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HomeMy WebLinkAboutRA 002-2009 Colony Square Loan GuaranteefffF .. ............... CT, , � �ZV' 1 LOAN GUARANTEE AGREEMENT RECEIVED NOV - 5 2009 CITY OF ATASCADERO CITY CLERK'S OFFICE This Loan Guarantee Agreement ("Agreement") is made this 23r6 day of October, 2009, at San Luis Obispo, San Luis Obispo County, California between Mission Community Bank, and its successors and assigns or participants (hereinafter `Bank or Banks") and the Community Redevelopment Agency of the City of Atascadero (hereinafter "CRA") (collectively referred to hereinafter as the "Parties") WHEREAS, CRA wishes to support economic development activity in County of San Luis Obispo, WHEREAS, CRA is willing to provide a loan guarantee to Bank in accordance with the terms and provisions of dus Agreement in order to assist Colony Square LLC, a California limited liability company, (`Borrower") in obtaining a construction loan for the construction of a conunercial project located in Atascadero, CA (the "Project"), and to induce Bank to make a loan to Borrower Said loan being Loan No 4588, evidenced by the Promissory Note dated October 23, 2009, (hereinafter "LOAN") LOAN amount is Nine Million Dollars ($9,000,000 00) A complete copy of the Bank s Promissory Note, is attached hereto marked as Exhibit "A" and is incorporated into the terms of this Agreement by reference WHEREAS Bank is willing to make the LOAN to Borrower on the condition that CRA provide a guarantee of up to One Million Five Hundred Thousand Dollars ($1,500,000 00) of the outstanding balance of LOAN in accordance with the terms and provisions of this Agreement. NOW, THEREFORE the Parties agree as follows I GUARANTEE CRA shall guarantee collection of up to $1,500,000 00 of the LOAN Outstanding Balance as provided in this Agreement (the "Guarantee") "Outstanding Balance" is defined as the amount of principal, accrued interest and the cost of administering the LOAN or collecting the debt. The CRA's guarantee of collection shall be evidenced by and embodied in this Agreement. Grantor assigns and grants to Bank a security interest in a cash account held on deposit with the Bank in the amount of $1,500,000 for the life of the LOAN to secure the Guarantee (the "Security Account") The Security Account shall be FDIC insured, or fully protected in such other manner as mutually acceptable to the Bank and CRA, and Bank shall pay and remit interest to CRA on all fiends held in the Security Account at the highest rate Bank provides for deposit accounts of a similar amount and duration. 2 LOAN GUARANTY FEE Bank shall collect a loan guarantv fee for CRA of 2.00% of the guarantee amount ($30,000 00) from Borrower that shall be distributed by Bank to the CRA at closing Bank may request a return of the loan guaranty fee upon cancellation of this Agreement prior- to any disbursements being made to Borrower There will be no return of the loan guaranty fee at any time after Bank has made disbursements against the guaranteed LOAN 3 DISTRIBUTION OF FEE AND INSTRUMENTS Bank shall immediately after LOAN closing distribute the guaranty fee to the CRA and submit a copy of the executed note, settlement sheet, and other instruments pertaining to the LOAN and Loan Agreement to CRA. 4 LOAN PROCESSING Bank shall process and close such LOAN consistent with prudent closing practices 5 ADMINISTRATION OF LOAN Bank shall administer and service LOAN Bank will collect an annual servicing fee of 0 494% of any remaining guarantee amount from the Borrower and remit the same to CRA. Bank shall notify CRA of any material default by Borrower under the Loan. 6 INSPECTION OF RECORDS CRA shall be entitled at any time upon written notice to Bank to examine and obtain copies of all notes, security agreements, instruments of hypothecation, and all other agreements and documents, and any LOAN repayment records held by Bank which relate to the LOAN Further, upon written demand and notice by Bank to CRA that any and all security and guarantees other than this Agreement for the LOAN have been exhausted and were insufficient to satisfy the LOAN in full, Bank, and its successors and assigns, shall release to CRA all personal financial information pertaining to Borrower, James M. Harrison, and/or Peter F Hilf (collectively, "Indemnitors"), which Indemnitors have provided to Bank, as authorized and directed in Section 2 of the Reimbursement And Indemnification Agreement entered into between the CRA and Indemnitors " 7 LOAN STATUS REPORT Bank shall complete and forward to CRA a written quarterly loan status report including but not limited to current status and repayment history of the LOAN, as requested. 8 BANK ACTION Bank will obtain written consent from CRA prior to taking any of the following actions renewal, compromise, extension, acceleration, or other material change in the time of performance of or other material changes in the terms and conditions of the LOAN, Loan Agreement, or any part thereof; 9 ASSIGNMENT Bank may not assign flus guarantee in whole or in part without written approval of CRA other than to lenders acquiring participation interests in the Loan and their successors and assigns 10 SUBSEQUENT LOANS Bank will obtain written approval from CRA prior to making any loan or advance by Bank to Borrower during the life of this agreement, other than advances in connection with the Loan, with the exception of any loans or commitments currently outstanding with the Bank or in which it is a participant. 11 PAYMENT CRA shall pay an amount not to exceed the full guaranteed amount to Bank within 60 days after written demand and notice by Bank that any and all security and guarantees other than this Agreement for the LOAN have been exhausted and were insufficient to satisfy the LOAN in full. The guaranteed amount CRA shall be obligated to pay shall be limited to the lesser of (a) $1,500,000; or (b) the Outstanding Balance after credit for (i) all payments received from Borrower, (ii) all amounts received by Bank from liquidating any and all security for the LOAN, and (iii) collections from exhausting any and all guarantees other than this Agreement. Following 60 days after written demand and notice by Bank that any and all security and guarantees other than this Agreement for the LOAN have been exhausted and were insufficient to satisfy the LOAN in full, Bank shall be authorized to apply funds in the Security Account to satisfy the guaranteed amount. Notwithstanding the foregoing, in no event shall the Bank be required to liquidate any security or pursue any guarantee that the Bank has determined in good faith lacks material economic value 12 WAIVER. CRA waives to the fullest extent permitted by law (a) any defense it may acquire by reason of Bank's election of any remedy against it or borrower or both, including, without limitation or election by Bank to exercise its rights under the power of sale in any Deed of Trust securing the LOAN and the consequent loss by CRA of the right to recover any deficiency from Borrower; (b) all rights and benefits under California Code of Civil Procedure Sections 580a, 580b, 580d and 726, to the extent these statutory Sections have any application. CRA also waives any rights or defenses arising by reason of (a) any disability or other defense of Borrower, any other guarantor or any other person, (b) the cessation from any cause whatsoever, other than payment in full, of the amounts owing under the Loan, including bankruptcy, (c) any statute of limitation available to Borrower, or (d) any act or omission of Bank that contributes to the discharge of Borrower or any other guarantor or release of the collateral unless such act or omission breaches any of Bank's obligations to CRA hereunder Except as is expressly provided hereunder, CRA waives all rights of subrogation, reimbursement, indemnification and contribution and any other rights and defenses that are or may become available to CRA by reason of California Civil Code Sections 2787 to 2855 inclusive 13 LIMIT OF LIABILITY Liability of CRA to Bank under tlus Agreement is limited to the lesser of- (a) $1,500,000, or (b) the Outstanding Balance after credit for (i) all payments received from Borrower, (ii) all amounts received by Bank from liquidating any and all security for the LOAN, and (iii) collections from exhausting any and all guarantees other than this Agreement. Except for this express liability, CRA shall not be held obligated or responsible in any way for any possible liability incurred on the part of the Borrower toward the Bank, no matter how that liability may be incurred. Further, the terms and provisions of this Agreement are neither intended, nor may they be construed, to create any third -party beneficiaries, and CRA shall not be held obligated or responsible in any way for any possible liability incurred on the part of the Borrower toward any other entity, no matter how that liability may be incurred. 14 SUBROGATION Upon payment to Bank of the guaranteed amount of LOAN CRA shall become subrogated to the extent of such payment to all rights which Bank had against Borrower, but shall not exercise such rights unless and until the Loan has been repaid in full. 15 [INTENTIONALLY DELETED 16 ATTORNEY'S FEES In any action or proceeding brought by either party to enforce this Agreement or any provision hereof, the prevailing party shall be entitled to all costs incurred and reasonable attorney's fees, in addition to any other amounts such party is entitled to hereunder 17 PREVAILING WAGE CRA submitted a request for a coverage determination to the Department of Industrial Relations ("DTR") regarding the subject of prevailing wage requirements for the Project arising from CRA's entering into this Agreement. CRA received a coverage determination letter from the DIR dated May 13, 2009, a true and correct copy of which is attached hereto as Exhibit B. The Parties agree that neither this Agreement, nor any actions or communications by CRA, constitutes or shall have the effect of malting any representation by CRA that prevailing wages will not have to be paid in connection with the Project or any portion thereof. 18 CONFLICTS In the event of any conflict between the terms of this Agreement and the construction loan documents entered by the Borrower and the Bank, the terms of this Agreement shall prevail as between the CRA and the Bank. IN WITNESS WHEREOF, Bank and CRA have caused this agreement to be duly executed on the date first above written. MISSION COMMUNITY BANK (and its sucpwsors and assigns) DATED v By - Title COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF AT . CADERO DATED /0 D BY - Title PROMISSORY NOTE References in the boxes above are for Lender's use only and do not limit the applicability of this document to any particular loan or Anv item above containing "*'`""" has been omitted due to text lenath limitations. Borrower- COLONY SQUARE, LLC Lender- MISSION COMMUNITY BANK 6905 EL CAMINO REAL Santa Maria ATASCADERO, CA 93422 1670 South Broadway Santa Maria, CA 93454 PrinciPai Amount: $9,000,000.00 Date of Note. October 23, 2009 PROMISE TO PAY COLONY SQUARE, LLC ("Borrower") promises to pay to MISSION COMMUNITY BANK ("Lender"), or order in lawful money of the United States of America, the principal amount of Nine Million & 001100 Dollars ($9,000,000.00) or so much as may be outstanding, together with interest on the unpaid outstanding principal balance of each advance. Interest shall be calculated from the date of each advance until repayment of each advance. PAYMENT Borrower will pay this loan in one payment of all outstanding principal plus all accrued unpaid interest on April 27 2011 In addition, Borrower will pay regular monthly payments of all accrued unpaid interest due as of each payment date, beginning November 27 2009, with all subsequent interest payments to be due on the same day of each month after that. Unless otherwise agreed or required by applicable law payments will be applied first to any accrued unpaid interest; then to principal; then to any unpaid collection costs; and then to any late charges. Borrower will pay Lender at Lender's address shown above or at such other place as Lender may designate in writing. VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from time to time based on changes in an independent index which is the WALL STREET JOURNAL PRIME RATE (the 'Index"). The Index is not necessarily the lowest rate charged by Lender on its loans. If the Index becomes unavailable during the term of this loan, Lender may designate a substitute index after notifying Borrower Lender will tell Borrower the current Index rate upon Borrower's request. The interest rate change will not occur more often than each day Borrower understands that Lender may make loans based on other rates as well. The index currently is 3.250% per annum. Interest on the unpaid principal balance of this Note will be calculated as described in the 'INTEREST CALCULATION METHOD" paragraph using a rate of 1.500 percentage points over the. Index, adjusted if necessary for any minimum and maximum rate limitations described below resulting in an initial rate of 7 000%. NOTICE: Under no circumstances will the interest rate on this Note be less than 7 DDD% per annum or more than the maximum rate allowed by applicable law INTEREST CALCULATION METHOD. Interest on this Note is computed on a 3651360 basis; that is, by applying the ratio of the interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. All interest payable under this Note is computed using this method. This calculation method results in a higher effective interest rate than the numeric interest rate stated in this Note. PREPAYMENT, MINIMUM INTEREST CHARGE. Borrower agrees that all loan fees and other prepaid finance charges are earned fully as of the date of the loan and will not be subject to refund upon early payment (whether voluntary or as a result of default), except as otherwise required by law in any event, even upon full prepayment of this Note, Borrower understands that Lender is entitled to a minimum interest charge of $100.00 Other than Borrower's obligation to pay any minimum interest charge, Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower's obligation to continue to make payments of accrued unpaid interest. Rather early payments will reduce the principal balance due. Borrower agrees not to send Lender payments marked 'paid in full" 'without recourse" or similar language. If Borrower sends such a payment, Lender may accept it without losing any of Lender's rights under this Note, and Borrower will remain obligated to pay any further amount owed to Lender All written communications concerning disputed amounts, including any check or other payment instrument that indicates that the payment constitutes 'payment in full" of the amount owed or that is tendered with other conditions or limitations or as full satisfaction of a disputed amount must be mailed or delivered to. MISSION COMMUNfTY BANK, 581 HIGUERA SAN LUIS OBISPO CA 93401 INTEREST RESERVES. Borrower authorizes Lender to place $562,619 40 of the Principal Amount as an interest reserve, which is an estimate of the interest due on the Note ("Interest Reserve"). Borrower may pay interest due directly to Lender In the event Borrower does not make an interest payment, Lender may automatically deduct the interest due from the interest Reserve on the day the payment is due. Interest will accrue, as described in this Note, on amounts deducted from the interest Reserve. In the event the interest due under this Note exceeds the Interest Reserve, Borrower will pay accrued unpaid interest when due according to the terms of this Note. Upon maturity Lender will not advance or disburse the remaining Interest Reserve, if any to Borrower The principal due upon maturity will not include any remaining Interest Reserve. LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged 5.000% of the unpaid portion of the principal and interest overdue or $10.00, whichever is greater INTEREST AFTER DEFAULT Upon default, the interest rate on this Note shall, if permitted under applicable law immediately increase by adding a 5.000 percentage point -margin ("Default Rate Margin"). The Default Rate Margin shall also apply to each succeeding interest rate change that would have applied had there been no default. DEFAULT Each -of the following shall constitute an event of default ("Event of Default') under this Note: Payment Default. Borrower fails to make any payment when due under this Note. Other Defaults. Borrower fails to comply with or to perform any other term, obligation, covenant or condition contained in this Note or in any of the related documents or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Borrower Environmental Default. Failure of any party to comply with or perform when due any term, obligation, covenant or condition contained in any environmental agreement executed in connection with any loan. False Statements. Any warranty representation or statement made or furnished to Lender by Borrower or on Borrower's behalf under this Note or the related documents is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter Death or Insolvency. The dissolution of Borrower (regardless of whether election to continue is made), any member withdraws from Borrower or any other termination of Borrower's existence as a going business or the death of any member the insolvency of Borrower fl— onnnintment of a receiver for any part of Borrower's property any assignment for the benefit of creditors, any type of creditor workout, -- •�---�•��.-.lows by nr anoint Borrower Loan No 4588 PROMISSORY NOTE (Continued) J /1 Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or by any governmental agency against any collateral securing the loan. This includes a garnishment of any of Borrower's accounts, including deposit accounts, with Lender However this Event of Default shall not apply if there is a good faith dispute by Borrower as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Borrower gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender in its sole discretion, as being an adequate reserve or bond for the dispute. Events Affecting Guarantor Any of the preceding events occurs with respect to any Guarantor of any of the indebtedness or any Guarantor dies or becomes incompetent, or revokes or disputes the validity of, or liability under any guaranty of the indebtedness evidenced by this Note. Adverse Change. A material adverse change occurs in Borrower's financial condition, or Lender believes the prospect of payment or performance of this Note is impaired. Insecurity. Lender in good faith believes itself insecure. Cure Provisions. If any default, other than a default in payment is curable and if Borrower has not been given a notice of a breach of the same provision of this Note within the preceding twelve (12) months, it may be cured if Borrower after Lender sends written notice to Borrower demanding cure of such default: (1) cures the default within fifteen (15) days; or (2) if the cure requires more than fifteen (15) days, immediately initiates steps which Lender deems in Lender's sole discretion to be sufficient to cure the default and thereafter continues and completes all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical. LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal balance under this Note and all accrued unpaid interest immediately due, and then Borrower will pay that amount. ATTORNEYS' FEES; EXPENSES. Lender may hire or pay someone else to help collect this Note if Borrower does not pay Borrower will pay Lender that amount. This includes, subject to any limits under applicable law Lender's attorneys' fees and Lender's legal expenses, whether or not there is a lawsuit, including attorneys' fees, expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), and appeals. Borrower also will pay any court costs, in addition to all other sums provided by law GOVERNING LAW This Note will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the State of California without regard to its conflicts of taw provisions. This Note has been accepted by Lender in the State of California. CHOICE OF VENUE. if there is a lawsuit, Borrower agrees upon Lender's request to submit to the jurisdiction of the courts of Santa Barbara County State of California. DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $22.00 if Borrower makes a payment on Borrower's loan and the check or preauthorized charge with which Borrower pays is later dishonored. COLLATERAL. Borrower acknowledges this Note is secured by the following collateral described in the security instruments listed herein: (A) a Construction Deed of Trust dated October 23, 2009 to a trustee in favor of Lender on real property located in SAN LUIS OBISPO County State of California. That agreement contains the following due on sale provision: Lender may at Lender's option, declare immediately due and payable all sums secured by the Construction Deed of Trust upon the sale or transfer without Lender's prior written consent, of all or any part of the Real Property or any interest in the Real Property A 'sale or transfer" means the conveyance of Real Property or any right, title or interest in the Real Property whether legal, beneficial or equitable; whether voluntary or involuntary- whether by outright sale, deed, installment sale contract, land contract, contract for deed, leasehold interest with a term greater than three (3) years, lease -option contract, or by sale, assignment, or transfer of any beneficial interest in or to any land trust holding title to the Real Property or by any other method of conveyance of an interest in the Real Property If any Borrower is a corporation, partnership or limited liability company transfer also includes any change in ownership of more than twenty-five percent (25%) of the voting stock, partnership interests or limited liability company interests, as the case may be, of such Borrower However this option shall not be exercised by Lender if such exercise is prohibited by applicable law (B) fixtures described in a Commercial Security Agreement dated October 23, 2009. (C) deposit accounts described in an Assignment of Deposit Account dated October 23, 2009 LINE OF CREDIT This Note evidences a straight line of credit. Once the total amount of principal has been advanced, Borrower is not entitled to further loan advances. The following person or persons are authorized to request advances and authorize payments under the line of credit until Lender receives from Borrower at Lender's address shown above, written notice of revocation of such authority As per the request of Hasz Fund Control, Inc. Borrower agrees to be liable for all sums either (A) advanced in accordance with the instructions of an authorized person or (B) credited to any of Borrower's accounts with Lender The unpaid principal balance owing on this Note at any time may be evidenced by endorsements on this Note or by Lender's internal records, including daily computer print-outs. ARBITRATION. Borrower and Lender agree that all disputes, claims and controversies between them whether individual, joint, or class in nature, arising from this Note or otherwise, including without limitation contract and tort disputes, shall be arbitrated pursuant to the Rules of the American Arbitration Association in effect at the time the claim is filed, upon request of either party No act to take or dispose of any collateral securing this Note shall constitute a waiver of this arbitration agreement or be prohibited by this arbitration agreement. This includes, without limitation, obtaining injunctive relief or a temporary restraining order; invoking a power of sale under any deed of trust or mortgage; obtaining a writ of attachment or imposition of a receiver; or exercising any rights relating to personal property, including taking or disposing of such property with or without judicial process pursuant to Article 9 of the Uniform Commercial Code. Any disputes, claims, or controversies concerning the lawfulness or reasonableness of any act, or exercise of any right, concerning any collateral securing this Note, including any claim to rescind, reform, or otherwise modify any agreement relating to the collateral securing this Note, shall also be arbitrated, provided however that no arbitrator shall have the right or the power to enjoin or restrain any act of any party Borrower and Lender agree that in the event of an action for judicial foreclosure pursuant to California Code of Civil Procedure Section 726, or any similar provision in any other state, the commencement of such an action will not constitute a waiver of the right to arbitrate and the court shall refer to arbitration as much of such action, including counterclaims, as lawfully may be referred to arbitration. Judgment upon any award rendered by any arbitrator may be entered in any court having jurisdiction. Nothing in this Note shall preclude any party from seeking equitable relief from a court of competent jurisdiction. The statute of limitations, estoppel, waiver laches, and similar doctrines which would otherwise be applicable in an action brought by a party shall be applicable in any arbitration proceeding, and the commencement of an arbitration proceeding shall be deemed the commencement of an action for these purposes. The Federal Arbitration Act shall apply to the construction, interpretation, and enforcement of this arbitration provision. fAf r-cr o=Q;7i7VF An rr,tPrPgt Reserve has been established for this loan in the amount of $ 562,619.40. Monthly interest payments can be PROMISSORY NOTE Loan No. 4588 (Continued) Page 3 Borrower(s) agree topay the monthly interest as billed. SUCCESSOR INTERESTS. The terms of this Note shall be binding upon Borrower and upon Borrower's heirs, personal representatives, successors and assigns, and shall inure to the benefit of Lender and its successors and assigns. NOTIFY US OF INACCURATE INFORMATION WE REPORT TO CONSUMER REPORTING AGENCIES. Please notify us if we report any inaccurate information about your account(s) to a consumer reporting agency Your written notice describing the specific inaccuracy(ies) should be sent to us at the following address: MISSION COMMUNITY BANK 581 HIGUERA SAN LUIS OBISPO, CA 83401 GENERAL PROVISIONS. If any part of this Note cannot be enforced, this fact will not affect the rest of the Note. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by law waive any applicable statute of limitations, presentment, demand for payment, and notice of dishonor Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker guarantor accommodation maker or endorser shall be released from liability All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this loan or release any party or guarantor or collateral; or impair fail to realize upon or perfect Lender's security interest in the collateral; and take any other action deemed necessary by Lender without the consent of or notice to anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made. The obligations under this Note are joint and several. PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE TERMS OF THE NOTE. BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE. BORROWER: Kai By 71V8y.. v!l L. Jt M. HARRISON, Manager of COLOWY QUARE, LLC LASER PRO L .ffng, V.I. SAGMCD03 C.P1. H -d --d Fl—l SOMI -s. Inc 1997. 2009. All Rlgh s Rnenmi CA VACFIMIC0kACF19 LW20.FC TR -2M9 STATE OF CALIFORNIA Arnold Schwaraenegger, Governor DEPARTMENT OF INDUSTRIAL RELATIONS OFFICE OF THE DIRECTOR 455 Golden Gate Avenue, Tenth Floor San Francisco, CA 94102 (415) 703-5050 May 13, 2009 EXHIBIT "B" TO LOAN GUARA= AGREIIMEIrr Brian A. Pierek, Esq Burke, Williams & Sorensen 2310 East Ponderosa Dr., Ste. 25 Camarillo, CA 93010-4747 Re: Public Works Case No. 2009-001 Colony Square City of Atascadero Dear Mr. Pierek: Yqu. have 1equested.,a_public works coverage determination as to whether a loan guaranty provsded„to, a, private developer for a development project by your client, the Community Redevelopmeiut Agency of the City of Atascadero ("Agency"), would trigger the applicafi6p.:bf Cahfaruia's prevailing wage laws. You have offered a rough description of a multi -phased commercial development called Colony Square as an example of the type of development that would benefit from the availability of such a loan guaranty Coverage determinations are made with regazd't'o "either a specific project or type of work to be performed." Cal. Code Regs., tit. 8, § 16001(a)(1) Because Colony Square is still in the planning stages, your request lacks the information necessary to enable the Department to first identify the scope of the project or projects at issue and all public funding sources, and then determine coverage. Under the circumstances, a .coverage determination cannot issue. As to the narrow question of whether Ageney'sl proposed loan guaranty for construction of a theater and retail building in the Colony Square' development would be a consideration in the public funds portion of the coverage analysis, based on the facts presented and an analysis of the applicable law, it is my conclusion That such.a loan .guaranty would riot entail a payment in whole or in part out of public funds. Facts Agency is'plannung to assist an unidentified private developer ("Developer") in financing the construction of a theater and retail building on vacant land in downtown Atascadero as part of the Colony Square development.' The assistance proposed by Agency would take the form of.a'.loatt guaranty Broadly speaking; a loan guaranty is .a tool that facilitates the extension of credit by a private commercial lender The guarantor promises to use it's .assets to repay a:°loan, shouldathe borrower default on, ats obligation. In this way, -the. guarantor:. anal the, lender share. the. nSk,.that the:borrower-maynot. fulfill, . its promise tozgpay the loan. •fit ill lr'•t 1 1 i' f tO f i :Ni f1*;&'2,. t7rider the facts here, Agenc ' s loan guaranty would work' as follows: Developer requb:es..a 1'oan of about $9 million to undertake the theater and retail building construction. In .the curraht economic climate, and applying conventional underwriting standards, the private'lender; Mission The construction of additional buildings to house a restaurant and commercial retail operations is encompassed in a second phase yet to be planned.it" EXHIBIT "8 " Brian A. Pierek, Esq Re. Public Works Case No 2009-001 Page 2 Community Bank (`Bank' ), is unable to lend Developer more than $7.5 million, leaving a funding gap of $1 5 million or 17 percent of total project costs. To close this gap, Agency intends to pledge as security $1.5 million of Agency funds, enabling Bank to extend a fully collateralized loan of $9 million. Agency is proposing to charge Developer a 2 percent up -front fee for the guaranty as well as an annual servicing fee of 0 494 percent. Agency will maintain the $1.5 million that is allocated for the loan guaranty in its reserves, segregated from other Agency fluids in a separate account. Those funds cannot be expended for any other purpose until the guaranty is released. The guaranty will be released when Developer repays the first $1.5 million of the loan to Bank. A default by Developer would not result in Agency acquiring any interest in the Colony Square development. Discussion Labor Code section 17712 requires that prevailing wages be paid to workers employed on public works projects. Section 1720(a)(1) defines "public works" as "[c]onstruction, alteration, demolition, installation, or repair work done under contract and paid for in whole or in part out of public funds Section 1720(b) defines "paid for in whole or in part out of public funds" to mean. (1) The payment of money or the equivalent of money by the state or political subdivision directly to or on behalf of the public works contractor, subcontractor, or developer (2) Performance of construction work by the state or political subdivision in execution of the project. (3) Transfer by the state or political subdivision of an asset of value for less than fair market price. (4) Rees, costs, rents, insurance or bond premiums, loans, interest rates, or other obligations that would normally be. required in the execution of the contract, that are paid, reduced, charged at less than fair market value, waived, or forgiven by the state or political subdivision. (5) Money loaned by the state or political subdivision that is to be repaid on a contingent basis. (6) Credits that are applied by the state or political subdivision against repayment obligations to the state or political subdivision. There is no dispute that the Colony Square development involves construction done under contract within the meaning of section 1720(a)(1). At issue here is whether Agency's loan guaranty constitutes a payment of public funds within the meaning of section 1720(b) In this regard, we are aided by a recent and authoritative treatment of section 1720(b) in State Building & Construction Trades Council of California v Duncan, et al. (2008) 162 Cal.App 4th 289, 294 ''All statutory references are to the California Labor Code, unless otherwise indicated. Brian A. Pierek, Esq Re. Public Works Case No 2009-001 Page.D ("Trades Council") In that decision, the Court held that the provision of tax credits to the developer of a low-income housing development was not a public funds payment. The Court's decision was based on a close analysis of the legislative history of the current version of section 1720, as well as a review of the decisional law that construed former versions of the statute. Under the Court's interpretation, a payment of public funds is signified by a delivery or transfer of money or its equivalent. Ia: at p 311 The Court stressed that the language of section 1720(b) encompasses an. element of tangibility and contemplates a transaction that actually diminishes the state's economic resources. The allocation of tax credits was characterized as nothing "more than a promise or an administrative assignment, the mere movement of figures from one column to another." Id. at p 318 Following Trades Council, we turn to the issue of whether Agency's loan guaranty might be considered a payment out of public funds under subdivisions (b)(1) through (b)(6) of section 1720(b) The Court in Trades Council reasoned that a given transaction would be considered a payment of public funds only if it were to come within one of these enumerated categories. Id. at p 319 It follows that section 1720(b) should not be construed to reach the range of financial arrangements outside these definitional provisions. The only two subdivisions potentially implicated under the facts of this case are subdivisions (b)(1) and (b)(4), discussed separately below The Court's analysis in Trades Council is instmotrve in determining whether Agency's proposed loan guaranty is a "payment" of money or the equivalent of money within the meaning of subdivision (b)(1) Agency's proposed loan guaranty involves the reservation of funds, which cannot be used for other purposes until the Developer repays the first $1 5 million of the Bank loan and the guaranty is released.3 Agency's proposed loan guaranty is akin to the administrative allocation of tax credits at issue in Trades Council, which the Court found not to constitute the payment of money or the equivalent of money under subdivision (b)(1) Because the loan guaranty entails the reservation, rather than expenditure, of Agency's money, the proposed guaranty does not actually diminish the funds in Agency's coffers. As such, under the reasoning of Trades Council, Agency's guaranty does not constitute the payment of money or the equivalent of money within the meaning of subdivision (b)(1) To the extent the proposed guaranty could be characterized as a fee, cost, rent, insurance or bond premium, loan, interest rate, or other obligation that would normally be required in the execution of the contract under subdivision (b)(4), the loan guaranty is not being paid, reduced, waived or forgiven by Agency As to whether the loan guaranty is being charged at less than fair market value, Developer argues that Agency's loan guaranty is comparable to loan guaranties offered by other public entities. Under the loan guaranty program administered by the federal Small Business Administration ("SBA"), SBA authorizes guaranties for small businesses and start-ups of up to 85 percent of the value of the loan. The maximum SBA guaranty is $1.5 million, Normally, SBA charges an up -front fee on a sliding scale from 2 to 3 75 percent of the 'This determination assumes that Developer will repay the loan and Agency will make no payment of public funds. If Agency makes a payment of the guaranteed amount on account of a default on the loan by Developer, public works status could attach and, depending on the specific facts involved, prevailing wages might be owed for all or part of the work performed. 4Agency's administrative costs are covered by the annual servicing fee. Brian A. Picrek, Esq Re: Public Works Case No. 2009-001 Page 4 guaranteed portion of the loan and an annual servicing fee of 0 494 percent.5 Loan guaranties are also made available to small businesses from the Small Business Loan Guarantee Program ("SBLGP") of the State of California. In the Atascadero area, SBLGP is administered by the California Coastal Rural Development Corporation. SGLGP criteria permit a guaranty of up to 90 percent of the value of the loan, with a maximum of $500,000 per project. SGLGP collects an up -front fee of 2.25 percent of the guaranteed portion of the loan. SGLCP does not charge an annual servicing fee but does charge a flat $250 loan documentation fee. The Department's investigation has discovered no private -sector financial institutions offering -- loan guaranty programs like those run by the federal SBA or the state SBLGP Strictly speaking, then, there exists no open and competitive market that might produce a fair market value for this type of financing mechanism. To the extent these public sector loan guaranty programs can be used as a basis to establish fair market value for purposes of applying subdivision (b)(4), however, there are no facts to suggest Agency's proposed loan guaranty is below market, Although Agency's guaranty would cover a far smaller percentage of the value of Bank's loan (17 percent) than the ceiling included in the SBA program (85 percent), the actual dollar amount of Agency's proposed guaranty does not exceed the maximum set by SBA ($1 5 million) Agency's charge of a 2 percent up -front fee is comparable to SBLGP's charge of 2.25 percent, and is within the range set by SBA. Agency's annual servicing fee will be identical to SBA's amlual fee.6 By referring to the SSA program and SBLGP for comparison, it appears that Agency's proposed loan guaranty would not be "charged at less than fair market value" within the meaning of subdivision (b)(4). For the foregoing reasons, I conclude that Agency's proposed loan guaranty for Colony Square would not entail a payment in whole or in part out of public funds and, on that basis alone, would not tngger coverage under California's prevailing wage laws. I hope this determination satisfactorily answers your inquiry Sincerely, �4 C. John C Duncan Director 5 Under the American Recovery and Reinvestment Act of 2009, however, SBA s up -front fees have been temporarily discontinued. Agency also presented alternative terms for the proposed loan guaranty Under the alternative terms, Agency would waive the up -front fee for the loan guaranty, per current SBA practice; and it would waive the annual servicing fee, following SBLGP policy The waiver of either one or both of these fees would come within the plain language of subdivision (b)(4), which provides that fee waivers are to be considered the payment of public funds, regardless of whether the fees themselves might be reflective of fair market value. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 2B PROOF OF SERVICE (Code Civ Proc. §§ 1011, 1013, I013a, 2015.5) Re, Public Works Case No. 2009-001 City of Atascadero Colony Square Project At the time of service I was over 18 years of age and not a party to this action. 2. My business address is 455 Golden Gate Avenue, Suite 9516, San Francisco, CA 94102. 3 On May / 5 20091 served the PUBLIC WORKS DIRECTOR'S DETERMINATION LETTER on the persons listed below by placing true copies thereof in sealed envelopes addressed as shown below for service as designated below - (A) By personal service. I personally delivered the documents to the persons at the addresses listed below For a party represented by an attorney, delivery was made to the attorney or at the attorney's office by leaving the documents in an envelope or package clearly labeled to identify the attorney being served with a receptionist or an individual in charge of the office, (B) By United States mail. I enclosed the documents in a sealed envelope or package addressed to the persons at the address below and: (1) ❑ deposited the sealed envelope with the United States Postal Service, with the postage fully prepaid, (a) ❑ and the sealed envelope was prepared for Certified Mail, Return Receipt Requested, with appropriate fees for such service fully prepaid, (b) ❑ and the sealed envelope was prepared for Registered Mail, with appropriate fees for such service fully prepaid. (2) Kplaced the envelope for collection and mailing, following our ordinary business practices. I am readily familiar with this business's practice for collecting and processing correspondence for mailing. On the same day that correspondence is placed for collection and mailing, it is deposited in the ordinary course of business with the United States Postal Service, in a sealed envelope with postage fully prepaid. (a) ❑ and the sealed envelope was prepared for Certified Mail, Return Receipt Requested, with appropriate fees for such service fully prepaid. (b) 0 and the sealed envelope was prepared for Registered Mail, with appropriate fees for sucfi service fully prepaid. I am a resident or employed in the county where the mailing occurred. The envelope or package was placed in the mail at San Francisco, California. (C) By overnight delivery, (1) ❑ I enclosed the documents in an envelope or package provided by an overnight delivery carrier and addressed to the persons at the addresses below I placed the envelope or package for collection and overnight delivery at an office or a regularly utilized drop box of the overnight delivery carrier. (2) ❑ The documents were delivered to an authorized courier or driver authorized to receive documents by an overnight delivery carrier, in an envelope or package designated by the carrier with delivery fees PRnnFnp.¢FRN 1r T: 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 paid or provided for addressed to the person to whom it is to be served, at the office address as last given by that person on the document filed in the cause and served on the party making service. (D) By fax transmission. Based on an agreement of the parties to accept service by fat: -transmission, I faxed the documents to the persons at the fat` numbers listed below No error was reported by the fax machine that I used. A copy of the record of the fax transmission, which I printed out, is attached. (E) By e-mail or electronic transmission. Based on a court order or an agreement of the parties to accept service by e-mail or electronic transmission, I caused the documents to be sent to the persons at the e-mail addresses listed below I did not receive, within a reasonable time after transmission, any electronic message or other indication that the transmission was unsuccessful. (F) By messenger service. I served the documents by placing then in an envelope or package addressed to the persons at the addresses listed below and providing them to a professional messenger service, (A declaration by the messenger service is attached.) TYPE OF SERVICE ADDRESS/FAX NO. (IF APPLICABLE) B2 LABOR & WORKFORCE DEVELOPMENT AGENCY ATTN MARIC WOO SAM, ACTING GENERAL COU-` 801 K STREET SUITE 2100 SACRAMENTO CA 95814 A GREGORY GOVAN CHIEF DEPT OF INDUSTRIAL RELATIONS DIV OF LABOR STATISTICS & RESEARCH 455 GOLDEN GATE AVENUE 8" FLOOR SAN FRANCISCO CA 94102 A ANGELA BRADSTREET LABOR COMMISSIONER DEPT OF INDUSTRIAL RELATIONS DIV OF LABOR STANDARDS ENFORCEMENT 455 GOLDEN GATE AVENUE 9" FLOOR SAN FRANCISCO CA 94102 A VANESSA L. HOLTON CHIEF COUNSEL DEPT OF INDUSTRIAL RELATIONS OFFICE OF THE DIRECTOR — LEGAL UNIT 455 GOLDEN GATE AVENUE 9" FLOOR SAN FRANCISCO CA 94102 A GLEN FORMAN ACTING CHIEF DEPT OF INDUSTRIAL RELATIONS DIV OF APPRENTICESHIP STANDARDS 455 GOLDEN GATE AVENUE 8" FLOOR SAN FRANCISCO CA 94102 B2 BURKE, WILLIAMS & SORENSEN, LLP 2310 EAST PONDEROSA DRIVE, SUITE 25 CAMARILLO, CALIFORNIA 93010-4747 I declare under penalty of perjury under the laws of the State of California that the foregoing is true and correct. Date: May J, 2009 a22K Declarant PROOF OF SERVICE ASSIGNMENT OF DEPOSIT ACCOUNT Principal Loan DateI Maturity I Loan No Call/Coll Account Officer Initials $9,000,000 00 10-23-2009 1 12-06-2010 4588 272 References in the boxes are for Lender's use only and do not limit the applicability of this document to any particular loan or item Any item above containing '***" has been omitted due to text length limitations Borrower Colony Square LLC Lender- MISSION COMMUNITY BANK 6905 EI Camino Real Santa Maria Atascadero CA 93422 1670 South Broadway Santa Maria, CA 93454 Grantor Community Redevelopment Agency of the City of Atascadero City of Atascadero Atascadero CA 93422 THIS ASSIGNMENT OF DEPOSIT ACCOUNT dated as of October 23, 2009, is made and executed among Community Redevelopment Agency of the City of Atascadero ("Grantor") Colony Square LLC ("Borrower") and MISSION COMMUNITY BANK ("Lender"). ASSIGNMENT For valuable consideration, Grantor assigns and grants to Lender a security interest in the Collateral, including without limitation the deposit accounts described below to secure the Loan Guarantee Agreement entered into concurrently between Grantor and Lender (the 'LGA') and agrees that Lender shall have the rights stated in this Agreement with respect to the Collateral except to the extent the terms of this Agreement conflict with the LGA in which case the terms of the LGA shall control, in addition to all other rights which Lender may have by law COLLATERAL DESCRIPTION The word 'Collateral" means the following described deposit account ("Account") Certificate of Deposit Account Number 98300266 with Lender with an original principal balance of $1 500 000 00 together with (A) all interest, whether now accrued or hereafter accruing; (B) all additional deposits hereafter made to the Account; (C) any and all proceeds from the Account; and (D) all renewals replacements and substitutions for any of the foregoing Notwithstanding the foregoing, as provided in the LGA, Grantor shall be paid the interest accruing on the Account prior to an Event of Default on the part of Grantor hereunder or under the LGA. BORROWER'S WAIVERS AND RESPONSIBILITIES Except as otherwise required under this Agreement or by applicable law (A) Borrower agrees that Lender need not tell Borrower about any action or inaction Lender takes in connection with this Agreement; (B) Borrower assumes the responsibility for being and keeping informed about the Collateral and (C) Borrower waives any defenses that may arise because of any action or inaction of Lender including without limitation any failure of Lender to realize upon the Collateral or any delay by Lender in realizing upon the Collateral; and Borrower agrees to remain liable under the Note no matter what action Lender takes or fails to take under this Agreement. GRANTOR'S REPRESENTATIONS AND WARRANTIES Grantor warrants that: (A) this Agreement is executed at Borrower's request and not at the request of Lender (B) Grantor has the full right, power and authority to enter into this Agreement and to pledge the Collateral to Lender (C) Grantor has established adequate means of obtaining from Borrower on a continuing basis information about Borrower's financial condition, and (D) Lender has made no representation to Grantor about Borrower or Borrower's creditworthiness. GRANTOR'S WAIVERS Except as otherwise provided in the LGA or as prohibited by applicable law and subject to the limitations on remedies Grantor waives any right to require Lender to (A) make any presentment, protest, demand or notice of any kind including notice of change of any terms of repayment of the Indebtedness, default by Borrower or any other guarantor or surety any action or non action taken by Borrower Lender or any other guarantor or surety of Borrower or the creation of new or additional Indebtedness, (B) proceed against any person, including Borrower before proceeding against Grantor (C) proceed against any collateral for the Indebtedness, including Borrower's collateral, before proceeding against Grantor (D) apply any payments or proceeds received against the Indebtedness in any order (E) give notice of the terms, time, and place of any sale of any collateral pursuant to the Uniform Commercial Code or any other law governing such sale (F) disclose any information about 3580.0031312947.2CAM #4811 5934-5156 v2 ASSIGNMENT OF DEPOSIT ACCOUNT (Continued) Loan No 4588 Page 2 the Indebtedness, the Borrower any collateral, or any other guarantor or surety or about any action or non action of Lender or (G) pursue any remedy or course of action in Lender's power whatsoever Except as otherwise provided in the LGA, Grantor waives any and all rights or defenses arising by reason of (A) any disability or other defense of Borrower any other guarantor or surety or any other person; (B) the cessation from any cause whatsoever other than payment in full, of the Indebtedness; (C) the application of proceeds of the Indebtedness by Borrower for purposes other than the purposes understood and intended by Grantor and Lender, (D) any act of omission or commission by Lender which directly or indirectly results in or contributes to the discharge of Borrower or any other guarantor or surety or the Indebtedness, or the loss or release of any collateral by operation of law or otherwise, (E) any statute of limitations in any action under this Agreement or on the Indebtedness, or (F) any modification or change in terms of the Indebtedness, whatsoever including without limitation, the renewal extension, acceleration, or other change in the time payment of the Indebtedness is due and any change in the interest rate. Except as otherwise provided in the LGA, Grantor waives all rights and defenses arising out of an election of remedies by Lender even though that election of remedies such as a non -judicial foreclosure with respect to security for a guaranteed obligation, has destroyed Grantor's rights of subrogation and reimbursement against Borrower by operation of Section 580d of the California Code of Civil Procedure or otherwise. Except as otherwise provided in the LGA, Grantor waives all rights and defenses that Grantor may have because Borrower's obligation is secured by real property This means among other things: (1) Lender may collect from Grantor without first foreclosing on any real property collateral pledged by Borrower and (2) if Lender forecloses on any real property collateral pledged by the Borrower, (A) The amount of the Borrower's obligation may be reduced only by the price for which the collateral is sold at the foreclosure sale even if the collateral is worth more than the sale price (B) The Lender may collect from the Grantor even if the Lender by foreclosing on the real property collateral has destroyed any right the Grantor may have to collect from the borrower This is an unconditional and irrevocable waiver of any rights and defenses the Grantor may have because the Borrower's obligation is secured by real property These rights and defenses include but are not limited to any rights and defenses based upon Sections 580a, 580b 580d, or 726 of the Code of Civil Procedure. Grantor understands and agrees that the foregoing waivers are unconditional and irrevocable waivers of substantive rights and defenses to which Grantor might otherwise be entitled under state and federal law The rights and defenses waived include without limitation, those provided by California laws of suretyship and guaranty anti- deficiency laws, and the Uniform Commercial Code. Grantor further understands and agrees that this Agreement is a separate and independent contract between Grantor and Lender given for full and ample consideration, and is enforceable on its own terms Grantor acknowledges that Grantor has provided these waivers of rights and defenses with the intention that they be fully relied upon by Lender Until all Indebtedness is paid in full, Grantor waives any right to enforce any remedy Grantor may have against Borrower or any other guarantor surety or other person and further Grantor waives any right to participate in any collateral for the Indebtedness now or hereafter held by Lender GRANTOR'S REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE COLLATERAL. With respect to the Collateral Grantor represents and promises to Lender that: Ownership. Grantor is the lawful owner of the Collateral free and clear of all loans, liens encumbrances and claims except as disclosed to and accepted by Lender in writing Right to Grant Security Interest. Grantor has the full right, power and authority to enter into this Agreement and to assign the Collateral to Lender No Prior Assignment. Grantor has not previously granted a security interest in the Collateral to any other creditor No Further Transfer Grantor shall not sell, assign, encumber or otherwise dispose of any of Grantor's rights in the Collateral except as provided in this Agreement. No Defaults. There are no defaults relating to the Collateral, and there are no offsets or counterclaims to the same. Grantor will strictly and promptly do everything required of Grantor under the terms, conditions promises, and agreements contained in or relating to the Collateral. Proceeds. Any and all replacement or renewal certificates, instruments, or other benefits or proceeds related to the Collateral that are received by Grantor (other than interest paid to Grantor as provided herein) shall be held by Grantor in trust for Lender and immediately shall be delivered by Grantor to Lender to be held as part of the Collateral. 3580.0031312947.2CAM #4811 5934-5156 Q ASSIGNMENT OF DEPOSIT ACCOUNT (Continued) Loan No 4588 Page 3 Validity; Binding Effect. This Agreement is binding upon Grantor and Grantor's successors and assigns and is legally enforceable in accordance with its terms. Financing Statements. Grantor authorizes Lender to file a UCC financing statement, or alternatively a copy of this Agreement to perfect Lender's security interest. At Lender's request, Grantor additionally agrees to sign all other documents that are necessary to perfect, protect, and continue Lender's security interest in the Property This includes making sure Lender is shown as the first and only security interest holder on the title covering the Property Grantor irrevocably appoints Lender to execute documents necessary to transfer title if there is a default. Lender may file a copy of this Agreement as a financing statement. If Grantor changes Grantor's name or address, or the name or address of any person granting a security interest under this Agreement changes, Grantor will promptly notify the Lender of such change LENDER'S RIGHTS AND OBLIGATIONS WITH RESPECT TO THE COLLATERAL. While this Agreement is in effect, Lender may retain the rights to possession of the Collateral, together with any and all evidence of the Collateral such as certificates or passbooks. This Agreement will remain in effect until (a) there no longer is any Indebtedness owing to Lender (b) all other obligations secured by this Agreement have been fulfilled; and (c) Grantor in writing has requested from Lender a release of this Agreement. LENDER'S EXPENDITURES. If any action or proceeding is commenced that would materially affect Lender's interest in the Collateral or if Grantor fails to comply with any provision of this Agreement or the LGA, including but not limited to Grantor's failure to discharge or pay when due any amounts Grantor is required to discharge or pay under this Agreement or the LGA, Lender on Grantor's behalf may (but shall not be obligated to) take any action that Lender deems appropriate, including but not limited to discharging or paying all taxes, liens security interests, encumbrances and other claims at any time levied or placed on the Collateral and paying all costs for insuring maintaining and preserving the Collateral. All such expenditures incurred or paid by Lender for such purposes will then bear interest at the rate charged under the Note from the date incurred or paid by Lender to the date of repayment by Borrower All such expenses will become a part of the Indebtedness and, at Lender's option, will (A) be payable on demand (B) be added to the balance of the Note and be apportioned among and be payable with any installment payments to become due during either (1) the term of any applicable insurance policy- or (2) the remaining term of the Note; or (C) be treated as a balloon payment which will be due and payable at the Note's maturity The Agreement also will secure payment of these amounts. Such right shall be in addition to all other rights and remedies to which Lender may be entitled upon Default. LIMITATIONS ON OBLIGATIONS OF LENDER. Lender shall use ordinary reasonable care in the physical preservation and custody of any certificate or passbook for the Collateral but shall have no other obligation to protect the Collateral or its value In particular but without limitation, and except as otherwise required by law Lender shall have no responsibility (A) for the collection or protection of any income on the Collateral; (B) for the preservation of rights against issuers of the Collateral or against third persons, (C) for ascertaining any maturities, conversions, exchanges, offers tenders, or similar matters relating to the Collateral; nor (D) for informing the Grantor about any of the above whether or not Lender has or is deemed to have knowledge of such matters DEFAULT Each of the following shall constitute an Event of Default under this Agreement Other Defaults. Grantor fails to comply with or to perform any other term, obligation, covenant or condition contained in this Agreement or the LGA or to comply with or to perform any term, obligation, covenant or condition contained in any other agreement between Lender and Grantor including Grantor's failure to honor its guarantee under the LGA. False Statements. Any warranty representation or statement made or furnished to Lender by Grantor or on Grantor's behalf under this Agreement or the LGA is false or misleading in any material respect, either now or at the time made or furnished or becomes false or misleading at any time thereafter Insolvency The insolvency of Grantor the appointment of a receiver for any part of Grantor's property any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Grantor Defective Collateralization. This Agreement or the LGA ceases to be in full force and effect (including failure of any collateral document to create a valid and perfected security interest or lien) at any time and for any reason. Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help repossession or any other method, by any creditor of Grantor or by any 3580.003/312947.2CAM #4811 5934-5156 v2 ASSIGNMENT OF DEPOSIT ACCOUNT (Continued) Loan No 4588 Page 4 governmental agency against the Collateral. However this Event of Default shall not apply if there is a good faith dispute by Grantor as to the validity or reasonableness of the claim which is the basis of the creditor or forfeiture proceeding and if Grantor gives Lender written notice of the creditor or forfeiture proceeding and deposits with Lender monies or a surety bond for the creditor or forfeiture proceeding, in an amount determined by Lender in its sole discretion, as being an adequate reserve or bond for the dispute. Cure Provisions. If any event of default occurs, it may be cured if Grantor after Lender sends written notice to Grantor demanding cure of such default: (1) cures the default within fifteen (15) days; or (2) if the cure requires more than fifteen (15) days, immediately initiates steps which Lender deems in Lender's sole discretion to be sufficient to cure the default and thereafter continues and completes all reasonable and necessary steps sufficient to produce compliance as soon as reasonably practical. RiGHTS AND REMEDIES ON DEFAULT Except to the extent they conflict with the guarantee provisions of the LGA, upon the occurrence of an Event of Default and after any time for cure of such Event of Default has passed, or at any time thereafter Lender may exercise any one or more of the following rights and remedies in addition to any rights or remedies that may be available at law in equity or otherwise Accelerate Indebtedness. Lender may declare all Indebtedness of Grantor to Lender immediately due and payable without notice of any kind to Grantor Application of Account Proceeds. Lender may take directly all funds in the Account and apply them to the Indebtedness. If the Account is subject to an early withdrawal penalty that penalty shall be deducted from the Account before its application to the Indebtedness, whether the Account is with Lender or some other institution but in no event shall the liability of Grantor to Lender exceed $1,500,000 plus any legal fees or expenses Lender is entitled to receive under this Agreement or the LGA. Any excess funds remaining after application of the Account proceeds to the Indebtedness will be paid to Grantor Borrower agrees to the extent permitted by law to pay any deficiency after application of the proceeds of the Account to the Indebtedness. Lender also shall have all the rights of a secured party under the California Uniform Commercial Code even if the Account is not otherwise subject to such Code concerning security interests, and the parties to this Agreement agree that the provisions of the Code giving rights to a secured party shall nonetheless be a part of this Agreement. Transfer Title Lender may effect transfer of title upon sale of all or part of the Collateral For this purpose Grantor irrevocably appoints Lender as Grantor's attorney-in-fact to execute endorsements, assignments and instruments in the name of Grantor and each of them (if more than one) as shall be necessary or reasonable. Other Rights and Remedies Lender shall have and may exercise any or all of the rights and remedies of a secured creditor under the provisions of the California Uniform Commercial Code, at law in equity or otherwise Deficiency Judgment. If permitted by applicable law Lender may obtain a judgment for any deficiency remaining in the Indebtedness due to Lender after application of all amounts received from the exercise of the rights provided in this section. Election of Remedies Except as may be prohibited by applicable law all of Lender's rights and remedies, whether evidenced by this Agreement or by any other writing, shall be cumulative and may be exercised singularly or concurrently Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy and an election to make expenditures or to take action to perform an obligation of Grantor under this Agreement, after Grantor's failure to perform, shall not affect Lender's right to declare a default and exercise its remedies. Cumulative Remedies. Ail of Lender's rights and remedies, whether evidenced by this Agreement or by any other writing shall be cumulative and may be exercised singularly or concurrently Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy and an election to make expenditures or to take action to perform an obligation of Grantor under this Agreement, after Grantor's failure to perform, shall not affect Lender's right to declare a default and to exercise its remedies. MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement: Amendments. This Agreement, together with the LGA, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement 3580 0031312947.2CAM #4811 5934-5156 v2 ASSIGNMENT OF DEPOSIT ACCOUNT (Continued) Loan No 4588 Page 5 shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment. Arbitration. Borrower and Grantor and Lender agree that all disputes, claims and controversies between them whether individual, joint, or class in nature, arising from this Agreement or otherwise, including without limitation contract and tort disputes, shall be arbitrated pursuant to the Rules of the American Arbitration Association in effect at the time the claim is flied, upon request of either party No act to take or dispose of any Collateral shall constitute a waiver of this arbitration agreement or be prohibited by this arbitration agreement. This includes, without limitation, obtaining injunctive relief or a temporary restraining order; invoking a power of sale under any deed of trust or mortgage; obtaining a writ of attachment or imposition of a receiver; or exercising any rights relating to personal property, including taking or disposing of such property with or without judicial process pursuant to Article 9 of the Uniform Commercial Code. Any disputes, claims, or controversies concerning the lawfulness or reasonableness of any act, or exercise of any right, concerning any Collateral, including any claim to rescind, reform, or otherwise modify any agreement relating to the Collateral, shall also be arbitrated, provided however that no arbitrator shall have the right or the power to enjoin or restrain any act of any party Borrower and Grantor and Lender agree that in the event of an action for judicial foreclosure pursuant to California Code of Civil Procedure Section 726, or any similar provision in any other state, the commencement of such an action will not constitute a waiver of the right to arbitrate and the court shall refer to arbitration as much of such action, including counterclaims, as lawfully may be referred to arbitration. Judgment upon any award rendered by any arbitrator may be entered in any court having jurisdiction. Nothing in this Agreement shall preclude any party from seeking equitable relief from a court of competent jurisdiction. The statute of limitations, estoppel waiver, taches, and similar doctrines which would otherwise be applicable in an action brought by a party shall be applicable in any arbitration proceeding, and the commencement of an arbitration proceeding shall be deemed the commencement of an action for these purposes. The Federal Arbitration Act shall apply to the construction, interpretation, and enforcement of this arbitration provision. Attorneys' Fees; Expenses. Grantor agrees to pay upon demand all of Lender's costs and expenses, including Lender's attorneys' fees and Lender's legal expenses, incurred in connection with the enforcement of this Agreement. Lender may hire or pay someone else to help enforce this Agreement, and Grantor shall pay the costs and expenses of such enforcement. Costs and expenses include Lender's attorneys' fees and legal expenses whether or not there is a lawsuit, including attorneys' fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction) appeals, and any anticipated post judgment collection services. Grantor also shall pay all court costs and such additional fees as may be directed by the court. Lender acknowledges that foregoing provisions are subject to the provisions of California Civil Code §1717 Caption Headings. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement. Governing Law This Agreement will be governed by federal law applicable to Lender and, to the extent not preempted by federal law the laws of the State of California without regard to its conflicts of law provisions. This Agreement has been accepted by Lender in the State of California. Choice of Venue. If there is a lawsuit, Grantor agrees upon Lender's request to submit to the jurisdiction of the courts of Santa Barbara County State of California. Preference Payments Any monies Lender pays because of an asserted preference claim in Borrower's or Grantor's bankruptcy will become a part of the Indebtedness and, at Lender's option, shall be payable by Borrower and Grantor as provided in this Agreement. No Waiver by Lender Lender shall not be deemed to have waived any rights under this 4greement unless such waiver is given in writing and signed by Lender No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender nor any course of dealing between Lender and Grantor shall constitute a waiver of any of Lender's rights or of any of Grantor's obligations as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing ^--^ — "-)0A-7 9rartn #4811 5934-5156 v2 ASSIGNMENT OF DEPOSIT ACCOUNT (Continued) Loan No 4588 Page 6 consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretion of Lender Notices Any notice required to be given under this Agreement shall be given in writing, and shall be effective when actually delivered, when actually received by telefacsimile (unless otherwise required by law) when deposited with a nationally recognized overnight courier or if mailed, when deposited in the United States mail, as first class certified or registered mail postage prepaid, directed to the addresses shown near the beginning of this Agreement. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party's address For notice purposes, Grantor agrees to keep Lender informed at all times of Grantor's current address. Unless otherwise provided or required by law if there is more than one Grantor any notice given by Lender to any Grantor is deemed to be notice given to all Grantors. Power of Attorney Grantor hereby appoints Lender as its true and lawful attorney-in-fact, irrevocably with full power of substitution to do the following- (1) to demand, collect, receive receipt for sue and recover all sums of money or other property which may now or hereafter become due, owing or payable from the Collateral; (2) to execute sign and endorse any and all claims, instruments receipts, checks drafts or warrants issued in payment for the Collateral, (3)to file any claim or claims or to take any action or institute or take part in any proceedings, either in its own name or in the name of Grantor or otherwise, which in the discretion of Lender may seem to be necessary or advisable This power is given as security for the Indebtedness, and the authority hereby conferred is and shall be irrevocable and shall remain in full force and effect until renounced by Lender Waiver of Co -Obligor's Rights. If more than one person is obligated for the Indebtedness, Grantor agrees not to exercise any claims against such other person which Grantor has or would otherwise have by virtue of payment of the Indebtedness or any part thereof specifically including but not limited to all rights of indemnity contribution or exoneration, until such time as Lender has received full payment of all Indebtedness. Severability If a court of competent jurisdiction finds any provision of this Agreement to be illegal, invalid, or unenforceable as to any circumstance, that finding shall not make the offending provision illegal invalid or unenforceable as to any other circumstance. If feasible the offending provision shall be considered modified so that it becomes legal valid and enforceable. If the offending provision cannot be so modified, it shall be considered deleted from this Agreement. Unless otherwise required by law the illegality invalidity or unenforceability of any provision of this Agreement shall not affect the legality validity or enforceability of any other provision of this Agreement. Successors and Assigns Subject to any limitations stated in this Agreement on transfer of Grantor's interest, this Agreement shall be binding upon and inure to the benefit of the parties their successors and assigns. If ownership of the Collateral becomes vested in a person other than Grantor Lender without notice to Grantor may deal with Grantor's successors with reference to this Agreement and the Indebtedness by way of forbearance or extension without releasing Grantor from the obligations of this Agreement or liability under the Indebtedness. Survival of Representations and Warranties. All representations, warranties, and agreements made by Grantor in this Agreement shall survive the execution and delivery of this Agreement, shall be continuing in nature and shall remain in full force and effect until such time as Borrower's Indebtedness shall be paid in full Time is of the Essence Time is of the essence in the performance of this Agreement. DEFINITIONS The following capitalized words and terms shall have the following meanings when used in this Agreement. Unless specifically stated to the contrary all references to dollar amounts shall mean amounts in lawful money of the United States of America. Words and terms used in the singular shall include the plural, and the plural shall include the singular as the context may require. Words and terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code. Account. The word "Account" means the deposit account described in the "Collateral Description" section. Agreement. The word Agreement" means this Assignment of Deposit Account, as this Assignment of Deposit Account may be amended or modified from time to time together with all exhibits and schedules attached to this Assignment of Deposit Account from time to time. 3580.003/312947.2CAM #4811 5934-5156 v2 ASSIGNMENT OF DEPOSIT ACCOUNT (Continued) Loan No. 4588 Page 7 Borrower The word 'Borrower" means Colony Square LLC and includes all co-signers and co -makers signing the Note and all their successors and assigns. Collateral The word "Collateral" means all of Grantor's right, title and interest in and to all the Collateral as described in the Collateral Description section of this Agreement. Default. The word 'Default" means the Default set forth in this Agreement in the section titled 'Default" Event of Default. The words 'Event of Default" mean any of the events of default set forth in this Agreement in the default section of this Agreement. Grantor The word 'Grantor" means Community Redevelopment Agency of the City of Atascadero Guaranty The word 'Guaranty" means the guaranty from guarantor endorser surety or accommodation party to Lender including without limitation a guaranty of all or part of the Note. Indebtedness. The word 'Indebtedness" means the indebtedness evidenced by the Note or Related Documents including all principal and interest together with all other indebtedness and costs and expenses for which Borrower is responsible under this Agreement or under any of the Related Documents Lender The word 'Lender" means MISSION COMMUNITY BANK, its successors and assigns. Note The word Note means the Note executed by Colony Square LLC in the principal amount of $9 000 000 00 dated October 7 2009 together with all renewals of extensions of modifications of refinancings of consolidations of and substitutions for the note or credit agreement. Property The word 'Property" means all of Grantor's right, title and interest in and to all the Property as described in the 'Collateral Description" section of this Agreement. Related Documents The words "Related Documents mean all promissory notes, credit agreements, loan agreements, environmental agreements, security agreements, mortgages, deeds of trust, security deeds collateral mortgages, and all other instruments, agreements and documents whether now or hereafter existing executed in connection with the Indebtedness. BORROWER AND GRANTOR HAVE READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS ASSIGNMENT OF DEPOSIT ACCOUNT AND AGREE TO ITS TERMS THIS AGREEMENT IS DATED AS OF OCTOBER 23 2009 GRANTOR. COMMUNITY REDEVELOPMENT AGENCY OF THE CITY OF ATASCADERO By / ade G M Kinney Executive Dire or of Community Redevelopment Agency of the City of Atascadero BORROWER. COLONY SQUARE LLC By. -- 3580.0031312947.2CAM #4811 5934-5156 v2