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HomeMy WebLinkAboutMINUTES - 12142010 - C.131RECOMMENDATION(S): AUTHORIZE the Conservation & Development Director, or designee, to execute legal documents that terminate Harmony Home obligations under a Community Development Block Grant (CDBG) loan and enter into a new loan with the same principal balance ($452,550), secured by the same property at 1579 N. Mitchell Canyon Road, Clayton, with Future Colours Corp. FISCAL IMPACT: No General Fund impact. Community Development Block Grant (CDBG) funds are provided to the County on a formula allocation basis through the U.S. Department of Housing and Urban Development (HUD). CFDA# 14.218 BACKGROUND: In 1986, the County loaned Harmony Home $119,600 in Community Development Block Grant (CDBG) funds for the purchase of 1579 N. Mitchell Canyon Road, Clayton. At that time, APPROVE OTHER RECOMMENDATION OF CNTY ADMINISTRATOR RECOMMENDATION OF BOARD COMMITTEE Action of Board On: 12/14/2010 APPROVED AS RECOMMENDED OTHER Clerks Notes: VOTE OF SUPERVISORS AYE:John Gioia, District I Supervisor Gayle B. Uilkema, District II Supervisor Mary N. Piepho, District III Supervisor Federal D. Glover, District V Supervisor Contact: Kara Douglas 335-7223 I hereby certify that this is a true and correct copy of an action taken and entered on the minutes of the Board of Supervisors on the date shown. ATTESTED: December 14, 2010 David J. Twa, County Administrator and Clerk of the Board of Supervisors By: June McHuen, Deputy cc: C.131 To:Board of Supervisors From:Catherine Kutsuris, Conservation & Development Director Date:December 14, 2010 Contra Costa County Subject:Approval of Community Development Block Grant Legal Documents for Future Colours Group Home, Clayton BACKGROUND: (CONT'D) Harmony Home executed a Note through which they promised to pay the County upon sale of the property 64.65 percent of the sales price of the property. A Deed of Development Rights was recorded through which Harmony Home granted to the County the right to all sales proceeds or other income from disposition or sale of the property. The Note and Deed of Development Rights are inconsistent. The County has been renegotiating Deed of Development Rights as properties are being sold or transferred. The County has been accepting payments based on a shared appreciation model. The Note is consistent with this current policy. The Deed of Development Rights states that Harmony Home is to use the property to provide living arrangements for six adults and conduct a program that provides independent living skills, job development skills, essential care, and public transportation skills. Harmony Home confirms that this is the current use of the property. Harmony Home now wishes to sell the property to Future Colours. Future Colours wishes to purchase the home and continue to operate it as an adult residential facility. Future Colours is an approved vendor with the Regional Center of the East Bay. Harmony Home and Future Colours have entered into a purchase agreement. The agreed sales price is $700,000 and is supported by an appraisal. The purchase agreement assumes that the County will transfer the CDBG obligation to Future Colours. This is calculated to be 64.65 percent of $700,000, or $452,550. The remaining $247,450 will be loaned to Future Colours by Harmony Home. The Harmony Home deed of trust will be recorded behind the County. County staff has prepared new loan documents, which are in conformance with our current policies and programs. The new loan terms include the following: • New loan amount of $452,550, which is the original principal amount and 64.65 percent of the appreciation • Payments are deferred until the earlier of sale or transfer of the property, or December 7, 2030 • The loan repayment will be 452,550 plus 64.65 percent of any appreciation above $700,000 County Counsel has approved the attached legal documents as to form. CONSEQUENCE OF NEGATIVE ACTION: Harmony Homes would be forced to repay the CDBG loan and Future Colours would not be able to purchase and continue operation of this home. CHILDREN'S IMPACT STATEMENT: N/A. Children are not served by this project. ATTACHMENTS Resolution 2011/5 CDBG Loan CDBG Promissory Note CDBG Regulatory Agreement CDBG Deed of Trust 863\84\866738.4 1 CDBG LOAN AGREEMENT (Future Colours) This CDBG Loan Agreement (the "Agreement") is dated December 8, 2010, and is between the COUNTY OF CONTRA COSTA, political subdivision of the State of California (the "County"), and FUTURE COLOURS CORP., a California nonprofit public benefit corporation (the "Borrower"). RECITALS A. Defined terms used but not defined in these recitals are as defined in Article 1 of this Agreement. B. The County has received funds from the United States Department of Housing and Urban Development ("HUD") under Title I of the Housing and Community Development Act of 1974, as amended ("CDBG Funds"). Such funds must be used by the County in accordance with 24 C.F.R. Part 570 et seq. C. The Borrower intends to acquire real property located at 1579 N. Mitchell Canyon Road in the City of Clayton, County of Contra Costa, State of California, as more particularly described in Exhibit A (the "Property"). The Property is improved with a single family home that is operated as a licensed adult residential care facility for persons with developmental disabilities. D. The Borrower is in contract to purchase the Property from Harmony Home, Associated ("Harmony"). In 1986, the County loaned One Hundred Nineteen Thousand Six Hundred Dollars ($119,600) of CDBG Funds to Harmony to assist in the purchase of the Property by Harmony. Under the terms of the promissory note executed by Harmony for the benefit of the County (the “Harmony Note”), Harmony is obligated to pay the County 64.65% of the sales price of the Property upon its sale by Harmony. Based on the Property’s current appraised value of Seven Hundred Thousand Dollars ($700,000), the amount due to the County by Harmony upon the sale of the Property to Borrower is Four Hundred Fifty-Two Thousand Five Hundred Fifty Dollars ($452,550). E. In order to prevent an interruption in services to the residents of the licensed facility located on the Property, the County is willing to simultaneously (i) cancel the Harmony Note, as evidence of it having been repaid in full by Harmony, and (ii) lend Borrower Four Hundred Fifty-Two Thousand Five Hundred Fifty Dollars ($452,550) (the “Loan”). F. The County has the authority to extend the Loan to the Borrower pursuant to Government Code Section 26227, which authorizes counties to spend county funds for programs that will further a county's public purposes. In addition, the County has the authority to loan the CDBG Funds to provide housing to low and moderate income persons pursuant to 24 C.F.R. 570.201(a). 863\84\866738.4 2 G. The Borrower is required to apply the Loan to the acquisition of the Property. The financial feasibility of operating the Property as a residential care facility is enhanced as a result of the Loan. In exchange for the assistance provided by the County to the Borrower through the extension of the Loan, the Borrower is required to continue to operate the Property as a residential care facility for persons with developmental disabilities. H. The California Environmental Quality Act (California Public Resources Code Section 21000 et seq.) ("CEQA") imposes no conditions on the County's consideration and approval of this Agreement, because the project underlying this Agreement, (i) can be seen with certainty to have no possibility of having significant effects on the environment pursuant to 14 California Code of Regulations 15061(b)(3); or (ii) is exempt from CEQA requirements under the categorical exemption set forth in 14 California Code of Regulations Section 15301. I. The National Environmental Policy Act of 1969, as amended (42 U.S.C. Section 4321-4347) ("NEPA"), imposes no conditions on the County's consideration and approval of this Agreement, because the project underlying this Agreement is exempt from NEPA requirements under the categorical exclusion set forth in 24 C.F.R. Section 58.35(a)(5). The parties therefore agree as follows: AGREEMENT ARTICLE 1 DEFINITIONS AND EXHIBITS Section 1.1 Definitions. The following terms have the following meanings: (a) "Agreement" means this CDBG Loan Agreement. (b) "Appreciated Value" means the then-current fair market value of the Property minus any portion of the then-current fair market value of the Property that is attributable to expenditures of non-CDBG funds used in Borrower's acquisition of the Property. (c) "Approved Acquisition Budget" means the proforma acquisition budget, including sources and uses of funds, as approved by the County, and attached hereto and incorporated herein as Exhibit B. (d) "Borrower" has the meaning set forth in the first paragraph of this Agreement. 863\84\866738.4 3 (e) "CDBG" means the Community Development Block Grant program created pursuant to Title I of the Housing and Community Development Act of 1974 (42 U.S.C. 5301 et seq.), as amended. (f) "CDBG Funds" has the meaning set forth in Recital B of this Agreement. (g) "County" has the meaning set forth in the first paragraph of this Agreement. (h) "Deed of Trust" means the Deed of Trust with Assignment of Rents, Security Agreement, and Fixture Filing of even date herewith among Borrower, as Trustor, Security Union Title Insurance Company, as trustee, and the County, as beneficiary, which, once recorded, will encumber the Property and secure repayment of the Loan and performance of the covenants of the Loan Documents. The form of the Deed of Trust will be provided by the County. (i) "Event of Default" has the meaning set forth in Section 5.1. (j) "Extension Term" has the meaning set forth in Section 2.1. (k) "Harmony Loan" means a loan from Harmony to Borrower in an aggregate principal amount not exceeding Two Hundred Forty-Seven Thousand Four Hundred Fifty Dollars ($247,450.00) that is subordinate to the Loan in lien priority. (l) "Hazardous Materials" has the meaning set forth in Section 3.6. (m) "Hazardous Materials Claims" has the meaning set forth in Section 3.6. (n) "Hazardous Materials Law" has the meaning set forth in Section 3.6. (o) "HUD" has the meaning set forth in Paragraph B of the Recitals. (p) "Initial Term" has the meaning set forth in Section 2.1. (q) "Loan" has the meaning set forth in Paragraph E of the Recitals. (r) "Loan Documents" means this Agreement, the Note, the Regulatory Agreement, and the Deed of Trust. (s) "Note" means the promissory note of even date herewith that evidences Borrower's obligation to repay the Loan. (t) "Property" has the meaning set forth in Paragraph C of the Recitals. (u) "Regulatory Agreement" means the Regulatory Agreement and Declaration of Restrictive Covenants, of even date herewith, between the County and the Borrower related to the Loan, to be recorded against the Property. 863\84\866738.4 4 (v) "Tenant" means a tenant that occupies a bed in the Property. (w) "Term" has the meaning set forth in Section 2.1. (x) "Transfer" has the meaning set forth in Section 3.12. Section 1.2 Exhibits. The following exhibits are attached to this Agreement and incorporated into this Agreement by this reference: Exhibit A: Legal Description of the Property Exhibit B: Approved Acquisition Budget ARTICLE 2 LOAN PROVISIONS Section 2.1 Loan and Loan Term. The County shall lend to the Borrower the Loan for the purposes set forth in Section 2.3 of this Agreement. Borrower's obligation to repay the Loan is evidenced by the Note. The “Term” of the Loan is comprised of an Initial Term and, at County’s option, an Extension Term. The “Initial Term” is twenty (20) years beginning on the date of this Agreement. At the end of the Initial Term, the County may agree to extend the term for an additional twenty (20) years (the “Extension Term”) if (i) the Borrower is not in default under any of the Loan Documents, and (ii) the Borrower agrees to extend the term of the Regulatory Agreement for an additional twenty (20) years. Upon the commencement of the Extension Term, all references to the Term of the Loan will be deemed to mean the Term as extended pursuant to this Section. Section 2.2 Interest. The Loan does not bear interest, except that on the occurrence of any of the following events, Borrower shall pay the County interest in an amount equal to the Appreciated Value: (a) A change in the use of the Property that triggers the application of 24 CFR 570.503(b)(7)(ii); (b) Any Transfer; or (c) An Event of a Default. Section 2.3 Use of Loan Funds. (a) The Borrower shall use the Loan to fund the acquisition of the Property consistent with the Approved Acquisition Budget. (b) The Borrower may not use the Loan proceeds for any other purposes without the prior written consent of the County. 863\84\866738.4 5 Section 2.4 Security. Borrower shall secure its obligation to repay the Loan, as evidenced by the Note, by executing the Deed of Trust, and causing or permitting the Deed of Trust to be recorded as a first position mortgage lien against the Property, superior in lien priority to the deed of trust securing the Harmony Loan. Section 2.5 Subordination. The County has approved the Harmony Loan as a loan junior in lien priority to the County Loan. The Harmony Loan has a term of ten (10) years and is expected to be refinanced prior to the expiration of its term by a new loan to Borrower from a private bank or other institutional lender. The Deed of Trust and/or Regulatory Agreement may be subordinated to a new mortgage loan that refinances the Harmony Loan (such loan, a "Senior Loan"), if all of the following conditions are satisfied: (a) All of the proceeds of the proposed Senior Loan, less any transaction costs, are used to provide acquisition, rehabilitation and/or permanent financing for the Property. (b) The holder of the proposed Senior Loan (the "Senior Lender") is a state or federally chartered financial institution, a nonprofit corporation or a public entity that is not affiliated with Borrower or any of Borrower's affiliates, other than as a depositor or a lender. (c) Borrower demonstrates to the County's reasonable satisfaction that subordination of the Deed of Trust and/or the Regulatory Agreement is necessary to secure refinancing of the Harmony Loan and, if necessary, financing for the rehabilitation of the Property, to ensure the viability of the Property, including the operation of the Property as a residential care facility, as required by the Loan Documents. To satisfy this requirement, Borrower must provide to the County, in addition to any other information reasonably required by the County, evidence demonstrating that the proposed amount of the Senior Loan is necessary to provide refinancing for the Harmony Loan and rehabilitation financing, if necessary to ensure the viability of the Property, and adequate financing for the Property would not be available without the proposed subordination. (d) The subordination agreement is structured to minimize the risk that the Deed of Trust and the Regulatory Agreement will be extinguished as a result of a foreclosure by the Senior Lender. To satisfy this requirement, the subordination agreement must provide the County with adequate rights to cure any defaults by Borrower, including: (i) providing the County or its successor with copies of any notices of default at the same time and in the same manner as provided to Borrower; and (ii) providing the County with a cure period of at least sixty (60) days to cure any default. (e) The subordination of the Loan is effective only during the original term of the Senior Loan and any extension of its term that is approved in writing by the County. 863\84\866738.4 6 (f) The subordination does not limit the effect of the Deed of Trust and the Regulatory Agreement before a foreclosure, nor require the consent of the Senior Lender prior to the County exercising any remedies available to the County under the Loan Documents. Upon a determination by the County's Deputy Director – Redevelopment that the conditions in this Section have been satisfied, the Deputy Director – Redevelopment or his/her designee will be authorized to execute the approved subordination agreement without the necessity of any further action or approval. Section 2.6 Conditions Precedent to Loan Closing and Property Acquisition. The County is not obligated to finalize the Loan or take any other action under the Loan Documents unless the following conditions precedent are satisfied, at which time the Loan will be deemed to be disbursed: (a) There exists no Event of Default nor any act, failure, omission or condition that would constitute an Event of Default under this Agreement; (b) The Borrower holds title to the Property or is acquiring title simultaneously with the disbursement of the Loan proceeds; (c) There exists no material adverse change in the financial condition of Borrower from that shown by the financial statements and other data and information furnished by Borrower to the County prior to the date of this Agreement; (d) Borrower has delivered to the County a copy of a corporate resolution authorizing Borrower's execution of the Loan Documents; (e) Borrower has caused to be executed and delivered to the County the Loan Documents and any other instruments and policies required under the Loan Documents; (f) A title insurer reasonably acceptable to the County is unconditionally and irrevocably committed to issuing a CLTA Lender's Policy of title insurance insuring the priority of the Deed of Trust in the amount of the Loan, subject only to such exceptions and exclusions as may be reasonably acceptable to the County, and containing such endorsements as the County may reasonably require; (g) The Deed of Trust and the Regulatory Agreement have been recorded against the Property in the Office of the Recorder of the County of Contra Costa; (h) Borrower has furnished the County with evidence of the insurance coverage meeting the requirements of Section 3.13 below. (i) Borrower has closed the Harmony Loan, or is closing it simultaneously with the Loan. 863\84\866738.4 7 Section 2.7 Repayment. (a) Initial Term. Provided the Term of the Loan has not been extended beyond the Initial Term in accordance with Section 2.1, Borrower shall pay County the principal amount of the Loan in full on December 7, 2030. (b) Extension Term. If the Term of the Loan is extended beyond the Initial Term in accordance with Section 2.1, the Loan will be forgiven at the end of the Extension Term, provided Borrower is not in default under any of the Loan Documents on the last day of the Extension Term. (c) Repayment with Interest. Borrower shall pay the principal amount of the Loan in full, with interest calculated in accordance with Section 2.2, upon the occurrence of any of the events described in Section 2.2. (d) Prepayment. Subject to the terms of Section 2.2., Borrower may prepay the Loan at any time without premium or penalty. Interest, if any, will be determined in accordance with Section 2.2. Notwithstanding any prepayment of the Loan, the Regulatory Agreement and the Deed of Trust will remain in effect for the entire Term. Section 2.8 Non-Recourse. Except as provided below, neither the Borrower, nor any partner of the Borrower, has any direct or indirect personal liability for payment of the principal of, and interest on, the Loan or the performance of the covenants of the Borrower under the Deed of Trust. Following recordation of the Deed of Trust, the sole recourse of the County with respect to the principal of, or interest on, the Note and defaults by Borrower in the performance of its covenants under the Deed of Trust will be to the property described in the Deed of Trust; provided, however, that nothing contained in the foregoing limitation of liability limits or impairs the enforcement of all the rights and remedies of the County against all such security for the Note, or impairs the right of County to assert the unpaid principal amount of the Note as demand for money within the meaning and intendment of Section 431.70 of the California Code of Civil Procedure or any successor provision thereto. The foregoing limitation of liability is intended to apply only to the obligation to repay the principal of, and payment of interest on the Note and the performance of the Borrower's obligations under the Deed of Trust. Except as hereafter set forth; nothing contained herein is intended to relieve the Borrower of its obligation to indemnify the County under Sections 3.5, 3.6 and 6.4 of this Agreement, or liability for (i) fraud or willful misrepresentation; (ii) the failure to pay taxes, assessments or other charges which may create liens on the Property that are payable or applicable prior to any foreclosure under the Deed of Trust (to the full extent of such taxes, assessments or other charges); (iii) the fair market value of any personal property or fixtures removed or disposed of by Borrower other than in accordance with the Deed of Trust; and (iv) the misappropriation of any proceeds under any insurance policies or awards resulting from condemnation or the exercise of the power of eminent domain or by reason of damage, loss or destruction to any portion of the Property. 863\84\866738.4 8 ARTICLE 3 LOAN REQUIREMENTS Section 3.1 Annual Operating Budget. At the beginning of each year of the Term, Borrower shall provide to the County an annual budget for the operation of the Property. Unless rejected by the County in writing within fifteen (15) days after receipt of the budget, the budget will be deemed accepted. If rejected by the County in whole or in part, Borrower shall submit a new or corrected budget within thirty (30) calendar days of notification of the County's rejection and the reasons therefor. The provisions of this Section relating to time periods for resubmission of new or corrected budgets will continue to apply until such budget has been approved by the County. Section 3.2 Information. Borrower shall provide any information reasonably requested by the County in connection with the Property, including (but not limited to) any information required by HUD in connection with Borrower's use of the Loan funds. Section 3.3 Records. (a) The Borrower shall keep and maintain at the Property, or elsewhere with the County's written consent, full, complete and appropriate books, records and accounts relating to the Property. Books, records and accounts relating to Borrower's compliance with the terms, provisions, covenants and conditions of this Agreement are to be kept and maintained in accordance with generally accepted accounting principles consistently applied, and are to be consistent with requirements of this Agreement. All such books, records, and accounts are to be open to and available for inspection and copying by HUD, the County, its auditors or other authorized representatives at reasonable intervals during normal business hours. Copies of all tax returns and other reports that Borrower may be required to furnish to any governmental agency are to be open for inspection by the County at all reasonable times at the place that the books, records and accounts of the Borrower are kept. The Borrower shall preserve such records for a period of not less than five (5) years after the creation of such records in compliance with all HUD records and accounting requirements. If any litigation, claim, negotiation, audit exception, monitoring, inspection or other action relating to the use of the Loan is pending at the end of the record retention period stated herein, then the Borrower shall retain the records until such action and all related issues are resolved. The records are to include all invoices, receipts, and other documents related to expenditures from the Loan funds. Borrower shall cause records to be accurate and current and in such a form as to allow the County to comply with the recordkeeping requirements contained in 24 C.F.R. 574.450 and 24 C.F.R. 574.530. Such records are to include but are not limited to: (i) Records providing a full description of the activities undertaken with the use of the Loan; (ii) Records demonstrating that each activity undertaken meets one of the national objectives of the CDBG program set forth in 24 C.F.R. 570.208; 863\84\866738.4 9 (iii) Records demonstrating compliance with affordability and income requirements for Tenants; (iv) Records required to determine the eligibility of activities; (v) Records documenting compliance with the fair housing and equal opportunity requirements, as applicable; (vi) Financial records and other documents necessary to document compliance with the requirements of 24 C.F.R. Part 574 et. seq. and by OMB Circular A-110 (24 C.F.R. Part 84); (vii) Other records necessary to document compliance with Subpart K of 24 C.F.R. Part 570; and (b) The County will notify Borrower of any records it deems insufficient. Borrower has fifteen (15) calendar days after the receipt of such a notice to correct any deficiency in the records specified by the County in such notice, or if a period longer than fifteen (15) days is reasonably necessary to correct the deficiency, then Borrower must begin to correct the deficiency within fifteen (15) days and correct the deficiency as soon as reasonably possible. Section 3.4 County Audits. Each year, Borrower shall provide the County with a copy of Borrower's annual audit, which is to include information on all of Borrower's activities and not just those pertaining to the Property. In addition, the County or any designated agent or employee of the County at any time is entitled to audit all of Borrower's books, records, and accounts pertaining thereto. Such audit is to be conducted during normal business hours at the principal place of business of Borrower and other places where records are kept. Immediately after the completion of an audit, the County will deliver a copy of the results of such audit to Borrower. Section 3.5 CDBG Requirements. (a) Borrower shall comply with all applicable laws and regulations governing the use of the Loan funds as set forth in 24 C.F.R. Part 570, including but not limited to the requirements of the Regulatory Agreement. In the event of any conflict between this Agreement and applicable laws and regulations governing the use of the Loan funds, the applicable laws and regulations govern. (b) The laws and regulations governing the use of the Loan funds include (but are not limited to) the following: (i) Environmental and Historic Preservation. 24 C.F.R. Part 58, which prescribes procedures for compliance with the National Environmental Policy Act of 1969 (42 U.S.C. 4321-4361), and the additional laws and authorities listed at 24 C.F.R. 58.5. 863\84\866738.4 10 (ii) Applicability of OMB Circulars. The applicable policies, guidelines, and requirements of OMB Circulars Nos. A-87, A-102, Revised, A-110, A-122, and A-133. (iii) Debarred, Suspended or Ineligible Contractors. The prohibition on the use of debarred, suspended, or ineligible contractors set forth in 24 C.F.R. Part 24. (iv) Civil Rights, Housing and Community Development, and Age Discrimination Acts. The Fair Housing Act (42 U.S.C. 3601 et seq.) and implementing regulations at 24 C.F.R. Part 100; Title VI of the Civil Rights Act of 1964 as amended; Title VIII of the Civil Rights Act of 1968 as amended; Section 104(b) and Section 109 of Title I of the Housing and Community Development Act of 1974 as amended; Section 504 of the Rehabilitation Act of 1973 (29 USC 794, et seq.); the Age Discrimination Act of 1975 (42 USC 6101, et seq.); Executive Order 11063 as amended by Executive Order 12259 and implementing regulations at 24 C.F.R. Part 107; Executive Order 11246 as amended by Executive Orders 11375, 12086, 11478, 12107; Executive Order 11625 as amended by Executive Order 12007; Executive Order 12432; Executive Order 12138 as amended by Executive Order 12608. (v) Lead-Based Paint. If applicable, the requirement of the Lead- Based Paint Poisoning Prevention Act, as amended (42 U.S.C. 4821 et seq.), the Residential Lead-Based Paint Hazard Reduction Act (42 U.S.C. 4851 et seq.), and implementing regulations at 24 C.F.R. Part 35. (vi) Relocation. If applicable, the requirements of the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970 (42 U.S.C. 4601, et seq.), and state relocation laws. If and to the extent that operation or rehabilitation of the Property results in the permanent or temporary displacement of residential tenants, homeowners, or businesses, then Borrower shall comply with all applicable local, state, and federal statutes and regulations with respect to relocation planning, advisory assistance, and payment of monetary benefits. Borrower shall prepare and submit a relocation plan to the County for approval. Borrower is solely responsible for payment of any relocation benefits to any displaced persons and any other obligations associated with complying with such relocation laws. The Borrower shall indemnify, defend (with counsel reasonably chosen by the County), and hold harmless the County against all claims that arise out of relocation obligations to residential tenants, homeowners, or businesses permanently or temporarily displaced from the Property. (vii) Discrimination against the Disabled. The requirements of Section 504 of the Rehabilitation Act of 1973 (29 U.S.C. 794), and federal regulations issued pursuant thereto, which prohibit discrimination against the disabled in any federally assisted program, the requirements of the Architectural Barriers Act of 1968 (42 U.S.C. 4151-4157) and the applicable requirements of Title II and/or Title III of the Americans with Disabilities Act of 1990 (42 U.S.C. 12131 et seq.), and federal regulations issued pursuant thereto. (viii) Clean Air and Water Acts. The Clean Air Act, as amended, 42 U.S.C. 7401 et seq., the Federal Water Pollution Control Act, as amended, 33 U.S.C. 1251 et seq., and the regulations of the Environmental Protection Agency with respect thereto, at 40 C.F.R. Part 1500, as amended from time to time. 863\84\866738.4 11 (ix) Uniform Administrative Requirements - CDBG. If applicable, the requirements of 24 C.F.R. 570.502 regarding cost and auditing requirements. (x) Training Opportunities. The requirements of Section 3 of the Housing and Urban Development Act of 1968, as amended, 12 U.S.C. 1701u ("Section 3"), requiring that to the greatest extent feasible opportunities for training and employment be given to lower income residents of the project area and agreements for work in connection with the project be awarded to business concerns that are located in, or owned in substantial part by persons residing in, the areas of the project. Borrower agrees to include the following language in all subcontracts executed under this Agreement: (1) The work to be performed under this contract is subject to the requirements of Section 3 of the Housing and Urban Development Act of 1968, as amended, 12 U.S.C. 1701u. The purpose of Section 3 is to ensure that employment and other economic opportunities generated by HUD assistance or HUD-assisted projects covered by Section 3, shall, to the greatest extent feasible, be directed to low- and very low-income persons, particularly persons who are recipients of HUD assistance for housing. (2) The parties to this contract agree to comply with HUD's regulations in 24 C.F.R. Part 135, which implement Section 3. As evidenced by their execution of this contract, the parties to this contract certify that they are under no contractual or other impediment that would prevent them from complying with the Part 135 regulations. (3) The contractor agrees to send to each labor organization or representative of workers with which the contractor has a collective bargaining agreement or other understanding, if any, a notice advising the labor organization or workers’ representative of the contractor's commitments under this Section 3 clause; and will post copies of the notice in conspicuous places at the work site where both employees and applicants for training and employment positions can see the notice. The notice shall describe the Section 3 preference; will set forth minimum number and job titles subject to hire; availability of apprenticeship and training positions; the qualifications for each; the name and location of the person(s) taking applications for each of the positions; and the anticipated date the work shall begin. (4) The contractor agrees to include this Section 3 clause in every subcontract subject to compliance with regulations in 24 C.F.R. Part 135, and agrees to take appropriate action, as provided in an applicable provision of the subcontract or in this Section 3 clause, upon a finding that the subcontractor is in violation of the regulations in 24 C.F.R. Part 135. The contractor will not subcontract with any subcontractor where the contractor has notice or knowledge that the subcontractor has been found in violation of the regulations in 24 C.F.R. Part 135. (5) The contractor will certify that any vacant employment positions, including training positions, that are filled (1) after the contractor is selected but before the contract is executed, and (2) with persons other than those to whom the regulations of 24 C.F.R. Part 135 require employment opportunities to be directed, were not filled to circumvent the contractor's obligations under 24 C.F.R. Part 135. 863\84\866738.4 12 (6) Noncompliance with HUD's regulations in 24 C.F.R. Part 135 may result in sanctions, termination of this contract for default, and debarment or suspension from future HUD assisted contracts. (7) With respect to work performed in connection with Section 3 covered Indian housing assistance, section 7(b) of the Indian Self-Determination and Education Assistance Act (25 U.S.C. 450e) also applies to the work to be performed under this contract. Section 7(b) requires that to the greatest extent feasible (i) preference and opportunities for training and employment shall be given to Indians, and (ii) preference in the award of contracts and subcontracts shall be given to Indian organizations and Indian-owned Economic Enterprises. Parties to this contract that are subject to the provisions of Section 3 and section 7(b) agree to comply with Section 3 to the maximum extent feasible, but not in derogation of compliance with section 7(b). (xi) Labor Standards. If applicable, the Borrower shall comply with prevailing wage requirements of the Davis-Bacon Act and implementing rules and regulations (40 U.S.C. 3141-3148); the Copeland "Anti-Kickback" Act (40 U.S.C. 276(c)) which requires that workers be paid at least once a week without any deductions or rebates except permissible deductions; the Contract Work Hours and Safety Standards Act – CWHSSA (40 U.S.C. 3701- 3708) which requires that workers receive "overtime" compensation at a rate of 1-1/2 times their regular hourly wage after they have worked forty (40) hours in one (1) week; and Title 29, Code of Federal Regulations, Subtitle A, Parts 1, 3 and 5 are the regulations and procedures issued by the Secretary of Labor for the administration and enforcement of the Davis-Bacon Act, as amended. (xii) Drug Free Workplace. The requirements of the Drug Free Workplace Act of 1988 (P.L. 100-690) and implementing regulations at 24 C.F.R. Part 24. (xiii) Anti-Lobbying; Disclosure Requirements. The disclosure requirements and prohibitions of 31 U.S.C. 1352 and implementing regulations at 24 C.F.R. Part 87. (xiv) Historic Preservation. The Borrower shall comply with the historic preservation requirements set forth in the National Historic Preservation Act of 1966, as amended (16 U.S.C. Section 470) and the procedures set forth in 36 C.F.R. Part 800. (xv) Flood Disaster Protection. This Agreement is subject to the requirements of the Flood Disaster Protection Act of 1973 (P.L. 93-234). No portion of the assistance provided under this Agreement is approved for acquisition or construction purposes as defined under Section 3(a) of said Act, for use in an area identified by HUD as having special flood hazards which is located in a community not then in compliance with the requirements for participation in the national flood insurance program pursuant to Section 201(d) of said Act. The use of any assistance provided under this Agreement for such acquisition or construction in such identified areas in communities then participating in the national flood insurance program is subject to the mandatory purchase of flood insurance requirements of Section 102(a) of said Act. Any contract or Agreement for the sale, lease, or other transfer of land acquired, cleared or 863\84\866738.4 13 improved with assistance provided under this Agreement is to contain certain provisions. These provisions will apply if such land is located in an area identified by HUD as having special flood hazards and in which the sale of flood insurance has been made available under the National Flood Insurance Act of 1968, as amended, 42 U.S.C. 4001 et seq. These provisions obligate the transferee and its successors or assigns to obtain and maintain, during the ownership of such land, such flood insurance as required with respect to financial assistance for acquisition or construction purposes under -Section 102(s) of the Flood Disaster Protection Act of 1973. Such provisions are required notwithstanding the fact that the construction on such land is not itself funded with assistance provided under this Agreement (xvi) Religious Organizations. If Borrower is a religious organization, as defined by the CDBG requirements, Borrower shall comply with all conditions prescribed by HUD for the use of CDBG funds by religious organizations, including the First Amendment of the United States Constitution regarding church/state principles and the applicable constitutional prohibitions set forth in 24 C.F.R. Section 570.200(j). (xvii) HUD Regulations. Any other HUD regulations present or as may be amended, added, or waived in the future pertaining to the Loan funds, including but not limited to HUD regulations as may be promulgated regarding subrecipients. Section 3.6 Hazardous Materials. (a) Borrower shall keep and maintain the Property in compliance with, and may not cause or permit the Property to be in violation of any federal, state or local laws, ordinances or regulations relating to industrial hygiene or to the environmental conditions on, under or about the Property including, but not limited to, soil and ground water conditions. Borrower may not use, generate, manufacture, store or dispose of on, under, or about the Property or transport to or from the Property any flammable explosives, radioactive materials, hazardous wastes, toxic substances or related materials, including without limitation, any substances defined as or included in the definition of "hazardous substances," hazardous wastes," "hazardous materials," or "toxic substances" under any applicable federal or state laws or regulations (collectively referred to hereinafter as "Hazardous Materials") except such of the foregoing as may be customarily used in construction of projects like the Property or kept and used in and about residential property of this type. (b) Borrower shall immediately advise the County in writing if at any time it receives written notice of (i) any and all enforcement, cleanup, removal or other governmental or regulatory actions instituted, completed or threatened against Borrower or the Property pursuant to any applicable federal, state or local laws, ordinances, or regulations relating to any Hazardous Materials, ("Hazardous Materials Law"), (ii) all claims made or threatened by any third party against Borrower or the Property relating to damage, contribution, cost recovery compensation, loss or injury resulting from any Hazardous Materials (the matters set forth in clauses (i) and (ii) above are hereinafter referred to as "Hazardous Materials Claims"), and (iii) Borrower's discovery of any occurrence or condition on any real property adjoining or in the vicinity of the Property that could cause the Property or any part thereof to be classified as "border-zone property" (as defined in California Health and Safety Code Section 25117.4) under the provision of California Health and Safety Code, Section 25220 et seq., or any regulation adopted in 863\84\866738.4 14 accordance therewith, or to be otherwise subject to any restrictions on the ownership, occupancy, transferability or use of the Property under any Hazardous Materials Law. (c) The County has the right to join and participate in, as a party if it so elects, any legal proceedings or actions initiated in connection with any Hazardous Materials Claims and to have its reasonable attorneys' fees in connection therewith paid by Borrower. Borrower shall indemnify and hold harmless the County and its boardmembers, supervisors, directors, officers, employees, agents, successors and assigns from and against any loss, damage, cost, expense or liability directly or indirectly arising out of or attributable to the use, generation, storage, release, threatened release, discharge, disposal, or presence of Hazardous Materials on, under, or about the Property including without limitation: (i) all foreseeable consequential damages, (ii) the costs of any required or necessary repair, cleanup or detoxification of the Property and the preparation and implementation of any closure, remedial or other required plans, and (iii) all reasonable costs and expenses incurred by the County in connection with clauses (i) and (ii), including but not limited to reasonable attorneys' fees and consultant's fees. This indemnification applies whether or not any government agency has issued a cleanup order. Losses, claims, costs, suits, liability, and expenses covered by this indemnification provision include, but are not limited to: (1) losses attributable to diminution in the value of the Property, (2) loss or restriction of use of rentable space on the Property, (3) adverse effect on the marketing of any rental space on the Property, and (4) penalties and fines levied by, and remedial or enforcement actions of any kind issued by any regulatory agency (including but not limited to the costs of any required testing, remediation, repair, removal, cleanup or detoxification of the Property and surrounding properties). This obligation to indemnify will survive termination of this Agreement. (d) Without the County's prior written consent, which will not be unreasonably withheld, Borrower may not take any remedial action in response to the presence of any Hazardous Materials on, under or about the Property, nor enter into any settlement agreement, consent decree, or other compromise in respect to any Hazardous Material Claims, which remedial action, settlement, consent decree or compromise might, in the County's reasonable judgment, impair the value of the County's security hereunder; provided, however, that the County's prior consent is not necessary in the event that the presence of Hazardous Materials on, under, or about the Property either poses an immediate threat to the health, safety or welfare of any individual or is of such a nature that an immediate remedial response is necessary and it is not reasonably possible to obtain the County's consent before taking such action, provided that in such event Borrower shall notify the County as soon as practicable of any action so taken. The County agrees not to withhold its consent, where such consent is required hereunder, if (i) a particular remedial action is ordered by a court of competent jurisdiction, (ii) Borrower will or may be subjected to civil or criminal sanctions or penalties if it fails to take a required action, (iii) Borrower establishes to the reasonable satisfaction of the County that there is no reasonable alternative to such remedial action which would result in less impairment of the County's security hereunder, or (iv) the action has been agreed to by the County. (e) Borrower hereby acknowledges and agrees that (i) this Section is intended as the County's written request for information (and Borrower's response) concerning the environmental condition of the Property as required by California Code of Civil Procedure 863\84\866738.4 15 Section 726.5, and (ii) each representation and warranty in this Agreement (together with any indemnity obligation applicable to a breach of any such representation and warranty) with respect to the environmental condition of the Property is intended by the Parties to be an "environmental provision" for purposes of California Code of Civil Procedure Section 736. (f) In the event that any portion of the Property is determined to be "environmentally impaired" (as that term is defined in California Code of Civil Procedure Section 726.5(e)(3)) or to be an "affected parcel" (as that term is defined in California Code of Civil Procedure Section 726.5(e)(1)), then, without otherwise limiting or in any way affecting the County's or the trustee's rights and remedies under the Deed of Trust, the County may elect to exercise its rights under California Code of Civil Procedure Section 726.5(a) to (1) waive its lien on such environmentally impaired or affected portion of the Property and (2) exercise (i) the rights and remedies of an unsecured creditor, including reduction of its claim against the Borrower to judgment, and (ii) any other rights and remedies permitted by law. For purposes of determining the County's right to proceed as an unsecured creditor under California Code of Civil Procedure Section 726.5(a), the Borrower will be deemed to have willfully permitted or acquiesced in a release or threatened release of Hazardous Materials, within the meaning of California Code of Civil Procedure Section 726.5(d)(1), if the release or threatened release of Hazardous Materials was knowingly or negligently caused or contributed to by any lessee, occupant, or user of any portion of the Property and the Borrower knew or should have known of the activity by such lessee, occupant, or user which caused or contributed to the release or threatened release. All costs and expenses, including (but not limited to) attorneys' fees, incurred by the County in connection with any action commenced under this paragraph, including any action required by California Code of Civil Procedure Section 726.5(b) to determine the degree to which the Property is environmentally impaired, plus interest thereon at the lesser of ten percent (10%) and the maximum rate permitted by law, until paid, will be added to the indebtedness secured by the Deed of Trust and is due and payable to the County upon its demand made at any time following the conclusion of such action. Section 3.7 Maintenance and Damage. (a) Borrower shall maintain the Property in good repair and in a neat, clean and orderly condition. If there arises a condition in contravention of this requirement, and if Borrower has not cured such condition within thirty (30) days after receiving a County notice of such a condition, then in addition to any other rights available to the County, the County may perform all acts necessary to cure such condition, and to establish or enforce a lien or other encumbrance against the Property. (b) If economically feasible in the County’s reasonable judgment after consultation with the Borrower, if any improvement now or in the future on the Property is damaged or destroyed, then Borrower shall, at its cost and expense, diligently undertake to repair or restore such improvement consistent with the plans and specifications approved by the County with such changes as have been approved by the County. Such work or repair is to be commenced no later than the later of one hundred twenty (120) days, or such longer period approved by the County in writing, after the damage or loss occurs or thirty (30) days following receipt of the insurance proceeds, and is to be complete within one (1) year thereafter. Any insurance proceeds collected for such damage or destruction are to be applied to the cost of such 863\84\866738.4 16 repairs or restoration and, if such insurance proceeds are insufficient for such purpose, then Borrower shall make up the deficiency. If Borrower does not promptly make such repairs then any insurance proceeds collected for such damage or destruction are to be promptly delivered by the Borrower to the County as a special repayment of the Loan, subject to the rights of the Senior Lenders, if any. Section 3.8 Fees and Taxes. Borrower is solely responsible for payment of all fees, assessments, taxes, charges, and levies imposed by any public authority or utility company with respect to the Property, and shall pay such charges prior to delinquency. However, Borrower is not required to pay and discharge any such charge so long as (a) the legality thereof is being contested diligently and in good faith and by appropriate proceedings, and (b) if requested by the County, Borrower deposits with the County any funds or other forms of assurance that the County in good faith from time to time determines appropriate to protect the County from the consequences of the contest being unsuccessful. Section 3.9 Notice of Litigation. Borrower shall promptly notify the County in writing of any litigation that has the potential to materially affect Borrower or the Property and of any claims or disputes that involve a material risk of such litigation. Section 3.10 Operation of the Property. (a) The Borrower shall operate the Property as a licensed residential care facility for lower income tenants with disabilities consistent with (i) HUD's requirements for use of the CDBG Funds and (ii) the Regulatory Agreement. (b) Information documenting the maximum household income of a tenant occupying the Property, and the total charges for rent, utilities, and related services to each tenant occupying the Property, is to be maintained as provided in the Regulatory Agreement. Section 3.11 Nondiscrimination. The Borrower covenants by and for itself and its successors and assigns that there will be no discrimination against or segregation of a person or of a group of persons on account of race, color, religion, creed, age, familial status, disability, sex, sexual orientation, marital status, ancestry or national origin in the sale, lease, sublease, transfer, use, occupancy, tenure or enjoyment of the Property, nor may the Borrower or any person claiming under or through the Borrower establish or permit any such practice or practices of discrimination or segregation with reference to the selection, location, number, use or occupancy of tenants, lessees, subtenants, sublessees or vendees in the Property. The foregoing covenant will run with the land. 863\84\866738.4 17 Section 3.12 Transfer. (a) For purposes of this Agreement, "Transfer" means any sale, assignment, or transfer, whether voluntary or involuntary, of (i) any rights and/or duties under this Agreement, and/or (ii) any interest in the Property, including (but not limited to) a fee simple interest, a joint tenancy interest, a life estate, a partnership interest, a leasehold interest, a security interest, or an interest evidenced by a land contract by which possession of the Property is transferred and Borrower retains title. The term "Transfer" excludes the leasing of any single room in the Property to an occupant in compliance with the Regulatory Agreement. (b) No Transfer is permitted without the prior written consent of the County, which the County may withhold in its sole discretion. The Loan will automatically accelerate and be due in full upon any Transfer made without the prior written consent of the County. (c) The County approves the granting of a security interest in the Property in connection with the Harmony Loan. Section 3.13 Insurance Requirements. (a) The Borrower shall maintain the following insurance coverage throughout the Term of the Loan: (i) Worker's Compensation insurance to the extent required by law, including Employer's Liability coverage, with limits not less than One Million Dollars ($1,000,000) each accident. (ii) Comprehensive General Liability insurance with limits not less than Two Million Dollars ($2,000,000) each occurrence combined single limit for Bodily Injury and Property Damage, including coverages for Contractual Liability, Personal Injury, Broadform Property Damage, Products and Completed Operations. (iii) Comprehensive Automobile Liability insurance with limits not less than One Million Dollars ($1,000,000) each occurrence combined single limit for Bodily Injury and Property Damage, including coverages for owned, non-owned and hired vehicles, as applicable. (iv) Property insurance covering the Property, in form appropriate for the nature of such property, covering all risks of loss, excluding earthquake, for one hundred percent (100%) of the replacement value, with deductible, if any, acceptable to the County, naming the County as a Loss Payee, as its interests may appear. Flood insurance must be obtained if required by applicable federal regulations. (b) The Borrower shall cause any general contractor, agent, or subcontractor working on the Property under direct contract with the Borrower or subcontract to maintain insurance of the types and in at least the minimum amounts described in subsections (i), (ii), and (iii) above, except that the limit of liability for comprehensive general liability insurance for 863\84\866738.4 18 subcontractors must be One Million Dollars ($1,000,000), and must require that such insurance will meet all of the general requirements of subsections (d) and (e) below. (c) The required insurance must be provided under an occurrence form, and Borrower shall maintain the coverage described in subsections (a) continuously throughout the Term. Should any of the required insurance be provided under a form of coverage that includes an annual aggregate limit or provides that claims investigation or legal defense costs be included in such annual aggregate limit, such annual aggregate limit must be three times the occurrence limits specified above. (d) Comprehensive General Liability, Comprehensive Automobile Liability and Property insurance policies must be endorsed to name as an additional insured the County and its officers, agents, employees and members of the County Board of Supervisors. (e) All policies and bonds are to contain (i) the agreement of the insurer to give the County at least thirty (30) days notice prior to cancellation (including, without limitation, for non-payment of premium) or any material change in said policies; (ii) an agreement that such policies are primary and non-contributing with any insurance that may be carried by the County; (iii) a provision that no act or omission of the Borrower shall affect or limit the obligation of the insurance carrier to pay the amount of any loss sustained; and (iv) a waiver by the insurer of all rights of subrogation against the County and its authorized parties in connection with any loss or damage thereby insured against. Section 3.14 Anti-Lobbying Certification. The Borrower certifies, to the best of Borrower's knowledge or belief, that: (a) No Federal appropriated funds have been paid or will be paid, by or on behalf of it, to any person for influencing or attempting to influence an officer or employee of any agency, a Member of Congress, an officer or employee of Congress, or an employee of a Member of Congress in connection with the awarding of any Federal contract, the making of any Federal grant, the making of any Federal loan, the entering into of any cooperative agreement, and the extension, continuation, renewal, amendment, or modification of any Federal contract, grant, loan, or cooperative agreement; (b) If any funds other than Federal appropriated funds have been paid or will be paid to any person for influencing or attempting to influence an officer or employee of any agency, a Member of Congress, an officer or employee of Congress, or an employee of a Member of Congress in connection with the awarding of any Federal contract, grant, loan, or cooperative agreement, it will complete and submit Standard Form-LLL, Disclosure Form to Report Lobbying, in accordance with its instructions. This certification is a material representation of fact upon which reliance was placed when this Agreement was made or entered into. Submission of this certification is a prerequisite for making or entering into this Agreement imposed by Section 1352, Title 31, U.S. Code. Any person who fails to file the required certification shall be subject to a civil penalty of not less than Ten Thousand Dollars ($10,000) and no more than One Hundred Thousand Dollars ($100,000) for such failure. 863\84\866738.4 19 Section 3.15 Payment of Other Indebtedness; Notice of Default (a) Borrower shall promptly pay the principal and interest when due on any other indebtedness related to the Property. (b) Borrower shall promptly notify the County in writing of any defaults declared under any other financing for the Property by the lender of such financing. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BORROWER Section 4.1 Representation and Warranties. Borrower hereby represents and warrants to the County as follows: (a) Organization. Borrower is duly organized, validly existing and in good standing under the laws of the State of California and has the power and authority to own its property and carry on its business as now being conducted. (b) Authority of Borrower. Borrower has full power and authority to execute and deliver this Agreement and to make and accept the borrowings contemplated hereunder, to execute and deliver the Loan Documents and all other documents or instruments executed and delivered, or to be executed and delivered, pursuant to this Agreement, and to perform and observe the terms and provisions of all of the above. (c) Authority of Persons Executing Documents. This Agreement and the Loan Documents and all other documents or instruments executed and delivered, or to be executed and delivered, pursuant to this Agreement have been executed and delivered by persons who are duly authorized to execute and deliver the same for and on behalf of Borrower, and all actions required under Borrower's organizational documents and applicable governing law for the authorization, execution, delivery and performance of this Agreement and the Loan Documents and all other documents or instruments executed and delivered, or to be executed and delivered, pursuant to this Agreement, have been duly taken. (d) Valid Binding Agreements. This Agreement and the Loan Documents and all other documents or instruments which have been executed and delivered pursuant to or in connection with this Agreement constitute or, if not yet executed or delivered, will when so executed and delivered constitute, legal, valid and binding obligations of Borrower enforceable against it in accordance with their respective terms. (e) No Breach of Law or Agreement. Neither the execution nor delivery of this Agreement and the Loan Documents or of any other documents or instruments executed and delivered, or to be executed or delivered, pursuant to this Agreement, nor the performance of any provision, condition, covenant or other term hereof or thereof, will conflict with or result in a breach of any statute, rule or regulation, or any judgment, decree or order of any court, board, commission or agency whatsoever binding on Borrower, or any provision of the organizational 863\84\866738.4 20 documents of Borrower, or will conflict with or constitute a breach of or a default under any agreement to which Borrower is a party, or will result in the creation or imposition of any lien upon any assets or property of Borrower, other than liens established pursuant hereto. (f) Compliance with Laws; Consents and Approvals. The operation of the Property complies with all applicable laws, ordinances, rules and regulations of federal, state and local governments and agencies and with all applicable directions, rules and regulations of the fire marshal, health officer, building inspector and other officers of any such government or agency. (g) Pending Proceedings. Borrower is not in default under any law or regulation or under any order of any court, board, commission or agency whatsoever, and there are no claims, actions, suits or proceedings pending or, to the knowledge of Borrower, threatened against or affecting Borrower or the Property, at law or in equity, before or by any court, board, commission or agency whatsoever which might, if determined adversely to Borrower, materially affect Borrower's ability to repay the Loan or impair the security to be given to the County pursuant hereto. (h) Title to Land. At the time of recordation of the Deed of Trust, Borrower will have good and marketable fee title to the Property and there will exist thereon or with respect thereto no mortgage, lien, pledge or other encumbrance of any character whatsoever other than liens for current real property taxes, the deed of trust securing the Harmony Loan, and liens in favor of the County or approved in writing by the County. (i) Financial Statements. The financial statements of Borrower and other financial data and information furnished by Borrower to the County fairly and accurately present the information contained therein as of the date thereof. As of the date of this Agreement, there has not been any material adverse change in the financial condition of Borrower from that shown by such financial statements and other data and information. (j) Sufficient Funds. Borrower holds sufficient funds and/or binding commitments for sufficient funds to complete the acquisition of the Property. (k) Taxes. Borrower and its subsidiaries have filed all federal and other material tax returns and reports required to be filed, and have paid all federal and other material taxes, assessments, fees and other governmental charges levied or imposed upon them or their income or the Property otherwise due and payable, except those which are being contested in good faith by appropriate proceedings and for which adequate reserves have been provided in accordance with generally accepted accounting principles. There is no proposed tax assessment against Borrower or any of its subsidiaries that could, if made, be reasonably expected to have a material adverse effect upon the Property, liabilities (actual or contingent), operations, condition (financial or otherwise) or prospects of the Borrower and its subsidiaries, taken as a whole, which would be expected to result in a material impairment of the ability of Borrower to perform under any Loan Document to which it is a party, or a material adverse effect upon the legality, validity, binding effect or enforceability against Borrower of any Loan Document. 863\84\866738.4 21 ARTICLE 5 DEFAULT AND REMEDIES Section 5.1 Events of Default. Each of the following events constitutes an "Event of Default" by Borrower under this Agreement: (a) Failure to Make Payment. Failure to repay the principal and any interest on the Loan when payment is due pursuant to the Loan Documents. (b) Breach of Covenants. Failure by Borrower to duly perform, comply with, or observe any of the conditions, terms, or covenants of any of the Loan Documents, and such failure continues uncured for thirty (30) days after receipt of written notice thereof from the County to the Borrower or, if the breach cannot be cured within thirty (30) days, the Borrower may not be in breach so long as Borrower is diligently undertaking to cure such breach and such breach is cured within ninety (90) days; provided, however, that if a different period or notice requirement is specified under any other section of this Article 5, the specific provisions will control. (c) Default Under Other Loans. A default is declared under any other financing for the Property by the lender of such financing. (d) Insolvency. A court having jurisdiction makes or enters any decree or order (i) adjudging Borrower to be bankrupt or insolvent, (ii) approving as properly filed a petition seeking reorganization of Borrower, or seeking any arrangement for Borrower under the bankruptcy law or any other applicable debtor's relief law or statute of the United States or any state or other jurisdiction, (iii) appointing a receiver, trustee, liquidator, or assignee of Borrower, in bankruptcy or insolvency or for any of their properties, (iv) directing the winding up or liquidation of Borrower, if any such decree or order described in clauses (i) to (iv), inclusive, is unstayed or undischarged for a period of ninety (90) calendar days; or (v) Borrower admits in writing its inability to pay its debts as they fall due or will have voluntarily submitted to or filed a petition seeking any decree or order of the nature described in clauses (i) to (iv), inclusive. The occurrence of any of the Events of Default in this paragraph will act to accelerate automatically, without the need for any action by the County, the indebtedness evidenced by the Note. (e) Assignment; Attachment. Borrower assign its assets for the benefit of its creditors or suffers a sequestration or attachment of or execution on any substantial part of its property, unless the property so assigned, sequestered, attached or executed upon is returned or released within ninety (90) calendar days after such event or, if sooner, prior to sale pursuant to such sequestration, attachment, or execution. The occurrence of any of the events of default in this paragraph shall act to accelerate automatically, without the need for any action by the County, the indebtedness evidenced by the Note. (f) Suspension; Termination. Borrower voluntarily suspends its business or, the partnership is dissolved or terminated, other than a technical termination of the partnership for tax purposes. 863\84\866738.4 22 (g) Liens on the Property. Any claim of lien (other than the lien of the deed of trust securing the Harmony Loan or liens approved in writing by the County) is filed against the Property or any part thereof, or any interest or right made appurtenant thereto, or the service of any notice to withhold proceeds of the Loan and the continued maintenance of said claim of lien or notice to withhold for a period of twenty (20) days, without discharge or satisfaction thereof or provision therefor (including, without limitation, the posting of bonds) satisfactory to the County. (h) Condemnation. The condemnation, seizure, or appropriation of all or the substantial part of the Property. (i) Unauthorized Transfer. Any Transfer other than as permitted by Section 3.12. (j) Representation or Warranty Incorrect. Any Borrower representation or warranty contained in this Agreement, or in any application, financial statement, certificate, or report submitted to the County in connection with any of the Loan Documents, proves to have been incorrect in any material respect when made. Section 5.2 Remedies. The occurrence of any Event of Default hereunder following the expiration of all applicable notice and cure periods will relieve the County of any obligation to make or continue the Loan and will give the County the right to proceed with any and all remedies set forth in this Agreement and the Loan Documents, including but not limited to the following: (a) Acceleration of Note. The County may cause all indebtedness of the Borrower to the County under this Agreement and the Note, together with any interest thereon, to become immediately due and payable. The Borrower waives all right to presentment, demand, protest or notice of protest or dishonor. The County may proceed to enforce payment of the indebtedness and to exercise any or all rights afforded to the County as a creditor and secured party under the law including the Uniform Commercial Code, including foreclosure under the Deed of Trust. The Borrower is liable to pay the County on demand all reasonable expenses, costs and fees (including, without limitation, reasonable attorney's fees and expenses) paid or incurred by the County in connection with the collection of the Loan and the preservation, maintenance, protection, sale, or other disposition of the security given for the Loan. (b) Specific Performance. The County has the right to mandamus or other suit, action or proceeding at law or in equity to require Borrower to perform its obligations and covenants under the Loan Documents or to enjoin acts on things which may be unlawful or in violation of the provisions of the Loan Documents. (c) Right to Cure at Borrower's Expense. The County has the right (but not the obligation) to cure any monetary default by Borrower under a loan other than the Loan. The Borrower shall reimburse the County for any funds advanced by the County to cure a monetary default by Borrower upon demand therefor, together with interest thereon at the lesser of ten 863\84\866738.4 23 percent (10%) or the maximum rate permitted by law, from the date of expenditure until the date of reimbursement. Section 5.3 Right of Contest. Borrower may contest in good faith any claim, demand, levy, or assessment the assertion of which would constitute an Event of Default hereunder. Any such contest is to be prosecuted diligently and in a manner unprejudicial to the County or the rights of the County hereunder. Section 5.4 Remedies Cumulative. No right, power, or remedy given to the County by the terms of this Agreement or the Loan Documents is intended to be exclusive of any other right, power, or remedy; and each and every such right, power, or remedy will be cumulative and in addition to every other right, power, or remedy given to the County by the terms of any such instrument, or by any statute or otherwise against Borrower and any other person. Neither the failure nor any delay on the part of the County to exercise any such rights and remedies will operate as a waiver thereof, nor does any single or partial exercise by the County of any such right or remedy preclude any other or further exercise of such right or remedy, or any other right or remedy. ARTICLE 6 GENERAL PROVISIONS Section 6.1 Relationship of Parties. Nothing contained in this Agreement is to be interpreted or understood by any of the Parties, or by any third persons, as creating the relationship of employer and employee, principal and agent, limited or general partnership, or joint venture between the County and Borrower or its agents, employees or contractors, and Borrower will at all times be deemed an independent contractor and to be wholly responsible for the manner in which it or its agents, or both, perform the services required of it by the terms of this Agreement. Borrower has and retains the right to exercise full control of employment, direction, compensation, and discharge of all persons assisting in the performance of services under the Agreement. In regards to the construction and operation of the Property, Borrower is solely responsible for all matters relating to payment of its employees, including compliance with Social Security, withholding, and all other laws and regulations governing such matters, and must include requirements in each contract that contractors are solely responsible for similar matters relating to their employees. Borrower is solely responsible for its own acts and those of its agents and employees. Section 6.2 No Claims. Nothing contained in this Agreement creates or justifies any claim against the County by any person that Borrower may have employed or with whom Borrower may have contracted relative to the purchase of materials, supplies or equipment, or the furnishing or the performance of any work or services with respect to the purchase of the Property, the construction or operation of the Property, and Borrower shall include similar requirements in any contracts entered into for the rehabilitation or operation of the Property. 863\84\866738.4 24 Section 6.3 Amendments. No alteration or variation of the terms of this Agreement is valid unless made in writing by the Parties. The County Deputy Director – Redevelopment is authorized to execute on behalf of the County amendments to the Loan Documents or amended and restated Loan Documents as long as any material change in the amount or terms of this Agreement is approved by the County Board of Supervisors, or in the event the amounts or terms of financing provided by other parties for the Property is revised, requiring conforming amendments to the Loan Documents. Section 6.4 Indemnification. The Borrower shall indemnify, defend and hold the County harmless against any and all claims, suits, actions, losses and liability of every kind, nature and description made against it and expenses (including reasonable attorneys' fees) which arise out of or in connection with this Agreement, including but not limited to the purchase and operation of the Property, except to the extent such claim arises from the grossly negligent or willful misconduct of the County, its agents, and its employees. The provisions of this Section will survive the expiration of the Term and the reconveyance of the Deed of Trust. Section 6.5 Non-Liability of County Officials, Employees and Agents. No member, official, employee or agent of the County is personally liable to Borrower in the event of any default or breach by the County or for any amount that may become due to Borrower or its successor or on any obligation under the terms of this Agreement. Section 6.6 No Third Party Beneficiaries. There are no third party beneficiaries to this Agreement. Section 6.7 Discretion Retained By County. The County's execution of this Agreement in no way limits the discretion of the County in the permit and approval process in connection with the operation or rehabilitation of the Property. Section 6.8 Conflict of Interest. (a) Except for approved eligible administrative or personnel costs, no person described in Section 6.8(b) below who exercises or has exercised any functions or responsibilities with respect to the activities funded pursuant to this Agreement or who is in a position to participate in a decision-making process or gain inside information with regard to such activities, may obtain a personal or financial interest or benefit from the activity, or have an interest in any contract, subcontract or agreement with respect thereto, or the proceeds thereunder, either for themselves or those with whom they have family or business ties, during, or at any time after, such person's tenure. Borrower shall exercise due diligence to ensure that the prohibition in this Section 6.8(a) is followed. 863\84\866738.4 25 (b) The conflict of interest provisions of Section 6.8(a) above apply to any person who is an employee, agent, consultant, officer, or any immediate family member of such person, or any elected or appointed official of the County, or any person related within the third (3rd) degree of such person. (c) In accordance with California Government Code Section 1090 and the Political Reform Act, California Government Code section 87100 et seq., no person who is a director, officer, partner, trustee or employee or consultant of the Borrower, or immediate family member of any of the preceding, may make or participate in a decision, made by the County or a County board, commission or committee, if it is reasonably foreseeable that the decision will have a material effect on any source of income, investment or interest in real property of that person or Borrower. Interpretation of this section is governed by the definitions and provisions used in the Political Reform Act, California Government Code Section 87100 et seq., its implementing regulations manual and codes, and California Government Code Section 1090. Section 6.9 Notices, Demands and Communications. All notices required or permitted by any provision of this Agreement must be in writing and sent by registered or certified mail, postage prepaid, return receipt requested, or delivered by express delivery service, return receipt requested, or delivered personally, to the principal office of the Parties as follows: County: County of Contra Costa Department of Conservation and Development Redevelopment Division 2530 Arnold Drive, Suite 190 Martinez, CA 94553 Attention: Deputy Director – Redevelopment Borrower: Future Colours Corp. 1579 N. Mitchell Canyon Road Clayton, CA 94517 Attn: Executive Director Such written notices, demands and communications may be sent in the same manner to such other addresses as the affected Party may from time to time designate by mail as provided in this Section. Receipt will be deemed to have occurred on the date shown on a written receipt as the date of delivery or refusal of delivery (or attempted delivery if undeliverable). Section 6.10 Applicable Law. This Agreement is governed by the laws of the State of California. Section 6.11 Parties Bound. Except as otherwise limited herein, this Agreement binds and inures to the benefit of the parties and their heirs, executors, administrators, legal representatives, successors, and assigns. 863\84\866738.4 26 This Agreement is intended to run with the land and to bind Borrower and its successors and assigns in the Property for the entire Term, and the benefit hereof is to inure to the benefit of the County and its successors and assigns. Section 6.12 Attorneys' Fees. If any lawsuit is commenced to enforce any of the terms of this Agreement, the prevailing Party will have the right to recover its reasonable attorneys' fees and costs of suit from the other Party. Section 6.13 Severability. If any term of this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the provisions will continue in full force and effect unless the rights and obligations of the Parties have been materially altered or abridged by such invalidation, voiding or unenforceability. Section 6.14 Force Majeure. In addition to specific provisions of this Agreement, performance by either Party will not be deemed to be an Event of Default where delays or defaults are due to war, insurrection, strikes, lock-outs, riots, floods, earthquakes, fires, quarantine restrictions, freight embargoes, lack of transportation, or court order. An extension of time for any cause will be deemed granted if notice by the Party claiming such extension is sent to the other within ten (10) days from the commencement of the cause and such extension of time is not rejected in writing by the other Party within ten (10) days of receipt of the notice. In no event is the County required to agree to cumulative delays in excess of one hundred eighty (180) days. Section 6.15 County Approval. The County has authorized the County Deputy Director-Redevelopment to execute the Loan Documents and deliver such approvals or consents as are required by this Agreement, and to execute estoppel certificates concerning the status of the Loan and the existence of Borrower defaults under the Loan Documents. Section 6.16 Waivers. Any waiver by the County of any obligation or condition in this Agreement must be in writing. No waiver will be implied from any delay or failure by the County to take action on any breach or default of Borrower or to pursue any remedy allowed under this Agreement or applicable law. Any extension of time granted to Borrower to perform any obligation under this Agreement does not operate as a waiver or release from any of its obligations under this Agreement. Consent by the County to any act or omission by Borrower may not be construed to be consent to any other or subsequent act or omission or to waive the requirement for the County's written consent to future waivers. 863\84\866738.4 27 Section 6.17 Title of Parts and Sections. Any titles of the sections or subsections of this Agreement are inserted for convenience of reference only and are to be disregarded in interpreting any part of the Agreement's provisions. Section 6.18 Entire Agreement of the Parties. This Agreement, the Note, the Regulatory Agreement and the Deed of Trust constitute the entire agreement of the Parties with respect to the Loan. Section 6.19 Multiple Originals; Counterpart. This Agreement may be executed in multiple originals, each of which is deemed to be an original, and may be signed in counterparts. Remainder of Page Intentionally Left Blank 863\84\866738.4 28 A-1 863\84\866738.4 EXHIBIT A LEGAL DESCRIPTION OF THE PROPERTY The land is situated in the State of California, County of Contra Costa, City of Clayton, and is described as follows: B-1 863\84\866738.4 EXHIBIT B APPROVED ACQUISITION BUDGET 863\84\866738.4 CDBG LOAN AGREEMENT by and between THE COUNTY OF CONTRA COSTA and FUTURE COLOURS CORP. TABLE OF CONTENTS Page i 863\84\866738.4 ARTICLE 1 DEFINITIONS AND EXHIBITS...............................................................................2  Section 1.1 Definitions................................................................................................... 2  Section 1.2 Exhibits....................................................................................................... 4  ARTICLE 2 LOAN PROVISIONS.................................................................................................4  Section 2.1 Loan and Loan Term................................................................................... 4  Section 2.2 Interest......................................................................................................... 4  Section 2.3 Use of Loan Funds...................................................................................... 4  Section 2.4 Security....................................................................................................... 5  Section 2.5 Subordination.............................................................................................. 5  Section 2.6 Conditions Precedent to Loan Closing and Property Acquisition.................................................................................................. 6  Section 2.7 Repayment.................................................................................................. 7  Section 2.8 Non-Recourse. ............................................................................................ 7  ARTICLE 3 LOAN REQUIREMENTS..........................................................................................8  Section 3.1 Annual Operating Budget........................................................................... 8  Section 3.2 Information. ................................................................................................ 8  Section 3.3 Records. ...................................................................................................... 8  Section 3.4 County Audits............................................................................................. 9  Section 3.5 CDBG Requirements.................................................................................. 9  Section 3.6 Hazardous Materials................................................................................. 13  Section 3.7 Maintenance and Damage......................................................................... 15  Section 3.8 Fees and Taxes.......................................................................................... 16  Section 3.9 Notice of Litigation................................................................................... 16  Section 3.10 Operation of the Property.......................................................................... 16  Section 3.11 Nondiscrimination..................................................................................... 16  Section 3.12 Transfer..................................................................................................... 17  Section 3.13 Insurance Requirements............................................................................ 17  Section 3.14 Anti-Lobbying Certification..................................................................... 18  Section 3.15 Payment of Other Indebtedness; Notice of Default.................................. 19  ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BORROWER...........................19  Section 4.1 Representation and Warranties................................................................. 19  ARTICLE 5 DEFAULT AND REMEDIES..................................................................................21  Section 5.1 Events of Default...................................................................................... 21  Section 5.2 Remedies................................................................................................... 22  Section 5.3 Right of Contest........................................................................................ 23  Section 5.4 Remedies Cumulative............................................................................... 23  TABLE OF CONTENTS (continued) Page ii 863\84\866738.4 ARTICLE 6 GENERAL PROVISIONS .......................................................................................23  Section 6.1 Relationship of Parties.............................................................................. 23  Section 6.2 No Claims................................................................................................. 23  Section 6.3 Amendments............................................................................................. 24  Section 6.4 Indemnification......................................................................................... 24  Section 6.5 Non-Liability of County Officials, Employees and Agents...................... 24  Section 6.6 No Third Party Beneficiaries.................................................................... 24  Section 6.7 Discretion Retained By County................................................................ 24  Section 6.8 Conflict of Interest.................................................................................... 24  Section 6.9 Notices, Demands and Communications.................................................. 25  Section 6.10 Applicable Law......................................................................................... 25  Section 6.11 Parties Bound............................................................................................ 25  Section 6.12 Attorneys' Fees.......................................................................................... 26  Section 6.13 Severability............................................................................................... 26  Section 6.14 Force Majeure........................................................................................... 26  Section 6.15 County Approval....................................................................................... 26  Section 6.16 Waivers..................................................................................................... 26  Section 6.17 Title of Parts and Sections........................................................................ 27  Section 6.18 Entire Agreement of the Parties................................................................ 27  Section 6.19 Multiple Originals; Counterpart................................................................ 27  Exhibit A: Legal Description of the Property Exhibit B: Approved Acquisition Budget 863\01\833274.1 1 RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: Contra Costa County Department of Conservation and Development Redevelopment Division 2530 Arnold Drive, Suite 190 Martinez, CA 94553 Attention: Deputy Director - Redevelopment No fee for recording pursuant to Government Code Section 27383 DEED OF TRUST WITH ASSIGNMENT OF RENTS, SECURITY AGREEMENT, AND FIXTURE FILING (Future Colours Corp. – CDBG Loan) THIS DEED OF TRUST WITH ASSIGNMENT OF RENTS, SECURITY AGREEMENT, AND FIXTURE FILING ("Deed of Trust") is made as of December 8, 2010, by and among FUTURE COLOURS CORP., a California nonprofit public benefit corporation ("Trustor"), SECURITY UNION TITLE INSURANCE COMPANY, a California corporation ("Trustee"), and the COUNTY OF CONTRA COSTA, a political subdivision of the State of California ("Beneficiary"). FOR GOOD AND VALUABLE CONSIDERATION, including the indebtedness herein recited and the trust herein created, the receipt of which is hereby acknowledged, Trustor hereby irrevocably grants, transfers, conveys and assigns to Trustee, IN TRUST, WITH POWER OF SALE, for the benefit and security of Beneficiary, under and subject to the terms and conditions hereinafter set forth, Trustor's fee interest in the property located in the County of Contra Costa, City of Clayton, State of California, that is described in the attached Exhibit A, incorporated herein by this reference (the "Property"). TOGETHER WITH all interest, estates or other claims, both in law and in equity which Trustor now has or may hereafter acquire in the Property and the rents; TOGETHER WITH all easements, rights-of-way and rights used in connection therewith or as a means of access thereto, including (without limiting the generality of the foregoing) all tenements, hereditaments and appurtenances thereof and thereto; TOGETHER WITH any and all buildings and improvements of every kind and description now or hereafter erected thereon, and all property of the Trustor now or hereafter affixed to or placed upon the Property; TOGETHER WITH all building materials and equipment now or hereafter delivered to said property and intended to be installed therein; 863\01\833274.1 2 TOGETHER WITH all right, title and interest of Trustor, now owned or hereafter acquired, in and to any land lying within the right-of-way of any street, open or proposed, adjoining the Property, and any and all sidewalks, alleys and strips and areas of land adjacent to or used in connection with the Property; TOGETHER WITH all estate, interest, right, title, other claim or demand, of every nature, in and to such property, including the Property, both in law and in equity, including, but not limited to, all deposits made with or other security given by Trustor to utility companies, the proceeds from any or all of such property, including the Property, claims or demands with respect to the proceeds of insurance in effect with respect thereto, which Trustor now has or may hereafter acquire, any and all awards made for the taking by eminent domain or by any proceeding or purchase in lieu thereof of the whole or any part of such property, including without limitation, any awards resulting from a change of grade of streets and awards for severance damages to the extent Beneficiary has an interest in such awards for taking as provided in Paragraph 4.1 herein; TOGETHER WITH all of Trustor's interest in all articles of personal property or fixtures now or hereafter attached to or used in and about the building or buildings now erected or hereafter to be erected on the Property which are necessary to the complete and comfortable use and occupancy of such building or buildings for the purposes for which they were or are to be erected, including all other goods and chattels and personal property as are ever used or furnished in operating a building, or the activities conducted therein, similar to the one herein described and referred to, and all renewals or replacements thereof or articles in substitution therefore, whether or not the same are, or will be, attached to said building or buildings in any manner; and TOGETHER WITH all of Trustor's interest in all building materials, fixtures, equipment, work in process and other personal property to be incorporated into the Property; all goods, materials, supplies, fixtures, equipment, machinery, furniture and furnishings, signs and other personal property now or hereafter appropriated for use on the Property, whether stored on the Property or elsewhere, and used or to be used in connection with the Property; all rents, issues and profits, and all inventory, accounts, accounts receivable, contract rights, general intangibles, chattel paper, instruments, documents, notes drafts, letters of credit, insurance policies, insurance and condemnation awards and proceeds, trade names, trademarks and service marks arising from or related to the Property and any business conducted thereon by Trustor; all replacements, additions, accessions and proceeds; and all books, records and files relating to any of the foregoing. All of the foregoing, together with the Property, is herein referred to as the "Security." To have and to hold the Security together with acquittances to the Trustee, its successors and assigns forever. FOR THE PURPOSE OF SECURING THE FOLLOWING OBLIGATIONS (the "Secured Obligations"): A. Payment to Beneficiary of all sums at any time owing under or in connection with the Note (defined in Section 1.4 below) until paid or cancelled and any other amounts owing under the Loan Documents (defined in Section 1.3 below). Said principal and other payments 863\01\833274.1 3 are due and payable as provided in the Note or other Loan Documents, as applicable. The Note and all its terms are incorporated herein by reference, and this conveyance secures any and all extensions thereof, however evidenced; B. Payment of any sums advanced by Beneficiary to protect the Security pursuant to the terms and provisions of this Deed of Trust following a breach of Trustor's obligation to advance said sums and the expiration of any applicable cure period, with interest thereon as provided herein; C. Performance of every obligation, covenant or agreement of Trustor contained herein and in the Loan Documents; and D. All modifications, extensions and renewals of any of the Secured Obligations (including without limitation, (i) modifications, extensions or renewals at a different rate of interest, or (ii) deferrals or accelerations of the required principal payment dates or interest payment dates or both, in whole or in part), however evidenced, whether or not any such modification, extension or renewal is evidenced by a new or additional promissory note or notes. AND TO PROTECT THE SECURITY OF THIS DEED OF TRUST, TRUSTOR COVENANTS AND AGREES: ARTICLE 1 DEFINITIONS In addition to the terms defined elsewhere in this Deed of Trust, the following terms have the following meanings in this Deed of Trust: Section 1.1 The term "Loan" means the loan made by the Beneficiary to the Trustor in the amount of Four Hundred Fifty-Two Thousand Five Hundred and Fifty Dollars ($452,550). Section 1.2 The term "Loan Agreement" means that certain CDBG Loan Agreement between Trustor and Beneficiary, of even date herewith, providing for the Beneficiary to loan to the Trustor Four Hundred Fifty-Two Thousand Five Hundred and Fifty Dollars ($452,550) for the acquisition of the Property. Section 1.3 The term "Loan Documents" means this Deed of Trust, the Note, the Loan Agreement, and the Regulatory Agreement, and any other debt, loan or security instruments between Trustor and the Beneficiary relating to the Loan. Section 1.4 The term "Note" means the promissory note in the principal amount of Four Hundred Fifty-Two Thousand Five Hundred and Fifty Dollars ($452,550) of even date herewith, executed by Trustor in favor of the Beneficiary, as it may be amended or restated, the payment of which is secured by this Deed of Trust. (A copy of the Note is on file with the Beneficiary and terms and provisions of the Note are incorporated herein by reference.) 863\01\833274.1 4 Section 1.5 The term "Principal" means the amount required to be paid under the Note. Section 1.6 The term "Regulatory Agreement" means the regulatory agreement of even date herewith by and between the Beneficiary and the Trustor. ARTICLE 2 MAINTENANCE AND MODIFICATION OF THE PROPERTY AND SECURITY Section 2.1 Maintenance and Modification of the Property by Trustor. The Trustor agrees that at all times prior to full payment and performance of the Secured Obligations, the Trustor will, at the Trustor's own expense, maintain, preserve and keep the Security or cause the Security to be maintained and preserved in good condition. The Trustor will from time to time make or cause to be made all repairs, replacements and renewals deemed proper and necessary by it. The Beneficiary has no responsibility in any of these matters or for the making of improvements or additions to the Security. Trustor agrees to pay fully and discharge (or cause to be paid fully and discharged) all claims for labor done and for material and services furnished in connection with the Security, diligently to file or procure the filing of a valid notice of cessation upon the event of a cessation of labor on the work or construction on the Security for a continuous period of thirty (30) days or more, and to take all other reasonable steps to forestall the assertion of claims of lien against the Security of any part thereof. Trustor irrevocably appoints, designates and authorizes Beneficiary as its agent (said agency being coupled with an interest) with the authority, but without any obligation, to file for record any notices of completion or cessation of labor or any other notice that Beneficiary deems necessary or desirable to protect its interest in and to the Security or the Loan Documents; provided, however, that Beneficiary exercises its rights as agent of Trustor only in the event that Trustor fails to take, or fails to diligently continue to take, those actions as hereinbefore provided. Upon demand by Beneficiary, Trustor shall make or cause to be made such demands or claims as Beneficiary specifies upon laborers, materialmen, subcontractors or other persons who have furnished or claim to have furnished labor, services or materials in connection with the Security. Nothing herein contained requires Trustor to pay any claims for labor, materials or services which Trustor in good faith disputes and is diligently contesting provided that Trustor shall, within thirty (30) days after the filing of any claim of lien, record in the Office of the Recorder of Contra Costa County, a surety bond in an amount 1 and 1/2 times the amount of such claim item to protect against a claim of lien. Section 2.2 Granting of Easements. Trustor may not grant easements, licenses, rights-of-way or other rights or privileges in the nature of easements with respect to any property or rights included in the Security except those required or desirable for installation and maintenance of public utilities including, without 863\01\833274.1 5 limitation, water, gas, electricity, sewer, telephone and telegraph, or those required by law, and as approved, in writing, by Beneficiary. Section 2.3 Assignment of Rents. As part of the consideration for the indebtedness evidenced by the Note, Trustor hereby absolutely and unconditionally assigns and transfers to Beneficiary all the rents and revenues of the Property including those now due, past due, or to become due by virtue of any lease or other agreement for the occupancy or use of all or any part of the Property, regardless of to whom the rents and revenues of the Property are payable. Trustor hereby authorizes Beneficiary or Beneficiary's agents to collect the aforesaid rents and revenues and hereby directs each tenant of the Property to pay such rents to Beneficiary or Beneficiary's agents; provided, however, that prior to written notice given by Beneficiary to Trustor of the breach by Trustor of any covenant or agreement of Trustor in the Loan Documents, Trustor shall collect and receive all rents and revenues of the Property as trustee for the benefit of Beneficiary and Trustor to apply the rents and revenues so collected to the Secured Obligations with the balance, so long as no such breach has occurred, to the account of Trustor, it being intended by Trustor and Beneficiary that this assignment of rents constitutes an absolute assignment and not an assignment for additional security only. Upon delivery of written notice by Beneficiary to Trustor of the breach by Trustor of any covenant or agreement of Trustor in the Loan Documents, and without the necessity of Beneficiary entering upon and taking and maintaining full control of the Property in person, by agent or by a court-appointed receiver, Beneficiary shall immediately be entitled to possession of all rents and revenues of the Property as specified in this Section 2.3 as the same becomes due and payable, including but not limited to, rents then due and unpaid, and all such rents will immediately upon delivery of such notice be held by Trustor as trustee for the benefit of Beneficiary only; provided, however, that the written notice by Beneficiary to Trustor of the breach by Trustor contains a statement that Beneficiary exercises its rights to such rents. Trustor agrees that commencing upon delivery of such written notice of Trustor's breach by Beneficiary to Trustor, each tenant of the Property shall make such rents payable to and pay such rents to Beneficiary or Beneficiary's agents on Beneficiary's written demand to each tenant therefore, delivered to each tenant personally, by mail or by delivering such demand to each rental unit, without any liability on the part of said tenant to inquire further as to the existence of a default by Trustor. Trustor hereby covenants that Trustor has not executed any prior assignment of said rents, that Trustor has not performed, and will not perform, any acts or has not executed and will not execute, any instrument which would prevent Beneficiary from exercising its rights under this Section 2.3, and that at the time of execution of this Deed of Trust, there has been no anticipation or prepayment of any of the rents of the Property for more than two (2) months prior to the due dates of such rents. Trustor covenants that Trustor will not hereafter collect or accept payment of any rents of the Property more than two (2) months prior to the due dates of such rents. Trustor further covenant that Trustor will execute and deliver to Beneficiary such further assignments of rents and revenues of the Property as Beneficiary may from time to time request. Upon Trustor's breach of any covenant or agreement of Trustor in the Loan Documents, Beneficiary may in person, by agent or by a court-appointed receiver, regardless of the adequacy of Beneficiary's security, enter upon and take and maintain full control of the Property in order to 863\01\833274.1 6 perform all acts necessary and appropriate for the operation and maintenance thereof including, but not limited to, the execution, cancellation or modification of leases, the collection of all rents and revenues of the Property, the making of repairs to the Property and the execution or termination of contracts providing for the management or maintenance of the Property, all on such terms as are deemed best to protect the security of this Deed of Trust. In the event Beneficiary elects to seek the appointment of a receiver for the Property upon Trustor's breach of any covenant or agreement of Trustor in this Deed of Trust, Trustor hereby expressly consents to the appointment of such receiver. Beneficiary or the receiver will be entitled to receive a reasonable fee for so managing the Property. All rents and revenues collected subsequent to delivery of written notice by Beneficiary to Trustor of the breach by Trustor of any covenant or agreement of Trustor in the Loan Documents are to applied first to the costs, if any, of taking control of and managing the Property and collecting the rents, including, but not limited to, attorney's fees, receiver's fees, premiums on receiver's bonds, costs of repairs to the Property, premiums on insurance policies, taxes, assessments and other charges on the Property, and the costs of discharging any obligation or liability of Trustor as lessor or landlord of the Property and then to the sums secured by this deed of Trust. Beneficiary or the receiver is to have access to the books and records used in the operation and maintenance of the Property and will be liable to account only for those rents actually received. Beneficiary is not liable to Trustor, anyone claiming under or through Trustor or anyone having an interest in the Property by reason of anything done or left undone by Beneficiary under this Section 2.3. If the rents of the Property are not sufficient to meet the costs, if any, of taking control of and managing the Property and collecting the rents, any funds expended by Beneficiary for such purposes will become part of the Secured Obligations pursuant to Section 3.3 hereof. Unless Beneficiary and Trustor agree in writing to other terms of payment, such amounts are payable by Trustor to Beneficiary upon notice from Beneficiary to Trustor requesting payment thereof and will bear interest from the date of disbursement at the rate stated in Section 3.3. If the Beneficiary or the receiver enters upon and takes and maintains control of the Property, neither that act nor any application of rents as provided herein will cure or waive any default under this Deed of Trust or invalidate any other right or remedy available to Beneficiary under applicable law or under this Deed of Trust. This assignment of rents of the Property will terminate at such time as this Deed of Trust ceases to secure the Secured Obligations. ARTICLE 3 TAXES AND INSURANCE; ADVANCES Section 3.1 Taxes, Other Governmental Charges and Utility Charges. Trustor shall pay, or cause to be paid, prior to the date of delinquency, all taxes, assessments, charges and levies imposed by any public authority or utility company that are or may become a lien affecting the Security or any part thereof; provided, however, that Trustor is not required to pay and discharge any such tax, assessment, charge or levy so long as (a) the legality thereof is promptly and actively contested in good faith and by appropriate proceedings, 863\01\833274.1 7 and (b) Trustor maintains reserves adequate to pay any liabilities contested pursuant to this Section 3.1. With respect to taxes, special assessments or other similar governmental charges, Trustor shall pay such amount in full prior to the attachment of any lien therefore on any part of the Security; provided, however, if such taxes, assessments or charges can be paid in installments, Trustor may pay in such installments. Except as provided in clause (b) of the first sentence of this paragraph, the provisions of this Section 3.1 must not be construed to require that Trustor maintain a reserve account, escrow account, impound account or other similar account for the payment of future taxes, assessments, charges and levies. In the event that Trustor fails to pay any of the items required by this Section to be paid by Trustor, Beneficiary may (but is under no obligation to) pay the same, after the Beneficiary has notified the Trustor of such failure to pay and the Trustor fails to fully pay such items within seven (7) business days after receipt of such notice. Any amount so advanced therefore by Beneficiary, together with interest thereon from the date of such advance at the maximum rate permitted by law, will become part of the Secured Obligations secured hereby, and Trustor agrees to pay all such amounts. Section 3.2 Provisions Respecting Insurance. Trustor agrees to provide insurance conforming in all respects to that required under the Loan Documents during the course of construction and following completion, and at all times until all amounts secured by this Deed of Trust have been paid, all Secured Obligations secured hereunder have been fulfilled, and this Deed of Trust has been reconveyed. All such insurance policies and coverages are to be maintained at Trustor's sole cost and expense. Certificates of insurance for all of the above insurance policies, showing the same to be in full force and effect, are to be delivered to the Beneficiary upon demand therefore at any time prior to Trustor's satisfaction of the Secured Obligations. Section 3.3 Advances. In the event the Trustor fails to maintain the full insurance coverage required by this Deed of Trust or fails to keep the Security in accordance with the Loan Documents, the Beneficiary, after at least seven (7) days prior notice to Trustor, may (but is under no obligation to) (i) take out the required policies of insurance and pay the premiums on the same, and (ii) make any repairs or replacements that are necessary and provide for payment thereof. All amounts so advanced by the Beneficiary will become part of the Secured Obligations (together with interest as set forth below) and will be secured hereby, which amounts the Trustor agrees to pay on the demand of the Beneficiary, and if not so paid, will bear interest from the date of the advance at the lesser of ten percent (10%) per annum or the maximum rate permitted by law. 863\01\833274.1 8 ARTICLE 4 DAMAGE, DESTRUCTION OR CONDEMNATION Section 4.1 Awards and Damages. All judgments, awards of damages, settlements and compensation made in connection with or in lieu of (1) the taking of all or any part of or any interest in the Property by or under assertion of the power of eminent domain, (2) any damage to or destruction of the Property or any part thereof by insured casualty, and (3) any other injury or damage to all or any part of the Property (collectively, the "Funds") are hereby assigned to and are to be paid to the Beneficiary by a check made payable to the Beneficiary. The Beneficiary is authorized and empowered (but not required) to collect and receive any Funds and is authorized to apply them in whole or in part to any indebtedness or obligation secured hereby, in such order and manner as the Beneficiary determines at its sole option. The Beneficiary is entitled to settle and adjust all claims under insurance policies provided under this Deed of Trust and may deduct and retain from the proceeds of such insurance the amount of all expenses incurred by it in connection with any such settlement or adjustment. All or any part of the amounts so collected and recovered by the Beneficiary may be released to Trustor upon such conditions as the Beneficiary may impose for its disposition. Application of all or any part of the Funds collected and received by the Beneficiary or the release thereof will not cure or waive any default under this Deed of Trust. The rights of the Beneficiary under this Section 4.1 are subject to the rights of any senior mortgage lender. The Beneficiary shall release the Funds to Trustor to be used to reconstruct the improvements on the Property provided that Beneficiary reasonably determines that Trustor (taking into account the Funds) has sufficient funds to rebuild the improvements in substantially the form that existed prior to the casualty or condemnation. ARTICLE 5 AGREEMENTS AFFECTING THE PROPERTY; FURTHER ASSURANCES; PAYMENT OF PRINCIPAL AND INTEREST Section 5.1 Other Agreements Affecting Property. The Trustor shall duly and punctually perform all terms, covenants, conditions and agreements binding upon it under the Loan Documents and any other agreement of any nature whatsoever now or hereafter involving or affecting the Security or any part thereof. Section 5.2 Agreement to Pay Attorneys' Fees and Expenses. In the event of any Event of Default (as defined in Section 7.1) hereunder, and if the Beneficiary employs attorneys or incurs other expenses for the collection of amounts due hereunder or the enforcement of performance or observance of an obligation or agreement on the part of the Trustor in this Deed of Trust, the Trustor agrees that it will, on demand therefore, pay to the Beneficiary the reasonable fees of such attorneys and such other reasonable expenses so incurred by the Beneficiary. Any such amounts paid by the Beneficiary will be added to the 863\01\833274.1 9 Secured Obligations, and will bear interest from the date such expenses are incurred at the lesser of ten percent (10%) per annum or the maximum rate permitted by law. Section 5.3 Payment of the Principal. The Trustor shall pay to the Beneficiary the Principal and any other payments as set forth in the Note in the amounts and by the times set out therein. Section 5.4 Personal Property. To the maximum extent permitted by law, the personal property subject to this Deed of Trust is deemed to be fixtures and part of the real property and this Deed of Trust constitutes a fixtures filing under the California Commercial Code. As to any personal property not deemed or permitted to be fixtures, this Deed of Trust constitutes a security agreement under the California Commercial Code. Section 5.5 Financing Statement. The Trustor shall execute and deliver to the Beneficiary such financing statements pursuant to the appropriate statutes, and any other documents or instruments as are required to convey to the Beneficiary a valid perfected security interest in the Security. The Trustor shall perform all acts that the Beneficiary reasonably requests so as to enable the Beneficiary to maintain a valid perfected security interest in the Security in order to secure the payment of the Note in accordance with its terms. The Beneficiary is authorized to file a copy of any such financing statement in any jurisdiction(s) as it deems appropriate from time to time in order to protect the security interest established pursuant to this instrument. Section 5.6 Operation of the Security. The Trustor shall operate the Security (and, in case of a transfer of a portion of the Security subject to this Deed of Trust, the transferee shall operate such portion of the Security) in full compliance with the Loan Documents. Section 5.7 Inspection of the Security. At any and all reasonable times upon seventy-two (72) hours' notice, the Beneficiary and its duly authorized agents, attorneys, experts, engineers, accountants and representatives, may inspect the Security, without payment of charges or fees. Section 5.8 Nondiscrimination. The Trustor herein covenants by and for itself, its heirs, executors, administrators, and assigns, and all persons claiming under or through them, that there will be no discrimination against or segregation of, any person or group of persons on account of race, color, creed, religion, age, sex, sexual orientation, marital status, national origin or ancestry in the sale, lease, sublease, transfer, use, occupancy, tenure or enjoyment of the Security, nor will the Trustor itself or any person claiming under or through it establish or permit any such practice or practices of discrimination or segregation with reference to the selection, location, number, use or occupancy 863\01\833274.1 10 of tenants, lessees, subtenants, sublessees or vendees in the Security. The foregoing covenants will run with the land. ARTICLE 6 HAZARDOUS WASTE Trustor shall keep and maintain the Property in compliance with, and shall not cause or permit the Property to be in violation of any federal, state or local laws, ordinances or regulations relating to industrial hygiene or to the environmental conditions on, under or about the Property including, but not limited to, soil and ground water conditions. Trustor shall not use, generate, manufacture, store or dispose of on, under, or about the Property or transport to or from the Property any flammable explosives, radioactive materials, hazardous wastes, toxic substances or related materials, including without limitation, any substances defined as or included in the definition of "hazardous substances", hazardous wastes", "hazardous materials", or "toxic substances" under any applicable federal or state laws or regulations (collectively referred to hereinafter as "Hazardous Materials") except such of the foregoing as may be customarily used in construction or operation of a multi-family residential development. Trustor shall immediately advise Beneficiary in writing if at any time it receives written notice of: (i) any and all enforcement, cleanup, removal or other governmental or regulatory actions instituted, completed or threatened against Trustor or the Property pursuant to any applicable federal, state or local laws, ordinances, or regulations relating to any Hazardous Materials, ("Hazardous Materials Law"); (ii) all claims made or threatened by any third party against Trustor or the Property relating to damage, contribution, cost recovery compensation, loss or injury resulting from any Hazardous Materials (the matters set forth in clauses (i) and (ii) above are hereinafter referred to as "Hazardous Materials Claims"); and (iii) Trustor's discovery of any occurrence or condition on any real property adjoining or in the vicinity of the Property that could cause the Property or any part thereof to be classified as "border-zone property" (as defined in California Health and Safety Code Section 25117.4) under the provision of California Health and Safety Code Section 25220 et seq., or any regulation adopted in accordance therewith, or to be otherwise subject to any restrictions on the ownership, occupancy, transferability or use of the Property under any Hazardous Materials Law. Beneficiary has the right to join and participate in, as a party if it so elects, any legal proceedings or actions initiated in connection with any Hazardous Materials Claims and to have its reasonable attorneys' fees in connection therewith paid by Trustor. Trustor shall indemnify and hold harmless Beneficiary and its boardmembers, supervisors, directors, officers, employees, agents, successors and assigns from and against any loss, damage, cost, expense or liability directly or indirectly arising out of or attributable to the use, generation, storage, release, threatened release, discharge, disposal, or presence of Hazardous Materials on, under, or about the Property including without limitation: (a) all foreseeable consequential damages; (b) the costs of any required or necessary repair, cleanup or detoxification of the Property and the preparation and implementation of any closure, remedial or other required plans; and (c) all reasonable costs and expenses incurred by Beneficiary in connection with clauses (a) and (b), including but not limited to reasonable attorneys' fees and consultant's fees. This indemnification applies whether or not any government agency has issued a cleanup order. 863\01\833274.1 11 Losses, claims, costs, suits, liability, and expenses covered by this indemnification provision include, but are not limited to: (1) losses attributable to diminution in the value of the Property; (2) loss or restriction of use of rentable space on the Property; (3) adverse effect on the marketing of any rental space on the Property; and (4) penalties and fines levied by, and remedial or enforcement actions of any kind issued by any regulatory agency (including but not limited to the costs of any required testing, remediation, repair, removal, cleanup or detoxification of the Property and surrounding properties). Without Beneficiary's prior written consent, which may not be unreasonably withheld, Trustor may not take any remedial action in response to the presence of any Hazardous Materials on, under or about the Property, nor enter into any settlement agreement, consent decree, or other compromise in respect to any Hazardous Material Claims, which remedial action, settlement, consent decree or compromise might, in Beneficiary's reasonable judgment, impairs the value of the Beneficiary's security hereunder; provided, however, that Beneficiary's prior consent is not necessary in the event that the presence of Hazardous Materials on, under, or about the Property either poses an immediate threat to the health, safety or welfare of any individual or is of such a nature that an immediate remedial response is necessary and it is not reasonably possible to obtain Beneficiary's consent before taking such action, provided that in such event Trustor notifies Beneficiary as soon as practicable of any action so taken. Beneficiary agrees not to withhold its consent, where such consent is required hereunder, if (i) a particular remedial action is ordered by a court of competent jurisdiction; (ii) Trustor will or may be subjected to civil or criminal sanctions or penalties if it fails to take a required action; (iii) Trustor establishes to the reasonable satisfaction of Beneficiary that there is no reasonable alternative to such remedial action which would result in less impairment of Beneficiary's security hereunder; or (iv) the action has been agreed to by Beneficiary. The Trustor hereby acknowledges and agrees that (i) this Article is intended as the Beneficiary's written request for information (and the Trustor's response) concerning the environmental condition of the Property as required by California Code of Civil Procedure Section 726.5, and (ii) each representation and warranty in this Deed of Trust or any of the other Loan Documents (together with any indemnity applicable to a breach of any such representation and warranty) with respect to the environmental condition of the property is intended by the Beneficiary and the Trustor to be an "environmental provision" for purposes of California Code of Civil Procedure Section 736. In the event that any portion of the Property is determined to be "environmentally impaired" (as that term is defined in California Code of Civil Procedure Section 726.5(e)(3)) or to be an "affected parcel" (as that term is defined in California Code of Civil Procedure Section 726.5(e)(1)), then, without otherwise limiting or in any way affecting the Beneficiary's or the Trustee's rights and remedies under this Deed of Trust, the Beneficiary may elect to exercise its rights under California Code of Civil Procedure Section 726.5(a) to (1) waive its lien on such environmentally impaired or affected portion of the Property and (2) exercise (a) the rights and remedies of an unsecured creditor, including reduction of its claim against the Trustor to judgment, and (b) any other rights and remedies permitted by law. For purposes of determining the Beneficiary's right to proceed as an unsecured creditor under California Code of Civil Procedure Section 726.5(a), the Trustor will be deemed to have willfully permitted or acquiesced in a release or threatened release of hazardous materials, within the meaning of California Code 863\01\833274.1 12 of Civil Procedure Section 726.5(d)(1), if the release or threatened release of hazardous materials was knowingly or negligently caused or contributed to by any lessee, occupant, or user of any portion of the Property and the Trustor knew or should have known of the activity by such lessee, occupant, or user which caused or contributed to the release or threatened release. All costs and expenses, including (but not limited to) attorneys' fees, incurred by the Beneficiary in connection with any action commenced under this paragraph, including any action required by California Code of Civil Procedure Section 726.5(b) to determine the degree to which the Property is environmentally impaired, plus interest thereon at the default rate specified in the Loan Agreement until paid, will be added to the indebtedness secured by this Deed of Trust and will be due and payable to the Beneficiary upon its demand made at any time following the conclusion of such action. ARTICLE 7 EVENTS OF DEFAULT AND REMEDIES Section 7.1 Events of Default. The following are events of default ("Events of Default") following the expiration of any applicable notice and cure periods: (i) failure to make any payment to be paid by Trustor under the Loan Documents; (ii) failure to observe or perform any of Trustor's other covenants, agreements or obligations under the Loan Documents, including, without limitation, the provisions concerning discrimination; (iii) failure to make any payment or observe or perform any of Trustor's other covenants, agreements, or obligations under any Secured Obligations, which default is not cured within the times and in the manner provided therein; and (iv) failure to make any payments or observe or perform any of Trustor's other covenants, agreements or obligations under any other debt instrument or regulatory agreement secured by the Property, which default is not cured within the time and in the manner provided therein. Section 7.2 Acceleration of Maturity. If an Event of Default has occurred and is continuing, then at the option of the Beneficiary, the amount of any payment related to the Event of Default and all unpaid Secured Obligations are immediately due and payable, and no omission on the part of the Beneficiary to exercise such option when entitled to do so will be construed as a waiver of such right. Section 7.3 The Beneficiary's Right to Enter and Take Possession. If an Event of Default has occurred and is continuing, the Beneficiary may: (a) Either in person or by agent, with or without bringing any action or proceeding, or by a receiver appointed by a court, and without regard to the adequacy of its security, enter upon the Property and take possession thereof (or any part thereof) and of any of the Security, in its own name or in the name of Trustee, and do any acts that it deems necessary or desirable to preserve the value or marketability of the Property, or part thereof or interest therein, increase the income therefrom or protect the security thereof. The entering upon and taking possession of the Security will not cure or waive any Event of Default or Notice of Sale (as defined in Section 7.3(c), below) hereunder or invalidate any act done in response to such 863\01\833274.1 13 Event of Default or pursuant to such Notice of Sale, and, notwithstanding the continuance in possession of the Security, Beneficiary will be entitled to exercise every right provided for in this Deed of Trust, or by law upon occurrence of any Event of Default, including the right to exercise the power of sale; (b) Commence an action to foreclose this Deed of Trust as a mortgage, appoint a receiver, or specifically enforce any of the covenants hereof; (c) Deliver to Trustee a written declaration of default and demand for sale, and a written notice of default and election to cause Trustor's interest in the Security to be sold ("Notice of Sale"), which notice Trustee or Beneficiary shall cause to be duly filed for record in the Official Records of Contra Costa County; or (d) Exercise all other rights and remedies provided herein, in the instruments by which the Trustor acquires title to any Security, or in any other document or agreement now or hereafter evidencing, creating or securing the Secured Obligations. Section 7.4 Foreclosure By Power of Sale. Should the Beneficiary elect to foreclose by exercise of the power of sale herein contained, the Beneficiary shall deliver to the Trustee the Notice of Sale and shall deposit with Trustee this Deed of Trust which is secured hereby (and the deposit of which will be deemed to constitute evidence that the Secured Obligations are immediately due and payable), and such receipts and evidence of any expenditures made that are additionally secured hereby as Trustee may require. (a) Upon receipt of such Notice of Sale from the Beneficiary, Trustee shall cause to be recorded, published and delivered to Trustor such Notice of Sale as is then required by law and by this Deed of Trust. Trustee shall, without demand on Trustor, after the lapse of that amount of time as is then required by law and after recordation of such Notice of Sale as required by law, sell the Security, at the time and place of sale set forth in the Notice of Sale, whether as a whole or in separate lots or parcels or items, as Trustee deems expedient and in such order as it determines, unless specified otherwise by the Trustor according to California Civil Code Section 2924g(b), at public auction to the highest bidder, for cash in lawful money of the United States payable at the time of sale. Trustee shall deliver to such purchaser or purchasers thereof its good and sufficient deed or deeds conveying the property so sold, but without any covenant or warranty, express or implied. The recitals in such deed or any matters of facts will be conclusive proof of the truthfulness thereof. Any person, including, without limitation, Trustor, Trustee or Beneficiary, may purchase at such sale. (b) After deducting all reasonable costs, fees and expenses of Trustee, including costs of evidence of title in connection with such sale, Trustee shall apply the proceeds of sale to payment of: (i) the unpaid Principal amount of the Note; (ii) all other Secured Obligations owed to Beneficiary under the Loan Documents; (iii) all other sums then secured hereby; and (iv) the remainder, if any, to Trustor. 863\01\833274.1 14 (c) Trustee may postpone sale of all or any portion of the Property by public announcement at such time and place of sale, and from time to time thereafter, and without further notice make such sale at the time fixed by the last postponement, or may, in its discretion, give a new Notice of Sale. Section 7.5 Receiver. If an Event of Default occurs and is continuing, Beneficiary, as a matter of right and without further notice to Trustor or anyone claiming under the Security, and without regard to the then value of the Security or the interest of Trustor therein, may apply to any court having jurisdiction to appoint a receiver or receivers of the Security (or a part thereof), and Trustor hereby irrevocably consents to such appointment and waives further notice of any application therefore. Any such receiver or receivers will have all the usual powers and duties of receivers in like or similar cases, and all the powers and duties of Beneficiary in case of entry as provided herein, and will continue as such and exercise all such powers until the date of confirmation of sale of the Security, unless such receivership is sooner terminated. Section 7.6 Remedies Cumulative. No right, power or remedy conferred upon or reserved to the Beneficiary by this Deed of Trust is intended to be exclusive of any other right, power or remedy, but each and every such right, power and remedy will be cumulative and concurrent and will be in addition to any other right, power and remedy given hereunder or now or hereafter existing at law or in equity. Section 7.7 No Waiver. (a) No delay or omission of the Beneficiary to exercise any right, power or remedy accruing upon any Event of Default will exhaust or impair any such right, power or remedy, or will be construed to be a waiver of any such Event of Default or acquiescence therein; and every right, power and remedy given by this Deed of Trust to the Beneficiary may be exercised from time to time and as often as may be deemed expeditious by the Beneficiary. Beneficiary's express or implied consent to breach, or waiver of, any obligation of the Trustor hereunder will not be deemed or construed to be a consent to any subsequent breach, or further waiver, of such obligation or of any other obligations of the Trustor hereunder. Failure on the part of the Beneficiary to complain of any act or failure to act or to declare an Event of Default, irrespective of how long such failure continues, will not constitute a waiver by the Beneficiary of its right hereunder or impair any rights, power or remedies consequent on any Event of Default by the Trustor. (b) If the Beneficiary (i) grants forbearance or an extension of time for the payment or performance of any Secured Obligation, (ii) takes other or additional security or the payment of any sums secured hereby, (iii) waives or does not exercise any right granted in the Loan Documents, (iv) releases any part of the Security from the lien of this Deed of Trust, or otherwise changes any of the terms, covenants, conditions or agreements in the Loan Documents, (v) consents to the granting of any easement or other right affecting the Security, or (vi) makes or consents to any agreement subordinating the lien hereof, any such act or omission will not release, discharge, modify, change or affect the original liability under this Deed of Trust, or any other obligation of the Trustor or any subsequent purchaser of the Security or any part thereof, or 863\01\833274.1 15 any maker, co-signer, endorser, surety or guarantor (unless expressly released); nor must any such act or omission preclude the Beneficiary from exercising any right, power or privilege herein granted or intended to be granted in any Event of Default then made or of any subsequent Event of Default, nor, except as otherwise expressly provided in an instrument or instruments executed by the Beneficiary, will the lien of this Deed of Trust be altered thereby. Section 7.8 Suits to Protect the Security. The Beneficiary has the power to (a) institute and maintain such suits and proceedings as it may deem expedient to prevent any impairment of the Security and the rights of the Beneficiary as may be unlawful or any violation of this Deed of Trust, (b) preserve or protect its interest (as described in this Deed of Trust) in the Security, and (c) restrain the enforcement of or compliance with any legislation or other governmental enactment, rule or order that may be unconstitutional or otherwise invalid, if the enforcement for compliance with such enactment, rule or order would impair the Security thereunder or be prejudicial to the interest of the Beneficiary. Section 7.9 Trustee May File Proofs of Claim. In the case of any receivership, insolvency, bankruptcy, reorganization, arrangement, adjustment, composition or other proceedings affecting the Trustor, its creditors or its property, the Beneficiary, to the extent permitted by law, will be entitled to file such proofs of claim and other documents as may be necessary or advisable in order to have the claims of the Beneficiary allowed in such proceedings and for any additional amount that becomes due and payable by the Trustor hereunder after such date. Section 7.10 Waiver. The Trustor waives presentment, demand for payment, notice of dishonor, notice of protest and nonpayment, protest, notice of interest on interest and late charges, and diligence in taking any action to collect any Secured Obligations or in proceedings against the Security, in connection with the delivery, acceptance, performance, default, endorsement or guaranty of this Deed of Trust. ARTICLE 8 MISCELLANEOUS Section 8.1 Amendments. This Deed of Trust cannot be waived, changed, discharged or terminated orally, but only by an instrument in writing signed by Beneficiary and Trustor. Section 8.2 Reconveyance by Trustee. Upon written request of Beneficiary stating that all Secured Obligations have been paid or forgiven, and all obligations under the Loan Documents have been performed in full, and upon surrender of this Deed of Trust to Trustee for cancellation and retention, and upon payment 863\01\833274.1 16 by Trustor of Trustee's reasonable fees, Trustee shall reconvey the Security to Trustor, or to the person or persons legally entitled thereto. Section 8.3 Notices. If at any time after the execution of this Deed of Trust it becomes necessary or convenient for one of the parties hereto to serve any notice, demand or communication upon the other party, such notice, demand or communication must be in writing and is to be served personally or by depositing the same in the registered United States mail, return receipt requested, postage prepaid and (1) if intended for Beneficiary is to be addressed to: County of Contra Costa Department of Conservation and Development Redevelopment Division 2530 Arnold Dr., Suite 190 Martinez, CA 94553 Attention: Deputy Director – Redevelopment and (2) if intended for Trustor is to be addressed to: Future Colors Corp. 1579 N. Mitchell Canyon Road Clayton, CA 94517 Attn: Executive Director Any notice, demand or communication will be deemed given, received, made or communicated on the date personal delivery is affected or, if mailed in the manner herein specified, on the delivery date or date delivery is refused by the addressee, as shown on the return receipt. Either party may change its address at any time by giving written notice of such change to Beneficiary or Trustor as the case may be, in the manner provided herein, at least ten (10) days prior to the date such change is desired to be effective. Section 8.4 Successors and Joint Trustors. Where an obligation created herein is binding upon Trustor, the obligation also applies to and binds any transferee or successors in interest. Where the terms of the Deed of Trust have the effect of creating an obligation of the Trustor and a transferee, such obligation will be deemed to be a joint and several obligation of the Trustor and such transferee. Where Trustor is more than one entity or person, all obligations of Trustor will be deemed to be a joint and several obligation of each and every entity and person comprising Trustor. Section 8.5 Captions. The captions or headings at the beginning of each Section hereof are for the convenience of the parties and are not a part of this Deed of Trust. 863\01\833274.1 17 Section 8.6 Invalidity of Certain Provisions. Every provision of this Deed of Trust is intended to be severable. In the event any term or provision hereof is declared to be illegal or invalid for any reason whatsoever by a court or other body of competent jurisdiction, such illegality or invalidity will not affect the balance of the terms and provisions hereof, which terms and provisions will remain binding and enforceable. If the lien of this Deed of Trust is invalid or unenforceable as to any part of the debt, or if the lien is invalid or unenforceable as to any part of the Security, the unsecured or partially secured portion of the debt, and all payments made on the debt, whether voluntary or under foreclosure or other enforcement action or procedure, will be considered to have been first paid or applied to the full payment of that portion of the debt that is not secured or partially secured by the lien of this Deed of Trust. Section 8.7 Governing Law. This Deed of Trust is governed by the laws of the State of California. Section 8.8 Gender and Number. In this Deed of Trust the singular includes the plural and the masculine includes the feminine and neuter and vice versa, if the context so requires. Section 8.9 Deed of Trust, Mortgage. Any reference in this Deed of Trust to a mortgage also refers to a deed of trust and any reference to a deed of trust also refers to a mortgage. Section 8.10 Actions. Trustor shall appear in and defend any action or proceeding purporting to affect the Security. Section 8.11 Substitution of Trustee. Beneficiary may from time to time substitute a successor or successors to any Trustee named herein or acting hereunder to execute this Trust. Upon such appointment, and without conveyance to the successor trustee, the latter will be vested with all title, powers, and duties conferred upon any Trustee herein named or acting hereunder. Each such appointment and substitution is to be made by written instrument executed by Beneficiary, containing reference to this Deed of Trust and its place of record, which, when duly recorded in the proper office of the county or counties in which the Property is situated, will be conclusive proof of proper appointment of the successor trustee. Section 8.12 Statute of Limitations. The pleading of any statute of limitations as a defense to any and all obligations secured by this Deed of Trust is hereby waived to the full extent permissible by law. 863\01\833274.1 18 Section 8.13 Acceptance by Trustee. Trustee accepts this Trust when this Deed of Trust, duly executed and acknowledged, is made public record as provided by law. Except as otherwise provided by law, the Trustee is not obligated to notify any party hereto of a pending sale under this Deed of Trust or of any action or proceeding in which Trustor, Beneficiary, or Trustee is a party unless brought by Trustee. [remainder of page intentionally left blank] 863\01\833274.1 19 IN WITNESS WHEREOF, Trustor has executed this Deed of Trust as of the day and year first above written. TRUSTOR: FUTURE COLOURS CORP., a California nonprofit public benefit corporation By: _________________________ Name: _________________________ Its: _________________________ By: _________________________ Name: _________________________ Its: _________________________ 863\01\833274.1 STATE OF CALIFORNIA ) ) COUNTY OF CONTRA COSTA ) On ____________ __, 2010, before me, _______________, Notary Public, personally appeared, who proved to me on the basis of satisfactory evidence to be the person(s) whose name is subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity, and that by his/her/their signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument. I certify UNDER PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal. Signature ________________________________ (seal) STATE OF CALIFORNIA ) ) COUNTY OF CONTRA COSTA ) On ____________ __, 2010, before me, _______________, Notary Public, personally appeared, who proved to me on the basis of satisfactory evidence to be the person(s) whose name is subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity, and that by his/her/their signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument. I certify UNDER PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal. Signature ________________________________ (seal) A-1 863\01\833274.1 EXHIBIT A LEGAL DESCRIPTION The land is situated in the State of California, City of Clayton, County of Contra Costa, and is described as follows: 863\84\866739.4 1 PROMISSORY NOTE CDBG Loan (Future Colours Corp.) $452,550 Martinez, California December 8, 2010 FOR VALUE RECEIVED, the undersigned FUTURE COLOURS CORP., a California nonprofit public benefit corporation ("Borrower") hereby promises to pay to the order of the COUNTY OF CONTRA COSTA, a political subdivision of the State of California ("Holder"), the principal amount of Four Hundred Fifty-Two Thousand Five Hundred Fifty Dollars ($452,550) plus interest thereon pursuant to Section 2 below. 1. Borrower's Obligation. This promissory note (“Note”) evidences Borrower's obligation to pay Holder the principal amount of Four Hundred Fifty-Two Thousand Five Hundred Fifty Dollars ($452,550) loaned to Borrower by Holder to finance the acquisition of the Property pursuant to the CDBG Loan Agreement between Borrower and Holder of even date herewith (the "Loan Agreement"). All capitalized terms not defined in this Note have the meanings set forth in the Loan Agreement. 2. Interest. This Note does not bear any interest, except that on the occurrence of any of the following events, Borrower shall pay Holder interest in an amount equal to the Appreciated Value: (a) A change in the use of the Property that triggers the application of 24 CFR 570.503(b)(7)(ii). (b) Any Transfer. (c) An Event of a Default. 3. Term and Repayment Requirements. The term of this Note is the same as the Term of the Loan Agreement. This Note is due and payable as set forth in Section 2.7 of the Loan Agreement; however, payment under this Note may be accelerated pursuant to Section 7 below. 4. No Assumption. This Note is not assumable by the successors and assigns of Borrower without the prior written consent of Holder. 5. Security. This Note, with interest, is secured by the Deed of Trust. Upon execution, the Deed of Trust will be recorded in the official records of Contra Costa County, California. Upon recordation of the Deed of Trust, this Note will become nonrecourse to Borrower, pursuant to and except as provided in Section 2.8 of the Loan Agreement. 863\84\866739.4 2 6. Terms of Payment. (a) Borrower shall make all payments due under this Note in currency of the United States of America. Borrower shall make all payments to Holder at the following address: Department of Conservation and Development – Redevelopment Division, 2530 Arnold Drive, Suite 190, Martinez, CA 94553, Attention: Deputy Director-Redevelopment, or to such other place as Holder may from time to time designate. (b) All payments on this Note are without expense to Holder. Borrower shall pay all costs and expenses, including re-conveyance fees and reasonable attorney's fees of Holder, incurred in connection with the payment of this Note and the release of any security hereof. (c) Notwithstanding any other provision of this Note, or any instrument securing the obligations of Borrower under this Note, if, for any reason whatsoever, the payment of any sums by Borrower pursuant to the terms of this Note would result in the payment of interest that exceeds the amount that Holder may legally charge under the laws of the State of California, then the amount by which payments exceed the lawful interest rate will automatically be deducted from the principal balance owing on this Note, so that in no event is Borrower obligated under the terms of this Note to pay any interest that exceeds the lawful rate. (d) The obligations of Borrower under this Note are absolute and Borrower waives any and all rights to offset, deduct or withhold any payments or charges due under this Note for any reason whatsoever. 7. Event of Default. (a) Any Event of Default, pursuant to and as defined in Section 5.1 of the Loan Agreement, is also an event of default under this Promissory Note. Upon the occurrence of such an event of default, the entire unpaid principal balance, together with all interest thereon, and together with all other sums then payable under this Note and the Deed of Trust is, at the option of the Holder, immediately due and payable without further demand. (b) Holder's failure to exercise the remedy set forth in Subsection 7(a) above or any other remedy provided by law upon the occurrence of an Event of Default does not constitute a waiver of the right to exercise any remedy at any subsequent time in respect to the same or any other event of default. The acceptance by Holder of any payment that is less than the total of all amounts due and payable at the time of such payment does not constitute a waiver of the right to exercise any of the foregoing remedies or options at that time or at any subsequent time, or nullify any prior exercise of any such remedy or option, without the express consent of Holder, except as and to the extent otherwise provided by law. 8. Waivers. 1 863\84\833276.3 RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: Contra Costa County Department of Conservation and Development 2530 Arnold Drive, Suite 190 Martinez, CA 94553 Attn: Deputy Director- Redevelopment No fee for recording pursuant to Government Code Section 27383 __________________________________________________________________________ REGULATORY AGREEMENT AND DECLARATION OF RESTRICTIVE COVENANTS (Future Colours Corp.) This Regulatory Agreement and Declaration of Restrictive Covenants (the "Agreement") is dated December 8, 2010, and is between the County of Contra Costa, a political subdivision of the State of California (the "County"), and Future Colours Corp., a California nonprofit public benefit corporation ("Borrower"). RECITALS A. Defined Terms used but not defined in these recitals are as defined in Article 1 of this Agreement. B. The Borrower intends to acquire real property located in the City of Clayton, County of Contra Costa, State of California, as more particularly described in Exhibit A (the "Property"). The Property is improved with a single family home which is operated as a licensed adult residential care facility for persons with developmental disabilities. C. The County and the Borrower are parties to a CDBG Loan Agreement of even date herewith (the “Loan Agreement”), pursuant to which the County will lend Borrower Four Hundred Fifty-Two Thousand Five Hundred Fifty Dollars ($452,550) (the “Loan”) to assist in acquisition of the Property. The Loan is funded with Community Development Block Grant funds received by the County from the United States Department of Housing and Urban Development ("HUD") under Title I of the Housing and Community Development Act of 1974 (42 U.S.C. 5301 et seq.). D. The County has agreed to make the Loan on the condition that the Property be maintained and operated in accordance with restrictions concerning occupancy, operation, and maintenance of the Property that are set forth in this Agreement and in the Loan Agreement. E. In consideration of receipt of the Loan at an interest rate substantially below the market rate, Borrower agrees to observe all the terms and conditions set forth below. 2 863\84\833276.3 The parties therefore agree as follows. ARTICLE 1 DEFINITIONS Section 1.1 Definitions. The following terms have the following meanings: (a) "Adjusted Income" means the total anticipated annual income of all persons in the Tenant household as defined under the Section 8 Housing Assistance Payment programs in 24 C.F.R. 5.609 and calculated pursuant to 24 C.F.R. 5.611. (b) "Agreement" has the meaning set forth in the first paragraph of this Agreement. (c) "CDBG" shall mean the Community Development Block Grant Program, operated pursuant to Title I of the Housing and Community Development Act of 1974 (42 U.S.C. 5301 et seq.). (d) "County-Assisted Beds" means the six (6) beds on the Property designated as assisted by the County. (e) "Deed of Trust" means the Deed of Trust with Assignment of Rents, Security Agreement and Fixture Filing of even date herewith by and among the Borrower, as trustor, Security Union Title Insurance Company, as trustee, and the County, as beneficiary, that will encumber the Property to secure repayment of the Loan and Borrower's performance of the covenants set forth in the Loan Agreement. The form of Deed of Trust will be provided by the County. (f) "HUD" has the meaning set forth in Paragraph C of the Recitals. (g) "Loan" has the meaning set forth in Paragraph C of the Recitals. (h) "Loan Agreement" has the meaning set forth in Paragraph C of the Recitals. (i) "Lower Income Household" means a household with an Adjusted Income that does not exceed eighty percent (80%) of Median Income, with adjustments for smaller and larger families, except that HUD may establish income ceilings higher or lower than eighty percent (80%) of Median Income on the basis of HUD findings that such variations are necessary because of prevailing levels of construction costs or fair market rents, or unusually high or low family incomes. (j) "Median Income" means the median gross yearly income, adjusted for Actual Household Size as specified herein, in the County of Contra Costa, California, as published from time to time by HUD. In the event that such income determinations are no longer published, or are not updated for a period of at least eighteen (18) months, the County shall provide the Borrower with other income determinations that are reasonably similar with respect to methods of calculation to those previously published by HUD. 3 863\84\833276.3 (k) "Note" means the promissory note that evidences Borrower's obligation to repay the Loan. (l) "Property" has the meaning set forth in Paragraph B of the Recitals. (m) "Tenant" means the tenant household that occupies a County-Assisted Bed on the Property. (n) "Term" means the term of this Agreement, which commences on the date of this Agreement and continues until the twentieth (20th) anniversary of the date of this Agreement, unless extended by the Owner and the County pursuant to Section 2.1 of the Loan Agreement. ARTICLE 2 AFFORDABILITY AND OCCUPANCY COVENANTS Section 2.1 Occupancy Requirements. (a) County-Assisted Beds. All of the County-Assisted Beds shall be rented to and occupied by Lower Income Households that include a person with a developmental disability. (b) Disabled Persons Occupancy. The Borrower shall cause the Property to be operated at all times in compliance with the provisions of: (i) the Unruh Act, (ii) the California Fair Employment and Housing Act, (iii) Section 504 of the Rehabilitation Act of 1973, (iv) the United States Fair Housing Act, as amended, and (v) any other applicable law or regulation (including the Americans With Disabilities Act, to the extent applicable to the Property). Borrower shall agree to indemnify, protect, hold harmless and defend (with counsel reasonably satisfactory to County) County, and its boardmembers, officers and employees, from all suits, actions, claims, causes of action, costs, demands, judgments and liens arising out of Borrower's failure to comply with applicable legal requirements related to housing for persons with disabilities. The provisions of this subsection will survive expiration of the Term or other termination of this Agreement, and remain in full force and effect. ARTICLE 3 INCOME CERTIFICATION AND REPORTING Section 3.1 Income Certification. Borrower shall obtain, complete, and maintain on file, immediately prior to initial occupancy and annually thereafter, income certifications from each Tenant renting any of the County-Assisted Beds. Borrower shall make a good faith effort to verify the accuracy of the income provided by the applicant or occupying household, as the case may be, in an income certification. To verify the information Borrower shall take two or more of the following steps: (i) obtain a pay stub for the most recent pay period; (ii) obtain an income tax return for the most recent tax year; (iii) conduct a credit agency or similar search; (iv) obtain an income verification form from the applicant's current employer; (v) obtain an income 4 863\84\833276.3 verification form from the Social Security Administration and/or the California Department of Social Services if the applicant receives assistance from either of such agencies; or (vi) if the applicant is unemployed and does not have a tax return, obtain another form of independent verification. Copies of Tenant income certifications are to be available to the County upon request. Section 3.2 Reporting Requirements. Borrower shall submit to County (a) not later than the forty-fifth (45th) day after the close of each calendar year, or such other date as may be requested by County, a statistical report, including income and rent data for all units, setting forth the information called for therein, and (b) within fifteen (15) days after receipt of a written request, any other information or completed forms requested by County in order to comply with reporting requirements of HUD, the State of California, and the County. Section 3.3 Additional Information. Borrower shall provide any additional information reasonably requested by the County. Section 3.4 Records. Borrower shall maintain complete, accurate and current records pertaining to the Property, and shall permit any duly authorized representative of the County to inspect records, including records pertaining to income and household size of Tenants. All Tenant lists, applications and waiting lists relating to the Property are to be at all times: (i) separate and identifiable from any other business of Borrower, (ii) maintained as required by the County, in a reasonable condition for proper audit, and (iii) subject to examination during business hours by representatives of the County. Borrower shall retain copies of all materials obtained or produced with respect to occupancy of the units for a period of at least five (5) years. The County may examine and make copies of all books, records or other documents of Borrower that pertain to the Property Section 3.5 On-Site Inspection. The County may perform an on-site inspection of the Property at least one (1) time per year. Borrower shall cooperate in such inspection. ARTICLE 4 OPERATION OF THE PROPERTY Section 4.1 Residential Use. Borrower shall operate the Property as an adult residential facility for persons with developmental disabilities licensed by the State of California. No part of the Property may be operated as transient housing. Section 4.2 Compliance with Loan Agreement and State Licensing Requirements. Borrower shall comply with all the terms and provisions of the Loan Agreement. Borrower shall also comply with all County and State requirements necessary to obtain and retain the State of California license to operate the facility as an adult residential facility. Section 4.3 Taxes and Assessments. Borrower shall pay all real and personal property taxes, assessments and charges and all franchise, income, employment, old age benefit, withholding, sales, and other taxes assessed against it, or payable by it, at such times and in such manner as to prevent any penalty from accruing, or any lien or charge from attaching to the Property; provided, however, that Borrower may contest in good faith, any such taxes, assessments, or charges. In the event Borrower exercises its right to contest any tax, assessment, or charge 5 863\84\833276.3 against it, Borrower, on final determination of the proceeding or contest, will immediately pay or discharge any decision or judgment rendered against it, together with all costs, charges and interest. ARTICLE 5 PROPERTY MANAGEMENT AND MAINTENANCE Section 5.1 Management Responsibilities. The Borrower is responsible for all management functions with respect to the Property, including without limitation the selection of Tenants, certification and recertification of household size and income, evictions, collection of rents and deposits, maintenance, landscaping, routine and extraordinary repairs, replacement of capital items, and security. The County has no responsibility for management of the Property. Section 5.2 Approval of Management Policies. The Borrower shall submit its written management policies with respect to the Property to the County for its review, and shall amend such policies in any way necessary to ensure that such policies comply with the provisions of this Agreement. Section 5.3 Property Maintenance. The Borrower shall maintain, for the entire Term of this Agreement, all interior and exterior improvements, including landscaping, on the Property in good condition and repair (and, as to landscaping, in a healthy condition) and in accordance with all applicable laws, rules, ordinances, orders and regulations of all federal, state, county, municipal, and other governmental agencies and bodies having or claiming jurisdiction and all their respective departments, bureaus, and officials, and in accordance with the following maintenance conditions: County places prime importance on quality maintenance to protect its investment and to ensure that all County and County-assisted affordable housing projects within the County are not allowed to deteriorate due to below-average maintenance. The Borrower shall make all repairs and replacements necessary to keep the improvements in good condition and repair. In the event that the Borrower breaches any of the covenants contained in this section and such default continues for a period of five (5) days after written notice from County with respect to graffiti, debris, waste material, and general maintenance or thirty (30) days after written notice from County with respect to landscaping and building improvements, then County, in addition to whatever other remedy it may have at law or in equity, has the right to enter upon the Property and perform or cause to be performed all such acts and work necessary to cure the default. Pursuant to such right of entry, County is permitted (but is not required) to enter upon the Property and to perform all acts and work necessary to protect, maintain, and preserve the improvements and landscaped areas on the Property, and to attach a lien on the Property, or to assess the Property, in the amount of the expenditures arising from such acts and work of protection, maintenance, and preservation by County and/or costs of such cure, which amount shall be promptly paid by the Borrower to County upon demand. 6 863\84\833276.3 ARTICLE 6 MISCELLANEOUS Section 6.1 Nondiscrimination. (a) The Borrower herein covenants by and for Borrower, assigns, and all persons claiming under or through the Borrower, that there exist no discrimination against or segregation of, any person or group of persons on account of race, color, creed, religion, sex, sexual orientation, marital status, national origin, source of income (e.g., SSI), ancestry, or disability, in the leasing, subleasing, transferring, use, occupancy, tenure, or enjoyment of any unit nor will Borrower or any person claiming under or through Borrower, establish or permit any such practice or practices of discrimination or segregation with reference to the selection, location, number, use, or occupancy, of tenants, lessees, sublessees, subtenants, or vendees of any unit or in connection with the employment of persons for the construction, operation and management of any unit. (b) The Borrower shall accept as Tenants, on the same basis as all other prospective Tenants, persons who are recipients of federal certificates for rent subsidies pursuant to the existing housing program under Section 8 of the United States Housing Act, or its successor. The Borrower may not apply selection criteria to Section 8 certificate or voucher holders that is more burdensome than criteria applied to all other prospective Tenants, nor will the Borrower apply or permit the application of management policies or lease provisions with respect to the Property which have the effect of precluding occupancy of the Property by such prospective Tenants. (c) Term. The provisions of this Agreement apply to the Property for the entire Term even if the Loan is paid in full prior to the end of the Term. This Agreement binds any successor, heir or assign of Borrower, whether a change in interest occurs voluntarily or involuntarily, by operation of law or otherwise, except as expressly released by County. The County is making the Loan on the condition, and in consideration of, this provision, and would not do so otherwise. Section 6.2 Covenants to Run With the Land. The County and Borrower hereby declare their express intent that the covenants and restrictions set forth in this Agreement run with the land, and bind all successors in title to the Property, provided, however, that on the expiration of the Term of this Agreement said covenants and restrictions expire. Each and every contract, deed or other instrument hereafter executed covering or conveying the Property or any portion thereof, is to be held conclusively to have been executed, delivered and accepted subject to the covenants and restrictions, regardless of whether such covenants or restrictions are set forth in such contract, deed or other instrument, unless the County expressly releases such conveyed portion of the Property from the requirements of this Agreement. Section 6.3 Enforcement by The County. If Borrower fails to perform any obligation under this Agreement, and fails to cure the default within thirty (30) days after the County has notified Borrower in writing of the default or, if the default cannot be cured within thirty (30) days, fails to commence to cure within thirty (30) days and thereafter diligently pursue such cure and 7 863\84\833276.3 complete such cure within ninety (90) days, County may enforce this Agreement by any or all of the following actions, or any other remedy provided by law: (a) Calling the Loan. The County may declare a default under the Note, accelerate the indebtedness evidenced by the Note, and proceed with foreclosure under the Deed of Trust. (b) Action to Compel Performance or for Damages. County may bring an action at law or in equity to compel Borrower's performance of its obligations under this Agreement, and may seek damages. (c) Remedies Provided Under Loan Agreement. County may exercise any other remedy provided under the Loan Agreement. Section 6.4 Attorneys’ Fees and Costs. In any action brought to enforce this Agreement, the prevailing party must be entitled to all costs and expenses of suit, including reasonable attorneys' fees. This section must be interpreted in accordance with California Civil Code Section 1717 and judicial decisions interpreting that statute. Section 6.5 Recording and Filing. The County and Borrower shall cause this Agreement, and all amendments and supplements to it, to be recorded in the Official Records of the County of Contra Costa. Section 6.6 Governing Law. This Agreement is governed by the laws of the State of California. Section 6.7 Waiver of Requirements. Any of the requirements of this Agreement may be expressly waived by the County in writing, but no waiver by the County of any requirement of this Agreement extends to or affects any other provision of this Agreement, and may not be deemed to do so. Section 6.8 Amendments. This Agreement may be amended only by a written instrument executed by all the parties hereto or their successors in title that is duly recorded in the official records of the County of Contra Costa. Section 6.9 Notices. Any notice requirement set forth herein will be deemed to be satisfied three (3) days after mailing of the notice first-class United States certified mail, postage prepaid, addressed to the appropriate party as follows: County: County of Contra Costa Department of Conservation and Development 2530 Arnold Drive, Suite 190 Martinez, CA 94553 Attn: Deputy Director- Redevelopment Borrower: Future Colours Corp. 1579 N. Mitchell Canyon Road Clayton, CA 94517 Attn: Executive Director 8 863\84\833276.3 Such addresses may be changed by notice to the other party given in the same manner as provided above. Section 6.10 Severability. If any provision of this Agreement is determined by a court of competent jurisdiction to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining portions of this Agreement will not in any way be affected or impaired thereby. Section 6.11 Multiple Originals; Counterparts. This Agreement may be executed in multiple originals, each of which is deemed to be an original, and may be signed in counterparts. [Remainder of Page Left Intentionally Blank] 863\84\833276.3 863\84\833276.3 STATE OF CALIFORNIA ) ) COUNTY OF CONTRA COSTA ) On ____________ __, 2010, before me, _______________, Notary Public, personally appeared, who proved to me on the basis of satisfactory evidence to be the person(s) whose name is subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity, and that by his/her/their signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument. I certify UNDER PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal. Signature ________________________________ (seal) STATE OF CALIFORNIA ) ) COUNTY OF CONTRA COSTA ) On ____________ __, 2010, before me, _______________, Notary Public, personally appeared, who proved to me on the basis of satisfactory evidence to be the person(s) whose name is subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity, and that by his/her/their signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument. I certify UNDER PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct. WITNESS my hand and official seal. Signature ________________________________ (seal) A-1 863\84\833276.3 EXHIBIT A LEGAL DESCRIPTION The land is situated in the State of California, County of Contra Costa, City of Clayton, and is described as follows: 863\84\866739.4 3 (a) Borrower hereby waives diligence, presentment, protest and demand, and notice of protest, notice of demand, notice of dishonor and notice of non-payment of this Note. Borrower expressly agrees that this Note or any payment hereunder may be extended from time to time, and that Holder may accept further security or release any security for this Note, all without in any way affecting the liability of Borrower. (b) No extension of time for payment of this Note or any installment hereof made by agreement of Holder with any person now or hereafter liable for payment of this Note will operate to release, discharge, modify, change or affect the original liability of Borrower under this Note, either in whole or in part. 9. Miscellaneous Provisions. (a) All notices to Holder or Borrower are to be given in the manner and at the addresses set forth in the Loan Agreement, or to such addresses as Holder and Borrower may hereinafter designate. (b) Borrower shall pay all costs and expenses, including reasonable attorney's fees, incurred by Holder in the enforcement of the provisions of this Note, regardless of whether suit is filed to seek enforcement. (c) This Note may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification or discharge is sought. (d) This Note is governed by the laws of the State of California. (e) The times for the performance of any obligations hereunder are to be strictly construed, time being of the essence. (f) The Loan Documents, of which this Note is a part, contain the entire agreement between the parties as to the Loan. BORROWER: FUTURE COLOURS CORP., a California nonprofit public benefit corporation By: _________________________ Name: _________________________ Its: _________________________ By: _________________________ 863\84\866739.4 4 Name: _________________________ Its: _________________________