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DRAFT 07/09/2010 DISBURSING AGREEMENT among CITY OF MISSOULA, MONTANA, SUSSEX SCHOOL, INC. and FIRST SECURITY BANK OF MISSOULA July 2010 ---PAGE BREAK--- DISBURSING AGREEMENT THIS DISBURSING AGREEMENT (this “Agreement”), dated July 2010, is made by and among CITY OF MISSOULA, MONTANA, a political subdivision existing under the Constitution and laws of the State of Montana (the “City”), SUSSEX SCHOOL, INC., a Montana nonprofit corporation (the “Borrower”), and FIRST SECURITY BANK OF MISSOULA, a Montana banking corporation (the “Lender”). WITNESSETH: WHEREAS, the City will issue and sell to the Lender its Economic Development Revenue Note (Sussex School 401(c)(3) Project), Series 2010 of even date herewith (the “Note”) in the maximum principal amount of $900,000; and WHEREAS, the City will enter into a Loan Agreement (the “Loan Agreement”) with the Borrower, of even date herewith, whereby the City will make a loan of the proceeds of the Note to the Borrower in payment or reimbursement of certain costs (as defined in the Loan Agreement, the “Costs of the Project”) to finance a portion of the costs of designing and constructing a new school facility at 1800 South 2nd West Street, in Missoula, Montana and making related improvements (the “Project”), which will be owned by the Borrower, and to pay costs associated with the financing of the Project, and the Borrower will repay said loan upon the terms set forth therein; and WHEREAS, the City desires to have the Lender disburse the proceeds of the Note to the Borrower on behalf of the City in accordance with this Agreement and the Loan Agreement. NOW, THEREFORE, THIS AGREEMENT WITNESSETH: SECTION I DEFINITIONS Terms defined in Section 1.01 of the Loan Agreement shall, when used herein with initial capital letters, have the meanings ascribed to such terms in said Section 1.01, unless the context hereof clearly requires otherwise. In addition, the following terms shall, when used herein with initial capital letters, have the following meanings: 1.1. “Additional Collateral Documents” shall mean Uniform Commercial Code Financing Statements perfecting the security interests created under the Assignment and the Trust Indenture which shall be in form and substance acceptable to the Lender. 1.2. “Collateral Documents” shall mean the following documents each of which shall be in form and substance acceptable to the Lender: the Note; the Loan Agreement; ---PAGE BREAK--- the Assignment; this Disbusing Agreement; and the Trust Indenture. 1.3. “Completion Date” shall mean December 23, 2010, or such later date as may be agreed to in writing by the Borrower and the Lender. 1.4. “Construction Documents” shall mean the following documents, all of which shall be in form and substance acceptable to the Lender: Certificates of Liability Insurance and Property Insurance as required by the Loan Agreement and Trust Indenture. A project cost statement certified by the Borrower stating in full and itemizing the Costs of the Project. A statement certified by the Borrower stating in full and itemizing the Costs of the Project paid by Borrower from other available funds prior to the date hereof and expected to be paid by the Borrower from the date hereof through the Completion Date. Title Insurance. An ALTA Lender’s Policy of Title Insurance with standard coverage evidenced by Order Number issued by Western Title and Escrow (the “Title Insurance Company”) in the amount of insuring the Trust Indenture to be a first lien on the Project, (ii) insuring the Lender against claims for mechanics liens on the Project, and (iii) which will be free from title exceptions not previously approved in writing. On or before the Amortization Date (as that term is defined in the Note), such policy shall be endorsed to ALTA Lender’s Policy of Title Insurance with extended coverage and with such additional endorsements as the Lender may require all at Borrower’s expense. Evidence satisfactory to the Lender that all necessary building, zoning, planned unit development, subdivision, platting, environmental protection and land use permits and approvals for the Project have been obtained, and that the Project as acquired and installed will comply in all respects with all applicable building, zoning, planned unit development, subdivision, platting, environmental protection and land use ordinances, laws, regulations and requirements, and all restrictions or requirements in any prior conveyance. 1.5. “Organizational Documents” shall mean the following documents, each of which shall be in form and substance acceptable to the Lender: The Articles of Incorporation and Bylaws of the Borrower, and all amendments thereto. 2 ---PAGE BREAK--- A certified copy of a Resolution of the Borrower. Opinions of counsel for the Borrower stating that each of the Collateral Documents to be executed by said parties have been duly authorized, executed and delivered and are the legal and binding obligations of the Borrower, as the case may be, enforceable in accordance with their respective terms. Evidence of the Borrower’s status as a tax-exempt organization under Section 501(c)(3) of the Code. Audited financial statements of the Borrower for 2009. SECTION 2 THE LOAN, ADVANCES AND DISBURSEMENTS 2.1. The Lender agrees to loan to the City an aggregate amount up to $900,000 to be evidenced by the Note, upon satisfaction of the conditions set forth in this Section 2 and elsewhere in this Agreement. The loan proceeds shall be advanced by the Lender to the Borrower on behalf of the City upon the terms and conditions set forth in this Agreement and the Note. 2.2. The Borrower represents that work on the Project commenced on or about [June] 2010 and will proceed with due diligence to completion, which is estimated to occur by the Completion Date. 2.3. The Borrower may obtain advances no more often than or with such greater frequency as the Lender may accept, to pay for, or obtain reimbursement for Costs of the Project pursuant to a draw request form acceptable to the Lender. 2.4. The Borrower shall obtain mechanics’ and material persons’ lien waivers for all work done and of all materials supplied under any construction contract for the Project and will deliver to the Lender lien waivers covering all payments through the next preceding draw request. The Borrower shall require in any construction contracts that the contractor shall deliver with each payment request its general lien waiver, waiving its lien for work done to date, and lien waivers from all listed subcontractors on the Project, waiving liens for work or materials for which payment was requested by such subcontractors and paid on the preceding application for payment. On each disbursement date, if the Borrower is in compliance with all the terms and conditions of this Agreement to the satisfaction of the Lender, the Lender shall pay the amounts requested in the draw request from the persons named therein. The Lender reserves the right to make payments jointly to the Borrower and the appropriate contractor or supplier. 2.5. The Borrower and the City agree that all moneys disbursed by the Lender pursuant hereto shall constitute advances made to the City pursuant to the Note and that interest shall be computed thereon as prescribed in the Note from the respective dates of each of the Lender’s disbursements. 3 ---PAGE BREAK--- 2.6. It is expressly understood and agreed that the Lender does not assume liability or responsibility for the satisfactory completion of the Project, nor for the adequacy of funds deposited with or advanced by it pursuant hereto to pay all Costs of the Project, nor for inspection during construction, nor for any other acts on the part of the Borrower, the City or any contractor, to be performed in the construction of the Project. Lender shall likewise have no liability to Borrower or City for any manner, thing or act, whether of omission or commission, undertaken by Lender in the disbursement process referred to in this Section 2. Settlement of all disputes concerning quality or adequacy of contractor’s work and/or contract compliance by Borrower or contractors shall be the responsibility of Borrower, and Lender may withhold any advance or contractor payment pending settlement of such disputes. 2.7. All sums disbursed hereunder shall be disbursed under or secured by the Collateral Documents. 2.8. The Borrower shall have paid at least ] toward Costs of the Project. SECTION 3 CONDITIONS PRECEDENT TO ADVANCE 3.1. The following events shall be conditions precedent to the first advance under this Agreement: The Borrower shall deliver, without expense to the Lender, copies of each of the Collateral Documents, Additional Collateral Documents, Organizational Documents and Construction Documents, each to be duly executed to the extent required by the Lender. The documents required by the Lender to be filed or recorded shall have been filed or recorded, without expense to the Lender, and all filing and recording fees, charges, expenses and taxes shall have been paid by the Borrower. Dorsey & Whitney LLP, bond counsel, shall have delivered to the Lender its opinion that the interest payable on the Note is not includable in gross income for purposes of federal income taxation. Counsel for the Borrower shall have delivered to the Lender an opinion acceptable to Lender. The conditions precedent set forth in paragraph of Section 3.2 hereof shall have occurred or be in existence. 3.2. The following events shall be conditions precedent to each subsequent advance under this Agreement: There shall be no default under the terms of this Agreement or any of the Collateral Documents. 4 ---PAGE BREAK--- SECTION 4 COVENANTS, WARRANTIES, REPRESENTATIONS AND AGREEMENTS OF BORROWER The Borrower covenants, warrants, represents and agrees: 4.1. To keep, perform, enforce and maintain in full force and effect all of the terms, covenants, conditions and requirements of this Agreement, the Collateral Documents, the Additional Collateral Documents, and the Construction Documents; not to amend, cancel, change, terminate, supplement or waive any of the terms, covenants or conditions of the Collateral Documents, the Additional Collateral Documents, or the Construction Documents without the consent of the Lender; and to execute such amendments, modifications and extensions of the Collateral Documents, the Additional Collateral Documents, and the Construction Documents as may reasonably be requested by the Lender. 4.2. Upon the demand of the Lender for reasonable cause, from time to time and at any time, to deliver to the Lender updated and recertified copies of the Collateral Documents, the Additional Collateral Documents, the Organizational Documents and the Construction Documents. 4.3. Not to assign this Agreement or any interest herein or all or any part of any advances to be made hereunder except as herein expressly set forth. 4.4. To pay to the Lender, upon demand, all filing fees, engineering fees, inspection fees and all other out-of-pocket expenses, if any, directly incurred and from time to time hereafter incurred by the Lender in connection with the transactions contemplated hereby, together with all reasonable attorneys’ fees incurred in preparing this Agreement and any other loan closing documents, revising the same, advising the Lender concerning the transactions contemplated hereby and enforcing the terms and conditions of this Agreement or any document herein referred to, or in exercising any of the rights granted to the Lender herein or in any documents herein referred to, whether suit be brought or not. Such expenses to be paid by the Borrower shall not be refunded even if this Agreement is canceled and the Borrower shall yet remain obligated to pay such out-of-pocket expenses incurred by the Lender in connection with the transactions contemplated hereby notwithstanding cancellation hereof. 4.5. To observe and comply with and to cause the contractor and all subcontractors to observe and comply with the reasonable requirements of the Lender and fully. 4.6. To set up and maintain accurate and complete books, accounts and records pertaining to the Project in a manner reasonably acceptable to the Lender. The Lender and its representatives shall have the right at all reasonable times to inspect, examine and copy all books and records of the Borrower relating to the Project, and to enter and have free access to the Project and to inspect all work done, labor performed and material furnished in or about the Land. Notwithstanding the foregoing, the Borrower shall be responsible for making inspections of the Project during the course of construction and shall determine to the Borrower’s own satisfaction that the work done or materials supplied by the contractor and all subcontractors have been properly supplied in accordance with the applicable contract. The Borrower will hold 5 ---PAGE BREAK--- the Lender and the City harmless from, and neither the Lender nor the City shall have, any liability or obligation of any kind to the Borrower or creditors of the Borrower in connection with, any defective, improper or inadequate workmanship or materials brought in or related to the Project, or any mechanics’ liens arising as a result of such workmanship or materials. Upon the Lender’s request, the Borrower shall replace or cause to be replaced any such work or materials. Any inspections made by the Lender are for the sole benefit of the Lender and neither the Borrower nor any creditor of the Borrower shall be entitled to rely on such inspections. SECTION 5 DEFAULT AND REMEDIES 5.1. The occurrence of any of the following events, herein called an “Event of Default,” shall constitute a default under this Agreement: The Borrower abandons the Project or unreasonably delays or ceases work thereon for a period of thirty (30) days after written notice thereof has been given to the Borrower; The Borrower shall fail to keep, enforce, perform and maintain in full force and effect this Agreement or any of the Collateral Documents, the Additional Collateral Documents, or Construction Documents; or An “event of default” (as defined therein) or default occurs and is continuing under any of the other Collateral Documents. 5.2. In the event of the occurrence and continuation of an Event of Default, the Lender, at its option, in addition to any other remedies to which the Lender might by law be entitled, shall have the right: To refrain from making any disbursement under this Agreement, but the Lender may make such disbursements after the happening of any such event without thereby waiving the right to refrain from making other or further disbursements or to exercise any of the other rights the Lender may have; To enter into possession of the Project and perform any and all work and labor necessary to complete all or any part of the Project contemplated by this Agreement and to do all things necessary or incidental thereto; To perform such other acts or deeds which may be necessary to cure any default existing under this Agreement or under the Collateral Documents, the Additional Collateral Documents, or Construction Documents and undertake any right or remedy available under the Collateral Documents; To cancel this Agreement; To bring appropriate action to enforce such performance and the correction of such failure or default; and 6 ---PAGE BREAK--- To declare the entire unpaid principal of the Note and all accrued interest thereon, together with all sums advanced hereunder or under any Collateral Documents, immediately due and payable without notice. 5.3. No right or remedy by this Agreement or by any document or instrument delivered by the Borrower or the City pursuant hereto, conferred upon or reserved to the Lender shall be or is intended to be exclusive of any other right or remedy, and each and every right and remedy shall be cumulative and in addition to any other right or remedy now or hereafter existing at law or in equity or by statute. 5.4. Except as the Lender may hereafter otherwise agree in writing, no waiver by the Lender of any breach by or default of the Borrower or the City of any of their obligations, agreements or covenants under this Agreement shall be deemed to be a waiver of any subsequent breach of the same, or any other obligation, agreement or covenant, nor shall any forbearance by the Lender to seek a remedy for such breach be deemed a waiver of the Lender’s rights and remedies with respect to such breach, nor shall the Lender be deemed to have waived any of the Lender’s rights and remedies unless such waiver be in writing and executed with the same formality as this Agreement. SECTION 6 MISCELLANEOUS 6.1. All notices provided for herein shall be in writing and shall be deemed to have been given when delivered personally or when deposited in the United States mail, registered or certified mail, postage prepaid, addressed as follows: To the City: City of Missoula, Montana 435 Ryman Street Missoula, Montana 59802 Attention: Brentt Ramharter To the Lender: First Security Bank of Missoula 1704 Dearborn Avenue Missoula, Montana 59801 Attn: Andrew Larson To the Borrower: Sussex School, Inc. 1800 South 2nd Street West Missoula, Montana 59801 Attn: Helen Rolston-Clemmer or addressed to any such party at such other address as such party shall hereafter furnish by notice to the other parties. 6.2. This Agreement shall be construed according to the laws of the State of Montana without giving effect to the conflicts-of-law principles thereof. 7 ---PAGE BREAK--- 6.3. The Lender shall have the right, subject to the ordinances of the City, to erect a sign of reasonable size in a prominent position on the Land at the Lender’s own expense indicating to the general public that the Lender is providing the financing for the Project. The Borrower agrees that said sign may remain in place throughout the period of construction after which it will be removed by the Lender. It is understood that the sign shall remain the property of the Lender. 6.4. If any term, condition or provision of this Agreement or the application thereof to any person or circumstance shall, to any extent, be held to be invalid or unenforceable, the remainder thereof and the application of such term, provision and condition to persons or circumstances other than those as to whom it shall be held invalid or unenforceable shall not be affected thereby, and this Agreement and all the terms, provisions and conditions hereof shall, in all other respects, continue to be effective and to be complied with to the full extent permitted by law. 6.5. The Borrower and the City acknowledge that the Lender may, and shall have the right, subject to applicable securities laws, to, sell participation interests in the Loan represented by the Lender’s purchase of the Note. In the event any of the Lender’s participants shall require any additional documents or instruments than those contemplated hereby, the Borrower and the City shall use all reasonable efforts to obtain and deliver such items. 6.6 Except as may be otherwise provided herein, the Borrower agrees to pay to the Lender the costs and expenses, including reasonable attorneys’ fees, incurred by it in instituting, prosecuting or defending any court action in which the Borrower does not prevail or any appeal thereof if such action involves the interpretation hereof or performance hereunder by a party hereto or the breach of any provision hereof. 6.7. It is understood and agreed by the Borrower and the Lender that the Note shall not be a general obligation of the City or give rise to a pecuniary liability of the City or a charge against its general credit or taxing powers, but rather shall be a special, limited obligation payable solely from revenues pledged and assigned to the payment thereof. It is further understood and agreed by the Borrower and the Lender that the City shall incur no pecuniary liability hereunder, and shall not be liable for any expenses related hereto, all of which the Borrower agrees to pay. If, notwithstanding the provisions of the immediately preceding sentence, the City incurs any liability hereunder, the Borrower will indemnify and hold harmless the City from the same, and will reimburse the City for any legal or other expenses incurred by the City in relation thereto, and this covenant to indemnify, hold harmless and reimburse the City shall survive delivery of the Note. 8 ---PAGE BREAK--- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. CITY OF MISSOULA, MONTANA By Mayor (SEAL) By Finance Director/Treasurer Attest: City Clerk 9 ---PAGE BREAK--- SUSSEX SCHOOL, INC. Name: Timothy M. Bechtold Title: President Name: Robyn Gaddy Title: Executive Director (Signature page to Disbursing Agreement) 10 ---PAGE BREAK--- FIRST SECURITY BANK OF MISSOULA By Its (Signature page to Disbursing Agreement) 11