Agreement Regarding Affiliate Loans - Primecore Funding Corp. Inc., 99 Investors LLC and Primecore Mortgage Trust Inc.
AGREEMENT REGARDING AFFILIATE LOANS
This Agreement Regarding Affiliate Loans (the "Agreement") is
entered into effective as of October 17, 2002 (the "Effective Date")
between PRIMECORE FUNDING GROUP, INC., a California corporation
("Funding Group"), 99 INVESTORS, LLC ("99 Investors"), and PRIMECORE
MORTGAGE TRUST, INC., a Maryland corporation ("REIT").
RECITALS
This Agreement is based on the foregoing facts, each of which is agreed to
be true:
A. The REIT was incorporated on March 18, 1999 and commenced operations
effective May 1, 1999 as a real estate investment trust.
B. Funding Group is, and at all times since formation of the REIT, has been
the REIT's manager.
C. Prior to formation of the REIT, Funding Group was in the business of
originating and servicing real estate loans for investors, and had entered into
a servicing agreement with Jim Ward and Associates to service loans in the Ward
portfolio. Included in the loans serviced by Funding Group were loans (the
"Windy Hill Loans") made to Windy Hill Associates, Inc. ("Windy Hill"). Windy
Hill was a company solely owned by James Ward ("Ward"), one of the original
founders of Funding Group.
D. In November 1999, Ward and Windy Hill defaulted on their obligations
under a series of agreements, thereby triggering an event of default under the
Windy Hill Loans.
E. The REIT declared the Windy Hill Loans in default, and foreclosure sales
were scheduled for on or about March 22, 2000.
F. On March 22, 2000, Eprime, Inc. ("Eprime"), an affiliated entity,
purchased the Windy Hill Loans by way of a loan from the REIT, designated as
Loan No. 2447 (the "Eprime Loans"). The Eprime note purchase and assumption
agreement provided guarantees of repayment and the pledge of additional
security. A blanket, second deed of trust lien against several parcels
collateralized Loan No. 2447. Thereafter, Eprime foreclosed on the Windy Hill
Loans, and took title to all Windy Hill parcels thus encumbered, subject to the
liens in favor of the REIT. Funding Group has since completed and sold all real
property securing the Eprime loans.
G. In addition to the Windy Hill Loans, the REIT also made loans (each a
"99 Investors Loan" and collectively the "99 Investors Loans") to 99 Investors,
which are or were secured by properties (the "99 Investors Properties")
developed or being developed by 99 Investors.
H. In consideration of Funding Group's willingness to concurrently enter
into an amended and restated Management Agreement of even date herewith (the
"Amended and Restated Management Agreement") that benefits the REIT in
significant respects, and furthermore in consideration of the desire of the REIT
to conclude its practice of originating and continuing to make advances on loans
to affiliated entities, the REIT and Funding Group have determined to enter into
this Agreement in order to clarify, modify and set forth in full all of the
obligations to the REIT with respect to the Windy Hills Loans, the Eprime Loans
and the 99 Investors Loans.
I. This Agreement has been approved by a resolution of the Board of
Directors of the REIT, acting by those directors who have no affiliation with or
financial stake in Funding Group or any of its affiliates. All of the other
directors of the REIT, namely William Whitlow, Susan Fox and Michael Rider, have
abstained from voting upon the REIT's acceptance of the terms of this Agreement
in order to avoid any potential conflict of interest.
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AGREEMENTS
Now, therefore, for good and valuable consideration, including but not
necessarily limited to the covenants and agreements contained herein, the
parties to this Agreement agree as follows:
1. Commitment of Funding Group Regarding Eprime Loans. On or before the
Effective Date, Funding Group shall pay to the REIT the amount of $733,159,
representing the remaining carrying amount of the Eprime Loans determined in
accordance with generally accepted accounting principles.
2. Transfer of 99 Investors Properties. With respect to any properties held
in the name of 99 Investors, LLC as of the Effective Date, the ownership of all
such properties shall, as soon as practicable, be transferred to the REIT.
Transfer of the 99 Investors Properties to the REIT shall be accomplished in a
manner that is determined by the REIT's tax and accounting advisors to be most
advantageous to the REIT, including but not necessarily limited to a transfer of
ownership of 99 Investors to the REIT.
3. Commitment of Funding Group Regarding 99 Investors Loans. The REIT shall
commission appraisals of all of the 99 Investors Properties that are transferred
to the REIT, which appraisals shall determine the value of each of the
properties as of the date of transfer. The appraiser or appraisers shall be
acceptable to and approved by the unaffiliated directors of the REIT. Should
such appraisals show a deficiency between (i) the carrying amount of the 99
Investors Loans secured by such properties, according to generally accepted
accounting principles, plus the cost of completion of the property and (ii) the
appraised finished value of such properties, then Funding Group shall pay to the
REIT the amount of the deficiency (the "Deficiency Amount"). The Deficiency
Amount shall be specified in an addendum to this Agreement once it has been
determined, and shall be payable, with interest as specified below, out of
Performance Bonuses, as that term is defined in the Amended and Restated
Management Agreement, due to Funding Group, provided that a maximum of seventy
percent (70%) of the amount due in any period to Funding Group as Performance
Bonuses shall be utilized to pay the Deficiency Amount, with Funding Group being
entitled to receive the other thirty percent (30%) whether or not there is any
outstanding balance of the Deficiency Amount, and provided further that the
Deficiency Amount shall be paid in full no later than January 2, 2010. The
Deficiency Amount shall bear simple interest at the rate of seven percent (7%)
per annum on the outstanding balance.
4. Mediation, Arbitration and Jury Trial Waiver. The parties acknowledge
that there are significant costs and expenses, both monetary and otherwise, and
possible delays in connection with the resolution of disputes through the
judicial system. Accordingly, the parties agree that it would be in each of
their best interests that any and all disputes, claims or controversies arising
out of or relating to this Agreement or to the relationship that is contemplated
by this Agreement, whether based on tort, contract, statutory, or equitable law,
or otherwise, should first be submitted to mediation conducted under the
auspices of a neutral, commercial mediation and arbitration firm, selected in
accordance with Ca. Code Civ. Proc. Section 1281.6. The parties agree that
participation in such a mediation shall be a precondition to seeking to enforce
any alleged rights or claims. The parties further agree that if such mediation
is unsuccessful, then any and all disputes, claims or controversies arising out
of or relating to this Agreement or to the relationship that is contemplated by
this Agreement, whether based on tort, contract, statutory, or equitable law, or
otherwise, shall be determined exclusively by binding arbitration under the
Federal Arbitration Act, in conformity with the procedures of the California
Arbitration Act (Ca. Code Civ. Proc. Section 1280, et. seq.); provided, however,
that in addition to requirements imposed by law, such arbitration shall be
conducted in San Mateo County, California under the commercial arbitration rules
of a neutral, commercial mediation and arbitration firm, selected in accordance
with Ca. Code Civ. Proc. Section 1281.6, and any arbitrator shall be a retired
California Superior Court Judge who shall be subject to disqualification on the
same grounds as would apply to a judge of such court. To the extent applicable
in civil actions in California courts, the following shall apply and be
observed: all rules of pleading (including the right of demurrer), all rules of
evidence, all rights to resolution of the dispute by means of motions for
summary judgment, judgment on the pleadings, and judgment under Code of Civil
Procedure section 631.8. Resolution of the dispute shall be based solely upon
the law governing the claims and defenses pleaded, and the arbitrator may not
invoke any basis for decision other than such controlling law. As reasonably
required to allow full use and benefit of this agreement's modifications to the
Arbitration Act's procedures, the arbitrator shall extend the times set by the
Arbitration Act for the giving of notices and settings of hearings. Awards
exceeding $50,000 shall include the Arbitrator's written reasoned opinion, and,
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at either party's written request within twenty days after issuance of the
award, shall be subject to review, reversal, remand, modification or reduction
following review of the record and arguments of the parties by a second
arbitrator who shall also be a retired California Superior Court Judge, and
shall, as far as practicable, proceed according to the law and procedures
applicable to appellate review by the California Court of Appeal of a civil
judgment following court trial. Any court of competent jurisdiction in San Mateo
County may enforce the provisions of this clause and any arbitration award, and
any party seeking enforcement shall be entitled to an award of all costs, fees
and expenses, including attorneys' fees, to be paid by the party against whom
enforcement is ordered. In agreeing to the foregoing procedure, the parties
understand, acknowledge and agree that each will be liable for an equal share of
all costs of mediation and arbitration, except as otherwise provided herein or
by law, and that there shall be no right to any trial by court or jury.
5. Entire Agreement. It is the intention of the parties that this Agreement
restate and clarify, and set forth fully and completely, all obligations to the
REIT on the part of Funding Group, and any of its officers, directors,
shareholders, principals, subsidiaries, and related or affiliated entities, with
respect to the Eprime Loans and the 99 Investors Loans. Except as expressly
provided herein, it is hereby understood and agreed by the parties that all
prior or contemporaneous understandings, discussions, representations, and
agreements, whether written or oral, regarding the Windy Hill Loans, the Eprime
Loans and the 99 Investors Loans, and any guarantee or other obligations of the
parties or any of their officers, directors, shareholders, principals, related
or affiliated entities with respect to such matters, are released, discharged,
superceded by and merged into this Agreement which alone fully and completely
expresses the parties' agreement with respect to the Windy Hill Loans, the
Eprime Loans and the 99 Investor Loans, and any payment or guaranty obligations
in connection therewith.
6. Exercise of Independent Judgment. Prior to entering into this Agreement,
each of the parties has made such investigation, considered all information they
deem relevant, and received all independent advice that they deem appropriate
and necessary prior to entering into this Agreement.
7. No Oral Agreements or Modifications. This Agreement may be amended only
in a writing that has been executed by the parties, and shall not be amended or
deemed amended by subsequent conduct of a party of parties or any course of
dealings between the parties. In order for any agreement to be effected between
the parties, whether prior, during, or subsequent to the Effective Date, it
shall be set forth in writing and executed by the parties to be bound.
8. Authority to Sign/Counterparts/Facsimile Signatures. Each party
executing this Agreement has been and is duly authorized to do so by Board of
Director's resolution or otherwise. This Agreement may be executed in separate
counterparts, which when taken together shall constitute the entire agreement. A
copy or telefax of a signature shall be effective the same as an original ink
signature, but the party submitting any copy or telefax of a signature agrees to
replace each signature with an original ink signature within ten (10) days after
any request for an original ink signature. Each of the parties agrees to sign
this Agreement and return it to the other party, or his or its attorney within
three days after the Effective Date.
9. Construction of Agreement. The headings in this Agreement are inserted
only for convenience and shall not be construed as limiting or broadening the
scope of the Agreement or any of its provisions. The Agreement shall be
construed as if each of the parties was the author, and any ambiguities in this
Agreement shall not be construed against the original drafter of the Agreement.
10. Impairment. Should any provision of this Agreement be held illegal or
unenforceable, then such provision shall be deemed severed from this Agreement
and the remainder of this Agreement shall continue to be of full force and
effect. In addition, if this Agreement is for any reason deemed to be invalid or
unenforceable against the Company, then the Amended and Restated Management
Agreement, entered into concurrently herewith, and which constitutes additional
consideration for the agreements made herein, shall be of no force or effect and
the parties will revert to the Management Agreement in force prior thereto, as
set forth in such Amended and Restated Management Agreement.
11. Binding Effect. It is expressly agreed that this Agreement shall be
binding upon each of the parties to the Agreement and each of their heirs, legal
representatives (but not attorneys), insurers, executors, administrators,
agents, successors, and assigns.
12. Further Actions. The parties agree that each will do all acts and
execute and deliver all documents necessary to effectuate the terms and
provisions of this Agreement.
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Dated as of the Effective Date set forth above.
PRIMECORE FUNDING GROUP, INC.
By /s/ SUSAN FOX
Susan Fox, President
PRIMECORE MORTGAGE TRUST, INC.
By /s/ MICHAEL RIDER
Michael Rider, Chief Financial Officer
PRIMECORE MORTGAGE TRUST, INC.
By /s/ WILLIAM WHITLOW
William Whitlow
Chairman and Chief Operating Officer
99 INVESTORS, LLC
By /s/ SUSAN FOX
Susan Fox, Managing Member
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