<PAGE> 1
EXHIBIT 10.1
================================================================================
LOAN AGREEMENT
DATED AS OF SEPTEMBER 25, 2000
BETWEEN
WILLIAM LYON HOMES, INC.,
A CALIFORNIA CORPORATION
THE "BORROWER"
AND
RESIDENTIAL FUNDING CORPORATION,
A DELAWARE CORPORATION
"LENDER"
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I DEFINITIONS........................................................................1
Section 1.1. Certain Defined Terms..................................................1
Section 1.2. Other Definitional Provisions.........................................20
ARTICLE II THE LOAN.........................................................................21
Section 2.1. Agreement to Lend and Borrow; Evidence of Indebtedness and
Maturity.....................................................................21
Section 2.2. Disbursements of the Loan.............................................21
Section 2.3. Use of Disbursements..................................................21
Section 2.4. Commitment Fees.......................................................22
Section 2.5. Increase in Commitment Fee as a Result of Increase in the
Loan Amount; No Reduction in Commitment Fee Regardless of
Reductions in the Loan Amount................................................23
Section 2.6. Repayment of Principal................................................24
Section 2.7. Interest..............................................................25
Section 2.8. Prepayment of the Loan................................................26
Section 2.9. Security..............................................................26
Section 2.10. Payments.............................................................26
Section 2.11. Extension............................................................26
Section 2.12. Applications of Payments; Late Charges...............................27
Section 2.13. Interest Rate Limitation.............................................28
Section 2.14. Revolving Nature of Loan.............................................28
Section 2.15. Voluntary Permanent Reduction in the Loan Amount.....................28
ARTICLE III APPROVAL OF PROJECTS AND DISBURSEMENTS..........................................29
Section 3.1. Project Approval and Project Commitments..............................29
Section 3.2. The ABF Program.......................................................29
Section 3.3. Processes and Conditions Relating to Disbursements....................33
ARTICLE IV REPRESENTATIONS AND WARRANTIES...................................................37
Section 4.1. Consideration.........................................................37
Section 4.2. Organization..........................................................37
Section 4.3. Authorization.........................................................37
Section 4.4. Governmental Consents.................................................37
Section 4.5. Validity..............................................................38
Section 4.6. Financial Position....................................................38
Section 4.7. Governmental Regulations..............................................38
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
Section 4.8. Employee Benefit Plans................................................38
Section 4.9. Securities Activities.................................................38
Section 4.10. No Material Adverse Change...........................................38
Section 4.11. Payment of Taxes.....................................................38
Section 4.12. Litigation...........................................................39
Section 4.13. Environmental Matters................................................39
Section 4.14. No Burdensome Restrictions...........................................39
Section 4.15. Full Disclosure......................................................39
Section 4.16. Adequate Consideration...............................................39
ARTICLE V COVENANTS OF BORROWER.............................................................40
Section 5.1. Consideration.........................................................40
Section 5.2. Affirmative Covenants.................................................40
Section 5.3. Negative Covenants....................................................44
Section 5.4. Financial Covenants...................................................45
Section 5.5. Insurance.............................................................45
Section 5.6. Prohibited Transfers..................................................47
ARTICLE VI THE PROJECTS.....................................................................47
Section 6.1. Consideration..........................................................47
Section 6.2. Title to the Projects.................................................48
Section 6.3. No Prior Liens or Claims..............................................48
Section 6.4. Access to the Projects................................................48
Section 6.5. Compliance with Project Requirements and Laws and Regulations.........48
Section 6.6. Covenants, Zoning, Codes, Permits and Consents........................49
Section 6.7. Utilities.............................................................49
Section 6.8. Map, Permits. Licenses and Approvals..................................49
Section 6.9. Approval of Plans and Specifications and Approval of Budgets..........49
Section 6.10. Adequacy of Acquisition and Development Amount.......................50
Section 6.11. Construction Start and Completion....................................50
Section 6.12. Personal Property Incorporation......................................51
Section 6.13. Contractors and Contracts............................................51
Section 6.14. Evidence of Ownership of Materials...................................51
Section 6.15. Changes to Plans and Specifications and Budgets......................51
Section 6.16. Lender Inspections, Appraisal and Information........................54
Section 6.17. Correction of Defects................................................54
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C>
Section 6.18. Protection Against Lien Claims.......................................54
Section 6.19. Conveyance, Lease or Encumbrance.....................................55
Section 6.20. Security Instruments.................................................56
Section 6.21. Further Assurances; Cooperation......................................56
Section 6.22. Negative Covenants...................................................56
Section 6.23. Signs................................................................56
Section 6.24. Letter of Credit.....................................................56
ARTICLE VII SALES OF LOTS AND UNITS AND RELEASES FROM DEED OF TRUST.........................58
Section 7.1. Sales Agreements......................................................58
Section 7.2. Sales and Closings....................................................58
Section 7.3. Sales Operations and Seller's Obligations.............................59
Section 7.4. Model Units...........................................................59
Section 7.5. Releases from Lien of Deed of Trust...................................59
ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES.................................................61
Section 8.1. Events of Default.....................................................61
Section 8.2. Remedies..............................................................66
Section 8.3. Authorization to Apply Assets to Payment of Loan......................71
ARTICLE IX MISCELLANEOUS....................................................................71
Section 9.1. Successors and Assigns; No Assignment by Borrower.....................71
Section 9.2. Notices...............................................................71
Section 9.3. Changes, Waivers, Discharge and Modifications in Writing..............73
Section 9.4. No Waiver; Remedies Cumulative........................................73
Section 9.5. Costs, Expenses and Taxes.............................................73
Section 9.6. Disclaimer by Lender; No Joint Venture................................74
Section 9.7. Indemnification.......................................................74
Section 9.8. Consultants...........................................................75
Section 9.9. Governing Law.........................................................75
Section 9.10. Titles and Headings..................................................75
Section 9.11. Counterparts.........................................................75
Section 9.12. Lender's Right With Respect to the Loan..............................75
Section 9.13. Confidentiality......................................................75
Section 9.14. Time is of the Essence...............................................76
Section 9.15. No Third Parties Benefitted..........................................76
Section 9.16. Severability.........................................................76
Section 9.17. Jurisdiction.........................................................76
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<S> <C>
Section 9.18. Waiver of Jury Trial.................................................77
Section 9.19. Interpretation.......................................................77
Section 9.20. Entire Agreement.....................................................77
</TABLE>
-iv-
<PAGE> 6
LOAN AGREEMENT
THIS LOAN AGREEMENT (this "Loan Agreement") is made as of September 25,
2000, by and between WILLIAM LYON HOMES, INC., a California corporation (the
"Borrower") and RESIDENTIAL FUNDING CORPORATION, a Delaware corporation, its
successors and assigns (the "Lender").
R E C I T A L S:
A Borrower has applied to Lender for a revolving loan in the initial
principal amount of Seventy-Five Million Dollars ($75,000,000) (the "Loan") to
finance various acquisition, development and construction projects which
Borrower anticipates undertaking.
B Lender is willing to make the requested loan upon and subject to the
terms and conditions set forth in this Agreement.
AGREEMENT:
NOW, THEREFORE, in consideration of the covenants and conditions herein
contained, the parties agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. Certain Defined Terms. As used herein (including any
Exhibits attached hereto), the following terms shall have the meanings set forth
below (unless expressly stated to the contrary):
"ABF Program" shall mean the asset-based financing program available to
the Borrower as further described in Section 3.2 herein.
"Acquisition and Development Amount" shall mean, with respect to a
Project, the maximum amount of the Loan which may be disbursed for Qualified
Acquisition and Development Expenditures which relate to the acquisition of the
Land and the Development Work of such Project, subject to availability under the
terms of this Loan Agreement.
"Acquisition and Development Interest Reserve" shall mean, with respect
to a Project, the amount within the Budget which has been designated as
available to pay the interest on the Acquisition and Development Amount for such
Project; provided, however, that in the event the cumulative sales of the Homes
within the Project on or after the date which is six (6) months from the date
Homes in the Project are first offered for sale is thirty-three percent (33%) or
more below the projected cumulative sales as determined based on the absorption
rate set forth in the applicable Project Commitment, then at Lender's option
Borrower will be
-1-
<PAGE> 7
required to pay interest from its own funds on the Acquisition and Development
Amount for such Project.
"Acquisition and Development Maturity Date" shall mean, with respect to
a Project, the date which is set forth in the Project Commitment for such
Project as the date on which all proceeds of the Loan advanced for the
acquisition of the Land and the Development Work for such Project must be
repaid.
"Acquisition and Development Soft Costs and Other Costs" shall mean,
with respect to a Project and subject to the limitations set forth in the
Project Commitment for such Project, the Borrower's overhead, general and
administrative expenses, governmental fees, legal fees and expenses, title
insurance costs and other "soft" costs and all other costs incurred in the
acquisition of the Land and the Development Work of such Project, to the extent
included in the Budget for such Project.
"Additional Loan Fee" shall mean, with respect to a High Advance Rate
Project, the additional fee the Borrower will be required to pay to Lender as a
condition precedent to the Lender's release of its lien on any Lot or Unit
located in the Project, which amount shall equal the following:
(a) in the event the Lender has advanced proceeds of the Loan to
finance the acquisition of the Land and the Development Work and the
Borrower finances the construction of a Home on a Lot from a source
other than the Lender or sells a Lot to another builder, an amount equal
to five percent (5%) of the Value of such Lot; and
(b) in the event the Lender has advanced proceeds of the Loan to
finance the Homes, regardless of the completion status of the Unit, an
amount equal to one and one-half percent (1.50%) of the Gross Selling
Price of such Unit.
"Additional Units" shall mean Units which (a) were not encumbered by the
lien of the Deed of Trust at the time of execution of this Loan Agreement, (b)
are located within a Project for which the Lender has issued a Project
Commitment to include such Units in the ABF Program, (c) the Borrower desires,
and Lender approves, be made a part of the Borrowing Base Collateral under the
ABF Program, and (d) have become encumbered by the first-priority lien of the
Deed of Trust.
"Advance Rate" shall mean, with respect to a Project and disbursements
of the Loan for the Project, the percentages set forth in the Project
Commitment.
"Affiliate" shall mean a Person that, directly or indirectly, controls,
is controlled by, or is under common control with, a referenced Person.
-2-
<PAGE> 8
"Applicable ABF Advance Rate' shall have the meaning given in Section
3.2(c)(2).
"Applicable Acquisition and Development Principal Repayment Percentage"
shall mean, with respect to a Project, one hundred fifteen percent (115%);
provided, however, if the applicable Project Commitment for a Project specifies
that the "Applicable Acquisition and Development Principal Repayment Percentage"
for such Project is one hundred percent (100%), then the "Applicable Acquisition
and Development Principal Repayment Percentage" for such Project shall be one
hundred percent (100%).
"Appraisal Report" shall mean, with respect to a Project, a real estate
appraisal report which (i) has been prepared by an Appraiser, (ii) at the time
it is submitted to the Lender is not more than three (3) months old, or was
updated by letter not more than three (3) months prior to the date of submission
to the Lender, (iii) states that it is prepared in accordance with the
applicable standards of the American Institute of Real Estate Appraisers for
such reports, (iv) provides an appraisal of the Value of the Project or portion
thereof required to be appraised thereunder, and (v) employs a customary
methodology and provides limiting conditions satisfactory to the Lender.
"Appraiser" shall mean, with respect to a Project, a Person who is
qualified to appraise property similar in size and scope to the Project which
such Person is acceptable to the Lender in its sole and absolute discretion.
"Approval Period" shall mean the period during which new projects will
be considered for approval for funding from proceeds of the Loan, which period
shall commence on the date of this Loan Agreement and shall end on the Approval
Period Termination Date.
"Approval Period Termination Date" shall mean September 25, 2002, which
is the date twenty-four (24) months after the date of this Loan Agreement, as
such date may be extended pursuant to the terms of Section 2.11.
"Approved Cash Flow Statement" shall mean, with respect to a Project,
the cash flow statement for such Project, prepared by Borrower and approved by
Lender, which shall, among other things, establish the estimated outstanding
advances of the Loan for such Project on a month-by-month basis, as such cash
flow statement may be amended from time to time with the prior written consent
of Lender.
"Assignment" shall mean, with respect to all of the Projects, that
certain assignment of construction agreements and development items executed by
the Borrower in favor of Lender, as the same may be amended or otherwise
modified from time to time.
"Borrower" shall mean William Lyon Homes, Inc., a California
corporation.
-3-
<PAGE> 9
"Borrowing Base Allowable Disbursement Amount" shall mean, on any date
of determination, as determined by Lender, the amount of the Loan available to
be disbursed with respect to the Borrowing Base Collateral, which amount shall
be the lesser of (a) the Loan Amount minus the sum of (i) the outstanding
principal balance of advances under the Loan made for the acquisition of Land
and Development Work for all Projects, plus (ii) Borrowing Base Outstanding
Amount, or (b) the Borrowing Base Value minus the Borrowing Base Outstanding
Amount.
"Borrowing Base Collateral" shall mean the Units and all personal
property and fixtures located thereon or associated therewith which are included
in the ABF Program.
"Borrowing Base Home Amount" shall have the meaning given in Section
3.2(c)(2).
"Borrowing Base Outstanding Amount" shall mean, on any date of
determination, as determined by Lender, the principal amount of the Loan
outstanding in connection with the ABF Program.
"Borrowing Base Value" shall mean, on any date of determination, the
value assigned to the Borrowing Base Collateral by the Lender on such date
pursuant to and in accordance with the terms of Section 3.2.
"Budget" shall mean, with respect to a Project, the itemized budget for
such Project submitted to and approved by the Lender, as such budget may be
amended in accordance with the provisions of this Loan Agreement.
"Business Day" shall mean a day other than Saturday, Sunday or a day on
which national banks are legally closed for business in the States of
California, Illinois and Minnesota.
"Change" shall mean, with respect to a Project, any material extra work
not contemplated by the Plans and Specifications, the installation of materially
additional or different materials from those set forth in the Plans and
Specifications, or any other material change in the Plans and Specifications.
"Commitment Fee" shall mean the fee the Borrower is required to pay to
the Lender during the period from the date of this Loan Agreement through the
Maturity Date, which fee shall be an amount equal to one-half of one percent
(.50%) per annum of the Loan Amount in effect on the day such fee is due to the
Lender, to be paid in quarterly installments as provided in Section 2.4.
"Construction Agreements" shall mean, with respect to a Project, all
agreements (including, without limitation, construction contracts) entered into
between the Borrower and
-4-
<PAGE> 10
any contractor, architect, engineer, supplier or other Person with respect to
the development or construction of the Project, as such agreements may be
amended or otherwise modified from time to time in accordance with this Loan
Agreement.
"Construction Progress Schedule" shall mean, with respect to a Project,
the schedule for the Development Work and the Homes submitted to the Lender, as
such schedule may be adjusted in accordance with the provisions of this Loan
Agreement.
"Conventional Project" shall mean a Project as to which (i) the proceeds
of the Loan may be used to acquire Land, construct Development Work and/or
construct Homes, (ii) the Advance Rate for the acquisition of the Land and the
Development Work for such Project is described under the caption "Conventional
Project" in the Project Requirements and (iii) no Additional Loan Fee is due.
"Debt" shall mean, for any Person, without duplication, the sum of all
(i) indebtedness for borrowed money, (ii) obligations evidenced by bonds,
debentures, notes or other similar instruments, (iii) obligations to pay the
deferred purchase price of property or services, (iv) obligations as lessee
under leases which shall have been or should be, in accordance with GAAP,
recorded as capital leases, (v) obligations of such Person to purchase
securities (or other property) which arise out of or in connection with the sale
of the same or substantially similar securities or property, (vi) obligations of
such Person to reimburse any bank or other Person in respect of amounts actually
paid under a letter of credit or similar instrument, (vii) indebtedness or
obligations of others secured by a lien on any asset of such Person, whether or
not such indebtedness or obligations are assumed by such Person (to the extent
of the value of the asset), (viii) obligations under direct or indirect
guaranties in respect of, and obligations (contingent or otherwise) to purchase
or otherwise acquire, or otherwise to assure a creditor against loss in respect
of, indebtedness or obligations of others of the kinds referred to in clauses
(i) through (vii) above, and (ix) liabilities in respect of unfunded vested
benefits under plans covered by Title IV of ERISA.
"Deed of Trust" shall mean collectively, each deed of trust, security
agreement and fixture filing (or mortgage, as applicable) with assignment of
rents, proceeds and agreements, covering any one or more of the Projects,
executed or to be executed by the Borrower, as trustor, for the benefit of the
Lender, as the same may be amended or otherwise modified from time to time.
"Development Work" shall mean, with respect to a Project, the work of
development to be performed on or with respect to the Land (including, without
limitation, the installation of utilities, roads and all related on-site and
off-site improvements) in connection with the development of the Land for the
subsequent construction thereon of Homes, all of which
-5-
<PAGE> 11
work and construction shall be completed by or on behalf of the Borrower in
accordance with the Development Work Plans and Specifications, but shall not
include the Homes.
"Development Work Plans and Specifications" shall mean, with respect to
a Project, the final set of architectural, structural, mechanical, electrical,
grading, sewer, water, street and utility plans and specifications for the
Development Work to be included within such Project, including all supplements,
amendments and modifications thereto signed by the architect, all in form and
substance reasonably satisfactory to the Lender and the Inspector.
"Draw Request Certification" shall mean, with respect to a requested
disbursement of the Loan, a certification of Borrower delivered to the Lender in
the form of Exhibit E.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time, and the regulations and rulings issued thereunder.
"Environmental Indemnity" shall mean, with respect to all of the
Projects, that certain hazardous substances remediation and indemnification
agreement executed by the Borrower in favor of the Lender, as the same may be
amended or otherwise modified from time to time.
"Event of Default" shall mean the occurrence of any of the events listed
in Section 8.1.
"Excluded Unit" shall mean any Unit which includes a Home (whether under
construction or completed) that has been part of the Borrowing Base Collateral
for more than fifteen (15) months from the commencement of construction of such
Home in the case of a Sold Unit or a Spec Unit or for more than thirty (30)
months from the commencement of construction of such Home in the case of a Model
Unit.
"Finished Lot" shall mean a lot as to which construction of the Home can
be commenced.
"Force Majeure Event" shall mean, with respect to a Project, fire,
flood, labor dispute, weather, governmental action or other cause beyond the
reasonable control of Borrower that shall delay the Development Work or the
completion of the Homes.
"GAAP" shall mean generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession prevalent in the United States of America.
-6-
<PAGE> 12
"Gross Selling Price" means, with respect to any Unit, the base sales
price for such Unit plus any lot premium, plus any options, extras and/or
upgrades ordered from the Borrower, whether financed or collected at the close
of the escrow, less any builder concessions given by the Borrower.
"Guarantor" shall mean William Lyon Homes, a Delaware corporation, which
is the parent corporation of the Borrower.
"Guaranty" shall mean that certain Guaranty of even date herewith and
executed by the Guarantor in favor of the Lender, as such Guaranty may be
amended or otherwise modified from time to time.
"Hazardous Materials" shall mean the following:
(a) any oil, flammable substances, explosives, radioactive
materials, hazardous wastes or substances, toxic wastes or substances or
any other materials or pollutants, exposure to which is prohibited,
limited or regulated by any governmental authority pursuant to any
Hazardous Materials Law;
(b) asbestos in any form which is or could become friable, urea
formaldehyde foam insulation, transformers or other equipment which
contain dielectric fluid containing levels of polychlorinated biphenyls
in excess of fifty (50) parts per million, exposure to which is
prohibited, limited or regulated by any governmental authority pursuant
to any Hazardous Materials Law;
(c) any chemical, material or substance defined as or included
in the definition of "hazardous substances", "hazardous wastes",
"hazardous materials", "extremely hazardous waste", "restricted
hazardous waste", or "toxic substances" or words of similar import under
any Hazardous Material Laws; and
(d) any other chemical, material or substance, exposure to which
is prohibited, limited or regulated by any governmental authority
pursuant to any Hazardous Materials Law.
"Hazardous Materials Claims" shall mean any and all enforcement,
clean-up, removal or other governmental or regulatory actions or orders
threatened, instituted or completed pursuant to any Hazardous Materials Laws,
together with all claims made or threatened by any third party relating to
damage, contribution, cost recovery compensation, loss or injury resulting from
any Hazardous Materials.
"Hazardous Materials Laws" shall mean any federal, state or local laws,
ordinances and the regulations, policies or publications promulgated pursuant
thereto relating to (i) the
-7-
<PAGE> 13
environment, (ii) health and safety, (iii) any Hazardous Materials (including,
without limitation, the use, handling, transportation, production, disposal,
discharge or storage thereof), (iv) industrial hygiene or (v) environmental
conditions on, under or about property, including, without limitation, soil and
groundwater conditions; including, but not limited to, the following, as now or
hereafter amended: the Clean Air Act, 42 U.S.C. Sec. 9401, et seq.; the Clean
Water Act, 33 U.S.C. Sec. 7401, et. seq.; the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, 42 U.S.C. Sec. 9601, et. seq.,
as amended by the Superfund Amendments and Reauthorization Act of 1986, 42
U.S.C. Sec. 11001, et. seq.; the Federal Water Pollution Control Act, 33 U.S.C.
Sec. 1251, et. seq.; the Hazardous Materials Transportation Act, 49 U.S.C. Sec.
1801, et. seq.; the Resource Conservation and Recovery Act, 42 U.S.C. Sec. 6901,
et. seq.; the Safe Drinking Water Act, 42 U.S.C. Secs. 300f to 300j; the Solid
Waste Disposal Act, 42 U.S.C. Sec. 3251, et. seq.; the Toxic Substances Control
Act, 15 U.S.C. Sec. 2601, et seq.; Sections 25115, 25117, 25122.7, 25140,
25249.8, 25281, 25316, 25501, and 25316 of the California Health and Safety
Code; Article 9 or Article 11 of Title 22 of the California Administrative Code,
Division 4, Chapter 20; Nevada Revised Statutes Chapter 459; Nevada Revised
Statutes Chapter 444; Nevada Revised Statutes Chapter 445; Nevada Revised
Statutes Chapter 590; Nevada Revised Statutes Sections 618.850, inclusive;
Nevada Revised Statutes Section 477.045, as now or hereafter amended; the
Uniform Fire Code, as adopted by and now or hereafter in effect in the State of
Nevada.
"High Advance Rate Project" shall mean a Project as to which (i) the
proceeds of the Loan may be used to acquire Land, construct Development Work
and/or construct Homes, (ii) the Advance Rate for the acquisition of the Land
and the Development Work for such Project is described under the caption "High
Advance Rate Project" in the Project Requirements and (iii) the Additional Loan
Fee is due.
"Homes" shall mean, with respect to a Project, the single family
residences, condominium homes and/or attached townhouses that will be
constructed by the Borrower in accordance with the Home Plans and Specifications
using certain of the proceeds of the Loan, which structures the Borrower shall
construct on the Lots and offer for sale to individuals and families.
"Home Plans and Specifications" shall mean, with respect to a Project,
the final set of architectural, structural, mechanical and electrical plans and
specifications for the Homes to be included within such Project, including all
supplements, amendments and modifications thereto signed by the architect, all
in form and substance reasonably satisfactory to the Lender and the Inspector.
-8-
<PAGE> 14
"Indemnified Party" shall mean the Lender and any Affiliate of Lender
and any successors or assigns of Lender or any such Affiliate and each of their
officers, directors, employees, agents, attorneys, consultants, advisors and
Affiliates.
"Independent Project Commitment Amount" shall mean, at any date of
determination, the aggregate amount of outstanding loan commitments issued by
the Lender and/or RFC Construction Funding Corp. to the Borrower or its
Affiliates with respect to projects which are not cross-collateralized with the
Projects and which are evidenced by promissory notes other than the Note, which
"Independent Project Commitment Amount" shall include, without limitation, the
LP Homes #1 Commitment Amounts. For purposes of this Agreement, the "Independent
Project Commitment Amount" shall (i) automatically increase by the amount of any
new loan commitment issued by the Lender and/or RFC Construction Funding Corp.
to the Borrower or its Affiliates with respect to a project which is not
cross-collateralized with the Projects and which is evidenced by a promissory
note other than the Note, with such automatic increase to become effective on
the date of issuance of such new loan commitment, and (ii) reduce by the amount
of any reduction in the Independent Project Commitment Amount, with such
reduction to become effective only upon delivery by the Lender or RFC
Construction Funding Corp. to the Borrower or its applicable Affiliate of a
written notice which serves to reduce a specific loan commitment by the amount
specified in such written notice.
"Inspector" shall mean, with respect to a Project, the inspector(s) or
engineer(s) engaged by the Lender, at the expense of the Borrower, to provide to
Lender consultation services in connection with the Project.
"Interest Due Date" shall mean the fifteenth (15th) calendar day of each
month in which the Lender has sent a statement of interest due pursuant to the
terms of Section 2.7(b).
"Land" shall mean, with respect to a Project, that certain real property
which is suitable for and substantially entitled for the construction of Homes
thereon and related on and off-site improvements and upon which the Borrower
will perform the Development Work (if applicable) and construct the Homes, as
such real property is legally described in the Deed of Trust.
"Land Banking" shall mean the practice of acquiring unimproved real
property and not commencing the initial phase of development of such real
property within six (6) months after the date of acquisition.
"Land Speculation" shall mean the practice of acquiring either (i)
unimproved real property and reselling such real property without adding value
by development of such real property, or (ii) real property for which a
tentative tract map or the equivalent of a tentative
-9-
<PAGE> 15
tract map has not been obtained or which is not substantially entitled for the
development of a residential project.
"Laws and Regulations" shall mean, with respect to a Project, (i) all
laws, regulations, orders, codes, ordinances, rules, statutes and policies of
all local, regional, county, state and federal governmental authorities having
jurisdiction over such Project and (ii) all restrictive covenants and other
title encumbrances, permits and approvals, leases and other rental agreements
which in any case related to the development, occupancy, ownership, management,
use, and/or operation of such Project.
"Lender" shall mean Residential Funding Corporation, a Delaware
corporation, its successors and assigns.
"Lender's Release Price" shall mean, with respect to any Lot and/or Unit
which the Borrower requests the Lender to release from the lien of a Deed of
Trust, the amount required to be paid to the Lender prior to such release, which
amount shall equal the sum of (i) if the Lot or Unit is in a High Advance Rate
Project, the Additional Loan Fee for such Lot or Unit plus (ii) the amount
specified in Section 2.6(a) for such Lot or Unit, plus (iii) any past due
interest or fees owed to the Lender pursuant to the terms of the Loan Documents.
"Letter of Credit" shall mean, with respect to any Project, any letter
of credit issued by a bank or other financial institution in favor of a
governmental entity to secure the Borrower's obligation to complete the
Development Work.
"Letter of Credit Amount" shall mean the face amount of a Letter of
Credit.
"Loan" shall mean the revolving loan described in this Loan Agreement in
a principal amount not to exceed the Loan Amount.
"Loan Agreement" shall mean this Loan Agreement, as this loan agreement
may be amended or otherwise modified from time to time in accordance with the
terms hereof.
"Loan Amount" shall mean, at any date of determination, an amount equal
to (a) Seventy-Five Million Dollars ($75,000,000), minus (b) the Independent
Project Commitment Amount, subject to reduction pursuant to Section 2.15.
"Loan Documents" shall mean, as to the Loan, all documents, instruments,
agreements, assignments and certificates relating thereto, including, without
limitation, any and all loan or credit agreements, promissory notes, deeds of
trust, mortgages, security agreements, assignments of rents, assignments of
leases, assignments of contracts, environmental indemnities, guaranties,
contractor's consent agreements, lender's title insurance policies, opinions of
counsel, evidences of authorization or incumbency, escrow
-10-
<PAGE> 16
instructions, architect's consent agreements, and UCC-1 financing statements
executed (and acknowledged where applicable) by Borrower and/or Lender (where
applicable) in connection with Lender making the Loan to Borrower, as the same
may be amended or otherwise modified from time to time in accordance with this
Loan Agreement. The Loan Documents shall include, but not be limited to, the
following:
(a) this Loan Agreement;
(b) the Note;
(c) the Guaranty;
(d) the Environmental Indemnity;
(e) the Assignment;
(f) the Title Policy; and
(g) the Project Documents.
"Loan Parties" shall mean the Borrower and the Guarantor.
"Lots" shall mean, with respect to a Project, the tracts of real
property within the Land that have been or will be developed for the subsequent
construction thereon of Homes.
"LP Homes #1" shall mean LP Homes #1, LLC, a Delaware limited liability
company.
"LP Homes #1 Commitment Amounts" shall mean, at any determination date,
the aggregate amount of outstanding loan commitments issued by the Lender
(and/or RFC Construction Funding Corp.) to LP Homes #1.
"Map" shall mean a final subdivision or parcel map for a Project
consistent with the Plans and Specifications for such Project and the Laws and
Regulations applicable to such Project, which "Map" shall be acceptable to the
Lender in the Lender's sole discretion.
"Material Adverse Change" shall mean any material and adverse change in,
or a change which has a material adverse effect upon, any of:
(a) the business, properties, operations or condition (financial
or otherwise) of any Loan Party since either or both of (i) the
financial condition reflected in the December 31, 1999 audited financial
statements of the Loan Parties, or (ii) the date of the most recent
financial statements delivered to the Lender in connection with the
Loan; or
-11-
<PAGE> 17
(b) the legal or financial ability of either of any Loan Party
to perform its obligations under the Loan Documents to which it is a
party and to avoid any Potential Default or Event of Default; or
(c) the legality, validity, binding effect or enforceability
against any Loan Party of any Loan Document.
"Maturity Date" shall mean the first to occur of (i) September 25, 2004,
which is the date four (4) years from the date of this Loan Agreement (as such
date may be extended in writing by Lender and Borrower from time to time), or
(ii) the date on which the Loan is required to be repaid pursuant to Section
8.2.
"Model Unit" shall mean, with respect to a Project, any Unit which is
not subject to a Sales Agreement and which the Borrower has designated as a
model home to be used in marketing the Project, the number of which such model
homes shall be limited as set forth in the Project Commitment.
"Net Income" of the Guarantor and its Subsidiaries (including the
Borrower) means, with respect to a calendar year, the after-tax net income of
the Guarantor and its Subsidiaries (including the Borrower) on a consolidated
basis for such calendar year determined in accordance with GAAP, before any
extraordinary losses.
"Net Sales Proceeds" shall mean the proceeds from the sale of a Lot
and/or Unit deducting a reasonable real estate commission and closing costs,
which real estate commission and closing costs shall not exceed five percent
(5%) of the gross sales price for such Lot and/or Unit.
"Net Worth" shall mean the net worth of the Guarantor and its
Subsidiaries (including the Borrower) reported on a consolidated basis accounted
for in accordance with GAAP; provided, however, in no event shall goodwill in
excess of $8,300,000 be included in calculating Net Worth for purposes of this
Loan Agreement.
"Note" shall mean that certain Revolving Promissory Note dated of even
date herewith and executed by Borrower, as maker, and made payable to the order
of Lender, as holder, in the amount of Seventy-Five Million Dollars
($75,000,000) and maturing on the Maturity Date, to evidence the Loan, as such
Revolving Promissory Note may be amended or otherwise modified from time to
time.
"PH Institutional Ventures" shall mean PH Institutional Ventures, a
California corporation.
-12-
<PAGE> 18
"Permitted Exceptions" shall mean, with respect to a Project, (i) real
estate taxes and assessments not yet due and payable and possible supplemental
assessments for improvements constructed on the Land, (ii) exceptions to title
which are approved in writing by the Lender, and (iii) the exceptions set forth
in the Title Policy or in any Title Policy Endorsement accepted by Lender.
"Percentage Completed" shall have the meaning given in Section
3.2(c)(2).
"Person" shall mean an individual, partnership, corporation (including a
business trust), limited liability company, joint stock company, trust,
unincorporated association, joint venture or other entity, or a government or
any political subdivision or agency thereof.
"Plans and Specifications" shall mean, with respect to a Project, the
Development Work Plans and Specifications for such Project and the Home Plans
and Specifications for such Project, collectively.
"Potential Default" shall mean the existence of any event, which with
the giving of notice, the passage of time, or both, would constitute an Event of
Default hereunder or an event of default (however described) under any other of
the Loan Documents.
"Prepayment Price" shall mean an amount equal to (i) the principal
amount of the Loan to be prepaid, as requested by the Borrower, with no premium
thereon, plus (ii) all accrued interest to the date of prepayment on the
principal amount prepaid, together with other fees and expenses due and owing to
Lender pursuant to the terms of the Loan Documents.
"Prime Rate" shall mean the rate that is indicated in the Telerate as
the prime lending rate announced from time to time by Bank One, National
Association (formerly known as The First National Bank of Chicago), a national
banking association, as in effect from time to time, it being understood that
the Prime Rate is a reference rate and does not necessarily represent the lowest
or best rate actually charged to any customer. In the event that such rate is no
longer shown in the Telerate, Borrower and Lender shall reasonably agree on a
substitute source for determining the prime lending rate of Bank One, National
Association (formerly known as The First National Bank of Chicago).
"Project" shall mean any acquisition, development and/or construction
project of the Borrower as to which the Lender has issued a Project Commitment
and made proceeds of the Loan available for disbursement, which such project
shall include the Land, the Development Work and/or the Homes to be completed on
the Land.
"Project Commitment" shall mean, with respect to a Project, the
commitment issued by the Lender to the Borrower for the Project, wherein the
Lender agrees, subject to the terms
-13-
<PAGE> 19
and conditions of this Loan Agreement and such "Project Commitment", to make
proceeds of the Loan available for the Project, and, if applicable, to arrange
for the issuance of a Letter of Credit for the Project. The Project Commitments
shall be substantially in the form of Exhibit D.
"Project Documents" shall mean, with respect to a Project, all
documents, instruments, agreements, assignments and certificates relating
thereto, including, without limitation, any and all loan or credit agreements,
promissory notes, deeds of trust, mortgages, security agreements, assignments of
rents, assignments of leases, assignments of contracts, environmental
indemnities, guaranties, contractor's consent agreements, lender's title
insurance policies, opinions of counsel, evidences of authorization or
incumbency, escrow instructions, architect's consent agreements, and UCC-1
financing statements executed (and acknowledged where applicable) by Borrower
and/or Lender (where applicable) in connection with Lender making proceeds of
the Loan available to the Borrower for the Project, as the same may be amended
or otherwise modified from time to time in accordance with this Loan Agreement.
The Project Documents shall include, but not be limited to, the following:
(a) the Project Commitment;
(b) the Deed of Trust or a modification to the Deed of Trust;
(c) the UCC Financing Statement;
(d) the Title Policy Endorsement;
(e) the Plans and Specifications; and
(f) the Letter of Credit.
The Project Documents shall include those forms of documents, instruments,
agreements, assignments and certificates for the States of California, Arizona
and Nevada which the Lender approves at the time of its execution and delivery
of this Loan Agreement, as evidenced by a written certificate of the Lender. The
forms of the Project Documents may be supplemented or amended from time to time
to add or amend form Project Documents approved by Lender and Borrower.
"Project Requirements" shall mean, for any project proposed to be
included as a Project pursuant to the terms of this Loan Agreement, the
requirements listed in Exhibit B.
"Project Security Instruments" shall mean, with respect to a Project,
all pledge agreements, guaranties, deeds of trust, mortgages, security
agreements, assignments and other
-14-
<PAGE> 20
agreements or instruments previously executed or to be executed by Borrower
granting in favor of Lender a lien or encumbrance on or a security interest in
any property or right or interest of Borrower as security for the Loan, as the
same may be amended or otherwise modified from time to time in accordance with
this Loan Agreement, including but not limited to the following:
(a) the Deed of Trust; and
(b) the UCC Financing Statement.
"Project Underwriting Documents" shall mean, for any project proposed to
be included as a Project pursuant to the terms of this Loan Agreement, the
documents listed in Exhibit C and any other documents relating to the proposed
project which Lender reasonably requests, all in form and substance reasonably
satisfactory to the Lender and, as to items A2, A6, B1, B3 and B6, in form and
substance reasonably satisfactory to the Inspector.
"Qualified Acquisition and Development Expenditures" shall mean, with
respect to a Project, the costs related to the acquisition of the Land and the
Development Work for such Project for which proceeds of the Loan may be
disbursed as contemplated by the Project Commitment for such Project, which such
costs shall be limited to the following:
(a) the cost of acquiring the Land or the Lots;
(b) the cost of materials and labor for Development Work in
place for the Project, but excluding any costs for materials delivered
to the Land which have not yet been put in place or materials as to
which the Borrower does not have title;
(c) the Acquisition and Development Acquisition Soft Costs and
Other Costs; and
(d) the Acquisition and Development Interest Reserve.
The particular amounts which may be disbursed for each of the categories set
forth in paragraphs (a) through (d) above shall be set forth in the Budget for
the applicable Project. Amounts in the Budget related to the acquisition of the
Land and the Development Work for a Project which are not listed in any of the
categories set forth in paragraphs (a) through (d) above shall not be Qualified
Acquisition and Development Expenditures.
"RFC CF Asset Based Funding System" shall mean the Lender's software
system on which Lender and Borrower maintain information regarding the Units in
the Borrowing Base Collateral, Borrowing Base Value, Borrowing Base Outstanding
Amount, Borrowing Base Allowable Disbursement Amount and related information
relating to the ABF Program.
-15-
<PAGE> 21
"Release" shall mean any presence, use, generating, storing, spilling,
leaking, pumping, pouring, emitting, treating, emptying, discharging, injecting,
escaping, leaching, dumping or disposing of Hazardous Materials into the
environment, or about, on, from, under, within or affecting any Project, or
transported to or from any Project, including continuing migration of Hazardous
Materials into or through soil, surface water or groundwater, during Borrower's
ownership of such Project, in violation of the Hazardous Materials Laws.
"Sales Agreement" shall mean a written agreement for the sale of a Lot
or a Unit between the Borrower and a person who is not an Affiliate of the
Borrower and who has been pre-qualified for the financing necessary to purchase
such Lot or Unit, which agreement shall (i) be binding upon such purchaser, (ii)
require such purchaser to deposit with the Borrower an "at risk" deposit (which
such deposit may be returned to the purchaser, and shall not be "at risk", in
the event the contingencies specified in the agreement are not satisfied), (iii)
contain no contingencies to the obligation of such purchaser to purchase such
Lot or Unit, other than contingencies related to financing and the sale of
another residence; provided that in the event any contingency is not removed
within sixty (60) days of the date of the agreement, such agreement shall no
longer be considered a "Sales Agreement" for purposes of this Loan Agreement,
and (iv) conform to all applicable laws, regulations, codes and ordinances,
including those requiring disclosures to prospective and actual buyers.
"Sold Unit" shall mean any Unit which is subject to a Sales Agreement.
"Spec Units" shall mean Units, other than Model Units, which are not
subject to a Sales Agreement.
"Stage" shall mean, with respect to a Project, the various stages of
construction of the Homes.
"Staged Draw Schedule" shall mean, with respect to a Project, the
various Stages of construction of the Homes, which such Stages, and the
components of the Homes which fit within each such Stage, shall be specified in
the Project Commitment.
"Subsidiary" of a Person means (i) any corporation more than 50% of the
outstanding securities having ordinary voting power of which shall at the time
be owned or controlled, directly or indirectly, by such Person or by one or more
of its Subsidiaries or by such Person and one or more of its Subsidiaries, or
(ii) any partnership, limited liability company, association, joint venture or
similar business organization more than 50% of the ownership interests having
ordinary voting power of which shall at the time be owned or controlled,
directly or indirectly, by such Person or by one or more of its Subsidiaries or
by such Person and one or more of its Subsidiaries.
-16-
<PAGE> 22
"Title Company" shall mean Fidelity National Title Insurance Company or
any other title insurance company approved in writing by the Lender.
"Title Policy" shall mean that certain policy or policies of title
insurance accepted by the Lender for all of the Projects, which policy or
policies of title insurance shall (i) be an ALTA loan form (1970 form, revised
10-17-84, or the equivalent thereof) title insurance policy, (ii) be issued in
the amount of the original principal amount of the Note, (iii) be issued by the
Title Company, (iv) insure the Lender that the applicable Deed of Trust is an
enforceable first lien against marketable fee simple title to all of the
Projects, subject only to Permitted Exceptions, (v) provide mechanics' lien
coverage, and (vi) have appended thereto a comprehensive endorsement, a usury
endorsement, a revolving loan credit and variable rate endorsement, an
environmental lien endorsement and such other endorsements as are generally
required by lenders in the area in which the Projects are located, and otherwise
in form and substance reasonably satisfactory to Lender.
"Title Policy Endorsement" shall mean an endorsement to the Title
Policy, in form and content acceptable to the Lender, to be delivered to the
Lender pursuant to the terms of this Loan Agreement.
"Total Liabilities" shall mean the aggregate amount of all liabilities
of the Guarantor and its Subsidiaries (including the Borrower) reported on a
consolidated basis as computed in accordance with GAAP.
"Transfer" shall mean the occurrence of any of the following:
(a) any sale, conveyance, assignment, transfer, alienation,
mortgage, conveyance, of security title, encumbrance or other
disposition of any Project, of any kind, or any other transaction the
result of which is, directly or indirectly, to divest Borrower of any
portion of its title to or interest in any Project, voluntarily or
involuntarily;
(b) any merger, consolidation or dissolution involving Borrower
or the sale or transfer of a significant portion of the assets of
Borrower;
(c) so long as LP Homes #1 has any outstanding loans or other
obligations to the Lender (or to RFC Construction Funding Corp.) or the
Lender (or RFC Construction Funding Corp.) has any outstanding
commitments to make loans available to LP Homes #1, any merger,
consolidation or dissolution involving PH Institutional Ventures or any
sale, conveyance, assignment, transfer, alienation, encumbrance or other
disposition by PH Institutional Ventures of any of its membership
interest in LP Homes #1 or any other transaction or event the result of
-17-
<PAGE> 23
which is directly or indirectly to cause PH Institutional Ventures to
own less than fifty percent (50%) of the outstanding membership
interests in LP Homes #1 or to cause PH Institutional Ventures to cease
being the managing member of LP Homes #1.
(d) so long as LP Homes #1 has any outstanding loans or other
obligations to the Lender (or to RFC Construction Funding Corp.) or the
Lender (or RFC Construction Funding Corp.) has any outstanding
commitments to make loans available to LP Homes #1, any sale,
conveyance, assignment, transfer, alienation, encumbrance or other
disposition by Borrower of any of its stock in PH Institutional Ventures
or any other transaction or event the result of which is directly or
indirectly to cause Borrower to own less than one hundred percent (100%)
of the outstanding stock in PH Institutional Ventures;
(e) any merger, consolidation or dissolution involving Guarantor
or any sale, conveyance, assignment, transfer, alienation, encumbrance
or other disposition by Guarantor of any of its stock in Borrower or any
other transaction or event the result of which is directly or indirectly
to cause Guarantor to own less than one hundred percent (100%) of the
outstanding stock if Borrower.
(f) any conveyance, assignment, transfer or other disposition
(at one time or over a period of time) of any of the stock of Guarantor
owned at any time by William Lyon ("General Lyon") or William H. Lyon
("Mr. Lyon") (collectively, General Lyon and Mr. Lyon are herein called
the "Lyons") or any issuance of additional stock in Guarantor or any
other event the result of which is to dilute, decrease or eliminate the
Lyons' ownership interest in Guarantor, unless, after giving effect to
any such conveyance, assignment, transfer, other disposition, issuance
or other event, the Lyons and/or a Qualified Transferee (defined below)
(i) retain control of Guarantor, (ii) continue to own at least forty
percent (40%) of the outstanding stock of Guarantor at all times
subsequent to such conveyance, assignment, transfer, other disposition,
issuance or other event on a continuous and full time basis with the
power and responsibility to manage the material day to day operations of
Guarantor, Borrower and their Subsidiaries, and (iii) any three (3) of
Wade Cable, Thomas J. Mitchell, Douglas F. Bauer, Richard S. Robinson or
Michael D. Grubbs continue to be employed by Guarantor and Borrower at
all times subsequent to the transfer on a continuous and full time basis
with power and responsibility to manage the material day to day
operations of Guarantor, Borrower and their Subsidiaries. For purposes
of this subsection (f), a "Qualified Transferee" is a transferee which
must be (1) the executor of the estate of General Lyon, (2) a member of
the immediate family of General Lyon, or (3) the trustee of a trust
established and continuously maintained for the sole benefit of the
immediate family of General Lyon.
-18-
<PAGE> 24
"UCC Financing Statement" shall mean, with respect to a Project, a UCC
financing statement executed by Borrower, as debtor, in favor of Lender, as
secured party, in connection with Lender making proceeds of the Loan available
to the Borrower for such Project, as such UCC financing statement may be amended
or otherwise modified from time to time.
"Unit" shall mean a Finished Lot and the Home constructed on such
Finished Lot.
"Value" shall mean the value which an Appraiser (or if no Appraisal
Report is required by Lender, Lender) assigns to the Project or any part thereof
as to which a value is being determined, as set forth in an Appraisal Report (if
an Appraisal Report is required by Lender) and based upon the following:
(a) with respect to High Advance Rate Projects, and for purposes
of determining the Additional Loan Fee payable in the event the Lender
has advanced proceeds of the Loan to finance the acquisition of the Land
and the Development Work, and the Borrower finances the construction of
a Home from a source other than the Lender or sells a Lot to another
builder, the value of such Lot shall be determined based on the "as if
complete" value of such Lot after completion of all Development Work;
(b) the value of the Land or any part thereof which is part of a
Project shall be determined based on the retail value of the Land after
completion of all Development Work;
(c) the value of any Sold Unit, whether or not the Home has been
commenced or completed, shall be determined based upon the sales price
set forth in the Sales Agreement; and
(d) the value of any Model Unit or Spec Unit, whether or not the
Home has been commenced or completed, shall be determined based upon the
"as-completed" "full retail" value of the base model of the applicable
Unit set forth in an Appraisal, exclusive of options, extras, upgrades
and lot/location premiums except to the extent set forth in the
applicable Project Commitment.
"WIP Report" shall mean a Work in Progress Report related to the
Borrower's Units included in the ABF Program, which report shall be generated by
the Lender from the RFC CF Asset Based Funding System.
-19-
<PAGE> 25
Section 1.2. Other Definitional Provisions.
(a) Accounting terms not defined herein shall have the
respective meanings given to them under GAAP. To the extent that the
definitions of accounting terms herein are inconsistent with the
meanings of such terms under GAAP, the definitions contained herein
shall control.
(b) The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Loan Agreement shall refer to this Loan
Agreement as a whole and not to any particular provision of this Loan
Agreement.
(c) In this Loan Agreement in the computation of periods of time
from a specified date to a later specified date, the word "from" means
"from and including" and the words "to" and "until" each means "to but
excluding".
ARTICLE II
THE LOAN
Section 2.1. Agreement to Lend and Borrow; Evidence of Indebtedness and
Maturity.
(a) Lender agrees, on the terms and conditions hereinafter set
forth, to make the Loan to Borrower for the purpose of providing
financing for Projects; provided, however, that (i) the sum of the
outstanding principal balances of advances under the Loan made for the
acquisition of Land and Development Work for all Projects and the
Borrowing Base Outstanding Amount shall not exceed at any time the Loan
Amount, (ii) the advances of the Loan made with respect to the
acquisition of Land and the Development Work for any given Project shall
not exceed at any time the Acquisition and Development Amount for such
Project, (iii) the Borrowing Base Outstanding Amount shall not exceed at
any time the Borrowing Base Value, and (iv) the obligation of the Lender
to make the Loan is conditioned upon, among other things, the Lender's
receipt of the documents set forth in Exhibit A attached hereto.
Borrower and Lender acknowledge that although the sum of the Acquisition
and Development Amounts for all Projects and the Borrowing Base
Outstanding Amount at any given date of determination may exceed the
Loan Amount, Lender shall have no obligation to make any advance of Loan
proceeds in excess of the Loan Amount. The Borrower shall repay the Loan
pursuant to Section 2.6, may prepay the Loan pursuant to Section 2.8 and
may reborrow proceeds of the Loan pursuant to this Section 2.1(a).
-20-
<PAGE> 26
(b) Concurrent with the execution and delivery of this Loan
Agreement, the Borrower shall execute and deliver to the Lender the
Note, evidencing the indebtedness incurred by the Borrower pursuant to
the terms of this Loan Agreement.
(c) The outstanding principal balance of the Loan, together with
accrued and unpaid interest thereon and all other amounts payable by
Borrower under the terms of the Loan Documents, shall be due and payable
on the Maturity Date.
Section 2.2. Disbursements of the Loan. The Lender shall make
disbursements of the Loan in accordance with and subject to the terms of Article
III hereof.
Section 2.3. Use of Disbursements. Borrower shall ensure the use of
disbursements of the Loan only for purposes permitted by this Loan Agreement.
Section 2.4. Commitment Fees.
(a) During the period from the date of this Loan Agreement until
the Approval Period Termination Date, the Commitment Fee shall be an
annual fee determined in advance for the applicable annual period. The
Borrower shall pay to Lender the annual Commitment Fee for each annual
period in which the Commitment Fee is required to be paid; provided,
however, that the Lender agrees that the Borrower may pay such annual
Commitment Fee in advance in equal quarterly installments; provided
further, however, that the fact that the Commitment Fee may be paid in
quarterly installments does not alter the character of the Commitment
Fee as an annual fee, payable for the applicable annual period. During
the period from the date of this Loan Agreement through the Approval
Period Termination Date, the Commitment Fee shall be paid as follows:
(1) The initial quarterly installment of the Commitment
Fee shall be paid upon execution of this Loan Agreement.
(2) On January 1, April 1, July 1 and October 1 of each
year, commencing January 1, 2001, the Borrower shall pay the
quarterly installment of the Commitment Fee due with respect to
the applicable annual period.
(b) On and after the Approval Period Termination Date, the
Commitment Fee shall be a semi-annual fee determined in advance for the
applicable semi-annual period. The Borrower shall pay to Lender the
semi-annual Commitment Fee for each semi-annual period in which the
Commitment Fee is required to be paid; provided, however, that the
Lender agrees that the Borrower may pay such semi-annual Commitment Fee
in advance in equal quarterly installments; provided further, however,
that the fact that the Commitment Fee may be paid in quarterly
installments
-21-
<PAGE> 27
does not alter the character of the Commitment Fee as a semi-annual fee,
payable for the applicable semi-annual period. On and after the Approval
Period Termination Date, the Commitment Fee shall be paid as follows:
(1) The initial quarterly installment of the Commitment
Fee shall be paid on the Approval Period Termination Date.
(2) On January 1, April 1, July 1 and October 1 of each
year commencing with the first such date after the Approval
Period Termination Date, the Borrower shall pay the quarterly
installment of the Commitment Fee due with respect to the
applicable semi-annual fee.
(c) If Borrower fails to pay any Commitment Fee as required
under this Section 2.4 in a timely manner, Borrower hereby authorizes
Lender to disburse to itself proceeds of the Loan to pay such Commitment
Fee. Lender in its sole discretion (but without any obligation to do so)
may make such disbursements notwithstanding the existence of an Event of
Default or Potential Default. Such disbursements shall be added to the
outstanding principal balance of the Loan. The authorization hereby
granted is irrevocable, and no further direction or authorization from
Borrower is necessary for Lender to make such disbursements. If Lender
disburses to itself Loan proceeds to pay itself a Commitment Fee without
first having received a request from Borrower to make such a
disbursement, then Lender shall send to Borrower a statement that shows
the amount of Loan proceeds disbursed to pay such Commitment Fee and an
explanation of Lender's calculation of the amount thereof.
Section 2.5. Increase in Commitment Fee as a Result of Increase in the
Loan Amount; No Reduction in Commitment Fee Regardless of Reductions in the Loan
Amount.
(a) In the event that the Loan Amount increases at any time as a
result of a reduction in the Independent Project Commitment Amount, the
Commitment Fee related to the then-current annual period (if prior to
the Approval Period Termination Date) or the then-current semi-annual
period (if on or after the Approval Period Termination Date) shall be
increased by the amount determined by the Lender as appropriate for the
period from the date of the increase in the Loan Amount through the last
day of such annual period or such semi-annual period, as applicable. The
Borrower shall pay such additional Commitment Fee related to the
increase in the Loan Amount in advance in quarterly installments, with
the initial installment (for the initial quarter or the remainder of the
initial quarter, as applicable) payable on the later of five (5) days
after written demand therefor or the date of such increase in the Loan
Amount and with each subsequent quarterly installment payable on each
January 1, April 1, July 1 and October 1 thereafter until the end of the
then-current annual period
-22-
<PAGE> 28
or semi-annual period, as applicable. Thereafter, the Commitment Fee for
the entire Loan Amount (including such increase in the Loan Amount) will
be determined and payable for each subsequent annual period or
semi-annual period in accordance with the provisions of Section 2.4. In
the event that the Borrower or its Affiliate (including LP Homes #1) has
paid in advance a non-refundable commitment fee with respect to an
independent project commitment and the termination of such independent
project commitment prior to the end of the period through which such
non-refundable commitment fee has been paid results in an increase in
the Loan Amount, then the Lender will determine the "unused" amount of
such non-refundable commitment fee related to such terminated
independent project commitment and the Lender shall credit such "unused"
amount against the additional Commitment Fee due under this Section
2.5(a) as a result of the related increase in the Loan Amount.
(b) The Borrower acknowledges that prior to the Approval Period
Termination Date the Commitment Fee required to be paid to the Lender
pursuant to the provisions of Section 2.4 shall be due and owing to the
Lender in advance for each annual period, regardless of whether the Loan
remains outstanding for the entire annual period, and regardless of
whether the Loan Amount decreases during such annual period, and in the
event either the Borrower repays or is required to repay the Loan prior
to the end of such annual period, or the Loan Amount decreases prior to
the end of such annual period, the Borrower shall not be entitled to any
refund of the Commitment Fee previously paid. The Borrower further
acknowledges that on and after the Approval Period Termination Date the
Commitment Fee required to be paid to the Lender pursuant to the
provisions of Section 2.4 shall be due and owing to the Lender in
advance for each semi-annual period, regardless of whether the Loan
remains outstanding for the entire semi-annual period, and regardless of
whether the Loan Amount decreases during such semi-annual period, and in
the event either the Borrower repays or is required to repay the Loan
prior to the end of such semi-annual period, or the Loan Amount
decreases prior to the end of such semi-annual period, the Borrower
shall not be entitled to any refund of the Commitment Fee previously
paid. Upon termination of this Loan Agreement, no additional Commitment
Fee shall thereafter be due to the Lender.
Section 2.6. Repayment of Principal. Principal of the Loan shall be due
and payable as follows:
(a) Upon the sale of a Lot or Unit, the Borrower shall repay the
principal amount of the Loan in an amount equal to the greater of (i)
one hundred percent (100%) of the Net Sales Proceeds arising from the
sale of such Lot or Unit (after payment of the Additional Loan Fee
related to such Lot or Unit, if applicable) or (ii) the sum of (A) the
Applicable Acquisition and Development Principal Repayment
-23-
<PAGE> 29
Percentage of the total amount of the Loan outside of the ABF Program
budgeted for the acquisition of such Lot plus the Development Work
related to such Lot (including Acquisition Soft Costs and Other Costs
related to the acquisition of the Land and the Development Work), plus
(B) one hundred percent (100%) of the Borrowing Base Value of such Lot
or Unit. Each principal payment received by Lender shall be applied
first to repay the Applicable Acquisition and Development Principal
Repayment Percentage of the total amount of the Loan outside of the ABF
Program budgeted for the acquisition of such Lot plus the Development
Work related to such Lot (including Acquisition Soft Costs and Other
Costs related to the acquisition of the Land and the Development Work),
with the remainder of such principal payment being applied to the
Borrowing Base Outstanding Amount. The principal payments described
above shall be made until such time as the total amount of the Loan
related to such Project outside of the ABF Program has been paid in full
and the Borrowing Base Outstanding Amount has been paid in full.
(b) If the amount of the Loan disbursed for the acquisition of
the Land and the Development Work for a Project has not been repaid on
or before the Acquisition and Development Maturity Date for such
Project, the Borrower shall on such date repay the entire principal
amount of the Loan disbursed for the acquisition of the Land and the
Development Work for such Project.
(c) In the event that the Borrowing Base Outstanding Amount
shall at any time exceed the Borrowing Base Value, the Borrower shall
immediately make a principal repayment of the Borrowing Base Outstanding
Amount in an amount sufficient to eliminate any such excess.
(d) In the event that the sum of the outstanding principal
balances of advances under the Loan made for the acquisition of Land and
Development Work for all Projects and the Borrowing Base Outstanding
Amount shall at any time exceed the Loan Amount, the Borrower shall
immediately pay to the Lender a principal repayment of the Borrowing
Base Outstanding Amount in an amount sufficient to eliminate any such
excess.
(e) On any date that the Lender makes any payment with respect
to a Letter of Credit, the Borrower shall pay to the Lender an amount
equal to the amount so paid by the Lender with respect to the Letter of
Credit.
(f) On the Maturity Date, the Borrower shall repay the entire
remaining principal amount of the Loan.
-24-
<PAGE> 30
Section 2.7. Interest.
(a) The Loan shall bear interest from the date of disbursement
hereunder on the unpaid principal at the per annum rate of the Prime
Rate plus three-eighths of one percent (.375%). Throughout the term of
the Loan, interest shall be calculated on a the basis of a 360-day year
consisting of twelve (12) thirty (30) day months.
(b) On or before the fifth (5th) Business Day of each month,
commencing with the first month after the Lender has disbursed proceeds
of the Loan, the Lender shall send to Borrower a statement setting forth
the amount of interest due for the previous month. Borrower shall pay
the interest due for the previous month on or before the Interest Due
Date, except if the Borrower has elected, with respect to any Project,
to include in the Budget for such Project an Acquisition and Development
Interest Reserve, then the Borrower may direct the Lender to make a
disbursement of the Loan to pay the interest due on the Loan with
respect to such Project until such time as such Acquisition and
Development Interest Reserve is fully disbursed, upon and subject to the
terms and conditions contained herein.
Section 2.8. Prepayment of the Loan. Borrower shall have the right to
prepay the Loan at any time, in full or in part at a price equal to the
Prepayment Price. Any partial prepayment of the Loan shall be accompanied by a
statement wherein the Borrower specifies (i) to which Project such prepayment is
to be applied and (ii) the particular Lots and/or Units, to which such
prepayment is to be applied. No Lot or Unit will be released from the lien of
the Deed of Trust in connection with any prepayment of the Loan unless the
portion of the Prepayment Price applied to such Lot or Unit, as applicable,
equals the Lender's Release Price applicable to such Lot or Unit.
Section 2.9. Security. Payment of the Loan by Borrower and performance
of Borrower's other obligations under the Loan Documents shall be secured by the
collateral described in the Project Security Instruments, which Borrower
warrants shall create a valid and first-lien position with respect to the
Projects subject to Permitted Exceptions.
Section 2.10. Payments. All payments of principal and interest on the
Loan shall be made to the Lender by federal funds wire transfer as instructed by
the Lender in immediately available funds not later than 1:00 p.m. (Minneapolis
time) on the dates such payments are to be made. Any payment received after 1:00
p.m. (Minneapolis time) shall be deemed received by the Lender on the next
Business Day. All computations of interest and fees under the Loan Documents
shall be made by Lender on the basis of a year of 360 days, comprised of twelve
(12) thirty (30) day months. If any payment of interest or principal to be made
by Borrower shall become due on a day other than a Business Day, such payment
shall be made
-25-
<PAGE> 31
on the next succeeding Business Day and such extension of time shall be included
in computing any interest with respect to such payment.
Section 2.11. Extension. Borrower may, not earlier than ninety (90) days
and not later than forty five (45) days prior to the then effective Approval
Period Termination Date (as it may be extended from time to time pursuant to
this Section 2.11), request in writing that the Approval Period and the Maturity
Date each be extended for twelve (12) months, or an increment thereof. Lender
may, in its sole and absolute discretion, consent or not consent to such request
by giving written notice thereof to Borrower not less than thirty (30) days
prior to the then effective Approval Period Termination Date. If Lender fails to
give such notice Lender shall be deemed not to have consented to such extension.
If the Lender consents to such request, the Approval Period Termination Date and
the Maturity Date shall each be extended twelve (12) months, or an increment
thereof, from the then effective Approval Period Termination Date and Maturity
Date, respectively.
Section 2.12. Applications of Payments; Late Charges.
(a) Payments received by Lender pursuant to the terms hereof
shall be applied in the following manner:
(1) first, to the payment of all expenses, charges,
costs and fees incurred by or payable to Lender and for which
Borrower is obligated pursuant to the terms of the Loan
Documents;
(2) second, to the payment of all interest accrued to
the date of such payment, except that the payments made pursuant
to Section 2.6(a) through (f) shall be applied to the payment of
principal in accordance with subparagraph (3) below and not to
the payment of interest; and
(3) third, to the payment of principal.
Notwithstanding anything to the contrary contained in this Loan
Agreement, after the occurrence and during the continuation of an Event
of Default, all amounts received by Lender from any party shall be
applied in such order as Lender, in its sole discretion, may elect.
(b) If any installment of interest and/or the payment of
principal is not received by Lender within five (5) Business Days after
the due date thereof, then in addition to the remedies conferred upon
Lender pursuant to Section 8.2 hereof and the other Loan Documents, the
Lender may elect to assess a late charge of four percent (4%) of the
amount of the installment due and unpaid, which such late charge will be
added to the delinquent amount to compensate Lender for the expense of
handling the
-26-
<PAGE> 32
delinquency. Borrower and Lender agree that such late charge represents
a good faith and fair and reasonable estimate of the probable cost to
Lender of such delinquency. Borrower acknowledges that during the time
that any such amount shall be in default, Lender will incur losses which
are impracticable, costly and inconvenient to ascertain and that such
late charge represents a reasonable sum considering all of the
circumstances existing on the date of the execution of this Loan
Agreement and represents a reasonable estimate of the losses Lender will
incur by reason of late payment. Borrower further agrees that proof of
actual losses would be costly, inconvenient, impracticable and extremely
difficult to fix. Acceptance of such late charge shall not constitute a
waiver of the default with respect to the overdue installment, and shall
not prevent Lender from exercising any of the other rights and remedies
available hereunder.
Section 2.13. Interest Rate Limitation. The provisions of this Loan
Agreement and the other Loan Documents are hereby expressly limited so that in
no contingency or event whatever shall the amount paid or agreed to be paid to
Lender for the use, forbearance or detention of the sums evidenced by this Loan
Agreement exceed the maximum amount permissible under applicable law. If from
any circumstance whatever the performance or fulfillment of any provision of
this Loan Agreement or of any other Loan Document should involve or purport to
require any payment in excess of the limit prescribed by law, then the
obligation to be performed or fulfilled is hereby reduced to the limit of such
validity, and if, from any circumstance whatever, Lender should ever receive as
interest an amount which would exceed the highest lawful rate under applicable
law, then the amount which would be excessive interest shall be applied as an
optional reduction of principal in accordance with the terms of Section 2.8 of
this Loan Agreement (or, at Lender's option, be paid over to Borrower), and
shall not be counted as interest.
Section 2.14. Revolving Nature of Loan. The Loan is a revolving loan,
and until the Approval Period Termination Date, any amounts which are repaid
may, subject to the terms of the Loan Documents limiting the amounts which may
be drawn for any Project and the terms restricting disbursements of proceeds of
the Loan, be redrawn for another Project; provided, however, that amounts of the
Loan which are disbursed with respect to acquisition of Land and Development
Work cannot be disbursed again with respect to that Project unless otherwise
expressly provided in the Project Commitment with respect to such Project.
Section 2.15. Voluntary Permanent Reduction in the Loan Amount. From and
after the Approval Period Termination Date, Borrower may from time to time, upon
written notice given by Borrower to Lender not less than thirty (30) days prior
to the end of the then-current semi-annual period for the Commitment Fee, elect
to permanently reduce the Loan Amount; provided, however, that (i) the Loan
Amount, after giving effect to any such permanent reduction, shall not be less
than an amount which the Lender reasonably determines will be
-27-
<PAGE> 33
necessary to complete the Development Work and all of the Homes in all of the
Projects, and (ii) the amount of any such permanent reduction shall be Five
Million Dollars ($5,000,000) or a greater amount in One Million Dollars
($1,000,000) increments. Provided that the Borrower provides the required
written notice to Lender within the thirty (30) day period specified above, the
applicable reduction in the Loan Amount under this Section 2.15 shall become
effective on the first day of the next semi-annual period for the Commitment
Fee.
ARTICLE III
APPROVAL OF PROJECTS AND DISBURSEMENTS
Section 3.1. Project Approval and Project Commitments.
(a) During the Approval Period, the Borrower may submit to
Lender projects proposed to be included as Projects, all pursuant to and
in accordance with the terms of this Loan Agreement, and upon approval
as a Project, disbursements of the Loan may be made in accordance with
the provisions of this Loan Agreement.
(b) In order to include a proposed project as a Project,
Borrower shall submit to Lender a complete description of the proposed
project, including the Project Underwriting Documents, and evidence that
the proposed project complies with the Project Requirements.
(c) Upon its receipt of the Project Underwriting Documents and
evidence that the proposed project complies with the Project
Requirements, Lender shall have thirty (30) days to review and, in its
sole and absolute discretion and acting in good faith, approve or
disapprove the proposed project as a Project which may be financed from
proceeds of the Loan. In the event a proposed project complies with the
Project Requirements and the Lender disapproves the proposed project,
the Lender shall disclose in writing to the Borrower the reasons for the
Lender's disapproval. Upon any such approval, Lender shall issue a
Project Commitment with respect thereto and such proposed project shall
become a Project for purposes of this Loan Agreement. The Project
Commitment for each Project will specify, among other things, the
Acquisition and Development Amount for such Project, which amount once
disbursed and repaid cannot be disbursed again with respect to such
Project unless otherwise expressly provided in the Project Commitment
with respect to such Project.
Section 3.2. The ABF Program. The construction of Homes in each Project
shall be funded through the ABF Program, in accordance with the conditions and
procedures set forth below:
(a) Pledging of Borrowing Base Collateral.
-28-
<PAGE> 34
(1) On the date of execution and delivery of this Loan
Agreement, the Borrowing Base Collateral shall consist of those
Units, if any, encumbered by the lien of the Deed of Trust as of
the date of this Loan Agreement. The Borrower may pledge
Additional Units as part of the Borrowing Base Collateral,
subject to the terms of this Section 3.2.
(2) No Additional Unit may become part of the Borrowing
Base Collateral unless it is within a Project for which the
Lender has issued a Project Commitment to include such Project
in the ABF Program.
(3) In order to pledge an Additional Unit as part of the
Borrowing Base Collateral, the Borrower shall be required to
meet the following conditions precedent with respect to such
pledge:
(i) the Additional Unit must be located in a
Project for which the Lender has issued a Project
Commitment to include such Project in the ABF Program
and shall not have been previously included as part of
the Borrowing Base Collateral;
(ii) the Borrower shall notify Lender of
Borrower's request to include such Additional Unit by
making the appropriate entries in the RFC CF Asset Based
Funding System;
(iii) if the Lender does not already have a Deed
of Trust, UCC Financing Statement and Title Policy
acceptable to the Lender covering such Additional Unit,
the Borrower shall deliver to the Lender a Deed of Trust
(or if requested by Lender, a deed of trust modification
agreement), a UCC Financing Statement and a Title Policy
(or if requested by Lender, a Title Policy Endorsement)
relating to such Additional Unit, each of which shall be
in form and substance acceptable to Lender in Lender's
sole discretion;
(iv) if requested by the Lender, the Borrower
shall deliver to the Lender recording and closing
affidavits and certificates, closing statements,
documents establishing that all taxes, charges, filing
registration and recording fees, excises and levies
imposed by reason of Lender taking a Deed of Trust on
the Additional Unit have been paid, and all other
documents and instruments customarily delivered in
connection with deed of trust transactions in the
jurisdiction in which such Additional Unit is located,
each of which shall be in form and substance acceptable
to Lender in Lender's sole discretion; and
-29-
<PAGE> 35
(v) if requested by the Lender, the Borrower
shall deliver to Lender a favorable opinion of counsel
with respect to the Deed of Trust (or, if requested by
Lender, the deed of trust modification agreement) and
each other Loan Document delivered with respect to the
pledge of such Additional Units in form and substance
satisfactory to Lender.
(b) WIP Reports.
(1) From time to time at the discretion of the Lender, Lender
shall generate an updated WIP Report related to the Borrower's Units
included in the Borrowing Base Collateral. The Lender shall utilize the
WIP Report in determining the Borrowing Base Value, the Borrowing Base
Outstanding Amount, the Borrowing Base Allowable Disbursement Amount and
other information related to the Units included in the ABF Program.
(2) The Borrower shall promptly from time to time update
information in the RFC CF Asset Based Funding System to reflect the
inclusion of Additional Units, changes in stages of construction of
Homes, etc. All information updated by Borrower in the RFC CF Asset
Based Funding System must be approved by Lender and may be adjusted or
modified by Lender in its sole discretion. Lender, in its sole
discretion, may update the RFC CF Asset Based Funding System to reflect
such changes in the Homes and other matters as Lender determines,
including, without limitation, changes to reflect sales of Units.
(3) The Lender may, on any date it determines, deliver a copy of
the most recently generated WIP Report to the Inspector. The Inspector
shall take such actions as the Lender and Inspector deem necessary to
verify the status of the Borrowing Base Collateral as set forth in such
WIP Report, including random inspections of the Projects to confirm the
accuracy of the WIP Report. The Borrower shall take any and all actions
requested by the Lender or Inspector to enable the Inspector to make
such verifications, including but not limited to taking such actions as
are necessary to allow the Inspector access to the Projects. The
Borrower shall pay the costs and expenses of such inspections, provided,
however, that so long as a Potential Default or an Event of Default does
not exist, the Borrower shall be required to pay for only one (1) such
inspection of each of the Units in each of the Projects during each
calendar quarter (the Lender anticipates that the Inspector will inspect
approximately one-third (1/3) of all Units in the ABF Program each
month).
(c) Determination of Borrowing Base Value.
-30-
<PAGE> 36
(1) The Lender shall determine the Borrowing Base Value, taking
into account all Units then comprising the Borrowing Base Collateral
(except the Excluded Units), the status of construction, increases in
the value of the Borrowing Base Collateral as reflected in the most
recently generated WIP Report, decreases in the value of the Borrowing
Base Collateral as a result of the release of Borrowing Base Collateral
as a result of sales or otherwise, and adjustments to the value of the
Borrowing Base Collateral based upon the reports the Lender receives
from the Inspector and/or the Appraiser. The Borrower agrees that no
value shall be assigned to any Excluded Units for purposes of
determining Borrowing Base Value.
(2) For purposes of calculating the Borrowing Base Value, the
following definitions shall be employed:
"Borrowing Base Home Amount" shall mean the amount which shall
be allocated to each Home included in the ABF Program for
purposes of determining the Borrowing Base Value, which amount
shall be equal that amount which is determined by multiplying
the Applicable ABF Advance Rate times the Value of the Unit, and
subtracting therefrom the total amount of the Loan disbursed for
the land acquisition and budgeted for the Development Work
related to such Unit. The Borrowing Base Home Amounts shall be
determined for each design type of Home and shall be set forth
in the applicable Project Commitments.
"Applicable ABF Advance Rate" shall mean (i) with respect to a
Unit in a Conventional Project, (A) 75% of the Value of such
Unit if such Unit is a Spec Unit, or (B) 80% of the Value of
such Unit if such Unit is a Sold Unit or a Model Unit, or (ii)
with respect to a Unit in a High Advance Rate Project, (A) 80%
of the Value of such Unit if such Unit is a Model Unit or Spec
Unit, or (B) 85% of the Value of such Unit if such Unit is a
Sold Unit.
"Percentage Completed" shall mean, with respect to a Home, the
percentage of the construction of the Home which has been
completed, which such percentage shall be based upon the
percentages in the Staged Draw Schedule and shall be set forth
in the most recent WIP Report.
(3) With respect to a Unit included in the ABF Program, on any
date of determination, the Borrowing Base Value shall be that amount
which is
-31-
<PAGE> 37
equal to (A) the Borrowing Base Home Amount for such Unit multiplied by
the Percentage Completed for such Unit; provided, however, that Excluded
Units shall be excluded in determining the Borrowing Base Value,
although such Excluded Units shall remain as part of the collateral for
the Loan until such Excluded Unit is released from the lien of the Deed
of Trust in accordance with the terms of the Loan Documents.
(4) The Borrowing Base Value for Units included in the ABF
Program shall be adjusted by the Lender in its sole discretion (i) to
reflect Units which have been removed as Borrowing Base Collateral, (ii)
to reflect Units which have become Excluded Units, (iii) to reflect
additional construction of the Homes, as set forth in the most recently
generated WIP Report, (iv) to reflect the addition of Additional Units
as part of the Borrowing Base Collateral as approved by the Lender, and
(v) to reflect any change in Value based upon reports the Lender
receives from the Inspector and/or the Appraiser or otherwise.
(d) Determination of Borrowing Base Allowable Disbursement Amount. The
Lender shall determine the Borrowing Base Allowable Disbursement Amount, taking
into account changes in the Borrowing Base Value as determined pursuant to
Section 3.2(c) above and the Borrowing Base Outstanding Amount on any day of
determination. The Borrowing Base Allowable Disbursement Amount is available for
disbursement by the Lender to the Borrower subject to the terms and conditions
for disbursement set forth in this Loan Agreement.
Section 3.3. Processes and Conditions Relating to Disbursements.
(a) All requests for disbursements of proceeds of the Loan shall comply
with the terms of this Section 3.3 and any additional limitations set forth in
this Loan Agreement and the Project Commitments. Disbursements related to the
acquisition of Land and Development Work with respect to all Projects shall be
available two (2) times per month, subject to the provisions of Section 3.3(d)
below. Disbursements related to the construction of Homes under the ABF Program
shall be available daily subject to the provisions of Section 3.3(e) below.
(b) Each disbursement request shall be evidenced by a Draw Request
Certification and, if such disbursement request includes costs for Development
Work, shall be accompanied by the following:
(1) with respect to requested disbursements for costs of
Development Work, a written summary prepared by the Borrower, in detail
-32-
<PAGE> 38
acceptable to the Lender, of the billings of each subcontractor or
vendor with respect to such Development Work for which a disbursement is
being requested, and, upon request of Lender, copies of such billings of
each such subcontractor or vendor;
(2) with respect to requested disbursements for costs of
Development Work, a written certification from the Inspector to Lender,
in a form satisfactory to Lender, that (i) the portion of the
Development Work for which payment is being sought has been completed
and (ii) all Development Work done for which payment is being sought
shall have been completed with sound new materials and fixtures, or
refurbished materials and fixtures that meet the requirements of the
Plans and Specifications, and in a good and workmanlike manner;
(3) with respect to requested disbursements for costs of
Development Work, at Borrower's expense, a "mechanics lien" endorsement
to the Title Policy insuring that there are no liens imposed by law for
services, labor or materials appearing in the public records, and
insuring the full amount of the disbursement, provided that any such
endorsement may show mechanics' liens resulting from the Development
Work if and only if the issuer of the Title Policy shall issue an
endorsement which insures Lender against any loss by reason of such
mechanics' liens and Borrower shall have complied in all respects with
the requirements of Section 6.18; and
(4) such other documents specified in the Project Commitment.
The foregoing submissions shall reflect the cost of all Development Work for
which payment is to be made, and the Draw Request Certification shall specify
the portion of such costs which will be paid out of the requested disbursement
of Loan proceeds, and, if any portion of such costs are to be paid by the
Borrower, the portion of such costs to be paid by the Borrower.
(c) Each disbursement request related to the construction of Homes under
the ABF Program shall specify a requested disbursement which is equal to or less
than the Borrowing Base Allowable Disbursement Amount.
(d) Provided that no Event of Default or Potential Default exists, and
subject to the terms and conditions set forth herein, the Lender will use its
reasonable best efforts to disburse to the Borrower the amount requested
relating to the acquisition of Land and Development Work within five (5)
Business Days after receipt of a Draw Request Certification meeting the
requirements of this Loan
-33-
<PAGE> 39
Agreement, provided that in the event the Lender is unable to make the
disbursement within such time period, the Lender will disburse the proceeds of
the Loan as soon thereafter as possible. All disbursements shall be delivered to
Borrower by federal funds wire transfer as instructed by Borrower.
(e) Provided that no Event of Default or Potential Event of Default
exists, and subject to the terms and conditions set forth herein, so long as the
Lender receives a Draw Request Certification meeting the requirements of this
Loan Agreement on or before 2:00 p.m. (Minneapolis time) on any Business Day,
the Lender will use its reasonable best efforts to disburse to the Borrower the
amount requested in such Draw Request Certification relating to the construction
of Homes under the ABF Program on the next Business Day following such Business
Day on which the Lender received such Draw Request Certification, provided that
in the event the Lender is unable to make the disbursement within such time
period, the Lender will disburse the proceeds of the Loan as soon thereafter as
possible. All disbursements shall be delivered to Borrower by federal funds wire
transfer as instructed by Borrower.
(f) The obligation of Lender to make a disbursement requested by the
Borrower of proceeds of the Loan is subject to fulfillment of all of the
following conditions precedent:
(1) No Event of Default or Potential Default has occurred and is
continuing, or would result from such disbursements or from the
application of the proceeds therefrom.
(2) Lender shall not be obligated to make any disbursement of
the Loan related to a Project if such Project does not satisfy the
project requirements set forth in the Project Commitment for such
Project.
(3) Lender shall not be obligated to make any distribution of
the Loan related to the acquisition of Land or Development Work related
to a Project if the proceeds of the Loan which remain available for
disbursement for such acquisition of Land and Development Work will not
be sufficient to complete such acquisition of Land and the Development
Work related to such Project; provided, however, that the Lender shall
be obligated to make a disbursement notwithstanding such a deficiency in
the event that (i) the Budget for the acquisition of the Land and the
Development Work of such Project and the amount of the Loan available
for such acquisition of the Land and such Development Work have been
increased by an amount at least equal to such deficiency in accordance
with the terms of Section 6.15(d), or (ii) the Borrower provides to the
Lender evidence that it has paid from its own funds,
-34-
<PAGE> 40
in addition to any Borrower funds which the Budget for such Project
requires, an amount at least equal to the amount of such deficiency.
(4) Lender shall not be obligated to make any disbursement of
the Loan related to the acquisition of Land or the Development Work of a
Project to the extent that the related disbursement relates to costs
which are not Qualified Acquisition and Development Expenditures for
such Project.
(5) Lender shall not be obligated to disburse any Loan proceeds
to the extent that any liens (other than liens for real property taxes
that are not yet delinquent) have been filed against the collateral,
except as permitted by Section 6.18;
(6) Lender shall not be obligated to disburse any Loan proceeds
unless all statements made in the applicable Draw Request Certification
are true and correct on and as of the date of the requested
disbursement, before and after giving effect thereto and to the
application of the proceeds therefrom; and
(7) Lender shall not be obligated to disburse any Loan proceeds
unless the representations and warranties of Borrower contained in the
Loan Documents are true and correct in all material respects on and as
of the date of the requested disbursement, before and after giving
effect thereto and to the application of the proceeds therefrom, as
though made on and as of such date.
(g) Lender shall not be obligated to make any disbursement of the Loan
under the ABF Program unless the Lender shall have received from the Title
Company, within thirty (30) days prior to such requested disbursement, a
"date-down endorsement" with respect to the Title Policy relating to each
Project as to which a disbursement of Loan proceeds is requested.
(h) Notwithstanding the failure of any condition precedent to Lender's
obligation to make any disbursement hereunder, Lender may make such disbursement
if Lender, in its sole discretion, determines the making of the same to be
advisable. The making of any disbursement, either before or after the
satisfaction of all conditions precedent with respect to Lender's obligation to
make the same, shall not be deemed to constitute an approval or acceptance by
Lender of the Development Work or the Homes theretofore completed or a waiver of
such condition with respect to a subsequent disbursement.
-35-
<PAGE> 41
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Section 4.1. Consideration. As an inducement to Lender to execute this
Loan Agreement, make the Loan and disburse the proceeds of the Loan, Borrower
represents and warrants to Lender the truth and accuracy of the matters set
forth in this Article IV.
Section 4.2. Organization. Each of the Loan Parties is duly organized,
validly existing and in good standing as a corporation under the laws of its
state of incorporation, is duly qualified to do business and is in good standing
in every jurisdiction where its business or properties require such
qualification and has all requisite power and authority to own and operate its
properties and to carry on its business as now conducted or proposed to be
conducted.
Section 4.3. Authorization. The execution, delivery and performance by
each of the Loan Parties of the Loan Documents to which it is a party have been
duly authorized by all necessary action and do not and will not (i) contravene
the Articles of Incorporation or charter documents of the Loan Parties; (ii)
contravene any law, rule or regulation or any order, writ, judgment, injunction
or decree or any contractual restriction binding on or affecting the Loan
Parties; (iii) require any approval or consent of any partner, shareholder or
any other Person other than approvals or consents which have been previously
obtained and disclosed in writing to Lender; (iv) result in a breach of or
constitute a default under any indenture or loan or credit agreement or any
other agreement, lease or instrument to which either of the Loan Parties is a
party or by which either of the Loan Parties or its properties may be bound or
affected; or (v) result in, or require the creation or imposition of, any lien
of any nature (other than the liens contemplated hereby) upon or with respect to
any of the properties now owned or hereafter acquired by either of the Loan
Parties; and neither of the Loan Parties is in default in any material respect
under any such law, rule, regulation, order, writ, judgment, injunction, decree
or contractual restriction or any such indenture, agreement, lease or
instrument.
Section 4.4. Governmental Consents. No authorization or approval or
other action by, and no notice to or filing with, any governmental authority or
regulatory body is required for the due execution, delivery and performance by
either of the Loan Parties of the Loan Documents to which it is a party or any
other document executed pursuant thereto or in connection therewith.
Section 4.5. Validity. The Loan Documents have been duly executed and
delivered by and constitute the legal, valid and binding obligations of the Loan
Parties, enforceable in accordance with their respective terms.
-36-
<PAGE> 42
Section 4.6. Financial Position. As of the dates prepared, the financial
statements and all financial data heretofore delivered to Lender in connection
with the Loan and/or relating to the Loan Parties are true, correct and complete
in all material respects and were prepared in accordance with GAAP consistently
applied. Such financial statements fairly present the financial position of the
Persons who are the subject thereof as of the dates thereof.
Section 4.7. Governmental Regulations. Neither of the Loan Parties is
subject to regulation under the Investment Company Act of 1940, the Federal
Power Act, the Public Utility Holding Company Act of 1935, the Interstate
Commerce Act, as the same may be amended from time to time, or any federal or
state statute or regulation limiting its ability to incur Debt.
Section 4.8. Employee Benefit Plans. Neither of the Loan Parties
maintains any pension, retirement, profit sharing or similar employee benefit
plan that is subject to ERISA other than a plan pursuant to which such entity's
contribution requirement is made concurrently with the employees' contributions.
Section 4.9. Securities Activities. Neither of the Loan Parties is
engaged principally, or as one of its important activities, in the business of
extending credit for the purpose of purchasing or carrying any margin stock (as
defined in Regulation U of the Board of Governors of the Federal Reserve System
in effect from time to time) and not more than twenty-five percent (25%) of the
value of the assets of either of the Loan Parties consists of such margin stock.
Section 4.10. No Material Adverse Change. No Material Adverse Change has
occurred since December 31, 1999.
Section 4.11. Payment of Taxes. All tax returns and reports required to
be filed by each of the Loan Parties have been timely filed, or proper
extensions for filing have been obtained, and all taxes, assessments, fees and
other governmental charges upon each of the Loan Parties and its properties,
assets, income and franchises which are due and payable have been paid when due
and payable, or proper extensions for payment have been obtained, except to the
extent that such taxes, assessments, fees and other governmental charges or the
failure to pay the same would not be material to the respective business,
properties, assets, operations, condition (financial or otherwise) or business
prospects of such Loan Party. Neither of the Loan Parties has any knowledge of
any proposed tax assessment against either of the Loan Parties that could be
material to its business, properties, assets, operations, condition (financial
or otherwise) or business prospects.
-37-
<PAGE> 43
Section 4.12. Litigation. There is no pending or, to the knowledge of
the Loan Parties, threatened action, suit, proceeding or arbitration against or
affecting either of the Loan Parties before any court, governmental agency or
arbitrator, which may result in a Material Adverse Change.
Section 4.13. Environmental Matters. The operations of each of the Loan
Parties comply in all respects with all Hazardous Materials Laws except such
noncompliance which would not (if enforced in accordance with applicable law)
reasonably be expected to result, individually or in the aggregate, in a
Material Adverse Change. As of the date of this Loan Agreement, (i) neither of
the Loan Parties nor the present properties or operations of the Loan Parties is
subject to any outstanding written order from or settlement or consent agreement
with any governmental authority or other Person, nor is any of the foregoing
subject to any judicial or docketed administrative proceeding respecting any
Hazardous Materials Law, Hazardous Materials Claim or Hazardous Material, and
(ii) there are no other conditions or circumstances known to either of the Loan
Parties which may give rise to any Hazardous Materials Claim arising from the
operations of either of the Loan Parties.
Section 4.14. No Burdensome Restrictions. Neither of the Loan Parties is
a party to or bound by any contract or agreement, or subject to any charter or
corporate restriction or any requirement of law, which would reasonably be
expected to result in a Material Adverse Change.
Section 4.15. Full Disclosure. None of the statements contained in any
exhibit, report, statement or certificate furnished by or on behalf of either of
the Loan Parties in connection with the Loan Documents contains any untrue
statement of a material fact, or omits any material fact required to be stated
therein or necessary to make the statements made therein, in light of the
circumstances under which they are made, not misleading; provided, however, that
it is recognized by Lender that projections and forecasts provided and to be
provided by Loan Parties, while reflecting the Loan Parties' good faith
projections or forecasts based upon methods and data the Loan Parties believe to
be reasonable and accurate, are not to be viewed as facts and that actual
results during the period or periods covered by any such projections and
forecasts may differ from the projected or forecasted results.
Section 4.16. Adequate Consideration. The Borrower represents and
warrants to Lender that prior to the Loan Parties entering into the Loan
Documents to which it is a party, each of the Loan Parties has reviewed the
benefits to be provided to it as a result of the Lender making the Loan and has
concluded that such benefits are reasonably equivalent in value to the
collateral to be pledged to secure the Loan and the obligations assumed and to
be assumed by the Loan Parties pursuant to the Loan Documents.
-38-
<PAGE> 44
ARTICLE V
COVENANTS OF BORROWER
Section 5.1. Consideration. As an inducement to Lender to execute this
Loan Agreement, make the Loan and make each disbursement of the Loan, Borrower
hereby covenants as set forth in this Article V.
Section 5.2. Affirmative Covenants. Unless Lender shall otherwise
consent in writing, so long as any amount payable hereunder or under any other
Loan Document shall remain unpaid or Lender shall have any commitment to
disburse the Loan hereunder, Borrower shall, and Borrower shall cause each other
Loan Party to:
(a) Reporting Requirements. Furnish or cause to be furnished to
Lender the following notices and reports:
(1) Weekly, Monthly and Quarterly Reports. The following
reports:
(A) On or before the fifth (5th) day after the
end of each week, a weekly sales report for all of the
Borrower's construction and development projects,
including, without limitation, the Projects; and
(B) Upon Lender's written request, from time to
time, a status report relating to the Projects which
sets forth the progress of construction and actual costs
of acquisition and development for each Project as
compared with the Budget for such Project;
(2) Quarterly Financial Reports. As soon as possible and
in any event within forty five (45) days after the end of each
fiscal quarter of the Guarantor (other than the last quarter of
any fiscal year), the following: (i) unaudited financial
statements of the Guarantor and its Subsidiaries (including the
Borrower) on a fully consolidated basis (and with respect to the
Borrower, on a consolidating basis), which financial statements
shall include (A) a balance sheet as at the end of such fiscal
quarter and (B) statements of income and cash flow for the
period from the beginning of the then current fiscal year to the
end of such fiscal quarter and setting forth in comparative form
figures for the corresponding period of the preceding fiscal
year, all in reasonable detail and in accordance with GAAP
consistently applied and certified by the President, Senior Vice
President or Senior Vice President and Chief Financial Officer
of the Guarantor to fairly present the financial condition of
the Guarantor and its Subsidiaries (including the Borrower) on a
fully consolidated basis (and with respect to the Borrower, on a
consolidating basis) as at the end
-39-
<PAGE> 45
of such fiscal quarter and the results of the operations of the
Guarantor and its Subsidiaries (including the Borrower) on a
fully consolidated basis (and with respect to the Borrower, on a
consolidating basis) for the period ending on such date; (ii) a
summary report of accounts payable aging, and (iii) a written
statement certifying that the Loan Parties are in compliance
with the terms of the Loan Documents, or if the Loan Parties are
not in compliance, specifying the details of the non-compliance
and the action being taking to correct such non-compliance;
(3) Annual Financial Statements. As soon as possible and
in any event within one hundred twenty (120) days after the end
of each fiscal year of the Guarantor, audited financial
statements of the Guarantor and its Subsidiaries (including the
Borrower) on a fully consolidated basis (and with respect to the
Borrower, on a consolidating basis), which financial statements
shall include a balance sheet as at the end of such fiscal year,
statements of income, shareholders' equity and cash flow for
such fiscal year, and setting forth in each case in comparative
form figures for the preceding fiscal year, all in reasonable
detail and in accordance with GAAP consistently applied
accompanied by an unqualified opinion issued by an independent
certified public accountant acceptable to Lender;
(4) Notice of Labor Controversy. As soon as possible and
in any event within five (5) Business Days after Borrower has
knowledge of its occurrence, written notice of any labor
controversy resulting in a material strike, work stoppage,
shutdown or other material labor disruption against or involving
Borrower or any Project;
(5) Notice of Material Adverse Change. Promptly upon its
occurrence, written notice and a description of any matter which
has resulted, or will result, in a Material Adverse Change;
(6) Notice of Defaults or Potential Defaults. As soon as
possible and in any event within five (5) Business Days after
Borrower has knowledge of the occurrence of any Potential
Default (however described) or Event of Default hereunder or an
event of default (however described) under any other of the Loan
Documents, written notice and a description of such Potential
Default, Event of Default or event of default and the action
which Borrower proposes to take with respect thereto;
(7) Notices of Default Regarding Other Development
Projects. As soon as possible and in any event within five (5)
Business Days after Borrower
-40-
<PAGE> 46
has knowledge of the occurrence of (i) any event of default
under any loan or other financing facility, including seller
financing, made for a development or construction project
comparable to a Project and involving either of the Loan
Parties, which event of default is likely to result in a
Material Adverse Change, or (ii) any event of default under any
other loan or credit agreement relating to other debt incurred
by either of the Loan Parties, which event of default is likely
to result in a Material Adverse Change, written notice and a
description of such event of default under subparagraph (i) or
(ii) above and the cure period and the action which Borrower
proposes to take with respect thereto;
(8) Notice of Litigation. As soon as possible and in any
event within five (5) Business Days after institution thereof,
(i) written notice and a description of any adverse litigation,
action or proceeding relating to any Project or (ii) written
notice and a description of any other adverse litigation, action
or proceeding commenced against either of the Loan Parties which
would, if adversely determined against such Loan Party, result
in a Material Adverse Change;
(9) Notices Regarding Hazardous Materials. Promptly upon
its occurrence, written notice and a description of the Release
of any Hazardous Material, or any liability with respect
thereto, on, under or in connection with a Project and the
action which Borrower proposes to take with respect thereto;
(10) Notices Regarding Projects. Promptly and in any
event within five (5) Business Days after receipt by Borrower,
copies of all (i) notices of violation relating to and adversely
affecting any Project that Borrower receives from any
governmental agency or authority, (ii) notices of default that
Borrower receives under the Construction Agreements or any other
agreement relating to and adversely affecting any Project, and
(iii) notices of default that Borrower receives under any
agreement relating to the borrowing of money by Borrower for any
Project from any Person; and
(11) Other Information. Such other information
respecting the business, properties, assets, operations and
condition, financial or otherwise, of the Loan Parties and the
Projects, including, without limitation, copies of Project
construction and sales reports and information to verify the
calculation and accuracy of the Gross Selling Price for Units,
all as Lender may from time to time reasonably request.
-41-
<PAGE> 47
(b) Compliance with Laws, Etc. Comply in all material respects,
with all applicable laws, rules, regulations and orders of any
governmental authority, the noncompliance with which is likely to result
in a Material Adverse Change.
(c) Payment of Taxes and Claims. Pay all taxes, assessments and
other governmental charges imposed upon it or any of its properties or
assets or in respect of any of its franchises, business, income or
profits before any penalty accrues thereon, and all other claims
(including, without limitation, claims for labor, services, materials
and supplies) for sums which have become due and payable and which by
law have or may become a lien upon any of its properties or assets.
Notwithstanding the foregoing, either of the Loan Parties may, at its
expense, contest the validity or application of any such taxes,
assessments, other governmental charges and other claims by appropriate
legal proceedings promptly initiated and diligently conducted in good
faith, provided that, with respect to mechanic's liens for any Project,
Borrower complies with the terms and requirements of Section 6.18 of
this Loan Agreement.
(d) Maintenance of Properties; Books and Records. Maintain or
cause to be maintained:
(1) in good repair, working order and condition all
properties and assets material to the continued conduct of the
business of either of the Loan Parties, and from time to time
make or cause to be made all necessary repairs, renewals and
replacements thereof; and
(2) proper books, records and accounts in which full,
true and correct entries in accordance with GAAP consistently
applied are made of all financial transactions and matters
involving its assets and business.
(e) Maintenance of Existence. Maintain and preserve its
existence and all rights, privileges, qualifications, permits, licenses,
franchises and other rights material to its business.
(f) Further Assurances. Execute and deliver at any time and from
time to time any and all instruments, agreements and documents, and
shall take such other action as Lender reasonably requires to maintain,
perfect or insure Lender's security provided for under the Loan
Documents, including, without limitation, the execution of amendments to
the Loan Documents.
(g) Management. At all times, maintain professional and
qualified management and staff, as determined in the reasonable
discretion of the Borrower, to manage, operate and maintain the
Projects.
-42-
<PAGE> 48
Section 5.3. Negative Covenants. So long as any amount payable hereunder
or any other Loan Document still remains unpaid or Lender shall have any
commitment to disburse the Loan hereunder, Borrower shall not, unless Lender
shall otherwise consent in writing:
(a) Liens. Subject to the rights of the Borrower pursuant to
this Loan Agreement, create, assume or suffer to exist any lien,
security interest or other charge or encumbrance, or any other type of
preferential arrangement, upon the collateral for the Loan assigned to
Lender by Borrower pursuant to the Project Security Instruments,
excluding, however, liens for taxes and assessments which are not yet
delinquent.
(b) Sales, Etc. of Assets; Ownership of Collateral. Make any
material transfer, pledge or hypothecation of (i) any assets of the
Borrower (in a single transaction or a series of related transactions)
other than to secure real estate loans to other lenders in the normal
course of business or other transfers in the ordinary course of
business, or (ii) any of the collateral for the Loan assigned to Lender
pursuant to the Project Security Instruments; provided, however, that
the foregoing restriction shall not apply to any sale of a Lot or a Sold
Unit in the ordinary course of the business of the Borrower; provided
further, however, that in no event shall the Borrower be allowed to
grant subordinate liens or security interests on the Projects.
(c) Change in Nature of Business. Make any change in the nature
of its business as carried on at the date hereof.
(d) Land Banking or Land Speculation. Permit the use of Loan
proceeds for Land Banking or Land Speculation.
(e) Use of Proceeds. Use any part of the proceeds of the Loan to
(i) purchase or carry any margin stock (within the meaning of Regulation
U issued by the Board of Governors of the Federal Reserve System), (ii)
repay or otherwise refinance indebtedness of Borrower or others incurred
to purchase or carry any margin stock, (iii) extend credit for the
purpose of purchasing or carrying any margin stock, or (iv) acquire any
security in any transaction that is subject to Section 13 or 14 of the
Securities Exchange Act of 1934, as amended, and regulations promulgated
thereunder.
Section 5.4. Financial Covenants. Borrower shall cause the Guarantor to
comply with each of the following financial covenants:
-43-
<PAGE> 49
(a) Net Worth. The Guarantor and its Subsidiaries (including the
Borrower) shall maintain at all times a Net Worth equal to or in excess
of the amount set forth below opposite the applicable period set forth
below:
<TABLE>
<CAPTION>
Applicable Period Minimum Net Worth Amount
----------------- ------------------------
<S> <C>
From the date hereof through December 31, 2000 $45,000,000
Each calendar year after the calendar year The Required Net Worth Amount
ended December 31, 2000
</TABLE>
As used in this Section 5.4, the "Required Net Worth Amount" for any
given calendar year shall be an amount equal to the sum of the minimum
Net Worth required under this Section 5.4 as of the immediately
preceding calendar year plus fifty percent (50%) of the Net Income
realized by the Guarantor and its Subsidiaries (including the Borrower)
during such immediately preceding calendar year (with any net loss
counting as zero in such calculation).
(b) Ratio of Total Liabilities to Net Worth. The Guarantor and
its Subsidiaries (including the Borrower) will maintain at all times the
ratio of its Total Liabilities to Net Worth of not more than the ratio
set forth below opposite the applicable period set forth below:
<TABLE>
<CAPTION>
Applicable Period Ratio
----------------- ------------
<S> <C>
From the date of the Loan Agreement through
December 31, 2000 5.00 to 1.00
From January 1, 2001 through December 31, 2001 4.50 to 1.00
From and after January 1, 2002 4.00 to 1.00
</TABLE>
Section 5.5. Insurance. Borrower shall maintain or cause its contractors
to maintain the insurance required by the terms of this Loan Agreement and shall
deposit with Lender original, duplicate original or certified copies of
insurance certificates issued by insurance companies with current Best's Key
Ratings of not less than A/IX and written in form and content acceptable to
Lender, providing the following minimum insurance coverages:
(a) For each Project, all-risk course of construction insurance
(non-reporting form) in the minimum amount of the proposed construction
cost for such
-44-
<PAGE> 50
Project on a replacement cost basis against loss or damage by hazards
customarily included within "extended coverage" policies, and any other
risks or hazards which in Lender's reasonable judgment should be insured
against, with a Lender's Loss Payable Endorsement naming Lender as a
mortgagee together with a full replacement cost endorsement (without
provisions for co-insurance).
(b) "Comprehensive General Liability" insurance in the minimum
"general aggregate" amount of Two Million Dollars ($2,000,000), in the
minimum "occurrence" limit of One Million Dollars ($1,000,000) and in
the minimum "umbrella" amount of Ten Million Dollars ($10,000,000), all
against claims for "personal injury" liability, including bodily injury,
death or damage to the project liability, including completed operations
and contractual liability and also including owners' and contractors'
protective coverage naming Lender as an additional insured.
(c) Workers' compensation insurance as prescribed by the laws of
each state in which the Borrower is required to maintain such insurance,
and employers' liability with limits as prescribed by law.
(d) For each Project, flood insurance in the maximum amount of
the proposed land acquisition, development work and home construction
cost for such Project or the maximum coverage available, whichever is
less, designating Lender as payee, or evidence satisfactory to Lender
that the Project is not located within an area designated as within the
100 year flood plain under the National Flood Insurance Program.
(e) Insurance with respect to its properties, assets and
business against loss or damage of the kinds customarily insured against
by Persons of established reputation engaged in the same or similar
business and similarly situated, of such types and in such amounts as
are customarily carried under similar circumstances by such other
Persons, all in accordance with reasonably prudent industry standards.
Each policy of insurance required under this Section 5.5 shall contain
the "standard non-contributory mortgagee clause" and the "standard lenders' loss
payable clause," or their equivalents, in favor of Lender and/or its assignees,
and shall provide that it shall not be modified or canceled without thirty (30)
days' prior written notice to Lender. Borrower shall also furnish Lender with
receipts for the payment of premiums on such policies or other evidence of such
payment reasonably satisfactory to Lender. In the event Borrower does not
deposit with Lender a new policy of insurance with evidence of payment of
premiums thereon at least thirty (30) days prior to the expiration of any
expiring policy, then Lender may, but shall not be obligated to, procure such
insurance, and Borrower shall pay the premiums thereon to Lender promptly upon
demand. If the Borrower has a blanket insurance
-45-
<PAGE> 51
policy in force providing coverage for several properties of the Borrower, the
Lender will accept a certificate of such insurance together with a copy of such
blanket insurance policy and a Lender's Loss Payable Endorsement naming Lender
as a mortgagee, provided that the certificate identifies all of the Projects and
sets forth the coverage and amounts of insurance and such coverage and amounts
of insurance comply with each of the requirements set forth in this Section 5.5.
Lender shall not, by the fact of approving, disapproving, accepting, preventing,
obtaining or failing to obtain any such insurance, incur any liability for the
form or legal sufficiency of insurance contracts, solvency of insurers or
payment of losses, and Borrower hereby expressly assumes full responsibility
therefor and all liability related thereto, if any.
Section 5.6. Prohibited Transfers. Borrower shall not, and shall not
cause, allow or permit a Transfer without the prior written consent of Lender,
which consent may be withheld or conditioned in Lender's absolute discretion. To
the extent any Transfer consented to by Lender involves any of the Projects of
Borrower or any of Borrower's obligations under the Loan Documents, any
permitted transferee shall, as a condition of the effectiveness of any consent
by Lender hereunder, assume all of Borrower's obligations under the Loan
Documents and agree to be bound thereby. Such assumption shall not, however,
release Borrower from any liability under the Loan Documents. Consent to any
Transfer by Lender shall not be deemed a waiver of Lender's right to require
such consent to any further or future Transfers. The foregoing provisions shall
not apply to sales of the Lots and Homes to home buyers in the ordinary course
of Borrower's business.
ARTICLE VI
THE PROJECTS
Section 6.1. Consideration. As an inducement to Lender to execute this
Loan Agreement and to make each disbursement of the Loan, Borrower represents
and warrants to the truth and accuracy of the matters regarding each Project set
forth in this Article VI and hereby covenants regarding each Project as set
forth in this Article VI. With respect to a future Project, Borrower represents
and covenants to the truth and accuracy of the matters regarding such Project
set forth in this Article VI and covenants regarding such Project as set forth
in this Article VI from and after the point in time when Lender issues a Project
Commitment to Borrower with respect to such Project.
Section 6.2. Title to the Projects. Borrower is, or will be upon
acquisition of the Land related to each Project and the construction of the
Development Work and Homes related to each Project, the sole legal and
beneficial owner of such Land, Development Work and Homes, free and clear of all
claims, liens and encumbrances other than Permitted Exceptions. All of the
personal property which forms a part of such Development Work and Homes is or
will be vested solely in Borrower, free and clear of all claims, liens and
-46-
<PAGE> 52
encumbrances, and the security interest of Lender in such personal property is a
first lien thereon.
Section 6.3. No Prior Liens or Claims. Except as otherwise may have been
approved in writing by Lender and as to which Lender shall have received such
endorsements (including mechanics lien coverage) to the Title Policy as Lender
may require to assure the priority of the Deed of Trust as a valid first lien on
each Project, Borrower represents that, prior to recordation of the Deed of
Trust, neither it, nor anyone acting on Borrower' s behalf has (i) commenced
construction of the Development Work or the Homes, or any grading or site
clearance related thereto, (ii) purchased, contracted for or otherwise brought
upon the Land related to any such Project any materials, specially fabricated or
otherwise, to be incorporated into the Development Work or the Homes related to
any such Project, or (iii) entered into any contract or arrangement, the
performance of which by any other party thereto could give rise to a lien or
claim on any such Project or any portion thereof.
Section 6.4. Access to the Projects. All roads, streets, traffic turn
lanes, and access ways necessary for the full utilization of each Project for
its intended purpose have either been completed or the necessary rights of way
have either been acquired or conditionally approved for acquisition by the
appropriate governmental authority or have been dedicated to or conditionally
approved for dedication for public use and by the appropriate governmental
authority, and all necessary steps have been taken by Borrower and the
appropriate governmental authority to assure the complete construction and
installation thereof by the time needed for construction and/or occupancy and
operation of each such Project.
Section 6.5. Compliance with Project Requirements and Laws and
Regulations. Each Project, the proposed and actual use thereof, the Development
Work and the Homes related thereto, when completed, will comply with the Project
Requirements and with the Laws and Regulations, and there is no action or
proceeding pending or, to the knowledge of Borrower (after due inquiry),
threatened before any court, quasi-judicial body or administrative agency at the
time of any disbursement by Lender relating to the validity of the Loan or the
proposed or actual use of any Project.
Section 6.6. Covenants, Zoning, Codes, Permits and Consents. Borrower is
familiar with and has complied with, or will comply with, all of the Laws and
Regulations to be complied with in connection with the construction of the
Development Work and the Homes related to each Project. Except as set forth in
the Project Commitment applicable to each Project, all permits, licenses,
consents, approvals or authorizations by, or registrations, declarations,
withholding of objections or filings with any governmental body necessary in
connection with the valid execution, delivery and performance of the Loan
Documents, and any and all other documents executed in connection with any of
the foregoing, necessary for the subdivision of the Land related to each such
Project, necessary for the construction of the
-47-
<PAGE> 53
Development Work and the Homes related to each such Project, and necessary for
the marketing and sale of the Homes related to each such Project, have been
obtained or will be obtained on a timely basis and are or will be valid,
adequate and in full force and effect. Construction of the Development Work and
the Homes related to each such Project and the intended use thereof will in all
respects conform to and comply with all Laws and Regulations, including without
limitation all applicable zoning, subdivision, environmental protection, use and
building codes, laws, regulations and ordinances.
Section 6.7. Utilities. All utility services and facilities necessary
for the construction, sale and occupancy of each Project and the operation
thereof for its intended purpose are either available at the boundaries of the
Land related to each such Project, or, if not, all necessary steps have been
taken by Borrower and the local authority or public utility company which
provides such services to assure the complete installation and availability
thereof when needed for construction, sale, occupancy and operation of each such
Project.
Section 6.8. Map, Permits. Licenses and Approvals. Borrower has
obtained, or will in a timely manner obtain, a Map for each Project. Borrower
shall properly comply with and keep in effect each Map and all permits, licenses
and approvals which are required to be obtained from governmental bodies in
order to construct, occupy, operate, market and sell each such Project. Borrower
shall promptly deliver copies of each Map and all such permits, licenses and
approvals to Lender.
Section 6.9. Approval of Plans and Specifications and Approval of
Budgets.
(a) The Development Work Plans and Specifications for each
Project are a true, complete and accurate reflection of the Development
Work that Borrower will construct with respect to such Project. The Home
Plans and Specifications for each Project are a true, complete and
accurate reflection of the Homes that the Borrower will construct with
respect to such Project. The Plans and Specifications for each Project
are satisfactory to Borrower and have been reviewed and approved by
Borrower and the general contractor for such Project (if different from
the Borrower), and have also been approved, or will be approved in a
timely manner, as required by all governmental bodies or agencies having
jurisdiction (including, without limitation, any local design review
boards) and by the beneficiary of any restrictive covenant affecting
such Project. There are no structural defects in the Development Work or
the Homes as shown in the Plans and Specifications for any Project, and
no violation of any of the Laws and Regulations exists with respect to
the Plans and Specifications for any Project.
(b) After diligent investigation of all relevant conditions and
due consultation with such parties as Borrower deems appropriate,
Borrower represents
-48-
<PAGE> 54
that the Budget for each Project identifies on a line item basis all
costs to be incurred in connection with the Development Work and the
Homes for such Project and all costs for which proceeds of the Loan are
to be disbursed. The Budget for each Project reflects Borrower's best,
true, accurate and complete estimate of the costs shown therein and of
the costs estimated to be necessary to construct the Development Work
and the Homes for such Project in accordance with the Plans and
Specifications for such Project.
Section 6.10. Adequacy of Acquisition and Development Amount. With
respect to each Project, the aggregate amount of the Acquisition and Development
Amount is sufficient to pay all costs of the acquisition of the Land and all
costs of the Development Work for such Project in accordance with the
Development Work Plans and Specifications and all remaining costs related
thereto, except as has been specifically disclosed to and approved in writing by
Lender.
Section 6.11. Construction Start and Completion. Borrower shall commence
construction of the Development Work and the Homes for each Project no later
than the date set forth in the Project Commitment and shall thereafter
diligently proceed with construction and completion of the Development Work and
the Homes in a good and workmanlike manner in accordance with the Plans and
Specifications for such Project and the Construction Progress Schedule for such
Project; provided however that in the event construction of a Project is subject
to delays caused by any Force Majeure Event, the Borrower shall provide to the
Lender written notice of such delay, and if such delay will not exceed one
hundred twenty (120) days in the aggregate or is otherwise reasonable in length,
the Borrower shall not be deemed in default of its obligations assumed pursuant
to this Loan Agreement solely by reason of such delay. The Borrower shall cause
the Development Work and the Homes for each Project at all times to materially
conform to the Laws and Regulations and shall accomplish completion of the
Development Work and the Homes of such Project in accordance with the
Construction Progress Schedule for such Project. Borrower shall cooperate at all
times with Lender in bringing about the timely completion of each element of the
Development Work and the Homes for each Project, and Borrower shall resolve all
disputes arising during the work of construction in a manner which shall allow
work to proceed expeditiously.
Section 6.12. Personal Property Incorporation. All personal property for
which Lender advances Loan proceeds for a Project is to be stored on the Land
for such Project and in Lender' s judgment must be reasonably secure from damage
and theft and fully insured at all times.
Section 6.13. Contractors and Contracts. Upon demand by Lender, the
Borrower shall furnish to Lender, from time to time, correct lists of all
contractors and subcontractors
-49-
<PAGE> 55
employed in connection with the Development Work and the Homes for each Project.
Each such list shall show the name, address and telephone number of each such
contractor or subcontractor, a general statement of the nature of the work to be
done, the labor and materials to be supplied, the names of materialmen, if
known, and the approximate dollar value of such labor, work and materials with
respect to each. Upon an Event of Default, Lender shall have the right, and at
any time the Inspector shall have the right (in both cases without either the
obligation or the duty), to contact directly each contractor, subcontractor and
materialman to verify the facts disclosed by said list or for any other purpose.
Section 6.14. Evidence of Ownership of Materials. If requested by
Lender, Borrower shall promptly deliver to Lender any bills of sale, statements,
receipts, contracts or agreements under which Borrower claims title to any
materials, fixtures or articles incorporated into the Development Work and the
Homes of any Project.
Section 6.15. Changes to Plans and Specifications and Budgets.
(a) The following Changes, whether made by change order or
otherwise, to any of (i) the Budget for a Project or the schedule of the
costs of the Homes for a Project, (ii) the Plans and Specifications for
a Project and/or (iii) working drawings relating to the Development Work
or Homes of a Project, shall require the prior written approval of the
Lender:
(1) any Change which, together with all prior increases,
will result in an increase to the total Budget for the
Development Work of a Project of five percent (5%) or more, it
being understood that the foregoing shall not apply to increases
to particular line items of such Budget unless such increase to
the line item will result in an increase to such total Budget
for the Development Work of five percent (5%) or more; and
(2) any Change which, together with all prior decreases,
will result in a decrease to the total Budget for the
Development Work of a Project of five percent (5%) or more, it
being understood that the foregoing shall not apply to decreases
to particular line items of such Budget unless such decrease to
the line item will result in a decrease to such total Budget for
the Development Work of five percent (5%) or more; provided,
however, that the Borrower shall not offset against each other
increases and decreases in such total Budget for the Development
Work, it being the intent that an increase or a decrease in such
total Budget for the Development Work which meets either the
threshold set forth in subparagraph (a)(1) or the threshold set
forth in this subparagraph (a)(2) shall require the prior
approval of the Lender.
-50-
<PAGE> 56
(b) As a condition to its approval of any Change described in
subparagraph (a), Lender may require verification that such Change:
(1) is a Change as to which the Borrower has complied
with the terms of subparagraph (d) of this Section 6.15;
(2) will not adversely affect the value of Lender's
security;
(3) is not a material change in structure, design,
exterior appearance, square footage, or function;
(4) would not cause an increase in any line item or
category of such Budget in excess of the contingencies (if any)
specifically contained in such Budget for that line item or
category; and
(5) would be consistent with the Laws and Regulations.
Lender is under no duty to review or inform Borrower of the
quality or suitability of the Plans and Specifications for any Project,
any contract or subcontract or any changes thereto. Without limitation
of the foregoing, Borrower shall obtain Lender's prior written approval
of any alteration in the Plans and Specifications for any Project which
might adversely affect the value of Lender's security or which,
regardless of cost, is a material change in structure, design, function
or exterior appearance.
(c) Borrower agrees to provide Lender with copies of all change
orders, together with all additional documents that Lender may require
in order to evaluate a request for approval of a Change of a type
described in subparagraph (a) above. These documents may include the
following: (i) a written description of the Change and related working
drawings and (ii) a written estimate of the cost of the Change and the
time necessary to complete it. Lender may take a reasonable time to
evaluate any requests for approval of a Change, and may require that all
other approvals required from other parties be obtained before it
reviews any requested Change; provided however that to the extent the
Lender's consent is required by a governmental entity prior to such
governmental entity giving its consent, Lender shall not require that
all other approvals required from other parties be obtained before it
reviews any requested Change. Lender may approve or disapprove Changes
in the exercise of its reasonable judgment. Borrower acknowledges that
delays may result, and agrees that so long as any delays caused by
Lender are not unreasonable in duration, they shall not affect
Borrower's obligation to complete each element of the Development Work
-51-
<PAGE> 57
and the Homes of a Project in accordance with the Construction Progress
Schedule for such Project.
(d) In the event that either:
(1) the proceeds of the Loan which are available for
disbursement for the Development Work of a Project will not be
sufficient to complete such Development Work for such Project as
scheduled; or
(2) the costs of the Development Work for such Project
have increased over the amount set forth in the Budget for such
Development Work by an amount in excess of the amount set forth
in subparagraphs (a)(1) or (a)(2),
then the Borrower shall submit to the Lender a revised budget for such
Project, together with (i) a request that the Lender approve an increase
in the Acquisition and Development Amount for such Project, which
request the Lender may approve or disapprove in its absolute and sole
discretion, or (ii) evidence that the Borrower has sufficient funds to
pay the increased costs, in which event the Lender shall not be
obligated to disburse additional amounts of the Loan pursuant to the
provisions of Section 3.1 until such time as the Borrower provides to
the Lender evidence that it has paid from its own funds, in addition to
any Borrower funds which the Budget for such Project requires, an amount
at least equal to the increase; provided however that in the event
Borrower provides to Lender the required evidence, as set forth in the
preceding provision, Lender shall make additional disbursements of
proceeds of the Loan, subject to the terms and conditions of the Loan
Documents. Any such revised Budget for such Project submitted to the
Lender shall be accompanied by a written report from the Inspector
stating that the Inspector has reviewed and approved such revised
Budget.
(e) In addition to obtaining the prior written approval of the
Lender in connection with any Change described in this Section 6.15, the
Borrower shall also obtain, to the extent that such approvals may be
required, (i) the approvals of the appropriate governmental authorities
to any Change and (ii) from the appropriate persons or entities
approvals of any alterations in the Map for such Project, the Plans and
Specifications for such Project or any work, materials or contracts for
such Project that are required by any of the Laws and Regulations or
under the terms of the Project Commitment for such Project or the other
Loan Documents.
Section 6.16. Lender Inspections, Appraisal and Information. During
normal business hours, the Borrower shall arrange for the Lender, the Inspector
or any other
-52-
<PAGE> 58
authorized representative of Lender, at the reasonable expense of Borrower, to
visit, inspect or appraise each Project, the materials to be used thereon or
therein, contracts, records, plans, specifications and shop drawings relating
thereto, whether kept at Borrower's offices or at the construction site for such
Project or elsewhere, and the books, records, accounts and other financial and
accounting records of Borrower wherever kept, and to make copies and take
extracts thereof and therefrom as often as may be requested at Borrower's cost
and expense. Borrower will cooperate with Lender to enable the Lender, the
Inspector or such other authorized representatives of the Lender to conduct such
visits, inspections and appraisals. The costs of the Inspector and the other
authorized representatives of the Lender, and of such inspections and appraisals
shall be borne by Borrower and shall be paid within thirty (30) days of
Borrower's receipt of any invoice with respect thereto.
Section 6.17. Correction of Defects. If Lender in its reasonable
judgment determines that any Development Work, Homes or materials related to a
Project fail to conform to the Map for such Project, any Laws and Regulations
applicable to such Project, the Plans and Specifications for such Project or
sound building practices, or that they otherwise depart from any of the
requirements of this Loan Agreement, Lender may require the work to be stopped
and withhold disbursements until the matter is corrected. If this occurs,
Borrower shall promptly correct the work to Lender's reasonable satisfaction,
and pending completion of such corrective work shall not allow any other work
which is dependent upon or directly related to the work requiring correction to
proceed. No such action by Lender shall affect Borrower's obligation to complete
each element of the Development Work and the Homes for such Project within the
times required by this Loan Agreement. The advance of any Loan proceeds shall
not constitute a waiver of Lender's right to require compliance with this
covenant.
Section 6.18. Protection Against Lien Claims.
(a) Borrower shall pay and discharge, or cause to be paid and
discharged, promptly and fully all claims for labor done and materials
and services furnished in connection with the Development Work and the
Homes for each Project, and take or cause to be taken all reasonable
steps to forestall the assertion of claims of lien against each such
Project or any part thereof. Upon the request of the Lender, Borrower
shall obtain a lien waiver with respect to each payment by or to the
Borrower and each of the various subcontractors and materialmen (and the
major subcontractors and submaterialmen under them) for each Project,
and Lender, at any time, at its option, may require that Borrower make
any payments for which disbursements are made hereunder by joint check
made payable to the Borrower and the subcontractor or sub-subcontractor
for whose account such payment is to be made, as joint payees.
-53-
<PAGE> 59
(b) Nothing herein contained shall require Borrower to pay any
claims for labor, materials, or services which Borrower in good faith
disputes and which Borrower, at its own expense, currently and
diligently contests, provided that, for each such case where a claim of
lien in excess of Five Thousand Dollars ($5,000) has been filed, within
thirty (30) days after the Borrower's actual receipt of notice of filing
of any such claim of lien, the Borrower shall take one of the following
actions with respect to such claim of lien: (1) record or cause to be
recorded in the office of the recorder of the applicable county where
such Project is located a surety bond sufficient to release said claim
of lien, or (2) make or cause to be made a deposit of cash in the amount
of 150% of the claim of lien with Lender; or (3) deliver or cause to be
delivered to Lender a specific endorsement to the Title Policy which
insures Lender against any loss by reason of such claim of lien, or (4)
deliver or cause to be delivered to Lender such other assurance as may
be acceptable to Lender; provided, however, that in the event the
aggregate amount of claims filed with respect to a Project exceeds
Twenty-Five Thousand Dollars ($25,000), Borrower shall be required to
take one of the actions specified in (1) through (4) with respect to all
subsequent claims for such Project, regardless of amount.
Section 6.19. Conveyance, Lease or Encumbrance. Borrower shall not sell,
agree to sell, convey, transfer, dispose of or further encumber any Project or
any portion thereof or interest therein (other than the sale of Lots and Units
on and subject to the terms of this Loan Agreement), or enter into a lease
covering all or any portion thereof or interest therein, either voluntarily,
involuntarily or otherwise, or enter into an agreement to do so, without the
prior written consent of Lender being first had and obtained. All easements,
declarations, covenants, conditions, restrictions and dedications affecting any
Project shall be submitted to Lender for its approval, accompanied by a drawing
or survey showing the precise location thereof, and such approval shall be
obtained prior to the execution or granting of any thereof by Borrower. Borrower
shall not execute any lease of any portion of any Project without the prior
written consent of Lender. Borrower shall promptly notify Lender of any event of
default or cancellation under any lease now or hereafter in effect.
Section 6.20. Security Instruments. From time to time, upon the request
of Lender, Borrower shall execute and deliver to Lender a security instrument or
instruments naming Lender as secured party covering all contracts of any kind
entered into in connection with the Development Work or the Homes for each
Project and all other property of any kind whatsoever owned by the Borrower and
used, or to be used, in the use and enjoyment of each Project and concerning
which Lender may have any doubt as to its being subject to the lien of the
Project Security Instruments.
Section 6.21. Further Assurances; Cooperation. Borrower will at any time
and from time to time upon request of Lender take or cause to be taken any
action, execute,
-54-
<PAGE> 60
acknowledge, deliver or record any further documents, opinions, mortgages,
security agreements, financing statements or other instruments or obtain such
additional insurance as Lender in its discretion deems necessary or appropriate
to carry out the purposes of this Loan Agreement and to preserve, protect and
perfect the security interest intended to be created and preserved in each
Project and the Development Work and the Homes of each Project.
Section 6.22. Negative Covenants. So long as any amount payable under
any Loan Document still remains unpaid or Lender shall have any commitment to
disburse the Loan hereunder, Borrower shall not, unless Lender shall otherwise
consent in writing (i) create, assume or suffer to exist any lien, security
interest or other charge or encumbrance, or any other type of preferential
arrangement, upon the collateral for the Loan assigned to Lender by Borrower
pursuant to the Project Security Instruments, or (ii) sell, lease, transfer or
otherwise dispose of any of the collateral for the Loan assigned to Lender by
Borrower except in the ordinary course of business.
Section 6.23. Signs. Upon the request of Lender, Borrower shall erect
and place on or in the vicinity of each Project a sign or signs indicating that
Lender has provided construction financing for such Project. Said sign(s) shall
remain the property of Lender and shall be required to be removed only after the
Development Work and the Homes for such Project have been completed.
Section 6.24. Letter of Credit.
(a) Borrower hereby agrees to pay in advance to the Lender, for
each Letter of Credit, an annual fee equal to an amount determined by
multiplying the Letter of Credit Amount by a percentage specified in
writing by the Lender to the Borrower with respect to such Letter of
Credit, so long as the Letter of Credit is outstanding.
(b) On each date that the Lender or any Affiliate of the Lender
pays any amount to reimburse the issuer of a Letter of Credit for
amounts paid by the issuer due to a draw upon the Letter of Credit, the
Borrower shall pay to the Lender an amount equal to the amount so drawn.
(c) Borrower acknowledges that any payment made by Lender or any
Affiliate of Lender as set forth in subsection (b) above shall
constitute a disbursement of the Loan, requiring immediate repayment
from the Borrower. Borrower further acknowledges that its failure to
make such required repayment shall constitute an Event of Default,
entitling Lender to exercise any and all of its remedies against
Borrower in accordance with the terms of the Loan Documents.
-55-
<PAGE> 61
(d) The obligation of Borrower to Lender with respect to the
obligations incurred pursuant to this Section 6.24 shall be absolute,
unconditional and irrevocable to the extent permitted by law, and shall
be performed strictly in accordance with the terms of this Loan
Agreement, irrespective of any of the following circumstances:
(1) any lack of validity or enforceability of any Loan
Document, any Letter of Credit, any of the documents relating to
the Letters of Credit, or any other agreement or instrument
underlying the Loan Documents or the Letters of Credit, or any
failure to comply strictly with the terms of any Loan Document,
any Letter of Credit or any other agreement or instrument;
(2) any amendment or waiver of, or consent to departure
from, the Letters of Credit, any document relating thereto or
any Loan Document;
(3) the existence of any claim, setoff, defense or other
rights which the Lender, any Affiliate of Lender or Borrower may
have at any time against any other party or any beneficiary or
any transferee of any Letter of Credit (or any persons or
entities for whom any such party or beneficiary or any such
transferee may be acting), the issuer of any Letter of Credit or
any other person or entity whether in connection with a Letter
of Credit, any document relating thereto, any Loan Document, any
agreement or transaction underlying a Letter of Credit or any
unrelated transactions;
(4) any statement, certificate, draft or other document
presented under a Letter of Credit proving to be forged,
fraudulent, invalid or insufficient in any respect or any
statement therein being untrue or inaccurate in any respect
whatsoever;
(5) payment by the issuer of a Letter of Credit under
the Letter of Credit against presentation of a draft or
certificate which does not comply with the terms of the Letter
of Credit; or
(6) any other circumstance or happening whatsoever,
whether or not similar to any of the foregoing.
ARTICLE VII
SALES OF LOTS AND UNITS
AND RELEASES FROM DEED OF TRUST
Section 7.1. Sales Agreements. Each Lot and Unit shall be sold under a
Sales Agreement. Each Sales Agreement must require full payment in cash to
Borrower at closing.
-56-
<PAGE> 62
No Lot or Unit may be leased, sold or conveyed under any lease, conditional
sales contract or other arrangement where Borrower retains a deferred portion of
the purchase price or any residual or contingent interest in the Lot or Unit,
including any purchase money security interest, without the express prior
written consent of Lender in each instance. The Borrower shall, upon the
Lender's request, provide to Lender copies of the Sales Agreements.
Section 7.2. Sales and Closings. Borrower may enter into sales in the
ordinary course of business with bona fide third party buyers without Lender's
prior written consent if:
(a) A Sales Agreement is executed with the buyer which conforms
to the requirements of this Loan Agreement; and
(b) Borrower, acting in good faith following exercise of due
diligence, has determined that the buyer is financially capable of
performing all of its obligations under the Sales Agreement.
Lender in the exercise of its reasonable discretion may consider any sale to be
unsatisfactory if the sale fails to meet any of the requirements of this Loan
Agreement. If this happens, or if any Event of Default (as hereinafter defined)
has occurred and is continuing, Lender may make written demand on Borrower to
submit future Sales Agreements for Lender's approval prior to execution,
together in each instance with accompanying financial statements and other
information that Borrower may have pertaining to the prospective buyer. Borrower
shall comply immediately with any such demand by Lender.
Section 7.3. Sales Operations and Seller's Obligations. Borrower shall
at all times maintain adequate marketing capability for the sale of the Lots and
Units, and shall perform all obligations required to be performed by it under
each Sales Agreement.
Section 7.4. Model Units.
(a) The Borrower shall (i) construct and if necessary, modify,
Homes in such a manner as to accommodate their use as Model Units within
each Project, and (ii) maintain a sales office at or near each Project,
as the Borrower determines, to provide for adequate sales and marketing
of each such Project. The Borrower shall insure that sufficient adjacent
parking for customers exists within the vicinity of the sales office.
The Model Units within each Project shall be used solely as a model
display (including landscaping and walkways), as a sales office and for
parking, all in connection with the marketing and sale of Homes within
such Project. Borrower shall maintain the interiors and exteriors of the
Model Units within such Project in good condition, repair and order,
except for ordinary wear and tear. Regardless of any other provision of
this Loan Agreement, Lender shall not be required to release the Model
-57-
<PAGE> 63
Units within any Project or any of them from the lien of the Deed of
Trust unless Borrower has provided, and Lender has accepted, a
substituted Model Unit within such Project which Lender in its
reasonable judgment considers to be comparable to the Model Unit to be
released and suitable for the purposes and uses described above.
Notwithstanding the foregoing, with the prior written consent of Lender,
which consent shall not be unreasonably withheld by Lender, the Borrower
may convert Model Units within a Project to Units held for sale at such
time as the Borrower determines that it is appropriate to do so given
the sales activity for such Project. Borrower shall maintain insurance
coverage regarding the Model Units as Lender shall reasonably require.
(b) Borrower may sell a Model Unit to a Person approved by
Lender in its reasonable discretion, subject to the requirements that
(i) the Borrower leases the Model Unit back from such Person pursuant to
a lease agreement, the form and terms of which are approved by the
Lender in its reasonable discretion and (ii) upon the request of the
Lender, Borrower executes such documents as Lender requires to assign to
Lender the Borrower's interest in such lease.
Section 7.5. Releases from Lien of Deed of Trust.
(a) Borrower may from time to time request that Lender release
one or more Lots and/or Units from the lien of the Deed of Trust and the
other Project Security Instruments encumbering such Lots and/or Units.
So long as no Event of Default exists, Lender agrees that it will
execute a partial release that releases Lender's lien on such Lot and/or
Unit pursuant to the Deed of Trust and the documents executed pursuant
thereto, provided that the following conditions precedent shall have
been satisfied:
(1) Lender shall have received a written notice
requesting the partial release no fewer than five (5) Business
Days prior to the date on which the partial release is to be
effective, which notice shall specify (i) the Project, (ii) the
specific Lots and/or Units to be released, (iii) if such release
is being requested in connection with a sale of the Lots and/or
Units, the Person to whom such Lots and/or Units are being sold,
which Person shall not be an Affiliate of the Borrower, and (iv)
the Lender's Release Price(s) therefor;
(2) Lender shall have received evidence satisfactory to
Lender that (i) the closing of the sale and/or release of such
Lots and/or Units shall be conducted through an escrow with the
Title Company, and (ii) the Title Company shall have been
instructed, which instructions shall have been acknowledged and
agreed to by the Title Company and which cannot be
-58-
<PAGE> 64
changed or supplemented without Lender's written concurrence,
not to record Lender's partial release until the Title Company
receives in respect of such release an amount equal to Lender's
Release Price for such Lots and/or Units and is irrevocably
committed to disburse such amount to Lender;
(3) Lender shall have received executed originals of
instruments, agreements and other documents, in form and
substance satisfactory to Lender, which Lender determines are
necessary or appropriate, to evidence and/or effectuate the
partial release and to modify the Loan Documents as a result
thereof;
(4) Lender shall have received evidence satisfactory to
Lender that the Borrower has satisfied all conditions precedent
in the Loan Documents relating to the release of the Lots and/or
Units.
If the Title Company that is selected by Borrower to insure
title to the Lots and/or Units sold by the Borrower elects to have
Borrower and Lender enter into a master release agreement that provides
for, among other things, the release of the Lots and/or Units once all
of the Lots and/or Units in a phase of a Project or in an entire Project
are sold instead of being released one at a time, then Lender agrees to
enter into such a master release agreement in form and substance
satisfactory to Lender.
In connection with each release of a Lot and/or Unit, provided
all conditions to such release have been met, Lender agrees to provide
to the Title Company an estoppel letter, in form and substance
satisfactory to Lender, specifying the Lender's Release Price.
(b) In addition to the releases provided for in subparagraph
(a), so long as no Event of Default exists, Lender agrees that, without
requiring payment of any release price, it shall release from the lien
of the Deed of Trust and the other Project Security Instruments those
portions of a Project necessary for utility easements, dedicated public
roads, common elements (including any parts of such Project to be
transferred to a homeowners' association or the like), parks,
greenbelts, recreation areas, schools, medical facilities and other
similar purposes, provided (i) the Borrower complies with the
requirements of subparagraphs (1), (3) and (4) of subparagraph (a) above
(except that the requirement of written notice specifying the Lender's
Release Price(s) and payment of the Lender's Release Price(s) shall not
be applicable), (ii) the Lender is furnished with a survey, or another
document reasonably satisfactory to the Lender, depicting and describing
the real property to be released and (iii) such release is consistent in
all material respects with the site plan or other depiction of such
Project provided to the Lender as part of the Project Underwriting
Documents.
-59-
<PAGE> 65
ARTICLE VIII
EVENTS OF DEFAULT AND REMEDIES
Section 8.1. Events of Default. The occurrence and continuance of any of
the following events shall constitute an "Event of Default" hereunder:
(a) Borrower shall fail to pay any installment of principal on
the Loan when due, whether at stated maturity, as a result of a
mandatory prepayment requirement, upon acceleration, upon demand for
payment under Section 8.2(c) or otherwise, or pay when due any interest,
fees or other amounts payable hereunder or under the other Loan
Documents;
(b) any representation or warranty made by the Borrower herein
or by any Loan Party in any other Loan Document shall at any time be
incorrect in any material respect; or
(c) Borrower shall fail to perform or observe any term, covenant
or agreement contained in this Loan Agreement or any Loan Party shall
fail to perform or observe any term, covenant or agreement contained in
any other Loan Document, and such failure shall remain unremedied for
thirty (30) days after notice thereof from Lender to Borrower or such
other Loan Party, as applicable; provided that in the event Borrower or
such other Loan Party, as applicable, commences and is diligently
pursuing to completion action to cure the failure, such thirty (30) day
period may be extended for such period of time as is necessary to cure
the failure, but in no event longer then one hundred twenty (120) days
from the date of the Lender's notice; provided further however, that in
the event (i) Lender reasonably determines that the failure to
immediately declare an Event of Default could materially and adversely
harm the rights of the Lender hereunder or under any other Loan
Document, or the rights of the Lender with respect to the collateral
pledged to secure the Loan, or (ii) Lender reasonably determines that
the failure to perform or observe the terms of this Loan Agreement or
any other Loan Document cannot be remedied with the passage of one
hundred twenty (120) days, then Lender may declare an immediate Event of
Default in its notice given pursuant to this Section 8.1(c); or
(d) the Borrower or any other Loan Party shall assert the
invalidity or unenforceability of any Loan Document or any Loan Document
shall be adjudicated to be invalid or unenforceable in any material
respect; or
(e) the Borrower or any other Loan Party shall fail to pay any
Debt, or any interest or premium thereon, when due (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise) and
such failure shall continue after
-60-
<PAGE> 66
the applicable grace period, if any, specified in the agreement or
instrument relating to such Debt; any other default under any agreement
or instrument relating to any such Debt, or any other event, shall occur
and shall continue after the applicable grace period, if any, specified
in such agreement or instrument, if the effect of such failure to pay,
default or event results in the acceleration, or permits the
acceleration of, the maturity of such Debt; or any such Debt shall be
declared to be due and payable, or is required to be prepaid (other than
by a regularly scheduled required prepayment) prior to the stated
maturity thereof; provided however that none of the foregoing events or
inactions shall constitute an Event of Default unless such event or
inaction could result in a Material Adverse Change; or
(f) the Borrower or any other Loan Party shall generally not pay
its Debts as such Debts become due, or shall admit in writing its
inability to pay its Debts generally, or shall make a general assignment
for the benefit of creditors; or any proceeding shall be instituted by
or against the Borrower or any other Loan Party seeking to adjudicate
such party as bankrupt or insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief or
composition of such party's Debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors, or seeking the entry
of an order for relief or the appointment of a receiver, trustee or
other similar official for such party or for any substantial part of
such party's property and, in the case of any such proceeding instituted
against it (but not instituted by it), either such proceeding shall
remain undismissed or unstayed for a period of thirty (30) days (whether
or not consecutive), or any of the actions sought in such proceeding
(including, without, limitation, the entry of an order for relief
against, or the appointment of a receiver, trustee, custodian or other
similar official for, it or for any substantial part of its property)
shall occur; or the Borrower or any other Loan Party shall take any
action to authorize any of the actions set forth above; or
(g) any event of default (however described) under any other
Loan Document shall occur and not be cured within the applicable grace
period; or
(h) any Project Security Instrument, for any reason, ceases to
create a valid and perfected first priority lien on or in the Land or
other collateral relating thereto as described in the Loan Documents, or
the Borrower or any other Loan Party shall so state in writing; or
(i) the dissolution or winding up of the Borrower or any other
Loan Party; or
-61-
<PAGE> 67
(j) any judgment or order for the payment of money in excess of
Two Hundred Thousand Dollars ($200,000), singularly or in the aggregate,
shall be rendered against the Borrower or any other Loan Party, and
either (i) there shall be a period of forty-five (45) days or more
during which a stay of enforcement of such judgment or order, by reason
of a pending appeal or otherwise, shall not be in effect, or (ii)
enforcement proceedings shall have been commenced by any creditor upon
such judgment or order and there shall be a period of forty-five (45)
days or more during which a stay of such enforcement proceedings shall
not be in effect;
(k) a Material Adverse Change shall occur; or
(l) the Borrower shall fail to comply with, or shall fail to
cause the Guarantor to comply with, any of the covenants set forth in
Section 5.2, Section 5.3, Section 5.4, Section 5.5 or Section 5.6.
(m) Borrower fails to meet or comply with any of the projections
or other provisions of the Construction Progress Schedule for any
Project (which failure Lender reasonably believe may result in
impairment of the value of its security for the Loan or in the ability
of the Borrower to repay the Loan in full by the Maturity Date), and
does not cure that failure within thirty (30) days after written notice
from Lender; provided that such cure period shall not be applicable
(i.e., there shall be no cure period) if Lender has reasonably
determined that such failure is not susceptible to cure within thirty
(30) days; or
(n) the assignment by the Borrower of the rents or the income of
any Project, or any part thereof or of any other revenues or sales
proceeds relating to any Project (other than to Lender); or
(o) there shall occur substantial deviations in the Development
Work or the Homes of any Project from the Plans and Specifications for
such Project without the prior approval of Lender, or the existence of
materially adverse defective workmanship or materials incorporated into
the Development Work or the Homes for any Project which deviations or
defects are not corrected within thirty (30) days after written notice
thereof to Borrower, such deviations and defects to be conclusively
determined by Lender after consultation with the Inspector; or
(p) cessation of the Development Work of any Project prior to
completion of the Homes of such Project for a continuous period of (i)
one hundred twenty (120) days or more if such cessation is by a Force
Majeure Event, or (ii) sixty (60) days or more if such cessation is not
caused by a Force Majeure Event; or
-62-
<PAGE> 68
(q) the Development Work or the Homes of any Project are not, in
Lender's reasonable judgment, being carried out in accordance with the
Construction Progress Schedule for such Project (subject to delays not
to exceed sixty (60) days or to delays not to exceed one hundred twenty
(120) days in the aggregate which are caused by Force Majeure Events of
which Lender has been properly notified in accordance with the
provisions of Section 6.11); or
(r) a court of competent jurisdiction enters an order enjoining
construction of the Development Work or the Homes of any Project, or
such a court or an authorized governmental agency orders that sales of
the Lots and/or Units of any Project be suspended or halted, or any
required approval, license or permit is withdrawn or suspended, and the
order, withdrawal or suspension remains in effect for a period of thirty
(30) days; or
(s) there occurs any attachment, levy, execution or other
judicial seizure of any portion of any Project, any other material
collateral provided by Borrower under any of the Loan Documents, or any
substantial portion of the other assets of Borrower, which is not
released, expunged, discharged or dismissed prior to the earlier of (i)
thirty (30) days after such attachment, levy, execution or seizure, or
(ii) the sale of the assets affected thereby; or
(t) any surety obligated for any Development Work or Homes of
any Project is called upon to perform its obligations and/or any person
demands funds pursuant to any "set-aside" letter or "cash in lieu of
bond agreement" issued by Lender with respect to such Project; or
(u) the average sales price for the ten (10) most recently sold
Units in any Project is less than eighty-five percent (85%) of the
lesser of (i) the average of the appraised values of such Units as
determined based upon an Appraisal Report identifying the appraised
values of base home designs for such Project (or if no Appraisal Report
is required by Lender with respect to a Project, based upon the values
of such Units as determined based upon the values of such home designs
for such Project as set forth in the Project Commitment for such
Project) or (ii) the average of the base prices for such Units based
upon the Approved Cash Flow Statement for such Project; or
(v) the Borrower's pre-tax net income is negative in each of two
(2) consecutive fiscal quarters or for any four (4) consecutive fiscal
quarters on a cumulative basis and the ratio of the Total Liabilities of
the Guarantor and its Subsidiaries (including the Borrower) to the Net
Worth of the Guarantor and its Subsidiaries (including the Borrower) is
more than 4.00 to 1.00; or
-63-
<PAGE> 69
(w) any two (2) or more of Wade Cable, Thomas J. Mitchell,
Douglas F. Bauer, Richard S. Robinson or Michael D. Grubbs shall cease
to be employed by the Guarantor or the Borrower on a continuous and full
time basis with power and responsibility to manage the material day to
day operations of the Guarantor, the Borrower and their Subsidiaries; or
(x) an event of default (however described) shall occur under
any loan agreement or related loan document between LP Homes #1 and the
Lender, RFC Construction Funding Corp. or any successor or assign
thereof.
Borrower acknowledges and agrees that all material non-monetary defaults
are conclusively deemed to be and are defaults which impair the security of the
Deed of Trust, and that Lender shall be entitled to exercise any appropriate
remedy, including without limitation, foreclosure of the Deed of Trust upon the
occurrence of any such material non-monetary default.
Section 8.2. Remedies. Upon the occurrence of any Event of Default, the
following provisions shall apply:
(a) if such event is an Event of Default specified in Section
8.1(f), Lender's commitment to fund the Loan shall terminate and the
indebtedness evidenced by the Note shall and any other amounts payable
under this Loan Agreement and the other Loan Documents shall immediately
and automatically become due and payable;
(b) if such event is an Event of Default specified in Section
8.1(v) or Section 8.1(w), the Lender's remedies shall be limited to, by
notice to the Borrower, termination of its commitment to consider
proposed projects for approval as Projects;
(c) if such event is an Event of Default under Section 8.1(b),
Section 8.1(c), Section 8.1(g), Section 8.1(m), Section 8.1(o), Section
8.1(p), Section 8.1(q), Section 8.1(r) or Section 8.1(u) and such event
relates solely to a single Project, the Lender's remedies shall be
limited to the following remedies: (i) Lender may withhold one or more
requested disbursements of proceeds of the Loan related to such Project
(or to such portion of such Project as Lender shall determine in its
sole discretion), whether such requested disbursement relates to the
Acquisition and Development Amount for such Project or is requested
under the ABF Program, (ii) by notice to the Borrower, Lender may
unilaterally eliminate all Units of such Project (or such portion of the
Units of such Project as Lender shall determine in its sole discretion)
from the Borrowing Base Collateral for purposes of determining the
Borrowing Base Value (although such Units will remain as collateral for
the Loan until released from the lien of the Deed of Trust in accordance
with the terms of the
-64-
<PAGE> 70
Loan Documents), (iii) by notice to the Borrower, Lender may suspend or
terminate its commitment to make any further advance of proceeds of the
Loan related to the acquisition of Land for such Project, Development
Work for such Project or the construction of Homes of such Project (or
related to the acquisition of such portion of Land for such Project,
such portion of the Development Work for such Project or such portion of
the construction of Homes for such Project as Lender shall determine in
its sole discretion), and (iv) by notice to Borrower, Lender may declare
that portion of the outstanding principal balance of the Loan related to
the acquisition of Land and Development Work for such Project (or
related to the acquisition of such portion of Land and Development Work
for such Project as Lender shall determine in its sole discretion), and
all interest thereon, to be due and payable, whereby such portion of the
outstanding principal balance of the Loan related to the acquisition of
the Land and the Development Work for such Project (or related to the
acquisition of such portion of Land and Development Work for such
Project as Lender shall determine in its sole discretion) shall become
forthwith due and payable, without presentment, demand, protest or
further notice of any kind, all of which are hereby expressly waived by
Borrower; and
(d) upon the occurrence of any Event of Default, other than an
Event of Default expressly covered by Section 8.2(b) or Section 8.2(c),
Lender may, at its option:
(1) by notice to Borrower, terminate its commitment to
fund the Loan and declare the Loan, all interest thereon, and
all other amounts payable under this Loan Agreement and the
other Loan Documents to be due and payable, whereupon the Loan,
all such interest and all such amounts shall become and be
forthwith due and payable, without presentment, demand, protest
or further notice of any kind, all of which are hereby expressly
waived by Borrower; and/or
(2) exercise any and all rights and remedies available
to Lender under the Loan Documents or at law or in equity,
including, without limitation, the right to foreclose or
otherwise realize upon all or any part of the collateral
securing Borrower's obligations and to proceed against Borrower
and/or any other Person liable with respect to the obligations
under the Loan Documents; and/or
(3) immediately terminate any further advances of Loan
funds hereunder, and from time to time apply all or any portion
of the undisbursed Loan funds to payment of accrued interest
under the Note and/or upon any other obligations of Borrower
hereunder or under the Loan Documents.
-65-
<PAGE> 71
Lender may also withhold any one or more disbursements after a
Potential Default occurs, unless Borrower cures or corrects the
event or condition to the reasonable satisfaction of Lender
prior to the occurrence of an Event of Default; and/or
(4) record a notice of default under the Deed of Trust
and under the mortgages or deeds of trust, as applicable, which
secure the indebtedness evidenced by the Note; and/or
(5) make any disbursements after the happening of any
one or more Events of Default, without thereby waiving its right
to demand payment of the Loan and all other sums owing to Lender
with respect to the Loan Documents or any other rights or
remedies described herein, and without liability to make any
other or further disbursements, notwithstanding Lender's
previous exercise of any such rights and remedies; and/or
(6) enter upon any or all Projects and with or without
legal process take possession of such Project or Projects,
remove Borrower and all employees, contractors and agents of
Borrower therefrom, and complete or attempt to complete
construction of the Development Work and/or the Homes related
thereto in accordance with the Plans and Specifications
therefor, with such changes, additions or corrections therein as
Lender may from time to time and in its judgment deem
appropriate, and market, sell or lease such Project or Projects,
at the risk and expense of Borrower. Lender shall have the right
at any time to discontinue any work commenced by it in respect
to such Development Work and/or the Homes or to change the
course of action undertaken by it and not be bound by any
limitations or requirements of time whether set forth herein or
otherwise. Lender shall have the right and power (but shall not
be obligated) to assume any construction contract made by or on
behalf of Borrower in any way relating to such Homes and to take
over and use all or any part of the labor, materials, supplies
and equipment contracted for, by or on behalf of Borrower
whether or not previously incorporated into such Development
Work and/or the Homes, in the discretion of Lender. Lender may
also modify or terminate any contractual arrangements, subject
to its right at any time to discontinue any work without
liability. If Lender chooses to complete such Development Work
and/or the Homes, Lender shall not assume any liability to
Borrower or any other person for completing them, or for the
manner or quality of their construction, and Borrower expressly
waives any such liability. In connection with any work of
construction undertaken by Lender pursuant to the provisions of
this subsection (6), Lender may do any of the following:
-66-
<PAGE> 72
(i) engage builders, contractors, subcontractors,
architects, engineers, suppliers, inspectors, consultants and
others for the purpose of furnishing labor, materials, equipment
and other services in connection with the work of construction,
for the protection or clearance of title to such Project or
Projects, or for the protection of Lender's interests with
respect thereto;
(ii) pay, settle or compromise all bills or claims which
may become liens against such Project or Projects or which have
been or may be incurred in any manner in connection with
completing construction of such Development Work and/or the
Homes or for the protection or clearance of title to such
Project or Projects, or for the protection of Lender's interests
with respect thereto;
(iii) prosecute and defend all actions and proceedings
in connection with such Project or Projects;
(iv) execute, acknowledge and deliver all other
instruments and documents in the name of Borrower that are
necessary or desirable, to exercise Borrower's rights under
contracts concerning such Project or Projects; and
(v) take such other action, including the employment of
security personnel to protect such Development Work and such
Homes, or refrain from taking action under this Loan Agreement
as Lender may in its discretion determine from time to time.
Borrower shall be liable to Lender for sums paid or incurred for
completing construction of such Development Work and such Homes whether
the same shall be paid or incurred pursuant to the provisions of this
Section or otherwise, and all payments made or liabilities incurred by
Lender hereunder of any kind whatsoever shall be paid by Borrower to
Lender upon demand with interest at the rate set forth in the Note, and
all of the foregoing shall be deemed and shall constitute disbursements
under this Loan Agreement and be secured by the Project Security
Documents. For the purpose of carrying out the provisions and exercising
the rights, powers and privileges granted by this subsection (6),
Borrower hereby unconditionally and irrevocably constitutes and appoints
Lender its true and lawful attorney-in-fact to enter into such
contracts, perform such acts and incur such liabilities as are referred
to in said Section in the name and on behalf of Borrower. This power of
attorney is coupled with an interest; and/or
-67-
<PAGE> 73
(7) where substantial deviations from the Plans and
Specifications for any Project appear which have not been
approved as set forth herein, or where defective or
unworkmanlike labor or materials are being used in the
construction of the Development Work and/or the Homes of any
Project, or upon receipt of knowledge of encroachments to which
there has been no consent, or if Lender determines that the
Development Work and/or the Homes of any Project are not being
constructed in accordance with any governmental requirements or
any covenants, conditions, restrictions, agreements or other
matters, whether or not of record, affecting the condition of
title to any Project, Lender shall have the right to immediately
order stoppage of the construction and demand that such
conditions be corrected. After issuance of such an order in
writing, no further work shall be done on that portion of the
Development Work and/or the Homes of such Project where there is
a substantial deviation from the Plans and Specifications for
such Project which has not been approved as set forth herein,
where there is defective or unworkmanlike labor or materials, or
which does not comply with governmental requirements or matters
affecting title to such Project, without the prior written
consent of Lender, which consent shall not be unreasonably
withheld, unless and until said condition has been fully
corrected; and/or
(8) foreclose on any security for the Loan without
waiving its rights to proceed against any other security or
other entities or individuals directly or indirectly responsible
for repayment of the Loan, or waive any and all security for the
Loan as Lender may in its discretion so determine, and pursue
any such other remedy or remedies as Lender may so determine to
be in its best interest; and/or
(9) if Lender spends its funds in exercising or
enforcing any of its rights or remedies under the Loan
Documents, the amount of funds spent shall be payable to Lender
upon demand, together with interest at the rate applicable to
the principal balance of the Note, from the date such funds were
spent until repaid. Such amounts shall be deemed secured by the
Deed of Trust and other applicable Project Security Documents.
Whether or not Lender elects to employ any or all of the remedies
available to it in connection with an Event of Default, Lender shall not be
liable for (i) the construction of or failure to construct, complete or protect
the Development Work and/or the Homes of any Project, (ii) the payment of any
expense incurred in connection with the exercise of any remedy available to
Lender or the construction or completion of the Development Work and/or the
Homes of any Project, or (iii) the performance or non-performance of any other
obligation of Borrower or any other Loan Party.
-68-
<PAGE> 74
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 or in equity. The exercise of any right or remedy by
Lender hereunder or under any other Loan Document shall not in any way
constitute a cure or waiver of any Event of Default or any Potential 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. If Lender exercises any of
the rights or remedies provided in this Article VIII, that exercise shall not
make Lender, or cause Lender to be deemed to be, a partner or joint venturer of
Borrower. No disbursement of Loan funds by Lender shall cure any Event of
Default or Potential Default, unless Lender agrees otherwise in writing in each
instance.
Section 8.3. Authorization to Apply Assets to Payment of Loan. The
Borrower hereby authorizes the Lender, following the occurrence of an Event of
Default, without notice or demand, to apply any property, balances, credits,
accounts or moneys of the Borrower, the Guarantor or any Affiliate of the
Borrower or the Guarantor then in the possession of Lender, or standing to the
credit of the Borrower, the Guarantor or any Affiliate of the Borrower or the
Guarantor, to the payment of the Loan.
ARTICLE IX
MISCELLANEOUS
Section 9.1. Successors and Assigns; No Assignment by Borrower. The
provisions of this Loan Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and assigns, provided that
Borrower may not assign or transfer any of its rights or obligations under this
Loan Agreement or any of the other Loan Documents without the prior written
consent of Lender.
Section 9.2. Notices. All notices, requests and demands to be made
hereunder to the parties hereto shall be in writing (at the addresses set forth
below) and shall be given by any of the following means:
(a) personal delivery;
(b) reputable overnight courier service;
(c) electronic communication, whether by telex, telegram or
telecopying (if confirmed in writing sent by registered or certified,
first class mail, return receipt requested); or
(d) registered or certified, first class mail, return receipt
requested.
-69-
<PAGE> 75
Any notice, demand or request sent pursuant to the terms of this Loan Agreement
shall be deemed received (i) if sent pursuant subsection (a), upon such personal
delivery, (ii) if sent pursuant to subsection (b), on the next Business Day
following delivery to the courier service, (iii) if sent pursuant to subsection
(c), upon dispatch if such dispatch occurs between the hours of 9:00 a.m. and
5:00 p.m. (recipient's time zone) on a Business Day, and if such dispatch occurs
other than during such hours, on the next Business Day following dispatch and
(iv) if sent pursuant to subsection (d), three (3) days following deposit in the
mail.
The addresses for notices are as follows:
To Lender: Residential Funding Corporation
8400 Normandale Lake Boulevard, Suite 600
Minneapolis, Minnesota 55437
Attention: Managing Director
Construction Finance
Telephone No.: (612) 857-6921
Telecopier No.: (612) 857-6960
With a copy to: Residential Funding Corporation
8400 Normandale Lake Boulevard, Suite 600
Minneapolis, Minnesota 55437
Attention: General Counsel,
Construction Finance
Telephone No.: (612) 857-6911
Telecopier No.: (612) 857-6958
To Borrower: William Lyon Homes, Inc.
4490 Von Karman Avenue
Newport Beach, California 92660
Attention: Michael D. Grubbs,
Senior Vice President
and Chief Financial Officer
Richard S. Robinson,
Senior Vice President
Telephone No.: (949) 476-5475
Telecopier No.: (949) 252-2575
-70-
<PAGE> 76
With a copy to: Irell & Manella LLP
840 Newport Center Drive
Suite 500
Newport Beach, California 92660-6324
Attention: Roy S. Geiger
Telephone No.: (949) 760-5299
Telecopier No.: (949) 760-5200
Such addresses may be changed by notice to the other parties given in the same
manner as provided above.
Notwithstanding the foregoing, all requests for disbursements of the
Loan pursuant to Article II above shall be deemed received only upon actual
receipt, and such requests for disbursement shall be given only to the Lender's
primary addressee.
Section 9.3. Changes, Waivers, Discharge and Modifications in Writing.
No provision of this Loan Agreement or any of the other Loan Documents may be
changed, waived, discharged or modified except by an instrument in writing
signed by the party against whom enforcement of the change, waiver, discharge or
modification is sought.
Section 9.4. No Waiver; Remedies Cumulative. No disbursement of proceeds
of the Loan shall constitute a waiver of any conditions to Lender's obligation
to make further disbursements nor, in the event Borrower is unable to satisfy
any such conditions, shall any such waiver have the effect of precluding Lender
from thereafter declaring such inability to constitute an Event of Default
(however described) under this Loan Agreement or any other Loan Document. No
failure or delay on the part of Lender in the exercise of any power, right or
privilege hereunder or under this Loan Agreement or any other Loan Document
shall impair such power, right or privilege or be construed to be a waiver of
any Event of Default (however described) or acquiescence therein, nor shall any
single or partial exercise of any such power, right or privilege preclude any
other or further exercise thereof, or of any other right, power or privilege.
Except as specifically provided herein, all rights and remedies existing under
this Loan Agreement or any other Loan Document are cumulative to and not
exclusive of any rights or remedies otherwise available.
Section 9.5. Costs, Expenses and Taxes. Borrower agrees to pay the
costs, and all expenses incurred by Lender in connection with the preparation,
execution, delivery, administration, modification and amendment of this Loan
Agreement, the other Loan Documents and any other documents to be delivered
hereunder, including, without limitation, the reasonable fees and out-of-pocket
expenses of counsel for Lender with respect thereto and with respect to advising
Lender as to its rights and responsibilities under this Loan Agreement and the
other Loan Documents. Borrower further agrees to pay all costs and
-71-
<PAGE> 77
expenses of Lender (including, without limitation, reasonable counsel fees and
expenses, court costs and all other litigation expenses, including, but not
limited to, reasonable expert witness fees, document copying expenses, exhibit
preparation, courier expenses, postage expenses and communication expenses) in
connection with the enforcement of this Loan Agreement, the other Loan Documents
and any other documents delivered hereunder, including, without limitation,
costs and expenses incurred in connection with any bankruptcy, insolvency,
liquidation, reorganization, moratorium or other similar proceeding, or any
refinancing or restructuring in the nature of a "workout" of the Loan Documents
and any other documents delivered by Borrower related thereto. In addition,
Borrower shall pay any and all stamp and other taxes payable or determined to be
payable in connection with the execution and delivery of this Loan Agreement,
the other Loan Documents and the other documents to be delivered hereunder, and
agrees to hold Lender harmless from and against any and all liabilities with
respect to or resulting from any delay in paying or omission to pay such taxes.
Payment from the Borrower of amounts due pursuant to this Section 9.5 shall be
due ten (10) days after it has received from the Lender written notice of the
nature of the item for which payment is required and the amount due, other than
amounts due pursuant to the last sentence of the previous paragraph which
amounts shall be due on demand.
Section 9.6. Disclaimer by Lender; No Joint Venture. Borrower
acknowledges, understands and agrees as follows:
(a) The relationship between Borrower and Lender is, and shall
at all times remain, solely that of borrower and lender, and Lender
neither undertakes nor assumes any responsibility for or duty to
Borrower to select, review, inspect, supervise, pass judgment upon or
inform Borrower of the quality, adequacy or suitability of any matter or
thing submitted to Lender for its approval.
(b) Lender owes no duty of care to protect Borrower or any other
Person against negligent, faulty, inadequate or defective building or
construction.
(c) Borrower is not and shall not be an agent of Lender for any
purpose. Lender is not a joint venture partner with Borrower in any
manner whatsoever. Approvals granted by Lender for any matters covered
under this Loan Agreement shall be narrowly construed to cover only the
parties and facts identified in any such approval.
Section 9.7. Indemnification. Borrower agrees to protect, indemnify,
defend and hold harmless each Indemnified Party from and against any and all
claims, damages, losses, liabilities, obligations, penalties, actions,
judgments, suits, costs, disbursements and expenses (including, without
limitation, reasonable fees and expenses of counsel and consultants and
allocated costs of internal counsel) that may be incurred by or asserted against
any
-72-
<PAGE> 78
Indemnified Party, in each case arising out of or in connection with or related
to any of the following:
(a) the Loan, this Loan Agreement or any other Loan Document,
(b) the use of funds advanced under the Loan Documents, or
(c) the failure of Borrower or any other party (other than
Lender) to comply fully with any and all laws applicable to it,
whether or not an Indemnified Party is a party thereto and whether or not the
transactions contemplated hereby are consummated, except to the extent such
claims, damages, losses, liabilities, obligations, penalties, actions,
judgments, suits, costs, obligations, penalties, disbursements and expenses are
found in a final non-appealable judgment by a court of competent jurisdiction to
have resulted from the gross negligence or willful misconduct of the Indemnified
Party. Notwithstanding the foregoing, nothing in this Section 9.7 shall be
construed as an indemnification by Borrower of any claims, damages, losses,
liabilities, obligations, penalties, actions, judgments, suits, costs,
disbursements and expenses related to Hazardous Materials or Hazardous Materials
Laws, which indemnification obligation is separately and exclusively set forth
in the Environmental Indemnity. Without prejudice to the survival of any other
agreement of Borrower hereunder, the agreements and obligations of Borrower
contained in this Section 9.7 shall survive the termination of this Loan
Agreement and the other Loan Documents and the payment in full of the Loan.
Section 9.8. Consultants. Borrower shall pay any and all valid claims of
any consultants, advisors, brokers or agents whom it has retained or with whom
it has initiated contact with respect to the Loan who claims a right to any fees
in connection with the Loan, and shall indemnify, defend and hold Lender
harmless from such claims, whether or not they are valid.
Section 9.9. Governing Law. This Loan Agreement shall be governed by and
construed in accordance with the laws of the State of California.
Section 9.10. Titles and Headings. The titles and headings of sections
of this Loan Agreement are intended for convenience only and shall not in any
way affect the meaning or construction of any provision of this Loan Agreement.
Section 9.11. Counterparts. This Loan Agreement may be executed in any
number of counterparts, each of which shall be deemed an original and all of
which shall constitute one and the same agreement with the same effect as if all
parties had signed the same signature page.
-73-
<PAGE> 79
Section 9.12. Lender's Right With Respect to the Loan. Notwithstanding
any provision to the contrary contained in this Loan Agreement or any other Loan
Document, the Lender may at any time sell, assign, grant or transfer to any
Person all or a portion of its interest in or rights with respect to the Loan
and in all or part of the obligations of the Borrower and any other obligated
party under the Loan Documents.
Section 9.13. Confidentiality. Borrower and Lender shall mutually agree
on the contents of any press release, public announcement or other public
disclosure regarding this Loan Agreement and the transactions contemplated
hereunder to be made following the mutual execution and delivery of this Loan
Agreement; provided that Lender may disclose the terms hereof and give copies of
the Loan Documents to assignees and participants and to prospective assignees
and participants. If either party fails to respond to the other party in writing
with either an approval or a disapproval within five (5) Business Days of a
party's receipt of the other party's request for consent or approval as
expressly contemplated pursuant to this Section 9.13, which request shall have
been sent to the other party's notice addressees in the manner set forth in
Section 9.2, then such consent or approval shall be deemed to have been given,
provided that such five (5) Business Day period shall not commence to run unless
and until the other party shall have received all information, materials,
documents and other matters required to be submitted to it hereunder with
respect to such consent or approval and all other information, materials,
documents and other matters reasonably essential to its decision process.
Section 9.14. Time is of the Essence. Time is of the essence of this
Loan Agreement.
Section 9.15. No Third Parties Benefitted. This Loan Agreement is made
and entered into for the sole protection and legal benefit of Borrower, Lender,
and their permitted successors and assigns, and no other Person shall be a
direct or indirect legal beneficiary of, or have any direct or indirect cause of
action or claim in connection with this Loan Agreement or any of the other Loan
Documents. Lender shall not have any obligation to any Person not a party to
this Loan Agreement or the other Loan Documents.
Section 9.16. Severability. The illegality or unenforceability of any
provision of this Loan Agreement or any instrument or agreement required
hereunder shall not in any way affect or impair the legality or enforceability
of the remaining provisions of this Loan Agreement or any instrument or
agreement required hereunder.
Section 9.17. Jurisdiction. Any legal action or proceeding with respect
to this Loan Agreement or any of the other Loan Documents may be brought in the
courts of the State of California or of the United States for the District of
California, and by execution and delivery of this Loan Agreement, each of
Borrower and Lender consents, for itself and in respect of its property, to the
jurisdiction of those courts. Each of Borrower and Lender irrevocably
-74-
<PAGE> 80
waives any objection, including any objection to the laying of venue or based on
the grounds of forum non conveniens which it may now or hereafter have to the
bringing of any action or proceeding in such jurisdiction in respect to this
Loan Agreement or any document related hereto. Borrower and Lender each waive
any personal service of any summons, complaint or other process, which may be
made by any other means permitted by California law. Nothing in this Section
9.17 shall affect the right of Lender to serve legal process in any other manner
permitted by law or limit the right of Lender to bring any action or proceeding
against Borrower or its property in the courts of any other jurisdiction.
Section 9.18. Waiver of Jury Trial. BORROWER AND LENDER WAIVE THEIR
RESPECTIVE RIGHTS TO A TRIAL BY JURY OR ANY CLAIM OR CAUSE OF ACTION BASED UPON
OR ARISING OUT OF OR RELATED TO THIS LOAN AGREEMENT, THE OTHER LOAN DOCUMENTS OR
THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY IN ANY ACTION, PROCEEDING OR
OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY,
WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. BORROWER AND
LENDER AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT
TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE
THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS
SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE
OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS LOAN AGREEMENT
OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER
SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS
TO THIS LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS.
Section 9.19. Interpretation. This Loan Agreement and the other Loan
Documents shall not be construed against Lender merely because of Lender's
involvement in the preparation of such documents and agreements.
Section 9.20. Entire Agreement. This Loan Agreement, together with the
other Loan Documents, embodies the entire agreement and understanding among
Borrower and Lender and supersedes all prior or contemporaneous agreements and
understandings of such persons, verbal or written, relating to the subject
matter hereof and thereof except for any prior arrangements made with respect to
the payment by Borrower of (or any indemnification for) any fees, costs or
expenses payable to or incurred (or to be incurred) by or on behalf of Lender.
-75-
<PAGE> 81
IN WITNESS WHEREOF, Lender and Borrower have caused this Loan Agreement
to be duly executed and delivered as of the date first above written.
BORROWER:
WILLIAM LYON HOMES, INC.
a California corporation
By: /s/ RICHARD S. ROBINSON
----------------------------------
Printed Name: Richard S. Robinson
------------------------
Title: Senior Vice President
------------------------------
And
By: /s/ MICHAEL D. GRUBBS
----------------------------------
Printed Name: Michael D. Grubbs
----------------------------------
Title: Senior Vice President
LENDER:
RESIDENTIAL FUNDING CORPORATION,
a Delaware corporation
By: /s/ PETER G. FISCHER
----------------------------------
Printed Name: Peter G. Fischer
-----------------------
Title: Director
------------------------------
-76-
<PAGE> 82
EXHIBIT A TO LOAN AGREEMENT
CONDITIONS TO OBLIGATION OF LENDER TO MAKE LOAN
The obligation of the Lender to make the Loan is conditioned upon the
Lender having received, in form and substance satisfactory to Lender, each of
the following:
1. Executed originals of this Loan Agreement, the Note and the Guaranty.
2. A favorable opinion from counsel for Borrower and Guarantor with
respect to the following:
(a) Each of the Borrower and the Guarantor is duly organized,
validly existing and in good standing as a corporation under the laws of
its state of incorporation, is duly qualified to do business and in good
standing in every jurisdiction where its business or properties require
such qualification and has all requisite power and authority to own and
operate its properties and to carry on its business as now conducted.
(b) Each of the Borrower and the Guarantor has the power and
authority to execute and deliver, and perform its obligations under, the
Loan Documents to which it is a party.
(c) The execution, delivery and performance by Borrower and the
Guarantor of the Loan Documents to which it is a party have been duly
authorized by all necessary action and do not and will not (i)
contravene the Articles of Incorporation or charter documents of the
Borrower or the Guarantor; (ii) contravene any law, rule or regulation
or, to such counsel's knowledge (after due investigation), any order,
writ, judgment, injunction or decree or any contractual restriction
binding on or affecting the Borrower or the Guarantor; (iii) require any
approval or consent of any partner or any other Person other than
approvals or consents which have been previously obtained and disclosed
in writing to Lender; (iv) to such counsel's knowledge (after due
investigation), result in a breach of or constitute a default under any
indenture or loan or credit agreement or any other agreement, lease or
instrument to which the Borrower or the Guarantor is a party or by which
the Borrower or the Guarantor or any of the properties of the Borrower
or the Guarantor may be bound or affected; or (v) to such counsel's
knowledge (after due investigation), result in, or require the creation
or imposition of, any lien of any nature (other than the contemplated
liens) upon or with respect to any of the properties now owned or
hereafter acquired by the Borrower or the Guarantor; and, to such
counsel's knowledge, neither the Borrower nor the Guarantor is in
default under any such law, rule, regulation, order, writ, judgment,
injunction, decree or contractual restriction or any such indenture,
agreement, lease or instrument.
A-1
<PAGE> 83
(d) The Loan Agreement and the Note have been duly executed and
delivered and constitute the legal, valid and binding obligations of the
Borrower enforceable in accordance with their respective terms.
(e) The Guaranty has been duly executed and delivered and
constitutes the legal, valid and binding obligation of the Guarantor
enforceable in accordance with its terms.
(f) No authorization or approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body
is required for the due execution, delivery and performance by the
Borrower of the Loan Agreement or the Note or any other document
executed pursuant thereto or in connection therewith or by the Guarantor
of the Guaranty or any other document executed pursuant thereto or in
connection therewith.
(g) To such counsel's knowledge (after due investigation), there
is no pending or threatened action, suit, proceeding or arbitration
against or affecting the Borrower, the Guarantor or any of their
Affiliates before any court, governmental agency or arbitrator which, if
adversely determined, would result in a Material Adverse Change.
(h) The amounts received or to be received by Lender under this
Loan Agreement and the other Loan Documents will not constitute usurious
or otherwise unlawful interest.
(i) Such other opinions as Lender shall reasonably request.
3. Copies of the Articles of Incorporation, By-Laws and Certificates of
Good Standing for the Borrower and the Guarantor.
4. Copies of the resolutions adopted by the Borrower authorizing the
Borrower to obligate itself with respect to the Loan and authorizing certain
officers to execute and deliver this Loan Agreement and the other Loan Documents
to which the Borrower is a party.
5. Copies of the resolutions adopted by the Guarantor authorizing the
Guarantor to obligate itself with respect to the Guaranty and authorizing
certain officers to execute and deliver the Guaranty and any other Loan
Documents to which the Guarantor is a party.
6. Payment of all costs and expenses incurred by Lender, including,
without limitation, the fees and costs of its legal counsel, in connection with
the preparation, execution and delivery of this Loan Agreement, the Note, the
Guaranty and all Project Documents executed and delivered as of the date of the
Loan Agreement.
A-2
<PAGE> 84
7. Evidence satisfactory to the Lender that Borrower has approved the
forms of the Project Documents approved by Lender.
A-3
<PAGE> 85
EXHIBIT B TO LOAN AGREEMENT
PROJECT REQUIREMENTS
--------------------------------------------------------------------------------
GENERAL A proposed project may utilize proceeds of the Loan
for any of the following: (i) acquisition of the
Land, Development Work and Homes, (ii) acquisition
of the Land and Development Work, (iii) acquisition
of Finished Lots and Homes or (iv) Homes.
A proposed project may be one of several projects
anticipated to be developed by the Borrower in a
single contiguous development.
--------------------------------------------------------------------------------
ENTITLEMENTS All proposed projects must be suitable for and
substantially entitled for the commencement of the
Development Work and/or the Homes, as applicable,
including the relative on and off-site improvements.
Unless otherwise agreed to by the Lender, the Land
must be fully entitled, and the Borrower must be
able to commence development of the Project, as
contemplated by the Project Underwriting Documents,
upon payment of fees to the governing municipality.
--------------------------------------------------------------------------------
GEOGRAPHIC REGION Projects must be located in the State of California,
the State of Arizona or the State of Nevada.
--------------------------------------------------------------------------------
COMMENCEMENT OF WORK The Development Work or the Homes, as applicable,
for a Project must commence within six (6) months of
the date of the Project Commitment for such Project.
--------------------------------------------------------------------------------
ACQUISITION AND The Acquisition and Development Amount for the
DEVELOPMENT AMOUNT acquisition of the Land and the Development Work
related to a Project shall be set forth in the
Project Commitment for such Project.
--------------------------------------------------------------------------------
EQUITY The equity requirement from the Borrower will be
specified in the applicable Project Commitment.
--------------------------------------------------------------------------------
ACQUISITION AND All Projects.
DEVELOPMENT MATURITY
DATE All outstanding borrowings of the Loan related to
the acquisition of the Land and the Development Work
for a Project shall be due and payable on the
Acquisition and Development Maturity Date.
The Acquisition and Development Maturity Date shall
not exceed the earlier of (i) the date which is
specified in the Project Commitment as the
Acquisition and Development Maturity Date, or (ii)
the Maturity Date.
--------------------------------------------------------------------------------
B-1
<PAGE> 86
--------------------------------------------------------------------------------
PRICE POINT The maximum sales price for any Unit in a Project
shall not exceed $500,000.
--------------------------------------------------------------------------------
PROJECT SIZE LIMITATIONS The size of each Project shall be limited to the
number of Units which can be absorbed prior to the
Acquisition and Development Maturity Date, subject
to the requirement that the size of a Project may
not exceed 150 Units.
--------------------------------------------------------------------------------
START LIMITATIONS Construction of Homes within a Project will be
limited to the following:
1. an unlimited number of Sold Units;
2. a number of Model Units not to exceed five
(5) Model Units per Project; and
3. a number of Spec Units equaling up to three
(3) months of unit absorption (based upon the
Appraisal required to be delivered as part of
the Project Underwriting Documents), except on
the 1st phase of the Project, a number of Spec
Units not to exceed twenty-five (25) Spec Units;
--------------------------------------------------------------------------------
ADVANCE RATES FOR THE The Advance Rates for the acquisition of Land and
ACQUISITION OF LAND AND the Development Work related to a Project shall be
THE DEVELOPMENT WORK as follows:
RELATED TO A PROJECT
Conventional Project:
Proceeds of the Loan may be advanced to fund the
following:
(1) the lesser of 70% of the cost of the
Land or 70% of the Value of the Land; plus
(2) 100% of the costs of the Development
Work,
provided however that the Acquisition and
Development Amount shall not exceed the lesser of
70% of the Value of the Land or 85% of the cost of
Finished Lots.
High Advance Rate Project:
Proceeds of the Loan may be advanced to fund the
following:
(1) 85% of the acquisition price of the
Land; plus
(2) 100% of the costs of the Development
Work,
provided however that the Acquisition and
Development Amount shall not exceed ninety percent
(90%) of the Value of the Land.
--------------------------------------------------------------------------------
B-2
<PAGE> 87
--------------------------------------------------------------------------------
BORROWING BASE VALUE The Borrowing Base Value for a Unit included in the
FOR UNITS INCLUDED ABF Program shall be that amount which is equal to
IN THE ABF PROGRAM the aggregate of (i) the Borrowing Base Home Amount
for such Unit multiplied by the Percentage Completed
for such Unit; provided, however, that Excluded
Units shall be excluded in determining the Borrowing
Base Value.
"Applicable ABF Advance Rate" shall mean (i) with
respect to a Unit in a Conventional Project, (A) 75%
of the Value of such Unit if such Unit is a Spec
Unit, or (B) 80% of the Value of such Unit if such
Unit is a Sold Unit or a Model Unit, or (ii) with
respect to a Unit in a High Advance Rate Project,
(A) 80% of the Value of such Unit if such Unit is a
Model Unit or a Spec Unit, or (B) 85% of the Value
of such Unit if such Unit is a Sold Unit.
"Borrowing Base Home Amount" shall mean the amount
which shall be allocated to each Home included in
the ABF Program for purposes of determining the
Borrowing Base Value, which amount shall be equal to
that amount which is determined by multiplying the
Applicable ABF Advance Rate times the Value of the
Unit, and subtracting therefrom the total amount of
the Loan disbursed for the land acquisition and
budgeted for the Development Work related to such
Unit.
"Percentage Completed" shall mean, with respect to a
Home, the percentage of the construction of the Home
which has been completed, which such percentage
shall be based upon the percentages in the Staged
Draw Schedule and shall be set forth in the most
recent WIP Report.
--------------------------------------------------------------------------------
B-3
<PAGE> 88
EXHIBIT C TO LOAN AGREEMENT
PROJECT UNDERWRITING DOCUMENTS
A. GENERAL PROJECT INFORMATION:
1. Summary description of proposed project.
2. Designation of proposed project as a Conventional Project or a
High Advance Rate Project.
3. Purchase contract for property.
4. Cash flow analysis, which shall include the proposed Budget
(including breakdown between Land acquisition costs, costs of
Development Work and costs of Homes) and Construction Progress
Schedule for the proposed project.
5. Market report supporting absorption rates and information on
home product.
6. Appraisal Report setting forth (i) a Value for the proposed
project equal to or greater than that required by the Project
Requirements and (ii) a value for each model type within the
proposed project.
7. The map or plat relating to such project.
8. Preliminary title report, including copies of all documents
relating to exceptions.
B. CONSTRUCTION INFORMATION AND DOCUMENTS:
1. Site plan.
2. Evidence of site plan approval and proper zoning.
3. Plans and Specifications for each Home design.
4. ALTA survey, if required by Lender.
5. Phase I environmental report.
6. Soils report.
7. Letters regarding utility availability.
C-1
<PAGE> 89
8. Evidence of the Borrower's ability to satisfy the conditions of
the site plan approval.
C. PROJECT LEGAL DOCUMENTS
1. Proposed or recorded CC&R's.
2. If a condominium, a copy of the homeowner's association articles
of incorporation, by-laws and budget.
C-2
<PAGE> 90
EXHIBIT D TO LOAN AGREEMENT
FORM OF PROJECT COMMITMENT
FIELD(Commitment Date)
William Lyon Homes, Inc.
4490 Von Karman Avenue
Newport Beach, California 92660
Attention: Michael D. Grubbs, Senior Vice President and
Chief Financial Officer
Richard S. Robinson, Senior Vice President
RESIDENTIAL FUNDING CORPORATION, a Delaware corporation, its successors
and assigns (the "Lender") is pleased to confirm that the Lender agrees to
advance, in accordance with and pursuant to the Loan Agreement referenced below,
proceeds of the loan which the Lender made to WILLIAM LYON HOMES, INC., a
California corporation (the "Borrower") with respect to the Project specified
below, substantially upon the terms outlined below. Capitalized terms used
herein shall have the meanings assigned those terms in the Loan Agreement dated
as of September 25, 2000, between the Borrower and the Lender.
--------------------------------------------------------------------------------
GENERAL
--------------------------------------------------------------------------------
PROJECT PROJECT NAME
--------------------------------------------------------------------------------
PROJECT LOCATION PROJECT LOCATION
--------------------------------------------------------------------------------
TERMS OF THE LOAN APPLICABLE TO THIS PROJECT
--------------------------------------------------------------------------------
ACQUISITION AND The Acquisition and Development Amount, which is
DEVELOPMENT AMOUNT the amount of the Loan reserved to finance and/or
refinance the acquisition and development of the
Finished Lots in the Project $ACQUISITION AND
DEVELOPMENT AMOUNT.
--------------------------------------------------------------------------------
EQUITY AMOUNT[$] AND TIMING
--------------------------------------------------------------------------------
TYPE OF PROJECT HIGH ADVANCE RATE OR CONVENTIONAL
--------------------------------------------------------------------------------
D-1
<PAGE> 91
--------------------------------------------------------------------------------
KEYBOARD(Including Only The Additional Loan Fee the Borrower will be
For High Advance Rate required to pay to Lender as a condition precedent
Project is Projects) to the Lender's release of its lien on any Lot or
ADDITIONAL LOAN FEE Unit located in the equal to the following:
(a) in the event the Lender has advanced
proceeds of the Loan to finance the acquisition
of the Land and the Development Work and the
Borrower finances the construction of a Home on
a Lot from a source other than the Lender or
sells a Lot to another builder, an amount equal
to five percent (5%) of the Value of such Lot;
and
(b) in the event the Lender has advanced
proceeds of the Loan to finance the Homes,
regardless of the completion status of the Unit,
an amount equal to one and one-half percent
(1.50%) of the Gross Selling Price of such Unit.
--------------------------------------------------------------------------------
INTEREST RATE The Loan shall bear interest from the date of
disbursement on the unpaid principal at the per
annum rate of the Prime Rate plus three-eighths of
one percent (.375%).
--------------------------------------------------------------------------------
KEYBOARD(Select Type of Proceeds of the Loan up to the Acquisition and
Project) ADVANCE RATE Development Amount may be advanced to fund the
FOR LAND ACQUISITION AND following:
DEVELOPMENT WORK --
High Advance Rate Project
(1) to acquire the Land, 85% of the acquisition
price of the Land; plus
(2) to fund Development Work, 100% of the costs
of the Development Work,
provided however that the Acquisition and
Development Amount shall not exceed ninety percent
(90%) of the Value of the Land.
--------------------------------------------------------------------------------
D-2
<PAGE> 92
--------------------------------------------------------------------------------
ADVANCE RATE FOR LAND Proceeds of the Loan up to the Acquisition and
ACQUISITION AND Development Amount may be advanced to fund the
DEVELOPMENT WORK -- following:
Conventional Project
(1) to acquire the Land, the lesser of 70% of
the cost of the Land or 70% of the Value of the
Land; plus
(2) to fund Development Work, 100% of the costs
of the Development Work,
provided however that the Acquisition and
Development Amount shall not exceed the lesser of
seventy percent (70%) of the Value of the Land or
85% of the cost of Finished Lots.
--------------------------------------------------------------------------------
VALUE OF LAND KEYBOARD (INSERT VALUES)
Value of Land
The value of the Land shall be $VALUE OF LAND, which
value was determined based on the retail value of
the Land after completion of all Development Work.
KEYBOARD (HIGH ADVANCE RATE PROJECTS ONLY)
Value of Finished Lots:
For purposes of determining the Additional Loan Fee
payable in the event the Lender has advanced
proceeds of the Loan to finance the acquisition of
the Land and the Development Work, and the Borrower
finances the construction of a Home from a source
other than the Lender or sells a Lot to another
builder, the value of the Lots shall be determined
based on the "as if complete" value of the Lots
after completion of all Development Work.
--------------------------------------------------------------------------------
APPLICABLE ACQUISITION The Applicable Acquisition and Development Principal
AND DEVELOPMENT Repayment Percentage for the Project is APPLICABLE
PRINCIPAL REPAYMENT PERCENTAGE (____________%).
PERCENTAGE
--------------------------------------------------------------------------------
D-3
<PAGE> 93
--------------------------------------------------------------------------------
ABF PROGRAM Proceeds of the Loan may be advanced to fund the
construction of Homes in the Project under the ABF
Program pursuant to the terms of the Loan Agreement.
--------------------------------------------------------------------------------
BORROWING BASE VALUE
UNDER THE ABF PROGRAM The Borrowing Base Value of a Unit included in the
ABF Program shall be that amount which is equal to
the aggregate of (i) the Borrowing Base Home Amount
for such Unit multiplied by the Percentage Completed
for such Unit; provided, however, that Excluded
Units shall be excluded in determining the Borrowing
Base Value.
"Borrowing Base Home Amount" shall mean the amount
which shall be allocated to each Home for purposes
of determining the Borrowing Base Value, which
amount shall be equal to that amount which is
determined by multiplying the Applicable ABF Advance
Rate times the Value of the Unit, and subtracting
therefrom the total amount of the Loan disbursed for
the land acquisition and budgeted for the
Development Work related to such Unit.
"Percentage Completed" shall mean, with respect to a
Home, the percentage of the construction of the Home
which has been completed, which such percentage
shall be based upon the percentages in the Staged
Draw Schedule and shall be set forth in the most
recent WIP Report.
KEYBOARD FOR CONVENTIONAL PROJECTS:
"Applicable ABF Advance Rate" shall mean (A) 75% of
the Value of such Unit if such Unit is a Spec Unit,
or (B) 80% of the Value of such Unit if such Unit is
a Sold Unit or a Model Unit.
FOR HIGH ADVANCE RATE PROJECTS:
"Applicable ABF Advance Rate" shall mean (A) 80% of
the Value of such Unit if such Unit is a Model Unit
or a Spec Unit, or (B) 85% of the Value of such Unit
if such Unit is a Sold Unit.
--------------------------------------------------------------------------------
D-4
<PAGE> 94
--------------------------------------------------------------------------------
VALUE OF UNITS Sold Units:
The value of any Sold Unit, whether or not the Home
has been commenced or completed, shall be determined
based upon the sales price set forth in the Sales
Agreement.
Model Units and Spec Units:
The values of the Model Units and Spec Units,
whether or not the Home has been commenced or
completed, shall be determined, based upon the
"as-completed" "full retail" value of the base value
of the applicable Unit, exclusive of options,
extras, upgrades and lot/location premiums, which
shall be as follows:
<TABLE>
<CAPTION>
Base Model Value
---------- -----
<S> <C>
[Model #MODEL 1] $VALUE 1
[Model #MODEL 2] $VALUE 2
[Model #MODEL 3] $VALUE 3
</TABLE>
--------------------------------------------------------------------------------
ADDITIONAL LIMITATIONS
ON DISBURSEMENTS FIRST: KEYBOARD(SPECIFY)
SECOND: KEYBOARD(SPECIFY)
ADDITIONAL: KEYBOARD(SPECIFY)
--------------------------------------------------------------------------------
MATURITY DATE The Maturity Date is the first to occur of (i)
September 25, 2004, which is the date four (4) years
from the date of the Loan Agreement (as such date
may be extended in writing by Lender and Borrower
from time to time), or (ii) the date on which the
Loan is required to be repaid pursuant to Section
8.2 of the Loan Agreement.
--------------------------------------------------------------------------------
ACQUISITION AND
DEVELOPMENT MATURITY DATE The first to occur of (i) KEYBOARD(ACQUISITION AND
DEVELOPMENT MATURITY DATE), which is the date
KEYBOARD(# MONTHS) months from the date of the
Project Documents for such Project (as such date may
be extended in writing by the Lender and the
Borrower from time to time), or (ii) the Maturity
Date.
--------------------------------------------------------------------------------
D-5
<PAGE> 95
--------------------------------------------------------------------------------
KEYBOARD(DELETE IF NOT KEYBOARD(SPECIFY INFORMATION)
APPLICABLE)
LETTER OF CREDIT
--------------------------------------------------------------------------------
PROJECT INFORMATION
--------------------------------------------------------------------------------
DESCRIPTION OF PROJECT ACQUISITION OF LAND: Acquisition of land for a UNIT
NO [WDS/#] lot residential subdivision located
LOCATION WITHIN STATE in the State of PROJECT STATE.
--------------------------------------------------------------------------------
DEVELOPMENT WORK: The work of development to be
performed on or with respect to the Land (including,
without limitation, the installation of utilities,
roads and all related on-site and off-site
improvements) in connection with the development of
the Land for the subsequent construction thereon of
Homes, all of which work and construction shall be
completed by or on behalf of the Borrower in
accordance with the Plans and Specifications, but
shall not include the Homes.
--------------------------------------------------------------------------------
HOMES: The Homes which are to be constructed on or
with respect to the Land by or on behalf of the
Borrower in accordance with the Plans and
Specifications, which improvements shall include
UNIT NO. [WDS/#] single-family detached homes /
attached townhomes / detached townhomes /
condominiums in a subdivision commonly known as
PROJECT NAME located in PROJECT COUNTY County, State
of PROJECT STATE, but shall not include the
Development Work.
--------------------------------------------------------------------------------
BUDGET FOR ACQUISITION
AND DEVELOPMENT AMOUNT The Budget for the Acquisition and Development
Amount is attached hereto as Schedule 1.
--------------------------------------------------------------------------------
BUDGET AND STAGES
FOR HOMES Schedule 2 attached hereto sets forth the Budget for
the Homes, including a Staged Draw Schedule of the
Stages relating to the construction of the Homes.
--------------------------------------------------------------------------------
PRICE POINT The maximum sales price for any Unit in the Project
shall not exceed $PRICE POINT.
--------------------------------------------------------------------------------
PERMITTED MODEL UNITS Proceeds of the Loan may be disbursed for no more
than MODEL HOME NUMBER Model Units.
--------------------------------------------------------------------------------
D-6
<PAGE> 96
--------------------------------------------------------------------------------
ABSORPTION RATE The projected absorption rate for the Project is
ABSORPTION NUMBER Units per month.
--------------------------------------------------------------------------------
PERMITTED SPEC UNITS Proceeds of the Loan may be disbursed for a number
of Spec Units equaling three (3) months of
absorption, currently SPEC NUMBER Spec Units, except
on the 1st phase of the Project, a number of Spec
Units not to exceed twenty-five (25) Spec Units.
--------------------------------------------------------------------------------
INSPECTOR INSPECTOR, or such other inspector(s) or engineer(s)
engaged by the Lender, at the expense of the
Borrower, to provide to Lender consultation services
in connection with the Project.
--------------------------------------------------------------------------------
CONSTRUCTION PROGRESS
SCHEDULE Construction of the Project will commence no later
than ninety (90) days from the date of this Project
Commitment and will continue in accordance with the
Construction Progress Schedule provided to Lender.
--------------------------------------------------------------------------------
PROJECT DOCUMENTS
--------------------------------------------------------------------------------
PROJECT DOCUMENTS Project Commitment
Deed of Trust
UCC Financing Statements (one for filing with
PROJECT STATE Secretary of State and one for
filing with PROJECT COUNTY County
Title Policy or Title Policy Endorsement Plans and
Specifications
--------------------------------------------------------------------------------
OTHER REQUIRED DOCUMENTS Prior to closing this transaction, Borrower shall
deliver to Lender the following: KEYBOARD(SPECIFY)
--------------------------------------------------------------------------------
This Project Commitment is conditioned upon the absence of (i) any
Material Adverse Change since the date of the most recent financial statements
delivered to Lender, (ii) any material adverse change in the financial condition
or projected operations of the Project since the date of the most recent
information delivered to the Lender with respect to the Project, (iii) any
material action, suit or proceeding (including, without limitation, any inquiry
or investigation) pending or threatened with respect to Borrower, the Guarantor
or the Project that could have a material adverse affect on the Borrower, the
Guarantor or the Project and (iv) the occurrence of any Event of Default or
Potential Default prior to the execution and delivery of the Project Documents.
D-7
<PAGE> 97
The Project Documents shall be prepared by counsel to the Lender and
shall be satisfactory to the Lender. Borrower shall be obligated to pay all
costs and expenses incurred to satisfy all conditions precedent, whether or not
any funds of the Loan are advanced with respect to the Project. The Lender shall
not be responsible or liable for consequential damages which may be alleged as a
result of the issuance of this Project Commitment.
Borrower agrees to indemnify and hold harmless Lender from liabilities
(including costs of settlement) arising out of or resulting from the
transactions contemplated by this Project Commitment, and to reimburse the
Lender for reasonable legal or other expenses incurred in connection with the
defense or preparation of the defense of any such liability.
The provisions of the immediately preceding two paragraphs shall survive
any termination of this Project Commitment.
D-8
<PAGE> 98
This Project Commitment shall terminate unless (a) this Project
Commitment is accepted by you on or before DATE, and (b) definitive Project
Documents, satisfactory in form and substance to the Lender, have been entered
into on or before DOCUMENT DATE or such later date as is mutually agreeable to
the Lender and the Borrower.
Sincerely,
RESIDENTIAL FUNDING CORPORATION
By:
------------------------------------
Printed Name:
--------------------------
Title:
--------------------------------
TERMS ACCEPTED:
WILLIAM LYON HOMES, INC.,
a California corporation
By:
------------------------------------
Printed Name:
--------------------------
Title:
---------------------------------
And
By:
------------------------------------
Printed Name:
--------------------------
Title:
---------------------------------
D-9
<PAGE> 99
SCHEDULE 1
ACQUISITION AND DEVELOPMENT BUDGET
D-10
<PAGE> 100
SCHEDULE 2
BUDGET FOR HOMES AND STAGED DRAW SCHEDULE
D-11
<PAGE> 101
EXHIBIT E TO LOAN AGREEMENT
FORM OF DRAW REQUEST CERTIFICATION
--------------------------------------------------------------------------------
DRAW REQUEST NUMBER ____
[DATE]
LENDER: RESIDENTIAL FUNDING CORPORATION
BORROWER: WILLIAM LYON HOMES, INC., a California corporation
--------------------------------------------------------------------------------
Reference is made to that certain Loan Agreement dated as of September
25, 2000, between Lender and Borrower (as amended or otherwise modified from
time to time, the "Loan Agreement"). Capitalized terms used herein without
definition shall have the meanings s et forth in the Loan Agreement, unless the
context shall require otherwise.
With respect to the Acquisition and Development Amounts of the Projects,
Borrower requests Lender to disburse to the Borrower proceeds of the Loan in the
amounts and for the purposes stated in the attached Schedule 1.
With respect to the ABF Program, Borrower requests Lender to disburse to
the Borrower proceeds of the Loan in the amount of $ __, which is equal to or
less than the Borrowing Base Allowable Disbursement Amount.
In connection with such requested disbursements, Borrower hereby
represents, warrants and certifies to Lender as follows:
(a) No Event of Default or Potential Default presently exists
under the Loan Agreement or any other Loan Document.
(b) All of the representations and warranties of Borrower under
the Loan Agreement and the other Loan Documents are hereby remade and
restated.
E-1
<PAGE> 102
(c) With respect to the Loan:
(1) the Borrower has satisfied all conditions precedent
to the funding of the proceeds of the Loan as set forth in the
Loan Agreement and the other Loan Documents;
(2) the Loan Documents are in full force and effect;
(3) the Loan is secured by a first priority lien on the
Projects and the other collateral described in the Loan
Documents;
(4) with respect to the Acquisition and Development
Amount for each Project, the sum of all amounts expended in
respect of the acquisition of Land and Development Work related
to such Project does not exceed the amounts in the specified
Budget, or if such amounts do exceed the amounts specified in
the Budget, attached hereto is a listing of the amounts over
budget and an explanation of such budget overrun(s); and
(5) all contractors, subcontractors, vendors,
materialmen and other Persons entitled to payment with respect
to each Project have been paid or will be paid, subject to
retainage, with the proceeds of the requested disbursement.
(d) All insurance required to be maintained by Borrower remains
in full force and effect, of the types, in the amounts and issued by
insurers as previously approved by Lender.
E-2
<PAGE> 103
(e) All of the information contained in the most recent WIP
Report generated by Lender is true, complete and accurate, and such WIP
Report does not contain any untrue statement of a material fact, or omit
any material fact required to be stated therein or necessary to make the
statement made therein, in light of circumstances under which they are
made, not misleading.
BORROWER:
WILLIAM LYON HOMES, INC.,
a California corporation
By:
------------------------------------
Printed Name:
--------------------------
Title:
--------------------------------
And
By:
------------------------------------
Printed Name:
--------------------------
Title:
--------------------------------
E-3
