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B R I G G S A N D M O R G A N the Debt Subordination Agreement were known, when the HRA approved the Purchase Agreement and the Development Agreement, so the HRA's Board could not approve and authorize the execution of the Debt Subordination Agreement at that time. HRA staff is submitting the Debt Subordination Agreement to the Board for consideration at the Board' s February 28, 2012 meeting. This Memorandum describes the HRA's remedies if F &C Apartments defaults under the Development Agreement or if F &C Member defaults under either the Loan Agreement to be executed by the HRA and F &C Member (the "HRA Loan Agreement ")or either of the two Promissory Notes that F &C Member will execute in favor of the HRA to evidence the HRA Loans (the "HRA Notes ") and, where applicable, describes the impact of the Debt Subordination Agreement on those remedies. II. RIGHT OF REVERTER The Purchase Agreement and Development Agreement provide for the HRA's conveyance of the Property to the "Developer" (initially F &C Ramsey but, following the assignment to F &C Apartments, F &C Apartments) subject to a right of reverter. If the Developer does not complete construction of the project on or before the date 27 months from the date of the conveyance, the HRA may commence an action in Anoka County District Court seeking a court order transferring title to the Property and any improvements thereon back to the HRA. In the Development Agreement the HRA agreed to subordinate its right of reverter to the lien of the mortgage securing the PNC Loan (the "PNC Mortgage "), so if PNC forecloses its mortgage and the Developer does not redeem the Property from foreclosure, the HRA must either redeem the Property from foreclosure by paying off the PNC mortgage or the HRA's right of reverter will be extinguished. In the Debt Subordination Agreement, the HRA agrees that the HRA's enforcement of the right of reverter is a non - curable default under the terms of the PNC Mortgage. The HRA also agrees that if F &C Apartments defaults in the performance of its obligations to PNC under the PNC loan documents, the HRA will not oppose PNC' s efforts to have a receiver appointed for the Property and will not seek to have the receiver discharged unless PNC fails to commence foreclosure proceedings within 6 months following the appointment of the receiver, PNC commences a foreclosure but fails to schedule a sheriffs sale within a reasonable period of time or the HRA redeems the Property from a foreclosure of the PNC mortgage. III. ENFORCEMENT OF THE DEVELOPMENT AGREEMENT The Developer' s failure to complete the project with 27 months of closing is a default under the Development Agreement. In addition, a default by F &C Ramsey under the Loan Agreement or the HRA Notes is a default under the Development Agreement. Although the HRA has the right to sue the Developer to recover damages resulting from a default, it would be difficult for the HRA to articulate the monetary damages the HRA would suffer from the Developer' s failure to complete the project on time. The more significant remedy available to 4509147v3 2