<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- - --- ACT OF 1934
For the quarterly period ended August 31, 1994
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- - --- EXCHANGE ACT OF 1934
Commission File Number: 0-15952
J.M. PETERS COMPANY, INC.
- - --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 95-2956559
- - --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3501 Jamboree Road, Suite 200, Newport Beach, California 92660
- - --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(714) 854-2500
- - --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes XX No
-- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class and Title of Shares Outstanding as of
Capital Stock October 7, 1994
------------------ ------------------------
Common Stock, $.10 Par Value 14,995,000
<PAGE> 2
J.M. PETERS COMPANY, INC.
INDEX TO FORM 10-Q
Page
----
<TABLE>
<S> <C>
Part I - Financial Information:
Item 1 - Financial Statements
Consolidated Balance Sheets -
August 31, 1994 and February 28, 1994 1
Consolidated Statements of Operations for the
Three Months Ended August 31, 1994 and 1993 and
the Six Months Ended August 31, 1994 and 1993 2
Consolidated Statements of Cash Flows for the
Six Months Ended August 31, 1994 and 1993 3
Notes to Consolidated Financial Statements 4-6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-11
Part II - Other Information:
Item 4 - Submission of Matters to a Vote of
Security Holders 12
Item 6 - Exhibits and Reports on Form 8-K 12
</TABLE>
<PAGE> 3
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
ASSETS
<TABLE>
<CAPTION>
August 31, February 28,
1994 1994
(Unaudited)
------------ ------------
<S> <C> <C>
Cash and cash equivalents $ 25,875 $ 10,001
Restricted cash 1,483 1,483
Accounts and notes receivable 2,824 1,650
Residential inventories 156,786 105,696
Property and equipment, at cost, net of accumulated depreciation
of $2,196 and $2,152 as of August 31, 1994 and February 28,
1994, respectively 3,420 159
Unamortized bond issuance costs 5,214 -
Prepaid expenses and other assets 3,817 2,965
--------- ---------
$ 199,419 $ 121,954
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable $ 11,950 $ 34,709
Bonds payable 100,000 -
Accounts payable 10,418 10,808
Accrued liabilities 10,944 6,884
--------- ---------
Total liabilities 133,312 52,401
--------- ---------
Minority Interest 4,714 13,959
Stockholders' equity (deficit):
Common stock, par value $.10 per share, 30,000,000 shares
authorized; 14,995,000 issued and outstanding 1,500 1,500
Additional paid-in capital 211,888 210,387
Accumulated deficit (151,995) (156,293)
--------- ---------
Total stockholders' equity 61,393 55,594
--------- ---------
$ 199,419 $ 121,954
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
1
<PAGE> 4
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months Six months
ended August 31, ended August 31,
------------------ -----------------
1994 1993 1994 1993
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenue:
Sales of homes $31,050 $ 3,329 $61,638 $ 6,933
Sales of land and lots 1,140 4,512 2,292 4,512
Interest and other income 1,062 409 2,092 809
------- ------- ------- -------
33,252 8,250 66,022 $12,254
------- ------- ------- -------
Costs and expenses:
Cost of homes 25,241 3,296 49,714 7,057
Cost of land and lots 907 4,383 1,799 4,383
Selling, general and administrative 4,609 1,986 9,154 3,904
Minority Interest 1,902 - 3,433 -
Interest expense - 142 - 418
------- ------- ------- -------
32,659 9,807 64,100 15,762
------- ------- ------- -------
Income (loss) before income taxes
and extraordinary gain 593 (1,557) 1,922 (3,508)
Provision for income taxes 237 0 699 0
------- ------- ------- -------
Income (loss) before extraordinary gain 356 (1,557) 1,223 (3,508)
Extraordinary gain (net of tax effect) - - 3,075 -
------- ------- ------- -------
NET INCOME/(LOSS) $ 356 $(1,557) $ 4,298 $(3,508)
======= ======= ======= =======
Net income/(loss) per common share:
Before extraordinary gain $ 0.02 $ (0.11) $ 0.08 $ (0.25)
Extraordinary gain 0.00 0.00 0.21 0.00
------- ------- ------- -------
Net income/(loss) $ 0.02 $ (0.11) $ 0.29 $ (0.25)
======= ======= ======= =======
Weighted average number of common shares 14,995 13,980 14,995 13,980
======= ======= ======= =======
Capitalized interest included in cost of sales $ 2,331 $ 923 $ 4,144 $ 1,576
======= ======= ======= =======
Interest incurred $ 3,449 $ 776 $ 4,996 $ 1,402
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE> 5
J.M. PETERS COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended August 31,
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss) $ 4,298 $ (3,508)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Extraordinary gain (4,713) -
Depreciation and amortization 109 82
Increase in residential inventories (51,090) (15,534)
(Increase) decrease in receivables, prepaid
expenses and other assets (2,012) 83
(Decrease) increase in accounts payable (390) 8,481
Increase in accrued liabilities 4,060 335
-------- --------
NET CASH USED IN OPERATING ACTIVITIES (49,738) (10,061)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (3,370) (30)
Increase in investment in partnerships (14) (64)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (3,384) (94)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bond issue proceeds, net 96,287 -
Repayments to Capital Pacific Homes, Inc. - (852)
(Decrease) increase in minority interest in joint ventures (9,245) 11,586
Principal payments of notes payable,net (18,046) (729)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 68,996 10,005
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 15,874 (150)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 10,001 9,454
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 25,875 $ 9,304
======== ========
Supplemental disclosure of non-cash transactions:
Note payable reduced by debt forgiveness $ 4,713 -
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 6
J.M. PETERS COMPANY, INC., AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. The unaudited financial statements presented herein have been prepared in
accordance with the instructions to Form 10-Q and do not include all of the
information and note disclosures required by generally accepted accounting
principles. These statements should be read in conjunction with the financial
statements and notes thereto included in the J.M. Peters Company, Inc.,
("Company") Form 10-K for the fiscal year ended February 28, 1994. In the
opinion of management, the financial statements presented herein include all
adjustments (which are solely of a normal recurring nature) necessary to
present fairly the Company's financial position and results of operations. The
results of operations for the six month period ended August 31, 1994, are not
necessarily indicative of the results that may be expected for the year ending
February 28, 1995.
2. Notes payable:
Notes payable at August 31, 1994 and February 28, 1994, are summarized as
follows:
<TABLE>
<CAPTION>
August 31, February 28,
1994 1994
---------- ------------
(In Thousands)
<S> <C> <C>
Model loans collateralized by
deeds of trust, including
interest at Prime plus 3%: $ -0- $ 1,940
Construction notes matured: -0- 10,402
Construction notes maturing in
one or two years: -0- 9,229
Promissory notes secured by
deeds of trust, bearing interest
at prime plus 1%: 8,307 11,123
Promissory note secured by
deed of trust bearing interest
at prime plus 1.5% -0- 2,015
Non-Recourse Promissory Note
secured by deed of trust bearing
interest at prime plus 1.5%: 2,436 -0-
Non-Recourse Promissory Note
secured by deed of trust bearing
interest at 8.0%: 1,207 -0-
------- -------
$11,950 $34,709
======= =======
</TABLE>
4
<PAGE> 7
3. Supplemental Guarantor Information (Unaudited)
In connection with the offering in fiscal 1995 of the Senior
Usecured Notes (the "Offering") Payable, the Company and certain of its
wholly-owned subsidiaries (Guarantors) jointly, severally, fully and
unconditionally guaranteed such notes. Supplemental condensed combined
financial information of the Company, Guarantors and non-Guarantors is
presented as follows. As discussed in Note 3 in Notes To Supplemental
Guarantor Information, these financial statements are prepared using the
equity method of accounting for the Company's and the Guarantors' investments
in subsidiaries and partnerships. This supplemental financial information
should be read in conjunction with the Consolidated Financial Statements.
AS OF AND FOR THE SIX MONTHS ENDED AUGUST 31, 1994 (IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
J.M. PETERS NON- TOTAL
COMPANY, INC. GUARANTORS(1) GUARANTORS(2) ELIMINATIONS(4) CONSOLIDATED
------------- ------------- ------------- --------------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET
Cash . . . . . . . . . . . $ 16,099 $ 3,841 $ 5,935 $ 0 $ 25,875
Inventories . . . . . . . . 114,577 24,451 18,140 (382) 156,786
Investment in Partnerships
and subsidiaries (3) . . . 13,320 11,602 0 (24,322) 600
Intercompany advances . . . 21,028 0 0 (21,028) 0
Other . . . . . . . . . . . 14,044 839 1,675 (400) 16,158
-------- -------- -------- -------- ---------
Total Assets . . . . . . $179,068 $ 40,733 $ 25,750 $(46,132) $199,419
======== ======== ======== ======== ========
Accounts Payable and
Accrued Liabilities . . . $ 9,368 $ 5,169 $ 6,858 $ (33) $ 21,362
Intercompany
advances . . . . . . . . . 0 19,495 1,533 (21,028) 0
Notes Payable . . . . . . . 108,307 3,643 349 (349) 111,950
Minority Interest . . . . . 0 0 0 4,714 4,714
Shareholders' Equity . . . 61,393 12,426 17,010 (29,436) 61,393
-------- ------- ------- ------- --------
Total Liabilities
& Equity . . . . . . . $179,068 $40,733 $25,750 $(46,132) $199,419
======== ======= ======= ======== ========
STATEMENT OF OPERATIONS
Revenues:
Sales of homes & land . . $ 6,840 $15,251 $41,839 $ 0 $ 63,930
Interest and other
income, net . . . . . . . 401 1,092 599 0 2,092
Equity in income of
partnerships and
subsidiaries(3) . . . . . 4,014 2,175 0 (6,189) 0
-------- ------- ------- -------- --------
Total Revenues . . . . . 11,255 18,518 42,438 (6,189) 66,022
-------- ------- ------- -------- --------
Cost of homes & land . . . 5,585 12,287 33,200 441 51,513
Selling, general and
administrative . . . . . . 3,748 2,854 3,083 (531) 9,154
Interest . . . . . . . . . 0 0 0 0 0
Minority Interest . . . . . 0 0 0 3,433 3,433
-------- ------- ------- -------- --------
Income (loss) before
provision (benefit) for
income taxes and
extraordinary gain . . . 1,922 3,377 6,155 (9,532) 1,922
Provision (benefit) for
income taxes . . . . . . . 699 846 71 (917) 699
-------- ------- ------- -------- --------
Income (loss) before
extraordinary gain . . . . 1,223 2,531 6,084 (8,615) 1,223
Extraordinary Gain, Net . . 3,075 0 0 0 3,075
-------- ------- ------- -------- --------
Net Income (loss) . . . $ 4,298 $ 2,531 $ 6,084 $ (8,615) $ 4,298
======== ======= ======= ======== ========
STATEMENT OF CASH FLOWS
Net cash from (used in)
Operating activities . . . $(70,191) $10,739 $ 9,714 $ 0 $(49,738)
Net cash from (used in)
Investment activities . . (3,384) 0 0 0 (3,384)
Net cash from (used in)
Financing activities:
Net borrowings (payments)
from loans . . . . . . . (11,293) (1,272) (5,481) 0 (18,046)
Senior Unsecured Notes
Payable . . . . . . . . 96,287 0 0 0 96,287
Minority interest in
joint ventures . . . . . (600) (8,645) 0 0 (9,245)
-------- ------- ------- -------- ---------
Net cash from (used in)
Financing activities . 84,394 (9,917) (5,481) 0 68,996
-------- ------- ------- -------- ---------
Net increase (decrease)
in cash . . . . . . 10,819 822 4,233 0 15,874
Cash - beginning of
period . . . . . . . . . . 5,280 3,019 1,702 0 10,001
---------- ------- ------- -------- --------
Cash - end of period . . . $16,099 $ 3,841 $ 5,935 $ 0 $ 25,875
========== ======= ======= -------- ========
</TABLE>
See notes to supplemental guarantor information
5
<PAGE> 8
NOTES TO SUPPLEMENTAL GUARANTOR INFORMATION
(1) Guarantors are Durable Homes, Inc., J.M. Peters Nevada, Inc., and
Peters Ranchland Company, Inc., all wholly-owned subsidiaries of J.M.
Peters Company, Inc.
(2) The non-guarantors are:
(a) The limited partnerships in which Peters Ranchland Company,
Inc., is general partner:
- Ranchland Alicante Development, L.P.
- Ranchland Montilla Development, L.P.
- Ranchland Fairway Estates Development, L.P.
- Ranchland Portola Development, L.P.
(b) The limited partnerships in which Durable Homes, Inc., is
general partner:
- Las Hadas, L.P.
- Plateau Venture, L.P.
- Portraits Venture, L.P.
- Taos Estates, L.P.
(c) Certain wholly-owned subsidiaries of J.M. Peters Company, Inc.:
- Newport Design Center, Inc.
- Capital Pacific Communities, Inc.
- Durable Homes of California, Inc.
- Capital Pacific Mortgage, Inc.
(d) Fifty percent owned entities of J.M. Peters Company, Inc.:
- Bayhill Escrow, Inc.
- P.B. Partners
(3) Investments in partnerships and subsidiaries are accounted for by the
Company and the Guarantors on the equity method for purposes of the
supplemental combining presentation.
(4) The elimination entries eliminate investments in subsidiaries,
partnerships and intercompany balances.
6
<PAGE> 9
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
FINANCIAL CONDITION
In May 1994 the Company completed the private placement of $100 million of
unsecured senior notes with warrants for five percent of the Company's common
stock (the "Offering"). The notes are due and payable in eight years and carry
a coupon rate of 12.75% payable semi-annually in May and November.
With the proceeds of the Offering, the Company improved its liquidity, repaid
the majority of its debt, including resolving the last of the defaulted loans
from the period of RTC control of the Company. This financing also provides
the Company with the capital necessary to acquire new properties.
In May 1994, in addition to the Offering, the Company further enhanced its
liquidity by obtaining a new $25 million secured line of credit facility with
Bank One, Arizona, NA ("Bank One"). This line of credit can be utilized in
both California and Nevada. The Company has the option to use this facility
should it require additional resources to fund the Company's growth in the near
term. At August 31, 1994 the Company had not utilized any of such financing.
In September 1994 the Company obtained an additional $25 million non-recourse
secured credit facility with Bank One. This non-recourse facility will be
utilized for property acquisition, in the case where the land seller is
unwilling to carry back a purchase money mortgage, and for the improvement of
the property prior to the actual construction of the homes.
During the second quarter of fiscal 1995, as a result of the four successful
previous joint ventures and the Company's desire to maintain its ongoing
relationship, the Company established a new joint venture with the California
Public Employees Retirement System ("CalPERS") for the development and
construction of 58 homes in Coto de Caza, California. CalPERS has committed to
approximately $22.0 million for the development and construction of this
project and will share equally in profits generated by the venture. The new
joint venture was structured such that the Company will receive its share of
the profits and cash flow with the first home closings.
During the second quarter of fiscal 1995 the Company established a new
operating division in Phoenix, Arizona. This division will serve all markets
in Arizona and is being managed by the former Executive Vice President of
Durable Homes, Inc., the Company's subsidiary in Las Vegas, Nevada. The
Company is also actively pursuing other markets outside of its primary
operations in Southern California and Las Vegas, Nevada.
7
<PAGE> 10
Housing demand, in general, is adversely affected by increases in interest
rates available to homebuyers. The recent increase in interest rates has had
an adverse impact on the Company's sales activity, primarily at its Durable
Homes, Inc. subsidiary in Las Vegas, Nevada which caters to the entry-level
homebuyer who is most sensitive to interest rate fluctuations. The Company's
backlog of homes (homes under contract but not closed) at August 31, 1994 stood
at 222 homes. This level of backlog is lower than that at May 31, 1994 and
February 28, 1994 of 279 and 305, respectively.
The lower backlog is a result of two factors. The first factor is the increase
in interest rates mentioned above which affects the Las Vegas market more than
the California markets. The second factor is a temporary lack of inventory
available for sale. The temporary lack of inventory was due to a delay in
house starts earlier in the year. The Company had originally anticipated
closing the $100 Million Bond Offering in March of 1994, but actually closed
the Offering in May 1994. This two month delay caused a ripple effect in the
timing of acquisition of new properties, as well as the design, construction
and the opening of sales offices for the new products.
This temporary lack of inventory will be corrected during the third and fourth
quarters as the Company plans on opening eight new projects for sale, five of
such projects in California, and three in Las Vegas, Nevada. These sales
openings should have a positive impact on the level of backlog given a stable
interest rate and economic environment.
The Company expects that cash flow generated from operations will be sufficient
to cover the debt service on the Offering for the foreseeable future.
BALANCE SHEET ITEMS
Cash and cash equivalents increased to $25.9 million at August 31, 1994 from
$10.0 million at February 28, 1994 due to the proceeds from the Offering, net
of new land acquisitions, debt repayments and new construction activity. As
new projects come on line the Company anticipates that the level of cash
available will stabilize at a somewhat lower level than that at August 31,
1994.
Residential inventories increased to $156.8 million at August 31, 1994 from
$105.7 million at February 28, 1994. This increase was primarily due to the
acquisition of two new properties in California and two new properties in Las
Vegas, Nevada.
Property and equipment increased to $3.4 million at August 31, 1994 from $159
thousand at February 28, 1994 due to the Company's acquisition of a 45,389
square foot building in Newport Beach, California, which will serve as its new
corporate headquarters. The Company plans to occupy approximately 20,000
square feet with the balance leased to tenants. The Company will vacate its
current 22,313 square feet of leased office space when the lease expires in
February 1995.
8
<PAGE> 11
Unamortized bond issuance costs of $5.2 million at August 31, 1994 represents
the cost of the Offering, net of amortization.
Notes payable declined to $12.0 million at August 31, 1994 from $34.7 million
at February 28, 1994. The decline resulted from the payoff of notes with
proceeds of the Offering.
Accrued liabilities increased to $10.9 million at August 31, 1994 from $6.9
million at February 28, 1994. This increase represents accrued income taxes
payable and accrued interest related to the Offering, which interest is due and
payable semi-annually in May and November.
Minority interest declined to $4.7 million at August 31, 1994 from $14.0
million at February 28, 1994. This decline was the result of the Company
paying off joint venture construction advances with proceeds of the Offering.
Additional paid-in-capital increased to $211.9 million at August 31, 1994 from
$210.4 million at February 28, 1994. This increase represents the value of the
warrants issued in connection with the Offering.
RESULTS OF OPERATIONS
Second Quarter of Fiscal 1995 Compared With the Second Quarter of Fiscal 1994:
Revenues from housing sales for the second quarter of fiscal 1995 and the
second quarter of fiscal 1994 were $31.1 million and $3.3 million,
respectively, reflecting an increase of $27.8 million from the corresponding
period of fiscal 1994. The increase was due to increased home closings. Home
closings for the second quarter of fiscal 1995 were 172 versus 15 homes during
the second quarter of fiscal 1994. Included in the fiscal 1995 totals were 106
homes closed by Durable Homes, Inc. in Las Vegas, Nevada.
Revenues from the sales of land for the second quarter of fiscal 1995 decreased
to $1.1 million from $4.5 million for the second quarter of the prior year.
The land sales during the second quarter of fiscal 1995 represent the sale of 7
custom home lots in La Quinta, California. The land sales during the second
quarter of the prior year represented sales of two parcels of land which were
outside the area in which the Company planned to operate.
Cost of home sales increased to $25.2 million for the second quarter of fiscal
1995 from $3.3 million for the comparable period of the prior year. The
increase was primarily due to the increased home closings.
Cost of land sales decreased to $907 thousand for the second quarter of fiscal
1995 from $4.4 million for the comparable period of the prior year. The
decline was due to closing 7 custom lot sales during the second quarter of
fiscal 1995 versus bulk sales of two projects during fiscal 1994.
9
<PAGE> 12
Selling, general and administrative expenses for the second quarter of fiscal
1995 totaled $4.6 million, an increase of $2.6 million over the corresponding
period of fiscal 1994. This increase was due primarily to the acquisition of
Durable Homes, Inc., whose selling, general and administrative expense for the
quarter was $1.6 million, and increased activity in California.
Minority interest expense increased to $1.9 million for the second quarter of
fiscal 1995 as compared to none for the second quarter of the prior year. The
increase was due to escrow closings in the Company's joint venture projects.
There was no interest expense for the second quarter of fiscal 1995. This
reflects a reduction of $142 thousand when compared to the corresponding period
of the prior year. This decrease was due primarily to the increase in interest
capitalization on increased construction activity.
Income tax expense of $237 thousand for the second quarter of fiscal 1995
compares to none for the second quarter of fiscal 1994. The increase in income
tax expense is a result of the net profit recorded during the second quarter of
fiscal 1995 as compared to a net loss for the comparable period of the prior
year.
As a result of the foregoing factors, the Company posted net income of $356
thousand for the three months ended August 31, 1994 as compared to a net loss
of $1.6 million for the three months ended August 31, 1993.
For the second quarter of fiscal 1995 the Company recorded 122 net orders
(homes contracted for sales less cancellations) on home sales which was 70
homes greater than in the comparable quarter ended August 31, 1993. The
Company had 222 homes in its backlog (homes under contract but not closed) at
August 31, 1994, which was an increase of 64 homes over the Company's backlog
at August 31, 1993.
First Six Months of Fiscal 1995 Compared with the First Six Months of Fiscal
1994:
Revenues from sales of homes for the first six months of fiscal 1995 increased
$54.7 million to $61.6 million, from the $6.9 million reported for the first
six months of fiscal 1994. This increase was due to 365 home closings for the
first six months of fiscal 1995 as compared to only 32 for the first six months
of 1994. Included in the fiscal 1995 totals were 243 homes closed by Durable
in Las Vegas, Nevada.
Revenues from the sales of land for the first six months of fiscal 1995 of $2.3
million decreased $2.2 million from the first six months of fiscal 1994. The
land sales during the first six months of fiscal 1995 represented the sale of
13 custom lots in La Quinta, California. The land sales during the first six
months of fiscal 1994 represented the sale of two parcels of land which were
outside of the area in which the Company planned to operate.
10
<PAGE> 13
Cost of home sales increased to $49.7 million for the first six months of
fiscal 1995 from $7.1 million for the comparable period of the prior year.
This increase was the result of the increase in closings from 32 for the first
six months of fiscal 1994 to 365 for the first six months of fiscal 1995.
Cost of land sales decreased to $1.8 million for the first six months of fiscal
1995 from $4.4 million for the first six months of fiscal 1994. This decrease
was due to closing only 13 custom lot sales during fiscal 1995 versus bulk lot
sales of two projects during fiscal 1994.
Selling, general and administrative expenses of $9.2 million for the first six
months of fiscal 1995 increased $5.3 million over the first six months of
fiscal 1994. This increase was primarily due to the acquisition of Durable,
whose selling, general and administrative expenses for the first six months of
fiscal 1995 were $3.5 million, and increased activity in California.
Minority interest expense of $3.4 million for the first six months of fiscal
1995 was the result of escrow closings for the Company's joint venture
projects.
There was no interest expense for the first six months of fiscal 1995 as
compared to $418 thousand for the first six months of fiscal 1994. This
decline was due to the increase in interest capitalization on increased
construction activity.
Income tax expense of $699 thousand for the first six months of fiscal 1995
compares to none for the first six months of fiscal 1994. The increase in
income tax expense is a result of the net profit recorded during the first six
months of fiscal 1995 as compared to a net loss for the comparable period of
the prior year.
The Company posted an extraordinary gain of approximately $4.7 million ($3.1
million net of income taxes) from the retirement of a construction loan and
interest due thereon at less than the book amount of the liability thereof.
The loan was previously in default.
As a result of the foregoing factors, the Company posted net income of $4.3
million for the first six months of fiscal 1995 as compared to a $3.5 million
net loss for the first six months of fiscal 1994.
For the first six months of fiscal 1995 the Company recorded 282 net orders
(homes contracted for sales less cancellations) which was 184 homes greater than
the comparable six month period of fiscal 1994. The Company had 222 homes in
its backlog (homes under contract but not closed) at August 31, 1994, which was
an increase of 64 homes over the Company's backlog at August 31, 1993.
11
<PAGE> 14
PART II - OTHER INFORMATION
Item 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On July 12, 1994, at the Company's Annual meeting of Stockholders, the Company
solicited the consent of shareholders to an amendment to the Company's Restated
Certificate of Incorporation to increase the number of authorized shares of
Common Stock of the Company from 15,000,000 to 30,000,000. In response
thereto, 14,771,801 votes were cast for the amendment.
Item 6. - EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following document is filed as an exhibit to this report:
19.1 Credit Agreement by and between J.M. Peters Company, Inc., and Bank
One, Arizona, NA, dated as of September 26, 1994.
(b) No reports on Form 8-K were filed during the quarter ended August 31,
1994.
12
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
J.M. PETERS COMPANY, INC.
Date: October 12, 1994 BY: /S/ HADI MAKARECHIAN
------------------------------
Hadi Makarechian, Chairman and
Chief Executive Officer
Date: October 12, 1994 BY: /S/ GREG R. PETERSEN
--------------------------------
Greg R. Petersen, Vice President
and Chief Financial Officer
(Principal Financial Officer)
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<S> <C> <C>
Sequential
Exhibit Number Description Page Number
- - -------------- ----------- -----------
19.1 Credit Agreement by and between
J.M. Peters Company, Inc., and
Bank One, Arizona, NA, dated
as of September 26, 1994.
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 19.1
CREDIT AGREEMENT
by and between
J.M. PETERS COMPANY, INC.,
a Delaware corporation
and
BANK ONE, ARIZONA, NA,
a national banking association
Dated as of September 26, 1994
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
CREDIT FACILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.1 Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.1.1 Project Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.1.2 Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.1.2.1 Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.1.2.2 Rate After Default . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.1.2.3 Computation of Interest . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.1.2.4 No Deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.1.2.5 Order of Application . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.1.2.6 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.1.3 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.2.1 Method for Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.2.2 Use of Advances; Revision of Project Budgets . . . . . . . . . . . . . . . . . . . 16
2.2.2.1 Use of Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.2.2.2 Modification of Project Budgets . . . . . . . . . . . . . . . . . . . . . 16
2.3 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.3.1 Facility Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.3.2 Project Loan Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.3.3 Documentation Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.3.4 Attorneys' Costs, Expenses, and Fees . . . . . . . . . . . . . . . . . . . . . . . 17
2.3.5 Appraisal Fees, Title Insurance Premium, and Other Costs, Expense and Fees . . . . 17
2.3.6 Prepayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.4 Mandatory Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.4.1 Advances in Excess of Commitment Amount . . . . . . . . . . . . . . . . . . . . . . 18
2.4.2 Advances in Excess of Project Loan Amount . . . . . . . . . . . . . . . . . . . . . 18
2.4.3 Performance Requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.4.4 Project Loan Repayment Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.5 Commitment Termination Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.6 Project Loan Balancing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.6.1 Project Loan "In Balance." . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.6.2 Standard of Bank's Determination . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.6.3 Balancing Calls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.7 Loan Amount Redetermination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.7.1 Revised Project Loan Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.7.2 Required Remargining Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.7.3 Appraisal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.8 Partial Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.9 Nonrecourse Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE III
CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
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3.1 Conditions Precedent to Effectiveness of this Agreement . . . . . . . . . . . . . . . . . . . . . 23
3.1.1 Representations and Warranties Accurate . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.1.2 Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.1.3 Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.1.3.1 Loan Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.1.3.2 Corporation Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.1.3.3 Opinion Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.1.3.4 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.1.3.5 Cash Flow Projections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.1.3.6 Projected Income Statement and Balance Sheet . . . . . . . . . . . . . . . . . 24
3.1.3.7 Bond Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.1.3.8 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.1.4 Payment of Costs, Expenses and Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.1.5 Other Items or Actions by Loan Parties . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.2 Conditions Precedent to Approval of Proposed Projects and Project Loans . . . . . . . . . . . . . 25
3.2.1 Tract Map and/or Survey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.2.2 Appraisal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.2.3 Purchase Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.2.4 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.2.5 Soils Tests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.2.6 Environmental Assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.2.7 Project Budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.2.8 Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.2.9 Preliminary Title Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.2.10 Flood and Related Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.2.11 Plans and Specifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.2.12 Assessments, Charges, and Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.2.13 Insurance Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.2.14 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.2.15 Proforma Cash Flow Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.2.16 Construction Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.2.17 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.3 Additional Conditions Precedent to Initial Advance of Project Loans . . . . . . . . . . . . . . . 29
3.3.1 Approval of Project Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.3.2 Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.3.2.1 Environmental Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.3.2.2 Deed of Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.3.2.3 Financing Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.3.2.4 Assignment of Project Agreements . . . . . . . . . . . . . . . . . . . . . . . 29
3.3.2.5 Assessments, Charges, and Taxes . . . . . . . . . . . . . . . . . . . . . . . . 29
3.3.3 Recordation and Filing of Loan Documents . . . . . . . . . . . . . . . . . . . . . . . . 29
3.3.4 Title Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.3.4.1 Payment of Costs, Expenses and Fees . . . . . . . . . . . . . . . . . . . . . . 30
3.3.5 Acquisition Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
3.4 Additional Conditions Precedent to All Advances . . . . . . . . . . . . . . . . . . . . . . . . . 30
3.4.1 Representations and Warranties Accurate . . . . . . . . . . . . . . . . . . . . . . . . . 30
</TABLE>
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3.4.2 Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
3.4.3 Draw Request . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
3.4.4 Inspection Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
3.4.5 Approvals and Inspections by Governmental Authorities . . . . . . . . . . 31
3.4.6 Project Loan "In Balance." . . . . . . . . . . . . . . . . . . . . . . . 31
3.4.7 Lien Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
3.4.8 Distressed Improvement Districts . . . . . . . . . . . . . . . . . . . . 31
3.4.9 Qualification To Do Business . . . . . . . . . . . . . . . . . . . . . . 31
3.4.10 Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE IV
BORROWER REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
4.1 Closing Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . 32
4.1.1 Organization, Powers and Good Standing . . . . . . . . . . . . . . . . . 32
4.1.1.1 Organization and Powers . . . . . . . . . . . . . . . . . . . . 32
4.1.1.2 Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . 32
4.1.1.3 Non-Foreign Status . . . . . . . . . . . . . . . . . . . . . . 32
4.1.2 No Approvals, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.1.3 No Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.1.4 Execution and Delivery and Binding Nature of Loan Documents . . . . . . . 33
4.1.5 Accurate Information . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.1.6 Purpose of Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.1.7 Legal Proceedings; Hearings, Inquiries, and Investigations . . . . . . . 34
4.1.8 No Event of Default or Unmatured Event of Default . . . . . . . . . . . . 34
4.1.9 Approvals and Permits; Assets and Property . . . . . . . . . . . . . . . 34
4.1.10 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.1.11 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.1.12 Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
4.1.13 Project Budgets and Plans and Specifications . . . . . . . . . . . . . . 35
4.1.14 Bond Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
4.2 Representations and Warranties Upon Requests for Advances . . . . . . . . . . . . 35
4.3 Representations and Warranties Upon Delivery of Financial Statements,
Documents and Other Information . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE V
AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.1 Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.2 Books and Records; Access By Bank . . . . . . . . . . . . . . . . . . . . . . . . 36
5.3 Information and Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.3.1 Fiscal Period Financial Statements . . . . . . . . . . . . . . . . . . . 37
5.3.1.1 Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.3.1.2 Projection . . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.3.2 Annual Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 37
5.3.3 Compliance Certificates . . . . . . . . . . . . . . . . . . . . . . . . . 37
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5.3.4 Sales Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.3.5 Land Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.3.6 Proxy Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.3.7 Other Items and Information . . . . . . . . . . . . . . . . . . . . . . 38
5.4 Law; Judgments; Material Agreements; Approvals and Permits . . . . . . . . . . . 38
5.5 Taxes and Other Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . 39
5.6 Assets and Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
5.7 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
5.7.1 Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
5.7.2 Worker's Compensation . . . . . . . . . . . . . . . . . . . . . . . . . 40
5.7.3 Engineer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
5.7.4 Intentionally Omitted . . . . . . . . . . . . . . . . . . . . . . . . . 40
5.7.5 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
5.7.6 Evidence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
5.8 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
5.9 Appraisals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
5.10 Commencement and Completion . . . . . . . . . . . . . . . . . . . . . . . . . . 41
5.11 Rights of Inspection; Correction of Defects; Agency . . . . . . . . . . . . . . 42
5.12 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
5.13 Verification of Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
5.14 Bank's Inspector(s) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
5.15 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
5.16 Costs and Expenses of Borrower's Performance . . . . . . . . . . . . . . . . . . 43
5.17 Notification of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
5.18 Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
5.18.1 Consolidated-Tangible Net Worth . . . . . . . . . . . . . . . . . . . . 44
5.18.2 Total Liabilities to Consolidated Tangible Net Worth . . . . . . . . . 44
5.18.3 Minimum Liquidity Requirements . . . . . . . . . . . . . . . . . . . . 44
5.18.4 Land Banking Limitation . . . . . . . . . . . . . . . . . . . . . . . . 44
5.18.5 Dividend Restriction . . . . . . . . . . . . . . . . . . . . . . . . . 44
5.18.6 Net Loss Limitation . . . . . . . . . . . . . . . . . . . . . . . . . . 45
5.19 Construction and Sales Records . . . . . . . . . . . . . . . . . . . . . . . . . 45
5.20 Changes to Plans and Specifications . . . . . . . . . . . . . . . . . . . . . . 45
5.21 Notice of Litigation, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
5.22 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
5.23 Signage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
ARTICLE VI
BORROWER NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
6.1 Corporate Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
6.2 Ownership of Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
6.3 Liens and Encumbrances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
ARTICLE VII
REMEDIES UPON DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
7.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
7.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
ARTICLE VIII
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
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8.1 Bank's Obligations to Borrower Only and Disclaimer by Bank . . . . . . . . 52
8.2 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
8.3 No Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
8.4 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
8.5 Disclaimer by Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
8.6 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
8.7 Choice of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
8.8 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
8.9 Authority to File Notices . . . . . . . . . . . . . . . . . . . . . . . . 54
8.10 Inconsistencies with Loan Documents . . . . . . . . . . . . . . . . . . . 54
8.11 No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
8.12 Payment of Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
8.13 Titles and Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
8.14 Changes, Waivers, Discharge and Modifications in Writing . . . . . . . . . 55
8.15 Participations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
8.16 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
8.17 Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
8.18 Prevailing Party to Pay Fees . . . . . . . . . . . . . . . . . . . . . . . 56
8.19 Submission of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 56
8.20 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
8.20.1 Binding Arbitration . . . . . . . . . . . . . . . . . . . . . . . 56
8.20.2 Arbitration Panel . . . . . . . . . . . . . . . . . . . . . . . . 56
8.20.3 Provisional Remedies; Self-Help; and Foreclosure . . . . . . . . 56
8.21 Counterpart Execution . . . . . . . . . . . . . . . . . . . . . . . . . . 57
EXHIBITS
EXHIBIT "A" FORM OF ASSIGNMENT OF PROJECT AGREEMENTS
AND PROJECT PLANS AND SPECIFICATIONS
EXHIBIT "B" FORM OF DEED OF TRUST
EXHIBIT "C" FORM OF ENVIRONMENTAL INDEMNITY
EXHIBIT "D" FORM OF FINANCING STATEMENT
EXHIBIT "E" FORM OF PROJECT LOAN AGREEMENT
</TABLE>
v
<PAGE> 7
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (this "AGREEMENT") is made as of September 26,
1994 by and between J.M. PETERS COMPANY, INC., a Delaware corporation
("BORROWER"), whose address is 3501 Jamboree Road, Suite 200, Newport Beach,
California 92660, and BANK ONE, ARIZONA, NA, a national banking association
("BANK"), whose address is Real Estate Division, P.O. Box 29542, Phoenix,
Arizona 85038, Attention: Dept. A-567, with respect to the following:
R E C I T A L S:
A. Borrower owns or intends to acquire certain real property
located in California, Arizona and Nevada upon which Borrower intends to
subdivide and to construct thereon single-family detached residential homes.
B. Borrower desires to finance the acquisition of such real
property and costs related to the construction of certain onsite and offsite
improvements, upon the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the covenants and conditions
herein contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 Defined Terms. In this Agreement, the following terms shall
have the following meanings:
"ABSORPTION RATE" means, with respect to each Project, a number equal to the
projected average monthly closings of Units over the life of the Project once
marketing of Units commences for such Project. The Absorption Rate shall be
determined for each Project by Bank in its sole and absolute discretion based
on the Bank's review of an appraisal for the Project and such other facts or
matters as Bank deems to be appropriate in its sole and absolute discretion.
The Absorption Rate for each Project shall be set forth in the applicable
Project Loan Agreement.
"ADVANCE" means each advance of a Project Loan by Bank to Borrower pursuant to
the terms of this Agreement.
<PAGE> 8
"AFFILIATE" means, with respect to any Person, another Person that, directly or
indirectly, controls, is controlled by, or is under common control with, a
referenced Person, including any Subsidiary of such Person. "AGREEMENT" means
this Credit Agreement, as it may be amended, modified, extended, renewed,
restated, or supplemented from time to time.
"APPLICABLE PERCENTAGE" shall have the meaning set forth in Section 2.7.2.4.
"APPROVALS AND PERMITS" means each and all approvals, authorizations, bonds,
consents, certificates, franchises, licenses, permits, registrations,
qualifications, and other actions and rights granted by or filings with any
Persons necessary or appropriate for the acquisition of a Project, the
construction of any Project Improvements, the ownership and use by Borrower of
a Project, or for the conduct of the business and operations of Borrower.
"ASSIGNMENT OF PROJECT AGREEMENTS" means, with respect to each Project, an
assignment of project agreements and project plans and specifications executed
by Borrower substantially in the form attached hereto as Exhibit "A".
"ASSUMED LOT COST" means, with respect to each Lot within a Project, an amount
equal to total Project Costs for the Project divided by the total number of
Lots within the Project.
"ASSUMED LOT FACTOR" means, with respect to any Project, the lesser of the
Assumed Lot Value and the Assumed Lot Cost for such Project.
"ASSUMED LOT VALUE" means, with respect to each Lot within a Project, an amount
equal to the value of such Project, as determined by Bank in its sole and
absolute discretion, divided by the total number of Lots within the Project.
"BOND OFFERING" means the pending offer of Borrower of its 12 3/4% Senior Notes
due May 1, 2002 for a like principal amount of its 12 3/4% Senior Notes due
2002 pursuant to the Registration Statement and the other documents referred to
therein.
"BUSINESS DAY" means a day of the year on which banks are not required or
authorized to close in Phoenix, Arizona.
"CALENDAR MONTH" means the twelve (12) calendar months of the year. Any
payment or obligation that is due or required to be performed within a
specified number of Calendar Months shall become due on the day in the last of
such specified number of Calendar Months that corresponds numerically to the
date on which such payment or obligation was incurred or commenced, provided,
however, that with respect to any obligation that is incurred or commences on
the 29th, 30th, or 31st day of any Calendar Month and if the Calendar Month in
which such payment or obligation would otherwise be due does not have a
numerically corresponding
2
<PAGE> 9
date, such payment or obligation shall become due on the first day of the next
succeeding Calendar Month.
"CALENDAR QUARTER" means one (1) of the following groups of Calendar Months:
(a) January, February and March; (b) April, May and June; (c) July, August and
September; or (d) October, November and December.
"CALENDAR WEEK" means Monday through Sunday of each week.
"CASH ON HAND" means any and all unrestricted cash (including deposits in
demand accounts), certificates of deposit, plus undrawn Commitment proceeds
available as Advances in accordance with the terms of this Agreement subject
only to the condition that Borrower request the disbursement thereof, undrawn
Commitment (as defined in the Recourse Loan Agreement) proceeds available as
Advances (as defined in the Recourse Loan Agreement) in accordance with the
terms of the Recourse Loan Agreement subject only to the condition that
Borrower request the disbursement thereof, and treasury bonds, treasury bills
or other securities or any other document or instrument that is convertible to
cash or immediately available funds. Cash on Hand shall include all amounts
deposited with and pledged to Bank under Sections 2.1.2.5 and 2.6.3.
"COLLATERAL" means the property, interests in property, and rights to property
securing any or all Obligations from time to time.
"COMMITMENT" means the agreement by Bank in SECTION 2.1 to make Advances
pursuant to the terms and conditions set forth herein.
"COMMITMENT AMOUNT" means an amount not to exceed Twenty-Five Million Dollars
($25,000,000).
"COMMITMENT TERMINATION DATE" means October 1, 1995, as the same may be
extended pursuant to Section 2.5.
"CONSOLIDATED LIABILITIES" means the consolidated liabilities of Borrower and
each Subsidiary of Borrower, as determined in accordance with GAAP.
"CONSOLIDATED NET TANGIBLE ASSETS" means those assets of Borrower and any
Subsidiary of Borrower determined on a consolidated basis which would, in
accordance with GAAP, be classified as assets of a corporation conducting a
business the same as or similar to the business of Borrower or such Subsidiary,
excluding the Intangible Assets of Borrower and each such Subsidiary.
"CONSOLIDATED TANGIBLE NET WORTH" means the net worth of Borrower and each
Subsidiary of Borrower determined on a consolidated basis in accordance with
GAAP less the Intangible Assets of Borrower and each such Subsidiary.
3
<PAGE> 10
"DEBT" means, as to any Person, without limitation, (a) any indebtedness of
such Person for borrowed money, (b) all indebtedness of such Person evidenced
by bonds, debentures, notes, letters of credit, drafts or similar instruments,
(c) all indebtedness of such Person to pay the deferred purchase price of
property or services, but not including accounts payable and accrued expenses
arising in the ordinary course of business, (d) all capitalized lease
obligations of such Person, (e) all Debt of others secured by a lien on any
asset of such Person, whether or not such Debt is assumed by such Person or
guaranteed by such Person, and (f) all Debt of others, with respect to each
Project, guaranteed, directly or indirectly, by such Person and all other
indebtedness that would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP.
"DEED OF TRUST" means, with respect to each Project, a deed of trust,
assignment of rents, and security agreement and fixture filing substantially in
the form attached hereto as Exhibit "B", with such changes as may be required
by Bank based on the laws of the state in which the Project is located,
executed by Borrower, as trustor, to a trustee designated in writing by Bank,
and naming Bank as beneficiary, securing the Obligations (other than those
under any Environmental Indemnity) and creating a first lien thereon, and all
rights and easements appurtenant thereto.
"DEFAULT INTEREST RATE" means a rate of interest equal to the aggregate of four
percent (4%) per annum plus the Interest Rate. The Default Interest Rate shall
change from time to time as and when the Interest Rate changes as a result of
changes in the Index Rate.
"DRAW REQUEST" means a completed, written request in form and substance
satisfactory to Bank, from Borrower to Bank for an Advance, together with such
other documents and information as Bank may require or specify from time to
time.
"ENVIRONMENTAL ACTIVITIES" means the use, generation, transportation,
treatment, storage or disposal of any Hazardous Materials at any time located
on or present on or under any Project.
"ENVIRONMENTAL INDEMNITY" means, with respect to each Project, and
environmental indemnity executed by Borrower, which shall be substantially in
the form of Exhibit "C" attached hereto, subject to such modifications as may
be reasonably required by Bank because of (a) the nature of any improvements
located or planned on such Project, (b) the applicable law of the jurisdiction
in which the Project is located or (c) any change in any applicable laws.
"ERISA" means the Employee Retirement Income Security act of 1974 and the
regulations and published interpretations thereunder, as in effect from time to
time.
4
<PAGE> 11
"EVENT OF DEFAULT" has the meaning specified in Section 7.1.
"FINANCIAL COVENANTS" means the covenants described in Section 5.18.
"FINANCIAL STATEMENTS" means such balance sheets, income statements, cash flow
statements or other information respecting the condition of Borrower as Bank
may from time to time reasonably request, for any fiscal year or portion
thereof, prepared and reported according to GAAP, consistently applied,
together with all current filed federal and state income tax returns.
"FINANCING STATEMENT" means, with respect to each Project, a UCC-1 financing
statement in the form attached hereto as Exhibit "D," executed by Borrower, as
debtor, in favor of Bank, as secured party.
"FINISHED LOT STATUS" means, with respect to one or more Lots comprising all or
a portion of any Project, (a) completion of mass and fine grading, (b)
completion of construction of all onsite and offsite improvements necessary to
permit the construction of Units thereon, including, without limitation, all
arterial and interior streets and roadways, and all curbs, gutters, sewers and
storm drains, and (c) telephone service, electric power, storm sewer, sanitary
sewer, cable television and water facilities are available to the boundary of
each such Lot.
"FIRST MANDATORY PREPAYMENT DATE" means, with respect to each Project Loan, a
date established by Bank in its sole and absolute discretion on which Borrower
shall make the first payment of Required Prepayment Amount to Bank as to such
Project Loan. However, in any event the First Mandatory Prepayment Date shall
be a date not more than six (6) months after the recordation of the Deed of
Trust for the applicable Project Loan. The first Mandatory Prepayment Date for
each Project Loan shall be set forth in the Project Loan Agreement for such
Project Loan.
"FISCAL QUARTER" means one (1) of the following groups of calendar months: (a)
March, April and May; (b) June, July and August; (c) September, October and
November; or (d) December, January and February.
"FORCE MAJEURE EVENT" means an event outside of the reasonable control of
Borrower provided that Borrower has notified Bank in writing within 30 days of
the occurrence of such event as to the existence thereof.
"FUNDED LOTS" means, with respect to each Project, the aggregate number of Lots
utilized to calculate the Project Loan Amount for
5
<PAGE> 12
such Project; provided, however, in no event shall the Funded Lots for any
Project exceed two hundred fifty (250) Lots.
"GAAP" means generally accepted accounting principles as set forth in the
opinions of the Accounting Principals Board of the American Institute of
Certified Public Accountants and in Statements of the Financial Accounting
Standards Board or in such other statement by such other body as may be
approved by a significant segment of the public accounting profession, which
are applicable in the circumstances as of the relevant date. The requirement
contained in certain provisions of this Agreement that such principles be
applied on a consistent basis shall mean that the accounting principles
observed in a current period are comparable in all material respects to those
applied in the preceding period(s). Except as to the extent otherwise provided
in this Agreement, all accounting terms used in the Loan Documents shall have
the meanings provided by GAAP.
"GOVERNMENTAL AUTHORITY" means (a) any governmental municipality or political
subdivision thereof, (b) any governmental or quasi-governmental agency,
authority, board, bureau, commission, department instrumentality or public
body, or (c) any court, administrative tribunal or public utility.
"HARD COSTS" means, with respect to each Project, all costs incurred for labor
performed in the construction of the Project Improvements and the materials
incorporated into the Project Improvements.
"HAZARDOUS MATERIALS" means (a) any oil, flammable substances, explosives,
radioactive materials, hazardous wastes or substances, toxic wastes or
substances or any other materials or pollutants which (i) pose a hazard to any
Project or to Persons on or about any Project or (ii) cause any Project to be
in violation of any Hazardous Materials Laws; (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; (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 applicable local, state or federal law or under the
regulations adopted or publications promulgated pursuant thereto, including,
but not limited to, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et. seq.; the
Hazardous Materials Transportation Act, as amended, 49 U.S.C. Section 1801, et
seq.; the Resource Conservation and Recovery Act, as amended, 42 U.S.C. Section
6901, et seq.; the Federal Water Pollution Control Act, as amended, 33 U.S.C.
Section 1251, et seq.; Sections 25115, 25117, 25122.7, 25140, 25281, 25316, and
25501 of the California
6
<PAGE> 13
Health and Safety Code; and Article 9 or Article 11 of Title 22 of the
California Administrative Code, Division 4, Chapter 20; and (d) any other
chemical, material or substance, exposure to which is prohibited, limited or
regulated by any Governmental Authority or may or could pose a hazard to the
health and safety of the occupants of any Project or the owners and/or
occupants of property adjacent to or surrounding any Project.
"HAZARDOUS MATERIALS CLAIMS" means 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 against the Borrower, Bank or any Project
relating to damage, contribution, cost recovery compensation, loss or injury
resulting from any Hazardous Materials.
"HAZARDOUS MATERIALS LAWS" means any federal, state or local laws, ordinances,
regulations, or policies relating to the environment, health and safety,
Environmental Activities and Hazardous Materials (including, without
limitation, the use, handling, transportation, production, disposal, discharge
or storage thereof) including, without limitation, soil or ground water
conditions.
"IMPOSITIONS" has the meaning specified in the Deed of Trust.
"INTANGIBLE ASSETS" means, with respect to any Person, all unamortized debt
discount and expense, unamortized deferred charges, goodwill, patents,
trademarks, service marks, trade names, copyrights and all other items that
would be treated as intangibles on a balance sheet of such Person prepared in
accordance with GAAP.
"INDEX RATE" means the rate of interest most recently publicly announced by
Bank, or its successors, in Phoenix, Arizona as its "prime rate," as in effect
from time to time. Any change in the rate at which the Note bears interest
resulting from a change in the "prime rate" shall become effective as of the
same date at which such change in the prime rate becomes effective. The "Prime
Rate" is not necessarily the best or the lowest rate offered by Bank, and Bank
may lend to its customers at rates at, above or below its "Prime Rate."
"INTEREST RATE" means a rate of interest equal to the aggregate of one and
one-quarter percent (1.25%) per annum plus the Index Rate. The Interest Rate
shall change from time to time as and when the Index Rate changes.
"INVOLUNTARY LIENS" has the meaning specified in the Deed of Trust.
7
<PAGE> 14
"LAND" means, with respect to each Project, the real property described on
Exhibit "B" attached to the applicable Project Loan Agreement.
"LIEN OR ENCUMBRANCE" and "LIENS AND ENCUMBRANCES" mean, respectively, each and
all of the following: (i) any lease or other right to use; (ii) any assignment
as security, conditional sale, grant in trust, lien, mortgage, pledge, security
interest, title retention arrangement, other encumbrance, or other interest or
right securing the payment of money or the performance of any other liability
or obligation, whether voluntarily or involuntarily created and whether arising
by agreement, document, or instrument, under any law, ordinance, regulation, or
rule (federal, state, or local), or otherwise; and (iii) any option, right of
first refusal, or other interest or right.
"LOAN DOCUMENTS" means this Agreement, the Note and each Deed of Trust,
Financing Statement, Project Loan Agreement, Environmental Indemnity and
Assignment of Project Agreements executed by Borrower with respect to any
Project, together with any subordination agreement or other agreement, document
or instrument evidencing or securing all or any part of the Obligations, as any
of the foregoing may be amended, modified, extended, renewed, or supplemented
from time to time.
"LOT" means an individual lot designated on the final subdivision plat, map or
filing for each Project.
"MATERIAL ADVERSE CHANGE" means any change in the assets, financial condition,
or results of operations of Borrower or any other event or condition with
respect to Borrower that in the reasonable opinion of Bank (i) could materially
or adversely affect the likelihood of performance by Borrower of any of the
Obligations, (ii) could materially or adversely affect the ability of Borrower
to perform any of the Obligations, (iii) could adversely affect the legality,
validity, or binding nature of any of the Obligations or any Lien or
Encumbrance securing any of the Obligations, or (iv) could adversely affect the
priority of any Lien or Encumbrance securing any of the Obligations.
"NEW ASSUMED LOT VALUE" shall have the meaning set forth in Section 2.7.2.1.
"NEW NOTES" has the meaning given that term in the Registration Statement.
"NOTE" means that certain Promissory Note of even date herewith, executed by
Borrower and payable to Bank, evidencing Borrower's indebtedness hereunder.
"OBLIGATIONS" means the obligations of the Borrower under the Loan Documents.
8
<PAGE> 15
"OLD NOTES" has the meaning given such term in the Registration Statement.
"PERMITTED EXCEPTIONS" means, with respect to any Project, (a) any sale,
transfer or other disposition of any Personal Property (as defined in the
applicable Deed of Trust) that is consumed or worn out in the ordinary usage
and that is promptly replaced with similar items of equal or greater value, (b)
Liens and Encumbrances being contested in accordance with Section 1.7 of the
applicable Deed of Trust, (c) Impositions being contested in accordance with
Section 1.8(d) of the applicable Deed of Trust, (d) the applicable Deed of
Trust, (e) inchoate Liens and Encumbrances for installments of real property
taxes not yet delinquent, (f) covenants, conditions, restrictions, easements
and any other matter approved in writing by Bank and shown as exceptions to
title in any Title Policy, (g) Liens and Encumbrances which are purchase
contracts with third parties which are for the sale of one or more Lots or the
Units thereon in the ordinary course of Borrower's business, (h) a Transfer (as
such term is defined in the Deed of Trust) which will simultaneously result in
the payment of all of the Obligations which relate to the Project encumbered
thereby at such time as there remains no available but undrawn Commitment under
the Project Loan which relates to such Project, and (i) such other exceptions
as may be consented to in writing by Bank.
"PERSON" means a natural person, a partnership, a joint venture, an
unincorporated association, a limited liability company, a corporation, a
trust, any other legal entity, or any Governmental Authority.
"PLANS AND SPECIFICATIONS" means, with respect to each Project, the plans and
specifications for the related Project Improvements described in the applicable
Project Loan Agreement, together with such material changes thereto made in
accordance with this Agreement.
"PROJECT" means all Land, improvements (including the Project Improvements) and
other property, whether real or personal, which may from time to time be
subject to the lien of a Deed of Trust.
"PROJECT BUDGET" means, with respect to each Project, a breakdown prepared by
Borrower and approved by Bank setting forth the detailed line item allocation
of all Project Costs, as set forth on the applicable Project Loan Agreement.
"PROJECT COSTS" means, with respect to each Project, the acquisition costs of
such Project, together with all costs and expenses required to bring the Lots
within the Project to a Finished Lot Status, including, without limitation, the
costs of constructing the Project Improvements, as well as any cost of
originating the applicable Project Loan and any interest reserve
9
<PAGE> 16
required to pay interest on the Project Loan through the Project Loan Repayment
Date. In no event shall Project Costs include expenses that are customarily
paid at or near the commencement of construction of Units, including, without
limitation, building permit fees and other related fees and expenses.
"PROJECT IMPROVEMENTS" means, with respect to each Project, all improvements
necessary to bring all Lots within the Project to Finished Lot Status, whether
located on or off the Land within the Project, all as set forth on the
applicable Project Budget and Plans and Specifications.
"PROJECT LOAN" means a loan approved by Bank pursuant to Section 3.2 to finance
the acquisition of a Project and/or the construction of a set of Project
Improvements.
"PROJECT LOAN AGREEMENT" means, with respect to each Project and Project Loan,
a project agreement executed by Bank and Borrower in substantially the form of
Exhibit "E" attached hereto, which shall set forth or identify, among other
things, the Absorption Rate for the Project, the Project Budget, the Project
Loan Amount, the Project Loan Repayment Date, the Plans and Specifications for
the Project, the date upon which construction of the Project Improvements must
commence, the date upon which construction of the Project Improvements must be
complete, the First Mandatory Prepayment Date, the Release Price for each Lot
within the Project and the Required Prepayment Amount.
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<PAGE> 17
"PROJECT LOAN AMOUNT means the maximum principal amount of the Advances to be
made by Bank under any Project Loan, calculated as follows:
(a) fifty percent (50%) times the product of (i) a number
of Lots (not to exceed the lesser of the number of Lots within the applicable
Project or two hundred and fifty (250)) calculated by multiplying the
Absorption Rate times twenty four (24), and (ii) the Assumed Lot Factor; plus
(b) thirty percent (30%) times the product of (i) a
number of Lots (which when added to the Lots used in calculating the amounts
referred to in Paragraph (a)(i) above, does not exceed the lesser of the total
number of Lots within the Project or two hundred and fifty (250)) calculated by
multiplying the Absorption Rate times twelve (12), and (ii) the Assumed Lot
Factor; plus
(c) twenty percent (20%) times the product of (i) a
number of Lots (which when added to the number of Lots used in calculating the
amounts referred to in Paragraphs (b)(i) above, does not exceed the lesser of
the total number of Lots within the Project or two hundred and fifty (250)),
calculated by multiplying the Absorption Rate times twelve (12), and (ii) the
Assumed Lot Factor.
"PROJECT LOAN REPAYMENT DATE" means the date by which all Advances, together
with accrued but unpaid interest thereon, under any Project Loan must be repaid
to Bank by Borrower, which date shall be determined by Bank in its sole and
absolute discretion in connection with its approval of a Project and the
related Project Loan and shall be set forth in the applicable Project Loan
Agreement, and in no event shall be later than twenty-four (24) months
following the date of recordation of the applicable Deed of Trust.
"PROPOSED PROJECT" shall mean real property of Borrower located in California,
Arizona or Nevada upon which Borrower proposes to construct single family
detached residences. No Proposed Project shall be an approved Project for
purposes of the Agreement unless or until Borrower has executed a Project Loan
Agreement with respect thereto.
"PROSPECTUS" shall mean that certain Prospectus dated September 23, 1994 with
respect to the Bond Offering.
"RECOURSE LOAN" means that certain loan in a principal amount not to exceed
Twenty-Five Million Dollars ($25,000,000) made or to be made by Bank to
Borrower pursuant to the Recourse Loan Agreement. "RECOURSE LOAN AGREEMENT"
means that certain Loan Agreement, dated May 12, 1994, between Borrower and
Bank.
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<PAGE> 18
"REGISTRATION STATEMENT" means the Registration Statement on Form S-1 of
Borrower dated September 2, 1994 prepared under the Securities Act of 1933, as
amended, and filed with the Securities and Exchange Commission.
"RELEASE PRICE" means, with respect to each Lot within a Project, 1.25
multiplied by an amount equal to the quotient of (a) the applicable Project
Loan Amount for the Project, divided by (b) the number of Funded Lots for the
Project; provided, however, if the number of Funded Lots for a Project exceeds
24 times the Absorption Rate for such Project, then the Release Price for Lots
within such Project shall be the greater of (i) 1.25 times such quotient, or
(ii) the Project Loan Amount for such Project divided by 24. The Release Price
for each Lot within a Project shall be set forth in the applicable Project Loan
Agreement. Notwithstanding anything in the foregoing, the Release Price for
Mulholland Park as set forth in the Project Loan Agreement for such Project
shall govern over any Release Price as calculated for such Project pursuant to
this definition.
"REQUIREMENTS" shall have the meaning specified in the Deed of Trust.
"REQUIRED PREPAYMENT AMOUNT" means, with respect to each date that a payment is
required pursuant to Section 2.4.3 on any Project Loan, an amount equal to
seventy-five percent (75%) times the product of (a) the Absorption Rate for the
applicable Project, times (b) the Release Price for such Project, times (c) the
number of months that have elapsed since the date that is three (3) months
prior to the First Mandatory Prepayment Date, as set forth in the applicable
Project Loan Agreement.
"REQUIRED REMARGINING PAYMENT" has the meaning given such term in Section 2.7.
"REQUIRED REMARGINING PAYMENT NOTICE" has the meaning given such term in
Section 2.7.
"REMARGIN NOTICE DATE" shall have the meaning set forth in Section 2.7.2.1.
"REVISED PROJECT LOAN AMOUNT" has the meaning given such term in Section 2.7.
"SOFT COSTS" means, with respect to each Project, all costs incurred for
ancillary services performed in connection with the construction of the Project
Improvements and categorized as soft costs or indirect costs in the applicable
Project Budget, such as permit and license fees, architectural and engineering
services, survey, title insurance premiums and the like.
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<PAGE> 19
"STORED MATERIALS" means materials purchased or to be purchased by Borrower, or
any contractor engaged in connection with the construction of any Project
Improvements, which are not yet installed or incorporated into the Project
Improvements.
"SUBSIDIARY" or "SUBSIDIARIES" means, with respect to any Person, any
corporation of which a majority of the capital stock having ordinary voting
power to elect a majority of the board of directors or other Persons performing
similar functions is at the time directly or indirectly owned by such Person or
one or more of the other Subsidiaries of that Person or a combination thereof.
"TITLE COMPANY" means a title insurance company and any reinsurers or
co-insurers satisfactory to Bank in its sole and absolute discretion.
"TITLE POLICY" means each title insurance policy and endorsements thereto and
any reinsurance or co-insurance agreements and endorsements insuring any Deed
of Trust, which in all instances shall be satisfactory Bank in its reasonable
discretion.
"UNIT" means a single-family detached dwelling constructed or to be constructed
on a Lot.
"UNMATURED EVENT OF DEFAULT" means any condition or event that with notice,
passage of time, or both would be an Event of Default.
ARTICLE II
CREDIT FACILITY
2.1 FACILITY.
2.1.1 PROJECT LOANS. Subject to the terms and conditions
contained in this Agreement, the credit provided pursuant to this Agreement
shall be provided by way of Advances of individual Project Loans, each of which
shall be in a maximum amount equal to the applicable Project Loan Amount,
determined in accordance with the terms of this Agreement and set forth in the
applicable Project Loan Agreement, on Projects which have been approved by
Bank, in its sole and absolute discretion, as provided in Section 3.2. Bank
shall have no obligation to commit to any Project Loan (and no Project Loan
shall be deemed committed), if the sum of (a) the Project Loan Amount of such
Project Loan, plus (b) the aggregate of the Project Loan Amount of each Project
Loan previously approved hereunder (other than Project Loans with respect to
which all principal interest and fees have been repaid in full and the Bank's
obligation to make Advances thereunder has terminated), minus (c) any principal
payments made against each such previously approved Project Loan,
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exceeds the Commitment Amount. Amounts repaid by Borrower under any Project
Loan shall only be available to Borrower under a new Project Loan approved by
Bank in accordance with the terms of this Agreement.
2.1.2 INTEREST RATE.
2.1.2.1 PAYMENT. Interest at the Interest Rate shall
accrue on the outstanding and unpaid balance of the Note; commencing on the
date of the first Advance until repaid, and shall be due and payable on the
first day of each Calendar Month thereafter (in arrears) until repayment of the
outstanding principal balance of the Note in full, together with all other sums
owed to Bank pursuant to any Loan Document.
2.1.2.2 RATE AFTER DEFAULT. Upon and during the
continuance of an Event of Default hereunder or under any of the Loan
Documents, at the option of Bank, the outstanding principal balance of the Note
shall bear interest, payable on demand, at a rate per annum equal to the
Default Interest Rate. The application of the Default Interest Rate shall not
be interpreted or deemed to extend any cure period set forth in this Agreement
or otherwise to limit any of Bank's remedies under this Agreement or any of the
other Loan Documents.
2.1.2.3 COMPUTATION OF INTEREST. Interest shall be
calculated on a 360-day year for all Advances, but, in any case, shall be
computed for the actual number of days in the period for which interest is
charged, which period shall consist of 365-days on an annual basis. If any
payment of interest under the Note would otherwise be due on a day which is not
a Business Day, the payment instead shall be due on the next succeeding
Business Day and such extension of time shall be included in computing the
interest due in respect of said payment.
2.1.2.4 NO DEDUCTIONS. All payments of principal or
interest under the Note shall be made without deduction of any present or
future taxes, levies, imposts, deductions, charges or withholdings, which
amounts shall be paid by Borrower. Borrower will pay the amounts necessary
such that the gross amount of the principal and interest received by Bank is
not less than that required by the Note.
2.1.2.5 ORDER OF APPLICATION. Any payments received
by Bank will be applied in the following order: (a) late charges; (b) payments
for taxes and insurance and other expenses (to the extent Bank elects to pay
such expenses); (c) interest; and (c) principal. In the event any payment of
principal is required by Borrower with respect to any Project Loan under
Section 2.4.3, Section 2.7 or Section 2.8.2, and the amount of such principal
payment exceeds, in whole or in part, the outstanding principal balance of the
Project Loan, the amount of such excess shall either (A) be deposited in an
account,
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maintained with Bank and pledged to Borrower under the applicable Deed of Trust
or other agreement reasonably satisfactory to Bank, and shall by applied by
Bank for future payments of principal required from Borrower pursuant to
Section 2.4.3, Section 2.4.4, Section 2.7 or Section 2.8.2, or (B) shall be
released to Borrower, to the extent that, after giving effect to any such
release, the applicable Project Loan shall be "in balance" in accordance with
the terms of Section 2.6. If, after giving effect to such release, the
applicable Project Loan is not so in balance, then an amount from such excess
payment shall be deposited in the account described in Section 2.6 for
application as provided therein, and the remainder of such excess payment shall
be released to Borrower. Bank will make a determination as to whether a
Project is in balance for the purposes of this Section 2.1.2.5 within five
Business Days of a written request therefor by Borrower together with all
information reasonably requested of Borrower by Bank in order to make such
determination.
2.1.2.6 INTEREST. Borrower hereby authorizes Bank to
disburse the proceeds of the Note to pay interest accrued on the Note,
notwithstanding that Borrower may not have requested a disbursement of such
amount; provided if Borrower delivers to Bank, no later than five (5) days
before the date any payment of interest is due, written notice of Borrower's
intention to make such payment with its own funds, and not with proceeds of any
Advance, Bank shall not disburse proceeds of the Note to pay such payment of
interest if such interest payment is, in fact, made on the date when due. The
authorization hereby granted shall be irrevocable and at Bank's discretion, and
no further direction or authorization from Borrower shall be necessary for Bank
to make such disbursements. Bank in its sole discretion may make such
disbursements notwithstanding the fact that one or more Project Loans are not
"in balance" or that an Event of Default or an Unmatured Event of Default has
occurred and is continuing. Such disbursements shall be added to outstanding
principal balance of the Note. No such disbursement shall be construed as a
waiver by Bank of any Event of Default or Unmatured Event of Default, nor of
any requirement that Borrower keep the Project Loans "in balance" as required
under Section 2.6.
2.1.3 PAYMENTS. All amounts payable by Borrower on or with
respect to the Note or pursuant to the terms of any other Loan Documents, shall
be paid in lawful money of the United States of America at 241 North Central
Avenue, Phoenix, Arizona 85004, in same day funds, not later than 1:00 p.m.
(Arizona time) on the date due.
2.2 ADVANCES.
2.2.1 METHOD FOR ADVANCES. Advances may be made by Bank at
the written request by the Person or Persons designated from time to time on
Bank's form of signature authorization;
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provided, however, that Bank shall have acknowledged receipt of any changes in
the Person or Persons designated by Borrower, and such Person or Persons shall
have executed a new signature authorization form. Such Person or Persons are
hereby authorized by Borrower to request Advances on all Project Loans not more
frequently than two (2) times per month upon not less than four (4) Business
Days prior written notice to Bank, in amounts of not less than Two Hundred
Thousand Dollars ($200,000.00) per request, and to direct the disposition of
the proceeds of Advances until written notice of the revocation of such
authority is received from Borrower by Bank and Bank has had a reasonable time
to act upon such notice. Bank shall have no duty to monitor for Borrower or to
report to Borrower the use of proceeds of Advances. Any request for Advances
may cover all or any Projects as to which a Commitment is then outstanding, but
Borrower may not request Advances more frequently than on two days in any given
Calendar Month.
2.2.2 USE OF ADVANCES; REVISION OF PROJECT BUDGETS.
2.2.2.1 USE OF ADVANCES. Advances shall be used only
to pay or reimburse Borrower for Project Costs actually incurred by Borrower as
shown on a Project Budget in connection with the acquisition of a Project or
the construction of Project Improvements. Project Costs relating to the
construction of Project Improvements shall be deemed to have been "incurred" by
Borrower at the following times: (i) Hard Costs: when the labor has been
performed or the materials have been supplied and incorporated into the
applicable Project, payment therefor has been requested by the contractor or
supplier thereof, and such contractor or supplier is entitled thereto; and (ii)
Soft Costs: when such costs are due and payable and the services relating
thereto have been rendered or the value thereof has been received by Borrower.
Bank shall have no obligation to make disbursements for Stored Materials that
will not be stored on the applicable Project.
2.2.2.2 MODIFICATION OF PROJECT BUDGETS. Each
Project Budget shall be subject to revision from time to time as Bank may
require or approve in accordance with this Section 2.2.2.2. Borrower shall
have the right, with Bank's prior consent, which consent may be granted or
withheld in Bank's sole and absolute discretion, to (a) add or delete
categories from a Project Budget (except contingency, interest reserve or tax
reserve), and (b) increase or decrease the allocation to any category (except
contingency, interest reserve or tax reserve). Prior to the execution of the
applicable Project Loan Agreement, Bank shall have the right, in its sole
discretion, to increase or decrease the allocation to contingency, interest
reserve and tax reserve and to determine whether any item of cost, expense or
fee for which Borrower requests a disbursement constitutes a Project Cost and
to which category such cost, expense or fee will be applied. The maximum
amount that Bank shall be obligated to
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disburse for any item of Project Costs shall not exceed the amount designated
for such category on the applicable Project Budget. All modifications to a
Project Budget will be evidenced by a new Project Budget proposed by Borrower
and approved by Bank in its sole discretion.
2.3 FEES. As additional consideration for the Commitment,
Borrower agrees to pay to Bank the following fees, from Borrower's own funds
and not from proceeds of any Advance, which shall be earned by Bank on the date
due under the Loan Documents and shall be non-refundable to Borrower:
2.3.1 FACILITY FEE. An annual fee for the credit facility
provided hereunder in an amount equal to one-half of one percent (0.5%) of the
Commitment Amount, payable upon the execution of this Agreement and on each one
year anniversary thereof occurring prior to the termination of the Commitment.
2.3.2 PROJECT LOAN FEE. An annual Project Loan fee for
each Project Loan, payable on or before the recordation of the Deed of Trust
which secures a Project Loan and on each one year anniversary thereof, in an
amount equal to one-half of one percent (0.5%) of the Project Loan Amount of
the Project Loan less all Advances under the applicable Project Loan which have
been repaid.
2.3.3 DOCUMENTATION FEE. A reasonable documentation fee
for the Bank's processing of the closing of the transaction contemplated
hereby, and a reasonable documentation fee for the ongoing processing of Deeds
of Trust payable contemporaneously with the recording of each Deed of Trust.
2.3.4 ATTORNEYS' COSTS, EXPENSES, AND FEES. Reasonable
attorneys costs, expenses, and fees for Bank's counsel as provided in the Loan
Documents, payable on or before the date hereof and during the term of the
Advances, from time to time upon the presentation by Bank of statements
therefor.
2.3.5 APPRAISAL FEES, TITLE INSURANCE PREMIUM, AND OTHER
COSTS, EXPENSE AND FEES. Appraisal fees, appraisal review fees, engineering
review fees, title insurance premiums, and other costs, expenses, and fees that
the Borrower is obligated to pay pursuant to the Loan Documents, including,
without limitation, all fees and costs associated with periodic inspections of
any Project, in an amount currently estimated to be Two Hundred Fifty Dollars
($250) per inspection with respect to each of the Projects to be included under
this Agreement on the date hereof, payable on or before the date hereof, and
monthly thereafter during the term hereof by the fifteenth (15th) day of each
Calendar Month.
2.3.6 PREPAYMENT. Notwithstanding anything to the contrary
contained in any of the Loan Documents, Borrower may, at
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any time, without penalty or premium, prepay all of its Obligations, including,
without limitation, the payment of all principal outstanding under the Note,
interest accrued thereon and all other amounts due and payable hereunder or
under any of the other Loan Documents, and upon any such prepayment, Bank shall
release its Lien under each Deed of Trust and under each of the other Loan
Documents. Upon any such release, the Commitment Termination Date shall be
deemed to have occurred, and any obligation by Bank to make any Project Loan or
to make any Advance shall, automatically and without any further action
required of any party, terminate and be of no further force or effect.
2.4 MANDATORY PREPAYMENTS.
2.4.1 ADVANCES IN EXCESS OF COMMITMENT AMOUNT. If for any
reason at any time the outstanding principal amount of Advances exceeds the
Commitment Amount, Borrower, without notice or demand, shall, within five (5)
Business Days, make a payment to Bank in an amount equal to such excess
principal amount.
2.4.2 ADVANCES IN EXCESS OF PROJECT LOAN AMOUNT. If for
any reason at any time the outstanding principal amount of the Advances under
any Project Loan exceeds the Project Loan Amount for such Project Loan,
Borrower, without notice or demand, shall, within five (5) Business Days, make
payment to Bank in an amount equal to such excess principal amount.
2.4.3 PERFORMANCE REQUIREMENT. With respect to each
Project Loan, commencing on the First Mandatory Prepayment Date for such
Project Loan and continuing on the corresponding date in each third Calendar
Month thereafter until the Project Loan is repaid in full and has no more
available Commitment to draw upon, Borrower shall have paid to Bank with
respect to such Project Loan an amount, without duplication, equal to (a) the
aggregate Required Prepayment Amount for such Project Loan as of such date as
shown on the applicable Project Loan Agreement, minus (b) the aggregate of (i)
all Release Price payments made to Bank by Borrower as of such date, plus (ii)
all payments actually made by Borrower pursuant to this Section 2.4.3 as of
such date, plus (iii) all voluntary prepayments of principal made by Borrower.
All payment of Required Prepayment Amount shall be applied to the outstanding
principal amount of the applicable Project Loan. Payments of Required
Prepayment Amount shall be considered payment of a Release Price and Borrower
shall be entitled thereby to partial reconveyances of the Lien of the
applicable Deed of Trust pursuant to and subject to the terms of Section 2.8.
2.4.4 PROJECT LOAN REPAYMENT DATE. On the Project Loan
Repayment Date for each Project Loan, Borrower shall pay to Bank all principal,
accrued but unpaid interest and all other amounts owed hereunder with respect
to such Project Loan.
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2.5 COMMITMENT TERMINATION DATE. Bank's agreement to consider
Projects and Project Loans for approval pursuant to Section 3.2 shall expire on
the Commitment Termination Date, as the Commitment Termination Date may be
extended pursuant to this Section 2.5, and no request for approval of a Project
or a Project Loan shall be submitted to or approved by Bank after the
Commitment Termination Date. The Commitment Termination Date may be extended
for additional one (1) year periods, subject to the following: (a) Borrower
shall deliver written notice to Bank, no later than sixty (60) days,
immediately preceding the scheduled Commitment Termination Date, of Borrower's
desire to extend the Commitment Termination Date for an additional year; and
(b) Bank shall approve such extension of the Commitment Termination Date, which
approval may be granted or withheld in Bank's sole and absolute discretion. In
the event Bank elects to extend the Commitment Termination Date, Bank shall
deliver to Borrower written notice of such extension.
2.6 PROJECT LOAN BALANCING.
2.6.1 PROJECT LOAN "IN BALANCE." As a material condition
of each Project Loan and as a condition precedent to Bank's obligation to make
any Advance thereunder, Borrower shall pay all Project Costs in excess of the
Project Loan Amount. Borrower shall promptly notify Bank of any material
increase in Project Costs. Bank shall be obligated to make an Advance of a
Project Loan only when all Project Loans are "IN BALANCE," unless Borrower is
otherwise entitled to an Advance and the proceeds of such Advance shall be
applied to the satisfaction of Borrower's obligations under Section 2.6.3 with
respect to another Project Loan. A Project Loan shall be "IN BALANCE" only at
such times as Borrower has invested sufficient funds into the payment of
Project Costs so that, in Bank's determination, the undisbursed portion of the
Project Loan shall be sufficient to complete the Project Improvements and pay
all Project Costs (including, without limitation, all interest, fees and
expenses related to the Project Loan) until repayment in full of the Project
Loan; provided, however, Bank's right to make a determination as to whether a
Project Loan is in balance as to interest costs shall be limited to making such
determination in the month of October in each calendar year.
2.6.2 STANDARD OF BANK'S DETERMINATION. The determination
as to whether or not a Project Loan is "IN BALANCE" may be made by Bank at any
time, including with each request for a disbursement of the Project Loan. In
addition, Bank may conduct, on an annual basis, a cost review for the Project
Loan. Any determination by Bank that the Project Loan is not "IN BALANCE"
based on such cost review may be made in Bank's sole and absolute discretion.
Any other determination by Bank that a Project Loan is not "IN BALANCE" shall
be made in Bank's reasonable discretion.
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2.6.3 BALANCING CALLS. If Bank determines, in accordance
with the terms of this Section 2.6, that a Project Loan is not "IN BALANCE,"
and the amount necessary to put the Project Loan "IN BALANCE" is less than One
Hundred Thousand Dollars ($100,000), Bank shall have no obligation to make any
further Advance under the Project Loan until such time as Borrower has paid,
with its own funds and not from proceeds of the Project Loan, an amount
necessary to put the Project Loan "IN BALANCE." If Bank determines, in
accordance with this Section 2.6, that a Project Loan is not "IN BALANCE," in
the amount necessary to put the Project Loan "IN BALANCE" is equal to or
greater than One Hundred Thousand Dollars ($100,000), Borrower shall within ten
(10) days after notice from Bank that the Project Loan is not "IN BALANCE,"
deposit with Bank in an account subject to a security interest in favor of Bank
pursuant to the Deed of Trust or another agreement in form and substance
reasonably satisfactory to Bank, in cash, the amount necessary to put the
Project Loan "IN BALANCE." Any amounts which are deposited with Bank to put a
Project Loan "IN BALANCE" shall be the next funds disbursed by Bank, subject to
the terms and conditions of this Agreement. Interest paid by Bank on such
deposited funds at Bank's then prevailing money market rate.
2.7 LOAN AMOUNT REDETERMINATION.
2.7.1 REVISED PROJECT LOAN AMOUNT. During each October,
Bank shall have the right to calculate an amount (the "REVISED PROJECT LOAN
AMOUNT") utilizing the method of calculation set forth in the definition of
"PROJECT LOAN AMOUNT" in Article I of this Agreement, based on the number of
Lots which remain in all Projects, as of the date of calculation, subject to
the Lien of any Deed of Trust and Bank's redetermination, which may be made in
Bank's sole and absolute discretion, of the Assumed Lot Factor and the
Absorption Rate. If the aggregate of the Project Loan Amounts for all Project
Loans exceeds the Revised Project Loan Amount (the amount of such excess being
hereinafter referred to as the "REQUIRED REMARGINING PAYMENT"), Bank shall
deliver to Borrower written notice thereof (the "REQUIRED REMARGINING PAYMENT
NOTICE") and Borrower shall pay to Bank the Required Remargining Payment in
accordance with Section 2.7.2.
2.7.2 REQUIRED REMARGINING PAYMENT. Borrower shall make
any Required Remargining Payment in the following installments:
2.7.2.1 On or before a date 10 days after the
delivery of the applicable Required Remargining Payment Notice (the "REMARGIN
NOTICE DATE"), Borrower shall pay to Bank an amount equal to (a) any excess of
the Revised Project Loan Amount, over (b) product of (i) the Assumed Lot Value
used by Bank in calculating the Revised Project Loan Amount (the "NEW
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ASSUMED LOT VALUE"), times (ii) the number of Lots then remaining in all
Projects (the "REMAINING LOTS").
2.7.2.2 On or before a date 30 days from the Remargin
Notice Date, Borrower shall pay to Bank an amount equal to (a) any excess of
the Revised Project Loan Amount, over (b) 90% of the product of (i) the New
Assumed Lot Value, times (ii) the Remaining Lots.
2.7.2.3 On or before a date 90 days from the Remargin
Notice Date, Borrower shall pay to Bank the Applicable Percentage (as defined
below) of the difference between (a) the Required Remargining Payment, minus
(b) any amounts paid by Borrower pursuant to Sections 2.7.2.1 and 2.7.2.2.
2.7.2.4 As used herein, the "APPLICABLE PERCENTAGE"
shall be (a) 50% if the Required Remargining Payment is $1,000,000 or more, and
(b) 100% if the Required Remargining Payment is less than $1,000,000.
2.7.2.5 If the Applicable Percentage is 100%, then on
or before a date 180 days from the Remargin Notice Date, Borrower shall pay
Bank all remaining unpaid portions of the Required Remargining Payment.
2.7.3 APPRAISAL. In connection with Bank's determination
of any Revised Project Loan Amount, Bank may obtain an appraisal and/or
engineering cost review of the applicable Project, performed by an appraiser
and/engineer satisfactory to Bank in its sole and absolute discretion. Any and
all costs and expenses related to any such review or appraisal shall be paid by
Borrower, subject to the terms of Section 5.9.
2.8 PARTIAL RELEASES. Bank agrees to execute partial releases of
the lien of a Deed of Trust with respect to one or more Lots, provided that the
following conditions precedent shall have been satisfied:
2.8.1 Bank 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 the
applicable Project, the specific Lot(s) to be released and the Release Price(s)
therefor;
2.8.2 Bank shall have received the Release Price(s) for the
Lot(s) to be released through either of the following, or combination thereof:
(a) immediately available funds, which shall be applied to reduce the
outstanding principal balance of the applicable Project Loan, or (b)
application of amounts held in the account referred to in Section 2.1.2.5 as to
the applicable Project Loan, or (c) any voluntary prepayment of principal made
by Borrower under the applicable Project Loan;
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2.8.3 No Unmatured Default or Event of Default shall have
occurred and be continuing hereunder other than an Unmatured Default or Event
of Default resulting from the events or actions described in Section 7.1.16;
2.8.4 Bank shall have received, in immediately available
funds, the costs of preparing and delivering the partial release(s); and
2.8.5 All escrow, closing and recording costs shall have
been paid at no expense to Bank.
2.8.6 If the calculation hereunder of the number of Lots to
be released results in other than a whole number, then release shall be made
only as to a whole number of Lots and the remaining fractional part shall be
held in abeyance until all such fractional parts equal one, at which time a Lot
shall be released and any remaining fractional Lot will continue to be carried
forward under this Section 2.8.6.
2.8.7 Following repayment in full of all outstanding
principal and interest under any Project Loan, and payment to Bank of any fees,
costs or expenses relating to such Project Loan, Bank agrees to release the
lien of the Deed of Trust encumbering the applicable Project, provided that any
obligation of Bank to make any further disbursements under such Project Loan
shall have terminated.
2.9 NONRECOURSE OBLIGATION. Notwithstanding anything to the
contrary contained in this Agreement or in any of the other Loan Documents,
Bank agrees that Borrower shall not be personally liable for payment of any
sums now or hereafter owing to Bank under the terms of the Loan Documents, it
being understood and agreed that Bank's sole legal recourse against Borrower
for collection of principal and interest under the Loan Documents shall be
limited to enforcing the rights and remedies granted to Bank under the Security
Documents (as hereinafter defined) against the collateral described therein.
If an Event of Default should occur, Bank agrees that its rights, as to the
Borrower, shall be limited to proceeding against the collateral covered by the
Security Documents. Bank shall have no right to proceed directly against
Borrower for the satisfaction of any monetary claim under this Agreement or for
any deficiency judgment remaining after foreclosure of the lien and security
interests granted under the Security Documents. It is expressly understood and
agreed, however, that nothing contained in this Section 2.9 shall in any manner
or way constitute or be deemed a release of the debt evidenced by the Note or
of any other obligation of Borrower under the Loan Documents, or otherwise
affect or impair the enforceability against Borrower of the liens, deeds of
trust, assignments, rights and security interests created by the Security
Documents or any other instrument or agreement
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evidencing, securing or relating to the indebtedness evidenced by the Note or
the Loan Documents. Nothing contained in this Section 2.9 shall: (a) preclude
Bank from foreclosing the lien of any Deed of Trust or from enforcing any of
its rights or remedies at law or in equity against Borrower except as expressly
stated in this Section 2.9; (b) in any manner impair any right, remedy or
recourse Bank may have against Borrower for fraud, waste, other tortious
conduct arising in connection with this Agreement or the Project Loans, or a
material breach of any of the representations and warranties contained in the
Loan Documents or for failure to turn over to Bank any rent, security deposits
or Release Price Payments applicable to any Project or any part thereof; (c)
impair, in any manner, any right, remedy or recourse Bank may have against
Borrower or under any Environmental Indemnity or under the indemnity of
Borrower set forth in Section 1.22 of any Deed of Trust; (d) in any manner
impair any right, remedy or recourse Bank may have against Borrower for
Borrower's failure to procure or maintain policies of insurance or to cause
insurance or condemnation proceeds to be paid to Bank in accordance with any
Deed of Trust or (e) impair, in any manner, any right, remedy or recourse Bank
may have against Borrower, for any prohibited sale, transfer, conveyance or
encumbrance in breach of Section 6.2 of this Agreement. The Agreements of Bank
set forth in the first two sentences of this Section 2.9 shall not, limit in
any manner, any damages or other amounts payable to Bank pursuant to the
preceding sentence of this Section 2.9. As used herein, the term "SECURITY
DOCUMENTS" shall mean, collectively, each Deed of Trust, Financing Statement,
Assignment of Project Agreements and any other deed of trust, assignment, or
security agreement creating or evidencing any lien, right or security interest
granted by Borrower in favor of Bank for the purpose of securing the
obligations of Borrower under this Agreement or the other Loan Documents.
ARTICLE III
CONDITIONS PRECEDENT
3.1 CONDITIONS PRECEDENT TO EFFECTIVENESS OF THIS AGREEMENT. This
Agreement and the Commitment shall become effective only upon satisfaction of
the following conditions precedent, in each case as determined by Bank in its
absolute and sole discretion:
3.1.1 REPRESENTATIONS AND WARRANTIES ACCURATE. The
representations and warranties by Borrower in the Loan Documents are correct on
and as of the date of this Agreement as though made on and as of such date.
3.1.2 DEFAULTS. No Event of Default or Unmatured Event of
Default shall have occurred and be continuing.
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3.1.3 DOCUMENTS. Bank shall have received the following
agreements, documents, and instruments, each duly executed by the parties
thereto and in form and substance satisfactory to Bank in its absolute and sole
discretion:
3.1.3.1 LOAN DOCUMENTS. This Agreement, the Note and
such other agreements, documents, and instruments specified by Bank.
3.1.3.2 CORPORATION DOCUMENTS. Certified copy of
Borrower's Articles of Incorporation and Bylaws, a certified copy of Borrower's
Corporate Resolution in form and substance acceptable to Bank and its counsel,
a Certificate of Incumbency (if applicable), a Certificate of Good Standing
and/or a Certificate of Authorization to Do Business in the States of
California and Nevada.
3.1.3.3 OPINION LETTER. A favorable opinion from a
law firm representing Borrower covering such matters as Bank or its counsel may
require.
3.1.3.4 FINANCIAL STATEMENTS. Audited Financial
Statements prepared by independent certified public accountants acceptable to
Bank, including, without limitation, a balance sheet, cash flow statement,
reconciliation of net worth, and a profit and loss statement, of Borrower for
Borrower's three (3) most recent fiscal years.
3.1.3.5 CASH FLOW PROJECTIONS. A cash flow
projection of Borrower for the succeeding three (3) year period, which includes
detailed operating projections for each project of Borrower that demonstrates
that of all existing and anticipated financings available to Borrower are
sufficient to meet to all operating needs of Borrower for such three (3) year
period. The projects covered by such cash flow projections shall include all
projects of Borrower in both California and Nevada on which development and/or
construction has commenced, and an estimate of potential acquisitions. The
cash flow projections shall contain sufficient detail, on a project by project
basis to show all projected costs and an indication of the profitability margin
for each such project. Such cash flow projections shall be prepared by a
Borrower in good faith based upon available information, assumptions and
projections which Borrower believes, in accordance with standards applicable to
a reasonably prudent developer conducting a business similar to that of
Borrower, are reasonable, provided that Borrower does not warrant that such
projections shall in fact be achieved.
3.1.3.6 PROJECTED INCOME STATEMENT AND BALANCE SHEET.
A proforma income statement and balance sheet for the succeeding three (3) year
period, indicating the results of cash flow projections on future financial
statements. Such proforma
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income statement and balance sheet shall demonstrate compliance with all
financial covenants and other operating requirements set forth herein, in the
Recourse Agreement and in the Bond Offering. Such pro forma statements shall
be prepared by Borrower in good faith based upon available information,
assumptions and projections which Borrower believes, in accordance with
standards applicable to a reasonably prudent developer conducting a business
similar to that of Borrower, are reasonable, provided that Borrower does not
warrant that such pro forma statements shall in fact be achieved.
3.1.3.7 BOND OFFERING. The most recent drafts of all
documents evidencing, securing or otherwise relating to the Bond Offering.
3.1.3.8 FINANCIAL STATEMENTS. Borrower's audited
Financial Statements for fiscal year ending February 28, 1994, and its
Financial Statements for the Fiscal Quarter ending May 31, 1994.
3.1.4 PAYMENT OF COSTS, EXPENSES AND FEES. All costs,
expenses, and fees to be paid by the Borrower under the Loan Documents on or
before the effectiveness of this Agreement, the effectiveness of the
Commitment, or the making of Advances shall have been paid in full, including,
without limitation, applicable fees set forth in Section 2.3.
3.1.5 OTHER ITEMS OR ACTIONS BY LOAN PARTIES. Bank shall
have received such other agreements, documents, and instruments, and the
Borrower shall have performed such other actions as Bank may reasonably
require.
3.2 CONDITIONS PRECEDENT TO APPROVAL OF PROPOSED PROJECTS AND
PROJECT LOANS. Borrower may, from time to time, request Bank to approve
Proposed Projects and the related Project Loans. Bank shall have no obligation
to make any Advance under a Project Loan unless and until Bank has approved
such Project Loan and the related Proposed Project. Approval of any Proposed
Project or Project Loan shall be at Bank's sole and absolute discretion and
Bank shall have no obligation to approve such Project or Project Loan. Bank's
approval of a Project Loan and the related Proposed Project shall be evidenced
by the execution by Bank and Borrower of a Project Loan Agreement with respect
thereto. When requesting consideration of a Proposed Project, Borrower shall
deliver to Bank a completed subdivision checklist in form and substance
satisfactory to Bank, supported by such documentation as Bank may require, and
each of the following conditions precedent shall have been satisfied in Bank's
sole and absolute discretion:
3.2.1 TRACT MAP AND/OR SURVEY. Borrower shall have
delivered to Bank and Bank shall have approved one or more recorded parcel
maps, tentative tract maps or final subdivision
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maps (or equivalent) covering the Proposed Project. Each such map must contain
a legal description of the land covered thereby, must describe and show all
boundaries of and lot lines within such land, all streets and other
dedications, and all easements affecting such land. In addition, if requested
by Bank, Borrower shall provide Bank an ALTA survey for the Proposed Project,
in form and substance acceptable to Bank, which ALTA survey shall be required
for any Proposed Project with respect to which a final subdivision map (or
equivalent) has not been recorded.
3.2.2 APPRAISAL. Borrower shall have provided Bank
sufficient data to obtain, and Bank shall have obtained and approved, in its
sole and absolute discretion, an appraisal of the Proposed Project which
conforms to all applicable laws regulating real estate-secured lending by Bank
(including, without limitation, Title XI of the Financial Institutions Reform,
Recovery and Enforcement Act of 1989) 12 U.S.C. 3331 et. seq. (as amended from
time to time and the regulations promulgated thereunder), which appraisal shall
reflect, among other things, the anticipated rate of sale of Units and/or Lots
within the Proposed Project, and may at Bank's request reflect the projected
internal rate of return for the Proposed Project. The data required to be
submitted by Borrower pursuant to this Section 3.2.2 shall include, without
limitation, a legal description of all Lots within the Proposed Project which
have attained Finished Lot Status and, with respect to Lots that have not
attained Finished Lots Status, a breakdown of the status of development of such
Lots, all available cost data for the Project Improvements, a feasibility study
(if available) as well as other information required pursuant to this Section
3.2.
3.2.3 PURCHASE INFORMATION. Borrower shall have provided
Bank with and Bank shall have approved documentation relating to Borrower's
acquisition of the Proposed Project, including, without limitation, the
identity of the seller of the Proposed Project. If such seller is any Person
other than Borrower then Borrower shall also provide to Bank documentation
establishing the acquisition price of the Proposed Project, including, without
limitation, a copy of the applicable purchase agreement and settlement
statements.
3.2.4 APPROVALS. Borrower shall have provided to Bank and
Bank shall have approved evidence of appropriate zoning, including any and all
applicable development agreements and any negative declaration issued by any
Governmental Authority, and existence of all Permits and Approvals of
Governmental Authorities and other third parties necessary to permit the
construction the Project Improvements and sale of Lots within the Proposed
Project and the Units to be constructed thereon, including, without limitation,
all applicable preliminary or final public reports that are available.
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3.2.5 SOILS TESTS. Borrower shall have provided and Bank
shall have approved a soils test report prepared by a licensed soils engineer
satisfactory to Bank showing the location of, and containing boring logs from,
all borings, together with recommendations for the design of the foundations,
paved areas and underground utilities for the Proposed Project.
3.2.6 ENVIRONMENTAL ASSESSMENT. Borrower shall have
delivered to Bank and Bank shall have approved a report of an environmental
assessment (including a fifty (50) year chain of title review if requested by
Bank) of the Proposed Project addressed to Bank by an environmental engineer
acceptable to Bank containing such information, results, and certifications as
Bank may require, in its sole and absolute discretion. Depending upon the
results of the environmental assessment, Borrower shall also provide such
follow up testing, reports, and other actions as may be required by Bank in its
sole and absolute discretion. The contents of the environmental assessment
report and any follow up must be satisfactory to Bank in its sole and absolute
discretion. If such reports are addressed to Borrower, Borrower shall cause a
reliance letter, in form and substance satisfactory to Bank, to be provided to
Bank. Borrower shall also deliver to Bank a completed copy of Bank's standard
form environmental questionnaire with respect to the Proposed Project.
3.2.7 PROJECT BUDGET. A proposed Project Budget for the
Proposed Project which sets forth all anticipated Project Costs, provided,
however, that with respect to any Project Budget, Borrower only represents that
the information contained therein is prepared and submitted in good faith based
upon available information, assumptions and projections which Borrower
believes, in accordance with standards applicable to a reasonably prudent
developer conducting a business similar to that of Borrower, are reasonable.
3.2.8 UTILITIES. Borrower shall have provided to Bank
letters from local utility companies or local authorities stating that (a)
telephone service, electric power, natural gas, cable television, storm sewer,
sanitary sewer and water facilities are available to the Proposed Project; (b)
such utilities are adequate to serve all Lots in the Proposed Project and exist
at the boundary of the Proposed Project; and (c) no conditions exist to affect
Borrower's right to connect into and have adequate use of such utilities except
for the payment of a normal connection charge or tap charges and except for the
payment of subsequent charges for such services to the utility supplier.
3.2.9 PRELIMINARY TITLE REPORT. Borrower shall have
provided to Bank and Bank shall have approved, in its sole absolute discretion,
a preliminary title report for the Proposed
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Project, prepared by the Title Company, together with a legible copy of each
Schedule B item.
3.2.10 FLOOD AND RELATED REPORTS. Borrower shall have
provided to Bank evidence satisfactory to Bank as to whether (a) the Proposed
Project is located in an area designated by the Department of Housing and Urban
development as having special flood or mudslide hazards, (b) the community in
which the Proposed Project is located is participating in the National Flood
Insurance Program or (c) the Proposed Project is located within an
Alquist-Priolo Special Geologic Study Zone.
3.2.11 PLANS AND SPECIFICATIONS. The most current available
plans and specifications covering the Project Improvements for all proposed
Project.
3.2.12 ASSESSMENTS, CHARGES, AND TAXES. For Impositions
that Bank has approved in writing for payment in installments pursuant to the
Deed of Trust, Borrower shall have delivered to Bank and Bank shall have
approved evidence that such installments are current. For all other
Impositions, Borrower shall provide to Bank evidence that such Impositions have
been paid in full.
3.2.13 INSURANCE POLICIES. A certificate of the insurance
described in Section 5.7 hereof or other evidence thereof satisfactory to Bank,
and at Bank's request, certified copies of the Borrower's policies of insurance
required under the Loan Documents, and certificates of insurance with respect
to professional liability coverage maintained by engineers, architects, and
environmental contractors.
3.2.14 CONTRACTS. All executed contracts relating to design
and construction of the Project Improvements anticipated to be constructed on
the Proposed Project and any Units within the Proposed Project between Borrower
and any other Person (including, without limitation, any architect, engineer
and contractor or subcontractor for labor, material or services).
3.2.15 PROFORMA CASH FLOW STATEMENT. Borrower shall deliver
a proforma cash flow statement for the Proposed Project which shows, among
other things, projected sales prices for Units within the Proposed Project,
gross profit margins, the internal rate of return and other related economic
information, all of which shall be approved by Bank in its sole and absolute
discretion.
3.2.16 CONSTRUCTION SCHEDULES. A proposed commencement date
and completion date for construction of the Project Improvements anticipated to
be constructed on the Proposed Project.
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3.2.17 OTHER. Borrower shall provide such other documents
and information that Bank may request.
3.3 ADDITIONAL CONDITIONS PRECEDENT TO INITIAL ADVANCE OF PROJECT
LOANS. In addition to the conditions precedent for each Advance set forth in
Section 3.4, any obligation of Bank to make the initial Advance under any
Project Loan is subject to satisfaction of the following conditions precedent:
3.3.1 APPROVAL OF PROJECT LOAN. Bank shall have approved
the Project Loan and the related Proposed Project pursuant to Section 3.2 and
executed the related Project Loan Agreement.
3.3.2 DOCUMENTS. With respect to the Project Loan and/or
the Proposed Project, Bank shall have received the following agreements,
documents, and instruments, each duly executed by the parties thereto and in
form and substance satisfactory to Bank in its reasonable discretion:
3.3.2.1 ENVIRONMENTAL INDEMNITY. An Environmental
Indemnity executed by Borrower.
3.3.2.2 DEED OF TRUST. A Deed of Trust executed
and acknowledged by Borrower.
3.3.2.3 FINANCING STATEMENT. A Financing Statement
executed by Borrower.
3.3.2.4 ASSIGNMENT OF PROJECT AGREEMENTS. An
Assignment of Project Agreements executed by Borrower, together with any
consent required by Bank pursuant to the applicable Project Loan Agreement of
any architect, engineer, contractor or other Person which is a party to any of
the agreements or contracts referred to therein.
3.3.2.5 ASSESSMENTS, CHARGES, AND TAXES. Evidence
that all real property taxes, assessments, water, sewer, and other charges
levied or assessed prior to delinquency against the Proposed Project which are
then due and payable have been paid in the amount required.
3.3.3 RECORDATION AND FILING OF LOAN DOCUMENTS. The Deed
of Trust delivered pursuant to Section 3.3.2.2 shall have been recorded in the
official records of the county in which the Proposed Project is located and the
Financing Statement delivered pursuant to Section 3.3.2.3 shall have been filed
in the office of the Secretary of State of California.
3.3.4 TITLE INSURANCE. Borrower shall have provided to
Bank and Bank shall have approved in its sole and absolute discretion an
American Land Title Association loan policy of title insurance or an
irrevocable and unconditional
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commitment to issue such policy, in form satisfactory to Bank in its sole and
absolute discretion, issued by the Title Company and a commitment by the Title
Company to issue disbursement endorsements at Bank's request insuring the Deed
of Trust. Such policy shall have a liability limit of not less than the
Commitment Amount and shall provide coverage and otherwise be in form and
substance satisfactory to Bank in its sole and absolute discretion (including,
without limitation, mechanic's lien coverage) insuring Bank's interest under
the applicable Deed of Trust as a valid first lien on the Project. Such policy
shall be accompanied by such reinsurance and coinsurance agreements and
endorsements as Bank may require in its sole and absolute discretion. Such
policy must contain only such exceptions as are satisfactory to Bank and must
have attached such endorsements as Bank may require, both in Bank's sole and
absolute discretion.
3.3.4.1 PAYMENT OF COSTS, EXPENSES AND FEES. All
costs, expenses and fees to be paid by Borrower under the Loan Documents in
connection with Bank's approval of a Proposed Project and the making of the
Project Loan shall have been paid in full, including, without limitation, the
applicable fees set forth in Section 2.3.
3.3.5 ACQUISITION COSTS. The amount of the initial Advance
under any Project Loan that will be used to finance or reimburse Borrower for
the acquisition costs of the Project shall be in an amount, determined by Bank
in its sole and absolute discretion, equal to the Project Loan Amount for the
Project Loan, less all Project Costs necessary to complete the Project
Improvements and to bring all Lots within the Project to a Finished Lot Status,
as well as all Project Costs attributable to the initiation of the Project Loan
and any interest reserve required to pay interest on the Project Loan through
the Project Loan Repayment Date.
3.4 ADDITIONAL CONDITIONS PRECEDENT TO ALL ADVANCES. Bank shall
be obligated to make any Advance under any Project Loan only upon satisfaction
of the following additional conditions precedent, as determined by Bank in its
reasonable discretion:
3.4.1 REPRESENTATIONS AND WARRANTIES ACCURATE. The
representations and warranties by Borrower in each of the Loan Documents are
correct in all material respects on and as of the date of such Advance, both
before and after giving effect to such Advance, other than matters disclosed by
Borrower to Bank and approved by Bank in its absolute and sole discretion.
3.4.2 DEFAULTS. No Event of Default or Unmatured Event of
Default shall have occurred and be continuing on the date of such Advance, both
before and after giving effect thereto.
3.4.3 DRAW REQUEST. Borrower shall have delivered to Bank
a Draw Request for such Advance, together with AIA Forms G702
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and G703 (and such other forms as made from time to time be approved or
required by Bank), setting forth such details concerning the construction of
the Project Improvements as Bank may reasonably require, including the amounts
expended to the date of the Draw Request for the Project Improvements, the
amounts then due and unpaid for construction of the Project Improvements and a
certification by Borrower that the unexpended amount of the Project Budget is
adequate to complete the Project Improvements as required under this Agreement.
Bank shall determine, in accordance with Section 2.2.1, that Borrower has paid
or incurred Project Costs that are not the subject of a previous Advance in an
amount equal to or greater than the amount requested in the Draw Request for
the Advance. Borrower may not submit more than two (2) Draw Requests per month
with request for all Project Loans.
3.4.4 INSPECTION REPORT. Bank shall have received written
evidence acceptable to Bank from Bank's inspector(s) or from Bank's employee(s)
performing inspections for Bank (a) that construction of the applicable Project
Improvements complies with the Plans and Specifications relating thereto, and
(b) that Borrower has completed such Project Improvements to the stage
necessary to obtain the requested Advance.
3.4.5 APPROVALS AND INSPECTIONS BY GOVERNMENTAL
AUTHORITIES. If requested by Bank, all inspections and approvals by
Governmental Authorities required for the stage of completion of the Project
Improvements shall have been obtained and Bank shall have received evidence
thereof satisfactory to Bank, or shall have obtained such evidence upon
inspection of any Project.
3.4.6 PROJECT LOAN "IN BALANCE." Borrower shall be in
compliance with the provisions of Section 2.6.
3.4.7 LIEN WAIVERS. If requested by Bank, Borrower shall
deliver to Bank lien waivers relating to the construction of the Project
Improvements for all work through the date of the previous Draw Request under
the Project Loan and invoices for all work covered by the current Draw Request.
3.4.8 DISTRESSED IMPROVEMENT DISTRICTS. Any improvement or
assessment district in which the Project is located shall not (a) be insolvent
under applicable law or subject to any bankruptcy or similar proceedings; (b)
directly or indirectly cause the Project to be subject to any suspension,
disqualification, or disapproval by FHA, FNMA, VA, FHLMC, or any similar
governmental or quasi-governmental agency that originates, purchases, insures
or guarantees home mortgage loans, and (c) have increased the "millrate" for
assessments in any year by more than five (5) mills over the rate applicable in
the immediately preceding year.
3.4.9 QUALIFICATION TO DO BUSINESS. Bank shall have
received a Certificate of Good Standing and/or a Certificate of Authorization
To Do Business in the state in which the Project is located.
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3.4.10 OTHER INFORMATION. Such other information or
documents Bank may reasonably require.
Borrower hereby authorizes Bank, and Bank reserves the right in its absolute
and sole discretion, to verify any documents and information submitted to Bank
in connection with this Agreement. Bank may elect, in its absolute and sole
discretion, to waive any of the foregoing conditions precedent. Any such
waiver shall be limited to the condition(s) precedent therein and the
requirements therein. Delay or failure by Bank to insist on satisfaction of
any condition precedent shall not be a waiver of such condition precedent or
any other condition precedent. The making of an Advance by Bank shall not be
deemed a waiver by Bank of the occurrence of an Event of Default or an
Unmatured Event of Default.
ARTICLE IV
BORROWER REPRESENTATIONS AND WARRANTIES
4.1 CLOSING REPRESENTATIONS AND WARRANTIES. Borrower represents
and warrants to Bank as of the date of this Agreement:
4.1.1 ORGANIZATION, POWERS AND GOOD STANDING.
4.1.1.1 ORGANIZATION AND POWERS. Borrower is duly
organized and is a validly existing under the laws of the State of Delaware.
Borrower has all requisite power and authority, rights and franchises to (i) do
business in California, Arizona and Nevada; (ii) own and operate its
properties, to carry on its businesses as now conducted and as proposed to be
conducted, and (iii) to enter into and perform this Agreement and the other
Loan Documents. The address of the Borrower's chief executive office and
principal place of business is the address set forth in the introductory
paragraph of this Agreement.
4.1.1.2 GOOD STANDING. Borrower has made all filings
and is in good standing in each jurisdiction in which the character of the
property it owns or the nature of the business it transacts makes such filings
necessary or where the failure to make such filings could have a materially
adverse effect on the business, operations, assets or condition (financial or
otherwise) of Borrower.
4.1.1.3 NON-FOREIGN STATUS. Borrower is not a
foreign corporation," "foreign partnership," "foreign trust," or "foreign
estate," as those terms are defined in the Internal Revenue Code and the
regulations promulgated thereunder. Borrower's U.S. employer identification
number as set forth in the Certificate of Non-Foreign Status.
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4.1.2 NO APPROVALS, ETC. No, approval, authorization,
bond, consent, certificate, franchise, license, permit, registration,
qualification, or other action or grant by or filing with any Person is
required in connection with the execution, delivery, or performance by Borrower
of the Borrower Loan Documents other than permits and licenses required for
construction of Project Improvements that Borrower reasonably expects to obtain
in the usual and ordinary course of business.
4.1.3 NO CONFLICTS. The execution, delivery, and
performance by Borrower of the Loan Documents will not conflict with, or result
in a violation of or a default under any applicable law, ordinance, regulation,
or rule (federal, state, or local); any judgment, order, or decree of any
arbitrator, other private adjudicator, or Governmental Authority to which
Borrower is a party or by which Borrower or any of the assets or property of
Borrower is bound; any of the Approvals and Permits; or any agreement,
document, or instrument to which Borrower is a party or by which Borrower or
any of the assets or property of Borrower is bound, including, without
limitation, any indenture, agreement, instrument or other document evidencing,
securing or governing the terms of the Old Notes or the New Notes.
4.1.4 EXECUTION AND DELIVERY AND BINDING NATURE OF LOAN
DOCUMENTS. This Agreement and the Note have been duly, executed and delivered
by or on behalf of Borrower. This Agreement and the Note are legal, valid and
binding obligations of Borrower, enforceable in accordance with their terms,
except as such enforceability may be limited by bankruptcy, insolvency,
moratorium, reorganization, or similar laws and by equitable principles of
general application.
4.1.5 ACCURATE INFORMATION. All information in any loan
application, Financial Statement, certificate, or other document, and all other
information delivered by or on behalf of Borrower to Bank in obtaining the
Commitment is correct and complete in all material respects as of the date
thereof, and there are no omissions therefrom that result in any such
information being materially incomplete, incorrect, or misleading as of the
date thereof; provided, however, that with respect to any Project Budget,
Borrower only represents that the information contained therein is prepared and
submitted in good faith based upon available information, assumptions and
projections which Borrower believes, in accordance with standards applicable to
a reasonably prudent developer conducting a business similar to that of
Borrower, are reasonable. There has been no Material Adverse Change relative
to Borrower since the date of such information. All Financial Statements
heretofore delivered to Bank by Borrower were prepared on an accrual basis in
accordance with GAAP and accurately present the financial conditions and
results of operations as at the dates thereof and for the periods covered
thereby in all material respects. The fiscal year of Borrower is from March 1
to February 28.
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4.1.6 PURPOSE OF ADVANCES. The purpose of Advances is to
pay or to reimburse Borrower for Project Costs. The purpose of the Advances is
a business purpose and not a personal, family, or household purpose.
4.1.7 LEGAL PROCEEDINGS; HEARINGS, INQUIRIES, AND
INVESTIGATIONS. Except as disclosed to Bank in writing prior to the date of
this Agreement, (a) no legal proceeding has been filed or noticed to Borrower
or, to best knowledge of Borrower, threatened before any arbitrator, other
private adjudicator, or Governmental Authority to which Borrower is a party or
by which Borrower or any assets or property of Borrower may be bound or
affected that if resolved adversely to Borrower could result in a Material
Adverse Change, and (b) no hearing, inquiry or investigation relating to
Borrower or any assets or property of Borrower has been noticed to Borrower or,
to the best knowledge of Borrower, threatened by any Governmental Authority
that if resolved adversely to Borrower could result in a Material Adverse
Change.
4.1.8 NO EVENT OF DEFAULT OR UNMATURED EVENT OF DEFAULT.
No Event of Default and no Unmatured Event of Default has occurred and is
continuing.
4.1.9 APPROVALS AND PERMITS; ASSETS AND PROPERTY. Borrower
has obtained and there are in full force and effect all Approvals and Permits
necessary for the conduct of the business of the Borrower, provided that
Borrower may not have obtained all of the Approvals and Permits necessary for
construction of the Project Improvements to the extent such Approvals and
Permits are not yet necessary. Borrower owns, leases or licenses all assets
and property necessary for conduct of the business and operations of Borrower.
Such assets and property subject to a Lien created under the Loan Documents are
not subject to any Liens and Encumbrances, other than the Permitted Exceptions.
4.1.10 TAXES. Borrower has filed or caused to be filed all
tax returns (federal, state and local) required to be filed by Borrower and has
paid all taxes and other amounts shown thereon to be due (including, without
limitation, any interest or penalties).
4.1.11 ERISA. Borrower is in compliance with ERISA. No
Reportable Event or Prohibited Transaction (as defined in ERISA) or termination
of any plan has occurred and no notice of termination has been filed with
respect to any plan established or maintained by Borrower and subject to ERISA.
Borrower has not incurred any material funding deficiency within the meaning of
ERISA or any material liability to the Pension Benefit Guarantee Corporation in
connection with any such plan established or maintained by Borrower. Borrower
is not a party to any Multiemployer Plan (as defined in ERISA).
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4.1.12 COMPLIANCE WITH LAW. Other than noncompliance with
applicable building codes which is not unusual and is correctable by Borrower,
neither Borrower nor any Project is in violation of any law, ordinance,
regulation or rule (federal, state or local).
4.1.13 PROJECT BUDGETS AND PLANS AND SPECIFICATIONS. Each
Project Budget contains all costs, expenses, and fees currently anticipated to
be incurred by Borrower in connection with respective Project Improvements in
accordance with standards applicable to a reasonably prudent developer
conducting a business similar to that of Borrower. Each set of Plans and
Specifications and related working drawings are an accurate and complete
description of the respective Project Improvements.
4.1.14 BOND OFFERING. With respect to the Bond Offering:
(a) the loan evidenced by the Loan Documents constitutes Non- Recourse
Indebtedness, as such term is defined in the Registration Statement; (b) each
Deed of Trust will constitute a Permitted Lien, as such term is defined in the
Registration Statement; (c) the indenture for the Old Notes will also be the
indenture for the New Notes except that the Indenture has been amended to
modify certain limitations on subsidiary guarantees; (d) the New Notes will be
identical to the Old Notes, except that (i) there is no registration rights
agreement under the New Notes; and (ii) the interest under the Old Notes was
subject to a 50 basis point adjustment upon the occurrence of certain events
and there is no such provision in the New Notes; (e) if by November 14, 1994
the Exchange Offer (as such term is defined in the Registration Statement) has
not been consummated or the Shelf Registration Statement (as such term is
defined in the Registration Statement) has not been declared effective, the
only adverse impact to Borrower will be to increase the interest rate under the
Old Notes to 13.25% per annum; and (f) there have been no material changes from
the terms of the Exchange Offer described in the Registration Statement to such
terms as described in the Prospectus. The Bank has been provided by Borrower
with a copy of the Prospectus and acknowledges that Bank has reviewed the
matters set forth as "Recent Developments" on page 5 of the Prospectus.
4.2 REPRESENTATIONS AND WARRANTIES UPON REQUESTS FOR ADVANCES.
Each request for an Advance shall be a representation and warranty by Borrower
to Bank that the representations and warranties in this SECTION 4 are correct
and complete as of the date the Advance except as otherwise disclosed in
writing and that the conditions precedent in SECTION 3 are satisfied as of the
date of the Advance.
4.3 REPRESENTATIONS AND WARRANTIES UPON DELIVERY OF FINANCIAL
STATEMENTS, DOCUMENTS AND OTHER INFORMATION. Each delivery by Borrower to Bank
of Financial Statements, other documents or information after the date of this
Agreement (including, without limitation, documents and information delivered
in obtaining an
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Advance) shall be a representation and warranty that such Financial Statements,
other documents or information is correct and complete in all material
respects, that there are no material omissions therefrom that result in such
Financial Statements, other documents or information being materially
incomplete, incorrect, or misleading as of the date thereof, and that such
Financial Statements accurately present the financial condition and results of
operations of Borrower as at the dates thereof and for the periods covered
thereby.
ARTICLE V
AFFIRMATIVE COVENANTS
Until the Commitment terminates in full and the Obligations are paid
and performed in full, Borrower agrees that, unless Bank otherwise agrees in
writing in Bank's absolute and sole discretion:
5.1 CORPORATE EXISTENCE. Borrower shall continue to be validly
existing, and in good standing, under the law of the jurisdiction of its
organization or formation. Borrower shall continue to be qualified to do
business as a foreign corporation, in good standing, under the laws of the
States of California, Arizona and Nevada; provided, however, it is understood
and agreed that Borrower is not qualified to do business as a foreign
corporation under the laws of the State of Arizona, and that Borrower shall,
within 30 days of the date of this Agreement, so qualify to do business and
provide Bank with a certificate of Borrower's good standing in Arizona.
5.2 BOOKS AND RECORDS; ACCESS BY BANK. Borrower will maintain its
existing system of accounting, on an accrual basis in accordance with GAAP
(including, without limitation, a single, complete and accurate set of books
and records of its assets, business, financial condition, operations, property,
prospects and results of operations) in accordance with GAAP or such other
methodology as Bank shall approve in its sole and absolute discretion. During
business hours Borrower will give representatives of Bank access to all assets,
property, books, records and documents of Borrower and will permit such
representatives to inspect such assets and property and to audit, copy, examine
and make excerpts from such books, records and documents. Prior to the
occurrence of an Event of Default, Bank shall provide reasonable prior notice
of such inspections and shall conduct such inspections during normal business
hours, provided that Bank agrees to use reasonable efforts to minimize, to the
extent practical, any disruption to Borrower's business.
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5.3 INFORMATION AND STATEMENTS. Borrower shall furnish to Bank:
5.3.1 FISCAL PERIOD FINANCIAL STATEMENTS:
5.3.1.1 STATEMENTS. As soon as available and in any
event within sixty (60) days after the end of each of Borrower's first three
(3) Fiscal Quarters, copies of the balance sheet of Borrower as of the end of
such fiscal quarter and statements of income and retained earnings and a
statement of cash flow of Borrower for such fiscal quarter and for the portion
of the fiscal year of Borrower ending with such fiscal quarter, all in
reasonable detail, prepared in accordance with GAAP, containing the
certification of and signed on behalf of Borrower by the President, Chief
Financial Officer or other executive officer of Borrower reasonably acceptable
to Bank. All such balance sheets shall set forth in comparative form figures
fee the preceding year end. All such income statements shall reflect current
period and year-to-date figures, and all such statements of cash flow shall
reflect year-to-date figures.
5.3.1.2 PROJECTION. Within sixty (60) days after the
end of each Calendar Quarter, a thirty-six (36) month projection of cash flow
for Borrower, in reasonable detail, prepared on an accrual basis in accordance
with GAAP, containing the certification of and signed on behalf of Borrower by
the President, Chief Financial Officer or other executive officer of Borrower
reasonably acceptable to Bank that such projections have been prepared in good
faith based upon available information, assumptions and projections which
Borrower believes, in accordance with standards applicable to a reasonably
prudent developer conducting a business similar to that of Borrower, are
reasonable, provided that Borrower does not warrant that such projections shall
in fact be achieved.
5.3.2 ANNUAL FINANCIAL STATEMENTS. As soon as available
and in any event within one hundred twenty (120) days after the end of each
fiscal year of Borrower, copies of the balance sheet of Borrower as of the end
of such fiscal year and statements of income and retained earnings and a
statement of cash flow of Borrower for such fiscal year, in each case setting
forth in comparative form the figures for the preceding fiscal year of
Borrower, all in reasonable detail and prepared on an accrual basis in
accordance with GAAP, accompanied by a favorable opinion rendered by
independent certified public accountants satisfactory to Bank.
5.3.3 COMPLIANCE CERTIFICATES. Together with the
statements required under Section 5.3.1 and Section 5.3.2, a statement in form
and substance satisfactory to Bank, certified by the President, Chief Financial
Officer or other executive officer of Borrower, (a) that Borrower is in
compliance with the Liquidity requirement set forth in SECTION 5.18 as of the
end of the most
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recently completed Fiscal Quarter, and (b) that Borrower is in compliance with
all covenants, terms, and conditions applicable to Borrower under or pursuant
to the Loan Documents and any other Debt owing by Borrower to any Person in a
principal amount of $1,000,000.00 or more, and with disclosure of any
noncompliance therewith and describing the status of Borrower's actions to
correct such noncompliance, if applicable.
5.3.4 SALES REPORTS. Monthly, a report showing (i) sales
of Units within each Project during the preceding Calendar Month, (ii) the
inventory of completed Units as of the end of the preceding Calendar Month, and
(iii) Units in progress as of the end of the preceding Calendar Month. Such
report shall contain such detailed information as Bank may require.
5.3.5 LAND HOLDINGS. Within forty-five (45) days after the
end of each Fiscal Quarter, commencing October 1, 1994, a detailed schedule of
all land owned by Borrower and its Affiliates, setting forth, without
limitation, the location and book value of all such holdings.
5.3.6 PROXY STATEMENTS. Promptly upon their becoming
available, copies of (a) all Financial Statements, reports, notices, and proxy
statements sent or made available generally by Borrower or any Affiliate of
Borrower to their respective security holders, (b) all regular and periodic
reports and all registration statements filed by Borrower or any Affiliate of
Borrower with any securities exchange or with the Securities and Exchange
Commission or any governmental authority succeeding to any of its functions,
and (c) all press releases and other statements made available generally by
Borrower or any Affiliate of Borrower to the public concerning material
developments relating to the business of Borrower or any Affiliate of Borrower.
5.3.7 OTHER ITEMS AND INFORMATION. Such other information
concerning Borrower, any Project or the assets, business, financial condition,
operations, property, prospects, and results of operations of Borrower as Bank
reasonably requests from time to time. In this regard, promptly upon request
of Bank, Borrower shall make available to Bank at Borrower's offices,
counterparts and/or conditional assignments as security of any and all
construction contracts, receipted invoices, bills of sale, statements,
conveyances and other agreements, documents, and instruments of any nature
relating to any Project or under which Borrower claims title to any materials
or supplies used or to be used in any Project. Also, in this regard, promptly
upon request of Bank, Borrower shall deliver to Bank a complete list of all
contractors, subcontractors, material suppliers, other vendors, artisans and
laborers performing work or services or providing materials or supplies for any
Project.
5.4 LAW; JUDGMENTS; MATERIAL AGREEMENTS; APPROVALS AND PERMITS.
Except for normal construction corrections occasioning
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temporary noncompliance which are corrected by Borrower with diligence and
without substantial expense, Borrower shall comply with all laws, ordinances,
regulations, and rules (federal, state and local) and all judgments, orders,
and decrees of any arbitrator, other private adjudicator or Governmental
Authority relating to Borrower, any Project, or the assets, business,
operations, or property of Borrower; provided, however, that Borrower may, in
good faith, contest the applicability of such matters to the extent such
matters do not affect title to any Unit, Lot or Project or the validity or
enforceability of any Deed of Trust. Borrower shall comply in all material
respects with all material agreements, documents and instruments to which
Borrower is a party or by which Borrower, any Project or any of the other
assets or property of Borrower is bound or affected. Borrower shall comply
with all Requirements (including, without limitation, as applicable,
requirements of the Federal Housing Administration and the Veterans
Administration) and all conditions and requirements of all Approvals and
Permits. Borrower shall obtain and maintain in effect from time to time all
Approvals and Permits required for the business activities and operations then
being conducted by Borrower.
5.5 TAXES AND OTHER INDEBTEDNESS. Except for (a) Involuntary
Liens and Impositions being contested in accordance with the applicable Deed of
Trust, (b) income taxes or franchise taxes for which no lien has been filed,
which are contested in good faith and for which Borrower is maintaining
adequate reserves, and (c) Impositions that Bank has agreed in its sole and
absolute discretion may be paid in installments as provided in the applicable
Deed of Trust, Borrower shall pay and discharge (i) before delinquency all
taxes, assessments, and governmental charges or levies imposed upon it, upon
its income or profits, or upon any property belonging to it, (ii) when due all
lawful claims (including, without limitation, claims for labor, materials, and
supplies), which, if unpaid, might become a Lien or Encumbrance upon any of its
assets or property subject to a Lien created under the Loan Documents, other
than such claims which Borrower may contest pursuant to the terms and
conditions of a Deed of Trust, and (iii) when due all its other indebtedness.
5.6 ASSETS AND PROPERTY. Borrower will maintain, keep, and
preserve all of its assets and property (tangible and intangible) comprising or
relating to any Project necessary or useful in the proper maintenance of real
property in good working order and condition, ordinary wear and tear excepted.
5.7 INSURANCE. The following insurance shall be obtained and
maintained and all related premiums shall be paid as they become due:
5.7.1 LIABILITY. Commercial general liability insurance
protecting Borrower and Bank against loss or losses from liability imposed by
law or assumed in any agreement, document, or instrument and arising from
bodily injury, death, or property
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damage with a limit of liability of not less than One Million Dollars
($1,000,000) on a per occurrence basis and Two Million Dollars ($2,000,000)
general aggregate. Also, "UMBRELLA" excess liability insurance in an amount
not less than Twenty Million Dollars ($20,000,000). Such policies must be
written on an occurrence basis so as to provide blanket contractual liability,
broad form property damage coverage, and coverage for products and completed
operations. In addition, there shall be obtained and maintained business motor
vehicle liability insurance protecting Borrower and Bank against loss or losses
from liability relating to motor vehicles owned, non-owned, or hired used by
Borrower, any contractor, any subcontractor, or any other Person in any manner
related to any Project with a limit of liability of not less than One Million
Dollars ($1,000,000) (combined single limit for personal injury (including
bodily injury and death) and property damage).
5.7.2 WORKER'S COMPENSATION. Worker's compensation
insurance, disability benefits insurance, and such other forms of insurance as
required by law covering loss resulting from injury, sickness, disability or
death of employees of Borrower, any contractor and any subcontractor located on
or assigned to any Project. Borrower shall cause each contractor and each
subcontractor having employees located on or assigned to any Project to obtain
and maintain this same coverage for all eligible employees.
5.7.3 ENGINEER. Each engineer, each soils engineer and
each environmental contractor employed by Borrower in connection with any
Project shall maintain engineer's professional liability insurance with a limit
of liability of not less than Two Hundred Fifty Thousand Dollars ($250,000).
Each policy shall permit claims for a period of not less than three (3) years
after the completion of any Project.
5.7.4 INTENTIONALLY OMITTED.
5.7.5 OTHER. All policies for required insurance to be
provided by Borrower shall be in form and substance reasonably satisfactory to
Bank. Such insurance may be carried under blanket policies, so long as such
policy complies with this SECTION 5.7. All required insurance to be provided
by Borrower shall be procured and maintained in financially sound and generally
recognized responsible insurance companies selected by Borrower and approved by
Bank. Such companies must be authorized to do business in the States of
California, Arizona and Nevada. Each company shall be rated "A-1" or better by
A.M. Best Co., in Best Key Guide, or such other rating acceptable to Bank in
Bank's sole and absolute discretion. All property policies evidencing required
insurance to be provided by Borrower shall name Bank as first mortgagee and
loss payee. All liability policies evidencing required insurance to be
provided by Borrower shall name Bank as additional insured. Such policies
shall not be cancelable as to the interests of the Bank
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due to the acts of Borrower. Such policies shall provide for at least thirty
(30) days prior written notice of the cancellation or modification thereof to
Bank.
5.7.6 EVIDENCE. A certificate and, if requested by Bank, a
certified copy of each insurance policy or, if acceptable to Bank in its sole
and absolute discretion, certificates of insurance evidencing that such
insurance is in full force and effect, shall be delivered to Bank, together
with proof of the payment of the premiums thereof. At least ten (10) days
prior to the expiration of each such policy, Borrower shall furnish Bank
evidence that such policy has been renewed or replaced in the form of the
original or a certified copy of the renewal or replacement policy or, if
acceptable to Bank in its sole and absolute discretion, a certificate reciting
that there is in full force and effect, with a term covering at least the next
succeeding calendar year, insurance of the types and in the amounts required in
this SECTION 5.7.
5.8 ERISA. Borrower will fund each Defined Benefit Plan and
Defined Contribution Plan (as such terms are defined in ERISA) established or
maintained by Borrower so that there is never an Accumulated Funding Deficiency
(as defined in SECTION 412 of the Internal Revenue Code of 1986, as amended).
5.9 APPRAISALS. Bank shall have the right to order an appraisal
with respect to any Project from time to time. Each such appraisal is subject
to review and approval by Bank. In connection with the preparation of any such
appraisal, Borrower shall provide to Bank such information as Bank may
reasonably request, and provide access to any Project to any appraiser
conducting such appraisal, or any employee or other consultant engaged by Bank
to review the appraisal. Borrower agrees upon demand by Bank to pay to Bank
the cost and expense for such appraisals and a fee prescribed by Bank for
review of each such appraisal by Bank; provided that, with respect to each
Project, Borrower shall not be required to pay the cost and expense of an
appraisal or the review thereof more than once in any twelve (12) month period.
Any appraisals accepted by Bank that do not have a specific expiration date
shall be updated at Bank's request.
5.10 COMMENCEMENT AND COMPLETION. Borrower shall cause
construction of the Project Improvements to be prosecuted and completed in good
faith, with due diligence, and without delay other than delay occasioned by a
Force Majeure Event. Borrower shall commence construction of the applicable
Project Improvements on or before the commencement date set forth in the
applicable Project Loan Agreement. Subject to delays occasioned by Force
Majeure Events, on or before the completion date set forth in the applicable
Project Loan Agreement, Borrower shall have substantially completed the Project
Improvements and each phase thereof, as "substantial completion" is determined
by the Bank in the reasonable exercise of its judgment. Borrower shall cause
the
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Project Improvements to be constructed (a) in a good and workmanlike manner,
(b) in compliance with all applicable Requirements, and (iii), unless otherwise
consented to by Bank in advance in writing, in substantial accordance with the
respective Plans and Specifications. Upon demand by Bank, Borrower shall
correct any defect in the Project Improvements or any material departure from
any applicable Requirements or, to the extent not theretofore approved in
writing by Bank, the respective Unit Plans and Specifications. Borrower
understands and agrees that inspection of the Project Improvements by or on
behalf of Bank, the review by Bank of Draw Requests and related documents and
information, the making of Advances by Bank, any actions by Bank under SECTION
5.11, and any other actions by Bank shall not be a waiver of Bank's right to
require compliance with this SECTION 5.10. If Bank shall ever be required to
complete the construction of any Project Improvements, whether occasioned by
the occurrence of an Event of Default or for any other reason, any sums
expended by Bank in constructing such Project Improvements shall be treated as
Advances hereunder, shall be payable within ten (10) days of demand, shall bear
interest from the date such sums are expended by Bank at the Default Interest
Rate, and shall be deemed the legal, valid and binding obligations of Borrower
to Bank.
5.11 RIGHTS OF INSPECTION; CORRECTION OF DEFECTS; AGENCY. Bank and
its agents, employees, and representatives shall have the right at any time and
from time to time to enter upon any Project in order to inspect any Project;
provided, however, any Person entering upon any Project shall observe and
comply with Borrower's reasonable safety requirements. All such inspections
shall be conducted in a manner reasonably calculated to minimize, to the extent
practical, disruption of the Project. If Bank, in its reasonable judgment
determines that any materials or work do not conform with the respective Plans
and Specifications in all material respects or with any applicable Requirements
or are otherwise not in conformity with sound building practice, Bank shall
have the right to order replacement or correction of any such materials or
work, regardless of whether or not such materials or work have theretofore been
incorporated in the Project Improvements, regardless of whether Bank's
representatives have previously inspected such work or materials, and
regardless of whether Bank has previously made Advances to pay for such work or
materials. Borrower shall promptly make such replacement or correction.
Inspection by Bank or by Bank's inspectors of any Project or the Project
Improvements is for the sole purpose of protecting the security of Bank and is
not to be construed as a representation by Bank that there has been compliance
with the applicable Plans and Specifications or the applicable Requirements or
that the Project Improvements are free of defects in materials or workmanship.
Borrower may make or cause to be made such other independent inspections as
Borrower may desire for its own protection.
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5.12 MISCELLANEOUS. Any inspections or determinations made by Bank
or lien waivers, receipts, or other agreements, documents and instruments
obtained by Bank are made or obtained solely for Bank's own benefit and not in
any way for the benefit or protection of Borrower. Bank may accept and rely on
any information from any architect, any engineer, any other Person providing
labor, materials, or services for Project Improvements, Borrower or any other
Person as to labor or materials furnished or incorporated in the Project
Improvements and the cost and payment therefor and as to all other matters
relating to construction of the Project Improvements and any Project without
the necessity of verifying such information. Bank has no obligation to
Borrower to ensure compliance by any architect, any engineer, any contractor or
any other Person in carrying out construction of the Project Improvements.
5.13 VERIFICATION OF COSTS. Bank shall have the right at any time
and from time to time to review and verify all costs, expenses and fees in each
Project Budget. Based on its review and verification of costs, expenses and
fees in each Project Budget, Bank shall have the right to require Borrower to
adjust the Project Budget in accordance with Section 2.2.2.2.
5.14 BANK'S INSPECTOR(S). Borrower agrees that during construction
of the Project Improvements, Bank shall have the right to employ an outside
inspector or inspectors who shall review as agent for Bank all construction
activities undertaken in regard to the Project Improvements and who shall
prepare reports of such reviews. Alternatively, Bank may elect to have
employees of Bank perform such reviews and prepare such reports. In addition,
the employees of Bank will review the inspection reports of any outside
inspector(s), will review Draw Requests, will perform other activities related
to Draw Requests, and will perform other activities in administering and
monitoring the Advances. In connection with any inspection of any Project,
such inspection shall be conducted in a manner reasonably calculated to
minimize, to the extent practical, disruption of the Project.
5.15 FURTHER ASSURANCES. Borrower shall promptly execute,
acknowledge, and deliver such additional agreements, documents and instruments
and do or cause to be done such other acts as Bank may reasonably request from
time to time to better assure, preserve, protect, and perfect the interest of
Bank in the Collateral and the rights and remedies of Bank under the Loan
Documents.
5.16 COSTS AND EXPENSES OF BORROWER'S PERFORMANCE. Borrower will
perform all of its obligations and satisfy all conditions under the Loan
Documents at its sole cost and expense.
5.17 NOTIFICATION OF DEFAULTS. Borrower shall immediately upon
becoming aware of any such circumstances disclose to Bank the occurrence of any
default by Borrower under or pursuant to the
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terms and conditions of any indebtedness owed by Borrower to any Person,
whether now existing or hereafter arising.
5.18 FINANCIAL COVENANTS. Borrower shall maintain the following
Financial Covenants:
5.18.1 CONSOLIDATED-TANGIBLE NET WORTH. Borrower shall not
permit its Consolidated Tangible Net Worth at any time to be less than an
amount equal to Thirty-Seven Million Seventy-Two Thousand Eight Hundred Sixty
Dollars ($37,072,860).
5.18.2 TOTAL LIABILITIES TO CONSOLIDATED TANGIBLE NET WORTH.
Borrower shall not permit its aggregate Consolidated Liabilities (net of any
Debt which, pursuant to any agreement or other instrument evidencing or
governing the same, is not enforceable against the general assets of Borrower)
to Consolidated Tangible Net Worth to be greater than 2.5:1, and Borrower shall
not permit its aggregate Consolidated Liabilities (including all Debt which,
pursuant to the terms of any agreement or other instrument evidencing or
governing the same, is not enforceable against the general assets of Borrower)
to Consolidated Tangible Net Worth to be greater than 3:1. In determining
Borrower's compliance with the terms of this Section 5.18.2, (a) Debt
consisting of trade payables incurred by Borrower in the ordinary course of its
business within ninety (90) days of the date of calculation shall not be
included in the computation of Consolidated Liabilities, and (b) the
computation of Consolidated Tangible Net Worth shall include the value of all
minority interests held by Borrower in other Persons.
5.18.3 MINIMUM LIQUIDITY REQUIREMENTS. Borrower shall, as
of the end of each Fiscal Quarter, maintain Cash on Hand in an amount of not
less than ten percent (10%) of Borrower's Consolidated Liabilities; provided,
however, if Borrower is out of compliance with this Section 5.18.3 by reason of
a payment by Borrower of a Required Remargining Payment, Borrower shall not be
in default under this Section 5.18.3 if Borrower returns to compliance under
this Section 5.18.3 as of the end of the Fiscal Quarter immediately following
the Fiscal Quarter in which Borrower made such Required Remargining Payment.
5.18.4 LAND BANKING LIMITATION. Borrower shall not
purchase, acquire an interest in or otherwise hold "Land Held for Future
Development" (as that term is defined by GAAP) to the extent that the
Borrower's cash investment of Land Held for Future Development exceeds fifty
percent (50%) of Borrower's Consolidated Net Tangible Assets as adjusted.
5.18.5 DIVIDEND RESTRICTION. Borrower shall not make
distributions from earnings and profits to the shareholders of Borrower in an
amount greater than fifty percent (50%) of such earnings and profits.
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5.18.6 NET LOSS LIMITATION. Borrower shall not: (a) incur a
Net Loss in excess of One Million Dollars ($1,000,000.00) in any Fiscal
Quarter; nor (b) experience Net Losses in any two consecutive Fiscal Quarters.
5.19 CONSTRUCTION AND SALES RECORDS. Borrower shall, at all times,
maintain complete and accurate records of Borrower's construction and sales
activities and shall, upon prior notice thereof by Bank, permit Bank to review
such records upon request by Bank at any time and from time to time during
regular business hours. Such records shall include, without limitation, (a)
any and all documents, instruments, contracts and agreements relating to the
construction or sale of any Lots or Units entered into by Borrower with or for
the benefit of purchasers, contractors, subcontractors or other Persons, as
applicable, (b) lien waivers and releases with respect to all construction in
place, (c) requests for disbursement and vouchers submitted by contractors,
subcontractors, or other Persons, and (d) all permits, licenses and approvals
necessary for the continuation and completion of construction.
5.20 CHANGES TO PLANS AND SPECIFICATIONS. A Borrower agrees to
obtain the prior written consent of a Bank, which consent may be granted or
withheld in a Bank's sole and absolute discretion, prior to making any material
change in the Plans and Specifications for any Project. At all times when any
Advance is outstanding and unpaid or when there is available but undrawn
Commitment under a Project Loan, Borrower shall promptly upon the availability
thereof provide to Bank a copy of the final Plans and Specifications for the
applicable Project showing approval thereon by the applicable Governmental
Authority.
5.21 NOTICE OF LITIGATION, ETC. Promptly upon receiving notice
thereof, Borrower will give, or cause to be given, prompt written notice to
Bank of (a) any action or proceeding instituted by or against it in an amount
in excess of One Million Dollars ($1,000,000) in any Federal or state court or
before any commission or other regulatory body, Federal, state or local,
foreign or domestic; or (b) any such proceedings that are threatened against
it, which, if adversely determined, could result in a Material Adverse Change;
and (c) any actions, proceedings or notices adversely affecting any Project or
Bank's interest therein by any zoning, building or other municipal officers,
offices or departments having jurisdiction with respect to the Premises.
5.22 ENVIRONMENTAL MATTERS.
5.22.1 Borrower shall comply and cause (i) all tenants under
any lease or occupancy agreement affecting any portion of any Project and (ii)
all other Persons or entities on or occupying any Project, to comply with all
Hazardous Materials Laws. Without limiting the generality of the foregoing,
Borrower covenants and agrees that it will not use, generate, manufacture,
store or
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dispose of, nor will it permit the use, generation, storage or disposal of any
asbestos or, to the extent it would violate any Hazardous Materials Laws, any
other Hazardous Materials on, under or about any Project, nor will it transport
or permit the transportation of Hazardous Materials to or from any Project
except as may be necessary to carry out a final environmental plan approved or
deemed approved by Bank pursuant to Section 5.22.3.
5.22.2 Borrower shall immediately advise Bank in writing of
any (i) any and all Hazardous Materials Claims against Borrower or any Project,
(ii) any remedial action taken by Borrower in response to any (A) Hazardous
Materials on, under or about any Project or (B) Hazardous Materials Claims, and
(iii) Borrower's discovery of any occurrence or condition on any real property
adjoining or in the vicinity of any Project that could cause any Project or any
part thereof to be classified as "border-zone property" under the provisions of
California Health and Safety Code Sections 25220 et. seq. or any regulation
adopted in accordance therewith, or to be otherwise subject to any restrictions
on the ownership, occupancy, transferability or use of any Project under any
Hazardous Materials Laws. In addition, Borrower shall provide Bank with copies
of all communications with federal, state and local governments or agencies
relating to Hazardous Materials Laws and all communication with any person or
entity relating to Hazardous Materials Claims.
5.22.3 Borrower agrees to submit, form time to time if
requested by Bank, a report regarding Hazardous Materials, satisfactory to Bank
in its sole and absolute discretion, prepared by a consultant approved by Bank.
Borrower hereby grants to Bank, its agents, employees, consultants and
contractors, the right to enter upon any Project, and to perform such tests on
the Project as are necessary to conduct such a review and/or investigation.
Any such review and/or investigation shall be conducted, to the extent
reasonably practical, in a manner reasonably calculated to minimize disruption
of the Project. If any report requested by Bank discloses that any Project has
been or is now being used for any activities involving, directly or indirectly,
the generation, treatment, storage or disposal of any Hazardous Materials in
violation of any Hazardous Materials Law, or which would require any remedial
action pursuant to any laws, rules or regulations of a governmental authority,
Borrower shall promptly notify Bank of such event or situation and, within
thirty (30) days after such discovery, submit to Bank a preliminary written
environmental plan setting forth a general description of such event or
situation and the action that Borrower proposes to take with respect thereto.
Within sixty (60) days after such discovery, Borrower shall submit to Bank a
final written environmental report, setting forth a detailed description of
such event or situation and the action that Borrower proposes to take with
respect thereto, including, without limitation, any proposed corrective work,
the estimated cost and time of completion, the name of the contractor and a
copy of the construction contract, if any, and such additional data,
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instruments, documents, agreements or other materials or information as Bank
may reasonably request. The plan shall be subject to Bank's written approval,
which approval may be granted or withheld in Bank's sole discretion and may be
subject to such additional conditions or requirements as Bank may impose.
Once any such plan is approved in writing by Bank, Borrower shall promptly
commence all action necessary to implement such plan and to comply with any
requirements and conditions imposed by Bank, and shall diligently and
continuously pursue such action to completion in strict accordance with the
terms thereof.
5.22.4 Borrower shall not create or permit to continue in
existence any Lien (whether or not such Lien has priority over the lien created
by any Deed of Trust) upon any Project imposed pursuant to any Hazardous
Materials Law.
5.22.5 Bank shall have the right to join and participate in,
as a party if it so elects, any legal proceedings or actions initiated in
connection with any Hazardous Materials Claims.
5.23 SIGNAGE. Borrower shall not sell, lease or assign to any
third person the right to any signage on or about the Project without the prior
written consent of Bank. Any sign which refers to or identifies Bank shall be
subject to Bank's prior written approval.
ARTICLE VI
BORROWER NEGATIVE COVENANTS
Until the Commitment terminates in full and the Obligations are paid
and performed in full, Borrower agrees that, unless Bank otherwise agrees in
writing in Bank's sole and absolute discretion:
6.1 CORPORATE RESTRICTIONS. Borrower shall not be dissolved or
liquidated. Borrower shall not amend, modify, restate, supplement or terminate
its certificate of incorporation or bylaws in any manner that would materially
affect the validity or enforceability of the Obligations or Borrower's ability
to borrow hereunder, or that would materially impair any security for the
Obligations. Borrower shall not reorganize itself or consolidate with or merge
into any other corporation or permit any other corporation to be merged into
Borrower (except for mergers of any Subsidiary or parent of Borrower into
Borrower pursuant to which Borrower is the surviving entity and which do not
otherwise constitute an Event of Default). Borrower shall not suffer to occur
any change in Borrower's chairman or chief executive officer without the prior
written consent of Bank in its absolute and sole discretion.
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6.2 OWNERSHIP OF PROJECT. With respect to each Project, Borrower
shall not permit to occur any Transfer (as defined in the Deed of Trust) which
is not a Permitted Exception.
6.3 LIENS AND ENCUMBRANCES. Borrower shall keep each Project free
and clear of all Liens and Encumbrances other than Permitted Exceptions.
ARTICLE VII
REMEDIES UPON DEFAULT
7.1 EVENTS OF DEFAULT. The occurrence of any one or more
of the following shall constitute an event of default ("Event of Default"):
7.1.1 Failure by Borrower to pay within ten days of
the date when due any payment of principal or interest under any Project Loan,
or any amount required to be paid by Borrower under Section 2.6 or Section 2.7,
or any failure by Borrower to pay any other monetary amount when due under any
Loan Document and the expiration of ten (10) days after written notice of such
failure by Bank to Borrower.
7.1.2 Failure by Borrower to perform any obligation
not involving the payment of money, or to comply with any other term or
condition applicable to Borrower, under any Loan Document and, if such failure
is curable, the expiration of thirty (30) days after written notice of such
failure by Bank to Borrower.
7.1.3 Any representation or warranty by Borrower in
any Loan Document is materially false, incorrect or misleading as of the date
made.
7.1.4 The occurrence of any event (including,
without limitation, a change in the financial condition, business, or
operations of Borrower for any reason whatsoever) that materially and adversely
affects the ability of Borrower to perform any of its obligations under the
Loan Documents.
7.1.5 Borrower (i) is unable or admits in writing
Borrower's inability to pay its monetary obligations as they become due, (ii)
makes a general assignment for the benefit of creditors, or (iii) applies for,
consents to, or acquiesces in, the appointment of a trustee, receiver, or other
custodian for Borrower or all or substantially all of the property of Borrower,
or in the absence of such application, consent, or acquiescence a trustee,
receiver, or other custodian is appointed for Borrower or all or substantially
all of the property of Borrower.
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7.1.6 Commencement of any case under the Bankruptcy
Code, Title 11 of the United States Code, or commencement of any other
bankruptcy arrangement, reorganization, receivership, custodianship, or similar
proceeding under any federal, state or foreign law by or against Borrower and
with respect to any such case or proceeding that is involuntary, such case or
proceeding is not dismissed with prejudice within sixty (60) days of the filing
thereof.
7.1.7 Any litigation or proceeding is commenced
before any arbitrator, other private adjudicator, court, government or
Governmental Authority (federal, state, local or foreign) against or affecting
Borrower or the property of Borrower or any part thereof that materially and
adversely affects the ability of Borrower to perform its obligations under the
Loan Documents and such litigation or proceeding is not defended diligently and
in good faith by Borrower.
7.1.8 A final judgment or decree for monetary
damages or a monetary fine or penalty (not subject to appeal or as to which the
time for appeal has expired) in an amount equal to or greater than One Million
Dollars ($1,000,000) is entered against Borrower by any arbitrator, other
private adjudicator, court, government or other Governmental Authority that
materially and adversely affects the ability of Borrower to perform any of its
obligations under the Loan Documents is not paid and discharged or stayed
within thirty (30) days after the entry thereof.
7.1.9 Commencement of any action or proceeding
which seeks as one of its remedies the dissolution of Borrower which is not
dismissed with prejudice within one hundred eighty (180) days of the
commencement thereof.
7.1.10 All or any part of any Collateral is
attached, levied upon or otherwise seized by legal process, and such
attachment, levy, or seizure is not quashed, stayed, or released within thirty
(30) days after the date thereof and such attachment, levy or seizure is
otherwise determined by Bank, in its sole discretion, to have a material
adverse effect on any Project.
7.1.11 The occurrence of any Transfer (as defined in
any Deed of Trust) which is a violation of the terms of any Deed of Trust,
unless prior to such Transfer Bank has delivered to Borrower the written
consent to such Transfer.
7.1.12 The occurrence and continuance of any Event
of Default, as such term is defined in any other Loan Document.
7.1.13 Borrower, at any time, ceases to manage a
Project.
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<PAGE> 56
7.1.14 An Event of Default under or as defined in
the Recourse Loan Agreement or any other agreement, instrument or other
document which evidences, secures or governs the terms of the Recourse Loan or
any other Debt of Borrower to Bank shall occur.
7.1.15 An Event of Default under and as defined in
the indenture governing the terms of the Old Notes or the indenture governing
the terms of the New Notes shall occur.
7.1.16 Borrower shall default in the performance of
its obligations under or with respect to any other Debt of Borrower in an
amount equal to or greater than One Million Dollars ($1,000,000) and, as result
of such default, the holder of such Debt exercises, or is entitled to exercise,
any right granted to such holder to (i) accelerate such Debt, or (ii) satisfy
Borrower's obligations with respect to such Debt against any assets or property
of Borrower (including any security for the Debt).
7.2 REMEDIES.
7.2.1 Upon the occurrence of any Event of Default:
(i) Bank's obligation to make further Advances under any Project Loan shall
abate, and (ii) Bank may, at its option, declare all Obligations to be
immediately due and payable, except in the case of any Event of Default
described in Section 7.1.5 or Section 7.1.6, in which case all Obligations
shall be immediately due and payable, in all instances without presentment,
demand, protest or notice of any kind. In addition, Bank may, at its option,
apply any of Borrower's funds in its possession to the outstanding indebtedness
under the Note whether or not such indebtedness is then due; Bank may exercise
all rights and remedies available to it under any or all of the Loan Documents;
and Bank shall have the right to cause an independent contractor selected by
Bank to enter into possession of any Project and to perform any and all work
and labor necessary for the completion of the Project substantially in
accordance with the Plans and Specifications and to perform Borrower's
obligations under this Agreement. All sums expended by Bank for such purposes
shall be deemed to have been disbursed to and borrowed by Borrower and shall be
secured by the Deeds of Trust.
7.2.2 Borrower hereby constitutes and appoints
Bank, or an independent contractor selected by Bank, as its true and lawful
attorney-in-fact with full power of substitution for the purposes of completion
of any Project and performance of Borrower's obligations under this Agreement
in the name of the Borrower, and hereby empowers said attorney-in-fact to do
any or all of the following upon the occurrence of an Event of Default:
7.2.2.1 to make such additions, changes and
corrections in the Plans and Specifications as shall be necessary
50
<PAGE> 57
or desirable to complete the Project in substantially the manner contemplated
by the Plans and Specifications;
7.2.2.2 to employ any contractors,
subcontractors, agents, architects and inspectors required for said purposes;
7.2.2.3 to employ attorneys to defend
against attempts to interfere with the exercise of the powers granted hereby;
7.2.2.4 to pay, settle or compromise all
existing bills and claims which are or may be liens against any Project or may
be necessary or desirable for the completion of the Project or clearance of
objections to or encumbrances on title;
7.2.2.5 to execute all applications and
certificates in the name of Borrower, which may be required by any construction
contract;
7.2.2.6 to prosecute and defend all actions
or proceedings in connection with any Project and to take such action, require
such performance and do any and every other act as is deemed necessary with
respect to the completion of the Project which Borrower might do on its own
behalf;
7.2.2.7 to let new or additional contracts
with the same contractor(s) or others to the extent not prohibited by their
existing contracts;
7.2.2.8 to employ watchmen and erect
security fences to protect a Project from injury; and
7.2.2.9 to take such action and require such
performance as it deems necessary under any of the bonds or insurance policies
to be furnished hereunder, to make settlements and compromises with the
sureties or insurers thereunder, and in connection therewith to execute
instruments of release and satisfaction. It is understood and agreed that the
foregoing power of attorney shall be deemed to be a power coupled with an
interest which cannot be revoked until repayment in full of the Obligations.
7.2.3 No remedy granted to or reserved by Bank under this
Agreement or any of the other Loan Documents is intended to be exclusive of any
other remedy granted to or reserved by Bank, including any remedy provided by
law, but each shall be cumulative and shall be in addition to every other
remedy given under this Agreement and the other Loan Documents or now or
hereafter existing under law. Every power or remedy given under any of the
Loan Documents or by law may be exercised concurrently or independently, from
time to time, and as often as may be deemed expedient by Bank and, to the
extent permitted by law, Bank may pursue inconsistent remedies.
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<PAGE> 58
ARTICLE VIII
MISCELLANEOUS
8.1 BANK'S OBLIGATIONS TO BORROWER ONLY AND DISCLAIMER BY BANK.
No Person, other than Borrower and Bank, shall have any rights hereunder or be
a third-party beneficiary hereof. Bank is not a joint venturer or a partner
with Borrower. Prior to an Event of Default and thereafter until Bank elects
in writing to assume specific obligations of Borrower, Bank shall not be
obligated to any Person providing labor, materials, or other services for any
Project and payment of funds from Advances directly to any such Persons shall
not give or be a recognition of any third-party beneficiary status.
8.2 PUBLICITY. Upon Borrower's prior written consent, such
consent not to be unreasonably withheld or delayed, Bank shall have the right
to place one or more signs on a Project at location(s) visible from public
street(s) indicating that Bank has provided financing for the Project.
8.3 NO BROKERS. Except as disclosed by Borrower to Bank in
writing prior to the date of this Agreement, Borrower represents and warrants
to Bank that it knows of no broker's or finder's fee due in respect of the
transactions described in this Agreement and that it has not used the services
of a broker or a finder in connection with this transaction.
8.4 NOTICES. All notices, requests, demands and consents to be
made hereunder to the parties hereto shall be in writing and shall be delivered
by hand or recognized overnight courier service, or sent by registered mail or
certified mail, postage prepaid, return receipt requested, through the United
States Postal Service to the addresses shown below or such other address which
the parties may provide to one another in accordance herewith. Such notices,
requests, demands and consents, if sent by mail shall be deemed given two (2)
Business Days after deposit in the United States mail, and if delivered by hand
or recognized overnight courier service, shall be deemed given when delivered.
To Bank: Bank One, Arizona, NA
Southern California Real Estate Center
3 Park Plaza, Suite 1250
Irvine, California 92714
Attention: Frank M. Bonder
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<PAGE> 59
Copies to: Bank One, Arizona, NA
Real Estate Division
P.O. Box 29542
Phoenix, Arizona 85038
Attn: Dept. A-567
O'Melveny & Myers
610 Newport Center Drive
Suite 1700
Newport Beach, California 92660-6429
Attention: Steven L. Edwards, Esq.
To Borrower: J. M. Peters Company
3501 Jamboree Road, Suite 200
Newport Beach, California 92658
Attention: Hadi Makarechian
Copy to: Wiley, Rein & Fielding
1776 "K" Street, N.W.
Washington, D.C. 20006
Attn: Dag Wilkinson, Esq.
8.5 DISCLAIMER BY BANK. Bank shall not be liable to any
contractor, subcontractor, supplier, laborer, architect, engineer or any other
party for services performed or materials supplied in connection with any
Project. Bank shall not be liable for any debts or claims accruing in favor of
any such parties against Borrower or others or against any Project. Borrower
is not and shall not be an agent of Bank for any purpose. Bank is not a joint
venture partner with Borrower in any manner whatsoever. Prior to default by
Borrower under this Agreement and the exercise of remedies granted herein, Bank
shall not be deemed to be in privity of contract with any contractor or
provider of services to any Project, nor shall any payment of funds directly to
a contractor, subcontractor, or provider of services be deemed to create any
third party beneficiary status or recognition of same by Bank. Approvals
granted by Bank for any matters covered under this Agreement shall be narrowly
construed to cover only the parties and facts identified in any written
approval or, if not in writing, such approvals shall be solely for the benefit
of Borrower.
8.6 INDEMNIFICATION. To the fullest extent permitted by law,
Borrower agrees to protect, indemnify, defend and save harmless Bank, its
directors, officers, agents and employees for, from and against any and all
liability, expense or damage of any kind or nature and for, from and against
any suits, claims or demands, including reasonable legal fees and expenses on
account of any matter or thing or action, whether in suit or not, arising out
of this Agreement or in connection herewith, other than to the extent such
claims and liabilities as arise solely from the gross negligence of Bank. Upon
receiving knowledge of any suit, claim or demand asserted by a third party that
Bank believes is covered by
53
<PAGE> 60
this indemnity, Bank shall give Borrower notice of the matter and an
opportunity to defend it, at Borrower's sole cost and expense, with legal
counsel satisfactory to Bank. Bank may also require Borrower to so defend the
matter. The obligations on the part of Borrower under this Section 8.6 shall
survive the closing of the Commitment and the repayment of the Obligations.
8.7 CHOICE OF LAW. This Agreement and the transactions
contemplated hereunder shall be governed by and construed in accordance with
the laws of the State of California without giving effect to any choice of law
or conflict-of-laws rules or principles.
8.8 ASSIGNMENT. Borrower shall not assign any of its rights under
this Agreement.
8.9 AUTHORITY TO FILE NOTICES. Borrower irrevocably appoints Bank
as its attorney-in-fact, with full power of substitution, to file for record
upon at least 24 hours prior notice to Borrower, at the Borrower's cost and
expense and in Borrower's name, any notices of completion, notices of cessation
of labor, or any other notices that Bank considers necessary or desirable to
protect its security.
8.10 INCONSISTENCIES WITH LOAN DOCUMENTS. In the event of any
inconsistencies between the terms of this Agreement and any terms of any of the
Loan Documents, the terms of this Agreement shall govern and prevail.
8.11 NO WAIVER. No disbursement of proceeds of any Project Loan
shall constitute a waiver of any conditions to Bank'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 Bank from
thereafter declaring such inability to constitute a default under this
Agreement.
8.12 PAYMENT OF EXPENSES. Borrower shall pay all taxes and
assessments and all expenses, charges, costs and fees provided for in this
Agreement or relating to the Project Loans or construction of any Project,
including all fees, charges, and taxes in connection with recording or filing
any of the Loan Documents, title insurance premiums and charges, fees of any
consultants, fees and expenses of Bank's counsel (which attorneys may be
employees of Bank), fees and expenses of Bank's special counsel, printing,
photostating and duplicating expenses, air freight charges, escrow fees, costs
of surveys, premiums of hazard insurance policies and surety bonds and fees for
any appraisal, market or feasibility study required by Bank. Borrower hereby
authorizes Bank to disburse the proceeds of any Project Loan to pay such
expenses, charges, costs and fees notwithstanding that Borrower may not have
requested a disbursement of such amount. Bank shall make such disbursements
notwithstanding the fact that a Project Loan is not
54
<PAGE> 61
"IN BALANCE" or that Borrower is in default under the terms of this Agreement
or any other Loan Document. Such disbursement shall be added to the
outstanding principal balance of the Note. The authorization hereby granted
shall be irrevocable, and no further direction or authorization from Borrower
shall be necessary for Bank to make such disbursements. However, the
provisions of this Section 8.12 shall not prevent Borrower from paying such
expenses, charges, costs and fees from its own funds. All such expenses,
charges, costs and fees shall be Borrower's obligation regardless of whether or
not Borrower has requested and met the conditions for a disbursement of any
Project Loan. The obligations on the part of Borrower under this Section 8.12
shall survive the closing of the Commitment and the repayment of the
Obligations. Borrower hereby authorizes Bank, in its discretion, to pay such
expenses, charges, costs and fees at any time by a disbursement of the Loan.
All costs, expenses and charges under this Section 8.12 shall be reasonable.
8.13 TITLES AND HEADINGS. The titles and headings of sections of
this Agreement are intended for convenience only and shall not in any way
affect the meaning or construction of any provision of this Agreement.
8.14 CHANGES, WAIVERS, DISCHARGE AND MODIFICATIONS IN WRITING. No
provision of this Agreement may be changed, waived, discharged or terminated
except by an instrument in writing signed by the party against whom enforcement
of the change, waiver, discharge or termination is sought.
8.15 PARTICIPATIONS. Bank shall have the right, following the
occurrence of any Event of Default, to sell, assign, transfer or negotiate,
and, at any time, to grant participations in all or any part of any Project
Loan or the Note. Borrower hereby acknowledges and agrees that any disposition
made in accordance with the preceding sentence will give rise to a direct
obligation of Borrower to each Person to whom any Project Loan or Note is sold,
assigned, transferred or negotiated.
8.16 CONFIDENTIALITY. Bank agrees to hold confidential any
non-public information relating to financial projections or forecasts
concerning Borrower that it may receive pursuant to the Loan Documents, except
for disclosures: (a) specifically authorized by Borrower; (b) to purchasers or
perspective purchasers of any part of Bank's interest in any Project Loan or
the Note; (c) to legal counsel, accountants and other professional advisers to
Bank; (d) to regulatory officials having jurisdiction over Bank; or (e) to the
extent required by law or a legal process.
8.17 ATTORNEYS' FEES. For the purpose of this Agreement and the
other Loan Documents, the terms "ATTORNEYS' FEES" or "ATTORNEYS' FEES AND
COSTS" shall mean the reasonable fees and expenses of counsel to the parties
hereto, which may include
55
<PAGE> 62
printing, photostating, duplicating and other expenses, air freight charges,
and fees billed for law clerks, paralegals, librarians and others not admitted
to the bar but performing services under the supervision of an attorney. The
terms "ATTORNEYS' FEES" or "ATTORNEYS' FEES AND COSTS" shall also include,
without limitation, all such reasonable fees and expenses incurred with respect
to appeals, arbitrations and bankruptcy proceedings, and whether or not any
action or proceeding is brought with respect to the matter for which said fees
and expenses were incurred.
8.18 PREVAILING PARTY TO PAY FEES. In the event of any action or
proceeding brought by any party hereto against the other party hereto based
upon or arising out of any breach of the terms of this Agreement or any other
Loan Document, the prevailing party shall be entitled to recover its costs,
including reasonable attorney's fees, from the other party.
8.19 SUBMISSION OF AGREEMENT. The submission of this Agreement to
Borrower or its agent or attorney for review or signature does not constitute a
commitment by Bank to make any Project Loan to Borrower, and this Agreement
shall have no binding force or effect until its execution and delivery by both
Borrower and Bank.
8.20 ARBITRATION.
8.20.1 BINDING ARBITRATION. Bank and Borrower hereby agree
that all controversies and claims of any nature between them (including but not
limited to contract, tort and others) arising directly or indirectly out of
this Agreement or the Loan Documents, shall at the written request of any party
be arbitrated pursuant to the applicable rules of the American Arbitration
Association. The arbitration shall occur in the State of California. Judgment
upon any award rendered by the arbitrator(s) may be entered in any court having
jurisdiction. The Federal Arbitration Act shall apply to the construction and
interpretation of this arbitration agreement.
8.20.2 ARBITRATION PANEL. A single arbitrator shall have
the power to render a maximum award of One Hundred Thousand Dollars ($100,000).
When any party files a claim in excess of this amount, the arbitration decision
shall be made by the majority vote of three arbitrators. No arbitrator shall
have the power to restrain any act of any party.
8.20.3 PROVISIONAL REMEDIES; SELF-HELP; AND FORECLOSURE. No
provision of subparagraph (a) shall limit the right of any party to exercise
self help remedies, to foreclose against any real or personal property
collateral, or to obtain any provisional or ancillary remedies (including but
not limited to injunctive relief or the appointment of a receiver) from a court
of competent jurisdiction. At Bank's option, it may enforce its right under a
mortgage by judicial foreclosure, and under a deed of trust either by exercise
of power of sale or by judicial foreclosure.
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<PAGE> 63
The institution and maintenance of any remedy permitted above shall not
constitute a waiver of the rights to submit any controversy or claim to
arbitration. The statute of limitations, estoppel, waiver, laches, and similar
doctrines which would otherwise be applicable in any action brought by a party
shall be applicable in any arbitration proceeding.
8.21 COUNTERPART EXECUTION. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original and all of
which together shall constitute one and the same document. Signature pages may
be detached from the counterparts and attached to a single copy of this
Agreement to physically form one document.
57
<PAGE> 64
DATED as of the date first above stated.
J.M. PETERS COMPANY, INC.
a Delaware corporation
By:______________________________
Name: Dale Dowers
Title: President
BANK ONE, ARIZONA, NA,
a national banking association
By:______________________________
Name: Frank M. Bonder
Title: Senior Vice President
58
<PAGE> 65
EXHIBIT "A"
FORM OF ASSIGNMENT OF PROJECT AGREEMENTS
AND PROJECT PLANS AND SPECIFICATIONS
A-1
<PAGE> 66
EXHIBIT "B"
FORM OF DEED OF TRUST
B-1
<PAGE> 67
EXHIBIT "C"
FORM OF ENVIRONMENTAL INDEMNITY
C-1
<PAGE> 68
EXHIBIT "D"
FORM OF FINANCING STATEMENT
D-1
<PAGE> 69
EXHIBIT "E"
FORM OF PROJECT LOAN AGREEMENT
E-1
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED STATEMENTS OF INCOME, CONSOLIDATED BALANCE SHEETS AND
CONSOLIDATED STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS CONTAINED WITHIN THE COMPANY'S FORM 10-Q
FOR THE QUARTER ENDED AUGUST 31, 1994
</LEGEND>
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<TOTAL-REVENUES> 66,022
<CGS> 51,513
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<INCOME-TAX> 699
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