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HomeMy WebLinkAboutR-2004-075 Adaptis Inc. CDBG Grant AgreementA RESOLUTION RESOLUTION NO. R-2004- 75 authorizing the City Manager of the City of Yakima to execute a CDBG economic development project grant agreement and CDBG float loan agreement with Adaptis Inc. to assist with the establishment of a business process outsourcing operation in the City of Yakima's Renewal Community Area, and to authorize and approve a corresponding amendment to the 2004 One Year Action Plan for use of CDBG funds to reflect said economic development project. WHEREAS, Adaptis is a private, for-profit provider of medical claims processing, membership services, and customer service for health care businesses and their customers, referring to its services collectively as "business process outsourcing services"; and WHEREAS, Adaptis is interested in establishing a business process outsourcing center involving several hundred new jobs in the City of Yakima's Renewal Community Area over the course of seven years; and WHEREAS, the City has received and is responsible for the administration of annual Entitlement Grants of Community Development Block Grant ("CDBG") funds made available through the United States Department of Housing and Urban Development (HUD) and authorized by Title I of the Housing and Community Development Act of 1974, as amended; and WHEREAS, the City of Yakima is an entitlement city pursuant to Community Block Grant funds as specified by the United States Department of Housing and Urban Development and is required to file a One Year Action Plan for use of said funds each year subsequent to the Consolidated Plan application developed in 1995; and WHEREAS, the One Year Action Plan is developed using the priorities of the community, the direction of City Council and the approved programs as established in the Consolidated Plan; and WHEREAS, the City Council approved the 2004 One Year Action Plan for use of CDBG funds in late fall 2003; and WHEREAS, federal regulations governing the use of CDBG funds for special economic development projects allow the City to use such funds as an economic incentive to provide grants to assist private, for-profit businesses with projects that provide an appropriate level of public benefit; and WHEREAS, the City has reviewed the financial statements of Adaptis and has determined that the CDBG assistance described below is necessary and appropriate to ensure that Adaptis establishes a business process outsourcing operation in the City of Yakima's Renewal Community Area; and WHEREAS, establishment of a business process outsourcing center in Yakima's Renewal Community Area would provide substantial appropriate public benefits to the City, particularly by creating new jobs; and WHEREAS, accordingly, the City wants to encourage Adaptis to establish such an operation in the City of Yakima's Renewal Community Area as a special economic development project and is willing to use CDBG funds to assist Adaptis through a performance grant of not more than $500,000 over the course of seven years according to the following terms and conditions of the attached economic development project agreement; and WHEREAS, the City is also willing to provide Adaptis with a CDBG Float Loan not to exceed $400,000 secured by an irrevocable Letter of Credit to encourage job creation according to the terms and conditions of the attached float loan agreement; and WHEREAS, approval of the economic development project agreement and float loan agreement with Adaptis also requires an amendment of the 2004 One Year Action Plan for use of CDBG funds; and WHEREAS, the City Council deems it to be in the best interest of the City to authorize execution of a CDBG economic development project grant agreement and CDBG float loan agreement with Adaptis Inc., and to authorize and approve a corresponding amendment to the 2004 One Year Action Plan, now, therefore, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF YAKIMA: 1. The City Manager of the City of Yakima is hereby authorized and directed to execute a CDBG economic development project grant agreement and CDBG float loan agreement with Adaptis Inc. to assist with the establishment of a business process outsourcing operation in the City of Yakima's Renewal Community Area. The City Attorney shall approve the final form of the Agreements. 2. An amendment to the 2004 One Year Action Plan for use of CDBG funds is authorized and approved to reflect the Adaptis, Inc. economic development project, including said CDBG economic development project grant agreement and CDBG float loan agreement. ADOPTED BY THE CITY COUNCIL this 18th day of May, 2004. ATTEST: City Clerk Paul P. George, Mayor AGREEMENT BETWEEN THE CITY OF YAKIMA AND ADAPTIS INC. THIS AGREEMENT (hereinafter "Agreement") is made and entered into by and between the City of Yakima, Washington (hereinafter "City"), a first-class city incorporated under the laws of the state of Washington, and Adaptis Inc., a Washington corporation having its principal place of business located at 1100 Olive Way, Seattle, Washington 98101 (hereinafter "Adaptis"). WHEREAS, Adaptis is a private, for-profit provider of medical claims processing, membership services, and customer service for health care businesses and their customers, referring to its services collectively as "business process outsourcing services." WHEREAS, Adaptis is interested in establishing a business process outsourcing center involving several hundred new jobs in the City of Yakima's Renewal Community Area over the course of seven years. WHEREAS, the City has received and is responsible for the administration of annual Entitlement Grants of Community Development Block Grant ("CDBG") funds made available through the United States Department of Housing and Urban Development (HUD) and authorized by Title I of the Housing and Community Development Act of 1974, as amended. WHEREAS, federal regulations governing the use of CDBG funds for special economic development projects allow the City to use such funds as an economic incentive to provide grants to assist private, for-profit businesses with projects that provide an appropriate level of public benefit. WHEREAS, the City has reviewed the financial statements of Adaptis and has determined that the CDBG assistance described below is necessary and appropriate to ensure that Adaptis establishes a business process outsourcing operation in the City of Yakima's Renewal Community Area. WHEREAS, establishment of a business process outsourcing center in Yakima's Renewal Community Area would provide substantial appropriate public benefits to the City, particularly by creating new jobs. WHEREAS, accordingly, the City wants to encourage Adaptis to establish such an operation in the City of Yakima's Renewal Community Area as a special economic development project and is willing to use CDBG funds to assist Adaptis through a performance grant of not more than $500,000 over the course of seven years according to the following terms and conditions. WHEREAS, the City is also willing to provide Adaptis with a CDBG Float Loan not to exceed $400,000 secured by an irrevocable Letter of Credit to encourage job creation according to the following terms and conditions. NOW, THEREFORE, in consideration of the mutual covenants, promises, and agreements set forth herein, it is agreed by and between the City and Adaptis as follows: 1. Term of Agreement. This Agreement shall commence upon execution by the parties hereto and shall terminate at midnight on June 30, 2011, unless the Agreement is earlier terminated by either party in accordance with the terms of this Agreement. 2. Definitions. Where used in this Agreement, the following words and terms shall have the meanings indicated. The meanings shall be applicable to the singular, plural, masculine, feminine and neuter of the words and terms. A. "Net new job" means a full time equivalent position ("FTE") that increases the total workforce at the Yakima Adaptis facility above the highest workforce FTE count for which Page 1 of 10 Adaptis previously received grant assistance from the City under Section 4 of this Agreement. If Adaptis creates more FTEs than can be credited in any given contract year under Section 4 hereof, then such FTEs shall be considered net new jobs for the next contract year. B. "Contract year" means 12:01 a.m. on July 1* to 11:59 p.m. on June 30 during the term of this Agreement. The "first contract year" shall run from 12:01 a.m., July 1, 2004, to 11:59 p.m., June 30, 2005. C . "Full time equivalent" means hours worked by an employee or employees equal to 2080 hours per year. For example, two part-time employees working 1040 hours each per year equal one full time equivalent. *Actual date will be the date the center actually opens its doors, which will be no later than September 30, 2004, and will be designated with an addendum to this Agreement. 3. The Project. Beginning no later than September 30, 2004, Adaptis shall establish a business process outsourcing center in the City of Yakima's Renewal Community Area focused on medical claims processing for public and private health care providers and shall maintain that center in the City of Yakima's Renewal Community Area for a period of not less than seven (7) years. The center shall include the following: A. A workforce providing claims processing and customer service to medical companies and patients. The services provided by such workforce shall include: • Claims processing. The workforce shall create and maintain customer account information, adjudicate and process insurance claims, coordinate medical benefits, and provide claims reporting. • Membership services. The workforce shall offer clients monthly enrollment management, manage changes to membership data, and maintain member rosters and reports. • Provider services. The workforce shall enter and maintain contract information, operate a call center for management of complex claims and eligibility issues, and manage provider databases. B. Adaptis projects that staffing will increase from fifty-seven (57) full time equivalent ("FTE") positions by the end of the first contract year to two hundred (200) FTEs by the end of the fifth contract year, as set forth in Adaptis Regional Operations Center Staffing Projections chart, a copy of which is attached hereto as Exhibit "A" and incorporated herein by this reference. Exhibit "A" is to be used for projections only and is not a term or condition of this Agreement in whole or in part unless otherwise provided herein. C. Compensation, including benefits, for Adaptis' entire Yakima workforce shall average at least Twelve Dollars and Seventy -Five Cents ($12.75) per hour throughout the term of this Agreement. D. Adaptis shall establish one or more training programs to assist members of the local community to become qualified to work in Adaptis' Yakima business process outsourcing center. Such training programs may be established in conjunction with local educational and job training institutions .such as the Yakima Valley Community College, the Tri -Valley Workforce Council, Heritage College, and/or Central Washington University in Ellensburg, Washington. Page 2 of 10 E. Adaptis shall provide employment opportunities for promotion and advancement for minority and low- and moderate -income persons, as defined by federal regulations applicable to CDBG economic development programs. F. Adaptis shall make employment decisions in a manner that applies equal opportunity principles and Adaptis affirms, as an aspirational goal, diversity in its Yakima workforce comparable to the socio-economic and ethnic composition of the available relevant labor market in Yakima County. 4. The Grant. The City shall provide a performance grant to Adaptis of not more than Five Hundred Thousand Dollars ($500,000.00) to be awarded at the rate of not more than One Hundred Thousand Dollars ($100,000.00) per calendar year during the term of this Agreement. All funds granted to Adaptis by the City shall be for the purpose of creating new jobs in the City of Yakima's Renewal Community Area and shall be conditioned on Adaptis' compliance with the terms and conditions of this Agreement. The performance grant shall be paid as follows: A. By August 1, 2004, the City shall make its first performance grant payment to Adaptis in the amount of One Hundred Thousand Dollars ($100,000.00). B. By November 15, 2005, the City shall make its second performance grant payment to Adaptis in the amount of Two Thousand Dollars ($2,000.00) for each job created during the first contract year, up to a maximum of One Hundred Thousand Dollars ($100,000.00). C. By November 15 of each subsequent year of this Agreement, the City shall make annual performance grant payments to Adaptis equal to Two Thousand Dollars ($2,000.00) for each net new job existing at the end of the contract year, provided, however that in no event shall any annual performance grant payment exceed One Hundred Thousand Dollars ($100,000.00) and provided that in no event shall the total payments to Adaptis by the City exceed Five Hundred Thousand Dollars ($500,000.00). 5. The Loan. The City will provide Adaptis with a loan not to exceed Four Hundred Thousand Dollars ($400,000.00) of Community Development Block Grant ("CDBG") Float Loan funds secured by Adaptis with an irrevocable on -demand bank Letter of Credit in U.S. dollars in the full amount of the principal and interest due. By June 15, 2004, the City will provide the first disbursement of CDBG float loan funds of up to Two Hundred Thousand Dollars ($200,000.00) amortized over thirty (30) months at an interest rate of three percent (3%). By November 15, 2005, the City shall provide a second disbursement of CDBG float loan funds of up to Two Hundred Thousand Dollars ($200,000.00) amortized over eighteen (18) months at an interest rate of three percent (3%). The parties agree and understand that the full terms and conditions of the Four Hundred Thousand Dollar loan shall be set forth in a separate loan agreement(s) and accompanying documentation. All funds loaned to Adaptis by the City shall be for the purpose of creating new jobs in the City of Yakima's Renewal Community Area and shall be conditioned on Adaptis' compliance with the terms and conditions of this Agreement. Adaptis understands and agrees that all funds loaned by the City shall be subject to and governed by all applicable state and federal laws and regulations. 6. Source of Funds. The source of funds for this Agreement is the City's CDBG Entitlement Grant administered by HUD. It is expressly understood and agreed by the City and Adaptis that the City's obligations under this Agreement are contingent upon CDBG funds adequate to meet the City's obligations under this Agreement. Page 3 of 10 7. Contact with HUD. Adaptis understands and agrees that, without the written consent of the City, all direct contact with HUD over any matter related to the project under this Agreement shall be made solely by the City unless otherwise provided herein. 8. Reimbursement and Eligible Expenses. A. Performance grant payments shall be provided to Adaptis only to reimburse it for CDBG eligible economic development expenses including without limitation employee outreach, recruitment, and training expenses; rent subsidies; and/or purchase of equipment. B. Reimbursement shall be based upon invoices and supporting documentation submitted by Adaptis. Such invoices and supporting documentation shall demonstrate the eligibility of the expense(s) in question. C. If the City requests data from Adaptis concerning an action prior to Adaptis taking such action, the City is not liable for any cost incurred therefor unless and until Adaptis provides such data and is then advised to proceed by the City.. D. Performance grant payments shall not be available to assist Adaptis to purchase, develop, rehabilitate or improve any real property unless Adaptis and the City have first agreed in writing to specific teens and conditions applicable to such use of grant funds. E. The City is not liable for the payment of any cost or portion thereof which has been paid, reimbursed or is subject to payment or reimbursement from any source other than Adaptis' own funds. F. The City is not liable for the payment of any cost or portion thereof that is not incurred in strict accordance with the terms and conditions of this Agreement. 9. Return of CDBG Funds. The City will make no further payments to Adaptis and Adaptis shall immediately return to the City all monies provided to Adaptis by the City within the immediately preceding twenty-four month period in the event any of the following occurs: A. Adaptis closes its business process outsourcing center in the City of Yakima's Renewal Community Area before July 1, 2011; B. Adaptis terminates this Agreement; C. The City terminates this Agreement for cause in accordance with Section 27(A), Termination. 10. Conditions of Grant and Loan. The obligation of the City to advance any portion of the amounts identified in Sections 4 and 5 of this Agreement are subject to the following additional conditions: A. All actions undertaken in connection with this Agreement and all documents incidental thereto shall be satisfactory in form, scope and substance to the City, in the exercise of its reasonable discretion. B. Adaptis shall have all applicable and necessary permits, licenses and approvals of any federal, state, and local government or governmental authority. The City shall not unreasonably withhold its approval of any necessary permit, license . or other approval necessary for the project described in this Agreement. C. If Adaptis, or an entity constituting part of Adaptis, is a corporation, there shall be delivered to the City (with respect to each such corporation, if there be more than one) a certified copy of the record(s) of minutes and Board Resolution of the Board of Directors of Page 4 of 10 • each such corporation specifically authorizing its officers to execute this Agreement and all other documents necessary for the consummation of this transaction. The record(s) of the minutes and Resolution of the Board of Directors meeting shall be certified to be true by the Secretary or Assistant Secretary of such corporation(s). D. The U.S. Department of Housing and Urban Development shall issue a Release of Funds that shall identify any additional requirements with respect to this Agreement, including but • not limited to environmental conditions, restrictions and mitigation requirements. Adaptis shall comply with all such additional requirements. 11. Maintenance and Inspection of Records. When requested to do so by City representatives, Adaptis shall make such records and information available to the City as the City in its sole discretion finds necessary to determine whether Adaptis is complying with the terms and conditions of this Agreement. Records pertaining to this Agreement shall be available for inspection by City representatives during the term of this Agreement and for a period of three (3) years following termination of this Agreement. In the event that any audit or inspection identifies any discrepancy, Adaptis shall provide the City with appropriate clarification and/or financial adjustments within thirty (30) calendar days of notification of the discrepancy by the City. 12. No City Funds. It is expressly understood that, except for CDBG Entitlement Grant and Float Loan funds, this Agreement shall in no way obligate any funds or resources of the City. 13. No Third Party Benefit. The City shall not be obligated or liable under this Agreement for provision of any goods or services or for payment of any monies to any party other than Adaptis. 14. Disallowed Expenses. Should any expense or charge for which payment has been made by the City be subsequently disallowed or disapproved as a result of any auditing or monitoring by the City, the United States Department of Housing and Urban Development, or any other federal agency, Adaptis shall refund such amount to the City within ten (10) working days of receipt of written notice specifying the amount disallowed, provided that the City has formally notified Adaptis of such allowance or disapproval and provided Adaptis an opportunity to appeal such decision. Refunds of disallowed costs may not be made from any CDBG, HUD, or other federal funds received from or through the City. 15. Annual Report. During the term of this Agreement, Adaptis shall submit a written report to the City no later than September 30 of each year that demonstrates Adaptis' establishment and/or maintenance of the workforce and operation described in this Agreement. Adaptis' report to the City shall describe the number and type of jobs, FTEs, and employees in its Yakima workforce, employee wages as a whole and as distributed among different positions, employee training programs, and other activities relevant to this Agreement. Adaptis agrees to cooperate with the City and/or HUD in the development, implementation and maintenance of record-keeping systems and to provide data reasonably determined by the City and/or HUD to be necessary for the City and/or HUD to effectively fulfill its monitoring and evaluation responsibilities. Upon request by the City, Adaptis shall promptly supply copies of its audited financial statements. 16. Compliance with Law. Adaptis must comply with any and all applicable laws, rules, and regulations promulgated by any federal, state, and/or local governmental agency or regulatory body. Laws that may apply to this Agreement include without limitation: • Title VI of the Civil Rights Act of 1964 (42 USC 200(d)); • Title VIII of the Civil Rights Act of 1968 (42 USC 3601); • Section 3 of the Housing and Urban Development Act of 1968, as amended (12 USC 1701(u)); • Section 109 of the Housing and Urban Development Act of 1974, as amended (42 USC 5309); Page 5 of 10 • Age Discrimination Act of 1975, as amended (42 USC 6101); • Americans with Disabilities Act of 1990; • Civil Rights Restoration Act of 1987; 49 CFR Part 21; • 24 CFR Part 570; • RCW 49.60; • Davis -Bacon Fair Labor Standards Act (40 US27600000a-276a-5); • Grant Agreement Work Hours and Safety Standards Act, as amended (40 USC 327-333); • Section 504 of the Rehabilitation Act of 1973 (29 USC 794); • Architectural Barriers Act of 1968, as amended (42 USC 4151); • Section 504 of the Rehabilitation Act of 1973, as amended (29 USC 792); • Equal Employment Opportunity (Executive Order 11246, September 24, 1965); • Equal Opportunity in Housing (Executive Order 11063, as amended by Executive Order 12259); • The Hatch Act (5 USC 1501 et seq.); • The National Environmental Policy Act of 1969; • Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970 and Amendments of 1987; • Title IV of the Lead -Based Paint Poisoning Prevention Act (42 USC 4831); • HUD Reform Act; • Office of Management and Budget Circulars; • A-87—Cost Principles for State and Local Governments and 24 CFR Part 85, Administrative Requirements for Grants and Cooperative Agreements to State, Local and Federally Recognized Indian Tribal Governments; • A-128—Single Audit Act. 17. Nondiscrimination Provision. During the performance of this Agreement, Adaptis shall not discriminate on the basis of race, age, color, sex, religion, national origin, creed, marital status, political affiliation, or the presence of any sensory, mental or physical handicap. This provision shall include but not be limited to the following: employment, upgrading, demotion, transfer, recruitment, advertising, layoff or termination, rates of pay or other forms of compensation, selection for training, and the provision of services under this Agreement. Adaptis shall also comply with all applicable equal employment opportunity, affirmative action, and non-discrimination laws and regulations. 18. Subcontracting. Adaptis agrees that none of the work, to be performed onshore, which will be covered by this Agreement may be subcontracted without the prior written approval of the City. In the event the City gives such prior written approval, any subcontracted work or service shall be subcontracted by written contract or agreement and shall be subject by its terms to each and every provision of this Agreement, unless specific waiver is granted in writing by the City. Performance and financing compliance by a subcontractor is the responsibility of Adaptis. No subcontract shall require payment on a cost plus percentage of cost basis. 19. Status of Adaptis. Adaptis and the City understand and expressly agree that Adaptis is an independent contractor in the performance of each and every part of this Agreement. Adaptis, as an independent contractor, assumes the entire responsibility for carrying out and accomplishing the terms and conditions of this Agreement. Additionally, and as an independent contractor, Adaptis, its agents, employees, and/or representatives shall make no claim of City employment nor shall claim against the City any related employment benefits, social security, and/or retirement benefits. Nothing contained herein shall be interpreted as creating a relationship of servant, employee, partnership or agency between Adaptis and the City. Page 6 of 10 20. Representations and Warranties. Adaptis represents and warrants that: A. All information, reports and data furnished to the City are complete and accurate. B. All financial statements furnished to the City fairly reflect the financial condition of Adaptis and there has been no material change in the financial condition of Adaptis since said statements. C. No litigation or proceedings that would materially affect Adaptis' ability to perform its obligations under this Agreement are presently pending or threatened against Adaptis. D. No provision of this Agreement contravenes or conflicts with the authority under which Adaptis is doing business or with the provisions of any existing indenture or agreement of Adaptis. E. Adaptis possesses the legal authority to enter into this Agreement and accept payments hereunder and has taken all necessary action to authorize such acceptance. F. Adaptis is not in default on any obligations, covenants, or conditions contained in any bond, debenture, note, or other evidence of indebtedness or any mortgages or collateral instruments securing the same. G. This Agreement will not violate any provision of law or result in any breach or constitute a default under any agreement to which Adaptis is presently a party, or result in the creation of any lien, charge or encumbrance upon any of its property or its assets other than as specifically may be allowed under this Agreement. H. No tax deficiency liability has been asserted against Adaptis by the Internal Revenue Service or any other taxing authority and Adaptis knows of no basis for any such deficiency assessment. Adaptis shall promptly and completely file all required tax returns and has paid all taxes which have or may become due. 21. No Insurance. It is understood the City does not maintain liability insurance for Adaptis and/or its employees, agents, officers, and subcontractors. 22. Liability Insurance. A. On or before the effective date of this Agreement, Adaptis shall provide the City with a certificate of insurance as proof of commercial liability insurance with a minimum liability limit of One Million Dollars ($1,000,000.00) per occurrence combined single limit bodily injury and property damage, and Two Million Dollars ($2,000,000.00) general aggregate. The certificate shall clearly state who the provider is, the coverage amount, the policy number, and when the policy and provisions provided are in effect. Said policyshall be in effect for the duration of this Agreement. The policy shall name the City, its elected officials, officers, agents and employees• as additional insureds and shall contain a clause that the insurer will not cancel or change the insurance without first giving the City thirty (30) calendar days' prior written notice. Any language in the clause to the effect of "but failure to mail such notice shall impose no obligation or liability of any kind upon the company" shall be crossed out and initialed by the insurance agent. The insuranceshall be with an insurance company rated A -VII or higher in Best's Guide and admitted in the State of Washington. B. On or before the effective date of this Agreement, Adaptis shall provide the City with a certificate of insurance as evidence of Managed Care Errors and Omissions Liability Insurance with coverage of at least Three Million Dollars ($3,000,000.00). The certificate shall clearly state who the provider is, the amount of coverage, the policy number, and when the policy and provisions are in effect. The insurance shall be with an insurance company Page 7 of 10 rated A -VE[ or higher in Best's Guide. If the policy is on a claims made basis, the retroactive date of the insurance policy shall be on or before the effective date of this Agreement and shall provide full prior acts. Adaptis agrees to maintain such coverage in effect during the term of this Agreement and for a minimum of three (3) years following termination of this Agreement. 23. Workers Compensation. Adaptis agrees to provide industrial insurance coverage for all of its workers and to provide the City with evidence of such coverage. 24. Indemnification and Hold Harmless. A. Adaptis agrees to protect, defend, indemnify, and hold harmless the City, its elected officials, officers, employees and agents from any and all claims, demands, losses, liens, liabilities, penalties, fines, lawsuits, and other proceedings and all judgments, awards, costs and expenses (including reasonable attorneys' fees and disbursements) resulting from death or bodily injury to any person or damage or destruction to a third party to the extent caused by any negligent act and/or omission of Adaptis, its officers, employees, agents, and/or subcontractors arising out of the performance of this Agreement. B. In the event that both Adaptis and the City are negligent, Adaptis' liability for indemnification of the City shall be limited to the contributory negligence for any resulting suits, actions, claims, liability, damages, judgments, costs and expenses (including reasonable attorneys' fees) that can be apportioned to Adaptis, its officers, employees, agents, and/or subcontractors. C. Nothing contained in this section or this Agreement shall be construed to create a liability or a right of indemnification in any third party. D. This section of the Agreement shall survive the term or expiration of this Agreement and shall be binding on the parties to this Agreement. 25. Notice of Claim. In the event that any claim, demand, suit, or other action is made, threatened, or brought by any person, firm, corporation, or other entity against Adaptis, Adaptis shall notify the City in writing within twenty (20) calendar days. Such notice shall state the date and hour that Adaptis was notified of such claim, demand, suit, or other action; the names and addresses of the person, firm, corporation, or other entity making such claim or that instituted or threatened to institute any type of action or proceeding; the basis of such claim, action, or proceeding; and the name of any person against whom such claim is being made or threatened. In the event that any claim, demand, suit, or other action is made, threatened, or brought by any person, firm, corporation, or other entity against the City for which it may be entitled to indemnification from Adaptis under this Agreement, the City shall notify Adaptis in writing within twenty (20) calendar days. Such notice shall state the date and hour that the City was notified of such claim, demand, suit, or other action; the names and addresses of the person, firm, corporation, or other entity making such claim or that instituted or threatened to institute any type of action or proceeding; the basis of such claim, action, or proceeding; and the name of any person against whom such claim is being made or threatened. 26. Assignment. This Agreement, or any interest herein, or claim hereunder, shall not be assigned or transferred in whole or in part by Adaptis to any other person or entity without the prior written consent of the City. In the event that such prior written consent to an assignment is granted, then the assignee shall assume all duties, obligations, and liabilities of Adaptis stated herein. Page 8 of 10 ti' 27. Termination. This Agreement may be terminated as follows: A. Either party may terminate this Agreement upon thirty (30) days' written notice to the other party in the event that said other party is in default and fails to cure such default within that thirty (30) day period, or such longer period as provided by the non -defaulting party. The notice of termination shall state the reasons therefore and the effective date of the termination. B. Either party may terminate this Agreement without cause upon ninety (90) days' written notice to the other party. C. In the event that the funding contemplated herein is no longer available, the City may terminate this Agreement upon ten (10) days' written notice to Adaptis. Upon termination of this Agreement under Subsection A by either party or termination of this Agreement under Subsection B by Adaptis, Adaptis shall immediately return CDBG funds to the City in accordance with Section 9 of this Agreement. 28. Conflict of Interest. Adaptis represents that to its actual knowledge it, its members, officers, employees, and/or agents do not have any interest, direct or indirect, and shall not hereafter acquire any interest, direct or indirect, which would conflict in any manner or degree with the performance of this Agreement. Adaptis further covenants that it will not knowingly hire anyone or any entity having such a conflict of interest during the performance of this Agreement. 29. Non -Waiver. The waiver by either the City or Adaptis of the breach of any provision of this Agreement by the other party shall not operate and/or be construed as a waiver of any subsequent breach by either party or prevent either party from enforcing such provision or the remaining terms of this Agreement. 30. Survival. Any provision of this Agreement that imposes an obligation after termination or expiration of this Agreement shall survive the term or expiration of this Agreement and shall be binding on the parties to this Agreement. 31. Severability. It is understood and agreed by the parties hereto that if any part, term, or provision of this Agreement is held by the courts to be illegal, the validity of the remaining provisions shall not be affected, and the rights and obligations of the parties shall be construed and enforced as if the Agreement did not contain the particular provision held to be invalid. If it should appear that any provision hereof is in conflict with any statutory and/or regulatory provision of the United States or the State of Washington, said provision which may conflict therewith shall be deemed modified to conform to such statutory and/or regulatory provision. 32. Integration and Modification. This written document constitutes the entire agreement between the City and Adaptis. There are no other oral or written Agreements between the parties as to the subjects covered herein. No changes or additions to this Agreement shall be valid or binding upon either party unless such change or addition be in writing and executed by both parties. 33. Notices. Unless stated otherwise herein, all notices and demands shall be in writing and sent to the parties to their addresses as follows: TO CITY: Bill Cook Director of Community and Economic Development City Hall—Second Floor 129 North Second Street Yakima, WA 98901 TO ADAPTIS: Jim Anderson, President Adaptis Inc. 1100 Olive Way, Suite 200 Seattle, WA 98101 Pate 9 of 10 or to such other addresses as the parties may hereafter designate in writing. Notices and/or demands shall be sent by registered or certified mail, postage prepaid, or hand delivered. Such notices shall be deemed effective when mailed or hand delivered at the addresses specified above. 34. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Washington. 35. Venue. The venue for any action to enforce or interpret this Agreement shall lie in the Superior Court of Washington for Yakima County, Washington. 36. Authority. The person executing this Agreement on behalf of Adaptis represents and warrants that he or she has been fully authorized by Adaptis to execute this Agreement on its behalf and to legally bind Adaptis to all the terms, performances and provisions of this Agreement. The person executing this Agreement on behalf of the City represents and warrants that he or she has been fully authorized by the City to execute this Agreement on its behalf and to legally bind the City to all the terms, performances and provisions of this Agreement. EXECUTED by the City this ,.S4 day ofEXECU 1ED by Adaptis this ��� day of a7yt�ldlJ cS , 2004. Sty 1 y , 2004. CITY OF YAKIMA • J' TIS INC. By: R. A. Zais, Jr., Ci ATTEST: cth.e Karen S. Roberts, City Clerk YrjGT�f City Contract No. „2004/-7 Y Y� Resolution No. R- STATE OF WASHINGTON ) ) ss. County of Yakima • ) On this day_personally appeare before me 3(\e \&. a ncies 5dr , to me known to be the kiresicieni. (Cre 0 of Adaptis Inc., the entity that executed the foregoing instrument, and acknowledged the said instrument to be the free and voluntary act and deed of said entity, for the uses and purposes therein mentioned, and on oath stated. that they were authorized to execute the said instrument. GIVEN UNDER my hand and official seal this 1St/day of -34 17 ., 2004. _00110 It% Printed Name: 4 c'yr\ Mc..PherseA *r�`gglt?gt Od: Notary Public in and for the State of '� i Mt _ Washington, residing at 'N1. l eek , W V t a c z ` My commission expires f as CA Page 10 of 10 CITY OF YAKIMA COMMUNITY DEVELOPMENT BLOCK GRANT FLOAT LOAN ADAPTIS INC. LOAN REQUEST Up to $400,000 June 1, 2004 Adaptis Inc. LOAN REQUEST: Up to $400,000 CDBG Float Loan BORROWER: Adaptis Inc. 1100 Olive Way Seattle, Washington 98101 PROJECT: TERM: Beginning no later than September 30, 2004, Adaptis will establish a business process outsourcing center in the City of Yakima's Renewal Community Area focused on medical claims processing for public and private health care providers. The establishment of the center will create fifty-seven (57) new FTE low—moderate income jobs in the first year of operation and up to two hundred (200) low moderate income jobs over the next 5 years. Adaptis will work with the local community colleges and trade schools to create training to assist members of the local community in becoming qualified to work in Adaptis' Yakima business process outsourcing center. The Community Development Block Grant ("CDBG") Float Loan funds will be used as permanent working capital for the new facility. The float loan will be secured by Adaptis with an irrevocable on -demand bank Letter of Credit. $200,000 of the float loan will be due the sooner of demand, thirty (30) months or two months prior to the expiration of the Letter of Credit. An additional $200,000 of the float loan will be due the sooner of demand, eighteen (18) months or two months prior to the expiration of the Letter of Credit. RATE: Three percent (3%) interest. FEE: One half of one percent (.005%). SECURITY: Unconditional direct pay bank letter of credit issued by a financial institution approved by the City of Yakima and in an amount sufficient to cover both principal and accrued interest to maturity. USES OF PROCEEDS: A Operating Capital Loan DISBURSEMENTS:One disbursement of up to $200,000 by June 15, 2004 and an additional disbursement of up to $200,000 by November 15, 2005 REPAYMENT SCHEDULE: Principal and interest to accrue to the sooner of demand or at maturity. Adaptis Inc. PROJECT DESCRIPTION Adaptis Inc. is a private, for-profit provider of medical claims processing, membership services, and customer service for health care businesses and their customers, referring to its services collectively as "business process outsourcing services". In the summer of 2004, Adaptis plans to establish a business process outsourcing center in the City of Yakima, Washington's Renewal Community Area focused on medical claims processing for public and private health care providers. The center will provide the following: • A workforce providing claims processing and customer service to medical companies and patients. The services provided by such workforce shall include: • Claims Processing. The workforce shall create and maintain customer account information, adjudicate and process insurance claims, coordinate medical benefits, and provide claims reporting. • Membership services. The workforce shall offer clients monthly enrollment management, manage changes to membership data, and maintain member rosters and reports. • Provider services. The workforce shall enter and maintain contract information, operate a call center for management of complex claims and eligibility issues, and manage provider databases. To encourage job creation in the Renewal Community Area, the City of Yakima will provide Adaptis with a loan not to exceed Four Hundred Thousand Dollars ($400,000.00) of Community Development Block Grant ("CDBG") Float Loan funds secured by Adaptis with an irrevocable on -demand bank Letter of Credit. By June 15, 2004, the City will provide the first disbursement of CDBG float loan funds of up to Two Hundred Thousand Dollars ($200,000.00) amortized over thirty (30) months at interest rate of three percent (3%). By November 15, 2005, the City shall provide a second disbursement of CDBG float loan funds of up to Two Hundred Thousand Dollars ($200,000.00) amortized over eighteen (18) months at an interest rate of three percent (3%). Adaptis projects that staffing will increase from fifty-seven (57) full time equivalent ("FTE") positions by the end of the first year of operation to two hundred (200) FTEs by the end of the fifth year. Compensation, including benefits, for Adaptis' entire Yakima workforce will average at least Twelve Dollars and Seventy -Five Cents ($12.75) per hour. Adaptis will establish one or more training programs to assist members of the local community to become qualified to work in Adaptis' Yakima business process outsourcing center. Such training programs may be established in conjunction with local educational and job training institutions such as the Yakima Valley Community College, the Tri -Valley Workforce Council, Heritage College, and/or Central Washington University in Ellensburg, Washington. Adaptis Inc. COMMUNITY DEVELOPMENT BLOCK GRANT ELIGIBILITY NATIONAL OBJECTIVE: All C.D.B.G. funded activities must meet one of three National Objectives. These objectives are: 1. Benefit to low and moderate income families. 2. Aid in the prevention or elimination of slums or blight. 3. Activities meeting community development needs having a particular urgency because existing conditions pose a serious and immediate threat to health or welfare of the community and where other financial resources are not available to meet such needs. A loan to Adaptis to assist in the establishment of the Yakima business process outsourcing center qualifies under Section 570.208(a)(4) Job creation or retention activities. Section 570.208(a)(4) defines qualifying activities that create or retain jobs. This section states that an activity will meet the definition of job creation or retention if it is "designed to create or retain permanent jobs where at least 51 percent of the jobs, computed on a full time equivalent basis, involve the employment of low- and moderate income persons." The section continues to define what constitutes a low- and moderate - income job. It then defines the conditions under which a job can be presumed to be low -or moderate -income. While the establishment of a business process outsourcing center in Yakima will create 200 new jobs, of which the majority will in fact be low- or moderate -income jobs, the project also qualifies for the presumption test. Subsection (iv) states that "(f) or purposes of determining whether a job is held by or made available to a low- or moderate -income person, the person may be presumed to be a low- or moderate -income person if: the assisted business is located within a census tract (or block numbering area) that meets the requirements of paragraph (a)(4)(v) of this section and the job under consideration is to be located within that census tract." Section 570.208(a)(4)(v) states that a census tract will qualify for the presumption permitted under paragraph (a)(4)(iv) if it meets the following criteria: A: It has a poverty rate of at least 20 percent as determined by the most recently available decennial census information; B: It does not include any portion of a central business district, as this term is used in the most recent Census of Retail Trade, unless the tract has a poverty rate of at least 30 percent as determined by the most recently available decennial census information; and, C: It Adaptis Inc. evidences pervasive poverty and general distress by meeting at least one of the following standards. (1) All block groups in the census tract have poverty rates of at least 20 percent; (2) The specific activity being undertaken is located in a block group that has a poverty rate of at least 20 percent; or (3) Upon written request of the recipient, HUD determines that the census tract exhibits other object determinable signs of general distress such as high incidence of crime, narcotics use, homelessness, abandoned housing, and deteriorated infrastructure. The location of the business process outsourcing center will be in a census tract meeting these conditions. ELIGIBILITY: In addition to meeting a national objective, each project funded with C.D.B.G. funds must meet the test of project eligibility. Adaptis qualifies under 24 CFR Section 570.203 Special economic development activities. Section (b) of this paragraph states: "The provision of assistance to a private for profit business, including, but not limited to, grants, loans, loan guarantees, interest supplements, technical assistance, and other forms of support, for any activity where the assistance is appropriate to carry out an economic development project, excluding those described as ineligible in Section 570.207(a)." Section 570.207(a) lists specific activities that are ineligible for CDBG assistance. The following activities are listed: (1) Buildings or portions thereof, used for the general conduct of government, (2) General government expenses, and (3) Political activities. None of the situations listed in Section 570.207(a) limit the applicability of Section 570.203(b) to the Yakima business process outsourcing center project. In addition, all activities qualifying under Section 570.203 must also be able to demonstrate that the economic development activity will at least meet the minimum standard of public benefit as specified in Section 570.209. The requirements of 570.209 are addressed below. Section 570.209 Guidelines and Objectives for Evaluating and Selecting Economic Development Projects. Section 570.209 outlines guidelines for ensuring that a proposed project carries out an economic development objective in an appropriate manner. Guidelines and Objectives for Evaluating Project Costs and Financial Adaptis Inc. Requirements. Section 570.209(a) lists non -mandatory guidelines and objectives for evaluation project costs and financial requirements. This framework involves several steps including verification that: a. The proposed project costs are reasonable. b. That all sources of project financing are committed. c. To the extent practicable, CDBG funds are not substituted for non -Federal financial support. d. The project is financially feasible. e. To the extent practicable, the return on the owner's equity investment will not be unreasonably high. f. To the extent practicable, CDBG funds are disbursed on a pro rata basis with other finances provided to the project. Reasonableness of the Proposed Project Costs: The C.D.B.G Float loan to Adaptis Inc. to assist them in establishing a business process outsourcing center in the City of Yakima's Renewal Community Area will be used as working capital. The working capital need is considered reasonable given the cost of establishment of a new center in Yakima, its need to rapidly hire and train employees and its need to provide the necessary equipment and work environment for those employees. Verification of All Sources of Funds. Consultants to the City of Yakima have met with Adaptis to verify their ability to provide the necessary Letter of Credit. Funding of the loan is conditioned upon delivery of the acceptable Letter of Credit. Verification that CDBG funding is not substituting for non -Federal financial support. There are no non -Federal sources of financing that can provide the company with a similar loan structure. In addition, Adaptis will continue to support the loan with its credit through the Letter of Credit and will take out the City loan when it is called or when it is due. The loan is a demand loan that can be called by the City for any reason. If it is called, the terms Adaptis Inc. the Letter of Credit are such that the bank providing the Letter of Credit becomes the company's lender. By providing the Letter of Credit the lender is in fact a participant in the project and non-federal funding is a significant part of the project's financing. Feasibility of the Project. Consultant's to the City have reviewed the company's financial statements and verified the project's feasibility. In addition the requirement of a Letter of Credit guaranteeing repayment assure that the loan will be repaid and that the project is therefore feasible. Reasonableness of the return on the owner's equity investment. Because of the extensive investment that Adaptis has put into its product development and the comparatively small amount of financing the Float Loan represents, it will not have a material impact on the company's return on investment Pro rata disbursement of CDBG funds. The float loan will not be disbursed until the Letter of Credit is committed. The Letter of Credit represents a commitment equal to the float loan. By June 15th, 2004 the City of Yakima will disburse the first $200,000 of the float loan. Adaptis will create fifty seven (57) new jobs in the first contract year. If this requirement is met, the remaining $200,000 will be disbursed no later than November 15, 2005. Standards for Evaluating Public Benefit. Section 570.209(b) outlines the minimum level of public benefit necessary to qualify an economic development project for CDBG funding. Section 570.209(b)(3) details the standards for evaluating public benefit for individual activities. The loan to Adaptis Inc. must be evaluated according to these standards. The loan will help create jobs available to low- and moderate -income individuals. Under Section 570.209(b)(3) the regulations state that: " Any activity subject to these guidelines which falls into one or more of the following categories will be considered by HUD to provide insufficient public benefit, and therefore may under no circumstances be assisted with CDBG funds: I Adaptis Inc. (I) The amount of CDBG assistance exceeds either of the following, as applicable: (A) $50,000 per full-time equivalent, permanent job created or retained. (B) $1,000 per low- and moderate -income person to which goods or services are provided by the activity." The $400,000 float loan to Adaptis Inc. to assist in establishing a business process outsourcing center in the City of Yakima's Renewal Community Area will create 200 new Full Time Equivalent Jobs available to low- and moderate -income persons. Adaptis will also receive up to $500,000 in C.D.B.G funds as a performance grant. This equates to $4,500 per low - and moderate -income job created. This ratio is well below the maximum amount. SECTION 570.301(b) REQUIREMENTS Section 570.301(b) outlines guidelines for float -funded activities. For an activity to qualify as a float -funded activity it must meet the following tests. 1. It must meet all of the same requirements that apply to CDBG-assisted activities. 2. It must be expected to produce program income in an amount at least equal to the amount of the float so used. 3. The activity must be described and listed in the jurisdiction's action plan for the current year or the action plan must be amended to include the activity. 4. The period between obligation of assistance for the float -funded activity and the receipt of program income in an amount at least equal to the full amount drawn from the float to fund the activity may not exceed 2.5 years. 5. The recipient must identify in its action plan which of the security options listed in § 570.301(b)(4) it will use. The proposed use of Float funds for the Yakima business process outsourcing center property will meet each of these tests. It is a Community Development Block Grant eligible activity that will meet all CDBG requirements. The City of Yakima will amend its action plan to describe the loan and specify that it will be float funded. The proposed maximum loan term is two and one-half years. In compliance with the requirements of § 570.301(b)(4)(ii) the recipient will provide Adaptis Inc. an unconditional, irrevocable direct pay letter of credit from an acceptable financial institution in the full amount of the float loan. C.D.B.G. REQUIREMENTS: In addition to eligibility requirements, the Yakima business process outsourcing center project will be required to comply with all applicable CDBG regulations, as well as all applicable State of Washington and City of Yakima requirements. These may include among others: Davis - Bacon Wage Rates, The Uniform Relocation Assistance and Real Property Acquisition Policies Act, and Local Procurement Rules. Position Description Type Operations Managers Exempt Claims Adjudicator Nan -exempt Claims Entry Clerk Nonexempt Provider Services CI Non-exempt Provider Specialist Non-exempt Ops Specialist Exempt Elig Coordinator Non-exempt Member Service Rep Non-exempt Quality Review Non-exempt Financial Services Exempt Support Staff Non-exempt Technical Support Mgr Exempt Payroll Adaptis Regional Operations Center Staffing Projections 12 Months* FTE's I Hourly Salary FTE's I 2 2 3 4 - 174,949 5 23 622,185 - 29 2 35,000 - 4 11 312,864 - 14 1 32,864 - 3 1 - 34,403 2 1 31,398 - 2 8 236,466 - 11 3 - 119,520 6 2 44,581 - 3 1 50,000 1 24 111011[11s* Hourly 4 36 Months* 48 Months* 60 Months* 72 Months* 84 Months* ISalary FTE'sI Hourly I Salary FTE's 'Hourly 'Salary FTE's 'Hourly 'Salary FTE's'Hourly 'Salary FTE's 'Hourly 'Salary 4 5 6 6 7 8 8 9 10 10 11 - 226,134 6 284,798 8 - 394,776 10 - 514,292 10 764,791 - 44 1,215,024 56 1,550,454 - 68 1,942,148 - 67 75,000 - 6 110,000 - 10 190,000 - 14 270,000 - 14 409,205 - 15 446,591 - 21 646,204 - 27 856,205 - 27 96,341 - 4 132,577 - 8 265,272 12 406,012 - 12 66,449 3 - 103,178 5 - 172,035 7 - 246,862 7 60,645 - 3 94,166 - 5 157,008 - 7 225,299 7 332,748 14 439,167 - 21 649,219 - 27 876,956 - 28 230,853 9 - 358,453 15 - 597,668 20 - 816,481 20 54,605 - 4 76,258 5 98,825 - 6 124,312 - 6 51,500 1 53,045 1 54,636 2 112,550 2 12 1,970,493 143,368 876,373 420,222 233,185 920,568 130,447 12 528,092 255,502 845,058 115,927 13 10 67 14 27 12 7 7 14 2,032,740 148,386 897,246 434,930 241,346 28 955,056 18 - 6 134,172 2 14 542,375 264,445 786,172 119,405 Totals: 57 1,315,358 378,872 80 1,793,336 574,936 109 2,513,782 799,474 155 3,556,981 1,219,116 200 4,700,932 1,690,184 200 4,694,655 1,744,579 198 4,843,876 1,712,396 Avg Hrly 14.29 90% of Payroll Average Wage Using 90% Payroll figure Payroll @ 12.75 average wage Percent of Payroll # using $12.75 ave. wage $ 1,694,230 14.23 14.61 14.81 15.36 15.48 15.92 2,368,272 $ 3,313,256 $ 4,776,096 $ 6,391,116 $ 6,439,234 $ 6,556,272 $ 1,524,807 $ 2,131,445 $ 2,981,930 $ 4,298,487 $ 5,752,004 $ 5,795,311 5,900,645.17 $ 12.86 $ 12.81 $ 13.15 $ 13.33 13.82693278 13.93103514 14.32751839 $ 1,511,640 89.22% 2,121,600 $ 2,890,680 $ 4,110,600 89.58% *Period FTE counts and salary data based on start date of 7/01/04. Forecasted numbers will vary slightly if the start date is changed. 87.25% 86.07% City Financial Assistance 5,304,000 82.99% 5,304,000 82.37%, 5,250,960.00 80.09% 57 Net new Loan 0200,000 @ 3% for 30 months 23 Net new 29 Net new 46 Net new 45 Net new $200,000 @ 3% for 18 months 9400,000 EXHIBIT A 3 Months 12 Months 24 Months 36 Months 48 Months 60 Months 72 Months Total Grant $ 100,000 $100,000 $46,000 $58,000 $92,000 990,000 $ 486,000 carryover $ 14,000 $ 14,000 $ 500,000 Jobs 0-57 57 - 80 80 - 109 109 - 155 155 - 200 57 Net new Loan 0200,000 @ 3% for 30 months 23 Net new 29 Net new 46 Net new 45 Net new $200,000 @ 3% for 18 months 9400,000 EXHIBIT A BUSINESS OF THE CITY COUNCIL YAKIMA, WASHINGTON AGENDA STATEMENT Item No. For Meeting Of May 18, 2004 ITEM TITLE: Authorize the City Manager to execute agreements to provide a CDBG grant of $100,000 annually for up to five years; and provide a $400,000 CDBG float loan to Adaptis, Inc., a for profit company providing medical claims business processing services. SUBMITTED BY: f' i1tfam Cook, Community and Economic Development CONTACT PERSON/TELEPHONE: Bill Cook 575-6227 EXPLANATION: The City has been approached by Adaptis, a for profit company providing medical claims business processing services, to assist the company in expanding its business to Yakima. The company is seeking financial assistance from the City's CDBG program to offset their start-up costs and provide training to their workforce. This assistance package consists of a $500,000 grant commitment, payable over five years; and a short term CDBG float loan for $400,000. Adaptis has completed negotiations with ClientLogic to sublease approximately 25% of their vacant office space in the Yakima Mall with option to expand in the future. The life of this sublease is 32 months (i.e. the remaining life of the ClientLogic lease). Adaptis is committed to renegotiating this lease or relocating to a new facility within the Renewal Community area, to fulfill their commitments under this agreement. Attached is a copy of the proposed agreement between the City and Adaptis. In addition to a performance grant or not more than $500,000 payable over five years, the City of Yakima's financial assistance to Adaptis, Inc. includes a "float loan" of CDBG funds in an amount not to exceed $400,000 payable in two $200,000 installments. The first disbursement to be made by June 15, 2004 and the second disbursement to be made contingent upon satisfactory compliance with contract performance requirements, by November 15, 2005. Please see attached "float loan" request and agreement. Resolution Ordinance Other (Specify) Contract Mail to (name and address): Phone: Funding Source Community l elopment Block Grant (CDBG) funds --124 APPROVED FOR SUBMITTAL: City Manager STAFF RECOMMENDATION: Approval BOARD/COMMISSION RECOMMENDATION: COUNCIL ACTION: RESOLUTION NO. R-2004 75 LOAN AGREEMENT THIS LOAN AGREEMENT (this "Agreement"), dated for reference purposes this 24th day of November , 2004, is entered into by and between ADAPTIS INC., a Washington corporation, hereinafter called "Borrower," and THE CITY OF YAKIMA, a Washington municipal corporation, hereinafter called "Lender." RECITALS: This Agreement is entered into upon the basis of the following faces and circumstances: A. The Borrower intends to establish a business process outsourcing center in the City of Yakima's Renewal Community Area focused on medical claims processing for public and private health care providers (the "Project"). The establishment of the center will create fifty-seven (57) new FTE low—moderate income jobs in the first year of operation and up to two hundred (200) low moderate income jobs over the next 5 years. Adaptis will work with the local community colleges and trade schools to create training to assist members of the local community in becoming qualified to work in Adaptis' Yakima business process outsourcing center. The Community Development Block Grant ("CDBG") Float Loan funds provided hereby will be used as permanent working capital for the new facility. The float loan will be secured by Adaptis with an irrevocable on -demand bank Letter of Credit in the initial amount of $200,000 plus all interest that would accrue against such principal amount under the potential full term of the loan. The amount of the irrevocable Letter of Credit shall, in the event Borrower is eligible to and does in fact take the Second Advance, be increased by the amount of the Second Advance plus all interest which would accrue on the Second Advance through the potential full term of the loan. B. The City of Yakima Office of Economic Development is responsible within Yakima County for the receipt and disbursement of Community Development Block Grant monies made available to Lender by the United States Department of Housing and Development (hereinafter called "HUD"), pursuant to the Housing and Page 1 of 16 Community Development Act of 1974, as amended, and the federal regulations promulgated thereunder (hereinafter collectively called the "Act"). Lender seeks to maximize the use of such monies consistent with both Lender's and block grant program objectives. C. The continued and enhanced operation of the Project will provide public benefits and qualify for Community Development Block Grant monies under 24 CFR § 570.203. Lender has agreed to lend Community Development Block Grant monies to Borrower (the "Loan") to assist its acquisition of the Project. D. The Loan from Lender to Borrower will have no negative effect on any projects approved in Lender's Community Development Block Grant programs. E. The Loan shall be evidenced by this Agreement and by Borrower's Promissory Note ("Note") in the form attached hereto as Exhibit "A" and secured by an unconditional, irrevocable letter of credit, payable upon demand ("Letter of Credit") in the form attached hereto as Exhibit "B" (The Note, the Agreement Between the City of Yakima and Adaptis Inc., and this Agreement are -collectively referred to herein as the "Loan Documents"). F. Lender is willing to make the Loan to Borrower for the purposes hereinabove set forth, all upon the terms and conditions herein set forth. G. Lender makes no commitment to future support and assumes no obligation for future support of the activities contracted for herein, except as expressly set forth in this Agreement. NOW, THEREFORE, in consideration of the foregoing Recitals and the covenants and conditions, representations and warranties contained herein, the parties hereto agree as follows: ARTICLE I THE LOAN 1.1 The Loan. In reliance upon Borrower's representations and warranties, and subject to the terms and conditions herein and in the Loan Documents, Lender hereby agrees to loan Borrower a sum of money not to exceed FOUR HUNDRED THOUSAND AND NO/100 DOLLARS ($400,000.00) for the purposes set forth Page 2 of 16 herein, which funds shall be received by Lender from HUD and from no other source. Borrower shall have the right to receive Loan funds from Lender only pursuant to the terms and conditions of this Agreement and in accordance with the Act, and then only to the extent Community Development Block Grant funds are made available to Lender by HUD. Should anticipated sources of revenue become unavailable to Lender for use in the Economic Development Program, Lender shall immediately notify Borrower in writing and Lender will be released from all contracted liability for that portion of the Agreement covered by funds not yet received by Lender. 1 .2 Operation Financing Only. The Loan is only to provide financing used by Borrower for the purposes set forth in Recital A., above. The Promissory Note evidencing the Loan is to be paid off on or before its maturity date from such sources as may be necessary to pay the Loan in full, including, without limitation, from the Letter of Credit. 1.3 Loan Documentation and Security. The Loan will be evidenced by this Agreement and by the Note. The Loan will be secured by the Letter of Credit in the initial amount of $200,000 plus all interest that would accrue in the event full repayment is not made until the full thirty month term of the Loan. The Letter of Credit shall remain in effect for thirty-two (32) months from the date of this Agreement. The amount of the irrevocable Letter of Credit shall, in the event Borrower is eligible to and does in fact take the Second Advance, be increased by the amount of the Second Advance plus all interest which would accrue on the Second Advance through the potential full term of the loan. ARTICLE II BORROWER'S REPRESENTATIONS AND WARRANTIES In order to induce Lender to make the Loan, Borrower represents and warrants as follows, which representations and warranties shall be true and correct as of the execution hereof and shall survive the execution and delivery of this Agreement, the Note and the Letter of Credit: 2 .1 Organization of Borrower / Authority to Enter into Agreement. Borrower is a for-profit corporation duly formed and validly in existence pursuant to the laws of the Page 3 of 16 State of Washington and authorized to transact business in the State of Washington. Borrower has the right and power to own the Project and Borrower has full power and authority to enter into this Agreement, to borrow money as contemplated herein and to execute and carry out the provisions of the Loan Documents. The execution, delivery and performance of this Agreement and the Loan Documents have been duly authorized by all necessary corporate action, and no other action of Borrower is required for the execution, delivery and performance of this Agreement or the Loan Documents. This Agreement, and the Note constitute or, if not yet executed or delivered, will when so executed and delivered constitute, valid and binding obligations of Borrower, each enforceable in accordance with their respective terms. 2.2 Nondiscrimination. (a) During the performance of this Loan Agreement, Borrower shall not discriminate on the basis of race, color, sex, religion, national origin, creed, marital status, age or the presence of any sensory, mental or physical handicap in employment or application for employment or in the administration or delivery of services or any other benefits under this Loan Agreement. The Borrower shall comply fully with all applicable federal, state and local laws, ordinances, executive orders and regulations which prohibit discrimination. These laws include, but are not limited to, Chapter 49.60 of the Revised Code of Washington, and Titles VI and VII of the Civil Rights Act of 1964. 2.3 No Litigation. To Borrower's actual knowledge, there are no actions, suits or proceedings pending, or to the knowledge of Borrower threatened against or affecting it or the Project in any court at law or in equity, or before or by any governmental or municipal authority which might adversely affect the ability of Borrower to perform its obligations hereunder or under any of the Loan Documents to which Borrower is a party. 2.4 Covenants, Zoning and Codes. Borrower will comply with all applicable environmental statutes and regulations to be complied with in connection with its ownership of the Project. To Borrower's actual knowledge, all permits, consents, approvals or authorizations by, or registrations, declarations, withholding of objections or filings with any governmental body necessary in connection with the Page 4 of 16 valid execution, delivery and performance of this Agreement, or presently necessary for the ownership and operation of the Project, have been obtained, are valid, adequate and in full force and effect or will be obtained prior to the commencement of any activities for which a permit, consent, approval or authorization is necessary. To Borrower's actual knowledge, operation of the Project will in all respects conform to and comply with all applicable zoning, environmental protection, use and building codes, laws, regulations and ordinances. As used in this agreement. "Actual knowledge of Borrower" means the actual knowledge of Bob Peters or Jim Anderson. 2.5 Approval of Project. The description of the Project set forth in Recital "A" is a general description of the Project. The general description of the Project is satisfactory to Lender, but Lender shall require evidence pf specific approval of plans and specifications for the actual physical facilities to be used by Borrower from all governmental bodies or agencies having jurisdiction to grant a required approval of such plans and specification prior to making advances under this Agreement. 2.6 Compliance with Documents. As of the date hereof and for so long as the Loan Documents remain in effect, Borrower is and will remain in full compliance with all of the terms and conditions of this Agreement, the Loan Documents, and no event of default has or shall have occurred and be continuing which, with the lapse of time or the giving of notice, or both, would constitute such an event of default under the foregoing. 2.7 Incorporation of Representations and Warranties. The request by the Borrower for any advance of Loan proceeds under this Agreement shall constitute a certification by the Borrower that the aforesaid representations and warranties are true and correct as of the date of such request. ARTICLE III CONDITIONS PRECEDENT TO LOAN CLOSING Lender's obligation to enter into and perform its duties under this Agreement shall be subject to the full and complete satisfaction of the following conditions precedent: Page 5 of 16 3.1 Documents. Lender shall have received and approved fully executed originals of each of the following documents which shall have been duly authorized, executed (and, where appropriate, acknowledged), and delivered by the parties thereto: (a) this Agreement; (b) the Promissory Note; (c) the Letter of Credit, and (d) any and all other documents as Lender may deem reasonably necessary with respect to the Loan. 3.2 Loan Fee. Lender shall have received its loan fee in the amount of one half of one percent (.005%) of the loan amount, in the amount of Two Thousand and No/100 Dollars ($2,000.00). 3.3 Evidence of Authority. Lender shall have received evidence satisfactory to it that Borrower and the persons signing on behalf of Borrower have the capacity and authority to execute and deliver Loan Documents on behalf of Borrower, including, but not limited to, a copy of Borrower's Articles of Incorporation, Bylaws and corporate resolution, all certified as true, complete and in full force and effect by the secretary of the Borrower. 3.4 Insurance. (a) Borrower shall carry and maintain commercial general liability insurance against claims for bodily injury, personal injury, death or property damage occurring or arising out of the ownership and/or operation of the project, which insurance shall cover such claims as may be occasioned by any act, omission, or negligence of the Borrower or its officers, agents, representatives, assigns or servants relating to the Project. The limits of liability insurance, which shall be increased from time to time as reasonably deemed necessary by Lender, with the approval of Borrower which shall not be unreasonably withheld, shall not be less than One Million Dollars ($1,000,000.00) combined single limit personal injury and property damage insurance. The insurance required above shall be issued by an insurance company or companies authorized to do business within the State of Washington, and must be acceptable to Lender. Lender shall be specifically named as Page 6 of 16 an additional insured on all such policies, and all such policy or policies shall be primary to any other valid and collectible insurance. (b) Certificate or certificates or other evidence satisfactory to Lender evidencing the existence and terms and conditions of all insurance required above shall be delivered to Lender prior to the initial advance of Loan funds. The policy or policies of insurance required to be maintained in accordance with this Agreement shall not be canceled or given notice of non -renewal nor shall the terms or conditions thereof be altered or amended without thirty (30) days' written notice being given to Lender. ARTICLE IV CONDITIONS PRECEDENT TO LOAN ADVANCE Lender's obligation to make disbursements under the Initial Advance or the Second Advance pursuant to the terms hereof shall, in addition to compliance with the terms of Article III hereof, be subject to receipt or the following documents and satisfaction of the following conditions precedent: (a) Disbursement under the Initial Advance is conditioned upon compliance by Borrower with the terms of this Loan Agreement and the Loan Documents. Likewise, disbursement under the Second Advance is conditioned upon Borrower being in compliance with the terms of this Loan Agreement and the Loan Documents; and (b) Receipt by Lender of any other documents and assurances as it may reasonably request which are required by HUD or any federal, state or county regulatory agency which requests Lender to provide such documents or assurances. (c) Lender shall have received and have in its possession sufficient Community Development Block Grant funds to fund the draw request of Borrower. (d) Receipt by Lender of a written acknowledgment, in form and substance acceptable to Lender, from the issuer of the Letter of Credit adjusting the amount of the Letter of Credit upward by an amount sufficient to cover the principal amount of Page 7 of 16 the Second Advance plus all interest which would accrue on the Second Advance through the potential full term of the loan. (e) Compliance with the Agreement Between The City of Yakima and Adaptis Inc. dated July 1, 2004. ARTICLE V BORROWER'S LOAN COVENANTS Borrower covenants and agrees as follows: 5.1 General. From and after the date hereof end so long as any amount remains unpaid on the Promissory Note, or for so long as any commitment exists to extend credit hereunder, Borrower covenants and agrees that it will: (a) promptly pay principal and interest pursuant to the Note as and when the same becomes due and payable; (b) Preserve and keep in full force and effect its existence as a corporation and ownership of the Project; (c) Maintain, preserve and keep Borrower's property and equipment directly associated with the Project in good repair, working order and condition and from time to time make all needful and proper repairs, renewals, replacements and additions thereto so that at ail times the efficiency thereof shall be fully preserved and maintained; (d) Obtain and maintain the insurance required herein. 5.2 Changes to Project. There shall be no material change of the Project without the prior written approval of Lender, and, to the extent that such approvals may be required, the appropriate governmental authorities. 5.3 Compliance with Laws. Borrower's use of the proceeds of the Loan shall comply with all applicable laws, ordinances, rules and regulations and executive orders of federal, state, county or municipal governments or agencies now in force or which may be enacted hereafter. 5.4 Inspections. Lender and its representatives shall have the right at all reasonable times during regular business hours (and at any time in the event of an Page 8 of 16 emergency) to inspect the Project to determine that the same is in conformity with the Agreement and all laws, ordinances, rules and regulations applicable to Borrower's use of the Loan funds. Lender shall have the further right, from time to time, to inspect Borrower's books and records relating to Borrower's use of the Loan funds. Without limiting the foregoing, Borrower shall permit Lender to examine and copy all books, records and other papers relating to Borrower's use of the Loan funds to insure Borrower's compliance with the Act and applicable provisions of 24 CFR Part 570. 5.5 Notify Lender of Litigation or Complaints. Borrower shall promptly notify Lender in writing of all litigation or possible litigation affecting Borrower in excess of $250,000.00 and directly affecting any part of the Project, and of all complaints or charges made by any governmental authority affecting the Project or Borrower which may require changes in the Project. 5.6 Indemnify Lender. Borrower shall indemnify and hold Lender, its elected and appointed officials and any employees thereof, harmless from all liability for any actual or alleged damage or injury of whatsoever nature arising out of or in any way connected with the Project or arising out of Borrower's breach of the provisions of this Agreement, including the cost of defense thereof using counsel approved by Lender except to the extent arising out of or in any way connected to the acts or omissions of Lender, its elected and appointed officials or any employees. Lender may commence, appear in or defend any action or proceeding purporting to affect the rights, duties or liabilities of the parties hereto or the Project, and Borrower shall pay all of the Lender's reasonable costs and expenses incurred thereby on demand. This section shall survive execution, delivery and performance of this Agreement, the Note and the Loan Documents. 5.7 Further Assistance. Borrower will at any time and from time to time upon request of Lender take or cause to be taken any action, execute, acknowledge, deliver or record any further documents, opinions, or other instruments or obtain such additional insurance as Lender is required to do or obtain by HUD or other federal, state or county regulatory agency. 5.8 Use of CDBG Funds. Page 9 of 16 (a) Borrower shall make commercially reasonable efforts in good faith to purchase supplies and services for activities under this Agreement from vendors and contractors whose businesses are located in Yakima County and served by Community Development Block Grant funded activities or owned in substantial part by project area residents. (See Section 3, Housing and Urban Development Act of 1966, as amended). (b) Funds loaned to Borrower hereunder shall not be used directly or indirectly to employ, award contracts co, or otherwise engage the services of, or fund any contractor or sub -recipient during any period of debarment, suspension, or placement in ineligibility status under the provisions of 24 CFR Part 24. 5.9 Procurement Standards. (a) Borrower shall comply with Federal Executive Orders 11625, 12432 and 12138, 24 CFR Part 85.36(e). (b) In advertising for employees, goods or services for the activities under this Agreement, Borrower shall comply with 24 CFR Part 85.26(e). Borrower shall be considered to be in compliance with this provision if at least one of the following steps is taken: (1) advertise in a minority publication in addition to publication of general circulation; (2) utilize a minority contractors bidding center; (c) utilize any applicable County affirmative action office, certified Minority/Women's Business Enterprise directory or other approved office having jurisdiction over such matters. (c) In awarding contracts pursuant to this Agreement, Borrower shall comply with all applicable requirements of local and state law for awarding contracts, including, but not limited to, procedures for competitive bidding, contractor's bonds, and retained percentages (RCW 60.28.010). In addition, Borrower shall comply with the requirements of 24 CFR Part 85.36(h) Bonding Requirements. 5.10 Administrative Requirements. Borrower shall comply with the policies, guidelines and requirements of 24 CFR Part 85.20, Standards for Financial Management. 5.11 Retention of Records. Records required in connection with this Agreement, shall be retained for a period of three (3) years after termination of this Agreement, Page l0 of 16 except that records that are the subject of audit findings shall be retained until such findings have been resolved. ARTICLE VI DEFAULT AND REMEDIES 6.1 Events of Default. The occurrence of any of the following events shall constitute an Event of Default hereunder: (a) Any default by Borrower in the repayment of any indebtedness owing to Lender for any purpose or reason, which indebtedness is not paid when due. (b) Any breach by Borrower of any of the non -monetary covenants and conditions of this Agreement, which breach is not cured to Lender's satisfaction within thirty (30) working days from the occurrence thereof, provided, that in the event of a non -monetary breach or default by Borrower which is outside of the control of Borrower and which cannot be cured within said thirty (30) working days, Borrower shall have commenced to cure its breach or default within said thirty (30) working days and thereafter diligently proceeds to Cure its breach or default. Notwithstanding anything to the contrary contained herein, any breach or default by Borrower of any applicable law, ordinances, rules, regulations or executive orders applicable to Lender, Borrower or Borrower's use of the Loan funds shall immediately constitute an Event of Default hereunder. (c) Any representation, warranty or disclosure made to Lender by Borrower proves to be materially false or misleading as of the date when made, whether or not such representation or disclosure appears in this Agreement. (d) Any material deviation in the operation of the Project without the approval of Lender which deviation is not corrected or substantially corrected within thirty (30) working days after receipt of written notice thereof from Lender to Borrower. (e) A petition in bankruptcy or for reorganization or for an arrangement under any bankruptcy or insolvency law or for a receiver or trustee for any of Borrower's property is filed by or against Borrower which is not dismissed within forty-five (45) days, or if Borrower makes an assignment for the benefit of creditors or Page 11 of 16 becomes insolvent or unable to pay its debts as they mature or any attachment or execution is levied against a substantial portion of the property of Borrower and is not discharged within forty-five (45) days. (f) A petition in bankruptcy or for reorganization or for an arrangement under any bankruptcy or insolvency law is filed by or against Borrower within ninety-one (91) days after Borrower has repaid the Loan in full. In such an event, Lender shall have the absolute right to draw upon the Letter of Credit to the extent of any payments made within ninety-one (91) days of filing a petition in bankruptcy or for reorganization or any arrangement under any bankruptcy or insolvency law, regardless of the fact that Borrower has previously paid the Loan in full, provided that within a reasonable time thereafter Lender shall pay over to the trustee or bankruptcy estate the funds previously paid to Lender by Borrower to the extent that the Letter of Credit is drawn upon under this subparagraph. 6.2 Remedies. Upon the occurrence of an Event of Default, Lender may, in addition to any other remedies which Lender may have hereunder or under the Loan Documents or by law, at its option and with prior demand (with demand being five (5) days unless otherwise provided for) or notice take any or all of the following actions: (a) Immediately terminate any further advance of Loan funds hereunder. (b) Declare the Note immediately due and payable and commence collection proceedings against the Letter of Credit. All remedies of Lender provided for herein and in any other Loan Document are cumulative and shall be in addition to all other rights and remedies provided by law. The exercise of any right or remedy by Lender hereunder shall not in any way constitute a cure or waiver of default hereunder or under any other Loan Document or invalidate any act done pursuant to any notice of default, or prejudice Lender in the exercise of any of its rights hereunder or under any other Loan Documents unless, in the exercise of said rights, Lender realizes all amounts owed to it under such Loan Documents. ARTICLE VII Page 12 of 16 1 MISCELLANEOUS 7.1 No Waiver. No waiver of any default or breach by Borrower hereunder shall be implied from any failure of Lender to take action on account of such default if such default persists or is repeated, and no express waiver shall affect any default other than the default specified in the waiver and shall be operative only for the time and to the extent therein stated, waivers of any covenant, term or condition contained herein shall not be construed as a waiver of any subsequent breach of the same covenant, term or condition. The consent or approval by Lender to, or of, any act by Borrower requiring further consent or approval shall not be deemed to waive or render unnecessary the consent or approval to, or of, any subsequent similar act. 7.2 Successors and Assigns. This Agreement is made and entered into for the sole protection and benefit of Lender and Borrower, their successors and assigns, and no other person or persons shall have any right of action hereunder. The terms hereof shall inure to the benefit of the successors and assigns of the parties hereto; provided, however, that the Borrower's interest hereunder cannot be assigned or otherwise transferred without the prior consent of Lender. 7.3 Notices. Any notice, demand or request required hereunder shall be given in writing at the addresses set forth below by personal service or registered or certified, first class mail, return receipt requested. The addresses may be changed by notice to the other party given in the same manner as provided above. If notice is given by mail, it shall be deemed received on the earlier of: (i) receipt as shown on the return receipt, or (ii) three (3) days after its deposit in the U.S. mail. If to Borrower: Adaptis Inc. 1100 Olive Way Seattle, Washington 98101 Attn: James K. Anderson, President If to Lender: City of Yakima Office of Economic Development 129 N. Second Street Yakima, WA 98901 Attn: William Cook, Director Page 13 of 16 7.4 Time. Time is of the essence hereof. 7.5 Amendments. No amendment, modification, or termination of any provisions of this Agreement or of any of the Loan Documents shall in any event be effective unless the same shall be in writing and signed by Lender and Borrower. 7.6 Headings. The article and section headings in no way define, limit, extend or interpret the scope of this Agreement or of any particular Article or Section. 7.7 Number and Gender. When the contexts in which the words are used in this Agreement indicate that such is the intent, words in the singular number shall include the plural and vice -versa. References to any one gender shall also include the other gender if applicable under the circumstances. 7.8 Validity. In the event that any provision of this Agreement shall be held to be invalid, the same shall not affect in any respect whatsoever the validity of the remainder of this Agreement. 7.9 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Washington and the County of Yakima, except to the extent federal law supersedes state and/or local law. 7.10 Survival of Warranties. All agreements, representations and warranties made herein shall survive the execution and delivery of this Agreement and of the Loan documents and the making of the Loan hereunder and continue in full force and effect until the obligations of Borrower hereunder and the indebtedness evidenced by the Promissory Note have been fully paid and satisfied. 7.11 Venue and Forum. In the event that any legal action should be filed by either party against the other, the venue and forum for such action shall be the Superior Court of the State of Washington for the County of Yakima. 7.12 Attorneys' Fees. In the event either party shall bring an action to enforce the terms and conditions of this Agreement, the prevailing party shall be entitled to recover all of its costs and expenses, including, but not limited to, reasonable attorneys' fees as determined by the court. 7.13 Conflict of Interest. Lender represents, warrants and agrees that no member, official or employee of Lender shall have any personal interest, direct or indirect, in the subject matter of this Agreement, nor shall any such member, official Page 14 of 16 or employee participate in any decision relating to this Agreement which affects his personal interests or the interests of any corporation, partnership or association in which he is interested, whether directly or indirectly. 7.14 Duplicate Originals. This Agreement shall be executed in duplicate and each of the parties hereto shall receive an original, provided that each original shall constitute one and the same agreement. 7.15 Approvals. No approval or consent required under this agreement may be unreasonably denied, conditioned or delayed unless otherwise expressly permitted herein. IN WITNESS WHEREOF, Borrower and Lender have executed this Agreement as of the date first written above by and through their duly authorized representatives. LENDER: CITY OF YAKIMA, a Washington municipal corporation By: R. A. Zais, Jr., 1 y Manager ATTEST: City of Yakima 129 North Second Street Yakima, WA 98901 BORROWER ADAPTIS INC., a Washington for-profit corporation Jam- Anderon, President/CEO Page 15 of 16 STATE OF WASHINGTON :ss. County of Yaldma On this day of , 2004, before me the undersigned, a notary public in and for the State of Washington, duly commissioned and sworn, personally appeared R. A. Zais, Jr. and Karen Roberts, to me known to be the City Manager and City Clerk, respectively, of the City of Yakima, and that they executed the within and foregoing instrument, and acknowledged the said instrument to be the free and voluntary act and deed of said municipal corporation, for the uses and purposes therein mentioned and on oath stated that they were authorized to execute said instrument and that the seal affixed is the corporate seal. of said corporation. Witness my hand and official seal affixed the date and year in this certificate above written. State of Washin . s n Residing at My commissio expires:/„ $ `Db STATE OF WASHINGTON ) ) ss: County of King ) I certify that I know or have satisfactory evidence that James K. Anderson signed this instrument, on oath stated that he was authorized to execute the instrument and acknowledge it as the President/CEO of Adaptis Inc., a Washington corporation, to be the free and voluntary act of such party for the uses and purposes mentioned in the instrument. DATED this 24th day of November , 2004. 0111111 Q Eq� ,�r�, ®® h m°SOCiiv k m©'y�`°®s 53 tr. :77 igO� AR 'rot 2, t\ma NOTARY PUBLIC in and for the State of Washington Residing at: Mill Creek, WA My commission expires: 6/25/2008 Page 16 of 16 PROMISSORY NOTE $400,000.00 November 2.14, 2004 FOR VALUE RECEIVED, the undersigned, ADAPTIS INC., a Washington corporation ("Borrower"), promises to pay to the order of THE CITY OF YAKIMA, a Washington municipal corporation ("Lender"), at the Office of Community and Economic Development, 129 North 2nd Street, Yakima, Washington 98901, or such other place as the holder of this Note may from time to time designate, the principal Sum of FOUR HUNDRED THOUSAND AND NO/100 DOLLARS ($400,000.00), or so much thereof as may from time to time be outstanding hereunder, together with interest on the unpaid balance of principal at the rate of three percent (3.0 %) per annum, calculated on the basis of a 365 -day calendar year, interest shall be calculated for each day all or any part of the principal balance hereof shall remain outstanding. 1. Multiple Advances: 1.1 Initial Advance: Upon signature of the Loan Agreement executed contemporaneously herewith Lender agrees to advance to Borrower up to $200,000.00 (the "Initial Advance") upon Borrower's compliance with the terms and conditions of the Loan Agreement. Lender shall make disbursements under the Initial Advance within thirty (30) days after Borrower requests the Initial Advance and demonstrates compliance with the terms of the Loan Agreement and the Loan Documents, PROVIDED that all advances made under the Initial Advance shall be made no later than December 10, 2004 ("Final Disbursement Date for Initial Advance"). 1.2 Second Advance: Commencing no earlier than February 28, 2005, if Borrower complies with all terms and covenants of the Loan Agreement, then Lender agrees to advance to Borrower an additional advance of the remaining $200,000.00 in loan funds (the "Second Advance"). Lender shall make disbursements under the Second Advance within thirty (30) days after Borrower requests the Second Advance and demonstrates compliance with the terms of this Loan Agreement and the Loan Documents PROVIDED that all advances made under the Second Advance shall be Page 1 of 5 made no later than November 15, 2005 ("Final Disbursement Date for Second Advance"). 2. Payment: 2.1. Initial Advance: Borrower shall repay the amount actually disbursed under the Initial Advance plus all accrued interest, any unpaid fees, charges and expenses thereon upon the sooner of (i) demand, or (ii) if demand is not made, the sooner of (a) thirty (30) months from the date of the first disbursement under the Initial Advance, or (b) two (2) months prior to the expiration of the Letter of Credit from U.S. Bank that serves as security for Borrower's payment and performance obligations under this Note and the Loan Agreement. 2.2 Second Advance: Borrower shall repay the amount actually disbursed under the Second Advance plus all accrued interest, any unpaid fees, charges and expenses thereon upon the sooner of (i) demand, or (ii) if demand is not made, the sooner of (a) eighteen (18) months from the date of the first disbursement under the Second Advance, or (b) two (2) months prior to the expiration of the Letter of Credit from U.S. Bank that serves as security for Borrower's payment and performance obligations under this Note and the Loan Agreement. 3. Prepayment: Provided that the undersigned shall first give the holder of this Note thirty (30) calendar days' prior notice, the indebtedness evidenced hereby may be prepaid in whole or in part from time to time without premium or penalty. 4. Default: Should default be made in any payment when due or in the performance or observance of any of the covenants and agreements of this Note, the whole sum of principal and interest shall become immediately due and payable at the option of the holder. Failure to exercise such option shall not constitute a waiver of the right to exercise it in the event, of a continuing or subsequent default. This Note is issued pursuant to and is entitled to the benefits of the Loan Agreement. An Event of Default under the Loan Agreement shall be deemed a default hereunder, whereupon the holder may at its option declare all sums as are then outstanding hereunder immediately due and payable. This Note shall be secured by an unconditional, irrevocable letter of credit, payable upon demand, issued by a banking Page 2 of 5 institution approved by the holder of this Note as more fully set forth in the Loan Agreement. 5. Demand: Notwithstanding the foregoing, the holder of this Note shall have the absolute right to demand partial repayments of the principal balance of the Note not more often than once per calendar month (said demands to be made as set forth below). Demands for partial repayment shall be made by the holder of this Note when funds are needed by the holder of this Note to pay for regular block grant activities. 6. Demand for Partial Payment: As set forth above, the holder of this Note may demand partial repayments of principal from the undersigned for regular block grant activities. The holder of this Note shall make demand for partial repayments of principal upon the undersigned, in writing, by delivering or mailing said demand to the undersigned in the manner and at the address set forth in Section 7.3 of the Loan Agreement, The partial repayment of principal shall be due and payable within ten (10) days, excluding Saturdays, Sundays and legal holidays, from the date the undersigned receives notification as set forth in Section 7.3 of the Loan Agreement. In the event the holder of this Note fails to receive a partial repayment within said ten (10) day period, the holder of this Note shall have the right to draw upon the letter of credit without any further condition, 7. Demand for Full Payment: As set forth above, this Note shall be due and payable in full upon demand. The holder of this Note shall make demand upon the undersigned, in writing, by delivering or mailing said demand to the undersigned in the manner and at the address set forth in Section 7.3 of the Loan Agreement. All principal, accrued interest and other charges due under this Note or the Loan Agreement shall be due and payable within ten (10) days, excluding Saturdays, Sundays and legal holidays, from the date the undersigned receives or is deemed to have received the demand and the holder of this Note may, on said tenth (10) day or at any time thereafter, draw from the letter of credit all sums, including principal), accrued interest and other charges, necessary to fully satisfy the Note. Except for the demands described above, the undersigned hereby waives diligence, demand, presentment for payment, and notice of whatever kind or nature. Without Page 3 of 5 discharging or in any way affecting the liability of the undersigned, and subject to the prior written approval by the Letter of Credit issuer, the undersigned hereby consents to any and all extensions of this Note as the holder hereof may in its sole discretion grant from time to time, to the release of all or any part of the security for the payment hereof and to the release of any party liable for repayment of the obligations hereunder. All payments due on this Note shall be payable in lawful money of the United States of America at the time of payment, and shall be made to the holder at the address first hereinabove indicated, or such other address as the holder may hereafter designate. This Note shall be governed by the laws of the State of Washington, except to the extent that Federal law may preempt the laws of the State of Washington. In the event that this Note is placed in the hands of an attorney at law for collection after maturity or upon default or in the event that proceedings at law or in equity are instituted in connection herewith, or in the event that this Note is placed in the hands of an attorney at law to enforce any of the rights or the agreements contained herein or in the Loan Agreement, the undersigned shall pay all actual, reasonable and necessary costs of the holder hereof in collecting or attempting to collect this Note or protecting or enforcing such rights, including, without limitation, reasonable attorney's fees; and all such amounts shall be deemed to be secured by, and may be drawn from, the letter of credit. This Note and the Loan Agreement are by this reference subject to the limitation that in no event shall interest or any other amount paid or agreed to be paid to the City of Yakima for the use, forbearance or detention of money to be advanced hereunder or pursuant to the Loan Agreement exceed the highest lawful rate permissible under applicable usury laws. If fulfillment of any provision hereof or of the Loan Agreement shall be deemed by a court of competent and final jurisdiction to violate any applicable usury restrictions, then ipso facto, the obligation to be fulfilled shall be reduced to the limit of such validity, and any amount received in excess of such limit shall be applied to reduce the unpaid principal balance hereof and not to the payment of interest. Page 4 of 5 Time is of the essence of this Note and of each and every provision hereof. ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW. IN WITNESS WHEREOF, the undersigned have executed this Promissory Note as of the date first above written. BORROWER: ADAPTIS INC., a Washington corporation /1 mes K. Anderson, President/CEO Page 5 of 5