<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 June 30, 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 June 30, 1997
--------------------- --------------
$.01 par value 1,637,096
- --------------------------------------------------------------------------------
<PAGE>
INCO HOMES CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1997 (Unaudited)
and December 31, 1996....................................... 3
Consolidated Statements of Operations (Unaudited) for the
Three Months and Six Months Ended June 30, 1997 and 1996.... 4
Consolidated Statements of Cash Flows (Unaudited) for the
Six Months Ended June 30, 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................................... 10
PART II OTHER INFORMATION........................................... 21
SIGNATURES............................................................ 24
</TABLE>
2
<PAGE>
INCO HOMES CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
------------------------------
(Dollars in thousands, except share data) 1997 1996
----- ----
(unaudited)
<S> <C> <C>
ASSETS
Cash $ 309 $ 586
Real estate inventories 28,009 36,752
Deferred tax asset 2,200 2,200
Investment in non-consolidated partnership 195 428
Other assets 542 666
-------- --------
Total assets $ 31,255 $ 40,632
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 4,845 $ 7,133
Notes payable secured by real estate 16,793 15,360
Lines of credit 3,373 4,303
Notes to stockholders 2,575 676
-------- --------
Total liabilities 27,586 27,472
-------- --------
Minority partners' investment in consolidated partnerships 763 876
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 (39,336) (29,493)
-------- --------
Total stockholders' equity 2,906 12,284
-------- --------
Total liabilities and stockholders' equity $ 31,255 $ 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 FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------ -------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue from home sales $ 5,452 $ 2,972 $ 8,872 $ 6,618
Revenue from land and lot sales 600 - 600 -
---------- ---------- ---------- ----------
6,052 2,972 9,472 6,170
---------- ---------- ---------- ----------
Cost of homes sold 5,363 2,827 8,447 6,618
Cost of land and lots 667 - 667 -
---------- ---------- ---------- ----------
6,030 2,827 9,114 6,170
---------- ---------- ---------- ----------
Gross profit 22 145 358 448
---------- ---------- ---------- ----------
Provision for write-down of real estate 9,213 - 9,213 -
Selling and marketing expenses 1,064 507 1,720 1,184
General and administrative expenses 357 538 775 1,140
---------- ---------- ---------- ----------
10,634 1,045 11,708 2,324
---------- ---------- ---------- ----------
Operating loss (10,612) (900) (11,350) (1,876)
Other income 56 41 62 71
---------- ---------- ---------- ----------
Loss before minority partners'
share and provision (benefit) for income taxes (10,556) (859) (11,288) (1,805)
Minority partners' share 67 2 113 2
---------- ---------- ---------- ----------
Loss before provision
(benefit) for income taxes (10,489) (857) (11,175) (1,803)
Provision (benefit) for income taxes - - - -
---------- ---------- ---------- ----------
Loss before extraordinary items (10,489) (857) (11,175) (1,803)
Extraordinary items 846 - 1,332 -
---------- ---------- ---------- ----------
Net loss $ (9,643) $ (857) $ (9,843) $ (1,803)
========== ========== ========== ==========
Net loss per common share (1996 restated for reverse stock split) $ (5.89) $ (0.60) $ (6.08) $ (1.29)
========== ========== ========== ==========
Weighted average number of common shares
outstanding (1996 restated for reverse stock split) 1,637,096 1,425,392 1,620,153 1,398,280
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements
4
<PAGE>
INCO HOMES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
---------------------------------------
(Dollars in thousands) 1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $(9,843) $(1,803)
Adjustment to reconcile net loss to net cash provided by
(used in) operating activities:
Extraordinary items (1,332) -
Provision for write-down of real estate 9,213 -
Minority partners' share (113) 2
Proceeds from sale of divisions - 1,702
(Increase) decrease in real estate inventories (1,114) (148)
(Increase) decrease in other assets 91 342
Increase (decrease) in accounts payable and accrued liabilities (1,760) (2,022)
---------- ----------
Net cash provided by (used in) operating activities (4,858) (1,927)
---------- ----------
Cash flows from financing activities:
Proceeds from notes payable secured by real estate 13,205 8,410
Repayments on notes payable secured by real estate (9,905) (7,719)
Proceeds from lines of credit 1,113 -
Repayments on lines of credit (2,136) (413)
Proceeds from notes to stockholder 2,122 -
Repayments on notes to stockholder (283) -
Contributions from minority partners - 1,932
Proceeds from sale of common stock 500 -
Costs of stock issuance and reverse stock split (35) -
---------- ----------
Net cash provided by (used in) financing activities 4,581 2,210
---------- ----------
Net increase (decrease) in cash and cash equivalents (277) 283
Cash and cash equivalents at beginning of year 586 420
---------- ----------
Cash and cash equivalents at end of period $ 309 $ 703
========== ==========
</TABLE>
Supplemental schedule of non-cash activities
[1] In the six months ended June 30, 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 six months ended June 30, 1996, the Company issued 90,878 shares of
Common Stock (restated for reverse stock split) to creditors in exchange
for relieving the Company of $539,000 of accounts payable.
[3] In the six months ended June 30, 1996, the Company deeded back property
with a book cost basis of $1.5 million to land sellers in satisfaction of
$1.5 million 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 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.
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's sole market is in Southern California and it is substantially
dependent on local economic factors. The Company has experienced, and
expects to continue to experience, significant variability in quarterly
results of operations. 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 June 30, 1997 and 1996, the Company incurred
$3,000 and $10,000, respectively, in model home design fees and
reimbursements for the cost of the model home furnishings with Nancy Orman
Interiors. For the six months ended June 30, 1997 and 1996, the Company
incurred $105,000 and $25,000, respectively, in fees and costs with Nancy
Orman Interiors. Nancy Orman Interiors is owned by Nancy Norris, the wife
of Ira C. Norris.
For the three months ended June 30, 1997 and 1996, the Company incurred
$27,300 and $26,500, respectively, for the use of office space, with Inco
Plaza Ltd. For the six months ended June 30, 1997 and 1996, the Company
incurred $54,600 and $53,000, respectively, with 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.
In May 1996, the Company assigned an unsecured non-interest bearing advance
in the amount of $293,000 from Victor Valley Commercial Properties to Ira
C. Norris in exchange for a cash payment of $293,000. Victor Valley
Commercial Properties is a limited partnership owned 50% by G&N Investments
Ltd., its sole general partner.
6
<PAGE>
Thomas E. Gibbs, Jr., a former 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. Additionally, the Gibbs Family Trust, of
which Mr. Gibbs is a beneficiary and trustee, is a 50% limited partner in
Triumph. As explained in Note 1, the accompanying consolidated financial
statements include the Company's general partnership interests in Palmdale
Vistas and Triumph.
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. The ALG note bears interest at the prime rate plus
3.0%, is due in June 1998, and is secured by the 148 unbuilt lots and 3
completed model homes of the Company's Winners Circle project in the high
desert of Southern California. The HRIP note bears interest at 10%, is due
in December 1998, and is secured by the 39 unbuilt lots and 3 completed
model homes of the Company's Bella Vita project in Fontana, California.
In connection with ALG's filing a notice of default on its secured
participation note with the Company, Mr. Gibbs resigned as a member of the
Company's Board of Directors, effective August 1, 1997. Mr. Gibbs has
stated that he will be available for consultation with the Company on
matters unrelated to ALG.
One of the owners of both an entity that owns approximately 12.2% of the
Company's outstanding Common Stock and another entity that owns a warrant
to acquire approximately an additional 10.9%, holds a 5.55% limited
partnership interest in FERHP. In June 1997, the 12.2% shareholder
purchased a parcel of vacant land of approximately 13 acres owned by the
Company in Murrieta, California for a cash price of $110,000. This cash
transaction is a result of arms-length negotiations between the parties,
and the Company believes the sales price represents the fair market value
of the property.
NOTE 3 - NOTES TO STOCKHOLDERS
Through June 30, 1997, the Company had received from Ira C. Norris
unsecured advances of $2.4 million net of paybacks of $400,000 for working
capital purposes. The balance of these advances at June 30, 1997 is $2.1
million, which includes accrued interest of approximately $71,000. The
Company has issued several notes to Mr. Norris, bearing interest at 10.0%,
which mature either on September 30, 1997 or December 31, 1997. In August
1997, these notes were assigned to the Norris Living Trust, of which Mr.
Norris is a beneficiary and trustee. Additionally, in June 1997, the Norris
Living Trust loaned the Company $500,000 secured by undeveloped
land owned by the Company in Victorville and Palmdale, California. This
note bears interest at 10% and is due in June 1998.
In June 1997, the Company signed a note and deed of trust in connection
with a loan of $500,000 from the Neeley Revocable Family Trust. Ronald L.
Neeley, a director of the Company, is a beneficiary and trustee of this
trust. The note bears interest at 15%, is due in June 1998, and is secured
by the same undeveloped land owned by the Company in Victorville and
Palmdale, California mentioned above. The Company received the proceeds of
this loan in July 1997.
NOTE 4 - PROVISION FOR WRITE-DOWN OF REAL ESTATE
During the quarter ended June 30, 1997, the Company reevaluated its plans
for holding and developing several of its properties. As a result of this
reevaluation, the number of lots to be developed in certain projects was
reduced, other properties will be sold in their current stage of
development and other properties may be deeded back to lenders in
satisfaction of loans secured by such properties. The Company determined
that, as a result of the reevaluation of its plans, the undiscounted cash
flows estimated to be generated by various real estate holdings were less
than the assets' carrying amounts. In accordance with the provisions of
Statement of Financial Accounting Standards No. 121 ("SFAS No. 121")
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," an
7
<PAGE>
impairment allowance, which writes these assets down to fair value, was
established at June 30, 1997 totaling $9.2 million, of which $8.9 million
relates to properties in the high desert and $0.3 million relates to a
property in Riverside County.
NOTE 5 - EXTRAORDINARY ITEMS
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.
In January 1997, this same bank filed separate notices of default relating
to additional matured loans with principal balances totaling $3.5 million
secured by another of the Company's projects. In April and June 1997, the
Company sold most of the land in this project, which provided funds to help
the Company pay all but $700,000 of these loans pursuant to another
Discounted Loan Payoff Agreement, resulting in an extraordinary gain of
approximately $0.8 million. The remaining $700,000 is due on October 31,
1997, is non-interest bearing, and is secured by the remaining land in the
project.
NOTE 6 - UNAUDITED NET LOSS PER COMMON SHARE
The primary and fully diluted weighted average number of common shares was
1,637,096 and 1,425,392 (restated for reverse stock split) for the three
months ended June 30, 1997 and 1996, respectively, and 1,620,153 and
1,398,280 (restated for the reverse stock split) for the six months ended
June 30, 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.
NOTE 7 - STOCKHOLDERS' EQUITY
The decrease in stockholders' equity from December 31, 1996 to June 30,
1997, is reconciled as follows:
Dollars in thousands
<TABLE>
<CAPTION>
Number
of Shares
(restated for Common Stock
reverse stock and Additional
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 --- --- (9,843) (9,843)
-----------------------------------------------------------------------------
Balance - June 30, 1997 1,637,096 $42,242 $(39,336) $ 2,906
=============================================================================
</TABLE>
Common stock was issued in the six months ended June 30, 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.
8
<PAGE>
NOTE 8 - 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 June 30, 1997, the Company had an option to purchase a parcel of land
for future residential development with a purchase price of approximately
$1.6 million. This parcel is located in Fontana, California and is
adjacent to a parcel being developed by the Company that was previously
purchased from the grantor of this option.
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 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.
9
<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, as amended, 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 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 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, which included the assumption by the purchaser of $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 has
resulted in reduced levels 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", for both the three months and six months ended
June 30, 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 increased to $5.5 million during the three months ended
June 30, 1997, from $3.0 million during the three months ended June 30, 1996,
representing an increase of $2.5 million or 83.4%. The Company closed 42 homes
at an average sales price of $129,800 during the three months ended June 30,
1997 compared to 22 homes closed at an average sales price of $135,100 during
the three months ended June 30, 1996, a 90.9% increase in closings and a 3.9%
decrease in average sales price.
Revenue from home sales also increased to $8.9 million during the six months
ended June 30, 1997, from $6.6 million during the six months ended June 30,
1996, representing an increase of $2.3 million or 34.1%. The Company closed 73
homes at an average sales price of $121,500 during the six months ended June 30,
1997
10
<PAGE>
compared to 50 homes closed at an average sales price of $132,400 during the six
months ended June 30, 1996, a 46% increase in closings and an 8.2% decrease in
average sales price.
The increase in revenue during both the three months and six months ended June
30, 1997 is attributable to the increase in the number of closings. Closings
increased primarily as a result of the Company having three new subdivisions in
the high desert available for deliveries in the first six months of 1997. The
decrease in the average selling price is attributable to the majority of
closings occurring in the Company's lower priced subdivisions in the high
desert.
The following table sets forth, for the periods indicated, the number of homes
closed by the Company:
<TABLE>
<CAPTION>
Homes Closed for Homes Closed for
the Three Months the Six Months
Ended June 30, Ended June 30,
---------------- ----------------
1997 1996 1997 1996
---- ---- ----------------
<S> <C> <C> <C> <C>
High Desert 28 11 54 29
Riverside/San Bernardino
Counties 14 11 19 21
---- ---- ---- ----
Total 42 22 73 50
==== ==== ==== ====
</TABLE>
Revenue from Land and Lot Sales
In April 1997, the Company closed escrow on approximately 22 acres of
undeveloped land it owned in its Eagle Ranch project in the high desert. The
buyer was a local school district and the cash price was $490,000.
In June 1997, the Company closed escrow on approximately 13 acres of
undeveloped land it owned in Murrieta, California for a cash price of $110,000.
The buyer was an entity that owns approximately 12.2% of the Company's
outstanding Common Stock.
See "Liquidity and Capital Resources" regarding both of these transactions.
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 June 30, 1997 was $5.4 million,
an increase of $2.6 million, or 89.7%, from $2.8 million during the three months
ended June 30, 1996. Cost of homes sold as a percentage of revenue increased to
98.4% for the three months ended June 30, 1997 from 95.1% for the same period in
1996. Cost of homes sold for the six months ended June 30, 1997 was $8.4
million, an increase of $2.2 million, or 36.9% from $6.2 million during the six
months ended June 30, 1996. Cost of homes sold as a percentage of revenue
increased to 95.2% for the six months ended June 30, 1997 from 93.2% for the
same period in 1996.
The increase in cost of homes sold as a percentage of revenue for both the
three months and six months ended June 30, 1997 is the result of the write-off
of previously capitalized costs due to the Company's reduction of scope of one
community in the high desert and one community in Riverside County. This
increase is partially offset by the majority of closings occurring 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.
11
<PAGE>
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 $438,000 and $271,000 for the three months ended June 30,
1997 and 1996, respectively, an increase of 61.6%. Selling expenses as a
percentage of revenue were 8.0% and 9.1% for the three months ended June 30,
1997 and 1996, respectively. Selling expenses were $777,000 and $569,000 for
the six months ended June 30, 1997 and 1996, respectively, an increase of 36.6%.
Selling expenses as a percentage of revenue were 8.8% and 8.6% for the six
months ended June 30, 1997 and 1996, respectively.
The decrease in selling expenses as a percentage of revenue for the three
months ended June 30, 1997 is primarily due to the higher level of closing
revenues, offset by financing incentives granted to homebuyers and costs
associated with an independent sales and marketing company utilized by the
Company since January 1997 to manage its sales force.
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 $626,000 and $236,000 for the three months ended June
30, 1997 and 1996, respectively, representing an increase of 165.3%. As a
percentage of revenue, marketing expenses were 11.5% and 7.9% for the three
months ended June 30, 1997 and 1996, respectively. Marketing expenses were
$943,000 and $615,000 for the six months ended June 30, 1997 and 1996,
respectively, representing an increase of 53.3%. As a percentage of revenue,
marketing expenses were 10.6% and 9.3% for the six months ended June 30, 1997
and 1996, respectively.
The increase in marketing costs is primarily the result of the write-off of
previously capitalized model home costs due to the reduction of scope of one
community in the high desert and one community in Riverside County.
During the second quarter of 1997 and 1996, the Company was selling homes from
eight and seven projects, respectively. In the first six months of 1997, the
Company had one grand opening, which occurred in the second quarter. In the
first six months of 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.
General and administrative expenses were $357,000 and $538,000 for the three
months ended June 30, 1997 and 1996, respectively, a decrease of 33.6%. As a
percentage of revenue, general and administrative expenses were 6.5% and 18.1%
for the three months ended June 30, 1997 and 1996, respectively. General and
administrative expenses were $775,000 and $1.1 million for the six months ended
June 30, 1997 and 1996, respectively, a decrease of 32.0%. As a percentage of
revenue, general and administrative expenses were 8.7% and 17.2% for the six
months ended June 30, 1997 and 1996, respectively.
The decrease in general and administrative expenses primarily reflects the
Company's continuing cost reduction measures.
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.
12
<PAGE>
The minority partners' share of losses was $67,000 and $2,000 for the three
months ended June 30, 1997 and 1996, respectively, and $113,000 and $2,000 for
the six months ended June 30, 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 June 30, 1997 and 1996, the Company increased its
valuation allowance by $3.9 million and $343,000, respectively, and for the six
months ended June 30, 1997 and 1996, the Company increased its valuation
allowance by $3.9 million and $721,000 respectively. Both of these increases in
the valuation allowance were in an amount 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, "Accounting for Income
Taxes" ("SFAS 109") 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 $15.6 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. Additionally, 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 for financing and/or the sale of an
existing home. 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 to the
buyer. The following table sets forth the Company's backlog at the dates
indicated:
<TABLE>
<CAPTION>
June 30,
----------------------------
1997 1996
---------- -----------
<S> <C> <C>
High Desert 33 63
Riverside/San Bernardino Counties 32 40
---------- -----------
Total 65 103
========== ===========
Aggregate Sales Value $9,215,000 $13,490,000
========== ===========
Average Sales Price $ 141,800 $ 131,000
========== ===========
</TABLE>
13
<PAGE>
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 six
months of 1997 the Company had one grand opening, compared to no grand openings
in the first six months of 1996.
The Company's backlog decreased 36.9% to 65 homes at June 30, 1997 from 103
homes at June 30, 1996. The aggregate sales value of homes in backlog decreased
by $4.3 million or 31.7% primarily due to the decrease in number of homes under
sales contracts, as a result of slower than expected sales in one of the
Company's projects in the high desert, the close out of one of the Company's
high desert projects and the reduction of scope of one project in the high
desert and one project in Riverside County. 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
increased by $10,800 or 8.2% 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, 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 For the
Three Months Six Months
Ended June 30, Ended June 30,
---------------- ----------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
High Desert 20 22 35 47
Riverside/San Bernardino Counties 16 13 21 29
---- ---- ---- ----
Total 36 35 56 76
==== ==== ==== ====
</TABLE>
Net new orders increased to 36 homes from 35 homes for the three months ended
June 30, 1997 and 1996, respectively, an increase of 2.9%. Net new orders
declined to 56 homes from 76 homes for the six months ended June 30, 1997 and
1996, respectively, a decrease of 26.3%. The minimal increase in net orders for
the three months ended June 30, 1997 and the decrease in net orders for the six
months ended June 30, 1997 is attributable to slower than expected sales in one
of the Company's projects in the high desert, the close out of one of the
Company's high desert projects and the reduction of scope of one project in the
high desert and one project in Riverside County. 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
14
<PAGE>
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 such 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
Statement of Financial Accounting Standards No. 128 "Earnings Per Share" (SFAS
No. 128), issued in February 1997, would require the Company to report a basic
earnings per share and a diluted earnings per share. Basic earnings per share
would be computed by dividing net income available to common stockholders by the
weighted average shares outstanding during the period, with no assumption of
conversion of dilutive common stock equivalents. Diluted earnings per share
would be computed by reflecting the potential dilution that could occur if
additional shares of common stock were issued upon exercise of employee stock
options or conversion of convertible debentures into common stock.
SFAS No. 128 also would require a reconciliation of the numerator and
denominator of the basic earnings per share computation to the numerator and
denominator of the diluted earnings per share computation. SFAS No. 128 will be
effective for the Company in the fourth quarter of 1997. Earlier adoption is not
permitted and, accordingly, the Company may be required to restate the earnings
per share calculation for the interim periods of 1997, and for all earnings per
share data of prior years presented in summaries of earnings or selected
financial data.
There were no other 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 capital needed 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
15
<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, active
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 June 30, 1997, the Company had received from Ira C. Norris unsecured
advances of $2.4 million net of paybacks of $400,000 for working capital
purposes. The balance of these advances at June 30, 1997 is $2.1 million, which
includes accrued interest of approximately $71,000. The Company has issued
several notes to Mr. Norris, bearing interest at 10.0%, which mature either on
September 30, 1997 or December 31, 1997. In August 1997, these notes were
assigned to the Norris Living Trust, of which Mr. Norris is a beneficiary and
trustee. Additionally, in June 1997, the Norris Living Trust loaned the Company
$500,000 secured by undeveloped land owned by the Company in Victorville and
Palmdale, California. This note bears interest at 10% and is due in June 1998.
All of these transactions were unanimously approved by the disinterested members
of the Company's board of directors.
In June 1997, the Company signed a note and deed of trust in connection with a
loan of $500,000 from the Neeley Revocable Family Trust. Ronald L. Neeley, a
director of the Company, is a beneficiary and trustee of this trust. The note
bears interest at 15%, is due in June 1998, and is secured by the same
undeveloped land in Victorville and Palmdale, California mentioned above. The
Company received the proceeds of this loan in July 1997. This transaction was
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 Overland Opportunity Fund, LLC ("Overland") 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 Overland 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, Overland was also given an exclusive option to purchase approximately
71 acres of commercial property located in the Company's Eagle Ranch project in
the high desert. The Company sold this project in June 1997, with the buyer of
the property assuming the Company's option obligation (see below). In June
1997, the Company also sold a parcel of vacant land of approximately 13 acres it
owned in Murrieta, California, to Overland for a cash price of $110,000. This
cash transaction is a result of arms-length negotiations between the parties,
and the Company believes the sales price represents the fair market value of the
property. 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 Overland Company, Inc. ("OCI"), a corporation affiliated
with Overland. 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 OCI, 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).
OCI 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 both Overland and OCI is a
partner in FERHP.
16
<PAGE>
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 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 group 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.
The Company had expected that these financing arrangements would be similar in
cost to 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. However, since
payments to this third party are not contingent upon the profitability of these
projects, unanticipated delays in developing these projects, project cost
increases, and slower than expected closings in these projects have
significantly increased the cost of these financing arrangements. In June 1997,
a group related to this third party purchased the majority of the Company's
Eagle Ranch project in the high desert. Funds from this sale helped the Company
repay portions of defaulted loans secured by this project (see below). The
related third party granted the Company a long-term option to periodically
repurchase portions of this property for the development of single-family homes,
including annual minimum repurchase thresholds. The related third party would
receive one half of the cash generated upon the sale of these single-family
homes constructed by the Company on the repurchased lots.
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 former member of the Company's Board of
Directors (see below), holds partnership interests in each of Triumph, ALG and
HRIP (see Note 2 to Consolidated Financial Statements). Also, one of the owners
of both Overland and OCI, 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.
Spirit 77 was formed to develop lots in a project in Riverside County and sell
those finished lots to the Company for the construction of single family homes
at its Spirit Corona project. The Company is the general partner of, and has a
50% interest in, Spirit 77. Due to slower than expected sales as a result of
intense competition in the vicinity of the project, the partners of Spirit 77
agreed to sell the remaining 35 finished lots owned by Spirit 77 to a third
party homebuilder at a reduced price. This transaction was consummated in July
1997, and the Spirit 77 partnership is expected to be dissolved in the third
quarter of 1997.
Due to much slower than expected sales at the Company's Winners Circle high
desert project, and based upon the Company's review of the market and
competition in the area, the Company has decided not to proceed with any more
development in this project beyond the 11 homes and 3 models previously
constructed. ALG is the holder of the participating loan secured by the
remaining 148 unbuilt lots and the 3 models in this project. In August 1997,
ALG
17
<PAGE>
filed a notice of default as a result of the Company's delinquent payments of
interest on this loan. As a result, Mr. Gibbs resigned as a member of the
Company's Board of Directors, effective August 1, 1997. See Part II, Item 5.--
Other Information. The Company and the partners of ALG (with the exception of
Mr. Gibbs) are currently in discussions regarding the disposition of the
remaining land, which could result in the Company's deeding this land to ALG in
satisfaction of its indebtedness or, if discussions are not successful, a
foreclosure sale of the property.
During the quarter ended June 30, 1997, the Company reevaluated its plans for
holding and developing several of its properties. As a result of this
reevaluation, the number of lots to be developed in certain projects was
reduced, other properties will be sold in their current stage of development and
other properties may be deeded back to lenders in satisfaction of loans secured
by such properties. The Company determined that, as a result of the
reevaluation of its plans, the undiscounted cash flows estimated to be generated
by various real estate holdings were less than the assets' carrying amounts. In
accordance with the provisions of SFAS No. 121, an impairment allowance, which
writes these assets down to fair value, was established at June 30, 1997
totaling $9.2 million. Impairment losses are a result of the following
occurrences:
<TABLE>
<CAPTION>
<S> <C>
Sale of the Company's Eagle Ranch project in the high desert
and related repurchase option (described herein) $5,925,000
Listing for sale of land formerly held for future development
at the Company's Vista Verde project in the high desert 2,288,000
Decision not to proceed with the Company's Winners Circle
project in the high desert (described herein) 749,000
Sale to a third party of the remaining finished lots of the
Company's Spirit Corona project in Riverside County (described
herein) 251,000
----------
$9,213,000
=============
</TABLE>
There can be no assurance that there will be no additional write-downs of land
inventory or write-off of costs in future periods.
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 June 30, 1997 and December 31, 1996, the Company
had outstanding land seller indebtedness of $1.2 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 June 30, 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 June 30, 1997, the Company was still in the process
of deeding back land to the seller from
18
<PAGE>
whom the Company purchased the property. This deedback will result in a
reduction of real estate inventories of $0.4 million in satisfaction of $0.4
million of indebtedness outstanding at June 30, 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
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
provide 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 construction loans range 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 June 30, 1997, aggregate borrowings of
$15.6 million were outstanding under these facilities and $11.0 million was
available for further qualified project finance borrowing. At June 30, 1997,
$700,000 of 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%, 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 matured March 1996, and was paid in full in June 1997 pursuant
to the Discounted Loan Payoff Agreement described below. The net outstanding
balance under these lines of credit at June 30, 1997 totaled $3.4 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 payment
of its loans. In June 1997, the Company sold the majority of its Eagle Ranch
project. Proceeds from this sale, other Company funds, and a loan discount paid
all except $700,000 of the matured loans pursuant to another Discounted Loan
Payoff Agreement. The remaining $700,000 is due on October 31, 1997, is non-
interest bearing, and is secured by approximately 147 lots remaining in Eagle
Ranch to be developed by FERHP. The bank has postponed a non-judicial sale that
had been scheduled for these lots and will rescind its notices of sale and
reconvey its deed of trust encumbering these lots upon timely payment of the
remaining $700,000 owed.
At June 30, 1997, the Company was not in compliance with all financial covenants
pursuant to a loan to Spirit 77. However, this loan was paid in full in July
1997, pursuant to the sale to a third party of the remaining lots owned by
Spirit 77 previously described.
19
<PAGE>
At June 30, 1997 the Company was in default on the Purchase Agreement with
Spirit 77 since the Company had not purchased all of the required minimum number
of lots from Spirit 77. The Company was also in default on two notes payable to
Spirit 77 related to the purchase of lots in 1996. However, on July 1, 1997 a
Partnership Dissolution Agreement was signed which set forth the terms whereby
the Company was released from these obligations as a result of the
aforementioned sale of lots to a third party.
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.
20
<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.
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. In May, 1997, this
complaint was 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.
A trial has been scheduled for October 20, 1997. The Company believes that
the claims made against it have little or no 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.
ITEMS 2 THROUGH 4. Not Applicable.
21
<PAGE>
ITEM 5. OTHER INFORMATION
Thomas E. Gibbs, Jr., resigned as a member of the Company's Board of
Directors, effective August 1, 1997, in connection with ALG's filing a
notice of default on its $600,000 secured participation note with the
Company. Mr. Gibbs has stated that he will be available for consultation
with the Company on matters unrelated to ALG.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
10.1 Purchase Agreement and Escrow Instructions by and between the
Adelanto School District, a California public school district,
and Inco Homes Corporation, a Delaware Corporation, dated
February 24, 1997.
10.2 Loan Agreement by and between USA Commercial Mortgage Company,
Inc., a Nevada Corporation, et al., and Inco Homes Corporation, a
Delaware Corporation, dated April 15, 1997.
10.3 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 April
15, 1997.
10.4 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 April 15, 1997.
10.5 Placement Agreement by and between USA Commercial Mortgage
Company, Inc., a Nevada Corporation and Inco Homes Corporation, a
Delaware Corporation, dated April 15, 1997.
10.6 Promissory Note by and between USA Commercial Mortgage Company,
Inc., a Nevada Corporation and Inco Homes Corporation, a Delaware
Corporation, dated April 15, 1997.
10.7 Letter Agreement by and between Overland Opportunity Fund, LLC,
a California limited liability company and Inco Homes
Corporation, a Delaware Corporation, dated May 27, 1997.
10.8 Agreement for Purchase of Real Property by and between Palomino
Partners Limited Partnership, a Nevada Limited Partnership, et
al., and Inco Homes Corporation, a Delaware Corporation, dated
June 12, 1997.
10.9 Residential Property Option Agreement by and between Palomino
Partners Limited Partnership, a Nevada Limited Partnership, et
al., and Inco Homes Corporation, a Delaware Corporation, dated
June 12, 1997.
10.10 Estoppel Certificate by and between Overland Opportunity Fund,
LLC, a California limited liability company and Inco Homes
Corporation, a Delaware Corporation, dated June 11, 1997.
10.11 Placement Agreement by and between USA Commercial Real Estate
Group, a Nevada Corporation and Inco Homes Corporation, a
Delaware Corporation, dated June 12, 1997.
22
<PAGE>
27.1 Financial Data Schedule.
(b) Reports on Form 8-K. There were no reports on Form 8-K for the three
months ended June 30, 1997.
23
<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: August 14, 1997 By: /s/ Ira C. Norris
---------------------------------------
IRA C. NORRIS
Chairman of the Board, President
and Chief Executive Officer
Date: August 14, 1997 By: /s/ Norman B. Gold
---------------------------------------
NORMAN B. GOLD
Vice President and
Chief Financial Officer
24
<PAGE>
EXHIBIT 10.1
FEBRUARY 24, 1997
PURCHASE AGREEMENT AND ESCROW INSTRUCTIONS
BETWEEN
INCO HOMES, INC.
(THE "SELLER")
AND
ADELANTO SCHOOL DISTRICT
(THE "DISTRICT")
DATED: FEBRUARY 24, 1997
<PAGE>
PURCHASE AGREEMENT AND ESCROW INSTRUCTIONS
------------------------------------------
This PURCHASE AGREEMENT AND ESCROW INSTRUCTIONS "Agreement") is made
and entered into this 24th day of February, 1997 (the "Effective Date"), by and
between INCO HOMES, INC., a Delaware corporation (the "Seller"), and the
ADELANTO SCHOOL DISTRICT, a public school district duly organized and existing
under Chapter 1 of Division 3 of Title 2 of the Education Code of the State of
California (the "District" or the "Buyer" depending on the context), with
reference to the facts set forth below.
R E C I T A L S
A. Seller is the owner of the unimproved real property (the
"Property"), situated in the City of Victorville, County of San Bernardino,
State of California, commonly known as Assessor's Parcel Number 3096-451-03 and
more particularly described on Appendix I attached hereto and incorporated
herein.
B. Buyer desires to purchase the Property and Seller desires to sell
the Property to Buyer.
C. The parties desire by this Agreement to provide the terms and
conditions for the sale and purchase of the Property.
NOW THEREFORE, in consideration of the mutual agreements set forth
herein and for other valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as set forth below.
ARTICLE 1
DEFINED TERMS
1.1 CLTA Standard Title Policy and ALTA Extended Title Policy. The term
---------------------------------------------------------
"CLTA Standard Title Policy" shall mean the California Land Title Association
("CLTA") owner's policy of title insurance to be issued by the Title Company
upon the Close of Escrow pursuant to the terms of this Agreement. The term "ALTA
Extended Title Policy" shall mean the ALTA owner's additional coverage policy of
title insurance, Form B (1070).
1.2 Business Day. The term "Business Day" shall mean any day other than a
------------
Saturday or Sunday or legal holiday in the State of California.
-1-
<PAGE>
1.3 Close of Escrow. The term "Close of Escrow" shall mean the
---------------
consummation of the purchase of the Property by the District and the recordation
of the Grant Deed (as defined in Section 3.2.1) in accordance with the terms and
provisions of this Agreement.
1.4 City. The term "City" shall mean the City of Victorville.
----
1.5 Closing Date. The term "Closing Date" shall mean the date on which
------------
the Close of Escrow occurs.
1.6 County. The term "County" shall mean the County of San Bernardino.
------
1.7 Effective Date. The term "Effective Date" shall mean the date on
--------------
which this Agreement is dated as set forth above.
1.8 Escrow. The term "Escrow" shall mean the escrow opened by Escrow
------
Agent pursuant to the terms of this Agreement.
1.9 Escrow Agent. The term "Escrow Agent" shall mean Chicago Title,
------------
Victorville office, or such other escrow company selected by the parties.
1.10 Feasibility Review Period. The term "Feasibility Review Period"
-------------------------
shall mean the period beginning on the Effective Date and ending on the Closing
Date, during which time the District will conduct its studies and investigations
regarding the feasibility of the District's development of the Property.
1.11 Hazardous Materials. The term "Hazardous Materials" shall mean any
-------------------
hazardous, toxic or contaminated substance, material or waste which is or
becomes regulated by any local governmental authority, the State of California
or the United States Government.
1.12 Report. The term "Report" shall mean the preliminary title report
------
for the Property attached hereto as Appendix II.
1.13 Title Company. The term "Title Company" shall mean Chicago Title,
-------------
located at 12138 Industrial Boulevard, Suite 102, Victorville, California 92392
(telephone: (619) 241-8606; contact Debbie Tarango), or such other title company
selected by the parties.
-2-
<PAGE>
ARTICLE 2
AGREEMENT OF PURCHASE AND SALE
2.1 Agreement for Purchase and Sale. In consideration of the payment
-------------------------------
by the District of the Purchase Price to Seller, Seller agrees to convey title
to the Property to the District and the District agrees to purchase the Property
on the terms and conditions set forth in this Agreement.
2.2 Purchase Price. The purchase price ("Purchase Price") for the
--------------
Property is FOUR HUNDRED NINETY THOUSAND DOLLARS ($490,000).
2.3 Payment of Purchase Price. The Purchase Price shall be paid to
-------------------------
Seller by the District in cash through the Escrow described in Article 3 below.
ARTICLE 3
TIME OF CLOSE OF ESCROW AND DELIVERIES
3.1 Opening of Escrow. Upon the Effective Date, the Seller and the
------------------
District shall open Escrow by each depositing with Escrow Agent a fully executed
counterpart of this Agreement for use as escrow instructions; District shall
also deposit TWENTY-FIVE THOUSAND DOLLARS ($25,000); and Escrow Agent shall
execute the Consent of Escrow Agent which appears at the end of this Agreement
and deliver a fully executed consent to the Seller and the District. Escrow
Agent's general conditions (the "General Conditions") shall be executed by the
parties hereto and attached hereto as Appendix III and incorporated herein by
reference to the extent that they are not inconsistent with the provisions of
this Agreement. If there is any inconsistency between the provisions of the
General Conditions and this Agreement, the provisions of this Agreement shall
control. If Escrow Agent requires additional instructions, the parties agree to
make any deletions, substitutions and additions as the parties shall mutually
approve and which do not materially alter the terms of this Agreement.
3.2 Delivery of Documents to Escrow. The following documents shall be
-------------------------------
executed by the parties in accordance with the provisions set forth below.
3.2.1 Conveyance by Grant Deed. Prior to the Close of Escrow, Seller
------------------------
shall sign, acknowledge and deposit into Escrow a grant deed in the form
attached hereto as Appendix IV ("Grant Deed") conveying the Property to the
District subject only to the Permitted Exceptions described in Subsection 5.1.1
below. Provided that all terms and conditions of this Agreement have been
satisfied, Escrow Agent shall record the Grant Deed upon the Close of Escrow.
-3-
<PAGE>
3.3 Close of Escrow. Unless the parties mutually agree upon an earlier
---------------
Closing Date, Escrow shall close not more than thirty (30) days from the
Effective Date, unless extended by agreement of the parties or by the District
unilaterally for up to forty (40) days from the Effective Date; provided,
however, that if such date is not a Business Day, Escrow shall close on the next
Business Day thereafter (the "Closing Date"). If the District elects to extend
unilaterally, it shall notify Seller in writing before the then scheduled escrow
period ends. Moreover, if the District elects to extend, Escrow Agent shall
release the District's initial TWENTY-FIVE THOUSAND DOLLAR ($25,000) deposit to
Seller so long as Seller has performed all of its obligations necessary in order
for Escrow to close. The deposit shall be refundable if Escrow fails to close
due to Seller's default. If Escrow does not close by the Closing Date, it shall
close as soon as possible thereafter unless either party elects to terminate
this Agreement as provided in Section 8.2 below.
3.4 District's Deliveries. The District shall, at least one (1)
---------------------
Business Day prior to the Closing Date (unless required to be delivered at an
earlier date under the terms of this Agreement), deliver to Escrow Agent each of
the following:
3.4.1 Purchase Price. The Purchase Price required to be delivered
--------------
under Section 2.3, less than the initial TWENTY-FIVE THOUSAND DOLLAR
($25,000) deposit.
3.4.2 Prorations, Fees and Costs. The amount, if any, required of
--------------------------
the District under Article 9 entitled "Prorations, Fees and Costs" and any
other amounts payable upon the Close of Escrow under any other provisions
of this Agreement, including any refund amount due under Section 9.4.
3.5 Seller's Deliveries. The Seller shall, prior to the Closing Date
-------------------
(unless required to be delivered at an earlier date under the terms of this
Agreement), deliver to Escrow Agent each of the following:
3.5.1 Documents. The Grant Deed, fully executed and
---------
acknowledged by Seller.
3.5.2 FIRPTA Affidavit/Form 590. A FIRPTA Affidavit certifying
-------------------------
that Seller is a non-foreign person in the form of the affidavit attached
hereto as Appendix V and a California Form 590 attached hereto as Appendix
VI.
-4-
<PAGE>
ARTICLE 4
FEASIBILITY REVIEW PERIOD
4.1 Feasibility Review Period. During the Feasibility Review Period,
-------------------------
the District shall analyze the feasibility of development of the Property by the
District. The District shall be solely responsible for any and all costs
incurred by the District in connection with its review and/or investigations of
the Property.
4.1.1 Delivery of Project Documents. The Seller shall within five
-----------------------------
(5) days of the Effective Date deliver to the District any and all
documents and information related to the Property ("Project Documents"),
including any environmental reports on the Property or any other property
owned or controlled by Seller in the vicinity. During the Feasibility
Review Period, the District shall review and analyze the Project Documents
to determine their individual and collective impact on the Property and its
development by the District.
4.1.2 Studies and Investigations. The District shall conduct such
--------------------------
independent investigations, studies and tests as it deems necessary or
appropriate concerning the District's proposed use and/or the suitability
of the Property for the District's intended purposes.
4.1.3 Right of Access. The Seller grants to the District the
---------------
right to enter upon the Property at reasonable times prior to the Close of
Escrow for the purpose of making surveys, engineering studies, soil tests
and any other tests or studies deemed necessary in connection with the
District's purchase and proposed development of the Property; provided,
however, that the District hereby agrees to indemnify, defend, and hold
Seller harmless from any actions, damages, liability, liens or claims which
may be asserted against the Property or against the Seller as a result of
the District's or its agents' entry or activities on or about the Property.
This indemnity hereinabove shall survive this Agreement and the Close of
Escrow.
4.2 Approval or Disapproval of Feasibility Studies. The District's
----------------------------------------------
obligation to consummate the purchase of the Property is conditioned upon the
unconditional written approval of the Property to the Escrow Agent by the
District prior to the expiration of the Feasibility Review Period. Should the
District fail to so approve the Property and the purchase of the Property,
Escrow Agent shall return all documents and funds, less applicable Escrow
cancellation charges, to the parties who deposited them. If, for any reason, the
----------------
District determines within the Feasibility Review Period that, in the District's
good faith discretion, it is not feasible for the District to acquire or develop
the Property, the District may choose not to so approve the Property.
-5-
<PAGE>
ARTICLE 5
CONDITIONS PRECEDENT TO CLOSE OF ESCROW
5.1 Subject to Satisfaction or Waiver. This Agreement and the
---------------------------------
obligations of the parties hereunder shall be subject to satisfaction or waiver
(by the party in whose favor the condition precedent has been established) of
all the conditions precedent set forth below.
5.1.1 Preliminary Report. Title to the Property shall be
------------------
conveyed to the District at Close of Escrow free and clear of any and all
liens, encumbrances and any other items affecting title other than the
following exceptions (collectively "Permitted Exceptions"):
(1) a lien for non-delinquent taxes and assessments;
(2) any exceptions which the Report discloses, in addition to
the foregoing, which are waived in writing by the District
and which do not materially adversely interfere with the
District's intended use of the Property as a school site;
and
(3) the printed exceptions in the title policy.
Copies of the recorded exceptions appearing in the Report shall be delivered to
the Seller and the District together with their respective copies of the Report
within five (5) Business Days of the Effective Date. The District, by its
execution of this Agreement, agrees that it will take title to the Property
subject to all the Permitted Exceptions. The District shall have fifteen (15)
days after the Effective Date to approve or disapprove any items other than
Permitted Exceptions appearing therein. If the District fails to deliver notice
of disapproval to the Seller and Escrow Agent within such time period, the
District shall be deemed to have approved and accepted all exceptions which the
Report and the survey respectively disclose. If the District gives the Seller
written notice that the District disapproves an item, and the Seller elects by
written notice, within five (5) days of such notice or the expiration of the
period in which the District is to give such notice, not to cure any such
disapproved item, then the District shall have ten (10) days after the delivery
of the Seller's notice of election not to cure the disapproved items either to
waive its prior disapproval or to terminate this Agreement, in which case the
parties shall pay any Escrow cancellation charges and the Seller shall be
released from its obligation under this Agreement of selling the Property to the
District. The Seller's failure to deliver notice of its election not to cure any
such disapproved item shall be deemed to be the Seller's election not to so
cure. The District's failure to deliver notice of its election to waive its
prior disapproval shall be deemed to be the District's election to terminate
this Agreement.
-6-
<PAGE>
5.1.2 Title Insurance. Title Company shall have committed to
---------------
issue to District a CLTA Standard Title Policy with a survey insuring the
District in the principal amount of the Purchase Price that as of Close of
Escrow fee title to the Property shall be vested in the District subject
only to Permitted Exceptions.
5.1.3 Deposit of Documents and Funds. The parties shall have
------------------------------
delivered the documents and funds required under Sections 3.4 and 3.5 of
this Agreement and neither party shall be in default under this Agreement.
5.1.4 Charges and Prorations. The District shall have deposited
----------------------
in Escrow all money due from the District hereunder on account of charges
and prorations payable by the District.
5.2 Failure of Conditions Precedent. Other than Subparagraphs 5.1.1 and
-------------------------------
5.1.2, which are for the District's benefit and can only be waived by the
District, and Subparagraph 5.1.4 which is for the Seller's benefit and can only
be waived by the Seller, the other conditions precedent are for the Seller's and
the District's benefit and can only be waived by mutual agreement of Seller and
the District. If any of the foregoing conditions precedent are neither satisfied
nor waived by the Close of Escrow, any party who is not then in default
hereunder may terminate the Escrow and this Agreement by giving a written notice
of termination to the other party and Escrow Agent.
ARTICLE 6
COVENANTS AND AGREEMENTS
6.1 Cooperation: Further Documents. The District and the Seller
------------------------------
acknowledge that it may be necessary to execute documents other than those
specifically referred to herein in order to complete the acquisition of the
Property. Both the District and the Seller hereby agree to cooperate with each
other by executing such other documents or taking such other action as may be
reasonably necessary to complete this transaction in accordance with the intent
of the parties as evidenced in this Agreement.
ARTICLE 7
ACKNOWLEDGEMENTS, REPRESENTATIONS AND WARRANTIES
7.1 Acknowledgements Representations and Warranties of the District.
---------------------------------------------------------------
The District warrants and represents that it is a public body duly organized and
existing under Chapter 1 of the Division 3 of Title 2 of the California
Education Code. The entry by the District into the transaction contemplated by
this Agreement and the performance by the District of all of its obligations in
connection herewith have been duly and validly authorized
-7-
<PAGE>
by all necessary actions and are in accordance with applicable law, including
the California Education Code. This Agreement and all additional documents
delivered in connection with this Agreement have been duly and validly executed
and delivered to the District and constitute the legal, valid and binding
obligations of the District.
7.2 Acknowledgements. Representations and Warranties of the Seller.
--------------------------------------------------------------
7.2.1 Seller's Authority. Seller warrants and represents that
------------------
Seller is a Delaware corporation, duly authorized to transact business in
the State of California. The Seller is empowered to enter into the
transaction contemplated by this Agreement. This Agreement and all
additional documents delivered in connection with this Agreement have been
duly and validly executed and delivered to the District and constitute the
legal, valid and binding obligations of the Seller.
7.2.2 Foreign Person. Seller warrants and represents that Seller
--------------
is not, and will not be at the Close of Escrow, a "foreign person", within
the meaning of section 1445 of the Internal Revenue Code of 1986, as
amended. Seller will deposit in Escrow concurrent with the deposit of the
Grant Deed, Seller's notarized, completed affidavit to such effect,
including a California Form 590.
7.2.3 Suits Against Property. To Seller's actual knowledge, there
----------------------
are no actions, suits or proceedings pending or threatened against or
affecting the Property in any court at law or in equity, or before or by
any governmental department, commission, board, bureau, agency or
instrumentality relating to the Property.
7.2.4 Title to Property. No person, firm, or entity other than
-----------------
the District has any rights in or rights to acquire the Property or any
part thereof, and as long as this Agreement remains in force, Seller will
not, without the District's prior written consent, lease, transfer, option,
mortgage, pledge, or convey its interest in the Property or any portion
thereof nor any right therein, nor shall Seller enter into any agreement
granting to any person or entity any option to purchase or rights superior
to the District with respect to the Property or any part thereof.
7.2.5 Hazardous Materials. To the best of Seller's knowledge,
-------------------
prior to the date Seller acquired its interest in the Property, the
Property did not contain Hazardous Materials. Seller has not used or stored
or caused to be used or stored upon the Property any Hazardous Materials
and Seller has no knowledge that any of the Seller's predecessors-in-
interest stored or caused to be stored any Hazardous Materials on the
Property or that any Hazardous Materials now exist in, on or under the
Property. Seller further warrants, to the best of Seller's knowledge, there
are no underground tanks on the Property and no use by Seller, or the best
of Seller's knowledge any prior owner of the Property or any other person,
has occurred that violates or has been alleged by any party to violate any
applicable environmental law and the Property is not on any "Superfund"
list under any applicable environmental
-8-
<PAGE>
law nor is it subject to any lien relating to any environmental matters.
7.2.6 Defects in Property. To Seller's knowledge, there are no
-------------------
defects or conditions of the Property that would material interfere with or
materially increase the cost of developing a school on the Property.
ARTICLE 8
THE CLOSE OF ESCROW
8.1 Close of Escrow. Escrow Agent shall close the Escrow on or before
---------------
the Closing Date by (a) recording the Grant Deed and (b) delivering funds and
documents to the Seller WHEN AND ONLY WHEN each of the conditions set forth
below has been satisfied.
8.1.1 Funds and Instruments. All funds and instruments required
---------------------
pursuant to Articles 2 and 3 have been delivered to Escrow Agent.
8.1.2 Satisfaction of Conditions Precedent. Each of the
------------------------------------
conditions precedent set forth in Articles 4 and 5 have been, or upon such
closing shall be, satisfied as provided for in Articles 4 and 5.
8.2 Termination Based on Failure to Close by the Closing Date. If Escrow
---------------------------------------------------------
fails to close by the Closing Date for any reason other than the District's or
Seller's default, then at the written election of either party, the respective
rights, duties and obligations of the District and Seller under this Agreement
shall terminate without further liability. The parties shall immediately
thereafter sign such instructions and other instruments as may be necessary to
effect the cancellation of this Agreement, and each party shall pay its
respective share (if any) of Escrow cancellation charges as provided in Section
9.3. Upon cancellation, Escrow Agent shall immediately return the funds, less
applicable Escrow cancellation charges, and documents to the parties that
furnished them.
ARTICLE 9
PRORATIONS, FEES AND COSTS
9.1 The Seller's Fees and Costs. Seller shall pay (i) County
---------------------------
Documentary Transfer Tax (only if required by law), (ii) the fee for an CLTA
Standard Title Policy, (iii) one-half of Escrow Agent's escrow fee, and (iv)
usual Seller's document-drafting and recording charges.
-9-
<PAGE>
9.2 The District's Fees and Costs. The District will pay (i) one-half
-----------------------------
of the Escrow Agent's escrow fee, (ii) usual Buyer's document-drafting and
recording charges, and (iii) the cost for any title insurance endorsements
requested by the District.
9.3 Escrow Cancellation Charges Due to a Default. Notwithstanding the
--------------------------------------------
provisions of Sections 9.1 and 9.2 above, if Escrow fails to close due to
Seller's default, Seller shall pay all Escrow cancellation charges. If Escrow
fails to close due to the District's default, the District shall pay all Escrow
cancellation charges. If Escrow fails to close for
any reason other than the foregoing, the District and Seller shall each pay one-
half (1/2) of any Escrow cancellation charges. "Escrow cancellation charges"
means all fees, charges and expenses incurred by Escrow Agent, including all
expenses incurred in connection with issuance of the Report and other title
matters.
9.4 Property Taxes. Seller shall be responsible for all property and ad
--------------
valorem taxes through the Close of Escrow. If a refund of any such taxes is due,
the District shall pay such amount.
ARTICLE 10
ASSIGNABILITY
10.1 Assignment by the District. The District and the Seller may not,
--------------------------
voluntarily or by operation of law, assign or otherwise transfer any of its
rights or obligations under this Agreement without obtaining the prior written
consent of the other party, which consent may be withheld in the sole and
absolute discretion of the other party. Any attempted assignment made in
violation of this provision shall be null and void.
ARTICLE 11
GENERAL PROVISIONS
11.1 Eminent Domain. If, prior to the Close of Escrow, all or a
--------------
substantial portion of the Property is taken or appropriated by any public or
quasi-public authority under the power of eminent domain, then the District may
terminate this Agreement without further liability hereunder. In the event of a
partial taking of less than a substantial portion of the Property, then the
District may purchase the Property on the terms and conditions set forth herein
and the District shall be entitled to any condemnation proceeds received as a
result of such condemnation.
11.2 Amendments. The Agreement may not be altered or modified except
----------
by a writing signed by the parties.
-10-
<PAGE>
11.3 Attorneys' Fees and Interest. In any dispute between the parties,
----------------------------
whether or not resulting in litigation, the party substantially prevailing shall
be entitled to recover from the other party all reasonable costs, including,
without limitation, reasonable attorneys' fees, plus interest at the maximum
rate allowed by the law from the date any payment should have been paid until
the time at which it is paid.
11.4 Capacity to Sign. All parties represent and warrant that they
----------------
possess all necessary capacity and authority to sign and enter into this
Agreement. Each individual signing this Agreement for a party which is a
corporation, a partnership, a limited liability company, or other legal entity,
or signing under a power of attorney or as a trustee, guardian, conservator, or
in any other legal capacity, represents and warrants that he has the necessary
capacity and authority to act for, sign, and bind the respective entity or
principal on whose behalf he is signing.
11.5 Counterpart Copies. The Agreement may be signed in counterpart or
------------------
duplicate copies, and any signed counterpart or duplicate copy shall be
equivalent to a signed original for all purposes.
11.6 Entire Agreement. This Agreement and the appendices to it contain
----------------
all representations and the entire understanding and agreement among the
parties. Correspondence, memoranda, and oral or written agreements that
originated before the date of the Agreement are replaced in total by the
Agreement unless otherwise expressly stated in the Agreement.
11.7 Gender and Number. As used in the Agreement, the masculine,
-----------------
feminine, or neuter gender, and the singular or plural number, shall include the
others whenever the context indicates.
11.8 Governing Law. The Agreement shall be governed by and construed
-------------
according to the laws of the State of California.
11.9 Headings. The titles and headings of the various sections of the
--------
Agreement are intended solely for convenience of reference and are not intended
to explain, modify, or place any construction on any of the provisions of the
Agreement.
11.10 No Waiver. A party's failure to insist on the strict performance of
---------
any covenant or duty required by the Agreement, or to pursue any remedy under
the Agreement, shall not constitute a waiver of the breach or the remedy.
11.11 Cumulative Remedies. The remedies of the parties under the
-------------------
Agreement are cumulative and shall not exclude any other remedies to which the
party may be lawfully entitled.
-11-
<PAGE>
11.12 Severability. If any part of the Agreement is determined to be
------------
illegal or unenforceable, all other parts shall remain in effect.
11.13 Successors and Assigns. This Agreement and all its provisions shall
----------------------
be binding on and inure to the benefit of the successors and assigns of the
parties.
11.14 Agreement Survives Close of Escrow. All obligations referred to or
----------------------------------
required to be performed at a time or times after the Close of Escrow, whether
specifically referred to as surviving the Close of Escrow or not, and all
representations and warranties contained herein shall survive the Close of
Escrow.
11.15 Notices. Any notice to either party shall be in writing and given
-------
by delivering the same to such party in person or by sending the same by
registered or certified mail, return receipt requested, with postage prepaid, to
the following addresses:
If to the District: ADELANTO SCHOOL DISTRICT
11824 Air Base Road
P.O. Box 70
Adelanto, CA 92301-0070
ATTN: Superintendent
With copies to: ATKINSON, ANDELSON, LOYA, RUUD & ROMO
13304 East Alondra Boulevard
Cerritos, CA 90701
ATTN: Davis D. Thompson, Esq.
If to Seller: INCO HOMES, INC.
1282 West Arrow Highway
Upland, CA 91786
ATTN: President
Either party may change its mailing address at any time by giving written
notice of such change to the other party in the manner provided therein. All
notices under this Agreement shall be deemed given, received, made or
communicated on the date personal delivery is effected, or if mailed, on the
delivery date or attempted delivery date shown on the return receipt.
11.16 Captions. Captions are for convenience of reference only and the
--------
text of any paragraph shall govern over an inconsistent caption.
-12-
<PAGE>
11.17 Time of Essence. Time is of the essence of every provision of this
---------------
Agreement that specifies a time for performance.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on the day and year set forth above.
BUYER
ADELANTO SCHOOL DISTRICT
By:/s/Arvo Toukonen
--------------------------------------------
Arvo Toukonen, Superintendent
SELLER
INCO HOMES, INC.
By:/s/Ira Norris
--------------------------------------------
Ira Norris, President
By:/s/Leslie Adkison
--------------------------------------------
Leslie Adkinson, Secretary
-13-
<PAGE>
CONSENT OF ESCROW AGENT
-----------------------
ESCROW AGENT HEREBY accepts and agrees to be bound by the terms and
conditions of the above Purchase Agreement and Escrow Instructions between
Adelanto School District ("Buyer") and Inco Homes, Inc. ("Seller").
Chicago Title Company
---------------------
By:[SIGNATURE ILLEGIBLE]
---------------------
Its:Escrow Officer
--------------
-14-
<PAGE>
APPENDIX I
LEGAL DESCRIPTION OF PARCEL
Lot 3 of Tract No. 13990 as per plat recorded in Book 228, Pages 76-84,
inclusive, of Maps, records of San Bernardino, State of California.
-15-
<PAGE>
APPENDIX II
PRELIMINARY TITLE REPORT
[TO BE PROVIDED BY SELLER.]
-16-
<PAGE>
APPENDIX III
GENERAL CONDITIONS OF ESCROW
[TO BE PROVIDED BY ESCROW AGENT.]
-17-
<PAGE>
APPENDIX IV
GRANT DEED
[TO BE PROVIDED BY ESCROW AGENT.]
-18-
<PAGE>
APPENDIX V
FIRPTA AFFIDAVIT
[TO BE PROVIDED BY ESCROW AGENT.]
-19-
<PAGE>
APPENDIX VI
FORM 590
[TO BE PROVIDED BY ESCROW AGENT.]
-20-
<PAGE>
APPENDIX VII
LIST OF APPENDICES
I. Legal Description
II. Preliminary Title Report
III. General Conditions of Escrow
IV. Grant Deed
V. FIRPTA Affidavit
VI. Form 590
VII. List of Appendices
-21-
<PAGE>
EXHIBIT 10.2
LOAN AGREEMENT
This Loan Agreement, dated as of April 15th 1997, is entered into by
----
and between INCO HOMES CORPORATION, a Delaware corporation ("Borrower"), and
FRANK J. FERTITTA, Trustee of the FRANK J. FERTITTA AND VICTORIA K. FERTITTA
REVOCABLE TRUST, as to an undivided 80% interest; USA COMMERCIAL MORTGAGE
COMPANY, INC., a Nevada corporation, as to an undivided 20% interest
(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.
"Borrower Disbursement" means the amount payable to Borrower from the
Control Account pursuant to Section 3.9.
"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 K & E Loan Servicing, Inc., Las Vegas, Nevada.
"Events of Default" means each of those events so designated in Section 8.1
of this Agreement.
<PAGE>
"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 1 through 24, inclusive, and 48 through 62,
inclusive, as shown on the tentative map for Tract 15793.
"Governmental Agency" means any governmental or quasi-governmental agency,
authority, board, bureau, commission, department, instrumentality or public
body, court, administrative tribunal or public utility.
"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 twelve (12) months after the
Effective Date, as such is defined in Section 3.12 below.
"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 One Million Dollars ($1,000,000.00), 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 "A" 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.
"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 "B".
"Second Parcel" means 25 through 47, inclusive, in Parcel 1, as shown on
the tentative map for Tract 15793.
"Security Agreement" means the security agreement contained in the Deed of
Trust.
"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
-3-
<PAGE>
executed or as they may from time to time be supplemented, modified or amended.
"Title Company" means Orange Coast Title Company, Colton, 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 acquire 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; Advance By Lender. 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 One Million Dollars ($1,000,000.00)
(the "Loan Amount"), the disbursement of which by Lender is subject to the term
and conditions of the Loan Documents.
On the Effective Date, Lender shall disburse: (i) the sum of $700,000.00 to
Borrower in cash or clear funds for use in acquiring the Real Property; and (ii)
$200,000.00 to the Disbursement Agent, which shall constitute the interest
reserve. The remaining
-4-
<PAGE>
$100,000.00 of the Loan Amount shall represent the loan fee payable to USA
Commercial Mortgage Company, Inc. pursuant to the Placement Agreement.
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 agrees that all loan fees and any prepaid
----------
finance charges are fully earned as of the date hereof and will not be subject
to refund upon early payment (whether voluntary or as a result of default).
Subject to the foregoing, at any time prior to the Maturity Date, Borrower may
prepay this Note in full only.
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; and (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
-5-
<PAGE>
documents) to cause the release of the lien of the construction loan on the Lot.
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 "C" 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) so long as the conditions
set forth in Sections 3.8 and 3.9, below, are satisfied for that month, the
Option Reimbursements and Borrower Disbursement for that month; and (ii) the
remainder to the Lender in to reduce the outstanding balance of the Loan. The
principal balance of the Loan shall only 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
-6-
<PAGE>
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 thirty-nine (39) 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 39 at
any one time). Lender must review and approve the terms and conditions of the
construction loan documents for any loan to which Lender is asked to
subordinate. 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 (the "Option Reimbursement"). Borrower's
right to receive such reimbursements shall be reduced or abated by an amount (to
be determined by Lender) as may be necessary to allow the payment to Lender of
Lender's Minimum Payment (as defined herein) for each Lot which has been
released pursuant to Section 3.4. Once the Lender has received the full
Lender's Minimum Payment for each Lot it has released, and so long as such
payments are maintained, Borrower shall receive the full reimbursement. If an
Event of Default has occurred and is continuing, no such reimbursement shall be
made, nor shall there be any accrual thereof, said sum to be paid to Lender's
to reduce the outstanding balance of the Loan.
3.9 Borrower Disbursement. So long as Lender has received payment from
---------------------
the Control Account equal to at least $16,130.00 per Lot ("Lender's Minimum
Payment") for each Lot which has been released pursuant to Section 3.4 above
during the prior month, Borrower shall receive, on a monthly basis, payments
from the Control Account equal to $6,000.00 per Lot for each Lot which has been
released pursuant to Section 3.4 hereof during the prior month (the "Borrower
Disbursement"). Borrower's right to receive the Borrower Disbursement shall be
reduced or abated by an amount (to be determined by Lender) as may be necessary
to allow the payment to Lender of Lender's Minimum Payment for each Lot which
has been released pursuant to Section 3.4. Once the Lender has received the
full Lender's Minimum Payment for each Lot it has released, and so long as such
payments are maintained, Borrower shall receive the full Borrower's
Disbursement. If an Event of Default has occurred and is continuing, no
Borrower's Disbursement shall be made, nor
-7-
<PAGE>
shall there be any accrual thereof, said sum to be paid to Lender's to reduce
the outstanding balance of the Loan.
3.10 Interest Reserve. At the closing of the Loan, Loan proceeds in the
----------------
amount of $200,000.00 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.
3.11 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. The Deed of Trust shall initially have first
position priority as to the First Parcel and a second position priority as to
the Second Parcel, junior to the purchase money deed of trust of Borrowers'
seller. Lender shall subordinate the priority of the Deed of Trust only in
accordance with Section 3.7; provided that the Deed of Trust shall never be
lower than second priority position as to any portion of the Real Property.
3.12 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.
-9-
<PAGE>
SECTION 5: REPRESENTATIONS AND WARRANTIES BY BORROWER.
------------------------------------------
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;
-11-
<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
Ira Norris, 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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<PAGE>
(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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<PAGE>
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
-24-
<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
-26-
<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 Ira Norris.
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,
-27-
<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
1282 West Arrow Highway
Upland, California 91786
Attn: Ira Norris
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 documents and information relating to the Loan and
to Borrower, whether furnished by Borrower or otherwise, as Lender determines
-29-
<PAGE>
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.
-------------------
9.20 Counterparts. This Agreement may be executed in counterparts.
------------
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<PAGE>
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 Norris
------------------------
Ira Norris, President
"LENDER":
_________________________________
Frank J. Fertitta, Trustee
of the Frank J. Fertitta and
Victoria K. Fertitta Revocable Trust
USA Commercial Mortgage Company, Inc.,
a Nevada corporation
By:______________________________
Its:_____________________________
-31-
<PAGE>
EXHIBIT "A"
PERMITTED EXCEPTIONS
--------------------
The permitted exceptions shall include:
Exception Nos. A, B and C (with all taxes paid current), and 1 through
6, inclsive, as shown on that Preliminary Report issued by Orange Coast Title
Company, No. S-112669-4, dated as of February 27, 1997 at 7:30 a.m.
<PAGE>
EXHIBIT "B"
LEGAL DESCRIPTION
-----------------
THE LAND REFERRED TO IN THIS REPORT IS SITUATED IN THE STATE OF CALIFORNIA,
COUNTY OF SAN BERNARDINO, AND IS DESCRIBED AS FOLLOWS:
Lot 2 of Tract 13611, as per map filed in Book 220, Pages 1 through 4, inclusive
of Maps, in the Office of the County Recorder of said County.
<PAGE>
EXHIBIT "C"
-----------
Minimum Lot Sales Prices
------------------------
<PAGE>
EXHIBIT 10.3
PROMISSORY NOTE
SECURED BY DEED OF TRUST
$1,000,000.00 Las Vegas, Nevada
April 15th, 1997
This Promissory Note ("Note") is executed pursuant to the Loan Agreement
(the "Loan Agreement"), dated as of April ___, 1997 between INCO HOMES
CORPORATION, a Delaware corporation ("Borrower"), and FRANK J. FERTITTA, Trustee
of the FRANK J. FERTITTA AND VICTORIA K. FERTITTA REVOCABLE TRUST, as to an
undivided 80% interest; USA COMMERCIAL MORTGAGE COMPANY, INC., a Nevada
corporation, as to an undivided 20% interest (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 One Million Dollars ($1,000,000.00) (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 twelve
-------------
(12) 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.
<PAGE>
5. Prepayment. Borrower agrees that all loan fees and any prepaid finance
----------
charges are fully earned as of the date hereof and will not be subject to refund
upon early payment (whether voluntary or as a result of default). Subject to
the foregoing, at any time prior to the Maturity Date, Borrower may prepay this
Note in full only.
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 San Bernardino, 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
-2-
<PAGE>
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 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
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<PAGE>
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 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
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<PAGE>
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 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
-5-
<PAGE>
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 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: __________________________
Ira Norris,President
-6-
<PAGE>
EXHIBIT 10.4
Recording Requested By, and
When Recorded Return To:
Goold, Patterson, DeVore &
Rondeau
4496 So. Pecos Road
Las Vegas, Nevada 89121
________________________________________________________________________________
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 _____ day of April, 1997, by and between
INCO HOMES CORPORATION, a Delaware corporation ("Trustor"), Orange Coast Title
Company, a California corporation ("Trustee"), and FRANK J. FERTITTA, Trustee of
the FRANK J. FERTITTA AND VICTORIA K. FERTITTA REVOCABLE TRUST, as to an
undivided 80% interest; USA COMMERCIAL MORTGAGE COMPANY, INC., a Nevada
corporation, as to an undivided 20% interest (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
One Million Dollars ($1,000,000.00) (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
<PAGE>
by Trustor having reference to or arising out of or securing the indebtedness
represented by the Note; and
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
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<PAGE>
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 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
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<PAGE>
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 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
ex piration 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.
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<PAGE>
TO HAVE AND TO HOLD THE MORTGAGED PROPERTY UNTO THE TRUSTEE ITS SUCCESSORS AND
ASSIGNS FOREVER, ALL IN ACCORDANCE WITH THE PROVISIONS HEREOF.
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
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<PAGE>
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 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
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<PAGE>
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 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,
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<PAGE>
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 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
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<PAGE>
reasonable attorneys' fees in any proceeding or suit brought by Trustee or
Beneficiary to foreclose this Deed of Trust.
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
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<PAGE>
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 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.
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<PAGE>
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 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.
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<PAGE>
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 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 accor dance 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
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<PAGE>
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 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:
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<PAGE>
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 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
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<PAGE>
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 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
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<PAGE>
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.
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,
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<PAGE>
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 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.
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<PAGE>
(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 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
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<PAGE>
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.
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
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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
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<PAGE>
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 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.
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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 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.
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<PAGE>
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 "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
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<PAGE>
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 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
1282 West Arrow Highway
Upland, California 91786
Attn: Ira Norris
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.
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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 (25.25%); 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 Norris
---------------------------
Ira Norris, President
-24-
<PAGE>
STATE OF CALIFORNIA )
--------------
) ss.
COUNTY OF SAN BERNADINE )
--------------
On April 15 1997, before me, LESLIE ADKISON a Notary Public, personally
appeared Ira 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:10/9/99 )
-------
[SEAL APPEARS HERE]
-25-
<PAGE>
EXHIBIT "A"
DESCRIPTION OF REAL PROPERTY
----------------------------
THE LAND REFERRED TO IN THIS REPORT IS SITUATED IN THE STATE OF CALIFORNIA,
COUNTY OF SAN BERNARDINO, AND IS DESCRIBED AS FOLLOWS:
Lot 2 of Tract 13611, as per map filed in Book 220, Pages 1 through 4, inclusive
of Maps, in the Office of the County Recorder of said County.
-26-
<PAGE>
EXHIBIT 10.5
PLACEMENT AGREEMENT
This Agreement is entered into as of April 15th, 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 Ira Norris, a real estate broker licensed
in the State of California ("Norris"), has arranged for Inco, a loan (the
"Loan") with a Note Amount of $1,000,000.00 from certain individual lenders
(collectively, "Lender"). Capitalized terms used herein and not otherwise
defined herein are used with the meanings given them in the Loan Agreement
between Inco and the Lenders regarding the Loan.
B. In connection with such loan, Inco has agreed to pay a fee in the
total amount of $100,000.00 (the "Loan Fee") to USA. In addition, Inco has
agreed to pay to USA an additional fee in the amount of $62,000.00, payable at
the rate of $1,000.00 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. The Loan Fee is included in the principal
-------------------
amount evidenced by the Note executed by Inco in favor of the Lenders, of even
date herewith, and shall be paid to USA in accordance with the terms of the
Note. All fees and commissions of Norris 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 $62,000.00. On the date the Loan is funded, Inco
shall execute a promissory note in the amount of $62,000.00 payable to USA (the
"Additional Fee Note"). Said note shall have a term of ???? ???? 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 $1,000.00 per Lot, upon the sale of each Lot on
the Property which secures the Loan. Payments of said amounts shall be made on
the last day of each month in which lot sales have occurred in the amount of
$1,000.00, multiplied by the number of lots sold. 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
<PAGE>
interest at the rate of ten percent (10%) per annum until it is paid in full.
3. Inco's Liability for Loan Fee. The Loan Fee and the Additional
-----------------------------
Fee are deemed fully earned on the date the Loan is funded.
4. 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 $5,000.00. 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.
5. Future Transactions. Inco agrees that if Inco or any affiliate
-------------------
of Inco, or any entity in which Ira Norris is a shareholder, partner or member
or with which he is associated, obtains any financing from any person or entity
which comprises Lender or any affiliate of Lender within three (3) years after
the final payment of the Loan, then USA (so long as it is a licensed mortgage
company) shall be entitled to receive a fee equal to two percent (2%) of the
amount loaned by such Lender.
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 Norris By: /s/ Thomas Hantges,
------------------------------- -------------------------------
Ira Norris, President Thomas Hantges, President
-3-
<PAGE>
EXHIBIT 10.6
PROMISSORY NOTE
$62,000.00 Las Vegas, Nevada
April 15th, 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 SIXTY-TWO THOUSAND DOLLARS ($62,000.00) (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 August
____, 1999 (the "Maturity Date").
2. Payments. The Note Amount shall be paid in increments of $1,000.00
--------
each upon the closing of each lot sale on the real property which secures the
loan by Fertitta, 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
<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 trans ferred 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>
(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 Norris, President
-4-
<PAGE>
EXHIBIT 10.7
May 27, 1997
Fred Liao
Overland Company
147 E. Olive Avenue
Monrovia, CA 91016
Dear Fred:
This letter confirms our understanding that the Overland Opportunity Fund, LLC,
agrees to purchase the Northwest corner of Washington and Kalmia Streets in
Murrieta for the cash purchase price of $110,000.
Escrow will be held at First American Title Company and shall close as soon as
escrow is in a position to do so. The best estimate of closing is one week.
You will be provided with the correct legal description and a current
preliminary title report.
Please sign this document and fax it back to us immediately. It will be
followed by the appropriate escrow instructions.
Very truly yours,
/s/ Ira C. Norris
- -------------------------------------------
Ira C. Norris
Chairman/CEO
ICN/ajb
Agreed and Accepted:
OVERLAND OPPORTUNITY FUND, LLC
a California limited liability company
/s/ Fred E. Liao
By:----------------------------------------
Fred E. Liao
President
Overland Company, Inc., Manager
<PAGE>
EXHIBIT 10.8
AGREEMENT FOR PURCHASE OF REAL PROPERTY
THIS AGREEMENT FOR PURCHASE OF REAL PROPERTY ("Agreement") is made and
entered into for good and valuable mutual consideration, the receipt and
sufficiency of which are hereby acknowledged by each of the parties hereto, as
of this 12th day of June, 1997, by and between MET PARTNERS, LLC, a Nevada
limited liability company, as to an undivided 27.08% interest; PALOMINO PARTNERS
LIMITED PARTNERSHIP, a Nevada limited partnership, as to an undivided 48.96%
interest; C.E. NEWBY AND CAROLE J. NEWBY, TRUSTEES OF THE NEWBY 1984 TRUST,
DATED 3/19/84 as to an undivided 10.42% interest; KIM W. GREGORY AND DEBBIE R.
GREGORY, TRUSTEES OF THE GREGORY 1988 TRUST, as to an undivided 8.33% interest;
WILLIAM P.J. MAHON, TRUSTEE OF THE WILLIAM P.J. MAHON AND KATHLEEN M. MAHON
FAMILY TRUST, as to an undivided 4.17% interest; and JOSEPH D. MILANOWSKI, as to
an undivided 1.04% interest; all as tenants in common (collectively, "Buyer")
and INCO HOMES CORPORATION, a Delaware corporation ("Seller").
TERMS OF AGREEMENT:
1. PROPERTY. The property to be purchased consists of approximately
--------
284 acres in San Bernardino County, California, and is more particularly
described on Exhibit "A" attached hereto and incorporated herein by this
reference, together with all hereditaments and appurtenances thereto
("Property").
2. PURCHASE PRICE: PAYMENT. The purchase price ("Purchase Price") for
-----------------------
the Property shall be Two Million Four Hundred Thousand Dollars ($2,400,000.00).
The Purchase Price shall be deposited by Buyer with the Escrow Agent no later
than one (1) day before the Close of Escrow.
3. ESCROW. The escrow agent for this transaction shall be First
------
American Title, Attn: Debbie Newton, 3625 14th Street, Riverside, California
("Escrow Agent"). Within one business day after execution of this Agreement by
both parties, the parties shall open an escrow with Escrow Agent by depositing a
fully executed copy of this Agreement (said date being the "Opening of Escrow").
Buyer and Seller each hereby agree to execute such additional escrow
instructions, not inconsistent with this Agreement, as Escrow Agent may
reasonably require; provided, however, that this Agreement shall constitute
instructions to Escrow Agent and this Agreement shall be enforceable regardless
of whether the parties hereto execute any additional escrow instructions. Such
additional escrow instructions shall be executed and returned by each party to
Escrow Agent no later than ten (10) business days after receipt thereof. In the
event of any inconsistency between any additional escrow instructions and this
Agreement, the terms of this Agreement shall supersede and govern.
4. TITLE APPROVAL AND INSURANCE. At the Close of Escrow, Seller shall
----------------------------
(a) convey the Property to Buyer by California Statutory Warranty Deed, with
express warranty that title is
<PAGE>
subject only to exceptions expressly approved by Buyer, and (b) cause Escrow
Agent to furnish Buyer with an ALTA extended coverage owner's policy of title
insurance, with coverage in the amount of the Purchase Price, insuring fee title
in Buyer, with Schedule B thereof subject only to matters expressly approved by
Buyer.
5. CONTINGENCIES. Buyer's obligations hereunder are contingent upon:
-------------
(a) Buyer's approval of title and the issuance of the title
policy in accordance with the provisions of Section 4, above.
(b) Buyer's approval of the findings of its due diligence
inspection and study of the Property, including but not limited to, all
feasibility and engineering considerations, environmental issues, soil
conditions, public improvements, etc. Buyer shall have the right to terminate
this Agreement, for any reason or no reason, in Buyer's sole discretion, by
delivering a written notice of termination to Escrow Agent and Seller before the
Close of Escrow. Should Buyer deliver notice of termination before the Close of
Escrow, then this Agreement shall thereupon terminate, the any funds deposited
in the escrow shall be returned to Buyer, and neither party shall have any
further obligation or liability to the other hereunder.
(c) It is a condition of Buyer's obligations hereunder that
Seller shall have received an assignment ("Assignment") of that certain
Development Agreement between the City of Victorville and Mesa Verde Housing
Developments, a California Limited Partnership ("Mesa Verde") entered and
recorded on September 9, 1988 as Instrument No. 88-301991 in the Official
Records of San Bernardino County ("Development Agreement") (Mesa Verde
subsequently assigned its rights under the Development Agreement to Inco Homes
Corporation, a Delaware corporation on August 2, 1996), which assignment must be
approved by the appropriate governmental entities. Buyer shall have the right to
approve all conditions imposed upon such Assignment by the governing entity,
which approval shall not be unreasonably withheld. If, despite Seller's best
efforts and diligence, Seller has not obtained said Assignment before the
Assignment of Development Agreement Contingency Deadline, this Agreement shall
automatically be terminated, any funds deposited by Buyer shall be returned to
Buyer, and neither party hereto shall have any further obligation or liability
hereunder. Inco hereby represents and warrants, for the reliance and benefit of
Buyer, that the effective portions of the Development Agreement consist of the
Agreement recorded September 9, 1988 and the Third Amendment thereto, dated
September 15, 1992, and that the First and Second Amendments to the Development
Agreement are no longer effective.
Contingencies to the Purchase are for the sole benefit of the Buyer and may
be waived by the Buyer only.
6. CLOSE OF ESCROW. Close of escrow shall be no later than June 13,
---------------
1997 ("Close of Escrow").
-2-
<PAGE>
7. PAYMENT OF CLOSING COSTS AND PRORATIONS. Seller shall pay all
---------------------------------------
closing costs associated with the transaction including, but not limited to, the
premium for Buyer's ALTA title policy, all real property transfer taxes,
recording costs, Escrow Agent's escrow fee, Buyer's attorneys' fees and Buyer's
reasonable due diligence costs. Real property taxes shall be prorated to Close
of Escrow.
8. BUYER'S REPRESENTATIONS AND WARRANTIES. Buyer represents and
--------------------------------------
warrants the following to be true and correct as of the date of this Agreement
and further represents and warrants that the following will be true and correct
at Close of Escrow, as if first represented and warranted that date:
Buyer is a duly formed and validly-existing Nevada limited liability
company in good standing. Buyer has the right, power, legal capacity and
authority to enter into and perform its obligations under this Agreement, and no
approvals or consents of any persons other than Buyer are required in connection
with this Agreement. The execution of the Agreement and consummation of the
transactions contemplated hereby will not result in or constitute any default or
event that, with notice or lapse of time or both, would be a default, breach or
violation of the organizational instruments or laws governing Buyer or any
lease, license, promissory note, conditional sales contract, commitment,
indenture, mortgage, deed of trust, or the agreement, instrument, or
arrangements to which Buyer is a party or by which Buyer is bound. By executing
this Agreement, the parties signatory for Buyer do hereby represent and warrant
to Seller that they have all necessary authority to bind Buyer hereto, and to
execute and deliver this Agreement as the act and deed of Buyer.
9. SELLER'S DELIVERY OF EXISTING REPORTS. Seller will deliver to
-------------------------------------
Buyer, no later than five (5) business days after Opening of Escrow, copies of
any inspections, tests, surveys, engineering, soil and toxic reports, city
approvals of zoning and mapping, and all other studies and information, which
Seller may have on the Property. At the Close of Escrow all engineering and
architecture that has been paid in full by the Seller shall become the property
of the Buyer with acknowledgement from said engineers and architects assigning
the rights and privileges of the Seller to the Buyer.
10. SELLER'S REPRESENTATIONS AND WARRANTIES. Seller hereby represents
---------------------------------------
and warrants to Buyer as follows:
(a) That (i) there are no tanks now or previously containing any
petroleum-based substances located on or below the surface of the Property; (ii)
there is no asbestos or asbestos-related product on the Property or in or on any
improvements thereon; and (iii) there is no other hazardous or toxic waste or
substance or other contaminant or pollutant (as defined by law) in existence on
or below the surface of the Property, including, but not limited to, in the
soil, sub-soil, ground water or surface water, which constitutes a violation of
any law, ordinance, rule or regulation of any governmental entity having
jurisdiction hereof, or which may subject Buyer to liability to third parties.
-3-
<PAGE>
(b) That Seller has no knowledge of any previous use of the
Property which would result in any hazardous or toxic substances being left or
dumped on the Property.
(c) That there is not currently pending any proceedings or
investigation by any governmental authority concerning any such hazardous
materials or toxic substances affecting or related to the Property.
(d) That, to the best of Seller's knowledge, there is no pending
or threatened condemnation or similar proceeding affecting the Property or any
portion thereof, nor has Seller knowledge that any such action is presently
contemplated.
(e) Seller has no information or knowledge of any change
contemplated in any applicable laws, ordinances, or regulations, or any judicial
or administrative action, or any action by adjacent landowners, or natural or
artificial conditions upon the Property which would prevent, limit or impede
Buyer's development or use of the Property.
(f) That, to the best of Seller's knowledge, Seller has complied
with all applicable laws, ordinances, regulations, statutes, rules and
restrictions pertaining to and affecting the Property. Performance of this
Agreement by Seller will not result in any breach of, or constitute any default
under, or result in the imposition of, any lien or encumbrance upon the Property
under any agreement or other instrument to which Seller is a party or by which
Seller or the Property might be bound.
(g) That the Property is comprised of one or more legal parcels,
and can be conveyed to Buyer without violating any provision of any applicable
law or ordinance pertaining to the division of real property.
(h) That no part of the Property is within an identified flood
plain or other designated flood hazard area as established pursuant to the Flood
Disaster Protection Act as amended, or regulations promulgated thereto by HUD,
FDIC, the Federal Reserve Board or any other governmental agency having
jurisdiction.
(i) That there are no impact fee credits attributable to the
Property.
(j) That there are no oral or written service, maintenance,
landscaping, security, management or other similar contracts which affect the
operation or maintenance of the Property.
(k) That Seller has not received notice of any violation of any
applicable federal, state, or local statute, law or regulation (including,
without limitation, any applicable building, zoning, environmental protection or
other law), or any covenant, condition, restriction or easement, bearing on the
construction, operation, ownership, use or sale of all or part of the Property,
and to the best of Seller's knowledge, there are no such violations.
-4-
<PAGE>
(l) That, to the best of Seller's knowledge, except as set forth
in the Development Agreement, no written or verbal commitments have been made to
any governmental authority, utility company, school board, church or other
religious body, or any homeowners association, or to any other organization,
group, or individual, relating to the Property which would impose an obligation
upon Buyer or their successors or assigns to make any contribution or
dedications of money or land or to construct, install, or maintain any
improvements of a public or private nature on or off the Property.
(m) That Seller has received no notice of intended public
improvements which will result in any charge being levied or assessed against or
in the creation of any lien upon the Property or any portion thereof, except as
shown on the Title Report.
(n) That Seller is not the subject of any pending bankruptcy
proceedings.
(o) That Buyer is the sole contract purchaser of the Property
including all surface and mineral estates and until Buyer acquires all the
Property under this Agreement, or until the other termination of this Agreement,
Seller will not transfer, assign, convey, encumber, or alienate in any manner or
way, all or any portion of the Property.
(p) That no material encroachments on or from the Property or on
or from an easement, right-of-way or roadway exist.
(q) That Seller has good, indefeasible and marketable title to
the Property, and that Seller shall deliver title to the Property to Buyer at
the Close of Escrow subject only to the exceptions described in the Title Report
and approved or deemed approved by Buyer pursuant to Section 4 hereof.
(r) That all utilities, including but not limited to, water,
sanitary sewer, electricity, gas, telephone are available to the boundary line
of the Property and are available to Buyer in sufficient capacity.
(s) That the person signing below on behalf of Seller represents
that he is duly authorized to execute this Agreement and to bind Seller. Seller
further represents that it has capacity to enter into this Agreement.
(t) That, to the best of Seller's knowledge, there are no
adverse or other parties in possession of the Property, or any part thereof.
(u) That there are no encroachments of improvements onto the
Property, nor do any improvements on the Property encroach onto any adjoining
property.
(v) That, to the best of Seller's knowledge, no defect or
condition of the Property or soil exists that may adversely affect Buyer's
proposed development of the Property, unless disclosed to Buyer in this
Agreement or in writing.
-5-
<PAGE>
(w) That, to the best of Seller's knowledge, all information
furnished to Buyer by or on behalf of Seller prior to the execution hereof or
pursuant to the provisions of this Agreement is true and correct in all material
respects and fairly and accurately reflects the condition or statement of facts
reported to be described or represented thereby.
(x) That there are no restrictions on entrance to or exit from
the Property from the adjacent public streets.
(y) That Seller has received no notice of, and to the best of
Seller's knowledge, there is no existing, proposed or contemplated plan to
modify or realign any existing street or highway or any existing, proposed or
contemplated eminent domain proceeding that would result in the taking of all or
any part of the Property or that would adversely affect Buyer's proposed
development of the Property.
(z) That none of the representations or warranties made by
Seller contain any inaccurate, misleading or untrue statements of a material
fact or omit any material fact, the omission of which could be misleading.
Each of the warranties and representations contained in this Section and
otherwise set forth in this Agreement shall be deemed made as of the date of
this Agreement and again as of the date of Closing. Seller's representations
and warranties set forth in this Section shall be continuing and are deemed to
be material to Buyer's execution of this Agreement and Buyer's performance of
its obligations hereunder. All such representations and warranties shall be
true and correct on and as of each Closing date with the same force and effect
as if made at that time, and all of such representations and warranties shall
survive the Closing Date or any cancellation or termination of this Agreement,
and shall not be affected by any investigation, verification or approval by any
party hereto or by anyone on behalf of any party hereto. Seller agrees to
indemnify and hold Buyer harmless for, from, and against any loss, costs,
damages, expenses, obligations and attorneys' fees incurred should an assertion,
claim, demand, action or cause of action be instituted, made or taken, which is
contrary to or inconsistent with the representations or warranties contained
herein.
11. BUYER'S EXCHANGE PROVISION. Certain parties constituting Buyer may
--------------------------
wish to acquire the Property in 1031 and/or 1033 tax-deferred exchanges. Seller
agrees to cooperate in all respects in affecting such exchange or exchanges,
with the understanding that such cooperation shall not require Seller to expend
any funds or subject itself to any additional liability.
12. RIGHT OF ENTRY TO PROPERTY. During the term of this Agreement,
--------------------------
Buyer (which term, for purposes of this Section 12, shall include Buyer and its
employees, agents, architects, engineers and independent contractors) shall have
the right to enter on the Property, for the purpose of conducting Buyer's due
diligence investigations. Buyer agrees to indemnify and hold Seller harmless
from and against any and all costs, expenses, losses, attorneys' fees,
liabilities (including, but not limited to, claims or mechanic's liens) incurred
or sustained by Seller or imposed on the Property, as a result of Buyer's entry
or acts. Buyer shall further indemnify and
-6-
<PAGE>
hold Seller harmless from and against any and all costs, expenses, losses and
attorneys' fees incurred or sustained by Seller as a result of personal injury
or death, property damage, or claims of any nature, arising from, in connection
with, or as a result of, Buyer's entry onto or activities on the Property.
13. MORATORIUM/RISK OF LOSS. If for any reason there is, prior to Close
-----------------------
of Escrow, a moratorium or any other action on the part of the governing
municipalities and/or utilities which will not allow for the continued and
uninterrupted development of the property, then at Buyer's election the Close of
Escrow will be automatically extended for the duration of such moratorium, but
not to exceed one (1) year. If the Property is damaged by an event of damage or
destruction, or if the legal status of the Property shall be materially impaired
by condemnation or otherwise, prior to the Close of Escrow, Buyer may elect (a)
to terminate this Agreement, in which event any funds deposited by Buyer shall
be refunded to Buyer and neither party hereto shall thereafter have any
obligation or liability hereunder, or (b) to close escrow, in which event Seller
shall assign any available insurance and/or condemnation proceeds to Buyer.
14. INDEMNITY. Seller hereby agrees to indemnify, protect, defend and
---------
hold Buyer and the Property harmless from and against any damage, loss, claim,
liability, cost or expense of any kind whatsoever (including, without
limitation, reasonable attorney's fees, court costs and fees of expert
witnesses) arising from or in connection with any breach of any of the
representations and warranties of Seller contained in this Agreement. Such
representations and warranties of Seller are true and correct on and as of the
date of this Agreement and shall be true and correct on and as of the date of
Closing, and shall survive Closing, without the necessity of a separate written
certificate regarding the same.
15. SUCCESSORS AND ASSIGNS. Seller and Buyer agree that the terms and
----------------------
conditions of the Agreement shall be binding upon their respective heirs,
devisees, legatees, successors, and/or assignees.
16. FOREIGN INVESTMENT IN REAL PROPERTY TAX ACT. At or before the Close
-------------------------------------------
of Escrow, Seller shall execute and deposit in escrow an appropriate FIRPTA
certificate, evidencing that Seller is not subject to the FIRPTA withholding
requirements.
17. COUNTERPARTS; FAX DOCUMENTS. This Agreement, and any escrow
---------------------------
instructions, may be executed in one or more counterparts, each of which shall
be deemed an original, and such counterparts shall constitute one and the same
Agreement. Facsimile copies hereof, and facsimile signatures thereon, shall
have the same force, effect and legal status as originals thereof.
18. CALIFORNIA LAW. This Agreement, and the interpretation, validity,
--------------
performance and effect hereof, shall be governed by the laws of California. If
any action at law or in equity, or any special proceeding, be instituted by
either party against the other to enforce this Agreement or any rights arising
hereunder, or in connection with the subject matter hereof, the prevailing party
shall be entitled to recover all costs of suit and reasonable attorneys' fees.
-7-
<PAGE>
19. ADDITIONAL DOCUMENTS. Before, at and after the Close of Escrow, the
--------------------
parties hereby agree to execute, acknowledge and deliver such additional
documents and instruments as may be reasonably necessary to carry out the full
intent and purpose of this Agreement.
20. DEFAULT. In the event that Buyer should fail to perform its
-------
obligations hereunder, Seller's sole remedy shall be claim against Buyer which
shall not exceed $5,000.00 as and for liquidated damages.
In the event Seller shall default under any of the terms and provisions of
this Agreement, Buyer shall have the right, but not the obligation, in addition
to any other rights or remedies which it may have at law or in equity, to
terminate Buyer's obligations under this Agreement and the Escrow created hereby
or, at Buyer's election, to pursue the remedy of specific performance, with a
reduction in the Purchase Price for any damages caused by Seller's default. In
the event of such termination by the Buyer: (a) Buyer shall be entitled to the
immediate refund of any funds deposited by Buyer into Escrow including all
interest earned thereon; and (b) Buyer may pursue any other rights or remedies
at law or in equity to obtain compensation for Seller's breach of this
Agreement. The termination of this Agreement by Buyer pursuant to its rights
under this Section shall not relieve Seller of its liability for breach of its
obligations hereunder but shall relieve Buyer of all of its obligations under
this Agreement from the date of such termination.
21. NOTICES. Any and all notices, demands, or other communications
-------
("Notice") required or desired to be given hereunder by either party shall be in
writing and shall be validly given or made to the other party, if served either
personally, or if deposited in the United States mail, certified or registered,
postage prepaid, return receipt requested, or if sent by telecopy transmittal
("fax"). If Notice be served personally, service shall be conclusively deemed
made at the time of such personal service. Any Notice given by mail shall be
conclusively deemed given forty-eight (48) hours after the deposit thereof in
the United States mail addressed to the party to whom such Notice is to be given
as herein under set forth. Any Notice sent by fax shall be deemed received upon
fax confirmation transmission to the intended party.
Any Notice sent to Buyer shall be addressed to:
c/o USA Commercial Real Estate Group
3900 Paradise Road, Suite 263
Las Vegas, Nevada 89121
Attn: Thomas Hantges
Fax No.: (702) 734-0163
-8-
<PAGE>
With a simultaneous copy to:
Goold, Patterson, DeVore & Rondeau
Attn: Thomas J. DeVore
4496 South Pecos Road
Las Vegas, Nevada 89121
Fax No.: (702) 436-2650
Any notice sent to Seller shall be addressed to:
Inco Homes Corporation
1282 W. Arrow Highway
Upland, California 91786
Attn: Ira Norris
Fax No.: (909) 982-9784
Either party may change its address for the purpose of receiving Notices as
herein provided by written Notice given in the manner aforesaid to the other
party.
22. TIME OF ESSENCE. Time is of the essence of this Agreement and each
---------------
and every provision hereof.
23. BROKERS. USA Commercial Real Estate Group represents Buyer.Seller
-------
shall pay, at the Close of Escrow, a commission in the amount of $50,000 to USA
Commercial Real Estate Group and Ira Norris, as co-broker. Other than the above
commission, Buyer and Seller hereby represent and warrant to each other that
they have not retained or dealt through any brokers, and that no real estate
sales or brokerage or like commission is or will be due from the other party in
connection with this transaction as a result of the act of the party so
warranting. Buyer and Seller each hereby agree to indemnify and hold the other
harmless from the claims of any broker, finder or middlemen retained by, or
claiming through, the indemnifying party.
24. MODIFICATION OR AMENDMENTS. No amendment, change or modification of
--------------------------
this Agreement shall be valid unless in writing and signed by both parties
hereto.
25. ENTIRE AGREEMENT. This document shall constitute a firm and binding
----------------
contract on the part of Buyer to buy and Seller to sell the Property. If any
provision of this Agreement conflicts with any provision of the escrow
instructions, this Agreement shall prevail. This Agreement shall constitute the
entire agreement between the parties pertaining to this transaction and shall
supersede any agreement (whether oral or written), memoranda or letters of
intent which may heretofore have been executed by the parties. Any and all prior
agreements, counteroffers, understandings, or representations are hereby
terminated and cancelled in their entirety and are of no further force or
effect.
-9-
<PAGE>
26. AUTHORITY OF SIGNATORS. By executing this Agreement, the parties
----------------------
who sign on behalf of Buyer and Seller, respectively, do hereby represent and
warrant to Buyer or Seller (as appropriate) that they are duly authorized to
execute and deliver this Agreement and to bind their principals hereto.
27. The parties agree that Buyer shall have the right to record a
memorandum of this purchase agreement, and Seller hereby agrees to execute, in
recordable form, a short form memorandum of this purchase agreement and deliver
the same to Buyer.
28. The parties acknowledge that Buyer may be performing its obligations
hereunder as part of a 1031 or 1033 exchange. Seller agrees to cooperate in such
exchange, provided such cooperation shall be at no cost to Seller.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year written below.
BUYER: SELLER:
MET PARTNERS, LLC, a Nevada limited INCO HOMES CORPORATION, a
liability company Delaware corporation
By: /s/ Lucius Blanchard By: /s/ Ira J. Norris
-------------------------------- --------------------------------
Lucius Blanchard, Manager Ira J. Norris, President
PALOMINO PARTNERS LIMITED
PARTNERSHIP, a Nevada limited
partnership
By: /s/ Lucius Blanchard
--------------------------------
Lucius Blanchard, President
of Nevada Skin and Cancer,
Lucius Blanchard, M.D. Chtd.,
its general partner
By: /s/ C.E Newby
--------------------------------
C.E. Newby , Trustee of the
Newby 1984 Trust, dated 3/19/84
By: /s/ Carole J. Newby
--------------------------------
Carole J. Newby, Trustee of the
Newby 1984 Trust, dated 3/19/84
[Buyer Signatures Continued]
-10-
<PAGE>
By: /s/ Kim W. Gregory
--------------------------------------
Kim W. Gregory, Trustee of
the Gregory 1988 Trust
By: /s/ Debbie R. Gregory
--------------------------------------
Debbie R. Gregory, Trustee of
the Gregory 1988 Trust
By: /s/ William P.J. Mahon
--------------------------------------
William P.J. Mahon, Trustee
of the William P.J. Mahon and
Kathleen M. Mahon Family Trust
By: /s/ Joseph D. Milanowski
--------------------------------------
Joseph D. Milanowski
-11-
<PAGE>
EXHIBIT "A"
PARCEL NO. A:
- -------------
LOTS 108, 112, 116, 119, 120, 122, 124, 125, 127, 129, AND 131 OF TRACT NO.
14793-3. IN THE CITY OF VICTORVILLE, COUNTY OF SAN BERNARDINO, STATE OF
CALIFORNIA, AS PER PLAT RECORDED IN BOOK 253 MAPS, PAGES 47 AND 48, INCLUSIVE,
RECORDS OF SAID COUNTY.
EXCEPTING THEREFROM ALL OIL, GAS AND OTHER HYDROCARBON SUB-STANCES. GEOTHERMAL
STEAMS, BRINES AND MATERIALS (HEREINAFTER COLLECTIVELY REFERRED TO AS THE
("MINERALS"), WHICH MAY BE FOUND ON, OR IN PLACE UNDER, OR IN MIGRATION IN OR
UNDER THE REAL PROPERTY WITHOUT RIGHT OF SURFACE ENTRY, TOGETHER WITH THE RIGHT
TO ENTER AND THE REAL PROPERTY BELOW A DEPTH OF 500 FEET OF THE SURFACE FOR THE
FOLLOWING PURPOSES:
(1) TO TEST, AT ANY TIME, FOR THE PRESENCE OF SAID MINERALS ANYWHERE IN OR UNDER
SAID REAL PROPERTY BELOW THE DEPTH OF 500 FEET OF THE SURFACE:
(2) TO CONSTRUCT, MAINTAIN AND USE WELLS, PUMPS, MINING SHAFTS AND DRILLING
EQUIPMENT UNDER SAID REAL PROPERTY BELOW A DEPTH OF 500 FEET OF THE SURFACE, TO
EXCAVATE, TO DRILL FOR, TO PUMP OR TO MINE SAID MINERALS FROM THE REAL PROPERTY,
OR FROM ANY PROPERTY, ADJOINING OR OTHERWISE, WHERE GRANTOR, OR ITS ASSIGNS, HAS
OR MAY IN THE FUTURE HAVE RESERVED OR OTHERWISE ACQUIRED, OR OWNS RIGHTS TO ANY
MINERALS. AS RESERVED IN THE DEEDS FROM INCO DEVELOPMENT, A CALIFORNIA
CORPORATION, RECORDED SEPTEMBER 28, 1987, INSTRUMENT NO. 87-346427, OFFICIAL
RECORDS, AND RECORDED JANUARY 19, 1988, INSTRUMENT NO. 88-015977, OFFICIAL
RECORDS: AND TO INCO HOMES CORPORATION BY DEED RECORDED JANUARY 12, 1994,
INSTRUMENT NO. 94-014694, OFFICIAL RECORDS.
PARCEL NO. B
- ------------
LOTS 1, 2, 4, 6, AND 17 TO 23, INCLUSIVE, TRACT NO. 13990, IN THE CITY OF
VICTORVILLE, IN THE COUNTY OF SAN BERNARDINO, STATE OF CALIFORNIA, AS PER PLAT
RECORDED IN BOOK 228 OF MAPS, PAGES 76 THROUGH 84, INCLUSIVE, RECORDS OF SAID
COUNTY.
EXCEPTING THEREFROM ANY PORTION OF SAID LOT 6 LYING WITHIN TRACT NO. 14686-1, IN
THE CITY OF VICTORVILLE, COUNTY OF SAN BERNARDINO, STATE OF CALIFORNIA, AS PER
PLAT RECORDED IN BOOK 253 OF MAPS, PAGES 94 TO 96, INCLUSIVE, RECORDS OF SAID
COUNTY.
ALSO, EXCEPTING THEREFROM ANY PORTION OF SAID LOT 6 LYING WITHIN TRACT NO.
14686-2, IN THE CITY OF VICTORVILLE, COUNTY OF SAN BERNARDINO, STATE OF
CALIFORNIA, AS PER PLAT RECORDED IN BOOK 253 OF MAPS, PAGES 97 TO 100,
INCLUSIVE, RECORDS OF SAID COUNTY.
ALSO EXCEPTING THEREFROM THAT PORTION OF LOT 2 CONVEYED TO ADELANTO SCHOOL
DISTRICT BY CORPORATION GRANT DEED RECORDED JUNE 20, 1994, INSTRUMENT NO.
94-274846, OFFICIAL RECORDS, DESCRIBED AS FOLLOWS:
<PAGE>
THE NORTHERLY PORTION OF LOT 2 OF TRACT NO. 13990, IN THE CITY OF VICTORVILLE,
COUNTY OF SAN BERNARDINO, STATE OF CALIFORNIA, AS PER PLAT RECORDED IN BOOK 228
OF MAPS, PAGES 76 TO 84, INCLUSIVE, RECORDS OF SAID COUNTY, MORE PARTICULARLY
DESCRIBED AS FOLLOWS:
BEGINNING AT THE CENTER 1/4 CORNER OF SECTION 27, TOWNSHIP 5 NORTH, RANGE 5
WEST SAN BERNARDINO BASE AND MERIDIAN, BEING THE INTERSECTION OF MESA LINDA
AVENUE AND LUNA ROAD CENTER LINES, ALSO BEING THE TRUE POINT OF BEGINNING:
THENCE SOUTH 89 DEG. 38 DEGREES 50" EAST, A DISTANCE OF 771.09 FEET: THENCE
SOUTH 00 DEG. 21 DEGREES 10" WEST, A DISTANCE OF 32.00 FEET: THENCE SOUTH 00
DEG. 14 DEGREES 43" WEST, A DISTANCE OF 597.95 FEET: THENCE NORTH 89 DEG. 38
DEGREES 50" WEST, A DISTANCE OF 728.28: THENCE NORTH 89 DEG. 49 DEGREES 23"
WEST, A DISTANCE OF 42.00 FEET: THENCE NORTH 00 DEG. 10 DEGREES 37" EAST, A
DISTANCE OF 630.08 ALONG THE CENTERLINE OF SAID MEAS LINDA AVENUE FEET TO THE
POINT OF BEGINNING.
EXCEPTING THEREFROM ALL OIL, GAS AND OTHER HYDROCARBON SUBSTANCES, GEOTHERMAL
STEAMS, BRINES AND MINERALS (HEREINAFTER COLLECTIVELY REFERRED TO AS THE
("MINERALS"), WHICH MAY BE FOUND ON, OR IN PLACE UNDER, OR IN MIGRATION IN OR
UNDER THE REAL PROPERTY WITHOUT RIGHT OF SURFACE ENTRY, TOGETHER WITH THE RIGHT
TO ENTER AND USE THE REAL PROPERTY BELOW A DEPTH OF 500 FEET OF THE SURFACE FOR
THE FOLLOWING PURPOSES:
(1) TO TEST, AT ANY TIME, FOR THE PRESENCE OF SAID MINERALS ANYWHERE IN OR UNDER
SAID REAL PROPERTY BELOW THE DEPTH OF 500 FEET OF THE SURFACE.
(2) TO CONSTRUCT, MAINTAIN AND USE WELLS, PUMPS, MINING SHAFTS AND DRILLING
EQUIPMENT UNDER SAID REAL PROPERTY BELOW A DEPTH OF 500 FEET OF THE SURFACE, TO
EXCAVATE, TO DRILL FOR, TO PUMP, OR TO MINE SAID MINERALS FROM THE REAL
PROPERTY, OR FROM ANY PROPERTY, ADJOINING OR OTHERWISE, WHERE GRANTOR, OR ITS
ASSIGNS, HAS OR MAY IN THE FUTURE HAVE RESERVED OR OTHERWISE ACQUIRED, OR OWNS
RIGHTS TO ANY MINERALS.
GRANTEE OR ITS ASSIGNS SHALL NOT HAVE THE RIGHT TO USE OR PENETRATE THE SURFACE
OF, OR ENTER UPON, THE REAL PROPERTY IN EXERCISE OF ITS OWN RIGHTS HEREUNDER,
FURTHER, GRANTEE OR ITS ASSIGNS SHALL NOT HAVE THE RIGHT TO REMOVE OR EXTRICATE
MINERALS WITHIN 500 FEET OF THE SURFACE OF SAID REAL PROPERTY, AS SAID MINERAL
RIGHTS WERE GRANTED TO INCO DEVELOPMENT, A CALIFORNIA CORPORATION, BY DEEDS
RECORDED SEPTEMBER 28, 1987, INSTRUMENT NO. 87-346427, OFFICIAL RECORDS, AND
JANUARY 19, 1988, INSTRUMENT NO. 88-015977, OFFICIAL RECORDS AND TO INCO HOMES
CORPORATION, A DELAWARE CORPORATION BY DEED RECORDED JANUARY 12, 1994,
INSTRUMENT NO. 94-01494, OFFICIAL RECORDS.
PARCEL NO. C
- ------------
LOT 15, TRACT NO. 13990, IN THE CITY OF VICTORVILLE, COUNTY OF SAN BERNARDINO,
STATE OF CALIFORNIA, AS PER PLAT RECORDED IN BOOK 223 OF MAPS, PAGES 76 TO 34.
INCLUSIVE, RECORDS OF SAID COUNTY: AND CERTIFICATE OF CORRECTION RECORDED
JANUARY 17, 1990, INSTRUMENT NO. 90-020927, OFFICIAL RECORDS.
EXCEPTING THEREFROM THOSE SECTIONS LYING WITHIN THE BOUNDARIES OF TRACT NO.
14062-2, IN THE CITY OF VICTORVILLE, COUNTY OF SAN BERNARDINO , STATE OF
CALIFORNIA, AS PER PLAT RECORDED IN BOOK 242 OF MAPS, PAGES 10 AND 11, RECORDS
OF SAID COUNTY.
<PAGE>
ALSO EXCEPTING THEREFROM THOSE PORTIONS LYING WITHIN THE BOUNDARIES OF TRACT NO.
14062-1, IN THE CITY OF VICTORVILLE, COUNTY OF SAN BERNARDINO, STATE OF
CALIFORNIA. AS PER FLAT RECORDED IN BOOK 229 OF MAPS, PAGES 8 THROUGH 16,
INCLUSIVE, RECORDS OF SAID COUNTY.
ALSO EXCEPTING THEREFROM ANY PORTION LYING WITHIN THE BOUNDARIES OF TRACT
NO.14062-3, IN THE CITY OF VICTORVILLE, COUNTY OF SAN BERNARDINO, STATE OF
CALIFORNIA. AS PER FLAT RECORDED IN BOOK 239 OF MAPS, PAGES 46 TO 49, INCLUSIVE,
RECORDS OF SAID COUNTY.
ALSO EXCEPTING THEREFROM ANY PORTION LYING WITHIN THE BOUNDARIES OF TRACT
NO.14062-6, IN THE CITY OF VICTORVILLE, COUNTY OF SAN BERNARDINO. STATE OF
CALIFORNIA. AS PER FLAT RECORDED IN BOOK 240 OF MAPS, PAGES 63 AND 64, RECORDS
OF SAID COUNTY.
ALSO EXCEPTING THEREFROM ANY PORTION LYING WITHIN THE BOUNDARIES OF TRACT
NO.14062-4, IN THE CITY OF VICTORVILLE, COUNTY OF SAN BERNARDINO, STATE OF
CALIFORNIA. AS PER FLAT RECORDED IN BOOK 246 OF MAPS, PAGES 34 AND 35, RECORDS
OF SAID COUNTY.
EXCEPTING THEREFROM ALL OIL, GAS AND OTHER HYDROCARBON SUBSTANCES, GEOTHERMAL
STEAMS, BRINES AND MINERALS (HEREINAFTER COLLECTIVELY REFERRED TO AS
"MINERALS"), WHICH MAY BE FOUND ON, OR IN PLACE UNDER, OR IN MIGRATION IN OR
UNDER THE REAL PROPERTY WITHOUT RIGHT OF SURFACE ENTRY. TOGETHER WITH THE RIGHT
TO ENTER AND USE THE REAL PROPERTY BELOW A DEPTH OF 500 FEET OF THE SURFACE FOR
THE FOLLOWING PURPOSES:
(1) TO TEST, AT ANY TIME FOR THE PRESENCE OF SAID MINERALS ANY WHERE IN OR UNDER
SAID REAL PROPERTY BELOW THE DEPTH OF 300 FEET OF THE SURFACE:
(2) TO CONSTRUCT, MAINTAIN AND USE WELLS, PUMPS, MINING SHAFTS AND DRILLING
EQUIPMENT UNDER SAID REAL PROPERTY BELOW A DEPTH OF 500 FEET OF THE SURFACE. TO
EXCAVATE, TO DRILL FOR, TO PUMP, OR TO MINE SAID MINERALS FROM THE REAL
PROPERTY, OR FROM ANY PROPERTY, ADJOINING OR OTHERWISE, WHERE GRANTOR, OR ITS
ASSIGNS, HAS OR MAY IN THE FUTURE HAVE RESERVED OR OTHERWISE ACQUIRED, OR OWNS
RIGHTS TO ANY MATERIALS.
GRANTEE OR ITS ASSIGNS SHALL NOT HAVE THE RIGHT TO USE OR PENETRATE THE SURFACE
OF, OR ENTER UPON, THE REAL PROPERTY IN EXERCISE OF ITS RIGHTS HEREUNDER;
FURTHER, GRANTEE OR ITS ASSIGNS SHALL NOT HAVE THE RIGHT TO REMOVE OR EXTRICATE
MINERALS WITHIN 500 FEET OF THE SURFACE OF SAID REAL PROPERTY. AS SAID MINERAL
RIGHTS WERE GRANTED TO INCO DEVELOPMENT, A CALIFORNIA CORPORATION, BY DEEDS
RECORDED SEPTEMBER 28, 1987, INSTRUMENT NO. 87-346427, OFFICIAL RECORDS, AND
JANUARY 19, 1988, INSTRUMENT NO.88-015977, OFFICIAL RECORDS AND TO INCO HOMES
CORPORATION, A DELAWARE CORPORATION BY DEED RECORDED JANUARY 12, 1994,
INSTRUMENT NO. 94-014694, OFFICIAL RECORDS.
<PAGE>
PARCEL NO. D
- ------------
LOTS 5 AND 21, TRACT NO. 14686-1, IN THE CITY OF VICTORVILLE, COUNTY OF SAN
BERNARDINO, STATE OF CALIFORNIA. AS PER PLAT RECORDED IN BOOK 253 OF MAPS, PAGES
94 TO 96, INCLUSIVE, RECORDS OF SAID COUNTY.
EXCEPTING THEREFROM ALL OIL, GAS AND OTHER HYDROCARBON SUBSTANCES, GEOTHERMAL
STEAMS, BRINES AND MINERALS (HEREINAFTER COLLECTIVELLY REFERRED TO AS THE
"MINERALS"), WHICH MAY BE FOUND ON, OR IN PLACE UNDER, OR IN MIGRATION IN OR
UNDER THE REAL PROPERTY WITHOUT RIGHT OF SURFACE ENTRY, TOGETHER WITH THE RIGHT
TO ENTER AND USE THE REAL PROPERTY BELOW A DEPTH OF 500 FEET OF THE SURFACE FOR
THE FOLLOWING PURPOSES:
(1) TO TEST, AT ANY TIME, FOR THE PRESENCE OF SAID MINERALS ANYWHERE IN OR UNDER
SAID REAL PROPERTY BELOW THE DEPTH OF 500 FEET OF THE SURFACE:
(2) TO CONSTRUCT, MAINTAIN AND USE WELLS, PUMPS, MINING SHAFTS AND DRILLING
EQUIPMENT UNDER SAID REAL PROPERTY BELOW A DEPTH OF 500 FEET OF THE SURFACE. TO
EXCAVATE, TO DRILL FOR, TO PUMP, OR TO MINE SAID MINERALS FROM THE REAL
PROPERTY, OR FROM ANY PROPERTY, ADJOINING OR OTHERWISE, WHERE GRANTOR, OR ITS
ASSIGNS, HAS OR MAY IN THE FUTURE HAVE RESERVED OR OTHERWISE ACQUIRED, OR OWNS
RIGHTS TO ANY MINERALS.
GRANTEE OR ITS ASSIGNS SHALL NOT HAVE THE RIGHT TO USE OR PENETRATE THE SURFACE
OF, OR ENTER UPON, THE REAL PROPERTY IN EXERCISE OF ITS RIGHTS HEREUNDER;
FURTHER, GRANTOR OR ITS ASSIGNS SHALL NOT HAVE THE RIGHT TO REMOVE OR EXTRICATE
MINERALS WITHIN 500 FEET OF THE SURFACE OF SAID REAL PROPERTY, AS SAID MINERAL
RIGHTS WERE GRANTED TO INCO DEVELOPMENT, A CALIFORNIA CORPORATION, BY DEEDS
RECORDED SEPTEMBER 28, 1987, INSTRUMENT NO.87-36427, OFFICIAL RECORDS, AND IN
JANUARY 19, 1988 INSTRUMENT NO.33-015977, OFFICIAL RECORDS AND TO INCO HOMES
CORPORATION, A DELAWARE CORPORATION BY DEED RECORDED JANUARY 12, 1994,
INSTRUMENT N0.94-014694, OFFICIAL RECORDS.
PARCEL NO. E
- ------------
LOTS 23 TO 42, INCLUSIVE, TRACT NO.14636-2, IN THE CITY OF VICTORVILLE, COUNTY
OF SAN BERNARDINO, STATE OF CALIFORNIA, AS PER PLAT RECORDED IN BOOK 253 OF
MAPS. PAGES 97 TO 100, INCLUSIVE, RECORDS OF SAID COUNTY.
EXCEPTING THEREFROM ALL OIL, GAS AND OTHER HYDROCARBON SUBSTANCES, GEOTHERMAL
STEAMS, BRINES AND MINERALS (HEREINAFTER COLLECTIVELLY REFERRED TO AS THE
"MINERALS"), WHICH MAY BE FOUND ON, OR IN PLACE UNDER, OR IN MIGRATION IN OR
UNDER THE REAL PROPERTY WITHOUT RIGHT OF SURFACE ENTRY, TOGETHER WITH THE RIGHT
TO ENTER AND USE THE REAL PROPERTY BELOW A DEPTH OF 500 FEET OF THE SURFACE FOR
THE FOLLOWING PURPOSES:
(1) TO TEST, AT ANY TIME, FOR THE PRESENCE OF SAID MINERALS ANYWHERE IN OR UNDER
SAID REAL PROPERTY BELOW THE DEPTH OF 500 FEET OF THE SURFACE:
<PAGE>
(2) TO CONSTRUCT, MAINTAIN AND USE WELLS, PUMPS, MINING SHAFTS AND DRILLING
EQUIPMENT UNDER SAID REAL PROPERTY BELOW A DEPTH OF 500 FEET OF THE SURFACE. TO
EXCAVATE, TO DRILL FOR, TO PUMP, OR TO MINE SAID MINERALS FROM THE REAL
PROPERTY, OR FROM ANY PROPERTY, ADJOINING OR OTHERWISE. WHERE GRANTOR, OR ITS
ASSIGNS, HAS OR MAY IN THE FUTURE HAVE RESERVED OR OTHERWISE ACQUIRED, OR OWNS
RIGHTS TO ANY MINERALS.
GRANTEE OR ITS ASSIGNS SHALL NOT HAVE THE RIGHT TO USE OR PENETRATE THE SURFACE
OF, OR ENTER UPON, THE REAL PROPERTY IN EXERCISE OF ITS RIGHTS HEREUNDER:
FURTHER, GRANTEE OR ITS ASSIGNS SHALL NOT HAVE THE RIGHT TO REMOVE OR EXTRICATE
MINERALS WITHIN 500 FEET OF THE SURFACE OF SAID REAL PROPERTY, AS SAID MINERAL
RIGHTS WERE GRANTED TO INCO DEVELOPMENT. A CALIFORNIA CORPORATION, BY DEEDS
RECORDED SEPTEMBER 28,1987, INSTRUMENT NO. 87-346427 OFFICIAL RECORDS, AND
JANUARY 19, 1988, A DELAWARE CORPORATION BY DEED RECORDED JANUARY 12,1994,
INSTRUMENT N0. 94-014694 OFFICIAL RECORDS.
PARCEL NO. F
- ------------
LOTS 108, 113, 114, 116 AND 117 OF TRACT NO. 14062-1, IN THE CITY OF
VICTORVILLE, COUNTY OF SAN BERNARDINO, STATE OF CALIFORNIA , AS PER PLAT
RECORDED IN BOOK 229 OF MAPS, PAGES 8 THROUGH 16, INCLUSIVE, RECORDS OF SAID
COUNTY.
PARCEL NO. G
- ------------
PARCEL 2 AS SHOWN ON PARCEL MAP 143, PAGES 77-79, IN THE OFFICE OF THE COUNTY
RECORDED, COUNTY OF SAN BERNARDINO, STATE OF CALIFORNIA.
<PAGE>
EXHIBIT 10.9
RESIDENTIAL PROPERTY OPTION AGREEMENT
THIS RESIDENTIAL PROPERTY OPTION AGREEMENT ("Agreement") is made and
entered into this 12th day of June, 1997, by and between INCO HOMES
CORPORATION, a Delaware corporation ("Inco"), as optionee, and MET PARTNERS,
LLC, a Nevada limited liability company, as to an undivided 27.08% interest;
PALOMINO PARTNERS LIMITED PARTNERSHIP, a Nevada limited partnership, as to an
undivided 48.96% interest; C.E. NEWBY AND CAROLE J. NEWBY, TRUSTEES OF THE NEWBY
1984 TRUST, DATED 3/19/84 as to an undivided 10.42% interest; KIM W. GREGORY AND
DEBBIE R. GREGORY, TRUSTEES OF THE GREGORY 1988 TRUST, as to an undivided 8.33%
interest; WILLIAM P.J. MAHON, TRUSTEE OF THE WILLIAM P.J. MAHON AND KATHLEEN M.
MAHON FAMILY TRUST, as to an undivided 4.17% interest; and JOSEPH D. MILANOWSKI,
as to an undivided 1.04% interest; all as tenants in common, as optionor
(collectively, the "Optionor").
RECITALS:
---------
A. Optionor is the owner of certain real property consisting of
approximately 213 acres located in the City of Victorville, State of California,
more particularly described on Exhibit "A" attached hereto and incorporated
herein by this reference (the "Property"). The Property consists of the
residential portion of that certain real property purchased by Optionor from
Inco pursuant to an Agreement for Purchase of Real Property dated June 12th
1997 ("Purchase Agreement"). The Property does not include the 71 acres of
commercial property described as Lots 20, 21, 22 and 23 in Tract No. 13990
recorded on November 29, 1989. The Property consists of or will consist of
subdivided lots for residential housing as set forth in the Mesa Verde Specific
Plan dated 3/1/88.
B. Inco desires to obtain an option to purchase the Property in various
increments for the purpose of developing the Property into finished residential
home lots and constructing homes thereon (each a "Lot" and collectively, the
"Lots"); and Optionor is willing to grant the option to Inco, for the
consideration and in accordance with the terms and conditions set forth herein.
AGREEMENT:
1. DEFINITIONS.
-----------
1.1 "Accrued Escalation Account" means the account that accrues
the amount due to Inco on the sale of a Third Party Parcel, pursuant to Section
9.
1.2 "Base Land Price" means the per acre price of the Property
as calculated by Section 3.1 of this Agreement.
<PAGE>
1.3 "Base Release Price" means the release price for a Lot being
released under a Parcel Deed of Trust which shall be calculated by taking the
applicable Parcel Note amount and dividing by the number of Lots encumbered by
the Parcel Deed of Trust.
1.4 "Closing Deadline" means Inco's deadline each year for
acquiring the minimum number of Lots for that year as set forth in the Lot
Schedule.
1.5 "Construction Deed of Trust" means a deed of trust, approved
by Optionor, for construction financing for developing an Option Parcel and
recorded simultaneously with a Parcel Deed of Trust.
1.6 "Effective Date" means the date Optionor closes escrow on
its purchase of the Property from Inco pursuant to the Purchase Agreement.
1.7 "Home" means a residential home constructed by Inco on a Lot
acquired by Inco from Optionor.
1.8 "Initial Property Price" means the total Base Land Price of
the Property at the Effective Date.
1.9 "Lot" or "Lots" as defined in Recital B above.
1.10 "Lot Schedule" means that schedule attached hereto as
Exhibit "B" that sets forth the minimum number of Lots Inco is required to
purchase each year and the applicable closing deadlines for acquiring the
minimum number of Lots.
1.11 "Option Fee" means the amounts required to be paid by Inco
(set forth in Section 3.2) as consideration for Optionor granting the Option.
1.12 "Option Parcel" means each increment of Property acquired by
Inco pursuant to this Agreement.
1.13 "Option Parcel Notice" means the formal notice requirements
as set forth in Section 2.2 which notifies Optionor of Inco's intent to acquire
an Option Parcel.
1.14 "Parcel Note" means a promissory note executed by Inco
evidencing the purchase price due to Optionor for each Option Parcel. Each
Parcel Note will be substantially the same as the form attached hereto as
Exhibit "C".
1.15 "Parcel Note Rate" means the rate of interest on each Parcel
Note calculated at 15% per annum, compounded monthly, from the date of the
Parcel Note until paid in full.
-2-
<PAGE>
1.16 "Parcel Deed of Trust" means a deed of trust securing a
Parcel Note and encumbering an Option Parcel. Each Parcel Deed of Trust will be
substantially the same as the form attached hereto as Exhibit "D".
1.17 "Property" means all that residential property described on
Exhibit "A".
1.18 "Third Party Parcel" means any portion of the Property sold
by Optionor to a third party buyer.
2. OPTION TO PURCHASE PROPERTY.
---------------------------
2.1 Option. Optionor hereby grants to Inco an exclusiveo ption
------
(the "Option") to purchase the Property. Inco may exercise the Option and
acquire the Property in increments, so long as it acquires at least the minimum
number of Lots set forth in the Lot Schedule attached hereto as Exhibit "B",
prior to the Closing Deadlines set forth on the Lot Schedule. Each Option Parcel
may include the number of Lots and necessary adjacent Property requested by
Inco, so long as Optionor determines, in its reasonable discretion, that the
remaining, unacquired Property is configured in such a way as will allow
adequate access thereto for ingress, egress and utilities, and will be
developable in an economical manner. Inco may elect to acquire more than the
minimum number of Lots required prior to any Closing Deadline; provided,
however, that such additional Lots are contiguous with other Lots previously
acquired by Inco and their location and configuration is reasonably acceptable
to Optionor. Additional Lots acquired in excess of the required minimums shall
reduce the minimum number of Lots to be acquired prior to the next Closing
Deadline. All Lots sold to third party buyers pursuant to Section 9 of this
Agreement will reduce the minimum number of Lots required to be purchased by
Inco as set forth in the Lot Schedule. If Inco fails to close escrow on the
minimum number of Lots as set forth in the Lot Schedule prior to the applicable
Closing Deadline, this Agreement and the Option granted herein shall be
terminated.
2.2 Exercise of Option. The Option must be exercised by Inco
------------------
giving written notice to Optionor, with a copy to Escrow Agent (as defined in
Section 5), of Inco's intent to acquire an Option Parcel by an Option Parcel
Notice. Each Option Parcel Notice must include the following information:
(a) the total acreage of the portion of the Property to be
acquired, including the number of Lots, and the location and configuration of
the Lots;
(b) a full set of construction loan documents for the
construction financing for the Option Parcel, as required by Section 8.1 of this
Agreement; and
(c) a proposed closing date for the Option Parcel.
Each Option Parcel Notice must be given in accordance with the notice provisions
of Section 16 hereof. Notwithstanding anything to the contrary contained in
this Agreement, an Option Parcel
-3-
<PAGE>
Notice shall not be effective if Inco is in Default (as defined in Section 15)
at the time the Option Parcel Notice is given. Option Parcel Notices can be
given at any time so long as, among other things, Inco acquires the minimum
number of Lots set forth in the Lot Schedule on or before the applicable Closing
Deadlines. As set forth in Section 8.2 below, Inco may only acquire an Option
Parcel if it shall simultaneously close escrow on its construction financing for
the construction of Homes on such Option Parcel.
2.3 Option Term. The term of this Option shall automatically
-----------
expire six (6) years from the Effective Date, unless terminated sooner pursuant
to the provisions in this Agreement.
3. PURCHASE PRICE, CLOSING PAYMENT AND OPTION FEE.
----------------------------------------------
3.1 Option Purchase Price. The Base Land Price for the Property
---------------------
at the Effective Date (other than the Lots listed in 3.1.1 below) is $11045 per
acre ("Initial Property Price"). The Base Land Price of the Property will
increase at a rate of 15% per annum, compounded monthly, from the Effective Date
through the date the Property or portions thereof are acquired. The Base Land
Price is subject to any reduction as set forth in Section 9 hereof. The total
purchase price for each Option Parcel located in a mapped subdivision will be
calculated as follows:
(a) the Base Land Price at the time of closing the Option
Parcel multiplied by the number of acres in the mapped
subdivision;
(b) the product in (a) divided by the number of Lots in
the mapped subdivision; and
(c) the quotient in (b) multiplied by the number of Lots
being acquired in the Option Parcel.
The Base Land Price will continue to increase, as described above, until all the
Property is purchased. If the Base Land Price decreases to $0 due to Third
Party Parcel sales pursuant to Section 9, each Option Parcel acquired by Inco
will be subject to a Parcel Note and Parcel Deed of Trust securing amounts due
to Optionor under Section 3.4(e).
[Example: If a subdivision consists of 25 acres encompassing 100 Lots, and
the Option Parcel encompasses 20 Lots of that subdivision, then the total
purchase price for the Option Parcel is $75,000 ($15,000 * 25 / 100 * 20 =
$75,000)].
3.1.1 The purchase price for the Lots listed on Exhibit "B" shall
be $2600 per Lot. Inco agrees that in Year 1, as part of the 60 minimum number
of Lots it will acquire, Inco will acquire all the finished Lots listed on
Exhibit "B".
-4-
<PAGE>
3.2 Option Fee. As consideration for granting the Option, during
----------
term of this Agreement, Inco shall pay directly, upon presentation of bills and
invoices therefor, all property taxes, insurance, maintenance and other costs
and expenses associated with the Property (the "Option Fee"). If Inco fails to
pay any portion of the Option Fee, Optionor will provide Inco with notice of its
failure to pay. If Inco fails to cure the deficiency in the Option Fee within
ten (10) days after receipt of such notice, Optionor will have the right to
terminate this Agreement and the Option granted herein by giving written notice
to Inco and Escrow Agent.
3.3 Acquisition of Lots. Upon the close of escrow for each
-------------------
Option Parcel, Inco shall execute a Parcel Note secured by a Parcel Deed of
Trust which shall encumber the Option Parcel to be purchased. Each Parcel Note
and Parcel Deed of Trust will be substantially the same as the forms attached
hereto as Exhibit C and D. Each Parcel Note will bear interest at the Parcel
Note Rate. Each Parcel Note will be payable as Homes close as provided in
Section 3.4 below and will be due in full within one year after the date of such
Parcel Note.
3.4 Allocation and Payment of Proceeds from Home Sales. On the
--------------------------------------------------
close of escrow by Inco for a Home to a buyer, the sale proceeds will be
allocated and paid from the Home sale escrow account as follows:
(a) to escrow and other parties entitled thereto: (i)
customary closing costs and title fees payable by Inco; and (ii) real estate
sales commissions payable by Inco, provided that sales commissions payable to
any real estate company affiliated with Inco shall not exceed 1.5% of the gross
sales price for the Home;
(b) to Inco's construction lender: the amount required under
the Construction Deed of Trust to release the Lot;
(c) to Optionor: the Base Release Price for the Lot, plus
interest accrued on that amount, at the Parcel Note Rate [example: If the Parcel
Note for a takedown of ten (10) Lots is a total of $37,500, then the release
price will be $3,750 per Lot ($37,500 / 10 = $3,750), plus a proportionate share
of any accrued interest on the Parcel Note];
(d) to Inco: an amount equal to the sum of (i) the increase
in the Base Land Price of the subject Lot from the Effective Date to the date of
the Parcel Note, and (ii) the interest paid to Optionor under 3.4(c) above
[example: If the Base Land Price as of the Effective Date is $2650 per Lot, the
Parcel Note is $3,750 per Lot, and the release price for the Lot is $4000, then
the amount disbursed to Inco under this provision is (i) $1,100, the difference
between the Base Land Price as of the Effective Date ($2650) and the Base
Release Price ($3750), plus (ii) $250, the difference between the total release
price for the Lot ($4000) and the Base Release Price ($3750), for a total of
$1350];
(e) the remainder shall be divided equally between Optionor
and Inco.
-5-
<PAGE>
Any amounts due under 3.4(d) will be noncumulative, except that amounts due
under 3.4(d) for each Option Parcel will accrue during the development and sale
----------------------
of Homes on that Option Parcel, and amounts due under 3.4(d) will be paid, if
funds are available, on subsequent closing of Homes in the Option Parcel.
[example for Section 3.4: If a home has a sale price of $103,000,
then the amounts due under this section 3.4 shall be disbursed as
follows: 3.4(a) closing costs and commissions ($5,000); 3.4(b) to
the construction lender, the release price under the construction
loan agreement ($80,000); 3.4(c) to the Optionor, the Base
Release Price ($3,750), plus accrued interest ($250) for a total
of $4,000; 3.4(d) to Inco an amount equal to the total release
price ($4,000), less the Base Land Price (as adjusted)($2,650),
for a total of $1,350; and 3.4(e) the remainder of $12,650
[$103,000-$5,000-$80,000-$4,000-$1,350 = $12,650] shall be
divided $6,325 to Optionor, and $6,325 to Inco].
3.5 Home Sales Prices and Sales Escrow. Optionor shall have the
----------------------------------
right to approve the Home sales price for each Home to be sold. Inco shall
furnish to Optionor copies of all of its instructions to escrow regarding the
sale of any Home. Inco shall also provide to Optionor copies of the escrow
settlement statements regarding each such sale which statements shall be
certified by the escrow agent to be true and correct. Inco's instructions to
each such escrow shall provide that Optionor's funds shall be segregated and
deposited in interest bearing accounts until disbursed as provided herein. Inco
shall not sell Homes in bulk and shall not sell Lots without homes without
Optionor's prior written consent.
3.6 Cash Paid for Option Parcel. If Inco pays cash to Optionor
---------------------------
at the close of escrow for an Option Parcel, Optionor will transfer the Option
Parcel subject to a Parcel Note and Parcel Deed of Trust securing amounts due to
Optionor under Section 3.4(f). All other provisions of this Agreement will
apply to the Option Parcel.
4. CONDITION OF PROPERTY; RIGHT OF ENTRY TO PROPERTY.
-------------------------------------------------
4.1 "AS IS" Condition. Inco's purchase of the Property shall
-----------------
be in AS-IS condition. Inco acknowledges that, except as specifically set forth
in this Agreement, no representations or warranties have been made or are made
and no responsibility has been or is assumed by Optionor or by any partner,
officer, person, firm, agent or representative acting or purporting to act on
behalf of Optionor as to the condition or repair of the Property or the value or
income potential thereof or as to any other fact or condition which has or might
affect the Property or the condition, repair, value, expense of operation or
Inco's ability to develop the Property or any portion thereof. Inco agrees that
all understandings and agreements heretofore made between Inco and Optionor or
their respective agents or representatives are merged in this Agreement and any
annexed hereto, which alone fully and completely express their agreement, and
that this Agreement has been entered into after full investigation, without Inco
relying upon any statement or representation by Optionor unless such statement
or representation is specifically embodied in this Agreement and any Exhibits
annexed hereto. Further, to the extent that
-6-
<PAGE>
Optionor has provided to Inco any information, including but not limited to
information from any inspection, engineering or environmental reports concerning
the condition of the Property, Optionor makes no representations or warranties
with respect to the accuracy or completeness of same or otherwise concerning the
content of such information or reports. Inco specifically acknowledges that as
the prior owner of the Property, it is familiar with the condition of the
Property. Inco further acknowledges that portions of the Property are graded,
portions are finished and portions are raw land, and that Optionor shall have no
duty or obligation to perform any work on the Property.
4.2 Right of Entry to Property. During the term of this
--------------------------
Agreement, Inco and its employees, agents, architects, engineers and independent
contractors shall have the right, at its own expense, to enter on the Property,
for the purpose of conducting inspections and necessary maintenance of the
Property. Inco and its employees, agents, architects, engineers and contractors
shall maintain public liability insurance against claims arising as a result of
Inco's entry upon the Property or its activities thereon. Prior to any such
entry, Inco shall provide to Seller a certificate of insurance evidencing the
existence of said insurance policies and naming Optionor as an additional
insured. Inco agrees to indemnify and hold Optionor harmless from and against
any and all costs, expenses, losses, attorneys' fees, liabilities (including,
but not limited to, claims or mechanic's liens) incurred or sustained by
Optionor or imposed on the Property, as a result of Inco's entry or acts. Inco
shall further indemnify and hold Optionor harmless from and against any and all
costs, expenses, losses and attorneys' fees incurred or sustained by Optionor as
a result of personal injury or death, property damage, or claims of any nature,
arising from, in connection with, or as a result of, Inco's entry onto or
activities on the Property. Inco will maintain sufficient liability insurance
for the Property during the term of this Agreement and name Optionor as an
additional insured.
5. ESCROW. The escrow agent for this transaction shall be First
------
American Title, Attn: Debbie Newton, 3625 14th Street, Riverside, California
92501 ("Escrow Agent"). Within two (2) business days after Optionor receives an
Option Parcel Notice from Inco, the parties shall open an escrow with Escrow
Agent by depositing a fully executed copy of this Agreement and the Option
Parcel Notice (said date being the "Opening of Escrow"). Inco and Optionor each
hereby agree to execute such additional escrow instructions, not inconsistent
with this Agreement, as Escrow Agent may reasonably require; provided, however,
that this Agreement shall constitute instructions to Escrow Agent and this
Agreement shall be enforceable regardless of whether the parties hereto execute
any additional escrow instructions. Such additional escrow instructions shall be
executed and returned by each party to Escrow Agent no later than ten (10)
business days after receipt thereof. In the event of any inconsistency between
any additional escrow instructions and this Agreement, the terms of this
Agreement shall supersede and govern.
6. PRELIMINARY TITLE REPORT. Optionor shall cause Escrow Agent to
------------------------
deliver to Inco, within ten (10) days after receiving an Option Parcel Notice, a
current preliminary title report ("Title Report") for the Option Parcel referred
to in the Option Parcel Notice. The Title Report shall show the status of title
to the Option Parcel as of the date of the report. The Title Report will be
deemed approved if the status of title is unchanged on and from the Effective
Date. Inco
-7-
<PAGE>
shall not object to any exceptions that appeared on the Title Report on or
before the Effective Date. At the close of escrow for each Option Parcel,
Optionor shall convey the Option Parcel to Inco by California Statutory Warranty
Deed, subject only to a Parcel Deed of Trust.
7. PAYMENT OF CLOSING COSTS AND PRORATIONS. Inco shall pay all closing
---------------------------------------
costs associated with each Option Parcel closing including, but not limited to,
the premium for Inco's title policy, all real property transfer taxes, recording
costs, Escrow Agent's escrow fee and Optionor's attorneys' fees, which
attorneys' fees will not exceed $1000 per Option Parcel. In addition, Inco will
pay Optionor's attorneys' fees, including Optionor's California attorneys' fees,
for negotiating and entering into this Agreement. Real property taxes shall be
prorated to the closing date for each Option Parcel, however, Inco acknowledges
that it will be responsible for paying the real property taxes on the Option
Parcel before the closing date for that Option Parcel as part of the Option Fee,
and after the closing date for the Option Parcel as owner of the Option Parcel.
Inco acknowledges that Optionor will not be responsible for any closing costs.
8. DEVELOPMENT OF PROPERTY.
-----------------------
8.1 Construction Financing. Inco shall obtain a construction
----------------------
loan for each Option Parcel on terms and conditions acceptable to Optionor. The
construction lender must be an institutional lender that provides bank type
financing terms. Inco will provide construction loan documents and cost
breakdowns for the construction loan with each Option Parcel Notice as described
in Section 2.2. Approval by Optionor of any construction lender and its
financing documents, including its Construction Deed of Trust, will not be
unreasonably withheld.
8.2 Parcel Deed of Trust. Upon approval of the construction
--------------------
financing by Optionor and after all conditions are satisfied for acquiring an
Option Parcel under this Agreement, Optionor agrees to record its Parcel Deed of
Trust in second position at the close of escrow for the Option Parcel
simultaneously behind a Construction Deed of Trust (approved by Optionor) for
the Option Parcel. Notwithstanding anything in this Agreement to the contrary,
the total number of Lots encumbered by Parcel Deed of Trusts can not exceed more
than 75 Lots at any one time, and to a maximum of 35 lots in any one
subdivision. (example: if Inco has outstanding Parcel Deeds of Trusts
encumbering 30 Lots in one subdivision and 30 Lots in another subdivision, Inco
will only be able to acquire a maximum of 15 Lots in a third subdivision).
8.3 Third Party Subcontractors and Review of Bids.Inco agrees
---------------------------------------------
that all work performed on the Property will be provided by third party
contractors and not by Inco. Optionor will have the right to review and approve
all bids for work on the Property.
8.4 Overhead and Marketing Costs. Inco may include in its
----------------------------
construction financing as a G&A line item an amount not to exceed 2% of the
construction costs for the development and construction of Homes on an Option
Parcel. Inco will be allotted a sum of $60,000 per year for supervision, plus
all direct on site project costs. Marketing fees and
-8-
<PAGE>
expenses will not exceed more than 3% of gross sales proceeds for any
subdivision and must be directly related to the subdivision or Eagle Ranch.
8.5 Books and Records. Inco shall: (a) maintain full and
-----------------
complete books of accounts and other records reflecting the results of its
operations in connection with the Property in accordance with generally accepted
accounting principles applied on a consistent basis; and (b) permit Optionor and
its agents, at any time and from time to time, to inspect and copy all such
books and records.
8.6 Inco's Development Indemnity. Inco expressly acknowledges
----------------------------
that, Inco shall independently prepare the Property for development and the
construction of on-site infrastructure improvements and structures, including,
without limitation, any and all necessary soils preparation. Optionor shall not
be directly or indirectly liable or responsible for any loss, claim, cause of
action, liability, indebtedness, damage or injury of any kind or character to
any person or property arising from the construction on, or occupancy or use of,
any of the Property, whether caused by, or arising from: (i) any defect in any
building, structure, soil condition, 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 Inco or any of Inco'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 Inco, any of Inco's licensees, employees, invitees,
agents, independent contractors or other representative to maintain any of the
Property in a safe condition; and (v) any nuisance made or suffered on any part
of the Property.
Inco shall indemnify, protect, defend (with counsel approved by Optionor),
and hold harmless Optionor, its directors, officers, members, managers, agents
and employees from any and all losses, damages, liabilities, actions, suits,
proceedings, claims, demands, assessments, judgements, costs and expenses
including reasonable attorneys' fees, arising from Inco's development of the
Property and construction of improvements and structures thereon. As used
herein, Inco's development and construction shall be deemed to include all such
work whether performed by Inco or any agent, contractor, subcontractor, employee
or other person or entity acting on behalf of Inco, as well as Inco's successors
in interest in the Property, or any agent, contractor, subcontractor, employee
or other person or entity acting on behalf of any successor in interest to Inco.
9. SALE OF PROPERTY BY OPTIONOR TO THIRD PARTIES.
---------------------------------------------
9.1 Third Party Parcel Sales. During the term of this
------------------------
Agreement, if approved in advance by Inco, Optionor may sell to a third party
buyer a Third Party Parcel.
9.2 Allocation and Payment of Proceeds from Third Party Parcel
----------------------------------------------------------
Sales. On the close of escrow by Optionor of a Third Party Parcel, the sale
- -----
proceeds will be allocated and paid (or accrue if amounts are not available)
from the Third Party Parcel sale escrow account as follows:
-9-
<PAGE>
(a) to escrow and other parties entitled thereto: (i)
customary closing costs and title fees payable by Optionor; and (ii) real estate
sales commissions payable by Optionor;
(b) to Optionor: (i) the remaining balance of Optionor's
Initial Property Price; and (ii) the increase in the Base Land Price on all the
Property, other than acquired Option Parcels, from the Effective Date to the
date of closing of the Third Party Parcel;
(c) to Inco: an amount equal to 9.2(b)(ii) above payable as
follows: (i) if funds are available, at close of escrow of the Third Party
Parcel; or (ii) if funds are not available, a credit for the amount will be
applied to the Accrued Escalation Account; and
(d) the remainder, if any, shall be divided equally between
Optionor and Inco.
9.3 Accrued Escalation Account. Any amount credited to the
--------------------------
Accrued Escalation Account pursuant to Section 9.2(c)(ii) is for accounting
purposes only. Amounts in the Accrued Escalation Account will be earned by Inco
only when paid pursuant to Section 9.4 below. If the Option is terminated for
any reason, no amounts will be due Inco from the Accrued Escalation Account from
and after the time the Option is terminated.
9.4 Payment of Accrued Escalation Account. Once the Base Land
-------------------------------------
Price decreases to $0, Inco will be paid the amount due in the Accrued
Escalation Account as follows:
(a) On Option Parcel purchases by Inco after amounts become
due in the Accrued Escalation Account, from the proceeds of Home sales in those
Option Parcels pursuant to Section 3.4, after amounts have been paid under
3.4(a) through 3.4(d); or
(b) On future Third Party Parcel sales, from the proceeds of
the Third Party Parcel sale pursuant to Section 9.2, after amounts have been
paid under 9.2(a) through 9.2(c).
[examples for Section 9.2: If the remaining balance of the Optionor's Initial
Property Price is $2,250,000, and the price escalation for all of the Optionor's
remaining property is $550,000 allocations under Section 9.2 shall be as
follows:
A. Example 1: If a portion of the Optionor's property is sold to a
third party for $1,750,000, then the entire amount (after closing
costs) shall be used to reduce the remaining balance of the Initial
Property Price.
B. Example 2: If a portion of the Optionor's property is sold to a
third party for $3,500,000, then the net proceeds (after closing
costs) shall be paid as follows: (1) under 9.2(b)(i) to Optionor to
pay the balance of the Initial Property Price ($2,250,000), (2)
under 9,2(b)(ii) to Optionor to pay the escalation amount for all of
the Optionor's property ($550,000), (3) under 9.2(c) to Inco, an
amount equal
-10-
<PAGE>
to the amount paid for the escalation amount for all the Optionor's
property ($550,000), (4) under 9.2(d) the remainder of $150,000
[$3,500,000-$2,250,000-$550,000-$550,000=$150,000] shall be divided
$75,000 to Optionor, and $75,000 to Inco.
C. Example 3: If a portion of the Optionor's property is sold to a
third party for $2,500,000, then the net proceeds (after closing
costs) shall be used paid (1) under 9.2(b)(i) to Optionor to pay the
balance of the Initial Property Price ($2,250,000), (2) under
9.2(b)(ii) to Optionor to reduce the escalation amount for all of
the Optionor's property ($250,000), (3) to Inco when earned pursuant
to Section 9.3 and 9.4, an amount accounted for in the Accrued
Escalation Account equal to the amount paid to reduce the escalation
amount for all the Optionor's property ($250,000) to paid pursuant
to Section 9.4].
10. SUCCESSORS AND ASSIGNS. Optionor and Inco agree that the terms and
----------------------
conditions of the Agreement shall be binding upon their respective heirs,
devisees, successors, and/or assignees. Optionor may assign this Agreement so
long as the assignee agrees, in writing for the benefit of Inco, to be bound by
the terms of this Agreement. Inco may not assign this Agreement.
11. FOREIGN INVESTMENT IN REAL PROPERTY TAX ACT. At or before the Close
-------------------------------------------
of Escrow, Optionor shall execute and deposit in escrow an appropriate FIRPTA
certificate, evidencing that Optionor is not subject to the FIRPTA withholding
requirements.
12. COUNTERPARTS; FAX DOCUMENTS. This Agreement, and any escrow
---------------------------
instructions, may be executed in one or more counterparts, each of which shall
be deemed an original, and such counterparts shall constitute one and the same
Agreement. Facsimile copies hereof, and facsimile signatures thereon, shall
have the same force, effect and legal status as originals thereof.
13. CALIFORNIA LAW. This Agreement, and the interpretation, validity,
--------------
performance and effect hereof, shall be governed by the laws of California.
Prior to the Effective Date, Inco shall provide Optionor an attorney opinion
letter verifying that this Agreement constitutes a valid, binding and
enforceable agreement between the parties under California law.
14. ADDITIONAL DOCUMENTS. Before, at and after the close of escrow, the
--------------------
parties hereby agree to execute, acknowledge and deliver such additional
documents and instruments as may be reasonably necessary to carry out the full
intent and purpose of this Agreement.
15. EVENTS OF DEFAULT, REMEDIES UPON DEFAULT AND EFFECT OF TERMINATION.
------------------------------------------------------------------
15.1 Events of Default. The occurrence of one or more of the
-----------------
following, whatever the reason therefor, shall constitute an Event of Default
hereunder:
-11-
<PAGE>
(a) Inco shall fail to purchase the minimum number of Lots
on or before the respective Closing Deadline for each year as set forth in the
Lot Schedule attached hereto as Exhibit B; or
(b) Inco shall fail to perform or observe any term,
covenant or agreement contained in this Agreement on its part to be performed or
observed, other than failure to purchase the minimum number of Lots covered by
Section 15.1(a) above, and such failure shall continue uncured as of thirty (30)
calendar days after written notice of such failure is given by Optionor to Inco;
provided, however, that if Inco has commenced to cure the default within said 30
day period and is diligently pursuing such cure, but the default is of such a
nature that it cannot be cured within thirty days, then the cure period shall be
extended for the number of days necessary to complete the cure, but in no event
shall the total cure period be longer than 60 days (the cure period set forth in
this Section 15.1(b) shall not apply to any other Events of Default); or
(c) Inco fails to pay any portion of the Option Fee, after
notice and opportunity to cure as allowed by Section 3.2; or
(d) Inco defaults, as defined therein, on any Parcel Note
or Parcel Deed of Trust.
15.2 Remedies Upon Default. Upon the occurrence of any Event of
---------------------
Default, in addition to any other remedy Optionor may have at law or in equity,
Optionor may, at its option, terminate the Option granted herein and retain all
sums paid by Inco hereunder, as and for Option consideration.
15.3 Effect of Termination. If Optionor elects to terminate the
---------------------
Option granted herein, Inco will not be able to acquire any additional Property
pursuant to this Agreement. However, Inco will be responsible to comply with
all remaining applicable provisions of this Agreement, including liability on
all outstanding Parcel Notes and Parcel Deeds of Trust until all amounts due
under each Parcel Note are paid in full.
16. NOTICES. Any and all notices, demands, or other communications
-------
("Notice") required or desired to be given hereunder by either party shall be in
writing and shall be validly given or made to the other party, if served either
personally, or if deposited in the United States mail, certified or registered,
postage prepaid, return receipt requested, or if sent by telecopy transmittal
("fax"). If Notice be served personally, service shall be conclusively deemed
made at the time of such personal service. Any Notice given by mail shall be
conclusively deemed given forty-eight (48) hours after the deposit thereof in
the United States mail addressed to the party to whom such Notice is to be given
as herein under set forth. Any Notice sent by fax shall be deemed received upon
fax confirmation transmission to the intended party.
-12-
<PAGE>
Any Notice sent to Optionor shall be addressed to:
c/o USA Commercial Real Estate Group
3900 Paradise Road, Suite 263
Las Vegas, Nevada 89121
Attn: Thomas Hantges
Fax No.: (702) 734-0163
With a simultaneous copy to:
Goold, Patterson, DeVore & Rondeau
Attn: Thomas J. DeVore
4496 South Pecos Road
Las Vegas, Nevada 89121
Fax No.: (702) 436-2650
Any notice sent to Inco shall be addressed to:
Inco Homes Corporation
1282 W. Arrow Highway
Upland, California 91786
Attn: Ira J. Norris
Fax No.: (909) 982-9784
Either party may change its address for the purpose of receiving Notices as
herein provided by written Notice given in the manner aforesaid to the other
party.
17. TIME OF ESSENCE. Time is of the essence of this Agreement and each
---------------
and every provision hereof.
18. ATTORNEYS' FEES. If any action at law or in equity, or any special
---------------
proceeding, be instituted by either party against the other to enforce this
Agreement or any rights arising hereunder, or in connection with the subject
matter hereof, the prevailing party shall be entitled to recover all costs of
suit and reasonable attorneys' fees.
19. BROKERS. Inco indemnifies and holds Optionor harmless from the
-------
claims of any broker, finder or middlemen retained by, or claiming through,
Inco.
-13-
<PAGE>
20. MODIFICATION OR AMENDMENTS. No amendment, change or modification of
--------------------------
this Agreement shall be valid unless in writing and signed by both parties
hereto.
21. RELATIONSHIP OF INCO AND OPTIONOR. The relationship of Optionor and
---------------------------------
Inco under this Agreement is, and shall at all times remain, solely that of
optionor and optionee, and Optionor neither undertakes nor assumes any
responsibility or duty to Inco or to any other person with respect to the
Property or the Option, except as expressly provided in this Agreement and
related documents referred to in this Agreement; and notwithstanding any other
provision of this Agreement: (i) Optionor is not, and shall not be construed
as, a partner, joint venturer, alter-ego, manager, controlling person or an
insider or other business associate or participant of Inco and Optionor does not
intend to ever assume such status; and (ii) Optionor shall not be deemed
responsible for or a participant in any acts, omissions or decisions of Inco.
22. ENTIRE AGREEMENT. This document constitutes a firm and binding
----------------
contract on the part of Inco and Optionor. If any provision of this Agreement
conflicts with any provision of the escrow instructions, this Agreement shall
prevail. This Agreement constitutes the entire agreement between the parties
pertaining to this transaction and supersedes any agreement (whether oral or
written), memoranda or letters of intent which may heretofore have been executed
by the parties. Any and all prior agreements, counteroffers, understandings,
negotiations, discussions and/or representations are hereby terminated and
cancelled, merged herein, and are of no further force or effect.
23. NO MEMORANDUM OF OPTION. Inco agrees that it will not record a
-----------------------
memorandum of option of this Agreement. If Inco records a memorandum of option
or any other document evidencing the terms of this Agreement, such recording
will constitute an Event of Default pursuant to Section 15 of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year written below.
OPTIONOR: INCO (OPTIONEE):
MET PARTNERS, LLC, a Nevada limited INCO HOMES CORPORATION, a
liability company Delaware corporation
By: By: /S/ Ira J. Norris
________________________________ --------------------------------
Lucius Blanchard, Manager Ira J. Norris, President
[Optionor Signatures Continued]
-14-
<PAGE>
PALOMINO PARTNERS LIMITED
PARTNERSHIP, a Nevada limited
partnership
By:___________________________________
Lucius Blanchard,President
of Nevada Skin and Cancer,
Lucius Blanchard, M.D. Chtd.,
its general partner
By:___________________________________
C.E. Newby, Trustee of the
Newby 1984 Trust, dated 3/19/84
By:___________________________________
Carole J. Newby, Trustee of the
Newby 1984 Trust, dated 3/19/84
By:___________________________________
Kim W. Gregory, Trustee of
the Gregory 1988 Trust
By:___________________________________
Debbie R. Gregory, Trustee of
the Gregory 1988 Trust
By:___________________________________
William P.J. Mahon, Trustee
of the William P.J. Mahon and
Kathleen M. Mahon Family Trust
______________________________________
Joseph D. Milanowski
-15-
<PAGE>
EXHIBIT "A"
PARCEL NO. A:
- -------------
LOTS 108, 112, 116, 119, 120, 122, 124, 125, 127, 129, AND 131 OF TRACT NO.
14793-3. IN THE CITY OF VICTORVILLE, COUNTY OF SAN BERNARDINO, STATE OF
CALIFORNIA, AS PER PLAT RECORDED IN BOOK 253 MAPS, PAGES 47 AND 48, INCLUSIVE,
RECORDS OF SAID COUNTY.
EXCEPTING THEREFROM ALL OIL, GAS AND OTHER HYDROCARBON SUB-STANCES. GEOTHERMAL
STEAMS, BRINES AND MATERIALS (HEREINAFTER COLLECTIVELY REFERRED TO AS THE
("MINERALS"), WHICH MAY BE FOUND ON, OR IN PLACE UNDER, OR IN MIGRATION IN OR
UNDER THE REAL PROPERTY WITHOUT RIGHT OF SURFACE ENTRY, TOGETHER WITH THE RIGHT
TO ENTER AND THE REAL PROPERTY BELOW A DEPTH OF 500 FEET OF THE SURFACE FOR THE
FOLLOWING PURPOSES:
(1) TO TEST, AT ANY TIME, FOR THE PRESENCE OF SAID MINERALS ANYWHERE IN OR UNDER
SAID REAL PROPERTY BELOW THE DEPTH OF 500 FEET OF THE SURFACE:
(2) TO CONSTRUCT, MAINTAIN AND USE WELLS, PUMPS, MINING SHAFTS AND DRILLING
EQUIPMENT UNDER SAID REAL PROPERTY BELOW A DEPTH OF 500 FEET OF THE SURFACE, TO
EXCAVATE, TO DRILL FOR, TO PUMP OR TO MINE SAID MINERALS FROM THE REAL PROPERTY,
OR FROM ANY PROPERTY, ADJOINING OR OTHERWISE, WHERE GRANTOR, OR ITS ASSIGNS, HAS
OR MAY IN THE FUTURE HAVE RESERVED OR OTHERWISE ACQUIRED, OR OWNS RIGHTS TO ANY
MINERALS. AS RESERVED IN THE DEEDS FROM INCO DEVELOPMENT, A CALIFORNIA
CORPORATION, RECORDED SEPTEMBER 28, 1987, INSTRUMENT NO. 87-346427, OFFICIAL
RECORDS, AND RECORDED JANUARY 19, 1988, INSTRUMENT NO. 88-015977, OFFICIAL
RECORDS: AND TO INCO HOMES CORPORATION BY DEED RECORDED JANUARY 12, 1994,
INSTRUMENT NO. 94-014694, OFFICIAL RECORDS.
PARCEL NO. B
- ------------
LOTS 1, 2, 4, 6, AND 17 TO 23, INCLUSIVE, TRACT NO. 13990, IN THE CITY OF
VICTORVILLE, IN THE COUNTY OF SAN BERNARDINO, STATE OF CALIFORNIA, AS PER PLAT
RECORDED IN BOOK 228 OF MAPS, PAGES 76 THROUGH 84, INCLUSIVE, RECORDS OF SAID
COUNTY.
EXCEPTING THEREFROM ANY PORTION OF SAID LOT 6 LYING WITHIN TRACT NO. 14686-1, IN
THE CITY OF VICTORVILLE, COUNTY OF SAN BERNARDINO, STATE OF CALIFORNIA, AS PER
PLAT RECORDED IN BOOK 253 OF MAPS, PAGES 94 TO 96, INCLUSIVE, RECORDS OF SAID
COUNTY.
ALSO, EXCEPTING THEREFROM ANY PORTION OF SAID LOT 6 LYING WITHIN TRACT NO.
14686-2, IN THE CITY OF VICTORVILLE, COUNTY OF SAN BERNARDINO, STATE OF
CALIFORNIA, AS PER PLAT RECORDED IN BOOK 253 OF MAPS, PAGES 97 TO 100,
INCLUSIVE, RECORDS OF SAID COUNTY.
ALSO EXCEPTING THEREFROM THAT PORTION OF LOT 2 CONVEYED TO ADELANTO SCHOOL
DISTRICT BY CORPORATION GRANT DEED RECORDED JUNE 20, 1994, INSTRUMENT NO.
94-274846, OFFICIAL RECORDS, DESCRIBED AS FOLLOWS:
<PAGE>
THE NORTHERLY PORTION OF LOT 2 OF TRACT NO. 13990, IN THE CITY OF VICTORVILLE,
COUNTY OF SAN BERNARDINO, STATE OF CALIFORNIA, AS PER PLAT RECORDED IN BOOK 228
OF MAPS, PAGES 76 TO 84, INCLUSIVE, RECORDS OF SAID COUNTY, MORE PARTICULARLY
DESCRIBED AS FOLLOWS:
BEGINNING AT THE CENTER 1/4 CORNER OF SECTION 27, TOWNSHIP 5 NORTH, RANGE 5
WEST SAN BERNARDINO BASE AND MERIDIAN, BEING THE INTERSECTION OF MESA LINDA
AVENUE AND LUNA ROAD CENTER LINES, ALSO BEING THE TRUE POINT OF BEGINNING:
THENCE SOUTH 89 DEG. 38 DEGREES 50" EAST, A DISTANCE OF 771.09 FEET: THENCE
SOUTH 00 DEG. 21 DEGREES 10" WEST, A DISTANCE OF 32.00 FEET: THENCE SOUTH 00
DEG. 14 DEGREES 43" WEST, A DISTANCE OF 597.95 FEET: THENCE NORTH 89 DEG. 38
DEGREES 50" WEST, A DISTANCE OF 728.28: THENCE NORTH 89 DEG. 49 DEGREES 23"
WEST, A DISTANCE OF 42.00 FEET: THENCE NORTH 00 DEG. 10 DEGREES 37" EAST, A
DISTANCE OF 630.08 ALONG THE CENTERLINE OF SAID MEAS LINDA AVENUE FEET TO THE
POINT OF BEGINNING.
EXCEPTING THEREFROM ALL OIL, GAS AND OTHER HYDROCARBON SUBSTANCES, GEOTHERMAL
STEAMS, BRINES AND MINERALS (HEREINAFTER COLLECTIVELY REFERRED TO AS THE
("MINERALS"), WHICH MAY BE FOUND ON, OR IN PLACE UNDER, OR IN MIGRATION IN OR
UNDER THE REAL PROPERTY WITHOUT RIGHT OF SURFACE ENTRY, TOGETHER WITH THE RIGHT
TO ENTER AND USE THE REAL PROPERTY BELOW A DEPTH OF 500 FEET OF THE SURFACE FOR
THE FOLLOWING PURPOSES:
(1) TO TEST, AT ANY TIME, FOR THE PRESENCE OF SAID MINERALS ANYWHERE IN OR UNDER
SAID REAL PROPERTY BELOW THE DEPTH OF 500 FEET OF THE SURFACE.
(2) TO CONSTRUCT, MAINTAIN AND USE WELLS, PUMPS, MINING SHAFTS AND DRILLING
EQUIPMENT UNDER SAID REAL PROPERTY BELOW A DEPTH OF 500 FEET OF THE SURFACE, TO
EXCAVATE, TO DRILL FOR, TO PUMP, OR TO MINE SAID MINERALS FROM THE REAL
PROPERTY, OR FROM ANY PROPERTY, ADJOINING OR OTHERWISE, WHERE GRANTOR, OR ITS
ASSIGNS, HAS OR MAY IN THE FUTURE HAVE RESERVED OR OTHERWISE ACQUIRED, OR OWNS
RIGHTS TO ANY MINERALS.
GRANTEE OR ITS ASSIGNS SHALL NOT HAVE THE RIGHT TO USE OR PENETRATE THE SURFACE
OF, OR ENTER UPON, THE REAL PROPERTY IN EXERCISE OF ITS OWN RIGHTS HEREUNDER,
FURTHER, GRANTEE OR ITS ASSIGNS SHALL NOT HAVE THE RIGHT TO REMOVE OR EXTRICATE
MINERALS WITHIN 500 FEET OF THE SURFACE OF SAID REAL PROPERTY, AS SAID MINERAL
RIGHTS WERE GRANTED TO INCO DEVELOPMENT, A CALIFORNIA CORPORATION, BY DEEDS
RECORDED SEPTEMBER 28, 1987, INSTRUMENT NO. 87-346427, OFFICIAL RECORDS, AND
JANUARY 19, 1988, INSTRUMENT NO. 88-015977, OFFICIAL RECORDS AND TO INCO HOMES
CORPORATION, A DELAWARE CORPORATION BY DEED RECORDED JANUARY 12, 1994,
INSTRUMENT NO. 94-01494, OFFICIAL RECORDS.
PARCEL NO. C
- ------------
LOT 15, TRACT NO. 13990, IN THE CITY OF VICTORVILLE, COUNTY OF SAN BERNARDINO,
STATE OF CALIFORNIA, AS PER PLAT RECORDED IN BOOK 223 OF MAPS, PAGES 76 TO 34.
INCLUSIVE, RECORDS OF SAID COUNTY: AND CERTIFICATE OF CORRECTION RECORDED
JANUARY 17, 1990, INSTRUMENT NO. 90-020927, OFFICIAL RECORDS.
EXCEPTING THEREFROM THOSE SECTIONS LYING WITHIN THE BOUNDARIES OF TRACT NO.
14062-2, IN THE CITY OF VICTORVILLE, COUNTY OF SAN BERNARDINO , STATE OF
CALIFORNIA, AS PER PLAT RECORDED IN BOOK 242 OF MAPS, PAGES 10 AND 11, RECORDS
OF SAID COUNTY.
<PAGE>
ALSO EXCEPTING THEREFROM THOSE PORTIONS LYING WITHIN THE BOUNDARIES OF TRACT NO.
14062-1, IN THE CITY OF VICTORVILLE, COUNTY OF SAN BERNARDINO, STATE OF
CALIFORNIA. AS PER FLAT RECORDED IN BOOK 229 OF MAPS, PAGES 8 THROUGH 16,
INCLUSIVE, RECORDS OF SAID COUNTY.
ALSO EXCEPTING THEREFROM ANY PORTION LYING WITHIN THE BOUNDARIES OF TRACT
NO.14062-3, IN THE CITY OF VICTORVILLE, COUNTY OF SAN BERNARDINO, STATE OF
CALIFORNIA. AS PER FLAT RECORDED IN BOOK 239 OF MAPS, PAGES 46 TO 49, INCLUSIVE,
RECORDS OF SAID COUNTY.
ALSO EXCEPTING THEREFROM ANY PORTION LYING WITHIN THE BOUNDARIES OF TRACT
NO.14062-6, IN THE CITY OF VICTORVILLE, COUNTY OF SAN BERNARDINO. STATE OF
CALIFORNIA. AS PER FLAT RECORDED IN BOOK 240 OF MAPS, PAGES 63 AND 64, RECORDS
OF SAID COUNTY.
ALSO EXCEPTING THEREFROM ANY PORTION LYING WITHIN THE BOUNDARIES OF TRACT
NO.14062-4, IN THE CITY OF VICTORVILLE, COUNTY OF SAN BERNARDINO, STATE OF
CALIFORNIA. AS PER FLAT RECORDED IN BOOK 246 OF MAPS, PAGES 34 TO 35, RECORDS OF
SAID COUNTY.
EXCEPTING THEREFROM ALL OIL, GAS AND OTHER HYDROCARBON SUBSTANCES, GEOTHERMAL
STEAMS, BRINES AND MINERALS (HEREINAFTER COLLECTIVELY REFERRED TO AS
"MINERALS"), WHICH MAY BE FOUND ON, OR IN PLACE UNDER, OR IN MIGRATION IN OR
UNDER THE REAL PROPERTY WITHOUT RIGHT OF SURFACE ENTRY. TOGETHER WITH THE RIGHT
TO ENTER AND USE THE REAL PROPERTY BELOW A DEPTH OF 500 FEET OF THE SURFACE FOR
THE FOLLOWING PURPOSES:
(1) TO TEST, AT ANY TIME FOR THE PRESENCE OF SAID MINERALS ANY WHERE IN OR UNDER
SAID REAL PROPERTY BELOW THE DEPTH OF 300 FEET OF THE SURFACE:
(2) TO CONSTRUCT, MAINTAIN AND USE WELLS, PUMPS, MINING SHAFTS AND DRILLING
EQUIPMENT UNDER SAID REAL PROPERTY BELOW A DEPTH OF 500 FEET OF THE SURFACE. TO
EXCAVATE, TO DRILL FOR, TO PUMP OR TO MINE SAID MINERALS FROM THE REAL PROPERTY,
OR FROM ANY PROPERTY, ADJOINING OR OTHERWISE, WHERE GRANTOR, OR ITS ASSIGNS, HAS
OR MAY IN THE FUTURE HAVE RESERVED OR OTHERWISE ACQUIRED, OR OWNS RIGHTS TO ANY
MATERIALS.
GRANTEE OR ITS ASSIGNS SHALL NOT HAVE THE RIGHT TO USE OR PENETRATE THE SURFACE
OF, OR ENTER UPON, THE REAL PROPERTY IN EXERCISE OF ITS RIGHTS HEREUNDER;
FURTHER, GRANTEE OR ITS ASSIGNS SHALL NOT HAVE THE RIGHT TO REMOVE OR EXTRICATE
MINERALS WITHIN 500 FEET OF THE SURFACE OF SAID REAL PROPERTY. AS SAID MINERAL
RIGHTS WERE GRANTED TO INCO DEVELOPMENT, A CALIFORNIA CORPORATION, BY DEEDS
RECORDED SEPTEMBER 28, 1987, INSTRUMENT NO. 87-346427, OFFICIAL RECORDS, AND
JANUARY 19, 1988, INSTRUMENT NO.88-015977, OFFICIAL RECORDS AND TO INCO HOMES
CORPORATION, A DELAWARE CORPORATION BY DEED RECORDED JANUARY 12, 1994,
INSTRUMENT NO. 94-014694, OFFICIAL RECORDS.
<PAGE>
PARCEL NO. D
- ------------
LOTS 5 AND 21, TRACT NO. 14686-1, IN THE CITY OF VICTORVILLE, COUNTY OF SAN
BERNARDINO, STATE OF CALIFORNIA. AS PER PLAT RECORDED IN BOOK 253 OF MAPS, PAGES
94 TO 96, INCLUSIVE, RECORDS OF SAID COUNTY.
EXCEPTING THEREFROM ALL OIL, GAS AND OTHER HYDROCARBON SUBSTANCES, GEOTHERMAL
STEAMS, BRINES AND MINERALS (HEREINAFTER COLLECTIVELLY REFERRED TO AS THE
"MINERALS"), WHICH MAY BE FOUND ON, OR IN PLACE UNDER, OR IN MIGRATION IN OR
UNDER THE REAL PROPERTY WITHOUT RIGHT OF SURFACE ENTRY, TOGETHER WITH THE RIGHT
TO ENTER AND USE THE REAL PROPERTY BELOW A DEPTH OF 500 FEET OF THE SURFACE FOR
THE FOLLOWING PURPOSES:
(1) TO TEST, AT ANY TIME, FOR THE PRESENCE OF SAID MINERALS ANYWHERE IN OR UNDER
SAID REAL PROPERTY BELOW THE DEPTH OF 500 FEET OF THE SURFACE:
(2) TO CONSTRUCT, MAINTAIN AND USE WELLS, PUMPS, MINING SHAFTS AND DRILLING
EQUIPMENT UNDER SAID REAL PROPERTY BELOW A DEPTH OF 500 FEET OF THE SURFACE. TO
EXCAVATE, TO DRILL FOR, TO PUMP, OR TO MINE SAID MINERALS FROM THE REAL
PROPERTY, OR FROM ANY PROPERTY, ADJOINING OR OTHERWISE, WHERE GRANTOR, OR ITS
ASSIGNS, HAS OR MAY IN THE FUTURE HAVE RESERVED OR OTHERWISE ACQUIRED, OR OWNS
RIGHTS TO ANY MINERALS.
GRANTEE OR ITS ASSIGNS SHALL NOT HAVE THE RIGHT TO USE OR PENETRATE THE SURFACE
OF, OR ENTER UPON, THE REAL PROPERTY IN EXERCISE OF ITS RIGHTS HEREUNDER;
FURTHER, GRANTOR OR ITS ASSIGNS SHALL NOT HAVE THE RIGHT TO REMOVE OR EXTRICATE
MINERALS WITHIN 500 FEET OF THE SURFACE OF SAID REAL PROPERTY, AS SAID MINERAL
RIGHTS WERE GRANTED TO INCO DEVELOPMENT, A CALIFORNIA CORPORATION, BY DEEDS
RECORDED SEPTEMBER 28, 1987, INSTRUMENT NO.87-36427, OFFICIAL RECORDS, AND IN
JANUARY 19, 1988 INSTRUMENT NO.33-015977, OFFICIAL RECORDS AND TO INCO HOMES
CORPORATION, A DELAWARE CORPORATION BY DEED RECORDED JANUARY 12, 1994,
INSTRUMENT N0.94-014694, OFFICIAL RECORDS.
PARCEL NO. E
- ------------
LOTS 23 TO 42, INCLUSIVE, TRACT NO.14636-2, IN THE CITY OF VICTORVILLE, COUNTY
OF SAN BERNARDINO, STATE OF CALIFORNIA, AS PER PLAT RECORDED IN BOOK 253 OF
MAPS. PAGES 97 TO 100, INCLUSIVE, RECORDS OF SAID COUNTY.
EXCEPTING THEREFROM ALL OIL, GAS AND OTHER HYDROCARBON SUBSTANCES, GEOTHERMAL
STEAMS, BRINES AND MINERALS (HEREINAFTER COLLECTIVELLY REFERRED TO AS THE
"MINERALS"), WHICH MAY BE FOUND ON, OR IN PLACE UNDER, OR IN MIGRATION IN OR
UNDER THE REAL PROPERTY WITHOUT RIGHT OF SURFACE ENTRY, TOGETHER WITH THE RIGHT
TO ENTER AND USE THE REAL PROPERTY BELOW A DEPTH OF 500 FEET OF THE SURFACE FOR
THE FOLLOWING PURPOSES:
(1) TO TEST, AT ANY TIME, FOR THE PRESENCE OF SAID MINERALS ANYWHERE IN OR UNDER
SAID REAL PROPERTY BELOW THE DEPTH OF 500 FEET OF THE SURFACE:
<PAGE>
(2) TO CONSTRUCT, MAINTAIN AND USE WELLS, PUMPS, MINING SHAFTS AND DRILLING
EQUIPMENT UNDER SAID REAL PROPERTY BELOW A DEPTH OF 500 FEET OF THE SURFACE. TO
EXCAVATE, TO DRILL FOR, TO PUMP, OR TO MINE SAID MINERALS FROM THE REAL
PROPERTY, OR FROM ANY PROPERTY, ADJOINING OR OTHERWISE. WHERE GRANTOR, OR ITS
ASSIGNS, HAS OR MAY IN THE FUTURE HAVE RESERVED OR OTHERWISE ACQUIRED, OR OWNS
RIGHTS TO ANY MINERALS.
GRANTEE OR ITS ASSIGNS SHALL NOT HAVE THE RIGHT TO USE OR PENETRATE THE SURFACE
OF, OR ENTER UPON, THE REAL PROPERTY IN EXERCISE OF ITS RIGHTS HEREUNDER:
FURTHER, GRANTEE OR ITS ASSIGNS SHALL NOT HAVE THE RIGHT TO REMOVE OR EXTRICATE
MINERALS WITHIN 500 FEET OF THE SURFACE OF SAID REAL PROPERTY, AS SAID MINERAL
RIGHTS WERE GRANTED TO INCO DEVELOPMENT. A CALIFORNIA CORPORATION, BY DEEDS
RECORDED SEPTEMBER 28,1987, INSTRUMENT NO. 87-346427 OFFICIAL RECORDS, AND
JANUARY 19, 1988, A DELAWARE CORPORATION BY DEED RECORDED JANUARY 12,1994,
INSTRUMENT N0. 94-014694 OFFICIAL RECORDS.
PARCEL NO. F
- ------------
LOTS 108, 113, 114, 116 AND 117 OF TRACT NO. 14062-1, IN THE CITY OF
VICTORVILLE, COUNTY OF SAN BERNARDINO, STATE OF CALIFORNIA , AS PER PLAT
RECORDED IN BOOK 229 OF MAPS, PAGES 8 THROUGH 16, INCLUSIVE, RECORDS OF SAID
COUNTY.
PARCEL NO. G
- ------------
PARCEL 2 AS SHOWN ON PARCEL MAP 143, PAGES 77-79, IN THE OFFICE OF THE COUNTY
RECORDED, COUNTY OF SAN BERNARDINO, STATE OF CALIFORNIA.
<PAGE>
EXHIBIT "B"
LOT SCHEDULE
<TABLE>
<CAPTION>
================================================================================
YEAR MINIMUM CLOSING DEADLINE
NUMBER OF LOTS
- --------------------------------------------------------------------------------
<S> <C> <C>
1 60* 12 months from
the Effective Date
- --------------------------------------------------------------------------------
2 120 24 months from
the Effective Date
- --------------------------------------------------------------------------------
3 and after 180 per year 36 months from
the Effective Date
for year 3, 48
months for year 4,
etc.
================================================================================
</TABLE>
* Inco agrees that in Year 1, as part of the minimum number of Lots it will
acquire, Inco will purchase the following finished Lots:
LOTS 108, 112, 116, 119, 120, 122, 124, 125, 127, 129 AND 131 OF TRACT NO.
14793-3, IN THE CITY OF VICTORVILLE, COUNTY OF SAN BERNARDINO, STATE OF
CALIFORNIA, AS PER PLAT RECORDED IN BOOK 253 OF MAPS, PAGES 47 AND 48,
INCLUSIVE, RECORDS OF SAID COUNTY.
LOTS 5 AND 21, TRACT NO. 14686-1 IN THE CITY OF VICTORVILLE, COUNTY OF SAN
BERNARDINO, STATE OF CALIFORNIA, AS PER PLAT RECORDED IN BOOK 253 OF MAPS, PAGES
94 TO 96, INCLUSIVE, RECORDS OF SAID COUNTY.
LOTS 108, 113, 114, 116 AND 117 OF TRACT NO. 14062-1, IN THE CITY OF
VICTORVILLE, COUNTY OF SAN BERNARDINO, STATE OF CALIFORNIA, AS PER PLAT RECORDED
IN BOOK 229 OF MAPS, PAGES 8 THROUGH 16, INCLUSIVE, RECORDS OF SAID COUNTY.
-17-
<PAGE>
EXHIBIT C
PURCHASE MONEY PROMISSORY NOTE
SECURED BY DEED OF TRUST
$_______________ Victorville, CA
____________, 199___
This Promissory Note ("Note"), dated as of ______________, 199__ is made
and delivered by INCO HOMES CORPORATION, a Delaware corporation ("Maker"),
in favor of__________________________________________________________________
(collectively, "Holder"). This Note is executed in accordance with the
Residential Property Option Agreement, dated June ___, 1997, by and between
Maker and Holder (the "Option Agreement"). Capitalized terms used herein and
not otherwise defined herein are used with the meanings given them in the Option
Agreement.
FOR VALUE RECEIVED, Maker promises to pay to Holder, or order, the
principal sum of ______________________________________ Dollars($______________)
(the "Note Amount"), 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 Holder
until the date the Note Amount is paid in full, at the rate of fifteen percent
(15%) 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. Payments hereunder shall be made from each home sale
--------
escrow upon the sale of any home encumbered by the Deed of Trust. The Base
Release Price for each Lot is listed on Exhibit "A" attached hereto. In
accordance with Section 3.4 of the Option Agreement, Holder shall receive the
Base Release Price for each Lot released, together with the amount of interest
accrued hereunder on that Base Release Price Amount from the date hereof though
the release date. In addition, this Note shall evidence, and the Deed of Trust
shall secure, the payment of all other amounts due Holder under Section 3.4 of
the Option Agreement. All payments shall be made in lawful money of the United
States of America and in immediately available funds at Holder's office, the
address for which is specified below, or at such other place as the Holder
hereof may from time to time direct by written notice to Maker.
3. Maturity Date. If not sooner paid, the outstanding principal
-------------
balance under this Note, all accrued and unpaid interest, and all other
indebtedness of Maker owing under any and all of the Loan Documents shall be due
and payable in full on or before the date which is one (1) year after the date
hereof (the "Maturity Date").
4. Application of Payments. All payments on this Note shall, at the
-----------------------
option of the Holder hereof, be applied first to all costs and expenses of
Holder which accrue pursuant to the term and conditions hereof, then to the
payment of accrued interest then payable.
<PAGE>
5. Prepayment. Maker agrees that all loan fees and any prepaid finance
----------
charges are fully earned as of the date hereof and will not be subject to refund
upon early payment (whether voluntary or as a result of default). Subject to the
foregoing, at any time prior to the Maturity Date, Maker may prepay this Note in
full only.
6. Collateral. This Note is secured by a deed of trust ("Deed of
----------
Trust") encumbering real property located in San Bernardino County, California.
7. Defaults; Acceleration. The occurrence of any Event of Default (as
----------------------
hereinafter defined) shall be a default hereunder. Upon the 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
Maker 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, upon demand by Holder, any amount due
pursuant to this Note; or
(b) Maker shall fail to perform or observe any term, covenant or
agreement contained in this Note or the Deed of Trust 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 made by Maker to Holder 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, as the case
may be, 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,
-2-
<PAGE>
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
(f) there shall occur a material adverse change in the financial
condition of Maker from its financial conditions as of the date of this Note, as
determined by Holder in its reasonable discretion; or
(g) any Loan Document, at any time after its execution and delivery
and for any reason other than the agreement of Holder or the satisfaction in
full of all indebtedness and obligations of Maker 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 Maker or any trustee, officer, director,
shareholder or partner of any entity comprising Maker claims that any Loan
Document is ineffective or unenforceable, in whole or in part, or denies any or
further liability or obligation under any Loan Document, unless all indebtedness
and obligations of Maker thereunder have been fully paid and performed; or
(h) an Event of Default shall occur under (i) the Option Agreement,
(ii) any other Note or Deed of Trust executed by Maker in favor of Holder, or
(iii) any other Agreement between Holder to Maker.
8. 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 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, Maker 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, 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 the performance of the obligation 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 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 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
-3-
<PAGE>
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.
9. 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 percent (20%)
per annum ("Default Rate"). Such interest shall be paid on the first day of each
month thereafter, or on demand if sooner demanded.
10. Waivers. Maker waives any right of offset it now has or may
-------
hereafter have against the Holder hereof and its successors and assigns. Maker
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. Maker 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 Maker hereunder. Any delay on
Holder's part in exercising any right hereunder or under any of the Loan
Documents shall not operate as a waiver. Holder's acceptance of partial or
delinquent payments or the failure of Holder to exercise any rights shall not
waive any obligation of Maker or any right of Holder, or modify this Note, or
waive any other similar default.
11. Costs of Collection. Maker 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 Maker, including but not
limited to actual attorneys' fees. If any suit or action is instituted to
enforce this Note, Maker 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.
12. Usury. Maker hereby represents that this loan is for commercial use
-----
use and not for personal, family or household purposes. Maker further
represents that transaction evidenced hereby was arranged for Maker by a
California licensed real estate broker and is thus exempt from the usury
limitations contained in Article XV of the California Constitution, and Maker
hereby waives any defense has or may hereafter have, to the payment of any
amount due hereunder based on any usury limitation. It is the specific intent
of the Maker and Holder that this Note bear a lawful rate of interest, and if
any court of competent jurisdiction should determine that such exemption does
not apply and 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 Maker upon written demand.
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<PAGE>
13. Notices. All notices to be given pursuant to this Note 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 guaranteed overnight delivery service, the date of sending
the telex, telecopy or telegram or two (2) days after mailing certified or
registered mail.
Maker's Address: Inco Homes Corporation
1282 West Arrow Highway
Upland, CA 91786
Attn: Ira Norris
Holder's Address c/o MET Partners, LLC
3900 Paradise Road, Suite 263
Las Vegas, Nevada 89109
With Duplicate
Notice To: Goold, Patterson, DeVore & Rondeau
4496 South Pecos Road
Las Vegas, Nevada 89121
Attn: Thomas J. DeVore, Esq.
14. 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.
15. Multiple Parties. A default on the part of any one entity
----------------
comprising Maker or any Guarantor of this Note shall be deemed a default on the
part of Maker hereunder.
16. Construction. This Note shall be governed by and construed in
------------
accordance with the laws of the State of California. This Note and all security
documents and guaranties executed in connection with this Note have been
reviewed and negotiated by Maker, Holder and Guarantors 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.
17. 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 enforceability of the remaining
terms hereof. No such determination in one
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<PAGE>
jurisdiction shall affect any provision of this Note to the extent it is
otherwise enforceable under the laws of any other applicable jurisdiction.
"Maker":
Inco Homes Corporation, a
Delaware corporation
By:______________________
Ira Norris, President
<PAGE>
EXHIBIT D
Recording Requested By, and
When Recorded Return To:
Goold, Patterson, DeVore &
Rondeau
4496 So. Pecos Road
Las Vegas, Nevada 89121
_______________________________________________________________________________
PURCHASE MONEY 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 _____ day of______________, 199___, by INCO
HOMES CORPORATION, a Delaware corporation ("Trustor"), to FIRST AMERICAN TITLE
INSURANCE COMPANY, a California corporation ("Trustee"), for the benefit of
_____________________________________________________________________________
("Beneficiary"). This Deed of Trust is executed in accordance with the
Residential Property Option Agreement, dated June ___, 1997, by and between
Trustor and Beneficiary (the "Option Agreement"). Capitalized terms used herein
and not otherwise defined herein are used with the meanings given them in the
Option Agreement.
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
Trustor's Promissory Note of even date herewith in the initial principal amount
of _____________________________________________________________ Dollars
($_________________) (the "Note"), together with interest thereon specified
therein, payable 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, 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
<PAGE>
3. The due, prompt and complete observance, performance and discharge
of each and every obligation, covenant and agreement of Trustor contained in the
Option Agreement, The Note or this Deed of Trust or any other document
evidencing the indebtedness secured hereby (collectively, the "Documents");
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 Clark County, State of
Nevada 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, 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 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,
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<PAGE>
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 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
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<PAGE>
"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 Option Agreement, the Note, this Deed of Trust or any other 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.
ARTICLE 1
TRUSTOR'S COVENANTS
-------------------
Trustor covenants, warrants and agrees with Trustee and Beneficiary as
follows:
1.1 Payment of Note. Trustor shall fully pay the principal and interest
---------------
and other sums coming due with respect to the Note, this Deed of Trust or any of
the 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 approved by Beneficiary; that Trustor has full
power and authority to grant, bargain, sell and
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<PAGE>
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,
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 Trustor'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 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 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
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<PAGE>
State of Nevada, 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, 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 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 workmanlike manner any Improvements which may be
damaged or destroyed there on, 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. The Trustor shall at all times maintain the following
---------
policies of insurance:
(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 Trustor
(and naming the Beneficiary as an additional insured) in an aggregate amount not
less than $2,000,000.00 (or
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<PAGE>
such greater amount as may be specified by the Beneficiary 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
Beneficiary 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 Trustor shall also cause the Contractor and each subcontractor to
maintain a policy of commercial general liability insurance and, upon request by
the Beneficiary, 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 Beneficiary
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 Unit against flood loss risk to the maximum
available policy amount if the Land is located in a Flood Hazard Area, and shall
name the Beneficiary 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 Beneficiary. All insurance policies and certificates
evidencing such policies shall be in form and substance and issued by insurers
reasonably satisfactory to the Beneficiary, and shall contain such deductible
and such endorsements as the Beneficiary may reasonably require. Upon request
by the Beneficiary from time to time, the Trustor shall deliver to the
Beneficiary originals or copies of all such insurance policies and certificates
evidencing such policies.
1.8 Casualty. The Trustor will give the Beneficiary prompt notice of
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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, the 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 indebted ness secured
hereby then most remotely to be paid. If the Beneficiary shall require that the
Improvements be repaired or rebuilt then the repair, restoration, replacement or
rebuilding of the
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<PAGE>
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 Option Agreement, the Note or this Deed of Trust or any
other Document at the time of each such disbursement), in the manner determined
by Beneficiary. The Beneficiary may require that plans and specifications for
the restoration, repair, replacement or rebuilding be submitted to and approved
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 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
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,
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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.
1.11 Sale of Premises or Additional Financing Not Permitted. Trustor
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specifically agrees that:
(a) In order to induce Beneficiary to accept this Deed of Trust,
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 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
Mortgaged Property whether or not of record, or (b) change in the form of entity
or ownership (including the hypothecation or encumbrance thereof) of the stock
or any other ownership interest in Trustor shall be deemed a transfer of an
interest in the Mortgaged 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 request Beneficiary 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
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
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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,
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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
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shall constitute a Security Agreement and a Construction Mortgage as those terms
are defined in the Nevada Uniform Commercial Code with respect to all of those
portions of the Mortgaged Property which constitute personal property or
fixtures governed by the Nevada 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
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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 Nevada 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: Trustor
Address of Debtor: See Section 5.12
Name of Secured Party: Beneficiary
Address of Secured Party: See Section 5.12
1.15 Management. The Trustor agrees that the Beneficiary shall have and
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reserves the right to install professional management of the Mortgaged Property
upon the occurrence of an Event of Default as defined herein. Such installation
shall be at the sole discretion of the Beneficiary and nothing herein shall
obligate the Beneficiary to exercise its right to install professional
management. The cost of such management shall be borne by Trustor and shall be
treated as an Advance under Section 1.16. 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
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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 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.
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1.19 Records. The Trustor agrees to keep adequate books and records of
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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 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
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<PAGE>
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," as defined below.
The occurrence of any one or more of the following, whatever the reason
therefor, shall constitute an "Event of Default" hereunder:
(a) Trustor shall fail to pay, when due, any amount due pursuant to
the Note; or
(b) Trustor shall fail to perform or observe any term, covenant or
agreement contained in the Note, this Deed of Trust 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 Beneficiary to Trustor (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 any of the Documents proves
incorrect or to have been incorrect in any material respect when made; or
(d) Trustor (which term shall include any entity comprising
Trustor) is dissolved or liquidated, or otherwise ceases to exist, or all or
substantially all of the assets of Trustor are sold or otherwise transferred
without Beneficiary's written consent; or
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<PAGE>
(e) Trustor 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 Trustor 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 Trustor or, as the
case may be, and the appointment continues undischarged or unstayed for thirty
(30) calendar days; or Trustor 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 Trustor, as the case may be, 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 Trustor,
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 Trustor from their respective financial conditions as of the date
of this Note, as determined by Beneficiary in its reasonable discretion; or
(g) any Document, at any time after its execution and delivery and
for any reason other than the agreement of Beneficiary or the satisfaction in
full of all indebtedness and obligations of Trustor under the Documents, ceases
to be in full force and effect or is declared to be null and void by a court of
competent jurisdiction; or Trustor or any trustee, officer, director,
shareholder or partner of any entity comprising Trustor claims that any Document
is ineffective or unenforceable, in whole or in part, or denies any or further
liability or obligation under any Document, unless all indebtedness and
obligations of Trustor thereunder have been fully paid and performed; or
(h) an Event of Default shall occur under any other loan made by
Beneficiary to Trustor.
ARTICLE 3
REMEDIES
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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
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Document shall become and 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 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 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
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<PAGE>
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 Uniform Commercial Code of Nevada, 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.
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 Nevada 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 Nevada:
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(i) 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 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 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
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<PAGE>
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 Section
40.462 of the Nevada Revised Statutes.
(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 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 Sales of Lots. In the event the Beneficiary shall institute
-------------
judicial proceedings to foreclose the lien hereof, and shall be appointed as
mortgagee-in-possession of the Mortgaged Property, the Beneficiary during such
time as it shall be mortgagee-in-possession of the Mortgaged Property pursuant
to an order or decree entered in such judicial proceedings, shall have, and the
Trustor hereby gives and grants to the Beneficiary, the right, power and
authority to sell any of the Lots for such prices and upon conditions and
provisions as such mortgagee-in-possession may deem desirable. Trustor expressly
acknowledges and agrees that while the Beneficiary is a mortgagee-in-possession
of the Mortgaged Property pursuant to an order or decree entered in such
judicial proceedings, such Beneficiary shall be deemed to be and shall be
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<PAGE>
the attorney-in-fact of the Trustor for the purpose of selling the Lots for the
prices and upon the terms, conditions and provisions deemed desirable to such
Beneficiary and with like effect as if such sales of Lots had been made by the
Trustor as the owner in fee simple of the Mortgaged Property free and clear of
any conditions or limitations established by this Deed of Trust. The power and
authority hereby given and granted by the Trustor to Beneficiary shall be deemed
to be coupled with an interest and shall not be revocable by Trustor.
3.9 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.
3.10 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.
3.11 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.
3.12 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.
3.13 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
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<PAGE>
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.
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<PAGE>
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 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.
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<PAGE>
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 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.
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<PAGE>
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 "Beneficiary" shall mean the
holder and owner, including pledges, 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 shall be construed according to
-------------
and governed by the laws of the State of Nevada.
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 the Note): (a) the
interpretation, performance or enforcement thereof; (b) the enforcement of any
statute, regulation or judicial decision; (c) any collection effort; or (d) any
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<PAGE>
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 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 the Note, 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 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
1282 West Arrow Highway
Upland, CA 91786
Attn: Ira Norris
BENEFICIARY'S
ADDRESS: c/o MET Partners, LLC
3900 Paradise Road, Suite 263
Las Vegas, Nevada 89109
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<PAGE>
WITH DUPLICATE
NOTICE TO: Goold, Patterson, DeVore & Rondeau
4496 South 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.
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 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 Documents must be made for the full text of such provisions.
5.16 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.
5.17 Partial Release of Lots. Provided no Event of Default, or event
-----------------------
which with the giving of notice and passage of time would become an Event of
Default, has occurred and is continuing, Beneficiary shall release individual
Lots from the lien and operation of this Deed of Trust upon the satisfaction, in
a manner acceptable to Beneficiary, of the following conditions:
(a) The payment to Beneficiary of the Base Release Price for the Lot to
be released,as set forth on Exhibit "B" attached hereto, together with the
interest accrued on that Base Release Price pursuant to the Note;
(b) The payment to Beneficiary of all other amounts due Beneficiary
pursuant to Section 3.4 of the Option Agreement; and
(c) Trustor pays all reconveyance fees and all other fees (including
attorneys' fees) and costs incurred by Beneficiary in processing the partial
release.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this instrument to be
signed as of the date first above written.
"TRUSTOR":
Inco Homes Corporation, a California
corporation
By:__________________________________
Ira Norris,
President
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<PAGE>
STATE OF ______________ )
)ss.
COUNTY OF _____________ )
On ________________________________, 1997, before me,_____________________,
a Notary Public, personally appeared Ira Norris, personally known to me (or
----------
proved to me on the basis of satisfactory evidence) to be the person whose name
is subscribed to the within instrument and acknowledged to me that he/she
executed the same in his/her authorized capacity, and by his/her signature on
the instrument the person, or entity on behalf of which the person acted,
executed the instrument.
WITNESS my hand and official seal.
_____________________________
Notary Public
(SEAL) (My Commission Expires:______)
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<PAGE>
EXHIBIT "A"
DESCRIPTION OF REAL PROPERTY
----------------------------
<PAGE>
EXHIBIT "B"
BASE RELEASE PRICES
-------------------
LOT PRICE
- --- -----
<PAGE>
EXHIBIT 10.10
ESTOPPEL CERTIFICATE
Inco Homes Corporation, a Delaware corporation ("Inco"), and Overland
Opportunity Fund, LLC, a California limited liability company ("Overland"),
hereby represent and certify, for the reliance and benefit of Buyers (set forth
in Exhibit "A"), as follows:
1. Inco, as owner, and Overland, as optionee, have entered into that
certain Option Agreement dated December 26, 1996 ("Option Agreement"), and the
Option Agreement only pertains to and encumbers that certain real property
consisting of approximately 71 acres of commercial property described as Lots
20, 21, 22 and 23 in Tract No. 13990, City of Victorville, County of San
Bernardino, State of California, as per Plat recorded in Book 228 of Maps, Pages
76 through 84, inclusive, records of said county (the "Property"). A true and
correct copy of the Option Agreement is attached hereto as Exhibit "B".
2. The term of the Option Agreement has commenced and the Option
Agreement is in full force and effect.
3. There is no existing default on the part of either party to the Option
Agreement. There is no state of facts, which with notice or the passing of
time, or both, that could ripen into a default of either Inco or Overland under
the Option Agreement.
4. There have been no modifications to the Option Agreement, either in
writing, by oral agreement, or by course of dealing between Inco and Overland.
5. Overland acknowledges that Inco has sold the Property, along with
other property, to Buyers pursuant to that certain Agreement for Purchase of
Real Property dated June _____, 1997.
6. The Notice provisions in the Option Agreement remain unchanged,
however, all future Notices to Owner under the Option Agreement will be directed
as follows:
c/o USA Commercial Real Estate Group
3900 Paradise Road, Suite 263
Las Vegas, Nevada 89121
Attn: Thomas Hantges
Fax No.: (702) 734-0163
With a simultaneous copy to:
Goold, Patterson, DeVore & Rondeau
Attn: Thomas J. DeVore
4496 South Pecos Road
Las Vegas, Nevada 89121
Fax No.: (702) 436-2650
<PAGE>
7. This Estoppel Certificate may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
DATED this 11th day of June, 1997.
INCO HOMES CORPORATION OVERLAND OPPORTUNITY FUND,
LLC
By: /s/ Ira C. Norris By: FRED E. LIAO
------------------------------ ---------------------------------
Ira C. Norris, President
Its: Managing Member
--------------------------------
2
<PAGE>
EXHIBIT "A"
BUYERS
------
1. MET PARTNERS, LLC, a Nevada
limited liability company
2. PALOMINO PARTNERS LIMITED
PARTNERSHIP, a Nevada limited
partnership
3. C.E. Newby and Carole J. Newby,
Trustees of the Newby 1984 Trust,
dated 3/19/84
4. Kim W. Gregory and Debbie R. Gregory,
Trustees of the Gregory 1988 Trust
5. William P.J. Mahon, Trustee of the
William P.J. Mahon and Kathleen M.
Mahon Family Trust
6. Joseph D. Milanowski
3
<PAGE>
EXHIBIT 10.11
PLACEMENT AGREEMENT
This Agreement is entered into as of June 12, 1997, by and between INCO
HOMES CORPORATION, a Delaware corporation ("Inco"), and USA COMMERCIAL REAL
ESTATE GROUP, a Nevada corporation ("USA"), with reference to the following
facts:
RECITALS
A. USA, in association with Ira J. Norris, a California licensed real
estate broker, has arranged for Inco, an option (the "Option") to purchase
certain real property located in Victorville, California, pursuant to a
Residential Property Option Agreement dated June ___, 1997 (the "Option
Agreement") from certain individual owners-as tenants in common (collectively,
Optionor") .
B. In connection with the Option, Inco has agreed to pay a fee to USA
(the "Fee") in the amount of One Thousand Dollars ($1000) per Home from Inco's
sale proceeds on the close of escrow of each Home (as defined in Section 3.4 of
the Option Agreement).
C. Parties hereto wish to agree as to the terms and conditions for the
payment of the 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 the Fee. Inco shall pay the Fee to USA from Inco's
------------------
sale proceeds for each Home sold on the Property. Said Fee shall be paid to USA
directly from the closing escrow.
2. Inco's Liability for Fee. Inco will only be responsible for the
------------------------
Fee on Home sales on Property Inco acquires from Optionor pursuant to the Option
Agreement.
3. 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 suits.
<PAGE>
(e) This Agreement shall inure to the benefit of the parties
hereto and their respective heirs, successors and signs.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first set forth above.
Inco: USA:
Inco Homes Corporation, USA Commercial Real Estate Group,
a Delaware corporation a Nevada Corporation
By: /s/ Ira C. Norris By:________________________________
--------------------------------- Thomas Hantges, President
Ira C. Norris, President
ACKNOWLEDGED AND AGREED:
/s/ Ira C. Norris
- ------------------------------------
Ira C. Norris, broker
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<PAGE>
USA COMMERCIAL REAL ESTATE GROUP
3900 PARADISE ROAD, SUITE 263
LAS VEGAS, NEVADA 89109
(702) 734-2400
June 10, 1997
Ira C. Norris
1282 West Arrow Highway
Upland, California 91786
Re: Agreement for Purchase of Real Property ("Agreement") by and between
the parties listed on Exhibit "A" to this letter, as buyer
(collectively, the "Buyer"), and Inco Homes Corporation, as seller
("Seller"), for certain real property consisting of approximately 284
acres in San Bernandino County, California (the "Property")
----------------------------------------------
Dear Mr. Norris:
This letter will acknowledge your association, as a California licensed
real estate broker, with USA Commercial Real Estate Group, a Nevada corporation,
in representing Buyer in the purchase of the above-referenced Property.
You further acknowledge that USA Commercial Real Estate Group is entitled
to the entire $50,000 commission paid by Seller pursuant to the Agreement.
Please execute a copy of this letter and return to the undersigned.
Sincerely,
USA COMMERCIAL REAL ESTATE
GROUP
By:___________________________
Thomas Hantges, President
ACKNOWLEDGED AND AGREED:
/s/ Ira C. Norris
- -----------------------------
Ira C. Norris, broker
<PAGE>
EXHIBIT "A"
BUYERS
------
1. MET PARTNERS, LLC, a Nevada
limited liability company
2. PALOMINO PARTNERS LIMITED
PARTNERSHIP, a Nevada limited
partnership
3. C.E. Newby and Carole J. Newby,
Trustees of the Newby 1984 Trust,
dated 3/19/84
4. Kim W. Gregory and Debbie R. Gregory,
Trustees of the Gregory 1988 Trust
5. William P.J. Mahon, Trustee of the
William P.J. Mahon and Kathleen M.
Mahon Family Trust
6. Joseph D. Milanowski
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 309
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 28,009
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 31,255
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 16
<OTHER-SE> 2,890
<TOTAL-LIABILITY-AND-EQUITY> 31,255
<SALES> 6,052
<TOTAL-REVENUES> 6,052
<CGS> 6,030
<TOTAL-COSTS> 6,030
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (10,489)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,489)
<DISCONTINUED> 0
<EXTRAORDINARY> 846
<CHANGES> 0
<NET-INCOME> (9,643)
<EPS-PRIMARY> (5.89)
<EPS-DILUTED> (5.89)
</TABLE>
