<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
------------------------------------------------------------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-21378
INCO HOMES CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 33-0534734
-------- ----------
(State or jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1282 WEST ARROW HIGHWAY
UPLAND, CALIFORNIA 91786
------------------ -----
(Address of principal executive offices) (zip code)
(909) 981-8989
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year
if changed since last report)
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--- ---
Indicate the number of shares outstanding of each of the issuers classes of
Common Stock, as of the latest practicable date.
Outstanding at
Class of Common Stock March 31, 1997
--------------------- --------------
$.01 par value 1,637,096
------------------------------------------------------------------------
1
<PAGE>
INCO HOMES CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1997 (Unaudited) and
December 31, 1996..................................................... 3
Consolidated Statements of Operations (Unaudited) for the Three
Months Ended March 31, 1997 and 1996.................................. 4
Consolidated Statements of Cash Flows (Unaudited) for the Three
Months Ended March 31, 1997 and 1996.................................. 5
Notes to Consolidated Financial Statements (Unaudited)................ 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations......................... 9
PART II. OTHER INFORMATION..................................................... 18
SIGNATURES ..................................................................... 21
</TABLE>
2
<PAGE>
INCO HOMES CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) MARCH 31, DECEMBER 31,
-------------------------
1997 1996
---- ----
(UNAUDITED)
<S> <C> <C>
CASH $ 282 $ 586
REAL ESTATE INVENTORIES 37,344 36,752
DEFERRED TAX ASSET 2,200 2,200
INVESTMENT IN NON-CONSOLIDATED PARTNERSHIP 451 428
OTHER ASSETS 631 666
-------- --------
TOTAL ASSETS $ 40,908 $ 40,632
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES $ 6,274 $ 7,133
NOTES PAYABLE SECURED BY REAL ESTATE 15,411 15,360
LINES OF CREDIT 4,802 4,303
NOTES TO STOCKHOLDER 1,042 676
-------- --------
TOTAL LIABILITIES 27,529 27,472
-------- --------
MINORITY PARTNERS' INVESTMENT IN CONSOLIDATED PARTNERSHIPS 830 876
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
COMMON STOCK - $.01 PAR VALUE; 20,000,000 SHARES
AUTHORIZED, 1,637,096 AND 1,437,096 SHARES ISSUED AND
OUTSTANDING FOR 1997 AND 1996 (RESTATED FOR REVERSE
STOCK SPLIT), RESPECTIVELY 16 16
ADDITIONAL PAID IN CAPITAL
(1996 RESTATED FOR REVERSE STOCK SPLIT) 42,226 41,761
DEFICIT (29,693) (29,493)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 12,549 12,284
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 40,908 $ 40,632
======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
3
<PAGE>
INCO HOMES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
1997 1996
---- ----
<S> <C> <C>
REVENUE FROM HOME SALES $ 3,420 $ 3,646
COST OF HOMES SOLD 3,084 3,343
---------- ---------
GROSS PROFIT 336 303
---------- ---------
SELLING AND MARKETING EXPENSES 656 677
GENERAL AND ADMINISTRATIVE EXPENSES 418 602
---------- ---------
1,074 1,279
---------- ---------
OPERATING LOSS (738) (976)
OTHER INCOME 6 30
---------- ---------
LOSS BEFORE MINORITY PARTNERS' SHARE
AND PROVISION (BENEFIT) FOR INCOME TAXES (732) (946)
MINORITY PARTNERS' SHARE (46) -
---------- ---------
LOSS BEFORE PROVISION (BENEFIT) FOR INCOME TAXES (686) (946)
PROVISION (BENEFIT) FOR INCOME TAXES - -
---------- ---------
LOSS BEFORE EXTRAORDINARY ITEM (686) (946)
EXTRAORDINARY ITEM 486 -
---------- ---------
NET LOSS $ (200) $ (946)
========== ==========
NET LOSS PER COMMON SHARE (1996 RESTATED FOR REVERSE STOCK SPLIT) $ (0.12) $ (0.69)
========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING (1996 RESTATED FOR REVERSE STOCK SPLIT) 1,603,021 1,371,169
========== ==========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
4
<PAGE>
INCO HOMES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
------------------------------------
(DOLLARS IN THOUSANDS) 1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS $ (200) $ (946)
ADJUSTMENT TO RECONCILE NET LOSS TO NET CASH PROVIDED BY
(USED IN) OPERATING ACTIVITIES:
EXTRAORDINARY ITEM (486) -
MINORITY PARTNERS' SHARE (46) -
PROCEEDS FROM SALE OF DIVISIONS - 1,667
(INCREASE) DECREASE IN REAL ESTATE INVENTORIES (1,593) 19
(INCREASE) DECREASE IN OTHER ASSETS 20 (102)
INCREASE (DECREASE) IN ACCOUNTS PAYABLE AND ACCRUED LIABILITIES (834) (1,677)
-------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (3,139) (1,039)
-------- --------
CASH FLOW FROM FINANCING ACTIVITIES:
PROCEEDS FROM NOTES PAYABLE SECURED BY REAL ESTATE 6,852 3,811
REPAYMENTS ON NOTES PAYABLE SECURED BY REAL ESTATE (5,315) (3,851)
PROCEEDS FROM LINES OF CREDIT 604 -
REPAYMENTS ON LINES OF CREDIT (116) (399)
PROCEEDS FROM NOTES TO STOCKHOLDER 565 -
REPAYMENTS ON NOTES TO STOCKHOLDER (220) -
CONTRIBUTIONS FROM MINORITY PARTNERS - 1,420
PROCEEDS FROM SALE OF COMMON STOCK 500 -
COSTS OF STOCK ISSUANCE AND REVERSE STOCK SPLIT (35) -
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 2,835 981
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (304) (58)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 586 420
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 282 $ 362
======== ========
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH ACTIVITIES
[1] IN THE FIRST QUARTER OF 1997, THE COMPANY DEEDED BACK PROPERTIES WITH A BOOK
COST BASIS OF $1.0 MILLION TO LAND SELLERS IN SATISFACTION OF $1.0 MILLION
IN INDEBTEDNESS.
[2] IN THE FIRST QUARTER OF 1996, THE COMPANY ISSUED 55,378 SHARES OF COMMON
STOCK (RESTATED FOR REVERSE STOCK SPLIT) TO CREDITORS IN EXCHANGE FOR
RELIEVING THE COMPANY OF $326,000 OF ACCOUNTS PAYABLE.
SUBSEQUENT TO MARCH 31, 1996, THE COMPANY ISSUED 35,500 SHARES OF COMMON
STOCK (RESTATED FOR REVERSE STOCK SPLIT) TO A CREDITOR UPON CONVERSION OF A
CONVERTIBLE NOTE ISSUED IN THE FIRST QUARTER OF 1996 UNDER A CONVERTIBLE
NOTE PURCHASE AGREEMENT. THE NOTE WAS ISSUED IN EXCHANGE FOR RELIEVING THE
COMPANY OF $213,000 OF ACCOUNTS PAYABLE.
[3] IN THE FIRST QUARTER OF 1996, THE COMPANY DEEDED BACK PROPERTY WITH A BOOK
COST BASIS OF $990,000 TO A LAND SELLER IN SATISFACTION OF $990,000 IN
INDEBTEDNESS.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
INCO HOMES CORPORATION
Notes to Consolidated Financial Statements (Unaudited)
NOTE 1 - GENERAL
The accompanying unaudited consolidated financial statements of Inco
Homes Corporation, subsidiaries and affiliates ("Inco" or "Company")
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (including normal recurring
accruals) considered necessary for a fair presentation have been
included.
The accompanying unaudited consolidated financial statements should be
read in conjunction with the financial statements and related notes
thereto contained in the Company's Annual Report on Form 10-K, as
amended, for the year ended December 31, 1996. The accompanying
unaudited consolidated financial statements include the accounts of
the Company and all wholly-owned subsidiaries, and the Company's
general partnership interests in Palmdale Vistas Housing Developments,
Ltd. ("Palmdale Vistas"), Freedom-Eagle Ranch Housing Partners
("FERHP") and Triumph-Lancaster Housing Partners ("Triumph"). The
investment in non-consolidated partnership represents the Company's
investment in Spirit Corona 77, L.P. ("Spirit 77") and its share of
profits and losses allocated to the Company in accordance with the
provisions of the Partnership Agreement, based upon the equity method
of accounting. All significant intercompany transactions have been
eliminated.
In 1994, the Company expanded into Phoenix, Arizona and Las Vegas,
Nevada. In December 1995, the Company sold its Phoenix and Las Vegas
divisions, including its Phoenix mortgage operations, to an unrelated
third party. The sales price was $14.5 million, of which the purchaser
assumed $12.0 million of bank indebtedness, and accounts payable and
accrued liabilities. As a result, the Company's sole market is in
Southern California and it is substantially dependent on local
economic factors.
On January 16, 1997, a stockholder approved amendment to the Company's
Restated Certificate of Incorporation effecting a one-for-six reverse
stock split ("the reverse stock split") became effective.
The Company has experienced, and expects to continue to experience,
significant variability in quarterly revenues and net income. The
results of any interim period are not necessarily indicative of
results that can be expected for the entire year.
NOTE 2 - RELATED PARTY TRANSACTIONS
For the three months ended March 31, 1997 and 1996, the Company
incurred approximately $102,000 and $15,000, respectively, in model
home design fees and reimbursements for the cost of the model home
furnishings with Nancy Orman Interiors. Nancy Orman Interiors is owned
by Nancy Norris, the wife of Ira C. Norris.
For the three months ended March 31, 1997 and 1996, the Company paid
$27,300 and $26,500, respectively, for the use of office space, to
Inco Plaza, Ltd. Inco Plaza, Ltd. is a limited partnership owned 80%
by G&N Investments, Ltd., its sole general partner. G&N Investments,
Ltd. is a limited partnership owned 70% by Nancy and Ira C. Norris,
its sole general partners.
Included in other assets as of March 31, 1996 is an unsecured
non-interest bearing advance in the amount of $293,000 from Victor
Valley Commercial Properties. Victor Valley Commercial Properties is a
limited
6
<PAGE>
partnership owned 50% by G&N Investments, Ltd., its sole general
partner. In May 1996, the Company assigned this advance to Ira C.
Norris in exchange for a cash payment of $293,000.
Thomas E. Gibbs, Jr., a director of the Company, holds a 1.295%
limited partner's interest in Palmdale Vistas. Mr. Gibbs also holds a
23% general partner's interest and a 1.376% limited partner's interest
in Palmdale Vistas Housing Investments, which holds a 47.41% limited
partner's interest in Palmdale Vistas. Included in notes payable
secured by real estate is a $600,000 secured participation note
payable to ALG 1996-1 ("ALG") and a $1.2 million secured participation
note payable to Hunters Ridge Investment Partners ("HRIP"). Mr. Gibbs
holds a 25% and 56.25% general partner's interest in ALG and HRIP,
respectively. Additionally, the Gibbs Family Trust, of which Mr. Gibbs
is a beneficiary and trustee, is a 50% limited partner in Triumph.
One of the owners of two entities that own approximately 12.2% of the
Company's outstanding Common Stock and a warrant to acquire
approximately an additional 10.9%, respectively, holds a 5.55% limited
partnership interest in FERHP.
NOTE 3 - NOTES TO STOCKHOLDER
Through March 31, 1997, the Company had received from Ira C. Norris
unsecured advances net of paybacks totaling approximately $1.0 million
(which includes accrued interest of approximately $34,000). Subsequent
to March 31, 1997, the Company received an additional $540,000 from
Mr. Norris. The Company has issued several notes to Mr. Norris,
bearing interest at 10.0%, which mature either on June 30, 1997 or
September 30, 1997.
NOTE 4 - EXTRAORDINARY ITEM
In December 1996, a commercial bank filed notices of default relating
to matured loans with principal balances totaling $2.8 million secured
by one of the Company's projects. In February 1997, the Company
obtained new financing that provided approximately $2.3 million to pay
the loans in full pursuant to a Discounted Loan Payoff Agreement,
resulting in an extraordinary gain of approximately $0.5 million.
NOTE 5 - UNAUDITED NET INCOME PER COMMON SHARE
The primary and fully diluted weighted average number of common shares
was 1,603,021 and 1,371,169 (restated for reverse stock split) for the
three months ended March 31, 1997 and 1996, respectively. Common share
equivalents include dilutive stock options and warrants using the
treasury stock method. There were no dilutive stock equivalents,
options or warrants for any of the periods covered.
7
<PAGE>
NOTE 6 - STOCKHOLDERS' EQUITY
The increase in stockholders' equity from December 31, 1996 to March
31, 1997, is reconciled as follows:
Dollars in thousands
<TABLE>
<CAPTION>
Number
of Shares Common Stock
(restated for reverse and Additional
stock split) Paid in Capital Deficit Total
--------------------- ---------------- ------------ ---------
<S> <C> <C> <C> <C>
Balance - December 31, 1996 1,437,096 $41,777 $(29,493) $12,284
Common Stock Issued 200,000 465 -- 465
Net Loss -- -- (200) (200)
--------------------- ---------------- ------------ ---------
Balance - March 31, 1997 1,637,096 $42,242 $(29,693) $12,549
===================== ================ ============ =========
</TABLE>
Common Stock was issued in the quarter ended March 31, 1997 pursuant
to a Common Stock Purchase Agreement entered into in December 1996.
The Company received $250,000 of the total $750,000 purchase price in
December 1996 and the balance in January and February, 1997. See Part
I, Item 2. -Liquidity and Capital Resources.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
The Company, in its normal course of business, makes commitments to
purchase land for residential development and has various outstanding
performance bonds.
As of March 31, 1997, the Company had open escrows to purchase three
separate parcels of land for future residential developments with
purchase prices totaling approximately $2.8 million. In April, 1997
the Company purchased one of these parcels for approximately $1.1
million.
The Company is in negotiations with a commercial bank that has
scheduled a non-judicial sale related to matured loans with principal
balances totaling $3.5 million at March 31, 1997 secured by one of the
Company's projects. See Part I, Item 2. -- Liquidity and Capital
Resources.
As a result of the limited amount of available working capital, the
Company has not paid all of its subcontractors and suppliers on a
current basis. Numerous subcontractors and suppliers have filed liens,
and some are pursuing further legal action, including the filing of
complaints. Additionally, the Company is presently involved in
litigation regarding alleged construction defects at one of its
projects. See Part II, Item 1. -- Legal Proceedings.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Except for historical information contained herein, the matters
discussed in this report contain forward-looking statements that involve risks
and uncertainties that could cause results to differ materially, including the
land valuation write-downs, changing market conditions, and other risks detailed
in this report, the Company's Annual Report on Form 10-K, and other documents
filed by the Company with the Securities and Exchange Commission from time to
time.
OVERVIEW
The Company's results of operations for the periods presented reflect the
cyclical nature of the homebuilding industry and the Company's historical focus
on the Southern California housing market. The most recent peak in the industry
cycle occurred in 1988 and 1989, which was followed by a downturn in 1990,
coinciding with the general national recession and the depressed economic and
real estate conditions in California. These conditions have continued into 1997
in certain geographic areas of Southern California and have had an adverse
impact on the Company's results of operations.
The Company's financial results have been adversely affected by the continuing
weakness in certain geographic areas of the Southern California new home market.
Although the Company has experienced improved sales in certain of its projects,
the Company continues to provide homebuyers with price discounts and other sales
incentives in other projects in order to remain competitive. This has resulted
in reduced profitability or losses on the homes that the Company has sold.
In 1994, the Company expanded into Phoenix, Arizona and Las Vegas, Nevada. In
December 1995, the Company sold its Phoenix and Las Vegas operations, including
its Phoenix mortgage operations, to an unrelated third party. The sales price
was $14.5 million, of which the purchaser assumed $12.0 million of bank
indebtedness, and accounts payable and accrued liabilities. This sale was
consummated as a result of the Company's continuing efforts to raise needed
capital, and enabled the Company to focus its efforts and capital on its
historical core business in Southern California. However, the sale initially has
resulted in a reduced level of closings and revenues, and has had an adverse
effect on earnings.
Continuing uncertainties remain regarding the timing of the realization of the
total deferred tax asset. These uncertainties are attributable to the impact of
the sale of the Phoenix and Las Vegas operations on future earnings, the land
deed backs and write-downs, and current business operations. Therefore, pursuant
to Statement of Financial Accounting Standards No. 109 ("SFAS No. 109")
"Accounting for Income Taxes", as of March 31, 1997 the Company did not record
an additional net deferred tax asset. No assurances can be given that the
Company will not have to record a further valuation allowance against future tax
benefits.
RESULTS OF OPERATIONS
Revenue from Home Sales
Revenue from home sales decreased to $3.4 million during the three months ended
March 31, 1997, from $3.6 million during the three months ended March 31, 1996,
representing a decrease of $0.2 million or 6.2%. The Company closed 31 homes at
an average sales price of $110,300 during the three months ended March 31, 1997
compared to 28 homes closed at an average sales price of $130,200 during the
three months ended March 31, 1996, a 10.7% increase in closings and a 15.3%
decrease in average sales price. The decrease in revenue during the three months
ended March 31, 1997 is attributable to the majority of closings occuring in the
Company's lower priced subdivisions in the high desert.
9
<PAGE>
The following table sets forth, for the periods indicated, the number of homes
closed by the Company:
<TABLE>
<CAPTION>
Homes Closed for the
Quarter Ended March 31,
------------------------
1997 1996
----------- -----------
<S> <C> <C>
High Desert 26 18
Riverside County 5 10
=========== ===========
Total 31 28
=========== ===========
</TABLE>
Cost of Homes Sold
Cost of homes sold includes land acquisition, development, construction, direct
and indirect costs, job-site supervision, customer service, warranty costs,
capitalized interest, property taxes and other capitalized indirect costs.
Cost of homes sold for the three months ended March 31, 1997 was $3.1 million, a
decrease of $0.2 million, or 7.8%, from $3.3 million during the three months
ended March 31, 1996. Cost of homes sold as a percentage of revenue decreased to
90.2% for the three months ended March 31, 1997 from 91.7% for the same period
in 1996. The decrease in cost of homes sold as a percentage of revenue for the
first quarter of 1997 is the result of the majority of closings occuring in the
Company's newer, lower cost subdivisions as well as in an existing lower cost
subdivision.
The Company believes that, since the prices of lumber, other building materials
and related services are subject to fluctuation, its gross margins in future
periods may be significantly affected by changes in prevailing prices.
Selling and Marketing Expenses
Selling expenses include loan discount points, internal and third party sales
salaries and commissions, escrow fees, title insurance fees and other closing
costs.
Selling expenses were $339,000 and $298,000 for the three months ended March 31,
1997 and 1996, respectively, an increase of 13.8%. Selling expenses as a
percentage of revenue were 9.9% and 8.2% for the three months ended March 31,
1997 and 1996, respectively. The increase in selling expenses as a percentage of
revenue is primarily due to financing incentives granted to homebuyers and the
low level of closing revenues.
Marketing expenses include advertising and promotion costs associated with
maintaining model homes and sales offices. Marketing expenses in any given
period may be significantly influenced by the number of grand openings and the
number of projects that are being actively marketed during the period. Marketing
costs associated with items such as establishing sales offices and upgrading
standard homes to model homes are capitalized when incurred and are expensed as
revenue is earned, while other marketing costs are expensed as incurred.
Marketing expenses were $317,000 and $379,000 for the quarters ended March 31,
1997 and 1996, respectively, representing a decrease of 16.4%. As a percentage
of revenue, marketing expenses were 9.3% and 10.4% for the three months ended
March 31, 1997 and 1996, respectively. The decrease in marketing costs is a
result of the continuation of cost reduction measures to further reduce
marketing expenses.
During the first quarter of 1997 and 1996, the Company was delivering homes from
seven and six projects, respectively. In the first quarter of 1997 and 1996 the
Company had no grand openings.
General and Administrative Expenses
General and administrative expenses include payroll and related benefits,
insurance, financial reporting costs and general office expenses.
10
<PAGE>
General and administrative expenses were $418,000 and $602,000 for the three
months ended March 31, 1997 and 1996, respectively, a decrease of 30.6%. As a
percentage of revenue, general and administrative expenses were 12.2% and 16.5%
for the three months ended March 31, 1997 and 1996, respectively. The decrease
in general and administrative expenses primarily reflects the Company's
continuing cost reduction measures.
Other Income
Other income includes interest earned on cash balances related to certain
projects and miscellaneous income. Other income was $6,000 and $30,000 for the
three months ended March 31, 1997 and 1996, respectively.
Minority Partners' Share
Minority partners' share represents the interest of affiliated limited partners
in partnerships consolidated in the Company's financial statements. These
partnerships are Palmdale Vistas, FERHP and Triumph.
The minority partners' share of losses was $46,000 and $0 for the three months
ended March 31, 1997 and 1996, respectively.
Provision (Benefit) for Income Taxes
Provision (benefit) for income taxes represents federal income taxes based on
net income (loss) computed at the effective federal tax rate plus state income
taxes computed at the effective tax rate, net of federal tax benefit, as
adjusted for regulations affecting net operating losses.
For the three months ended March 31, 1997 and 1996, the Company increased its
valuation allowance by $80,000 and $378,000, respectively, amounts equal to the
deferred tax benefit that would have otherwise been recorded. As of December 31,
1996, the Company had net operating loss carryforwards for federal income tax
purposes of $17.1 million that are available to offset future federal taxable
income. Of these federal net operating losses, $3.7 million, $5.0 million, and
$8.4 million expire in the years 2009, 2010 and 2011, respectively.
Statement of Financial Accounting Standards No. 109, ("SFAS 109"), "Accounting
for Income Taxes" requires, among other things, the recognition of deferred tax
assets for the estimated future tax effects attributable to net deductible
temporary differences and net operating loss carryforwards. SFAS 109 further
requires the reduction of deferred tax assets by a valuation allowance if, based
on the weight of available evidence, it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The future
realization of the deferred tax assets must be evaluated along with the
accumulated differences caused by other tax and book basis differences.
Uncertainties exist due to the reduced level of closings, revenues and earnings
resulting from the sale of the Company's Phoenix and Las Vegas divisions, the
need to raise capital for new land acquisitions and current business operations.
Accordingly, the Company has provided a cumulative $11.8 million valuation
allowance to reserve against the deferred tax asset as a result of these
uncertainties. At such time as it becomes more likely than not that portions of
the additional tax asset will be realized in the future, the valuation allowance
can be adjusted. The Company believes that during the time period in which the
deferred tax asset can be utilized it will generate sufficient income to realize
the net deferred tax asset. It is difficult to assess the ultimate timing of the
realization of the deferred tax asset. No assurances can be given regarding the
realization of the deferred tax asset or that the Company will not have to
record a further valuation allowance against future tax benefits.
BACKLOG
The Company's homes are offered for sale in advance of their construction.
Historically, the Company has entered into standard sales contracts for a
majority of the homes to be built in a phase of a project before construction
commences. Such sales contracts are usually subject to certain contingencies
such as the buyer's ability to qualify
11
<PAGE>
for financing and/or the sale of an existing home. Homes covered by such sales
contracts, as well as completed homes covered by such sales contracts, are
considered by the Company as its backlog. The Company does not recognize revenue
on homes covered by such contracts until the escrows are closed and title is
transferred. The following table sets forth the Company's backlog at the dates
indicated:
<TABLE>
<CAPTION>
March 31,
------------------------
1997 1996
---------- -----------
<S> <C> <C>
High Desert 41 52
Riverside County 30 38
---------- -----------
Number of Homes 71 90
========== ===========
Aggregate Sales Value $9,077,000 $11,924,000
========== ===========
Average Sales Price $ 127,800 $ 132,500
========== ===========
</TABLE>
The Company's backlog at any particular date is subject to substantial variation
and is dependent upon several factors including the number of homes then
available for sale, prevailing market conditions and the length of time
necessary to complete the closing of home sales subject to pending contracts.
The Company has generally experienced a rapid increase in backlog during periods
in which it holds a grand opening for one of its projects. In the first quarter
of 1997 and 1996 the Company had no grand openings.
The Company's backlog decreased 21.1% to 71 homes at March 31, 1997 from 90
homes at March 31, 1996. The aggregate sales value of the units in backlog
decreased by $2.8 million or 23.9%, due to the decrease in number of homes under
sales contracts. This decrease is due to slower than expected sales in two of
the Company's projects in the high desert. Also, delays in construction prior to
the Company's obtaining new financing for a project in Riverside County (see
Liquidity and Capital Resources) resulted in numerous cancellations of sales
contracts in the first quarter of 1997. Additionally, in the first quarter of
1997, the Company adopted more stringent prequalification requirements regarding
a buyer's ability to qualify for financing prior to entering into a sales
contract with a buyer. The average sales price of homes in backlog decreased by
$4,700 or 3.5% due to a change in the mix of homes offered for sale.
No assurances can be given that homes in backlog will result in actual closings
because cancellations vary from period to period. The Company believes that
cancellations have been relatively high in recent periods, reflecting the weak
economic conditions that have existed in the Southern California markets,
increased competition, higher interest rates and the inability of certain
potential homebuyers to qualify for mortgage financing.
NET ORDERS
Net orders represents the number of homes for which the Company has received
signed sales contracts and purchase deposits during the period, net of
cancellations. The following table sets forth the Company's net orders by region
for the dates indicated:
<TABLE>
<CAPTION>
For the Quarter Ended
March 31,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
High Desert 15 25
Riverside County 5 16
---------- ----------
Total 20 41
========== ==========
</TABLE>
Net new orders declined to 20 homes from 41 homes for the quarters ended March
31, 1997 and 1996, respectively, a decrease of 51.2%. The decrease in net orders
is attributable to slower than expected sales in two of the Company's projects
in the high desert. Also, delays in construction prior to the Company's
obtaining new financing for a project in Riverside County (see Liquidity and
Capital Resources) resulted in numerous cancellations of sales
12
<PAGE>
contracts in the first quarter of 1997. Additionally, in the first quarter of
1997, the Company adopted more stringent prequalification requirements regarding
a buyer's ability to qualify for financing prior to entering into a sales
contract with a buyer.
VARIABILITY IN QUARTERLY RESULTS
The Company has experienced, and expects to continue to experience, significant
variability in its operating results. This variability may cause the Company's
overall results of operations to fluctuate significantly on a period-to-period
basis, and revenues anticipated to occur in a fiscal period may not be earned
until subsequent fiscal periods. Many factors contribute to this variability,
including: (i) the timing and mix of home deliveries; (ii) the Company's ability
to continue to acquire additional land on favorable terms for future
developments; (iii) the condition of the real estate markets and the economy in
general; (iv) the cyclical nature of the home building industry and changes in
prevailing interest rates; (v) cost and availability of materials and labor; and
(vi) delays in construction schedules caused by timing of inspections and
approvals by regulatory agencies, strikes at subcontractors and adverse weather
conditions. The Company's historical financial results are not necessarily a
meaningful indicator of future results and, in general, the Company expects its
financial results to vary from project to project. The Company's revenue and net
income may also vary substantially as a result of variations in the number of
projects at which the Company is closing the sale of homes at any one time. In
addition, the 1995 sale of operations in Phoenix and Las Vegas has resulted in a
reduction in the level of closings and revenues, and has had an adverse effect
on earnings.
INFLATION
The Company, as well as the homebuilding industry in general, may be adversely
affected during periods of high inflation, primarily because of higher land
acquisition, land development, construction and interest costs. In addition,
higher interest rates may significantly affect the affordability of permanent
mortgage financing to prospective purchasers and the cost of financing the
Company's land acquisition, development of real estate and construction of
homes. The Company attempts to pass any increases in its costs due to inflation
to its buyers through increased selling prices of its homes. However, there is
no assurance that inflation will not have a material adverse impact on the
Company's future results of operations.
ADOPTION OF ACCOUNTING STANDARDS
There were no new accounting pronouncements that could have a significant effect
on the Company's financial statements for any period presented.
LIQUIDITY AND CAPITAL RESOURCES
The homebuilding industry is capital intensive and often involves high leverage
and significant up-front expenditures to acquire land and begin development.
Accordingly, the Company incurs substantial indebtedness to finance its
homebuilding activities and its business and earnings are substantially
dependent on its ability to obtain bank or other debt financing on acceptable
terms. The financial statements set forth herein have been prepared assuming the
Company will continue as a going concern. In addition, the Company's business
plan calls for substantial future expenditures relating to the acquisition and
construction of new projects. No assurances can be given that the anticipated
cash flows from operations and the Company's ability to borrow from various
lenders will be sufficient to fund most of its planned expenditures. The Company
currently is attempting to raise needed capital for both ongoing working capital
and the acquisition of land for future projects in Southern California. The
Company is in active discussions with certain capital sources and is optimistic
that it can successfully complete a transaction in 1997. However, no agreements
between the Company and these potential capital sources have been signed, and no
assurances can be given whether or when the Company will enter into a definitive
agreement with any source or, if entered into, what the precise terms of the
agreement will be.
If the Company is not successful in obtaining sufficient capital in 1997 to fund
its planned expenditures, some or all of its projects may be significantly
delayed or abandoned. Any such delay or abandonment could result in cost
increases and have a material adverse effect on the Company's business,
financial condition and results of
13
<PAGE>
operations. The Company is unable to predict whether it will be successful in
raising such capital, nor can any assurances be given that, if successful, the
capital will be raised on terms favorable to the Company. Accordingly, absent
raising capital, the Company's ability to continue its current level of business
operations and finance the acquisition of additional land for the delivery of
future homes will be greatly impaired. Additionally, as a result of the limited
amount of available working capital, the Company has not paid all of its
subcontractors and suppliers on a current basis. Numerous subcontractors and
suppliers have filed liens, and some are pursuing further legal action,
including the filing of complaints. The Company has negotiated payment
arrangements, as appropriate, in an effort to settle these claims and release
the liens.
In April 1996, the Company entered into a letter of intent with an unaffiliated
privately held home builder primarily doing business in Southern California
relating to a potential combination of the Company and the home builder and
certain of the home builder's affiliates. After conducting due diligence
relating to the proposed combination, negotiations were mutually terminated.
Subsequently, at the request of the unaffiliated home builder, discussions have
resumed and are continuing. No assurances can be given whether the Company and
the home builder will enter into a definitive agreement, or if entered into,
what the precise terms of the transaction will be and whether any conditions to
the consummation of such a transaction will be satisfied.
Through March 31, 1997 Ira C. Norris provided the Company with various unsecured
loans net of paybacks totaling approximately $1.0 million for working capital
purposes. Subsequent to March 31, 1997, the Company received an additional
$540,000 from Mr. Norris. The Company has issued several notes to Mr. Norris
bearing interest at 10%, all of which mature either on June 30, 1997 or
September 30, 1997. All of these transactions were unanimously approved by the
disinterested members of the Company's board of directors.
In December 1996, the Company entered into a Common Stock Purchase Agreement
with a third party to sell 200,000 shares (restated for reverse stock split) of
the Company's Common Stock in a private transaction. The stock was issued in
January and February 1997 for a total purchase price of $750,000. The Company
also granted the third party the right to require the Company to register the
stock for public sale with the Securities and Exchange Commission. In December
1996, in consideration of a $50,000 payment, the third party was also given an
exclusive option to purchase approximately 71 acres of commercial property
located in one of the Company's high desert projects. Additionally, in December
1996, the Company issued a warrant to purchase 200,000 shares (restated for
reverse stock split) of Common Stock in a private transaction to an entity
related to this third party. The warrant was issued as compensation for all
services to be performed pursuant to a Consulting Agreement entered into in
December 1996. The Consulting Agreement is for a term of two years during which
the related entity, on a non-exclusive basis, shall seek out, investigate and
pursue residential development projects and present them to the Company for its
consideration and approval. The warrant may be exercised within eighteen months
of the date of the agreement at a price of $5.25 per share (restated for reverse
stock split). If at least half of the warrant shares are not exercised during
this period, then half of the warrant shares will expire, with the balance
exercisable over an additional eighteen month period at $9.75 per share
(restated for reverse stock split). The related entity may also convert the
warrant or any portion thereof into shares of Common Stock using a formula based
upon the fair market value of the Company's Common Stock on the conversion date.
One of the owners of this third party and the related third party is a partner
in FERHP.
In the first quarter of 1996, the Company entered into Common Stock purchase
agreements for 90,878 shares (restated for reverse stock split) of Common Stock
with certain subcontractors, suppliers and other creditors, including a director
and former directors of the Company. These shares were issued in exchange for
relieving the Company of debt owed to the respective creditors in the aggregate
amount of $539,000. In March 1996, the Company filed a Registration Statement on
Form S-3 in accordance with the terms of the Common Stock purchase agreement
that granted registration rights to these stockholders. The Registration
Statement was declared effective by the Securities and Exchange Commission in
April 1996. None of the proceeds from the sale of the shares by the selling
stockholders under that Registration Statement will be received by the Company.
The Company agreed to bear all expenses (other than underwriting discounts and
commissions) in connection with the registration.
The Company has historically financed its operations from a combination of
limited partner capital contributions, cash generated from operations, land
seller financing and borrowings from various banking institutions. In addition,
the
14
<PAGE>
Company completed its initial Public Offering in April 1993, which resulted in
net proceeds to the Company of $17.1 million.
In February 1997, the Company entered into a loan agreement with a third party
lender/investor that provided $2.0 million for one of the Company's Riverside
County projects. Funds were utilized to payoff a portion of defaulted loans of
the project (see below), to pay other expenses and to provide an interest
reserve. The loan bears interest at 20.25% and the Company was also charged
additional fees, some of which where paid from loan proceeds and some that will
be paid as homes in this project are completed and close escrow. In April 1997,
this third party provided $1.0 million under similar terms in order for the
Company to purchase the land for a new project in Fontana, California.
Additionally, the Company has received a proposal from this third party to
provide financing to payoff defaulted loans at another of the Company's projects
(see below). The Company expects that these financing arrangements will be no
more costly than the participating note agreements described herein that the
Company has used to finance other projects in which the holders of the notes are
paid up to 50% of the net income of certain of the Company's projects.
In 1996, the Company formed FERHP, Triumph and Spirit 77 limited partnerships
and entered into participating note agreements with ALG and HRIP, providing
total capital of approximately $4.0 million. These partnerships and
participating note agreements typically fund a portion of the land acquisition,
model complex development costs and initial marketing expenditures of specific
projects. Thomas E. Gibbs, Jr., a member of the Company's Board of Directors,
holds partnership interests in each of Triumph, ALG and HRIP. Also, one of the
owners of two entities which own approximately 12.2% of the Company's
outstanding Common Stock and a warrant to acquire approximately an additional
10.9%, respectively, is a partner of FERHP.
The Company often acquires land with an initial down payment, with the balance
financed by seller non-recourse notes. The notes typically include partial
reconveyance provisions, that allow the Company to obtain the necessary
development financing on a phased basis. The Company also occasionally uses
options to acquire property. At March 31, 1997 and December 31, 1996, the
Company had outstanding land seller indebtedness of $0.8 million and $1.8
million, respectively.
The Company concluded in 1995 and 1994 that certain seller-financed parcels were
no longer economically viable based on current financing terms. Accordingly,
several measures were initiated, including requests that certain sellers
substantially restructure the terms of their debt (including extending the
maturity date, reducing or eliminating payment and accrual of interest and
deferring principal payments). The Company also identified certain properties
that should be deeded back to the sellers in full satisfaction of the remaining
debt outstanding. In 1995 the Company commenced negotiations with six land
sellers from whom the Company purchased land in the high desert. The Company
owned these properties subject to seller loans that had current or approaching
maturity dates. In this regard, the Company recorded a charge to operations in
1995 of $5.3 million. In 1996, the Company deeded property with a book value of
$2.1 million back to four of these land sellers in satisfaction of $2.1 million
in indebtedness. In March 1997, the Company deeded property with a book value of
$0.7 million back to one land seller in satisfaction of $0.7 million in
indebtedness. Continuing negotiations may result either in the extension of the
maturity date and/or other adjustments to the seller note, or deedback to the
seller of the one remaining property with a book value of $0.3 million in
satisfaction of $0.3 million in indebtedness outstanding at March 31, 1997.
During 1995 the Company also reduced the scope of one community in Riverside
County which resulted in the write-off in 1995 of approximately $300,000 of
previously capitalized costs associated with architectural development and
marketing activities. As of March 31, 1997, the Company was still in the process
of deeding back land to the seller from whom the Company purchased the property.
This will result in a reduction of real estate inventories of $0.4 million in
satisfaction of $0.4 million of indebtedness outstanding at March 31, 1997.
In 1994, the Company commenced the process of deeding property back to nine
other land sellers from whom the Company purchased land in the high desert. In
this regard, the Company recorded a charge to operations in 1994 of $4.1
million. Deed backs of real estate with a book value and related indebtedness of
$1.4 million and $1.5 million occurred in 1995 and 1996, respectively. In
January 1997, the Company deeded back land to the last of these nine land
15
<PAGE>
sellers that resulted in a reduction of real estate inventories of $0.3 million
in satisfaction of $0.3 million of indebtedness outstanding.
The Company typically obtains its infrastructure, development and construction
funding from commercial banks and other financing sources. Lenders generally
provided interim construction loans for each phase of homes within the project
for a term of up to 12 months, with extension provisions. The development loans
typically are repaid with proceeds from these interim construction loans.
Interest rates on these loans ranged from the prime rate plus 1.0% to a rate of
20.25%. The loan agreements include customary representations and covenants. All
outstanding indebtedness under these facilities is secured by a lien on the
project real property. At March 31, 1997, aggregate borrowings of approximately
$14.6 million were outstanding under these facilities and approximately $12.5
million was available for further qualified project finance borrowing. At March
31, 1997 some of these loans with a commercial bank were in default (see below).
The Company also has secured and unsecured revolving lines of credit with banks
as follows: (i) a $3.0 million line that bears annual interest at the prime rate
plus 1.0% that matures December 1999, and provides for quarterly principal
payments of $500 for each home closed commencing with the fourth quarter of
1995, as well as scheduled principal payments of $400,000, $500,000 and $600,000
in calendar years 1997, 1998 and 1999, respectively. In connection with the
extension and modification of this line of credit in June 1996, the Company
issued a warrant to the lender to purchase 41,667 shares (restated for reverse
stock split) of the Company's Common Stock at $6.00 per share (restated for
reverse stock split) that expires June 30, 2000; (ii) a $1.0 million line that
bears interest at the prime rate plus 1.0% that matures February 1998. At the
time a homebuyer enters into a sales contract with the Company, meets certain
loan prequalification requirements with a third party mortgage lender, and opens
an escrow, the bank advances funds to the Company under this line at an amount
equal to 60% of the net cash proceeds estimated by the Company that it would
receive at the close of the homebuyer's escrow. The escrow company repays the
lender directly from net proceeds when the escrow closes; and (iii) a $1.5
million line that bears interest at the prime rate plus 2.5% that matured March
1996, is now in default, and the Company is negotiating the terms of an
extension (see below). The net outstanding balance under these lines of credit
at March 31, 1997 was $4.8 million.
In December 1996, a commercial bank filed notices of default relating to matured
loans with principal balances totaling $2.8 million secured by one of the
Company's projects in Riverside County. In February 1997, the Company obtained
new financing that provided approximately $2.3 million to pay the loans in full
pursuant to a Discounted Loan Payoff Agreement. In January 1997, this same bank
filed separate notices of default relating to matured loans with principal
balances totaling $3.5 million secured by an estimated 1,140 lots and 71
commercially zoned acres of the Company's Eagle Ranch project in the high
desert. In April 1997, the Company closed escrow on approximately 22 acres of
land in this project that were sold to a school district. The bank received the
net proceeds from this sale of $452,000 and applied this amount toward payments
of its loans. Although the Company and the bank are continuing to negotiate the
terms of the payoff of the remaining loan amount, the bank has scheduled a
non-judicial sale of the balance of the property for May 22, 1997. The Company
has received a proposal from the third party lender/investor that provided the
majority of the new financing in the February 1997 transaction with the bank
described above. Subject to the final payoff amount being negotiated with the
bank, this third party may provide substantially all the funds necessary to pay
the loans in full. There can be no assurances that the Company will be
successful in its negotiations with the bank or that the bank will not proceed
with the non-judicial sale of the property or that if negotiations with the bank
are successful, that the transaction with the third party lender/investor will
be consummated. The final settlement could result in writedowns in 1997 in
amounts ranging from minimal to approximately $6.0 million.
At March 31, 1997, the Company was in compliance with all financial covenants
pursuant to a loan to Spirit 77. Based on the anticipated results of operations
for 1997, the Company may be in violation of certain financial covenants under
this loan agreement for future quarters. Although the Company believes that the
lender will agree to modify or waive these covenants, it is not certain that
such modifications or waivers will be obtained.
The Company is currently in default on the Purchase Agreement with Spirit 77
since the Company has not purchased all of the required minimum number of lots
from Spirit 77. The Company and Spirit 77 are currently negotiating a
modification to the Purchase Agreement. The Company is also in default on two
notes payable to Spirit 77 related to
16
<PAGE>
the purchase of lots in 1996. The Company and Spirit 77 are currently
negotiating extensions of the due dates of these notes.
The availability of borrowed funds for homebuilders, especially for land
acquisition and construction financing is variable, and at times has been
severely restricted and in some cases eliminated entirely. Currently such
financings are generally available, but lenders have been requiring borrowers to
invest increased amounts of equity in a project in connection with both new
loans and the extension of existing loans.
17
<PAGE>
INCO HOMES CORPORATION
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in routine litigation arising in the ordinary
course of business. Such matters, if decided adversely to the Company,
would not, in the opinion of management, have a material adverse
effect on the financial condition of the Company. In addition, from
time to time, the Company could be involved in litigation in
connection with claims of development or construction defects, which
matters, if decided adversely to the Company, could have a material
adverse effect on the financial condition of the Company.
In 1994, a former employee initiated litigation against the Company
for wrongful termination and other employment related claims. The
parties agreed to a final settlement of cash, restricted stock and
notes that were paid in full in April 1997, and the litigation was
dismissed.
In May 1994, the owners of 11 homes sold by the Company at its
201-home Northfork project located in Murrieta, California filed a
complaint against Inco Development Corporation, a wholly-owned
subsidiary of the Company ("Inco Development"), in the Superior Court
of California in Riverside County. In June 1994, the owners of six
additional homes filed a separate complaint. These two complaints were
consolidated into one action, and a trial has been scheduled for
October 20, 1997. Subsequent to the consolidation, one of the
homeowners dismissed the lawsuit due to the Company's repair of the
alleged defects. In August 1994, one additional homeowner filed a
complaint. In April 1997, the Company agreed to a settlement with this
homeowner. In October 1996, an additional eighteen homeowners filed a
separate complaint. This complaint was subsequently amended to include
an additional four homeowners. The Company is attempting to have this
complaint consolidated with the previously consolidated complaints.
The complaints each allege, among other things, negligence, nuisance,
strict liability, breach of warranty, negligent infliction of
emotional distress and fraud based on alleged design and construction
defects and inadequate soils conditions. The plaintiffs are seeking
general, special, and punitive damages in an unspecified amount, and
attorney fees. The causes of action for fraud were dismissed by the
court in 1994 with respect to the complaints filed in 1994, and
accordingly, there are no claims for punitive damages. The Company
believes that the claims made against it are without merit and intends
to continue to vigorously defend itself in this action. The Company
believes that this litigation will not have a material adverse effect
on the Company's business. Additionally, the Company believes it has
adequate insurance coverage to pay the majority of claims and the
costs related to these complaints, if any. However, as this litigation
is still in process, it is not possible to predict with certainty the
ultimate outcome and the impact on the Company, and therefore no
assurances can be given with respect thereto.
As a result of the limited amount of available working capital,
relationships with certain subcontractors have weakened due to the
Company's inability to pay all of its subcontractors and their
suppliers on a current basis. Numerous subcontractors and suppliers
have filed liens, and some are pursuing further legal action,
including the filing of complaints. The Company has negotiated payment
arrangements, as appropriate, in an effort to settle these claims and
release the liens. The Company does not believe that any of these
claims, in the aggregate, will have a material adverse financial
effect on the Company's business. However, if the Company continues to
have disputes with its subcontractors and suppliers, in the future it
may be difficult for the Company to attract and retain qualified
subcontractors and suppliers who are willing to work with the Company
and the Company's business could be adversely affected.
18
<PAGE>
ITEM 2. RECENT SALES OF UNREGISTERED SECURITIES
In December 1996, the Company entered into a Common Stock Purchase
Agreement with a third party to sell 200,000 shares (restated for
reverse stock split) of the Company's Common Stock in a private
transaction. The stock was issued in January and February 1997 for a
total purchase price of $750,000. The Company also granted the third
party the right to require the Company to register the stock for
public sale with the Securities and Exchange Commission. In December
1996, in consideration of a $50,000 payment, the third party was also
given an exclusive option to purchase approximately 71 acres of
commercial property located in one of the Company's high desert
projects. Additionally, in December 1996, the Company issued a warrant
to purchase 200,000 shares (restated for reverse stock split) of
Common Stock in a private transaction to an entity related to this
third party. The warrant was issued as compensation for all services
to be performed pursuant to a Consulting Agreement entered into in
December 1996. The Consulting Agreement is for a term of two years
during which the related entity, on a non-exclusive basis, shall seek
out, investigate and pursue residential development projects and
present them to the Company for its consideration and approval. The
warrant may be exercised within eighteen months of the date of the
agreement at a price of $5.25 per share (restated for reverse stock
split). If at least half of the warrant shares are not exercised
during this period, then half of the warrant shares will expire, with
the balance exercisable over an additional eighteen month period at
$9.75 per share (restated for reverse stock split). The related entity
may also convert the warrant or any portion thereof into shares of
Common Stock using a formula based upon the fair market value of the
Company's Common Stock on the conversion date. These transactions were
exempt pursuant to Rule 505 under Regulation D. One of the owners of
this third party and the related third party is a partner in FERHP.
ITEM 3. NOT APPLICABLE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
On December 16, 1996, a "Notice of Special Meeting of Stockholders To
Be Held on January 15, 1997" was sent to stockholders of record as of
December 11, 1996. At the special meeting, a majority of the
stockholders approved an amendment to the Company's Restated
Certificate of Incorporation to effect a reverse stock split of the
Company's Common Stock such that every six (6) shares of Common Stock
outstanding would be converted into one (1) share of Common Stock. The
number of shares of Common Stock issued and outstanding on December
11, 1996 was 1,437,096 (restated for reverse stock split). The number
of shares represented and voting in person or by proxy at the special
meeting was 1,127,885 (restated for reverse stock split). The number
of shares voted in favor of the amendment was 1,120,909 (restated for
reverse stock split), the number of shares voted against the amendment
was 6,128 (restated for reverse stock split), and the number of
abstentions was 848 (restated for reverse stock split). The amendment
became effective January 16, 1997.
ITEM 5. NOT APPLICABLE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) Exhibits.
<C> <S>
10.1 Business Loan Agreement by and between Desert Community Bank, a California Corporation, and Inco
Homes Corporation, a Delaware Corporation, dated February 10, 1997.
10.2 Promissory Note by and between Desert Community Bank, a California Corporation, and Inco Homes
Corporation, a Delaware Corporation, dated February 10, 1997.
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
<C> <S>
10.3 Loan Agreement by and between USA Commercial Mortgage Company, Inc., a Nevada Corporation,
et al., and Inco Homes Corporation, a Delaware Corporation, dated February 10, 1997.
10.4 Promissory Note Secured by Deed of Trust by and between USA Commercial Mortgage Company, Inc., a
Nevada Corporation, et al., and Inco Homes Corporation, a Delaware Corporation, dated
February 11, 1997.
10.5 Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing by and between USA Commercial
Mortgage Company, Inc., a Nevada Corporation, et al., and Inco Homes Corporation, a Delaware
Corporation, dated February 10, 1997.
10.6 Placement Agreement by and between USA Commercial Mortgage Company, Inc., a Nevada Corporation and
Inco Homes Corporation, a Delaware Corporation, dated February 10, 1997.
10.7 Promissory Note by and between USA Commercial Mortgage Company, Inc., a Nevada Corporation and Inco
Homes Corporation, a Delaware Corporation, dated February 10, 1997.
27.1 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K. There were no reports on Form 8-K for
the three months ended March 31, 1997.
20
<PAGE>
INCO HOMES CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INCO HOMES CORPORATION
Date: May 20, 1997 By: /s/ IRA C. NORRIS
--------------------------------
IRA C. NORRIS
Chairman of the Board, President
and Chief Executive Officer
Date: May 20, 1997 By: /s/ NORMAN B. GOLD
--------------------------------
NORMAN B. GOLD
Vice President and
Chief Financial Officer
21
<PAGE>
EXHIBIT 10.1
BUSINESS LOAN AGREEMENT
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$1,000,000 02-10-1997 02-15-1998 0175734250 15 12 017573442 103
- ------------------------------------------------------------------------------------------------
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
BORROWER: Inco Homes Corporation LENDER: Desert Community Bank, a California Corporation
1282 W. Arrow Highway, P.O. Box 970 Main Office
Upland, CA 91785 12530 Hesperia Road
Post Office Box 1346
Victorville, CA 92382
</TABLE>
================================================================================
THIS BUSINESS LOAN AGREEMENT BETWEEN INCO HOMES CORPORATION ("BORROWER") AND
DESERT COMMUNITY BANK, A CALIFORNIA CORPORATION ("LENDER") IS MADE AND EXECUTED
ON THE FOLLOWING TERMS AND CONDITIONS. BORROWER HAS RECEIVED PRIOR COMMERCIAL
LOANS FROM LENDER OR HAS APPLIED TO LENDER FOR A COMMERCIAL LOAN OR LOANS AND
OTHER FINANCIAL ACCOMMODATIONS, INCLUDING THOSE WHICH MAY BE DESCRIBED ON ANY
EXHIBIT OR SCHEDULE ATTACHED TO THIS AGREEMENT. ALL SUCH LOANS AND FINANCIAL
ACCOMMODATIONS, TOGETHER WITH ALL FUTURE LOANS AND FINANCIAL ACCOMMODATIONS FROM
LENDER TO BORROWER, ARE REFERRED TO IN THIS AGREEMENT INDIVIDUALLY AS THE "LOAN"
AND COLLECTIVELY AS THE "LOANS." BORROWER UNDERSTANDS AND AGREES THAT: (A) IN
GRANTING, RENEWING, OR EXTENDING ANY LOAN, LENDER IS RELYING UPON BORROWER'S
REPRESENTATIONS, WARRANTIES, AND AGREEMENTS, AS SET FORTH IN THIS AGREEMENT; (B)
THE GRANTING, RENEWING, OR EXTENDING OF ANY LOAN BY LENDER AT ALL TIMES SHALL BE
SUBJECT TO LENDER'S SOLE JUDGMENT AND DISCRETION; AND (C) ALL SUCH LOANS SHALL
BE AND SHALL REMAIN SUBJECT TO THE FOLLOWING TERMS AND CONDITIONS OF THIS
AGREEMENT.
TERM. This agreement shall be effective as of FEBRUARY 4, 1997, and shall
continue thereafter until all indebtedness of Borrower to Lender has been
performed in full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.
AGREEMENT. The word "Agreement" means this Business Loan Agreement, as this
Business Loan Agreement may be amended or modified from time to time,
together with all exhibits and schedules attached to this Business Loan
Agreement from time to time.
BORROWER. The word "Borrower" means Inco Home Corporation. The word
"Borrower" also includes, as applicable, all subsidiaries and affiliates of
Borrower as provided below in the paragraph titled "Subsidiaries and
Affiliates."
CERCLA. The word "CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended.
COLLATERAL. The word "Collateral" means and includes without limitation all
property and assets granted as collateral security for a Loan, whether real
or personal property, whether granted directly or indirectly, whether granted
now or in the future, and whether granted in the form of a security interest,
mortgage, deed of trust, assignment, pledge, chattel mortgage, chattel trust,
factor's lien, equipment trust, conditional sale, trust receipt, lien,
charge, lien or title retention contract, lease or consignment intended as a
security device, or any other security or lien interest whatsoever, whether
created by law, contract, or otherwise.
ERISA. The word "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section titled
"EVENTS OF DEFAULT."
GRANTOR. The word "Grantor" means and includes without limitation each and
all of the persons or entities granting a Security Interest in any Collateral
for the Indebtedness, including without limitation all Borrowers granting
such a Security Interest.
GUARANTOR. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in connection
with any Indebtedness.
INDEBTEDNESS. The word "Indebtedness" means and includes without limitation
all Loans, together with all other obligations, debts and liabilities of
Borrower to Lender, or any one or more of them, as well as all claims by
Lender against Borrower, or any one or more of them; whether now or hereafter
existing, voluntary or involuntary, due or not due, absolute or contingent,
liquidated or unliquidated; whether Borrower may be liable individually or
jointly with others; whether Borrower may be obligated as a guarantor,
surety, or otherwise; whether recovery upon such Indebtedness may be or
hereafter may become barred by any statute of limitations; and whether such
Indebtedness may be or hereafter may become otherwise unenforceable.
LENDER. The word "Lender" means Desert Community Bank, a California
Corporation, its successors and assigns.
LOAN. The word "Loan" or "Loans" means and includes without limitation any
and all commercial loans and financial accommodations from Lender to
Borrower, whether now or hereafter existing, and however evidenced, including
without limitation those loans and financial accommodations described herein
or described on any exhibit or schedule attached to this Agreement from time
to time.
NOTE. The word "Note" means and includes without limitation Borrower's
promissory note or notes, if any, evidencing Borrower's Loan obligations in
favor of Lender, as well as any substitute, replacement or refinancing note
or notes therefor.
PERMITTED LIENS. The words "Permitted Liens" mean: (a) lien and security
interests securing Indebtedness owed by Borrower to Lender; (b) liens for
taxes, assessments, or similar charges either not yet due or being contested
in good faith; (c) liens of materialmen, mechanics, warehousemen, or
carriers, or other like liens arising in the ordinary course of business and
securing obligations which are not yet delinquent; (d) purchase money liens
or purchase money security interests upon or in any property acquired or held
by Borrower in the ordinary course of business to secure indebtedness
outstanding on the date of this Agreement or permitted to be incurred under
the paragraph of this Agreement titled "Indebtedness and Liens"; (e) liens
and security interests which, as of the date of this Agreement, have been
disclosed to and approved by the Lender in writing; and (f) those liens and
security interests which in the aggregate constitute an immaterial and
insignificant monetary amount with respect to the net value of Borrower's
assets.
RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now or
hereafter existing, executed in connection with the Indebtedness.
SECURITY AGREEMENT. The words "Security Agreement" mean and include without
limitation any agreements, promises, covenants, arrangements, understandings
or other agreements, whether created by law, contract, or otherwise,
evidencing, governing, representing, or creating a Security Interest.
SECURITY INTEREST. The words "Security Interest" mean and include without
limitation any type of collateral security, whether in the form of a lien,
charge, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien or title retention contract, lease or consignment intended as a
security device, or any other security or lien interest whatsoever, whether
created by law, contract, or otherwise.
SARA. The word "SARA" means the Superfund Amendments and Reauthorization Act
of 1986 as now or hereafter amended.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial
Loan Advance and each subsequent Loan Advance under this Agreement shall be
subject to the fulfillment to Lender's satisfaction of all of the conditions set
forth in this Agreement and in the Related Documents.
LOAN DOCUMENTS. Borrower shall provide to Lender in form satisfactory to
Lender the following documents for the Loan: (a) the Note, (b) Security
Agreements granting to Lender security interests in the Collateral, (c)
Financing Statements perfecting Lender's Security Interests; (d) evidence of
insurance as required below; and (e) any other documents required under this
Agreement or by Lender or its counsel.
BORROWER'S AUTHORIZATION. Borrower shall have provided in form and substance
satisfactory to Lender properly certified resolutions, duly authorizing the
execution and delivery of this Agreement, the Note and the Related Documents,
and such other authorizations and other documents and instruments as Lender
or its counsel, in their sole discretion, may require.
PAYMENT OF FEES AND EXPENSES. Borrower shall have paid to Lender all fees,
charges, and other expenses which are then due and payable as specified in
this Agreement or any Related Document.
REPRESENTATIONS AND WARRANTIES. The representations and warranties set forth
in this Agreement, in the Related Documents, and in any document or
certificate delivered to Lender under this Agreement are true and correct.
NO EVENT OF DEFAULT. There shall not exist at the time of any advance a
condition which would constitute an Event of Default under this Agreement.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any Indebtedness exists:
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02-10-1997 BUSINESS LOAN AGREEMENT Page 2
Loan No 0175734250 (Continued)
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ORGANIZATION. Borrower is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State of Delaware and is
validly existing and in good standing in all states in which Borrower is
doing business. Borrower has the full power and authority to own its
properties and to transact the businesses in which it presently proposes to
engage. Borrower also is duly qualified as a foreign corporation and is in
good standing in all states in which the failure to so qualify would have a
material adverse effect on its businesses or financial condition.
AUTHORIZATION. The execution, delivery, and performance of this Agreement and
all Related Documents by Borrower, to the extent to be executed, delivered or
performed by Borrower, have been duly authorized by all necessary action by
Borrower; do not require the consent or approval of any other person,
regulatory authority or governmental body; and do not conflict with, result
in a violation of, or constitute a default under (a) any provision of its
articles of incorporation or organization, or bylaws, or any agreement or
other instrument binding upon Borrower or (b) any law, governmental
regulation, court decree, or order applicable to Borrower.
FINANCIAL INFORMATION. Each financial statement of Borrower supplied to
Lender truly and completely disclosed Borrower's financial condition as of
the date of the statement, and there has been no material adverse change in
Borrower's financial condition subsequent to the date of the most recent
financial statement supplied to Lender. Borrower has no material contingent
obligations except as disclosed in such financial statements.
LEGAL EFFECT. This Agreement constitutes, and any instrument or agreement
required hereunder to be given by Borrower when delivered will constitute,
legal, valid and binding obligations of Borrower enforceable against
Borrower in accordance with their respective terms.
PROPERTIES. Except as contemplated by this Agreement or as previously
disclosed in Borrower's financial statements or in writing to Lender and as
accepted by Lender, and except for property tax liens for taxes not presently
due and payable, Borrower owns and has good title to all of Borrower's
properties free and clear of all Security Interests, and has not executed any
security documents or financing statements relating to such properties. All
of Borrower's properties are titled in Borrower's legal name, and Borrower
has not used, or filed a financing statement under, any other name for at
least the last five (5) years.
HAZARDOUS SUBSTANCES. The terms "hazardous waste," "hazardous substance,"
"disposal," "release," and "threatened release," as used in this Agreement,
shall have the same meanings as set forth in the "CERCLA," "SARA," the
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the
Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq.,
Chapters 6.5 through 7.7 of Division 20 of the California Health and Safety
Code, Section 25100, et seq., or other applicable state or Federal laws,
rules, or regulations adopted pursuant to any of the foregoing. Except as
disclosed to and acknowledged by Lender in writing, Borrower represents and
warrants that: (a) During the period of Borrower's ownership of the
properties, there has been no use, generation, manufacture, storage,
treatment, disposal, release or threatened release of any hazardous waste or
substance by any person on, under, about or from any of the properties. (b)
Borrower has no knowledge of, or reason to believe that there has been (i)
any use, generation, manufacture, storage, treatment, disposal, release, or
threatened release of any hazardous waste or substance on, under, about or
from the properties by an prior owners or occupants of any of the properties,
or (ii) any actual or threatened litigation or claims of any kind by any
person relating to such matters. (c) Neither Borrower nor any tenant,
contractor, agent or other authorized user of any of the properties shall
use, generate, manufacture, store, treat, dispose of, or release any
hazardous waste or substance on, under, about or from any of the properties;
and any such activity shall be conducted in compliance with all applicable
federal, state, and local laws, regulations, and ordinances, including
without limitation those laws, regulations and ordinances described above.
Borrower authorizes Lender and its agents to enter upon the properties to
make such inspections and tests as Lender shall be at Borrower's expense and
for Lender's purposes only and shall not be construed to create any
responsibility or liability on the part of Lender to Borrower or to any other
person. The representations and warranties contained herein are based on
Borrower's due diligence in investigating the properties for hazardous waste
and hazardous substances. Borrower hereby (a) releases and waives any future
claims against Lender for indemnity or contribution in the event Borrower
becomes liable for cleanup or other costs under any such laws, and (b) agrees
to indemnify and hold harmless Lender against any and all claims, losses,
liabilities, damages, penalties, and expenses which Lender may directly or
indirectly sustain or suffer resulting from a breach of this section of the
Agreement or as a consequence of any use, generation, manufacture, storage,
disposal, release or threatened release occurring prior to Borrower's
ownership or interest in the properties, whether or not the same was or
should have been known to Borrower. The provisions of this section of the
Agreement, including the obligation to indemnify, shall survive the payment
of the Indebtedness and the termination or expiration of this Agreement and
shall not be affected by Lender's acquisition of any interest in any of the
properties, whether by foreclosure or expiration of this Agreement and shall
not be affected by Lender's acquisition of any interest in any of the
properties, whether by foreclosure or otherwise.
LITIGATION AND CLAIMS. No litigation, claim, investigation, administrative
proceeding or similar action (including those for unpaid taxes) against
Borrower is pending or threatened, and no other event has occurred which may
materially adversely affect Borrower's financial condition or properties,
other than litigation, claims, or other events, if any, that have been
disclosed to and acknowledged by Lender in writing.
TAXES. To the best of Borrower's knowledge, all tax returns and reports of
Borrower that are or were required to be filed, have been filed, and all
taxes, assessments and other governmental charges have been paid in full,
except those presently being or to be contested by Borrower in good faith in
the ordinary course of business and for which adequate reserves have been
provided.
LIEN PRIORITY. Unless otherwise previously disclosed to Lender in writing,
Borrower has not entered into or granted any Security Agreements, or
permitted the filing or attachment of any Security Interests on or affecting
any of the Collateral directly or indirectly securing repayment of Borrower's
Loan and Note, that would be prior or that may in any way be superior to
Lender's Security Interests and rights in and to such collateral.
BINDING EFFECT. This Agreement, the Note, all Security Agreements directly or
indirectly securing repayment of Borrower's Loan and Note and all of the
Related Documents are binding upon Borrower as well as upon Borrower's
successors, representatives and assigns, and are legally enforceable in
accordance with the respective terms.
COMMERCIAL PURPOSES. Borrower intends to use the Loan proceeds solely for
business or commercial related purposes.
EMPLOYEE BENEFIT PLANS. Each employee benefit plan as to which Borrower
may have any liability complies in all material respects with all applicable
requirements of law and regulations, and (i) no Reportable Event nor
Prohibited Transaction (as defined in ERISA) has occurred with respect to any
such plan, (ii) Borrower has not withdrawn from any such plan or initiated
steps to do so, (iii) no steps have been taken to terminate any such plan,
and (iv) there are no unfunded liabilities other than those previously
disclosed to Lender in writing.
LOCATION OF BORROWER'S OFFICES AND RECORDS. Borrower's place of business, or
Borrower's Chief executive office, if Borrower has more than one place of
business, is located at 1282 W. Arrow Highway, P.O. Box 970, Upland, CA
91785. Unless Borrower has designated otherwise in writing this location is
also the office or offices where Borrower keeps its records concerning the
Collateral.
INFORMATION. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection with
this Agreement or any transaction contemplated hereby is, and all information
hereafter furnished by or on behalf of Borrower to Lender will be, true and
accurate in every material respect on the date as of which such information
is dated or certified; and none of such information is or will be incomplete
by omitting to state any material fact necessary to make such information not
misleading.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Borrower understands and agrees
that Lender, without independent investigation, is relying upon the above
representations and warranties in extending Loan Advances to Borrower.
Borrower further agrees that the foregoing representations and warranties
shall be continuing in nature and shall remain in full force and effect
until such time as Borrower's Indebtedness shall be paid in full, or until
this Agreement shall be terminated in the manner provided above, whichever is
the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
LITIGATION. Promptly inform Lender in writing of (a) all material adverse
changes in Borrower's financial condition, and (b) all existing and all
threatened litigation, claims, investigations, administrative proceedings or
similar actions affecting Borrower or any Guarantor which could materially
affect the financial condition of Borrower or the financial condition of any
Guarantor.
FINANCIAL RECORDS. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent basis, and
permit Lender to examine and audit Borrower's books and records at all
reasonable times.
FINANCIAL STATEMENTS. Furnish Lender with, as soon as available, but in no
event later than ninety (90) days after the end of each fiscal year,
Borrower's balance sheet and income statement for the year ended, audited by
a certified public accountant satisfactory to Lender, and, as soon as
available, but in no event later than sixty (60) days after the end of each
fiscal quarter, Borrower's balance sheet and profit and loss statement for
the period ended, prepared and certified as correct to the best knowledge and
belief by Borrower's chief financial officer or other officer or person
acceptable to Lender. All financial reports required to be provided under
this Agreement shall be prepared in accordance with generally accepted
accounting principles, applied on a consistent basis, and certified by
Borrower as being true and correct.
ADDITIONAL INFORMATION. Furnish such additional information and statements,
lists of assets and liability, agings to receivables and payables, inventory
schedules, budgets, forecasts, tax returns and other reports with respect to
Borrower's financial condition and business operations as Lender may request
from time to time.
INSURANCE. Maintain fire and other risk insurance, public liability insurance
and such other insurance as Lender may require with respect to Borrower's
properties and operations, in form, amounts, coverages and with insurance
companies reasonably acceptable to Lender. Borrower, upon request of Lender,
will deliver to Lender from time to time the policies or certificates of
insurance in form satisfactory to Lender, including stipulations that
coverages will not be cancelled or diminished without at least ten (10) days'
prior written notice to Lender. Each insurance policy
<PAGE>
02-10-1997 BUSINESS LOAN AGREEMENT PAGE 3
LOAN NO. 0175734250 (Continued)
================================================================================
also shall include an endorsement providing that coverage in favor of Lender
will not be impaired in any way by any act, omission or default of Borrower
or any other person. In connection with all policies covering assets in which
Lender holds or is offered a security interest for the Loans, Borrower will
provide Lender with such loss payable or other endorsements as Lender may
require.
INSURANCE REPORTS. Furnish to Lender, upon request of Lender, reports on each
existing insurance policy showing such information as Lender may reasonably
request, including without limitation the following: (a) the name of the
insurer; (b) the risks insured; (c) the amount of the policy; (d) the
properties insured; (e) the then current property values on the basis of
which insurance has been obtained, and the manner of determining those
values; and (f) the expiration date of the policy. In addition, upon request
of Lender (however not more often than annually), Borrower will have an
independent appraiser satisfactory to Lender determine, as applicable, the
actual cash value or replacement cost of any Collateral. The cost of such
appraisal shall be paid by Borrower.
OTHER AGREEMENTS. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and any other
party and notify Lender immediately in writing of any default in connection
with any other such agreements.
LOAN PROCEEDS. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in
writing.
TAXES, CHARGES AND LIENS. Pay and discharge when due all of its indebtedness
and obligations, including without limitation all assessments, taxes,
governmental charges, levies and liens, of every kind and nature, imposed
upon Borrower or its properties, income, or profits, prior to the date on
which penalties would attach, and all lawful claims that, if unpaid, might
become a lien or charge upon any of Borrower's properties, income, or
profits. Provided however, Borrower will not be required to pay and
discharge any such assessment, tax, charge, levy, lien or claim so long as
(a) the legality of the same shall be contested in good faith by appropriate
proceedings, and (b) Borrower shall have established on its books adequate
reserves with respect to such contested assessment, tax, charge, levy, lien,
or claim in accordance with generally accepted accounting practices.
Borrower, upon demand of Lender, will furnish to Lender evidence of payment
of the assessments, taxes, charges, levies, liens and claims and will
authorize the appropriate governmental official to deliver to Lender at any
time a written statement of any assessments, taxes, charges, levies, liens
and claims against Borrower's properties, income, or profits.
PERFORMANCE. Perform and comply with all terms, conditions, and
provisions set forth in this Agreement and in the Related Documents in a
timely manner, and promptly notify Lender if Borrower learns of the
occurrence of any event which constitutes an Event of Default under this
Agreement or under any of the Related Documents.
OPERATIONS. Maintain executive and management personnel with substantially
the same qualifications and experience as the present executive and
management personnel; provide written notice to Lender of any change in
executive and management personnel; conduct its business affairs in a
reasonable and prudent manner and in compliance with all applicable federal,
state and municipal laws, ordinances, rules and regulations respecting its
properties, charters, businesses and operations, including without
limitation, compliance with the Americans With Disabilities Act and with all
minimum funding standards and other requirements of ERISA and other laws
applicable to Borrower's employee benefit plans.
INSPECTION. Permit employees or agents of Lender at any reasonable time to
inspect any and all Collateral for the Loan or Loans and Borrower's other
properties and to examine or audit Borrower's books, accounts, and records
and to make copies and memoranda of Borrower's books, accounts, and records.
If Borrower now or at any time hereafter maintains any records (including
without limitation computer generated records and computer software programs
for the generation of such records) in the possession of a third party,
Borrower, upon request of Lender, shall notify such party to permit Lender
free access to such records at all reasonable times and to provide Lender
with copies of any records it may request, all at Borrower's expense.
COMPLIANCE CERTIFICATE. Unless waived in writing by Lender, provide Lender at
least annually and at the time of each disbursement of Loan proceeds with a
certificate executed by Borrower's chief financial officer, or other officer
or person acceptable to Lender, certifying that the representations and
warranties set forth in this Agreement are true and correct as of the date of
the certificate and further certifying that, as of the date of the
certificate, no Event of Default exists under this Agreement.
ENVIRONMENTAL COMPLIANCE AND REPORTS. Borrower shall comply in all respects
with all environmental protection federal, state and local laws, statutes,
regulations and ordinances; not cause or permit to exist, as a result of an
intentional or unintentional action or omission on its part or on the part of
any third party, on property owned and/or occupied by Borrower, any
environmental activity where damage may result to the environment, unless
such environmental activity is pursuant to and in compliance with the
conditions of a permit issued by the appropriate federal, state or local
governmental authorities; shall furnish to Lender promptly and in any event
within thirty (30) days after receipt thereof a copy of any notice, summons,
lien, citation, directive, letter or other communication from any
governmental agency or instrumentality concerning any intentional or
unintentional action or omission on Borrower's part in connection with any
environmental activity whether or not there is damage to the environment
and/or other natural resources.
ADDITIONAL ASSURANCES. Make, execute and deliver to Lender such promissory
notes, mortgages, deeds of trust, security agreements, financing statements,
instruments, documents and other agreements as Lender or its attorneys may
reasonably request to evidence and secure the Loans and to perfect all
Security Interests.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:
INDEBTEDNESS AND LIENS. (a) Except for trade debt incurred in the normal
course of business and indebtedness to Lender contemplated by this Agreement,
create, incur or assume indebtedness for borrowed money, including capital
leases, (b) except as allowed as a Permitted Lien, sell, transfer, mortgage,
assign, pledge, lease, grant a security interest in, or encumber any of
Borrower's assets, or (c) sell with recourse any of Borrower's accounts,
except to Lender.
CONTINUITY OF OPERATIONS. (a) Engage in any business activities substantially
different than those in which Borrower is presently engaged, (b) cease
operations, liquidate, merge, transfer, acquire or consolidate with any other
entity, change ownership, change its name, dissolve or transfer or sell
Collateral out of the ordinary course of business, (c) pay any dividends on
Borrower's stock (other than dividends payable in its stock), provided,
however that notwithstanding the foregoing, but only so long as no Event of
Default has occurred and is continuing or would result from the payment of
dividends, if Borrower is a "Subchapter S Corporation" (as defined in the
Internal Revenue Code of 1986, as amended), Borrower may pay cash dividends
on its stock to its shareholders from time to time in amounts necessary to
enable the shareholders to pay income taxes and make estimated income tax
payments to satisfy their liabilities under federal and state law which arise
solely from their status as Shareholders of a Subchapter S Corporation
because of their ownership of shares of stock of Borrower, or (d) purchase or
retire any of Borrower's outstanding shares or alter or amend Borrower's
capital structure.
LOANS, ACQUISITIONS AND GUARANTIES. (a) Loan, invest in or advance money or
assets, (b) purchase, create or acquire any interest in any other enterprise
or entity, or (c) incur any obligation as surety or guarantor other than in
the ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if:
(a) Borrower or any Guarantor is in default under the terms of this Agreement or
any of the Related Documents or any other agreement that Borrower or any
Guarantor has with Lender; (b) Borrower or any Guarantor becomes insolvent,
files a petition in bankruptcy or similar proceedings, or is adjudged a
bankrupt; (c) there occurs a material adverse change in Borrower's financial
condition, in the financial condition of any Guarantor, or in the value of any
Collateral securing any Loan; or (d) any Guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any
other loan with Lender.
REVOLVING LINE OF CREDIT ADDITIONAL PROVISIONS. Funds on the Revolving Line of
Credit will be advanced based on a 60% advance rate of qualified escrows.
Qualified escrows will be defined as those home buyers who have signed
appropriate documents (including a contract), put an initial cash deposit down,
and have obtained a Qualification Letter from a reputable lender. After the
lender has reviewed the buyer's credit report, and other financial information
to determine that the home buyer will reasonably qualify to purchase the home,
a copy of the Qualification Letter will be provided to the Bank. At least
monthly, and more frequently if requested, Inco will provide a current schedule
of open qualified escrows. The report will include the buyers name, the amount
of Inco's portion of the escrow, the date opened, escrow number, escrow company
(and phone number), and any other information the Bank may reasonably require to
monitor the status of the escrow. Escrows that are 45 days late in closing will
be eliminated from the qualified escrows list. Funds will be wired directly to
Desert Community Bank, from the escrow company, and applied to reduce the line
balance.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
DEFAULT ON INDEBTEDNESS. Failure of Borrower to make any payment when due on
the Loans.
OTHER DEFAULTS. Failure of Borrower or any Grantor to comply with or to
perform when due any other term, obligation, covenant or condition contained
in this Agreement or in any of the Related Documents, or failure of Borrower
to comply with or to perform any other term, obligation, covenant or
condition contained in any other agreement between Lender and Borrower.
DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any Grantor default
under any loan, extention of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or person
that may materially affect any of Borrower's property or Borrower's or any
Grantor's ability to repay the Loans or perform their respective obligations
under this Agreement or any of the Related Documents.
<PAGE>
02-10-1997 BUSINESS LOAN AGREEMENT Page 4
Loan No 0175734250 (Continued)
================================================================================
FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower or any Grantor under this
Agreement or the Related Documents is false or misleading in any material
respect at the time made or furnished, or becomes false or misleading at any
time thereafter.
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any Security
Agreement to create a valid and perfected Security Interest) at any time and
for any reason.
INSOLVENCY. The dissolution or termination of Borrower's existence as a
going business, the insolvency of Borrower, the appointment of a receiver
for any part of Borrower's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Borrower.
CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Borrower, any creditor
of any Grantor against any collateral securing the Indebtedness, or by any
governmental agency. This includes a garnishment, attachment, or levy on or
of any of Borrower's deposit accounts with Lender. However, this Event of
Default shall not apply if there is a good faith dispute by Borrower or
Grantor, as the case may be, as to the validity or reasonableness of the
claim which is the basis of the creditor or forfeiture proceeding, and if
Borrower or Grantor gives Lender written notice of the creditor or
forfeiture proceeding and furnishes reserves or a surety bond for the
creditor or forfeiture proceeding satisfactory to Lender.
EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with respect
to any Guarantor of any of the Indebtedness or any Guarantor dies or becomes
incompetent, or revokes or disputes the validity of, or liability under, any
Guaranty of the Indebtedness. Lender, at its option, may, but shall not be
required to, permit the Guarantor's estate to assume unconditionally the
obligations arising under the guaranty in a manner satisfactory to lender,
and, in doing so, cure the Event of Default.
CHANGE IN OWNERSHIP. Any change in ownership of twenty-five percent (25%) or
more of the common stock of Borrower.
ADVERSE CHANGE. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
RIGHT TO CURE. If any default, other than a Default on Indebtedness, is
curable and if Borrower or Grantor, as the case may be, has not been given a
notice of a similar default within the preceding twelve (12) months, it may
be cured (and no Event of Default will have occurred) if Borrower or
Grantor, as the case may be, after receiving written notice from Lender
demanding cure of such default; (a) cures the default within fifteen (15)
days; or (b) if the cure requires more than fifteen (15) days, immediately
initiates steps which Lender deems in Lender's sole discretion to be
sufficient to cure the default and thereafter continues and completes all
reasonable and necessary steps sufficient to produce compliance as soon as
reasonably practical.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except
where otherwise provided in this Agreement or the Related Documents, all
commitments and obligations of Lender under this Agreement or the Related
Documents or any other agreement immediately will terminate (including any
obligation to make Loan Advances or disbursements), and, at Lender's option, all
Indebtedness immediately will become due and payable, all without notice of any
kind to Borrower, except that in the case of an Event of Default of the type
described in the "Insolvency" subsection above, such acceleration shall be
automatic and not optional. In addition, Lender shall have all the rights and
remedies provided in the Related Documents or available at law, in equity, or
otherwise. Except as may be prohibited by applicable law, all of Lender's rights
and remedies shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude pursuit
of any other remedy, and an election to make expenditures or to take action to
perform an obligation of Borrower or of any Grantor shall not affect Lender's
right to declare a default and to exercise its rights and remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this agreement:
AMENDMENTS. This Agreement, together with any Related Documents, constitutes
the entire understanding and agreement of the parties as to the matters set
forth in this Agreement. No alteration of or amendment to this Agreement
shall be effective unless given in writing and signed by the party or
parties sought to be charged or bound by the alteration or amendment.
APPLICABLE LAW. THIS AGREEMENT HAS BEEN DELIVERED TO LENDER AND ACCEPTED BY
LENDER IN THE STATE OF CALIFORNIA. IF THERE IS A LAWSUIT, BORROWER AGREES
UPON LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION OF THE COURTS OF SAN
BERNARDINO COUNTY, THE STATE OF CALIFORNIA. LENDER AND BORROWER HEREBY WAIVE
THE RIGHT TO ANY JURY TRIAL IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM
BROUGHT BY EITHER LENDER OR BORROWER AGAINST THE OTHER. (INITIAL HERE
IN & NBG) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
--------
WITH THE LAWS OF THE STATE OF CALIFORNIA.
CAPITAL HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
MULTIPLE PARTIES; CORPORATE AUTHORITY. All obligations of Borrower under
this Agreement shall be joint and several, and all references to Borrower
shall mean each and every Borrower. This means that each of the persons
signing below is responsible for ALL obligations in this Agreement.
CONSENT TO LOAN PARTICIPATION. Borrower agrees and consents to Lender's sale
or transfer, whether now or later, of one or more participation interests in
the Loans to one or more purchasers, whether related or unrelated to Lender.
Lender may provide, without any limitation whatsoever, to any one or more
purchasers, or potential purchasers, any information or knowledge Lender may
have about Borrower or about any other matter relating to the Loan, and
Borrower hereby waives any rights to privacy it may have with respect to
such matters. Borrower additionally waives any and all notices of sale of
participation interests, as well as all notices of any repurchase of such
participation interests. Borrower also agrees that the purchasers of any
such participation interests will be considered as the absolute owners of
such interests in the Loans and will have all the rights granted under the
participation agreement or agreements governing the sale of such
participation interests. Borrower further waives all rights of offset or
counterclaim that it may have now or later against Lender or against any
purchaser of such a participation interest and unconditionally agrees that
either Lender or such purchaser may enforce Borrower's obligation under the
Loans irrespective of the failure or insolvency of any holder of any
interest in the Loans. Borrower further agrees that the purchaser of any
such participation interests may enforce its interests irrespective of any
personal claims or defenses that Borrower may have against Lender.
COSTS AND EXPENSES. Borrower agrees to pay upon demand all of Lender's
expenses, including without limitation attorneys' fees, incurred in
connection with the preparation, execution, enforcement, modification and
collection of this Agreement or in connection with the Loans made pursuant
to this Agreement. Lender may pay someone else to help collect the Loans and
to enforce this Agreement, and Borrower will pay that amount. This includes,
subject to any limits under applicable law, Lender's attorneys' fees and
Lender's legal expenses, whether or not there is a lawsuit, including
attorneys' fees for bankruptcy proceedings (including efforts to modify or
vacate any automatic stay or injunction), appeals, and any anticipated post-
judgment collection services. Borrower also will pay any court costs, in
addition to all other sums provided by law.
NOTICES. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile, and shall be effective when
actually delivered or when deposited with a nationally recognized overnight
courier or deposited in the United States mail, first class, postage
prepaid, addressed to the party to whom the notice is to be given at the
address shown above. Any party may change its address for notices under this
Agreement by giving formal written notice to the other parties, specifying
that the purpose of the notice is to change the party's address. To the
extent permitted by applicable law, if there is more than one Borrower,
notice to any Borrower will constitute notice to all Borrowers. For notice
purposes, Borrower will keep Lender informed at all times of Borrower's
current address(es).
SEVERABILITY. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of this
Agreement in all other respects shall remain valid and enforceable.
SUBSIDIARIES AND AFFILIATES OF BORROWER. To the extent the context of any
provisions of this Agreement makes it appropriate, including without
limitation any representation, warranty or covenant, the word "Borrower" as
used herein shall include all subsidiaries and affiliates of Borrower.
Notwithstanding the foregoing however, under no circumstances shall this
Agreement be construed to require Lender to make any Loan or other
financial accommodation to any subsidiary or affiliate of Borrower.
SUCCESSORS AND ASSIGNS. All covenants and agreements contained by or on
behalf of Borrower shall bind its successors and assigns and shall inure to
the benefit of Lender, its successors and assigns. Borrower shall not,
however, have the right to assign its rights under this Agreement or any
interest therein, without the prior written consent of Lender.
SURVIVAL. All warranties, representations, and covenants made by Borrower in
this Agreement or in any certificate or other instrument delivered by
Borrower to Lender under this Agreement shall be considered to have been
relied upon by Lender and will survive the making of the Loan and delivery
to Lender of the Related Documents, regardless of any investigation made by
Lender on or Lender's behalf.
TIME IS OF THE ESSENCE. Time is of the essence in the performance of this
Agreement.
WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender of
a provision of this Agreement shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Agreement. No prior waiver by Lender, nor any
course of dealing between Lender and Borrower, or between Lender and any
Grantor, shall constitute a waiver of any of Lender's rights or of any
obligations of borrower or of any Grantor as to any
<PAGE>
02-10-1997 BUSINESS LOAN AGREEMENT PAGE 5
LOAN NO. 0175734250 (Continued)
================================================================================
future transactions. Whenever the consent of Lender is required under this
Agreement, the granting of such consent by Lender in any instance shall not
constitute continuing consent in subsequent instances where such consent is
required, and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN
AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF
FEBRUARY 10, 1997.
BORROWER:
INCO HOME CORPORATION
By: /s/ IRA C. NORRIS
------------------------------------
Ira C. Norris
Chairman of the Board, President and
Chief Executive Officer
By: /s/ NORMAN B. GOLD
------------------------------------
Norman B. Gold
Vice President and
Chief Financial Officer
LENDER:
Desert Community Bank, a California Corporation
By: /s/ STEVEN R. DAVISSON
------------------------------------
Authorized Officer
================================================================================
LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver. 3.23(c) 1997 CFI ProServices, Inc.
All rights reserved. [CA-C40 2INCOHOM.LN]
<PAGE>
EXHIBIT 10.2
PROMISSORY NOTE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$1,000,000.00 02-10-1997 02-15-1988 0175734250 15 12 017573442 103
- ----------------------------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan
or item.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
BORROWER: Inco Homes Corporation LENDER: Desert Community Bank, a California Corporation
1282 W. Arrow Highway, P. O. Box 970 Main Office
Upland, CA 91785 12530 Hesperia Road
Post Office Box 1346
Victorville, CA 92392
====================================================================================================================================
</TABLE>
PRINCIPAL AMOUNT: $1,000,000.00 INITIAL RATE: 9.250%
DATE OF NOTE: FEBRUARY 10, 1997
PROMISE TO PAY. Inco Homes Corporation ("Borrower") promises to pay to Desert
Community Bank, a California Corporation ("Lender"), or order, in lawful money
of the United States of America, the principal amount of One Million & 00/100
Dollars ($1,000,000.00) or so much as may be outstanding, together with interest
on the unpaid outstanding principal balance of each advance. Interest shall be
calculated from the date of each advance until repayment of each advance.
PAYMENT. BORROWER WILL PAY THIS LOAN ON DEMAND, OR IF NO DEMAND IS MADE, IN ONE
PAYMENT OF ALL OUTSTANDING PRINCIPAL PLUS ALL ACCRUED UNPAID INTEREST ON
FEBRUARY 15, 1998. IN ADDITION, BORROWER WILL PAY REGULAR MONTHLY PAYMENTS OF
ACCRUED UNPAID INTEREST BEGINNING MARCH 10, 1997, AND ALL SUBSEQUENT INTEREST
PAYMENTS ARE DUE ON THE SAME DAY OF EACH MONTH AFTER THAT. Interest on this
Note is computed on a 365/365 simple interest basis; that is, by applying the
ratio of the annual interest rate over the number of days in a year, multiplied
by the outstanding principal balance, multiplied by the actual number of days
the principal balance is outstanding. Borrower will pay Lender at Lender's
address shown above or at such other place as Lender may designate in writing.
Unless otherwise agreed or required by applicable law, payments will be applied
first to accrued unpaid interest, then to principal, and any remaining amount to
any unpaid collection costs and late charges.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change
from time to time based on changes in an independent index which is the New York
Prime based on West Coast Edition of Wall Street Journal (the "Index"). The
Index is not necessarily the lowest rate charged by Lender on its loans. If the
Index becomes unavailable during the term of this loan, Lender may designate a
substitute index after notice to Borrower. Lender will tell Borrower the
current Index rate upon Borrower's request. Borrower understands that Lender
may make loans based on other rates as well. The interest rate change will not
occur more often than each Monthly. THE INDEX CURRENTLY IS 8.250% PER ANNUM.
THE INTEREST RATE TO BE APPLIED TO THE UNPAID PRINCIPAL BALANCE OF THIS NOTE
WILL BE AT A RATE OF 1.000 PERCENTAGE POINT OVER THE INDEX, RESULTING IN AN
INITIAL RATE OF 9.250% PER ANNUM. NOTICE: Under no circumstances will the
interest rate on this Note be more than the maximum rate allowed by applicable
law.
PREPAYMENT; MINIMUM INTEREST CHARGE. Borrower agrees that all loan fees and
other prepaid finance charges are earned fully as of the date of the loan and
will not be subject to refund upon early payment (whether voluntary or as a
result of default), except as otherwise required by law. In any event, even
upon full prepayment of this Note, Borrower understands that Lender is entitled
to a MINIMUM INTEREST CHARGE OF $100.00. Other than Borrower's obligation to
pay any minimum interest charge, Borrower may pay without penalty all or a
portion of the amount owed earlier than it is due. Early payments will not,
unless agreed to by Lender in writing, relieve Borrower of Borrower's
obligation to continue to make payments of accrued unpaid interest. Rather,
they will reduce the principal balance due.
LATE CHARGE. If a payment is 10 DAYS OR MORE LATE, Borrower will be charged
5.000% OF THE REGULARLY SCHEDULED PAYMENT OR $5.00, WHICHEVER IS GREATER.
DEFAULT. Borrower will be in default in any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note
or any agreement related to this Note, or in any other agreement or loan
Borrower has with Lender. (c) Borrower defaults under any loan, extension of
credit, security agreement, purchase or sales agreement, or any other agreement,
in favor of any other creditor or person that may materially affect any of
Borrower's property or Borrower's ability to repay this Note or perform
Borrower's obligations under this Note or any of the Related Documents. (d) Any
representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf is false or misleading in any material respect either now or
at the time made or furnished. (e) Borrower becomes insolvent, a receiver is
appointed for any part of Borrower's property, Borrower makes an assignment for
the benefit of creditors, or any proceeding is commenced either by Borrower or
against Borrower under any bankruptcy or insolvency laws. (f) Any creditor
tries to take any of Borrower's property on or in which Lender has a lien or
security interest. This includes a garnishment of any Borrower's accounts with
Lender. (g) Any guarantor dies or any of the other events described in this
default section occurs with respect to any guarantor of this Note. (h) A
material adverse change occurs in Borrower's financial condition, or Lender
believes the prospect of payment or performance of the Indebtedness is impaired.
If any default, other than a default in payment, is curable and if Borrower has
not been given a notice of a breach of the same provision of this Note within
the preceding twelve (12) months, it may be cured (and no event of default will
have occurred) if Borrower, after receiving written notice from Lender demanding
cure of such default: (a) cures the default within fifteen (15) days; or (b) if
the cure requires more than fifteen (15) days, immediately initiates steps which
Lender deems in Lender's sole discretion to be sufficient to cure the default
and thereafter continues and completes all reasonable and necessary steps
sufficient to produce compliance as soon as reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower, will pay that amount. Upon Borrower's failure to pay
all amounts declared due pursuant to this section, including failure to pay upon
final maturity, Lender, at its option, may also, if permitted under applicable
law, do one or both of the following: (a) increase the variable interest rate
on this Note to 4.000 percentage points over the Index, and (b) add any unpaid
accrued interest to principal and such sum will bear interest therefrom until
paid at the rate provided in this Note (including any increased rate). Lender
may hire or pay someone else to help collect this Note if Borrower does not
pay. Borrower also will pay Lender that amount. This includes, subject to any
limits under applicable law, Lender's attorney's fees and Lender's legal
expenses whether or not there is a lawsuit, including attorneys' fees and legal
expenses for bankruptcy proceedings (including efforts to modify or vacate any
automatic stay or injunction), appeals, and any anticipated post-judgment
collection services. Borrower also will pay any court costs, in addition to all
other sums provided by law. THIS NOTE HAS BEEN DELIVERED TO LENDER AND ACCEPTED
BY LENDER IN THE STATE OF CALIFORNIA. IF THERE IS A LAWSUIT, BORROWER AGREES
UPON LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION OF THE COURTS OF SAN
BERNARDINO COUNTY, THE STATE OF CALIFORNIA. LENDER AND BORROWER HEREBY WAIVE
THE RIGHT TO ANY JURY TRIAL IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM BROUGHT
BY EITHER LENDER OR BORROWER AGAINST THE OTHER. (INITIAL HERE IN & NBG).
--------
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF CALIFORNIA.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $10.00 if Borrower
makes a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays is later dishonored.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note may be requested orally by Borrower or by an authorized person. All
oral requests shall be confirmed in writing on the day of the request. All
communications, instructions, or directions by telephone or otherwise to Lender
are to be directed to Lender's office shown above. The following party or
parties are authorized to request advances under the line of credit until Lender
receives from Borrower at Lender's address shown above written notice of
revocation of their authority: IRA C. NORRIS, CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER; AND NORMAN B. GOLD, VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER. Borrower agrees to be liable for all sums either: (a)
advanced in accordance with the instructions of an authorized person or (b)
credited to any of Borrower's accounts with Lender. The unpaid principal
balance owing on this Note at any time may be evidenced by endorsements on this
Note or by Lender's internal records, including daily computer print-outs.
Lender will have no obligation to advance funds under this Note if: (a) Borrower
or any guarantor is in default under the terms of this Note or any agreement
that Borrower or any guarantor has with Lender, including any agreement made in
connection with the signing of this Note; (b) Borrower or any guarantor ceases
doing business or is insolvent; (c) any guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such guarantor's guarantee of this Note or
any other loan with Lender; or (d) Borrower has applied funds provided pursuant
to this Note for purposes other than those authorized by Lender.
REVOLVING LINE OF CREDIT ADDITIONAL PROVISIONS. Funds on the Revolving Line of
Credit will be advanced based on a 60% advance rate of qualified escrows.
Qualified escrows will be defined as those home buyers who have signed
appropriate documents (including a contract), put an initial cash deposit down,
and have obtained a Qualification Letter from a reputable lender. After the
lender has reviewed the buyer's credit report, and other financial information
to determine that the home buyer will reasonably qualify to purchase the home, a
copy of the Qualification Letter will be provided to the Bank. At least monthly,
and more frequently if requested, Inco will provide a current schedule of open
qualified escrows. The report will include the buyers name, the amount of Inco's
portion of the escrow, the date opened, escrow number, escrow company (and phone
number), and any other information the Bank may reasonably require to monitor
the status of the escrow. Escrows that are 45 days late in closing will be
eliminated from the qualified escrows list. Funds will be wired directly to
Desert Community Bank, from the escrow company, and applied to reduce the line
balance.
<PAGE>
02-10-1997 PROMISSORY NOTE PAGE 2
LOAN NO. 0175734250 (Continued)
================================================================================
GENERAL PROVISIONS. This Note is payable on demand. The inclusion of specific
default provisions or rights of Lender shall not preclude Lender's right to
declare payment of this Note on its demand. Lender may delay or forgo enforcing
any of its rights or remedies under this Note without losing them. Borrower and
any other person who signs, guarantees or endorses this Note, to the extent
allowed by law, waive any applicable statute of limitations, presentment, demand
for payment, protest and notice of dishonor. Upon any change in the terms of
this Note, and unless otherwise expressly stated in writing, no party who signs
this Note, whether as maker, guarantor, accommodation maker or endorser, shall
be released from liability. All such parties agree that Lender may renew or
extend (repeatedly and for any length of time) this loan, or release any party
or guarantor or collateral; or impair, fail to realize upon or perfect Lender's
security interest in the collateral; and take any other action deemed necessary
by Lender without the consent of or notice to anyone. All such parties also
agree that Lender may modify this loan without the consent of or notice to
anyone other than the party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
Inco Homes Corporation
By: /s/ IRA C. NORRIS
------------------------------------
Ira C. Norris
Chairman of the Board, President and
Chief Executive Officer
By: /s/ NORMAN B. GOLD
------------------------------------
Norman B. Gold
Vice President and
Chief Financial Officer
================================================================================
Variable Rate. Line of Credit.
LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver. 3.23(c) 1997 CFI ProServices, Inc.
All rights reserved. [CA-D20 2INCOHOM.LN]
<PAGE>
EXHIBIT 10.3
LOAN AGREEMENT
This Loan Agreement, dated as of February 10th, 1997, is entered into
by and between Inco Homes Corporation, a Delaware corporation ("Borrower"), and
those persons and entities listed on Exhibit "A" attached hereto (collectively,
"Lender").
SECTION 1: DEFINITIONS AND ACCOUNTING TERMS.
--------------------------------
1.1 Defined Terms. As used in this Agreement, the following terms
-------------
shall have the meanings set forth respectively after each:
"Agreement" means this Loan Agreement.
"Assignment of Permits, Licenses, Franchises and Authorizations" means
the Assignment of Permits, Licenses, Franchises and Authorizations executed by
Borrower.
"Assignment of Rents" means the assignment of rents contained in the
Deed of Trust.
"Business Day" means any Monday, Tuesday, Wednesday, Thursday or
Friday which is not a legal holiday in Nevada.
"Control Account" shall have the meaning set forth in Section 3.6
hereof.
"Control Account Escrow Agreement" shall mean the Control Account
Escrow Agreement and Security Agreement by and among Borrower, Lender and the
Disbursement Agent which shall govern the Control Account.
"Deed of Trust" means the Deed of Trust, Assignment of Rents, Security
Agreement and Fixture Filing of even date herewith, executed by Borrower in
favor of Lender with respect to the Property or portions thereof, either as
originally executed or as it may from time to time be supplemented, modified or
amended.
"Default Rate" shall have the meaning set forth in the Note.
"Disbursement Agent" means Ken's Construction Control, Las Vegas,
Nevada.
"Events of Default" means each of those events so designated in
Section 8.1 of this Agreement.
"Financing Statement" means financing statement(s) of even date
herewith, executed by Borrower in favor of Lender with respect to the Personal
Property.
"First Parcel" means Lots 36 through 40 in Parcel 1, all of Parcel 2
and all of Parcel 3, as such parcels are described on Exhibit "D" attached
hereto.
<PAGE>
"Governmental Agency" means any governmental or quasi-governmental
agency, authority, board, bureau, commission, department, instrumentality or
public body, court, administrative tribunal or public utility.
"Improved Lots" shall mean Lots 36 through 40, inclusive, on Parcel 1,
as such parcel is described on Exhibit "D" attached hereto.
"Improvements" means the improvements constructed, or to be
constructed, on the Property.
"Laws" means, collectively, all federal, state and local laws, rules,
regulations, ordinances and codes.
"Loan" means the loan to be made by Lender to Borrower pursuant to
Section 3 hereof.
"Loan Documents" means, collectively, this Agreement, the Note, the
Security Documents, the Project Assignments and the Guaranties in each case
either as originally executed or as the same may from time to time be
supplemented, modified or amended.
"Lot(s)" means any of the single-family residential lots shown or to
be shown on the tract map(s) covering the Real Property.
"Maturity Date" means the date which is eighteen (18) months after the
Effective Date, as such is defined in Section 3.12 below.
"Model Lots" shall mean Lots 32 through 35, inclusive, on Parcel 1, as
such parcel is described on Exhibit "D" attached hereto.
"Net Sales Proceeds" shall have the meaning given it in Section 3.4
below.
"Note" means the promissory note of even date herewith, in the
original principal amount of Two Million Fifty Thousand Dollars ($2,050,000.00),
executed by Borrower in favor of Lender to evidence the Loan, either as
originally executed or as it may from time to time be supplemented, modified or
amended.
"NRS" means the Nevada Revised Statutes, as amended from time to time.
"Operation" means the operation of Borrower's business on the
Property, including the operation, sales, leasing, running and maintenance of
the Property and the Improvements.
"Permitted Exceptions" means the matters identified in Exhibit "B"
attached hereto and made part hereof.
-2-
<PAGE>
"Person" means any entity, whether an individual, trustee,
corporation, partnership, trust, unincorporated organization or otherwise.
"Personal Property" means all present and future personal property
(including the Project Documents) of Borrower of every kind and nature, whether
tangible or intangible, now or hereafter located at, upon or about the Property,
or used or to be used in connection with or relating or arising with respect to
the Property and/or the Project, including but not limited to the property
described in the Deed of Trust.
"Phase" means each of Borrower's phases of construction as such are
described on Exhibit "C" attached hereto.
"Project" means the project for the construction of the Improvements
and the development of the Property, as such exists at any time.
"Project Assignments" means, collectively, the Assignment of Permits,
Licenses, Franchises and Authorizations and any other such assignment made by
Borrower to Lender.
"Project Documents" means, collectively, all agreements, documents,
instruments and materials of whatever kind or nature relating to the Project,
including but not limited to: (a) the improvement plans and all other plans,
specifications and drawings relating to the Project, (b) all approvals,
consents, licenses and permits issued, or to be issued, by any Governmental
Agency in connection with the Project, (c) any architect's contract, the
engineer's contract, the construction contract, or any other agreements relating
to the Project between Borrower and any contractor, subcontractor, independent
project manager or supervisor, architect, engineer, laborer or supplier of
materials, and (d) any take-out, refinancing or permanent loan commitment issued
to Borrower with respect to the Property.
"Property" means, collectively, the Real Property, the Improvements,
and any other buildings, structures, or improvements now or hereafter located on
all or any portion of the Real Property and the Personal Property
"Real Property" means the real property and interests in real property
described in Exhibit "D".
"Second Parcel" means Lots 1 through 11 and 22 through 35 in Parcel 1,
as such parcel is described on Exhibit "D" attached hereto.
"Security Agreement" means the security agreement contained in the
Deed of Trust.
-3-
<PAGE>
"Security Documents" means the Deed of Trust, the Financing Statement,
the Control Account Escrow Agreement and any other mortgage, deed of trust,
assignment of leases, security agreement or assignment executed to secure the
Note, either as originally executed or as they may from time to time be
supplemented, modified or amended.
"Title Company" means Fidelity National Title Insurance Company,
Irvine, California.
"Title Policy" means the policy of title insurance and endorsements
thereto required by this Agreement as a condition to the first Disbursement.
"Use" means ownership, use, development, construction, maintenance,
management, operation or occupancy.
1.2 Use of Defined Terms. Any defined term used in the plural shall
--------------------
refer to all members of the relevant class, and any defined term used in the
singular shall refer to any number of the members of the relevant class. Any
reference to the Loan Documents and other instruments, documents and agreements
shall include such Loan Documents and other instruments, documents and
agreements as originally executed or as the same may be supplemented, modified
or amended.
1.3 Accounting Terms. All accounting terms not specifically defined
----------------
in this Agreement shall be construed in conformity with, and all financial data
required to be submitted by this Agreement shall be prepared in conformity with,
generally accepted accounting principles applied on a consistent basis.
1.4 Exhibits. All exhibits to this Agreement, either as now
--------
existing or as the same may from time to time be supplemented, modified or
amended, are incorporated herein by this reference.
SECTION 2: RECITALS.
--------
Borrower has applied to Lender for a Loan to refinance the Real
Property. Lender is willing to make the Loan to Borrower on the terms and
conditions contained in this Agreement and the other Loan Documents.
SECTION 3: THE LOAN.
--------
3.1 Amount of the Loan. Subject to the terms and conditions set
------------------
forth in this Agreement, Lender agrees to make a loan (the "Loan") to Borrower
in a principal amount of Two Million Fifty Thousand Dollars ($2,050,000.00) (the
"Loan Amount"), the disbursement of which by Lender is subject to the term and
conditions of the Loan Documents.
-4-
<PAGE>
3.2 Repayment of the Loan. The Loan shall be evidenced by the Note,
---------------------
shall bear interest at the rate set forth in the Note, and shall be repaid in
accordance with the terms of the Note. The principal balance outstanding under
the Note, and all accrued and unpaid interest under the Note, and all other
indebtedness and obligations of Borrower owing under any and all of the Loan
Documents shall be due and payable in full on the Maturity Date.
Notwithstanding anything herein to the contrary, interest shall commence
accruing on the Loan amount as to each individual Lender on the date that Lender
deposits his portion of the Loan Amount into the Loan escrow.
3.3 Prepayment. Borrower may prepay the Note at any time prior to
----------
the Maturity Date.
3.4 Partial Release of Lots. So long as no Event of Default has
-----------------------
occurred and is continuing, Lender shall release individual or multiple Lots
from the lien and operation of the Deed of Trust upon satisfaction in Lender's
reasonable discretion of the following requirements:
(i) the payment to the Control Account (as hereafter defined),
directly from the home sale escrow, of the "Net Sale Proceeds" (as defined
below) received from the sale of such Lot or Lots;
(ii) the progress of construction on the project is on schedule,
and construction has, to date, passed architectural inspections and there exists
no material cost overruns; and
(iii) Borrower pays all costs and expenses in connection with
such release and reconveyance.
As used herein, "Net Sale Proceeds" shall equal the total gross proceeds to be
received by Borrower from the sale including option and upgrade proceeds, less:
(a) customary closing costs and title fees payable by Borrower; (b) real estate
commissions payable by Borrower, provided that sales commissions payable to any
real estate company affiliated with Borrower, shall not exceed 1.5% of the gross
sales price; (c) all amounts payable by Borrower to Borrower's construction
lender whose loan is also secured by the Lot to be released (as such amount is
defined in such lender's loan documents) to cause the release of the lien of the
construction loan on the Lot; and (d) the sum of $5,000.00 per Lot to be
payable to Borrower ("Borrower Proceeds"), which amount is subject to reduction
as provided in the following paragraph.
Borrower's right to Borrower's Proceeds for any Lot may be reduced by
Lender at any time Lender determines that the average Net Sales Proceeds in a
Phase have, to date, not equaled at least $12,000.00 per Lot (the "Minimum
Average"). In such event,
-5-
<PAGE>
Borrower's Proceeds shall be reduced by an amount (to be determined by Lender)
as may be necessary to bring Net Sales Proceeds per Lot in that Phase received
to date to the Average Minimum. Once the Average Minimum is again achieved, and
so long as it is maintained, Borrower shall receive the full Borrower's
Proceeds. If an Event of Default has occurred and is continuing, Lender, in its
discretion, may allow the release of Lots as provided above without the payment
of any Borrower's Proceeds to Borrower or any accrual thereof, said sum to be
paid with Lender's Proceeds to the Control Account. Once such default is cured,
Borrower shall again receive the Borrower's Proceeds attributable to the Lots
which close and are released after such cure is effective.
3.5 Lot Sales Prices and Sales Escrow. Borrower shall not, without
---------------------------------
Lender's prior written consent, sell any Lot without a home constructed thereon.
Borrower shall also not sell any Lot for a gross sales price that is less than
that set forth on Exhibit "E" attached hereto. Borrower shall furnish to Lender
copies of all of its instructions to escrow regarding each sale for one or more
Lots. Borrower shall also provide to Lender copies of the escrow settlement
statements regarding each such sale which statements shall be certified by the
escrow agent to be true and correct. Borrower's instruction to each such escrow
shall provide that Lender's funds shall be segregated and deposited in interest-
bearing accounts until disbursed to Lender.
3.6 Control Account. As provided in Section 3.4 above, the Net Sales
---------------
Proceeds from each Lot shall be paid to a control account ("Control Account")
administered by the Disbursement Agent in accordance with the Control Account
Escrow Agreement and Security Agreement by and between Lender, Borrower and
Disbursement Agent executed concurrently herewith. Such proceeds shall be paid
to and shall accumulate in Control Account for the benefit of Lender. The
principal balance of the Note shall not be reduced at the time said proceeds are
paid to the Control Account. Such funds shall be invested and earn interest in
accordance with the Control Account Escrow Agreement. Borrower agrees and
acknowledges, for the reliance and benefit of Lender, that it shall continue to
pay interest on the entire principal balance of the Note throughout the term
hereof notwithstanding the fact that loan funds are being held in the Control
Account, and notwithstanding the Control Account balance. Said proceeds shall
be held in the Control Account and disbursed to Lender on the first business day
of each calendar month following a month in which a minimum of $25,000.00 shall
have accumulated in the Control Account. No disbursement shall be made for any
month in which less than $25,000.00 shall have accumulated. At the time of each
disbursement, Disbursement Agent shall disburse (i) $2,000.00 per Lot for each
Lot which closed since the prior disbursement in accordance with that Placement
Agreement, dated of even date herewith, and (ii) the remainder to the Lenders in
to reduce the outstanding balance of the Loan. The funds in the Control Account
shall be considered a part of the principal balance
-6-
<PAGE>
of the Loan until such funds are disbursed to Lender. The principal balance of
the Loan shall be reduced by the amount of the disbursements by Disbursement
Agent to Lender.
Upon the occurrence of an Event of Default hereunder, Lender may close the
Control Account and withdraw all funds therefrom. In such event, Borrower's
obligation to pay interest on those funds withdrawn shall cease, and the amount
so withdrawn shall be applied to Borrower's then outstanding indebtedness to
Lender hereunder.
3.7 Subordination. So long as no Event of Default has occurred and is
-------------
continuing, and subject to the conditions contained in this Section, Lender
shall subordinate the lien of the Deed of Trust, to the lien of the deed of
trust and any related security documents which shall secure Borrower's
construction financing on the Property. Lender shall never subordinate to any
lower than second priority position as to any Lot. Said subordination shall be
as to only forty-one (41) Lots at any one time (i.e., once any such subordinated
Lots have been released pursuant to Section 3.4 above, Lender shall subordinate
as to additional Lots, up to the limit of 41 at any one time). The following
shall be conditions precedent to such subordinations: (a) Lender has reviewed
and approved the terms and conditions of the construction loan documents to
which Lender is asked to subordinate; (b) Borrower shall, concurrently with the
recording of such subordination, pay to the Control Account, for disbursement as
provided in Section 3.6 above, the following sums: (i) $2,000.00 per Lot for
each Lot to be subordinated in Phase 2 (as such is described on Exhibit "C"
attached hereto), and (ii) $4,000.00 per Lot for each Lot to be subordinated in
all subsequent Phases; provided, however, that the subordination payment for the
Improved Lots shall be $20,000.00 per Lot; (c) the Net Sales Proceeds for each
Lot closed prior to the recording of the subordination have averaged at least
$12,000.00 per Lot; (d) the projected minimum Net Sales Proceeds for each Lot
then under construction and not yet closed, as determined by Lender in its sole
discretion, shall average at least $12,000.00 per Lot; and (e) the projected
minimum Net Sales Proceeds for each Lot to which the subordination shall apply,
as determined by Lender in its sole discretion, shall average at least
$12,000.00 per Lot. Borrower shall pay all of Lender's costs, including
attorney's fees, incurred in connection with any subordination request.
3.8 Option/Upgrade Reimbursement. The amount of any option/upgrade
----------------------------
premiums paid by each home buyer shall be determined from the face of the
contract between Borrower and that home buyer. So long as no Event of Default
has occurred and is continuing, at the time of each disbursement from the
Control Account, the Disbursement Agent shall also disburse to Borrower a sum
equal to fifty percent (50%) of the total option/upgrade premium paid with
respect to each Lot for which Net Sales Proceeds were paid to the Control
Account since the prior disbursement. Upon the occurrence of an Event of
Default and while such Event is continuing, Borrower
-7-
<PAGE>
shall be entitled to no such reimbursements and Lender shall apply such sums to
the outstanding balance of the Loan.
3.9 Interest Reserve. At the closing of the Loan, Loan proceeds in the
----------------
amount of $272,500 shall be deposited as an interest reserve (the "Interest
Reserve") with the Disbursement Agent. The Interest Reserve shall be disbursed
monthly directly to Lender, without any instruction or request for disbursement
from Borrower, in payment of interest which accrues and becomes due under the
Note. Lender shall provide Borrower with a monthly interest statement setting
forth the amount of interest accrued each month under the Note. Depletion of
the Interest Reserve shall not release Borrower from any of Borrower's
obligations under the Loan Documents, including but not limited to the
obligation to pay interest accruing under the Note. After the depletion of the
Interest Reserve, or so long as any condition to the making of any disbursement
under this Agreement has not been satisfied, all interest payments under the
Note shall be made by Borrower using its own funds; provided that Lender at its
option and in its sole discretion may make disbursements from the Interest
Reserve notwithstanding that all such conditions may not have been satisfied.
All interest earned on the Interest Reserve funds while on deposit with the
Disbursement Agent shall be added to the Interest Reserve funds and upon full
repayment of the Note, so long as no Event of Default has occurred and is
continuing, shall be payable to, or for the benefit of, Borrower.
So long as no Event of Default has occurred and is continuing, Borrower may
add up to $25,000.00 from the home escrow closing proceeds for each Phase to the
Interest Reserve, provided that Borrower may add no more than $75,000.00 to the
Interest Reserve over the term of the Loan. Any such addition by Borrower shall
reduce the amount of principal reduction payable to Lender from the Control
Account.
3.10 Security. The indebtedness evidenced by the Note, and all other
--------
indebtedness and obligations of Borrower under the Loan Documents, shall be
secured by the Security Documents.
3.11 Effective Date. Borrower and Lender agree that the date of the Loan
--------------
Documents is for reference purposes only and the effective date ("Effective
Date") of the delivery and the transfer to Lender of the security under the Loan
Documents and of Borrower's and Lender's obligations under the Loan Documents is
the date of recordation of the Deed of Trust in the office of the County
Recorder of the county where the Property is located.
SECTION 4: CONDITIONS TO FUNDING.
---------------------
The obligation of Lender to fund the Loan is subject to the following
conditions precedent:
-8-
<PAGE>
(a) Borrower shall, at its sole expense, deliver or cause to be
delivered to Lender, in form and substance satisfactory to Lender:
(i) the original Note;
(ii) the original Deed of Trust;
(iii) the original Financing Statement;
(iv) the original Project Assignments;
(v) an ALTA form extended coverage lender's policy of title
insurance (the "ALTA Title Policy"), or evidence of a commitment therefor,
issued by an insurer satisfactory to Lender, together with such endorsements and
binders thereto as may be required by Lender pursuant to Section 6.12 hereof, in
a policy amount of not less than the face amount of the Note, insuring the Deed
of Trust to be a valid first priority lien on the First Parcel and a valid
second priority lien on the Second Parcel and showing the Property to be subject
only to the Permitted Exceptions;
(b) certified copies of, or certificates evidencing, all insurance
policies required to be delivered pursuant to this Agreement;
(c) current Financial Statement and last filed federal tax return for
Borrower;
(d) such additional agreements, certificates, reports, approvals,
instruments, documents, financing statements, consent and opinions as Lender may
request; including, without limitation, a soils report for the Real Property
(including, without limitation, all determinations required by Lender with
respect to hazardous waste (as such term is defined in the Environmental
Indemnities) and water located on the Real Property);
(i) the Deed of Trust shall have been recorded in the Official
Records of the county in which the Real Property is located;
(ii) the Financing Statement shall have been filed for record in
the Official Records of the county in which the Property is located and with the
Nevada Secretary of State; and
(iii) Lender shall have reviewed and approved the Permitted
Exceptions.
SECTION 5: REPRESENTATIONS AND WARRANTIES BY BORROWER.
------------------------------------------
-9-
<PAGE>
5.1 Formation, Qualification and Powers of Borrower. Borrower is a
-----------------------------------------------
corporation duly formed and validly existing under the laws of the State of
Delaware and has all requisite power and authority to conduct its business, to
own its properties, and to execute, deliver and perform all of its obligations
under the Loan Documents.
5.2 Authority and Compliance with Instruments and Government Regulations.
--------------------------------------------------------------------
The execution, delivery and performance by Borrower of all of its obligations
under each Loan Document have been duly authorized by all necessary action and
do not and will not:
(a) require any consent or approval not heretofore obtained of any
Person holding any security or interest or entitled to receive any security or
interest in Borrower;
(b) violate any provision of any corporation document or certificate
of Borrower;
(c) result in or require the creation or imposition of any mortgage,
deed of trust, pledge, lien, security interest, claim, charge, right of others
or other encumbrance of any nature, other than under the Loan Documents, upon or
with respect to any property now owned or leased or hereafter acquired by
Borrower;
(d) violate any provision of any Law, order, writ, judgment,
injunction, decree, determination or award presently in effect having
applicability to Borrower;
(e) result in a breach of or constitute a default under, cause or
permit the acceleration of any obligation owed under, or require any consent
under, any indenture or loan or credit agreement or any other agreement, lease
or instrument to which Borrower is a party or by which Borrower or any property
of Borrower, is bound or affected; and Borrower is not in default in any respect
that is materially adverse to the interest of Lender or that would have any
material adverse effect on the financial condition of Borrower or the conduct of
its business under any Law, order, writ, judgment, injunction, decree,
determination, award, indenture, agreement, lease or instrument described in
Sections 5.2(d) and 5.2(e).
5.3 No Governmental Approvals Required. No authorization, consent,
----------------------------------
approval, order, license, exemption from, or filing, registration or
qualification with, any Governmental Agency is or will be required to authorize,
or is otherwise required in connection with:
(a) the execution and delivery by Borrower, and the performance by
Borrower of the Loan Documents; or
-10-
<PAGE>
(b) the creation of the liens, security interests or other charges or
encumbrances described in the Security Documents; except that filing and/or
recording may be required to perfect Lender's interest under the Security
Documents.
5.4 Binding Obligations. The Loan Documents, when executed and delivered,
-------------------
will constitute the legal, valid and binding obligations of Borrower enforceable
in accordance with their terms.
5.5 Financial Statements. Borrower has furnished to Lender a copy of the
--------------------
most recent publicly issued financial statements relating to Borrower's
financial condition and Borrower represents and warrants to Lender that such
financial statements present fairly the financial position of Borrower as at the
date thereof.
5.6 No Material Adverse Change. Borrower represents and warrants to
--------------------------
Lender that there has been no material adverse change in the condition,
financial or otherwise of Borrower since the date of the financial statements
described in Section 5.5; since that date, Borrower has not entered into any
material transaction not disclosed in such financial statements; Borrower has no
material liabilities or contingent liabilities not reflected or disclosed in
such financial statements; and there are no material mortgages, deeds of trust,
pledges, liens, security interests, claims, charges, right of others or
encumbrances (including liens or retained security titles of conditional
vendors) of any nature whatsoever on any property of Borrower, and no material
indebtedness, not disclosed in such financial statements.
5.7 Tax Liability. Borrower has filed all tax returns (federal, state and
-------------
local) required to be filed and have paid all taxes shown thereon to be due and
all property taxes due, including interest and penalties, if any. Borrower has
established and is maintaining adequate reserves for tax liabilities, if any.
5.8 Compliance with Laws. Borrower is in compliance in all material
--------------------
respects with all Laws and other requirements applicable to their business and
have obtained all authorizations, consents, approvals, order, licenses and
exemptions from, and have accomplished all filings, registrations or
qualifications with, any Governmental Agency that is necessary for the
transaction of their business.
5.9 Compliance with Requirements. Borrower shall timely comply with all
----------------------------
applicable covenants, conditions and restrictions, Laws and other requirements
relating to the Property, and all necessary approvals, consents, licenses and
permits of any Governmental Agency have been regularly and finally received with
respect thereto, including without limitation each of the following as
applicable:
(a) all zoning, land use and planning requirements;
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<PAGE>
(b) subdivision and/or parcel map requirements, including without
limitation requirements of applicable Law regarding subdivisions, parcel maps
and the division of land into lots or parcels;
(c) environmental requirements and preparation and approval of any
necessary environmental impact statements or reports;
(d) all requirements regarding the provision of all necessary
utilities to the Real Property including the irrevocable allocation to the
Property of sufficient domestic and fire protection water service to the
Property;
(e) all requirements imposed by any public utility in connection with
the supply of utilities to the Property; and
(f) all requirements imposed in connection with any approval, consent,
license or permit issued or required by any Governmental Agency in connection
with the Project.
5.10 Litigation. There are no actions, suits or proceedings pending or
----------
threatened against or affecting Borrower or any property of Borrower before any
court or Governmental Agency that would have a material adverse affect on the
Property, or Borrower's ability to perform their obligations under the Loan
Documents.
5.11 Title to Property. Borrower has good and merchantable title to all
-----------------
of its property and assets as disclosed in the financial information provided
Lender and at the time of the recordation of the Security Documents shall have
good and merchantable title to the Property, and there shall be no mortgages,
liens, pledges or other encumbrances of any character on the Property, other
than the Security Documents and Permitted Exceptions, without prior consent of
Lenders.
5.12 No Usury. Borrower represents, warrants and covenants, for the
--------
reliance and benefit of Lender, that the Loan is exempt from the usury law set
forth in Article XV of the California Constitution. The Loan was arranged by
Griess & Associates, Inc., Warren D. Griess, broker, a duly licensed California
real estate broker. Said broker, in his licensed capacity, has solicited the
loan for Borrower in expectation of receiving compensation from Borrower and
shall receive such compensation upon the funding of the Loan. Moreover, said
broker has (a) introduced the parties to each other, (b) assisted the Borrower
in the preparation of the supporting documentation for the Loan, and (c)
participated in the negotiation of the terms of the Loan. Because the Loan is
therefore exempt from the usury law, Borrower hereby knowingly waives any
defense it may have to the payment of the Loan pursuant to its terms and any
claim that the Loan is usurious.
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<PAGE>
SECTION 6. AFFIRMATIVE AND NEGATIVE COVENANTS.
----------------------------------
Until payment of the Note in full and performance of all obligations of
Borrower under the Loan Documents, unless Lender otherwise consent in writing:
6.1 Completion of Improvements. Borrower shall proceed with all due
--------------------------
diligence to comply with the requirements set for in Section 5.9 above and to
commence construction of the Improvements. Borrower shall diligently proceed
with construction of the Improvements.
6.2 Conformity with Improvement Plans and Other Requirements. Borrower
--------------------------------------------------------
agrees to construct the Improvements in conformity with the Improvement Plans
and in conformity with all applicable Laws and other requirements, and in a good
and workmanlike manner with materials of good quality.
6.3 Encroachments. Borrower agrees that the Improvements shall be
-------------
constructed entirely on the Property and will not encroach upon or overhang any
lot line or boundary easement or right-of-way nor encroach upon the land of
others.
6.4 Compliance with Requirements. Borrower shall comply with all
----------------------------
conditions, covenants, restrictions, leases, easements, reservations, rights and
rights-of-way and all applicable Laws and other requirements relating to the
Property and the Project, and obtain all necessary approvals, consents, licenses
and permits of any Governmental Agency, including without limitation those set
forth in Section 5.9.
6.5 Completion of Offsite Improvements. Borrower represents and agrees
----------------------------------
that all streets and offsite improvements adjacent to and serving the Property
have been or shall be completed; and all utility services necessary for the
construction of the Improvements and the full utilization of the Property for
its intended purpose, including water, sewer, gas, electric and telephone, have
been or shall be completed and are available to the perimeter of the Property.
6.6 Permits and Warranties. Borrower shall deliver to Lender originals
----------------------
or copies of: (a) all permits and authorizations required in connection with the
construction of the Improvements or the operation or occupation of the Property
or any part thereof promptly upon issuance, and in any event before any act is
done which requires the issuance of the respective permit or authorization, and
(b) all warranties and guaranties received from any Person furnishing labor,
material, equipment, fixtures or furnishings in connection with the Project or
the Property.
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<PAGE>
6.7 Protection Against Liens and Claims.
-----------------------------------
(a) Borrower agrees to diligently file or procure the filing of a
valid notice of completion upon completion of construction of the Improvements,
diligently file or procure the filing of a notice of cessation upon the event of
a cessation of labor on the work of construction on the Improvements for a
continuous period of thirty (30) calendar days or more, and take all other
reasonable steps to forestall the assertion of claims of lien against the
Project or the Property or any part thereof. Borrower irrevocably appoints,
designates and authorizes Lender as its agent, said agency being coupled with an
interest, with the authority upon the occurrence and continuance of an Event of
Default, but without any obligation, to file for record any notices of
completion, cessation of labor, or any similar or other notices that Lender
deems necessary or desirable to protect its interests hereunder or under the
other Loan Documents.
(b) Upon demand by Lender, Borrower agrees to make such demands or
claims as Lender shall specify upon any or all Persons who have furnished labor,
service, equipment or material to the Project. Borrower agrees to pay and
obtain valid and enforceable lien-releases or waivers from all Persons who have
furnished labor, service, equipment or material to the Project, except that
Borrower shall not be required to pay any claim for labor, service, equipment or
material that is being contested in good faith by appropriate proceedings as
long as no claim of lien has been recorded or, if a claim of lien has been
recorded, within ten (10) calendar days thereafter, Borrower either has obtained
and recorded a surety bond, in form and substance satisfactory to Lender,
sufficient to release the Property from the lien and from any action brought to
foreclose the lien or has cause the title insurer who has issued the Title
Policy to issue, in form and substance satisfactory to Lender, an indorsement to
the Title Policy insuring the priority of the lien of the Deed of Trust over the
claim of lien.
(c) In the event that any claim is asserted against Lender by any
Person furnishing labor, service, equipment or material to the Project, Borrower
shall, upon demand by Lender, take such action as Lender may require to release
Lender from any obligation or liability with respect to such claim, including
without limitation (i) if the claim is being contested in good faith by
appropriate proceedings, obtaining of a bond or other security, in form,
substance and amount satisfactory to Lender, or (ii) payment of such claim. If
Borrower fails to take such action, Lender may, in its sole discretion, file an
interpleader action requiring all claimants to interplead and litigate their
respective claims, and in any such action Lender shall be released and
discharged from all obligations with respect to any funds deposited in Court,
and Lender's costs and expenses, including without limitation actual attorneys'
fees, shall be paid from such funds.
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<PAGE>
Any such funds deposited in court and all costs and expenses of Lender in
connection therewith shall be deemed to be Disbursements under the Note.
6.8 Sale or other Encumbrances.
--------------------------
(a) In order to induce Lender to make the loan secured hereby,
Borrower agrees that if the Property or any part thereof or any interest
therein, shall be sold (except sales for which a partial release of the Deed of
Trust shall be made pursuant to the Loan Agreement), assigned, transferred,
conveyed, pledged, mortgaged or encumbered with financing other than that
secured hereby or otherwise alienated by Borrower whether voluntarily or
involuntarily or by operation of law, except as shall be specifically
hereinafter permitted or without the prior written consent of Lender, then
Lender, at its option, may declare the Note secured hereby and all other
obligations hereunder to be forthwith due and payable. Except as shall be
otherwise specifically provided herein, any (a) change in the legal or equitable
ownership of the Property whether or not of record, (b) change in the form of
entity of Borrower, (c) change in ownership (including the hypothecation or
encumbrance thereof) of a majority of the stock in Borrower held by Ira Norris,
or (d) change in the controlling executives and directors of Borrower shall be
deemed a transfer of an interest in the Property. In connection herewith, the
financial stability and managerial and operational ability of Borrower is a
substantial and material consideration to Lender in its agreement to make the
loan to Borrower secured hereby. The transfer of an interest in the Property
may materially alter and reduce Lender's security for the indebtedness secured
hereby. Moreover, Lender has agreed to make its loan based upon the presumed
value of the Property and the Rents and Profits thereof. Therefore, it will be
a diminution of Lender's security if junior financing, except as shall be
permitted by Lender, or if other liens or encumbrances should attach to the
Property.
(b) Borrower may request Lender to approve a sale or transfer of the
Property to a party who would become the legal and equitable owner of the
Property and would assume any and all obligations of Borrower under the Loan
Documents (the "Purchaser"). Lender shall not be obligated to consider or
approve any such sale, transfer or assumption or request for the same. However,
upon such request, Lender may impose limiting conditions and requirements to its
consent to an assumption.
(c) In the event ownership of the Property, or any part thereof,
becomes vested in a person or persons other than Borrower, the Lender may deal
with such successor or successors in interest with reference to the Note or the
Deed of Trust in the same manner as with Borrower, without in any way releasing,
discharging or otherwise affecting the liability of Borrower under the Note, the
Deed of Trust or the other Loan Documents. No sale of Borrower's
-15-
<PAGE>
interest in the Property, no forbearance on the part of Lender, no extension of
the time for the payment of the Deed of Trust indebtedness or any change in the
terms thereof consented to by Lender shall in any way whatsoever operate to
release, discharge, modify, change or affect the original liability of the
Borrower herein, either in whole or in part. Any deed conveying the Property,
or any part thereof, shall provide that the grantee thereunder assume all of
Borrower's obligations under the Note, the Deed of Trust and all other Loan
Documents. In the event such deed shall not contain such assumption, Lender
shall have all rights reserved to it hereunder in the event of a default or if
Lender shall not elect to exercise such rights and remedies, the grantee under
such deed shall nevertheless be deemed to have assumed such obligations by
acquiring the Property or such portion thereof subject to the Deed of Trust.
Nothing contained in this section shall be construed to waive the restrictions
against the transfer of the Property contained in Section 6.8(a).
6.9 Removal of Personalty. Borrower shall not:
---------------------
(a) install in or otherwise use in connection with the Project any
materials, equipment or fixtures under any security agreements or similar
agreements however denominated whereby the right is reserved or accrues to
anyone to remove or repossess any such items or whereby any Person other than
Lender reserves or acquires a lien upon such items; or
(b) remove or permit the removal of any fixtures or personalty
located on the Property or used in connection with the Project, except for tools
and construction equipment intended for use in connection with the construction
of other improvements, unless actually replaced by an article of equal
suitability and value, owned by Borrower free and clear of any lien or security
interest other than the Security Documents.
6.10 Payment of Taxes, Assessments and Charges. Borrower shall pay,
-----------------------------------------
prior to delinquency, all taxes, assessments, charges and levies imposed by any
Governmental Agency which are or may become a lien affecting the Property or any
part thereof, including without limitation assessments on any appurtenant water
stock; except that Borrower shall not be required to pay and discharge any tax,
assessment, charge or levy that is being actively contested in good faith by
appropriate proceedings, as long as Borrower has established and maintains
reserves adequate to pay any liabilities contested pursuant to this Section in
accordance with generally accepted accounting principles and, by reason of
nonpayment, none of the property covered by the Security Documents or the lien
or security interest of Lender is in danger of being lost of forfeited.
6.11 Insurance. The Borrower shall at all times maintain the following
---------
policies of insurance:
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<PAGE>
(a) prior to completion of the Improvements, builder's "all risk"
insurance ("completed value" form), including "course of construction" coverage,
covering the Improvements and any Personal Property;
(b) from and after completion of the Improvements, property "all risk"
insurance covering the Improvements and any Personal Property;
(c) commercial general liability insurance in favor of the Borrower
(and naming the Lender as an additional insured) in an aggregate amount not less
than $2,000,000.00 (or such greater amount as may be specified by the Lender
from time to time) combined single limit; and
(d) such other insurance as may be required by applicable Laws
(including worker's compensation and employer's liability insurance) or as the
Lender may reasonably require from time to time (including "all risk" insurance
with respect to any other improvements now or in the future located on the Real
Property and comprehensive form boiler and machinery insurance, if applicable,
rental loss insurance and business interruption insurance).
The Borrower shall also cause each subcontractor to maintain a policy of
commercial general liability insurance and, upon request by the Lender, shall
cause the Architect and any engineer engaged in connection with the Project to
maintain a policy of professional liability insurance, in each case for such
periods and in such amounts as the Lender may reasonably require from time to
time.
Each policy of property insurance required by this Section shall be in an
amount not less than the full replacement cost of the property covered by such
policy, shall contain a "waiver of coinsurance" provision, a "full replacement
cost" indorsement, shall insure each Lot against flood loss risk to the maximum
available policy amount if the Land is located in a Flood Hazard Area, and shall
name the Lender as an "additional insured and/or loss payee." Each policy of
commercial general liability insurance required by this Section shall cover
personal injury, property liability and (where applicable) completed operations
and such insurance shall be primary and non-contributing with any other
insurance available to the Lender. All insurance policies and certificates
evidencing such policies shall be in form and substance and issued by insurers
reasonably satisfactory to the Lender, and shall contain such deductible and
such endorsements as the Lender may reasonably require. Upon request by the
Lender from time to time, the Borrower shall deliver to the Lender originals or
copies of all such insurance policies and certificates evidencing such policies.
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<PAGE>
6.12 Title Insurance Endorsements. Borrower shall deliver or cause to be
----------------------------
delivered to Lender, in form and substance satisfactory to Lender, the following
endorsements to the Title Policy: 100, 101.4 and a Subdivision Map Act
endorsement, and such other endorsement and binders as Lender may from time to
time require.
6.13 Books and Records. Borrower shall: (a) maintain full and complete
-----------------
books of account and other records reflecting the results of its operations (in
conjunction with any other business as well as specifically with respect to the
Project) in accordance with generally accepted accounting principles applied on
a consistent basis; and (b) permit Lender and its agents, at any time and from
time to time, to inspect and copy all books and records pertaining to the
Project or the Project Documents.
6.14 Entry and Inspection. Lender and its agents shall, at all times,
--------------------
have the right of entry and free access to the Project and the right to inspect
all work done, labor performed, and materials furnished in and about the
Project. If, at any time, Lender determines, in its sole discretion, that
regular inspections of the Project are required, either by Disbursement Agent or
another representative of Lender, then Borrower shall allow free access to such
inspector. Such inspection shall be performed at Borrower's expense, with the
cost thereof to be paid upon demand by Borrower.
6.15 Physical Security of Project. Borrower shall take appropriate
----------------------------
measures to protect the physical security of the Project and the Property.
6.16 Reporting and Requirements. Borrower shall cause to be delivered to
--------------------------
Lender, in form and detail satisfactory to Lender:
(a) promptly upon Borrower's learning thereof, notice of:
(i) any litigation affecting or relating to Borrower, the
Property or the Project;
(ii) any dispute between Borrower and any Governmental Agency
relating to the Property or the Project, the adverse determination of which
would adversely affect the Property or the Project;
(iii) any threat or commencement of proceedings in condemnation
or eminent domain relating to the Property;
(iv) any Event of Default or event which, with the giving of
notice and/or the passage of time, could become an Event of Default; and
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(v) any change in the executive management personnel of
Borrowers.
(b) as soon as available, and in any event within thirty (30) calendar
days after the end of each month during the term of the Loan, a subdivision
status report for the Project for the month most recently ended (which status
report shall contain an itemized breakdown of the progress of construction,
sales of Lots, the gross revenues and all costs and expenses with respect to the
Project for such month), in reasonable detail and prepared in accordance with
generally accepted accounting principles applied on a consistent basis, and
certified as accurate by an officer of Borrower;
(c) as soon issued to the public, annual financial statements
applicable to Borrower, in reasonable detail and prepared in accordance with
generally accepted accounting principles applied on a consistent basis;
(d) promptly upon receipt thereof, any audited financial information
applicable to Borrower; and
(e) such other information relating to Borrower, the Property and/or
the Project as Lender may request from time to time.
6.17 Surveys. Borrower agrees to furnish Lender all of the following:
-------
(a) such survey as may be required by the Title Company in order to
issue the Title Policy; and
(b) upon request by Lender, immediately upon completion of the
foundations any of the Improvements, a survey made and certified by a licensed
engineer or surveyor showing the locations of the Improvements located on the
Property and showing that the Improvements are located entirely within the
Property lines and do not encroach upon any easement, or breach or violate any
Law or any covenant, condition or restriction of record, or any building or
zoning ordinance.
6.18 Management of Property and Project. Borrower shall not enter into any
----------------------------------
agreement providing for the management, leasing or operation of the Property or
the Project without the prior written consent of the Lender.
6.19 Defense of Vested Right, Modification of Vested Rights. Borrower
------------------------------------------------------
shall at all times, at its own cost and expense take, pursue and assert all such
actions and defenses as are necessary to perfect, maintain and protect its
vested development rights with respect to the Property. Should Borrower fail to
do so, Lender may do so either in its own name or the name of the Borrower, and
all unrecovered fees, costs and expenses incurred by Lender in
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connection therewith shall be payable by Borrower to Lender on demand, shall
bear interest at the Default Rate specified in the Note, and shall be secured by
the Deed of Trust. Borrower shall not modify, amend, cancel, terminate or
otherwise alter any development rights or entitlements with respect to the
Property, without Lender's prior written consent, which consent shall not be
unreasonably withheld.
SECTION 7 Intentionally Omitted.
---------------------
SECTION 8: EVENTS OF DEFAULT AND REMEDIES UPON DEFAULT.
-------------------------------------------
8.1 Events of Default. The occurrence of any one or more of the
-----------------
following, whatever the reason therefor, shall constitute an Event of Default
hereunder:
(a) Borrower shall fail to pay any installment of principal or
interest on the Note when due, or any other amount owing under this Agreement or
the other Loan Documents; or
(b) Borrower shall fail to perform or observe any term, covenant or
agreement contained in any of the Loan Documents on its part to be performed or
observed, other than the failure to make a payment covered by Section 8.1(a),
and such failure shall continue uncured as of the earliest of thirty (30)
calendar days after the occurrence of such failure or ten (10) calendar days
after written notice of such failure is given by Lender to Borrower (the cure
period set forth in this Section 8.1(b) shall not apply to any other Events of
Default); or
(c) any representation or warranty in any of the Loan Documents or in
any certificate, agreement, instrument or other document made or delivered
pursuant to or in connection with any of the Loan Documents proves to have been
incorrect in any material respect when made; or
(d) the Project is not completed in conformity with the Improvement
Plans in an orderly and expeditious manner, free and clear of mechanics',
materialmen's or other liens asserted by suppliers of labor, service, equipment
or material to the Project (except for liens for which Borrower has provided a
surety bond pursuant to Section 6.11 hereof); or
(e) work ceases on the Project for thirty (30) consecutive calendar
days for any reason whatsoever; or
(f) the Property is destroyed by fire or other casualty or damaged
thereby to an extent that would, in Lender's reasonable judgment, prevent or
preclude the completion of the Project in
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<PAGE>
conformity with the Improvement Plans in an orderly and expeditious manner; or
(g) any condition or circumstance arises or exists at any time by
reason of governmental order, decree or regulation, shortage of materials or for
any other reason whatsoever that would, in Lender's reasonable judgment, prevent
or preclude the completion of the Project in conformity with the Improvement
Plans in an orderly and expeditious manner; or
(h) Borrower is enjoined by any Governmental Agency from constructing
the Improvements or performing its obligations hereunder, such injunction is not
released or stayed within thirty (30) calendar days after the granting thereof,
and Lender reasonably determines that such injunction may prevent or preclude
the completion of the Project in conformity with the Improvement Plans in an
orderly and expeditious manner; or
(i) all or a substantial portion of the Property is condemned, seized
or appropriated by any Governmental Agency; or
(j) Borrower is dissolved or liquidated, or otherwise ceases to exist,
or all or substantially all of the assets of Borrower are sold or otherwise
transferred without Lender's written consent; or
(k) Borrower is the subject of an order for relief by the bankruptcy
court, or is unable or admits in writing its inability to pay its debts as they
mature, or makes an assignment for the benefit of creditors; or Borrower applies
for or consents to the appointment of any receiver, trustee, custodian,
conservator, liquidator, rehabilitator or similar officer is appointed without
the application or consent of Borrower, as the case may be, and the appointment
continues undischarged or unstayed for thirty (30) calendar days; or Borrower
institutes or consents to any bankruptcy, insolvency, reorganization,
arrangement, readjustment of debt, dissolution, custodianship, conservatorship,
liquidation, rehabilitation or similar proceedings relating to it or to all or
any part of its property under the Laws of any jurisdictional or any similar
proceeding is instituted without the consent of Borrower and continues
undismissed or unstayed for thirty (30) calendar days; or any judgment, writ,
attachment, execution or similar process is issued or levied against all or any
part of the Property or Borrower and is not released, vacated or fully bonded
within thirty (30) calendar days after its issue or levy; or
(l) Borrower shall cease to act as general contractor for the Project,
and Borrower shall fail to obtain Lender's approval of a new general contractor
within twenty (20) calendar days thereafter; or
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<PAGE>
(m) there shall occur a material adverse change in the financial
condition of Borrower from its financial condition as of the date of this
Agreement, as determined by Lender in its reasonable discretion, which change
will reasonably result in Borrower being unable to repay the Note in a timely
manner; or
(n) any Loan Document, at any time after its execution and delivery
and for any reason other than the agreement of Lender or the satisfaction in
full of all indebtedness and obligations of Borrower under the Loan Documents,
ceases to be in full force and effect or is declared to be null and void by a
court of competent jurisdiction; or Borrower or any officer, director, or
shareholder of Borrower claims that any Loan Document is ineffective or
unenforceable, in whole or in part, or denies that it has any or further
liability or obligation under any Loan Document unless all indebtedness and
obligations of Borrower thereunder have been fully paid and performed; or
(o) any lien or security interest created by any Security Document, at
any time after the execution and delivery of that Security Document and for any
reason other than the agreement of Lender or the satisfaction in full of all
indebtedness and obligations of Borrower under the Loan Documents, ceases or
fails to constitute a valid, perfected and subsisting lien or security interest
in and to the Property purported to be covered thereby, subject only to the
Permitted Exceptions; or
(p) any default occurs in any loan document or other agreement by and
between Borrower and Lender or by Borrower in favor of Lender with reference to
the Loan or otherwise, or any default occurs in any loan document regarding any
loan secured by the Property or any portion thereof.
8.2 Remedies Upon Default. Upon the occurrence of any Event of Default,
---------------------
Lender may, at its option, do any or all of the following:
(a) declare the principal of all amounts owing under the Note, this
Agreement and the other Loan Documents and other obligations secured by the
Security Documents, including the Prepayment Fee, if any, together with interest
thereon, and any other obligations of Borrower to Lender to be forthwith due and
payable, regardless of any other specified maturity or due date, without notice
of default, presentment or demand for payment, protest or notice of nonpayment
or dishonor, or other notices or demands of any kind or character, and without
the necessity of prior recourse to any security;
(b) take possession of the Property and let contracts for, or
otherwise proceed with, the finishing of the Improvements and pay the cost
thereof; and if Lender advances its own funds for such purposes, such funds
shall be considered advances under the
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<PAGE>
Note and shall be secured by the Security Documents, notwithstanding that such
advances may cause the total amount advanced under the Note to exceed the face
amount of the Note or the amount committed to be advanced pursuant to this
Agreement, and Borrower shall immediately upon demand reimburse Lender therefor,
together with interest thereon as if such advances were advances under the Note,
from the date of such advance until the date of reimbursement;
(c) terminate Borrower's right to receive any portion of the proceeds
from the sale of any Lot until the Loan is repaid in full;
(d) terminate Disbursements of the Loan and all rights of Borrower and
obligations of Lender under the Loan Documents; and
(e) exercise any and all of its rights under the Loan Documents,
including but not limited to the right to take possession of and foreclose on
any security, and exercise any other rights with respect to any security,
whether under the Security Documents or any other agreement or as provided by
Law, all in such order and in such manner as Lender in its sole discretion may
determine.
8.3 Cumulative Remedies; No Waiver. All remedies of Lender provided for
------------------------------
herein are cumulative and shall be in addition to any and all other rights and
remedies provided in the other Loan Documents or provided by Law from time to
time. The exercise of any right or remedy by Lender hereunder shall not in any
way constitute a cure or waiver of any default hereunder or under any of the
other Loan Documents, nor invalidate any notice of default or any act done
pursuant to any such notice, nor prejudice Lender in the exercise of any rights
hereunder or under the Loan Documents. No waiver by Lender of any default by
Borrower hereunder shall be implied from any omission by Lender to take action
on account of such default if such default persists or is repeated, and no
express waiver shall affect any default other than the default expressly made
the subject of the waiver. Any such express waiver shall be operative only for
the time and to the extent therein stated. Any waiver of any covenant, term or
condition contained herein shall not be construed as a waiver of any subsequent
breach of the same covenant, term or condition. The consent or approval by
Lender to or of any act by Borrower requiring further consent or approval shall
not be deemed to waive or render unnecessary consent or approval to or of any
subsequent act.
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<PAGE>
SECTION 9: MISCELLANEOUS.
-------------
9.1 Performance by Lender. In the event that Borrower shall default in or
---------------------
fail to perform any of its obligations under the Loan Documents, Lender shall
have the right, but not the duty, without limitation upon any of Lender's rights
pursuant thereto, to perform the same, and Borrower agrees to pay to Lender, on
demand, all costs and expenses incurred by Lender in connection therewith,
including without limitation actual attorneys' fees, together with interest
thereon from the date of expenditure at the Default Rate.
9.2 Actions. Lender shall have the right to commence, appear in, and
-------
defend any action or proceeding purporting to affect the rights or duties of the
parties hereunder or the payment of any funds, and in connection therewith
Lender may pay necessary expenses, employ counsel, and pay reasonable attorneys'
fees. Borrower agrees to pay to Lender, on demand, all costs and expenses
incurred by Lender in connection therewith, including without limitation actual
attorneys' fees, together with interest thereon from the date of expenditure at
the Default Rate.
9.3 Advances Obligatory. Anything herein to the contrary notwithstanding,
-------------------
it is specifically understood and agreed that any advances made by Lender
pursuant to this Agreement, including, but not limited to, all funds advanced by
Lender, shall be deemed advanced by Lender under an obligation to do so,
regardless of the person or entity to whom such advance is made. Advances made
in the reasonable exercise of Lender's judgment that such are necessary to
complete the Improvements or to protect its security are to be deemed obligatory
advances hereunder and are to be secured by the Note and Deed of Trust, and such
security shall relate back to the original recording of the Deed of Trust.
9.4 Nonliability of Lender. Borrower acknowledges and agrees that:
----------------------
(a) any inspections of the construction of the Improvements made by or
through Lender are for purposes of administration of the Loan only and Borrower
is not entitled to rely upon the same with respect to the quality, adequacy or
suitability of materials or workmanship, conformity to the Improvement Plans,
state of completion or otherwise; Borrower shall make its own inspections of
such construction to determine that the quality of the Improvements and all
other requirements of such construction are being performed in a manner
satisfactory to Borrower and in conformity with the Improvement Plans and all
applicable Laws; and Borrower shall immediately notify Lender, in writing,
should the same not be in conformity with the Improvement Plans and all
applicable laws;
(b) by accepting or approving anything required to be observed,
performed, fulfilled or given to Lender pursuant to the
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<PAGE>
Loan Documents, including any certificate, statement of profit and loss or other
financial statement, survey, appraisal, lease or insurance policy, Lender shall
not be deemed to have warranted or represented the sufficiency, legality,
effectiveness or legal effect of the same, or of any term, provision or
condition thereof, and such acceptance or approval thereof shall not constitute
a warranty or representation to anyone with respect thereto By Lender;
(c) Lender neither undertakes nor assumes any responsibility or duty
to Borrower to select, review, inspect, supervise, pass judgment upon or inform
Borrower of any matter in connection with the Project, including without
limitation matters relating to the quality, adequacy or suitability of: (i) the
Improvement Plans or any Change Orders, (ii) architects, contractors,
subcontractors and material men employed or utilized in connection with the
construction of the Improvements, or the workmanship of or the materials used by
any of them, or (iii) the progress or course of construction and its conformity
or nonconformity with the Improvement Plans or any Change Orders; and Borrower
shall rely entirely upon its own judgment with respect to such matters, and any
review, inspection, supervision, exercise of judgment or information supplied to
Borrower by Lender in connection with such matters is for the protection of
Lender only and neither Borrower nor any third party is entitled to rely
thereon;
(d) Lender owes no duty of care to protect Borrower against negligent,
faulty, inadequate or defective building or construction;
(e) the relationship of Borrower and Lender under the Loan Documents
is, and shall at all times remain, solely that of borrower and lender, and
Lender neither undertakes nor assumes any responsibility or duty to Borrower or
to any other Person with respect to the Property or Loan, except as expressly
provided in the Loan Documents; and notwithstanding any other provision of the
Loan Documents: (i) Lender is not, and shall not be construed as, a partner,
joint venturer, alter-ego, manager, controlling person or other business
associate or participant of any kind of Borrower and Lender does not intend to
ever assume such status; (ii) Lender's activities in connection with the Loan
Documents shall not be "outside the scope of the activities of a lender of
money" under Nevada law, as amended or recodified from time to time, and Lender
does not intend to ever assume any responsibility to any Person for the quality,
suitability, safety or condition of the Property or Improvements; and (iii)
Lender shall not be deemed responsible for or a participant in any acts,
omissions or decisions of Borrower; and
(f) Lender shall not be directly or indirectly liable or responsible
for any loss, claim, cause of action, liability,
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<PAGE>
indebtedness, damage or injury of any kind or character to any Person or
property arising from any construction on, or occupancy or use of, any of the
Property, whether caused by, or arising from: (i) any defect in any building,
structure, grading, fill, landscaping, or other improvements thereon or in any
on-site or off-site improvement or other facility therein or thereon; (ii) any
act or omission of Borrower or any of Borrower's agents, employees, independent
contractors, licensees or invitees; (iii) any accident in or on any of the
Property or any fire, flood or other casualty or hazard thereon; (iv) the
failure of Borrower, any of Borrower's licensees, employees, invitees, agents,
independent contractors or other representatives to maintain any of the Property
in a safe condition; and (v) any nuisance made or suffered on any part of the
Property.
9.5 No Third Parties Benefitted. This Agreement is made for the purpose
---------------------------
of defining and setting forth certain obligations, rights and duties of Borrower
and Lender in connection with the Loan. It shall be deemed a supplement to the
Note and the Security Documents, and shall not be construed as a modification of
the Note or the Security Documents, except as provided herein. It is made for
the sole protection of Borrower and Lender, and Lender's successors and assigns.
No other Person shall have any rights of any nature hereunder or by reason
hereof.
9.6 Indemnity. Borrower indemnifies Lender against, and holds Lender
---------
harmless from, any and all losses, damages (whether general, punitive or
otherwise), liabilities, claims, cause of action (whether legal, equitable or
administrative), judgments, court costs and legal or other expenses, including
attorneys' fees, which Lender may suffer or incur as a direct or indirect
consequence of: (a) Lender's performance of this Agreement or any of the Loan
Documents, including, without limitation, Lender's exercise or failure to
exercise any rights, remedies or powers in connection with this Agreement or any
of the Loan Documents but excluding charges and assessments by Governmental
Agencies imposed upon the Lender in the normal course of the Lender's business
such as taxes and regulatory fees; (b) Borrower's failure to perform any of
Borrower's obligations as and when required by this Agreement or any of the
other Loan Documents, including, without limitation, any failure, at any time,
of any representation or warranty of Borrower to be true and correct and any
failure by Borrower to satisfy any condition; (c) any claim or cause of action
of any kind by any Person to the effect that Lender is in any way responsible or
liable for any act or omission by Borrower, whether on account of any theory or
derivative liability or otherwise, including but not limited to any claim or
cause of action for fraud, misrepresentation, tort or willful misconduct; (d)
any act or omission by Borrower, any contractor, subcontractor or material
supplier, engineer, architect, or any other Person with respect to any of the
Property or Improvements; or (e) any claim or cause of action of any kind by any
Person which would have the effect of
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<PAGE>
denying Lender the full benefit or protection of any provision of this Agreement
or the Loan Documents but excluding charges and assessments by Governmental
Agencies imposed upon Lender in the normal course of Lender's business such as
taxes and regulatory fees. Lender's rights of indemnity shall not be directly
or indirectly limited, prejudiced, impaired or eliminated in any way by any
finding or allegation that Lender's conduct is active, passive or subject to any
other classification or that Lender is directly or indirectly responsible under
any theory of any kind, character or nature for any act or omission by Borrower
or any other Person. Notwithstanding the foregoing, Borrower shall not be
obligated to indemnify Lender with respect to any intentional tort or act of
gross negligence which Lender is personally determined by the judgment or a
court of competent jurisdiction (sustained on appeal, if any) to have committed.
Borrower shall pay any indebtedness arising under this indemnity to Lender
immediately upon demand by Lender together with interest thereon from the date
such indebtedness arises until paid at the Default Rate. Borrower's duty to
defend and indemnify Lender shall survive the release and cancellation of the
Note and the release and reconveyance or partial release and reconveyance of the
Deed of Trust.
9.7 Commissions. Borrower hereby indemnifies Lender from the claim of any
-----------
Person for a commission or fee, including, without limitation, any claim for a
fee from Griess & Associates.
9.8 Lenders' Representative. The Lender hereby appoints USA Commercial
-----------------------
Mortgage Company, by and through its officers and agents, to administer the Loan
on his behalf, to make all necessary demands on Borrower and to execute and
deliver all approvals and notices to be given by Lender hereunder.
9.9 Binding Effect; Assignment. This Agreement shall be binding upon and
--------------------------
inure to the benefit of Borrower and Lender and their respective successors and
assigns, except that Borrower may not assign its rights or interests or delegate
any of its duties under this Agreement or any of the other Loan Documents
without the prior written consent of Lender.
9.10 Amendments; Consents. No amendment, modification, supplement,
--------------------
termination or waiver of any provision of this Agreement or any of the other
Loan Documents, and no consent to any departure by Borrower therefrom, may in
any event be effective unless in writing signed by Lender, and then only in the
specific instance and for the specific purpose given.
9.11 Costs, Expenses and Taxes. Borrower shall pay to Lender, on demand:
-------------------------
(a) the actual attorneys' fees and out-of-pocket expenses incurred by
Lender in connection with the negotiation,
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<PAGE>
preparation, execution, delivery and administration of this Agreement and any
other Loan Documents and any matter related thereto;
(b) the actual costs and expenses of Lender in connection with any
modification of any Loan Document or in connection with the enforcement of this
Agreement and any other Loan Document and any matter related thereto, including
the actual fees and out-of-pocket expenses of any legal counsel, independent
public accountants and other outside experts retained by Lender; and
(c) all costs, expenses, fees, premiums and other charges relating or
arising with respect to the Loan Documents or any transactions contemplated
thereby or the compliance with any of the terms and conditions thereof,
including, without limitation, the Disbursement Agent's fee, appraisal fees,
inspection fees, cost review fees, recording fees filing fees, release or
reconveyance fees, title insurance premiums, and the cost of realty tax service
for the term of the Loan.
All sums paid or expended by Lender under the terms of this Agreement and
the other Loan Documents shall be considered to be a part of the Loan. Except
as otherwise specifically stated herein, all such sums shall be secured by the
Security Documents, shall ear interest from the date of expenditure as if such
sums were advances under the Note, and shall be immediately due and payable by
Borrower upon demand.
9.12 Survival of Representations and Warranties. All representations and
------------------------------------------
warranties of Borrower contained herein or in any other Loan Document shall
survive the making of the Loan and the execution and delivery of the Note, and
are material and have been or will be relied upon by Lender, notwithstanding any
investigation made by Lender or on behalf of Lender. For the purpose of the
foregoing, all statements contained in any certificate, agreement, financial
statement, or other writing delivered by or on behalf of Borrower pursuant
hereto or to any other Loan Document or in connection with the transactions
contemplated hereby or thereby shall be deemed to be representations and
warranties of Borrower contained herein or in the other Loan Documents, as the
case may be.
9.13 Notices. All notices to be given pursuant to this Agreement shall be
-------
sufficient if given by personal services, by guaranteed overnight delivery
services, by telex, telecopy or telegram or by being mailed postage prepaid,
certified or registered mail, return receipt requested, to the described
addresses of the parties hereto as set forth below, or to such other address as
a party may request in writing. Any time period provided in the giving of any
notice hereunder shall commence upon the date of personal service, the date
after delivery to the
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<PAGE>
guaranteed overnight delivery service, the date of sending the telex, telecopy
or telegram or two (2) days after mailing certified or registered mail.
BORROWER'S ADDRESS: Inco Homes Corporation
__________________________
__________________________
__________________________
Attn: ____________________
LENDERS' ADDRESSES: c/o USA Commercial Mortgage Company
3900 Paradise Road, Suite 263
Las Vegas, Nevada 89109
WITH DUPLICATE NOTICE TO: Goold, Patterson, DeVore & Rondeau
4496 So. Pecos Road
Las Vegas, Nevada 89121
Attn: Thomas J. DeVore, Esq.
9.14 Further Assurances. Borrower shall, at its sole expense and without
------------------
expense to Lender, do such further acts and execute and deliver such further
documents as Lender from time to time may require for the purpose of assuring
and confirming unto Lender the rights hereby created or intended now or
hereafter so to be, or for carrying out the intention or facilitating the
performance of the terms of any Loan Document, or for assuring the validity of
any security interest or lien under any Security Document.
9.15 Governing Law. This Agreement governing the contractual rights and
-------------
obligations of Borrower and Lender shall be construed according to and governed
by the laws of the State of Nevada, except to the extent that the laws of the
State of California shall govern the perfection, priority and procedures for
foreclosure of the lien created by the Deed of Trust. Borrower hereby consents
to the jurisdiction of any competent court in the State of Nevada and consents
to service of process by any means authorized by Nevada law in any action
brought under or arising out of this Agreement.
9.16 Severability of Provisions. Any provision in any Loan Document that
--------------------------
is held to be inoperative, unenforceable or invalid shall be inoperative,
unenforceable or invalid without affecting the remaining provisions, and to this
end the provisions of all Loan Documents are declared to be severable.
9.17 Assignment or Sale of Participations by Lender. Lender may, at any
----------------------------------------------
time, sell, transfer, assign or grant participations in the Loan and in the Loan
Documents and Lender may forward to its Partners or to such participant and
prospective participant all
-29-
<PAGE>
documents and information relating to the Loan and to Borrower, whether
furnished by Borrower or otherwise, as Lender determines necessary or desirable.
Lender may also reasonably divulge and advertise its making of the Loan and the
amount thereof.
9.18 Headings. Section headings in this Agreement are included for
--------
convenience of reference only and are not part of this Agreement for any other
purpose.
9.19 Time of the Essence. Time is of the essence.
-------------------
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
"BORROWER":
Inco Homes Corporation, a Delaware
corporation
By: /s/ IRA C. NORRIS
________________________
Ira C. Norris
Its: President
[Lender's Signatures on Following Page]
-30-
<PAGE>
"LENDER":
<TABLE>
<S> <C>
The Augustine Tuffinelli __________________________________
Family Trust Cheryl Mayorga
By: ________________________________ __________________________________
Augustine Tuffinelli, as Barry Ross
Trustee
The Shirley Jean Tuffinelli __________________________________
Trust Amy Ross
By: ________________________________ __________________________________
Shirley Jean Tuffinelli, Frank Reale
as Trustee
____________________________________ __________________________________
Carol Ayers Christina Reale
____________________________________ __________________________________
Ruth Campbell Lauren Reale
____________________________________ Newby 1984 Trust UAD 3/19/84
Brent Johnson
By: ______________________________
The Richard Carpenter Living C.E. Newby, as Trustee
Trust
By: ______________________________
By: ________________________________ Carole J. Newby, as Trustee
Richard E. Carpenter, as
Trustee
The Russ & Betty Zuardo
By: ________________________________ Community Property Trust UAD
Richard R. Panneitz, as 7/7/89
Trustee
By: ______________________________
____________________________________ Russell J. Zuardo, as
Larry L. Mayorga Trustee
__________________________________
Sandra Blumen
</TABLE>
-31-
<PAGE>
<TABLE>
<S> <C>
___________________________________ Ryan E. Kurlinski UTMA NV
David L. Fantauzzi
By: ______________________________
The Buckalew Trust John Kurlinski, as
Custodian
By: _______________________________
Robert M. Buckalew, as __________________________________
Trustee Don Behringer
By: _______________________________ __________________________________
Janet Buckalew, as Diane Behringer
Trustee
The Von Euw 1996 Trust dtd
1/11/96
The Lamagra Family Trust dtd
11/11/92
By: ______________________________
Tobias Von Euw, as
By: _______________________________ Trustee
Alvatore J. Lamagra,
as Trustee
By: ______________________________
Patricia Von Euw, as
By: _______________________________ Trustee
Althea Rosalind Lamagra, as
Trustee The Schaff Family Revocable
Living Trust dtd 6/26/94
Dennis G. Campton M.D. Profit
Sharing Plan UAD 3/16/72 By: ______________________________
Wilbur A. Schaff, as
Trustee
By: _______________________________
Dennis G. Campton, M.D.,
as Trustee By: ______________________________
Judy K. Schaff, as
Katz & Associates MP & PSP UAD Trustee
1/1/87 fbo Sara M. Katz
By: _______________________________
Sara M. Katz, as Trustee
Joshua J. Kurlinski UTMA NV
By: _______________________________
John Kurlinski, as Custodian
</TABLE>
-32-
<PAGE>
<TABLE>
<S> <C>
The Erven J. Nelson & Frankie __________________________________
J. Nelson Trust dtd 9/11/84 Robin Dunfield
David Mulkey IRA
By: _______________________________
Erven J. Nelson, as
Trustee By: ______________________________
Nevada State Bank, as
Custodian
By: _______________________________
Frankie J. Nelson, as
Trustee
Reiichi Iizuka PSP dtd 4/1/72
By: _______________________________
Reiichi Iizuka, as
Trustee
The Jack M. & Norma E. Wagman
Family Trust dtd 8/13/93
By: _______________________________
Jack M. Wagman, as
Trustee
By: _______________________________
Norma E. Wagman, as Trustee
___________________________________
William S. Van Buskirk
The Christina J. Colligan
Living Trust UAD 8/7/96
By: _______________________________
Christina J. Colligan, as
Trustee
___________________________________
Norma Meersand
</TABLE>
-33-
<PAGE>
EXHIBIT "A"
Lenders
<TABLE>
<CAPTION>
Undivided
Interest
---------
<S> <C>
Augustine Tuffinelli, Trustee of the
Augustine Tuffinelli Family Trust 3.4146%
Shirley Jean Tuffinelli, Trustee of the
Shirley Jean Tuffinelli Trust 1.4634%
Carol Ayers 2.4390%
Ruth Campbell and Brent Johnson, as joint
tenants with rights of survivorship 4.8780%
Richard E. Carpenter and Richard R.
Panneitz, Trustees of the Richard Carpenter
Living Trust 2.4390%
Larry L. Mayorga and Cheryl Mayorga,
as joint tenants with rights of survivorship 2.4390%
Barry Ross and Amy Ross, as joint tenants
with rights of survivorship 2.4390%
Frank Reale 7.3170%
Christina Reale 2.4390%
Lauren Reale 2.4390%
C.E. Newby and Carole J. Newby, as trustees
FBO Newby 1984 Trust UAD 3/19/84 2.4390%
Russell J. Zuardo, as trustee of the Russ
& Betty Zuardo Community Property Trust
UAD 7/7/89 4.8780%
Sandra Blumen 3.6585%
David L. Fantauzzi 2.4390%
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Alvatore J. Lamagra and Althea Rosalind
Lamagra, as trustees of the Lamagra Family
Trust dtd 11/11/92 2.4390%
Dennis G. Campton, M.D., as trustee fbo
Dennis G. Campton M.D. Profit Sharing Plan
UAD 3/16/72 2.4390%
Sara M. Katz, as trsutee fbo Katz &
Associates MP & PSP UAD 1/1/87 fbo
Sara M. Katz 2.4390%
John Kurlinski c/f Joshua J. Kurlinski
UTMA NV 1.2200%
John Kurlinski c/f Ryan E. Kurlinski
UTMA NV 1.2200%
Don Behringer and Diane Behringer, as joint
tenants with rights of survivorship 2.4390%
Tobias Von Euw and Patricia Von Euw, as
trustees of the Von Euw 1996 Trust dtd 1/11/96 4.8780%
Wilbur A. Schaff and Judy K. Schaff, as
trustees of the Schaff Family Revocable
Living Trust dtd 6/26/94 4.8780%
Reiichi Iizuka, as trustee fbo Reiichi
Iizuka PSP dtd 4/1/72 7.3170%
Jack M. Wagman and Norma E. Wagman, as
trustees of the Jack M. & Norma E. Wagman
Family Trust dtd 8/13/93 2.4390%
William S. Van Buskirk 2.4390%
Christina J. Colligan, as trustee of the
Christina J. Colligan Living Trust UAD 8/7/96 4.8780%
Norma Meersand and Robin Dunfield, as joint
owners with rights of survivorship 2.4390%
Nevada State Bank c/f David Mulkey IRA 4.8780%
USA Commercial Mortgage Company, Inc. 8.5365%
</TABLE>
<PAGE>
EXHIBIT "B"
PERMITTED EXCEPTIONS
--------------------
The permitted exceptions shall include:
Exception Nos. A through NNN, inclusive, with all property taxes shown
-----------------------------
as being paid current as of the closing, and Nos. 2, 3, 4, 7, 8, 9, 11, 12, 13,
- ---------------------------------------
15, 16, 18, 19, 20, 22, 23, 24, 25, and 26 as shown on that Preliminary Report
issued by Fidelity National Title Insurance Company, No. 61417-CT, dated as of
December 3, 1996 at 7:30 a.m.
<PAGE>
EXHIBIT "C"
Phases of Construction
----------------------
INCO HOMES CORPORATION
DESERT PRIDE - LA QUINTA
PROJECTED PHASING SCHEDULE
<TABLE>
<CAPTION>
LOT
PHASE UNITS NUMBERS
--------------------------------------------------------------
<S> <C> <C>
1B 21 1-12, 22-31
2A 17 1-17
2B 17 18-34
3A 15 1-7, 21-28
3B 13 8-20
4A 15 6-20
4B 12 1-5, 21-27
5A 13 1-13
5B 13 14-21, BUILDOUT - PHASE 1 36-40
---
UNITS TO BUILD 136
MODELS 4
---
===
TOTAL UNITS 140
===
</TABLE>
Note: The phasing projections are tentative. They are subject to change based on
sales rates and unanticipated construction considerations that may
develop.
<PAGE>
EXHIBIT "C"
Phases of Construction
----------------------
REUNION AT LA QUINTA
TRACT 23995 - 150 LOTS
[MAP OF TRACT LOT]
<PAGE>
EXHIBIT "D"
LEGAL DESCRIPTION
-----------------
THE LAND REFERRED TO IN THIS REPORT IS SITUATED IN THE STATE OF CALIFORNIA,
COUNTY OF RIVERSIDE, AND IS DESCRIBED AS FOLLOWS:
PARCEL 1:
- --------
Lots 1 through 11 inclusive and 22 through 40 inclusive of Tract No. 23995-1, in
the County of Riverside, State of California, as per map recorded in Book 249,
Pages 84 through 87, records of said County.
PARCEL 2:
- --------
That portion of the Southeast one-quarter of Section 19, Township 5 South, Range
7 East, San Bernardino Meridian, in the City of La Quinta, County of Riverside,
State of California, more particularly, described as follows:
Commencing at the Northeast corner of said Southeast one-quarter of Section 19;
thence South 00 degrees 10'15" East along the Easterly line of said Southeast
one-quarter a distance of 50.00 feet to the true point of beginning; thence
continuing along said Easterly line, South 00 degrees 10'15" East, a distance of
1303.00 feet:
Thence South 89 degrees 49'45" West a distance of 166.00 feet;
Thence South 00 degrees 10'15" East a distance of 132.00 feet;
Thence South 89 degrees 49'45" West a distance of 278.00 feet;
Thence South 00 degrees 10'15" East a distance of 30.73 feet;
Thence South 89 degrees 49'45" West a distance of 155.00 feet;
Thence South 06 degrees 33'51" West a distance of 34.45 feet;
Thence South 50 degrees 56'52" West a distance of 76.11 feet;
Thence South 87 degrees 35'59" West a distance of 47.38 feet;
Thence North 46 degrees 01'17" West a distance of 133.05 feet;
Thence North 28 degrees 00'09" West a distance of 47.42 feet;
Thence North 18 degrees 52'54" West a distance of 55.36 feet;
Thence North 00 degrees 10'15" West a distance of 111.77 feet;
Thence North 55 degrees 10'15" West a distance of 127.42 feet;
Thence North 55 degrees 12'13" West a distance of 60.86 feet;
Thence North 65 degrees 18'10" West a distance of 110.09 feet;
Thence South 10 degrees 34'37" West a distance of 119.32 feet;
Thence South 89 degrees 49'45" West a distance of 100.00 feet;
Thence North 80 degrees 14'17" West a distance of 60.91 feet;
Thence South 89 degrees 49'45" West a distance of 100.00 feet;
Thence North 00 degrees 10'15" West parallel with the Easterly line of said
Southeast one-quarter of Section 19 a distance of 1208.96 feet to a point on the
South line of the Northerly 50.00 feet of said Southeast one-quarter as granted
to the County of Riverside by deed recorded August 30, 1933 in Book 133, Page
292, Official Records;
Thence North 89 degrees 35'20" East along said South line a distance of 1,365.01
feet to the point of beginning.
<PAGE>
Said land is also known as Parcel "A" of lot line Adjustment No. 94-178
approved by the City of La Quinta.
EXCEPTING THEREFROM those portions lying within Trace 23995-1 and Tract 23995-2.
PARCEL 3:
- --------
Lots 1 thru 34, inclusive, of Tract 23995-2, as per map filed in Book 250, Pages
95 to 98, inclusive of Maps, records of said County.
<PAGE>
EXHIBIT "E"
-----------
Minimum Lot Sales Prices
------------------------
<TABLE>
<S> <C>
Plan 1 (Villa) $119,990.00
Plan 2 (Terrace) $125,990.00
Plan 3 (Oasis) $131,990.00
Plan 4 (Mirage) $146,990.00
</TABLE>
1133.33\LOAN06.AGR
<PAGE>
EXHIBIT 10.4
PROMISSORY NOTE
SECURED BY DEED OF TRUST
$2,050,000.00 Las Vegas, Nevada
February 11, 1997
This Promissory Note ("Note") is executed pursuant to the Loan Agreement
(the "Loan Agreement"), dated as of February 11, 1997 between INCO HOMES
CORPORATION, a Delaware corporation ("Borrower"), and those persons and entities
listed on Exhibit "A" attached hereto (collectively, "Lender"). Capitalized
terms used herein and not otherwise defined herein shall have the meanings set
forth in the Loan Agreement.
FOR VALUE RECEIVED, Borrower promises to pay to Lender, or order, the
principal sum of Two Million Fifty Thousand Dollars ($2,050,000.00) (the "Note
Amount"), as provided in the Loan Agreement, together with interest as provided
herein.
1. Interest Rate. Interest shall accrue on the outstanding portion of the
-------------
Note Amount, from the date such funds are initially disbursed by Lender until
the date the Note Amount is paid in full, at the rate of twenty and one-quarter
percent (20.25%) per annum. Interest shall be calculated on the basis of a 360-
day year and actual days elapsed. Accrued but unpaid interest shall be
compounded monthly.
2. Payments. Interest accrued on the Note Amount as of the last day of
--------
each month, shall be due and payable on the first day of the next following
month. On the Maturity Date, the Note Amount, together with any accrued but
unpaid interest thereon, shall be payable in full. All payments shall be made
in lawful money of the United States of America and in immediately available
funds at Lender's office, the address for which is specified in the Loan
Agreement, or at such other place as the holder hereof may from time to time
direct by written notice to Borrower.
3. Maturity Date. The term of this Note shall be for a period of eighteen
-------------
(18) months from the date the Deed of Trust is recorded. If not sooner paid, the
outstanding principal balance under this Note, all accrued and unpaid interest,
and all other indebtedness of Borrower owing under any and all of the Loan
Documents shall be due and payable in full on the Maturity Date.
4. Application of Payments. All payments on this Note shall, at the
-----------------------
option of the holder hereof, be applied first to the payment of accrued interest
then payable.
5. Prepayment. Borrower may prepay the Note at any time prior to the
----------
Maturity Date.
<PAGE>
6. Loan Agreement. This Note is entitled to all of the rights, benefits
--------------
and privileges provided for in the Loan Agreement as it may from time to time be
supplemented, modified or amended. The Loan Agreement, among other things,
contains provisions for acceleration of the maturity hereof upon the happening
of certain stated events.
7. Collateral. This Note is secured by (a) the Deed of Trust (the "Deed
----------
of Trust") executed by Borrower, as trustor, in favor of Lender, as beneficiary,
covering certain real property located in the County of Riverside, State of
California (the "Property"), and (b) all other existing and future Security
Documents.
8. Defaults; Acceleration. The occurrence of any Event of Default as
----------------------
defined in the Loan Agreement shall be a default hereunder. Upon the occurrence
of an Event of Default, Lender may declare the entire principal of the Note then
outstanding (if not then due and payable thereunder) and all other obligations
of Borrower hereunder and under the Loan Documents, to be due and payable
immediately, and, subject to applicable provisions of law, upon any such
declaration the principal of the Note and accrued and unpaid interest, and all
other amounts to be paid under the Note, the Deed of Trust or any other Loan
Document shall become and be immediately due and payable, anything in this Note
or in the Deed of Trust to the contrary notwithstanding.
9. Late Charge. Borrower acknowledges that if any interest payment is not
-----------
made when due or if the entire amount due under this Note is not paid by the
Maturity Date, the holder hereof will incur extra administrative expenses (i.e.,
----
in addition to expenses incident to receipt of timely payment) and the loss of
the use of funds in connection with the delinquency in payment. Because the
actual damages suffered by the holder hereof by reason of such extra
administrative expenses and loss of use of funds would be impracticable or
extremely difficult to ascertain, Borrower agrees that five percent (5%) of the
amount so delinquent shall be the amount of damages to which such holder is
entitled, upon such breach, in compensation therefor. Therefore, Borrower
shall, in the event any payment required under this Note is not paid within five
(5) days after the date when such payment becomes due and payable, without
further notice, pay to the holder hereof as such holder's sole monetary recovery
to cover such extra administrative expenses and loss of use of funds, liquidated
damages in the amount of five percent (5%) of the amount of such delinquent
payment. The provisions of this paragraph are intended to govern only the
determination of damages in the event of a breach in the performance of the
obligation of Borrower to make timely payments hereunder. Nothing in this Note
shall be construed as an express or implied agreement by the holder hereof to
forbear in the collection of any delinquent payment or in exercising any of its
rights and remedies under the Loan Documents, or be construed as in
2
<PAGE>
any way giving Borrower the right, express or implied, to fail to make timely
payments hereunder, whether upon payment of such damages or otherwise. The
right of the holder hereof to receive payment of such liquidated and actual
damages, and receipt thereof, are without prejudice to the right of such holder
to collect such delinquent payments and any other amounts provided to be paid
hereunder or under any security for this Note or to declare a default hereunder
or under any security for this Note.
10. Default Rate. From and after the Maturity Date or the date which is
------------
five (5) days after the occurrence of any Event of Default, through and
including the date such default is cured, at the option of the holder hereof,
all amounts owing under the Note and all sums owing under all of the Loan
Documents shall bear interest at a default rate equal to twenty-five and one-
quarter percent (25.25%) per annum ("Default Rate"). Such interest shall be paid
on the first day of each month thereafter, or on demand if sooner demanded.
11. Waivers. Borrower waives any right of offset it now has or may
-------
hereafter have against the holder hereof and its successors and assigns.
Borrower waives presentment, demand, protest, notice of protest, notice of
nonpayment or dishonor and all other notices in connection with the delivery,
acceptance, performance, default or enforcement of this Note (other than notices
expressly required by the terms of the Loan Agreement). Borrower expressly
agrees that any extension or delay in the time for payment or enforcement of
this Note, to renewal of this Note and to any substitution or release of the
Property, all without any way affecting the liability of Borrower hereunder.
Any delay on Lender's part in exercising any right hereunder or under any of the
Loan Documents shall not operate as a waiver. Lender's acceptance of partial or
delinquent payments or the failure of Lender to exercise any rights shall not
waive any obligation of Borrower or any right of Lender, or modify this Note, or
waive any other similar default.
12. Costs of Collection. Borrower agrees to pay all costs of collection
-------------------
when incurred and all costs incurred by the holder hereof in exercising or
preserving any rights or remedies in connection with the enforcement and
administration of this Note or following a default by Borrower, including but
not limited to actual attorneys' fees. If any suit or action is instituted to
enforce this Note, Borrower promises to pay, in addition to the costs and
disbursements otherwise allowed by law, such sum as the court may adjudge
reasonable attorneys' fees in such suit or action.
13. Sale or Other Encumbrances.
--------------------------
(a) In order to induce Lender to make the loan secured hereby,
Borrower agrees that if the Mortgaged Property or any part thereof or any
interest therein, shall be sold (except sales for
3
<PAGE>
which a partial release of the Deed of Trust shall be made pursuant to the Loan
Agreement), assigned, transferred, conveyed, pledged, mortgaged or encumbered
with financing other than that secured hereby or otherwise alienated by Borrower
whether voluntarily or involuntarily or by operation of law, except as shall be
specifically hereinafter permitted or without the prior written consent of
Lender, then Lender, at its option, may declare the Note secured hereby, and all
other obligations hereunder to be forthwith due and payable. Except as shall be
otherwise specifically provided herein, any (a) change in the legal or equitable
ownership of the Property whether or not of record, (b) change in the form of
entity of Borrower, (c) change in ownership (including the hypothecation or
encumbrance thereof) of a majority of the stock in Borrower held by Ira Norris,
or (d) change in the controlling executives and directors of Borrower shall be
deemed a transfer of an interest in the Property. In connection herewith, the
financial stability and managerial and operational ability of Borrower is a
substantial and material consideration to Lender in its agreement to make the
loan to Borrower secured hereby. The transfer of an interest in the Mortgaged
Property may materially alter and reduce Lender's security for the indebtedness
secured hereby. Moreover, Lender has agreed to make its loan based upon the
presumed value of the Mortgaged Property and the Rents and Profits thereof.
Therefore, it will be a diminution of Lender's security if junior financing,
except as shall be permitted by Lender, or if other liens or encumbrances should
attach to the Mortgaged Property.
(b) Borrower may request Lender to approve a sale or transfer of the
Mortgaged Property to a party who would become the legal and equitable owner of
the Mortgaged Property and would assume any and all obligations of Borrower
under the Loan Documents (the "Purchaser"). Lender shall not be obligated to
consider or approve any such sale, transfer or assumption or request for the
same. However, upon such request, Lender may impose limiting conditions and
requirements to its consent to an assumption.
(c) In the event ownership of the Mortgaged Property, or any part
thereof, becomes vested in a person or persons other than Borrower, the Lender
may deal with such successor or successors in interest with reference to the
Note or this Deed of Trust in the same manner as with Borrower, without in any
way releasing, discharging or otherwise affecting the liability of Borrower
under the Note, this Deed of Trust or the other Loan Documents. No sale of
Borrower's interest in the Mortgaged Property, no forbearance on the part of
Lender, no extension of the time for the payment of the Deed of Trust
indebtedness or any change in the terms thereof consented to by Lender shall in
any way whatsoever operate to release, discharge, modify, change or affect the
original liability of the Borrower herein, either in whole or in part. Any deed
conveying the Mortgaged Property, or any part thereof, shall provide that the
grantee thereunder assume all of Borrower's obligations under the Note, this
Deed of Trust and all other Loan
4
<PAGE>
Documents. In the event such deed shall not contain such assumption, Lender
shall have all rights reserved to it hereunder in the event of a default or if
Lender shall not elect to exercise such rights and remedies, the grantee under
such deed shall nevertheless be deemed to have assumed such obligations by
acquiring the Mortgaged Property or such portion thereof subject to this Deed of
Trust. Nothing contained in this section shall be construed to waive the
restrictions against the transfer of the Mortgaged Property contained in Section
12(a).
14. Usury. Borrower hereby represents that this loan is for commercial
-----
use and not for personal, family or household purposes. It is the specific
intent of the Borrower and Lender that this Note bear a lawful rate of interest,
and if any court of competent jurisdiction should determine that the rate herein
provided for exceeds that which is statutorily permitted for the type of
transaction evidenced hereby, the interest rate shall be reduced to the highest
rate permitted by applicable law, with any excess interest theretofore collected
being applied against principal or, if such principal has been fully repaid,
returned to Borrower upon written demand. Borrower further represents and
covenants that this Note is exempt from Article XV of the California
Constitution and the usury limits contained therein.
15. Notices. Any and all notices, demands and/or communications
-------
described herein, or which may be necessary or appropriate hereunder, shall be
given as provided in the Deed of Trust.
16. Assignment By Lender. Lender may assign its rights hereunder or
--------------------
obtain participants in this Note at any time, and any such assignee, successor
or participant shall have all rights of the Lender hereunder; provided, however,
that any such assignment shall in no way affect Lender's obligation to fund the
Loan pursuant to the Loan Agreement and terms hereof.
17. Multiple Parties. A default on the part of any one entity comprising
----------------
Borrower of this Note shall be deemed a default on the part of Borrower
hereunder.
18. Construction. This Note shall be governed by and construed in
------------
accordance with the laws of the State of Nevada. This Note and all security
documents and guaranties executed in connection with this Note have been
reviewed and negotiated by Borrower and Lender at arms' length with the benefit
of or opportunity to seek the assistance of legal counsel and shall not be
construed against either party. The titles and captions in this Note are
inserted for convenience only and in no way define, limit, extend, or modify the
scope of intent of this Note.
19. Partial Invalidity. If any section or provision of this Note is
------------------
declared invalid or unenforceable by any court of competent jurisdiction, said
determination shall not affect the validity or
5
<PAGE>
enforceability of the remaining terms hereof. No such determination in one
jurisdiction shall affect any provision of this Note to the extent it is
otherwise enforceable under the laws of any other applicable jurisdiction.
"BORROWER":
Inco Homes Corporation, a Delaware
corporation
By: /s/ IRA NORRIS
--------------------------
Ira Norris, President
For Value Received, I hereby transfer and assign an undivided 57.14286% of our
beneficial 8.5365% interest to Robert M. Buckalew or Janet Buckalew, as Trustees
of the Buckalew Trust; and an undivided 42.85714% or our 8.5365% beneficial
interest to Erven J. Nelson and Frankie J. Nelson, as Trustess of the Erven J.
Nelson and Frankie J. Nelson Trust dated September 11, 1984, the within Note and
deed of trust securing same so far as same pertains to said Note, WITHOUT
RECOURSE.
Dated this 20th day of February
in the year 1997
/s/ THOMAS HANTGES
------------------------------------
USA Commercial Mortgage Company
Thomas Hantges
President
6
<PAGE>
EXHIBIT "A"
BENEFICIARIES
<TABLE>
<CAPTION>
Undivided
Interest
---------
<S> <C>
Augustine Tuffinelli, Trustee of the
Augustine Tuffinelli Family Trust 3.4146%
Shirley Jean Tuffinelli, Trustee of the
Shirley Jean Tuffinelli Trust 1.4634%
Carol Ayers 2.4390%
Ruth Campbell and Brent Johnson, as joint
tenants with rights of survivorship 4.8780%
Richard E. Carpenter and Richard R.
Panneitz, Trustees of the Richard Carpenter
Living Trust 2.4390%
Larry L. Mayorga and Cheryl Mayorga,
as joint tenants with rights of survivorship 2.4390%
Barry Ross and Amy Ross, as joint tenants
with rights of survivorship 2.4390%
Frank Reale 7.3170%
Christina Reale 2.4390%
Lauren Reale 2.4390%
C.E. Newby and Carole J. Newby, as trustees
FBO Newby 1984 Trust UAD 3/19/84 2.4390%
Russell J. Zuardo, as trustee of the Russ
& Betty Zuardo Community Property Trust
UAD 7/7/89 4.8780%
Sandra Blumen 3.6585%
David L. Fantauzzi 2.4390%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Alvatore J. Lamagra and Althea Rosalind
Lamagra, as trustees of the Lamagra Family
Trust dtd 11/11/92 2.4390%
Dennis G. Campton, M.D., as trustee fbo
Dennis G. Campton M.D. Profit Sharing Plan
UAD 3/16/72 2.4390%
Sara M. Katz, as trsutee fbo Katz &
Associates MP & PSP UAD 1/1/87 fbo
Sara M. Katz 2.4390%
John Kurlinski c/f Joshua J. Kurlinski
UTMA NV 1.2200%
John Kurlinski c/f Ryan E. Kurlinski
UTMA NV 1.2200%
Don Behringer and Diane Behringer, as joint
tenants with rights of survivorship 2.4390%
Tobias Von Euw and Patricia Von Euw, as
trustees of the Von Euw 1996 Trust dtd 1/11/96 4.8780%
Wilbur A. Schaff and Judy K. Schaff, as
trustees of the Schaff Family Revocable
Living Trust dtd 6/26/94 4.8780%
Reiichi Iizuka, as trustee fbo Reiichi
Iizuka PSP dtd 4/1/72 7.3170%
Jack M. Wagman and Norma E. Wagman, as
trustees of the Jack M. & Norma E. Wagman
Family Trust dtd 8/13/93 2.4390%
William S. Van Buskirk 2.4390%
Christina J. Colligan, as trustee of the
Christina J. Colligan Living Trust UAD 8/7/96 4.8780%
Norma Meersand and Robin Dunfield, as joint
owners with rights of survivorship 2.4390%
Nevada State Bank c/f David Mulkey IRA 4.8780%
USA Commercial Mortgage Company, Inc. 8.5365%
</TABLE>
<PAGE>
EXHIBIT 10.5
RECORDING REQUESTED BY, AND
WHEN RECORDED RETURN TO:
GOOLD, PATTERSON, DEVORE &
RONDEAU
4496 SO. PECOS ROAD
LAS VEGAS, NEVADA 89121
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DEED OF TRUST, ASSIGNMENT OF RENTS,
SECURITY AGREEMENT AND FIXTURE FILING
THIS DEED OF TRUST, ASSIGNMENT OF RENTS, SECURITY AGREEMENT AND FIXTURE
FILING ("Deed of Trust"), made this 10th day of February, 1997, by and between
Inco Homes Corporation, a Delaware corporation ("Trustor"), Fidelity National
Title Insurance Company, a California corporation ("Trustee"), and those persons
and entities listed on Exhibit "A" attached hereto (collectively,
"Beneficiary"). Capitalized terms used herein and not otherwise defined herein
are used with the meanings set forth in that certain Loan Agreement ("Loan
Agreement") of even date herewith between Trustor and Beneficiary.
WITNESSETH:
That for good and valuable consideration, including the indebtedness herein
recited and the trust herein created, the receipt of which is hereby
acknowledged, and for the purpose of securing, in such priority as Beneficiary
may elect, each of the following:
1. The due, prompt and complete payment, observance, performance and
discharge of each and every obligation, covenant and agreement contained in that
certain Promissory Note of even date herewith in the initial principal amount of
Two Million Fifty Thousand Dollars ($2,050,000.00) (the "Note"), together with
interest thereon specified therein, executed by Trustor to the order of
Beneficiary and any and all modifications, extensions or renewals thereof,
whether hereafter evidenced by the Note or otherwise; and
2. The payment of all other sums, with interest thereon at the rate of
interest provided for herein or in the Note, becoming due or payable under the
provisions of this Deed of Trust, the Loan Agreement or any other instrument or
instruments heretofore or hereafter executed by Trustor having reference to or
arising out of or securing the indebtedness represented by the Note; and
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3. The payment of such additional sums and interest thereof which may
hereafter be loaned to Trustor, or its successors or assigns, by Beneficiary,
whether or not evidenced by a promissory note or notes which are secured by this
Deed of Trust; and
4. The due, prompt and complete observance, performance and discharge of
each and every obligation, covenant and agreement of Trustor contained in the
Loan Agreement, the Note, this Deed of Trust or any other Loan Document;
TRUSTOR DOES HEREBY irrevocably grant, transfer, bargain, sell, convey and
assign to Trustee, in trust, with power of sale and right of entry and
possession, and does grant to Beneficiary a security interest for the benefit
and security of Beneficiary under and subject to the terms and conditions
hereinafter set forth, in and to any and all of the following described property
which is (except where the context otherwise requires) herein collectively
called the "Mortgaged Property" whether now owned or held or hereafter acquired
and wherever located, including any and all substitutions, replacements and
additions to same:
(a) That certain real property located in Riverside County, State of
California and more particularly described in Exhibit "A," attached hereto and
incorporated herein by this reference, together with all of the easements,
rights, privileges, franchises, appurtenances thereunto belonging or in any way
appertaining to the real property, including specifically but not limited to all
appurtenant water, water rights and water shares or stock of Trustor, any and
all general intangibles relating to the use and/or development of the real
property, including development allotments, governmental permits, approvals,
authorizations and entitlements, agreements to provide necessary utility or
municipal services, the Project Documents, including all engineering plans and
diagrams, surveys and/or soil and substrata studies, and all other rights,
privileges and appurtenances related to the said real property and all of the
estate, right, title, interest, claim and demand whatsoever of Trustor therein
or thereto, either in law or in equity, in possession or in expectancy, now
owned or hereafter acquired (hereinafter referred to as the "Property");
(b) All structures, buildings and improvements of every kind and
description now or at any time hereafter located on the Property (hereinafter
referred to as the "Improvements"), including all equipment, apparatus,
machinery, fixtures, fittings, and appliances and other articles and any
additions to, substitutions for, change in or replacements of the whole or any
part thereof, now or at any time hereafter affixed or attached to and which are
an integral part of said structures, buildings, improvements or the Property or
any portion thereof, and such Improvements shall be deemed to be fixtures and an
accession to the freehold and a part of the Property as between the parties
hereto and all persons claiming by, through or under such parties except that
same shall not include such machinery and equipment of Trustor, or any tenant of
any portion of the Property or Improvements, which is part of and/or used in the
conduct of the normal
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business of Trustor or its tenant conducted upon the Mortgaged Property, which
is distinct and apart from the ownership, operation and maintenance of the
Mortgaged Property.
(c) All articles of tangible personal property and any additions to,
substitutions for, changes in or replacements of the whole or any part thereof
other than personal property which is or at any time has become toxic waste,
waste products or hazardous substances (hereinafter referred to as the "Personal
Property"), including without limitation all wall-beds, wall-safes, built-in
furniture and installations, shelving, partitions, door-tops, vaults, elevators,
dumb-waiters, awnings, window shades, venetian blinds, light fixtures, fire
hoses and brackets and boxes for the same, fire sprinklers, alarm systems,
drapery rods and brackets, screens, water heaters, incinerators, wall coverings,
carpeting, linoleum, tile, other floor coverings of whatever description,
communication systems, all specifically designed installations and furnishings,
office maintenance and other supplies and all of said articles of property, the
specific enumerations herein not excluding the general, now or at any time
hereafter placed upon or used in any way in connection with the ownership,
operation or maintenance of the Property or the Improvements or any portion
thereof and owned by Trustor or in which Trustor now has or hereafter acquires
an interest, and all building materials and equipment now or hereafter delivered
to the Property and intended to be installed or placed in or about the
Improvements. Such tangible, personal property shall, in addition to all other
tangible, personal property herein described or defined, specifically include
each and every item of tangible, personal property and any substitutions for,
changes in or replacements thereof which are used in the operation of the
Improvements. Notwithstanding the breadth of the foregoing, the Personal
Property shall not include (i) personal property which may be owned by lessees
or other occupants of the Mortgaged Property; (ii) inventory of any lessee or
occupant of the Mortgaged Property used in the normal course of the business
conducted thereon; (iii) material, equipment, tools, machinery, or other
personal property which is brought upon the Mortgaged Property only for use in
construction, maintenance or repair and which is not intended to remain after
the completion of such construction, maintenance or proper maintenance, of the
Mortgaged Property; or (iv) such items of tangible personal property which have
not been purchased or installed with proceeds of the Note and for which
Beneficiary shall have executed such documents as may be required to subordinate
to the lien or security interest of any purchase money lender or supplier of
such tangible personal property;
(d) All right, title and interest of Trustor, now owned or hereafter
acquired in and to any and lying within the right-of-way of any street, road,
alley or public place, opened or proposed, vacated or extinguished by law or
otherwise, and all easements and rights of way, public or private, tenements,
hereditaments, appendages, rights and appurtenances how or hereafter located
upon the Property or now or hereafter used in connection with or now or
hereafter belonging or appertaining to the Property; and all right, title and
interest in the
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Trustor, now owned or hereafter acquired, in and to any strips and gores
adjoining or relating to the Property;
(e) All judgments, awards of damages, settlements and any and all
proceeds derived from such hereafter made as a result of or in lieu of any
taking of the Mortgaged Property or any part thereof, interest therein or any
rights appurtenant thereto under the power of eminent domain, or by private or
other purchase in lieu thereof, or for any damage (whether caused by such taking
or otherwise) to the Mortgaged Property or the Improvements thereon, including
change of grade of streets, curb cuts or other rights of access for any public
or quasi-public use or purpose under any law;
(f) All rents, incomes, issues and profits, revenues, royalties,
bonuses, rights, accounts, contract rights, insurance policies and proceeds
thereof, general intangibles and benefits of the Mortgaged Property, or arising
from any lease or similar agreement pertaining thereto (the "Rents and
Profits"), and all right, title and interest of Trustor in and to all leases of
the Mortgaged Property now or hereafter entered into and all right, title and
interest of Trustor thereunder, including, without limitation, cash or
securities deposited thereunder to secure performance by the lessees of their
obligations thereunder, whether said cash or securities are to be held until the
expiration of the terms of said leases or applied to one or more of the
installments of rent coming due immediately prior to the expiration of said
terms with the right to receive and apply the same to said indebtedness, and
Trustee or Beneficiary may demand, sue for and recover such payments but shall
not be required to do so; and
(g) All proceeds of the conversion, voluntary or involuntary, of any
of the foregoing into cash or liquidated claims.
Trustor makes the foregoing grant to Trustee for the purposes herein set
forth; provided, however, that if the Trustor shall pay or cause to be paid to
the holder of the Note all amounts required to be paid under the provisions of
the Note, this Deed of Trust or any other Loan Documents, and at the time and in
the manner stipulated therein, and shall further pay or cause to be paid all
other sums payable hereunder and all indebtedness hereby secured, then, in such
case, the estate, right, title and interest of the Trustee and Beneficiary in
the Mortgaged Property shall cease, determine and become void, and upon proof
being given to the satisfaction of the Beneficiary that all amounts due to be
paid under the Note have been paid or satisfied, and upon payment of all fees,
costs, charges, expenses and liabilities chargeable or incurred or to be
incurred by Trustee or Beneficiary, and of any other sums as herein provided,
the Trustee shall, upon receipt of the written request of the Beneficiary,
cancel, reconvey and discharge this Deed of Trust.
TO HAVE AND TO HOLD THE MORTGAGED PROPERTY UNTO THE TRUSTEE ITS SUCCESSORS AND
ASSIGNS FOREVER, ALL IN ACCORDANCE WITH THE PROVISIONS HEREOF.
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ARTICLE 1
TRUSTOR'S COVENANTS
-------------------
Trustor covenants, warrants and agrees with Trustee and Beneficiary as
follows:
1.1 Payment of Note. Trustor shall pay the principal and interest and
---------------
other sums coming due with respect to the Note, this Deed of Trust or any of the
Loan Documents at the time and place in the manner specified in and according to
the terms thereof.
1.2 Title. The Trustor warrants that:
-----
(a) Trustor has good and marketable title to an indefeasible fee
simple estate in the Property described in Exhibit "A" subject only to those
liens, charges or encumbrances set forth as Permitted Exceptions in the Loan
Agreement; that Trustor has full power and authority to grant, bargain, sell and
convey the Mortgaged Property in the manner and form herein done or intended
hereafter to be done; that this Deed of Trust is and shall remain a valid and
enforceable lien on the Mortgaged Property, subject only to the Permitted
Exceptions; that Trustor and its successors and assigns shall preserve its title
and interest in and title to the Mortgaged Property and shall forever warrant
and defend the same and shall warrant and defend the validity and priority of
the lien thereof forever against all claims and demands of all persons
whomsoever, and that this covenant shall not be extinguished by any exercise of
power of sale or foreclosure sale hereof, but shall run with the land; and
(b) Trustor has and shall maintain good and marketable title to the
Improvements and Personal Property, including any additions or replacements
thereto, free of all security interests, liens and encumbrances, if any, set
forth as Permitted Exceptions in the Loan Agreement, or as otherwise disclosed
to and accepted by Beneficiary in writing, and has good right to subject
Improvements and Personal Property to the security interest created hereunder.
If the lien of this Deed of Trust on any Improvements or Personal Property be
subject to a lease agreement, conditional sale agreement or chattel mortgage
covering such property, then in the event of any default hereunder all the
rights, title and interest of the Trustor in any and all deposits made thereon
or therefor are hereby assigned to the Trustee, together with the benefit of any
payments now or hereafter made thereon. There is also transferred, set over and
assigned by Trustor to Trustee, its successors and assigns, hereby all of
Trustee's right, title and interest in and to the Project Documents, and all
leases and use agreements of machinery, equipment and other personal property of
Trustor in the categories hereinabove set forth, under which Trustor is the
lessee of, or entitled to use such items, and Trustor agrees to execute and
deliver to Trustee or Beneficiary all such Project Documents, leases and
agreements when requested by Trustee or Beneficiary. Trustor hereby covenants
and agrees to well and punctually
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<PAGE>
perform all covenants and obligations under such Project Documents, leases or
agreements as it so chooses, but nothing herein shall obligate Trustee or
Beneficiary to perform any obligations of Trustor under such Project Documents,
leases or agreements unless Trustee or Beneficiary shall so choose; and
(c) Trustor will, at its own cost without expense to Trustee or
Beneficiary, do, execute, acknowledge and deliver all and every such further
act, deed, conveyance, mortgage, assignment, notice of assignment, transfer and
assurance as Trustee or Beneficiary shall from time to time reasonably require
for the better assuring, conveying, assigning, transferring and confirming unto
Trustee and Beneficiary the property and rights hereby conveyed or assigned or
intended now or thereafter so to be, or which Trustor may be or hereafter become
bound to convey or assign to Beneficiary for the intention of facilitating the
performance of the terms of this Deed of Trust or for the filing, registering,
perfecting or recording of this Deed of Trust and any other Loan Document and,
on demand, Trustor will execute, deliver and file or record one or more
financing statements, chattel mortgages or comparable security instruments more
effectively evidencing the lien hereof upon the Personal Property.
1.3 Business Existence. Trustor shall do all things necessary to preserve
------------------
and keep in full force and effect its rights and privileges to do business and
to conduct its business in the State of California, and shall comply with all
regulations, rules, ordinances, statutes, orders and decrees of any governmental
authority or court applicable to the Trustor.
1.4 Payment of Taxes, Assessments, Insurance Premiums and Charges.
-------------------------------------------------------------
Trustor shall pay, prior to delinquency, all insurance premiums that become due
and payable on any insurance policies required to be maintained hereunder and
under the Loan Agreement, all taxes, assessments, charges and levies imposed by
any Governmental Agency which are or may become a lien affecting the Property or
any part thereof, including without limitation assessments on any appurtenant
water stock; except that Trustor shall not be required to pay and discharge any
tax, assessment, charge or levy that is being actively contested in good faith
by appropriate proceedings, as long as Trustor has established and maintains
reserves adequate to pay any liabilities contested pursuant to this Section in
accordance with generally accepted accounting principles and, by reason of
nonpayment, none of the Mortgaged Property covered by the Loan Documents or the
lien or security interest of Beneficiary is in danger of being lost or
forfeited.
1.5 Maintenance and Repair. The Trustor shall, at its sole cost and
----------------------
expense, keep the Mortgaged Property in good operating order, repair and
condition and shall not commit or permit any waste thereof, which condition,
during the course of any reconstruction of the Improvements, shall be subject to
the normal constraints and effects of reconstruction. Trustor shall make all
repairs, replacements, renewals, additions and improvements and complete and
restore promptly and in good
6
<PAGE>
workmanlike manner any Improvements which may be damaged or destroyed thereon,
and pay when due all costs incurred therefor. Trustor shall not remove or
demolish any of the Mortgaged Property conveyed hereby, nor demolish or
materially alter the Mortgaged Property without the prior written consent of the
Beneficiary. Trustor shall permit Trustee or Beneficiary or its agents the
opportunity to inspect the Mortgaged Property, including the interior of any
structures, at any reasonable times.
1.6 Compliance with Laws. The Trustor shall comply with all laws,
--------------------
ordinances, regulations, covenants, conditions and restrictions affecting the
Mortgaged Property or the operation thereof, and shall pay all fees or charges
of any kind in connection therewith.
1.7 Insurance. Trustor shall be responsible to provide, maintain and keep
---------
in force or to cause to be maintained or kept in force, all policies of
insurance on the Mortgaged Property as required by the Loan Agreement.
1.8 Casualty. The Trustor will give the Beneficiary prompt notice of
--------
damage to or destruction of any Improvements on the Property and in case of loss
covered by policies of insurance, the Beneficiary is hereby authorized to make
proof of loss if not made promptly by the Trustor or any lessee. Any expenses
incurred by the Beneficiary in the collection of insurance proceeds, together
with interest thereof from date of any such expense at the per annum interest
rate set forth in the Note shall be added to and become a part of the
indebtedness secured hereby and all be reimbursed to the Beneficiary, together
with accrued interest thereon, immediately upon demand. Upon the occurrence of
damage to or destruction of any Improvements, if Beneficiary shall so elect in
its sole and unfettered discretion (and notwithstanding whether the
Beneficiary's security is impaired), Beneficiary shall make the net proceeds of
insurance available for repair, restoration and/or reconstruction under the
conditions and in the manner specified in the next following paragraph. If
Beneficiary shall otherwise determine, then such insurance proceeds shall be
applied by the Beneficiary upon or in reduction of the indebtedness secured
hereby then most remotely due. If the Beneficiary shall require that the
Improvements be repaired or rebuilt, then the repair, restoration, replacement
or rebuilding of the Improvements shall be to a condition of at least equal
value as prior to such damage or destructions.
Insurance proceeds made available for restoration, repair, replacement or
rebuilding of the Improvements shall be disbursed from time to time (provided no
default exists in the Note or this Deed of Trust or any other Loan Document at
the time of each such disbursement), through a construction disbursement agent
selected or approved ny Beneficiary. Plans and specifications for the
restoration, repair, replacement or rebuilding shall be submitted to for
approval by the Beneficiary prior to the commencement of the work. Any surplus
which may remain out of said insurance proceeds after payment of costs of
building and restoration may, at the option of the Beneficiary, be
7
<PAGE>
applied either on account of the indebtedness secured hereby then most remotely
to be paid or be paid to any person or persons entitled thereto. Application or
release of proceeds under the provisions hereby shall not cure or waive any
default or notice of default hereunder or invalidate any act done pursuant to
such notice. No interest shall be allowed on account of any such proceeds or
any other funds held in the hands of the Beneficiary or the disbursing party
hereunder.
1.9 Condemnation. The Trustor, immediately upon obtaining knowledge of
------------
the institution of any proceeding for the condemnation of the Mortgaged Property
or any portion thereof, shall notify Beneficiary of the pendency thereof. The
Trustor hereby assigns, transfers and sets over unto the Beneficiary all
compensation, rights of action and the entire proceeds of any award, up to the
maximum amount of all amounts then due and payable under the Note and the Loan
Documents, including, without limitation, all interest, costs, expenses and
Advances, as that term is herein defined, and any claim for damages for any of
the Mortgaged Property taken or damaged under the power of eminent domain or by
condemnation or by sale in lieu thereof. Beneficiary may, at its option,
commence, appear in and prosecute, in its own name, any action or proceeding, or
make any compromise or settlement, in connection with such condemnation, taking
under the power of eminent domain or sale in lieu thereof, and hereby appoints
Beneficiary as its true and lawful attorney for such purposes, such power being
coupled with an interest. After deducting therefrom all of its expenses,
including attorneys fees, the Beneficiary may elect, in its sole discretion and
notwithstanding the fact that the security given hereby may not be impaired by a
partial condemnation, to apply any part or all of the proceeds of the award, in
such order as Beneficiary may determine, upon or in reduction of the
indebtedness secured hereby whether due or not. Any application of all or a
portion of the proceeds of any such award to the indebtedness shall not cure or
waive any default or notice of default hereunder or invalidate any act done
pursuant to such notice. Trustor agrees to execute such further assignments of
any compensation, award, damages, right of action and proceeds as Beneficiary
may require.
1.10 Indemnification. The Trustor shall appear in and defend any suit,
---------------
action or proceeding that might in any way, in the reasonable judgment of
Beneficiary, affect the value of the Mortgaged Property, the title to the
Mortgaged Property or the rights and powers of Trustee or Beneficiary. Trustor
shall, at all times, indemnify, hold harmless and on demand reimburse
Beneficiary for any and all loss, damage, expense or cost, including cost of
evidence of title and attorneys fees, arising out of or incurred in connection
with any such suit, action or proceeding, and the sum of such expenditures shall
be secured by this Deed of Trust and shall accrue interest at the "Default Rate"
as that term is defined in the Note and shall be due and payable on demand.
Trustor shall pay costs of suit, cost of evidence of title and reasonable
attorneys' fees in any proceeding or suit brought by Trustee or Beneficiary to
foreclose this Deed of Trust.
8
<PAGE>
1.11 Sale of Premises or Additional Financing Not Permitted. Trustor
------------------------------------------------------
specifically agrees that:
(a) In order to induce Beneficiary to make the loan secured hereby,
Trustor agrees that if the Mortgaged Property or any part thereof or any
interest therein, shall be sold, assigned, transferred, conveyed, pledged,
mortgaged or encumbered with financing other than that secured hereby or
otherwise alienated by Trustor whether voluntarily or involuntarily or by
operation of law, except as shall be specifically hereinafter permitted or
without the prior written consent of Beneficiary, then Beneficiary, at its
option, may declare the Note secured hereby, including the Prepayment Fee (if
applicable), and all other obligations hereunder to be forthwith due and
payable. Except as shall be otherwise specifically provided herein, any (a)
change in the legal or equitable ownership of the Property whether or not of
record, (b) change in the form of entity of Trustor, (c) change in ownership
(including the hypothecation or encumbrance thereof) of a majority of the stock
in Trustor held by Ira Norris, or (d) change in the controlling executives and
directors of Trustor shall be deemed a transfer of an interest in the Property.
In connection herewith, the financial stability and managerial and operational
ability of Trustor is a substantial and material consideration to Beneficiary in
its agreement to make the loan to Trustor secured hereby. The transfer of an
interest in the Mortgaged Property may materially alter and reduce Beneficiary's
security for the indebtedness secured hereby. Moreover, Beneficiary has agreed
to make its loan based upon the presumed value of the Mortgaged Property and the
Rents and Profits thereof. Therefore, it will be a diminution of Beneficiary's
security if junior financing, except as shall be permitted by Beneficiary, or if
other liens or encumbrances should attach to the Mortgaged Property.
(b) Trustor may that Beneficiary approve a sale or transfer of the
Mortgaged Property to a party who would become the legal and equitable owner of
the Mortgaged Property and would assume any and all obligations of Trustor under
the Loan Documents (the "Purchaser"). Beneficiary shall not be obligated to
consider or approve any such sale, transfer or assumption or request for the
same. However, upon such request, Beneficiary may impose limiting conditions
and requirements to its consent to an assumption.
(c) In the event ownership of the Mortgaged Property, or any part
thereof, becomes vested in a person or persons other than Trustor, the
Beneficiary may deal with such successor or successors in interest with
reference to the Note or this Deed of Trust in the same manner as with Trustor,
without in any way releasing, discharging or otherwise affecting the liability
of Trustor under the Note, this Deed of Trust or the other Loan Documents. No
sale of Trustor's interest in the Mortgaged Property, no forbearance on the part
of Beneficiary, no extension of the time for the payment of the Deed of Trust
indebtedness or any change in the terms thereof consented to by Beneficiary
shall in any way whatsoever operate to release, discharge, modify, change or
affect the original liability of the Trustor herein, either in whole or
9
<PAGE>
in part. Any deed conveying the Mortgaged Property, or any part thereof, shall
provide that the grantee thereunder assume all of Trustor's obligations under
the Note, this Deed of Trust and all other Loan Documents. In the event such
deed shall not contain such assumption, Beneficiary shall have all rights
reserved to it hereunder in the event of a default or if Beneficiary shall not
elect to exercise such rights and remedies, the grantee under such deed shall
nevertheless be deemed to have assumed such obligations by acquiring the
Mortgaged Property or such portion thereof subject to this Deed of Trust.
Nothing contained in this section shall be construed to waive the restrictions
against the transfer of the Mortgaged Property contained in Section 1.11(a).
1.12 Transfer of Personal Property. Trustor shall not voluntarily,
-----------------------------
involuntarily or by operation of law sell, assign, transfer, hypothecate, pledge
or otherwise dispose of the Personal Property or any interest therein and shall
not otherwise do or permit anything to be done or occur that may impair the
Personal property as security hereunder, except that so long as this Deed of
Trust is not in default, Trustor shall be permitted to sell or otherwise dispose
of the Personal Property when absolutely worn out, inadequate, unserviceable or
unnecessary for use in the operation of the Property or in the conduct of the
business of Trustor, upon replacing the same or substituting for the same other
Personal Property at least equal in value to the initial value of that disposed
of and in such a manner so that said Personal Property is sold in connection
with the sale of the Property.
1.13 Title to Replacements and Substitutions. All right, title and
---------------------------------------
interest of Trustor in and to all extensions, improvements, betterments,
renewals, substitutes and replacements of, and all additions and appurtenances
to the Personal Property, Improvements or the Mortgaged Property hereafter
acquired by or released to Trustor or constructed, assembled or placed by
Trustor on the Mortgaged Property, and all conversions of the security
constituted thereby, immediately upon such acquisition, release, construction,
assembling, placement or conversion, as the case may be, and in each such case,
without any further deed of trust, conveyance, assignment or other act by
Trustor, shall become subject to the lien of this Deed of Trust as fully and
completely, and with the same effect and in the same priority as the lien of
this Deed of Trust shall have attached to the item so replaced or substituted
immediately prior to such replacement of substitutions, as though now owned by
Trustor and specifically described in the granting clause hereof, but at any and
all times Trustor will execute and deliver to Trustee any and all such further
assurances, deeds of trust, conveyances or assignments thereof as Trustee or
Beneficiary may reasonably require for the purpose of expressly and specifically
subjecting the same to the lien of this Deed of Trust.
1.14 Security Agreement. This Deed of Trust shall be self-operative and
------------------
shall constitute a Security Agreement and a Construction Mortgage as those terms
are defined in the Uniform Commercial Code, as enacted in California (the
"Commercial Code"), with
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<PAGE>
respect to all of those portions of the Mortgaged Property which constitute
personal property or fixtures governed by the Commercial Code, provided,
however, Trustor hereby agrees to execute and deliver on demand and hereby
irrevocably constitutes and appoints Beneficiary the attorney-in-fact of Trustor
(such power coupled with an interest) to execute, deliver and, if appropriate,
to file with agreement, financing statement or other instruments as Beneficiary
may request or require in order to impose or perfect the lien or security
interest hereof more specifically thereon. Notwithstanding the above, this Deed
of Trust is intended to serve as a fixture filing pursuant to the terms of the
Commercial Code. This filing is to be recorded in the real estate records in
the county in which the Mortgaged Property is located. In that regard, the
following information is provided:
Name of Debtor: INCO HOMES CORPORATION, a Delaware
corporation
Address of Debtor: See Section 5.12
Names and Addresses
of Secured Party: See Exhibit "A" attached hereto.
1.15 Management. Trustor shall not enter into any agreement providing for
----------
the management, leasing or operation of the Property without the prior written
consent of the Beneficiary. Nothing contained herein shall limit Beneficiary's
rights in equity to obtain a receiver for the Mortgaged Property.
1.16 Advances. If Trustor shall fail to perform any of the covenants
--------
herein contained or contained in any other Loan Document, the Beneficiary may,
but without obligation to do so, pay any and all amounts necessary to perform
same or cause same to be performed on behalf of Trustor, and all sums so
expended by Beneficiary for payment of any item whatsoever, including, but not
by limiting the generality of the foregoing, payment of taxes,insurance
premiums, lien claimants or assessments shall be secured by this Deed of Trust
and each such payment shall be and all such payments shall be collectively
referred to herein as an "Advance." The Trustor shall repay to Beneficiary on
demand each and every Advance and the sum of each such Advance shall accrue
interest at the Default Rate, as that term is defined in the Note, from the date
of each Advance until repaid to Beneficiary. Nothing herein contained,
including the payment of such amount or amounts by Beneficiary, shall prevent
any such failure to perform on the part of Trustor from constituting an Event of
Default as defined herein. Any such advance shall be deemed to be made under an
obligation to do so.
1.17 Time. The Trustor agrees that time is of the essence hereof in
----
connection with all obligations of the Trustor herein, in the Note or any other
Loan Documents.
1.18 Estoppel Certificates. The Trustor within ten (10) days after written
---------------------
request shall furnish a duly acknowledged written statement
11
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setting forth the amount of the debt secured by this Deed of Trust, and stating
either that no setoffs or defenses exist against the Deed of Trust debt, or, if
such setoffs or defenses are alleged to exist, the nature thereof.
1.19 Records. The Trustor agrees to keep adequate books and records of
-------
account in accordance with generally accepted accounting principles consistently
applied and will permit the Beneficiary and Beneficiary's agents, accountants
and attorneys, to visit and inspect the Mortgaged Property and examine its books
and records of account in respect to the Mortgaged Property, and to discuss its
affairs, finances and accounts with the Trustor, at such reasonable times as
Beneficiary may request.
1.20 Assignment of Rents and Profits. Trustor does hereby assign to
-------------------------------
Beneficiary all Rents and Profits as follows:
(a) The Rents and Profits are hereby unconditionally assigned,
transferred, conveyed and set over to Beneficiary to be applied by Beneficiary
in payment of the principal and interest and all other sums payable on the Note,
and all other sums payable under this Deed of Trust. Prior to the happening of
any Event of Default as set forth in Article 2 hereof, Trustor shall have a
license to collect and receive all Rents and Profits. If an Event of Default
has occurred and is continuing, Trustor's right to collect and receive Rents and
Profits shall cease and Beneficiary shall have the sole right, with or without
taking possession of the Property, to collect all Rents and Profits, including
those past due and unpaid. Any Rents and Profits received by Trustor after an
Event of Default has occurred and is continuing shall be deemed to be received
by Trustor in trust as trustee for Beneficiary and for the benefit of
Beneficiary. Trustor shall be required to account to Beneficiary for any rents
and profits not applied in accordance with the provisions of the Loan Documents.
Nothing contained in this Section 1.20(a) or elsewhere in this Deed of Trust
shall be construed to make Beneficiary a "mortgagee in possession" unless and
until Beneficiary actually takes possession of the Mortgaged Property either in
person or through an agent or receiver.
(b) Trustor agrees to execute such other assignments of Rents and
Profits applicable to the Mortgaged Property as the Beneficiary may from time to
time request while this Deed of Trust and the debt secured hereby are
outstanding. Trustor shall not (i) execute (except as noted above) an
assignment of any of its right, title or interest in the Rents and Profits or
any portion thereof, (ii) execute any lease of any portion of the Mortgaged
Property which shall not be approved in advance by Beneficiary; or (iii) in any
other manner impair the value of the Mortgaged Property or the security of the
Beneficiary for the payment of the indebtedness.
(c) Trustor covenants and agrees that it shall at all times promptly
and faithfully perform, or cause to be performed, all of the covenants,
conditions and agreements contained in all leases of the
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Mortgaged Property now or hereafter existing, on the part of the lessor
thereunder to be kept and performed.
(d) Nothing herein shall obligate the Beneficiary to perform the
duties of the Trustor as landlord or lessor under any such leases or tenancies.
(e) The Trustor shall furnish to the Beneficiary, within fifteen (15)
days after a request by the Beneficiary to do so, a written statement, certified
as true and correct by the Trustor, containing the names of all lessees or
occupants of the Mortgaged Property, the terms of their respective leases or
tenancies, the spaces occupied and the rentals paid.
1.21 Compliance with Covenants. Trustor warrants that it is not in
-------------------------
violation of any covenant, condition or restriction regarding the ownership, use
or occupancy of the Mortgaged Property and that the use of the Improvements,
upon completion thereof, shall not constitute a violation of any such covenant,
condition or restriction. If Trustor shall fail to perform any obligations set
forth in such covenants, conditions or restrictions, the Beneficiary may, but
without obligation to do so, pay any and all amounts necessary to perform same
or cause same to be performed on behalf of Trustor, and all sums so expended by
Beneficiary for any such payment or performance shall be secured by this Deed of
Trust and shall be an Advance under the terms of this Deed of Trust. Trustor's
failure to perform its obligations under any such declaration or mutual
arrangement shall constitute an Event of Default.
ARTICLE 2
DEFAULT
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2.1 Events of Default. The occurrence of any of the following events
-----------------
shall be an Event of Default: (a) default in the payment or performance of any
obligations secured hereby or contained herein; or (b) the occurrence of any
"Event of Default" pursuant to the Loan Agreement.
ARTICLE 3
REMEDIES
--------
Upon the occurrence of any Event of Default, Trustee and Beneficiary shall
have the following rights and remedies:
3.1 Acceleration of Maturity. Beneficiary may declare the entire
------------------------
principal of the Note then outstanding (if not then due and payable thereunder)
and all other obligations of Trustor hereunder or under the Note, to be due and
payable immediately, and, subject to applicable provisions of law, upon any such
declaration the principal of the Note and accrued and unpaid interest, and all
other amounts to be paid under the Note, this Deed of Trust or any other Loan
Document shall become and
13
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be immediately due and payable, anything in the Note or in this Deed of Trust to
the contrary notwithstanding.
3.2 Default Interest. Irrespective of whether Beneficiary exercises any
----------------
other right set forth in this Article 3, after the Maturity Date or any
acceleration thereof, or upon any Event of Default, through and including the
date such default is cured, the entire principal balance under the Note shall
thereafter earn interest at the Default Rate, as defined in the Note.
3.3 Operation of Mortgaged Property. Beneficiary in person or by agent
-------------------------------
may, without any obligation so to do, and without notice or demand upon, or
consent from, Trustor and without releasing Trustor from any obligation
hereunder; (i) make any payment or do any act which Trustor has failed to make
or do; (ii) enter upon, take possession of, manage and operate the Mortgaged
Property or any part thereof; (iii) make or enforce, or if the same be subject
to modification or cancellation, modify or cancel leases upon such terms or
conditions as Beneficiary deems proper; (iv) obtain and evict tenants, and fix
or modify rents, make repairs and alterations and do any acts which Beneficiary
deems proper to protect the security hereof; and (v) with or without taking
possession, in its own name or in the name of Trustor, use for or otherwise
collect and receive the Rents and Profits and all other benefits, including
those past due and unpaid, and apply the same, less costs and expenses of
operation and collection, including reasonable attorneys fees, upon any
indebtedness secured hereby, and in such order as Beneficiary may determine.
3.4 Judicial Remedies. Beneficiary may bring an action in any court of
-----------------
competent jurisdiction to foreclose this Deed of Trust or to enforce any of the
covenants and agreements hereof and to take such steps to protect and enforce
its rights whether by action, suit or proceeding in equity or at law for the
specific performance of any covenant, condition or agreement in the Note, this
Deed of Trust or any other Loan Document, or in aid of the execution of any
power herein granted, or for any foreclosure hereunder, or for the enforcement
of any other appropriate legal or equitable remedy or otherwise as the
Beneficiary shall elect.
3.5 Maintenance of Mortgaged Property. Beneficiary may have a receiver
---------------------------------
appointed by a court of competent jurisdiction for the purpose of collecting
rents and managing the Mortgaged Property, and Trustor hereby consents in
advance to such appointment. The Trustee or Beneficiary personally, or by its
agents or attorneys, or by the receiver appointed by the court, may enter into
and upon all or any part of the Mortgaged Property, and each and every part
thereof, and may exclude the Trustor, its agents and servants wholly therefrom,
and having and holding the same, may use, operate, manage and control the
Mortgaged Property and conduct the business thereof, either personally or by its
superintendents, managers, agents, servants, attorneys or receivers. Upon every
such entry, any party occupying the Mortgaged Property in accordance with this
Article 3, at the expense of the
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Mortgaged Property or Trustor, may from time to time maintain and restore the
Mortgaged Property or any part thereof either by purchase, repair or
construction, and in the course of such purchase, repair or construction may
make such changes in the Improvements as it may deem desirable and may insure
the same. Likewise, from time to time, at the expense of the Mortgaged
Property, the Trustee or Beneficiary or any such party may make all necessary or
proper repairs, renewals and replacements of the Personal Property and such
useful alterations, betterments and improvements thereto and thereon as to it
may seem advisable. In every such case the Trustee or Beneficiary or any such
party shall have the right to manage and operate the Mortgaged Property and to
carry on the business thereof and exercise all rights and powers of the Trustor
with respect thereto either in the name of the Trustor or otherwise, as it shall
deem best, and shall be entitled to collect and receive the Rents and Profits of
the Mortgaged Property and every part thereof and after deducting the expenses
of conducting the business thereof and of all maintenance, repairs, renewals,
replacements, alterations, additions, betterments and improvements and amounts
necessary to pay for taxes, assessments, insurance and prior or other proper
charges upon the Mortgaged Property or any part thereof, as well as just and
reasonable compensation for the agents, clerks, servants and other employees by
it properly engaged and employed, the Beneficiary shall apply the monies arising
as aforesaid, in the order as is set forth in the Note.
3.6 Rights of Secured Party. Beneficiary shall have all of the remedies
-----------------------
of a Secured Party under the Commercial Code, including without limitation, the
right and power to sell, or otherwise dispose of, the Personal Property, or any
part thereof, and for that purpose may take immediate and exclusive possession
of the Personal Property, or any part thereof, and with or without judicial
process to the extent permitted by law, enter upon any premises on which the
Personal Property or any part thereof, may be situated and remove the same
therefrom without being deemed guilty of trespass and without liability for
damages thereby occasioned, or at Beneficiary's option Trustor shall assemble
the Personal Property and make it available to the Beneficiary at the place and
the time designated in the demand. Beneficiary shall be entitled to hold,
maintain, preserve and prepare the Personal Property for sale. Beneficiary,
without removal of the Personal Property from the Mortgaged Property, may render
the Personal Property inoperable and dispose of the Personal Property on the
Mortgaged Property. To the extent permitted by law, Trustor expressly waives
any notice of sale or other disposition of the Personal Property and any other
right or remedy of Beneficiary existing after default hereunder, and to the
extent any such notice is required and cannot be waived, Trustor agrees that as
it relates to this Section 3.6 only, if such notice is mailed, postage prepaid,
to the Trustor at the address set forth in Section 5.12 hereof at least ten (10)
days before the time of the sale or disposition, such notice shall be deemed
reasonable and shall fully satisfy any requirement for giving of said notice.
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<PAGE>
3.7 Foreclosure. All rights, powers and privileges granted to or
-----------
conferred upon a beneficiary and trustee under a deed of trust in accordance
with the laws of the State of California are hereby adopted and incorporated
into this Deed of Trust by this reference and in accordance with such rights,
powers and privileges:
(a) The Trustee may, and upon the written request of Beneficiary
shall, with or without entry, personally or by its agents or attorneys insofar
as applicable pursuant to and in accordance with the laws of the State of
California:
(i) subject to the provisions of the Loan Agreement, cause
any or all of the Mortgaged Property to be sold under the power of
sale granted by this Deed of Trust or any of the other Loan Documents
in any manner permitted by applicable law. For any sale under the
power of sale granted by this Deed of Trust, Trustee or Beneficiary
must record and give all notices required by law and then, upon the
expiration of such time as is required by law, may sell the Mortgaged
Property, and all estate, right, title, interest, claim and demand of
Trustor therein, and all rights of redemption thereof, at one or more
sales, as an entirety or in parcels, with such elements of real and/or
personal property (and, to the extent permitted by applicable law, may
elect to deem all of the Mortgaged Property to be real property for
purposes thereof), and at such time or place and upon such terms as
Trustee and Beneficiary may determine and shall execute and deliver to
the purchaser or purchasers thereof a deed or deeds conveying the
property sold, but without any covenant or warranty, express or
implied, and the recitals in the deed or deeds of any facts affecting
the regularity or validity of a sale will be conclusive against all
persons. In the event of a sale, by foreclosure or otherwise, of less
than all of the Mortgaged Property, this Deed of Trust shall continue
as a lien and security interest on the remaining portion of the
Mortgaged Property; or
(ii) institute proceedings for the complete or partial
foreclosure of this Deed of Trust as a mortgage; and in this
connection Trustor does hereby expressly waive to the extent permitted
by law its right of redemption after a mortgage foreclosure sale; or
(iii) apply to any court of competent jurisdiction for the
appointment of a receiver or receivers for the Mortgaged Property and
of all the earnings, revenues, rents, issues, profits and income
thereof, which appointment is hereby consented to by Trustor; or
(iv) take such steps to protect and enforce its rights
whether by action, suit or proceeding in equity or at law for the
specific performance of any covenant, condition or
16
<PAGE>
agreement in the Note or in this Deed of Trust, or in aid of the
execution of any power herein granted, or for any foreclosure
hereunder, or for the enforcement of any other appropriate legal or
equitable remedy or otherwise as Beneficiary shall select.
(b) The Trustee may adjourn from time to time any sale by it made
under or by virtue of this Deed of Trust by announcement at the time and place
appointed for such sale or sales and, except as otherwise provided by any
applicable provision of law, the Trustee without further notice or publication,
may make such sale at the time and place to which the sale shall be so
adjourned;
(c) Upon the completion of any sale or sale made by the Trustee under
or by virtue of this Section, the Trustee shall execute and deliver to the
accepted purchaser or purchasers a good and sufficient instrument, or good and
sufficient instruments, conveying, assigning and transferring all estate, right,
title and interest in and to the property and rights sold, but without any
covenant or warranty, express or implied. The recitals in such deed of any
matters or facts shall be conclusive proof of the truthfulness thereof to the
extent permitted by law. Any such sale or sales made under or by virtue of
this Section whether made under the power of sale herein granted or under or by
virtue of judicial proceedings or of a judgment or decree of foreclosure and
sale, shall operate to divest all the estate, right, title, interest, claim and
demand whatsoever, whether at law or in equity, of the Trustor in and to the
properties and rights so sold, and shall be a perpetual bar both at law and in
equity against the Trustor and against any and all persons claiming or who may
claim the same, or any part thereof from through or under the Trustor.
(d) In the event of any sale made under or by virtue of this Section
whether made under the power of sale herein granted or under or by virtue of
judicial proceedings or of a judgment or decree of foreclosure and sale, the
entire principal of and interest on the Note and all accrued interest on the
Note, and all other sums required to be paid by the Trustor pursuant to the Note
and this Deed of Trust shall be due and payable, anything in the Note or in this
Deed of Trust to the contrary notwithstanding.
(e) The purchase money proceeds or avails of any sale made under or by
virtue of this Section, together with any other sums which then may be held by
the Trustee or Beneficiary under this Deed of Trust whether under the provisions
of this Section or otherwise, shall be applied as required by applicable law.
(f) Upon any sale made under or by virtue of this Section, whether
made under the power of sale herein granted or granted in accordance with the
laws of the state in which the Property is located or under or by virtue of
judicial proceedings or of a judgment or decree of foreclosure and sale, the
Beneficiary may bid for and acquire the Mortgaged Property or any part thereof
and in lieu of paying cash
17
<PAGE>
therefor may make settlement for the purchase price by crediting upon the
indebtedness of the Trustor secured by this Deed of Trust the net sales price
after deducting therefrom the expenses of the sale and the cost of the action
and any other sums which the Beneficiary is authorized to deduct under this Deed
of Trust. The Beneficiary upon so acquiring the Mortgaged Property, or any part
thereof shall be entitled to hold, lease, rent, operate, manage and sell the
same in any manner provided by applicable laws.
3.8 Action by Beneficiary or Agent. Subject to and in accordance with
------------------------------
applicable law, any of the actions referred to in this Article may be taken by
Beneficiary, either in person or by agent, with or without bringing any action
or proceeding, or by receiver appointed by a court, and any such action may also
be taken irrespective of whether any notice of default or election to sell has
been given hereunder and without regard to the adequacy of the security for the
indebtedness hereby secured.
3.9 Marshalling of Assets. To the extent allowed by applicable law,
---------------------
Trustor on its own behalf and on behalf of its successors and assigns hereby
expressly waives all rights to require a marshalling of assets by Trustee or
Beneficiary or to require Trustee or Beneficiary to first resort to the sale of
any portion of the Mortgaged Property which might have been retained by Trustor
before foreclosing upon and selling any other portion as may be conveyed by
Trustor subject to this Deed of Trust.
3.10 Occupancy by Trustor. In the event of a trustee's sale hereunder, if
--------------------
at the time of such sale Trustor occupies the portion of the Mortgaged Property
so sold or any part thereof, Trustor shall immediately become the tenant of the
purchaser at such sale, which tenancy shall be a tenancy from day to day,
terminable at the will of either the tenant or any such purchaser, at a
reasonable rental per day based upon the value of the portion of the Mortgaged
Property so occupied, such rental to be due and payable daily to the purchaser.
An action of unlawful detainer shall lie if the tenant holds over after a demand
in writing from the purchaser for possession of such Mortgaged Property.
3.11 Non-Waiver of Default. The entering upon and taking possession of the
---------------------
Mortgaged Property, the collection of any Rents or Profits or other benefits and
the application thereof, as aforesaid, shall not cure or waive any default
theretofore or thereafter occurring or affect any notice of default hereunder or
invalidate any act done pursuant to such notice; and, notwithstanding
continuance in possession of the Mortgaged Property, or any part thereof by
Beneficiary, Trustee or a receiver and the collection, receipt and application
of Rents and Profits or other benefits, Beneficiary shall be entitled to
exercise every right provided for in this Deed of Trust or by law upon or after
the occurrence of a default, including the right to exercise the power of the
sale.
18
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3.12 Remedies Cumulative. No remedy herein conferred upon or reserved to
-------------------
Trustee or Beneficiary is intended to be exclusive of any other remedy herein or
by law provided, but each shall be cumulative and shall be in addition to every
other remedy given hereunder or now or hereafter existing at law or in equity or
by statute. No delay or omission of Trustee or Beneficiary to exercise any
right or power accruing upon any Event of Default shall impair any right or
power or shall be construed to be a waiver of any Event of Default or any
acquiescence therein; and every power and remedy given by this Deed of Trust to
Trustee or Beneficiary may be exercised from time to time as often as may be
deemed expedient by Trustee or Beneficiary. If there exists additional security
for the performance of the obligations secured hereby, to the extent permitted
by law, the holder of the Note, at its sole option, and without limiting or
affecting any of the rights or remedies hereunder, may exercise any of the
rights and remedies to which it may be entitled hereunder either concurrently
with whatever rights it may have in connection with such other security or in
such order as it may determine. Nothing in this Deed of Trust or in the Note
shall affect the obligation of Trustor to pay the principal of, and interest on,
the Note in the manner and at the time and place therein respectively expressed.
ARTICLE 4
TRUSTEE
-------
4.1 Acceptance of Trust, Notice of Indemnification. Trustee accepts this
----------------------------------------------
trust when this Deed of Trust, duly executed and acknowledged, becomes a public
record as provided by law. Trustee is not obligated to notify any party hereto
of pending sale under any other Deed of Trust or of any action or proceeding in
which Trustor, Beneficiary or Trustee shall not be obligated to perform any act
of it hereunder unless the performance of such act is requested in writing in
the manner required by law and Trustee is reasonably indemnified against loss,
cost, liability and expense.
4.2 Substitution of Trustee. From time to time with or without cause for
-----------------------
whatever reason, by a writing signed and acknowledged by Beneficiary and filed
for record in the Office of the Recorder of the County in which the Mortgaged
Property is situated, Beneficiary may appoint another trustee to act in the
place and stead of Trustee or any successor and such writing shall refer to this
Deed of Trust and set forth the date, book and page of its recordation. The
recordation of such instrument of substitution shall discharge trustee herein
named and shall appoint the new trustee as the Trustee hereunder with the same
effect as if originally named Trustee herein. A writing recorded pursuant to
this paragraph shall be conclusive proof of the proper substitution of such new
trustee.
4.3 Trustee's Powers. At any time, or from time to time, without
----------------
liability therefor and without notice, upon written request of Beneficiary and
presentation of the Note secured hereby, and without
19
<PAGE>
affecting the personal liability of any person for payment of the indebtedness
secured hereby or the effect of this Deed of Trust upon the remainder of said
Mortgaged Property, Trustee may (i) reconvey any part of said Mortgaged
Property, (ii) consent in writing to the making of any map or plat thereof,
(iii) join in granting any easement thereon, or (iv) join in any extension
agreement or any agreement subordinating the lien or charge hereof.
4.4 Reconveyance of Trust. Upon written request of Beneficiary stating
---------------------
that all sums secured hereby have been paid and upon surrender to Trustee of
this Deed of Trust and the Note or notes secured hereby for cancellation and
retention and payment of its fees, Trustee shall reconvey, without warranty, the
Mortgaged Property then held hereunder. The recitals in such reconveyance of
any matters or facts shall be conclusive proof of the truthfulness thereof. The
grantee in such reconveyance may be described as "the person or persons legally
entitled thereto."
4.5 Indemnification of Trustee. Trustee may rely on any document believed
--------------------------
by him in good faith to be genuine. All money received by Trustee shall, until
used or applied as herein provided, be held in trust, but need not be segregated
(except to the extent required by law), and Trustee shall not be liable for
interest thereon. Trustor shall indemnify Trustee against all liability and
expenses which he may incur in the performance of his duties hereunder, except
for its own negligence.
ARTICLE 5
MISCELLANEOUS
-------------
5.1 Non-Waiver. By accepting payment of any sum secured hereby after its
----------
due date or late performance of any indebtedness secured hereby, Beneficiary
shall not waive its right against any person obligated directly or indirectly
hereunder or on any indebtedness hereby secured, either to require prompt
payment when due of all other sums so secured or to declare a default for
failure to make payment except as to such payment accepted by Beneficiary. No
exercise of any right or remedy by Trustee or Beneficiary hereunder shall
constitute a waiver of any other right or remedy herein contained or provided by
law.
No delay or omission of the Trustee or Beneficiary in the exercise of any
right, power or remedy accruing hereunder or arising otherwise shall impair any
such right, power or remedy, or be construed to be a waiver of any default or
acquiescence therein.
Receipts of rents, awards, and any other monies or evidences thereof,
pursuant to the provisions of this Deed of Trust and any disposition of the same
by Trustee or Beneficiary shall not constitute a waiver of the power of sale or
right of foreclosure by Trustee or Beneficiary in the event of a default or
failure of performance by
20
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Trustor of any covenant or agreement contained herein or the Note secured
hereby.
5.2 Right to Release. Without affecting the liability of any other person
----------------
for the payment of any indebtedness herein mentioned (including Trustor should
it convey said Mortgaged Property) and without affecting the lien or priority
hereof upon any property not released, Beneficiary may, without notice, release
any person so liable, extend the maturity or modify the terms of any such
obligation, or grant other indulgences, release or reconvey or cause to be
released or reconveyed at any time all or any part of the Mortgaged Property,
take or release any other security or make compositions or other arrangements
with debtors. Beneficiary may also accept additional security, either
concurrently herewith or hereafter, and sell same or otherwise realize thereon
either before, concurrently with, or after sale hereunder.
5.3 Protection of Security. Should Trustor fail to make any payment or to
----------------------
perform any covenant as herein provided, Beneficiary (but without obligation so
to do and without notice to or demand upon Trustor and without releasing Trustor
from any obligation hereof) may: (i) make or do the same in such manner and to
such extent as Beneficiary may deem necessary to protect the security hereof,
Beneficiary being authorized to enter upon the Mortgaged Property for such
purposes; (ii) commence, appear in and defend any action or proceeding
purporting to affect the security hereof or the rights or powers of Beneficiary;
and/or (iii) pay, purchase, contest, or compromise any encumbrance, charge or
lien which in the judgment of Beneficiary is prior or superior hereto and, in
exercising any such power, incur any liability and expend whatever amounts in
its absolute discretion it may deem necessary therefor, including cost of
evidence of title and reasonable attorneys' fee. Any expenditures in connection
herewith shall be deemed an Advance and shall constitute part of the
indebtedness secured by this Deed of Trust.
5.4 Rules of Construction. When the identity of the parties hereto or
---------------------
other circumstances make it appropriate, the masculine gender includes the
feminine and/or neuter, and the singular number includes the plural. The
headings of each article, section or paragraph are for information and
convenience only and do not limit or construe the contents of any provision
hereof.
5.5 Severability. If any term of this Deed of Trust or the application
------------
thereof to any person or circumstances, shall, to any extent, be invalid or
unenforceable, the remainder of this Deed of Trust, or the application of such
term to persons or circumstances other than those as to which it is invalid or
unenforceable, shall not be affected thereby, and each term of this Deed of
Trust shall be valid and enforceable to the fullest extent.
5.6 Successors in Interest. This Deed of Trust applies to, inures to the
----------------------
benefit of, and is binding not only on the parties hereto, but on their heirs,
executors, administrators, successors and assigns. All obligations of Trustor
hereunder are joint and several. The term
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"Beneficiary" shall mean the holder and owner, including pledgees, of the Note
secured hereby, whether or not named as Beneficiary herein and any owner or
holder of the beneficial interest under this Deed of Trust.
5.7 Governing Law. This Deed of Trust governing the contractual rights
-------------
and obligations of Trustor, Beneficiary and Trustee shall be construed
according to and governed by the laws of the State of Nevada, except to the
extent that the laws of the State of California shall govern the perfection,
priority and procedures for foreclosure of the lien created by this Deed of
Trust. Trustor hereby consents to the jurisdiction of any competent court in
the State of Nevada and consents to service of process by any means authorized
by Nevada law in any action brought under or arising out of this Deed of Trust.
5.8 Modifications. This Deed of Trust may not be amended, modified or
-------------
changed nor shall any waiver of any provision hereof be effective, except only
by an instrument in writing and signed by the party against whom enforcement of
any waiver, amendment, change, modification or discharge is sought.
5.9 No Merger. If both the Lessor's and Lessee's estates under any lease
---------
or any portion thereof which constitutes a part of the Mortgaged Property shall
at any time become vested in one owner, this Deed of Trust and the lien created
hereby shall not be destroyed or terminated by application of the doctrine of
merger, and, in such event, Beneficiary shall continue to have and enjoy all of
the rights and privileges of Beneficiary as to the separate estates. In
addition, upon the foreclosure of the lien created by this Deed of Trust on the
Mortgaged Property pursuant to the provisions hereof, any leases or subleases
then existing shall not be destroyed or terminated by application of the law of
merger or as a matter of law or as a result of such foreclosure unless
Beneficiary or any purchaser at any such foreclosure sale shall so elect. No
act by or on behalf of Beneficiary or any such purchaser shall constitute a
termination of any lease or sublease unless Beneficiary or such purchaser shall
have given written notice thereof to such tenant or subtenant.
5.10 Attorneys' Fees. If Beneficiary incurs any costs or expenses,
---------------
including attorneys' fees, for any of the following relating to this Deed of
Trust (or any other instrument evidencing or securing this loan): (a) the
interpretation, performance or enforcement thereof; (b) the enforcement of any
statute, regulation or judicial decision; (c) any collection effort; or (d) any
suit or action for the interpretation, performance or enforcement thereof is
commenced or defended, or, if any other judicial or nonjudicial proceeding is
instituted by Beneficiary or any other person, and an attorney is employed by
Beneficiary to appear in any such action or proceeding, or to reclaim, seek
relief from a judicial or statutory stay, sequester, protect, preserve or
enforce Beneficiary's interest in this Deed of Trust or any other security for
the Note, including but not limited to proceedings under federal bankruptcy law,
in eminent domain, under the probate code, or in connection with any state or
federal tax lien, then Trustor agrees to
22
<PAGE>
pay the reasonable attorneys' fees ("reasonable" being the usual hourly billing
rates charged by Beneficiary's attorneys) and costs thereof, regardless of
whether suit or action is commenced or defended as to (a), (b), and (c). Such
fees and costs shall be added to the principal of the Note and shall bear
interest at the Default Rate. The foregoing notwithstanding, in any action
commenced by Trustor or Beneficiary against the other to enforce the provisions
of this Deed of Trust or any other instrument evidencing or securing this loan,
the prevailing party of such action shall be entitled to recover its reasonable
attorneys' fees (as set forth above) from the non-prevailing party and the non-
prevailing party shall not be entitled to recover its attorneys' fees.
5.11 Conflict. If the term of any other Loan Document, except the Note,
--------
shall be in conflict with this Deed of Trust, then this Deed of Trust shall
govern to the extent of the conflict. If the term of this Deed of Trust shall
be in conflict with the Note, the Note will then govern to the extent of the
conflict.
5.12 Notices. All notices to be given pursuant to this Deed of Trust shall
-------
be sufficient if given by personal service, by guaranteed overnight delivery
service, by telex, telecopy or telegram or by being mailed postage prepaid,
certified or registered mail, return receipt requested, to the described
addresses of the parties hereto as set forth below, or to such other address as
a party may request in writing. Any time period provided in the giving of any
notice hereunder shall commence upon the date of personal service, the date
after delivery to the guaranteed overnight delivery service, the date of sending
the telex, telecopy or telegram or two (2) days after mailing certified or
registered mail.
TRUSTOR'S ADDRESS: Inco Homes Corporation
-----------------------------
-----------------------------
BENEFICIARY'S ADDRESS: c/o USA Commercial Mortgage Company
3900 Paradise Road, Suite 263
Las Vegas, Nevada 89109
WITH DUPLICATE NOTICE TO: Goold, Patterson, DeVore & Rondeau
4496 So. Pecos Road
Las Vegas, Nevada 89121
Attn: Thomas J. DeVore, Esq.
5.13 Request for Notice of Default. Trustor requests that a true and
-----------------------------
correct copy of any notice of default and any notice of sale be sent to Trustor
at the address set forth in Section 5.12 hereof.
23
<PAGE>
5.14 Late Charges. As set forth and defined in the Note, there shall be
------------
due to Beneficiary a Late Charge of five percent (5%) of the
amount of any payment which is received by Beneficiary so as to incur a Late
Charge, and all such Late Charges are secured hereby.
5.15 Statutory Covenants. Where not inconsistent with the above, the
-------------------
following covenants, Nos. 1; 2 (full replacement value); 3; 4 (20.5%); 5; 6; 7
(a reasonable percentage); 8 and 9 of NRS 107.030 are hereby adopted and made a
part of this Deed of Trust.
5.16 Non-Assumption. Notice is hereby given that Trustor's obligations
--------------
under this Deed of Trust may not be assumed except as permitted by Section 1.11
hereof. Any transfer of Trustor's interest in the Mortgaged Property or any
attempted assumption of Trustor's obligations under the Deed of Trust not so
approved shall constitute a default hereunder and shall permit Beneficiary to
accelerate the Maturity Date of the Note. Reference to applicable sections of
the Loan Documents must be made for the full text of such provisions.
5.17 Review of Covenants, Conditions and Restrictions. No covenant,
------------------------------------------------
condition or restriction or any rule or regulation or any other document or
agreement, however, denominated, which shall purport to apply to the ownership,
operation, maintenance or governance of the Mortgaged Property or any part
thereof, nor any article of incorporation bylaw or any other document or
agreement, however denominated, which shall purport to establish an organization
for the operation, maintenance of governance of the Mortgaged Property or any
part thereof, shall be approved, executed and/or recorded without the express
prior written consent of Beneficiary.
5.18 Loan Agreement. Performance of Trustor's obligations under that
--------------
certain Loan Agreement of even date herewith by and between Trustor and
Beneficiary are secured by this Deed of Trust, and a default thereunder shall
constitute an Event of Default under this Deed of Trust.
IN WITNESS WHEREOF, the undersigned have caused this instrument to be
signed as of the date first above written.
"TRUSTOR":
Inco Homes Corporation, a Delaware
corporation
By: /s/ IRA C. NORRIS
----------------------------------
Ira C. Norris
Its: President
----------------------------------
24
<PAGE>
STATE OF CALIFORNIA )
COUNTY OF SAN BERNARDINO ) ss.
On February 4, 1997, before me, Leslie Adkison, a Notary Public, personally
appeared Ira C. Norris, personally known to me to be the person whose name is
subscribed to the within instrument and acknowledged to me that he executed
the same in his authorized capacity, and by his signature on the
instrument the person, or entity on behalf of which the person acted, executed
the instrument.
WITNESS my hand and official seal.
/s/ LESLIE ADKISON
-------------------------------
Notary Public
(SEAL) (My Commission Expires: 10/09/99)
25
<PAGE>
EXHIBIT "A"
BENEFICIARIES
<TABLE>
<CAPTION>
Undivided
Interest
---------
<S> <C>
Augustine Tuffinelli, Trustee of the
Augustine Tuffinelli Family Trust 3.4146%
Shirley Jean Tuffinelli, Trustee of the
Shirley Jean Tuffinelli Trust 1.4634%
Carol Ayers 2.4390%
Ruth Campbell and Brent Johnson, as joint
tenants with rights of survivorship 4.8780%
Richard E. Carpenter and Richard R.
Panneitz, Trustees of the Richard Carpenter
Living Trust 2.4390%
Larry L. Mayorga and Cheryl Mayorga,
as joint tenants with rights of survivorship 2.4390%
Barry Ross and Amy Ross, as joint tenants
with rights of survivorship 2.4390%
Frank Reale 7.3170%
Christina Reale 2.4390%
Lauren Reale 2.4390%
C.E. Newby and Carole J. Newby, as trustees
FBO Newby 1984 Trust UAD 3/19/84 2.4390%
Russell J. Zuardo, as trustee of the Russ
& Betty Zuardo Community Property Trust
UAD 7/7/89 4.8780%
Sandra Blumen 3.6585%
David L. Fantauzzi 2.4390%
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Alvatore J. Lamagra and Althea Rosalind
Lamagra, as trustees of the Lamagra Family
Trust dtd 11/11/92 2.4390%
Dennis G. Campton, M.D., as trustee fbo
Dennis G. Campton M.D. Profit Sharing Plan
UAD 3/16/72 2.4390%
Sara M. Katz, as trsutee fbo Katz &
Associates MP & PSP UAD 1/1/87 fbo
Sara M. Katz 2.4390%
John Kurlinski c/f Joshua J. Kurlinski
UTMA NV 1.2200%
John Kurlinski c/f Ryan E. Kurlinski
UTMA NV 1.2200%
Don Behringer and Diane Behringer, as joint
tenants with rights of survivorship 2.4390%
Tobias Von Euw and Patricia Von Euw, as
trustees of the Von Euw 1996 Trust dtd 1/11/96 4.8780%
Wilbur A. Schaff and Judy K. Schaff, as
trustees of the Schaff Family Revocable
Living Trust dtd 6/26/94 4.8780%
Erven J. Nelson and Frankie J. Nelson, as
trustees of the Erven J. Nelson & Frankie J.
Nelson Trust dtd 9/11/84 3.6585%
Reiichi Iizuka, as trustee fbo Reiichi
Iizuka PSP dtd 4/1/72 7.3170%
Jack M. Wagman and Norma E. Wagman, as
trustees of the Jack M. & Norma E. Wagman
Family Trust dtd 8/13/93 2.4390%
William S. Van Buskirk 2.4390%
Christina J. Colligan, as trustee of the
Christina J. Colligan Living Trust UAD 8/7/96 4.8780%
Norma Meersand and Robin Dunfield, as joint
owners with rights of survivorship 2.4390%
Nevada State Bank c/f David Mulkey IRA 4.8780%
USA Commercial Mortgage Company, Inc. 8.5365%
</TABLE>
27
<PAGE>
EXHIBIT "B"
DESCRIPTION OF REAL PROPERTY
----------------------------
THE LAND REFERRED TO IN THIS REPORT IS SITUATED IN THE STATE OF CALIFORNIA,
COUNTY OF RIVERSIDE, AND IS DESCRIBED AS FOLLOWS:
PARCEL 1:
- --------
Lots 1 through 11 inclusive and 22 through 40 inclusive of Tract No. 23995-1, in
the County of Riverside, State of California, as per map recorded in Book 249,
Pages 84 through 87, records of said County.
PARCEL 2:
- --------
That portion of the Southeast one-quarter of Section 19, Township 5 South, Range
7 East, San Bernardino Meridian, in the City of La Quinta, County of Riverside,
State of California, more particularly, described as follows:
Commencing at the Northeast corner of said Southeast one-quarter of Section 19;
thence South 00degrees 10'15" East along the Easterly line of said Southeast
one-quarter a distance of 50.00 feet to the true point of beginning; thence
continuing along said Easterly line, South 00degrees 10'15" East, a distance of
1303.00 feet:
Thence South 89 degrees 49'45" West a distance of 166.00 feet;
Thence South 00 degrees 10'15" East a distance of 132.00 feet;
Thence South 89 degrees 49'45" West a distance of 278.00 feet;
Thence South 00 degrees 10'15" East a distance of 30.73 feet;
Thence South 89 degrees 49'45" West a distance of 155.00 feet;
Thence South 06 degrees 33'51" West a distance of 34.45 feet;
Thence South 50 degrees 56'52" West a distance of 76.11 feet;
Thence South 87 degrees 35'59" West a distance of 47.38 feet;
Thence North 46 degrees 01'17" West a distance of 133.05 feet;
Thence North 28 degrees 00'09" West a distance of 47.42 feet;
Thence North 18 degrees 52'54" West a distance of 55.36 feet;
Thence North 00 degrees 10'15" West a distance of 111.77 feet;
Thence North 55 degrees 10'15" West a distance of 127.42 feet;
Thence North 55 degrees 12'13" West a distance of 60.86 feet;
Thence North 65 degrees 18'10" West a distance of 110.09 feet;
Thence South 10 degrees 34'37" West a distance of 119.32 feet;
Thence South 89 degrees 49'45" West a distance of 100.00 feet;
Thence North 80 degrees 14'17" West a distance of 60.91 feet;
Thence South 89 degrees 49'45" West a distance of 100.00 feet;
Thence North 00 degrees 10'15" West parallel with the Easterly line of said
Southeast one-quarter of Section 19 a distance of 1208.96 feet to a point on the
South line of the Northerly 50.00 feet of said Southeast one-quarter as granted
to the County of Riverside by deed recorded August 30, 1933 in Book 133, Page
292, Official Records;
28
<PAGE>
Thence North 89 degrees 35'20" East along said South line a distance of 1,365.01
feet to the point of beginning.
Said land is also known as Parcel "A" of lot line Adjustment No. 94-178 approved
by the City of La Quinta.
EXCEPTING THEREFROM those portions lying within Trace 23995-1 and Tract 23995-2.
PARCEL 3:
- --------
Lots 1 thru 34, inclusive, of Tract 23995-2, as per map filed in Book 250, Pages
95 to 98, inclusive of Maps, records of said County.
29
<PAGE>
EXHIBIT 10.6
PLACEMENT AGREEMENT
This Agreement is entered into as of February 10th, 1997, by and
between INCO HOMES CORPORATION, a Delaware corporation ("Inco"), and USA
COMMERCIAL MORTGAGE COMPANY, a Nevada corporation ("USA"), with reference to the
following facts:
RECITALS
A. USA, in association with Griess & Associates, Inc., Warren D.
Griess, broker ("Griess"), has arranged for Inco, a loan (the "Loan") with a
Note Amount of $2,050,000.00 from certain individual lenders (collectively,
"Lender").
B. In connection with such loan, Inco has agreed to pay a fee in the
total amount of $205,000.00 (the "Loan Fee") to USA. In addition, Inco has
agreed to pay to USA an additional fee in the amount of $280,000.00, payable at
the rate of $2,000.00 per Lot for each Lot sold on the Property which secures
the Loan (the "Additional Fee").
C. Parties hereto wish to agree as to the terms and conditions for
the payment of the Loan Fee and the Additional Fee.
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Inco and USA hereby agree as follows:
1. Payment of Loan Fee. As of January 14, 1997, Inco has paid
-------------------
$41,000.00 to USA as a portion of the Loan Fee (the "Initial Payment"). Inco
shall pay the remainder of the Loan Fee in full on the date the Loan is funded.
All fees and commissions of Griess shall be paid in full by Inco, and Inco shall
hold USA harmless from any claim for such fees or commissions.
2. Payment of the Additional Fee. The total Additional Fee payable
-----------------------------
by Inco to USA shall equal $280,000.00. On the date the Loan is funded, Inco
shall execute a promissory note in the amount of $280,000.00 payable to USA (the
"Fee Note"). Said note shall have a term of twenty-four (24) months from the
date the Loan is funded (the "Maturity Date") and shall bear no interest if it
is paid in full by its maturity date. Inco shall pay the Additional Fee, in
increments of $2,000.00 per Lot, from the sales proceeds for each Lot sold on
the Property which secures the Loan. Disbursement of said amounts shall be made
monthly by the Disbursement Agent from the Net Sales Proceeds paid to the
Control Account. If the Loan is paid in full prior to the maturity date of the
Fee Note, then the Fee Note shall remain due and payable in accordance with its
terms. From and after the Maturity Date, the outstanding balance of the Fee
Note shall bear interest at the rate of ten percent (10%) per annum until it is
paid in full. Capitalized terms used herein and not otherwise defined herein
are
1
<PAGE>
used with the meanings given them in the Loan Agreement between Inco and the
Lenders regarding the Loan.
3. Inco's Liability for Loan Fee. The Initial Payment is deemed to
-----------------------------
be fully earned upon receipt. The Initial Payment shall only be refundable to
Inco in the event USA fails to fund the loan proceeds. If the Loan is not
closed by February 3, 1997, the commitment to lend shall expire and USA may
retain the Initial Payment without any further obligation to fund the Loan.
4. Funding of Loan; Commencement of Interest Accrual. USA shall
-------------------------------------------------
place the Loan funds into the loan closing escrow at National Bank of Southern
California prior to the anticipated Loan closing date. Interest shall begin
accruing on said funds, at the rate set forth in the promissory note evidencing
the Loan, on the date such funds are deposited into the escrow.
5. Attorneys' Fees. Inco shall pay the fees and costs of Lenders'
---------------
attorney(s) incurred in the investigation, negotiation and documentation of the
Loan. Said fees and costs shall not exceed $7,500.00. Inco has paid a portion
of those fees and costs in the amount of $2,500.00 which is deemed to be fully
earned and non-refundable.
6. Miscellaneous.
-------------
(a) This Agreement shall be governed by the laws of the State of
Nevada.
(b) Time is of the essence of this Agreement.
(c) The parties hereto agree to execute and deliver such
additional documents or instruments as they may be reasonably necessary to
effectuate the terms and conditions of this Agreement.
(d) In the event of any dispute hereunder or in any action for the
enforcement of this Agreement, the prevailing party shall be entitled to receive
from the non-prevailing party its attorneys' fees and costs of suit.
(e) This Agreement shall inure to the benefit of the parties
hereto and their respective heirs, successors and signs.
2
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first set forth above.
Inco: USA:
Inco Homes Corporation, USA Commercial Mortgage Company,
a Delaware corporation a Nevada Corporation
By: /s/ IRA C. NORRIS By: /s/ THOMAS HANTGES
--------------------------- ---------------------------
Ira C. Norris Thomas Hantges, President
Its: President
--------------------------
3
<PAGE>
EXHIBIT 10.7
PROMISSORY NOTE
$280,000.00 Las Vegas, Nevada
February 10th, 1997
FOR VALUE RECEIVED, INCO HOMES CORPORATION, a Delaware corporation
("Maker"), hereby promises to pay to the order of USA COMMERCIAL MORTGAGE
COMPANY, INC., a Nevada corporation ("Holder") at Las Vegas, Nevada, or at such
other place as the then holder hereof may from time to time designate in
writing, the principal amount of TWO HUNDRED EIGHTY THOUSAND DOLLARS
($280,000.00) (the "Note Amount"), in lawful money of the United States of
America, without set-off or counterclaim, together with interest on the
principal balance hereof outstanding from time to time at the interest rate
hereinafter set forth. Maker further agrees as follows:
1. Maturity Date. If not sooner paid, the unpaid principal balance
-------------
hereof, together with all unpaid interest accrued thereon (if any), and all
other amounts payable by Maker hereunder shall be due and payable on February
10th, 1999 (the "Maturity Date").
2. Payments. The Note Amount shall be paid in increments of $2,000.00
--------
each upon the closing of each lot sale on the real property which secures the
loan by Tuffinelli, et al., arranged by Holder, in association with others.
------
Said payments shall remain due and payable notwithstanding the repayment of the
loan referenced in the prior sentence.
3. Default Interest. Upon any default hereunder, and continuing until
----------------
such time as such default has been fully and completely cured, the Note Amount
shall bear interest at the rate of ten percent (10%) per annum. Such interest
shall begin accruing on the unpaid portion of the Note Amount on the first day
of the default and shall be payable on the first day of each month thereafter,
or on demand if sooner demanded; provided, however, that if the default is a
failure to pay any sum due hereunder, Maker shall have five (5) days from the
date such sum became due to cure such default, during which period the interest
shall not accrue. If such default is not cured within the five (5) day grace
period, the interest will be deemed to have begun accruing on the date such sum
became due. Maker acknowledges that upon the occurrence of an Event of Default,
the damages to Holder would be extremely difficult to ascertain, including the
Holder's lost profit and loss of use of the funds evidenced hereby and expense
incurred in connection with such default and that the accrual of interest is a
fair and reasonable estimate of the loss to the Holder incurred by virtue of
such default.
4. Late Charge. Maker acknowledges that if any payment is not made when
-----------
due or if the entire amount due under this Note is not paid by the Maturity
Date, the holder hereof will incur extra administrative expenses (i.e., in
addition to expenses incident to the receipt of timely payment) and the loss of
the use of funds in connection with the delinquency in payment. Because the
actual damage is suffered by the holder hereof by reason of such extra
administrative expenses and loss of use of funds would be impracticable or
extremely difficult to ascertain, Maker agrees that five percent (5%) of the
amount so
1
<PAGE>
delinquent shall be the amount of damages to which such holder is entitled, upon
such breach, in compensation therefore. Therefore, Maker shall, in the event
any payment required under this Note is not paid within five (5) days after the
date when such payment becomes due and payable, without further notice, pay to
the holder hereof as such holder's sole monetary recovery to cover such extra
administrative expenses and loss of use of funds, liquidated damages in the
amount of five percent (5%) of the amount of such delinquent payment. The
provisions of this paragraph are intended to govern only the determination of
damages in the event of a breach in performance of the obligations of Maker to
make timely payments hereunder. Nothing in this Note shall be construed as an
express or implied agreement by the holder hereof to forbear any collection of
any delinquent payment or in exercising any of its rights and remedies, or be
construed as in any way giving Maker the right, express or implied, to fail to
make timely payments hereunder, whether upon payment of such damages or
otherwise. The right of the holder hereof to receive payment of such liquidated
and actual damages, and receipt thereof, are without prejudice to the right of
such holder to collect such delinquent payments and any other amounts provided
to be paid hereunder or to declare a default hereunder.
5. Application of Payments. Every payment received with respect hereto
-----------------------
is to be applied as follows: first to the payment of any costs, expenses,
charges or fees due and owing from Maker to Holder under the terms of this Note;
second, to the payment of any accrued interest on the principal balance
remaining unpaid from time to time; and third, to reduce the principal balance
hereof.
6. Prepayment. Any time prior to the Maturity Date Maker may prepay this
----------
Note.
7. Costs of Collection. Maker promises to pay all costs, expenses and
-------------------
reasonable attorneys' fees ("reasonable" being the fees charged at the normal
hourly rates of Holder's attorneys) incurred by Holder in the exercise of any
remedy (with or without litigation), in any proceeding for the collection of the
debt represented by this Note or the realization upon any security securing this
Note, in protecting or sustaining the lien or priority of said other security;
in any adversary proceeding or contested matter, whether or not brought by
Holder, under the Federal Bankruptcy Code or Rules or arising in or related to a
case under the Federal Bankruptcy Code or Rules, including without limitation
any costs or fees incurred in filing proofs of claim, attending hearings or in
any proceeding relating to the automatic stay provided by 11 U.S.C. (S) 362; or
in any litigation or controversy arising from or in connection with this Note,
including any bankruptcy, receivership, injunction or other proceeding, or any
appeal from or petition for review of any of the foregoing, in which the Holder
prevails. If a judgment is obtained thereon which includes an award of
attorneys' fees, such attorneys' fees, costs and expenses shall be in such
amount as the court shall deem reasonable, which judgment shall bear interest at
fifteen percent (15%) per annum from the date it is rendered to and including
the date of payment to Holder.
8. Defaults; Acceleration. The occurrence of any Event of Default (as
----------------------
hereinafter defined) shall be a default hereunder. Upon the
2
<PAGE>
occurrence of an Event of Default, Holder may declare the entire principal
balance of the Note then outstanding (if not then due and payable) and all other
obligations of Borrower hereunder to be due and payable immediately. Subject to
the applicable provisions of law, upon any such declaration, the principal of
the Note and accrued and unpaid interest, and all other amounts to be paid under
this Note shall become and be immediately due and payable, anything in this Note
to the contrary notwithstanding.
The occurrence of any one or more of the following, whatever the reason
therefor, shall constitute an "Event of Default" hereunder:
(a) Maker shall fail to pay any installment of the Note Amount when
due; or
(b) Maker shall fail to perform or observe any term, covenant or
agreement contained in this Note or any document delivered in connection
herewith (the "Loan Documents") on its part to be performed or observed, other
than the failure to make a payment covered by subsection (a), and such failure
shall continue uncured as of the earlier of thirty (30) calendar days after the
occurrence of such failure or ten (10) calendar days after written notice of
such failure is given by Holder to Maker (the cure period set forth in this
subsection (b) shall not apply to any other Event of Default); or
(c) any representation or warranty contained in any document made or
delivered pursuant to or in connection with this Note proves incorrect or to
have been incorrect in any material respect when made; or
(d) Maker (which term shall include any entity comprising Maker) is
dissolved or liquidated, or otherwise ceases to exist, or all or substantially
all of the assets of Maker are sold or otherwise transferred without Holder's
written consent; or
(e) Maker is the subject of an order for relief by the bankruptcy
court, or is unable or admits in writing its inability to pay its debts as they
mature, or makes an assignment for the benefit of creditors; or Maker applies
for or consents to the appointment of any receiver, trustee, custodian,
conservator, liquidator, rehabilitator or similar officer ("Receiver"); or any
Receiver is appointed without the application or consent of Maker, and the
appointment continues undischarged or unstayed for thirty (30) calendar days; or
Maker institutes or consents to any bankruptcy, insolvency, reorganization,
arrangement, readjustment of debt, dissolution, custodianship, conservatorship,
liquidation, rehabilitation or similar proceedings relating to it or to all or
any part of its property under the laws of any jurisdiction; or any similar
proceeding is instituted without the consent of Maker, and continues undismissed
or unstayed for thirty (30) calendar days; or any judgment, writ, attachment,
execution or similar process is issued or levied against all or any part of the
Property or Maker, and is not released, vacated or fully bonded within thirty
(30) calendar days after such issue or levy; or
3
<PAGE>
Guarantor, and is not released, vacated or fully bonded within thirty (30)
calendar days after such issue or levy, or;
(f) there shall occur a material adverse change in the financial
condition of Maker from its respective financial conditions as of the date of
this Note, as determined by Holder in its reasonable discretion.
9. Assignment By Holder. Holder may assign its rights hereunder or
--------------------
obtain participants in this Note at any time, and any such assignee, successor
or participant shall have all rights of the Holder hereunder.
10. Multiple Parties. A default on the part of any one entity comprising
----------------
Maker shall be deemed a default on the part of Maker hereunder.
11. Waivers. Maker hereby waives presentment, demand of payment, notice
-------
of dishonor, protest, and notice of nonpayment, and any and all other notices
and demands whatsoever. No covenant, conditions, right or remedy in this Note
may be waived or modified orally, by course of conduct or previous acceptance or
otherwise unless such waiver or modification is specifically agreed to in
writing executed by the Holder.
12. Construction. This note shall be governed by and construed in
------------
accordance with the laws of the State of Nevada, and all sums referred to herein
shall be calculated by reference to and payable in the lawful currency of the
United States. This Note has been reviewed and negotiated by Maker and Holder
at arms' length with the benefit of or opportunity to seek the assistance of
legal counsel and shall not be construed against either party. The titles and
captions in this Note are inserted for convenience only and in no way define,
limit, extend, or modify the scope of intent of this Note.
13. Partial Invalidity. If any section of provision of this Note is
------------------
declared invalid or unenforceable by any court of competent jurisdiction, said
determination shall not affect the validity or enforceability of the remaining
terms hereof. No such determination in one jurisdiction shall affect any
provision of this Note to the extent it is otherwise enforceable under the laws
of any other applicable jurisdiction.
14. Venue. The venue of any action brought in connection with this Note
-----
shall be laid in Clark County, Nevada.
"MAKER":
Inco Homes Corporation, a
Delaware corporation
By: /s/ IRA NORRIS
--------------------------------
Ira C. Norris
Its: President
-------------------------------
4
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000897432
<NAME> INCO HOMES CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 282
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 37,344
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 40,908
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 16
<OTHER-SE> 12,533
<TOTAL-LIABILITY-AND-EQUITY> 40,908
<SALES> 3,420
<TOTAL-REVENUES> 3,420
<CGS> 3,084
<TOTAL-COSTS> 3,084
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (686)
<INCOME-TAX> 0
<INCOME-CONTINUING> (686)
<DISCONTINUED> 0
<EXTRAORDINARY> 486
<CHANGES> 0
<NET-INCOME> (200)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
