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Construction Loan Agreement

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Sectors: Computer Hardware
Governing Law: North Carolina, View North Carolina State Laws
Effective Date: May 20, 2002
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CONSTRUCTION LOAN AGREEMENT


THIS CONSTRUCTION LOAN AGREEMENT, dated as of the 20th day of May, 2002 (the "Loan Agreement"), is by and between


DCF I, LLC, a limited liability company organized and existing under the laws of the State of North Carolina (the "Borrower"),


Anthony Dilweg, an individual and resident of the State of North Carolina, (the "Guarantor"), and


MERISEL PROPERTIES, INC., a corporation organized and existing under the laws of the State of Delaware (the "Lender").


RECITALS


A. The Borrower has requested that Lender provide a construction loan in a principal amount of up to $1,000,000 (the "Loan") to be advanced by the Lender pursuant to the terms hereof.


B. The Borrower will use the proceeds of the Loan to construct certain improvements to the office building located at 305 and 315 Gregson Drive, Cary, Wake County, North Carolina (the "Project").


C. The Lender is willing to make the Loan described hereinabove based on the terms and conditions set forth in this Loan Agreement.


NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Borrower and the Lender hereby agree as follows:


ARTICLE I


1.1. Definitions


For the purposes hereof:


(a) "Architect" means Borrower's design architect for the Project;


(b) "Closing Date" means the date as of which this Loan Agreement is
executed by the Borrower, the Guarantor and the Lender;


(c) "Construction Documents" means the construction contract between the
Borrower and the General Contractor (the "Construction Contract"), and
all other contracts, plans or documents concerning the construction of
the Project; such Construction Documents, or other agreement
satisfactory to the Lender, shall specifically provide that they may be
assigned to the Lender as additional collateral for the Loan and that
upon the occurrence of an Event of Default under the Loan, the General


Contractor will continue to perform, at the Lender's option, for the
Lender or its assigns under the Construction Documents;


(d) "Construction Inspector" shall be Ron Bodkin, the construction
manager of Dilweg Construction Services, LLC, or his replacement. In
the event Lender is not satisfied with the services of Ron Bodkin,
Lender shall have the right to engage an architectural or
engineering firm acceptable to the Lender at the Borrower's expense
(not to exceed $10,000). The Construction Inspector shall perform
various services on behalf of the Borrower and the Lender, including:
a preconstruction review or front-end analysis of the intended
construction (including a review of the Plans, soil tests, and
permits and examination of the Construction Documents, Cost
Breakdown, estimates and schedules); periodic inspections of the
Project for conformity with the Plans, Cost Breakdown and
schedules; approvals of requests for Loan disbursements; a review and
analysis of each proposed change to the Plans, Construction
Documents or schedule; and advising and rendering periodic reports
to the Borrower and the Lender concerning the same; it being
expressly understood and agreed that the Lender shall have the
right to rely on such reports from the Construction Inspector and the
Construction Inspector shall have an obligation to the
Lender in addition to the Borrower in connection therewith;


(e) "Cost Breakdown" means the detailed trade breakdown of the cost of
constructing the Project, including a detailed construction ledger with
hard costs, and the cost of acquiring the related personalty on AIA
form G703, or other form acceptable to the Lender and an itemization of
non-construction costs in a form and substance acceptable to the
Lender, together with such periodic updates as the Lender may from time
to time require; such costs breakdown and all updates thereof shall be
certified by the Construction Inspector as fair and reasonable and
shall include all costs and items necessary to complete the project in
accordance with the Plans;


(f) "Deed of Trust" means the deed of trust dated as of the Closing Date in
favor of the Lender securing the Loan executed by the Borrower for the
benefit of the Lender covering the property as more particularly
described therein;


(g) "Default Condition" means the occurrence or existence of an event or
condition which, upon the giving of notice or the passage of time, or
both, would constitute an Event of Default;


(h) "Draw Request" means a written request for any disbursement of Loan
proceeds, which shall be submitted for each requested disbursement as
set forth in Section 2.4 hereof;


(i) "Event of Default" means an Event of Default as defined in Article VII;


(j) "Financing Statements" means the UCC financing statements filed in
order to perfect the Lender's lien on certain personal property and
fixtures as more particularly described therein;


(k) "Force Majeure" means strikes, lock-outs, riots or other labor
troubles, unavailability of materials, a national emergency, any rule,


order or regulation of Governmental Authorities enacted after the
Closing Date, tornadoes, floods, hurricanes or other natural disasters,
or other similar causes not within the Borrower's control;


(l) "General Contractor" means the general contractor for the construction
of the Project;


(m) "Governmental Authorities" means any governmental (including health and
environmental) office, officer or official whose consent or approval is
required as a prerequisite to the commencement of the construction of
the Project or to the operation and occupancy of the Improvements or
the Premises or to the performance of any act or obligation or the
observance of any agreement, provision or condition of whatsoever
nature herein contained;


(n) "Guaranty" means the Guaranty Agreement dated of even date herewith
evidencing the direct and unconditional guaranty of the Guarantor of
payment of all sums due under the Loan Documents and of performance of
all obligations of the Borrower thereunder including the lien free
completion of the Improvements in accordance with the plans;


(o) "Improvements" means all improvements on the Land, including without
limitation the improvements described in Recital B above, and all
improvements constructed pursuant to the Construction Documents;


(p) "Indebtedness" means with respect to any person, all indebtedness,
obligations and liabilities of such person for money borrowed, all
indebtedness of such person for the acquisition of property,
indebtedness secured by any lien on the property of such person whether
or not such indebtedness is assumed, all liability of such person by
way of endorsements (other than for collection or deposit of negotiable
instruments in the ordinary course of business), all contingent
obligations and all capitalized leases and other items which in
accordance with generally accepted accounting principles are classified
as liabilities on a balance sheet;


(q) "Land" means the real property containing approximately 6.989 acres
located at 305 and 315 Gregson Drive in Cary, Wake County, North
Carolina, owned or to be acquired by the Borrower and encumbered by the
Deed of Trust;


(r) "Liabilities" means all obligations and Indebtedness of any and every
kind and nature of the Borrower to the Lender (including, without
limitation, interest, charges, expenses, attorneys' fees and other
sums chargeable to the Borrower by the Lender) and future advances
by the Lender made to or for the benefit of the Borrower, whether
arising under this Agreement, or arising under the Note, the Deed of
Trust, the Purchase Money Note, the Purchase Money Deed of Trust or
any of the other Loan Documents or acquired by the Lender from any
other source, whether heretofore, now or hereafter owing, arising,
due, or payable from the Borrower to the Lender and howsoever
evidenced, created, incurred, acquired or owing, whether
primary, secondary, direct, contingent, fixed, or otherwise, including
obligations of performance;


(s) "Loan Documents" means this Loan Agreement, the Note, the Deed of
Trust, the Guaranty, the Financing Statements and any other instruments
evidencing or securing the Loan;


(t) "Note" means the promissory note of the Borrower dated as of the
Closing Date in favor of the Lender in the maximum principal amount of
$1,000,000 as well as any promissory note or notes issued by the
Borrower in substitution, replacement, extension, amendment or renewal
of any such promissory note or notes;


(u) "Permitted Encumbrances" means liens, encumbrances, easements and
other matters listed as exceptions to the final Title Policy;


(v) "Personalty" means all fixtures, equipment, furnishings, inventory
and other articles of tangible personal property now owned or
hereafter acquired by the Borrower attached to, located on, contained
in, or used exclusively in connection with the Land and
Improvements, or any portion thereof, and all renewals or
replacements thereof or articles in substitution thereof, or
accessions thereto, whether or not the same are or shall be attached
to the Land and Improvements in any manner; together with all
accounts, instruments, and general intangibles of every nature and
kind arising out of or in connection with the Premises, whether now
owned or hereafter acquired by the Borrower, together with all
proceeds thereof;


(w) "Plans" means the plans and specifications for the construction of the
Project prepared by the Architect and delivered to the Lender, and
including such amendments thereto as may from time to time be made by
the Borrower with the written consent of the Lender;


(x) "Premises" means the collective reference to the Land, the Improvements
and the Personalty;


(y) "Title Policy" means the mortgagee title policy meeting the
requirements of this Loan Agreement.


ARTICLE II


The Loan


2.1. Loan Terms. The purpose of the Loan is to finance the construction of the Project. Loan proceeds may not be used for any other purpose. Subject to the terms and conditions of this Loan Agreement, the Lender will lend and the Borrower will borrow up to $1,000,000, such borrowing to be evidenced by the Note, secured by the Deed of Trust and guaranteed by the Guaranty. Of even date herewith, Lender has conveyed the Premises to Borrower and taken back a purchase money note (the "Purchase Money Note") secured by a purchase money deed of trust (the "Purchase Money Deed of Trust") encumbering the Premises with a first priority lien. Borrower shall make and fund the Improvements to the Premises prior to the disbursal of Loan proceeds hereunder. Specifically, Lender shall not be required to disburse Loan proceeds to Borrower until such time as Borrower has funded the cost of the Improvements to the Premises in the amount of $1,000,000, which amount shall be evidenced to Lender in a Cost Breakdown.


Attached hereto as Exhibit A and incorporated herein by reference is a schedule and timeline that defines Borrower's obligations to make and fund the Improvements to the Premises ("Borrower's Initial Construction Obligations"). At such time as Borrower has contributed $500,000 of its own funds to the completion of Borrower's Initial Construction Obligations, which amount shall be evidenced to Lender in a Cost Breakdown, Borrower may fund the remaining $500,000 by securing a loan from a third party lender. Any lien against the Premises securing such third-party loan shall be subordinate to the Purchase Money Deed of Trust and the Deed of Trust. At such time as Borrower has contributed the remaining $500,000 to the completion of Borrower's Initial Construction Obligations, which amount shall be evidenced to Lender in a Cost Breakdown, Borrower may request advances of the Loan proceeds from Lender in accordance with the terms of this Loan Agreement.


2.2. Interest Rate/Repayment. The outstanding principal balance of the Loan shall bear interest, and principal and interest shall be repayable in accordance with the terms of the Note.


2.3. Disbursements. Subject to the requirements of Section 2.1, Lender shall from time to time, so long as there shall exist no Default Condition or Event of Default, but not more frequently than once a month, disburse Loan proceeds to the Borrower. The conditions set forth in Article III hereof must be satisfied before the Lender will make the first advance or disbursement, and the conditions set forth in Article IV hereof must be satisfied before the Lender will make each subsequent disbursement or advance.


2.4. Draw Requests. At least five (5) business days prior to each Loan disbursement by the Lender, the Borrower must submit to the Lender a Draw Request, which shall include:


(a) A completed and properly executed request for disbursement in form
reasonably acceptable to the Lender setting forth the amount of Loan
proceeds desired, together with such certifications and additional
information as the Lender may reasonably require, signed by an
authorized representative of the Borrower reasonably acceptable to the
Lender certified to the Lender in writing to be an authorized
representative for the purpose of submitting Draw Requests;


(b) If the Draw Request includes an application for payment for
amounts to be paid to the General Contractor, a written
memorandum of advance, originals of AIA Document G702 and AIA
Document G703 (or equivalents approved by the Lender) together with
a report on the status of any stored materials in a format
reasonably acceptable to the Lender and copies of the supplier
invoices as to such stored materials; the application for payment
shall contain a breakdown by trade and/or other categories
reasonably acceptable to the Lender, completed to the reasonable
satisfaction of the Lender and executed by the General Contractor and
Construction Inspector, accompanied by invoices relating to items
covered thereby when requested by the Lender;


(c) If the Draw Request includes a request for amounts for non-construction
items previously approved by the Lender or as provided in the Plans,
invoices for such items; and


(d) In each instance, certification in proper form and substance from the
Construction Inspector, together with such other items as may be
reasonably required by the Lender.


2.5. Evidence of Progress of Construction: Without in any way limiting the documentation that the Lender may require, each Draw Request shall be accompanied by evidence in form and content reasonably satisfactory to the Lender (including, but not limited to, certificates and affidavits of the Borrower, General Contractor and Construction Inspector, or such other persons as the Lender may reasonably require) setting forth the following:


(a) The percentage of the Project completed at that time; the total funds
expended to date by the Borrower in connection with the construction of
the Project (including the portions thereof for which Loan proceeds
have been previously disbursed); and the funds required to complete the
construction of the Project;


(b) That all outstanding claims for labor, materials and fixtures have been
paid (except for bills not yet past due and for which payment will be
promptly made upon receipt by the Borrower of the then requested Loan
disbursement);


(c) That there are no liens outstanding against the Premises except for the
Lender's security title, other than inchoate liens for property taxes
not yet due;


(d) That the Borrower and Guarantor have complied with all of their
respective obligations, as of the date thereof, under the Loan
Documents;


(e) That all construction prior to the date of the Draw Request has been
done in substantial accordance with the Plans;


(f) That all funds previously disbursed by the Lender have been
applied directly to construction and development costs approved by
the Lender;


(g) That attached to such Draw Request are (i) a complete list of invoices
or statements to be paid from the Loan disbursement, (ii) as to
individual costs paid from the last preceding Loan disbursement, copies
of invoices and statements, and (iii) satisfactory receipts from all
subcontractors and materialmen paid from the last preceding Loan
disbursement; and


(h) That all material change orders shall have been approved in writing by
the Lender ("material change orders" shall be defined as change orders
in excess of Twenty-Five Thousand Dollars ($25,000)); unless the Lender
elects to orally consent to changes followed within ten (10) days by
the Lender's written confirmation, in the Lender's discretion;


2.6. Disbursement Amount. Following receipt of a Draw Request and receipt and review of the report of the Construction Inspector, the Lender shall determine the amount of the disbursement to be made under the Loan in accordance with the standards of this Section:


(a) Construction Work and Materials. Loan disbursements for construction
work, materials and other "hard costs" shall be made on a pro rata
basis less retainage as provided in the Construction Documents for the
value of the work and materials then in place on the Improvements and
materials acquired and stored on site in a manner reasonably
satisfactory to the Lender, as shown on applications for payment from
the General Contractor reviewed and approved by the Construction
Inspector and the Lender. The final disbursement of the pro rata
portion of the construction retainage shall be made upon compliance in
full with the requirements set forth in Section 4.2.


(b) Non-Construction Items. Loan disbursements for non-construction items
(i.e., so-called "soft costs") shall be made on a pro-rata basis of all
such costs as shown on the Cost Breakdown and approved by the Lender in
its reasonable discretion and the Lender may require that invoices for
such costs be submitted to it for approval prior to making any
disbursements for such items. The Lender shall, in its reasonable
discretion, determine what are "construction items" and what are
"non-construction items" for the purposes of determining the amount of
disbursements to be made with respect to such items.


(c) Stored Materials. Pro rata disbursements for stored materials will be
made based upon the invoice costs of materials provided the same are
adequately identified, secured and insured. All invoices for stored
materials are subject to the Lender's review and approval. The Lender
must have a perfected first lien on the stored materials, and a
disbursement therefor must not be in conflict with the terms of the
Construction Documents. Lender, at its option, may elect to make
disbursements for materials stored off-site, provided that in any
event, such materials must be adequately identified, secured and
insured, and the Lender must have a perfected first lien thereon.


(d) Materials Stored Off-Site. The Lender will not make disbursements based
on the cost of materials not stored on the Premises unless otherwise
specifically agreed in writing by the Lender.


(e) Deposits. Disbursements will not be made for deposits or prepayments
required by manufacturers or fabricators of building materials,
fixtures or equipment unless otherwise specifically agreed in writing
by the Lender.


(f) Construction Loan Budget. In addition to the limitations and
requirements set forth above, the Lender, at its option, may, prior
to the commencement of the Loan or at any time during the term of the
Loan, require the Borrower to submit to the Lender an updated
budget of construction and other costs associated with the
construction and development of the Project (the "Budget"). The
Budget shall be in such reasonable detail as the Lender may require
and all aspects thereof are subject to the Lender's reasonable
approval. Disbursements for such items or category listed in such
Budget shall not, at any time, exceed the amount budgeted in such
item or category in the budget without the Lender's consent,
said consent not to be unreasonably withheld, conditioned or
delayed. If the cost of any item or category listed in the Budget
exceeds the budgeted amount, the Borrower shall, unless the Lender
shall then otherwise agree, pay such excess for its own funds.


Borrower may, subject to Lender's consent, which consent may not be
unreasonable withheld, conditioned or delayed, agree to reallocate
undisbursed funds for other items or categories to the item or
category that exceeds the budgeted amount with the exception that no
undisbursed funds shall be reallocated to the development fee/profit
line item.


2.7. Value of Work; Percentage Completion: The value of work and material in place as well as stored on the Premises at any time shall be determined by the Lender based upon the items set forth herein, and the percentage of completion so determined shall be binding on the Borrower, absent manifest error.


2.8. Advances Do Not Constitute a Waiver: No advance of Loan proceeds hereunder shall constitute a waiver of any of the conditions of the Lender's obligations to make further advances nor, in the event the Borrower is unable to satisfy any such condition, shall any such advance have the effect of precluding the Lender from thereafter declaring such inability to be an Event of Default hereunder.


2.9. Deposit Of Disbursements. Loan disbursements may be made by depositing same in the Borrower's operating account as directed by Borrower.


2.10. Equity Requirements. If the Lender at any time determines in its reasonable discretion that the Loan proceeds plus the amount of all equity investments made by the Borrower are not sufficient to fully complete the Project in accordance with the Plans, to pay all interest accrued (or to accrue prior to maturity under the Note), and to pay all other sums due under the Loan Documents the Lender shall have the option of requiring the Borrower to deposit with the Lender additional funds from some other source in amounts sufficient to cover the resulting deficit before the Lender will disburse any additional Loan proceeds. Deposited funds shall be held by the Lender and shall be advanced as construction progresses in accordance with this Loan Agreement before any additional Loan disbursements are made.


2.11. Option to Pay Contractors. If an Event of Default shall exist, at its option, the Lender may make Loan disbursements directly to the General Contractor or any unpaid subcontractor, laborer or material supplier providing labor, services or materials in connection with the construction of the Project, and the execution of this Loan Agreement by the Borrower shall, and hereby does, constitute an irrevocable direction and authorization to so disburse the funds. No further direction or authorization from the Borrower shall be necessary to warrant such direct disbursements and all such disbursements shall be secured by the Deed of Trust as fully as if made to the Borrower, regardless of the disposition thereof by the General Contractor, any subcontractor, laborer or material supplier so paid. All such disbursements shall be conclusively deemed to be a necessary expenditure for the preservation of the security in accordance with N.C.G.S. ss.45-70(c).


NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, THE LENDER SHALL BE UNDER NO OBLIGATION TO ADVANCE ANY SUMS UNDER THIS LOAN AGREEMENT, THE NOTE, OR THE OTHER LOAN DOCUMENTS, IF AT THE TIME OF THE REQUEST THE LOAN HAS MATURED, OR THERE EXISTS A DEFAULT CONDITION OR AN EVENT OF DEFAULT UNDER THIS LOAN AGREEMENT OR ANY OF SUCH AGREEMENTS.


2.12. Collateral. The Loan will be secured by (a) the Deed of Trust; (b) a first lien on all general intangibles, accounts, furniture, machinery, equipment, chattels, building materials and other personal property now or hereafter located on the Premises; (c) a first lien priority assignment of all leases, rents, issues and profits arising out of or related to the Premises, (d) a first lien assignment, as security, of the Construction Contract, Architect Contract, Plans, easements and other rights and documents relating to construction of the Project, and (e) all proceeds of the above collateral.


Prior to or upon closing of the Loan, the Lender will require recorded documents, and UCC filings in order to perfect its lien on all collateral described above and the Lender will require documentation, satisfying the terms of this Agreement (including a title insurance policy and UCC-11's completed by the appropriate authority) evidencing compliance with Lender's requirement that no liens prior to Lender's have been filed on any of the collateral.


ARTICLE III


Conditions Precedent to First Disbursement


The Lender shall not be obligated to make the first Loan disbursement until all of the following conditions have been satisfied by proper evidence, execution and/or delivery to the Lender of the following items within sixty (60) days of the Closing Date, or, for those items that cannot be satisfied within sixty (60) days of the Closing Date, within sixty (60) days of the date Borrower receives site plan approval for the Project, all in form and substance satisfactory to the Lender and the Lender's counsel:


3.1. Loan Documents. Fully executed and r
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