PARTICIPATION AGREEMENT
Dated as of February 23, 1996
By and Between
HARBOURTON RESIDENTIAL CAPITAL CO., L.P.
a Delaware limited partnership -- Lender
and
RESIDENTIAL FUNDING CORPORATION,
a Delaware corporation -- Participant
1
TABLE OF CONTENTS
Page
R E C I T A L S........................ 1
ARTICLE I .....DEFINITIONS ............. 2
Section 1.1 ...Defined Terms ........... 2
Section 1.2 ...Other Provisions ........ 12
ARTICLE II ....PARTICIPATION INTERESTS . 13
Section 2.1 ...Offers and Right to Purchase Participation Interests 13
Section 2.2 ...Designation as A Loan ... 14
Section 2.3 ...Purchase and Sale of Participations 14
Section 2.4 ...Lender to Maintain Records 15
Section 2.5 ...Participation Interest Only 15
Section 2.6 ...Evidence of Participation Interest 15
Section 2.7 ...Failure of Loan to Close 16
ARTICLE III ...POSSESSION OF DOCUMENTS;
ABSOLUTE SALE INTENDED 17
Section 3.1 ...Documents Held in Trust; Delivery of Documents to Participant 17
Section 3.2 ...Absolute Sale of Participation Interest 17
Section 3.3 ...Custodial Documents ..... 18
Section 3.4 ...Priority ................ 18
ARTICLE IV ....FUNDING OF ADVANCES ..... 19
Section 4.1 ...Funding Advances and Participation Interests 19
Section 4.2 ...Lender's Certification .. 19
Section 4.3 ...Payments by Participant . 20
Section 4.4 ...Interest on Participations 20
Section 4.5 ...Undivided Interests Determined on Posting Dates 21
ARTICLE V .....ADMINISTRATION OF THE LOANS 22
Section 5.1 ...Administration and Servicing of Loans 22
Section 5.2 ...Lender's Actions Requiring Participant's Consent 23
Section 5.3 ...Standard of Care and Duty to Participant 24
Section 5.4 ...Notices of Defaults and Other Events 24
Section 5.5 ...Management of Real Estate Owned 25
Section 5.6 ...Reports to Participant .. 25
Section 5.7 ...Acquisition of Loan Collateral 25
Section 5.8 ...Extraordinary Servicing Expenses 26
Section 5.9 ...Inspections by Participant 26
ARTICLE VI ....COLLECTIONS ............. 27
Section 6.1 ...Collection and Payment of Collections 27
Section 6.2 ...Order of Application of Collections 27
Section 6.3 ...Reimbursement of Amounts Paid For Ancillary Fees and
Extraordinary Servicing Expenses 28
Section 6.4 ...Loan Fees ............... 28
Section 6.5 ...Interest and Late Payment Fees 28
Section 6.6 ...Principal ............... 28
Section 6.7 ...Returned Payments ....... 28
Section 6.8 ...Application of Collections Upon Distribution
Adjustment Event 29
Section 6.9 ...Reinstated Loans ........ 29
Section 6.10 ..Distribution Adjustment Event Recapture 29
Section 6.11 ..Borrower Payment Defaults and Borrower
Bankruptcy Events 29
2
ARTICLE VII ...DISCLAIMERS; INDEMNITIES 31
Section 7.1 ...Participant's Assumption of Certain Risks 31
Section 7.2 ...Indemnification by Participant 31
Section 7.3 ...Indemnification by Lender 31
Section 7.4 ...Reimbursement Obligation 32
32
Section 7.5 ...Nature of Duties of Lender 32
ARTICLE VIII ..ACKNOWLEDGMENTS, REPRESENTATIONS AND
COVENANT ...... 33
Section 8.1 ...Participant's Acknowledgments 33
Section 8.2 ...Participant's Representations 33
Section 8.3 ...Lender's Representations 34
Section 8.4 ...Lender's Covenants ...... 38
ARTICLE IX ....OTHER ARRANGEMENTS ...... 40
Section 9.1 ...Other Arrangements With Obligors 40
Section 9.2 ...Loan Collateral Held Solely for Loans 40
ARTICLE X .....EVENTS OF DEFAULT AND REMEDIES
Section 10.1 ..Events of Lender Default 41
Section 10.2 ..Participant's Remedies .. 42
Section 10.3 ..Events of Participant Default 43
Section 10.4 ..Lender's Remedies ....... 43
Section 10.5 ..Purchase of Participant's Undivided Interest
Under Certain Circumstances 44
3
ARTICLE XI ....CERTAIN METHODS OF DISPUTE RESOLUTION 45
Section 11.1 ..Choice of Dispute Resolution Methods 45
Section 11.2 ..Identity of Arbitrator .. 45
Section 11.3 ..Duties of Arbitrator .... 46
Section 11.4 ..Collateral Appraisal Procedures 46
ARTICLE XII ...GENERAL MATTERS ......... 47
Section 12.1 ..No Joint Venture ........ 47
Section 12.2. No Setoff 47
47
Section 12.3 ..Termination ............. 47
47
Section 12.4. Notices 48
Section 12.5 ..Confidentiality ......... 49
Section 12.6 ..Amendments, Waivers ..... 49
Section 12.7 ..Entire Agreement ........ 49
Section 12.8 ..Governing Law ........... 49
Section 12.9 ..Successors, Counterparts 49
49
Section 12.10.Expenses of Document Preparation 49
Section 12.11 .Prevailing Party 49
Section 12.12 .No Third Party Beneficiaries .. 50
4
EXHIBIT A CREDIT UNDERWRITING DOCUMENTS
EXHIBIT B OFFERING SCHEDULE
EXHIBIT C LOAN DOCUMENTS
EXHIBIT D FORM OF CONFIRMATION
EXHIBIT E LENDER'S CERTIFICATION AND NOTICE OF REQUEST TO FUND
EXHIBIT F PARTICIPATION CERTIFICATE
EXHIBIT G FORM OF ALLONGE
EXHIBIT H FORM OF ASSIGNMENT OF MORTGAGE
EXHIBIT I FORM OF UCC-1 FINANCING STATEMENT
EXHIBIT J MASTER NON-DEMAND AGREEMENT
EXHIBIT K TABLE OF CONTENTS OF OPERATIONS MANUAL
EXHIBIT L INTENTIONALLY OMITTED
EXHIBIT M LOAN MONITORING DOCUMENTS
EXHIBIT N FORM OF NOTICE OF INITIAL ADVANCE
EXHIBIT O FORM OF GUARANTY
EXHIBIT P FORM OF PROJECT STATUS SUMMARY REPORT
5
PARTICIPATION AGREEMENT
THIS PARTICIPATION AGREEMENT, dated as of February 23, 1996, is made by and
between HARBOURTON RESIDENTIAL CAPITAL CO., L.P., a Delaware limited partnership
(the "Lender"), and RESIDENTIAL FUNDING CORPORATION, a Delaware corporation (the
"Participant").
R E C I T A L S
A. The Lender intends to enter into commitments from time to time to
make acquisition and development loans and construction loans to finance the
preconstruction development of residential real property and the construction of
single family residences.
B. The parties wish to provide to the Participant a right to purchase a
participation interest in certain of such acquisition and development loans and
construction loans, upon the terms and subject to the conditions contained in
this Participation Agreement.
C. The purchase and sale of participation interests to Participant
hereunder shall close immediately upon and simultaneously with the funding of
the related acquisition and development loans and construction loans, upon the
terms and subject to the conditions contained in this Participation Agreement.
D. The Participant and the Lender desire to set forth herein certain of
the terms under which the Participant is purchasing, and the Lender is selling,
undivided interests in such acquisition and development loans and construction
loans.
E. In connection with each purchase of an undivided interest in such
acquisition and development loans and construction loans, the Lender will issue
to the Participant a participation certificate which will evidence the undivided
interest purchased and set forth the terms of the sale of such undivided
interest not previously set forth in this Participation Agreement.
A G R E E M E N T
NOW, THEREFORE, in consideration of the foregoing, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Lender and the Participant hereby covenant and agree as
follows:
1
ARTICLE I
DEFINITIONS
Section 1.1. Defined Terms. Capitalized terms defined below or elsewhere in
this Participation Agreement (including the Exhibits attached hereto) shall
have the following meanings:
"Acceptance" means the Participant's execution of its
acceptance of the terms of an Offering Schedule, which acceptance shall
be in the form included as part of the Offering Schedule attached
hereto as Exhibit B.
"Acquisition and Development Loan" means a loan made by the
Lender to a Borrower for the purpose of financing the Borrower's
acquisition of a tract of real property and development thereof to
prepare such tract for the subsequent construction of single family
residences.
"Administrative Procedures" means the (i) the general
policies, procedures and lending standards set forth in the Operations
Manual and (ii) the Specific Administrative Procedures, as the same may
be amended or modified with the consent of the Participant.
"Advances" means the periodic disbursements of principal of
the Loans by the Lender under the Loan Documents and the payment of
draws under any Letter of Credit.
"Adverse Claim" means a lien, security interest, charge,
encumbrance or other right or claim of any Person.
"Affiliate" means, with respect to any Person, any other
Person controlling, controlled by or under common control or ownership
with such Person.
"Allonge" shall mean an allonge substantially in the form of
Exhibit G attached hereto.
"Ancillary Fees" means, with respect to a Loan, amounts paid
to or received by the Lender other than in respect of principal,
interest or Loan Fees, which relate to amounts payable by the Lender to
third parties, including, but not limited to, documentation and letter
of credit preparation fees, inspection fees, appraisal fees and like
fees of third parties.
"Assignment of Mortgage" shall mean an assignment
substantially in the form of Exhibit H attached hereto.
"Borrower" means, with respect to a Loan, the Person to whom
the Lender is making the Loan.
2
"Borrower Bankruptcy Event" means an Event of Bankruptcy with
respect to a Borrower. The date of filing of the first legal proceeding
referred to under the definition of "Event of Bankruptcy" shall be used
to determine the date on which a Borrower Bankruptcy Event has
occurred,
"Borrower Payment Default" means with respect to a Borrower
and the related Loan, the failure of such Borrower to make any payment
of principal, interest or any other amount owing under the Loan for 90
days or more beyond the date such payment is due.
"Business Day" means any day of the year other than a Saturday
or Sunday or day on which either the Lender or the Participant is
closed for business.
"Claimant" shall have the meaning given that term in Section
12.2.
"Collections" means, with respect to any Loan, all cash
payments of principal, interest, Loan Fees and other sums due under the
Loans and all other cash collections, insurance proceeds and other cash
proceeds of such Loan, including, without limitation, all cash proceeds
of Related Assets with respect to such Loan.
"Commitment Fees" means, with respect to any Loan, the
origination fees required to be paid by the Borrower to the Lender with
respect to such Loan pursuant to the terms of the related Loan
Documents, as such origination fees are set forth in the Offering
Schedule delivered with respect to such Loan.
"Confirmation" means a letter from the Participant to the
Lender substantially in the form of Exhibit D attached hereto.
"Construction Loan" means a loan made by the Lender to a
Borrower for the purpose of financing the Borrower's construction of
single family residences on real property owned by the Borrower.
"Credit Underwriting Documents" shall mean, for each Loan, the
documents set forth in Exhibit A attached hereto.
"Custodian" means the custodian under the Custodial Agreement,
or its successor.
"Custodial Agreement" means that certain Custodial Agreement,
between the Lender, the Participant and the Custodian, in substantially
the form of Exhibit N hereto.
"Debt" of any Person means (i) indebtedness of such Person for
borrowed money, (ii) obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) obligations of
such Person to pay the deferred purchase price of property or services,
(iv) obligations of such Person as lessee under leases which shall have
been or should be, in accordance with GAAP, recorded as capital leases,
(v) obligations secured by an Adverse Claim upon property or assets
owned by such Person, even though such Person has not assumed or become
liable for the payment of such obligations, and (vi) obligations of
such Person under direct or indirect guaranties in respect of, and
obligations (contingent or otherwise) to purchase or otherwise acquire,
or otherwise to assure a creditor against loss in respect of,
indebtedness or obligations of others of the kinds referred to in
clauses (i) through (v) above, including, without limitation,
obligations under letters of credit, banker acceptances and other like
contingent obligations.
78
"Debtor" shall have the meaning given that term in Section
12.2.
"Default" means, with respect to a Loan, an occurrence of any
event or existence of any conditions which, but for the giving of
notice, the lapse of time, or both, would constitute an Event of
Default pursuant to the terms of the Loan Documents relating to such
Loan.
"Defaulted Loan" means, on any date of determination, a Loan
with respect to which a Borrower Payment Default, a Borrower Bankruptcy
Event or an Other Borrower Default has occurred and is continuing.
"Distribution Adjustment Event" means, with respect to a Loan,
any of (i) a Title Acquisition Event, (ii) a Borrower Bankruptcy Event,
if and only if, such Loan does not become a Reinstated Loan within one
year of the date of occurrence of the Borrower Bankruptcy Event, (iii)
an Other Borrower Default, if and only if, the outstanding principal
balance of the Loan as of the date of such default exceeds 110% of the
value of the Loan Collateral as of such date (as determined in
accordance with Section 11.4), (iii) a Lender Default under Section
10.1(a) with respect to any Loan, (iv) a Lender Default under Sections
10.1(b) or 10.1(c) with respect to such Loan, or (v) a Lender Default
under Sections 10.1(d), 10.1(e) or 10.1(f).
3
"Eligible Loan" means an Acquisition and Development Loan or a
Construction Loan which satisfies each of the following conditions:
1. the Lender has originated such Acquisition and Development Loan or
Construction Loan, such loan is closed and the initial Advance thereunder has
been made, provided that an Acquisition and Development Loan or Construction
Loan may be designated as an Eligible Loan if such loan meets the other
requirements of this definition and within ninety (90) days after the
Participant notifies the Lender of its acceptance of the offer to purchase a
Participation Interest therein, such loan closes and the initial Advance is made
thereunder;
2. the Lender has received a Title Policy that insures that the Lender has
been granted or assigned a perfected first priority lien on the Mortgaged Real
Property;
3. it is an Acquisition and Development Loan or a Construction Loan as to which:
(a) the Mortgage Note is payable or endorsed to the order of the Lender; (b)
each of the Mortgage Note and Mortgage is a legal, valid and binding obligation
of the Borrower; (c) the Mortgage Note is an "instrument" within the meaning of
Section 9-105 of the UCC of all applicable jurisdictions; and (d) the Mortgage
Note is denominated and payable only in United States dollars;
4. the Lender has received, with respect to such Acquisition and Development
Loan or Construction Loan, the Loan Documents;
5. the Lender owns the Acquisition and Development Loan or Construction Loan
free and clear of any Adverse Claims, other than the Adverse Claim of or
attributable to the Participant hereunder;
6. neither the Acquisition and Development Loan or Construction Loan, as
applicable, nor the related Loan Documents contravene in any material respect
any law, rule or regulation applicable thereto (including, without limitation,
all laws, rules and regulations relating to usury) if any such contravention
would impair the collectibility of such loan, and no party to the related Loan
Documents is in violation of any such law, rule or regulation (or procedures
prescribed thereby) in any material respect if such violation would impair the
collectibility of such loan or the performance by any Obligor of its obligations
with respect thereto;
7. the sale to the Participant of a Participation Interest in such Acquisition
and Development Loan or Construction Loan and any related L/C Guaranty does not
contravene or conflict with any applicable laws, rules or regulations or any
contractual or other restriction, limitation or encumbrance;
8. the Mortgage Note is not subject to any rights of setoff, counterclaim or
defense in favor of the Borrower or any other Obligor thereof;
9. the Acquisition and Development Loan or Construction Loan, as applicable, is
not a Fraudulent Loan; and
4
10. the Acquisition and Development Loan or Construction Loan, as applicable, is
a loan as to which the Lender has conducted its customary due diligence and
review.
.
"Event of Bankruptcy" means, with respect to a Person, such
Person shall generally not pay its Debts as such Debts become due, or
shall admit in writing its inability to pay its Debts generally, or
shall make a general assignment for the benefit of creditors; or any
proceeding shall be instituted against such Person (except if such
proceeding is dismissed within 90 days of its institution) or by such
Person seeking to adjudicate it a bankrupt or insolvent, or seeking
liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of
debtors, or seeking the entry of an order for relief or the appointment
of a receiver, trustee, custodian, liquidator, or other similar
official for it or for any substantial part of its property.
"Event of Default" means, with respect to a Loan, an
occurrence of any event or the existence of any condition for which the
applicable grace period has lapsed (after any required notice)
permitting the Lender thereunder to exercise remedies provided under
the applicable Loan Documents.
"Extension Fees" means, with respect to a Loan, the extension
fees required to be paid to the Lender with respect to the extension of
the maturity of such Loan under the terms of the relevant Loan
Documents, as set forth in the Offering Schedule delivered with respect
to such Loan, or as otherwise agreed to between Participant and Lender.
"Extraordinary Servicing Expenses" means, with respect to a
Loan, any reasonable costs and expenses which are incurred by the
Lender in connection with recovery on such Loan or the defense of any
claim, actual or threatened, made by any Obligor or by a receiver or
trustee in bankruptcy for any Obligor, including but not limited to
foreclosure fees and expenses, legal fees and expenses, appraisal and
property inspection fees and expenses, and fees and expenses reasonably
incurred in connection with the maintenance, preservation, repair,
protection, operation, rehabilitation and liquidation of the Loan
Collateral and the costs of collection under any related insurance
policies.
"FIRREA" means the Financial Institutions Reform, Recovery and
Enforcement Act of 1989, as amended from time to time, and the
regulations promulgated and rulings issued thereunder.
"Fraudulent Loan" means any Loan that, for any reason,
including, without limitation, any fraudulent activity on the part of
the Borrower or the Lender, does not constitute the legal, valid and
binding obligation of the Borrower or other Obligor with respect to
such Loan, enforceable against such Borrower or Obligor in accordance
with its terms.
5
"GAAP" means generally accepted accounting principles in
effect in the United States from time to time.
"General Partner" means Harbourton Residential Capital
Corporation, a Delaware corporation, as general partner of Lender.
"Guarantor" means Harbourton Financial Services L.P.,
a Delaware limited partnership.
"Guaranty" means the Guaranty, dated as of the date hereof,
substantially in the form of Exhibit O hereto, made by Guarantor in
favor of Participant.
"Insured Closing Letter" means, with respect to an Acquisition
and Development Loan or a Construction Loan, a letter commonly used in
connection with the closing of real estate loans, addressed to the
Lender and the Participant, or by its terms inuring to the benefit of
the Participant as well as the Lender, from the title insurance company
who issues a Title Commitment, to the effect that the title company
will reimburse the Lender and the Participant for losses suffered in
the closing of an Acquisition and Development Loan or Construction Loan
as a result of the closing agent's failure to comply with the Lender's
written instructions or the closing agent's fraud, dishonesty or
negligence in the handling of the proceeds of such loan.
"L/C Guaranty" means, with respect to a Letter of Credit, a
guaranty, surety or other reimbursement obligation of the Lender and/or
the Participant in favor of the issuer of such Letter of Credit.
"Late Payment Fees" means, with respect to a Loan, the amount
agreed to be paid by the Borrower to the Lender under the related Loan
Documents in the event such Borrower fails to make certain payments
when due.
"Lender" means Harbourton Residential Capital Co., L.P., a
Delaware limited partnership.
"Lender Default" means any of the events specified in Section
10.1.
"Lender's Certification" means a Lender's Certification and
Notice of Request to Fund in the form of Exhibit E attached hereto and
meeting the requirements of Section 4.2.
"Lender's Override" means, with respect to each Loan, the
percentage of any Loan Fee or interest which shall be retained by the
Lender as compensation for its origination and servicing of such Loan,
which percentage shall be set forth in the Offering Schedule delivered
with respect to such Loan.
6
"Letter of Credit" means, with respect to a Loan, a letter of
credit, bond or other credit facility arranged by the Lender for the
account of the applicable Borrower or an Affiliate thereof, and for the
benefit of a county, township, municipality or other governing body
having jurisdiction over the related Mortgaged Real Property, which
letter of credit, bond or other credit facility supports the
performance or payment by the Borrower in making certain improvements
upon the Mortgaged Real Property.
"Letter of Credit Fees" means, with respect to a Loan, the
fees agreed to be paid by the Borrower thereunder as consideration for
the issuance of a Letter of Credit or for the L/C Guaranty.
"Loan" means any Eligible Loan, and any Letter of Credit
related to such Eligible Loan, in which a Participation Interest has
been purchased or approved for purchase by the Participant pursuant to
the terms of this Participation Agreement.
"Loan Collateral" means, with respect to a Loan, the Property
which secures repayment of such Loan.
"Loan Documents" means, for each Loan, the documents set forth
in Exhibit C attached hereto.
"Loan Fees" means, with respect to a Loan, the amounts to be
paid to the Lender (other than for principal and interest), no matter
how the same may be designated or calculated, as additional
consideration for the Lender making the Loan, including, but not
limited to, Commitment Fees, Extension Fees and Letter of Credit Fees,
but excluding Late Payment Fees, documentation and letter of credit
preparation fees, inspection fees and appraisal fees.
"Loan Monitoring Documents" means, for each Loan, the
documents set forth in Exhibit M attached hereto.
"Material Adverse Effect" means, (A) with respect to a Loan,
an effect on (i) the collectibility of such Loan, (ii) the
marketability of the related Loan Collateral, or (iii) the lien
priority of the related Loan Collateral, in each case, that could
reasonably be expected to directly, materially and adversely impair the
ability of the Participant to receive, with respect to its Undivided
Interest, Collections owing to it on such Loan; and (B) with respect to
the Lender, an effect on (i) the business or financial condition of the
Lender, or (ii) the ability of the Lender to perform its obligations
under this Agreement, in each case, that could reasonably be expected
to directly, materially and adversely impair the ability of the
Participant to receive, with respect to its Undivided Interest,
Collections owing to it on the Loans.
"Maximum Participation Amount" means, with respect to a Loan,
the amount stated in dollars and designated as such on the Offering
Schedule delivered with respect to such Loan.
7
"Mortgage" means, with respect to a Loan, a mortgage, deed of
trust or other similar security instrument, granting to the Lender a
first mortgage lien on and security interest in the Mortgaged Real
Property in order to secure the indebtedness under the Mortgage Note
related to such Loan, the form of which Mortgage shall be approved by
the Participant.
"Mortgage Note" means, with respect to a Loan, a promissory
note evidencing the indebtedness of the Borrower incurred pursuant to
the terms of the Loan Documents, the form of which Mortgage Note shall
be approved by the Participant.
"Mortgaged Real Property" means, with respect to any Loan, the
real property to be acquired, developed and/or constructed upon with
the proceeds of such Loan, which real property shall be encumbered by
the Mortgage.
"Obligor" means any Person liable for payment or performance
of a Loan or any obligations under the Loan Documents relating thereto,
whether primarily or otherwise, including, but not limited to, the
Borrower and any guarantor of the Borrower's obligations.
"Notice of Initial Advance" means a Notice of Initial Advance
in the form of Exhibit N attached hereto.
"Offering Schedule" means, with respect to each Acquisition
and Development Loan and Construction Loan and any related L/C Guaranty
in which the Lender offers a Participation Interest to Participant, a
schedule substantially in the form of Exhibit B attached hereto which
sets forth the terms applicable to the Acquisition and Development Loan
or the Construction Loan and any related L/C Guaranty and the terms of
such Participation Interest.
"Operations Manual" means the operations manual compiled by
the Lender for use in connection with the origination and
administration of the Loans, the table of contents of which manual is
set forth in Exhibit K attached hereto, as the same may be amended or
modified with the consent of the Participant.
"Other Borrower Default" means, with respect to a Loan, an
Event of Default other than a Borrower Bankruptcy Event or a Borrower's
failure to make any payment of principal, interest or any other amount
owing under the Loan.
"Outstanding Amount" means, as of the date of determination
and with respect to a Loan, the aggregate principal balance outstanding
under such Loan, including any amounts drawn under a Letter of Credit.
8
"Outstanding Participation Amount" means, as of the date of
determination and with respect to a Loan, the outstanding principal
amount of the Participation Interest purchased in such Loan by the
Participant pursuant hereto.
"Participant" means Residential Funding Corporation, a
Delaware corporation.
"Participant Default" means any of the events specified in
Section 10.3.
"Participation Agreement" means this Participation Agreement,
as it may be modified, supplemented or amended in accordance with the
terms hereof.
"Participation Certificate" means the certificate which the
Lender shall issue to the Participant, at the time of and in connection
with each purchase of a Participation Interest made by the Participant
pursuant to the terms of this Participation Agreement, which
Participation Certificate shall be in the form attached hereto as
Exhibit F, and shall be duly completed as provided in Section 2.6.
"Participation Interest" means an Undivided Interest in a Loan
which, pursuant to and in accordance with the terms of this
Participation Agreement, the Participant purchases.
"Percentage Interest" means, with respect to a Loan, the
percentage (i) that, with respect to the Participant, the Lender agrees
to sell and the Participant agrees to purchase in such Loan, and (ii)
that, with respect to the Lender, the Lender retains in such Loan, as
such percentages are set forth in the Offering Schedule delivered with
respect to such Loan.
"Person" means an individual, partnership, corporation
(including a business trust), joint stock company, unincorporated
association, trust, joint venture, government (or any agency or
political subdivision thereof), limited liability company or other
entity.
"Pledged Collateral" means the Loans, the Related Assets, all
Collections with respect thereto, and all proceeds of any of the
foregoing, to the extent of the Undivided Interest therein of the
Participant.
"Posting Date" means each date during the term of this
Participation Agreement on which the Participant remits funds to the
Lender for the purchase of a Participation Interest, which date shall
be the second Business Day of any week, except that the initial
remittance under any Loan may be on any Business Day after two Business
Day's notice from Lender to Participant.
"Project Status Summary Report" means a Project Status Summary
Report in the form of Exhibit P attached hereto.
9
"Property" means any kind of property or asset, whether real,
personal or mixed, or tangible or intangible.
"Records" means all documents, books, records and other
information (including, without limitation, computer programs, tapes,
disks and punch cards) maintained with respect to Loans.
"Reinstated Loan" means a Defaulted Loan that has been brought
current under the original terms of such Loan and, in the case of a
Defaulted Loan with respect to which a Borrower Bankruptcy Event has
occurred, the applicable bankruptcy or insolvency proceeding has been
discharged or dismissed.
"Related Assets" means, with respect to the Loans, the
following:
1. all security, escrow accounts, letters of credit, guaranties and other
agreements or arrangements of whatever character from time to time supporting or
securing payment of such Loans pursuant to contract or otherwise;
2. the Records; and
3. all proceeds of the foregoing.
"Secured Obligations" means all obligations of the Lender to
the Participant arising under this Participation Agreement or in
connection with the Loans, whether now or hereafter existing, due or to
become due, direct or indirect, or absolute or contingent, including
without limitation, all payments required to be made pursuant to
Article VI, payments on account of Collections received or deemed to be
received, payments of fees and interest, and the Lender's indemnity
obligations under Article VII.
"Specific Administrative Procedures" means the loan
administration procedures for each Loan provided by the Lender at the
time of origination of the Loan, as the same may be amended or modified
with the consent of the Participant.
"Termination Date" means the third anniversary of the date
hereof, or such earlier date as may be specified pursuant to Section
10.2 by the Participant following the occurrence of a Lender Default or
as may be specified pursuant to Section 10.4 by the Lender following a
Participant Default.
"Title Acquisition Event" means with respect to a Loan that has
been subject to a Borrower Payment Default, the acquisition of title by
the Lender (or its designee or nominee) to the related Mortgaged Real
Property upon foreclosure sale or upon the recordation of a deed in
lieu of foreclosure.
"Title Commitment" means a commitment for a Title Policy.
10
"Title Policy" means, with respect to each Loan, an ALTA loan
form of title insurance policy (1970 Form), or, if, after using
reasonable efforts Lender is unable to obtain such 1970 form, on such
other ALTA loan form of title insurance policy as is generally accepted
by construction lenders in the jurisdiction in which the related
Mortgaged Real Property is located, in the face amount of the Loan,
insuring the Lender (with an endorsement naming Participant as an
additional insured) that the Mortgage is an enforceable first lien
against marketable fee simple title to the Mortgaged Real Property,
subject only to (i) matters shown by the subdivision plat and by the
most current plat of survey of the Mortgaged Real Property and matters
which would be disclosed by an inspection of the Mortgaged Real
Property subsequent to the date of such current survey, (ii) real
estate taxes and assessments not yet due and payable and possible
supplemental assessments for improvements constructed on the Mortgaged
Real Property, (iii) unfiled mechanics and materialmen's liens (to the
extent applicable), but only if affirmative mechanics' lien coverage is
provided, and (iv) utility easements, rights of way, restrictive
covenants, and other matters that the Lender reasonably determines do
not materially and adversely affect the proposed development or sale of
the Mortgaged Real Property.
"UCC" means the Uniform Commercial Code, as amended.
"UCC-1 Financing Statement" shall mean UCC-1 Financing
Statements substantially in the form of Exhibit I attached hereto.
"Undivided Interest" means (i) with respect to the
Participant, the interest of the Participant in the Loan, which
interest shall be the ratio (expressed as a percentage) which is
determined by dividing (A) the Outstanding Participation Amount by (B)
the Outstanding Amount, and (ii) with respect to the Lender, the
interest of the Lender in the Loan, which interest shall be the
percentage determined by subtracting from 100% the percentage interest
of the Participant in the Loan, determined in accordance with the
clause (i).
Section 1.2. Other Provisions. Defined terms may be used in the
singular or the plural, as the context requires.
11
ARTICLE II
PARTICIPATION INTERESTS
Section 2.1. Offers and Right to Purchase Participation Interests.
----------------------------------------------------
(a) From the date hereof until the Termination Date, the Lender may
offer to the Participant from time to time a right to purchase a Participation
Interest in certain Acquisition and Development Loans and Construction Loans
made or proposed to be made by the Lender, and any related L/C Guaranty. In each
case, the Participant shall have the right to purchase only the Percentage
Interest in each Loan as may be offered by the Lender or as the Lender may
otherwise agree as reflected in the Offering Schedule. Notwithstanding the
foregoing or anything to the contrary contained in this Participation Agreement,
and subject to the Participant's right to decline to purchase a participation
interest in any Acquisition and Development Loan or any Construction Loan and
any related L/C Guaranty, in no event shall the Participant purchase
Participation Interests which, in the aggregate, exceed Fifty Million Dollars
($50,000,000).
(b) With respect to any Acquisition and Development Loan or
Construction Loan and any related L/C Guaranty as to which Lender desires to
sell a Participation Interest to Participant, the Lender will submit to the
Participant an Offering Schedule and the Credit Underwriting Documents after the
Lender's loan or credit committee has approved such loan. The Lender will
promptly furnish such additional information, data or materials to which the
Lender has access concerning the matters set forth in the Offering Schedule or
the Credit Underwriting Documents as the Participant shall reasonably request.
(c) After receiving the Offering Schedule, the Credit Underwriting
Documents and any other requested documents, the Participant will have ten (10)
Business Days to notify the Lender of its acceptance or declination of the
Lender's offer to sell a Participation Interest in the proposed Acquisition and
Development Loan or Construction Loan and any related L/C Guaranty. If the
Participant does not accept the Lender's offer to sell such a Participation
Interest, then the Acquisition and Development Loan or Construction Loan and any
related L/C Guaranty shall not be designated or included as a Loan and the
Lender will, following such declination be free to offer participation interests
in such Acquisition and Development Loan or Construction Loan and any related
L/C Guaranty to other investors.
(d) If the Participant shall accept the Lender's offer to sell a
Participation Interest in the proposed Acquisition and Development Loan or
Construction Loan and any related L/C Guaranty, it shall notify the Lender of
such acceptance by executing the Acceptance contained in the Offering Schedule.
The Participant may determine that its acceptance of a Participation Interest is
contingent upon its review of the related Loan Documents and the Acceptance
shall specify this contingency. In such event, the Lender shall immediately, but
in no event later than five (5) Business Days prior to the first Posting Date
with respect to such loan, forward to Participant the Loan Documents in
substantially final form. The Participant shall review such Loan Documents
within five (5) Business Days of receipt of such documents and, if such
documents are satisfactory to Participant, shall deliver to the Lender the
Confirmation within such five (5) Business Days, time being of the essence for
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such review and approval.
(e) Upon the Lender's receipt of the Participant's Acceptance, the
purchase of a Participation Interest in such Acquisition and Development Loan or
Construction Loan and any related L/C Guaranty shall be consummated in
accordance with the terms of Section 2.3; provided however, that in the event
that the Participant's acceptance of a Participation Interest is contingent upon
its review of the related Loan Documents, such purchase of the Participation
Interest shall not be consummated unless and until the Lender has received the
Confirmation.
Section 2.2. Designation as a Loan. If the Participant shall accept the
Lender's offer to sell a Participation Interest in any Acquisition and
Development Loan or any Construction Loan and any related L/C Guaranty pursuant
to Section 2.1, then such purchase shall be made in accordance with this Article
II and, upon such purchase, such Acquisition and Development Loan or
Construction Loan and any related L/C Guaranty shall become a Loan for purposes
of this Participation Agreement.
Section 2.3. Purchase and Sale of Participations.
(a) Subject to the terms, provisions and conditions hereof and of the
Offering Schedules, the Lender hereby agrees to sell to the Participant and the
Participant hereby agrees to purchase from the Lender, from time to time during
the term of this Participation Agreement, Participation Interests equal to the
Participant's Percentage Interest of the Loan; provided, however, that (i) in no
event shall the Participant be obligated to purchase Participation Interests to
the extent such purchase would cause the Participant's Outstanding Participation
Amount to exceed the Maximum Participation Amount; (ii) in no event shall the
Participant purchase Participation Interests which, in the aggregate, exceed
Fifty Million Dollars ($50,000,000); (iii) the Lender shall retain for its own
account an Undivided Interest in each Loan; and (iv) in the event that the
Participant's acceptance of the Lender's offer to sell a Participation Interest
is contingent upon its review of the related Loan Documents, such purchase of
the Participation Interest shall not be consummated unless and until the
Participant has delivered the Confirmation to the Lender.
(b) The Lender and the Participant may agree that the purchase of a
Participation Interest in a Loan is to be accomplished by the payment to the
Lender of one payment or by a series of payments to the Lender as the Lender
makes Advances; provided however, that in no event shall the Participant be
required to make any additional payments with respect to such Participation
Interest if, after giving effect thereto, the Participant's Outstanding
Participation Amount would exceed the Maximum Participation Amount.
(c) As of the date of each purchase of a Participation Interest
hereunder, the Lender hereby assigns, conveys and otherwise transfers to the
Participant, and will be deemed to have assigned, conveyed and otherwise
transferred to the Participant, undivided percentage ownership interests in the
Related Assets and the Collections equal to the Undivided Interests held by the
Participant in the Loans from time to time.
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(d) The Lender agrees that, from time to time, it will promptly execute
and deliver all further instruments and documents, and take all further action,
that the Participant may reasonably request in order to protect or more fully
evidence the purchase of Participation Interests hereunder and the Undivided
Interests acquired by the Participant hereby, or to enable the Participant to
exercise or enforce any of its rights hereunder. Without limiting the generality
of the foregoing, the Lender will, upon the request of the Participant, ▇▇▇▇ its
master data processing records with respect to the Loans with a legend
indicating that the Participant has purchased a Participation Interest in such
Loans in accordance with the terms of this Participation Agreement.
Section 2.4. Lender to Maintain Records
(a) Each Undivided Interest with respect to the Loans and the
Percentage Interests with respect thereto shall be initially computed as of the
close of business of the Lender on the date of the first purchase of a
Participation Interest by the Participant pursuant to this Participation
Agreement. Thereafter, each Undivided Interest shall be automatically recomputed
as of the close of business on each day that there is a change therein.
(b) The Lender shall at all times maintain information sufficient to
make the computations and recomputations required by paragraph (a) above. In
addition, the Lender shall maintain books and records in which shall be recorded
the following information:
(1) the date and amount of each Advance made under a Loan and each
acquisition of a Participation Interest pursuant to the terms of this
Participation Agreement;
(2) the Collections received and the distribution of such Collections;
(3) the amount of any Loan Fees, Late Payment Fees or other amounts due and
payable or to become due to the Lender or the Participant hereunder; and
(4) the amount and date of any change in the Undivided Interests.
Section 2.5. Participation Interest Only. In no event shall the
Participant have any obligation or liability to any Obligor or other Person
(except the Lender pursuant to this Participation Agreement) with respect to any
Loan nor shall the Participant be obligated to perform any of the obligations of
the Lender in connection therewith (except following the express assumption
thereof by the Participant pursuant to Section 10.2).
Section 2.6. Evidence of Participation Interest. To evidence the
Participation Interest of the Participant in each Loan, the Lender shall issue
to the Participant, at the time of and in connection with the Participant's
funding of its Percentage Interest of each Advance, a Participation Certificate,
duly completed. Each such Participation Certificate shall be transmitted by the
Lender to the Participant by facsimile and the original shall be sent on the
same day for receipt by Participant on the next Business Day.
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Section 2.7. Failure of Loan to Close. If for any reason an Acquisition
and Development Loan or a Construction Loan as to which the Participant accepts
the Lender's offer to sell a Participation Interest does not close or the
initial Advance thereunder is not made within ninety (90) days after the
Participant executes the Acceptance, then such loan shall not be a Loan and
neither party shall have any further rights or liabilities hereunder with
respect to the purchase of a Participation Interest in such Acquisition and
Development Loan or Construction Loan and any related L/C Guaranty.
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ARTICLE III
POSSESSION OF DOCUMENTS; ABSOLUTE SALE INTENDED
Section 3.1. Documents Held in Trust; Delivery of Documents to
Participant. Subject to Section 3.2 and Section 3.3, the Lender covenants and
agrees that it will hold the Loans and the Loan Documents relating thereto as
trustee on express trust for the Participant as to the Participant's Undivided
Interest in effect from time to time in the Loans.
In the event that in accordance with the option granted to the
Participant in Section 2.1(d) the Participant accepts the Participation Interest
contingent upon its review of the related Loan Documents, the Lender shall
immediately, but in no event later than five (5) Business Days prior to the
first Posting Date with respect to such loan, forward to Participant the Loan
Documents in substantially final form. Any such Loan Documents which have not
been executed at the time of such delivery to the Participant shall be furnished
to Participant promptly after the execution thereof, but in any event no later
than forty five (45) days after execution. In the event that the Participant's
acceptance of a Participation Interest is not contingent upon its review of the
Loan Documents, the Lender shall provide to the Participant copies of the
executed Loan Documents as soon as possible after the execution thereof, but in
any event no later than forty five (45) days after execution, but such delivery
of the Loan Documents to Participant shall not be required prior to the
Participant's purchase of the Participation Interest. The Participant shall,
upon request to the Lender, have the right to copies of the originals of any
other documents executed and delivered in connection with the Loans.
Section 3.2. Absolute Sale of Participation Interest. It is the express
intention of the parties that the transactions contemplated by this
Participation Agreement be, and be construed as, a sale of an Undivided Interest
in the Loans by the Lender to the Participant and not a pledge of the Loans by
the Lender to secure a debt or other obligation of the Lender. However, in the
event that the Participant's Undivided Interest in the Loans are held to be
property of the Lender, or if for any reason this Participation Agreement is
held or deemed to create a security interest in the Loans then it is intended
that (a) this Participation Agreement shall also be deemed to be a security
agreement within the meaning of the Uniform Commercial Code of any applicable
jurisdiction; (b) the conveyance of Participant's Percentage Interest in each
Loan shall be deemed to be a grant by the Lender to the Participant of a
security interest in all of the Lender's right (including the power to convey
title thereto), title and interest, whether now owned or hereafter acquired, in
and to the Pledged Collateral; (c) the possession by the Custodian for the
benefit of the Participant of Mortgage Notes or such other items of property as
constitute instruments, money, negotiable documents or chattel paper shall be
deemed to be "possession by the secured party", or possession by a purchaser or
a person designated by such secured party, for purposes of perfecting the
security interest pursuant to the Uniform Commercial Code of any applicable
jurisdiction (including, without limitation, Section 9-305, 8-313 or 8-321
thereof); and (d) notifications to persons holding such property, and
acknowledgments, receipts or confirmations from persons holding such property,
shall be deemed notifications to, or acknowledgments, receipts or confirmations
from, financial intermediaries, bailees or agents (as applicable) of the
Participant for the purpose of perfecting such security interest under
applicable law.
17
Section 3.3. Custodial Documents. After the first Advance is made with
respect to a Loan, the Lender shall deliver to the Custodian pursuant to the
Custodial Agreement each of the following documents within the time periods
specified:
(a) Within three (3) Business Days after the first Advance is made with
respect to a Loan, the original Mortgage Note duly endorsed with an Allonge;
(b) With respect to the Mortgage, the Lender shall provide the Custodian
with each of the following: (i) within five (5) Business Days after the first
Advance is made with respect to a Loan, a certified true copy of the Mortgage
submitted for recording; (ii) within five (5) Business Days after its return
from the appropriate recording office, the original recording receipt or other
evidence of the recording office's receipt of the Mortgage, and (iii) within
five (5) Business Days after its return from the appropriate recording office,
the original Mortgage, with evidence of recording thereon, or, if the original
Mortgage is lost or destroyed or not returned from the recording office, within
180 days of the submission of the Mortgage for recording, a copy of the Mortgage
certified by the appropriate public recording office to be a true and complete
copy of the original.
(c) A duly executed (and, where appropriate, acknowledged) Assignment of
Mortgage and a UCC-1 Financing Statement, which documents the Custodian is
irrevocably authorized to record and/or file in such offices or records as the
Participant deems necessary or appropriate. and
(d) Such other documents and instruments as the Participant deems
reasonably necessary or proper or upon which the Lender and Participant may
agree.
Section 3.4. Priority. Except as otherwise expressly provided in this
Participation Agreement, all income, gains, profits, and losses with respect to
each of the Loans shall be apportioned between the Lender and the Participant on
a pari passu basis in accordance with their respective Undivided Interests in
such Loans. The respective Undivided Interests of the Lender and the Participant
in each Loan shall be equally and ratably secured, benefited and guaranteed by
the Loan Documents and the Pledged Collateral relating thereto.
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ARTICLE IV
FUNDING OF ADVANCES
Section 4.1. Funding Advances and Participation Interests.
(a) The Lender shall supervise and coordinate the making of all
Advances of the Loans. As Advances of the Loans are to be made, the Lender shall
fund such Advances. The Lender will not fund any Advances unless the Lender is
required to do so by the terms of the related Loan Documents.
(b) On each Posting Date as to which the Participant has received the
documents in the form and at the time required by Section 4.2, the Participant
shall remit funds to the Lender in the amount specified in the corresponding
Notice of Initial Advance or Lender's Certification, as applicable.
Section 4.2. Lender's Certification.
(a) With respect to the initial Advance for any Loan, the Lender shall
deliver to the Participant a Notice of Initial Advance no later than 2:00 p.m.
(Minneapolis time) on the Business Day immediately preceding the Posting Date on
which the Lender is requesting payment from the Participant. At or before 10:00
a.m. (Minneapolis time) on the Posting Date, and upon confirming the matters set
forth in paragraph (c) below, the Lender shall deliver to the Participant the
Lender's Certification relating to such initial Advance. The Lender's
Certification shall be based on information available to the Lender as of the
time of delivery of the Lender's Certification. Upon receipt of the Lender's
Certification, the Participant shall remit payment of its Percentage Interest in
the initial Advance, in accordance with and subject to the terms of Section 4.3.
(b) For each Advance for any Loan, other than the initial Advance, upon
confirming the matters set forth in paragraph (c) below, the Lender shall remit
to the Participant its signed Lender's Certification; provided however, that the
Lender's Certification shall be delivered to the Participant no later than 2:00
p.m. (Minneapolis time) on the Business Day immediately preceding the Posting
Date on which the Lender is requesting payment from the Participant. The
Lender's Certification shall be based on information available as of the close
of business on the Business Day prior to the date of delivery of the Lender's
Certification.
(c) With respect to each Advance under a Loan, the Lender shall
confirm that on their faces:
(1) each Mortgage and Mortgage Note relating to a
Loan bears an original signature or signatures purporting to be the
signature or signatures of the Person or Persons named as the grantor
and maker;
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(2) no Mortgage or Mortgage Note relating to a Loan contains
evidence of any claims, liens, security interests, encumbrances or
restrictions on transfer of the holder's or beneficiary's interest
(other than normal title exceptions, generally acceptable to
construction lenders under similar loans);
(3) the original principal amount of each
Mortgage Note relating to a Loan is not less than the
Outstanding Amount of the Loan to which it relates;
(4) the rate of interest accruing on the Loan
evidenced by each Mortgage Note is equal to or greater than the
contract note rate of interest specified in the related Mortgage Note;
and
(5) the Loan Documents reviewed by the Lender, in the
Lender's judgment, appear regular on their face.
Section 4.3. Payments by Participant.
(a) Provided that the Lender has met all the terms and conditions of
this Participation Agreement, on each Posting Date the Participant shall cause
to be transmitted to the Lender the Participant's payment for its Percentage
Interest in the Advances in the amount set forth in the Notice of Initial
Advance or Lender's Certification, as applicable. Such amount shall be
transmitted by wire transfer in accordance with the instructions set forth on
the signature page hereto, or according to such other instructions as shall have
been designated by written notice from such Lender to the Participant given in
accordance with Section 12.4, so that it will be transmitted by the Participant
in federal or other immediately available funds by 12:00 noon (Minneapolis time)
on such Posting Date.
(b) Notwithstanding anything to the contrary herein contained, the
Participant shall not be required to fund its Percentage Interest of any Advance
if (i) an Event of Default has occurred and is continuing under the relevant
Loan Documents and has not been waived in accordance with the terms of Section
5.2, (ii) any of the representations or warranties set forth in Section 8.3 with
respect to the related Loan are false or incorrect as of the Posting Date and
the Participant reasonably determines that such event has had or will have a
Material Adverse Effect, (iii) if a Lender Default of the type referred to in
Section 10.1(b) or 10.1(c) relating to such Loan has occurred and is continuing
as of the Posting Date or (iv) if a Lender Default of the type referred to in
Section 10.1(a), 10.1(d), 10.1(e), or 10.1(f) has occurred and is continuing as
of the Posting Date.
Section 4.4. Interest on Participations. The Participant shall be
entitled to interest accrued on the funds remitted by it hereunder, from the
date such funds are remitted to the Lender pursuant to Section 4.3 above, until
such Advances are repaid and such repayment is received by the Participant in
accordance with Article VI. The Participant's rights to payment of such interest
shall be determined in accordance with the provisions of Section 6.5.
20
Section 4.5. Undivided Interests Determined on Posting Dates. The
Undivided Interests of the Lender and the Participant in the Loans shall be
determined and adjusted on each Posting Date, after giving effect to any
Participation Interests purchased on such Posting Date. Funds advanced by the
Lender to any Obligor with respect to which the Participant has not yet remitted
payment with respect to its Participation Interest pursuant to Section 4.1 shall
not affect the Undivided Interests of the Lender and the Participant until the
next succeeding Posting Date. All repayments and other matters shall, until such
Posting Date and purchase, be calculated on the basis of the Lender's and the
Participant's Undivided Interests as in effect on the immediately preceding
Posting Date.
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ARTICLE V
ADMINISTRATION OF THE LOANS
Section 5.1. Administration and Servicing of Loans.
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(a) Unless the Participant shall have exercised its rights pursuant to
Section 10.2, the Lender shall administer and service the Loans in accordance
with the Administrative Procedures in effect from time to time. The Specific
Administrative Procedures that the Lender proposes to use in connection with
each Loan shall be included in the Credit Underwriting Documents to be provided
to the Participant at the time the Lender offers a Loan to the Participant
pursuant to Section 2.1 or otherwise shall be provided to the Participant before
the Participant funds its Percentage Interest of the initial Advance. If the
Participant does not approve the Specific Administrative Procedures proposed by
the Lender, the Participant shall not be required to purchase a Participation
Interest in the Loan. The Lender shall not modify the Administrative Procedures
as they apply to any loan in a manner that would have a Material Adverse Effect
without the prior approval of the Participant.
(b) Except as to matters requiring the consent of the Participant under
Section 5.2 and Section 5.5 and as to matters which Participant determines
require its consent in order to prevent irreparable harm to the interests or
rights of the Participant, the Lender shall have the sole authority, without the
necessity of obtaining the approval or consent of the Participant, to service
and administer the Loans, to exercise its rights and carry out its duties as the
lender under the Loan Documents, and to make all decisions in connection with
the administration and collection of the Loans.
(c) In connection with administering each Loan and in addition to the
covenants of the Lender elsewhere contained in this Participation Agreement, the
Lender agrees as follows:
(1) The Lender may demand, collect and receive from
any Obligor, and give acquittance for, all sums received from such
Obligor and others under the terms of the related Loan Documents.
(2) The Lender may accept full or partial repayment
of any Loan in accordance with the terms of the Loan Documents relating
thereto and shall hold, apply and distribute the same in accordance
with the provisions hereof and of the Participation Certificates.
(3) In case of payment in full of any Loan, the
Lender may execute and deliver a full release of the Loan Documents
relating thereto or an assignment of such Loan and the related Loan
Documents, without recourse, representation or warranty of any kind.
Upon request of the Lender to the Participant, and provided that there
are no Lender Defaults or Defaults by any related Obligor, the
Participant will execute and deliver to the appropriate title companies
and escrow holders a Master Non-Demand Agreement substantially in the
form of Exhibit J attached hereto.
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(4) The Lender may demand of the Borrower and any
other Obligor full performance of all of the terms, covenants and
conditions of such Loan Documents on the part of the Borrower or any
such other Obligor to be performed.
(5) The Lender shall advance from its own monies all
necessary Extraordinary Servicing Expenses with respect to any Loan,
which amounts shall be deemed advanced by the Lender for the accounts
of the Lender and the Participant in accordance with their respective
Undivided Interests in such Loan (determined as of the date on which
the Extraordinary Servicing Expenses are paid by the Lender).
(d) Subject to Section 3.2, the Lender shall have review and custodial
responsibility for all Loan Documents which have been delivered to it in
connection with the Loans.
Section 5.2 Lender's Actions Requiring Participant's Consent.
Notwithstanding anything to the contrary herein contained, the Lender shall not,
without the prior written consent of the Participant (which consent or denial
shall not unreasonably be delayed):
(a) forgive or reduce the indebtedness (principal or
interest or Loan Fees) of any Loan, or any part thereof,
or waive any Default by any Obligor in the payment thereof;
(b) waive any Event of Default by any Obligor;
(c) extend the due date of any principal payment or of
any interest payment or Loan Fees due under the Loan
Documents relating to any Loan;
(d) release any Loan Collateral for any Loan (except upon
corresponding payment or reduction of such Loan or receipt of
substitute Loan Collateral acceptable to the Participant), or reduce
any release price required for the release of Loan Collateral, or
subordinate the lien in favor of the Lender in any Loan Collateral to
any Adverse Claim;
(e) release any Obligor;
(f) decrease the interest rate or Loan Fees on any
Participated Loan;
(g) extend the period or term during which the Lender is
committed to make Advances of any Loan, if such extension would also
extend the Participant's obligation to remit payments to the Lender for
its Participation Interest in such Loan;
(h) agree to any amendments, modifications or waivers of any
Loan Documents relating to any Loan that would have a materially
adverse effect on the collectibility of the related Loan;
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(i) institute or commence foreclosure or other
proceedings under the Loan Documents relating to any Loan in the
event of a Default thereunder by the Obligor;
(j) accept a deed or other conveyance from any Obligor
in lieu of foreclosure; or
(k) apply any insurance or condemnation proceeds in excess of $25,000
with respect to a Loan for any purpose other than to pay down the Loan
or as required to be applied by the terms of the Loan Documents.
In the event the Participant and the Lender are unable to agree as to
the actions to be taken with respect to any of the matters set forth in the
preceding paragraphs (a) through (k), the matter shall be resolved in accordance
with the provisions of Article XI.
Section 5.3. Standard of Care and Duty to Participant. The standard of
care to be exercised by the Lender in the performance of its duties under this
Participation Agreement shall not be less than that which would be exercised by
a reasonably prudent construction lender of good reputation with a lending
volume at least comparable to that of the Lender, and in any event not less than
the standard of care the Lender exercises in administering and servicing other
acquisition, development or construction loans and the related loan documents
held entirely for the Lender's own account. While performing its duties under
the Participation Agreement, the Lender shall be acting on its own behalf and on
behalf of the Participant, responsible to protect its rights and the rights and
interests of the Participant with respect to the Participant's Undivided
Interest in the Loans and the Participants rights to the Collections and the
Related Assets.
Section 5.4. Notices of Defaults and Other Events. The Lender
shall, promptly following the Lender's discovery of the
occurrence thereof, notify the Participant of any of the following:
(a) the existence and nature of any Default in payment
by any Obligor under the Loan Documents relating to any
Loan, or any other Default under any such Loan Documents;
(b) condemnation proceedings, damage or destruction
of any Loan Collateral in an amount greater than $25,000;
or
(c) any other matter which, in the best judgment of the
Lender, prudently exercised, materially affects the Undivided Interests
of the Participant in any Loan or the security therefor.
The Lender shall furnish the Participant with a written recommendation
as to the exercise of any and all rights in connection with the affected Loan
and the security therefor, which recommendation shall be made within fifteen
(15) days of the Lender's discovery of the applicable Default, or within such
other period of time as the Lender and the Participant agree to in writing. The
Participant shall have a period of fifteen (15) Business Days from the date of
receipt of the Lender's written recommendation, or such other period of time as
the Lender and the Participant agree to in writing, in which to accept or reject
the recommendations of the Lender. The parties will attempt to take all actions
with respect to each Loan as to which there has been a Default by mutual
consent; in the event the parties are unable to agree as to the actions to be
taken, the matter shall be resolved in accordance with the provisions of Article
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XI.
Section 5.5. Management of Real Estate Owned. During the period of any
ownership of Loan Collateral, the Lender and the Participant shall promptly
consult with each other with respect to the management, completion of
construction (if required), maintenance, repair or improvement of such Loan
Collateral, and mutually consent to a plan or plans for any such management,
completion of said construction, maintenance, repair or improvement of said Loan
Collateral, or as to any sale, transfer, or other disposition thereof.
Section 5.6. Reports to Participant.
----------------------
(a) On a weekly basis, the Lender shall provide advice to the
Participant of the date and amount of all Collections for such week. Within five
(5) Business Days after receiving a request from the Participant, the Lender
will furnish to the Participant a statement, certified by the Lender to be true
and correct, setting forth the Outstanding Participation Amount, the Outstanding
Amount, the Participant's Undivided Interest and the Lender's Undivided Interest
in the Loans, in each case as of the date such statement is furnished to the
Participant.
(b) With respect to each Loan, the Lender will deliver to the
Participant (i) the Credit Underwriting Documents and the Loan Documents
pursuant to Section 2.1 and Section 3.1, (ii) the Loan Monitoring Documents, on
a quarterly and annual basis as detailed in the listing of the Loan Monitoring
Documents, and (iii) upon the Participant's request, copies of all other
materials received by the Lender in connection with a Loan or the Obligor(s)
thereunder and not previously delivered to the Participant, including any
financial statements and marketing position reports.
(c) The Lender shall give notice to the Participant of the occurrence
of any Default and any other matter set forth in Section 5.4 at the times set
forth in Section 5.4. The Lender shall also advise the Participant of any other
matter known to the Lender and relating to the Obligor or the Loan Collateral
which, in the Lender's reasonable judgment, has a material adverse effect on the
Participant's Undivided Interest.
(d) The Lender will from time to time deliver to the Participant such
other information, materials and advice as the Participant may reasonably
request.
Section 5.7. Acquisition of Loan Collateral. Subject to the terms of
Section 5.2, the Lender may acquire, or cause to be acquired on its behalf, any
of the Loan Collateral by foreclosure or by acceptance of a conveyance or
assignment in lieu of foreclosure. Such Loan Collateral may, at the option of
the Lender, be held in the name of the Lender or its designee, for the benefit
of the Lender and the Participant in accordance with their respective Undivided
Interests in the applicable Loan, as in effect from time to time, provided that
no such Loan Collateral shall be held in the name of the Participant unless the
prior written consent of the Participant shall have been obtained.
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If the Lender shall acquire title to any of the Loan Collateral, all
moneys received or collected by it (including, but not limited to, proceeds of
title insurance claims) from the operation or sale of such Loan Collateral shall
be allocated and distributed as provided in Article VI.
Section 5.8. Extraordinary Servicing Expenses and Ancillary Fees. The
Lender shall use its best efforts to recover from each Obligor all Extraordinary
Servicing Expenses and Ancillary Fees that are the responsibility of such
Obligor under the related Loan Documents. In the event any such Obligor fails to
pay the Lender for any such Extraordinary Servicing Expenses or Ancillary Fees,
the Participant shall, upon demand of the Lender, remit to the Lender its
proportionate share of such expenses or fees, which proportionate share shall be
equal to the Participant's Undivided Interest in the applicable Loan (determined
as of each date on which the Extraordinary Servicing Expenses and Ancillary Fees
are paid by the Lender). In the event any such Extraordinary Servicing Expenses
or Ancillary Fees are thereafter paid to the Lender by any Obligor, the Lender
shall repay the Participant its share thereof pursuant to Section 6.3.
Section 5.9. Inspections by Participant. The Participant or its
representatives shall have the right to visit the offices and properties of the
Lender upon reasonable prior notice during normal business hours for the purpose
of examining any Records and systems and to discuss matters relating thereto or
to the Lender's performance hereunder with any of the officers or employees of
the Lender having knowledge of such matters. The Lender will at all times
maintain and implement administrative and operating procedures (including,
without limitation, an ability to recreate records evidencing the Loans in the
event of the destruction of the originals thereof), and keep and maintain all
documents, books, records and other information reasonably necessary for the
collection of all Loans. In addition, the Participant or its representatives
shall have the right to, in the presence of the Lender, visit the offices and
properties of the Borrowers upon reasonable prior notice during normal business
hours for the purpose of examining any documents or discussing any other matters
relating to the Loan.
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ARTICLE VI
COLLECTIONS
Section 6.1. Collection and Payment of Collections. The Lender shall
have the exclusive right and obligation to collect interest, principal, Late
Payment Fees, Loan Fees, Ancillary Fees and other sums due in connection with
the Loans; provided, however, that in the event the Obligor cures its payment
default within thirty (30) days of the original date such payment was due, the
Lender shall have no obligation to collect Late Payment Fees or default rate of
interest from such Obligor.
On the day the Lender receives the Collections with respect to any
Loan, the Lender shall account for and pay to the Participant its Undivided
Interest in the Collections determined in accordance with the provisions of this
Article VI; provided however, that in the event the Lender receives the
Collections in immediately available funds after 2:00 p.m. (Minneapolis time) on
any day, the Lender shall account for and pay to the Participant its Undivided
Interest in the Collections not later than the close of business on the Business
Day following the day of receipt. The Lender shall not be liable for interest on
Collections paid to the Participant within the time period required by this
Participation Agreement.
The Participant shall have the right to an accounting for all
Collections received by the Lender, and the Lender shall hold the Participant's
Undivided Interest in the Collections in trust for the Participant until
delivered to the Participant.
Section 6.2. Order of Application of Collections.
(a) Except as provided in Section 6.8, with respect to any Loan,
Collections shall be applied by the Lender in the following order to payment of:
FIRST: Ancillary Fees and Extraordinary Servicing Expenses for which the Lender
has not received reimbursement from the related Obligor (to be distributed as
provided in Section 6.3);
SECOND: Loan Fees then due and payable from the related Obligor (to be
distributed as provided in Section 6.4);
THIRD: Accrued interest and related Late Payment Fees then due and
payable on the related Loan (to be distributed as provided in Section 6.5); and
FOURTH: Unpaid principal of the related Loan (to be distributed as provided in
Section 6.6).
(b) If the Collections received by the Lender are insufficient to fully
pay the amounts due to the Lender and the Participant with respect to the
related Loan, such Collections shall be applied to the payment in full of each
such category, in the order specified with respect to such Loan, before any
portion of such amount is applied to any succeeding categories. If there are
insufficient funds to pay fully the amounts due in any such category with
respect to the related Loan, then such Collections shall be paid to the Lender
and the Participant pro rata on the basis of the respective amounts due the
Lender and the Participant with respect to such Loan pursuant to the terms
hereof in such category.
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(c) In the event the Borrower makes a payment to the Lender after the
date on which such payment is due, and the Lender has previously made payment of
the insufficient Collections in accordance with the preceding subparagraph (b),
the Lender shall calculate and pay to the Participant an amount from such
additional Collections so as to pay pro rata to the Lender and the Participant,
on the basis of the respective amounts due the Lender and the Participant, all
amounts owing to Lender and Participant in the order set forth in subparagraph
(a) above.
Section 6.3. Reimbursement of Amounts Paid For Ancillary Fees and
Extraordinary Servicing Expenses. Collections which are to be applied to the
payment of the amounts specified in the paragraph labeled FIRST in Section 6.2
shall be paid to the Lender unless the Participant has previously paid to the
Lender a portion of the Extraordinary Servicing Expenses and Ancillary Fees as
called for by Section 5.8, in which event Collections in respect of
Extraordinary Servicing Expenses and Ancillary Fees shall be paid to the Lender
and the Participant in accordance with their respective percentage interests in
such expenses and fees.
Section 6.4. Loan Fees. Collections which are to be applied to the
payment of the amounts specified in the paragraph labeled SECOND in Section 6.2
shall be paid as follows: first, to the Lender to the extent of the Lender's
Override; and second, to the Lender and the Participant in accordance with their
respective Undivided Interests in the related Loan (determined as of the time
such Collections are received by the Lender).
Section 6.5. Interest and Late Payment Fees. Collections which are to
be applied to the payment of the amounts specified in the paragraph labeled
THIRD in Section 6.2 shall be paid as follows: first, to the Lender to the
extent of the Lender's Override; and second, to the Lender and the Participant
in accordance with their respective Undivided Interests in the related Loan
(determined as of the time such Collections are received by the Lender).
Section 6.6. Principal. Collections which are to be applied to the
payment of the amounts specified in the paragraph labeled FOURTH in Section 6.2
shall be applied pro rata to reduce the Advances funded by the Lender and the
Participant, in accordance with the respective Undivided Interests of the Lender
and the Participant in the related Loan (determined as of the time such
Collections are received by the Lender).
Section 6.7. Returned Payments. If any of the Collections received by
the Lender and distributed or credited to the Participant are later required to
be returned or repaid by the Lender to an Obligor or its representative or
successor in interest, by reason of a court order or, with the Participant's
approval, settlement of a dispute or otherwise, the Participant shall, upon
notice thereof from the Lender, promptly repay to the Lender the amount received
by the Participant in respect of the Collections so required to be returned or
repaid.
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Section 6.8. Application of Collections Upon Distribution Adjustment Event.
Notwithstanding any other provision contained in Section 6.1 through Section 6.6
of this Participation Agreement, for so long as any Distribution Adjustment
Event shall be continuing with respect to a Loan, upon the receipt of any
Collections relating to such Loan such collections shall be applied and paid as
follows:
FIRST: Ancillary Fees and Extraordinary Servicing Expenses for which the Lender
has not received reimbursement from an Obligor (to be distributed as provided in
Section 6.3);
SECOND All accrued interest then due and payable to the Participant with respect
to the related Loan shall be paid to the Participant;
THIRD: All unpaid principal then due and owing to the Participant with respect
to the Loan (as determined as of the time such Collections are received by the
Lender) shall be paid to the Participant;
FOURTH: All unpaid Lender's Override shall be paid to the Lender;
FIFTH: All accrued interest and unpaid principal then due and owing to the
Lender with respect to the Loan (as determined as of the time such Collections
are received by the Lender) shall be paid to the Lender;
SIXTH: Loan Fees and Late Payment Fees then due and payable (to be distributed
as provided in Section -------- 6.4); and
SEVENTH: All remaining Collections shall be retained by the Lender.
Section 6.9. Reinstated Loans. If a Defaulted Loan becomes a Reinstated
Loan after a Distribution Adjustment Event has occurred, then upon such Loan
becoming a Reinstated Loan, Participant shall purchase from the Lender a portion
of Lender's Participation Interest in such Loan such that immediately after
giving effect to such purchase, Participant's Percentage Interest in such Loan
is equal to the Percentage Interest it held in such Loan immediately prior to
the occurrence of the Distribution Adjustment Event.
Section 6.10. Distribution Adjustment Event Recapture. If, upon final
liquidation of a Loan that has been subject to a Distribution Adjustment Event
(and has not become a Reinstated Loan), Participant has not received payment in
full of all amounts owed to Participant with respect to such Loan, Lender shall
pay to Participant any Collections received by Lender with respect to such Loan
pursuant to Section 6.8 (other than Collections applied to payment of amounts
specified in the paragraph labeled FIRST in Section 6.8) during the period that
the Distribution Adjustment Event was in effect with respect to that Loan up to
the amount of Participant's loss on that Loan. In no event shall Lender's
liability under this Section 6.10 exceed the amount of Collections received by
Lender with respect to such Loan pursuant to Section 6.8 (other than Collections
applied to payment of amounts specified in the paragraph labeled FIRST in
29
Section 6.8).
Section 6.11. Borrower Payment Defaults and Borrower Bankruptcy Events.
Upon the occurrence of a Borrower Payment Default or a Borrower Bankruptcy Event
with respect to any Loan, all Collections (other than Collections applied to
payment of amounts specified in the paragraph labeled FIRST in Section 6.2)
receivable by Lender pursuant to Sections 6.2, 6.4, 6.5 and 6.6 with respect to
such Loan after the date of such Borrower Payment Default or Borrower Bankruptcy
Event, as applicable, shall be paid into and held in escrow by an attorney,
title company or other third party acceptable to Lender and Participant pursuant
to escrow instructions mutually agreed upon by Lender and Participant until
either (i) such Loan becomes a Reinstated Loan, (ii) a Title Acquisition Event
occurs or (iii) in the case of a Loan that is the subject of a Borrower
Bankruptcy Event, such Loan does not become a Reinstated Loan within one year of
the date of occurrence of the Borrower Bankruptcy Event. If a Loan that is the
subject of a Borrower Payment Default becomes a Reinstated Loan (without regard
to any time period), or if a Loan that is the subject of a Borrower Bankruptcy
Event becomes a Reinstated Loan within one year of the date of occurrence of the
Borrower Bankruptcy Event, then, in either case, all funds in the escrow shall
be released to Lender. If a Title Acquisition Event occurs with respect to a
Loan that is the subject of a Borrower Payment Default, or if a Loan that is the
subject of a Borrower Bankruptcy Event does not become a Reinstated Loan within
one year of the date of occurrence of the Borrower Bankruptcy Event, then, in
either case, all escrowed funds shall be treated as Collections and applied in
accordance with Section 6.8. The escrow shall be held by the escrow agent in a
federally insured (to the maximum extent permitted by law) interest-bearing
deposit account, or in such other form as may be agreed upon by Lender and
Participant. All interest earned on any escrowed funds shall belong to Lender.
Lender and Participant may mutually agree in writing that the
provisions of Section 6.8 or this Section 6.11, as the case may be, shall not
apply to any Defaulted Loan if, in Participant's absolute discretion, an Event
of Default does not have a Material Adverse Effect.
With respect to any Loan that is or would be subject to the escrow
requirements of this Section 6.11, Lender, in its sole discretion, may elect, in
lieu of the escrow requirements of this Section 6.11, to subject such Loan to
Section 6.8 directly, in which case all funds that have been or would be placed
in escrow under this Section 6.11 shall be treated as Collections and applied in
accordance with Section 6.8.
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ARTICLE VII
DISCLAIMERS; INDEMNITIES
Section 7.1. Participant's Assumption of Certain Risks. Subject to
Section 7.3, the Lender shall not be responsible to the Participant in
connection with, and the Participant assumes the full risk of nonpayment of, its
Participation Interest in the Loans, and the Participant agrees that the Lender
will have no responsibility for: (i) the performance or observance by any
Obligor of any of the terms, covenants or conditions of the Loan Documents
relating to the Loans or the accuracy of any information provided by any Obligor
to the Lender to the Participant, (ii) the financial condition of any Obligor,
(iii) the value of any Loan Collateral or the performance of any appraisal or
inspections with respect thereto by a reputable appraiser or inspector, provided
that any written appraisal or inspection reports appear regular on their face,
(iv) legal opinions of counsel to any Obligor or the Lender with respect to the
validity, enforceability, or legal effect of any Loan Documents or the
perfection and priority of any liens granted thereby, (v) any title commitment,
Title Policy, title run-down report, or certified survey furnished to Lender by
or on behalf of any Obligor, or the accuracy, validity or effectiveness of the
examination thereof, provided that such policies, reports and surveys appear
regular on their face. The Lender makes no representations or warranties with
respect to the solvency, financial condition or future financial condition of
any Obligor or the value of any Loan Collateral.
The Lender shall be entitled to rely, and shall be fully protected in
relying, upon any note, writing, resolution, notice, statement, certificate,
telex, teletype or telecopier message, cablegram, radiogram, order or other
documentary or teletransmission message believed by it to be genuine and correct
and to have been signed, sent or made by the proper Person. The Lender may
consult with legal counsel (including counsel for any Obligor), independent
public accountants (including those retained by any Obligor) and other experts
selected by it and shall not be liable for any action taken or omitted to be
taken by it in good faith in accordance with the advice of such counsel,
accountants or experts.
Section 7.2. Indemnification by Participant. Subject to Section 7.3,
the Participant shall indemnify, defend, protect and hold the Lender harmless
from and against any and all liabilities, obligations, losses, damages, claims,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever (including reasonable attorneys' fees) that may be
imposed upon, incurred by, or asserted against the Lender in any way relating to
or arising out of (i) a Participant Default, (ii) the Lender's reliance on any
representation, warranty or certification made by the Participant in Section
8.2, which shall have been false or incorrect in any material respect when made
or delivered, or (iii) any right of offset, defense or counterclaim with respect
to any Loan created by, or arising from, transactions between the Participant
and the related Obligor other than the related Loan.
Section 7.3. Indemnification by Lender. Subject to Section 7.1 and
Section 7.2, the Lender shall indemnify, defend, protect and hold the
Participant harmless from and against any and all liabilities, obligations,
losses, damages, claims, penalties, actions, judgments, suits, costs, expenses
or disbursements of any kind or nature whatsoever (including reasonable
attorneys' fees) that may be imposed upon, incurred by, or asserted against the
Participant in any way relating to or arising out of any of the following:
31
(a) a Lender Default;
(b) reliance on any representation, warranty or certification
made by the Lender hereunder or in connection with this Participation
Agreement, which shall have been false or incorrect in any material
respect when made or delivered;
(c) any right of offset, defense or counterclaim with respect
to any Loan created by, or arising from, transactions between the
Lender and the related Obligor other than the related Loan.
Notwithstanding the foregoing, to the extent that any loss indemnified
hereunder may be recovered from any third party title insurer, surveyor,
appraiser, counsel, or other party that the Lender or Participant relied upon in
making a Loan or any Advance thereunder, Lender shall have no obligation to make
any indemnification payment to Participant until such third party claim has been
resolved, but in no event to exceed 12 months from the date that the
Participant's right to indemnification arose hereunder.
Section 7.4. Reimbursement Obligation. Except as otherwise provided in
the next sentence, if either the Lender or the Participant (the "paying party")
at any time pays any liability, obligation, loss, damage, penalty, judgment,
cost or expense (including reasonable attorneys' fees) in any way relating to or
arising out of any Loans or the Loan Documents relating thereto or any action
taken or not taken by the paying party (including actions taken or not taken by
the Lender and the Participant pursuant to Section 5.2 or Section 5.5, or by the
Lender or the Participant on behalf of both of them following an arbitration
pursuant to Article XI), the non-paying party shall reimburse the paying party,
on demand, for the non-paying party's pro rata share, based on the parties'
respective Undivided Interests in the applicable Loan (determined as of the date
such payment by the paying party is made), of the amount paid by the paying
party. The preceding sentence shall not apply to any amount against which one
party is obligated to indemnify and hold harmless the other party pursuant to
Sections 7.2 or 7.3 or to Extraordinary Servicing Expenses.
Section 7.5. Nature of Duties of Lender. The Lender shall not have any
duties or responsibilities except those expressly set forth in this
Participation Agreement and the Loan Documents. Neither the Lender nor any of
its officers, directors, partners, employees or agents shall be liable for any
action taken or omitted hereunder or thereunder or in connection herewith or
therewith, unless caused by its or their negligence or willful misconduct.
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ARTICLE VIII
ACKNOWLEDGMENTS, REPRESENTATIONS AND COVENANTS
Section 8.1. Participant's Acknowledgments.
The Participant hereby acknowledges that:
(a) It will, independently, and without reliance upon the
Lender or upon any representations made or to be made by the Lender
regarding the financial condition of any Obligor, and based on such
financial statements, documents and information as the Participant
deems appropriate at the time, make and rely upon its own credit
decisions in taking or not taking action under this Participation
Agreement.
(b) The offering and sale of the investment represented by the
Participation Interests and of the Participation Certificates to be
issued pursuant to the terms of this Participation Agreement have not
been registered under the Securities Act of 1933 and need not be
registered thereunder.
Section 8.2. Participant's Representations. The Participant
hereby represents and warrants to the Lender that:
(a) The Participant is a corporation duly incorporated,
validly existing and in good standing under the laws of the
jurisdiction named in the first paragraph of this Participation
Agreement and is duly qualified to do business, and is in good
standing, in every jurisdiction in which the nature of its business
requires it to be so qualified.
(b) The execution, delivery and performance by the Participant
of this Participation Agreement are within the Participant's corporate
powers, have been duly authorized by all necessary corporate action, do
not contravene (i) the Participant's charter or by-laws, (ii) any law,
rule or regulation applicable to the Participant, (iii) any contractual
restriction binding on or affecting the Participant or its property, or
(iv) any order, writ, judgment, award, injunction or decree binding on
or affecting the Participant or its property, and do not result in or
require the creation of any lien, security interest or other charge or
encumbrance upon or with respect to any of its properties.
(c) No authorization or approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body
is required for the due execution, delivery and performance by the
Participant of this Participation Agreement.
(d) This Participation Agreement constitutes the legal, valid
and binding obligation of the Participant enforceable against the
Participant in accordance with its terms, subject to general principles
of equity and applicable bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally.
33
(e) There is no pending or threatened action or proceeding
affecting the Participant or any of its subsidiaries before any court,
governmental agency or arbitrator that may materially adversely affect
the Participant or any of its subsidiaries or the ability of the
Participant to perform its obligations under this Participation
Agreement. Neither the Participant nor any of its subsidiaries is in
default with respect to any order of any court, arbitrator or
governmental body except for defaults with respect to orders of
governmental agencies which defaults are not material to the business
or operations of the Participant or any such subsidiary.
(f) The Participant is in material compliance with all
statutes, laws, rules and regulations governing its existence and the
performance of its obligations under this Participation Agreement.
(g) The acquisition of the Participation Interests shall be
made by the Participant solely for its own account for investment
purposes and with no intention of selling or distributing the same
publicly or making any further public distribution thereof in violation
of the Securities Act of 1933.
Section 8.3. Lender's Representations.The Lender hereby represents
and warrants to the Participant that:
(a) The Lender is a limited partnership duly organized,
validly existing and in good standing under the laws of the
jurisdiction of its organization and is duly qualified to do business,
and is in good standing, in every jurisdiction in which the nature of
its business requires it to be so qualified, except where the failure
to be so qualified would not have a Material Adverse Effect. The
General Partner is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction of its organization
and is duly qualified to do business, and is in good standing, in every
jurisdiction in which the nature of its business requires it to be so
qualified, except where the failure to be so qualified would not have a
Material Adverse Effect.
(b) The execution, delivery and performance by the Lender of
this Participation Agreement are within the Lender's partnership
powers, have been duly authorized by all necessary partnership action
(including the action or consent of the board of directors of the
General Partner), do not contravene (i) the Lender's partnership
agreement or certificate of limited partnership, (ii) any law, rule or
regulation applicable to the Lender, (iii) any contractual restriction
binding on or affecting the Lender or its property, or (iv) any order,
writ, judgment, award, injunction or decree binding on or affecting the
Lender or its property, and do not result in or require the creation of
any lien, security interest or other charge or encumbrance upon or with
respect to any of its properties (other than in favor of the
Participant with respect to the Loans and Related Assets).
34
(c) No authorization or approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body
is required for the due execution, delivery and performance by the
Lender of this Participation Agreement.
(d) This Participation Agreement constitutes the legal, valid
and binding obligation of the Lender enforceable against the Lender in
accordance with its terms, subject to general principles of equity and
applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally.
(e) There is no pending or threatened action or proceeding
affecting the Lender or any of its subsidiaries before any court,
governmental agency or arbitrator that could have a Material Adverse
Effect. Neither the Lender nor any of its subsidiaries is in default
with respect to any order of any court, arbitrator or governmental body
except for defaults with respect to orders of governmental agencies
which defaults are not material to the business or operations of the
Lender or any such subsidiary.
(f) The Lender is, and at all times during the term of this
Agreement will be, in material compliance with all statutes, laws,
rules and regulations governing its existence and the performance of
its obligations under this Participation Agreement.
(g) Upon each purchase of a Participation Interest in
accordance with the terms of this Participation Agreement, the
Participant shall acquire a valid Undivided Interest in each Loan then
existing or thereafter arising and in the Related Assets and
Collections with respect thereto, free and clear of any Adverse Claim
created by or attributable to Lender except as provided hereunder.
(h) The principal place of business and chief executive office
of the Lender and the offices where the Lender keeps all the Records is
at ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇. The
Lender will not change the foregoing unless the Participant shall have
been given ten (10) days' prior written notice, and no change therein
will be made to an office that is outside the continental United
States.
(i) All Loans will be Eligible Loans at the time of the
closing thereof and, if subsequent thereto, the date on which the
Participation Interests therein are purchased by the Participant
pursuant to the terms of this Participation Agreement. If any
Acquisition and Development Loan or Construction Loan and any related
L/C Guaranty submitted to the Participant for its approval pursuant to
Section 2.1 is not an Eligible Loan, the Lender will clearly so advise
the Participant at the time it is submitted and provide the Participant
with a detailed written description specifying all of the reasons such
Acquisition and Development Loan or Construction Loan and any related
L/C Guaranty is not an Eligible Loan.
(j) Immediately prior to any Acquisition and Development Loan
or any Construction Loan becoming a Loan, the Lender had good title to,
and was the sole owner of, such Acquisition and Development Loan or any
Construction Loan free and clear of any pledge, lien, encumbrance or
security interest, and no action has been taken or failed to be taken
by the Lender since the closing of the Loan that would materially
adversely affect the enforceability of any Acquisition and Development
Loan or any Construction Loan or the related Loan Documents or the
interests therein of the Lender and the Participant.
35
(k) No Acquisition and Development Loan or any Construction
Loan will be delinquent in payment (whether in respect of principal,
interest or fees), as of the last day of the month preceding the month
in which such Acquisition and Development Loan or any Construction Loan
becomes a Loan; and no Acquisition and Development Loan or any
Construction Loan will have been so delinquent prior to the date such
Acquisition and Development Loan or any Construction Loan becomes a
Loan.
(l) To Lender's knowledge (based solely in reliance upon the
Title Policy), at the time any Acquisition and Development Loan or any
Construction Loan becomes a Loan, there shall be no delinquent tax or
delinquent assessment lien against any Mortgaged Property securing such
Loan.
(m) At the time any Acquisition and Development Loan or any
Construction Loan becomes a Loan, no Obligor with respect to such Loan
shall have any right of offset, defense or counterclaim as to the
related Mortgage Note or Mortgage.
(n) To Lender's knowledge (based solely in reliance upon the
Title Policy), at the time any Acquisition and Development Loan or any
Construction Loan becomes a Loan, the lien of the related Mortgage
shall be a first lien upon the related Mortgaged Real Property, subject
to no liens which are or may be a lien prior to or equal with the lien
of the Mortgage, including, without limitation, mechanics' liens or
claims for work, labor or material affecting the Mortgaged Real
Property, except such liens that are insured or indemnified against by
a title insurance policy described under clause (r) below or bonded
over by an appropriate payment bond. The Lender shall administer the
Loans in a manner that will not impair the first lien priority of the
Mortgages and other security instruments relating thereto in the Loan
Collateral.
(o) Each Acquisition and Development Loan or any Construction
Loan as of the time of their origination and as of the date they become
a Loan, shall comply in all material respects with all applicable
local, state and federal laws.
(p) Each Mortgage securing a Loan shall contain customary and
enforceable provisions which render the rights of the holder adequate
to realize the benefits of the security against the Mortgaged Property,
including (i) in the case of a Mortgage that is a deed of trust, by
trustee's sale, (ii) by summary foreclosure, if available under
applicable law, and (iii) otherwise by foreclosure, subject in each
case to applicable federal and state laws and judicial precedents with
respect to bankruptcy and right of redemption.
36
(q) With respect to each Mortgage relating to a Loan that is a
deed of trust, a trustee duly qualified under applicable law to serve
as such is properly named, designated and serving, and except in
connection with a trustee's sale after default by a mortgagor, no fees
or expenses are payable by the Lender to the trustee under any such
Mortgage.
(r) A Title Policy insuring each Mortgage securing a Loan
shall be effective as of the closing of such Loan, in an amount not
less than the amount of such Loan, and such policy shall be valid and
binding and remain in full force and effect at the time such Loan
becomes a Loan.
(s) Subject to Section 3.3, the Lender will maintain in its
possession the original executed counterparts of all Loan Documents
relating to each Loan, which shall in each case be in exactly the same
form and content as the certified copies delivered by the Lender to the
Participant. Such original counterparts will be held at all times in
the Lender's fire-rated storage vault. The Lender maintains a fidelity
bond and document hazard insurance in sufficient amount (or is
otherwise adequately self-insured) to cover loss of original Loan
Documents.
(t) The Lender will not sell, pledge, assign, encumber or
subparticipate any portion of its interest in or rights or obligations
under the Loans or its interest in or rights or obligations under this
Participation Agreement to any Person without the Participant's prior
written consent; provided, however, that the Lender may sell, assign,
or subparticipate any portion of its interest in or rights or
obligations under the Loans or its interest in or rights or obligations
under this Participation Agreement to any Person that is an Affiliate
of the Lender without the Participant's prior written consent;
provided, further, that in any such case the Lender shall retain all
voting and control rights with respect to any Loans so sold, assigned,
or subparticipated and will advise the Participant of the occurrence of
such transfer and the identity of the transferee.
(u) The Lender will timely and fully observe, perform and
comply with all material provisions, covenants and other promises
required to be observed or performed or complied with by it under the
terms of the Loans and the Loan Documents relating thereto.
(v) The Lender will not make any change in the character of
its business or its practices in the general administration of loans
which, in either case, would have a Material Adverse Effect. The Lender
will service and administer the Loans in accordance with the standards
specified in Section 5.3.
(w) If a Lender Default shall occur and the Lender's servicing
responsibilities are terminated by the Participant pursuant to Section
10.2, then the Lender will promptly execute all assignments,
instructions and documents necessary to transfer to the Participant or
the Participant's designee the responsibility for servicing the Loans,
and shall cooperate to effect an orderly transition in servicing,
including the delivery of all Loan Documents and Records relating
thereto.
37
Section 8.4. Lender's Covenants. The Lender hereby covenants
and agrees with the Participant that:
(a) Lender shall furnish or cause to be furnished to
the Participant:
(i) As soon as available and in any event within
ninety (90) days after the end of each fiscal year of the Lender, a
statement of income, changes in partners' capital and cash flow for
such year and the related statement of financial condition as at the
end of such year of the Lender, as applicable, setting forth in each
case in comparative form the figures for the previous fiscal year (to
the extent such figures are available), all in reasonable detail, in
accordance with GAAP, consistently applied, and certified by the
president or chief financial officer of the General Partner that, to
the best of such officer's knowledge, they are complete and correct and
present fairly the financial condition as at the end of such fiscal
year, and the results of operations for such fiscal year, of the
Lender, in accordance with GAAP, consistently applied;
(ii) As soon as available and in any event within
forty-five (45) days after the end of each fiscal quarter of the
Lender, a statement of operations, changes in partners' capital and
cash flow for such quarter and for the portion of the fiscal year ended
of the Lender, all in reasonable detail and certified by the president
or chief financial officer of the General Partner that, to the best of
such officer's knowledge, they are complete and correct and present
fairly the financial condition as at the end of such quarter, and the
results of operations for such quarter and such portion of the fiscal
year, of the Lender, in accordance with GAAP, consistently applied,
subject to normal year-end adjustments.
(iii) As soon as available and in any event within
ten (10) Business Days of receipt from the applicable Borrower, annual
and quarterly financial statements of each Borrower in accordance with
the requirements of the applicable Loan Documents and annual financial
statements from each guarantor of any Loan in accordance with the
requirements of the applicable Loan Documents.
(iv) As soon as available and in any event within
thirty (30) days after the end of each calendar month a Project Status
Summary Report with respect to each Construction Loan.
(b) For so long as ▇▇▇▇▇ ▇. ▇▇▇▇ is employed by Lender or any
of its Affiliates he shall continue to oversee the relationship between Lender
and Participant under this Agreement. Any replacement for ▇▇▇▇▇ ▇▇▇▇ shall have
significant experience and expertise in the management of a full service
construction lending operation.
38
ARTICLE IX
OTHER ARRANGEMENTS
Section 9.1. Other Arrangements With Obligors. The Lender or the
Participant may now or in the future have other credit or other business
arrangements with any of the Obligors. Subject to Section 2.1 and the following
provisions of this Article IX, nothing herein shall in any manner be deemed to
limit or preclude the right of the Lender or the Participant to enter into such
other arrangement or to exercise any rights or remedies available in connection
therewith, including the exercise of any right of setoff or other rights
available as a matter of law, deemed by it to be in its own best interest with
respect to any such other arrangement. Except as expressly provided herein, the
Participant shall have no interest in any other guaranty or in any other
Property taken as collateral security for any other loan or loans made by the
Lender to any Obligor or in any Property now or hereafter in the Lender's
possession or control which may be or become collateral security for any Loan by
reason of a general provision contained in any loan or collateral agreement or
note held by the Lender or by reason of any right of setoff, counterclaim,
banker's lien or otherwise.
Notwithstanding the foregoing or any other provision to the contrary
contained herein, no party hereto shall obtain any payment or payments (whether
voluntary or involuntary, through the exercise of any right of setoff or other
remedy) to be applied on account of its Undivided Interest in any Loan, unless
such payment or payments shall be shared by all parties hereto (subject to
Article VI) in accordance with their respective Undivided Interests in the Loans
as in effect from time to time. Until such payment is shared as aforesaid it
shall be deemed to be held in trust for the benefit of the party entitled to
share therein. If any such payment or payments are later rescinded, set aside or
otherwise recovered by or on behalf of the Person against whom the right of
setoff or other remedy is exercised, or by or for the creditors of such Person,
any such payment or payments which has been shared with the other parties hereto
pursuant to the preceding sentence shall be returned to the party against whom
such recovery is made.
Section 9.2. Loan Collateral Held Solely for Loans. The Lender hereby
agrees that all Loan Collateral held and/or received by the Lender specifically
as security for the payment of a Loan shall be held by the Lender only as
security for the payment of such Loan and shall not be used or applied toward
the payment of other obligations of any Obligor to the Lender (if any) otherwise
evidenced or incurred so long as any of such Loan remains unpaid and the
Participant has an interest therein.
39
ARTICLE X
EVENTS OF DEFAULT AND REMEDIES
Section 10.1. Events of Lender Default. Each of the following
events shall constitute a "Lender Default" hereunder:
(a) The Lender shall fail to remit the Lender's Percentage
Interest in an Advance as and when due hereunder and under the
applicable Loan Documents and such failure continues for one (1)
Business Days following such failure;
(b) The Lender shall fail to perform its responsibilities
hereunder or as lender under the Loans (other than a failure described
in subsection (a) above) and such failure shall not be remedied within
thirty (30) days after notice from the Participant; provided, however,
that if such failure cannot reasonably be remedied within such time
period, a Lender Default shall not occur for so long as the Lender is
diligently prosecuting such remedy to completion, but in no event shall
such cure period exceed beyond 150 days from the end of such thirty
(30) day period; provided further, however, that if (i) the Participant
reasonably determines that the failure to immediately declare a Lender
Default would have a Material Adverse Effect, or (ii) the Participant
reasonably determines that the failure by the Lender to perform its
responsibilities hereunder or as lender under the Loans cannot be
remedied with the passage of time, then Participant may declare an
immediate Lender Default pursuant to this Section 10.1(b); or
(c) Any representation or warranty made by the Lender under
Sections 8.3(i) through 8.3(s), 8.3(u) or 8.3(v) or in any
certification made by the Lender hereunder or in writing in connection
with this Participation Agreement shall prove to have been false or
incorrect when made or delivered, which misrepresentation (i) if
capable of cure, shall not be remedied within thirty (30) days after
notice from the Participant, and (ii) has a Material Adverse Effect; or
(d) Any representation or warranty made by the Lender under
Sections 8.3(a) through 8.3(h), 8.3(t) or 8.3(w) shall prove to have
been false or incorrect when made or delivered, which misrepresentation
(i) if capable of cure, shall not be remedied within thirty (30) days
after notice from the Participant, and (ii) has a Material Adverse
Effect; or
(e) Any failure by the Guarantor to make any payment under the
Guaranty within ten (10) days of demand therefor, or any other breach
by the Guarantor of its obligations under the Guaranty, which breach,
if capable of cure, shall not be remedied within thirty (30) days after
notice from the Participant; or
(f) An Event of Bankruptcy shall occur with respect to the
Lender or the Guarantor, or either the Lender or the Guarantor shall
take any corporate or partnership action to authorize an Event of
Bankruptcy.
40
Section 10.2. Participant's Remedies. Upon the occurrence of a Lender
Default, if the Participant desires to exercise any remedy(ies) available
hereunder or at law or in equity, the Participant shall notify the Lender of the
action the Participant intends to take at least ten (10) Business Days before
exercising such remedy(ies). In conjunction with exercising such remedy(ies),
Participant shall specify whether this Participation Agreement is to terminate,
and if so the Termination Date. Subject to the provisions of Section 10.5, the
following remedies shall be available to the Participant upon the occurrence of
a Lender Default:
(a) The Participant may direct the Lender to assign to the
Participant or the Participant's designee all of the Loan Documents
relating to the Loans (provided however, that if the Lender Default
relates only to particular Loans, the Participant may only exercise
remedies under this subsection (a) with respect to such Loans) and the
Participant shall have the right thereafter to exercise all of the
powers and rights of the Lender under this Participation Agreement, in
which case the Participant shall assume the responsibilities of the
Lender under this Participation Agreement, relating to the collection
and enforcement of the Loans and the related Loan Documents and the
allocation and application of Collections hereunder, and the Lender
shall thereupon be and become a Participant hereunder to the extent of
its Undivided Interest in the Loans and entitled to participate in
Collections (provided that the priority of distribution of Collections
and Lender's rights to receive Collections shall remain subject to the
provisions of Sections 6.8, 6.9 and 6.10 as if a servicing transfer had
not taken place hereunder), subject to Article VI; provided that such
assignment by the Lender and the transfer to the Participant of the
Lender's powers and rights hereunder shall be deemed to have occurred
automatically upon the occurrence of an event described in Section
10.1(e). In the event of a servicing transfer pursuant to this Section
10.2(a), the Participant (or such other Person as the Participant shall
designate to service the Loans) shall be entitled to retain for its own
account all amounts reserved to the Lender hereunder in respect of the
Lender's Override after the date of such servicing transfer. If the
Participant shall designate another Person to be servicer, then such
third party shall also be permitted to retain out of Collections such
additional commercially reasonable servicing fees as shall be agreed to
by the Participant;
(b) The Participant may purchase the Lender's Undivided
Interests in the Loans at a purchase price equal to the Lender's
Undivided Interest in the aggregate Outstanding Amount of the Loans
plus accrued and unpaid interest thereon to the date of purchase and
plus all Loan Fees, unreimbursed Extraordinary Servicing Expenses and
Ancillary Fees; provided however, that in the event the Lender Default
relates only to one or more particular Loans, the Participant may only
purchase the Lender's Undivided Interest in the Loans to which such
Lender Default relates;
(c) Unless the Participant elects to transfer the servicing
rights and duties pursuant to (a) above, the Participant may terminate
its obligation to fund its Percentage Interest in additional Advances
of the Loans to which such Lender Default relates. In such case, the
Lender shall fund 100% of all future Advances and shall continue to
administer the Loans in accordance with this Agreement; or
41
(d) The Participant may exercise any other right or
remedy available at law or in equity on account of the
Lender Default.
Section 10.3. Events of Participant Default. Each of the following
shall constitute a "Participant Default" hereunder:
(a) The Participant shall fail to remit to a Lender the
Participant's Percentage Interest in an Advance as and when due
hereunder and such failure continues for one (1) Business Days
following written notice from the Lender;
(b) The Participant shall fail to perform any of its other
obligations under this Participation Agreement and such failure shall
not be remedied within thirty (30) days after notice from the Lender,
provided, however, that if such failure cannot reasonably be remedied
within such time period, a Participant Default shall not occur for so
long as the Participant is diligently prosecuting such remedy to
completion;
(c) Any representation, warranty or certification made by the
Participant hereunder or in writing in connection with this
Participation Agreement shall prove to have been false or incorrect in
any material respect when made or delivered, which misrepresentation,
if capable of cure, shall not be remedied within thirty (30) days after
notice from the Lender, and the Lender reasonably determines that such
event has had or will have a materially adverse effect on the
performance by the Participant or the Lender of its obligations under
this Participation Agreement; or
(d) An Event of Bankruptcy shall occur with respect to the
Participant or the Participant shall take any corporate action to
authorize an Event of Bankruptcy.
Section 10.4. Lender's Remedies. Upon the occurrence of a Participant
Default, if the Lender desires to exercise any remedy(ies) available hereunder
or at law or in equity, the Lender shall notify the Participant of the action it
intends to take at least ten (10) Business Days before exercising such
remedy(ies). In conjunction with exercising such remedy(ies), Lender shall
specify whether this Participation Agreement is to terminate, and if so the
Termination Date. The following remedies shall be available to the Lender upon
the occurrence of a Participant Default:
(a) The Lender may purchase the Participant's Undivided
Interests in the Loans at a purchase price equal to the Participant's
Undivided Interest in the aggregate Outstanding Amount of the Loans,
plus accrued and unpaid interest thereon to the date of purchase and
plus all Loan Fees, unreimbursed Extraordinary Servicing Expenses and
Ancillary Fees due to Participant; provided however, that in the event
the Participant Default relates only to one Loan, Lender may only
purchase the Participant's Undivided Interest in the Loan to which such
Participant Default relates;
42
(b) The Lender may terminate the Participant's right to
purchase Participation Interests in other Loans;
(c) The Lender may refuse to permit the Participant to fund
additional Advances under the Loans. In such case, (i) the Lender shall
fund 100% of all future Advances and shall continue to administer the
Loans in accordance with this Participation Agreement and (ii) the
Lender shall be entitled to take any of the action specified in Section
5.2 without the Participant's consent; or
(d) The Lender may exercise any other right or remedy
available at law or in equity on account of the Participant Default.
Section 10.5. Purchase of Participant's Undivided Interest Under
Certain Circumstances. In the event of a Lender Default, prior to the exercise
of the Participant's rights under Section 10.2(a) or (b), the Lender may, at
Lender's option, purchase the Participant's Undivided Interests in the Loans;
provided however, that if the Lender Default relates only to one or more Loans,
the Lender may only purchase the Participant's Undivided Interest in the Loans
to which such Lender Default relates. In addition, in the event of a Borrower
Bankruptcy Event with respect to any Loan, the Lender may, at Lender's option,
purchase the Participant's Undivided Interests in the related Loan. Any purchase
of the Participant's Undivided Interests in a Loan under this paragraph shall be
at a purchase price equal to the Participant's Undivided Interest in the
Outstanding Amount of the Loan plus accrued and unpaid interest thereon to the
date of purchase and plus all Loan Fees, unreimbursed Extraordinary Servicing
Expenses and Ancillary Fees due to Participant.
43
ARTICLE XI
CERTAIN METHODS OF DISPUTE RESOLUTION
Section 11.1. Choice of Dispute Resolution Methods. If a dispute or
disagreement shall arise between the Lender and the Participant concerning any
matter set forth in Section 5.2 or Section 5.5 for which the consent of the
Lender and the Participant is required, the parties shall pursue the following
dispute resolutions methods:
(a) The Lender shall have the right, within fifteen (15)
Business Days from the date such dispute or disagreement arose, to
purchase the Participant's Participation Interest in the Loan as to
which the dispute has arisen, at a purchase price equal to the
Participant's Undivided Interest in the Outstanding Amount of the Loan
plus accrued and unpaid interest, Late Payment Fees, Extraordinary
Servicing Expenses and Ancillary Fees due to Participant, and Loan Fees
thereon to the date of purchase.
(b) In the event that the Lender shall not have exercised the
purchase right granted pursuant to paragraph (a) above, the Participant
shall have the right, within fifteen (15) Business Days from the date
the Lender's repurchase right expires, to purchase the Lender's
Undivided Interest in the Loan as to which the dispute has arisen, at a
purchase price equal to the Lender's Undivided Interest in the
Outstanding Amount of the Loan plus accrued and unpaid interest, Late
Payment Fees, Extraordinary Servicing Expenses and Ancillary Fees due
to Lender, and Loan Fees thereon to the date of purchase.
(c) In the event that neither the Lender nor the Participant
exercise their rights pursuant to paragraph (a) or (b) above, either
the Lender or the Participant may give the other party a written notice
demanding that the dispute be submitted to arbitration pursuant to this
Article XI and the arbitrator shall determine which of the positions
advocated by the Lender and the Participant is the most prudent course
of action to be followed based on prudent lending policies.
Section 11.2. Identity of Arbitrator. Within thirty (30) days after the
date of this Participation Agreement, the Lender and the Participant shall
endeavor in good faith to agree on a person or firm to act as the sole
arbitrator under this Participation Agreement. If the Lender and the Participant
are unable to agree within thirty (30) days after the date of this Participation
Agreement on the sole arbitrator, the sole arbitrator under this Participation
Agreement shall be ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Real Estate Services Group. If, at any time
during the term of this Participation Agreement, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Real Estate
Services Group, or any other person or firm then-designated as the sole
arbitrator, is unable for any reason to serve as sole arbitrator and the Lender
and the Participant are unable, within thirty (30) days after learning of such
inability to act, to agree on a successor sole arbitrator, then either the
Lender or the Participant shall have the right to apply to the American
Arbitration Association for the appointment of a person or firm to act as sole
arbitrator under this Participation Agreement. Any person or firm appointed as
the sole arbitrator under this Participation Agreement must be experienced in
the management of financially-distressed real property in the state where the
Mortgaged Property for the Construction Loan in question is located.
44
Section 11.3. Duties of Arbitrator. The sole arbitrator chosen in
accordance with Section 11.2 shall afford to each of the Lender and the
Participant the right to submit written statements of its views, together with
any supporting documentation, with respect to the business issue to be decided,
to review the written statement and supporting documentation, if any, submitted
by the other party, prior to a hearing and shall conduct a hearing at the sole
arbitrator's office. Each party shall be entitled to receive reasonable advance
notice of the hearing and to be represented by counsel at the hearing. The fees
and expenses of the sole arbitrator shall be divided equally between the Lender
and the Participant.
The sole arbitrator shall, as expeditiously as possible, make a written
determination of the resolution of the issue in dispute.
In the exercise of his or her duties under this Article XI, the sole
arbitrator shall not be liable or accountable for any decision made or any other
action taken by him or her under this Participation Agreement in good faith. The
award rendered by the arbitrator shall be final and binding upon the Lender and
the Participant, and judgment upon the award may be entered in any court of
competent jurisdiction.
Section 11.4. Collateral Appraisal Procedures. If after the occurrence
of an Other Borrower Default it is necessary to ascertain the fair market value
of any Loan Collateral in order to determine whether a Distribution Adjustment
Event has occurred, Lender and Participant shall promptly consult with each
other in good faith in an attempt to agree on the value of the Loan Collateral
based upon applicable current sales and other relevant market conditions. If
within thirty (30) days of the Other Borrower Default, Lender and Participant
are unable to agree on the value of the Loan Collateral, the valuation of the
Loan Collateral shall be submitted to ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Real Estate Services
Group, or any other person or firm then-designated as the sole arbitrator under
Section 11.2 for determination. If the sole arbitrator does not, in his or her
judgment, have sufficient expertise to properly value the Loan Collateral, the
arbitrator may appoint an independent MAI real estate appraiser to perform the
valuation. The determination of the fair market value of the Loan Collateral by
the sole arbitrator or the appraiser selected by the sole arbitrator shall be
final and binding upon the parties. The fees and expenses of the sole arbitrator
and any appraiser shall be divided equally between the Lender and the
Participant, subject to recoupment from the applicable Obligor pursuant to the
Loan Documents. The sole arbitrator and appraiser, if any, shall, as
expeditiously as possible, make a written determination of the resolution of the
issue in dispute.
45
ARTICLE XII
GENERAL MATTERS
Section 12.1. No Joint Venture. The relationship between the
Participant and the Lender is and shall be that of a
purchaser and seller of a property interest and the Lender and the
Participant hereby acknowledge and agree as follows:
(a) The Lender and the Participant are not partners or joint
venturers in connection with the Loans and nothing herein contained
shall create or be deemed to create any such relationship.
(b) The Lender is not authorized to act and shall
not act or be deemed to be acting as agent for the
Participant. The Lender shall act and be deemed to act in all matters
hereunder as an independent contractor.
(c) The Lender is not the Participant's borrower despite the
grant of the security interest set forth in Section 3.2. Funds
disbursed and remitted by the Participant to the Lender pursuant to
Section 4.3 shall not under any circumstances be construed as an
unsecured loan by the Participant to the Lender, it being intended
hereby that the Participant shall at all times be a fully secured
participant as to its Participation Interest and its Undivided Interest
in the Loans. Any sums so remitted by the Participant shall be part of
and construed as a Participation Interest in the Loans.
Section 12.2. No Setoff. It is hereby expressly agreed that no party
hereto (a "Claimant") shall setoff, appropriate or apply any deposits (general
or special, time or demand, provisional or final), in any currency, nor any
other credits, indebtedness or claims, in any currency, in each case whether
direct or indirect or contingent or matured or unmatured, at any time held or
owing by such Claimant to or for the credit or the account of the other party (a
"Debtor"), or any part thereof, against and on account of the obligations
(including, without limitation, the obligation to purchase Participation
Interest in Advances pursuant hereto and the obligation to distribute
Collections to the Participant pursuant hereto) and liabilities, if any, of such
Debtor to such Claimant hereunder.
Section 12.3. Termination. This Participation Agreement shall
terminate upon the first to occur of:
(a) such date on or after the Termination Date on which all
Loans shall have been paid in full, or all remedies to collect the
obligations owing in respect thereof (including all Extraordinary
Servicing Expenses and Loan Fees) shall have been exhausted, including
the foreclosure and/or disposition of the related Loan Collateral and
the pursuit of any Obligor liable thereon to the extent permitted by
applicable law; or
(b) the agreement of the parties hereto.
46
Section 12.4. Notices. All notices, demands, requests, or other
communications which may be or are required to be given, served, or sent to any
party hereto pursuant to this Participation Agreement, shall, except as
otherwise specifically provided herein, be in writing and delivered in person or
mailed by first-class, registered, or certified mail, return receipt requested,
postage prepaid, or transmitted by facsimile, addressed (until a new address is
designated hereunder) as follows:
If to Participant: Residential Funding Corporation
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: Executive Vice President
Construction Lending
Facsimile Number: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to: Residential Funding Corporation
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇.
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: General Counsel
Facsimile Number: (▇▇▇) ▇▇▇-▇▇▇▇
If to Lender: Harbourton Residential Capital Co., L.P.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: President
Facsimile Number: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to: Harbourton Financial Services L.P.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: Chief Executive Officer
Facsimile Number: (▇▇▇) ▇▇▇-▇▇▇▇
with a further copy to:
▇▇▇▇▇▇▇▇▇▇, Sandler, Kohl, ▇▇▇▇▇▇ & ▇▇▇▇▇▇
▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq. (H2287-10)
Facsimile Number: (▇▇▇) ▇▇▇-▇▇▇▇
47
Each party may designate by such notice to all other parties a new
address for itself for purposes of any notice, demand, request or communication
hereunder.
Each notice, demand, request, or communication which shall be delivered
in person or mailed, telexed or sent by facsimile in the manner described above
shall be deemed sufficiently given, served, or sent and received at such time as
it is delivered to the addressee (with the return receipt, the delivery receipt,
or with respect to a facsimile, evidence on the document stamped by the machine
showing that it was sent shall be conclusive evidence of such delivery) or at
such time as delivery is refused by the addressee upon presentation.
Section 12.5. Confidentiality. Lender and Participant shall mutually
agree on the contents of any press release, public announcement or other public
disclosure regarding this Participation Agreement and the transactions
contemplated hereunder and Participant agrees that it shall not make any press
release, public announcement or other public disclosure regarding any Loans made
hereunder, or regarding any related Obligor or Loan Documents, without Lender's
consent.
Section 12.6. Amendments, Waivers. No amendment, modification or
discharge of this Participation Agreement and no waiver hereunder shall be valid
or binding unless set forth in writing and duly executed by the party against
whom enforcement of the amendment, modification, discharge or waiver is sought.
No failure on the part of any party hereto to exercise, and no delay in
exercising, any right hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise of any right hereunder preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
Section 12.7. Entire Agreement. This Participation Agreement as of the
date hereof and (including the Exhibits attached hereto) constitutes the entire
agreement between the parties hereto as of the date hereof and with respect to
the transactions contemplated herein, and supersedes all prior oral or written
agreements, commitments or understandings with respect to the matters provided
for herein.
Section 12.8. Governing Law. This Participation Agreement, the rights
and obligations of the parties hereto, and any claims or dispute relating
thereto, shall be governed by and construed in accordance with the laws of the
State of Virginia, without regard to the conflict of laws principles thereof.
Section 12.9. Successors, Counterparts. This Participation Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided, however, that neither party will
assign or otherwise dispose of any of its interest in this Participation
Agreement or any Loan in violation of the relevant provisions of Article VIII.
This Participation Agreement may be executed in counterparts each of which shall
be deemed to be an original and all of which shall together shall constitute but
one and the same instrument.
48
Section 12.10. Expenses of Document Preparation. The Lender and the
Participant each agree to pay their own costs and expenses incurred in
connection with the preparation, execution and delivery of this Participation
Agreement.
Section 12.11. Prevailing Party. In the event either party hereto shall
employ legal counsel or bring an action at law or commence any other proceeding
against the other party to enforce any of the terms, covenants or provisions
hereof, the party prevailing in any such action or other proceeding shall be
paid all reasonable attorneys' fees by the other party, as determined by the
court and not the jury, and in the event any judgment is secured by such
prevailing party, all such attorneys' fees shall be included in such judgment.
Section 12.12. No Third Party Beneficiaries. This Participation
Agreement is made and entered into for the sole protection and legal benefit of
the Lender and the Participant and their respective permitted successors and
assigns, and no other Person shall be a direct or indirect legal beneficiary of,
or have any direct or indirect cause of action or claim in connection with, this
Participation Agreement. Without limiting the generality of the foregoing, the
Participant shall not have any obligation to any Person not a party to this
Participation Agreement.
49
IN WITNESS WHEREOF, each of the parties hereto has caused this
Participation Agreement to be duly executed and delivered in its name and on its
behalf, all as of the day and year first above written.
LENDER:
HARBOURTON RESIDENTIAL
CAPITAL CO., L.P.,
a Delaware limited partnership
By Harbourton Residential
Capital Corporation,
a Delaware corporation,
its general partner
By:/s/ J. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
-----------------------
Name: J. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Its: President
PARTICIPANT:
RESIDENTIAL FUNDING
CORPORATION,
a Delaware corporation
By:/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Its: Director
50
INVESTOR CONSENT
RESIDENTIAL FUNDING CORPORATION, a Delaware corporation (the "Investor"),
pursuant to the terms of that certain Participation Agreement dated as of
February 23, 1996 (the "Participation Agreement'), by and between Harbourton
Residential Capital Co., L.P., a Delaware limited partnership (the ''Seller")
and the Investor, hereby agrees as follows, effective as of the closing date of
the transactions contemplated by that certain Asset Purchase Agreement dated
August 17, 1998 (the "Asset. Purchase Agreement"), by and among Harbourton
Financial Corp., a Delaware corporation (the "Buyer), the Seller, Harbourton
Residential Capital Corporation, a Delaware corporation and the general partner
of the Seller, and Harbourton Holdings, L.P., a Delaware limited partnership and
a limited partner of the Seller (the "Limited Partner"):
The Investor consents to the assignment of the Participation Agreement to Buyer
and the transfer by the Seller to Buyer of the Seller's contractual obligations
to act as servicer under the Participation Agreement.
(b) The Investor agrees that Buyer shall succeed to all obligations of Seller
under the Participation Agreement, and Seller shall have no obligations or
liability under the Participation Agreement for actions taken on or after the
closing date for the transaction evidenced by the Asset Purchase Agreement (the
"Closing Date"), provided however that nothing shall serve to relieve the Seller
of its obligations and liability to the Investor for actions taken prior to the
Closing Date
(c) The Investor hereby releases the Limited Partner from its obligations and
liability under the guaranty agreement given by the Limited Partner in
connection with the Seller's obligations under the Participation Agreement,
provided that such release relates solely to actions taken on or after the
Closing Date, and nothing shall serve to relieve the Limited Partner of its
obligations and liability to the Investor for actions taken prior to the Closing
Date.
IN WITNESS WHEREOF, the undersigned has executed this Investor Consent as of
this 26th day of August, 1998.
RESIDENTIAL FUNDING CORPORATION
a Delaware Corporation
By: /S/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
_____________________
Printed Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Managing Director
51
AGREEMENT AMENDING PARTICIPATION AGREEMENT
THIS AGREEMENT AMENDING PARTICIPATION AGREEMENT (the "Agreement") is entered
into as of the 15th day of October, 2000 (the "Effective Date") by and
among RESIDENTIAL FUNDING CORPORATION, a corporation organized pursuant to the
laws of the State of Delaware ("Participant"), and HARBOURTON FINANCIAL CORP., a
corporation organized pursuant to the laws of the State of Delaware
("Harbourton").
WHEREAS Participant, as the "Participant," and Harbourton Residential Capital Co
L.P., a Delaware limited partnership ("Old Harbourton"), as the "Lender," are
parties to a Participation Agreement dated as of February 23, 1996
(the "Participation Agreement").
WHEREAS, Harbourton is successor in interest by corporate reorganization to Old
Harbourton and has succeeded to all of Old Harbourton's rights, interests,
obligations and liabilities as the Lender pursuant to the Participation
Agreement.
WHEREAS, by its stated terms, the Participation Agreement formally terminated as
of February 23, 1999, although neither Participant nor Harbourton took any
action to terminate the business relationship between Participant and
Harbourton.
WHEREAS, despite the formal termination of the Participation Agreement,
Participant and Harbourton entered into several transactions pursuant to the
terms and conditions set forth in the Participation Agreement and continuously
treated the Participation Agreement as an ongoing agreement between them.
WHEREAS Participant and Harbourton desire to amend certain provisions of the
Participation Agreement to extend the term of the Participation Agreement and to
increase, on a temporary basis, Participant's maximum commitment for the
purchase of Participation Interests (as such term is defined in the
Participation Agreement) pursuant to the Participation Agreement.
WHEREAS Participant and Harbourton desire to ratify the transactions into which
they have entered pursuant to the Participation Agreement from and after
February 23, 1999,
NOW, THEREFORE, Participant and Harbourton, in consideration of the mutual
promises contained in this Agreement and other good and valuable consideration,
the receipt and sufficiency of which are acknowledged, and intending to be
legally bound, hereby do covenant and agree as follows:
52
I . The foregoing recitals are incorporated into this Section I as operative
provisions of this Agreement as if the foregoing recitals were set forth at
length in this Section I.
2. Capitalized terms that are used in this Agreement but are not defined in this
Agreement will have the meanings ascribed to them in the Participation
Agreement.
3. Harbourton acknowledges to and agrees with Participant that it has succeeded
to and has assumed fully and completely all of Old Harbourton's rights,
interests, obligations and liabilities as the Lender pursuant to the
Participation Agreement. Participant and Harbourton acknowledge and agree that
all references in the Participation, as amended by this Agreement, to the
"Lender" will be taken to refer to Harbourton, as successor in interest to Old
Harbourton.
4. Participant and Harbourton acknowledge and agree that, effective as of
February 23, 1999, the term of the Participation Agreement is extended through
11:59 P.M., Eastern time, on September 30, 2003, subject in all respects to the
other terms and conditions of the Participation Agreement, including (but not
limited to) the provisions of Section 10.2 of the Participation Agreement (with
respect to a Lender Default) and Section 10.4 of the Participation Agreement
(with respect to a Participant Default). To that end, Section 1.1 of the
Participation Agreement is amended by deleting the definition of the term
"Termination Date" from that Section and substituting in its place the following
definition of the term "Termination Date":
"Termination Date" means September 30, 2003, or such earlier date as might be
specified pursuant to Section 10.2 by the Participant following the occurrence
of a Lender Default or as might be specified pursuant to Section 10.4 by the
Lender following the occurrence of a Participant Default.
5. Participant and Harbourton ratify and con-firm all of the transactions into
which they have entered pursuant to the Participation Agreement from and after
February 23, 1999 through the Effective Date and acknowledge that such
transactions are their mutual bindina obligations in accordance with the terms
of 6e Participation Agreement, notwithstanding any possible formal termination
of the Participation Agreement that might have occurred on or about February 23,
1999.
6. Participant and Harbourton acknowledge and agree that, for an eight-month
period from and after the Effective Date(the "Commitment Increase Period")
Participant's maximum commitment for the purchase of Participation Interests
pursuant to the Participation Agreement (the "Commitment Limit will be increased
from Fifty Million Dollars ($50,000,000) to Fifty-Five Million Dollars
($55,000,000). Participant and Harbourton further acknowledge and agree that the
aforesaid increase in the Commitment Limit is a temporary increase and that at
the expiration of the Commitment Increase Period, the Commitment Limit will
revert to Fifty Million Dollars ($50,000,000) unless the Participant and
Harbourton agree otherwise in writing. To that end, with respect to the
Commitment Increase Period all references in the Participation Agreement to the
Commitment Limit (including, but not limited to, the references in Paragraph 2.
1 (a) and Paragraph 2.3 (a) of the Participation Agreement) will be taken to
refer to a Commitment Limit of Fifty-Five Million Dollars ($55,000,000).
53
7. Participant and Harbourton acknowledge and agree that the addresses for
notices set forth in Section 12.4 of the Participation Agreement are no longer
correct. To that end, Section 12.4 Of the Participation Agreement is amended by
deleting the addresses for notices set forth in that Section and substituting in
their place the following addresses for notices:
If to Participant:
Residential I. Funding Corporation
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: Executive Vice President Construction Lending
Facsimile Number: ▇▇▇-▇▇▇-▇▇▇▇
with a copy to:
Residential Funding Corporation
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇-▇▇▇▇
Attention: General Counsel
Facsimile Number: ▇▇▇-▇▇▇-▇▇▇▇
If to Lender:
Harbourton Financial Corp.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: J. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, President
Facsimile Number: ▇▇▇-▇▇▇-▇▇▇▇
and
Harbourton Financial Corp.
▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Vice President
Facsimile Number: ▇▇▇-▇▇▇-▇▇▇▇
54
with a copy to:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esquire
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ LLP 26th Floor
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile Number: ▇▇▇-▇▇▇-▇▇▇▇
8. Except as otherwise provided in this Agreement, all of the terms and
conditions of the Participation Agreement will remain in full force and effect.
Participant and Harbourton ratify their agreement to and acceptance of all of
the terms and conditions of the Participation Agreement, as modified by this
Agreement.
9. Each person who executes this Agreement in a representative capacity
represents and warrants to the other parties to this Agreement that such person
is duly authorized to execute this Agreement on behalf of the Party in whose
name the person executes this Agreement.
10. This Agreement may be executed in counterpart copies, each of which will be
deemed an original, but all of which taken together will constitute the same
Agreement.
11. This Agreement supersedes any and all prior discussions and agreements
between Participant and Harbourton with respect to the matters contained in this
Agreement, and this Agreement contains the sole and entire understanding between
the parties to this Agreement with respect to the matters contained in this
Agreement.
11. This Agreement may not be changed, modified, discharged or terminated orally
or in any other manner other than by an agreement in writing signed by
Participant and Harbourton.
12. This Agreement will be governed by the internal laws of the Commonwealth of
Virginia, without giving effect to the principles thereof relating to conflicts
55
IN WITNESS WHEREOF, the parties have executed this Agreement as Of the Effective
Date.
PARTICIPANT:
RESIDENTIAL FUNDING CORPORATION, a
Corporation Organized pursuant to the Laws of the State of Delaware
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: Director
HARBOURTON:
HARBOURTON FINANCIAL CORP., a
Corporation Organized pursuant to the Laws of the State of Delaware
By: /s/ J. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Name: J. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: President
56