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To: Commission Members l ILn n.� o � .
City ClerkICDC Secy
From: Gary Van Osde1, Executive Director City ot San Bernardino,
Timothy J. Sabo, Agency Special Legal Counsel
Date : September 21, 1998
Re : Consideration of the GMAC Subordination and Intercreditor
Agreement for the Downtown Theater Project
BACKGROUND:
The latest version of the GMAC Subordination and Intercreditor
Agreement (the "Agreement") is dated 9-11-98 as prepared by the
attorneys for GMAC . This draft of the Agreement includes changes
made since the version dated 8-13-98 which included at that time a
provision commonly referred to as the "stand still language" . The
stand still language as previously proposed by GMAC would have
prevented the Agency from exercising any remedies under the Section
108 second loan or the Agency' s third loan whatsoever in the event
of a default by the Theater Developer under the first loan with
GMAC during the construction period. The Agency did have the right
to purchase the GMAC loan even with the stand still language as it
previously existed. A copy of the September 11, 1998 draft of the
Agreement is attached to this memorandum.
It must be pointed out that the GMAC Subordination and
Intercreditor Agreement is not intended to act merely as a
subordination agreement in the common use of such term. This
Agreement with GMAC is additionally an "intercreditor agreement" as
implied by the full name of the Agreement . The "intercreditor"
aspects of this Agreement are intended to identify the respective
rights and remedies of the several lenders and the three separate
loan instruments that are providing the financing of the Theater
Project . Intercreditor agreements are a common factor in complex
financial transactions and typically are incorporated into the
subordination agreement between the lenders . In practically all
instances with complex financial transactions certain assurances
must be given to the senior lender and all junior lenders as to
their respective rights against the borrower and to each other
under certain identified default and bankruptcy situations .
Although standard title company forms exist for simple
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subordination agreements, intercreditor agreements are usually
unique to each lender and each situation.
The proposed HUD Section 108 Loan Documents between the Agency and
the Theater Developer contemplate a subordination of the second
loan (the $7 . OM HUD Section 108 loan) and the third loan (the
Agency' s third loan) to the first loan of GMAC . Limitations are
imposed as to the principal amount of the first loan in that it may
not exceed $3 . 6M. In addition, further restrictions are imposed on
any permanent loan and refinancing loan . The principal amount of
any refinancing cannot exceed the then outstanding principal amount
of the permanent loan then being refinanced (Section 15 . 0, HUD
Section 108 Loan Agreement) .
The DDA between the Agency and the Theater Developer provides in
Section 2 . 03 .a . , the terms of subordination of what is referred to
therein as the Agency Note which is the $7 . OM HUD Section 108 loan
to the Theater Developer. Section 2 . 03 .a. , of the DDA states that
the "Agency Note will be secured by a Deed of Trust (in subordinate
position to construction and/or permanent financing for the Project
to be obtained by the ,Developer in an amount not to exceed
$3, 600, 000, and on terms and conditions reasonably satisfactory to
the Agency) which will be recorded and constitute a lien against
the Property. "
It must be remembered that the "subordination" aspects of the
Subordination and Intercreditor Agreement must be separated from
the "intercreditor" aspects in an analysis of this Agreement .
However, it is clear that the amount of the first loan cannot
exceed $3, 600, 000 and any approval as to the subordinate position
of the Agency must be on terms and conditions reasonably
satisfactory to the Agency. Please note the discussion under item
4 . dealing with Section 1 . (d) of the Subordination Agreement which
authorizes increases of the $3 . 6M figure under certain
circumstances .
ANALYSIS OF THE GMAC SUBORDINATION AND INTERCREDITOR AGREEMENT:
In the following analysis, the discussion in each paragraph is
keyed by a reference to a particular section of the Agreement
(e . g . : "Section 1 . (a) " refers to Section 1 . (a) of the September 11,
1998 draft of the Agreement attached to this memorandum) .
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1 . Section 1 . (a) - this contains the subordination language with
respect to subordinating the "indebtedness" of the second loan
and the third loan to the GMAC loan . For purposes of
clarification, we would have preferred that the subordination
be with respect to the "lien" of the deeds of trust of the
second loan and the third loan rather than the "indebtedness",
but this is a non-issue due to the sole asset nature of the
developer entity.
2 . Section 1 . (b) - an intercreditor arrangement as to the Agency
right to pursue remedies against the Borrower, except to the
extent limited in the Agreement .
3 . Section 1 . (c) - intercreditor arrangement as to no payments
being made by the Borrower to the Agency except as provided in
Section 1 . (f) .
9 . Section 1 . (d) - intercreditor arrangement/subordination
language which allows GMAC to make additional advances under
the first loan which will continue in a first position in
excess of the $3, 600, 000 principal amount of the GMAC loan if
such additional advances are for : (i) accrued and unpaid
interest on the GMAC loan; (ii) charges, fees, expenses
prepayment premiums due and owing under the GMAC loan; (iii)
additional advances in connection with the development,
construction, improvement, use or ownership of the Theater
Project (for example, to fund a construction cost overrun) or
other amounts necessary or desirable to protect the security
interest of GMAC in the Theater Project . At the present time
it is unknown if and to what extent such additional amounts
will be required, but it could range from a nominal dollar
amount to significant additional dollar amounts .
Although not specifically provided in the DDA, for policy
reasons the Agency may wish to consider allowing GMAC to make
additional project-related capital or operation and
maintenance advances under additional advance item (iii) ,
above if for no other reason than to assure that the
construction project is completed. Any advance under (iii)
would probably be made by GMAC only after the Construction
Guaranty could not be drawn when needed or if under the DDA
either or both the Theater Developer and the Agency default or
do not pay their required 25%-Theater Developer and 750-Agency
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shares of construction cost overruns and other required
expenses .
This Section has been clarified GMAC as requested by the
Agency staff .
5 . Section 1 . (e) - subordination provision stating that the
Agreement shall remain in effect until the GMAC loan is repaid
in full .
6 . Section 1 . (f) - intercreditor arrangement allowing the Agency
to receive payments as scheduled under the $7 . OM Section 108
Agency second loan and the Agency third loan so long as there
is no default under the GMAC loan.
The Agency is only able to receive such loan repayments after
all normal and necessary operating expenses have been paid and
other payments and deposits have been made as required under
the GMAC loan documents . Under DDA Section 2 . 05 (iii) the
Developer may advance the operating expenses and receive
repayments either on a subordinate basis or on a priority
basis as provided therein. This provision provides assurance
to the lenders that the physical aspects, operations and
function of the Theater Project are maintained. Without
maintenance of the project, the security interests of all
parties will be diminished. Furthermore, the lease with the
Theater Operator is a triple-net lease with the Theater
Operator being responsible for paying all operating expenses
of the Theater in any event .
Under the terms of the DDA and the cost-sharing formula for
the payment of operating cost deficiencies between the Theater
Developer and the Agency if this provision of Section 1 . (f) of
the Agreement is ever invoked, the Agency will find that the
Theater Operator has already defaulted under the Theater Lease
and both GMAC and the Agency have other rights and remedies
against both the Theater Operator and the Theater Developer in
addition to what this Section provides .
7 . Section 1 . (g) - intercreditor arrangement that provides for
notices by the Agency to GMAC if there is any default by the
Theater Developer under the second loan or the third loan .
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Certain language was deleted at the request of the Agency
staff that would have limited the ability of the Agency to
declare a default by the Theater Developer under the Agency
second and third loans .
8 . Section 1 . (h) - intercreditor arrangement requiring GMAC to
provide notices of default under the GMAC loan to both the
Theater Developer and the Agency. GMAC has provided the
Agency with the right, but not requiring it as an obligation,
to cure any default by the Theater Developer under the same
terms as provided in the GMAC loan.
9 . Section 1 . (i) - intercreditor arrangement that gives the
Agency the right to purchase the GMAC loan under a "Purchasing
Event" as defined therein . It is unlikely that the Agency
would ever exercise such an option because of both the need to
have the full cash amount available and to comply with the
other circumstances related to the requirement of a Purchasing
Event . However, this is another method to eliminate GMAC
entirely from the project financing if the Theater Developer
is in default . Additional language was added to allow for an
assignment by the Agency of this right to purchase the GMAC
loan to HUD without any approval from GMAC. Assignments to
other persons of this purchase right must be approved by GMAC .
Likewise, it is unlikely that the Agency would ever seek to
assign this purchase right unless it was a part of total
restructuring of the Theater project and ownership with the
consent of all parties .
10 . Section 1 . (j ) - subordination provision and intercreditor
arrangement that initially was intended to completely restrict
the Agency from exercising any rights or remedies against the
Theater Developer while the GMAC loan was outstanding . By the
inclusion of the added language in the last two sentences,
this essentially eliminates the "stand still" provision that
had been objected to previously during the construction
period.
The Agency is required to give GMAC 15 days' written notice of
any default by the Theater Developer under the Agency second
or third loans prior to exercising any rights or remedies
against the Theater Developer or filing any judicial or
nonjudicial foreclosure action against the Theater Developer.
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11 . Section 2 . (a) - subordination language wherein the Agency
agrees that its loans are subordinate to the GMAC loan but
placing limitations on GMAC that the amount of any such prior
loan must be in compliance with Section 1 . (d) (see discussion
under point 4 above and the $3 . 6M limitation plus the other
agreed upon expense items) .
12 . Section 2 . (b) - subordination language and intercreditor
arrangement that allows GMAC and the Theater Developer to
modify the GMAC loan but always subject to the limitations as
discussed in discussion points 4 and 11, above, as to the
$3 . 6M limitation and the other agreed upon expense items .
GMAC is not required to certify that any advances are in fact
for the benefit of the Theater Project although such advances
can only be used for the Theater Project . The last sentence
of this Section of the Agreement is not intended to give GMAC
the right to make advances secured by the Theater Project for
other activities or other projects of the Theater Developer .
Instead, this provision addresses recent case law which held
a senior lender responsible for insuring that disbursed funds
were actually used for a specific purpose . All disbursements
by GMAC are limited by the Fiscal Agent Agreement for
construction fund disbursements and Section 1 . (d) .
13 . Section 3 . - subordination language that includes any
disbursements that are applied by the Theater Developer for
improper or unpermitted purposes . If there were any such
misuse of funds, the Agency would have rights against the
Theater Developer under the DDA and the Theater Tenant under
the separate agreement between the Theater Tenant and the
Agency, plus GMAC would be liable to the Agency if it
knowingly disbursed funds for unauthorized purposes and
attempted to maintain the subordination as to such
unauthorized disbursements .
14 . Section 4 . (a) and (b) - intercreditor arrangement dealing with
bankruptcy by the Theater Developer . This provision is
significant as it does present a risk to the Agency in the
event that the Agency is required to pursue its rights and
remedies under Section 1 . (j ) . If the Agency were to initiate
a foreclosure action against the Theater Developer and if the
Theater Developer then files for bankruptcy protection, the
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Agency may not receive any further payments after the filing
of the bankruptcy proceeding. This means that after a
bankruptcy proceeding is commenced, the Agency could not
receive any further payments from the Theater Developer until
the GMAC loan has been paid in full .
Although this provision will limit the circumstances under
which the Agency may even wish to pursue rights and remedies
against the Theater Developer, the point of view from GMAC is
that without such a provision, there is no other way currently
known to GMAC to prevent what is commonly referred to as a
"cram down" in a bankruptcy proceeding (e .g. : a court-ordered
reduction of the secured amount of its first lien position
loan) . This means that without this provision the Agency
could, notwithstanding the objections of GMAC, propose or join
in a reorganization plan that would require all secured
lenders (which would be GMAC for the first loan and the Agency
for the second and the third loans) to accept the same
proportionate amount of their loan repayment upon a sale of
the Theater Project under the direction of the federal
bankruptcy court, or reduce the amount timing and payment
procedures under the senior loan. The federal bankruptcy
court could order that each lender accept a proportionate
amount of their respective loans from such sales proceeds or
reduce the amount of the secured senior debt . We are informed
that this type of "anti-cram down" provision is commonly asked
for in complicated private development project financing
documents .
_ This provision would require that in any bankruptcy sale or
other bankruptcy court order, the Agency agrees with GMAC
outside of and prior to the bankruptcy proceeding, that GMAC
will be paid first, but solely from an asset distribution of
the Theater Project .
Any attorney representing municipal clients under
circumstances such as the proposed Theater financing or other
attorneys representing private subordinate lenders would be
obligated to object to this provision on behalf of their
clients and seek its removal . Likewise, attorneys who
represent first lenders would recommend to their lender
clients that this type of provision must be included in their
loan documents to avoid the downside of bankruptcy proceedings
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which have been detrimental to senior lenders in recent years .
The fairness of this issue from the point of view of the
senior lender is that a subordinate lender should not have any
greater prospects for repayment in the event of the bankruptcy
of a borrower than agreed to in the subordination agreement
among the lenders in a non-bankruptcy situation. However, the
proposed Theater financing transaction involves the use of two
sources of governmental funds in an equally complex
transaction but where the subordinated governmental funds
account for approximately 70% of the total project financing.
The Commission must be informed as to the inclusion of this
provision. Given the concerns as to any potential bankruptcy
proceeding by the Theater Developer, we are informed that this
provision will remain in the Agreement based upon current GMAC
standard practice which are in turn consistent with the
current standard practices of other lenders in similarly
complex private financing transactions .
P
15 . Sections S . through 14 . - standard language for any such
agreement and nothing of significance except for the
attorneys' fees in Section 11 which should include the
standard language required by the City Attorney to recapture
both costs of outside counsel and City Attorney Staff .
16 . Section 15 . - This Section of the Agreement restates the
obligation of the Agency to subordinate the Agency second loan
and the Agency third loan to the permanent financing which
will be provided by GMAC upon completion of the construction
of the Theater Project . The provisions of Section 15 . 0 of the
Agency Section 108 Loan Agreement, limit the ability of the
Theater Developer to undertake additional refinancings of the
permanent loan for amounts which are greater than the
principal amount that is then owed. Section 15 . 0 of the
Section 108 Loan Agreement requires the Agency to maintain the
subordinate position of the second and third loans to
"permitted refinancings" as defined therein.
This Section does provide that the terms of the permanent loan
subordination agreement will differ from that contained in the
Subordination and Intercreditor Agreement for the construction
financing. The Agency may at any time pay off the permanent
loan plus any applicable prepayment premium, but the Agency
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may not purchase the permanent loan -- in contrast with its
right to purchase the construction loan for the reasons set
forth below. The Agency may not exercise any remedies against
the Theater Developer while the permanent loan is in effect
without obtaining the prior written consent of GMAC . The
added language as noted on the attached draft of Section 15
incorporates the stand-still provisions into the Subordination
Agreement for the GMAC permanent loan.
We are informed that the permanent loan will be sold by GMAC
on the secondary market through a pooling of other permanent
loans . GMAC indicates that there is little if no discretion
as to the terms and conditions contained in the pooled
permanent loans which the underwriter will accept . The
underwriter seeking to resell the mortgage instruments will
consider what provisions are acceptable . GMAC asserts that
this provisions is contained in the normal course of its
lending activities given the sophisticated nature of the
secondary mortgage market and the need for uniformity of
mortgage instruments used in the securitization of other
marketable securities that are being sold to the public as
investments . However, as was indicated earlier this
' particular Theater financing involves a governmental agency
providing a subordinated second loan and third loan equal to
approximately 70% of the project costs .
OTHER ISSUES :
Local HUD environmental review officials have indicated that the
environmental proceedings for the Section 108 Loan component of the
Theater Project may be deficient in that consultation was not
undertaken with the State Historic Preservation Officer ("SHPO")
prior to certain demolition work being conducted on the site of the
Theater Project . The first HUD required environmental proceeding
for the Theater Project was initiated in August 1997 . HUD approval
of the Section 108 loan was granted in December 1997, and three (3)
structures on the Theater site were demolished in March to May 1998
with non-HUD funds of the EDA. However, HUD determined in July
1998 that the earlier 1997 environmental notice needed to be
republished and has also indicated that SHPO should have been
separately consulted during the process, in addition to the
consultations or notification previously given to SHPO under the
CEQA process as completed for the Theater Project in April 1997 .
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It is uncertain at this time whether HUD will allow the immediate
release of the Section 108 funds prior to receipt of clearance from
SHPO or the time frame in which the EDA can expect to receive both
the SHPO clearance and the approval by HUD of the release of funds
under the Section 108 loan. Additional details, on this topic will
be provided as information becomes available .
Under Section 2 . 03 . a . of the DDA between the Agency and the Theater
Developer, the Theater Developer has the right to approve all terms
and conditions, including interest rate, on the Section 108
financing. The Agency' s obligations under the DDA to provide the
$7 . 0M second loan to be funded from the proceeds of the Section 108
loan are contingent upon the receipt of the proceeds by the Agency
of the Section 108 loan.
RECOMMENDATIONS :
Staff recommends that the Commission approve the Subordination and
Intercreditor Agreement for the following reasons :
1 . the Agency is required to maintain both the second loan and
the third loan in a subordinate position to that of any
construction and permanent loan that complies with both the
DDA and the Section 108 Loan Agreement, and, as a policy
matter, the Commission could adopt the form of the GMAC
Subordination and Intercreditor Agreement on the grounds that
it is reasonably satisfactory to the Agency; and
2 . although the intercreditor aspects of this Agreement and the
restrictions upon the Agency under the proposed permanent loan
subordination agreement significantly limit certain of the
rights and remedies of the Agency, such provisions are
commonly required by senior lenders in complex private
development project financing transactions under current
market conditions .
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RECORDING REQUESTED 13Y
AND WHEN RF,CORDED:MAIL TO:
ALLEN, MATIMS, LEM GAMBLE
& MALLORY LLP
18400 von Kaiman,Fourth Floor
Irvine, California 92612-1597
Attention Arne lii. Ylokow, Esq
(Space Above For Recorder's Lse)
SIMORD1,NATION AND INTERCREDMI. GRVEM. EN
NOTICE- THIS SUBORDLYATION AND INTERCREDITOR AGREEMENT
RESULTS rN YOUR SECURITY rN7EREST IN THE PROPERTY
BECOMING SUBJECT TO AND OF LOWER PRIORITY THAN THE
LIEN OF SOME OTHER OR LATER SECURPIY INSTRUMENT
This SUBORDLNATION AND RiTFRCREDITOR AGREEMENT
("A�eement")is dared as of_ 1998,by and among MDA"SAN
aRNARDINO ASSOCIATES, L.L.C., a Delaware limited liability company ("Borrower"�
GMAC COMMERCIAL MORTGAGE CORPORATION, a California corporation("Senior
Lender") and the REDEVELOPMENT AGENCY OF THE CITY OF SAN BERNARDINO, a
body corporate and politic ("Junior Lends").
1Z€�IIA1��
A. Conc==Tly herewith, Borrower is the owner of approximately 137,000
square feet of unimproved real property located at the northwest corner of the iutenectiou of 4th
Street =4 E Street in the City of San Bernardino, San Bernardino County, California
("property"I which is referred to in the DDA (deHoed below) as the Theater Parcel and the
Common Area Parcel as mare particularly described in txhibir "A" azzachod hereto and
incorporated herein by this reference.
B. Senior Leader is making a loan("Senior Loan")to Borrower pursuant to a
Construction Loan Agreement of even data herewith("Senior Loan Agreemenf j to pay for put
of the cost of,;ouszructing an 80,000 square foot, twenty (20) screen theater and relined
improvements and facilities as more partimlarly described in the Senior Loan Agreement (the
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"Thea_w pLooje t.)whose sole tenant sbaU be CinanaStar Luxury Theater, Inc (' can "). The
Sedor Loan is fitrtbw ev C=*d by a Promissory Note of even date thervw'Th in the original
principal amoum of Three Jvtill=, Six Hundred Thousand and Non 00 Dollars($3,600,000)
("Senior Note"), which is segued by, among other things, (i) a Deed of Trust, Security
Agreement,Assignment of Lewes and Rents and Fixture Filing("Senior Deed of Trust") dated of
even date tbecewilb, (ti) an Assignment of Leases and Rents, assigning to Senior Lender all leases
afFecting the Property, including the Multi-flex Theater Lease dared Docember 20, 1996,38
amended,between Borrower, as landlord, and Tenant("CinemaSTar Lease"), and all rents derived
from all such leases ("Senior Lease Ass-itt=ellll; (iii)an Assignment of Developer's Rights
under Agency Development A-9rI!&m =s assigning, among other things, to Senior Leader all of
Borrower's rights under that certain Disposition and Development Agreement dated October 29,
1996 ("gldd") (,'Senior A?encv Assignment*), and conseta thereto executed by Junior Leader
and The Agency, and(iv) an Assignment of Letter of Credit("the Senior Letter of Credit
Assignment") executed by Borrower and Tenant in favor of Senior Lender, assigning to Leader
that certain letter of credit in the amount of$2,000,000 ("Te tam Letter of Credit's issued by
Tenant under the Cinema Star Lease. The Sestior Loan is also secured by a completion guaranty
("Senior Comejerion Quaran tv,) fromHFG Associates LLC, a Delaware limited liability company
("Guarantor ) of even date herewith. The Sailor Loan Agreement, the Senior Note, the Senior
Deed of Trust,the Senior Lease Assignment, The Senior Agency Assignment, the Senior Letter of
Credit Assignment, the Senior Completion Guaranty and all other documents governing,
evidencing or securing the Senior Loan are bereinafter collectively referred w as the "Senior Loan
Documents'.
C. Concurrently herewith, Junior Leader is tnaking a loan("Second Loan") to
Borrower pursuant to that certain 1998 Community Development Block Grant Program
Section 108 Project Development Loan Agreement("Second Loan Age=tut") dated
1998 for payment of certain costs associated with the development, construction,
unprovemem and financing of the Theater Project. The Second Loan is evidenced by a
Promissory Note of even date herewith in the original principal amount of Seven Million Dollars
($7,000,000)("Second Note") which is secured by a Deed of Trust and Assignment of Rents
("Second Deed of Trani 1) of even date herewith and recorded in the Official Records on
1998 as Instrument No. , creating a second lien against the Property
in favor of Junior Lender (subject and subordinate to the rights of Senior Lender under the Senior
Loan Dowmerus). The Second Loan Agreement, the Second Note and the Second Deed of
Trust, together with all other documents governing, evidencing or securing the Second Loan are
hereina$rs collectively referred to as the "Second Loan Documents"
D. Junior Lender has also covemaracd under the DDA to provide a Theater
Project development cost contribution in the amount of One Million Threa Hundred Tweary-Four
Thousand Five Hundred Seventy-Five Dollars($1,324,575) (the "Agency Contribution Loan")
which is evidenced by a promissory note of even date herewith of Borrower delivered to Junror
Lender(the "Third Loan") which is secured by a third priority deed of trust emcumberng the
Property(the "Third Deed of Trust'). The Third Note and the Third Deed of Trust, together with
all other documents goveming, evidencing or securing the Agency Contribution Loan are
hereinafter collectively referred to as the "Third Loan}))ocuuments". The Second Deed of Trust
and the Third Deed of Trust are collectively hereinafter referred to as the"Junior Deeds of Trust"
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E. It is a condition.precedent to Borrower's obtaining the Senior Loan that
(a)the Seeder Deed of Trust constitutes a fuse position lien against the property and is prior and
superior to the Second Deed of Trust and the Third Deed of Trust (and all indebtedness st;=ad
thereby)and to nay right or interest Junior Lender has in,to or against the Property or the
Borrower, under any conrracts or agreements arTocting the Property or any pan thereof except as
may be provided in that certain Declaration of Covenants, Conditions and Restrictions dated
and recorded against the Property as Instrument No. is the
Of&ial Records ("CCJ-Rs") aid that contain Parking Agreement dated between
Borrower and Junior Lender recorded against the Property and certain other property upon which
the Parldag Spaces(as defined in the Parking Agrecrac t) are located as Instrument No.
in the Official Records ("Parking Agreement"), and (b)Junior Lender and Borrower
agree that all indebtedness and obligations now or hereafter aecured by the Senior Deed of Trust
shall be fully paid and performed prior to payment of any indebtedness evidenced by the Junior
Note and the Third Nate or otherwise secured by the Junior Deed of Trust or the Third Deed of
Tnist, respectively, except as expressly provided in Paragraph 1(f)bereinbelow
F. Concurrently herewith, Senior Lender, Junior Lender, Borrower and
("Fiwal ba ") are entering into a Fiscal Agent Construction Loan Disbursement
Control Agreement ("l j§cal Agent Agreement") to coordinate disbursement of the proceeds of
the Senior Loan,the Second Loan, the Agency Co=-butioa Loan and the Developer
Contribution to pay for the cost of constructing the Theater Project.
AQtF,FL`4ENT .
NOW, THEREFORE, in order to induce Senior Lender to snake the Senior Loan
and advances as provided is the Senior Loan Documents, the parties hereto hereby agree as
follows:
I. Subordination of Debt. Junior Lander agees as follows:
(a) All indebtedness evidenced by the Second Note, or otherwise now
or hereafter secured by the Second Deed of Trust, and say amendments or extensions
thereof(collectively, the "Second j ebte era") and all indebtedness evidenced by the
Third Nero, or otherwise now or hereafter secured by the Third Deed of Trust, and any
amendments or extensions thereof(collectively, the "Third indebtedness") shad be and
hereby is subordinated and the payment therefor is deferred to any and all rights, claims,
demands, indebtedness, action or causes of anion of any nature whatsoever that Senior
Lender may now or hereafter have against Borrower or the Property or any presetir or
future claim or indebtedness,judgment or decree against Borrower or the Property arising
our of or relating to the Senior Note,the Senior Loan or otherwise secured by the Senior
Deed of Trust arising under the Senior Loan Agreement (collectively, the`Senior
Indebtedness"), except as expressly provided is subparagaph(f) below. The Second
Indebtedness and the Third Indebtedness are hereinafter referred to as the "Junior
Indebtedness".
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(b) If Junior Leader shall commence, prosecute or participate in aay
stilt, action or proceeding against Sosowa'n eentravenrion of the term,of this
Senior Lender May interpose as a defense the making of this Subordination
Agreement and Senior Lender May intervene and interpose such defense or plea in Senior
Leaders tisane or in the name of the Borrower. If Junior Leader shall ahem to enforce
any chattel or teal eu=mortgages or any lien insttumaus or encumbrances, including,
without limitation, the Junior Deed of Tsust in contravention with the terms of this
Agr== Senior Lender may by virtue of this Subordination Agreeme3tir restrain the
eaforcemeat thereof in Senior Leader's name or in the name of Borrower. If Junior
(.ender obtains any payments, monies, or other assets is excess of the amounts to which
Junior Lender is eautled pursuant to this Agreement as a result of any administrative, legal
or equitable action, or otherwise, Junior Lender shall immediately pay, deliver, and assign
to Senior Lander any such excess payments, monies, or other assets for application to the
Senior Indebtedness(and while held by Junior Leader, all such payments, monies or other
assets so received shall be held in trust by Junior Lender for the benefit of Senior Lender)
(c) Borrower agrees that it will not, so long as any of the Senior
Indebtedness remains unpaid, without Senior Leaders prior written wnsent, pay to Junior
Leader any sum on account of the Junior Indebtedness (whether it be pnncipal, interest or
otherwise), except as expressly provided in subparagraph(t) below.
(d) Scaior Leader may grant extensions of the time of payment or
performance to and make compromises and settlements with Borrower in connection with
the Senior Loan without the consent of and without affecting the agreements of Junior
Lender or Borrower hereunder, provided, however, that toot 'twt hHnding any other
provision of this Ateement to the nn ry the maximum principal amount of the Senior
Indebtedness shall not exceed the stun of Threc Mullion Six Hundred T'aousaad Dollars
(53,600,000) phis any and all accrued and unpaid interest owmg on the Senior Loan plus
any charges, fees, expenses, pre:paymeai prcmuuma and od= amouma due and owing
under the Senior Loan Documents and any and all additional advances, whether obligatory
or optional, trade by Senior Leader in connection with Elie development consmicnan_
improvement use or Qwnerghyp of the Theater Project and/or the I•>rooerty of which In
SCU;or r __d_'_ reasonable :1jefig ent is necessary or desirable to protect am or peeserve
Senior L end -'s sec rite 'metes+ in the Progert such m by way of examnle but not by
way oflimirtti n payment of progeny t�d€S assesveA against the Property.
(e) This Subordination agreement shall continue in full force.and effect
until Senior Lender shall have been paid in full on all indebtedness owing under, arising
out of or relating to the Senior Loan.
(f) Notwithstanding anything to the contrary contained he min, so long
as no Event of Default exists under the Senior Loan Documents, Junior Lender shall be
entitled to receive scheduled payments of principal and interest as and when due under the
Second Note and Third Note, bur only after payment of all normal and necessary
operating expenses for the property and all installment and other payments and deposits
due under the Senior Loan Documents.
0082540.1 o9MRG 313 5.031 R)9-I 1-e en4h
Sep-11-98 '05:20pa FrwGREENBERG,GLUSKER 310-553-0687 T-431 P.08/17 F-021
(g) Junior Leader shall promptly also provide Senior Lender with
copies of any notice$of default C1+1ricr Dei9ulr Noise")with respect to either the
Second Loan or the Agency Contribution Loan(collectively, the"Junior Loans'") sent to
Borrower. Junior Lender acl=wledges that so long as either of the Junior Loans is
secured by a deed of trust or other lien or mortgage encumbering any property which is
collateral for the Senior Loan, then a default by Borrower under the Second Loan
Documents or the Third Loan Documents, as applicable(which is not cured within any
applicable grace periods) ("Jurinr Default") shall constitute aq l:yaaLpf Apef,"t under
the Senior Loan Dociunettts.
(b) Senior Lender shall promptly provide Junior Lender with copies of
gay notice of default with respect to the Senior Loan sent to Borrower.. Junior Lender
"have the right, but not the obligation, to sue any default by Borrower to Senior
Lender under the Senior Loan within the time and manner afforded Borrower under the
Senior Loan Documents.
(i) If at any time prior to the full repayment of the Senior Loan, a
Purchasing Event occurs (as defined hereinbelow), Junior Lender shall have the right to
purchase the Senior Loan from Senior Lender for a purchase price payable in rash or
immediately available funds equal to the total amount of the Senior Indebtedness and
otherwise on terms and conditions acceptable to Senior Lender by(1) delivering written
notice of Junior Lender's exercise of such right to purchase the Senior Loan C*Fxerriar
otice")within(A) thirty (30) days afW the recordation date of the Senior Notice of
Default(derg$ below), where the Purchasing Event is a Senior Default or(B) five (5)
business days following delivery of a copy of the Senior Loan Modification to Junior
Lender where the Purchasing Event is a Senior Loan Modification and (ii)by executing
and delivering to Lender within thirty(30) days following the date of the Exercise Notice a
purchase agreement with Senior Lartder ("Loan purchase Agreement") in a form
acceptable to Senior Lender and which shall include without limitation(A) an assignment
of all of Senior Lender's right, title and interest in the Senior Loan, and each of the Senior
Loan Documents m Junior Lender, which shall include but not be limited to delivering to
Junior Lender (1) the original Senior Note, endorsed to Junior Lender without recourse
and without warranty or representation of any!rind and (2) the original Tenant Letter of
Credit (to the extent not previously drawn upon) w be held and drawn upon by the Junior
Lender in accordance with the terms of the Senior Letter of Credit Assignment and (B) a
full release of Senior Lender executed by Borrower and Junior Lender, in a form
acceptable to Senior Lender. The closing of the Loan Purchase Agreement shall occur no
later than seventy (70) days following the date of the Election Notice and in no event shall
any of the rights granted to Junior Lender hereunder delay, impair or xff= in any way
Senior Lender's rights and remedies under the Senior Loan Doaanems or in any way
delay any foreclosure sale pending as a result of a Senior Default.. Senior Leader and
Junior Lender mutually agree to exacure, acknowledge, exchange and deliver such
agreements or other instruments in recordable form as may be necessary or appropriate to
-s-
CC9szs4o ros2�x�a3zss-03 rio9 r t•9anan
Sip-11-98 -05:21ps Froe-GREENBERG,GLUSKER 310-553-0887 T-431 P.07/17 F-021
carry out the purpose and intent of this subpangrapb (i). Nothing contained herein shall
limit, delay or impair Senior Lender's tight to purme all of its rights and remedies under
W Senior Loan Documents, including without limitation, seeking the appoiatmesr of a
receiver for the Property and completing its foreclosure sale against the Property nor shall
any provision contained herein affect or impair tho enforceability or validity of any Setuor
Loan Modification (defined below)whether or not Junior Lender exercises its right to
purchase the Senior Loan Documenu as herein provided. The faihrre to deliver a copy of
any Senior Loan Modification to Junior Leader shall not invalidate, or affect the
enforceability or validity of, any such Senior Loan Modification. As used herein the term
"Purchasing Bvent" shall mean either(A) an Event ofDcfault ("Senior Default") ocaus
under the Senior Loan Documents and Senior Lender cornmeuces foreclosure proceedings
against the Property by recording a notice of default ("Senior Notice of Default") against
the Property and IIgilllei..9orrowet pQr Iunior Linder 6:s not-yet fully reinstated the
Senior Loan, or (B) if Senior Leader and Borrower eater into a material modification of
the Senior Loan Documents ("Senior Loan Modification")which is not consented to by
the Junior Lender and which constitute an$Vertu of]Default under the HUD Section 108
Loan Agreemem (as defined in the Second Loan Agreement) aS evidenced by a written
notice of default from HUD (as defined in the Second Loan Agreement) to Junior Lender
which has not been waived by HUD and there is no Senior Default then outstanding.
Tn�`Lender's right To purchase the Senior Loan under this Su section (i) are 2ersonal to
the BjWgyclQpment AQen_cy of the City of San Bernardino ("Aaence) and may not be
trudgad gr aasitmed by the Agency 16j o tT The prior written consenp_Qf Senior Lender
which may be %1aTbjle1d in Senior Lender's soled ahsoli+* diaP,,,-,,scrs�pn provided however
1b; Agency may assianjts rights uljder this subsection (i) [Ht?U
0) Junior Lender acknowledges and agrees That, until Senior Loan has
been paid in full and all of the obligations of Borrower to Senior Lander under the Senior
Loan Documents have been paid and performed in UL Junior Lender shall not without the
prior written consetn of Senior Lender..which consent may be given or withheld in Senior
Lenders sole and absolute discretion
,
er peatian t#t WF,{iv) commence, orjoin with any other creditor in cosamencing, any
bankruptcy, reorganization or insolvency proceeding with respect to Borrower or the
property; (iie) seek or obtain a receiver for the Borrower or the Property, substitute or
replace any property manager for the Property or conduct any invasive testing at the
Property; (i+ijji) take any action that would terminate any leases or other rights held or
granted by third parties with respect to the Property;
c'e,jeff the 1,Jy on the ocyyrt_eg orf a��mot Defau lL Lender shall have the
ri-hr to S_mmence my act-ion or_Fro-eedine to foreclose (either wdicial or non udiciall
against the Pro=rry and to otherwise pJ r, ue gay d2hts and renames Tar m'or I�ender miehr
have av ila ay hle against the Propstly or againg Rorrower or any. guarantor of the Junior
Loans (exwnt asbe otheruise expressly p ohibite in the Agrggmentl (colleciZti'ely
OC98254a.105lLDFUG3135�31 i0S-I:-98/lAh
Sap-I1-98 05:22pm From-GREEN BERG,GLUSKER 310-553-0687 T-431 P.08/17 F-021
Junior 7 ender's Remedies")• provided that befoM==L-jag a;V of Junior Lender's
la=SAye<i(_Thar Thin delivering to Borrower a Tumor Default Noncel Junior Lender shall
first deliver J°for I enY?leas than en(15) days prior written notice of Itmioi
T e don's in=t to da so rogober Filth a coyy of the Junior Defauh Notice_ „ eciMne the
nMroofThpArniorDefrult The Ailure of Senior Lender to take amt ajainn under the
Senior Loan Docurnerits vr-hin such IS day period shall not be deemed or construed as.&
waiver Of My of Senior T order';dghLg Or Mm•dies under the Senior Loan t)ontn a tc
inet.art wit . t lit++_tangn.The rieht to deda_re an Event ofDefauh under the Senior
Loan ri6e_ments as a result of The Junior Default
2. Subordination of Security Interest.
(a) Junior Lender hereby intentionally, unconditionally and absolutely
subordinates the lien or charge of the Junior Deeds of Trust (and all present and future
indebtedness and obligations secured thereby, including, without limitation, the
indebtedness evidenced by the Junior Notes) and the Junior Indebtedness, and all other
presetu and future rights, privileges, and interests of Junior Lender in and to the Property
pursuant to the Junior Loan Documents or under the DDA, to the lien or charge of the
Senior Deed of Trust and all rights, privileges and interests of Senior Lender in and to the
Property pursuant to the Senior Loan Documents (and subject to Paragraph 1(d) above,
P
'oar modifications, amendments thereof), and all present and
any renewals, eZteitsi sss,
future Senior Indebtedness secured thereby, shall unconditionally be and remain at all
times a lien or charge on the Property prior and superior to the lien or charge of the Junior
Deeds of True(and all present and future indebtedness and obligations secured thereby,
including, without limitation, the indebtedness evidenced by the Junior Notes) and all
other rights, privileges, and interests of Junior Leader in and to the Property.
(b) Notwithstanding anything to the contrary contained its the Junior
Notes, Junior Deeds of Trust or any other document or agreement between Junior Lender
and Borrower, bun suhiect to the limitations ;et forth in o en2h I(d) above Junior
Leader hereby consents and agrees that Senior Lender may, at any time and from time to
time, emend, renew,waive, accelerate, or otherwise change any of the testes or provisions
of the Senior Loan Documents, including without limitation, increase the principal amount
of the Senior Loan (subject to Paragraph 1(d) above), change the rase of interest or the
time and manner for principal and interest payments, and release or reconvey any security
for the Senior Loan subject to Junior Lender's right to purchase the Senior Loan
Documents in the event of a Senior Loan Modification as provided in Paragraph 10)
above. Any such supplement, modification, amendment, extension, renewal, waiver,
acceleration, or chaaga to any of the terms or provisions of the Senior Loan Documents
shall not afftct this Subordination Agreement. Nothing contained herein shall obligate
Senior Lender to confirm or insure that any advances trade under the Senior Loan have in
fact been used To improve, maintain, preserve or otherwise benefit the Property
3. DisburaPniml of Saniot Loan ptoczeds. Junior Lender acknowledges and
agrees that any application or use by Borrower of any disbursements of the proceeds from the
OC982540.1054-M'03235-03D, 11-981dh
SIP-I1-98 '05:23pm Free-GREENBERG,GLUSKER 310-553-0687 T-431 P.09/17 F-021
Senior Loan for any improper or unperrmned purposes shall not defeat the subordination and
other agreements herein made, in whole or in pan
4. Bankragtcv- No Payments to Junior Lender.
(a) During (i)the conrinuaace of a defaulr under the Senior Loan
I)ocumeats, or(4) is the event of any liquidation or dissolution of Borrower, or of say
execution sale, receivership, insolvency, bankruptcy, liquidation, readjustment
reorganization or other similar proceeding relative to Borrower or rbe Property
(coUctively, a n9anlauptcy the Junior Leader shall not be entitled to receive or
retain any further payment or prepayment made after such Bankruptcy Event under the
Junior Loans (including, without limitation, the Permitted Paynuntts) and all amounts due
under the Senior Loan or secured by the Senior Deed of Trust shall be first paid in full
before any payment is made under either of the Junior Loans In the event such a payment
is nevertheless received by Junior Lender, such amounts immediately shall be paid over to
Senior Lender for application in payment of the Senior Loan. For the purposes of this
Agreement, the Senior Loan shall not be deemed paid or satisfied in full until such time
That a n y t refeence period applicable to any payment received by Senior Leader has urn
and such payment is therefore not subject to disgorgement. In connection with any
Bankruptcy Event or any proceedings relating thereto ("Bankruntcv Proceedina^), Junior
Lender agrees that, unless and until it has obtained Senior Leaders prior written consent
(which consent may be given or withheld in Senior Lenders sole and absolum discretion),
Junior Lender shall take no action that may impair, affect or otherwise alter in any way
Senior Lender's interests or claims in such Bankruptcy Proceeding including, without
limitation, in connecdon with any vote to accept a plan of reorganization which is not
acceptable to Senior Lender, in its sole discretion, any cash collateral or adequate
protection issues, any trustee appointment issues, any plan exclusivity issues, any claim
subordination issues(as bervccn Senior Lender and any of Borrowers creditors, including
Junior Leader), any motion to dismiss, any claim voring enritlements (excluding Junior
Lender's claim) or any other matters penaining to the extent, validity or priority of Senior
Lender's liens, rights and entitlements. Notwithstanding the foregoing, Jura or Lender may
file a claim in the Bankruptcy Proceeding subject to the foregoing restrictions and
limitations.
(b) From and after the occurrence of a Bankruptcy Evear, any and all
distributions, claims, awards or other amounts paid or payable to Junior Lender under the
Junior Loan Documents or otherwise shall be paid first to Senior Lender, and Senior
Lander shall apply such amounts to the full and prior payment of the Senior Loan as
originally written, provided, however, that the balance of such amounts, after paying the
Senior Loan as originally written in M, shall be paid to Junior Lender for application
against the Junior Loans. Junior Lender further agrees to execute and deliver to Senior
Lender such assign meat or other instruments as maybe rcgwred by Senior Lender in
order to enable Senior Lender to collect any and all such payments or disbursements
otherwise payable to Junior Leader
. -8-
OC982i40.105/LpF31G3235-031/09-1 I.98!]da
S0-I1-98 15:23ps FrorGREENBERG,GLUSKER 310-553-0687 T-431 P.10/17 F-021
I .
Notwithstanding the occurrence of a Bu&vptcy Event, Junior Lender shall be
entitled to receive the permitted payments w such time, if ever, all pending Bankruptcy
proceedings have been dismissed, there are no Baalauptcy Events then continuing and the Senior
Loan bas bean=y rdnstased within the tithe and is the manner permitted under applicable
California law, including, without limitation,payment of all amounts duo and owing undo the
Senior Loan Documents, and cure of all defaults under the Senior Loan to the satisfaction of
Senior Lender.
5. Further Ass'maces. So long as the Senior Dead of Trust shall remain a
Ilea upon the Property or any part thereof, Junior Lander shall execute, acknowledge and deliver,
upon Sensor Lender's demand, at say time or from time to time, any and all fiather
subordination, agreements or other instruments in recordable form as Senior Lander may
reasonably require for carrying out the purpose and intent of the covenants contained herein.
6. Entire AUZ4uM This Agreement shall be the entire agreement with
regard to the talsordinatinn of the Junior Losn Docnunents to the lien or charge of the Senior
Loan Documents, and 3W supersede and cancel any prior agreements as to such subordination,
including, without limitation, those provisions(if any)contained in the Senior Loan Documents or
in the Junior Loan Documents which provide for the subordination of any further encumbrances
to the lien of the Senior Loan Documents. As between Senior Lender and Junior Lender, to the
extent of any conflict berwcen the terms hereof and the terms of the Senior Loan Documerus or
the Junior Loan Docunems, the terms hereof shall control.
7. Junior Lender's Covenants snd Care of Default. Junior
Lender hereby further confirms to and covenants with Senior Lender as follows-
(a) Amlor Lender has delivered to Senior Lender true and complete
copies of the Junior Loan Documents and the DDA, and such documents have not been
amended, modified or supplemented in any way.
(b) Junior Lender has received and reviewed the Senior Loan
Documents.
(c) Junior Lender shall not enter into any agreement to amend or
modify any of the Junior Loan Documents or the DDA without notice to, and the prior
written consent g Senior Lender (which consent shall not be unreasonably withheld)
(d) Notwithstanding any provision of the Junior Loan Documents to
the contrary, Samar Lender shall be entitled to rely upon Borrower's execution of any
amendment, modification, consent or writing cotncermag or relating to the Senior Loan as
conclusive evidence of Borrowers duly authorised execution and delivery thereof.
8. Notices. A.0 norices expressly provided hereunder to be given shall be in
writing and shall be(i) hand-delivered, effective upon receipt, (ii) sent by United Stoma Express
Mail or by private overnight courier, effective upon receipt, or (iii) served by certified mail. Any
such notice or demand served by certified mail, return receipt requested, shall be deposited in the
.9_
OC982540.10SWfU03235-031 t0941-984dlh
SGa-11-88 05:24po From-GREENBERG,GLUSKER 310-553-0687 T-431 P.11/17 F-021
United States tuaa,with postage thereon fully prepaid and addressed to the party so to be served
at its address above stated or at such ocher address of which said patty shall have theretofore
datiW in writing, u provided above, the parry giving such notice. Service of say such notice or
demand so made shall be daemcd effective on the day of actual delivery as shown by the
addressee's return recwpt or the expiration of three(3)business days after the date of mailing,
whichever is the earlier in time Notices to be saved hercaadcr shalt,be addressed to the
appropriate address set forth hermnbeiow, or at such other plea as Senior Leader or Jtmtor
Leader toay from nmt to time designate in writing by ten (10) days prior written notice thereof.
Notices to Borrower shall be addressed as follows•
MI)A-San Bernardino Associates
300 Continental Boulevard, Suite 360
El Segundo, California 90245
Atuation: W. Jason Kamm
Notices to Senior Lender Shall be addressed as follows:
GMAC Commercial Mortgage Corporation
100 South Wacker Drive, Suite 400
Chicago, Illinois 60606
Attention: Phillip J. Keel
Notices to Junior Leader shall be addressed as follows:
Redevelopment Agency of the City of San Bernardno
201 North E Street, Third Floor
San Bernardino, California 92401-1507
Attention: Development Director
9 Governing Law This Agreement will be governed by, and consuued and
enforced in accordance with, the laws of the State of California
10 CollnmMUu. This Agreement may be signed in multiple counta7parrs with
the same effect as if all signatories had executed the same instrument. The parties bereto agree
that a srgnanwe to this Agreement produced by facsimile transmission is valid and is as effective as
an original signature.
11. Arrornev Feu and Costs. If any parry hereto brings an action or
proceeding to enforce the terms hereof or declare rights hereunder, the Prevailing Parry, as
hereinafter defined, in any such proceeding, acrioa or appeal thereon, shall be entitled to
reasonable attorneys' fees and costa. Such fees and costs shall be awarded in the same suit or
recovered in a separate suit, whether or not such action or proceeding is pursued to decision or
judgmcnr. The term"Prevailing Party" shall include, without limitation, a parry who substantially
obtains or defeats the relief sought, as the case may be, whether by compromise, settlement,
judgment or the abandonment by the other patty of its claim or defense. The attorneys' foe and
cost award shall be such as to fully reimburse all attorneys' fors and costs reasonably incurred.
-10-
OC9aZ540.1054-T)WG3235-031/09-11-9V.a
sop-11-88 05:25PM Froe-GREENEERG,GLUSKER 310-553-0687 T-431 P.12/17 F-021
1
12. No Third Pam pSpe6ciaries. This Agreement shall be for the benefit of
Senior Lander and Junior Leader, this Agreement shall not benefit Borrower, Borrower shall have
no rights hereunder, and there shall be no third parry beneficiaries, intended or otherwise, of this
Agreemm, and no party hereunder shall be liable to any person not a parry hereto for any
obliguions provided herein
13 Successors a^-+ A«er?s. This Agreement shall be;binding upon and inure
to the benefit of Senior Lender and Junior Lender and their respective successors and assigns.
14. No Marshaling of Asseu Junior Lender hereby waives any right to require
Senior Lander to marshall the asseu and/or liabilities of Borrower.
15. €urura S�tion of Junior Loses to Permanent Senior Fi=dnsr.
Junior Lender acknowledges that Borrower intends to obtain a permanent loan from Senior
Lender C Permanera Senior Loan') pursuant to that certain commitment letter dated �=ernbe
> � 1998, the proceeds of which will be used to repay the Senior Loan. Prior to the
funding of the Permanent Senior Loan, Junior Leader and Borrower agree to execute and deliver
a subordination agreement, in recordable form subordinating the Junior Loam to the Permanent
Senior Loan which shall be in substantially the same form as this Agreement hilt wbich Shall
include the right of The lunio_r_Lender to pay off the Permanent Senior LOW in M together with
av applicable - . m but excluding all tights afT'ordcd to Junior Lender to purchase
the Senior Loan as provided in Paragraph 1(t) hereof and including an 8ffirmaTive covenanr by
Junior Loder hat LB'll not yrr-ise any of Junior Lender's Remedies co long as the Perrt =
Senior Lin t m inc ntirganding_36dthout obtaining the prior written conselg of the Senior Lender
yAich consent maybe wirhMd in_$gninr ender's sole and absolute discretion and includtag such
other terms as may be reasonably required by Senior Lender.
IN WITNESS WHEREOF, the parties hereto have executed this agreement as of
the date first set forth above
NOTICE: THIS SUBORDINATION AGREEMENT CONTAINS A PROVISION WHICH
MAY ALLOW THE PERSON OBLIGATED ON YOUR REAL PROPERTY
SECURITY TO OBTAIN A LOAN A PORTION OF WHICH MAY BE
E-NPEN MFD FOR OTHER PURPOSES THAN IMPROVEMENT OF THE
PROPERTY Rl r ct 1Rj T T�SFlF I iM1TATlo�s SET FORTH TN
PAR AC.RAPH i(d) abovr
"Borrower" MDA-SAN BERNARDINO ASSOCIATES,
L.L.C., a Delaware limited liability company
By. MDA Investors No 1, L L C.,
a Delaware limited liability Company
Its. Managing Member
-ll-
OC W4G lO5,C1]FUG3"s3iU31xi�1:-98/lah
By: MIL Associates,
a California limited partnership
Its. Mana mg Member
By. MIL tuvesacaus, Inc-,
a California corporation
Its: Gewal Parmer
By:
Name_
Title.
"Senior Larder- GMAC COMMERCIAL MORTGAGE
CORPORATION, a California corporation
By:
Name:
Title:
(SIGNATURES CONTINUED)
'Junior Lender" REDEVELOPMENT AGENCY OF
THE CITY OF SAN BERNARDLNO,
a body corporate sad politic
By:
Chair of the Governing Board of the ASeacy
By: —
Secretary
By:
Executive Director
-1:-
ocn254o lo5/LonAo323.5-031709-I I-994dh
CITY OF SAN BERNA )€r� t
INTEROFFICE MEMORAN, ` iCmvDevCms.Mtg:
:7
re Ayeuan lien) ` /6
TO: Mayor Judith Valles and Common Council
/. ; L
FROM: James F. Penman, City Attorney
City ClerkICDC Secy
DATE: September 14. 1998 City of San Bernardino
RE: Status of Subordination Agreement - Downtown Theater Project
On Wednesday, September 9, 1998,the day after the last regular Council meeting,our office
received a telephone call from Attorney Deby Zurzolo advising us that GMAC was going to remove
the "stand still" language in the Subordination Agreement for the Downtown Cinema Theater
project.
On Thursday, September 10, 1998, 1 spoke by telephone with Attorney Deby Zurzolo on the
GMAC loan. Ms. Zurzolo advised me that GMAC is willing to delete the "stand still" language
provision. Because the "stand still" language is not present in only one provision, but throughout
several pages of the document. Mr. Sabo and I had agreed that we need to see a changed document
and discuss the matter directly with GMAC. Ms. Zurzolo informed me that she would fax me a draft
document and arrange a conference call later that day. On Friday, September 11, 1998 we waited
throughout the day for the fax of the revised Subordination Agreement, but it was not forthcoming.
At 3:46 p.m., Tim Sabo called me and informed me he had been on the phone with Rex Swanson
and Debbie Zurzolo discussing the Cinema Star/GMAC Subordination Agreement. Mr. Sabo said
he was informed that they do not have a revision from GMAC on the Subordination loan. There has
been a great deal of fluctuation in the last few days in the market on the rate for such loans. GMAC
cannot do what they had intended at the current rate. GMAC may now want out of the loan, Mr.
Sabo informed me.
I was further advised that the GMAC attorney on this matter had two children ill on Friday
and has not been able to work on the loan.
This morning we found a faxed revised Subordination and Intercredit Agreement from
GMAC that came in after closing Friday night. Mr. Sabo spoke with Mr. Carlyle this morning and
told him that the changes do not appear to be sufficient to resolve our objections. I have reviewed
the document and agree with Mr. Sabo's conclusion.
At 8:48 a.m. today, 12 minutes prior to the start of today's City Council/CDC meeting; we
received a second fax from Attorney Deby Zurzolo discussing the changes and warning that our
failure to approve the Agreement as modified constitutes a material breach, in their opinion, of the
Disposition and Development Agreement in this matter.
1233
1FP:ea[TheatProj.Meml 1 IYO11 11W
One possible explanation for this situation is that GMAC does in fact wish to withdraw from
this project and is purposely giving us an unacceptable agreement knowing that we will reject it,thus
giving GMAC the excuse they are looking for to decline to make the loan.
In any event, the situation with HUD described in Mr. Empedo's memo to me of September
11, 1998(copy attached)overshadows the Subordination Agreement problem. Until the HUD matter
can be resolved, assuming it is possible to resolve it, the Subordination Agreement issue is
secondary.
MES F. PENMAN
ity Attorney
Attachment l
1FP:ea[TheatProj.Meml 2
CITY OF SAN BERNARDINO
INTEROFFICE MEMORANDUM
TO: James F. Penman, City Attorney
FROM: Henry Empeiio, Jr., Deputy City Attorney
DATE: September 11, 1998
1
RE: HUD Communication Regarding Downtown Theater Project
Late Thursday afternoon on September 10, 1998, we received a copy of an E-Mail message
from Karen Choi, HUD Environmental Protection Officer, to John Hoeger, EDA Project Manager,
dated September 10, 1998, which states as follows:
"This afternoon at 2:00 p.m., I spoke with John Hoeger, Project Manager for the San
Bernardino Economic Development Agency, Development Department, and Dave
Dondek [sic], attorney for their redevelopment agency. The subject matter involved
issues and concerns raised in an objection/comment letter by Archaeological
Consulting Services, in response to a public notice of FONSI/RROF.
In an e-mail to Mr. Hoeger, I requested a copy of their response to ACS as well as a
copy of their compliance documentation with Section 106 of the National Historic
Preservation Act (NHPA) (as amended). On September 3, I received a Fed X
package of materials which included a formal response to my e-mail, including
CEQA documentation (Initial Study and CUP) and their Environmental Assessment
(NEPA document). They also indicated that a response to ACS was mailed on
August 21, 1998...the same day they faxed their Certification and RROF to HUD.
During the course of the conference call this afternoon, I raised the point that Sec.
106 compliance has yet to be completed. Although the City submitted their CEQA
documentation and all historical-related materials to the SHPO, via the State
Clearinghouse, it.still does not preclude them from formally consulting with the
SHPO under the provisions of the NHPA. I indicated that the CEQA process is
separate and does not legally take the place of the requirements under Sec. 106 of the
NHPA. However, I provided them with a contact name and phone number at the
SHPO's office, in the event they wanted to try to argue compliance with Sec. 106 thru
the process they have already completed under CEQA. I also faxed them a copy of
the implementing regulations of Sec. 106...36 CFR Part 800.
It was also discovered that the City demolished three structures on the subject site.
These actions occurred between March and May of 1998...before HUD clearance but
after award of the 108 Loan (12-9-97). Technically, the grantee are prohibited from
taking any choice-limiting actions or conducting physically impacting activities that
could have an adverse impact on the environment. Clearly, demolition smacks of
this violation...which was pointed out in my e-mail to Mr. Hoeger previously. I'm not
sure that I clearly expressed the precariousness of their actions, as it relates to our
H E xalTheatCom.mem l 1
obligation to uphold NEPA and the requirements of Part 58....basically, whether we
can legally approve their RROF. (I was thinking they demolished in 1997, not 1998,
but my notes lead me to believe 1998) For that reason, I'm copying Mr. Hoeger.
On the other hand, if they can get SHPO clearance, even though anticipatory
demolition has occurred, perhaps HUD Headquarters will rule in their favor and
allow us to release environmental grant conditions. My initial recommendation is
that we cannot legally release funds at this point. Remember too, the objection
letter from ACS points out that demolition occurred before compliance with Sec.
106. One of the permissible bases for objection at Sec. 58.75(e) states that: 'the
recipient has committed funds or incurred costs not authorized by this part before
release of funds and approval of the environmental certification by HUD...'. It might
be stretching it, but the citation does not specify HUD or non-HUD funds. I believe
the underlying concept is that it doesn't necessarily matter what funds are involved
(see Sec. 58.22). Sec. 104(g) of the HCD Act talks about commitment of funds
relative to execution of the Certification form. The program regulations also speak
to this.
I will get a reading from HUD HQ on their take as well. Please, lets talk about this
project on Friday or early next week. Perhaps Mary should be notified as well.
Karen Choi X3008" [emphasis added]
On Thursday afternoon, September 10, 1998, you, Huston Carlyle, and I met with Tim Sabo
and Dave Gondek of Sabo& Green, to discuss the EDA's options in response to this communication
from HUD. On Friday morning, September 11, 1998, I met with the EDA's environmental
consultant, Tom Dodson, along with Dave Gondek and John Hoeger to discuss the EDA's options
in response to this HUD communication. During these discussions, Mr. Hoeger, Mr. Dodson, Mr.
Gondek and I concluded that because of HUD's position, the EDA must complete more extensive
consultation with the State Office of Historic Preservation (SHPO) in accordance with 36 CFR
800.4. HUD's position, in summary, is that HUD will not release funds until after the EDA gets
SHPO's clearance that the structures already demolished were not eligible for listing in the National
Register of Historic Places maintained by the Secretary of the Interior. We also concluded that Mr.
Dodson will draft the consultation letter to SHPO and compile the documentation required by SHPO.
We also agreed that Mr. Gondek will call Ms. Choi to reschedule Mr. Hoeger's discussion with her
until after Mr. Dodson completes his research. Later this same morning, you, Mr. Gondek, and I all
together spoke by telephone with Mr. Sabo, during which we all concurred, after considering other
options, that because of HUD's position, the EDA must get clearance from SHPO.
HE:ea[TheatCom.mem] 2
OOFT
SABO & GREEN
ATTORNEYS AT LAW
A PROFESSIONAL CORPORATION
Los ANGELES ORSICS 201 NORTrr"E'STREar COACHELLA VALLEY OFFICE
Surm206
23801 CALARAsAs ROAD SAN BERNARDINO,CALIFORNIA 92401 35-325 DATE PALM DRwE
Surrs 1015 (909)383-9373 Surrz 232
CALARASAS.CALIFORNIA 91302 FAX(909)383-9379 CATHWRAL CrrY,CALIFORNIA 92234
(818)7044195 (760)770-0873
FAX(8 19)704-4729 FAX(760)770-1724
August 20, 1998
(BY: FEDERAL EXPRESS)
United States Department of
Housing and Urban Development
Attention: Mr. William McGill
Financial Services Division
451 Seventh Street, SW
Room 7180
Washington, D.C . 20410
Re : Citv of San Bernardino, California
Section 108 Loan Guarantee Program ,
Grant No . B-96-MC-06-0539
(MDA-San Bernardino Associates - Cinema Star Multi-P1ex
Theater Project)
Dear Mr . Mc Gill :
On behalf of the Redevelopment Agency of the city of San
Bernardino (the "Agency") this letter and the accompanying loan
documentation is transmitted to your attention. The United States
Department of Housing And Urban Development ("HUD") has previously
delivered a set of loan guarantee commitment documents for the MDA-
San Bernardino Associates - Cinema Star Multi-Plea Theater Project
(the "Theater Project") to the City of San Bernardino (the "City")
under cover of correspondence dated March 13, 1998 for Section 108
Loan Guarantee Program Grant No . B-96-MC-06-0539 (the "Section 108
Contract") .
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L 4 �/ �
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��
Mr . William McGill
August 20, 1998
Page 2
The City is the "Unit of General Local Government" and
the Agency is the "designated public agency borrower" as these
terms are defined in the Section 108 Contract. The proceeds of the
funds disbursed to the Agency under the Section 108 Loan Contract
will in turn be loaned by the Agency to MDA-San Bernardino
Associates, a Delaware limited liability company (the
"Borrower") for the improvement of the Theater Project .
On behalf of the Agency, I request that HUD begin the
legal review of the enclosed documents for the Theater Project in
order to confirm that in their present draft form, each appears to
be satisfactory to HUD. Under cover of a separate letter the City
and Agency will submit to your attention the fully executed form of
the HUD Section 108 Contract and related documents, together with
a completed Section 108 funds advance request . At this time, it is
our expectation that the escrow transaction described in Section
7 . 0 of Document No . 1, below will be in a condition to close during
the week of September 7, 1998 , subject to the completion by HUD of
its review of the RROF for the Theater Project and the receipt by
the Agency from HUD of an initial disbursement of funds under the
Section. 108 Contract .
The Theater Project loan documents identified below
include the key elements of the "other security" which will be
obtained by the Agency as part of the Theater Project in accordance
with the "Special Conditions and Modifications" of Paragraph 15 of
the Section 108 Contract . Other related Theater Project loan
documents are in the process of being reviewed and finalized by
GMAC-Mortgage, the Borrower, the Theater Tenant and the Agency.
Accordingly, the Theater Project documents, identified below as
numbers 1-9 are submitted to you in draft form at this time, and
are subject to minor changes as the final text of the GMAC-Mortgage
loan documents and the Agency loan documents are integrated with
the comments of the Theater Tenant and the Borrower .
The Agency will use the proceeds of the $7 . OM in Section
108 funds drawn from HUD under the Section 108 Contract, together
with certain other local funds of the Agency, to loan to the
Borrower for the construction of the Theater Project . The terms of
s=_to/ocov occ/5a:
08;20/98 2:05 zvo
Mr . William McGill
August 20, 1998
Page 3
the Agency loan of the Section 108 funds to the Borrower are set
forth in Document No . 1, below. The Borrower will also obtain a
$3 . 6M loan from GMAC Commercial Mortgage Corporation ("GMAC-
i Mortgage) for the construction of the Theater Project . The terms
of the GMAC-Mortgage loan to the Borrower are set forth in Document
No . 7 , below.
The Agency loan to the Borrower- of the Section 108 funds
(plus the other local funds to be contributed by the Agency as set
forth in Document No . 11, below) shall be subordinate to the loan
of GMAC-Mortgage . The terms of the subordination of the Agency
loans for the Theater Project are set forth in Document No . 8 ,
below .
The disbursement of funds to the Borrower for the
construction of the Theater Project will be administered by First
American Title Insurance Company, as fiscal agent of the parties,
in accordance with the terms set forth in Document No . 6, below.
However, no funds shall be disbursed to the Borrower for the
construction of the Theater Project until all of the conditions for
the close of the escrow described in Section 7 . 0 of Document No . 1,
below have been satisfied. At this time, fee title interest in the
lands on which the Theater Project will be constructed by the
Developer remain with the Agency.
The key Theater Project loan documents submitted for your
review are described as follows :
1 . $7 . OM 1998 Community Development Block Grant Program
Section 108 Development Loan Agreement, draft dated
August 14 , 1998 [Borrower and Agency]
2 . $7 . OM Section 108 Development Loan Promissory Note, draft
dated August 19, 1998 [Borrower delivers to Agency]
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08/2o/9a 2:05 r p
Mr. William McGill
August 20, 1998
Page 4
3 . S7 .OM Section 108 Development Loan Deed of Trust,
Security Agreement, Assignment of Rents and Fixtures
Filing, draft dated August 20, 1998 [Borrower
delivers to Agency]
4 . Assignment of Leases and Rents, draft dated August 14 ,
1998 (Borrower, Theater Tenant, Theater Tenant Lease
Guarantor and Agehcy] ;
5 . Agreement of Subordination, Nondisturbance and
Attcrnment, draft dated August 11, 1998 [Theater
Tenant, Borrower and Agency]
6 . Fiscal Agent Agreement, draft dated August 5, 1999
(GMAC-Mortgage, Borrower, First American Title
Insurance company and Agency]
7 . S3 . 62M Construction Loan Agreement, draft dated August 19,
1998 [GMAC-Mortgage and Borrower] ;
S . Subordination and Intercreditor Agreement, draft dated
August 13, 1998 [GMAC-Mortgage, Borrower and Agency]
9 . Draft Pro Forma Policy of Title Insurance, dated
August 13, 1998 [to be issued in final form by First
American Title Insurance Company with an endorsement
to HUD as assignee of the interests of the Agency
under Document Nos . 2-5, above]
10 . Section 108 Contract, dated March 13, 1998 (HUD, City and
Agency]
The next two documents relate to the development and
operation of the Theater Project. These documents were included as
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08/20/98 2:05 z•.o
Mr. William McGill
August 20, 1998
Page 5
i
part of the original submittal application by the Agency to HUD for
the Section 108 Contract .
11 . Disposition and Development Agreement, dated October 29,
1996 (Borrower and Agency]
12 . Multi-P1ex Theater Lease, dated December 26, 1996
If I may be of any assistance to you, please do not
hesitate to contact me at ( 909) 383-9373 .
Very truly yours
SABO S GREEN
(a� professional
Q corporation
�1/GFarl C-L
David F. Gondek
DFG: zvp
(Enclosures)
cc : Ronald Winkler
Jason Kamm
Debby Zurzolo, Esq.
Scott Rodde
Houston Carlyle, Esq.
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08/20/98 2:05 zvz
Aug-14=96 0 UP0 Fr=-GAENBERG,GLUSXER T-04T P.20/35 F-333
� 8
RECORDING REQUESTED BY
AND WHEN RECORDED MAIL T0-
ALLEN,MATKINS, LECK, GA11-MT
&MALLORY LLP
18400 Von Katmaa, Fourth Floor
Irvine, California 92612-1597
Attention* Anne E Ktokow, Esq.
(Space Above For Recorder's Use)
C:R . .MFNT
SUBORDLVATION AND 1'1VTERC'REntTnR A FF
NOTICE: THIS SUBORDINATION AND 1NTERCREDITOR AGREEMENT
RESULTS IN YOUR SECURITY INTEREST IN THE PROPERTY
BECOMING SUBJECT TO AND OF LOWER PRIORITY THAN THE
LIEN OF SOME OTHER OR LATER SECURITY INSTRUMENT
This SUBORDINATION AND INTERCREDITOR AGREEMENT
("Agreement") is dated as of . 1998, by and among MDA-SAN
BERNARDINO ASSOCIATES, L.L.C., a Delaware limited liability company ("Borrower"),
GMAC COMMERCIAL MORTGAGE CORPORATION, a California corporation (" enior
Lender") and the REDEVELOPMENT AGENCY OF THE CITY OF SAN BERNARDMO, a
body corporate and politic ("Junior Lender").
$ECITALS
A Concurrently herewith, Borrower is the owner of approximately 137,000
square feet of unimproved real property located at the northwest comer of the intersection of 4Th
Street and E Street in the City of San Bernardino, San Bernardino County, California
(" ro erT "), which is referred to in the DDA (defined below) as the Theater Parcel and the
Common Area Parcel a-i more particularly described in Exhibit "A" attached hereto and
incorporated herein by This reference.
B Senior Lender is making a loan ("Senior Loan") to Borrower pursuant to a
Construction Loan Agreement of even date herewith("Senior Loan Agreement") to pay for part
of the cost of constructing an 80,000 square foot, twenty (20) screen theater and related
improvements and facilities as more particularly described in the Senior Loan Agreement (The
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Theater Proiect")whose sole tenant shall be CinemaStar Luxury Theater, Inc ("Tenant"). The
Senior Loan is further evidenced by a Promissory Note of even date therewith in the original
principal amount of Three Mnllioa Six Hundred Thousand and No/100 Dollars (53,600,000)
("Senior Note"), which is secured by, among other things, (i) a Deed of Trust, Security
Agreemntsr, Assignment of Leases and Rents and Fixture Filing ("Senior Deed of Trust") dated of
even date therewith, (ii) an Assignment of Leases and Rents, assigning to Senior Lender all leases
affecting the Property, including the Muld-Plea Theater Lease dated December 20, 1996 between
Borrower, as landlord, and Tenant ("CinemaStar Lease"), and all rents derived from all such
leases ("Senior Lease Assignment"); (iii) as Assignment of Developers Rights under Agency
Development Agreements assigning, among other things, to Senior Lender all of Borrower's
rights under that cerWn Disposition and Development Agreement dated October 29, 1996
("DDA") ("Senior Agency Assignment"), and consent thereto executed by Junior Leader and the
Agency, and (iv) an Assigamear of Letter of Credit ("the Senior Letter of Credit Assignment")
executed by Borrower and Tenant in favor of Senior Lender, assigning to Lender that certain
letter of credit in the amount of$2,000,000 (`Tenant Letter of Credit") issued by Tenant under
the CinemaSrar Lease The Senior Loan is also seared by a completion guaranty ("$geipr
Completion Guaranty") from HFG Associates LLC, a Delaware limited liability company
(OGuaranto ") of even dare herewith. The Senior Loan Agreement, the Senior Note, the Senior
Deed of Trust, the Senior Lease Assignment, the Senior Agency Assignment, the Senior Letter of
Credit Assignment, the Senior Completion Guaranty and all other documents governing,
evidencing or securing the Senior Loan are hereinafter collectively referred to as the "Senior Loaa
Documents".
C. Concurrently herewith, Junior Lender is making a loan ("Second Loma")to
Borrower pursuant to that certain 1998 Community Development Block Grant Program
Section 108 Project Development Loan Agreement ("Second Loan Agreement") dated
1998 for payment of certain costs associated with the development, construction,
improvement and financing of the Theater Project. The Second Loan is evidenced by a
Promissory Note of even dare herewith in the original principal amount of Seven Million Dollars
($7,000,000) ("Second Note") which is secured by a Deed of Trust and Assigrunenr of Rents
("Second Deed of Trust") of even date herewith and recorded in the Official Records on
, 1998 as Instrument No. , creating a second lien against the Property
in favor of Junior Lender (subject and subordinate to the rights of Senior Lender under the Senior
Loan Documents). The Second Loan Agreement, the Second Note and the Second Deed of
Trust, together with all other documents governing, evidencing or securing the Second Loan are
hereinafter collectively referred to as the "Second Loan Documents".
D. Junior Lender has also covenanred under the DDA to provide a Theater
Project development cost contribution in the amount of One Million Three Hundred Twenty-Four
Thousand Five hundred Seventy-Five Dollars ($1,324,575) (the "Agency Contribution Loan")
which is evidenced by a promissory note of even date herewith of Borrower delivered to Junior
Lender (the "Third Loan") which is secured by a third priority deed of trust encumbering the
Property (the "Third Deed of Trust"). The Third Note and the Third Deed of Trust, together with
all other documents governing, evidencing or securing the Agency Contribution Loan are
hereinafter collectively referred to as the "Third Loan Documenrs". The Second Deed of Trust
aad the Third Deed of Trust are collectively hereinafter referred to as the "Junior Deeds of Trust"
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E It is a condition precedent to Borrower's obtaining the Senior Loan that
(a)the Senior Deed of Trust constitutes a first position lien against the Property and is prior and
superior to the Second Deed of Trust and the Third Deed of Trust (and all indebtedness secured
thereby) and to any right or interest Junior Lender has in, to or against the Property or the
Borrower, under any contends or agreements affecting the Property or any part thereof except as
may be provided in that certain Declaration of Covenants. Conditions and Restrictions dared
and recorded against the Property as Insm3mear No. in the
Official Records("aC&Rs") and that certain Parking Agreement dared between
Borrower and Junior Lender recorded against the Property and certain other property upon which
the Parking Spaces(as defined in the Parking Agreement) are located as Instrumear No
in the Official Records ("Parking Agreement"), and (b) Junior Lender and Borrower
agree that all indebtedness and obligations now or hereafter secured by the Senior Deed of Trust
shall be fully paid and performed prior to payment of any indebtedness evidenced by the Junior
Note and the Third Note or otherwise secured by the Junior Deed of Trust or the Third Deed of
Trust, respectively, except as expressly provided in Paragraph 1(f)hereinbelow
F Concurrently herewith, Senior Lender, Junior Lender, Borrower and
("Fiscal Agent") are entering into a Fiscal Agent Construcrion Loan Disbursement
Control Agreement ("Fiscal Agent agreement") to coordinate disbursement of the proceeds of
the Senior Loan, the Second Loan, the Agency Contribution Loan and the Developer
Contribution to pay for the cost of constructing the Theater Project.
A-QR-ZFMINI
NOW, THEREFORE, in order to induce Senior Lender to make the Senior Loan
and advances as provided in the Senior Loan Documents, the parties hereto hereby agree as
follows:
1 Subordination of Debt Junior Lender agrees as follows:
(a) All indebtedness evidenced by the Second Note, or otherwise now
or hereafter secured by the Second Deed of Trust, and any amendments or extensions
thereof(collectively, the "Second Indebtedness") and all indebtedness evidenced by the
Third Note, or otherwise now or hereafter secured by the Third Deed of Trust, and any
amendments or extensions thereof(collectively, the "Third indebtedness") shall be and
hereby is subordinated and the payment therefor is deferred to any and all rights, claims,
demands, indebtedness, action or causes of action of any nature whatsoever that Senior
Lender may now or hereafter have against Borrower or the Property or any present or
future claim or indebtedness, judgment or decree against Borrower or the Property arising
out of or relating to the Senior Note, the Senior Loan or otherwise secured by the Senior
Deed of Trust arising under the Senior Loan Agreement (collectively, the"Se io
Indebtedness'), except as expressly provided in subparagraph(f) below. The Second
Indebtedness and the Third Indebtedness are hereinafter referred to as the"Junior
indebtedness".
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(b) If Junior Lender shall commence, prosecute or participate in any
suit, action or proceeding against Borrower, Senior Lender may interpose as a defense the
making of this Subordination Agreement and Senior Leader may intervene and interpose
such defense or plea is Senior Lenders name or in the name of the Borrower. If Junior
Lender shall attempt to enforce any chattel or real estate mortgages or any Gen
instruments or encumbrances, including, without limitation, the Junior Deed of Trust,
Senior Lender may by virtue of this Subordination Agreement restrain the enforcement
thereof in Senior Lender's name or in the name of Borrower If Junior Lender obtains any
payments, monies; or other assets in excess of the amounts to which Junior Lender is
entitled pursuant to this Agreement as a result of any administrative, legal or equitable
action, or otherwise, Junior Lender shall immediately pay, deliver, and assign to Senior
Lender any such excess payments, monies, or other assets for application to the Senior
indebtedness (and while held by Junior Lender, all such payments, monies or other assets
so received shall be held in rrust by Junior Leader for the benefit of Senior Leader)
(c) Borrower agrees that it will not, so long as any of the Senior
indebtedness retrains unpaid, without Senior Leaders prior written consent, pay to Junior
Lender any sum oa account of the Junior Indebtedness (whether it be principal, interest or
otherwise), except as expressly provided in subparagraph (f)below
(d) Senior Leader may grant extensions of the time of payment or
performance to and make compromises and settlements with Borrower in connection with
the Senior Loan without the consent of and without affecting the agreements of Junior
Leader or Borrower hereunder, provided, however, that the maximum principal amount of
the Senior Indebtedness shall not exceed the sum of Three Million Six Hundred Thousand
Dollars (53,600,000) plus any and all accrued and unpaid interest owing on the Senior
Loan plus any charges, fees, expenses, prepayment premiums and other amounts due and
owing under the Senior Loan Documents and any and all additional advances, whether
obligatory or optional, made by Senior Leader in connection with the Theater Project.
(e) This Subordination Agreement shall continue in full force and effect
until Senior Lender shall have been paid in full on all indebtedness owing under, arising
out of or relating to the Senior Loan.
(f) Notwithstanding anything to the contrary contained herein, so long
as no Event of Default exists under the Senior Loan Documents, Junior Lender shall be
entitled to receive scheduled payments of principal and interest as and when due under the
Second Note and Third Note, but only after payment of all normal and necessary
operating expenses for the Property and all installment and other payments and deposits
due under the Senior Loan Documents.
(g) Junior Lender shall promptly also provide Senior Lender with
copies of any notices of default with respect to either the Second Loan or the Agency
Contribution Loan (collectively, the"Junior Loans") sent to Borrower. Junior Lender
acknowledges that so long as either of the Junior Loans is secured by a deed of trust or
other lien or mortgage encumbering any properry which is collateral for the Senior Loan,
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then a default by Borrower under the Second Loan Documents or the Third Loan
Documents, as applicable (which is not sued within any applicable grace periods) shall
constitute a default under the Senior Loan Documents In addition, any attempt by Junior
Lender to exercise any remedies under either the Second Loan Documents or the Third
Loan Documents, except as contemplated by this Agreement, shall constitute a defaulr
under the Senior Loaa Documents
i
(h) Senior Lender shall promptly provide Junior Lender with copies of
any notice of default with respect to the Senior Loan sent to Borrower Junior Leader
shall have the right, but not the obligation, to cure any default by Borrower to Senior
Lender under the Senior Loan within the time and mariner afforded Borrower under the
Senior Loan Documents.
(i) if at any bate prior to the hill repayment of the Senior Loan, a
Purchasing Event occurs (as defined hereinbelow), Junior Lender shall have the right to
purchase the Senior Loan from Senior Lender for a purchase price payable in cash or
immediately available fiutds equal to the total amount of the Senior Indebtedness and
otherwise on terms and conditions acceptable To Senior Lender by (i) delivering written
notice of Junior Lender's exercise of such right to purchase the Senior Loan ("Exercise
Notice")within (A) thirty (30) days after the recordation date of the Notice of Default,
where the Purchasing Event is a Senior Default or (B) five (5) business days following
delivery of a copy of the Senior Loan Modification to Junior Lender where the Purchasing
Event is a Senior Loan Modification and (ii) by executing and delivering to Lender within
4hirty(30) days following the date of the Exercise Notice a purchase agreement with
Senior Lender ("Loan Purchase Agreement") in a form acceptable to Senior Lender and
which shall include without limitation (A) an assignment of all of Senior Leader's right,
title and interest in The Senior Loan, and each of the Senior Loan Documents to Junior
Lender, which shall include but not be limited to delivering to Junior Lender(1) the
original Senior Note, endorsed to Junior Lender without recourse and without warranty or
representation of any kind and (2) the original Tenaar Letter of Credit (to the extent not
previously drawn upon) to be held and drawn upon by the Junior Lender in accordance
with the tams of the Senior Letter of Credit Assignment and (B) a full release of Senior
Lender executed by Borrower and Junior Lender, in a form acceptable To Senior Lender
The closing of the Loan Purchase Agreement shall occur no later than seventy (70) days
following the date of the Election Notice and is no event shall any of the rights granted to
Junior Lender hereunder delay, impair or affect in any way Senior Lender's rights and
remedies under the Senior Loan Documents or in any way delay any foreclosure sale
pending as a result of a Senior Default. Senior Leader and Junior Lender mutually agree
to execute, acknowledge, exchange and deliver such agreements or othez instruments in
recordable form as may be necessary or appropriate to carry out the purpose and imeat of
this subparagraph (i). Nothing contained herein shall limit, delay or impair Senior
Lender's right to pursue all of its rights and remedies under the Senior Loan Documents,
including without limitation, seeking the appointment of a receiver for the Property and
completing as foreclosure sale against the Property nor shall any provision contained
herein aifecT or impair the enforceability or validity of any Senior Loan Modification
(defined below) whether or not Junior Lender exercises its right to purchase the Senior
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Loan Documents as herein provided. The failure to deliver a copy of any Senior Loan
Modification To Junior Lender shall not invalidate, or affect the enforceability or validity
of any such Senior Loan Modification As used herein the term"Purchasing Event" shall
mean either(A) an Event of Default ("Senior Default") occurs udder the Senior Loan
Documents and Senior Leader commences foreclosure proceedings against the Property
! by recording a notice of default ("Notice of Default") against the Property and Borrower
has not yet fully reinstated the Senior Loan, or(B) if Senior Leader and Borrower enter
into a material modification of the Senior Loan Documents("Senior Loan Modification")
which is not consented to by the Junior Leader and which constitute an Event of Default
under the HUD Section 108 Loan Agreement (as defined in the Second Loan Agreement).
as evidenced by a written notice of default from HUD (as defined in the Second Loan
Agreement) to Junior Leader which has not been waived by HUD and there is no Senior
Default then outstanding.
0) Junior Lender acknowledges and agrees that, until Senior Loaa has
been paid in full and all of the obligations of Borrower to Senior Lender under the Senior
Loan Documents have been paid and performed in full, Junior Lender shill not without the
prior written consent of Senior Lender, which consent may be given or withheld in Senior
Lender's sole and absolute discretion(i) commence any action or proceeding to
foreclose(either judicial or noajudicial) against the Property, (ii) exercise any power of sale
under the Junior Deed of Trust, (iii) accept a deed in lieu of foreclosure for the Property,
or any portion thereof, (iv) commence, orjoin with any other creditor in commencing, any
bankruptcy, reorganization or insolvency proceeding with respect to Borrower or the
Property, (v) seek or obtain a receiver for The Borrower or the Property, substitute or
replace any property manager for the Property or conduct any invasive testing at the
Property, (vi) take any action that would terminate any leases or other rights held or
granted by third parties with respect to the Property, or(vu) take any other enforcement
action or pursue any rights or remedies Junior Lender might have available against the
Property, or any part or portion thereof, or against any guarantor of the Junior Loans, or
against the Borrower
2. Subordination of Security Interest.
(a) Junior Lender hereby intentionally, unconditionally and absolutely
subordinates the lien or charge of the Junior Deeds of Trust (and all present and future
indebtedness and obligations secured thereby, including, without limitation, the
indebtedness evidenced by the Junior Notes) and the Junior Indebtedness, and all other
present and future rights, privileges, and interests of Junior Lender in and to the Property
pursuant to the Junior Loan Documents or under the DDA, to the lien or charge of the
Senior Deed of Trust and all rights, privileges and interests of Senior Lender is and to the
Property pursuant to The Senior Loan Documents (and subject to Paragraph I(d) above,
any renewals, extensions, modifications, or amendments thereof), and all present and
future Senior Indebtedness secured thereby, shall unconditionally be and remain at all
times a lien or charge on the Property prior and superior to the lien or charge of the Junior
Deeds of Trust (and all present and fume indebtedness and obligations secured Thereby,
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! including, without limitation, the indebtedness evidenced by the Junior Notes) and all
other rights, privileges, and interests of Junior Leader in and to the Property.
(b) Notwithstanding anything to the contrary contained in the Junior
Notes, Junior Deeds of Trust or any other document or agreement between Junior Lender
and Borrower, Junior Leader hereby consents and agrees that Senior Lender tray, at any
time and from time to tithe, e=end, renew, waive, accelerate, or otherwise change any of
the terms or provisions of the Senior Loan Documents, including without limitation.
increase the principal amount of the Senior Loan(subject to Paragraph 1(d) above),
change the rate of interest or the time and manner for principal and interest payments, and
release or reconvey any security for the Senior Loan subject to Junior Lender's right to
purchase the Senior Loan Documents in the event of a Senior Loan Modification as
provided in Paragraph 1(i) above. Any such supplement, modification, amendment,
vacasion, renewal, waiver, acceleration, or change to any of the terms or provisions of
the Senior Loan Documents shall not affect this Subordination Agreement. Nothing
contained herein shall obligate Senior Lender to confirm or insure that any advances made
under the Senior Loan have in fact been used to improve, maintain, preserve or otherwise
benefit the Property.
3. Disbursement of Senior Loan Proceeds Junior Lender acknowledges and
agrees that any application or use by Borrower of any disbursements of the proceeds from the
Senior Loan for any improper or unpermitted purposes shall not defeat the subordiniation and
other agreements herein made, in whole or in pan
4 Bankru_prcy: No Payments to Junior Lender
(a) During (i) the continuance of a default under the Senior Loan
Documents, or (ii) in the event of any liquidation or dissolution of Borrower, or of any
execution sale, receivership, insolvency, bankruptcy, liquidation, readjustment,
reorganization or other similar proceeding relative to Borrower or the Property
(collectively, a "Bankruptcy Event"), the Junior Lender shall not be entitled to receive or
retain any further payment or prepayment made after such Bankruptcy Event under the
Junior Loans (including, without limitation, the Permitted Payments) and all amounts due
under the Senior Loan or secured by the Senior Deed of Trust shall be first paid in full
before any payment is made under either of the Junior Loans. In the event such a payment
is nevertheless received by Jumor Lender, such amounts unmediately shall be paid over to
Senior Lender for applicauon in payment of the Senior Loan. For the purposes of this
Agreement, the Senior Loan shall act be deemed paid or satisfied in full until such time
that any preference period applicable to any payment received by Senior Lender has run
and such payment is therefore not subject to disgorgement In connection with any
Bankruptcy Event or any proceedings relating thereto ("Bankruptcy Proceeding"), Junior
Lender agrees that, unless and until it has obtained Senior Lender's prior written consent
(which consent may be given or withheld in Senior Lender's sole and absolute dia'cretion),
Junior Lender shall take no action that may impair, affect or otherwise alter in any way
Senior Lender's interests or claims in such Bankruptcy Proceeding including, without
limitation, in connection with any vote to accept a plan of reorgani2ation which is not
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acceptable to Senior Leader, in its sole discretion, any cash collateral or adequate
protection issues, any trust= appointment issues, any plan exclusivity issues, any claim
subordination issues (as between Senior Lender and any of Borrower's creditors, including
Junior Leader), any motion to dismiss, any claim voting entitlements (excluding Junior
Lender's claim) or any other marten pertaining to the extent, validity or priority of Senior
Lenders liens, rights and entitlements. Notwithstanding the foregoing, Junior Lender may
file a claim in the Bankruptcy Proceeding subject to the foregoing restrictions and
limitations
(b) From and after the occurrence of a Bankruptcy Event, any and all
distributions, claims, awards or other amounts paid or payable to Junior Lender under the
Junior Loan Documents or otherwise shall be paid first to Senior Lender, and Senior
Lender shall apply such amounts to the full and prior payment of the Senior Loan as
originally written, provided, however, that the balance of such amounts, after paying the
Senior Loan as originally written in full, shall be paid to Junior Lender for application
against the Junior Loans. Junior Lender fuuther agrees to execute and deliver to Senior
Lender such assignments or other instruments as may be required by Senior Lender in
order to enable Senior Lender to collect any and all such payments or disbursements
otherwise payable to Junior Lender.
Notwithstanding the occurrence of a Bankruptcy Event, Junior Lender shall be
entitled to receive the Permitted Payments at such time, if ever, all pending Banlcruptry
Proceedings have been dismissed, there are no Bankruptcy Events then continuing and the Senior
Loan has been fully reinstated within the time and is the manner permitted under applicable
California law, including, without limitation, payment of all amounts due and owing under the
Senior Loan Documents, and cure of all defaults under the Senior Loan to the satisfaction of
Senior Lender.
5 Further Assurances So long as the Senior Deed of Trust shall retrain a
lien upon the Property or any part thereof, Junior Lender shall execute, acknowledge and deliver,
upon Senior Lender's demand, at any time or from time to time, any and all further
subordination, agreements or other instruments in recordable form as Senior Lender may
reasonably require for carrying out the purpose and intent of the covenants contained herein
6, Entire Agreement This Agreement shall be the entire agreement with
regard to the subordination of the Junior Loan Documents to the lien or charge of the Senior
Loan Documents, and shall supersede and cancel any prior agreements as to such subordination,
including, without limitation, those. provisions (if any) contained in The Senior Loan Documents or
in The Junior Loan Documents which provide for the subordination of any further encumbrances
to The lien of the Senior Loan Documents. As between Senior Leader and Junior Lender, to The
extent of any conflict between the terms hereof and the terms of the Senior Loan Documents or
the Junior Loan Oocuments, the terms hereof shall control.
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7. Junior Lender's Covenants and Representations. Cure of Default. Junior
Lender hereby further confirms to and covenants with Senior Lender as follows:
(a) Junior Lender has delivered to Senior Lender true and complete
copies of the Junior Loan Documents and the DDA, and such docume + =have not been
amended, modified or supplemented in any way.
(b) Junior Leader has received and reviewed the Senior Loan
Documents.
(c) Junior Lender shall not enter into any agreement to amend or
modify any of the Junior Loan Documents or the DDA without notice to, and the prior
written consent o& Senor Lender(which consent shall not be unreasonably withheld).
(d) Notwithstanding any provision of the Junior Loan Documents to
the contrary, Senior Lender shall be entitled to rely upon Borrower's execution of any
amendment, modification, consent or writing concerning or relating to the Senior Loan as
conclusive evidence of Borrower's duly authori2ed execution and delivery thereof.
9. Notices All notices expressly provided hereunder to be given shall be in
writing and shall be (i) hand-delivered, effective upon receipt, (ii) sett by United States Express
Mail or by private overnight courier, effective upon receipt, or(iii) served by certified mail. Any
such notice or demand served by certified mail, return receipt requested, shall be deposited is the
United States mail, with postage thereon fully prepaid and addressed to the party so to be served
at its address above stated or at such other address of which said parry shall have theretofore
notified in writing, as provided above, the party giving such notice. Service of any such notice or
demand so made shall be deemed effective on the day of actual delivery as shown by the
addressee's return receipt or the expiration of three (3) business days after the date of mailing,
whichever is the earlier in time. Notices to be served hereunder shall be addressed to the
appropriate address set forth hereinbelow, or at such other place as Senior Lender or Junior
Leader may from time to time designate in writing by ten (10) days prior written notice thereof
Notices to Borrower shall be addressed as follows.
MDA-San Bernardino Associates
300 Continental Boulevard, Suite 360
Fl Segundo, California 90245
Attention: Mr. Jasoa Kamm
Notices to Senior Lender shall be addressed as follows
GMAC Commercial Mortgage Corporation
100 South Wacker Drive, Suite 400
Chicago, Illinois 60606
Attention: Philip J. Kcel
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Notices to Junior Leader shall be addressed as follows
Redevelopment Agency of the City of San Bernardino
201 North E Street, Third floor
San Bernardino, California 92401-1507
Attention Development Director
9. ggvernina Law. This Agreement will be governed by, and construed and
enforced in accordance with, the laws of the State of California
10. Counterparts. This Agreement may be signed in multiple counterparts with
the same effect as if all signatories had executed the same instrument. The parties hereto agree
that a signature to this Agreement produced by facsimile transmission is valid and is as effective as
an original signature
11 Arrnrney Fees and Costs. if any parry hereto brings an action or
pro-.;ccdtng to enforce the terms hereof or declare rights hereunder, the Prevailing Party, as
hereinafter defined, in any such proceeding, action or appeal thereon, shall be entitled to
reasonable attorneys' fees and costs. Such fees and costs shall be awarded in the same suit or
recovered in a separate suit, whether or not such action or proceeding is pursued to decision.or
Judgment The term"Prevailing Party' shall include,without limitation, a parry who substantially
obtains or defeats the relief sought, as the case may be, whether by compromise, senlement,
judgment or the abaadomnent by the other parry of its claim or defense. The atrorneys' fee and
cost award shall be such as to fully reimburse all attorneys' fees and costs reasonably incurred
12 No Third Party Beneficiaries. This Agreement shall be for the benefit of
Senior Lender and Junior Lender, this Agreement shall not benefit Borrower, Borrower shall have
no rights hereunder, and there shall be no third parry beneficiaries, intended or otherwise, of this
Agreement, and no parry hereunder shall be liable to any person act a parry hereto for any
obligations provided herein.
13. Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of Senior Leader and Junior Lender and their respective successors and assigns.
14. No Marshaling of Assets. Junior Lender hereby waives any right to require
Senior Lender to marshall the assets and/or liabilities of Borrower
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15. Future Subordination of Junior Loans to Permanent Senior Financina.
Junior Lander acknowledges that Borrower intends to obtain a permanent loan from Senior
Leader("Pettnattemr Senior Las ) pursuant to that certain commitment letter dated August
1998, the proceeds of which wink be used to repay the Senior Loan Prior to the funding of the
Permanent Senior Loan, Junior Leader and Borrower agree to execute and deliver a
subordination agreemen6 in recordable form subordinating the Junior Loans to the Permanent
Senior Loan which shall be in substantially the same farm as this Agreement but excluding all
rights afforded to Junior Lender to purchase the Senior Loan as provided in Paragraph I(i)hereof
and including such other terms as may be reasonably required by Senior Leader.
IN WITNESS WHEREOF, the parties hereto have executed this agreement as of
the date first set forth above.
NOTICE. THIS SUBORDINATION AGREEMENT CONTAINS A PROVISION WHICH
MAY ALLOW THE PERSON OBLIGATED ON YOUR REAL PROPERTY
SECURITY TO OBTAIN A LOAN A PORTION OF WHICH MAY BE
EXPENDED FOR OTHER PURPOSES THAN IMPROVEMENT OF THE
PROPERTY.
"Borrower" MDA-SAN BERNARDINO ASSOCIATES,
L1.C., a Delaware limited liability company
By. MDA Investors No 1, L L C ,
a Delaware limited liability Company
ITs: Managing Member
By. MIL Associates,
a Californa limited pa=ership
Its. Managing Member
By: MA. lnvest ncnts, Inc.,
a California corporation
Its: General Partner
By:
Name
Title
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"Senior Lam" GMAC CONSdERCIAL MORTGAGE
CORPORATION, a California corporanou
By.
Nave.
Title.
[SIGNATURES CONTINUED]
"Junior Lender" REDEVELOPMENT AGENCY OF
THE CITY OF SAN BERNARDINO,
a body corporate and politic
By
Chair of the Governing Board of the Agency
By.
Secretary
By.
Executive Director
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OC9b1730 040/AMG3464-036/08-13-98/k$
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STATE OF
ss
COUNTY OF
On before me, a
Notary Public in and for said state, personally appeared personally
known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name
is subscribed to the within instrument and acknowledged to me that he/she executed the same in
his/her authorized capacity, and that by his/her signature on the instrument, the person, or the
entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
Notary Public in and for said Start
STATE OF
ss.
COUNTY OF 1
Oa before me, a
Notary Public in and for said state, personally appeared personally
!mown to me (or proved to me on the basis of satisfactory evidence) to be the person whose name
is subscribed to the within instrument and acknowledged to the that he/she executed the same in
his/her authorized capacity, and that by his/her signature on the instrument, the person, or the
entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
Notary Public to and for said State
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STATE OF 1
COUNTY OF 1
On
before me, a
Notary Public in and for said state. personally appeared personally
!mown to me(or proved to me on the bast: of satisfactory evidence)to be the person whose came
is subscribed to the within ittrument and acknowledged to me that he/she executed the same in
his/her authnmed capacity, and that by hwter signature on the instrument, the Person. or the
entity upon behalf of which the person acted, executed the instrument.
WI'T'NESS my hand and official seal.
Notary Public in and for said State
STATE OF
ss
COUNTY OF
On before me, a
Notary Public in and for said state, personally appeared personally
known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name
is subscribed to the within instrument and acknowledged to me that he/she executed the same in
his/her authorized capacity, and that by his/her signature on the instrument, the person, or the
entity upon behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
Notary Public in and for said State
I
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STATE OF
ss.
i COUNTY OF 1
On before me, a
Notary Public in and for said state, personally appeared personally
known to me(or proved to me on the basis of satisfactory evidence) to be the person whose name
is subsatbed to the within iasuutaeat and acknowledged to me that he/she executed the same in
his/her authorized capacity. and that by bis&cr signature on the ins=nent, the person, or the
eunry upon behalf of which the person acted, executed the msmunenr.
WITNESS my hand and official seal
Notary Public in and for said State
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LEGAL DESCRIPTION
WQ-aBIT W
oi:v%1730 040/AFVjG34&4-02910&13-9Vla