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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
----------------------------------------
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report January 8, 1997
SCHULER HOMES, INC.
(Exact name of registrant as specified in its charter)
Commission file number 0-19891
Delaware 99-0293125
(State or jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
828 Fort Street Mall, 4th Floor 96813-4321
Honolulu, Hawaii (Zip Code)
(Address of principal executive offices)
(808) 521-5661
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
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Item 2. Acquisition or Disposition of Assets
On January 8, 1997, the Company announced the completion of the
acquisition of Melody Homes, Inc., a homebuilder in the Denver
metropolitan area, and Melody Mortgage Company, a mortgage brokerage
firm for Melody home buyers, from Falcon Development Corporation dba
Juliet Corporation. The Company funded the purchase price of
approximately $24.1 million and the covenant not to compete, of
approximately $5.0 million using its current unsecured revolving line
of credit facility. The purchase price was determined pursuant to
arm's length negotiations.
Item 7. Financial Statements and Exhibits
(a) Financial statements of businesses acquired. Not required.
(b) Pro forma financial information. Not required.
(c) Exhibits
Exhibit
Number
-------
2.1 Stock Purchase Agreement among the Company, Falcon
Development Corporation, Madison B. Graves, Jacob D.
Bingham, Fred L. Ahlstrom and Mark S. Doppe, dated
January 8, 1997.
99.1 Supplement No. 1 to Credit Agreement between the
Company, certain banks and First Hawai'ian Bank, dated
January 8, 1997.
99.2 Security Agreement between Melody Homes, Inc. and
Melody Mortgage Co., and First Hawai'ian Bank, dated
January 8, 1997.
99.3 Amended and Restated Loan Agreement between Melody
Homes, Inc. and Bank One, dated November 25, 1996.
99.4 Modification Agreement between Melody Homes, Inc. and
Bank One, dated January 8, 1997.
99.5 News release dated January 8, 1997 regarding the
completion of the acquisition of Melody Homes and
Mortgage.
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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 hereto duly authorized.
SCHULER HOMES, INC.
Date: January 8, 1997 By: /s/ James K. Schuler
-------------------------------
JAMES K. SCHULER
Chairman of the Board,
President and
Chief Executive Officer
(Principal Executive
Officer)
Date: January 8, 1997 By: /s/ Pamela S. Jones
-------------------------------
PAMELA S. JONES
Senior Vice President of Finance,
Chief Financial Officer and
Director
(Principal Financial Officer)
Date: January 8, 1997 By: /s/Douglas M. Tonokawa
-------------------------------
DOUGLAS M. TONOKAWA
Vice President of Finance
Chief Accounting Officer
(Principal Accounting Officer)
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STOCK PURCHASE AGREEMENT
AMONG
SCHULER HOMES, INC.,
FALCON DEVELOPMENT CORPORATION,
MADISON B. GRAVES, JACOB D. BINGHAM, FRED L. AHLSTROM
AND
MARK S. DOPPE
JANUARY 8, 1997
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TABLE OF CONTENTS
Page
----
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Purchase and Sale of Target Shares. . . . . . . . . . . . . . . . . . . 12
(a) Basic Transaction. . . . . . . . . . . . . . . . . . . . . . . . . 12
(b) Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(c) Purchase Price Adjustments . . . . . . . . . . . . . . . . . . . . 13
(d) Warrants Held by Banc One Capital Partners II. . . . . . . . . . . 16
(e) The Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(f) Deliveries at the Closing. . . . . . . . . . . . . . . . . . . . . 17
(g) Elections. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3. Representations and Warranties Concerning the Transaction . . . . . . . 19
(a) Representations and Warranties of the Seller and Seller
Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(i) Organization of the Seller . . . . . . . . . . . . . . . . 19
(ii) Authorization of Transaction . . . . . . . . . . . . . . . 19
(iii) Noncontravention . . . . . . . . . . . . . . . . . . . . . 19
(iv) Brokers' Fees. . . . . . . . . . . . . . . . . . . . . . . 20
(v) Target Shares. . . . . . . . . . . . . . . . . . . . . . . 20
(vi) Financial Statement Liabilities. . . . . . . . . . . . . . 20
(vii) Target . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(viii) Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(ix) Intercompany Transactions. . . . . . . . . . . . . . . . . 21
(b) Representations and Warranties of the Buyer. . . . . . . . . . . . 22
(i) Organization of the Buyer. . . . . . . . . . . . . . . . . 22
(ii) Authorization of Transaction . . . . . . . . . . . . . . . 22
(iii) Noncontravention . . . . . . . . . . . . . . . . . . . . . 22
(iv) Brokers' Fees. . . . . . . . . . . . . . . . . . . . . . . 23
(v) Investment . . . . . . . . . . . . . . . . . . . . . . . . 23
(vi) Due Diligence. . . . . . . . . . . . . . . . . . . . . . . 23
4. Representations and Warranties Concerning the Target and Its
Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(a) Organization, Qualification, and Corporate Power . . . . . . . . . 23
(b) Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(c) Noncontravention . . . . . . . . . . . . . . . . . . . . . . . . . 24
i
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Page
----
(d) Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(e) [Intentionally Deleted]. . . . . . . . . . . . . . . . . . . . . . 25
(f) Events Subsequent to Most Recent Fiscal Year End . . . . . . . . . 25
(g) Undisclosed Liabilities. . . . . . . . . . . . . . . . . . . . . . 29
(h) Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(i) Tangible Assets. . . . . . . . . . . . . . . . . . . . . . . . . . 31
(j) Owned and Optioned Real Property . . . . . . . . . . . . . . . . . 32
(k) Intellectual Property. . . . . . . . . . . . . . . . . . . . . . . 35
(l) Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
(m) Real Property Leases . . . . . . . . . . . . . . . . . . . . . . . 38
(n) Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
(o) Notes and Accounts Receivable. . . . . . . . . . . . . . . . . . . 41
(p) Power of Attorney. . . . . . . . . . . . . . . . . . . . . . . . . 41
(q) Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
(r) Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
(s) Home Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . 43
(t) Warranty Liability . . . . . . . . . . . . . . . . . . . . . . . . 43
(u) Employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
(v) Employee Benefit Plans; ERISA. . . . . . . . . . . . . . . . . . . 44
(w) Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
(x) Environment, Health, and Safety. . . . . . . . . . . . . . . . . . 47
(y) Legal Compliance . . . . . . . . . . . . . . . . . . . . . . . . . 50
(z) Sold Out Projects. . . . . . . . . . . . . . . . . . . . . . . . . 50
(aa) Park View. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
(ab) [Intentionally Deleted]. . . . . . . . . . . . . . . . . . . . . . 51
(ac) Title Insurance; Title Reports; Surveys. . . . . . . . . . . . . . 51
(ad) Certain Business Relationships with the Target and Its
Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
(ae) Brokers' Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . 51
(af) Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
(ag) No Other Representations Regarding Condition of Business . . . . . 51
5. [Intentionally Deleted] . . . . . . . . . . . . . . . . . . . . . . . . 52
6. Post-Closing Covenants. . . . . . . . . . . . . . . . . . . . . . . . . 52
(a) General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
(b) Litigation Support . . . . . . . . . . . . . . . . . . . . . . . . 52
(c) Transition . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
(d) Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . 53
(e) Covenant Not to Compete. . . . . . . . . . . . . . . . . . . . . . 54
ii
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Page
----
(f) Elections. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
(g) Notice to Residential Warranty Corporation . . . . . . . . . . . . 55
(h) Indemnification Rights Under Asset Purchase Agreement. . . . . . . 55
7. Conditions to Obligation to Close . . . . . . . . . . . . . . . . . . . 56
(a) Conditions to Obligation of the Buyer. . . . . . . . . . . . . . . 56
(b) Conditions to Obligation of the Seller . . . . . . . . . . . . . . 60
8. Remedies for Breaches of This Agreement . . . . . . . . . . . . . . . . 62
(a) Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
(b) Indemnification Provisions for Benefit of the Buyer. . . . . . . . 62
(c) Indemnification Provisions for Benefit of the Seller . . . . . . . 64
(d) Matters Involving Third Parties. . . . . . . . . . . . . . . . . . 65
(e) Determination of Loss. . . . . . . . . . . . . . . . . . . . . . . 66
(f) Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
(g) Exclusive Remedies . . . . . . . . . . . . . . . . . . . . . . . . 67
9. [Intentionally Deleted] . . . . . . . . . . . . . . . . . . . . . . . . 67
10. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
(a) [Intentionally Deleted]. . . . . . . . . . . . . . . . . . . . . . 67
(b) Press Releases and Announcements . . . . . . . . . . . . . . . . . 67
(c) No Third-Party Beneficiaries . . . . . . . . . . . . . . . . . . . 67
(d) Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 67
(e) Succession and Assignment. . . . . . . . . . . . . . . . . . . . . 67
(f) Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
(g) Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
(h) Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
(i) Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . 69
(j) Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . 70
(k) Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
(l) Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
(m) Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
(n) Incorporation of Exhibits, Annexes, and Schedules. . . . . . . . . 71
(o) Specific Performance . . . . . . . . . . . . . . . . . . . . . . . 71
(p) Submission to Jurisdiction . . . . . . . . . . . . . . . . . . . . 71
(q) Attorneys' Fees and Costs. . . . . . . . . . . . . . . . . . . . . 72
iii
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Page
----
Exhibit A - [Intentionally Deleted]
Exhibit B - Form of Employment Letters
Exhibit C - Form of Opinion of Counsel
to the Seller and Seller Shareholders
Exhibit D - Form of Opinion of Counsel
to the Buyer
Exhibit E - Form of Escrow Agreement
iv
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Annex I - Exceptions to the Seller and Seller
Shareholders' Representations and
Warranties Concerning the Transactions
Annex II - Exceptions to the Buyer's
Representations and Warranties
Concerning the Transaction
Schedule A - Allocation of Purchase Price
Schedule B - Obligations of the Target
and Its Subsidiaries Being
Terminated
Disclosure - Exceptions to Representations
Schedule and Warranties Concerning
the Target and Its Subsidiaries
v
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STOCK PURCHASE AGREEMENT
Stock Purchase Agreement (the "Agreement"), dated as of January 8,
1997, by and among Schuler Homes, Inc., a Delaware corporation (the "Buyer"),
and Falcon Development Corporation, a Nevada corporation (doing business as
Juliet Corp. and Juliet Corporation) (the "Seller"), and Madison B. Graves,
Jacob D. Bingham, Fred L. Ahlstrom and Mark S. Doppe, shareholders of the Seller
(the "Seller Shareholders"). The Buyer, the Seller and the Seller Shareholders
are collectively referred to herein as the "Parties."
The Seller owns all of the outstanding capital stock of Melody Homes,
Inc., a Delaware corporation ("Melody") and Melody Mortgage Co., a Colorado
corporation ("Melody Mortgage"; Melody and Melody Mortgage are individually and
collectively referred to herein as the "Target").
This Agreement contemplates a transaction in which the Buyer will
purchase from the Seller, and the Seller will sell to the Buyer, all of the
outstanding capital stock of the Target in return for cash.
Now, therefore, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows.
1. DEFINITIONS.
"Accounting Firm" has the meaning set forth in Section 2(c) of this
Agreement.
"Actual Tax Amount" has the meaning set forth in Section 2(c) of this
Agreement.
"Adverse Consequences" means all charges, complaints, actions, suits,
proceedings, hearings, investigations, claims, demands, judgments, orders,
decrees, stipulations, injunctions, dues, penalties, fines, costs, damages,
amounts paid in settlement, Liabilities, obligations, Taxes, liens, losses,
expenses, and fees, including all attorneys' fees and court costs; provided,
however,
1
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that Adverse Consequences shall not include the consequential damages
of the Buyer for claims against the Seller or Seller Shareholders, unless the
Buyer is liable to a third party for such consequential damages.
"Affiliate" has the meaning set forth in Rule 12b-2 of the rules and
regulations of the Securities and Exchange Commission promulgated under the
Securities Exchange Act.
"Affiliated Group" has the meaning set forth in Section 1504(a) of the
Code.
"Applicable Rate" means the rate of interest per annum publicly
announced from time to time by Bank of America NT&SA at its principal office in
California as its prime rate in effect at such time.
"Basis" means any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction as to which the party making the
representation has actual knowledge that it is highly likely to cause a breach
of such representation, warranty or covenant.
"Business" has the meaning set forth in Section 4(ag) of this
Agreement.
"Buyer" has the meaning set forth in the preface to this Agreement.
"Closing" has the meaning set forth in Section 2(e) of this Agreement.
"Closing Date" has the meaning set forth in Section 2(e) of this
Agreement.
"COBRA" has the meaning set forth in Section 4(v) of this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
2
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"Conclusive Fourth Quarter Earnings" has the meaning set forth in
Section 2(d) of this Agreement.
"Conclusive Tax Amount" has the meaning set forth in Section 2(c) of
this Agreement.
"Conclusive Withdrawal Amount" has the meaning set forth in
Section 2(c) of this Agreement.
"Confidential Information" means any and all information concerning
the businesses and affairs of the Target and its Subsidiaries, however
documented.
"Covenant Not to Compete" has the meaning set forth in Section 6(e) of
this Agreement.
"Deferred Intercompany Transaction" has the meaning set forth in
Treasury Regulation Section 1.1502-13.
"Disclosure Schedule" has the meaning set forth in Section 4 of this
Agreement.
"Employment Letters" means agreements effective upon the Closing which
shall be executed between the Target and each of Messrs. David L. Oyler, James
Henry, James Ferraro, Orin E. Nobbe and Gary L. Duke (each an "Employee"), in
form and substance satisfactory to the Employee and the Buyer. Employment
Letters shall be in the form of EXHIBIT B.
"Encumbrances" means with respect to any asset, any claim, lien,
pledge, option, charge, easement, Security Interest, right-of-way, encroachment,
encumbrance or other rights of third parties, whether voluntarily incurred or
arising by operation of law, affecting such asset.
"Environmental Indemnities" means (a) that certain Environmental
Indemnity, dated as of September 13, 1996, made by the Target, Debra Ahlstrom,
Francine H. Bingham, Susan Graves, the Seller and the Seller Shareholders in
favor of U.S. Bank of Nevada, executed pursuant to the Construction Loan
Agreement, dated as of September 13, 1996, between the Falcon Homes and U.S.
Bank of Nevada, (b) that certain Environmental Indemnity, dated as of
3
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October 7, 1996, made by the Target, Debra Ahlstrom, Francine H. Bingham,
Susan Graves, the Seller and the Seller Shareholders in favor of U.S. Bank of
Nevada, executed pursuant to the Construction Loan Agreement, dated as of
October 7, 1996, between the Falcon Homes and U.S. Bank of Nevada, (c) that
certain Environmental Indemnity, dated as of December 5, 1996, made by the
Target, Debra Ahlstrom, Francine H. Bingham, Susan Graves, the Seller and the
Seller Shareholders in favor of U.S. Bank of Nevada, executed pursuant to the
Construction Loan Agreement, dated as of December 5, 1996, between the Falcon
Homes and U.S. Bank of Nevada, (d) that certain Environmental Indemnity,
dated as of August 30, 1996, made by the Target, Falcon Homes, Debra
Ahlstrom, Francine H. Bingham, Susan Graves, the Seller and the Seller
Shareholders in favor of U.S. Bank of Nevada, executed pursuant to the
Construction Loan Agreement, dated as of August 30, 1996, between Tara Villas
and U.S. Bank of Nevada, and (e) that certain Environmental Indemnity, dated
as of November 19, 1996, made by the Target, Falcon Homes, Debra Ahlstrom,
Francine H. Bingham, Susan Graves, the Seller and the Seller Shareholders in
favor of U.S. Bank of Nevada, executed pursuant to the Construction Loan
Agreement, dated as of November 19, 1996, between Tara Villas and U.S. Bank
of Nevada.
"Environmental Law" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Resource Conservation and Recovery
Act of 1976, the Federal Water Pollution Control Act of 1972, the Clean Air Act
of 1970, the Safe Drinking Water Act of 1974, the Toxic Substances Control Act
of 1976, the Refuse Act of 1899, the Emergency Planning and Community Right-to-
Know Act of 1986, the Superfund Amendments and Reauthorization Act of 1986,
Title III, the Safe Drinking Water Act, the Solid Waste Disposal Act, the
Colorado Hazardous Substances Act of 1973, the State Hazardous Waste Siting Act,
the Colorado Underground Storage Tank Act, the Colorado Water Quality Control
Act, the Colorado Air Quality Control Act and the Class 3 Public Nuisance, each
as amended or supplemented, or any other federal, state or local law, common
law, statute, ordinance, or rule or regulation now in effect which pertains to
public health and safety, industrial hygiene, the Release or threatened Release
of any Hazardous Substance, the generation, storage, transportation or disposal
of any Hazardous Substance, or the regulation or protection of the environment.
4
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"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor law, and the regulations and rules issued pursuant to
that Act or any successor law.
"Estimated Tax Amount" has the meaning set forth in Section 2(c) of
this Agreement.
"Excess Loss Account" has the meaning set forth in Treasury Regulation
Section 1.1502-19.
"Facility" means a physical facility owned, leased, operated or
occupied by the Target or its Subsidiaries and used by the Target or its
Subsidiaries' employees in the conduct of its business operations but does not
include temporarily maintained structures such as construction trailers or huts.
"Falcon Homes" means Falcon Homes, Inc., a Nevada corporation.
"Fee Owned Property" has the meaning set forth in Section 4(j) of this
Agreement.
"Financial Statement" has the meaning set forth in Section 7(a) of
this Agreement.
"Fourth Quarter Earnings" has the meaning set forth in Section 2(d) of
this Agreement.
"Fox Creek" means Fox Creek Farm, LLC, a Colorado limited liability
company.
"GAAP" means the United States generally accepted accounting
principles as in effect from time to time.
"Guarantees" means (a) that certain Guarantee, dated as of
September 13, 1996, made by the Target, Debra Ahlstrom, Francine H. Bingham,
Susan Graves, the Seller and the Seller Shareholders in favor of U.S. Bank of
Nevada, guaranteeing the obligations of Falcon Homes, under that certain
Construction Loan Agreement, dated as of September 13, 1996, between Falcon
Homes and U.S. Bank of Nevada, (b) that certain Guarantee, dated as of
October 7, 1996, made by the Target, Debra Ahlstrom, Francine H. Bingham, Susan
5
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Graves, the Seller and the Seller Shareholders in favor of U.S. Bank of Nevada,
guaranteeing the obligations of Falcon Homes under that certain Construction
Loan Agreement, dated as of October 7, 1996, between Falcon Homes and U.S. Bank
of Nevada, (c) that certain Guarantee, dated as of December 5, 1996, made by the
Target, Debra Ahlstrom, Francine H. Bingham, Susan Graves, the Seller and the
Seller Shareholders in favor of U.S. Bank of Nevada, guaranteeing the
obligations of the Falcon Homes under that certain Construction Loan Agreement,
dated as of December 5, 1996, between the Falcon Homes and U.S. Bank of Nevada,
(d) that certain Guarantee, dated as of August 30, 1996, made by the Target,
Falcon Homes, Debra Ahlstrom, Francine H. Bingham, Susan Graves, the Seller and
the Seller Shareholders in favor of U.S. Bank of Nevada, guaranteeing the
obligations of Tara Villas, under that certain Construction Loan Agreement,
dated as of August 30, 1996, between Tara Villas and U.S. Bank of Nevada, and
(e) that certain Guarantee, dated as of November 19, 1996, made by the Target,
Falcon Homes, Debra Ahlstrom, Francine H. Bingham, Susan Graves, the Seller and
the Seller Shareholders in favor of U.S. Bank of Nevada, guaranteeing the
obligations of Tara Villas, under that certain Construction Loan Agreement,
dated as of November 19, 1996, between Tara Villas and U.S. Bank of Nevada.
"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, or any successor law, and the regulations
and rules issued pursuant to that Act or any successor law.
"Hazardous Substance" means (i) any oil, petroleum or petroleum
derived substance, any flammable substance or explosive, any radioactive
material, any hazardous waste or substance, any toxic waste or substance or any
other pollutant which cause any real property ever owned, leased or operated by
the Target or its Subsidiaries to be in violation of any Environmental Law, (ii)
asbestos in any form which is or could become friable, urea formaldehyde foam
insulation, or any oil or dielectric fluid containing levels of polychlorinated
biphenyls in excess of fifty parts per million; (iii) 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", "toxic substances" or words of similar import
under any applicable local, state or federal law
6
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in effect prior to Closing or under the regulations adopted or publications
promulgated pursuant thereto in effect prior to Closing, including, without
limitation, the statutes referenced in the definition of Environmental Law;
and (iv) any pollutant or contaminant as defined by the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 in effect
prior to Closing.
"IRS" means the United States Internal Revenue Service or any
successor agency, and, to the extent relevant, the United States Department of
the Treasury.
"Indemnified Party" has the meaning set forth in Section 8(d) of this
Agreement.
"Indemnifying Party" has the meaning set forth in Section 8(d) of this
Agreement.
"Intellectual Property" means all (a) registered and unregistered
trademarks, service marks, trade dress, logos, fictional business names, trade
names, and corporate names and registrations and applications for registration
thereof, (b) copyrights in both published and unpublished works and
registrations and applications for registration thereof, (c) rights in mask
works and registrations and applications for registration thereof, (d) computer
software, technical information, data, and documentation, (e) trade secrets and
confidential information (including, but not limited to, ideas, formulas,
compositions, inventions (whether patentable or unpatentable and whether or not
reduced to practice), know-how, manufacturing and production processes and
techniques, research and development information, drawings, specifications,
designs, plans, blue prints, proposals, technical data, copyrightable works,
financial, marketing, and business data, pricing and cost information, business
and marketing plans, and customer and supplier lists and information), (f) other
proprietary rights, and (g) copies and tangible embodiments thereof (in whatever
form or medium).
"Liability" means any liability (whether absolute or contingent,
whether liquidated or unliquidated, and whether due or to become due), including
any liability for Taxes.
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"Lowe Enterprises" means Lowe Enterprises Residential Partners, a
California limited partnership.
"Lowe Enterprises Loans" means loans made by Lowe Enterprises to the
Target or its Subsidiaries pursuant to (A) the Loan Agreement, dated as of
May 7, 1996, by and between the Target, Lowe Enterprises and Woodbridge Station,
LLC, and (B) the Loan Agreement, dated as of June 28, 1996, by and between the
Target, Lowe Enterprises and Fox Creek Farms, LLC.
"Melody" has the meaning set forth in the preface of this Agreement.
"Melody Loan Rate" means the rate of interest per annum to be paid by
Melody pursuant to that certain Loan Agreement, dated as of December 18, 1993,
by and between Melody and Bank One, Arizona, National Association, a national
banking association.
"Melody Mortgage" means Melody Mortgage Co., a Colorado corporation.
"Most Recent Balance Sheet" means the balance sheet contained within
the Most Recent Financial Statements.
"Most Recent Financial Statements" has the meaning set forth in
Section 7(a) of this Agreement.
"Most Recent Fiscal Month End" has the meaning set forth in
Section 7(a) of this Agreement.
"Most Recent Fiscal Year End" has the meaning set forth in
Section 7(a) of this Agreement.
"Multiemployer Plan" has the meaning set forth in ERISA
Section 4001(a)(3).
"Optioned Real Property" has the meaning set forth in Section 4(j) of
this Agreement.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice and action taken in the ordinary course
of the normal day-to-day operations.
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"Park View" means Park View Meadows, LLC, a Colorado limited liability
company.
"Party" has the meaning set forth in the preface of this Agreement.
"Pension Plan" has the meaning set forth in Section 4(v) of this
Agreement.
"Permitted Encumbrances" means (i) statutory liens for current taxes
or assessments not yet due or delinquent, (ii) mechanics, carriers, workers,
repairers and other similar liens arising or incurred in the ordinary course of
business and not yet due or delinquent, and (iii) Encumbrances set forth in the
preliminary title reports issued by Land Title Company with respect to each of
the Fee Owned Properties which title reports are identified in the Disclosure
Schedule.
"Person" means any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or governmental body.
"Purchase Price" has the meaning set forth in Section 2(b) of this
Agreement.
"Release" means any release, spill, emission, leaking, pumping,
pouring, escaping, dumping, injection, deposit, disposal, discharge, dispersal,
leaching or migration of any Hazardous Substance in, by, from or related to any
real property ever owned, leased, or operated by the Target or its Subsidiaries
into the indoor or outdoor environment, including through the air, soil, surface
water or groundwater.
"Required Leases" means the (i) Indenture of Lease (office lease),
dated August 1, 1995, between Golden Hill Partnership, as landlord, and the
Seller, as Tenant, for the premises known and described as 12600 W. Colfax
Avenue Suite A-140 (1,936 R.S.F.) Lakewood, Colorado 80215, (ii) Indenture of
Lease (office lease), dated October 30, 1994, between Academy Park Commons
Partnership, as landlord, and the Seller, as Tenant, for the premises known and
described as Suite 101 (2,470 R.S.F.) 2801
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Youngfield Street, Golden, Colorado 80401, and (iii) Master Equipment Lease
Agreement, dated October 27, 1989, between First Security Leasing Company of
Nevada, as lessor, and the Seller, as lessee, for the equipment described on
Exhibit A to the Lease Schedule dated May 23, 1994.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor law, and the regulations and rules issued pursuant to that Act or any
successor law.
"Securities Exchange Act" means the Securities Exchange Act of 1934,
as amended, or any successor law, and the regulations and rules issued pursuant
to that Act or any successor law.
"Security Interest" means any mortgage, pledge, security interest,
encumbrance, charge, or other lien, other than (a) mechanic's, materialmen's,
and similar liens, (b) liens for Taxes not yet due and payable or for Taxes that
the taxpayer is contesting in good faith through appropriate proceedings,
(c) liens arising under worker's compensation, unemployment insurance, social
security, retirement, and similar legislation, (d) liens arising in connection
with sales of foreign receivables, (e) liens on goods in transit incurred
pursuant to documentary letters of credit, (f) purchase money liens and liens
securing rental payments under capital lease arrangements, and (g) other liens
arising in the Ordinary Course of Business and not incurred in connection with
the borrowing of money.
"Seller" has the meaning set forth in the preface of this Agreement.
"Seller Shareholders" has the meaning set forth in the preface of this
Agreement.
"Series A Preferred Stock" means the shares of Series A Preferred
Stock, no par value per share, of the Seller.
"Subsidiary" means with respect to any person, corporation, limited
liability company or partnership, business trust, association, company, joint
venture, partnership or other business entity of which securities or other
ownership interests representing more than fifty percent (50%) of the ordinary
voting
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power are, at the time as of which any determination is being made, owned or
controlled, directly or indirectly, by the parent of such entity or one or
more subsidiaries of the parent of such entity.
"Tara Villas" means Tara Villas Limited Partnership, a Nevada limited
partnership.
"Target" has the meaning set forth in the preface of this Agreement.
"Target ERISA Affiliate" has the meaning set forth in Section 4(v) of
this Agreement.
"Target Refund" has the meaning set forth in Section 2(d) of this
Agreement.
"Target Share" means any share of the Common Stock, par value $.01 per
share, of Melody and any share of the Common Stock, no par value per share, of
Melody Mortgage.
"Tax" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code
Section 59A), customs duties, capital stock, franchise, profits, withholding,
social security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated tax, any tax arising as a result of Treasury Reg. Section
1.1502-6 (because the Target or Subsidiary once was a member of an Affiliated
Group during any part of any consolidated return year within any part of which
consolidated return year any corporation other than any of the Target and its
current Subsidiaries also was a member of the Affiliated Group), any tax arising
under any tax-sharing or tax allocation agreement or other tax of any kind
whatsoever, including any interest, penalty, or addition thereto, whether
disputed or not.
"Tax Return" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
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"Title Policy" means the commitment to issue a title insurance policy
or the title insurance policy issued to the insured party named therein as
listed on Section 4(ac) of the Disclosure Schedule.
"U.S. Bank of Nevada" means U.S. Bank of Nevada, a Nevada state-
chartered commercial bank.
"Welfare Plan" has the meaning set forth in Section 4(v) of this
Agreement.
"Withdrawal Amount" has the meaning set forth in Section 2(c) of this
Agreement.
"Woodbridge" means Woodbridge Station, LLC, a Colorado limited
liability company.
2. PURCHASE AND SALE OF TARGET SHARES.
(a) BASIC TRANSACTION. On and subject to the terms and
conditions of this Agreement, the Buyer agrees to purchase from the Seller, and
the Seller agrees to sell to the Buyer, all of its Target Shares for the
consideration specified in this Section 2. The unadjusted purchase price to be
paid by the Buyer to the Seller hereunder is $27,775,000.
(b) PURCHASE PRICE. The Buyer agrees to pay to the Seller
$23,669,346 (which amount reflects the adjustments set forth in Section 2(c)(i)
and (ii), subject to further adjustment in accordance with Section 2(c)(iii)
herein, for the Target Shares and $1,000,000 for a Covenant Not to Compete as
provided in Section 6(e) (together, the "Purchase Price"). The payment to the
Seller for the Target Shares and its Covenant Not to Compete shall be made by
delivery of $24,669,346 in cash payable on the Closing Date by wire transfer or
delivery of other immediately available funds. The Purchase Price shall be
allocated as set forth on SCHEDULE A (which schedule reflects estimated amounts
to be adjusted in accordance with Sections 2(g) and 6(f)).
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(c) PURCHASE PRICE ADJUSTMENTS.
(i) The Purchase Price was reduced at Closing in the
amount of $4,666,005, which amount represents any and all amounts the
Seller and Seller Shareholders have withdrawn or caused to be withdrawn by
distribution, dividend or otherwise, including any and all amounts used to
pay off Lowe Enterprises Loans, from the Target or its Subsidiaries for any
reason during the period commencing on July 1, 1996 and ending at Closing
(the "Withdrawal Amount"); provided, however, that the Withdrawal Amount
shall not include $5,579,021 paid to Lowe Enterprises by the Seller at the
time of Closing; provided further that the Withdrawal Amount shall not
include $1,361,328 withdrawn by the Seller to pay for the corporate tax
liability of the Seller with respect to the earnings of the Target and its
Subsidiaries for the period commencing on July 1, 1996 and ending on the
Closing Date; provided further that the Withdrawal Amount shall not include
any amounts withdrawn by the Seller from the three bank accounts of Melody
Mortgage located in Las Vegas and identified by the following account
numbers: (x) Bank of America (Las Vegas) - 990104374; (y) US Bank (Las
Vegas) - 9500004982; and (z) Bank One Arizona 0 10764848 (the "Falcon
Mortgage Accounts"); the Buyer shall cooperate in good faith with the
Seller to effect the transfer of the Falcon Mortgage Accounts to the Seller
after the Closing; provided, further that such amount was calculated, for
the period of July 1, 1996 through September 30, 1996, on the basis of
38.25% of the pre-tax income of Target (determined for book purposes as
$2,643,994), before allocation of any management fees, for such period and,
plus for the period commencing on October 1, 1996 and ending on the Closing
Date, an estimated amount of $350,000 (the "Estimated Tax Amount"). The
Seller shall notify the Buyer within sixty (60) days of the Closing Date of
the Mutually Agreed Tax Liability of the Seller with respect to the period
commencing on October 1, 1996 and ending on the Closing Date (the "Actual
Tax Amount"). Subject to Section 2(c)(iii), in the event that the Actual
Tax Amount is greater than the Estimated Tax Amount set forth in
Section 2(c)(i), the Buyer shall pay to the Seller within ninety (90) days
of the Closing Date an aggregate amount equal to the difference between the
Actual Tax Amount and the
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Estimated Tax Amount, and in the event that the Actual Tax Amount is
less than the Estimated Tax Amount set forth in Section 2(c)(i), the
Seller shall pay to the Buyer within ninety (90) days of the Closing
Date an amount equal to the difference between the Estimated Tax Amount
and the Actual Tax Amount. If there is a dispute as to the Withdrawal
Amount, such payments relating to the Actual Tax Amount may be withheld
pending the determination of a Conclusive Withdrawal Amount (as defined
below) even if there is no dispute as to the Actual Tax Amount. For
purposes hereof, "Mutually Agreed Tax Liability" shall mean 38.25% of
the pre-tax income of Target (determined for book purposes) before
allocation of any management fees. The Parties acknowledge that an
income tax credit in an estimated amount of $300,000 of the Seller as of
the Closing shall be available to the Seller following the Closing.
(ii) The Purchase Price was increased at Closing in the
amount of $1,560,351, which represents any and all amounts advanced to the
Target or its Subsidiaries under the Lowe Enterprises Loans in excess of
$3,141,204 outstanding at September 30, 1996, provided that such amounts
advanced are an asset of the Target or its Subsidiaries at the Closing, and
provided that the Lowe Enterprises Loans are paid off at the Closing out of
the proceeds to the Seller.
(iii) In the event that the Buyer disagrees with the
aggregate dollar amount of the Withdrawal Amount or the Actual Tax Amount,
it shall so notify the Seller in writing within ninety (90) days of the
Closing Date. The Seller and the Buyer shall cooperate in good faith to
resolve such disagreement. If any such disagreement is not resolved within
thirty (30) days of the receipt of such notice, the Seller's independent
public accountants, Arthur Andersen LLP, and the Buyer's independent public
accountants, Ernst & Young LLP, shall review the respective calculations of
the Withdrawal Amount and/or the Actual Tax Amount, as the case may be, by
the Seller and the Buyer in order to resolve such disagreement. If such
disagreement is not resolved by Arthur Andersen LLP and Ernst & Young LLP
within thirty (30) days of the engagement of Arthur Andersen LLP and Ernst
& Young LLP for such purpose, the disagreement shall be submitted for
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resolution to a "national" accounting firm mutually acceptable to both the
Seller and the Buyer (the "Accounting Firm"). The Accounting Firm shall
make a determination on the disagreement so submitted and shall make a
modification to the Withdrawal Amount and/or the Actual Tax Amount, as the
case may be, to reflect such determination, and the same shall be
conclusive and binding upon the Parties (the "Conclusive Withdrawal Amount"
or the "Conclusive Tax Amount," as the case may be). If the Conclusive
Withdrawal Amount is greater than the Withdrawal Amount set forth in
Section 2(c)(i), the Seller shall pay to the Buyer within five (5) days of
the determination of the Conclusive Withdrawal Amount an aggregate amount
equal to the difference between the Conclusive Withdrawal Amount and the
Withdrawal Amount. If the Conclusive Withdrawal Amount is less than the
Withdrawal Amount set forth in Section 2(c)(i), the Buyer shall pay to the
Seller within five (5) days of the determination of the Conclusive
Withdrawal Amount an aggregate amount equal to the difference between the
Withdrawal Amount and the Conclusive Withdrawal Amount. If the Conclusive
Tax Amount is greater than the Estimated Tax Amount set forth in
Section 2(c)(i), the Buyer shall pay to the Seller within five (5) days of
the determination of the Conclusive Tax Amount an aggregate amount equal to
the difference between the Conclusive Tax Amount and the Estimated Tax
Amount. If the Conclusive Tax Amount is less than the Estimated Tax Amount
set forth in Section 2(c)(i), the Seller shall pay to the Buyer within five
(5) days of the determination of the Conclusive Tax Amount an aggregate
amount equal to the difference between the Estimated Tax Amount and the
Conclusive Tax Amount. The Parties agree that any resolution of any
disagreement pursuant to this Section 2(c)(iii) shall be made no later than
six (6) months after the Closing Date. The fees and expenses of the
Accounting Firm shall be shared equally by the Seller and the Buyer. The
determination of earnings in this Section 2(c) shall be made on the same
basis as the audited financial statements of the Target for the quarter
ended September 30, 1996; provided that such earnings shall not include any
income or gain arising from the transactions contemplated by this Agreement
(including without limitations, any gain arising as a result of the
election under Section 338(h)(10) of the Code).
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(d) WARRANTS HELD BY BANC ONE CAPITAL PARTNERS II. At the
Closing, $800,000 shall be paid to Bank One Capital Partners II to redeem the
warrants held by Bank One Capital Partners II pursuant to that certain Series
1993 Warrant to Purchase Shares of Common Stock of the Seller, such payment to
be made as follows: (i) the Seller shall pay $100,000; (ii) the Buyer shall pay
$450,000 on behalf of the Seller; and (iii) the Seller shall cause the Target to
pay $250,000. In the event that the net income (after tax and calculated in
accordance with GAAP) of the Target for the period commencing on October 1, 1996
and ending on December 31, 1996 (the "Fourth Quarter Earnings") is less than
$693,000, then the Buyer shall so notify the Seller in writing within ninety
(90) days of the Closing Date, and the Seller shall reimburse the Target within
five (5) days an amount equal to fifty percent (50%) of the difference between
$693,000 and the Fourth Quarter Earnings (the "Target Refund"). In no event
shall the Target Refund exceed $125,000. In the event that the Seller disagrees
with the amount of the Fourth Quarter Earnings used in the Buyer's calculations
of the Target Refund, the Seller shall so notify the Buyer in writing within
thirty (30) days of the Seller's receipt of the Buyer's calculation of the
Fourth Quarter Earnings. The Seller and the Buyer shall cooperate in good faith
to resolve such disagreement. If any such disagreement is not resolved within
thirty (30) days of the receipt of such notice, the Seller's independent public
accountants, Arthur Andersen LLP, and the Buyer's independent public
accountants, Ernst & Young LLP, shall review the respective calculations of the
Fourth Quarter Earnings by the Seller and the Buyer in order to resolve such
disagreement. If such disagreement is not resolved by Arthur Andersen LLP and
Ernst & Young LLP within thirty (30) days of the engagement of Arthur Andersen
LLP and Ernst & Young LLP for such purpose, the disagreement shall be submitted
for resolution to an Accounting Firm. The Accounting Firm shall make a
determination on the disagreement so submitted and shall make a modification to
the Fourth Quarter Earnings to reflect such determination, and the same shall be
conclusive and binding upon the Parties (the "Conclusive Fourth Quarter
Earnings"). The determination of the Fourth Quarter Earnings shall be made on
the same basis as the audited financial statements of the Target for the quarter
ended September 30, 1996.
In the event the Conclusive Fourth Quarter Earnings are less than
$693,000, the Seller shall pay to the Target within five
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(5) days of the determination of the Conclusive Fourth Quarter Earnings, an
amount equal to fifty percent (50%) of the difference between $693,000 and
the Conclusive Fourth Quarter Earnings. In no event shall the Seller's
refund to the Target under this Section 2(d) exceed $125,000. The Parties
agree that any resolution of any disagreement pursuant to this Section 2(d)
shall be made no later than six (6) months after the Closing Date. The fees
and expenses of the Accounting Firm shall be shared equally by the Seller and
the Buyer. For income tax purposes, the payment of the $450,000 by the Buyer
under this Section 2(d) shall be treated as part of the Purchase Price of the
Target Shares and shall be included in calculating the amount of SCHEDULE A,
and all Parties shall report the payment accordingly.
(e) THE CLOSING. The closing of the transactions contemplated
by this Agreement (the "Closing") shall take place at the offices of Brobeck,
Phleger & Harrison LLP, One Market, Spear Street Tower, San Francisco, CA 94105,
commencing at 10:00 a.m. local time on January 7, 1997, or such other date as
the Buyer and the Seller may mutually determine (the "Closing Date").
(f) DELIVERIES AT THE CLOSING. At the Closing:
(i) Seller will deliver to Buyer:
(A) the various certificates, instruments, and
documents referred to in Section 7(a) herein;
(B) stock certificates, representing all of the
Seller's Target Shares, endorsed in blank or accompanied by duly
executed assignment documents; and
(ii) Buyer will deliver to Seller:
(A) the various certificates, instruments, and
documents referred to in Section 7(b) herein; and
(B) the consideration specified in Section 2(b) above.
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(g) ELECTIONS.
(i) The Seller and the Buyer agree jointly to make an
election under Section 338(h)(10) of the Code and corresponding elections
under state and local laws, as applicable. The Buyer and the Seller agree
to take any and all further actions necessary to cause the purchase of the
Target Shares as herein contemplated to be treated as an acquisition of the
Target's assets for federal, state and local tax purposes. The Seller
shall allocate the Purchase Price upon such deemed sale of assets for tax
purposes among the Target's assets on such reasonable basis as is proposed
by the Buyer, an estimate (the "Estimate") for which is provided on
SCHEDULE A. To the extent that there is any deviation in the Purchase
Price (due, among other reasons, to adjustments for distributions and
borrowings under the Lowes Enterprises Loans the amount of costs incurred
in connection with the Closing or the balance of stockholders equity on the
Closing Date) from the Estimate set forth on SCHEDULE A, the allocation of
the Purchase Price to inventory and goodwill shall be adjusted and the
Estimate shall be finalized by the Buyer and provided to the Seller within
one hundred twenty (120) days of the Closing Date. The final determination
of the allocation of the Purchase Price shall be made upon the closing of
the books and shall be included in a revised SCHEDULE A which shall be
attached to and made a part of this Agreement.
(ii) In the event a Section 338(h)(10) election is not
allowable for Colorado income tax purposes, the Seller shall refund to the
Buyer the dollar amount of the tax benefits which would otherwise have been
available to the Buyer if such election had been allowable; provided,
however, that such refund amount shall not exceed the amount of Colorado
income taxes the Seller and/or the Seller Shareholders are not required to
pay (or are entitled to receive a refund with respect to) by virtue of the
disallowance of the Section 338(h)(10) election. Such refund shall be made
promptly upon the disallowance of a Section 338(h)(10) election by Colorado
taxing authorities.
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3. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION.
(a) REPRESENTATIONS AND WARRANTIES OF THE SELLER AND SELLER
SHAREHOLDERS. The Seller and Seller Shareholders represent and warrant to the
Buyer the following statements in this Section 3(a), except as set forth in
ANNEX I attached hereto:
(i) ORGANIZATION OF THE SELLER. The Seller is duly
organized, validly existing, and in good standing under the laws of the
state of Nevada. Each of Juliet Corp. and Juliet Corporation is a d/b/a of
the Seller and instruments, documents and agreements that have been
executed by the Seller in the name of Juliet Corp. or Juliet Corporation
are instruments, documents and agreements of the Seller;
(ii) AUTHORIZATION OF TRANSACTION. The Seller has full
corporate power and authority and Seller Shareholders have full power and
authority to execute, deliver and perform this Agreement and the
transactions contemplated to occur under or in connection with this
Agreement. This Agreement constitutes the valid and legally binding
obligation of the Seller and Seller Shareholders, enforceable in accordance
with its terms and conditions. The Seller and Seller Shareholders need not
give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency in order to
consummate the transactions contemplated by this Agreement, except as may
be required by the Hart-Scott-Rodino Act;
(iii) NONCONTRAVENTION. Neither the execution and the
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will (A) violate any statute, regulation, rule,
judgment, order, decree, stipulation, injunction, charge, or other
restriction of any government, governmental agency, or court to which the
Seller or Seller Shareholders are subject or any provision of the Seller's
charter or bylaws or (B) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right
to accelerate, terminate, modify, or cancel, or require any notice under
any contract, lease, sublease, license, sublicense, franchise,
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permit, indenture, agreement or mortgage for borrowed money, instrument
of indebtedness, Security Interest, other arrangement to which the
Seller or Seller Shareholders are a party or by which it is bound or to
which any of its assets are subject; provided, however, that the
foregoing shall not apply unless a claim pursuant to a breach of this
Section 3(a)(iii) exceeds $100,000;
(iv) BROKERS' FEES. The Seller and Seller Shareholders have
no Liability (whether known or unknown) or obligation to pay any fees or
commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Buyer could
become liable or obligated;
(v) TARGET SHARES. The Seller holds of record and owns
beneficially the number of Target Shares set forth in Section 4(b) of this
Agreement (which Target Shares constitute all of the issued and outstanding
Target Shares of the Target), free and clear of any restrictions on
transfer (other than any restrictions under the Securities Act and state
securities laws), claims, Taxes, Security Interests, options, warrants,
rights, contracts, calls, commitments, equities, and demands. The Seller
is not a party to any option, warrant, right, contract, call, put, or other
agreement, or commitment providing for the disposition or acquisition of
any capital stock of the Target (other than this Agreement). The Seller is
not a party to any voting trust, proxy, or other agreement or understanding
with respect to the voting of any capital stock of the Target;
(vi) FINANCIAL STATEMENT LIABILITIES. As of September 30,
1996, to the best actual knowledge of the Seller Shareholders (after a
reasonable investigation), neither the Seller, the Seller Shareholders nor
any director, officer or employee of the Seller (the "Seller Group") has
taken any action to cause a Liability or other obligation, which would have
otherwise been a Liability or obligation of the Seller, Seller Shareholder
or any affiliate of Seller or the Seller Shareholders and which Liability
or obligation would be required to be disclosed in financial statements
prepared in accordance with GAAP ("Financial Statement Liabilities")
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without regard to any materiality standard (other than any Financial
Statement Liability disclosed in the September 30, 1996 Financial
Statements or in this Agreement or on the Disclosure Schedule), to become a
Liability or obligation of the Buyer or the Target. To best actual
knowledge of the Seller Shareholders (after a reasonable investigation),
since September 30, 1996, the Seller Group has not caused the Target to
incur additional Financial Statement Liabilities other than in the Ordinary
Course of Business.
(vii) TARGET. The Target has no operations, businesses,
assets, Liabilities, contracts, agreements, or other rights or obligations
existing outside of the state of Colorado.
(viii) TAXES. The Target and its Subsidiaries have no
Liability (known or unknown) arising under Reg. Section 1.1502-6 (because
the Target or Subsidiary once was a member of an Affiliated Group during
any part of any consolidated return year within any part of which
consolidated return year any corporation other than any of the Target and
its current Subsidiaries also was a member of the Affiliated Group). All
Taxes owed by any of the Seller, Target and their Subsidiaries (whether or
not shown on any Tax Return) with respect to all periods through the
Closing Date have been paid or will be paid by the Seller.
(ix) INTERCOMPANY TRANSACTIONS. The Seller and the Seller
Shareholders hereby represent and agree that (i) immediately prior to the
Closing Date any and all amounts considered as "Due to Parent Company" on
the balance sheet of the Target (including but not limited to the amounts
set forth at June 30, 1996 and September 30, 1996 in the audited financial
statements) shall be deemed contributions to capital of the Target and,
under no circumstances, shall such amounts be payable by the Target or the
Buyer to the Seller or the Seller Shareholders after the Closing Date, and
(ii) from and after June 30, 1996, any and all agreements or contracts
between the Seller and the Target (including but not limited to management
agreements) shall be deemed null and void and under no circumstances shall
any obligations thereunder
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continue as obligations of the Target or the Buyer after the Closing Date.
(b) REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer
represents and warrants to the Seller the following statements in this
Section 3(b), except as set forth in ANNEX II attached hereto:
(i) ORGANIZATION OF THE BUYER. The Buyer is a corporation
duly organized, validly existing, and in good standing under the laws of
the state of Delaware;
(ii) AUTHORIZATION OF TRANSACTION. The Buyer has full power
and authority (including full corporate power and authority) to execute,
deliver and perform this Agreement and the transactions contemplated to
occur under or in connection with this Agreement. This Agreement
constitutes the valid and legally binding obligation of the Buyer,
enforceable in accordance with its terms and conditions. The Buyer need
not give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency in order to
consummate the transactions contemplated by this Agreement, except as may
be required by the Hart-Scott-Rodino Act;
(iii) NONCONTRAVENTION. Neither the execution and the
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will (A) violate any statute, regulation, rule,
judgment, order, decree, stipulation, injunction, charge, or other
restriction of any government, governmental agency, or court to which the
Buyer is subject or any provision of its charter or bylaws or (B) conflict
with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any contract, lease,
sublease, license, sublicense, franchise, permit, indenture, agreement or
mortgage for borrowed money, instrument of indebtedness, Security Interest,
or other arrangement to which the Buyer is a party or by which it is bound
or to which any of its assets is subject; provided, however, that the
foregoing shall not
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apply unless a claim pursuant to a breach of this Section 3(a)(iii)
exceeds $100,000;
(iv) BROKERS' FEES. The Buyer has no Liability (whether
known or unknown) or obligation to pay any fees or commissions to any
broker, finder, or agent with respect to the transactions contemplated by
this Agreement for which the Seller could become liable or obligated;
(v) INVESTMENT. The Buyer is not acquiring the Target
Shares with a view to or for sale in connection with any distribution
thereof within the meaning of the Securities Act; and
(vi) DUE DILIGENCE. The Buyer has no actual knowledge
(defined for this purpose as the actual knowledge of James K. Schuler and
Pamela S. Jones) of any facts which constitute a material breach by the
Seller or the Seller Shareholders of their representations or warranties or
their covenants set forth in Section 6 of this Agreement as of the Closing
Date.
4. REPRESENTATIONS AND WARRANTIES CONCERNING THE TARGET AND ITS
SUBSIDIARIES. The Seller represents and warrants to the Buyer, solely to the
actual knowledge of the Seller Shareholders, the statements contained in this
Section 4, except as set forth in the disclosure schedule delivered by the
Seller to the Buyer on the date hereof and initialed by the Parties (the
"Disclosure Schedule"). The Disclosure Schedule will be arranged in paragraphs
corresponding to the lettered and numbered paragraphs contained in this
Section 4. The Parties agree that any matters or information disclosed in a
section of the Disclosure Schedule to this Agreement shall be deemed disclosed
and shall modify only that identified subsection of this Section 4 and not any
other subsection.
(a) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. Each of
the Target and its Subsidiaries is a corporation or limited liability company
duly organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation or organization. Each of the Target and its
Subsidiaries is duly authorized to conduct business and is in good standing
under the laws of each jurisdiction in which the nature of
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its businesses or the ownership or leasing of its properties requires such
qualification, except where the failure to qualify in any such jurisdiction
would not have a material adverse effect on the Target and its Subsidiaries
taken as a whole. Each of the Target and its Subsidiaries has full corporate
power and authority to carry on the businesses in which it is engaged and to
own and use the properties owned and used by it. Section 4(a) of the
Disclosure Schedule lists the directors and officers or managers of each of
the Target and its Subsidiaries. The Seller has delivered to the Buyer
correct and complete copies of the charter and bylaws or articles of
organization and operating agreement of each of the Target and its
Subsidiaries, as amended to date. The minute books containing the records of
meetings of the stockholders or members, the board of directors, and any
committees of the board of directors, the managers, the stock certificate
books, and the stock record books (as applicable for each corporation or
limited liability company) of each of the Target and its Subsidiaries are
correct and complete. None of the Target and its Subsidiaries is in default
under or in violation of any provision of its charter, bylaws, articles of
organization or operating agreement (as applicable for each corporation or
limited liability company).
(b) CAPITALIZATION. The entire authorized capital stock of the
Target consists of (i) 1,000 shares of common stock of Melody, of which 100
shares are issued and outstanding, and (ii) 1,000 shares of common stock of
Melody Mortgage, of which 100 shares are issued and outstanding. All of the
issued and outstanding Target Shares have been duly authorized, are validly
issued, fully paid, and nonassessable, and are held of record by the Seller.
There are no outstanding or authorized options, warrants, rights, contracts,
calls, puts, rights to subscribe, conversion rights, or other agreements or
commitments to which the Target is a party or which are binding upon the Target
providing for the issuance, disposition, or acquisition of any of its capital
stock. There are no outstanding or authorized stock appreciation, phantom
stock, or similar rights with respect to the Target. There are no voting
trusts, proxies, or any other agreements or understandings with respect to the
voting of the capital stock of the Target.
(c) NONCONTRAVENTION. Neither the execution and the delivery of
this Agreement, nor the consummation of the
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transactions contemplated hereby, will (i) violate any statute, regulation,
rule, judgment, order, decree, stipulation, injunction, charge, or other
restriction of any government, governmental agency, or court to which any of
the Target and its Subsidiaries is subject or any provision of the charter,
bylaws, articles of organization or operating agreement (as applicable for
each corporation or limited liability company) of any of the Target and its
Subsidiaries or (ii) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right
to accelerate, terminate, modify, or cancel, or require any notice under any
contract, lease, sublease, license, sublicense, franchise, permit, indenture,
agreement or mortgage for borrowed money, instrument of indebtedness,
Security Interest, or other arrangement to which any of the Target and its
Subsidiaries is a party or by which it is bound or to which any of its assets
is subject (or result in the imposition of any Security Interest upon any of
its assets). None of the Target and its Subsidiaries needs to give any
notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order for the Parties to
consummate the transactions contemplated by this Agreement, except as may be
required by the Hart-Scott-Rodino Act.
(d) SUBSIDIARIES. Section 4(d) of the Disclosure Schedule sets
forth for each Subsidiary of the Target (as applicable for each corporation or
limited liability company): (i) its name and jurisdiction of incorporation or
organization; (ii) the number of (x) shares of authorized capital stock of each
class of its capital stock or (y) authorized member shares; (iii) the number of
issued and outstanding (x) shares of each class of its capital stock or (y)
member shares, the names of the holders thereof, and the number of shares held
by each such holder; and (iv) the number of (x) shares of its capital stock or
(y) member shares held in treasury. All of the issued and outstanding shares of
capital stock or member shares of each Subsidiary of the Target have been duly
authorized and are validly issued, fully paid, and nonassessable. Following the
transfer to the Target of the Seller's entire ownership interest in Woodbridge,
Fox Creek and Park View as provided in this Agreement, the Target and its
Subsidiaries shall hold of record and own beneficially all of the outstanding
shares or member shares of each Subsidiary of the Target, free and clear of any
restrictions on transfer (other than
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restrictions under the Securities Act and state securities laws), claims,
Taxes, Security Interests, options, warrants, rights, contracts, calls,
commitments, equities, and demands. There are no outstanding or authorized
options, warrants, rights, contracts, calls, puts, rights to subscribe,
conversion rights, or other agreements or commitments to which any of the
Target and its Subsidiaries is a party or which are binding on any of them
providing for the issuance, disposition, or acquisition of any capital stock
or member shares of any Subsidiary of the Target. There are no outstanding
stock appreciation, phantom stock, or similar rights with respect to any
Subsidiary of the Target. There are no voting trusts, proxies, or other
agreements or understandings with respect to the voting of any capital stock
or member shares of any Subsidiary of the Target. The Target does not
control directly or indirectly or have any direct or indirect equity
participation in any corporation, limited liability company, partnership,
trust, or other business association which is not a Subsidiary of the Target.
(e) [Intentionally Deleted]
(f) EVENTS SUBSEQUENT TO MOST RECENT FISCAL YEAR END. Since the
Most Recent Fiscal Year End:
(i) none of the Target and its Subsidiaries has sold,
leased, transferred, or assigned any of its assets, tangible or intangible,
other than for a fair consideration in the Ordinary Course of Business;
(ii) none of the Target and its Subsidiaries has entered
into any contract, lease, sublease, license or sublicense (or series of
related contracts, leases, subleases, licenses and sublicenses) either
involving more than $100,000 or outside the Ordinary Course of Business;
(iii) no party (including any of the Target and its
Subsidiaries) has accelerated, terminated, modified, or cancelled any
contract, lease, sublease, license or sublicense (or series of related
contracts, leases, subleases, licenses and sublicenses) either involving
more than $100,000 or outside the Ordinary Course of Business to which any
of the
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Target and its Subsidiaries is a party or by which any of them is bound;
(iv) none of the Target and its Subsidiaries has imposed any
Security Interest upon any of its assets, tangible or intangible;
(v) none of the Target and its Subsidiaries has made any
capital expenditure (or series of related capital expenditures) either
involving more than $100,000 or outside the Ordinary Course of Business;
(vi) none of the Target and its Subsidiaries has made any
capital investment in, any loan to, or any acquisition of the securities or
assets of any other person (or series of related capital investments,
loans, and acquisitions) either involving more than $100,000 or outside the
Ordinary Course of Business;
(vii) none of the Target and its Subsidiaries has created,
incurred, assumed, or guaranteed any indebtedness (including capitalized
lease obligations) either involving more than $100,000 singly or $100,000
in the aggregate or outside the Ordinary Course of Business;
(viii) none of the Target and its Subsidiaries has delayed or
postponed (beyond its normal practice) the payment of accounts payable and
other Liabilities;
(ix) none of the Target and its Subsidiaries has cancelled,
compromised, waived, or released any right or claim (or series of related
rights and claims) either involving more than $100,000 or outside the
Ordinary Course of Business;
(x) none of the Target and its Subsidiaries has granted any
license or sublicense of any rights under or with respect to any
Intellectual Property;
(xi) there has been no change made or authorized in the
charter or bylaws of any of the Target and its Subsidiaries;
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(xii) none of the Target and its Subsidiaries has issued,
sold, or otherwise disposed of any of its capital stock or member shares,
or granted any options, warrants, or other rights to purchase or obtain
(including upon conversion or exercise) any of its capital stock or member
shares;
(xiii) none of the Target and its Subsidiaries has declared,
set aside, or paid any dividend or distribution with respect to its capital
stock or member shares or redeemed, purchased, or otherwise acquired any of
its capital stock or member shares;
(xiv) none of the Target and its Subsidiaries has experienced
any damage, destruction, or loss in excess of $100,000 or outside the
Ordinary Course of Business (whether or not covered by insurance) to its
property;
(xv) none of the Target and its Subsidiaries has made any
loan to, or entered into any other transaction with, any of its directors,
officers, and employees outside the Ordinary Course of Business giving rise
to any claim or right on its part against the person or on the part of the
person against it;
(xvi) none of the Target and its Subsidiaries has
intentionally entered into any employment contract or collective bargaining
agreement, written or oral, or materially modified the terms of any
existing such contract or agreement other than the Employment Letters;
(xvii) none of the Target and its Subsidiaries has granted any
increase outside the Ordinary Course of Business in the base compensation
of any of its directors, officers, and employees;
(xviii) none of the Target and its Subsidiaries has adopted any
(A) bonus, (B) profit-sharing, (C) incentive compensation, (D) pension,
(E) retirement, (F) medical, hospitalization, life, or other insurance,
(G) severance, or (H) other plan, contract, or commitment for any of its
directors, officers, and employees, or modified or terminated any existing
such plan, contract, or commitment;
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(xix) none of the Target and its Subsidiaries has made any
other change in employment terms outside the Ordinary Course of Business
for any of its directors, officers, and employees;
(xx) none of the Target and its Subsidiaries has made or
pledged to make any charitable contribution outside the Ordinary Course of
Business;
(xxi) there has not been any other occurrence, event,
incident, action, failure to act, or transaction outside the Ordinary
Course of Business involving any of the Target and is Subsidiaries; and
(xxii) none of the Target and its Subsidiaries has committed
to any of the foregoing.
(g) UNDISCLOSED LIABILITIES. Except with regard to
environmental, health and safety matters which are covered exclusively by
Section 4(x) and ERISA matters which are covered exclusively by Section 4(v),
none of the Target and its Subsidiaries has any Liability (and there is no Basis
for any present of future charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demand against any of them giving rise to any
Liability), except for (i) Liabilities set forth on the face of the Most Recent
Financial Statements (including any notes thereto) and (ii) Liabilities which
have arisen after the Most Recent Fiscal Month End in the Ordinary Course of
Business (none of which relates to any breach of contract, breach of warranty,
tort, infringement, or violation of law or arose out of any charge, complaint,
action, suit, proceeding, hearing, investigation, claim, or demand).
(h) TAX MATTERS.
(i) Each of the Seller, Target and their Subsidiaries has
filed all Tax Returns that it was required to file. All such Tax Returns
were correct and complete in all material respects. All Taxes owed by any
of the Seller, Target and their Subsidiaries (whether or not shown on any
Tax Return) have been paid. None of the Seller, Target and their
Subsidiaries currently is the beneficiary of any extension of
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time within which to file any Tax Return. No claim has ever been made
in writing to Seller, Target or any Subsidiaries (or orally pursuant to
an audit or other inquiry) by an authority in a jurisdiction where any
of the Seller, Target and their Subsidiaries does not file Tax Returns
that they are or may be subject to taxation by that jurisdiction. There
are no Security Interests on any of the assets of any of the Seller,
Target and their Subsidiaries that arose in connection with any failure
(or alleged failure) to pay any Tax.
(ii) Each of the Seller, Target and their Subsidiaries has
withheld and paid all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, creditor,
independent contractor, or other third party.
(iii) There is no dispute or claim concerning any Tax
Liability of any of the Seller, Target and their Subsidiaries either
claimed or raised by any authority either orally or in writing.
Section 4(h) of the Disclosure Schedule lists all federal, state, local,
and foreign income Tax Returns filed with respect to any of the Seller,
Target and their Subsidiaries for taxable periods ended on or after
June 30, 1996, indicates those Tax Returns that have been audited, and
indicates those Tax Returns that currently are the subject of audit. The
Seller has delivered to the Buyer correct and complete copies of all
federal income Tax Returns, examination reports, and statements of
deficiencies assessed against or agreed to by any of the Seller, Target and
their Subsidiaries since June 30, 1996.
(iv) None of the Seller, Target and their Subsidiaries has
waived any statute of limitations in respect of Taxes or agreed to any
extension of time with respect to a Tax assessment or deficiency.
(v) None of the Seller, Target and their Subsidiaries has
filed a consent under Code Section 341(f) concerning collapsible
corporations. None of the Seller, Target and their Subsidiaries has made
any payments, is obligated to make any payments, or is a party to any
agreement that under certain circumstances could obligate it to make any
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payments that will not be deductible under Code Section 280G. Each of the
Seller, Target and their Subsidiaries has disclosed on its federal income
Tax Returns all positions taken therein that could give rise to a
substantial understatement of federal income Tax within the meaning of Code
Section 6662. None of the Seller, Target and their Subsidiaries is a party
to any Tax allocation or sharing agreement. None of the Seller, Target and
their Subsidiaries ever has been (or has any Liability for unpaid Taxes
because it once was) a member of an Affiliated Group other than Seller's
Affiliated Group.
(vi) Section 4(h) of the Disclosure Schedule sets forth the
following information with respect to each of the Target and its
Subsidiaries (or, in the case of clause (B) below, with respect to each of
the Subsidiaries) as of the most recent practicable date (as well as on an
estimated pro forma basis as of the Closing giving effect to the
consummation of the transactions contemplated hereby): (A) the basis of
each Target or Subsidiary in its assets; (B) the basis of each Target in
its stock or other interest in any Subsidiary (or the amount of any Excess
Loss Account); (C) the amount of any net operating loss, net capital loss,
unused investment or other credit, unused foreign tax, or excess charitable
contribution allocable to the Target or Subsidiary; and (D) the amount of
any deferred gain or loss allocable to the Target or Subsidiary arising out
of any Deferred Intercompany Transaction.
(vii) The unpaid Taxes of the Target and its Subsidiaries do
not exceed the reserve for Tax Liability (rather than any reserve for
deferred Taxes established to reflect timing differences between book and
Tax income) set forth in the Most Recent Balance Sheet (including any notes
thereto) as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of the Seller, Target and
their Subsidiaries in filing their Tax Returns.
(i) TANGIBLE ASSETS. Each of the Target and its Subsidiaries
owns or leases all tangible assets necessary for the conduct of its businesses
as presently conducted and as presently
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proposed to be conducted. Each such tangible asset is free from patent
defects, has been maintained in accordance with normal industry practice and
is in good operating condition and repair (subject to normal wear and tear).
Notwithstanding any other provision of this Agreement, the Seller makes no
warranty as to the condition of soil, drainage or erosion on the Fee Owned
Property or the Optioned Real Property and the Buyer acknowledges that the
soils on most or all of the parcels comprising the Fee Owned Property or the
Optioned Real Property and on real property on which the Target and its
predecessors (including Melody Homes, a division of Singer Housing Company)
have previously built houses are expansive, and the Buyer assumes
responsibility for determining the necessity and manner of addressing any
special arrangements required in connection with, or any limitation on, the
use of the Fee Owned Property and the Optioned Real Property which are
necessary or arise by reason of the expansive soils.
(j) OWNED AND OPTIONED REAL PROPERTY. Section 4(j) of the
Disclosure Schedule lists and describes briefly all real property owned in fee
by the Target and its Subsidiaries (the "Fee Owned Property") and options held
by the Target or its Subsidiaries to purchase specified real property for
current and planned projects ("Optioned Real Property").
(i) With respect to each such parcel of Fee Owned Property:
(A) the identified owner has good and marketable title
to the Fee Owned Property, free and clear of any Security Interest,
easement, covenant, or other restriction, except for the Permitted
Encumbrances;
(B) there are no (1) pending or threatened
condemnation proceedings relating to the property, (2) pending or
threatened litigation or administrative actions relating to the
property, or (3) other matters materially affecting adversely the
current use, occupancy, or value thereof;
(C) the legal description for the parcel contained in
the deed for the parcel is insured in the applicable Title Policy
listed in Section 4(ac) of the
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Disclosure Schedule and each parcel is owned by the named insured
in the Title Policy for such parcel. Except as referenced in the
Title Policies, the buildings and improvements, if any, are located
within the boundary applicable setback requirements, zoning laws,
and ordinances (and none of the properties or buildings or
improvements thereon are subject to "permitted non-conforming use"
or "permitted non-conforming structure" classifications), and do
not encroach on any easement which may burden the land unless such
easement will be relocated in the ordinary course of developing
such parcel, the land does not serve any adjoining property for any
purpose inconsistent with the use of the land, the property is not
located within any flood plain or subject to any similar type
restriction for which any permits or licenses necessary to the use
thereof have not been obtained, and access to the property is, or
shall be upon completion of development, provided by paved public
right-of-way with adequate curb cuts available;
(D) all Facilities have received all approvals of
governmental authorities (including licenses and permits) required in
connection with the ownership or operation thereof and have been
operated and maintained in accordance with applicable laws, rules, and
regulations;
(E) there are no leases, subleases, licenses,
concessions, or other agreements, written or oral, granting to any
party or parties the right of use or occupancy of any portion of the
Fee Owned Property;
(F) there are no outstanding options or rights of
first refusal to purchase the Fee Owned Property, or any portion
thereof or interest therein;
(G) there are no parties (other than the Target and
its Subsidiaries) in possession of the Fee Owned Property, other than
tenants under any leases disclosed in Section 4(j)(i)(E) of the
Disclosure
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Schedule who are in possession of space to which they are entitled;
(H) all Facilities are supplied with utilities and
other services necessary for the operation of such Facilities,
including gas, electricity, water, telephone, sanitary sewer, and
storm sewer, all of which services are adequate in accordance with all
applicable laws, ordinances, rules, and regulations and are provided
via public roads or via permanent, irrevocable, appurtenant easements
benefitting the Fee Owned Property; and
(I) each Fee Owned Property abuts on and has or will
have upon completion of development direct vehicular access to a
public road or access to a public road via a permanent, irrevocable,
appurtenant easement benefitting the Fee Owned Property.
(ii) With respect to each such parcel of Optioned Real
Property:
(A) the identified owner as described in the
respective option agreements for the Optioned Real Property has good
and marketable title to the parcel of real property, free and clear of
any Security Interest, easement, covenant, or other restriction,
except for the Permitted Encumbrances;
(B) there are no (1) pending or threatened
condemnation proceedings relating to the property, (2) pending or
threatened litigation or administrative actions relating to the
property, or (3) other matters materially affecting adversely the
current use, occupancy, or value thereof;
(C) the legal description for the parcel contained in
the applicable preliminary title report listed in Schedule 4(ac) of
the Disclosure Schedule fully describes the deed for such parcel.
Except as referenced in the preliminary title report, the buildings
and improvements, if any, are located within the boundary
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lines of the described parcels of land, are not in violation of
applicable setback requirements, zoning laws, and ordinances (and
none of the properties or buildings or improvements thereon are
subject to "permitted non-conforming use" or "permitted
non-conforming structure" classifications), and do not encroach on
any easement which may burden the land unless such easement will be
relocated in the ordinary course of developing such parcel, the
land does not serve any adjoining property for any purpose
inconsistent with the use of the land, the property is not located
within any flood plain or subject to any similar type restriction
for which any permits or licenses necessary to the use thereof have
not been obtained, and access to the property is, or shall be upon
completion of development, provided by paved public right-of-way
with adequate curb cuts available; and
(D) each Optioned Real Property abuts on and has or
will have upon completion of development direct vehicular access to a
public road or access to a public road via a permanent, irrevocable,
appurtenant easement benefitting the Optioned Real Property.
(k) INTELLECTUAL PROPERTY.
(i) Section 4(k) of the Disclosure Schedule lists any and
all items of Intellectual Property in which the Target and its Subsidiaries
have an interest (the "Target Intellectual Property"). The Target and its
Subsidiaries own or have the right to use pursuant to license, sublicense,
agreement, or permission all Target Intellectual Property necessary for the
operation of the business of the Target and its Subsidiaries as presently
conducted, the absence of which would not have a material adverse effect on
the business of the Target and its Subsidiaries. Each item of Target
Intellectual Property owned or used by any of the Target and its
Subsidiaries immediately prior to the Closing hereunder will be owned or
available for use by the Target or its Subsidiaries on substantially the
same terms and conditions immediately subsequent to the Closing hereunder
or the absence of such availability would not have a material adverse
effect
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on the business of the Target and its Subsidiaries. Each of the Target
and its Subsidiaries has taken all necessary action to protect each item
of Target Intellectual Property or the absence of such protection will
not have a material adverse effect on the business of the Target and its
Subsidiaries as presently conducted.
(ii) None of the Target Intellectual Property interferes
with, infringes upon, misappropriates, or otherwise comes into conflict
with any Intellectual Property rights of third parties, and none of the
Seller and the Target and its Subsidiaries has ever received any charge,
complaint, claim, or notice alleging any Target Intellectual Property
interferes with, infringes, misappropriates, or violates rights of third
parties. No third party has interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual
Property rights of any of the Target and its Subsidiaries.
(iii) Section 4(k) of the Disclosure Schedule identifies each
license, agreement, or other permission which any of the Target and its
Subsidiaries has granted to any third party with respect to any of the
Target Intellectual Property (together with any exceptions). The Seller
has made available to the Buyer correct and complete copies of all such
licenses, agreements, and permissions (as amended to date) and has made
available to the Buyer correct and complete copies of all other written
documentation evidencing ownership and prosecution (if applicable) of each
such item. With respect to each item of Target Intellectual Property that
any of the Target and its Subsidiaries owns:
(A) the identified owner possesses all right, title,
and interest in and to the item;
(B) the item is not subject to any outstanding
judgment, order, decree, stipulation, injunction, or charge; and
(C) no charge, complaint, action, suit, proceeding,
hearing, investigation, claim, or demand is
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pending or is threatened which challenges the legality, validity,
enforceability, use, or ownership of the item.
(iv) Section 4(k) of the Disclosure Schedule also identifies
each item of Target Intellectual Property that any third party owns and
that any of the Target and its Subsidiaries uses pursuant to license,
sublicense, agreement, or permission. The Seller has made available to the
Buyer correct and complete copies of all such licenses, sublicenses,
agreements, and permissions (as amended to date). With respect to each
such item of used Target Intellectual Property:
(A) the license, sublicense, agreement, or permission
covering the item is in full force and effect;
(B) the license, sublicense, agreement, or permission
will continue to be in full force and effect on substantially
identical terms following the Closing;
(C) no party to the license, sublicense, agreement, or
permission is in breach or default, and no event has occurred which
with notice or lapse of time would constitute a breach or default or
permit termination, modification, or acceleration thereunder;
(D) no party to the license, sublicense, agreement, or
permission has repudiated any provision thereof; and
(E) with respect to each sublicense, the
representations and warranties set forth in subsections (A) through
(D) above are true and correct with respect to the underlying license.
(l) INVENTORY. The inventory of the Target and its Subsidiaries
consists of unimproved land that is in various stages of entitlement, land in
the process of being developed into buildable lots, raw materials and supplies,
manufactured and purchased parts, homes in process and finished homes. All
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construction and development activities undertaken or ongoing are conducted in
accordance with plans and specifications which have received all approvals of
governmental authorities required at the time and are conducted in accordance
with applicable laws, rules and regulations in effect at the time.
Notwithstanding any other provision of this Agreement, the Seller makes no
warranty as to the condition of soil, drainage or erosion on the Fee Owned
Property or the Optioned Real Property and the Buyer acknowledges that the soils
on most or all of the parcels comprising the Fee Owned Property or the Optioned
Real Property and on real property on which the Target and its predecessors
(including Melody Homes, a division of Singer Housing Company) have previously
built homes are expansive, and the Buyer assumes responsibility for determining
the necessity and manner of addressing any special arrangements required in
connection with, or any limitation on, the use of the Fee Owned Property and the
Optioned Real Property which are necessary or arise by reason of the expansive
soils.
(m) REAL PROPERTY LEASES. Section 4(m) of the Disclosure
Schedule lists and describes briefly all real property leased or subleased to
the Target and its Subsidiaries. The Seller has delivered to the Buyer correct
and complete copies of the leases and subleases listed in Section 4(m) of the
Disclosure Schedule (as amended to date). With respect to each lease and
sublease listed in Section 4(m) of the Disclosure Schedule:
(i) the lease or sublease is legal, valid, binding,
enforceable, and in full force and effect and the Target has the right to
possession of the property in accordance with the terms of the lease or
sublease;
(ii) the lease or sublease will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms
following the Closing;
(iii) no party to the lease or sublease is in breach or
default, and no event has occurred which, with notice or lapse of time,
would constitute a breach or default or permit termination, modification,
or acceleration thereunder;
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(iv) no party to the lease or sublease has repudiated any
provision thereof;
(v) there are no disputes, oral agreements, or forbearance
programs in effect as to the lease or sublease;
(vi) with respect to each sublease, the representations and
warranties set forth in subsections (i) through (v) above are true and
correct with respect to the underlying lease;
(vii) none of the Target and its Subsidiaries has assigned,
transferred or conveyed any interest in the leasehold or subleasehold;
(viii) none of the Target and its Subsidiaries has mortgaged,
deeded in trust or encumbered any interest in the leasehold or
subleasehold;
(ix) all Facilities leased or subleased thereunder have
received all approvals of governmental authorities (including licenses and
permits) required in connection with the operation thereof and have been
operated and maintained in accordance with applicable laws, rules, and
regulations; and
(x) all facilities leased or subleased thereunder are
supplied with utilities and other services necessary for the operation of
said facilities.
(n) CONTRACTS. Section 4(n) of the Disclosure Schedule lists
the following contracts, agreements, and other written arrangements to which any
of the Target and its Subsidiaries is a party:
(i) any written arrangement (or group of related written
arrangements) for the lease of personal property from or to third parties
providing for lease payments in excess of $100,000 per annum or not entered
into in the Ordinary Course of Business;
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(ii) any written arrangement (or group of related written
arrangements) for the purchase or sale of raw materials, commodities,
supplies, products, or other personal property or for the furnishing or
receipt of services which either calls for performance over a period of
more than one year or involves more than the sum of $100,000 or not entered
into in the Ordinary Course of Business;
(iii) any written arrangement concerning a partnership or
joint venture;
(iv) any written arrangement (or group of related written
arrangements) under which it has created, incurred, assumed, or guaranteed
(or may create, incur, assume, or guarantee) indebtedness (including
capitalized lease obligations) involving more than $100,000 or not entered
into in the Ordinary Course of Business or under which it has imposed (or
may impose) a Security Interest on any of its assets, tangible or
intangible;
(v) any written arrangement concerning confidentiality or
noncompetition;
(vi) any written arrangement involving the Seller and its
Affiliates;
(vii) any written arrangement with any of its directors,
officers, and employees in the nature of a collective bargaining agreement,
employment agreement, or severance agreement; or
(viii) any other written arrangement (or group of related
written arrangements) either involving more than $100,000 or not entered
into in the Ordinary Course of Business.
The Seller has delivered to the Buyer a correct and complete copy of each
written arrangement listed in Section 4(n) of the Disclosure Schedule (as
amended to date). With respect to each written arrangement so listed: (A) the
written arrangement is legal, valid, binding, enforceable, and in full force and
effect; (B) the written arrangement will continue to be legal, valid,
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binding, and enforceable and in full force and effect on identical terms
following the Closing; (C) no party is in breach or default, and no event has
occurred which with notice or lapse of time would constitute a breach or
default or permit termination, modification, or acceleration, under the
written arrangement; and (D) no party has repudiated any provision of the
written arrangement. None of the Target and its Subsidiaries is a party to
any verbal contract, agreement, or other arrangement which, if reduced to
written form, would be required to be listed in Section 4(n) of the
Disclosure Schedule under the terms of this Section 4(n). No unfilled
customer order or commitment obligating any of the Target and its
Subsidiaries to process, manufacture, or deliver products or perform services
will result in a loss to any of the Target and its Subsidiaries upon
completion of performance. No purchase order or commitment of any of the
Target and its Subsidiaries is outside the Ordinary Course of Business, nor
are prices provided therein in excess of current market prices for the
products or services to be provided thereunder. Except as occurs in the
Ordinary Course of Business, no supplier of any of the Target and its
Subsidiaries has indicated within the past year that it will stop, or
decrease the rate of, supplying materials, products, or services to them.
(o) NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts
receivable of the Target and its Subsidiaries are reflected properly on their
books and records, are valid receivables subject to no setoffs or counterclaims,
are presently current and collectible, subject only to the reserve for bad debts
set forth in the Most Recent Balance Sheet (including any notes thereto) as
adjusted for the passage of time through the Closing Date in accordance with the
past custom and practice of the Target and its Subsidiaries.
(p) POWER OF ATTORNEY. There are no outstanding powers of
attorney executed on behalf of any of the Target and its Subsidiaries.
(q) INSURANCE. Section 4(q) of the Disclosure Schedule sets
forth the following information with respect to each insurance policy (including
policies providing property, casualty, liability, and workers' compensation
coverage and bond and surety arrangements) to which any of the Target and its
Subsidiaries has
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been a party, a named insured, or otherwise the beneficiary of coverage at
any time within the past eight (8) years:
(i) the name, address, and telephone number of the agent;
(ii) the name of the insurer, the name of the policyholder,
and the name of each covered insured;
(iii) the policy number and the period of coverage;
(iv) the scope (including an indication of whether the
coverage was on a claims made, occurrence, or other basis) and amount
(including a description of how deductibles and ceilings are calculated and
operate) of coverage; and
(v) a description of any retroactive premium adjustments or
other loss-sharing arrangements.
With respect to each such insurance policy: (A) the policy is legal, valid,
binding, and enforceable and in full force and effect; (B) the policy will
continue to be legal, valid, binding, and enforceable and in full force and
effect on identical terms following the Closing Date, and after the purchase by
the Buyer of the Target Shares, the policy will continue to cover, without
limitation, any and all events which would have been covered prior to the
Closing Date; (C) neither any of the Target and its Subsidiaries nor any other
party to the policy is in breach or default (including with respect to the
payment of premiums or the giving of notices), and no event has occurred which,
with notice or the lapse of time, would constitute such a breach or default or
permit termination, modification, or acceleration, under the policy; and (D) no
party to the policy has repudiated any provision thereof. Each of the Target
and its Subsidiaries has been covered during the past eight (8) years by the
insurance described in Section 4(q) of the Disclosure Schedule. Section 4(q) of
the Disclosure Schedule describes any self-insurance arrangements affecting any
of the Target and its Subsidiaries.
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(r) LITIGATION. Section 4(r) of the Disclosure Schedule sets
forth each instance in which any of the Target and its Subsidiaries (i) is
subject to any unsatisfied judgement, order, decree, stipulation, injunction, or
charge or (ii) is a party or is threatened to be made a party to any charge,
complaint, action, suit, proceeding, hearing, or investigation of or in any
court or quasi-judicial or administrative agency of any federal, state, local,
or foreign jurisdiction or before any arbitrator. None of the Seller or Seller
Shareholders have a Basis to consider that any such charge, complaint, action,
suit, proceeding, hearing, or investigation may be brought or threatened against
any of the Target and its Subsidiaries.
(s) HOME WARRANTIES. Each home sold or delivered by any of
the Target and its Subsidiaries during the Seller's ownership thereof has
been sold subject to a purchase contract and Home Owner's Manual
(collectively the "Sales Documents") which include the terms of: (i) an
express limited warranty by the seller thereof; and (ii) a limited structural
warranty provided by Residential Warranty Corporation, Home Buyers Warranty,
Homeowners Warranty or similar homeowner warranty company (collectively the
"Warranties"). The Sales Documents specifically disclaim other warranties
and recite that the Warranties are given in lieu of other rights and remedies
to which the home buyers may be entitled with respect to the condition,
design and construction of the homes. In addition, each home sold by the
Target and its Subsidiaries or any predecessor entity within the proceeding
ten (10) years, including homes built by or at the direction of the Target
and its Subsidiaries and their predecessors, was sold with a limited
structural warranty provided by Residential Warranty Corporation, Home Buyers
Warranty, Homeowners Warranty or similar homeowner warranty company. Schedule
4(s) of the Disclosure Schedule includes copies of the standard terms and
conditions of the Warranties and the Waiver and Release Agreement signed by
buyers in connection therewith.
(t) WARRANTY LIABILITY. Neither the Target nor any of its
Subsidiaries has any Liability (and there is no Basis for any present or future
charge, complaint, action, suit, proceeding, hearing, investigation, claim, or
demand against any of them giving rise to any Liability) for replacement or
repair of homes sold under the Warranties. Reserves for product warranty claims
have
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been established as set forth in the Most Recent Balance Sheet (including any
notes thereto) as adjusted for the passage of time through the Closing Date
in accordance with the past practice and custom of the Target and its
Subsidiaries.
(u) EMPLOYEES. No employee who is executing an Employment
Letter pursuant to Section 7(a) of this Agreement has any plans to terminate
employment with any of the Target and its Subsidiaries. None of the Target and
its Subsidiaries is a party to or bound by any collective bargaining agreement,
nor has any of them experienced any strikes, grievances, claims of unfair labor
practices, or other collective bargaining disputes. None of the Target and its
Subsidiaries has committed any unfair labor practice. No organizational effort
is presently being made or threatened by or on behalf of any labor union with
respect to employees of any of the Target and its Subsidiaries.
(v) EMPLOYEE BENEFIT PLANS; ERISA.
(i) Neither the Target nor any Target Subsidiary is a party
to any oral or written (A) employment, severance, collective bargaining or
consulting agreement not terminable on 60 days' or less notice,
(B) agreement with any executive officer or other key employee of the
Target or any Target Subsidiary (1) the benefits of which are contingent,
or the terms of which are materially altered, upon the occurrence of a
transaction involving the Target or any Target Subsidiary of the nature of
any of the transactions contemplated by this Agreement, (2) providing any
term of employment or compensation guarantee extending for a period longer
than one year, or (3) providing severance benefits or other benefits after
the termination of employment of such executive officer or key employee
regardless of the reason for such termination of employment, or (C)
agreement or plan, including, without limitation, any stock option plan,
stock appreciation right plan, restricted stock plan or stock purchase
plan, the benefits of which would be increased, or the vesting of benefits
of which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which
will be calculated on the basis of any of the transactions contemplated by
this Agreement.
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(ii) Neither the Target nor any corporation or other entity
which under Section 4001(b) of ERISA is under common control with the
Target (a "Target ERISA Affiliate") maintains or within the past five years
has maintained, contributed to, or been obligated to contribute to, any
"Employee Pension Benefit Plan" ("Pension Plan") or any "Employee Welfare
Benefit Plan" ("Welfare Plan") as such terms are defined in Sections 3(2)
and 3(1) respectively of ERISA, which is subject to ERISA. Each Pension
Plan and Welfare Plan disclosed in Section 4(v) of the Disclosure Schedule
(which Plans have been heretofore delivered to the Buyer) and maintained by
the Target has been maintained in all material respects in compliance with
their terms and all provisions of ERISA and the Code (including rules and
regulations thereunder) applicable thereto. The Target has made available
to the Buyer each Pension Plan and Welfare Plan, their corresponding
summary plan descriptions and any material modifications, along with the
three (3) most recent Forms 5500, 5500-C or 5500-R required to be filed for
each Pension Plan and Welfare Plan.
(iii) Neither the Target nor any Target ERISA Affiliate
maintains or has maintained or contributed to any Pension Plan that is
or was subject to Section 302 or Title IV of ERISA or Section 412 of the
Code. The Target has made available to the Buyer, for each Pension Plan
which is intended to be "qualified" within the meaning of Section 401(a)
of the Code, a copy of the determination letter issued by the IRS to the
effect that each such Plan satisfies the requirements of the Tax Reform
Act of 1986, as amended, and a copy of any later determination letter
issued by the IRS to the effect that each such Plan is so qualified, and
that each trust created thereunder is tax-exempt under Section 501 of
the Code, and the Target is unaware of any fact or circumstances that
could reasonably be expected to jeopardize the qualified status of each
such Pension Plan or the tax exempt status of each trust created
thereunder.
(iv) No Pension Plan or Welfare Plan is currently subject to
an audit or other investigation by the IRS, the Department of Labor, the
Pension Benefit Guaranty Corporation or any other governmental agency nor
are any such
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Plans subject to any lawsuits or legal proceedings of any kind or to any
material pending disputed claims (other than routine claims for benefits)
by employees or beneficiaries covered under any such Plan or by any other
parties.
(v) No "prohibited transaction," as defined in Section 406
of ERISA or Section 4975 of the Code, resulting in liability to the Target
or any Target ERISA Affiliate has occurred with respect to any Pension Plan
or Welfare Plan. No breach of fiduciary responsibility under Part 4 of
Title I of ERISA which has resulted in liability of Target, any trustee,
administrator or fiduciary of any Pension Plan or Welfare Plan has
occurred.
(vi) Neither the Target nor any Target ERISA Affiliate,
since January 1, 1986, has maintained or contributed to, or been obligated
or required to contribute to, a "Multiemployer Plan," as such term is
defined in Section 4001(a)(3) of ERISA. Neither the Target nor any Target
ERISA Affiliate has either withdrawn, partially or completely, or
instituted steps to withdraw, partially or completely, from any
Multiemployer Plan nor has any event occurred which would enable a
Multiemployer Plan to give notice of and demand payment of any withdrawal
liability with respect to the Target or any Target ERISA Affiliate.
(vii) There is no contract, agreement, plan or arrangement
covering any employee or former employee of the Target or any Target ERISA
Affiliate that, individually or collectively, could give rise to the
payment of any amount that would constitute an excess parachute payment
(within the meaning of Section 280G of the Code).
(viii) With respect to the Target and each Target ERISA
Affiliate, Section 4(v) of the Disclosure Schedule correctly identifies
each material agreement, policy, plan or other arrangement, whether written
or oral, express or implied, fixed or contingent, to which the Target is a
party or by which the Target or any property or asset of the Target is
bound, which is or relates to a pension, option, bonus, deferred
compensation, retirement, stock purchase, profit-sharing, severance pay,
health, welfare, incentive, vacation,
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sick leave, medical disability, hospitalization, life or other insurance
or fringe benefit plan, policy or arrangement.
(ix) None of the Pension Plans or Welfare Plans, or any
trust related thereto, has incurred any federal, state or local tax
liability.
(x) With respect to employees and former employees of the
Target, their spouses and their dependents, the Target is in substantial
compliance with the notice and continuation coverage requirements of
Section 4980B(f) of the Code and regulations thereunder ("COBRA").
(xi) The Target is not obligated to provide any retiree or
post-employment benefits under a Welfare Plan to existing or former
employees other than so-called "COBRA" health care continuation coverage,
in accordance with Section 4980B of . The Target represents and warrants
that there are no Welfare Plans of the Target providing medical, dental,
health, life insurance, or similar benefits for terminated or retired
employees of the Target, including early retirees, except as may be
required by COBRA.
(w) GUARANTEES. Following the termination of the Guarantees as
provided in this Agreement, none of the Target and its Subsidiaries shall be a
guarantor or otherwise be liable for any Liability or obligation (including
indebtedness) of any other person.
(x) ENVIRONMENT, HEALTH, AND SAFETY.
(i) Each of the Target, its Subsidiaries, and their
respective Affiliates has complied with all laws (including rules and
regulations thereunder) of federal, state, local, and foreign governments
(and all agencies thereof) concerning the environment, public health and
safety, and employee health and safety (with only such deviations therefrom
as are common in the industry which would not result in criminal
prosecution of the imposition of civil penalties in excess of $5,000 in the
aggregate), and no charge, complaint, action, suit, proceeding, hearing,
investigation, claim, demand, or notice is currently pending or commenced
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against any of them alleging any failure to comply with any such law or
regulation.
(ii) None of the Target and its Subsidiaries has any
Liability (and there is no Basis related to the past or present operations,
properties, or facilities of any of the Target, its Subsidiaries, and their
respective Affiliates for any present or future charge, complaint, action,
suit, proceeding, hearing, investigation, claim, or demand against any of
the Target and its Subsidiaries giving rise to any Liability) under any
Environmental Law.
(iii) None of the Target and its Subsidiaries has any
Liability (and none of the Target, its Subsidiaries, and their respective
Affiliates has disposed, released or arranged for the disposal of any
Hazardous Substance on any property or facility owned or operated by the
Target or its Subsidiaries or their respective Affiliates in any manner
that could form the Basis for any present or future charge, complaint,
action, suit, proceeding, hearing, investigation, claim, or demand (under
the common law or pursuant to any statute) against any of the Target and
its Subsidiaries giving rise to any Liability) for damage to any site,
location, or body of water (surface or subsurface) or for illness or
personal injury.
(iv) None of the Target, its Subsidiaries or their
respective Affiliates has disposed or arranged for the disposal of any
Hazardous Substance at any property, site or facility which has been
designated or proposed for designation as a state or federal superfund site
under an Environmental Law.
(v) None of the Target and its Subsidiaries has any
Liability (and there is no Basis for any present or future charge,
complaint, action, suit, proceeding, hearing, investigation, claim, or
demand against any of the Target and its Subsidiaries giving rise to any
Liability) under the Occupational Safety and Health Act, as amended, or any
other law (or rule or regulation thereunder) of any federal, state, local,
or foreign government (or agency thereof) concerning employee health and
safety in effect prior to Closing.
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(vi) None of the Target and its Subsidiaries has any
Liability (and none of the Target and its Subsidiaries has exposed any
employee to any substance that could form the Basis for any present or
future charge, complaint, action, suit, proceeding, hearing, investigation,
claim, or demand (under the common law or pursuant to statute) against any
of the Target and its Subsidiaries giving rise to any Liability) for any
illness of or personal injury to any employee.
(vii) Each of the Target and its Subsidiaries has obtained
and been in compliance with all of the terms and conditions of all permits,
licenses, and other authorizations which are required under, and
requirements which are contained in, all federal, state, local, and foreign
laws (including rules, regulations, codes, judgments, orders, decrees,
stipulations, and injunctions thereunder) relating to public health and
safety, worker health and safety, industrial hygiene, and regulation or
protection of the environment, including laws relating to the Release or
threatened Release of pollutants, contaminants, or chemical, industrial,
toxic materials or wastes, or Hazardous Substances, into ambient air,
surface water, ground water, or lands or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants, or chemical,
industrial, toxic materials or wastes, or Hazardous Substances with only
such deviations therefrom as are common in the industry which would not
result in criminal prosecution or the imposition of civil penalties in
excess of $5,000 in the aggregate.
(viii) All properties and equipment used in the business of
the Target and its Subsidiaries are free of asbestos, PCB's, methylene
chloride, trichloroethylene, 1,2 trans-dichloroethylene, dioxins,
dibenzofurans, and Hazardous Substances.
(ix) All product disclosures of the Target and its
Subsidiaries has been in conformity with applicable laws (including rules
and regulations thereunder).
(x) No Hazardous Substance ever has been buried, stored or
Released on any real property that any of
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the Target and its Subsidiaries owns or ever has owned or that any of
the Target and its Subsidiaries leases or ever has leased with only such
deviations therefrom as are common in the industry which would not
result in criminal prosecution or the imposition of civil penalties in
excess of $5,000 in the aggregate.
(xi) The Seller has delivered to the Buyer copies, or a
list, of all environmental audits and other similar reports in the
possession of the Seller, the Target or its Subsidiaries or their
respective employees or agents, that have been prepared by or on behalf of
the Target or its Subsidiaries with respect to real property ever owned or
operated by the Target or its Subsidiaries.
(y) LEGAL COMPLIANCE.
(i) Each of the Target and its Subsidiaries has complied
with all laws (other than Environmental Laws or laws relating to the
regulation of Hazardous Substances, which are covered exclusively in
Section 4(x)) applicable to the business of the Target and its Subsidiaries
with only such deviations therefrom as are common in the industry which
would not result in criminal prosecution or the imposition of civil
penalties in excess of $5,000 in the aggregate (including rules and
regulations thereunder) of federal, state, local, and foreign governments
(and all agencies thereof), and no charge, complaint, action, suit,
proceeding, hearing, investigation, claim, demand, or notice has been filed
or commenced against any of the Target and its Subsidiaries alleging any
failure to comply with any such law or regulation.
(z) SOLD OUT PROJECTS. All homes and homebuilding projects built
by or at the direction of the Target or its Subsidiaries and their predecessors
for which title has transferred to the purchaser thereof received all approvals
of governmental authorities (including licenses and permits) required at the
time in connection with the development and construction of such homes or
homebuilding projects.
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(aa) PARK VIEW. Park View has no operations, businesses, assets,
Liabilities, contracts, agreements or other rights or obligations.
(ab) [Intentionally Deleted]
(ac) TITLE INSURANCE; TITLE REPORTS; SURVEYS. Section 4(ac) of
the Disclosure Schedule lists and describes with respect to each such parcel of
Fee Owned Property or Optioned Real Property of the Target and its Subsidiaries
(i) each Title Policy existing as of the Closing Date, and (ii) title reports
(including preliminary title reports) existing as of the Closing Date.
(ad) CERTAIN BUSINESS RELATIONSHIPS WITH THE TARGET AND ITS
SUBSIDIARIES. None of the Seller, Seller Shareholders and their Affiliates has
been involved in any business arrangement or relationship with any of the Target
and its Subsidiaries within the past twelve (12) months with terms less
favorable to the Target and its Subsidiaries than could be obtained from
unaffiliated parties, and none of the Seller, Seller Shareholders and their
Affiliates owns any property or right, tangible or intangible, which is used in
the business of any of the Target and its Subsidiaries.
(ae) BROKERS' FEES. None of the Target and its Subsidiaries has
any Liability or obligation to pay any fees or commissions to any broker,
finder, or agent with respect to the transactions contemplated by this
Agreement.
(af) DISCLOSURE. The representations and warranties contained in
this Section 4 do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Section 4 not misleading.
(ag) NO OTHER REPRESENTATIONS REGARDING CONDITION OF BUSINESS.
The Buyer acknowledges that it has had the opportunity to make, and has made,
its own inspections and investigations of the business of the Target and its
Subsidiaries (the "Business") and the assets of the business. EXCEPT AS
EXPRESSLY PROVIDED IN THIS AGREEMENT, THE SELLER MAKES NO EXPRESS OR IMPLIED
WARRANTIES AS TO THE BUSINESS OR THE ASSETS OF THE BUSINESS, INCLUDING ANY
WARRANTY OR REPRESENTATION AS TO THE CONDITION OF THE ASSETS OF THE
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BUSINESS, THE MERCHANTABILITY OF THE ASSETS OF THE BUSINESS, THE HABITABILITY
OF THE ASSETS OF THE BUSINESS, THE SUITABILITY OF THE ASSETS OF THE BUSINESS
OR THE FITNESS OF OTHER ASSETS OF THE BUSINESS FOR ANY PURPOSE. Except as
expressly provided in this Agreement, the Buyer shall be relying on its own
investigation in acquiring the Business and the assets of the Business and
shall be accepting the Business and the assets of the Business as is. The
Seller makes no warranty as to the correctness or accuracy of any information
contained in any third-party consultant reports delivered by the Seller to
the Buyer regarding the Business or the assets of the Business, except to the
extent, if any, such information is expressly warranted by the Seller under
this Agreement.
5. [Intentionally Deleted]
6. POST-CLOSING COVENANTS. The Parties agree as follows with
respect to the period following the Closing.
(a) GENERAL. In case at any time after the Closing any further
action is necessary or desirable to carry out the purposes of this Agreement,
each of the Parties will take such further action (including the execution and
delivery of such further instruments and documents) as any other Party
reasonably may request, all at the sole cost and expense of the requesting Party
(unless the requesting Party is entitled to indemnification therefor under
Section 8 herein). The Seller and Buyer acknowledge and agree that from and
after the Closing the Buyer will be entitled to possession of all documents,
books, records, agreements, and financial data of any sort relating to the
Target and its Subsidiaries.
(b) LITIGATION SUPPORT. In the event and for so long as any
Party actively is contesting or defending against any charge, complaint, action,
suit, proceeding, hearing, investigation, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Closing Date involving any of the Target and its Subsidiaries, each of
the other Parties will cooperate with him or it and his or its counsel in the
contest or defense, make available
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their personnel, and provide such testimony and access to their books and
records as may be reasonably requested in connection with the contest or
defense, all at the sole cost and expense of the contesting or defending
Party (unless the contesting or defending Party is entitled to
indemnification therefor under Section 8 herein).
(c) TRANSITION. The Seller and Seller Shareholders will not
take any action that primarily is designed or intended to have the effect of
discouraging any lessor, licensor, customer, supplier, or other business
associate of any of the Target and its Subsidiaries from maintaining the same
business relationships with the Target and its Subsidiaries after the Closing as
it maintained with the Target and its Subsidiaries prior to the Closing. The
Seller will refer all customer inquiries relating to the business of any of the
Target and its Subsidiaries to the Buyer from and after the Closing.
(d) CONFIDENTIALITY. The Seller and the Seller Shareholders
will treat and hold as such all of the Confidential Information, refrain from
using any of the Confidential Information except in connection with this
Agreement, and deliver promptly to the Buyer or destroy, at the request and
option of the Buyer, all tangible embodiments (and all copies) of the
Confidential Information which are in its or his possession. In the event that
the Seller or a Seller Shareholder is requested or required (by oral question or
request for information or documents in any legal proceeding, interrogatory,
subpoena, civil investigative demand, or similar process) to disclose any
Confidential Information, such Seller or Seller Shareholder will notify the
Buyer promptly of the request or requirement so that the Buyer may seek an
appropriate protective order or waive compliance with the provisions of this
Section 6(d). If, in the absence of a protective order or the receipt of a
waiver hereunder, such Seller or Seller Shareholder is, on the advice of
counsel, compelled to disclose any Confidential Information to any tribunal or
else stand liable for contempt, such Seller or Seller Shareholder may disclose
the Confidential Information to the tribunal; provided, however, that the
disclosing Seller or Seller Shareholder shall use its or his best efforts to
obtain, at the request of the Buyer, an order or other assurance that
confidential treatment will be accorded to such portion of the Confidential
Information required to be
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disclosed as the Buyer shall designate. The foregoing provisions shall not
apply to any Confidential Information which is generally available to the
public immediately prior to the time of disclosure.
(e) COVENANT NOT TO COMPETE. For a period of twenty (20) years
from and after the Closing Date, the Seller hereby agrees not to engage,
directly or indirectly, within 100 miles from the city limits of Denver,
Colorado, in any business that any of the Target or its Subsidiaries conducts as
of the Closing Date; provided, however, that no owner of less than 0.5% of the
outstanding securities of any corporation, the securities of which are listed on
a nationally recognized securities exchange or traded on a nationally recognized
over-the-counter market, shall be deemed to engage solely by reason thereof in
any of its businesses. $1,000,000 of the Purchase Price which is payable to the
Seller shall be in consideration of its Covenant Not to Compete.
(f) ELECTIONS.
(i) The Seller and the Buyer shall jointly make an
election under Section 338(h)(10) of the Code and corresponding
elections under state and local laws, as applicable. The Buyer and the
Seller shall take any and all further actions necessary to cause the
purchase of the Target Shares as herein contemplated to be treated as an
acquisition of the Target's assets for federal, state and local tax
purposes. The Seller and the Buyer shall jointly make an election under
Section 338(h)(10) of the Code and corresponding elections under state
and local laws, as applicable. The Buyer and the Seller shall take any
and all further actions necessary to cause the purchase of the Target
Shares as herein contemplated to be treated as an acquisition of the
Target's assets for federal, state and local tax purposes. The Seller
shall allocate the Purchase Price upon such deemed sale of assets for
tax purposes among the Target's assets on such reasonable basis as is
proposed by the Buyer, an estimate (the "Estimate") for which is
provided on SCHEDULE A. To the extent that there is any deviation in
the Purchase Price (due, among other things, to adjustments for
distributions and borrowings under the Lowes Enterprises Loans, the
amount of costs incurred in connection with the
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Closing or the balance of stockholders equity on the Closing Date from
the Estimate set forth on SCHEDULE A, the allocation of the Purchase
Price to inventory and goodwill shall be adjusted and the Estimate shall
be finalized by the Buyer and provided to the Seller within one hundred
twenty (120) days of the Closing Date. The final determination of the
allocation of the Purchase Price shall be made upon the closing of the
books and shall be included in a revised SCHEDULE A which shall be
attached to and made a part of this Agreement.
(ii) In the event a Section 338(h)(10) election is not
allowable for Colorado income tax purposes, the Seller shall refund to the
Buyer the dollar amount of the tax benefits which would otherwise have been
available to the Buyer if such election had been allowable; provided,
however, that such refund amount shall not exceed the amount of Colorado
income taxes the Seller and/or the Seller Shareholders are not required to
pay (or are entitled to receive a refund with respect to) by virtue of the
disallowance of the Section 338(h)(10) election. Such refund shall be made
promptly upon the disallowance of a Section 338(h)(10) election by Colorado
taxing authorities.
(g) NOTICE TO RESIDENTIAL WARRANTY CORPORATION. The Seller
shall give notice to Residential Warranty Corporation of the change in ownership
of the Target as a result of the consummation of the transactions contemplated
by this Agreement.
(h) INDEMNIFICATION RIGHTS UNDER ASSET PURCHASE AGREEMENT. To
the extent that a claim which would be subject to indemnity in favor of the
Seller under that certain Asset Purchase Agreement, dated as of December 20,
1993, by and among Falcon Development Corporation, Melody Homes, Inc., Melody
Homes and Melody Construction Co., including, without limitation, claims in
connection with any and all pending litigation concerning alleged defects in or
misrepresentations pertaining to polybutylene pipes, is made against the Target
or its Subsidiaries or the Buyer as successor to the Seller, the Seller shall
execute all documents reasonably necessary to ensure that the Buyer shall have
the benefit of said indemnity; provided, however, that nothing herein shall
diminish the indemnity rights of the Seller.
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7. CONDITIONS TO OBLIGATION TO CLOSE.
(a) CONDITIONS TO OBLIGATION OF THE BUYER. The obligation of
the Buyer to consummate the transactions to be performed by it in connection
with the Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in
Section 3(a) and Section 4 above shall be true and correct in all material
respects at and as of the Closing Date;
(ii) the Seller, the Target and the Target's
Subsidiaries shall have given any notices to third parties and obtained any
third-party consents that are necessary, proper or advisable or that the
Buyer shall have requested in connection with the matters pertaining to the
Target and its Subsidiaries disclosed or required to be disclosed in the
Disclosure Schedule. Each of the Seller, the Target and the Target's
Subsidiaries shall have filed any Notification and Report Forms and related
material required to be filed with the Federal Trade Commission and the
Antitrust Division of the United States Department of Justice under the
Hart-Scott-Rodino Act and all applicable waiting periods (and any
extensions thereof) under the Hart-Scott-Rodino Act shall have expired or
otherwise been terminated and each of the Seller, the Target and the
Target's Subsidiaries shall have made any further filings pursuant thereto
that were necessary, proper, or advisable. Each of the Seller, the Target
and the Target's Subsidiaries shall have taken any additional action that
was necessary, proper, or advisable in connection with any other notices
to, filings with, and authorizations, consents, and approvals of
governments, governmental agencies, and third parties as set forth in
Annex I, Annex II and the Disclosure Schedule or that it was required to
give, make, obtain or receive;
(iii) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency of
any federal, state, local, or foreign jurisdiction wherein an unfavorable
judgment, order, decree, stipulation, injunction, or charge would
(A) prevent
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consummation of any of the transactions contemplated by this Agreement,
(B) cause any of the transactions contemplated by this Agreement to be
rescinded following consummation, or (C) affect adversely the right of
the Buyer to own, operate, or control the Target Shares or any of the
Target and its Subsidiaries (and no such judgment, order, decree,
stipulation, injunction, or charge shall be in effect);
(iv) the Target and the Employees shall have executed
the Employment Letters, effective upon the Closing;
(v) the Target's stockholder equity on the Closing
Date shall be equal to or greater than $15,360,000 (which includes
stockholder equity as of June 30, 1996 plus the after tax earnings of the
Target from July 1, 1996 through September 30, 1996 equal to or greater
than $1,450,000, plus the after tax earnings of the Target from October 1,
1996 through the Closing Date, plus the outstanding balance of Lowe
Enterprises Loans of $2,951,000 (the liability for which the Seller
Shareholders are obligated)); the determination of stockholder equity shall
be made on the same accounting basis as the audited financial statements of
the Target for the year ended June 30, 1996 and the three months ended
September 30, 1996;
(vi) the Seller shall have redeemed, repurchased or
otherwise extinguished to the Buyer's satisfaction, the Series A Preferred
Stock of the Seller;
(vii) the Seller shall have (A) negotiated and be
responsible (not from funds of the Target) for the prepayment of Lowe
Enterprises Loans and the termination of any profit participation by Lowe
Enterprises or any of its Affiliates in the Target and its Subsidiaries,
upon terms and conditions which are mutually satisfactory to the Parties,
and (B) caused any and all actions necessary to cause Lowe Enterprises to
deliver to the Target and its Subsidiaries all Uniform Commercial Code
termination statements and similar documents which the Buyer shall
reasonably request;
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(viii) the Seller shall have assigned all of the Required
Leases to the Target in a manner subject to the reasonable approval of the
Buyer;
(ix) the Seller shall have transferred to the Target
its entire ownership interest in Woodbridge, Fox Creek and Park View,
including any issued and outstanding member shares held of record or owned
beneficially by the Seller, in a manner subject to the reasonable approval
of the Buyer;
(x) the Seller shall have paid the Buyer at the
Closing by reduction in the Purchase Price any and all amounts indicated in
Section 2(c) of this Agreement;
(xi) the obligations of the Target and its Subsidiaries
set forth on SCHEDULE B of this Agreement to be paid in full by Target with
funds to be received from the Buyer on the Closing Date, as part of a
refinancing of the related assets, or otherwise completely satisfied or
discharged, in a manner subject to the reasonable approval of the Buyer;
(xii) the Seller shall have caused any and all actions
necessary to cause (A) the termination of the obligations of the Target and
its Subsidiaries pursuant to the Guarantees, (B) the termination of the
obligations of the Target and its Subsidiaries pursuant to the
Environmental Indemnities, and (C) U.S. Bank of Nevada to deliver to the
Target and its Subsidiaries all Uniform Commercial Code termination
statements and similar documents which the Buyer shall reasonably request
to evidence such termination;
(xiii) the Buyer shall have renegotiated to its sole
satisfaction the Loan Agreement, dated as of December 18, 1993, by and
between Melody and Bank One, Arizona, National Association, a national
banking association;
(xiv) the Buyer shall have obtained reasonable evidence
from Banc One Capital Partners II of the payments made in accordance with
Section 2(d) herein and that upon payment of such amounts, the warrants
held by Banc One
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Capital Partners II pursuant to that certain Series 1993 Warrant to
Purchase Shares of Common Stock of Falcon Development Corporation have
been eliminated;
(xv) the Seller shall have cooperated with the Buyer to
cause the Target to obtain a new workers compensation policy in form and
substance satisfactory to the Buyer;
(xvi) the Seller shall have delivered to the Buyer the
following financial statements for the Target and its Subsidiaries
(collectively the "Financial Statements"): (A) unaudited combined financial
statements for Melody Construction Co. and Melody Homes for the calendar
year 1992, including combined balance sheet, statement of income, statement
of partnership equity and statement of cash flows; (B) unaudited internal
financial statements of Melody Homes for the eleven (11) months ended
November 30, 1993, including combined balance sheet, statement of income
and statement of partnership equity; (C) unaudited internal financial
statements of Melody for the seven (7) months ended June 30, 1994,
including balance sheet, statement of income and statement of retained
earnings; (D) unaudited consolidated and consolidating balance sheets and
statements of income, changes in stockholders' equity, and cash flow of
Melody as of and for the fiscal year ended June 30, 1995; (E) unqualified
audited financial statements, including consolidated and consolidating
balance sheets and statements of income, changes in stockholders' equity,
and cash flow as of and for the fiscal year ended June 30, 1996 (the "Most
Recent Fiscal Year End"); and (F) unqualified audited financial statements,
including consolidated and consolidating balance sheets and statements of
income, changes in stockholders' equity, and cash flow (the "Most Recent
Financial Statements") as of and for the three months ended September 30,
1996 (the "Most Recent Fiscal Month End"); and (G) unaudited financial
statements, including consolidated and consolidating balance sheets and
statements of income, changes in stockholders' equity, and cash flow as of
and for the two months ended November 30, 1996. The Financial Statements
shall have been prepared in accordance with GAAP applied on a consistent
basis throughout the periods covered thereby, shall be correct and
complete, and shall be
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consistent with the books and records of the Target and its Subsidiaries
(which books and records are correct and complete); provided, however,
that the interim Financial Statements shall be subject to normal
year-end adjustments (which will not be material) and lack footnotes and
other presentation items;
(xvii) [Intentionally Deleted]
(xviii) the Buyer shall have received from Montgomery
Securities, financial advisor to the Buyer, a fairness opinion in form
satisfactory to the Buyer addressed to the Buyer and dated as of the
Closing Date;
(xix) the Buyer shall have received from counsel to the
Seller and Seller Shareholders an opinion with respect to the matters set
forth in EXHIBIT C attached hereto, addressed to the Buyer and dated as of
the Closing Date;
(xx) the Buyer shall have received the resignations of
each director of the Target and its Subsidiaries in his capacity as a
director of the Target or its Subsidiaries, effective as of the Closing;
(xxi) the Buyer shall have received the written consent
of its lenders pursuant to the terms of that certain Credit Agreement,
dated March 29, 1996, among the Buyer, First Hawaiian Bank, Bank of America
NT&SA, NBD Bank, Bank of Boston and Bank of Hawaii, to the transactions
contemplated by this Agreement; and
(xxii) all actions to be taken by the Seller in
connection with consummation of the transactions contemplated hereby and
all certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be satisfactory in form
and substance to the Buyer and its counsel.
The Buyer may waive any condition specified in this Section 7(a) if it executes
a writing so stating at or prior to the Closing.
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(b) CONDITIONS TO OBLIGATION OF THE SELLER. The obligation of
the Seller to consummate the transactions to be performed by them in connection
with the Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in
Section 3(b) above shall be true and correct in all material respects at
and as of the Closing Date;
(ii) the Buyer shall have obtained any third-party
consents that are necessary, proper or advisable. The Buyer shall have
filed any Notification and Report Forms and related material required to be
filed with the Federal Trade Commission and the Antitrust Division of the
United States Department of Justice under the Hart-Scott-Rodino Act and all
applicable waiting periods (and any extensions thereof) under the Hart-
Scott-Rodino Act shall have expired or otherwise been terminated and the
Buyer shall have made any further filings pursuant thereto that were
necessary, proper, or advisable. The Buyer shall have taken any additional
action that was necessary, proper, or advisable in connection with any
other notices to, filings with, and authorizations, consents, and approvals
of governments, governmental agencies, and third parties as set forth in
Annex I, Annex II and the Disclosure Schedule or that it was required to
give, make, obtain or receive;
(iii) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency of
any federal, state, local, or foreign jurisdiction wherein an unfavorable
judgment, order, decree, stipulation, injunction, or charge would
(A) prevent consummation of any of the transactions contemplated by this
Agreement, or (B) cause any of the transactions contemplated by this
Agreement to be rescinded following consummation (and no such judgment,
order, decree, stipulation, injunction, or charge shall be in effect);
(iv) [Intentionally Deleted]
(v) the Seller shall have received from counsel to the
Buyer an opinion with respect to the matters
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set forth in EXHIBIT D attached hereto, addressed to the Seller and dated
as of the Closing Date; and
(vi) all actions to be taken by the Buyer in connection
with consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to effect
the transactions contemplated hereby will be reasonably satisfactory in
form and substance to the Seller, Target and its Subsidiaries and their
counsel.
The Seller may waive any condition specified in this Section 7(b) if it executes
a writing so stating at or prior to the Closing.
8. REMEDIES FOR BREACHES OF THIS AGREEMENT.
(a) SURVIVAL. All of the representations and warranties of the
Parties contained in Section 3 herein shall survive the Closing hereunder (even
if the damaged Party knew or had reason to know of any misrepresentation or
breach of warranty at the time of Closing) and continue in full force and effect
forever. All of the representations and warranties of the Seller contained in
Section 4 herein shall survive the Closing hereunder (even if the Buyer knew or
had reason to know of any misrepresentation or breach of warranty at the time of
Closing) and continue in full force and effect for a period of eighteen (18)
months; provided that the representations and warranties in Section 4(h) shall
continue in full force and effect until the expiration of the particular statute
of limitations on the assessment of collection of the particular Tax involved.
The Covenant Not to Compete contained in Section 6(e) of this Agreement, shall
survive the Closing hereunder (even if the damaged Party knew or had reason to
know of any misrepresentation or breach of warranty at the time of Closing) and
continue in full force and effect for a period of twenty (20) years. All of the
other covenants of the Parties contained in Section 6 of this Agreement shall
survive the Closing hereunder (even if the damaged Party knew or had reason to
know of any misrepresentation or breach of warranty at the time of Closing) and
continue in full force and effect for a period of four (4) years. The covenants
of the Parties contained in Section 2(c)(iii) and Section 2(d) of this Agreement
shall survive the Closing hereunder (even if the damaged
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Party knew or had reason to know of any misrepresentation or breach of
warranty at the time of Closing) and continue in full force and effect for a
period of six (6) months. Notwithstanding anything in this Section 8(a), the
Buyer's representation and warranty in Section 3(b)(vi) herein shall remain
in full force and effect and nothing in this Section 8(a) shall diminish the
rights of the Seller to make a claim for indemnification against the Buyer
for a breach of such representation and warranty in Section 3(b)(vi).
(b) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE BUYER.
(i) In the event the Seller breaches any of its
representations or warranties contained in Section 4 herein or any of the
Seller or Seller Shareholders breaches any of its covenants contained in
Section 6 (other than the Covenant Not to Compete as contained in
Section 6(e)) and provided that the particular representation, warranty or
covenant survives the Closing and that the Buyer makes a written claim for
indemnification against the Seller pursuant to Section 10(h) herein within
the applicable survival period, then the Seller agrees to indemnify the
Buyer from and against any Adverse Consequences (x) in excess of $100,000
in the aggregate and (y) for an amount not to exceed $1 million in the
aggregate ($500,000 of which shall be deposited by the Seller into an
interest bearing escrow mutually acceptable to the Buyer and Seller not to
be released prior to eighteen (18) months without Buyer's consent), the
Buyer may suffer through and after the date of the claim for
indemnification (including any Adverse Consequences the Buyer may suffer
after the end of the applicable survival period) resulting from, arising
out of, relating to, in the nature of, or caused by the breach; provided,
however, that the Seller agrees to indemnify the Buyer from and against the
entirety of any Adverse Consequences the Buyer may suffer through and after
the date of the claim for indemnification (including any Adverse
Consequences the Buyer may suffer after the end of the applicable survival
period) resulting from, arising out of, relating to, in the nature of, or
caused by the breach in the event of fraud, deceit, intentional
misrepresentation or active concealment by the Seller or Seller
Shareholders.
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(ii) In the event that the Seller breaches its Covenant Not
to Compete contained in Section 6(e) herein, and provided that the Buyer
makes a written claim for indemnification against the Seller pursuant to
Section 10(h) herein, then the Seller agrees to indemnify the Buyer from
and against the entirety of any Adverse Consequences the Buyer may suffer
through and after the date of the claim for indemnification (including any
Adverse Consequences the Buyer may suffer after the end of the applicable
survival period) resulting from, arising out of, relating to, in the nature
of, or caused by the breach.
(iii) In the event any of the Seller or Seller Shareholders
breaches the representations and warranties in Section 3(a) herein and
provided that the Buyer makes a written claim for indemnification against
the Seller Shareholders pursuant to Section 10(h) herein, then the Seller
Shareholders agree to indemnify the Buyer from and against the entirety of
any Adverse Consequences the Buyer may suffer through and after the date of
the claim for indemnification (including any Adverse Consequences the Buyer
may suffer after the end of the applicable survival period) resulting from,
arising out of, relating to, in the nature of, or caused by the breach to
be apportioned as follows: (x) seventy-five percent (75%) shall be a Joint
and Several obligation of Madison Graves, Jay Bingham and Fred Ahlstrom;
and (y) twenty-five percent (25%) shall be a Several obligation of Mark
Doppe.
(c) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE SELLER.
(i) In the event the Buyer breaches any of its
representations or warranties contained herein, and provided that the
particular representation or warranty survives the Closing and the Seller
makes a written claim for indemnification against the Buyer pursuant to
Section 10(h) herein within the applicable survival period, then the Buyer
agrees to indemnify the Seller from and against the entirety of any Adverse
Consequences the Seller may suffer through and after the date of the claim
for indemnification (including any Adverse Consequences the Seller may
suffer after the end of
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the applicable survival period) resulting from, arising out of, relating
to, in the nature of, or caused by the breach.
(ii) In the event the Buyer breaches any of its covenants
contained in Section 6 herein, and provided that the particular covenant
survives the Closing and that the Seller makes a written claim for
indemnification against the Buyer pursuant to Section 10(h) herein within
the applicable survival period, then the Buyer agrees to indemnify the
Seller from and against any Adverse Consequences (x) in excess of $100,000
in the aggregate and (y) for an amount not to exceed $1 million in the
aggregate, the Seller may suffer through and after the date of the claim
for indemnification (including any Adverse Consequences the Seller may
suffer after the end of the applicable survival period) resulting from,
arising out of, relating to, in the nature of, or caused by the breach.
(d) MATTERS INVOLVING THIRD PARTIES. If any third party shall
notify any Party (the "Indemnified Party") with respect to any matter which may
give rise to a claim for indemnification against any other Party (the
"Indemnifying Party") under this Section 8, then the Indemnified Party shall
notify each Indemnifying Party thereof promptly; provided, however, that no
delay on the part of the Indemnified Party in notifying any Indemnifying Party
shall relieve the Indemnifying Party from any liability or obligation hereunder
unless (and then solely to the extent) the Indemnifying Party thereby is
damaged. In the event any Indemnifying Party notifies the Indemnified Party
within thirty (30) days after the Indemnified Party has given notice of the
matter that the Indemnifying Party is assuming the defense thereof, (A) the
Indemnifying Party will defend the Indemnified Party against the matter with
counsel of the Indemnifying Party's choice reasonably satisfactory to the
Indemnified Party, (B) the Indemnified Party may retain separate co-counsel at
its sole cost and expense (except that the Indemnifying Party will be
responsible for the fees and expenses of the separate co-counsel to the extent
the Indemnified Party concludes reasonably that the counsel the Indemnifying
Party has selected has a conflict of interest), (C) the Indemnified Party will
not consent to the entry of any judgment or enter into any settlement with
respect to the matter without the written consent of the Indemnifying Party (not
to be withheld unreasonably), and (D) the Indemnifying Party will not
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consent to the entry of any judgment with respect to the matter, or enter
into any settlement which does not include a provision whereby the plaintiff
or claimant in the matter releases the Indemnified Party from all Liability
(whether known or unknown) with respect thereto, without the written consent
of the Indemnified Party (not to be withheld unreasonably). In the event no
Indemnifying Party notifies the Indemnified Party within thirty (30) days
after the Indemnified Party has given notice of the matter that the
Indemnifying Party is assuming the defense thereof, however, the Indemnified
Party may defend against, or enter into any settlement with respect to, the
matter in any manner it reasonably may deem appropriate, provided that the
Indemnifying Party shall not, without the written consent of the Indemnifying
Party (which consent shall not be withheld unreasonably) compromise or settle
any such matter.
(e) DETERMINATION OF LOSS. The Parties shall make appropriate
adjustments for Tax benefits and insurance proceeds (reasonably certain of
receipt and utility in each case) and for the time cost of money (using the
Applicable Rate as the discount rate) in determining the amount of loss for
purposes of this Section 8. All indemnification payments under this Section 8
shall be deemed adjustments to the Purchase Price.
(f) DAMAGES. Notwithstanding any other provision of this
Section 8, in no event shall the Parties be obligated to indemnify for any
consequential damages resulting from any misrepresentation or breach of any
warranty, covenant or agreement, including, but not limited to, loss of revenue
or income, or loss of business reputation or opportunity relating to the breach
or alleged breach of this Agreement, unless the Indemnified Party is liable to a
third party for such consequential damages, and further provided that inasmuch
as the Seller has agreed to make an election under Section 338(h)(10) of the
Code as an accommodation to the Buyer, in no event shall the Seller be obligated
to indemnify the Buyer for any Adverse Consequences resulting from an audit of
the Seller or the Buyer by the Internal Revenue Service or any state or local
tax authority with regard to the Buyer's tax treatment of the transaction as a
stock purchase treated as an asset purchase under such Section of the Code.
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(g) EXCLUSIVE REMEDIES. The remedies contained in this
Agreement, and any statutory, common law or equitable remedies available to the
Buyer for any Adverse Consequences the Buyer may suffer resulting from, arising
out of, relating to, in the nature of, or caused by the breach of a
representation, warranty or covenant of the Seller or a Seller Shareholder in
the event of fraud, deceit, intentional misrepresentation or active concealment
by the Seller or a Seller Shareholder, shall be exclusive of all other statutory
or common law remedies any Party may have for breach of a representation,
warranty or covenant.
9. [Intentionally Deleted]
10. MISCELLANEOUS.
(a) [Intentionally Deleted]
(b) PRESS RELEASES AND ANNOUNCEMENTS. No Party shall issue any
press release, announcement or other public communication relating to the
subject matter of this Agreement or any of the transactions contemplated hereby
without the prior written approval of the Buyer and the Seller (which approval
will not be unreasonably withheld); provided, however, that any Party may make
any public disclosure it believes in good faith is required by law or regulation
(in which case the disclosing Party will advise the other Parties a reasonable
amount of time prior to making the disclosure). The transactions contemplated
hereby shall remain confidential until they are publicly announced by the Buyer.
(c) NO THIRD-PARTY BENEFICIARIES. This Agreement shall not
confer any rights or remedies upon any person other than the Parties and their
respective successors and permitted assigns.
(d) ENTIRE AGREEMENT. This Agreement (including the documents
referred to herein) constitutes the entire agreement among the Parties and
supersedes any prior understandings, agreements, letters of intent, or
representations by or among the Parties, written or oral, that may have related
in any way to the subject matter hereof.
(e) SUCCESSION AND ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the Parties named
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herein and their respective successors and permitted assigns. No Party may
assign either this Agreement or any of his or its rights, interests, or
obligations hereunder without the prior written approval of the Buyer and the
Seller; provided, however, that the Buyer may (i) assign any or all of its
rights and interests hereunder to one or more of its Affiliates and (ii)
designate one or more of its Affiliates to perform its obligations hereunder
(in any or all of which cases the Buyer nonetheless shall remain liable and
responsible for the performance of all of its obligations hereunder).
(f) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(g) HEADINGS. The section headings contained in this Agreement
are inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(h) NOTICES. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
(i) If to the Seller or the Seller Shareholders:
Falcon Development Corporation
2290 South Jones Boulevard #110
Las Vegas, Nevada 89102
Attn: James Betz, Esq.
phone: (702) 221-2338
fax: (702) 871-3945;
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(ii) with a copy to:
O'Melveny & Myers
610 Newport Center Drive, Suite 1700
Newport Beach, CA 92660
Attn: David A. Krinsky, Esq.
phone: (714) 669-7902
fax: (714) 669-6994;
(iii) If to the Buyer:
Schuler Homes, Inc.
828 Fort Street Mall, 4th Floor
Honolulu, HI 96813
Attn: James K. Schuler
phone: (808) 521-5661
fax: (808) 538-1476;
(iv) with a copy to:
Brobeck, Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
Attn: Thomas A. Bevilacqua, Esq
phone: (415) 496-2644
fax: (415) 496-2755.
Any Party may give any notice, request, demand, claim, or other communication
hereunder using any other means (including personal delivery, expedited courier,
messenger service, telecopy, telex, ordinary mail, or electronic mail), but no
such notice, request, demand, claim, or other communication shall be deemed to
have been duly given unless and until it actually is received by the individual
for whom it is intended. Any Party may change the address to which notices,
requests, demands, claims, and other communications hereunder are to be
delivered by giving the other Parties notice in the manner herein set forth.
(i) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws (and not the law of conflicts) of
the State of Delaware.
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(j) AMENDMENTS AND WAIVERS. No amendment of any provisions of
this Agreement shall be valid unless the same shall be in writing and signed by
the Buyer and the Seller. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(k) SEVERABILITY. Any term or provision of this Agreement that
is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction. If the final judgment of a
court of competent jurisdiction declares that any term or provision hereof is
invalid or unenforceable, the Parties agree that the court making the
determination of invalidity or unenforceability shall have the power to reduce
the scope, duration, or area of the term or provision, to delete specific words
or phrases, or to replace any invalid or unenforceable term or provision with a
term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision, and
this Agreement shall be enforceable as so modified after the expiration of the
time within which the judgment may be appealed.
(l) EXPENSES. The Buyer shall bear the costs and expenses
(including without limitation investment banking, legal and accounting fees)
incurred by the Seller in connection with this Agreement and the transactions
contemplated hereby, in an amount not to exceed $150,000 which shall be
reimbursed no later than ten (10) days after the receipt by the Buyer of a
reasonably detailed invoice from the Seller. The Seller agrees that none of the
Target and its Subsidiaries has borne or will bear any of the Seller's costs and
expenses (including without limitation investment banking, legal and accounting
fees) in connection with this Agreement or any of the transactions contemplated
hereby.
(m) CONSTRUCTION. The language used in this Agreement will be
deemed to be the language chosen by the Parties to
70
<PAGE>
express their mutual intent, and no rule of strict construction shall be
applied against any Party. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise.
The Parties intend that each representation, warranty, and covenant contained
herein shall have independent significance. If any Party has breached any
representation, warranty, or covenant contained herein in any respect, the
fact that there exists another representation, warranty, or covenant relating
to the same subject matter (regardless of the relative levels of specificity)
which the Party has not breached shall not detract from or mitigate the fact
that the Party is in breach of the first representation, warranty, or
covenant.
(n) INCORPORATION OF EXHIBITS, ANNEXES, AND SCHEDULES. The
Exhibits, Annexes, and Schedules identified in this Agreement are incorporated
herein by reference and made a part hereof.
(o) SPECIFIC PERFORMANCE. Each of the Parties acknowledges and
agrees that the other Parties would be damaged irreparably in the event any of
the provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the Parties
agrees that the other Parties shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof in any action
instituted in any court of the United States or any state thereof having
jurisdiction over the Parties and the matter (subject to the provisions set
forth in Section 10(p) herein), in addition to any other remedy to which they
may be entitled, at law or in equity.
(p) SUBMISSION TO JURISDICTION. Each of the Parties submits to
the jurisdiction of any state or federal court sitting in San Francisco,
California in any action or proceeding arising out of or relating to this
Agreement, agrees that all claims in respect of the action or proceeding may be
heard and determined in any such court, and agrees not to bring any action or
proceeding arising out of or relating to this Agreement in any other court.
Each of the Parties waives any defense of inconvenient forum to the maintenance
of any action or proceeding
71
<PAGE>
so brought and waives any bond, surety, or other security that might be
required of any other Party with respect thereto. Each Party agrees that a
final judgment in any action or proceeding so brought shall be conclusive and
may be enforced by suit on the judgment or in any other manner provided by
law.
(q) ATTORNEYS' FEES AND COSTS. In the event a civil action is
brought by a Party to enforce the provisions of this Agreement, the Party
prevailing in such litigation shall be entitled to recover from the other Party
the prevailing Party's reasonable attorneys' fees and costs incurred in
connection with such civil action.
[The remainder of this page is intentionally left blank.]
72
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
SCHULER HOMES, INC.
By: /s/ James K. Schuler
---------------------------------------
Name: James K. Schuler
Title: President
FALCON DEVELOPMENT CORPORATION
By: /s/ Fred Ahlstrom
---------------------------------------
Name: Fred Ahlstrom
Title: President
/s/ Madison Graves
-------------------------------------------
Madison Graves
/s/ Jay Bingham
-------------------------------------------
Jay Bingham
/s/ Fred Ahlstrom
-------------------------------------------
Fred Ahlstrom
/s/ Mark Doppe
-------------------------------------------
Mark Doppe
<PAGE>
SUPPLEMENT NO. 1 TO CREDIT AGREEMENT
This Supplement No. 1 to Credit Agreement ("Supplement No. 1") is entered
into by and among SCHULER HOMES, INC., a Delaware corporation (the "Company")
the banks party to this Supplement No. 1 (collectively referred to as the
"Banks", and individually referred to as a "Bank"), and FIRST HAWAIIAN BANK, a
Hawaii corporation, as agent for the Banks (the "Agent"), and shall be effective
as of January 8, 1997 (the "Effective Date").
This Supplement No. 1 modifies, during the "Waiver Period" defined below,
certain of the provisions and agreements contained in that certain Credit
Agreement dated as of March 29, 1996 (the "Credit Agreement") executed by the
Company, the Agent and the Banks, relating to the establishment of a revolving
credit facility in the amount of U.S. $110,000,000.00, made available to the
Company by the Banks. All capitalized terms used herein, unless specifically
defined herein, shall have the same meanings such terms have in the Credit
Agreement.
In consideration of the mutual agreements, provisions and covenants
contained herein, the parties agree as follows:
1. As used in this Supplement No. 1, the period between the Effective
Date to (and including) March 31, 1997, shall be called the "Waiver Period".
2. During the Waiver Period, the Company shall have the right, within
the limits of the Aggregate Commitment, to use the proceeds of Advances, in
an amount not to exceed $40,000,000.00 in the aggregate (hereinafter called
the "MHI Sublimit"), for the acquisition of 100% of the stock of Melody
Homes, Inc., a Delaware corporation, and of Melody Mortgage Co., a Colorado
corporation; for transaction and other miscellaneous costs associated with
such acquisition; and for the refinancing of certain loans and off-balance
sheet land option arrangements incurred by Melody Homes, Inc., all as more
particularly set forth in Exhibit "1" attached hereto and made a part hereof.
3. On or before the Effective Date, the Company shall pay to the
Agent (to be shared by the Banks in accordance with their respective
Commitment Percentages) an "MHI Sublimit Fee" in the amount of $140,000.00.
The payment of the MHI Sublimit Fee shall not reduce or be considered a
credit toward any Origination Fees, Commitment Fees, Letter of Credit Fees,
Agency Fees, or Unused Facility Fees otherwise payable by the Company under
the Credit Agreement (except to the extent that the funding of an Advance
under the MHI Sublimit reduces the "unused" portion of any Bank's Revolving
Commitment).
4. During the Waiver Period, the requirements of Section 6.07 of the
Credit Agreement shall be suspended; instead, during the Waiver Period, the
Company shall be required to maintain the Consolidated Tangible Net Worth of
the Company and its Subsidiaries, determined in the same manner as provided
in the Credit Agreement and measured as at March 31, 1997, at a level equal
to or greater than $140,000,000.00.
<PAGE>
5. During the Waiver Period, the requirements of Section 7.04 of the
Credit Agreement shall be suspended; instead, during the Waiver Period, the
Company shall not allow the Fixed Charge Coverage Ratio, determined in the
same manner as provided in the Credit Agreement and measured as of December
31, 1996, and March 31, 1997, on a rolling four (4) Quarters basis, to be
less than .90 to 1.
6. During the Waiver Period, the requirements of Section 7.05 of the
Credit Agreement shall be suspended; instead, on the Effective Date, the
Company shall be permitted to repay or permit Melody Homes, Inc., to repay
the indebtedness listed on Exhibit "1" attached hereto, but the Company shall
not repay or permit any of its Subsidiaries to repay any other Subordinated
Debt during the Waiver Period.
7. During the Waiver Period, the requirements of Section 7.06 of the
Credit Agreement shall be suspended; instead, during the Waiver Period, the
Company shall be permitted to allow Melody Homes, Inc., to retain its
existing indebtedness with Bank One, Arizona, N.A., a national banking
association ("Bank One"), and to incur additional indebtedness from Bank One
under the "Bank One Facility" (as defined in Paragraph 22 hereof) on projects
already approved by Bank One as of the date hereof, but not to obtain any
financing for new projects under the Bank One Facility, without the consent
of the Majority Banks (provided that the Majority Banks shall use their best
efforts to grant or deny such consent within the time-frame used by Bank One
to grant or deny such consent under the Bank One Facility), or to incur any
additional indebtedness, except as provided in this paragraph or in the
Negative Pledge Agreement described in subparagraph 11(a) below.
8. During the Waiver Period, the requirements of Section 7.07 of the
Credit Agreement shall be suspended; instead, during the Waiver Period, the
Company shall be permitted, in addition to the investments and acquisitions
allowed under Section 7.07, to acquire 100% of the stock of Melody Homes,
Inc., and Melody Mortgage Co., as described in, and for the amounts set forth
in, Paragraph 2 above.
9. During the Waiver Period, the requirements of Section 7.09 of the
Credit Agreement shall be suspended; instead, during the Waiver Period, the
Company shall be permitted to allow Melody Homes, Inc., to retain its
existing indebtedness with Bank One and to incur additional indebtedness from
Bank One under the Bank One Facility on projects already approved by Bank One
as of the date hereof, but not to obtain any financing for new projects under
the Bank One Facility, without the consent of the Majority Banks (provided
that the Majority Banks shall use their best efforts to grant or deny such
consent within the time-frame used by Bank One to grant or deny such consent
under the Bank One Facility), or to incur any additional indebtedness, except
as provided in this paragraph or in the Negative Pledge Agreement described
in subparagraph 11(a) below.
10. On March 31, 1997, the Company shall repay all amounts advanced
under the MHI Sublimit, or enter into an amendment to and restatement of the
Credit Agreement, in form and substance satisfactory to the Banks.
<PAGE>
11. On or before the first business day after the Effective Date, the
Agent shall have received the following documents:
(a) a Negative Pledge Agreement, in form and substance
satisfactory to the Banks, executed by Melody Homes, Inc., and Melody
Mortgage Co., containing the agreement by Melody Homes, Inc., and Melody
Mortgage Co., not to incur any additional indebtedness, or encumber any of
its assets, after the Effective Date, without the consent of the Majority
Banks, except as otherwise provided therein;
(b) a Negative Pledge Agreement, in form and substance satisfactory
to the Banks, executed by the Company, containing the agreement by the Company
not to sell, assign, pledge, encumber, hypothecate or otherwise dispose of, any
stock in Melody Homes, Inc., or Melody Mortgage Co., without the consent of the
Majority Banks;
(c) a Security Agreement, in form and substance satisfactory to the
Banks, executed by Melody Homes, Inc., and Melody Mortgage Co., granting a
security interest in all of the assets of Melody Homes, Inc. and Melody Mortgage
Co. (which security interest shall be subordinate to existing liens granted by
Melody Homes, Inc. and/or Melody Mortgage Co. in favor of Bank One), securing
not more than $14,000,000.00 of indebtedness owed by the Company to the Banks
under the Credit Agreement (said $14,000,000.00 being less than the net worth of
Melody Homes, Inc., as at September 30, 1996, excluding inter-company assets and
liabilities), which security interest shall remain in effect until all amounts
due under the Credit Agreement are paid in full;
(d) a UCC-1 Financing Statement, in form and substance satisfactory
to the Banks, executed by Melody Homes, Inc., and Melody Mortgage Co.,
perfecting the security interest granted by the Security Agreement described in
subparagraph 11(c) above, to be filed in the appropriate recording office in the
State of Colorado;
(e) properly certified resolutions of the Board of Directors of the
Company (i) duly authorizing the execution and delivery of this Supplement No.
1, the Negative Pledge Agreement referred to in subparagraph 11(b) of this
Supplement No. 1, and the other documents contemplated hereby, by the Company,
and the performance by the Company of all of the agreements and obligations
contained herein, and (ii) containing the verification of the names and
signatures of the officers of the Company authorized to execute this Supplement
No. 1 and the other documents contemplated hereby;
(f) properly certified resolutions of the Board of Directors of
Melody Homes, Inc., and of Melody Mortgage Co., (i) duly authorizing the
execution and delivery of the Negative Pledge Agreement, the Security Agreement
and the UCC-1 Financing Statement referred to in subparagraphs 11(a), (c) and
(d) above, and the other documents contemplated hereby by Melody Homes, Inc.,
and Melody Mortgage Co., and the performance by Melody Homes Inc., and Melody
Mortgage Co., of all of the
<PAGE>
agreements and obligations contained therein, and (ii) containing the
verification of the names and signatures of the officers of Melody Homes, Inc.,
and Melody Mortgage Co., authorized to execute such documents;
(g) an opinion from counsel to the Company stating that after the
execution and delivery of this Supplement No. 1 and the Negative Pledge
Agreement referred to in subparagraph 11(b) of this Supplement No. 1, by the
Company, the Credit Agreement and the Loan Documents will continue to be
enforceable in accordance with their terms and will continue to constitute the
valid and legally binding obligations of the Company; and
(h) an opinion from counsel to Melody Homes, Inc., and Melody
Mortgage Co., stating that the Negative Pledge Agreement, the Security Agreement
and the UCC-1 Financing Statement referred to in subparagraphs 11(a), (c) and
(d) of this Supplement No. 1 will be enforceable in accordance with their terms
and will constitute the valid and legally binding obligations of Melody Homes,
Inc., and Melody Mortgage Co.; provided, however, that if such opinion is not
available on the Effective Date, the Company shall provide such an opinion to
the Agent, in form and substance satisfactory to the Banks, no later than
January 13, 1997, and the failure to do so shall constitute an Event of Default
under the Credit Agreement.
12. The Company hereby repeats, reaffirms and incorporates herein by
reference all of the representations and warranties contained in Article V of
the Credit Agreement.
13. The Credit Agreement and the other Loan Documents are hereby amended
to conform with this Supplement No. 1, but in all other respects such provisions
are to be and continue in full force and effect. Without limiting the
generality of the foregoing, it is understood and agreed that any Advance made
under the MHI Sublimit will be subject to all other terms and provisions of the
Credit Agreement, including without limitation, Borrowing Base limitations,
Leverage Ratio determinations to calculate Conforming or Nonconforming Prime
Rate Advances and Conforming or Nonconforming LIBO Rate Advances, and procedures
for Borrowing.
14. As of the date hereof, the Company has no claims, defenses or
offsets against the Agent or the Banks, or against the Company's obligations
under the Loan Documents, whether in connection with the negotiations for or
closing of the credit facility described in the Credit Agreement, of this
Supplement No. 1, or otherwise, and if any such claims, defenses or offsets
exist, they are hereby irrevocably waived and released.
15. This Supplement No. 1 incorporates all of the agreements between
the parties relating to the modification of the terms of the Credit Agreement
relative to the acquisition of Melody Homes, Inc., and Melody Mortgage Co.,
and supersedes all other prior or concurrent oral or written letters,
agreements or understandings relating thereto.
16. This Supplement No. 1 is executed and delivered, and shall be
construed
<PAGE>
and enforced, in accordance with and governed by the laws of the State of
Hawaii. If any provision of this Supplement No. 1 is held to be invalid or
unenforceable, the validity or enforceability of the other provisions of this
Supplement No. 1 shall remain unaffected.
17. The Company hereby irrevocably and unconditionally submits to the
jurisdiction of the courts of the State of Hawaii and the United States
District Court for the District of Hawaii. Such submission to such
jurisdiction shall not prevent the Agent from commencing any such action or
proceeding in any other court having jurisdiction.
18. This Supplement No. 1 may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same instrument, and in making proof of
this instrument, it shall not be necessary to produce or account for more
than one such counterpart.
19. The Company shall pay all out-of-pocket expenses incurred and
paid by the Agent to third parties in connection with the negotiations for
and documentation of this Supplement No. 1 and the satisfaction of the
conditions thereof, including, but not limited to, fees and charges for
property inspection costs, recording fees, taxes, appraisal fees, fees and
expenses of legal counsel for the Agent, and any other out-of-pocket costs
incurred and paid by the Agent to third parties in connection with any of the
matters described herein.
20. This Supplement No. 1 shall bind and inure to the benefit of the
parties hereto and their respective successors and assigns; provided,
however, that the Company shall not assign this Supplement No. 1 or any of
the rights, duties or obligations of Company hereunder without the prior
written consent of the Agent and each Bank.
22. The occurrence and continuation of an Event of Default, as defined
in that certain Amended and Restated Loan Agreement dated November 25, 1996,
as amended by Modification Agreement dated January 7, 1997, between Melody
Homes, Inc., and Bank One, and as the same may be further amended or modified
(the "Bank One Facility"), relating solely and exclusively to the breach or
non-compliance by Melody Homes, Inc., under the financial covenants set forth
in Sections 10.21 and 10.24 of the Bank One Facility, shall, unless such
breach or non-compliance is waived by Bank One, constitute a default under
the Credit Agreement. A true and correct copy of the Amended and Restated
Loan Agreement dated November 25, 1996, and all amendments thereto is
attached hereto as Exhibit "A".
IN WITNESS WHEREOF, the parties hereto have executed this Supplement No.
1 the day and year first above written.
SCHULER HOMES, INC.
<PAGE>
By /s/ James K. Schuler
------------------------------------------
Name: James K. Schuler
Title: President
FIRST HAWAIIAN BANK, as Agent
By /s/ Koren K. Kubota
------------------------------------------
Name: Koren K. Kubota
Title: Senior Vice President
<PAGE>
FIRST HAWAIIAN BANK, as a Bank
By /s/ Koren K. Kubota
------------------------------------------
Name: Koren K. Kubota
Title: Senior Vice President
BANK OF AMERICA NT&SA
By /s/ Robert S. Dowling
------------------------------------------
Name: Robert S. Dowling
Title: Vice President
NBD BANK
By /s/ Timothy P. O'Neil
------------------------------------------
Name: Timothy P. O'Neil
Title: Authorized Agent
BANK OF BOSTON
By /s/ Nicholas Whiting
------------------------------------------
Name: Nicholas Whiting
Title: Vice President
BANK OF HAWAII
By /s/ Joyce Y. Sakai
------------------------------------------
Name: Joyce Y. Sakai
Title: Vice President
<PAGE>
SECURITY AGREEMENT
THIS SECURITY AGREEMENT ("Security Agreement") made as of January 8, 1997,
by and between MELODY HOMES, INC., a Delaware corporation, and MELODY MORTGAGE
CO., a Colorado corporation (hereinafter individually and collectively called
the "Debtor"), and FIRST HAWAIIAN BANK, a Hawaii corporation, as agent for the
"Banks" listed on that certain Credit Agreement dated March 29, 1996, executed
by and between Schuler Homes, Inc., a Delaware corporation and said Banks
(hereinafter called the "Secured Party"),
WITNESSETH THAT
To secure the repayment of up to FOURTEEN MILLION AND NO/100 DOLLARS
($14,000,000.00) of indebtedness incurred by Schuler Homes, Inc., a Delaware
corporation (the "Borrower") in the total principal sum of ONE HUNDRED TEN
MILLION AND NO/100 DOLLARS ($110,000,000.00), which indebtedness is evidenced by
that certain promissory note in that amount dated March 29, 1996, executed by
the Borrower, as maker, and made payable to the Secured Party, the provisions of
such note and any renewals, extensions or modifications thereof being
incorporated herein by reference, being secured hereby and being hereinafter
referred to as the "Note";
AND ALSO to secure the observance and performance by the Debtor of all
covenants, agreements, obligations and conditions required to be observed and
performed by the Debtor under this Security Agreement, including, but not
limited to, the payment by the Debtor to the Secured Party of all sums expended
or advanced by the Secured Party pursuant to the provisions of this Security
Agreement, and under that certain Negative Pledge Agreement executed
concurrently herewith by the Debtor for the benefit of the Secured Party (the
"Negative Pledge Agreement");
AND ALSO to secure the observance and performance by the Borrower of all
covenants, agreements, obligations and conditions required to be observed and
performed by the Borrower under that certain Credit Agreement dated March 29,
1996, executed by the Borrower and the Secured Party, as amended by Supplement
No. 1 to Credit Agreement dated as of January 8, 1997 (the "Credit Agreement"),
and the observance and performance by the Borrower or the Debtor of all
covenants, agreements, obligations and conditions required to be observed and
performed by the Borrower or the Debtor under the other "Loan Documents", as
defined therein;
AND ALSO to secure the payment by the Borrower to the Secured Party of all
other sums now or hereafter loaned or advanced by the Secured Party to the
Borrower, expended by the Secured Party for the account of the Borrower, or
otherwise owing by the Borrower to the Secured Party on any and every account
whatsoever;
THE DEBTOR DOES HEREBY grant, assign, convey, transfer, deliver, and set
over to the Secured Party, its successors and assigns, absolutely and forever,
all of the property set forth in Exhibit "1" attached hereto and made a part
hereof (hereinafter
<PAGE>
called the "Collateral"), TOGETHER WITH a "security interest", as that term is
used or defined in the Uniform Commercial Code as enacted in the State of
Colorado, in such property, upon the terms and conditions hereinafter set forth,
subject, however, only to the prior security interest of Bank One, Arizona,
N.A., a national banking association ("Bank One"); provided however that the
security interest granted by these presents shall remain in effect until all
amounts due under the Credit Agreement are paid in full.
TOGETHER WITH all right, title and interest of the Debtor in, and to use,
lease or dispose of, the Collateral as well as any proceeds deriving from such
Collateral;
TO HAVE AND TO HOLD the same unto the Secured Party and its successors and
assigns, absolutely and forever, as security as aforesaid;
UPON CONDITION that if the Borrower shall well and truly pay to the Secured
Party the principal amount of the Note, with interest, fees, charges and
premium, if any, according to its provisions and effect, and if the Borrower
shall discharge any and all obligations that now or hereafter may be or become
owing, directly or contingently, by the Borrower to the Secured Party on any and
every account, whether or not the same are mature, of which obligations the
books of the Secured Party shall be PRIMA FACIE evidence, and if the Debtor
shall observe and perform all of the covenants, agreements, obligations and
conditions to be observed and performed by the Debtor under this Security
Agreement and the Negative Pledge Agreement, and if the Borrower or the Debtor
shall observe and perform all of the covenants, agreements, obligations and
conditions required to be observed and performed by the Borrower or the Debtor
under the other Loan Documents, and if the Debtor shall pay the costs of
release, the Secured Party will, upon request of the Debtor, release the
Collateral from the security interest created by this Security Agreement and
these presents shall be void, it being understood, however, that an affidavit,
certificate, letter or statement of any officer of the Secured Party showing
that any part of the indebtedness remains unpaid or any covenants, agreements,
obligations or conditions remain unperformed shall constitute conclusive
evidence of the validity, effectiveness and continuing force of this Security
Agreement.
Subject to the terms hereof, until the happening of an Event of Default, as
hereinafter defined, the Debtor shall be entitled to use and to possess the
Collateral.
BUT, if any one or more of the following events, hereinafter called "Events
of Default" shall occur:
(a) Default shall be made by the Borrower in the payment of principal,
interest, fees or charges when due on the Note; or
(b) Default shall be made by the Debtor in the due and punctual observance
or performance of any other covenant, agreement, obligation or condition
required to be observed or performed by the Debtor under this Security Agreement
or the Negative Pledge Agreement, or by the Borrower or the Debtor in the due
and punctual observance and performance of any other covenant, agreement,
obligation or condition
<PAGE>
required to be observed or performed by the Borrower or the Debtor under any of
the other Loan Documents and such default shall not be remedied within twenty
(20) days after the Secured Party notifies the Debtor or the Borrower of such
default; or
(c) The Borrower or the Debtor shall become voluntarily or involuntarily
dissolved or become insolvent, or the Borrower or the Debtor shall admit in
writing the Borrower's or the Debtor's inability to meet the Borrower's or the
Debtor's debts as they become due, or shall file a voluntary petition in
bankruptcy, or make an assignment for the benefit of creditors, or consent to
the appointment of a receiver or trustee for all or a substantial part of the
Borrower's or the Debtor's properties, or file a petition, answer or other
instrument seeking or acquiescing to the arrangement of the Borrower's or the
Debtor's debts, or other relief under the federal bankruptcy laws or any other
applicable law of the United States of America or any state or territory thereof
for the relief of debtors; or
(d) A decree or order of a court having jurisdiction in the premises shall
be entered (i) adjudging the Borrower or the Debtor to be bankrupt or insolvent,
or (ii) appointing a receiver or trustee or assignee in bankruptcy or insolvency
of the Borrower or the Debtor or the Borrower's or the Debtor's properties, or
(iii) directing the winding up or liquidation of the Borrower's or the Debtor's
affairs; or
(e) Any representation or warranty made by the Debtor herein, or by the
Borrower or the Debtor in connection with any of the other Loan Documents, shall
be untrue in any material respect; or
(f) All or a material part of the Collateral shall substantially decrease
in value and, after demand by the Secured Party, the Debtor shall fail to
furnish additional security satisfactory to the Secured Party; or
(g) There shall be any attachment, execution, forfeiture or other seizure
of, or affecting, the Collateral, or any part thereof, unless the Debtor sets
aside, dissolves, bonds off or otherwise eliminates such attachment, execution
or seizure within thirty (30) days after its occurrence; or
(h) There shall be entered against the Borrower or the Debtor a final
judgment which alone or with other outstanding final judgments against the
Borrower or the Debtor exceeds in the aggregate $100,000.00, and within thirty
(30) days after entry thereof such judgment or judgments shall not have been
discharged or execution thereof stayed pending appeal, or within thirty (30)
days after the expiration of any such stay such judgment or judgments shall not
have been discharged; or
(i) Any other "Event of Default", as defined in the Credit Agreement,
shall have occurred and such default shall not have been remedied within the
applicable grace period, if any, therefor; or
THEN, AND IN ANY SUCH EVENT, the Secured Party, without obligation to do so
and without releasing or waiving any of its rights, shall have the right, power,
and
<PAGE>
authority, without notice, presentment or demand, to declare the unpaid
principal amount of the Note and any interest thereon accrued and unpaid, and
all fees, charges, and other sums due under the Loan Documents, to be
immediately due and payable, whereupon such principal amount and interest and
all such fees, charges and other sums, shall become and be immediately due and
payable, and shall thereafter bear interest until fully paid at the rate
specified in the Note to be paid in the event of default, and the Secured Party
may, at its option, without notice and irrespective of whether declaration of
default is required to be delivered to any party named in the Loan Documents or
other instrument or obligations securing the Note or secured hereunder or
whether remedies under other security instruments have been exercised, exercise
all rights and remedies contained in the Loan Documents, including this Security
Agreement, and shall have all rights and remedies available to the Secured Party
under the Uniform Commercial Code or other applicable laws.
Without limiting the generality of the foregoing, upon the occurrence of an
Event of Default:
(a) The Secured Party may, at the Secured Party's option and at the
Debtor's expense, either in the Secured Party's own right or in the name of
the Debtor and in the same manner and to the same extent that the Debtor
might reasonably so act if this Security Agreement had not been made, (i)
demand, sue for, collect, recover, receive and otherwise enforce payment of
all proceeds and other sums due and payable from the Collateral, the Debtor
hereby requesting and instructing all other parties to the "Contracts" (as
that term is defined in Exhibit "1") or liable to the Debtor in connection
with the Collateral to make all payments then due or which may thereafter
become due thereunder or thereby directly to the Secured Party, and the
Debtor further agreeing that the receipt by the Secured Party of any such
payments shall be a complete release and discharge of the obligor or
obligors thereof to the extent of the payment or payments so made; (ii) do
all things requisite, convenient, or necessary to enforce the performance
and observance of any and all other covenants, agreements, conditions,
terms and provisions of the Contracts, and to exercise all the rights,
remedies and privileges of the Debtor contained in the Contracts or arising
from the Collateral, or any part thereof, including, but not limited to,
the making, modifying, amending, enforcing, cancelling, surrendering or
accepting the surrender of, terminating or extending any of the Contracts
now or hereafter in effect, and also including the compromising, waiving,
excusing, or in any manner releasing or discharging of any obligation of
any party to or arising from the Collateral; (iii) take possession of the
books, papers, and accounts of the Debtor, wherever located, relating to
the Collateral; (iv) receive, and the Debtor will forthwith surrender to
the Secured Party, the possession of the Collateral, and, to the extent
permitted by law, the Secured Party may itself or by such officers or
agents as it may appoint (A) manage or operate the Collateral or any part
thereof, (B) exclude the Debtor, its agents and servants therefrom, (C)
make, enforce, modify and accept the surrender of any Contracts or leases
covering all or any portion of any property owned by the Debtor (the
"Property"), (D) obtain and evict tenants, fix or modify purchase prices or
rents, fill any and all vacancies
<PAGE>
and lease the Property, or any part thereof, and (E) do all acts, including
the making of contracts, which the Secured Party deems necessary for the
care or management of the Property, or the "Personal Property" (as that
term is defined in Exhibit "1"); (v) sue or otherwise collect and receive
moneys; and (vi) do all other things requisite, convenient or necessary to
require the other parties to the Contracts to perform the same, or which
the Secured Party deems proper to protect the security given hereunder.
(b) The Secured Party may foreclose this Security Agreement in the
manner now or hereafter provided or permitted by law, including treatment
of the Collateral as real property subject to judicial foreclosure, and
shall have the immediate right to receivership on EX PARTE order and
without bond pending foreclosure, and may sell, assign, transfer or
otherwise dispose of the Collateral at public or private sale, in whole or
in part, and the Secured Party may, in its own name or as the irrevocably
appointed attorney-in-fact of the Debtor, effectually assign and transfer
the Collateral, or any part thereof, absolutely, and execute and deliver
all necessary assignments, deeds, conveyances, bills of sale and other
instruments with power to substitute one or more persons or corporations
with like power; and, if the Secured Party so instructs the Debtor, the
Debtor shall assemble, without expense to the Secured Party, all of the
Collateral at a convenient place in the state where the Property is
located, and the Debtor shall ratify and confirm any such sale or transfer
by delivering all proper instruments to such persons or corporations as may
be designated in any such request. Any such foreclosure sale, assignment
or transfer shall, to the extent permitted by law, be a perpetual bar, both
at law and in equity, against the Debtor and all persons and entities
claiming by or through or under the Debtor. Any such sale may be adjourned
from time to time. Upon any sale, the Secured Party may bid for and
purchase the Collateral, or any part thereof, and upon compliance with the
terms of sale, may hold, retain and possess and dispose of the Collateral,
in its absolute right without further accountability, and the Secured
Party, at any such sale may, if permitted by law, after allowing for the
proportion of the total purchase price required to be paid in cash for the
costs and expenses of the sale, commissioner's compensation and other
charges, apply as a credit against the purchase price, in lieu of cash, all
amounts secured hereby, up to $14,000,000.00, to the extent required.
In case of any Event of Default, neither the Debtor nor anyone claiming by,
through or under the Debtor, to the extent the Debtor may lawfully so agree,
shall or will set up, claim or seek to take advantage of any appraisement,
valuation, stay, extension or redemption law now or hereafter in force in any
locality where any of the Collateral is situated in order to prevent or hinder
the enforcement of this Security Agreement, or the absolute sale of the
Collateral, or the final and absolute putting into possession thereof,
immediately after such sale, of the purchasers thereof; and the Debtor in the
Debtor's own right and for all who may claim under the Debtor, hereby waives, to
the full extent that the Debtor may lawfully do so, the benefit of all such laws
and any and all right to have the estates comprised in the security intended to
be created hereby marshalled upon any enforcement of the lien hereof and agrees
that the Secured Party or any court
<PAGE>
having jurisdiction to foreclose such lien may sell the Collateral in parts or
as an entirety. The Secured Party may apply the proceeds of any such sale in
such order as the Secured Party shall choose, (i) to the costs and expenses of
such sale and all proceedings in connection therewith, including counsel fees;
(ii) to the payment of any unreimbursed disbursements made by the Secured Party
for taxes or assessments or other charges affecting the Collateral; (iii) to the
repayment of all other unreimbursed disbursements and expenses and unpaid
charges and fees due and owing to the Secured Party under the provisions of this
Security Agreement or any of the other Loan Documents; and (iv) to the payment
of the unpaid principal of and interest on the Note, and all other obligations
of the Borrower or the Debtor under the Loan Documents, up to $14,000,000.00;
and the remainder, if any, shall be paid over to the Debtor. If such proceeds
shall be insufficient to discharge the entire indebtedness under the Loan
Documents, the Secured Party may have any other legal recourse against the
Borrower for the deficiency.
Nothing in this Security Agreement, the Note or any of the other Loan
Documents shall affect or impair the right, which is unconditional and absolute,
of the holder of the Note to enforce payment of the principal of, and interest
and other charges on, the Note at or after the date therein expressed as the
date when the same shall become due, or the obligation of the Borrower, which is
likewise unconditional and absolute, to pay such amounts at the respective times
and places therein expressed.
A. DEBTOR'S WARRANTIES. The Debtor warrants and represents to the
Secured Party as follows:
1. The Debtor is a party to each of the Contracts and is the
absolute and sole owner of the interest in and to the Contracts subject to this
Security Agreement, with full right and title to assign the same to the Secured
Party and to grant the Secured Party a security interest in the same and the
sums due or to become due thereunder; the Debtor has to date fully and
faithfully observed and performed all of the terms, obligations, covenants,
conditions, and warranties to be observed and performed by the Debtor
thereunder, and no event has occurred and is continuing which constitutes, or
with notice or the passage of time would constitute, a default thereunder; the
Contracts are genuine, valid, subsisting and enforceable upon all parties
thereto according to their terms; the Debtor has not alienated, assigned,
pledged, transferred, mortgaged or otherwise encumbered any of the rights or
interests of the Debtor therein or thereto, including the sums due or to become
due thereunder, except for such pledge and assignment to Bank One; no financing
statement or any other lien or encumbrance covering any of the Collateral is on
file in any recordation office in the State of Colorado, or is otherwise
outstanding, except relating to equipment leases and liens and encumbrances in
favor of Bank One; the other parties to the Contracts have no offsets,
counterclaims or defenses against the Debtor, whether arising out of the
Contracts or otherwise; no payments of any kind required thereunder have been
anticipated, discounted, waived, released, or set-off; no parties thereto have
been discharged, excused, or released; no claims under the Contracts have been
compromised; the Debtor has not accepted any payments under any of the
Contracts, except as permitted by the terms thereof; all payments thereunder are
current; and nothing in any of the
<PAGE>
Contracts would prevent the Secured Party from enforcing any of the rights and
remedies that the Debtor might have if this Security Agreement had not been
executed.
2. The Debtor is the lawful owner of the Collateral and has the
right to the use and possession of the Collateral and has good right to grant or
convey the same as security under this Security Agreement; the Collateral is
free and clear of any lien or right prior to or on a parity with the lien of
this Security Agreement, except as noted above; the Debtor will, on behalf of
the Secured Party, defend forever against any claims or demands thereon made by
all persons; and there exist no offsets, counterclaims or defenses to the
Debtor's rights therein or thereto.
3. Melody Homes, Inc., is a corporation duly organized and validly
existing and in good standing under the laws of the State of Delaware, and
Melody Mortgage Co., is a corporation duly organized and validly existing and in
good standing under the laws of the State of Colorado, and each has all
requisite corporate power and authority to carry on the business and own the
property that it now carries on and owns.
4. The Debtor has all requisite power and authority to execute this
Security Agreement, to secure the payment of up to $14,000,000.00 under the Note
by the execution of this Security Agreement and to carry out the provisions of
this Security Agreement. The execution and delivery of this Security Agreement
have been duly authorized by the Board of Directors of the Debtor and, to the
extent required by law, by the stockholders of the Debtor, and no other
corporate action of the Debtor is requisite to the execution and delivery of
this Security Agreement.
5. All tax returns and reports of the Debtor required by law to be
filed have been duly filed, and all taxes, assessments, contributions, fees and
other governmental charges (other than those currently payable without penalty
or interest and those currently being contested in good faith) upon the Debtor
or upon the Debtor's properties, assets or income which are due and payable have
been paid.
6. There are no actions, suits or proceedings pending or, to the
knowledge of the Debtor, threatened against or affecting the Debtor or the
Collateral in any court at law or in equity, or before or by any governmental
department, commission, board, bureau, agency or instrumentality, an adverse
decision in which might materially affect the Debtor's ability to perform the
Debtor's obligations under this Security Agreement.
7. The Debtor is not in violation of or in default with respect to
any provision of its articles of incorporation or bylaws or any mortgage,
indenture, contract, agreement or instrument applicable to the Debtor, or by
which the Debtor is bound, and the execution, delivery, performance of and
compliance with this Security Agreement will not result in any such violation or
be in conflict with or constitute a default under any such provision, or result
in the creation of any mortgage, lien, security interest or charge on any of the
properties or assets of the Debtor not contemplated by this Security Agreement;
and there is no provision of its articles of incorporation or bylaws or any
mortgage, indenture, contract, agreement or instrument applicable to the Debtor
or by
<PAGE>
which the Debtor is bound which materially adversely affects, or in the future
(so far as the Debtor can now foresee) will materially adversely affect, the
business or prospects or condition (financial or other) of the Debtor or of any
of its properties or assets.
8. Any financial statements heretofore delivered to the Secured
Party by the Borrower or the Debtor are true and correct in all respects, have
been prepared in accordance with generally accepted accounting principles, and
fairly represent the respective financial conditions of the subjects thereof as
of the respective dates thereof; no materially adverse change has occurred in
the financial conditions reflected therein since the respective dates thereof;
and no additional borrowings have been made by the Borrower or the Debtor since
the date thereof.
B. DEBTOR'S COVENANTS. The Debtor hereby covenants and agrees with the
Secured Party as follows:
1. PAYMENT OF TAXES, ASSESSMENTS, ETC. The Debtor will punctually
pay and discharge, or cause to be paid and discharged from time to time as the
same shall become due, all taxes, rates, assessments, impositions, duties and
other charges of every description to which the Collateral, or any part thereof,
may during the term of this Security Agreement become liable by authority of
law, the payment of which shall be secured by this Security Agreement. The
Debtor will, upon request, deposit copies of the receipts therefor with the
Secured Party no later than five (5) days prior to the final date such taxes,
rates, assessments, impositions, duties and other charges may be paid without
penalty.
2. PRESERVATION OF CONTRACTS. Except in the ordinary course of
business, the Debtor will not, without the prior written consent of the Secured
Party: (a) modify, change, alter, extend, terminate, cancel, tender or accept
surrender of any of the Contracts; (b) reduce, discount, compromise, settle,
waive, release, or set-off the amount of any sums payable thereunder, vary the
terms of payment or otherwise change, alter or modify the same, or consent to
the subordination of interest of any part thereto, or waive, excuse, condone, or
in any manner release or discharge any party thereunder of or from their
respective obligations, covenants, conditions, and agreements required to be
performed; (c) execute any agreement which would prevent the Secured Party from
acting as the Debtor, as provided herein; nor (d) alienate, assign, pledge,
transfer, or encumber any of the rights or interests of the Debtor therein or
thereto, including the sums due or to become due thereunder.
3. PERFORMANCE. The Debtor will fully and faithfully abide by,
observe, discharge, perform and enforce the performance of the terms,
obligations, covenants, conditions, agreements and warranties required to be
observed and performed by the Debtor under each of the Contracts, and under the
Loan Documents, including this Security Agreement, and any other instrument
secured hereunder, and will give prompt notice to the Secured Party of any
default thereunder, whether by the Debtor or by any party thereto, together with
an accurate and complete copy of any notice either received or sent by the
Debtor. The Debtor will not, except in the ordinary course of business,
anticipate, discount, compromise, settle, waive, release, or set off any sums
due under
<PAGE>
the Contracts or in respect of the Personal Property or receive any sums in any
manner inconsistent with the provisions of the Contracts or this Security
Agreement.
4. INDEMNIFICATION. The Debtor will indemnify and hold and save the
Secured Party and each Bank harmless from and against any and all liability,
loss, damage or expense of whatever kind or nature, including attorneys' fees
and the allocated costs of internal legal services and disbursements of internal
counsel, which the Secured Party or any Bank may at any time sustain or incur
hereunder, including, but not limited to, any claims or demands whatsoever which
may be asserted against the Secured Party or any Bank as a result of any failure
on the part of the Debtor to perform, observe or discharge its obligations under
any of the Contracts or involving any of the Collateral. Prior to actual entry
and taking possession of any property by the Secured Party, this Security
Agreement shall not operate to place responsibility upon the Secured Party for
the control, care, management or repair of any property constituting security
hereunder.
5. ENFORCEMENT AND COLLECTION. The Debtor will, at no cost to the
Secured Party, diligently enforce and secure the performance and observance of
each and every obligation, covenant, condition and agreement of the other
parties under all of the Contracts.
6. DUPLICATE ORIGINALS. At the request of the Secured Party, the
Debtor will furnish to the Secured Party a copy of each Contract now existing or
hereafter executed by the Debtor.
7. LITIGATION. The Debtor will appear in and defend any action or
proceeding at law or in equity affecting in any manner all or part of the
Collateral; and in such event (except where the purported defect affecting the
security hereof arises or results from any act or omission of the Secured
Party), the Debtor will pay all costs, charges and expenses, including cost of
evidence of title and attorneys' fees and the allocated costs of internal legal
services and disbursements of internal counsel incurred, and will fully
indemnify the Secured Party and each Bank from and against any loss, damage, or
expense, including attorneys' fees and the allocated costs of internal legal
services and disbursements of internal counsel, sustained or incurred by the
Secured Party or any Bank as a result of any failure on the part of the Debtor
to comply with its obligations under this paragraph.
8. LIENS. The Debtor will maintain the valid security interest of
the Secured Party in the Collateral and the sums due thereunder, free and clear
of all liens, claims, and encumbrances that may be, or are threatened to be,
made prior to or on a parity with the security interest of the Secured Party
herein, except for existing liens in favor of Bank One, and liens for taxes or
assessments not yet payable or payable without penalty so long as payable. The
Borrower shall not be entitled to claim any credit on interest payable on the
Note or on any other payment secured hereby for any portion of the taxes
assessed against the Collateral.
9. FURTHER ASSURANCES. The Debtor will assist in the preparation of
<PAGE>
and execute and acknowledge from time to time, alone or with the Secured Party,
and deliver, file or record any further instruments, including security
agreements, financing or continuation statements, mortgages or other
instruments, and do such further acts as the Secured Party may request to
confirm, establish, continue, maintain and perfect the security interest of the
Secured Party created by this Security Agreement and to subject the Collateral
to the lien hereof, including all renewals, additions, substitutions,
replacements or betterments thereto and all proceeds therefrom, and otherwise to
protect the same against the rights and interests of third parties, and to
execute all documents and perform all acts necessary to enforce the Contracts
and to make the same binding, the Debtor agreeing to pay the cost of preparing,
filing and recording the same.
10. ACKNOWLEDGMENT OF DEBT. The Debtor, within five (5) days after
request by the Secured Party in writing, will furnish to the Secured Party, or
to any proposed assignee of this Security Agreement, a written statement duly
acknowledged whether any off-sets, counterclaims or defenses exist against the
obligations of the Debtor hereunder.
11. PERSONAL PROPERTY. The Debtor agrees: (a) to keep all Personal
Property intact and in good condition, order and repair; (b) at the Debtor's own
expense to replace any portion thereof which may be broken or become obsolete or
worn out or unfit for use; (c) to comply with all laws, rules and regulations
made by governmental authority and applicable thereto; (d) not to commit or
suffer any strip or waste of the Personal Property; and (e) not to alienate,
assign, pledge, transfer, or encumber any of the rights or interests of the
Debtor therein and thereto.
12. INSURANCE. The Debtor will, in the name and for the benefit of
the Secured Party, during the term of this Security Agreement, keep all of the
Personal Property insured against hazards of such type or types and in such
amount or amounts and form of policy as the Secured Party may from time to time
require and will deposit the policies with the Secured Party. The Debtor
further agrees to keep paid in advance all premiums and costs of all insurance
required hereunder and, upon demand of the Secured Party, will furnish evidence
of payment of such premiums. The Debtor, not less than thirty (30) days prior
to the expiration date of each policy, shall deliver to the Secured Party a
renewal policy or policies, accompanied by evidence of payment satisfactory to
the Secured Party. All insurance required hereunder shall be effected under
valid and enforceable policies issued by insurance companies authorized to do
business in the State of Colorado, the Debtor hereby acknowledging receipt of
written notice from the Secured Party that the Secured Party may not make the
granting of the loan evidenced by the Note or the modification of any of the
provisions of the Credit Agreement contingent upon the Debtor procuring any
required insurance with an insurance company designated by the Secured Party.
The Secured Party shall not be responsible for such insurance or for the
collection of any insurance moneys, or for the insolvency of any insurer or
insurance underwriter. The amount collected from any fire or other insurance
policy may be applied by the Secured Party upon any indebtedness secured hereby
and in such order as the Secured Party may determine, or, at the option of the
Secured Party, the entire amount so collected, or any part thereof, may be
<PAGE>
applied to the restoration of the Personal Property, or released to the Debtor,
without being deemed a payment on any of the indebtedness secured hereby. Such
application or release shall not cure or waive any default or notice of default
hereunder or invalidate any act done pursuant to such notice. No lien upon any
of such policies of insurance, or upon any refund or return premium which may be
payable on the cancellation or termination thereof, shall be given to anyone
other than the Secured Party, except by proper endorsement affixed to such
policy and approved by the Secured Party. In the event of loss or physical
damage to the Personal Property, the Debtor shall give immediate notice thereof
by mail to the Secured Party, and the Secured Party may make proof of loss if
the same is not made promptly by the Debtor. In the event of foreclosure of
this Security Agreement, or other transfer of title to the Collateral in the
extinguishment of the indebtedness secured hereby, all right, title and interest
of the Debtor in and to any insurance policies then in force shall pass to the
purchaser or the grantee. All such policies or other contracts for such
insurance issued by the respective insurers shall, to the extent obtainable, be
without contribution and contain an agreement by the insurer that the policy or
other contract shall not be cancelled or materially changed without at least
thirty (30) days' prior written notice to the Secured Party.
C. MUTUAL COVENANTS. The Debtor and the Secured Party mutually covenant
and agree each with the other as follows:
1. SECURED PARTY NOT OBLIGATED TO PERFORM. Neither the acceptance
of this Security Agreement by the Secured Party, nor the exercise of any rights
hereunder by the Secured Party, shall be construed in any way as an assumption
by the Secured Party of any obligations, responsibilities or duties of the
Debtor arising from the Collateral assigned hereunder or otherwise bind the
Secured Party to the performance of any of the terms and provisions contained in
any of the Contracts or of any obligations respecting the Personal Property, it
being expressly understood that the Secured Party shall not be obligated to
perform, observe or discharge any obligation, responsibility, duty, or liability
of the Debtor under any of the Collateral, including, but not limited to,
appearing in or defending any action, expending any money or incurring any
expenses in connection therewith.
2. RIGHT OF SECURED PARTY TO DEFEND ACTION AFFECTING SECURITY. The
Secured Party may, at the Debtor's expense, appear in and defend any action or
proceeding at law or in equity purporting to affect the Secured Party's security
interest under this Security Agreement.
3. RIGHT OF SECURED PARTY TO PREVENT OR REMEDY DEFAULT. If the
Debtor shall fail to perform any of the covenants, conditions or agreements
required to be performed and observed by the Debtor under this Security
Agreement, the Contracts, or any other instruments secured hereby, or in respect
of the Personal Property, or if the Borrower or the Debtor shall fail to perform
any of the covenants, agreements, obligations or conditions required to be
performed or observed by the Borrower or the Debtor under any of the other Loan
Documents, the Secured Party (a) may but shall not
<PAGE>
be obligated to take action the Secured Party deems necessary or desirable to
prevent or remedy any such default by the Borrower or the Debtor or otherwise to
protect the security interest of the Secured Party under this Security
Agreement, and (b) shall have the absolute and immediate right to enter in and
upon the Property in order to take possession of the Collateral or any part
thereof to such extent and as often as the Secured Party, in its sole
discretion, deems necessary or desirable in order to prevent or to cure any such
default by the Borrower or the Debtor, or otherwise to protect the security of
this Security Agreement. The Secured Party may advance or expend such sums of
money for the account of the Borrower or the Debtor, as the Secured Party in its
sole discretion deems necessary for any such purpose.
4. SECURED PARTY'S EXPENSES. All advances, costs, expenses, charges
and attorneys' fees and the allocated costs of internal legal services and
disbursements of internal counsel which the Secured Party or any Bank may make,
pay or incur under any provision of this Security Agreement for the protection
of its security or for the enforcement of any of its rights hereunder, or in
foreclosure proceedings commenced and subsequently abandoned, or in any dispute
or litigation in which the Secured Party or any Bank or the holder of the Note
may become involved by reason of or arising out of the Loan Documents, including
this Security Agreement, or any other instrument secured hereby, or the
Collateral or the care and management of the Collateral, shall be paid by the
Borrower or the Debtor to the Secured Party, or to the applicable Bank, upon
demand, and shall bear interest until paid at the rate specified by the Note to
be paid in the event of default thereunder, all of which obligations shall be
additional charges upon the Collateral and be equally secured hereby.
5. RIGHT OF SET-OFF. Upon the happening of any event entitling the
Secured Party to pursue any remedy provided herein, or if the Secured Party or
any Bank shall be served with garnishee process in which the Borrower or the
Debtor shall be named as defendant, whether or not the Borrower or the Debtor
shall be in default hereunder at the time, the Secured Party or any such Bank
may, but shall not be required to, set off any indebtedness owing by the Secured
Party or any such Bank to the Borrower or the Debtor against any indebtedness
secured hereby, in accordance with the provisions of the Credit Agreement
relating to set-offs (including without limitation, Section 2.15 thereof)
without first resorting to the security hereunder and without prejudice to any
other rights or remedies of the Secured Party or any Bank or its security
interest herein.
6. NO WAIVER. In case the Secured Party shall have proceeded to
enforce any right or remedy hereunder and such proceedings shall have been
discontinued or abandoned for any reason, then in every such case, the Debtor
and the Secured Party shall be restored to their former positions and rights
hereunder with respect to the Collateral, and all rights, remedies and powers of
the Secured Party shall continue as if no such proceeding had been taken. No
failure or delay on the part of the Secured Party in exercising any right,
remedy or power under this Security Agreement or in giving or insisting upon
strict performance by the Debtor hereunder or in giving notice hereunder shall
operate as a waiver of the same or any other power or right, and no single or
partial exercise of any such power or right shall preclude any other or
<PAGE>
further exercise thereof or the exercise of any other such power or right. The
Secured Party, notwithstanding any such failure, shall have the right thereafter
to insist upon the strict performance by the Debtor of any and all of the terms
and provisions of this Security Agreement to be performed by the Debtor. The
collection and application of proceeds, the entering onto the Property and
taking possession of the Collateral, and the exercise of the rights of the
Secured Party contained in the Loan Documents, including this Security
Agreement, shall not cure or waive any default, or affect any notice of default,
or invalidate any acts done pursuant to such notice. No waiver by the Secured
Party of any breach or default of or by any party hereunder, shall be deemed to
alter or affect the Secured Party's rights hereunder with respect to any prior
or subsequent defaults.
7. REMEDIES. No right or remedy herein reserved to the Secured
Party is intended to be exclusive of any other right or remedy, but each and
every such remedy shall be cumulative, and not in lieu of but in addition to any
other rights or remedies given under this Security Agreement. Any and all of
the Secured Party's rights and remedies may be exercised from time to time and
as often as such exercise is deemed necessary or desirable by the Secured Party.
8. RIGHT OF SECURED PARTY TO EXTEND TIME OF PAYMENT, SUBSTITUTE,
RELEASE SECURITY, ETC. Without affecting the liability of any person, including
the Debtor, for the payment of any indebtedness secured hereby, or the lien of
this Security Agreement on the Collateral, or the remainder thereof, for the
full amount of any indebtedness unpaid, the Secured Party may from time to time,
without notice and without affecting or impairing any of the Secured Party's
rights under this Security Agreement: (a) release any person liable for the
payment of any of the indebtedness, (b) extend the time or otherwise alter the
terms of payment of any of the indebtedness or accept a renewal note or notes to
evidence such an extension or alteration, (c) accept payments or prepayments of
principal without reducing the aggregate amount secured by this Security
Agreement and make subsequent advances to the Borrower up to the amount
described herein, (d) accept additional security therefor of any kind, including
(but not limited to) deeds of trust or mortgages, (e) alter, substitute or
release from any security interest or lien held by the Secured Party any
property securing the indebtedness, (f) resort for the payment of the
indebtedness secured hereby to its several securities therefor in such order and
manner as it may deem fit, (g) join in granting any easement or creating any
restriction thereon, or (h) join in any extension, subordination or other
agreement affecting this Security Agreement or the lien or charge thereof.
9. WAIVER OF SURETYSHIP DEFENSES, ETC. As used in this Security
Agreement, the term "Third Party Secured Obligation" means any obligation
secured by this Security Agreement which is required to be performed by any
person or entity other than Debtor.
(a) RIGHTS OF SECURED PARTY. Debtor authorizes Secured Party to
perform any or all of the following acts at any time in its sole discretion, all
without notice to Debtor and without affecting Secured Party's rights or
Debtor's obligations under this
<PAGE>
Security Agreement:
(i) Secured Party may alter any terms of any Third Party
Secured Obligation or any part of it, including renewing, compromising,
extending or accelerating, or otherwise changing the time for payment of, or
increasing or decreasing the rate of interest on, the Third Party Secured
Obligation or any part of it.
(ii) Secured Party may take and hold security for the Third
Party Secured Obligation, accept additional or substituted security for any
third Party Secured Obligation, and subordinate, exchange, enforce, waive,
release, compromise, fail to perfect and sell or otherwise dispose of any such
security.
(iii) Secured Party may apply any security now or later to be
held for the Third Party Secured Obligation in any order that Secured Party in
its sole discretion may choose, and may direct the order and manner of any sale
of all or any part of it and bid at any such sale.
(iv) Secured Party may release Borrower of its liability for the
Third Party Secured Obligation or any part of it.
(v) Secured Party may substitute, add or release any one or
more guarantors or endorsers.
Debtor expressly agrees that until each and every term, covenant and condition
of this Security Agreement is fully performed, Debtor shall not be released by
any act or event which might be deemed a legal or equitable discharge of a
surety, or because of any waiver, extension, modification, forbearance or delay
or other act or omission of Secured Party or its failure to proceed promptly or
otherwise as against Borrower or Debtor, or because of any action taken or
omitted or circumstance which might vary the risk or affect the rights or
remedies of Debtor as against Borrower, or because of any further dealings
between Borrower and Secured Party, whether relating to the Third Party Secured
Obligation or otherwise. It is the purpose and intent of this Security
Agreement that the obligations of Debtor under it shall be absolute and
unconditional under any and all circumstances.
(b) WAIVERS OF DEFENSES. Debtor waives:
(i) all statutes of limitations as a defense to any action or
proceeding brought against Debtor by Secured Party, to the fullest extent
permitted by law;
(ii) any right it may have to require Secured Party to proceed
against Borrower, proceed against or exhaust any security held from Borrower, or
pursue any other remedy in Secured Party's power to pursue;
(iii) any defense based on any legal disability of Borrower, any
discharge or limitation of the liability of Borrower to Secured Party, whether
consensual
<PAGE>
or arising by operation of law or any bankruptcy, reorganization, receivership,
insolvency, or debtor-relief proceeding, or from any other cause, or any claim
that Debtor's obligations exceed or are more burdensome than those of Borrower;
(iv) all presentments, demands for performance, notices of
nonperformance, protests, notices of protest, notices of dishonor, notices of
acceptance of this Security Agreement and of the existence, creation, or
incurring of new or additional indebtedness, and demands and notices of every
kind;
(v) any defense based on or arising out of any defense that
Borrower may have to the payment or performance of the Third Party Secured
Obligation or any part of it; and
(vi) until the Third Party Secured Obligation has been paid and
performed in full, all rights of subrogation, all rights to enforce any remedy
that the Secured Party may have against Borrower, and all rights to participate
in any security now or later to be held by the Secured Party for the Third Party
Secured Obligation.
(c) IMPAIRMENT OF SUBROGATION RIGHTS.
(i) Upon a default by Borrower, Secured Party in its sole
discretion, without prior notice to or consent of Debtor, may elect to foreclose
either judicially or nonjudicially against any real or personal property
security it may hold for the Third Party Secured Obligation, or accept an
assignment of any such security in lieu of foreclosure, or compromise or adjust
the Third Party Secured Obligation or any part of it or make any other
accommodation with Borrower or Debtor, or Secured Party shall release or
otherwise affect this Security Agreement. Debtor expressly agrees that under no
circumstances shall it be deemed to have any right, title, interest or claim in
or to any real or personal property to be held by Secured Party or any third
party after any foreclosure or assignment in lieu of foreclosure of any security
for the Third Party Secured Obligation.
(ii) Debtor waives any and all defenses based on the absence,
impairment or loss of any right of reimbursement, contribution or subrogation as
against Borrower, or any other right or remedy of Debtor against Borrower,
whether resulting from election of remedies by Secured Party, or from any defect
in, failure of, or loss or absence of priority with respect to Secured Party's
interest in its security, or otherwise (including, without limitation, any
defense that any exercise by Secured Party of any right or remedy under this
Security Agreement or any other Loan Document violates, or would, in combination
with the previous or subsequent exercise by Debtor of any rights of subrogation,
reimbursement, contribution or exercise by Debtor, of any rights of subrogation,
reimbursement, contribution or indemnification against Borrower, directly or
indirectly, result in or be deemed to be, a violation of any applicable law.
(d) BORROWER'S FINANCIAL CONDITION. Debtor assumes full
responsibility for keeping informed of Borrower's financial condition and
business operations and all other circumstances affecting Borrower's ability to
pay and perform its obligations to
<PAGE>
Secured Party, and agrees that Secured Party shall have no duty to disclose to
Debtor any information which Secured Party may receive about Borrower's
financial condition, business operations, or any other circumstances bearing on
its ability to perform.
D. MISCELLANEOUS.
1. TERMS COMMERCIALLY REASONABLE. The terms of this Security
Agreement shall be deemed commercially reasonable within the meaning of the
Uniform Commercial Code.
2. DEFINITIONS. The terms "advances", "costs", and "expenses" shall
include, but shall not be limited to, attorneys' fees and the allocated costs of
internal legal services and disbursements of internal counsel, whenever
incurred. The terms "indebtedness" and "obligations" shall mean and include,
but shall not be limited to, all claims, demands, obligations and liabilities
whatsoever, however arising, whether owing by the Debtor individually or as a
joint venturer, or jointly or in common with any other party, and whether
absolute or contingent, and whether owing by the Debtor as principal debtor or
as accommodation maker or as endorser, liquidated or unliquidated, and whenever
contracted, accrued or payable. In this Security Agreement, whenever the
context so requires, the neuter gender includes the masculine or feminine, and
singular number includes the plural and vice versa.
3. PARAGRAPH HEADINGS. The headings of paragraphs herein are
inserted only for convenience and shall in no way define, describe or limit the
scope or intent of any provisions of this Security Agreement.
4. CHANGE, AMENDMENT, ETC. No change, amendment, modification,
cancellation or discharge of any provision of this Security Agreement shall be
valid unless consented to in writing by the Secured Party.
5. ASSIGNMENT OF SECURED PARTY'S INTEREST. The Secured Party shall
have the right to assign its interest in this Security Agreement to any
subsequent holder of the Note.
6. PARTIES IN INTEREST. As and when used herein, the terms
"Borrower" and "Debtor" shall mean and include the Borrower and the Debtor
hereinabove named and the respective heirs, personal representatives,
successors, successors in trust and permitted assigns, and the term "Secured
Party" shall mean and include the Secured Party herein named and its successors
and assigns, and all covenants and agreements herein shall be binding upon and
inure to the benefit of the Borrower, the Debtor, the Secured Party, and their
respective successors and permitted assigns.
7. APPLICABLE LAWS; SEVERABILITY. This Security Agreement shall be
governed by and shall be construed and interpreted under and pursuant to the
laws of the State of Colorado. If any provision of this Security Agreement is
held to be invalid or unenforceable, the validity or enforceability of the other
provisions of this Security Agreement shall remain unaffected.
<PAGE>
8. NOTICES. All notices, demands or documents which are required or
permitted to be given or served hereunder shall be in writing and personally
delivered, or sent by registered or certified mail addressed as follows:
To DEBTOR at: c/o Schuler Homes, Inc.
848 Fort Street, 4th Floor
Honolulu, Hawaii 96813
To SECURED PARTY at: 999 Bishop Street
Honolulu, Hawaii 96813
Attention: Commercial Real Estate Division
Such addresses may be changed from time to time by the addressee by serving
notice as provided above. Service of such notice or demand shall be deemed
complete upon the earlier of the date of actual delivery or the second day after
the date of mailing if mailed in Hawaii.
9. COUNTERPARTS. This Security Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same instrument, and in making proof of this
Security Agreement, it shall not be necessary to produce or account for more
than one such counterpart.
10. TERMS AND CONDITIONS OF THIS SECURITY AGREEMENT SUPPLEMENT OTHER
LOAN DOCUMENTS. The terms and conditions of this Security Agreement and the
covenants, representations and warranties of the Debtor under this Security
Agreement shall not be deemed to supersede, amend or modify the obligations and
duties of the Debtor or other parties under the Loan Documents. The terms and
conditions of this Security Agreement and the covenants, representations and
warranties of the Debtor hereunder merely supplement, and do not supplant or
supersede provisions of similar effect or subject matter in the other Loan
Documents.
<PAGE>
IN WITNESS WHEREOF, the Debtor and the Secured Party have executed these
presents on the day and year first above written.
MELODY HOMES, INC.
By /s/ James K. Schuler
--------------------------------
Its President
By
--------------------------------
Its
MELODY MORTGAGE CO.
By /s/ James K. Schuler
--------------------------------
Its President
By
--------------------------------
Its
DEBTOR
FIRST HAWAIIAN BANK, as Agent
By /s/ Koren K. Kubota
--------------------------------
Its Senior Vice President
SECURED PARTY
<PAGE>
Exhibit "1"
FIRST: All right, title and interest of the Debtor in and to any and all
escrow agreements (the "Escrow Agreement"), including any and all modifications
and extensions thereof, made by and between the Debtor and any escrow agent (the
"Escrow Agent"), involving any project developed or constructed by the Debtor in
the state of Colorado (a "Project") on any real property owned by the Debtor
("Property");
Together with all the Debtor's rights and remedies thereunder, and the
benefit of all covenants therein, including without limitation, the right to
receive all moneys now or hereafter deposited with the Escrow Agent, pursuant to
the provisions thereof;
SECOND: All right, title and interest of the Debtor, in and to all sales
contracts (the "Sales Contracts"), covering the sale of any condominium
apartments, subdivided lots or residences in any Project, now or hereafter
executed by the Debtor and any and all modifications or extensions thereof, and
in and to any take-out commitment letters now or hereafter obtained by the
Debtor for any Project, and any and all modifications and extensions thereof;
Together with all of the Debtor's rights and remedies thereunder, and the
benefit of all covenants therein, including, without limitation, the right to
receive all moneys due or to become due to the Debtor under the Sales Contracts
or the mortgage loans described in any such take-out commitment letters;
THIRD: All right, title and interest of the Debtor in and to any and all
loans made by the Debtor to purchasers of condominium apartments, subdivided
lots or residences in any Project; any and all notes or other instruments
evidencing any such loans; any and all mortgages, deeds of trust and other
instruments securing any such loans; and any and all installment sales contracts
or other documents evidencing the payment by any such purchasers of the purchase
price for any condominium apartment, subdivided lot or residence in any Project
on an installment or deferred basis (the "Purchase Money Loans");
Together with all of the Debtor's rights and remedies thereunder, and the
benefit of all covenants therein, including, without limitation, the right to
receive all moneys due or to become due to the Debtor under the Purchase Money
Loans;
FOURTH: All right, title and interest of the Debtor in and to any and all
construction contracts (the "Construction Contract"), entered into by and
between the Debtor and any contractor involving any Project, and any and all
modifications and extensions thereof;
Together with all of the Debtor's rights and remedies thereunder, and the
benefit of all covenants therein;
<PAGE>
FIFTH: All right, title and interest of the Debtor in and to any and all
Performance Bonds and Payment Bonds (hereinafter collectively called the
"Bond"), involving any Project, and any modifications and extensions thereof;
Together with all of the Debtor's rights and remedies thereunder, and the
benefit of all covenants therein;
SIXTH: All right, title and interest of the Debtor in and to any and all
architect's or engineer's agreements (the "Architect's/Engineer's Contract"),
entered into by and between the Debtor and any architect or engineer relating to
any Project, and any and all modifications and extensions thereof;
Together with all of the Debtor's rights and remedies thereunder, and the
benefits of all covenants therein, and also together with the plans and
specifications (the "Plans and Specifications"), prepared by any architect or
engineer pursuant to any Architect's/Engineer's Contract, or in connection with
any Project, including any amendments, supplements or revisions thereof and the
right to use and enjoy the same;
SEVENTH: All right, title and interest of the Debtor in and to any and all
property management agreements (the "Management Agreement"), executed by the
Debtor for the management of any Project and in and to any modifications or
extensions thereof and in and to any replacements thereof or additional or
supplementary agreements concerning the physical or fiscal management of any
Project;
Together with all of the Debtor's rights and remedies thereunder, and the
benefit of all covenants therein;
EIGHTH: All right, title and interest of the Debtor in and to any and all
leases, partial assignments, subleases and other contracts of conveyance (the
"Leases") for any portion of any Project, any Property or any of the other items
of Collateral described herein, including any and all modifications and
extensions thereof;
Together with all of the Debtor's rights and remedies thereunder, and the
benefit of all covenants therein, including, without limitation thereto, the
right to receive all moneys, rents or payments of every other kind due or to
become due to the Debtor under the Leases;
NINTH: All right, title and interest of the Debtor in and to any and all
binders or policies of insurance of any kind (the "Insurance Policies") covering
all or any portion of any Project, any Property or any of the other items of
Collateral described herein, and any and all riders, amendments, extensions,
renewals, supplements or revisions thereof;
Together with all of the Debtor's rights and remedies thereunder, the
benefit of all covenants therein and all proceeds therefrom;
TENTH: All right, title and interest of the Debtor in and to any and all
accounts
<PAGE>
(as that term is defined in the Uniform Commercial Code, as enacted in the State
of Colorado), and in and to any and all contract rights, with respect to, or
which may in any way pertain to, any Project, any Property or the business of
the Debtor (the "Accounts and Contract Rights");
ELEVENTH: All right, title and interest of the Debtor in and to all of the
Debtor's personal property of any kind, including, without limitation, all
machinery, equipment and building materials, furniture, fixtures, furnishings,
fittings, attachments, and appliances, including ranges, disposals, heaters,
washers, dryers, dishwashers, devices and appurtenances of every kind and
description, now or hereafter affixed to, placed upon, or used in connection
with the construction of, the improvements on any Property, intended to be
incorporated into such improvements, substantially consumed in such construction
operations, or specially fabricated for incorporation in such improvements, as
well as all of the Debtor's personal property of any kind and description
purchased for use in connection with such improvements, whether or not affixed
to or placed upon any Property, together with all additions to, substitutions
for, changes in, and replacements or renewals of, the whole or any part of such
property;
TWELFTH: All right, title and interest of the Debtor in and to any and all
awards or payments, including interest thereon, and the right to receive the
same, which may be made with respect to the premises by any public or
quasi-public authority or corporation as a result of (a) the exercise of the
right of eminent domain, (b) the alteration of the grade of any street, or (c)
any other injury to or decrease in the value of any Property, to the extent of
all amounts which may be secured by any mortgage of any Property held by the
Secured Party at the date of receipt of any such award or payment by the Secured
Party, including the counsel fees, costs and disbursements incurred by the
Secured Party in connection with the collection of such award or payment, the
Debtor agreeing to execute and deliver, from time to time, such further
instruments as may be requested by the Secured Party to confirm such assignment
to the Secured Party of any such award or payment;
THIRTEENTH: All right, title and interest of the Debtor in and to any
general intangibles (as that term is defined in the Uniform Commercial Code, as
enacted in the State of Colorado) with respect to, or which may in any way
pertain to, any Project, any Property or the business of the Debtor, including,
without limitation (i) any trade names, trademarks, prints, labels, advertising
concepts and literature, and (ii) all refunds, rebates, security deposits or
other expectancy under or from any account or contract; and
FOURTEENTH: All right, title and interest of the Debtor in and to all
advertising material, building permits, other permits, licenses, soils tests,
appraisals and any other documents, materials or personal property of any kind
now or hereafter existing for any Project, any Property or the business of the
Debtor belonging to the Debtor;
The Escrow Agreement, the Sales Contracts, the Purchase Money Loans, the
Construction Contract, the Bond, the Architect's/Engineer's Contract, the
Management Agreement, the Leases, the Insurance Policies and the Accounts and
Contract Rights
<PAGE>
are hereinafter sometimes collectively called the "Contracts". The Plans and
Specifications and all articles of property described in items ELEVENTH through
FOURTEENTH are hereinafter sometimes collectively called the "Personal
Property".
<PAGE>
AMENDED AND RESTATED LOAN AGREEMENT
This Amended and Restated Loan Agreement("AGREEMENT")is made as of
November 25, 1996 by and among MELODY HOMES, INC., a Delaware corporation
("MELODY"), having its principal office at 11031 Sheridan Boulevard,
Westminster, Colorado 80020, FALCON DEVELOPMENT CORPORATION, a Nevada
corporation ("FDC"), having its principal office at 2290 South Jones, Suite 110,
Las Vegas, Nevada 89102 (Melody and FDC shall hereinafter be collectively
referred to as "BORROWER") and BANK ONE, ARIZONA, NA, a national banking
association ("LENDER"), whose mailing address is Western Region Real Estate,
P. O. Box 29542, Phoenix, Arizona 85038.
RECITALS
A. Melody previously entered into that certain Loan Agreement dated
December 18, 1993, with Lender for the acquisition, development and
construction of residential subdivisions, and a letter of credit facility (as
amended, the "MELODY LOAN AGREEMENT"). FDC previously entered into that certain
Loan Agreement dated July 7, 1993, with Lender for the acquisition, development
and construction of residential subdivisions (as amended, the "FDC LOAN
AGREEMENT").
B. Borrower now desires to consolidate the Melody Loan Agreement and FDC
Loan Agreement into one facility, including the letter of credit facility, and
otherwise amend such agreements, upon the terms and subject to the conditions
set forth herein. Upon the execution and delivery of this Agreement and the
other Loan Documents, and the satisfaction of closing conditions, this Agreement
and all of the other Loan Documents shall restate, amend and supersede the
Melody Loan Agreement, the FDC Loan Agreement and all of the loan documents
related thereto.
NOW, THEREFORE, in consideration of the covenants and conditions herein
contained, the parties agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. As used herein, the following terms shall have the
meanings set forth below:
"A & D BUDGET" shall mean the cost breakdown/budget for A & D Improvements
submitted by Borrower for each Subdivision A & D Loan, and approved by Lender in
its absolute and sole discretion.
"A & D COMMENCEMENT DATE" shall mean not later than thirty (30) days after
initial disbursement of a Subdivision A & D Loan.
"A & D COMPLETION DATE" shall mean not later than nine (9) months after
the
<PAGE>
applicable A & D Commencement Date.
"A & D DISBURSEMENT SCHEDULE" shall mean the disbursement schedule for each
Subdivision A & D Loan, in form and substance satisfactory to Lender.
"A & D IMPROVEMENTS" shall mean certain offsite improvements on the
Premises (including without limitation grading, sewers, paving, landscape and
utilities) necessary to create individual Lots within a Subdivision suitable for
the construction of single family homes.
"A & D LOAN" shall mean, collectively, the individual Subdivision A & D
Loans from Lender to Borrower to reimburse Borrower for certain costs and
expenses incurred by Borrower in acquiring the Premises and constructing the
A & D Improvements.
"A & D LOAN AMOUNT" shall mean an amount of up to (i) Fifteen Million and
No/100 Dollars ($15,000,000.00) with respect to the aggregate value of the
Melody Loans, which includes all principal amounts outstanding and all amounts
committed but not yet advanced, or (ii) Five Hundred Thousand and No/100 Dollars
($500,000.00) with respect to the aggregate value of the FDC Loans, which
includes all principal amounts outstanding and all amounts committed but not yet
advanced. Notwithstanding anything contained herein to the contrary, the
maximum principal amount advanced and/or committed under the Loan, including the
A & D Loan Amount, shall never exceed Thirty-Eight Million Five Hundred Thousand
and No/100 Dollars ($38,500,000.00). In the event that Borrower does not
utilize all of the A & D Loan Amount, Lender may elect, in its reasonable
discretion, to allow Borrower to utilize the unused portion of the A & D Loan
Amount for Home Loans.
"A & D LOAN COMMITMENT" shall mean loan commitments from Lender to Borrower
to fund the A & D Loan.
"A & D LOAN FEE" shall mean an annual fee equal to one percent (1%) per
annum of each A & D Loan.
"A & D LOAN LOT RELEASE PRICE" shall be an amount equal to one hundred
twenty-five percent (125%) of Par; provided, however, ten percent (10%) of the
release price shall be deferred until the closing and sale of any Home to a
purchaser. As used herein, "Par" means the amount derived by dividing the
Subdivision A & D Loan amount for the Subdivision in question by the number of
Lots securing the A & D Loan.
"ADVANCE" shall mean a disbursement of Loan proceeds.
"AFFILIATE" shall mean certain limited liability companies, partnerships
and/or corporations in which Borrower owns a controlling interest, subject to
Lender's review and approval.
"AGREEMENT" shall mean this Amended and Restated Loan Agreement, as the
<PAGE>
same may be amended and supplemented as hereinafter provided.
"BASE APPRAISAL" shall mean the value of each Home as determined by a
qualified residential appraiser, which appraisal shall be satisfactory to Lender
in all respects and shall establish a base appraised value, provided, however,
such value may be adjusted upwards by the appraised value of average options and
upgrades anticipated per Unit, as determined by the appraiser through comparable
sales.
"BORROWER" shall mean, collectively and jointly and severally, Melody and
FDC.
"BUSINESS DAY" shall mean any day of the year other than Saturdays,
Sundays, and legal holidays on which Lender's main branch located at 241 North
Central Avenue, Phoenix, Arizona, is closed.
"CC&R'S" shall mean any covenants, conditions, restrictions, maintenance
agreements or reciprocal easement agreements affecting any Subdivision or
individual lots therein.
"CALENDAR MONTH" shall mean the twelve (12) calendar months of the year.
With respect to any payment or obligation that is due or required to be
performed within a specified number of Calendar Months, then such payment or
obligation 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 was incurred or commenced on the 29th, 30th or 31st day of
any Calendar Month and if the Calendar Month in which such payment or obligation
would otherwise become due does not have a numerically corresponding date, such
obligation shall become due on the last day of such Calendar Month.
"COLLATERAL" shall mean all real and personal property encumbered or
otherwise covered by the Loan Documents, construction materials and equipment
and all furniture, furnishings, fixtures, machinery, equipment, inventory and
any other items of personal property in which Borrower now or hereafter owns or
acquires an interest or right, including any leased Collateral, which are used
or are useful in the construction, operation, use or occupancy of the Project;
all of Borrower's documents, instruments, contract rights including, without
limitation, general intangibles relating to the construction, use, operation,
occupancy, or sale of the Project or of any Home; and all insurance proceeds
from any policies of insurance covering any of the aforesaid.
"COMMITMENT FEE" shall mean an annual fee equal to one quarter of one
percent (0.25%) of the Loan Amount.
"COMPLETION DATE" shall mean nine (9) months from the date of the first
advance of any Home Loan.
"COMPLETION GUARANTY" shall mean a guaranty executed by each Guarantor, in
<PAGE>
form and content satisfactory to Lender, guaranteeing the completion of the
Improvements.
"CONDEMNATION PROCEEDS" shall mean all compensation, awards, damages,
rights of action and proceeds awarded to Borrower by reason of any taking of or
damage to the Premises or the Project, or any part thereof or interest therein,
for public or quasi-public use under the power of eminent domain, by reason of
any public improvement or condemnation proceeding, or in any other manner.
"CONSTRUCTION LOAN" shall mean the loan to be made pursuant to this
Agreement for the construction of Homes which loan shall consist of individual
Home Loans.
"CONSTRUCTION LOAN AMOUNT" shall mean (i) with respect to the Melody Loans,
an amount up to the sum of Thirty-Eight Million Five Hundred Thousand and No/100
Dollars ($38,500,000.00), which includes all principal amounts outstanding and
all amounts committed but not yet advanced, or (ii) with respect to the FDC
Loans, an aggregate amount up to Five Hundred Thousand and No/100 Dollars
($500,000.00), which includes all principal amounts outstanding and all amounts
committed but not yet advanced. Notwithstanding anything contained herein to
the contrary, the maximum principal amount advanced and/or committed under the
Loan, including the Construction Loan Amount, shall never exceed Thirty-Eight
Million Five Hundred Thousand and No/100 Dollars ($38,500,000.00).
"CONSTRUCTION LOAN COMMITMENT" shall mean the loan commitments from Lender
to Borrower to fund the Construction Loan, including, without limitation, the
Model Home Commitment which is included within the Construction Loan Commitment.
"CONVERSION DATE" shall mean October 31, 1997.
"CONVERSION PERIOD" shall mean the period of time following the Conversion
Date during which the Loan Amount is reduced from time to time pursuant to
SECTION 2.10.
"COUNTY" shall mean each respective county in the State of Colorado or
Nevada, as applicable, in which one or more Subdivisions are situated.
"DAY" or "DAYS" shall mean calendar days unless expressly stated to be
Business Days.
"DEFAULT INTEREST RATE" shall mean 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" shall mean the draw request submitted by Borrower to Lender
in a form acceptable to Lender.
<PAGE>
"ENVIRONMENTAL INDEMNITY" shall mean Lender's form of Environmental
Indemnity Agreement Regarding Hazardous Substances, to be executed by Borrower
and Guarantor.
"EVENT OF DEFAULT" shall mean the occurrence of any of the events listed in
SECTION 11.1 of this Agreement.
"EXPIRATION DATE" shall mean April 30, 1999.
"FDC LOAN" shall mean an Advance disbursed to FDC. Borrower and Lender
agree that any unused portion of the FDC Loans may not be allocated to the
Melody Loans.
"FINANCIAL STATEMENTS" shall mean the audited Balance Sheet, Income
Statement, Change in Financial Condition and Cash Flow Statements of Borrower as
of the last day of and for any fiscal year or portion thereof prepared and
reported according to generally accepted accounting principles (GAAP),
consistently applied.
"FINANCING STATEMENT" shall mean a UCC-1 financing statement executed by
Borrower as debtor, in favor of Lender as secured party, and perfecting Lender's
security interest in the Collateral now owned or hereafter acquired by Borrower,
in form and substance satisfactory to Lender, to be filed in the Office of the
Secretary of State of Colorado or Nevada, as applicable, and in such other
offices for recording or filing such statements in such jurisdictions as Lender
shall desire to perfect Lender's security interest or reflect such interest in
appropriate public records.
"FIRST PAYMENT DATE" shall mean the first day of the first Calendar Month
after the date hereof.
"GOVERNMENTAL AUTHORITY" shall mean (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.
"GUARANTOR" shall mean, individually and collectively, Mark S. Doppe,
Madison B. Graves II and Susan Graves, husband and wife, Fred L. Ahlstrom and
Debra Ahlstrom, husband and wife, and Jacob D. Bingham and Francine H. Bingham,
husband and wife.
"HARD COSTS" shall mean the onsite cost of labor and materials directly
related to the construction of each Home, including, without limitation,
construction costs and permits, which costs shall be subject to Lender's review
and approval and shall not include any cost and expenses related to upgrades,
options or decorator items, unless otherwise approved by Lender.
"HOME" or "UNIT" shall mean a single family dwelling unit to be constructed
on the Premises of any one of the model, design and type more particularly
described in the Home Plans, including any furniture, furnishings, fixtures, and
equipment to be installed
<PAGE>
therein as shown on the Home Plans.
"HOME CONSTRUCTION BUDGET" shall mean the total budget approved by Lender
that is necessary to construct a Home, which budget shall be comprised of the
land acquistion cost, Hard Costs and Soft Costs.
"HOME DESCRIPTION" shall mean a general description of the size and pricing
of each product line to be constructed by Borrower in each Subdivision, and such
other information with respect thereto as Lender may require.
"HOME LOAN" shall mean the portion of the Construction Loan advanced or to
be advanced for the construction of each Home.
"HOME LOAN MATURITY DATE" shall mean the date upon which the Home Loan for
each Home becomes due and payable, which date shall be (i) nine (9) Calendar
Months after the initial disbursement for the Presold Home in question, unless
extended pursuant to SECTION 2.9; (ii) twelve (12) Calendar Months after the
initial disbursement for the Spec Home in question; and (iii) twenty-four (24)
Calendar Months after the initial disbursement for the Model Home in question.
"HOME PLANS" means the plans and specifications for the construction of the
Homes approved by Lender pursuant to this Agreement.
"IMPROVEMENTS" shall mean (i) the A & D Improvements and (ii) Homes and
other related facilities and appurtenances to be constructed on the Premises.
"INDEX RATE" shall mean the rate of interest most recently announced by
Lender, or its successors, in Phoenix, Arizona as its "prime rate." 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.
"INSPECTION FEE" shall mean with respect to the Construction Loan, Two
Hundred and No/100 Dollars ($200.00) per Home payable to Lender upon initial
disbursement of each Home Loan.
"INTEREST PAYMENT DATE" means the First Payment Date and the first day of
each month thereafter.
"INTEREST RATE" shall mean a rate of interest equal to the aggregate of
three-quarters of one percent (0.75%) per annum plus the Index Rate. The
Interest Rate shall change from time to time as and when the Index Rate changes.
"LETTERS OF CREDIT" means the letters of credit in Lender's standard form
from time to time issued in the normal course of Melody's business and pursuant
to SECTION 2.21.
<PAGE>
"LETTER OF CREDIT AGREEMENT" means Lender's standard form Application and
Agreement for Commercial Letter of Credit, Lender's standard form Application
for Standby Letter of Credit and Standby Letter of Credit Agreement, or other
standard application and agreement for letters of credit in use by Lender from
time to time.
"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.
"LLC LOAN" shall mean a committed or disbursed Loan to an Affiliate (as
defined herein), subject to the terms and conditions set forth herein.
"LOAN" shall mean collectively the A & D Loan and the Construction Loan.
"LOAN AMOUNT" shall mean an amount up to Thirty-Eight Million Five Hundred
Thousand and No/100 Dollars ($38,500,000.00), subject to the various sublimits
set forth herein.
"LOAN DOCUMENTS" shall mean the documents described in SECTION 3.1 hereof.
"LOT" means an individual lot designated on the final subdivision plat or
filing for each Subdivision.
"MATERIAL ADVERSE CHANGE" shall mean any change in the assets, financial
condition, or results of operations of Borrower or Guarantor or any other event
or condition with respect to Borrower or Guarantor that in the reasonable
opinion of Lender (i) could affect the likelihood of performance by Borrower or
Guarantor of any of the Obligations, (ii) could affect the ability of Borrower
or Guarantor to perform any of the Obligations, (iii) could 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 affect the priority of any Lien
or Encumbrance securing any of the Obligations.
"MAXIMUM ALLOWED ADVANCE" shall mean as follows:
PRESOLD HOMES
The lesser of (A) eighty percent (80%) of the Base Appraisal, or (B) eighty
percent (80%) of the sales price set forth in the Purchase Contract with
respect to each applicable Presold Home, or (C) ninety percent (90%) of
Total Costs.
SPEC HOMES
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The lesser of (A) seventy-five percent (75%) of the Base Appraisal, or
(B) ninety percent (90%) of Total Costs, provided, however, with respect to
Home Loans for Spec Homes which remain outstanding after nine (9) months
following the initial disbursement for such Home Loan, the Maximum Allowed
Advance shall be sixty-five percent (65%) of the Base Appraisal.
MODEL HOMES
The lesser of (A) eighty percent (80%) of the Base Appraisal or (B) ninety
percent (90%) of Total Costs, provided, however, with respect to Home
Loans for Model Homes which remain outstanding (I) after twelve (12) months
following the initial disbursement for such Home Loan, the Maximum Allowed
Advance shall be sixty-five percent (65%) of the Base Appraisal, or (II)
after eighteen (18) months following the initial disbursement for such Home
Loan, the Maximum Allowed Advance shall be fifty percent (50%) of the Base
Appraisal.
"MELODY LOAN" shall mean an Advance disbursed to Melody.
"MODEL HOME" shall mean a Home constructed and furnished initially for
inspection by prospective purchasers, which is not intended to be sold until all
or substantially all of the other Homes are sold.
"MODEL HOME COMMITMENT" shall mean Lender's commitment to advance (i) with
respect to the Melody Loans, an aggregate amount up to the sum of Three Million
Five Hundred Thousand and No/100 Dollars ($3,500,000.00) for construction of
Model Homes, which includes all principal amounts outstanding and all amounts
committed but not yet advanced, or (ii) with respect to the FDC Loans, an
aggregate amount up to the sum of Five Hundred Thousand and No/100 Dollars
($500,000.00) for construction of Model Homes, which includes all principal
amounts outstanding and all amounts committed but not yet advanced. In the
event that Borrower does not utilize all of the Model Home Commitment with
respect to FDC Loans, Lender may elect, in its sole and absolute discretion, to
allow Borrower to utilize such unused portion for the Model Home Commitment as
applied to the Melody Loans. Notwithstanding anything contained herein to the
contrary, the maximum principal amount advanced and/or committed under the Loan,
including the Model Home Commitment, shall never exceed Thirty-Eight Million
Five Hundred Thousand and No/100 Dollars ($38,500,000.00).
"MORTGAGE" shall mean a mortgage, or deed of trust, as applicable, from
time to time executed by Borrower in the form attached hereto as EXHIBITS B-1
AND B-2.
"NON-RELATED PARTY" shall mean a person or entity that is not an officer
of, or parent or subsidiary corporation of, Borrower or a person or entity
otherwise controlled directly or indirectly by Borrower.
"NOTE" shall mean the Amended and Restated Secured Promissory Note of even
date herewith evidencing the Construction Loan and the A & D Loan.
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"OBLIGATIONS" means the obligations of the Borrower and Guarantor under the
Loan Documents, including, without limitation, the obligations of Melody under
the Letter of Credit facility described in SECTION 2.21.
"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" shall mean collectively (i) all plans and
specifications applicable to the A & D Improvements that have been approved by
Lender, and (ii) the Home Plans.
"PREMISES" or "PROPERTY" shall mean the Subdivisions from time to time
approved by Lender pursuant to the terms hereof.
"PRESOLD HOME" shall mean a Home that is subject to a Purchase Contract
without contingencies. In the event any Presold Home ceases to constitute a
Presold Home for any reason, then, any such Presold Home shall automatically
become a Spec Home, and Borrower agrees to immediately comply with all
conditions, restrictions and limitations applicable to a Spec Home. The Maximum
Allowed Advance for any Spec Home or Model Home shall not be increased by reason
of such Home becoming a Presold Home, nor decreased by reason of a Presold Home
becoming a Spec Home or Model Home.
"PROJECT" shall mean the Premises and the Improvements.
"PURCHASE CONTRACT" shall mean a bona fide written agreement entered into
by Borrower and a third party purchaser that is a Non-Related Party for the sale
in the ordinary course of Borrower's business of any Home, supported by a
satisfactory and customary cash earnest money deposit or down payment and
evidence of prequalification for a mortgage loan.
"QUARTERLY LOAN FEE" shall mean a fee equal to .3125% of the then effective
loan amount, payable on the Conversion Date and on each Reduction Date pursuant
to SECTION 2.12(a).
"REDUCTION DATE" shall mean as defined in SECTION 2.10.
"REIMBURSEMENT AMOUNT" means the amount Melody is obligated to pay to
Lender under a Letter of Credit Agreement in respect of a draft drawn and paid
by Lender under the respective Letter of Credit, which amount shall be amount of
the draft or acceptance and all costs, expenses, fees, and other amounts then
payable by Melody to Lender under the Letter of Credit Agreement.
"REPAYMENT GUARANTY" shall mean a guaranty executed by the Guarantor, in
<PAGE>
form and content satisfactory to Lender guaranteeing the repayment of the Loan.
"SOFT COSTS" shall mean with respect to each Home, the fees and costs that
are not directly related to the onsite construction of such Home as approved by
Lender, including, without limitation, interest, inspection fees, escrow and
title fees, processing and closing fees, wiring fees, legal fees, appraisals and
all closing costs, insurance costs and costs of direct project supervision
(which in the aggregate shall not exceed the amount of the Soft Costs set forth
for each type of Home set forth in the Home Construction Budget).
"SPEC HOME" shall mean a Home constructed for the purpose of adding to
Borrower's inventory, and which Home is not subject to a Purchase Contract.
"SUBDIVISION" shall mean a group of lots designated on an individual
subdivision plat or filing (which may be developed in phases), and which has
been approved by Lender (or for which Borrower is requesting approval) pursuant
to SECTION 2.14 of this Agreement. For purposes of this Agreement, a
"Subdivision" shall also include all plats or filings of record within a given
construction project offering the same product line.
"SUBDIVISION A & D LOAN" shall mean an individual loan for A & D
Improvements in a specific Subdivision (or phase thereof) subject to the terms
of this Agreement.
"SUBDIVISION A & D LOAN MATURITY DATE" shall mean the maturity date
applicable to each Subdivision A & D Loan as determined by Lender based on the
anticipated Lot takedown schedule, provided, however, such maturity date shall
not exceed twenty-four (24) months.
"SUBORDINATION AGREEMENT" shall mean, collectively, subordination
agreements in favor of Lender, (i) executed by FDC with respect to indebtedness
of Melody to FDC, and (ii) executed by the Guarantors with respect to
indebtedness of Melody to the Guarantors.
"TITLE COMPANY" shall mean Land Title Guaranty, or such other title company
mutually agreed upon by Borrower and Lender.
"TITLE INSURANCE POLICY" shall mean a title insurance policy in the form of
an American Land Title Association Loan Policy-1992 extended coverage (without
revision, modification or amendment) issued by the Title Company, in form and
substance satisfactory to Lender and containing such endorsements as Lender may
require.
"TOTAL COSTS" shall mean the sum of the Lot cost, Hard Costs and Soft
Costs.
"UNIT LOAN FEE" shall mean a fee equal to (i) one quarter of one percent
(0.25%) of the Maximum Allowed Advance for a Presold Home, (ii) one-half of one
percent (0.50%) of the Maximum Allowed Advance for a Spec Home, and (iii)
three-quarters of one percent (0.75%) of the Maximum Allowed Advance for a Model
Home.
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1.2 ACCOUNTING TERMS. For purposes of this Agreement, all accounting
terms not otherwise defined herein or in the Recitals shall have the meanings
assigned to them in conformity with generally acceptable accounting standards
and principles (GAAP).
ARTICLE II
THE LOAN
Subject to the terms and conditions of this Agreement, Lender agrees to
lend to Borrower and Borrower agrees to borrow from Lender the Loan. The Loan
shall be comprised of the A & D Loan and the Construction Loan.
2.1 A & D LOAN. The A & D Loan shall be for the purpose of paying for or
reimbursing Borrower for certain costs and expenses incurred by Borrower in
acquiring the Property and constructing the A & D Improvements, as more
particularly provided in this Agreement. The A & D Loan shall be a revolving
line of credit. Except as provided in SECTION 2.11, and so long as no Event of
Default has occurred, the A & D Loan may be drawn, repaid and drawn again
through individual Subdivision A & D Loans in unlimited repetition so long as
the sum of (a) the amounts outstanding on the A & D Loan, and (b) the cumulative
Subdivision A & D Loan amounts that are committed but not yet advanced on the A
& D Loan never exceed the A & D Loan Amount.
2.2 EVIDENCE OF INDEBTEDNESS UNDER A & D LOAN. The A & D Loan shall be
evidenced by the Note. Disbursements of the A & D Loan shall be charged and
funded under the Note. In the event of any inconsistency between the Note and
this Agreement, the provisions of this Agreement shall prevail.
2.3 CONSTRUCTION LOAN. The Construction Loan shall be for the purpose of
paying for or reimbursing Borrower for certain costs and expenses incurred in
connection with the construction of the Homes and other costs and expenses
incidental to a Project, as more particularly provided in this Agreement. The
Construction Loan shall constitute a revolving line of credit. Except as
provided in SECTION 2.11, and so long as no Event of Default has occurred, the
Construction Loan may be drawn, repaid and drawn again through individual Home
Loans in unlimited repetition so long as the sum of (a) the amounts outstanding
on the Construction Loan, and (b) the cumulative Home Loan amounts that are
committed but not yet advanced on the Construction Loan never exceed the
Construction Loan Amount, and provided that (i) the aggregate value of Home
Loans for Presold Homes and Spec Homes that are outstanding or committed but not
yet advanced do not exceed the Construction Loan Commitment; and (ii) the
aggregate value of Home Loans for Model Homes that are outstanding or committed
but not yet advanced do not exceed the Model Home Commitment.
2.4 EVIDENCE OF INDEBTEDNESS UNDER CONSTRUCTION LOAN. Amounts outstanding
under the Construction Loan shall be evidenced by the Note. Disbursements of
the Construction Loan shall be charged and funded under the Note.
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In the event of any inconsistency between the Note and this Agreement, the
provisions of this Agreement shall prevail.
2.5 INTEREST RATE.
(a) PAYMENT. Interest at the Interest Rate shall accrue on the
outstanding and unpaid balance of the Loan Amount, commencing on the date
of each advance until repaid, and shall be due and payable on each Interest
Payment Date until repayment of the outstanding principal balance of the
Loan Amount in full, together with all other sums owed to Lender pursuant
to any Loan Document.
(b) RATE AFTER DEFAULT. Upon and after the occurrence of an Event of
Default, hereunder or under any of the Loan Documents, at the option of
Lender, the outstanding principal balance of the Loan 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 Lender's remedies under this Agreement or any of the other
Loan Documents.
(c) 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.
(d) NO DEDUCTIONS. All payments of principal or interest under the
Note shall be made without deduction of any present and 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 Lender is not less
than that required by the Note.
(e) ORDER OF APPLICATION. Prior to the occurrence of an Event of
Default, any payments received by Lender will be applied in the following
order: (1) late charges; (2) payments for taxes and insurance; (3)
interest; and (4) principal.
(f) INTEREST RESERVE. Borrower hereby authorizes Lender to disburse
the proceeds of the Loan to pay interest accrued on the Loan,
notwithstanding that Borrower may not have requested a disbursement of such
amount. The authorization hereby granted shall be irrevocable and at
Lender's discretion, and no further direction or authorization from
Borrower shall be necessary for Lender to make such disbursements. Nothing
contained herein shall be deemed to obligate Lender to make such
disbursements to pay interest
<PAGE>
beyond the portions of the Loan specifically allocated to the payment of
interest.
2.6 PAYMENTS. All amounts payable by Borrower on or with respect to the
A & D Loan and the Construction Loan 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.
2.7 PREPAYMENT OF PRINCIPAL. Borrower shall have the right to prepay the
A & D Loan and the Construction Loan, in whole or in part at any time, without
premium or penalty.
2.8 TERM OF LOAN. The Loan and all interest and other charges thereon
shall be due and payable on the Expiration Date and all obligations to make
loans and advances (except as provided in SECTION 2.11) under the Loan shall
expire on the Expiration Date.
2.9 TERM OF INDIVIDUAL HOME LOANS AND SUBDIVISION A & D LOANS. Each Home
Loan and each Subdivision A & D Loan shall be due and payable in full on the
earlier to occur of (i) the Home Loan Maturity Date, or the Subdivision A & D
Loan Maturity Date, respectively, applicable to that loan or (ii) the Expiration
Date, provided, however, the Home Loan Maturity Date for a Presold Home shall be
extended for one period of three (3) Calendar Months upon Borrower's failure to
pay in full such Loan on or before the original Home Loan Maturity Date and
Borrower's satisfaction of the following terms and conditions prior to such
extension:
(a) No Material Adverse Change has occurred; and
(b) At the time of such extension, no Event of Default or event which
with notice or lapse of time (or both) would become an Event of Default
shall have occurred or be continuing.
In the event that the original Home Loan Maturity Date is extended pursuant
to this Section, Borrower shall pay to Lender in cash or immediately available
funds a non-refundable extension fee equal to .063% of the Maximum Allowed
Advance for each Presold Home within two (2) days from such extension.
2.10 CONVERSION PERIOD.
(a) From and after the Conversion Date, the Loan Amount shall be
reduced on the first day of each quarterly annual period (a "REDUCTION
DATE") as follows:
REMAINING
PERIOD REDUCTION LOAN AMOUNT
- ------ --------- -----------
<PAGE>
3 Calendar Months after $6,416,667 $32,083,333
Conversion Date
6 Calendar Months after $6,416,667 $25,666,666
Conversion Date
9 Calendar Months after $6,416,667 $19,249,999
Conversion Date
12 Calendar Months after $6,416,666 $12,833,332
Conversion Date
15 Calendar Months after $6,416,666 $ 6,416,666
Conversion Date
18 Calendar Months after $6,416,666 $ -0-
Conversion Date
All such reductions shall be applied FIRST, to the Collateral being
released by any refinancing, SECOND, to any excess availability under
the A & D Loan, THIRD, to any excess availability under the
Construction Loan, FOURTH, to the A & D Loan, and FIFTH, to the
Construction Loan, with the oldest Lots and Units being paid first
(first to Spec Homes, then Presold Homes and Model Homes).
(b) Lender may accelerate the Conversion Date, and proceed to
enact the Conversion Period, upon the occurrence of any of the
following: (i) the breach of any covenant set forth in SECTION 10.21 ;
or (ii) FDC on a consolidated basis experiences two consecutive
quarterly losses (excluding the effects of amortization of the
purchased inventory markup), which losses exceed in the aggregate the
sum of One Million and No/100 Dollars ($1,000,000.00).
2.11 ADVANCES DURING CONVERSION PERIOD. Borrower may continue to submit
Draw Requests during the Conversion Period pursuant to the terms of this
Agreement; PROVIDED, HOWEVER, from and after the first anniversary of the
Conversion Date (i) no new Subdivisions shall be approved and no new Home Loans
or Subdivision A & D Loans shall be made, and (ii) all amounts prepaid or
prepaid by Borrower may not be reborrowed, as the Loan shall be automatically
converted from a revolving line of credit to a line of credit.
2.12 FEES. As additional consideration for the Loan, Borrower agrees to
pay to Lender the following fees, from Borrower's own funds and not from
proceeds of the Loan, which shall be earned by Lender on the date due under the
Loan Documents and shall be non-refundable to Borrower:
<PAGE>
(a) A Commitment Fee computed for the period commencing on the date
hereof and ending on the scheduled Conversion Date, and which shall be
payable on or before the date hereof. On the Conversion Date and on each
Reduction Date during the Conversion Period, Borrower shall pay a Quarterly
Loan Fee on the Loan Amount then in effect, after giving effect to any
reductions thereof pursuant to SECTION 2.10.
(b) An unused commitment fee computed at the rate per annum of one
quarter of one percent (.25%) on the unused and uncommitted portion of the
Loan Amount, calculated quarterly from the date hereof and payable
quarterly in arrears until the Expiration Date. For each quarter-annual
period (or portion thereof), the unused commitment fee shall be equal to
(A) the Loan Amount (as in effect at the beginning of such month) MINUS (B)
the "average quarterly outstandings" for such quarter-annual period (or
portion thereof) with respect to which the unused commitment fee is being
computed, with the resulting number multiplied by (C) one-fourth (1/4th) of
the rate per annum set forth herein. As used herein, "average quarterly
outstandings" means the sum of (i) the outstanding amount of the Advances
on each day during such quarter-annual period (or portion thereof for which
the fee is being computed) with respect to which the unused commitment fee
is being computed, plus (ii) all amounts committed but not yet advanced,
divided by the number of days in such quarter-annual period (or portion
thereof). If the unused commitment fee is being computed for less than a
full quarter, the percentage used in clause (C) above shall be computed on
a daily basis for the number of days for which the fee is being computed.
Such fee shall continue to be payable quarterly during the Conversion
Period.
(c) A documentation fee for the Lender's processing of the closing of
the transaction contemplated hereby and the ongoing processing of
Mortgages, such fee to be in the amount of Three Thousand Five Hundred and
No/100 Dollars ($3,500.00), payable on or before the date hereof.
(d) Attorneys costs, expenses, and fees for Lender's counsel as
provided in the Loan Documents, payable on or before the date hereof and
during the term of the Loan, from time to time upon the presentation by
Lender of statements therefor.
(e) Appraisal fees, appraisal review fees, title insurance premium,
release and reconveyance fees, and other costs, expenses, and fees that the
Borrower is obligated to pay pursuant to the Loan Documents, including,
without limitation, the fees and expenses described in SECTION 12.10 and
all fees and costs associated with periodic inspections of the
<PAGE>
Project (by personnel of Lender or independent contractors retained by
Lender for such purposes) and Borrower's books and records, in the amounts
specified by Lender, payable on or before the date hereof.
2.13 SECURITY. Payment of the Note shall be secured by the following:
(a) The Mortgages; and
(b) the assignment of agreements set forth in SECTION 2.18 below.
Notwithstanding anything contained herein to the contrary, the Collateral for
any LLC Loan shall not act as collateral for any FDC Loan, Melody Loan or Melody
Obligation under the Letter of Credit Facility. In all other instances,
however, all Collateral shall act as collateral for each and every other loan
and/or facility.
2.14 APPROVAL OF SUBDIVISIONS AND SUBDIVISION A & D LOANS. Borrower may,
from time to time, request Lender to approve additional Subdivisions and
Subdivision A & D Loans. Approval of new Subdivisions shall be at Lender's sole
and absolute discretion and Lender shall have no obligation to approve such
Subdivisions. When requesting approval of a new Subdivision, Borrower shall
deliver to Lender the following documents, in form and content satisfactory to
Lender:
(a) SUBDIVISION PLAT OR SURVEY. Borrower shall deliver to Lender a
duly recorded subdivision plat, or a survey acceptable to Lender in form
and substance, covering the Subdivision for which Borrower is requesting
approval. No Subdivision (or the aggregate of the phases thereof) whose
(i) plat or filing provides for more than one hundred fifty (150) Lots, or
(ii) anticipated Lot takedowns exceed twenty-four (24) months, shall be
approved.
(b) CC&R'S. Borrower shall provide Lender with all CC&R's, easements
and other rights that exist or are contemplated with respect to the
Subdivision for which Borrower is requesting approval.
(c) TYPES OF HOMES. With respect to the Construction Loan, Borrower
shall provide Lender with a description of the types of Homes to be
constructed within such Subdivision.
(d) APPROVALS. Borrower shall provide evidence of appropriate zoning
and existence of all necessary governmental and other third-party
approvals; including, without limitation, public reports, architectural
committee approvals (to the extent Borrower does not control the granting
of such approvals) and any other approvals required under the CC&R's.
(e) SOILS TESTS. Borrower shall provide a soils test report prepared
by a licensed soils engineer satisfactory to Lender showing the
<PAGE>
locations of, and containing boring logs for, all borings, together with
recommendations for the design of the foundations, paved areas and
underground utilities for the Subdivision.
(f) ENVIRONMENTAL QUESTIONNAIRE. Borrower shall provide an
environmental questionnaire with respect to each Subdivision for which
Borrower is requesting approval in form satisfactory to Lender.
(g) UTILITIES. With respect to the Construction Loan, Borrower shall
provide evidence satisfactory to Lender, which may be in the form of
letters from local utility companies or local authorities, that (a)
telephone service, electric power, storm sewer, sanitary sewer and water
facilities are available to the Subdivision and Lots therein; (b) such
utilities are adequate to serve the Subdivision and Lots therein and exist
at the boundary of the Subdivision; and (c) no conditions exist to affect
Borrower's right to connect into and have unlimited use of such utilities
except for the payment of a normal connection charge and except for the
payment of subsequent charges for such services to the utility supplier.
(h) TAXES. Borrower shall provide satisfactory evidence to Lender
that all real property taxes, assessments, water, sewer or other charges
levied or assessed against the Subdivision have been paid in full.
(i) FLOOD REPORT. Lender shall have obtained evidence satisfactory
to Lender, as to whether (a) the Subdivision is located in an area
designated by the Department of Housing and Urban Development as having
special flood or mudslide hazards, and (b) the community in which the
Subdivision is located is participating in the National Flood Insurance
Program.
(j) PRELIMINARY TITLE REPORT. Borrower shall provide Lender with a
preliminary title report, including all Schedule B items, and evidence
satisfactory to Lender that the Title Company is prepared to issue the
Title Insurance Policies with respect to Home Loans within each Subdivision
for which Borrower is requesting approval.
(k) A & D COSTS. If applicable, Borrower shall provide Lender with
the cost breakdown for the land acquisition and development costs to a
finished Lot status on the Subdivision for which Borrower is requesting
approval, together with all documents evidencing or relating to such costs.
(l) MORTGAGE. With respect to any Subdivision, Borrower shall
execute a Mortgage with respect to the new Subdivision in the form attached
hereto as EXHIBIT "B-1" or EXHIBIT "B-2", as applicable.
(m) TITLE INSURANCE. With respect to each new approved Subdivision
that is subject to a prior lien of Lender securing acquisition
<PAGE>
and development financing or that is owned free and clear by Borrower,
Borrower shall provide to Lender a Title Insurance Policy insuring a
Mortgage provided for in paragraph (l) above, in the aggregate amount of
the title insurance of the Loan Amount, or adding the new Subdivision by
endorsement to an existing Title Insurance Policy, subject to Lender's
review and approval.
(n) HOME COST BREAKDOWN. Borrower shall provide to Lender a cost
breakdown for each type of Home to be constructed in the approved
Subdivision, in form and substance acceptable to Lender.
(o) PHASE I ENVIRONMENTAL REPORT. Borrower shall provide to Lender a
Phase I Environmental Assessment Report with respect to the Subdivision
prepared by an environmental engineer acceptable to Lender, and in form and
substance acceptable to Lender, in Lender's sole and absolute discretion.
(p) PLANS AND SPECIFICATIONS. Borrower shall provide to Lender the
Plans and Specifications.
(q) BASE APPRAISAL. Borrower shall provide Lender with a Base
Appraisal of each type of Unit to be constructed in the Subdivision.
(r) SUBDIVISION A & D LOANS. If Borrower desires a Subdivision A & D
Loan for the Subdivision in question, Borrower shall submit, for Lender's
approval, which may be granted or withheld in lender's sole and absolute
discretion, an A & D Budget and A & D Disbursement Schedule. Lender shall
also determine, in Lender's sole and absolute discretion, the applicable
Subdivision A & D Loan Maturity Date and the minimum Lot takedown
requirements applicable to such Subdivision.
(s) TERM SHEET. Borrower must execute a Term Sheet in the form
attached hereto as EXHIBIT "G", agreeing to all the terms and
conditions set forth therein.
(t) OTHER. Borrower shall provide such other documents and
information that Lender may reasonably require.
2.15 EFFECT OF SUBDIVISION APPROVAL. The approval by Lender of a
Subdivision shall mean only that Borrower may apply for (i) Subdivision A & D
Loans, and/or (ii) Home Loans for the construction of Homes within such
Subdivision pursuant to SECTION 2.16 of this Agreement.
2.16 APPROVAL OF HOME LOANS. From and after such time that Lender has
approved a Subdivision pursuant to SECTION 2.14 of this Agreement, Borrower may
apply for Home Loans for the construction of Homes within such Subdivision.
Borrower
<PAGE>
shall apply for any Home Loan before the first day of each month, or such other
day as may be mutually agreed upon by Borrower and Lender. Lender will review
and approve or disapprove such Home Loan applications in its sole and absolute
discretion. In connection with each request for a Home Loan, Borrower shall
deliver to Lender the following documents in form and content satisfactory to
Lender:
(a) TYPE OF HOME. Borrower shall provide Lender with a description
of the type of Home to be constructed with the requested Home Loan (Presold
Homes, Model Homes or Spec Homes), and Home Descriptions.
(b) PRELIMINARY TITLE REPORT. Borrower shall provide Lender with a
Preliminary Title Report, including all Schedule B items, and evidence
satisfactory to Lender that the Title Company is prepared to issue a Title
Insurance Policy.
(c) PURCHASE CONTRACT. Borrower shall provide Lender with a copy of
the Purchase Contract if any of the Homes to be constructed with the
requested Home Loan is a Presold Home.
(d) OTHER. Borrower shall provide Lender with such other documents
that Lender may reasonably require.
2.17 UNIT LIMITATIONS. The number of Spec Homes which may be funded under
the Loan in a Subdivision shall not exceed (i) five (5) Units per phase, or (ii)
ten (10) Units per Subdivision. The number of Model Homes shall be limited to
four Units (4) per product per Subdivision. The number of Presold Home Loans
shall be limited to the available Construction Loan Amount.
2.18 ADDITIONAL SECURITY. As additional security for the indebtedness and
obligations of Borrower under the Loan Documents, Borrower hereby transfers and
assigns to Lender, and grants a first priority security interest in favor of
Lender in, under, and to all written agreements that have been or will be
entered into by Borrower relating to Property, including, without limitation,
all construction contracts, architect's and engineer's agreements, the Plans and
Specifications, drawings, surveys, licenses, permits, franchises,
authorizations, approvals, and any other documents, instruments and agreements
relating to the construction of any Home, or required for the use, occupancy or
operation of any Home, and upon the occurrence of an Event of Default, Borrower
hereby irrevocably constitutes and appoints Lender as its attorney-in-fact, with
full power of substitution to enforce Borrower's rights with respect to any such
agreements.
2.19 MANDATORY PREPAYMENT. If for any reason at any time (i) the aggregate
outstanding Home Loans for Model Homes or for Presold Homes and Spec Homes
exceeds the Model Home Commitment or the Construction Loan Commitment,
respectively; (ii) the aggregate outstanding Subdivision A & D Loans exceed the
A & D Loan Amount; or (iii) the outstanding balance of any Home Loan exceeds the
applicable
<PAGE>
Maximum Allowed Advance, Borrower, without notice or demand, shall, within one
(1) Business Day, make a payment to Lender in an amount equal to such excess
principal amount.
2.20 LLC LOANS. Borrower and Lender hereby acknowledge that with respect
to certain Subdivisions, the "Borrower" may be an Affiliate. Such affiliates
must provide certified copies of such formation documents, certificates and
resolutions as Lender may require and such Affiliate must execute a Joinder and
Agreement to be Bound in the form of EXHIBIT "F" attached hereto, agreeing to
assume all obligations and liabilities under this Agreement, excluding, however,
all of Borrower's obligations to repay the Loans. The execution and delivery of
the Joinder and Agreement to be Bound shall be a condition precedent to closing
any Home Loan or Subdivision A & D Loan to an Affiliate, together with such
other Loan Documents as may be required by Lender from time to time. While the
Loan has been made to Borrower and Borrower is the primary obligor for the
repayment of the Loan, Lender acknowledges that Borrower will be making Advances
available to Affiliates for the purposes set forth in this Agreement with
respect to the Subdivisions. Lender hereby agrees to the use of Advances for
such purposes provided:
(a) All other terms and conditions of this Agreement to be satisfied
as a condition of Lender's obligation to authorize Advances shall have been
satisfied as to each such Advance including, but not limited to, a Mortgage
executed and delivered to Lender by the Affiliate meeting all requirements
set forth in this Agreement for Mortgages; and
(b) Prior to the initial Advance for the benefit of an Affiliate,
such Affiliate shall provide to Lender certified copies of such formation
documents and a resolution or certification, as appropriate, that the
execution and delivery of Mortgages by such Affiliate have been duly
authorized in accordance with the governing documents of such Affiliate.
Notwithstanding any other provision of this Agreement or such Affiliate
Mortgages to the contrary, Lender expressly agrees that in the event of default
under this Agreement or any other Loan Documents, any Affiliate shall not be
required to pay off any Loan (unless the LLC Loan in question is in default) and
Lender shall nevertheless allow each Affiliate Mortgage to be released and fully
reconveyed upon the payment to Lender of (i) the respective Home Release Price
or A & D Loan Lot Release Price or (ii) the amount actually disbursed in
connection with the Property encumbered by such Affiliate Mortgage, whichever is
lesser, plus the trustee's and reasonable attorney's fees and costs, if any,
incurred by Lender in initiating and processing foreclosure of such Affiliate
Mortgage; provided, however, that Lender shall be under no obligation to release
an Affiliate Mortgage at any time the Affiliate requesting such release is,
itself, in default in the performance of its obligations pursuant to any
Affiliate Mortgage and the Loan Documents executed by it, and all release
payments must be paid to Lender, or to the trustee under the Mortgage for which
release is requested, prior to ten (10) days before the earliest foreclosure
sale
<PAGE>
date for a Mortgage. The phrase "earliest foreclosure sale date" means the
earliest date a Property may actually, not theoretically, be sold pursuant to,
and after full compliance with, applicable law governing judicial or
non-judicial foreclosures, as the case may be, of mortgages.
2.21 LETTER OF CREDIT FACILITY. As a separate credit facility, separate
and apart from any other credit facility described herein, Melody and Lender
agree as follows:
(a) ISSUANCE OF LETTERS OF CREDIT. Subject to the terms and
conditions of this Agreement and the Letter of Credit
Agreements and subject to the policies, procedures, and
requirements of Lender in effect from time to time for
issuance of Letters of Credit (including, without
limitation, payment of letter of credit fees), Lender agrees
to issue, from time to time on or before the Conversion
Date, Letters of Credit upon request by and for the account
of Melody, provided that as to each requested Letter of
Credit Melody has delivered to Lender a completed and
executed Letter of Credit Agreement, and provided further
that (i) Letters of Credit shall not be required to be
issued for a term of more than twenty-four (24) months,
(ii) the date that is the last date for payment of drafts
drawn or drawn and accepted under a requested Letter of
Credit is before the Expiration Date, and (iii) the
requested Letter of Credit relates to a Lender financed
Subdivision. Each reference in this Agreement to "issue" or
"issuance" or other forms of such words in relation to
Letters of Credit shall also include any extension or
renewal of a Letter of Credit. Upon occurrence and during
the continuance of an Event of Default, Lender, in its
absolute and sole discretion and without notice, may suspend
or terminate the commitment to issue Letters of Credit.
Notwithstanding the foregoing, the sum of (i) the stated
amounts of all outstanding Letters of Credit and (ii) all
unpaid Reimbursement Amounts shall not exceed Three Million
and No/100 Dollars ($3,000,000.00). Lender shall not be
obligated to issue any Letter of Credit with an automatic
renewal or "evergreen" provision. All of Melody's
obligations under the Letters of Credit shall be secured by
the Collateral.
(b) ISSUANCE PROCEDURE. To obtain a Letter of Credit, Melody shall
(i) provide a budget for the specific improvements covered
by the Letter of Credit, together with a legal description
of the subject real property, and (ii) complete and execute
a Letter of Credit Agreement
<PAGE>
and submit it to the letter of credit department of Lender.
Upon approval of the budget and receipt of a completed and
executed Letter of Credit Agreement, Lender will process the
application in accordance with the policies, procedures,
and requirements of Lender then in effect. If the
application meets the requirements of Lender and is within
the policies of Lender then in effect, Lender will issue the
requested Letter of Credit.
(c) REIMBURSEMENT OF LENDER FOR PAYMENT OF DRAFTS DRAWN OR DRAWN AND
ACCEPTED UNDER LETTERS OF CREDIT. The obligation of Melody
to reimburse Lender for payment by Lender of drafts drawn or
drawn and accepted under a Letter of Credit shall be as
provided in the respective Letter of Credit Agreement.
Lender will notify Melody of payment by Lender of a draft
drawn or drawn and accepted under a Letter of Credit and of
the respective Reimbursement Amount and Melody shall pay the
Reimbursement Amount pursuant to the respective Letter of
Credit Agreement. If Melody is to pay the Reimbursement
Amount pursuant to the Letter of Credit Agreement, Melody
shall also pay to Lender interest on the Reimbursement
Amount from and including the date Lender pays the
respective draft or acceptance at the Interest Rate until
the Reimbursement Amount and such interest are paid in full
at a rate of interest equal to two percent (2%) plus the
Index Rate, provided that if Melody fails to pay the
Reimbursement Amount and accrued interest thereon within two
(2) days after notification by Lender to Melody of payment
of the respective draft or acceptance, an Event of Default
shall occur and interest thereafter will accrue at the
Default Interest Rate. Such interest shall be computed on
the basis of a 360-day year and accrue on a daily basis for
the actual number of days elapsed. Notwithstanding the
above, if Melody elects or is deemed to have elected to pay
the Reimbursement Amount pursuant to the Letter of Credit
Agreement and fails to pay the Reimbursement Amount and
interest thereon within five (5) days after notification by
Lender to Melody, Lender, in its absolute and sole
discretion and without notice to Melody and regardless of
whether the terms and conditions in this Agreement for
Advances are satisfied, may (i) increase the Release Price
pursuant to SECTION 13.2(e), or (ii) make an Advance under
this Agreement in the amount of the Reimbursement Amount and
accrued interest thereon and apply the proceeds of
<PAGE>
such Advance to pay the Reimbursement Amount and accrued
interest.
(c) LETTER OF CREDIT FEE. Melody shall pay to Lender an additional
fee for each Letter of Credit equal to one and one-quarter
percent (1.25%) of the face amount of each Letter of Credit, in
no event to be less than $325.00 per Letter of Credit payable in
advance for the term of each Letter of Credit.
ARTICLE III
CONDITIONS PRECEDENT
3.1 CLOSING. Lender's obligations to close the Loan and perform under
this Agreement are expressly conditioned upon (i) Borrower's satisfaction of all
of the conditions set forth in EXHIBIT C hereto; (ii) Borrower's satisfaction of
the conditions for disbursement set forth in ARTICLE IV (as applicable); (iii)
the Title Company's unconditional commitment to issue the Title Insurance Policy
("TITLE COMMITMENT"); and (iv) Borrower's delivery to Lender of the following
documents, in form and content satisfactory to Lender, duly executed (and
acknowledged where necessary) by the appropriate parties thereto:
(a) This Agreement;
(b) The Note;
(c) The Mortgage(s), or amendments to Mortgage(s) with respect to all
existing Mortgages;
(d) The Financing Statement, which shall be duly filed with the
Colorado or Nevada Secretary of State, as applicable;
(e) The Environmental Indemnity;
(f) The Completion Guaranty;
(g) The Repayment Guaranty;
(h) The Subordination Agreement;
(i) Assignments of the Plans and Specifications and all other
agreements, contracts, rights, permits, licenses, entitlements,
authorizations, and franchises relating to the Project, and consents to
such assignments where deemed appropriate by Lender; and
(j) Such other documents that Lender may reasonably require.
<PAGE>
3.2 HOME LOAN CLOSINGS/SUBDIVISIONS A & D LOAN CLOSINGS/LLC LOAN
CLOSINGS. In addition to the satisfaction of the closing conditions set
forth in SECTION 3.1 above, Lender's obligations to close any Home Loan,
Subdivision A & D Loan and/or LLC Loan and perform under this Agreement are
expressly conditioned upon (i) Borrower's satisfaction of the conditions for
disbursement set forth in ARTICLE IV (as applicable); (ii) the Title
Company's unconditional commitment to issue the Title Commitment; and (iii)
Borrower's delivery to Lender of the following documents, in form and content
satisfactory to Lender, duly executed (and acknowledged where necessary) by
the appropriate parties thereto:
(a) The Mortgage, provided a Mortgage has not been previously
executed, delivered, recorded and insured;
(b) The Financing Statement, which shall be duly filed with the
Colorado or Nevada Secretary of State, provided a Financing Statement has
not been previously executed, delivered and filed;
(c) Such other loan documents as may be required by Lender,
including, without limitation, the Joinder and Agreement to be Bound with
respect to any LLC Loan, assignments, an Environmental Indemnity, and such
consents as Lender may require.
ARTICLE IV
LOAN DISBURSEMENTS
4.1 A & D LOAN DISBURSEMENTS.
(a) RECORDATION DISBURSEMENTS. Upon recordation of a Mortgage and
satisfaction of all conditions set forth herein, provided that the Title
Company has issued or irrevocably committed in writing to issue to Lender
the Title Insurance Policy, Lender shall disburse, subject to the
limitations of each A & D Disbursement Schedule, to Borrower or to the
persons, firms or corporations entitled thereto the amounts (if approved in
writing by Lender) necessary to pay all or portions of: (i) costs, charges
and expenses incurred by (1) Lender and payable by Borrower hereunder or
(2) Borrower in connection with title insurance charges and premiums, tax
and lien service charges, recording fees, escrow fees, real property taxes
and assessments, insurance premiums, and loan brokerage commissions payable
in connection with the Loan, if any, and title insurance charges and
premiums, recording fees, escrow fees, prorations in respect to real
property taxes and assessments and insurance premiums payable in connection
with Borrower's acquisition of fee title to the Property; (ii) the amount
necessary to complete the purchase of the Property; and (iii) other Project
costs and expenses theretofore incurred by Borrower.
(b) COURSE-OF-CONSTRUCTION DISBURSEMENTS. Subsequent to recordation
<PAGE>
of a Mortgage and subject to the provisions of this Agreement, Borrower
shall be entitled to disbursements, within the limitations of the
applicable A & D Disbursement Schedule, of sums as are required to be used
for the payment of:
(i) interest on borrowings under the applicable Subdivision
A & D Loan;
(ii) the costs and expenses of Lender which are payable by
Borrower or reimbursable by Borrower as set forth herein; and
(iii) the costs and expenses of the labor and materials used in
constructing the A & D Improvements and costs and expenses incidental
thereto in accordance with the applicable provisions of the applicable
A & D Disbursement Schedule.
(c) REQUEST FOR ADVANCE. Concurrently with the request for any
disbursement of proceeds of the A & D Loan other than advances that,
pursuant to the applicable A & D Loan Disbursement Schedule, may be made
without a request for advance, Borrower shall furnish to Lender, separately
with respect to each disbursement request, a request for advance on
Lender's form (the "REQUEST FOR ADVANCE") and executed by Borrower,
together with AIA forms G702 and G703 (or acceptable equivalents and such
other forms and schedules of values as may from time to time be approved or
required by Lender) duly signed and sworn to by Borrower and Borrower's
general contractor (if any), with all blanks appropriately filled in,
setting forth such details concerning construction of the A & D
Improvements as Lender shall require. Upon request of Lender at any time
or from time to time, Borrower shall also deliver to Lender (i) a list of
the names and addresses of all material dealers, laborers and
subcontractors with whom written agreements have been made by Borrower or
Borrower's general contractor (if any) and (ii) unconditional lien waivers
and releases with respect to all work performed and materials supplied in
connection with the A & D Improvements and previously paid for by a prior
Advance, and conditional lien waivers and releases with respect to all work
performed and materials supplied in connection with the current Request for
Advance. Each Request for Advance and all such other items and information
shall be delivered to Lender at least ten (10) Business Days prior to the
date of such advance.
(d) RETAINAGE; FINAL DISBURSEMENT. With respect to all new
Subdivisions and Subdivision Loans approved by Lender pursuant to
SECTION 2.14, and at Lender's option, Lender shall hold back ten percent
(10%) of all "HARD COSTS" identified in the applicable A & D Budget for
major scopes of work identified as grading, water, sewer, paving and
concrete. Lender agrees to disburse retainage on a trade-by-trade basis,
subject to Lender's verification that such work has been completed to
Lender's satisfaction and such other conditions that Lender may reasonably
require. Subject to the provisions of this Agreement, and so long as there
is no Event of Default hereunder, the final
<PAGE>
disbursement of proceeds of each Subdivision A & D Loan proceeds constituting
the holdback portion shall be made when Borrower has delivered or caused to be
delivered to Lender the following:
(i) such additional title policy endorsements or such additional
policies of title insurance with endorsements thereto as Lender may
require, with a liability limit not less than the Title Insurance
Policy amount, issued by the Title Company with coverage and in form
satisfactory to Lender, insuring Lender's interest under the Mortgage
as a valid first lien on the Premises, excepting only such items as
shall have been approved in writing by Lender and providing
affirmative insurance therein against mechanics' liens, materialmen's
liens or claims or liens in the nature thereof on account of any
construction of the A & D Improvements;
(ii) if requested by Lender, the execution of AIA Form G704 or
other document satisfactory to Lender by Borrower's engineer,
contractor (if any) and Borrower;
(iii) if requested by Lender, a notice of completion on
Lender's approved form executed by Borrower and duly recorded in the
county recorder's office where the Premises is located;
(iv) if requested by Lender, an "AS-BUILT" ALTA survey of the
Premises or other satisfactory evidence, showing the location of the
completed A & D Improvements, the location of all points of access to
the Premises and the A & D Improvements and the location of all
easements affecting the Premises and certifying that there are no
encroachments of the A & D Improvements onto any easements affecting
the Premises or onto any adjoining property and that all applicable
setback requirements and other restrictions have been complied with;
(v) "AS-BUILT" plans and specifications of the A & D
Improvements, showing the final specifications of all A & D
Improvements;
(vi) letter of acceptance or its equivalent from all Governmental
Authorities regarding completion of the A & D Improvements;
(vii) if requested by Lender, the execution of AIA Form G706
(Contractor's Affidavit of Payments of Debts), AIA Form G706A
(Contractor's Affidavit of Release of Liens), and AIA Form G707
(Consent of Surety of Final Payment); and
(viii) unconditional lien waivers on Lender's approved form
from any party that has recorded a preliminary notice of lien against
the Project.
(e) LENDER'S INSPECTOR. Throughout the course of construction of the
<PAGE>
A & D Improvements, Lender shall have the right to employ, at Borrower's sole
cost and expense, an inspector or inspectors who shall review as agent for
Lender all construction activities undertaken in regard to the Project. A
certificate or indication from such inspector or inspectors that construction
substantially complies with the Plans and Specification will be completed not
later than the applicable A & D Completion Date shall be a further condition
precedent to Lender's approval of Borrower's then submitted Request for Advance.
(f) METHOD OF ADVANCES. The proceeds of the A & D Loan disbursed under
this Agreement through individual Subdivision A & D Loans, and shall be
evidenced by the Note and shall be secured by a Mortgage, and all such proceeds
shall be disbursed at Lender's option (a) directly to Borrower or the Borrower's
general contractor, (b) jointly to Borrower and the Borrower's general
contractor, (c) directly to persons supplying labor, materials and services in
connection with the A & D Improvements, or (d) jointly to Borrower and said
persons. Prior to any disbursements for hard costs or soft costs as identified
in the applicable A & D Budget, Borrower shall establish and maintain an account
with Lender, which account shall be used by Lender to advance A & D Loan funds
and Construction Loan funds into during the term of the A & D Loan and the
Construction Loan.
(g) LIMITATIONS ON DISBURSEMENTS. Borrower shall be entitled to
disbursements of the A & D Loan only in accordance with the terms and conditions
of the applicable A & D Loan Disbursement Schedule (unless waived or modified by
Lender) and, in addition, the following conditions (unless waived or modified by
Lender):
(i) the representations and warranties of Borrower contained in all
of the Loan Documents shall be correct on and as of the date of the
disbursement as though made on and as of that date and no Event of Default
(or event which, with the giving of notice and/or the passage of time,
could become an Event of Default) shall have occurred and be continuing as
of the date of the disbursement;
(ii) disbursement of A & D Loan proceeds shall be available only to
defray costs actually incurred by Borrower in connection with the
construction of the A & D Improvements;
(iii) in the event the A & D Improvements (or any portion thereof)
are completed prior to total disbursement of all of the budget categories
on the applicable A & D Loan Disbursement Schedule (or those budget
categories that relate to the portion completed), Lender will not be
obligated to reallocate undisbursed amounts to other budget categories on
the applicable A & D Disbursement Schedule and such undisbursed amounts may
be retained by Lender.
<PAGE>
(iv) disbursements on account of the direct costs of constructing the
A & D Improvements shall be limited to the lesser of (a) the actual cost to
Borrower of work and labor performed on the Improvements and materials
incorporated into the Improvements or suitably stored on the Property, or
(b) the actual value (as determined by Lender) of said work and labor
performed and materials stored or (c) the amounts allocated to the work,
labor and materials in question on budgets and schedules of values approved
by Lender multiplied by the percentage of completion (as determined by
Lender) of such work, labor and materials;
(v) disbursements on account of indirect or "soft" costs relating to
the construction of the A & D Improvements shall be limited to the actual
amounts of such costs as indicated by invoices, statements, vouchers,
receipts or other written evidence satisfactory to Lender;
(vi) all disbursements of the A & D Loan shall be limited to the
purposes and amounts set forth in the categories set forth in the
applicable A & D Loan Disbursement Schedule; provided that notwithstanding
any limitations on disbursements set forth in this Agreement, the
applicable A & D Loan Disbursement Schedule, or otherwise, Borrower shall
pay all costs and expenses arising in connection with the Project;
(vii) Borrower shall not submit more than one (1) Request for
Advance per month for the A & D Loan. Each such Request for Advance shall
be submitted on or before the last day of the month and Lender shall not be
required to make any requested advance before the later to occur of the
tenth (10th) day of the month or ten (10) days after the receipt of the
applicable Request for Advance; and
(viii) Borrower shall not be entitled to any advances of a
Subdivision A & D Loan for any costs under the heading "BORROWER EQUITY" on
the applicable A & D Budget and such costs will either be paid directly by
Borrower at or prior to closing if so required in the applicable A & D
Budget, deposited with Lender pursuant to the requirements of SECTION
4.1(h) below if so required by Lender, or otherwise paid directly by
Borrower.
(h) DEFICIENCIES In no event shall Lender be required to disburse
any amount which, in Lender's opinion, will either (i) reduce the total
undisbursed amount of the Subdivision A & D Loan below the amount necessary
to pay for the balance of the work, labor and materials necessary to fully
complete construction of the A & D Improvements and the payment of all
costs in connection therewith, or (ii) reduce the undisbursed amount of
Subdivision A & D Loan proceeds allocated to the costs described in any
paragraph contained in the applicable A & D Disbursement Schedule or in any
cost category set forth in
<PAGE>
any schedule of values approved by Lender below the amount which Lender, in
Lender's opinion, deems sufficient to pay in full the costs to which such
amount is allocated (the deficiencies described in clauses (i) and (ii) of
this sentence being hereinafter collectively referred to as an "A & D LOAN
DEFICIENCY"). Borrower hereby agrees that if Lender determines that an
A & D Loan Deficiency exists, Borrower shall, upon five (5) days' written
notice from Lender, either (A) deposit with Lender the amount that Lender,
in its sole opinion, deems necessary to pay for the balance of the costs of
completing the construction of the A & D Improvements or the costs in the
cost category described in any paragraph contained in the applicable A & D
Loan Disbursement Schedule or in any such schedule of values, as the case
may be, less the undisbursed amount of the Loan or undisbursed portion
thereof under the cost category in question, or (B) furnish Lender with
paid invoices, bills and receipts indicating that Borrower has paid, from
Borrower's own funds, for the costs of completing the construction of the
A & D Improvements or the costs in the cost category in question, as the
case may be, in a sufficient amount to make the undisbursed amount of the
Subdivision A & D Loan or the undisbursed portion thereof under the cost
category in question sufficient to pay for the entire balance of the costs
of completing the construction of the A & D Improvements or the entire
balance of the costs in such cost category, as the case may be. All
amounts deposited by Borrower pursuant to this Section shall be disbursed
in accordance with the terms of this Agreement for the payment of the cost
of construction of the A & D Improvements prior to any further disbursement
of the Subdivision A & D Loan. Notwithstanding anything to the contrary
set forth in this paragraph, in determining the A & D Loan Deficiency,
Lender, at its option, may determine what sums are available by
reallocating between specific line items, and Lender may also review the
amount of any holdback before requesting any sum by Borrower under this
paragraph.
(i) APPRAISALS. If reasonably required by Lender or if required by law,
Lender shall have the right to order appraisals of the Project from time to
time from an appraiser selected by Lender, which appraisals shall comply
with all federal and state standards for appraisals and otherwise shall be
satisfactory to Lender in all material respects. Borrower agrees to pay
the cost and expense for all appraisals and reviews thereof ordered by
Lender pursuant to this paragraph.
(j) LOAN-TO-VALUE; LOAN-TO-COST. At all times during the term of the
Loan, the unpaid principal balance, plus amounts committed but not yet
advanced, of any Subdivision A & D Loan shall not exceed seventy-five
percent (75%) of the bulk wholesale discounted value of the specific
Project, nor more than eighty percent (80%) of Total Costs, as determined
by Lender in its sole discretion. If for any reason the loan-to-value
ratio or loan-to-cost ratio exceeds said percentage, then Borrower shall,
upon Lender's demand, immediately reduce the unpaid principal balance of
the Loan, or deposit sufficient sums with Lender to reduce the
loan-to-value ratio or loan-to-value ratio to at or below said percentage.
<PAGE>
4.2 CONSTRUCTION LOAN DISBURSEMENTS.
(a) DISBURSEMENTS. Subsequent to the recordation of the Mortgage and
subject to satisfaction of all conditions of this Agreement, Lender shall
make advances of the Construction Loan in connection with the construction
of Homes. Advances of the Construction Loan shall be made through
individual Home Loans and each Home Loan shall be available for the payment
of the A & D Lot Release Price (or a portion thereof), Hard Costs, and Soft
Costs and such other costs and expenses as Lender may approve for the Home
in question.
(b) ADDITIONAL CONDITIONS APPLICABLE TO CONSTRUCTION LOAN. Borrower
shall not be entitled to any advances of the Construction Loan unless and
until each of the following additional conditions precedent have been
satisfied:
(1) Borrower shall have submitted to Lender and Lender shall
have approved Home Plans for each type of Home, which Home Plans shall
(i) be prepared by an architect acceptable to Lender, (ii) be
consistent with the general description of the Homes set forth in the
Home Descriptions, and (iii) be otherwise satisfactory to Lender;
(2) At Borrowers sole cost and expense, Lender shall have
obtained Base Appraisals with respect to each type of Home, which Base
Appraisals shall be (i) prepared by an appraiser acceptable to Lender,
(ii) consistent with the valuations set forth in the Home Descriptions
and (iii) otherwise satisfactory to Lender;
(3) Borrower shall have submitted to Lender all other
information requested by Lender to formulate a Home Construction
Budget for each type of Home (including, without limitation,
construction contracts and other verifications of costs) and Lender
shall have formulated such Home Construction Budgets;
(4) Borrower shall have executed and delivered to Lender an
assignment of Borrower's agreement with its architects and all Plans
and Specifications and such architect shall have consented to such
assignment;
(5) Borrower shall have submitted to Lender evidence of (i)
building permits for the construction of the Homes (ii) all necessary
permits, licenses and approvals in connection with the sale of Homes,
and (iii) Architectural Control Committee and other approvals required
under the CC&Rs;
(6) For all Presold Homes, Lender shall have received the
following:
<PAGE>
(A) Copy of the duly executed Purchase Contract;
(B) Satisfactory evidence of Borrower's customarily
required down payment acceptable to Lender from a Non-Related
Party; and
(C) Satisfactory evidence of the Non-Related Party's
prequalification for a permanent mortgage loan;
(7) Borrower shall pay to Lender, from Borrower's own funds, a
monthly processing and closing fee of One Hundred and No/100 Dollars
($100.00) per County for the processing and closing of all Home Loans
per start package.
(8) As an additional condition precedent to each Home Loan,
Borrower shall have paid to Lender, the Unit Loan Fee for such Home
Loan, which shall be fully earned by Lender and non-refundable to
Borrower.
(c) APPRAISAL UPDATES. Each Base Appraisal shall be updated, at the
sole cost and expense of Borrower, and all FNMA appraisals or other
appraisals accepted by Lender that do not have a specific expiration date
shall be updated at Lender's request. Based on such revised appraisals and
any other information provided to Lender, Lender shall be entitled to
revise the Home Construction Budgets and Maximum Allowed Advances
applicable to any Home.
(d) INITIAL DISBURSEMENTS FOR EACH HOME. On the date of the initial
advance for each Home Loan, Lender will disburse ninety-two percent (92%)
of the applicable A & D Loan Lot Release Price (which is equivalent to 115%
of Par as defined herein) or any portion thereof in accordance with the
Home Construction Budget (the balance of the A & D Loan Lot Release Price
of 10% of Par shall be paid by Borrower at the closing and sale of any Home
to a purchaser). Such disbursement shall be made by Lender to itself and
applied to the outstanding amount of the applicable Subdivision A & D Loan,
and such disbursement shall not entitle Borrower to a release of the
Property. In addition, the Inspection Fee for each Home Loan shall be
disbursed by Lender to itself on or about the date of the initial advance
of each Home Loan. Notwithstanding the foregoing, in the event that the
Home Construction Budget for the Home in question exceeds the Maximum
Allowed Advance for such Home, then to the extent of such excess, Borrower
shall pay from its own funds and not from proceeds of the loan, first the
A & D Loan Lot Release Price and then prior to any advance of the
Construction Loan with respect to the Home in question. Once the
Subdivision A & D Loan has been paid in full no further disbursements for
the A & D Loan Lot Release Price shall be made by Lender, and Borrower
shall not be entitled to any disbursement, offset or credit for the A & D
Loan Lot Release Price. If Borrower has paid other costs associated with
the approved
<PAGE>
Hard or Soft Costs portion of the Home Construction Budget then Lender
shall review documentation of such prepaid expenses and determine if the
Borrower has satisfied the equity requirement on a loan-by-loan basis.
(e) COURSE OF CONSTRUCTION DISBURSEMENTS. With respect to each Home
Loan, upon the satisfaction of all conditions set forth herein, and the
making of the disbursements described in SECTION 4.2(d) above, Borrower
shall be entitled to disbursements, within the limitations of the
applicable Home Construction Budget, of such sums as are required to be
used for the payment of: (i) Hard Costs and (ii) Soft Costs. In addition,
if specifically provided in the Home Construction Budget with respect to
the Home in question Borrower shall be entitled to disbursements, within
the limitations of the applicable Home Construction Budget, of amounts
necessary to pay interest on the Construction Loan. If such interest
reserve is not specifically provided in the applicable Home Construction
Budget, or if any interest reserve has been fully advanced, Borrower shall
pay interest from its own funds and not from proceeds of the Loan.
(f) ARDI-DRAW SYSTEM. All advances of each Construction Loan for
Hard Costs and those Soft Costs identified in the applicable Home
Construction Budget shall be made in accordance with the terms and
conditions of the "ARDI Draw System", as outlined and described in
EXHIBIT D attached hereto.
(g) DRAW REQUESTS. Concurrently with the request for any
disbursement of proceeds of the Construction Loan, other than advances for
the A & D Loan Lot Release Price, and the Inspection Fee, Borrower shall
furnish to Lender separately with each disbursement for each Home, a Draw
Request (including all documentation required thereby) duly executed and
sworn to by Borrower with all blanks appropriately filled in. At Lender's
option and upon Lender's request, with respect to the initial disbursement
of the Construction Loan: (i) Borrower shall submit to Lender a list of
names and addresses of all material dealers, laborers and subcontractors
with whom written agreements have been made by Borrower with respect to the
construction of the Home or Homes in question; (ii) receipted invoices or
bills of sale shall be available for Lender's review together with
unconditional releases and waivers of liens from each material dealer,
supplier, laborer and subcontractor who has done work or furnished
materials in connection with the construction of the Home or Homes in
question; (iii) Borrower shall submit to Lender evidence that any required
inspection by any Governmental Authority has been satisfactorily completed;
(iv) Borrower shall submit to Lender such other invoices, bills and
statements as may be required by Lender to substantiate the Draw Request;
and (v) Borrower shall submit to Lender such other information as Lender
may reasonably request, including, without limitation, building permits
with respect to Homes in question.
(h) LENDER'S INSPECTOR. Throughout the course of construction of the
Homes, Lender shall have the right to employ, at Borrower's sole cost and
<PAGE>
expense, an inspector or inspectors who shall review as agent for Lender
all construction activities undertaken in regard to the Project. A
certificate or indication from such inspector or inspectors that
construction complies with the Home Plans and will be completed not later
than the Completion Date for each Home shall be a further condition
precedent to Lender's approval of each Draw Request.
(i) METHOD OF ADVANCES. The proceeds of the Construction Loan
disbursed under this Agreement shall be evidenced by the Construction Loan
Note and shall be secured by the Mortgage, and all such proceeds may be
disbursed at Lender's option, (a) directly to Borrower or the Borrower's
general contractor; (b) jointly to Borrower and the Borrower's general
contractor; (c) directly to such persons as have actually supplied labor,
materials or services in connection with or incidental to construction of
the Homes; or (d) jointly to Borrower and such persons.
(j) LIMITATIONS ON DISBURSEMENTS. Borrower shall be entitled to
disbursements of the Construction Loan only in accordance with and subject
to the following conditions (unless waived or modified by Lender):
(i) the representations and warranties of Borrower contained in
all of the Loan Documents shall be correct on and as of the date of
the disbursement as though made on and as of that date and no Event of
Default (or event, which with the giving of notice and/or the passage
of time could become an Event of Default) shall have occurred and be
continuing as of the date of the disbursement;
(ii) disbursements of Construction Loan proceeds shall be made by
Lender only to defray costs actually incurred by Borrower;
(iii) in the event any Home is completed and all costs and
expenses in connection therewith are paid in full from the
Construction Loan funds, as applicable, Lender shall not be required
to make further advances with respect to such Home notwithstanding
that there are undisbursed Loan funds allocated to that Home;
(iv) with respect to the Soft Costs disbursements on the account
of such Soft Costs relating to the construction of any Home shall be
limited to the actual amounts of such costs as indicated by invoices,
statements, vouchers, receipts or other written evidence as may be
required by Lender;
(v) Lender shall have no obligation to disburse funds in excess
of the Maximum Allowed Advance for each Home;
(vi) Lender shall have no obligation to disburse funds in excess
<PAGE>
of the available Construction Loan Commitment;
(vii) Borrower shall not have under construction or complete more
than the number of Model Homes or Spec Homes in each Subdivision determined
pursuant to SECTION 2.17.
(viii) Borrower shall submit Draw Requests for the construction of
Homes not more than twice per Calendar Month, and Lender shall have no
obligation to approve, or disburse funds with respect to, more than two (2)
Draw Request packages.
(k) DEFICIENCIES. In no event shall Lender be required to disburse any
amount which, in Lender's reasonable opinion, will either (i) reduce the total
undisbursed amount of any Home Loan below the amount necessary to pay for the
balance of the Hard Costs and Soft Costs in connection with the construction of
the Home to which such Construction Loan relates, or (ii) reduce the undisbursed
amount of any Construction Loan proceeds allocated to any budget category
(including Hard Costs and Soft Costs) set forth in the applicable Home
Construction Budget relating to the Home Loan in question, below the amount
which Lender, in Lender's sole opinion, deems sufficient to pay in full the
costs to which such amount is allocated (the deficiencies described in clauses
(i) and (ii) of this sentence being hereinafter collectively referred to as a
"CONSTRUCTION LOAN DEFICIENCY"). Borrower hereby agrees that if Lender
determines that a Construction Loan Deficiency exists, Borrower shall, upon five
(5) days' written notice from Lender, either (A) deposit with Lender the amount
that Lender, in its sole opinion, deems necessary to pay for the balance of the
construction of the Home in question, or the costs set forth in any budget
category in the Home Construction Budget relating to the Home Loan in question,
less the undisbursed amount of such Home Loan or undisbursed portion thereof
under the budget category in question, or (B) furnish Lender with paid invoices,
bills and receipts indicating that Borrower has paid, from Borrower's own funds,
for the Hard Costs and Soft Costs in connection with the construction of the
Home in question or the costs set forth in any budget category in the Home
Construction Budget, in a sufficient amount to make the undisbursed amount of
the applicable loan or the undisbursed portion thereof under the budget category
in question sufficient to pay for the entire balance of the Hard Costs and Soft
Costs in connection with the construction of the Home or the entire balance of
the costs in such budget category, as the case may be. All amounts deposited by
Borrower pursuant to this Section shall be disbursed in accordance with the
terms of this Agreement for the payment of Hard Costs and Soft Costs prior to
any further disbursement of the Loan in question.
ARTICLE V
TITLE INSURANCE
<PAGE>
5.1 BASIC INSURANCE. Concurrently with the recording of each Mortgage,
Borrower shall, at Borrower's sole cost and expense, deliver or cause to be
delivered to Lender a Title Insurance Policy issued by the Title Company (and
such reinsurers and coinsurers as Lender may require) with a liability limit of
not less than the Loan Amount, and with coverage and in form satisfactory to
Lender, insuring Lender's interest under the Mortgage as a valid first lien on
the Project, together with such reinsurance or coinsurance agreements or
endorsements to the Title Insurance Policy as Lender may require, which policy
shall contain only such exceptions from its coverage as shall have been approved
in writing by Lender, and thereafter Borrower shall, at its own cost and
expense, do all things necessary to maintain the Mortgage as a valid first lien
on the Property.
5.2 CONTINUATION AND DATE-DOWN ENDORSEMENTS. After recordation of the
Mortgage and as a condition precedent to each disbursement under ARTICLE IV
above, Borrower shall (if required by Lender) at its own cost and expense,
deliver or cause to be delivered to Lender from time to time such continuation
and date-down endorsements to be attached to the Title Insurance Policy referred
to above, in form and substance satisfactory to Lender, as Lender reasonably
deems necessary to insure the priority of the Mortgage as a valid first lien on
the Project as of the date of and including the amount covered by each such
disbursement, and Borrower agrees to furnish to the Title Company such surveys
and other information as are required by Lender or the Title Company to enable
the Title Company to issue such endorsements to Lender.
ARTICLE VI
CONSTRUCTION OF THE IMPROVEMENTS
6.1 COMMENCEMENT AND COMPLETION. Borrower shall cause construction of the
Improvements to be prosecuted and completed with due diligence and in good
faith, and without delay. The construction of the A & D Improvements shall be
commenced no later than the A & D Commencement Date, provided, however, such
date may be extended for matters occurring outside of Borrower's control, and
shall be fully completed on or before the A & D Completion Date and Borrower
shall secure the issuance of all permits and approvals required by the requisite
Governmental Authority on or before such date. Each Home shall be fully
completed and ready for occupancy not later than the Completion Date, provided,
however, such date may be extended for matters occurring outside of Borrower's
control, and Borrower shall secure the issuance of a permanent certificate of
occupancy or other permit required by the requisite Governmental Authority on or
before such date. Borrower shall cause the Improvements to be constructed in a
good and workmanlike manner in accordance with the Plans and Specifications and
in all respects in compliance with all applicable laws, rules, permits,
requirements and regulations of any Governmental Authority, and Borrower will
not cause, permit or allow any deviations from the Plans and Specifications
without the prior written consent of Lender thereto. Upon written demand from
Lender, Borrower shall, at Borrower's sole cost and expense, correct any defect
in
<PAGE>
the Improvements or any departure from the Plans and Specifications not
theretofore approved in writing by Lender, and it is expressly understood and
agreed that the advancement by Lender of any Loan proceeds shall not constitute
a waiver of Lender's right to require compliance with this covenant with respect
to any such defects or departures from the Plans and Specifications not
theretofore approved by Lender in writing.
6.2 CHANGE ORDERS. Without Lender's prior written consent, Borrower shall
not permit any material amendments or modifications of the Plans and
Specifications; provided, however, Lender does not need to consent to any
standard options or upgrades offered to Home buyers as approved by Lender from
time to time. If Lender's consent to any such amendment or modification is
required hereunder, Borrower shall deposit with Lender, promptly upon Borrower's
receipt of a written request from Lender, cash or current funds in an amount
equal to any increase resulting from such amendment or modification; such funds
shall be disbursed by Lender in accordance with ARTICLES III and IV hereof.
ARTICLE VII
LIABILITY, RISK, AND FLOOD INSURANCE
At all times throughout the Loan term Borrower shall, at its sole cost and
expense, maintain insurance, and shall pay, as the same becomes due and payable,
all premiums in respect thereto, including, but not necessarily limited to:
7.1 PROPERTY. Insurance against loss or damage by fire, lightning and
other perils, on an all risk basis, such coverage to be in an amount not less
than Three Million Five Hundred Thousand and No/100 Dollars ($3,500,000.00).
During the period of construction of the Project, such policy shall be written
in the so-called "BUILDER'S RISK COMPLETED VALUE REPORTING FORM," on an all-risk
basis, with no coinsurance requirement, and shall contain a provision granting
the insured permission to complete and/or occupy the Project. With respect to
the Construction Loan, casualty insurance may be evidenced and issued on a lot
by lot basis.
7.2 LIABILITY. Insurance protecting the Borrower and the Lender against
loss or losses from liability imposed by law or assumed in any written contract
and arising from personal injury, including bodily injury or death, having a
limit of liability of not less than One Million and No/100 Dollars
($1,000,000.00) (combined single limit for personal injury and property damage)
and an umbrella excess liability policy in an amount not less than Ten Million
and No/100 Dollars ($10,000,000.00) protecting the Borrower and the Lender
against any loss or liability or damage for personal injury, including bodily
injury or death, or property damage. 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.
7.3 FLOOD. A policy or policies of flood insurance in the maximum amount
of
<PAGE>
flood insurance available with respect to the Project under the Flood Disaster
Protection Act of 1973, as amended. This requirement will be waived upon
presentation of evidence satisfactory to the Lender that no portion of the
Premises is located within an area identified by the U.S. Department of Housing
and Urban Development as having special flood hazards.
7.4 CONSTRUCTION. Borrower shall be required to carry liability insurance
of the type and providing the minimum limits set forth below:
(a) Workman's compensation insurance, disability benefits insurance
and such other forms of insurance as the Borrower is required by law to
provide, covering loss resulting from injury, sickness, disability or death
of employees of the Borrower located on or assigned to the Project.
(b) Comprehensive general liability insurance on an occurrence basis
providing coverage for:
Premises and Operations
Products and Completed Operations
Blanket Contractual Liability
Personal Injury Liability
Broad Form Property Damage
(including completed operations)
Explosion Hazard
Collapse Hazard
Underground Property Damage Hazard
Such policy shall have a limit of liability of not less than Three Million
Five Hundred Thousand and No/100 Dollars ($3,500,000.00) (combined single
limit for personal injury, including bodily injury or death, and property
damage).
(c) Business auto liability insurance including all owned, non-owned
and hired autos with a limit of liability of not less than One Million and
No/100 Dollars ($1,000,000.00) (combined single limit for personal injury,
including bodily injury or death, and property damage).
(d) Excess "UMBRELLA" liability providing liability insurance in
excess of the coverages in (a), (b) and (c) above with a limit of not less
than Ten Million and No/100 Dollars ($10,000,000.00).
7.5 ENGINEER. During the Loan term, and if required by Lender, the soils
engineer or environmental contractor shall be required to provide engineer's
professional liability insurance with a limit of liability of not less than Two
Hundred Fifty Thousand and No/100 Dollars ($250,000.00), or such other amount as
may be required by Lender. This policy shall permit claims for a period of not
less than three (3) years after the completion of the Project.
<PAGE>
7.6 ADDITIONAL INSURANCE. Borrower shall provide such other policies of
insurance as Lender may request in writing.
7.7 OTHER. All required insurance shall be procured and maintained in
financially sound and generally recognized responsible insurance companies
selected by the Borrower and subject to the approval of Lender. Such companies
should be authorized to write such insurance in the State of Colorado or Nevada,
as applicable. The company issuing the policies shall be rated "A" or better by
A.M. Best Co., in Bests' Key Guide, or such other rating acceptable to Lender.
All property policies evidencing the required insurance shall name Lender as
first mortgagee, and all liability policies evidencing the insurance required
shall name Lender as additional insured, shall provide for payment to the Lender
of the net proceeds of insurance resulting from any claim for loss or damage
thereunder, shall not be cancelable as to the interests of the Lender due to the
acts of Borrower, and shall provide for at least thirty (30) days prior written
notice of the cancellation or modification thereof to the Lender.
7.8 EVIDENCE. All policies of insurance, or certificates of insurance
evidencing that such insurance is in full force and effect, shall be delivered
to the Lender on or before the closing date (together with proof of the payment
of the premiums thereof). At least thirty (30) days prior to the expiration or
cancellation of each such policy, Borrower shall furnish Lender evidence that
such policy has been renewed or replaced in the form of a certificate reflecting
that there is in full force and effect, with a term covering the next succeeding
calendar year, insurance of the types and in the amounts required.
ARTICLE VIII
RIGHTS OF INSPECTION; AGENCY
Lender shall have the right at any time and from time to time to enter upon
the Premises for purposes of inspection. If Lender, in its judgment, determines
that any work or materials are not in conformity with the Plans and
Specifications (or any other applicable plans and specifications), as the same
were theretofore approved in writing by Lender, or with any applicable laws,
regulations, permits, requirements or rules of any Governmental Authority, or
are not otherwise in conformity with sound building practice, Lender shall have
the right to stop the work and to order replacement or correction of any such
work or materials regardless of whether or not such work or materials have
theretofore been incorporated into the Improvements. Inspection by Lender (or
by Lender's inspector referred to in SECTIONS 4.1 and 4.2 hereof) of the
Premises or the Improvements is for the sole purpose of protecting the security
of Lender and is not to be construed as a representation by Lender that there
has been compliance with the Plans and Specifications or that the Improvements
will be free of faulty materials or workmanship. Borrower may make or cause to
be made such other independent inspections as Borrower may desire for its own
protection, and nothing contained herein shall be construed as requiring Lender
to construct or supervise construction of the Improvements. Borrower hereby
appoints and authorizes Lender, as
<PAGE>
Borrower's agent and attorney-in-fact, to record any notices of completion,
cessation of labor and other notices that Lender deems necessary to record in
order to protect any interest of Lender under the provisions of this Agreement
or under the Note or the Mortgage. This agency and power of attorney is a power
coupled with an interest and is irrevocable.
<PAGE>
ARTICLE IX
REPRESENTATIONS AND WARRANTIES
9.1 CONSIDERATION. As an inducement to Lender to execute this Agreement
and to disburse the proceeds of the Loan, Borrower represents and warrants to
Lender that the following statements set forth in this ARTICLE IX are true,
correct and complete as of the date hereof and will be true, correct and
complete as of the Closing Date.
9.2 ORGANIZATION, POWERS AND GOOD STANDING.
(a) ORGANIZATION AND POWERS. Borrower is a corporation, duly
organized and validly existing under the laws of the State of its
incorporation, and is qualified to transact business in the State of
Colorado or Nevada, as applicable. Borrower has all requisite power and
authority, rights and franchises to own and operate its properties, to
carry on its businesses as now conducted and as proposed to be conducted,
and to enter into and perform this Agreement and the other Loan Documents.
The address of Melody's chief executive office and principal place of
business is 11031 Sheridan Boulevard, Westminster, Colorado 80020. The
address of FDC's chief executive office and principal place of business is
2290 South Jones, Suite 110, Las Vegas, Nevada 89102.
(b) GOOD STANDING. Borrower has made all filings and is in good
standing in the State of its incorporation and in each other 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.
(c) 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 is as set forth
in the Certificate of Non-foreign Status.
<PAGE>
9.3 AUTHORIZATION OF LOAN DOCUMENTS.
(a) AUTHORIZATION. The execution, delivery and performance of the
Loan Documents by Borrower are within the Borrower's powers and have been
duly authorized by all necessary action by Borrower.
(b) NO CONFLICT. The execution, delivery and performance of the Loan
Documents by Borrower will not violate (i) Borrower's Articles of
Incorporation and Bylaws; or (ii) any legal requirement affecting Borrower
or any of its properties; or (iii) any agreement to which Borrower is bound
or to which it is a party and will not result in or require the creation
(except as provided in or contemplated by this Agreement) of any lien upon
any of such properties.
(c) GOVERNMENTAL AND PRIVATE APPROVALS. Except as may be provided
for on EXHIBIT E attached hereto, all governmental or regulatory orders,
consents, permits, authorizations and approvals required for the
construction, use, occupancy and operation of the Improvements have been
obtained and are in full force and effect. No additional
governmental or regulatory actions, filings or registrations with respect
to the Improvements, and no approvals, authorizations or consents of any
trustee or holder of any indebtedness or obligation of Borrower are
required for the due execution, delivery and performance by Borrower of the
Loan Documents.
(d) BINDING OBLIGATIONS. This Agreement and the other Loan Documents
have been duly executed by Borrower, and are legally valid and binding
obligations of Borrower, enforceable against Borrower in accordance with
their terms, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors'
rights generally and by general principles of equity.
9.4 NO MATERIAL DEFAULTS. There exists no material violation of or
material default by Borrower or Guarantor and, to the best knowledge of Borrower
and Guarantor, no event has occurred which, upon the giving of notice or the
passage of time, or both, would constitute a material default with respect to
(a) the terms of any instrument evidencing or securing any indebtedness secured
by the Project, (b) any lease or other agreement affecting the Project to which
Borrower or Guarantor is a party, (c) any license, permit, statute, ordinance,
law, judgment, order, writ, injunction, decree, rule or regulation of any
Governmental Authority, or any determination or award of any arbitrator to which
Borrower or the Project may be bound, or (d) any mortgage, instrument, agreement
or document by which Borrower or Guarantor, or any of their properties is bound:
(i) which involves any Loan Document, (ii) which involves the Project and is not
adequately covered by insurance, (iii) that might materially and adversely
affect the ability of Borrower or Guarantor to perform their obligations under
any of the Loan Documents or any other material instrument, agreement or
document to which it is a party, or (iv) which might adversely affect the first
priority of the liens created by this Agreement or any of the Loan Documents.
<PAGE>
9.5 LITIGATION; ADVERSE FACTS. There is no action, suit, investigation,
proceeding or arbitration (whether or not purportedly on behalf of the Borrower
or Guarantor) at law or in equity or before or by any foreign or domestic court
or other governmental entity (a "LEGAL ACTION"), pending or, to the knowledge of
Borrower and Guarantor, threatened against or affecting Borrower or Guarantor or
any of their assets which could reasonably be expected to result in any material
adverse change in the business, operations, assets (including the Project) or
condition (financial or otherwise) of Borrower or Guarantor or would materially
and adversely affect Borrower's or Guarantor's ability to perform their
obligations under the Loan Documents. There is no basis known to Borrower or
Guarantor for any such action, suit or proceeding. Borrower and Guarantor are
not (a) in violation of any applicable law which violation materially and
adversely affects or may materially and adversely affect the business,
operations, assets (including the Project) or condition (financial or otherwise)
of Borrower or Guarantor, (b) subject to, or in default with respect to any
other legal requirement that would have a materially adverse effect on the
business, operations, assets (including the Project) or condition (financial or
otherwise) of Borrower or Guarantor, or (c) in default with respect to any
agreement to which Borrower or Guarantor is a party or to which it is bound.
There is no Legal Action pending or, to the knowledge of Borrower or Guarantor,
threatened against or affecting Borrower or Guarantor questioning the validity
or the enforceability of this Agreement or any of the other Loan Documents.
9.6 TITLE TO PROPERTIES; LIENS. Borrower has good, sufficient and legal
title to all properties and assets reflected in its most recent balance sheet
delivered to Lender, except for assets disposed of in the ordinary course of
business since the date of such balance sheet. Borrower is the sole owner of,
and has good and marketable title to the fee interest in the Premises, and the
Improvements and all other real property described in the Mortgage, free from
any adverse lien, security interest or encumbrance of any kind whatsoever,
excepting only (a) liens and encumbrances shown on the Title Commitment, (b)
liens and security interests in favor of Lender, and (c) other matters which
have been approved in writing by Lender.
9.7 DISCLOSURE. There is no fact known to Borrower that materially and
adversely affects the business, operations, assets or condition (financial or
otherwise) of Borrower that has not been disclosed in this Agreement or in other
documents, certificates and written statements furnished to Lender in connection
herewith.
9.8 PAYMENT OF TAXES. All tax returns and reports of Borrower required to
be filed by it have been timely filed, and all taxes, assessments, fees and
other governmental charges upon Borrower and upon its properties, assets, income
and franchises which are due and payable have been paid when due and payable.
Borrower knows of no proposed tax assessment against it that would be material
to the condition (financial or otherwise) of Borrower, and Borrower has not
contracted with any government entity in connection with such taxes.
9.9 SECURITIES ACTIVITIES. Borrower is not engaged principally, or as one
of its important activities, in the business of extending credit for the purpose
of purchasing or
<PAGE>
carrying any margin stock (as defined within Regulations G, T and U of the Board
of Governors of the Federal Reserve System), and not more than twenty-five
percent (25%) of the value of Borrower's assets consists of such margin stock.
No part of the Loan will be used to purchase or carry any margin stock or to
extend credit to others for that purpose or for any other purpose that violates
the provisions of Regulations U or X of said Board of Governors.
9.10 GOVERNMENT REGULATIONS. Borrower is not subject to regulation under
the Investment Company Act of 1940, the Federal Power Act, the Public Utility
Holding Company Act of 1935, the Interstate Commerce Act or to any federal or
state statute or regulation limiting its ability in incur indebtedness for money
borrowed.
9.11 RIGHTS TO PROJECT AGREEMENTS, PERMITS AND LICENSES. Borrower is the
true owner of all rights in and to all existing agreements, permits and licenses
relating to the Project, and will be the true owner of all rights in and to all
future agreements, permits and licenses relating to the Project. Borrower's
interest in all such agreements, permits and licenses is not subject to any
present claim (other than under the Loan Documents or as otherwise approved by
Lender in its discretion), set-off or deduction other than in the ordinary
course of business.
9.12 UTILITIES AND ACCESS. Telephone services, electric power, storm
sewers, sanitary sewer, potable water facilities and all other utilities and
services necessary for the construction, use, operation and maintenance of the
Improvements are available to the Premises, are adequate to serve such
improvements, and are not subject to any conditions limiting the use of such
utilities, other than normal charges to the utility supplier. All streets and
easements necessary for the operation and maintenance of the Improvements are
available to the boundaries of the Premises.
9.13 COMPLIANCE WITH LAWS. Except as may be provided for on EXHIBIT E
attached hereto, the Improvements and the Premises, and the uses to which the
Improvements and the Premises are and will be put, comply fully with all
applicable laws and restrictive covenants, including, without limitation, all
requirements of the Colorado Department of Real Estate or Nevada Department of
Real Estate, as applicable, and all requirements under the Interstate Land Sales
Disclosure Act.
9.14 FINANCIAL CONDITION. The financial statements and all financial data
previously delivered to Lender in connection with the Loan are true, correct and
complete in all material respects. Such financial statements comply with the
requirements of SECTION 10.11 and fairly present the financial position of the
parties who are the subject thereof as of the date thereof. No material adverse
change has occurred in the financial position of Borrower. Except for this
Loan, no borrowings have been made by Borrower which are secured by, or might
give rise to, a lien or claim against the Project, the proceeds of this Loan, or
other assets of Borrower.
9.15 PERSONAL PROPERTY. Borrower is now and shall continue to be the sole
owner of the Collateral free from any adverse lien, security interest or adverse
claim of
<PAGE>
any kind whatsoever, except for liens or security interests in favor of Lender.
9.16 NO CONDEMNATION. No condemnation proceedings or moratorium is pending
or, to Borrower's knowledge, threatened against the Project or the Premises (or
any portion thereof) which would impair the use, occupancy or full operation of
the Project in any manner whatsoever.
9.17 OTHER LOAN DOCUMENTS. Each of the representations and warranties of
Borrower contained in any of the other Loan Documents is true and correct in all
material respects. All of such representations and warranties are incorporated
herein for the benefit of Lender.
9.18 GUARANTOR. Guarantor has full right, power and authority to execute,
deliver and carry out the terms of the Repayment Guaranty and the Completion
Guaranty and, when executed and delivered pursuant thereto, each guaranty will
constitute the valid, binding and legal obligations of Guarantor, enforceable
against Guarantor in accordance with its terms.
ARTICLE X
COVENANTS OF BORROWER
10.1 CONSIDERATION. As an inducement to Lender to execute this Agreement
and to make each disbursement of the Loan, Borrower hereby covenants as set
forth in this ARTICLE X, which covenants shall remain in effect so long as
either the Note shall remain unpaid or any obligation of Borrower under any
other Loan Documents remain outstanding or unperformed.
10.2 NO ENCUMBRANCES. Borrower will not permit any lien, levy, attachment
or restraint to be made or filed against the Project, or any portion thereof, or
permit any receiver, trustee or assignee for the benefit of creditors to be
appointed to take possession of the Project or any portion thereof, except for
lien claims filed or asserted against the Premises or the Project and concerning
which Borrower is in full compliance with the applicable provisions of the
Mortgage.
10.3 COMPLIANCE WITH LAWS. Borrower will comply and, to the extent it is
able, will require others to comply with all laws and requirements of all
Governmental Authorities having jurisdiction over the Premises or construction
of the Improvements and will furnish Lender with reports of any official
searches for violation of any requirements established by such governmental
authorities. Borrower will comply and, to the extent it is able, will require
others to comply with applicable CC&Rs and all restrictive covenants and all
obligations created by private contracts and leases which affect ownership,
construction, equipping, fixturing, use or operation of the Project. The
Improvements, when completed, shall comply with all applicable building, zoning
and use laws, requirements, regulations and ordinances and will not violate any
restrictions of record against the Premises or the terms of any lease of all or
any portion of the
<PAGE>
Premises.
10.4 PERSONAL PROPERTY. Borrower will not install materials, personal
property, equipment or fixtures subject to any security agreement or other
agreement or contract wherein the right is reserved to any person, firm or
corporation to remove or repossess any such materials, equipment for fixtures,
or whereby title to any of the same is not completely vested in Borrower at the
time of installation, without Lender's prior written consent.
10.5 RECORDS. Borrower shall keep and maintain full and accurate accounts
and records of Borrower's operations with respect to the Loan according to sound
accounting practices for Borrower's type of business, and permit Lender or its
representatives to inspect and copy the same upon reasonable notice to Borrower
and during normal business hours upon any date prior to the expiration of thirty
(30) days after repayment in full of the Loan.
10.6 ASSESSMENTS. Borrower shall pay or discharge all lawful claims,
including taxes, assessments and governmental charges or levies imposed upon
Borrower or its income or profits or upon any property (including the Project)
belonging to Borrower prior to the date upon which penalties attach thereto, and
submit evidence satisfactory to Lender confirming the payment of all taxes
assessments and charges against the Project.
10.7 EXPENSES. Without limiting the generality of the foregoing, Borrower
shall pay (1) all taxes and recording expenses, including stamp taxes, if any,
relating to the Mortgage and any other documents and instruments securing the
Loan, (2) the fees and commissions (if any) lawfully due to brokers in
connection with this transaction and hold Lender harmless from all such claims,
whether or not lawfully due, (3) the fees and expenses of Lender's counsel
relating to Lender's consultation with such counsel in connection with the Loan,
the negotiation, documentation and closing of the Loan, and (4) the other fees,
costs and expenses incurred by Lender in connection with the Loan.
10.8 COMPLETION. Borrower shall cause the construction of the Improvements
to be prosecuted with diligence and continuity and completed in accordance with
the Plans and Specifications and in accordance with SECTION 6.1 hereof, free and
clear of any liens or claims for liens.
10.9 DISBURSEMENTS. Borrower shall receive the disbursements to be made
hereunder as a trust fund for the purpose of paying the costs and expenses
approved hereunder by Lender as provided herein.
10.10 FIXTURES. Borrower shall deliver to Lender, on demand, any
contracts, bills of sale, statements, receipted vouchers or agreements under
which Borrower claims title to any materials, fixtures or articles incorporated
into the Improvements.
10.11 FINANCIAL INFORMATION. Borrower shall furnish or cause to be
furnished to
<PAGE>
Lender:
(a) as soon as the same are available, and in any event within one
hundred twenty (120) days after the end of each fiscal year and forty-five
(45) days after the end of the first three (3) of interim quarterly
accounting periods of the subject, a copy of the current financial
statements of Borrower (to be CPA audited in the case of the annual
statements), and with respect to FDC, such annual financial statements
shall be on a consolidated basis, excluding any affiliates, which shall
consist of (A) a balance sheet as of the end of the relevant fiscal period,
(B) statements of income and expenses and of changes in financial position
of Borrower for such fiscal period (together, in each case, with the
comparable figures for the corresponding period of the previous fiscal
year), (C) statements of income and expenses and changes in financial
position of the Project for such fiscal period (together, in each case with
comparable figures for the corresponding period of the previous fiscal
year), (D) cash flow statements of Borrower, and (E) a schedule of all
debt of Borrower including the name of lender, name of property financed
(if applicable), appraised value of property financed (if applicable),
amount of commitment, outstanding balance, interest rate or required rate
of return and maturity date;
(b) as soon as the same are available, and in any event no later than
April 15th after the end of each calendar year of the subject, a copy of
the current CPA compiled financial statements of each of the Guarantors,
which shall consist of a balance sheet and income statement as of the end
of the relevant calendar period;
(c) as soon as the same are available, and in any event within
fifteen (15) days after the end of each month, monthly sales reports for
the Project and inventory reports for the Project relating to the
Construction Loan; and
(d) as soon as filed, a copy of the federal income tax returns and/or
extensions for each of the Guarantors.
All such financial statements delivered from and after the date hereof shall be
in reasonable detail, prepared in accordance with generally acceptable
accounting principles consistently applied throughout the period involved and,
in the case of audited statements, with generally accepted auditing standards.
All financial statements of Borrower required pursuant hereto shall be certified
to by the chief financial officer of the subject of such statements. If the
statement is an annual statement, such statement shall be audited by a
recognized firm of accountants satisfactory to Lender. Together with such
financial statements, Borrower will deliver to Lender: (a) if such financial
statements have been audited, a certificate from the auditors stating that in
making the examination necessary for the audit they obtained no knowledge of any
default by Borrower or Guarantor, as applicable, in the performance of any
obligation in connection with the Loan or, if they shall have obtained knowledge
of any such default, specifying the same; and (b) Borrower's or Guarantor's, as
<PAGE>
applicable, certificate, certified by the chief financial officer thereof (as
applicable) stating that (i) there exists no Event of Default and no act or
event which with notice and/or lapse of time would become an Event of Default,
and (ii) FDC (in the case of the chief financial officer of FDC) is complying
with the financial covenants set forth in SECTION 10.21, or, if any such
condition exists, specifying the nature and period of existence thereof and what
action Borrower proposes to take with respect thereto.
Financial Statements of Borrower may reflect an internal charge to Melody
with respect to overhead expenses incurred by FDC; provided, however, such
internal charge for overhead expenses must be approved by Lender and Melody's
Financial Statements shall otherwise reflect general and administrative expenses
that are unaffected by FDC ownership.
10.12 [INTENTIONALLY DELETED.]
10.13 REPRESENTATIONS AND WARRANTIES. Until repayment of the Note and
all other obligations secured by the Mortgage, the representations and
warranties of ARTICLE IX shall remain true and complete.
10.14 TRADE NAMES. Borrower shall immediately notify Lender in writing
of any change in the legal, trade or fictitious business names used by Borrower
and shall, upon Lender's request, execute any additional financing statements
and other certificates necessary to reflect the change in trade names or
fictitious business names.
10.15 FURTHER ASSURANCES. Borrower shall execute and deliver from time
to time, promptly after any request therefor by Lender, any and all instruments,
agreements and documents and shall take such other action as may be necessary or
desirable in the opinion of Lender to maintain, perfect or insure Lender's
security provided for herein and in the other Loan Documents, including, without
limitation, the execution of UCC-1 renewal statements, the execution of such
amendments to the Mortgage and the other Loan Documents and the delivery of such
endorsements to the Title Company, all as Lender shall reasonably require, and
Borrower shall pay all fees and expenses (including reasonable attorneys' fees)
related thereto. Promptly upon the request of Lender, Borrower shall execute and
deliver a Certification of Non-Foreign Status.
10.16 NOTICE OF LITIGATION. Borrower shall give, or cause to be given,
prompt written notice to Lender of (a) any action or proceeding which is
instituted by or against it in any Federal or state court or before any
commission or other regulatory body, Federal, state or local, foreign or
domestic, or any such proceedings which are threatened against it, which, if
adversely determined, could have a material and adverse effect upon its
business, operations, properties, assets, management, ownership or condition
(financial or otherwise), (b) any other action, event or condition of any nature
which may have a material and adverse effect upon its business, operations,
management, assets, properties, ownership or condition (financial or otherwise),
or which, with notice or lapse of time or both, would constitute an Event of
Default or a default under any other contract, instrument or agreement to which
it is a party to by or
<PAGE>
to which it or any of its properties or assets may be bound or subject, and (c)
any actions, proceedings or notices adversely affecting the Project or Lender's
interest therein by any zoning, building or other municipal officers, offices or
departments having jurisdiction with respect to the Project.
10.17 MAINTENANCE OF EXISTENCE. Borrower shall maintain and preserve
its existence and all rights and franchises material to its business.
10.18 CONSTRUCTION MATERIALS. Borrower will not use, and will not
permit the use of, any Hazardous Materials (as defined in the Environmental
Indemnity) in the construction of the Improvements.
10.19 CROSS-COLLATERALIZATION. Subject to Section 2.20, at Lender's
request, Borrower agrees to provide cross-collateralization for all Projects
then financed by Lender, in form and substance acceptable to Lender.
10.20 VERIFICATION OF COSTS. At Lender's request, Borrower agrees to
provide Lender with copies of all contracts, subcontracts and other agreements
relating to the Project so that Lender can verify all costs set forth in the
A & D Budget, which contracts, subcontracts and other agreements shall be
subject to Lender's review and approval. Based on its review and verification
of costs set forth in the A & D Budget, Lender shall have the right to reduce
the dollar amount of any line items in the A & D Budget or reallocate between
line items in the A & D Budget.
10.21 FINANCIAL COVENANTS.
(a) On a quarterly basis, FDC shall achieve Tangible Net Worth in an
amount not less than Fifteen Million and No/100 Dollars ($15,000,000.00).
(b) On a quarterly basis, FDC shall achieve Liquidity of not less
than seven percent (7%) of Total Liabilities.
(c) On a quarterly basis, FDC, on a consolidated basis and excluding
affiliates, all in a manner consistent with financial statements previously
provided by Borrower to Lender, shall maintain a Debt Ratio of not more
than 3.0 to 1.0.
(d) On a rolling four quarter basis, FDC shall maintain a Constant
Interest Only Coverage of no less than 1.5 to 1.0 until September 30, 1996,
and Melody shall maintain a Constant Interest Only Coverage of no less than
3.0:1.00.
(e) At all times during the term of the Loan, the number of Spec
Homes and Model Homes, in the aggregate, under construction and completed,
shall not exceed the number of units delivered in the preceding twelve (12)
months multiplied by 10%.
As used in this Agreement and this Section, the following are defined terms:
<PAGE>
"CONSTANT INTEREST ONLY COVERAGE" shall mean an amount, expressed as a
percentage, calculated by Lender, and equal to (i) the earnings before interest
and taxes for the period in question divided by (ii) interest expense, including
all capitalized interest, interest paid on subordinated debt.
"DEBT" shall be defined in accordance with generally accepted accounting
principles (GAAP) and will exclude subordinated debt.
"DEBT RATIO" means, with respect to any person, the ratio of (i) such
person's Debt to (ii) such person's Tangible Net Worth.
"INTANGIBLE ASSETS" means all intangible assets under GAAP, including,
without limitation, copyrights, franchises, goodwill, licenses, non-competition
covenants, organization or formation expenses, patents, service marks, service
names, trademarks, tradenames, write-up in the book value of any asset in excess
of the acquisition cost of the asset to such Person, any amount, however
designated on the balance sheet, representing the excess of the purchase price
paid for assets or stock acquired over the value assigned thereto on the books
of such person, unamortized leasehold improvements expense not recoverable at
the end of the lease term, unamortized debt discount, and all deferred taxes.
"LIQUIDITY" means the amount of such person's unencumbered cash and
unencumbered cash equivalents as determined in accordance with GAAP, plus
availability under Lender's lines of credit.
"TANGIBLE NET WORTH" is defined in accordance with GAAP and includes
minority shareholder interests and subordinated debt, less the value of all
Intangible Assets.
"TOTAL LIABILITIES" shall be defined in accordance with generally accepted
accounting principles (GAAP) and will exclude subordinated debt.
10.22 CHANGE IN CONTROL. At no time shall the Guarantors own less than
a controlling interest of the issued and outstanding common stock of FDC. At no
time shall FDC own less than one hundred percent (100%) of the issued and
outstanding common stock of Melody.
10.23 OPERATING ACCOUNTS. All of Borrower's operating accounts shall
be maintained with Lender or with Bank One, Colorado.
10.24 LAND ACQUISITIONS. FDC shall not, without the prior written
consent of Lender, which may be granted or withheld in Lender's sole and
absolute discretion, acquire raw land prior to repayment in full of the Loan (i)
with an aggregate fair market value of $12,000,000.00 or more on a consolidated
basis, or (ii) with an aggregate fair market value of $2,000,000.00 or more on
real property located in the Las Vegas, Nevada, area.
<PAGE>
10.25 EXECUTIVE COMPENSATION. In the event FDC is not in compliance
with the financial covenants set forth in SECTION 10.21, Borrower shall not pay
any executive level bonuses to any executive of Borrower.
ARTICLE XI
EVENTS OF DEFAULT AND REMEDIES
11.1 EVENTS OF DEFAULT. The occurrence of any one or more of the following
shall constitute an Event of Default under this Agreement:
(a) Failure by Borrower to pay any monetary amount when due under any
Loan Document and the expiration of ten (10) days after written notice of
such failure by Lender to Borrower.
(b) Failure by Borrower to perform any obligation not involving the
payment of money (including, without limitation, FDC's failure to comply
with the financial covenants set forth in SECTION 10.21), or to comply with
any other term or condition applicable to Borrower under any Loan Document
and the expiration of thirty (30) days after written notice of such failure
by Lender to Borrower.
(c) Any representation or warranty by Borrower in any Loan Document
is materially false, incorrect, or misleading as of the date made.
(d) 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.
(e) Borrower or Guarantor (i) is unable or admits in writing
Borrower's or Guarantor's inability to pay their respective monetary
obligations as they become due, (ii) fails to pay when due any monetary
obligation, whether such obligation be direct or contingent, to any person
in excess of Ten Thousand and No/100 Dollars ($10,000.00), (iii) makes a
general assignment for the benefit of creditors, or (iv) applies for,
consents to, or acquiesces in, the appointment of a trustee, receiver, or
other custodian for Borrower or Guarantor or the property of Borrower or
Guarantor or any part thereof, or in the absence of such application,
consent, or acquiescence a trustee, receiver, or other custodian is
appointed for Borrower or Guarantor or the property of Borrower or
Guarantor or any part thereof, and such appointment is not discharged
within sixty (60) days.
(f) Commencement of any case under the Bankruptcy Code, Title 11 of
the United State 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 or Guarantor and
with respect to any such case or proceeding that is involuntary, such case
or proceeding is not dismissed within sixty (60) days of the filing
thereof.
<PAGE>
(g) Any litigation or proceeding is commenced before any Governmental
Authority against or affecting Borrower or the property of Borrower or any
part thereof and such litigation or proceeding is not defended diligently
and in good faith by Borrower.
(h) 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) is entered against Borrower by any Government Authority, which
together with the aggregate amount of all other such judgments and decrees
against Borrower that remain unpaid or that have not been discharged or
stayed, exceeds Five Thousand and No/100 Dollars ($5,000.00), is not paid
and discharged or stayed within thirty (30) days after the entry thereof.
(i) Commencement of any action or proceeding which seeks as one of
its remedies the dissolution of Borrower.
(j) All or any part of the property of Borrower is attached, levied
upon, or otherwise seized by legal process, and such attachment, levy, or
seizure is not quashed, stayed, or released within twenty (20) days of the
date thereof.
(k) The occurrence of any Transfer (as defined in the Mortgage),
unless prior to such Transfer the holder of the Note has delivered to
Borrower the written consent of such holder to such Transfer.
(l) The occurrence of any Event of Default, as such term is defined
in any other Loan Document.
(m) If Borrower, at any time, ceases to manage the Project.
(n) Inability of Borrower to satisfy any condition for the receipt of
a disbursement hereunder, or to resolve the situation to the satisfaction
of Lender, for a period in excess of thirty (30) days after written notice
from Lender.
(o) Failure to deposit with Lender in cash or cash equivalents the
amount necessary to put the A & D Loan and/or the Construction Loan "IN
BALANCE" within five (5) days of Lender's notice that the A & D Loan and/or
the Construction Loan is not "IN BALANCE" or the failure to deposit the
amount(s) necessary as required in Article IV hereof.
(p) an Event of Default as described in SECTION 2.21 of this Agreement.
Notwithstanding anything to the contrary contained herein, an Event of Default
under a Melody Loan or FDC Loan shall not constitute an Event of Default under a
LLC Loan, it being the intent and agreement of the parties to not cross default
the Melody Loan or the FDC Loan with any LLC Loan. However, any Event of
Default under either a
<PAGE>
Melody Loan or FDC Loan shall constitute an Event of Default under each and
every Melody Loan and FDC Loan, and any Event of Default under a LLC Loan shall
also constitute an Event of Default under each and every Melody Loan and FDC
Loan.
<PAGE>
11.2 REMEDIES.
(a) Notwithstanding any provision to the contrary herein or any of
the other Loan Documents, upon the happening of any Event of Default under
this Agreement, or upon an Event of Default under any of the other Loan
Documents: (i) Lender's obligation to make further disbursements of the
Loan shall abate, and (ii) if the Event of Default shall not be cured
within the applicable notice and cure periods, then Lender shall, at its
option, have the remedies provided in the Loan Document breached by
Borrower, including, without limitation, the option to declare all
outstanding indebtedness to be immediately due and payable without
presentment, demand, protest or notice of any kind, and the following
remedies: Lender's obligation to make further disbursements to Borrower
shall terminate; Lender may, at its option, apply any of Borrower's funds
in its possession to the outstanding indebtedness whether or not such
indebtedness is then due; Lender may exercise all rights and remedies
available to it under any or all of the Loan Documents; and Lender shall
have the right to cause an independent contractor selected by Lender to
enter into possession of the Premises 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 Lender for such
purposes shall be deemed to have been disbursed to and borrowed by Borrower
and shall be secured by the Mortgage on the Premises.
(b) Borrower hereby constitutes and appoints Lender, or an
independent contractor selected by Lender, as its true and lawful
attorney-in-fact with full power of substitution for the purposes of
completion of the Project and performance of Borrower's obligations under
this Agreement in the name of the Borrower, and hereby empower said
attorney-in-fact to do any or all of the following upon the occurrence of
an Event of Default:
(i) to use any of the funds of Borrower, including any balance
of the Loan, as applicable, and any funds which may be held by Lender
for Borrower, for the purpose of effecting completion of the
Improvements in the manner called for by the Plans and Specifications;
(ii) to make such additions, changes and corrections in the
Plans and Specifications as shall be necessary or desirable to
complete the Improvements in substantially the manner contemplated by
the Plans and Specifications;
(iii) to employ any contractors, subcontractors, agents,
architects and inspectors required for said purposes;
(iv) to employ attorneys to defend against attempts to interfere
with the exercise of power granted hereby;
<PAGE>
(v) to pay, settle or compromise all existing bills and claims
which are or may be liens against the Premises, the Improvements or
the Project or may be necessary or desirable for the completion of the
Improvements or clearance of objections to or encumbrances on title;
(vi) to execute all applications and certificates in the name of
Borrower, which may be required by any other construction contract;
(vii) to prosecute and defend all actions or proceedings in
connection with the 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 Improvements which Borrower might do
on its own behalf;
(viii)to let new or additional contracts to the extent not
prohibited by their existing contracts;
(ix) to employ watchmen and erect security fences to protect the
Project from injury; and
(x) 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 of the Loan.
ARTICLE XII
MISCELLANEOUS
12.1 ASSIGNMENT. Borrower shall not assign any of its rights under this
Agreement.
12.2 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 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, shall be deemed given when delivered.
To Lender: Western Region Real Estate
<PAGE>
P. O. Box 29542
Phoenix, Arizona 85038
Attn: Patricia A. Richards
Borrower: 2290 South Jones, Suite 110
Las Vegas, Nevada 89102
Attn: Roger Loomis
Attn: James E. Betz
11031 Sheridan Boulevard
Westminster, Colorado 80020
Attn: David Oyler
12.3 AUTHORITY TO FILE NOTICES. Borrower irrevocably appoints Lender at
its attorney-in-fact, with full power of substitution, to file for record, 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 Lender
considers necessary or desirable to protect its security.
12.4 INCONSISTENCIES WITH THE 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.
12.5 NO WAIVER. No disbursement of proceeds of the Loan shall constitute a
waiver of any conditions to Lender's obligation to make further disbursements
nor, in the event Borrower is unable to satisfy any such conditions, shall any
such waiver have the effect of precluding Lender from thereafter declaring such
inability to constitute a default under this Agreement.
12.6 LENDER APPROVAL OF INSTRUMENTS AND PARTIES. All proceedings taken in
accordance with transactions provided for herein; all surveys, appraisals and
documents required or contemplated by this Agreement and the persons responsible
for the execution and preparation thereof; shall be satisfactory to and subject
to approval by Lender. Lender's counsel shall be provided with copies of all
documents which they may reasonably request in connection with the Agreement.
12.7 LENDER DETERMINATION OF FACTS. Lender shall at all times be free to
establish independently, to its satisfaction, the existence or nonexistence of
any fact or facts, the existence or nonexistence of which is a condition of this
Agreement.
12.8 INCORPORATION OF PREAMBLE, RECITALS AND EXHIBITS. The preamble,
recitals and exhibits hereto are hereby incorporated in to this Agreement.
12.9 THIRD-PARTY CONSULTANTS. Lender may hire such third-party consultants
as it deems necessary, the costs of which shall be paid by Borrower, to provide
the following services: (a) review final Plans and Specifications and final
construction cost
<PAGE>
breakdown and the construction schedule; (b) conduct compliance inspections with
respect to the progress of construction of the Project and approve each element
of a request for disbursement relating to construction costs; and (c) perform
such other services as may, from time to time, be required by Lender. This
obligation on the part of Borrower shall survive the closing of the Loan and the
repayment thereof. Borrower hereby authorizes Lender, in its discretion, to pay
such expenses, charges, costs and fees at any time by a disbursement of the
Loan.
12.10 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 Loan or construction of the Improvements,
including, without limitation, any fees incurred for recording or filing any of
the Loan Documents, title insurance premiums and charges, tax service contract
fees, fees of any consultants, Lender's processing and closing fees, reasonable
fees and expenses of Lender's 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, appraisal
review, market or feasibility study required by Lender. Borrower hereby
authorizes Lender to disburse the proceeds of the Loan to pay such expenses,
charges, costs and fees notwithstanding that Borrower may not have requested a
disbursement of such amount; provided that Borrower acknowledges that Lender has
no obligation to disburse amounts listed under "BORROWER'S EQUITY" on the A & D
Budget. 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 Lender
to make such disbursements. However, the provision of this SECTION 12.10 shall
not prevent Borrower from paying such expense, 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 the Loan. The obligations on the part of
Borrower under this SECTION 12.10 shall survive the closing of the Loan and the
repayment thereof.
12.11 DISCLAIMER BY LENDER. Lender 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 the
Project. Lender shall not be liable for any debts or claims accruing in favor
of any such parties against Borrowers or others or against the Premises or the
Project. Borrower is not and shall not be an agent of Lender for any purpose.
Lender is not a joint venture partner with Borrower in any manner whatsoever.
Prior to default by Borrower under this Agreement and the exercise of remedies
granted herein, Lender shall not be deemed to be in privity of contract with any
contractor or provider of services to the 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 Lender.
Approvals granted by Lender 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.
<PAGE>
12.12 INDEMNIFICATION. To the fullest extent permitted by law,
Borrower agrees to protect, indemnify, defend and hold harmless Lender, its
directors, officers, agents and employees from and against any and all
liability, expense or damage of any kind or nature and from any suits, claims or
demands, including reasonable legal fees and expenses on account of any matter
or thing or action or failure to act by Lender, whether in suit or not, arising
out of this Agreement or in connection herewith, other than such claims and
liabilities as arise solely from the gross negligence or intentional misconduct
of Lender. Upon receiving knowledge of any suit, claim or demand asserted by a
third party that Lender believes is covered by this indemnity, Lender 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 Lender. Lender may
also require Borrower to so defend the matter. The obligations on the part of
Borrower under this SECTION 12.12 shall survive the closing of the Loan and the
repayment thereof.
12.13 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.
12.14 BROKERS. Borrower and Lender represent to each other that
neither of them knows of any brokerage commissions or finders' fee due or
claimed with respect to the transaction contemplated hereby. Borrower and
Lender shall indemnify and hold harmless the other party from and against any
and all loss, damage, liability, or expense, including costs and reasonable
attorney fees, which such other party may incur or sustain by reason of or in
connection with any misrepresentation by the indemnifying party with respect to
the foregoing.
12.15 CHANGE, DISCHARGE, TERMINATION, OR WAIVER. No provision of this
Agreement may be changed, discharged, terminated, or waived except in writing
signed by the party against whom enforcement of the change, discharge,
termination, or waiver is sought. No failure on the part of Lender to exercise
and no delay by Lender in exercising any right or remedy under the Loan
Documents or under the law shall operate as a waiver thereof.
12.16 CHOICE OF LAW. This Agreement and the transaction contemplated
hereunder shall be governed by and construed in accordance with the laws of the
State of Arizona, without giving effect to conflict of laws principles.
12.17 DISBURSEMENTS IN EXCESS OF LOAN AMOUNT. In the event the total
disbursements by Lender exceed the amount of the Loan, the total of all
disbursements shall be secured by the Mortgage. All other sums expended by
Lender pursuant to this Agreement or any other Loan Documents shall be deemed to
have been paid to Borrower and shall be secured by, among other things, the
Mortgage.
12.18 PARTICIPATIONS. Lender shall have the right at any time to sell,
assign, transfer, negotiate or grant participations in all or any part of the
Loan or the Note to one or more participants. Borrower hereby acknowledges and
agrees that any such
<PAGE>
disposition will give rise to a direct obligation of Borrower to each such
participant. Any successor in interest to the Note shall be entitled to the
benefits of this Agreement.
12.19 COUNTERPARTS. This Agreement may be executed in any number of
counterparts each of which shall be deemed an original, but all such
counterparts together shall constitute but one agreement.
12.20 TIME IS OF THE ESSENCE. Time is of the essence of this
Agreement.
12.21 ATTORNEYS' FEES. Borrower shall promptly pay to Lender, upon
demand, with interest thereon from the date of demand at the default interest
rate, reasonable attorneys' fees and all costs and other expenses paid or
incurred by Lender in enforcing or exercising its rights or remedies created by,
connected with or provided for in this Agreement or any of the other Loan
Documents, and payment thereof shall be secured by the Mortgage. If at any time
Borrower fails, refuses or neglects to do any of the things herein provided to
be done by Borrower, Lender shall have the right, but not the obligation, to do
the same but at the expense and for the account of Borrower. The amount of any
monies so expended or obligations so incurred by Lender, together with interest
thereon at the default interest rate, shall be repaid to Lender forthwith upon
written demand therefor and payment thereof shall be secured by the Mortgage.
12.22 SIGNS. Throughout the term of the Loan, Lender shall have the
right to erect one or more signs on the Project indicating its provision of
financing for the Project, and Lender shall also have the right to publicize its
financing of the Project as Lender may deem appropriate.
12.23 ARBITRATION.
(a) BINDING ARBITRATION. Lender and Borrower hereby agree that
all controversies and claims arising directly or indirectly out of
this Agreement and 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 Arizona. 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.
(b) ARBITRATION PANEL. A single arbitrator shall have the power
to render a maximum award of one hundred thousand dollars. 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.
(c) 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
<PAGE>
the appointment of a receiver) from a court of competent jurisdiction.
At Lender'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. 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 an action
brought by a party shall be applicable in any arbitration proceeding.
<PAGE>
ARTICLE XIII
RELEASE OF HOMES
13.1 FULL PAYMENT. Except as provided in SUBSECTION 13.2 below,
unless Lender otherwise consents in writing, the Property or any part thereof
shall not be released until all indebtedness and obligations of Borrower under
the Loan Documents have been paid and performed in full.
13.2 PARTIAL RELEASE. At the written request of Borrower, Lender
shall release a Home from the lien of the Mortgage upon the sale thereof to a
Non-Related Party, and the satisfaction of all the following conditions
precedent with respect to each Home being released:
(a) at the time of the release no Event of Default shall have
occurred and be continuing;
(b) the Home (together with its underlying lot) constitutes a
legally subdivided interest in real property, and the release of such
Home will not violate any requirements of any document of record
covering the Premises or such Home or any applicable law regarding
subdivisions, parcel maps and the division of land into lots or
parcels or condominiums;
(c) Borrower shall have paid all fees and costs in connection
with the release, including Lender's release fee, recording and
reconveyance fees and costs, and any fees and costs reasonably
incurred by Lender;
(d) the applicable Home has been completed in accordance with
the applicable Home Plans and in accordance with all applicable
permits, laws, ordinances, regulations and other requirements of all
Governmental Authorities and public utility companies, and all
necessary inspections and consents and approvals for the sale and
occupancy thereof have been completed or obtained; and
(e) Borrower shall have paid to Lender in cash, from Borrower's
own funds and not from the proceeds of the Loan, for application to
principal owing under the Note, all unpaid principal, accrued and
unpaid interest, and any other sums due and owing Lender under the
applicable Home Loan PLUS the deferred portion of the A & D Loan Lot
Release Price (as described in the definition of such term)(the
"RELEASE PRICE"); provided, however, in the event Lender is obligated
to honor any draft drawn under a Letter of Credit then the Release
Price shall be equal to the greater of (i) the Release Price, or (ii)
100% of all net sale proceeds from the sale of the subject Home. As
used in this paragraph, "net sale proceeds" shall mean gross sale
proceeds from the sale of any Home less all reasonable and customary
closing costs and expenses as approved by Lender.
<PAGE>
ARTICLE XIV
EXHIBITS
The following exhibits to this Agreement are fully incorporated herein as
if set forth at length:
Exhibit A - Property Description
Exhibits B-1 and B-2 - Forms of Mortgage
Exhibit C - Closing Conditions
Exhibit D - ARDI Draw System
Exhibit E - Required Consents
Exhibit F - Joinder and Agreement to be Bound
Exhibit G - Term Sheet
IN WITNESS WHEREOF, Lender and Borrower have caused this Agreement to be
duly executed and delivered as of the date first above written.
MELODY HOMES, INC., a
Delaware corporation
By /s/ JAMES E. BETZ
---------------------
Name
-------------------
Title SECRETARY
------------------
FALCON DEVELOPMENT
CORPORATION, a Nevada
corporation
By /s/ JAMES E. BETZ
---------------------
Name
-------------------
Title SECRETARY
------------------
"Borrower"
BANK ONE, ARIZONA, NA, a
national banking association
By /s/ PATRICIA A. RICHARDS
---------------------
Patricia A. Richards,
Vice President
"Lender"
<PAGE>
MODIFICATION AGREEMENT
DATE: January 8, 1997
PARTIES: Borrower: Melody Homes, Inc.,
a Delaware corporation
Borrower 11031 Sheridan Boulevard
Address: Westminster, Colorado 80020
Bank: Bank One, Arizona, NA,
a national banking association
Bank Western Region Real Estate
Address: P.O. Box 29542
Phoenix, Arizona 85038
RECITALS:
A. Bank has extended to Borrower and Falcon Development Corporation,
a Nevada corporation ("FDC"), credit ("LOAN") in the principal amount of Thirty
Eight Million Five Hundred Thousand and No/100 Dollars ($38,500,000.00)
pursuant to that certain Amended and Restated Loan Agreement dated November 25,
1996, ("CREDIT AGREEMENT"), and evidenced by that certain Amended and Restated
Promissory Note dated November 25, 1996 ("NOTE"). The unpaid principal of the
Loan as of the date hereof is $14,757,986.07. Bank has also made available to
Borrower a letter of credit facility in an amount up to Three Million and No/100
Dollars ($3,000,000.00) (the "LETTER OF CREDIT FACILITY").
B. The Loan and the Letter of Credit Facility are secured by, and/or
guaranteed by, among other things:
(i) various Mortgages, Assignments of Rents, Fixture
Filings, and Security Agreements executed by Borrower, and
various Deeds of Trust, Assignments of Rents and Security
Agreements and Fixture Filings executed by FDC encumbering
certain real property, located in the States of Colorado and
Nevada (as same may be amended, modified and restated in
accordance with the terms hereof, the "MORTGAGE"); and
(ii) those certain Amended and Restated Guarantees of
Payment dated as of November 25, 1996 (the "REPAYMENT
GUARANTEES"), by Madison B. Graves II and Susan Graves,
husband
<PAGE>
and wife; Fred L. Ahlstrom and Debra Ahlstrom, husband and
wife; Mark S. Doppe, a married man dealing with his sole and
separate property; and Jacob D. Bingham and Francine H.
Bingham, husband and wife (collectively the "GUARANTORS") in
favor of the Bank.
(iii) those certain Amended and Restated Guarantees of
Performance dated as of November 25, 1996 (the "PERFORMANCE
GUARANTEES"), by the Guarantors in favor of the Bank
The Repayment Guarantees and the Performance Guarantees are referred to
collectively as the "GUARANTEES" and the Mortgage, the Guarantees, and the
agreements, documents, and instruments securing the Loan, the Note and the
Letter of Credit Facility are referred to individually and collectively as the
"SECURITY DOCUMENTS").
C. The Note, the Credit Agreement, the Security Documents, any
arbitration resolution, any environmental certification and indemnity agreement,
and all other agreements, documents, and instruments evidencing, securing, or
otherwise relating to the Loan, are sometimes referred to individually and
collectively as the "LOAN DOCUMENTS".
D. Borrower has requested that Bank modify the Loan and the Loan
Documents as provided herein. Bank is willing to so modify the Loan and the
Loan Documents, subject to the terms and conditions herein.
AGREEMENT:
For good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Borrower and Bank agree as follows:
1. ACCURACY OF RECITALS.
Borrower acknowledges the accuracy of the Recitals.
2. MODIFICATION OF LOAN DOCUMENTS.
2.1 The Loan Documents are modified as follows:
2.1.1 Upon the satisfaction of all conditions precedent as set forth in
Paragraph 6 below, Bank hereby agrees that FDC's obligations under the Loan
Documents shall be terminated and hereby releases, discharges and forever
quitclaims unto FDC any and all claims, liabilities and obligations arising at
any time out of or relating to the Note, the Credit Agreement, the Security
Documents, and any other document now or hereafter securing any of the
foregoing. Any and all references to "FDC" and "FDC Loan", in the Loan
Documents are hereby deleted and any and all covenants, warranties and
agreements relating exclusively to FDC are hereby deleted. All covenants,
warranties and agreements relating to both the Borrower and FDC shall be
modified so as to apply solely to the Borrower and the Borrower
<PAGE>
hereby warrants and agrees to maintain compliance with said covenants,
warranties and agreements.
2.1.2 Upon the satisfaction of all conditions precedent as set forth in
Paragraph 6 below, Bank hereby agrees that the Guarantees are terminated and
shall be of no further force or effect and hereby releases and discharges the
Guarantors from any and all claims, liabilities and obligations against the
Guarantors arising at any time out of or relating to the Note, the Guarantees,
the Credit Agreement, the Security Documents, and any other document now or
hereafter securing any of the foregoing. Any and all references to
"Guarantor(s)" in the Loan Documents are hereby deleted and any and all
covenants, warranties and agreements relating to the Guarantors are hereby
deleted.
2.1.3 The definitions of "A&D LOAN AMOUNT", "CONSTRUCTION LOAN
AMOUNT", "INTEREST RATE", and MODEL HOME COMMITMENT" in the Credit Agreement are
hereby deleted in their entirety and replaced with the following:
"A & D LOAN AMOUNT" shall mean an amount of up to Fifteen Million and
No/100 Dollars ($15,000,000.00), which includes all principal amounts
outstanding and all amounts committed but not yet advanced. Notwithstanding
anything contained herein to the contrary, the maximum principal amount advanced
and/or committed under the Loan, including the A & D Loan Amount, shall never
exceed Thirty-Eight Million and No/100 Dollars ($38,000,000.00). In the event
that Borrower does not utilize all of the A & D Loan Amount, Lender may elect,
in its reasonable discretion, to allow Borrower to utilize the unused portion
of the A & D Loan Amount for Home Loans.
"CONSTRUCTION LOAN AMOUNT" shall mean an amount up to the sum of
Thirty-Eight Million and No/100 Dollars ($38,000,000.00), which includes all
principal amounts outstanding and all amounts committed but not yet advanced.
Notwithstanding anything contained herein to the contrary, the maximum principal
amount advanced and/or committed under the Loan, including the Construction Loan
Amount, shall never exceed Thirty-Eight Million and No/100 Dollars
($38,000,000.00).
"INTEREST RATE" shall mean a rate of interest equal to the Index Rate. The
Interest Rate shall change from time to time as and when the Index Rate changes.
"MODEL HOME COMMITMENT" shall mean Lender's commitment to advance an
aggregate amount up to the sum of Three Million Five Hundred Thousand and No/100
Dollars ($3,500,000.00) for construction of Model Homes, which includes all
principal amounts outstanding and all amounts committed but not yet advanced.
Notwithstanding anything contained herein to the contrary, the maximum principal
amount advanced and/or committed under the Loan, including the Model Home
Commitment, shall never exceed Thirty-Eight Million and No/100 Dollars
($38,000,000.00).
2.1.4 Sections 10.21, 10.22 and 10.24 of the Credit Agreement are
hereby deleted in their entirety and replaced with the following:
<PAGE>
10.21 FINANCIAL COVENANTS.
(a) On a quarterly basis, Borrower shall achieve
Tangible Net Worth in an amount not less than 100% of the
Tangible Net Worth of Borrower upon the date of acquisition by
Schuler Homes, Inc., a Delaware corporation ("SCHULER") plus
50% of future earnings of Borrower.
(b) On a quarterly basis, Borrower shall achieve
Liquidity of not less than ten percent (10%) of Total
Liabilities.
(c) On a quarterly basis, Borrower, all in a manner
consistent with financial statements previously provided by
Borrower to Lender, shall maintain a Debt Ratio of not more
than 3.0 to 1.0.
(d) On a rolling four quarter basis, Borrower shall
maintain a Constant Interest Only Coverage of no less than 3.0
to 1.0.
(e) At all times during the term of the Loan, the number
of Spec Homes and Model Homes, in the aggregate, under
construction and completed, shall not exceed the number of
units delivered in the preceding twelve (12) months multiplied
by 10%.
As used in this Agreement and this Section, the following are defined terms:
"CONSTANT INTEREST ONLY COVERAGE" shall mean an amount, expressed as a
percentage, calculated by Lender, and equal to (i) the earnings before interest
and taxes for the period in question divided by (ii) interest expense, including
all capitalized interest, interest paid on subordinated debt.
"DEBT" shall be defined in accordance with generally accepted accounting
principles (GAAP) and will exclude subordinated debt.
"DEBT RATIO" means, with respect to any person, the ratio of (i) such
person's Debt to (ii) such person's Tangible Net Worth.
"INTANGIBLE ASSETS" means all intangible assets under GAAP, including,
without limitation, copyrights, franchises, goodwill, licenses, non-competition
covenants, organization or formation expenses, patents, service marks, service
names, trademarks, tradenames, write-up in the book value of any asset in excess
of the acquisition cost of the asset to such Person, any amount, however
designated on the balance sheet, representing the excess of the purchase price
paid for assets or stock acquired over the value assigned thereto on the books
of such person, unamortized leasehold improvements expense not recoverable at
the end of the lease term, unamortized debt discount, and all deferred taxes.
<PAGE>
"LIQUIDITY" means the amount of such person's unencumbered cash and
unencumbered cash equivalents as determined in accordance with GAAP, plus
availability under Lender's lines of credit.
"TANGIBLE NET WORTH" is defined in accordance with GAAP and includes
minority shareholder interests and subordinated debt, less the value of all
Intangible Assets.
"TOTAL LIABILITIES" shall be defined in accordance with generally accepted
accounting principles (GAAP) and will exclude subordinated debt.
10.22 CHANGE IN CONTROL. At no time shall Schuler own less than one
hundred percent (100%) of the issued and outstanding common stock of Melody.
10.24 LAND ACQUISITIONS. Borrower covenants and agrees with Lender that
the book value of all land held by Borrower, including land under development,
shall not exceed 125% of Tangible Net Worth.
2.1.5 The following new event of default is hereby added to the Credit
Agreement under Section 11.1:
(q) The occurrence and continuation of an Event of Default, as defined in
that certain Credit Agreement dated as of March 29, 1996, among Schuler and the
Banks (as defined therein), as amended by Supplement No. 1 to Credit Agreement,
as may be further amended (the SCHULER CREDIT FACILITY"), relating solely and
exclusively to the breach or non-compliance by Schuler under the financial
covenants set forth in Sections 6.07, 7.02, 7.03, and 7.04 of the Credit
Agreement for the Schuler Credit Facility. A true and correct copy of the
Credit Agreement for the Schuler Credit Facility is attached hereto as SCHEDULE
1.
2.1.6 The amount of "$38,500,000.00" in the caption of the Note is hereby
deleted in its entirety and replaced with the following: "$38,000,000.00". All
references in the Loan Documents to "$38,500,000.00" are hereby deleted in their
entirety and replaced with the new loan amount of $38,000,000.00."
2.1.7 The first sentence of Section 1 of the Note is hereby deleted in its
entirety and the following is inserted in place thereof:
For value received, MELODY HOMES, INC., a Delaware
corporation ("MAKER"), promises to pay to the order of BANK
ONE, ARIZONA, NA, a national banking association ("HOLDER"),
at its office at 241 North Central Avenue, Phoenix, Arizona
85004, or at such other place as the Holder hereof may from
time to time designate in writing, the principal sum of
Thirty-Eight Million and No/100 Dollars ($38,000,000.00),
<PAGE>
or so much thereof as shall from time to time be disbursed under
that certain Amended and Restated Loan Agreement (as it may be
amended, modified, extended, and renewed from time to time, the
"LOAN AGREEMENT") of even date herewith between Maker and Holder,
together with accrued interest from the date of disbursement on
the unpaid principal at the applicable rate as set forth in
Section 4.
2.1.8 Upon the satisfaction of all conditions precedent as set forth in
Paragraph 6 below, Bank hereby consents to (i) the transfer of all of the
outstanding shares of common stock in Borrower to Schuler Homes, Inc., a
Delaware corporation, and (ii) the security interest granted by Borrower in
favor of First Hawaiian Bank pursuant to the terms and conditions of that
certain Security Agreement, a draft copy of which is attached hereto as SCHEDULE
2. Except as set forth in the preceding sentence, Bank's consent to this
transfer and security interest shall in no way be deemed a waiver of any of the
terms and conditions of the Loan Documents.
2.1.9 With respect to the existing LLC Loans (as defined in the Credit
Agreement), Bank and Borrower agree that such loans shall remain in effect,
however, upon the satisfaction of all conditions precedent as set forth in
Paragraph 6 below, such loans shall be cross-defaulted with the Loan and the
collateral for the LLC Loans shall also act as collateral for the Loan, it being
the intention and agreement of Bank and Borrower to cross-default and
cross-collateralize the LLC Loans and the Loan. Borrower agrees to cause the
borrowers under the LLC Loans to execute a Memorandum of Modification evidencing
the agreements set forth in this paragraph, which memoranda shall be recorded in
the County where the real property is located. Borrower agrees to pay all
recording costs and fees, together with all title insurance costs and fees
relating to a CLTA 110.5, or its equivalent, to Bank's policy of title insurance
relating to the recording of the memoranda.
2.2 Each of the Loan Documents is modified to provide that it shall be a
default or an event of default thereunder if Borrower shall fail to comply with
any of the covenants of Borrower herein or if any representation or warranty by
Borrower herein is materially incomplete, incorrect, or misleading as of the
date hereof.
2.3 Each reference in the Loan Documents to any of the Loan Documents
shall be a reference to such document as modified herein.
3. RATIFICATION OF LOAN DOCUMENTS AND COLLATERAL.
The Loan Documents are ratified and affirmed by Borrower and shall remain in
full force and effect as modified herein. Any property or rights to or
interests in property granted as security in the Loan Documents shall remain as
security for the Loan and the obligations of Borrower in the Loan Documents.
4. BORROWER REPRESENTATIONS AND WARRANTIES.
<PAGE>
Borrower represents and warrants to Bank:
4.1 No default or event of default under any of the Loan Documents as
modified herein, nor any event, that, with the giving of notice or the passage
of time or both, would be a default or an event of default under the Loan
Documents as modified herein has occurred and is continuing.
4.2 There has been no material adverse change in the financial condition
of Borrower or any other person whose financial statement has been delivered to
Bank in connection with the Loan from the most recent financial statement
received by Bank.
4.3 Each and all representations and warranties of Borrower in the Loan
Documents are accurate on the date hereof.
4.4 Borrower has no claims, counterclaims, defenses, or set-offs with
respect to the Loan or the Loan Documents as modified herein.
4.5 The Loan Documents as modified herein are the legal, valid, and
binding obligation of Borrower, enforceable against Borrower in accordance with
their terms.
4.6 Borrower is validly existing under the laws of the State of its
formation or organization and has the requisite power and authority to execute
and deliver this Agreement and to perform the Loan Documents as modified herein.
The execution and delivery of this Agreement and the performance of the Loan
Documents as modified herein have been duly authorized by all requisite action
by or on behalf of Borrower. This Agreement has been duly executed and delivered
on behalf of Borrower.
5. BORROWER COVENANTS.
Borrower covenants with Bank:
5.1 Borrower shall execute, deliver, and provide to Bank such additional
agreements, documents, and instruments as reasonably required by Bank to
effectuate the intent of this Agreement.
5.2 Borrower fully, finally, and forever releases and discharges Bank and
its successors, assigns, directors, officers, employees, agents, and
representatives from any and all actions, causes of action, claims, debts,
demands, liabilities, obligations, and suits, of whatever kind or nature, in law
or equity, that Borrower has or in the future may have, whether known or
unknown, (i) in respect of the Loan, the Loan Documents, or the actions or
omissions of Bank in respect of the Loan or the Loan Documents and (ii) arising
from events occurring prior to the date of this Agreement. In addition, and
without any way limiting the foregoing, the Borrower hereby releases all claims
and rights at law and/or in equity which the Borrower may have against the Bank
arising out of or relating to the release of FDC and the Guarantors under the
Note, the Guarantees, the Credit Agreement,
<PAGE>
the Security Documents, and any other document now or hereafter securing any of
the foregoing and any negotiations or agreements relating thereto.
5.3 Contemporaneously with the execution and delivery of this Agreement,
Borrower has paid to Bank:
5.3.1 All accrued and unpaid interest under the Note and all amounts,
other than interest and principal, due and payable by Borrower under the Loan
Documents as of the date hereof.
5.3.2 All of the internal and external costs and expenses incurred by
Bank in connection with this Agreement (including, without limitation, inside
and outside attorneys, processing, and all other costs, expenses, and fees).
6. EXECUTION AND DELIVERY OF AGREEMENT BY BANK.
Bank shall not be bound by this Agreement until each of the following shall have
occurred: (i) Bank has executed and delivered this Agreement, (ii) Borrower has
performed all of the obligations of Borrower under this Agreement to be
performed contemporaneously with the execution and delivery of this Agreement,
(iii) the acquisition of all of the issued and outstanding shares of common
stock in Borrower by Schuler Homes, Inc., a Delaware corporation, must have
been completed, (iv) all of the FDC Loans (as defined in the Credit Agreement)
must have been fully repaid, (v) Bank has received resolutions, good standing
certificates and amendments to formation documents for Borrower, (vi) Bank has
received an updated opinion letter relating to Borrower on or before January 20,
1997, and (vii) Bank has received a fully executed copy of the Security
Agreement executed by Borrower in favor of First Hawaiian Bank, a draft copy of
which is attached hereto as SCHEDULE 2.
7. ENTIRE AGREEMENT, CHANGE, DISCHARGE, TERMINATION, OR WAIVER.
The Loan Documents as modified herein contain the entire understanding and
agreement of Borrower and Bank in respect of the Loan and supersede all prior
representations, warranties, agreements, arrangements, and understandings. No
provision of the Loan Documents as modified herein may be changed, discharged,
supplemented, terminated, or waived except in a writing signed by Bank and
Borrower.
8. BINDING EFFECT.
The Loan Documents as modified herein shall be binding upon, and inure to the
benefit of, Borrower and Bank and their respective successors and assigns.
9. CHOICE OF LAW.
This Agreement shall be governed by and construed in accordance with the laws of
the State
<PAGE>
of Arizona, without giving effect to conflicts of law principles.
10. 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.
11. ARBITRATION.
11.1 BINDING ARBITRATION. Bank and Borrower hereby agree that all
controversies and claims arising directly or indirectly out of this Agreement
and 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 Arizona. 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.
11.2 ARBITRATION PANEL. A single arbitrator shall have the power to
render a maximum award of one hundred thousand dollars. 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.
11.3 PROVISIONAL REMEDIES; SELF HELP; AND FORECLOSURE. No provision
of Section 11.1 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. 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 an
action brought by a party shall be applicable in any arbitration proceeding.
<PAGE>
[THE REMAINING PORTION OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
<PAGE>
DATED as of the date first above stated.
MELODY HOMES, INC., a Delaware corporation
By: /s/ JAMES K. SCHULER
-------------------------------------
Name: James K. Schuler
-----------------------------------
Title: PRESIDENT
----------------------------------
BANK ONE, ARIZONA, NA, a
national banking association
By: /s/ PATRICIA A. RICHARDS
-------------------------------------
Name: Patricia A. Richards
-----------------------------------
Title: VICE PRESIDENT
----------------------------------
<PAGE>
SCHEDULE 1
TRUE CORRECT COMPLETE COPY OF SCHULER CREDIT AGREEMENT
<PAGE>
SCHEDULE 2
TRUE CORRECT COMPLETE COPY OF SECURITY AGREEMENT
<PAGE>
NEWS RELEASE
For Further Information:
James K. Schuler President & CEO (808) 521-5661
Pamela S. Jones Senior Vice President (808) 521-5661
of Finance & CFO
FOR IMMEDIATE RELEASE: Wednesday January 8, 1997
SCHULER HOMES, INC. COMPLETES ACQUISITION OF MELODY HOMES AND MORTGAGE
Honolulu, Hawaii -- Schuler Homes, Inc. (NASDAQ: SHLR) announced today the
completion of its acquisition of Melody Homes, Inc., the third largest
homebuilder in the Denver metropolitan area and Melody Mortgage Company, a
mortgage brokerage firm for Melody home buyers. Melody Homes is engaged in the
construction and sales of single-family homes targeted for the entry-level and
first-time move-up buyers. Melody builds homes ranging in size from 915 to
2,505 sq. ft. and in price from $109,000 to $175,000.
For the year ended December 31, 1996, Melody closed 639 homes, generating
revenues of approximately $94.0 million. The assets acquired include a backlog
of 219 homes under contract with an aggregate sales value of approximately $32.2
million, a controlled land position in excess of _3,000 lots, and 12
subdivisions under development.
The terms of the transaction were not disclosed. Montgomery Securities acted as
the financial advisor to Schuler Homes, and rendered a favorable fairness
opinion to Schuler's Board of Directors, in connection with the acquisition.
James K. Schuler, President, CEO and Chairman of the Board of Schuler Homes,
said "This is a great acquisition for Schuler Homes and should have a positive
impact on our 1997 earnings. Melody Homes, a 43-year old company, has an
excellent reputation, a strong management team, an excellent land position, a
proven track record of profitability and is poised for further expansion with
the benefit of our capital base. We have, for quite some time, been exploring
opportunities for expansion into the mainland United States in the interest of
increasing the long-term value of our shareholders. This transaction represents
a significant step in that direction. We remain fully committed to our position
as a leader in the homebuilding industry in Hawaii. We look forward to working
with Melody and their talented employees. We believe this acquisition
represents an enhancement to our overall organization."
David Oyler, President of Melody Homes, said "This is a tremendously exciting
change for us at Melody Homes. To be affiliated with a company like Schuler
Homes, with
<PAGE>
whom we have so much in common, is a wonderful opportunity for us. Both
companies share the same commitment to providing quality, affordable homes, with
a special emphasis on housing for first and second-time buyers. The financial
strength that this marriage brings to Melody will allow us to aggressively
pursue new market areas. We look forward to being a significant contributor to
the future success of Schuler Homes."
This press release may contain forward-looking statements regarding future
events and the future performance of the Company that involve risks and
uncertainties that could cause actual results to differ materially, including
risks due to a lack of experience in operating in markets outside of Hawaii. We
refer you to the documents that the Company files from time to time with the
Securities and Exchange Commission, such as the Company's Form 10-K, Form 10-Q
and Form 8-K reports, which contain a description of certain factors that
could cause our actual results to differ from our current expectations and any
forward-looking statements contained in this press release.
Schuler Homes, Inc. is one of the leading developers of affordably priced
residential housing in Hawaii. The Company's developments primarily consist of
single-family homes and low-rise, multi-family homes, such as condominiums and
townhomes and, to a lesser extent, residential lots. The Company's affordable
homes in Hawaii are generally priced at levels that either (i) are at or below
ceilings established under applicable governmental land use policies, or (ii)
represent the low to moderate end of the market for a home in a particular
locality.
