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the Closing for lease of the Property to Developer, the outstanding balance of the Predevelopment Loan shall be rolled over and included in the principal amount of the Construction/Permanent Note so that the initial principal balance of the Construction/Permanent Note shall equal the sum of Two Million, Two Hundred Fifty Thousand Dollars ($2,250,000). 4.2 Loan Terms; Use of Proceeds. Provided that Developer has complied with all applicable conditions precedent to disbursement set forth in Section 4.7.2, the proceeds of the Construction/Permanent Loan ("Construction/Permanent Loan Proceeds") will be disbursed pursuant to approved draw requests as described in Paragraph (h) of Section 43.2. The outstanding principal balance of the Construction/Permanent Note will bear interest at a rate equal to three percent (3%) simple annual interest. Annual payments shall be due and payable on a residual receipts basis in accordance with the formula set forth in the Construction/Permanent Note. The entire outstanding principal balance of the Construction/Permanent Loan together with accrued interest and all other sums due under the City Documents shall be payable in full on the date which is the earlier of (i) the fifty-fifth (55th) anniversary of the date the City issues the final certificate of occupancy or equivalent for the Project, or (ii) the fifty-seventh (57th) anniversary of the Construction/Permanent Loan origination date. Except as expressly provided in the Construction/Permanent Note, the Construction/Permanent Loan shall be non-recourse to Developer. 4.3 Intentionally omitted. 4.4 Cost Savings. Within thirty (30) days after the limited partner pays its capital contribution following issuance of the 8609 for the Project, Developer shall pay to the City as a reduction of the outstanding principal balance of the Construction/Permanent Note, a one-time payment in the amount of Excess Proceeds. "Excess Proceeds" shall mean the sum of all sources of financing received by Developer for construction and permanent financing of the Project, less the sum of actual uses as shown on the final cost certificate for the Project. Prior to calculating Excess Proceeds, the following payments and adjustments shall be made in the following order of priority: (i) the Project replacement reserve shall be funded in an amount agreed upon by the Parties and specified in the Construction/Permanent Note; (ii) the Project operating reserve shall be funded in an amount agreed upon by the Parties and specified in the Construction/Permanent Note but not greater than three (3) months' projected Project operating expenses; and (iii) such other expenses agreed upon by the Parties and specified in the Construction/Permanent Note. In the event that other public agency lenders require payment of Excess Proceeds, then Excess Proceeds shall be payable to City and such other public agencies in proportion to the amount of financing each agency provides for development of the Project. 4.5 Security. Repayment of the Construction/Permanent Note shall be secured by a leasehold deed of trust that will be executed by Developer for the benefit of City substantially in the form attached hereto as Exhibit C and recorded against the Property at the Closing. The Deed of Trust may be subordinated only to such liens and encumbrances consistent with the approved Financing Plan as City shall approve in writing consistent with Section 8.2. 4.6 Prepayment; Acceleration. (a) Prepayment. Developer shall have the right to prepay the OAK #4845-1087-0362 v5 14