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HRA Executive Director Nelson reviewed the staff report. Tom Bray with Briggs & Morgan presented his memorandum dated February 22, 2012, detailing the Debt Subordination Agreement, remedies available to the HRA under the Purchase Agreement, Development Agreement, Loan Agreement, Promissory Notes, Pledge Agreement, Guarantees, and described the Debt Subordination Agreement impacts on those remedies. Commissioner Ramsey stated it sounds like the agreements are the same as the original documents the HRA chose to approve. He asked when are the first $1 million equity call and second $2 million equity call for Flaherty & Collins (F&C). Development Manager Lazan indicated equity calls are at 12 and 18 months. He reviewed the past HRA discussion whether a "carrot" or "stick" approach should be taken and decision reached to incent F&C so the documents have been structured in that way, to incent early prepayment and penalize late payment. Commissioner Ramsey noted that in 12 months the project will not yet be built so there will be no revenue coming in. He indicated if this project defaults, he believed it would be after construction if they can't lease it, and by then it is a moot point. Commissioner Elvig asked Commissioner Ramsey what assumption he is using for the equity calls. Commissioner Ramsey stated the HRA considered whether there should be a penalty if they didn't pay and consensus was reached that an incentive was a better option. If they do prepay the debt owed to the HRA, they would get back a percentage of the amount. Commissioner Elvig stated his understanding there would be a "carrot" and a "stick" if they don't pay on time. He asked whether it is a mandatory pay, noting that is not contained within the documentation Commissioner Ramsey stated he expects them to pay because they agreed to it and if they don't make the mandatory payment, a penalty would be assessed. HRA Executive Director Nelson stated staff believed it was set up to be successful in terms of rent projections and the document addresses the process to use if a troubled situation occurs. Commissioner Ramsey stated how can it fail prior to leasing because there is no money until that point. Chairperson McGlone offered the scenario of a lawsuit by a contractor prior to completion of construction, noting this document will provide guidance through such a situation. Commissioner Elvig stated he did not think the document contained any real remedies and the only remedy offered would put the HRA in a more jeopardized position than if no action was Housing and Redevelopment Authority / February 28, 2012 Page 2 of 8