Construction Loan Agreement

CONSTRUCTION LOAN AGREEMENT


BORROWER: Consep, Inc. LENDER: WESTERN BANK, a division of Washington Mutual Bank
213 S.W. Columbia Street Pilot Butte Branch
Bend, OR 97702 600 N.E. Greenwood Avenue
P.O. Box 670
Bend, OR 97709-0670


THIS CONSTRUCTION LOAN AGREEMENT BETWEEN CONSEP, INC. ("BORROWER") AND WESTERN BANK, A DIVISION OF WASHINGTON MUTUAL BANK ("LENDER") IS MADE AND EXECUTED ON THE FOLLOWING TERMS AND CONDITIONS. BORROWER HAS APPLIED TO LENDER FOR LOANS IN THE TOTAL PRINCIPAL AMOUNT OF U.S. $1,695,000.00 IN ORDER TO CONSTRUCT THE IMPROVEMENTS ON THE REAL PROPERTY DESCRIBED BELOW. LENDER IS WILLING TO LEND THE LOAN AMOUNT TO BORROWER SOLELY UNDER THE TERMS AND CONDITIONS SPECIFIED IN THIS AGREEMENT AND IN THE RELATED DOCUMENTS, TO EACH OF WHICH BORROWER AGREES. BORROWER UNDERSTANDS AND AGREES THAT: (A) IN GRANTING, RENEWING, OR EXTENDING ANY LOAN, LENDER IS RELYING UPON BORROWER'S REPRESENTATIONS, WARRANTIES, AND AGREEMENTS AS SET FORTH IN THIS AGREEMENT, AND (B) ALL SUCH LOANS SHALL BE AND REMAIN SUBJECT TO THE TERMS AND CONDITIONS OF THIS AGREEMENT.


TERM. This Agreement shall be effective as of June 11, 1997 and shall continue thereafter until all Indebtedness has been paid in full and all other obligations of Borrower hereunder have been performed in full and the parties terminate this Agreement in writing.


DEFINITIONS. The following words shall have the following meanings when used in this Agreement. Terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code. All references to dollar amounts shall mean amounts in lawful money of the United States of America.


AGREEMENT. The word "Agreement" means this Construction Loan Agreement, as
this Construction Loan Agreement may be amended or modified from time to
time, together with all exhibits and schedules attached to this
Construction Loan Agreement from time to time.


ARCHITECTURE CONTRACT. The words "Architecture Contract" mean the
architect's contract relating to the Project, if any.


BORROWER. The word "Borrower" means each and every person or entity
signing the Note, including without limitation Consep, Inc.


COLLATERAL. The word "Collateral" means and includes without limitation
all property and assets granted as collateral security for a Loan, whether
real or personal property, whether granted directly or indirectly, whether
granted now or in the future, and whether granted in the form of a
security interest, mortgage, deed of trust, assignment, pledge, chattel
mortgage, chattel trust, factor's lien, equipment trust, conditional sale,
trust receipt, lien, charge, lien or title retention contract, lease or
consignment intended as a security device, or any other security or lien
interest whatsoever, whether created by law, contract, or otherwise.


COMMENCEMENT DATE. The words "Commencement Date" mean the date Borrower
begins work on the Project.


COMPLETION DATE. The words "Completion Date" mean such date as Lender
shall have established as the date by which Borrower is to have completed
the Project as required in this Agreement.


CONSTRUCTION CONTRACT. The words "Construction Contract" mean and include
the contract between Borrower and the general contractor for the Project,
if any, (General Contractor), and any subcontracts with subcontractors,
materialmen, laborers, or any other person or entity for performance of
work on the Project or the delivery of materials to the Project.


EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "Events of Default."


GRANTOR. The word "Grantor" means and includes without limitation each and
all of the persons or entities granting a Security Interest in any
Collateral for the Indebtedness, including without limitation all
Borrowers granting such a Security Interest.


GUARANTOR. The word "Guarantor" means and includes without limitation all
guarantors, sureties, and accommodation parties.


IMPROVEMENTS. The word "Improvements" means and includes without
limitation all existing and future buildings, structures, facilities,
fixtures, additions, and similar construction on the Property.


INDEBTEDNESS. The word "Indebtedness" means and includes without
limitation all Loans, together with all other obligations, debts and
liabilities of Borrower to Lender, or any one or more of them, as well as
all claims by Lender against Borrower, or any one or more of them; whether
now or hereafter existing, voluntary or involuntary, due or not due,
absolute or contingent, liquidated or unliquidated; whether Borrower may
be liable individually or jointly with others; whether Borrower may be
obligated as a guarantor, surety, or otherwise; whether recovery upon such
Indebtedness may be or hereafter may become barred by any statute of
limitations; and whether such Indebtedness may be or hereafter may become
otherwise unenforceable.


LENDER. The word "Lender" means WESTERN BANK, a division of Washington
Mutual Bank, its successors and assigns.


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CONSTRUCTION LOAN AGREEMENT


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LOAN. The word "Loan" means the loan made to Borrower under this Agreement
and the Related Documents as described below.


LOAN FUND. The words "Loan Fund" mean the undisbursed proceeds of the Loan
under this Agreement together with any equity funds or other deposits
required from Borrower under this Agreement.


NOTE. The word "Note" means the promissory note or credit agreement dated
June 11, 1997, IN THE ORIGINAL PRINCIPAL AMOUNT OF $1,695,000.00 from
Borrower to Lender, together with all renewals of, extensions of,
modifications of, refinancings of, consolidations of, and substitutions
for the promissory note or agreement.


PLANS AND SPECIFICATIONS. The words "Plans and Specifications" mean the
plans and specifications for the Project which have been submitted to and
initialed by Lender, together with such changes and additions as may be
approved by Lender in writing.


PROJECT. The word "Project" means the construction and completion of all
Improvements contemplated by this Agreement, including without limitation
the erection of the building or structure, installation of equipment and
fixtures, landscaping, and all other work necessary to make the Property
usable and complete for the intended purposes.


PROJECT DOCUMENTS. The words "Project Documents" mean the Plans and
Specifications, all studies, data and drawings relating to the Project,
whether prepared by or for Borrower, the Construction Contract, the
Architecture Contract, and all other contracts and agreements relating to
the Project or the construction of the Improvements.


PROPERTY. The word "Property" means the Real Property together with all
Improvements, all equipment, fixtures, and other articles of personal
property now or subsequently attached or affixed to the real property,
together with all accessions, parts, and additions to, all replacements
of, and all substitutions for any of such property, and all proceeds
(including insurance proceeds and refunds of premiums) from any sale or
other disposition of such property.


REAL PROPERTY. The words "Real Property" mean the real property located in
DESCHUTES COUNTY, STATE OF OREGON, and legally described as:


LOT TWO (2), BLOCK FIVE (5) OF SHEVLIN CENTER, CITY OF BEND, DESCHUTES
COUNTY, OREGON


The Real Property or its address is commonly known as 213 S. W. Columbia
Street, Bend, OR 97702.


RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages,
deeds of trust, and all other instruments, agreements and documents,
whether now or hereafter existing, executed in connection with the
Indebtedness.


SECURITY AGREEMENT. The words "Security Agreement" mean and include
without limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created by law, contract, or
otherwise, evidencing, governing, representing, or creating a Security
Interest.


SECURITY INTEREST. The words "Security Interest" mean and include without
limitation any type of collateral security, whether in the form of a lien,
charge, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien or title retention contract, lease or consignment intended
as a security device, or any other security or lien interest whatsoever,
whether created by law, contract, or otherwise.


VALUE. The word "Value" means such amount or worth as defined and
determined by Lender in its sole discretion unless agreed to the contrary
by Lender in writing.


LOAN. The Loan shall be in an amount not to exceed the principal sum of U.S. $1,695,000.00 and shall bear interest on so much of the principal sum as shall be advanced pursuant to the terms of this Agreement and the Related Documents. The Loan shall bear interest on each Advance from the date of the Advance in accordance with the terms of the Note. Borrower shall use the Loan Funds solely for the payment of (a) the costs of constructing the Improvements and equipping the Project in accordance with the Construction Contract; (b) other costs and expenses incurred or to be incurred in connection with the construction of the Improvements as Lender in its sole discretion shall approve; and (c) if permitted by Lender, interest due under the Note, including all expenses and all loan and commitment fees described in this Agreement. The Loan amount shall be subject at all times to all maximum limits and conditions set forth in this Agreement or in any of the Related Documents, including without limitation, any limits relating to loan to value ratios and acquisition and Project costs.


FEES AND EXPENSES. Whether or not the Project shall be consummated, Borrower shall assume and pay upon demand all out-of-pocket expenses incurred by Lender in connection with the preparation of loan documents and the making of the Loan, including without limitation the following: (a) all closing costs, fees, and disbursements; (b) all expenses of Lender's legal counsel; and (c) all title examination fees, title insurance premiums, appraisal fees, survey costs, required fees, and filing and recording fees.


NO CONSTRUCTION PRIOR TO RECORDING OF SECURITY DOCUMENT. Borrower will not permit any work or materials to be furnished in connection with the Project until (a) Borrower has signed the Related Documents; (b) Lender's mortgage or deed of trust and other Security Interests in the Property have been duly recorded and perfected; and (c) Lender has been provided evidence, satisfactory to Lender, that Borrower has obtained all insurance required under this Agreement or any Related Agreement and that Lender's liens on the Property and Improvements are valid perfected first liens, subject only to such exceptions, if any, acceptable to Lender.


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REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as of the date of this Agreement, as of the date of each disbursement of Loan proceeds, as of the date of any renewal, extension or modification of any Loan, and at all times any Indebtedness exists:


ORGANIZATION. Borrower is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State of Oregon and
is validly existing and in good standing in all states in which Borrower
is doing business. Borrower has the full power and authority to own its
properties and to transact the businesses in which it is presently engaged
or presently proposes to engage. Borrower also is duly qualified as a
foreign corporation and is in good standing in all states in which the
failure to so qualify would have a material adverse effect on its
businesses or financial condition.


AUTHORIZATION. The execution, delivery, and performance of this Agreement
by Borrower, to the extent to be executed, delivered or performed by
Borrower, have been duly authorized by all necessary action by Borrower;
do not require the consent or approval of any other person, regulatory
authority or governmental body; and do not conflict with, result in a
violation of, or constitute a default under (a) any provision of its
articles of incorporation or organization, or bylaws, or any agreement or
other instrument binding upon Borrower or (b) any law, governmental
regulation, court decree, or order applicable to Borrower.


FINANCIAL INFORMATION. Each financial statement of Borrower supplied to
Lender truly and completely disclosed Borrower's financial condition as of
the date of the statement, and there has been no material adverse change
in Borrower's financial condition subsequent to the date of the most
recent financial statement supplied to Lender. Borrower has no material
contingent obligations except as disclosed in such financial statements.


LITIGATION AND CLAIMS. No litigation, claim, investigation, administrative
proceeding or similar action (including those for unpaid taxes) against
Borrower is pending or threatened, and no other event has occurred which
may materially adversely affect Borrower's financial condition or
properties, other than litigation, claims, or other events, if any, that
have been disclosed to and acknowledged by Lender in writing.


TITLE TO PROPERTY. Borrower has, or on the date of first disbursement of
Loan proceeds will have, good and marketable title to the Property free
and clear of all defects, liens, and encumbrances, excepting only liens
for taxes, assessments, or governmental charges or levies not yet
delinquent or payable without penalty or interest, and such liens and
encumbrances as may be approved in writing by the Lender.


HAZARDOUS SUBSTANCES. The terms "hazardous waste," "hazardous substance,"
"disposal" "release," and "threatened release," as used in this Agreement,
shall have the same meanings as set forth in the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as
amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund
Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"),
the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et
seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901,
et seq., or other applicable state or Federal laws, rules, or regulations
adopted pursuant to any of the foregoing or intended to protect human
health or the environment ("Environmental Laws"). Except as disclosed to
and acknowledged by Lender in writing, Borrower represents and warrants
that: (a) During the period of Borrower's ownership of the properties,
there has been no use, generation, manufacture, storage, treatment,
disposal, release or threatened release of any hazardous waste or
substance by any person on, under, about or from any of the properties.
(b) Borrower has no knowledge of, or reason to believe that there has been
(i) any use, generation, manufacture, storage, treatment, disposal,
release, or threatened release of any hazardous waste or substance on,
under, about or from the properties by any prior owners or occupants of
any of the properties, or (ii) any actual or threatened litigation or
claims of any kind by any person relating to such matters. (c) Neither
Borrower nor any tenant, contractor, agent or other authorized user of any
of the properties shall use, generate, manufacture, store, treat, dispose
of, or release any hazardous waste or substance on, under, about or from
any of the properties; and any such activity shall be conducted in
compliance with all applicable federal, state, and local laws,
regulations, and ordinances, including without limitation Environmental
Laws. Borrower authorizes Lender and its agents to enter upon the
properties to make such inspections and tests as Lender may deem
appropriate to determine compliance of the properties with this section of
the Agreement. Any inspections or tests made by Lender shall be at
Borrower's expense and for Lender's purposes only and shall not be
construed to create any responsibility or liability on the part of Lender
to Borrower or to any other person. The representations and warranties
contained herein are based on Borrower's due diligence in investigating
the properties for hazardous waste and hazardous substances. Borrower
hereby (a) releases and waives any future claims against Lender for
indemnity or contribution in the event Borrower becomes liable for cleanup
or other costs under any such laws, and (b) agrees to indemnify and hold
harmless Lender against any and all claims, losses, liabilities, damages,
penalties, and expenses which Lender may directly or indirectly sustain or
suffer resulting from a breach of this section of the Agreement or as a
consequence of any use, generation, manufacture, storage, disposal,
release or threatened release occurring prior to Borrower's ownership or
interest in the properties, whether or not the same was or should have
been known to Borrower, or as a result of a violation of any Environmental
Laws. The provisions of this section of the Agreement, including the
obligation to indemnify, shall survive the payment of the Indebtedness and
the satisfaction of this Agreement and shall not be affected by Lender's
acquisition of any interest in any of the properties, whether by
foreclosure or otherwise.


PROJECT COSTS. The Project costs are true and accurate estimates of the
costs necessary to complete the Improvements in a good and workmanlike
manner according to the Plans and Specifications presented by Borrower to
Lender, and Borrower shall take all steps necessary to prevent the actual
cost of the Improvements from exceeding the Project costs.


UTILITY SERVICES. AII utility services appropriate to the use of the
Project after completion of construction are available at the boundaries
of the Property.


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ACCESS. The Property is contiguous to publicly dedicated streets, roads,
or highways providing access to the Property.


ASSESSMENT OF PROPERTY. The Property is and will continue to be assessed
and taxed as an independent parcel by all governmental authorities.


COMPLIANCE WITH GOVERNING AUTHORITIES. Borrower has examined and is
familiar with all the easements, covenants, conditions, restrictions,
reservations, building laws, regulations, zoning ordinances, and federal,
state, and local requirements affecting the Project. The Project will at
all times and in all respects conform to and comply with the requirements
of such easements, covenants, conditions, restrictions, reservations,
building laws, regulations, zoning ordinances, and federal, state, and
local requirements.


LEGAL EFFECT. This Agreement constitutes, and any instrument or agreement
required hereunder to be given by Borrower when delivered will constitute,
legal, valid and binding obligations of Borrower enforceable against
Borrower in accordance with their respective terms.


BINDING EFFECT. This Agreement, the Note and all Security Agreements
directly or indirectly securing repayment of Borrower's Loan and Note are
binding upon Borrower as well as upon Borrower's successors,
representatives and assigns, and are legally enforceable in accordance
with their respective terms.


SURVIVAL OF REPRESENTATION AND WARRANTIES. Borrower understands and agrees
that Lender is relying upon the above representations and warranties in
extending Loan Advances to Borrower. Borrower further agrees that the
foregoing representations and warranties shall be continuing in nature and
shall remain in full force and effect until such time as Borrower's Loan
and Note shall be paid in full, or until this Agreement shall be
terminated in the manner provided above, whichever is the last to occur.


CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial Advance and each subsequent Advance under this Agreement shall be subject to the fulfillment to Lender's satisfaction of all of the conditions set forth in this Agreement.


APPROVAL OF CONTRACTORS, SUBCONTRACTORS, AND MATERIALMEN. Lender shall
have approved a list of all contractors employed in connection with the
construction of the Improvements, showing the name, address, and telephone
number of each contractor, a general description of the nature of the work
to be done, the labor and materials to be supplied, the names of
materialmen, if known, and the approximate dollar value of the labor,
work, or materials with respect to each contractor or materialman. Lender
shall have the right to communicate with any person to verify the facts
disclosed by the list or by any application for any Advance, or for any
other purpose.


PLANS, SPECIFICATIONS, AND PERMITS. Lender shall have received and accepted a complete set of Plans and Specifications setting forth all Improvements for the Project, and Borrower shall have furnished to Lender copies of all permits and requisite approvals of any governmental body necessary for the construction and use of the Project.


ARCHITECTURE AND CONSTRUCTION CONTRACTS. Borrower shall have furnished in
form and substance satisfactory to Lender an executed copy of the
Architecture Contract and an executed copy of the Construction Contract.


BUDGET AND SCHEDULE OF ESTIMATED ADVANCES. Lender shall have approved
detailed budget and cash flow projections of total Project costs and a
schedule of the estimated amount and time of disbursements of each
Advance.


BORROWER'S AUTHORIZATION. Borrower shall have provided in form and
substance satisfactory to Lender properly certified resolutions, duly
authorizing the execution and delivery of the Loan documents, and the
consummation of the Project, and such other authorizations and other
documents as Lender in its sole discretion may require.


BOND. If requested by Lender, Borrower shall have furnished a performance
and payment bond in an amount equal to 100% of the amount of the
Construction Contract, as well as a materialmen's and mechanics' payment
bond, with such riders and supplements as Lender may require, each in form
and substance satisfactory to Lender, naming the General Contractor as
principal and Lender as an additional obligee.


APPRAISAL. If required by Lender, an appraisal shall be prepared for the
Property, at Borrower's expense, which in form and substance shall be
satisfactory to Lender, in its sole discretion, including applicable
regulatory requirements.


PLANS AND SPECIFICATIONS. If requested by Lender, Borrower shall have
assigned to Lender on Lender's forms the Plans and Specifications for the
Project.


ENVIRONMENTAL REPORT. If requested by Lender, Borrower shall have
furnished to Lender, at Borrower's expense, an environmental report and
certificate on the Property in form and substance satisfactory to Lender,
prepared by an engineer or other expert satisfactory to Lender stating
that the Property complies with all applicable provisions and requirements
of the "Hazardous Substances" paragraph set forth below.


SOIL REPORT. If requested by Lender, Borrower shall have furnished to
Lender, at Borrower's expense, a soil report for the Property in form and
substance satisfactory to Lender, prepared by a registered engineer
satisfactory to Lender stating that the Property is free from soil or
other geological conditions that would preclude its use or development as
contemplated without extra expense for precautionary, corrective or
remedial measures .


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SURVEY. If requested by Lender, Borrower shall have furnished to Lender a
survey of recent date, prepared and certified by a qualified surveyor and
providing that the Improvements, if constructed in accordance with the
Plans and Specifications, shall lie wholly within the boundaries of the
Property without encroachment or violation of any zoning ordinances,
building codes or regulations, or setback requirements, together with such
other information as Lender in its sole discretion may require.


ZONING. Borrower shall have furnished evidence satisfactory to Lender that
the Property is duly and validly zoned for the construction, maintenance,
and operation of the Project.


TITLE INSURANCE. Borrower shall have provided to Lender an ALTA Lender's
extended coverage policy of title insurance with such endorsements as
Lender may require, issued by a title insurance company acceptable to
Lender and in a form, amount, and content satisfactory to Lender, insuring
or agreeing to insure that Lender's Mortgage or Deed of Trust on the
Property is or will be upon recordation a valid first lien on the Property
free and clear of all defects, liens, encumbrances, and exceptions except
those as specifically accepted by Lender in writing. If requested by
Lender, Borrower shall provide to Lender, at Borrower's expen ...