EFTA00725263.pdf

TO BE PRINTED ON PREFERRED BANK STATIONERY August 2010 Attention: Re: Letter of Commitment Dear Preferred Bank, a California banking corporation (the "Lender"), is pleased to advise you that has been approved for a real estate construction loan in the principal sum of Eighteen Million and No/100 Dollars ($18,000,000.00) (the "Proposed Loan") which shall be secured by that certain real property commonly known as 786-810 East Pico Boulevard and 895 East 14'h Street, Los Angeles, California 90021 (the "Property"), for the purpose of financing the construction of one hundred thirty-one (131) commercial condominium showroom units in a wholesale/retail garment sales building and three floor subterranean parking structure on the Property (the "Project"), subject to: (a) Borrower executing Lender's standard form of loan documents for a commercial real estate construction loan and such other documents and instruments as may be required by Lender, all in form and content satisfactory to Lender (the "Loan Documents"); and (b) the following terms, conditions and provisions, all of which must be to the satisfaction of Lender. As part of Lender's approval for the Proposed Loan, we want to provide you this Letter of Commitment which outlines certain assumptions, terms, conditions and provisions for your information: 1. Borrower: Borrower shall be , a California limited liability company. 2. Loan Amount: The maximum amount of all advances or disbursements to be made under any Proposed Loan shall not exceed Eighteen Million and No/100 Dollars ($18,000,000.00), subject to this paragraph 2. Advances and disbursements shall be made by Lender in accordance with the policies and procedures to be established by Lender and as set forth in the Loan Documents. (a) A portion of the Proposed Loan in the amount of $3,000,000.00 ("Contingency Loan Proceeds") shall be advanced by Lender to Borrower solely for the purpose of: (i) paying for cost overruns for the Project as approved by Lender in its sole opinion and judgment, (ii) financing tenant improvements, leasing commissions and other related expenses in connection therewith, in Lender's sole and absolute discretion, (iii) paying for the Extension Fee (defined in Paragraph 3 below), and (iv) paying for interest due under the Note during any extension period in the event the maturity date of the Proposed Loan is extended. 742813.1 EFTA00725263 (b) In the event Borrower requires more than $18,000,000 to complete the construction of the Project for sale or lease, upon Borrower's request for additional funds, Lender shall consider providing an additional advance(s) of not more than $2,000,000 ("Additional Advance") in the aggregate subject to the satisfaction of the following terms and conditions: (i) no default (or event which, with the giving of notice of the passage of time, or both, would become a default) shall exist under any of the Loan Documents, (ii) satisfaction of Lender's underwriting standards and requirements then in effect, which standards and requirements may be construed, interpreted, evaluated and applied by Lender in its sole and absolute opinion and judgment, (iii) approval by Lender's Senior Management and Lender's credit committee in its sole and absolute discretion, (iv) payment to Lender of an additional loan fee in the amount of one-half of one percent (0.50%) of the amount of the Additional Advance, (v) the Additional Advance shall be subject to the Exit Fee (as hereinafter defined), (vi) certain other terms, conditions, covenants, representations and warranties by you as required by Lender in its sole and absolute opinion and judgment, (vii) at Borrower's sole expense, endorsements to Lender's existing title policy insuring the lien of Lender's deed of trust, which endorsements will provide, in substance, for an increase in the amount of coverage under said policy by an amount equal to the Additional Advance and that the first priority of the lien of the deed of trust on the Property is unaffected by this Additional Advance, and such other endorsements as Lender deems appropriate, in its sole and absolute opinion and judgment, (viii) payment of the fees and costs of Lender in connection with the Additional Advance, and (ix) the execution by you of all modification documents, in form and content satisfactory to Lender in its sole opinion and judgment. 3. Term: The term of the Proposed Loan will be twenty-four (24) months, plus an option for two (2) 6-month extensions, subject to and conditioned upon, without limitation, satisfaction of the conditions set forth in the Loan Documents, including, without limitation, (i) an extension fee ("Extension Fee") in the amount of one-quarter of one percent (0.25%) of the then outstanding principal amount of the Proposed Loan plus any and all undisbursed funds, (ii) construction of the Project shall have been completed to the satisfaction of Lender in its sole opinion and judgment, and a final certificate of occupancy shall have been issued for the Project, and (iii) Lender shall have been provided with a copy of the final subdivision report ("white report") for the Project, as issued by the California Department of Real Estate. The last day of the term shall be referred to herein sometimes as the "Maturity Date". 4. Interest Rate: Interest shall accrue at the per annum rate equal to the greater of (i) five and three-quarters of one percent (5.75%) or (ii) one and one-half of one percent (1.50%) over the "The Wall Street Journal Prime Rate", as the rate may change from time to time. The Wall Street Journal Prime Rate is and shall mean the variable rate of interest, on a per annum basis, which is announced and/or published in the Money Rates Section of The Wall Street Journal from time to time as the prime rate. The Note Rate shall be redetermined whenever The Wall Street Journal Prime Rate changes. Borrower understands and acknowledges that The Wall Street Journal Prime Rate is one of Lender's base rates, and only serves as a basis upon which effective rates of interest are calculated for loans making reference thereto and may not be the lowest of 742813.1 2 EFTA00725264 Lender's base rates. If The Wall Street Journal Prime Rate becomes unavailable during the term of this Note, Lender may designate a substitute index after notice to Borrower. The interest rate shall be increased to eight percent (8%) over the Note Rate in the event of default by Borrower under the Loan Documents 5. Borrower's Equity: Borrower shall provide to Lender at loan closing minimum equity in the Project in the sum of Twenty-Three Million and 00/100 Dollars ($23,000,000.00) in cash ("Equity"). 6. Loan Payments: All calculations of interest will be based upon a 360 day year, for the actual number of days elapsed. Payments of accrued interest shall be due, payable and made monthly in arrears. The balance of the Proposed Loan shall be due at the Maturity Date, as extended. Lender shall establish an interest reserve within the Proposed Loan for payment of interest due in an amount determined by Lender to be sufficient to pay said interest. In the event that this reserve is inadequate, insufficient or has been fully disbursed under the Proposed Loan, then Borrower shall be required to pay the monthly interest due or, at Lender's request, Borrower shall, within ten (10) calendar days after demand of Lender, deposit with Lender additional funds for the interest reserve, in such amounts as Lender may designate, in Lender's sole opinion and judgment. Lender by requiring said interest reserve makes no representation or warranty as to the adequacy and/or sufficiency of the amount of said reserve to pay for the interest due during the term of the Proposed Loan. In the event Lender elects to provide the Additional Advance (as defined above in paragraph 2), a portion of the Additional Advance in an amount determined by Lender to be sufficient to pay interest for the Additional Advance shall be set aside as an interest reserve and be applied by Lender to pay for the additional interest due as a result of the disbursement of the Additional Advance. 7. Guarantor(s): No guarantors. 8. Security: The obligations of Borrower to Lender under the Proposed Loan shall be secured by a first trust deed lien on the Project, including any furniture, fixtures, and equipment that comprise a portion of the Project, and ancillary rights in connection with the Project. The first trust deed lien shall be insured pursuant to an American Land Title Association lender's policy of title insurance (Form 1970) with ALTA Form 1 coverage, written as such at loan closing and rewritten upon the completion of construction (sometimes called and LP-10 policy form package) with such endorsements as Lender shall require and subject only to those exceptions to title as may be approved by Lender shall be permitted. 9. Prepayment: Borrower shall have the right at any time with written notice to Lender, to prepay any portion of the unpaid principal balance of Proposed Loan without premium or penalty. 742813.1 3 EFTA00725265 10. Transfers and Assumption: The Loan Documents will have, among other provisions, prohibitions against any transfers, encumbrances, assumptions, conveyances or sales relating to the Property, without the prior written consent of Lender. II. Loan Fee: A loan fee of one-half of one percent (0.50%) of the principal amount of the Proposed Loan will be due at loan closing, which amount shall be equal to $90,000.00. 12. Reserves and Impounds: Lender may, in its discretion, require reserves at loan closing for capital improvements (including deferred maintenance items), insurance premiums, development costs and real property taxes. 13. Closing Date: It is anticipated by Lender and Borrower that the closing of the Proposed Loan shall be prior to December 31, 2010. 14. Due Diligence Requirements: Lender will, at a minimum, require the following items to have occurred or the following items be reviewed and approved by Lender, in form and content acceptable to Lender, in Lender's sole and absolute opinion and judgment, as a condition to making the Proposed Loan: a. Financial statements, real estate schedules, tax returns and credit packages, each in form and content satisfactory to Lender, regarding Borrower; b. The Loan Documents shall be prepared by Lender's outside legal counsel. Additionally, satisfactory review by Lender and its legal counsel of all organizational documents of Borrower and all legal and title-related documents with respect to the Property; c. M ALTA Loan Policy (1970 Policy Form) with ALTA Form 1 coverage, written as such at loan closing with such endorsements as Lender shall require, issued by a title company satisfactory to Lender, with liability equal to the full amount of the Proposed Loan, in favor of Lender, as insured, insuring the lien of Lender's deed of trust to be a valid first lien on the Property subject only to those matters and exceptions to title to the Property approved by Lender in its sole opinion and judgment; d. Payment to Lender from Borrower's own funds of all attorneys' fees and out-of-pocket expenses incurred by Lender in connection with the negotiation, preparation, execution and delivery of the Loan Documents, or otherwise in connection with the making of the Proposed Loan; e. Lender shall have reviewed and approved the contractor's BICA report, license, resume and financial statements of the general contractor ("Contractor") with respect to the construction of the Project; f. The fund control shall be National Builders Company; g. Lender shall have received that certain agreement entered into by and among Lender, Borrower, the Contractor and the fund control, in form and content 742813.1 4 EFTA00725266 acceptable to Lender, for the inspection of work in progress in connection with the construction and installation of the improvements on the Property, for the receipt and processing of documentation supporting each application for payment, and providing procedures for the review and control of disbursements of loan proceeds in connection therewith; h. At Lender's request, Borrower shall furnish to Lender an assignment from Borrower of its right, title and interest in and to any contracts or agreements with such professionals involved in the construction of the Project, as Lender shall require, providing for, without limitation, (i) the assignment to Lender by Borrower of any and all right, title and interest in and to any contract between Borrower and any professional responsible for the preparation of any plans and specifications respecting the Property, (ii) the assignment to Lender of all of Borrower's right, title and interest in and to any and all contracts regarding the construction of improvements on the Property, (iii) the assignment to Lender of all of Borrower's right, title and interest in and to any and all contracts regarding the furnishing of engineering services in connection with the Project, and (iv) such professionals' consent thereto; i. Borrower shall deliver to Lender evidence satisfactory to Lender that Borrower has obtained all hazard, liability and other insurance coverages required by Lender (including, without limitation, builder's risk-all risk insurance covering one hundred percent (100%) of the replacement cost of all improvements during the course of construction in the event of fire or other risks normally covered by "all risk" coverage policies), and that such insurance coverages are in full force and effect with all premiums paid; j. The construction budget and/or cost breakdown for the Project prepared and reviewed by such cost engineers, project analysis consultants and/or other consultants as are approved by Lender, which cost breakdown is attached hereto as Exhibit "A": k. Prior to the disbursement of loan proceeds for hard costs in connection with the construction of the Project, Lender shall have received, reviewed and approved copies of the following, among other things: (i) all plans and specifications for the construction of the Project, (ii) all permits, approvals and authorizations with respect to the construction of the Project, and (iii) all permits, approvals and authorizations required to operate and use the Property; I. Evidence of Borrower's Equity in an amount not less than $23,000,000.00 at the time of loan closing; m. Current copies of Borrower's organizational documents and customary certificates (good standings, etc.), as applicable; n. Borrower shall have opened with Lender a demand deposit account (the "Operating Account"). The funds on deposit in the Operating Account shall not bear 742813.1 5 EFTA00725267 interest. Borrower shall maintain its Operating Account with Lender for the term of the Proposed Loan; and o. Any other item requested by Lender to complete Lender's diligence. 15. Exit Fee: An exit fee ("Exit Fee") in an amount equal to one and one-half of one percent (1.50%) multiplied by the Contingency Loan Proceeds (defined in Paragraph 2 above) and, if applicable, the Additional Advance advanced by Lender, shall be paid by Borrower to Lender at the Maturity Date, as extended, or the earlier full repayment of the Proposed Loan, and will be in addition to all other fees mentioned in the Loan Documents. To the extent that the Exit Fee is not paid when due, the Exit Fee shall be added to the principal amount of the Proposed Loan and interest shall accrue thereon at a default rate of interest as provided in the promissory note entered into in connection with the Proposed Loan, compounded monthly until paid in full. Borrower acknowledges that it will be obligated to pay such Exit Fee whether or not any event of default occurs under the Loan Documents, and that Borrower's cash payment to Lender of the Exit Fee is a condition precedent to any obligation of Lender to cause the release and full reconveyance of the deed of trust, and Lender's interests in personal property collateral 16. Release Price: Borrower may sell the Project as commercial condominium units to third parties, and Lender shall permit Borrower to do so, subject to Borrower satisfying each and every one of the following terms and conditions: a. No event of default (or event which, with the giving of notice or the passage of time, or both, would become an event of default) shall exist under the Loan Documents; b. Each condominium unit to be sold shall be in compliance with the California Subdivision Map Act and all applicable laws pertaining to the subdivision of the Property, and all other applicable laws, and a certificate of occupancy for each such unit shall have been obtained; c. The articles of incorporation, budget, corporate by-laws and conditions, covenants and restrictions of the homeowner's association for the Project shall have been issued, filed and approved by any and all governmental agencies requiring such approval, and the California Department of Real Estate's final subdivision public report shall have been issued; d. If requested by Lender, Borrower shall execute and deliver to Lender a modification of the deed of trust, in form and content satisfactory to Lender, in its sole and absolute opinion and judgment; e. The terms of the sale, including without limitation the sales price, shall be satisfactory to Lender, in its sole and absolute discretion; f. With respect to each unit to be sold, the brokerage commissions and other closing costs to be deducted from the gross sale proceeds shall be customary in 742813.1 6 EFTA00725268 nature and reasonable in amount, and shall in no event exceed the Maximum Sale Expense Amount. "Maximum Sale Expense Amount" shall mean, with respect to each sale of a unit, brokerage commissions or other closing costs in a total amount not to exceed eight percent (8.0%) of the gross sales proceeds; g. With respect to each unit to be sold, Lender shall be paid an amount equal to the greater of: (i) one hundred percent (100%) of the net sale proceeds of such unit, and (ii) ninety percent (90%) of the appraised value of such unit, as set forth in an updated appraisal satisfactory to Lender. "Net sale proceeds" shall mean, with respect to each sale of a unit, the gross sales price of such unit, less the sum of the brokerage commissions and other closing costs relating to such sale, which brokerage commissions and other closing costs shall in no event exceed the Maximum Sale Expense Amount;. h. At the election of Lender, in Lender's sole discretion, Lender shall receive, at Borrower's expense, such endorsements to its title policy as Lender may request, in its sole opinion and judgment, including, without limitation, endorsements insuring the continued first priority lien of the deed of trust; and i. All funds received by Lender shall be applied to reduce the outstanding principal balance on the Proposed Loan. Upon satisfaction of the foregoing terms and conditions by Borrower with respect to each unit sold, and upon written request of Borrower, Lender shall authorize the trustee under the deed of trust to issue a partial reconveyance of the lien of the deed of trust with respect to the unit sold. 17. No Broker's Fees: There are no brokerage commissions and/or finder's fees due, owing and/or payable in connection with the Proposed Loan and the transaction contemplated hereby. 18. Loan Documentation: If approved for the Proposed Loan, Borrower shall be required to execute Lender's standard Loan Documents for a real estate construction loan, which documents shall contain such provisions necessary or advisable in Lender's sole judgment for a real estate secured loan including, without limitation, the specific provisions incorporated into this Letter of Commitment, disbursement procedures, representations and warranties, covenants, insurance requirements, conditions to closing and such other provisions as Lender requires. 19. Liens: Borrower will not, without Lender's prior written consent, create, incur, assume or suffer to exist any mortgage, deed of trust, pledge, lien, security interest or other charge or encumbrance (including the lien or retained security title of a conditional vendor) of any nature upon or with respect to the Property, or assign or otherwise convey any right to receive income. 20. Financial Covenants: In addition to the standard terms, provisions and conditions set forth in the Loan Documents, Borrower shall deliver, or cause to be delivered or occur, all of the following: 742813.1 7 EFTA00725269 a. Annual, financial statements of Borrower within 120 days of each fiscal year end of Borrower; b. Borrower federal and state tax returns within 30 days of filing; and c. Quarterly operating statements and updated rent rolls of the Property, within thirty (30) days of the end of each quarter if the Project is converted to an income producing property. d. Monthly sales or rental status reports of the Property commencing with the date Borrower begins marketing the Property for sale or lease. 21. Compliance with Laws: Borrower shall provide to Lender evidence that the Project is in compliance with all applicable zoning, building, health, traffic, environmental, safety, and other laws, regulations and rules applicable to the Project and with all other fire, safety and health standards deemed appropriate by Lender and/or Lender's engineer. 22. Publicity: In the event Lender agrees to make the Proposed Loan, Lender shall have the right to issue press releases, advertisements and any other promotional materials describing in general terms and/or in detail Lender's role in such transaction without any approval and/or consent from Borrower. 23. Condition to Closing: In addition to the other terms and conditions set forth herein, and in the Loan Documents, if Lender agrees to make the Proposed Loan, Lender's obligation to do so is expressly conditioned upon: a. As of the closing date, there shall not have been any change, adverse and/or detrimental, in Lender's judgment in or to the (i) construction or proposed construction of the Project, (ii) actual and/or projected net operating income of the Project, and (iii) the financial condition of Borrower. b. No materials, documents, or statements provided to Lender by Borrower or any indemnitor proves to be misrepresentative, false, and/or misleading in any manner, and no representation or warranty made by Borrower or any indemnitor proves to be misrepresentative, false and/or misleading in any manner. c. No statute, rule, regulation, order and/or executive order restricts or prohibits Lender from making the Proposed Loan at the time of the loan closing. In the event of enactment of any such statute, rule, regulation, order and/or executive order prior to the loan closing, Lender shall be released immediately from its obligation hereunder without any liability, cost and/or expense to Lender. d. Lender's review and approval of an updated appraisal of the Project acceptable to Lender with a valuation such that the principal amount of the Proposed Loan does not exceed sixty-five percent (65%) of (i) the appraised "as is bulk value as for-sale condo" of the Property and (ii) the appraised "as-is value upon completion as for-rental property" upon completion of construction. 742813.1 8 EFTA00725270 e. Lender's receipt of evidence satisfactory to Lender in its sole opinion and judgment that Lender shall have a first priority lien on the Property at the closing of the Proposed Loan and that there shall be no other liens or encumbrances on the Property except for such encumbrances as approved by Lender in its sole and absolute opinion and judgment. 24. Termination: Lender may, at its option, terminate this Letter of Commitment by written, telephonic and/or facsimile notice to Borrower in the event that: a. Borrower shall fail to comply with any term or condition herein in the time and manner provided, including those set forth in paragraph 14; or b. Borrower shall: (i) apply for and/or consent to the appointment of a receiver, trustee or administrator for itself or themselves and/or for any of its or their property; or (ii) make any assignment and/or general assignment for the benefit of creditors; or (iii) file a voluntary petition in bankruptcy, or a petition or answer seeking reorganization and/or an arrangement with creditors or to take advantage of any bankruptcy, reorganization, insolvency, readjustment or debt, dissolution or liquidation by law or by statute, or an answer admitting the material allegations of a petition filed against it or them in any proceeding under such law; or (iv) have filed against it an involuntary petition in bankruptcy or an action seeking the appointment of a receiver, trustee or administrator over Borrower or any of its properties; c. Lender declines to approve the Proposed Loan. 25. No Third Parties Benefited: This Letter of Commitment is made for the purpose of defining and setting forth certain obligations, rights, and duties of Borrower and Lender in connection with the Proposed Loan. This Letter of Commitment is made for the sole benefit of Borrower and Lender, and Lender's successors and assigns. 26. Time is of the Essence: Time is of the essence for this Letter of Commitment and of each and every provision hereof. 27. Execution in Counterparts: This Letter of Commitment may be executed in any number of counterparts, and any party hereto may execute any counterpart, each of which, when executed and delivered, will be deemed to be an original, and all of which counterparts of this Letter of Commitment, taken together, will be deemed to be but one and the same instrument. The execution of this Letter of 742813.1 9 EFTA00725271 Commitment by any party hereto or thereto will not become effective until counterparts hereof or thereof, as the case may be, have been executed by all the parties hereto or thereto. 28. Cost and Expenses: Borrower shall pay to Lender, on demand the following costs and/or expenses, whether or not the Proposed Loan discussed in this Letter of Commitment closes: a. The out-of-pocket fees and expenses paid or incurred by Lender in connection with the negotiation, preparation, execution, delivery and administration of this Letter of Commitment and any of the Loan Documents, and any matter related thereto, including, but not limited to, appraisal fees, credit report fees, attorney's fees, engineer's fees, title insurance premiums, inspection fees; and b. The costs and expenses paid or incurred by Lender related to or in connection with the enforcement of this Letter of Commitment, the Loan Documents and any matter related thereto, including but not limited to the fees and out-of-pocket expenses of any legal counsel, independent public accountants, and other outside experts retained by Lender. 29. Representations and Warranties: All representations and warranties made by Borrower in connection with, or incidental to, this Letter of Commitment are material and have been or will be relied upon by Lender, and shall be unaffected by any investigation made by Lender or by Lender's representatives on behalf of Lender. For the purpose of this Letter of Commitment, all statements contained in any certificate, reports, agreement, financial statement, and/or such other writing delivered by, or on behalf of, Borrower to Lender or Lender's representative in connection with this Letter of Commitment and/or the transactions discussed herein shall be deemed to be expressed representations and warranties of Borrower as if contained and/or set forth herein. 30. Governine Law: This Letter of Commitment and any Proposed Loan subsequently agreed to be made, when made by Lender, shall be deemed to have been made in California, and shall be governed by and construed and enforced in accordance with the Laws of the State of California. 31. Inoperable Provisions: If any provision of this Letter of Commitment shall be held to be inoperative, unenforceable or invalid, Lender may elect to declare this Letter of Commitment null and void. 32. Joint and Several Obligations: If this Letter of Commitment is executed by more than one person as or on behalf of Borrower, the obligations of each of such persons hereunder shall be joint and several obligations. 33. Construction: Whenever the context of this Letter of Commitment requires, the singular shall include the plural and the masculine gender shall include the feminine and/or neuter. 742813.1 10 EFTA00725272 34. Headings: Article and section headings in this Letter of Commitment are included for convenience of reference only and are not part of this Letter of Commitment for any other purposes. 35. Integration Clause: The terms and conditions of this Letter of Commitment may be amended, changed or modified only by a written agreement, signed by Lender and Borrower. This Letter of Commitment, when executed, shall supersede and cancel any and all prior letters, correspondence, loan applications, expressions of intent, commitments, agreements, discussion, conversations and/or understandings between Borrower and Lender, as to the Proposed Loan discussed herein, whether oral or written, and any matters contained in such other documents, agreements, and/or understandings are hereby deemed merged herein. 36. Lender's Approval: Wherever and whenever, within this Letter of Commitment, it shall recite and/or require the approval, consent, review, belief, request, satisfaction, judgment and/or acknowledgment of Lender such recital and/or requirement shall be at Lender's sole and absolute discretion without regard to any standard or test. 37. Termination Date: Notwithstanding anything else contained herein Lender shall not be under any obligation whatsoever to approve and close the Proposed Loan until such time and unless each and every requirement contained in this Letter of Commitment has been met to the satisfaction of Lender, provided that under no circumstances whatsoever shall the closing of the Proposed Loan be made after December 31, 2010. This Letter of Commitment must be executed and the original delivered to Lender not later than September 15, 2010. Failure to return this Letter of Commitment by such date shall make this Letter of Commitment null, void and of no further force nor effect whatsoever at the close of Lender's business day on September 15, 2010. The parties acknowledge that they have not set forth herein, nor agreed upon all essential terms of the subject matter of this transaction, including without limitations, warranties and representations, conditions precedent, indemnities, guaranties, and all other anticipated terms, and such essential terms shall be the subject of further negotiations and will be evidenced by or covered in the Loan Documents. Sincerely, PREFERRED BANK, a California corporation By: Name: Louie Couto Title: EVP & CCO 742813.1 11 EFTA00725273 The undersigned, has read, reviewed and understands the terms, conditions, and provisions of this Letter of Commitment, and by execution on this day of 2010, does hereby acknowledge acceptance thereof. Borrower: By: Name: Title: 742813.1 12 EFTA00725274