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e 1.2 REPAYMENT; INTEREST RATE; FORGIVENESS. 1.2.1 LOAN TERM AND REPAYMENT. The Term of this Agreement shall be twenty (20) years. Provided that Participant is not in default under the Loan Documents, the City shall forgive one twentieth (1/20m) or Twenty-five Thousand Dollars ($25,000.00) of the outstanding principal loan balance annually on the anniversary of the Effective Date of the Agreement. On the 20th anniversary of the Effective Date, provided that no default or breach by Participant has occurred pursuant to Article IV, the entire outstanding principal and interest accrued on the Loan shall be forgiven. If Participant sells or transfers the Property or changes the use of the Property without written approval from the City, the Loan shall become due and payable upon sale. 1.2.2 OTHER LOAN TERMS. Prior to final funding approval or release of the Loan, Participant shall provide the City with 1) a current appraisal of the Property and 2) a schedule to close escrow on the acquisition including dates when all financing. will be secured. 1.2.3 TIMELINE TO SPEND THE LOAN. Participant will need to spend the entire Loan within twelve (12) months of the effective date of this Agreement. The Loan must be spent in acquiring the Property within the first six (6) months; otherwise, Participant must request from the City a 6-month extension to spend the Loan. 1.2.4 INTEREST. Interest shall accrue on the principal balance of the Loan at a rate of three percent (3%) simple interest per annum. 1.3 PREPAYMENT. Participant may, without premium or penalty, at any time and from time to time, prepay all or any portion of the outstanding principal balance due under the Note. Any prepayment of principal must be accompanied by interest accrued but unpaid to the date of receipt of prepayment. Prepayments shall be applied first to any unpaid late charges and other costs and fees then due, then to accrued but unpaid interest and then to principal. 1.4 USE OF PROCEEDS. Participant shall use the proceeds of the Loan (the "Loan Proceeds") solely and exclusively for assisting in the acquisition of the Property described in Exhibit C and in accordance with the budget and timeline specified in Exhibit C. 1.5 DISBURSEMENT OF PROCEEDS. No funds shall be disbursed until Participant executes upon the close of escrow a Promissory Note in substantially the same form as Exhibit B and a Deed of Trust in substantially the same form as Exhibit C, providing the City with a security interest in the Property. Furthermore, before disbursement of the loan funds, Participant must also provide acceptable evidence of financing for the acquisition of the Property along with the documents described in Section 1.2.2. 1.6 NO OBLIGATION TO DISBURSE PROCEEDS UPON DEFAULT. Notwithstanding any other provision of this Agreement, the City shall have no obligation to disburse any portion of the Loan Proceeds if there is an occurrence of an Event of Default (defined below) under the Loan Documents. Fiscal Year 09-10 2 San Leandro Capital Improvement Loan Agreement