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HomeMy WebLinkAboutR1- Cinema Star Multi-Plex ORIGINAL M E M E O R A N D U M To: Commission Members From: Gary Van Osdel, Executive Director Timothy J. Sabo, Agency Special Legal Counsel Date : September 18, 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 subordination agreements, intercreditor agreements are usually unique to each lender and each situation. SBEO/0001/DOC/3380-1 9/18/98 309 zvp �/ l�kev�'o�tia-ly 40fZ,�3 T � Commission Members September 18, 1998 Page 2 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. 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) . 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", SBEO/0001/DOC/3380-1 9/18/98 304 zvp r Commission Members September 18, 1998 Page 3 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) . 4 . 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. The "additional advance" items listed in (i) and (ii) above are implied in any first deed of trust as normal and customary provisions allowing the first lender to recover such additional costs. Although not specifically provided in the DDA, it is reasonable for the Agency to agree to allow 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 75%- Agency shares of construction cost overruns and other required expenses . This Section has been clarified GMAC as requested by the Agency staff. SSEO/0001/DOC/3380-1 9/18/98 304 zvp Commission Members September 18, 1998 Page 4 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 payments 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. As to the issue of contributions for the payment of the normal and necessary operating expenses, situations could arise where the Agency would be required to provide its 75% contribution for a deficiency. This provision provides assurance to the senior lender 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 . This provision for the payment of the operating expenses prior to payments on the Agency second and Agency third loans does not appear to add a further burden on the Agency because 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. Certain language was deleted at the request of the Agency staff that would have limited the ability of the Agency to SBEO/0001/DOC/3380-1 9/18/98 304 zvp T . Commission Members September 18, 1998 Page 5 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, but it 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. 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 SBEO/0001/DOC/3380-1 9/18/98 304 zvp T Commission Members September 18, 1998 Page 6 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 b the Theater Project for 4 Y J 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 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 SBEO/0001/D0C/3380-1 9/18/98 304 zvp T Commission Members September 18, 1998 Page 7 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 common in complicated 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 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 SBEO/0001/DOC/3380-1 9/18/98 304 zvp Commission Members September 18, 1998 Page 8 of a borrower than agreed to in the subordination agreement among the lenders in a non-bankruptcy situation. 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 financing transactions . 15 . Sections 5 . 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. GMAC should have the right to require that upon the 10-year maturity date of its permanent loan the Agency will continue to maintain the second and third loans in subordinate positions, to thus allow a refinancing of the GMAC loan by either GMAC or another permanent lender. 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, but the Agency 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. SBEO/0001/DOC/3380-1 9/18/98 304 zvp Commission Members September 18, 1998 Page 9 Although this too is a provision in the permanent loan subordination agreement that the Agency staff and legal counsel have sought to have removed, the GMAC concern in this regard is valid. We are informed that the permanent loan will be sold by GMAC on the secondary market through a pooling of other permanent loans. 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. This provision is required by GMAC 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 . 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 . 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 SBEO/0001/DOC/3380-1 9/18/98 304 zvp Commission Members September 18, 1998 Page 10 and conditions, including interest rate, on the Section 108 financing. The Agency' s obligations under the DDA to provide the $7 . OM 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 subordination aspects of this agreement have been previously agreed to by the Agency and the Agency is required to maintain both the second loan and the third loan in a subordinate position to that of any permanent loan that complies with both the DDA and the Section 108 Loan Agreement; 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 development project financing transactions under current market conditions . SBEO/0001/DOC/3380-1 9/18/98 304 zvp S'sp-11-98. 05:18pm From-GREENBERG,GLUSKER 310-553-0687 T-431 P.02/17 F-021 RECORDING REQUESTED 13Y AND WHEN RECORDED MAIL TO: ALLEN, MATKINS, LECK, GAMBLE & MALLORY LLP 18400 Von Kaftan, Fourth Floor Irvine, California 92612-1597 Arleaum A.ntte 6. Klokow, Esq (Space Above For Recorder's Use) SjTB0gWLNATj0N AND INTF!RCRED13MR AGREEMEN1 NOTICE THIS SUBORDLNATION AND INTERCRFI)ITOR AGREEMPNT RESULTS [N YOUR SECURITY INTEREST IN THE PROPERTY BECOMING SITBIECT TO AND OF LOWER PRIORITY THAN THE LIEN OF SOME OTHER OR LATER SECURITY iNS't Ri.TM]rNT This SUSORDINATION AND INTFRCREDITOR AGREEMENT is dated as of_ . 1999, by and among MDA-SAN BERNARDINO ASSOCIATES, L-L.C., a Delaware limited liability company ("Bor{oaeu"� GMAC COMMERCIAL MORTGAGE CORPORATION, a California corporation("Senior Lender") and the REDEVELOPNMNT AGENCY OF THE CITY OF SAN BERNARDINO, a body corporate and politic ("Ligo cr Lender"). RECITALS A. Concurrently herewith, Borrower is the owner of approprnarely 137,000 square feet of unimproved zeal property located at the northwest corner of the intersection of 4th Street and E Street in the City of San Bernardino, San Bernardino County, California ("ProoeRV"), which is referred to in the DDA (defined below) as the Theater Parcel and the Common Area Parcel as more particularly described in Exhibit "A" attached hereto and incorporated herein by this reference. B. Senior Leader is walnng a loan("Senior Loan") to Borrower pursuant to a Con%rt3ction Loan Agreement of even date herewith("Senior Loon Agreement") to pay for part of the cost of constructing an Bo,000 square fool, twenty (20) screen theater and related improvements and facilities as more particularly described in the Senior Loan Agreement (the OC9a257o.1 oM.DH/G3235-03u09.11-9a/ldh S•ea-Il-A6. 05:18pm From-GREENBERG.GLUSKER 310-553-0687 T-431 P.03/17 F-021 "Theatersigg-)whose sole Tenant shaU be CincmaStar Luxury Theatcr, Inc ("Ten ") The Senior Loan is funkier evidenced by a promissory NOW of even date therewiTh in The original principal min unT of Three Million Six Hundred Thousand and Non 00 Dollars ($3,600,000) ("Senior Note"), which is secured by, among other things, (i) a Deed of Trust, Security Agreement, Assignment of Leases and Rents and Fixture Filing("Senior Dew 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 Multi-Plex Theater Lease dazed December 20, 1996, u =ended between Borrower, as landlord, and Tenant("CinemaSTar Lease"), and all rents derived from aU such leases ("Senior Tease Assignment"); (iii)an Assignment of Developer's Rights Under Agency DNelopment Agreements assigning, among other things, to Senior Lender all of Borrowar's rights under that certain Disposuion and Development Agreement dated October 29, 1996 ("RDA") ("Senior Agency Assignment"), and consent Thereto executed by junior Lender 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 Leader, assigning to Lender that certain letter of credit in the amount of$2,000,000 (~Tenam Letter of Credit') issued by Tenant under the CiaemaSmr Lease. The Senior Loan is also secured by a completion guaranty ("Senior Comclgto_n- Guaranty") from HFG Associates LLC, a Delaware limited liability company (^ tar') of even date 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 bereiaaRer collectively referred to as the "Senor Loan Documents'. C. Concurrently berewith, Junior Lender is making a loan ("Second Loan") to Borrower pursuant to That certain 1998 Community Development Block Grant Program Section 108 Project Development Loan Agreement ("Second Loan Agreement") dated 1998 for paymetil 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 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 Assignrnar[ of Rents ("second Deed of Trust') of even date herewith and recorded in the Official Records on 1998 as Itmiument No. creating a second lien against the property in favor of Junior Leader (subject and subordinate to the rights of Senior Lender under the Senior Loan Documetus). The Second Loan Agreement, the Second Note and the Second Decd of Trust, together with all other documents govertnag, evidencing or securing the Second Loan are hercinaRcx coUectively referred to as The "Second Loan Documents' D. junior Lender has also covenanted under the DDA to provide a Theater Project developmem cost contribution in the amount of One Million Threw Hundred Twenty-Four Thousand Five Hundred Seventy-Five Dollars,($1,324,575)(The •Agency Contribution Loan'•) which is evidencod 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 Lon Doctratenrs". The Second Deed of Trust and the Third Deed of Trust are collectively hereinafter referred to as the "Junior Deeds of Trust' •z- OC 9a:540.l eS/LDr•LG3233-031 N9-1 1-9 i/1� Sop-11-98 05:19am Frm-GREENEERG,GLUSKER 310-553-0687 T-431 P.04/17 F-021 E. It is a condition precedent to Borrowers 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 indebredness secured thereby) and to any tight or interest Junior Lender has in, to or against the Property or the Borrower, under any contracts or agreements affecting the Property or any pan thereof except as may be provided in that certain Declaration of Covenants, Conditions aad Restrictions dated and recorded against the Property as Instrument No. is the Otrwial Records ("CC&RS"} and that certain Parking Agreement dated 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 kutrumem No. in the Official Accords ("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 pro.nded in Paragraph 1(f)hereinbelow F. Concurrently herewith, Senior Lender, Junior Lender, Borrower and (^Fise Aaertt") are entering into a Fiscal Agent Constntction Loan Disbursement Control Agreement ("j jggal 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 Projea_ A4gFIF.MtpNr . NOW, THEREFORE, in order to induce Senior Lender to make the Setuor Loan and advances as provided is the Senior Loan Documents, the parties hereto hereby agree as follows: 1. Subordinyion of Debt. Junior Lewder 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 atnendtnents 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 Twat, and any amendments or extensions thereof(collectively,the "TTh rd 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 presrnr 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 in subparagraph(f) below. The Second Indebtedness and the Third Indebtedness are hereinafter referred to as the "Junior Indcbtodncss" -3- OC9825a0.l OS/LDFU�323 S•03l/09.11-98ndh Ssa-11-91 05:20Pa From-GREENEERG,GLl1SKER 310-553-0687 T-431 P 05/17 F-021 (b) If Junior Lauder shall commence, prosecute or participate in anv suit, action or proceeding against Borrower in contravention of the term, of this Ag eemenr_ Senior Lender way intetpose as a defense the making of this Subordination Agreement and Senior Lender may intervene and interpose such defense or plea in Senior Lenders nine or in the name of the Borrower. If Junior bender shall attempt to enforce any chattel or real estate mortgages or any lien instruments or encumbrances, including, without limitation, the Junior Deed of Trust jJh the terms of this Agreement Savior Lender may by virtue of this Subordination Agreement restrain the f enforcement thereof in Senior Lender's name or in the name of Borrower. If Junior Lender obtains any payment, monies, os other assets in cxccss of the amounts to which Junior Lender is emitted pursuant to this Agreement as a result of any adminisrmr4e, 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, motes or other assets so received shall be beld 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 Lenders prior written consent, pay to Junior Lender any sum on account of the Junior Iadebuadneas (whether it be principal, interest or otherwise), except as expressly provided in subparagraph(t) below. (d) Senior Leader may grant extensions of the time of payment or performance to and make compromises and seWemears 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 notwithstanding any other pm�gn of This An3eermMt Sot r4a= ry the maximum principal amount of the Senior Indebtedness shall not exceed the sum of Three Ivfrllion 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 prumiums and other amounts due and owing under the Senior Loan Documents and any and all additional advances, whether obligatory or optional, made by Senior Lender in connection with the devSd pmem construction irng rove ent use orb° ' ;LRWp of the Theater Project pn !or IbC Property Or which in ac+t.n;o t a , F ble iNdizomr r ' ecessary or desirable to protect and/or preserve Senior Lender' security inner- in the proBertv stich M by way of tnr"te but not by w (e) This Subordination Agreement shall continue in full force.and effect until Senior Lender shall have been paid in full on all iudebtedncss owing under, arising out of or relating to the Senior Loan. (f) Notwithstanding anythiag to the contrary contained herein, so lop$ 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 Documenu. OC982s4o.1 o5R DIVCT3235431ro9-11.9snae SIP-11-98 05:20pm From-GREENBERG,GLUSKER 310-553-0687 T-431 P.06/17 F-021 (g) Junior Leader shall promptly also provide Senior Lender with copies of any notices of detult C:hinior Default NnflaC") wirh respect to either the Second Loan or tite Agency Contribution Loan(collectively, the"Junior Loans") aunt 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 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) (`junior Default") shall constitute aaZy_para_f$jlefault under the Senior Loan Documents. (b) Senior Lender shall promptly provide Junior Lender with copies of any notice of default with respect to the Senior Loan sent to Borrower. Junior Lender shall have the right, but not the obligation, to sue any defatilt 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 cash or immediately available funds equal to the total amours; 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 (" xerriar Notice')within(A) thirty (30) days after the recordation date of the Serigr Notice of Default (gStned below), where the Purchasing Event is a Senior Default or(13) five (5) business days following delivery of a copy of the Senior Loan Modification to Junior Lender where the Purchasing Event is a Senior Loam Modification and(ii)by executing and delivering to Lender within thilry(30) days following the date of the Exercise Notice a purchase agreemnnr with Senior Lender ("Loan Purchast 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 to Junior I-ender, 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 land and(2) the original Tenant Letter of Credit (to the extent not previously drawn upon) to 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 Lander 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 affect in any way Senior Lender's rights and remedies under the Senior Loan Documents or in any way delay any foreclosure We pending as a result of a Senior Default.. Senior Lender and Junior Lender mutually agree to exacuts, acknowledge, exchange and deliver such agreements or other instruments in recordable form as may be necessary or appropriate to -s- OC982540 105lLDHIQ323i-031 ro9.11.98Mh Sap-11-88. 05:21pm From-GREENSERG,GLUSKER 310-553-0687 T-431 P.07/17 F-021 carry out the purpose and intent of this subparagrapb (i) Nothing contained herein shall limit, delay or impair Senior Lender's right to pursue all of its rights and remedies under W Senior Loan Documents, including without limitation, seeking the appointment of a receiver for the Property and completing its foreclosure sale against the Property nor shall any proviaian contained herein affect or impair the enforceability or validity of any Scruor Loan Modification (defined below)whether or not Junior Lender exercises its right to purchase the Senior Loan Documents as herein provided The failure 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 "Purchassing_Ev_em" shall mean either(A) an Event of Default ("Senior Default") occurs under the Senior Loan Docurnems; and Senior Lender commences foreclosure proceedings against the Property by recording a notice of default ("Senior Notice of Default") against the Property and aCWIU-Borrower noE Junior Lender has nee-yet fully reinstated the Senior Loan, or (B) if Senior Lender and Borrower eater into a material modification of the Senior Loan Documents (`'Senior Loan Mgdification')which is not consented to by the Junior lender and which constitute an Event of Default under the HM Section 108 Loan Agreernetu (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. JLnior Lend„eJ's ne t To purchase The Senior Loanyrnder this Su section (i) are personal to the &dCZelopment Agency of the Qry of San BemAWino ("Agence) and may note n ferred or assigngd by the A enev yvirhouT The prior wrilten consent of Senior Lender whid May be %iAyhheld in Senior Lg> cm's sole and absolute discretion, provided however AZenpy May asses°its dg Its cedar the subs etion (il to WM 0) Junior Lender acknowledges and agrees that, until Senior Loan 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 fW L Junior Lender shall not without the prior written consent of Senior Lender, which consent may be given or withheld in Senior Lender's sole and absolute discretion ' (ii) evereise any po*eg; of my pardon dwreef,(iv) commence, or join with any other creditor in commencing, any bankruptcy, reorganization or insolvency proceeding with respect to Borrower or the Property; Wj 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; (YiUo take any action that would terminate any leases or other rights held or granted by third parties with respect to the Property; _jJ�on t_he occur[en of tumor De��lc Lender shall have the Ci ht is gpmmence a� a~r+ion or ocedus 10 foreclose (eitl_q judicial or noniudiciall against the Property and to othenvis gwrate,gay dghts and r rr di s Junior Lender might have aypilahle againct the Proncr>.y or againigBorrower or Any guA=tor of the Junior Loans (eXcepl ac rnev he otheMisg expressly plobibitrd in tjj s Agreement) (collecnvely -6- OC992W.1OSADI /0235-AI/09-1:-9&Idh Sap-11-88, 05:22pm From-GREENBERG,GLUSNER 310-553-0687 T-431 P.08/17 F-021 -t inn Lender's Remedies"L nrgvided that be fgEs S rcising any of Junior Lender's I2ernedles (other than Ae iverint; to Borrower a Tunior Default Noticel Junior Lender shall hryt deliver to c ninr I ender not IaSs than fifteen(15) days prior umtten notice of lunior t endar'l intent to do so tomber with a copy of the Defauh Not ce J;ccifvine The nAMre of Th_a Mnior Defazj_The l51ilure 2f Senior Lender to take a_nv action tinder the Senior Lon ocume is within Vich 15 day ncriod shall not be deemed or onMed_s as waiver of ary of SGtt or Lender's rights or_(emedies undeE 1hS�Ser.ior Loan Qocua= including without IiftLtarigy_ the fl" of aWIM an Event of Defauh under h _Sertor Loan Dooments_a,s_a MLh Of the_luruer DCLAult 2, Subordination of Securby 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 811 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, any renewals, extensioas, 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 future indebtedness and obligations secured thereby, including, without limitation, the indebtedness evidenced by the Junior Notes) and all other tights, privileges, and interests of Junior Lender in and to the Property. (b) Notwithstanding anything to the contrary contained in the Junior Notes, Junior Deeds of Trust or any other documaat or agreement between Junior Lender and Borrower, alit suhiect to the limitations sot forth to oaraeraoh 1(dl above. Junior Lender hereby consents and agrees that Senior Lender tray, at any time and from time to time, extend, 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 paymears, and release or reconvey any security for the Senior Loaa 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, extension, renewal, waiver, acceleration, or change to any of the rerms or provisions of the Senior Loan Documents shall not a$'ect this Subordination Agreement Nothing contained hcrun 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_ prisbylsement of Senior Loan Proceeds. Junior Lender acknowledges and agrees that any application or use by Borrower of any disbursements of the proceeds from the •7• 01:982S4o.1 OS/LDIilG3235-0?1 r09119611Ch Sap-I1-98. 05:23pm Prom-GREENBERG,GLUSKER 310-553-0687 T-431 P.09/17 F-021 Senior Low for any improper or unperrrutted purposes shall not defeat the subordination and othtx agreements herein made, in whole or in pan 4. Bankruptcy-, No Payments to Junior Lender. (a) During (i)the continuance of a defaulr under the Senior Loan pocumeats, or(6) in the event of any liquidation or dissolution of Borrower, or of any execution sale, receivership, insolvency, bankruptcy, liquidation, readjusttnear reorganization or other similar proceeding relative w Borrower or rbe Property (collectively, a "Ba nrcv ve "), 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 segued 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 nor 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 ("RankrupTcy Proceeding'), Junior Lender agrees that, unless and until it has obtained Senior Lenders prior written consent (which consent may be given or withheld in Senior Lender's sole and absolute 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 connection 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 between Senior Lender and any of Borrower's creditors, including Junior Lender), any motion to dismiss, any claim voting entitlements (excluding Junior Lendees claim) or any other matters perWning to the extent, validity or priority of Senior Lender's 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 Banknrprcy Fveat, any and all distributions, claims, awards or other amounts paid or payable to Junior Lender under the Junior Loan Documents or otherwise shell 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 W, shall be paid to Junior Lender for application against the Jumor Loans. Junior Leader further agrees to execute and deliver to Seaiar Lender such assignments or other instruments as may be required by Senior Lander in order to enable Senior Lender to collect any and all such payments or disbursements oilneNVlse payable to Junior Lender OC9W40.I OS/LDFtirJ3233-031109-t 1-MI& S•ap-11-88 05:23pm From-GREENBERG,GLUSKER 310-553-0687 T-431 P.10/17 F-021 Notwithstanding the occurrence of a Banlauptcy Event, Junior Lander shall be entitled to receive the Permitted Payments at web time, if ever, all pending Saak uptcy Proceedings have been dismissed, there are no Battlwptcy Events then continuing and the Senior Loan has boon dolly 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 defauhs under the Senior Loan to the sariAction of Senior Lender. 5_ Further Assurances. So Iona as the Senior Deed of Trust shall remain a Gen 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 ail further subordinatioms 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 Rureetreat This Agreement shall be the entire agreement with regard w the subordination of the Junior Loan Documents to the Gen or charge of The Senior Loan Documents, and shall supersede and cancel any prior agreemenrs as to such subordination, including, without bmuatioa, those provisions(if any)contained in the Senior Loan Documents or in the Junior Loan Documents which provide for the subordination of any flusher encumbrances to the lien of the Senior Loan Documents. As between Senior Lender 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 Documents, the terms hereof shall control. 7 Junior Lenders Cnvenanta Cure of Default Junior Lender hereby further confirms to and covenants with Senior Lender as follows- (a) Junior Lender has delivered to Semor 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 A Senior Lender (which consent shall nor 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 coacernmg or relating to the Senior Loan as conclusive evidence of Borrowers duly arnhonzed execution and delivery thereof. 8. Notices. All notices expre3sly provided hereunder to be given shall be in writing and shall be (i) hand-delivered, effective upon receipt, (ii) sent 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 in The .g_ OC982540.t 051LDH/OU35-031109-11-98114 Soa-I1-38 05:idam Froin-GREENBERG,GLUSKER 310-553-0887 T-431 P.II/17 F-021 Unfired States mail with postage thereon fully prepaid and addressed to the party so to he served at its address above srared or at such other address of which said parry shall have theretofore notified in writing, as provided above, the parry giving such notice. Service of any such notice or demand so made shall be deemcd 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 served hercunda shall be addressed to the appropriate address set forth berembelow, or at such other placr as Senior Lender or Junior Lender may from time to time designate in writing by ten (I0) days prior written notice thereof Notices to Borrower shall be addressed as follows- MDA-San Bernardino Associates 300 Continental Boulevard, Suite 360 El Segundo, California 90245 Attention: Mr. Jason Kamm Notices to Senior Lender shall be addressed as follows- GMAC Commercial Mortgage Corporarioa 100 South Wacker Drive, Suite 400 Chicago, Illinois 60606 Attention: Phillip J Keel Notices to Junior Leader shell be addressed as follows: Redevelopment Agency of the City of San B ernardmo 201 North E Street, Third Floor San Bernardino, California 92401-1507 Attention: Development Director 9 Governing Law This Agreement will be governed by, and construed and enforced in accordance with, the laws of the State of California 10 Counternarrs. This Agreement may be signed in multiple counterparts with the same affect as if all signatories bad executed the same instrument. The parties bereto agree that a signature to this Agreement produced by facsimile transmission is valid and is as effective u an original signature. 11. attorney Fees and Costs. If any parry hereto brings an action or proceeding to enforce the terms hereof or declart rights hereunder, the PravaUing Parry, 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, settlement, judgment or the abandonment by the other parry of its claim or defcnse. The attorneys' fcc and cost award shall be such as to fully reimburse all attorneys' fccs and costs reasonably incurred. -10- OC982540.l O5/LDH/G3235-031/09-11-980. SaP-11-98 05:25Pn Fran-MENBERG,GLUSKER 310-553-0687 T-431 P.12/17 F-021 12. No Third Party Bettefidaries. This Agreement shall be forthe benefit of Senior Lender and Junior Lauder, this Agreement shall ant benefit Borrower, Borrower shall have no rights hereunder, and there shall be no third party beneficiaries, intended or otherwise, of this Agreement, and no party hereunder shall be liable to any person not a parry hereto for any obliigatio= provided herein 13 successors and Asians, This Agreement shall be binding upon and inure to the benefit of Senior Lender and Junior Lender and their respective successors and assiyna. 14. No marshaling of Assets Junior Lender hereby waives any right to require Senior Lender to marshaA the assets and/or liabi lities of Borrower. 15 Fu"e Subordination of Junior Loans To Permanent Senior Finaacina. Junior Lender acknowledges that Borrower intends to obtain a permanent loan from Senior Lender ( Permanent Senior Lo ttl")pursuant to that certain commitment letter dated S=Crnllet August-� 1998, the proceeds of which-AA be used to repay the Senior Loan Prior to the funding of the Permanent Senior Loan, Junior Lender and Borrower agree to execute and deliver a subordination agreement, in recordable form subordinating the Junior Loans to the Permanent Senior Loan which shall be in substantially the same farm as this Agreemenr-hU y iGh gh l intrude t e righr of the lunior Lender to ap v off the Permanent Senior LM inAW together with ang applicable pc lyment but excluding all rights afforded to Junior Lender to purchase the Senior Loan as provided in Paragraph l(i) hereof And i cl rdIne an affirmarive covenant by Junior Lender that it will not excEd32 ally of jujj or Lender's Remedies so Ion it as the Permanent Sef1 a 14f L n remain,mitsUnding At1LNI ofnaining the o�y written consent of the Senior Lender �d ;bich consent may bg withheld ill gSglior Lender's Igle and absolute discretion and inelud= 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 APR.OVISION WHICH MAY ALLOW THE PERSON OBLIGATED ON YOUR REAL. PIZ DPERTY SECURITY TO OBTAIN A LOAN A PORTION OF WHICH MAY BE EXPENDED FOR OTHER PURPOSES THAN INIPROVENMN"r OF THE PROPERTY i T CL.IC U I-IMITATWO vq�p7 FOR7Tt TN PallkAGRAPH I(d) above "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. Managiag Member -il- OC 992546 105iUX-VG313S-031109-I 1-9&4dh Up' u0 u7:L7pm rropr4ncriorn.ULU3KCK aiU-a44-uuo -,ai r. ai -�• By- MJL Associates, a California limited partnership Its. Managing Member By. MIL tuvcstutents, Inc-, a California corporation Its: G=oal Partner By: Name: Title: "Senior Lender" GMAC COMMERCIAL MORTGAGE CORPORATION, a California corporation By. Name: Title: [SIGNATURES CONTINUED] "Junior Lender" REDFVFLOPMHNT 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 -12- OC982590 105/LDnO03233-031109-1 I.98/1a SABO& GREEN ATTORNEYS AT LAW A PROFESSIONAL CORPORATION Los ANGELES OMCK 201 NORTH"E"STam COACHELLA VALLEY OFFICE SurrE 206 23801 CALABASAS ROAD SAN BEENARDwo,CALHORNU 92401 35-325 DATE PALM DRIVE Surm 1015 (909)383-9373 SurIE 232 CALABASAS,CALWORNIA 91302 FAX(909)383-9378 CATHEDRAL CrrY,CALo-omu 92234 (818)704-0195 (760)770-0873 FAX(818)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 : City of San Bernardino, California Section 108 Loan Guarantee Program Grant No. B-96-MC-06-0539 (MDA-San Bernardino Associates - Cinema Star Multi-flex 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-Plex 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") . SBEO/0001/DOC/581 08/20/98 2:05 zvp �L /1`ly- o9/or�� ef VIVA? O� - 017111" ,/" 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 S7 . 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 SBEO/0001/DOC/581 08/20/98 2:05 zvp 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- 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] SBEO/0001/DOC/581 08/20/98 2:05 zvp Mr. William McGill August 20, 1998 Page 4 3 . $7 . 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 Agency] ; 5 . Agreement of Subordination, Nondisturbance and Attornment, draft dated August 11, 1998 [Theater Tenant, Borrower and Agency] 6 . Fiscal Agent Agreement, draft dated August 5, 1998 [GMAC-Mortgage, Borrower, First American Title Insurance company and Agency] 7 . $3 . 6M Construction Loan Agreement, draft dated August 19, 1998 [GMAC-Mortgage and Borrower] ; 8 . 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 SBEO/0001/DOC/581 08/20/98 2:05 zvp Mr. William McGill August 20, 1998 Page 5 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-Plex 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 & GREEN a professional corporation DQuC G U"U'� David F. Gondek DFG: zvp (Enclosures) cc: Ronald Winkler Jason Kamm Debby Zurzolo, Esq. Scott Rodde Houston Carlyle, Esq. SBEO/0001/DOC/581 08/20/98 2:05 zvp Au[r14-99 03:49w Fror'GREENBERG,GLUSKER T-047 P.20/35 F-333 RECORDING REQUESTED BY AND wHEN RECORDED MAIL T0* ALLEN, MATYJNS, LFCK; GAMBLE & MALLORY LLP 18400 von Karman, Fourth Floor Irvine, California 92612-1597 Arrention- Anne E Makow, Esq. (Space Above For Recorder's Use) SUBORDINATION AND YNT1RRr.Rrn1TnR AGRF.F.MF.NT NOTICE. THIS SUBORDINATION AND INTERCREDITOR 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 ("Senior Lend er,) and the REDEVELOP:vIENT AGENCY OF THE CITY OF SAN BERNARDINO, a body corporate and politic ("Junior Lender"). RECITALS 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 to the City of San Bernardino, San Bernardino County, California (" ro err "), which is refar-ed to in the DDA (defined below) as the Theater Parcel and the Common Area Parcel a-i more particularly described in Exhibit "A" attached herero and incorporated herein by this reference. B Semor Lender is malting a loan ("Senior Loan") to Borrower pursuant to a Construcuon Loan Agreement of even date herewith("Senior Loan Agreement") to pay for part of The cost of construaing an 80,000 square foot, twenty (20) screen theater and related improvements and facilities as more particularly described in the Senior Loan A67cement (the tX�JY1730 041)/AEK/Cr34h4-0?8/08-13-98/ldh Auc 14-Q8 03:50wm FrarGREENBERG,GLUSKER 310-553-0687 T-017 P.21/35 F-333 "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 Million Six Hundred Thousand and No/100 Dollars ($3,600,000) ("Senior Note"), which is secured by, among other things, (i) a Deed of Trust, Security Agreement, Assignment of Leases and Rents and Fixture Filing ("Senior Deed of Trust") dated of even date therewith, (u) an Assignment of Leases and Rents, assisting to Senior Lender all leases affecting the Property, including the Muld-Plex Theater Lease dated December 20, 1996 between Borrower, as landlord, and Tenant ("CCemaStar Lease"), and all rents derived from all such leases ("Senior Lease Assignment"); (iii) an Assignment of Developer's Rights under Agency Development Agreements assigning, among other things, to Senior Lender all of Borrowers rights under that certain Disposition and Development Agreement dated October 29, 1996 ("DDA") ("Senior Agrn�y ASsig=eat"), and consent thereto executed by Junior Lender 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 Lender that certain letter of credit in the amount of$2,000,000 ("Tenant Letter of Credit") issued by Tenant under the CinemaStar Lease The Senior Loan is also secured by a completion guaranty ("dip[ Completion arm") from HFG Associates LLC, a Delaware limited liability company ("Guarantor") 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 herein4er collectively referred to as the "Senior Loan ocumenrs" C. Concurrently herewith, Junior Lender is making a loan ("Second Loan")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 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 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 Doc,iments). 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 covenanted 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 Documents". The Second Deed of Trust and the Third Deed of Trust are collectively hereinafter referred to as the 'Junior Deeds of Trust" -2- OC9a1130 040/AEK/G34&"28/09-13-981ldL Aur14-68 03:50pa from—GREENBERG,GLUSKER 310-553-0687 T-047 P.22/35 F-333 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 Taut and the Third Deed of Trust (and all indebtedness secured thereby) and to any nght or interest Junior Lender has in, to or against the Property or the Borrower, under any contracts or agreements affecting the Property or any part thereof except as may be provided in that certain Declaranon of Covenants. Conditions and Restrictions dated and recorded against the Property as ltlstrumenr No. in the Official Records ("CC&Rs") and That certain Parking Agreement dated 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 Instrument 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 I(f) hereinbelow F Concurrently herewith, Senior Lender, Junior Lender, Borrower and ("kcal Agent") are entering into a Fiscal Agent Construction Loan Disbursement Control Agreement ("Fiscal Agent Aereement") 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. AQ9EEMEL- T : NOW, THERFFORB, in order to induce Senior Lender to make the Senior Loan and advances as provided in the Senior Loan Documents, the parries hereto hereby agree as follows. 1 Subordination ofDebt 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, cl aims, 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 "Senior Indebtedness"), except as expressly provided in subparagraph(f) below. The Second Indebtedness and the Third Indebtedness are hereinafter referred to as the"Junior Indebtedness". -3- OC 981730.04(VAEYJG34641)2&Gx-13-9 Mdh Aur14-88 03:51pe Frow-GREENBERG,GLUSKER 310-553-0687 T-047 P.23/35 F-333 (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 Lender may intervene and interpose such defense or plea in 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 lien hurruments 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 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 Lenders prior written consent, pay to Junior Lender any sum on account of the Junior Indebtedness (whether it be principal, interest or otherwise), except as expressly provided in subparagraph (f) below (d) Senior Lender 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 the maximum principal amount of the Senior Indebtedness shag not exceed the sum of Three Ivftllion Six Hundred Thousand Dollars ($3,600,000) 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 Lender 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 our 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, 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. (g) Junior Lender shall promptly also provide Semor 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 property which is collateral for the Senior Loan, -4- oc 9g 173U.u4n/AEK/03464-02 8/08-13.99&1 Aur14-10 03:52wa FrwGREENSERG GLUSKER 310-553-0687 1-047 P 24/35 F-333 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) 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 default under the Senior Loan Documents (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 Lender 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 rnanner 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 cash or irmnediately available funds equal to the total amounr 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 ihirry(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 Lender'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 Tenant Letter of Credit (to the extent not previously drawn upon) to be held and drawn upon by the Junior Leader 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 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 Lender and Junior Lender mutually agree to execute, acknowledge, exchange and deliver such agreements or other instruments in recordable form as may be necessary or appropriate to carry out the purpose and intent 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 affect 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 OC981730 040/APK/G3464-028/08-13-99/ldh Aur14-98 03:52w FrwaREENBERG,GLUSKER 310-553-0687 T-047 P.25/35 F-333 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 under the Senior Loan Documents and Senior Lender 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 Lender and Borrower enter 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 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 Lender which has ant been waived by HUD and there is no Senior Default then outstanding. 6) Junior Lender acknowledges and agrees that, until Senior Loan 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 shall 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 nonjudicial) 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, or join 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 parries with respect to the Property; or (vii) take any other enforcement action or pursue any rights or remedies Junior Lender might have available against the Property, or any pan or portion thereof, or against any guarantor of the Junior Loans, or against the Borrower z, 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 in and to the Property pursuant to the Senior Loan Documents (and subject to Paragraph 1(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 alien or charge on the Property prior and superior to the lien or charge of the Junior Deeds of Trust (and all present and future indebtedness and obligations secured thereby, -6- OC9a173U 040/.aMU346442VO9-13-9911" 'Aug-1418 03:53pe Frn-GREENBERG,GLUSKER 310-553-0687 T-047 P.26/35 F-333 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 is the Junior Notes, Junior Deeds of Trust or any other document or agreement between Junior Lender and Borrower, Junior Lender hereby consents and agrees that Senior Lender may, at any time and from time to time, extend, 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 t(d) above), change the rate of interest or the time and mariner 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, extension, 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 unpetmitted purposes shall not defeat the subordination and other agreements herein made, in whole or is pan 4 Bankrugrcw No Pavments 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 Junior Leader, 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 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 Leader 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 aad absolute discretion), Junior Leader shall take no action that may impair, affect or otherwise alter in any way Senior Leader's interests or claims in such Bankruptcy Proceeding including, without limitation, in connection with any vote to accept a plan of reorganizatioa which is not OC981730 040IAEKJG3464-028/01-13-9IAdh Aus-14-88 03:54pe FrwGREENBERG,GLUSNER 310-553-0687 T-047 P.27/35 F-333 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 between Senior Lender and any of Borrower's creditors, including Junior Lender), any motion to dismiss, any claim voting entitlements (excluding Junior Lender's claim) or any other matters pertaining w the extent, validity or priority of Senior Lender's 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 further 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 Bankruptcy Proceedings have been dismissed, there are no Bankruptcy Events then continuing and the Senior Loan has been fully reinstated within the time and in 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 remain a lien upon the Property or any pan thereof, Junior Lender shall execute, acknowledge and deliver, upon Senior Lender's demand, at any time or from time to time, any and all Rather subordinations, agreements or other im-uttments in recordable form as Senior Lender may reasonably require for carrying out the purpose and intent of the covenants contained herein 6. Entire Agreement Ttas 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 Documents, the terms hereof shall control. OC981730 040/AE jG3464-028/08-13-yw1Ah Iur14-98 03:54pm Fror-GREENBERG,GLUSKER 310-553-0687 T-047 P.28/35 F-333 7. Junior Leader's Covenants and ftresentations. 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 documents 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 of, Sensor 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 authorized execution and delivery thereof. 8. Notices All notices expressly provided hereunder to be given shall be in writing and shall be (i) hand-delivered, effective upon receipt, (ii) sent by United States Express Mail or by private overnight courser, effective upon receipt, or (iii) served by certified trail. Any such notice or demand served by certified mail, return receipt requested, shall be deposited in 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 Lender may from time to time designate in writing by ten (10) days prior written notice thereof Notices to Borrower shall be addressed as follows. MIDA-San Bernardino Associates 300 Continental Boulevard, Suite 360 El Segundo, California 90245 Attention: Mr. 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: Philip J. Keel -9- OC 991730.040/AEKJG 3464-02 kr08-13-9 VWh AurI4-96 03:55wr Frm-GREENSERG.GLUSKER 310-553-0667 T-047 P.29/35 F-333 Notices to Junior Lender shall be addressed as follows Redevelopment Agency of the City of San Bernardino 201 North E Street, Third Floor San Bernardino, Ca4fomia 92401-1507 Attention: Development Director 9. roveming 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 signarure 11 Anornev Fees and Costs. If any parry hereto brings an action or procccdm& to cuforce Elie terms hereof or declare rights hcrcundcr, the Prevailing Parry, as hereinafter defined in any such proceeding, action or appeal thereon, shall be entitled to reasonable attorneys' fees and costs. Such fees and costs sW 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, settlement, judgment or the abandonment by the other parry of its claim or defense. The attorneys' 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 party beneficiaries, intended or otherwise, of this Agreement, and no parry hereunder shall be liable to any person nor 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 Lender 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 _ -10- 0C961730.040/AEK/ 6,4-u28/U8-13-98/ldh Aur-14=88 03:56pa Fri-GREENBERG.GLUSKER 310-553-0687 T-047 P.30/35 F-333 15, Future Subordination of Junior Loans to Permanent Senior Financing. Junior Lender acknowledges that Borrower intends to obtain a permanent loan from Senior Lender(••Permanent Senior Loan") pursuant to that certain commitment letter dated August_ 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 Loans to the Permanent Senior Loan which shall be in substantially the same form 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 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 RFAL 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, L L 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 California limited partnership Its. Managing Member By: MIL Investments, Inc., a California corporation Its General Partner By: Name Title -I 1- OC�IA1730 04WAMG3464428i08-13.98l1dh Auv14-61 03:56pr Fror-GREENBERG,GLUSKER 310-553-0687 T-047 P.31/35 F-333 "Senior Lender" GMAC COMMERCIAL MORTGAGE CORPORATION, a California corporation By: Name. 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 CC9191730(W IAM03464Z=09-13-9944 W4-48 03:56on Frn-vEENBERa,GIUSKER 310-553-0687 7-047 P.32/35 F-333 STATE OF ) COUNTY OF k 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 STATE OF ) ss. 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 narne 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 insr„umera, 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 -13- OC 981730.04u/AEK/03464-028r08.13.98/ldh Adr14-90' 03:57ps Frm-MENBERG,GLUSIER 310-553-0507 T-047 P.33/35 F-333 STATE OF 1 ss. COUNTY OF 1 On before me, a Notary Public in and for said state, personally appeared penally known to me (of proved to me on the bans 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 authorised 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 STATE OF 1 ss COUNTY OF ) On before me, a Notary Public in and for said state, personally appeared personally known to the (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 instrumem, 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 - -14- MS1730 o4uiAE UG3i6"2&/0&13-99A4h Aar-14-88 03:57= FrorMENBERG,GLUSKER 310-553-0687 T-047 P.34/35 F-333 STATE OF I ss. COUNTY OF 1 On before me, a Notary Public in and for said state, personally appeared personally kaown to the(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 imst ument. WITNESS my hand and official seal Notary Public in and for said State - -15- OC 981730.090/.q MC 3464-02 WO8-13-98/ldh Kui-14-96 03:57pm From-GREENSERG,GLUSKER 310-553-0667 7-047 P.35/35 F-333 I-EGAL DESCRIPTION F-N I IT"A" OC981730 040'AMG3464-028'05.13-9&lldh • CITY OF SAN BERNAI!� �c��t INTEROFFICE MEMORAN� iCmyDevCms.Mtg: o v -- re Ayeuna Item TO: Mayor Judith Valles and Common Council FROM: James F. Penman, City Attorney City ClerkICOC 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, I 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. � �y�qr �eio x'33 1FP- rTheatProj.Meml 1 Al?r • 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. Empeno'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. S F. PENMAN ity Attorney Attachment 1 • • 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 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 • HE:za[TheatCom.mzm] 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(8) 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 FDA'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 conlpletes 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 ealTheatCom.meml 2 Motion to approve (1) a Subordination and Intercreditor Agreement for the construction loan only for the Downtown Theater Project and (2) a firm commitment by the Agency for$3,600,000 of permanent loan financing for the Downtown Theater Project with both approvals being contingent upon obtaining GMAC written acceptance of either (1) said Agency permanent loan commitment for funding of the permanent loan on the same financial terms and conditions as committed by GMAC and utilizing the form of the proposed documents for the $7,000,000 Section 108 loan or (2) a purchase agreement with the Agency to require the Agency to purchase the GMAC funded permanent loan on the same terms and conditions as would otherwise have been obtained by GMAC upon sale of said permanent loan to an underwriter of pooled permanent mortgage loans. Entered into Record at CouncillCmyDevCms Mtg: by /C' -,L,� re Agenda Item - City ClerkICDC Secy City of San Bernardino