom an unconditional lien release is outstanding since the date of
the last such lien release) is less than fifty percent (50%) of the aggregate
retainage under the Construction Contract; provided, however, in lieu of any
such unconditional lien release, Borrower may provide to Lender a bond that is
reasonably acceptable to Lender in form and amount. 

        
        4.3.7   Borrower shall
acquire the Property from Peony on or before the Title Transfer Date (time being
of the essence with respect thereto), and any failure to satisfy such obligation
shall constitute an Event of Default under this Agreement. Borrower’s
acquisition of the Property shall require Borrower to satisfy the following
provisions: (a) Borrower shall pay Lender all out-of-pocket costs and expenses
incurred by Lender in connection with the acquisition transaction and the
assignment and assumption transaction, including, without limitation, the cost
of any title insurance policies and(or) title insurance endorsements required by
Lender; (b) Borrower, Peony and(or) Guarantor shall execute and(or) deliver such
documents and agreements as Lender shall reasonably require in connection with
the acquisition transaction and the assignment and assumption transaction,
including, without limitation, an assumption agreement, financing statements,
and new or reaffirmed guaranties or indemnities, all in form and substance
satisfactory to Lender in Lender’s sole discretion; (c) Borrower shall
deliver to Lender a UCC-1 Financing Statement to be filed with the Secretary of
State for the State of California; (d) Borrower shall assume Peony’s
obligations under the Deed of Trust; (e) Borrower shall deliver fully-executed
assignments to Lender of all of its rights and interests in and to the
Construction Contract and the Architect Contract; (f) Guarantor, as tenant, and
Borrower, as landlord, shall execute the Property Lease and deliver a complete
and accurate copy of the same to Lender; (g) Borrower shall deliver to Lender
fully-executed copies of the Estoppel Certificate, the Subordination,
Non-Disturbance and Attornment Agreement and the Assignment of Leases; (h)
Borrower shall pay Lender all attorneys’ fees and costs incurred by Lender
in connection with the acquisition transaction and the assignment and assumption
transaction; (i) to the extent Peony has collaterally assigned to Lender its
rights to any collateral, Borrower shall confirm its ownership of said
collateral and execute such documentation required by Lender to collaterally
assign the collateral to Lender; (j) as applicable to Borrower and Guarantor, an
opinion from Borrower’s and Guarantor’s counsel addressing the matters
set forth in Paragraphs 6.2 through 6.10 of this Agreement and such other
matters as may be required by Lender; (k) Guarantor shall reaffirm its
obligations under the Guaranty, the Completion Guaranty, the Environmental
Indemnity and the Security Agreement; and (l) Borrower shall reaffirm its
representations and warranties under this Agreement. 

21

 

        4.4   Final Disbursement.   Prior to the Final Disbursement, and as conditions precedent thereto:

        
        4.4.1   All conditions precedent set forth in Paragraphs
 4.1 through 4.3 shall have been satisfied.

        
        4.4.2   Lender shall have received evidence
 satisfactory to it that the Improvements have reached Completion.

        
        4.4.3   Borrower shall have
filed a notice of completion of the Improvements necessary to establish the
commencement of the shortest statutory period for the filing of mechanics’
and materialmen’s liens. 

        
        4.4.4   Either Lender shall
have received conditional lien releases on final payment from the General
Contractor and from each other contractor, subcontractor and supplier of
materials and services with respect to whom any previous disbursement has been
made or from whom any pre-lien notice has been received, or the aggregate value
of unconditional lien releases outstanding (the amount paid to each
subcontractor or material supplier for whom an unconditional lien release is
outstanding since the date of the last such lien release) is less than fifty
percent (50%) of the aggregate retainage under the Construction Contract. 

        
        4.4.5   Such additional
policies or endorsements shall have been issued by Title Insurer as Lender may
reasonably require, with a liability limit of not less than the principal amount
of the Note, and with coverage and in form satisfactory to Lender, insuring
Lender’s interest under the Deed of Trust as a first lien on the Property,
excepting only such matters as shall have been approved in writing by Lender. 

        
        4.4.6   Lender shall have received and approved an executed copy of the Property Lease.

        4.5   Stored
Materials.  Lender shall have the right to specifically approve or
disapprove, in its absolute judgment, all Disbursements for Stored Materials.
For the purposes of this Section, “Stored Materials” shall mean
materials purchased or to be purchased by Borrower or the General Contractor or
any subcontractor at the date of a request for Disbursement but not yet
installed or incorporated into the Project. Without limiting Lender’s
approval rights as set forth above in this Section, Lender will not approve
disbursements for Stored Materials until Borrower supplies to Lender: (a)
evidence satisfactory to Lender that the Stored Materials are or shall be
included in the coverage of the insurance policies required by the Loan
Documents; 

22

 

(b) evidence satisfactory to Lender from the seller or fabricator of
the Stored Materials certifying that upon payment, ownership thereof will vest
in Borrower free of any liens or claims of third parties; and (c) (i) evidence
satisfactory to Lender that the Stored Materials are or shall be satisfactorily
stored on the Project to protect against theft or damage, or (ii) if the Stored
Materials are not stored or shall not be stored on the Project, then (A)
evidence satisfactory to Lender that the Stored Materials are or shall be stored
in a bonded warehouse or storage yard approved by Lender, and that the warehouse
yard has been notified that Lender has a security interest in the subject Stored
Materials, and (B) Lender shall have or will have received from Borrower
the original warehouse receipt. With Lender’s prior written approval, which
approval shall not be unreasonably withheld, Stored Materials for which funds
have been disbursed by Lender hereunder may be stored in the yard or warehouse
of the seller or fabricator, subject to satisfaction of conditions (a) and (b)
in this Paragraph 4.5, and provided further that Lender receives satisfactory
evidence that the Stored Materials are protected against theft and damage and
have been suitably identified as belonging to Borrower for use in the Project,
and that such seller has been notified of the security interest of Lender
therein. 

ARTICLE 5 - OTHER DISBURSEMENT PROVISIONS

        
5.1   Use of Proceeds. 
All Loan proceeds and Borrower’s Funds shall be disbursed as provided in
this Agreement and used only for payment of the costs of construction of the
Improvements in accordance with the Plans and for other purposes specified in
the Loan Documents. 

        
5.2   Manner of Disbursement.  Disbursements shall be made by Lender in accordance with the
applicable provisions of the Disbursement Schedule. The Disbursements shall be
made to the General Contractor or other Persons who have actually supplied
labor, material or services in connection with or incident to the construction
of the Improvements (including Lender), or to such other accounts as may have
been approved in writing by Lender, at Lender’s option; provided, however,
that Disbursements shall be made directly by Lender to Borrower for those items
that have been previously paid for by Borrower or its Affiliates and for
Borrower’s overhead and administration. 

        5.3    Disbursement Limitations. 
 Notwithstanding any other provision in this Agreement to the contrary:

        
        5.3.1   Lender shall not be
required to disburse, for any line item shown on the Cost Breakdown, any amount
in excess of the scheduled amount for such line item. 

        
        5.3.2   Lender shall not be
required to disburse any amount that, in its judgment, will reduce the aggregate
amount of the Undisbursed Loan and the amount in Borrower’s Funds Account
to less than the amount needed to pay for all Remaining Costs. 

23

 

ARTICLE 6 - BORROWER'S REPRESENTATIONS AND WARRANTIES

        6.1   Inducement to
Lender.  As a material inducement to Lender to enter into this Agreement and
to make the Loan to Borrower, Borrower, and each signatory who signs on its or
their behalf hereby unconditionally represents and warrants to Lender each of
the matters set forth in this Article 6. 

        6.2   Due
Organization.  Borrower is duly organized, validly existing and in good
standing under the laws of the state of its organization, and is qualified to do
business and is in good standing in the state in which the Land is located, with
full power and authority to consummate the transaction contemplated hereby. 

        6.3   Borrower’s
Powers.  Borrower has full power and authority to execute and enter into this
Agreement, the Note, and all of the other Loan Documents, as applicable to it,
to undertake and consummate the transactions contemplated thereby, to pay,
perform and observe all of the conditions, covenants, agreements and obligations
contained therein, and to acquire the Property on or before the Title Transfer
Date. 

        6.4    Completion Guaranty.   The Completion Guaranty has been duly authorized, executed and delivered by Guarantor.

        6.5    Guaranty.   The Guaranty has been duly authorized, executed and delivered by Guarantor.

        6.6    Environmental Indemnity.   The Environmental Indemnity has been duly authorized, executed and delivered by Guarantor.

        6.7    Security  Agreement.   The Security  Agreement has been duly  authorized,  executed and delivered by Guarantor and Lender has a
fully perfected security interest in the collateral described in the Security Agreement.

        6.8   Litigation. 
Except as may have been disclosed in a public filing in writing on or before the
date of this Agreement, there are no actions, suits or proceedings pending, or
to the best knowledge of Borrower threatened, against or affecting Borrower, the
Property, the collateral described in the Security Agreement in which Lender has
a fully perfected security interest, or involving the validity or enforceability
of the Deed of Trust, the priority of the lien thereof, or the validity or
enforceability of any of the other Loan Documents or the Guaranty or the
Completion Guaranty, at law or in equity, or before or by any Governmental
Authority. Except as may have been disclosed in a public filing in writing on or
before the date of this Agreement, there are no actions, suits or proceedings
pending, or to the best knowledge of Borrower threatened, against Guarantor
which would, if determined adversely to Guarantor, have a material adverse
effect on Guarantor or Guarantor’s ability to perform its obligations under
the Completion Guaranty or the Guaranty. To the best of its knowledge, Borrower
is not in default with respect to any order, writ, injunction, decree or demand
of any court or other Governmental Authority. To the extent any such matters are
contained in a public filing, Borrower shall be obligated to provide Lender with
written notice identifying the specific public filing and the specific location
within said public filing of any such matters within ten (10) days after the
public filling is made. 

24

 

        6.9   No Violation. 
The consummation of the transaction contemplated by this Agreement, and the
payment and performance of all of the obligations set forth in this Agreement,
the Note, the Deed of Trust and the other Loan Documents, will not result in any
breach of, or constitute a default under, any mortgage, deed of trust, lease,
contract, loan or credit agreement, corporate charter, bylaws, partnership
agreement, trust agreement or other instrument to which Borrower is a party or
by which Borrower or the Property may be bound or affected. 

        6.10   Binding
Obligations.  This Agreement, the Note, the Deed of Trust, the other Loan
Documents, the Guaranty, the Completion Guaranty and the Property Lease (which
Lender shall permit as the only approved lease for the Property) each
constitutes a legal and binding obligation of, and is valid and enforceable
against, each party thereto other than Lender, in accordance with the terms
thereof, except to the extent that enforceability may be limited by applicable
bankruptcy, insolvency, moratorium, reorganization or other similar laws
affecting the enforcement of creditors’ rights or by the effect of general
equitable principles. 

        6.11   No Default. 
There is no default on the part of Borrower under this Agreement, the Note, the
Deed of Trust, or any of the other Loan Documents or under the Property Lease,
and, to Borrower’s knowledge, no event has occurred and is continuing which
with notice or the lapse of time or both would constitute a default thereunder. 

        6.12   Financial
Statements.  All Financial Statements delivered to Lender are true and
correct in all material respects, have been prepared in accordance with
generally accepted accounting principles consistently applied unless otherwise
noted therein, and fairly present the respective financial conditions of
Borrower and Guarantor and the subjects thereof as of their respective dates. No
materially adverse change has occurred in the financial conditions reflected in
the Financial Statements, and no additional borrowings have been made by
Borrower, other than borrowings approved by Lender, since the Financial
Statements’ respective dates, and as otherwise expressly permitted under
the Loan Documents. 

        6.13   Title to Land. 
Until Borrower acquires title to Parcel A, Peony, and thereafter Borrower, is
the sole legal and beneficial owner of Parcel A, free and clear of all claims,
liens and encumbrances other than Permitted Encumbrances. 

        6.14   Title to Personal
Property.  Other than the collateral under the Security Agreement, all
Personal Property granted as security for the Note under the Deed of Trust is
vested solely in Peony until Borrower acquires title to the Personal Property,
and thereafter in Borrower, free and clear of all claims, liens and
encumbrances, other than Permitted Encumbrances, and the security interest of
Lender in the Personal Property is a first lien thereon. 

        6.15   Plans.  Peony or
Borrower has all rights in and to the Plans necessary to use the same for
construction of the Improvements. The Plans are satisfactory to Peony and
Borrower and General Contractor, and have been approved by Peony, Borrower,
Guarantor and the beneficiaries of any applicable Title Restrictions. There are
no structural defects in the Improvements as shown in the Plans, and no
violation of any Governmental Requirement exists with respect thereto, except
any structural defect or violation that would not have a material adverse
effect. 

25

 

        6.16   Permits.  Until
Borrower acquires title to the Land, Peony or Borrower, and thereafter Borrower,
has: (a) received all requisite building permits and approvals from all
applicable Governmental Authorities related to the work being performed as of
the Closing Date, (b) filed or recorded all subdivision maps, plats and other
instruments required in connection therewith, and (c) complied with all other
Governmental Requirements related thereto except where the failure to do so
would not reasonably be expected to have a material adverse effect. Once the
Plans have been finalized as set forth herein, Peony and thereafter Borrower
shall obtain all requisite building permits and approvals from all applicable
Governmental Authorities relating to the Plans. 

        6.17   Utilities.  All
utility services, including, without limitation, gas, electric, water, storm and
sanitary sewer and telephone facilities, necessary for the construction of the
Improvements and the operation thereof for their intended purposes are available
at or within the boundaries of the Land. 

        6.18   Roads.   All roads necessary for the full utilization of the Improvements for their intended purposes have been completed.

        6.19   Proper  Subdivision.   The Land consists of Parcel A and Parcel B. The Land is currently  taxed  separately  without  regard to
any other real property. The Land may currently be mortgaged, conveyed and otherwise dealt with as a separate legal lot or parcel.

        6.20   Compliance.  The
construction, use and occupancy of the Property comply in full with all
Governmental Requirements and Title Restrictions except where the failure to do
so would not reasonably be expected to have a material adverse effect. Neither
the zoning nor any other right to construct or use the Improvements is to any
extent dependent upon or related to any real property other than the Land. All
approvals, licenses, permits, certifications, filings and other actions normally
accepted as proof of compliance with all Governmental Requirements by prudent
lending institutions that make investments secured by real property in the
general area of the Land, to the extent available as of the date of this
Agreement, have been duly given or taken. 

        6.21   No Prior Liens or
Claims.  The Deed of Trust is a valid first lien on the Project, subject only
to the Permitted Encumbrances. Borrower and Guarantor shall be solely
responsible for any indemnity agreements or other arrangements relating to
mechanics’ liens and similar claims that may be required by Title Insurer
as a condition to issuance of the Title Policy. 

26

 

        6.22   Adequacy of
Loan.  The aggregate amount of all Loan proceeds and any Borrower’s
Funds heretofore delivered to Lender is sufficient to pay all costs of
construction of the Improvements in accordance with the Plans and all Remaining
Costs related thereto, except as has been specifically disclosed to and approved
in writing by Lender. 

        6.23   Other
Financing.  Borrower has not received other financing for either the
acquisition of the Land or the construction of the Improvements, except as has
been specifically disclosed to and approved by Lender in writing, or is going to
be paid off, prior to or concurrent with Recordation. 

        6.24   Taxes.  Borrower
has filed all required federal, state, county and city tax returns and has paid
all taxes that are required to be paid under Paragraph 9.3. Borrower knows of no
basis for any material additional assessments against it in respect of such
taxes. 

        6.25   Broker’s
Fees.  Borrower has not dealt with any Person who is or may be entitled to
any brokerage commission, finder’s fee, loan commission or other sum in
connection with signing and entering into this Agreement, the consummation of
the transaction contemplated hereby or the making of the Loan by Lender to
Borrower, and Borrower hereby agrees to indemnify, defend and hold Lender
harmless from and against any and all losses, costs, liabilities and expenses,
including attorneys’ fees, that Lender may suffer or sustain should such
representation or warranty prove to be inaccurate in whole or in part. 

        6.26   Application of
Disbursements.  All Loan proceeds and Borrower’s Funds heretofore
disbursed to Borrower pursuant to this Agreement, if any, have been used only
for payment of those items specified in the Disbursement request for which the
particular Disbursement was made. Except as permitted in Sections 5.2, Borrower
has not applied any such Disbursement to pay or reimburse itself, directly or
indirectly, for any of Borrower’s Funds required to be deposited by the
terms of this Agreement, or for any other amounts paid by Borrower or any other
Person but not included in the Cost Breakdown. 

        6.27   Accuracy.  All
reports, documents, instruments, information and forms of evidence delivered to
Lender concerning the Loan or required by this Agreement or any of the other
Loan Documents are accurate, correct and sufficiently complete to give Lender
true and accurate knowledge of their subject matter, and do not contain any
untrue statement of a material fact or omit any material fact necessary to make
the same not materially misleading. 

        6.28   Non-Foreign
Entity.  Section 1445 of the Internal Revenue Code of 1986, as amended,
provides a transferee of a United States real property interest must withhold
tax if the transferor is a foreign person. To inform Lender that the withholding
of tax will not be required in the event of the disposition of the Property
pursuant to the Deed of Trust, Borrower hereby certifies, under penalty of
perjury, that: 

27

 

(a) Borrower is not a foreign corporation, foreign partnership,
foreign trust or foreign estate (as those terms are defined in the Internal
Revenue Code and regulations promulgated thereunder); (b) Borrower’s U.S.
taxpayer identification number is that set forth in Article 1 above; and
(c) Borrower’s principal place of business is at the address set forth in
Article 1 above. Borrower understands that this certification may be disclosed
to the Internal Revenue Service by Lender and that any false statement contained
herein could be punishable by fine, imprisonment, or both. Borrower agrees to
execute such further certificates in connection therewith, which shall also be
signed under penalty of perjury, as Lender shall reasonably require. 

        6.29   Employee Plans.   Borrower neither  maintains nor participates in any pension,  retirement,  profit-sharing or similar employee
benefit plan.

        6.30   Natural  Hazard Zones and  Wetlands.   Except as disclosed in writing by Borrower to Lender prior to the execution  hereof,  no
portion of any of the Project is located in any of the following areas, as defined under California law:

	 	(i)	in an area designated as a “Dam Failure Inundation Area;”
	 	 	 
	 	(ii)	in an area designated as a “Special Flood Hazard Area;”
	 	 	 
	 	(iii)	in an area designated as a “High Fire Severity Zone;”
	 	 	 
	 	(iii)	in an area designated as a “High Fire Severity Zone;”
	 	 	 
	 	(iv)	in an area designated as a “Wildland Fire Area;”
	 	 	 
	 	(v)	in an area designated as a “Earthquake Fault Zone;”
	 	 	 
	 	(vi)	in an area designated as a “Seismic Hazard Zone;” or
	 	 	 
	 	(vii)	in an area designated as a “Wetlands.”

        6.31   Nature of
Representations and Warranties.  Borrower certifies to Lender that all
representations and warranties made in this Agreement and all other Loan
Documents are true and correct in all material respects and do not contain any
untrue statement of a material fact or omit any material fact necessary to make
such representations and warranties not materially misleading. Any such
representations and warranties shall remain true and correct in all material
respects on the date of each request for a Disbursement and shall survive so
long as any of Borrower’s obligations under this Agreement have not been
satisfied or the Loan or any part thereof remains outstanding, and for any
applicable statute of limitations period thereafter. Each representation and
warranty made in this Agreement, in any other Loan Document, and in any other
document delivered to Lender by Borrower, Peony or Guarantor shall be deemed to
have been relied upon by Lender, notwithstanding any investigation, inspection
or inquiry theretofore or thereafter made by or on behalf of Lender, or any
disbursement made by Lender related thereto. The representations and warranties
contained in this Agreement which are made to the best knowledge of Borrower
have been made after commercially reasonable inquiry calculated to ascertain the
truth and accuracy of the subject matter of each such representation and
warranty. 

28

 

ARTICLE 7 - BORROWER’S CONSTRUCTION COVENANTS

        7.1   Commencement and Completion. 
 Borrower agrees to commence and complete the construction of the Improvements as follows:

        
        7.1.1   As of the Closing Date, Borrower shall have commenced construction of the Improvements.

        
        7.1.2   Borrower shall cause
construction of the Improvements to be prosecuted to Completion within the time
frames in the Construction Schedule, and to be completed on or before the
Completion Date. 

        7.2   Construction. 
Borrower shall cause the Improvements to be constructed in a good and
workmanlike manner according to the Plans and the recommendations of any soils
or engineering report approved by Lender. In constructing the Improvements,
Borrower shall cause all applicable Governmental Requirements and Title
Restrictions to be complied with. If necessary, the Plans shall be modified to
comply with the Governmental Requirements and Title Restrictions, subject to the
provisions of the following Paragraph 7.3. 

        7.3   Plans.  There
shall be no material change, amendment or modification of the Plans, the General
Contract or any subcontract without the prior written approval of Lender, which
approval shall not be unreasonably withheld, as follows: 

        
        7.3.1   A material change for
purposes of this Paragraph shall include, without limitation, any change that:
(a) involves a cost of more than the Change Order Amount, whether such change
increases or decreases the total cost of the Improvements; (b) together with
costs associated with prior changes, results in an increase in the total cost of
changes of more than the Aggregate Change Order Amount; (c) materially changes
the square footage of the Improvements; (d) constitutes a material change in the
building material, equipment specifications, architectural or structural design,
value or character of any of the Improvements; (e) would affect the structural
integrity, quality or overall efficiency of the Improvements, its operating or
utility systems; (f) requires the approval of any Person other than the parties
to the General Contract or subcontract or Lender; or (g) might adversely affect
the value of Lender’s security for the Loan. Notwithstanding the foregoing,
it is acknowledged by the parties hereto that the Plans are still being prepared
as of the Closing Date, and that once the Plans for the shell and the tenant
improvements have been completed, the same shall be subject to review and
approval by Lender, which approval shall not be unreasonably withheld, if such
Plans are a logical evolution of and consistent with the Plans as of the date
hereof. 

29

 

        
        7.3.2   Requests for approval
shall be submitted on a Change Order form acceptable to Lender signed by
Borrower and, if required by Lender, the General Contractor, accompanied by
working drawings and a written narrative of the proposed change. Lender shall
not be required to consider approval of any change unless all other approvals
that are required from other Persons have been obtained. As conditions to its
approval, (a) Lender may require satisfactory evidence of the cost and of the
time necessary to complete the proposed change, and (b) to the extent Lender
determines that the proposed change may result in any increased cost, Lender may
make written demand upon Borrower to deliver the amount of the increased costs
to Lender as Borrower’s Funds for deposit into the Borrower’s Funds
Account. Lender is under no duty to review or inform Borrower of the quality or
suitability of the Plans, the General Contract, any other contract or
subcontract or any changes thereto. 

        
        7.3.3   Borrower acknowledges
that the process of obtaining the information needed to put Lender in a position
to approve a proposed change may cause delays. Borrower consents to such delays
and agrees to cooperate diligently with Lender in gathering the information
required by Lender with respect to any such proposed change. All contracts
hereinafter entered into by Borrower, the General Contractor, and other
contractors and subcontractors after the date of this Agreement related to the
Property shall contain covenants to the same effect as the covenants made by
Borrower in this Paragraph 7.3.3. Lender agrees to review, and approve or
disapprove, proposed changes in the Plans and Change Orders on a reasonably
diligent and timely basis. 

        7.4   Cost Breakdown. 
There shall be no change in the Cost Breakdown without Lender’s prior
written approval, which may be given or withheld at Lender’s sole
discretion. Without limiting the generality of the foregoing, there shall be no
re-allocation of amounts between line items without such prior written approval.
Requests for approval shall be submitted on a form acceptable to Lender, signed
by Borrower and accompanied by a written narrative of the proposed change. As
conditions to its approval, (a) Lender may require satisfactory evidence of the
reasons for the proposed change, and (b) to the extent Lender determines that
the proposed change may result in an increase in any cost item, Lender may make
written demand upon Borrower to deliver the amount of the increased cost to
Lender as Borrower’s Funds for deposit into the Borrower’s Funds
Account. On the Closing Date, a portion of the Project Costs set forth in Cost
Breakdown may be attributable to the cost of grading and other site work on
Parcel B (the “Parcel B Site Work”) that is unrelated to the
construction of the Improvements. If Borrower provides Lender with a revised
Cost Breakdown that excludes the costs of the Parcel B Site Work from the amount
of Project Costs set forth on such revised Cost Breakdown, the amount of Project
Costs is not reduced below $67,333,170, and Lender acting in its reasonable
discretion delivers approval of such revisions, then Lender should make
Disbursement to Borrower in an amount equal to the reduction in the amount of
Project Costs that is shown on such Cost Breakdown. 

30

 

        7.5   Construction
Information.  Lender shall have the right to obtain information regarding the
construction of the Improvements, and to take action with respect thereto, as
follows: 

        
        7.5.1   From time to time,
and within ten (10) days after receipt from Lender of a request therefor,
Borrower shall deliver to Lender: (a) a List of Contractors, together with
copies of each contract and subcontract identified therein and all amendments
thereto; (b) a Project Cost Schedule; (c) a Construction Schedule; and
(d) with respect to any item designated above which has been previously
delivered, such updates thereof as Lender may request. 

        
        7.5.2   Borrower expressly
authorizes Lender to contact any contractor, subcontractor or supplier of
materials or services, and at all reasonable times to enter the Land and inspect
the Improvements and work of construction, in order to verify information
disclosed pursuant to this Paragraph 7.5.2 or for any other purpose. All
contracts hereinafter entered into by Borrower, the General Contractor, and
other contractors and subcontractors after the date of this Agreement related to
the Property shall require the disclosure to Lender of information sufficient to
make such verification. 

        
        7.5.3   Lender has approved
General Contractor. Lender retains the right to disapprove of any replacement
General Contractor. Lender’s approval of General Contractor shall not
constitute a representation, warranty or acknowledgment by Lender that General
Contractor is in fact qualified. 

        7.6   Inspections. 
Borrower shall or Borrower shall cause Peony to permit Lender to make
inspections and to obtain other information related to the Loan, the Land and
the Improvements, as follows: 

        
        7.6.1   Lender shall have the
right at all reasonable times to enter upon the Land, to inspect the
Improvements and all materials to be used in the construction thereof, and to
examine the Plans and all shop drawings which are or may be kept at the
construction site. Borrower shall cooperate with Lender and shall cause the
General Contractor and all other contractors, subcontractors and suppliers of
materials or services to cooperate with Lender toward that end. 

        
        7.6.2   Lender shall have the
right at all reasonable times to examine, copy and make extracts of the books,
records, accounting data and other documents of Borrower, the General
Contractor, and all other contractors, subcontractors and suppliers of materials
or services in connection with the work of constructing the improvements,
including, without limitation, all permits, licenses, consents and approvals
related thereto; provided, however, Lender shall have such right only to the
extent the General Contractor or the respective subcontractor or supplier is
paid on a time and materials basis. To the extent within Borrower’s
control, such books, records, accounting data and other documents shall be made
available to Lender promptly upon written demand therefor. All contracts
hereinafter entered into by Borrower, the General Contractor, and other
contractors and subcontractors after the date of this Agreement relating to the
construction of the Improvements shall require agreement to the foregoing
inspection rights; provided, however, Lender shall have such right only to the
extent the General Contractor or the respective subcontractor or supplier is
paid on a time and materials basis. 

31

 

        
        7.6.3   Without in any way
limiting the generality of the foregoing, Lender may require an inspection of
the Property by any Inspection Agent: (a) prior to each Disbursement; (b) at
least once each month during the course of construction, whether or not any
Disbursement is to be made for that month; (c) upon Completion of
construction of the Improvements; and (d) at least annually thereafter so long
as any of Borrower’s obligations under this Agreement have not been
satisfied or the Loan or any part thereof remains outstanding, and for any
applicable statute of limitations period thereafter. Borrower shall pay the
Inspection Agent’s standard fee for its inspections, other than inspections
occurring after payment of the Loan in full, reserving to Lender, however, all
rights under the Environmental Indemnity, the Environmental Indemnity-Borrower,
the Guaranty and the Completion Guaranty. 

        
        7.6.4   Lender is under no
duty to supervise or to inspect the work of construction or any books, records,
accounting data or other documents. Lender’s failure to inspect, discover
or disclose any information available to Lender in connection with any such
inspection shall not constitute a waiver of any of Lender’s rights under
this Agreement. Lender’s inspection not followed by notice of an Event of
Default shall not constitute a waiver of any Event of Default then existing. Any
such inspection by Lender shall be for the sole purpose of protecting the
security of Lender, and shall in no way be construed as a representation,
warranty or acknowledgment by Lender that there has been or will be compliance
with the Plans or that the construction is or will be free from faulty materials
or workmanship. 

        7.7    Approved Contracts Only.  Borrower shall not sign or enter into any contract or become a party
to any arrangement for the performance of work on the Land except as may be
approved by Lender or with respect to which Lender has waived the requirement
for approval. Unless and until Lender so informs Borrower to the contrary, the
approval requirement shall be deemed waived for any contracts of less than
$500,000 in the aggregate. 

        7.8   No Conditional Sales.  Borrower shall not install any personal property, materials,
equipment or fixtures subject to any security agreement or other contract
wherein the right is reserved to any Person to remove or repossess any such
personal property, material, equipment or fixtures, or whereby title to the same
is not completely vested in Borrower at the time of installation, without
Lender’s written consent; provided, however, Borrower shall not be required
to obtain Lender’s consent for the acquisition or the installation of
laboratory equipment on the Property so long as Loan proceeds are not utilized
for said equipment; provided, further, this Section 7.8 shall not apply to
furniture, trade fixtures or equipment that are owned by or leased to Guarantor. 

        7.9   Liens and Stop
Notices.  If any claim of lien is recorded which affects the Property (other
than a Permitted Encumbrance) or a stop notice is served upon Lender which
affects the Loan or Borrower’s Funds, Borrower shall, or Borrower shall
cause Peony to, within thirty (30) days after such recording or service: (a) pay
and discharge the same; (b) effect the release thereof by recording or
delivering to Lender a surety bond in form and amount satisfactory to Lender; or

32

 

(c) provide Lender with other assurance which Lender, in its sole discretion,
deems to be satisfactory for the payment of such lien or stop notice and for the
full and continuous protection of Lender from the effect thereof. If Borrower
fails to remove any lien on the Improvements or bonded stop notice against the
Loan or Borrower’s Funds, and fails to provide satisfactory security in
lieu of removal of such lien or stop notice as provided in “(b)” above
and fails to provide Lender with the assurances as provided in “(c)”
above, Lender may pay such lien or stop notice, or may contest the validity
thereof, paying all costs and expenses of contesting the same, including
attorneys’ fees, and may debit Borrower’s Funds or the Undisbursed
Loan Account, as applicable, for all payments made and costs and expenses
incurred by Lender in doing so. 

        7.10   DeIay.  Borrower
shall promptly notify Lender in writing of any event causing material delay or
interruption of the construction or its timely completion. The notice shall
specify the particular work delayed, and the cause and period of each delay. 

        7.11   Surveys.  At
Lender’s request, Borrower shall deliver to Lender: (a) a perimeter survey
of the Land; (b) upon completion of the foundations for the Improvements, a
survey showing the location of the Improvements on the Land and showing that the
Improvements are located entirely within the Land and do not encroach upon any
easement or breach or violate any Governmental Requirements or Title
Restrictions; and (c) upon Completion of the Improvements, an
“as-built” survey acceptable to Title Insurer as an ALTA survey. All
such surveys shall be made and certified by a licensed engineer or surveyor. 

        7.12   Correction of
Defects.  If in Lender’s opinion any work is not in substantial
conformance with the Plans or is otherwise defective or unsatisfactory to
Lender, Lender shall have the right to stop such non-conforming work and any
other work that may be affected thereby and order its replacement, whether or
not such non-conforming work has theretofore been incorporated into the
Improvements. Failure within thirty (30) days from the date Lender notifies
Borrower of such non-conforming work to diligently endeavor to correct, or cause
the respective contractor to correct, non-conforming work shall constitute an
Event of Default under this Agreement. The advance of any Loan proceeds or
Borrower’s Funds shall not constitute a waiver of Lender’s right to
require compliance with this covenant. 

        7.13   Construction
Responsibilities.  Borrower shall be solely responsible for all aspects of
Borrower’s business and conduct in connection with the Property, including,
but not limited to, the quality and suitability of the Plans, their compliance
with all Governmental Requirements and Title Restrictions, the supervision of
the work of construction, the qualifications, financial condition and
performance of all architects, engineers, contractors, subcontractors,
suppliers, consultants and property managers, the accuracy of all applications
for payment, and the proper application of all Disbursements. Lender is not
obligated to supervise, inspect or inform Borrower or any third party of any
aspect of the construction of the Improvements or any other matter referred to
above. Any inspection or review by Lender is to determine whether Borrower is
properly discharging its obligations to Lender and may not be relied upon by
Borrower or any third party. Lender owes no duty of care to Borrower or any
third party to protect against, or to inform Borrower or any third party of, any
negligent, faulty, inadequate or defective design or construction of the
Improvements. 

33

 

ARTICLE 8 - HAZARDOUS SUBSTANCES

        8.1   Borrower’s
Representation and Warranty.  Before signing this Agreement, Borrower
researched and inquired into the previous uses and ownership of the Land. Based
on that due diligence, Borrower represents and warrants that no Hazardous
Substances have been discharged, disposed of or released or otherwise exists in,
on, under or to the Land, except as Borrower has disclosed to Lender in writing
as Exhibit “L” attached hereto and incorporated herein by this
reference. 

        8.2   Borrower’s
Indemnity. Borrower shall indemnify, hold harmless, protect and defend
Lender and its directors, officers, employees, partners, attorneys, agents,
participants, successors and assigns, and each of them, from and against any and
all Environmental Losses. 

        8.3   Compliance With
Environmental Laws.  Borrower has complied, and shall comply and cause all
occupants of the Land and the Improvements to comply, with all Environmental
Laws which apply or pertain to the Land, the Improvements or the uses thereon or
therein by Borrower or any tenant or other occupant. Borrower acknowledges that
Hazardous Substances may permanently and materially impair the value and use of
real property and that breach of this covenant constitutes willful misconduct
and intentional waste of the Land. 

        8.4   Notices to
Lender.  Borrower shall give immediate written notice to Lender of: (a) any
proceeding, inquiry, notice or other communication by or from any Governmental
Authority, including, but not limited to, the California State Department of
Health Services and the Environmental Protection Agency, regarding the presence,
release, discharge or existence of any Hazardous Substance on, under or about
the Land or any migration thereof from or to the Property or any actual or
alleged violation of any Environmental Laws; (b) all claims made or threatened
against Borrower or the Property relating to any damage, liability, potential
liability, loss or injury resulting from or pertaining to any Hazardous
Substance Activity or violation of any Environmental Laws; (c) Borrower’s
discovery of any occurrence or condition on any real property adjoining or in
the vicinity of the Land that could cause the Land or the Improvements or any
part thereof to be subject to any restrictions on ownership, occupancy,
transferability or use, or subject the owner or any person having any interest
in the Property to any liability, penalty or disability under any Environmental
Law, including, but not limited to, any that could cause the Land or any part
thereof to be classified as “border-zone property” under the
provisions of California Health & Safety Code §§ 25220, et
seq. or any regulation thereunder or in connection therewith; and
(d) Borrower’s receipt of any notice or discovery of any information
regarding any actual, alleged or potential use, manufacture, production,
storage, spillage, seepage, release, discharge, disposal or any other presence
or existence of any Hazardous Substances

34

 

on, under or about the Property (except
as permitted under Paragraph 8.7), or any violation of any Environmental Laws
pertaining to Borrower or the Land. Immediately upon receipt of any of the
following, Borrower shall deliver copies to Lender: any and all orders, notices,
permits, applications, reports and other communications, documents and
instruments pertaining to any Hazardous Substance Activity or the violation of
any Environmental Laws pertaining to Borrower or the Property. Lender shall have
the right, but not the obligation, to join and participate in as a party if it
so elects, any legal proceedings or actions in connection with the Property
involving any Hazardous Substance Activity or any Environmental Laws, and
Borrower shall reimburse Lender upon demand for all of Lender’s costs and
expenses in connection therewith, including attorneys’ fees. 

        8.5   Site Visits,
Observations and Testing.  Lender and its agents and representatives shall
have the right at any reasonable time to enter and visit the Property for the
purposes of observing the Land, taking and removing soils or groundwater
samples, and conducting tests on any part of the Property. Lender is under no
duty, however, to visit or observe the Land or to conduct tests, and any such
acts by Lender shall be solely for the purpose of protecting Lender’s
security and preserving Lender’s rights under the Loan Documents. No site
visit, observation or testing by Lender shall result in a waiver of any default
of Borrower or impose any liability on Lender. In no event shall any site visit,
observation or testing by Lender be a representation that Hazardous Substances
are or are not present in, on or under the Property, or that there has been or
shall be compliance with any law, regulation or ordinance pertaining to
Hazardous Substances or any other applicable governmental law. Neither Borrower
nor any other party is entitled to rely on any site visit, observation or
testing by Lender. Lender owes no duty of care to protect Borrower or any other
party against, or to inform Borrower or any other party of, any Hazardous
Substances or any other adverse condition affecting the Property. Lender shall
not be obligated to disclose to Borrower or any other party any report or
findings made as the result of, or in connection with, any site visit,
observation or testing by Lender. In each instance, Lender shall give Borrower
reasonable notice before entering the Property. Lender shall make reasonable
efforts to avoid interfering with Borrower’s use of the Property in
exercising any rights provided in this Paragraph 8.5, and shall cooperate as
reasonably requested by Borrower to avoid delay in construction of the
Improvements. To the extent any such delay cannot be avoided, the Completion
Date shall be extended as Lender deems reasonably appropriate in view of all the
circumstances. 

        8.6   Clean-Up. 
Borrower agrees, at its sole cost and expense and upon the demand of Lender, to
promptly take all actions to remediate the Property, as validly required by any
federal, state, or local government agency, which remediation is necessitated
from the presence upon or beneath the Property of Hazardous Substances. Such
actions shall include, but not be limited to, the investigation of Hazardous
Substances on, about, or under the Property, the preparation of any feasibility
studies, reports, or remedial plans, and the performance of any cleanup,
remediation, containment, operation, maintenance, monitoring, or restoration
work, whether on or off the Property, relating to said Hazardous Substances.
Borrower shall promptly provide to Lender copies of all testing results and
reports that are generated in connection with the above activities. Promptly
upon completion of such investigation and(or) remediation, Borrower shall

35

 

permanently seal, cap, or properly abandon all monitoring wells and test holes
to industrial standards in compliance with applicable federal, state, and local
laws and regulations, remove all associated equipment, and restore the Property
to the maximum extent possible, which shall include, without limitation, the
repair of any surface damage, including paving, caused by such investigation
and(or) remediation provided hereunder. 

        8.7   Exception for
Ordinary and Reasonable Use of Hazardous Substances Permitted by Law. 
Nothing in this Article shall preclude the use by Borrower or General
Contractor, subcontractors, tenants and agents from using materials that may be
classified Hazardous Substances, so long as such use is permitted by applicable
law and is of such types and in such quantities as is ordinary and reasonable in
the construction and operation of the Project. 

ARTICLE 9 - BORROWER'S OTHER COVENANTS

        9.1   Deposit of
Borrower’s Funds; Loan Balancing.  From time to time, and within ten
(10) days after receipt from Lender of written demand therefor, Borrower shall
deliver Borrower’s Funds to Lender for deposit into the Borrower’s
Funds Account, as and to the extent expressly required by this Agreement. If
Borrower’s Funds shall be located in the Borrower’s Funds Account such
amounts shall be disbursed before the disbursement of any Loan proceeds, except
as may otherwise be agreed by Lender in writing. If at any time in Lender’s
reasonable judgment, the Loan is out of a balance, Lender may make such a demand
upon Borrower and, within such ten (10) day period, Borrower shall deliver to
Lender as Borrower’s Funds an amount equal to the deficiency set forth in
the demand for deposit into the Borrower’s Funds Account. The Loan shall be
deemed “out of balance,” if either: (a) the amount required at that
time to complete and pay for the construction of the Improvements and the other
items contemplated by the Cost Breakdown (excluding the amount of interest
Lender estimates shall accrue on the Loan prior to the Initial Maturity Date) is
more than the Undisbursed Loan (except the Interest Reserve Amount) and the
amounts then on deposit in the Borrower’s Funds Account allocated for such
costs; or (b) the amount of interest Lender estimates to accrue on the Loan from
the time of calculation to the Initial Maturity Date is more than the
undisbursed Interest Reserve Amount. If Lender determines at any time that the
Loan is out of balance, then, in addition to all other rights and remedies of
Lender, Lender may decline to make further Disbursements under the Loan unless
and until Borrower has made the deposit set forth in this Paragraph. 

        9.2   Maintain
Records.  Borrower shall keep and maintain full and accurate accounts and
records of its operations according to generally accepted accounting principles
and practices for its type of business. Borrower shall provide Lender with
financial information for Borrower and Guarantor in a format acceptable to
Lender, at least quarterly, delivered within forty-five (45) days of the end of
each such quarter, or as otherwise required by Lender. All financial statements
of Borrower and Guarantor 

36

 

delivered annually shall be delivered within ninety
(90) days of the end of each such fiscal year. All financial statements of
Borrower and Guarantor shall be internally prepared on a consolidated basis and
certified to Lender by the senior management of Borrower. Borrower shall also
provide to Lender, after Completion of the Improvements, quarterly operating
statements for the Property, delivered within forty-five (45) days of the end of
each such quarter. At the request of Lender, Borrower shall deliver to Lender
copies of all financial information to be delivered to its members pursuant to
the provisions and conditions of Borrower’s operating agreement. So long as
the Guarantor is subject to the reporting provisions of the Exchange Act, the
timely filing (including all permissible extension periods provided under Rule
12b-25 under the Exchange Act) on the Securities and Exchange Commission’s
EDGAR system of the Guarantor’s quarterly report on Form 10-Q for such
period and annual report on Form 10-K for such period will be deemed to satisfy
all of the foregoing requirements of this Paragraph. 

        9.3   Taxes.  Borrower
shall pay and discharge all lawful claims, including taxes, assessments and
governmental charges or levies, imposed upon Borrower, Borrower’s income or
profits and upon all properties belonging to Borrower, before the date upon
which penalties attach thereto; provided, however, that Borrower shall not be
required to pay any such tax, assessment, charge or levy, the payment of which
is being contested in good faith and by proper proceedings as provided in the
Deed of Trust. Borrower shall also provide Lender with copies of its Federal tax
returns at the time of filing, if any. 

        9.4   Notification of
Default.  Borrower shall promptly notify Lender in writing of the occurrence
of any Event of Default as defined in this Agreement, or of any facts then in
existence that would constitute an Event of Default upon the giving of notice or
the lapse of time or both. 

        9.5   Payment of
Costs.  Borrower shall bear all costs and expenses required to satisfy the
provisions and conditions of this Agreement, including, without limitation, the
costs and expenses of Lender’s counsel in connection with the Loan. Lender
is hereby authorized to disburse the same upon the Closing Date and from time to
time thereafter, directly to such Persons, including Lender, as may be entitled
thereto pursuant to this Agreement. 

        9.6   Additional Financial
Information.  All financial information delivered by Borrower to Lender shall
be in a form acceptable to Lender, and shall be the most recent that has been
prepared by or for the subjects thereof. Lender may rely thereon until otherwise
notified in writing by Borrower, and may, but shall not be obligated to, verify
the information contained therein. From time to time, Lender may receive
financial information about Borrower from others, and may answer consistent with
standard banking practices questions and requests from others seeking credit and
experience information about Borrower and its relationships with Lender. So long
as the Guarantor is subject to the reporting provisions of the Exchange Act, the
timely filing (including all permissible extension periods provided under Rule
12b-25 under the Exchange Act) on 

37

 

the Securities and Exchange Commission’s
EDGAR system of the Guarantor’s quarterly report on Form 10-Q for such
period and annual report on Form 10-K for such period will be deemed to satisfy
all of the foregoing requirements of this Paragraph. 

        9.7   Leasing.  Without
the prior written consent of Lender, which shall be granted or denied by Lender
in its sole discretion, Borrower shall not: (a) amend, modify or terminate the
Property Lease once it has been executed; or (b) enter into any lease or other
occupancy or use agreement for the Property or any portion thereof. All
easements, declarations, covenants, conditions, restrictions and dedications
affecting the Land shall be submitted to Lender for its written approval,
accompanied by a drawing or survey showing the precise location thereof, and
such approval (in Lender’s sole discretion) shall be obtained prior to
Borrower’s signing, entering into or granting the same. Notwithstanding the
foregoing, Guarantor or Borrower shall be entitled to enter into a sublease for
up to 10% of the aggregate square footage of the structures on the Property for
an individual sublease, or up to 20% of the aggregate square footage of the
structures on the Property for subleases in the aggregate, on terms consented to
by Lender, which consent shall not be unreasonably withheld. 

        9.8   Compliance. 
Except for Civil Code Section 3110.5, and subject to the provisions and
conditions of Paragraph 9.17, Borrower shall comply promptly with all
Governmental Requirements and Title Restrictions, shall cause all conditions in
this Agreement to be satisfied at the time and in the manner provided in this
Agreement, and, if payment of the Note is to be insured or guaranteed by any
Governmental Authority or private insurer, shall comply with all statutes,
rules, regulations and requirements related thereto or provided in any
commitment issued by such Governmental Authority or insurer. 

        9.9   Disbursements in
Trust.  Funds disbursed to Borrower under this Agreement shall be received by
Borrower in trust, and Borrower agrees that the same shall be used only for
payment of the items specified in the Disbursement request for which the
particular Disbursement was made. Except as permitted in Section 5.2, Borrower
shall not apply any such Disbursement to pay or reimburse itself, directly or
indirectly, for any Borrower’s Funds required to be deposited by the terms
of this Agreement, or for any other amounts paid by Borrower or any other Person
but not included in the Cost Breakdown. 

        9.10   Occupancy
Permits.  Borrower shall obtain and deliver to Lender evidence of approval of
the Improvements in their entirety for permanent occupancy by all applicable
Governmental Authorities, and by any applicable Board of Fire Underwriters or
its equivalent, to the extent that any such approval is a condition to the
lawful use and occupancy thereof, or other evidence thereof satisfactory to
Lender in its sole discretion. 

        9.11   Bill of Sale. 
If requested by Lender, Borrower shall promptly deliver to Lender any bills of
sale, statements, receipts, contracts or agreements under which Borrower claims
title to any materials, fixtures or articles incorporated into the Improvements. 

38

 

        9.12   Improvement
District.  Without Lender’s prior written approval, which may be granted
or denied in Lender’s sole discretion, Borrower shall not, directly or
indirectly, advocate or assist in the incorporation of any of the Property into
any improvement or other assessment district. 

        9.13   Lender’s
Signs.  Borrower shall erect or cause to be erected a Lender-furnished sign
or signs in a size and at a location desired by Lender on the Land, identifying
Lender as the construction lender, provided that such signs do not interfere
with the reasonable course of construction of the Improvements. The size and
placement of such signs shall be such as to notify as many contractors,
subcontractors, and suppliers of materials and services on the job as is
reasonably possible of the name, address and telephone number of Lender.
Borrower shall exercise due care, and shall cause the General Contractor and
other contractors, subcontractors and suppliers to exercise due care, to protect
such sign or signs from damage. 

        9.14   Property
Manager.  Except as permitted under Paragraph 4.4 of the Deed of Trust,
Borrower shall obtain Lender’s prior written approval, which approval may
be granted or denied in Lender’s sole discretion, of the identity of the
Property manager for the Property and the terms of the applicable property
management agreement. 

        9.15   Security
Interest.  As additional security for the obligations of Borrower contained
in this Agreement and all of the other Loan Documents, Borrower hereby grants to
Lender a security interest in funds and instruments of Borrower on deposit with
Lender or at any branch of Lender. 

        9.16   Title Transfer
Date.  Borrower covenants that it shall satisfy all of the conditions
precedent to its purchase of the Property from Peony on or before the Title
Transfer Date, including, without limitation, the conditions precedent set forth
in Paragraph 4.3.7. 

        9.17   Civil Code Section
3110.5.  If at any time General Contractor demands that Borrower or Peony
comply with Civil Code Section 3110.5 or Guarantor’s Tangible Net Worth
falls below $150,000,000, then Borrower shall within ten (10) days of the
occurrence of either such event, obtain and thereafter maintain a sufficient
bond or letter of credit necessary to satisfy such statute, or establish and
thereafter maintain the requisite funds in an escrow account necessary to
satisfy the statute. 

ARTICLE 10 - INSURANCE

        10.1   Title
Insurance.  At Recordation, Borrower shall at its expense deliver or cause to
be delivered to Lender a Title Policy, which shall be an ALTA LP-10 policy of
title insurance or its equivalent, with a liability limit of not less than the
principal amount of the Note, issued by Title Insurer, insuring Lender as to the
validity and priority of the Deed of Trust as a first lien on the Land, together
with such endorsements and reinsurance or co-insurance agreements as Lender may
require. The Title Policy shall contain only such exceptions from its coverage
as shall have been approved in writing by Lender. After the Closing Date,
Borrower shall, at its expense, deliver or cause to be 

39

 

delivered to Lender from time to time, within five (5) Business Days after Lender’s request
therefor, such additional endorsements to the Title Policy as Lender may
require. Borrower shall furnish to Title Insurer all surveys and any other
information required to enable it to issue the Title Policy and such
endorsements. 

        10.2   Insurance. 
Before the Closing Date, Borrower shall procure, and at the Closing Date deliver
to Lender and thereafter maintain, policies of insurance in form and content and
issued by insurers satisfactory to Lender, as follows: 

        
        10.2.1   Until completion of
the Improvements, a policy or policies of builder’s “all risk”
insurance in an amount not less than the full insurable value of the
Improvements, with lender’s loss payable endorsement satisfactory to
Lender. 

        
        10.2.2   At any time when
Borrower does not maintain the insurance described in Subparagraph 10.2.1,
policies of insurance insuring the Property against loss or damage by risks
embraced in coverage of the type now known as the broad form of all-risk,
extended coverage, in an amount not less than the full replacement cost of the
Improvements, and with not more than $250,000.00 deductible. The policies of
insurance shall contain the “replacement cost endorsement”. 

        
        10.2.3   Commercial general
liability insurance, including coverage for any elevators and escalators
occupying a portion of the Improvements, on an “occurrence basis”
against claims for “personal injury,” including, without limitation,
bodily injury or death, or “property damage” occurring on, in or about
the Property or the adjoining streets or sidewalks, or arising from or connected
with the use, conduct or operation of Borrower’s business or interests, in
the amount of $10,000,000 per occurrence with respect to personal injury, death
of any one person and property damage. Lender shall have the right from time to
time to require an increase in the amount of coverage based on the standard
practices in Borrower’s industry in the general geographic area of the Land
and the risks involved in Borrower’s business, operations or interests. 

        
        10.2.4   Workers’ compensation insurance to the extent required by law.

        
        10.2.5   At any time when
Borrower does not maintain the insurance described in Subparagraph 10.2.1,
insurance against loss or damage to the Personal Property by fire and other
risks covered by insurance of the type now known as the broad form of all-risk,
extended coverage. 

        
        10.2.6   Insurance against
flood damage, including surface waters, if the Land is located in an area
considered a flood risk by the United States Department of Housing and Urban
Development, in an amount not less than the full replacement cost of the
Improvements and the Personal Property. 

        
        10.2.7   Such other insurance
against such risks or hazards, and in such amounts, as may from time to time be
reasonably required by Lender. 

40

 

        10.3   Form of
Policies.  Each policy of insurance required under the preceding Paragraph
shall be with a company approved by Lender, shall contain the “standard
non-contributory mortgagee clause” and the “standard lenders’
loss-payable clause,” or their equivalents, in favor of Lender, and shall
provide that it shall not be modified or canceled without thirty (30) days’
prior written notice to Lender (ten (10) days for cancellation for non-payment).
Lender shall be furnished with the original or a certified copy of the original
of each such policy. Borrower shall also furnish Lender with receipts for the
payment of premiums on such policies or other evidence of such payment
reasonably satisfactory to Lender. If Borrower does not provide Lender with
evidence of renewal of an existing policy or a new policy of insurance at least
two (2) days before the expiration of any expiring policy, then Lender may, but
shall not be obligated to, procure such insurance, and Borrower shall pay the
premiums thereon to Lender promptly upon demand. 

        10.4   Insurance
Responsibility.  Lender shall not, by the fact of approving, disapproving,
accepting, preventing, obtaining or failing to obtain any such insurance, incur
any liability for the form or legal sufficiency of insurance contracts, solvency
of insurers or payment of losses, and Borrower hereby expressly assumes full
responsibility therefor and all liability related thereto, if any. 

ARTICLE 11 - DEFAULT

        11.1   Events of
Default.  At the option of Lender, each of the following events shall
constitute an Event of Default under this Agreement (including, if Borrower
consists of more than one Person, the occurrence of any of such events with
respect to any one or more of such Persons). 

        11.2   Payment. 
Borrower’s failure to pay when due any sum payable under the Note or
Borrower’s failure to pay, in each case within ten (10) days after the due
date thereof, any other sum payable under any of the other Loan Documents. 

        11.3   Borrower’s
Funds.  Borrower’s failure to deliver any Borrower’s Funds to
Lender for deposit into the Borrower’s Funds Account as and when required
by this Agreement. 

        11.4   Performance. 
Borrower’s failure to perform any of its obligations under any covenant or
agreement set forth in this Agreement, if such failure is not cured within
thirty (30) days after written notice from Lender (or such longer period as is
reasonably determined by Lender to be necessary for completion of the cure, so
long as Borrower begins promptly and thereafter diligently continues to cure the
failure). 

        11.5   Other Loan
Documents.  Borrower’s failure to perform any of its obligations under
any covenant or agreement set forth in the Note, Deed of Trust (after the Title
Transfer Date), or any of the other Loan Documents, if such failure is an event
of default thereunder and is not cured within the applicable cure period (if
any). 

41

 

        11.6   Governmental
Requirements.  Borrower’s failure to comply with any Governmental
Requirements within the applicable cure period (if any), where such failure
could be expected to have a material adverse effect on the Borrower or the
Project, as determined by Lender in its sole discretion and is not cured within
the earlier of thirty (30) days after written notice from Lender or the cure
period under the applicable Governmental Requirement. 

        11.7   Title
Restrictions.  Borrower’s failure to comply with any Title Restrictions
within the applicable cure period (if any), where such non-compliance could be
expected to have an adverse effect on the Project, as determined by Lender in
its sole discretion. 

        11.8   Representations and
Warranties.  The failure of any of Borrower’s representations or
warranties contained in this Agreement or in any of the other Loan Documents to
be true, if such failure continues for a period of thirty (30) days after
written notice by Lender to Borrower of such failure. 

        11.9   Expiration of
Permits.  Borrower’s neglect, failure or refusal to keep in full force
and effect any permit, license, consent or approval required for the then
current stage of construction, occupancy or use of the Improvements, if such
neglect, failure or refusal continues for a period of thirty (30) days after
written notice by Lender to Borrower of such failure, it being acknowledged that
certain permits, licenses, consents and approvals will only be obtained after
the Closing Date. 

        11.10   Junior
Encumbrances.  The imposition, voluntarily or involuntarily, of any lien or
encumbrance upon Project, other than Permitted Encumbrances, without
Lender’s prior written consent, which Lender may grant or deny in its sole
discretion. 

        11.11   Construction. 
Any material deviation in the work of construction from the Plans, or the
appearance or use of defective workmanship or materials in the construction of
the Improvements, if Borrower fails to remedy the same to Lender’s
satisfaction within thirty (30) days after Lender’s written demand to do so
(or such longer period as is reasonably determined by Lender to be necessary for
completion of the cure, so long as Borrower begins promptly and thereafter
diligently continues to cure the failure). 

        11.12   Construction
Schedule.  Subject to Force Majeure, Borrower’s failure either: (a) to
complete the construction of the Improvements by the Completion Date; or (b) to
complete any material portion of such construction substantially within the time
projected for such Completion on any Construction Schedule provided to Lender
pursuant to this Agreement. 

        11.13   Condemnation. 
Unless the conditions set forth in Paragraph 4.8(a) of the Deed of Trust for the
Trustor to utilize Net Claims Proceeds (as defined in the Deed of Trust) have
been satisfied within ninety days after the conclusion of such proceedings, the
commencement of proceedings by any Governmental Authority for the condemnation,
seizure or appropriation of any material portion of the Property. 

42

 

        11.14   Destruction of
Improvements.  Unless the conditions set forth in Paragraph 4.8(a) of the
Deed of Trust for the Trustor to utilize Net Claims Proceeds (as defined in the
Deed of Trust) have been satisfied within ninety days after such demolition,
destruction or substantial damage, the demolition, destruction or substantial
damage of the Improvements, if Lender determines that the Improvements cannot be
restored or rebuilt within a reasonable time, at a cost not exceeding the
aggregate amount of the Undisbursed Loan, the available insurance proceeds and
the amount (if any) in the Borrower’s Funds Account. 

        11.15   Uninsured
Casualty.  Unless the conditions set forth in Paragraph 4.8(a) of the Deed of
Trust for the Trustor to utilize Net Claims Proceeds (as defined in the Deed of
Trust) have been satisfied within ninety days after such uninsured casualty, the
occurrence of an uninsured casualty with respect to any material portion of the
Property, unless: (a) Lender determines that the Property so affected can be
restored or rebuilt within a reasonable time; and (b) Borrower promptly
following the casualty delivers Borrower’s Funds in the amount necessary to
pay all costs and expenses associated with such restoration or rebuilding. 

        11.16   Liens and Stop
Notices.  The filing of any lien or stop notice against the Property, if the
claim of lien or stop notice continues for thirty (30) days without discharge,
satisfaction or the making of provision for payment to the satisfaction of
Lender, in its sole discretion. 

        11.17   Property Lease
Default.  A default under the Property Lease, and without regard to any
notice and cure periods, by either Borrower, as landlord, or Guarantor, as
tenant, under the Property Lease if such failure is not cured within thirty (30)
days after written notice thereof (or such longer period as is reasonably
determined by Borrower or Guarantor to be necessary for completion of the cure,
so long as Borrower or Guarantor begins promptly and thereafter diligently
continues to cure the failure). 

        11.18   Attachment. 
The attachment, levy, execution or other judicial seizure of any portion of the
Property or any other collateral provided by Borrower under any of the Loan
Documents which is not released, expunged, discharged or dismissed before the
earlier of: (a) thirty (30) days after such attachment, levy, execution or
seizure; or (b) the sale of the assets affected thereby. 

        11.19   Voluntary
Bankruptcy.  Borrower’s filing of a petition for relief under the
Bankruptcy Reform Act of 1978, as amended or recodified, or under any other
present or future federal or state law regarding bankruptcy, reorganization or
other relief to debtors, or Borrower’s insolvency or inability to pay its
debts as they mature, or Borrower’s making a general assignment for the
benefit of creditors, or Borrower’s applying for a receiver, trustee,
custodian or liquidator for Borrower or any of its property, or the filing by or
against Borrower of a petition or the commencement of any other procedure to
liquidate or dissolve Borrower. 

43

 

        11.20   Involuntary
Bankruptcy.  Borrower’s failure to effect a full dismissal of any
involuntary petition, under the Bankruptcy Reform Act of 1978, as amended or
recodified, or under any other present or future federal or state law regarding
bankruptcy, reorganization or other relief to debtors, that is filed against
Borrower or that in any way restrains or limits Borrower or Lender regarding the
Loan, the Property or the Project, before the earlier of (a) the entry of any
order granting relief sought in the involuntary petition, or (b) sixty (60) days
after the date of filing of the petition, or Borrower’s filing of any
pleading in any such involuntary proceeding which admits the jurisdiction of the
court or the petition’s material allegations regarding Borrower’s
insolvency. 

        11.21   Change in
Borrower.  The sale, assignment, pledge, hypothecation, mortgage or transfer,
in each case by Guarantor, of the beneficial equity interests of Borrower if
immediately thereafter Guarantor shall own, subject to no lien or security
interest, less than fifty-one percent (51%) of the beneficial equity interests
in Borrower, without the prior written consent of Lender; or the occurrence of
any material management, organizational or other such change in Borrower,
including, without limitation, the occurrence of any material partnership or
joint venture dispute, which Lender determines, in its reasonable discretion,
will have a material adverse effect on the Loan, the Property, or on
Borrower’s ability to perform its obligations under the Loan Documents; or
any amendment or modification of the articles of incorporation, bylaws,
operating agreement, partnership agreement, trust agreement or other charter
document of Borrower, which Lender determines, in its reasonable discretion,
will have a material adverse effect on the Loan, or on Borrower’s ability
to perform its obligations under the Loan Documents. Notwithstanding the
foregoing, any transfer of interests in Borrower or its constituent members that
is expressly permitted by the Deed of Trust shall not be an Event of Default
under this Paragraph 11.21. 

        11.22   Guarantor.  The
occurrence of any of the events enumerated in Paragraphs 11.18 through 11.20
with respect to Peony or Guarantor. The failure of Guarantor to fulfill its
obligations under the Security Agreement, the Environmental Indemnity, Guaranty
or Completion Guaranty. 

        11.23   Cross Default. 
The occurrence of an event of default by Borrower under (and as defined in) any
other loan made by Lender to Borrower. 

        11.24   Cross Default
– Guarantor. The occurrence of any event of default by Guarantor under
(and as defined in) any other loan made by Lender to Guarantor. 

        11.25   Title Transfer Date. 
The failure of Borrower to acquire the Property from Peony on or before the Title Transfer Date.

ARTICLE 12 - REMEDIES

        12.1   Optional
Remedies.  Upon the occurrence of any Event of Default as defined in this
Agreement, in addition to its other rights set forth in this Agreement or in 

44

 

any of the other Loan Documents, at law or in equity, Lender may, at its option,
without prior demand, exercise any one or more of the following rights and remedies: 

        
        12.1.1   Terminate its obligation to make further disbursements under this Agreement.

        
        12.1.2   Declare the Note and
all other sums owing to Lender with respect to the other Loan Documents
immediately due and payable in full. 

        
        12.1.3   Make any
Disbursements after the happening of any one or more Events of Default, without
thereby waiving its right to demand payment of the Note and all other sums owing
to Lender with respect to the other Loan Documents or any other rights or
remedies described in this Agreement, and without liability to make any other or
further Disbursements, notwithstanding Lender’s previous exercise of any
such rights and remedies. 

        
        12.1.4   Proceed as
authorized at law or in equity with respect to such an Event of Default, and in
connection therewith remain entitled to exercise all other rights and remedies
described in this Agreement. 

        
        12.1.5   Take possession of
all funds and deposits of Borrower on hand or on deposit in any account with
Lender or any other Person or at any branch of Lender, and apply said funds in
satisfaction of Borrower’s obligations to Lender, in such order and
priority as Lender may elect. 

        
        12.1.6   Make any payment
from Undisbursed Loan proceeds, Borrower’s Funds or other funds of Lender.
If any such payment is made from Undisbursed Loan proceeds or Borrower’s
Funds, Borrower shall deposit with Lender, upon written demand issued pursuant
to Paragraph 9.1, an amount equal to such payment. If any such payment is made
from other funds of Lender, Borrower shall repay such funds to Lender upon
written demand issued pursuant to Paragraph 12.2. In either case, the Event of
Default with respect to which any such payment has been made by Lender shall not
be deemed cured until such deposit or repayment, as the case may be, has been
made by Borrower. 

        
        12.1.7   Upon five (5)
Business Days’ written notice to Borrower, and with or without legal
process, take possession of the Property, remove Borrower and all employees,
contractors and agents of Borrower therefrom, complete or attempt to complete
the work of construction, and market, sell or lease the Property. 

        
        12.1.8   If Lender determines
that the Improvements are not being constructed in accordance with the Plans,
Governmental Requirements, Title Restrictions or the Loan Documents, Lender may
order all construction on any of the Improvements affected by the condition of
non-conformance immediately stopped. After such an order, Borrower shall not
allow any construction work, other than corrective work, to be performed on any
of the Improvements affected by the condition of non-conformance until Lender
notifies Borrower in writing that the non-conforming condition has been
corrected. 

45

 

        12.2   Repayment of Funds
Advanced.  If Lender spends its funds in exercising or enforcing any of its
rights or remedies under the Loan Documents, the amount of funds spent shall be
payable to Lender upon written demand, together with interest at the rate
applicable to the principal balance of the Note, from the date such funds were
spent until repaid. Such amounts shall be deemed secured by the Deed of Trust
and other applicable Loan Documents. 

        12.3   Rights Cumulative;
No Waiver.  All of Lender’s rights and remedies provided in this
Agreement, in any of the other Loan Documents, at law, in equity or otherwise,
are cumulative and may be exercised by Lender at any time. Lender’s
exercise of any right or remedy shall not constitute a cure of any Event of
Default unless all sums then due and payable to Lender under the Loan Documents
are repaid and Borrower has cured all other Events of Default. No waiver shall
be implied from Lender’s failure to take, or delay in taking, any action
concerning any Event of Default, or from any previous waiver of any similar or
unrelated Event of Default. Any waiver under any of the Loan Documents must be
in writing and shall be limited to its specific terms. 

        12.4   Disclaimer. 
Whether or not Lender elects to employ any or all of the remedies available to
it in connection with an Event of Default, Lender shall not be liable for: (a)
the construction of or failure to construct, complete or protect the
Improvements; (b) the payment of any expense incurred in connection with the
exercise of any remedy available to Lender or the construction or Completion of
the Improvements; or (c) the performance or non-performance of any other
obligation of Borrower. 

        12.5   Waiver of Trial By
Jury.  Lender and Borrower each knowingly, voluntarily and intentionally
waives any right it may have to a trial by jury in respect of any claim or
controversy arising out of the Loan, this Agreement or any of the other Loan
Documents. 

ARTICLE 13 - MISCELLANEOUS PROVISIONS

        13.1   Lot Line
Adjustment.  Notwithstanding any other provision of this Agreement, if at any
time Borrower is able to effect a lot line adjustment for the Land such that all
of the Improvements are or may be lawfully situated on Parcel A only, Lender
shall partially reconvey Parcel B and each and all of the interests therein from
the lien and security of any and all of the instruments and documents that
secure the Loan, but subject to the satisfaction or waiver of each of the
following conditions precedent, which are solely for the benefit of, and may be
waived solely by, Lender: 

        
        13.1.1   No uncured Event of
Default shall then exist and no event or circumstance shall exist as of the date
of the Extension Notice which with notice, passage of time or both would
constitute an Event of Default. 

46

 

        
        13.1.2   No material adverse
change shall have occurred in the financial condition of the Borrower or the
Guarantor, as determined in the sole and absolute discretion of Lender. 

        
        13.1.3   Title Insurer shall
have issued, at Borrower’s sole cost and expense, such endorsements as are
satisfactory to Lender in its sole discretion to insure the continuing validity
and first priority of the lien of the Deed of Trust. 

        
        13.1.4   Borrower shall have
paid all costs and expenses incurred by Lender, including without limitation any
attorneys’ and appraisers’ fees, in connection with the partial
reconveyance of the Deed of Trust. 

        
        13.1.5   Borrower and
Guarantor and Peony shall execute, acknowledge and deliver such documents as
Lender may require, in its reasonable discretion, to evidence and to continue to
secure the Loan. 

        
13.2   Parcel B.  It is
anticipated that Guarantor shall acquire Parcel B from Pardee Homes.
Concurrently with the acquisition of Parcel B, Borrower shall satisfy the
following provisions: (a) Borrower shall pay Lender all out-of-pocket costs and
expenses incurred by Lender in connection with the acquisition transaction,
including, without limitation, the cost of any title insurance policies and(or)
title insurance endorsements required by Lender; (b) Guarantor shall execute
and(or) deliver such documents and agreements as Lender shall reasonably require
in connection with the acquisition transaction and the right of Lender to have a
first lien security interest in Parcel B and all interests appurtenant thereto,
including applicable personal property, including, without limitation, the Deed
of Trust (Guarantor), Assignment of Leases (Guarantor), and UCC-1 Financing
Statement in the form of Exhibit “M” attached hereto and
incorporated herein by this reference, all in form and substance satisfactory to
Lender in Lender’s sole discretion; (c) to the extent there are any leases
and(or) subleases in favor of Borrower, Guarantor and(or) their affiliates with
respect to Parcel B, said leases and(or) subleases shall be subordinated to the
Parcel B Deed of Trust and Lender, in its sole discretion, shall be entitled to
take a security interest in said leases and(or) subleases, and require the
delivery of estoppel certificates from the Borrower and its affiliates, as
applicable; (d) Borrower shall pay Lender all attorneys’ fees and costs
incurred by Lender in connection with the foregoing transaction; (e) Title
Insurer shall issue to Lender such title insurance coverage as Lender shall
require in its sole discretion, and only with such exceptions for Permitted
Encumbrances, and such other exceptions as may be approved by Lender, in its
sole discretion, insuring the first lien priority of the Deed of Trust
(Guarantor) and of the Assignment of Lease (Guarantor). 

        In
the event the lot line adjustment described in Paragraph 13.1 shall have
occurred prior to or concurrently with Guarantor’s acquisition of Parcel B
as described above, then this Paragraph shall be of no further force or effect. 

47

 

        13.3   Power of
Attorney.  Borrower irrevocably appoints Lender as its attorney-in-fact, with
full power and authority, including the power of substitution, exercisable upon
the occurrence of an Event of Default, to act for Borrower in its name, place
and stead as follows: 

        
        13.3.1   To take possession
of the Property, remove all employees, contractors and agents of Borrower
therefrom, complete or attempt to complete the work of construction, and market,
sell or lease the Property. 

        
        13.3.2   To make such
additions, changes and corrections in the Plans as may be necessary or
desirable, in Lender’s reasonable discretion, or as it deems proper to
complete the Improvements. 

        
        13.3.3   To employ such
contractors, subcontractors, suppliers, architects, inspectors, consultants,
property managers and other agents as Lender, in its reasonable discretion,
deems proper for the Completion of the Improvements, for the protection or
clearance of title to the Property or Personal Property, or for the protection
of Lender’s interests with respect thereto. 

        
        13.3.4   To employ watchmen to protect the Property from injury.

        
        13.3.5   To pay, settle or
compromise all bills and claims then existing or thereafter arising against
Borrower, which Lender, in its reasonable discretion, deems proper for the
Completion of the Improvements, for the protection or clearance of title to the
Property or Personal Property, or for the protection of Lender’s interests
with respect thereto. 

        
        13.3.6   To prosecute and defend all actions and proceedings in connection with the Property.

        
        13.3.7   To execute,
acknowledge and deliver all other instruments and documents in the name of
Borrower that are necessary or desirable, to exercise Borrower’s rights
under all contracts concerning the Property, and to do all other acts with
respect to the Property that Borrower might do on its own behalf as Lender, in
its reasonable discretion, deems proper. 

        13.4   Expenses. 
Borrower shall pay to Lender, within ten (10) days after demand by Lender or
within such shorter period of time as may be provided elsewhere in this
Agreement, all necessary expenses incurred by Lender incidental to the Loan,
including, without limitation, commitment fees, architectural and engineering
review expenses, appraisal fees, construction inspection fees and
attorneys’ fees. The foregoing expenses shall be payable whether the labor,
materials or services giving rise to such expenses are provided by Lender’s
employees, by its agents or by independent contractors. Any amounts not timely
paid by Borrower shall thereafter bear interest at the rate applicable to the
principal balance under the Note, from the date such expenses were paid by
Lender until repaid. 

48

 

        13.5   Indemnity. 
Borrower hereby agrees to defend, indemnify and hold Lender and its directors,
officers, employees, partners, attorneys, agents, participants, successors and
assigns harmless from and against all Losses which may be imposed upon, incurred
by or asserted against Lender and the other indemnified parties as a direct or
indirect consequence of: (a) the construction of the Improvements on the Land;
(b) any capital improvements, other work or things done in, on or about the
Property or any part thereof; (c) any use, nonuse, misuse, possession,
occupation, alteration, operation, maintenance or management of the Property or
any part thereof, or any street, drive, sidewalk, curb, passageway or space
comprising a part thereof or adjacent thereto; (d) any negligence or willful act
or omission on the part of Borrower, Peony, or its or their agents, contractors,
servants, employees, licensees or invitees; (e) any accident, injury (including
death) or damage to any person or property occurring in, on or about the
Property or any part thereof; (f) any lien or claim which may be alleged to have
arisen on or against the Property or any part thereof under the laws of the
local or state government or any other governmental or quasi-governmental
authority or any liability asserted against Lender with respect thereto; (g) any
tax attributable to the execution, delivery, filing or recording of the Deed of
Trust or the Note; (h) any contest due to Borrower’s actions or failure to
act, permitted pursuant to the provisions of the Loan Documents; (i) any Event
of Default; or (j) any claim by or liability to any contractor or subcontractor
performing work or any party supplying materials in connection with the
Improvements or the Land. Borrower shall pay immediately upon Lender’s
and(or) any other named indemnified party’s demand any amounts owing under
this indemnity, together with interest from the date the indebtedness arises
until paid at the rate of interest applicable to the principal balance of the
Note. Borrower’s duty to indemnify Lender and(or) any other named
indemnified party shall survive the release and cancellation of the Note and the
reconveyance or partial reconveyance of the Deed of Trust. Notwithstanding the
foregoing, Borrower shall have no obligation to defend, indemnify or hold
harmless Lender or any other indemnified party from and against any such Loss
that results from the gross negligence or willful misconduct of any indemnified
party. 

        13.6   Lender Right to
Re-Appraise Property.  Lender shall have the right to appraise the Property,
or to cause the Property to be appraised, (a) at Borrower’s expense at such
times as an Event of Default may exist; and (b) at Lender’s expense at such
other and additional times as Lender may determine. 

        13.7   Further
Assurances.  At Lender’s request and at Borrower’s expense,
Borrower shall execute, acknowledge and deliver all other instruments and
perform all other acts necessary, desirable or proper to carry out the purposes
of the Loan Documents or to perfect and preserve any liens created by the Loan
Documents. 

        13.8   Form of
Documents.  The form and substance of all documents, instruments and forms of
evidence to be delivered to Lender under the terms of any of the Loan Documents
shall be subject to Lender’s approval, and shall not be modified,
superseded or terminated in any respect without Lender’s prior written
approval. 

49

 

        13.9   Not Assignable. 
Except as expressly provided in paragraph 5.4 of the Deed of Trust, neither this
Agreement nor any rights of Borrower to receive any sums, proceeds or
disbursements under this Agreement or under the Note may be assigned, pledged,
hypothecated or otherwise encumbered by Borrower, without the prior written
consent of Lender, which consent may be granted or withheld by Lender in its
sole discretion. Subject to the foregoing restrictions, this Agreement shall
inure to the benefit of Lender, Borrower and their respective successors and
assigns, and shall bind Lender and Borrower and their respective permitted
heirs, executors, administrators, successors and assigns. 

        13.10   Attorneys’
Fees.  If Lender refers this Agreement or any of the other Loan Documents to
an attorney to enforce, construe or defend the same, or as a consequence of any
Event of Default as defined in this Agreement, with or without the filing of any
legal action or proceeding, Borrower shall pay to Lender, immediately upon
demand, the amount of all attorneys’ fees and costs incurred by Lender in
connection therewith, together with interest thereon from the date of such
demand at the rate of interest applicable to the principal balance of the Note.
The reference to “attorneys’ fees” in this Paragraph, elsewhere
in this Agreement and in all of the other Loan Documents shall include, without
limitation, fees charged by Lender for the services furnished by attorneys who
are in its employ, at rates not exceeding those that would be charged by outside
attorneys for comparable services. 

        13.11   Participations.  Lender may at any time sell or grant up to three (3)
participations in, or otherwise dispose of in anyway, all or any part of the
Loan. Lender shall provide Borrower with notice of any such participations or
dispositions. Borrower shall, on Lender’s request, sign and deliver such
further instruments as may in Lender’s reasonable opinion be necessary or
advisable to effect such disposition, including, without limitation, new notes
to be issued in exchange for any note(s) required under this Agreement. If
Lender does elect to sell participations in the Loan, Lender may forward to each
participant and prospective participant all documents and information related to
the Loan in Lender’s possession, including, without limitation, all
Financial Statements, whether furnished by Borrower or otherwise. Except as may
be required by any rule, law or regulation of any Governmental Authority that is
adopted after the date hereof, all recipients of participations must be
affiliated with Lender, unless a change in control of Lender occurs, in which
case the foregoing restrictions shall not apply. 

        13.12   Notices.  All
notices and demands under this Agreement shall be in writing, and shall be
deemed served upon delivery, or if mailed, upon the first to occur of receipt
thereof or three (3) days after deposit thereof in the United States Postal
Service, certified mail, postage prepaid, addressed to the address of Borrower
or Lender appearing in Article 1. Notices of change of address may be given in
the same manner. Notices and demands under the other Loan Documents shall be
given and shall be deemed served in the same manner as notices and demands under
this Agreement, except as may otherwise be specifically provided therein. 

50

 

        13.13   Lender’s
Agents.  Lender may upon written notice to Borrower designate agents or
independent contractors to exercise any of Lender’s rights under the Loan
Documents. Any reference to Lender in any of the Loan Documents shall include
Lender’s employees, agents and independent contractors. 

        13.14   Integration and
Interpretation.  The Loan Documents contain or expressly incorporate by
reference the entire agreement of the parties with respect to the matters
contemplated in this Agreement and supersede all prior negotiations and the loan
application. The Loan Documents shall not be modified except by written
instrument signed by Borrower and Lender. Any reference to the Property in any
of the Loan Documents shall include all or any portion thereof. Any reference to
the Loan Documents themselves in any of the Loan Documents shall include all
amendments, renewals or extensions approved by Lender. 

        13.15   Governing Law. 
The Loan Documents shall be governed by and construed in accordance with the
laws of the State of California, except to the extent preempted by federal law.
Borrower and all Persons and entities in any manner obligated to Lender under
the Loan Documents hereby consent to the jurisdiction of any federal or state
court within the State of California and also consent to service of process by
any means authorized by California or federal law. 

        13.16   No Third Parties
Benefited.  No Person other than Lender and Borrower and their permitted
successors and assigns shall have any right of action under any of the Loan
Documents. 

        13.17   Time of the Essence.   Time is hereby declared to be of the essence of this Agreement and of every part of this Agreement.

        13.18   Supplement  to Loan  Documents.   The  provisions of this  Agreement are not intended to supersede the  provisions of any other
Loan Documents, but shall be construed as supplemental thereto.

        13.19   Severability. 
If any provision of the Loan Documents is determined by a court of competent
jurisdiction to be invalid, illegal or unenforceable, that portion shall be
deemed severed from the Loan Documents, and all remaining parts shall continue
in full force as though the invalid, illegal or unenforceable portion had never
been part of the Loan Documents. 

        13.20   Gender.  When
the context and construction so require, all words used in the singular in this
Agreement shall be deemed to have been used in the plural, the masculine shall
include the feminine and neuter, and vice versa. 

        13.21   Headings.  All
headings appearing in any of the Loan Documents are for convenience only and
shall be disregarded in construing the Loan Documents. 

        13.22   Consent. 
Whenever the consent or approval of either party is required pursuant to this Agreement, such consent or approval shall not be unreasonably delayed, nor
(except where a provision of this Agreement expressly refers to sole discretion)shall such consent or approval be unreasonably conditioned or withheld. 

51

 

        13.23   Incorporation.   The following Exhibits attached to this Agreement are incorporated in this Agreement by this reference:

	 	A	Legal Description of the Land
	 	 	 
	 	B	Legal Description of Parcel A
	 	 	 
	 	C	Legal Description of Parcel B
	 	 	 
	 	D	Architect Warranty, Agreement and Consent to Assignment
	 	 	 
	 	E	Assignment of Architect Contract
	 	 	 
	 	F	Assignment of Leases (Guarantor)
	 	 	 
	 	G	Cost Breakdown
	 	 	 
	 	H	Deed of Trust (Guarantor)
	 	 	 
	 	I	Disbursement Schedule
	 	 	 
	 	J	Estoppel Certificate
	 	 	 
	 	K	Subordination, Non-Disturbance and Attornment Agreement
	 	 	 
	 	L	Disclosures Regarding Hazardous Substances
	 	 	 
	 	M	UCC-1 Financing Statement (Guarantor)

        13.24   WAIVER OF RIGHT OF
TRIAL BY JURY.  EACH OF BORROWER AND LENDER HEREBY VOLUNTARILY, KNOWINGLY,
INTENTIONALLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY
PARTICIPATE (INCLUDING BY WAY OF JURY TRIAL) IN RESOLVING ANY DISPUTE OR
LITIGATION (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) BETWEEN OR AMONG
BORROWER AND LENDER ARISING OUT OF OR IN ANY WAY RELATED TO THIS AGREEMENT AND
THE LOAN DOCUMENTS OR ACTIONS OF BORROWER OR LENDER RELATING TO THE LOAN AND(OR)
THE LENDING RELATIONSHIP WHICH IS THE SUBJECT OF THIS AGREEMENT. THIS PROVISION
AND THE WAIVER SET FORTH HEREIN ARE MATERIAL INDUCEMENTS TO LENDER TO PROVIDE
THE FINANCING DESCRIBED HEREIN AND IN THE LOAN DOCUMENTS. 

        13.25    Addendum I.   Addendum I attached hereto is hereby incorporated herein by this reference. 

52

 

        IN WITNESS WHEREOF,
the parties have signed and entered into this Agreement as of the day and year first above written.

	 	 	 	 	 
	LENDER:	SAN DIEGO NATIONAL BANK,
	 	a national banking association
	 	 	 
	 	By:	 	/s/ James
W. Holliman

	 	Name:	 	James
W. Holliman

	 	Its:	 	Senior
Vice President

	 	 	 
	 	By:	 	

	 	Name:	 	

	 	Its:	 	

	 	 
	BORROWER:	SCIENCE PARK CENTER LLC,
	 	a California limited liability company
	 	 
	 	By:	 	/s/ Paul
W. Hawran

	 	Name:	 	Paul
W. Hawran

	 	Its:	 	Executive
Vice President & CFO

	 	 
	 	By:	 	

	 	Name:	 	

	 	Its:	 	

53

 

EXHIBIT “A”

Legal Description of the Land

Parcel A and B Legal Description

PARCEL 1 OF PARCEL MAP NO.
19130, IN THE CITY OF SAN DIEGO, COUNTY OF SAN DIEGO, STATE OF CALIFORNIA,
ACCORDING TO MAP THEREOF FILED IN THE OFFICE OF THE COUNTY RECORDER OF SAN DIEGO
COUNTY, DECEMBER 20, 2002. 

EXCEPTING THEREFROM ALL OIL
RIGHTS ON HEREIN DESCRIBED PROPERTY TO BE RESERVED BY THE GRANTOR, HER HEIRS AND
ASSIGNS, FOREVER, AND FURTHER THAT THE SAID GRANTOR, HER HEIRS OR ASSIGNS AGREE
TO PAY A REASONABLE COMPENSATION TO THE SAID GRANTEE OR THEIR ASSIGNS, SHOULD
THE GRANTOR, HER HEIRS OR ASSIGNS, ENTER THE HEREIN DESCRIBED LAND FOR THE
PURPOSE OF DIGGING OR DRILLING FOR OIL, AS RESERVED IN DEED FROM TILLIE M. LACY,
ALSO KNOWN AS TILLIE WATERS LACY TO MEAD-HASKELL COMPANY, DATED JULY 29, 1919
AND RECORDED JULY 29, 1919 IN BOOK 789, PAGE 78 OF DEEDS. 

(ASSESSOR’S PARCEL NO. 304-070-50 & 51) 

PARCEL 2: 

LOT 17 OF EMPLOYMENT CENTER DEVELOPMENT UNIT NO. 28, IN THE CITY OF SAN DIEGO, COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, ACCORDING TO
MAP THEREOF NO. 10945, FILED IN THE OFFICE OF THE COUNTY RECORDER OF SAN DIEGO COUNTY ON MAY 21, 1984.

EXCEPTING THEREFROM ALL OIL
RIGHTS ON HEREIN DESCRIBED PROPERTY TO BE RESERVED BY THE GRANTOR, HER HEIRS AND
ASSIGNS, FOREVER, AND FURTHER THAT THE SAID GRANTOR, HER HEIRS OR ASSIGNS AGREE
TO PAY A REASONABLE COMPENSATION TO THE SAID GRANTEE OR THEIR ASSIGNS, SHOULD
THE GRANTOR, HER HEIRS OR ASSIGNS, ENTER THE HEREIN DESCRIBED LAND FOR THE
PURPOSE OF DIGGING OR DRILLING FOR OIL, AS RESERVED IN DEED FROM TILLIE M. LACY,
ALSO KNOWN AS TILLIE WATERS LACY TO MEAD-HASKELL COMPANY, DATED JULY 29, 1919
AND RECORDED JULY 29, 1919 IN BOOK 789, PAGE 78 OF DEEDS. 

(APN. NO. 307-010-23) 

 

EXHIBIT “B”

Legal Description of Parcel A

PARCEL 1 OF PARCEL MAP NO.
19130, IN THE CITY OF SAN DIEGO, COUNTY OF SAN DIEGO, STATE OF CALIFORNIA,
ACCORDING TO MAP THEREOF FILED IN THE OFFICE OF THE COUNTY RECORDER OF SAN DIEGO
COUNTY, DECEMBER 20, 2002. 

EXCEPTING THEREFROM ALL OIL
RIGHTS ON HEREIN DESCRIBED PROPERTY TO BE RESERVED BY THE GRANTOR, HER HEIRS AND
ASSIGNS, FOREVER, AND FURTHER THAT THE SAID GRANTOR, HER HEIRS OR ASSIGNS AGREE
TO PAY A REASONABLE COMPENSATION TO THE SAID GRANTEE OR THEIR ASSIGNS, SHOULD
THE GRANTOR, HER HEIRS OR ASSIGNS, ENTER THE HEREIN DESCRIBED LAND FOR THE
PURPOSE OF DIGGING OR DRILLING FOR OIL, AS RESERVED IN DEED FROM TILLIE M. LACY,
ALSO KNOWN AS TILLIE WATERS LACY TO MEAD-HASKELL COMPANY, DATED JULY 29, 1919
AND RECORDED JULY 29, 1919 IN BOOK 789, PAGE 78 OF DEEDS. 

(ASSESSOR'S PARCEL NO. 304-070-50 & 51)

 

EXHIBIT “C”

 Legal Description of Parcel B

LOT 17 OF EMPLOYMENT CENTER DEVELOPMENT UNIT NO. 28, IN THE CITY OF SAN DIEGO, COUNTY OF SAN DIEGO, STATE OF CALIFORNIA, ACCORDING TO
MAP THEREOF NO. 10945, FILED IN THE OFFICE OF THE COUNTY RECORDER OF SAN DIEGO COUNTY ON MAY 21, 1984.

EXCEPTING THEREFROM ALL OIL
RIGHTS ON HEREIN DESCRIBED PROPERTY TO BE RESERVED BY THE GRANTOR, HER HEIRS AND
ASSIGNS, FOREVER, AND FURTHER THAT THE SAID GRANTOR, HER HEIRS OR ASSIGNS AGREE
TO PAY A REASONABLE COMPENSATION TO THE SAID GRANTEE OR THEIR ASSIGNS, SHOULD
THE GRANTOR, HER HEIRS OR ASSIGNS, ENTER THE HEREIN DESCRIBED LAND FOR THE
PURPOSE OF DIGGING OR DRILLING FOR OIL, AS RESERVED IN DEED FROM TILLIE M. LACY,
ALSO KNOWN AS TILLIE WATERS LACY TO MEAD-HASKELL COMPANY, DATED JULY 29, 1919
AND RECORDED JULY 29, 1919 IN BOOK 789, PAGE 78 OF DEEDS. 

(APN. NO. 307-010-23)

 

EXHIBIT “D”

Architect Warranty, Agreement and Consent to Assignment

 

EXHIBIT “E”

Assignment of Architect Contract

 

EXHIBIT “F”

Assignment of Leases (Guarantor)

 

EXHIBIT “G”

Cost Breakdown

 

EXHIBIT “H”

Deed of Trust (Guarantor)

 

EXHIBIT “I”

Disbursement Schedule

	 	 	 	 	 	

	 	A.	Timing of Disbursements.  Unless another provision of this Agreement  specifies  otherwise,  on or about the seventh (7th) day
of each  month,  or at such other time each month as Lender may deem  appropriate,  Borrower  shall cause to be  submitted  to
Lender a written itemized statement (“Request for Disbursement”) setting forth:
	 	 	 	 	 	 
	 	 	1.	A description of the work performed, material supplied and(or) costs incurred
or due with respect to each item listed on the Cost Breakdown for which Disbursement is requested; and
	 	 	 	 	 	 
	 	 	2.	the total amount incurred, expended and(or)
due for each requested item less prior Disbursements.
	 	 	 	 	 	 
	 	 	Each
Request for Disbursement by Borrower shall constitute a representation and
warranty by Borrower that Borrower is in compliance with all conditions
precedent to the Disbursement as set forth in Article 4 of the Agreement.
	 	 	 	 	 	 
	 	B.	Lender'’s Right to Condition  Disbursements.  In addition to the conditions precedent to Disbursement  provided in Article 4 of
the Agreement,  Lender shall have the right to condition any Disbursement  upon Lender's receipt and approval of any or all of
the following: setting forth:
	 	 	 	 	 	 
	 	 	1.	The Request for Disbursement.
	 	 	 	 	 	 
	 	 	2.	Bills,  invoices,  documents of title,  vouchers,  statements,  payroll  records,  receipts  and any other  documents
evidencing the total amount expended, incurred or due for any requested items.
	 	 	 	 	 	 
	 	 	3.	Use of an  unconditional  lien  release,  joint  check and  voucher  system  acceptable  to Lender  for  payments  or
disbursements to any contractor, subcontractor, materialman, supplier or lien claimant.
	 	 	 	 	 	 
	 	 	4.	The  Inspection  Agent's  periodic  certifications  of the  percentage  and(or) state of  construction  that has been
completed and its conformance to the Plans and Governmental  Requirements  based upon the Inspection Agent's physical
inspections of the Property.
	 	 	 	 	 	 
	 	 	5.	Statutory  Waiver and release of mechanics'  liens,  stop notice  claims,  equitable  lien claims or other lien claim
rights, as required by Section 4.3.6 of this Agreement.
	 	 	 	 	 	 
	 	 	6.	A written  release signed by an authorized  representative  of the surety,  if any, to whom Lender has issued or will
issue a set-aside letter.
	 	 	7.	Any other  document,  requirement,  evidence or  information  that Lender may request under any provision of the Loan
Documents.

	 	 	 	 	 	

	 	 	No later than five (5) Business Days after satisfaction of all conditions precedent
to Disbursements, Lender shall disburse funds as set forth in this Disbursement
Schedule and in the body of the Agreement.
	 	 	 	 	 	 
	 	C.	Disbursement  of  Lender’s  Fees and  Costs.  The  portions  of the  Cost  Breakdown  allocated  for  payment  of the
Construction  Loan Fee,  and for the costs and  expenses of Lender's  legal  counsel and other fees and costs  incidental  to the Loan,
shall be disbursed  directly as and when due,  without the prior  written  instruction  or request of Borrower.  Lender shall provide a
summary of all such expenses, and copies of invoices (except for the Construction Loan Fee and legal fees) for all such expenses.
	 	 	 	 	 	 
	 	D.	Periodic  Disbursement of Interest  Reserve Amount. Lender shall disburse  amounts up to the Interest Reserve Amount
from  time to time,  directly  to Lender in  payment  of  interest  which  accrues  and  becomes  due under the Note.  Lender is hereby
authorized  to charge the Loan and  Borrower's  Funds  Account  directly for such  interest  payments as they become due.  Lender shall
provide  Borrower with a monthly  interest  statement.  Depletion of the Interest Reserve Amount shall not release Borrower from any of
Borrower's obligations under the Loan Documents,  including,  without limitation, the obligation to pay the interest accruing under the
Note and the  obligation  to deposit  Borrower's  Funds with  Lender.  Without  limiting  the  generality  of the  foregoing,  Borrower
acknowledges  that following the depletion of the Interest Reserve Amount or the Final  Disbursement,  whichever comes first,  Borrower
shall be obligated to pay interest directly to Lender as it becomes due under the Note.
	 	 	 	 	 	 
	 	E.	Contingency  Reserve. If the actual cost or a revised  guaranteed cost of an item on the Cost Breakdown is less than
the maximum amount  allocated to such item on the Cost  Breakdown,  then any such excess amounts may be reallocated to the  Contingency
Reserve of that portion of the Cost Breakdown (i.e., Hard Contingency  Reserve or General  Contingency  Reserve) from time to time upon
Borrower's  written request and Lender's  approval,  which approval shall not be unreasonably  withheld or delayed.  The portion of the
Cost  Breakdown  allocated to the  Contingency  Reserve and any  increases in the  Contingency  Reserve  pursuant to this  Disbursement
Schedule  shall be  reallocated  to such other items of the Cost  Breakdown as Borrower  shall from time to time request in writing and
Lender shall approve.  After any such reallocation,  the portion of the Contingency Reserve that has been reallocated will be disbursed
in accordance with the provisions  governing the disbursement of the item(s) to which such portion of the Contingency  Reserve has been
reallocated.  The reallocation or depletion or refusal of Lender to increase,  reallocate or deplete the Contingency  Reserve shall not
release  Borrower  from any of  Borrower's  obligations  under the Loan  Documents.  Borrower  shall have the right to utilize the Hard
Contingency  Reserve to satisfy  Change  Orders  that are less than or equal to the Change  Order  Amount and which,  in total,  do not
exceed the  Aggregate  Change  Order  Amount,  provided  notification  is  expressly  given to Lender in the then  current  Request for
Disbursement.
	 	 	 	 	 	 
	 	F.	Periodic  Disbursement  of  Construction  Costs.  Lender may in its  discretion  withhold  from  Disbursements  any amounts on
account of retainage under the Construction Contract that Owner is not then required to disburse to Contractor.

 

EXHIBIT “J”

Estoppel Certificate

 

EXHIBIT “K”

Subordination, Non-Disturbance and Attornment Agreement

 

EXHIBIT “L”

Disclosures Regarding Hazardous Substances

 

EXHIBIT “M”

UCC-1 Financing Statement (Guarantor)

 

ADDENDUM I

        No
provision of any Loan Document is intended to restrict the sale of the stock of
Guarantor (or any other entity by virtue of its ownership interest in Guarantor)
or mergers involving Guarantor (or any other entity by virtue of its ownership
interests in Guarantor) as a party, and any such transaction is permitted
hereby.exv10w3

 

Exhibit 10.3

Loan No. 1686410

GUARANTY

     THIS GUARANTY (the “Guaranty”) is made as of September 25, 2003, by
NEUROCRINE BIOSCIENCES, INC., a Delaware corporation (“Guarantor”), with
reference to the facts set forth below.

     A.     SAN DIEGO NATIONAL BANK, a national banking association (“Lender”),
has entered into a Construction Loan Agreement of even date herewith (the “Loan
Agreement”), with SCIENCE PARK CENTER LLC, a California limited liability
company (“Borrower”). (Except as otherwise provided in this Guaranty, terms
with initial capital letters herein shall have the same meanings as set forth
in the Loan Agreement.)

     B.     Pursuant to the Loan Agreement, Lender will make to Borrower a loan
in an original amount not to exceed the principal sum of up to $60,600,000.00
(“Loan”). The Loan is to be used by Borrower to construct certain improvements
on the Property described in the Loan Agreement, and is to be secured by the
Property. The Loan is to be evidenced and secured by the Note and the other
Loan Documents.

     C.     As an essential inducement of the making of the Loan and in
consideration therefor, Guarantor has agreed to execute this Guaranty. The
obligations guarantied pursuant to Section 1 below are referred to collectively
herein as the “Guarantied Obligations”.

     D.     Guarantor will obtain substantial direct and indirect benefits from
the making of the Loan.

     NOW, THEREFORE, in consideration of the premises, and to induce and in
consideration for the making of the Loan, Guarantor agrees as set forth below.

     1.     Guaranty.

               1.1   Guarantor hereby unconditionally and irrevocably guaranties to
Lender the full and prompt payment and performance of all indebtedness and
obligations, of any nature whatsoever, of Borrower under the Note and all other
Loan Documents and any and all extensions, renewals, substitutions,
replacements, and modifications thereof, whether now in existence or hereafter
created, including, without limitation, (a) all principal of and interest on
the Note and (b) all fees, charges, costs, and other amounts payable by
Borrower under the Note and other Loan Documents (all of the foregoing
obligations collectively, the “Guarantied Obligations”).

               1.2   This is a guaranty of all Guarantied Obligations, including, without
limitation, obligations and liabilities arising under successive and future
transactions that either increase, decrease, or continue the Guarantied
Obligations, or, from time to time, renew Guarantied Obligations that have been
satisfied, independent of and in addition to any guaranty, endorsement, or
collateral now or hereafter held by Lender, whether or not furnished by
Guarantor. This Guaranty shall be irrevocable, and Guarantor waives any right
to revoke this Guaranty and the benefits of California Civil Code Section 2815.

1

 

     2.     Rights of Lender. Guarantor authorizes Lender at any time in its sole
discretion to take any of the following actions on such terms and conditions as
Lender may elect, without giving notice to Guarantor or any other person or
obtaining the consent of Guarantor or any other person and without affecting
Guarantor’s obligations under this Guaranty:

               2.1   Alter any of the terms and(or) documentation of any of the
Guarantied Obligations or Loan Documents, including renewing, amending,
releasing, waiving, compromising, extending or accelerating, or otherwise changing the
time for payment of, or increasing or decreasing the
Guarantied Obligations or the rate of interest on, the Guarantied Obligations;

               2.2   accept new or additional documents, instruments or agreements
relative to the Guarantied Obligations;

               2.3   consent to the change, restructure or termination of the individual,
partnership, limited liability company, corporate or other organizational
structure or existence of Borrower, Guarantor or any other person or any
affiliate of Borrower, Guarantor or any other person, and correspondingly
restructure the Guarantied Obligations;

               2.4   accept partial payments on the Guarantied Obligations;

               2.5   take and hold any security or additional guaranties for the
Guarantied Obligations and amend, alter, exchange, substitute, transfer,
enforce, perfect or fail to perfect, waive, subordinate, terminate, compromise,
or release any such security or guaranties;

               2.6   apply any security, and direct the order and manner of sale thereof
as Lender in its sole discretion may determine;

               2.7   settle, release on terms satisfactory to Lender or by operation of
law or otherwise, compound, compromise, collect or otherwise liquidate the
Guarantied Obligations and(or) the security or any guaranty therefor in any
manner;

               2.8   release Borrower or any other person of its liability for all or any
of the Guarantied Obligations;

               2.9   participate in any settlement offered by Borrower, any guarantor or
any other person, whether in liquidation, reorganization, receivership,
bankruptcy, assignment for the benefit of creditors or other debtor-relief
proceeding or otherwise;

               2.10   exercise or not exercise rights available to it in any liquidation,
reorganization receivership, bankruptcy, assignment for benefit of creditors or
other debtor-relief proceeding, including voting or not voting to accept a plan
and filing or not filing a proof of claim;

               2.11   release, substitute or add any one or more guarantors or endorsers;
and

               2.12   assign its rights under this Guaranty in whole or in part.

2

 

     3.     Independent Obligations. Guarantor shall pay to (in immediately
available funds) and perform for the benefit of Lender, when due, on demand of
Lender, all Guarantied Obligations. This Guaranty is a guaranty of payment and
performance and not of collectability. Guarantor’s obligations under this
Guaranty are independent of those of Borrower and those of any other guarantor
or other person. Lender may bring a separate action against Guarantor without
proceeding against Borrower or any other guarantor or other person or any
security held by Lender and without pursuing any other remedy.

     4.     Waiver of Defenses. Guarantor waives and agrees not to assert or take
advantage of:

               4.1   Any right to require Lender to proceed against Borrower, any other
guarantor or any other person or any security now or hereafter held by Lender
or to pursue any other remedy whatsoever, including any such right or any other
right set forth in or arising out of Sections 2845, 2848, 2849, 2850, 2899 or
3433 of the California Civil Code;

               4.2   any defense based upon any legal disability of Borrower or any
guarantor or other person, or any discharge or limitation of the liability of
Borrower or any guarantor or other person to Lender (except on satisfaction of
all of Borrower’s obligations with respect to the Loan and Loan Documents), or
any restraint or stay applicable to actions against Borrower or any guarantor
or other person, whether such disability, discharge, limitation, restraint or
stay is consensual, or arising by order of a court or other Governmental
Authority, or arising by operation of law or any liquidation, reorganization,
insolvency, receivership, bankruptcy, assignment for the benefit of creditors
or other debtor-relief proceeding, whether or not Lender consents to such
treatment in such proceeding, or from any other cause, including any defense to
the payment of interest, attorneys’ fees and costs, and other charges that
otherwise would accrue or become payable in respect to the Guarantied
Obligations after the commencement of any such proceeding;

               4.3   setoff, counterclaim, presentment, demand, protest, notice of
protest, notice of nonpayment, or other notice of any kind;

               4.4   any defense based upon the modification, renewal, extension or other
alteration of any of the Guarantied Obligations, or of the documents executed
in connection therewith;

               4.5   any defense based upon the negligence of Lender, including the
failure to record an interest under a deed of trust, the failure to perfect any
security interest, or the failure to file a claim in any bankruptcy of Borrower
or any guarantor or other person;

               4.6   any defense based upon a statute of limitations to the fullest
extent permitted by law and any defense based upon Lender’s delay in enforcing
this Guaranty or any other agreement;

               4.7   all rights of subrogation, reimbursement, indemnity and
contribution, all rights to enforce any remedy that Lender may have against
Borrower or other person, and all rights to participate in any security held by
Lender for the Guarantied Obligations, including any such right or any other
right set forth in Sections 2848 or 2849 of the California Civil Code, until

3

 

the Guarantied Obligations have been paid and performed in full, and any
defense based upon the impairment of any subrogation, reimbursement, indemnity
or contribution rights that Guarantor might have, including any defense or
right based upon the acceptance by Lender or an affiliate of Lender of a deed
in lieu of foreclosure without extinguishing the Guarantied Obligations, even
if such acceptance destroys, alters or otherwise impairs subrogation rights of
Guarantor, the right of Guarantor to proceed against Borrower or any other
person for reimbursement, or both;

               4.8   any defense based upon or arising out of any defense which Borrower
or any other guarantor or other person may have to the performance of any part
of the Guarantied Obligations;

               4.9   any defense to recovery by Lender of a deficiency after non-judicial
foreclosure sale of real or personal property; any defense based upon
unavailability to Lender of a deficiency judgment after nonjudicial sale of
real or personal property; and any defense based upon or arising out of any of
Sections 580a (which might limit the amount of any deficiency judgment which
might be recoverable following the occurrence of a trustee’s sale under a deed
of trust), 580b and 580d (which may limit the right to recover a deficiency
judgment with respect to purchase money obligations and after a non-judicial
foreclosure sale, respectively), or 726 (which, among other things, may require
the exhaustion of security before a personal
judgment may be obtained for a deficiency) of the California Code of Civil
Procedure (including but not limited to any fair value limitations under
Sections 580a or 726 of such Code) or based upon or arising out of Divisions 8
or 9 or other applicable divisions of the California Uniform Commercial Code;

               4.10   any defense based upon the death, incapacity, lack of authority or
termination of existence of, or purported revocation or rescission of this
Guaranty or any of the Guarantied Obligations by, any person, or the
substitution of any party hereto or thereto;

               4.11   any defense based upon or related to Guarantor’s lack of knowledge
as to Borrower’s financial condition;

               4.12   any right to revoke this Guaranty or obligations hereunder and all
rights and benefits of Section 2815 of the California Civil Code;

               4.13   any right to designate the application of any sums or property
received by Lender, and in connection therewith, Guarantor agrees that any
amounts or sums received by Lender from any source on account of the Guarantied
Obligations may be applied by Lender toward payment thereof in such order of
application as Lender may from time to time elect, notwithstanding any contrary
designation by Borrower, Guarantor or any other person;

               4.14   any defense based upon any action taken or omitted by Lender in any
bankruptcy or other insolvency proceeding involving Borrower or any other
person, including any election to have Lender’s claim allowed as secured,
partially secured or unsecured, any extension of credit by Lender to Borrower
in any such proceeding, and the taking and holding by Lender of any security
for any such extension of credit; and

4

 

               4.15   any right or defense that is or may become available to Guarantor
by reason of California Civil Code Sections 2787 to and including 2855, 2899
and 3433.

     5.     Borrower’s Financial Condition. Guarantor acknowledges that it is
relying upon its own knowledge of and is fully informed with respect to
Borrower’s financial condition. Guarantor assumes full responsibility for
keeping fully informed of Borrower’s financial condition and all other
circumstances affecting Borrower’s ability to perform the Guarantied
Obligations, and agrees that Lender will have no duty to report to Guarantor
any information which Lender receives about Borrower’s financial condition or
any circumstances bearing on Borrower’s ability to perform all or any portion
of the Guarantied Obligations, regardless of whether Lender has reason to
believe that any such facts materially increase the risk beyond that which
Guarantor intends to assume or has reason to believe that such facts are
unknown to Guarantor or has a reasonable opportunity to communicate such facts
to Guarantor.

     6.     Impairment of Subrogation Rights.

               6.1   Upon a default of Borrower or an Event of Default, Lender may elect
to foreclose nonjudicially or judicially against any real or personal property
security it holds for any of the Guarantied Obligations, exercise any other
remedy against Borrower or any security or any guarantor or other person,
and(or) take a deed or assignment of security in lieu of foreclosure. No such
action by Lender will release or limit the liability of Guarantor, even if the
effect of that action is to deprive Guarantor of the right or ability to
collect reimbursement from or assert subrogation, indemnity or contribution
rights against Borrower or any other guarantor or other person for any sums
paid to Lender, or to obtain reimbursement by means of any security held by
Lender for the Guarantied Obligations.

               6.2   Guarantor acknowledges that if Lender elects to foreclose
nonjudicially against any real property security it holds for the Guarantied
Obligations or any part thereof, Guarantor may have subrogation rights that
might be destroyed by virtue of application of Section 580d of the California
Code of Civil Procedure and will or may have a defense to its liability under
this Guaranty. Without in any way limiting any other waiver, consent or
acknowledgment contained in this Guaranty and in addition thereto, Guarantor
hereby waives and agrees not to assert or take advantage of any defense based
upon such Section 580d of the California Code of Civil Procedure or any loss or
impairment of subrogation or other rights against Borrower or any other person
or entity, and no such nonjudicial foreclosure by Lender shall release or limit
the liability of Guarantor under this Guaranty.

               6.3   Guarantor waives all rights and defenses arising out of an election
of remedies by Lender, even though that election of remedies, such as
nonjudicial foreclosure with respect to security for the Guarantied
Obligations, has destroyed Guarantor’s rights of subrogation and(or)
reimbursement against Borrower or other person by the operation of Section 580d
of the California Code of Civil Procedure or otherwise.

               6.4   Guarantor waives all rights and defenses arising out of the
operation of Section 580a of the California Code of Civil Procedure, and
further waives its right to a fair value hearing under such Section 580a to
determine the size of a deficiency judgment following any foreclosure sale on
encumbered real property.

5

 

               6.5   Guarantor waives all rights and defenses that Guarantor may have
because the Guarantied Obligations are secured by real property. This means,
among other things: (a) Lender may collect from Guarantor without first
foreclosing on any real or personal property collateral pledged by Borrower or
otherwise; and (b) if Lender forecloses on any real property collateral, (i)
the amount of the Guarantied Obligations may be reduced only by the price for
which that collateral was sold at the foreclosure sale, even if the collateral
is worth more than the sale price and (ii) Lender may collect from Guarantor
even if Lender, by foreclosing on the real property collateral, has destroyed
any right Guarantor may have to collect from Borrower or other person. This is
an unconditional and irrevocable waiver of any rights and defenses Guarantor
may have because the Guarantied Obligations or portions thereof are secured by
real property. These rights and defenses include, but are not limited to, any
rights or defenses based upon Sections 580a, 580b, 580d, or 726 of the
California Code of Civil Procedure.

     7.     Security Interest. Guarantor grants to Lender a security interest in
all moneys, securities and other property of Guarantor now or hereafter in
Lender’s possession, and all present and future deposit accounts of Guarantor
with Lender to secure Guarantor’s performance hereunder.

     8.     Default. Each of the following shall constitute a default of
Guarantor under this Guaranty, entitling Lender, at its option and in addition
to its other remedies, to accelerate all of Guarantor’s Obligations hereunder
and to collect immediately from Guarantor the full amount of the Guarantied
Obligations:

               8.1   The failure of Guarantor to perform any of its obligations under
this Guaranty;

               8.2   the commencement of any liquidation, reorganization, receivership,
bankruptcy, assignment for the benefit of creditors or other debtor-relief
proceeding by Borrower or Guarantor;

               8.3   any representation or warranty made by Guarantor hereunder shall be
false in any material respect;

               8.4   Guarantor shall fail to comply with any of the other terms or
provisions of this Guaranty;

               8.5   the occurrence of an Event or Default under any of the other Loan
Documents; and

               8.6   the revocation or purported revocation by Guarantor of this
Guaranty.

     9.     Bankruptcy.

               9.1   The obligations of Guarantor under this Guaranty shall not be
altered, limited, or affected by any proceeding, voluntary or involuntary,
involving the bankruptcy, insolvency, receivership, reorganization,
liquidation, or arrangement of Borrower, or by any defense Borrower may have by
reason of any order, decree, or decision of any court or administrative body
resulting from any such proceeding. In furtherance of the foregoing,

6

 

Guarantor agrees that if acceleration of the time for payment of any amount
payable by Borrower under the Note or in respect of the other Guarantied
Obligations is stayed for any reason, all such amounts otherwise subject to
acceleration shall nonetheless be payable by Guarantor hereunder forthwith upon
demand.

               9.2   Guarantor shall file in any bankruptcy or other proceeding in which
the filing of claims is required or permitted by law all claims that Guarantor
may have against Borrower relating to any indebtedness of Borrower to
Guarantor, and will assign to Lender all rights of Guarantor thereunder. If
Guarantor does not file any such claim at least ten (10) days prior to any
deadline thereof, then to the extent allowed by law, Lender, as
attorney-in-fact for Guarantor, is hereby authorized to do so in the name of
Guarantor or, in Lender’s discretion, to assign the claim to a nominee, and to
cause such proof of claim to be filed in the name of Lender’s nominee. The
foregoing power of attorney is coupled with an interest and is irrevocable
until after the indefeasible payment and performance in full of all of the
Guarantied Obligations. In all such cases, whether in administration,
bankruptcy, or otherwise, the person or persons authorized to pay such claim
shall pay to Lender the amount payable on such claim. Guarantor hereby assigns
to Lender all of Guarantor’s rights to any such payments or distributions to
which Guarantor would otherwise be entitled; provided, however, that
Guarantor’s obligations hereunder shall not be satisfied except to the extent
that Lender receives cash by reason of any such payment or distribution. If
Lender receives anything hereunder other than cash, the same shall be held as
collateral for amounts due under this Guaranty.

     10.     Continuance of Guaranty. The liability of Guarantor hereunder shall
continue in effect notwithstanding any payment or performance of the Guarantied
Obligations by Borrower, such that, if any such payment or performance is
avoided or recovered from Lender or Lender is otherwise required to restore or
return any such payment or performance in connection with the bankruptcy,
insolvency or reorganization of Borrower or otherwise, Guarantor shall remain
liable hereunder as though such payment or performance had not occurred. The
determination as to whether any such payment or performance must be restored or
returned may be made by Lender in its sole discretion; provided, however, that
if Lender chooses in its discretion to contest any such matter, Guarantor
agrees to indemnify, defend and hold harmless Lender from all costs and
expenses (including, without limitation, legal fees and disbursements) of such
litigation. Lender shall be under no obligation to return or deliver this
Guaranty to Guarantor, notwithstanding the payment or performance of the
Guarantied Obligations. If this Guaranty is nevertheless returned to Guarantor
or is otherwise released, then the provisions herein shall survive such return
or release, and the liability of Guarantor under this Guaranty shall survive
such return or release, and Guarantor shall remain liable under this Guaranty
under the circumstances provided herein notwithstanding such return or release.

     11.     Subordination.

               11.1   All existing and future obligations of Borrower to Guarantor
(including, without limitation, any obligations arising by reason of any
payment by Guarantor hereunder) are hereby subordinated to the full and
indefeasible payment and performance of the Guarantied Obligations.

7

 

               11.2   Upon any default under any of the Guarantied Obligations or
hereunder, all obligations of Borrower to Guarantor shall be collected,
enforced and received by Guarantor as trustee for Lender, and all amounts
received shall be paid over to Lender, for application to the Guarantied
Obligations. In the event of a bankruptcy case against Borrower, Lender shall,
at its option, be entitled to file a proof of claim on behalf of Guarantor
under the Bankruptcy Rule 3001. Lender shall be entitled to all voting rights
and distributions on account of such claim until full and complete performance
of the Guaranteed Obligations.

     12.     Representations and Warranties. Guarantor represents and warrants as
follows:

               12.1   Guarantor is a corporation duly incorporated, validly existing, and
is in good standing under the laws of the jurisdiction of its incorporation and
is duly qualified to do business in Delaware, California and all other states,
if any, in which it is required to be qualified;

               12.2   Guarantor has the requisite power and authority to own and manage
its properties, to carry on its business as now being conducted and to perform
its obligations hereunder;

               12.3   The individual(s) executing this Guaranty on behalf of Guarantor or
any person comprising a part of Guarantor is authorized and empowered by
his/her or their signatures alone to bind Guarantor;

               12.4   Guarantor has the full right, power and authority to execute and
deliver this Guaranty and any other Loan Document to be executed and delivered
by it, consummate the transactions contemplated hereby and thereby, and perform
its obligations hereunder and thereunder. This Guaranty and the other Loan
Documents to be executed and delivered by Guarantor have been duly authorized,
executed and delivered, and do not and will not require any consent or approval
of any person or entity other than that which has been heretofore obtained;

               12.5   Guarantor is in compliance with all laws, regulations, ordinances
and orders of public authorities applicable to it;

               12.6   The execution, delivery and performance by Guarantor of this
Guaranty (a) have been duly authorized by all necessary action, (b) are within
the power of Guarantor, (c) have received all necessary governmental approvals,
and (d) do not and will not (i) contravene Guarantor’s corporate charter,
bylaws, or any other of Guarantor’s Organizational Documents, (ii) violate any
provision of any law, rule or regulation or any order, judgment or decree of
any court or agency of government, or any indenture, agreement or any other
instrument to which Guarantor is a party or by which Guarantor or its property
is bound, (iii) result in a breach of or constitute (with due notice and(or)
lapse of time) a default under any such indenture, agreement or other
instruments, (iv) result in the creation or imposition of any lien, charge or
encumbrance of any nature whatsoever under any agreement, mortgage, deed of
trust, lease, loan or security agreement, partnership agreement, corporate
charter, bylaws or other document, agreement or instrument to which Guarantor
is a party or by which it or its property or assets may be bound or affected;
and Guarantor is not in default under any such law, rule, regulation, order,
judgment, decree, indenture, agreement or instrument;

8

 

               12.7   This Guaranty has been duly executed by Guarantor and, when
delivered to Lender, will constitute a legal, valid and binding obligation
enforceable against Guarantor in accordance with its terms, except to the
extent that enforceability may be limited by applicable bankruptcy, insolvency,
moratorium, reorganization or other similar laws affecting the enforcement of
creditors’ rights or by the effect of general equitable principles;

               12.8   All financial statements and data that have been given to Lender by
Guarantor with respect to Guarantor (a) are complete and correct in all
material respects as of the date given; (b) accurately present the financial
condition of Guarantor on each date as of which, and the results of Guarantor’s
operations for the periods for which, the same have been furnished; and (c)
have been prepared in accordance with GAAP consistently applied throughout the
periods covered thereby;

               12.9   All balance sheets and the notes thereto with respect to Guarantor
furnished to Lender disclose all material liabilities of Guarantor, fixed and
contingent, as of their respective dates;

               12.10   There has been no material adverse change in the financial
condition or operations of Guarantor since (a) the date of the most recent
financial statement given to Lender with respect to Guarantor, or (b) the date
of the financial statements given to Lender immediately prior to the date
hereof, other than changes in the ordinary course of business, none of which
changes has been materially adverse individually or in the aggregate;

               12.11   All other reports, papers and written data and information given
to Lender by Guarantor with respect to Guarantor are accurate and correct in
all material respects;

               12.12   To the best of Guarantor’s knowledge, Guarantor is not in material
default in the performance, observance or fulfillment of any of the
obligations, covenants or conditions set forth in any material agreement or
instrument to which Guarantor is a party;

               12.13   Except as disclosed to Lender in writing and approved by Lender,
there is not now pending against or affecting Guarantor, nor to the knowledge
of Guarantor is there threatened, any action, suit or proceeding at law or in
equity or by or before any administrative agency that, if adversely determined,
would materially impair or affect the financial condition or operations of
Guarantor; Guarantor is not in default with respect to any order, writ,
injunction, decree or demand of any court or any Governmental Authority;

               12.14   Guarantor has filed all federal, state, provincial, county,
municipal and other income tax returns legally required to have been filed by
Guarantor and has paid all taxes that have become due pursuant to such returns
or pursuant to any assessments received by Guarantor, and Guarantor does not
know of any basis for any material additional assessment against it in respect
of such taxes;

               12.15   Guarantor is not insolvent, and will not be rendered insolvent
hereunder, and no bankruptcy or insolvency proceedings are pending or to the
best of Guarantor’s knowledge contemplated by or against Guarantor;

9

 

               12.16   Guarantor represents and warrants to Lender that the Loan benefits
Guarantor;

               12.17   The value of the consideration received and to be received by
Guarantor in connection with the Guarantied Obligations or transactions
contemplated thereby is reasonably worth at least as much as the liability and
obligations of Guarantor incurred or arising under this Guaranty. Guarantor has
had full and complete access to the Loan Agreement, the Note, the Deed of Trust
and all other Loan Documents relating to the Guarantied Obligations, has
reviewed them and is fully aware of the meaning and effect of
their contents. Guarantor is fully informed of all circumstances which bear
upon the risks of executing this Guaranty and which a diligent inquiry would
reveal. Guarantor has adequate means to obtain from Borrower on a continuing
basis information concerning Borrower’s financial condition, and is not
depending on Lender to provide such information, now or in the future.
Guarantor agrees that Lender shall not have any obligation to advise or notify
Guarantor or to provide Guarantor with any data or information;

               12.18   Guarantor has all requisite power and authority to transact any
other business with Lender as necessary to fulfill the terms of this Guaranty;
and

               12.19   Guarantor and Borrower are not the alter ego of the other.

     13.     Covenants. Guarantor agrees that, so long as any part of the
Guarantied Obligations shall remain to be performed or paid, Guarantor will,
unless Lender shall otherwise consent in writing:

               13.1   File all federal, state, provincial, county, municipal and other
income tax returns required to be filed by it and pay before the same become
delinquent all taxes that become due pursuant to such returns or pursuant to
any assessments received by it, except such taxes as are being contested in
good faith by appropriate proceedings;

               13.2   Promptly and faithfully comply with all laws, ordinances, rules,
regulations and requirements, both present and future, of every duly
constituted Governmental Authority or agency having jurisdiction that may be
applicable to it or its property or assets;

               13.3   Maintain full and complete books of account and other records
reflecting the results of its operations, and furnish to Lender such
information about the financial condition and operations of Guarantor as Lender
shall reasonably request, including, but not limited to, the following
information which shall be furnished without request: (a) copies of filed tax
returns and annual operating statements, balance sheets, statements of changes
in financial position and related notes and such other financial statements and
reports in such form and content as Lender may require on or before 120 days
following the end of each applicable fiscal year, which financial statements
may be internally prepared and certified under penalty of perjury to Lender by
an authorized member of senior management; (b) copies of all project-specific
financial statements, reports and notices delivered by Borrower or any of its
members on its behalf to Guarantor as provided in any of Borrower’s
Organizational Documents; (c) copies of interim operating statements, balance
sheets, statements of change of financial position and such other financial
reports as Lender may require on or before the tenth (10th) Business Day
following Lender’s demand; and (d) such other information, report or data as
Lender may reasonably

10

 

request; provided so long as the Guarantor is subject to the reporting
provisions of the Securities Exchange Act, as amended (the “Exchange Act”), the
timely filing (including all permissible extension periods provided under Rule
12b-25 under the Exchange Act) on the Securities and Exchange Commission’s
EDGAR system of the Guarantor’s quarterly report on Form 10-Q for such period
and annual report on Form 10-K for such period will be deemed to satisfy all of
the foregoing requirements of this Section 13.3.

               13.4   Take all steps necessary to maintain its existence and continue to
be in good standing in the state of its incorporation and remain qualified to
do business in the State of California;

               13.5   Except as approved in writing by Lender, Guarantor shall not incur
indebtedness or other liabilities if the same will or is reasonably likely to
have a material adverse effect upon the financial condition or operations of
Guarantor; and

               13.6   Guarantor shall not, without Lender’s prior written consent which
shall not be unreasonably withheld: (a) amend, modify or change any of its
Organizational Documents; (b) change its fiscal year; or (c) change its
principal place of business, name, organizational identity, organizational
structure or state of organization.

     14.     Costs and Expenses. In the event Lender takes any action to enforce
the Guarantied Obligations or this Guaranty, either by legal proceedings or
otherwise, Lender shall be reimbursed immediately by Guarantor for
reasonably-incurred attorneys’ fees (including fees for Lender’s in-house
attorneys) and other costs and expenses. Guarantor shall also immediately
reimburse Lender for all attorneys’ fees and costs reasonably incurred in
connection with the representation of Lender in any liquidation,
reorganization, receivership, bankruptcy, assignment for the benefit of
creditors or other debtor-relief proceeding of or relating to Borrower,
Guarantor, or the Property. Until paid to Lender, all such sums will bear
interest from the date incurred at the rate set forth in the Note.

     15.     Delay; Cumulative Remedies. No delay or failure by Lender to
exercise any right or remedy against Borrower or Guarantor or any other
guarantor or other person shall be construed as a waiver of that right or
remedy. All remedies of Lender against Borrower, Guarantor and any other person
are cumulative.

     16.     Severability. The invalidity or unenforceability of any one or more
provisions of this Guaranty will not affect the validity or enforceability of
any other provision.

     17.     Controlling Law; Venue; Interpretation.

               17.1   This Guaranty shall be governed by and construed in accordance with
the internal laws of the State of California, except to the extent federal law
applies. Venue for any action brought under this Guaranty will be at Lender’s
option, in the Superior Court of the State of California for the County of San
Diego. Guarantor hereby accepts for itself and in respect to its property,
generally and unconditionally, the exclusive jurisdiction of the foregoing
court. Guarantor irrevocably consents to the service of process in any action
or proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to Guarantor at its

11

 

address for notices pursuant to this Guaranty. Nothing contained herein shall
affect the right of Lender to serve process in any other manner permitted by
law.

               17.2   As used herein, the terms “include,” “including” and forms thereof
are nonexclusive.

               17.3   As used herein, the term “day” means calendar day, except when used
in the defined term “Business Day.”

               17.4   As used herein, the term “person” means any individual, corporation
partnership, limited liability company, trust, Governmental Authority, or other
entity of any kind.

               17.5   Singular words shall connote the plural as well as the singular and
vice versa as the context requires.

               17.6   Each gender will include any other gender.

     18.     Binding Effect. The provisions of this Guaranty will bind and
benefit the heirs, executors, administrators, legal representatives, successors
and assigns of Guarantor and Lender. The term “Borrower” will mean both the
named Borrower and any other person or entity at any time assuming or otherwise
becoming primarily liable for all or any part of the Guarantied Obligations.
The term “Lender” will mean both Lender named herein and any future owner or holder, including
pledgees and participants, of the Note, or any interest therein.

     19.     Joint and Several Liability. The liability of multiple guarantors is
joint and several. If Guarantor is a partnership, such Guarantor and all
general partners therein shall be jointly and severally liable hereunder. Any
married person who executes this Guaranty agrees that recourse may be had
against his or her separate property.

     20.     Modification or Waiver. No provision of this Guaranty or Lender’s
rights hereunder can be waived or modified nor can Guarantor be released from
its obligations hereunder except by a writing executed by Lender. No such
waiver shall be applicable except in the specific instance for which given.

     21.     Entire Agreement. This Guaranty constitutes the entire agreement
between the parties with respect to its subject matter, and supersedes all
prior or contemporaneous agreements, representations and understandings. No
supplement to or modification of this Guaranty shall be binding unless executed
in writing by all the parties.

     22.     Headings. All headings in this Guaranty are for convenience in
reference only and do not define or limit the scope of provisions of this
Guaranty.

     23.     Notice. All notices, demands and other communications required or
permitted hereunder shall be in writing, addressed to the appropriate party as
its address appears below, or to such other address as may be designated from
time to time by notice to the other party in the manner set forth herein, and
shall be effective upon the earliest of (a) actual delivery if delivered by
personal delivery or certified postage-prepaid mail, (b) three (3) Business
Days following deposit, first class postage prepaid, with the United States
Mail, or (c) the next Business Day

12

 

after timely and proper deposit with an overnight air courier with request for
delivery on the next Business Day.

     24.     Financial Reporting Requirements. Guarantor acknowledges that the
Loan Agreement requires that Lender be provided, upon demand, with reports and
other materials relating to Guarantor’s financial condition, including tax
returns, operating statements, balance sheets, statements of changes in
financial position, and such other financial statements and reports as Lender
may require. Guarantor agrees to provide such materials as specified in the
Loan Agreement except where the failure to do so would not result in a material
adverse effect.

     25.     WAIVER OF RIGHTS OF TRIAL BY JURY. EACH OF GUARANTOR AND LENDER (BY
ITS ACCEPTANCE HEREOF) HEREBY VOLUNTARILY, KNOWINGLY, INTENTIONALLY,
IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE
(INCLUDING BY WAY OF JURY TRIAL) IN RESOLVING ANY DISPUTE OR LITIGATION
(WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) BETWEEN OR AMONG GUARANTOR AND
LENDER, ARISING OUT OF OR IN ANY WAY RELATED TO THIS GUARANTY, THE LOAN, THE
LOAN DOCUMENTS OR ACTIONS OF GUARANTOR OR LENDER RELATING TO THE GUARANTY, LOAN
AND(OR) THE LENDING RELATIONSHIP WHICH IS THE SUBJECT OF THE LOAN DOCUMENTS OR
THIS AGREEMENT. THIS PROVISION AND THE WAIVER SET FORTH HEREIN ARE MATERIAL
INDUCEMENTS TO LENDER TO PROVIDE THE FINANCING DESCRIBED HEREIN AND IN THE LOAN
DOCUMENTS.

     26.     Counterparts. This Guaranty may be signed in counterparts, which
together shall constitute the agreement of the parties when each party has
signed a counterpart.

     27.     Secured Obligations. This Guaranty and the Guarantor’s performance
of its obligations hereunder are secured by that certain Security Agreement
(the “Security Agreement”), of even date herewith, executed by Guarantor in
favor of Lender. Reference is made to the Security Agreement for a specific
description of the security given to Lender by Guarantor thereunder.

     28.     Obligations Continue in Full Force and Effect. Borrower is obligated
to acquire the Property from Peony Acquisitions LLC, a Delaware limited
liability company (“Peony”), on or before November 26, 2003. Notwithstanding
Borrower’s acquisition of the Property and the assumption by Borrower of
certain obligations of Peony under certain Loan Documents securing the Loan,
all of Guarantor’s obligations hereunder will continue to remain in full force
and effect and for the benefit of Lender.

13

 

     IN WITNESS WHEREOF, the undersigned has executed this Guaranty as of the
day and year first written above.

	 	 	 	 	 
	 	 	GUARANTOR:
	 	 	 	 	 	 
	 	 	
NEUROCRINE BIOSCIENCES, INC.,
	 	 	
a Delaware corporation
	 	 	 	 	 
	 	 	
By:	 	/s/ Margaret Valeur-Jensen
	 	 	 	 	

	 	 	
Name:	 	Margaret Valeur-Jensen
	 	 	 	 	

	 	 	
Its:	 	Senior Vice President, Gen. Counsel & Secretary
	 	 	 	 	

	 	 	
By:	 	 
	 	 	 	 	

	 	 	
Name:	 	 
	 	 	 	 	

	 	 	
Its:	 	 
	 	 	 	 	

	 	 	 	 	 
	 	 	
Address of Guarantor:
	 	 	 	 	 
	 	 	
NEUROCRINE BIOSCIENCES, INC.
	 	 	
10555 Science Center Drive
	 	 	
San Diego, CA 92121
	 	 	
Attn: Paul Hawran
	 	 	 	 	 
	 	 	
With a copy to:
	 	 	 	 	 
	 	 	
Margaret E. Valeur-Jensen
	 	 	
NEUROCRINE BIOSCIENCES, INC.
	 	 	
10555 Science Center Drive
	 	 	
San Diego, CA 92121
	 	 	 	 	 
	 	 	
Address of Lender:
	 	 	 	 	 
	 	 	
SAN DIEGO NATIONAL BANK
	 	 	
1420 Kettner Boulevard
	 	 	
San Diego, California 92101
	 	 	
Attention: Jim Holliman

14

 

	 	 	 	 
	STATE OF CALIFORNIA	 	)	 
	 	 	)	ss
	COUNTY OF SAN DIEGO	 	)	 

     On            , before me,            , personally appeared
           personally known to me or proved to me on the basis of
satisfactory evidence to be the person whose name is subscribed to the within
instrument and acknowledged to me that executed the same in authorized
capacity, and that by signature on the instrument the person, or the entity
upon behalf of which the persons acted, executed the instrument.

	 	 	 
	 	WITNESS my hand and official seal.	 
	 	 	 
	 	 	 
	 	
	 

	 	 	 	 
	STATE OF CALIFORNIA	 	)	 
	 	 	)	ss
	COUNTY OF SAN DIEGO	 	)	 

     On            , before me,            , personally appeared
           personally known to me or proved to me on the basis of
satisfactory evidence to be the person whose name is subscribed to the within
instrument and acknowledged to me that executed the same in authorized
capacity, and that by signature on the instrument the person, or the entity
upon behalf of which the persons acted, executed the instrument.

	 	 	 
	 	WITNESS my hand and official seal.

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