<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 September 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 November 14, 1997
--------------------- -----------------
$.01 par value 1,637,096
================================================================================
<PAGE>
INCO HOMES CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C>
Consolidated Balance Sheets as of September 30, 1997 (Unaudited) and
December 31, 1996...................................................... 3
Consolidated Statements of Operations (Unaudited) for the Three
Months and Nine Months Ended September 30, 1997 and 1996............... 4
Consolidated Statements of Cash Flows (Unaudited) for the Nine
Months Ended September 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....................................................................... 25
</TABLE>
2
<PAGE>
INCO HOMES CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Dollars in thousands, except share data) September 30, December 31,
-----------------------------------------------
1997 1996
--------------------- ---------------------
(unaudited)
<S> <C> <C>
ASSETS
Cash $ 352 $ 586
Real estate inventories 29,454 36,752
Deferred tax asset 2,200 2,200
Investment in non-consolidated partnership - 428
Other assets 765 666
-------- --------
Total assets $ 32,771 $ 40,632
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 5,754 $ 7,133
Notes payable secured by real estate 17,765 15,360
Lines of credit 3,446 4,303
Notes to stockholders 3,158 676
-------- --------
Total liabilities 30,123 27,472
-------- --------
Minority partners' investment in consolidated partnerships 667 876
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 (40,261) (29,493)
-------- --------
Total stockholders' equity 1,981 12,284
-------- --------
Total liabilities and stockholders' equity $ 32,771 $ 40,632
======== ========
</TABLE>
See accompanying notes to financial statements
3
<PAGE>
INCO HOMES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
(Dollars in thousands, except per share data) September 30, September 30,
-------------------------------------------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue from home sales $ 3,330 $ 5,704 $ 12,202 $ 12,322
Revenue from land and lot sales 333 - 933 -
---------- ---------- ---------- ----------
3,663 5,704 13,135 12,322
---------- ---------- ---------- ----------
Cost of homes sold 3,218 5,089 11,665 11,259
Cost of land and lots 427 - 1,094 -
---------- ---------- ---------- ----------
3,645 5,089 12,759 11,259
---------- ---------- ---------- ----------
Gross profit 18 615 376 1,063
---------- ---------- ---------- ----------
Provision for write-down of real estate - - 9,213 -
Selling and marketing expenses 662 831 2,382 2,015
General and administrative expenses 380 454 1,155 1,594
---------- ---------- ---------- ----------
1,042 1,285 12,750 3,609
---------- ---------- ---------- ----------
Operating loss (1,024) (670) (12,374) (2,546)
Other income 3 2 65 73
---------- ---------- ---------- ----------
Loss before minority partners' share and
provision (benefit) for income taxes (1,021) (668) (12,309) (2,473)
Minority partners' share 96 1 209 3
---------- ---------- ---------- ----------
Loss before provision
(benefit) for income taxes (925) (667) (12,100) (2,470)
Provision (benefit) for income taxes - - - -
---------- ---------- ---------- ----------
Loss before extraordinary items (925) (667) (12,100) (2,470)
Extraordinary items - - 1,332 -
---------- ---------- ---------- ----------
Net loss $ (925) $ (667) $ (10,768) $ (2,470)
========== ========== ========== ==========
Net loss per common share (1996 restated for
reverse stock split) $ (0.57) $ (0.46) $ (6.62) $ (1.75)
========== ========== ========== ==========
Weighted average number of common shares
outstanding (1996 restated for reverse stock
split) 1,637,096 1,437,096 1,625,862 1,411,314
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements
4
<PAGE>
INCO HOMES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
----------------------------------------
(Dollars in thousands) 1997 1996
-------------------- ------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(10,768) $ (2,470)
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 (209) 3
Proceeds from sale of divisions - 1,702
(Increase) decrease in real estate inventories (2,559) (2,019)
(Increase) decrease in other assets (133) 385
Increase (decrease) in accounts payable and accrued
liabilities (764) (384)
-------- --------
Net cash provided by (used in) operating activities (6,552) (2,783)
-------- --------
Cash flow from investing activities:
Proceeds from non-consolidated partnership 194 -
-------- --------
Cash flow from financing activities:
Proceeds from notes payable secured by real estate 20,238 13,905
Repayments on notes payable secured by real estate (15,967) (12,561)
Proceeds from lines of credit 1,237 -
Repayments on lines of credit (2,188) (444)
Proceeds from notes to stockholders 2,622 -
Repayments on notes to stockholders (283) -
Contributions from minority partners - 2,107
Proceeds from sale of common stock 500 -
Costs of stock issuance and reverse stock split (35) -
-------- --------
Net cash provided by (used in) financing activities 6,124 3,007
-------- --------
Net increase (decrease) in cash and cash equivalents (234) 224
Cash and cash equivalents at beginning of year 586 420
-------- --------
Cash and cash equivalents at end of period $ 352 $ 644
======== ========
</TABLE>
Supplemental schedule of non-cash activities
[1] In the nine months ended September 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 nine months ended September 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 nine months ended September 30, 1996, the Company deeded back
property with a book cost basis of $3.4 million to land sellers in
satisfaction of $3.4 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, 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 ("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 September 30, 1997 and 1996, the Company
incurred $50,000 and $100,800, respectively, in model home design fees and
reimbursements for the cost of the model home furnishings with Nancy Orman
Interiors. For the nine months ended September 30, 1997 and 1996, the
Company incurred $155,000 and $125,800, respectively, in fees and costs
with Nancy Orman interiors. Nancy Orman Interiors is owned by Nancy Norris,
the wife of Ira C. Norris, Chairman of the Board and Chief Executive
Officer of the Company.
For the three months ended September 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 nine months ended September 30, 1997 and
1996, the Company incurred $81,900 and $79,500, 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
receivable 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 the 2
remaining 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 13 homes under
construction, 26 improved lots and 3 completed model homes of the Company's
Bella Vita project in Fontana, California. Subsequent to September 30,
1997, in connection with new financing obtained by the Company, HRIP
accepted an $800,000 payment on its note and signed a new 15 month, 10%
note for the balance due, subordinated to the new financing. See Part I,
Item 2.--Liquidity and Capital Resources.
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 was a result of arms-length negotiations between the parties,
and the Company believes the sales price represented the fair market value
of the property.
NOTE 3 - NOTES TO STOCKHOLDERS
From September 1996 through September 30, 1997, the Company had received
from Ira C. Norris unsecured advances of $2.4 million for working capital
purposes, of which $400,000 has been repaid by the Company. The balance of
these advances at September 30, 1997 was $2.1 million, which includes
accrued interest of approximately $121,000. The Company had issued several
notes to Mr. Norris, bearing interest at 10.0%, which matured 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, and extended to March 31, 1998. 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. The balance owing under
this note at September 30, 1997 was $513,000, which includes accrued
interest of approximately $13,000. The grand total payable to the Norris
Living Trust at September 30, 1997 was approximately $2.6 million.
Subsequent to September 30, 1997, the Norris Living Trust provided
additional unsecured advances to the Company totaling $370,000 at a rate of
10.0% due on March 31, 1998, and was paid in full on one existing unsecured
note in the amount of $34,000.
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 which secures the Norris Living Trust loan mentioned
above. The Company received the proceeds of this loan in July 1997. The
balance owing under this note at September 30, 1997 was $520,000, which
includes accrued interest of approximately $20,000.
7
<PAGE>
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 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 was due on October 31,
1997, is non-interest bearing, and is secured by the remaining land in the
project. The bank has extended the due date of this loan until December 1,
1997 for a fee of $9,000.
NOTE 6 - UNAUDITED NET LOSS PER COMMON SHARE
The primary and fully diluted weighted average number of common shares was
1,637,096 and 1,437,096 (restated for reverse stock split) for the three
months ended September 30, 1997 and 1996, respectively, and 1,625,862 and
1,411,314 (restated for reverse stock split) for the nine months ended
September 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.
8
<PAGE>
NOTE 7 - STOCKHOLDERS' EQUITY
The decrease in stockholders' equity from December 31, 1996 to September
30, 1997, is reconciled as follows:
Dollars in thousands
<TABLE>
<CAPTION>
Number of Shares Common Stock
(restated for and Additional
reverse stock split) Paid in Capital Deficit Total
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance - December 31, 1996 1,437,096 $41,777 $(29,493) $ 12,284
Common Stock Issued 200,000 465 --- 465
Net Loss --- --- (10,768) (10,768)
-------------------------------------------------------------------
Balance - September 30, 1997 1,637,096 $42,242 $(40,261) $ 1,981
===================================================================
</TABLE>
Common stock was issued in 1997 pursuant to a Common Stock Purchase
Agreement entered into in December 1996. The Company received $250,000 of
the total $750,000 purchase price in December 1996 and the balance in
January and February, 1997. See Part I, Item 2.--Liquidity and Capital
Resources.
NOTE 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 September 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.
Certain of these subcontractors and suppliers have filed liens, some of
which are pursuing further legal action, including the filing of
complaints. Additionally, the Company is presently involved in litigation
regarding alleged construction defects at one of its projects. See Part
II, Item 1.--Legal Proceedings.
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 in 1997 in
certain geographic areas of Southern California and have had an adverse impact
on the CompanyOs 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 nine months ended
September 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 decreased to $3.3 million during the three months ended
September 30, 1997, from $5.7 million during the three months ended September
30, 1996, representing a decrease of $2.4 million or 41.6%. The Company closed
26 homes at an average sales price of $128,100 during the three months ended
September 30, 1997 compared to 41 homes closed at an average sales price of
$139,100 during the three months ended September 30, 1996, a 36.6% decrease in
closings and a 7.9% decrease in average sales price.
The decrease in revenue during the three months ended September 30, 1997 is
attributable to the decrease in the number of closings. Closings decreased as
several of the Company's projects closed out or were reduced in scope.
10
<PAGE>
Additionally, new phases of ongoing projects were under construction and not
available for delivery in the third quarter.
Revenue from home sales decreased slightly to $12.2 million during the nine
months ended September 30, 1997, from $12.3 million during the nine months ended
September 30, 1996, representing a decrease of $0.1 million or 1.0%. The
Company closed 99 homes at an average sales price of $123,300 during the nine
months ended September 30, 1997 compared to 91 homes closed at an average sales
price of $135,400 during the nine months ended September 30, 1996, an 8.8%
increase in closings and an 8.9% decrease in average sales price.
The decrease in average selling price during both the three months and nine
months ended September 30, 1997 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 Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
High Desert 17 29 71 58
Riverside/San Bernardino Counties 9 12 28 33
-------- -------- -------- --------
Total 26 41 99 91
======== ======== ======== ========
</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 and is affiliated with another entity that owns a warrant to acquire
approximately an additional 10.9% of the Company's Common Stock. This
transaction was a result of arms-length negotiations between the parties, and
the Company believes the sale price represented the fair market value of the
property.
See "Liquidity and Capital Resources" regarding both of these transactions.
Additionally, in July 1997 the Company closed escrow on 7 improved lots it owned
within its Spirit Corona project in Riverside County for a cash price of
$333,200. The buyer was an unrelated third party homebuilder. Also in July
1997, this same homebuilder closed escrow on 35 improved lots owned by Spirit 77
located within the Company's Spirit Corona project for a cash price of $1.67
million.
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 September 30, 1997 was $3.2
million, a decrease of $1.9 million, or 36.8%, from $5.1 million during the
three months ended September 30, 1996. Cost of homes sold as a percentage of
revenue increased to 96.6% for the three months ended September 30, 1997 from
89.2% for the same period in 1996. Cost of homes sold for the nine months ended
September 30, 1997 was $11.7 million, an increase of $0.4 million, or 3.6% from
$11.3 million during the nine months ended September 30, 1996. Cost of homes
sold as a percentage of revenue increased to 95.6% for the nine months ended
September 30, 1997 from 91.4% for the same period in 1996.
The increase in cost of homes sold as a percentage of revenue for both the three
months and nine months ended September 30, 1997 is the result of the close out
of one community in the high desert and 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
11
<PAGE>
in Riverside County. This increase is partially offset by the large amount 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.
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 $0.2 million and $0.4 million for the three months ended
September 30, 1997 and 1996, respectively, a decrease of 40.6%. Selling
expenses as a percentage of revenue were 7.0% and 6.9% for the three months
ended September 30, 1997 and 1996, respectively. Selling expenses were
approximately $1.0 million for both the nine months ended September 30, 1997 and
1996. Selling expenses as a percentage of revenue were 8.3% and 7.8% for the
nine months ended September 30, 1997 and 1996, respectively.
The slight increase in selling expenses as a percentage of revenue for both the
three months and nine months ended September 30, 1997 is primarily due to
financing incentives granted to homebuyers, and costs associated with an
independent sales and marketing company utilized by the Company from January
1997 to September 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 approximately $0.4 million for both the three months
ended September 30, 1997 and 1996. As a percentage of revenue, marketing
expenses were 12.9% and 7.7% for the three months ended September 30, 1997 and
1996, respectively. Marketing expenses were $1.4 and $1.1 million for the nine
months ended September 30, 1997 and 1996, respectively, representing an increase
of 30.2%. As a percentage of revenue, marketing expenses were 11.2% and 8.6%
for the nine months ended September 30, 1997 and 1996, respectively.
The increase in marketing costs for the nine months ended September 30, 1997 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 third quarter of 1997 and 1996, the Company was actively selling
homes in six and nine projects, respectively. In the first nine months of 1997,
the Company had one grand opening, which occurred in the second quarter. In the
first nine months of 1996 the Company had one grand opening that occurred in the
third quarter.
General and Administrative Expenses
General and administrative expenses include payroll and related benefits,
insurance, financial reporting costs, and general office expense.
General and administrative expenses were $0.4 and $0.5 million for the three
months ended September 30, 1997 and 1996, respectively, a decrease of 16.3%. As
a percentage of revenue, general and administrative expenses were 11.4% and 8.0%
for the three months ended September 30, 1997 and 1996, respectively. General
and administrative expenses were $1.2 million and $1.6 million for the nine
months ended September 30, 1997 and 1996, respectively, a decrease of 27.5%. As
a percentage of revenue, general and administrative expenses were 9.5% and 12.9%
for the nine months ended September 30, 1997 and 1996, respectively.
12
<PAGE>
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.
The minority partners' share of losses was $96,000 and $1,000 for the three
months ended September 30, 1997 and 1996, respectively, and $209,000 and $3,000
for the nine months ended September 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 September 30, 1997 and 1996, the Company increased
its valuation allowance by $370,000 and $267,000, respectively, and for the nine
months ended September 30, 1997 and 1996, the Company increased its valuation
allowance by $4.3 million and $988,000, 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. Additional federal net
operating losses will be available as a result of tax losses expected in 1997.
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 $16.0 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:
13
<PAGE>
<TABLE>
<CAPTION>
September 30,
-------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
High Desert 36 49
Riverside/San Bernardino Counties 38 44
-------------- --------------
Total 74 93
============== ==============
Aggregate Sales Value $10,435,000 $12,400,000
============== ==============
Average Sales Price $ 141,000 $ 133,300
============== ==============
</TABLE>
The Company's backlog at any particular date is subject to substantial variation
and is dependent upon several factors including the number of homes then
available for sale, prevailing market conditions and the length of time
necessary to complete the closing of home sales subject to pending contracts.
The Company has generally experienced a rapid increase in backlog during periods
in which it holds a grand opening for one of its projects. In both the first
nine months of 1997 and 1996, the Company had one grand opening.
The Company's backlog decreased 20.4% to 74 homes at September 30, 1997 from 93
homes at September 30, 1996. The aggregate sales value of the units in backlog
decreased by $2.0 million or 15.8%, 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 $7,700 or 5.8% 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 Three Months For the Nine Months
Ended September 30, Ended September 30,
-------------------------------- --------------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
High Desert 20 15 55 62
Riverside/San Bernardino Counties 15 16 36 45
------------- ------------- ------------- -------------
Total 35 31 91 107
============= ============= ============= =============
</TABLE>
Net new orders increased to 35 homes from 31 homes for the three months ended
September 30, 1997 and 1996, respectively, an increase of 12.9%. Net new orders
declined to 91 homes from 107 homes for the nine months ended September 30, 1997
and 1996, respectively, a decrease of 15.0%. The decrease in net orders for the
nine months ended September 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.
14
<PAGE>
Variability in Quarterly Results
The Company has experienced, and expects to continue to experience, significant
variability in its operating results. This variability may cause the Company's
overall results of operations to fluctuate significantly on a period-to-period
basis, and revenues anticipated to occur in a fiscal period may not be earned
until subsequent fiscal periods. Many factors contribute to this variability,
including: (i) the timing and mix of home deliveries; (ii) the Company's ability
to continue to acquire additional land on favorable terms for future
developments; (iii) the condition of the real estate markets and the economy in
general; (iv) the cyclical nature of the home building industry and changes in
prevailing interest rates; (v) cost and availability of materials and labor; and
(vi) delays in construction schedules caused by timing of inspections and
approvals by regulatory agencies, strikes at subcontractors and adverse weather
conditions. The Company's historical financial results are not necessarily a
meaningful indicator of future results and, in general, the Company expects its
financial results to vary from project to project. The Company's revenue and
net income may also vary substantially as a result of variations in the number
of projects at which the Company is closing the sale of homes at any one time.
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 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 financing on acceptable terms.
The Company's business plan calls for substantial future expenditures relating
to the acquisition and construction of new projects, as well as the continued
construction of existing, on-going projects. Additionally, the Company
continues to experience shortfalls in working capital and has payables from
prior periods and closed-out projects in excess of $2.5 million, most of which
have been outstanding for more than 90 days.
In 1997, the Company established a relationship with a third party lender, USA
Commercial Mortgage Company ("USA"), that has provided loans and arranged for
individual lenders to provide loans to the Company in amounts totaling
approximately $5.3 million though September 30, 1997. Funds have been utilized
to refinance projects, to purchase additional land for future homes, and to
develop some of this land. Subsequent to September 30, 1997, USA arranged an
additional loan in the amount of $1.275 million to refinance a portion of
another of the Company's existing loans (see discussion below), and also
deposited funds in escrow on behalf of the Company regarding a potential new
land purchase. Additionally, the Company has signed an agreement and received a
$100,000 deposit relating to the purchase by the principals of USA of 204,122
shares of the Company's Common Stock in a private transaction for a total
purchase price of $300,000. $200,000 of funds from this transaction are expected
to be utilized to reduce the Company's payable to USA for fees earned on a
previous loan placed by USA. The closing of this transaction is subject to
approval by the Company's Board of Directors and the satisfaction of other
routine closing conditions. One of the principals of USA currently owns stock
in the Company in an amount constituting less than 1% of the outstanding Common
Stock.
The Company is also in active discussions with certain capital sources,
including USA, regarding additional investments in the Company in its efforts to
seek funding for working capital shortfalls and to reduce old payables, as well
as funds to finance the acquisition of additional land for the delivery of
future homes. 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 to fund its
planned expenditures, 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 would be greatly impaired. Additionally, the Company
may not be able to expand according to its business plan. This could result in
cost increases and have a material adverse affect on the Company's business,
financial condition and results of operations.
As a result of the limited amount of available working capital, the Company has
not paid all of its subcontractors or 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.
15
<PAGE>
From September 1996 through September 30, 1997, the Company had received from
Ira C. Norris unsecured advances of $2.4 million for working capital purposes,
of which $400,000 has been repaid by the Company. The balance of these advances
at September 30, 1997 was $2.1 million, which includes accrued interest of
approximately $121,000. The Company had issued several notes to Mr. Norris,
bearing interest at 10.0%, which matured 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 and extended to
March 31, 1998. 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. The balance owing under this note at September 30, 1997 was $513,000,
which includes accrued interest of approximately $13,000. The grand total
payable to the Norris Living Trust at September 30, 1997 was approximately $2.6
million. All of these transactions were unanimously approved by the
disinterested members of the Company's board of directors.
Subsequent to September 30, 1997, the Norris Living Trust provided additional
unsecured advances to the Company totaling $370,000, at a rate of 10.0% due on
March 31, 1998, and was paid in full on one existing unsecured note in the
amount of $34,000.
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
which secures the Norris Living Trust loan mentioned above. The Company received
the proceeds of this loan in July 1997. The balance owing under this note at
September 30, 1997 was $520,000, which includes accrued interest of
approximately $20,000. 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. In November 1997, the Company offered OCI the
opportunity to exercise the warrant as to all shares for an exercise price of
$2.00 per share for a period of thirty days. OCI has not yet exercised the
warrant to purchase any shares. One of the owners of both Overland and OCI is a
partner in FERHP (see Note 2 to Consolidated Financial Statements).
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
16
<PAGE>
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, borrowings
from related parties and deferring accounts payable. 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 that provided $2.0
million for one of the Company's Riverside County projects. Funds were utilized
to payoff a portion of loans secured by this project in default with a
commercial bank (see below), to pay other expenses and to provide an interest
reserve. The loan was arranged by USA, the third party lender previously
described that represents various individual lenders, who, along with USA,
provided funds for this loan. The loan, which has subsequently been refinanced,
had an interest rate of 20.25% and was due in August 1998. USA also earned
fees, some of which were paid from loan proceeds and the balance secured by a
note that will be paid as homes in this project are completed and close escrow.
In September 1997, USA arranged for a new lender to provide $2.45 million to
refinance the Riverside County loan, which reduced the interest rate to 15.25%,
extended the due date to March 1999 and supplied an additional interest reserve.
Additional fees were earned by USA for this transaction. In April 1997, USA
arranged a loan of $1.0 million with other lenders, which is due in April 1998,
under similar terms as the original $2.0 million loan, in order for the Company
to purchase 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 with ALG and HRIP described herein that the
Company had 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 on these loans 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 costs of these financing arrangements. Also, in
September 1997, USA arranged two loans totaling $1.4 million with various other
lenders for land and model development for the Fontana project. The interest
rate on both these loans is 12.25%, both are due in September 1998 and fees were
paid to USA from loan proceeds.
In June 1997, USA arranged for an additional group of investors to purchase the
Company's Eagle Ranch project in the high desert for $2.4 million. Funds from
this sale helped the Company repay portions of loans secured by this project in
default with a commercial bank (see below). The investors granted the Company a
six year option to periodically repurchase portions of the property, subject to
annual minimum repurchase thresholds, for the development of single-family
homes. If the Company fails to repurchase the minimum number of lots in any
year, the option terminates. The investors will receive one half of the cash
generated upon the sale of these single-family homes constructed by the Company
on the repurchased lots, and USA will receive a fee of $1,000 for each home
sold.
In September 1997, USA arranged loans of $400,000 and $120,000, due in April
1998 and January 1998, respectively, with interest rates of 20.00% each, secured
by various finished but unsold or unclosed homes owned by the Company.
Subsequent to September 30, 1997, USA arranged an additional loan to provide
$1.275 million for the Company's Bella Vita project in Fontana, California.
Funds were utilized to pay down a portion of amounts owed on a loan to HRIP
secured by the project (see Note 2 to Consolidated Financial Statements), to set
aside funds for additional project costs, to provide an interest reserve, and to
pay fees to USA. This loan has an interest rate of 15.25% and is due in
November 1998.
As of September 30, 1997, the Company has incurred fees to USA totaling
$809,200, of which $400,200 has been paid. The balance is secured by notes and
will be paid from closing proceeds from sales of completed homes in certain of
the Company's projects.
In 1996, the Company formed FERHP, Triumph and Spirit 77 limited partnerships
and entered into participating note agreements with ALG and HRIP, providing
total capital of approximately $4.0 million. These partnerships and
participating note agreements typically fund a portion of the land acquisition,
model complex development costs and initial marketing expenditures of specific
projects. Thomas E. Gibbs, Jr., a 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 was the general partner of, and had a
50%
17
<PAGE>
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 has been dissolved.
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 decided in the second quarter of 1997 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 2 remaining models in this
project. In August 1997, ALG 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. A non-judicial sale of the
property is scheduled for December 11, 1997.
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>
<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 September 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
18
<PAGE>
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 September 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 September 30, 1997, the Company was still in the
process of deeding back land to the seller from 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
September 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
provided interim construction loans for each phase of homes within the project
for a term of up to 12 months, with extension provisions. The development loans
typically are repaid with proceeds from these interim construction loans.
Interest rates on these loans 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 September 30, 1997, aggregate borrowings of $16.6
million were outstanding under these facilities and $10.5 million was available
for further qualified project finance borrowing. At September 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. The Company is currently in
arrears in its payments for the quarterly principal amounts described above, as
well as monthly interest and property taxes on the land that secures this line
of credit. The bank has notified the Company that the line of credit is in
default. The Company is currently in negotiations with the bank regarding
various cure options. However, no agreement with the bank has been signed and no
assurance can be given that an agreement will be finalized. If an agreement is
not signed, the bank can enforce its rights and foreclose on its collateral for
the line of credit, which consists of undeveloped land owned by the Company in
Victorville and Palmdale, California; (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 September 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 from both USA, as previously described, and another third party
lender providing a total of 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, as previously described, the Company sold the
majority of its Eagle Ranch project for $2.4 million to a group of investors
represented by USA. 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.
19
<PAGE>
The remaining $700,000 was 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. For a fee of $9,000, the bank has extended the due date of this loan
until December 1, 1997 and postponed a non-judicial sale that had been scheduled
for these lots. The Company is negotiating new financing that is expected to
pay this loan in full.
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 and
the complaint has been dismissed. 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 and breach of warranty, based on alleged
design and construction defects and inadequate soils conditions. The
plaintiffs are seeking damages in an unspecified amount, and attorney
fees. Causes of action for negligent infliction of emotional distress
and fraud were dismissed and accordingly, there are no claims for
punitive damages. A trial had been scheduled for October 20, 1997, but
was subsequently continued until March 9, 1998. The Company believes
that the claims made against it are substantially without merit and
intends to continue to vigorously defend itself in this action.
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 and 3. Not Applicable.
21
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Company held its Annual Meeting of Stockholders on September 8,
1997.
(b) The following directors were elected at the Annual Meeting of
Stockholders:
Robert H. Daskal
Ronald L. Neeley
The following are additional directors whose term of office
continued after the meeting:
Ira C. Norris
John F. Seymour, Jr.
(c) At the Annual Meeting of Stockholders, the following matters were
voted upon:
(1) A proposal to elect directors as follows:
<TABLE>
<CAPTION>
Robert H. Daskal Ronald L. Neeley
---------------- ----------------
<S> <C> <C>
Affirmative Votes: 1,453,903 1,458,902
Negative Votes: 4,999 0
Abstentions: 4,377 4,377
Not Voted: 173,818 173,818
</TABLE>
(2) A proposal to ratify the selection of Price Waterhouse LLP as
independent public accountants for the Company for the fiscal
year ending December 31, 1997.
<TABLE>
<CAPTION>
<S> <C>
Affirmative Votes: 1,458,222
Negative Votes: 421
Abstentions: 4,636
Not Voted: 173,818
</TABLE>
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.
In order to enhance the Company's ability to raise capital, David A. Fogg
assumed the position of Chief Financial Officer of the Company on November
17, 1997. Mr. Fogg has extensive background in raising capital for
residential homebuilders. Norman B. Gold, the Company's Chief Financial
Officer prior to that date will remain with the Company assuming various
financial and accounting responsibilities.
22
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
10.1 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 September 12, 1997.
10.2 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
September 12, 1997. (Riverside County)
10.3 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
September 12, 1997. (San Bernardino County)
10.4 Loan Agreement by and between Dean Peterson, Trustee, and
Inco Homes Corporation, a Delaware Corporation, dated
September 22, 1997.
10.5 Promissory Note Secured by Deed of Trust by and between
Dean Peterson, Trustee, and Inco Homes Corporation, a
Delaware Corporation, dated September 22, 1997.
10.6 Deed of Trust, Assignment of Rents, Security Agreement
and Fixture Filing by and between Dean Peterson, Trustee,
and Inco Homes Corporation, a Delaware Corporation, dated
September 22, 1997.
10.7 Placement Agreement by and between USA Commercial
Mortgage Company, Inc., a Nevada Corporation and Inco
Homes Corporation, a Delaware Corporation, dated
September 22, 1997.
10.8 Promissory Note by and between Thomas Hantges and Joe
Milanowski and Inco Homes Corporation, a Delaware
Corporation, dated September 22, 1997.
10.9 Construction Loan Agreement by and between Michael
Peterson and Inco Homes Corporation, a Delaware
Corporation, dated September 11, 1997.
10.10 Promissory Note Secured by Deed of Trust by and between
Michael Peterson and Inco Homes Corporation, a Delaware
Corporation, dated September 11, 1997.
10.11 Deed of Trust, Assignment of Rents, Security Agreement
and Fixture Filing by and between Michael Peterson and
Inco Homes Corporation, a Delaware Corporation, dated
September 11, 1997.
10.12 Construction Loan Agreement by and between Carlene E.
Pointer, et al., and Inco Homes Corporation, a Delaware
Corporation, dated September 11, 1997.
10.13 Promissory Note Secured by Deed of Trust by and between
Carlene E. Pointer, et al., and Inco Homes Corporation, a
Delaware Corporation, dated September 11, 1997.
10.14 Deed of Trust, Assignment of Rents, Security Agreement
and Fixture Filing by and between Carlene E. Pointer, et
al., and Inco Homes Corporation, a Delaware Corporation,
dated September 11, 1997.
23
<PAGE>
10.15 Promissory Note Secured by Deed of Trust by and between
USA Commercial Mortgage Company, Inc. a Nevada
Corporation and Freedom-Eagle Ranch Housing Partners, a
California Limited Partnership, dated September 26, 1997.
10.16 Deed of Trust, Assignment of Rents, Security Agreement
and Fixture Filing by and between USA Commercial Mortgage
Company, Inc. a Nevada Corporation and Freedom-Eagle
Ranch Housing Partners, a California Limited Partnership,
dated September 29, 1997.
10.17 Deed of Trust, Assignment of Rents, Security Agreement
and Fixture Filing by and between USA Commercial Mortgage
Company, Inc. a Nevada Corporation and Inco Homes
Corporation, a Delaware Corporation, dated September 26,
1997. (Riverside County)
10.18 Deed of Trust, Assignment of Rents, Security Agreement
and Fixture Filing by and between USA Commercial Mortgage
Company, Inc. a Nevada Corporation and Inco Homes
Corporation, a Delaware Corporation, dated September 26,
1997. (San Bernardino County)
27.1 Financial Data Schedule.
(b) Reports on Form 8-K. There were no reports on Form 8-K for the
three months ended September 30, 1997.
24
<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: November 26, 1997 By: /s/ Ira C. Norris
---------------------------------
IRA C. NORRIS
Chairman of the Board, President
and Chief Executive Officer
Date: November 26, 1997 By: /s/ David A. Fogg
---------------------------------
DAVID A. FOGG
Chief Financial Officer
25
<PAGE>
INCO HOMES CORPORATION
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION SEQUENTIALLY
NUMBERED
PAGE
<C> <S> <C>
10.1 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 September
12, 1997.
10.2 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 September 12, 1997. (Riverside County)
10.3 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 September 12, 1997. (San Bernardino County)
10.4 Loan Agreement by and between Dean Peterson, Trustee, and Inco
Homes Corporation, a Delaware Corporation, dated September 22, 1997.
10.5 Promissory Note Secured by Deed of Trust by and between Dean
Peterson, Trustee, and Inco Homes Corporation, a Delaware
Corporation, dated September 22, 1997.
10.6 Deed of Trust, Assignment of Rents, Security Agreement and Fixture
Filing by and between Dean Peterson, Trustee, and Inco Homes
Corporation, a Delaware Corporation, dated September 22, 1997.
10.7 Placement Agreement by and between USA Commercial Mortgage Company,
Inc., a Nevada Corporation and Inco Homes Corporation, a Delaware
Corporation, dated September 22, 1997.
10.8 Promissory Note by and between Thomas Hantges and Joe Milanowski
and Inco Homes Corporation, a Delaware Corporation, dated September
22, 1997.
10.9 Construction Loan Agreement by and between Michael Peterson and
Inco Homes Corporation, a Delaware Corporation, dated September 11,
1997.
10.10 Promissory Note Secured by Deed of Trust by and between Michael
Peterson and Inco Homes Corporation, a Delaware Corporation,
</TABLE>
26
<PAGE>
dated September 11, 1997.
10.11 Deed of Trust, Assignment of Rents, Security Agreement and Fixture
Filing by and between Michael Peterson and Inco Homes Corporation,
a Delaware Corporation, dated September 11, 1997.
10.12 Construction Loan Agreement by and between Carlene E. Pointer, et
al., and Inco Homes Corporation, a Delaware Corporation, dated
September 11, 1997.
10.13 Promissory Note Secured by Deed of Trust by and between Carlene E.
Pointer, et al., and Inco Homes Corporation, a Delaware Corporation,
dated September 11, 1997.
10.14 Deed of Trust, Assignment of Rents, Security Agreement and Fixture
Filing by and between Carlene E. Pointer, et al., and Inco Homes
Corporation, a Delaware Corporation, dated September 11, 1997.
10.15 Promissory Note Secured by Deed of Trust by and between USA
Commercial Mortgage Company, Inc. a Nevada Corporation and Freedom-
Eagle Ranch Housing Partners, a California Limited Partnership, dated
September 26, 1997.
10.16 Deed of Trust, Assignment of Rents, Security Agreement and Fixture
Filing by and between USA Commercial Mortgage Company, Inc. a Nevada
Corporation and Freedom-Eagle Ranch Housing Partners, a California
Limited Partnership, dated September 29, 1997.
10.17 Deed of Trust, Assignment of Rents, Security Agreement and Fixture
Filing by and between USA Commercial Mortgage Company, Inc. a Nevada
Corporation and Inco Homes Corporation, a Delaware Corporation, dated
September 26, 1997. (Riverside County)
10.18 Deed of Trust, Assignment of Rents, Security Agreement and Fixture
Filing by and between USA Commercial Mortgage Company, Inc. a Nevada
Corporation and Inco Homes Corporation, a Delaware Corporation, dated
September 26, 1997. (San Bernardino County)
27.1 Financial Data Schedule
27
<PAGE>
EXHIBIT 10.1
PROMISSORY NOTE
SECURED BY DEED OF TRUST
$400,000.00 Las Vegas, Nevada
September 12, 1997
This Promissory Note ("Note"), dated as of September ____, 1997 is made and
delivered by Inco Homes Corporation, a Delaware corporation ("Borrower"), in
favor of those persons and entities listed on Exhibit "A" attached hereto
(collectively, "Lender").
FOR VALUE RECEIVED, Borrower promises to pay to Lender, or order, the
principal sum of Four Hundred Thousand Dollars ($400,000.00) (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 Lender until
the date the Note Amount is paid in full, at the rate of twenty percent (20%)
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. 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 below, or at such other place as the Lender hereof may from
time to time direct by written notice to Borrower.
3. Maturity Date. 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 or before April 14, 1998 (the "Maturity Date").
4. Application of Payments. All payments on this Note shall, at the option
-----------------------
of the Lender hereof, be applied first to the payment of accrued interest then
payable.
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. Collateral. This Note is secured by a deed of trust encumbering real
----------
property located in Riverside and San Bernardino Counties, 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, Lender may declare the entire principal balance of the Note
then outstanding (if not then
<PAGE>
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) Borrower shall fail to pay, upon demand by Lender, any amount due
pursuant to the Note; or
(b) Borrower or any guarantor ("Guarantor") of the Note shall fail to
perform or observe any term, covenant or agreement contained in the Note, this
Deed of Trust or any guaranty executed and delivered concurrently herewith 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 Lender to
Borrower (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 Loan Documents proves
incorrect or to have been incorrect in any material respect when made; or
(d) Borrower (which term shall include any entity comprising Borrower)
is dissolved or liquidated, or otherwise ceases to exist, or all or
substantially all of the assets of Borrower or any Guarantor are sold or
otherwise transferred without Lender's written consent; or
(e) Borrower or any Guarantor 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 or any Guarantor 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 Borrower or any Guarantor, as the case may be, and the appointment
continues undischarged or unstayed for thirty (30) calendar days; or Borrower or
any Guarantor 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 Borrower or any
Guarantor, 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 Borrower
or any Guarantor, and is not released, vacated or fully bonded within thirty
(30) calendar days after such issue or levy; or
-2-
<PAGE>
(f) there shall occur a material adverse change in the financial
condition of Borrower or any Guarantor from their respective financial
conditions as of the date of this Note, as determined by Lender 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 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 trustee, officer, director,
shareholder or partner of any entity comprising Borrower or any Guarantor 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 Borrower thereunder have been fully paid and
performed; or
(h) an Event of Default shall occur under any other loan made by Lender
to Borrower.
8. 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 Lender 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 Lender 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 Lender 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 Lender hereof as such Lender's sole monetary recovery
to cover such extra administrative expenses and loss of use of funds, liquidated
damages in the amount of five percent (5%) of the amount of such delinquent
payment. The provisions of this paragraph are intended to govern only the
determination of damages in the event of a breach in the performance of the
obligation of Borrower to make timely payments hereunder. Nothing in this Note
shall be construed as an express or implied agreement by the Lender 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
Lender hereof to receive payment of such liquidated and actual damages, and
receipt thereof, are without prejudice to the right of such Lender 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 Lender 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-three percent
(23%) per annum
-3-
<PAGE>
("Default Rate"). Such interest shall be paid on the first day of each month
thereafter, or on demand if sooner demanded.
10. Waivers. Borrower waives any right of offset it now has or may
-------
hereafter have against the Lender 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. 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.
11. Costs of Collection. Borrower agrees to pay all costs of collection
-------------------
when incurred and all costs incurred by the Lender hereof in exercising or
preserving any rights or remedies in connection with the enforcement and
administration of this Note or following a default by Borrower, including but
not limited to actual attorneys' fees. If any suit or action is instituted to
enforce this Note, Borrower promises to pay, in addition to the costs and
disbursements otherwise allowed by law, such sum as the court may adjudge
reasonable attorneys' fees in such suit or action.
12. 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.
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.
BORROWER'S ADDRESS: Inco Homes Corporation
1282 West Arrow Highway
Upland, California 91786
Attn: Ira Norris
-4-
<PAGE>
LENDER'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 South Pecos Road
Las Vegas, Nevada 89121
Attn: Thomas J. DeVore, Esq.
14. 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.
15. Multiple Parties. A default on the part of any one entity comprising
----------------
Borrower or any Guarantor of this Note shall be deemed a default on the part of
Borrower hereunder.
16. 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, Lender 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 jurisdiction shall affect any
provision of this Note to the extent it is otherwise enforceable under the laws
of any other applicable jurisdiction.
18. Venue. The venue of any action brought in connection connection with
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this Note shall be laid in Clark County, Nevada.
"BORROWER":
Inco Homes Corporation, a Delaware
corporation
By: _____________________________
Ira Norris, President
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<PAGE>
EXHIBIT 10.2
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 12th day of September, 1997, by and between
Inco Homes Corporation, a Delaware corporation ("Trustor"), Orange Coast Title
Company, a California corporation ("Trustee"), and those persons and entities
listed on Exhibit "A" attached hereto ("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
Trustor's Promissory Note of even date herewith in the initial principal amount
of Four Hundred Thousand Dollars ($400,000.00) (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 payment of such additional sums and interest thereof which may
hereafter be loaned to Borrower, 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 Borrower contained in the
Note, and of Trustor contained in this Deed of Trust or any other document
evidencing the Loan (collectively, the "Loan 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 Riverside and San Bernardino
Counties, 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, 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.
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<PAGE>
(c) All articles of tangible personal property and any additions to,
substitutions for, changes in or replacements of the whole or any part thereof
other than personal property which is or at any time has become toxic waste,
waste products or hazardous substances (hereinafter referred to as the "Personal
Property"), including without limitation all wall-beds, wall-safes, built-in
furniture and installations, shelving, partitions, door-tops, vaults, elevators,
dumb-waiters, awnings, window shades, venetian blinds, light fixtures, fire
hoses and brackets and boxes for the same, fire sprinklers, alarm systems,
drapery rods and brackets, screens, water heaters, incinerators, wall coverings,
carpeting, linoleum, tile, other floor coverings of whatever description,
communication systems, all specifically designed installations and furnishings,
office maintenance and other supplies and all of said articles of property, the
specific enumerations herein not excluding the general, now or at any time
hereafter placed upon or used in any way in connection with the ownership,
operation or maintenance of the Property or the Improvements or any portion
thereof and owned by Trustor or in which Trustor now has or hereafter acquires
an interest, and all building materials and equipment now or hereafter delivered
to the Property and intended to be installed or placed in or about the
Improvements. Such tangible, personal property shall, in addition to all other
tangible, personal property herein described or defined, specifically include
each and every item of tangible, personal property and any substitutions for,
changes in or replacements thereof which are used in the operation of the
Improvements. Notwithstanding the breadth of the foregoing, the Personal
Property shall not include (i) personal property which may be owned by lessees
or other occupants of the Mortgaged Property; (ii) inventory of any lessee or
occupant of the Mortgaged Property used in the normal course of the business
conducted thereon; (iii) material, equipment, tools, machinery, or other
personal property which is brought upon the Mortgaged Property only for use in
construction, maintenance or repair and which is not intended to remain after
the completion of such construction, maintenance or proper maintenance, of the
Mortgaged Property; or (iv) such items of tangible personal property which have
not been purchased or installed with proceeds of the Note and for which
Beneficiary shall have executed such documents as may be required to subordinate
to the lien or security interest of any purchase money lender or supplier of
such tangible personal property;
(d) All right, title and interest of Trustor, now owned or hereafter
acquired in and to any and lying within the right-of-way of any street, road,
alley or public place, opened or proposed, vacated or extinguished by law or
otherwise, and all easements and rights of way, public or private, tenements,
hereditaments, appendages, rights and appurtenances how or hereafter located
upon the Property or now or hereafter used in connection with or now or
hereafter belonging or appertaining to the Property; and all right, title and
interest in the 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
-3-
<PAGE>
caused by such taking or otherwise) to the Mortgaged Property or the
Improvements thereon, including change of grade of streets, curb cuts or other
rights of access for any public or quasi-public use or purpose under any law;
(f) All rents, incomes, issues and profits, revenues, royalties,
bonuses, rights, accounts, contract rights, insurance policies and proceeds
thereof, general intangibles and benefits of the Mortgaged Property, or arising
from any lease or similar agreement pertaining thereto (the "Rents and
Profits"), and all right, title and interest of Trustor in and to all leases of
the Mortgaged Property now or hereafter entered into and all right, title and
interest of Trustor thereunder, including, without limitation, cash or
securities deposited thereunder to secure performance by the lessees of their
obligations thereunder, whether said cash or securities are to be held until the
expiration of the terms of said leases or applied to one or more of the
installments of rent coming due immediately prior to the expiration of said
terms with the right to receive and apply the same to said indebtedness, and
Trustee or Beneficiary may demand, sue for and recover such payments but shall
not be required to do so; and
(g) All proceeds of the conversion, voluntary or involuntary, of any
of the foregoing into cash or liquidated claims.
Trustor makes the foregoing grant to Trustee for the purposes herein set
forth; provided, however, that if the Trustor shall pay or cause to be paid to
the holder of the Note all amounts required to be paid under the provisions of
the Note, this Deed of Trust or any other Loan Documents, and at the time and in
the manner stipulated therein, and shall further pay or cause to be paid all
other sums payable hereunder and all indebtedness hereby secured, then, in such
case, the estate, right, title and interest of the Trustee and Beneficiary in
the Mortgaged Property shall cease, determine and become void, and upon proof
being given to the satisfaction of the Beneficiary that all amounts due to be
paid under the Note have been paid or satisfied, and upon payment of all fees,
costs, charges, expenses and liabilities chargeable or incurred or to be
incurred by Trustee or Beneficiary, and of any other sums as herein provided,
the Trustee shall, upon receipt of the written request of the Beneficiary,
cancel, reconvey and discharge this Deed of Trust.
TO HAVE AND TO HOLD THE MORTGAGED PROPERTY UNTO THE TRUSTEE ITS SUCCESSORS AND
ASSIGNS FOREVER, ALL IN ACCORDANCE WITH THE PROVISIONS HEREOF.
ARTICLE 1
TRUSTOR'S COVENANTS
-------------------
Trustor covenants, warrants and agrees with Trustee and Beneficiary as
follows:
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<PAGE>
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 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:
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(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 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
-5-
<PAGE>
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, all
taxes, assessments, charges and levies imposed by any Governmental Agency which
are or may become a lien affecting the Property or any part thereof, including
without limitation assessments on any appurtenant water stock; except that
Trustor shall not be required to pay and discharge any tax, assessment, charge
or levy that is being actively contested in good faith by appropriate
proceedings, as long as Trustor has established and maintains reserves adequate
to pay any liabilities contested pursuant to this Section in accordance with
generally accepted accounting principles and, by reason of nonpayment, none of
the Mortgaged Property covered by the Loan Documents or the lien or security
interest of Beneficiary is in danger of being lost or forfeited.
1.5 Maintenance and Repair. The Trustor shall, at its sole cost and
----------------------
expense, keep the Mortgaged Property in good operating order, repair and
condition and shall not commit or permit any waste thereof, which condition,
during the course of any reconstruction of the Improvements, shall be subject to
the normal constraints and effects of reconstruction. Trustor shall make all
repairs, replacements, renewals, additions and improvements and complete and
restore promptly and in good 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. The Trustor 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 Trustor
(and naming the Beneficiary 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
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
--------
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
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<PAGE>
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 indebtedness 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 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), 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 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
-8-
<PAGE>
to the indebtedness shall not cure or waive any default or notice of default
hereunder or invalidate any act done pursuant to such notice. Trustor agrees to
execute such further assignments of any compensation, award, damages, right of
action and proceeds as Beneficiary may require.
1.10 Indemnification. The Trustor shall appear in and defend any suit,
---------------
action or proceeding that might in any way, in the reasonable judgment of
Beneficiary, affect the value of the Mortgaged Property, the title to the
Mortgaged Property or the rights and powers of Trustee or Beneficiary. Trustor
shall, at all times, indemnify, hold harmless and on demand reimburse
Beneficiary for any and all loss, damage, expense or cost, including cost of
evidence of title and attorneys fees, arising out of or incurred in connection
with any such suit, action or proceeding, and the sum of such expenditures shall
be secured by this Deed of Trust and shall accrue interest at the "Default Rate"
as that term is defined in the Note and shall be due and payable on demand.
Trustor shall pay costs of suit, cost of evidence of title and reasonable
attorneys' fees in any proceeding or suit brought by Trustee or Beneficiary to
foreclose this Deed of Trust.
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 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 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,
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<PAGE>
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 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
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<PAGE>
clause hereof, but at any and all times Trustor will execute and deliver to
Trustee any and all such further assurances, deeds of trust, conveyances or
assignments thereof as Trustee or Beneficiary may reasonably require for the
purpose of expressly and specifically subjecting the same to the lien of this
Deed of Trust.
1.14 Security Agreement. This Deed of Trust shall be self-operative and
------------------
shall constitute a Security Agreement and a Construction Mortgage as those terms
are defined in the California Uniform Commercial Code with respect to all of
those portions of the Mortgaged Property which constitute personal property or
fixtures governed by the Uniform Commercial Code as enacted in California,
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 Uniform Commercial Code as enacted in California. 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
----------
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
--------
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
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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.
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
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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 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.
1.22 Substitution of Collateral. So long as no Event of Default has
--------------------------
occurred and is continuing, Trustor may request that beneficiary allow the
substitution of other real property collateral for that described herein. Such
substitution shall be permitted only if approved by Beneficiary (by and through
USA Commercial Mortgage Company, Inc.), in its sole discretion. Such
substituted collateral must, in Beneficiary's opinion, have a value at least
equivalent to that it is replacing. Trustor shall pay all costs and expenses,
including title charges and attorneys' fees, incurred by Beneficiary in
processing such a substitution.
ARTICLE 2
DEFAULT
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<PAGE>
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, upon demand by Beneficiary, any amount
due pursuant to the Note; or
(b) Trustor or any guarantor ("Guarantor") of the Note shall fail to
perform or observe any term, covenant or agreement contained in the Note, this
Deed of Trust or any guaranty executed and delivered concurrently herewith 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 Loan 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 or any Guarantor are sold or
otherwise transferred without Beneficiary's written consent; or
(e) Trustor or any Guarantor 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 or any Guarantor 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 any Guarantor, as the case may be, and the appointment
continues undischarged or unstayed for thirty (30) calendar days; or Trustor or
any Guarantor 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 or any
Guarantor, 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
or any Guarantor, and is not released, vacated or fully bonded within thirty
(30) calendar days after such issue or levy; or
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<PAGE>
(f) there shall occur a material adverse change in the financial
condition of Trustor or any Guarantor from their respective financial conditions
as of the date of this Note, as determined by Beneficiary 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 Beneficiary or the satisfaction
in full of all indebtedness and obligations of Trustor 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 Trustor or any trustee, officer, director,
shareholder or partner of any entity comprising Trustor or any Guarantor 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 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
--------
Upon the occurrence of any Event of Default, Trustee and Beneficiary shall
have the following rights and remedies:
3.1 Acceleration of Maturity. Beneficiary may declare the entire
------------------------
principal of the Note then outstanding (if not then due and payable thereunder)
and all other obligations of Trustor hereunder or under the Note, to be due and
payable immediately, and, subject to applicable provisions of law, upon any such
declaration the principal of the Note and accrued and unpaid interest, and all
other amounts to be paid under the Note, this Deed of Trust or any other Loan
Document shall become and 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
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<PAGE>
alterations and do any acts which Beneficiary deems proper to protect the
security hereof; and (v) with or without taking possession, in its own name or
in the name of Trustor, use for or otherwise collect and receive the Rents and
Profits and all other benefits, including those past due and unpaid, and apply
the same, less costs and expenses of operation and collection, including
reasonable attorneys fees, upon any indebtedness secured hereby, and in such
order as Beneficiary may determine.
3.4 Judicial Remedies. Beneficiary may bring an action in any court of
-----------------
competent jurisdiction to foreclose this Deed of Trust or to enforce any of the
covenants and agreements hereof and to take such steps to protect and enforce
its rights whether by action, suit or proceeding in equity or at law for the
specific performance of any covenant, condition or agreement in the Note, this
Deed of Trust or any other Loan Document, or in aid of the execution of any
power herein granted, or for any foreclosure hereunder, or for the enforcement
of any other appropriate legal or equitable remedy or otherwise as the
Beneficiary shall elect.
3.5 Maintenance of Mortgaged Property. Beneficiary may have a receiver
---------------------------------
appointed by a court of competent jurisdiction for the purpose of collecting
rents and managing the Mortgaged Property, and Trustor hereby consents in
advance to such appointment. The Trustee or Beneficiary personally, or by its
agents or attorneys, or by the receiver appointed by the court, may enter into
and upon all or any part of the Mortgaged Property, and each and every part
thereof, and may exclude the Trustor, its agents and servants wholly therefrom,
and having and holding the same, may use, operate, manage and control the
Mortgaged Property and conduct the business thereof, either personally or by its
superintendents, managers, agents, servants, attorneys or receivers. Upon every
such entry, any party occupying the Mortgaged Property in accordance with this
Article 3, at the expense of the 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.
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<PAGE>
3.6 Rights of Secured Party. Beneficiary shall have all of the remedies
-----------------------
of a Secured Party under the Uniform Commercial Code as enacted in California,
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 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 California:
(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 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
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<PAGE>
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 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.
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<PAGE>
(d) In the event of any sale made under or by virtue of this Section
whether made under the power of sale herein granted or under or by virtue of
judicial proceedings or of a judgment or decree of foreclosure and sale, the
entire principal of and interest on the Note and all accrued interest on the
Note, and all other sums required to be paid by the Trustor pursuant to the Note
and this Deed of Trust shall be due and payable, anything in the Note or in this
Deed of Trust to the contrary notwithstanding.
(e) The purchase money proceeds or avails of any sale made under or by
virtue of this Section, together with any other sums which then may be held by
the Trustee or Beneficiary under this Deed of Trust whether under the provisions
of this Section or otherwise, shall be applied as required by applicable law.
(f) Upon any sale made under or by virtue of this Section, whether
made under the power of sale herein granted or granted in accordance with the
laws of the state in which the Property is located or under or by virtue of
judicial proceedings or of a judgment or decree of foreclosure and sale, the
Beneficiary may bid for and acquire the Mortgaged Property or any part thereof
and in lieu of paying cash 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 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
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<PAGE>
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 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
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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 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
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provided, be held in trust, but need not be segregated (except to the extent
required by law), and Trustee shall not be liable for interest thereon. Trustor
shall indemnify Trustee against all liability and expenses which he may incur in
the performance of his duties hereunder, except for its own negligence.
ARTICLE 5
MISCELLANEOUS
-------------
5.1 Non-Waiver. By accepting payment of any sum secured hereby after its
----------
due date or late performance of any indebtedness secured hereby, Beneficiary
shall not waive its right against any person obligated directly or indirectly
hereunder or on any indebtedness hereby secured, either to require prompt
payment when due of all other sums so secured or to declare a default for
failure to make payment except as to such payment accepted by Beneficiary. No
exercise of any right or remedy by Trustee or Beneficiary hereunder shall
constitute a waiver of any other right or remedy herein contained or provided by
law.
No delay or omission of the Trustee or Beneficiary in the exercise of any
right, power or remedy accruing hereunder or arising otherwise shall impair any
such right, power or remedy, or be construed to be a waiver of any default or
acquiescence therein.
Receipts of rents, awards, and any other monies or evidences thereof,
pursuant to the provisions of this Deed of Trust and any disposition of the same
by Trustee or Beneficiary shall not constitute a waiver of the power of sale or
right of foreclosure by Trustee or Beneficiary in the event of a default or
failure of performance by 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
-22-
<PAGE>
affect the security hereof or the rights or powers of Beneficiary; and/or (iii)
pay, purchase, contest, or compromise any encumbrance, charge or lien which in
the judgment of Beneficiary is prior or superior hereto and, in exercising any
such power, incur any liability and expend whatever amounts in its absolute
discretion it may deem necessary therefor, including cost of evidence of title
and reasonable attorneys' fee. Any expenditures in connection herewith shall be
deemed an Advance and shall constitute part of the indebtedness secured by this
Deed of Trust.
5.4 Rules of Construction. When the identity of the parties hereto or
---------------------
other circumstances make it appropriate, the masculine gender includes the
feminine and/or neuter, and the singular number includes the plural. The
headings of each article, section or paragraph are for information and
convenience only and do not limit or construe the contents of any provision
hereof.
5.5 Severability. If any term of this Deed of Trust or the application
------------
thereof to any person or circumstances, shall, to any extent, be invalid or
unenforceable, the remainder of this Deed of Trust, or the application of such
term to persons or circumstances other than those as to which it is invalid or
unenforceable, shall not be affected thereby, and each term of this Deed of
Trust shall be valid and enforceable to the fullest extent.
5.6 Successors in Interest. This Deed of Trust applies to, inures to the
----------------------
benefit of, and is binding not only on the parties hereto, but on their heirs,
executors, administrators, successors and assigns. All obligations of Trustor
hereunder are joint and several. The term "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 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
-23-
<PAGE>
continue to have and enjoy all of the rights and privileges of Beneficiary as to
the separate estates. In addition, upon the foreclosure of the lien created by
this Deed of Trust on the Mortgaged Property pursuant to the provisions hereof,
any leases or subleases then existing shall not be destroyed or terminated by
application of the law of merger or as a matter of law or as a result of such
foreclosure unless Beneficiary or any purchaser at any such foreclosure sale
shall so elect. No act by or on behalf of Beneficiary or any such purchaser
shall constitute a termination of any lease or sublease unless Beneficiary or
such purchaser shall have given written notice thereof to such tenant or
subtenant.
5.10 Attorneys' Fees. If Beneficiary incurs any costs or expenses,
---------------
including attorneys' fees, for any of the following relating to this Deed of
Trust (or any other instrument evidencing or securing this loan): (a) the
interpretation, performance or enforcement thereof; (b) the enforcement of any
statute, regulation or judicial decision; (c) any collection effort; or (d) any
suit or action for the interpretation, performance or enforcement thereof is
commenced or defended, or, if any other judicial or nonjudicial proceeding is
instituted by Beneficiary or any other person, and an attorney is employed by
Beneficiary to appear in any such action or proceeding, or to reclaim, seek
relief from a judicial or statutory stay, sequester, protect, preserve or
enforce Beneficiary's interest in this Deed of Trust or any other security for
the Note, including but not limited to proceedings under federal bankruptcy law,
in eminent domain, under the probate code, or in connection with any state or
federal tax lien, then Trustor agrees to 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.
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<PAGE>
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 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 Statutory Covenants. Where not inconsistent with the above, the
-------------------
following covenants, Nos. 1; 2 (full replacement value); 3; 4 (five percent [5%]
per annum above the Interest Rate set forth in the Note); 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.
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<PAGE>
5.18 Partial Releases of Lots. So long as no Event of Default has occurred
------------------------
and is continuing, Beneficiary shall release individual or multiple Lots from
the lien and operation of the Deed of Trust upon satisfaction in Lender's sole
discretion of the following requirements:
(i) the payment to Lender, from the home sale escrow, of the "Net Sale
Proceeds" (as defined below) received from the sale of such Lot or Lots and the
homes constructed thereon; and
(ii) Borrower pays all costs and expenses in connection with such
release and reconveyance.
As used herein, "Net Sale Proceeds" shall equal the total proceeds to be
received by Borrower from the sale, less: (a) customary closing costs and title
fees payable by Borrower; (b) the lot release payment to Trustor's construction
lender; and (c) real estate commissions payable by Borrower, provided that sales
commissions payable to any real estate company affiliated with Borrower shall
not exceed 3% of the gross sales price.
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: _____________________________
Ira Norris, President
-26-
<PAGE>
EXHIBIT "A"
BENEFICIARIES
-------------
<TABLE>
<CAPTION>
Undivided
Interests
---------
<S> <C>
James Fisher and Darlene Fisher, JTWROS 25.00%
Jerry Moreo 6.25%
Stephanie Kropp 12.50%
Fred Teriano 12.50%
William Shope 25.00%
USA Commercial Mortgage Company, Inc. a
Nevada corporation 18.75%
</TABLE>
-27-
<PAGE>
EXHIBIT "B"
DESCRIPTION OF REAL PROPERTY
----------------------------
Parcel 1
- --------
Lots 23, 37 and 39 of Tract No. 24840-1, in the City of Corona, County of
Riverside, State of California, as per map recorded in Book 257, Pages 16, 17
and 18 of Maps, in the Office of the County Recorder of said County.
Parcel 2
- --------
Lot 9 of Tract No. 25466, in the City of Corona, County of Riverside, State of
California, as per map recorded in Book 249, Pages 88 through 91 of Maps, in the
Office of the County Recorder of said County.
THIS DEED OF TRUST IS JUNIOR IN LIEN AND SUBJECT TO A FIRST TRUST DEEDS ALREADY
OF RECORD ENCUMBERING LOT 9 OF TRACT 25466 AND LOTS 23, 37 AND 39 OF TRACT
24840-1.
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<PAGE>
EXHIBIT 10.3
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 12th day of September, 1997, by and between
Inco Homes Corporation, a Delaware corporation ("Trustor"), Orange Coast Title
Company, a California corporation ("Trustee"), and those persons and entities
listed on Exhibit "A" attached hereto ("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
Trustor's Promissory Note of even date herewith in the initial principal amount
of Four Hundred Thousand Dollars ($400,000.00) (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 payment of such additional sums and interest thereof which may
hereafter be loaned to Borrower, 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 Borrower contained in the
Note, and of Trustor contained in this Deed of Trust or any other document
evidencing the Loan (collectively, the "Loan 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 Riverside and San Bernardino
Counties, 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, 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.
-2-
<PAGE>
(c) All articles of tangible personal property and any additions to,
substitutions for, changes in or replacements of the whole or any part thereof
other than personal property which is or at any time has become toxic waste,
waste products or hazardous substances (hereinafter referred to as the "Personal
Property"), including without limitation all wall-beds, wall-safes, built-in
furniture and installations, shelving, partitions, door-tops, vaults, elevators,
dumb-waiters, awnings, window shades, venetian blinds, light fixtures, fire
hoses and brackets and boxes for the same, fire sprinklers, alarm systems,
drapery rods and brackets, screens, water heaters, incinerators, wall coverings,
carpeting, linoleum, tile, other floor coverings of whatever description,
communication systems, all specifically designed installations and furnishings,
office maintenance and other supplies and all of said articles of property, the
specific enumerations herein not excluding the general, now or at any time
hereafter placed upon or used in any way in connection with the ownership,
operation or maintenance of the Property or the Improvements or any portion
thereof and owned by Trustor or in which Trustor now has or hereafter acquires
an interest, and all building materials and equipment now or hereafter delivered
to the Property and intended to be installed or placed in or about the
Improvements. Such tangible, personal property shall, in addition to all other
tangible, personal property herein described or defined, specifically include
each and every item of tangible, personal property and any substitutions for,
changes in or replacements thereof which are used in the operation of the
Improvements. Notwithstanding the breadth of the foregoing, the Personal
Property shall not include (i) personal property which may be owned by lessees
or other occupants of the Mortgaged Property; (ii) inventory of any lessee or
occupant of the Mortgaged Property used in the normal course of the business
conducted thereon; (iii) material, equipment, tools, machinery, or other
personal property which is brought upon the Mortgaged Property only for use in
construction, maintenance or repair and which is not intended to remain after
the completion of such construction, maintenance or proper maintenance, of the
Mortgaged Property; or (iv) such items of tangible personal property which have
not been purchased or installed with proceeds of the Note and for which
Beneficiary shall have executed such documents as may be required to subordinate
to the lien or security interest of any purchase money lender or supplier of
such tangible personal property;
(d) All right, title and interest of Trustor, now owned or hereafter
acquired in and to any and lying within the right-of-way of any street, road,
alley or public place, opened or proposed, vacated or extinguished by law or
otherwise, and all easements and rights of way, public or private, tenements,
hereditaments, appendages, rights and appurtenances how or hereafter located
upon the Property or now or hereafter used in connection with or now or
hereafter belonging or appertaining to the Property; and all right, title and
interest in the 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
-3-
<PAGE>
caused by such taking or otherwise) to the Mortgaged Property or the
Improvements thereon, including change of grade of streets, curb cuts or other
rights of access for any public or quasi-public use or purpose under any law;
(f) All rents, incomes, issues and profits, revenues, royalties,
bonuses, rights, accounts, contract rights, insurance policies and proceeds
thereof, general intangibles and benefits of the Mortgaged Property, or arising
from any lease or similar agreement pertaining thereto (the "Rents and
Profits"), and all right, title and interest of Trustor in and to all leases of
the Mortgaged Property now or hereafter entered into and all right, title and
interest of Trustor thereunder, including, without limitation, cash or
securities deposited thereunder to secure performance by the lessees of their
obligations thereunder, whether said cash or securities are to be held until the
expiration of the terms of said leases or applied to one or more of the
installments of rent coming due immediately prior to the expiration of said
terms with the right to receive and apply the same to said indebtedness, and
Trustee or Beneficiary may demand, sue for and recover such payments but shall
not be required to do so; and
(g) All proceeds of the conversion, voluntary or involuntary, of any
of the foregoing into cash or liquidated claims.
Trustor makes the foregoing grant to Trustee for the purposes herein set
forth; provided, however, that if the Trustor shall pay or cause to be paid to
the holder of the Note all amounts required to be paid under the provisions of
the Note, this Deed of Trust or any other Loan Documents, and at the time and in
the manner stipulated therein, and shall further pay or cause to be paid all
other sums payable hereunder and all indebtedness hereby secured, then, in such
case, the estate, right, title and interest of the Trustee and Beneficiary in
the Mortgaged Property shall cease, determine and become void, and upon proof
being given to the satisfaction of the Beneficiary that all amounts due to be
paid under the Note have been paid or satisfied, and upon payment of all fees,
costs, charges, expenses and liabilities chargeable or incurred or to be
incurred by Trustee or Beneficiary, and of any other sums as herein provided,
the Trustee shall, upon receipt of the written request of the Beneficiary,
cancel, reconvey and discharge this Deed of Trust.
TO HAVE AND TO HOLD THE MORTGAGED PROPERTY UNTO THE TRUSTEE ITS SUCCESSORS AND
ASSIGNS FOREVER, ALL IN ACCORDANCE WITH THE PROVISIONS HEREOF.
ARTICLE 1
TRUSTOR'S COVENANTS
-------------------
Trustor covenants, warrants and agrees with Trustee and Beneficiary as
follows:
-4-
<PAGE>
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 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 approved by Beneficiary; 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,
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
-5-
<PAGE>
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, all
taxes, assessments, charges and levies imposed by any Governmental Agency which
are or may become a lien affecting the Property or any part thereof, including
without limitation assessments on any appurtenant water stock; except that
Trustor shall not be required to pay and discharge any tax, assessment, charge
or levy that is being actively contested in good faith by appropriate
proceedings, as long as Trustor has established and maintains reserves adequate
to pay any liabilities contested pursuant to this Section in accordance with
generally accepted accounting principles and, by reason of nonpayment, none of
the Mortgaged Property covered by the Loan Documents or the lien or security
interest of Beneficiary is in danger of being lost or forfeited.
1.5 Maintenance and Repair. The Trustor shall, at its sole cost and
----------------------
expense, keep the Mortgaged Property in good operating order, repair and
condition and shall not commit or permit any waste thereof, which condition,
during the course of any reconstruction of the Improvements, shall be subject to
the normal constraints and effects of reconstruction. Trustor shall make all
repairs, replacements, renewals, additions and improvements and complete and
restore promptly and in good 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. The Trustor shall at all times maintain the following
---------
policies of insurance:
-6-
<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 Trustor
(and naming the Beneficiary 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
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
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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 indebtedness 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 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), 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 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
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to the indebtedness shall not cure or waive any default or notice of default
hereunder or invalidate any act done pursuant to such notice. Trustor agrees to
execute such further assignments of any compensation, award, damages, right of
action and proceeds as Beneficiary may require.
1.10 Indemnification. The Trustor shall appear in and defend any suit,
---------------
action or proceeding that might in any way, in the reasonable judgment of
Beneficiary, affect the value of the Mortgaged Property, the title to the
Mortgaged Property or the rights and powers of Trustee or Beneficiary. Trustor
shall, at all times, indemnify, hold harmless and on demand reimburse
Beneficiary for any and all loss, damage, expense or cost, including cost of
evidence of title and attorneys fees, arising out of or incurred in connection
with any such suit, action or proceeding, and the sum of such expenditures shall
be secured by this Deed of Trust and shall accrue interest at the "Default Rate"
as that term is defined in the Note and shall be due and payable on demand.
Trustor shall pay costs of suit, cost of evidence of title and reasonable
attorneys' fees in any proceeding or suit brought by Trustee or Beneficiary to
foreclose this Deed of Trust.
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 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 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,
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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 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
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<PAGE>
clause hereof, but at any and all times Trustor will execute and deliver to
Trustee any and all such further assurances, deeds of trust, conveyances or
assignments thereof as Trustee or Beneficiary may reasonably require for the
purpose of expressly and specifically subjecting the same to the lien of this
Deed of Trust.
1.14 Security Agreement. This Deed of Trust shall be self-operative and
------------------
shall constitute a Security Agreement and a Construction Mortgage as those terms
are defined in the California Uniform Commercial Code with respect to all of
those portions of the Mortgaged Property which constitute personal property or
fixtures governed by the Uniform Commercial Code as enacted in California,
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 Uniform Commercial Code as enacted in California. 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
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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.
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
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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 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.
1.22 Substitution of Collateral. So long as no Event of Default has
--------------------------
occurred and is continuing, Trustor may request that beneficiary allow the
substitution of other real property collateral for that described herein. Such
substitution shall be permitted only if approved by Beneficiary (by and through
USA Commercial Mortgage Company, Inc.), in its sole discretion. Such
substituted collateral must, in Beneficiary's opinion, have a value at least
equivalent to that it is replacing. Trustor shall pay all costs and expenses,
including title charges and attorneys' fees, incurred by Beneficiary in
processing such a substitution.
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, upon demand by Beneficiary, any amount
due pursuant to the Note; or
(b) Trustor or any guarantor ("Guarantor") of the Note shall fail to
perform or observe any term, covenant or agreement contained in the Note, this
Deed of Trust or any guaranty executed and delivered concurrently herewith 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 Loan 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 or any Guarantor are sold or
otherwise transferred without Beneficiary's written consent; or
(e) Trustor or any Guarantor 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 or any Guarantor 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 any Guarantor, as the case may be, and the appointment
continues undischarged or unstayed for thirty (30) calendar days; or Trustor or
any Guarantor 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 or any
Guarantor, 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
or any Guarantor, and is not released, vacated or fully bonded within thirty
(30) calendar days after such issue or levy; or
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<PAGE>
(f) there shall occur a material adverse change in the financial
condition of Trustor or any Guarantor from their respective financial conditions
as of the date of this Note, as determined by Beneficiary 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 Beneficiary or the satisfaction
in full of all indebtedness and obligations of Trustor 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 Trustor or any trustee, officer, director,
shareholder or partner of any entity comprising Trustor or any Guarantor 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 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 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
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<PAGE>
alterations and do any acts which Beneficiary deems proper to protect the
security hereof; and (v) with or without taking possession, in its own name or
in the name of Trustor, use for or otherwise collect and receive the Rents and
Profits and all other benefits, including those past due and unpaid, and apply
the same, less costs and expenses of operation and collection, including
reasonable attorneys fees, upon any indebtedness secured hereby, and in such
order as Beneficiary may determine.
3.4 Judicial Remedies. Beneficiary may bring an action in any court of
-----------------
competent jurisdiction to foreclose this Deed of Trust or to enforce any of the
covenants and agreements hereof and to take such steps to protect and enforce
its rights whether by action, suit or proceeding in equity or at law for the
specific performance of any covenant, condition or agreement in the Note, this
Deed of Trust or any other Loan Document, or in aid of the execution of any
power herein granted, or for any foreclosure hereunder, or for the enforcement
of any other appropriate legal or equitable remedy or otherwise as the
Beneficiary shall elect.
3.5 Maintenance of Mortgaged Property. Beneficiary may have a receiver
---------------------------------
appointed by a court of competent jurisdiction for the purpose of collecting
rents and managing the Mortgaged Property, and Trustor hereby consents in
advance to such appointment. The Trustee or Beneficiary personally, or by its
agents or attorneys, or by the receiver appointed by the court, may enter into
and upon all or any part of the Mortgaged Property, and each and every part
thereof, and may exclude the Trustor, its agents and servants wholly therefrom,
and having and holding the same, may use, operate, manage and control the
Mortgaged Property and conduct the business thereof, either personally or by its
superintendents, managers, agents, servants, attorneys or receivers. Upon every
such entry, any party occupying the Mortgaged Property in accordance with this
Article 3, at the expense of the 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.
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3.6 Rights of Secured Party. Beneficiary shall have all of the remedies
-----------------------
of a Secured Party under the Uniform Commercial Code as enacted in California,
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 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 California:
(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 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
-17-
<PAGE>
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 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.
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<PAGE>
(d) In the event of any sale made under or by virtue of this Section
whether made under the power of sale herein granted or under or by virtue of
judicial proceedings or of a judgment or decree of foreclosure and sale, the
entire principal of and interest on the Note and all accrued interest on the
Note, and all other sums required to be paid by the Trustor pursuant to the Note
and this Deed of Trust shall be due and payable, anything in the Note or in this
Deed of Trust to the contrary notwithstanding.
(e) The purchase money proceeds or avails of any sale made under or by
virtue of this Section, together with any other sums which then may be held by
the Trustee or Beneficiary under this Deed of Trust whether under the provisions
of this Section or otherwise, shall be applied as required by applicable law.
(f) Upon any sale made under or by virtue of this Section, whether
made under the power of sale herein granted or granted in accordance with the
laws of the state in which the Property is located or under or by virtue of
judicial proceedings or of a judgment or decree of foreclosure and sale, the
Beneficiary may bid for and acquire the Mortgaged Property or any part thereof
and in lieu of paying cash 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
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
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<PAGE>
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 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
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<PAGE>
of Trust or in the Note shall affect the obligation of Trustor to pay the
principal of, and interest on, the Note in the manner and at the time and place
therein respectively expressed.
ARTICLE 4
TRUSTEE
-------
4.1 Acceptance of Trust, Notice of Indemnification. Trustee accepts
----------------------------------------------
this trust when this Deed of Trust, duly executed and acknowledged, becomes a
public record as provided by law. Trustee is not obligated to notify any party
hereto of pending sale under any other Deed of Trust or of any action or
proceeding in which Trustor, Beneficiary or Trustee shall not be obligated to
perform any act of it hereunder unless the performance of such act is requested
in writing in the manner required by law and Trustee is reasonably indemnified
against loss, cost, liability and expense.
4.2 Substitution of Trustee. From time to time with or without cause
-----------------------
for whatever reason, by a writing signed and acknowledged by Beneficiary and
filed for record in the Office of the Recorder of the County in which the
Mortgaged Property is situated, Beneficiary may appoint another trustee to act
in the place and stead of Trustee or any successor and such writing shall refer
to this Deed of Trust and set forth the date, book and page of its recordation.
The recordation of such instrument of substitution shall discharge trustee
herein named and shall appoint the new trustee as the Trustee hereunder with the
same effect as if originally named Trustee herein. A writing recorded pursuant
to this paragraph shall be conclusive proof of the proper substitution of such
new trustee.
4.3 Trustee's Powers. At any time, or from time to time, without
----------------
liability therefor and without notice, upon written request of Beneficiary and
presentation of the Note secured hereby, and without 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
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<PAGE>
provided, be held in trust, but need not be segregated (except to the extent
required by law), and Trustee shall not be liable for interest thereon. Trustor
shall indemnify Trustee against all liability and expenses which he may incur in
the performance of his duties hereunder, except for its own negligence.
ARTICLE 5
MISCELLANEOUS
-------------
5.1 Non-Waiver. By accepting payment of any sum secured hereby after
----------
its due date or late performance of any indebtedness secured hereby, Beneficiary
shall not waive its right against any person obligated directly or indirectly
hereunder or on any indebtedness hereby secured, either to require prompt
payment when due of all other sums so secured or to declare a default for
failure to make payment except as to such payment accepted by Beneficiary. No
exercise of any right or remedy by Trustee or Beneficiary hereunder shall
constitute a waiver of any other right or remedy herein contained or provided by
law.
No delay or omission of the Trustee or Beneficiary in the exercise of any
right, power or remedy accruing hereunder or arising otherwise shall impair any
such right, power or remedy, or be construed to be a waiver of any default or
acquiescence therein.
Receipts of rents, awards, and any other monies or evidences thereof,
pursuant to the provisions of this Deed of Trust and any disposition of the same
by Trustee or Beneficiary shall not constitute a waiver of the power of sale or
right of foreclosure by Trustee or Beneficiary in the event of a default or
failure of performance by 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
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<PAGE>
affect the security hereof or the rights or powers of Beneficiary; and/or (iii)
pay, purchase, contest, or compromise any encumbrance, charge or lien which in
the judgment of Beneficiary is prior or superior hereto and, in exercising any
such power, incur any liability and expend whatever amounts in its absolute
discretion it may deem necessary therefor, including cost of evidence of title
and reasonable attorneys' fee. Any expenditures in connection herewith shall be
deemed an Advance and shall constitute part of the indebtedness secured by this
Deed of Trust.
5.4 Rules of Construction. When the identity of the parties hereto or
---------------------
other circumstances make it appropriate, the masculine gender includes the
feminine and/or neuter, and the singular number includes the plural. The
headings of each article, section or paragraph are for information and
convenience only and do not limit or construe the contents of any provision
hereof.
5.5 Severability. If any term of this Deed of Trust or the application
------------
thereof to any person or circumstances, shall, to any extent, be invalid or
unenforceable, the remainder of this Deed of Trust, or the application of such
term to persons or circumstances other than those as to which it is invalid or
unenforceable, shall not be affected thereby, and each term of this Deed of
Trust shall be valid and enforceable to the fullest extent.
5.6 Successors in Interest. This Deed of Trust applies to, inures to
----------------------
the benefit of, and is binding not only on the parties hereto, but on their
heirs, executors, administrators, successors and assigns. All obligations of
Trustor hereunder are joint and several. The term "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 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
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<PAGE>
continue to have and enjoy all of the rights and privileges of Beneficiary as to
the separate estates. In addition, upon the foreclosure of the lien created by
this Deed of Trust on the Mortgaged Property pursuant to the provisions hereof,
any leases or subleases then existing shall not be destroyed or terminated by
application of the law of merger or as a matter of law or as a result of such
foreclosure unless Beneficiary or any purchaser at any such foreclosure sale
shall so elect. No act by or on behalf of Beneficiary or any such purchaser
shall constitute a termination of any lease or sublease unless Beneficiary or
such purchaser shall have given written notice thereof to such tenant or
subtenant.
5.10 Attorneys' Fees. If Beneficiary incurs any costs or expenses,
---------------
including attorneys' fees, for any of the following relating to this Deed of
Trust (or any other instrument evidencing or securing this loan): (a) the
interpretation, performance or enforcement thereof; (b) the enforcement of any
statute, regulation or judicial decision; (c) any collection effort; or (d) any
suit or action for the interpretation, performance or enforcement thereof is
commenced or defended, or, if any other judicial or nonjudicial proceeding is
instituted by Beneficiary or any other person, and an attorney is employed by
Beneficiary to appear in any such action or proceeding, or to reclaim, seek
relief from a judicial or statutory stay, sequester, protect, preserve or
enforce Beneficiary's interest in this Deed of Trust or any other security for
the Note, including but not limited to proceedings under federal bankruptcy law,
in eminent domain, under the probate code, or in connection with any state or
federal tax lien, then Trustor agrees to 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.
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<PAGE>
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 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 Statutory Covenants. Where not inconsistent with the above, the
-------------------
following covenants, Nos. 1; 2 (full replacement value); 3; 4 (five percent [5%]
per annum above the Interest Rate set forth in the Note); 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.
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<PAGE>
5.18 Partial Releases of Lots. So long as no Event of Default has occurred
------------------------
and is continuing, Beneficiary shall release individual or multiple Lots from
the lien and operation of the Deed of Trust upon satisfaction in Lender's sole
discretion of the following requirements:
(i) the payment to Lender, from the home sale escrow, of the
"Net Sale Proceeds" (as defined below) received from the sale of such Lot or
Lots and the homes constructed thereon; and
(ii) Borrower pays all costs and expenses in connection with
such release and reconveyance.
As used herein, "Net Sale Proceeds" shall equal the total proceeds to be
received by Borrower from the sale, less: (a) customary closing costs and title
fees payable by Borrower; (b) the lot release payment to Trustor's construction
lender; and (c) real estate commissions payable by Borrower, provided that sales
commissions payable to any real estate company affiliated with Borrower shall
not exceed 3% of the gross sales price.
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: _____________________________
Ira Norris, President
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<PAGE>
EXHIBIT "A"
BENEFICIARIES
-------------
<TABLE>
<CAPTION>
Undivided
Interests
---------
<S> <C>
James Fisher and Darlene Fisher, JTWROS 25.00%
Jerry Moreo 6.25%
Stephanie Kropp 12.50%
Fred Teriano 12.50%
William Shope 25.00%
USA Commercial Mortgage Company, Inc. a
Nevada corporation 18.75%
</TABLE>
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<PAGE>
EXHIBIT "B"
DESCRIPTION OF REAL PROPERTY
----------------------------
Lots 75 and 80 of Tract No. 15266, in the City of Victorville, County of San
Bernardino, State of California, as per map recorded in Book 260, Pages 31
through 33 of Maps, in the Officeof the County Recorder of said County.
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<PAGE>
EXHIBIT 10.4
LOAN AGREEMENT
This Loan Agreement, dated as of September 22, 1997, is entered into by and
between Inco Homes Corporation, a Delaware corporation ("Borrower"), and Dean
Petersen, Trustee of the Petersen Living Trust of 1993, udt 12/15/92 ("Lender").
SECTION 1: DEFINITIONS AND ACCOUNTING TERMS.
--------------------------------
1.1 Defined Terms. As used in this Agreement, the following terms shall
-------------
have the meanings set forth respectively after each:
"Agreement" means this Loan Agreement.
"Assignment of Permits, Licenses, Franchises and Authorizations" means the
Assignment of Permits, Licenses, Franchises and Authorizations executed by
Borrower.
"Assignment of Rents" means the assignment of rents contained in the Deed
of Trust.
"Business Day" means any Monday, Tuesday, Wednesday, Thursday or Friday
which is not a legal holiday in Nevada.
"Control Account" shall have the meaning set forth in Section 3.6 hereof.
"Control Account Escrow Agreement" shall mean the Control Account Escrow
Agreement and Security Agreement by and among Borrower, Lender and the
Disbursement Agent which shall govern the Control Account.
"Deed of Trust" means the Deed of Trust, Assignment of Rents, Security
Agreement and Fixture Filing of even date herewith, executed by Borrower in
favor of Lender with respect to the Property or portions thereof, either as
originally executed or as it may from time to time be supplemented, modified or
amended.
"Default Rate" shall have the meaning set forth in the Note.
"Disbursement Agent" means Ken's Construction Control, Las Vegas, Nevada.
"Events of Default" means each of those events so designated in Section 8.1
of this Agreement.
"Financing Statement" means financing statement(s) of even date herewith,
executed by Borrower in favor of Lender with respect to the Personal Property.
"First Parcel" means Lots 36 through 40 in Parcel 1, all of Parcel 2 and
all of Parcel 3, as such parcels are described on Exhibit "C" attached hereto.
<PAGE>
"Governmental Agency" means any governmental or quasi-governmental agency,
authority, board, bureau, commission, department, instrumentality or public
body, court, administrative tribunal or public utility.
"Improved Lots" shall mean Lots 36 through 40, inclusive, on Parcel 1, as
such parcel is described on Exhibit "C" attached hereto.
"Improvements" means the improvements constructed, or to be constructed, on
the Property.
"Laws" means, collectively, all federal, state and local laws, rules,
regulations, ordinances and codes.
"Loan" means the loan to be made by Lender to Borrower
pursuant to Section 3 hereof.
"Loan Documents" means, collectively, this Agreement, the Note, the
Security Documents, the Project Assignments and the Guaranties in each case
either as originally executed or as the same may from time to time be
supplemented, modified or amended.
"Lot(s)" means any of the single-family residential lots shown or to be
shown on the tract map(s) covering the Real Property.
"Maturity Date" means the date which is eighteen (18) months after the
Effective Date, as such is defined in Section 3.12 below.
"Model Lots" shall mean Lots 32 through 35, inclusive, on Parcel 1, as such
parcel is described on Exhibit "C" attached hereto.
"Net Sales Proceeds" shall have the meaning given it in Section 3.4 below.
"Note" means the promissory note of even date herewith, in the original
principal amount of Two Million Four Hundred Fifty Thousand Dollars
($2,450,000.00), 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.
<PAGE>
"Person" means any entity, whether an individual, trustee, corporation,
partnership, trust, unincorporated organization or otherwise.
"Personal Property" means all present and future personal property
(including the Project Documents) of Borrower of every kind and nature, whether
tangible or intangible, now or hereafter located at, upon or about the Property,
or used or to be used in connection with or relating or arising with respect to
the Property and/or the Project, including but not limited to the property
described in the Deed of Trust.
"Phase" means each of Borrower's phases of construction as such are
described on Exhibit "B" attached hereto.
"Project" means the project for the construction of the Improvements and
the development of the Property, as such exists at any time.
"Project Assignments" means, collectively, the Assignment of Permits,
Licenses, Franchises and Authorizations and any other such assignment made by
Borrower to Lender.
"Project Documents" means, collectively, all agreements, documents,
instruments and materials of whatever kind or nature relating to the Project,
including but not limited to: (a) the improvement plans and all other plans,
specifications and drawings relating to the Project, (b) all approvals,
consents, licenses and permits issued, or to be issued, by any Governmental
Agency in connection with the Project, (c) any architect's contract, the
engineer's contract, the construction contract, or any other agreements relating
to the Project between Borrower and any contractor, subcontractor, independent
project manager or supervisor, architect, engineer, laborer or supplier of
materials, and (d) any take-out, refinancing or permanent loan commitment issued
to Borrower with respect to the Property.
"Property" means, collectively, the Real Property, the Improvements, and
any other buildings, structures, or improvements now or hereafter located on all
or any portion of the Real Property and the Personal Property
"Real Property" means the real property and interests in real property
described in Exhibit "C".
"Second Parcel" means Lots 1 through 5, inclusive, 9 and 11 and 22 through
35 in Parcel 1, as such parcel is described on Exhibit "C" attached hereto.
"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 executed or as they may from time to time be
supplemented, modified or amended.
<PAGE>
"Title Company" means Fidelity National Title Insurance Company, Irvine,
California.
"Title Policy" means the policy of title insurance and endorsements thereto
required by this Agreement as a condition to the first Disbursement.
"Use" means ownership, use, development, construction, maintenance,
management, operation or occupancy.
1.2 Use of Defined Terms. Any defined term used in the plural shall
--------------------
refer to all members of the relevant class, and any defined term used in the
singular shall refer to any number of the members of the relevant class. Any
reference to the Loan Documents and other instruments, documents and agreements
shall include such Loan Documents and other instruments, documents and
agreements as originally executed or as the same may be supplemented, modified
or amended.
1.3 Accounting Terms. All accounting terms not specifically defined in
----------------
this Agreement shall be construed in conformity with, and all financial data
required to be submitted by this Agreement shall be prepared in conformity with,
generally accepted accounting principles applied on a consistent basis.
1.4 Exhibits. All exhibits to this Agreement, either as now existing
--------
or as the same may from time to time be supplemented, modified or amended, are
incorporated herein by this reference.
SECTION 2: RECITALS.
--------
Borrower has applied to Lender for a Loan to refinance the Real Property.
Lender is willing to make the Loan to Borrower on the terms and conditions
contained in this Agreement and the other Loan Documents.
SECTION 3: THE LOAN.
--------
3.1 Amount of the Loan. Subject to the terms and conditions set forth
------------------
in this Agreement, Lender agrees to make a loan (the "Loan") to Borrower in a
principal amount of Two Million Four Hundred Fifty Thousand Dollars
($2,450,000.00) (the "Loan Amount"), the disbursement of which by Lender is
subject to the term and conditions of the Loan Documents.
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
<PAGE>
individual Lender on the date that Lender deposits his portion of the Loan
Amount into the Loan escrow.
3.3 Prepayment. Borrower may prepay the Note at any time prior to the
----------
Maturity Date.
3.4 Partial Release of Lots. So long as no Event of Default has occurred
-----------------------
and is continuing, Lender shall release individual or multiple Lots from the
lien and operation of the Deed of Trust upon satisfaction in Lender's reasonable
discretion of the following requirements:
(i) the payment to the Control Account (as hereafter defined),
directly from the home sale escrow, of the "Net Sale Proceeds" (as defined
below) received from the sale of such Lot or Lots;
(ii) the progress of construction on the project is on schedule, and
construction has, to date, passed architectural inspections and there exists no
material cost overruns; and
(iii) Borrower pays all costs and expenses in connection with such
release and reconveyance.
As used herein, "Net Sale Proceeds" shall equal the total gross proceeds to be
received by Borrower from the sale including option and upgrade proceeds, less:
(a) customary closing costs and title fees payable by Borrower; (b) real estate
commissions payable by Borrower, provided that sales commissions payable to any
real estate company affiliated with Borrower, shall not exceed 1.5% of the gross
sales price; (c) all amounts payable by Borrower to Borrower's construction
lender whose loan is also secured by the Lot to be released (as such amount is
defined in such lender's loan documents) to cause the release of the lien of the
construction loan on the Lot; and (d) the sum of $5,000.00 per Lot to be
payable to Borrower ("Borrower Proceeds"), which amount is subject to reduction
as provided in the following paragraph.
Borrower's right to Borrower's Proceeds for any Lot may be reduced by
Lender at any time Lender determines that the average Net Sales Proceeds in a
Phase have, to date, not equaled at least $12,000.00 per Lot (the "Minimum
Average"). In such event, Borrower's Proceeds shall be reduced by an amount (to
be determined by Lender) as may be necessary to bring Net Sales Proceeds per Lot
in that Phase received to date to the Average Minimum. Once the Average Minimum
is again achieved, and so long as it is maintained, Borrower shall receive the
full Borrower's Proceeds. If an Event of Default has occurred and is
continuing, Lender, in its discretion, may allow the release of Lots as provided
above without the payment of any Borrower's Proceeds to Borrower or any accrual
thereof, said sum to be paid with Lender's Proceeds to the Control Account.
Once such default is cured, Borrower shall again receive the Borrower's Proceeds
attributable to the Lots which close and are released after such cure is
effective.
<PAGE>
3.5 Lot Sales Prices and Sales Escrow. Borrower shall not, without
---------------------------------
Lender's prior written consent, sell any Lot without a home constructed thereon.
Borrower shall also not sell any Lot for a gross sales price that is less than
that set forth on Exhibit "E" attached hereto. Borrower shall furnish to Lender
copies of all of its instructions to escrow regarding each sale for one or more
Lots. Borrower shall also provide to Lender copies of the escrow settlement
statements regarding each such sale which statements shall be certified by the
escrow agent to be true and correct. Borrower's instruction to each such escrow
shall provide that Lender's funds shall be segregated and deposited in interest-
bearing accounts until disbursed to Lender.
3.6 Control Account. As provided in Section 3.4 above, the Net Sales
---------------
Proceeds from each Lot shall be paid to a control account ("Control Account")
administered by the Disbursement Agent in accordance with the Control Account
Escrow Agreement and Security Agreement by and between Lender, Borrower and
Disbursement Agent executed concurrently herewith. Such proceeds shall be paid
to and shall accumulate in Control Account for the benefit of Lender. The
principal balance of the Note shall not be reduced at the time said proceeds are
paid to the Control Account. Such funds shall be invested and earn interest in
accordance with the Control Account Escrow Agreement. Borrower agrees and
acknowledges, for the reliance and benefit of Lender, that it shall continue to
pay interest on the entire principal balance of the Note throughout the term
hereof notwithstanding the fact that loan funds are being held in the Control
Account, and notwithstanding the Control Account balance. Said proceeds shall
be held in the Control Account and disbursed to Lender on the first business day
of each calendar month following a month in which a minimum of $25,000.00 shall
have accumulated in the Control Account.
Upon the occurrence of an Event of Default hereunder, Lender may close the
Control Account and withdraw all funds therefrom. In such event, Borrower's
obligation to pay interest on those funds withdrawn shall cease, and the amount
so withdrawn shall be applied to Borrower's then outstanding indebtedness to
Lender hereunder.
3.7 Subordination. So long as no Event of Default has occurred and is
-------------
continuing, and subject to the conditions contained in this Section, Lender
shall subordinate the lien of the Deed of Trust, to the lien of the deed of
trust and any related security documents which shall secure Borrower's
construction financing on the Property. Lender shall never subordinate to any
lower than second priority position as to any Lot. Said subordination shall be
as to only forty-one (41) Lots at any one time (i.e., once any such subordinated
Lots have been released pursuant to Section 3.4 above, Lender shall subordinate
as to additional Lots, up to the limit of 41 at any one time). The following
shall be conditions precedent to such subordinations: (a) Lender has reviewed
and approved the terms and conditions of the construction loan documents to
which Lender is asked to subordinate; (b) Borrower shall, concurrently with the
recording of such subordination, pay to the Control Account, for disbursement as
provided in Section 3.6 above, the following sums: (i) $2,000.00 per Lot for
each Lot to be subordinated in Phase 2 (as such is described on Exhibit "B"
attached hereto), and (ii) $4,000.00 per Lot for each Lot to be subordinated in
all subsequent Phases; provided, however, that the subordination payment for the
Improved Lots shall be $20,000.00 per Lot; (c) the Net Sales Proceeds for each
Lot closed prior
<PAGE>
to the recording of the subordination have averaged at least $12,000.00 per Lot;
(d) the projected minimum Net Sales Proceeds for each Lot then under
construction and not yet closed, as determined by Lender in its sole discretion,
shall average at least $12,000.00 per Lot; and (e) the projected minimum Net
Sales Proceeds for each Lot to which the subordination shall apply, as
determined by Lender in its sole discretion, shall average at least $12,000.00
per Lot. Borrower shall pay all of Lender's costs, including attorney's fees,
incurred in connection with any subordination request.
3.8 Option/Upgrade Reimbursement. The amount of any option/upgrade
----------------------------
premiums paid by each home buyer shall be determined from the face of the
contract between Borrower and that home buyer. So long as no Event of Default
has occurred and is continuing, at the time of each disbursement from the
Control Account, the Disbursement Agent shall also disburse to Borrower a sum
equal to fifty percent (50%) of the total option/upgrade premium paid with
respect to each Lot for which Net Sales Proceeds were paid to the Control
Account since the prior disbursement. Upon the occurrence of an Event of
Default and while such Event is continuing, Borrower shall be entitled to no
such reimbursements and Lender shall apply such sums to the outstanding balance
of the Loan.
3.9 Interest Reserve. At the closing of the Loan, Loan proceeds in the
----------------
amount of $400,000.00 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.
So long as no Event of Default has occurred and is continuing, Borrower may
add up to $25,000.00 from the home escrow closing proceeds for each Phase to the
Interest Reserve, provided that Borrower may add no more than $75,000.00 to the
Interest Reserve over the term of the Loan. Any such addition by Borrower shall
reduce the amount of principal reduction payable to Lender from the Control
Account.
3.10 Security. The indebtedness evidenced by the Note, and all other
--------
indebtedness and obligations of Borrower under the Loan Documents, shall be
secured by the Security Documents.
<PAGE>
3.11 Effective Date. Borrower and Lender agree that the date of the
--------------
Loan Documents is for reference purposes only and the effective date ("Effective
Date") of the delivery and the transfer to Lender of the security under the Loan
Documents and of Borrower's and Lender's obligations under the Loan Documents is
the date of recordation of the Deed of Trust in the office of the County
Recorder of the county where the Property is located.
SECTION 4: CONDITIONS TO FUNDING.
---------------------
The obligation of Lender to fund the Loan is subject to the following
conditions precedent:
(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;
(vi) certified copies of, or certificates evidencing, all
insurance policies required to be delivered pursuant to this Agreement;
(vii) current Financial Statement and last filed federal
tax return for Borrower;
(viii) 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);
(b) the Deed of Trust shall have been recorded in the Official Records
of the county in which the Real Property is located;
<PAGE>
(c) 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
(d) Lender shall have reviewed and approved the Permitted Exceptions.
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).
<PAGE>
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
(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
<PAGE>
regularly and finally received with respect thereto, including without
limitation each of the following as applicable:
(a) all zoning, land use and planning requirements;
(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.
<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.
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
<PAGE>
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. 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
<PAGE>
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 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
<PAGE>
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:
(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
<PAGE>
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.
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;
<PAGE>
(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
(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.
<PAGE>
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 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
<PAGE>
(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 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
<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 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
<PAGE>
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.
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
<PAGE>
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 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;
<PAGE>
(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, 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
<PAGE>
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 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:
<PAGE>
(a) the actual attorneys' fees and out-of-pocket expenses incurred by
Lender in connection with the negotiation, 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 guaranteed overnight delivery service, the date of sending
the telex, telecopy or telegram or two (2) days after mailing certified or
registered mail.
<PAGE>
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
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.
-------------------
<PAGE>
9.20 Counterparts. This Agreement may be executed in counterparts.
------------
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
"BORROWER": "LENDER":
Inco Homes Corporation, a Delaware The Petersen Living Trust of 1992,
corporation utd 12/15/92
By:___________________________ By:_____________________________
Ira Norris, President Dean Petersen, Trustee
<PAGE>
EXHIBIT 10.5
PROMISSORY NOTE
SECURED BY DEED OF TRUST
$2,450,000.00 Las Vegas, Nevada
September 22, 1997
This Promissory Note ("Note") is executed pursuant to the Loan Agreement
(the "Loan Agreement"), dated as of September 22, 1997 between INCO HOMES
CORPORATION, a Delaware corporation ("Borrower"), and DEAN PETERSEN, TRUSTEE OF
THE PETERSEN LIVING TRUST OF 1992, UDT 12/15/92 ("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 the Lender, or order, the
principal sum of Two Million Four Hundred Fifty Thousand Dollars ($2,450,000.00)
(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 fifteen and one-quarter
percent (15.25%) per annum. Interest shall be calculated on the basis of a 360-
day year and actual days elapsed. Accrued but unpaid interest shall be
compounded monthly.
2. Payments. Interest accrued on the Note Amount as of the last day of
--------
each month, shall be due and payable on the first day of the next following
month. On the Maturity Date, the Note Amount, together with any accrued but
unpaid interest thereon, shall be payable in full. All payments shall be made
in lawful money of the United States of America and in immediately available
funds at Lender's office, the address for which is specified in the Loan
Agreement, or at such other place as the holder hereof may from time to time
direct by written notice to Borrower.
3. Maturity Date. The term of this Note shall be for a period of eighteen
-------------
(18) months from the date the Deed of Trust is recorded. If not sooner paid,
the outstanding principal balance under this Note, all accrued and unpaid
interest, and all other indebtedness of Borrower owing under any and all of the
Loan Documents shall be due and payable in full on the Maturity Date.
4. Application of Payments. All payments on this Note shall, at the
-----------------------
option of the holder hereof, be applied first to the payment of accrued interest
then payable.
5. Prepayment. Borrower may prepay the Note at any time prior to the
----------
Maturity Date.
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
<PAGE>
amended. the Loan Agreement, among other things, contains provisions for
acceleration of the maturity hereof upon the happening of certain stated events.
7. Collateral. This Note is secured by (a) the Deed of Trust (the "Deed
----------
of Trust") executed by Borrower, as trustor, in favor of Lender, as beneficiary,
covering certain real property located in the County of Riverside, State of
California (the "Property"), and (b) all other existing and future Security
Documents.
8. Defaults; Acceleration. The occurrence of any Event of Default as
----------------------
defined in the Loan Agreement shall be a default hereunder. Upon the occurrence
of an Event of Default, Lender may declare the entire principal of the Note then
outstanding (if not then due and payable thereunder) and all other obligations
of Borrower hereunder and under the Loan Documents, to be due and payable
immediately, and, subject to applicable provisions of law, upon any such
declaration the principal of the Note and accrued and unpaid interest, and all
other amounts to be paid under the Note, the Deed of Trust or any other Loan
Document shall become and be immediately due and payable, anything in this Note
or in the Deed of Trust to the contrary notwithstanding.
9. Late Charge. Borrower acknowledges that if any interest payment is not
-----------
made when due or if the entire amount due under this Note is not paid by the
Maturity Date, the holder hereof will incur extra administrative expenses (i.e.,
---
in addition to expenses incident to receipt of timely payment) and the loss of
the use of funds in connection with the delinquency in payment. Because the
actual damages suffered by the holder hereof by reason of such extra
administrative expenses and loss of use of funds would be impracticable or
extremely difficult to ascertain, Borrower agrees that five percent (5%) of the
amount so delinquent shall be the amount of damages to which such holder is
entitled, upon such breach, in compensation therefor. Therefore, Borrower
shall, in the event any payment required under this Note is not paid within five
(5) days after the date when such payment becomes due and payable, without
further notice, pay to the holder hereof as such holder's sole monetary recovery
to cover such extra administrative expenses and loss of use of funds, liquidated
damages in the amount of five percent (5%) of the amount of such delinquent
payment. The provisions of this paragraph are intended to govern only the
determination of damages in the event of a breach in the performance of the
obligation of Borrower to make timely payments hereunder. Nothing in this Note
shall be construed as an express or implied agreement by the holder hereof to
forbear in the collection of any delinquent payment or in exercising any of its
rights and remedies under the Loan Documents, or be construed as in 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 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
-2-
<PAGE>
of the Loan Documents shall bear interest at a default rate equal to twenty and
one-quarter percent (20.25%) per annum ("Default Rate"). Such interest shall be
paid on the first day of each month thereafter, or on demand if sooner demanded.
11. Waivers. Borrower waives any right of offset it now has or may
-------
hereafter have against the holder hereof and its successors and assigns.
Borrower waives presentment, demand, protest, notice of protest, notice of
nonpayment or dishonor and all other notices in connection with the delivery,
acceptance, performance, default or enforcement of this Note (other than notices
expressly required by the terms of the Loan Agreement). Borrower expressly
agrees that any extension or delay in the time for payment or enforcement of
this Note, to renewal of this Note and to any substitution or release of the
Property, all without any way affecting the liability of Borrower hereunder.
any delay on Lender's part in exercising any right hereunder or under any of the
Loan Documents shall not operate as a waiver. Lender's acceptance of partial or
delinquent payments or the failure of Lender to exercise any rights shall not
waive any obligation of Borrower or any right of Lender, or modify this Note, or
waive any other similar default.
12. Costs of Collection. Borrower agrees to pay all costs of collection
-------------------
when incurred and all costs incurred by the holder hereof in exercising or
preserving any rights or remedies in connection with the enforcement and
administration of this Note or following a default by Borrower, including but
not limited to actual attorneys' fees. If any suit or action is instituted to
enforce this Note, Borrower promises to pay, in addition to the costs and
disbursements otherwise allowed by law, such sum as the court may adjudge
reasonable attorneys' fees in such suit or action.
13. Sale or Other Encumbrances.
--------------------------
(a) In order to induce Lender to make the loan secured hereby,
Borrower agrees that if the Mortgaged Property or any part thereof or any
interest therein, shall be sold (except sales for 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
-3-
<PAGE>
financing, except as shall be permitted by Lender, or if other liens or
encumbrances should attach to the Mortgaged Property.
(b) Borrower may request Lender to approve a sale or transfer of the
Mortgaged Property to a party who would become the legal and equitable owner of
the Mortgaged Property and would assume any and all obligations of Borrower
under the Loan Documents (the "Purchaser"). Lender shall not be obligated to
consider or approve any such sale, transfer or assumption or request for the
same. However, upon such request, Lender may impose limiting conditions and
requirements to its consent to an assumption.
(c) In the event ownership of the Mortgaged Property, or any part
thereof, becomes vested in a person or persons other than Borrower, the Lender
may deal with such successor or successors in interest with reference to the
Note or this Deed of Trust in the same manner as with Borrower, without in any
way releasing, discharging or otherwise affecting the liability of Borrower
under the Note, this Deed of Trust or the other Loan Documents. No sale of
Borrower's interest in the Mortgaged Property, no forbearance on the part of the
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 the 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 of 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
-4-
<PAGE>
Lender hereunder; provided, however, that any such assignment shall in no way
affect Lender's obligation to fund the Loan pursuant to the Loan Agreement and
terms hereof.
17. Multiple Parties. A default on the part of any one entity comprising
----------------
Borrower of this Note shall be deemed a default on the part of Borrower
hereunder.
18. Construction. This Note shall be governed by and construed in
------------
accordance with the laws of the State of Nevada. This Note and all security
documents and guaranties executed in connection with this Note have been
reviewed and negotiated by Borrower and Lender at arms' length with the benefit
of or opportunity to seek the assistance of legal counsel and shall not be
construed against either party. The titles and captions in this Note are
inserted for convenience only and in no way define, limit, extend, or modify the
scope of intent of this Note.
19. Partial Invalidity. If any section or provision of this Note is
------------------
declared invalid or unenforceable by any court of competent jurisdiction, said
determination shall not affect the validity or enforceability of the remaining
terms hereof. No such determination in one jurisdiction shall affect any
provision of this Note to the extent it is otherwise enforceable under the laws
of any other applicable jurisdiction.
"BORROWER":
Inco Homes Corporation, a Delaware
corporation
By: /s/ IRA NORRIS
----------------------------------
Ira Norris, President
-5-
<PAGE>
EXHIBIT 10.6
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 22nd day of September, 1997, by and between
Inco Homes Corporation, a Delaware corporation ("Trustor"), Fidelity National
Title Insurance Company, a California corporation ("Trustee"), and Dean
Petersen, Trustee of the Petersen Living Trust of 1992, udt 12/15/92
("Beneficiary"). Capitalized terms used herein and not otherwise defined herein
are used with the meanings set forth in that certain Loan Agreement ("Loan
Agreement") of even date herewith between Trustor and Beneficiary.
WITNESSETH:
That for good and valuable consideration, including the indebtedness herein
recited and the trust herein created, the receipt of which is hereby
acknowledged, and for the purpose of securing, in such priority as Beneficiary
may elect, each of the following:
1. The due, prompt and complete payment, observance, performance and
discharge of each and every obligation, covenant and agreement contained in that
certain Promissory Note of even date herewith in the initial principal amount of
Two Million Four Hundred Fifty Thousand Dollars ($2,450,000.00) (the "Note"),
together with interest thereon specified therein, executed by Trustor to the
order of Beneficiary and any and all modifications, extensions or renewals
thereof, whether hereafter evidenced by the Note or otherwise; and
2. The payment of all other sums, with interest thereon at the rate of
interest provided for herein or in the Note, becoming due or payable under the
provisions of this Deed of Trust, the Loan Agreement or any other instrument or
instruments heretofore or hereafter executed by Trustor having reference to or
arising out of or securing the indebtedness represented by the Note; and
<PAGE>
3. The payment of such additional sums and interest thereof which may
hereafter be loaned to Trustor, or its successors or assigns, by Beneficiary,
whether or not evidenced by a promissory note or notes which are secured by this
Deed of Trust; and
4. The due, prompt and complete observance, performance and discharge of
each and every obligation, covenant and agreement of Trustor contained in the
Loan Agreement, the Note, this Deed of Trust or any other Loan Document;
TRUSTOR DOES HEREBY irrevocably grant, transfer, bargain, sell, convey and
assign to Trustee, in trust, with power of sale and right of entry and
possession, and does grant to Beneficiary a security interest for the benefit
and security of Beneficiary under and subject to the terms and conditions
hereinafter set forth, in and to any and all of the following described property
which is (except where the context otherwise requires) herein collectively
called the "Mortgaged Property" whether now owned or held or hereafter acquired
and wherever located, including any and all substitutions, replacements and
additions to same:
(a) That certain real property located in Riverside County, State of
California and more particularly described in Exhibit "A," attached hereto and
incorporated herein by this reference, together with all of the easements,
rights, privileges, franchises, appurtenances thereunto belonging or in any way
appertaining to the real property, including specifically but not limited to all
appurtenant water, water rights and water shares or stock of Trustor, any and
all general intangibles relating to the use and/or development of the real
property, including development allotments, governmental permits, approvals,
authorizations and entitlements, agreements to provide necessary utility or
municipal services, the Project Documents, including all engineering plans and
diagrams, surveys and/or soil and substrata studies, and all other rights,
privileges and appurtenances related to the said real property and all of the
estate, right, title, interest, claim and demand whatsoever of Trustor therein
or thereto, either in law or in equity, in possession or in expectancy, now
owned or hereafter acquired (hereinafter referred to as the "Property");
(b) All structures, buildings and improvements of every kind and
description now or at any time hereafter located on the Property (hereinafter
referred to as the "Improvements"), including all equipment, apparatus,
machinery, fixtures, fittings, and appliances and other articles and any
additions to, substitutions for, change in or replacements of the whole or any
part thereof, now or at any time hereafter affixed or attached to and which are
an integral part of said structures, buildings, improvements or the Property or
any portion thereof, and such Improvements shall be deemed to be fixtures and an
accession to the freehold and a part of the Property as between the parties
hereto and all persons claiming by, through or under such parties except that
same shall not include such machinery and equipment of Trustor, or any tenant of
any portion of the Property or Improvements, which is part of and/or used in the
conduct of the normal 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
<PAGE>
any time has become toxic waste, waste products or hazardous substances
(hereinafter referred to as the "Personal Property"), including without
limitation all wall-beds, wall-safes, built-in furniture and installations,
shelving, partitions, door-tops, vaults, elevators, dumb-waiters, awnings,
window shades, venetian blinds, light fixtures, fire hoses and brackets and
boxes for the same, fire sprinklers, alarm systems, drapery rods and brackets,
screens, water heaters, incinerators, wall coverings, carpeting, linoleum, tile,
other floor coverings of whatever description, communication systems, all
specifically designed installations and furnishings, office maintenance and
other supplies and all of said articles of property, the specific enumerations
herein not excluding the general, now or at any time hereafter placed upon or
used in any way in connection with the ownership, operation or maintenance of
the Property or the Improvements or any portion thereof and owned by Trustor or
in which Trustor now has or hereafter acquires an interest, and all building
materials and equipment now or hereafter delivered to the Property and intended
to be installed or placed in or about the Improvements. Such tangible, personal
property shall, in addition to all other tangible, personal property herein
described or defined, specifically include each and every item of tangible,
personal property and any substitutions for, changes in or replacements thereof
which are used in the operation of the Improvements. Notwithstanding the breadth
of the foregoing, the Personal Property shall not include (i) personal property
which may be owned by lessees or other occupants of the Mortgaged Property; (ii)
inventory of any lessee or occupant of the Mortgaged Property used in the normal
course of the business conducted thereon; (iii) material, equipment, tools,
machinery, or other personal property which is brought upon the Mortgaged
Property only for use in construction, maintenance or repair and which is not
intended to remain after the completion of such construction, maintenance or
proper maintenance, of the Mortgaged Property; or (iv) such items of tangible
personal property which have not been purchased or installed with proceeds of
the Note and for which Beneficiary shall have executed such documents as may be
required to subordinate to the lien or security interest of any purchase money
lender or supplier of such tangible personal property;
(d) All right, title and interest of Trustor, now owned or hereafter
acquired in and to any and lying within the right-of-way of any street, road,
alley or public place, opened or proposed, vacated or extinguished by law or
otherwise, and all easements and rights of way, public or private, tenements,
hereditaments, appendages, rights and appurtenances how or hereafter located
upon the Property or now or hereafter used in connection with or now or
hereafter belonging or appertaining to the Property; and all right, title and
interest in the 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
-3-
<PAGE>
Profits"), and all right, title and interest of Trustor in and to all leases of
the Mortgaged Property now or hereafter entered into and all right, title and
interest of Trustor thereunder, including, without limitation, cash or
securities deposited thereunder to secure performance by the lessees of their
obligations thereunder, whether said cash or securities are to be held until the
expiration of the terms of said leases or applied to one or more of the
installments of rent coming due immediately prior to the expiration of said
terms with the right to receive and apply the same to said indebtedness, and
Trustee or Beneficiary may demand, sue for and recover such payments but shall
not be required to do so; and
(g) All proceeds of the conversion, voluntary or involuntary, of any
of the foregoing into cash or liquidated claims.
Trustor makes the foregoing grant to Trustee for the purposes herein set
forth; provided, however, that if the Trustor shall pay or cause to be paid to
the holder of the Note all amounts required to be paid under the provisions of
the Note, this Deed of Trust or any other Loan Documents, and at the time and in
the manner stipulated therein, and shall further pay or cause to be paid all
other sums payable hereunder and all indebtedness hereby secured, then, in such
case, the estate, right, title and interest of the Trustee and Beneficiary in
the Mortgaged Property shall cease, determine and become void, and upon proof
being given to the satisfaction of the Beneficiary that all amounts due to be
paid under the Note have been paid or satisfied, and upon payment of all fees,
costs, charges, expenses and liabilities chargeable or incurred or to be
incurred by Trustee or Beneficiary, and of any other sums as herein provided,
the Trustee shall, upon receipt of the written request of the Beneficiary,
cancel, reconvey and discharge this Deed of Trust.
TO HAVE AND TO HOLD THE MORTGAGED PROPERTY UNTO THE TRUSTEE ITS SUCCESSORS AND
ASSIGNS FOREVER, ALL IN ACCORDANCE WITH THE PROVISIONS HEREOF.
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
-4-
<PAGE>
done; that this Deed of Trust is and shall remain a valid and enforceable lien
on the Mortgaged Property, subject only to the Permitted Exceptions; that
Trustor and its successors and assigns shall preserve its title and interest in
and title to the Mortgaged Property and shall forever warrant and defend the
same and shall warrant and defend the validity and priority of the lien thereof
forever against all claims and demands of all persons whomsoever, and that this
covenant shall not be extinguished by any exercise of power of sale or
foreclosure sale hereof, but shall run with the land; and
(b) Trustor has and shall maintain good and marketable title to the
Improvements and Personal Property, including any additions or replacements
thereto, free of all security interests, liens and encumbrances, if any, set
forth as Permitted Exceptions in the Loan Agreement, or as otherwise disclosed
to and accepted by Beneficiary in writing, and has good right to subject
Improvements and Personal Property to the security interest created hereunder.
If the lien of this Deed of Trust on any Improvements or Personal Property be
subject to a lease agreement, conditional sale agreement or chattel mortgage
covering such property, then in the event of any default hereunder all the
rights, title and interest of the Trustor in any and all deposits made thereon
or therefor are hereby assigned to the Trustee, together with the benefit of any
payments now or hereafter made thereon. There is also transferred, set over and
assigned by Trustor to Trustee, its successors and assigns, hereby all of
Trustee's right, title and interest in and to the Project Documents, and all
leases and use agreements of machinery, equipment and other personal property of
Trustor in the categories hereinabove set forth, under which Trustor is the
lessee of, or entitled to use such items, and Trustor agrees to execute and
deliver to Trustee or Beneficiary all such Project Documents, leases and
agreements when requested by Trustee or Beneficiary. Trustor hereby covenants
and agrees to well and punctually 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.
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<PAGE>
1.4 Payment of Taxes, Assessments, Insurance Premiums and Charges.
-------------------------------------------------------------
Trustor shall pay, prior to delinquency, all insurance premiums that become due
and payable on any insurance policies required to be maintained hereunder and
under the Loan Agreement, all taxes, assessments, charges and levies imposed by
any Governmental Agency which are or may become a lien affecting the Property or
any part thereof, including without limitation assessments on any appurtenant
water stock; except that Trustor shall not be required to pay and discharge any
tax, assessment, charge or levy that is being actively contested in good faith
by appropriate proceedings, as long as Trustor has established and maintains
reserves adequate to pay any liabilities contested pursuant to this Section in
accordance with generally accepted accounting principles and, by reason of
nonpayment, none of the Mortgaged Property covered by the Loan Documents or the
lien or security interest of Beneficiary is in danger of being lost or
forfeited.
1.5 Maintenance and Repair. The Trustor shall, at its sole cost and
----------------------
expense, keep the Mortgaged Property in good operating order, repair and
condition and shall not commit or permit any waste thereof, which condition,
during the course of any reconstruction of the Improvements, shall be subject to
the normal constraints and effects of reconstruction. Trustor shall make all
repairs, replacements, renewals, additions and improvements and complete and
restore promptly and in good 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
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<PAGE>
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 by Beneficiary. Plans and specifications for the
restoration, repair, replacement or rebuilding shall be submitted to for
approval by the Beneficiary prior to the commencement of the work. Any surplus
which may remain out of said insurance proceeds after payment of costs of
building and restoration may, at the option of the Beneficiary, be 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
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<PAGE>
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
------------------------------------------------------
specifically agrees that:
(a) In order to induce Beneficiary to make the loan secured hereby,
Trustor agrees that if the Mortgaged Property or any part thereof or any
interest therein, shall be sold, assigned, transferred, conveyed, pledged,
mortgaged or encumbered with financing other than that secured hereby or
otherwise alienated by Trustor whether voluntarily or involuntarily or by
operation of law, except as shall be specifically hereinafter permitted or
without the prior written consent of Beneficiary, then Beneficiary, at its
option, may declare the Note secured hereby, including the Prepayment Fee (if
applicable), and all other obligations hereunder to be forthwith due and
payable. Except as shall be otherwise specifically provided herein, any (a)
change in the legal or equitable ownership of the Property whether or not of
record, (b) change in the form of entity of Trustor, (c) change in ownership
(including the hypothecation or encumbrance thereof) of a majority of the stock
in Trustor held by Ira Norris, or (d) change in the controlling executives and
directors of Trustor shall be deemed a transfer of an interest in the Property.
In connection herewith, the financial stability and managerial and operational
ability of Trustor is a substantial and material consideration to Beneficiary in
its agreement to make the loan to Trustor secured hereby. The transfer of an
interest in the Mortgaged Property may materially alter and reduce Beneficiary's
security for the indebtedness secured hereby. Moreover, Beneficiary has agreed
to make its loan based upon the presumed value of the Mortgaged Property and the
Rents and Profits thereof. Therefore, it will be a diminution of Beneficiary's
security if junior financing, except as shall be permitted by Beneficiary, or if
other liens or encumbrances should attach to the Mortgaged Property.
(b) Trustor may that Beneficiary approve a sale or transfer of the
Mortgaged Property to a party who would become the legal and equitable owner of
the Mortgaged Property and would assume any and all obligations of Trustor under
the Loan Documents (the "Purchaser"). Beneficiary shall not be obligated to
consider or approve any such sale, transfer or assumption or request for the
same. However, upon such request, Beneficiary may impose limiting conditions
and requirements to its consent to an assumption.
(c) In the event ownership of the Mortgaged Property, or any part
thereof, becomes vested in a person or persons other than Trustor, the
Beneficiary may deal with such successor or successors in interest with
reference to the Note or this Deed of Trust in the same manner as with Trustor,
without in any way releasing, discharging or otherwise affecting the liability
of Trustor under the Note, this Deed of Trust or the other Loan Documents. No
sale of Trustor's interest in the Mortgaged Property, no forbearance on the part
of Beneficiary, no extension of the time for the payment of the Deed of Trust
indebtedness or any change in the terms thereof consented to by Beneficiary
shall in any way whatsoever operate to release, discharge, modify, change or
affect the original liability of the Trustor herein, either in whole or 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
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<PAGE>
Deed of Trust and all other Loan Documents. In the event such deed shall not
contain such assumption, Beneficiary shall have all rights reserved to it
hereunder in the event of a default or if Beneficiary shall not elect to
exercise such rights and remedies, the grantee under such deed shall
nevertheless be deemed to have assumed such obligations by acquiring the
Mortgaged Property or such portion thereof subject to this Deed of Trust.
Nothing contained in this section shall be construed to waive the restrictions
against the transfer of the Mortgaged Property contained in Section 1.11(a).
1.12 Transfer of Personal Property. Trustor shall not voluntarily,
-----------------------------
involuntarily or by operation of law sell, assign, transfer, hypothecate, pledge
or otherwise dispose of the Personal Property or any interest therein and shall
not otherwise do or permit anything to be done or occur that may impair the
Personal property as security hereunder, except that so long as this Deed of
Trust is not in default, Trustor shall be permitted to sell or otherwise dispose
of the Personal Property when absolutely worn out, inadequate, unserviceable or
unnecessary for use in the operation of the Property or in the conduct of the
business of Trustor, upon replacing the same or substituting for the same other
Personal Property at least equal in value to the initial value of that disposed
of and in such a manner so that said Personal Property is sold in connection
with the sale of the Property.
1.13 Title to Replacements and Substitutions. All right, title and
---------------------------------------
interest of Trustor in and to all extensions, improvements, betterments,
renewals, substitutes and replacements of, and all additions and appurtenances
to the Personal Property, Improvements or the Mortgaged Property hereafter
acquired by or released to Trustor or constructed, assembled or placed by
Trustor on the Mortgaged Property, and all conversions of the security
constituted thereby, immediately upon such acquisition, release, construction,
assembling, placement or conversion, as the case may be, and in each such case,
without any further deed of trust, conveyance, assignment or other act by
Trustor, shall become subject to the lien of this Deed of Trust as fully and
completely, and with the same effect and in the same priority as the lien of
this Deed of Trust shall have attached to the item so replaced or substituted
immediately prior to such replacement of substitutions, as though now owned by
Trustor and specifically described in the granting clause hereof, but at any and
all times Trustor will execute and deliver to Trustee any and all such further
assurances, deeds of trust, conveyances or assignments thereof as Trustee or
Beneficiary may reasonably require for the purpose of expressly and specifically
subjecting the same to the lien of this Deed of Trust.
1.14 Security Agreement. This Deed of Trust shall be self-operative and
------------------
shall constitute a Security Agreement and a Construction Mortgage as those terms
are defined in the Uniform Commercial Code, as enacted in California (the
"Commercial Code"), with 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
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<PAGE>
records in the county in which the Mortgaged Property is located. In that
regard, the following information is provided:
Name of Debtor: Inco Homes Corporation, a Delaware corporation
Address of Debtor: See Section 5.12
Names and Addresses
of Secured Party: See Exhibit "A" attached hereto.
1.15 Management. Trustor shall not enter into any agreement providing
----------
for the management, leasing or operation of the Property without the prior
written consent of the Beneficiary. Nothing contained herein shall limit
Beneficiary's rights in equity to obtain a receiver for the Mortgaged Property.
1.16 Advances. If Trustor shall fail to perform any of the covenants
--------
herein contained or contained in any other Loan Document, the Beneficiary may,
but without obligation to do so, pay any and all amounts necessary to perform
same or cause same to be performed on behalf of Trustor, and all sums so
expended by Beneficiary for payment of any item whatsoever, including, but not
by limiting the generality of the foregoing, payment of taxes, insurance
premiums, lien claimants or assessments shall be secured by this Deed of Trust
and each such payment shall be and all such payments shall be collectively
referred to herein as an "Advance." The Trustor shall repay to Beneficiary on
demand each and every Advance and the sum of each such Advance shall accrue
interest at the Default Rate, as that term is defined in the Note, from the date
of each Advance until repaid to Beneficiary. Nothing herein contained, including
the payment of such amount or amounts by Beneficiary, shall prevent any such
failure to perform on the part of Trustor from constituting an Event of Default
as defined herein. Any such advance shall be deemed to be made under an
obligation to do so.
1.17 Time. The Trustor agrees that time is of the essence hereof in
----
connection with all obligations of the Trustor herein, in the Note or any other
Loan Documents.
1.18 Estoppel Certificates. The Trustor within ten (10) days after
---------------------
written request shall furnish a duly acknowledged written statement 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.
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<PAGE>
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 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
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<PAGE>
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.
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<PAGE>
ARTICLE 3
REMEDIES
--------
Upon the occurrence of any Event of Default, Trustee and Beneficiary shall
have the following rights and remedies:
3.1 Acceleration of Maturity. Beneficiary may declare the entire
------------------------
principal of the Note then outstanding (if not then due and payable thereunder)
and all other obligations of Trustor hereunder or under the Note, to be due and
payable immediately, and, subject to applicable provisions of law, upon any such
declaration the principal of the Note and accrued and unpaid interest, and all
other amounts to be paid under the Note, this Deed of Trust or any other Loan
Document shall become and 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
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<PAGE>
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 may make all necessary or proper repairs, renewals
and replacements of the Personal Property and such useful alterations,
betterments and improvements thereto and thereon as to it may seem advisable. In
every such case the Trustee or Beneficiary or any such party shall have the
right to manage and operate the Mortgaged Property and to carry on the business
thereof and exercise all rights and powers of the Trustor with respect thereto
either in the name of the Trustor or otherwise, as it shall deem best, and shall
be entitled to collect and receive the Rents and Profits of the Mortgaged
Property and every part thereof and after deducting the expenses of conducting
the business thereof and of all maintenance, repairs, renewals, replacements,
alterations, additions, betterments and improvements and amounts necessary to
pay for taxes, assessments, insurance and prior or other proper charges upon the
Mortgaged Property or any part thereof, as well as just and reasonable
compensation for the agents, clerks, servants and other employees by it properly
engaged and employed, the Beneficiary shall apply the monies arising as
aforesaid, in the order as is set forth in the Note.
3.6 Rights of Secured Party. Beneficiary shall have all of the remedies
-----------------------
of a Secured Party under the Commercial Code, including without limitation, the
right and power to sell, or otherwise dispose of, the Personal Property, or any
part thereof, and for that purpose may take immediate and exclusive possession
of the Personal Property, or any part thereof, and with or without judicial
process to the extent permitted by law, enter upon any premises on which the
Personal Property or any part thereof, may be situated and remove the same
therefrom without being deemed guilty of trespass and without liability for
damages thereby occasioned, or at Beneficiary's option Trustor shall assemble
the Personal Property and make it available to the Beneficiary at the place and
the time designated in the demand. Beneficiary shall be entitled to hold,
maintain, preserve and prepare the Personal Property for sale. Beneficiary,
without removal of the Personal Property from the Mortgaged Property, may render
the Personal Property inoperable and dispose of the Personal Property on the
Mortgaged Property. To the extent permitted by law, Trustor expressly waives
any notice of sale or other disposition of the Personal Property and any other
right or remedy of Beneficiary existing after default hereunder, and to the
extent any such notice is required and cannot be waived, Trustor agrees that as
it relates to this Section 3.6 only, if such notice is mailed, postage prepaid,
to the Trustor at the address set forth in Section 5.12 hereof at least ten (10)
days before the time of the sale or disposition, such notice shall be deemed
reasonable and shall fully satisfy any requirement for giving of said notice.
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
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<PAGE>
adopted and incorporated into this Deed of Trust by this reference and in
accordance with such rights, powers and privileges:
(a) The Trustee may, and upon the written request of Beneficiary
shall, with or without entry, personally or by its agents or attorneys insofar
as applicable pursuant to and in accordance with the laws of the State of
California:
(i) subject to the provisions of the Loan Agreement, cause
any or all of the Mortgaged Property to be sold under the power of
sale granted by this Deed of Trust or any of the other Loan Documents
in any manner permitted by applicable law. For any sale under the
power of sale granted by this Deed of Trust, Trustee or Beneficiary
must record and give all notices required by law and then, upon the
expiration of such time as is required by law, may sell the Mortgaged
Property, and all estate, right, title, interest, claim and demand of
Trustor therein, and all rights of redemption thereof, at one or more
sales, as an entirety or in parcels, with such elements of real and/or
personal property (and, to the extent permitted by applicable law, may
elect to deem all of the Mortgaged Property to be real property for
purposes thereof), and at such time or place and upon such terms as
Trustee and Beneficiary may determine and shall execute and deliver to
the purchaser or purchasers thereof a deed or deeds conveying the
property sold, but without any covenant or warranty, express or
implied, and the recitals in the deed or deeds of any facts affecting
the regularity or validity of a sale will be conclusive against all
persons. In the event of a sale, by foreclosure or otherwise, of less
than all of the Mortgaged Property, this Deed of Trust shall continue
as a lien and security interest on the remaining portion of the
Mortgaged Property; or
(ii) institute proceedings for the complete or partial
foreclosure of this Deed of Trust as a mortgage; and in this
connection Trustor does hereby expressly waive to the extent permitted
by law its right of redemption after a mortgage foreclosure sale; or
(iii) apply to any court of competent jurisdiction for the
appointment of a receiver or receivers for the Mortgaged Property and
of all the earnings, revenues, rents, issues, profits and income
thereof, which appointment is hereby consented to by Trustor; or
(iv) take such steps to protect and enforce its rights
whether by action, suit or proceeding in equity or at law for the
specific performance of any covenant, condition or 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
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<PAGE>
as otherwise provided by any applicable provision of law, the Trustee without
further notice or publication, may make such sale at the time and place to which
the sale shall be so adjourned;
(c) Upon the completion of any sale or sale made by the Trustee under
or by virtue of this Section, the Trustee shall execute and deliver to the
accepted purchaser or purchasers a good and sufficient instrument, or good and
sufficient instruments, conveying, assigning and transferring all estate, right,
title and interest in and to the property and rights sold, but without any
covenant or warranty, express or implied. The recitals in such deed of any
matters or facts shall be conclusive proof of the truthfulness thereof to the
extent permitted by law. Any such sale or sales made under or by virtue of
this Section whether made under the power of sale herein granted or under or by
virtue of judicial proceedings or of a judgment or decree of foreclosure and
sale, shall operate to divest all the estate, right, title, interest, claim and
demand whatsoever, whether at law or in equity, of the Trustor in and to the
properties and rights so sold, and shall be a perpetual bar both at law and in
equity against the Trustor and against any and all persons claiming or who may
claim the same, or any part thereof from through or under the Trustor.
(d) In the event of any sale made under or by virtue of this Section
whether made under the power of sale herein granted or under or by virtue of
judicial proceedings or of a judgment or decree of foreclosure and sale, the
entire principal of and interest on the Note and all accrued interest on the
Note, and all other sums required to be paid by the Trustor pursuant to the Note
and this Deed of Trust shall be due and payable, anything in the Note or in this
Deed of Trust to the contrary notwithstanding.
(e) The purchase money proceeds or avails of any sale made under or by
virtue of this Section, together with any other sums which then may be held by
the Trustee or Beneficiary under this Deed of Trust whether under the provisions
of this Section or otherwise, shall be applied as required by applicable law.
(f) Upon any sale made under or by virtue of this Section, whether
made under the power of sale herein granted or granted in accordance with the
laws of the state in which the Property is located or under or by virtue of
judicial proceedings or of a judgment or decree of foreclosure and sale, the
Beneficiary may bid for and acquire the Mortgaged Property or any part thereof
and in lieu of paying cash 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
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<PAGE>
also be taken irrespective of whether any notice of default or election to sell
has been given hereunder and without regard to the adequacy of the security for
the indebtedness hereby secured.
3.9 Marshalling of Assets. To the extent allowed by applicable law,
---------------------
Trustor on its own behalf and on behalf of its successors and assigns hereby
expressly waives all rights to require a marshalling of assets by Trustee or
Beneficiary or to require Trustee or Beneficiary to first resort to the sale of
any portion of the Mortgaged Property which might have been retained by Trustor
before foreclosing upon and selling any other portion as may be conveyed by
Trustor subject to this Deed of Trust.
3.10 Occupancy by Trustor. In the event of a trustee's sale hereunder, if
--------------------
at the time of such sale Trustor occupies the portion of the Mortgaged Property
so sold or any part thereof, Trustor shall immediately become the tenant of the
purchaser at such sale, which tenancy shall be a tenancy from day to day,
terminable at the will of either the tenant or any such purchaser, at a
reasonable rental per day based upon the value of the portion of the Mortgaged
Property so occupied, such rental to be due and payable daily to the purchaser.
An action of unlawful detainer shall lie if the tenant holds over after a demand
in writing from the purchaser for possession of such Mortgaged Property.
3.11 Non-Waiver of Default. The entering upon and taking possession of
---------------------
the Mortgaged Property, the collection of any Rents or Profits or other benefits
and the application thereof, as aforesaid, shall not cure or waive any default
theretofore or thereafter occurring or affect any notice of default hereunder or
invalidate any act done pursuant to such notice; and, notwithstanding
continuance in possession of the Mortgaged Property, or any part thereof by
Beneficiary, Trustee or a receiver and the collection, receipt and application
of Rents and Profits or other benefits, Beneficiary shall be entitled to
exercise every right provided for in this Deed of Trust or by law upon or after
the occurrence of a default, including the right to exercise the power of the
sale.
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
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<PAGE>
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.
ARTICLE 5
MISCELLANEOUS
-------------
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<PAGE>
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.
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
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<PAGE>
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 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,
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<PAGE>
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 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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<PAGE>
5.14 Late Charges. As set forth and defined in the Note, there shall be
------------
due to Beneficiary a Late Charge of five percent (5%) of the amount of any
payment which is received by Beneficiary so as to incur a Late Charge, and all
such Late Charges are secured hereby.
5.15 Statutory Covenants. Where not inconsistent with the above, the
-------------------
following covenants, Nos. 1; 2 (full replacement value); 3; 4 (20.5%); 5; 6; 7
(a reasonable percentage); 8 and 9 of NRS 107.030 are hereby adopted and made a
part of this Deed of Trust.
5.16 Non-Assumption. Notice is hereby given that Trustor's obligations
--------------
under this Deed of Trust may not be assumed except as permitted by Section 1.11
hereof. Any transfer of Trustor's interest in the Mortgaged Property or any
attempted assumption of Trustor's obligations under the Deed of Trust not so
approved shall constitute a default hereunder and shall permit Beneficiary to
accelerate the Maturity Date of the Note. Reference to applicable sections of
the Loan Documents must be made for the full text of such provisions.
5.17 Review of Covenants, Conditions and Restrictions. No covenant,
------------------------------------------------
condition or restriction or any rule or regulation or any other document or
agreement, however, denominated, which shall purport to apply to the ownership,
operation, maintenance or governance of the Mortgaged Property or any part
thereof, nor any article of incorporation bylaw or any other document or
agreement, however denominated, which shall purport to establish an organization
for the operation, maintenance of governance of the Mortgaged Property or any
part thereof, shall be approved, executed and/or recorded without the express
prior written consent of Beneficiary.
5.18 Loan Agreement. Performance of Trustor's obligations under that
--------------
certain Loan Agreement of even date herewith by and between Trustor and
Beneficiary are secured by this Deed of Trust, and a default thereunder shall
constitute an Event of Default under this Deed of Trust.
IN WITNESS WHEREOF, the undersigned have caused this instrument to be
signed as of the date first above written.
"TRUSTOR":
Inco Homes Corporation, a Delaware
corporation
By: _____________________________
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
----------------------------
THE LAND REFERRED TO IN THIS REPORT IS SITUATED IN THE STATE OF CALIFORNIA,
COUNTY OF RIVERSIDE, AND IS DESCRIBED AS FOLLOWS:
PARCEL 1:
- --------
Lots 1 through 5, inclusive, 9, 11 and 22 through 40, inclusive, of Tract No.
23995-1, in the County of Riverside, State of California, as per map recorded in
Book 249, Pages 84 through 87, records of said County.
PARCEL 2:
- --------
That portion of the Southeast one-quarter of Section 19, Township 5 South, Range
7 East, San Bernardino Meridian, in the City of La Quinta, County of Riverside,
State of California, more particularly, described as follows:
Commencing at the Northeast corner of said Southeast one-quarter of Section 19;
thence South 00 at 10'15" East along the Easterly line of said Southeast one-
quarter a distance of 50.00 feet to the true point of beginning; thence
continuing along said Easterly line, South 00 at 10'15" East, a distance of
1303.00 feet:
Thence South 89 at 49'45" West a distance of 166.00 feet; Thence South 00 at
10'15" East a distance of 132.00 feet; Thence South 89 at 49'45" West a distance
of 278.00 feet; Thence South 00 at 10'15" East a distance of 30.73 feet; Thence
South 89 at 49'45" West a distance of 155.00 feet; Thence South 06 at 33'51"
West a distance of 34.45 feet; Thence South 50 at 56'52" West a distance of
76.11 feet; Thence South 87 at 35'59" West a distance of 47.38 feet; Thence
North 46 at 01'17" West a distance of 133.05 feet; Thence North 28 at 00'09"
West a distance of 47.42 feet; Thence North 18 at 52'54" West a distance of
55.36 feet; Thence North 00 at 10'15" West a distance of 111.77 feet; Thence
North 55 at 10'15" West a distance of 127.42 feet; Thence North 55 at 12'13"
West a distance of 60.86 feet; Thence North 65 at 18'10" West a distance of
110.09 feet; Thence South 10 at 34'37" West a distance of 119.32 feet; Thence
South 89 at 49'45" West a distance of 100.00 feet; Thence North 80 at 14'17"
West a distance of 60.91 feet; Thence South 89 at 49'45" West a distance of
100.00 feet; Thence North 00 at 10'15" West parallel with the Easterly line of
said Southeast one-quarter of Section 19 a distance of 1208.96 feet to a point
on the South line of the Northerly 50.00 feet of said Southeast one-quarter as
granted to the County of Riverside by deed recorded August 30, 1933 in Book 133,
Page 292, Official Records; Thence North 89 at 35'20" East along said South line
a distance of 1,365.01 feet to the point of beginning.
Said land is also known as Parcel "A" of lot line Adjustment No. 94-178 approved
by the City of La Quinta.
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<PAGE>
EXCEPTING THEREFROM those portions lying within Trace 23995-1 and Tract 23995-2.
[Cont.]
PARCEL 3:
- --------
Lots 1 through 34, inclusive, of Tract 23995-2, as per map filed in Book 250,
Pages 95 to 98, inclusive of Maps, records of said County.
-25-
<PAGE>
EXHIBIT 10.7
PLACEMENT AGREEMENT
This Agreement is entered into as of September 22, 1997, by and between
Inco Homes Corporation, a Delaware corporation ("Inco"), and USA Commercial
Mortgage Cmpany, a Nevada corporation ("USA"), with reference to the following
facts:
RECITALS
A. USA, in association with Ira Norris, a licensed California real estate
broker ("Norris"), has arranged for Inco, a loan (the "Loan") with a Note Amount
of $2,450,000.00 from an individual lender ("Lender").
B. In connection with such loan, Inco has agreed to pay a fee in the total
amount of $122,500.00 (the "Loan Fee") to USA.
C. Parties hereto wish to agree as to the terms and conditions for the
payment of the Loan Fee and 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. Inco shall pay a portion of the Loan Fee, in the
-------------------
amount of $49,000.00 on the date the Loan is funded. On the date the Loan is
funded, Inco shall execute a promissory note in the amount of $347,500 payable
to USA or its assignee (the "Fee Note"). Said note amount is the sum of the
remainder of the Loan Fee ($73,500.00), plus the balance ($274,000.00) of the
prior Note payable by Inco to USA for the Loan Fee on a prior loan arranged by
USA. The Fee Note shall have a term of eighteen (18) 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. From and after the Maturity Date, the outstanding
balance of the Fee Note shall bear interest at the rate of ten percent (10%) per
annum until it is paid in full. Capitalized terms used herein and not otherwise
defined herein are used with the meanings given them in the Loan Agreement
between Inco and the Lenders regarding the Loan.
2. 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 $4,500.00.
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 suit.
(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.
<PAGE>
Inco: USA:
Inco Homes Corporation USA Commercial Mortgage Company,
a Delaware corporation a Nevada corporation
By: By:
--------------------- -----------------------------
Ira Norris, President Thomas Hantges, President
<PAGE>
EXHIBIT 10.8
PROMISSORY NOTE
$347,500.00 Las Vegas, Nevada
September 22, 1997
FOR VALUE RECEIVED, Inco Homes Corporation, a Delaware corporation
("Maker"), hereby promises to pay to the order of Thomas Hantges, as to an
undivided 67% interest, and Joe Milanowski, as to an undivided 33% interest (as
assignee 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 THREE
HUNDRED FORTY-SEVEN THOUSAND FIVE HUNDRED DOLLARS ($347,500.00) (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. This Note is
executed in accordance with the Placement Agreement Between Maker and USA
Commercial Mortgage Company, Inc., dated of even date herewith. Maker further
agrees as follows:
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 March 22, 1999
(the "Maturity Date").
1. Payments. The Note Amount shall be paid in full on or prior to the
--------
Maturity Date.
2. 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.
3. 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 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
<PAGE>
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.
4. 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.
5. Prepayment. Any time prior to the Maturity Date Maker may prepay this
----------
Note.
6. 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.
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
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 the Note Amount or any installment thereof
when due; or
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<PAGE>
(b) Maker shall fail to perform or observe any term, covenant or
agreement contained in this Note or any document delivered in connection
herewith (the "Loan Documents") on its part to be performed or observed, other
than the failure to make a payment covered by subsection (a), and such failure
shall continue uncured as of the earlier of thirty (30) calendar days after the
occurrence of such failure or ten (10) calendar days after written notice of
such failure is given by Holder to Maker (the cure period set forth in this
subsection (b) shall not apply to any other Event of Default); or
(c) any representation or warranty contained in any document made or
delivered pursuant to or in connection with this Note proves incorrect or to
have been incorrect in any material respect when made; or
(d) Maker (which term shall include any entity comprising Maker) is
dissolved or liquidated, or otherwise ceases to exist, or all or substantially
all of the assets of Maker are sold or otherwise transferred without Holder's
written consent; or
(e) Maker is the subject of an order for relief by the bankruptcy
court, or is unable or admits in writing its inability to pay its debts as they
mature, or makes an assignment for the benefit of creditors; or Maker applies
for or consents to the appointment of any receiver, trustee, custodian,
conservator, liquidator, rehabilitator or similar officer ("Receiver"); or any
Receiver is appointed without the application or consent of Maker, and the
appointment continues undischarged or unstayed for thirty (30) calendar days; or
Maker institutes or consents to any bankruptcy, insolvency, reorganization,
arrangement, readjustment of debt, dissolution, custodianship, conservatorship,
liquidation, rehabilitation or similar proceedings relating to it or to all or
any part of its property under the laws of any jurisdiction; or any similar
proceeding is instituted without the consent of Maker, and continues undismissed
or unstayed for thirty (30) calendar days; or any judgment, writ, attachment,
execution or similar process is issued or levied against all or any part of the
Property or Maker, and is not released, vacated or fully bonded within thirty
(30) calendar days after such issue or levy; or
(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.
8. 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.
9. Multiple Parties. A default on the part of any one entity comprising
----------------
Maker shall be deemed a default on the part of Maker hereunder.
10. 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.
11. 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
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<PAGE>
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.
12. Collateral. This Note shall be secured by a deed of trust encumbering
----------
certain real property owned by Maker in San Bernardino County, California.
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: ___________________________
Ira Norris, President
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<PAGE>
EXHIBIT 10.9
CONSTRUCTION LOAN AGREEMENT
This Construction Loan Agreement, dated as of September ____, 1997, is
entered into by and among Inco Homes Corporation, a Delaware corporation
("Borrower"), and Michael Petersen ("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:
"Actual Line Item Cost" means with respect to each line item in the
Approved Budget, the actual cost reasonably determined by Lender or Borrower to
be required to complete all matters included in such line item.
"Agreement" means this Construction Loan Agreement.
"Approved Budgets" means a projection of all Project Costs in the form of
Exhibit "A."
"Approved Line Item Cost" means with respect to each line item in the
Approved Budgets, the amount allocated to that line item under the Approved
Budgets.
"Assignment of Engineer's Contract and Improvement Plans" means the
Assignment of Engineer's Contract and Improvement Plans executed by Borrower.
"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" means Inco Homes Corporation, a Delaware corporation.
"Business Day" means any Monday, Tuesday, Wednesday, Thursday or Friday on
which banks in the State of Nevada are open for business.
"Change Order" means a change in the Improvement Plans or their
implementation.
"Completion of Construction" means: (i) the Improvements have been
constructed in accordance with the Improvement Plans and all applicable Laws,
(ii) a valid notice of completion has been filed for record in the County
Recorder's Office for the county in which the Property is located, (iii) all
inspections by Governmental Agencies have been completed, (iv) all necessary
certificates and approvals have been obtained and (v) the period for filing
mechanics' and materialmen's liens has expired without any such liens having
been filed or recorded.
<PAGE>
"Contractor" means Borrower, in its capacity as a California licensed
contractor, or any other general contractor which Lender has approved in
writing.
"Control Account" means the escrow account for the Control Account Funds
created, or to be created, and governed by the Control Account Escrow Agreement.
"Control Account Escrow Agreement" means the Control Account Escrow
Agreement and Security Agreement dated on or about the date hereof, among
Borrower, Lender and Disbursement Agent with respect to the Control Account.
"Control Account Funds" means the portion of the Loan Funds held in the
Control Account at any time, together with accrued interest thereon, any
additions thereto made pursuant to this Agreement or the Control Account Escrow
Agreement, and any and all investments and reinvestments of any such sums now or
hereafter made.
"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.
"Designated Representative" means a person authorized by Borrower, with the
approval of Lender, to deliver Requests for Disbursements, certificates and
other documents and material to Lender pursuant to this Agreement.
"Disbursement" means each of the disbursements by Lender or Disbursement
Agent of the proceeds of the Loan or other funds (including the Control Account
Funds) pursuant to this Agreement.
"Disbursement Agent" means Builder's Control Service Company, or any other
escrow agent appointed by Lender pursuant to the Control Account Escrow
Agreement.
"Disbursement Schedule" means the schedule of requirements for
Disbursements attached hereto as Exhibit "B".
"Engineer" means PHB & Associates, Inc..
"Environmental Indemnity" means the Environmental and Accessibility
Indemnity Agreement executed by Borrower.
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<PAGE>
"Excess Cost" means, with respect to any line item in the Approved Budgets,
the amount, if any, by which the Actual Line Item Cost for such line item
exceeds the Approved Line Item Cost for such line item.
"Financing Statements" means financing statements of even date herewith,
executed by Borrower in favor of Lender with respect to the Personal Property.
"Governmental Agency" means any governmental or quasi-governmental agency,
authority, board, bureau, commission, department, instrumentality or public
body, court, administrative tribunal or public utility.
"Improvement Plans" means the final, approved and initialed improvement
plans and specifications for the Project identified in Exhibit "C" and accepted
by Lender.
"Improvements" means the improvements to be constructed on the Property
pursuant to the Improvement Plans, including thirty-six (36) finished single-
family building lots.
"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 Environmental Indemnity, the Project Assignments, in
each case either as originally executed or as the same may from time to time be
supplemented, modified or amended.
"Lot" or "Lots" means the single-family detached subdivision lots now or
hereafter shown on the Plat.
"Maturity Date" means the date which is twelve (12) months after the
Effective Date, as such is defined in Section 3.9 below.
"Mortgaged Property" means, collectively, the Property and the Personal
Property.
"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.
"Offsite Materials" means any materials to be used in connection with the
construction of the Improvements stored at a location other than the Property.
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<PAGE>
"Offsite Supplier" means a supplier of Offsite Materials.
"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.
"Overrun Account" means a noninterest-bearing account established with
Lender into which Borrower shall deposit the Excess Cost, if any, for each line
item of the Approved Budgets.
"Permitted Exceptions" means the matters identified in Exhibit "D" attached
hereto and made part hereof.
"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.
"Plat" means the subdivision map recorded or to be recorded on the Real
Property, together with any other Plat recorded on the Real Property.
"Project" means the project for the construction of the Improvements and
the development of the Property, as such exists at any time, in accordance with
the Improvement Plans.
"Project Assignments" means, collectively, the Assignment of Engineer's
Contract and Improvement Plans and the Assignment of Permits, Licenses,
Franchises and Authorizations.
"Project Costs" means all costs of any nature whatsoever relating to the
Project.
"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) the Engineer's Contract, the
Construction Contract (if any), and all 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.
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<PAGE>
"Real Property" means the real property and interests in real property
described in Exhibit "E."
"Request for Disbursement" means a written request for a Disbursement
signed by a Designated Representative on behalf of Borrower, in the form
approved by Lender and the Disbursement Agent.
"Security Agreement" means the security agreement contained herein and in
the Deed of Trust.
"Security Documents" means the Deed of Trust, the Control Account Escrow
Agreement, the Financing Statements and any other mortgage, deed of trust,
assignment of leases, security agreement or assignment executed to secure the
Note, either as originally executed or as they may from time to time be
supplemented, modified or amended.
"Title Company" means Fidelity National Title Company.
"Title Policy" means the policy of title insurance and endorsements thereto
required by this Agreement as a condition to the first Disbursement.
"Undisbursed Construction Funds" means, as of any time of determination,
sum of the undisbursed portion of the Loan Amount (i.e., that portion that has
never been advanced by Lender) and the Control Account Funds.
"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.
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<PAGE>
SECTION 2: RECITALS.
--------
Borrower has applied to Lender for a Loan to finance the development of
finished lots on the Real Property. Lender is willing to make the Loan to
Borrower on the terms and conditions contained in this Agreement and the other
Loan Documents.
SECTION 3: THE LOAN.
--------
3.1 Amount of the Loan. Subject to the terms and conditions set forth in
------------------
this Agreement, Lender agrees to make a loan (the "Loan") to Borrower in a
principal amount of 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.
3.2 Disbursements.
-------------
(a) Loan Advance. When all of the conditions to the first disbursement
------------
of Loan funds, as set forth in Section 4.1, have been satisfied to Lender's
satisfaction, Lender shall advance a portion of the Loan proceeds in the amount
of $500,000.00 to Title Company. The Title Company shall then disburse said
proceeds in accordance with instructions from Lender, with the balance of said
funds to be disbursed to the Disbursement Agent. The remainder of the Loan
proceeds shall be advanced by Lender to the Disbursement Agent within sixty (60)
days after the Effective Date.
(b) Construction Disbursements. Except as otherwise provided herein,
--------------------------
the Loan funds shall be held, and all advances of Loan funds to Borrower for the
payment of Project Costs are to be made, by the Disbursement Agent in accordance
with this Agreement and the Control Account Escrow Agreement. The Disbursement
Agent, upon satisfaction of the requirements of the Disbursement Schedule, shall
then disburse such funds for the payment of such costs. The funds disbursed by
the Lender to the Disbursement Agent shall thereafter be deemed to be the
Control Account Funds. The proceeds of the Loan shall be used solely to pay or
reimburse Borrower for Project Costs described in the Approved Budgets and the
Disbursement Schedule. The total amount disbursed for each item of Project Cost
described in the Approved Budgets shall not exceed the applicable amounts set
forth in the Approved Budgets. If Borrower is not required to pay, for any
reason whatsoever, any amount earned by any contractor, subcontractor,
materialman, supplier or any other Person who has furnished labor, services,
equipment, or material to the Project, then Borrower shall not request a
Disbursement of the proceeds of the Loan for such amount until such time as
Borrower is required to pay such amounts.
(c) Procedure for Disbursement. Not later than 5:00 p.m., Pacific
--------------------------
Time, at least five (5) Business Days before a proposed Disbursement is to be
made, Disbursement Agent shall have received a Request for Disbursement which
shall indicate the amount of the Disbursement. Upon compliance with all of the
above-referenced conditions and the conditions set forth in Section 4 and the
Disbursement Schedule, Disbursement Agent shall make each Disbursement in the
manner provided herein on the date requested, provided that Lender may cause any
Disbursement to be made
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<PAGE>
prior to such date if all conditions are satisfied. Lender may, at its option
and in its sole discretion, waive any such conditions as to any Disbursement,
provided that any such waiver shall not constitute a waiver of any such
conditions as to any subsequent Disbursements.
(d) Lender's Obligation. Notwithstanding anything to the contrary
-------------------
contained herein or in any other Loan Document, the execution of this Agreement
by Borrower shall, and hereby does, constitute an irrevocable direction and
authorization to so advance the funds to the Control Account. No further
direction or authorization from Borrower shall be necessary to warrant such
advance and such advance shall satisfy the obligations of Lender hereunder and
the amount thereof shall be, and continue to be, secured by the Deed of Trust
and the other Security Documents, regardless of the disposition of such funds by
Borrower or Contractor.
(e) Excess Costs; Loan Balancing. As a material condition of the Loan
----------------------------
and a condition precedent to Disbursement Agent's duty to disburse the Control
Accounts Funds, Borrower shall pay all Project Costs in excess of the line-item
amounts shown in the Approved Budgets. Except for the payment of expenses,
charges, costs and fees pursuant to Section 6.14 and 8.11 hereof, Lender shall
allow the Disbursement Agent to disburse proceeds of the Loan only when the Loan
is "in balance". The Loan shall be "in balance" only at such times as Borrower
has invested sufficient funds toward the payment of Project Costs so that, in
Lender's sole judgement, the remaining Control Account Funds shall be sufficient
to fully complete and operate the Project and pay all Project Costs until
repayment of the Loan. The determination as to whether or not the Loan is "in
balance" may be made by Lender at any time, including with each request for a
disbursement of the Loan. Borrower shall, within five days after notice from
Lender that the Loan is not "in balance" deposit with Lender, in cash, the
amount necessary to put the Loan "in balance." Any amounts which are deposited
with by Borrower to put the Loan "in balance" shall be the next funds disbursed
by Disbursement Agent, subject to the terms and conditions of this Agreement.
(f) Reserves. Anything contained herein to the contrary
--------
notwithstanding, at any time Borrower is in default hereunder, Lender may, at
its option, direct the Disbursement Agent to establish reserves from the
undisbursed portion of the Control Account Funds in such amounts which, in
Lender's sole discretion, are necessary to complete the Improvements and
sufficient to pay or satisfy or comply with, in whole or in part, (i) any lien
or claim relating to, or prejudicial to, the liens or security interests of
Lender, (ii) any expenditure or allocation of funds shown on the approved
budget, and (iii) interest yet to accrue on the Loan prior to the Maturity Date.
The aggregate amount of any such reserves shall be deducted from the Control
Account Funds otherwise available for advance in accordance with the Control
Account Escrow Agreement.
3.3 Approved Budgets.
----------------
(a) Budget Approval. Borrower's initial budgets for the development
---------------
and construction of the Improvements are attached hereto as Exhibit "A."
Borrower represents and warrants that the Approved Budgets for the development
of the Lot improvements and for each floor plan to be constructed by Borrower is
based on information deemed reliable by Borrower and
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<PAGE>
represents Borrower's best estimate of all required Project Costs. Unless Lender
otherwise consents in writing, Borrower shall not supplement, modify or amend
the Approved Budgets. During the term of the Loan Borrower my submit revised
budgets to Lender for approval, in Lender's sole discretion. The Disbursement
Agent shall disburse the Control Account Funds to Borrower in strict accordance
with the Approved Budgets. In the event that a disbursement is requested which
is in excess of the line-item therefor in the Approved Budget, as then in
existence, then such excess payment shall be made only in accordance with
Section 6.7 hereof.
(b) Reallocation of Cost Savings. With the approval of Lender on each
----------------------------
occasion, Borrower may reallocate amounts from line-items in which it will have
a cost savings to the "Contingency" line-item of the Approved Budgets. Said
funds may then be used as provided in Section 6.7 hereof.
3.4 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 not sooner paid when due 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.
3.5 Prepayment. At any time prior to the Maturity Date, Borrower may
----------
prepay this Note, in full or in part.
3.6 Partial Releases 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 sole
discretion of the following requirements:
(i) the payment to Lender, from the home sale escrow, of the sum of
$27,780.00 per Lot for each Lot to be released;
(ii) the progress of construction on the project is on schedule, and
construction has, to date, passed engineering inspections and there exists no
material cost overruns; and
(iii) Borrower pays all costs and expenses in connection with such
release and reconveyance.
3.7 Lot Sales Prices and Sales Escrow. Upon request by Lender, 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 the Control Account.
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<PAGE>
3.8 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 Environmental Indemnity and the
obligations of Borrower thereunder shall be unsecured.
3.9 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 DISBURSEMENTS.
---------------------------
4.1 First Disbursement. The obligation of Lender to make the first
------------------
Disbursement is subject to the following conditions precedent:
(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 Environmental Indemnity;
(v) the original Assignment of Engineer's Contract and Improvement
Plans executed by the Borrower;
(vi) the original Control Account Escrow Agreement, executed by
Borrower, Lender and Disbursement Agent.
(vii) the original Assignment of Permits, Licenses, Franchises and
Authorizations executed by Borrower;
(viii) a certificate of corporate consent of Borrower, authorizing
the execution, delivery and performance of the Loan Documents to be executed by
a specified authorized officer on behalf of Borrower;
(ix) an ALTA form of extended coverage lender's policy of title
insurance, 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 6.16
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<PAGE>
hereof, in a policy amount of not less than the face amount of the Note,
insuring the Deed of Trust to be a valid lien upon the Property, and showing the
Property to be subject only to the Permitted Exceptions;
(x) a copy of the Subdivision Map(s) applicable to the Project or
that portion thereof currently being processed;
(xi) an appraisal of the Real Property certified to Lender,
performed by an appraiser acceptable to Lender;
(xii) certified copies of, or certificate evidencing, all insurance
policies required to be delivered pursuant to this Agreement;
(xiii) copies of all permits and approvals by Governmental Agencies
necessary to construct the Improvements (if available);
(xiv) current Financial Statements of Borrower;
(xv) evidence, in form and substance acceptable to Lender, of the
availability and sufficiency of all utilities to the Project;
(xvi) copies of any proposed, or approved final Covenants,
Conditions and Restrictions recorded or to be recorded on the Project;
(xvii) a Phase I Hazardous Waste Survey, prepared by an entity
approved by Lender, in form and substance acceptable to, and approved by,
Lender;
(xviii) 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);
(b) Lender shall have reviewed and approved the Permitted Exceptions;
(c) the Deed of Trust shall have been recorded in the Official Records
of the county in which the Property is located as a first priority lien on the
Real Property; and
(d) the Financing Statement shall have been filed for record with the
California Secretary of State.
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<PAGE>
4.2 Any Disbursement. The obligation of Lender to make any Disbursement
----------------
(including without limitation the first Disbursement) is subject to the terms
and conditions of the Disbursement Schedule and, in addition, the following
conditions precedent:
(a) the representations and warranties of Borrower contained in all of
the Loan Documents shall be correct on and as of the date of the Disbursement as
though made on and as of that date and no Event of Default (or event which, with
the giving of notice and/or the passage of time, could become an Event of
Default) shall have occurred and be continuing;
(b) Borrower shall have received (i) valid and enforceable partial or
complete lien releases or waivers, as may be appropriate, from all Persons who
have furnished labor, services, equipment or material to the Project accompanied
by a written accounting signed by such Persons showing all amounts owed to such
Persons, 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) 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 or from any action
brought to foreclose the lien or has caused the title insurer who has issued the
Title Policy to issue, in form and substance satisfactory to Lender, an
indorsement to the policy insuring the priority of the lien of the Deed of Trust
over the claim of lien, and (ii) an invoice or receipt with respect to each
payment made on account of labor, service, equipment or material furnished to
the Project in sufficient detail so that the particular nature of the labor,
service, equipment or material may be identified;
(c) the construction of the Improvements shall be in all respects in
conformity with the Improvement Plans and all applicable Laws and other
requirements;
(d) copies of all permits and approvals by Governmental Agencies
necessary to construct the Improvements that have been obtained as of the date
of the Lender's request therefor;
(e) Borrower shall, at its sole expense, deliver or cause to be
delivered to Lender, in form and substance satisfactory to Lender:
(i) from the title insurer who has issued the Title Policy, such
endorsements, binders or modifications thereto as Lender may require;
(ii) a Request for Disbursement, certifying the matters set forth
in Sections 4.2(a), 4.2(b) and 4.2(c) above;
(iii) (A) an itemization of the amounts requested and/or of all
amounts previously expended in connection with each Unit, in either case
identified to the corresponding item in the Approved Budgets, and, if demanded
by Lender, (B) a certificate signed
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<PAGE>
by the Engineer and/or the Contractor verifying the matters set forth in
Sections 4.2(b) and 4.2(c); and
(iv) such additional agreements, certificates, reports, approvals,
instruments, documents, consents or opinions as Lender may reasonably request;
(f) Lender is reasonably satisfied, based upon periodic inspections
and such other information as Lender deems relevant, that (i) the progress of
construction of the Improvements is as represented by Borrower, and (ii)
construction of the Improvements is in conformity with the Improvement Plans and
all applicable Laws and other requirements;
(g) a final Subdivision Map has been recorded on the portion of the
Project for which Disbursement is requested; and
(h) all conditions to the making of the first Disbursement shall have
been satisfied, and Lender shall not be deemed to have waived any of these
conditions even though one or more Disbursements may have been made prior to the
satisfaction of all such conditions.
4.3 Final Disbursement of Hard Costs. With respect to each line item of
--------------------------------
the Approved Budgets which is subject to retention of Loan funds as set forth in
the Disbursement Schedule, the obligation of Lender to make the final
Disbursement with respect to any Unit is subject to Lender receiving
satisfactory evidence that the following conditions precedent have been
satisfied:
(a) The Improvements to be constructed on each Unit shall have been
completed in accordance with the Improvement Plans and all applicable permits,
Laws, ordinances, regulations and other requirements of all Governmental
Agencies and public utility companies, and Borrower and Contractor shall deliver
to Lender a certificate to this effect;
(b) Borrower shall, at its sole expense, deliver or cause to be
delivered to Lender an endorsement to Lender's ALTA form extended coverage
lender's policy of title insurance, or evidence of a commitment therefor
satisfactory to Lender, in form and substance and issued by an insurer
satisfactory to Lender, insuring the Deed of Trust to be a valid first position
lien upon the Property, and showing the Property to be subject only to the
Permitted Exceptions and such other exceptions as shall have been approved in
writing by Lender pursuant to this Agreement (the "Endorsement");
(c) If demanded by Lender, and required by Title Company, Borrower
shall deliver or cause to be delivered to Lender a copy of the ALTA survey
prepared by Borrower, at Borrower's sole expense, if such is required by the
title insurer in connection with the issuance of the Endorsement, which survey
shall be satisfactory to Lender and shall (i) show compliance of the Project
with any and all setbacks and other restrictions applicable to the Property
pursuant to the requirements of any Governmental Agency or any applicable
covenants, conditions or other private restrictions, (ii) show all easements,
licenses and other rights of way, (iii) show no encroachments
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<PAGE>
onto the Property or from the Property onto adjoining property, and (iv) certify
the legal description of the Property as insured in the Endorsement;
(d) Any portion of the Improvements requiring inspection or
certification by municipal or other Governmental Agencies shall have been
inspected and certified as complete and all other necessary permits, approvals
and certificates, including but not limited to a certificate of occupancy, shall
have been duly issued; and
(e) All conditions for "Completion of Construction," as defined in
Section 1.1, shall have been satisfied;
(f) Borrower shall have delivered to Lender a list of all of the
Personal Property (including supplies and inventory to be used in the operation
of the Property), providing a general description of such Property, together
with all other information reasonably required by Lender;
(g) Borrower shall deliver to Lender a copy of the any recorded
covenants, conditions and restrictions, in a form previously approved by Lender;
and
(h) Borrower shall deliver to Lender such instruments and documents as
Lender may require, including without limitation supplemental security
agreements and form UCC-l and/or UCC-2 financing statements, in order to extend
or perfect Lender's first priority security interest in and to the Personal
Property, together with evidence satisfactory to Lender that all such Personal
Property has been paid for in full by Borrower and is owned by Borrower, and
that Lender's security interest in and to such Personal Property is a valid
first priority security interest;
Provided that, notwithstanding the satisfaction of the conditions in this
Section 4.3, Lender may withhold the final Disbursement until the expiration of
forty-five (45) days after the recordation of a valid notice of completion (or,
if no notice of completion is recorded, ninety-five (95) days after actual
completion) to assure that there can be no claims for mechanics' or
materialmen's liens against the Property with respect to the construction of the
Improvements, or until Lender receives assurance satisfactory to it that there
are and will be no such liens (Lender agrees that a CLTA Form 101.2 indorsement
to the Title Policy, in form and substance reasonably satisfactory to Lender,
shall satisfy this requirement).
4.4 Cost Overruns. In the event that, for any reason, the actual cost
-------------
reasonably determined by Lender or Borrower to be required to assure completion
of all matters included in any line item in the Approved Budgets exceeds the
amount allocated to such line item, Lender shall have no obligation to make
further Disbursements until Borrower has paid or otherwise provided for the
overrun as required under Section 6.7(c). Amounts deposited by Borrower in the
Overrun Account for any line item shall be held by Lender as collateral and
disbursed by Lender prior to the disbursement of any remaining Loan proceeds for
such line item; provided, however, that Lender shall have no obligation to
Borrower to supervise or otherwise see to the proper application of such amounts
following disbursement.
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<PAGE>
4.5 Offsite Materials. In the event that any Disbursement Request includes
-----------------
the cost of Offsite Materials, such Disbursement Request shall include each of
the following:
(a) evidence that Borrower has paid for the Offsite Materials;
(b) if the Offsite Materials are stored at the facility of an Offsite
Supplier, a written statement from the Offsite Supplier that the Offsite
Materials have been paid for by Borrower, have been segregated from other
materials in the facility and have been marked with Borrower's name. Such
statement shall also acknowledge (i) Lender's right to enter the facility at
reasonable times to inspect or remove the Offsite Materials and (ii) Lender's
first priority security interest in the Offsite Materials;
(c) if the Offsite Materials are stored in a place other than the
facility of the Offsite Supplier, a written statement from the bailee or other
custodian acknowledging (i) Lender's right to enter the storage site at
reasonable times to inspect or remove the Offsite Materials and (ii) Lender's
first priority security interest in the Offsite Materials;
(d) certificates of insurance showing the Offsite Materials to be
insured as required hereunder and showing Lender as co-insured; and
(e) evidence that Borrower has paid all personal property taxes
applicable to the Offsite Materials.
Lender shall not be required to make Disbursements for any Offsite
Materials until Lender has inspected and approved such Offsite Materials.
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;
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<PAGE>
(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 of, and the performance by
Borrower of the Loan Documents; or
(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
against them in accordance with their terms.
5.5 Financial Statements. Borrower has furnished to Lender a copy of
--------------------
recent 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
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<PAGE>
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 its business and has
obtained all authorizations, consents, approvals, order, licenses and exemptions
from, and has accomplished all filings, registrations or qualifications with,
any Governmental Agency that is necessary for the transaction of its business.
5.9 Compliance with Requirements. Before requesting any Disbursement with
----------------------------
respect to any Phase of Construction, Borrower shall have complied with all
applicable covenants, conditions and restrictions, Laws and other requirements
relating to that Phase of Construction, 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;
(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
Mortgaged Property, the Property, or Borrower's ability to perform its
obligations under the Loan Documents.
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<PAGE>
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 Mortgaged Property, and there shall be no
mortgages, liens, pledges or other encumbrances of any character on the
Mortgaged Property, other than the Security Documents and Permitted Exceptions,
without prior consent of Lenders.
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. In any event, Borrower shall complete
construction of the Improvements (as "Completion of Construction" is defined in
Section 1.1) within 120 days after the commencement of construction of the
Improvement on such home.
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. If at any time
construction of the Improvements is not in conformity with the foregoing,
Borrower shall promptly give notice thereof to Lender, and Lender shall have the
right to stop construction and order repair or reconstruction in accordance with
the same and to withhold all further Disbursements until construction is in
satisfactory compliance therewith. Upon notice from Lender to Borrower, or
Borrower's discovery irrespective of such notice, that construction of the
Improvements is not in conformity with the Improvement Plans or is not in
conformity with all applicable Laws and other requirements or is not in a good
and workmanlike manner with materials of good quality, Borrower shall commence
correcting the deviation as promptly as practical and in any event within
fifteen (15) calendar days after such notice or discovery and shall prosecute
such work diligently to completion, which in no event shall be later than forty-
five (45) calendar days after such notice or discovery. If Lender determines
that the corrective work is not proceeding satisfactorily, Lender may, upon not
less than fifteen (15) calendar days' notice to Borrower, take over such
corrective work itself and prosecute it to completion at Borrower's expense.
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,
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<PAGE>
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 Change Orders. All Change Orders:
-------------
(a) shall be in writing, numbered in sequence, and signed by Borrower;
(b) shall be certified by Borrower, the Engineer, and/or the
Contractor to be in compliance with all applicable Laws and other requirements;
(c) shall contain an estimate by Borrower of the increase or decrease
in Project Costs that would be caused by the change (or, if the Change Order
involves both changes increasing and decreasing estimated Project Costs, both
the amount of the increase and the decrease shall be stated), as well as the
aggregate amount of changes in estimated Project Costs, both increases and
decreases, previously made;
(d) shall be submitted to Lender prior to the proposed effectiveness
thereof if Lender shall at any time in the future request that Change Orders be
submitted to Lender in advance; and
(e) shall be subject to the prior written approval of Lender where (i)
the increase or decrease in any item of Project Cost set forth in the Approved
Budgets that would be caused by each change or related change is equal to or
exceeds the sum of $10,000.00 or (ii) Change Orders not previously approved
involve an aggregate amount, including both increases and decreases, of over
$30,000.00.
(f) shall contain a certification by Borrower and Contractor stating
the aggregate amount, including both increases and decreases, of all changes in
Project Costs reflected in Change Orders for which Lender's written approval has
not been obtained or has not been required hereunder.
If any Change Order requires Lender's approval pursuant to subsection (e)
of this Section and involves a net increase in estimated Project Costs, Lender
shall have no obligation to make any further Disbursements until Borrower shall
have furnished to Lender evidence, in form and substance satisfactory to Lender,
of the availability of funds in the Approved Budgets or as a result of the
payment by Borrower from Borrower's own funds of Project Costs thereafter
accruing in the total amount of such net increase.
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<PAGE>
6.7 Deficiency in Proceeds; Overruns.
--------------------------------
(a) Borrower agrees to promptly notify Lender of any fact or
circumstance that may render the Approved Budgets inaccurate with respect to any
Project Costs reflected therein.
(b) If at any time (including without limitation any time after the
occurrence and during the continuance of any Event of Default) Lender
determines, in its discretion, that any Project Costs have exceeded or may
exceed the amounts budgeted for such Project Costs in the Approved Budgets or
that the Undisbursed Construction Funds are or may be insufficient to pay for
the costs of completion of the Project and other costs and expenses, then Lender
may, at its option, terminate further Disbursements until Borrower pays from its
own funds Project Costs then unpaid or thereafter accruing in an amount deemed
necessary by Lender and furnishes to Lender evidence, in form and substance
satisfactory by Lender, of such payment. Borrower shall, upon demand by Lender,
deposit such amount into an account with Lender, in which case such amount shall
be disbursed by Lender prior to the disbursement of any remaining proceeds of
the Loan.
(c) In the event that, for any reason, the Actual Line Item Cost for
any line item in the Approved Budgets exceeds the Approved Line Item Cost for
that line item, Borrower shall, within 14 days after it learns (or receives
notice from Lender) of the overrun, do one or more of the following:
(i) provide satisfactory evidence to Lender that Borrower has paid
the amount of the Excess Cost for such line item from sources other than the
Loan;
(ii) reallocate sufficient funds to such line item from funds (if
any) allocated to "Contingency" in the Approved Budgets; provided, however, that
Lender's consent to any such reallocation shall be required unless the
reallocated funds were originally transferred to "Contingency" from cost savings
pursuant to Section 3.3(b); or
(iii) deposit an amount equal to the Excess Costs for such line
item into the Overrun Account, to be disbursed in accordance with Section 4.4.
6.8 Construction Information. Upon demand by Lender, Borrower shall
------------------------
promptly deliver to Lender not more frequently than monthly a report in form and
substance satisfactory to Lender, certified as correct by Borrower, setting
forth all accrued Project Costs, all Project Costs projected to complete the
Project, any variance between actual and projected Project Costs and the amounts
set forth in the Approved Budgets, and all changes from the previous report
which are known or reasonably anticipated by Borrower.
6.9 Subcontractors. Upon demand by Lender, Lender shall have the right to
--------------
reasonably approve all contractors and subcontractors employed in connection
with the construction of the Improvements. All such contractors and
subcontractors shall be licensed and bonded as required by the State of
California. Borrower shall deliver to Lender correct lists of all such
contractors and
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<PAGE>
subcontractors. Borrower shall deliver a copy of each such list to Lender prior
to the first disbursement for any item of "Hard Costs" (as that term is defined
in the Disbursement Schedule) and, thereafter, within twenty (20) calendar days
of a change to any list, Borrower shall deliver an amended list correctly
reflecting such change. Each such list shall show the name, address and
telephone number of each such contractor or subcontractor, a general statement
of the nature of the work to be done, the labor and materials to be supplied,
the name of materialmen, if known, the approximate dollar value of such labor,
work and materials itemized with respect to each contractor, subcontractor and
materialman, and the unpaid portion and status of such work or whether such
materials have been delivered. Lender and its agents shall have the right,
without either the obligation or the duty, to directly contact each contractor,
subcontractor and materialman to verify the facts disclosed by such list, and in
so doing Lender or its agent shall not represent itself as the agent of
Borrower.
6.10 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.
6.11 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
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<PAGE>
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 or the
Undisbursed Construction Funds 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 and the Undisbursed
Construction Funds 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 or from any other Undisbursed Construction
Funds. 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.
6.12 Sale or other Encumbrances.
--------------------------
(a) In order to induce Lender to make the loan secured by the Deed of
Trust, 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 by the Deed of Trust 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 by the Deed of
Trust 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 by the Deed of Trust. The
transfer of an interest in the Mortgaged Property may materially alter and
reduce Lender's security for the indebtedness secured by the Deed of Trust.
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 that Lender 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").
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<PAGE>
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 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 interest in the Mortgaged Property, no forbearance on the part of
Lender, no extension of the time for the payment of the Deed of Trust
indebtedness or any change in the terms thereof consented to by Lender shall in
any way whatsoever operate to release, discharge, modify, change or affect the
original liability of the Borrower herein, either in whole or in part. Any deed
conveying the Mortgaged Property, or any part thereof, shall provide that the
grantee thereunder assume all of Borrower's obligations under the Note, 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 Mortgaged 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 Mortgaged
Property contained in Section 6.12(a).
6.13 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.
6.14 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
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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.
6.15 Insurance. The Borrower 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 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 the Contractor and each subcontractor to
maintain a policy of commercial general liability insurance and, upon request by
the Lender, shall cause the Engineer 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 6.15 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 Lender as an "additional insured and/or loss payee."
Each policy of commercial general liability insurance required by this Section
6.15 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. Any unexpired insurance shall
inure to the benefit of, and pass to, the purchaser of the Property at any
trustee's sale or other sale held under the provisions of the Deed of Trust, or
at any foreclosure sale of the Property. 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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6.16 Title Insurance Endorsements. Borrower shall deliver or cause to be
----------------------------
delivered to Lender, in form and substance satisfactory to Lender, endorsement
numbers 100, 100.29, 101.3, 116 and 122 (upon each disbursement) to the Title
Policy and such other endorsement and binders as Lender may from time to time
require.
6.17 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 of such books and records, including
without limitation any books and records pertaining to the Project or the
Project Documents.
6.18 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 disbursed from the Control Account.
6.19 Physical Security of Project. Borrower shall take appropriate
----------------------------
measures to protect the physical security of the Project and the Mortgaged
Property.
6.20 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
(v) any change in the executive management personnel of Borrowers.
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(b) as soon as available, and in any event within forty-five (45)
calendar days after the end of each month during the term of the Loan, a 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) promptly upon receipt thereof, any audited financial information
applicable to Borrower; and
(d) such other information relating to Borrower, the Mortgaged
Property and/or the Project as Lender may request from time to time, including
without limitation (i) tax returns, to be provided concurrently with the filing
thereof with the relevant government authority or (ii) if Borrower receives an
extension from the relevant government authority for filing a tax return,
satisfactory evidence of such extension.
6.21 Surveys. Borrower agrees to furnish Lender all of the following:
-------
(a) a perimeter survey of the Property (a copy of the Subdivision Map
of the Property shall satisfy this requirement); 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.
6.22 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.
6.23 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 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.
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<PAGE>
6.24 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.
SECTION 7: EVENTS OF DEFAULT AND REMEDIES UPON DEFAULT.
-------------------------------------------
7.1 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 7.1(a),
and such failure shall continue uncured as of thirty (30) calendar days after
written notice of such failure is given by Lender to Borrower; provided,
however, that if Borrower 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 with 30 days, then the cure period shall be extended for
the number of day 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 7.1(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, or any portion thereof, 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
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<PAGE>
(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 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 sixty (60) 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 sixty (60) calendar days after its issue or levy; or
(l) the Contractor 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
(m) there shall occur a material adverse change in the financial
condition of Borrower from their respective financial conditions as of the date
of this Agreement, as determined by Lender in its reasonable discretion; or
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<PAGE>
(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 of the priority
required by this Agreement 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.
7.2 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 Mortgaged 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 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 (nothing contained in this Section
7.2(b) or elsewhere in this Loan Agreement shall be construed to make Lender a
"mortgagee in possession" unless and until Lender actually takes possession of
the Property either in person or through an agent or receiver);
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<PAGE>
(c) terminate Borrower's right to receive any portion of the proceeds
from the sale of any Unit;
(d) demand and receive from the Disbursement Agent all of the Control
Account Funds then on deposit with Disbursement Agent;
(e) terminate Disbursements of the Loan and all rights of Borrower and
obligations of Lender under the Loan Documents;
(f) exercise its 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 Lender's option Borrower shall
assemble the Personal Property and make it available to the Lender at the place
and the time designated in the demand; and
(g) 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.
7.3 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.
SECTION 8: MISCELLANEOUS.
-------------
8.1 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
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<PAGE>
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.
8.2 Actions. Provided Borrower has not promptly so acted, 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.
8.3 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.
8.4 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 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,
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<PAGE>
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 an insider 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, 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, 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
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.
8.5 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.
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<PAGE>
8.6 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 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.
8.7 Commissions. Borrower hereby indemnifies Lender from the claim of any
-----------
Person for a commission or fee, including, without limitation, any claim for a
fee by Ira Norris.
8.8 Lenders' Representative. The Lender hereby appoints USA Commercial
-----------------------
Mortgage Company, Inc. to administer the Loan on their behalf, to make all
necessary demands on Borrower and to execute and deliver all approvals and
notices to be given by Lender hereunder.
8.9 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
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<PAGE>
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.
8.10 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.
8.11 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, 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 bear 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.
8.12 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.
8.13 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
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<PAGE>
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.
BORROWER'S ADDRESS: Inco Homes Corporation
1282 West Arrow Highway
Upland, California 91786
Attn: Ira Norris
LENDER'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.
8.14 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.
8.15 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.
8.16 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.
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<PAGE>
8.17 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
necessary or desirable. Lender may also reasonably divulge and advertise its
making of the Loan and the amount thereof.
8.18 Headings. Section headings in this Agreement are included for
--------
convenience of reference only and are not part of this Agreement for any other
purpose.
8.19 Time of the Essence. Time is of the essence.
-------------------
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
"BORROWER":
Inco Homes Corporation, a Delaware
corporation
By: _____________________________
Ira Norris, President
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<PAGE>
"LENDER":
____________________________________
Michael Petersen
-36-
<PAGE>
EXHIBIT 10.10
PROMISSORY NOTE
SECURED BY DEED OF TRUST
$1,000,000.00 Las Vegas, Nevada
September 11, 1997
This Promissory Note ("Note") is executed pursuant to the Construction Loan
Agreement (the "Loan Agreement"), dated as of September 11, 1997 between Inco
Homes Corporation, a Delaware corporation ("Borrower"), and Michael Petersen
("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.
I. Interest Rate. Interest shall accrue on the outstanding portion of the Note
-------------
Amount (i.e., the portion advanced by Lender to the Disbursement Agent), from
September 15, 1997, through an including the date the Note Amount is paid in
full, at the rate of twelve and one-quarter percent (12.25%) 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.
1. 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.
2. 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.
3. 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.
4. 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). Borrower may
prepay the Note at any time prior to the Maturity Date.
<PAGE>
5. 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.
6. 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.
7. 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.
8. Late Charge. Borrower acknowledges that if any interest payment is not
-----------
made when due or if the entire amount due under this Note is not paid by the
Maturity Date, the holder hereof will incur extra administrative expenses (i.e.,
----
in addition to expenses incident to receipt of timely payment) and the loss of
the use of funds in connection with the delinquency in payment. Because the
actual damages suffered by the holder hereof by reason of such extra
administrative expenses and loss of use of funds would be impracticable or
extremely difficult to ascertain, Borrower agrees that five percent (5%) of the
amount so delinquent shall be the amount of damages to which such holder is
entitled, upon such breach, in compensation therefor. Therefore, Borrower
shall, in the event any payment required under this Note is not paid within five
(5) days after the date when such payment becomes due and payable, without
further notice, pay to the holder hereof as such holder's sole monetary recovery
to cover such extra administrative expenses and loss of use of funds, liquidated
damages in the amount of five percent (5%) of the amount of such delinquent
payment. The provisions of this paragraph are intended to govern only the
determination of damages in the event of a breach in the performance of the
obligation of Borrower to make timely payments hereunder. Nothing in this Note
shall be construed as an express or implied agreement by the holder hereof to
forbear in the collection of any delinquent payment or in exercising any of its
rights and remedies under the Loan Documents, or be construed as in 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.
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<PAGE>
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 seventeen and one-quarter percent
(17.25%) 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. 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.
11. Costs of Collection. Borrower agrees to pay all costs of collection
-------------------
when incurred and all costs incurred by the holder hereof in exercising or
preserving any rights or remedies in connection with the enforcement and
administration of this Note or following a default by Borrower, including but
not limited to actual attorneys' fees. If any suit or action is instituted to
enforce this Note, Borrower promises to pay, in addition to the costs and
disbursements otherwise allowed by law, such sum as the court may adjudge
reasonable attorneys' fees in such suit or action.
12. 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 this Note, 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
-3-
<PAGE>
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 this
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 this Note, the Deed of Trust or the other Loan Documents. No sale of
Borrower's interest in the Mortgaged Property, no forbearance on the part of
Lender, no extension of the time for the payment of the Deed of Trust
indebtedness or any change in the terms thereof consented to by Lender shall in
any way whatsoever operate to release, discharge, modify, change or affect the
original liability of the Borrower herein, either in whole or in part. Any deed
conveying the Mortgaged Property, or any part thereof, shall provide that the
grantee thereunder assume all of Borrower's obligations under this 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 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).
13. 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.
-4-
<PAGE>
14. 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.
15. 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.
16. 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.
17. Construction. This Note shall be governed by and construed in
------------
accordance with the laws of the State of Nevada. This Note and all security
documents and guaranties executed in connection with this Note have been
reviewed and negotiated by Borrower and Lender at arms' length with the benefit
of or opportunity to seek the assistance of legal counsel and shall not be
construed against either party. The titles and captions in this Note are
inserted for convenience only and in no way define, limit, extend, or modify the
scope of intent of this Note.
18. 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
-5-
<PAGE>
EXHIBIT 10.11
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 11th day of September, 1997, by and between
Inco Homes Corporation, a Delaware corporation ("Trustor"), Fidelity National
Title Company, a California corporation ("Trustee"), and Michael Petersen
("Beneficiary"). Capitalized terms used herein and not otherwise defined herein
are used with the meanings set forth in that certain Construction 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 by Trustor having reference to or
arising out of or securing the indebtedness represented by the Note; and
<PAGE>
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 San Bernardino County, State
of California and more particularly described in Exhibit "A," attached hereto
and incorporated herein by this reference, together with all of the easements,
rights, privileges, franchises, appurtenances thereunto belonging or in any way
appertaining to the real property, including specifically but not limited to all
appurtenant water, water rights and water shares or stock of Trustor, any and
all general intangibles relating to the use and/or development of the real
property, including development allotments, governmental permits, approvals,
authorizations and entitlements, agreements to provide necessary utility or
municipal services, the Project Documents, including all engineering plans and
diagrams, surveys and/or soil and substrata studies, and all other rights,
privileges and appurtenances related to the said real property and all of the
estate, right, title, interest, claim and demand whatsoever of Trustor therein
or thereto, either in law or in equity, in possession or in expectancy, now
owned or hereafter acquired (hereinafter referred to as the "Property");
(b) All structures, buildings and improvements of every kind and
description now or at any time hereafter located on the Property (hereinafter
referred to as the "Improvements"), including all equipment, apparatus,
machinery, fixtures, fittings, and appliances and other articles and any
additions to, substitutions for, change in or replacements of the whole or any
part thereof, now or at any time hereafter affixed or attached to and which are
an integral part of said structures, buildings, improvements or the Property or
any portion thereof, and such Improvements shall be deemed to be fixtures and an
accession to the freehold and a part of the Property as between the parties
hereto and all persons claiming by, through or under such parties except that
same shall not include such machinery and equipment of Trustor, or any tenant of
any portion of the Property or Improvements, which is part of and/or used in the
conduct of the normal 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
-2-
<PAGE>
installations, shelving, partitions, door-tops, vaults, elevators, dumb-waiters,
awnings, window shades, venetian blinds, light fixtures, fire hoses and brackets
and boxes for the same, fire sprinklers, alarm systems, drapery rods and
brackets, screens, water heaters, incinerators, wall coverings, carpeting,
linoleum, tile, other floor coverings of whatever description, communication
systems, all specifically designed installations and furnishings, office
maintenance and other supplies and all of said articles of property, the
specific enumerations herein not excluding the general, now or at any time
hereafter placed upon or used in any way in connection with the ownership,
operation or maintenance of the Property or the Improvements or any portion
thereof and owned by Trustor or in which Trustor now has or hereafter acquires
an interest, and all building materials and equipment now or hereafter delivered
to the Property and intended to be installed or placed in or about the
Improvements. Such tangible, personal property shall, in addition to all other
tangible, personal property herein described or defined, specifically include
each and every item of tangible, personal property and any substitutions for,
changes in or replacements thereof which are used in the operation of the
Improvements. Notwithstanding the breadth of the foregoing, the Personal
Property shall not include (i) personal property which may be owned by lessees
or other occupants of the Mortgaged Property; (ii) inventory of any lessee or
occupant of the Mortgaged Property used in the normal course of the business
conducted thereon; (iii) material, equipment, tools, machinery, or other
personal property which is brought upon the Mortgaged Property only for use in
construction, maintenance or repair and which is not intended to remain after
the completion of such construction, maintenance or proper maintenance, of the
Mortgaged Property; or (iv) such items of tangible personal property which have
not been purchased or installed with proceeds of the Note and for which
Beneficiary shall have executed such documents as may be required to subordinate
to the lien or security interest of any purchase money lender or supplier of
such tangible personal property;
(d) All right, title and interest of Trustor, now owned or hereafter
acquired in and to any and lying within the right-of-way of any street, road,
alley or public place, opened or proposed, vacated or extinguished by law or
otherwise, and all easements and rights of way, public or private, tenements,
hereditaments, appendages, rights and appurtenances how or hereafter located
upon the Property or now or hereafter used in connection with or now or
hereafter belonging or appertaining to the Property; and all right, title and
interest in the 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
-3-
<PAGE>
deposited thereunder to secure performance by the lessees of their obligations
thereunder, whether said cash or securities are to be held until the expiration
of the terms of said leases or applied to one or more of the installments of
rent coming due immediately prior to the expiration of said terms with the right
to receive and apply the same to said indebtedness, and Trustee or Beneficiary
may demand, sue for and recover such payments but shall not be required to do
so; and
(g) All proceeds of the conversion, voluntary or involuntary, of any
of the foregoing into cash or liquidated claims.
Trustor makes the foregoing grant to Trustee for the purposes herein set
forth; provided, however, that if the Trustor shall pay or cause to be paid to
the holder of the Note all amounts required to be paid under the provisions of
the Note, this Deed of Trust or any other Loan Documents, and at the time and in
the manner stipulated therein, and shall further pay or cause to be paid all
other sums payable hereunder and all indebtedness hereby secured, then, in such
case, the estate, right, title and interest of the Trustee and Beneficiary in
the Mortgaged Property shall cease, determine and become void, and upon proof
being given to the satisfaction of the Beneficiary that all amounts due to be
paid under the Note have been paid or satisfied, and upon payment of all fees,
costs, charges, expenses and liabilities chargeable or incurred or to be
incurred by Trustee or Beneficiary, and of any other sums as herein provided,
the Trustee shall, upon receipt of the written request of the Beneficiary,
cancel, reconvey and discharge this Deed of Trust.
TO HAVE AND TO HOLD THE MORTGAGED PROPERTY UNTO THE TRUSTEE ITS SUCCESSORS AND
ASSIGNS FOREVER, ALL IN ACCORDANCE WITH THE PROVISIONS HEREOF.
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
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<PAGE>
defend the validity and priority of the lien thereof forever against all claims
and demands of all persons whomsoever, and that this covenant shall not be
extinguished by any exercise of power of sale or foreclosure sale hereof, but
shall run with the land; and
(b) Trustor has and shall maintain good and marketable title to the
Improvements and Personal Property, including any additions or replacements
thereto, free of all security interests, liens and encumbrances, if any, set
forth as Permitted Exceptions in the Loan Agreement, or as otherwise disclosed
to and accepted by Beneficiary in writing, and has good right to subject
Improvements and Personal Property to the security interest created hereunder.
If the lien of this Deed of Trust on any Improvements or Personal Property be
subject to a lease agreement, conditional sale agreement or chattel mortgage
covering such property, then in the event of any default hereunder all the
rights, title and interest of the Trustor in any and all deposits made thereon
or therefor are hereby assigned to the Trustee, together with the benefit of any
payments now or hereafter made thereon. There is also transferred, set over and
assigned by Trustor to Trustee, its successors and assigns, hereby all of
Trustee's right, title and interest in and to the Project Documents, and all
leases and use agreements of machinery, equipment and other personal property of
Trustor in the categories hereinabove set forth, under which Trustor is the
lessee of, or entitled to use such items, and Trustor agrees to execute and
deliver to Trustee or Beneficiary all such Project Documents, leases and
agreements when requested by Trustee or Beneficiary. Trustor hereby covenants
and agrees to well and punctually 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
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required to pay and discharge any tax, assessment, charge or levy that is being
actively contested in good faith by appropriate proceedings, as long as Trustor
has established and maintains reserves adequate to pay any liabilities contested
pursuant to this Section in accordance with generally accepted accounting
principles and, by reason of nonpayment, none of the Mortgaged Property covered
by the Loan Documents or the lien or security interest of Beneficiary is in
danger of being lost or forfeited.
1.5 Maintenance and Repair. The Trustor shall, at its sole cost and
----------------------
expense, keep the Mortgaged Property in good operating order, repair and
condition and shall not commit or permit any waste thereof, which condition,
during the course of any reconstruction of the Improvements, shall be subject to
the normal constraints and effects of reconstruction. Trustor shall make all
repairs, replacements, renewals, additions and improvements and complete and
restore promptly and in good 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
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<PAGE>
Trust or any other Loan Document at the time of each such disbursement), through
a construction disbursement agent selected or approved by Beneficiary. Plans and
specifications for the restoration, repair, replacement or rebuilding shall be
submitted to for approval by the Beneficiary prior to the commencement of the
work. Any surplus which may remain out of said insurance proceeds after payment
of costs of building and restoration may, at the option of the Beneficiary, be
applied either on account of the indebtedness secured hereby then most remotely
to be paid or be paid to any person or persons entitled thereto. Application or
release of proceeds under the provisions hereby shall not cure or waive any
default or notice of default hereunder or invalidate any act done pursuant to
such notice. No interest shall be allowed on account of any such proceeds or any
other funds held in the hands of the Beneficiary or the disbursing party
hereunder.
1.9 Condemnation. The Trustor, immediately upon obtaining knowledge of
------------
the institution of any proceeding for the condemnation of the Mortgaged Property
or any portion thereof, shall notify Beneficiary of the pendency thereof. The
Trustor hereby assigns, transfers and sets over unto the Beneficiary all
compensation, rights of action and the entire proceeds of any award, up to the
maximum amount of all amounts then due and payable under the Note and the Loan
Documents, including, without limitation, all interest, costs, expenses and
Advances, as that term is herein defined, and any claim for damages for any of
the Mortgaged Property taken or damaged under the power of eminent domain or by
condemnation or by sale in lieu thereof. Beneficiary may, at its option,
commence, appear in and prosecute, in its own name, any action or proceeding, or
make any compromise or settlement, in connection with such condemnation, taking
under the power of eminent domain or sale in lieu thereof, and hereby appoints
Beneficiary as its true and lawful attorney for such purposes, such power being
coupled with an interest. After deducting therefrom all of its expenses,
including attorneys fees, the Beneficiary may elect, in its sole discretion and
notwithstanding the fact that the security given hereby may not be impaired by a
partial condemnation, to apply any part or all of the proceeds of the award, in
such order as Beneficiary may determine, upon or in reduction of the
indebtedness secured hereby whether due or not. Any application of all or a
portion of the proceeds of any such award to the indebtedness shall not cure or
waive any default or notice of default hereunder or invalidate any act done
pursuant to such notice. Trustor agrees to execute such further assignments of
any compensation, award, damages, right of action and proceeds as Beneficiary
may require.
1.10 Indemnification. The Trustor shall appear in and defend any suit,
---------------
action or proceeding that might in any way, in the reasonable judgment of
Beneficiary, affect the value of the Mortgaged Property, the title to the
Mortgaged Property or the rights and powers of Trustee or Beneficiary. Trustor
shall, at all times, indemnify, hold harmless and on demand reimburse
Beneficiary for any and all loss, damage, expense or cost, including cost of
evidence of title and attorneys fees, arising out of or incurred in connection
with any such suit, action or proceeding, and the sum of such expenditures shall
be secured by this Deed of Trust and shall accrue interest at the "Default Rate"
as that term is defined in the Note and shall be due and payable on demand.
Trustor shall pay costs of suit, cost of evidence of title and reasonable
attorneys' fees in any proceeding or suit brought by Trustee or Beneficiary to
foreclose this Deed of Trust.
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<PAGE>
1.11 Sale of Premises or Additional Financing Not Permitted. Trustor
------------------------------------------------------
specifically agrees that:
(a) In order to induce Beneficiary to make the loan secured hereby,
Trustor agrees that if the Mortgaged Property or any part thereof or any
interest therein, shall be sold, assigned, transferred, conveyed, pledged,
mortgaged or encumbered with financing other than that secured hereby or
otherwise alienated by Trustor whether voluntarily or involuntarily or by
operation of law, except as shall be specifically hereinafter permitted or
without the prior written consent of Beneficiary, then Beneficiary, at its
option, may declare the Note secured hereby, including the Prepayment Fee (if
applicable), and all other obligations hereunder to be forthwith due and
payable. Except as shall be otherwise specifically provided herein, any (a)
change in the legal or equitable ownership of the Property whether or not of
record, (b) change in the form of entity of Trustor, (c) change in ownership
(including the hypothecation or encumbrance thereof) of a majority of the stock
in Trustor held by Ira Norris, or (d) change in the controlling executives and
directors of Trustor shall be deemed a transfer of an interest in the Property.
In connection herewith, the financial stability and managerial and operational
ability of Trustor is a substantial and material consideration to Beneficiary in
its agreement to make the loan to Trustor secured hereby. The transfer of an
interest in the Mortgaged Property may materially alter and reduce Beneficiary's
security for the indebtedness secured hereby. Moreover, Beneficiary has agreed
to make its loan based upon the presumed value of the Mortgaged Property and the
Rents and Profits thereof. Therefore, it will be a diminution of Beneficiary's
security if junior financing, except as shall be permitted by Beneficiary, or if
other liens or encumbrances should attach to the Mortgaged Property.
(b) Trustor may that Beneficiary approve a sale or transfer of the
Mortgaged Property to a party who would become the legal and equitable owner of
the Mortgaged Property and would assume any and all obligations of Trustor under
the Loan Documents (the "Purchaser"). Beneficiary shall not be obligated to
consider or approve any such sale, transfer or assumption or request for the
same. However, upon such request, Beneficiary may impose limiting conditions and
requirements to its consent to an assumption.
(c) In the event ownership of the Mortgaged Property, or any part
thereof, becomes vested in a person or persons other than Trustor, the
Beneficiary may deal with such successor or successors in interest with
reference to the Note or this Deed of Trust in the same manner as with Trustor,
without in any way releasing, discharging or otherwise affecting the liability
of Trustor under the Note, this Deed of Trust or the other Loan Documents. No
sale of Trustor's interest in the Mortgaged Property, no forbearance on the part
of Beneficiary, no extension of the time for the payment of the Deed of Trust
indebtedness or any change in the terms thereof consented to by Beneficiary
shall in any way whatsoever operate to release, discharge, modify, change or
affect the original liability of the Trustor herein, either in whole or 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
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<PAGE>
construed to waive the restrictions against the transfer of the Mortgaged
Property contained in Section 1.11(a).
1.12 Transfer of Personal Property. Trustor shall not voluntarily,
-----------------------------
involuntarily or by operation of law sell, assign, transfer, hypothecate, pledge
or otherwise dispose of the Personal Property or any interest therein and shall
not otherwise do or permit anything to be done or occur that may impair the
Personal property as security hereunder, except that so long as this Deed of
Trust is not in default, Trustor shall be permitted to sell or otherwise dispose
of the Personal Property when absolutely worn out, inadequate, unserviceable or
unnecessary for use in the operation of the Property or in the conduct of the
business of Trustor, upon replacing the same or substituting for the same other
Personal Property at least equal in value to the initial value of that disposed
of and in such a manner so that said Personal Property is sold in connection
with the sale of the Property.
1.13 Title to Replacements and Substitutions. All right, title and
---------------------------------------
interest of Trustor in and to all extensions, improvements, betterments,
renewals, substitutes and replacements of, and all additions and appurtenances
to the Personal Property, Improvements or the Mortgaged Property hereafter
acquired by or released to Trustor or constructed, assembled or placed by
Trustor on the Mortgaged Property, and all conversions of the security
constituted thereby, immediately upon such acquisition, release, construction,
assembling, placement or conversion, as the case may be, and in each such case,
without any further deed of trust, conveyance, assignment or other act by
Trustor, shall become subject to the lien of this Deed of Trust as fully and
completely, and with the same effect and in the same priority as the lien of
this Deed of Trust shall have attached to the item so replaced or substituted
immediately prior to such replacement of substitutions, as though now owned by
Trustor and specifically described in the granting clause hereof, but at any and
all times Trustor will execute and deliver to Trustee any and all such further
assurances, deeds of trust, conveyances or assignments thereof as Trustee or
Beneficiary may reasonably require for the purpose of expressly and specifically
subjecting the same to the lien of this Deed of Trust.
1.14 Security Agreement. This Deed of Trust shall be self-operative and
------------------
shall constitute a Security Agreement and a Construction Mortgage as those terms
are defined in the Uniform Commercial Code, as enacted in California (the
"Commercial Code"), with 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:
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<PAGE>
Name of Debtor: Inco Homes Corporation, a Delaware
corporation
Address of Debtor: See Section 5.12
Names of Secured Party: Beneficiary
Address of Secured Party: See Section 5.12
1.15 Management. Trustor shall not enter into any agreement providing for
----------
the management, leasing or operation of the Property without the prior written
consent of the Beneficiary. Nothing contained herein shall limit Beneficiary's
rights in equity to obtain a receiver for the Mortgaged Property.
1.16 Advances. If Trustor shall fail to perform any of the covenants
--------
herein contained or contained in any other Loan Document, the Beneficiary may,
but without obligation to do so, pay any and all amounts necessary to perform
same or cause same to be performed on behalf of Trustor, and all sums so
expended by Beneficiary for payment of any item whatsoever, including, but not
by limiting the generality of the foregoing, payment of taxes, insurance
premiums, lien claimants or assessments shall be secured by this Deed of Trust
and each such payment shall be and all such payments shall be collectively
referred to herein as an "Advance." The Trustor shall repay to Beneficiary on
demand each and every Advance and the sum of each such Advance shall accrue
interest at the Default Rate, as that term is defined in the Note, from the date
of each Advance until repaid to Beneficiary. Nothing herein contained,
including the payment of such amount or amounts by Beneficiary, shall prevent
any such failure to perform on the part of Trustor from constituting an Event of
Default as defined herein. Any such advance shall be deemed to be made under an
obligation to do so.
1.17 Time. The Trustor agrees that time is of the essence hereof in
----
connection with all obligations of the Trustor herein, in the Note or any other
Loan Documents.
1.18 Estoppel Certificates. The Trustor within ten (10) days after
---------------------
written request shall furnish a duly acknowledged written statement 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:
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(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 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.
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ARTICLE 2
DEFAULT
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2.1 Events of Default. The occurrence of any of the following events
-----------------
shall be an Event of Default: (a) default in the payment or performance of any
obligations secured hereby or contained herein; or (b) the occurrence of any
"Event of Default" pursuant to the Loan Agreement.
ARTICLE 3
REMEDIES
--------
Upon the occurrence of any Event of Default, Trustee and Beneficiary shall
have the following rights and remedies:
3.1 Acceleration of Maturity. Beneficiary may declare the entire
------------------------
principal of the Note then outstanding (if not then due and payable thereunder)
and all other obligations of Trustor hereunder or under the Note, to be due and
payable immediately, and, subject to applicable provisions of law, upon any such
declaration the principal of the Note and accrued and unpaid interest, and all
other amounts to be paid under the Note, this Deed of Trust or any other Loan
Document shall become and 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
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<PAGE>
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 may make all
necessary or proper repairs, renewals and replacements of the Personal Property
and such useful alterations, betterments and improvements thereto and thereon as
to it may seem advisable. In every such case the Trustee or Beneficiary or any
such party shall have the right to manage and operate the Mortgaged Property and
to carry on the business thereof and exercise all rights and powers of the
Trustor with respect thereto either in the name of the Trustor or otherwise, as
it shall deem best, and shall be entitled to collect and receive the Rents and
Profits of the Mortgaged Property and every part thereof and after deducting the
expenses of conducting the business thereof and of all maintenance, repairs,
renewals, replacements, alterations, additions, betterments and improvements and
amounts necessary to pay for taxes, assessments, insurance and prior or other
proper charges upon the Mortgaged Property or any part thereof, as well as just
and reasonable compensation for the agents, clerks, servants and other employees
by it properly engaged and employed, the Beneficiary shall apply the monies
arising as aforesaid, in the order as is set forth in the Note.
3.6 Rights of Secured Party. Beneficiary shall have all of the remedies
-----------------------
of a Secured Party under the Commercial Code, including without limitation, the
right and power to sell, or otherwise dispose of, the Personal Property, or any
part thereof, and for that purpose may take immediate and exclusive possession
of the Personal Property, or any part thereof, and with or without judicial
process to the extent permitted by law, enter upon any premises on which the
Personal Property or any part thereof, may be situated and remove the same
therefrom without being deemed guilty of trespass and without liability for
damages thereby occasioned, or at Beneficiary's option Trustor shall assemble
the Personal Property and make it available to the Beneficiary at the place and
the time designated in the demand. Beneficiary shall be entitled to hold,
maintain, preserve and prepare the Personal Property for sale. Beneficiary,
without removal of the Personal Property from the Mortgaged Property, may render
the Personal Property inoperable and dispose of the Personal Property on the
Mortgaged Property. To the extent permitted by law, Trustor expressly waives
any notice of sale or other disposition of the Personal Property and any other
right or remedy of Beneficiary existing after default hereunder, and to the
extent any such notice is required and cannot be waived, Trustor agrees that as
it relates to this Section 3.6 only, if such notice is mailed, postage prepaid,
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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, 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
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<PAGE>
granted, or for any foreclosure hereunder, or for the enforcement of
any other appropriate legal or equitable remedy or otherwise as
Beneficiary shall select.
(b) The Trustee may adjourn from time to time any sale by it made
under or by virtue of this Deed of Trust by announcement at the time and place
appointed for such sale or sales and, except as otherwise provided by any
applicable provision of law, the Trustee without further notice or publication,
may make such sale at the time and place to which the sale shall be so
adjourned;
(c) Upon the completion of any sale or sale made by the Trustee under
or by virtue of this Section, the Trustee shall execute and deliver to the
accepted purchaser or purchasers a good and sufficient instrument, or good and
sufficient instruments, conveying, assigning and transferring all estate, right,
title and interest in and to the property and rights sold, but without any
covenant or warranty, express or implied. The recitals in such deed of any
matters or facts shall be conclusive proof of the truthfulness thereof to the
extent permitted by law. Any such sale or sales made under or by virtue of this
Section whether made under the power of sale herein granted or under or by
virtue of judicial proceedings or of a judgment or decree of foreclosure and
sale, shall operate to divest all the estate, right, title, interest, claim and
demand whatsoever, whether at law or in equity, of the Trustor in and to the
properties and rights so sold, and shall be a perpetual bar both at law and in
equity against the Trustor and against any and all persons claiming or who may
claim the same, or any part thereof from through or under the Trustor.
(d) In the event of any sale made under or by virtue of this Section
whether made under the power of sale herein granted or under or by virtue of
judicial proceedings or of a judgment or decree of foreclosure and sale, the
entire principal of and interest on the Note and all accrued interest on the
Note, and all other sums required to be paid by the Trustor pursuant to the Note
and this Deed of Trust shall be due and payable, anything in the Note or in this
Deed of Trust to the contrary notwithstanding.
(e) The purchase money proceeds or avails of any sale made under or by
virtue of this Section, together with any other sums which then may be held by
the Trustee or Beneficiary under this Deed of Trust whether under the provisions
of this Section or otherwise, shall be applied as required by applicable law.
(f) Upon any sale made under or by virtue of this Section, whether
made under the power of sale herein granted or granted in accordance with the
laws of the state in which the Property is located or under or by virtue of
judicial proceedings or of a judgment or decree of foreclosure and sale, the
Beneficiary may bid for and acquire the Mortgaged Property or any part thereof
and in lieu of paying cash 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
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without bringing any action or proceeding, or by receiver appointed by a court,
and any such action may also be taken irrespective of whether any notice of
default or election to sell has been given hereunder and without regard to the
adequacy of the security for the indebtedness hereby secured.
3.9 Marshalling of Assets. To the extent allowed by applicable law,
---------------------
Trustor on its own behalf and on behalf of its successors and assigns hereby
expressly waives all rights to require a marshalling of assets by Trustee or
Beneficiary or to require Trustee or Beneficiary to first resort to the sale of
any portion of the Mortgaged Property which might have been retained by Trustor
before foreclosing upon and selling any other portion as may be conveyed by
Trustor subject to this Deed of Trust.
3.10 Occupancy by Trustor. In the event of a trustee's sale hereunder, if
--------------------
at the time of such sale Trustor occupies the portion of the Mortgaged Property
so sold or any part thereof, Trustor shall immediately become the tenant of the
purchaser at such sale, which tenancy shall be a tenancy from day to day,
terminable at the will of either the tenant or any such purchaser, at a
reasonable rental per day based upon the value of the portion of the Mortgaged
Property so occupied, such rental to be due and payable daily to the purchaser.
An action of unlawful detainer shall lie if the tenant holds over after a demand
in writing from the purchaser for possession of such Mortgaged Property.
3.11 Non-Waiver of Default. The entering upon and taking possession of
---------------------
the Mortgaged Property, the collection of any Rents or Profits or other benefits
and the application thereof, as aforesaid, shall not cure or waive any default
theretofore or thereafter occurring or affect any notice of default hereunder or
invalidate any act done pursuant to such notice; and, notwithstanding
continuance in possession of the Mortgaged Property, or any part thereof by
Beneficiary, Trustee or a receiver and the collection, receipt and application
of Rents and Profits or other benefits, Beneficiary shall be entitled to
exercise every right provided for in this Deed of Trust or by law upon or after
the occurrence of a default, including the right to exercise the power of the
sale.
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.
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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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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.
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
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<PAGE>
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 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
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<PAGE>
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 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 (20.5%); 5; 6; 7
(a reasonable percentage); 8 and 9 of NRS 107.030 are hereby adopted and made a
part of this Deed of Trust.
5.16 Non-Assumption. Notice is hereby given that Trustor's obligations
--------------
under this Deed of Trust may not be assumed except as permitted by Section 1.11
hereof. Any transfer of Trustor's interest in the Mortgaged Property or any
attempted assumption of Trustor's obligations under the Deed of Trust not so
approved shall constitute a default hereunder and shall permit Beneficiary to
accelerate the Maturity Date of the Note. Reference to applicable sections of
the Loan Documents must be made for the full text of such provisions.
5.17 Review of Covenants, Conditions and Restrictions. No covenant,
------------------------------------------------
condition or restriction or any rule or regulation or any other document or
agreement, however, denominated, which shall purport to apply to the ownership,
operation, maintenance or governance of the Mortgaged Property or any part
thereof, nor any article of incorporation bylaw or any other document or
agreement, however denominated, which shall purport to establish an organization
for the operation, maintenance of governance of the Mortgaged Property or any
part thereof, shall be approved, executed and/or recorded without the express
prior written consent of Beneficiary.
5.18 Loan Agreement. Performance of Trustor's obligations under that
--------------
certain Loan Agreement of even date herewith by and between Trustor and
Beneficiary are secured by this Deed of Trust, and a default thereunder shall
constitute an Event of Default under this Deed of Trust.
5.19 Partial Releases 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 sole
discretion of the following requirements:
(i) the payment to Lender, from the home sale or refinance
escrow, of the sum of $27,780.00 per Lot for each Lot released;
(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
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<PAGE>
(iii) Borrower pays all costs and expenses in connection with such
release and reconveyance.
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: _____________________________
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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EXHIBIT "A"
DESCRIPTION OF REAL PROPERTY
----------------------------
Lots 1 through 24, inclusive, and Lots 48 through 59, inclusive, of Tract No.
15793, in the City of Fontana, County of San Bernardino, State of California,
as shown by map on file in Book 265, Pages 85 through 89, inclusive, of Maps in
the Records of San Bernardino County, California.
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<PAGE>
EXHIBIT 10.12
CONSTRUCTION LOAN AGREEMENT
This Construction Loan Agreement, dated as of September 11, 1997, is
entered into by and among Inco Homes Corporation, a Delaware corporation
("Borrower"), and those persons and entities listed on Exhibit "A" attached
hereto (collectively, "Lender").
SECTION 1: DEFINITIONS AND ACCOUNTING TERMS.
--------------------------------
1.1 Defined Terms. As used in this Agreement, the following terms shall
-------------
have the meanings set forth respectively after each:
"Actual Line Item Cost" means with respect to each line item in the
Approved Budget, the actual cost reasonably determined by Lender or Borrower to
be required to complete all matters included in such line item.
"Agreement" means this Construction Loan Agreement.
"Approved Budgets" means a projection of all Project Costs in the form of
Exhibit "B."
"Approved Line Item Cost" means with respect to each line item in the
Approved Budgets, the amount allocated to that line item under the Approved
Budgets.
"Architect" means C.S.A. Architects.
"Assignment of Architect's Contract and Improvement Plans" means the
Assignment of Architect's Contract and Improvement Plans executed by Borrower.
"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" means Inco Homes Corporation, a Delaware corporation.
"Business Day" means any Monday, Tuesday, Wednesday, Thursday or Friday on
which banks in the State of Nevada are open for business.
"Change Order" means a change in the Improvement Plans or their
implementation.
"Completion of Construction" means: (i) the Improvements have been
constructed in accordance with the Improvement Plans and all applicable Laws,
(ii) a valid notice of completion has been filed for record in the County
Recorder's Office for the county in which the Property is located, (iii) all
inspections by Governmental Agencies have been completed, (iv) all necessary
<PAGE>
certificates and approvals have been obtained and (v) the period for filing
mechanics' and materialmen's liens has expired without any such liens having
been filed or recorded.
"Control Account" means the escrow account for the Control Account Funds
created, or to be created, and governed by the Control Account Escrow Agreement.
"Control Account Escrow Agreement" means the Control Account Escrow
Agreement and Security Agreement dated on or about the date hereof, among
Borrower, Lender and Disbursement Agent with respect to the Control Account.
"Control Account Funds" means the portion of the Loan Funds held in the
Control Account at any time, together with accrued interest thereon, any
additions thereto made pursuant to this Agreement or the Control Account Escrow
Agreement, and any and all investments and reinvestments of any such sums now or
hereafter made.
"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.
"Designated Representative" means a person authorized by Borrower, with the
approval of Lender, to deliver Requests for Disbursements, certificates and
other documents and material to Lender pursuant to this Agreement.
"Disbursement" means each of the disbursements by Lender or Disbursement
Agent of the proceeds of the Loan or other funds (including the Control Account
Funds) pursuant to this Agreement.
"Disbursement Agent" means Builder's Control Service Company, or any other
escrow agent appointed by Lender pursuant to the Control Account Escrow
Agreement.
"Disbursement Schedule" means the schedule of requirements for
Disbursements attached hereto as Exhibit "C".
"Environmental Indemnity" means the Environmental and Accessibility
Indemnity Agreement executed by Borrower.
"Excess Cost" means, with respect to any line item in the Approved Budgets,
the amount, if any, by which the Actual Line Item Cost for such line item
exceeds the Approved Line Item Cost for such line item.
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"Financing Statements" means financing statements of even date herewith,
executed by Borrower in favor of Lender with respect to the Personal Property.
"Governmental Agency" means any governmental or quasi-governmental agency,
authority, board, bureau, commission, department, instrumentality or public
body, court, administrative tribunal or public utility.
"Improvement Plans" means the final, approved and initialed improvement
plans and specifications for the Project identified in Exhibit "D" and accepted
by Lender.
"Improvements" means the improvements to be constructed on the Property
pursuant to the Improvement Plans, including three (3) single-family model
homes.
"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 Environmental Indemnity, the Project Assignments, in
each case either as originally executed or as the same may from time to time be
supplemented, modified or amended.
"Lot" or "Lots" means the single-family detached subdivision lots now or
hereafter shown on the Plat.
"Maturity Date" means the date which is twelve (12) months after the
Effective Date, as such is defined in Section 3.9 below.
"Mortgaged Property" means, collectively, the Property and the Personal
Property.
"Note" means the promissory note of even date herewith, in the original
principal amount of Four Hundred Thousand Dollars ($400,000.00), 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.
"Offsite Materials" means any materials to be used in connection with the
construction of the Improvements stored at a location other than the Property.
"Offsite Supplier" means a supplier of Offsite Materials.
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<PAGE>
"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.
"Overrun Account" means a noninterest-bearing account established with
Lender into which Borrower shall deposit the Excess Cost, if any, for each line
item of the Approved Budgets.
"Permitted Exceptions" means the matters identified in EXHIBIT "E" attached
hereto and made part hereof.
"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.
"Plat" means the subdivision map recorded or to be recorded on the Real
Property, together with any other Plat recorded on the Real Property.
"Project" means the project for the construction of the Improvements and
the development of the Property, as such exists at any time, in accordance with
the Improvement Plans.
"Project Assignments" means, collectively, the Assignment of Architect's
Contract and Improvement Plans and the Assignment of Permits, Licenses,
Franchises and Authorizations.
"Project Costs" means all costs of any nature whatsoever relating to the
Project.
"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) the Architect's Contract, the
Construction Contract (if any), and all other agreements relating to the Project
between Borrower and any contractor, subcontractor 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.
"Real Property" means the real property and interests in real property
described in EXHIBIT "F."
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<PAGE>
"Request for Disbursement" means a written request for a Disbursement
signed by a Designated Representative on behalf of Borrower, in the form
approved by Lender and the Disbursement Agent.
"Security Agreement" means the security agreement contained herein and in
the Deed of Trust.
"Security Documents" means the Deed of Trust, the Control Account Escrow
Agreement, the Financing Statements and any other mortgage, deed of trust,
assignment of leases, security agreement or assignment executed to secure the
Note, either as originally executed or as they may from time to time be
supplemented, modified or amended.
"Title Company" means Fidelity National Title Company.
"Title Policy" means the policy of title insurance and endorsements thereto
required by this Agreement as a condition to the first Disbursement.
"Undisbursed Construction Funds" means, as of any time of determination,
sum of the undisbursed portion of the Loan Amount (i.e., that portion that has
never been advanced by Lender) and the Control Account Funds.
"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.
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<PAGE>
SECTION 2: RECITALS.
--------
Borrower has applied to Lender for a Loan to finance the construction of
model homes on the Real Property. Lender is willing to make the Loan to
Borrower on the terms and conditions contained in this Agreement and the other
Loan Documents.
SECTION 3: THE LOAN.
--------
3.1 Amount of the Loan. Subject to the terms and conditions set forth in
------------------
this Agreement, Lender agrees to make a loan (the "Loan") to Borrower in a
principal amount of Four Hundred Thousand Dollars ($400,000.00) (the "Loan
Amount"), the disbursement of which by Lender is subject to the term and
conditions of the Loan Documents.
3.2 Disbursements.
-------------
(a) Loan Advance. When all of the conditions to the first
------------
disbursement of Loan funds, as set forth in Section 4.1, have been satisfied to
Lender's satisfaction, Lender shall advance the Loan proceeds to Title Company.
The Title Company shall then disburse said proceeds in accordance with
instructions from Lender, with the balance of said funds to be disbursed to the
Disbursement Agent.
(b) Construction Disbursements. Except as otherwise provided herein,
--------------------------
the Loan funds shall be held, and all advances of Loan funds to Borrower for the
payment of Project Costs are to be made, by the Disbursement Agent in accordance
with this Agreement and the Control Account Escrow Agreement. The Disbursement
Agent, upon satisfaction of the requirements of the Disbursement Schedule, shall
then disburse such funds for the payment of such costs. The funds disbursed by
the Lender to the Disbursement Agent shall thereafter be deemed to be the
Control Account Funds. The proceeds of the Loan shall be used solely to pay or
reimburse Borrower for Project Costs described in the Approved Budgets and the
Disbursement Schedule. The total amount disbursed for each item of Project Cost
described in the Approved Budgets shall not exceed the applicable amounts set
forth in the Approved Budgets. If Borrower is not required to pay, for any
reason whatsoever, any amount earned by any contractor, subcontractor,
materialman, supplier or any other Person who has furnished labor, services,
equipment, or material to the Project, then Borrower shall not request a
Disbursement of the proceeds of the Loan for such amount until such time as
Borrower is required to pay such amounts.
(c) Procedure for Disbursement. Not later than 5:00 p.m., Pacific
--------------------------
Time, at least five (5) Business Days before a proposed Disbursement is to be
made, Disbursement Agent shall have received a Request for Disbursement which
shall indicate the amount of the Disbursement. Upon compliance with all of the
above-referenced conditions and the conditions set forth in Section 4 and the
Disbursement Schedule, Disbursement Agent shall make each Disbursement in the
manner provided herein on the date requested, provided that Lender may cause any
Disbursement to be made prior to such date if all conditions are satisfied.
Lender may, at its option and in its sole discretion,
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<PAGE>
waive any such conditions as to any Disbursement, provided that any such waiver
shall not constitute a waiver of any such conditions as to any subsequent
Disbursements.
(d) Lender's Obligation. Notwithstanding anything to the contrary
-------------------
contained herein or in any other Loan Document, the execution of this Agreement
by Borrower shall, and hereby does, constitute an irrevocable direction and
authorization to so advance the funds to the Control Account. No further
direction or authorization from Borrower shall be necessary to warrant such
advance and such advance shall satisfy the obligations of Lender hereunder and
the amount thereof shall be, and continue to be, secured by the Deed of Trust
and the other Security Documents, regardless of the disposition of such funds by
Borrower or Contractor.
(e) Excess Costs; Loan Balancing. As a material condition of the
----------------------------
Loan and a condition precedent to Disbursement Agent's duty to disburse the
Control Accounts Funds, Borrower shall pay all Project Costs in excess of the
line-item amounts shown in the Approved Budgets. Except for the payment of
expenses, charges, costs and fees pursuant to Section 6.14 and 8.11 hereof,
Lender shall allow the Disbursement Agent to disburse proceeds of the Loan only
when the Loan is "in balance". The Loan shall be "in balance" only at such times
as Borrower has invested sufficient funds toward the payment of Project Costs so
that, in Lender's sole judgement, the remaining Control Account Funds shall be
sufficient to fully complete and operate the Project and pay all Project Costs
until repayment of the Loan. The determination as to whether or not the Loan is
"in balance" may be made by Lender at any time, including with each request for
a disbursement of the Loan. Borrower shall, within five days after notice from
Lender that the Loan is not "in balance" deposit with Lender, in cash, the
amount necessary to put the Loan "in balance." Any amounts which are deposited
with by Borrower to put the Loan "in balance" shall be the next funds disbursed
by Disbursement Agent, subject to the terms and conditions of this Agreement.
(f) Reserves. Anything contained herein to the contrary
--------
notwithstanding, at any time Borrower is in default hereunder, Lender may, at
its option, direct the Disbursement Agent to establish reserves from the
undisbursed portion of the Control Account Funds in such amounts which, in
Lender's sole discretion, are necessary to complete the Improvements and
sufficient to pay or satisfy or comply with, in whole or in part, (i) any lien
or claim relating to, or prejudicial to, the liens or security interests of
Lender, (ii) any expenditure or allocation of funds shown on the approved
budget, and (iii) interest yet to accrue on the Loan prior to the Maturity Date.
The aggregate amount of any such reserves shall be deducted from the Control
Account Funds otherwise available for advance in accordance with the Control
Account Escrow Agreement.
3.3 Approved Budgets.
----------------
(a) Budget Approval. Borrower's initial budgets for the development
---------------
and construction of the Improvements are attached hereto as Exhibit "B."
Borrower represents and warrants that the Approved Budgets for the development
of the Lot improvements and for each floor plan to be constructed by Borrower is
based on information deemed reliable by Borrower and represents Borrower's best
estimate of all required Project Costs. Unless Lender otherwise consents
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<PAGE>
in writing, Borrower shall not supplement, modify or amend the Approved Budgets.
During the term of the Loan Borrower my submit revised budgets to Lender for
approval, in Lender's sole discretion. The Disbursement Agent shall disburse the
Control Account Funds to Borrower in strict accordance with the Approved
Budgets. In the event that a disbursement is requested which is in excess of the
line-item therefor in the Approved Budget, as then in existence, then such
excess payment shall be made only in accordance with Section 6.7 hereof.
(b) Reallocation of Cost Savings. With the approval of Lender on
----------------------------
each occasion, Borrower may reallocate amounts from line-items in which it will
have a cost savings to the "Contingency" line-item of the Approved Budgets. Said
funds may then be used as provided in Section 6.7 hereof.
3.4 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 not sooner paid when due 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.
3.5 Prepayment. At any time prior to the Maturity Date, Borrower may
----------
prepay this Note, in full or in part.
3.6 Partial Releases 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
sole discretion of the following requirements:
(i) the payment to Lender, from the home sale escrow, of the "Net
Sale Proceeds" (as defined below) received from the sale of such Lot or Lots,
subject to the following minimums:
Plan 2 $128,000.00
Plan 3 $138,000.00
Plan 4 $147,000.00
(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 proceeds to be
received by Borrower from the sale, less: (a) customary closing costs and title
fees payable by Borrower; and (b) real estate
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<PAGE>
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.
3.7 Lot Sales Prices and Sales Escrow. Upon request by Lender, 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 the Control Account.
3.8 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 Environmental Indemnity and the
obligations of Borrower thereunder shall be unsecured.
3.9 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 DISBURSEMENTS.
---------------------------
4.1 First Disbursement. The obligation of Lender to make the first
------------------
Disbursement is subject to the following conditions precedent:
(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 Environmental Indemnity;
(v) the original Assignment of Architect's Contract and
Improvement Plans executed by the Borrower;
(vi) the original Control Account Escrow Agreement, executed by
Borrower, Lender and Disbursement Agent.
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<PAGE>
(vii) the original Assignment of Permits, Licenses, Franchises and
Authorizations executed by Borrower;
(viii) a certificate of corporate consent of Borrower, authorizing
the execution, delivery and performance of the Loan Documents to be executed by
a specified authorized officer on behalf of Borrower;
(ix) an ALTA form of extended coverage lender's policy of title
insurance, 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 6.16 hereof, in a policy amount of
not less than the face amount of the Note, insuring the Deed of Trust to be a
valid lien upon the Property, and showing the Property to be subject only to the
Permitted Exceptions;
(x) a copy of the Subdivision Map(s) applicable to the Project or
that portion thereof currently being processed;
(xi) an appraisal of the Real Property certified to Lender,
performed by an appraiser acceptable to Lender;
(xii) certified copies of, or certificate evidencing, all insurance
policies required to be delivered pursuant to this Agreement;
(xiii) copies of all permits and approvals by Governmental Agencies
necessary to construct the Improvements (if available);
(xiv) current Financial Statements of Borrower;
(xv) evidence, in form and substance acceptable to Lender, of the
availability and sufficiency of all utilities to the Project;
(xvi) copies of any proposed, or approved final Covenants,
Conditions and Restrictions recorded or to be recorded on the Project;
(xvii) a Phase I Hazardous Waste Survey, prepared by an entity
approved by Lender, in form and substance acceptable to, and approved by,
Lender;
(xviii) 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);
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<PAGE>
(b) Lender shall have reviewed and approved the Permitted
Exceptions;
(c) the Deed of Trust shall have been recorded in the Official
Records of the county in which the Property is located as a first priority lien
on the Real Property; and
(d) the Financing Statement shall have been filed for record with
the California Secretary of State.
4.2 Any Disbursement. The obligation of Lender to make any Disbursement
----------------
(including without limitation the first Disbursement) is subject to the terms
and conditions of the Disbursement Schedule and, in addition, the following
conditions precedent:
(a) the representations and warranties of Borrower contained in all
of the Loan Documents shall be correct on and as of the date of the Disbursement
as though made on and as of that date and no Event of Default (or event which,
with the giving of notice and/or the passage of time, could become an Event of
Default) shall have occurred and be continuing;
(b) Borrower shall have received (i) valid and enforceable partial
or complete lien releases or waivers, as may be appropriate, from all Persons
who have furnished labor, services, equipment or material to the Project
accompanied by a written accounting signed by such Persons showing all amounts
owed to such Persons, 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) 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 or from
any action brought to foreclose the lien or has caused the title insurer who has
issued the Title Policy to issue, in form and substance satisfactory to Lender,
an indorsement to the policy insuring the priority of the lien of the Deed of
Trust over the claim of lien, and (ii) an invoice or receipt with respect to
each payment made on account of labor, service, equipment or material furnished
to the Project in sufficient detail so that the particular nature of the labor,
service, equipment or material may be identified;
(c) the construction of the Improvements shall be in all respects in
conformity with the Improvement Plans and all applicable Laws and other
requirements;
(d) copies of all permits and approvals by Governmental Agencies
necessary to construct the Improvements that have been obtained as of the date
of the Lender's request therefor;
(e) Borrower shall, at its sole expense, deliver or cause to be
delivered to Lender, in form and substance satisfactory to Lender:
(i) from the title insurer who has issued the Title Policy,
such endorsements, binders or modifications thereto as Lender may require;
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<PAGE>
(ii) a Request for Disbursement, certifying the matters set
forth in Sections 4.2(a), 4.2(b) and 4.2(c) above;
(iii) (A) an itemization of the amounts requested and/or of all
amounts previously expended in connection with each Unit, in either case
identified to the corresponding item in the Approved Budgets, and, if demanded
by Lender, (B) a certificate signed by the Architect and/or the Contractor
verifying the matters set forth in Sections 4.2(b) and 4.2(c); and
(iv) such additional agreements, certificates, reports,
approvals, instruments, documents, consents or opinions as Lender may reasonably
request;
(f) Lender is reasonably satisfied, based upon periodic inspections
and such other information as Lender deems relevant, that (i) the progress of
construction of the Improvements is as represented by Borrower, and (ii)
construction of the Improvements is in conformity with the Improvement Plans and
all applicable Laws and other requirements;
(g) a final Subdivision Map has been recorded on the portion of the
Project for which Disbursement is requested; and
(h) all conditions to the making of the first Disbursement shall
have been satisfied, and Lender shall not be deemed to have waived any of these
conditions even though one or more Disbursements may have been made prior to the
satisfaction of all such conditions.
4.3 Final Disbursement of Hard Costs. With respect to each line item of
--------------------------------
the Approved Budgets which is subject to retention of Loan funds as set forth in
the Disbursement Schedule, the obligation of Lender to make the final
Disbursement with respect to any Unit is subject to Lender receiving
satisfactory evidence that the following conditions precedent have been
satisfied:
(a) The Improvements to be constructed on each Unit shall have been
completed in accordance with the Improvement Plans and all applicable permits,
Laws, ordinances, regulations and other requirements of all Governmental
Agencies and public utility companies, and Borrower and Contractor shall deliver
to Lender a certificate to this effect;
(b) Borrower shall, at its sole expense, deliver or cause to be
delivered to Lender an endorsement to Lender's ALTA form extended coverage
lender's policy of title insurance, or evidence of a commitment therefor
satisfactory to Lender, in form and substance and issued by an insurer
satisfactory to Lender, insuring the Deed of Trust to be a valid first position
lien upon the Property, and showing the Property to be subject only to the
Permitted Exceptions and such other exceptions as shall have been approved in
writing by Lender pursuant to this Agreement (the "Endorsement");
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<PAGE>
(c) If demanded by Lender, and required by Title Company, Borrower
shall deliver or cause to be delivered to Lender a copy of the ALTA survey
prepared by Borrower, at Borrower's sole expense, if such is required by the
title insurer in connection with the issuance of the Endorsement, which survey
shall be satisfactory to Lender and shall (i) show compliance of the Project
with any and all setbacks and other restrictions applicable to the Property
pursuant to the requirements of any Governmental Agency or any applicable
covenants, conditions or other private restrictions, (ii) show all easements,
licenses and other rights of way, (iii) show no encroachments onto the Property
or from the Property onto adjoining property, and (iv) certify the legal
description of the Property as insured in the Endorsement;
(d) Any portion of the Improvements requiring inspection or
certification by municipal or other Governmental Agencies shall have been
inspected and certified as complete and all other necessary permits, approvals
and certificates, including but not limited to a certificate of occupancy, shall
have been duly issued;
and
(e) All conditions for "Completion of Construction," as defined in
Section 1.1, shall have been satisfied;
(f) Borrower shall have delivered to Lender a list of all of the
Personal Property (including supplies and inventory to be used in the operation
of the Property), providing a general description of such Property, together
with all other information reasonably required by Lender;
(g) Borrower shall deliver to Lender a copy of the any recorded
covenants, conditions and restrictions, in a form previously approved by Lender;
and
(h) Borrower shall deliver to Lender such instruments and documents
as Lender may require, including without limitation supplemental security
agreements and form UCC-l and/or UCC-2 financing statements, in order to extend
or perfect Lender's first priority security interest in and to the Personal
Property, together with evidence satisfactory to Lender that all such Personal
Property has been paid for in full by Borrower and is owned by Borrower, and
that Lender's security interest in and to such Personal Property is a valid
first priority security interest;
Provided that, notwithstanding the satisfaction of the conditions in this
Section 4.3, Lender may withhold the final Disbursement until the expiration of
forty-five (45) days after the recordation of a valid notice of completion (or,
if no notice of completion is recorded, ninety-five (95) days after actual
completion) to assure that there can be no claims for mechanics' or
materialmen's liens against the Property with respect to the construction of the
Improvements, or until Lender receives assurance satisfactory to it that there
are and will be no such liens (Lender agrees that a CLTA Form 101.2 indorsement
to the Title Policy, in form and substance reasonably satisfactory to Lender,
shall satisfy this requirement).
4.4 Cost Overruns. In the event that, for any reason, the actual cost
-------------
reasonably determined by Lender or Borrower to be required to assure completion
of all matters included in any
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<PAGE>
line item in the Approved Budgets exceeds the amount allocated to such line
item, Lender shall have no obligation to make further Disbursements until
Borrower has paid or otherwise provided for the overrun as required under
Section 6.7(c). Amounts deposited by Borrower in the Overrun Account for any
line item shall be held by Lender as collateral and disbursed by Lender prior to
the disbursement of any remaining Loan proceeds for such line item; provided,
however, that Lender shall have no obligation to Borrower to supervise or
otherwise see to the proper application of such amounts following disbursement.
4.5 Offsite Materials. In the event that any Disbursement Request
-----------------
includes the cost of Offsite Materials, such Disbursement Request shall include
each of the following:
(a) evidence that Borrower has paid for the Offsite Materials;
(b) if the Offsite Materials are stored at the facility of an
Offsite Supplier, a written statement from the Offsite Supplier that the Offsite
Materials have been paid for by Borrower, have been segregated from other
materials in the facility and have been marked with Borrower's name. Such
statement shall also acknowledge (i) Lender's right to enter the facility at
reasonable times to inspect or remove the Offsite Materials and (ii) Lender's
first priority security interest in the Offsite Materials;
(c) if the Offsite Materials are stored in a place other than the
facility of the Offsite Supplier, a written statement from the bailee or other
custodian acknowledging (i) Lender's right to enter the storage site at
reasonable times to inspect or remove the Offsite Materials and (ii) Lender's
first priority security interest in the Offsite Materials;
(d) certificates of insurance showing the Offsite Materials to be
insured as required hereunder and showing Lender as co-insured; and
(e) evidence that Borrower has paid all personal property taxes
applicable to the Offsite Materials.
Lender shall not be required to make Disbursements for any Offsite
Materials until Lender has inspected and approved such Offsite Materials.
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.
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<PAGE>
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 of, and the performance
by Borrower of the Loan Documents; or
(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
against them in accordance with their terms.
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<PAGE>
5.5 Financial Statements. Borrower has furnished to Lender a copy of
--------------------
recent 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 its business and has
obtained all authorizations, consents, approvals, order, licenses and exemptions
from, and has accomplished all filings, registrations or qualifications with,
any Governmental Agency that is necessary for the transaction of its business.
5.9 Compliance with Requirements. Before requesting any Disbursement with
----------------------------
respect to any Phase of Construction, Borrower shall have complied with all
applicable covenants, conditions and restrictions, Laws and other requirements
relating to that Phase of Construction, 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;
(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;
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<PAGE>
(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
Mortgaged Property, the Property, or Borrower's ability to perform its
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 Mortgaged Property, and there shall be no
mortgages, liens, pledges or other encumbrances of any character on the
Mortgaged Property, other than the Security Documents and Permitted Exceptions,
without prior consent of Lenders.
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. In any event, Borrower shall complete
construction of the Improvements on each home (as "Completion of Construction"
is defined in Section 1.1) within 120 days after the commencement of
construction of the Improvement on such home.
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. If at any time
construction of the Improvements is not in conformity with the foregoing,
Borrower shall promptly give notice thereof to Lender, and Lender shall have the
right to stop construction and order repair or reconstruction in accordance with
the same and to withhold all further Disbursements until construction is in
satisfactory compliance therewith. Upon notice from Lender to Borrower, or
Borrower's discovery irrespective of such notice, that construction of the
Improvements is not in conformity with the Improvement Plans or is not in
conformity with all applicable Laws and other requirements or is not in a good
and workmanlike manner with materials of good quality, Borrower shall commence
correcting the deviation as promptly as practical and in any event within
fifteen (15) calendar days after such notice or discovery and shall prosecute
such work diligently to completion, which in no event shall be later than forty-
five (45) calendar days after
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<PAGE>
such notice or discovery. If Lender determines that the corrective work is not
proceeding satisfactorily, Lender may, upon not less than fifteen (15) calendar
days' notice to Borrower, take over such corrective work itself and prosecute it
to completion at Borrower's expense.
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 Change Orders. All Change Orders:
-------------
(a) shall be in writing, numbered in sequence, and signed by Borrower;
(b) shall be certified by Borrower, the Architect, and/or the
Contractor to be in compliance with all applicable Laws and other requirements;
(c) shall contain an estimate by Borrower of the increase or decrease
in Project Costs that would be caused by the change (or, if the Change Order
involves both changes increasing and decreasing estimated Project Costs, both
the amount of the increase and the decrease shall be stated), as well as the
aggregate amount of changes in estimated Project Costs, both increases and
decreases, previously made;
(d) shall be submitted to Lender prior to the proposed effectiveness
thereof if Lender shall at any time in the future request that Change Orders be
submitted to Lender in advance; and
(e) shall be subject to the prior written approval of Lender where (i)
the increase or decrease in any item of Project Cost set forth in the Approved
Budgets that would be caused by each change or related change is equal to or
exceeds the sum of $10,000.00 or (ii) Change Orders not previously approved
involve an aggregate amount, including both increases and decreases, of over
$30,000.00.
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<PAGE>
(f) shall contain a certification by Borrower and Contractor stating
the aggregate amount, including both increases and decreases, of all changes in
Project Costs reflected in Change Orders for which Lender's written approval has
not been obtained or has not been required hereunder.
If any Change Order requires Lender's approval pursuant to subsection (e)
of this Section and involves a net increase in estimated Project Costs, Lender
shall have no obligation to make any further Disbursements until Borrower shall
have furnished to Lender evidence, in form and substance satisfactory to Lender,
of the availability of funds in the Approved Budgets or as a result of the
payment by Borrower from Borrower's own funds of Project Costs thereafter
accruing in the total amount of such net increase.
6.7 Deficiency in Proceeds; Overruns.
--------------------------------
(a) Borrower agrees to promptly notify Lender of any fact or
circumstance that may render the Approved Budgets inaccurate with respect to any
Project Costs reflected therein.
(b) If at any time (including without limitation any time after the
occurrence and during the continuance of any Event of Default) Lender
determines, in its discretion, that any Project Costs have exceeded or may
exceed the amounts budgeted for such Project Costs in the Approved Budgets or
that the Undisbursed Construction Funds are or may be insufficient to pay for
the costs of completion of the Project and other costs and expenses, then Lender
may, at its option, terminate further Disbursements until Borrower pays from its
own funds Project Costs then unpaid or thereafter accruing in an amount deemed
necessary by Lender and furnishes to Lender evidence, in form and substance
satisfactory by Lender, of such payment. Borrower shall, upon demand by Lender,
deposit such amount into an account with Lender, in which case such amount shall
be disbursed by Lender prior to the disbursement of any remaining proceeds of
the Loan.
(c) In the event that, for any reason, the Actual Line Item Cost for
any line item in the Approved Budgets exceeds the Approved Line Item Cost for
that line item, Borrower shall, within 14 days after it learns (or receives
notice from Lender) of the overrun, do one or more of the following:
(i) provide satisfactory evidence to Lender that Borrower has
paid the amount of the Excess Cost for such line item from sources other than
the Loan;
(ii) reallocate sufficient funds to such line item from funds
(if any) allocated to "Contingency" in the Approved Budgets; provided, however,
that Lender's consent to any such reallocation shall be required unless the
reallocated funds were originally transferred to "Contingency" from cost savings
pursuant to Section 3.3(b); or
(iii) deposit an amount equal to the Excess Costs for such line
item into the Overrun Account, to be disbursed in accordance with Section 4.4.
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<PAGE>
6.8 Construction Information. Upon demand by Lender, Borrower shall
------------------------
promptly deliver to Lender not more frequently than monthly a report in form and
substance satisfactory to Lender, certified as correct by Borrower, setting
forth all accrued Project Costs, all Project Costs projected to complete the
Project, any variance between actual and projected Project Costs and the amounts
set forth in the Approved Budgets, and all changes from the previous report
which are known or reasonably anticipated by Borrower.
6.9 Subcontractors. Upon demand by Lender, Lender shall have the right to
--------------
reasonably approve all contractors and subcontractors employed in connection
with the construction of the Improvements. All such contractors and
subcontractors shall be licensed and bonded as required by the State of
California. Borrower shall deliver to Lender correct lists of all such
contractors and subcontractors. Borrower shall deliver a copy of each such list
to Lender prior to the first disbursement for any item of "Hard Costs" (as that
term is defined in the Disbursement Schedule) and, thereafter, within twenty
(20) calendar days of a change to any list, Borrower shall deliver an amended
list correctly reflecting such change. Each such list shall show the name,
address and telephone number of each such contractor or subcontractor, a general
statement of the nature of the work to be done, the labor and materials to be
supplied, the name of materialmen, if known, the approximate dollar value of
such labor, work and materials itemized with respect to each contractor,
subcontractor and materialman, and the unpaid portion and status of such work or
whether such materials have been delivered. Lender and its agents shall have
the right, without either the obligation or the duty, to directly contact each
contractor, subcontractor and materialman to verify the facts disclosed by such
list, and in so doing Lender or its agent shall not represent itself as the
agent of Borrower.
6.10 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.
6.11 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.
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<PAGE>
(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 or the
Undisbursed Construction Funds 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 and the Undisbursed
Construction Funds 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 or from any other Undisbursed Construction
Funds. 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.
6.12 Sale or other Encumbrances.
--------------------------
(a) In order to induce Lender to make the loan secured by the Deed
of Trust, 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 by the Deed of Trust 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 by the Deed of
Trust 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
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<PAGE>
consideration to Lender in its agreement to make the loan to Borrower secured by
the Deed of Trust. The transfer of an interest in the Mortgaged Property may
materially alter and reduce Lender's security for the indebtedness secured by
the Deed of Trust. 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 that Lender 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 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 interest in the Mortgaged Property, no forbearance on the part of
Lender, no extension of the time for the payment of the Deed of Trust
indebtedness or any change in the terms thereof consented to by Lender shall in
any way whatsoever operate to release, discharge, modify, change or affect the
original liability of the Borrower herein, either in whole or in part. Any deed
conveying the Mortgaged Property, or any part thereof, shall provide that the
grantee thereunder assume all of Borrower's obligations under the Note, 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 Mortgaged 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 Mortgaged
Property contained in Section 6.12(a).
6.13 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
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<PAGE>
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.
6.14 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.
6.15 Insurance. The Borrower 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 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 the Contractor and 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 6.15 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 Lender as an "additional insured and/or loss payee."
Each policy of commercial
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<PAGE>
general liability insurance required by this Section 6.15 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. Any unexpired insurance shall inure to the benefit of,
and pass to, the purchaser of the Property at any trustee's sale or other sale
held under the provisions of the Deed of Trust, or at any foreclosure sale of
the Property. 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.
6.16 Title Insurance Endorsements. Borrower shall deliver or cause to be
----------------------------
delivered to Lender, in form and substance satisfactory to Lender, endorsement
numbers 100, 100.29, 101.3, 116 and 122 (upon each disbursement) to the Title
Policy and such other endorsement and binders as Lender may from time to time
require.
6.17 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 of such books and records, including
without limitation any books and records pertaining to the Project or the
Project Documents.
6.18 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 disbursed from the Control Account.
6.19 Physical Security of Project. Borrower shall take appropriate
----------------------------
measures to protect the physical security of the Project and the Mortgaged
Property.
6.20 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;
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<PAGE>
(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
(v) any change in the executive management personnel of
Borrowers.
(b) as soon as available, and in any event within forty-five (45)
calendar days after the end of each month during the term of the Loan, a 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) promptly upon receipt thereof, any audited financial
information applicable to Borrower; and
(d) such other information relating to Borrower, the Mortgaged
Property and/or the Project as Lender may request from time to time, including
without limitation (i) tax returns, to be provided concurrently with the filing
thereof with the relevant government authority or (ii) if Borrower receives an
extension from the relevant government authority for filing a tax return,
satisfactory evidence of such extension.
6/21 Surveys. Borrower agrees to furnish Lender all of the following:
-------
(a) a perimeter survey of the Property (a copy of the Subdivision
Map of the Property shall satisfy this requirement); 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.
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<PAGE>
6.22 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.
6.23 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 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.
6.24 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.
SECTION 7: EVENTS OF DEFAULT AND REMEDIES UPON DEFAULT.
-------------------------------------------
7.1 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 7.1(a),
and such failure shall continue uncured as of thirty (30) calendar days after
written notice of such failure is given by Lender to Borrower; provided,
however, that if Borrower 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 with 30 days, then the cure period shall be extended for
the number of day 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 7.1(b) shall not apply to any other Events of Default); or
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<PAGE>
(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, or any portion thereof, 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 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,
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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 sixty (60) 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 sixty (60) calendar days after its issue or levy; or
(l) the Contractor 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
(m) there shall occur a material adverse change in the financial
condition of Borrower from their respective financial conditions as of the date
of this Agreement, as determined by Lender in its reasonable discretion; 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 of the priority
required by this Agreement 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.
7.2 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,
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<PAGE>
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 Mortgaged 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 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 (nothing contained in this Section
7.2(b) or elsewhere in this Loan Agreement shall be construed to make Lender a
"mortgagee in possession" unless and until Lender actually takes possession of
the Property either in person or through an agent or receiver);
(c) terminate Borrower's right to receive any portion of the
proceeds from the sale of any Unit;
(d) demand and receive from the Disbursement Agent all of the
Control Account Funds then on deposit with Disbursement Agent;
(e) terminate Disbursements of the Loan and all rights of Borrower
and obligations of Lender under the Loan Documents;
(f) exercise its 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 Lender's
option Borrower shall assemble the Personal Property and make it available to
the Lender at the place and the time designated in the demand; and
(g) 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.
7.3 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
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<PAGE>
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.
SECTION 8: MISCELLANEOUS.
-------------
8.1 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.
8.2 Actions. Provided Borrower has not promptly so acted, 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.
8.3 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.
8.4 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
-30-
<PAGE>
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 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 an insider 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, 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,
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<PAGE>
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 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.
8.5 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.
8.6 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 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 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.
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<PAGE>
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.
8.7 Commissions. Borrower hereby indemnifies Lender from the claim of any
-----------
Person for a commission or fee, including, without limitation, any claim for a
fee by Ira Norris.
8.8 Lenders' Representative. The Lender hereby appoints USA Commercial
-----------------------
Mortgage Company, Inc. to administer the Loan on their behalf, to make all
necessary demands on Borrower and to execute and deliver all approvals and
notices to be given by Lender hereunder.
8.9 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.
8.10 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.
8.11 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, 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 bear interest from the date
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<PAGE>
of expenditure as if such sums were advances under the Note, and shall be
immediately due and payable by Borrower upon demand.
8.12 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.
8.13 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 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
LENDER'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.
8.14 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.
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<PAGE>
8.15 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.
8.16 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.
8.17 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
necessary or desirable. Lender may also reasonably divulge and advertise its
making of the Loan and the amount thereof.
8.18 Headings. Section headings in this Agreement are included for
--------
convenience of reference only and are not part of this Agreement for any other
purpose.
8.19 Time of the Essence. Time is of the essence.
-------------------
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
"BORROWER":
Inco Homes Corporation, a Delaware
corporation
By: _____________________________
Ira Norris, President
"LENDER":
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__________________________________
Nicholas Perrone
__________________________________
Joseph Ciadella
__________________________________
Stella Ciadella
__________________________________
Alan Robinson
__________________________________
Gail Robinson
__________________________________
Carlene E. Pointer
__________________________________
Leslie H. Cooper
__________________________________
Fred Teriano
__________________________________
Marjorie W. Geelan
__________________________________
Doreen B. Lee
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<PAGE>
EXHIBIT 10.13
PROMISSORY NOTE
SECURED BY DEED OF TRUST
$400,000.00 Las Vegas, Nevada
September 11, 1997
This Promissory Note ("Note") is executed pursuant to the Construction Loan
Agreement (the "Loan Agreement"), dated as of September 11, 1997 between Inco
Homes Corporation, a Delaware corporation ("Borrower"), and those persons and
entities listed on Exhibit "A" attached hereto (collectively, "Lender").
Capitalized terms used herein and not otherwise defined herein shall have the
meanings set forth in the Loan Agreement.
FOR VALUE RECEIVED, Borrower promises to pay to Lender, or order, the
principal sum of Four Hundred Thousand Dollars ($400,000.00) (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 Note
-------------
Amount, from September 15, 1997, until the date the Note Amount is paid in full,
at the rate of twelve and one-quarter percent (12.25%) 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.
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
<PAGE>
voluntary or as a result of default). Borrower may prepay the Note at any
time prior to the Maturity Date.
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 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
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<PAGE>
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 seventeen and one-
quarter percent (17.25%) per annum ("Default Rate"). Such interest shall be paid
on the first day of each month thereafter, or on demand if sooner demanded.
11. Waivers. Borrower waives any right of offset it now has or may
-------
hereafter have against the holder hereof and its successors and assigns.
Borrower waives presentment, demand, protest, notice of protest, notice of
nonpayment or dishonor and all other notices in connection with the delivery,
acceptance, performance, default or enforcement of this Note (other than notices
expressly required by the terms of the Loan Agreement). Borrower expressly
agrees that any extension or delay in the time for payment or enforcement of
this Note, to renewal of this Note and to any substitution or release of the
Property, all without any way affecting the liability of Borrower hereunder.
Any delay on Lender's part in exercising any right hereunder or under any of the
Loan Documents shall not operate as a waiver. Lender's acceptance of partial or
delinquent payments or the failure of Lender to exercise any rights shall not
waive any obligation of Borrower or any right of Lender, or modify this Note, or
waive any other similar default.
12. Costs of Collection. Borrower agrees to pay all costs of collection
-------------------
when incurred and all costs incurred by the holder hereof in exercising or
preserving any rights or remedies in connection with the enforcement and
administration of this Note or following a default by Borrower, including but
not limited to actual attorneys' fees. If any suit or action is instituted to
enforce this Note, Borrower promises to pay, in addition to the costs and
disbursements otherwise allowed by law, such sum as the court may adjudge
reasonable attorneys' fees in such suit or action.
13. Sale or Other Encumbrances.
--------------------------
(a) In order to induce Lender to make the loan secured hereby,
Borrower agrees that if the Mortgaged Property or any part thereof or any
interest therein, shall be sold (except sales for 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 this Note, 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
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<PAGE>
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 this
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 this Note, the Deed of Trust or the other Loan Documents. No sale of
Borrower's interest in the Mortgaged Property, no forbearance on the part of
Lender, no extension of the time for the payment of the Deed of Trust
indebtedness or any change in the terms thereof consented to by Lender shall in
any way whatsoever operate to release, discharge, modify, change or affect the
original liability of the Borrower herein, either in whole or in part. Any deed
conveying the Mortgaged Property, or any part thereof, shall provide that the
grantee thereunder assume all of Borrower's obligations under this 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 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 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>
15. Notices. Any and all notices, demands and/or communications
-------
described herein, or which may be necessary or appropriate hereunder, shall be
given as provided in the Deed of Trust.
16. Assignment By Lender. Lender may assign its rights hereunder or
--------------------
obtain participants in this Note at any time, and any such assignee, successor
or participant shall have all rights of the Lender hereunder; provided, however,
that any such assignment shall in no way affect Lender's obligation to fund the
Loan pursuant to the Loan Agreement and terms hereof.
17. Multiple Parties. A default on the part of any one entity
----------------
comprising Borrower of this Note shall be deemed a default on the part of
Borrower hereunder.
18. Construction. This Note shall be governed by and construed in
------------
accordance with the laws of the State of Nevada. This Note and all security
documents and guaranties executed in connection with this Note have been
reviewed and negotiated by Borrower and Lender at arms' length with the benefit
of or opportunity to seek the assistance of legal counsel and shall not be
construed against either party. The titles and captions in this Note are
inserted for convenience only and in no way define, limit, extend, or modify the
scope of intent of this Note.
19. Partial Invalidity. If any section or provision of this Note is
------------------
declared invalid or unenforceable by any court of competent jurisdiction, said
determination shall not affect the validity or 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
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<PAGE>
EXHIBIT 10.14
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 11 day of September, 1997, by and between
----
Inco Homes Corporation, a Delaware corporation ("Trustor"), Fidelity National
Title Company, a California corporation ("Trustee"), and those persons and
entities listed on Exhibit "A" attached hereto (collectively, "Beneficiary").
Capitalized terms used herein and not otherwise defined herein are used with the
meanings set forth in that certain Construction 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
Four Hundred Thousand Dollars ($400,000.00) (the "Note"), together with interest
thereon specified therein, executed by Trustor to the order of Beneficiary and
any and all modifications, extensions or renewals thereof, whether hereafter
evidenced by the Note or otherwise; and
2. The payment of all other sums, with interest thereon at the rate of
interest provided for herein or in the Note, becoming due or payable under the
provisions of this Deed of Trust, the Loan Agreement or any other instrument or
instruments heretofore or hereafter executed by Trustor having reference to or
arising out of or securing the indebtedness represented by the Note; and
<PAGE>
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 San Bernardino County, State of
California and more particularly described in Exhibit "B," attached hereto and
incorporated herein by this reference, together with all of the easements,
rights, privileges, franchises, appurtenances thereunto belonging or in any way
appertaining to the real property, including specifically but not limited to all
appurtenant water, water rights and water shares or stock of Trustor, any and
all general intangibles relating to the use and/or development of the real
property, including development allotments, governmental permits, approvals,
authorizations and entitlements, agreements to provide necessary utility or
municipal services, the Project Documents, including all engineering plans and
diagrams, surveys and/or soil and substrata studies, and all other rights,
privileges and appurtenances related to the said real property and all of the
estate, right, title, interest, claim and demand whatsoever of Trustor therein
or thereto, either in law or in equity, in possession or in expectancy, now
owned or hereafter acquired (hereinafter referred to as the "Property");
(b) All structures, buildings and improvements of every kind and
description now or at any time hereafter located on the Property (hereinafter
referred to as the "Improvements"), including all equipment, apparatus,
machinery, fixtures, fittings, and appliances and other articles and any
additions to, substitutions for, change in or replacements of the whole or any
part thereof, now or at any time hereafter affixed or attached to and which are
an integral part of said structures, buildings, improvements or the Property or
any portion thereof, and such Improvements shall be deemed to be fixtures and an
accession to the freehold and a part of the Property as between the parties
hereto and all persons claiming by, through or under such parties except that
same shall not include such machinery and equipment of Trustor, or any tenant of
any portion of the Property or Improvements, which is part of and/or used in the
conduct of the normal 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
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<PAGE>
installations, shelving, partitions, door-tops, vaults, elevators, dumb-waiters,
awnings, window shades, venetian blinds, light fixtures, fire hoses and brackets
and boxes for the same, fire sprinklers, alarm systems, drapery rods and
brackets, screens, water heaters, incinerators, wall coverings, carpeting,
linoleum, tile, other floor coverings of whatever description, communication
systems, all specifically designed installations and furnishings, office
maintenance and other supplies and all of said articles of property, the
specific enumerations herein not excluding the general, now or at any time
hereafter placed upon or used in any way in connection with the ownership,
operation or maintenance of the Property or the Improvements or any portion
thereof and owned by Trustor or in which Trustor now has or hereafter acquires
an interest, and all building materials and equipment now or hereafter delivered
to the Property and intended to be installed or placed in or about the
Improvements. Such tangible, personal property shall, in addition to all other
tangible, personal property herein described or defined, specifically include
each and every item of tangible, personal property and any substitutions for,
changes in or replacements thereof which are used in the operation of the
Improvements. Notwithstanding the breadth of the foregoing, the Personal
Property shall not include (i) personal property which may be owned by lessees
or other occupants of the Mortgaged Property; (ii) inventory of any lessee or
occupant of the Mortgaged Property used in the normal course of the business
conducted thereon; (iii) material, equipment, tools, machinery, or other
personal property which is brought upon the Mortgaged Property only for use in
construction, maintenance or repair and which is not intended to remain after
the completion of such construction, maintenance or proper maintenance, of the
Mortgaged Property; or (iv) such items of tangible personal property which have
not been purchased or installed with proceeds of the Note and for which
Beneficiary shall have executed such documents as may be required to subordinate
to the lien or security interest of any purchase money lender or supplier of
such tangible personal property;
(d) All right, title and interest of Trustor, now owned or hereafter
acquired in and to any and lying within the right-of-way of any street, road,
alley or public place, opened or proposed, vacated or extinguished by law or
otherwise, and all easements and rights of way, public or private, tenements,
hereditaments, appendages, rights and appurtenances how or hereafter located
upon the Property or now or hereafter used in connection with or now or
hereafter belonging or appertaining to the Property; and all right, title and
interest in the 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
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<PAGE>
deposited thereunder to secure performance by the lessees of their obligations
thereunder, whether said cash or securities are to be held until the expiration
of the terms of said leases or applied to one or more of the installments of
rent coming due immediately prior to the expiration of said terms with the right
to receive and apply the same to said indebtedness, and Trustee or Beneficiary
may demand, sue for and recover such payments but shall not be required to do
so; and
(g) All proceeds of the conversion, voluntary or involuntary, of any of the
foregoing into cash or liquidated claims.
Trustor makes the foregoing grant to Trustee for the purposes herein set
forth; provided, however, that if the Trustor shall pay or cause to be paid to
the holder of the Note all amounts required to be paid under the provisions of
the Note, this Deed of Trust or any other Loan Documents, and at the time and in
the manner stipulated therein, and shall further pay or cause to be paid all
other sums payable hereunder and all indebtedness hereby secured, then, in such
case, the estate, right, title and interest of the Trustee and Beneficiary in
the Mortgaged Property shall cease, determine and become void, and upon proof
being given to the satisfaction of the Beneficiary that all amounts due to be
paid under the Note have been paid or satisfied, and upon payment of all fees,
costs, charges, expenses and liabilities chargeable or incurred or to be
incurred by Trustee or Beneficiary, and of any other sums as herein provided,
the Trustee shall, upon receipt of the written request of the Beneficiary,
cancel, reconvey and discharge this Deed of Trust.
TO HAVE AND TO HOLD THE MORTGAGED PROPERTY UNTO THE TRUSTEE ITS SUCCESSORS AND
ASSIGNS FOREVER, ALL IN ACCORDANCE WITH THE PROVISIONS HEREOF.
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 "B" 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
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<PAGE>
defend the validity and priority of the lien thereof forever against all claims
and demands of all persons whomsoever, and that this covenant shall not be
extinguished by any exercise of power of sale or foreclosure sale hereof, but
shall run with the land; and
(b) Trustor has and shall maintain good and marketable title to the
Improvements and Personal Property, including any additions or replacements
thereto, free of all security interests, liens and encumbrances, if any, set
forth as Permitted Exceptions in the Loan Agreement, or as otherwise disclosed
to and accepted by Beneficiary in writing, and has good right to subject
Improvements and Personal Property to the security interest created hereunder.
If the lien of this Deed of Trust on any Improvements or Personal Property be
subject to a lease agreement, conditional sale agreement or chattel mortgage
covering such property, then in the event of any default hereunder all the
rights, title and interest of the Trustor in any and all deposits made thereon
or therefor are hereby assigned to the Trustee, together with the benefit of any
payments now or hereafter made thereon. There is also transferred, set over and
assigned by Trustor to Trustee, its successors and assigns, hereby all of
Trustee's right, title and interest in and to the Project Documents, and all
leases and use agreements of machinery, equipment and other personal property of
Trustor in the categories hereinabove set forth, under which Trustor is the
lessee of, or entitled to use such items, and Trustor agrees to execute and
deliver to Trustee or Beneficiary all such Project Documents, leases and
agreements when requested by Trustee or Beneficiary. Trustor hereby covenants
and agrees to well and punctually 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
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<PAGE>
required to pay and discharge any tax, assessment, charge or levy that is being
actively contested in good faith by appropriate proceedings, as long as Trustor
has established and maintains reserves adequate to pay any liabilities contested
pursuant to this Section in accordance with generally accepted accounting
principles and, by reason of nonpayment, none of the Mortgaged Property covered
by the Loan Documents or the lien or security interest of Beneficiary is in
danger of being lost or forfeited.
1.5 Maintenance and Repair. The Trustor shall, at its sole cost and
----------------------
expense, keep the Mortgaged Property in good operating order, repair and
condition and shall not commit or permit any waste thereof, which condition,
during the course of any reconstruction of the Improvements, shall be subject to
the normal constraints and effects of reconstruction. Trustor shall make all
repairs, replacements, renewals, additions and improvements and complete and
restore promptly and in good 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
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<PAGE>
Trust or any other Loan Document at the time of each such disbursement), through
a construction disbursement agent selected or approved by Beneficiary. Plans and
specifications for the restoration, repair, replacement or rebuilding shall be
submitted to for approval by the Beneficiary prior to the commencement of the
work. Any surplus which may remain out of said insurance proceeds after payment
of costs of building and restoration may, at the option of the Beneficiary, be
applied either on account of the indebtedness secured hereby then most remotely
to be paid or be paid to any person or persons entitled thereto. Application or
release of proceeds under the provisions hereby shall not cure or waive any
default or notice of default hereunder or invalidate any act done pursuant to
such notice. No interest shall be allowed on account of any such proceeds or any
other funds held in the hands of the Beneficiary or the disbursing party
hereunder.
1.9 Condemnation. The Trustor, immediately upon obtaining knowledge of the
------------
institution of any proceeding for the condemnation of the Mortgaged Property or
any portion thereof, shall notify Beneficiary of the pendency thereof. The
Trustor hereby assigns, transfers and sets over unto the Beneficiary all
compensation, rights of action and the entire proceeds of any award, up to the
maximum amount of all amounts then due and payable under the Note and the Loan
Documents, including, without limitation, all interest, costs, expenses and
Advances, as that term is herein defined, and any claim for damages for any of
the Mortgaged Property taken or damaged under the power of eminent domain or by
condemnation or by sale in lieu thereof. Beneficiary may, at its option,
commence, appear in and prosecute, in its own name, any action or proceeding, or
make any compromise or settlement, in connection with such condemnation, taking
under the power of eminent domain or sale in lieu thereof, and hereby appoints
Beneficiary as its true and lawful attorney for such purposes, such power being
coupled with an interest. After deducting therefrom all of its expenses,
including attorneys fees, the Beneficiary may elect, in its sole discretion and
notwithstanding the fact that the security given hereby may not be impaired by a
partial condemnation, to apply any part or all of the proceeds of the award, in
such order as Beneficiary may determine, upon or in reduction of the
indebtedness secured hereby whether due or not. Any application of all or a
portion of the proceeds of any such award to the indebtedness shall not cure or
waive any default or notice of default hereunder or invalidate any act done
pursuant to such notice. Trustor agrees to execute such further assignments of
any compensation, award, damages, right of action and proceeds as Beneficiary
may require.
1.10 Indemnification. The Trustor shall appear in and defend any suit,
---------------
action or proceeding that might in any way, in the reasonable judgment of
Beneficiary, affect the value of the Mortgaged Property, the title to the
Mortgaged Property or the rights and powers of Trustee or Beneficiary. Trustor
shall, at all times, indemnify, hold harmless and on demand reimburse
Beneficiary for any and all loss, damage, expense or cost, including cost of
evidence of title and attorneys fees, arising out of or incurred in connection
with any such suit, action or proceeding, and the sum of such expenditures shall
be secured by this Deed of Trust and shall accrue interest at the "Default Rate"
as that term is defined in the Note and shall be due and payable on demand.
Trustor shall pay costs of suit, cost of evidence of title and reasonable
attorneys' fees in any proceeding or suit brought by Trustee or Beneficiary to
foreclose this Deed of Trust.
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<PAGE>
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 make the loan secured hereby, Trustor
agrees that if the Mortgaged Property or any part thereof or any interest
therein, shall be sold, assigned, transferred, conveyed, pledged, mortgaged or
encumbered with financing other than that secured hereby or otherwise alienated
by Trustor whether voluntarily or involuntarily or by operation of law, except
as shall be specifically hereinafter permitted or without the prior written
consent of Beneficiary, then Beneficiary, at its option, may declare the Note
secured hereby, including the Prepayment Fee (if applicable), and all other
obligations hereunder to be forthwith due and payable. Except as shall be
otherwise specifically provided herein, any (a) change in the legal or equitable
ownership of the Property whether or not of record, (b) change in the form of
entity of Trustor, (c) change in ownership (including the hypothecation or
encumbrance thereof) of a majority of the stock in Trustor held by Ira Norris,
or (d) change in the controlling executives and directors of Trustor shall be
deemed a transfer of an interest in the Property. In connection herewith, the
financial stability and managerial and operational ability of Trustor is a
substantial and material consideration to Beneficiary in its agreement to make
the loan to Trustor secured hereby. The transfer of an interest in the
Mortgaged Property may materially alter and reduce Beneficiary's security for
the indebtedness secured hereby. Moreover, Beneficiary has agreed to make its
loan based upon the presumed value of the Mortgaged Property and the Rents and
Profits thereof. Therefore, it will be a diminution of Beneficiary's security
if junior financing, except as shall be permitted by Beneficiary, or if other
liens or encumbrances should attach to the Mortgaged Property.
(b) Trustor may that Beneficiary approve a sale or transfer of the
Mortgaged Property to a party who would become the legal and equitable owner of
the Mortgaged Property and would assume any and all obligations of Trustor under
the Loan Documents (the "Purchaser"). Beneficiary shall not be obligated to
consider or approve any such sale, transfer or assumption or request for the
same. However, upon such request, Beneficiary may impose limiting conditions and
requirements to its consent to an assumption.
(c) In the event ownership of the Mortgaged Property, or any part thereof,
becomes vested in a person or persons other than Trustor, the Beneficiary may
deal with such successor or successors in interest with reference to the Note or
this Deed of Trust in the same manner as with Trustor, without in any way
releasing, discharging or otherwise affecting the liability of Trustor under the
Note, this Deed of Trust or the other Loan Documents. No sale of Trustor's
interest in the Mortgaged Property, no forbearance on the part of Beneficiary,
no extension of the time for the payment of the Deed of Trust indebtedness or
any change in the terms thereof consented to by Beneficiary shall in any way
whatsoever operate to release, discharge, modify, change or affect the original
liability of the Trustor herein, either in whole or 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
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<PAGE>
construed to waive the restrictions against the transfer of the Mortgaged
Property contained in Section 1.11(a).
1.12 Transfer of Personal Property. Trustor shall not voluntarily,
-----------------------------
involuntarily or by operation of law sell, assign, transfer, hypothecate, pledge
or otherwise dispose of the Personal Property or any interest therein and shall
not otherwise do or permit anything to be done or occur that may impair the
Personal property as security hereunder, except that so long as this Deed of
Trust is not in default, Trustor shall be permitted to sell or otherwise dispose
of the Personal Property when absolutely worn out, inadequate, unserviceable or
unnecessary for use in the operation of the Property or in the conduct of the
business of Trustor, upon replacing the same or substituting for the same other
Personal Property at least equal in value to the initial value of that disposed
of and in such a manner so that said Personal Property is sold in connection
with the sale of the Property.
1.13 Title to Replacements and Substitutions. All right, title and
---------------------------------------
interest of Trustor in and to all extensions, improvements, betterments,
renewals, substitutes and replacements of, and all additions and appurtenances
to the Personal Property, Improvements or the Mortgaged Property hereafter
acquired by or released to Trustor or constructed, assembled or placed by
Trustor on the Mortgaged Property, and all conversions of the security
constituted thereby, immediately upon such acquisition, release, construction,
assembling, placement or conversion, as the case may be, and in each such case,
without any further deed of trust, conveyance, assignment or other act by
Trustor, shall become subject to the lien of this Deed of Trust as fully and
completely, and with the same effect and in the same priority as the lien of
this Deed of Trust shall have attached to the item so replaced or substituted
immediately prior to such replacement of substitutions, as though now owned by
Trustor and specifically described in the granting clause hereof, but at any and
all times Trustor will execute and deliver to Trustee any and all such further
assurances, deeds of trust, conveyances or assignments thereof as Trustee or
Beneficiary may reasonably require for the purpose of expressly and specifically
subjecting the same to the lien of this Deed of Trust.
1.14 Security Agreement. This Deed of Trust shall be self-operative and
------------------
shall constitute a Security Agreement and a Construction Mortgage as those terms
are defined in the Uniform Commercial Code, as enacted in California (the
"Commercial Code"), with 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:
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Name of Debtor: Inco Homes Corporation, a Delaware corporation
Address of Debtor: See Section 5.12
Names of Secured Party: Beneficiary
Address of Secured Party: See Section 5.12
1.15 Management. Trustor shall not enter into any agreement providing
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for the management, leasing or operation of the Property without the prior
written consent of the Beneficiary. Nothing contained herein shall limit
Beneficiary's rights in equity to obtain a receiver for the Mortgaged Property.
1.16 Advances. If Trustor shall fail to perform any of the covenants
--------
herein contained or contained in any other Loan Document, the Beneficiary may,
but without obligation to do so, pay any and all amounts necessary to perform
same or cause same to be performed on behalf of Trustor, and all sums so
expended by Beneficiary for payment of any item whatsoever, including, but not
by limiting the generality of the foregoing, payment of taxes, insurance
premiums, lien claimants or assessments shall be secured by this Deed of Trust
and each such payment shall be and all such payments shall be collectively
referred to herein as an "Advance." The Trustor shall repay to Beneficiary on
demand each and every Advance and the sum of each such Advance shall accrue
interest at the Default Rate, as that term is defined in the Note, from the date
of each Advance until repaid to Beneficiary. Nothing herein contained,
including the payment of such amount or amounts by Beneficiary, shall prevent
any such failure to perform on the part of Trustor from constituting an Event of
Default as defined herein. Any such advance shall be deemed to be made under an
obligation to do so.
1.17 Time. The Trustor agrees that time is of the essence hereof in
----
connection with all obligations of the Trustor herein, in the Note or any other
Loan Documents.
1.18 Estoppel Certificates. The Trustor within ten (10) days after
---------------------
written request shall furnish a duly acknowledged written statement 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
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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:
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(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 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.
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<PAGE>
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
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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 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
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<PAGE>
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 may make
all necessary or proper repairs, renewals and replacements of the Personal
Property and such useful alterations, betterments and improvements thereto and
thereon as to it may seem advisable. In every such case the Trustee or
Beneficiary or any such party shall have the right to manage and operate the
Mortgaged Property and to carry on the business thereof and exercise all rights
and powers of the Trustor with respect thereto either in the name of the Trustor
or otherwise, as it shall deem best, and shall be entitled to collect and
receive the Rents and Profits of the Mortgaged Property and every part thereof
and after deducting the expenses of conducting the business thereof and of all
maintenance, repairs, renewals, replacements, alterations, additions,
betterments and improvements and amounts necessary to pay for taxes,
assessments, insurance and prior or other proper charges upon the Mortgaged
Property or any part thereof, as well as just and reasonable compensation for
the agents, clerks, servants and other employees by it properly engaged and
employed, the Beneficiary shall apply the monies arising as aforesaid, in the
order as is set forth in the Note.
3.6 Rights of Secured Party. Beneficiary shall have all of the
-----------------------
remedies of a Secured Party under the Commercial Code, including without
limitation, the right and power to sell, or otherwise dispose of, the Personal
Property, or any part thereof, and for that purpose may take immediate and
exclusive possession of the Personal Property, or any part thereof, and with or
without judicial process to the extent permitted by law, enter upon any premises
on which the Personal Property or any part thereof, may be situated and remove
the same therefrom without being deemed guilty of trespass and without liability
for damages thereby occasioned, or at Beneficiary's option Trustor shall
assemble the Personal Property and make it available to the Beneficiary at the
place and the time designated in the demand. Beneficiary shall be entitled to
hold, maintain, preserve and prepare the Personal Property for sale.
Beneficiary, without removal of the Personal Property from the Mortgaged
Property, may render the Personal Property inoperable and dispose of the
Personal Property on the Mortgaged Property. To the extent permitted by law,
Trustor expressly waives any notice of sale or other disposition of the Personal
Property and any other right or remedy of Beneficiary existing after default
hereunder, and to the extent any such notice is required and cannot be waived,
Trustor agrees that as it relates to this Section 3.6 only, if such notice is
mailed, postage prepaid,
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<PAGE>
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, 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
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<PAGE>
granted, or for any foreclosure hereunder, or for the enforcement of
any other appropriate legal or equitable remedy or otherwise as
Beneficiary shall select.
(b) The Trustee may adjourn from time to time any sale by it made
under or by virtue of this Deed of Trust by announcement at the time and place
appointed for such sale or sales and, except as otherwise provided by any
applicable provision of law, the Trustee without further notice or publication,
may make such sale at the time and place to which the sale shall be so
adjourned;
(c) Upon the completion of any sale or sale made by the Trustee under
or by virtue of this Section, the Trustee shall execute and deliver to the
accepted purchaser or purchasers a good and sufficient instrument, or good and
sufficient instruments, conveying, assigning and transferring all estate, right,
title and interest in and to the property and rights sold, but without any
covenant or warranty, express or implied. The recitals in such deed of any
matters or facts shall be conclusive proof of the truthfulness thereof to the
extent permitted by law. Any such sale or sales made under or by virtue of this
Section whether made under the power of sale herein granted or under or by
virtue of judicial proceedings or of a judgment or decree of foreclosure and
sale, shall operate to divest all the estate, right, title, interest, claim and
demand whatsoever, whether at law or in equity, of the Trustor in and to the
properties and rights so sold, and shall be a perpetual bar both at law and in
equity against the Trustor and against any and all persons claiming or who may
claim the same, or any part thereof from through or under the Trustor.
(d) In the event of any sale made under or by virtue of this Section
whether made under the power of sale herein granted or under or by virtue of
judicial proceedings or of a judgment or decree of foreclosure and sale, the
entire principal of and interest on the Note and all accrued interest on the
Note, and all other sums required to be paid by the Trustor pursuant to the Note
and this Deed of Trust shall be due and payable, anything in the Note or in this
Deed of Trust to the contrary notwithstanding.
(e) The purchase money proceeds or avails of any sale made under or by
virtue of this Section, together with any other sums which then may be held by
the Trustee or Beneficiary under this Deed of Trust whether under the provisions
of this Section or otherwise, shall be applied as required by applicable law.
(f) Upon any sale made under or by virtue of this Section, whether
made under the power of sale herein granted or granted in accordance with the
laws of the state in which the Property is located or under or by virtue of
judicial proceedings or of a judgment or decree of foreclosure and sale, the
Beneficiary may bid for and acquire the Mortgaged Property or any part thereof
and in lieu of paying cash 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
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<PAGE>
without bringing any action or proceeding, or by receiver appointed by a court,
and any such action may also be taken irrespective of whether any notice of
default or election to sell has been given hereunder and without regard to the
adequacy of the security for the indebtedness hereby secured.
3.9 Marshalling of Assets. To the extent allowed by applicable law,
---------------------
Trustor on its own behalf and on behalf of its successors and assigns hereby
expressly waives all rights to require a marshalling of assets by Trustee or
Beneficiary or to require Trustee or Beneficiary to first resort to the sale of
any portion of the Mortgaged Property which might have been retained by Trustor
before foreclosing upon and selling any other portion as may be conveyed by
Trustor subject to this Deed of Trust.
3.10 Occupancy by Trustor. In the event of a trustee's sale
--------------------
hereunder, if at the time of such sale Trustor occupies the portion of the
Mortgaged Property so sold or any part thereof, Trustor shall immediately become
the tenant of the purchaser at such sale, which tenancy shall be a tenancy from
day to day, terminable at the will of either the tenant or any such purchaser,
at a reasonable rental per day based upon the value of the portion of the
Mortgaged Property so occupied, such rental to be due and payable daily to the
purchaser. An action of unlawful detainer shall lie if the tenant holds over
after a demand in writing from the purchaser for possession of such Mortgaged
Property.
3.11 Non-Waiver of Default. The entering upon and taking possession
---------------------
of the Mortgaged Property, the collection of any Rents or Profits or other
benefits and the application thereof, as aforesaid, shall not cure or waive any
default theretofore or thereafter occurring or affect any notice of default
hereunder or invalidate any act done pursuant to such notice; and,
notwithstanding continuance in possession of the Mortgaged Property, or any part
thereof by Beneficiary, Trustee or a receiver and the collection, receipt and
application of Rents and Profits or other benefits, Beneficiary shall be
entitled to exercise every right provided for in this Deed of Trust or by law
upon or after the occurrence of a default, including the right to exercise the
power of the sale.
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.
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<PAGE>
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 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.
-17-
<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.
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
-18-
<PAGE>
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 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
-19-
<PAGE>
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 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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<PAGE>
5.14 Late Charges. As set forth and defined in the Note, there shall
------------
be due to Beneficiary a Late Charge of five percent (5%) of the amount of any
payment which is received by Beneficiary so as to incur a Late Charge, and all
such Late Charges are secured hereby.
5.15 Statutory Covenants. Where not inconsistent with the above, the
-------------------
following covenants, Nos. 1; 2 (full replacement value); 3; 4 (20.5%); 5; 6; 7
(a reasonable percentage); 8 and 9 of NRS 107.030 are hereby adopted and made a
part of this Deed of Trust.
5.16 Non-Assumption. Notice is hereby given that Trustor's
--------------
obligations under this Deed of Trust may not be assumed except as permitted by
Section 1.11 hereof. Any transfer of Trustor's interest in the Mortgaged
Property or any attempted assumption of Trustor's obligations under the Deed of
Trust not so approved shall constitute a default hereunder and shall permit
Beneficiary to accelerate the Maturity Date of the Note. Reference to applicable
sections of the Loan Documents must be made for the full text of such
provisions.
5.17 Review of Covenants, Conditions and Restrictions. No covenant,
------------------------------------------------
condition or restriction or any rule or regulation or any other document or
agreement, however, denominated, which shall purport to apply to the ownership,
operation, maintenance or governance of the Mortgaged Property or any part
thereof, nor any article of incorporation bylaw or any other document or
agreement, however denominated, which shall purport to establish an organization
for the operation, maintenance of governance of the Mortgaged Property or any
part thereof, shall be approved, executed and/or recorded without the express
prior written consent of Beneficiary.
5.18 Loan Agreement. Performance of Trustor's obligations under that
--------------
certain Loan Agreement of even date herewith by and between Trustor and
Beneficiary are secured by this Deed of Trust, and a default thereunder shall
constitute an Event of Default under this Deed of Trust.
5.19 Partial Releases 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
sole discretion of the following requirements:
(i) the payment to Lender, from the home sale escrow, of the "Net
Sale Proceeds" (as defined below) received from the sale of such Lot or Lots,
subject to the following minimums:
Plan 2 $128,000.00
Plan 3 $138,000.00
Plan 4 $147,000.00
(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.
-21-
<PAGE>
As used herein, "Net Sale Proceeds" shall equal the total proceeds to be
received by Borrower from the sale, less: (a) customary closing costs and title
fees payable by Borrower; and (b) real estate commissions payable by Borrower,
provided that sales commissions payable to any real estate company affiliated
with Borrower shall not exceed 3% of the gross sales price.
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: _____________________________
Ira Norris, President
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:______)
-22-
<PAGE>
EXHIBIT "B"
DESCRIPTION OF REAL PROPERTY
----------------------------
Lots 60, 61 and 62 of Tract No. 15793, in the City of Fontana, County of San
Bernardino, State of California, as shown by map on file in Book 265, Pages 85
through 89, inclusive, of Maps in the Records of San Bernardino County,
California.
THIS DEED OF TRUST SHALL BE SENIOR IN LIEN TO A DEED OF TRUST CURRENTLY OF
RECORD ENCUMBERING THE ABOVE-REFERENCED PROPERTY, WHICH DEED OF TRUST WILL BE
SUBORDINATED HERETO. SAID DEED OF TRUST WAS RECORDED APRIL 18, 1997, AS
INSTRUMENT NO. 19970135205, IN THE RECORDS OF SAN BERNARDINO COUNTY.
-23-
<PAGE>
EXHIBIT 10.15
PROMISSORY NOTE
SECURED BY DEED OF TRUST
$120,000.00 Las Vegas, Nevada
September 26, 1997
This Promissory Note ("Note"), dated as of September 26, 1997 is made and
delivered by Freedom-Eagle Ranch Housing Partners, a California limited
partnership ("Borrower"), in favor of USA Commercial Mortgage Company, Inc., a
Nevada corporation ( "Lender").
FOR VALUE RECEIVED, Borrower promises to pay to Lender, or order, the
principal sum of One Hundred Twenty Thousand Dollars ($120,000.00) (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 Lender until
the date the Note Amount is paid in full, at the rate of twenty percent (20%)
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.
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 below, or at such other place as the Lender hereof may from time to
time direct by written notice to Borrower.
3. Maturity Date. 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 date which is ninety (90) days after the date the Deed of Trust
is recorded (the "Maturity Date").
4. Application of Payments. All payments on this Note shall, at the option
-----------------------
of the Lender hereof, be applied first to the payment of accrued interest then
payable.
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. Collateral. This Note is secured by a 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, Lender may declare the entire principal balance of the Note
then outstanding (if not then
<PAGE>
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) Borrower shall fail to pay, upon demand by Lender, any amount due
pursuant to the Note; or
(b) Borrower or any guarantor ("Guarantor") of the Note shall fail to
perform or observe any term, covenant or agreement contained in the Note, this
Deed of Trust or any guaranty executed and delivered concurrently herewith 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 Lender to
Borrower (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 Loan Documents proves
incorrect or to have been incorrect in any material respect when made; or
(d) Borrower (which term shall include any entity comprising Borrower)
is dissolved or liquidated, or otherwise ceases to exist, or all or
substantially all of the assets of Borrower or any Guarantor are sold or
otherwise transferred without Lender's written consent; or
(e) Borrower or any Guarantor 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 or any Guarantor 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 Borrower or any Guarantor, as the case may be, and the appointment
continues undischarged or unstayed for thirty (30) calendar days; or Borrower or
any Guarantor 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 Borrower or any
Guarantor, 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 Borrower
or any Guarantor, and is not released, vacated or fully bonded within thirty
(30) calendar days after such issue or levy; or
-2-
<PAGE>
(f) there shall occur a material adverse change in the financial
condition of Borrower or any Guarantor from their respective financial
conditions as of the date of this Note, as determined by Lender 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 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 trustee, officer, director,
shareholder or partner of any entity comprising Borrower or any Guarantor 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 Borrower thereunder have been fully paid and
performed; or
(h) an Event of Default shall occur under any other loan made by
Lender to Borrower.
8. 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 Lender 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 Lender 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 Lender 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 Lender hereof as such Lender's sole monetary recovery
to cover such extra administrative expenses and loss of use of funds, liquidated
damages in the amount of five percent (5%) of the amount of such delinquent
payment. The provisions of this paragraph are intended to govern only the
determination of damages in the event of a breach in the performance of the
obligation of Borrower to make timely payments hereunder. Nothing in this Note
shall be construed as an express or implied agreement by the Lender 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
Lender hereof to receive payment of such liquidated and actual damages, and
receipt thereof, are without prejudice to the right of such Lender 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 Lender 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-three percent (23%) per annum
-3-
<PAGE>
("Default Rate"). Such interest shall be paid on the first day of each month
thereafter, or on demand if sooner demanded.
10. Waivers. Borrower waives any right of offset it now has or may
-------
hereafter have against the Lender 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. 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.
11. Costs of Collection. Borrower agrees to pay all costs of collection
-------------------
when incurred and all costs incurred by the Lender hereof in exercising or
preserving any rights or remedies in connection with the enforcement and
administration of this Note or following a default by Borrower, including but
not limited to actual attorneys' fees. If any suit or action is instituted to
enforce this Note, Borrower promises to pay, in addition to the costs and
disbursements otherwise allowed by law, such sum as the court may adjudge
reasonable attorneys' fees in such suit or action.
12. 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.
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.
-4-
<PAGE>
BORROWER'S ADDRESS: c/o Inco Homes Corporation
1282 West Arrow Highway
Upland, California 91786
Attn: Ira Norris
LENDER'S ADDRESS: USA Commercial Mortgage Company
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 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.
15. Multiple Parties. A default on the part of any one entity comprising
----------------
Borrower or any Guarantor of this Note shall be deemed a default on the part of
Borrower hereunder.
16. 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, Lender 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 jurisdiction shall affect any
provision of this Note to the extent it is otherwise enforceable under the laws
of any other applicable jurisdiction.
-5-
<PAGE>
18. Venue. The venue of any action brought in connection with this Note
-----
shall be laid in Clark County, Nevada.
"BORROWER":
Freedom-Eagle Ranch Housing Partners, a California
limited partnership
By: Inco Homes Corporation, a Delaware
corporation, its general partner
By: _____________________________
Ira Norris, President
-6-
<PAGE>
EXHIBIT 10.16
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 29th day of September, 1997, by and between
Freedom-Eagle Ranch Housing Partners, a California limited partnership
("Trustor"), Orange Coast Title Company, a California corporation ("Trustee"),
and USA Commercial Mortgage, Inc., a Nevada corporation ("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
Trustor's Promissory Note of even date herewith in the initial principal amount
of One Hundred Twenty Thousand Dollars ($120,000.00) (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 payment of such additional sums and interest thereof which may
hereafter be loaned to Borrower, 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 Borrower contained in the
Note, and of Trustor contained in this Deed of Trust or any other document
evidencing the Loan (collectively, the "Loan 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 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, 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.
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(c) All articles of tangible personal property and any additions to,
substitutions for, changes in or replacements of the whole or any part thereof
other than personal property which is or at any time has become toxic waste,
waste products or hazardous substances (hereinafter referred to as the "Personal
Property"), including without limitation all wall-beds, wall-safes, built-in
furniture and installations, shelving, partitions, door-tops, vaults, elevators,
dumb-waiters, awnings, window shades, venetian blinds, light fixtures, fire
hoses and brackets and boxes for the same, fire sprinklers, alarm systems,
drapery rods and brackets, screens, water heaters, incinerators, wall coverings,
carpeting, linoleum, tile, other floor coverings of whatever description,
communication systems, all specifically designed installations and furnishings,
office maintenance and other supplies and all of said articles of property, the
specific enumerations herein not excluding the general, now or at any time
hereafter placed upon or used in any way in connection with the ownership,
operation or maintenance of the Property or the Improvements or any portion
thereof and owned by Trustor or in which Trustor now has or hereafter acquires
an interest, and all building materials and equipment now or hereafter delivered
to the Property and intended to be installed or placed in or about the
Improvements. Such tangible, personal property shall, in addition to all other
tangible, personal property herein described or defined, specifically include
each and every item of tangible, personal property and any substitutions for,
changes in or replacements thereof which are used in the operation of the
Improvements. Notwithstanding the breadth of the foregoing, the Personal
Property shall not include (i) personal property which may be owned by lessees
or other occupants of the Mortgaged Property; (ii) inventory of any lessee or
occupant of the Mortgaged Property used in the normal course of the business
conducted thereon; (iii) material, equipment, tools, machinery, or other
personal property which is brought upon the Mortgaged Property only for use in
construction, maintenance or repair and which is not intended to remain after
the completion of such construction, maintenance or proper maintenance, of the
Mortgaged Property; or (iv) such items of tangible personal property which have
not been purchased or installed with proceeds of the Note and for which
Beneficiary shall have executed such documents as may be required to subordinate
to the lien or security interest of any purchase money lender or supplier of
such tangible personal property;
(d) All right, title and interest of Trustor, now owned or hereafter
acquired in and to any and lying within the right-of-way of any street, road,
alley or public place, opened or proposed, vacated or extinguished by law or
otherwise, and all easements and rights of way, public or private, tenements,
hereditaments, appendages, rights and appurtenances how or hereafter located
upon the Property or now or hereafter used in connection with or now or
hereafter belonging or appertaining to the Property; and all right, title and
interest in the 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
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<PAGE>
caused by such taking or otherwise) to the Mortgaged Property or the
Improvements thereon, including change of grade of streets, curb cuts or other
rights of access for any public or quasi-public use or purpose under any law;
(f) All rents, incomes, issues and profits, revenues, royalties,
bonuses, rights, accounts, contract rights, insurance policies and proceeds
thereof, general intangibles and benefits of the Mortgaged Property, or arising
from any lease or similar agreement pertaining thereto (the "Rents and
Profits"), and all right, title and interest of Trustor in and to all leases of
the Mortgaged Property now or hereafter entered into and all right, title and
interest of Trustor thereunder, including, without limitation, cash or
securities deposited thereunder to secure performance by the lessees of their
obligations thereunder, whether said cash or securities are to be held until the
expiration of the terms of said leases or applied to one or more of the
installments of rent coming due immediately prior to the expiration of said
terms with the right to receive and apply the same to said indebtedness, and
Trustee or Beneficiary may demand, sue for and recover such payments but shall
not be required to do so; and
(g) All proceeds of the conversion, voluntary or involuntary, of any
of the foregoing into cash or liquidated claims.
Trustor makes the foregoing grant to Trustee for the purposes herein set
forth; provided, however, that if the Trustor shall pay or cause to be paid to
the holder of the Note all amounts required to be paid under the provisions of
the Note, this Deed of Trust or any other Loan Documents, and at the time and in
the manner stipulated therein, and shall further pay or cause to be paid all
other sums payable hereunder and all indebtedness hereby secured, then, in such
case, the estate, right, title and interest of the Trustee and Beneficiary in
the Mortgaged Property shall cease, determine and become void, and upon proof
being given to the satisfaction of the Beneficiary that all amounts due to be
paid under the Note have been paid or satisfied, and upon payment of all fees,
costs, charges, expenses and liabilities chargeable or incurred or to be
incurred by Trustee or Beneficiary, and of any other sums as herein provided,
the Trustee shall, upon receipt of the written request of the Beneficiary,
cancel, reconvey and discharge this Deed of Trust.
TO HAVE AND TO HOLD THE MORTGAGED PROPERTY UNTO THE TRUSTEE ITS SUCCESSORS AND
ASSIGNS FOREVER, ALL IN ACCORDANCE WITH THE PROVISIONS HEREOF.
ARTICLE 1
TRUSTOR'S COVENANTS
--------------------
Trustor covenants, warrants and agrees with Trustee and Beneficiary as
follows:
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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 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:
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(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 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
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<PAGE>
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, all
taxes, assessments, charges and levies imposed by any Governmental Agency which
are or may become a lien affecting the Property or any part thereof, including
without limitation assessments on any appurtenant water stock; except that
Trustor shall not be required to pay and discharge any tax, assessment, charge
or levy that is being actively contested in good faith by appropriate
proceedings, as long as Trustor has established and maintains reserves adequate
to pay any liabilities contested pursuant to this Section in accordance with
generally accepted accounting principles and, by reason of nonpayment, none of
the Mortgaged Property covered by the Loan Documents or the lien or security
interest of Beneficiary is in danger of being lost or forfeited.
1.5 Maintenance and Repair. The Trustor shall, at its sole cost and
----------------------
expense, keep the Mortgaged Property in good operating order, repair and
condition and shall not commit or permit any waste thereof, which condition,
during the course of any reconstruction of the Improvements, shall be subject to
the normal constraints and effects of reconstruction. Trustor shall make all
repairs, replacements, renewals, additions and improvements and complete and
restore promptly and in good 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. The Trustor shall at all times maintain the following
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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 Trustor
(and naming the Beneficiary 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
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
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<PAGE>
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 indebtedness 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 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), 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 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
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<PAGE>
to the indebtedness shall not cure or waive any default or notice of default
hereunder or invalidate any act done pursuant to such notice. Trustor agrees to
execute such further assignments of any compensation, award, damages, right of
action and proceeds as Beneficiary may require.
1.10 Indemnification. The Trustor shall appear in and defend any suit,
---------------
action or proceeding that might in any way, in the reasonable judgment of
Beneficiary, affect the value of the Mortgaged Property, the title to the
Mortgaged Property or the rights and powers of Trustee or Beneficiary. Trustor
shall, at all times, indemnify, hold harmless and on demand reimburse
Beneficiary for any and all loss, damage, expense or cost, including cost of
evidence of title and attorneys fees, arising out of or incurred in connection
with any such suit, action or proceeding, and the sum of such expenditures shall
be secured by this Deed of Trust and shall accrue interest at the "Default Rate"
as that term is defined in the Note and shall be due and payable on demand.
Trustor shall pay costs of suit, cost of evidence of title and reasonable
attorneys' fees in any proceeding or suit brought by Trustee or Beneficiary to
foreclose this Deed of Trust.
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 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 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,
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<PAGE>
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 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
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<PAGE>
clause hereof, but at any and all times Trustor will execute and deliver to
Trustee any and all such further assurances, deeds of trust, conveyances or
assignments thereof as Trustee or Beneficiary may reasonably require for the
purpose of expressly and specifically subjecting the same to the lien of this
Deed of Trust.
1.14 Security Agreement. This Deed of Trust shall be self-operative and
------------------
shall constitute a Security Agreement and a Construction Mortgage as those terms
are defined in the California Uniform Commercial Code with respect to all of
those portions of the Mortgaged Property which constitute personal property or
fixtures governed by the Uniform Commercial Code as enacted in California,
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 Uniform Commercial Code as enacted in California. 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
----------
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
--------
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
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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.
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
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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 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.
1.22 Substitution of Collateral. So long as no Event of Default has
--------------------------
occurred and is continuing, Trustor may request that beneficiary allow the
substitution of other real property collateral for that described herein. Such
substitution shall be permitted only if approved by Beneficiary (by and through
USA Commercial Mortgage Company, Inc.), in its sole discretion. Such
substituted collateral must, in Beneficiary's opinion, have a value at least
equivalent to that it is replacing. Trustor shall pay all costs and expenses,
including title charges and attorneys' fees, incurred by Beneficiary in
processing such a substitution.
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, upon demand by Beneficiary, any amount
due pursuant to the Note; or
(b) Trustor or any guarantor ("Guarantor") of the Note shall fail to
perform or observe any term, covenant or agreement contained in the Note, this
Deed of Trust or any guaranty executed and delivered concurrently herewith 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 Loan 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 or any Guarantor are sold or
otherwise transferred without Beneficiary's written consent; or
(e) Trustor or any Guarantor 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 or any Guarantor 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 any Guarantor, as the case may be, and the appointment
continues undischarged or unstayed for thirty (30) calendar days; or Trustor or
any Guarantor 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 or any
Guarantor, 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
or any Guarantor, and is not released, vacated or fully bonded within thirty
(30) calendar days after such issue or levy; or
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(f) there shall occur a material adverse change in the financial
condition of Trustor or any Guarantor from their respective financial conditions
as of the date of this Note, as determined by Beneficiary 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 Beneficiary or the satisfaction
in full of all indebtedness and obligations of Trustor 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 Trustor or any trustee, officer, director,
shareholder or partner of any entity comprising Trustor or any Guarantor 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 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
--------
Upon the occurrence of any Event of Default, Trustee and Beneficiary shall
have the following rights and remedies:
3.1 Acceleration of Maturity. Beneficiary may declare the entire
------------------------
principal of the Note then outstanding (if not then due and payable thereunder)
and all other obligations of Trustor hereunder or under the Note, to be due and
payable immediately, and, subject to applicable provisions of law, upon any such
declaration the principal of the Note and accrued and unpaid interest, and all
other amounts to be paid under the Note, this Deed of Trust or any other Loan
Document shall become and 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
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alterations and do any acts which Beneficiary deems proper to protect the
security hereof; and (v) with or without taking possession, in its own name or
in the name of Trustor, use for or otherwise collect and receive the Rents and
Profits and all other benefits, including those past due and unpaid, and apply
the same, less costs and expenses of operation and collection, including
reasonable attorneys fees, upon any indebtedness secured hereby, and in such
order as Beneficiary may determine.
3.4 Judicial Remedies. Beneficiary may bring an action in any court of
-----------------
competent jurisdiction to foreclose this Deed of Trust or to enforce any of the
covenants and agreements hereof and to take such steps to protect and enforce
its rights whether by action, suit or proceeding in equity or at law for the
specific performance of any covenant, condition or agreement in the Note, this
Deed of Trust or any other Loan Document, or in aid of the execution of any
power herein granted, or for any foreclosure hereunder, or for the enforcement
of any other appropriate legal or equitable remedy or otherwise as the
Beneficiary shall elect.
3.5 Maintenance of Mortgaged Property. Beneficiary may have a receiver
---------------------------------
appointed by a court of competent jurisdiction for the purpose of collecting
rents and managing the Mortgaged Property, and Trustor hereby consents in
advance to such appointment. The Trustee or Beneficiary personally, or by its
agents or attorneys, or by the receiver appointed by the court, may enter into
and upon all or any part of the Mortgaged Property, and each and every part
thereof, and may exclude the Trustor, its agents and servants wholly therefrom,
and having and holding the same, may use, operate, manage and control the
Mortgaged Property and conduct the business thereof, either personally or by its
superintendents, managers, agents, servants, attorneys or receivers. Upon every
such entry, any party occupying the Mortgaged Property in accordance with this
Article 3, at the expense of the 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.
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3.6 Rights of Secured Party. Beneficiary shall have all of the remedies
-----------------------
of a Secured Party under the Uniform Commercial Code as enacted in California,
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 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 California:
(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 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
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<PAGE>
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 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.
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(d) In the event of any sale made under or by virtue of this Section
whether made under the power of sale herein granted or under or by virtue of
judicial proceedings or of a judgment or decree of foreclosure and sale, the
entire principal of and interest on the Note and all accrued interest on the
Note, and all other sums required to be paid by the Trustor pursuant to the Note
and this Deed of Trust shall be due and payable, anything in the Note or in this
Deed of Trust to the contrary notwithstanding.
(e) The purchase money proceeds or avails of any sale made under or by
virtue of this Section, together with any other sums which then may be held by
the Trustee or Beneficiary under this Deed of Trust whether under the provisions
of this Section or otherwise, shall be applied as required by applicable law.
(f) Upon any sale made under or by virtue of this Section, whether
made under the power of sale herein granted or granted in accordance with the
laws of the state in which the Property is located or under or by virtue of
judicial proceedings or of a judgment or decree of foreclosure and sale, the
Beneficiary may bid for and acquire the Mortgaged Property or any part thereof
and in lieu of paying cash 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
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
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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 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
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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 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
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provided, be held in trust, but need not be segregated (except to the extent
required by law), and Trustee shall not be liable for interest thereon. Trustor
shall indemnify Trustee against all liability and expenses which he may incur in
the performance of his duties hereunder, except for its own negligence.
ARTICLE 5
MISCELLANEOUS
-------------
5.1 Non-Waiver. By accepting payment of any sum secured hereby after
----------
its due date or late performance of any indebtedness secured hereby, Beneficiary
shall not waive its right against any person obligated directly or indirectly
hereunder or on any indebtedness hereby secured, either to require prompt
payment when due of all other sums so secured or to declare a default for
failure to make payment except as to such payment accepted by Beneficiary. No
exercise of any right or remedy by Trustee or Beneficiary hereunder shall
constitute a waiver of any other right or remedy herein contained or provided by
law.
No delay or omission of the Trustee or Beneficiary in the exercise of any
right, power or remedy accruing hereunder or arising otherwise shall impair any
such right, power or remedy, or be construed to be a waiver of any default or
acquiescence therein.
Receipts of rents, awards, and any other monies or evidences thereof,
pursuant to the provisions of this Deed of Trust and any disposition of the same
by Trustee or Beneficiary shall not constitute a waiver of the power of sale or
right of foreclosure by Trustee or Beneficiary in the event of a default or
failure of performance by 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
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affect the security hereof or the rights or powers of Beneficiary; and/or (iii)
pay, purchase, contest, or compromise any encumbrance, charge or lien which in
the judgment of Beneficiary is prior or superior hereto and, in exercising any
such power, incur any liability and expend whatever amounts in its absolute
discretion it may deem necessary therefor, including cost of evidence of title
and reasonable attorneys' fee. Any expenditures in connection herewith shall be
deemed an Advance and shall constitute part of the indebtedness secured by this
Deed of Trust.
5.4 Rules of Construction. When the identity of the parties hereto or
---------------------
other circumstances make it appropriate, the masculine gender includes the
feminine and/or neuter, and the singular number includes the plural. The
headings of each article, section or paragraph are for information and
convenience only and do not limit or construe the contents of any provision
hereof.
5.5 Severability. If any term of this Deed of Trust or the application
------------
thereof to any person or circumstances, shall, to any extent, be invalid or
unenforceable, the remainder of this Deed of Trust, or the application of such
term to persons or circumstances other than those as to which it is invalid or
unenforceable, shall not be affected thereby, and each term of this Deed of
Trust shall be valid and enforceable to the fullest extent.
5.6 Successors in Interest. This Deed of Trust applies to, inures to
----------------------
the benefit of, and is binding not only on the parties hereto, but on their
heirs, executors, administrators, successors and assigns. All obligations of
Trustor hereunder are joint and several. The term "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 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
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<PAGE>
continue to have and enjoy all of the rights and privileges of Beneficiary as to
the separate estates. In addition, upon the foreclosure of the lien created by
this Deed of Trust on the Mortgaged Property pursuant to the provisions hereof,
any leases or subleases then existing shall not be destroyed or terminated by
application of the law of merger or as a matter of law or as a result of such
foreclosure unless Beneficiary or any purchaser at any such foreclosure sale
shall so elect. No act by or on behalf of Beneficiary or any such purchaser
shall constitute a termination of any lease or sublease unless Beneficiary or
such purchaser shall have given written notice thereof to such tenant or
subtenant.
5.10 Attorneys' Fees. If Beneficiary incurs any costs or expenses,
---------------
including attorneys' fees, for any of the following relating to this Deed of
Trust (or any other instrument evidencing or securing this loan): (a) the
interpretation, performance or enforcement thereof; (b) the enforcement of any
statute, regulation or judicial decision; (c) any collection effort; or (d) any
suit or action for the interpretation, performance or enforcement thereof is
commenced or defended, or, if any other judicial or nonjudicial proceeding is
instituted by Beneficiary or any other person, and an attorney is employed by
Beneficiary to appear in any such action or proceeding, or to reclaim, seek
relief from a judicial or statutory stay, sequester, protect, preserve or
enforce Beneficiary's interest in this Deed of Trust or any other security for
the Note, including but not limited to proceedings under federal bankruptcy law,
in eminent domain, under the probate code, or in connection with any state or
federal tax lien, then Trustor agrees to 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.
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<PAGE>
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 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 Statutory Covenants. Where not inconsistent with the above, the
-------------------
following covenants, Nos. 1; 2 (full replacement value); 3; 4 (five percent [5%]
per annum above the Interest Rate set forth in the Note); 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.
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<PAGE>
5.18 Partial Releases of Lots. So long as no Event of Default has occurred
------------------------
and is continuing, Beneficiary shall release individual or multiple Lots from
the lien and operation of the Deed of Trust upon satisfaction in Lender's sole
discretion of the following requirements:
(i) the payment to Lender, from the home sale escrow, of a
sum to be determined by Beneficiary; and
(ii) Borrower pays all costs and expenses in connection with
such release and reconveyance.
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: _____________________________
Ira Norris, President
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<PAGE>
EXHIBIT "B"
DESCRIPTION OF REAL PROPERTY
----------------------------
All of the real property situated in the State of California, County of San
Bernardino, described as follows:
Lots 2, 9 and 13, inclusive, of Tract No. 15712-1, in the City of Victorville,
County of San Bernardino, State of California, as per map recorded in Book 262
Pages 65 to 67, inclusive of Maps, in the Office of the County Recorder of said
County;
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.
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<PAGE>
EXHIBIT 10.17
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 26th day of September, 1997, by and between
Inco Homes Corporation, a Delaware corporation ("Trustor"), Orange Coast Title
Company, a California corporation ("Trustee"), and those persons and entities
listed on Exhibit "A" attached hereto ("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
Trustor's Promissory Note of even date herewith in the initial principal amount
of One Hundred Twenty Thousand Dollars ($120,000.00) (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
3. The payment of such additional sums and interest thereof which may
hereafter be loaned to Borrower, 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
<PAGE>
4. The due, prompt and complete observance, performance and discharge of
each and every obligation, covenant and agreement of Borrower contained in the
Note, and of Trustor contained in this Deed of Trust or any other document
evidencing the Loan (collectively, the "Loan 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 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, 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
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<PAGE>
furniture and installations, shelving, partitions, door-tops, vaults, elevators,
dumb-waiters, awnings, window shades, venetian blinds, light fixtures, fire
hoses and brackets and boxes for the same, fire sprinklers, alarm systems,
drapery rods and brackets, screens, water heaters, incinerators, wall coverings,
carpeting, linoleum, tile, other floor coverings of whatever description,
communication systems, all specifically designed installations and furnishings,
office maintenance and other supplies and all of said articles of property, the
specific enumerations herein not excluding the general, now or at any time
hereafter placed upon or used in any way in connection with the ownership,
operation or maintenance of the Property or the Improvements or any portion
thereof and owned by Trustor or in which Trustor now has or hereafter acquires
an interest, and all building materials and equipment now or hereafter delivered
to the Property and intended to be installed or placed in or about the
Improvements. Such tangible, personal property shall, in addition to all other
tangible, personal property herein described or defined, specifically include
each and every item of tangible, personal property and any substitutions for,
changes in or replacements thereof which are used in the operation of the
Improvements. Notwithstanding the breadth of the foregoing, the Personal
Property shall not include (i) personal property which may be owned by lessees
or other occupants of the Mortgaged Property; (ii) inventory of any lessee or
occupant of the Mortgaged Property used in the normal course of the business
conducted thereon; (iii) material, equipment, tools, machinery, or other
personal property which is brought upon the Mortgaged Property only for use in
construction, maintenance or repair and which is not intended to remain after
the completion of such construction, maintenance or proper maintenance, of the
Mortgaged Property; or (iv) such items of tangible personal property which have
not been purchased or installed with proceeds of the Note and for which
Beneficiary shall have executed such documents as may be required to subordinate
to the lien or security interest of any purchase money lender or supplier of
such tangible personal property;
(d) All right, title and interest of Trustor, now owned or hereafter
acquired in and to any and lying within the right-of-way of any street, road,
alley or public place, opened or proposed, vacated or extinguished by law or
otherwise, and all easements and rights of way, public or private, tenements,
hereditaments, appendages, rights and appurtenances how or hereafter located
upon the Property or now or hereafter used in connection with or now or
hereafter belonging or appertaining to the Property; and all right, title and
interest in the 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
-3-
<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 Note, this Deed of Trust or any other Loan Documents, and at the time and in
the manner stipulated therein, and shall further pay or cause to be paid all
other sums payable hereunder and all indebtedness hereby secured, then, in such
case, the estate, right, title and interest of the Trustee and Beneficiary in
the Mortgaged Property shall cease, determine and become void, and upon proof
being given to the satisfaction of the Beneficiary that all amounts due to be
paid under the Note have been paid or satisfied, and upon payment of all fees,
costs, charges, expenses and liabilities chargeable or incurred or to be
incurred by Trustee or Beneficiary, and of any other sums as herein provided,
the Trustee shall, upon receipt of the written request of the Beneficiary,
cancel, reconvey and discharge this Deed of Trust.
TO HAVE AND TO HOLD THE MORTGAGED PROPERTY UNTO THE TRUSTEE ITS SUCCESSORS AND
ASSIGNS FOREVER, ALL IN ACCORDANCE WITH THE PROVISIONS HEREOF.
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 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 approved by Beneficiary; that Trustor has full
power and authority to grant, bargain, sell and convey the
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<PAGE>
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 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.
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<PAGE>
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 Loan Documents or the lien or security
interest of Beneficiary is in danger of being lost or forfeited.
1.5 Maintenance and Repair. The Trustor shall, at its sole cost and
----------------------
expense, keep the Mortgaged Property in good operating order, repair and
condition and shall not commit or permit any waste thereof, which condition,
during the course of any reconstruction of the Improvements, shall be subject to
the normal constraints and effects of reconstruction. Trustor shall make all
repairs, replacements, renewals, additions and improvements and complete and
restore promptly and in good 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. 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 such greater amount as may be specified by the
Beneficiary from time to time) combined single limit; and
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<PAGE>
(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
--------
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 indebtedness 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 Improvements shall be to a condition of at least equal value
as prior to such damage or destructions.
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<PAGE>
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), 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 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
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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 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 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 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
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such deed shall not contain such assumption, Beneficiary shall have all rights
reserved to it hereunder in the event of a default or if Beneficiary shall not
elect to exercise such rights and remedies, the grantee under such deed shall
nevertheless be deemed to have assumed such obligations by acquiring the
Mortgaged Property or such portion thereof subject to this Deed of Trust.
Nothing contained in this section shall be construed to waive the restrictions
against the transfer of the Mortgaged Property contained in Section 1.11(a).
1.12 Transfer of Personal Property. Trustor shall not voluntarily,
-----------------------------
involuntarily or by operation of law sell, assign, transfer, hypothecate, pledge
or otherwise dispose of the Personal Property or any interest therein and shall
not otherwise do or permit anything to be done or occur that may impair the
Personal property as security hereunder, except that so long as this Deed of
Trust is not in default, Trustor shall be permitted to sell or otherwise dispose
of the Personal Property when absolutely worn out, inadequate, unserviceable or
unnecessary for use in the operation of the Property or in the conduct of the
business of Trustor, upon replacing the same or substituting for the same other
Personal Property at least equal in value to the initial value of that disposed
of and in such a manner so that said Personal Property is sold in connection
with the sale of the Property.
1.13 Title to Replacements and Substitutions. All right, title and
---------------------------------------
interest of Trustor in and to all extensions, improvements, betterments,
renewals, substitutes and replacements of, and all additions and appurtenances
to the Personal Property, Improvements or the Mortgaged Property hereafter
acquired by or released to Trustor or constructed, assembled or placed by
Trustor on the Mortgaged Property, and all conversions of the security
constituted thereby, immediately upon such acquisition, release, construction,
assembling, placement or conversion, as the case may be, and in each such case,
without any further deed of trust, conveyance, assignment or other act by
Trustor, shall become subject to the lien of this Deed of Trust as fully and
completely, and with the same effect and in the same priority as the lien of
this Deed of Trust shall have attached to the item so replaced or substituted
immediately prior to such replacement of substitutions, as though now owned by
Trustor and specifically described in the granting clause hereof, but at any and
all times Trustor will execute and deliver to Trustee any and all such further
assurances, deeds of trust, conveyances or assignments thereof as Trustee or
Beneficiary may reasonably require for the purpose of expressly and specifically
subjecting the same to the lien of this Deed of Trust.
1.14 Security Agreement. This Deed of Trust shall be self-operative and
------------------
shall constitute a Security Agreement and a Construction Mortgage as those terms
are defined in the California Uniform Commercial Code with respect to all of
those portions of the Mortgaged Property which constitute personal property or
fixtures governed by the Uniform Commercial Code as enacted in California,
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 Uniform Commercial Code as
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enacted in California. 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
----------
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
--------
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 Trustor,
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<PAGE>
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.
1.22 Substitution of Collateral. So long as no Event of Default has
--------------------------
occurred and is continuing, Trustor may request that beneficiary allow the
substitution of other real property collateral for that described herein. Such
substitution shall be permitted only if approved by Beneficiary (by and through
USA Commercial Mortgage Company, Inc.), in its sole discretion. Such
substituted collateral must, in Beneficiary's opinion, have a value at least
equivalent to that it is replacing. Trustor shall pay all costs and expenses,
including title charges and attorneys' fees, incurred by Beneficiary in
processing such a substitution.
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, upon demand by Beneficiary, any
amount due pursuant to the Note; or
(b) Trustor or any guarantor ("Guarantor") of the Note shall fail to
perform or observe any term, covenant or agreement contained in the Note, this
Deed of Trust or any guaranty executed and delivered concurrently herewith 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
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<PAGE>
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 Loan 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 or any Guarantor are sold or
otherwise transferred without Beneficiary's written consent; or
(e) Trustor or any Guarantor 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 or any Guarantor 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 any Guarantor, as the case may be, and the appointment
continues undischarged or unstayed for thirty (30) calendar days; or Trustor or
any Guarantor 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 or any
Guarantor, 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
or any Guarantor, and is not released, vacated or fully bonded within thirty
(30) calendar days after such issue or levy; or
(f) there shall occur a material adverse change in the financial
condition of Trustor or any Guarantor from their respective financial conditions
as of the date of this Note, as determined by Beneficiary 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 Beneficiary or the satisfaction
in full of all indebtedness and obligations of Trustor 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 Trustor or any trustee, officer, director,
shareholder or partner of any entity comprising Trustor or any Guarantor 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 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.
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ARTICLE 3
REMEDIES
--------
Upon the occurrence of any Event of Default, Trustee and Beneficiary shall
have the following rights and remedies:
3.1 Acceleration of Maturity. Beneficiary may declare the entire
------------------------
principal of the Note then outstanding (if not then due and payable thereunder)
and all other obligations of Trustor hereunder or under the Note, to be due and
payable immediately, and, subject to applicable provisions of law, upon any such
declaration the principal of the Note and accrued and unpaid interest, and all
other amounts to be paid under the Note, this Deed of Trust or any other Loan
Document shall become and 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
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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 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 as enacted in California,
including without limitation, the right and power to sell, or otherwise dispose
of, the Personal Property, or any part thereof, and for that purpose may take
immediate and exclusive possession of the Personal Property, or any part
thereof, and with or without judicial process to the extent permitted by law,
enter upon any premises on which the Personal Property or any part thereof, may
be situated and remove the same therefrom without being deemed guilty of
trespass and without liability for damages thereby occasioned, or at
Beneficiary's option Trustor shall assemble the Personal Property and make it
available to the Beneficiary at the place and the time designated in the demand.
Beneficiary shall be entitled to hold, maintain, preserve and prepare the
Personal Property for sale. Beneficiary, without removal of the Personal
Property from the Mortgaged Property, may render the Personal Property
inoperable and dispose of the Personal Property on the Mortgaged Property. To
the extent permitted by law, Trustor expressly waives any notice of sale or
other disposition of the Personal Property and any other right or remedy of
Beneficiary existing after default hereunder, and to the extent any such notice
is required and cannot be waived, Trustor agrees that as it relates to this
Section 3.6 only, if such notice is mailed, postage prepaid, to the Trustor at
the address set forth in Section 5.12 hereof at least ten (10) days before the
time of the sale or disposition, such notice shall be deemed reasonable and
shall fully satisfy any requirement for giving of said notice.
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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 California:
(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
Loan Documents in any manner permitted by applicable law. For any
sale under the power of sale granted by this Deed of Trust, Trustee or
Beneficiary must record and give all notices required by law and then,
upon the expiration of such time as is required by law, may sell the
Mortgaged Property, and all estate, right, title, interest, claim and
demand of Trustor therein, and all rights of redemption thereof, at
one or more sales, as an entirety or in parcels, with such elements of
real and/or personal property (and, to the extent permitted by
applicable law, may elect to deem all of the Mortgaged Property to be
real property for purposes thereof), and at such time or place and
upon such terms as Trustee and Beneficiary may determine and shall
execute and deliver to the purchaser or purchasers thereof a deed or
deeds conveying the property sold, but without any covenant or
warranty, express or implied, and the recitals in the deed or deeds of
any facts affecting the regularity or validity of a sale will be
conclusive against all persons. In the event of a sale, by
foreclosure or otherwise, of less than all of the Mortgaged Property,
this Deed of Trust shall continue as a lien and security interest on
the remaining portion of the Mortgaged Property; or
(ii) institute proceedings for the complete or partial foreclosure
of this Deed of Trust as a mortgage; and in this connection Trustor
does hereby expressly waive to the extent permitted by law its right
of redemption after a mortgage foreclosure sale; or
(iii) apply to any court of competent jurisdiction for the
appointment of a receiver or receivers for the Mortgaged Property and
of all the earnings, revenues, rents, issues, profits and income
thereof, which appointment is hereby consented to by Trustor; or
(iv) take such steps to protect and enforce its rights whether by
action, suit or proceeding in equity or at law for the specific
performance of any covenant, condition or 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.
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(b) The Trustee may adjourn from time to time any sale by it made
under or by virtue of this Deed of Trust by announcement at the time and place
appointed for such sale or sales and, except as otherwise provided by any
applicable provision of law, the Trustee without further notice or publication,
may make such sale at the time and place to which the sale shall be so
adjourned;
(c) Upon the completion of any sale or sale made by the Trustee under
or by virtue of this Section, the Trustee shall execute and deliver to the
accepted purchaser or purchasers a good and sufficient instrument, or good and
sufficient instruments, conveying, assigning and transferring all estate, right,
title and interest in and to the property and rights sold, but without any
covenant or warranty, express or implied. The recitals in such deed of any
matters or facts shall be conclusive proof of the truthfulness thereof to the
extent permitted by law. Any such sale or sales made under or by virtue of this
Section whether made under the power of sale herein granted or under or by
virtue of judicial proceedings or of a judgment or decree of foreclosure and
sale, shall operate to divest all the estate, right, title, interest, claim and
demand whatsoever, whether at law or in equity, of the Trustor in and to the
properties and rights so sold, and shall be a perpetual bar both at law and in
equity against the Trustor and against any and all persons claiming or who may
claim the same, or any part thereof from through or under the Trustor.
(d) In the event of any sale made under or by virtue of this Section
whether made under the power of sale herein granted or under or by virtue of
judicial proceedings or of a judgment or decree of foreclosure and sale, the
entire principal of and interest on the Note and all accrued interest on the
Note, and all other sums required to be paid by the Trustor pursuant to the Note
and this Deed of Trust shall be due and payable, anything in the Note or in this
Deed of Trust to the contrary notwithstanding.
(e) The purchase money proceeds or avails of any sale made under or by
virtue of this Section, together with any other sums which then may be held by
the Trustee or Beneficiary under this Deed of Trust whether under the provisions
of this Section or otherwise, shall be applied as required by applicable law.
(f) Upon any sale made under or by virtue of this Section, whether
made under the power of sale herein granted or granted in accordance with the
laws of the state in which the Property is located or under or by virtue of
judicial proceedings or of a judgment or decree of foreclosure and sale, the
Beneficiary may bid for and acquire the Mortgaged Property or any part thereof
and in lieu of paying cash 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.
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<PAGE>
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 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
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<PAGE>
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 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 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
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<PAGE>
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.
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.
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<PAGE>
5.2 Right to Release. Without affecting the liability of any other
----------------
person for the payment of any indebtedness herein mentioned (including Trustor
should it convey said Mortgaged Property) and without affecting the lien or
priority hereof upon any property not released, Beneficiary may, without notice,
release any person so liable, extend the maturity or modify the terms of any
such obligation, or grant other indulgences, release or reconvey or cause to be
released or reconveyed at any time all or any part of the Mortgaged Property,
take or release any other security or make compositions or other arrangements
with debtors. Beneficiary may also accept additional security, either
concurrently herewith or hereafter, and sell same or otherwise realize thereon
either before, concurrently with, or after sale hereunder.
5.3 Protection of Security. Should Trustor fail to make any payment or
----------------------
to perform any covenant as herein provided, Beneficiary (but without obligation
so to do and without notice to or demand upon Trustor and without releasing
Trustor from any obligation hereof) may: (i) make or do the same in such manner
and to such extent as Beneficiary may deem necessary to protect the security
hereof, Beneficiary being authorized to enter upon the Mortgaged Property for
such purposes; (ii) commence, appear in and defend any action or proceeding
purporting to affect the security hereof or the rights or powers of Beneficiary;
and/or (iii) pay, purchase, contest, or compromise any encumbrance, charge or
lien which in the judgment of Beneficiary is prior or superior hereto and, in
exercising any such power, incur any liability and expend whatever amounts in
its absolute discretion it may deem necessary therefor, including cost of
evidence of title and reasonable attorneys' fee. Any expenditures in connection
herewith shall be deemed an Advance and shall constitute part of the
indebtedness secured by this Deed of Trust.
5.4 Rules of Construction. When the identity of the parties hereto or
---------------------
other circumstances make it appropriate, the masculine gender includes the
feminine and/or neuter, and the singular number includes the plural. The
headings of each article, section or paragraph are for information and
convenience only and do not limit or construe the contents of any provision
hereof.
5.5 Severability. If any term of this Deed of Trust or the application
------------
thereof to any person or circumstances, shall, to any extent, be invalid or
unenforceable, the remainder of this Deed of Trust, or the application of such
term to persons or circumstances other than those as to which it is invalid or
unenforceable, shall not be affected thereby, and each term of this Deed of
Trust shall be valid and enforceable to the fullest extent.
5.6 Successors in Interest. This Deed of Trust applies to, inures to the
----------------------
benefit of, and is binding not only on the parties hereto, but on their heirs,
executors, administrators, successors and assigns. All obligations of Trustor
hereunder are joint and several. The term "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 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
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<PAGE>
perfection, priority and procedures for foreclosure of the lien created by this
Deed of Trust. Trustor hereby consents to the jurisdiction of any competent
court in the State of Nevada and consents to service of process by any means
authorized by Nevada law in any action brought under or arising out of this Deed
of Trust.
5.8 Modifications. This Deed of Trust may not be amended, modified or
-------------
changed nor shall any waiver of any provision hereof be effective, except only
by an instrument in writing and signed by the party against whom enforcement of
any waiver, amendment, change, modification or discharge is sought.
5.9 No Merger. If both the Lessor's and Lessee's estates under any lease
---------
or any portion thereof which constitutes a part of the Mortgaged Property shall
at any time become vested in one owner, this Deed of Trust and the lien created
hereby shall not be destroyed or terminated by application of the doctrine of
merger, and, in such event, Beneficiary shall continue to have and enjoy all of
the rights and privileges of Beneficiary as to the separate estates. In
addition, upon the foreclosure of the lien created by this Deed of Trust on the
Mortgaged Property pursuant to the provisions hereof, any leases or subleases
then existing shall not be destroyed or terminated by application of the law of
merger or as a matter of law or as a result of such foreclosure unless
Beneficiary or any purchaser at any such foreclosure sale shall so elect. No
act by or on behalf of Beneficiary or any such purchaser shall constitute a
termination of any lease or sublease unless Beneficiary or such purchaser shall
have given written notice thereof to such tenant or subtenant.
5.10 Attorneys' Fees. If Beneficiary incurs any costs or expenses,
---------------
including attorneys' fees, for any of the following relating to this Deed of
Trust (or any other instrument evidencing or securing this loan): (a) the
interpretation, performance or enforcement thereof; (b) the enforcement of any
statute, regulation or judicial decision; (c) any collection effort; or (d) any
suit or action for the interpretation, performance or enforcement thereof is
commenced or defended, or, if any other judicial or nonjudicial proceeding is
instituted by Beneficiary or any other person, and an attorney is employed by
Beneficiary to appear in any such action or proceeding, or to reclaim, seek
relief from a judicial or statutory stay, sequester, protect, preserve or
enforce Beneficiary's interest in this Deed of Trust or any other security for
the Note, including but not limited to proceedings under federal bankruptcy law,
in eminent domain, under the probate code, or in connection with any state or
federal tax lien, then Trustor agrees to 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.
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<PAGE>
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 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 Statutory Covenants. Where not inconsistent with the above, the
-------------------
following covenants, Nos. 1; 2 (full replacement value); 3; 4 (five percent [5%]
per annum above the Interest Rate set forth in the Note); 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.
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<PAGE>
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 Partial Releases of Lots. So long as no Event of Default has occurred
------------------------
and is continuing, Beneficiary shall release individual or multiple Lots from
the lien and operation of the Deed of Trust upon satisfaction in Lender's sole
discretion of the following requirements:
(i) the payment to Lender, from the home sale escrow, of a sum
to be determined by Beneficiary; and
(ii) Borrower pays all costs and expenses in connection with such
release and reconveyance.
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: _____________________________
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 "B"
DESCRIPTION OF REAL PROPERTY
----------------------------
Parcel 1
- --------
Lots 23, 37 and 39 of Tract No. 24840, in the City of Corona, County of
Riverside, State of California, as per map recorded in Book 257, Pages 16, 17
and 18 of Maps, in the Office of the County Recorder of said County.
Parcel 2
- --------
Lot 9 of Tract No. 25466, in the City of Corona, County of Riverside, State of
California, as per map recorded in Book 249, Pages 88 through 91, of Maps, in
the Office of the County Recorder of said County.
THIS DEED OF TRUST IS JUNIOR IN LIEN AND SUBJECT TO FIRST AND SECOND TRUST DEEDS
ALREADY RECORDED ENCUMBERING SAID REAL PROPERTY.
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<PAGE>
EXHIBIT 10.18
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 26th day of September, 1997, by and between
Inco Homes Corporation, a Delaware corporation ("Trustor"), Orange Coast Title
Company, a California corporation ("Trustee"), and those persons and entities
listed on Exhibit "A" attached hereto ("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
Trustor's Promissory Note of even date herewith in the initial principal amount
of One Hundred Twenty Thousand Dollars ($120,000.00) (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 payment of such additional sums and interest thereof which may
hereafter be loaned to Borrower, 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 Borrower contained in the
Note, and of Trustor contained in this Deed of Trust or any other document
evidencing the Loan (collectively, the "Loan 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 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, 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.
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<PAGE>
(c) All articles of tangible personal property and any additions to,
substitutions for, changes in or replacements of the whole or any part thereof
other than personal property which is or at any time has become toxic waste,
waste products or hazardous substances (hereinafter referred to as the "Personal
Property"), including without limitation all wall-beds, wall-safes, built-in
furniture and installations, shelving, partitions, door-tops, vaults, elevators,
dumb-waiters, awnings, window shades, venetian blinds, light fixtures, fire
hoses and brackets and boxes for the same, fire sprinklers, alarm systems,
drapery rods and brackets, screens, water heaters, incinerators, wall coverings,
carpeting, linoleum, tile, other floor coverings of whatever description,
communication systems, all specifically designed installations and furnishings,
office maintenance and other supplies and all of said articles of property, the
specific enumerations herein not excluding the general, now or at any time
hereafter placed upon or used in any way in connection with the ownership,
operation or maintenance of the Property or the Improvements or any portion
thereof and owned by Trustor or in which Trustor now has or hereafter acquires
an interest, and all building materials and equipment now or hereafter delivered
to the Property and intended to be installed or placed in or about the
Improvements. Such tangible, personal property shall, in addition to all other
tangible, personal property herein described or defined, specifically include
each and every item of tangible, personal property and any substitutions for,
changes in or replacements thereof which are used in the operation of the
Improvements. Notwithstanding the breadth of the foregoing, the Personal
Property shall not include (i) personal property which may be owned by lessees
or other occupants of the Mortgaged Property; (ii) inventory of any lessee or
occupant of the Mortgaged Property used in the normal course of the business
conducted thereon; (iii) material, equipment, tools, machinery, or other
personal property which is brought upon the Mortgaged Property only for use in
construction, maintenance or repair and which is not intended to remain after
the completion of such construction, maintenance or proper maintenance, of the
Mortgaged Property; or (iv) such items of tangible personal property which have
not been purchased or installed with proceeds of the Note and for which
Beneficiary shall have executed such documents as may be required to subordinate
to the lien or security interest of any purchase money lender or supplier of
such tangible personal property;
(d) All right, title and interest of Trustor, now owned or hereafter
acquired in and to any and lying within the right-of-way of any street, road,
alley or public place, opened or proposed, vacated or extinguished by law or
otherwise, and all easements and rights of way, public or private, tenements,
hereditaments, appendages, rights and appurtenances how or hereafter located
upon the Property or now or hereafter used in connection with or now or
hereafter belonging or appertaining to the Property; and all right, title and
interest in the 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
-3-
<PAGE>
caused by such taking or otherwise) to the Mortgaged Property or the
Improvements thereon, including change of grade of streets, curb cuts or other
rights of access for any public or quasi-public use or purpose under any law;
(f) All rents, incomes, issues and profits, revenues, royalties,
bonuses, rights, accounts, contract rights, insurance policies and proceeds
thereof, general intangibles and benefits of the Mortgaged Property, or arising
from any lease or similar agreement pertaining thereto (the "Rents and
Profits"), and all right, title and interest of Trustor in and to all leases of
the Mortgaged Property now or hereafter entered into and all right, title and
interest of Trustor thereunder, including, without limitation, cash or
securities deposited thereunder to secure performance by the lessees of their
obligations thereunder, whether said cash or securities are to be held until the
expiration of the terms of said leases or applied to one or more of the
installments of rent coming due immediately prior to the expiration of said
terms with the right to receive and apply the same to said indebtedness, and
Trustee or Beneficiary may demand, sue for and recover such payments but shall
not be required to do so; and
(g) All proceeds of the conversion, voluntary or involuntary, of any
of the foregoing into cash or liquidated claims.
Trustor makes the foregoing grant to Trustee for the purposes herein set
forth; provided, however, that if the Trustor shall pay or cause to be paid to
the holder of the Note all amounts required to be paid under the provisions of
the Note, this Deed of Trust or any other Loan Documents, and at the time and in
the manner stipulated therein, and shall further pay or cause to be paid all
other sums payable hereunder and all indebtedness hereby secured, then, in such
case, the estate, right, title and interest of the Trustee and Beneficiary in
the Mortgaged Property shall cease, determine and become void, and upon proof
being given to the satisfaction of the Beneficiary that all amounts due to be
paid under the Note have been paid or satisfied, and upon payment of all fees,
costs, charges, expenses and liabilities chargeable or incurred or to be
incurred by Trustee or Beneficiary, and of any other sums as herein provided,
the Trustee shall, upon receipt of the written request of the Beneficiary,
cancel, reconvey and discharge this Deed of Trust.
TO HAVE AND TO HOLD THE MORTGAGED PROPERTY UNTO THE TRUSTEE ITS SUCCESSORS AND
ASSIGNS FOREVER, ALL IN ACCORDANCE WITH THE PROVISIONS HEREOF.
ARTICLE 1
TRUSTOR'S COVENANTS
-------------------
Trustor covenants, warrants and agrees with Trustee and Beneficiary as
follows:
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<PAGE>
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 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 approved by Beneficiary; 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,
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
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<PAGE>
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, all
taxes, assessments, charges and levies imposed by any Governmental Agency which
are or may become a lien affecting the Property or any part thereof, including
without limitation assessments on any appurtenant water stock; except that
Trustor shall not be required to pay and discharge any tax, assessment, charge
or levy that is being actively contested in good faith by appropriate
proceedings, as long as Trustor has established and maintains reserves adequate
to pay any liabilities contested pursuant to this Section in accordance with
generally accepted accounting principles and, by reason of nonpayment, none of
the Mortgaged Property covered by the Loan Documents or the lien or security
interest of Beneficiary is in danger of being lost or forfeited.
1.5 Maintenance and Repair. The Trustor shall, at its sole cost and
----------------------
expense, keep the Mortgaged Property in good operating order, repair and
condition and shall not commit or permit any waste thereof, which condition,
during the course of any reconstruction of the Improvements, shall be subject to
the normal constraints and effects of reconstruction. Trustor shall make all
repairs, replacements, renewals, additions and improvements and complete and
restore promptly and in good 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. The Trustor 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 Trustor
(and naming the Beneficiary 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
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
--------
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
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<PAGE>
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 indebtedness 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 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), 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 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
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<PAGE>
to the indebtedness shall not cure or waive any default or notice of default
hereunder or invalidate any act done pursuant to such notice. Trustor agrees to
execute such further assignments of any compensation, award, damages, right of
action and proceeds as Beneficiary may require.
1.10 Indemnification. The Trustor shall appear in and defend any suit,
---------------
action or proceeding that might in any way, in the reasonable judgment of
Beneficiary, affect the value of the Mortgaged Property, the title to the
Mortgaged Property or the rights and powers of Trustee or Beneficiary. Trustor
shall, at all times, indemnify, hold harmless and on demand reimburse
Beneficiary for any and all loss, damage, expense or cost, including cost of
evidence of title and attorneys fees, arising out of or incurred in connection
with any such suit, action or proceeding, and the sum of such expenditures shall
be secured by this Deed of Trust and shall accrue interest at the "Default Rate"
as that term is defined in the Note and shall be due and payable on demand.
Trustor shall pay costs of suit, cost of evidence of title and reasonable
attorneys' fees in any proceeding or suit brought by Trustee or Beneficiary to
foreclose this Deed of Trust.
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 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,
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<PAGE>
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 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
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<PAGE>
clause hereof, but at any and all times Trustor will execute and deliver to
Trustee any and all such further assurances, deeds of trust, conveyances or
assignments thereof as Trustee or Beneficiary may reasonably require for the
purpose of expressly and specifically subjecting the same to the lien of this
Deed of Trust.
1.14 Security Agreement. This Deed of Trust shall be self-operative and
------------------
shall constitute a Security Agreement and a Construction Mortgage as those terms
are defined in the California Uniform Commercial Code with respect to all of
those portions of the Mortgaged Property which constitute personal property or
fixtures governed by the Uniform Commercial Code as enacted in California,
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 Uniform Commercial Code as enacted in California. 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
----------
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
--------
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
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<PAGE>
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.
1.19 Records. The Trustor agrees to keep adequate books and records of
-------
account in accordance with generally accepted accounting principles consistently
applied and will permit the Beneficiary and Beneficiary's agents, accountants
and attorneys, to visit and inspect the Mortgaged Property and examine its books
and records of account in respect to the Mortgaged Property, and to discuss its
affairs, finances and accounts with the Trustor, at such reasonable times as
Beneficiary may request.
1.20 Assignment of Rents and Profits. Trustor does hereby assign to
-------------------------------
Beneficiary all Rents and Profits as follows:
(a) The Rents and Profits are hereby unconditionally assigned,
transferred, conveyed and set over to Beneficiary to be applied by Beneficiary
in payment of the principal and interest and all other sums payable on the Note,
and all other sums payable under this Deed of Trust. Prior to the happening of
any Event of Default as set forth in Article 2 hereof, Trustor shall have a
license to collect and receive all Rents and Profits. If an Event of Default
has occurred and is continuing, Trustor's right to collect and receive Rents and
Profits shall cease and Beneficiary shall have the sole right, with or without
taking possession of the Property, to collect all Rents and Profits, including
those past due and unpaid. Any Rents and Profits received by Trustor after an
Event of Default has occurred and is continuing shall be deemed to be received
by Trustor in trust as trustee for Beneficiary and for the benefit of
Beneficiary. Trustor shall be required to account to Beneficiary for any rents
and profits not applied in accordance with the provisions of the Loan Documents.
Nothing contained in this Section 1.20(a) or elsewhere in this Deed of Trust
shall be construed to make Beneficiary a "mortgagee in possession" unless and
until Beneficiary actually takes possession of the Mortgaged Property either in
person or through an agent or receiver.
(b) Trustor agrees to execute such other assignments of Rents and
Profits applicable to the Mortgaged Property as the Beneficiary may from time to
time request while this Deed of Trust and the debt secured hereby are
outstanding. Trustor shall not (i) execute (except
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<PAGE>
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 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.
1.22 Substitution of Collateral. So long as no Event of Default has
--------------------------
occurred and is continuing, Trustor may request that beneficiary allow the
substitution of other real property collateral for that described herein. Such
substitution shall be permitted only if approved by Beneficiary (by and through
USA Commercial Mortgage Company, Inc.), in its sole discretion. Such
substituted collateral must, in Beneficiary's opinion, have a value at least
equivalent to that it is replacing. Trustor shall pay all costs and expenses,
including title charges and attorneys' fees, incurred by Beneficiary in
processing such a substitution.
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, upon demand by Beneficiary, any amount
due pursuant to the Note; or
(b) Trustor or any guarantor ("Guarantor") of the Note shall fail to
perform or observe any term, covenant or agreement contained in the Note, this
Deed of Trust or any guaranty executed and delivered concurrently herewith 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 Loan 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 or any Guarantor are sold or
otherwise transferred without Beneficiary's written consent; or
(e) Trustor or any Guarantor 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 or any Guarantor 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 any Guarantor, as the case may be, and the appointment
continues undischarged or unstayed for thirty (30) calendar days; or Trustor or
any Guarantor 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 or any
Guarantor, 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
or any Guarantor, and is not released, vacated or fully bonded within thirty
(30) calendar days after such issue or levy; or
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(f) there shall occur a material adverse change in the financial
condition of Trustor or any Guarantor from their respective financial conditions
as of the date of this Note, as determined by Beneficiary 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 Beneficiary or the satisfaction
in full of all indebtedness and obligations of Trustor 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 Trustor or any trustee, officer, director,
shareholder or partner of any entity comprising Trustor or any Guarantor 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 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
--------
Upon the occurrence of any Event of Default, Trustee and Beneficiary shall
have the following rights and remedies:
3.1 Acceleration of Maturity. Beneficiary may declare the entire
------------------------
principal of the Note then outstanding (if not then due and payable thereunder)
and all other obligations of Trustor hereunder or under the Note, to be due and
payable immediately, and, subject to applicable provisions of law, upon any such
declaration the principal of the Note and accrued and unpaid interest, and all
other amounts to be paid under the Note, this Deed of Trust or any other Loan
Document shall become and 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
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alterations and do any acts which Beneficiary deems proper to protect the
security hereof; and (v) with or without taking possession, in its own name or
in the name of Trustor, use for or otherwise collect and receive the Rents and
Profits and all other benefits, including those past due and unpaid, and apply
the same, less costs and expenses of operation and collection, including
reasonable attorneys fees, upon any indebtedness secured hereby, and in such
order as Beneficiary may determine.
3.4 Judicial Remedies. Beneficiary may bring an action in any court of
-----------------
competent jurisdiction to foreclose this Deed of Trust or to enforce any of the
covenants and agreements hereof and to take such steps to protect and enforce
its rights whether by action, suit or proceeding in equity or at law for the
specific performance of any covenant, condition or agreement in the Note, this
Deed of Trust or any other Loan Document, or in aid of the execution of any
power herein granted, or for any foreclosure hereunder, or for the enforcement
of any other appropriate legal or equitable remedy or otherwise as the
Beneficiary shall elect.
3.5 Maintenance of Mortgaged Property. Beneficiary may have a receiver
---------------------------------
appointed by a court of competent jurisdiction for the purpose of collecting
rents and managing the Mortgaged Property, and Trustor hereby consents in
advance to such appointment. The Trustee or Beneficiary personally, or by its
agents or attorneys, or by the receiver appointed by the court, may enter into
and upon all or any part of the Mortgaged Property, and each and every part
thereof, and may exclude the Trustor, its agents and servants wholly therefrom,
and having and holding the same, may use, operate, manage and control the
Mortgaged Property and conduct the business thereof, either personally or by its
superintendents, managers, agents, servants, attorneys or receivers. Upon every
such entry, any party occupying the Mortgaged Property in accordance with this
Article 3, at the expense of the 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.
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<PAGE>
3.6 Rights of Secured Party. Beneficiary shall have all of the remedies
-----------------------
of a Secured Party under the Uniform Commercial Code as enacted in California,
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 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 California:
(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 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
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<PAGE>
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 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.
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<PAGE>
(d) In the event of any sale made under or by virtue of this Section
whether made under the power of sale herein granted or under or by virtue of
judicial proceedings or of a judgment or decree of foreclosure and sale, the
entire principal of and interest on the Note and all accrued interest on the
Note, and all other sums required to be paid by the Trustor pursuant to the Note
and this Deed of Trust shall be due and payable, anything in the Note or in this
Deed of Trust to the contrary notwithstanding.
(e) The purchase money proceeds or avails of any sale made under or by
virtue of this Section, together with any other sums which then may be held by
the Trustee or Beneficiary under this Deed of Trust whether under the provisions
of this Section or otherwise, shall be applied as required by applicable law.
(f) Upon any sale made under or by virtue of this Section, whether
made under the power of sale herein granted or granted in accordance with the
laws of the state in which the Property is located or under or by virtue of
judicial proceedings or of a judgment or decree of foreclosure and sale, the
Beneficiary may bid for and acquire the Mortgaged Property or any part thereof
and in lieu of paying cash 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
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
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<PAGE>
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 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
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of Trust or in the Note shall affect the obligation of Trustor to pay the
principal of, and interest on, the Note in the manner and at the time and place
therein respectively expressed.
ARTICLE 4
TRUSTEE
-------
4.1 Acceptance of Trust, Notice of Indemnification. Trustee accepts
----------------------------------------------
this trust when this Deed of Trust, duly executed and acknowledged, becomes a
public record as provided by law. Trustee is not obligated to notify any party
hereto of pending sale under any other Deed of Trust or of any action or
proceeding in which Trustor, Beneficiary or Trustee shall not be obligated to
perform any act of it hereunder unless the performance of such act is requested
in writing in the manner required by law and Trustee is reasonably indemnified
against loss, cost, liability and expense.
4.2 Substitution of Trustee. From time to time with or without cause
-----------------------
for whatever reason, by a writing signed and acknowledged by Beneficiary and
filed for record in the Office of the Recorder of the County in which the
Mortgaged Property is situated, Beneficiary may appoint another trustee to act
in the place and stead of Trustee or any successor and such writing shall refer
to this Deed of Trust and set forth the date, book and page of its recordation.
The recordation of such instrument of substitution shall discharge trustee
herein named and shall appoint the new trustee as the Trustee hereunder with the
same effect as if originally named Trustee herein. A writing recorded pursuant
to this paragraph shall be conclusive proof of the proper substitution of such
new trustee.
4.3 Trustee's Powers. At any time, or from time to time, without
----------------
liability therefor and without notice, upon written request of Beneficiary and
presentation of the Note secured hereby, and without 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
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provided, be held in trust, but need not be segregated (except to the extent
required by law), and Trustee shall not be liable for interest thereon. Trustor
shall indemnify Trustee against all liability and expenses which he may incur in
the performance of his duties hereunder, except for its own negligence.
ARTICLE 5
MISCELLANEOUS
-------------
5.1 Non-Waiver. By accepting payment of any sum secured hereby after
----------
its due date or late performance of any indebtedness secured hereby, Beneficiary
shall not waive its right against any person obligated directly or indirectly
hereunder or on any indebtedness hereby secured, either to require prompt
payment when due of all other sums so secured or to declare a default for
failure to make payment except as to such payment accepted by Beneficiary. No
exercise of any right or remedy by Trustee or Beneficiary hereunder shall
constitute a waiver of any other right or remedy herein contained or provided by
law.
No delay or omission of the Trustee or Beneficiary in the exercise of any
right, power or remedy accruing hereunder or arising otherwise shall impair any
such right, power or remedy, or be construed to be a waiver of any default or
acquiescence therein.
Receipts of rents, awards, and any other monies or evidences thereof,
pursuant to the provisions of this Deed of Trust and any disposition of the same
by Trustee or Beneficiary shall not constitute a waiver of the power of sale or
right of foreclosure by Trustee or Beneficiary in the event of a default or
failure of performance by 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
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<PAGE>
affect the security hereof or the rights or powers of Beneficiary; and/or (iii)
pay, purchase, contest, or compromise any encumbrance, charge or lien which in
the judgment of Beneficiary is prior or superior hereto and, in exercising any
such power, incur any liability and expend whatever amounts in its absolute
discretion it may deem necessary therefor, including cost of evidence of title
and reasonable attorneys' fee. Any expenditures in connection herewith shall be
deemed an Advance and shall constitute part of the indebtedness secured by this
Deed of Trust.
5.4 Rules of Construction. When the identity of the parties hereto or
---------------------
other circumstances make it appropriate, the masculine gender includes the
feminine and/or neuter, and the singular number includes the plural. The
headings of each article, section or paragraph are for information and
convenience only and do not limit or construe the contents of any provision
hereof.
5.5 Severability. If any term of this Deed of Trust or the application
------------
thereof to any person or circumstances, shall, to any extent, be invalid or
unenforceable, the remainder of this Deed of Trust, or the application of such
term to persons or circumstances other than those as to which it is invalid or
unenforceable, shall not be affected thereby, and each term of this Deed of
Trust shall be valid and enforceable to the fullest extent.
5.6 Successors in Interest. This Deed of Trust applies to, inures to
----------------------
the benefit of, and is binding not only on the parties hereto, but on their
heirs, executors, administrators, successors and assigns. All obligations of
Trustor hereunder are joint and several. The term "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 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
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continue to have and enjoy all of the rights and privileges of Beneficiary as to
the separate estates. In addition, upon the foreclosure of the lien created by
this Deed of Trust on the Mortgaged Property pursuant to the provisions hereof,
any leases or subleases then existing shall not be destroyed or terminated by
application of the law of merger or as a matter of law or as a result of such
foreclosure unless Beneficiary or any purchaser at any such foreclosure sale
shall so elect. No act by or on behalf of Beneficiary or any such purchaser
shall constitute a termination of any lease or sublease unless Beneficiary or
such purchaser shall have given written notice thereof to such tenant or
subtenant.
5.10 Attorneys' Fees. If Beneficiary incurs any costs or expenses,
---------------
including attorneys' fees, for any of the following relating to this Deed of
Trust (or any other instrument evidencing or securing this loan): (a) the
interpretation, performance or enforcement thereof; (b) the enforcement of any
statute, regulation or judicial decision; (c) any collection effort; or (d) any
suit or action for the interpretation, performance or enforcement thereof is
commenced or defended, or, if any other judicial or nonjudicial proceeding is
instituted by Beneficiary or any other person, and an attorney is employed by
Beneficiary to appear in any such action or proceeding, or to reclaim, seek
relief from a judicial or statutory stay, sequester, protect, preserve or
enforce Beneficiary's interest in this Deed of Trust or any other security for
the Note, including but not limited to proceedings under federal bankruptcy law,
in eminent domain, under the probate code, or in connection with any state or
federal tax lien, then Trustor agrees to 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.
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<PAGE>
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 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 Statutory Covenants. Where not inconsistent with the above, the
-------------------
following covenants, Nos. 1; 2 (full replacement value); 3; 4 (five percent [5%]
per annum above the Interest Rate set forth in the Note); 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.
-25-
<PAGE>
5.18 Partial Releases of Lots. So long as no Event of Default has occurred
------------------------
and is continuing, Beneficiary shall release individual or multiple Lots from
the lien and operation of the Deed of Trust upon satisfaction in Lender's sole
discretion of the following requirements:
(i) the payment to Lender, from the home sale escrow, of a
sum to be determined by Beneficiary; and
(ii) Borrower pays all costs and expenses in connection with
such release and reconveyance.
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: _____________________________
Ira Norris, President
-26-
<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:______)
-27-
<PAGE>
EXHIBIT "B"
DESCRIPTION OF REAL PROPERTY
----------------------------
Lots 75 and 80 of Tract No. 15266, in the City of Victorville, County of San
Bernardino, State of California, as per map recorded in Book 260, Pages 31
through 33, of Maps, in the Office of the County Recorder of said County.
THIS DEED OF TRUST IS JUNIOR IN LIEN AND SUBJECT TO FIRST AND SECOND TRUST DEEDS
ALREADY RECORDED ENCUMBERING SAID REAL PROPERTY.
-28-
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<PAGE>
<ARTICLE> 5
<CIK> 0000897432
<NAME> INCO HOMES CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 352
<SECURITIES> 0
<RECEIVABLES> 0
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<INVENTORY> 29,454
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<PP&E> 0
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<TOTAL-ASSETS> 32,771
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0
0
<COMMON> 16
<OTHER-SE> 1,965
<TOTAL-LIABILITY-AND-EQUITY> 32,771
<SALES> 3,663
<TOTAL-REVENUES> 3,663
<CGS> 3,645
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<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (925)
<INCOME-TAX> 0
<INCOME-CONTINUING> (925)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (925)
<EPS-PRIMARY> (0.57)
<EPS-DILUTED> (0.57)
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