<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 10-KSB
_______________
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------------- -------------------
Commission file number 0-21378
INCO HOMES CORPORATION
(Name of small business issuer in its charter)
Delaware 33-0534734
(State or other jurisdiction (I.R.S. employer identification no.)
of incorporation or organization)
1282 West Arrow Highway
Upland, California 91786
(Address of principal executive offices)(Zip code)
(909) 981-8989
Issuer's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Exchange Act:
None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock
(Title of class)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 [_]
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.
----
Revenues of the issuer for the year ended December 31, 1997 were
$21,721,000.
The aggregate market value of the voting stock held by non-affiliates of the
issuer on March 25, 1998 was $2,480,000.
The number of shares outstanding of each of the issuer's classes of common
stock on March 25, 1998 was as follows:
Common Stock (par value $.01 per share) 1,883,764 shares
DOCUMENTS INCORPORATED BY REFERENCE
Definitive Proxy Statement relating to the Company's 1998 Annual Meeting to
be filed hereafter (incorporated into Part III hereof).
Transitional Small Business Disclosure Format: Yes [_] No [X]
<PAGE>
All information herein with respect to shares of Common Stock gives effect to
the Company's one-for-six reverse stock split that was effective on January 16,
1997.
PART I
ITEM 1. BUSINESS.
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 and other documents filed by the Company with the Securities and
Exchange Commission from time to time.
General
Inco Homes Corporation (the "Company") is a developer and builder of
affordably priced single-family detached homes. Historically, its markets have
been in Southern California, primarily in San Bernardino and Riverside Counties,
and to a lesser extent, in Los Angeles County. The Company's homes are primarily
targeted to the first time buyer and also to the first time move-up buyer where
the Company believes there is significant long-term demand. The Company strives
to deliver superior value to its homebuyers by aggressively pricing its homes
while providing a high quality product.
During 1997, prices for the Company's homes ranged from $59,990 to $227,990,
with an average sales price of $132,400. The Company believes that its focus on
affordable housing and history of developing and delivering these types of homes
since 1976 has helped it to develop a positive reputation in this market with
homebuyers.
The Company's business strategy in evaluating new projects includes such
factors as (i) the strength of the demand for affordable housing, (ii) the
existence and type of competition, (iii) the availability of relatively low-cost
land, (iv) the availability of utilities and zoning and (v) the receptiveness of
local government and community to growth in the housing sector. The Company
considers the demand for affordable housing by evaluating such statistical
information as (i) the projected growth of the population, (ii) the number of
new jobs created or projected to be created, (iii) the number of housing starts
in previous periods, (iv) housing inventory and (v) sales absorption rates.
The Company places great emphasis on customer service and relations and
maintaining favorable visibility in the markets in which the Company builds
homes. This emphasis on customer service and relations and the Company's
value-driven product have earned the Company substantial referrals and a
favorable reputation among homebuyers and local governments. The Company
believes that customer service and relations is an integral part of its
strategy. See "--Customer Service and Relations."
The Company was incorporated in October 1992 to succeed to the homebuilding
business of its predecessors operating under the "Inco Homes" name through
several limited partnerships and various corporations under the control of Ira
C. Norris, the Company's founder. At the time of the Company's initial public
offering in 1993, the Company issued its Common Stock to acquire the equity
interests of its predecessors and consolidated ownership of its core projects
and businesses into the Company. The Company sold its Arizona and Nevada
operations in 1995 and now exclusively builds in Southern California.
The Homebuilding Industry
The homebuilding industry is cyclical and is significantly affected by
changes in general and local economic conditions, such as employment levels,
availability of land, availability and cost of financing land acquisition,
development and construction, interest rates, consumer confidence and housing
demand, as well as changes in elected officials and changes in government
regulation. A variety of other factors affect the housing industry and demand
for new homes, including changes in costs associated with home ownership such as
increases in property taxes and energy costs, changes in consumer preferences,
demographic trends and the availability of and changes in mortgage financing
programs. Homebuilders are subject to various risks, including conditions of
supply and demand in local markets, availability and cost of land, building
materials and labor, weather conditions, delays in construction schedules, cost
overruns, the entitlement process, the effect of moratoriums and environmental
controls, decreased availability of homeowners insurance, and increases in real
estate taxes and other local government fees. The Company's business
2
<PAGE>
could be adversely affected in the event the Company is not able to attract
qualified subcontractors for its projects. Certain of the Company's projects are
long-term in nature and are particularly susceptible to cyclical real estate
conditions and the other risks outlined above due to the significant up-front
expenditures required and the length of time required to achieve profits from
these projects.
Southern California Housing Markets
The Company currently conducts all of its business in the Southern
California Counties of San Bernardino, Riverside and Los Angeles. The Company
believes that the depressed economic and real estate conditions in California
over the last several years have adversely affected its results of operations,
most particularly in the high desert region of San Bernardino County. Due to the
large number of defense contractors and major corporations located in
California, the state's economy has been adversely affected by military spending
cutbacks. The prolonged economic downturn in California continued in 1997 in
some of the geographic areas of Southern California in which the Company
conducted operations and had a material adverse affect on the Company's
business, financial condition and results of operations. See "Item 6.
Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The Company continues to conduct detailed reviews of its land holdings,
which include land costs, capitalized costs and related seller financing. This
has resulted in various writedowns and allowances in current and prior years.
There can be no assurance that there will be no write-off of additional costs in
the future.
The areas in which the Company operates in California are subject to
earthquakes and other natural disasters. Damage to the Company's projects or
highway access to such projects from such earthquakes or other natural
disasters, or the perception of potential homebuyers as to the possible damage
to a home in these areas, could have a material adverse effect on the Company's
business, financial condition and results of operations. To the Company's
knowledge, the Company has never suffered any physical damage to its projects as
a result of an earthquake, including the Northridge earthquake in January 1994.
3
<PAGE>
Summary of Residential Projects
Table I presents information relating to the Company's projects completed
since 1987. All homes are single-family detached homes.
<TABLE>
<CAPTION>
TABLE I - PROJECTS COMPLETED SINCE 1987
<CAPTION>
Total
Number
Year of Sales Price
Project City County Completed Homes Range (1)
- ------- ---- ------ --------- ------ -----------
<S> <C> <C> <C> <C> <C>
Liberty Village Victorville San Bernardino 1987 784 $ 49,990-$85,990
Moreno Del Rey Moreno Valley Riverside 1987 119 89,990-123,990
Atlantic Village Palmdale Los Angeles 1988 127 92,990-105,990
Catalina Collection Moreno Valley Riverside 1989 124 99,990-155,990
Southlake Moreno Valley Riverside 1989 185 104,990-154,990
Pacific Village Palmdale Los Angeles 1991 283 112,990-210,990
Liberty Village Victorville San Bernardino 1991 446 80,990-108,990
Country Village Victorville San Bernardino 1991 189 85,990-135,990
Mustang Series at Northfork Murrieta San Bernardino 1992 123 129,990-198,990
Hunter Classic at Northfork Murrieta San Bernardino 1992 77 194,990-255,990
Paloverde at Eagle Ranch Victorville San Bernardino 1992 116 112,990-147,990
American Traditions Palmdale Los Angeles 1993 89 99,990-127,990
Estates of Chaparral at Eagle Ranch Victorville San Bernardino 1994 88 169,990-219,990
Summerplace Indio Riverside 1994 156 84,990-108,990
Dakota at Eagle Ranch Victorville San Bernardino 1995 79 102,990-133,490
Spirit at Eagle Ranch Victorville San Bernardino 1995 104 119,990-153,990
Pride at Eagle Ranch Victorville San Bernardino 1995 39 89,990-127,990
American Traditions Adelanto San Bernardino 1995 401 79,990-100,990
Harmony Adelanto San Bernardino 1995 25 97,990-130,990
Hometown Adelanto San Bernardino 1995 526 72,990-85,990
Victory Lenwood Lenwood San Bernardino 1995 24 53,990-63,990
Pride at Wildrose Corona Riverside 1995 102 126,990-151,490
Spirit Murrieta Riverside 1995 261 133,990-171,990
Pride at Tradition East Chandler Maricopa 1995 73 (2) 91,990-121,990
Reunion at Tradition East Chandler Maricopa 1995 103 (2) 85,990-110,990
Victory at Amberlea Phoenix Maricopa 1995 55 (2) 66,990-91,990
Hometown Las Vegas Clark 1995 63 (2) 84,990-105,990
Reunion Las Vegas Clark 1995 58 (2) 99,990-122,990
Victory Las Vegas Clark 1995 22 (2) 72,990-94,990
Ventana Victorville San Bernardino 1996 196 136,990-169,990
Reunion Adelanto San Bernardino 1997 72 91,990-118,990
Spirit Corona Riverside 1997 102 170,000-219,000
-----
Total 5,211
=====
</TABLE>
- -----------------------------
(1) Sales price range reflects base price, excluding any lot premiums,
buyer-selected options and incentives, which vary from project to project.
(2) Reflects homes closed by the Company prior to the December 1995 sale of the
Phoenix and Las Vegas divisions.
4
<PAGE>
Table II presents information as of December 31, 1997 relating to the
Company's projects in which construction is either in progress or is in the
planning process. All homes are single-family detached homes. In all cases the
Company either owns the land or has a contract or option to acquire the land,
and all such land is entitled.
TABLE II - CURRENT AND PLANNED PROJECTS
<TABLE>
<CAPTION>
Estimated Number of Homes Homes Sites
Homes at Closed as of Remaining as
Project Location (1) Completion(2) 12/31/97 of 12/31/97
------- ----------- ------------------- ------------ ------------
<S> <C> <C> <C> <C>
HIGH DESERT - San Bernardino and Los Angeles Counties
- -----------
Eagle Ranch
Freedom (5) Victorville 166 16 150
Additional Land (6) Victorville 888 0 888
----- --- -----
Total Eagle Ranch 1,054 16 1,038
----- --- -----
Adelanto
Victory Lane Adelanto 331 330 1
Winners Circle Adelanto 12 10 2
----- --- ------
Total Adelanto 343 340 3
----- --- ------
Other
Spirit Palmdale 81 67 14
Triumph Palmdale 180 0 180
Triumph (7) Lancaster 78 41 37
Vista Verde (8) Victorville 756 0 756
----- --- -----
Total Other 1,095 108 987
----- --- ------
Total High Desert 2,492 464 2,028
----- --- ------
INLAND - San Bernardino and Riverside Counties
- ------
Bella Vita Fontana 42 7 35
Wildwood Fontana 62 0 62
Falcon Pointe (9) Fontana 76 0 76
Hometown (formerly Reunion) Lake Elsinore 63 47 16
Desert Pride (formerly Reunion) La Quinta 150 27 123
Hidden Oaks (10) Moreno Valley 139 0 139
----- --- ------
Total Inland 532 81 451
----- --- ------
TOTAL COMPANY 3,024 545 2,479
===== === =====
</TABLE>
<TABLE>
<CAPTION>
Anticipated or
Actual Year
of Initial Sales Price
Project Closings(3) Range(4)
------- -------------- -----------------
<S> <C> <C>
HIGH DESERT - San Bernardino and Los Angeles Counties
- -----------
Eagle Ranch
Freedom (5) 1997 $106,990-128,540
Additional Land (6) n/a n/a
Total Eagle Ranch
Adelanto
Victory Lane 1993 59,990- 82,990
Winners Circle 1996 89,990-119,990
Total Adelanto
Other
Spirit 1995 139,000-166,000
Triumph 1998 89,990-109,990
Triumph (7) 1996 75,990- 92,990
Vista Verde (8) n/a n/a
Total Other
Total High Desert
INLAND - San Bernardino and Riverside Counties
- ------
Bella Vita Fontana 1997 181,990-221,990
Wildwood Fontana 1998 107,990-144,990
Falcon Pointe (9) Fontana 1998 149,000-169,000
Hometown (formerly Reunion) Lake Elsinore 1995 99,990-141,990
Desert Pride (formerly Reunion) La Quinta 1995 121,990-149,990
Hidden Oaks (10) Moreno Valley 1998 89,990-119,990
Total Inland
TOTAL COMPANY
</TABLE>
_____________________________
(1) Victorville, Adelanto and Fontana are located in San Bernardino County.
Palmdale and Lancaster are located in Los Angeles County. Lake Elsinore, La
Quinta and Moreno Valley are located in Riverside County.
(2) Estimated number of homes at completion is subject to change and there can
be no assurance that the Company will build these homes.
(3) Anticipated year of initial closing is based on the Company's current
planning estimates and forecasts, new orders and the status of construction
at these projects, and therefore is subject to change.
(4) Sales price range reflects estimated base price, excluding any lot
premiums, buyer-selected options and incentives, which vary from project to
project.
(5) The Company is the managing general partner of, and has a 50% interest in,
Freedom-Eagle Ranch Housing Partners ("FERHP"), the limited partnership
that owns this project.
(6) Represents land sold by the Company in June 1997 to various investors
provided by USA Commercial Real Estate Group ("USA Real Estate"). 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 are to 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 Real Estate is to receive a fee of $1,000 for each home sold.
If the Company approves a bulk sale of these lots by the investors, the
Company is to receive one half of any profits earned. Thomas A. Hantges, a
member of the Company's Board of Directors, owns 67% of USA Real Estate.
See "Item 7. Financial Statements and Supplementary Data, Note 10" herein,
and "Certain Relationships and Related Transactions" in the Company's Proxy
Statement for its 1998 Annual Meeting of Stockholders (the "1998 Proxy
Statement"), which, when filed pursuant to Regulation 14A under the
Securities Act of 1934, will be incorporated by reference in this Annual
Report on Form 10-KSB.
(7) The Company is the managing general partner of, and has a 50% interest in,
Triumph-Lancaster Housing Partners ("Triumph"), the limited partnership
that owns this project. The Gibbs Family Trust, of which Thomas E. Gibbs,
Jr. a former member of the Company's Board of Directors is a beneficiary
and a trustee, holds a 50% limited partner's interest in Triumph. See
"Item 7. Financial Statements and Supplementary Data, Note 10" herein, and
"Certain Relationships and Related Transactions" in the Company's 1998
Proxy Statement.
5
<PAGE>
(8) Represents additional land owned by the Company, which may be used for
future projects or may be sold in a bulk sale.
(9) USA Commercial Mortgage Company, Inc. ("USA") has opened an escrow to
purchase the land for this project. Negotiations are in process with the
Company and USA regarding the Company's participation in developing this
property and fees and/or profits to be earned. Thomas A. Hantges owns 67%
of USA. See "Item 7. Financial Statements and Supplementary Data, Note 10"
herein, and "Certain Relationships and Related Transactions" in the
Company's 1998 Proxy Statement.
(10) In October 1997, the Company entered into a Development and Marketing
Agreement with a third party to develop, construct, and market these lots
owned by the third party. All financing and bonding will be the
responsibility of the third party. The Company will receive compensation
in the form of overhead draws, development fees and sales and marketing
fees totaling approximately 8.0% of the gross sales price of the homes.
The Company will assume the home warranty costs for which it will be paid
$750 per house.
Land Acquisition and Development
The Company generally purchases land that has the necessary entitlements to
enable the Company to begin development or construction as market conditions
warrant. In addition, as the Company becomes familiar with local entitlement
and zoning procedures, or when the location and/or price is attractive, the
Company may buy unentitled land upon completion of a feasibility analysis. The
term "entitlements" refers to development agreements and/or tentative maps,
pursuant to which a developer has the right to obtain building permits upon
compliance with conditions which are usually within the developer's control.
Even if entitlements are obtained prior to the Company's purchase of the land,
however, the Company is still required to obtain a variety of governmental
approvals and permits during the development process. The Company strives to
acquire land as economically as possible, and to negotiate land purchase
contracts which allow the Company to defer payment for parcels until it is ready
to begin construction.
The Company selects its land for development based upon a variety of
additional factors, including: (i) internally and externally generated
demographic and marketing studies; (ii) soil and other physical conditions of
the site; (iii) financial and legal reviews as to the feasibility of the
proposed project, including projected profitability; (iv) the ability to secure
necessary financing and additional governmental approvals and entitlements; (v)
environmental due diligence; (vi) competition; (vii) proximity to local traffic
corridors and community facilities; (viii) infrastructure requirements for
grading, drainage, utilities and streets; and (ix) management's judgment as to
the real estate market, economic trends and the Company's experience in a
particular market.
In some cases, the Company purchases finished lots which are ready for
construction. In other instances, the Company purchases land or obtains an
option to purchase land that may require certain site improvements prior to
construction. The Company then undertakes the development activities that
include site planning and engineering, as well as constructing roads, sewer,
water, utilities and drainage facilities and other amenities. The activities
are carefully managed, with the phases geared to anticipated demand.
The Company historically has conducted some residential development
activities through partnerships in order to fund a portion of the Company's land
acquisition, model complex development costs and initial marketing expenditures.
The Company expects to continue to utilize such partnership arrangements when
management perceives a favorable opportunity. In 1996, the Company formed three
such limited partnerships, FERHP, Triumph and Spirit Corona 77, L.P. ("Spirit
77"), for certain projects in which the Company is the general partner and has a
50% interest. Additionally, in 1996 the Company was the maker of Secured
Participation Notes with ALG 1996-1 ("ALG") and Hunters Ridge Investment
Partners ("HRIP"), providing the holders with 45% and 50%, respectively, of a
certain project's net income. Thomas E. Gibbs, Jr., a former member of the
Company's Board of Directors, holds partnership interests in each of Triumph,
ALG and HRIP. See "Item 7. Financial Statements and Supplementary Data, Note 10"
herein, and "Certain Relationships and Related Transactions" in the Company's
1998 Proxy Statement.
With respect to its landholdings, the Company maintains the flexibility to
sell parcels of land adjacent to existing phases of a project to other builders
in a single transaction or a series of transactions. Sales of land and lots,
which are not the Company's principal business focus, are made to take advantage
of market opportunities that might exist from time to time or to generate needed
cash. Accordingly, these sales vary from year to year depending on market
conditions. Revenue from land sales totaled $933,000 in 1997. The Company had
no land sales in 1996. Additionally, parcels of land owned by the Company and
adjacent to its residential projects may be zoned for
6
<PAGE>
commercial use. To date, the Company has never built on commercial land, but
may later sell, lease or joint venture such land with commercial property
developers. See "Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Construction
The Company strives to develop a design and marketing concept for each of
its housing subdivisions, which includes determination of size, style and price
range of the homes, layout of streets, layout of individual lots and overall
community design. The product line offered in a particular subdivision depends
upon many factors, including the housing generally available in the area, the
needs of a particular market and the Company's cost of lots in the subdivision.
The development, construction and closing of each project generally is
managed at the various stages by Company employees reporting to persons
responsible for the various disciplines. Projects move through a series of
stages, departmentally organized, beginning with the entitlement process, if
applicable, and ending with the closing and post-closing stages. The Company
believes this strategy, as opposed to assigning each project to a manager who is
responsible for all stages of development, is more efficient, providing for
standardized procedures, quality service and considerable cost savings.
The Company utilizes what it considers to be a "manufacturer's approach" to
home construction, always seeking to increase production efficiency and position
itself to be among the lowest-cost producers in each of its markets. The Company
(i) generally adheres to strict construction schedules and standardized plans,
(ii) generally pre-sells a portion of its homes before commencing construction
of a phase of a project, and (iii) generally purchases land that has necessary
entitlements. See "--Land Acquisition and Development."
The Company acts as the general contractor for the construction of its
residential projects. The Company's employees supervise the construction of each
project, coordinate the activities of subcontractors and suppliers, subject
subcontractors' work to quality and cost controls and assure compliance with
zoning and building codes, but do no actual construction. The Company specifies
that high-quality, durable materials be used in the construction of its homes.
The Company's subcontractors follow design plans prepared by architects who are
retained by the Company and whose designs are geared to the local market.
Subcontractors typically are retained on a project-by-project basis to complete
construction at a fixed price. Agreements with the Company's subcontractors are
generally entered into after competitive bidding.
As a result of the limited amount of available working capital,
relationships with certain of its 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 initiation of lawsuits. 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.
Generally, the Company "pre-sells" (execution of a sales contract, receipt
of a deposit, and generally an indication of the buyer's ability to qualify for
a mortgage) a portion of the homes to be built in a phase before construction in
that phase is commenced. Construction lenders typically specify minimum pre-sale
requirements. The Company attempts to minimize cancellations by requiring a
refundable cash deposit of approximately $500 to $2,500 and by training its
sales force to assess the qualification of potential homebuyers. See "Item 6.
Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The Company generally adheres to strict construction schedules and
standardized plans. Construction time for the Company's homes depends on the
availability of labor, materials and supplies, product type and location, but
the Company historically has completed construction of a home within three to
six months from commencement. Homes are designed to promote efficient use of
space and materials and to minimize construction costs and time.
7
<PAGE>
Materials used in the construction of the Company's homes are available from
a number of sources, but material prices may fluctuate due to various factors,
including demand or supply shortages. Construction labor and materials have
generally been available to the Company. Although there is presently an adequate
supply of labor and materials it is possible that future shortages of skilled
workers and/or materials may occur. See "--The Homebuilding Industry."
The Company generally provides a one-year limited warranty of workmanship
and materials with each of its homes. In addition, California law provides a
ten-year period during which consumers can seek redress for structural defects
in new homes. The Company reserves against the possibility of charges relating
to its one-year warranty. In 1994, certain homeowners in one of the Company's
Southern California projects filed a complaint against the Company alleging
construction defects. See "Item 3. Legal Proceedings."
Marketing and Sales
The Company seeks to develop marketing programs tailored to the specific
buyers and markets in which the Company operates. The Company takes a consumer
product approach to marketing its homes, conducting product research and
developing buyer and visitor profiles on each project. Techniques employed by
the Company include referral incentives, customer testimonials, direct mail, and
radio and print advertisements.
The Company normally builds, decorates, furnishes and landscapes model homes
for each project and maintains on-site sales offices, which typically are open
seven days a week. The Company believes that model homes and the selection of
interior designs play a particularly important role in the Company's marketing
efforts. Consequently, the Company expends a significant effort in creating an
attractive atmosphere at its model homes. Interior decorations vary among the
Company's models and are carefully selected based upon the lifestyles of
targeted buyers.
Structural changes in design from the Company's standard plans are not
generally permitted, but homebuyers may select various optional amenities.
Additionally, the Company has designed a number of homes offering an options
program that gives homebuyers numerous opportunities to customize the interior
design. For example, these options may provide for the ability to tailor a room
according to a homebuyer's needs such as a third garage space, an extended
family room, or an additional den, bedroom or bonus room.
The Company maintains a design center in Southern California to provide
homebuyers with a greater visual presentation of the available amenities and
options, primarily in the area of flooring and window treatments. Most of the
Company's homebuyers that have upgraded their flooring and window treatments
have utilized the Company's design center.
The Company sells its homes primarily through its internal sales force,
which typically work from the sales offices located at the model homes in each
of the Company's subdivisions. The Company also uses independent and cooperative
brokers. Company personnel are available to assist prospective buyers by
providing them with floor plans, price information and tours of model homes and
by assisting them with the selection of options. The Company's selection of
interior features is a principal component of its marketing and sales efforts.
Sales personnel are trained by the Company and attend periodic meetings to be
updated on sales techniques, competitive products in the area, the variety of
financing programs available, construction schedules and marketing and
advertising plans, which management believes results in reduced training costs
and a more motivated sales force with extensive knowledge of the Company's
operating policies and housing products.
Through a customer referral program, persons referring homebuyers to the
Company may receive $250 or more from the Company at the closing of a home sale.
The Company has developed a savings program to assist homebuyers in saving
the money required to close the sale of their home. Under the savings program,
the Company determines the monthly contribution required to be put into escrow
so that the homebuyer has sufficient money in escrow to close the purchase of
the home when it is completed. The Company monitors the homebuyer's
contributions to escrow under the savings program.
8
<PAGE>
Customer Financing
The Company seeks to assist its homebuyers in obtaining financing by
arranging with independent mortgage lenders to offer qualified buyers a variety
of financing options and to process their loans. When necessary, the Company
provides prospective homebuyers free credit counseling and pre-qualification to
determine the price of the home they are able to afford.
Substantially all homebuyers utilize long-term mortgage financing to
purchase a home and lenders generally make loans only to borrowers who earn
three to four times the total amount of the mortgage payment plus insurance and
property taxes. Therefore, adverse economic conditions such as increases in
unemployment and high mortgage interest rates can eliminate a substantial number
of potential homebuyers from the market. When necessary, the Company will pay a
fee to subsidize interest rates to assist homebuyers with financing. Under such
programs, lower interest rates on mortgages are provided to the Company's
homebuyers than would otherwise prevail under then-current market conditions.
Although mortgage financing for qualified homebuyers was readily available
during 1997, there can be no assurance that mortgage financing will remain
readily available to the Company's customers as a result of changing general
economic conditions and any restrictions of the ability of mortgage finance
markets to provide financing for the purchase of homes by homebuyers. The
Company attempts to minimize its exposure to interest rate fluctuations by
purchasing mortgage financing commitments that lock in the availability of funds
and interest rates at specified levels for a certain period of time and by
entering into hedging contracts, as it deems necessary. See "Item 6.
Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Most of the Company's current projects meet applicable Federal Housing
Administration ("FHA") or Veteran's Administration ("VA") requirements. In 1997
and 1996, FHA or VA financing was provided to a substantial number of purchasers
of the Company's homes. FHA and VA financing generally enables homebuyers to
purchase homes with lower down payments than the down payments required by
conventional mortgage lenders. The principal reason why certain of the Company's
projects may not meet applicable FHA or VA requirements is that the base price
of homes in those projects exceeds established FHA or VA maximum home prices.
The Company believes that the availability of FHA and VA financing broadens the
group of potential purchasers for the Company's homes. The VA financing limit is
$203,000. The FHA financing limit is $152,362 in San Bernardino and Riverside
Counties, and $170,362 in Los Angeles County. The FHA generally permits loans
for up to 97% of the value of the home.
In general, housing demand is adversely affected by increases in interest
rates. If mortgage interest rates increase significantly, affecting prospective
buyers' ability to adequately finance home purchases, the Company's business,
financial condition and results of operations could be materially effected. The
Company's homebuilding activities are dependent upon the availability and cost
of mortgage financing for (i) potential customers who purchase a home from the
Company, and (ii) buyers of homes owned by potential customers so they can sell
their existing homes and purchase new homes from the Company, to the extent they
are not first time buyers. In addition, the Company believes that the
availability of FHA or VA mortgage financing is an important factor in marketing
its homes. Any limitations or restrictions on the availability of such financing
could have a material adverse effect on the Company's business, financial
condition and results of operations.
Customer Service and Relations
The Company believes that providing a high level of customer service is a
key component of its homebuilder strategy. Salespeople are encouraged to develop
a personal relationship with the homebuyers and offer support and guidance
throughout the home buying process. The Company periodically arranges dinners
for groups of homebuyers during which information is provided about the home
buying process. Homebuyers are oriented to local shopping, hospitals, industry,
schools and recreation and are familiarized with loan and escrow procedures and
the final home inspection process.
The Company provides each homebuyer with a Homebuyer's Information Booklet
describing area amenities and services, such as schools, health services and
emergency services. A Warranty and Information Guide identifies the appliances,
fixtures and heating/cooling and other systems installed in the house, and
provides information on warranties, maintenance and manufacturer information.
The Company's utilization of these sales and closing programs are designed to
reduce the prospective homebuyer's anxiety over relocating and to help the
homebuyer settle into the new neighborhood.
9
<PAGE>
Approximately sixty days after closing, every homebuyer is asked to complete
a questionnaire that evaluates all aspects of the buying experience, including
questions about the home itself, the salespeople, the escrow process, mortgage
financing assistance, the closing process and customer service. The Company uses
the responses to identify any problem areas, as well as to evaluate and improve
the floor plans and amenities offered in the Company's projects.
The Company believes that its commitment to customer service has earned the
Company substantial referrals and an excellent reputation among homebuyers.
Competition and Market Forces
The development and sale of residential properties is highly competitive.
Homebuilders, such as the Company, compete for desirable properties, financing,
raw materials and skilled labor. The Company competes for residential sales on
the basis of a number of interrelated factors, including location, reputation,
amenities, design, quality and price, with numerous large and small
homebuilders, including some homebuilders with nationwide operations and greater
financial resources than the Company. The Company also competes for residential
sales with individual resales of existing homes and condominiums and with
available rental housing. New entrants into the markets in which the Company
operates increases competition in those markets. As a result, at some of the
Company's projects, the Company has been required to provide homebuyers with
price discounts and other sales incentives in order to remain competitive. This
has resulted in reduced profitability or losses from some of the homes that the
Company has sold. Continued sales of homes and land at deeply discounted prices
by competitors, lenders and similar institutions in the markets where the
Company operates could have a material adverse effect on the Company's business,
financial condition and results of operation.
The housing industry is cyclical and affected by consumer confidence levels
and prevailing economic conditions in general and by job availability and
interest rate levels in particular. A variety of other factors affect the
housing industry and demand for new homes, including changes in costs associated
with home ownership such as increases in property taxes and energy costs,
changes in consumer preferences, demographic trends and the availability of and
changes in mortgage financing programs.
Government Regulation and Environmental Matters
The Company is subject to a variety of statutes and rules regulating certain
environmental and developmental matters, as well as building design and site
design.
The Company generally purchases land with entitlements, giving it the right
to obtain building permits upon compliance with specified conditions which are
within the Company's control. Upon compliance with such conditions, the Company
must seek building permits for each house. In developing a project, the Company
must obtain the approval of numerous governmental authorities regulating such
matters as permitted land uses and levels of density and the installation of
utility services such as electricity, water and waste disposal. The length of
time necessary to obtain permits and approvals increases the carrying costs of
unimproved property acquired for the purpose of development and construction.
Several governmental authorities in California have imposed fees as a means of
defraying the cost of providing certain governmental services to developing
areas. To date, the governmental approval processes discussed above have not had
a material adverse effect on the Company's development activities. In addition,
because the Company generally purchases land that has already been zoned for
residential development, restrictive zoning issues also have not had a material
adverse effect on the Company's development activities. However, there is no
assurance that these and other restrictions will not adversely affect the
Company in the future.
The Company may also be subject to additional costs or periodic delays or
may be precluded entirely from developing communities due to building
moratoriums or "slow-growth" or "no-growth" initiatives, building permit
allocation ordinances or similar governmental regulations that could be
implemented in the future in the areas in which it operates. Because the Company
usually purchases land with entitlements, the moratoriums generally would only
adversely affect the Company if they arose from unforeseen health, safety and
welfare issues. Local and state governments also have broad discretion regarding
the imposition of development fees for projects in their jurisdiction.
The Company is also subject to a variety of local, state and federal statutes,
ordinances, rules and regulations concerning protection of the environment. The
particular environmental laws that apply to any given community vary
10
<PAGE>
greatly according to the community site, the site's environmental conditions and
the present and former uses of the site. These laws may result in delays, cause
the Company to incur substantial compliance costs, and prohibit or severely
restrict development in certain environmentally sensitive regions or areas.
Homebuilding projects in California are especially susceptible to restrictive
government regulations and environmental laws. Environmental regulations can
also have an adverse impact on the availability and price of certain raw
materials such as lumber.
Bonds and Other Obligations
The Company is frequently required, in connection with the development of
its projects, to post performance, maintenance and other bonds. The amount of
these bonds outstanding at any time varies in accordance with the Company's
pending development activities. In the event any such obligations are drawn upon
because of the Company's failure to build required infrastructure, the Company
would be obligated to reimburse the issuing surety company or bank. The Company
has never defaulted on any such bond. At December 31, 1997, there were
approximately $11,230,000 in outstanding bonds for such purposes.
Employees
At December 31, 1997, the Company employed 51 persons. None of the Company's
employees are covered by collective bargaining agreements. The Company believes
that its relations with its employees are good. Certain of the subcontractors
that the Company engages are represented by labor unions or are subject to
collective bargaining arrangements.
The Company's success is highly dependent upon the performance of its senior
management and, in particular, Ira C. Norris, President of the Company. The loss
of key personnel or an inability to attract, retain and motivate key personnel
could have a material adverse effect on the Company's business. Mr. Norris
intends to continue to devote his full time to the affairs of the Company.
At March 25, 1998, Ira C. Norris, Thomas A. Hantges and Ronald L. Neeley,
directors of the Company, owned beneficially approximately 21.6%, 12.8% and 7.6%
of the Company's Common Stock, respectively. Due to this ownership position, Mr.
Norris, Mr. Hantges and Mr. Neeley acting together may be able to control the
affairs and policies of the Company and may be able to elect a sufficient number
of directors to control the Company's Board of Directors and to approve or
disapprove any matter submitted to a vote of stockholders. Furthermore, Mr.
Norris, Mr. Hantges and Mr. Neeley may have conflicts of interest with other
stockholders with respect to the affairs and policies of the Company. The
ownership positions of Mr. Norris, Mr. Hantges and Mr. Neeley, together with the
anti-takeover effect of certain provisions contained in the Company's Restated
Certificate of Incorporation and Restated Bylaws, may have the effect of
delaying, deferring or preventing a change in control of the Company. These
factors could have an adverse effect on the market price of the Company's Common
Stock.
Executive Officers of the Registrant
The following are the names and respective ages as of December 31, 1997 of
the executive officers of the Company. The Company's executive offers are
elected by, and serve at, the discretion of the Board of Directors.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Ira C. Norris................. 61 Chairman of the Board, President and
Chief Executive Officer
David A. Fogg................. 47 Chief Financial Officer
Norman B. Gold................ 45 Director of Finance
Lynn C. Parkes................ 45 Controller and Secretary
Gary E. Sorley................ 43 Vice President of Operations and Forward
Planning
Sue Monaco.................... 36 Vice President of Sales and Marketing
Michael L. Hendrix............ 49 Vice President of Production and Customer
Relations
</TABLE>
11
<PAGE>
Ira C. Norris founded the Company in 1976, and has served as the Chairman of
the Board, President and Chief Executive Officer since that time. From 1968 to
1976, Mr. Norris served as a Corporate Vice President and Division Operating
Manager of Kaufman and Broad, Inc., a company engaged in the real estate and
life insurance business. From 1960 to 1968, he was an independent
builder/developer in Los Angeles and the San Fernando Valley suburbs.
David A. Fogg has been Chief Financial Officer since November 1997. Prior to
joining the Company, Mr. Fogg was Chief Financial Officer of Century/Crowell
Communities, a builder/developer in San Bernardino, California, from 1992 to
1997.
Norman B. Gold has served the Company since September 1994 in various
capacities, most recently as Director of Finance, a position he has held since
November 1997. Prior to joining the Company, Mr. Gold was Financial Vice
President of Barclay Associates, Inc., a builder/developer in Newport Beach,
California, from 1985 to 1994.
Lynn C. Parkes has been the Controller since June 1992 and the Secretary
since January 1997. She served as the Director of Human Resources from early
1989 until she became Assistant Controller in December 1989, and served in that
position until she was promoted to Controller. Ms. Parkes joined the Company in
1980, serving in various capacities.
Gary E. Sorley has served as the Company's Vice President of Operations and
Forward Planning since January 1998. He also served as Vice President of
Operations since 1997 and served as the Director of Purchasing since 1994. Prior
to joining the Company in 1994, Mr. Sorley worked for Brock Homes, a
builder/developer in Laguna Hills, California, from 1984 to 1994.
Sue Monaco has served the Company since July 1997 in various capacities,
most recently as Vice President of Sales and Marketing. From 1994 to 1997, Ms.
Monaco was manager of Stuart Wright, a mortgage banking firm located in Las
Vegas, Nevada. Prior to 1994, she sold new homes for various builders in
Southern California. Ms. Monaco is licensed with the State of California,
Department of Real Estate.
Michael L. Hendrix has served as the Company's Vice President of Production
and Customer Relations since January 1998. He also served as the Vice President
of Production since 1986. He was the Company's Production Manager from 1983 to
1986 and a Superintendent from 1982 to 1983.
ITEM 2. PROPERTIES.
The Company occupies approximately 6,800 square feet of office space in
Upland, California, which it uses as its corporate headquarters. This space is
leased at an annual rental of approximately $124,000 for a term expiring in
November 2002. The Company is also renting, on a month-to-month basis,
approximately 1,400 square feet of office space in Southern California for its
design center operations. The Company believes that in general its facilities
are sufficient to meet its needs for the next year.
ITEM 3. LEGAL PROCEEDINGS.
Except as disclosed below, the Company is involved only 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 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 Company, a wholly-owned subsidiary of the Company ("Inco
Development"), in the Superior Court of California in Riverside County. Through
October 1996, various owners of additional homes in this project filed separate
complaints. All complaints were subsequently consolidated into one complaint
involving 40 homeowners. The alleged damages related primarily to the
performance of the concrete slabs of the homes. The matter was resolved in
mediation, which concluded on March 2, 1998, in the agreed upon amount of
$2,100,000. Payments of the settlement amount will be shared by three of the
12
<PAGE>
Company's primary insurance carriers, and by various subcontractors against whom
the Company had filed cross-complaints. Settlement documents are being prepared,
which include all necessary releases and dismissals of all complaints.
Management believes that any obligations the Company may have relating to the
self-insured retentions included in its insurance policies will not be material.
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 initiation of lawsuits. The Company
has negotiated payment arrangements, as appropriate, in an effort to settle
these claims and release the liens, but various claims and lawsuits are pending
and unresolved. Management 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
No matters were submitted during the fourth quarter of 1997 to vote of
security-holders, through the solicitation of proxies or otherwise.
13
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Price Range of Common Stock
The Company's Common Stock was quoted on the Nasdaq National Market tier of
the Nasdaq Stock Market under the symbol "INHM" from April 2, 1993 to November
10, 1996. Effective November 11, 1996, the Common Stock became listed on the
Nasdaq SmallCap Market tier of the Nasdaq Stock Market under the same symbol.
The following table shows the high and low closing sales prices for the Common
Stock of the Company for the periods indicated, as reported by the Nasdaq
National Market through November 10, 1996 and reported by the Nasdaq SmallCap
Market thereafter. These prices do not include retail markups, markdowns or
commissions.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
Quarter ended March 31, 1996....... $8.25 $5.25
Quarter ended June 30, 1996........ 6.375 3.00
Quarter ended September 30, 1996... 5.625 2.625
Quarter ended December 31, 1996.... 4.095 1.125
Quarter ended March 31, 1997....... 5.25 1.75
Quarter ended June 30, 1997........ 5.125 2.625
Quarter ended September 30, 1997... 4.00 1.00
Quarter ended December 31, 1997.... 4.00 1.25
</TABLE>
As of March 25, 1998, there were approximately 153 holders of record of the
Company's Common Stock, whose record ownership, management believes, was for
approximately 564 beneficial holders.
Pending Proceedings Regarding Nasdaq SmallCap Listing
The Company's Common Stock is currently trading on the Nasdaq SmallCap
Market. The Securities and Exchange Commission (the "Commission") has approved
new rules that became effective on February 23, 1998 for the listing of
securities on Nasdaq, including new standards for maintenance of such listing.
For continued listing on the Nasdaq SmallCap Market, a company, among other
criteria, must now have at least $2,000,000 of total net tangible assets (or
$35,000,000 of market capitalization or $500,000 in net income in two of the
last three years), 500,000 shares in the Public Float, a market value of its
Public Float of $1,000,000 and a minimum bid price of $1.00 per share.
In its Form 10-Q filed with the Commission on November 26, 1997 for the
quarter ended September 30, 1997, the Company reported net stockholders' equity
of $1,981,000 as of September 30, 1997. By letter dated February 26, 1998, the
Company received notice from Nasdaq stating Nasdaq's intention to delist the
Company's Common Stock from the Nasdaq SmallCap Market effective after March 13,
1998 unless the Company requested a temporary exception to the new requirements
and thereafter pursued Nasdaq's appeal procedures relative to seeking exception
or to show compliance with the new requirements. Before March 13, 1998, the
Company notified Nasdaq of its intent to appeal Nasdaq's determination of the
Company's non-compliance with the new SmallCap Market listing requirements and
thereafter made a written submission to Nasdaq so appealing. The Company's
submission stayed Nasdaq's delisting action pending the outcome of the Company's
appeal. In its submission, the Company pointed out that it believed that Nasdaq
had failed to adjust net tangible assets for the sum of $667,000 which the
Company carried on its balance sheet at September 30, 1997 for minority
partners' investment in the Company's consolidated partnerships and that when
such partners' equity in the Company's partnerships was added to the
stockholders' equity, total net tangible assets were $2,648,000, well above the
$2,000,000 threshold for continued listing on the Nasdaq SmallCap Market.
Moreover, the Company furnished Nasdaq with its balance sheet at December 31,
1997, which shows that its net tangible assets at December 31, 1997 were
$4,090,000 even with no adjustment given to net tangible assets for minority
partners' investment in the Company's consolidated partnerships of $545,000 at
December 31, 1997.
Based on its submission, the Company believes it will succeed in its appeal
of Nasdaq's determination of the Company's non-compliance with the new SmallCap
Market listing requirements and that its Common Stock will not
14
<PAGE>
be delisted as a result of the pending proceedings. If, however, the Company's
appeal were not successful for any reason or if in the future the Company was
unable to comply with Nasdaq's new requirements to maintain its Common Stock on
the SmallCap market, the Company's Common Stock could be dropped from listing on
the Nasdaq SmallCap Market. In that event, trading, if any, in the Company's
Common Stock would thereafter be conducted in the over-the-counter market in the
so-called "pink sheets" published by the National Quotation Bureau or the OTC
Bulletin Board of the National Association of Securities Dealers, Inc. A
consequence of such delisting would be that a stockholder would likely find it
more difficult to sell, or to obtain quotations as to the price of, the
Company's Common Stock.
Dividends
The Company has not declared or paid any cash dividends on its Common Stock
since its initial public offering in 1993. The Company anticipates that any
earnings in the foreseeable future will be retained to help finance the
Company's business and does not anticipate paying cash dividends on its Common
Stock in the foreseeable future. The payment of any future dividends will be at
the discretion of the Company's Board of Directors and will depend upon, among
other things, future earnings, the success of the Company's business activities,
capital requirements, the general financial condition of the Company and general
business conditions.
Recent Sales of Unregistered Securities
In December 1997, the Company sold an aggregate of 204,122 shares of Company
Common Stock to Institutional Equity Partners, LLC ("IEP"), an entity owned 67%
by Thomas A. Hantges for consideration equal to $306,183. Mr. Hantges became a
director of the Company in January 1998.
In December 1997, the Company issued an aggregate of 2,340 shares of Series
A Cumulative Preferred Stock to the Norris Living Trust in consideration of
cancellation of debt of the Company to the Norris Living Trust in the amount of
$2,340,000. Ira C. Norris, the Company's Chairman of the Board, President and
Chief Executive Officer and a principal shareholder, is a beneficiary and
trustee of the Norris Living Trust.
The above-described sales of securities were not effected through any
broker-dealer, and no underwriting discounts or commissions were paid in
connection with such sales. Exemption from registration requirements is claimed
under the Securities Act of 1933 (the "Securities Act") in reliance on Section
4(2) of the Securities Act, Regulation D promulgated thereunder or Section
3(a)(9) of the Securities Act. No brokers' commissions or fees were paid in
connection with any of the foregoing transactions. The recipients of securities
in each such transaction represented that they were accredited investors under
Regulation D of the Act and their intention to acquire the securities for
investment only and not with a view to, or for sale in connection with, any
distribution thereof and appropriate legends were affixed to the certificates
evidencing the securities in such transactions. All recipients had adequate
access to information about the Company. No consideration or other remuneration
was paid or given, and no solicitation was made, in connection with the
conversion of the indebtedness involved in the various sales.
15
<PAGE>
ITEM 6. 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.
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 Southern California. These conditions continued in
1997 in some of the geographic areas of Southern California in which the Company
conducted operations and had an adverse impact on the Company's results of
operations. Although the Company has experienced improved sales at certain of
its projects, the Company continues to provide homebuyers with price discounts
and other sales incentives at some of its projects in order to remain
competitive. This has resulted in reduced profitability or losses on some of the
homes that the Company has sold.
Results of Operations - 1997 vs. 1996
The following discussion of financial condition and results of operations
should be read in conjunction with the Consolidated Financial Statements and
Notes thereto, appearing elsewhere in this report.
The following table sets forth, for the periods indicated, selected
information regarding home sales made for the years ended December 31, 1997 and
1996:
<TABLE>
<CAPTION>
For Year Ended December 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Number of Home Sales Closed:
High Desert of San Bernardino and Los Angeles Counties 100 89
Inland San Bernardino and Riverside Counties 57 55
----------- -----------
Total 157 144
=========== ===========
Average Sales Price $132,400 $136,000
=========== ===========
Revenue from Home Sales $20,788,000 $19,591,000
=========== ===========
</TABLE>
The following table sets forth, for the periods indicated, consolidated
statements of operations data of the Company as a percentage of revenue from
home sales:
<TABLE>
<CAPTION>
For Year Ended December 31,
---------------------------
1997 1996
----------- ---------
<S> <C> <C>
Revenues from home sales 100.0% 100.0%
Cost of homes sold 95.5% 93.2%
Loss form sale of land and lots 0.8% 0.0%
----------- ----------
Gross profit 3.7% 6.8%
Provision for write-down of real estate 44.6% 4.0%
Selling expenses 7.5% 7.5%
Marketing expenses 8.9% 8.0%
General and administrative expenses 7.6% 10.5%
----------- ----------
Opeating loss (64.9)% (23.2)%
=========== ==========
</TABLE>
16
<PAGE>
Revenue from Home Sales
Revenue from home sales in 1997 was $20,788,000, an increase of $1,197,000
from $19,591,000 during 1996. The total number of home sales closed in 1997 was
157 at an average sales price of $132,400, compared to 144 home sales closed at
an average sales price of $136,000 in 1996, an increase of 9.0% in number of
home sales closed and a 2.6% decrease in average sales prices. Management
attributes the increase in revenue during the year ended December 31, 1997 to
the increase in the number of home sales closed and attributes the decreased
average sales price to a change in the mix of homes offered for sale and sold.
Revenue from Land and Lot Sales
Revenue from land and lot sales, which are not the Company's principal
business focus, is generated when such sales are made to take advantage of
market opportunities that might exist from time to time or to generate needed
cash. Accordingly, these sales vary from year to year.
In April 1997, the Company sold approximately 22 acres of undeveloped land
it owned in its Eagle Ranch project in the high desert of San Bernardino County.
The buyer was a local school district, which paid cash of $490,000 for the land.
In June 1997, the Company sold to Overland Opportunity Fund, LLC
("Overland") approximately 13 acres of undeveloped land in Murrieta, California
for a price of $110,000, which was paid in cash. Overland owned approximately
10.6% of the Company's outstanding Common Stock at March 25, 1998. This
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.
In July 1997 the Company sold to an unrelated party seven improved lots
within its Spirit Corona project in Riverside County for a price of $333,200,
which was paid in cash. Also in July 1997, this same buyer purchased 35 improved
lots located within the Company's Spirit Corona project owned by Spirit 77, a
non-consolidated partnership, for a price of $1.67 million, which was paid in
cash. The Company received approximately $200,000 from Spirit 77 as a result of
this sale and the subsequent dissolution of the partnership. See "--Liquidity
and Capital Resources."
The Company had no land sales in 1996.
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 during the year ended December 31, 1997 was $19,852,000,
an increase of $1,592,000, or 8.7%, from $18,260,000 during the year ended
December 31, 1996. Cost of homes sold as a percentage of revenue from home sales
increased to 95.5% in the year ended December 31, 1997 from 93.2% in the same
period in 1996. The increase in cost of homes sold as a percentage of revenue
for the year ended December 31, 1997 is primarily the result of the write-off of
previously capitalized costs due to the Company's reduction of scope of one
community in the high desert of San Bernardino County and one community in
Riverside County. This increase is partially offset by the large amount of
closings occurring in one of 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.
For a description of certain risks associated with the homebuilding
industry, see "Item 1. Business--The Homebuilding Industry."
17
<PAGE>
Provision for Write-Down of Real Estate Assets
Effective January 1, 1996, the Company adopted 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,"
which requires that impairment losses be recorded on long-lived assets that are
being developed based on their fair value, when (i) indicators of impairment are
present and (ii) the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. Assets that are held for sale
are to be carried at the lower of cost or fair value, less the estimated selling
costs.
The estimation process in determining the value of real estate inventories
is inherently uncertain and relies to a considerable extent on current and
future economic and market conditions, the availability of suitable financing to
fund holding, development and construction activities, and the repayment or
refinancing of existing indebtedness. Such economic and market conditions may
affect management's development and marketing plans. Accordingly, the ultimate
realization of the Company's real estate inventories is dependent upon future
events and conditions that may cause realizations to differ from amounts
presently estimated.
During the year ended December 31, 1997, the Company reevaluated its plans
for holding and developing several of its properties. As a result of this
reevaluation, the Company reduced the number of lots it planned to develop in
certain projects, and identified other properties it plans to sell in their
current stage of development or deed back to lenders in satisfaction of the
loans securing the properties. Additionally, the Company determined 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 totaling $9,270,000, consisting of the
following:
<TABLE>
<S> <C>
Sale of the Company's Eagle Ranch project in the high desert of San
Bernardino County and related repurchase option (as 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 of San Bernardino 2,288,000
County
Decision not to proceed with the Company's Winners Circle
project in the high desert of San Bernardino County (as described herein) 806,000
Sale to a third party of the remaining finished lots of the
Company's Spirit Corona project in Riverside County (as described herein) 251,000
----------
$9,270,000
==========
</TABLE>
In 1996, the Company also determined that the undiscounted cash flows
estimated to be generated by various real estate holdings were less than the
assets' carrying amounts. An impairment allowance, writing these assets down to
fair value was established at December 31, 1996 totaling $785,000, of which
$255,000 related to properties in the high desert of San Bernardino County and
$530,000 related to a property in Riverside County.
In 1994, the Company began concluding that certain seller-financed parcels
were no longer economically viable based on then 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 of San
Bernardino County. The Company owned these properties subject to seller loans
that had current or approaching maturity dates. In 1996, the Company deeded
property with a book value of $2,045,000 back to four of these land sellers in
satisfaction of indebtedness in that amount. In March 1997, the Company deeded
back property with a book value of $720,000 to the seller of the land in
satisfaction of indebtedness in that amount. Continuing negotiations may result
either in deferral of interest payments and/or other adjustments to the seller
note, or deed back to the seller of the one remaining property with a book value
of $320,000 in satisfaction of indebtedness in that amount outstanding at
December 31, 1997.
18
<PAGE>
During 1995 the Company reduced the scope of one project in Riverside
County. As of December 31, 1997, the Company was still in the process of deeding
back land to the seller from whom the Company purchased the property. This
transaction is expected to result in a reduction of real estate inventories of
$396,000 in satisfaction of indebtedness in that amount outstanding at December
31, 1997.
In 1994, the Company commenced the process of deeding back property to nine
other land sellers from whom the Company also purchased land in the high desert
of San Bernardino County. Deed backs of real estate with a book value and
related indebtedness of $1,558,000 and $280,000 occurred in 1996 and 1997,
respectively.
There can be no assurance that there will be no additional write-downs of
land inventory or write-offs of costs in the future.
Selling and Marketing Expenses
Selling expenses include loan discount points, internal and third party
sales commissions, escrow fees, title insurance fees and other closing costs.
Selling expenses were $1,552,000 and $1,462,000 for the years ended December
31, 1997 and 1996, respectively, representing a 6.2% increase. This increase
resulted primarily from payments to an independent sales and marketing company
utilized by the Company from January 1997 to September 1997 to manage its sales
force. Selling expenses as a percentage of revenue from home sales were 7.5% for
each of the years ended December 31, 1997 and 1996.
Marketing expenses include advertising and promotion and 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 the 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 $1,859,000 and $1,577,000 for the years ended
December 31, 1997 and 1996, respectively, representing a 17.9% increase. As a
percentage of revenue from home sales, marketing expenses were 8.9% and 8.0% for
the years ended December 31, 1997 and 1996, respectively.
The increase in marketing costs for the year ended December 31, 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 of San
Bernardino County and one community in Riverside County.
During 1997, the Company had grand openings for two new projects and was
delivering homes from eight active projects compared with three grand openings
and nine active projects in 1996.
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 $1,578,000 and $2,066,000 for the
years ended December 31, 1997 and 1996, respectively, a decrease of $488,000 or
23.6%. As a percentage of revenue from home sales, general and administrative
expenses were 7.6% and 10.5% for the years ended December 31, 1997 and 1996,
respectively. The decrease in general and administrative expenses is primarily
the result of reductions in salary expense in 1997.
Minority Partners' Share
Minority partners' share represents the interests of the limited partners of
FERHP and Triumph. These partnerships are consolidated in the Company's
financial statements. See Notes (5) and (7) to "Table II - Current and Planned
Projects."
19
<PAGE>
The minority partners' share of losses was $331,000 and $214,000 for the
years ended December 31, 1997, and 1996, respectively.
Provision (Benefit) for Income Taxes
Provision (benefit) for income taxes represents federal income taxes based
on net income (loss) computed at the effective federal tax rate plus state
income taxes computed at the effective tax rate, net of federal tax benefit, as
adjusted for regulations affecting net operating losses.
In 1997, the Company offset a deferred tax benefit of $4,380,000 against a
valuation allowance of an equal amount. In 1996, the Company offset a deferred
tax benefit of $3,946,000 against a valuation allowance of an equal amount. See
"Item 7. Financial Statements and Supplementary Data, Note 7" herein. In order
to fully realize the recorded net deferred tax asset of $18,285,000, the Company
will need to generate future taxable income of approximately $45,700,000. The
deferred tax asset is based on current applicable corporate income tax rates.
Future changes in tax rates will be reflected in the valuation of the deferred
tax asset in the period of change.
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes ("SFAS No. 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 No. 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 in December 1995 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
$16,085,000 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
portion of the homes to be built in the phase of a project before construction
commences. Such sales contracts are usually subject to contingencies such as the
buyer's ability to qualify for financing and/or the sale of an existing home and
thus may not be completed. Homes covered by such sales contracts are considered
by the Company as its backlog. The Company does not recognize revenue on homes
covered by such contracts until the escrows are closed and title is transferred
to the buyer. The following table sets forth the Company's backlog at the dates
indicated:
<TABLE>
<CAPTION>
December 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
High Desert of San Bernardino and
Los Angeles Counties 22 52
Inland San Bernardino and Riverside
Counties 21 30
----------- -----------
Total Number of Homes 43 82
=========== ===========
Aggregate Sales Value $6,078,000 $10,316,000
=========== ===========
Average Sales Price $141,300 $125,800
=========== ===========
</TABLE>
20
<PAGE>
The Company's backlog at any particular date is subject to substantial
variation and is dependent upon several factors including the number of homes
then available for sale, prevailing market conditions and the length of time
necessary to complete the closing of home sales subject to pending contracts.
The Company has generally experienced a rapid increase in backlog during periods
in which it holds a grand opening for one of its projects. In 1997 the Company
had two grand openings compared to three grand openings in 1996. The Company's
backlog decreased 47.6%, to 43 homes at December 31, 1997 from 82 homes at
December 31, 1996 and management believes this was due to a fewer number of
grand openings, fewer active projects and slower than expected sales in certain
of its projects. The aggregate sales value of the units in backlog decreased by
$4,238,000 or 41.1%, due to the decrease in number of homes under sales
contracts. The average sales price of homes in backlog increased by $15,500 or
12.3% 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.
During 1997, the Company had received 118 net orders, of which 70 were in
the high desert of San Bernardino and Los Angeles Counties and 48 were in inland
San Bernardino and Riverside Counties. This compares to 149 net orders in 1996,
of which 96 were in the high desert of San Bernardino and Los Angeles Counties
and 53 were in inland San Bernardino and Riverside Counties, a decrease of
20.8%.
The decrease in net orders received for the year ended December 31, 1997 is
attributable to slower than expected sales in certain of the Company's projects,
the close out of one of the Company's high desert projects in San Bernardino
County and the reduction of scope of one project in the high desert of San
Bernardino County and one project in Riverside County.
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 increases in its costs due to inflation
to its buyers through increased selling prices of its homes. However, there is
no assurance that inflation will not have a material adverse impact on the
Company's future results of operations.
21
<PAGE>
Adoption of Accounting Standards
In the fourth quarter of 1997, the Company was required to adopt the
provisions of Statement of Financial Accounting Standards No. 128, "Earnings Per
Share" (SFAS No. 128). SFAS No. 128 replaces the previous presentation of
earnings per share on the Consolidated Statements of Operations with dual
presentation of Basic Earnings per Share and Diluted Earnings per Share. Basic
Earnings per Share are computed by dividing net income available to common
stockholders by the weighted average number of common shares outstanding during
the period. Diluted Earnings per Share reflects the potential dilution that
could occur if stock options and other contracts to issue Common Stock were
exercised or converted into Common Stock or resulted in the issuance of Common
Stock that shared in the earnings of the Company. SFAS No. 128 requires
restatement of all prior-period earnings per share presented. Since losses have
occurred in all periods presented, the inclusion of potential shares would be
anti-dilutive. As a result, Basic and Diluted Earnings per Share do not differ
from earnings per share as previously and currently reported.
Management believes there are no other new accounting pronouncements that
could have a significant effect on the Company's financial statements for any
period presented.
Year 2000 Issue
Management does not anticipate material costs, problems and uncertainties
associated with the Year 2000 issue.
Liquidity and Capital Resources
The homebuilding industry is capital intensive and often involves high
leverage and significant up-front expenditures to acquire land and begin
development. Accordingly, the Company incurs substantial indebtedness to finance
its homebuilding activities and its business and earnings are substantially
dependent on its ability to obtain bank or other debt financing on acceptable
terms The Company plans for substantial future expenditures relating to the
acquisition and construction of new projects, as well as the continued
construction of existing, ongoing projects. Additionally, the Company continues
to experience shortfalls in working capital and has payables from prior periods
and closed-out projects in excess of $2,000,000, most of which have been
outstanding for more than 90 days. 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 initiation of
lawsuits. The Company has negotiated payment arrangements, as appropriate, in an
effort to settle these claims and release the liens, but various claims and
lawsuits are pending and unresolved.
In its efforts to seek funding for working capital shortfalls and to reduce
old payables, as well as to finance the acquisition of additional land for the
delivery of future homes, the Company is discussing with various sources of
capital their investing additional funds in the Company. No material agreements
between the Company and these potential sources of capital have been signed, and
no assurances can be given whether or when the Company may enter into an
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 could be impaired, and the Company may not be able to
conduct operations as presently anticipated. This could have a material adverse
affect on the Company's business, financial condition and results of operations.
Historically, the Company has financed its operations from a combination of
limited partner capital contributions, cash generated from operations, purchase
money financing of land purchases, borrowings from various banking institutions,
borrowings from related parties, deferring accounts payable and sales of its
capital stock. The Company is also exploring alternative methods of financing.
Management believes that existing cash and capital resources, cash flow from
operations as well as the financial sources upon which it has historically
relied, similar to those discussed in more detail below, will be sufficient to
fund the Company's cash requirements for at least the next 12 months at the
Company's presently anticipated level of operations.
22
<PAGE>
The Company is in the process of making a private offering (the "Offering")
of up to $5,000,000 of Subordinated Investment Notes ("Investment Notes')
bearing interest at the rate of 15% per annum. The Investment Notes will have an
18 month maturity date and no prepayment penalty. The face value of each
Investment Note will be $10,000. The Offering will terminate on February 9,
1999, but may be extended by the Company to a date not later than July 31, 1999.
It is presently anticipated that the Company conduct the Offering through its
employees and will employ, on a best efforts basis, the services of a placement
agent to assist it in the Offering. Net proceeds, if any, from the Offering will
be used for working capital.
The Investment Notes have not been, and will not be, registered under the
Securities Act of 1933 and may not be offered or sold in the United States
absent registration or an applicable exemption from registration requirements of
the Securities Act of 1933.
In 1997, the Company established a relationship with USA, which has provided
loans and arranged for individual lenders to provide loans to the Company
secured by Company projects in amounts totaling $12,120,000 though December 31,
1997. Funds have been utilized to refinance projects, to purchase additional
land for future homes, and to develop some of this land. Additionally, in June
1997, USA Real Estate arranged for an additional group of investors to purchase
the Company's Eagle Ranch project in the high desert for $2,400,000. Funds from
this sale helped the Company repay portions of matured loans with a commercial
bank secured by this project. 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 are to 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 Real Estate is to receive a fee of $1,000 for each
home sold. If the Company approves a bulk sale of these lots by the investors,
the Company is to receive one half of any profits earned. Thomas A. Hantges owns
67% of both USA and USA Real Estate. Mr. Hantges became a director of the
Company in January 1998.
USA has earned fees totaling $1,087,000 for providing these loans to the
Company, of which $878,000 has been paid. The balance is secured by notes and is
to be paid from proceeds from sales of completed homes in certain of the
Company's projects. The interest rates on loans provided by USA range from
12.25% for certain loans secured by a first deed of trust to 20.25% for certain
subordinated land loans. The outstanding balance of these loans at December 31,
1997 was $6,922,000.
In December 1997, the Company sold an aggregate of 204,122 shares of Company
Common Stock in a private transaction to IEP, an entity owned 67% by Thomas A.
Hantges. See "Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters." The total consideration was $306,183, paid as follows: (i)
payment to the Company of $100,000 in cash, (ii) reduction by $200,000 of a
$347,500 note payable to the principals of USA by the Company for fees related
to a loan arranged by USA with respect to one of the Company's projects and
(iii) $6,183 for consulting services provided by the principals of USA to the
Company. The shares were issued in January 1998. Including the shares owned by
IEP, Mr. Hantges beneficially owned 12.8% of the Company's Common Stock as of
March 25, 1998.
From September 1996 through November 30, 1997, the Company received advances
of $2,747,000 from Ira C. Norris, of which the Company had repaid $460,000. The
advances were unsecured, bore interest at 10% and were due on March 31, 1998.
The balance of these advances at December 23, 1997 was $2,462,000, which
included accrued interest of $171,000. On that date, Mr. Norris agreed to
convert $2,340,000 of this debt into 2,340 shares of Series A Cumulative
Preferred Stock of the Company. The Company issued these shares on December 30,
1997 to the Norris Living Trust, of which Mr. Norris is a beneficiary and
trustee. See "Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters." An unsecured note to the Norris Living Trust, bearing
interest at 10% and maturing on December 23, 1998, evidences the balance of
indebtedness not converted in the amount of approximately $122,000.
The Series A Preferred Stock has a par value of $0.01, has no voting rights,
is non-participating, and has no conversion features. The stock is redeemable at
the option of the Company for cash at the redemption price of $1,000 per share
plus accumulated but unpaid dividends. The established dividend rate on the
Preferred Stock is $100 per share per annum payable quarterly from available
working capital.
23
<PAGE>
In addition to the loans described above, 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 December 31, 1997
was $526,000, which includes accrued interest of approximately $26,000.
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 of $500,000 mentioned above. The
balance owing under this note at December 31, 1997 was $539,000, which includes
accrued interest of approximately $39,000.
In December 1996, the Company issued a warrant to purchase 200,000 shares of
Common Stock in a private transaction to Overland Company, Inc. ("OCI"), a
corporation affiliated with Overland. Overland owned 10.6% of the Company's
Common Stock at March 25, 1998. The warrant was issued as compensation for
services to be performed pursuant to a consulting agreement entered into with
OCI in December 1996. The consulting agreement is for a term of two years during
which OCI, on a non-exclusive basis, is to seek out, investigate and pursue
residential development projects and present them to the Company for its
consideration and approval. The warrant was exercisable within eighteen months
of the date of the agreement at a price of $5.25 per share. Beginning in
November 1997, the Company offered OCI the opportunity to exercise the warrant
for an exercise price of $2.00 per share. From November 1997 through February
1998, OCI assigned portions of its total interest in the warrant to third
parties. The Company received $350,000 in 1997 and $50,000 in 1998 from these
third parties as deposits pursuant to the exercise of the warrants for all
200,000 shares. The Company is awaiting receipt of final documentation before it
effectuates the sale of the shares.
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 was 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. A non-judicial sale of the property was completed on December 11, 1997,
and the Company was relieved of $680,000 of debt.
All of the above transactions with Mr. Norris and the Company's other
directors were unanimously approved by the disinterested members of the
Company's board of directors.
In October 1996, the Company entered into a Development and Marketing
Agreement with a third party to develop, construct, and market 139 lots owned by
the third party in Moreno Valley, California. All financing and bonding will be
the responsibility of the third party. The Company will receive compensation in
the form of overhead draws, development fees and sales and marketing fees
totaling approximately 8.0% of the gross sales price of the homes. The Company
is to assume the home warranty costs for which it will be paid $750 per house.
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% 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. The Company received approximately $200,000 from Spirit 77 as a result of
this sale and the subsequent dissolution of the partnership.
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, which allow the Company to obtain the necessary
development financing on a phased basis. The Company also occasionally uses
options to acquire property. At December 31, 1997, the Company had land seller
indebtedness outstanding of $716,000. See "--Provision for Write-Down of Real
Estate Assets."
24
<PAGE>
The Company typically obtains its infrastructure, development and
construction funding and various other land loans from commercial lenders and
other financing sources. Lenders generally provide interim construction loans
for each phase of homes within a 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. Commercial lenders and USA each provided
approximately one half of the Company's project financing for the year ended
December 31, 1997. 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 December 31, 1997, aggregate borrowings of
$14,945,000 were outstanding under these facilities and $8,391,000 was available
for further qualified project finance borrowing. Interest rates on these loans
range from 7.625% to 20.25%. The weighted average interest rate was
approximately 12.29% during 1997 and approximately 12.18% as of December 31,
1997.
At December 31, 1997, total indebtedness secured by real estate totaled
$15,661,000. Peak month-end borrowing during 1997 was $17,297,000.
The Company also has an unsecured $1,000,000 revolving line of credit with a
commercial bank that bears interest at the prime rate plus 1.0%. The net
outstanding balance under this line of credit at December 31, 1997 was $330,000.
At the time a homebuyer enters into a sales contract with the Company, meets
certain loan pre-qualification 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. The line of credit
and expires in April 1998 and the Company is currently in negotiations with the
bank for an additional extension.
In December 1997, the Company restructured a secured line of credit with an
outstanding principal balance of $2,891,000 from a commercial bank, which had
become due. Pursuant to a series of agreements, the bank's note was purchased
for $1,750,000 by a group of lenders ("new lender") provided by USA. The bank
forgave accrued interest of $92,000 and canceled its rights under a warrant to
purchase 41,667 shares of the Company's Common Stock that was issued to the bank
pursuant to an agreement made in June 1996 extending and modifying the line of
credit. The resulting obligation of the Company to the new lender is $2,350,000,
which includes the $1,750,000 paid to the bank, fees earned by USA, an interest
reserve and a payoff made by the new lender to an unrelated commercial bank of
another loan to the Company. The loan is secured by undeveloped land owed by the
Company in Victorville and Palmdale, California and by an assignment of the
Company's rights under the Eagle Ranch repurchase option agreement previously
described. Since the land in Palmdale was owned by Palmdale Vistas Housing
Developments, Ltd. ("Palmdale Vistas"), in which the Company was the managing
general partner and had a 51.3% interest, the new lender required the
dissolution of Palmdale Vistas pursuant to an Agreement signed by the partners
of Palmdale Vistas. The limited partners of Palmdale Vistas, which include a
former director of the Company (see "Item 7. Financial Statements and
Supplementary Data, Note 10" herein), received title to a 17 acre undeveloped
commercial site owned by Palmdale Vistas. The Company, as general partner of
Palmdale Vistas, received title to the balance of the partnership assets
consisting of three completed model homes, 11 completed homes for sale, and
approximately 180 unimproved residential lots. Additionally, the Company has
agreed to repay the bank the $1,141,000 principal amount not paid by the new
lender when it purchased the bank's note. This payment is unsecured, non-
interest bearing and payable from 15% of profits earned annually by the Company
commencing with the fiscal year ending December 31, 1999. Certain non-
operational changes in the Company's net worth in excess of $3,500,000 and
certain changes in control of the Company will also require additional payments
to the bank.
In February 1997, the Company obtained new financing from both USA and
another third party lender, providing a total of $2,336,000. Pursuant to an
Agreement with a commercial bank, this amount was accepted as payment in full on
matured loans with balances totaling $2,822,000, secured by one of the Company's
projects in Riverside County. Additionally, in June 1997, pursuant to a separate
Agreement with this same commercial bank, $2,647,000 was accepted as payment in
full on matured loans with balances totaling $3,494,000 secured by the Company's
Eagle Ranch project in the high desert of San Bernardino County. The Company
repaid the bank from the following sources: (i) the sale in June 1997,
previously described, of the majority of the Eagle Ranch project for $2,400,000
to a group of investors provided by USA Real Estate, (ii) a new loan from a
third party lender in the amount of $580,000 and (iii) other Company funds.
25
<PAGE>
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 some 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.
26
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Accountants..................................... F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996.......... F-3
Consolidated Statements of Operations for the years ended
December 31, 1997 and 1996.......................................... F-4
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1997 and 1996.......................................... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1997 and 1996.......................................... F-6
Notes to Financial Statements......................................... F-8
F-1
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders of
Inco Homes Corporation
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Inco Homes
Corporation at December 31, 1997 and 1996 and the results of their operations
and their cash flows for the years then ended in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our
audit of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Costa Mesa, California
March 27, 1998
F-2
<PAGE>
INCO HOMES CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------------
<S> <C> <C>
(Dollars in thousands, except share data) 1997 1996
---- ----
ASSETS
Cash $ 736 $ 586
Real estate inventories - Note 3 27,329 36,752
Deferred tax asset - Note 7 2,200 2,200
Investment in non-consolidated partnership - Note 2 - 428
Other assets 669 666
-------- --------
Total assets $ 30,934 $ 40,632
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 5,580 $ 7,133
Notes payable - Note 4 19,202 15,360
Lines of credit - Note 5 330 4,303
Notes to stockholders - Note 6 1,187 676
-------- --------
Total liabilities 26,299 27,472
-------- --------
Minority partners' investment in consolidated
partnerships - Note 2 545 876
Commitments and contingencies - Note 9
Stockholder's Equity
Preferred stock - $.01 par value; 1,000,000 shares
authorized, 2,340 shares issued and outstanding for
1997 - Note 6 2,340 -
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, respectively -
Note 1 16 14
Additional paid in capital 42,876 41,763
Deficit (41,142) (29,493)
-------- --------
Total stockholders' equity 4,090 12,284
-------- --------
Total liabilities and stockholders' equity $ 30,934 $ 40,632
======== ========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
INCO HOMES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
For the Year
Ended December 31,
----------------------
1997 1996
--------- ---------
<S> <C> <C>
Revenue from home sales............................... $ 20,788 $ 19,591
Revenue from land and lot sales....................... 933 --
--------- ---------
21,721 19,591
--------- ---------
Cost of homes sold.................................... 19,852 18,260
Cost of land and lots sold............................ 1,094 --
--------- ---------
20,946 18,260
--------- ---------
Gross profit........................................ 775 1,331
--------- ---------
Provision for write-down of real estate - Note 3...... 9,270 785
Selling and marketing expenses........................ 3,411 3,039
General and administrative expenses................... 1,578 2,066
--------- ---------
14,259 5,890
--------- ---------
Operating loss...................................... (13,484) (4,559)
Other income.......................................... 79 77
--------- ---------
Loss before minority partners' share and provision
(benefit) for income taxes......................... (13,405) (4,482)
Minority partners' share.............................. (331) (214)
--------- ---------
Loss before provision (benefit) for income taxes.... (13,074) (4,268)
Provision (benefit) for income taxes - Note 7......... -- --
--------- ---------
Loss before extraordinary items..................... (13,074) (4,268)
Extraordinary items - Note 8.......................... 1,425 --
--------- ---------
Net loss............................................ $ (11,649) $ (4,268)
========= =========
Basic and Diluted net loss per common share - Note 2
Loss before extraordinary items..................... $ (8.03) $ (3.01)
Extraordinary items................................. 0.88 --
--------- ---------
Net loss per common share........................... $ (7.15) $ (3.01)
========= =========
Weighted average number of common shares outstanding
- Note 2............................................. 1,628,694 1,417,794
========= =========
</TABLE>
See accompanying notes to financial statements
F-4
<PAGE>
INCO HOMES CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
Additional
Preferred Stock- Note 6 Common Stock - Note 1 Paid-In
Shares Amount Shares Amount Capital Deficit Total
--------- ----------- ---------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1995 -- -- 1,346,218 13 40,744 (25,225) 15,532
Common stock issued - Note 12 -- -- 90,878 1 527 -- 528
Value of warrants issued to bank pursuant
to extension of line of credit - Note 4 -- -- -- -- 111 -- 111
Value of warrants issued pursuant to
consulting agreement - Note 12 -- -- -- -- 131 -- 131
Cash received from common stock
subscription -- -- -- -- 250 -- 250
Net loss - 1996 -- -- -- -- -- (4,268) (4,268)
----- ------ --------- ---- ------- -------- --------
Balance - December 31, 1996 -- $ -- 1,437,096 $ 14 $41,763 $(29,493) $ 12,284
Preferred stock issued - Note 6 2,340 2,340 -- -- -- -- 2,340
Common stock issued -- -- 200,000 2 463 -- 465
Cash received and debt relieved from
common stock subscriptions - Note 12 -- -- -- -- 300 -- 300
Cash received pursuant to pending
exercise of warrants - Note 12 -- -- -- -- 350 -- 350
Net loss - 1997 -- -- -- -- -- (11,649) (11,649)
----- ------ --------- ---- ------- -------- --------
Balance - December 31, 1997 2,340 $2,340 1,637,096 $ 16 $42,876 $(41,142) $ 4,090
===== ====== ========= ==== ======= ======== ========
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE>
INCO HOMES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years
Ended December 31,
-----------------------
(Dollars in thousands) 1997 1996
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss.............................................. $(11,649) $ (4,268)
Adjustment to reconcile net loss to net cash provided
by (used in) operating activities:
Extraordinary items................................ (1,425) --
Provision for write-down of real estate............ 9,270 785
Minority partners' share........................... (331) (214)
Proceeds from sale of divisions.................... -- 1,713
Decrease (increase) in real estate inventories..... 1,196 (711)
(Increase) decrease in other assets................ (68) 371
Decrease in accounts payable and accrued
liabilities...................................... (657) (1,019)
-------- --------
Net cash used in operating activities....... (3,664) (3,343)
-------- --------
Cash flow from financing activities:
Proceeds from notes payable secured by real estate.... 28,278 19,008
Repayments on notes payable secured by real estate.... (25,431) (16,716)
Proceeds from lines of credit......................... 1,481 --
Repayments on lines of credit......................... (4,313) (444)
Proceeds from notes to stockholders................... 2,992 768
Repayments on notes to stockholders................... (368) (92)
Distributions from non-consolidated partnership....... 260 --
Contribution to non-consolidated partnership.......... -- (355)
Contributions from minority partners.................. -- 1,090
Proceeds from sale of common stock.................... 500 --
Costs of stock issuance and reverse stock split....... (35)
Proceeds from common stock subscriptions.............. 450 250
-------- --------
Net cash provided by financing activities... 3,814 3,509
-------- --------
Net increase in cash and cash equivalents............... 150 166
Cash and cash equivalents at beginning of year.......... 586 420
-------- --------
Cash and cash equivalents at end of year................ $ 736 $ 586
======== ========
</TABLE>
See accompanying notes to financial statements
F-6
<PAGE>
INCO HOMES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Supplemental schedule of non-cash activities
[1] During 1997, the Company was relieved of debt in the amount of
$1,425,000 pursuant to various agreements - see Note 8.
[2] During 1997, the Company deeded back properties with a book cost basis
of $1,000,000 to land sellers in satisfaction of indebtedness in that
amount - see Note 3.
[3] During 1997, the Company was relieved of debt in the amount of
$680,000 as a result of a non-judicial foreclosure - see Note 10.
[4] During 1997, the Company sold 204,122 shares of Common Stock in which
a portion of the consideration consisted of a $200,000 reduction of a
note payable - see Note 12.
[5] During 1997, the Company converted $2,340,000 of debt to 2,340 shares
of Series A Cumulative Preferred Stock - see Note 6.
[6] During 1996, the Company deeded back property with a book cost basis
of $3,603,000 to land sellers in satisfaction of indebtedness in that
amount - see Note 3.
[7] During 1996, the Company issued 90,878 shares of Common Stock to
creditors in exchange for relieving the Company of $539,000 of
accounts payable - Note 12.
[8] During 1996, the Company issued a warrant to purchase 41,667 shares of
Common Stock to a lender in connection with the extension of a line of
credit - see Note 4. The value of this warrant was estimated at
$111,000.
[9] During 1996, the Company issued a warrant to purchase 200,000 shares
of Common Stock to a third party as compensation for services to be
performed pursuant to a consulting agreement - see Note 12. The value
of this warrant was estimated at $131,000.
See accompanying notes to financial statements
F-7
<PAGE>
INCO HOMES CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 and 1996
NOTE 1. BACKGROUND AND ORGANIZATION
Inco Homes Corporation, a Delaware corporation, ("Inco" or the "Company")
is a developer and builder of affordably priced single-family detached homes.
The Company's sole market is in Southern California and it is substantially
dependent on local economic factors.
On January 16, 1997, a stockholder approved amendment to the Company's
Restated Certificate of Incorporation effecting a one-for-six reverse stock
split ("the reverse stock split") became effective. All share information
presented below is restated to reflect this reverse stock split.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation. The accompanying consolidated financial
statements include the accounts of the Company, all wholly-owned subsidiaries,
and the Company's general partnership interests in Palmdale Vistas Housing
Developments, Ltd. ("Palmdale Vistas"), Freedom-Eagle Ranch Housing Partners
("FERHP") and Triumph-Lancaster Housing Partners ("Triumph"). All significant
intercompany transactions have been eliminated. Palmdale Vistas was dissolved in
December 1997.
The minority partners' investment in consolidated partnerships represents
the limited partners' net equity in the real estate projects. Pursuant to the
terms of the partnership agreements, losses are generally allocated 99% to the
limited partners, and their net equity will be repaid to the extent the
partnerships generate sufficient funds.
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. Spirit 77
was dissolved in July 1997.
Use of Estimates. The preparation of the Company's consolidated financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the financial statement dates and the reported amounts of revenues and
expenses during the reporting periods. Due to uncertainties inherent in the
estimation process, it is reasonably possible that actual results could differ
from the estimates.
Basis of Presentation. The Company has incurred net operating losses which
have significantly impacted its working capital levels and its ability to pay
its obligations. Management's current business plan reflects that, in addition
to future profits, sales of real estate inventories provide a return of equity
in the form of cash flow to the Company to help meet operating requirements.
During 1998, the Company will also need to extend the maturity dates of certain
notes payable and to raise capital for acquisitions of additional land for
future projects and working capital needs. Management's plans and anticipated
results are dependent on future events and economic market conditions which are
inherently uncertain. No assurances can be given that anticipated cash flows
from operations and the Company's ability to borrow from various sources will be
sufficient to fund all of its planned expenditures. In its efforts to seek
funding for working capital shortfalls and to reduce old payables, as well as to
finance the acquisition of additional land for the delivery of future homes, the
Company is discussing with various sources of capital their investing additional
funds in the Company. No material agreements between the Company and these
potential sources of capital have been signed, and no assurances can be given
whether or when the Company may enter into an 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 could be impaired, and the Company may not
F-8
<PAGE>
be able to conduct operations as presently anticipated. This could have a
material adverse affect on the Company's business, financial condition and
results of operations.
Cash and Cash Equivalents. Cash equivalents represent short-term, highly
liquid investments with a maturity of three months or less when acquired. The
Company maintains some of its cash in bank deposit accounts which, at times, may
exceed the federally insured limits. Based on the quality of the financial
institutions, the Company does not believe it is exposed to any significant
concentrations of credit risk on cash and cash equivalents.
Real Estate Inventories. Costs incurred which are included in inventory
consist of land, land development costs, direct and indirect costs of
construction, other overhead costs, interest and property taxes. Interest and
property taxes are capitalized to real estate inventories when development
activities begin, and capitalization ends when the qualifying assets are ready
for their intended use.
Effective January 1, 1996, the Company adopted 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,"
which requires that impairment losses be recorded on long-lived assets that are
being developed based on their fair value, when (i) indicators of impairment are
present and (ii) the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. Assets that are held for sale
are to be carried at the lower of cost or fair value, less the estimated selling
costs.
The estimation process in determining the value of real estate inventories
is inherently uncertain and relies to a considerable extent on current and
future economic and market conditions, the availability of suitable financing to
fund holding, development and construction activities, and the repayment or
refinancing of existing indebtedness. Such economic and market conditions may
affect management's development and marketing plans. Accordingly, the ultimate
realization of the Company's real estate inventories is dependent upon future
events and conditions that may cause realizations to differ from amounts
presently estimated.
Sales and Profit Recognition. Revenue from the sale of homes, land and
lots is recognized when closings have occurred and a buyer has met down payment
requirements. At the time of revenue recognition, cost of sales is charged with
direct costs of construction, and an allocation of a project's total estimated
costs of land, land development, indirect construction, other overhead costs,
interest and property taxes.
Earnings Per Share. In the fourth quarter of 1997, the Company was required
to adopt the provisions of Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" (SFAS No. 128). SFAS No. 128 replaces the previous
presentation of earnings per share on the Consolidated Statements of Operations
with dual presentation of Basic Earnings per Share and Diluted Earnings per
Share. Basic Earnings per Share are computed by dividing net income available
to common stockholders by the weighted average number of common shares
outstanding during the period. Diluted Earnings per Share reflects the potential
dilution that could occur if stock options and other contracts to issue Common
Stock were exercised or converted into Common Stock or resulted in the issuance
of Common Stock that shared in the earnings of the Company. SFAS No. 128
requires restatement of all prior-period earnings per share presented. Since
losses have occurred in all periods presented, the inclusion of potential shares
would be anti-dilutive. As a result, Basic and Diluted Earnings per Share do
not differ from earnings per share as previously and currently reported.
Fair Value of Financial Instruments. The carrying amounts reported on the
balance sheet for the Company's cash equivalents and accounts payable and
accrued liabilities approximate fair value due to the short-term nature of these
items. The carrying amounts of the Company's notes payable secured by real
estate, lines of credit, and notes to stockholder approximate fair value based
on a comparison with current market rates for loans of similar risks and
maturities.
F-9
<PAGE>
NOTE 3. REAL ESTATE INVENTORIES
Real estate inventories consist of the following:
<TABLE>
<CAPTION>
December 31,
---------------------------------
1997 1996
--------------- --------------
<S> <C> <C>
Land $ 16,929,000 $ 24,299,000
Land development and construction in progress 18,366,000 25,520,000
Completed inventory not subject to pending sales
contracts (unsold) 2,552,000 2,030,000
Allowances for write-down of real estate (10,518,000) (15,097,000)
------------ ------------
Total $ 27,329,000 $ 36,752,000
============ ============
</TABLE>
As of December 31, 1997 and 1996, the Company owned title to approximately
1,600 and 3,300 lots, respectively. As of December 31, 1997 and 1996,
approximately 200 and 700 lots, respectively, were in the process of being
deeded back to land sellers (see below).
During the year ended December 31, 1997, the Company reevaluated its plans
for holding and developing several of its properties. As a result of this
reevaluation, the Company reduced the number of lots it planned to develop in
certain projects, and identified other properties it plans to sell in their
current stage of development or deed back to lenders in satisfaction of the
loans securing the properties. Additionally, the Company determined 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 totaling $9,270,000, of which $9,019,000
relates to properties in the high desert of San Bernardino County and $251,000
relates to a property in Riverside County.
In 1996, the Company also determined that the undiscounted cash flows
estimated to be generated by various real estate holdings were less than the
assets' carrying amounts. An impairment allowance, writing these assets down to
fair value was established at December 31, 1996 totaling $785,000, of which
$255,000 related to properties in the high desert of San Bernardino County and
$530,000 related to a property in Riverside County.
In 1994, the Company began concluding that certain seller-financed parcels
were no longer economically viable based on then 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 of San
Bernardino County. The Company owned these properties subject to seller loans
that had current or approaching maturity dates. In 1996, the Company deeded
property with a book value of $2,045,000 back to four of these land sellers in
satisfaction of indebtedness in that amount. In March 1997, the Company deeded
back property with a book value of $720,000 to the seller of the land in
satisfaction of indebtedness in that amount. Continuing negotiations may result
either in deferral of interest payments and/or other adjustments to the seller
note, or deed back to the seller of the one remaining property with a book value
of $320,000 in satisfaction of indebtedness in that amount outstanding at
December 31, 1997.
During 1995 the Company reduced the scope of one project in Riverside
County. As of December 31, 1997, the Company was still in the process of deeding
back land to the seller from whom the Company purchased the property. This
transaction is expected to result in a reduction of real estate inventories of
$396,000 in satisfaction of indebtedness in that amount outstanding at December
31, 1997.
F-10
<PAGE>
In 1994, the Company commenced the process of deeding back property to nine
other land sellers from whom the Company also purchased land in the high desert
of San Bernardino County. Deed backs of real estate with a book value and
related indebtedness of $1,558,000 and $280,000 occurred in 1996 and 1997,
respectively.
The Company incurred interest that was capitalized. The following table shows
the components of interest:
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------
1997 1996
----------- ------------
<S> <C> <C>
Interest incurred and capitalized $3,686,000 $1,635,000
=========== ===========
Amortization of capitalized interest included
in cost of homes sold, cost of land and lots
sold, and provision for write-down of real
estate $2,827,000 $1,153,000
========== ==========
Unamortized capitalized interest included in
real estate inventories at year end $3,572,000 $2,713,000
========== ==========
</TABLE>
NOTE 4. NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
December 31,
---------------------------------------------
1997 1996
-------------------- --------------------
<S> <C> <C>
Various land acquisition loans secured by real estate bearing interest
at fixed rates ranging from 7.0% to 10.0% per annum. Principal
payments are required on fixed schedules or as land is taken down.
The loan balance at December 31, 1997 can be reduced to zero as
properties are deeded back to land sellers (see Note 3). $ 716,000 $ 1,796,000
Various infrastructure, development, construction and other land loans
secured by real estate with an aggregate maximum amount of
$23,336,000 of which $8,391,000 is available as of December 31, 1997
to finance construction. Interest rates on these loans range from
7.625% to 20.25% and are due primarily in 1998 and 1999. Principal
payments on construction loans are generally required as homes are
closed. The prime rate as of December 31, 1997 was 8.50%.
14,945,000 13,564,000
-------------------- --------------------
Total notes payable secured by real estate 15,661,000 15,360,000
Repurchase option for property sold in June 1997 (see Note 10) 2,400,000 --
Unsecured loan payable to commercial bank 1,141,000 --
==================== ====================
$19,202,000 $15,360,000
==================== ====================
</TABLE>
Included in infrastructure, development, construction and other land loans at
December 31, 1997 is a secured note payable to Hunters Ridge Investment Partners
("HRIP") with a balance of $474,000 and $6,922,000 of secured notes payable
provided by USA Commercial Mortgage Company, Inc. ("USA") (see Note 10).
The weighted average short term borrowing rate for infrastructure,
development, construction and other land loans was 12.29% and 10.13% for the
years ended December 31, 1997 and 1996, respectively.
F-11
<PAGE>
The minimum future principal payments due on the notes payable secured by real
estate at December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998 $ 7,276,000
1999 7,388,000
2000 --
2001 320,000
Thereafter 677,000
-----------
$15,661,000
===========
</TABLE>
In December 1997, the Company restructured a secured line of credit with an
outstanding principal balance of $2,891,000 from a commercial bank, which had
become due. Pursuant to a series of agreements, the bank's note was purchased
for $1,750,000 by a group of lenders ("new lender") provided by USA. The bank
forgave accrued interest of $92,000 and canceled its rights under a warrant to
purchase 41,667 shares of the Company's Common Stock that was issued to the bank
pursuant to an agreement made in June 1996 extending and modifying the line of
credit. The resulting obligation of the Company to the new lender is $2,350,000,
which includes the $1,750,000 paid to the bank, fees earned by USA, an interest
reserve and a payoff made by the new lender to an unrelated commercial bank of
another loan to the Company. The loan is secured by undeveloped land owed by
the Company in Victorville and Palmdale, California and by an assignment of the
Company's rights under a repurchase option agreement (see Note 10).
Additionally, the Company has agreed to repay the bank the $1,141,000 principal
amount not paid by the new lender when it purchased the bank's note. This
payment is unsecured, non-interest bearing and payable from 15% of profits
earned annually by the Company commencing with the fiscal year ending December
31, 1999. Certain non-operational changes in the Company's net worth in excess
of $3,500,000 and certain changes in control of the Company will also require
additional payments to the bank.
NOTE 5. LINE OF CREDIT
The Company also has an unsecured $1,000,000 revolving line of credit with a
commercial bank that bears interest at the prime rate plus 1.0%. The net
outstanding balance under this line of credit at December 31, 1997 was $330,000.
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. The line of
credit expires in April 1998 and the Company is currently in negotiations with
the bank for an additional extension.
NOTE 6. NOTES TO STOCKHOLDERS
From September 1996 through November 30, 1997, the Company received advances
of $2,747,000 from Ira C. Norris, of which the Company had repaid $460,000. The
advances were unsecured, bore interest at 10% and were due on March 31, 1998.
The balance of these advances at December 23, 1997 was $2,462,000, which
included accrued interest of $171,000. On that date, Mr. Norris agreed to
convert $2,340,000 of this debt to 2,340 shares of Series A Cumulative Preferred
Stock of the Company. The Company issued these shares on December 30, 1997 to
the Norris Living Trust, of which Mr. Norris is a beneficiary and trustee. An
unsecured note to the Norris Living Trust, bearing interest at 10% and maturing
on December 23, 1998, evidences the balance of indebtedness not converted in the
amount of approximately $122,000.
The Series A Preferred Stock has a par value of $0.01, has no voting rights,
is non-participating, and has no conversion features. The stock is redeemable at
the option of the Company for cash at the redemption price of $1,000 per share
plus accumulated but unpaid dividends. The established dividend rate on the
Preferred Stock is $100 per share per annum payable quarterly from available
working capital.
F-12
<PAGE>
In addition to the loans described above, 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 December 31,
1997 was $526,000, which includes accrued interest of approximately $26,000.
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 of $500,000 mentioned above. The
balance owing under this note at December 31, 1997 was $539,000, which includes
accrued interest of approximately $39,000.
NOTE 7. INCOME TAXES
The Company and its subsidiaries file a consolidated federal income tax
return and combined state income tax returns.
The accompanying financial statements reflect provision (benefit) for
federal and state income taxes as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
-------------------------------
<S> <C> <C>
1997 1996
Current provision (benefit) $ -- $ --
Deferred provision (benefit) (4,380,000) (3,946,000)
Valuation allowance 4,380,000 3,946,000
------------ ------------
Total $ 0 $ 0
============ ============
</TABLE>
Statement of Financial Accounting Standards No. 109 ("SFAS No. 109")
"Accounting for Income Taxes", requires, among other things, the recognition of
deferred tax assets for the estimated future tax effects attributable to net
deductible temporary differences and net operating loss carryforwards. SFAS No.
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 asset 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 $16,085,000 valuation
allowance at December 31, 1997 to reserve against the deferred tax asset as a
result of these uncertainties. At such time as it becomes more likely than not
that additional portions of the 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.
The tax effects of temporary differences and net operating loss
carryforwards that give rise to the deferred tax asset and deferred tax
liability consist of the following at:
F-13
<PAGE>
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Deferred tax asset:
Net operating loss carryforwards $ 13,573,000 $ 6,882,000
Write-downs of real estate 4,207,000 6,060,000
Accrued expenses 505,000 963,000
------------ ------------
Total deferred tax asset 18,285,000 13,905,000
Valuation allowance (16,085,000) (11,705,000)
------------ ------------
Net deferred tax asset $ 2,200,000 $ 2,200,000
============ ============
</TABLE>
At December 31, 1997, the Company has net operating loss carryforwards
for federal income tax purposes of $33,931,000 that are available to offset
future federal taxable income. Of these federal net operating losses,
$3,695,000, $5,046,000, $7,830,000, and $17,360,000 expire in the years 2009,
2010, 2011 and 2012, respectively.
A reconciliation of the computed statutory income tax benefit at the
Federal statutory rate to the effective income tax benefit follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
Percent of pre-tax loss at current
federal statutory income tax rate (34.0%) (34.0%)
-------------- --------------
State and local income taxes net of
federal benefit (4.7) (4.7)
Increase in valuation allowance 38.7 38.7
-------------- --------------
Net increase (reduction) 34.0 34.0
-------------- --------------
Effective tax rate 0.0% 0.0%
============== ==============
</TABLE>
NOTE 8. EXTRAORDINARY ITEMS
In February 1997, the Company obtained new financing from both USA and
another third party lender, providing a total of $2,336,000. Pursuant to an
Agreement with a commercial bank, this amount was accepted as payment in full on
matured loans with balances totaling $2,822,000, secured by one of the Company's
projects in Riverside County. This resulted in an extraordinary gain of
approximately $486,000.
Additionally, in June 1997, pursuant to a separate Agreement with this same
commercial bank, $2,647,000 was accepted as payment in full on matured loans
with balances totaling $3,494,000 secured by the Company's Eagle Ranch project
in the high desert of San Bernardino County. The Company repaid the bank from
the following sources: (i) the sale in June 1997 of the majority of the Eagle
Ranch project for $2,400,000 to a group of investors provided by USA Real Estate
(see Note 10), (ii) a new loan from a third party lender in the amount of
$580,000 and (iii) other Company funds. This resulted in an extraordinary gain
of approximately $847,000.
In December 1997, the Company restructured a line of credit with another
commercial bank. Pursuant to the Agreement with this bank, accrued and unpaid
interest was forgiven, resulting in an extraordinary gain of approximately
$92,000 (see Note 4).
NOTE 9. COMMITMENTS AND CONTINGENCIES
Except as described below, the Company is involved only 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,
F-14
<PAGE>
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.
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 initiation of lawsuits. The Company
has negotiated payment arrangements, as appropriate, in an effort to settle
these claims and release the liens, but various claims and lawsuits are pending
and unresolved. Management does not believe that any of these claims, in the
aggregate, will have a material adverse financial effect on the Company's
business.
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 Company, a wholly-owned subsidiary of the Company ("Inco
Development"), in the Superior Court of California in Riverside County. Through
October 1996, various owners of additional homes in this project filed separate
complaints. All complaints were subsequently consolidated into one complaint
involving 40 homeowners. The alleged damages related primarily to the
performance of the concrete slabs of the homes. The matter was resolved in
mediation, which concluded on March 2, 1998, in the agreed upon amount of
$2,100,000. Payments of the settlement amount will be shared by three of the
Company's primary insurance carriers, and by various subcontractors against whom
the Company had filed cross-complaints. Settlement documents are being prepared,
which include all necessary releases and dismissals of all complaints.
Management believes that any obligations the Company may have relating to the
self-insured retentions included in its insurance policies will not be material.
Commitments and contingencies also include the usual obligations incurred
by real estate developers in the ordinary course of business, including the
securing of financing, performance bonds, entitlement and water rights.
Outstanding performance bonds at December 31, 1997 and 1996 were $11,230,000 and
$8,927,000, respectively.
The Company is responsible for a one-year warranty period upon the sale of
single-family homes. An estimated reserve for warranty costs is included in
accounts payable and accrued liabilities.
The Company is committed under various operating leases for office space
and equipment. Rental expense relating to operating leases of $148,000 and
$274,000 for the years ended December 31, 1997 and 1996, respectively, is
included in general and administrative expenses. The minimum future payments due
on the lease contracts payable at December 31, 1998 are $262,000 for 1998,
$142,000 for 1999, $137,000 for 2000, $123,000 for 2001 and $109,000 for 2002.
NOTE 10. RELATED PARTY TRANSACTIONS
For the years ended December 31, 1997 and 1996, the Company incurred
$45,000 and $47,000, respectively, in model home design fees and $108,400 and
$153,000, respectively, as reimbursement for the cost of the model home
furnishings to Nancy Orman Interiors. Nancy Orman Interiors is owned by Nancy
Norris, the wife of Ira C. Norris.
For the years ended December 31, 1997 and 1996, the Company incurred
$102,000 and $107,000, respectively, for the use of office space, to Inco Plaza,
Ltd. Inco Plaza, Ltd. is a limited partnership owned 80% by G&N Investments,
Ltd., its sole general partner. G&N Investments, Ltd. is a limited partnership
owned 70% by Nancy and Ira C. Norris, its sole general partners. Inco Plaza,
Ltd. sold the office building it owns in which the Company leases office space
to a third party buyer in December 1997. The Company's lease was assumed by this
third party buyer. The Company owed Inco Plaza, Ltd. $91,000 at December 31,
1997.
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.
F-15
<PAGE>
Victor Valley Commercial Properties is a limited partnership owned 50% by G&N
Investments, Ltd., its sole general partner.
Thomas E. Gibbs, Jr., a former director of the Company, held a 1.3% limited
partner's interest in Palmdale Vistas prior to the dissolution of the
partnership in December 1997. Mr. Gibbs also holds a 23% general partner's
interest and a 1.4% limited partner's interest in Palmdale Vistas Housing
Investments, which held a 47.4% limited partner's interest in Palmdale Vistas.
Mr. Gibbs also holds a 56.3% general partner's interest in HRIP. Additionally,
the Gibbs Family Trust, of which Mr. Gibbs is a beneficiary and trustee, is a
50% limited partner in Triumph. Mr. Gibbs also holds a 25% interest in ALG. ALG
provided a $600,000 secured participation loan to the Company in June 1996 to
develop 151 single family homes in the high desert. The Company did not proceed
with the development of this project. In connection with ALG's filing a notice
of default on its loan, Mr. Gibbs resigned as a member of the Company's Board of
Directors, effective August 1, 1997. ALG completed a non-judicial foreclosure of
the property secured by its note in December 1997.
Thomas A. Hantges, a director and stockholder of the Company, owns
approximately 67% of both USA and USA Commercial Real Estate Group ("USA Real
Estate"). USA has provided loans and arranged for individual lenders to provide
loans to the Company secured by Company projects in amounts totaling $12,120,000
through December 31, 1997. USA has earned fees for these loans totaling
$1,087,000, of which $878,000 has been paid. The balance is secured by notes
and is to be paid from proceeds from sales of completed homes in certain of the
Company's projects. The interest rates on these loans range from 12.25% to
20.25%. The outstanding balance of these loans at December 31, 1997 was
$6,922,000. Additionally, in June 1997, USA Real Estate arranged for an
additional group of investors to purchase the Company's Eagle Ranch project in
the high desert for $2,400,000. Funds from this sale helped the Company repay
portions of matured loans secured by this project with a commercial bank. 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 are to
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 Real Estate is
to receive a fee of $1,000 for each home sold. If the Company approves a bulk
sale of these lots by the investors, the Company is to receive one half of any
profits earned.
One of the owners of Overland Opportunity Fund, LLC ("Overland"), which
owned 10.6% of the Company's outstanding Common Stock at March 25, 1998 holds a
5.6% limited partnership interest in FERHP and is an owner of two entities with
which the Company has signed Development and Marketing Agreements.
NOTE 11. EMPLOYEES' PROFIT SHARING PLAN
The Company has an employee profit-sharing plan covering substantially all
employees. Contributions are made annually on a discretionary basis. No
contributions have been made for the years ended December 31, 1997 and 1996.
NOTE 12. STOCKHOLDERS' EQUITY
Common Stock Issued
In December 1997, the Company sold 204,122 shares of Company Common Stock
in a private transaction to Institutional Equity Partners, LLC ("IEP"), an
entity owned 67% by Thomas A. Hantges. The total consideration was $306,183,
paid as follows: (i) payment to the Company of $100,000 in cash, (ii) reduction
by $200,000 of a $347,500 note payable to the principals of USA by the Company
for fees related to a loan arranged by USA with respect to one of the Company's
projects and (iii) $6,183 for consulting services provided by the principals of
USA for the Company. The shares were issued in January 1998.
In December 1996, the Company issued a warrant to purchase 200,000 shares
of Common Stock in a private transaction to Overland Company, Inc. ("OCI"). OCI
is affiliated with Overland. The warrant was issued as compensation for services
to be performed pursuant to a consulting agreement entered into with OCI in
December
F-16
<PAGE>
1996. The consulting agreement is for a term of two years during which OCI, on a
non-exclusive basis, is to seek out, investigate and pursue residential
development projects and present them to the Company for its consideration and
approval. The warrant was exercisable within eighteen months of the date of the
agreement at a price of $5.25 per share. Beginning in November 1997, the Company
offered OCI the opportunity to exercise the warrant for an exercise price of
$2.00 per share. From November 1997 through February 1998, OCI assigned portions
of its total interest in the warrant to third parties. The Company received
$350,000 in 1997 and $50,000 in 1998 from these third parties as deposits
pursuant to the exercise of the warrants for all 200,000 shares. The Company is
awaiting receipt of final documentation before it effectuates the sale of the
shares.
In the first quarter of 1996 the Company entered into common stock purchase
agreements for 90,878 shares of Common Stock with certain subcontractors,
suppliers and other creditors, including a director and former directors of the
Company. These shares were issued in exchange for relieving the Company of debt
owed to the respective creditors in the aggregate amount of $539,000. In March
1996, the Company filed a Registration Statement on Form S-3 in accordance with
the terms of the common stock purchase agreement that granted registration
rights to these stockholders. The Registration Statement was declared effective
by the Securities and Exchange Commission in April 1996. None of the proceeds
from the sale of the shares by the selling stockholders under that Registration
Statement will be received by the Company. The Company agreed to bear all
expenses (other than underwriting discounts and commissions) in connection with
the registration.
Stock Options
In November 1992, the Company's Board of Directors adopted the Stock
Option/Stock Issuance Plan (the "Plan"). Under the plan, 100,000 shares of
Common Stock were authorized for issuance. The discretionary option grant
program provides for the grant of options to purchase shares of the Company's
Common Stock to key employees (including officers and directors) and consultants
of the Company. The options issued to employees are subject to certain vesting
requirements. The options issued to directors may be exercised in full six
months after the grant date.
The Company has adopted Statement of Financial Accounting Standards No. 123
("SFAS No. 123") "Accounting for Stock-Based Compensation." In accordance with
the provisions of SFAS No. 123, the Company applies APB Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations in
accounting for its plan and does not recognize compensation expense for its
stock-based compensation plan. If the Company had elected to recognize
compensation expense based upon the fair value at the grant date for awards
given in 1997 and 1996 under this plan consistent with the methodology
prescribed by SFAS No. 123, the Company's net loss and net loss per share for
the years ended December 31, 1997 and 1996 would not change materially from what
is presented.
During 1997, 3,752 options were granted at prices ranging from $1.563 to
$2.622 per share. As of December 31, 1997, 41,023 options were outstanding at
prices ranging from $1.563 to $56.25 per share, none of which had been
exercised.
As of January 2, 1998, the Compensation Committee of the Board of Directors
offered all employees of the Company and one director who was a former employee
of the Company the right to exchange 32,269 outstanding options at prices
ranging from $3.75 to $6.75 per share with replacement options. The replacement
options were set at $2.00, the current fair market value at the time, and the
required holding period was reset. All employees and the director elected to
exchange their existing options for replacement options. Also on January 2,
1998, 41,058 new options were granted to employees at a price of $2.00 per
share.
NOTE 13. SUBSEQUENT EVENTS
The Company is in the process of making a private offering (the "Offering")
of up to $5,000,000 of Subordinated Investment Notes ("Investment Notes')
bearing interest at the rate of 15% per annum. The Investment Notes will have
an 18 month maturity date and no prepayment penalty. The face value of each
Investment Note will be $10,000. The Offering will terminate on February 9,
1999, but may be extended by the Company to a date
F-17
<PAGE>
not later than July 31, 1999. It is presently anticipated that the Company
conduct the Offering through its employees and will employ, on a best efforts
basis, the services of a placement agent to assist it in the Offering. Net
proceeds, if any, from the Offering will be used for working capital.
The Investment Notes have not been, and will not be, registered under the
Securities Act of 1933 and may not be offered or sold in the United States
absent registration or an applicable exemption from registration requirements of
the Securities Act of 1933.
F-18
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
The Company's Proxy Statement for its 1998 Annual Meeting of
Stockholders, which, when filed pursuant to Regulation 14A under the Securities
Exchange Act of 1934, will be incorporated by reference in this Annual Report on
Form 10-KSB and provides the information required under Part III (Items 9, 10,
11, and 12), except for the information with respect to the registrant's
executive officers who are not directors, which is included in "Item 1.
Business--Executive Officers of the Registrant."
27
<PAGE>
ITEM 13. EXHIBITS LIST, AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit
Number Document Description
- ------ --------------------
3.1 Restated Certificate of Incorporation of the Registrant. (Incorporated
by reference to the Company's Form 8-K dated January 15, 1997.)
3.2 Restated Bylaws of the Registrant. (Incorporated by reference to
Exhibit 3.2 of the Company's Annual Report on Form 10-K dated December
31, 1995.)
4.1 Specimen of Common Stock Certificate. (Incorporated by reference to
Exhibit 4.1 of the Company's Annual Report on Form 10-K dated December
31, 1996.)
*4.2 Preferred Stock Certificate issued to Norris Living Trust.
*4.3 Certificate of Designations, Preferences and Rights of Series A
Cumulative Preferred Stock of Inco Homes Corporation.
10.1 Form of Indemnification Agreement between the Registrant and its
directors and certain officers. (Incorporated by reference to Exhibit
10.1 of the Company's registration statement under the Securities Act
on Form S-1, Registration Statement No. 33-58050.)
+10.2 Form Stock Option Agreement. (Incorporated by reference to Exhibit
10.3 of the Company's registration statement under the Securities Act
on Form S-1, Registration Statement No. 33-58050.)
+10.3 Form Stock Option Agreement (with Stock Appreciation Right.)
(Incorporated by reference to Exhibit 10.4 of the Company's
registration statement under the Securities Act on Form S-1,
Registration Statement No. 33-58050.)
+10.4 Form of Non-employee Director Option Agreement. (Incorporated by
reference to Exhibit 10.5 of the Company's registration statement
under the Securities Act on Form S-1, Registration Statement No. 33-
58050.)
+10.5 Form of Stock Issuance Agreement. (Incorporated by reference to
Exhibit 10.6 of the Company's registration statement under the
Securities Act on Form S-1, Registration Statement No. 33-58050.)
+10.6 Profit Sharing Plan. (Incorporated by reference to Exhibit 10.7 of the
Company's registration statement under the Securities Act on Form S-1,
Registration Statement No. 33-58050.)
+10.7 Cash or Deferred Profit Sharing Plan. (Incorporated by reference to
Exhibit 10.8 of the Company's registration statement under the
Securities Act on Form S-1, Registration Statement No. 33-58050.)
10.8 Building Loan Agreement between Mesa Verde Land Developments and Union
Bank dated June 15, 1989. (Incorporated by reference to Exhibit 10.12
of the Company's registration statement under the Securities Act on
Form S-1, Registration Statement No. 33-58050.)
10.9 Amendment to Building Loan Agreement between Mesa Verde Land
Developments and Union Bank dated January 10, 1990. (Incorporated by
reference to Exhibit 10.13 of the Company's registration statement
under the Securities Act on Form S-1, Registration Statement No. 33-
58050.)
28
<PAGE>
Exhibit
Number Document Description
- ------ --------------------
10.10 Amendment to Building Loan Agreement between Mesa Verde Land
Developments and Union Bank dated June 25, 1992. (Incorporated by
reference to Exhibit 10.14 of the Company's registration statement
under the Securities Act on Form S-1, Registration Statement No. 33-
58050.)
10.11 Amendment to Building Loan Agreement between Mesa Verde Land
Developments and Union Bank dated August 14, 1992. (Incorporated by
reference to Exhibit 10.15 of the Company's registration statement
under the Securities Act on Form S-1, Registration Statement No. 33-
58050.)
10.12 Note between Mesa Verde Land Developments and Union Bank dated June
15, 1989. (Incorporated by reference to Exhibit 10.16 of the Company's
registration statement under the Securities Act on Form S-1,
Registration Statement No. 33-58050.)
10.13 Construction Deed of Trust and Assignment of Rents between Mesa Verde
Land Developments and Union Bank dated June 15, 1989. (Incorporated by
reference to Exhibit 10.17 of the Company's registration statement
under the Securities Act on Form S-1, Registration Statement No. 33-
58050.)
10.14 Guaranty between Ira C. Norris and Union Bank dated June 15, 1989.
(Incorporated by reference to Exhibit 10.18 of the Company's
registration statement under the Securities Act on Form S-1,
Registration Statement No. 33-58050.)
10.15 Guaranty between Inco Holding and Union Bank dated June 15, 1989.
(Incorporated by reference to Exhibit 10.19 of the Company's
registration statement under the Securities Act on Form S-1,
Registration Statement No. 33-58050.)
+10.16 Employees' Incentive Compensation Plan. (Incorporated by reference to
Exhibit 10.49 of the Company's registration statement under the
Securities Act on Form S-1, Registration Statement No. 33-58050.)
10.17 Business Loan Agreement between Inco Homes Corporation and Riverside
National Bank, dated October 12, 1993. (Incorporated by reference to
Exhibit 10.76 of the Company's Annual Report on Form 10-K dated
December 31, 1993.)
10.18 Corporate Resolution to Borrow between Inco Homes Corporation and
Riverside National Bank, dated October 12, 1993. (Incorporated by
reference to Exhibit 10.77 of the Company's Annual Report on Form 10-K
dated December 31, 1993.)
10.19 Disbursement Request and Authorization between Inco Homes Corporation
and Riverside National Bank, dated October 12, 1993. (Incorporated by
reference to Exhibit 10.78 of the Company's Annual Report on Form 10-K
dated December 31, 1993.)
10.20 Promissory Note between Inco Homes Corporation and Riverside National
Bank, dated October 12, 1993. (Incorporated by reference to Exhibit
10.79 of the Company's Annual Report on Form 10-K dated December 31,
1993.)
10.21 Note Secured by Deed of Trust between Inco Homes Corporation and Union
Bank, dated August 30, 1993. (Incorporated by reference to Exhibit
10.80 of the Company's Annual Report on Form 10-K dated December 31,
1993.)
10.22 Revised Letter of Intent to Purchase Certain Unimproved Real Property
Located in City of Corona, County of Riverside, State of California,
dated December 2, 1993. (Incorporated by reference to Exhibit 10.95 of
the Company's Annual Report on Form 10-K dated December 31, 1993.)
29
<PAGE>
Exhibit
Number Document Description
- ------ --------------------
+10.23 1992 Stock Option/Stock Issuance Plan. (Incorporated by reference to
Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q dated
March 31, 1994.)
10.24 Settlement Statement and Revised Letter of Intent to Purchase Certain
Unimproved Real Property Located in the City of Corona, County of
Riverside, State of California. (Incorporated by reference to Exhibit
10.3 of the Company's Quarterly Report on Form 10-Q dated March 31,
1994.)
10.25 Standard Office Lease - Gross between Princeland Development Company
and Inco Homes Corporation, dated March 3, 1994. (Incorporated by
reference to Exhibit 10.13 of the Company's Quarterly Report on Form
10-Q dated June 30, 1994.)
10.26 Standard Form Shopping Center Lease between Commercial Center
Management, Inc., Receiver for Ranch Center Limited and Inco Homes
Corporation, dated June 30, 1994. (Incorporated by reference to
Exhibit 10.16 of the Company's Quarterly Report on Form 10-Q dated
June 30, 1994.)
10.27 Supplement to Deed of Trust between Union Bank and Inco Homes
Corporation, dated October 7, 1994. (Incorporated by reference to
Exhibit 10.11 of the Company's Quarterly Report on Form 10-Q dated
September 30, 1994.)
10.28 Addendum to Deed of Trust, Assignment of Rents, Security Agreement and
Fixture Filing between Union Bank and Inco Homes Corporation, dated
August 23, 1994. (Incorporated by reference to Exhibit 10.12 of the
Company's Quarterly Report on Form 10-Q dated September 30, 1994.)
10.29 Addendum to Commercial Promissory Note Secured by Deed of Trust
between Union Bank and Inco Homes Corporation, dated August 23, 1994.
(Incorporated by reference to Exhibit 10.13 of the Company's Quarterly
Report on Form 10-Q dated September 30, 1994.)
10.30 Amendment Agreement Promissory Note and Deed of Trust between Union
Bank and Inco Homes Corporation, dated October 7, 1994. (Incorporated
by reference to Exhibit 10.14 of the Company's Quarterly Report on
Form 10-Q dated September 30, 1994.)
10.31 Amendment Agreement between Union Bank and Inco Homes Corporation,
dated October 7, 1994; Loan No. 3779915092 0021-00-0-001.
(Incorporated by reference to Exhibit 10.15 of the Company's Quarterly
Report on Form 10-Q dated September 30, 1994.)
10.32 Office lease between Princeland Properties (International), Inc. and
Inco Homes Corporation, dated October 5, 1994. (Incorporated by
reference to Exhibit 10.106 of the Company's Annual Report on Form 10-
K dated December 31, 1994.)
10.33 Promissory Note, Loan No. 01373927-70, dated October 24, 1994, between
Riverside National Bank and Inco Homes Corporation. (Incorporated by
reference to Exhibit 10.107 of the Company's Annual Report on Form 10-
K dated December 31, 1994.)
10.34 Construction Deed of Trust, Assignment of Rents, Security Agreement
and Fixture Filing, dated October 7, 1994, between Union Bank and Inco
Homes Corporation. (Incorporated by reference to Exhibit 10.108 of the
Company's Annual Report on Form 10-K dated December 31, 1994.)
10.35 Building Loan Agreement/Disbursement Schedule dated October 7, 1994,
between Union Bank and Inco Homes Corporation. (Incorporated by
reference to Exhibit 10.109 of the Company's Annual Report on Form 10-
K dated December 31, 1994.)
30
<PAGE>
Exhibit
Number Document Description
- ------ --------------------
10.36 Commercial Promissory Note dated October 7, 1994, between Union Bank
and Inco Homes Corporation. (Incorporated by reference to Exhibit
10.110 of the Company's Annual Report on Form 10-K dated December 31,
1994.)
10.37 Lease of premises located at 1282 West Arrow Highway, Upland,
California, dated as of October 1, 1995, between Inco Homes
Corporation and G & N Investments. (Incorporated by reference to
Exhibit 10.70 of the Company's Annual Report on Form 10-K dated
December 31, 1995.)
10.38 Construction Deed of Trust, Modification of Deed of Trust Agreement
(two Agreements), Construction Loan Modification Agreement and Amended
and Restated Promissory Note, dated October 1, 1995, between Inco
Homes Corporation and Riverside National Bank. (Incorporated by
reference to Exhibit 10.71 of the Company's Annual Report on Form 10-K
dated December 31, 1995.)
10.39 Tax Indemnification Agreement between the Registrant and Ira C. Norris
dated March 15, 1993. (Incorporated by reference to Exhibit 10.44 of
the Company's registration statement under the Securities Act on Form
S-1, Registration Statement No. 33-58050.)
10.40 Limited Partnership Agreement of Spirit Corona 77, L.P. by and between
ORA A&D Associates, L.P., a California Limited Partnership and Inco
Homes Corporation, a Delaware corporation, dated January 11, 1996.
(Incorporated by reference to Exhibit 10.1 of the Company's Quarterly
Report on Form 10-Q dated June 30, 1996.)
10.41 Limited Partnership Agreement of Freedom--Eagle Ranch Housing Partners
by and between Julia Construction Inc., a California corporation, Fred
E. Liao and Bob C. Chang, and Inco Homes Corporation, a Delaware
corporation, dated May 1, 1996. (Incorporated by reference to Exhibit
10.2 of the Company's Quarterly Report on Form 10-Q dated June 30,
1996.)
10.42 Secured Participation Note by and between ALG-1996-1, a California
Limited Partnership and Inco Homes Corporation, a Delaware
corporation, dated June 26, 1996. (Incorporated by reference to
Exhibit 10.3 of the Company's Quarterly Report on Form 10-Q dated June
30, 1996.)
10.43 Limited Partnership Agreement of Triumph--Lancaster Housing Partners
by and between the Gibbs Family Trust and Inco Homes Corporation,
dated August 5, 1996. (Incorporated by reference to Exhibit 10.1 of
the Company's Quarterly Report on Form 10-Q dated September 30, 1996.)
10.44 Common Stock Purchase Agreement by and between Inco Homes Corporation
and Overland Opportunity Fund, LLC, a California Limited Liability
Company, dated December 23, 1996. (Incorporated by reference to
Exhibit 10.44 of the Company's Annual Report on Form 10-K dated
December 31, 1996.)
10.45 Option Agreement by and between Inco Homes Corporation and Overland
Opportunity Fund, LLC, a California Limited Liability Company, dated
December 26, 1996. (Incorporated by reference to Exhibit 10.45 of the
Company's Annual Report on Form 10-K dated December 31, 1996.)
10.46 Consulting Agreement by and between Inco Homes Corporation and
Overland Company, Inc., a California Corporation, dated December 26,
1996. (Incorporated by reference to Exhibit 10.46 of the Company's
Annual Report on Form 10-K dated December 31, 1996.)
10.47 Warrant to Purchase 1,200,000 Shares of Inco Homes Corporation Common
Stock issued to Overland Company, Inc., dated December 26, 1996.
(Incorporated by reference to Exhibit 10.47 of the Company's Annual
Report on Form 10-K dated December 31, 1996.)
31
<PAGE>
Exhibit
Number Document Description
- ------ --------------------
10.48 Development and Marketing Agreement by and between Victorville 163
Partners, L.P., a California Limited Partnership and Inco Homes
Corporation, dated November 15, 1996. (Incorporated by reference to
Exhibit 10.48 of the Company's Annual Report on Form 10-K dated
December 31, 1996.)
10.49 Secured Participation Note by and between Hunter's Ridge Investment
Partners, a California Partnership and Inco Homes Corporation, dated
October 1996. (Incorporated by reference to Exhibit 10.49 of the
Company's Annual Report on Form 10-K dated December 31, 1996.)
10.50 Registration Rights Agreement by and between Inco Homes Corporation
and Overland Opportunity Fund, LLC, a California Limited Liability
Company, dated December 23, 1996. (Incorporated by reference to
Exhibit 10.50 of the Company's Annual Report on Form 10-K dated
December 31, 1996.)
10.51 Business Loan Agreement by and between Desert Community Bank and Inco
Homes Corporation, dated February 10, 1997. (Incorporated by reference
to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q dated
March 31, 1997.)
10.52 Promissory Note by and between Desert Community Bank and Inco Homes
Corporation, dated February 10, 1997. (Incorporated by reference to
Exhibit 10.2 of the Company's Quarterly Report on Form 10-Q dated
March 31, 1997.)
10.53 Loan Agreement by and between USA Commercial Mortgage Company, Inc., a
Nevada Corporation, et al., and Inco Homes Corporation, dated February
10, 1997. (Incorporated by reference to Exhibit 10.3 of the Company's
Quarterly Report on Form 10-Q dated March 31, 1997.)
10.54 Promissory Note Secured by Deed of Trust by and between USA Commercial
Mortgage Company, Inc., a Nevada Corporation, et al., and Inco Homes
Corporation, dated February 11, 1997. (Incorporated by reference to
Exhibit 10.4 of the Company's Quarterly Report on Form 10-Q dated
March 31, 1997.)
10.55 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, dated February 10,
1997. (Incorporated by reference to Exhibit 10.5 of the Company's
Quarterly Report on Form 10-Q dated March 31, 1997.)
10.56 Placement Agreement by and between USA Commercial Mortgage Company,
Inc., a Nevada Corporation and Inco Homes Corporation, dated February
10, 1997. (Incorporated by reference to Exhibit 10.6 of the Company's
Quarterly Report on Form 10-Q dated March 31, 1997.)
10.57 Promissory Note by and between USA Commercial Mortgage Company, Inc.,
a Nevada Corporation and Inco Homes Corporation, dated February 10,
1997. (Incorporated by reference to Exhibit 10.7 of the Company's
Quarterly Report on Form 10-Q dated March 31, 1997.)
10.58 Purchase Agreement and Escrow Instructions by and between the Adelanto
School District, a California public school district, and Inco Homes
Corporation, dated February 24, 1997. (Incorporated by reference to
Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q dated June
30, 1997.)
10.59 Loan Agreement by and between USA Commercial Mortgage Company, Inc., a
Nevada Corporation, et al., and Inco Homes Corporation, dated April
15, 1997. (Incorporated by reference to Exhibit 10.2 of the Company's
Quarterly Report on Form 10-Q dated June 30, 1997.)
10.60 Promissory Note Secured by Deed of Trust by and between USA Commercial
Mortgage Company, Inc., a Nevada Corporation, et al., and Inco Homes
Corporation, dated April 15, 1997. (Incorporated by reference to
Exhibit 10.3 of the Company's Quarterly Report on Form 10-Q dated June
30, 1997.)
32
<PAGE>
Exhibit
Number Document Description
- ------ --------------------
10.61 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, dated April 15, 1997.
(Incorporated by reference to Exhibit 10.4 of the Company's Quarterly
Report on Form 10-Q dated June 30, 1997.)
10.62 Placement Agreement by and between USA Commercial Mortgage Company,
Inc., a Nevada Corporation and Inco Homes Corporation, dated April 15,
1997. (Incorporated by reference to Exhibit 10.5 of the Company's
Quarterly Report on Form 10-Q dated June 30, 1997.)
10.63 Promissory Note by and between USA Commercial Mortgage Company, Inc.,
a Nevada Corporation and Inco Homes Corporation, dated April 15, 1997.
(Incorporated by reference to Exhibit 10.6 of the Company's Quarterly
Report on Form 10-Q dated June 30, 1997.)
10.64 Letter Agreement by and between Overland Opportunity Fund, LLC, a
California Limited Liability Company and Inco Homes Corporation, dated
May 27, 1997. (Incorporated by reference to Exhibit 10.7 of the
Company's Quarterly Report on Form 10-Q dated June 30, 1997.)
10.65 Agreement for Purchase of Real Property by and between Palomino
Partners Limited Partnership, a Nevada Limited Partnership, et al.,
and Inco Homes Corporation, dated June 12, 1997. (Incorporated by
reference to Exhibit 10.8 of the Company's Quarterly Report on Form
10-Q dated June 30, 1997.)
10.66 Residential Property Option Agreement by and between Palomino Partners
Limited Partnership, a Nevada Limited Partnership, et al., and Inco
Homes Corporation, dated June 12, 1997. (Incorporated by reference to
Exhibit 10.9 of the Company's Quarterly Report on Form 10-Q dated June
30, 1997.)
10.67 Estoppel Certificate by and between Overland Opportunity Fund, LLC, a
California Limited Liability Company and Inco Homes Corporation, dated
June 11, 1997. (Incorporated by reference to Exhibit 10.10 of the
Company's Quarterly Report on Form 10-Q dated June 30, 1997.)
10.68 Placement Agreement by and between USA Commercial Real Estate Group, a
Nevada Corporation and Inco Homes Corporation, dated June 12, 1997.
(Incorporated by reference to Exhibit 10.11 of the Company's Quarterly
Report on Form 10-Q dated June 30, 1997.)
10.69 Promissory Note Secured by Deed of Trust by and between USA Commercial
Mortgage Company, Inc., a Nevada Corporation, et al., and Inco Homes
Corporation, dated September 12, 1997. (Incorporated by reference to
Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q dated
September 30, 1997.)
10.70 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, dated September 12,
1997. (Riverside County). (Incorporated by reference to Exhibit 10.2
of the Company's Quarterly Report on Form 10-Q dated September 30,
1997.)
10.71 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, dated September 12,
1997. (San Bernardino County). (Incorporated by reference to Exhibit
10.3 of the Company's Quarterly Report on Form 10-Q dated September
30, 1997.)
10.72 Loan Agreement by and between Dean Peterson, Trustee, and Inco Homes
Corporation, dated September 22, 1997. (Incorporated by reference to
Exhibit 10.4 of the Company's Quarterly Report on Form 10-Q dated
September 30, 1997.)
33
<PAGE>
Exhibit
Number Document Description
- ------ --------------------
10.73 Promissory Note Secured by Deed of Trust by and between Dean Peterson,
Trustee, and Inco Homes Corporation, dated September 22, 1997.
(Incorporated by reference to Exhibit 10.5 of the Company's Quarterly
Report on Form 10-Q dated September 30, 1997.)
10.74 Deed of Trust, Assignment of Rents, Security Agreement and Fixture
Filing by and between Dean Peterson, Trustee, and Inco Homes
Corporation, dated September 22, 1997. (Incorporated by reference to
Exhibit 10.6 of the Company's Quarterly Report on Form 10-Q dated
September 30, 1997.)
10.75 Placement Agreement by and between USA Commercial Mortgage Company,
Inc., a Nevada Corporation and Inco Homes Corporation, dated September
22, 1997. (Incorporated by reference to Exhibit 10.7 of the Company's
Quarterly Report on Form 10-Q dated September 30, 1997.)
10.76 Promissory Note by and between Thomas Hantges and Joe Milanowski and
Inco Homes Corporation, dated September 22, 1997. (Incorporated by
reference to Exhibit 10.8 of the Company's Quarterly Report on Form
10-Q dated September 30, 1997.)
10.77 Construction Loan Agreement by and between Michael Peterson and Inco
Homes Corporation, dated September 11, 1997. (Incorporated by
reference to Exhibit 10.9 of the Company's Quarterly Report on Form
10-Q dated September 30, 1997.)
10.78 Promissory Note Secured by Deed of Trust by and between Michael
Peterson and Inco Homes Corporation, dated September 11, 1997.
(Incorporated by reference to Exhibit 10.10 of the Company's Quarterly
Report on Form 10-Q dated September 30, 1997.)
10.79 Deed of Trust, Assignment of Rents, Security Agreement and Fixture
Filing by and between Michael Peterson and Inco Homes Corporation,
dated September 11, 1997. (Incorporated by reference to Exhibit 10.11
of the Company's Quarterly Report on Form 10-Q dated September 30,
1997.)
10.80 Construction Loan Agreement by and between Carlene E. Pointer, et al.,
and Inco Homes Corporation, dated September 11, 1997. (Incorporated by
reference to Exhibit 10.12 of the Company's Quarterly Report on Form
10-Q dated September 30, 1997.)
10.81 Promissory Note Secured by Deed of Trust by and between Carlene E.
Pointer, et al., and Inco Homes Corporation, dated September 11, 1997.
(Incorporated by reference to Exhibit 10.13 of the Company's Quarterly
Report on Form 10-Q dated September 30, 1997.)
10.82 Deed of Trust, Assignment of Rents, Security Agreement and Fixture
Filing by and between Carlene E. Pointer, et al., and Inco Homes
Corporation, dated September 11, 1997. (Incorporated by reference to
Exhibit 10.14 of the Company's Quarterly Report on Form 10-Q dated
September 30, 1997.)
10.83 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. (Incorporated by reference to Exhibit 10.15 of the Company's
Quarterly Report on Form 10-Q dated September 30, 1997.)
10.84 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. (Incorporated by
reference to Exhibit 10.16 of the Company's Quarterly Report on Form
10-Q dated September 30, 1997.)
34
<PAGE>
Exhibit
Number Document Description
- ------ --------------------
10.85 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, dated September 26, 1997.
(Riverside County) (Incorporated by reference to Exhibit 10.17 of the
Company's Quarterly Report on Form 10-Q dated September 30, 1997.)
10.86 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, dated September 26, 1997. (San
Bernardino County) (Incorporated by reference to Exhibit 10.18 of the
Company's Quarterly Report on Form 10-Q dated September 30, 1997.)
*10.87 Development and Marketing Agreement by and between Capital Mutual
Moreno Valley, LLC., a California Limited Liability Company and Inco
Homes Corporation, dated October 21, 1997.
*10.88 Letter Agreement by and between Overland Company, Inc. a California
Corporation and Inco Homes Corporation, dated November 4, 1997.
*10.89 Common Stock Purchase Agreement by and between Thomas Hantges and
Joseph D. Milanowski and Inco Homes Corporation, dated November 14,
1997.
*10.90 Letter Agreement by and between Stephen Daniels Commercial Brokerage,
Inc., G&N Investments, Inc. a California Limited Partnership, and Inco
Homes Corporation, dated November 17, 1997.
*10.91 Promissory Note by and between Frank Reale, et al., and Inco Homes
Corporation, dated November 18, 1997.
*10.92 Construction Deed of Trust, Security Agreement, Assignment of Leases
and Rents and Fixture Filing by and between Frank Reale, et al., and
Inco Homes Corporation, dated November 18, 1997.
*10.93 Promissory Note by and between Hunter's Ridge Investment Partners, a
California Partnership, and Inco Homes Corporation, dated November 18,
1997.
*10.94 Deed of Trust, Security Agreement, Assignment of Leases and Rents and
Fixture Filing by and between Hunter's Ridge Investment Partners, a
California Partnership, and Inco Homes Corporation, dated November 18,
1997.
*10.95 Subordination and Reconveyance Agreement by and between USA Commercial
Mortgage Company, Hunter's Ridge Investment Partners, a California
Partnership, and Inco Homes Corporation, dated November 18, 1997.
*10.96 Promissory Note by and between Marilyn Carter, et al., and Inco Homes
Corporation, dated November 26, 1997.
*10.97 Construction Deed of Trust, Security Agreement, Assignment of Leases
and Rents and Fixture Filing by and between Marilyn Carter, et al.,
and Inco Homes Corporation, dated November 26, 1997.
*10.98 Construction Loan Agreement by and between Marilyn Carter, et al., and
Inco Homes Corporation, dated November 26, 1997.
*10.99 Agreement by and between City National Bank and Inco Homes
Corporation, dated December 1, 1997.
*10.100 Promissory Note by and between Sara Katz, et al., and Inco Homes
Corporation, dated December 31, 1997.
35
<PAGE>
Exhibit
Number Document Description
- ------- --------------------
*10.101 Deed of Trust, Security Agreement, Assignment of Leases and Rents and
Fixture Filing by and between Sara Katz, et al., and Inco Homes
Corporation, dated December 31, 1997 (Los Angeles County).
*10.102 Deed of Trust, Security Agreement, Assignment of Leases and Rents and
Fixture Filing by and between Sara Katz, et al., and Inco Development
Corporation, a California Corporation, dated December 31, 1997 (San
Bernardino County).
*10.103 Restructuring Agreement by and between Sara Katz, et al., Palmdale
Vistas Housing Developments, a California Limited Partnership, Inco
Development Corporation, and Inco Homes Corporation, dated December 4,
1997.
*10.104 Agreement and Escrow Instructions by and between Palmdale Vistas
Housing Investments, a California Limited Partnership, Palmdale Vistas
Housing Developments, a California Limited Partnership, and Inco
Development Corporation, dated December 19, 1997.
*21.1 Subsidiaries of the Registrant.
*23.1 Consent of Certified Public Accountants (Price Waterhouse LLP).
*27.1 Financial Data Schedule
________________
* Filed herewith
+ Management contract, compensatory plan or arrangement
(b) Reports on Form 8-K.
None.
36
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By /s/ Ira C. Norris
-------------------------------------------
Ira C. Norris
Chairman of the Board, President and
Chief Executive Officer
Dated: March 31, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Ira C. Norris Chairman of the Board, President and March 31, 1998
- ---------------------- Chief Executive Officer (principal
Ira C. Norris executive officer)
/s/ David A. Fogg Chief Financial Officer (principal March 31, 1998
- ---------------------- financial officer)
David A. Fogg
/s/ Norman B. Gold Director of Finance (principal March 31, 1998
- ---------------------- accounting officer)
Norman B. Gold
/s/ Robert H. Daskal Director March 31, 1998
- ----------------------
Robert H. Daskal
/s/ Thomas A. Hantges Director March 31, 1998
- ----------------------
Thomas A. Hantges
/s/ Ronald L. Neeley Director March 31, 1998
- ----------------------
Ronald L. Neeley
/s/ John Seymour Director March 31, 1998
- ----------------------
John F. Seymour, Jr.
37
<PAGE>
EXHIBIT 4.2
NUMBER INCO SHARES
0001 HOMES **2,340**
THIS CERTIFIES THAT
NORRIS LIVING TRUST
17555 WEDDINGTON STREET
ENCINO, CA 91316
IS THE OWNER OF
**TWO THOUSAND THREE HUNDRED FORTY**
FULLY AND PAID AND NON-ASSESSABLE SHARES OF THE SERIES A CUMULATIVE PREFERRED
STOCK PAR VALUE OF $0.01 PER SHARE OF
INCO HOMES CORPORATION
HEREINAFTER DESIGNATED "THE CORPORATION", TRANSFERABLE ON THE SHARE REGISTER OF
THE CORPORATION UPON SURRENDER OF THIS CERTIFICATE PROPERLY ENDORSED OR
ASSIGNED.
This certificate and the shares represented thereby shall be held subject
to all of the provisions of the Certificate of Incorporation and the By-laws of
said Corporation, a copy of each of which is on file of the office of the
Corporation, and made a part hereof as fully as though the provisions of said
Certificate of Incorporation and By-laws were imprinted in full on this
certificate, to all of which the holder of this certificate, by acceptance
hereof, assents and agrees to be bound.
Any stockholder may obtain from the principal office of the Corporation,
upon request and without charge, a statement of the number of shares
constituting each class or series of stock and the designations thereof; and a
copy of the powers, designations, preferences and relative, participation,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights and the By-laws.
THE ADDRESS OF THE PRINCIPAL OFFICE OF THE CORPORATIONS IS
WITNESS THE SEAL OF THE CORPORATION AND THE SIGNATURES OF ITS DULY
AUTHORIZED OFFICERS.
DATED: DECEMBER 30, 1997
SECRETARY PRESIDENT
/s/ LYNN C. PARKES /s/ IRA C. NORRIS
<PAGE>
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND
MAY BE REOFFERED AND SOLD ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM
REGISTRATION IS AVAILABLE.
For Value Received,______hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- -------------------------------------------------------------------------------
- --------------------------------------------------------------------- Shares
represented by the within Certificate, and do hereby irrevocably constitute and
appoint
- --------------------------------------------------------------------- Attorney
to transfer the said Shares on the books of the within named Corporation with
full power of substitution in the premises.
Dated 19
---------------------- -------
In presence of
-------------------------------------
- ----------------------------------
<PAGE>
EXHIBIT 4.3
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES A CUMULATIVE
PREFERRED STOCK OF
INCO HOMES CORPORATION
SERIES A CUMULATIVE PREFERRED STOCK
(Par Value, $.01)
OF
INCO HOMES CORPORATION
-----------------------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
Inco Homes Corporation, a Delaware corporation (hereinafter called "the
Company"), certifies that pursuant to the authority contained in Article Fourth
of its Restated Certificate of Incorporation, as amended, and in accordance with
the provisions of Section 151 of the General Corporate Law of the State of
Delaware, its Board of Directors has adopted the following resolution creating a
Series of its $0.01 par value Preferred Stock designated as Series A Cumulative
Preferred Stock:
RESOLVED, that the Board of Directors hereby creates and designates the
initial series of Preferred Stock, $0.01 par value, of the Company and
authorizes the issuance thereof, and hereby fixes the designation and amount
thereof and the preferences and relative, participating, optional and other
special rights of such shares, and the qualifications, limitations or
restrictions thereof as follows:
1.1 Designation and amount. The shares of the initial series of Preferred
----------------------
Stock shall be designated "Series A Cumulative Preferred Stock," (hereinafter
sometimes called "Preferred Stock"), and the number of shares which may be
issued shall be 2,340. Attached herein is exhibit A.
1.2 Dividends. The holders of shares of the Preferred stock shall be
---------
entitled to receive, out of the assets of the Company legally available
therefore and as and when declared by the Board of Directors, cash dividends at
the rate of $100 per share per annum, payable quarterly on the last day of the
months of March, June, September, and December in each year. Such dividends
shall accrue and be cumulative (whether or not in any quarterly dividends period
there shall be funds of the Company legally available for the payment of such
dividends), from the date of the last quarterly dividend date to which dividends
were declared and paid on the Preferred Stock of the Company. Each such
dividend shall be paid to the holders of the record of shares of the Preferred
Stock as they appear on the stock register of the Company on the 15th day of the
month next preceding the payment date thereof. Dividend on account of arrears
for any past dividend periods may be declared and paid at any time, without
reference to any regular dividend payment date, to holders of record on such
date, not exceeding 45 days preceding the payment date thereof, as may be fixed
by the Board of Directors of the Company, or by a committee of said Board of
Directors duly authorized to fix such date.
Dividends payable on the Preferred Stock for each full quarterly dividends
period shall be computed by dividing the annual rate by four. Dividends payable
on the Preferred Stock for any period less than a full quarterly dividend
period, and for the initial dividend period, shall be computed on the basis of a
360 day year of four 90 day quarters and the actual number of days elapsed on
the period for which payable, including the date of payment.
1.3 Voting. The holders of shares of Series A Cumulative Preferred Stock
------
shall have no voting rights.
1
<PAGE>
1.4 Liquidation rights. In the event of any liquidation or dissolution or
------------------
winding up of the Company, voluntary or involuntary, the holders of the
Preferred Stock shall be entitled to receive, subject to the rights of any other
class of stock which ranks senior to the Preferred Stock as to distribution of
assets on liquidation, but before any distribution is made on any class of stock
ranking junior to the Preferred Stock as to the payment of dividends or the
distribution of assets, the sum of $1,000 per share, plus any arrearages in
dividends thereon and no more. Upon any such liquidation, dissolution or
winding up of the Company, after the holders of Series A Cumulative Preferred
Stock shall have been paid in full the amounts to which they shall be entitled,
the net assets of the Company may be distributed to the holders of stock ranking
on liquidation junior to the Series A Cumulative Preferred Stock.
1.5 Optional redemption. The Series A Cumulative Preferred Stock is
-------------------
redeemable, in whole or in part at the option of the Company for cash, at the
redemption price of $1,000 per share, plus in each case accumulated but unpaid
dividends to the date fixed for redemption.
In the event the Company shall redeem shares of Preferred Stock for cash,
notice of such redemption shall be given by first class mail, postage prepaid,
mailed not less than 15 nor more than 60 days prior to the redemption date, to
each holder of record of the shares to be redeemed, at such holder's address as
the same appears on the stock register of the Company. Each such notice shall
state: (1) the redemption date; (2) the number of shares of Preferred Stock to
be redeemed and, if less than all the shares held by such holder are to be
redeemed, the number of such shares to be redeemed from such holder; (3) the
redemption price; (4) the place or places where certificates for such shares are
to be surrendered for payment for the redemption price; and (5) that dividends
on the shares to be redeemed will cease to accrue on such redemption date.
Notice having been mailed as aforesaid, from and after the redemption date
(unless default shall be made by the Company in providing money for the payment
of the redemption price) dividends on the shares of the Preferred Stock so
called for redemption shall cease to accrue, and said shares shall no longer be
deemed to be outstanding, and all rights of the holders thereof as stockholders
of the Company (except the right to receive from the Company the redemption
price) shall cease. Upon surrender in accordance with said notice of the
certificates for any shares so redeemed (properly endorsed or assigned for
transfer, if the Board of Directors of the Company shall so require and the
notice shall so state), such shares shall be redeemed by the Company at the
redemption price as aforesaid. If less than all the outstanding shares of the
Preferred Stock are to be redeemed, shares to be redeemed shall be selected by
the Company from outstanding shares of Preferred Stock not previously called for
redemption by lot or pro rata (as nearly as may be) or in such other manner as
the Board of Directors of the Company may determine. A new certificate shall be
issued representing the unredeemed shares without cost to the holder thereof.
No failure to mail such notice or any defect therein or in the mailing thereof
shall affect the validity of the proceedings for such redemption except as to
the holder to whom the Company has failed to mail such notice or except as to
the holder whose notice was defective.
Notwithstanding the foregoing provisions of this section 1.5, if any
dividends on the Preferred Stock are in arrears, no shares of the Preferred
Stock shall be purchased or redeemed unless (a) the holders of two-thirds of the
outstanding Preferred Stock shall have consented thereto or (b) all outstanding
shares of the Preferred Stock are simultaneously redeemed.
1.6 Redemption prior to consolidations, merger, sale of assets. The
---------------------------------------------------------------
Company will not consolidate or merge into or transfer all or substantially all
of its assets to any person unless all outstanding shares of Preferred Stock
shall have been called for redemption for cash in accordance with the provisions
thereof or unless: (i) the person is a corporation organized under the laws of
the United States of America,
2
<PAGE>
any State or the District of Columbia and (ii) the successor corporation assumes
all of the Company's obligations in respect of the Preferred Stock.
IN WITNESS WHEREOF, said Inco Homes Corporation has caused its corporate
seal to be hereunto affixed and this Certificate to be signed by its Chairman of
the Board of Directors, Ira C. Norris, and attested by its Secretary, Lynn C.
Parkes, this 22nd day of December 1997.
INCO HOMES CORPORATION
By: ____________________________________
Chairman of the Board of Directors
Ira C. Norris
[Corporate seal]
ATTEST:
By: ____________________________________
Secretary
Lynn C. Parkes
3
<PAGE>
EXHIBIT 10.87
DEVELOPMENT AND MARKETING AGREEMENT
-----------------------------------
This DEVELOPMENT AND MARKETING AGREEMENT is made and entered into as of
this 21st day of October 1997 and between CAPITAL MUTUAL MORENO VALLEY, LLC., a
California Limited Liability Company ("Owner" herein) and INCO HOMES
CORPORATION, a Delaware corporation ("Builder" herein) with reference to the
following facts:
A. Owner has fee title to that certain parcel of undeveloped real
property located in Moreno Valley, California, the legal description of which is
set forth on Exhibit A (the "Property" herein). The Property has been
subdivided into One Hundred and Thirty-Nine (139) lots (the "Lots" herein) which
Owner desires to be developed with single family, detached homes (the "Homes"
herein). The development and construction of One Hundred and Thirty-Nine (139)
single family, detached Homes on the Lots together with all of the required on-
site and off-site infrastructure required therewith is collectively referred to
as the "Project" herein.
B. Builder is a licensed building contractor in the State of California
whose primary expertise is the construction and sale of single family, detached
homes.
C. Owner desires to engage the services of Builder to develop and
construct the Project and market the completed Homes. Such services shall
include coordinating existing and future entitlements, constructing all on-site
and off-site infrastructure improvements, constructing the Homes, marketing the
Homes, and providing warranty and customer service work for the completed and
sold Homes, all pursuant to the terms and conditions set forth in this
Agreement.
D. Provided that Owner delivers fully entitled Lots to Builder together
with all of the financing and bonding in amounts and at the time required to
develop the Project and to pay all of the costs (none of which shall be the
responsibility of Builder) to develop the Project and market the Homes, Builder
is willing to perform such development and marketing services for Owner pursuant
to the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in reliance on the facts set forth in the above recitals
and in consideration of the mutual covenants and agreements set forth herein,
the parties hereto agree as follows:
1. Engagement.
----------
Owner hereby engages the services of Builder to develop and construct the
Project and market the Homes, and Builder hereby agrees to accept such
engagement and provide said services to Owner for the consideration and upon the
terms and conditions hereinafter set forth.
2. Development of the Project and Marketing of the Homes.
------------------------------------------------------
Builder agrees to diligently develop and construct the Project and market
the completed Homes, as more specifically provided herein. Such development
responsibilities of Builder shall generally include coordinating both the
existing and future entitlements that benefit the Property, constructing the on-
site and off-site infrastructure for the Project, constructing the Homes and
providing all warranty and customer service construction and repairs for the
completed and sold Homes. Such marketing responsibilities of Builder shall
generally include designing the Homes, constructing, landscaping, and decorating
the model complex, holding a Grand Opening for the Project, setting the sale
prices of the Homes, signage, advertising, developing and printing marketing
brochures, sales contracts, and material, hiring and overview of sales personnel
and managing all other pre-closing and post-closing relationships with the Home
buyers. Builder agrees to use its reasonable best efforts under the
circumstances that exist from time to time during the term hereof to perform its
services hereunder in a manner that, subject to the
<PAGE>
rights of Owner to direct Builder and subject to the performance of Owner of its
obligations (particularly funding) hereunder, shall be intended to maximize the
sales revenue from the completed Homes.
3. Term.
-----
The term of this Agreement shall commence on the date hereof and unless
earlier terminated by either Owner or Builder as provided herein, shall continue
until the close of the sale escrow of the last Home in the Project.
4. Title - Full Cooperation By Owner.
----------------------------------
Title to the Property shall remain in the name of Owner. Owner shall
fully cooperate with Builder as requested by Builder to perform its services
hereunder and Owner also agrees to promptly sign all maps, governmental forms,
utility agreements, deeds of trust, sales agreements, escrow instructions,
deeds, and all other documents required by Builder to develop the Project and
market the Homes.
5. Phase Budget.
-------------
(a) Approval of Phase Budget. Prior to the commencement of any
-------------------------
construction hereunder, Builder shall submit to Owner, for Owner's review and
reasonable approval, the proposed cost breakdown schedule for the development of
the first "Phase" of Homes (as defined in Paragraph 8 hereof) and related
improvements (the "Phase Budget" herein). Within Five (5) business days
following receipt by Owner of the proposed Phase Budget, Owner shall notify
Builder of Owner's approval or disapproval of the same, which approval Owner
shall not unreasonably withhold. Failure of Owner to timely notify Builder in
writing of the disapproval of any item in the Phase Budge, the Phase Budget as
submitted by Builder shall be deemed to be approved. If all or any portion of
the proposed Phase Budget is disapproved, the parties shall meet as soon as
reasonably practicable thereafter to endeavor in good faith to reach agreement
on the Phase Budget. Builder shall not make any commitment or contract which is
materially (more than 10%) more in cost for a line item than as set forth for
said line item in the Phase Budget as it may be amended from time to time
without the prior written consent of Owner which consent Owner shall not
unreasonably withhold. Builder shall submit to Owner a new Phase Budget for each
Phase of the Project which new Phase Budget shall be reviewed and reasonably
approved by Owner and followed by Builder as provided herein.
(b) Conformity with Phase Budget. Builder shall use its best
-----------------------------
efforts to cause each Phase to be completed in all reasonable respects in
conformity with the Phase Budget. Builder shall hold monthly job cost meetings
with representatives of the Owner and shall prepare monthly updates of the phase
Budget with variance explanations and Project cost reports showing actual
expenditures made during such month and from the beginning of the phase to date,
by category of expenditures, and a comparison thereof to budgeted expenses and
estimated cost of completion of the improvements.
6. Phase Schedule.
---------------
(a) Approved Phase Schedule. Concurrently with the delivery of the
------------------------
proposed Phase Budge, Builder shall submit to Owner, for Owner's review and
reasonable approval, the proposed schedule for the design and construction of
the Phase, and the proposed schedule for the marketing and sales for the Homes
in the Phase (the "Phase Schedule"). The proposed Phase Schedule shall be
subjected to Owner's prior reasonable approval, which approval Owner shall not
unreasonably withhold, and the Phase Schedule shall be approved and updated for
each Phase in the same manner as the Phase Budget.
(b) Conformity with Phase Schedule. Builder shall use its reasonable
-------------------------------
best efforts to cause each Phase to be completed in all respects in conformity
with the Phase Schedule. Builder shall prepare and deliver to Owner monthly
progress reports setting forth the actual construction progress
<PAGE>
achieved during such month and from the beginning of the Phase to date, and
comparison thereof to scheduled construction progress for the same period and
sales reports setting forth the actual sales consummated and escrows closed
during such month and from the beginning of the Phase to date.
7. Design of Homes.
----------------
Builder has provided Owner with the design of the Homes it intends to
develop on the Property. Owner has reviewed the design of the Homes and has
agreed that Builder will construct and market the Homes pursuant to the design
therefor furnished by Builder to Owner.
8. Phasing of Development.
-----------------------
Owner and Builder hereby agree that to minimize the financial risk to
Owner, Builder shall develop the Project in phases, with a phase typically (but
not limited to) approximately ten (10) to twenty (20) Homes (a "Phase" herein).
Accordingly, Builder shall submit all budgets and schedules required pursuant to
this Agreement on a Phase-By-Phase basis. Budgets and schedules shall set forth
Builder's estimates of the proper allocation to particular phases of those items
which impact more than one phase of the project.
9. Builder's Development and Construction Duties.
----------------------------------------------
Subject to government restrictions and approvals (entitlements), the
physical condition of the Property, the availability from the Owner of adequate
funds/financing, the posting by the Owner of all required bonds, deposits, and
other required forms of security, and the market for new single family houses of
the type and in the price range of the Homes, Builder shall use its reasonable
best efforts to continuously and diligently to do all things necessary to cause
the Homes and other improvements in the Project to built, and the constructed
Homes to be offered for sale and sold in accordance with the Phase Schedule and
the Phase Budget. Without limiting the generality of the foregoing, Builder's
duties are described more particularly below:
(a) Development. Builder, at the sole cost and expense of Owner,
------------
shall work with the Owner to obtain all appropriate governmental authorities
having jurisdiction over the Project to obtain, maintain and process all
necessary zoning, permits, approvals, licenses, entitlements and consents
required to develop the Project including without limitation, any necessary
building permits, grading permits, and development agreements regarding the
construction of or funding of the Homes with the appropriate governmental
entities. In obtaining such zoning, permits, approvals, licenses, entitlements
and consents, Builder shall, at the sole cost and Expense of Owner, work with
the Owner to prepare and process as necessary all environmental impacts reports,
bonds, utility agreements, maps, studies, drawings, applications, and other
necessary or appropriate items of every description. Applications for approval
of licenses, permits, subdivision maps, bond and utility agreements shall be in
the name of and approved by Owner. Owner and Builder shall fully cooperate with
each other to obtain all such items required to develop the Project and Owner
shall promptly execute all documents and agreements required by Builder in
connection therewith.
(b) Construction. Builder shall act as the general contract for the
-------------
construction of the Project and, as such shall be responsible for the following:
(i) Builder shall furnish or arrange for all consultants, skills
labor, materials, supplies, equipment, services, machinery, tools and other
items of every description reasonably required for the prompt and efficient
construction of the Homes and other improvements in the Project in a good and
workmanlike manner and substantially in accordance with the current Phase
Budget:
(ii) Builder shall enter into contracts with such subcontractors
material suppliers as are necessary to cause the Homes to be trusted
substantially in accordance with this
<PAGE>
Agreement. All such acts shall be entered into by Builder and shall specifically
provide (x) Owner is a third-party beneficiary thereunder (y) at any time may
request any information it deems necessary from the contractors and such
information will be provided within Five (5) business days and (z) in the event
Builder's involvement in the Project terminates, the subcontractor will, upon
Owner's request, recognize Owner as the successor-in-interest to Builder under
the subcontract. Builder shall require all subcontractors to obtain and maintain
at all times during commercial general liability policy on a primary and non-
contributing basis on which the Owner and Builder shall require all
subcontractors to carry workers compensation coverage on a basis consistent with
Builder's customary practices as may change from time to time; and
(iii) Builder shall cause the Project to be constructed,
substantially in accordance with all governmental requirements and existing
plans and specifications as are approved by Owner.
(c) Bonds and Deposits. Builder shall prepare all necessary documents
-------------------
and instruments required for the posting of any bonds, letters of credit,
deposits or other forms of security required by any governmental entity or
utility in connection with the project. Builder shall prepare any and all
deposit agreements of the deposits in a timely fashion. Owner shall furnish, at
its sole cost and expense, all bonds, letters of credit, deposits or other forms
of security, required of any governmental entity or utility with respect to the
Project. Builder shall request, tack and cause any bonds, letters of credits,
deposits or other forms of security that have been posted by Owner in favor of
any governmental entity or utility in connection with the Project to be
exonerated when all obligations thereunder are satisfied. Builder shall
maintain a schedule of such security and assess the timing for such exoneration
and shall prepare all necessary documents and instruments required or the timely
exoneration of same.
(d) Warranties and Customer Service. In consideration for the warranty
--------------------------------
fee paid to Builder pursuant to Paragraph 27(d) hereof, Builder shall provide
and administer the warranty and customer service programs with respect to the
Project and for the Homes constructed and sold hereunder. In connection
therewith, Builder shall use all reasonable efforts to enforce the warranty
provisions of any subcontractors so that the subcontractors thereunder are
required to perform warranty work in accordance with the terms of their
respective contracts. To the extent no performed by a subcontractor at its cost
pursuant to a subcontract, Builder shall, at the sole cost and expense of
Builder, (either directly or through the engagement of subcontractors) provide
and administer all required warranty and customer service work. The performance
of such warranty work shall be conducted in accordance with the Builder's
customer service program, as such program may be established and modified by the
Builder during the term of this Agreement.
10. Builder's Sales Duties.
-----------------------
(a) Development and Implementation of Sales Program. Promptly
------------------------------------------------
following the execution of this Agreement, Builder shall develop a program for
selling the Homes and shall arrange for the construction, preparation, and
availability of such models and other marketing sales tools and materials as
shall be necessary to such program. Builder shall deliver a schedule of proposed
pricing and plotting mixes for the Homes to Owner for its prior reasonable
approval. Based on the recommendation of Builder, Owner shall approve a range of
sales prices for the Homes and Builder is authorized to sell such Homes for a
price within such range. A Home may not be sold below the established sales
price without the prior reasonable consent of Owner. Builder shall, at the sole
cost and expense of Owner, construct and maintain both the interior and exterior
of the model Homes, including all decorating and landscaping, hold a Grand
Opening for the Project, establish the sales program, advertise the Project in
such media as the Builder may determine provide appropriate signage for the
Project, and prepare all sales tools, including allowances and other public
relations activities shall be subject to Owner's prior obligations, Builder has
proposed and Owner has approved of the engagement by Builder of Roddel &
Associates ("Sales Agent" herein). The Sales Agent Shall assist Builder in
marketing and selling the Homes. Every cost and expense of marketing the
construction, landscaping, and decoration o the model complex, holding a Grand
Opening for the
<PAGE>
Project, Signage, advertising, developing and printing marketing brochures,
sales contracts and materials, and constructing and maintaining an on-site sales
office. Only the cost of all brokerage fees and sales commissions to sell the
Homes due to the dales personnel of Builder and Sales Agent shall be paid solely
by Builder, but all commissions due to third parties shall be paid by Owner. The
Sales Agent's services shall include:
(i) Providing at its sole cost all on-site sales staffing as
required, provided, however, that Owner will permit the Sales Agent to employ
members of Owner's and/or Builder's existing sales staff;
(ii) Preparing at its sole cost and submitting to Owner monthly
competitor reports and other outside market studies to review pricing,
incentives, absorption rates, demographics and the like:
(iii) Assigning a sales manager employed by Sales Agent to the
Project who will act as a liaison between Sales Agent and the on-conducted by
the Sales Agent at the sole expense of Sales Agent;
(iv) Sales Agent will strategically advertise the Project. Sales
Agent will conduct periodic advertising meetings and coordinate, supervise, and
furnish the advertising agency with advertising direction and focus. Actual
advertising costs and expenses will be subject to Owner's prior reasonable
approval and will be Owner's sole cost and responsibility. Ad placement will be
handled by Builder's or Sales Agent's account manager through the advertising
agency. A reputable and professional advertising firm shall be retained by
Builder's and/or Sales Agent in to assist with marketing and advertising the
Project;
(v) A weekly sales report will be furnished showing daily traffic,
media origin, and sources of the sales consistent with Builder's form for such
report as it may change from time to time.
(vi) Sales Agent personnel will be assigned to organize and handle
the staffing, selection, and purchase of all standard design center option
equipment and promote the design center sales (Builder will coordinate and
provide for the installation of all such design center equipment in the
Homes); and
(vii) During the term of this Agreement, Sales Agent, acting under
the direction and control of Builder, shall act as the sales agent for the
Homes. Builder shall cause Sales Agent to comply with all requirements under
the California Real Estate Law.
(b) Escrow Coordination Program. Promptly following the execution of this
----------------------------
Agreement, Builder shall establish an escrow program for processing and closing
Home sale escrows in coordination with Builder's customer/homeowner warranty
service department. The escrow coordination program shall also coordinate
and/or provide sources of end loan financing for the Home buyers.
(c) Builder's Role in Sales Activity. In addition to any duties relating
---------------------------------
to the sale of Homes set forth elsewhere in this Agreement, Builder shall
perform each of the following:
(i) Supervision of Sales Activity. Builder shall use its
------------------------------
reasonable best efforts to ensure that all sales activities, including all
activities of the Sales Agent and its personnel, are supervised and conducted in
a manner that complies with this Agreement and all applicable laws and
regulations;
(ii) Review and Execution of Sales Agreements. Salespersons
-----------------------------------------
shall be authorized only to obtain offers from prospective buyers of the Homes
and shall have no authority to accept such offers or enter into binding
agreements for the sale of the Homes. A senior executive officer
<PAGE>
of Builder shall be responsible for reviewing and approving each and every sales
agreement, and each sale shall be effected using only those forms of sales
agreements and other documents previously approved by both Builder and Owner. If
a sales agreement for a Home that is reviewed by Builder is in a form and
contains only those terms that have been approved by Owner, and if Builder
believes in good faith that the sale transaction proposed by such sales
agreement should be entered into by Owner, then one of the above-described
senior executive officers of Builder acting as an agent of Owner, shall execute
such sales agreement on behalf of Owner; and
(iii) Escrow Instruction. The persons who are authorized to
-------------------
execute sales agreements on behalf of Owner shall also be authorized to execute
escrow instruction on behalf of Owner to effectuate the closing of sales of the
Homes to buyers. The general form of escrow instructions to be used shall be
approved by both Builder and Owner prior to its use. Builder shall designate the
escrow holder for all Home sales. While Builder may recommend a title insurance
company to the Home buyer, all title insurance policies to be issued in
conjunction with the sale of Homes shall be issued by a title company selected
by the Home buyer.
(d) Commissions Payable to Builder/Sales Agent. Except for Builder's
-------------------------------------------
compensation set forth in Paragraph 27(c) hereof, neither Builder nor Sales
Agent shall be entitled to commission or other compensation in connection with
their activities performed pursuant to this Agreement with respect to sales.
(e) Sales Representations. Builder, Sales Agent, and any sales
-----------------------
persons shall be authorized only to make representations concerning the Project
or sale of the Homes that are approved by Owner. Builder shall be responsible
for closely monitoring the activities and performance of all salespersons.
11. Coordination with Owner's Bank.
-------------------------------
Builder acknowledges that Owner intends to obtain various loans from
various financial institutions (collectively "Bank" herein) in connection with
the development of the Project and Builder shall assist Owner to obtain all such
requires financing but shall have no direct financial obligation with respect
thereto. Builder shall review and become familiar with the terms and
obligations of these loans and shall develop the Project in a manner which
complies with all loan covenants in order to minimize Owner's exposure under
such loans (i.e., start restrictions, accelerated payoffs, standing inventory,
etc.) At the request of Owner or Bank, Builder shall, at the sole cost of Owner,
prepare proforma and actual cost, income, cash flow and other financial
projections and reports for the Project, including product line profitability
analysis and projections of return on cost. These projections shall be
supplemented and/or updated throughout the course of development to reflect any
major changes or deviations. Builder shall obtain the approval of Owner and
Bank prior to commencing the construction of any Homes. At Owner's request,
Builder shall prepare bank loan submissions and draw requests.
12. Operation and Quarterly Review Meetings.
----------------------------------------
In addition to all other meetings to be held by Builder and Sales
Agent pursuant to this Agreement, Builder shall hold monthly operations meetings
with representatives of Owner. All meetings required hereunder between Owner and
Builder shall, unless otherwise approved by both parties, be held at the
principal executive office of Builder. Builder agreed to hold such other
meetings concerning the Project at such time as reasonably requested by Owner.
13. Compliance with Laws.
---------------------
Builder, its employees, agents, and subcontractors shall use its
reasonable best efforts to comply with all laws, ordinances and regulations,
permits, licenses and approvals, obtained from any governmental entity in
connection with the Project.
<PAGE>
14. Inspections.
------------
Owner shall, at its sole cost and expense, have the right, but not the
obligation, to inspect the progress and quality of all work performed by, or
under subcontract to, Builder in connection with the Project, to require the
replacement of any defective or improper work, and to refuse payment of any
funds until such matters have been remedied. Inspections by Owner shall not in
any manner constitute Owner's approval or acceptance of the progress or quality
of the work. The failure of Owner to inspect shall not relieve Builder of its
duties under this Agreement.
15. Approvals by Owner.
-------------------
Owner shall have the right to generally review and reasonably approve
all aspects of the Project including, but not limited to, all contracts, plans,
specifications, designs and schedules and all amendments thereto and deviations
therefrom. In addition, all requests or applications, together with all
supporting documentation for governmental approvals or permits of any kind,
shall be submitted to, and approved by, Owner prior to filing with the
governmental agency, and Owner may request copies of all written communications
between Builder and the governmental agencies processing such requests or
applications. Builder shall immediately notify Owner in writing of any changes
to requirements, conditions, or entitlements being sought by any governmental
entity whether the change has been requested by the entity either orally or in
writing. Builder shall furnish all such items from time to time to Owner and, if
Owner fails to notify Builder in writing within Five (5) business days of
receipt of such item in question shall be deemed to be approved by Owner.
16. Land Maintenance and Protection.
--------------------------------
During the term of this Agreement, Builder shall, at the sole cost of
Owner, maintain the property free of weeds, debris, pests and toxic or hazardous
substances with the exception of what is legal, reasonable, sufficient, and
prudent to operate equipment to construct the contemplated improvements thereon.
In addition, Builder shall, at the sole cost and expense of Owner, at all times
take such actions as are reasonably necessary to protect the Project and all
improvements thereon, whether or not completed, from being damaged by the work
of Builder or any subcontractor or other persons or cause including, but not
limited to, vandals and the elements.
17. Liens.
------
Provided that Owner has provided Builder with sufficient funds to
develop the Project, Builder shall not suffer or permit to be enforced against
the Property of any part thereof, any mechanics', laborers', materialmen's,
contractors', subcontractors', or any other liens, except to the extent caused
solely by a default of Owner, arising from or any claim for damages growing out
of any work or construction or improvement in connection with the Project or
except for a bona fide dispute between Builder and subcontractor which Builder
may, but is not obligated to, bond against.
18. Ownership of Plans and Materials.
---------------------------------
As between Owner and Builder, all plans and specifications and all
marketing and sales materials, including advertising, signs, and promotional
materials prepared for and/or used in connection with the Project by or for
Builder shall, at all times, be solely the property of Builder. Builder shall,
however, deliver to Owner all advertising, sales materials, and the like which
relate only to the Project and which Builder cannot use on its other projects.
All consultants contracts shall provide that Owner is entitled to received from
the consultant upon demand all work-product for the Project generated by the
consultant which is not otherwise the property of Builder. Upon the expiration
or earlier termination of this Agreement, Builder shall deliver immediately to
Owner all copies in Builder's possession of all such documents not owned by
Builder for Owner's use as it deems appropriate.
<PAGE>
19. Builder As Agent for Limited Purposes.
--------------------------------------
Builder and Owner acknowledge and expressly agree and Builder shall
not make and representations to the contrary, that (as provided in Paragraph 20
hereof) Builder is an independent contractor, and nothing contained in this
Agreement, unless expressly to the contrary, shall be construed as making
Builder or any other person the agent or employee of Owner, whether actual,
implied or apparent, or as authorizing Builder or any other persons to bind or
obligate Owner, or as making Owner responsible or liable for any of Builder's
acts or obligations under this Agreement. Notwithstanding the provisions of the
foregoing sentence, Builder is hereby designated as the limited agent of Owner
during the term of this Agreement, specifically and only to: (I) carry out its
obligations in connection with the development of the Project and the sale of
the Homes, (ii) execute notices of completion pertaining to the work to be
completed by Builder pursuant to this Agreement, (iii) execute agreements in
connection with the marketing and sales of the Homes, provided that the terms
and conditions of all such agreements are approved in advance in writing by
Owner, and (iv) obtain any bond exonerations and utility refunds or other
deposits.
20. Builder As Independent Contractor - No Interest in Property.
------------------------------------------------------------
Builder is entering into this Agreement not as a partner or agent
(except to the limited extent provided herein) of Owner, but as an independent
contractor to provide the services set forth in this Agreement. By entering into
this Agreement, Builder acknowledges that Builder is acquiring no rights
whatsoever in the Property and under no circumstances whatsoever will aquifer
any interest in the Property except as may result under California Civil Code
Sections 3109 through 3154 or other laws relating to the enforcement of rights
by mechanics, materialmen, contractors, and the like. In acknowledging that
Builder is acquiring nor rights whatsoever in the Property, and will, under no
circumstances acquire any interest in the Property other than under mechanics'
lien laws to the extent they are applicable, Builder shall not assert, in any
legal action or otherwise, any right or interest in the Property and will not
record any lis pendens or any similar notice or lien against the Property other
than as expressly allowed under the mechanics' lien laws. By entering into this
Agreement, Builder acknowledges that it is acquiring no rights whatsoever in the
total revenues from the Project (except to the extent to receive funds due to
Builder hereunder from the sale escrow upon the close thereof) and that Owner
has no obligation to keep and maintain such revenues in a separate account,
account for the Project revenues to Builder, deposit or invest the Project
revenues to earn interest thereon, or otherwise take any other action with
respect to the Project revenues whether or not such actions would benefit the
Builder.
21. Non-Discrimination.
-------------------
Builder shall comply with all laws that require Builder to be an equal
opportunity, non-discriminatory employer and shall comply with the federal and
state laws with respect to non-discrimination with respect to the sales of the
Homes. The Builder agrees that there shall be no discrimination against or
segregation of any person or group of persons on account of race, color,
religion, age, politics, physical handicap, place of residence, creed, sex,
sexual preference, marital status or national origin in connection with respect
to the construction of the Project and the sale of the Homes.
22. Competition.
------------
Until the sale escrow for the last of the Homes is closed or until
this Agreement is terminated if such termination occurs before the sale escrow
for the last of the Homes id closed, Builder and its affiliates shall not,
without the prior written approval of Owner, have any interest nor may it engage
in any other activities of any type, including, without limitation, (I) being a
general or limited partner in any partnership or a shareholder, officer or
director of any corporation, (ii) rendering advice or services to other
investors, and (iii) investing its own capitol or revenues with the capitol or
revenues of others in any fashion in any competing single family housing project
which is situated within a one (1) mile radius from
<PAGE>
the center point of the Project. Such competitive activity shall include,
without limitation, activities in connection with the ownership, development,
operation, management, leasing, sale. and syndication of single family detached
residential houses within the radius.
23. Owner's Responsibility for Funding.
-----------------------------------
Owner shall pay all of the costs, fees, expenses, taxes, debt service,
bond premiums, deposits, insurance premiums, brokerage commissions to unrelated
third parties, and the like which are in any way directly or indirectly related
to the ownership of the Property, the development and construction of the
Project, and the sale of the Homes (except for the overhead of Builder and the
fee of Sales Agent), including, but not limited to:
(a) All costs for architectural, legal (including the cost due to
Builder's counsel to draft this Agreement), accounting, engineering and other
consultant services.
(b) All costs for soil, geological, and toxic and hazardous waste
studies incurred by consultants and under contracts designated or approved by
Owner.
(c) All construction costs, including labor and material costs and
equipment rental and repair, and the costs to maintain the Project free of
weeds, debris, pests, toxic, or hazardous waste.
(d) All costs for on-tract construction superintendents during the
course of construction (including reasonable payroll and transportation costs,
if any).
(e) All costs of establishing, maintaining, and operating an on-
tract construction field office.
(f) All governmental licenses and fees relating to the Project.
(g) All marketing and advertising costs and cost of sale, including
but not limited to: the construction, landscaping, and decoration of the model
Home complex, holding a Grand Opening for the Project, signage, advertising
sales brochures, constructing and operating an on-site sales office (exclusive
of the cost of sales personnel), escrow and title charges, and other closing
costs, brokerage commissions to unrelated third parties, but excluding any
brokerage commissions to the personnel of Builder and/or Sales Agent, and the
cost of on-site salespersons (the cost of which shall be paid by Builder or by
Sales Agent).
(h) All premiums on any insurance required by Owner to be carried by
Builder (but excluding insurance relating to the general operation of Builder's
business, other insurance which is specified in this Agreement as a cost to be
paid by Builder, and worker's compensation insurance to cover Builder's
employees, except to the extent it covers on-tract employees), the specific
arrangements for which have been approved by Owner.
(i) All real property taxes and assessments which are due and
payable against the Property.
(j) All payments of principal, interest, loan fees, discounts, costs
and fees related to any financing obtained by Owner to fund the construction of
the Project and the sale of Homes.
(k) All bond premiums, deposits, security, and all other similar
costs or security required by any governmental entity, utility, or any other
entity which requires any such item with respect to the Project.
<PAGE>
24. Disbursement of Funds.
----------------------
Disbursement of funds by Owner pursuant to this Agreement shall be
according to the system provided below.
(a) Application for Payment. On the first and fifteen of each month
------------------------
during the term of this Agreement, Builder shall submit to Owner's designated
superintendent for the Project an itemized application for payment ("Application
for Payment"). Each Application for Payment submitted to the superintendent
shall include a detailed statement of all costs and expenses incurred in
connection therewith, and copies of appropriate bills and invoices evidencing
the total amount expended, incurred or due to a subcontractor, materialmen, or
laborer for work done pursuant to t his Agreement or materials furnished or
incorporated in such work. The Application for Payment shall reflect bills
incurred in accordance with the construction payment schedule. The presentation
to the superintendent of such an Application for Payment shall constitute a
representation on the part of Builder that the costs specified therein have been
incurred properly in the development of the Project and in accordance with this
Agreement, and Owner shall be entitled to rely thereon. Along with the
Application for Payment, Builder shall furnish such additional items as required
by Bank.
(b) Operating Account. Owner shall deposit funds equal to the
-----------------
amount of the Application for Payment in an account (the "Operating Account")
within ten (10) days after Owner's superintendent's receipt and approval of such
Application for Payment. Builder shall prepare and deliver to Owner monthly
reconciliations for the Operating Account.
(c) Payment from Operating Account. Owner shall fund the Operating
-------------------------------
Account with at least Twenty Thousand Dollars ($20,000.00) and shall maintain
that amount in said Account. Builder shall be permitted to draw checks without
restriction from the Operating Account for payment of approved outstanding
bills. Builder may, without the prior approval of Owner, pay bills for the
Project provided, however, that no single bill paid by Builder from said Account
may be more than Five Thousand Dollars ($5,000.00). Payment of bills in excess
of that amount shall require the prior approval of Owner.
25. Payment of Costs by Builder.
----------------------------
Except as otherwise provided herein, the following items of cost shall
be borne solely by Builder and shall not be deemed a Project cost, and Builder
shall hold Owner free and harmless therefrom:
(a) All overhead Expenses of Builder including, without limitation,
salaries and other payments or benefits to principals, shareholders, officers,
employees, and agents and the cost of maintaining off-site offices and operating
Builder's business.
(b) All cost of accounting and accounting personnel employed by
Builder and used to maintain the books and records of all work performed
pursuant to this Agreement.
(c) Business licenses and fees of Builder, except as required
specifically for the Project by governmental entities having jurisdiction
thereof.
(d) Builder's workers compensation and employer liability insurance
(except to the extent it covers on-tract employees which shall be a cost of
Owner) and other costs for insurance not specifically required by Owner to be
carried in connection with the Project.
(e) All brokerage commissions or sale fees paid to Builder's
employees or Sales Agent.
<PAGE>
26. Real Property Taxes.
--------------------
During the period of this Agreement, Owner shall pay all real property
taxes imposed against the Property so long as, and to the extent, the Property
is owned by Owner. Builder shall be required to request and, if possible.
obtain from the County Tax Assessor a builder inventory exclusion to preclude
the obligation to pay a supplementary tax bill during construction of the
Project.
27. Builder's Compensation.
-----------------------
Owner shall pay, or cause to be paid, to Builder the following
compensation which shall be the only compensation or consideration paid to
Builder for its services hereunder:
(a) Overhead Draw. To reimburse the Builder for all of the overhead
--------------
administrative expense it incurs in administering the development of the Project
and the marketing of the Homes, Owner shall pay Builder an overhead draw (the
"Overhead Draw" herein) in the amount of Three Percent (3.0%) of the gross sales
price of the Homes. Said Overhead Draw may initially be payable in advance in
equal monthly payments over Thirty (30) months commencing on December 1,1997,
computed on the project gross sales price of the Homes. Such Overhead Draw shall
initially be paid from cash available from the construction loan or other
Project financing with the balance of said Overhead Draw, if any, payable by
Owner as the Homes are sold. The monthly payment of t he Overhead Draw shall be
adjusted from time to time as necessary to reflect the actual gross sale prices
of the Homes.
(b) Development Fee. As compensation for Builder developing and
----------------
constructing the Project, Owner shall pay Builder a development fee (the
"Development Fee" herein) in the amount of Three Percent (3.0%) of the gross
sales price of the Homes. The Development Fee shall be paid by Owner to Builder
on a Home by Home basis at the close of escrow for the sale of each Home. The
Development Fee shall be paid to Builder from the net sales proceeds of each
Home otherwise payable to Owner from the sale escrow or, if there are not
sufficient proceeds available through the escrow to pay the Development Fee to
Builder, Owner shall concurrently with the close of sale escrow for each Home,
pay Builder the balance of the Development Fee due to Builder as a result of the
sale of said Home.
(c) Sales/Marketing Fee. As compensation for Builder selling and
--------------------
marketing the Homes, Owner shall pay Builder a sales/marketing fee (the
"Sales/Marketing Fee" herein) in the amount of Two Percent (2.0%) of the gross
sales price of the Homes. The Sales/Marketing Fee shall be paid by Owner to
Builder on a Home by Home basis at the close of escrow for the sale of each
Home. The Sales/Marketing Fee shall be paid to Builder from the net sales
proceeds of each Home otherwise payable to Owner from the sale escrow or, if
there are not sufficient proceeds available through the escrow to pay the
Sales/Marketing Fee to Builder, Owner shall concurrently with the close of the
sale escrow for each Home, pay Builder the balance of the Sales/Marketing Fee
due to Builder as a result of the sale fees due to Builder's employees or to the
Sales Agent or it's employees from the Sales/Marketing Fee and shall, except for
the costs to be paid by Owner as set forth herein, indemnify and hold Owner free
and harmless therefrom.
(d) Warranty Fee. To compensate Builder to assume the Home
-------------
warranty and risk, Owner shall pay Builder a warranty fee in the amount of Seven
Hundred and Fifty Dollars ($750.00) for each Home payable to Builder at the
close of the sale escrow of each home.
(e) Builder Design Center Fee. Builder will provide the services of
--------------------------
its design center to the buyers of the Homes who may use such services to
purchase flooring upgrades and other options to their respective Home that are
not available on the standard production Home. The services of the Builder
Design Center are anticipated to earn a net profit. Builder shall calculate on a
Home by Home basis, after deducting all direct and indirect costs incurred by
the Builder Design Center and its personnel to provide the requested upgrades
and options, the net profit, if any, earned by the Builder Design Center for
each Home (the "Builder Design Center Profit" herein). Owner and Builder hereby
agree that at the close of the
<PAGE>
sale escrow for each Home. The payment of the Builder Design Center Profit shall
be shared by Owner and Builder by adjusting the net amount of the Development
Fee and Sales/Marketing Fee paid to Builder at the close of the sale escrow for
each Home.
28. Termination for Cause by Owner.
-------------------------------
In the event Builder is in default of any of its covenants, duties or
obligations hereunder and Builder fails to correct such default within a
reasonable time given the nature of the covenant, duty or obligation in question
(but no less than Thirty (30) days following written notice from Owner
specifying in reasonable detail such default), Owner shall have the right, at
its option, to terminate this Agreement for "cause" upon written notice to the
Builder. In the event Owner terminates this Agreement for "cause" pursuant to
this Paragraph, the following provisions shall apply:
(a) Builder's Compensation. In the event this Agreement is
----------------------
terminated by Owner for "cause" pursuant to this Paragraph 28, Builder shall
have no right to receive any portion of the fees set forth in Paragraph 27 that
have not been paid to it as of the date of termination. Builder shall have no
right after such termination to enter upon the Property, except for the sole
purpose of collecting property of Builder and the personal effects of Builder's
employees.
(b) Right of Entry. In addition to Owner's rights pursuant to
--------------
Paragraph 33, Owner may take possession of and use, in completing the Project or
any portion thereof, such materials, machinery, tools, equipment, appliances,
and other items of personal property as may be located on the Property upon such
termination for "cause" which have been paid for by Owner or which are not
timely removed by Builder, free of charge and without liability to Builder for
any use or damage.
29. Termination Without Cause by Owner.
-----------------------------------
Notwithstanding any other provision of this Agreement, Owner shall
have the right to terminate the Agreement without cause in Owner's sole
discretion, upon Ninety (90) days written notice to Builder. In the event Owner
terminates this Agreement pursuant to the Paragraph 29, Owner shall remain
obligated to Builder for all fees which would be earned by Builder hereunder
which fees shall by paid upon the closing of the sale escrow for each and all of
the One Hundred and Thirty-Nine (139) Homes. Owner shall pay such fees to
Builder in accordance with the terms of this Agreement, provided, however, all
unpaid fees shall be due and payable in full, irrespective if the Homes have
been constructed or sold, One (1) year from the date of termination by Owner
without cause under this Paragraph 29. Owner shall provide Builder with
reasonable access to the Property and all portions of the Project for the
purposes of removing its movable personal property as described in Paragraph 33
In the event Builder does not remove an item of its movable personal property
with Thirty (30) days following such termination, in addition to Owner's rights
pursuant to Paragraph 33, Owner shall have the right to use such property in
completing the Project or any portion thereof, free of charge and without
liability to Builder for the use thereof or damage thereto.
30. Termination for Cause by Builder.
---------------------------------
In the event Owner defaults and fails to cure the default under this
Agreement within a reasonable time after written notice from Builder specifying
in reasonable detail such default (but in no event more than Five (5) business
days for the payment of money and no more then Thirty (30) days for all other
duties of Owner), if Builder is not also in default, Builder shall have the
right, at its option, to terminate this Agreement for "cause" upon written
notice to Owner. In the event Builder terminates this Agreement for "cause"
pursuant to this Paragraph 30, the rights of Owner and Builder shall be as set
forth in Paragraph 29.
<PAGE>
31. Termination Due to Lack or Performance.
---------------------------------------
(a) Owner and Builder acknowledge that it is in the best interest of
both parties that this Agreement remain in force provided that Builder is able
to develop and successfully market an acceptable number of Homes over a given
period of time. Accordingly, if, due to no fault of either Owner or Builder,
Builder is not able to successfully develop and close the sale escrow on at
least eighteen (18) Homes during any six calendar month period commencing with
the first full calendar month after the close of the sale escrow for the first
Home sold hereunder, then upon the written notice from one party to the other,
either party may terminate this Agreement due to lack of performance.
(b) In the event that either party cancels this Agreement for lack of
performance pursuant to Paragraph 31(a) above, Builder agrees to complete the
construction of any Homes then under construction and to market all such Homes.
Owner and Builder agree that all of the terms and conditions hereunder,
including the payment of all fees due to Builder, shall continue in full force
and effect until the close of the sale escrow for the last of such Homes. At
that time, this Agreement shall terminate and neither party shall have any
further obligation to the other hereunder.
32. Owner's Unfettered Right to Deal With the Property Upon Any
-----------------------------------------------------------
Termination.
------------
Builder acknowledges that, upon any termination of this Agreement
whether with or without cause, Owner shall have the right to deal with the
Property in any way it desires including, but not limited to, selling all or a
portion of the Project or any of the Homes whether or not completed or Property
completely changing any existing plan for the development of the Property, or
postponing or terminating any development of the Property. Builder acknowledges
that it shall have no right whatsoever to dictate or provide any input regarding
the development of the Property after any termination of this Agreement.
33. Removal by Builder.
-------------------
Upon termination of this Agreement, Builder shall cease and quit all
activities and entry upon the Property. Upon such termination, Builder shall,
without expense to Owner, remove or cause to be removed from the Property all
movable signs, furnishings, equipment, trade fixtures, merchandise and other
movable personal property owned by Builder and installed or placed thereon.
Builder shall repair all damage to the Property and remove debris and rubbish
resulting from such removal. If Builder fails to remove any of such signs,
furnishings, equipment, trade fixtures, merchandise or other personal property
within Thirty (30) days after such expiration or termination of this Agreement,
then Owner may, at its sole option: (I) deem any or all of such items abandoned
as the sole property of Owner, or (ii) remove any or all of such items and
dispose of same in any manner, or store same for Builder, in which event the
expense of such disposition or storage shall be borne by Builder and shall be
immediately due and payable and Owner may, at its option, deduct such expenses
from any amount due and payable to Builder.
34. Other Rights Upon Termination.
------------------------------
In the event of any termination of this Agreement whether with or
without cause, Owner shall be free to make any changes and arrangements as Owner
deems appropriate in order to obtain completion of the duties which are the
obligation of Builder under this Agreement. Upon any termination of this
Agreement, Owner and Builder shall be relieved of further performance under this
Agreement except as expressly set forth and except that a termination shall in
no way affect Builder's indemnity obligations or other legal liability to Owner
or invalidate, reduce or restrict the rights of Builder or Owner to pursue
remedies for any branch of performance of wrongful act, error or omission
occurring prior to the termination, regardless of whether the non performance,
act, error or omission was known by the aggrieved party at the time of
termination. In addition, Builder shall perform all obligations under this
Agreement relating to the cessation and quitting of activities; entry upon the
Property; and turnover of all documents and other materials relating to the
Project or the sale of the Homes, regardless of whether Builder believes the
termination is proper or justified.
<PAGE>
35. Insurance.
----------
(a) Owner at its sole cost and expense shall at all times hereunder
cause to be issued the insurance coverage hereinafter set forth from companies
reasonably acceptable to both Owner and Builder. If at any time such required
insurance coverage is not timely provided by Owner or such required coverage
lapses, Builder, at the sole cost and expense of Owner, may cause such required
insurance to be issued. Al policies of insurance shall be in such amounts as
reasonably required by Builder, and shall include Builder as an additional
insured, certificates of the required insurance coverage shall be delivered by
the insurance carrier to Builder promptly following the issuance of an insurance
policy and all such policies shall provide that the coverage thereunder cannot
be canceled or diminished upon not less than Thirty (30) days prior written
notice thereof delivered to Builder by certified mail.
(b) Owner shall provide all insurance coverage as may from time to
time be reasonably be requested by Builder or by Bank to protect the interests
of Owner, Builder, and/or Bank, or any other lender which makes a loan to the
Project, and any other person or entity who may from time to time have an
insurable interest in the Project. Such required insurance shall include, but
not be limited to:
(I) All risks insurance including, without limitation, fire,
earthquake (as may be required by a third party lender), theft, and the like
covering the full insurable value of the constructed improvements to the
Project;
(ii) General Liability insurance with coverage for any one person
or entity from one insured event of not less than Two Million Dollars
($2,000,000) and a total policy limit for all claims from all insured events of
not less than Five Million Dollars ($5,000,000);
(iii) Workman's compensation insurance; and
(iv) Non-owned automobile insurance.
(c) All insurance proceeds from any claim under an insurance policy
maintained hereunder shall be delivered to Builder which shall distribute or use
such proceeds to cover, pay, or reimburse the person or entity which suffered
the loss. Notwithstanding the foregoing, insurance proceeds from all risks
insurance shall be distributed and utilized as required by any construction
lender or other lender who has an insurable interest in the Project.
36. Builders Representations and Warranties to Owner.
-------------------------------------------------
In addition to any other representations and warranties of Builder
contained in this Agreement, Builder warrants and represents that the following
facts are true and correct as of the date of this Agreement, and Builder's
making of each request for disbursement of funds by Owner pursuant to Paragraph
24 shall constitute a new representation and warranty that the following facts
remain true and correct as of the date of the request, unless previously
disclosed in writing by Builder to Owner. These representations and warranties,
and any liability of Builder arising therefrom, shall survive any termination of
this Agreement.
(a) Authority. Builder has the full right and authority to enter
----------
into this Agreement and to perform all of Builder's obligations hereunder, and
each of the persons signing this Agreement on behalf of Builder is authorized to
do so, and the signature or consent of no other person or entity is required.
(b) Licenses Held by Builder. To the extent required by law in
-------------------------
order to fully perform its obligations pursuant to this Agreement, Builder is
licensed and in good standing as a building contractor under the laws of the
State of California and Builder holds all other licenses and is in compliance
with all other laws and regulations which may affect Builder's ability to
perform pursuant to this Agreement.
<PAGE>
(c) Licenses Held by Sales Agent. To the extent required by law
-----------------------------
in order to fully perform its obligations pursuant to this Agreement, Sales
Agent is licensed and in good standing as a real estate broker under the laws of
the State of California.
(d) Insolvency. Builder has not: (I) made a general assignment
-----------
for the benefits of creditors; (ii) filed any voluntary petition in bankruptcy
or suffered the filing of an involuntary petition by Builder's creditors; (iii)
suffered the appointment of a receiver to take possession of all of
substantially all of Builder's assets; or (iv) suffered the attachment or other
judicial seizure of all, or substantially all, of Builder's assets.
(e) No Defaults by Builder. There have been no acts or omission of
-----------------------
Builder which would constitute a default under this Agreement.
37. Owner's Limited Liability.
--------------------------
Owner shall not be liable to Builder for any loss, damage, injury, or
claim of any kind or character to any person or property , except to the extent
caused by the willed misconduct of Owner or its officers, directors, affiliates,
or employees, arising from or caused in connection with the development of the
Property or the construction or sale or other conveyance of Homes.
38. Builder's Liability Indemnity.
------------------------------
Builder hereby indemnifies and shall defend and hold harmless Owner,
and its officers, directors, affiliates, partners, agents, employees, licensees,
invitees, and contractors against all lost, expense (including, but not limited
to, attorneys fees and court costs), damage, injury, liability, cause of action
or claim of any kind or character to any person or property due in any part to
the gross negligence, willful misconduct, or material breach of any agreement by
Builder with respect to the obligations of Builder to develop the Project and
market the Homes as provided herein. The indemnity and agreement to defend and
hold harmless by Builder are intended to apply with respect to loss, expense,
damage, injury, or claim arising during the terms of this Agreement, or
following any expiration or other termination of this Agreement and shall
survive the expiration or other termination of this Agreement.
39. Confidentiality and Restrictions on Disclosure.
-----------------------------------------------
Builder and Owner shall not, unless it has obtained the prior written
consent of the other party, release, publish or otherwise distribute, and shall
not authorize or permit any person or entity to release, publish or distribute,
any information regarding the financial arrangements between Owner and Builder
pursuant to this Agreement, any marketing studies for the Project, and financial
information regarding the construction of the Project or the sale of the homes,
and this Agreement, except as shall be required to perform the disclosing
party's obligations hereunder or as may be required by law. Owner acknowledges
that Builder may have to file this Agreement with the Securities and Exchange
Commission.
40. Assignment
----------
Builder may not encumber, assign, or otherwise transfer this Agreement
or any right or interest hereunder without the prior written consent of Owner.
Builder acknowledges that in entering into this Agreement, Owner has bargained
for the services specifically of Builder, and therefore, Builder agrees that
Owner may for any reason on Owner's sole discretion, withhold its consent to any
assignment or other transfer of any rights of Builder hereunder except the right
to received the monies set forth in Paragraph 27 hereof which Builder may assign
without restriction.
<PAGE>
41. Notices.
-------
All notices, requests, demands, and other communications required to
or permitted to be given under this Agreement shall be in writing and shall be
conclusively deemed to have been duly given (I) when hand delivered to the other
party; or (ii) when received when sent by facsimile to the facsimile number set
forth below (provided, however, that notices given by facsimile shall not be
effective unless either (x) a duplicate copy of such facsimile notice is
promptly given by depositing same in a United States post office with first-
class postage prepaid and addressed to each party hereto as set forth below, or
(y) the receiving party delivers a written confirmation of receipt for such
notice either by facsimile or any other method permitted hereunder;
additionally, any notice given by facsimile shall be deemed received on the next
business day if such notice is received after 5:00 p.m. (recipients time) or on
a non-business day); or (iii) three (3) business days after the same have been
deposited in a United States post office with first-class or certified mail
return receipt requested with postage prepaid and addressed to each other party
hereto as set forth below; or (iv) the next business day after same have been
deposited with a national overnight delivery service delivery charge prepaid,
addressed to each other party as set forth below with next-business-day delivery
guaranteed. Each party shall make an ordinary, good faith effort to ensure that
any person to be given notice actually receives such notice. A party may change
or supplement the addressees and facsimile numbers given below, or designate
additional addresses and facsimile numbers, by giving each other party hereto
written notice of the new address and/or facsimile number in the manner set
forth below. All such communications shall be addressed as follows:
To Builder: Inco Homes Corporation
P.O. Box 970
Upland, CA 91785
Attn: Ira C. Norris, Chairman
Telephone: (909) 981-8989
Facsimile: (909) 982-9784
With a copy to: Thomas E. Gibbs, Jr., Esq.
27520 Hawthorne Blvd.
Suite 250
Rolling Hills Estates, CA 90274
To Owner: Capital Mutual Moreno Valley, LLC
c/o Fred E. Liao
147 E. Olive Avenue
Monrovia, CA 91016
Telephone: (626) 358-5888
Facsimile: (626) 358-0338
With a copy to:
42. Applicable Law - Consent to Jurisdiction and Venue.
---------------------------------------------------
This Agreement shall in all respects be governed by the laws of the
State of California which are applicable to agreements executed and to be fully
performed therein. The parties further agree that all actions or proceedings
arising in connection with this Agreement shall be litigated or arbitrated
exclusively either in the State or the Federal Courts or by an arbitrator, as
appropriate, located in the County of San Bernardino, State of California which
courts shall have personal jurisdiction over the parties hereto.
<PAGE>
43. Severability.
-------------
No term, condition or provision of this Agreement shall be interpreted
or construed to require the performance of any act, duty or obligation that is
contrary to law. If any term, condition or provision of this Agreement is
determined to be illegal, unenforceable or invalid in whole or part for any
reason, such provision shall be stricken from this Agreement to the limited
extent necessary to bring this Agreement within the requirements of the law and
this Agreement to the fullest extent practical shall otherwise be deemed legal
and valid and shall continue in full force and effect.
44. Further Assurances.
-------------------
Each of the parties hereto shall execute and deliver any and all
additional papers, documents and other assurances, and shall do any and all acts
and things reasonably necessary in connection with the performance of their
respective obligations hereunder and to carry out the intent of the parties
hereto.
45. Successors and Assigns.
-----------------------
All of the terms and provisions contained herein shall inure to the
benefit of and shall be binding upon the parties hereto and their respective
heirs personal representatives, successors and assigns.
46. Entire Agreement.
-----------------
This Agreement constitutes the entire understanding and agreement of
the parties and any and all prior agreements, understandings, or representations
and/or warranties of any kind are hereby terminated and canceled in their
entirety and are of no further force or effect. No amendment, change or
modification of this Agreement shall be valid unless such document is in writing
and signed by all of the parties hereto.
47. Attorney's Fees.
----------------
In the event any action of any type, including, but not limited to,
suit, collection, counterclaim, appeal, arbitration and/or mediation, is
instituted or brought by a party to enforce any of the terms and provisions
hereof and/or to obtain a declaratory judgment with respect to the status of his
rights hereunder (collectively and "Action" herein), the losing party shall pay
the prevailing party all costs, expenses and fees whatsoever incurred by the
prevailing party with respect to bringing and prosecuting such Action (including
and appeal) and enforcing and judgment, order ruling, or award granted
thereunder, including reasonable attorney's fees and court costs as the Court or
the arbitrator may award.
48. Captions.
---------
The captions appearing at the commencement of the paragraphs hereof
are descriptive only and for convenience in reference. Should there be any
conflict between any such caption and the paragraph at the head of which it
appears, the paragraph and not such caption shall control and govern in the
construction of this Agreement.
<PAGE>
49. Incorporation of Exhibits.
--------------------------
All exhibits attached hereto and referred to herein are incorporated
in this Agreement as though fully set forth in the body hereof.
50. Waiver.
-------
No consent to any action, waiver of any provision, or waiver of any
breach of any duty or obligation hereunder shall constitute a waiver of any
other provision or consent to any other action or subsequent breach, whether or
not similar. No waiver or consent shall constitute a continuing waiver or
consent or commit a party to provide a waiver in the future except to the extent
specifically set forth in writing. Any waiver given by a party shall be null and
void if the party requesting such waiver has not provided to the waiving party a
full and complete disclosure of all material facts relevant to the waiver
requested.
51. Third Party Beneficiaries.
--------------------------
This Agreement and every provision herein is made exclusively for the
benefit of the parties hereto and their respective successors and permitted
assigns. Nothing in this Agreement is intended to confer any rights or remedies
under or by reason of this Agreement on any persons other than the parties to it
and their respective successors and permitted assigns; provided, however,
nothing in this Agreement is intended to relieve or discharge the obligations or
liability of any third person to any party to this Agreement.
52. Time of the Essence.
--------------------
Time is of the essence with respect to the performance of all of the
duties and obligations set forth in this Agreement.
53. General Interpretation.
-----------------------
The terms of this Agreement have been negotiated by the parties hereto
and the language used in this Agreement shall be deemed to be the language
chosen by the parties hereto to express their mutual intent. No rule of strict
construction will be applied against any party hereto. This Agreement shall be
construed equally against all parties hereto without regard to any presumption
or rule requiring construction against the party who drafted this Agreement or
any portion thereof.
54. Representation of Authority of Signatories.
-------------------------------------------
Each person signing this Agreement represents and warrants to each
other party hereto that he or she is duly authorized and has legal capacity to
execute and deliver this Agreement. Each party further represents and warrants
to each other party hereto that the execution and delivery of this Agreement and
the performance of such party's obligation hereunder have been duly authorized
and that the Agreement is a valid and legal agreement binding on such party and
enforceable in accordance with its terms.
55. Execution of Agreement.
-----------------------
Each party has been represented by counsel in the negotiation and
execution of this Agreement. This Agreement was executed voluntarily without any
duress or undue influence on the part of or on behalf of the parties hereto. The
parties acknowledge that they have read and understood this Agreement and its
legal effect. Each party acknowledges that it has had a reasonable opportunity
to obtain independent legal counsel for advice and representation in connection
with this Agreement.
<PAGE>
56. Arbitration.
------------
The parties shall, at the request of wither party, submit any dispute
concerning the interpretation of or the enforcement of rights and duties under
this Agreement to final and binding arbitration pursuant to the rules of the
American Arbitration Association. At the request of any party, the arbitrators,
attorneys, parties to the arbitration, witnesses, experts, court reporters, or
other persons present at the arbitration shall agree in writing to maintain the
strict confidentiality of the arbitration proceedings. Arbitration shall be
conducted by a single, neutral arbitrator, or, at the election of any party,
three neutral arbitrators, appointed in accordance with the rules of the
American Arbitration Association. The award of the arbitrator(s) shall be
enforceable according to the applicable provisions of the California Code of
Civil Procedure. The arbitrator(s) may award damages and/or permanent injunctive
relief, but in no event shall the arbitrator(s) have the authority to award
punitive or exemplary damages. If proper notice of any hearing has been given,
the arbitrator(s) will have full power to proceed to take evidence or to perform
any other acts necessary to arbitrate the matter in the absence of any party who
fails to appear.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Development and Marketing Agreement as of the day and year first above written.
Inco Homes Corporation Capital Mutual Moreno Valley, LLC
a Delaware Corporation a California Limited Liability Company
By:___________________________ By:__________________________________
Ira C. Norris, Fred E. Liao
Chairman of the Board Manager
("Builder") ("Owner")
<PAGE>
EXHIBIT "A"
-----------
THE LAND REFERRED TO IN THIS REPORT IS LEGALLY DESCRIBED AS FOLLOWS:
PARCEL A - LOTS 1 THROUGH 139, INCLUSIVE, OF TRACT NO. 22377-1, IN THE CITY OF
MORENO VALLEY, AS SHOWN BY MAP ON FILE IN BOOK 197, PAGES 48 THROUGH 56,
INCLUSIVE, OF MAPS, RECORDS OF RIVERSIDE COUNTY, CALIFORNIA.
<PAGE>
EXHIBIT 10.88
November 4, 1997
Mr. Fred E. Liao
Overland Company
147 East Olive Avenue
Monrovia, CA 91016
Dear Fred:
You had previously received warrants to purchase stock of Inco Homes Corporation
as follows:
The warrant (200,000 shares) may be exercised within eighteen months (June
25, 1998) of the date of the Agreement (December 26, 1996) at a price of
$5.25 per share. If at least half of the warrant shares (100,000 shares)
are not exercised during this period, then half of the warrant shares will
expire, with the balance (100,000 shares) exercisable over an additional
eighteen month period (December 25, 1999) at $9.75 per share.
Recently, the price of Inco stock has been just below $2.00 to just above $3.00
per share. Inasmuch as Inco would like to have you exercise your warrants and
consequently receive cash, we hereby offer you the opportunity to exercise your
warrants within the next fifteen to thirty days at a price of $2.00 per share,
which, subject to approval by Inco's Board of Directors, would amend our
previous Agreement dated December 26, 1996.
Should you desire to accept this offer, please sign where indicated below on
this letter and return it with your check in the amount of $200,000.
Following receipt of your check, the shares will be issued forthwith. Thank you
very much for your continuing interest in the success of Inco Homes and our
mutual business relationships.
Very truly yours,
/s/ Ira C. Norris
Ira C. Norris
Chairman/CEO
ICN/la
AGREED & ACCEPTED
/s/ Fred E. Liao
- ------------------------
Fred E. Liao
Date: 11-5-97
-------------------
<PAGE>
EXHIBIT 10.89
COMMON STOCK PURCHASE AGREEMENT
This Common Stock Purchase Agreement (this "Agreement") is made as of
November 14, 1997 between INCO HOMES CORPORATION, a Delaware corporation (the
"Company"), and THOMAS HANTGES, an individual ("Hantges"), and JOSEPH D.
MILANOWSKI, an individual ("Milanowski") (collectively, the "Purchaser").
RECITALS
--------
A. The Company desires to sell, and the Purchaser desires to purchase,
shares of the Company's common stock on the terms and conditions contained in
this Agreement.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. Sale and Issuance of Stock.. The Company shall sell to the Purchaser,
---------------------------
and the Purchaser shall purchase from the Company, Two Hundred Four Thousand One
Hundred Twenty-Two (204,122) shares of common stock of the Company (the
"Shares"), on the terms and conditions contained herein. One Hundred Thirty-Six
Thousand Seven Hundred Sixty-Two (136,762) Shares shall be purchased by Hantges
and Sixty-Seven Thousand Three Hundred Sixty (67,360) Shares shall be purchased
by Milanowski.
2. Purchase Consideration. The consideration to be given by the Purchaser
----------------------
for the Shares is as follows: (i) payment to the Company of the sum of One
Hundred Thousand Dollars ($100,000), (ii) amending the terms of the Note (as
hereafter defined) such that the principal balance of the Note shall be reduced
by $200,000, and (iii) providing consulting services to the Company in
connection with the restructuring of a loan owing by the Company to City
National Bank. The "Note" means that certain Promissory Note in the original
principal amount of $347,500 dated September 22, 1997 given by the Company, as
maker, in favor of Thomas Hantges, as to an undivided 67% interest, and Joe
Milanowski, as to an undivided 33% interest.
3. Closing. The closing of this transaction ("Closing") shall occur when
-------
all of the conditions precedent are satisfied or waived in writing by the party
benefiting form such condition precedent. The conditions precedent shall occur
a time and in a manner mutually agreeable to the Company and Purchaser:
(a) The Company shall have delivered to the Purchaser the following:
(i) A Certificate of Secretary and corporate resolutions authorizing
the transaction contemplated in this Agreement.
(ii) A Certificate of Good Standing for the Company issued by the
Delaware Secretary of State.
(iii) A Certificate of Status - Foreign Corporation for the Company
issued by the California Secretary of State.
(iv) Share certificates in the name of Hantges and Milanowski,
respectively, or their nominees, evidencing the issuance of the Shares to each
person in the amounts described in Paragraph 2 above.
(page)
<PAGE>
(v) An executed copy of an Amendment to Promissory Note in the form
of Exhibit A attached hereto.
---------
(vi) A certificate from an officer of the Company re-affirming that
all of the representations and warranties made by the Company in this Agreement
are true and correct on the Closing date.
(b) The Purchaser shall have delivered to the Company the following:
(i) The sum of One Hundred Thousand Dollars ($100,000).
(ii) An executed copy of an Amendment to Promissory Note in the form
of Exhibit A attached hereto.
---------
When the Closing occurs, the Company shall simultaneously record in its
stock register the issuance of the Shares to the Purchaser and shall provide a
written acknowledgment of such recordation to the Purchaser.
4. Representations and Warranties.
------------------------------
The Company hereby represents and warrants to the Purchaser that the
following is true and correct as of the date hereof and shall remain true and
correct as of the Closing:
(a) The Company:
(i) is a corporation duly organized, validly existing and authorized
to exercise all its corporate powers, rights and privileges.
(ii) is not currently in good standing in the State of Delaware;
however, the Company has not been suspended by the Delaware Secretary of State
and its failure to be in good standing in the State of Delaware does not affect
the enforceability of this Agreement or the Company's power and right to issue
the Shares;
(iii) is qualified as a foreign corporation in the state of
California; and
(iv) has the corporate power and corporate authority to own and
operate its properties and to carry on its business as now conducted.
(b) The Company has two classes of shares outstanding, consisting of
shares of common stock and shares of preferred stock. Immediately prior to the
Closing, the authorized capital stock of the Company is 20,000,000 shares of
common stock and 1,000,000 shares of preferred stock. _______________ shares of
common stock are duly and validly issued (including, without limitation, issued
in compliance with applicable federal and state securities laws), fully-paid,
nonassessable and outstanding. No shares of preferred stock have been issued
and are outstanding.
The Company has also issued warrants that allow the holders thereof to
purchase 200,000 shares of common stock of the Company and has adopted a stock
option/stock issuance plan for an additional 100,000 shares of common stock.
The foregoing represent all the shares of stock that are outstanding
or for which commitments have been given to issue shares of stock in the
Company.
(c) All corporate action on the part of the Company, its officers,
directors and shareholders necessary for the authorization, execution, delivery
and performance of all obligations under this Agreement
(page)
<PAGE>
and for the issuance and delivery of the Shares has been taken, and this
Agreement constitutes legally binding valid obligations of the Company
enforceable in accordance with its terms.
(d) The Shares, when issued, sold and delivered in accordance with
the terms and for the consideration expressed in this Agreement shall be duly
and validly issued (including, without limitation, issued in compliance with
applicable federal and state securities laws), fully-paid and nonassessable.
(e) The execution, delivery and performance of this Agreement will not
result in any violation of, be in conflict with, or constitute a default under,
with or without the passage of time or the giving of notice: (i) any formation
and organizational document of the Company including, without limitation, the
Company's articles and bylaws, as the same have been amended or otherwise
modified ("Articles" and "Bylaws"); (ii) any provision of any judgment, decree
or order to which the Company is a party or by which it is bound; (iii) any
material contract, obligation or commitment to which the Company is a party or
by which it is bound; or, to the best of the Company's knowledge, (iv) any
statute, rule or governmental regulation applicable to the Company.
(f) There is no action, proceeding or investigation pending or
threatened that questions the validity of this Agreement or the right of the
Company to enter into this Agreement. There is no judgment, decree or order of
any court in effect against the Company, and the Company is not in default with
respect to any order of any governmental authority to which the Company is a
party or by which it is bound. There is no action, suit, proceeding or
investigation by the Company currently pending or which the Company presently
intends to initiate.
(g) The Company is not in violation of any term or provision of its
Articles or Bylaws, or any material term or provision of any indebtedness,
mortgage, indenture, contract, agreement, judgment to which it is a party or by
which it is bound, or to the best of its knowledge any statute, rule,
regulation, decree or order applicable to the Company.
(h) The representations and warranties of the Company contained in
this Agreement and other documents delivered to the Purchaser at or before the
Closing in connection herewith, do not contain any untrue statement of a
material fact or omit any material fact necessary to make the statements
contained therein or herein in view of the circumstances under which they were
made not misleading.
(i) There has been no declaration or payment by the Company of any
dividend, nor any distribution by the Company of any assets of any kind, to any
shareholder.
(j) No consent, approval, order or authorization of, or registration,
qualification, designation, declaration or filing with, any federal, state,
local or provincial governmental authority on the part of the Company is
required in connection with the consummation of the transactions contemplated by
this Agreement, except such filings as have been made before the Closing, and
except for any notices of sale required to be filed with the Securities and
Exchange Commission ("SEC") under Regulation D of the Securities Act of 1933, as
amended (the "Securities Act"), or such post-closing filings as may be required
under applicable state securities laws, which will be timely filed within the
applicable time periods therefor.
5. Covenants.
---------
(a) The Company shall, at its sole cost and expense, cause the Shares
to be registered with the Securities and Exchange Commission the next time
following the date hereof that it seeks to register any debt or equity offering
or other shares of common or preferred stock of the Company with the SEC.
Additionally, either Purchaser may elect to cause the Company to register with
the SEC, on written demand by the Purchaser, the Shares held by it or its
nominee, which registration efforts shall be commenced by the Company
immediately upon receipt of such written demand and shall thereafter be
prosecuted to completion, all at the Company's sole cost and expense.
(page)
<PAGE>
(b) The Company shall take such further actions and sign such
additional documents as may be needed to effectuate the provisions of this
Agreement.
(c) If the Shares become registered pursuant to Paragraph 5(a) above
or should the Shares become transferable under federal securities laws even
without registration (e.g., as allowed under Rule 144), then the Company agrees
that it shall, on written demand by the Purchaser, cause the Shares to be listed
on the NASDAQ or other exchange on which the Company's common stock is then
trading, which which listing efforts shall be commenced by the Company
immediately upon receipt of such written demand and shall thereafter be
prosecuted to completion, all at the Company's sole cost and expense.
6. Entire Agreement. This Agreement constitutes the entire contract
----------------
between the Company and the Purchasers relating to the subject matter hereof,
and supersedes all prior oral and written agreements, communications and
understandings between the parties with respect to such matters.
7. Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of California, excluding the choice of
law provisions.
8. Counterparts. This Agreement may be executed in two (2) or more
------------
counterparts (including facsimile copies thereof), each of which shall be deemed
an original, but all of which together shall constitute one and the same
instrument.
9. Binding Effect; Assignment. This Agreement shall be binding upon
--------------------------
and inure to the benefit of the parties and their respective successors and
legal representatives. Either Purchaser may assign its rights hereunder or use a
nominee to take title to the Shares without obtaining the Company's consent.
10. Notices. All notices or other communications hereunder shall be
-------
in writing and shall be mailed, certified or registered mail, return receipt
requested, or shall be sent by messenger or by electronic transmission, to the
following addresses:
IF TO THE COMPANY: Inco Homes Corporation
1282 West Arrow Highway
Upland, California 91786
Fax: (909) 982-9784
IF TO PURCHASER: c/o USA Commercial Mortgage Company
3900 Paradise Road, Suite 263
Las Vegas, California 89109
Fax: (702) 734-0163
or such other addresses as the parties may specify in writing to the other
parties. Notices sent by overnight mail or courier, personal delivery or
facsimile shall be deemed received when sent and notices sent by mail shall be
deemed received three (3) days after the date on which they were deposited in
the United States Mail.
11. Waivers and Amendments. This Agreement may be amended,
----------------------
superseded, cancelled, renewed or extended, and the terms hereof may be waived,
only by a written instrument duly executed by all the parties hereto. No delay
on the part of any party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof, nor shall any waiver on the part of any party
of any such right, power or privilege, nor any single or partial exercise of any
such right, power or privilege, preclude any further exercise thereof or the
exercise of any other such right, power or privilege.
12. Construction. The normal rule of construction to the effect that
------------
any ambiguities are to be resolved against the drafting party shall not be
employed in the construction or the interpretation of this Agreement or any
amendments hereto.
(page)
<PAGE>
13. Severability. The illegality, unenforceability or invalidity
------------
of any one or more covenants, phrases, clauses, sentences or sections of this
Agreement, as determined by a court of competent jurisdiction or arbitration,
shall not affect the remaining portions of this Agreement, or any part thereof;
and if any provision, section or subsection of this Agreement is adjudged by any
court or arbitration to be void or unenforceable in whole or in part, such
provision, section or subsection, or portion thereof, shall be deemed amended to
conform to applicable laws so as to be valid and enforceable to the fullest
possible extent or, if it cannot be so amended without materially altering the
intention of the parties as expressed herein, it shall be stricken and the
remainder of this Agreement shall continue in full force and effect.
14. Attorneys' Fees. If any party brings an action to enforce the
---------------
terms hereof or to declare rights hereunder, the prevailing party in any such
action, on trial and appeal, shall be entitled to his or its reasonable
attorneys' fees and costs to be paid by the losing party.
15. Specific Performance. The parties hereto agree and acknowledge
--------------------
that damages would be inadequate to compensate the non-breaching parties for the
breach of this Agreement by any party hereto. Accordingly, the parties hereto
agree that in addition to any other relief to which the non-breaching parties
shall be entitled, such parties shall be entitled to specific performance of
this Agreement.
(page)
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
COMPANY: INCO HOMES CORPORATION,
a Delaware corporation
By: _______________________
Ira C. Norris
President
PURCHASER: __________________________
THOMAS HANTGES
___________________________
JOSEPH D. MILANOWSKI
(page)
<PAGE>
EXHIBIT 10.90
[LETTERHEAD OF STEPHEN DANIELS]
Monday, November 17, 1997
Ira C. Norris
President
INCO Homes Corporation
1282 W. Arrow Hwy.
Upland, CA 91786
Re: Lease Extension
INCO Homes Corporation
1282 W. Arrow Hwy., Suite 101 & 200
Upland, CA 91786
Approximately 6,787 sq. ft.
Dear Ira,
This letter will act as an Amendment to the Lease Agreement dated October 1,
1995 by and between G&N INVESTMENTS, A California Limited Partnership (the
"Landlord") and INCO HOMES CORPORATION, A Delaware Corporation ("Tenant"). All
the terms and conditions of this Lease Agreement will remain the same except for
the following modification:
TERM (Paragraph C.2.): Lease term to be extended through
November 30, 2002.
This lease extension is contingent upon Black Sable Properties, L.L.C.
successfully closing escrow number 08066-SC being held by Rancho Hills Escrow
for the purchase of 1282 W. Arrow Hwy., Upland, CA. Thank you for your
cooperation. Please sign and return this Amendment with the fully executed
escrow instructions.
Sincerely,
/s/ DAVID J. NEAULT
---------------------
David J. Neault
Senior Vice President
LANDLORD: TENANT:
G&N INVESTMENTS INCO HOMES CORPORATION
A California Limited Partnership A Delaware Corporation
By: /s/ IRA C. NORRIS By: /s/ IRA C. NORRIS
------------------------------ ------------------------
Ira C. Norris, General Partner Ira C. Norris, President
Date: 12/1/97 Date: 12/1/97
cc: John Wilson
<PAGE>
EXHIBIT 10.91
PROMISSORY NOTE
---------------
$1,275,000 November 18, 1997
FOR VALUE RECEIVED, INCO HOMES CORPORATION, a Delaware corporation
("Borrower"), whose address is 1282 West Arrow Highway, Upland, California
91786, promises to pay to those parties listed on Exhibit A-1 attached hereto
-----------
("Holder"), or order, c/o USA Commercial Mortgage Company, Inc. at 3900 Paradise
Road, Suite 263, Las Vegas, Nevada 89109, or at such other place as Holder may
from time to time in writing designate, in lawful money of the United States of
America, the principal sum of ONE MILLION TWO HUNDRED SEVENTY FIVE THOUSAND
DOLLARS ($1,275,000) or such greater or lesser sum as may be outstanding
pursuant to this Note, the Construction Deed of Trust, Security Agreement,
Assignment of Leases and Rents and Fixture Filing, dated as of even date with
this Note, between Borrower and Holder (the "Deed of Trust") and the other Loan
Documents (as defined below), together with interest on the principal balance
outstanding from time to time ("Principal Balance"), in like money, from the
date of this Note until fully repaid at the rates hereinafter set forth.
1. DEFINITIONS. As used herein, the terms "Borrower," "Holder," "Loan
-----------
Agreement" and "Principal Balance" have the meanings assigned in the preceding
paragraph, and the following terms have the following meanings:
(A) "DEED OF TRUST" shall mean the Construction Deed of Trust,
-------------
Security Agreement, Assignment of Leases and Rents and Fixture Filing, dated as
of even date with this Note, from Borrower to the trustee specified therein, in
trust for Holder, covering certain real and personal property described therein
situated in Fontana, San Bernardino County, California, as the same may be
amended or otherwise modified.
(B) "EVENT OF DEFAULT" has the meaning assigned to such term in
----------------
the Deed of Trust.
(C) "HOME" OR "HOMES" means the 42 single-family home lots, as
---- -----
well as all improvements constructed thereon, located in Fontana, San Bernardino
County, California that constitute a part of the Mortgaged Property.
(D) "INTEREST RATE" means a rate per annum equal to fifteen and
-------------
one-quarter of one percent (15 1/4%).
(E) "LOAN DOCUMENTS" has the meaning assigned to such term in the
--------------
Deed of Trust.
(F) "MATURITY DATE" means the date which occurs twelve (12) months
-------------
after the date hereof.
(G) "MORTGAGED PROPERTY" has the meaning assigned to such term in
------------------
the Deed of Trust.
(H) "NET SALES PROCEEDS" for any Home means the gross sales price
------------------
of such Home less (i) reasonable and customary closing costs and broker's
commission incurred in connection with the sale of the Home, provided that the
broker's commission paid to Borrower or an affiliate of Borrower shall not
exceed one and one-half percent (1 1/2%) of the gross sales price, (ii) amounts
to be paid to the Senior Lender in order to cause the Home to be released from
the lien of the Senior Deed of Trust , (iii) amounts, if any, to be paid to
contractors and material and labor providers with respect to materials and labor
provided in connection with the construction of the Home so that the Home can be
sold free and clear of all mechanics' liens; provided, however, that if the
total due to such contractors and material and labor providers for any Home
exceeds $5,000, then the payment to such contractors and material and labor
providers must be approved by the Holder or its loan servicing agent, and (iv)
$1000, to be paid to Borrower to fund a warranty reserve with respect to the
Homes.
<PAGE>
(I) "RELEASE PRICE" for any Home means an amount equal to the
-------------
lesser of (i) $35,000, plus the Release Price Shortfall, if any, or (ii) the Net
Sales Proceeds for such Home.
(J) "RELEASE PRICE SHORTFALL" - As of the date this Note is
-----------------------
executed and delivered, the Release Price Shortfall shall be equal to zero. The
Release Price Shortfall shall be increased each time the Net Sales Proceeds
resulting from the sale of a Home and paid to Holder is less than $35,000. The
increase in the Release Price Shortfall shall be equal to the difference between
the Net Sales Proceeds paid to Holder and $35,000. The Release Price Shortfall
shall be decreased each time the Net Sales Proceeds for a Home that is paid to
Holder exceeds $35,000. The decrease in the Release Price Shortfall shall be
equal to that portion of the Net Sales Proceeds paid to Holder that exceeds
$35,000.
(K) "SENIOR DEED OF TRUST" means that certain Deed of Trust dated
--------------------
October 3, 1996 and recorded on October 22, 1996 in the Official Records of San
Bernardino County, California as Instrument No. 96-390256, given by Borrower, as
trustor, for the benefit of the Senior Lender, that encumbers the Mortgaged
Property.
(L) "SENIOR LENDER" means Independent Lending Corporation, a
-------------
Delaware Corporation d/b/a Construction Lending Corporation of America, as the
beneficiary under the Senior Deed of Trust, and its successors and assigns under
the Senior Deed of Trust.
2. INTEREST RATE. From the date of this Note to and including the
-------------
date the entire Principal Balance is paid in full, the Principal Balance shall
bear interest at the Interest Rate. Interest shall be calculated based on the
actual days the Principal Balance is outstanding hereunder divided by 360 days
and multiplied by the Interest Rate.
3. PAYMENT OF PRINCIPAL AND INTEREST. From the date hereof to and
---------------------------------
including the date the entire Principal Balance is paid in full, the Principal
Balance and interest thereon shall be due and payable as follows:
(A) Borrower shall make monthly payments of interest only owing on
the Principal Balance, in arrears, commencing on the first day of the calendar
month immediately following the date hereof and continuing on the first day of
each succeeding month to and including the first day of the month in which the
Maturity Date occurs. Any interest that has accrued but is not paid as required
under this Note shall be compounded and added to the Principal Balance on the
first day following the date such interest was required to be paid.
(B) Borrower shall also pay, at the time the sale of each Home
closes (i.e., title transfers from the Borrower or other owner of the Home to
the purchaser of the Home), an amount equal to the Release Price.
(C) On the Maturity Date, Borrower shall make a final payment that
shall include the unpaid portion of the Principal Balance, any interest accrued
and unpaid thereon, and any and all other sums due under this Note, the Deed of
Trust and the Loan Documents.
All payments due from Borrower under this Note and the other Loan
Documents shall be made to a control account established by Holder's loan
servicing agent. Holder or its loan servicing agent shall provide written
notice to Borrower of the account number for this control account and the name
and address of the financial institution where the control account is
established. Borrower shall direct the escrow company that handles the closing
of each Home to forward the payments due to Holder under this Note and the other
Loan Documents to this control account.
4. APPLICATION OF PAYMENTS. Each payment received by Holder from
-----------------------
Borrower with respect to this Note shall be applied: First: to the payment of
the costs and expenses of taking possession of, holding, maintaining and selling
any collateral for this Note; Second: to the payment of attorneys' fees and
expenses incurred in connection with the collection of this Note and enforcement
against any collateral for this Note; Third: to the payment of all amounts
advanced under the Deed of Trust or the Loan Documents (other than the Indemnity
Agreement, as defined in the Deed of Trust) to preserve the value of the
Mortgaged Property;
<PAGE>
Fourth: to the payment of late charges and accrued interest due and payable
hereunder; Fifth: to reduction of the Principal Balance; Sixth: to the payment
of any amounts owing to Holder or any other parties under the Indemnity
Agreement; and the balance, if any, shall be paid to the parties entitled to
receive it; or in such other order or proportion as Holder, in Holder's sole
discretion, may determine. Payments shall be deemed made when Holder has
received, at Holder's address or at such other address as Holder shall provide
written notice of to Borrower, immediately available funds in lawful money of
the United States of America.
BORROWER UNDERSTANDS THAT THIS NOTE IS NOT SELF-AMORTIZING AND THAT A
SUBSTANTIAL BALLOON PAYMENT MAY BE DUE ON THE MATURITY DATE.
5. PREPAYMENT. Borrower may prepay all or any portion of the Principal
----------
Balance at any time without premium on at least thirty (30) days prior written
notice to Holder.
6. MAXIMUM RATE OF INTEREST. Notwithstanding any provision in this Note,
------------------------
the total liability for payments of interest and payments in the nature of
interest, including without limitation, all charges, fees or any sums which may
at any time be deemed to be interest, shall not exceed the amount which Holder
may lawfully collect. In the event the total liability for payments of interest
and payments in the nature of interest, including without limitation, all
charges, fees or other sums which may at any time be deemed to be interest,
shall, for any reason whatsoever, result in an effective rate of interest, which
for any month or other interest payment period exceeds the amount which Holder
may lawfully collect, all sums in excess of those lawfully collectible as
interest for the period in question shall, without further notice to any party
hereto, be applied as a premium-free reduction of the Principal Balance
immediately upon receipt of such sums by Holder, with the same force and effect
as though Borrower had specifically designated such excess sums to be so applied
to the reduction of the Principal Balance; provided, however, that Holder may,
at any time, and from time to time, elect, by notice in writing to Borrower, to
waive, reduce or limit the collection of any sums (or refund to Borrower any
sums collected) in excess of those lawfully collectible as interest rather than
accept such sums on prepayment of the Principal Balance.
7. SECURITY. Payment of this Note is secured by the Deed of Trust and
--------
the Loan Documents. All of the agreements, conditions, covenants, provisions and
stipulations contained in the Deed of Trust and the Loan Documents which are to
be kept and performed by Borrower are hereby made a part of this Note to the
same extent and with the same force and effect as if they were fully set forth
herein, and Borrower covenants and agrees to keep and perform them, or cause
them to be kept and performed, strictly in accordance with their terms.
8. LATE CHARGES. Time is of the essence hereof and if any amount owing
------------
under this Note is not paid within five (5) days of when due, Borrower shall pay
to Holder a late charge payment equal to five percent (5%) of such amount.
Borrower recognizes that a default by Borrower in making the payments agreed to
be paid when due will result in Holder's incurring additional expenses in
servicing the loan evidenced by this Note, including, but not limited to sending
out notices of delinquency, computing interest, and segregating the delinquent
sums from not delinquent sums on all accounting, loan and data processing
records, in loss to Holder of the use of the money due, and in frustration to
Holder in meetings its other financial commitments, but that it is extremely
difficult and impractical to ascertain the extent of such damages. Borrower
therefore agrees that a sum equal to $0.05 for each $1.00 of each payment that
is not paid five (5) days after its due date, is a reasonable estimate of the
fair average compensation for the loss and damages Holder will suffer, that such
amount shall be presumed to be the amount of damages sustained by Holder in such
case, and that Borrower agrees to pay Holder this sum on demand. Such late
charge shall be paid without prejudice to the right of Holder to collect any
other amounts provided to be paid or to declare a default under this Note, the
Deed of Trust or Loan Documents.
9. DEFAULT INTEREST. Time is of the essence hereof and, from and
----------------
after the Maturity Date or five days after the occurrence of an Event of
Default, all amounts owing under this Note and the Loan Documents shall bear
interest at a rate per annum equal to twenty and one-quarter of one percent (20
1/4%) (the "Default Rate"), instead of at the Interest Rate. If the Default Rate
is triggered as a result of an Event of Default and Borrower subsequently cures
the Event of Default, then all amounts owing hereunder will resume bearing
interest at the Interest Rate, rather than the Default Rate, on the date the
Event of Default is cured; provided, however, that the interest owing hereunder
may again accrue at the Default Rate upon the occurrence of a subsequent Event
of Default. Borrower recognizes that a default by Borrower in making the
payments agreed to be paid when due will result in damage to Holder, including
loss to Holder of the use of the money due and frustration to Holder in
<PAGE>
meetings its other financial commitments, but that it is extremely difficult and
impractical to ascertain the extent of such damages. Borrower therefore agrees
that the Default Rate is a reasonable estimate of the loss and damages Holder
will suffer, that such amount shall be presumed to be the amount of damages
sustained by Holder in such case, and that Borrower agrees to pay Holder this
sum on demand. Interest at the Default Rate shall be paid without prejudice to
the right of Holder to collect any other amounts provided to be paid or to
declare a default under this Note, the Deed of Trust or Loan Documents.
10. DEFAULT. Upon the occurrence of any Event of Default, Holder, at its
-------
option and without further notice, demand, or presentment for payment to
Borrower or others, may declare immediately due and payable the unpaid Principal
Balance and interest accrued thereon together with all other sums owed by
Borrower under this Note, the Deed of Trust and the Loan Documents (including,
but not limited to attorneys' fees as provided in Section 12 below), anything in
this Note, the Deed of Trust and the Loan Documents to the contrary
notwithstanding. Payment of such sums may be enforced and recovered in whole or
in part at any time by one or more of the remedies provided to Holder in this
Note, the Deed of Trust and the Loan Documents.
11. REMEDIES CUMULATIVE. The remedies of Holder, as provided in this
-------------------
Note, the Deed of Trust and the Loan Documents, shall be cumulative and
concurrent and may be pursued singly, successively or together, at the sole
discretion of Holder, and may be exercised as often as occasion therefor shall
occur; and the failure to exercise any such right or remedy shall in no event be
construed as a waiver or release thereof.
12. ATTORNEYS' FEES. In the event that suit be brought hereon, or an
---------------
attorney be employed or expenses be incurred to compel payment of this Note or
any portion of the indebtedness evidenced hereby, or to defend the priority of
the Deed of Trust or to otherwise interpret or enforce any of the terms of this
Note, the Deed of Trust, the Loan Agreement or any of the other Loan Documents,
Borrower promises to pay all such attorneys' fees, costs and expenses all as
actually incurred by Holder as a result thereof including, without limitation,
(a) attorneys' fees, costs and expenses incurred in appellate proceedings or in
any action or participation in, or in connection with, any case or proceeding
under Chapters 7 or 11 of the Bankruptcy Code or any successor thereto, and (b)
attorneys' fees, costs and expenses incurred as a result of Holder exercising
its rights to cure any Event of Default by Borrower under this Note, the Deed of
Trust or any other Related Document, or as a result of the foreclosure of the
Deed of Trust, deed in lieu thereof, or trustee's sale thereunder.
13. WAIVER OF NOTICE. Borrower waives diligence, presentment for payment,
----------------
demand, notice of demand, notice of nonpayment or dishonor, protest and notice
of protest of this Note, and all other notices in connection with the delivery,
acceptance, performance, default, or enforcement of the payment of this Note,
except such notices as are provided in the Deed of Trust. Borrower further
waives all right of offset that it may now have or hereafter become entitled to
with respect to any Holder.
14. WAIVER. Holder shall not be deemed, by any act of omission or
------
commission, to have waived any of its rights or remedies hereunder unless such
waiver is in writing and signed by Holder, and then only to the extent
specifically set forth in the writing. The acceptance by Holder of any payment
hereunder which is less than payment in full of all amounts due and payable at
the time of such payment shall not constitute a waiver of the right to exercise
any of the foregoing options at that time or at any subsequent time or nullify
any prior exercise of any such option without the express consent of Holder,
except as and to the extent otherwise provided by law. A waiver with reference
to one event shall not be construed as continuing or as a bar to or waiver of
any right or remedy as to a subsequent event.
15. GOVERNING LAW. This instrument shall be governed by and construed
-------------
according to the laws of the State of California.
16. CONSTRUCTION OF CERTAIN TERMS. Whenever used, the singular shall
-----------------------------
include the plural, the plural shall include the singular, and the words
"Holder" and "Borrower" shall be deemed to include their respective heirs,
administrators, executors, successors and assigns.
17. NOTICE. All notices which Holder or Borrower may be required or
------
permitted to give hereunder shall be made in the same manner as set forth in
Section 9.3 of the Deed of Trust.
18. SEVERABILITY OF PROVISIONS. In the event any one or more of the
--------------------------
provisions hereof shall
<PAGE>
be invalid, illegal or unenforceable in any respect, the validity of the
remaining provisions hereof shall be in no way affected, prejudiced or disturbed
thereby.
19. SALE OF INTEREST. Borrower acknowledges that Holder may, in its
----------------
sole discretion, sell all or any part of its interest in the loan as evidenced
by this Note and, in connection therewith, Holder may assign all or any portion
of this Note. Any such sale and assignment may be at a discount or premium,
subject to a brokerage fee or involve a servicing agreement, and shall not alter
any of Borrower's obligations hereunder or under any of the Loan Documents.
20. ACCELERATION UPON TRANSFER. Sections 5.1.18 and 6.9 of the Deed of
--------------------------
Trust provide as follows:
"5.1.18 TRANSFER OF MORTGAGED PROPERTY. Trustor shall not, without
------------------------------
the prior written consent of Beneficiary, directly or indirectly sell, transfer,
convey, further encumber, assign, grant any option, subordinate, convert to
condominiums or grant any further lien or easement on all or any part of the
Mortgaged Property, or enter into any agreement for any of the foregoing,
whether by operation of law recorded or unrecorded, or voluntarily or
involuntarily; provided, however, that if the Mortgaged Property consists of
single-family homes, condominiums or other residential properties to be sold,
Trustor may accept sales reservations and enter into purchase and sales
contracts so long as such actions are consistent with the Loan Documents, all
rules and regulations of the California Department of Real Estate and all other
applicable laws, rules and regulations. Trustor shall promptly notify
Beneficiary in writing of any such intended event or agreement for which
Beneficiary's consent may be required.
6.9 DUE ON SALE. If, without the prior written consent of
-----------
Beneficiary, (a) there is any sale, transfer, assignment, conveyance or
encumbrance, whether voluntary or involuntary, of all or part of the Mortgaged
Property or any interest therein or any other event or agreement referred to in
Section 5.1.18, (b) Trustor or any one or more of the persons comprising Trustor
is a partnership and the interest of any general partner (or the interest of any
general partner in a partnership that is a partner) is assigned or transferred,
except for an assignment or transfer resulting from the death or physical or
mental incapacity of a general partner; (c) Trustor or any one or more of the
persons comprising Trustor is a partnership and more than twenty-five percent
(25%) of the corporate stock of any corporation that is a general partner of
such partnership is sold, transferred or assigned; (d) Trustor is a corporation
and more than twenty-five percent (25%) of the corporate stock is sold,
transferred or assigned; (e) Trustor is a trust and there is a change in
beneficial ownership with respect to more than twenty-five percent (25%) of the
trust; (f) Trustor consists of several persons or entities holding fractional
undivided interest in the Mortgaged Property and there is a cumulative change in
ownership with respect to more than a twenty-five percent (25%) fractional
undivided interest in the Mortgaged Property; or (g) there is a seizure of the
Mortgaged Property, or attachment of any lien on the Mortgaged Property, whether
voluntary or involuntary, which has not been removed or bonded off to
Beneficiary's satisfaction within thirty (30) days of such attachment."
21. INTEGRATION. This Note and the documents described herein
-----------
constitute the entire understanding of Borrower and Holder with respect to the
matters discussed herein, and supersede all prior and contemporaneous
discussions, agreements and representations, whether oral or written. This Note
may only be modified in a writing signed by Holder, or its loan servicing agent,
and Borrower.
22. HEADINGS. The section captions are inserted for convenience of
--------
reference only and shall in no way alter or modify the text of such sections.
23. USE OF BROKER. Borrower acknowledges that the loan evidenced by
-------------
this Note was arranged (as the term "arranged" is used in California Civil Code
Section 1916.1) by Ira C. Norris, who is licensed as a real estate broker in the
State of California.
<PAGE>
IN WITNESS WHEREOF, Borrower, intending to be legally bound hereby,
has duly executed this Note the day and year first above written.
BORROWER: INCO HOMES CORPORATION,
a Delaware corporation
By:________________________________
Ira C. Norris
President
<PAGE>
EXHIBIT A-1
-----------
INVESTORS
<TABLE>
<C> <S> <C> <C>
1. Kenneth R. Gardner & Yvonne M. Gardner $ 50,000 3.9216%
2. Richard Carpenter Living Trust, Richard Carpenter & $ 50,000 3.9216%
Richard Panneitz, TTEEs DTD 8/2/95
3. Jackie Ray Revocable Separate Property Trust $ 25,000 1.9607%
DTD 6/9/97, Jackie Ray Aker,s TTEE
4. William S. Van Buskirk $ 100,000 7.8431%
5. Christina J. Colligan Living Trust $ 100,000 7.8431%
UAD 8/7/96, Christina J. Colligan, TTEE
6. Alan Robinson & Gail Robinson $ 50,000 3.9216%
7. Barry Ross & Amy Ross $ 50,000 3.9216%
8. Ruth Campbell & Brent Johnson $ 50,000 3.9216%
9. Christina Reale $ 50,000 3.9216%
10. Lauren Reale $ 50,000 3.9216%
11. Alexander Family Trust DTD 6/16/95 $ 25,000 1.9607%
Francis W. Alexander & Melanie B. Alexander, TTEEs
12. Don Behringer & Diane Behringer $ 50,000 3.9216%
13. The G&M Rizzuto Trust DTD 6/25/97 $ 50,000 3.9216%
Gerald N. Rizzuto, TTEE & Marion E. Rizzuto, TTEE
14. Larry L. Mayorga & Cheryl Mayorga $ 50,000 3.9216%
15. Reiichi Iizuka, TTEE FBO $ 100,000 7.8431%
Reiichi Iizuka PSP DTD 4/1/72
16. Frank Reale $ 200,000 15.6863%
17. Keys Family Trust DTD 6/21/93 $ 100,000 7.8431%
David N. Keys, TTEE, Connie L. Keys, TEE
18. The Buckalew Trust, Robert M. Buckalew OR $ 25,000 1.9607%
Janet Buckalew, TTEE
19. Carol Ayres $ 50,000 3.9216%
20. Louis & Debra Somers 1993 Living Trust UAD 8/31/93, Louis $ 50,000 3.9216%
S. Somers, TTEE & Debra S. Somers, TTEE
$1,275,000 100.00%
</TABLE>
<PAGE>
EXHIBIT 10.92
RECORDING REQUESTED BY AND
WHEN RECORDED MAIL TO:
Stein & Lubin
600 Montgomery Street, 14th Floor
San Francisco, California 94111
Attention: Leon Y. Tuan
______________________________________________________________________________
CONSTRUCTION DEED OF TRUST, SECURITY AGREEMENT,
ASSIGNMENT OF LEASES AND
RENTS AND FIXTURE FILING
------------------------
THIS CONSTRUCTION DEED OF TRUST, SECURITY AGREEMENT, ASSIGNMENT OF
LEASES AND RENTS AND FIXTURE FILING ("Deed of Trust") is made as of November 18,
1997, among INCO HOMES CORPORATION, a Delaware corporation, whose address is set
forth below, as Trustor, the parties listed on Exhibit A-1 attached hereto,
-----------
whose address is set forth below, as Beneficiary, and ORANGE COAST TITLE
COMPANY, whose address is set forth below, as Trustee.
ARTICLE 1
DEFINITIONS
-----------
As used herein, the following terms shall have the following meanings:
1.1 ASSIGNMENT. The assignment, contained in Article 4 of this Deed
----------
of Trust, from Trustor to Beneficiary, of all of Trustor's right, title and
interest in and to the Leases and the Rents.
1.2 AWARDS. All awards and payments made or hereafter to be made by
------
any municipal, township, county, state, Federal or other governmental agencies,
authorities or boards or any other entity having the power of eminent domain to
Trustor, including any awards and payments for any taking of all or a portion of
the Mortgaged Property, as a result of, or by agreement in anticipation of, the
exercise of the right of condemnation or eminent domain, or for any change or
changes of grade of streets affecting the Mortgaged Property.
1.3 BENEFICIARY. The parties listed on Exhibit A-1 attached hereto,
----------- -----------
and their respective successors and assigns and the holders, from time to time,
of the Note.
1.4 BENEFICIARY'S ADDRESS. c/o USA Commercial Mortgage Company,
---------------------
Inc., 3900 Paradise Road, Suite 263, Las Vegas, Nevada 89109.
1.5 BUILDINGS. All buildings, improvements, alterations or
---------
appurtenances now, or at any time hereafter, located upon the Land or any part
thereof.
1.6 Intentionally Deleted.
1.7 EVENT(S) OF DEFAULT. The happenings and occurrences described in
-------------------
Article 6 of this Deed of Trust.
<PAGE>
1.8 FIXTURES. All fixtures now or hereafter affixed or attached to,
--------
or installed in, or used in connection with, the Land or Buildings, whether or
not permanently affixed thereto, together with all accessions, replacements and
substitutions thereto or therefor and the proceeds thereof.
1.9 Intentionally Deleted.
1.10 Intentionally Deleted.
1.11 IMPOSITIONS. All (i) real estate and personal property taxes and
-----------
other taxes and assessments, water and sewer rates and charges, and all other
governmental charges and any interest or costs or penalties with respect
thereto, and charges for an easement or agreement maintained for the benefit of
the Mortgaged Property which at any time prior to or after the execution of the
Loan Documents may be assessed, levied, or imposed upon the Mortgaged Property
or the rent or income received therefrom or any use or occupancy thereof, and
(ii) other taxes, assessments, fees and governmental charges levied, imposed or
assessed upon or against Trustor or any of its properties.
1.12 INDEBTEDNESS. The principal of and interest on and all other
------------
amounts, payments and premiums due under the Note (including any future
advances) and all other indebtedness of Trustor to Beneficiary, whether under
and/or secured by the Loan Documents, including, without limitation any
indebtedness owing under the Indemnity Agreement, or evidenced by some other
document that recites by its terms that it is secured by this Deed of Trust, and
any amendments, modifications, renewals and extensions of any of the foregoing.
1.13 INDEMNITY AGREEMENT. The Environmental Agreement and Indemnity,
-------------------
dated as of even date herewith, by Trustor in favor of Beneficiary, as the same
may be amended or otherwise modified.
1.14 LAND. The real property described in Exhibit A attached hereto.
---- ---------
1.15 LEASES. Any and all leases, subleases, licenses, concessions or
------
grants of other possessory interest now or hereafter in force, oral or written,
covering or affecting the Mortgaged Property, or any part thereof, together with
all rights, powers, privileges, options and other benefits of Trustor
thereunder.
1.16 ESCROW AGREEMENT. The Escrow and Security Agreement dated as of
----------------
even date herewith, among Trustor, Beneficiary and Ken's Construction Control,
as the same may be amended or otherwise modified.
1.17 MORTGAGED PROPERTY. The Land, the Buildings, the Fixtures, the
------------------
Personalty, the Awards, the Rents, the Leases and the Escrow Account, together
with:
(i) all rights, privileges, permits, licenses, rights-of-way,
easements, appendages and appurtenances of the Land and/or the
Buildings belonging or in any way appertaining thereto and all right,
title and interest of Trustor in and to any streets, ways, alleys, or
strips of land adjoining the Land or any part thereof;
(ii) all the estate, right, title, interest, claim or demand
whatsoever of Trustor, either at law or in equity, in and to the Land,
the Buildings, the Fixtures, the Awards, the Rents, the Leases, the
Personalty and the Escrow Account; and
(iii) all the estate, right, title, interest, claim or demand
whatsoever of Trustor, either at law or in equity, in and to the
Awards, or payments with respect to casualties.
1.18 NOTE. The promissory note, dated of even date with this Deed of
----
Trust, made by Trustor to the order of Beneficiary, in the original principal
amount of $1,275,000, secured by this Deed of Trust, together with all
extensions, renewals, modifications and amendments thereof.
<PAGE>
1.19 OBLIGATIONS. Any and all of the covenants, promises and other
-----------
obligations (other than the Indebtedness) made or owing by Trustor to or due to
Beneficiary, whether under and/or as set forth in the Note and/or the Loan
Documents, including, without limitation, any such covenants, promises and
obligations made by or owing by Trustor under the Indemnity Agreement, or
evidenced by some other document that recites by its terms that it is secured by
this Deed of Trust, and any and all extensions, renewals, modifications and
amendments of any of the foregoing.
1.20 PERMITTED ENCUMBRANCES. The encumbrances described, with
----------------------
particularity, in Exhibit B attached hereto.
---------
1.21 PERSONALTY. All furniture, furnishings, equipment, machinery,
----------
trade fixtures and all other tangible and intangible personal property (other
than the Fixtures) now owned or hereafter acquired by Trustor which are now or
hereafter used or owned in connection with the Land and/or the Buildings or
located in, upon or about the Land and/or the Buildings, together with all
accessions, replacements and substitutions thereto or therefor and the proceeds
and products thereof, including without limitation: (1) all personal property
located on the Land or Buildings and used in the operation or occupancy of the
Land or Buildings or in any construction on the Land or Buildings, including,
but not limited to, all furniture and furnishings, machinery, fixtures, goods,
office equipment, machine tools, apparatus, supplies, materials, trade fixtures,
building service equipment, boilers, equipment (including, without limitation,
all equipment for the generation or distribution of air, water, heat,
electricity, light, fuel or refrigeration, or for ventilating or air
conditioning purposes, or for sanitary or drainage purposes, or for the removal
of dust, refuse or garbage), partitions, appliances, ranges, refrigerators,
cabinets, laundry equipment, radios, televisions, awnings, window shades,
venetian blinds, drapes and drapery rods and brackets, screens, carpeting and
other floor coverings, lobby furnishings, games, recreational and swimming pool
equipment and incinerators, and all vehicles and accessories, tools,
appurtenances, dies, jigs, chattels and parts; (2) all general intangibles
relating to the development or use of the Land or Buildings, including, but not
limited to, all governmental permits relating to construction on the Land or
Buildings, all management agreements, franchise agreements, service contracts,
other contracts or agreements, all names under or by which the Land or Buildings
may at any time be operated or known, and all rights to carry on business under
any such names or any variant thereof, all trademarks and goodwill and all
interests in any owner's or member's association in any way relating to the Land
or Buildings; (3) all water stock relating to the Land or Buildings, all shares
of stock or other evidence of ownership of any part of the Land or Buildings
that is owned by the Trustor in common with others, and all documents of
membership in any owners' or members' association or similar group having
responsibility for owning, managing or operating any part of the Land or
Buildings; (4) all plans and specifications prepared for construction of
improvements on the Land or Buildings and all studies, data and drawings related
thereto; and also all contracts and agreements of Trustor relating to the plans
and specifications or to the studies, data and drawings, or to the construction
of improvements on the Land or Buildings; (5) all sales agreements, deposit
receipts, escrow agreements and other ancillary documents and agreements entered
into with respect to the sale to any purchasers of any part of the Land or
Buildings, together with all deposits and other proceeds of the sale thereof;
(6) all damages, royalties and revenues of every kind, nature and description
whatsoever that Trustor may be entitled to receive from any person or entity
owning or having or hereafter acquiring a right to the oil, gas or mineral
rights and reservations of the Land; (7) all deposits made with or other
security given to utility companies by Trustor with respect to the Land or
Buildings, and all advance payments of insurance premiums made by Trustor with
respect thereto and all claims or demands with respect to insurance; (8) any
funds held by or in the name of Beneficiary; (9) any causes of action deemed to
be assigned to Beneficiary under this Deed of Trust; (10) all substitutions,
renewals, improvements, attachments, accessions, additions and replacements to
any of the foregoing; and (11) all collections, proceeds, insurance proceeds and
products of any of the foregoing, including, without limitation, proceeds of any
voluntary or involuntary disposition or claim respecting any part thereof
(pursuant to judgment, condemnation award or otherwise), insurance proceeds paid
or owing as a result of any damage to any of the foregoing, and all documents,
instruments, general intangibles, chattel paper and accounts which may arise
from the sale or disposition of any of the foregoing, all guaranties of and
security for any of the foregoing, and all books and records relating to any of
the foregoing. "Personalty" shall also include all insurance policies that
cover any of the Land, the Buildings, the Fixtures, any other Personalty
described in this paragraph, and any rights, benefits and proceeds arising from
such insurance policies.
<PAGE>
1.22 LOAN DOCUMENTS. This Deed of Trust, the Security Agreement, the
--------------
Indemnity Agreement, the Escrow Agreement, the Release and Subordination
Agreement among the Borrower and lenders that are junior and senior to this Deed
of Trust and any and all other documents executed by Trustor now or hereafter
evidencing, securing or relating to the payment of the Indebtedness or the
observance or performance of the Obligations, as any of the same may be amended
or otherwise modified.
1.23 RENTS. All of the rents, revenues, income, profits, deposits,
-----
tenders and other benefits payable under the Leases and/or arising from the use
or enjoyment of all or any portion of the Mortgaged Property.
1.24 SECURITY AGREEMENT. The Security Agreement, contained in this
------------------
Deed of Trust, wherein and whereby Trustor grants a security interest in the
Personalty, the Awards, the Fixtures and the Escrow Account to Beneficiary.
1.25 ESCROW ACCOUNT. That certain deposit account no. _____________
--------------
in the name of Ken's Construction Control, Inc. for the benefit of Trustor and
maintained with ________________ at its branch located at
_______________________________________, together with all investments made in
the name of such account and all interest and other proceeds thereof.
1.26 TRUSTEE. The person, persons, or entity named as such in the
-------
preamble of this Deed of Trust and, as the case may be, his, their or its
successors and assigns.
1.27 TRUSTEE'S ADDRESS. 1060 E. Washington Street, Suite 200, Colton,
-----------------
California 92324. Facsimile: (909) 370-2132.
1.28 TRUSTOR. The entity named as such in the preamble of this Deed
-------
of Trust, and its heirs, administrators, executors, successors and assigns and
its successors in interest in and to the Mortgaged Property.
1.29 TRUSTOR'S ADDRESS. 1282 West Arrow Highway, Upland, California
-----------------
91786.
ARTICLE 2
GRANT
-----
2.1 GRANT. To secure the payment of the Indebtedness and the
-----
performance and discharge of the Obligations, Trustor by these presents hereby
grants, bargains, sells, assigns, mortgages, conveys and warrants unto Trustee,
in trust for Beneficiary, with power of sale and right of entry and possession,
the Mortgaged Property, to have and to hold the Mortgaged Property unto
Trustee, its successors and assigns forever.
2.2 CONDITION OF GRANT. Provided always, that if Trustor shall pay
------------------
or cause to be paid the entire Indebtedness as and when the same shall become
due and payable and shall observe, perform and discharge the Obligations, then
the Loan Documents and the estate and rights granted by Trustor shall cease,
terminate and become void, and shall be released or reconveyed by Beneficiary,
at the cost and expense of Trustor.
ARTICLE 3
SECURITY AGREEMENT AND FIXTURE FILING
-------------------------------------
3.1 SECURITY AGREEMENT. This Deed of Trust shall also constitute a
------------------
"Security Agreement" within the meaning of, and shall create a security interest
under, the Uniform Commercial Code as adopted by the state in which the
Mortgaged Property is located (the "UCC") in the Personalty, the Awards, the
Leases, the Rents, the Escrow Account, and the Fixtures.
3.2 SECURITY INTEREST. In order to further secure payment of the
-----------------
Indebtedness and the observance, performance and discharge of the Obligations,
Trustor hereby grants to Beneficiary a security interest
<PAGE>
under the UCC in the Personalty, the Award, the Leases, the Rents, the Escrow
Account and the Fixtures, and Beneficiary shall have all the rights with respect
to the Personalty, the Awards, the Leases, the Rents, the Escrow Account and the
Fixtures afforded to it by the UCC, in addition to, but not in limitation of,
the other rights afforded Beneficiary by the Loan Documents.
3.3 FINANCING STATEMENTS. Trustor agrees to and shall execute and
--------------------
deliver to Beneficiary, in form satisfactory to Beneficiary, such "Financing
Statements" and such further assurances as Beneficiary may, from time to time,
consider reasonably necessary to create, perfect and preserve Beneficiary's
liens upon the Personalty, the Awards, the Leases, the Rents, the Escrow Account
and the Fixtures, and Beneficiary, at the expense of Trustor, may or shall cause
such statements and assurances to be recorded and re-recorded, filed and re-
filed, at such times and places as may be required or permitted by law to so
create, perfect and preserve such liens.
3.4 FIXTURE FILING. This Deed of Trust is being recorded as a
--------------
fixture filing and covers goods which are or are to become fixtures on the Land
and/or the Buildings. This fixture filing is governed by the UCC. An address
of Beneficiary from which information concerning the security interest created
under this Article 3 may be obtained by contacting Beneficiary at Beneficiary's
address.
ARTICLE 4
ASSIGNMENT OF RENTS AND LEASES
------------------------------
4.1 ASSIGNMENT OF RENTS. All of Trustor's rights, title and interest
-------------------
in and to the Rents are hereby absolutely and irrevocably assigned to
Beneficiary to be applied against the Indebtedness and the Obligations. Trustor
hereby appoints Beneficiary its true and lawful attorney-in-fact, with the
right, at Beneficiary's option at any time, to demand, receive and enforce
payment, to give receipts, releases and satisfactions, and to sue, either in
Trustor's or Beneficiary's name, for all Rents. Notwithstanding the foregoing
Assignment of Rents, so long as no Event of Default has occurred which remains
uncured, Trustor is given a license to collect, receive, take, use and enjoy
such Rents, as they become due and payable, but not more than one month in
advance thereof. This assignment, and the assignment given in Article 4.2
below, shall be fully operative without any further action on the part of either
party; and specifically, Beneficiary shall be entitled at its option, upon the
occurrence of an Event of Default hereunder and for so long as such Event of
Default is continuing, to collect all Rents from the Mortgaged Property whether
or not Beneficiary takes possession of the Mortgaged Property and to exercise
any other remedies allowed by statute or under common law including, without
limitation, any remedy allowed under California Civil Code Section 2938. Upon
the occurrence of an Event of Default hereunder, the license hereby given to
Trustor to collect the Rents from the Mortgaged Property shall terminate. The
license given by Beneficiary to Trustor shall be reinstated upon a cure of such
Event of Default with Beneficiary's specific consent which shall not be
unreasonably withheld. This Assignment shall not be deemed or construed to
constitute Beneficiary or Trustee as a mortgagee in possession nor obligate
Beneficiary or Trustee to take any action or to incur expenses or perform or
discharge any obligation, duty or liability. Exercise of any rights under this
Section and the application of the Rents to the Indebtedness or the Obligations
shall not cure or waive any Event of Default but shall be cumulative of all
other rights and remedies.
4.2 ASSIGNMENT OF LEASES. Trustor hereby grants and assigns to
--------------------
Beneficiary all right, title and interest of Trustor in and to all Leases,
together with all security therefor and all monies payable thereunder, subject,
however, to the license given to Trustor above to collect the rentals under any
such Lease. The foregoing assignment of any Lease shall not be deemed to impose
upon Beneficiary any of the obligations or duties of Trustor provided in any
such Lease; and Trustor agrees to fully perform all obligations of the Lessor
under all such Leases. Upon Beneficiary's request, Trustor shall deliver to any
new lessee a notice of this assignment in form satisfactory to Beneficiary in
its sole discretion. Beneficiary may deliver such a notice to new lessees if
Trustor fails to do so within a reasonable time after Beneficiary's request.
From time to time, upon request of Beneficiary, Trustor shall specifically
assign to Beneficiary, by an assignment in writing in form approved by
Beneficiary, all right, title and interest of Trustor in and to any and all
Leases, together with all security therefor and all monies payable thereunder,
subject to the license given to Trustor above to collect the rentals under any
such Lease. Trustor shall also execute and deliver to Beneficiary any
notification, financing statement, or other document reasonably required by
Beneficiary to perfect the foregoing assignment as to any such Lease.
<PAGE>
4.3 EFFECT OF ASSIGNMENTS. This instrument constitutes an absolute
---------------------
and present assignment of the rents, royalties, issues, profits, revenue, income
and other benefits from the Mortgaged Property; subject, however, to the license
given to Trustor to collect, receive, take, use and enjoy the same as provided
above; provided, further, that the existence or exercise of such right of
Trustor shall not operate to subordinate this assignment to any subsequent
assignment by Trustor, in whole or in part, and any such subsequent assignment
by Trustor shall be subject to the rights of Trustee and Beneficiary hereunder.
4.4 NO MERGER OF LEASEHOLD ESTATES. If both the lessor's and
------------------------------
lessee's estate under any Lease, or any portion thereof, becomes vested at any
time in one owner, this Deed of Trust and the lien created hereby shall not be
adversely affected by the application of the doctrine of merger unless
Beneficiary so elects in writing by recording a written declaration so stating.
Unless and until Beneficiary so elects, Beneficiary and any lessor and lessee
shall continue to have and enjoy all of the rights and privileges to the
separate estates. In addition, upon the foreclosure of the lien created by this
Deed of Trust on the Mortgaged Property, any Leases then existing and affecting
all or any portion of the Mortgaged Property shall not be destroyed or
terminated by merger or by the foreclosure unless Beneficiary or any purchaser
at the sale so elects. No act by or on behalf of Beneficiary or such purchaser
shall constitute a termination of any Lease unless Beneficiary gives written
notice thereof to the tenant or subtenant affected.
4.5 ASSIGNMENT TO BENEFICIARY CONTROLLING. The rights of Trustee in
-------------------------------------
the Leases and Rents created under Article 2 shall be subject to the rights of
Beneficiary in the Leases and Rents created under this Article 4.
ARTICLE 5
COVENANTS AND REPRESENTATIONS AND WARRANTIES
--------------------------------------------
5.1 COVENANTS. Until the entire Indebtedness shall have been paid in
---------
full and all of the Obligations shall have been performed in full, Trustor
hereby covenants and agrees as follows:
5.1.1 COMPLIANCE WITH LAWS. Trustor will promptly and
--------------------
faithfully comply with, conform to, and obey all present and future laws,
ordinances, rules, regulations and requirements of every duly constituted
governmental authority or agency and of every Board of Fire Underwriters having
jurisdiction, or similar body exercising similar functions, which may be
applicable to it or to the Mortgaged Property, or any part thereof, or to the
use or manner of use, occupancy, possession, operation, maintenance, alteration,
repair or reconstruction of the Mortgaged Property, or any part thereof, whether
or not such law, ordinance, rule, order, regulation or requirement shall
necessitate structural changes or improvements or interfere with the use or
enjoyment of the Mortgaged Property.
5.1.2 PAYMENT OF IMPOSITIONS. Trustor will duly pay and
----------------------
discharge, or cause to be paid and discharged, the Impositions, such Impositions
or installments thereof to be paid prior to the day before any fine, penalty,
interest or cost may be added thereto or imposed by law for the non-payment
thereof; provided, however, that if, by law, any Imposition may be paid in
installments, Trustor may pay the same in such installments.
5.1.3 REPAIR AND ALTERATIONS.
----------------------
(a) Trustor will keep the Mortgaged Property in good
order and condition and make all necessary or appropriate repairs, replacements
and renewals thereof and will use its best efforts to prevent any act or thing
which might impair the value or usefulness of the Mortgaged Property.
(b) Trustor will not commit or knowingly permit any
waste of the Mortgaged Property or any part thereof, or make or permit to be
made any alterations or additions to the Mortgaged Property which would have the
effect of materially diminishing the value thereof, or make or permit to be made
any
<PAGE>
other alterations or additions to the Mortgaged Property, of a material nature,
without the prior written consent of Beneficiary.
(C) Trustor will not permit any of the Fixtures or
Personalty to be removed at any time from the Land and/or Buildings, without the
prior written consent of Beneficiary unless actually replaced by an article of
equal suitability and value and owned by Trustor free and clear of any lien or
security interest except such as may be approved in writing by Beneficiary.
5.1.4 INSURANCE. Trustor will maintain insurance upon the
---------
Mortgaged Property against loss by fire, windstorms, flood (if the Mortgaged
Property is located in a designated flood plain) and such other hazards,
casualties and contingencies as are normally and usually covered by All Risk
Property policies in effect in the locality where the Mortgaged Property is
situated and such other risks as may be specified by Beneficiary, from time to
time, in amounts and with insurers acceptable to Beneficiary (excluding
earthquake unless available at commercially reasonable rates), but in any event
not less than the full replacement cost of all insured real property, fixtures
leasehold improvements, contents, equipment and other personal property, and
business interruption or loss-of-rents limits shall be sufficient to meet loss
of one year's anticipated revenues. No primary deductible or retention greater
than $5,000 shall be called for in any such policies, unless agreed to in
writing by Beneficiary. Policies shall contain endorsements providing for
course of construction, breach of warranty, adjustment of value for inflation,
increased costs of replacement due to changes in code requirements, costs of
demolition, and such other conditions as may be required by Beneficiary.
Policies shall be endorsed with form 438BFUNS, or a similar endorsement
acceptable to Beneficiary, showing Beneficiary as an additional insured and loss
payee as its interests may appear, such loss payments to be applied to the
restoration, repair or replacement of the Mortgaged Property under terms and
conditions acceptable to Beneficiary; provided, however, that if an Event of
Default has occurred and is continuing or an event has occurred and is
continuing which with the passage of time or the giving of notice would
constitute an Event of Default, then Beneficiary may, in its sole discretion,
apply such payments to the payment of the Indebtedness.
Trustor shall also maintain Commercial General Liability insurance
which shall respond to third-party claims involving bodily injury, property
damage and personal injury arising out of Trustor's alleged actions or
inactions; such policies shall also include Garagekeepers Legal Liability
coverage. All such policies shall provide limits of coverage as Beneficiary may
specify, but in any event not less than One Million Dollars ($1,000,000) per
occurrence and annual aggregate as to liability for bodily injury, property
damage and personal injury. No primary deductible or retention shall be called
for in the policies. Trustor shall also maintain, or cause its contractors to
maintain, Worker's Compensation and Employer's Liability insurance.
All insurance policies required by Beneficiary under this Deed of
Trust shall be issued by companies acceptable to Beneficiary, but in no event
shall the company(ies) have ratings in the current Best's Insurance Rating
Manual of less than "A/XI." All liability insurance policies shall be endorsed
as to name Beneficiary as an additional insured under the policy as respects its
interests as mortgagee/secured party of the Mortgaged Property. All policies of
insurance shall provide that the policies may not be cancelled, materially
modified or terminated without at least thirty (30) days' prior written notice
to Beneficiary. Trustor shall furnish to Beneficiary duplicate executed copies
of each such policy at the time of execution hereof, and copies of each renewal
policy not less than thirty (30) days prior to the expiration of the original
policy or the preceding renewal policy (as the case may be), together with
receipts or other evidence that the premiums have been paid; and furnish to
Beneficiary certificates of insurance prepared by Trustor's insurance broker or
agent which show evidence of the required coverages and endorsements, and
payment of premiums thereon. Trustor will furnish to Beneficiary on or before
120 days after the close of each fiscal year of Trustor a statement of Trustor
of the amounts of insurance maintained in compliance with this Section 5.1.4, of
the risks covered by such insurance and of the insurance company or companies
which carry such insurance. In the event insurance proceeds received on account
of loss or damage to the Buildings, Personalty or Fixtures are insufficient to
effectuate full repair or replacement of such loss or damage, Beneficiary may
apply such insurance proceeds in reduction of the Indebtedness without
prepayment premium, unless Trustor shall provide or cause to be provided
additional funds in an amount not less than such deficiency and Trustor shall
place in escrow said funds in order to assure to Beneficiary's reasonable
satisfaction full repair of the damaged or destroyed Mortgaged Property or
portion thereof.
<PAGE>
5.1.5 RESTORATION FOLLOWING CASUALTY. In the event of the
------------------------------
happening of any casualty of any kind or nature (whether insured against or
not), resulting in damage to or destruction of the Mortgaged Property, Trustor
will give prompt notice thereof to Beneficiary, and, subject to the following
sentence, Trustor will promptly restore, repair, replace, rebuild or alter the
Mortgaged Property as nearly as possible to its value and condition immediately
prior to such damage or destruction.
In the event that the Mortgaged Property has been destroyed such that
the value of the Mortgaged Property has been materially impaired, even if
insurance proceeds are made available to Trustor to rebuild the damaged
property, then Beneficiary need not provide such insurance proceeds to Trustor
and may instead apply such insurance proceeds to prepay the Indebtedness in
whole.
5.1.6 LEASE AGREEMENT; ATTORNMENT. Trustor agrees not to
---------------------------
terminate, amend, or modify any of the Leases or subleases, or grant any
concessions in connection therewith, or to accept a surrender thereof without
the written consent of Beneficiary. All Leases shall be in form and substance
satisfactory to Beneficiary. Trustor agrees not to execute any future Lease or
Leases or subleases pertaining to the Mortgaged Property without the prior
written consent of Beneficiary. Trustor shall deliver to Beneficiary a complete
copy of each future Lease within 3 days after execution of such Lease. Trustor
shall provide to Beneficiary a subordination, attornment and non-disturbance
agreement executed by each tenant in a form satisfactory to Beneficiary in its
sole discretion.
5.1.7 PERFORMANCE OF LEASES AND OTHER AGREEMENTS. Trustor
------------------------------------------
will duly and punctually perform all covenants and agreements expressed as
binding upon it under the Leases and under any other agreements to which it is a
party with respect to the Mortgaged Property or any part thereof (including,
without limitation, all sales agreements entered into with respect to all or any
portion of the Mortgaged Property), and will use its best efforts to enforce or
secure the performance of each and every obligation and undertaking of the
respective lessees under the Leases and will appear and defend, at its cost and
expense, any action or proceeding arising under or in any manner connected with
the Leases or the obligations and undertakings of any lessee or other party
thereunder. Trustor will immediately notify Beneficiary in writing of any notice
of default received by Trustor from any tenant thereunder.
5.1.8 PAYMENT OF RENTS. Trustor hereby agrees that the
----------------
respective lessees under the Leases, upon notice from Beneficiary of the
occurrence of an Event of Default, shall thereafter pay to Beneficiary the Rents
due and to become due under the Leases without any obligation to determine
whether an Event of Default in fact exists.
5.1.9 INSPECTION. Trustor will permit Beneficiary, at all
----------
reasonable times and with reasonable notice, to inspect the Mortgaged Property.
Beneficiary shall have the right to enter onto the Mortgaged Property, at all
reasonable times, to inspect the Mortgaged Property for the existence of
Hazardous Materials (as defined in the Indemnity Agreement) on the Mortgaged
Property and to determine the compliance of the Mortgaged Property and its use
with any law, rule or regulation relating to industrial hygiene or environmental
conditions, including soil and ground water conditions and the compliance of the
Trustor and the Mortgaged Property with the conditions and covenants set forth
herein with respect to Hazardous Materials.
5.1.10 HOLD HARMLESS. Trustor will indemnify, defend and hold
-------------
Beneficiary harmless from any liability, loss, action, proceeding or claim
affecting the Mortgaged Property, or the value of the Note or the Loan
Documents. Trustor shall appear in and defend (or pay the expenses of
Beneficiary to defend, if Beneficiary gives Trustor notice of its election to
handle such defense) any action or proceeding purporting to affect the security
of this Deed of Trust and/or the rights and/or powers of Beneficiary hereunder,
and Trustor shall pay all costs and expenses (including costs of evidence of
title and attorneys' fees) in any action or proceeding in which Beneficiary may
so appear and/or any suit by Beneficiary to foreclose this Deed of Trust, to
enforce any obligations secured by this Deed of Trust, and/or to prevent the
breach hereof. Trustor's obligations under this Section 5.1.10 shall survive
payment of the Indebtedness.
<PAGE>
5.1.11 BOOKS AND RECORDS. Trustor will maintain full and
-----------------
complete books of account and other records reflecting the results of its
operations (in conjunction with its other operations as well as its operations
of the Mortgaged Property). If the Mortgaged Property consists of rental
property, Trustor will furnish or cause to be furnished to Beneficiary (a)
within 30 days after the end of each calendar quarter, detailed statements of
income and expenses relating to the Mortgaged Property for such period; (b)
within 90 days after the end of each calendar year, detailed statements of
income and expenses relating to the Mortgaged Property for such year; (c) within
30 days after the end of each calendar quarter, a rent roll for the Mortgaged
Property; and (d) within 30 days after the end of each calendar month, a
delinquency report and accounts receivable aging for the Mortgaged Property for
such month. If the Mortgaged Property consists of single-family lots or homes,
condominiums or other residential properties to be sold, Trustor will furnish or
will cause to be furnished to Beneficiary weekly written reports reflecting all
information relevant to the marketing and sale of such units, in such form as
Beneficiary may request. Within forty-five (45) days after the end of such
fiscal quarter of Trustor and within ninety (90) days after each fiscal year of
Trustor, Trustor will furnish or cause to be furnished to Beneficiary an income
statement, balance sheet and statement of changes in financial position for
Trustor. All financial information to be delivered to Beneficiary hereunder
shall in detail reasonably acceptable to Beneficiary, shall be prepared in
accordance with generally accepted accounting principles applied on a consistent
basis and, with respect to that information regarding Trustor, shall be
certified by the chief financial officer of Trustor as being true, correct and
complete. At any time more frequently than as specified above, and from time to
time, Trustor shall deliver to Beneficiary such other financial data and other
information, including, without limitation, copies of all Leases, as Beneficiary
shall, from time to time, reasonably request with respect to Trustor and the
ownership and operation of the Mortgaged Property, and Beneficiary shall have
the right, at reasonable times and upon reasonable notice, to audit Trustor's
books of account and records.
5.1.12 AWARDS. Trustor will file and prosecute its claim or
------
claims for any Awards in good faith and with due diligence and cause the same to
be collected and paid over to Beneficiary, and hereby irrevocably authorizes and
empowers Beneficiary, if its so desires, to file such claim and collect any
Awards and agrees that the proceeds of any Awards will be applied by Beneficiary
in reduction of any portion of the Indebtedness as Beneficiary may determine in
accordance with Article 8 hereof.
5.1.13 LICENSES. Trustor shall keep in full force and
--------
effect all licenses, permits and other governmental approvals which are
necessary for the construction, marketing and operation of the Mortgaged
Property and related facilities, and furnish evidence satisfactory to
Beneficiary that the Mortgaged Property and the use thereof comply with all
applicable zoning and building laws, regulations, ordinances and other
applicable laws.
5.1.14 NO FURTHER ENCUMBRANCE. Trustor shall not, without the
----------------------
prior written consent of Beneficiary, incur any additional indebtedness or
create or permit to be created or to remain, any mortgage, pledge, lien,
encumbrance or charge on, or conditional sale or other title retention agreement
with respect to, the Mortgaged Property or any part thereof or income therefrom,
other than the Loan Documents and the Permitted Encumbrances and except as
provided in Section 5.1.18 below.
5.1.15 MECHANIC'S LIEN. Trustor shall not permit or suffer
---------------
any mechanic's, materialman's or other lien to be created or to remain a lien
upon any of the Mortgaged Property.
5.1.16 MANAGEMENT. If Trustor seeks to have the Mortgaged
----------
managed by a management company, the management company must be approved by
Beneficiary under a management contract satisfactory in form and substance to
Beneficiary. The interests of the Trustor and the management company under such
contract shall be subordinate to the rights of Beneficiary hereunder, and the
management agreement shall provide that Beneficiary may, at its option,
terminate such contract upon the occurrence of an Event of Default.
5.1.17 USE OF MORTGAGED PROPERTY. Trustor shall not use the
-------------------------
Mortgaged Property or any part thereof, or allow the same to be used or
occupied, for any purpose other than for a residential subdivision, or for any
unlawful purpose, or in violation of any certificate of occupancy or other
permit or certificate, or any law, ordinance or regulation, covering or
affecting the use or occupancy thereof. Trustor will not suffer any act to be
done or any condition to exist on the Mortgaged Property or any part thereof or
any article to be brought thereon,
<PAGE>
which may be dangerous (unless safeguarded as required by law) or which may
constitute a nuisance, public or private, or which may void or make voidable any
insurance then in force with respect thereto.
5.1.18 TRANSFER OF MORTGAGED PROPERTY. Trustor shall not,
------------------------------
without the prior written consent of Beneficiary, directly or indirectly sell,
transfer, convey, further encumber assign, grant any option, subordinate,
convert to condominiums or grant any further lien or easement on all or any part
of the Mortgaged Property, or enter into any agreement for any of the foregoing,
whether by operation of law recorded or unrecorded, or voluntarily or
involuntarily; provided, however, that if the Mortgaged Property consists of
single-family lots or homes, condominiums or other residential properties to be
sold, Trustor may accept sales reservations and enter into purchase and sales
contracts so long as such actions are consistent with the Loan Documents, all
rules and regulations of the California Department of Real Estate and all other
applicable laws, rules and regulations. Trustor shall promptly notify
Beneficiary in writing of any such intended event or agreement for which
Beneficiary's consent may be required.
5.1.19 SENIOR DEED OF TRUST. Trustor shall not modify, amend,
--------------------
extend, renew or otherwise alter the terms of any loan or other obligation that
has a lien priority interest in all or any portion of the Mortgaged Property
that is senior to the lien created by this Deed of Trust without first obtaining
the prior written consent of Beneficiary, which consent may be withheld or
conditioned in Beneficiary's sole discretion. Trustor agrees to timely fulfill
all of its obligations under the Senior Deed of Trust and the other documents
that evidence or relate to the loan secured by the Senior Deed of Trust
(including, without limitation, any construction loan agreements now existing or
hereafter entered into with respect to such loan) (the "Senior Loan Documents").
Without limitation, Trustor agrees to construct , market and sell the single
family homes contemplated under the Senior Loan Documents.
5.2 REPRESENTATIONS AND WARRANTIES OF TRUSTOR. Trustor hereby
-----------------------------------------
represents and warrants to Beneficiary as follows, and agrees to give written
notice to Beneficiary of any breach of such representations and warranties.
5.2.1 GOOD STANDING/LICENSING. Trustor is duly organized,
-----------------------
validly existing and in good standing under the laws of its state of
organization, is duly licensed or qualified to do business and is in good
standing and is authorized to do business in every jurisdiction in which the
nature of its businesses or properties makes such licensing or qualification
necessary and where a failure to so qualify or be licensed would have a
materially adverse effect on the business or operations of the Trustor, and is
in compliance with all laws, regulations, ordinances and orders of public
authorities applicable to Trustor. If Trustor is a corporation or partnership,
the execution of the Note and the Loan Documents are within Trustor's corporate
or partnership powers.
5.2.2 NO CONFLICT. The Note and the Loan Documents will not
-----------
violate any provision of law (including, but not limited to any law relating to
usury), any order of any court or other agency or government, or any indenture,
agreement or other instrument to which Trustor is a party or by which Trustor or
any of its property is bound, or be in conflict with, result in a breach of or
constitute (with due notice and/or lapse of time) a default under any such
indenture, agreement or other instrument, or violate the partnership agreement
of the Trustor or result in the creation or imposition of any lien, charge or
encumbrance of any nature whatsoever upon any of the property or assets of
Trustor, except as contemplated by the Note and the Loan Documents, and no
action with respect thereto by Trustor is required.
5.2.3 CONSENTS. No consent or approval of any regulatory
--------
body to the execution, delivery and performance of the Note and the Loan
Documents or the transactions contemplated thereby is required by law.
5.2.4 SUITS. There are no suits, proceedings or
-----
investigations pending or threatened against or affecting Trustor, at law or in
equity, or before or by any governmental or administrative agency or
instrumentality which, if adversely determined, would have a material adverse
effect on the business or condition of Trustor.
<PAGE>
5.2.5 JUDGMENTS. No judgment, decree or order of any court
---------
or governmental or administrative agency or instrumentality has been issued
against Trustor which has or may have any material adverse effect on the
business or condition of Trustor.
5.2.6 INFORMATION. All information, reports, papers and data
-----------
given to Beneficiary with respect to Trustor or others obligated under the terms
of the Loan Documents are accurate and correct in all material respects and
complete insofar as completeness may be necessary to give Beneficiary a true and
accurate knowledge of the subject matter thereof.
5.2.7 TITLE/RIGHT TO ASSIGN LEASES. Trustor has good and
----------------------------
marketable title in fee simple to the Land and Buildings, and good and
marketable title to the Fixtures, the Escrow Account, the Awards and Personalty,
and the right to assign the Leases and Rents to Beneficiary free and clear of
any prior assignment, liens, charges, encumbrances, security interests and
adverse claims whatsoever except the Permitted Encumbrances.
5.2.8 LEASES. Trustor has not executed any prior assignment
------
of the Leases or of its right, title and interest therein or in the Rents to
accrue thereunder (except an assignment in favor of the lender under the Senior
Loan Documents), Trustor has delivered to Beneficiary a true and complete copy
of all of the existing Leases assigned hereunder, together with all amendments,
supplements and other modifications, and to the best of Trustor's knowledge, no
material default by Trustor or any other person under any existing Lease remains
uncured.
5.2.9 PERMITTED ENCUMBRANCES. The Permitted Encumbrances
----------------------
have not materially interfered with the operation of the Mortgaged Property, nor
does Trustor reasonably foresee any material interference arising from the
Permitted Encumbrances during the term of the Note.
5.2.10 TAXES. Trustor has filed all Federal, state, county
-----
and municipal income tax returns required to have been filed by them and have
paid all taxes which have become due pursuant to any assessments received by
them, and Trustor does not know of any basis for additional assessment in
respect to such taxes.
5.2.11 USE OF BORROWED FUNDS. Trustor hereby represents and
---------------------
warrants to Beneficiary that it intends to use the funds it is borrowing from
Beneficiary under the terms of the Note primarily for other than personal,
family or household purposes.
5.2.12 ELECTROMAGNETIC FIELDS. There are no electrical
----------------------
transformers or electrical stations or substations within 100 yards of any
portion of the Land.
5.2.13 SENIOR LOAN DOCUMENTS. As of the date hereof, the
---------------------
Senior Loan Documents are in full force and effect and Senior Lender is prepared
to fund its construction loan obligations under the Senior Loan Documents such
that Borrower can commence and/or continue its homebuilding activities on the
Mortgaged Property.
ARTICLE 6
EVENTS OF DEFAULT
-----------------
The term "Event(s) of Default", as used herein and in the Loan
Documents and the Note, shall mean the occurrence or happening, from time to
time, of any one or more of the following:
6.1 PAYMENT OF INDEBTEDNESS. If Trustor shall default in the due and
-----------------------
punctual payment of all or any portion of any installment of the Indebtedness,
whether at the due date thereof or by acceleration or otherwise, as and when the
same shall become due and payable and such failure continues for a period of ten
(10) days.
<PAGE>
6.2 PERFORMANCE OF OBLIGATIONS. If Trustor shall default in the due
--------------------------
observance or performance of any of the Obligations other than payment of money
and such default shall not be cured within twenty (20) days after such default.
6.3 BANKRUPTCY, RECEIVERSHIP, INSOLVENCY, ETC. If voluntary or
------------------------------------------
involuntary proceedings under the Federal Bankruptcy Code, as amended, shall be
commenced by or against Trustor or the general partner of Trustor (if any), or
bankruptcy, receivership, insolvency, reorganization, dissolution, liquidation
or other similar proceedings shall be instituted by or against Trustor or the
general partner of Trustor (if any) with respect to all or any part of Trustor's
property or the property of the general partner of Trustor under the Federal
Bankruptcy Code, as amended, or other law of the United States or of any state
or other competent jurisdiction, and if such proceedings are instituted against
Trustor or the general partner of Trustor (if any) and it shall consent thereto
or shall fail to cause the same to be discharged within sixty (60) days.
6.4 LAWS AFFECTING OBLIGATIONS AND INDEBTEDNESS. If subsequent to
-------------------------------------------
the date of this Deed of Trust, any governmental entity in which the Mortgaged
Property is located passes any law (a) which renders payment of the Indebtedness
and/or performance of the Obligations by Trustor unlawful, or (b) which
prohibits Beneficiary from exercising any of its rights and remedies under the
Note and Loan Documents.
6.5 FALSE REPRESENTATION. If any representation or warranty made by
--------------------
Trustor or others in, under or pursuant to the Note or the Loan Documents
(including, but not limited to, any representation or warranty made in Section
5.2 hereof) shall prove to have been false or misleading in any material respect
as of the date on which such representation or warranty was made.
6.6 DESTRUCTION OF IMPROVEMENTS. If any of the Buildings is
---------------------------
demolished or removed or demolition or removal thereof is imminent, eminent
domain proceedings excepted.
6.7 DEFAULT UNDER OTHER DEED OF TRUST. If the holder of any senior
---------------------------------
or junior deed of trust or any other lien on the Mortgaged Property (without
hereby implying Beneficiary's consent to any such junior deed of trust or lien)
institutes foreclosure or other proceedings for the enforcement of its remedies
thereunder, or if a default exists under any other deed of trust or lien on the
Mortgaged Property or any documents that evidence or relate to the loans secured
by any of the foregoing deeds of trust or liens.
6.8 LOAN DOCUMENTS. If a default shall occur under the Note or any
--------------
of the Loan Documents.
6.9 DUE ON SALE. If, without the prior written consent of
-----------
Beneficiary, (a) there is any sale, transfer, assignment, conveyance or
encumbrance, whether voluntary or involuntary, of all or part of the Mortgaged
Property or any interest therein or any other event or agreement referred to in
Section 5.1.18, (b) Trustor or any one or more of the persons comprising Trustor
is a partnership and the interest of any general partner (or the interest of any
general partner in a partnership that is a partner) is assigned or transferred,
except for an assignment or transfer resulting from the death or physical or
mental incapacity of a general partner; (c) Trustor or any one or more of the
persons comprising Trustor is a partnership and more than twenty-five percent
(25%) of the corporate stock of any corporation that is a general partner of
such partnership is sold, transferred or assigned; (d) Trustor is a corporation
and more than twenty-five percent (25%) of the corporate stock is sold,
transferred or assigned; (e) Trustor is a trust and there is a change in
beneficial ownership with respect to more than twenty-five percent (25%) of the
trust; (f) Trustor consists of several persons or entities holding fractional
undivided interest in the Mortgaged Property and there is a cumulative change in
ownership with respect to more than a twenty-five percent (25%) fractional
undivided interest in the Mortgaged Property; or (g) there is a seizure of the
Mortgaged Property, or attachment of any lien on the Mortgaged Property, whether
voluntary or involuntary, which has not been removed or bonded off to
Beneficiary's satisfaction within thirty (30) days of such attachment.
6.10 JUDGMENT. If a final judgment for the payment of money in excess
--------
of Ten Thousand Dollars ($10,000) shall be rendered against Trustor and the same
shall remain unpaid for a period of thirty (30) consecutive days during which
period execution shall not be effectively stayed.
ARTICLE 7
DEFAULT AND FORECLOSURE
-----------------------
<PAGE>
7.1 REMEDIES. If an Event of Default shall occur, Beneficiary may,
--------
at its option, by or through Trustee or otherwise, exercise one or more or all
of the following remedies:
7.1.1 ACCELERATION. Declare the unpaid portion of the
------------
Indebtedness to be immediately due and payable, without further notice or demand
(each of which hereby is expressly waived by Trustor), whereupon the same shall
become immediately due and payable.
7.1.2 ENTRY ON MORTGAGED PROPERTY. Enter upon the Mortgaged
---------------------------
Property and take possession thereof and of all books, records, and accounts
relating thereto.
7.1.3 OPERATION OF MORTGAGED PROPERTY. Hold, lease,
-------------------------------
operate or otherwise use or permit the use of the Mortgaged Property, or any
portion thereof, in such manner, for such time and upon such terms as
Beneficiary may deem to be in its best interest (making such repairs,
alterations, additions and improvements thereto, from time to time, as
Beneficiary shall deem necessary or desirable) and collect and retain all
earnings, rents, profits or other amounts payable in connection therewith.
7.1.4 JUDICIAL PROCEEDINGS. Institute proceedings for the
--------------------
complete or partial foreclosure of this Deed of Trust or 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 (without being required to foreclose 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 elect.
7.1.5 SALE OF MORTGAGED PROPERTY. Cause the Mortgaged
--------------------------
Property and all estate, right, title and interest, claim and demand therein, or
any part thereof to be sold as follows:
(a) Beneficiary may proceed as if all of the Mortgaged
Property were real property, in accordance with subparagraph (d) below, or
Beneficiary may elect to treat any of the Mortgaged Property which consists of a
right in action or which is property that can be severed from the premises
without causing structural damage thereto as if the same were personal property,
and dispose of the same in accordance with subparagraph (c) below, separate and
apart from the sale of real property, with the remainder of the Mortgaged
Property being treated as real property.
(b) Beneficiary may cause any such sale or other
disposition to be conducted immediately following the expiration of any grace
period, if any, herein provided (or required by law) or Beneficiary may delay
any such sale or other disposition for such period of time as Beneficiary deems
to be in its best interest. Should Beneficiary desire that more than one such
sale or other disposition be conducted, Beneficiary may at its option, cause the
same to be conducted simultaneously, or successively on the same day, or at such
different days or times and in such order as Beneficiary may deem to be in its
best interest.
(c) Should Beneficiary elect to cause any of the
Mortgaged Property to be disposed of as personal property as permitted by
subparagraph (a) above, it may dispose of any part thereof in any manner now or
hereafter permitted by Division 9 of the UCC or in accordance with any other
remedy provided by law. Both Trustor and Beneficiary shall be eligible to
purchase any part of all of such property at any such disposition. Any such
disposition may be either public or private as Beneficiary may so elect, subject
to the provisions of the UCC. Beneficiary shall give Trustor at least five (5)
days prior written notice of the time and place of any public sale or other
disposition of such property or of the time at or after which any private sale
or any other intended disposition is to be made, and if such notice is sent to
Trustor it shall constitute reasonable notice to Trustor.
(d) Should Beneficiary elect to sell the Mortgaged
Property which is real property or which Beneficiary has elected to treat as
real property, upon such election Beneficiary or Trustee shall give such Notice
of Default and Election to Sell as may then be required by law. Thereafter, upon
the expiration of such time and the giving of such Notice of Sale as may then be
required by law, Trustee, at the time and place specified in the Notice of Sale,
shall sell such Mortgaged Property, or any portion thereof specified by
<PAGE>
Beneficiary, at public auction to the highest bidder for cash in lawful money of
the United States, subject, however, to the provisions of Section 7.1.5(e)
hereof. Trustee for good cause may, and upon request of Beneficiary shall, from
time to time, postpone the sale by public announcement thereof at the time and
place noticed therefor. If the Mortgaged Property consists of several lots or
parcels, Beneficiary may designate the order in which such lots or parcels may
be offered for sale or sold, and may direct that such property be sold in one
parcel, as an entirety, or in such parcels as Beneficiary, in its sole
discretion, may elect. Trustor expressly waives any right which it may have to
direct the order in which any of the Mortgaged Property shall be sold, and its
rights, if any, to require the Mortgaged Property be sold as separate tracts,
lots, units, or parcels. Any person, including Trustor, Trustee or Beneficiary,
may purchase at the sale. Upon any sale Trustee shall execute and deliver to the
purchaser or purchasers a deed or deeds conveying the property so sold, but
without any covenant or warranty whatsoever, express or implied, whereupon such
purchaser or purchasers shall be let into immediate possession.
(e) Upon any sale of the Mortgaged Property, whether
made under a power of sale herein granted or pursuant to judicial proceedings,
if the holder of the Note is a purchaser at such sale, it shall be entitled to
use and apply all or any portion of the indebtedness then secured hereby for or
in settlement or payment of all or any portion of the purchase price of the
property purchased, and, in such case, this Deed of Trust, the Note and
documents evidencing expenditures secured hereby shall be presented to the
person conducting the sale in order that the amount of said indebtedness so used
or applied may be credited thereon as having been paid.
(f) In the event of a sale or other disposition of any
such Mortgaged Property or any part thereof, and the execution of a deed or
other conveyance pursuant thereto, the recitals in the deed or deeds of facts
(such as of a default, the giving of notice of default and notice of sale,
demand that such sale should be made, postponement of sale, terms of sale, sale,
purchaser, payment of purchase money, and any other fact affecting the
regularity or validity of such sale or disposition) shall be conclusive proof of
the truth of such facts; and any such deed or conveyance shall be conclusive
against all persons as to such facts recited therein.
7.1.6 RECEIVER. Beneficiary shall be entitled, as a matter
--------
of strict right, without notice and ex parte, and without regard to the value or
occupancy of the security, or the solvency of the Trustor, or the adequacy of
the Mortgaged Property as security for the Note, to have a receiver appointed to
enter upon and take possession of the Mortgaged Property, collect the Rents and
profits therefrom and apply the same as the court may direct, such receiver to
have all the rights and powers permitted under the laws of the jurisdiction in
which the Mortgaged Property is located. Trustor hereby waives any requirements
on the receiver or Beneficiary to post any surety or other bond. Beneficiary or
the receiver may also take possession of, and for these purposes use, any and
all Personalty which is a part of the Mortgaged Property and used by Trustor in
the rental or leasing thereof or any part thereof. The expense (including the
receiver's fees, counsel fees, costs and agent's compensation) incurred pursuant
to the powers herein contained shall be secured by this Deed of Trust.
Beneficiary shall (after payment of all costs and expenses incurred) apply such
Rents, issues and profits received by it on the Indebtedness in the order set
forth in Section 7.7 hereof. The right to enter and take possession of the
Mortgaged Property, to manage and operate the same, and to collect the Rents,
issues and profits thereof, whether by receiver or otherwise, shall be
cumulative to any other right or remedy hereunder or afforded by law, and may be
exercised concurrently therewith or independently thereof. Beneficiary shall be
liable to account only for such Rents, issues and profits actually received by
Beneficiary.
7.1.7 ADDITIONAL RIGHTS AND REMEDIES. With or without
------------------------------
notice, and without releasing Trustor from the Indebtedness or Obligations, and
without becoming a mortgagee in possession, Beneficiary and Trustee shall have
the right to cure any breach or default of Trustor and, in connection therewith,
to enter upon the Mortgaged Property and to do such acts and things as
Beneficiary or Trustee deem necessary or desirable to protect the security
hereof including, but without limitation, to appear in and defend any action or
proceedings purporting to affect the security hereof or the rights or powers of
Beneficiary or Trustee hereunder; to pay, purchase, contest or compromise any
encumbrance, charge, lien or claim of lien which, in the judgment of either
Beneficiary or Trustee, is prior or superior hereto, the judgment of Beneficiary
or Trustee being conclusive as between the parties hereto; to obtain insurance;
to pay any premiums or charges with respect to insurance required to be carried
hereunder; and to employ counsel, accountants, contractors and other appropriate
persons to assist
<PAGE>
them. All sums so paid by Beneficiary, and all costs and expenses, including,
without limitation, reasonable attorneys' fees and expenses so incurred together
with interest thereon at the interest rate provided in the note, from the date
of payment or incurring, shall constitute additions to the Indebtedness secured
by the Loan Documents, and shall be paid by Trustor to Beneficiary, on demand.
If Beneficiary shall elect to pay any Imposition, Beneficiary may do so in
reliance on any bill, statement or assessment procured from the appropriate
public office, without inquiring into the accuracy thereof or into the validity
of such Imposition. Trustor shall indemnify Beneficiary for all losses and
expenses, including reasonable attorneys' fees, incurred by reason of any acts
performed by Beneficiary pursuant to the provisions of this Section 7.1.7 or by
reason of the Loan Documents, and any funds expended by Beneficiary to which it
shall be entitled to be indemnified, together with interest thereon at the
interest rate provided in the Note from the date of such expenditures, shall
constitute additions to the Indebtedness and shall be secured by the Loan
Documents and shall be paid by Trustor to Beneficiary upon demand.
7.1.8 OTHER. Exercise any other remedy specifically granted
-----
under the Note and the Loan Documents, or now or hereafter existing in equity,
at law, by virtue of statute or otherwise, including the rights described below.
7.1.9 LATE CHARGE AND DEFAULT INTEREST. Impose the late
--------------------------------
charges and the default interest rate as provided for in the Note.
7.2 SEPARATE SALES. Any real property or any interest or estate
--------------
therein sold pursuant to any writ of execution issued on a judgment obtained by
virtue of the Note, this Deed of Trust or the other Loan Documents, or pursuant
to any other judicial proceedings under this Deed of Trust or the other Loan
Documents, or pursuant to the power of sale granted herein, may be sold in one
parcel, as an entirety, or in such parcels, and in such manner or order as
Beneficiary, in its sole discretion, may elect.
7.3 REMEDIES CUMULATIVE AND CONCURRENT. The rights and remedies of
----------------------------------
Beneficiary as provided in the Note, this Deed of Trust and in the Loan
Documents shall be cumulative and concurrent and may be pursued separately,
successively or together against Trustor or against other obligors or against
the Mortgaged Property, or any one or more of them, at the sole discretion of
Beneficiary, and may be exercised as often as occasion therefor shall arise.
The failure to exercise any such right or remedy shall in no event be construed
as a waiver or release thereof, nor shall the choice of one remedy be deemed an
election of remedies to the exclusion of other remedies.
7.4 NO CURE OR WAIVER. Neither Beneficiary's nor Trustee's nor any
-----------------
receiver's entry upon and taking possession of all or any part of the Mortgaged
Property nor any collection of rents, issues, profits, insurance proceeds,
condemnation proceeds or damages, other security or proceeds of other security,
or other sums, nor the application of any collected sum to any Indebtedness and
Obligations, nor the exercise of any other right or remedy by Beneficiary or
Trustee or any receiver shall impair the status of the security, or cure or
waive any default or notice of default under this Deed of Trust, or nullify the
effect of any notice of default or sale (unless all Indebtedness and Obligations
which are then due have been paid and performed and Trustor has cured all other
defaults), or prejudice Beneficiary or Trustee in the exercise of any right or
remedy, or be construed as an affirmation by Beneficiary of any tenancy, lease
or option or a subordination of the lien of this Deed of Trust.
7.5 PAYMENT OF COSTS, EXPENSES AND ATTORNEYS FEES. Trustor agrees to
---------------------------------------------
pay to Beneficiary immediately and without demand all costs and expenses
incurred by Trustee and Beneficiary in exercising the remedies under the Note
and Loan Documents (including but without limitation, court costs and attorneys'
fees, whether incurred in litigation or not) with interest at the greater of the
interest rate provided in the Note or the highest rate payable under any
Indebtedness and Obligations, from the date of expenditure until said sums have
been paid. Beneficiary shall be entitled to bid, at the sale of the Mortgaged
Property held pursuant to the power of sale granted herein or pursuant to any
judicial foreclosure of this instrument, the amount of said costs, expenses and
interest in addition to the amount of the other Indebtedness and Obligations as
a credit bid, the equivalent of cash.
7.6 WAIVER OF REDEMPTION, NOTICE, MARSHALLING, ETC. Trustor hereby
-----------------------------------------------
waives and releases (a) all benefit that might accrue to Trustor by virtue of
any present or future law exempting the Mortgaged Property, or any part of the
proceeds arising from any sale thereof, from attachment, levy or sale on
execution, or providing
<PAGE>
for any redemption or extension of time for payment, (b) unless specifically
required herein, all notices of Trustor's default or of Beneficiary's election
to exercise, or Beneficiary's actual exercise, of any option or remedy under the
Note or the Loan Documents; (c) any right to have the liens against the
Mortgaged Property marshaled; and (d) the right to plead or assert any statute
of limitations as a defense or bar to the enforcement of the Note or the Loan
Documents.
7.7 APPLICATION OF PROCEEDS. The proceeds of any sale of all or any
-----------------------
portion of the Mortgaged Property and the amounts generated by any holding,
leasing, operation or other use of the Mortgaged Property shall be applied by
Beneficiary in the following order, or in such other order or proportion as
Beneficiary shall decide in its sole discretion:
(a) first, to the payment of the costs and expenses of taking
possession of the Mortgaged Property and of holding, using, leasing, repairing,
improving and selling the same (including without limitation payment of any
Impositions or other taxes);
(b) second, to the extent allowed by law, to the payment of
attorneys' fees and other legal expenses, including expenses and fees incurred
on appeals, and legal expenses and fees of a receiver;
(c) third, to the payment of all amounts advanced under this Deed
of Trust or any other Loan Document (except for the Indemnity Agreement) to
preserve the value of the Mortgaged Property;
(d) fourth, to the payment of late charges and accrued and unpaid
interest on the Indebtedness;
(e) fifth, to the payment of the unpaid balance of the
Indebtedness (except for that portion of the Indebtedness that arises out of the
Indemnity Agreement); and
(f) sixth, to the payment of any amounts owing to Beneficiary or
the other Indemnified Parties (as defined in the Indemnity Agreement) under the
Indemnity Agreement.
The balance, if any, shall be paid to the parties entitled to
receive it.
7.8 STRICT PERFORMANCE. Any failure by Beneficiary to insist upon
------------------
strict performance by Trustor of any of the terms and provisions of the Loan
Documents, or of the Note shall not be deemed to be a waiver of any of the terms
or provisions of the Loan Documents, or the Note and Beneficiary shall have the
right thereafter to insist upon strict performance by Trustor of any and all of
them.
7.9 NO CONDITIONS PRECEDENT TO EXERCISE OF REMEDIES. Neither Trustor
-----------------------------------------------
nor any other person now or hereafter obligated for payment of all or any part
of the Indebtedness shall be relieved of such obligation by reason of the
failure of Beneficiary to comply with any request of Trustor or of any other
person so obligated to take action to foreclose on this Deed of Trust or
otherwise enforce any provisions of the Loan Documents or the Note, or by reason
of the release, regardless of consideration, of all or any part of the security
held for the Indebtedness, or by reason of any agreement or stipulation between
any subsequent owner of the Mortgaged Property and Beneficiary extending the
account of the occurrence of an Event of Default, including but not limited to
any transfer or disposition as prohibited by Sections 5.1.14 and 5.1.18.
7.10 ENVIRONMENTAL DEFAULT AND REMEDIES. In the event that any
----------------------------------
portion of the Mortgaged Property is determined to be "environmentally impaired"
(as "environmentally impaired" is defined in California Code of Civil Procedure
Section 726.5(e)(3)) or to be an "affected parcel" (as "affected parcel" is
defined in California Code of Civil Procedure Section 726.5(e)(1)), then,
without otherwise limiting or in any way affecting Beneficiary's or Trustee's
rights and remedies under this Deed of Trust, Beneficiary may elect to exercise
its right under California Code of Civil Procedure Section 726.5(a) to (1) waive
its lien on such environmentally impaired or affected portion of the Mortgaged
Property and (2) exercise (i) the rights and remedies of an unsecured creditor,
including reduction of its claim against Trustor to judgment, and (ii) any other
rights and remedies permitted by law. For purposes of determining Beneficiary's
right to proceed as an
<PAGE>
unsecured creditor under California Code of Civil Procedure Section 726.5(a),
Trustor shall be deemed to have willfully permitted or acquiesced in a release
or threatened release of hazardous materials, within the meaning of California
Code of Civil Procedure Section 726.5(d)(1), if the release or threatened
release of hazardous materials was knowingly or negligently caused or
contributed to by any lessee, occupant or user of any portion of the Mortgaged
Property and Trustor knew or should have known of the activity by such lessee,
occupant or user which caused or contributed to the release or threatened
release. All costs and expenses, including, but not limited to, attorneys' fees,
incurred by Beneficiary in connection with any action commenced under this
Section 7.10, including any action required by California Code of Civil
Procedure Section 726.5(b) to determine the degree to which the Mortgaged
Property is environmentally impaired, plus interest thereon at the interest rate
provided in the Note until paid, shall be added to the Indebtedness secured by
this Deed of Trust and shall be due and payable to Beneficiary upon its demand
made at any time following the conclusion of such action.
ARTICLE 8
CONDEMNATION
------------
8.1 CONDEMNATION. Trustor hereby assigns, transfers and sets over to
------------
Beneficiary all rights of Trustor to any award or payment in respect of (a) any
taking of all or a portion of the Mortgaged Property as a result of, or by
agreement in anticipation of, the exercise of the right of condemnation or
eminent domain; (b) any such taking of any appurtenances to the Mortgaged
Property or of vaults, areas or projections outside the boundaries of the
Mortgaged Property, or rights in, under or above the alleys, streets or avenues
adjoining the Mortgaged Property, or rights and benefits of light, air, view or
access to said alleys, streets, or avenues or for the taking of space or rights
therein, below the level of, or above the Mortgaged Property; and (c) any damage
to the Mortgaged Property or any part thereof due to governmental action, but
not resulting in, a taking of any portion of the Mortgaged Property, such as,
without limitation, the changing of the grade of any street adjacent to the
Mortgaged Property. Trustor hereby agrees to file and prosecute its claim or
claims for any such award or payment in good faith and with due diligence and
cause the same to be collected and paid over to Beneficiary, and hereby
irrevocably authorizes and empowers Beneficiary, in the name of Trustor or
otherwise, to collect and receipt for any such award or payment and, in the
event Trustor fails to act, or in the event that an Event of Default has
occurred and is continuing, to file and prosecute such claim or claims.
8.2 APPLICATION OF PROCEEDS. All proceeds received by Beneficiary
-----------------------
with respect to a taking of all or any part of the Mortgaged Property or with
respect to damage to all or any part of the Mortgaged Property from governmental
action not resulting in a taking of the Mortgaged Property, shall be applied as
follows, in the order of priority indicated or in such other order or proportion
as Beneficiary shall decide in its sole discretion:
(a) to reimburse Beneficiary for all costs and expenses,
including reasonable attorneys' fees incurred in connection with collecting the
said proceeds;
(b) to the payment of late charges, if any, owing under the Note
or the Loan Documents;
(c) to the payment of accrued and unpaid interest on the Note;
(d) to the prepayment of the unpaid principal of the Note,
without premium;
(e) to the payment of the balance of the Indebtedness; and
(f) to the payment of any amounts owing to Beneficiary or the
other Indemnified Parties (as defined in the Indemnity Agreement) under the
Indemnity Agreement.
The balance, if any, will be paid to Trustor.
<PAGE>
ARTICLE 9
MISCELLANEOUS
-------------
9.1 FURTHER ASSURANCES. Trustor, upon the reasonable written request
------------------
of Beneficiary, will execute, acknowledge and deliver, or arrange for the
execution, acknowledgment and delivery of, such further instruments (including,
without limitation, financing statements, estoppel certificates and declarations
of no set-off, attornment agreements and acknowledgments of the Assignment) and
do such further acts as may be necessary, desirable or proper to carry out more
effectively the purpose of the Loan Documents, to facilitate the assignment or
transfer of the Note and the Loan Documents and to subject to the liens of the
Loan Documents any property intended by the terms thereof to be covered thereby,
and any renewals, additions, substitutions, replacements or betterments thereto.
Upon any failure of Trustor to execute and deliver such instruments,
certificates and other documents on or before fifteen (15) days after receipt of
written request therefor, Beneficiary may make, execute and record any and all
such instruments, and certificates and Trustor irrevocably appoints Beneficiary
the agent and attorney-in-fact of Trustor to do so.
9.2 RECORDING AND FILING. Trustor, at its expense, will cause the
--------------------
Loan Documents, all supplements thereto and any financing statements at all
times to be recorded and filed and re-recorded and re-filed in such manner and
in such places as Beneficiary shall reasonably request, and will pay all such
recording, filing, re-recording and re-filing taxes, fees and other charges.
9.3 NOTICE. Trustor hereby requests that a copy of any notice of
------
default and every notice of sale hereunder be mailed to it as provided by law at
the Trustor's Address. All notices, demands, requests and other communications
required under the Loan Documents and the Note shall be in writing and shall be
deemed effective (i) upon mailing by U.S. certified or registered mail, postage
prepaid, addressed to the party for whom it is intended at the Trustor's Address
or the Trustee's Address, as the case may be, or in the case of notices to
Beneficiary, to Beneficiary at the Beneficiary's Address, or (ii) upon receipt,
if personally delivered or sent by facsimile. Any party may designate a change
of address or facsimile number by written notice to the other, given at least 10
business days before such change of address is to become effective. Trustor
may, from time to time, change the address to which notice of default and notice
of sale hereunder shall be sent by both recording a request therefor and sending
a copy of such request to Beneficiary.
9.4 BENEFICIARY'S RIGHT TO PERFORM THE OBLIGATIONS. If Trustor shall
----------------------------------------------
fail to make any payment or perform any act required by the Note or the Loan
Documents, then, at any time thereafter, without notice to or demand upon
Trustor and without waiving or releasing any obligation or default, Beneficiary
may make such payment or perform such act for the account of and at the expense
of Trustor, and shall have the right to enter the Mortgaged Property for such
purpose and to take all such action thereon and with respect to the Mortgaged
Property as may be necessary or appropriate for such purpose. All sums so paid
by Beneficiary, and all costs and expenses, including, without limitation,
reasonable attorneys' fees and expenses so incurred together with interest
thereon at the interest rate provided in the Note, from the date of payment or
incurring, shall constitute additions to the Indebtedness secured by the Loan
Documents, and shall be paid by Trustor to Beneficiary, on demand. If
Beneficiary shall elect to pay any Imposition, Beneficiary may do so in reliance
on any bill, statement or assessment procured from the appropriate public
office, without inquiring into the accuracy thereof or into the validity of such
Imposition. Trustor shall indemnify Beneficiary for all losses and expenses,
including reasonable attorneys' fees, incurred by reason of any acts performed
by Beneficiary pursuant to the provisions of this Section 9.4 or by reason of
the Loan Documents, and any funds expended by Beneficiary to which it shall be
entitled to be indemnified, together with interest thereon at the interest rate
provided in the Note from the date of such expenditures, shall constitute
additions to the Indebtedness and shall be secured by the Loan Documents and
shall be paid by Trustor to Beneficiary upon demand.
9.5 COVENANTS RUNNING WITH THE LAND. All covenants contained in the
-------------------------------
Loan Documents shall run with the Mortgaged Property.
9.6 SEVERABILITY. In case the Indebtedness or any one or more of the
------------
Obligations shall be invalid, illegal or unenforceable in any respect, the
validity of the Note, this Deed of Trust, the Loan Documents, the
<PAGE>
Indemnity Agreement and remaining Indebtedness or Obligations shall be in no way
affected, prejudiced or disturbed thereby.
9.7 MODIFICATION. The Loan Documents and the terms of each of them
------------
may not be changed, waived, discharged or terminated orally, but only by an
instrument or instruments in writing signed by the party against which
enforcement of the change, waiver, discharge or termination is asserted.
9.8 DUE ON SALE. The loan evidenced by the Note and secured by this
-----------
Deed of Trust is personal to Trustor, and Beneficiary made such loan to Trustor
based upon the credit of Trustor and Beneficiary's judgment of the ability of
Trustor to repay the entire Indebtedness and therefore this Deed of Trust may
not be assumed by any subsequent holder of an interest in the Mortgaged Property
without Beneficiary's prior written consent.
9.9 TAX ON INDEBTEDNESS OR DEED OF TRUST. In the event of the
------------------------------------
passage, after the date of this Deed of Trust, of any law deducting from the
value of land for the purposes of taxation, any lien thereon, or imposing upon
Beneficiary the obligation to pay the whole, or any part, of the taxes or
assessments or charges or liens herein required to be paid by Trustor, or
changing in any way the laws relating to the taxation of deeds of trust,
mortgages or debts as to affect the Deed of Trust or the Indebtedness, the
entire unpaid balance of the Indebtedness shall, at the option of Beneficiary,
after thirty (30) days written notice to Trustor, become due and payable;
provided, however, that if, in the opinion of Beneficiary's counsel, it shall be
lawful for Trustor to pay such taxes, assessments, or charges, or to reimburse
Beneficiary therefor, then there shall be no such acceleration of the time for
payment of the unpaid balance of the Indebtedness if a mutually satisfactory
agreement for reimbursement, in writing, is executed by Trustor and delivered to
Beneficiary within the aforesaid period.
9.10 MAXIMUM RATE OF INTEREST. Notwithstanding any provision in this
------------------------
Deed of Trust, or in any instrument now or hereafter relating to or securing the
Indebtedness evidenced by the Note, the total liability for payments of interest
and payments in the nature of interest, including, without limitation, all
charges, fees, exactions, or other sums which may at any time be deemed to be
interest, shall not exceed the limit, if any, imposed by Beneficiary by
applicable usury laws. In the event the total liability for payments of
interest and payments in the nature of interest, including, without limitation,
all charges, fees, exactions, or other sums which may at any time be deemed to
be interest, shall for any reason whatsoever, result in an effective rate of
interest, which for any month or other interest payment period exceeds the limit
imposed by the applicable usury laws, all sums in excess of those lawfully
collectible as interest for the period in question shall, without further
agreement or notice by, between, or to any party hereto, be applied to the
reduction of the Indebtedness immediately upon receipt of such sums by
Beneficiary, with the same force and effect as though Trustor had specifically
designated such excess sums to be so applied to the reduction of the
Indebtedness and Beneficiary had agreed to accept such sums as a payment of the
Indebtedness not subject to any prepayment penalty, provided, however, that
Beneficiary may, at any time and from time to time, elect, by notice in writing
to Trustor, to waive, reduce, or limit the collection of any sums (or refund to
Trustor any sums collected) in excess of those lawfully collectible as interest
rather than accept such sums as a prepayment of the Indebtedness.
9.11 SURVIVAL OF WARRANTIES AND COVENANTS. The warranties,
------------------------------------
representations, covenants and agreements set forth in the Loan Documents shall
survive the making of the loan and the execution and delivery of the Note, and
shall continue in full force and effect until the Indebtedness and Obligations
shall have been paid and performed in full. Notwithstanding the foregoing, (i)
the obligations specified in Section 5.1.10 hereof, (ii) the obligations under
the Indemnity Agreement, and (iii) any other obligation contained in the Note or
the Loan Documents that expressly so provides, shall survive the full payment
and performance of the Indebtedness and Obligations.
9.12 APPLICABLE LAW. This instrument and the rights and obligations
--------------
of the parties hereunder shall be governed by and construed in accordance with
the laws of the State of California.
9.13 LOAN EXPENSES. Trustor shall pay all costs and expenses in
-------------
connection with the preparation, execution, delivery and performance of the Note
and the Loan Documents and the transactions contemplated thereby, including (but
not limited to) costs and fees incurred by Beneficiary's independent inspector,
<PAGE>
fees and disbursements of its and Beneficiary's counsel, broker's fees, costs
and expenses of procuring any environmental audits required to be procured by
Trustor, recording costs and expenses, conveyance fees, documentary stamp,
intangible and other taxes, and costs and expenses of surveys, appraisals and
policies of title insurance, physical damage insurance, and liability insurance.
9.14 SUBSTITUTION OF TRUSTEE. Beneficiary, acting alone, may, from
-----------------------
time to time, by instrument in writing, substitute a successor or successors to
any Trustee named herein or acting hereunder. Such instrument, executed,
acknowledged and recorded in the manner required by law, shall be conclusive
proof of proper substitution of such successor Trustee or Trustees, who shall
(without conveyance from the preceding Trustee) succeed to all of the title,
estate, rights, powers and duties of such preceding Trustee. Such instrument
shall contain the name of the original Trustor, Trustee and Beneficiary
hereunder, the book and page or instrument number where this Deed of Trust is
recorded and the name and address of the new Trustee. If a notice of default
has been recorded, this power of substitution cannot be exercised until after
the costs, fees, and expenses, of the then acting Trustee have been paid to such
Trustee, who shall endorse receipt thereof upon such instrument of substitution.
9.15 NO REPRESENTATIONS BY BENEFICIARY. By accepting or approving
---------------------------------
anything required to be observed, performed or fulfilled or to be given to
Beneficiary, pursuant to the Loan Documents, including (but not limited to) any
officer's certificate, survey, appraisal or insurance policy, Beneficiary 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 be or
constitute any warranty or representation with respect thereto by Beneficiary.
9.16 ACCEPTANCE OF TRUST. Trustee accepts the Trust created by this
-------------------
Deed of Trust when this Deed of Trust, duly executed and acknowledged, is made a
public record a provided by law.
9.17 WAIVER OF STATUTE OF LIMITATIONS AND RIGHTS TO TRIAL BY JURY.
------------------------------------------------------------
The pleading of any statute of limitations as a defense to any and all
obligations secured by this Deed of Trust and the right to a jury trial in any
action under or relating to the Loan Documents is hereby waived, to the fullest
extent allowed by law.
9.18 PARTIAL RECONVEYANCE. Upon the prior written request by Trustor
--------------------
to Beneficiary requesting that a portion of the Mortgaged Property that
constitutes a separate legal parcel (hereinafter referred to as a "Lot") be
reconveyed, Beneficiary shall cause such Lot(s) to be released from the lien of
this Deed of Trust by depositing a request for such reconveyance into an escrow
opened by or for Trustor in connection with the sale of such Lot(s) provided
--------
that:
- ----
(a) No Event of Default has occurred and is continuing and no
event has occurred which, with notice or lapse of time or both, would constitute
an Event of Default;
(b) Beneficiary is paid the "Release Price" for such Lot, as that
term is defined in the Note;
(c) Trustor shall be responsible for obtaining (and providing
evidence of such to Beneficiary's satisfaction) all governmental approvals which
may be required in order that the reconveyance or a subsequent foreclosure of
the Mortgaged Property remaining subject to the lien of this Deed of Trust will
not result in a disposition of property constituting a violation of any
ordinance, law or regulation of any public authority relating to the
subdivision, development or sale or resale of real property;
(d) Beneficiary shall not be required to direct Trustee to
reconvey any Lot if:
(i) Such reconveyance would, in the opinion of Beneficiary,
(A) result in a disposition of property constituting the violation of
any ordinance, law or regulation of any public authority or covenant,
condition or restriction affecting the Mortgaged Property relating to
the subdivision, development, sale or resale of real property, or (B)
result in the violation of any ordinance, law or regulation of any
public authority or covenant, condition or restriction affecting
<PAGE>
the Mortgaged Property relating to the subdivision, development, sale
or resale of real property upon foreclosure by Beneficiary of any
portion of the Mortgaged Property remaining subject to the lien of
this Deed of Trust; or
(ii) Such reconveyance would, in the opinion of Beneficiary,
deny any portion of the Mortgaged Property remaining subject to the
lien of this Deed of Trust the right of ingress and egress to and from
any dedicated street to which such Mortgaged Property would otherwise
be entitled or the right of access to any public utility services,
lines and facilities to which such Mortgaged Property would otherwise
be entitled or would restrict or adversely affect any such rights of
ingress, egress or access.
(e) Beneficiary shall have obtained a form CLTA 111 endorsement
to its lender's policy of title insurance, and if requested by Beneficiary, an
endorsement ensuring that the partial reconveyance does not constitute a
violation of the California Subdivision Map Act, all at the cost and expense of
Trustor;
(f) Trustor shall have reimbursed Beneficiary for all its costs
and expenses incurred in effectuating the release requested by Trustor; and
(g) For the release of the last Lot remaining subject to the lien
of this Deed of Trust, the total amount of the Indebtedness shall be reduced to
zero and all Obligations then outstanding shall be performed in full.
9.19 COMPENSATION OF TRUSTEE. Trustee shall be entitled to reasonable
-----------------------
compensation for all services rendered or expenses incurred in the
administration or execution of the trusts hereby created and Trustor hereby
agrees to pay same. Trustee and Beneficiary shall be indemnified, held harmless
and reimbursed by Trustor for any liability, damage or expense, including
attorneys' fees and amounts paid in settlement, which they or either of them may
incur or sustain in the execution of this trust or in the doing of any act which
they, or either of them are required or permitted to do by the terms hereof or
by law.
9.20 ASSIGNABILITY. Trustor acknowledges that Beneficiary may grant
-------------
and assign all or any portion of its beneficial interest under this Deed of
Trust to one or more third parties. Trustor agrees that, upon such grant and
assignment, such third parties shall be entitled to all of the rights, remedies
and benefits provided to the beneficiary hereunder.
9.21 ENTIRE AGREEMENT. This Deed of Trust, Note and the Loan
----------------
Documents constitute the entire agreement between or among the parties hereto
with respect to the matters addressed therein, and supersede all prior oral or
written communications or agreements with respect to such matters.
9.22 REMEDIES. No right, power or remedy given Beneficiary by the
--------
terms of this Deed of Trust is intended to be exclusive of any other right,
power or remedy. Each and every such right, power or remedy shall be cumulative
and in addition to every other right, power or remedy given to Beneficiary by
the terms of any of the foregoing, by any statute or otherwise against Trustor
or any other person.
9.23 NO WAIVER. No delay or omission by Beneficiary in exercising any
---------
right or power arising from any default by Trustor shall be construed as a
waiver of such default or as an acquiescence therein, nor shall any single or
partial exercise thereof preclude any further exercise thereof. Beneficiary
may, at its option, waive any of the conditions herein and any such waiver shall
not be deemed to be a modification of the terms hereof. No waiver of any event
of default shall be construed to be a waiver of or acquiescence in or consent to
any preceding or subsequent event of default.
9.24 HEADINGS. The article headings and the section and subsection
--------
captions are inserted for convenience of reference only and shall in no way
alter or modify the text of such articles, sections and subsections.
<PAGE>
9.24 ATTORNEYS' FEES. If any action or proceeding is commenced to
---------------
interpret or enforce the terms of this Deed of Trust, the prevailing party shall
be entitled to attorneys' fees and costs, as well as the costs of such action or
proceeding, including, without limitation, (a) attorneys' fees, costs and
expenses incurred in appellate proceedings or in any action or participation in,
or in connection with, any case or proceeding under Chapters 7 or 11 of the
Bankruptcy Code or any successor thereto, and (b) attorneys' fees, costs and
expenses incurred as a result of Beneficiary exercising its rights to cure any
Event of Default by Borrower under this Deed of Trust or any other Loan
Document, or as a result of the foreclosure of the Deed of Trust, deed in lieu
thereof, or trustee's sale thereunder.
9.25 TIME OF ESSENCE. Time is of the essence to each and every
---------------
provision of this Deed of Trust, the Note and the other Loan Documents.
9.26 LOAN SERVICING AGENT. Trustor acknowledges that Beneficiary may
--------------------
engage a loan servicing agent to service the Note and protect and enforce
Beneficiary's rights under this Deed of Trust, the Note and the other Loan
Documents. Trustor agrees that it shall cooperate with such loan servicing
agent and recognize it as Beneficiary's representative with respect to all
rights and benefits under this Deed of Trust, the Note and the other Loan
Documents upon being notified in writing of the appointment of such loan
servicing agent by Beneficiary.
IN WITNESS WHEREOF, Trustor has executed this Deed of Trust as of the
date first above written.
TRUSTOR: INCO HOMES CORPORATION,
a Delaware corporation
By: ----------------------
Ira C. Norris
President
<PAGE>
EXHIBIT 10.93
PROMISSORY NOTE
---------------
$473,972.60 November 18, 1997
FOR VALUE RECEIVED, INCO HOMES CORPORATION, a Delaware corporation
("Borrower"), whose address is 1282 West Arrow Highway, Upland, California
91786, promises to pay to HUNTER'S RIDGE INVESTMENT PARTNERS, a California
partnership ("Holder"), or order, c/o Thomas E. Gibbs, Jr., 879 West 190th
Street, Suite 400, Gardena, California 90248, or at such other place as Holder
may from time to time in writing designate, in lawful money of the United States
of America, the principal sum of FOUR HUNDRED SEVENTY-THREE THOUSAND NINE
HUNDRED SEVENTY-TWO and 60/100 DOLLARS ($473,972.60) or such greater or lesser
sum as may be outstanding pursuant to this Note and the Deed of Trust and
Assignment of Rents dated as of even date with this Note, between Borrower and
Holder (the "Deed of Trust") and the other Loan Documents (as defined below),
together with interest on the principal balance outstanding from time to time
("Principal Balance"), in like money, from the date of this Note until fully
repaid at the rates hereinafter set forth.
1. DEFINITIONS. As used herein, the terms "Borrower," "Holder,"
-----------
and "Principal Balance" have the meanings assigned in the preceding paragraph,
and the following terms have the following meanings:
(a) "DEED OF TRUST" shall mean the Deed of Trust and
-------------
Assignment of Rents, dated as of even date with this Note, from Borrower to the
trustee specified therein, in trust for Holder, covering certain real and
personal property described therein situated in Fontana, San Bernardino County,
California, as the same may be amended or otherwise modified.
(b) "EVENT OF DEFAULT" means a default under this Note, the
----------------
Deed of Trust or any other Loan Document.
(c) "HOME" OR "HOMES" means the 42 single-family home lots, as
---- -----
well as all improvements constructed thereon, located in Fontana, San Bernardino
County, California that constitute a part of the Mortgaged Property.
(d) "INTEREST RATE" means a rate per annum equal to ten
-------------
percent (10%).
(e) "LOAN DOCUMENTS" means any other documents that evidence
--------------
or relate to the loan evidenced by this Note.
(f) "MATURITY DATE" means the date which occurs fifteen (15)
-------------
months after the date hereof.
(g) "MORTGAGED PROPERTY" means the real and personal property
------------------
covered by the Deed of Trust.
(h) "NET SALES PROCEEDS" for any Home means the gross sales
------------------
price of such Home less (i) reasonable and customary closing costs and broker's
commission incurred in connection with the sale of the Home, provided that the
broker's commission paid to Borrower or an affiliate of Borrower shall not
exceed one and one-half percent (1 1/2%) of the gross sales price, (ii) amounts
to be paid to the Senior Lender in order to cause the Home to be released from
the lien of the Senior Deed of Trust , (iii) amounts, if any, to be paid to
contractors and material and labor providers with respect to materials and labor
provided in connection with the construction of the Home so that the Home can be
sold free and clear of all mechanics' liens; provided, however, that if the
total due to such contractors and material and labor providers for any Home
exceeds $5,000, then the payment to such contractors and material and labor
providers must be approved by the Second Lender or its loan servicing agent,
(iv) $1000, to be paid to Borrower to fund a warranty reserve with respect to
the Homes, and (v) amounts to be paid to Second Lender in order to cause the
Home to be released from the lien of the Second Deed of Trust.
(i) "RELEASE PRICE" for any Home means an amount equal to the
-------------
lesser of (i) $13,000, plus accrued interest owing under this Note and plus the
Release Price Shortfall, if any, or (ii) the Net
<PAGE>
Sales Proceeds for such Home.
(j) "RELEASE PRICE SHORTFALL" As of the date this Note is
-----------------------
executed and delivered, the Release Price Shortfall shall be equal to zero. The
Release Price Shortfall shall be increased each time the Net Sales Proceeds
resulting from the sale of a Home and paid to Holder is less than $13,000. The
increase in the Release Price Shortfall shall be equal to the difference between
the Net Sales Proceeds paid to Holder and $13,000. The Release Price Shortfall
shall be decreased each time the Net Sales Proceeds for a Home that is paid to
Holder exceeds $13,000. The decrease in the Release Price Shortfall shall be
equal to that portion of the Net Sales Proceeds paid to Holder that exceeds
$13,000.
(k) "RESIDUAL PROCEEDS" as to any Home means an amount equal
-----------------
to one-half of the positive difference, if any, between the Net Sales Proceeds
for such Home and the Release Price.
(l) "SECOND DEED OF TRUST" means that certain Construction
--------------------
Deed of Trust, Security Agreement, Assignment of Leases and Rents and Fixture
Filing dated November ___, 1997 and recorded on November ___, 1997 in the
Official Records of San Bernardino County, California as Instrument No.
_____________, given by Borrower, as trustor, for the benefit of the Second
Lender, that encumbers the Mortgaged Property.
(m) "SECOND LENDER" means the parties named in the Second Deed
-------------
of Trust as beneficiary.
(n) "SENIOR DEED OF TRUST" means that certain Deed of Trust
--------------------
dated October 3, 1996 and recorded on October 22, 1996 in the Official Records
of San Bernardino County, California as Instrument No. 96-390256, given by
Borrower, as trustor, for the benefit of the Senior Lender, that encumbers the
Mortgaged Property.
(o) "SENIOR LENDER" means Independent Lending Corporation, a
-------------
Delaware Corporation d/b/a Construction Lending Corporation of America, as the
beneficiary under the Senior Deed of Trust, and its successors and assigns under
the Senior Deed of Trust.
2. INTEREST RATE. From the date of this Note to and including
-------------
the date the entire Principal Balance is paid in full, the Principal Balance
shall bear interest at the Interest Rate. Interest shall be calculated based on
the actual days the Principal Balance is outstanding hereunder divided by 365
days and multiplied by the Interest Rate. Interest that accrues but remains
unpaid shall not compound (i.e., shall not be added to principal).
3. PAYMENT OF PRINCIPAL AND INTEREST. The Principal Balance and
---------------------------------
interest thereon shall be due and payable as follows:
(a) Borrower shall pay, at the time the sale of each Home
closes (i.e., title transfers from the Borrower or other owner of the Home to
the purchaser of the Home), an amount equal to the Release Price and the
Residual Proceeds. The Residual Proceeds will be applied against the interest
and principal owing under this Note.
(b) On the Maturity Date, Borrower shall make a final payment
that shall include the unpaid portion of the Principal Balance, any interest
accrued and unpaid thereon, and any and all other sums due under this Note, the
Deed of Trust and the Loan Documents.
4. APPLICATION OF PAYMENTS. Each payment received by Holder from
-----------------------
Borrower with respect to this Note shall be applied against the interest,
principal and other amounts owing under this Note, the Deed of Trust and the
Loan Documents in such order or proportion as Holder, in Holder's sole
discretion, may determine. Payments shall be deemed made when Holder has
received, at Holder's address or at such other address as Holder shall provide
written notice of to Borrower, immediately available funds in lawful money of
the United States of America.
BORROWER UNDERSTANDS THAT THIS NOTE IS NOT SELF-AMORTIZING AND THAT A
SUBSTANTIAL BALLOON PAYMENT MAY BE DUE ON THE MATURITY DATE.
<PAGE>
5. PREPAYMENT. Borrower may prepay all or any portion of the
----------
Principal Balance at any time without premium on at least thirty (30) days prior
written notice to Holder.
6. MAXIMUM RATE OF INTEREST. Notwithstanding any provision in
------------------------
this Note, the total liability for payments of interest and payments in the
nature of interest, including without limitation, all charges, fees or any sums
which may at any time be deemed to be interest, shall not exceed the amount
which Holder may lawfully collect. In the event the total liability for
payments of interest and payments in the nature of interest, including without
limitation, all charges, fees or other sums which may at any time be deemed to
be interest, shall, for any reason whatsoever, result in an effective rate of
interest, which for any month or other interest payment period exceeds the
amount which Holder may lawfully collect, all sums in excess of those lawfully
collectible as interest for the period in question shall, without further notice
to any party hereto, be applied as a premium-free reduction of the Principal
Balance immediately upon receipt of such sums by Holder, with the same force and
effect as though Borrower had specifically designated such excess sums to be so
applied to the reduction of the Principal Balance; provided, however, that
Holder may, at any time, and from time to time, elect, by notice in writing to
Borrower, to waive, reduce or limit the collection of any sums (or refund to
Borrower any sums collected) in excess of those lawfully collectible as interest
rather than accept such sums on prepayment of the Principal Balance.
7. SECURITY. Payment of this Note is secured by the Deed of
--------
Trust and the Loan Documents. All of the agreements, conditions, covenants,
provisions and stipulations contained in the Deed of Trust and the Loan
Documents which are to be kept and performed by Borrower are hereby made a part
of this Note to the same extent and with the same force and effect as if they
were fully set forth herein, and Borrower covenants and agrees to keep and
perform them, or cause them to be kept and performed, strictly in accordance
with their terms.
8. LATE CHARGES. Time is of the essence hereof and if any amount
------------
owing under this Note is not paid within five (5) days of when due, Borrower
shall pay to Holder a late charge payment equal to five percent (5%) of such
amount. Borrower recognizes that a default by Borrower in making the payments
agreed to be paid when due will result in Holder's incurring additional expenses
in servicing the loan evidenced by this Note, including, but not limited to
sending out notices of delinquency, computing interest, and segregating the
delinquent sums from not delinquent sums on all accounting, loan and data
processing records, in loss to Holder of the use of the money due, and in
frustration to Holder in meetings its other financial commitments, but that it
is extremely difficult and impractical to ascertain the extent of such damages.
Borrower therefore agrees that a sum equal to $0.05 for each $1.00 of each
payment that is not paid five (5) days after its due date, is a reasonable
estimate of the fair average compensation for the loss and damages Holder will
suffer, that such amount shall be presumed to be the amount of damages sustained
by Holder in such case, and that Borrower agrees to pay Holder this sum on
demand. Such late charge shall be paid without prejudice to the right of Holder
to collect any other amounts provided to be paid or to declare a default under
this Note, the Deed of Trust or Loan Documents.
9. DEFAULT INTEREST. Time is of the essence hereof and, from
----------------
and after the Maturity Date or five days after the occurrence of an Event of
Default, all amounts owing under this Note and the Loan Documents shall bear
interest at a rate per annum equal to five percent (5%) (the "Default Rate"),
instead of at the Interest Rate. If the Default Rate is triggered as a result
of an Event of Default and Borrower subsequently cures the Event of Default,
then all amounts owing hereunder will resume bearing interest at the Interest
Rate, rather than the Default Rate, on the date the Event of Default is cured;
provided, however, that the interest owing hereunder may again accrue at the
Default Rate upon the occurrence of a subsequent Event of Default. Borrower
recognizes that a default by Borrower in making the payments agreed to be paid
when due will result in damage to Holder, including loss to Holder of the use of
the money due and frustration to Holder in meetings its other financial
commitments, but that it is extremely difficult and impractical to ascertain the
extent of such damages. Borrower therefore agrees that the Default Rate is a
reasonable estimate of the loss and damages Holder will suffer, that such amount
shall be presumed to be the amount of damages sustained by Holder in such case,
and that Borrower agrees to pay Holder this sum on demand. Interest at the
Default Rate shall be paid without prejudice to the right of Holder to collect
any other amounts provided to be paid or to declare a default under this Note,
the Deed of Trust or Loan Documents.
<PAGE>
10. DEFAULT. Upon the occurrence of any Event of Default,
-------
Holder, at its option and without further notice, demand, or presentment for
payment to Borrower or others, may declare immediately due and payable the
unpaid Principal Balance and interest accrued thereon together with all other
sums owed by Borrower under this Note, the Deed of Trust and the Loan Documents
(including, but not limited to attorneys' fees as provided in Section 12 below),
anything in this Note, the Deed of Trust and the Loan Documents to the contrary
notwithstanding. Payment of such sums may be enforced and recovered in whole or
in part at any time by one or more of the remedies provided to Holder in this
Note, the Deed of Trust and the Loan Documents.
11. REMEDIES CUMULATIVE. The remedies of Holder, as provided in
-------------------
this Note, the Deed of Trust and the Loan Documents, shall be cumulative and
concurrent and may be pursued singly, successively or together, at the sole
discretion of Holder, and may be exercised as often as occasion therefor shall
occur; and the failure to exercise any such right or remedy shall in no event be
construed as a waiver or release thereof.
12. ATTORNEYS' FEES. In the event that suit be brought hereon,
---------------
or an attorney be employed or expenses be incurred to compel payment of this
Note or any portion of the indebtedness evidenced hereby, or to defend the
priority of the Deed of Trust or to otherwise interpret or enforce any of the
terms of this Note, the Deed of Trust, or any of the other Loan Documents,
Borrower promises to pay all such attorneys' fees, costs and expenses all as
actually incurred by Holder as a result thereof including, without limitation,
(a) attorneys' fees, costs and expenses incurred in appellate proceedings or in
any action or participation in, or in connection with, any case or proceeding
under Chapters 7 or 11 of the Bankruptcy Code or any successor thereto, and (b)
attorneys' fees, costs and expenses incurred as a result of Holder exercising
its rights to cure any Event of Default by Borrower under this Note, the Deed of
Trust or any other Loan Document, or as a result of the foreclosure of the Deed
of Trust, deed in lieu thereof, or trustee's sale thereunder.
13. WAIVER OF NOTICE. Borrower waives diligence, presentment for
----------------
payment, demand, notice of demand, notice of nonpayment or dishonor, protest and
notice of protest of this Note, and all other notices in connection with the
delivery, acceptance, performance, default, or enforcement of the payment of
this Note, except such notices as are provided in the Deed of Trust. Borrower
further waives all right of offset that it may now have or hereafter become
entitled to with respect to any Holder.
14. WAIVER. Holder shall not be deemed, by any act of omission
------
or commission, to have waived any of its rights or remedies hereunder unless
such waiver is in writing and signed by Holder, and then only to the extent
specifically set forth in the writing. The acceptance by Holder of any payment
hereunder which is less than payment in full of all amounts due and payable at
the time of such payment shall not constitute a waiver of the right to exercise
any of the foregoing options at that time or at any subsequent time or nullify
any prior exercise of any such option without the express consent of Holder,
except as and to the extent otherwise provided by law. A waiver with reference
to one event shall not be construed as continuing or as a bar to or waiver of
any right or remedy as to a subsequent event.
15. GOVERNING LAW. This instrument shall be governed by and
-------------
construed according to the laws of the State of California.
16. CONSTRUCTION OF CERTAIN TERMS. Whenever used, the singular
-----------------------------
shall include the plural, the plural shall include the singular, and the words
"Holder" and "Borrower" shall be deemed to include their respective heirs,
administrators, executors, successors and assigns.
17. NOTICE. All notices which Holder or Borrower may be required
------
or permitted to give hereunder shall be made in the same manner as set forth in
Section 9.3 of the Deed of Trust.
18. SEVERABILITY OF PROVISIONS. In the event any one or more of
--------------------------
the provisions hereof shall be invalid, illegal or unenforceable in any respect,
the validity of the remaining provisions hereof shall be in no way affected,
prejudiced or disturbed thereby.
19. SALE OF INTEREST. Borrower acknowledges that Holder may, in
----------------
its sole discretion, sell all or any part of its interest in the loan as
evidenced by this Note and, in connection therewith, Holder may assign all or
any portion of this Note. Any such sale and assignment may be at a discount or
premium, subject to a brokerage fee or involve a servicing agreement, and shall
not alter any of Borrower's obligations hereunder or under any of the Loan
Documents.
<PAGE>
20. INTEGRATION. This Note and the documents described herein
-----------
constitute the entire understanding of Borrower and Holder with respect to the
matters discussed herein, and supersede all prior and contemporaneous
discussions, agreements and representations, whether oral or written. This Note
may only be modified in a writing signed by Holder, or its loan servicing agent,
and Borrower.
21. HEADINGS. The section captions are inserted for convenience
--------
of reference only and shall in no way alter or modify the text of such sections.
22. USE OF BROKER. Borrower acknowledges that the loan
-------------
evidenced by this Note was arranged (as the term "arranged" is used in
California Civil Code Section 1916.1) by Ira C. Norris, who is licensed as a
real estate broker in the State of California.
IN WITNESS WHEREOF, Borrower, intending to be legally bound hereby,
has duly executed this Note the day and year first above written.
BORROWER: INCO HOMES CORPORATION,
a Delaware corporation
By:
------------------------------
Ira C. Norris
President
<PAGE>
EXHIBIT 10.94
Order No.
Escrow No.
Loan No.
WHEN RECORDED MAIL TO:
Hunter's Ridge Investment Partners
c/o Thomas E. Gibbs, Jr.
79 West 190th Street, Suite 400
Gardena, CA 90248
- -------------------------------------------------------------------------------
SPACE ABOVE THIS LINE FOR RECORDER'S USE
DEED OF TRUST WITH ASSIGNMENT OF RENTS
(LONG FORM)
This DEED OF TRUST, made ,between
INCO HOMES CORPORATION, a Delaware corporation herein called TRUSTOR,
whose address is 1282 West Arrow Highway Upland California 91786
(Number and Street) (City) (State)
ORANGE COST TITLE COMPANY, a California corporation, herein called
TRUSTEE, and
HUNTER'S RIDGE INVESTMENT PARTNERS, a California partnership, herein called
BENEFICIARY, WITNESSETH: That Trustor grants to Trustee in trust, with power of
sale, that property in the City of Fontana
County of San Bernardino , State of California, described as:
SEE EXHIBIT A ATTACHED HERETO AND INCORPORTED HEREIN.
---------
together with the rents, issues and profits thereof, subject, however, to the
right, power and authority hereinafter given to and conferred upon Beneficiary
to collect and apply such rents, issues and profits for the purpose of securing
(1) payment of the sum of $473,972.60 with interest hereon according to the
terms of a promissory note or notes of even date herewith made by Trustor,
payable to order of Beneficiary, and extensions or renewals thereof, (2) the
performance of each agreement of Trustor incorporated by reference or contained
herein and (3) payment of additional sums and interest thereon which may
hereafter be loaned to Trustor, or his successors or assigns, when evidenced by
a promissory note or notes reciting that they are secured by this Deed of Trust.
To protect the security of this Deed of Trust, Trustor agrees:
(1) To keep said property in good condition and repair; not to remove or
demolish any building thereon; to complete or restore promptly and in good and
workmanlike manner any building which may be constructed, damaged or destroyed
thereon and to pay when due all claims for labor performed and materials
furnished therefor to comply with all laws affecting said property or requiring
any alterations or improvements to be made thereon; not to commit or permit
waste thereof; not to commit, suffer or permit any act upon said property in
violation of law; to cultivate, irrigate, fertilize, fumigate, prune and do all
other acts which from the character or use of said property may be reasonably
necessary, the specific enumerations herein not excluding the general.
(2) To provide, maintain and deliver to Beneficiary fire insurance
satisfactory to and with loss payable to Beneficiary. The amount collected under
any ^^^ or other insurance policy may be applied by Beneficiary upon any
indebtedness secured hereby and in such order as Beneficiary may determine, or
^^^^ option of Beneficiary the entire amount so collected or any part hereof may
be released to Trustor. Such application or release shall not cure or waive ^^
any default or notice of default hereunder or invalidate any act done pursuant
to such notice.
(3) To appear in and defend any action or proceeding purporting to affect the
security hereof or the rights or powers of Beneficiary or Trustee.
(4) To pay: at least ten days before delinquency all taxes and assessments
affecting said property, including assessments on appurtenant water stock; when
due, all encumbrances, charges and liens, with interest, on said property or any
part thereof, which appear to be prior or superior hereto; all allowable
expenses of this Trust.
(Personal Property Broker Law) (continued on reverse side)
(Industrial Loan Law)
<PAGE>
Should Trustor fail to make any payment or to do any act as herein provided,
then Beneficiary or Trustee, but without obligation so to do and without notice
to or demand upon Trustor and without releasing Trustor from any obligation
hereof, may: make or do the same in such manner and to such extent as either may
deem necessary to protect the security hereof, Beneficiary or Trustee being
authorized to enter upon said property for such purposes; appear in and defend
any action or proceeding purporting to affect the security hereof or the rights
or powers of Beneficiary or Trustee; pay, purchase, contest or compromise any
encumbrance, charge or lien which in the judgment of either appears to be prior
or superior hereto; and, in exercising any such powers, pay allowable expenses.
(5) To pay immediately and without demand all allowable sums so expended by
Beneficiary or Trustee, with interest from date of expenditure at the amount
allowed by law in effect at the date hereof.
B. It is mutually agreed:
(1) That any award of damages in connection with any condemnation for public
use of or injury to said property or any part thereof is hereby assigned and
shall be paid to Beneficiary who may apply or release such moneys received by
him in the same manner and with the same effect as above provided for
disposition of proceeds of fire or other insurance.
(2) That by accepting payment of any sum secured hereby after its due date,
Beneficiary does not waive his right either to require prompt payment when due
of all other sums so secured or to declare default for failure so to pay.
(3) That at any time or from time to time, without liability therefor and
without notice, upon written request of Beneficiary and presentation of this
Deed and said note for endorsement, and without affecting the personal liability
of any person for payment of the indebtedness secured hereby, Trustee may:
reconvey any part of said property; consent to the making of any map or plat
thereof; join in granting any easement thereon; or join in any extension
agreement or any agreement subordinating the lien or charge hereof.
(4) That upon written request of beneficiary stating that all sums secured
hereby have been paid, and upon surrender of this Deed and said note to Trustee
for cancellation and retention or other disposition as Trustee in its sole
discretion may choose and upon payment of its fees, Trustee shall reconvey,
without warranty, the 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."
(5) That as additional security, Trustor hereby gives to and confers upon
Beneficiary the right, power and authority, during the continuance of these
Trusts, to collect the rents, issues and profits of said property, reserving
unto Trustor the right, prior to any default by Trustor in payment of any
indebtedness secured hereby or in performance of any agreement hereunder, to
collect and retain such rents, issues and profits as they become due and
payable. Upon any such default, Beneficiary may at any time without notice,
either in person, by agent, or by a receiver to be appointed by a court, and
without regard to the adequacy of any security for the indebtedness hereby
secured, enter upon and take possession of said property or any part thereof, in
his own name sue for or otherwise collect such rents, issues, and profits,
including those past due and unpaid, and apply the same, less allowance expenses
of operation, upon any indebtedness secured hereby, and in such order as
Beneficiary may determine. The entering upon and taking possession of said
property, the collection of such rents, issues and profits and the application
thereof as aforesaid, shall not cure or waive any default or notice of default
hereunder or invalidate any act done pursuant to such notice.
(6) That upon default by Trustor in payment of any indebtedness secured
hereby or in performance of any agreement hereunder, Beneficiary may declare all
sums secured hereby immediately due and payable by delivery to Trustee of
written declaration of default and demand for sale and of written notice of
default and of election to cause to be sold said property, which notice Trustee
shall cause to be filed for record. Beneficiary also shall deposit with Trustee
this Deed, said note and all documents evidencing expenditures secured hereby.
After the lapse of such time as may then be required by law following the
recordation of said notice of default and notice of sale having been given as
then required by law, Trustee, without demand on Trustor, shall sell said
property at the time and place fixed by it in said notice of sale, either as a
whole or in separate parcels, and in such order as it may determine, at public
auction to the highest bidder for cash in lawful money of the United States,
payable at time of sale. Trustee may postpone sale of all or any portion of said
property by public announcement at such time and place of sale, and from time to
time thereafter may postpone such sale by public announcement at the time fixed
by the preceding postponement. Trustee shall deliver to such purchaser its deed
conveying the property so 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. Any person, including Trustor, Trustee, or
Beneficiary as hereinafter defined, may purchase at such sale.
After deducting all costs, fees and expenses of Trustee and of this Trust,
including cost of evidence of title in connection with sale, Trustee shall apply
the proceeds of sale to the payment of: all sums expended under the terms
hereof, not then repaid, with accrued interest at the amount allowed by law in
effect at the date hereof; all other sums then secured hereby; and the
remainder, if any, to the person or persons legally entitled thereto. However,
all costs, fees and expenses set forth in this paragraph shall not be applicable
nor charged to the Trustor or his successor in interest.
(7) Beneficiary, or any successor in ownership of any indebtedness secured
hereby, may from time to time, by instrument in writing, substitute a successor
or successors to any Trustee named herein or acting hereunder, which instrument,
executed by the Beneficiary and duly acknowledged and recorded in the office of
the recorder of the county or counties where said property is situated, shall be
conclusive proof of proper substitution of such successor Trustee or Trustees,
who shall, without conveyance from the Trustee predecessor, succeed to all its
title, estate, rights, powers and duties. Said instrument must contain the name
of the original Trustor, Trustee and Beneficiary hereunder, the book and page
where this Deed is recorded and the name and address of the new Trustee.
(8) That this Deed applies to, inures to the benefit of, and binds all
parties hereto, their heirs, legatees, devisees, administrators, executors,
successors and assigns. The term Beneficiary shall mean the owner and holder,
including pledgees, of the note secured hereby, whether or not named as
Beneficiary herein. In this Deed, whenever the context so requires, the
masculine gender includes the feminine and/or neuter, and the singular number
includes the plural.
(9) That Trustee accepts this Trust when this Deed, duly executed and
acknowledged, is made 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 be a party unless brought by Trustee.
(10) The term "allowable" as referred to in this Deed of Trust is defined as
pertaining only to those charges, costs, and expenses as permitted under the
"Personal Property Broker Law," or under the "Industrial Loan Law."
The undersigned Trustor, requests that a copy of any notice of default and
of any notice of sale hereunder be mailed to him at his address hereinbefore set
forth.
(continued on next page)
<PAGE>
===============================================================================
In accordance with Section 2924b, Civil Code, request is hereby made by the
undersigned TRUSTOR that a copy of any Notice of Default and a copy of any
Notice of Sale under the Deed of Trust recorded October 22, 1996 as Instrument
No. 96-390256, in Book , Page , Official Records of San Bernardino
County, California, as affecting the above described property, executer by
as Trustor in which Independent Lending Corporation, a Delaware
corporation is named as Beneficiary, and Orange Coast Title Company as Trustee,
be mailed to Hunter's Ridge Investment Partners whose address is c/o Thomas E.
Gibbs, Jr. 879 West 190th St., Suite 400, Gardena, CA 90248
(Number and Street) (City) (State) (Zip Code)
NOTICE: A copy of any notice of default and of any notice of sale will be sent
only to the address contained in this recorded request. If your address changes,
a new request must be recorded.
================================================================================
Signature of Trustor Signature of Trustor
INCO HOMES CORPORATION,
a Delaware corporation
- ------------------------------------ ----------------------------------------
By: /S/ Ira C. Norris
- ------------------------------------ ----------------------------------------
Ira C. Norris
President
STATE OF CALIFORNIA }
COUNTY OF SAN BERNARDINO }ss.
--------------------------}
On Nov. 14, 1997 before me, LESLIE ADKISON, NOTARY PUBLIC,
--------------------------------- ------------------------------
personally appeared IRA C. NORRIS ,
----------------------------------------------------------
personally known to me to be the person whose name is subscribed to the
within instrument and acknowledged to me that he executed the same in his
authorized capacity, and that by his signature on the instrument the person or
the entity upon behalf of which the person acted, executed the instrument.
WITNESS, my hand and official seal.
Signature /s/ Leslie Adkison [Seal of Notary Public]
----------------------------
DO NOT RECORD REQUEST FOR FULL RECONVEYANCE
TO FIRST FIDELITY NATIONAL INSURANCE COMPANY, TRUSTEE:
The undersigned is the legal owner and holder of the note or notes, and of all
other indebtedness secured by the foregoing Deed of Trust. Said note or notes,
together with all other indebtedness secured by said Deed of Trust, have been
fully paid and satisfied; and you are hereby requested and directed, on payment
to you of any sums owing to you under the terms of said Deed of Trust, to cancel
said note or notes above mentioned, and all other evidences of indebtedness
secured by said Deed of Trust delivered to you herewith, together with the said
Deed of Trust, and to reconvey, without warranty, to the parties designated by
the terms of said Deed of Trust, all the estate now held by you under the same.
Dated
---------------------------------
----------------------------------------
----------------------------------------
Please mail Deed of Trust,
Note and Reconveyance to
------------------------------------------------------
Do not lose or destroy this Deed of Trust OR THE NOTE which it secures. Both
must be delivered to the Trustee for cancellation before reconveyance will be
made.
<PAGE>
EXHIBIT A
---------
THE REAL PROPERTY SITUATED IN THE STATE OF CALIFORNIA, COUNTY OF SAN BERNARDINO
AND DESCRIBED AS FOLLOWS:
LOTS 1 THROUGH 42 INCLUSIVE OF TRACT NO. 14571-1, IN THE CITY OF FONTANA,
COUNTY OF SAN BERNARDINO, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 263,
PAGES 41 THROUGH 46 INCLUSIVE OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF
SAID COUNTY.
EXCEPTING THEREFROM ALL MINERALS, OIL, GAS, PETROLEUM, OTHER HYDROCARBON
SUBSTANCES, AND ALL UNDERGROUND WATER IN, ON, UNDER OR WHICH MAY BE PRODUCED
FROM THE PROPERTY WHICH UNDERLIES A PLANE PARALLEL TO AND 500 FEET BELOW THE
SURFACE OF THE PROPERTY FOR THE PURPOSES OF PROSPECTING AND EXPLORING FOR THE
DEVELOPMENT, PRODUCTION, EXTRACTION AND TAKING OF SAID MINERALS, OIL, GAS,
PETROLEUM, OTHER HYDROCARBON SUBSTANCES AND WATER FROM THE PROPERTY BY MEANS OF
MINES, WELLS, DERRICKS AND/OR OTHER EQUIPMENT FROM SURFACE LOCATIONS ON
ADJOINING OR NEIGHBORING LAND OR LYING OUTSIDE OF THE PROPERTY, IT BEING
UNDERSTOOD THAT THE OWNER OF SUCH MINERALS, OIL, GAS PETROLEUM, OTHER
HYDROCARBON SUBSTANCES AND WATER, AS SET FORTH ABOVE, SHALL HAVE NO RIGHT TO
ENTER UPON THE SURFACE OF THE PROPERTY, NOR TO USE THE PROPERTY OR ANY PORTION
THEREOF ABOVE SAID PLANE PARALLEL TO, AND 500 FEET BELOW THE SURFACE OF THE
PROPERTY FOR ANY PURPOSE WHATEVER, AS RESERVED BY FIRST CITY/HUNTER'S RIDGE
LIMITED PARTNERSHIP, A CALIFORNIA LIMITED PARTNERSHIP, BY DEED RECORDED OCTOBER
22, 1996 AS INSTRUMENT NO. 96-390252 OF OFFICIAL RECORDS.
<PAGE>
EXHIBIT 10.95
RECORDING REQUESTED BY AND
WHEN RECORDED MAIL TO:
Stein & Lubin
600 Montgomery Street, 14th Floor
San Francisco, California 94111
Attn: Leon Y. Tuan
_________________________________________________________________
SUBORDINATION AND RECONVEYANCE AGREEMENT
NOTICE: THIS SUBORDINATION AND RECONVEYANCE AGREEMENT RESULTS IN YOUR INTEREST
IN THE PROPERTY BECOMING SUBJECT TO AND OF LOWER PRIORITY THAN THE
LIEN OF SOME OTHER OR LATER SECURITY INSTRUMENT.
THIS SUBORDINATION AND RECONVEYANCE AGREEMENT (this "Agreement") is
made as of November 18, 1997, by and among INCO HOMES CORPORATION, a Delaware
corporation ("Borrower"), HUNTER'S RIDGE INVESTMENT PARTNERS, a California
partnership ("Junior Lender"), and USA COMMERCIAL MORTGAGE COMPANY, as agent and
attorney-in-fact for the parties listed on Exhibit A-1 attached hereto
("Lender").
RECITALS
A. Borrower is the fee simple owner of certain real property
located in Fontana, San Bernardino County, California, as more particularly
described in Exhibit A attached hereto and incorporated herein (the "Property").
---------
Borrower seeks to develop a 42 lot single-family home subdivision on the
Property (each lot in the subdivision, and the home constructed thereon, shall
be referred to as a "Home").
B. Borrower seeks a $1,275,000 loan (the "Loan") from Lender in
order to refinance the Property and pay certain construction costs to develop
the Property. The loan will be evidenced by a Promissory Note in the original
principal amount of $1,275,000, which note will be secured by a Construction
Deed of Trust, Security Agreement, Assignment of Leases and Rents and Fixture
Filing (the "Deed of Trust") that will constitute a second lien on the Property.
The Deed of Trust is recorded on _____________, 1997 as Instrument No.
_____________ in the Official Records of San Bernardino County, California
("Official Records").
C. Junior Lender has made a $1,200,000 loan to Borrower (the
"Existing Junior Loan") that is secured by a Deed of Trust dated October 22,
1996 and recorded on October 22, 1996 as Instrument No. 96-390257 that encumbers
the Property. A portion of the Loan proceeds will be used to repay a portion of
the Existing Junior Loan, and the balance of the unpaid portion of the Existing
Junior Loan will be evidenced by a note in the amount of $473,972.60 ("New
Junior Note") and secured by a new deed of trust given by Borrower to Junior
Lender (the "New Junior DOT"). The New Junior DOT is recorded on ____________,
1997 as Instrument No. ____________ in the Official Records.
E. As a condition to making the Loan, Lender is requiring that
Junior Lender enter into this Agreement whereby it agrees, among other things,
that the lien created by the New Junior DOT shall be junior and subordinate to
the lien created by the Deed of Trust.
<PAGE>
AGREEMENT
NOW, THEREFORE, in consideration of the mutual benefits accruing to
the parties hereto and other valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, it is hereby understood and agreed as follows:
1. The lien created by the Deed of Trust and by any other
documents that relate to the Loan, and any amendments or modifications thereto,
shall unconditionally be and remain at all times a lien on the Property and the
"Mortgaged Property" (as that term is defined in the Deed of Trust) prior and
superior to the lien created by the New Junior DOT, and the lien created by the
New Junior DOT is hereby irrevocably and unconditionally subjected and made
subordinate to the lien created by the Deed of Trust and such. The
subordination created by this Agreement shall not be affected by any increase,
alteration, renewal or other modification of any of the obligations secured by
the Deed of Trust, nor by any additional advances made to Borrower in connection
with the Loan.
2. This Agreement shall be the whole and only agreement between
the parties hereto with regard to the subordination of the lien of the Junior
Deed of Trust to the lien of the Deed of Trust, and shall supersede and cancel
any prior agreements.
3. Junior Lender agrees and acknowledges that Lender, in
disbursing the Loan to Borrower, is under no obligation or duty to, nor has
Lender represented to Junior Lender that it will, see to the application of such
proceeds by the person or persons to whom it disburses such proceeds, and any
application or use of such proceeds for purposes other than those provided for
in the documents that evidence the Loan shall not alter or diminish all or any
part of the subordination made in this Agreement. Junior Lender further
acknowledges that neither Lender nor its representatives (including USA
Commercial Mortgage and its affiliates and officers) has advised Junior Lender
as to the merits and risks associated with the Loan, and that Junior Lender has
made its own financial analysis with respect to these risks and has agreed to
the terms of this Agreement based on its own analysis.
4. Junior Lender acknowledges that, upon the closing of the Loan,
its lien in the Property created by the New Junior DOT will be subject and
subordinate to the liens of (i) Independent Lending Corporation, a Delaware
Corporation d/b/a Construction Lending Corporation of America (the "Senior
Lender"), as the beneficiary under that certain Deed of Trust dated October 3,
1996 and recorded on October 22, 1996 in the Official Records as Instrument No.
96-390256 (the "Senior Deed of Trust"), which has a first lien priority interest
in the Property, and (ii) Lender, as the beneficiary under the Deed of Trust,
which has a second lien priority interest in the Property.
5. Junior Lender acknowledges that, under the terms of the Senior
Deed of Trust and the Deed of Trust, the gross sales proceeds generated by each
sale of a Home will be applied to pay the following: (i) reasonable and
customary closing costs and broker's commission incurred in connection with the
sale of the Home, provided that the broker's commission paid to Borrower or an
affiliate of Borrower shall not exceed one and one-half percent (1 1/2%) of the
gross sales price, (ii) amounts to be paid to the Senior Lender in order to
cause the Home to be released from the lien of the Senior Deed of Trust , (iii)
amounts, if any, to be paid to contractors and material and labor providers with
respect to materials and labor provided in connection with the construction of
the Home so that the Home can be sold free and clear of all mechanics' liens;
provided, however, that if the total due to such contractors and material and
labor providers for any Home exceeds $5,000, then the payment to such
contractors and material and labor providers must be approved by Lender or its
loan servicing agent, (iv) $1,000, to be paid to Borrower to fund a warranty
reserve with respect to the Homes, and (v) amounts to be paid to Lender in order
to cause the Home to be released from the lien of the Deed of Trust. The
balance of the gross sales proceeds, if any, may then be paid to Junior Lender
to the extent Junior Lender is entitled to such balance under the terms of New
Junior DOT. At the close of escrow for the sale of each Home, Borrower shall
provide Lender and Junior Lender with a statement, certified by an officer of
Borrower to be true and correct, which shows that the sales proceeds from such
Home were distributed as set forth in this Paragraph 5.
<PAGE>
6. Junior Lender acknowledges that, as a condition to making the
Loan, Lender has required Junior Lender to deposit in an escrow held with Orange
Coast Title Company ("Escrow Agent") at 1060 E. Washington Street, Suite 200,
Colton, California 92324, fully executed requests for reconveyance (with respect
to the Junior Deed of Trust) for each of the Homes (the "Reconveyances"). Junior
Lender agrees that when a Home is sold and the Senior Lender and Lender are
prepared to reconvey the liens created by the Senior Deed of Trust and the Deed
of Trust, respectively, as to that Home, then Escrow Agent is authorized to
automatically cause the lien of the Junior Deed of Trust to also be reconveyed,
regardless of the amount of proceeds, if any, from such sale that will be paid
to Junior Lender.
7. Junior Lender agrees (i) to execute escrow instructions to
Escrow Agent that direct Escrow Agent to comply with the terms of Paragraph 6
above, (ii) that it will not withdraw or seek to withdraw the Reconveyances from
Escrow Agent or otherwise seek to prevent the release of a Home from the lien of
the Junior Deed of Trust if the Senior Lender and Lender are prepared to give
such a release from the liens of the Senior Deed of Trust and Deed of Trust,
respectively, and (iii) that Senior Lender is an express third party beneficiary
with respect to Junior Lender's obligations under this Paragraph 3. Junior
Lender further agrees that its failure to comply with the provisions of this
Paragraph 3 may result in the inability of Borrower to close the sale of a Home,
the loss of reputation of Borrower to potential home buyers, and other harm to
Borrower, Senior Lender and Lender that cannot be adequately compensated by
monetary sums. Accordingly, Junior Lender agrees that Borrower, Senior Lender
and/or Lender may seek injunctive relief, including specific performance, to
enforce the terms of Paragraph 6 above, and Junior Lender waives all rights that
it may have to contest any such action for injunctive relief. Escrow Agent is
an express third party beneficiary to Paragraphs 6 and 7 of this Agreement.
8. Lender agrees to deliver to Junior Lender within ten (10) days
after the end of each calendar month, a complete and detailed report of the
status of the Loan and all matters pertaining to the Loan (such as interest
due/paid, interest reserves, balance in the Phase 1 construction loan reserve,
etc.). Lender shall promptly inform Junior Lender of any default of Borrower
under the Loan.
9. Borrower agrees to deliver to Junior Lender within ten (10)
days after the end of each calendar month a complete detailed report of both (i)
all payments made by Borrower to Lender on the Loan, and (ii) all relevant items
pertaining to the construction and sale of Homes on the Property including, but
not limited to, sales, close of sale escrows including a copy of the seller's
closing statement, a detailed accounting of the use of all net proceeds realized
from the sale of each Home (including payments to Lender and Junior Lender), and
any and all other items that relate to the payment of the New Junior Note as may
be requested by Junior Lender.
10. Lender and Junior Lender each agree that, if there should
occur an event of default under their respective deeds of trust that encumber
the Property, they shall each provide the other with a copy of any written
notice of such event of default that is delivered to Borrower.
11. This Agreement shall be binding on and inure to the benefit
of the legal representatives, heirs, successors and assigns of the parties.
12. Any notice requirement set forth herein shall be deemed to be
satisfied three (3) days after mailing of the notice first-class United States
Certified mail, postage prepaid, or upon receipt, if personally delivered or
sent by facsimile, addressed to the appropriate party as follows:
BORROWER: Inco Homes Corporation
1282 West Arrow Highway
Upland, California 91786
Fax: (909) 982-9784
JUNIOR LENDER: Hunter's Ridge Investment Partners
879 West 190th Street, Suite 400
Gardena, California 90248
Fax: (310) 532-8801
<PAGE>
LENDER: c/o USA Commercial Mortgage Company
3900 Paradise Road, Suite 263
Las Vegas, Nevada 89109
Fax: (702) 734-0163
13. This Agreement may be signed by different parties hereto in
counterparts with the same effect as if the signatures to each counterpart were
upon a single instrument. All counterparts shall be deemed an original of this
Agreement.
14. Junior Lender, upon reasonable written request of Lender,
will execute, acknowledge and deliver, or arrange for the execution,
acknowledgment and delivery of, such further instruments and do such further
acts as may be necessary, desirable or proper to carry out more effectively the
purposes of this Agreement.
15. This Agreement and the rights and obligations of the parties
hereunder shall be governed by and construed in accordance with the laws of the
State of California. Each party consents to the jurisdiction of the California
state courts and the federal courts located in California with respect to any
suit or action arising out of this Agreement.
16. In the event that any suit or action be brought hereon, or an
attorney be employed or expenses be incurred to interpret or enforce the terms
of this Agreement, including any action for injunctive relief, the prevailing
party shall be entitled to recover its attorneys' fees, costs and expenses
incurred in connection with such suit or action
17. This Agreement constitutes the entire agreement between or
among the parties hereto with respect to the matters addressed therein, and
supersedes all prior oral or written communications or agreements with respect
to such matters. This Agreement may only be modified by a writing signed by all
of the parties hereto.
18. Time is of the essence to each and all of the provisions of
this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day first set forth above.
BORROWER: INCO HOMES CORPORATION,
a Delaware corporation
By:_______________________________
Ira C. Norris
President
JUNIOR LENDER: HUNTER'S RIDGE INVESTMENT PARTNERS,
a California partnership
By:________________________________
Thomas E. Gibbs, Jr.
Managing Partner
LENDER: USA COMMERCIAL MORTGAGE COMPANY
as agent and attorney-in-fact for the Lender
By:________________________________
Name:______________________________
Its:_______________________________
<PAGE>
EXHIBIT 10.96
PROMISSORY NOTE
---------------
$1,175,000 November 26, 1997
FOR VALUE RECEIVED, INCO HOMES CORPORATION, a Delaware corporation
("Borrower"), whose address is 1282 West Arrow Highway, Upland, California
91786, promises to pay to those parties listed on Exhibit A-1 attached hereto
-----------
("Holder"), or order, c/o USA Commercial Mortgage Company, Inc. at 3900 Paradise
Road, Suite 263, Las Vegas, Nevada 89109, or at such other place as Holder may
from time to time in writing designate, in lawful money of the United States of
America, the principal sum of ONE MILLION ONE HUNDRED SEVENTY FIVE THOUSAND
DOLLARS ($1,175,000) or such greater or lesser sum as may be outstanding
pursuant to this Note, the Construction Loan Agreement dated as of even date
herewith between Borrower and Holder ("Loan Agreement'), the Deed of Trust (as
defined below) and the other Loan Documents (as defined below), together with
interest on the principal balance outstanding from time to time ("Principal
Balance"), in like money, from the date of this Note until fully repaid at the
rates hereinafter set forth.
1. DEFINITIONS. As used herein, the terms "Borrower," "Holder,"
-----------
"Loan Agreement" and "Principal Balance" have the meanings assigned in the
preceding paragraph, and the following terms have the following meanings:
(A) "DEED OF TRUST" shall mean the Construction Deed of Trust,
-------------
Security Agreement, Assignment of Leases and Rents and Fixture Filing, dated as
of even date with this Note, from Borrower to the trustee specified therein, in
trust for Holder, covering certain real and personal property described therein
situated in La Quinta, Riverside County, California, as the same may be amended
or otherwise modified.
(B) "EVENT OF DEFAULT" has the meaning assigned to such term
----------------
in the Deed of Trust.
(C) "HOME" OR "HOMES" means the 34 single-family home lots,
---- -----
as well as all improvements to be constructed thereon, located in La Quinta,
Riverside County, California that constitute a part of the Mortgaged Property.
(D) "INTEREST RATE" means a rate per annum equal to twelve
-------------
and one-quarter of one percent (12 1/4%).
(E) "LOAN DOCUMENTS" has the meaning assigned to such term
--------------
in the Deed of Trust.
(F) "MATURITY DATE" means the date which occurs twelve (12)
-------------
months after the date hereof.
(G) "MORTGAGED PROPERTY" has the meaning assigned to such
------------------
term in the Deed of Trust.
(H) "RELEASE PRICE" for any Home means an amount equal to
-------------
$34,560.
2. INTEREST RATE. From the date of this Note to and including
-------------
the date the entire Principal Balance is paid in full, the Principal Balance
shall bear interest at the Interest Rate. Interest shall be calculated based on
the actual days the Principal Balance is outstanding hereunder divided by 360
days and multiplied by the Interest Rate.
3. PAYMENT OF PRINCIPAL AND INTEREST. From the date hereof to
---------------------------------
and including the date the entire Principal Balance is paid in full, the
Principal Balance and interest thereon shall be due and payable as
<PAGE>
follows:
(A) Borrower shall make monthly payments of interest only
owing on the Principal Balance, in arrears, commencing on the first day of the
calendar month immediately following the date hereof and continuing on the first
day of each succeeding month to and including the first day of the month in
which the Maturity Date occurs. Any interest that has accrued but is not paid as
required under this Note shall be compounded and added to the Principal Balance
on the first day following the date such interest was required to be paid.
(B) Each time Borrower obtains a construction loan to finance
the construction of Homes, it shall cause the construction lender to pay
directly to Holder, at the closing of such construction loan, an amount equal to
the Release Price for each of the Homes covered by the construction loan.
(C) On the Maturity Date, Borrower shall make a final payment
that shall include the unpaid portion of the Principal Balance, any interest
accrued and unpaid thereon, and any and all other sums due under this Note, the
Loan Agreement, the Deed of Trust and the Loan Documents.
At the closing of the loan evidenced by this Note, the net loan
proceeds (after disbursement of fees and closing costs approved by Holder) shall
be deposited in a construction control account established by Builder's Control
Service Company ("Builder's Control") for the benefit of Borrower. Builder's
Control shall serve as the construction control agent for Holder, and shall
disburse funds from the construction control account to pay interest owing under
this Note and to fund the loan evidenced by this Note as provided in the Loan
Agreement and an Escrow and Security Agreement.
4. APPLICATION OF PAYMENTS. Each payment received by Holder from
-----------------------
Borrower with respect to this Note shall be applied: First: to the payment of
the costs and expenses of taking possession of, holding, maintaining and selling
any collateral for this Note; Second: to the payment of attorneys' fees and
expenses incurred in connection with the collection of this Note and enforcement
against any collateral for this Note; Third: to the payment of all amounts
advanced under the Loan Agreement, the Deed of Trust or the Loan Documents
(other than the Indemnity Agreement, as defined in the Deed of Trust) to
preserve the value of the Mortgaged Property; Fourth: to the payment of late
charges and accrued interest due and payable hereunder; Fifth: to reduction of
the Principal Balance; Sixth: to the payment of any amounts owing to Holder or
any other parties under the Indemnity Agreement; and the balance, if any, shall
be paid to the parties entitled to receive it; or in such other order or
proportion as Holder, in Holder's sole discretion, may determine. Payments
shall be deemed made when Holder has received, at Holder's address or at such
other address as Holder shall provide written notice of to Borrower, immediately
available funds in lawful money of the United States of America.
BORROWER UNDERSTANDS THAT THIS NOTE IS NOT SELF-AMORTIZING AND
THAT A SUBSTANTIAL BALLOON PAYMENT MAY BE DUE ON THE MATURITY DATE.
5. PREPAYMENT. Borrower may prepay all or any portion of the
----------
Principal Balance at any time without premium on at least thirty (30) days prior
written notice to Holder.
6. MAXIMUM RATE OF INTEREST. Notwithstanding any provision in
------------------------
this Note, the total liability for payments of interest and payments in the
nature of interest, including without limitation, all charges, fees or any sums
which may at any time be deemed to be interest, shall not exceed the amount
which Holder may lawfully collect. In the event the total liability for
payments of interest and payments in the nature of interest, including without
limitation, all charges, fees or other sums which may at any time be deemed to
be interest, shall, for any reason whatsoever, result in an effective rate of
interest, which for any month or other interest payment period exceeds the
amount which Holder may lawfully collect, all sums in excess of those lawfully
collectible as interest for the period in question shall, without further notice
to any party hereto, be applied as a premium-free reduction of the Principal
Balance immediately upon receipt of such sums by Holder, with the same force and
effect as though Borrower had specifically designated such excess sums to be so
applied to the reduction of the Principal Balance; provided, however, that
Holder may, at any time, and from time to time, elect, by notice in writing to
<PAGE>
Borrower, to waive, reduce or limit the collection of any sums (or refund to
Borrower any sums collected) in excess of those lawfully collectible as interest
rather than accept such sums on prepayment of the Principal Balance.
7. SECURITY. Payment of this Note is secured by the Deed of
--------
Trust and the Loan Documents. All of the agreements, conditions, covenants,
provisions and stipulations contained in the Loan Agreement, the Deed of Trust
and the Loan Documents which are to be kept and performed by Borrower are hereby
made a part of this Note to the same extent and with the same force and effect
as if they were fully set forth herein, and Borrower covenants and agrees to
keep and perform them, or cause them to be kept and performed, strictly in
accordance with their terms.
8. LATE CHARGES. Time is of the essence hereof and if any amount
------------
owing under this Note is not paid within five (5) days of when due, Borrower
shall pay to Holder a late charge payment equal to five percent (5%) of such
amount. Borrower recognizes that a default by Borrower in making the payments
agreed to be paid when due will result in Holder's incurring additional expenses
in servicing the loan evidenced by this Note, including, but not limited to
sending out notices of delinquency, computing interest, and segregating the
delinquent sums from not delinquent sums on all accounting, loan and data
processing records, in loss to Holder of the use of the money due, and in
frustration to Holder in meetings its other financial commitments, but that it
is extremely difficult and impractical to ascertain the extent of such damages.
Borrower therefore agrees that a sum equal to $0.05 for each $1.00 of each
payment that is not paid five (5) days after its due date, is a reasonable
estimate of the fair average compensation for the loss and damages Holder will
suffer, that such amount shall be presumed to be the amount of damages sustained
by Holder in such case, and that Borrower agrees to pay Holder this sum on
demand. Such late charge shall be paid without prejudice to the right of Holder
to collect any other amounts provided to be paid or to declare a default under
this Note, the Loan Agreement, the Deed of Trust or Loan Documents.
9. DEFAULT INTEREST. Time is of the essence hereof and, from
----------------
and after the Maturity Date or five days after the occurrence of an Event of
Default, all amounts owing under this Note and the Loan Documents shall bear
interest at a rate per annum equal to seventeen and one-quarter of one percent
(17 1/4%) (the "Default Rate"), instead of at the Interest Rate. If the
Default Rate is triggered as a result of an Event of Default and Borrower
subsequently cures the Event of Default, then all amounts owing hereunder will
resume bearing interest at the Interest Rate, rather than the Default Rate, on
the date the Event of Default is cured; provided, however, that the interest
owing hereunder may again accrue at the Default Rate upon the occurrence of a
subsequent Event of Default. Borrower recognizes that a default by Borrower in
making the payments agreed to be paid when due will result in damage to Holder,
including loss to Holder of the use of the money due and frustration to Holder
in meetings its other financial commitments, but that it is extremely difficult
and impractical to ascertain the extent of such damages. Borrower therefore
agrees that the Default Rate is a reasonable estimate of the loss and damages
Holder will suffer, that such amount shall be presumed to be the amount of
damages sustained by Holder in such case, and that Borrower agrees to pay Holder
this sum on demand. Interest at the Default Rate shall be paid without
prejudice to the right of Holder to collect any other amounts provided to be
paid or to declare a default under this Note, the Loan Agreement, the Deed of
Trust or Loan Documents.
10. DEFAULT. Upon the occurrence of any Event of Default,
-------
Holder, at its option and without further notice, demand, or presentment for
payment to Borrower or others, may declare immediately due and payable the
unpaid Principal Balance and interest accrued thereon together with all other
sums owed by Borrower under this Note, the Loan Agreement, the Deed of Trust and
the Loan Documents (including, but not limited to attorneys' fees as provided in
Section 12 below), anything in this Note, the Loan Agreement, the Deed of Trust
and the Loan Documents to the contrary notwithstanding. Payment of such sums
may be enforced and recovered in whole or in part at any time by one or more of
the remedies provided to Holder in this Note, the Loan Agreement, the Deed of
Trust and the Loan Documents.
11. REMEDIES CUMULATIVE. The remedies of Holder, as provided in
-------------------
this Note, the Loan Agreement, the Deed of Trust and the Loan Documents, shall
be cumulative and concurrent and may be pursued singly, successively or
together, at the sole discretion of Holder, and may be exercised as often as
occasion therefor shall occur; and the failure to exercise any such right or
remedy shall in no event be construed as a waiver or release thereof.
<PAGE>
12. ATTORNEYS' FEES. In the event that suit be brought hereon,
---------------
or an attorney be employed or expenses be incurred to compel payment of this
Note or any portion of the indebtedness evidenced hereby, or to defend the
priority of the Deed of Trust or to otherwise interpret or enforce any of the
terms of this Note, the Deed of Trust, the Loan Agreement or any of the other
Loan Documents, Borrower promises to pay all such attorneys' fees, costs and
expenses all as actually incurred by Holder as a result thereof including,
without limitation, (a) attorneys' fees, costs and expenses incurred in
appellate proceedings or in any action or participation in, or in connection
with, any case or proceeding under Chapters 7 or 11 of the Bankruptcy Code or
any successor thereto, and (b) attorneys' fees, costs and expenses incurred as a
result of Holder exercising its rights to cure any Event of Default by Borrower
under this Note, the Loan Agreement, the Deed of Trust or any other Related
Document, or as a result of the foreclosure of the Deed of Trust, deed in lieu
thereof, or trustee's sale thereunder.
13. WAIVER OF NOTICE. Borrower waives diligence, presentment for
----------------
payment, demand, notice of demand, notice of nonpayment or dishonor, protest and
notice of protest of this Note, and all other notices in connection with the
delivery, acceptance, performance, default, or enforcement of the payment of
this Note, except such notices as are provided in the Deed of Trust. Borrower
further waives all right of offset that it may now have or hereafter become
entitled to with respect to any Holder.
14. WAIVER. Holder shall not be deemed, by any act of omission
------
or commission, to have waived any of its rights or remedies hereunder unless
such waiver is in writing and signed by Holder, and then only to the extent
specifically set forth in the writing. The acceptance by Holder of any payment
hereunder which is less than payment in full of all amounts due and payable at
the time of such payment shall not constitute a waiver of the right to exercise
any of the foregoing options at that time or at any subsequent time or nullify
any prior exercise of any such option without the express consent of Holder,
except as and to the extent otherwise provided by law. A waiver with reference
to one event shall not be construed as continuing or as a bar to or waiver of
any right or remedy as to a subsequent event.
15. GOVERNING LAW. This instrument shall be governed by and
-------------
construed according to the laws of the State of California.
16. CONSTRUCTION OF CERTAIN TERMS. Whenever used, the singular
-----------------------------
shall include the plural, the plural shall include the singular, and the words
"Holder" and "Borrower" shall be deemed to include their respective heirs,
administrators, executors, successors and assigns.
17. NOTICE. All notices which Holder or Borrower may be required
------
or permitted to give hereunder shall be made in the same manner as set forth in
Section 9.3 of the Deed of Trust.
18. SEVERABILITY OF PROVISIONS. In the event any one or more of
--------------------------
the provisions hereof shall be invalid, illegal or unenforceable in any respect,
the validity of the remaining provisions hereof shall be in no way affected,
prejudiced or disturbed thereby.
19. SALE OF INTEREST. Borrower acknowledges that Holder may, in
----------------
its sole discretion, sell all or any part of its interest in the loan as
evidenced by this Note and, in connection therewith, Holder may assign all or
any portion of this Note. Any such sale and assignment may be at a discount or
premium, subject to a brokerage fee or involve a servicing agreement, and shall
not alter any of Borrower's obligations hereunder or under any of the Loan
Documents.
20. ACCELERATION UPON TRANSFER. Sections 5.1.18 and 6.9 of the
--------------------------
Deed of Trust provide as follows:
"5.1.18 TRANSFER OF MORTGAGED PROPERTY. Trustor shall not,
------------------------------
without the prior written consent of Beneficiary, directly or
indirectly sell, transfer, convey, further encumber, assign, grant any
option, subordinate, convert to condominiums or grant any further lien
or easement on all or any part of the Mortgaged Property, or enter
into any agreement for any of the
<PAGE>
foregoing, whether by operation of law recorded or unrecorded, or
voluntarily or involuntarily; provided, however, that if the Mortgaged
Property consists of single-family homes, condominiums or other
residential properties to be sold, Trustor may accept sales
reservations and enter into purchase and sales contracts so long as
such actions are consistent with the Loan Documents, all rules and
regulations of the California Department of Real Estate and all other
applicable laws, rules and regulations. Trustor shall promptly notify
Beneficiary in writing of any such intended event or agreement for
which Beneficiary's consent may be required.
6.9 DUE ON SALE. If, without the prior written consent of
-----------
Beneficiary, (a) there is any sale, transfer, assignment, conveyance
or encumbrance, whether voluntary or involuntary, of all or part of
the Mortgaged Property or any interest therein or any other event or
agreement referred to in Section 5.1.18, (b) Trustor or any one or
more of the persons comprising Trustor is a partnership and the
interest of any general partner (or the interest of any general
partner in a partnership that is a partner) is assigned or
transferred, except for an assignment or transfer resulting from the
death or physical or mental incapacity of a general partner; (c)
Trustor or any one or more of the persons comprising Trustor is a
partnership and more than twenty-five percent (25%) of the corporate
stock of any corporation that is a general partner of such partnership
is sold, transferred or assigned; (d) change in ownership (including
the hypothecation or encumbrance thereof) of a majority of the stock
of Trustor held by Ira Norris; (e) Trustor is a trust and there is a
change in beneficial ownership with respect to more than twenty-five
percent (25%) of the trust; (f) Trustor consists of several persons or
entities holding fractional undivided interest in the Mortgaged
Property and there is a cumulative change in ownership with respect to
more than a twenty-five percent (25%) fractional undivided interest in
the Mortgaged Property; (g) there is a seizure of the Mortgaged
Property, or attachment of any lien on the Mortgaged Property, whether
voluntary or involuntary, which has not been removed or bonded off to
Beneficiary's satisfaction within thirty (30) days of such attachment;
or (h) there is a change in the controlling executives and directors
of Trustor."
21. INTEGRATION. This Note and the documents described herein
-----------
constitute the entire understanding of Borrower and Holder with respect to the
matters discussed herein, and supersede all prior and contemporaneous
discussions, agreements and representations, whether oral or written. This Note
may only be modified in a writing signed by Holder, or its loan servicing agent,
and Borrower.
22. HEADINGS. The section captions are inserted for convenience
--------
of reference only and shall in no way alter or modify the text of such sections.
23. USE OF BROKER. Borrower acknowledges that the loan
-------------
evidenced by this Note was arranged (as the term "arranged" is used in
California Civil Code Section 1916.1) by Ira C. Norris, who is licensed as a
real estate broker in the State of California.
IN WITNESS WHEREOF, Borrower, intending to be legally bound hereby,
has duly executed this Note the day and year first above written.
BORROWER: INCO HOMES CORPORATION,
a Delaware corporation
By:_______________________________________
Ira C. Norris
President
<PAGE>
EXHIBIT A-1
-----------
INVESTORS
<TABLE>
<C> <S> <C> <C>
1. Sara Katz $ 50,000 0.042553%
2. Dennis G. Campton MD TTEE $ 50,000 0.042553%
FBO Dennis G. Campton PSP
UAD 3/16/72
3. Biver Family Trust, Rober P. Biver, TTEE $ 75,000 0.06383%
Diane Biver, TTEE
4. Marilyn Carter $ 200,000 0.170213%
5. James B. Cardwell & Reba Jo Cardwell $ 150,000 0.12766%
Family Trust DTD 1/8/88, James B. Cardwell &
Reba Jo Cardwell, TTEEs
6. Lily Markham or Irene A. Markham $ 30,000 0.025532%
7. Paanagiotis Dovanaidis or Dimitra Dovanidou $ 30,000 0.025532%
8. John Kurlinski c/f Joshua Kurlinski UTMA/NV $ 25,000 0.021277%
9. John Kurlinski c/f Ryan Kurlinski UTMA/NV $ 25,000 0.021277%
10. Reiichi Iizuka TTEE FBO $ 50,000 0.042553%
Reiichi Iizuka PSP DTD 4/1/78
11. Nevada State Bank C/F Robert Cranley IRA R/O $ 100,000 0.085106%
12. Alan Robinson & Gail Robinson $ 25,000 0.021277%
13. Robert & Donna McDonald Family Trust DTD 10/2/92 $ 150,000 0.12766%
Robert McDonald, TTEE
14. Larry & Dee Carter Family Trust DTD 10/29/86, $ 100,000 0.085106%
Larry Carter, Co-TTEE & Dee Carter, CO-TTEE
15. Ernest Carter & Marysue Carter $ 90,000 0.076596%
16. Amber Lynn Tuttle Trust, Dana Renee Carter, TTEE $ 25,000 0.021277%
$1,175,000 1.00%
</TABLE>
<PAGE>
EXHIBIT 10.97
RECORDING REQUESTED BY AND
WHEN RECORDED MAIL TO:
Stein & Lubin
600 Montgomery Street, 14th Floor
San Francisco, California 94111
Attention: Leon Y. Tuan
______________________________________________________________________________
CONSTRUCTION DEED OF TRUST, SECURITY AGREEMENT,
ASSIGNMENT OF LEASES AND
RENTS AND FIXTURE FILING
------------------------
THIS CONSTRUCTION DEED OF TRUST, SECURITY AGREEMENT, ASSIGNMENT OF
LEASES AND RENTS AND FIXTURE FILING ("Deed of Trust") is made as of November 26,
1997, among INCO HOMES CORPORATION, a Delaware corporation, whose address is set
forth below, as Trustor, the parties listed on Exhibit A-1 attached hereto,
-----------
whose address is set forth below, as Beneficiary, and ORANGE COAST TITLE
COMPANY, whose address is set forth below, as Trustee.
ARTICLE 1
DEFINITIONS
-----------
As used herein, the following terms shall have the following meanings:
1.1 Assignment. The assignment, contained in Article 4 of this Deed
----------
of Trust, from Trustor to Beneficiary, of all of Trustor's right, title and
interest in and to the Leases and the Rents.
1.2 Awards. All awards and payments made or hereafter to be made by
------
any municipal, township, county, state, Federal or other governmental agencies,
authorities or boards or any other entity having the power of eminent domain to
Trustor, including any awards and payments for any taking of all or a portion of
the Mortgaged Property, as a result of, or by agreement in anticipation of, the
exercise of the right of condemnation or eminent domain, or for any change or
changes of grade of streets affecting the Mortgaged Property.
1.3 Beneficiary. The parties listed on Exhibit A-1 attached hereto,
----------- -----------
and their respective successors and assigns and the holders, from time to time,
of the Note.
1.4 Beneficiary's Address. c/o USA Commercial Mortgage Company,
---------------------
Inc., 3900 Paradise Road, Suite 263, Las Vegas, Nevada 89109.
1.5 Buildings. All buildings, improvements (including, without
---------
limitation, all on-site and off-site infrastructure improvements), alterations
or appurtenances now, or at any time hereafter, located upon the Land or any
part thereof.
1.6 Intentionally Deleted.
1.7 Event(s) of Default. The happenings and occurrences described in
-------------------
Article 6 of this Deed of Trust.
1
<PAGE>
1.8 Fixtures. All fixtures now or hereafter affixed or attached to,
--------
or installed in, or used in connection with, the Land or Buildings, whether or
not permanently affixed thereto, together with all accessions, replacements and
substitutions thereto or therefor and the proceeds thereof.
1.9 Intentionally Deleted.
1.10 Loan Agreement. That certain Construction Loan Agreement dated
--------------
as of even date herewith between Trustor and Beneficiary.
1.11 Impositions. All (i) real estate and personal property taxes and
-----------
other taxes and assessments, water and sewer rates and charges, and all other
governmental charges and any interest or costs or penalties with respect
thereto, and charges for an easement or agreement maintained for the benefit of
the Mortgaged Property which at any time prior to or after the execution of the
Loan Documents may be assessed, levied, or imposed upon the Mortgaged Property
or the rent or income received therefrom or any use or occupancy thereof, and
(ii) other taxes, assessments, fees and governmental charges levied, imposed or
assessed upon or against Trustor or any of its properties.
1.12 Indebtedness. The principal of and interest on and all other
------------
amounts, payments and premiums due under the Note (including any future
advances) and all other indebtedness of Trustor to Beneficiary, whether under
and/or secured by the Loan Documents, including, without limitation any
indebtedness owing under the Indemnity Agreement, or evidenced by some other
document that recites by its terms that it is secured by this Deed of Trust, and
any amendments, modifications, renewals and extensions of any of the foregoing.
1.13 Indemnity Agreement. The Environmental Agreement and Indemnity,
-------------------
dated as of even date herewith, by Trustor in favor of Beneficiary, as the same
may be amended or otherwise modified.
1.14 Land. The real property described in Exhibit A attached hereto.
---- ---------
1.15 Leases. Any and all leases, subleases, licenses, concessions or
------
grants of other possessory interest now or hereafter in force, oral or written,
covering or affecting the Mortgaged Property, or any part thereof, together with
all rights, powers, privileges, options and other benefits of Trustor
thereunder.
1.16 Escrow Agreement. The Escrow and Security Agreement dated as of
----------------
even date herewith, among Trustor, Beneficiary and Builder's Control Company, as
the same may be amended or otherwise modified.
1.17 Mortgaged Property. The Land, the Buildings, the Fixtures, the
------------------
Personalty, the Awards, the Rents, the Leases and the Escrow Account, together
with:
(i) all rights, privileges, permits, licenses, rights-of-way,
easements, appendages and appurtenances of the Land and/or the
Buildings belonging or in any way appertaining thereto and all right,
title and interest of Trustor in and to any streets, ways, alleys, or
strips of land adjoining the Land or any part thereof;
(ii) all the estate, right, title, interest, claim or demand
whatsoever of Trustor, either at law or in equity, in and to the Land,
the Buildings, the Fixtures, the Awards, the Rents, the Leases, the
Personalty and the Escrow Account; and
(iii) all the estate, right, title, interest, claim or demand
whatsoever of Trustor, either at law or in equity, in and to the
Awards, or payments with respect to casualties.
1.18 Note. The promissory note, dated of even date with this Deed of
----
Trust, made by Trustor to the order of Beneficiary, in the original principal
amount of $1,175,000, secured by this Deed of Trust, together with all
extensions, renewals, modifications and amendments thereof.
2
<PAGE>
1.19 Obligations. Any and all of the covenants, promises and other
-----------
obligations (other than the Indebtedness) made or owing by Trustor to or due to
Beneficiary, whether under and/or as set forth in the Note and/or the Loan
Documents, including, without limitation, any such covenants, promises and
obligations made by or owing by Trustor under the Indemnity Agreement, or
evidenced by some other document that recites by its terms that it is secured by
this Deed of Trust, and any and all extensions, renewals, modifications and
amendments of any of the foregoing.
1.20 Permitted Encumbrances. The encumbrances described, with
----------------------
particularity, in Exhibit B attached hereto.
---------
1.21 Personalty. All furniture, furnishings, equipment, machinery,
----------
trade fixtures and all other tangible and intangible personal property (other
than the Fixtures) now owned or hereafter acquired by Trustor which are now or
hereafter used or owned in connection with the Land and/or the Buildings or
located in, upon or about the Land and/or the Buildings, together with all
accessions, replacements and substitutions thereto or therefor and the proceeds
and products thereof, including without limitation: (1) all personal property
located on the Land or Buildings and used in the operation or occupancy of the
Land or Buildings or in any construction on the Land or Buildings, including,
but not limited to, all furniture and furnishings, machinery, fixtures, goods,
office equipment, machine tools, apparatus, supplies, materials, trade fixtures,
building service equipment, boilers, equipment (including, without limitation,
all equipment for the generation or distribution of air, water, heat,
electricity, light, fuel or refrigeration, or for ventilating or air
conditioning purposes, or for sanitary or drainage purposes, or for the removal
of dust, refuse or garbage), partitions, appliances, ranges, refrigerators,
cabinets, laundry equipment, radios, televisions, awnings, window shades,
venetian blinds, drapes and drapery rods and brackets, screens, carpeting and
other floor coverings, lobby furnishings, games, recreational and swimming pool
equipment and incinerators, and all vehicles and accessories, tools,
appurtenances, dies, jigs, chattels and parts; (2) all general intangibles
relating to the development or use of the Land or Buildings, including, but not
limited to, all governmental permits relating to construction on the Land or
Buildings, all management agreements, franchise agreements, service contracts,
other contracts or agreements, all names under or by which the Land or Buildings
may at any time be operated or known, and all rights to carry on business under
any such names or any variant thereof, all trademarks and goodwill and all
interests in any owner's or member's association in any way relating to the Land
or Buildings; (3) all water stock relating to the Land or Buildings, all shares
of stock or other evidence of ownership of any part of the Land or Buildings
that is owned by the Trustor in common with others, and all documents of
membership in any owners' or members' association or similar group having
responsibility for owning, managing or operating any part of the Land or
Buildings; (4) all plans and specifications prepared for construction of
improvements on the Land or Buildings and all studies, data and drawings related
thereto, including, without limitation, those certain Street Improvement Plans
Phase II (Tract 23995-2) dated January 12, 1995, prepared by Mainiero, Smith and
Associates, Inc. and signed by David M. Cosper, City Engineer R.C.E. #38022
(Sheets 1 through 6); and also all contracts and agreements of Trustor relating
to the plans and specifications or to the studies, data and drawings, or to the
construction of improvements on the Land or Buildings; (5) all sales agreements,
deposit receipts, escrow agreements and other ancillary documents and agreements
entered into with respect to the sale to any purchasers of any part of the Land
or Buildings, together with all deposits and other proceeds of the sale thereof;
(6) all damages, royalties and revenues of every kind, nature and description
whatsoever that Trustor may be entitled to receive from any person or entity
owning or having or hereafter acquiring a right to the oil, gas or mineral
rights and reservations of the Land; (7) all deposits made with or other
security given to utility companies by Trustor with respect to the Land or
Buildings, and all advance payments of insurance premiums made by Trustor with
respect thereto and all claims or demands with respect to insurance; (8) any
funds held by or in the name of Beneficiary; (9) any causes of action deemed to
be assigned to Beneficiary under this Deed of Trust; (10) all substitutions,
renewals, improvements, attachments, accessions, additions and replacements to
any of the foregoing; and (11) all collections, proceeds, insurance proceeds and
products of any of the foregoing, including, without limitation, proceeds of any
voluntary or involuntary disposition or claim respecting any part thereof
(pursuant to judgment, condemnation award or otherwise), insurance proceeds paid
or owing as a result of any damage to any of the foregoing, and all documents,
instruments, general intangibles, chattel paper and accounts which may arise
from the sale or disposition of any of the foregoing, all guaranties of and
security for any of the foregoing, and all books and records relating to any of
the foregoing. "Personalty" shall also include all insurance policies that
cover any of the Land, the Buildings, the
3
<PAGE>
Fixtures, any other Personalty described in this paragraph, and any rights,
benefits and proceeds arising from such insurance policies.
1.22 Loan Documents. This Deed of Trust, the Loan Agreement, the
--------------
Security Agreement, the Indemnity Agreement, the Escrow Agreement, and any and
all other documents executed by Trustor now or hereafter evidencing, securing or
relating to the payment of the Indebtedness or the observance or performance of
the Obligations, as any of the same may be amended or otherwise modified.
1.23 Rents. All of the rents, revenues, income, profits, deposits,
-----
tenders and other benefits payable under the Leases and/or arising from the use
or enjoyment of all or any portion of the Mortgaged Property.
1.24 Security Agreement. The Security Agreement, contained in this
------------------
Deed of Trust, wherein and whereby Trustor grants a security interest in the
Personalty, the Awards, the Fixtures and the Escrow Account to Beneficiary.
1.25 Escrow Account. That certain deposit account no. 001-274457 in
--------------
the name of Builder's Control Service Company for the benefit of Trustor and
maintained with First Business Bank at its branch located at One Bunker Hill
Building, 601 West Fifth Street, Los Angeles, California 90071, together with
all investments made in the name of such account and all interest and other
proceeds thereof.
1.26 Trustee. The person, persons, or entity named as such in the
-------
preamble of this Deed of Trust and, as the case may be, his, their or its
successors and assigns.
1.27 Trustee's Address. 1060 E. Washington Street, Suite 200, Colton,
-----------------
California 92324. Facsimile: (909) 370-2132.
1.28 Trustor. The entity named as such in the preamble of this Deed
-------
of Trust, and its heirs, administrators, executors, successors and assigns and
its successors in interest in and to the Mortgaged Property.
1.29 Trustor's Address. 1282 West Arrow Highway, Upland, California
-----------------
91786.
ARTICLE 2
GRANT
-----
2.1 Grant. To secure the payment of the Indebtedness and the
-----
performance and discharge of the Obligations, Trustor by these presents hereby
grants, bargains, sells, assigns, mortgages, conveys and warrants unto Trustee,
in trust for Beneficiary, with power of sale and right of entry and possession,
the Mortgaged Property, to have and to hold the Mortgaged Property unto
Trustee, its successors and assigns forever.
2.2 Condition of Grant. Provided always, that if Trustor shall pay
------------------
or cause to be paid the entire Indebtedness as and when the same shall become
due and payable and shall observe, perform and discharge the Obligations, then
the Loan Documents and the estate and rights granted by Trustor shall cease,
terminate and become void, and shall be released or reconveyed by Beneficiary,
at the cost and expense of Trustor.
ARTICLE 3
SECURITY AGREEMENT AND FIXTURE FILING
-------------------------------------
3.1 Security Agreement. This Deed of Trust shall also constitute a
------------------
"Security Agreement" within the meaning of, and shall create a security interest
under, the Uniform Commercial Code as adopted by the state in which the
Mortgaged Property is located (the "UCC") in the Personalty, the Awards, the
Leases, the Rents, the Escrow Account, and the Fixtures.
4
<PAGE>
3.2 Security Interest. In order to further secure payment of the
-----------------
Indebtedness and the observance, performance and discharge of the Obligations,
Trustor hereby grants to Beneficiary a security interest under the UCC in the
Personalty, the Award, the Leases, the Rents, the Escrow Account and the
Fixtures, and Beneficiary shall have all the rights with respect to the
Personalty, the Awards, the Leases, the Rents, the Escrow Account and the
Fixtures afforded to it by the UCC, in addition to, but not in limitation of,
the other rights afforded Beneficiary by the Loan Documents.
3.3 Financing Statements. Trustor agrees to and shall execute and
--------------------
deliver to Beneficiary, in form satisfactory to Beneficiary, such "Financing
Statements" and such further assurances as Beneficiary may, from time to time,
consider reasonably necessary to create, perfect and preserve Beneficiary's
liens upon the Personalty, the Awards, the Leases, the Rents, the Escrow Account
and the Fixtures, and Beneficiary, at the expense of Trustor, may or shall cause
such statements and assurances to be recorded and re-recorded, filed and re-
filed, at such times and places as may be required or permitted by law to so
create, perfect and preserve such liens.
3.4 Fixture Filing. This Deed of Trust is being recorded as a
--------------
fixture filing and covers goods which are or are to become fixtures on the Land
and/or the Buildings. This fixture filing is governed by the UCC. An address
of Beneficiary from which information concerning the security interest created
under this Article 3 may be obtained by contacting Beneficiary at Beneficiary's
address.
ARTICLE 4
ASSIGNMENT OF RENTS AND LEASES
------------------------------
4.1 Assignment of Rents. All of Trustor's rights, title and interest
-------------------
in and to the Rents are hereby absolutely and irrevocably assigned to
Beneficiary to be applied against the Indebtedness and the Obligations. Trustor
hereby appoints Beneficiary its true and lawful attorney-in-fact, with the
right, at Beneficiary's option at any time, to demand, receive and enforce
payment, to give receipts, releases and satisfactions, and to sue, either in
Trustor's or Beneficiary's name, for all Rents. Notwithstanding the foregoing
Assignment of Rents, so long as no Event of Default has occurred which remains
uncured, Trustor is given a license to collect, receive, take, use and enjoy
such Rents, as they become due and payable, but not more than one month in
advance thereof. This assignment, and the assignment given in Article 4.2
below, shall be fully operative without any further action on the part of either
party; and specifically, Beneficiary shall be entitled at its option, upon the
occurrence of an Event of Default hereunder and for so long as such Event of
Default is continuing, to collect all Rents from the Mortgaged Property whether
or not Beneficiary takes possession of the Mortgaged Property and to exercise
any other remedies allowed by statute or under common law including, without
limitation, any remedy allowed under California Civil Code Section 2938. Upon
the occurrence of an Event of Default hereunder, the license hereby given to
Trustor to collect the Rents from the Mortgaged Property shall terminate. The
license given by Beneficiary to Trustor shall be reinstated upon a cure of such
Event of Default with Beneficiary's specific consent which shall not be
unreasonably withheld. This Assignment shall not be deemed or construed to
constitute Beneficiary or Trustee as a mortgagee in possession nor obligate
Beneficiary or Trustee to take any action or to incur expenses or perform or
discharge any obligation, duty or liability. Exercise of any rights under this
Section and the application of the Rents to the Indebtedness or the Obligations
shall not cure or waive any Event of Default but shall be cumulative of all
other rights and remedies.
4.2 Assignment of Leases. Trustor hereby grants and assigns to
--------------------
Beneficiary all right, title and interest of Trustor in and to all Leases,
together with all security therefor and all monies payable thereunder, subject,
however, to the license given to Trustor above to collect the rentals under any
such Lease. The foregoing assignment of any Lease shall not be deemed to impose
upon Beneficiary any of the obligations or duties of Trustor provided in any
such Lease; and Trustor agrees to fully perform all obligations of the Lessor
under all such Leases. Upon Beneficiary's request, Trustor shall deliver to any
new lessee a notice of this assignment in form satisfactory to Beneficiary in
its sole discretion. Beneficiary may deliver such a notice to new lessees if
Trustor fails to do so within a reasonable time after Beneficiary's request.
From time to time, upon request of Beneficiary, Trustor shall specifically
assign to Beneficiary, by an assignment in writing in form approved by
Beneficiary, all right, title and interest of Trustor in and to any and all
Leases, together with all security therefor and all monies payable thereunder,
subject to the license given to Trustor above to collect the rentals under any
such Lease. Trustor shall
5
<PAGE>
also execute and deliver to Beneficiary any notification, financing statement,
or other document reasonably required by Beneficiary to perfect the foregoing
assignment as to any such Lease.
4.3 Effect of Assignments. This instrument constitutes an absolute
---------------------
and present assignment of the rents, royalties, issues, profits, revenue, income
and other benefits from the Mortgaged Property; subject, however, to the license
given to Trustor to collect, receive, take, use and enjoy the same as provided
above; provided, further, that the existence or exercise of such right of
Trustor shall not operate to subordinate this assignment to any subsequent
assignment by Trustor, in whole or in part, and any such subsequent assignment
by Trustor shall be subject to the rights of Trustee and Beneficiary hereunder.
4.4 No Merger of Leasehold Estates. If both the lessor's and
------------------------------
lessee's estate under any Lease, or any portion thereof, becomes vested at any
time in one owner, this Deed of Trust and the lien created hereby shall not be
adversely affected by the application of the doctrine of merger unless
Beneficiary so elects in writing by recording a written declaration so stating.
Unless and until Beneficiary so elects, Beneficiary and any lessor and lessee
shall continue to have and enjoy all of the rights and privileges to the
separate estates. In addition, upon the foreclosure of the lien created by this
Deed of Trust on the Mortgaged Property, any Leases then existing and affecting
all or any portion of the Mortgaged Property shall not be destroyed or
terminated by merger or by the foreclosure unless Beneficiary or any purchaser
at the sale so elects. No act by or on behalf of Beneficiary or such purchaser
shall constitute a termination of any Lease unless Beneficiary gives written
notice thereof to the tenant or subtenant affected.
4.5 Assignment to Beneficiary Controlling. The rights of Trustee in
-------------------------------------
the Leases and Rents created under Article 2 shall be subject to the rights of
Beneficiary in the Leases and Rents created under this Article 4.
ARTICLE 5
COVENANTS AND REPRESENTATIONS AND WARRANTIES
--------------------------------------------
5.1 Covenants. Until the entire Indebtedness shall have been paid in
---------
full and all of the Obligations shall have been performed in full, Trustor
hereby covenants and agrees as follows:
5.1.1 Compliance with Laws. Trustor will promptly and
--------------------
faithfully comply with, conform to, and obey all present and future laws,
ordinances, rules, regulations and requirements of every duly constituted
governmental authority or agency and of every Board of Fire Underwriters having
jurisdiction, or similar body exercising similar functions, which may be
applicable to it or to the Mortgaged Property, or any part thereof, or to the
use or manner of use, occupancy, possession, operation, maintenance, alteration,
repair or reconstruction of the Mortgaged Property, or any part thereof, whether
or not such law, ordinance, rule, order, regulation or requirement shall
necessitate structural changes or improvements or interfere with the use or
enjoyment of the Mortgaged Property.
5.1.2 Payment of Impositions. Trustor will duly pay and
----------------------
discharge, or cause to be paid and discharged, the Impositions, such Impositions
or installments thereof to be paid prior to the day before any fine, penalty,
interest or cost may be added thereto or imposed by law for the non-payment
thereof; provided, however, that if, by law, any Imposition may be paid in
installments, Trustor may pay the same in such installments.
5.1.3 Repair and Alterations.
----------------------
(a) Trustor will keep the Mortgaged Property in good
order and condition and make all necessary or appropriate repairs, replacements
and renewals thereof and will use its best efforts to prevent any act or thing
which might impair the value or usefulness of the Mortgaged Property.
6
<PAGE>
(b) Trustor will not commit or knowingly permit any
waste of the Mortgaged Property or any part thereof, or make or permit to be
made any alterations or additions to the Mortgaged Property which would have the
effect of materially diminishing the value thereof, or make or permit to be made
any other alterations or additions to the Mortgaged Property, of a material
nature, without the prior written consent of Beneficiary.
(c) Trustor will not permit any of the Fixtures or
Personalty to be removed at any time from the Land and/or Buildings, without the
prior written consent of Beneficiary unless actually replaced by an article of
equal suitability and value and owned by Trustor free and clear of any lien or
security interest except such as may be approved in writing by Beneficiary.
5.1.4 Insurance. Trustor will maintain insurance upon the
---------
Mortgaged Property against loss by fire, windstorms, flood (if the Mortgaged
Property is located in a designated flood plain) and such other hazards,
casualties and contingencies as are normally and usually covered by All Risk
Property policies in effect in the locality where the Mortgaged Property is
situated and such other risks as may be specified by Beneficiary, from time to
time, in amounts and with insurers acceptable to Beneficiary (including
earthquake if requested by Beneficiary), but in any event not less than the full
replacement cost of all insured real property, fixtures leasehold improvements,
contents, equipment and other personal property, and business interruption or
loss-of-rents limits shall be sufficient to meet loss of one year's anticipated
revenues. No primary deductible or retention greater than $5,000 shall be
called for in any such policies, unless agreed to in writing by Beneficiary.
Policies shall contain endorsements providing for course of construction, breach
of warranty, adjustment of value for inflation, increased costs of replacement
due to changes in code requirements, costs of demolition, and such other
conditions as may be required by Beneficiary. Policies shall be endorsed with
form 438BFUNS, or a similar endorsement acceptable to Beneficiary, showing
Beneficiary as an additional insured and loss payee as its interests may appear,
such loss payments to be applied to the restoration, repair or replacement of
the Mortgaged Property under terms and conditions acceptable to Beneficiary;
provided, however, that if an Event of Default has occurred and is continuing or
an event has occurred and is continuing which with the passage of time or the
giving of notice would constitute an Event of Default, then Beneficiary may, in
its sole discretion, apply such payments to the payment of the Indebtedness.
Trustor shall also maintain Commercial General Liability insurance
which shall respond to third-party claims involving bodily injury, property
damage and personal injury arising out of Trustor's alleged actions or
inactions; such policies shall also include Garagekeepers Legal Liability
coverage. All such policies shall provide limits of coverage as Beneficiary may
specify, but in any event not less than One Million Dollars ($1,000,000) per
occurrence and annual aggregate as to liability for bodily injury, property
damage and personal injury. No primary deductible or retention shall be called
for in the policies. Trustor shall also maintain, or cause its contractors to
maintain, Worker's Compensation and Employer's Liability insurance.
All insurance policies required by Beneficiary under this Deed of
Trust shall be issued by companies acceptable to Beneficiary, but in no event
shall the company(ies) have ratings in the current Best's Insurance Rating
Manual of less than "A/XI." All liability insurance policies shall be endorsed
as to name Beneficiary as an additional insured under the policy as respects its
interests as mortgagee/secured party of the Mortgaged Property. All policies of
insurance shall provide that the policies may not be cancelled, materially
modified or terminated without at least thirty (30) days' prior written notice
to Beneficiary. Trustor shall furnish to Beneficiary duplicate executed copies
of each such policy at the time of execution hereof, and copies of each renewal
policy not less than thirty (30) days prior to the expiration of the original
policy or the preceding renewal policy (as the case may be), together with
receipts or other evidence that the premiums have been paid; and furnish to
Beneficiary certificates of insurance prepared by Trustor's insurance broker or
agent which show evidence of the required coverages and endorsements, and
payment of premiums thereon. Trustor will furnish to Beneficiary on or before
120 days after the close of each fiscal year of Trustor a statement of Trustor
of the amounts of insurance maintained in compliance with this Section 5.1.4, of
the risks covered by such insurance and of the insurance company or companies
which carry such insurance. In the event insurance proceeds received on account
of loss or damage to the Buildings, Personalty or Fixtures are insufficient to
effectuate full repair or replacement of such loss or damage, Beneficiary may
apply such insurance proceeds in reduction of the Indebtedness without
prepayment
7
<PAGE>
premium, unless Trustor shall provide or cause to be provided additional funds
in an amount not less than such deficiency and Trustor shall place in escrow
said funds in order to assure to Beneficiary's reasonable satisfaction full
repair of the damaged or destroyed Mortgaged Property or portion thereof.
5.1.5 Restoration Following Casualty. In the event of the
------------------------------
happening of any casualty of any kind or nature (whether insured against or
not), resulting in damage to or destruction of the Mortgaged Property, Trustor
will give prompt notice thereof to Beneficiary, and, subject to the following
sentence, Trustor will promptly restore, repair, replace, rebuild or alter the
Mortgaged Property as nearly as possible to its value and condition immediately
prior to such damage or destruction.
In the event that the Mortgaged Property has been destroyed such that
the value of the Mortgaged Property has been materially impaired, even if
insurance proceeds are made available to Trustor to rebuild the damaged
property, then Beneficiary need not provide such insurance proceeds to Trustor
and may instead apply such insurance proceeds to prepay the Indebtedness in
whole.
5.1.6 Lease Agreement; Attornment. Trustor agrees not to
---------------------------
terminate, amend, or modify any of the Leases or subleases, or grant any
concessions in connection therewith, or to accept a surrender thereof without
the written consent of Beneficiary. All Leases shall be in form and substance
satisfactory to Beneficiary. Trustor agrees not to execute any future Lease or
Leases or subleases pertaining to the Mortgaged Property without the prior
written consent of Beneficiary. Trustor shall deliver to Beneficiary a complete
copy of each future Lease within 3 days after execution of such Lease. Trustor
shall provide to Beneficiary a subordination, attornment and non-disturbance
agreement executed by each tenant in a form satisfactory to Beneficiary in its
sole discretion.
5.1.7 Performance of Leases and Other Agreements. Trustor will
------------------------------------------
duly and punctually perform all covenants and agreements expressed as binding
upon it under the Leases and under any other agreements to which it is a party
with respect to the Mortgaged Property or any part thereof (including, without
limitation, all construction loan documents (other than the Loan Agreement)
relating to the Mortgaged Property, all sales agreements entered into with
respect to all or any portion of the Mortgaged Property), and will use its best
efforts to enforce or secure the performance of each and every obligation and
undertaking of the respective lessees under the Leases and will appear and
defend, at its cost and expense, any action or proceeding arising under or in
any manner connected with the Leases or the obligations and undertakings of any
lessee or other party thereunder. Trustor will immediately notify Beneficiary
in writing of any notice of default received by Trustor from any tenant
thereunder.
5.1.8 Payment of Rents. Trustor hereby agrees that the
----------------
respective lessees under the Leases, upon notice from Beneficiary of the
occurrence of an Event of Default, shall thereafter pay to Beneficiary the Rents
due and to become due under the Leases without any obligation to determine
whether an Event of Default in fact exists.
5.1.9 Inspection. Trustor will permit Beneficiary, at all
----------
reasonable times and with reasonable notice, to inspect the Mortgaged Property.
Beneficiary shall have the right to enter onto the Mortgaged Property, at all
reasonable times, to inspect the Mortgaged Property for the existence of
Hazardous Materials (as defined in the Indemnity Agreement) on the Mortgaged
Property and to determine the compliance of the Mortgaged Property and its use
with any law, rule or regulation relating to industrial hygiene or environmental
conditions, including soil and ground water conditions and the compliance of the
Trustor and the Mortgaged Property with the conditions and covenants set forth
herein with respect to Hazardous Materials.
5.1.10 Hold Harmless. Trustor will indemnify, defend and hold
-------------
Beneficiary harmless from any liability, loss, action, proceeding or claim
affecting the Mortgaged Property, or the value of the Note or the Loan
Documents. Trustor shall appear in and defend (or pay the expenses of
Beneficiary to defend, if Beneficiary gives Trustor notice of its election to
handle such defense) any action or proceeding purporting to affect the security
of this Deed of Trust and/or the rights and/or powers of Beneficiary hereunder,
and Trustor shall pay all costs and expenses (including costs of evidence of
title and attorneys' fees) in any action or proceeding in which Beneficiary
8
<PAGE>
may so appear and/or any suit by Beneficiary to foreclose this Deed of Trust, to
enforce any obligations secured by this Deed of Trust, and/or to prevent the
breach hereof. Trustor's obligations under this Section 5.1.10 shall survive
payment of the Indebtedness.
5.1.11 Books and Records. Trustor will maintain full and
-----------------
complete books of account and other records reflecting the results of its
operations (in conjunction with its other operations as well as its operations
of the Mortgaged Property). If the Mortgaged Property consists of rental
property, Trustor will furnish or cause to be furnished to Beneficiary (a)
within 30 days after the end of each calendar quarter, detailed statements of
income and expenses relating to the Mortgaged Property for such period; (b)
within 90 days after the end of each calendar year, detailed statements of
income and expenses relating to the Mortgaged Property for such year; (c) within
30 days after the end of each calendar quarter, a rent roll for the Mortgaged
Property; and (d) within 30 days after the end of each calendar month, a
delinquency report and accounts receivable aging for the Mortgaged Property for
such month. If the Mortgaged Property consists of single-family lots or homes,
condominiums or other residential properties to be sold, Trustor will furnish or
will cause to be furnished to Beneficiary weekly written reports reflecting all
information relevant to the marketing and sale of such units, in such form as
Beneficiary may request. Within forty-five (45) days after the end of such
fiscal quarter of Trustor and within ninety (90) days after each fiscal year of
Trustor, Trustor will furnish or cause to be furnished to Beneficiary an income
statement, balance sheet and statement of changes in financial position for
Trustor. All financial information to be delivered to Beneficiary hereunder
shall in detail reasonably acceptable to Beneficiary, shall be prepared in
accordance with generally accepted accounting principles applied on a consistent
basis and, with respect to that information regarding Trustor, shall be
certified by the chief financial officer of Trustor as being true, correct and
complete. At any time more frequently than as specified above, and from time to
time, Trustor shall deliver to Beneficiary such other financial data and other
information, including, without limitation, copies of all Leases, as Beneficiary
shall, from time to time, reasonably request with respect to Trustor and the
ownership and operation of the Mortgaged Property, and Beneficiary shall have
the right, at reasonable times and upon reasonable notice, to audit Trustor's
books of account and records.
5.1.12 Awards. Trustor will file and prosecute its claim or
------
claims for any Awards in good faith and with due diligence and cause the same to
be collected and paid over to Beneficiary, and hereby irrevocably authorizes and
empowers Beneficiary, if its so desires, to file such claim and collect any
Awards and agrees that the proceeds of any Awards will be applied by Beneficiary
in reduction of any portion of the Indebtedness as Beneficiary may determine in
accordance with Article 8 hereof.
5.1.13 Licenses. Trustor shall keep in full force and effect
--------
all licenses, permits and other governmental approvals which are necessary for
the construction, marketing and operation of the Mortgaged Property and related
facilities, and furnish evidence satisfactory to Beneficiary that the Mortgaged
Property and the use thereof comply with all applicable zoning and building
laws, regulations, ordinances and other applicable laws.
5.1.14 No Further Encumbrance. Trustor shall not, without the
----------------------
prior written consent of Beneficiary, incur any additional indebtedness or
create or permit to be created or to remain, any mortgage, pledge, lien,
encumbrance or charge on, or conditional sale or other title retention agreement
with respect to, the Mortgaged Property or any part thereof or income therefrom,
other than the Loan Documents and the Permitted Encumbrances and except as
provided in Section 5.1.18 below.
5.1.15 Mechanic's Lien. Trustor shall not permit or suffer any
---------------
mechanic's, materialman's or other lien to be created or to remain a lien upon
any of the Mortgaged Property.
5.1.16 Management. If Trustor seeks to have the Mortgaged
----------
Property managed by a management company, the management company must be
approved by Beneficiary under a management contract satisfactory in form and
substance to Beneficiary. The interests of the Trustor and the management
company under such contract shall be subordinate to the rights of Beneficiary
hereunder, and the management agreement shall provide that Beneficiary may, at
its option, terminate such contract upon the occurrence of an Event of Default.
9
<PAGE>
5.1.17 Use of Mortgaged Property. Trustor shall not use the
-------------------------
Mortgaged Property or any part thereof, or allow the same to be used or
occupied, for any purpose other than for a residential subdivision, or for any
unlawful purpose, or in violation of any certificate of occupancy or other
permit or certificate, or any law, ordinance or regulation, covering or
affecting the use or occupancy thereof. Trustor will not suffer any act to be
done or any condition to exist on the Mortgaged Property or any part thereof or
any article to be brought thereon, which may be dangerous (unless safeguarded as
required by law) or which may constitute a nuisance, public or private, or which
may void or make voidable any insurance then in force with respect thereto.
5.1.18 Transfer of Mortgaged Property. Trustor shall not,
------------------------------
without the prior written consent of Beneficiary, directly or indirectly sell,
transfer, convey, further encumber assign, grant any option, subordinate,
convert to condominiums or grant any further lien or easement on all or any part
of the Mortgaged Property, or enter into any agreement for any of the foregoing,
whether by operation of law recorded or unrecorded, or voluntarily or
involuntarily; provided, however, that if the Mortgaged Property consists of
single-family lots or homes, condominiums or other residential properties to be
sold, Trustor may accept sales reservations and enter into purchase and sales
contracts so long as such actions are consistent with the Loan Documents, all
rules and regulations of the California Department of Real Estate and all other
applicable laws, rules and regulations. Trustor shall promptly notify
Beneficiary in writing of any such intended event or agreement for which
Beneficiary's consent may be required.
5.1.19 Senior Deed of Trust. Trustor shall not modify, amend,
--------------------
extend, renew or otherwise alter the terms of any loan or other obligation, now
existing or hereafter created, that has a lien priority interest in all or any
portion of the Mortgaged Property that is senior to the lien created by this
Deed of Trust without first obtaining the prior written consent of Beneficiary,
which consent may be withheld or conditioned in Beneficiary's sole discretion.
Subject to the terms of Section 9.27 below, Beneficiary will subordinate the
lien of this Deed of Trust to the lien of a deed of trust that secures
construction financing obtained by Trustor to construct single-family homes on
the Land. Trustor agrees to timely fulfill all of its obligations under any
senior deed of trust and the other documents that evidence or relate to the loan
secured by any senior deed of trust (including, without limitation, any
construction loan agreements now existing or hereafter entered into with respect
to such loan) (the "Senior Loan Documents"). Without limitation, Trustor agrees
to construct, market and sell the single family homes contemplated under the
Senior Loan Documents.
5.2 Representations and Warranties of Trustor. Trustor hereby
-----------------------------------------
represents and warrants to Beneficiary as follows, and agrees to give written
notice to Beneficiary of any breach of such representations and warranties.
5.2.1 Good Standing/Licensing. Trustor is duly organized,
-----------------------
validly existing and in good standing under the laws of its state of
organization, is duly licensed or qualified to do business and is in good
standing and is authorized to do business in every jurisdiction in which the
nature of its businesses or properties makes such licensing or qualification
necessary and where a failure to so qualify or be licensed would have a
materially adverse effect on the business or operations of the Trustor, and is
in compliance with all laws, regulations, ordinances and orders of public
authorities applicable to Trustor; provided, however, that if Trustor is not in
good standing, Trustor represents that it has not been suspended in its state of
organization nor the State of California and that its failure to be in good
standing does not affect its right and power to enter into the Note and Loan
Documents and to consummate the transactions described therein. If Trustor is a
corporation or partnership, the execution of the Note and the Loan Documents are
within Trustor's corporate or partnership powers.
5.2.2 No Conflict. The Note and the Loan Documents will not
-----------
violate any provision of law (including, but not limited to any law relating to
usury), any order of any court or other agency or government, or any indenture,
agreement or other instrument to which Trustor is a party or by which Trustor or
any of its property is bound, or be in conflict with, result in a breach of or
constitute (with due notice and/or lapse of time) a default under any such
indenture, agreement or other instrument, or violate the partnership agreement
of the Trustor or result in the creation or imposition of any lien, charge or
encumbrance of any nature whatsoever upon any of the property or assets of
Trustor, except as contemplated by the Note and the Loan Documents, and no
action with respect thereto by Trustor is required.
10
<PAGE>
5.2.3 Consents. No consent or approval of any regulatory body
--------
to the execution, delivery and performance of the Note and the Loan Documents or
the transactions contemplated thereby is required by law.
5.2.4 Suits. There are no suits, proceedings or investigations
-----
pending or threatened against or affecting Trustor, at law or in equity, or
before or by any governmental or administrative agency or instrumentality which,
if adversely determined, would have a material adverse effect on the business or
condition of Trustor.
5.2.5 Judgments. No judgment, decree or order of any court or
---------
governmental or administrative agency or instrumentality has been issued against
Trustor which has or may have any material adverse effect on the business or
condition of Trustor.
5.2.6 Information. All information, reports, papers and data
-----------
given to Beneficiary with respect to Trustor or others obligated under the terms
of the Loan Documents are accurate and correct in all material respects and
complete insofar as completeness may be necessary to give Beneficiary a true and
accurate knowledge of the subject matter thereof.
5.2.7 Title/Right to Assign Leases. Trustor has good and
----------------------------
marketable title in fee simple to the Land and Buildings, and good and
marketable title to the Fixtures, the Escrow Account, the Awards and Personalty,
and the right to assign the Leases and Rents to Beneficiary free and clear of
any prior assignment, liens, charges, encumbrances, security interests and
adverse claims whatsoever except the Permitted Encumbrances.
5.2.8 Leases. Trustor has not executed any prior assignment
------
of the Leases or of its right, title and interest therein or in the Rents to
accrue thereunder (except an assignment in favor of the lender under the Senior
Loan Documents), Trustor has delivered to Beneficiary a true and complete copy
of all of the existing Leases assigned hereunder, together with all amendments,
supplements and other modifications, and to the best of Trustor's knowledge, no
material default by Trustor or any other person under any existing Lease remains
uncured.
5.2.9 Permitted Encumbrances. The Permitted Encumbrances have
----------------------
not materially interfered with the operation of the Mortgaged Property, nor does
Trustor reasonably foresee any material interference arising from the Permitted
Encumbrances during the term of the Note. Without limiting the foregoing,
Trustor represents that it is not in default under the terms of any liens that
are secured by deeds of trust whose liens are junior to the lien of this Deed of
Trust.
5.2.10 Taxes. Trustor has filed all Federal, state, county and
-----
municipal income tax returns required to have been filed by them and have paid
all taxes which have become due pursuant to any assessments received by them,
and Trustor does not know of any basis for additional assessment in respect to
such taxes.
5.2.11 Use of Borrowed Funds. Trustor hereby represents and
---------------------
warrants to Beneficiary that it intends to use the funds it is borrowing from
Beneficiary under the terms of the Note primarily for other than personal,
family or household purposes.
5.2.12 Electromagnetic Fields. There are no electrical
----------------------
transformers or electrical stations or substations within 100 yards of any
portion of the Land.
11
<PAGE>
ARTICLE 6
EVENTS OF DEFAULT
-----------------
The term "Event(s) of Default", as used herein and in the Loan
Documents and the Note, shall mean the occurrence or happening, from time to
time, of any one or more of the following:
6.1 Payment of Indebtedness. If Trustor shall default in the due and
-----------------------
punctual payment of all or any portion of any installment of the Indebtedness,
whether at the due date thereof or by acceleration or otherwise, as and when the
same shall become due and payable and such failure continues for a period of
five (5) days.
6.2 Performance of Obligations. If Trustor shall default in the due
--------------------------
observance or performance of any of the Obligations other than payment of money
and such default shall not be cured within twenty (20) days after such default.
6.3 Bankruptcy, Receivership, Insolvency, Etc. If voluntary or
------------------------------------------
involuntary proceedings under the Federal Bankruptcy Code, as amended, shall be
commenced by or against Trustor or the general partner of Trustor (if any), or
bankruptcy, receivership, insolvency, reorganization, dissolution, liquidation
or other similar proceedings shall be instituted by or against Trustor or the
general partner of Trustor (if any) with respect to all or any part of Trustor's
property or the property of the general partner of Trustor under the Federal
Bankruptcy Code, as amended, or other law of the United States or of any state
or other competent jurisdiction, and if such proceedings are instituted against
Trustor or the general partner of Trustor (if any) and it shall consent thereto
or shall fail to cause the same to be discharged within sixty (60) days.
6.4 Laws Affecting Obligations and Indebtedness. If subsequent to
-------------------------------------------
the date of this Deed of Trust, any governmental entity in which the Mortgaged
Property is located passes any law (a) which renders payment of the Indebtedness
and/or performance of the Obligations by Trustor unlawful, or (b) which
prohibits Beneficiary from exercising any of its rights and remedies under the
Note and Loan Documents.
6.5 False Representation. If any representation or warranty made by
--------------------
Trustor or others in, under or pursuant to the Note or the Loan Documents
(including, but not
limited to, any representation or warranty made in Section 5.2 hereof) shall
prove to have been false or misleading in any material respect as of the date on
which such representation or warranty was made.
6.6 Destruction of Improvements. If any of the Buildings is
---------------------------
demolished or removed or demolition or removal thereof is imminent, eminent
domain proceedings excepted.
6.7 Default Under Other Deed of Trust. If the holder of any senior
---------------------------------
or junior deed of trust or any other lien on the Mortgaged Property (without
hereby implying Beneficiary's consent to any such junior deed of trust or lien)
institutes foreclosure or other proceedings for the enforcement of its remedies
thereunder, or if a default exists under any other deed of trust or lien on the
Mortgaged Property or any documents that evidence or relate to the loans secured
by any of the foregoing deeds of trust or liens.
6.8 Loan Documents. If a default shall occur under the Note or any
--------------
of the Loan Documents.
6.9 Due on Sale. If, without the prior written consent of
-----------
Beneficiary, (a) there is any sale, transfer, assignment, conveyance or
encumbrance, whether voluntary or involuntary, of all or part of the Mortgaged
Property or any interest therein or any other event or agreement referred to in
Section 5.1.18, (b) Trustor or any one or more of the persons comprising Trustor
is a partnership and the interest of any general partner (or the interest of any
general partner in a partnership that is a partner) is assigned or transferred,
except for an assignment or transfer resulting from the death or physical or
mental incapacity of a general partner; (c) Trustor or any one or more of the
persons comprising Trustor is a partnership and more than twenty-five percent
(25%) of the corporate stock of any corporation that is a general partner of
such partnership is sold, transferred or assigned; (d) change in ownership
(including the hypothecation or encumbrance thereof) of a majority of the stock
of Trustor held by Ira Norris; (e) Trustor is a trust and there is a change in
beneficial ownership with respect to more than twenty-five percent (25%) of the
trust; (f) Trustor consists of several persons or entities holding fractional
undivided interest in the Mortgaged Property and there is a cumulative change in
ownership with respect to more than a twenty-five percent
12
<PAGE>
(25%) fractional undivided interest in the Mortgaged Property; (g) there is a
seizure of the Mortgaged Property, or attachment of any lien on the Mortgaged
Property, whether voluntary or involuntary, which has not been removed or bonded
off to Beneficiary's satisfaction within thirty (30) days of such attachment; or
(h) there is a change in the controlling executives and directors of Trustor.
6.10 Judgment. If a final judgment for the payment of money in excess
--------
of Ten Thousand Dollars ($10,000) shall be rendered against Trustor and the same
shall remain unpaid for a period of thirty (30) consecutive days during which
period execution shall not be effectively stayed.
ARTICLE 7
DEFAULT AND FORECLOSURE
-----------------------
7.1 Remedies. If an Event of Default shall occur, Beneficiary may,
--------
at its option, by or through Trustee or otherwise, exercise one or more or all
of the following remedies:
7.1.1 Acceleration. Declare the unpaid portion of the
------------
Indebtedness to be immediately due and payable, without further notice or demand
(each of which hereby is expressly waived by Trustor), whereupon the same shall
become immediately due and payable.
7.1.2 Entry on Mortgaged Property. Enter upon the Mortgaged
---------------------------
Property and take possession thereof and of all books, records, and accounts
relating thereto.
7.1.3 Operation of Mortgaged Property. Hold, lease, operate
-------------------------------
or otherwise use or permit the use of the Mortgaged Property, or any portion
thereof, in such manner, for such time and upon such terms as Beneficiary may
deem to be in its best interest (making such repairs, alterations, additions and
improvements thereto, from time to time, as Beneficiary shall deem necessary or
desirable) and collect and retain all earnings, rents, profits or other amounts
payable in connection therewith.
7.1.4 Judicial Proceedings. Institute proceedings for the
--------------------
complete or partial foreclosure of this Deed of Trust or 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 (without being required to foreclose 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 elect.
7.1.5 Sale of Mortgaged Property. Cause the Mortgaged
--------------------------
Property and all estate, right, title and interest, claim and demand therein, or
any part thereof to be sold as follows:
(a) Beneficiary may proceed as if all of the
Mortgaged Property were real property, in accordance with subparagraph (d)
below, or Beneficiary may elect to treat any of the Mortgaged Property which
consists of a right in action or which is property that can be severed from the
premises without causing structural damage thereto as if the same were personal
property, and dispose of the same in accordance with subparagraph (c) below,
separate and apart from the sale of real property, with the remainder of the
Mortgaged Property being treated as real property.
(b) Beneficiary may cause any such sale or other
disposition to be conducted immediately following the expiration of any grace
period, if any, herein provided (or required by law) or Beneficiary may delay
any such sale or other disposition for such period of time as Beneficiary deems
to be in its best interest. Should Beneficiary desire that more than one such
sale or other disposition be conducted, Beneficiary may at its option, cause the
same to be conducted simultaneously, or successively on the same day, or at such
different days or times and in such order as Beneficiary may deem to be in its
best interest.
(c) Should Beneficiary elect to cause any of the
Mortgaged Property to be disposed of as personal property as permitted by
subparagraph (a) above, it may dispose of any part
13
<PAGE>
thereof in any manner now or hereafter permitted by Division 9 of the UCC or in
accordance with any other remedy provided by law. Both Trustor and Beneficiary
shall be eligible to purchase any part of all of such property at any such
disposition. Any such disposition may be either public or private as Beneficiary
may so elect, subject to the provisions of the UCC. Beneficiary shall give
Trustor at least five (5) days prior written notice of the time and place of any
public sale or other disposition of such property or of the time at or after
which any private sale or any other intended disposition is to be made, and if
such notice is sent to Trustor it shall constitute reasonable notice to Trustor.
(d) Should Beneficiary elect to sell the Mortgaged
Property which is real property or which Beneficiary has elected to treat as
real property, upon such election Beneficiary or Trustee shall give such Notice
of Default and Election to Sell as may then be required by law. Thereafter, upon
the expiration of such time and the giving of such Notice of Sale as may then be
required by law, Trustee, at the time and place specified in the Notice of Sale,
shall sell such Mortgaged Property, or any portion thereof specified by
Beneficiary, at public auction to the highest bidder for cash in lawful money of
the United States, subject, however, to the provisions of Section 7.1.5(e)
hereof. Trustee for good cause may, and upon request of Beneficiary shall, from
time to time, postpone the sale by public announcement thereof at the time and
place noticed therefor. If the Mortgaged Property consists of several lots or
parcels, Beneficiary may designate the order in which such lots or parcels may
be offered for sale or sold, and may direct that such property be sold in one
parcel, as an entirety, or in such parcels as Beneficiary, in its sole
discretion, may elect. Trustor expressly waives any right which it may have to
direct the order in which any of the Mortgaged Property shall be sold, and its
rights, if any, to require the Mortgaged Property be sold as separate tracts,
lots, units, or parcels. Any person, including Trustor, Trustee or Beneficiary,
may purchase at the sale. Upon any sale Trustee shall execute and deliver to the
purchaser or purchasers a deed or deeds conveying the property so sold, but
without any covenant or warranty whatsoever, express or implied, whereupon such
purchaser or purchasers shall be let into immediate possession.
(e) Upon any sale of the Mortgaged Property,
whether made under a power of sale herein granted or pursuant to judicial
proceedings, if the holder of the Note is a purchaser at such sale, it shall be
entitled to use and apply all or any portion of the indebtedness then secured
hereby for or in settlement or payment of all or any portion of the purchase
price of the property purchased, and, in such case, this Deed of Trust, the Note
and documents evidencing expenditures secured hereby shall be presented to the
person conducting the sale in order that the amount of said indebtedness so used
or applied may be credited thereon as having been paid.
(f) In the event of a sale or other disposition of
any such Mortgaged Property or any part thereof, and the execution of a deed or
other conveyance pursuant thereto, the recitals in the deed or deeds of facts
(such as of a default, the giving of notice of default and notice of sale,
demand that such sale should be made, postponement of sale, terms of sale, sale,
purchaser, payment of purchase money, and any other fact affecting the
regularity or validity of such sale or disposition) shall be conclusive proof of
the truth of such facts; and any such deed or conveyance shall be conclusive
against all persons as to such facts recited therein.
7.1.6 Receiver. Beneficiary shall be entitled, as a matter
--------
of strict right, without notice and ex parte, and without regard to the value or
occupancy of the security, or the solvency of the Trustor, or the adequacy of
the Mortgaged Property as security for the Note, to have a receiver appointed to
enter upon and take possession of the Mortgaged Property, collect the Rents and
profits therefrom and apply the same as the court may direct, such receiver to
have all the rights and powers permitted under the laws of the jurisdiction in
which the Mortgaged Property is located. Trustor hereby waives any requirements
on the receiver or Beneficiary to post any surety or other bond. Beneficiary or
the receiver may also take possession of, and for these purposes use, any and
all Personalty which is a part of the Mortgaged Property and used by Trustor in
the rental or leasing thereof or any part thereof. The expense (including the
receiver's fees, counsel fees, costs and agent's compensation) incurred pursuant
to the powers herein contained shall be secured by this Deed of Trust.
Beneficiary shall (after payment of all costs and expenses incurred) apply such
Rents, issues and profits received by it on the Indebtedness in the order set
forth in Section 7.7 hereof. The right to enter and take possession of the
Mortgaged Property, to manage and operate the same, and to collect the Rents,
issues and profits thereof, whether by receiver or otherwise, shall be
14
<PAGE>
cumulative to any other right or remedy hereunder or afforded by law, and may be
exercised concurrently therewith or independently thereof. Beneficiary shall be
liable to account only for such Rents, issues and profits actually received by
Beneficiary.
7.1.7 Additional Rights and Remedies. With or without notice,
------------------------------
and without releasing Trustor from the Indebtedness or Obligations, and without
becoming a mortgagee in possession, Beneficiary and Trustee shall have the right
to cure any breach or default of Trustor and, in connection therewith, to enter
upon the Mortgaged Property and to do such acts and things as Beneficiary or
Trustee deem necessary or desirable to protect the security hereof including,
but without limitation, to appear in and defend any action or proceedings
purporting to affect the security hereof or the rights or powers of Beneficiary
or Trustee hereunder; to pay, purchase, contest or compromise any encumbrance,
charge, lien or claim of lien which, in the judgment of either Beneficiary or
Trustee, is prior or superior hereto, the judgment of Beneficiary or Trustee
being conclusive as between the parties hereto; to obtain insurance; to pay any
premiums or charges with respect to insurance required to be carried hereunder;
and to employ counsel, accountants, contractors and other appropriate persons to
assist them. All sums so paid by Beneficiary, and all costs and expenses,
including, without limitation, reasonable attorneys' fees and expenses so
incurred together with interest thereon at the interest rate provided in the
note, from the date of payment or incurring, shall constitute additions to the
Indebtedness secured by the Loan Documents, and shall be paid by Trustor to
Beneficiary, on demand. If Beneficiary shall elect to pay any Imposition,
Beneficiary may do so in reliance on any bill, statement or assessment procured
from the appropriate public office, without inquiring into the accuracy thereof
or into the validity of such Imposition. Trustor shall indemnify Beneficiary for
all losses and expenses, including reasonable attorneys' fees, incurred by
reason of any acts performed by Beneficiary pursuant to the provisions of this
Section 7.1.7 or by reason of the Loan Documents, and any funds expended by
Beneficiary to which it shall be entitled to be indemnified, together with
interest thereon at the interest rate provided in the Note from the date of such
expenditures, shall constitute additions to the Indebtedness and shall be
secured by the Loan Documents and shall be paid by Trustor to Beneficiary upon
demand.
7.1.8 Other. Exercise any other remedy specifically granted
-----
under the Note and the Loan Documents, or now or hereafter existing in equity,
at law, by virtue of statute or otherwise, including the rights described below.
7.1.9 Late Charge and Default Interest. Impose the late
--------------------------------
charges and the default interest rate as provided for in the Note.
7.2 Separate Sales. Any real property or any interest or estate
--------------
therein sold pursuant to any writ of execution issued on a judgment obtained by
virtue of the Note, this Deed of Trust or the other Loan Documents, or pursuant
to any other judicial proceedings under this Deed of Trust or the other Loan
Documents, or pursuant to the power of sale granted herein, may be sold in one
parcel, as an entirety, or in such parcels, and in such manner or order as
Beneficiary, in its sole discretion, may elect.
7.3 Remedies Cumulative and Concurrent. The rights and remedies of
----------------------------------
Beneficiary as provided in the Note, this Deed of Trust and in the Loan
Documents shall be cumulative and concurrent and may be pursued separately,
successively or together against Trustor or against other obligors or against
the Mortgaged Property, or any one or more of them, at the sole discretion of
Beneficiary, and may be exercised as often as occasion therefor shall arise.
The failure to exercise any such right or remedy shall in no event be construed
as a waiver or release thereof, nor shall the choice of one remedy be deemed an
election of remedies to the exclusion of other remedies.
7.4 No Cure or Waiver. Neither Beneficiary's nor Trustee's nor any
-----------------
receiver's entry upon and taking possession of all or any part of the Mortgaged
Property nor any collection of rents, issues, profits, insurance proceeds,
condemnation proceeds or damages, other security or proceeds of other security,
or other sums, nor the application of any collected sum to any Indebtedness and
Obligations, nor the exercise of any other right or remedy by Beneficiary or
Trustee or any receiver shall impair the status of the security, or cure or
waive any default or notice of default under this Deed of Trust, or nullify the
effect of any notice of default or sale (unless all Indebtedness and Obligations
which are then due have been paid and performed and Trustor has cured all other
15
<PAGE>
defaults), or prejudice Beneficiary or Trustee in the exercise of any right or
remedy, or be construed as an affirmation by Beneficiary of any tenancy, lease
or option or a subordination of the lien of this Deed of Trust.
7.5 Payment of Costs, Expenses and Attorneys Fees. Trustor agrees to
---------------------------------------------
pay to Beneficiary immediately and without demand all costs and expenses
incurred by Trustee and Beneficiary in exercising the remedies under the Note
and Loan Documents (including but without limitation, court costs and attorneys'
fees, whether incurred in litigation or not) with interest at the greater of the
interest rate provided in the Note or the highest rate payable under any
Indebtedness and Obligations, from the date of expenditure until said sums have
been paid. Beneficiary shall be entitled to bid, at the sale of the Mortgaged
Property held pursuant to the power of sale granted herein or pursuant to any
judicial foreclosure of this instrument, the amount of said costs, expenses and
interest in addition to the amount of the other Indebtedness and Obligations as
a credit bid, the equivalent of cash.
7.6 Waiver of Redemption, Notice, Marshalling, Etc. Trustor hereby
-----------------------------------------------
waives and releases (a) all benefit that might accrue to Trustor by virtue of
any present or future law exempting the Mortgaged Property, or any part of the
proceeds arising from any sale thereof, from attachment, levy or sale on
execution, or providing for any redemption or extension of time for payment, (b)
unless specifically required herein, all notices of Trustor's default or of
Beneficiary's election to exercise, or Beneficiary's actual exercise, of any
option or remedy under the Note or the Loan Documents; (c) any right to have the
liens against the Mortgaged Property marshaled; and (d) the right to plead or
assert any statute of limitations as a defense or bar to the enforcement of the
Note or the Loan Documents.
7.7 Application of Proceeds. The proceeds of any sale of all or any
-----------------------
portion of the Mortgaged Property and the amounts generated by any holding,
leasing, operation or other use of the Mortgaged Property shall be applied by
Beneficiary in the following order, or in such other order or proportion as
Beneficiary shall decide in its sole discretion:
(a) first, to the payment of the costs and expenses of taking
possession of the Mortgaged Property and of holding, using, leasing, repairing,
improving and selling the same (including without limitation payment of any
Impositions or other taxes);
(b) second, to the extent allowed by law, to the payment of
attorneys' fees and other legal expenses, including expenses and fees incurred
on appeals, and legal expenses and fees of a receiver;
(c) third, to the payment of all amounts advanced under this Deed
of Trust or any other Loan Document (except for the Indemnity Agreement) to
preserve the value of the Mortgaged Property;
(d) fourth, to the payment of late charges and accrued and unpaid
interest on the Indebtedness;
(e) fifth, to the payment of the unpaid balance of the
Indebtedness (except for that portion of the Indebtedness that arises out of the
Indemnity Agreement); and
(f) sixth, to the payment of any amounts owing to Beneficiary or
the other Indemnified Parties (as defined in the Indemnity Agreement) under the
Indemnity Agreement.
The balance, if any, shall be paid to the parties entitled to
receive it.
7.8 Strict Performance. Any failure by Beneficiary to insist upon
------------------
strict performance by Trustor of any of the terms and provisions of the Loan
Documents, or of the Note shall not be deemed to be a waiver of any of the terms
or provisions of the Loan Documents, or the Note and Beneficiary shall have the
right thereafter to insist upon strict performance by Trustor of any and all of
them.
7.9 No Conditions Precedent to Exercise of Remedies. Neither Trustor
-----------------------------------------------
nor any other person now or hereafter obligated for payment of all or any part
of the Indebtedness shall be relieved of such
16
<PAGE>
obligation by reason of the failure of Beneficiary to comply with any request of
Trustor or of any other person so obligated to take action to foreclose on this
Deed of Trust or otherwise enforce any provisions of the Loan Documents or the
Note, or by reason of the release, regardless of consideration, of all or any
part of the security held for the Indebtedness, or by reason of any agreement or
stipulation between any subsequent owner of the Mortgaged Property and
Beneficiary extending the account of the occurrence of an Event of Default,
including but not limited to any transfer or disposition as prohibited by
Sections 5.1.14 and 5.1.18.
7.10 Environmental Default and Remedies. In the event that any
----------------------------------
portion of the Mortgaged Property is determined to be "environmentally impaired"
(as "environmentally impaired" is defined in California Code of Civil Procedure
Section 726.5(e)(3)) or to be an "affected parcel" (as "affected parcel" is
defined in California Code of Civil Procedure Section 726.5(e)(1)), then,
without otherwise limiting or in any way affecting Beneficiary's or Trustee's
rights and remedies under this Deed of Trust, Beneficiary may elect to exercise
its right under California Code of Civil Procedure Section 726.5(a) to (1) waive
its lien on such environmentally impaired or affected portion of the Mortgaged
Property and (2) exercise (i) the rights and remedies of an unsecured creditor,
including reduction of its claim against Trustor to judgment, and (ii) any other
rights and remedies permitted by law. For purposes of determining Beneficiary's
right to proceed as an unsecured creditor under California Code of Civil
Procedure Section 726.5(a), Trustor shall be deemed to have willfully permitted
or acquiesced in a release or threatened release of hazardous materials, within
the meaning of California Code of Civil Procedure Section 726.5(d)(1), if the
release or threatened release of hazardous materials was knowingly or
negligently caused or contributed to by any lessee, occupant or user of any
portion of the Mortgaged Property and Trustor knew or should have known of the
activity by such lessee, occupant or user which caused or contributed to the
release or threatened release. All costs and expenses, including, but not
limited to, attorneys' fees, incurred by Beneficiary in connection with any
action commenced under this Section 7.10, including any action required by
California Code of Civil Procedure Section 726.5(b) to determine the degree to
which the Mortgaged Property is environmentally impaired, plus interest thereon
at the interest rate provided in the Note until paid, shall be added to the
Indebtedness secured by this Deed of Trust and shall be due and payable to
Beneficiary upon its demand made at any time following the conclusion of such
action.
ARTICLE 8
CONDEMNATION
------------
8.1 Condemnation. Trustor hereby assigns, transfers and sets over to
------------
Beneficiary all rights of Trustor to any award or payment in respect of (a) any
taking of all or a portion of the Mortgaged Property as a result of, or by
agreement in anticipation of, the exercise of the right of condemnation or
eminent domain; (b) any such taking of any appurtenances to the Mortgaged
Property or of vaults, areas or projections outside the boundaries of the
Mortgaged Property, or rights in, under or above the alleys, streets or avenues
adjoining the Mortgaged Property, or rights and benefits of light, air, view or
access to said alleys, streets, or avenues or for the taking of space or rights
therein, below the level of, or above the Mortgaged Property; and (c) any damage
to the Mortgaged Property or any part thereof due to governmental action, but
not resulting in, a taking of any portion of the Mortgaged Property, such as,
without limitation, the changing of the grade of any street adjacent to the
Mortgaged Property. Trustor hereby agrees to file and prosecute its claim or
claims for any such award or payment in good faith and with due diligence and
cause the same to be collected and paid over to Beneficiary, and hereby
irrevocably authorizes and empowers Beneficiary, in the name of Trustor or
otherwise, to collect and receipt for any such award or payment and, in the
event Trustor fails to act, or in the event that an Event of Default has
occurred and is continuing, to file and prosecute such claim or claims.
8.2 Application of Proceeds. All proceeds received by Beneficiary
-----------------------
with respect to a taking of all or any part of the Mortgaged Property or with
respect to damage to all or any part of the Mortgaged Property from governmental
action not resulting in a taking of the Mortgaged Property, shall be applied as
follows, in the order of priority indicated or in such other order or proportion
as Beneficiary shall decide in its sole discretion:
(a) to reimburse Beneficiary for all costs and expenses,
including reasonable attorneys' fees incurred in connection with collecting the
said proceeds;
17
<PAGE>
(b) to the payment of late charges, if any, owing under the Note
or the Loan Documents;
(c) to the payment of accrued and unpaid interest on the Note;
(d) to the prepayment of the unpaid principal of the Note,
without premium;
(e) to the payment of the balance of the Indebtedness; and
(f) to the payment of any amounts owing to Beneficiary or the
other Indemnified Parties (as defined in the Indemnity Agreement) under the
Indemnity Agreement.
The balance, if any, will be paid to Trustor.
ARTICLE 9
MISCELLANEOUS
-------------
9.1 Further Assurances. Trustor, upon the reasonable written request
------------------
of Beneficiary, will execute, acknowledge and deliver, or arrange for the
execution, acknowledgment and delivery of, such further instruments (including,
without limitation, financing statements, estoppel certificates and declarations
of no set-off, attornment agreements and acknowledgments of the Assignment) and
do such further acts as may be necessary, desirable or proper to carry out more
effectively the purpose of the Loan Documents, to facilitate the assignment or
transfer of the Note and the Loan Documents and to subject to the liens of the
Loan Documents any property intended by the terms thereof to be covered thereby,
and any renewals, additions, substitutions, replacements or betterments thereto.
Upon any failure of Trustor to execute and deliver such instruments,
certificates and other documents on or before fifteen (15) days after receipt of
written request therefor, Beneficiary may make, execute and record any and all
such instruments, and certificates and Trustor irrevocably appoints Beneficiary
the agent and attorney-in-fact of Trustor to do so.
9.2 Recording and Filing. Trustor, at its expense, will cause the
--------------------
Loan Documents, all supplements thereto and any financing statements at all
times to be recorded and filed and re-recorded and re-filed in such manner and
in such places as Beneficiary shall reasonably request, and will pay all such
recording, filing, re-recording and re-filing taxes, fees and other charges.
9.3 Notice. Trustor hereby requests that a copy of any notice of
------
default and every notice of sale hereunder be mailed to it as provided by law at
the Trustor's Address. All notices, demands, requests and other communications
required under the Loan Documents and the Note shall be in writing and shall be
deemed effective (i) upon mailing by U.S. certified or registered mail, postage
prepaid, addressed to the party for whom it is intended at the Trustor's Address
or the Trustee's Address, as the case may be, or in the case of notices to
Beneficiary, to Beneficiary at the Beneficiary's Address, or (ii) upon receipt,
if personally delivered or sent by facsimile. Any party may designate a change
of address or facsimile number by written notice to the other, given at least 10
business days before such change of address is to become effective. Trustor
may, from time to time, change the address to which notice of default and notice
of sale hereunder shall be sent by both recording a request therefor and sending
a copy of such request to Beneficiary.
9.4 Beneficiary's Right to Perform the Obligations. If Trustor shall
----------------------------------------------
fail to make any payment or perform any act required by the Note or the Loan
Documents, then, at any time thereafter, without notice to or demand upon
Trustor and without waiving or releasing any obligation or default, Beneficiary
may make such payment or perform such act for the account of and at the expense
of Trustor, and shall have the right to enter the Mortgaged Property for such
purpose and to take all such action thereon and with respect to the Mortgaged
Property as may be necessary or appropriate for such purpose. All sums so paid
by Beneficiary, and all costs and expenses, including, without limitation,
reasonable attorneys' fees and expenses so incurred together with interest
thereon at the interest rate provided in the Note, from the date of payment or
incurring, shall constitute additions to
18
<PAGE>
the Indebtedness secured by the Loan Documents, and shall be paid by Trustor to
Beneficiary, on demand. If Beneficiary shall elect to pay any Imposition,
Beneficiary may do so in reliance on any bill, statement or assessment procured
from the appropriate public office, without inquiring into the accuracy thereof
or into the validity of such Imposition. Trustor shall indemnify Beneficiary for
all losses and expenses, including reasonable attorneys' fees, incurred by
reason of any acts performed by Beneficiary pursuant to the provisions of this
Section 9.4 or by reason of the Loan Documents, and any funds expended by
Beneficiary to which it shall be entitled to be indemnified, together with
interest thereon at the interest rate provided in the Note from the date of such
expenditures, shall constitute additions to the Indebtedness and shall be
secured by the Loan Documents and shall be paid by Trustor to Beneficiary upon
demand.
9.5 Covenants Running with the Land. All covenants contained in the
-------------------------------
Loan Documents shall run with the Mortgaged Property.
9.6 Severability. In case the Indebtedness or any one or more of the
------------
Obligations shall be invalid, illegal or unenforceable in any respect, the
validity of the Note, this Deed of Trust, the Loan Documents, the Indemnity
Agreement and remaining Indebtedness or Obligations shall be in no way affected,
prejudiced or disturbed thereby.
9.7 Modification. The Loan Documents and the terms of each of them
------------
may not be changed, waived, discharged or terminated orally, but only by an
instrument or instruments in writing signed by the party against which
enforcement of the change, waiver, discharge or termination is asserted.
9.8 Due on Sale. The loan evidenced by the Note and secured by this
-----------
Deed of Trust is personal to Trustor, and Beneficiary made such loan to Trustor
based upon the credit of Trustor and Beneficiary's judgment of the ability of
Trustor to repay the entire Indebtedness and therefore this Deed of Trust may
not be assumed by any subsequent holder of an interest in the Mortgaged Property
without Beneficiary's prior written consent.
9.9 Tax on Indebtedness or Deed of Trust. In the event of the
------------------------------------
passage, after the date of this Deed of Trust, of any law deducting from the
value of land for the purposes of taxation, any lien thereon, or imposing upon
Beneficiary the obligation to pay the whole, or any part, of the taxes or
assessments or charges or liens herein required to be paid by Trustor, or
changing in any way the laws relating to the taxation of deeds of trust,
mortgages or debts as to affect the Deed of Trust or the Indebtedness, the
entire unpaid balance of the Indebtedness shall, at the option of Beneficiary,
after thirty (30) days written notice to Trustor, become due and payable;
provided, however, that if, in the opinion of Beneficiary's counsel, it shall be
lawful for Trustor to pay such taxes, assessments, or charges, or to reimburse
Beneficiary therefor, then there shall be no such acceleration of the time for
payment of the unpaid balance of the Indebtedness if a mutually satisfactory
agreement for reimbursement, in writing, is executed by Trustor and delivered to
Beneficiary within the aforesaid period.
9.10 Maximum Rate of Interest. Notwithstanding any provision in this
------------------------
Deed of Trust, or in any instrument now or hereafter relating to or securing the
Indebtedness evidenced by the Note, the total liability for payments of interest
and payments in the nature of interest, including, without limitation, all
charges, fees, exactions, or other sums which may at any time be deemed to be
interest, shall not exceed the limit, if any, imposed by Beneficiary by
applicable usury laws. In the event the total liability for payments of
interest and payments in the nature of interest, including, without limitation,
all charges, fees, exactions, or other sums which may at any time be deemed to
be interest, shall for any reason whatsoever, result in an effective rate of
interest, which for any month or other interest payment period exceeds the limit
imposed by the applicable usury laws, all sums in excess of those lawfully
collectible as interest for the period in question shall, without further
agreement or notice by, between, or to any party hereto, be applied to the
reduction of the Indebtedness immediately upon receipt of such sums by
Beneficiary, with the same force and effect as though Trustor had specifically
designated such excess sums to be so applied to the reduction of the
Indebtedness and Beneficiary had agreed to accept such sums as a payment of the
Indebtedness not subject to any prepayment penalty, provided, however, that
Beneficiary may, at any time and from time to time, elect, by notice in writing
to Trustor, to waive, reduce, or limit the collection of any sums (or refund to
19
<PAGE>
Trustor any sums collected) in excess of those lawfully collectible as interest
rather than accept such sums as a prepayment of the Indebtedness.
9.11 Survival of Warranties and Covenants. The warranties,
------------------------------------
representations, covenants and agreements set forth in the Loan Documents shall
survive the making of the loan and the execution and delivery of the Note, and
shall continue in full force and effect until the Indebtedness and Obligations
shall have been paid and performed in full. Notwithstanding the foregoing, (i)
the obligations specified in Section 5.1.10 hereof, (ii) the obligations under
the Indemnity Agreement, and (iii) any other obligation contained in the Note or
the Loan Documents that expressly so provides, shall survive the full payment
and performance of the Indebtedness and Obligations.
9.12 Applicable Law. This instrument and the rights and obligations
--------------
of the parties hereunder shall be governed by and construed in accordance with
the laws of the State of California.
9.13 Loan Expenses. Trustor shall pay all costs and expenses in
-------------
connection with the preparation, execution, delivery and performance of the Note
and the Loan Documents and the transactions contemplated thereby, including (but
not limited to) costs and fees incurred by Beneficiary's independent inspector,
fees and disbursements of its and Beneficiary's counsel, broker's fees, costs
and expenses of procuring any environmental audits required to be procured by
Trustor, recording costs and expenses, conveyance fees, documentary stamp,
intangible and other taxes, and costs and expenses of surveys, appraisals and
policies of title insurance, physical damage insurance, and liability insurance.
9.14 Substitution of Trustee. Beneficiary, acting alone, may, from
-----------------------
time to time, by instrument in writing, substitute a successor or successors to
any Trustee named herein or acting hereunder. Such instrument, executed,
acknowledged and recorded in the manner required by law, shall be conclusive
proof of proper substitution of such successor Trustee or Trustees, who shall
(without conveyance from the preceding Trustee) succeed to all of the title,
estate, rights, powers and duties of such preceding Trustee. Such instrument
shall contain the name of the original Trustor, Trustee and Beneficiary
hereunder, the book and page or instrument number where this Deed of Trust is
recorded and the name and address of the new Trustee. If a notice of default
has been recorded, this power of substitution cannot be exercised until after
the costs, fees, and expenses, of the then acting Trustee have been paid to such
Trustee, who shall endorse receipt thereof upon such instrument of substitution.
9.15 No Representations by Beneficiary. By accepting or approving
---------------------------------
anything required to be observed, performed or fulfilled or to be given to
Beneficiary, pursuant to the Loan Documents, including (but not limited to) any
officer's certificate, survey, appraisal or insurance policy, Beneficiary 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 be or
constitute any warranty or representation with respect thereto by Beneficiary.
9.16 Acceptance of Trust. Trustee accepts the Trust created by this
-------------------
Deed of Trust when this Deed of Trust, duly executed and acknowledged, is made a
public record a provided by law.
9.17 Waiver of Statute of Limitations and Rights to Trial by Jury.
------------------------------------------------------------
The pleading of any statute of limitations as a defense to any and all
obligations secured by this Deed of Trust and the right to a jury trial in any
action under or relating to the Loan Documents is hereby waived, to the fullest
extent allowed by law.
9.18 Partial Reconveyance. Upon the prior written request by Trustor
--------------------
to Beneficiary requesting that a portion of the Mortgaged Property that
constitutes a separate legal parcel (hereinafter referred to as a "Lot") be
reconveyed, Beneficiary shall cause such Lot(s) to be released from the lien of
this Deed of Trust by depositing a request for such reconveyance into an escrow
opened by or for Trustor in connection with the sale of such Lot(s) provided
--------
that:
- ----
20
<PAGE>
(a) No Event of Default has occurred and is continuing and no
event has occurred which, with notice or lapse of time or both, would constitute
an Event of Default;
(b) Beneficiary is paid the "Release Price" for such Lot, as
that term is defined in the Note;
(c) Trustor shall be responsible for obtaining (and providing
evidence of such to Beneficiary's satisfaction) all governmental approvals which
may be required in order that the reconveyance or a subsequent foreclosure of
the Mortgaged Property remaining subject to the lien of this Deed of Trust will
not result in a disposition of property constituting a violation of any
ordinance, law or regulation of any public authority relating to the
subdivision, development or sale or resale of real property;
(d) Beneficiary shall not be required to direct Trustee to
reconvey any Lot if:
(i) Such reconveyance would, in the opinion of Beneficiary,
(A) result in a disposition of property constituting the violation of
any ordinance, law or regulation of any public authority or covenant,
condition or restriction affecting the Mortgaged Property relating to
the subdivision, development, sale or resale of real property, or (B)
result in the violation of any ordinance, law or regulation of any
public authority or covenant, condition or restriction affecting the
Mortgaged Property relating to the subdivision, development, sale or
resale of real property upon foreclosure by Beneficiary of any portion
of the Mortgaged Property remaining subject to the lien of this Deed
of Trust; or
(ii) Such reconveyance would, in the opinion of Beneficiary,
deny any portion of the Mortgaged Property remaining subject to the
lien of this Deed of Trust the right of ingress and egress to and from
any dedicated street to which such Mortgaged Property would otherwise
be entitled or the right of access to any public utility services,
lines and facilities to which such Mortgaged Property would otherwise
be entitled or would restrict or adversely affect any such rights of
ingress, egress or access.
(e) Beneficiary shall have obtained a form CLTA 111 endorsement
to its lender's policy of title insurance, and if requested by Beneficiary, an
endorsement ensuring that the partial reconveyance does not constitute a
violation of the California Subdivision Map Act, all at the cost and expense of
Trustor;
(f) Trustor shall have reimbursed Beneficiary for all its costs
and expenses incurred in effectuating the release requested by Trustor; and
(g) For the release of the last Lot remaining subject to the
lien of this Deed of Trust, the total amount of the Indebtedness shall be
reduced to zero and all Obligations then outstanding shall be performed in full.
9.19 Compensation of Trustee. Trustee shall be entitled to reasonable
-----------------------
compensation for all services rendered or expenses incurred in the
administration or execution of the trusts hereby created and Trustor hereby
agrees to pay same. Trustee and Beneficiary shall be indemnified, held harmless
and reimbursed by Trustor for any liability, damage or expense, including
attorneys' fees and amounts paid in settlement, which they or either of them may
incur or sustain in the execution of this trust or in the doing of any act which
they, or either of them are required or permitted to do by the terms hereof or
by law.
9.20 Assignability. Trustor acknowledges that Beneficiary may grant
-------------
and assign all or any portion of its beneficial interest under this Deed of
Trust to one or more third parties. Trustor agrees that, upon such grant and
assignment, such third parties shall be entitled to all of the rights, remedies
and benefits provided to the beneficiary hereunder.
21
<PAGE>
9.21 Entire Agreement. This Deed of Trust, Note and the Loan
----------------
Documents constitute the entire agreement between or among the parties hereto
with respect to the matters addressed therein, and supersede all prior oral or
written communications or agreements with respect to such matters.
9.22 Remedies. No right, power or remedy given Beneficiary by the
--------
terms of this Deed of Trust is intended to be exclusive of any other right,
power or remedy. Each and every such right, power or remedy shall be cumulative
and in addition to every other right, power or remedy given to Beneficiary by
the terms of any of the foregoing, by any statute or otherwise against Trustor
or any other person.
9.23 No Waiver. No delay or omission by Beneficiary in exercising any
---------
right or power arising from any default by Trustor shall be construed as a
waiver of such default or as an acquiescence therein, nor shall any single or
partial exercise thereof preclude any further exercise thereof. Beneficiary
may, at its option, waive any of the conditions herein and any such waiver shall
not be deemed to be a modification of the terms hereof. No waiver of any event
of default shall be construed to be a waiver of or acquiescence in or consent to
any preceding or subsequent event of default.
9.24 Headings. The article headings and the section and subsection
--------
captions are inserted for convenience of reference only and shall in no way
alter or modify the text of such articles, sections and subsections.
9.24 Attorneys' Fees. If any action or proceeding is commenced to
---------------
interpret or enforce the terms of this Deed of Trust, the prevailing party shall
be entitled to attorneys' fees and costs, as well as the costs of such action or
proceeding, including, without limitation, (a) attorneys' fees, costs and
expenses incurred in appellate proceedings or in any action or participation in,
or in connection with, any case or proceeding under Chapters 7 or 11 of the
Bankruptcy Code or any successor thereto, and (b) attorneys' fees, costs and
expenses incurred as a result of Beneficiary exercising its rights to cure any
Event of Default by Borrower under this Deed of Trust or any other Loan
Document, or as a result of the foreclosure of the Deed of Trust, deed in lieu
thereof, or trustee's sale thereunder.
9.25 Time of Essence. Time is of the essence to each and every
---------------
provision of this Deed of Trust, the Note and the other Loan Documents.
9.26 Loan Servicing Agent. Trustor acknowledges that Beneficiary may
--------------------
engage a loan servicing agent to service the Note and protect and enforce
Beneficiary's rights under this Deed of Trust, the Note and the other Loan
Documents. Trustor agrees that it shall cooperate with such loan servicing
agent and recognize it as Beneficiary's representative with respect to all
rights and benefits under this Deed of Trust, the Note, the Loan Agreement, and
the other Loan Documents upon being notified in writing of the appointment of
such loan servicing agent by Beneficiary.
IN WITNESS WHEREOF, Trustor has executed this Deed of Trust as of the
date first above written.
TRUSTOR: INCO HOMES CORPORATION,
a Delaware corporation
By:
------------------------------------------------
Ira C. Norris
President
22
<PAGE>
EXHIBIT 10.98
CONSTRUCTION LOAN AGREEMENT
---------------------------
THIS CONSTRUCTION LOAN AGREEMENT ("Agreement") is made as of November
26, 1997 between INCO HOMES CORPORATION, a Delaware corporation ("Borrower"),
and the parties identified on Exhibit A-1 attached hereto ("Lender").
-----------
Recitals
--------
A. Borrower is the owner of certain real property located in La
Quinta, Riverside County, California and more particularly described in
Exhibit A attached hereto (the "Property"). Borrower seeks to develop a
- ---------
residential subdivision on the Property (the "Subdivision"), consisting of 34
single-family homes (the "Homes"). The Subdivision will be developed in three
phases (each, a "Phase"), as identified on the Project Schedule attached hereto
as Exhibit B.
---------
B. Borrower seeks financing in order to pay the cost of constructing
on site and off-site infrastructure improvements (the "Improvements") as more
particularly described in those certain Street Improvement Plans Phase II (Tract
23995-2) dated January 12, 1995, prepared by Mainiero, Smith and Associates,
Inc. and signed by David M. Cosper, City Engineer R.C.E. #38022 (Sheets 1
through 6) (the "Plans and Specifications").
C. Lender is willing to loan to Borrower ONE MILLION ONE HUNDRED
SEVENTY-FIVE THOUSAND DOLLARS ($1,175,000) (the "Loan") to construct the
Improvements. The Loan will be made pursuant to the terms and conditions of this
Agreement and will be evidenced by a Promissory Note ("Note") of even date
herewith given by Borrower in favor of Lender. Repayment of the Note shall be
secured by, among other things, a Construction Deed of Trust, Security
Agreement, Assignment of Leases and Rents and Fixture Filing ("Deed of Trust")
that is a first lien upon the Property and the improvements to be constructed
thereon. The Note, this Agreement, the Deed of Trust and all other documents
that evidence, secure or relate to the Loan shall be referred to herein as the
"Loan Documents."
D. The Loan will be used to fund the hard and soft costs of
constructing the Improvements as set forth on the construction budget attached
hereto as Exhibit C ("Construction Budget"). The construction of the
---------
Improvements will proceed in accordance with the construction timetable set
forth on Exhibit D attached hereto ("Construction Timetable").
---------
AGREEMENT
---------
NOW, THEREFORE, in consideration of the mutual covenants and promises
of the parties contained herein, the parties agree as follows.
ARTICLE I
The Loan
--------
1.1 Obligation to Lend and Borrow.
-----------------------------
(a) Lender agrees to lend to Borrower ONE MILLION ONE HUNDRED SEVENTY-
FIVE THOUSAND DOLLARS ($1,175,000) and Borrower agrees to borrow such sums from
Lender pursuant to the terms of this Agreement. The Loan shall be evidenced by
and bear interest at the rate set forth in the Note, shall be secured by, among
other things, the Deed of Trust, and shall be subject to such other terms and
conditions as may be contained in the Loan Documents.
1.
<PAGE>
ARTICLE II
Construction of Improvements
----------------------------
2.1 Construction. Borrower shall construct the Improvements in
------------
accordance with the Plans and Specifications, using sound, new materials and in
a good and workmanlike manner. The Improvements will be completed free and clear
of all liens and claims of liens.
2.2 Approval of Changes in Plans and Specifications.
-----------------------------------------------
a. There shall be no change in the Plans and Specifications for
the Improvements that (i) involves either itself or in the aggregate (when
combined with all other changes not specifically approved in writing by Lender)
an increase or decrease in construction costs in excess of Ten Thousand Dollars
($10,000), or (ii) alters the structural integrity of the Improvements or their
usefulness or function, without the prior written approval of Lender.
b. If the implementation of any change order, whether approved by
Lender or for which no approval is needed, shall increase the total cost of the
Improvements, Lender may require Borrower to deposit additional funds into the
Account as provided in Section 2.14 below. The failure of Lender to require any
additional funds to be deposited into the Account upon the submission by
Borrower of a change order shall not constitute a waiver by Lender of its right
to do so at a later date.
2.3 Lists and Approval of Contractors, Subcontractors and
-----------------------------------------------------
Materialmen. If required by Lender, Borrower shall furnish to Lender from time
- -----------
to time correct lists of all contractors and subcontractors employed in
connection with the construction of the Improvements. Each 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 names of materialmen, if known, and the approximate dollar
value of such labor or material with respect to each. Borrower agrees that
Lender has the right (but not the obligation) to disapprove any contractor,
subcontractor and/or materialman who, in Lender's good faith determination, is
deemed to be financially or otherwise unqualified.
2.4 Purchase of Materials Under Conditional Sales Contract. Unless
------------------------------------------------------
authorized by Lender in writing, no materials, equipment, fixtures or any other
part of the Improvements shall be purchased or installed under any security
agreement, lease or other arrangement or agreement wherein any party reserves or
purports to reserve the right to remove or repossess any such items, to consider
them personal property after their incorporation in the work of construction or
whereby title to any of the same is not completely vested in Borrower at the
time of installation.
2.5 Compliance with Applicable Laws. All work on the Improvements
-------------------------------
shall be performed in strict compliance with all applicable laws, ordinances,
rules and regulations of federal, state, county and municipal governments and
all other agencies, now in force or that may be enacted hereafter and with all
directions, rules and regulations of the fire marshal, health officer, building
inspector and other officers of each public authority now having or hereafter
acquiring or claiming jurisdiction. The work shall proceed only after
procurement of each permit, license and other authorization that may be required
by any public authority, and Borrower shall be responsible to Lender for the
procurement and maintenance thereof, as may be required of Borrower and all
entities engaged to work on the Improvements. Borrower shall promptly notify
Lender of: (a) any changes whatsoever in any covenants, conditions and
restrictions defining or limiting the use to which the Property and Improvements
may be put, and (b) any proposed or threatened amendment to or termination of
any permit or license heretofore or hereafter acquired by Borrower, or any
general contractor or subcontractor or materialman relating to the construction
of the Improvements.
2.6 Inspection. Lender, through its officers, agents, employees or
----------
representatives shall have the right:
a. To enter upon the Property, to inspect the Improvements, the
work of
2.
<PAGE>
construction and all materials to be used in construction of the Improvements
and to examine the Plans and Specifications and all detailed plans and shop
drawings (including those that are or may be kept at the construction site) to
determine that such Improvements, work of construction and materials are in
conformity with the Plans and Specifications and all the requirements hereof;
and
b. Subject to the limitations hereafter set forth, to examine the
books, records, accounting data and other documents (and to make extracts
therefrom or copies thereof) of Borrower and all contractors and their
subcontractors supplying goods and/or services in connection with the work of
constructing the Improvements. These books, records and documents shall be made
available to Lender promptly upon written demand therefor.
It is expressly understood and agreed that Lender is under no duty to
supervise or to inspect the Improvements, work of construction or materials, or
Borrower's or any general contractor's books, and that any such inspection is
for the sole purpose of protecting the security of Lender and preserving
Lender's rights hereunder. Failure to inspect the work or any part thereof
shall not constitute a waiver of any default then existing, nor shall it
constitute a representation that there has been or will be compliance with the
Plans and Specifications, or that the construction is free from defective or
faulty materials or workmanship.
2.7 Protection Against Lien Claims. Borrower agrees to pay in full
------------------------------
and discharge all claims for labor performed and material and services furnished
in connection with the construction of the Improvements, to file diligently or
procure the filing of a valid Notice of Completion upon completion of
construction, to file diligently or procure the filing of a Notice of Cessation
upon the event of a cessation of labor on the work of improvement for a
continuous period of thirty (30) days or more, and to take all other reasonable
steps to forestall the assertion of claims of lien either against the Property,
any part thereof or right or interest appurtenant thereto, or the Improvements
and/or claims against the Account created pursuant to Article III hereof. Upon
demand by Lender, Borrower shall make such demands or claims upon laborers,
materialmen, subcontractors and other persons who have furnished or claimed to
have furnished labor, services or materials in connection with the construction
of the Improvements, where said demands or claims shall, under the laws of the
State of California, require diligent assertion of lien claims under penalty of
loss or waiver thereof. Nothing herein contained shall require Borrower to pay
any claims for labor, materials or services which Borrower in good faith
disputes and which Borrower, at its own expense, is currently and diligently
contesting; provided, however, that Borrower shall, within fifteen (15) days
after the filing of any claim of lien that is disputed or contested by Borrower,
record in the official records of the county where the Property is located, a
surety bond pursuant to applicable California law, sufficient to release said
claim of lien. Borrower agrees upon demand of Lender to defend, indemnify and
hold Lender harmless from any action filed or claim asserted against Lender for
any reason in connection with any such lien claim against the Account and agrees
that the cost thereof to Borrower together with the amount of any judgment or
settlement rendered in connection therewith will be an allowable charge against
sums deposited in the Account described in Article III below.
2.8 Title Insurance. Prior to making any advance under the Loan,
---------------
Borrower shall procure and deliver to Lender a 1992 ALTA extended coverage
form of title policy (with LP-10 reissue), with such coverages and endorsements
as may be requested by Lender. Among other things, Lender shall require the
following endorsements: at the close of escrow, CLTA form Nos. 100 (modified);
103.1 (as to the easements shown as exception nos. 4 and 13 on the Preliminary
Report); 103.7 (asserting that each Home abuts a physically open public street);
at the time of each advance under the Loan, CLTA form no. 122 that shows no
intervening liens; and at the time of each reconveyance of a Home, CLTA form no.
111. The "Preliminary Report" means that certain Preliminary Report dated as of
October 21, 1997 issued by Orange Coast Title Company of Riverside as Order No.
R-160828-6. Such title policy shall have a liability limit of not less than the
face amount of the Note, shall be issued by a company or companies approved by
Lender and shall insure Lender's interest under the Deed of Trust as a valid
first lien or charge upon the Property. Said policy shall contain only such
exceptions from its coverage as shall have been approved in writing by Lender.
After recordation of the Deed of Trust, Borrower shall, at its cost and expense,
maintain the Deed of Trust as a first lien on the Property and shall deliver or
cause to be delivered to Lender from time to time such endorsements to said
policy as Lender deems necessary to insure the priority of the Deed of Trust as
a first lien on the Property. If Lender requests in the reasonable exercise of
its judgment,
3.
<PAGE>
Borrower shall deliver or cause to be delivered to Lender such other policies of
title insurance and endorsements as Lender may require, including, without
limitation, endorsements to establish that the Improvements have been
constructed within the boundaries of the Property and in accordance with all
applicable covenants and restrictions, and endorsements protecting against
mechanics' or materialmen's liens. Borrower shall furnish to the title insurance
company surveys and other information required to enable it to issue such
endorsements and policies, and shall furnish Lender with a copy of such surveys
and information.
2.9 Insurance. Prior to receiving any advance under the Loan and
---------
thereafter until Borrower's obligations are paid and discharged in full,
Borrower shall provide or cause to be provided and shall keep in full force and
effect any insurance reasonably required by Lender, issued by companies approved
by Lender, including, without limitation: (a) fire insurance in an amount not
less than the face amount of the Note or the insurable value of the
Improvements, whichever amount is less, with the normal conditions including
fire, extended coverage, loss of rents for the period required by Lender,
vandalism, malicious mischief, course of construction endorsement and a loss
payable endorsement naming Lender as payee; (b) liability insurance indicating
coverage satisfactory to Lender; (c) workers' compensation insurance issued to
Borrower (Borrower having represented that it shall serve as the general
contractor for the development of the Subdivision); (d) insurance policies
required by the terms of the Plans and Specifications, Deed of Trust and any
lease affecting the Property; and (e) other adequate insurance against such
risks, casualty and losses (such as flood, public liability, earthquake and
property damage) as may be required by Lender or by regulation affecting Lender
in amounts, and in form satisfactory to Lender, naming Lender as an additional
insured thereunder and with loss payable endorsements in favor of Lender. Upon
demand of Lender, Borrower shall submit schedules, certificates of insurance and
duplicate policies evidencing the coverage required herein. All such insurance
shall contain a standard form non-contribution mortgagee's clause in favor of
Lender and shall contain a clause giving Lender a minimum of thirty (30) days
written notice if any such insurance is cancelled.
2.10 Intentionally Deleted.
2.11 Building Permits, Permits of Occupancy and Certificates of
---------------------------------------------------------
Completion. Borrower shall obtain and furnish to Lender such building permits,
- ----------
permits of occupancy and evidence of other approvals as may be required by any
public authority or body exercising or claiming jurisdiction over the Property,
the construction of Improvements or the use and occupancy thereof. If required
by Lender, Borrower shall obtain and furnish a certificate of completion signed
by a licensed architect, who shall first be approved by Lender, attesting to the
completion of the Improvements in accordance with the Plans and Specification
therefor and attesting, to the best of his knowledge, that such completion is in
a good and workmanlike manner, as of and up to the end of the period upon which
the next regularly scheduled draw is based. A final draw from the Account for
the completion of the Improvements will not be approved by Lender until all such
permits, certificates and evidence of all necessary approvals have been received
with respect to such Improvements. As used in this Agreement, "public authority"
shall mean the authority of the United States of America, the state in which the
premises are located, any political subdivision thereof, any city and any
agency, department, commission, board, bureau or instrumentality of any of them,
the Board of Fire Underwriters, and other similar agencies.
2.12 Intentionally Deleted.
2.13 Defects; Corrections. Upon demand of Lender, Borrower shall
--------------------
correct or cause to be corrected any defect in the Improvements or any departure
from the Plans and Specifications not approved by Lender. The advance of any
Loan proceeds shall not constitute a waiver of Lender's right to require
compliance with this covenant with respect to any such defects or departures
from the Plans and Specifications not theretofore discovered by or called to the
attention of Lender in writing.
2.14 Loan Balancing. If at any time Lender determines, in the
--------------
reasonable exercise of its judgment, that the total amount of funds held in the
Account are insufficient to (x) pay all of the costs of completing the
Improvements (taking into account the effect of change orders and cost
overruns), and (y) pay and satisfy the principal, interest and other monetary
obligations of Borrower under the Note, this Agreement and the other Loan
Documents, then Lender may require Borrower to deposit additional funds into the
Account as Lender
4.
<PAGE>
shall reasonably deem necessary in order to pay and satisfy such costs and
obligations. The Construction Budget will be deemed "out of balance" for the
purposes of this Agreement if Lender should make a determination that additional
funds need to be deposited into the Account as provided in this Section 2.14,
and shall remain out of balance until such additional funds are deposited.
Borrower shall deposit such additional funds in the Account within twenty (20)
days after Lender's request therefor, and the failure of Borrower to so deposit
such additional funds in the Account shall constitute a default under this
Agreement.
ARTICLE III
Construction Loan Account and Set Aside Accounts
------------------------------------------------
3.1 Creation of Construction Loan Account. There is hereby created
-------------------------------------
on behalf of Borrower a special interest-bearing account entitled "CONSTRUCTION
LOAN ACCOUNT" (herein called the "Account"). The Account shall be established
with First Business Bank ("Bank") as Account No. 001-274457 at its office
located at One Bunker Hill Building, 601 West Fifth Street, Los Angeles,
California 90071, shall be in the name of Builder's Control Service Company
("Builder's Control") for the benefit of Borrower, shall constitute the personal
property of Borrower and shall be administered, held and disbursed pursuant to
the terms of this Agreement and the Escrow and Security Agreement dated as of
even date herewith among Borrower, Lender and Builder's Control, as the
disbursement agent ("Disbursement Agent"). Borrower acknowledges that
Disbursement Agent will administer the disbursement of the Loan on behalf of
Lender pursuant to the terms of this Agreement, and agrees that it will
cooperate with Disbursement Agent with respect to all matters under this
Agreement as if it were Lender.
Disbursements may be made from the Account only on the signature of
Disbursement Agent or USA Commercial Mortgage Company, as the loan servicing
agent for Lender ("Servicing Agent"). Interest that accrues on the funds held
in the Account shall be for the benefit of Borrower, and shall remain in the
Account for application as provided in this Article III. Deposits in the
Account shall consist of the following:
a. the Loan proceeds, after deduction of all points and costs and
expenses related to the Loan; and
b. Such additional sums as may be required from time to time by
Lender pursuant to Section 2.14, which sums Borrower agrees to deposit within
twenty (20) days after written demand therefor by Lender.
All funds deposited in the Account pursuant to subsection b. shall be
disbursed first before funds deposited pursuant to subsection a. shall be
disbursed.
Borrower hereby irrevocably assigns to Lender as security for the
obligations secured by the Deed of Trust and for the due performance of this
Agreement by Borrower all of the right, title and interest of Borrower in and to
the Account, the monies placed therein and all products and proceeds thereof.
Borrower agrees that, except as above set forth, any assignment, transfer or
encumbrance, voluntarily or involuntarily, by Borrower of its rights in and
under this Agreement or of any right hereunder shall not be binding upon nor in
any way affect Lender without its prior written consent.
3.2 Loan Disbursements. The funds in the Account shall be used only
------------------
for the payment of hard and soft costs of constructing the Improvements in
accordance with the Construction Budget. If Borrower consists of more than one
person or is a partnership or joint venture, disbursements may be made to any
one of such persons or to any partner or joint venturer. Borrower may request a
loan disbursement no more than twice each month. Each request for disbursement
must be in writing and must comply with the conditions for disbursement
described in this Section 3.2. Amounts budgeted for one line item in the
Construction Budget shall not be used to pay for any other line item in the
Construction Budget. Any funds remaining in any Construction Budget line item
after all disbursements for such line item have been made and such line item has
been completed shall constitute a cash contingency for payment of unforeseen
contingencies and may be disbursed in payment of other line items or retained as
a contingency reserve as Lender, in the reasonable exercise of its judgment,
deems
5.
<PAGE>
appropriate.
a. Initial Disbursement. Following recordation of the Deed of
--------------------
Trust and upon satisfaction of the conditions set forth in Section 3.3 hereof,
the initial disbursement of funds from the Loan shall be made as set forth in
the escrow instructions from Lender.
b. Subsequent Disbursements. Upon satisfaction of the conditions
------------------------
of Section 3.4 below, funds shall be disbursed by checks drawn on the Account
and made payable directly to Borrower, or at Lender's option jointly to Borrower
and such persons as have actually supplied labor, material or services in
connection with or incidental to the construction of the Improvements as set
forth in the Construction Budget.
c. Disbursement Limits. Fund shall not be disbursed from the
-------------------
Account for labor furnished and materials incorporated into the Improvements
during any stage of construction which exceeds the lesser of (i) the value of
such labor and materials; or (ii) the amount allocated for such labor and
materials under the applicable line items of the Construction Budget. Funds
shall not be disbursed from the Account in any amount which, in Lender's
opinion, will cause the Construction Budget to fall out of balance unless
Borrower shall deposit additional funds as provided in Section 2.14 above.
Additionally, Lender may retain ten percent (10%) of the amount requested in any
draw request, which retainage shall be disbursed with the Final Disbursement.
d. Final Disbursement. With respect to any retainages made under
------------------
any construction contracts that relate to the Improvements and any final
disbursements needed to complete any particular Improvement ("Final
Disbursement"), a Final Disbursement shall be made only after Borrower has
satisfied the conditions of Section 3.5 below, and has delivered or caused to be
delivered to Lender, such title endorsements as Lender may reasonably require.
3.3 Conditions Precedent to Initial Disbursement. Prior to the
--------------------------------------------
Initial Disbursement as described in subsection 3.2.a above, all the following
conditions shall have been satisfied:
a. The Deed of Trust shall have been recorded in the Official
Records of the county in which the Property is situated;
b. The title insurer referred to above shall have issued or agreed
to issue a title policy described in Section 2.8 hereof naming Lender as insured
to the extent of the maximum amount of Loan;
c. Where appropriate, UCC-1 Financing Statements shall have been
filed with the Secretary of State of the state where the Property is situated
(or with any other appropriate place of filing) describing the personal
property;
d. Lender shall have been furnished with a certificate issued by
the Filing Officer of the Secretary of State in which the Property is situated
showing Lender's financing statement as prior to all other financing statements
in Borrower's name relative to the personal property described therein;
e. The representations and warranties of Borrower made in Article
IV below and in all of the other Loan Documents shall be true and correct on and
as of the date of disbursement with the same effect as if made on such date;
f. All documentation for the Loan shall have been duly executed by
Borrower and delivered to Lender and shall be satisfactory in form and substance
to counsel for Lender;
g. No default shall exist under this Agreement or any of the Loan
Documents;
6.
<PAGE>
h. The Bank shall have returned to Lender an acknowledgment
whereby Bank acknowledges and recognizes the security interest in the Account
given by Borrower to Lender;
i. Bank shall have acknowledged in writing the security interest
in the Account given by Borrower to Lender; and
j. Each of the holders of the deeds of trust shown as exception
nos. 14 and 15 in the Preliminary Report (the "Junior Deeds of Trust"), shall
have subordinated the lien priority of the Junior Deeds of Trust to the lien of
the Deed of Trust, pursuant to a subordination agreement in form and substance
acceptable to Lender. Additionally, the lien priority of the Junior Deeds of
Trust must be shown as junior to the lien of the Deed of Trust in the title
policy described in Section 2.8 above.
3.4 Conditions Precedent to Subsequent Disbursements. Prior to
------------------------------------------------
making any disbursements following the Initial Disbursement, all of the
following conditions shall have been satisfied:
a. The Initial Disbursement shall have occurred;
b. No default shall exist under this Agreement or any of the Loan
Documents;
c. No determination shall have been made by Lender, in the
reasonable exercise of its judgment, with notice thereof to Borrower, that the
Construction Budget has fallen out of balance as provided in Section 2.14;
d. The title insurer shall have agreed to issue its continuation
endorsement (CLTA Form 122) to Lender indicating that since the last preceding
disbursement to Borrower or general contractor, there has been no change in the
state of title, there are no intervening liens which may take priority over the
disbursement to be made, and that there are no survey exceptions not previously
approved by Lender;
e. Upon completion of each foundation for a Home, the title
insurer shall have issued its foundation endorsement (CLTA Form 102.5) assuring
Lender that the foundation is constructed wholly within the boundaries of the
legal parcel for such Home and does not encroach on any easements;
f. The representations and warranties of Borrower made in Article
IV below and in the other Loan Documents shall be true and correct on and as of
the date of disbursement with the same effect as if made on such date;
g. The Improvements owned by Borrower shall not have been
materially injured or damaged by fire or other casualty unless Lender shall have
received insurance proceeds sufficient, in the reasonable exercise of its
judgment, to affect the satisfactory restoration of such Improvements and to
permit the completion thereof prior to the completion date;
h. No portion of the Property owned by Borrower shall have been
condemned or be subject to condemnation proceedings;
i. The architect for the Improvements shall have certified in
writing to Lender, in form acceptable to Lender, that the Improvements are being
constructed in accordance with the Plans and Specifications therefor, using
sound new materials, in a good and workmanlike manner, and in a lien-free
manner;
j. Lender or its architect or contractor shall have inspected the
Improvements and shall be satisfied that the work is proceeding in accordance
with the Plans and Specifications therefor, using sound, new materials, in a
good and workmanlike manner, and in a lien-free manner, to the extent that the
same can be determined based on a visual inspection;
7.
<PAGE>
k. There shall be funds in the Account sufficient to make the
requested disbursement;
l. Lender shall have received unconditional lien releases from all
contractors, subcontractors, and other labor and material suppliers who have
performed work or provided materials for the Improvements for all work performed
and materials provided as of the date of the last disbursement request;
m. Lender shall have received a detailed list of the line item
costs and amounts against which the disbursement is to be applied and the
contractors, subcontractors, and other labor and material suppliers that have
supplied such services and materials, together with copies of invoices or other
documentation that evidence that such costs have been incurred;
n. Lender shall have received conditional lien releases
(conditioned only on the receipt of payment) from all contractors,
subcontractors, and other labor and material suppliers who have performed work
or provided materials that are to be paid for out of the current disbursement
request, which conditional lien releases cover all work performed and materials
provided as of a date ten days prior to the date of the disbursement request;
3.5 Conditions Precedent to Final Disbursement. Prior to any Final
------------------------------------------
Disbursement (which shall include any retainages), the conditions set forth in
Section 3.4 above shall be satisfied and in addition, each of the following
conditions shall have been satisfied by Lender's receipt of:
a. Advice from Disbursement Agent to the effect that the completed
Improvements have been completed in accordance with the Plans and
Specifications, using sound, new materials, in a good and workmanlike manner and
applicable provisions of this Agreement;
b. Evidence that Borrower has recorded a valid Notice of
Completion, regular in form, applicable to all of the Improvements necessary to
establish commencement of the shortest statutory period for the filing of
mechanics' and materialmen's liens;
c. The title insurer has provided such endorsements to Lender's
title insurance policy as Lender may require to insure Lender that the
Improvements have been completed free of all mechanic's and materialmen's liens;
d. Evidence of approval of completion of the Improvements by
Borrower if Borrower is not an owner-builder;
e. Evidence of completion of the Improvements in a lien-free
manner and in accordance with the Plans and Specifications, which evidence shall
include, if required by Lender, written certification thereof by the supervising
architect and general contractor, and final, unconditional lien releases from
all contractors, subcontractors and other labor and material providers who have
performed work or provided materials for the completed Improvements;
f. Evidence of final inspection and approval by all applicable
governmental agencies and public authorities including, without limitation, the
issuance of a Certificate of Completion if available in the jurisdiction, as
such approvals are deemed appropriate by Lender;
g. There shall be no unpaid claims on file with the Lender against
any of the funds in the Account or other funds in the hands of the Lender, or
against the Property, the payment for which has not been provided for by means
satisfactory to Lender; and
h. All statutory lien periods for labor and material providers
involved in the construction of the Improvements shall have expired.
8.
<PAGE>
ARTICLE IV
Representations and Warranties
------------------------------
In order to induce Lender to make the Loan, Borrower makes the
following representations and warranties which shall survive the execution,
delivery, filing and recordation of this Agreement, and the other Loan
Documents:
4.1 Organization and Standing if Corporation. If a corporation, it
----------------------------------------
is duly organized and validly existing, in good standing under the laws of the
state of its incorporation, has stock outstanding that has been duly and validly
issued, is qualified to do business, and is in good standing in the state in
which the Property is situated with full power and authority to consummate the
transactions contemplated hereby or, if Borrower is not in good standing under
the laws of its state of incorporation, such failure to be in good standing does
not affect Borrower's power and authority to enter into this Agreement, to give
the Note and to enter into the balance of the Loan Documents, and each of the
same is enforceable in accordance with its terms.
4.2 Organization and Standing if Partnership. If a partnership, it
----------------------------------------
is duly organized and validly existing and only has the partners disclosed in
writing to Lender. A true copy of the partnership agreement of Borrower has been
delivered to Lender and such agreement is a true and correct copy thereof and
has not been amended or modified as of the date hereof.
4.3 Organization and Standing if Trust. If a trust, it is duly
----------------------------------
organized, validly existing and the trustees thereof are qualified to act as
trustees. A true copy of the trust agreement has been delivered to Lender and
such agreement is a true and correct copy thereof, has not been amended or
modified in any particular to the date hereof.
4.4 Authority to Execute Documents and Enforceability. The parties
-------------------------------------------------
executing documents on behalf of Borrower have full authority to execute and
deliver this Agreement, the Note, Deed of Trust and other Loan Documents and
have authority to make the borrowings contemplated hereunder and to execute and
deliver or to be executed and delivered in connection with the transactions
herein contemplated. All documents, notes and instruments which have been or
will be executed and delivered pursuant to this Agreement constitute, or if not
yet executed or delivered, will when so executed and delivered, valid and
binding obligations of Borrower enforceable against it in accordance with their
respective terms.
4.5 Plans, Defects. The Plans and Specifications are satisfactory
--------------
to Borrower, have been approved to the extent required by applicable law or any
effective restrictive covenant, by any public authority (as defined in Section
2.11 above) and by the beneficiary of any such covenant, respectively; the Plans
and Specifications so approved have been initialed by Borrower; any construction
heretofore performed on the Improvements has been performed within the perimeter
of the Property and in accordance with the Plans and Specifications and any
restrictive covenants applicable thereto; there are no structural defects in the
Improvements, and no violation of any law, rule, regulation or ordinance of any
public authority exist with respect thereto.
4.6 Financial Statements. The financial statements heretofore
--------------------
delivered to Lender are true and correct in all respects, have been prepared in
accordance with generally accepted accounting practice, and fairly present the
respective financial conditions of the subjects thereto as of their respective
dates; no materially adverse change has occurred in the financial conditions
reflected therein since their respective dates, and no additional borrowings
have been made by Borrower since the date thereof other than the borrowing
contemplated hereby or approved by Lender.
4.7 Litigation. There are no actions, suits or proceedings pending
----------
or to the knowledge of the Borrower threatened against or affecting Borrower,
the Property or the Improvements or involving the validity or enforceability of
the Deed of Trust or the priority of the lien thereof, at law, in equity or
before or by any public authority. To the Borrower's knowledge, it is not in
default with respect to any order, writ, injunction, decree or demand of any
court or under any law or regulation of any public authority. Borrower has no
knowledge of any pending or threatened condemnation proceeding affecting the
Property. There are no material
9.
<PAGE>
actions, suits or proceedings pending or to the knowledge of Borrower threatened
against any Guarantor.
4.8 No Breach. The consummation of the transaction hereby
---------
contemplated and the performance of this Agreement, the Note, Deed of Trust and
other Loan Documents will not result in any breach of or constitute a default
under any mortgage, deed of trust, bank loan, security agreement, corporate
charter, bylaws or other instruments to which Borrower is a party or by which it
may be bound or affected, nor will it result in the creation or imposition of
any lien on any of the assets or property of Borrower other than the liens
established by the Deed of Trust and other documents in Lender's favor securing
repayment of the Note.
4.9 Utilities. All utility services necessary for the construction
---------
of the Improvements and the operation thereof for their intended purpose are
either available at the boundaries of the Property or all necessary steps have
been taken by Borrower and applicable governmental agencies to assure the
complete construction and installation thereof, including water supply, storm
and sanitary sewer facilities, gas, electric and telephone facilities. Borrower
has obtained all necessary permits and licenses to proceed with the construction
of the Improvements.
4.10 Application for Progress Payment. Each application for
--------------------------------
progress payment or for a disbursal of funds from the Account shall be true
and accurate and the submission of the same or the receipt of funds so requested
shall constitute a re-affirmation of the representations, warranties and
covenants contained herein.
4.11 Title to Property. Upon recordation of the Deed of Trust,
-----------------
Borrower will have good and merchantable title to the Property, and there are no
mortgages, liens, pledges or other encumbrances of any character on the Property
other than liens for current taxes and governmental assessments not yet due and
payable, the liens in favor of Lender and charges and encumbrances approved in
writing by Lender. Borrower has made no contract or arrangement of any kind, the
performance of which by the other party thereto would give rise to the lien on
the Property, except for its arrangements with Borrower's architect and
engineer, or its subcontractors and materialmen.
4.12 Roads. All roads necessary for the full utilization of the
-----
Improvements for their intended purposes have either been completed or the
necessary rights-of-way therefor have either been acquired by the appropriate
governmental agency or have been dedicated to public use and accepted by the
local governmental agency and all necessary steps have been taken by Borrower
and the applicable governmental agency to assure the complete construction and
installation thereof.
4.13 No Default. There is no default on the part of Borrower under
----------
this Agreement, the Note, the Deed of Trust or the other Loan Documents and no
event has occurred and is continuing which with notice or passage of time or
either would constitute a default under any thereof.
4.14 CC&Rs, Zoning. Borrower has examined, is familiar with and
-------------
the Improvements will in all respects conform to and comply with all covenants,
conditions, restrictions, reservations, zoning ordinances and other rules and
regulations of public authorities affecting the Property. If the Improvements
are part of a residential subdivision, condominium or planned unit development,
Borrower shall provide Lender with a final copy of all covenants, conditions and
restrictions relating to the ownership or use of the Property or Improvements as
well as a copy of the Articles of Incorporation and Bylaws of any owners
association, which covenants, conditions and restrictions shall not be adopted
or recorded until Lender has approved them in writing.
4.15 Other Financing. The Borrower has not received other financing
---------------
for either the acquisition of the Property or the construction and installation
of the Improvements except for the Junior Deeds of Trust.
4.16 General Contractor. Borrower shall serve as the general
------------------
contractor for the development of the Subdivision. Borrower holds and shall at
all times maintain a valid general contractor's license. Borrower shall comply
with all laws, rules and regulations that apply to general contractors and the
operation of
10.
<PAGE>
their businesses, including all rules relating to workplace safety.
ARTICLE V
Borrower's Covenants
--------------------
Borrower covenants and agrees that until the full and final payment of
the Loan, unless Lender waives compliance in writing, Borrower will:
5.1 Borrower's Funds. At the time and in amounts required by
----------------
Lender, deposit Borrower's funds in the Account as required in Section 2.14
above.
5.2 Budget Overruns/Delays. Notify Lender in writing if at any time
----------------------
(i) the actual direct or indirect cost of construction set forth in any line
item contained on the Construction Budget shall exceed the amount budgeted for
such line item, or Borrower anticipates that such an overrun shall occur, (ii)
the progress of construction of the Improvements falls behind the timetable set
forth in the Construction Timetable, or Borrower anticipates that such a delay
shall occur, or (iii) the progress of the sale and closing of Homes falls behind
the timetable set forth in the Borrower's sales projections provided to Lender.
In each instance, Borrower shall state in such notice (x) the reason(s) for such
overrun or delay, (y) the anticipated consequences of such overrun or delay on
Borrower's ability to complete the development of the Subdivision on budget and
on time, and (z) the steps Borrower shall take to bring the development of the
Subdivision back under budget or on schedule.
5.3 Books and Records. Keep and maintain full and accurate accounts
-----------------
and records of its operations according to generally accepted accounting
principles and practices for its type of business and in compliance with the
regulations of any governmental body having jurisdiction over Borrower.
5.4 Taxes. File all tax returns and reports of any kind which
-----
Borrower is required to make to or file with federal, state or local
governmental units prior to their respective due dates, as extended, and
promptly pay and discharge all lawful claims, including taxes, assessments and
governmental charges or levies imposed upon it or its income or profits or upon
any properties belonging to it prior to the date upon which penalties attach
thereto; provided, however, that Borrower shall not be required to pay any such
tax, assessment, charge or levy, if the validity thereof is being currently
contested in good faith by appropriate proceedings and Borrower has reserved
funds to anticipate payment thereof except that Borrower shall forthwith pay or
cause to be paid any claims or liability upon commencement of proceedings to
foreclose any lien that has attached to the security for the Loan.
5.5 Notification of Default. To promptly notify Lender in writing
-----------------------
of the occurrence of any event of default under this Agreement or under any of
the Loan Documents or of any event which would become an event of default upon
notice or upon lapse of any time specified herein.
5.6 Payment of Costs. Pay all costs and expenses required to
----------------
satisfy the conditions of this Agreement.
5.7 No Conveyance or Encumbrance. Except as provided in Section
----------------------------
5.19 below, not convey or encumber the Property in any way without the written
consent of Lender. All easements affecting the Property shall be submitted to
Lender for its approval prior to the execution thereof by Borrower, accompanied
by a drawing or survey showing the location thereof.
5.8 Application of Disbursements. Receive the disbursements to be
----------------------------
made hereunder as a trust fund for the purpose of paying the costs of
construction of the Improvements and it will apply the same first to such
payment before using any part thereof for any other purpose.
5.9 Financial Statements and Sales Reports. Deliver to Lender the
--------------------------------------
financial, sales and other information concerning Borrower, the Property, and
any guarantors as required in Section 5.1.11 of the Deed of Trust.
11.
<PAGE>
5.10 Furniture, Equipment and Other Personal Property. Give to
------------------------------------------------
Lender advance notice of all intended additions and deletions of purchased or
leased furniture, equipment and other personal property located on and used in
connection with the Property or the Improvements during the term of this
Agreement in a manner that will enable Lender to maintain its first secured
position with respect thereto. Borrower further agrees to execute such security
agreements and other documents as required by Lender to establish its position
as first secured party on any and all purchased or leased furniture, equipment
and other personal property as acquired.
5.11 Litigation and Claims. Promptly advise Lender in writing of
---------------------
all actions, suits and proceedings pending or to the knowledge of Borrower
threatened, at law or in equity, before any federal, state, municipal or other
court or public authority involving the possibility of any material effect on
Borrower or Borrower's financial condition or a monetary judgment or penalty
against Borrower which might in the aggregate exceed $10,000 in excess of
insurance carried (if any) to cover such liability.
5.12 Status. Preserve and maintain its existence and all its
------
rights, privileges, permits, licenses and franchises and conduct its business in
an orderly, efficient and regular manner and comply with the requirements of all
applicable laws, rules, regulations and orders of public authority.
5.13 Payment and Performance. Pay all installments of principal and
-----------------------
interest on the Note and promptly perform, discharge and pay all of its
obligations under this Agreement, the Note, Deed of Trust and other documents
and instruments executed in connection with the Loan or securing repayment of
the Loan.
5.14 Changes in Financial Condition. Promptly advise Lender of any
------------------------------
materially adverse change in the financial condition of Borrower.
5.15 Indemnification. Indemnify, defend and hold Lender, its
---------------
assigns and its officers, directors and agents harmless from and against all
loss, claims, demands, penalties and liabilities which Lender, its assigns and
its officers, directors or agents may sustain or suffer by reason of anything
done or omitted in good faith pursuant to or in connection with this Agreement,
Borrower shall not assert any claim against Lender, its assigns and its
officers, directors and agents by reason of any action so taken or omitted to be
taken. Borrower shall (at Borrower's expense) defend, indemnify and hold Lender,
its assigns and its officers, directors and agents harmless from and against any
and all claims, demands, losses, expenses (including reasonable attorneys'
fees), damages, or causes of action asserted by any person, firm, corporation or
other entity arising out of or caused by the use of the proceeds of the Loan or
in connection with this Agreement or the construction of the Improvements
including, without limitation, any claim, demand or lawsuit brought against
Lender, its assigns and its officers, directors and agents alleging defects in
the design or construction of the Subdivision.
5.16 Leases; Purchase Agreement; Possession. Deliver to prior to
--------------------------------------
execution and effectiveness, copies of every standard or proposed form lease or
purchase agreement or amendment thereto intended for use in the rental or sale
of portions of the Property. Borrower shall permit no one to take possession of
any portion of the Property or Improvements under any circumstances other than
pursuant to an approved written lease or purchase agreement without obtaining
the prior permission of Lender. Borrower shall also furnish to Lender and shall
maintain in current condition a list of all leases in effect, rentals payable
thereunder, the term thereof and the name and address of the lessees.
5.17 Leasehold Interest; Collection of Rent and Other Income.
-------------------------------------------------------
Remain the sole named lessor in all leases or any part of the Property or
Improvements; collect the gross rents from all such leases and any other income
connected with the Property or Improvements and maintain the right to collect
and keep said rentals and other income free and clear of any voluntary or
involuntary alienation thereof that would in any way hinder or impair Lender's
right to exercise its security interest in the rents, issues and profits.
5.18 Information. Deliver such other statement or statements, lists
-----------
of property or accounts, budgets, forecasts or reports relating to Borrower as
Lender may reasonably request and perform on
12.
<PAGE>
request of Lender such acts as may be necessary either to protect any security
provided for herein or to carry out the intent of this Agreement.
5.19 Progress Schedule. Borrower shall furnish monthly to Lender a
-----------------
progress schedule setting forth (i) the Improvements completed to date, (ii) the
budgeted and actual cost of completing such Improvements, and (iii) the
scheduled and actual date on which such Improvements were completed. All
construction of the Improvements must be within budget, as set forth in the
Construction Budget, and on schedule, as set forth in the Construction
Timetable.
ARTICLE VI
Default
-------
The following shall constitute events of default hereunder (including,
if Borrower consists of more than one person, the occurrence of any such
defaults with respect to any one or more of said persons):
6.1 Default Under Loan Documents. Any default in the performance of
----------------------------
any covenant, condition or agreement set forth herein, in the Note, Deed of
Trust or any other Loan Document.
6.2 Cessation of Work. Work on the Improvements shall cease for a
-----------------
continuous period of ten (10) days or more prior to completion thereof for
causes other than fire, earthquake or other acts of God, acts of the public
enemy, riot, insurrection, governmental regulations of the sales of materials
and supplies or the transportation thereof, strikes directly affecting the work
of construction, or shortages of material or labor resulting directly from
governmental controls or diversions; provided, however, that the total
permissible delay from all causes other than such enumerated causes shall not
exceed ten (10) days for any single continuous period or thirty (30) days in the
aggregate throughout the entire period of construction of the Improvements.
Notwithstanding the time periods stipulated in this section, in the event that
any bond securing performance or payment of the work on the Improvements shall
stipulate a shorter period or periods, such shorter periods shall be read into
the preceding sentences and shall apply with respect thereto.
6.3 Suspension of Business or Attachment. Borrower voluntarily
------------------------------------
suspends the transaction of business or there is an attachment, execution or
other judicial seizure of any portion of Borrower's assets and such seizure is
not discharged within ten (10) days.
6.4 Insolvency. Borrower becomes insolvent or unable to pay its
----------
debts as they mature or makes an assignment for the benefit of creditors.
6.5 Bankruptcy. Borrower files or there is filed against Borrower a
----------
petition to have such party adjudicated a bankrupt or a petition for
reorganization or arrangement under any law relating to bankruptcy, unless, in
the case of a petition filed against such party, the same is dismissed within
twenty (20) days.
6.6 Appointment of Receiver. Borrower applies for or consents to
-----------------------
the appointment of a receiver, trustee or conservator for any portion of
Borrower's property or such appointment is made without Borrower's consent and
is not vacated within twenty (20) days.
6.7 Misrepresentation. Any representation or warranty of Borrower
-----------------
contained in this Agreement or in any other agreement executed in connection
with the Loan or any statements, certificates, schedules or financial
information furnished by Borrower shall prove to have been misleading or untrue
in any material respect when made or Borrower shall have concealed any material
fact from Lender.
6.8 Injunction. Any person obtains an order or decree in any court
----------
of competent jurisdiction enjoining the construction of the Improvements or
enjoining or prohibiting Borrower or Lender, or
13.
<PAGE>
either of them, from performing this Agreement, and such proceedings are not
discontinued and such decree is not vacated within twenty (20) days after the
granting thereof.
6.9 Lapse of Permit or Approval. Borrower neglects, fails or
---------------------------
refused to keep in full force and effect any permit or approval with respect to
the construction of the Improvements.
6.10 Notice to Withhold. Any bonded notice to withhold in
------------------
connection with the Loan is served on Bank, Lender or Borrower in accordance
with the provisions of California law or similar provisions of any other state
if the Property is not situated in California, and within ten (10) days of
receipt of such notice, the claim set forth therein is not discharged or if the
amount claimed is disputed in good faith by Borrower, an appropriate counter
bond or equivalent deposit of funds acceptable to Lender is not filed or
deposited with Lender.
6.11 Lien. The imposition, voluntary or involuntary, or any lien,
----
claim of lien or encumbrance upon the Property without Lender's written consent
unless an adequate counter bond is provided and such lien is accordingly
released within fifteen (15) days of the imposition of such lien.
6.12 Eminent Domain. The condemnation, seizure or appropriation of
--------------
all or any portion of the Property.
6.13 Transfer of Property. The sale, transfer, removal,
--------------------
abandonment, assignment, hypothecation or encumbrance, whether voluntary or
involuntary, of all or any part of the real or personal property subject to any
lien in favor of the Lender (except for personal property which requires
replacement by reason of wear and tear or obsolescence or is immediately
replaced upon sale or removal) except as may be authorized under the terms of
this Agreement or the other Loan Documents.
6.14 Deviation in Work. Substantial deviations in the work of
-----------------
construction from the Plans and Specifications shall occur or defective
workmanship or materials should appear in the Improvements and such deviations
or defects are not corrected within thirty (30) days after written notice from
Lender to Borrower.
6.15 Encroachment. Any survey shall show encroachments that have
------------
occurred without the approval of Lender unless they are removed or corrected
within thirty (30) days after receipt of the survey provided, however, in lieu
of such removal or correction Lender may, at its option and sole discretion,
accept a title insurance endorsement, in form and substance satisfactory to
Lender and its counsel, in their sole discretion, procured by Borrower in favor
of Lender under which Lender's security interest in the Property and the
Improvements are insured against any trial court order to remove said
encroachments.
6.16 Failure to Deposit Funds. Borrower shall fail to make any
------------------------
deposit of funds to the Account as required herein.
6.17 Damage to Property. The Property owned by Borrower is
------------------
materially damaged or destroyed by fire or other casualty and the same is not
repaired or replaced forthwith.
6.18 Default Under Other Documents. There should occur a default
-----------------------------
under the Junior Deeds of Trust, any other deed of trust that now or hereafter
encumbers all or any part of the Property or any other document that relates to
the development of the Property including, without limitation, any construction
loan documents for construction financing to develop homes in the Subdivision.
ARTICLE VII
Remedies
--------
If any of the events of default set forth in Article VI occur, Lender,
in addition to its other rights hereunder, may, at its option, without prior
demand or notice:
14.
<PAGE>
7.1 Termination of Disbursements. Terminate the obligation of
----------------------------
Lender to make further disbursements from the Account.
7.2 Acceleration of Note. Declare the Note immediately due and
--------------------
payable.
7.3 No Waiver. Notwithstanding the exercise of either or both of
---------
the remedies described in Sections 7.1 and 7.2 hereof, Lender may make any
disbursements after the happening of any one or more of said events of default
without thereby waiving its right to demand payment of the Note and without
liability to make any other or further disbursements. If such disbursement
results, or in Lender's good faith determination may result, in the Loan falling
out of balance as provided in Section 2.14, then Lender may require Borrower to
deposit additional funds as provided in Section 2.14.
7.4 Proceed According to Law. Proceed as authorized by law to
------------------------
satisfy the indebtedness of Borrower to Lender and, in that regard, Lender shall
be entitled to all of the rights, privileges and benefits contained in the Deed
of Trust, other agreements securing said indebtedness and any other documents
executed in connection with the Loan, which rights, privileges and benefits
include, without limiting, the right of Lender to duly file for record a Notice
of Default under the Deed of Trust, and to foreclose on any personal property in
which Lender has a security interest, including, without limitation, the
security interest of Lender in the Account and the Set Aside Account.
7.5 Take Possession of Property. Take possession of the Property
---------------------------
and perform any and all work and labor necessary to complete the Improvements
substantially in accordance with the Plans and Specifications, in which event
expenditures therefor shall be deemed an additional loan to Borrower, payable on
demand, bearing interest at the interest rate specified in the Note and shall be
secured by the Deed of Trust and other agreements securing the Loan. In no event
shall Lender be required to expend its own funds to complete the Improvements if
funds in the Account are insufficient, but Lender may, at its option but without
obligation, so advance such funds.
7.6 Make Payments. Where disputes have arisen that, in the good
-------------
faith opinion of Lender, may endanger timely completion of the Improvements or
fulfillment of any condition precedent or covenant herein, Lender may agree to
advance funds for the account of Borrower without prejudice to Borrower's
rights, if any, to recover said funds from the party to whom paid. Such
agreement or agreements may take the form which Lender, in its discretion, deems
proper, including, but without limiting, agreements to indemnify a title insurer
against possible assertion of lien claims, agreement to pay disputed amounts to
a contractor in the event Borrower is unable or unwilling to pay the same, and
the like. All sums paid or agreed to be paid pursuant to such undertaking shall
be for the account of Borrower, may be disbursed from the funds in the Account,
and Borrower agrees to reimburse Lender for any such payments made upon demand
therefor with interest at the rate specified in the Note from the date of
payment until the date of reimbursement.
7.7 Corrective Work. If substantial deviation from the Plans and
---------------
Specifications, working drawings or shop drawings appear, or if the work appears
to be defective or unworkmanlike or if unworkmanlike labor or materials are
being used in construction of the Improvements (such appearance to be in the
sole opinion of Lender) or upon receipt of knowledge of encroachments to which
there has been no consent, or if another material breach hereof occurs that
would, in Lender's sole opinion, result in impairing Lender's security if the
work continued, Lender shall have the right to immediately order stoppage of
construction and demand that the condition or default be corrected or cured.
After issuance of an order in writing, no further work shall be done on the
Improvements without prior written consent of Lender unless or until this
condition has been fully corrected.
15.
<PAGE>
ARTICLE VIII
Power of Attorney
-----------------
In the event of a default as defined in Article VI hereof, Borrower
hereby constitutes and appoints Lender, Disbursement Agent and Servicing Agent
as its true and lawful attorney-in-fact with the power and authority, including
full power of substitution, as follows:
8.1 Take Possession. To take possession of the Property and
---------------
complete the Improvements.
8.2 Use Borrower's Funds. To use any of Borrower's funds and any
--------------------
funds which may remain undisbursed under the Loan for the purpose of completing
the Improvements and for other costs related thereto.
8.3 Make Changes. To make such additions, changes or corrections in
------------
the Plans and Specifications as may be necessary or desirable as Lender in its
sole discretion deems proper to complete the Improvements, and in exercising
such discretion, Lender may consider (but is not obligated) the amount of funds
remaining undisbursed in the Account.
8.4 Employ Contractors. To employ such contractors, subcontractors
------------------
and agents, architects and inspectors as are required to complete the
Improvements.
8.5 Employ Security Personnel. To employ security personnel to
-------------------------
protect the Property and Improvements from injury.
8.6 Discharge Contractor. To discharge and replace any contractor
--------------------
should such contractor be in default under its contract or subcontract.
8.7 Compromise Claims. To pay, settle or compromise all existing
-----------------
bills and claims against Borrower with respect to the Improvements or against
any of the funds which may remain undisbursed under the Loan or as may be
necessary or desirable as Lender in its sole discretion deems proper, for the
completion of the Improvements or for the protection or clearance of title to
the Property and personal property, or for the protection of Lender's interest
with respect thereto.
8.8 Prosecute or Defend Actions. To prosecute and defend all
---------------------------
actions and proceedings in connection with the construction of the Improvements.
8.9 Execute Documents. As the Lender, in its sole discretion deems
-----------------
proper, to execute, acknowledge and deliver all instruments and documents in the
name of Borrower which may be necessary or desirable to do and to do any and
every act with respect to construction of the Improvements which Borrower might
do on its own behalf.
The granting of this power of attorney shall not impose any obligation
upon Borrower to undertake any of the foregoing acts, but it may in its sole
discretion determine which, if any, acts it deems desirable to undertake. This
power of attorney is a power coupled with an interest and cannot be revoked
until such time as the Loan and all of the obligations of Borrower to Lender are
discharged in full.
ARTICLE IX
Disclaimer
----------
9.1 Disclaimer. Whether or not Lender elects to employ any or all
----------
of the rights and remedies available to it during construction or in the event
of a default, Lender shall not be liable for the construction of or failure to
construct, complete or protect the Improvements, the failure of the construction
to be in
16.
<PAGE>
accordance with the Plans and Specifications or free from defective materials or
workmanship, or for the payment of any expense incurred in connection with the
exercise of any remedy available to Lender or for the performance or
nonperformance of any other obligation of Borrower.
ARTICLE X
Signs
-----
10.1 Signs. Borrower hereby grants Lender the right to erect or
-----
cause to be erected Lender's sign or signs in size and location desired by
Lender on the Property so long as such sign or signs do not interfere with the
reasonable construction of the Improvements. Borrower will and will cause all
contractors and subcontractors to exercise due care to protect said sign or
signs from damage.
ARTICLE XI
Miscellaneous
-------------
11.1 Remedies. No right, power or remedy given Lender by the terms
--------
of this Agreement, the Note, the Deed of Trust or the other Loan Documents is
intended to be exclusive of any other right, power or remedy. Each and every
such right, power or remedy shall be cumulative and in addition to every other
right, power or remedy given to Lender by the terms of any of the foregoing, by
any statute or otherwise against Borrower or any other person.
11.2 No Waiver. No delay or omission by Lender in exercising any
---------
right or power arising from any default by Borrower shall be construed as a
waiver of such default or as an acquiescence therein, nor shall any single or
partial exercise thereof preclude any further exercise thereof. Lender may, at
its option, waive any of the conditions herein and any such waiver shall not be
deemed to be a modification of the terms hereof. No waiver of any event of
default shall be construed to be a waiver of or acquiescence in or consent to
any preceding or subsequent event of default.
11.3 No Third Party Benefits. This Agreement is made for the sole
-----------------------
benefit of Borrower, Lender, and their successors and assigns, and except as
expressly provided herein no other person or persons shall have any rights or
remedies under or by reason of this Agreement. Lender shall owe no duty
whatsoever to any claimant for labor performed or materials furnished in
connection with the construction of the Improvements, to apply any undisbursed
portion of the Loan to the payment of any claim or to exercise any right of
power of Lender hereunder or arising from any default by Borrower.
11.4 Notice. All written notices or demands of any kind which
------
Lender may be required or desires to serve upon Borrower under the terms of this
Agreement may be served upon Borrower as provided in the Deed of Trust. If
Borrower consists of more than one person, service of any notice or demand of
any kind by Lender upon any one of said persons in the manner provided herein
shall be complete service upon all.
11.5 Death of Partner. If Borrower is organized as a partnership or
----------------
joint venture, upon the death of any of the general partners or joint venturers
comprising Borrower prior to the completion of the Improvements or prior to the
disbursements of the balance of the Loan, Lender may cease disbursements
hereunder unless the partnership or joint venture agreement provides for and the
partnership or joint venture in fact does continue after such death.
11.6 Entire Agreement. This Agreement and the documents referred to
----------------
herein constitute the entire understanding between the parties and may not be
modified, amended or terminated except by a written agreement signed by each of
the parties hereto.
11.7 Documentation. In addition to the instruments and documents
-------------
mentioned or referred to herein, Borrower will, at its own cost and expense,
supply Lender with such other instruments,
17.
<PAGE>
documents, information and data as may, in Lender's opinion, be reasonably
necessary for its purposes hereof, all of which shall be in form and content
acceptable to Lender.
11.8 Not Assignable. This Agreement may not be assigned by Borrower
--------------
without the prior written consent of Lender, which Lender may withhold in its
sole discretion. Subject to the foregoing restriction, this Agreement shall
inure to the benefit of Lender, its successors and assigns and shall bind
Borrower, its heirs, executors, administrators, successors and assigns. Lender
shall have the right to assign this Agreement at any time without obtaining the
consent of Borrower.
11.9 Time is of the Essence. Time is hereby declared to be of the
----------------------
essence of this Agreement and of every part hereof.
11.10 Supplement to Deed of Trust. The provisions of this Agreement
---------------------------
are not intended to supersede the provisions of the Note, Deed of Trust, or any
other Loan Documents, but shall be construed as supplemental thereto.
11.11 Joint and Several Obligations. If Borrower consists of more
-----------------------------
than one person, the obligations of Borrower shall be the joint and several
obligations of all such persons.
11.12 California Law. This Agreement shall be construed in
--------------
accordance with the laws of the State of California.
11.13 Agency. Borrower hereby appoints and authorizes Lender, as
------
its agent, to record any notices of completion, cessation of labor and other
notices that Lender deems necessary to record to protect any interest of Lender
under the provisions of this Agreement, the Note, the Deed of Trust or other
instruments securing the Loan. This agency is a power coupled with an interest
and is not recoverable.
11.14 Governmental Regulations. If payment of the indebtedness
------------------------
secured by the Deed of Trust is to be insured or guaranteed by any governmental
agency, Borrower shall comply with all rules, regulations, requirements and
statutes relating thereto or provided in any commitment issued by any such
agency to insure or guarantee payment of such indebtedness.
11.15 Collection Costs. Borrower shall pay promptly to Lender
----------------
without demand, with interest thereon from date of expenditure at the interest
rate specified in the Note, reasonable attorneys' fees and all costs and other
expenses paid or incurred by Lender in enforcing or exercising its rights or
remedies created by, connected with or provided in this Agreement, and payment
thereof shall be secured by the Deed of Trust and each of the agreements
securing the Loan.
11.16 Survival. The representations, warranties and covenants
--------
herein shall survive the disbursement of the Loan and shall remain in force and
effect until the Loan is paid in full. The indemnities given by Borrower in this
Agreement and in the other Loan Documents shall survive the repayment of the
Loan.
11.17 Severability. Invalidation of any one or more of the
------------
provisions of this Agreement, the Deed of Trust or other Loan documents by
judgment of court order shall in no way affect any of the other provisions
thereof which shall remain in full force and effect.
11.18 Gender. When the context and construction so require, all
------
words used herein in the singular shall be deemed to have been used in the
plural, and the masculine shall include the feminine and neuter.
11.19 Relationship. The relationship of Lender and Borrower is that
------------
of a lender and borrower, and it is expressly understood and agreed that nothing
contained in this Agreement or in any of the Loan documents shall be interpreted
or construed to make the parties partners, joint venturers or participants in
any other legal relationship, except as lender and borrower.
18.
<PAGE>
11.20 Indemnity. Borrower agrees to indemnify, defend (by counsel
---------
reasonably acceptable to the indemnified parties) and hold harmless Lender,
Servicing Agent, Disbursement Agent, their respective officers, directors and
agents and each of their respective successors, heirs, devisees and assigns,
from and against all losses, costs, expenses, claims, liabilities and causes of
action arising out of any claim asserted by any purchaser of a Home with respect
to such Home including, without limitation, claims of construction or design
defects or of breaches of express or implied covenants or representations
contained in such purchaser's purchase contract or alleged to have been made by
Borrower, its agents or any other party in connection with such purchase.
11.21 Exhibits. The following constitute exhibits to this Agreement
--------
and are incorporated as part of this Agreement:
Exhibit A Property
Exhibit A-1 List of Lenders
Exhibit B Project Schedule
Exhibit C Construction Budget
Exhibit D Construction Timetable
IN WITNESS WHEREOF, we have hereunto set our hands the day and year
first above written.
BORROWER: INCO HOMES CORPORATION,
a Delaware corporation
By:____________________
Ira C. Norris,
President
LENDER: See signature pages attached
19.
<PAGE>
EXHIBIT 10.99
AGREEMENT
This Agreement ("Agreement") is entered into as of December 1, 1997,
between CITY NATIONAL BANK, a national banking association, as successor by
statutory merger to Riverside National Bank (collectively "CNB"), and INCO HOMES
CORPORATION, a California corporation ("Inco").
1. RECITALS.
1.1 Inco has requested that CNB sell to the persons or entities identified
on Schedule "A", a Loan owed by Inco to CNB pursuant to a Loan Sale Agreement of
even date herewith. As of the date hereof and pursuant to such Loan, Inco owes
CNB the following sums:
Principal $2,891,000.00
Interest 92,311.11
-------------
Total $2,983,311.11
The purchaser of said Loan is paying a total consideration of
$1,750,000.00 to purchase the Loan from CNB. Therefore, the difference between
the amount outstanding and owed by Inco pursuant to the Loan and the purchase
price for the Loan is the sum of $1,141,000.00 for principal and $64,083.71 for
interest for a total of $1,205,083.71. Agreeing to Inco's request will, but for
the terms of this Agreement, result in an unrecoverable loss to CNB of said
sums.
1.2 Inco has requested that CNB cancel and terminate all its rights under
that certain Warrant to Purchase 250,000 shares of common stock granted by Inco
to CNB on July 24, 1996. Said Warrant represents an asset of unknown but
valuable worth.
1.3 In consideration for CNB's agreement to:
a) Sell the Loan for a loss of $1,141,000.00 in principal.
b) Forgive accrued interest of $92,311.11 with respect to the Loan.
c) Cancel and terminate all its rights under the Warrant to Purchase
250,000 shares of common stock of Inco.
Inco has agreed to reimburse CNB for the above-stated loss of
principal, under the terms and conditions set forth in this Agreement. Said
payment shall be without interest, apart from interest at the rate of fifteen
percent (15%) per annum in the event payment is not made within thirty (30) days
of its due date.
2. AGREEMENT
2.1 Inco agrees to pay CNB, in the aggregate, $1,141,000.00 from the three
sources set forth in this section. Said payment shall be without interest apart
from interest at the rate of fifteen percent (15%) per annum in the event
payment is not made within thirty (30) days of its due date.
1
<PAGE>
2.2 PERCENTAGE OF NET PROFITS. Commencing with the fiscal year ending
December 31, 1999 and each fiscal year ending thereafter, Inco shall pay CNB
fifteen percent (15%) of its net profits for such fiscal year determined in
accord with generally accepted accounting principles.
Said payment shall be due one-hundred and twenty (120) days after
the end of the fiscal year from which it is due.
2.3 NON-OPERATIONAL INCREASES IN EQUITY. Inco shall, in the event of
any increase in its Net Worth, as determined in accord with generally accepted
accounting principles from that existing at the end of the fiscal year ended
December 31, 1997, which was not derived from retained earnings, pay an amount
to CNB as determined herein. Net Worth shall be determined as if no dividends
are paid on Inco's common stock or any other equity security and without regard
to payments made previously hereunder.
2.3.1 For the first $3,500,000.00 of such increase: Zero.
2.3.2 For the next $250,000.00 of such increase: All.
2.3.3 For any such increase in Net Worth in excess of
$5,000,000.00: Ten percent (10%).
2.4 CONSIDERATION RECEIVED BY SHAREHOLDERS UPON A CHANGE IN CONTROL.
Upon any Change in Control Event as hereinafter defined, Inco shall pay CNB an
amount determined by the net cash proceeds received by Inco's shareholders as a
result of a Change in Control as follows:
2.4.1 For the first $3,500,000.00 of net proceeds as follows:
Nothing.
2.4.2 For the next $250,000.00 of net proceeds: All.
2.4.3 For any such net proceeds in excess of $5,000,000.00:
Ten percent (10%).
2.4.4 A Change in Control Event shall be any one of the
following occurrences:
A) The acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act)(a
"Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 20% or more of either (A) the then outstanding shares
of Common Stock of Inco (the "Outstanding Common Stock") or (B) the combined
voting power of the then outstanding voting securities of Inco entitled to vote
generally in the election of directors (the "Outstanding Voting Securities"); or
2
<PAGE>
B) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual who becomes a director subsequent
to the date hereof whose election, or nomination for election by the Inco's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board; but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or
other actual or threatened solicitation of proxies or consents by or on behalf
of a Person other than the Board; or
C) Approval by the shareholders of Inco of a reorganization, merger or
consolidation (a "transaction"), unless, following such transaction in each
case, (A) more than 80% of, respectively, the then outstanding shares of common
stock of the corporation resulting from such transaction and the combined voting
power of the then outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then beneficially owned, directly
or indirectly, by all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Common Stock and
Outstanding Voting Securities immediately prior to such transaction and (B) no
Person beneficially owns, directly or indirectly, 20% or more of, respectively,
the then outstanding shares of common stock of the corporation resulting from
such transaction or the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors; or
D) Approval by the shareholders of Inco of (A) a complete liquidation
or dissolution of Inco or (B) the sale or other disposition of all or
substantially all of the assets of Inco, unless such assets are sold to a
corporation and following such sale or other disposition, the conditions
described in clauses (A) and (B) of paragraph 2.2.3 above are satisfied with
respect to the acquiring corporation.
3. REPORTING REQUIREMENTS.
Inco shall supply the following reports to CNB:
3.1 The 10-K report for Inco within ten (10) days of its filing.
3.2 The 10-Q report for Inco within ten (10) days of its filing.
3.3 Quarterly sales report for Inco within fifteen (15) days after each
quarter-end.
4. CONDITIONS TO EFFECTIVENESS.
This Agreement shall become effective upon the payment of the purchase price
pursuant to the Loan Sale Agreement of even date herewith.
5. ARBITRATION.
5.1 MANDATORY ARBITRATION. At the request of CNB or Inco, any dispute,
claim
3
<PAGE>
or controversy of any kind (whether in contract or tort, statutory or common
law, legal or equitable) now existing or hereafter arising between CNB and Inco
and in any way arising out of, pertaining to or in connection with: (1) this
Agreement, and/or any renewals, extensions, or amendments thereto; (2) any
violation of this Agreement; (3) any incidents, omissions, action practices or
occurrences arising out of or related to this Agreement causing injury to either
party whereby the other party or its agents, employees or representatives may be
liable, in whole or in part, or (4) any aspect of the present or future
relationships of the parties, will be resolved through final and binding
arbitration before a three-member panel conducted at a location determined by
the arbitrators in Los Angeles, California, and administered by the American
Arbitration Association ("AAA") in accordance with the California Arbitration
Act (Title 9, California Code of Civil Procedure Section 1280 et. seq.) and the
then existing Commercial Rules of the AAA. Judgment upon any award rendered by
the arbitrators may be entered in any state or federal courts having
jurisdiction thereof.
5.2 POWER AND QUALIFICATIONS OF ARBITRATORS. The arbitrators will
give effect to statutes of limitation, waiver and estoppel and other affirmative
defenses in determining any claim. Any controversy concerning whether an issue
is arbitratable will be determined by the arbitrators. The laws of the State of
California will govern. The arbitration award may include equitable and
declaratory relief. All arbitrators selected will be required to be a
practicing attorney or retired judge licensed to practice law in the State of
California and will be required to be experienced and knowledgeable in the
substantive laws applicable to the subject matter of the controversy or claim at
issue.
5.3 DISCOVERY. The provisions of California Code of Civil
Procedures Section 1283.05 or its successor section(s) are incorporated herein
and made a part of this Agreement. Depositions may be taken and discovery may
be obtained in any arbitration under this Agreement in accordance with said
section(s).
5.4 MISCELLANEOUS. The arbitrators will determine which is the
prevailing party and will include in the award that party's reasonable
attorneys' fees and costs (including allocated costs of in-house legal
counsel). Each party agrees to keep all controversies and claims and the
arbitration proceedings strictly confidential, except for disclosures of
information required in the ordinary course of business of the parties or by
applicable law or regulation.
6. MISCELLANEOUS.
6.1 CUMULATIVE RIGHTS AND NO WAIVER. Each and every right and
remedy granted hereunder or under any other document delivered hereunder or in
connection herewith, shall be cumulative, and no one such right or remedy shall
be exclusive or any other. No failure on the part of any party to exercise, and
no delay in exercising, any right or remedy shall operate as a waiver thereof,
no shall any single or partial exercise or waiver by any party of any right or
remedy preclude any other or future exercise thereof or the exercise of any
other right or remedy.
6.2 APPLICABLE LAW. This Agreement and the rights and obligations
of the parties hereunder shall be governed by and interpreted and construed in
accordance with the laws of the State of California.
4
<PAGE>
6.3 NOTICES. Any notice required or permitted to be given under this
Agreement or any of the documents related hereto shall be given in writing and
shall be deemed to have been given when deposited in the United States mail
certified return receipt requested, with first class postage prepaid and
properly addressed. For the purposes hereof, the addresses of the parties hereto
shall, until further notice given as herein provided, be as follows:
<TABLE>
<CAPTION>
<S> <C>
"CNB" City National Bank
Real Estate Loan Department
400 North Roxbury Drive, Eighth Floor
Beverly Hills, California 90210-5021
Attention: Alisa L. Zells, Vice President
copy to: City National Bank
Legal Department
400 North Roxbury Drive, Fifth Floor
Beverly Hills, California 90210-5021
Attention: Arthur G. Spence, Associate General Counsel
"Inco" Inco Homes Corporation
1282 W. Arrow Highway
Upland, California 91786
Attention: Ira Norris, President
</TABLE>
6.4 ASSIGNMENTS. The provisions of this Agreement are hereby made
applicable to and shall inure to the benefit of such parties, successors and
assigns.
6.5 COUNTERPARTS. The parties may execute this Agreement in two (2) or
more counterparts, which shall, in the aggregate, be signed by all of the
parties, and each counterpart shall be deemed an original instrument as against
the party who has signed it.
6.6 COMPLETE AGREEMENT. This written Agreement is intended by CNB and
the Buyer as a final expression of their agreement and is intended as a complete
statement of the terms and conditions of their agreement on the subject dealt
with herein.
"CNB" City National Bank, a
national banking association
By:
----------------------------------
Alisa L. Zells, Vice President
"Inco" Inco Homes Corporation
By: /s/ Ira Norris
----------------------------------
Ira Norris, President
5
<PAGE>
EXHIBIT 10.100
PROMISSORY NOTE
---------------
$2,350,000 December 31, 1997
FOR VALUE RECEIVED, INCO HOMES CORPORATION, a Delaware corporation
("Borrower"), whose address is 1282 West Arrow Highway, Upland, California
91786, promises to pay to those parties listed on Exhibit A-1 attached hereto,
-----------
as tenants in common ("Holder"), or order, c/o USA Commercial Mortgage Company,
Inc. at 3900 Paradise Road, Suite 263, Las Vegas, Nevada 89109, or at such other
place as Holder may from time to time in writing designate, in lawful money of
the United States of America, the principal sum of TWO MILLION THREE HUNDRED
FIFTY THOUSAND DOLLARS ($2,350,000) or such greater or lesser sum as may be
outstanding pursuant to this Note, the Deed of Trust (as defined below) and the
other Loan Documents (as defined below), together with interest on the principal
balance outstanding from time to time ("Principal Balance"), in like money, from
the date of this Note until fully repaid at the rates hereinafter set forth.
1. Definitions. As used herein, the terms "Borrower," "Holder," and
-----------
"Principal Balance" have the meanings assigned in the preceding paragraph, and
the following terms have the following meanings:
(a) "Deed of Trust" means the Palmdale Deed of Trust and the Vista
-------------
Verde Deed of Trust.
(b) "Event of Default" has the meaning assigned to such term in
----------------
the Deed of Trust.
(c) "Parcel" or "Parcels" means the separate legal parcel or
-------------------
parcels of real property and improvements now or hereafter constructed thereon
encumbered by the Palmdale Deed of Trust and the Vista Verde Deed of Trust.
(d) "Interest Rate" means a rate per annum equal to fourteen and
-------------
one-quarter of one percent (14 1/4%).
(e) "Loan Documents" has the meaning assigned to such term in the
--------------
Deed of Trust.
(f) "Maturity Date" means the date which occurs eighteen (18)
-------------
months after the date hereof.
(g) "Mortgaged Property" means the real and personal property in
------------------
the Deed of Trust.
(h) "Palmdale Deed of Trust" means that certain Deed of Trust,
----------------------
Security Agreement, Assignment of Leases and Rents and Fixture Filing, dated as
of even date with this Note, from Inco Development Corporation, a California
corporation, to the trustee specified therein, in trust for Holder, covering
certain real and personal property described therein situated in Los Angeles
County, California, as the same may be amended or otherwise modified.
(i) "Release Price" means, for each Parcel, the amounts set forth
-------------
on Exhibit B attached hereto.
---------
(j) "Vista Verde Deed of Trust" means that certain Deed of Trust,
-------------------------
Security Agreement, Assignment of Leases and Rents and Fixture Filing, dated as
of even date with this Note, from Borrower to the trustee specified therein, in
trust for Holder, covering certain real and personal property described therein
situated in San Bernardino County, California, as the same may be amended or
otherwise modified.
1.
<PAGE>
2. Interest Rate. Commencing on December 1, 1997 and continuing
-------------
through the date the entire Principal Balance is paid in full, the Principal
Balance shall bear interest at the Interest Rate. Interest shall be calculated
based on the actual days the Principal Balance is outstanding hereunder divided
by 360 days and multiplied by the Interest Rate.
3. Payment of Principal and Interest. From the date hereof to and
---------------------------------
including the date the entire Principal Balance is paid in full, the Principal
Balance and interest thereon shall be due and payable as follows:
(a) Borrower shall make monthly payments of interest only owing on
the Principal Balance, in arrears, commencing on the first day of the calendar
month immediately following the date hereof and continuing on the first day of
each succeeding month to and including the first day of the month in which the
Maturity Date occurs. Any interest that has accrued but is not paid as required
under this Note shall be compounded and added to the Principal Balance on the
first day following the date such interest was required to be paid.
(b) Concurrently with the sale or refinance by Borrower or Inco
Development Corporation of any Parcel(s), Borrower shall pay to Holder an amount
equal to the Release Price(s) for such Parcel(s) in order to cause the lien of
the Vista Verde Deed of Trust or the Palmdale Deed of Trust, as appropriate, to
be reconveyed with respect to the Parcel(s) being sold or refinanced.
(c) On the Maturity Date, Borrower shall make a final payment that
shall include the unpaid portion of the Principal Balance, any interest accrued
and unpaid thereon, and any and all other sums due under this Note, the Deed of
Trust and the Loan Documents.
At the closing of the loan evidenced by this Note, a portion of the
loan proceeds shall be deposited in an interest reserve account established by
K&E Loan Servicing ("K&E") for the benefit of Borrower. K&E shall serve as the
construction control agent for Holder, and shall disburse funds from the
interest reserve account to pay interest owing under this Note.
4. Application of Payments. Each payment received by Holder from
-----------------------
Borrower with respect to this Note shall be applied: First: to the payment of
the costs and expenses of taking possession of, holding, maintaining and selling
any collateral for this Note; Second: to the payment of attorneys' fees and
expenses incurred in connection with the collection of this Note and enforcement
against any collateral for this Note; Third: to the payment of all amounts
advanced under the Deed of Trust or the Loan Documents (other than the Indemnity
Agreement, as defined in the Deed of Trust) to preserve the value of the
Mortgaged Property; Fourth: to the payment of late charges and accrued interest
due and payable hereunder; Fifth: to reduction of the Principal Balance; Sixth:
to the payment of any amounts owing to Holder or any other parties under the
Indemnity Agreement; and the balance, if any, shall be paid to the parties
entitled to receive it; or in such other order or proportion as Holder, in
Holder's sole discretion, may determine. Payments shall be deemed made when
Holder has received, at Holder's address or at such other address as Holder
shall provide written notice of to Borrower, immediately available funds in
lawful money of the United States of America.
Borrower understands that this Note is not self-amortizing and
that a substantial balloon payment may be due on the Maturity Date.
5. Prepayment. Borrower may prepay all or any portion of the
----------
Principal Balance at any time without premium on at least thirty (30) days prior
written notice to Holder.
6. Maximum Rate of Interest. Notwithstanding any provision in this
------------------------
Note, the total liability for payments of interest and payments in the nature of
interest, including without limitation, all charges, fees or any sums which may
at any time be deemed to be interest, shall not exceed the amount which Holder
may lawfully collect. In the event the total liability for payments of interest
and payments in the nature of interest,
2.
<PAGE>
including without limitation, all charges, fees or other sums which may at any
time be deemed to be interest, shall, for any reason whatsoever, result in an
effective rate of interest, which for any month or other interest payment period
exceeds the amount which Holder may lawfully collect, all sums in excess of
those lawfully collectible as interest for the period in question shall, without
further notice to any party hereto, be applied as a premium-free reduction of
the Principal Balance immediately upon receipt of such sums by Holder, with the
same force and effect as though Borrower had specifically designated such excess
sums to be so applied to the reduction of the Principal Balance; provided,
however, that Holder may, at any time, and from time to time, elect, by notice
in writing to Borrower, to waive, reduce or limit the collection of any sums (or
refund to Borrower any sums collected) in excess of those lawfully collectible
as interest rather than accept such sums on prepayment of the Principal Balance.
7. Security. Payment of this Note is secured by the Deed of Trust
--------
and the Loan Documents. All of the agreements, conditions, covenants, provisions
and stipulations contained in the Deed of Trust and the Loan Documents which are
to be kept and performed by Borrower are hereby made a part of this Note to the
same extent and with the same force and effect as if they were fully set forth
herein, and Borrower covenants and agrees to keep and perform them, or cause
them to be kept and performed, strictly in accordance with their terms.
8. Late Charges. Time is of the essence hereof and if any amount
------------
owing under this Note is not paid within five (5) days of when due, Borrower
shall pay to Holder a late charge payment equal to five percent (5%) of such
amount. Borrower recognizes that a default by Borrower in making the payments
agreed to be paid when due will result in Holder's incurring additional expenses
in servicing the loan evidenced by this Note, including, but not limited to
sending out notices of delinquency, computing interest, and segregating the
delinquent sums from not delinquent sums on all accounting, loan and data
processing records, in loss to Holder of the use of the money due, and in
frustration to Holder in meetings its other financial commitments, but that it
is extremely difficult and impractical to ascertain the extent of such damages.
Borrower therefore agrees that a sum equal to $0.05 for each $1.00 of each
payment that is not paid five (5) days after its due date, is a reasonable
estimate of the fair average compensation for the loss and damages Holder will
suffer, that such amount shall be presumed to be the amount of damages sustained
by Holder in such case, and that Borrower agrees to pay Holder this sum on
demand. Such late charge shall be paid without prejudice to the right of Holder
to collect any other amounts provided to be paid or to declare a default under
this Note, the Deed of Trust or Loan Documents.
9. Default Interest. Time is of the essence hereof and, from and
----------------
after the Maturity Date or five days after the occurrence of an Event of
Default, all amounts owing under this Note and the Loan Documents shall bear
interest at a rate per annum equal to nineteen and one-quarter of one percent
(19 1/4%) (the "Default Rate"), instead of at the Interest Rate. If the
Default Rate is triggered as a result of an Event of Default and Borrower
subsequently cures the Event of Default, then all amounts owing hereunder will
resume bearing interest at the Interest Rate, rather than the Default Rate, on
the date the Event of Default is cured; provided, however, that the interest
owing hereunder may again accrue at the Default Rate upon the occurrence of a
subsequent Event of Default. Borrower recognizes that a default by Borrower in
making the payments agreed to be paid when due will result in damage to Holder,
including loss to Holder of the use of the money due and frustration to Holder
in meetings its other financial commitments, but that it is extremely difficult
and impractical to ascertain the extent of such damages. Borrower therefore
agrees that the Default Rate is a reasonable estimate of the loss and damages
Holder will suffer, that such amount shall be presumed to be the amount of
damages sustained by Holder in such case, and that Borrower agrees to pay Holder
this sum on demand. Interest at the Default Rate shall be paid without
prejudice to the right of Holder to collect any other amounts provided to be
paid or to declare a default under this Note, the Deed of Trust or Loan
Documents.
10. Default. Upon the occurrence of any Event of Default, Holder, at
-------
its option and without further notice, demand, or presentment for payment to
Borrower or others, may declare immediately due and payable the unpaid Principal
Balance and interest accrued thereon together with all other sums owed by
Borrower under this Note, the Deed of Trust and the Loan Documents (including,
but not limited to attorneys' fees as provided in Section 12 below), anything in
this Note, the Deed of Trust and the Loan Documents to the contrary
notwithstanding. Payment of such sums may be enforced and recovered in whole or
in part at any time by one or more of the remedies provided to Holder in this
Note, the Deed of Trust and the Loan Documents.
3.
<PAGE>
11. Remedies Cumulative. The remedies of Holder, as provided in this
-------------------
Note, the Deed of Trust and the Loan Documents, shall be cumulative and
concurrent and may be pursued singly, successively or together, at the sole
discretion of Holder, and may be exercised as often as occasion therefor shall
occur; and the failure to exercise any such right or remedy shall in no event be
construed as a waiver or release thereof.
12. Attorneys' Fees. In the event that suit be brought hereon, or an
---------------
attorney be employed or expenses be incurred to compel payment of this Note or
any portion of the indebtedness evidenced hereby, or to defend the priority of
the Deed of Trust or to otherwise interpret or enforce any of the terms of this
Note, the Deed of Trust, or any of the other Loan Documents, Borrower promises
to pay all such attorneys' fees, costs and expenses all as actually incurred by
Holder as a result thereof including, without limitation, (a) attorneys' fees,
costs and expenses incurred in appellate proceedings or in any action or
participation in, or in connection with, any case or proceeding under Chapters 7
or 11 of the Bankruptcy Code or any successor thereto, and (b) attorneys' fees,
costs and expenses incurred as a result of Holder exercising its rights to cure
any Event of Default by Borrower under this Note, the Deed of Trust or any other
Loan Document, or as a result of the foreclosure of the Deed of Trust, deed in
lieu thereof, or trustee's sale thereunder.
13. Waiver of Notice. Borrower waives diligence, presentment for
----------------
payment, demand, notice of demand, notice of nonpayment or dishonor, protest and
notice of protest of this Note, and all other notices in connection with the
delivery, acceptance, performance, default, or enforcement of the payment of
this Note, except such notices as are provided in the Deed of Trust. Borrower
further waives all right of offset that it may now have or hereafter become
entitled to with respect to any Holder.
14. Waiver. Holder shall not be deemed, by any act of omission or
------
commission, to have waived any of its rights or remedies hereunder unless such
waiver is in writing and signed by Holder, and then only to the extent
specifically set forth in the writing. The acceptance by Holder of any payment
hereunder which is less than payment in full of all amounts due and payable at
the time of such payment shall not constitute a waiver of the right to exercise
any of the foregoing options at that time or at any subsequent time or nullify
any prior exercise of any such option without the express consent of Holder,
except as and to the extent otherwise provided by law. A waiver with reference
to one event shall not be construed as continuing or as a bar to or waiver of
any right or remedy as to a subsequent event.
15. Governing Law. This instrument shall be governed by and
-------------
construed according to the laws of the State of California.
16. Construction of Certain Terms. Whenever used, the singular shall
-----------------------------
include the plural, the plural shall include the singular, and the words
"Holder" and "Borrower" shall be deemed to include their respective heirs,
administrators, executors, successors and assigns.
17. Notice. All notices which Holder or Borrower may be required or
------
permitted to give hereunder shall be made in the same manner as set forth in
Section 9.3 of the Deed of Trust.
18. Severability of Provisions. In the event any one or more of the
--------------------------
provisions hereof shall be invalid, illegal or unenforceable in any respect, the
validity of the remaining provisions hereof shall be in no way affected,
prejudiced or disturbed thereby.
19. Sale of Interest. Borrower acknowledges that Holder may, in its
----------------
sole discretion, sell all or any part of its interest in the loan as evidenced
by this Note and, in connection therewith, Holder may assign all or any portion
of this Note. Any such sale and assignment may be at a discount or premium,
subject to a brokerage fee or involve a servicing agreement, and shall not alter
any of Borrower's obligations hereunder or under any of the Loan Documents.
20. Acceleration Upon Transfer. Sections 5.1.18 and 6.9 of the Vista
--------------------------
Verde Deed of Trust provide as follows:
4.
<PAGE>
"5.1.18 Transfer of Mortgaged Property. Trustor shall
------------------------------
not, without the prior written consent of Beneficiary, directly or
indirectly sell, transfer, convey, further encumber, assign, grant any
option, subordinate, convert to condominiums or grant any further lien
or easement on all or any part of the Mortgaged Property, or enter
into any agreement for any of the foregoing, whether by operation of
law recorded or unrecorded, or voluntarily or involuntarily; provided,
however, that if the Mortgaged Property consists of single-family
homes, condominiums or other residential properties to be sold,
Trustor may accept sales reservations and enter into purchase and
sales contracts so long as such actions are consistent with the Loan
Documents, all rules and regulations of the California Department of
Real Estate and all other applicable laws, rules and regulations.
Trustor shall promptly notify Beneficiary in writing of any such
intended event or agreement for which Beneficiary's consent may be
required.
6.9 Due on Sale. If, without the prior written consent of
-----------
Beneficiary, (a) there is any sale, transfer, assignment, conveyance
or encumbrance, whether voluntary or involuntary, of all or part of
the Mortgaged Property or any interest therein or any other event or
agreement referred to in Section 5.1.18, (b) Trustor or any one or
more of the persons comprising Trustor is a partnership and the
interest of any general partner (or the interest of any general
partner in a partnership that is a partner) is assigned or
transferred, except for an assignment or transfer resulting from the
death or physical or mental incapacity of a general partner; (c)
Trustor or any one or more of the persons comprising Trustor is a
partnership and more than twenty-five percent (25%) of the corporate
stock of any corporation that is a general partner of such partnership
is sold, transferred or assigned; (d) change in ownership (including
the hypothecation or encumbrance thereof) of a majority of the stock
of Trustor held by Ira Norris; (e) Trustor is a trust and there is a
change in beneficial ownership with respect to more than twenty-five
percent (25%) of the trust; (f) Trustor consists of several persons or
entities holding fractional undivided interest in the Mortgaged
Property and there is a cumulative change in ownership with respect to
more than a twenty-five percent (25%) fractional undivided interest in
the Mortgaged Property; (g) there is a seizure of the Mortgaged
Property, or attachment of any lien on the Mortgaged Property, whether
voluntary or involuntary, which has not been removed or bonded off to
Beneficiary's satisfaction within thirty (30) days of such attachment;
or (h) there is a change in the controlling executives and directors
of Trustor."
Sections 5.1.18 and 6.9 of the Palmdale Deed of Trust provide as
follows:
"5.1.18 Transfer of Mortgaged Property. Trustor shall
------------------------------
not, without the prior written consent of Beneficiary, directly or
indirectly sell, transfer, convey, further encumber, assign, grant any
option, subordinate, convert to condominiums or grant any further lien
or easement on all or any part of the Mortgaged Property, or enter
into any agreement for any of the foregoing, whether by operation of
law recorded or unrecorded, or voluntarily or involuntarily; provided,
however, that if the Mortgaged Property consists of single-family
homes, condominiums or other residential properties to be sold,
Trustor may accept sales reservations and enter into purchase and
sales contracts so long as such actions are consistent with the Loan
Documents, all rules and regulations of the California Department of
Real Estate and all other applicable laws, rules and regulations.
Trustor shall promptly notify Beneficiary in writing of any such
intended event or agreement for which Beneficiary's consent may be
required.
6.9 Due on Sale. If, without the prior written consent of
-----------
Beneficiary, (a) there is any sale, transfer, assignment, conveyance
or encumbrance, whether voluntary or involuntary, of all or part of
the Mortgaged Property or any interest therein or any other event or
agreement referred to in Section 5.1.18, (b) Trustor or any one or
more of the persons comprising Trustor is a partnership and the
interest of any general partner (or the interest of any general
partner in a partnership that is a partner) is assigned or
transferred, except for an assignment or transfer resulting from the
death or physical or mental incapacity of a general partner; (c)
transfer,
5.
<PAGE>
assignment or hypothecation of more than 25% of the corporate stock of
Trustor; (d) change in ownership (including the hypothecation or
encumbrance thereof) of a majority of the stock of Inco Homes
Corporation held by Ira Norris (Inco Homes Corporation being the sole
shareholder of Trustor); (e) Trustor is a trust and there is a change
in beneficial ownership with respect to more than twenty-five percent
(25%) of the trust; (f) Trustor consists of several persons or
entities holding fractional undivided interest in the Mortgaged
Property and there is a cumulative change in ownership with respect to
more than a twenty-five percent (25%) fractional undivided interest in
the Mortgaged Property; (g) there is a seizure of the Mortgaged
Property, or attachment of any lien on the Mortgaged Property, whether
voluntary or involuntary, which has not been removed or bonded off to
Beneficiary's satisfaction within thirty (30) days of such attachment;
or (h) there is a change in the controlling executives and directors
of Trustor."
21. Integration. This Note and the documents described herein
-----------
constitute the entire understanding of Borrower and Holder with respect to the
matters discussed herein, and supersede all prior and contemporaneous
discussions, agreements and representations, whether oral or written. This Note
may only be modified in a writing signed by Holder, or its loan servicing agent,
and Borrower.
22. Headings. The section captions are inserted for convenience of
--------
reference only and shall in no way alter or modify the text of such sections.
23. Use of Broker. Borrower acknowledges that the loan evidenced by
-------------
this Note was arranged (as the term "arranged" is used in California Civil Code
Section 1916.1) by Ira C. Norris, who is licensed as a real estate broker in the
State of California.
24. Amendment and Restatement. Borrower acknowledges that this Note
-------------------------
constitutes an amendment and restatement of that certain Amended and Restated
Promissory Note dated June 1, 1996 in the original principal amount of
$2,927,500 given by Borrower for the benefit of Riverside National Bank (the
"Original Note"). The Original Note was secured by, among other things, (i) a
Deed of Trust dated March 24, 1995 given by Borrower, as trustor, for the
benefit of Riverside National Bank, as beneficiary, and recorded on March 31,
1995 in the Official Records of San Bernardino County, California as Instrument
No. 1995-0100038, as amended and modified, that encumbers certain real property
located in San Bernardino County, California, as more particularly described
therein (the "Original Vista Verde Deed of Trust"), and (ii) a Deed of Trust
dated March 24, 1995 given by Palmdale Vistas Housing Developments, a California
limited partnership, as trustor, for the benefit of Riverside National Bank, as
beneficiary, and recorded on March 31, 1995 in the Official Records of Los
Angeles County, California as Instrument No. 95-462578, as amended and modified,
that encumbers certain real property located in Los Angeles County, California,
as more particularly described therein (the "Original Palmdale Deed of Trust").
Palmdale Vistas Housing Developments has dissolved, and a portion of the
property encumbered by the Original Palmdale Deed of Trust has been distributed
to Inco Development Corporation.
Holder has purchased the Original Note from City National Bank,
successor by statutory merger to Riverside National Bank. In connection with
this purchase, City National Bank has endorsed and delivered the Original Note
to Holder and has assigned its beneficial interest under the Original Vista
Verde Deed of Trust and the Original Palmdale Deed of Trust to Holder.
On the date Holder purchased the Original Note, Borrower was in
default under the terms of the Original Note, the Original Vista Verde Deed of
Trust and the Original Palmdale Deed of Trust, and requested that Holder
restructure the terms of the Original Note as provided in this Note and amend
and restate the terms of the Original Vista Verde Deed of Trust and the Original
Palmdale Deed of Trust as provided in the Vista Verde Deed of Trust and the
Palmdale Deed of Trust, respectively. Holder has agreed to restructure the
terms of the Original Note and such deeds of trust, and in consideration of such
restructuring and amending, Borrower hereby absolutely and unconditionally
waives and relinquishes all rights, benefits and protections otherwise afforded
to it under California Civil Code Sections 580a, 580b, 580d and California Code
of Civil Procedure Section 726, which waiver and relinquishment shall include
all rights, benefits and protections otherwise afforded to it under any common
law cases that interpret or apply any of the foregoing statutes.
6.
<PAGE>
IN WITNESS WHEREOF, Borrower, intending to be legally bound hereby,
has duly executed this Note the day and year first above written.
BORROWER: INCO HOMES CORPORATION,
a Delaware corporation
By:____________________________________
Ira C. Norris
President
7.
<PAGE>
EXHIBIT A-1
-----------
INVESTORS
<TABLE>
<CAPTION>
Ownership
Name Amount Interest
- ---- ------ ---------
<S> <C> <C>
Henry W. and Charlotte N. Besuden Revocable Trust,
Henry W. Besuden, TTEE $100,000 4.2553%
Nicholas Perrone $50,000 2.1277%
The William E. Feeney and Belinda C. Feeney
Feeney Family Trust DTD 3/5/93, William C.
Feeney & Belinda C. Feeney, TTEEs $25,000 1.0638%
Alan Robinson & Gail Robinson $25,000 1.0638%
Joseph Ciadella & Stella Ciadella $30,000 1.2766%
Stephanie Kropp $100,000 4.2553%
Leon & Judith Angel Living Trust DTD 11/5/93
Leon Angel & Judith Angel Co-TTEEs $25,000 1.0638%
MacDonald Senior Trust of 1987 Richard MacDonald &
Frances R. MacDonald Co-TTEEs $100,000 4.2553%
42145 Trust, Richard C.MacDonald, TTEE $100,000 4.2553%
Claire M. MacDonald $50,000 2.1277%
9/21/73 Family Trust, Richard C. MacDonald and
Claire M. MacDonald, Co-TTEEs $50,000 2.1277%
Alan Feldman $60,000 2.5532%
Ruth G. Holub Trust DTD 4/26/93
George F. Holub, TTEE $25,000 1.0638%
Lily Markham and Irene Ann Markham-Tafoya $30,000 1.2766%
Panagiotis Dovanidis and Dimitra Dovanidou $25,000 1.0638%
James A. Barry & Virginia N. Barry $25,000 1.0638%
Sara Katz $150,000 6.3830%
Katz & Associates Money Purchase $25,000 1.0638%
Von Euw 1996 Trust DTD 1/11/96,
Tobias Von Euw, TTEE and Patricia Von Kuw, TTEE $100,000 4.2553%
William Godfrey $75,000 3.1915%
Nevada State Bank C/F Robert Cranley IRA R/O $50,000 2.1277%
</TABLE>
1.
<PAGE>
<TABLE>
<S> <C> <C>
Jack Rankin $25,000 1.0638%
Nevada State Bank C/F David Mulkey IRA $110,000 4.6809%
Fred Teriano $50,000 2.1277%
The Joseph J. Benoualid and Helen L. Benoualid Trust,
Joseph H. Benoualid & Helen Benoualid, TTEE $50,000 2.1277%
Stephen G. Walther & Sonja Walther $25,000 1.0638%
Wagman Family Trust DTD 8/13/93
Jack M. Wagman & Norma E. Wagman, TTEEs $60,000 2.5532%
James Fisher & Darlene Fisher $120,000 5.1064%
Philips Family Trust UAD 9/28/95
Richard C. Phillips & Norma J. Phillips, Co-TTEEs $25,000 1.0638%
The G&M Rizzuto Trust DTD 6/25/97
Gerald N. Rizzuto, TTEE & Marion E. Rizzuto, TTEE $50,000 2.1277%
James J. Flannigan $10,000 0.4255%
John R. Flannigan Trust DTD 11/18/93
John R. Flannigan, TTEE $25,000 1.0638%
Dan Bowman & Baryetta Bowman $25,000 1.0638%
Maryetta Bowman MPP Keogh $25,000 1.0638%
Maryetta Bowman PS Keogh $25,000 1.0638%
Jerry Moreo $25,000 1.0638%
Dennis G. Campton Profit Sharing Trust DTD 3/16/72,
Dennis G. Campton TTEE $50,000 2.1277%
Hefner Family Trust DTD 4/27/90,
Stephen & Eileen Hefner, TTEEs $50,000 2.1277%
Ray Family Trust DTD 6/28/89, Robert & Peggy Ray,
TTEEs $50,000 2.1277%
Nevada State Bank C/F Kim Gregory IRA $100,000 4.2553%
Augustine Tuffanelli Family Trust DTD 7/26/94,
Augustine Tuffanelli, TTEE $70,000 2.9787%
Shirley Jean Tuffanelli Trust DTD 6/18/91
Shirley Jean Tuffanelli, TTEE $30,000 1.2766%
ACS Nevada $50,000 2.1277%
Billy Shope, Jr. $80,000 3.4043%
$2,350,000 100.0000%
</TABLE>
2.
<PAGE>
EXHIBIT 10.101
RECORDING REQUESTED BY AND
WHEN RECORDED MAIL TO:
Stein & Lubin
600 Montgomery Street, 14th Floor
San Francisco, California 94111
Attention: Leon Y. Tuan
______________________________________________________________________________
DEED OF TRUST, SECURITY AGREEMENT,
ASSIGNMENT OF LEASES AND
RENTS AND FIXTURE FILING
------------------------
THIS DEED OF TRUST, SECURITY AGREEMENT, ASSIGNMENT OF LEASES AND RENTS
AND FIXTURE FILING ("Deed of Trust") is made as of December 31, 1997, among INCO
HOMES CORPORATION, a Delaware corporation, whose address is set forth below, as
Trustor, the parties listed on Exhibit A-1 attached hereto, whose address is set
-----------
forth below, as tenants in common, as Beneficiary, and LAWYERS TITLE OF NEVADA,
whose address is set forth below, as Trustee.
ARTICLE 1
DEFINITIONS
-----------
As used herein, the following terms shall have the following meanings:
1.1 Assignment. The assignment, contained in Article 4 of this Deed
----------
of Trust, from Trustor to Beneficiary, of all of Trustor's right, title and
interest in and to the Leases and the Rents.
1.2 Awards. All awards and payments made or hereafter to be made by
------
any municipal, township, county, state, Federal or other governmental agencies,
authorities or boards or any other entity having the power of eminent domain to
Trustor, including any awards and payments for any taking of all or a portion of
the Mortgaged Property, as a result of, or by agreement in anticipation of, the
exercise of the right of condemnation or eminent domain, or for any change or
changes of grade of streets affecting the Mortgaged Property.
1.3 Beneficiary. The parties listed on Exhibit A-1 attached hereto,
----------- -----------
as tenants in common, and their respective successors and assigns and the
holders, from time to time, of the Note.
1.4 Beneficiary's Address. c/o USA Commercial Mortgage Company,
---------------------
Inc., 3900 Paradise Road, Suite 263, Las Vegas, Nevada 89109.
1.5 Buildings. All buildings, improvements (including, without
---------
limitation, all on-site and off-site infrastructure improvements), alterations
or appurtenances now, or at any time hereafter, located upon the Land or any
part thereof.
1.6 Intentionally Deleted.
1.7 Event(s) of Default. The happenings and occurrences described in
-------------------
Article 6 of this Deed of Trust.
1
<PAGE>
1.8 Fixtures. All fixtures now or hereafter affixed or attached to,
--------
or installed in, or used in connection with, the Land or Buildings, whether or
not permanently affixed thereto, together with all accessions, replacements and
substitutions thereto or therefor and the proceeds thereof.
1.9 Intentionally Deleted.
1.10 Intentionally Deleted.
1.11 Impositions. All (i) real estate and personal property taxes and
-----------
other taxes and assessments, water and sewer rates and charges, and all other
governmental charges and any interest or costs or penalties with respect
thereto, and charges for an easement or agreement maintained for the benefit of
the Mortgaged Property which at any time prior to or after the execution of the
Loan Documents may be assessed, levied, or imposed upon the Mortgaged Property
or the rent or income received therefrom or any use or occupancy thereof, and
(ii) other taxes, assessments, fees and governmental charges levied, imposed or
assessed upon or against Trustor or any of its properties.
1.12 Indebtedness. The principal of and interest on and all other
------------
amounts, payments and premiums due under the Note (including any future
advances) and all other indebtedness of Trustor to Beneficiary, whether under
and/or secured by the Loan Documents, including, without limitation any
indebtedness owing under the Indemnity Agreement, or evidenced by some other
document that recites by its terms that it is secured by this Deed of Trust, and
any amendments, modifications, renewals and extensions of any of the foregoing.
1.13 Indemnity Agreement. The Environmental Agreement and Indemnity,
-------------------
dated as of even date herewith, by Trustor in favor of Beneficiary, as the same
may be amended or otherwise modified.
1.14 Land. The real property described in Exhibit A attached hereto.
---- ---------
1.15 Leases. Any and all leases, subleases, licenses, concessions or
------
grants of other possessory interest now or hereafter in force, oral or written,
covering or affecting the Mortgaged Property, or any part thereof, together with
all rights, powers, privileges, options and other benefits of Trustor
thereunder.
1.16 Escrow Agreement. The Escrow and Security Agreement dated as of
----------------
even date herewith, among Trustor, Beneficiary and K&E Loan Servicing, as the
same may be amended or otherwise modified.
1.17 Mortgaged Property. The Land, the Buildings, the Fixtures, the
------------------
Personalty, the Awards, the Rents, the Leases and the Escrow Account, together
with:
(i) all rights, privileges, permits, licenses, rights-of-way,
easements, appendages and appurtenances of the Land and/or the
Buildings belonging or in any way appertaining thereto and all right,
title and interest of Trustor in and to any streets, ways, alleys, or
strips of land adjoining the Land or any part thereof;
(ii) all the estate, right, title, interest, claim or demand
whatsoever of Trustor, either at law or in equity, in and to the Land,
the Buildings, the Fixtures, the Awards, the Rents, the Leases, the
Personalty and the Escrow Account; and
(iii) all the estate, right, title, interest, claim or demand
whatsoever of Trustor, either at law or in equity, in and to the
Awards, or payments with respect to casualties.
1.18 Note. The promissory note, dated of even date with this Deed of
----
Trust, made by Trustor to the order of Beneficiary, in the original principal
amount of $2,350,000, secured by this Deed of Trust, together with all
extensions, renewals, modifications and amendments thereof.
2
<PAGE>
1.19 Obligations. Any and all of the covenants, promises and other
-----------
obligations (other than the Indebtedness) made or owing by Trustor to or due to
Beneficiary, whether under and/or as set forth in the Note and/or the Loan
Documents, including, without limitation, any such covenants, promises and
obligations made by or owing by Trustor under the Indemnity Agreement, or
evidenced by some other document that recites by its terms that it is secured by
this Deed of Trust, and any and all extensions, renewals, modifications and
amendments of any of the foregoing.
1.20 Permitted Encumbrances. The encumbrances described, with
----------------------
particularity, in Exhibit B attached hereto.
---------
1.21 Personalty. All furniture, furnishings, equipment, machinery,
----------
trade fixtures and all other tangible and intangible personal property (other
than the Fixtures) now owned or hereafter acquired by Trustor which are now or
hereafter used or owned in connection with the Land and/or the Buildings or
located in, upon or about the Land and/or the Buildings, together with all
accessions, replacements and substitutions thereto or therefor and the proceeds
and products thereof, including without limitation: (1) all personal property
located on the Land or Buildings and used in the operation or occupancy of the
Land or Buildings or in any construction on the Land or Buildings, including,
but not limited to, all furniture and furnishings, machinery, fixtures, goods,
office equipment, machine tools, apparatus, supplies, materials, trade fixtures,
building service equipment, boilers, equipment (including, without limitation,
all equipment for the generation or distribution of air, water, heat,
electricity, light, fuel or refrigeration, or for ventilating or air
conditioning purposes, or for sanitary or drainage purposes, or for the removal
of dust, refuse or garbage), partitions, appliances, ranges, refrigerators,
cabinets, laundry equipment, radios, televisions, awnings, window shades,
venetian blinds, drapes and drapery rods and brackets, screens, carpeting and
other floor coverings, lobby furnishings, games, recreational and swimming pool
equipment and incinerators, and all vehicles and accessories, tools,
appurtenances, dies, jigs, chattels and parts; (2) all general intangibles
relating to the development or use of the Land or Buildings, including, but not
limited to, all governmental permits relating to construction on the Land or
Buildings, all development agreements, management agreements, franchise
agreements, service contracts, other contracts or agreements, all names under or
by which the Land or Buildings may at any time be operated or known, and all
rights to carry on business under any such names or any variant thereof, all
trademarks and goodwill and all interests in any owner's or member's association
in any way relating to the Land or Buildings; (3) all water stock relating to
the Land or Buildings, all shares of stock or other evidence of ownership of any
part of the Land or Buildings that is owned by the Trustor in common with
others, and all documents of membership in any owners' or members' association
or similar group having responsibility for owning, managing or operating any
part of the Land or Buildings; (4) all plans and specifications prepared for
construction of improvements on the Land or Buildings and all studies, data and
drawings related thereto; and also all contracts and agreements of Trustor
relating to the plans and specifications or to the studies, data and drawings,
or to the construction of improvements on the Land or Buildings; (5) all sales
agreements, deposit receipts, escrow agreements and other ancillary documents
and agreements entered into with respect to the sale to any purchasers of any
part of the Land or Buildings, together with all deposits and other proceeds of
the sale thereof; (6) all damages, royalties and revenues of every kind, nature
and description whatsoever that Trustor may be entitled to receive from any
person or entity owning or having or hereafter acquiring a right to the oil, gas
or mineral rights and reservations of the Land; (7) all deposits made with or
other security given to utility companies by Trustor with respect to the Land or
Buildings, and all advance payments of insurance premiums made by Trustor with
respect thereto and all claims or demands with respect to insurance; (8) any
funds held by or in the name of Beneficiary; (9) any causes of action deemed to
be assigned to Beneficiary under this Deed of Trust; (10) all substitutions,
renewals, improvements, attachments, accessions, additions and replacements to
any of the foregoing; and (11) all collections, proceeds, insurance proceeds and
products of any of the foregoing, including, without limitation, proceeds of any
voluntary or involuntary disposition or claim respecting any part thereof
(pursuant to judgment, condemnation award or otherwise), insurance proceeds paid
or owing as a result of any damage to any of the foregoing, and all documents,
instruments, general intangibles, chattel paper and accounts which may arise
from the sale or disposition of any of the foregoing, all guaranties of and
security for any of the foregoing, and all books and records relating to any of
the foregoing. "Personalty" shall also include all insurance policies that
cover any of the Land, the Buildings, the Fixtures, any other Personalty
described in this paragraph, and any rights, benefits and proceeds arising from
such insurance policies.
3
<PAGE>
1.22 Loan Documents. This Deed of Trust, the Security Agreement, the
--------------
Indemnity Agreement, the Escrow Agreement, the Palmdale Deed of Trust (as
defined in Section 6.11 below), the "Loan Documents" as defined in the Palmdale
Deed of Trust, and any and all other documents executed by Trustor now or
hereafter evidencing, securing or relating to the payment of the Indebtedness or
the observance or performance of the Obligations, as any of the same may be
amended or otherwise modified.
1.23 Rents. All of the rents, revenues, income, profits, deposits,
-----
tenders and other benefits payable under the Leases and/or arising from the use
or enjoyment of all or any portion of the Mortgaged Property.
1.24 Security Agreement. The Security Agreement, contained in this
------------------
Deed of Trust, wherein and whereby Trustor grants a security interest in the
Personalty, the Awards, the Fixtures and the Escrow Account to Beneficiary.
1.25 Escrow Account. That certain deposit account no. _____________ in
--------------
the name of K&E Loan Servicing for the benefit of Trustor and maintained with
_______________at its branch located at
_____________________________________________, together with all investments
made in the name of such account and all interest and other proceeds thereof.
1.26 Trustee. The person, persons, or entity named as such in the
-------
preamble of this Deed of Trust and, as the case may be, his, their or its
successors and assigns.
1.27 Trustee's Address. 1050 East Flamingo Road, Suite 180, Las Vegas,
-----------------
Nevada 89109. Facsimile: (702) 369-8540.
1.28 Trustor. The entity named as such in the preamble of this Deed
-------
of Trust, and its heirs, administrators, executors, successors and assigns and
its successors in interest in and to the Mortgaged Property.
1.29 Trustor's Address. 1282 West Arrow Highway, Upland, California
-----------------
91786.
ARTICLE 2
GRANT
-----
2.1 Grant. To secure the payment of the Indebtedness and the
-----
performance and discharge of the Obligations, Trustor by these presents hereby
grants, bargains, sells, assigns, mortgages, conveys and warrants unto Trustee,
in trust for Beneficiary, with power of sale and right of entry and possession,
the Mortgaged Property, to have and to hold the Mortgaged Property unto
Trustee, its successors and assigns forever.
2.2 Condition of Grant. Provided always, that if Trustor shall pay
------------------
or cause to be paid the entire Indebtedness as and when the same shall become
due and payable and shall observe, perform and discharge the Obligations, then
the Loan Documents and the estate and rights granted by Trustor shall cease,
terminate and become void, and shall be released or reconveyed by Beneficiary,
at the cost and expense of Trustor.
ARTICLE 3
SECURITY AGREEMENT AND FIXTURE FILING
-------------------------------------
3.1 Security Agreement. This Deed of Trust shall also constitute a
------------------
"Security Agreement" within the meaning of, and shall create a security interest
under, the Uniform Commercial Code as adopted by the state in which the
Mortgaged Property is located (the "UCC") in the Personalty, the Awards, the
Leases, the Rents, the Escrow Account, and the Fixtures.
3.2 Security Interest. In order to further secure payment of the
-----------------
Indebtedness and the observance, performance and discharge of the Obligations,
Trustor hereby grants to Beneficiary a security interest
4
<PAGE>
under the UCC in the Personalty, the Award, the Leases, the Rents, the Escrow
Account and the Fixtures, and Beneficiary shall have all the rights with respect
to the Personalty, the Awards, the Leases, the Rents, the Escrow Account and the
Fixtures afforded to it by the UCC, in addition to, but not in limitation of,
the other rights afforded Beneficiary by the Loan Documents.
3.3 Financing Statements. Trustor agrees to and shall execute and
--------------------
deliver to Beneficiary, in form satisfactory to Beneficiary, such "Financing
Statements" and such further assurances as Beneficiary may, from time to time,
consider reasonably necessary to create, perfect and preserve Beneficiary's
liens upon the Personalty, the Awards, the Leases, the Rents, the Escrow Account
and the Fixtures, and Beneficiary, at the expense of Trustor, may or shall cause
such statements and assurances to be recorded and re-recorded, filed and re-
filed, at such times and places as may be required or permitted by law to so
create, perfect and preserve such liens.
3.4 Fixture Filing. This Deed of Trust is being recorded as a
--------------
fixture filing and covers goods which are or are to become fixtures on the Land
and/or the Buildings. This fixture filing is governed by the UCC. An address
of Beneficiary from which information concerning the security interest created
under this Article 3 may be obtained by contacting Beneficiary at Beneficiary's
address.
ARTICLE 4
ASSIGNMENT OF RENTS AND LEASES
------------------------------
4.1 Assignment of Rents. All of Trustor's rights, title and interest
-------------------
in and to the Rents are hereby absolutely and irrevocably assigned to
Beneficiary to be applied against the Indebtedness and the Obligations. Trustor
hereby appoints Beneficiary its true and lawful attorney-in-fact, with the
right, at Beneficiary's option at any time, to demand, receive and enforce
payment, to give receipts, releases and satisfactions, and to sue, either in
Trustor's or Beneficiary's name, for all Rents. Notwithstanding the foregoing
Assignment of Rents, so long as no Event of Default has occurred which remains
uncured, Trustor is given a license to collect, receive, take, use and enjoy
such Rents, as they become due and payable, but not more than one month in
advance thereof. This assignment, and the assignment given in Article 4.2 below,
shall be fully operative without any further action on the part of either party;
and specifically, Beneficiary shall be entitled at its option, upon the
occurrence of an Event of Default hereunder and for so long as such Event of
Default is continuing, to collect all Rents from the Mortgaged Property whether
or not Beneficiary takes possession of the Mortgaged Property and to exercise
any other remedies allowed by statute or under common law including, without
limitation, any remedy allowed under California Civil Code Section 2938. Upon
the occurrence of an Event of Default hereunder, the license hereby given to
Trustor to collect the Rents from the Mortgaged Property shall terminate. The
license given by Beneficiary to Trustor shall be reinstated upon a cure of such
Event of Default with Beneficiary's specific consent which shall not be
unreasonably withheld. This Assignment shall not be deemed or construed to
constitute Beneficiary or Trustee as a mortgagee in possession nor obligate
Beneficiary or Trustee to take any action or to incur expenses or perform or
discharge any obligation, duty or liability. Exercise of any rights under this
Section and the application of the Rents to the Indebtedness or the Obligations
shall not cure or waive any Event of Default but shall be cumulative of all
other rights and remedies.
4.2 Assignment of Leases. Trustor hereby grants and assigns to
--------------------
Beneficiary all right, title and interest of Trustor in and to all Leases,
together with all security therefor and all monies payable thereunder, subject,
however, to the license given to Trustor above to collect the rentals under any
such Lease. The foregoing assignment of any Lease shall not be deemed to impose
upon Beneficiary any of the obligations or duties of Trustor provided in any
such Lease; and Trustor agrees to fully perform all obligations of the Lessor
under all such Leases. Upon Beneficiary's request, Trustor shall deliver to any
new lessee a notice of this assignment in form satisfactory to Beneficiary in
its sole discretion. Beneficiary may deliver such a notice to new lessees if
Trustor fails to do so within a reasonable time after Beneficiary's request.
From time to time, upon request of Beneficiary, Trustor shall specifically
assign to Beneficiary, by an assignment in writing in form approved by
Beneficiary, all right, title and interest of Trustor in and to any and all
Leases, together with all security therefor and all monies payable thereunder,
subject to the license given to Trustor above to collect the rentals under any
such Lease. Trustor shall also execute and deliver to Beneficiary any
notification, financing statement, or other document reasonably required by
Beneficiary to perfect the foregoing assignment as to any such Lease.
5
<PAGE>
4.3 Effect of Assignments. This instrument constitutes an absolute
---------------------
and present assignment of the rents, royalties, issues, profits, revenue, income
and other benefits from the Mortgaged Property; subject, however, to the license
given to Trustor to collect, receive, take, use and enjoy the same as provided
above; provided, further, that the existence or exercise of such right of
Trustor shall not operate to subordinate this assignment to any subsequent
assignment by Trustor, in whole or in part, and any such subsequent assignment
by Trustor shall be subject to the rights of Trustee and Beneficiary hereunder.
4.4 No Merger of Leasehold Estates. If both the lessor's and
------------------------------
lessee's estate under any Lease, or any portion thereof, becomes vested at any
time in one owner, this Deed of Trust and the lien created hereby shall not be
adversely affected by the application of the doctrine of merger unless
Beneficiary so elects in writing by recording a written declaration so stating.
Unless and until Beneficiary so elects, Beneficiary and any lessor and lessee
shall continue to have and enjoy all of the rights and privileges to the
separate estates. In addition, upon the foreclosure of the lien created by this
Deed of Trust on the Mortgaged Property, any Leases then existing and affecting
all or any portion of the Mortgaged Property shall not be destroyed or
terminated by merger or by the foreclosure unless Beneficiary or any purchaser
at the sale so elects. No act by or on behalf of Beneficiary or such purchaser
shall constitute a termination of any Lease unless Beneficiary gives written
notice thereof to the tenant or subtenant affected.
4.5 Assignment to Beneficiary Controlling. The rights of Trustee in
-------------------------------------
the Leases and Rents created under Article 2 shall be subject to the rights of
Beneficiary in the Leases and Rents created under this Article 4.
ARTICLE 5
COVENANTS AND REPRESENTATIONS AND WARRANTIES
--------------------------------------------
5.1 Covenants. Until the entire Indebtedness shall have been paid in
---------
full and all of the Obligations shall have been performed in full, Trustor
hereby covenants and agrees as follows:
5.1.1 Compliance with Laws. Trustor will promptly and
--------------------
faithfully comply with, conform to, and obey all present and future laws,
ordinances, rules, regulations and requirements of every duly constituted
governmental authority or agency and of every Board of Fire Underwriters having
jurisdiction, or similar body exercising similar functions, which may be
applicable to it or to the Mortgaged Property, or any part thereof, or to the
use or manner of use, occupancy, possession, operation, maintenance, alteration,
repair or reconstruction of the Mortgaged Property, or any part thereof, whether
or not such law, ordinance, rule, order, regulation or requirement shall
necessitate structural changes or improvements or interfere with the use or
enjoyment of the Mortgaged Property.
5.1.2 Payment of Impositions. Trustor will duly pay and
----------------------
discharge, or cause to be paid and discharged, the Impositions, such Impositions
or installments thereof to be paid prior to the day before any fine, penalty,
interest or cost may be added thereto or imposed by law for the non-payment
thereof; provided, however, that if, by law, any Imposition may be paid in
installments, Trustor may pay the same in such installments.
5.1.3 Repair and Alterations.
----------------------
(a) Trustor will keep the Mortgaged Property in
good order and condition and make all necessary or appropriate repairs,
replacements and renewals thereof and will use its best efforts to prevent any
act or thing which might impair the value or usefulness of the Mortgaged
Property.
(b) Trustor will not commit or knowingly permit
any waste of the Mortgaged Property or any part thereof, or make or permit to be
made any alterations or additions to the Mortgaged Property which would have the
effect of materially diminishing the value thereof, or make or permit to be made
any
6
<PAGE>
other alterations or additions to the Mortgaged Property, of a material
nature, without the prior written consent of Beneficiary.
(c) Trustor will not permit any of the Fixtures
or Personalty to be removed at any time from the Land and/or Buildings, without
the prior written consent of Beneficiary unless actually replaced by an article
of equal suitability and value and owned by Trustor free and clear of any lien
or security interest except such as may be approved in writing by Beneficiary.
5.1.4 Insurance. Trustor will maintain insurance upon the
---------
Mortgaged Property against loss by fire, windstorms, flood (if the Mortgaged
Property is located in a designated flood plain) and such other hazards,
casualties and contingencies as are normally and usually covered by All Risk
Property policies in effect in the locality where the Mortgaged Property is
situated and such other risks as may be specified by Beneficiary, from time to
time, in amounts and with insurers acceptable to Beneficiary (including
earthquake if requested by Beneficiary), but in any event not less than the full
replacement cost of all insured real property, fixtures leasehold improvements,
contents, equipment and other personal property, and business interruption or
loss-of-rents limits shall be sufficient to meet loss of one year's anticipated
revenues. No primary deductible or retention greater than $5,000 shall be
called for in any such policies, unless agreed to in writing by Beneficiary.
Policies shall contain endorsements providing for course of construction, breach
of warranty, adjustment of value for inflation, increased costs of replacement
due to changes in code requirements, costs of demolition, and such other
conditions as may be required by Beneficiary. Policies shall be endorsed with
form 438BFUNS, or a similar endorsement acceptable to Beneficiary, showing
Beneficiary as an additional insured and loss payee as its interests may appear,
such loss payments to be applied to the restoration, repair or replacement of
the Mortgaged Property under terms and conditions acceptable to Beneficiary;
provided, however, that if an Event of Default has occurred and is continuing or
an event has occurred and is continuing which with the passage of time or the
giving of notice would constitute an Event of Default, then Beneficiary may, in
its sole discretion, apply such payments to the payment of the Indebtedness.
Trustor shall also maintain Commercial General Liability
insurance which shall respond to third-party claims involving bodily injury,
property damage and personal injury arising out of Trustor's alleged actions or
inactions; such policies shall also include Garagekeepers Legal Liability
coverage. All such policies shall provide limits of coverage as Beneficiary may
specify, but in any event not less than One Million Dollars ($1,000,000) per
occurrence and annual aggregate as to liability for bodily injury, property
damage and personal injury. No primary deductible or retention shall be called
for in the policies. Trustor shall also maintain, or cause its contractors to
maintain, Worker's Compensation and Employer's Liability insurance.
All insurance policies required by Beneficiary under this Deed of
Trust shall be issued by companies acceptable to Beneficiary, but in no event
shall the company(ies) have ratings in the current Best's Insurance Rating
Manual of less than "A/XI." All liability insurance policies shall be endorsed
as to name Beneficiary as an additional insured under the policy as respects its
interests as mortgagee/secured party of the Mortgaged Property. All policies of
insurance shall provide that the policies may not be cancelled, materially
modified or terminated without at least thirty (30) days' prior written notice
to Beneficiary. Trustor shall furnish to Beneficiary duplicate executed copies
of each such policy at the time of execution hereof, and copies of each renewal
policy not less than thirty (30) days prior to the expiration of the original
policy or the preceding renewal policy (as the case may be), together with
receipts or other evidence that the premiums have been paid; and furnish to
Beneficiary certificates of insurance prepared by Trustor's insurance broker or
agent which show evidence of the required coverages and endorsements, and
payment of premiums thereon. Trustor will furnish to Beneficiary on or before
120 days after the close of each fiscal year of Trustor a statement of Trustor
of the amounts of insurance maintained in compliance with this Section 5.1.4, of
the risks covered by such insurance and of the insurance company or companies
which carry such insurance. In the event insurance proceeds received on account
of loss or damage to the Buildings, Personalty or Fixtures are insufficient to
effectuate full repair or replacement of such loss or damage, Beneficiary may
apply such insurance proceeds in reduction of the Indebtedness without
prepayment premium, unless Trustor shall provide or cause to be provided
additional funds in an amount not less than such deficiency and Trustor shall
place in escrow said funds in order to assure to Beneficiary's reasonable
satisfaction full repair of the damaged or destroyed Mortgaged Property or
portion thereof.
7
<PAGE>
5.1.5 Restoration Following Casualty. In the event of the
------------------------------
happening of any casualty of any kind or nature (whether insured against or
not), resulting in damage to or destruction of the Mortgaged Property, Trustor
will give prompt notice thereof to Beneficiary, and, subject to the following
sentence, Trustor will promptly restore, repair, replace, rebuild or alter the
Mortgaged Property as nearly as possible to its value and condition immediately
prior to such damage or destruction.
In the event that the Mortgaged Property has been destroyed such that
the value of the Mortgaged Property has been materially impaired, even if
insurance proceeds are made available to Trustor to rebuild the damaged
property, then Beneficiary need not provide such insurance proceeds to Trustor
and may instead apply such insurance proceeds to prepay the Indebtedness in
whole.
5.1.6 Lease Agreement; Attornment. Trustor agrees not to
---------------------------
terminate, amend, or modify any of the Leases or subleases, or grant any
concessions in connection therewith, or to accept a surrender thereof without
the written consent of Beneficiary. All Leases shall be in form and substance
satisfactory to Beneficiary. Trustor agrees not to execute any future Lease or
Leases or subleases pertaining to the Mortgaged Property without the prior
written consent of Beneficiary. Trustor shall deliver to Beneficiary a complete
copy of each future Lease within 3 days after execution of such Lease. Trustor
shall provide to Beneficiary a subordination, attornment and non-disturbance
agreement executed by each tenant in a form satisfactory to Beneficiary in its
sole discretion.
5.1.7 Performance of Leases and Other Agreements. Trustor
------------------------------------------
will duly and punctually perform all covenants and agreements expressed as
binding upon it under the Leases and under any other agreements to which it is a
party with respect to the Mortgaged Property or any part thereof (including,
without limitation, all construction loan documents (other than the Loan
Agreement) relating to the Mortgaged Property, all sales agreements entered into
with respect to all or any portion of the Mortgaged Property), and will use its
best efforts to enforce or secure the performance of each and every obligation
and undertaking of the respective lessees under the Leases and will appear and
defend, at its cost and expense, any action or proceeding arising under or in
any manner connected with the Leases or the obligations and undertakings of any
lessee or other party thereunder. Trustor will immediately notify Beneficiary in
writing of any notice of default received by Trustor from any tenant thereunder.
5.1.8 Payment of Rents. Trustor hereby agrees that the
----------------
respective lessees under the Leases, upon notice from Beneficiary of the
occurrence of an Event of Default, shall thereafter pay to Beneficiary the Rents
due and to become due under the Leases without any obligation to determine
whether an Event of Default in fact exists.
5.1.9 Inspection. Trustor will permit Beneficiary, at all
----------
reasonable times and with reasonable notice, to inspect the Mortgaged Property.
Beneficiary shall have the right to enter onto the Mortgaged Property, at all
reasonable times, to inspect the Mortgaged Property for the existence of
Hazardous Materials (as defined in the Indemnity Agreement) on the Mortgaged
Property and to determine the compliance of the Mortgaged Property and its use
with any law, rule or regulation relating to industrial hygiene or environmental
conditions, including soil and ground water conditions and the compliance of the
Trustor and the Mortgaged Property with the conditions and covenants set forth
herein with respect to Hazardous Materials.
5.1.10 Hold Harmless. Trustor will indemnify, defend and hold
-------------
Beneficiary harmless from any liability, loss, action, proceeding or claim
affecting the Mortgaged Property, or the value of the Note or the Loan
Documents. Trustor shall appear in and defend (or pay the expenses of
Beneficiary to defend, if Beneficiary gives Trustor notice of its election to
handle such defense) any action or proceeding purporting to affect the security
of this Deed of Trust and/or the rights and/or powers of Beneficiary hereunder,
and Trustor shall pay all costs and expenses (including costs of evidence of
title and attorneys' fees) in any action or proceeding in which Beneficiary may
so appear and/or any suit by Beneficiary to foreclose this Deed of Trust, to
enforce any obligations secured by this Deed of Trust, and/or to prevent the
breach hereof. Trustor's obligations under this Section 5.1.10 shall survive
payment of the Indebtedness.
8
<PAGE>
5.1.11 Books and Records. Trustor will maintain full and
-----------------
complete books of account and other records reflecting the results of its
operations (in conjunction with its other operations as well as its operations
of the Mortgaged Property). If the Mortgaged Property consists of rental
property, Trustor will furnish or cause to be furnished to Beneficiary (a)
within 30 days after the end of each calendar quarter, detailed statements of
income and expenses relating to the Mortgaged Property for such period; (b)
within 90 days after the end of each calendar year, detailed statements of
income and expenses relating to the Mortgaged Property for such year; (c) within
30 days after the end of each calendar quarter, a rent roll for the Mortgaged
Property; and (d) within 30 days after the end of each calendar month, a
delinquency report and accounts receivable aging for the Mortgaged Property for
such month. If the Mortgaged Property consists of single-family lots or homes,
condominiums or other residential properties to be sold, Trustor will furnish or
will cause to be furnished to Beneficiary weekly written reports reflecting all
information relevant to the marketing and sale of such units, in such form as
Beneficiary may request. Within forty-five (45) days after the end of such
fiscal quarter of Trustor and within ninety (90) days after each fiscal year of
Trustor, Trustor will furnish or cause to be furnished to Beneficiary an income
statement, balance sheet and statement of changes in financial position for
Trustor. All financial information to be delivered to Beneficiary hereunder
shall in detail reasonably acceptable to Beneficiary, shall be prepared in
accordance with generally accepted accounting principles applied on a consistent
basis and, with respect to that information regarding Trustor, shall be
certified by the chief financial officer of Trustor as being true, correct and
complete. At any time more frequently than as specified above, and from time to
time, Trustor shall deliver to Beneficiary such other financial data and other
information, including, without limitation, copies of all Leases, as Beneficiary
shall, from time to time, reasonably request with respect to Trustor and the
ownership and operation of the Mortgaged Property, and Beneficiary shall have
the right, at reasonable times and upon reasonable notice, to audit Trustor's
books of account and records.
5.1.12 Awards. Trustor will file and prosecute its claim or
------
claims for any Awards in good faith and with due diligence and cause the same to
be collected and paid over to Beneficiary, and hereby irrevocably authorizes and
empowers Beneficiary, if its so desires, to file such claim and collect any
Awards and agrees that the proceeds of any Awards will be applied by Beneficiary
in reduction of any portion of the Indebtedness as Beneficiary may determine in
accordance with Article 8 hereof.
5.1.13 Licenses. Trustor shall keep in full force and effect
--------
all licenses, permits and other governmental approvals which are necessary for
the construction, marketing and operation of the Mortgaged Property and related
facilities, and furnish evidence satisfactory to Beneficiary that the Mortgaged
Property and the use thereof comply with all applicable zoning and building
laws, regulations, ordinances and other applicable laws.
5.1.14 No Further Encumbrance. Trustor shall not, without the
----------------------
prior written consent of Beneficiary, incur any additional indebtedness or
create or permit to be created or to remain, any mortgage, pledge, lien,
encumbrance or charge on, or conditional sale or other title retention agreement
with respect to, the Mortgaged Property or any part thereof or income therefrom,
other than the Loan Documents and the Permitted Encumbrances and except as
provided in Section 5.1.18 below.
5.1.15 Mechanic's Lien. Trustor shall not permit or suffer
---------------
any mechanic's, materialman's or other lien to be created or to remain a lien
upon any of the Mortgaged Property.
5.1.16 Management. If Trustor seeks to have the Mortgaged
----------
Property managed by a management company, the management company must be
approved by Beneficiary under a management contract satisfactory in form and
substance to Beneficiary. The interests of the Trustor and the management
company under such contract shall be subordinate to the rights of Beneficiary
hereunder, and the management agreement shall provide that Beneficiary may, at
its option, terminate such contract upon the occurrence of an Event of Default.
5.1.17 Use of Mortgaged Property. Trustor shall not use the
-------------------------
Mortgaged Property or any part thereof, or allow the same to be used or
occupied, for any purpose other than the uses for which the Mortgaged Property
is currently zoned, or for any unlawful purpose, or in violation of any
certificate of occupancy or other permit or certificate, or any law, ordinance
or regulation, covering or affecting the use or occupancy
9
<PAGE>
thereof. Trustor will not suffer any act to be done or any condition to exist on
the Mortgaged Property or any part thereof or any article to be brought thereon,
which may be dangerous (unless safeguarded as required by law) or which may
constitute a nuisance, public or private, or which may void or make voidable any
insurance then in force with respect thereto.
5.1.18 Transfer of Mortgaged Property. Trustor shall not,
------------------------------
without the prior written consent of Beneficiary, directly or indirectly sell,
transfer, convey, further encumber assign, grant any option, subordinate,
convert to condominiums or grant any further lien or easement on all or any part
of the Mortgaged Property, or enter into any agreement for any of the foregoing,
whether by operation of law recorded or unrecorded, or voluntarily or
involuntarily; provided, however, that if the Mortgaged Property consists of
single-family lots or homes, condominiums or other residential properties to be
sold, Trustor may accept sales reservations and enter into purchase and sales
contracts so long as such actions are consistent with the Loan Documents, all
rules and regulations of the California Department of Real Estate and all other
applicable laws, rules and regulations. Trustor shall promptly notify
Beneficiary in writing of any such intended event or agreement for which
Beneficiary's consent may be required.
5.2 Representations and Warranties of Trustor. Trustor hereby
-----------------------------------------
represents and warrants to Beneficiary as follows, and agrees to give written
notice to Beneficiary of any breach of such representations and warranties.
5.2.1 Good Standing/Licensing. Trustor is duly organized,
-----------------------
validly existing and in good standing under the laws of its state of
organization, is duly licensed or qualified to do business and is in good
standing and is authorized to do business in every jurisdiction in which the
nature of its businesses or properties makes such licensing or qualification
necessary and where a failure to so qualify or be licensed would have a
materially adverse effect on the business or operations of the Trustor, and is
in compliance with all laws, regulations, ordinances and orders of public
authorities applicable to Trustor; provided, however, that if Trustor is not in
good standing, Trustor represents that it has not been suspended in its state of
organization nor the State of California and that its failure to be in good
standing does not affect its right and power to enter into the Note and Loan
Documents and to consummate the transactions described therein. If Trustor is a
corporation or partnership, the execution of the Note and the Loan Documents are
within Trustor's corporate or partnership powers.
5.2.2 No Conflict. The Note and the Loan Documents will not
-----------
violate any provision of law (including, but not limited to any law relating to
usury), any order of any court or other agency or government, or any indenture,
agreement or other instrument to which Trustor is a party or by which Trustor or
any of its property is bound, or be in conflict with, result in a breach of or
constitute (with due notice and/or lapse of time) a default under any such
indenture, agreement or other instrument, or violate the partnership agreement
of the Trustor or result in the creation or imposition of any lien, charge or
encumbrance of any nature whatsoever upon any of the property or assets of
Trustor, except as contemplated by the Note and the Loan Documents, and no
action with respect thereto by Trustor is required.
5.2.3 Consents. No consent or approval of any regulatory
--------
body to the execution, delivery and performance of the Note and the Loan
Documents or the transactions contemplated thereby is required by law.
5.2.4 Suits. There are no suits, proceedings or
-----
investigations pending or threatened against or affecting Trustor, at law or in
equity, or before or by any governmental or administrative agency or
instrumentality which, if adversely determined, would have a material adverse
effect on the business or condition of Trustor.
5.2.5 Judgments. No judgment, decree or order of any court
---------
or governmental or administrative agency or instrumentality has been issued
against Trustor which has or may have any material adverse effect on the
business or condition of Trustor.
10
<PAGE>
5.2.6 Information. All information, reports, papers and data
-----------
given to Beneficiary with respect to Trustor or others obligated under the terms
of the Loan Documents are accurate and correct in all material respects and
complete insofar as completeness may be necessary to give Beneficiary a true and
accurate knowledge of the subject matter thereof.
5.2.7 Title/Right to Assign Leases. Trustor has good and
----------------------------
marketable title in fee simple to the Land and Buildings, and good and
marketable title to the Fixtures, the Escrow Account, the Awards and Personalty,
and the right to assign the Leases and Rents to Beneficiary free and clear of
any prior assignment, liens, charges, encumbrances, security interests and
adverse claims whatsoever except the Permitted Encumbrances.
5.2.8 Leases. Trustor has not executed any prior assignment
------
of the Leases or of its right, title and interest therein or in the Rents to
accrue thereunder, Trustor has delivered to Beneficiary a true and complete copy
of all of the existing Leases assigned hereunder, together with all amendments,
supplements and other modifications, and to the best of Trustor's knowledge, no
material default by Trustor or any other person under any existing Lease remains
uncured.
5.2.9 Permitted Encumbrances. The Permitted Encumbrances
----------------------
have not materially interfered with the operation of the Mortgaged Property, nor
does Trustor reasonably foresee any material interference arising from the
Permitted Encumbrances during the term of the Note. Without limiting the
foregoing, Trustor represents that it is not in default under the terms of any
liens that are secured by deeds of trust whose liens are junior to the lien of
this Deed of Trust.
5.2.10 Taxes. Trustor has filed all Federal, state, county
-----
and municipal income tax returns required to have been filed by them and have
paid all taxes which have become due pursuant to any assessments received by
them, and Trustor does not know of any basis for additional assessment in
respect to such taxes.
5.2.11 Use of Borrowed Funds. Trustor hereby represents and
---------------------
warrants to Beneficiary that it intends to use the funds it is borrowing from
Beneficiary under the terms of the Note primarily for other than personal,
family or household purposes.
5.2.12 Electromagnetic Fields. There are no electrical
----------------------
transformers or electrical stations or substations within 100 yards of any
portion of the Land.
ARTICLE 6
EVENTS OF DEFAULT
-----------------
The term "Event(s) of Default", as used herein and in the Loan
Documents and the Note, shall mean the occurrence or happening, from time to
time, of any one or more of the following:
6.1 Payment of Indebtedness. If Trustor shall default in the due and
-----------------------
punctual payment of all or any portion of any installment of the Indebtedness,
whether at the due date thereof or by acceleration or otherwise, as and when the
same shall become due and payable and such failure continues for a period of
five (5) days.
6.2 Performance of Obligations. If Trustor shall default in the due
--------------------------
observance or performance of any of the Obligations other than payment of money
and such default shall not be cured within twenty (20) days after such default.
6.3 Bankruptcy, Receivership, Insolvency, Etc. If voluntary or
------------------------------------------
involuntary proceedings under the Federal Bankruptcy Code, as amended, shall be
commenced by or against Trustor or the general partner of Trustor (if any), or
bankruptcy, receivership, insolvency, reorganization, dissolution, liquidation
or other similar proceedings shall be instituted by or against Trustor or the
general partner of Trustor (if any) with respect to all or
11
<PAGE>
any part of Trustor's property or the property of the general partner of Trustor
under the Federal Bankruptcy Code, as amended, or other law of the United States
or of any state or other competent jurisdiction, and if such proceedings are
instituted against Trustor or the general partner of Trustor (if any) and it
shall consent thereto or shall fail to cause the same to be discharged within
sixty (60) days.
6.4 Laws Affecting Obligations and Indebtedness. If subsequent to
-------------------------------------------
the date of this Deed of Trust, any governmental entity in which the Mortgaged
Property is located passes any law (a) which renders payment of the Indebtedness
and/or performance of the Obligations by Trustor unlawful, or (b) which
prohibits Beneficiary from exercising any of its rights and remedies under the
Note and Loan Documents.
6.5 False Representation. If any representation or warranty made by
--------------------
Trustor or others in, under or pursuant to the Note or the Loan Documents
(including, but not
limited to, any representation or warranty made in Section 5.2 hereof) shall
prove to have been false or misleading in any material respect as of the date on
which such representation or warranty was made.
6.6 Destruction of Improvements. If any of the Buildings is
---------------------------
demolished or removed or demolition or removal thereof is imminent, eminent
domain proceedings excepted.
6.7 Default Under Other Deed of Trust. If the holder of any senior
---------------------------------
or junior deed of trust or any other lien on the Mortgaged Property (without
hereby implying Beneficiary's consent to any such junior deed of trust or lien)
institutes foreclosure or other proceedings for the enforcement of its remedies
thereunder, or if a default exists under any other deed of trust or lien on the
Mortgaged Property or any documents that evidence or relate to the loans secured
by any of the foregoing deeds of trust or liens.
6.8 Loan Documents. If a default shall occur under the Note or any
--------------
of the Loan Documents.
6.9 Due on Sale. If, without the prior written consent of
-----------
Beneficiary, (a) there is any sale, transfer, assignment, conveyance or
encumbrance, whether voluntary or involuntary, of all or part of the Mortgaged
Property or any interest therein or any other event or agreement referred to in
Section 5.1.18, (b) Trustor or any one or more of the persons comprising Trustor
is a partnership and the interest of any general partner (or the interest of any
general partner in a partnership that is a partner) is assigned or transferred,
except for an assignment or transfer resulting from the death or physical or
mental incapacity of a general partner; (c) Trustor or any one or more of the
persons comprising Trustor is a partnership and more than twenty-five percent
(25%) of the corporate stock of any corporation that is a general partner of
such partnership is sold, transferred or assigned; (d) change in ownership
(including the hypothecation or encumbrance thereof) of a majority of the stock
of Trustor held by Ira Norris; (e) Trustor is a trust and there is a change in
beneficial ownership with respect to more than twenty-five percent (25%) of the
trust; (f) Trustor consists of several persons or entities holding fractional
undivided interest in the Mortgaged Property and there is a cumulative change in
ownership with respect to more than a twenty-five percent (25%) fractional
undivided interest in the Mortgaged Property; (g) there is a seizure of the
Mortgaged Property, or attachment of any lien on the Mortgaged Property, whether
voluntary or involuntary, which has not been removed or bonded off to
Beneficiary's satisfaction within thirty (30) days of such attachment; or (h)
there is a change in the controlling executives and directors of Trustor.
6.10 Judgment. If a final judgment for the payment of money in excess
--------
of Ten Thousand Dollars ($10,000) shall be rendered against Trustor and the same
shall remain unpaid for a period of thirty (30) consecutive days during which
period execution shall not be effectively stayed.
6.11 Palmdale Vistas Deed of Trust. If there should occur any Event
-----------------------------
of Default under that certain Deed of Trust, Security Agreement, Assignment of
Leases and Rents, and Fixture Filing dated of even date herewith given by Inco
Development Corporation, a California corporation ("Inco Development"), as
trustor, for the benefit of Beneficiary and encumbering certain real property
located in Palmdale, Los Angeles County, California (the "Palmdale Deed of
Trust"). Inco Development has given the Palmdale Deed of Trust as additional
security for the Indebtedness and Obligations.
ARTICLE 7
DEFAULT AND FORECLOSURE
-----------------------
12
<PAGE>
7.1 Remedies. If an Event of Default shall occur, Beneficiary may,
--------
at its option, by or through Trustee or otherwise, exercise one or more or all
of the following remedies:
7.1.1 Acceleration. Declare the unpaid portion of the
------------
Indebtedness to be immediately due and payable, without further notice or demand
(each of which hereby is expressly waived by Trustor), whereupon the same shall
become immediately due and payable.
7.1.2 Entry on Mortgaged Property. Enter upon the Mortgaged
---------------------------
Property and take possession thereof and of all books, records, and accounts
relating thereto.
7.1.3 Operation of Mortgaged Property. Hold, lease, operate
-------------------------------
or otherwise use or permit the use of the Mortgaged Property, or any portion
thereof, in such manner, for such time and upon such terms as Beneficiary may
deem to be in its best interest (making such repairs, alterations, additions and
improvements thereto, from time to time, as Beneficiary shall deem necessary or
desirable) and collect and retain all earnings, rents, profits or other amounts
payable in connection therewith.
7.1.4 Judicial Proceedings. Institute proceedings for the
--------------------
complete or partial foreclosure of this Deed of Trust or 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 (without being required to foreclose 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 elect.
7.1.5 Sale of Mortgaged Property. Cause the Mortgaged
--------------------------
Property and all estate, right, title and interest, claim and demand therein, or
any part thereof to be sold as follows:
(a) Beneficiary may proceed as if all of the
Mortgaged Property were real property, in accordance with subparagraph (d)
below, or Beneficiary may elect to treat any of the Mortgaged Property which
consists of a right in action or which is property that can be severed from the
premises without causing structural damage thereto as if the same were personal
property, and dispose of the same in accordance with subparagraph (c) below,
separate and apart from the sale of real property, with the remainder of the
Mortgaged Property being treated as real property.
(b) Beneficiary may cause any such sale or other
disposition to be conducted immediately following the expiration of any grace
period, if any, herein provided (or required by law) or Beneficiary may delay
any such sale or other disposition for such period of time as Beneficiary deems
to be in its best interest. Should Beneficiary desire that more than one such
sale or other disposition be conducted, Beneficiary may at its option, cause the
same to be conducted simultaneously, or successively on the same day, or at such
different days or times and in such order as Beneficiary may deem to be in its
best interest.
(c) Should Beneficiary elect to cause any of the
Mortgaged Property to be disposed of as personal property as permitted by
subparagraph (a) above, it may dispose of any part thereof in any manner now or
hereafter permitted by Division 9 of the UCC or in accordance with any other
remedy provided by law. Both Trustor and Beneficiary shall be eligible to
purchase any part of all of such property at any such disposition. Any such
disposition may be either public or private as Beneficiary may so elect, subject
to the provisions of the UCC. Beneficiary shall give Trustor at least five (5)
days prior written notice of the time and place of any public sale or other
disposition of such property or of the time at or after which any private sale
or any other intended disposition is to be made, and if such notice is sent to
Trustor it shall constitute reasonable notice to Trustor.
(d) Should Beneficiary elect to sell the Mortgaged
Property which is real property or which Beneficiary has elected to treat as
real property, upon such election Beneficiary or Trustee shall give such Notice
of Default and Election to Sell as may then be required by law. Thereafter, upon
the expiration of such time and the giving of such Notice of Sale as may then be
required by law, Trustee, at the time and place specified in the Notice of Sale,
shall sell such Mortgaged Property, or any portion thereof specified by
13
<PAGE>
Beneficiary, at public auction to the highest bidder for cash in lawful money of
the United States, subject, however, to the provisions of Section 7.1.5(e)
hereof. Trustee for good cause may, and upon request of Beneficiary shall, from
time to time, postpone the sale by public announcement thereof at the time and
place noticed therefor. If the Mortgaged Property consists of several lots or
parcels, Beneficiary may designate the order in which such lots or parcels may
be offered for sale or sold, and may direct that such property be sold in one
parcel, as an entirety, or in such parcels as Beneficiary, in its sole
discretion, may elect. Trustor expressly waives any right which it may have to
direct the order in which any of the Mortgaged Property shall be sold, and its
rights, if any, to require the Mortgaged Property be sold as separate tracts,
lots, units, or parcels. Any person, including Trustor, Trustee or Beneficiary,
may purchase at the sale. Upon any sale Trustee shall execute and deliver to the
purchaser or purchasers a deed or deeds conveying the property so sold, but
without any covenant or warranty whatsoever, express or implied, whereupon such
purchaser or purchasers shall be let into immediate possession.
(e) Upon any sale of the Mortgaged Property,
whether made under a power of sale herein granted or pursuant to judicial
proceedings, if the holder of the Note is a purchaser at such sale, it shall be
entitled to use and apply all or any portion of the indebtedness then secured
hereby for or in settlement or payment of all or any portion of the purchase
price of the property purchased, and, in such case, this Deed of Trust, the Note
and documents evidencing expenditures secured hereby shall be presented to the
person conducting the sale in order that the amount of said indebtedness so used
or applied may be credited thereon as having been paid.
(f) In the event of a sale or other disposition of
any such Mortgaged Property or any part thereof, and the execution of a deed or
other conveyance pursuant thereto, the recitals in the deed or deeds of facts
(such as of a default, the giving of notice of default and notice of sale,
demand that such sale should be made, postponement of sale, terms of sale, sale,
purchaser, payment of purchase money, and any other fact affecting the
regularity or validity of such sale or disposition) shall be conclusive proof of
the truth of such facts; and any such deed or conveyance shall be conclusive
against all persons as to such facts recited therein.
7.1.6 Receiver. Beneficiary shall be entitled, as a matter
--------
of strict right, without notice and ex parte, and without regard to the value or
occupancy of the security, or the solvency of the Trustor, or the adequacy of
the Mortgaged Property as security for the Note, to have a receiver appointed to
enter upon and take possession of the Mortgaged Property, collect the Rents and
profits therefrom and apply the same as the court may direct, such receiver to
have all the rights and powers permitted under the laws of the jurisdiction in
which the Mortgaged Property is located. Trustor hereby waives any requirements
on the receiver or Beneficiary to post any surety or other bond. Beneficiary or
the receiver may also take possession of, and for these purposes use, any and
all Personalty which is a part of the Mortgaged Property and used by Trustor in
the rental or leasing thereof or any part thereof. The expense (including the
receiver's fees, counsel fees, costs and agent's compensation) incurred pursuant
to the powers herein contained shall be secured by this Deed of Trust.
Beneficiary shall (after payment of all costs and expenses incurred) apply such
Rents, issues and profits received by it on the Indebtedness in the order set
forth in Section 7.7 hereof. The right to enter and take possession of the
Mortgaged Property, to manage and operate the same, and to collect the Rents,
issues and profits thereof, whether by receiver or otherwise, shall be
cumulative to any other right or remedy hereunder or afforded by law, and may be
exercised concurrently therewith or independently thereof. Beneficiary shall be
liable to account only for such Rents, issues and profits actually received by
Beneficiary.
7.1.7 Additional Rights and Remedies. With or without
------------------------------
notice, and without releasing Trustor from the Indebtedness or Obligations, and
without becoming a mortgagee in possession, Beneficiary and Trustee shall have
the right to cure any breach or default of Trustor and, in connection therewith,
to enter upon the Mortgaged Property and to do such acts and things as
Beneficiary or Trustee deem necessary or desirable to protect the security
hereof including, but without limitation, to appear in and defend any action or
proceedings purporting to affect the security hereof or the rights or powers of
Beneficiary or Trustee hereunder; to pay, purchase, contest or compromise any
encumbrance, charge, lien or claim of lien which, in the judgment of either
Beneficiary or Trustee, is prior or superior hereto, the judgment of Beneficiary
or Trustee being conclusive as between the parties hereto; to obtain insurance;
to pay any premiums or charges with respect to insurance required to be carried
hereunder; and to employ counsel, accountants, contractors and other appropriate
persons to assist
14
<PAGE>
them. All sums so paid by Beneficiary, and all costs and expenses, including,
without limitation, reasonable attorneys' fees and expenses so incurred together
with interest thereon at the interest rate provided in the note, from the date
of payment or incurring, shall constitute additions to the Indebtedness secured
by the Loan Documents, and shall be paid by Trustor to Beneficiary, on demand.
If Beneficiary shall elect to pay any Imposition, Beneficiary may do so in
reliance on any bill, statement or assessment procured from the appropriate
public office, without inquiring into the accuracy thereof or into the validity
of such Imposition. Trustor shall indemnify Beneficiary for all losses and
expenses, including reasonable attorneys' fees, incurred by reason of any acts
performed by Beneficiary pursuant to the provisions of this Section 7.1.7 or by
reason of the Loan Documents, and any funds expended by Beneficiary to which it
shall be entitled to be indemnified, together with interest thereon at the
interest rate provided in the Note from the date of such expenditures, shall
constitute additions to the Indebtedness and shall be secured by the Loan
Documents and shall be paid by Trustor to Beneficiary upon demand.
7.1.8 Other. Exercise any other remedy specifically granted
-----
under the Note and the Loan Documents, or now or hereafter existing in equity,
at law, by virtue of statute or otherwise, including the rights described below.
7.1.9 Late Charge and Default Interest. Impose the late
--------------------------------
charges and the default interest rate as provided for in the Note.
7.2 Separate Sales. Any real property or any interest or estate
--------------
therein sold pursuant to any writ of execution issued on a judgment obtained by
virtue of the Note, this Deed of Trust or the other Loan Documents, or pursuant
to any other judicial proceedings under this Deed of Trust or the other Loan
Documents, or pursuant to the power of sale granted herein, may be sold in one
parcel, as an entirety, or in such parcels, and in such manner or order as
Beneficiary, in its sole discretion, may elect. Without limiting the foregoing,
Beneficiary may foreclose, either judicially or non-judicially, under the
Palmdale Deed of Trust either prior to, concurrently with or after completing a
judicial or non-judicial foreclosure under this Deed of Trust.
7.3 Remedies Cumulative and Concurrent. The rights and remedies of
----------------------------------
Beneficiary as provided in the Note, this Deed of Trust and in the Loan
Documents shall be cumulative and concurrent and may be pursued separately,
successively or together against Trustor or against other obligors or against
the Mortgaged Property, or any one or more of them, at the sole discretion of
Beneficiary, and may be exercised as often as occasion therefor shall arise.
The failure to exercise any such right or remedy shall in no event be construed
as a waiver or release thereof, nor shall the choice of one remedy be deemed an
election of remedies to the exclusion of other remedies.
7.4 No Cure or Waiver. Neither Beneficiary's nor Trustee's nor any
-----------------
receiver's entry upon and taking possession of all or any part of the Mortgaged
Property nor any collection of rents, issues, profits, insurance proceeds,
condemnation proceeds or damages, other security or proceeds of other security,
or other sums, nor the application of any collected sum to any Indebtedness and
Obligations, nor the exercise of any other right or remedy by Beneficiary or
Trustee or any receiver shall impair the status of the security, or cure or
waive any default or notice of default under this Deed of Trust, or nullify the
effect of any notice of default or sale (unless all Indebtedness and Obligations
which are then due have been paid and performed and Trustor has cured all other
defaults), or prejudice Beneficiary or Trustee in the exercise of any right or
remedy, or be construed as an affirmation by Beneficiary of any tenancy, lease
or option or a subordination of the lien of this Deed of Trust.
7.5 Payment of Costs, Expenses and Attorneys Fees. Trustor agrees to
---------------------------------------------
pay to Beneficiary immediately and without demand all costs and expenses
incurred by Trustee and Beneficiary in exercising the remedies under the Note
and Loan Documents (including but without limitation, court costs and attorneys'
fees, whether incurred in litigation or not) with interest at the greater of the
interest rate provided in the Note or the highest rate payable under any
Indebtedness and Obligations, from the date of expenditure until said sums have
been paid. Beneficiary shall be entitled to bid, at the sale of the Mortgaged
Property held pursuant to the power of sale granted herein or pursuant to any
judicial foreclosure of this instrument, the amount of said costs, expenses and
interest in addition to the amount of the other Indebtedness and Obligations as
a credit bid, the equivalent of cash.
15
<PAGE>
7.6 Waiver of Redemption, Notice, Marshalling, Etc. Trustor hereby
-----------------------------------------------
waives and releases (a) all benefit that might accrue to Trustor by virtue of
any present or future law exempting the Mortgaged Property, or any part of the
proceeds arising from any sale thereof, from attachment, levy or sale on
execution, or providing for any redemption or extension of time for payment, (b)
unless specifically required herein, all notices of Trustor's default or of
Beneficiary's election to exercise, or Beneficiary's actual exercise, of any
option or remedy under the Note or the Loan Documents; (c) any right to have the
liens against the Mortgaged Property marshaled; and (d) the right to plead or
assert any statute of limitations as a defense or bar to the enforcement of the
Note or the Loan Documents.
7.7 Application of Proceeds. The proceeds of any sale of all or any
-----------------------
portion of the Mortgaged Property and the amounts generated by any holding,
leasing, operation or other use of the Mortgaged Property shall be applied by
Beneficiary in the following order, or in such other order or proportion as
Beneficiary shall decide in its sole discretion:
(a) first, to the payment of the costs and expenses of taking
possession of the Mortgaged Property and of holding, using, leasing, repairing,
improving and selling the same (including without limitation payment of any
Impositions or other taxes);
(b) second, to the extent allowed by law, to the payment of
attorneys' fees and other legal expenses, including expenses and fees incurred
on appeals, and legal expenses and fees of a receiver;
(c) third, to the payment of all amounts advanced under this Deed
of Trust or any other Loan Document (except for the Indemnity Agreement) to
preserve the value of the Mortgaged Property;
(d) fourth, to the payment of late charges and accrued and unpaid
interest on the Indebtedness;
(e) fifth, to the payment of the unpaid balance of the
Indebtedness (except for that portion of the Indebtedness that arises out of the
Indemnity Agreement); and
(f) sixth, to the payment of any amounts owing to Beneficiary or
the other Indemnified Parties (as defined in the Indemnity Agreement) under the
Indemnity Agreement.
The balance, if any, shall be paid to the parties entitled to
receive it.
7.8 Strict Performance. Any failure by Beneficiary to insist upon
------------------
strict performance by Trustor of any of the terms and provisions of the Loan
Documents, or of the Note shall not be deemed to be a waiver of any of the terms
or provisions of the Loan Documents, or the Note and Beneficiary shall have the
right thereafter to insist upon strict performance by Trustor of any and all of
them.
7.9 No Conditions Precedent to Exercise of Remedies. Neither Trustor
-----------------------------------------------
nor any other person now or hereafter obligated for payment of all or any part
of the Indebtedness shall be relieved of such obligation by reason of the
failure of Beneficiary to comply with any request of Trustor or of any other
person so obligated to take action to foreclose on this Deed of Trust or
otherwise enforce any provisions of the Loan Documents or the Note, or by reason
of the release, regardless of consideration, of all or any part of the security
held for the Indebtedness, or by reason of any agreement or stipulation between
any subsequent owner of the Mortgaged Property and Beneficiary extending the
account of the occurrence of an Event of Default, including but not limited to
any transfer or disposition as prohibited by Sections 5.1.14 and 5.1.18.
7.10 Environmental Default and Remedies. In the event that any
----------------------------------
portion of the Mortgaged Property is determined to be "environmentally impaired"
(as "environmentally impaired" is defined in California Code of Civil Procedure
Section 726.5(e)(3)) or to be an "affected parcel" (as "affected parcel" is
defined in California Code of Civil Procedure Section 726.5(e)(1)), then,
without otherwise limiting or in any way affecting Beneficiary's or Trustee's
rights and remedies under this Deed of Trust, Beneficiary may elect to exercise
its right
16
<PAGE>
under California Code of Civil Procedure Section 726.5(a) to (1) waive its lien
on such environmentally impaired or affected portion of the Mortgaged Property
and (2) exercise (i) the rights and remedies of an unsecured creditor, including
reduction of its claim against Trustor to judgment, and (ii) any other rights
and remedies permitted by law. For purposes of determining Beneficiary's right
to proceed as an unsecured creditor under California Code of Civil Procedure
Section 726.5(a), Trustor shall be deemed to have willfully permitted or
acquiesced in a release or threatened release of hazardous materials, within the
meaning of California Code of Civil Procedure Section 726.5(d)(1), if the
release or threatened release of hazardous materials was knowingly or
negligently caused or contributed to by any lessee, occupant or user of any
portion of the Mortgaged Property and Trustor knew or should have known of the
activity by such lessee, occupant or user which caused or contributed to the
release or threatened release. All costs and expenses, including, but not
limited to, attorneys' fees, incurred by Beneficiary in connection with any
action commenced under this Section 7.10, including any action required by
California Code of Civil Procedure Section 726.5(b) to determine the degree to
which the Mortgaged Property is environmentally impaired, plus interest thereon
at the interest rate provided in the Note until paid, shall be added to the
Indebtedness secured by this Deed of Trust and shall be due and payable to
Beneficiary upon its demand made at any time following the conclusion of such
action.
ARTICLE 8
CONDEMNATION
------------
8.1 Condemnation. Trustor hereby assigns, transfers and sets over to
------------
Beneficiary all rights of Trustor to any award or payment in respect of (a) any
taking of all or a portion of the Mortgaged Property as a result of, or by
agreement in anticipation of, the exercise of the right of condemnation or
eminent domain; (b) any such taking of any appurtenances to the Mortgaged
Property or of vaults, areas or projections outside the boundaries of the
Mortgaged Property, or rights in, under or above the alleys, streets or avenues
adjoining the Mortgaged Property, or rights and benefits of light, air, view or
access to said alleys, streets, or avenues or for the taking of space or rights
therein, below the level of, or above the Mortgaged Property; and (c) any damage
to the Mortgaged Property or any part thereof due to governmental action, but
not resulting in, a taking of any portion of the Mortgaged Property, such as,
without limitation, the changing of the grade of any street adjacent to the
Mortgaged Property. Trustor hereby agrees to file and prosecute its claim or
claims for any such award or payment in good faith and with due diligence and
cause the same to be collected and paid over to Beneficiary, and hereby
irrevocably authorizes and empowers Beneficiary, in the name of Trustor or
otherwise, to collect and receipt for any such award or payment and, in the
event Trustor fails to act, or in the event that an Event of Default has
occurred and is continuing, to file and prosecute such claim or claims.
8.2 Application of Proceeds. All proceeds received by Beneficiary
-----------------------
with respect to a taking of all or any part of the Mortgaged Property or with
respect to damage to all or any part of the Mortgaged Property from governmental
action not resulting in a taking of the Mortgaged Property, shall be applied as
follows, in the order of priority indicated or in such other order or proportion
as Beneficiary shall decide in its sole discretion:
(a) to reimburse Beneficiary for all costs and expenses,
including reasonable attorneys' fees incurred in connection with collecting the
said proceeds;
(b) to the payment of late charges, if any, owing under the Note
or the Loan Documents;
(c) to the payment of accrued and unpaid interest on the Note;
(d) to the prepayment of the unpaid principal of the Note,
without premium;
(e) to the payment of the balance of the Indebtedness; and
(f) to the payment of any amounts owing to Beneficiary or the
other Indemnified Parties (as defined in the Indemnity Agreement) under the
Indemnity Agreement.
The balance, if any, will be paid to Trustor.
17
<PAGE>
ARTICLE 9
MISCELLANEOUS
-------------
9.1 Further Assurances. Trustor, upon the reasonable written request
------------------
of Beneficiary, will execute, acknowledge and deliver, or arrange for the
execution, acknowledgment and delivery of, such further instruments (including,
without limitation, financing statements, estoppel certificates and declarations
of no set-off, attornment agreements and acknowledgments of the Assignment) and
do such further acts as may be necessary, desirable or proper to carry out more
effectively the purpose of the Loan Documents, to facilitate the assignment or
transfer of the Note and the Loan Documents and to subject to the liens of the
Loan Documents any property intended by the terms thereof to be covered thereby,
and any renewals, additions, substitutions, replacements or betterments thereto.
Upon any failure of Trustor to execute and deliver such instruments,
certificates and other documents on or before fifteen (15) days after receipt of
written request therefor, Beneficiary may make, execute and record any and all
such instruments, and certificates and Trustor irrevocably appoints Beneficiary
the agent and attorney-in-fact of Trustor to do so.
9.2 Recording and Filing. Trustor, at its expense, will cause the
--------------------
Loan Documents, all supplements thereto and any financing statements at all
times to be recorded and filed and re-recorded and re-filed in such manner and
in such places as Beneficiary shall reasonably request, and will pay all such
recording, filing, re-recording and re-filing taxes, fees and other charges.
9.3 Notice. Trustor hereby requests that a copy of any notice of
------
default and every notice of sale hereunder be mailed to it as provided by law at
the Trustor's Address. All notices, demands, requests and other communications
required under the Loan Documents and the Note shall be in writing and shall be
deemed effective (i) upon mailing by U.S. certified or registered mail, postage
prepaid, addressed to the party for whom it is intended at the Trustor's Address
or the Trustee's Address, as the case may be, or in the case of notices to
Beneficiary, to Beneficiary at the Beneficiary's Address, or (ii) upon receipt,
if personally delivered or sent by facsimile. Any party may designate a change
of address or facsimile number by written notice to the other, given at least 10
business days before such change of address is to become effective. Trustor
may, from time to time, change the address to which notice of default and notice
of sale hereunder shall be sent by both recording a request therefor and sending
a copy of such request to Beneficiary.
9.4 Beneficiary's Right to Perform the Obligations. If Trustor shall
----------------------------------------------
fail to make any payment or perform any act required by the Note or the Loan
Documents, then, at any time thereafter, without notice to or demand upon
Trustor and without waiving or releasing any obligation or default, Beneficiary
may make such payment or perform such act for the account of and at the expense
of Trustor, and shall have the right to enter the Mortgaged Property for such
purpose and to take all such action thereon and with respect to the Mortgaged
Property as may be necessary or appropriate for such purpose. All sums so paid
by Beneficiary, and all costs and expenses, including, without limitation,
reasonable attorneys' fees and expenses so incurred together with interest
thereon at the interest rate provided in the Note, from the date of payment or
incurring, shall constitute additions to the Indebtedness secured by the Loan
Documents, and shall be paid by Trustor to Beneficiary, on demand. If
Beneficiary shall elect to pay any Imposition, Beneficiary may do so in reliance
on any bill, statement or assessment procured from the appropriate public
office, without inquiring into the accuracy thereof or into the validity of such
Imposition. Trustor shall indemnify Beneficiary for all losses and expenses,
including reasonable attorneys' fees, incurred by reason of any acts performed
by Beneficiary pursuant to the provisions of this Section 9.4 or by reason of
the Loan Documents, and any funds expended by Beneficiary to which it shall be
entitled to be indemnified, together with interest thereon at the interest rate
provided in the Note from the date of such expenditures, shall constitute
additions to the Indebtedness and shall be secured by the Loan Documents and
shall be paid by Trustor to Beneficiary upon demand.
9.5 Covenants Running with the Land. All covenants contained in the
-------------------------------
Loan Documents shall run with the Mortgaged Property.
9.6 Severability. In case the Indebtedness or any one or more of the
------------
Obligations shall be invalid, illegal or unenforceable in any respect, the
validity of the Note, this Deed of Trust, the Loan Documents, the
18
<PAGE>
Indemnity Agreement and remaining Indebtedness or Obligations shall be in no way
affected, prejudiced or disturbed thereby.
9.7 Modification. The Loan Documents and the terms of each of them
------------
may not be changed, waived, discharged or terminated orally, but only by an
instrument or instruments in writing signed by the party against which
enforcement of the change, waiver, discharge or termination is asserted.
9.8 Due on Sale. The loan evidenced by the Note and secured by this
-----------
Deed of Trust is personal to Trustor, and Beneficiary made such loan to Trustor
based upon the credit of Trustor and Beneficiary's judgment of the ability of
Trustor to repay the entire Indebtedness and therefore this Deed of Trust may
not be assumed by any subsequent holder of an interest in the Mortgaged Property
without Beneficiary's prior written consent.
9.9 Tax on Indebtedness or Deed of Trust. In the event of the
------------------------------------
passage, after the date of this Deed of Trust, of any law deducting from the
value of land for the purposes of taxation, any lien thereon, or imposing upon
Beneficiary the obligation to pay the whole, or any part, of the taxes or
assessments or charges or liens herein required to be paid by Trustor, or
changing in any way the laws relating to the taxation of deeds of trust,
mortgages or debts as to affect the Deed of Trust or the Indebtedness, the
entire unpaid balance of the Indebtedness shall, at the option of Beneficiary,
after thirty (30) days written notice to Trustor, become due and payable;
provided, however, that if, in the opinion of Beneficiary's counsel, it shall be
lawful for Trustor to pay such taxes, assessments, or charges, or to reimburse
Beneficiary therefor, then there shall be no such acceleration of the time for
payment of the unpaid balance of the Indebtedness if a mutually satisfactory
agreement for reimbursement, in writing, is executed by Trustor and delivered to
Beneficiary within the aforesaid period.
9.10 Maximum Rate of Interest. Notwithstanding any provision in this
------------------------
Deed of Trust, or in any instrument now or hereafter relating to or securing the
Indebtedness evidenced by the Note, the total liability for payments of interest
and payments in the nature of interest, including, without limitation, all
charges, fees, exactions, or other sums which may at any time be deemed to be
interest, shall not exceed the limit, if any, imposed by Beneficiary by
applicable usury laws. In the event the total liability for payments of
interest and payments in the nature of interest, including, without limitation,
all charges, fees, exactions, or other sums which may at any time be deemed to
be interest, shall for any reason whatsoever, result in an effective rate of
interest, which for any month or other interest payment period exceeds the limit
imposed by the applicable usury laws, all sums in excess of those lawfully
collectible as interest for the period in question shall, without further
agreement or notice by, between, or to any party hereto, be applied to the
reduction of the Indebtedness immediately upon receipt of such sums by
Beneficiary, with the same force and effect as though Trustor had specifically
designated such excess sums to be so applied to the reduction of the
Indebtedness and Beneficiary had agreed to accept such sums as a payment of the
Indebtedness not subject to any prepayment penalty, provided, however, that
Beneficiary may, at any time and from time to time, elect, by notice in writing
to Trustor, to waive, reduce, or limit the collection of any sums (or refund to
Trustor any sums collected) in excess of those lawfully collectible as interest
rather than accept such sums as a prepayment of the Indebtedness.
9.11 Survival of Warranties and Covenants. The warranties,
------------------------------------
representations, covenants and agreements set forth in the Loan Documents shall
survive the making of the loan and the execution and delivery of the Note, and
shall continue in full force and effect until the Indebtedness and Obligations
shall have been paid and performed in full. Notwithstanding the foregoing, (i)
the obligations specified in Section 5.1.10 hereof, (ii) the obligations under
the Indemnity Agreement, and (iii) any other obligation contained in the Note or
the Loan Documents that expressly so provides, shall survive the full payment
and performance of the Indebtedness and Obligations.
9.12 Applicable Law. This instrument and the rights and obligations
--------------
of the parties hereunder shall be governed by and construed in accordance with
the laws of the State of California.
9.13 Loan Expenses. Trustor shall pay all costs and expenses in
-------------
connection with the preparation, execution, delivery and performance of the Note
and the Loan Documents and the transactions contemplated thereby, including (but
not limited to) costs and fees incurred by Beneficiary's independent inspector,
19
<PAGE>
fees and disbursements of its and Beneficiary's counsel, broker's fees, costs
and expenses of procuring any environmental audits required to be procured by
Trustor, recording costs and expenses, conveyance fees, documentary stamp,
intangible and other taxes, and costs and expenses of surveys, appraisals and
policies of title insurance, physical damage insurance, and liability insurance.
9.14 Substitution of Trustee. Beneficiary, acting alone, may, from
-----------------------
time to time, by instrument in writing, substitute a successor or successors to
any Trustee named herein or acting hereunder. Such instrument, executed,
acknowledged and recorded in the manner required by law, shall be conclusive
proof of proper substitution of such successor Trustee or Trustees, who shall
(without conveyance from the preceding Trustee) succeed to all of the title,
estate, rights, powers and duties of such preceding Trustee. Such instrument
shall contain the name of the original Trustor, Trustee and Beneficiary
hereunder, the book and page or instrument number where this Deed of Trust is
recorded and the name and address of the new Trustee. If a notice of default
has been recorded, this power of substitution cannot be exercised until after
the costs, fees, and expenses, of the then acting Trustee have been paid to such
Trustee, who shall endorse receipt thereof upon such instrument of substitution.
9.15 No Representations by Beneficiary. By accepting or approving
---------------------------------
anything required to be observed, performed or fulfilled or to be given to
Beneficiary, pursuant to the Loan Documents, including (but not limited to) any
officer's certificate, survey, appraisal or insurance policy, Beneficiary 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 be or
constitute any warranty or representation with respect thereto by Beneficiary.
9.16 Acceptance of Trust. Trustee accepts the Trust created by this
-------------------
Deed of Trust when this Deed of Trust, duly executed and acknowledged, is made a
public record a provided by law.
9.17 Waiver of Statute of Limitations and Rights to Trial by Jury.
------------------------------------------------------------
The pleading of any statute of limitations as a defense to any and all
obligations secured by this Deed of Trust and the right to a jury trial in any
action under or relating to the Loan Documents is hereby waived, to the fullest
extent allowed by law.
9.18 Partial Reconveyance. Upon the prior written request by Trustor
--------------------
to Beneficiary requesting that a portion of the Mortgaged Property that
constitutes a separate legal parcel (hereinafter referred to as a "Parcel") be
reconveyed, Beneficiary shall cause such Parcel(s) to be released from the lien
of this Deed of Trust by depositing a request for such reconveyance into an
escrow opened by or for Trustor in connection with the sale or refinance of such
Parcel(s) provided that:
-------- ----
(a) No Event of Default has occurred and is continuing and
no event has occurred which, with notice or lapse of time or both, would
constitute an Event of Default;
(b) Beneficiary is paid the "Release Price" for such
Parcel, as that term is defined in the Note;
(c) Trustor shall be responsible for obtaining (and
providing evidence of such to Beneficiary's satisfaction) all governmental
approvals which may be required in order that the reconveyance or a subsequent
foreclosure of the Mortgaged Property remaining subject to the lien of this Deed
of Trust will not result in a disposition of property constituting a violation
of any ordinance, law or regulation of any public authority relating to the
subdivision, development or sale or resale of real property;
(d) Beneficiary shall not be required to direct Trustee to
reconvey any Parcel if:
(i) Such reconveyance would, in the opinion of
Beneficiary, (A) result in a disposition of property constituting the
violation of any ordinance, law or regulation of any public authority
or covenant, condition or restriction affecting
20
<PAGE>
the Mortgaged Property relating to the subdivision, development, sale
or resale of real property, or (B) result in the violation of any
ordinance, law or regulation of any public authority or covenant,
condition or restriction affecting the Mortgaged Property relating to
the subdivision, development, sale or resale of real property upon
foreclosure by Beneficiary of any portion of the Mortgaged Property
remaining subject to the lien of this Deed of Trust; or
(ii) Such reconveyance would, in the opinion of Beneficiary,
deny any portion of the Mortgaged Property remaining subject to the
lien of this Deed of Trust the right of ingress and egress to and from
any dedicated street to which such Mortgaged Property would otherwise
be entitled or the right of access to any public utility services,
lines and facilities to which such Mortgaged Property would otherwise
be entitled or would restrict or adversely affect any such rights of
ingress, egress or access.
(e) Beneficiary shall have obtained a form CLTA 111 endorsement to
its lender's policy of title insurance, and if requested by Beneficiary, an
endorsement ensuring that the partial reconveyance does not constitute a
violation of the California Subdivision Map Act, all at the cost and expense of
Trustor;
(f) Trustor shall have reimbursed Beneficiary for all its costs and
expenses incurred in effectuating the release requested by Trustor; and
(g) For the release of the last Parcel remaining subject to the lien
of this Deed of Trust, the total amount of the Indebtedness shall be reduced to
zero and all Obligations then outstanding shall be performed in full.
9.19 Compensation of Trustee. Trustee shall be entitled to reasonable
-----------------------
compensation for all services rendered or expenses incurred in the
administration or execution of the trusts hereby created and Trustor hereby
agrees to pay same. Trustee and Beneficiary shall be indemnified, held harmless
and reimbursed by Trustor for any liability, damage or expense, including
attorneys' fees and amounts paid in settlement, which they or either of them may
incur or sustain in the execution of this trust or in the doing of any act which
they, or either of them are required or permitted to do by the terms hereof or
by law.
9.20 Assignability. Trustor acknowledges that Beneficiary may grant
-------------
and assign all or any portion of its beneficial interest under this Deed of
Trust to one or more third parties. Trustor agrees that, upon such grant and
assignment, such third parties shall be entitled to all of the rights, remedies
and benefits provided to the beneficiary hereunder.
9.21 Entire Agreement. This Deed of Trust, Note and the Loan
----------------
Documents constitute the entire agreement between or among the parties hereto
with respect to the matters addressed therein, and supersede all prior oral or
written communications or agreements with respect to such matters.
9.22 Remedies. No right, power or remedy given Beneficiary by the
--------
terms of this Deed of Trust is intended to be exclusive of any other right,
power or remedy. Each and every such right, power or remedy shall be cumulative
and in addition to every other right, power or remedy given to Beneficiary by
the terms of any of the foregoing, by any statute or otherwise against Trustor
or any other person.
9.23 No Waiver. No delay or omission by Beneficiary in exercising any
---------
right or power arising from any default by Trustor shall be construed as a
waiver of such default or as an acquiescence therein, nor shall any single or
partial exercise thereof preclude any further exercise thereof. Beneficiary
may, at its option, waive any of the conditions herein and any such waiver shall
not be deemed to be a modification of the terms hereof. No waiver of any event
of default shall be construed to be a waiver of or acquiescence in or consent to
any preceding or subsequent event of default.
9.24 Headings. The article headings and the section and subsection
--------
captions are inserted for convenience of reference only and shall in no way
alter or modify the text of such articles, sections and subsections.
9.24 Attorneys' Fees. If any action or proceeding is commenced to
---------------
interpret or enforce the terms of this Deed of Trust, the prevailing party shall
be entitled to attorneys' fees and costs, as well as the costs of
21
<PAGE>
such action or proceeding, including, without limitation, (a) attorneys' fees,
costs and expenses incurred in appellate proceedings or in any action or
participation in, or in connection with, any case or proceeding under Chapters 7
or 11 of the Bankruptcy Code or any successor thereto, and (b) attorneys' fees,
costs and expenses incurred as a result of Beneficiary exercising its rights to
cure any Event of Default by Borrower under this Deed of Trust or any other Loan
Document, or as a result of the foreclosure of the Deed of Trust, deed in lieu
thereof, or trustee's sale thereunder.
9.25 Time of Essence. Time is of the essence to each and every
---------------
provision of this Deed of Trust, the Note and the other Loan Documents.
9.26 Amendment and Restatement. Trustor acknowledges that the Note
-------------------------
constitutes an amendment and restatement of that certain Amended and Restated
Promissory Note dated June 1, 1996 in the original principal amount of
$2,927,500 given by Trustor for the benefit of Riverside National Bank (the
"Original Note"). The Original Note was secured by, among other things, (i) a
Deed of Trust dated March 24, 1995 given by Trustor, as trustor, for the benefit
of Riverside National Bank, as beneficiary, and recorded on March 31, 1995 in
the Official Records of San Bernardino County, California as Instrument No.
1995-0100038, as amended and modified, that encumbers the Land (the "Original
Deed of Trust"), and (ii) a Deed of Trust dated March 24, 1995 given by Palmdale
Vistas Housing Developments, a California limited partnership, as trustor, for
the benefit of Riverside National Bank, as beneficiary, and recorded on March
31, 1995 in the Official Records of Los Angeles County, California as Instrument
No. 95-462578, as amended and modified, that encumbers certain real property
located in Los Angeles County, California, as more particularly described
therein (the "Palmdale Deed of Trust"). Palmdale Vistas Housing Developments has
dissolved, and a portion of the property encumbered by the Original Palmdale
Deed of Trust has been distributed to Inco Development Corporation.
Beneficiary has purchased the Original Note from City National Bank,
successor by statutory merger to Riverside National Bank. In connection with
this purchase, City National Bank has endorsed and delivered the Original Note
to Beneficiary and has assigned its beneficial interest under the Original Deed
of Trust and the Palmdale Deed of Trust to Beneficiary.
On the date Beneficiary purchased the Original Note, Trustor was in
default under the terms of the Original Note and the Original Deed of Trust, and
Palmdale Vistas Housing Development was in default under the Palmdale Deed of
Trust. Trustor requested that Beneficiary restructure the terms of the Original
Note as provided in the Note and amend and restate the terms of the Original
Deed of Trust and the Palmdale Deed of Trust. Beneficiary agrees to restructure
the terms of the Original Note and such deeds of trust (this Deed of Trust
constitutes an amendment and restatement of the Original Deed of Trust), and in
consideration of such restructuring and amending, Trustor hereby absolutely and
unconditionally waives and relinquishes all rights, benefits and protections
otherwise afforded to it under California Civil Code Sections 580a, 580b, 580d
and California Code of Civil Procedure Section 726, which waiver and
relinquishment shall include all rights, benefits and protections otherwise
afforded to it under any common law cases that interpret or apply any of the
foregoing statutes.
9.27 Loan Servicing Agent. Trustor acknowledges that Beneficiary may
--------------------
engage a loan servicing agent to service the Note and protect and enforce
Beneficiary's rights under this Deed of Trust, the Note and the other Loan
Documents. Trustor agrees that it shall cooperate with such loan servicing
agent and recognize it as Beneficiary's representative with respect to all
rights and benefits under this Deed of Trust, the Note, the Loan Agreement, and
the other Loan Documents upon being notified in writing of the appointment of
such loan servicing agent by Beneficiary.
IN WITNESS WHEREOF, Trustor has executed this Deed of Trust as of the
date first above written.
TRUSTOR: INCO HOMES CORPORATION,
a Delaware corporation
By:
------------------------------------------------
Ira C. Norris
President
22
<PAGE>
EXHIBIT 10.102
RECORDING REQUESTED BY AND
WHEN RECORDED MAIL TO:
Stein & Lubin
600 Montgomery Street, 14th Floor
San Francisco, California 94111
Attention: Leon Y. Tuan
______________________________________________________________________________
DEED OF TRUST, SECURITY AGREEMENT,
ASSIGNMENT OF LEASES AND
RENTS AND FIXTURE FILING
------------------------
THIS DEED OF TRUST, SECURITY AGREEMENT, ASSIGNMENT OF LEASES AND RENTS AND
FIXTURE FILING ("Deed of Trust") is made as of December 31, 1997, among INCO
DEVELOPMENT CORPORATION, whose address is set forth below, as Trustor, the
parties listed on Exhibit A-1 attached hereto, as tenants in common, whose
-----------
address is set forth below, as Beneficiary, and LAWYERS TITLE OF NEVADA, whose
address is set forth below, as Trustee.
ARTICLE 1
DEFINITIONS
-----------
As used herein, the following terms shall have the following meanings:
1.1 Assignment. The assignment, contained in Article 4 of this Deed
----------
of Trust, from Trustor to Beneficiary, of all of Trustor's right, title and
interest in and to the Leases and the Rents.
1.2 Awards. All awards and payments made or hereafter to be made by
------
any municipal, township, county, state, Federal or other governmental agencies,
authorities or boards or any other entity having the power of eminent domain to
Trustor, including any awards and payments for any taking of all or a portion of
the Mortgaged Property, as a result of, or by agreement in anticipation of, the
exercise of the right of condemnation or eminent domain, or for any change or
changes of grade of streets affecting the Mortgaged Property.
1.3 Beneficiary. The parties listed on Exhibit A-1 attached hereto,
----------- -----------
as tenants in common, and their respective successors and assigns and the
holders, from time to time, of the Note.
1.4 Beneficiary's Address. c/o USA Commercial Mortgage Company,
---------------------
Inc., 3900 Paradise Road, Suite 263, Las Vegas, Nevada 89109.
1.5 Buildings. All buildings, improvements (including, without
---------
limitation, all on-site and off-site infrastructure improvements), alterations
or appurtenances now, or at any time hereafter, located upon the Land or any
part thereof.
1.6 Borrower. Inco Homes Corporation, a Delaware corporation.
--------
1.7 Event(s) of Default. The happenings and occurrences described in
-------------------
Article 6 of this Deed of Trust.
1
<PAGE>
1.8 Fixtures. All fixtures now or hereafter affixed or attached to,
--------
or installed in, or used in connection with, the Land or Buildings, whether or
not permanently affixed thereto, together with all accessions, replacements and
substitutions thereto or therefor and the proceeds thereof.
1.9 Intentionally Deleted.
1.10 Intentionally Deleted.
1.11 Impositions. All (i) real estate and personal property taxes and
-----------
other taxes and assessments, water and sewer rates and charges, and all other
governmental charges and any interest or costs or penalties with respect
thereto, and charges for an easement or agreement maintained for the benefit of
the Mortgaged Property which at any time prior to or after the execution of the
Loan Documents may be assessed, levied, or imposed upon the Mortgaged Property
or the rent or income received therefrom or any use or occupancy thereof, and
(ii) other taxes, assessments, fees and governmental charges levied, imposed or
assessed upon or against Trustor or any of its properties.
1.12 Indebtedness. The principal of and interest on and all other
------------
amounts, payments and premiums due under the Note (including any future
advances), and all indebtedness of Trustor to Beneficiary, whether under and/or
secured by the Loan Documents, including, without limitation any indebtedness
owing under the Indemnity Agreement, or evidenced by some other document that
recites by its terms that it is secured by this Deed of Trust, and any
amendments, modifications, renewals and extensions of any of the foregoing.
1.13 Indemnity Agreement. The Environmental Agreement and Indemnity,
-------------------
dated as of even date herewith, by Trustor in favor of Beneficiary, as the same
may be amended or otherwise modified.
1.14 Land. The real property described in Exhibit A attached hereto.
---- ---------
1.15 Leases. Any and all leases, subleases, licenses, concessions or
------
grants of other possessory interest now or hereafter in force, oral or written,
covering or affecting the Mortgaged Property, or any part thereof, together with
all rights, powers, privileges, options and other benefits of Trustor
thereunder.
1.16 Intentionally Deleted
1.17 Mortgaged Property. The Land, the Buildings, the Fixtures, the
------------------
Personalty, the Awards, the Rents and the Leases, together with:
(i) all rights, privileges, permits, licenses, rights-of-way,
easements, appendages and appurtenances of the Land and/or the
Buildings belonging or in any way appertaining thereto and all right,
title and interest of Trustor in and to any streets, ways, alleys, or
strips of land adjoining the Land or any part thereof;
(ii) all the estate, right, title, interest, claim or demand
whatsoever of Trustor, either at law or in equity, in and to the Land,
the Buildings, the Fixtures, the Awards, the Rents, the Leases and the
Personalty; and
(iii) all the estate, right, title, interest, claim or demand
whatsoever of Trustor, either at law or in equity, in and to the
Awards, or payments with respect to casualties.
1.18 Note. The promissory note, dated of even date with this Deed of
----
Trust, made by Inco Homes Corporation, a Delaware corporation, to the order of
Beneficiary, in the original principal amount of $2,350,000, secured by this
Deed of Trust and by the Vista Verde Deed of Trust (as defined in Section 6.11
below), together with all extensions, renewals, modifications and amendments
thereof.
2
<PAGE>
1.19 Obligations. Any and all of the covenants, promises and other
-----------
obligations (other than the Indebtedness) made or owing by Trustor to or due to
Beneficiary under this Deed of Trust and/or the Loan Documents, including,
without limitation, any such covenants, promises and obligations made by or
owing by Trustor under the Indemnity Agreement, or evidenced by some other
document that recites by its terms that it is secured by this Deed of Trust, and
any and all extensions, renewals, modifications and amendments of any of the
foregoing.
1.20 Permitted Encumbrances. The encumbrances described, with
----------------------
particularity, in Exhibit B attached hereto.
---------
1.21 Personalty. All furniture, furnishings, equipment, machinery,
----------
trade fixtures and all other tangible and intangible personal property (other
than the Fixtures) now owned or hereafter acquired by Trustor which are now or
hereafter used or owned in connection with the Land and/or the Buildings or
located in, upon or about the Land and/or the Buildings, together with all
accessions, replacements and substitutions thereto or therefor and the proceeds
and products thereof, including without limitation: (1) all personal property
located on the Land or Buildings and used in the operation or occupancy of the
Land or Buildings or in any construction on the Land or Buildings, including,
but not limited to, all furniture and furnishings, machinery, fixtures, goods,
office equipment, machine tools, apparatus, supplies, materials, trade fixtures,
building service equipment, boilers, equipment (including, without limitation,
all equipment for the generation or distribution of air, water, heat,
electricity, light, fuel or refrigeration, or for ventilating or air
conditioning purposes, or for sanitary or drainage purposes, or for the removal
of dust, refuse or garbage), partitions, appliances, ranges, refrigerators,
cabinets, laundry equipment, radios, televisions, awnings, window shades,
venetian blinds, drapes and drapery rods and brackets, screens, carpeting and
other floor coverings, lobby furnishings, games, recreational and swimming pool
equipment and incinerators, and all vehicles and accessories, tools,
appurtenances, dies, jigs, chattels and parts; (2) all general intangibles
relating to the development or use of the Land or Buildings, including, but not
limited to, all governmental permits relating to construction on the Land or
Buildings, all development agreements, management agreements, franchise
agreements, service contracts, other contracts or agreements, all names under or
by which the Land or Buildings may at any time be operated or known, and all
rights to carry on business under any such names or any variant thereof, all
trademarks and goodwill and all interests in any owner's or member's association
in any way relating to the Land or Buildings; (3) all water stock relating to
the Land or Buildings, all shares of stock or other evidence of ownership of any
part of the Land or Buildings that is owned by the Trustor in common with
others, and all documents of membership in any owners' or members' association
or similar group having responsibility for owning, managing or operating any
part of the Land or Buildings; (4) all plans and specifications prepared for
construction of improvements on the Land or Buildings and all studies, data and
drawings related thereto; and also all contracts and agreements of Trustor
relating to the plans and specifications or to the studies, data and drawings,
or to the construction of improvements on the Land or Buildings; (5) all sales
agreements, deposit receipts, escrow agreements and other ancillary documents
and agreements entered into with respect to the sale to any purchasers of any
part of the Land or Buildings, together with all deposits and other proceeds of
the sale thereof; (6) all damages, royalties and revenues of every kind, nature
and description whatsoever that Trustor may be entitled to receive from any
person or entity owning or having or hereafter acquiring a right to the oil, gas
or mineral rights and reservations of the Land; (7) all deposits made with or
other security given to utility companies by Trustor with respect to the Land or
Buildings, and all advance payments of insurance premiums made by Trustor with
respect thereto and all claims or demands with respect to insurance; (8) any
funds held by or in the name of Beneficiary; (9) any causes of action deemed to
be assigned to Beneficiary under this Deed of Trust; (10) all substitutions,
renewals, improvements, attachments, accessions, additions and replacements to
any of the foregoing; and (11) all collections, proceeds, insurance proceeds and
products of any of the foregoing, including, without limitation, proceeds of any
voluntary or involuntary disposition or claim respecting any part thereof
(pursuant to judgment, condemnation award or otherwise), insurance proceeds paid
or owing as a result of any damage to any of the foregoing, and all documents,
instruments, general intangibles, chattel paper and accounts which may arise
from the sale or disposition of any of the foregoing, all guaranties of and
security for any of the foregoing, and all books and records relating to any of
the foregoing. "Personalty" shall also include all insurance policies that
cover any of the Land, the Buildings, the Fixtures, any other Personalty
described in this paragraph, and any rights, benefits and proceeds arising from
such insurance policies.
3
<PAGE>
1.22 Loan Documents. This Deed of Trust, the Security Agreement, the
--------------
Indemnity Agreement, the Vista Verde Deed of Trust (as defined in Section 6.11
below), the "Loan Documents" as defined in the Vista Verde Deed of Trust, and
any and all other documents executed by Trustor now or hereafter evidencing,
securing or relating to the payment of the Indebtedness or the observance or
performance of the Obligations, as any of the same may be amended or otherwise
modified.
1.23 Rents. All of the rents, revenues, income, profits, deposits,
-----
tenders and other benefits payable under the Leases and/or arising from the use
or enjoyment of all or any portion of the Mortgaged Property.
1.24 Security Agreement. The Security Agreement, contained in this
------------------
Deed of Trust, wherein and whereby Trustor grants a security interest in the
Personalty, the Awards and the Fixtures to Beneficiary.
1.25 Intentionally Deleted.
1.26 Trustee. The person, persons, or entity named as such in the
-------
preamble of this Deed of Trust and, as the case may be, his, their or its
successors and assigns.
1.27 Trustee's Address. 1050 East Flamingo Road, Suite 180, Las
-----------------
Vegas, Nevada 89109. Facsimile: (702) 369-8540.
1.28 Trustor. The entity named as such in the preamble of this Deed
-------
of Trust, and its heirs, administrators, executors, successors and assigns and
its successors in interest in and to the Mortgaged Property.
1.29 Trustor's Address. c/o Inco Development Corporation, 1282 West
-----------------
Arrow Highway, Upland, California 91786.
ARTICLE 2
GRANT
-----
2.1 Grant. To secure the payment of the amounts owing under the
-----
Note, the payment of the Indebtedness and the performance and discharge of the
Obligations, Trustor by these presents hereby grants, bargains, sells, assigns,
mortgages, conveys and warrants unto Trustee, in trust for Beneficiary, with
power of sale and right of entry and possession, the Mortgaged Property, to have
and to hold the Mortgaged Property unto Trustee, its successors and assigns
forever.
2.2 Condition of Grant. Provided always, that if Trustor and/or
------------------
Borrower shall pay or cause to be paid all amounts owing under the Note and the
entire Indebtedness as and when the same shall become due and payable and shall
observe, perform and discharge the Obligations, then the Loan Documents and the
estate and rights granted by Trustor shall cease, terminate and become void, and
shall be released or reconveyed by Beneficiary, at the cost and expense of
Trustor.
ARTICLE 3
SECURITY AGREEMENT AND FIXTURE FILING
-------------------------------------
3.1 Security Agreement. This Deed of Trust shall also constitute a
------------------
"Security Agreement" within the meaning of, and shall create a security interest
under, the Uniform Commercial Code as adopted by the state in which the
Mortgaged Property is located (the "UCC") in the Personalty, the Awards, the
Leases, the Rents and the Fixtures.
3.2 Security Interest. In order to further secure payment of the
-----------------
Note, the Indebtedness and the observance, performance and discharge of the
Obligations, Trustor hereby grants to Beneficiary a security interest under the
UCC in the Personalty, the Award, the Leases, the Rents and the Fixtures, and
Beneficiary shall
4
<PAGE>
have all the rights with respect to the Personalty, the Awards, the Leases, the
Rents and the Fixtures afforded to it by the UCC, in addition to, but not in
limitation of, the other rights afforded Beneficiary by the Loan Documents.
3.3 Financing Statements. Trustor agrees to and shall execute and
--------------------
deliver to Beneficiary, in form satisfactory to Beneficiary, such "Financing
Statements" and such further assurances as Beneficiary may, from time to time,
consider reasonably necessary to create, perfect and preserve Beneficiary's
liens upon the Personalty, the Awards, the Leases, the Rents and the Fixtures,
and Beneficiary, at the expense of Trustor, may or shall cause such statements
and assurances to be recorded and re-recorded, filed and re-filed, at such times
and places as may be required or permitted by law to so create, perfect and
preserve such liens.
3.4 Fixture Filing. This Deed of Trust is being recorded as a
--------------
fixture filing and covers goods which are or are to become fixtures on the Land
and/or the Buildings. This fixture filing is governed by the UCC. An address
of Beneficiary from which information concerning the security interest created
under this Article 3 may be obtained by contacting Beneficiary at Beneficiary's
address.
ARTICLE 4
ASSIGNMENT OF RENTS AND LEASES
------------------------------
4.1 Assignment of Rents. All of Trustor's rights, title and interest
-------------------
in and to the Rents are hereby absolutely and irrevocably assigned to
Beneficiary to be applied against the Note, the Indebtedness and the
Obligations. Trustor hereby appoints Beneficiary its true and lawful attorney-
in-fact, with the right, at Beneficiary's option at any time, to demand, receive
and enforce payment, to give receipts, releases and satisfactions, and to sue,
either in Trustor's or Beneficiary's name, for all Rents. Notwithstanding the
foregoing Assignment of Rents, so long as no Event of Default has occurred which
remains uncured, Trustor is given a license to collect, receive, take, use and
enjoy such Rents, as they become due and payable, but not more than one month in
advance thereof. This assignment, and the assignment given in Article 4.2
below, shall be fully operative without any further action on the part of either
party; and specifically, Beneficiary shall be entitled at its option, upon the
occurrence of an Event of Default hereunder and for so long as such Event of
Default is continuing, to collect all Rents from the Mortgaged Property whether
or not Beneficiary takes possession of the Mortgaged Property and to exercise
any other remedies allowed by statute or under common law including, without
limitation, any remedy allowed under California Civil Code Section 2938. Upon
the occurrence of an Event of Default hereunder, the license hereby given to
Trustor to collect the Rents from the Mortgaged Property shall terminate. The
license given by Beneficiary to Trustor shall be reinstated upon a cure of such
Event of Default with Beneficiary's specific consent which shall not be
unreasonably withheld. This Assignment shall not be deemed or construed to
constitute Beneficiary or Trustee as a mortgagee in possession nor obligate
Beneficiary or Trustee to take any action or to incur expenses or perform or
discharge any obligation, duty or liability. Exercise of any rights under this
Section and the application of the Rents to the Indebtedness or the Obligations
shall not cure or waive any Event of Default but shall be cumulative of all
other rights and remedies.
4.2 Assignment of Leases. Trustor hereby grants and assigns to
--------------------
Beneficiary all right, title and interest of Trustor in and to all Leases,
together with all security therefor and all monies payable thereunder, subject,
however, to the license given to Trustor above to collect the rentals under any
such Lease. The foregoing assignment of any Lease shall not be deemed to impose
upon Beneficiary any of the obligations or duties of Trustor provided in any
such Lease; and Trustor agrees to fully perform all obligations of the Lessor
under all such Leases. Upon Beneficiary's request, Trustor shall deliver to any
new lessee a notice of this assignment in form satisfactory to Beneficiary in
its sole discretion. Beneficiary may deliver such a notice to new lessees if
Trustor fails to do so within a reasonable time after Beneficiary's request.
From time to time, upon request of Beneficiary, Trustor shall specifically
assign to Beneficiary, by an assignment in writing in form approved by
Beneficiary, all right, title and interest of Trustor in and to any and all
Leases, together with all security therefor and all monies payable thereunder,
subject to the license given to Trustor above to collect the rentals under any
such Lease. Trustor shall also execute and deliver to Beneficiary any
notification, financing statement, or other document reasonably required by
Beneficiary to perfect the foregoing assignment as to any such Lease.
5
<PAGE>
4.3 Effect of Assignments. This instrument constitutes an absolute
---------------------
and present assignment of the rents, royalties, issues, profits, revenue, income
and other benefits from the Mortgaged Property; subject, however, to the license
given to Trustor to collect, receive, take, use and enjoy the same as provided
above; provided, further, that the existence or exercise of such right of
Trustor shall not operate to subordinate this assignment to any subsequent
assignment by Trustor, in whole or in part, and any such subsequent assignment
by Trustor shall be subject to the rights of Trustee and Beneficiary hereunder.
4.4 No Merger of Leasehold Estates. If both the lessor's and
------------------------------
lessee's estate under any Lease, or any portion thereof, becomes vested at any
time in one owner, this Deed of Trust and the lien created hereby shall not be
adversely affected by the application of the doctrine of merger unless
Beneficiary so elects in writing by recording a written declaration so stating.
Unless and until Beneficiary so elects, Beneficiary and any lessor and lessee
shall continue to have and enjoy all of the rights and privileges to the
separate estates. In addition, upon the foreclosure of the lien created by this
Deed of Trust on the Mortgaged Property, any Leases then existing and affecting
all or any portion of the Mortgaged Property shall not be destroyed or
terminated by merger or by the foreclosure unless Beneficiary or any purchaser
at the sale so elects. No act by or on behalf of Beneficiary or such purchaser
shall constitute a termination of any Lease unless Beneficiary gives written
notice thereof to the tenant or subtenant affected.
4.5 Assignment to Beneficiary Controlling. The rights of Trustee in
-------------------------------------
the Leases and Rents created under Article 2 shall be subject to the rights of
Beneficiary in the Leases and Rents created under this Article 4.
ARTICLE 5
COVENANTS AND REPRESENTATIONS AND WARRANTIES
--------------------------------------------
5.1 Covenants. Until the entire Indebtedness shall have been paid in
---------
full and all of the Obligations shall have been performed in full, Trustor
hereby covenants and agrees as follows:
5.1.1 Compliance with Laws. Trustor will promptly and
--------------------
faithfully comply with, conform to, and obey all present and future laws,
ordinances, rules, regulations and requirements of every duly constituted
governmental authority or agency and of every Board of Fire Underwriters having
jurisdiction, or similar body exercising similar functions, which may be
applicable to it or to the Mortgaged Property, or any part thereof, or to the
use or manner of use, occupancy, possession, operation, maintenance, alteration,
repair or reconstruction of the Mortgaged Property, or any part thereof, whether
or not such law, ordinance, rule, order, regulation or requirement shall
necessitate structural changes or improvements or interfere with the use or
enjoyment of the Mortgaged Property.
5.1.2 Payment of Impositions. Trustor will duly pay and
----------------------
discharge, or cause to be paid and discharged, the Impositions, such Impositions
or installments thereof to be paid prior to the day before any fine, penalty,
interest or cost may be added thereto or imposed by law for the non-payment
thereof; provided, however, that if, by law, any Imposition may be paid in
installments, Trustor may pay the same in such installments.
5.1.3 Repair and Alterations.
----------------------
(a) Trustor will keep the Mortgaged Property in good
order and condition and make all necessary or appropriate repairs, replacements
and renewals thereof and will use its best efforts to prevent any act or thing
which might impair the value or usefulness of the Mortgaged Property.
(b) Trustor will not commit or knowingly permit any
waste of the Mortgaged Property or any part thereof, or make or permit to be
made any alterations or additions to the Mortgaged Property which would have the
effect of materially diminishing the value thereof, or make or permit to be made
any
6
<PAGE>
other alterations or additions to the Mortgaged Property, of a material nature,
without the prior written consent of Beneficiary.
(c) Trustor will not permit any of the Fixtures or
Personalty to be removed at any time from the Land and/or Buildings, without the
prior written consent of Beneficiary unless actually replaced by an article of
equal suitability and value and owned by Trustor free and clear of any lien or
security interest except such as may be approved in writing by Beneficiary.
5.1.4 Insurance. Trustor will maintain insurance upon the
---------
Mortgaged Property against loss by fire, windstorms, flood (if the Mortgaged
Property is located in a designated flood plain) and such other hazards,
casualties and contingencies as are normally and usually covered by All Risk
Property policies in effect in the locality where the Mortgaged Property is
situated and such other risks as may be specified by Beneficiary, from time to
time, in amounts and with insurers acceptable to Beneficiary (including
earthquake if requested by Beneficiary), but in any event not less than the full
replacement cost of all insured real property, fixtures leasehold improvements,
contents, equipment and other personal property, and business interruption or
loss-of-rents limits shall be sufficient to meet loss of one year's anticipated
revenues. No primary deductible or retention greater than $5,000 shall be
called for in any such policies, unless agreed to in writing by Beneficiary.
Policies shall contain endorsements providing for course of construction, breach
of warranty, adjustment of value for inflation, increased costs of replacement
due to changes in code requirements, costs of demolition, and such other
conditions as may be required by Beneficiary. Policies shall be endorsed with
form 438BFUNS, or a similar endorsement acceptable to Beneficiary, showing
Beneficiary as an additional insured and loss payee as its interests may appear,
such loss payments to be applied to the restoration, repair or replacement of
the Mortgaged Property under terms and conditions acceptable to Beneficiary;
provided, however, that if an Event of Default has occurred and is continuing or
an event has occurred and is continuing which with the passage of time or the
giving of notice would constitute an Event of Default, then Beneficiary may, in
its sole discretion, apply such payments to the payment of the Indebtedness.
Trustor shall also maintain Commercial General Liability
insurance which shall respond to third-party claims involving bodily injury,
property damage and personal injury arising out of Trustor's alleged actions or
inactions; such policies shall also include Garagekeepers Legal Liability
coverage. All such policies shall provide limits of coverage as Beneficiary may
specify, but in any event not less than One Million Dollars ($1,000,000) per
occurrence and annual aggregate as to liability for bodily injury, property
damage and personal injury. No primary deductible or retention shall be called
for in the policies. Trustor shall also maintain, or cause its contractors to
maintain, Worker's Compensation and Employer's Liability insurance.
All insurance policies required by Beneficiary under this Deed of
Trust shall be issued by companies acceptable to Beneficiary, but in no event
shall the company(ies) have ratings in the current Best's Insurance Rating
Manual of less than "A/XI." All liability insurance policies shall be endorsed
as to name Beneficiary as an additional insured under the policy as respects its
interests as mortgagee/secured party of the Mortgaged Property. All policies of
insurance shall provide that the policies may not be cancelled, materially
modified or terminated without at least thirty (30) days' prior written notice
to Beneficiary. Trustor shall furnish to Beneficiary duplicate executed copies
of each such policy at the time of execution hereof, and copies of each renewal
policy not less than thirty (30) days prior to the expiration of the original
policy or the preceding renewal policy (as the case may be), together with
receipts or other evidence that the premiums have been paid; and furnish to
Beneficiary certificates of insurance prepared by Trustor's insurance broker or
agent which show evidence of the required coverages and endorsements, and
payment of premiums thereon. Trustor will furnish to Beneficiary on or before
120 days after the close of each fiscal year of Trustor a statement of Trustor
of the amounts of insurance maintained in compliance with this Section 5.1.4, of
the risks covered by such insurance and of the insurance company or companies
which carry such insurance. In the event insurance proceeds received on account
of loss or damage to the Buildings, Personalty or Fixtures are insufficient to
effectuate full repair or replacement of such loss or damage, Beneficiary may
apply such insurance proceeds in reduction of the Indebtedness without
prepayment premium, unless Trustor shall provide or cause to be provided
additional funds in an amount not less than such deficiency and Trustor shall
place in escrow said funds in order to assure to Beneficiary's reasonable
satisfaction full repair of the damaged or destroyed Mortgaged Property or
portion thereof.
7
<PAGE>
5.1.5 Restoration Following Casualty. In the event of the
------------------------------
happening of any casualty of any kind or nature (whether insured against or
not), resulting in damage to or destruction of the Mortgaged Property, Trustor
will give prompt notice thereof to Beneficiary, and, subject to the following
sentence, Trustor will promptly restore, repair, replace, rebuild or alter the
Mortgaged Property as nearly as possible to its value and condition immediately
prior to such damage or destruction.
In the event that the Mortgaged Property has been destroyed such that
the value of the Mortgaged Property has been materially impaired, even if
insurance proceeds are made available to Trustor to rebuild the damaged
property, then Beneficiary need not provide such insurance proceeds to Trustor
and may instead apply such insurance proceeds to prepay the Indebtedness in
whole.
5.1.6 Lease Agreement; Attornment. Trustor agrees not to
---------------------------
terminate, amend, or modify any of the Leases or subleases, or grant any
concessions in connection therewith, or to accept a surrender thereof without
the written consent of Beneficiary. All Leases shall be in form and substance
satisfactory to Beneficiary. Trustor agrees not to execute any future Lease or
Leases or subleases pertaining to the Mortgaged Property without the prior
written consent of Beneficiary. Trustor shall deliver to Beneficiary a complete
copy of each future Lease within 3 days after execution of such Lease. Trustor
shall provide to Beneficiary a subordination, attornment and non-disturbance
agreement executed by each tenant in a form satisfactory to Beneficiary in its
sole discretion.
5.1.7 Performance of Leases and Other Agreements. Trustor will
------------------------------------------
duly and punctually perform all covenants and agreements expressed as binding
upon it under the Leases and under any other agreements to which it is a party
with respect to the Mortgaged Property or any part thereof (including, without
limitation, all construction loan documents (other than the Loan Agreement)
relating to the Mortgaged Property, all sales agreements entered into with
respect to all or any portion of the Mortgaged Property), and will use its best
efforts to enforce or secure the performance of each and every obligation and
undertaking of the respective lessees under the Leases and will appear and
defend, at its cost and expense, any action or proceeding arising under or in
any manner connected with the Leases or the obligations and undertakings of any
lessee or other party thereunder. Trustor will immediately notify Beneficiary
in writing of any notice of default received by Trustor from any tenant
thereunder.
5.1.8 Payment of Rents. Trustor hereby agrees that the
----------------
respective lessees under the Leases, upon notice from Beneficiary of the
occurrence of an Event of Default, shall thereafter pay to Beneficiary the Rents
due and to become due under the Leases without any obligation to determine
whether an Event of Default in fact exists.
5.1.9 Inspection. Trustor will permit Beneficiary, at all
----------
reasonable times and with reasonable notice, to inspect the Mortgaged Property.
Beneficiary shall have the right to enter onto the Mortgaged Property, at all
reasonable times, to inspect the Mortgaged Property for the existence of
Hazardous Materials (as defined in the Indemnity Agreement) on the Mortgaged
Property and to determine the compliance of the Mortgaged Property and its use
with any law, rule or regulation relating to industrial hygiene or environmental
conditions, including soil and ground water conditions and the compliance of the
Trustor and the Mortgaged Property with the conditions and covenants set forth
herein with respect to Hazardous Materials.
5.1.10 Hold Harmless. Trustor will indemnify, defend and hold
-------------
Beneficiary harmless from any liability, loss, action, proceeding or claim
affecting the Mortgaged Property, or the value of the Note or the Loan
Documents. Trustor shall appear in and defend (or pay the expenses of
Beneficiary to defend, if Beneficiary gives Trustor notice of its election to
handle such defense) any action or proceeding purporting to affect the security
of this Deed of Trust and/or the rights and/or powers of Beneficiary hereunder,
and Trustor shall pay all costs and expenses (including costs of evidence of
title and attorneys' fees) in any action or proceeding in which Beneficiary may
so appear and/or any suit by Beneficiary to foreclose this Deed of Trust, to
enforce any obligations secured by this Deed of Trust, and/or to prevent the
breach hereof. Trustor's obligations under this Section 5.1.10 shall survive
payment of the Indebtedness.
8
<PAGE>
5.1.11 Books and Records. Trustor will maintain full and
-----------------
complete books of account and other records reflecting the results of its
operations (in conjunction with its other operations as well as its operations
of the Mortgaged Property). If the Mortgaged Property consists of rental
property, Trustor will furnish or cause to be furnished to Beneficiary (a)
within 30 days after the end of each calendar quarter, detailed statements of
income and expenses relating to the Mortgaged Property for such period; (b)
within 90 days after the end of each calendar year, detailed statements of
income and expenses relating to the Mortgaged Property for such year; (c) within
30 days after the end of each calendar quarter, a rent roll for the Mortgaged
Property; and (d) within 30 days after the end of each calendar month, a
delinquency report and accounts receivable aging for the Mortgaged Property for
such month. If the Mortgaged Property consists of single-family lots or homes,
condominiums or other residential properties to be sold, Trustor will furnish or
will cause to be furnished to Beneficiary weekly written reports reflecting all
information relevant to the marketing and sale of such units, in such form as
Beneficiary may request. Within forty-five (45) days after the end of such
fiscal quarter of Trustor and within ninety (90) days after each fiscal year of
Trustor, Trustor will furnish or cause to be furnished to Beneficiary an income
statement, balance sheet and statement of changes in financial position for
Trustor. All financial information to be delivered to Beneficiary hereunder
shall in detail reasonably acceptable to Beneficiary, shall be prepared in
accordance with generally accepted accounting principles applied on a consistent
basis and, with respect to that information regarding Trustor, shall be
certified by the chief financial officer of Trustor as being true, correct and
complete. At any time more frequently than as specified above, and from time to
time, Trustor shall deliver to Beneficiary such other financial data and other
information, including, without limitation, copies of all Leases, as Beneficiary
shall, from time to time, reasonably request with respect to Trustor and the
ownership and operation of the Mortgaged Property, and Beneficiary shall have
the right, at reasonable times and upon reasonable notice, to audit Trustor's
books of account and records.
5.1.12 Awards. Trustor will file and prosecute its claim or
------
claims for any Awards in good faith and with due diligence and cause the same to
be collected and paid over to Beneficiary, and hereby irrevocably authorizes and
empowers Beneficiary, if its so desires, to file such claim and collect any
Awards and agrees that the proceeds of any Awards will be applied by Beneficiary
in reduction of any portion of the Indebtedness as Beneficiary may determine in
accordance with Article 8 hereof.
5.1.13 Licenses. Trustor shall keep in full force and effect
--------
all licenses, permits and other governmental approvals which are necessary for
the construction, marketing and operation of the Mortgaged Property and related
facilities, and furnish evidence satisfactory to Beneficiary that the Mortgaged
Property and the use thereof comply with all applicable zoning and building
laws, regulations, ordinances and other applicable laws.
5.1.14 No Further Encumbrance. Trustor shall not, without the
----------------------
prior written consent of Beneficiary, incur any additional indebtedness or
create or permit to be created or to remain, any mortgage, pledge, lien,
encumbrance or charge on, or conditional sale or other title retention agreement
with respect to, the Mortgaged Property or any part thereof or income therefrom,
other than the Loan Documents and the Permitted Encumbrances and except as
provided in Section 5.1.18 below.
5.1.15 Mechanic's Lien. Trustor shall not permit or suffer any
---------------
mechanic's, materialman's or other lien to be created or to remain a lien upon
any of the Mortgaged Property.
5.1.16 Management. If Trustor seeks to have the Mortgaged
----------
Property managed by a management company, the management company must be
approved by Beneficiary under a management contract satisfactory in form and
substance to Beneficiary. The interests of the Trustor and the management
company under such contract shall be subordinate to the rights of Beneficiary
hereunder, and the management agreement shall provide that Beneficiary may, at
its option, terminate such contract upon the occurrence of an Event of Default.
5.1.17 Use of Mortgaged Property. Trustor shall not use the
-------------------------
Mortgaged Property or any part thereof, or allow the same to be used or
occupied, for any purpose other than the uses for which the Mortgaged Property
is currently zoned or for any unlawful purpose, or in violation of any
certificate of occupancy or other permit or certificate, or any law, ordinance
or regulation, covering or affecting the use or occupancy
9
<PAGE>
thereof. Trustor will not suffer any act to be done or any condition to exist on
the Mortgaged Property or any part thereof or any article to be brought thereon,
which may be dangerous (unless safeguarded as required by law) or which may
constitute a nuisance, public or private, or which may void or make voidable any
insurance then in force with respect thereto.
5.1.18 Transfer of Mortgaged Property. Trustor shall not,
------------------------------
without the prior written consent of Beneficiary, directly or indirectly sell,
transfer, convey, further encumber assign, grant any option, subordinate,
convert to condominiums or grant any further lien or easement on all or any part
of the Mortgaged Property, or enter into any agreement for any of the foregoing,
whether by operation of law recorded or unrecorded, or voluntarily or
involuntarily; provided, however, that if the Mortgaged Property consists of
single-family lots or homes, condominiums or other residential properties to be
sold, Trustor may accept sales reservations and enter into purchase and sales
contracts so long as such actions are consistent with the Loan Documents, all
rules and regulations of the California Department of Real Estate and all other
applicable laws, rules and regulations. Trustor shall promptly notify
Beneficiary in writing of any such intended event or agreement for which
Beneficiary's consent may be required.
5.2 Representations and Warranties of Trustor. Trustor hereby
-----------------------------------------
represents and warrants to Beneficiary as follows, and agrees to give written
notice to Beneficiary of any breach of such representations and warranties.
5.2.1 Good Standing/Licensing. Trustor is duly organized,
-----------------------
validly existing and in good standing under the laws of its state of
organization, is duly licensed or qualified to do business and is in good
standing and is authorized to do business in every jurisdiction in which the
nature of its businesses or properties makes such licensing or qualification
necessary and where a failure to so qualify or be licensed would have a
materially adverse effect on the business or operations of the Trustor, and is
in compliance with all laws, regulations, ordinances and orders of public
authorities applicable to Trustor. If Trustor is a corporation or partnership,
the execution of the Note and the Loan Documents are within Trustor's corporate
or partnership powers.
5.2.2 No Conflict. The Note and the Loan Documents will not
-----------
violate any provision of law (including, but not limited to any law relating to
usury), any order of any court or other agency or government, or any indenture,
agreement or other instrument to which Trustor is a party or by which Trustor or
any of its property is bound, or be in conflict with, result in a breach of or
constitute (with due notice and/or lapse of time) a default under any such
indenture, agreement or other instrument, or violate the partnership agreement
of the Trustor or result in the creation or imposition of any lien, charge or
encumbrance of any nature whatsoever upon any of the property or assets of
Trustor, except as contemplated by the Note and the Loan Documents, and no
action with respect thereto by Trustor is required.
5.2.3 Consents. No consent or approval of any regulatory body
--------
to the execution, delivery and performance of the Note and the Loan Documents or
the transactions contemplated thereby is required by law.
5.2.4 Suits. There are no suits, proceedings or investigations
-----
pending or threatened against or affecting Trustor, at law or in equity, or
before or by any governmental or administrative agency or instrumentality which,
if adversely determined, would have a material adverse effect on the business or
condition of Trustor.
5.2.5 Judgments. No judgment, decree or order of any court or
---------
governmental or administrative agency or instrumentality has been issued against
Trustor which has or may have any material adverse effect on the business or
condition of Trustor.
5.2.6 Information. All information, reports, papers and data
-----------
given to Beneficiary with respect to Trustor or others obligated under the terms
of the Loan Documents are accurate and correct in all
10
<PAGE>
material respects and complete insofar as completeness may be necessary to give
Beneficiary a true and accurate knowledge of the subject matter thereof.
5.2.7 Title/Right to Assign Leases. Trustor has good and
----------------------------
marketable title in fee simple to the Land and Buildings, and good and
marketable title to the Fixtures, the Awards and Personalty, and the right to
assign the Leases and Rents to Beneficiary free and clear of any prior
assignment, liens, charges, encumbrances, security interests and adverse claims
whatsoever except the Permitted Encumbrances.
5.2.8 Leases. Trustor has not executed any prior assignment of
------
the Leases or of its right, title and interest therein or in the Rents to accrue
thereunder, Trustor has delivered to Beneficiary a true and complete copy of all
of the existing Leases assigned hereunder, together with all amendments,
supplements and other modifications, and to the best of Trustor's knowledge, no
material default by Trustor or any other person under any existing Lease remains
uncured.
5.2.9 Permitted Encumbrances. The Permitted Encumbrances have
----------------------
not materially interfered with the operation of the Mortgaged Property, nor does
Trustor reasonably foresee any material interference arising from the Permitted
Encumbrances during the term of the Note. Without limiting the foregoing,
Trustor represents that it is not in default under the terms of any liens that
are secured by deeds of trust whose liens are junior to the lien of this Deed of
Trust.
5.2.10 Taxes. Trustor has filed all Federal, state, county and
-----
municipal income tax returns required to have been filed by them and have paid
all taxes which have become due pursuant to any assessments received by them,
and Trustor does not know of any basis for additional assessment in respect to
such taxes.
5.2.11 Use of Borrowed Funds. Trustor hereby represents and
---------------------
warrants to Beneficiary that it intends to use the funds it is borrowing from
Beneficiary under the terms of the Note primarily for other than personal,
family or household purposes.
5.2.12 Electromagnetic Fields. There are no electrical
----------------------
transformers or electrical stations or substations within 100 yards of any
portion of the Land.
ARTICLE 6
EVENTS OF DEFAULT
-----------------
The term "Event(s) of Default", as used herein and in the Loan
Documents and the Note, shall mean the occurrence or happening, from time to
time, of any one or more of the following:
6.1 Payment of Indebtedness. If Trustor shall default in the due and
-----------------------
punctual payment of all or any portion of any installment of the Indebtedness,
whether at the due date thereof or by acceleration or otherwise, as and when the
same shall become due and payable and such failure continues for a period of
five (5) days.
6.2 Performance of Obligations. If Trustor shall default in the due
--------------------------
observance or performance of any of the Obligations other than payment of money
and such default shall not be cured within twenty (20) days after such default.
6.3 Bankruptcy, Receivership, Insolvency, Etc. If voluntary or
------------------------------------------
involuntary proceedings under the Federal Bankruptcy Code, as amended, shall be
commenced by or against Trustor or the general partner of Trustor (if any), or
bankruptcy, receivership, insolvency, reorganization, dissolution, liquidation
or other similar proceedings shall be instituted by or against Trustor or the
general partner of Trustor (if any) with respect to all or any part of Trustor's
property or the property of the general partner of Trustor under the Federal
Bankruptcy Code, as amended, or other law of the United States or of any state
or other competent jurisdiction, and if such
11
<PAGE>
proceedings are instituted against Trustor or the general partner of Trustor (if
any) and it shall consent thereto or shall fail to cause the same to be
discharged within sixty (60) days.
6.4 Laws Affecting Obligations and Indebtedness. If subsequent to
-------------------------------------------
the date of this Deed of Trust, any governmental entity in which the Mortgaged
Property is located passes any law (a) which renders payment of the Indebtedness
and/or performance of the Obligations by Trustor unlawful, or (b) which
prohibits Beneficiary from exercising any of its rights and remedies under the
Note and Loan Documents.
6.5 False Representation. If any representation or warranty made by
--------------------
Trustor or others in, under or pursuant to the Note or the Loan Documents
(including, but not limited to, any representation or warranty made in Section
5.2 hereof) shall prove to have been false or misleading in any material respect
as of the date on which such representation or warranty was made.
6.6 Destruction of Improvements. If any of the Buildings is
---------------------------
demolished or removed or demolition or removal thereof is imminent, eminent
domain proceedings excepted.
6.7 Default Under Other Deed of Trust. If the holder of any senior
---------------------------------
or junior deed of trust or any other lien on the Mortgaged Property (without
hereby implying Beneficiary's consent to any such junior deed of trust or lien)
institutes foreclosure or other proceedings for the enforcement of its remedies
thereunder, or if a default exists under any other deed of trust or lien on the
Mortgaged Property or any documents that evidence or relate to the loans secured
by any of the foregoing deeds of trust or liens.
6.8 Loan Documents. If a default shall occur under the Note or any
--------------
of the Loan Documents.
6.9 Due on Sale. If, without the prior written consent of
-----------
Beneficiary, (a) there is any sale, transfer, assignment, conveyance or
encumbrance, whether voluntary or involuntary, of all or part of the Mortgaged
Property or any interest therein or any other event or agreement referred to in
Section 5.1.18, (b) Trustor or any one or more of the persons comprising Trustor
is a partnership and the interest of any general partner (or the interest of any
general partner in a partnership that is a partner) is assigned or transferred,
except for an assignment or transfer resulting from the death or physical or
mental incapacity of a general partner; (c) transfer, assignment or
hypothecation of more than 25% of the corporate stock of Trustor; (d) change in
ownership (including the hypothecation or encumbrance thereof) of a majority of
the stock of Inco Homes Corporation held by Ira Norris (Inco Homes Corporation
being the sole shareholder of Inco Development Corporation); (e) Trustor is a
trust and there is a change in beneficial ownership with respect to more than
twenty-five percent (25%) of the trust; (f) Trustor consists of several persons
or entities holding fractional undivided interest in the Mortgaged Property and
there is a cumulative change in ownership with respect to more than a twenty-
five percent (25%) fractional undivided interest in the Mortgaged Property; (g)
there is a seizure of the Mortgaged Property, or attachment of any lien on the
Mortgaged Property, whether voluntary or involuntary, which has not been removed
or bonded off to Beneficiary's satisfaction within thirty (30) days of such
attachment; or (h) there is a change in the controlling executives and directors
of Trustor.
6.10 Judgment. If a final judgment for the payment of money in excess
--------
of Ten Thousand Dollars ($10,000) shall be rendered against Trustor and the same
shall remain unpaid for a period of thirty (30) consecutive days during which
period execution shall not be effectively stayed.
6.11 Vista Verde Deed of Trust. If there should occur any Event of
-------------------------
Default under that certain Deed of Trust, Security Agreement, Assignment of
Leases and Rents, and Fixture Filing dated of even date herewith given by Inco
Homes Corporation, as trustor, for the benefit of Beneficiary and encumbering
certain real property located in San Bernardino County, California (the "Vista
Verde Deed of Trust"). Inco Homes Corporation has given the Vista Verde Deed of
Trust as additional security for the Note, the Indebtedness and the Obligations.
ARTICLE 7
DEFAULT AND FORECLOSURE
-----------------------
7.1 Remedies. If an Event of Default shall occur, Beneficiary may,
--------
at its option, by or through Trustee or otherwise, exercise one or more or all
of the following remedies:
12
<PAGE>
7.1.1 Acceleration. Declare the unpaid portion of the Note and
------------
Indebtedness to be immediately due and payable, without further notice or demand
(each of which hereby is expressly waived by Trustor), whereupon the same shall
become immediately due and payable.
7.1.2 Entry on Mortgaged Property. Enter upon the Mortgaged
---------------------------
Property and take possession thereof and of all books, records, and accounts
relating thereto.
7.1.3 Operation of Mortgaged Property. Hold, lease, operate or
-------------------------------
otherwise use or permit the use of the Mortgaged Property, or any portion
thereof, in such manner, for such time and upon such terms as Beneficiary may
deem to be in its best interest (making such repairs, alterations, additions and
improvements thereto, from time to time, as Beneficiary shall deem necessary or
desirable) and collect and retain all earnings, rents, profits or other amounts
payable in connection therewith.
7.1.4 Judicial Proceedings. Institute proceedings for the
--------------------
complete or partial foreclosure of this Deed of Trust or 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 (without being required to foreclose 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 elect.
7.1.5 Sale of Mortgaged Property. Cause the Mortgaged Property
--------------------------
and all estate, right, title and interest, claim and demand therein, or any part
thereof to be sold as follows:
(a) Beneficiary may proceed as if all of the
Mortgaged Property were real property, in accordance with subparagraph (d)
below, or Beneficiary may elect to treat any of the Mortgaged Property which
consists of a right in action or which is property that can be severed from the
premises without causing structural damage thereto as if the same were personal
property, and dispose of the same in accordance with subparagraph (c) below,
separate and apart from the sale of real property, with the remainder of the
Mortgaged Property being treated as real property.
(b) Beneficiary may cause any such sale or other
disposition to be conducted immediately following the expiration of any grace
period, if any, herein provided (or required by law) or Beneficiary may delay
any such sale or other disposition for such period of time as Beneficiary deems
to be in its best interest. Should Beneficiary desire that more than one such
sale or other disposition be conducted, Beneficiary may at its option, cause the
same to be conducted simultaneously, or successively on the same day, or at such
different days or times and in such order as Beneficiary may deem to be in its
best interest.
(c) Should Beneficiary elect to cause any of the
Mortgaged Property to be disposed of as personal property as permitted by
subparagraph (a) above, it may dispose of any part thereof in any manner now or
hereafter permitted by Division 9 of the UCC or in accordance with any other
remedy provided by law. Both Trustor and Beneficiary shall be eligible to
purchase any part of all of such property at any such disposition. Any such
disposition may be either public or private as Beneficiary may so elect, subject
to the provisions of the UCC. Beneficiary shall give Trustor at least five (5)
days prior written notice of the time and place of any public sale or other
disposition of such property or of the time at or after which any private sale
or any other intended disposition is to be made, and if such notice is sent to
Trustor it shall constitute reasonable notice to Trustor.
(d) Should Beneficiary elect to sell the Mortgaged
Property which is real property or which Beneficiary has elected to treat as
real property, upon such election Beneficiary or Trustee shall give such Notice
of Default and Election to Sell as may then be required by law. Thereafter, upon
the expiration of such time and the giving of such Notice of Sale as may then be
required by law, Trustee, at the time and place specified in the Notice of Sale,
shall sell such Mortgaged Property, or any portion thereof specified by
Beneficiary, at public auction to the highest bidder for cash in lawful money of
the United States, subject, however, to the provisions of Section 7.1.5(e)
hereof. Trustee for good cause may, and upon request of Beneficiary shall, from
time to time, postpone the sale by public announcement thereof at the time and
place noticed therefor. If the
13
<PAGE>
Mortgaged Property consists of several lots or parcels, Beneficiary may
designate the order in which such lots or parcels may be offered for sale or
sold, and may direct that such property be sold in one parcel, as an entirety,
or in such parcels as Beneficiary, in its sole discretion, may elect. Trustor
expressly waives any right which it may have to direct the order in which any of
the Mortgaged Property shall be sold, and its rights, if any, to require the
Mortgaged Property be sold as separate tracts, lots, units, or parcels. Any
person, including Trustor, Trustee or Beneficiary, may purchase at the sale.
Upon any sale Trustee shall execute and deliver to the purchaser or purchasers a
deed or deeds conveying the property so sold, but without any covenant or
warranty whatsoever, express or implied, whereupon such purchaser or purchasers
shall be let into immediate possession.
(e) Upon any sale of the Mortgaged Property, whether
made under a power of sale herein granted or pursuant to judicial proceedings,
if the holder of the Note is a purchaser at such sale, it shall be entitled to
use and apply all or any portion of the indebtedness then secured hereby for or
in settlement or payment of all or any portion of the purchase price of the
property purchased, and, in such case, this Deed of Trust, the Note and
documents evidencing expenditures secured hereby shall be presented to the
person conducting the sale in order that the amount of said indebtedness so used
or applied may be credited thereon as having been paid.
(f) In the event of a sale or other disposition of
any such Mortgaged Property or any part thereof, and the execution of a deed or
other conveyance pursuant thereto, the recitals in the deed or deeds of facts
(such as of a default, the giving of notice of default and notice of sale,
demand that such sale should be made, postponement of sale, terms of sale, sale,
purchaser, payment of purchase money, and any other fact affecting the
regularity or validity of such sale or disposition) shall be conclusive proof of
the truth of such facts; and any such deed or conveyance shall be conclusive
against all persons as to such facts recited therein.
7.1.6 Receiver. Beneficiary shall be entitled, as a matter of
--------
strict right, without notice and ex parte, and without regard to the value or
occupancy of the security, or the solvency of the Trustor, or the adequacy of
the Mortgaged Property as security for the Note, to have a receiver appointed to
enter upon and take possession of the Mortgaged Property, collect the Rents and
profits therefrom and apply the same as the court may direct, such receiver to
have all the rights and powers permitted under the laws of the jurisdiction in
which the Mortgaged Property is located. Trustor hereby waives any requirements
on the receiver or Beneficiary to post any surety or other bond. Beneficiary or
the receiver may also take possession of, and for these purposes use, any and
all Personalty which is a part of the Mortgaged Property and used by Trustor in
the rental or leasing thereof or any part thereof. The expense (including the
receiver's fees, counsel fees, costs and agent's compensation) incurred pursuant
to the powers herein contained shall be secured by this Deed of Trust.
Beneficiary shall (after payment of all costs and expenses incurred) apply such
Rents, issues and profits received by it on the Indebtedness in the order set
forth in Section 7.7 hereof. The right to enter and take possession of the
Mortgaged Property, to manage and operate the same, and to collect the Rents,
issues and profits thereof, whether by receiver or otherwise, shall be
cumulative to any other right or remedy hereunder or afforded by law, and may be
exercised concurrently therewith or independently thereof. Beneficiary shall be
liable to account only for such Rents, issues and profits actually received by
Beneficiary.
7.1.7 Additional Rights and Remedies. With or without notice,
------------------------------
and without releasing Trustor from the Indebtedness or Obligations, and without
becoming a mortgagee in possession, Beneficiary and Trustee shall have the right
to cure any breach or default of Trustor and, in connection therewith, to enter
upon the Mortgaged Property and to do such acts and things as Beneficiary or
Trustee deem necessary or desirable to protect the security hereof including,
but without limitation, to appear in and defend any action or proceedings
purporting to affect the security hereof or the rights or powers of Beneficiary
or Trustee hereunder; to pay, purchase, contest or compromise any encumbrance,
charge, lien or claim of lien which, in the judgment of either Beneficiary or
Trustee, is prior or superior hereto, the judgment of Beneficiary or Trustee
being conclusive as between the parties hereto; to obtain insurance; to pay any
premiums or charges with respect to insurance required to be carried hereunder;
and to employ counsel, accountants, contractors and other appropriate persons to
assist them. All sums so paid by Beneficiary, and all costs and expenses,
including, without limitation, reasonable attorneys' fees and expenses so
incurred together with interest thereon at the interest rate provided in the
note, from the date of payment or incurring, shall constitute additions to the
Indebtedness secured by the Loan Documents, and
14
<PAGE>
shall be paid by Trustor to Beneficiary, on demand. If Beneficiary shall elect
to pay any Imposition, Beneficiary may do so in reliance on any bill, statement
or assessment procured from the appropriate public office, without inquiring
into the accuracy thereof or into the validity of such Imposition. Trustor shall
indemnify Beneficiary for all losses and expenses, including reasonable
attorneys' fees, incurred by reason of any acts performed by Beneficiary
pursuant to the provisions of this Section 7.1.7 or by reason of the Loan
Documents, and any funds expended by Beneficiary to which it shall be entitled
to be indemnified, together with interest thereon at the interest rate provided
in the Note from the date of such expenditures, shall constitute additions to
the Indebtedness and shall be secured by the Loan Documents and shall be paid by
Trustor to Beneficiary upon demand.
7.1.8 Other. Exercise any other remedy specifically granted
-----
under the Note and the Loan Documents, or now or hereafter existing in equity,
at law, by virtue of statute or otherwise, including the rights described below.
7.1.9 Late Charge and Default Interest. Impose the late
--------------------------------
charges and the default interest rate as provided for in the Note.
7.2 Separate Sales. Any real property or any interest or estate
--------------
therein sold pursuant to any writ of execution issued on a judgment obtained by
virtue of the Note, this Deed of Trust or the other Loan Documents, or pursuant
to any other judicial proceedings under this Deed of Trust or the other Loan
Documents, or pursuant to the power of sale granted herein, may be sold in one
parcel, as an entirety, or in such parcels, and in such manner or order as
Beneficiary, in its sole discretion, may elect.
7.3 Remedies Cumulative and Concurrent. The rights and remedies of
----------------------------------
Beneficiary as provided in the Note, this Deed of Trust and in the Loan
Documents shall be cumulative and concurrent and may be pursued separately,
successively or together against Trustor or against other obligors or against
the Mortgaged Property, or any one or more of them, at the sole discretion of
Beneficiary, and may be exercised as often as occasion therefor shall arise.
The failure to exercise any such right or remedy shall in no event be construed
as a waiver or release thereof, nor shall the choice of one remedy be deemed an
election of remedies to the exclusion of other remedies. Without limiting the
foregoing, Beneficiary may foreclose, either judicially or non-judicially, under
the Vista Verde Deed of Trust either prior to, concurrently with or after
completing a judicial or non-judicial foreclosure under this Deed of Trust.
7.4 No Cure or Waiver. Neither Beneficiary's nor Trustee's nor any
-----------------
receiver's entry upon and taking possession of all or any part of the Mortgaged
Property nor any collection of rents, issues, profits, insurance proceeds,
condemnation proceeds or damages, other security or proceeds of other security,
or other sums, nor the application of any collected sum to any Indebtedness and
Obligations, nor the exercise of any other right or remedy by Beneficiary or
Trustee or any receiver shall impair the status of the security, or cure or
waive any default or notice of default under this Deed of Trust, or nullify the
effect of any notice of default or sale (unless all Indebtedness and Obligations
which are then due have been paid and performed and Trustor has cured all other
defaults), or prejudice Beneficiary or Trustee in the exercise of any right or
remedy, or be construed as an affirmation by Beneficiary of any tenancy, lease
or option or a subordination of the lien of this Deed of Trust.
7.5 Payment of Costs, Expenses and Attorneys Fees. Trustor agrees to
---------------------------------------------
pay to Beneficiary immediately and without demand all costs and expenses
incurred by Trustee and Beneficiary in exercising the remedies under the Note
and Loan Documents (including but without limitation, court costs and attorneys'
fees, whether incurred in litigation or not) with interest at the greater of the
interest rate provided in the Note or the highest rate payable under any
Indebtedness and Obligations, from the date of expenditure until said sums have
been paid. Beneficiary shall be entitled to bid, at the sale of the Mortgaged
Property held pursuant to the power of sale granted herein or pursuant to any
judicial foreclosure of this instrument, the amount of said costs, expenses and
interest in addition to the amount of the other Indebtedness and Obligations as
a credit bid, the equivalent of cash.
7.6 Waiver of Redemption, Notice, Marshalling, Etc. Trustor hereby
-----------------------------------------------
waives and releases (a) all benefit that might accrue to Trustor by virtue of
any present or future law exempting the Mortgaged Property, or any part of the
proceeds arising from any sale thereof, from attachment, levy or sale on
execution, or providing for any redemption or extension of time for payment, (b)
unless specifically required herein, all notices of Trustor's
15
<PAGE>
default or of Beneficiary's election to exercise, or Beneficiary's actual
exercise, of any option or remedy under the Note or the Loan Documents; (c) any
right to have the liens against the Mortgaged Property marshaled; and (d) the
right to plead or assert any statute of limitations as a defense or bar to the
enforcement of the Note or the Loan Documents.
7.7 Application of Proceeds. The proceeds of any sale of all or any
-----------------------
portion of the Mortgaged Property and the amounts generated by any holding,
leasing, operation or other use of the Mortgaged Property shall be applied by
Beneficiary in the following order, or in such other order or proportion as
Beneficiary shall decide in its sole discretion:
(a) first, to the payment of the costs and expenses of taking
possession of the Mortgaged Property and of holding, using, leasing, repairing,
improving and selling the same (including without limitation payment of any
Impositions or other taxes);
(b) second, to the extent allowed by law, to the payment of
attorneys' fees and other legal expenses, including expenses and fees incurred
on appeals, and legal expenses and fees of a receiver;
(c) third, to the payment of all amounts advanced under this
Deed of Trust or any other Loan Document (except for the Indemnity Agreement) to
preserve the value of the Mortgaged Property;
(d) fourth, to the payment of late charges and accrued and
unpaid interest on the Indebtedness;
(e) fifth, to the payment of the unpaid balance of the
Indebtedness (except for that portion of the Indebtedness that arises out of the
Indemnity Agreement); and
(f) sixth, to the payment of any amounts owing to Beneficiary or
the other Indemnified Parties (as defined in the Indemnity Agreement) under the
Indemnity Agreement.
The balance, if any, shall be paid to the parties entitled to
receive it.
7.8 Strict Performance. Any failure by Beneficiary to insist upon
------------------
strict performance by Trustor of any of the terms and provisions of the Loan
Documents, or of the Note shall not be deemed to be a waiver of any of the terms
or provisions of the Loan Documents, or the Note and Beneficiary shall have the
right thereafter to insist upon strict performance by Trustor of any and all of
them.
7.9 No Conditions Precedent to Exercise of Remedies. Neither Trustor
-----------------------------------------------
nor any other person now or hereafter obligated for payment of all or any part
of the Indebtedness shall be relieved of such obligation by reason of the
failure of Beneficiary to comply with any request of Trustor or of any other
person so obligated to take action to foreclose on this Deed of Trust or
otherwise enforce any provisions of the Loan Documents or the Note, or by reason
of the release, regardless of consideration, of all or any part of the security
held for the Indebtedness, or by reason of any agreement or stipulation between
any subsequent owner of the Mortgaged Property and Beneficiary extending the
account of the occurrence of an Event of Default, including but not limited to
any transfer or disposition as prohibited by Sections 5.1.14 and 5.1.18.
7.10 Environmental Default and Remedies. In the event that any
----------------------------------
portion of the Mortgaged Property is determined to be "environmentally impaired"
(as "environmentally impaired" is defined in California Code of Civil Procedure
Section 726.5(e)(3)) or to be an "affected parcel" (as "affected parcel" is
defined in California Code of Civil Procedure Section 726.5(e)(1)), then,
without otherwise limiting or in any way affecting Beneficiary's or Trustee's
rights and remedies under this Deed of Trust, Beneficiary may elect to exercise
its right under California Code of Civil Procedure Section 726.5(a) to (1) waive
its lien on such environmentally impaired or affected portion of the Mortgaged
Property and (2) exercise (i) the rights and remedies of an unsecured creditor,
including reduction of its claim against Trustor to judgment, and (ii) any other
rights and remedies permitted by law. For purposes of determining Beneficiary's
right to proceed as an unsecured creditor under California Code of Civil
Procedure Section 726.5(a), Trustor shall be deemed to have
16
<PAGE>
willfully permitted or acquiesced in a release or threatened release of
hazardous materials, within the meaning of California Code of Civil Procedure
Section 726.5(d)(1), if the release or threatened release of hazardous materials
was knowingly or negligently caused or contributed to by any lessee, occupant or
user of any portion of the Mortgaged Property and Trustor knew or should have
known of the activity by such lessee, occupant or user which caused or
contributed to the release or threatened release. All costs and expenses,
including, but not limited to, attorneys' fees, incurred by Beneficiary in
connection with any action commenced under this Section 7.10, including any
action required by California Code of Civil Procedure Section 726.5(b) to
determine the degree to which the Mortgaged Property is environmentally
impaired, plus interest thereon at the interest rate provided in the Note until
paid, shall be added to the Indebtedness secured by this Deed of Trust and shall
be due and payable to Beneficiary upon its demand made at any time following the
conclusion of such action.
ARTICLE 8
CONDEMNATION
------------
8.1 Condemnation. Trustor hereby assigns, transfers and sets over to
------------
Beneficiary all rights of Trustor to any award or payment in respect of (a) any
taking of all or a portion of the Mortgaged Property as a result of, or by
agreement in anticipation of, the exercise of the right of condemnation or
eminent domain; (b) any such taking of any appurtenances to the Mortgaged
Property or of vaults, areas or projections outside the boundaries of the
Mortgaged Property, or rights in, under or above the alleys, streets or avenues
adjoining the Mortgaged Property, or rights and benefits of light, air, view or
access to said alleys, streets, or avenues or for the taking of space or rights
therein, below the level of, or above the Mortgaged Property; and (c) any damage
to the Mortgaged Property or any part thereof due to governmental action, but
not resulting in, a taking of any portion of the Mortgaged Property, such as,
without limitation, the changing of the grade of any street adjacent to the
Mortgaged Property. Trustor hereby agrees to file and prosecute its claim or
claims for any such award or payment in good faith and with due diligence and
cause the same to be collected and paid over to Beneficiary, and hereby
irrevocably authorizes and empowers Beneficiary, in the name of Trustor or
otherwise, to collect and receipt for any such award or payment and, in the
event Trustor fails to act, or in the event that an Event of Default has
occurred and is continuing, to file and prosecute such claim or claims.
8.2 Application of Proceeds. All proceeds received by Beneficiary
-----------------------
with respect to a taking of all or any part of the Mortgaged Property or with
respect to damage to all or any part of the Mortgaged Property from governmental
action not resulting in a taking of the Mortgaged Property, shall be applied as
follows, in the order of priority indicated or in such other order or proportion
as Beneficiary shall decide in its sole discretion:
(a) to reimburse Beneficiary for all costs and expenses,
including reasonable attorneys' fees incurred in connection with collecting the
said proceeds;
(b) to the payment of late charges, if any, owing under the Note
or the Loan Documents;
(c) to the payment of accrued and unpaid interest on the Note;
(d) to the prepayment of the unpaid principal of the Note,
without premium;
(e) to the payment of the balance of the Indebtedness; and
(f) to the payment of any amounts owing to Beneficiary or the
other Indemnified Parties (as defined in the Indemnity Agreement) under the
Indemnity Agreement.
The balance, if any, will be paid to Trustor.
17
<PAGE>
ARTICLE 9
MISCELLANEOUS
-------------
9.1 Further Assurances. Trustor, upon the reasonable written request
------------------
of Beneficiary, will execute, acknowledge and deliver, or arrange for the
execution, acknowledgment and delivery of, such further instruments (including,
without limitation, financing statements, estoppel certificates and declarations
of no set-off, attornment agreements and acknowledgments of the Assignment) and
do such further acts as may be necessary, desirable or proper to carry out more
effectively the purpose of the Loan Documents, to facilitate the assignment or
transfer of the Note and the Loan Documents and to subject to the liens of the
Loan Documents any property intended by the terms thereof to be covered thereby,
and any renewals, additions, substitutions, replacements or betterments thereto.
Upon any failure of Trustor to execute and deliver such instruments,
certificates and other documents on or before fifteen (15) days after receipt of
written request therefor, Beneficiary may make, execute and record any and all
such instruments, and certificates and Trustor irrevocably appoints Beneficiary
the agent and attorney-in-fact of Trustor to do so.
9.2 Recording and Filing. Trustor, at its expense, will cause the
--------------------
Loan Documents, all supplements thereto and any financing statements at all
times to be recorded and filed and re-recorded and re-filed in such manner and
in such places as Beneficiary shall reasonably request, and will pay all such
recording, filing, re-recording and re-filing taxes, fees and other charges.
9.3 Notice. Trustor hereby requests that a copy of any notice of
------
default and every notice of sale hereunder be mailed to it as provided by law at
the Trustor's Address. All notices, demands, requests and other communications
required under the Loan Documents and the Note shall be in writing and shall be
deemed effective (i) upon mailing by U.S. certified or registered mail, postage
prepaid, addressed to the party for whom it is intended at the Trustor's Address
or the Trustee's Address, as the case may be, or in the case of notices to
Beneficiary, to Beneficiary at the Beneficiary's Address, or (ii) upon receipt,
if personally delivered or sent by facsimile. Any party may designate a change
of address or facsimile number by written notice to the other, given at least 10
business days before such change of address is to become effective. Trustor
may, from time to time, change the address to which notice of default and notice
of sale hereunder shall be sent by both recording a request therefor and sending
a copy of such request to Beneficiary.
9.4 Beneficiary's Right to Perform the Obligations. If Trustor shall
----------------------------------------------
fail to make any payment or perform any act required by the Note or the Loan
Documents, then, at any time thereafter, without notice to or demand upon
Trustor and without waiving or releasing any obligation or default, Beneficiary
may make such payment or perform such act for the account of and at the expense
of Trustor, and shall have the right to enter the Mortgaged Property for such
purpose and to take all such action thereon and with respect to the Mortgaged
Property as may be necessary or appropriate for such purpose. All sums so paid
by Beneficiary, and all costs and expenses, including, without limitation,
reasonable attorneys' fees and expenses so incurred together with interest
thereon at the interest rate provided in the Note, from the date of payment or
incurring, shall constitute additions to the Indebtedness secured by the Loan
Documents, and shall be paid by Trustor to Beneficiary, on demand. If
Beneficiary shall elect to pay any Imposition, Beneficiary may do so in reliance
on any bill, statement or assessment procured from the appropriate public
office, without inquiring into the accuracy thereof or into the validity of such
Imposition. Trustor shall indemnify Beneficiary for all losses and expenses,
including reasonable attorneys' fees, incurred by reason of any acts performed
by Beneficiary pursuant to the provisions of this Section 9.4 or by reason of
the Loan Documents, and any funds expended by Beneficiary to which it shall be
entitled to be indemnified, together with interest thereon at the interest rate
provided in the Note from the date of such expenditures, shall constitute
additions to the Indebtedness and shall be secured by the Loan Documents and
shall be paid by Trustor to Beneficiary upon demand.
9.5 Covenants Running with the Land. All covenants contained in the
-------------------------------
Loan Documents shall run with the Mortgaged Property.
9.6 Severability. In case the Indebtedness or any one or more of the
------------
Obligations shall be invalid, illegal or unenforceable in any respect, the
validity of the Note, this Deed of Trust, the Loan Documents, the
18
<PAGE>
Indemnity Agreement and remaining Indebtedness or Obligations shall be in no way
affected, prejudiced or disturbed thereby.
9.7 Modification. The Loan Documents and the terms of each of them
------------
may not be changed, waived, discharged or terminated orally, but only by an
instrument or instruments in writing signed by the party against which
enforcement of the change, waiver, discharge or termination is asserted.
9.8 Due on Sale. The loan evidenced by the Note and secured by this
-----------
Deed of Trust is personal to Trustor, and Beneficiary made such loan to Trustor
based upon the credit of Trustor and Beneficiary's judgment of the ability of
Trustor to repay the entire Indebtedness and therefore this Deed of Trust may
not be assumed by any subsequent holder of an interest in the Mortgaged Property
without Beneficiary's prior written consent.
9.9 Tax on Indebtedness or Deed of Trust. In the event of the
------------------------------------
passage, after the date of this Deed of Trust, of any law deducting from the
value of land for the purposes of taxation, any lien thereon, or imposing upon
Beneficiary the obligation to pay the whole, or any part, of the taxes or
assessments or charges or liens herein required to be paid by Trustor, or
changing in any way the laws relating to the taxation of deeds of trust,
mortgages or debts as to affect the Deed of Trust or the Indebtedness, the
entire unpaid balance of the Indebtedness shall, at the option of Beneficiary,
after thirty (30) days written notice to Trustor, become due and payable;
provided, however, that if, in the opinion of Beneficiary's counsel, it shall be
lawful for Trustor to pay such taxes, assessments, or charges, or to reimburse
Beneficiary therefor, then there shall be no such acceleration of the time for
payment of the unpaid balance of the Indebtedness if a mutually satisfactory
agreement for reimbursement, in writing, is executed by Trustor and delivered to
Beneficiary within the aforesaid period.
9.10 Maximum Rate of Interest. Notwithstanding any provision in this
------------------------
Deed of Trust, or in any instrument now or hereafter relating to or securing the
Indebtedness evidenced by the Note, the total liability for payments of interest
and payments in the nature of interest, including, without limitation, all
charges, fees, exactions, or other sums which may at any time be deemed to be
interest, shall not exceed the limit, if any, imposed by Beneficiary by
applicable usury laws. In the event the total liability for payments of
interest and payments in the nature of interest, including, without limitation,
all charges, fees, exactions, or other sums which may at any time be deemed to
be interest, shall for any reason whatsoever, result in an effective rate of
interest, which for any month or other interest payment period exceeds the limit
imposed by the applicable usury laws, all sums in excess of those lawfully
collectible as interest for the period in question shall, without further
agreement or notice by, between, or to any party hereto, be applied to the
reduction of the Indebtedness immediately upon receipt of such sums by
Beneficiary, with the same force and effect as though Trustor had specifically
designated such excess sums to be so applied to the reduction of the
Indebtedness and Beneficiary had agreed to accept such sums as a payment of the
Indebtedness not subject to any prepayment penalty, provided, however, that
Beneficiary may, at any time and from time to time, elect, by notice in writing
to Trustor, to waive, reduce, or limit the collection of any sums (or refund to
Trustor any sums collected) in excess of those lawfully collectible as interest
rather than accept such sums as a prepayment of the Indebtedness.
9.11 Survival of Warranties and Covenants. The warranties,
------------------------------------
representations, covenants and agreements set forth in the Loan Documents shall
survive the making of the loan and the execution and delivery of the Note, and
shall continue in full force and effect until the Indebtedness and Obligations
shall have been paid and performed in full. Notwithstanding the foregoing, (i)
the obligations specified in Section 5.1.10 hereof, (ii) the obligations under
the Indemnity Agreement, and (iii) any other obligation contained in the Note or
the Loan Documents that expressly so provides, shall survive the full payment
and performance of the Indebtedness and Obligations.
9.12 Applicable Law. This instrument and the rights and obligations
--------------
of the parties hereunder shall be governed by and construed in accordance with
the laws of the State of California.
9.13 Loan Expenses. Trustor shall pay all costs and expenses in
-------------
connection with the preparation, execution, delivery and performance of the Note
and the Loan Documents and the transactions contemplated thereby, including (but
not limited to) costs and fees incurred by Beneficiary's independent inspector,
19
<PAGE>
fees and disbursements of its and Beneficiary's counsel, broker's fees, costs
and expenses of procuring any environmental audits required to be procured by
Trustor, recording costs and expenses, conveyance fees, documentary stamp,
intangible and other taxes, and costs and expenses of surveys, appraisals and
policies of title insurance, physical damage insurance, and liability insurance.
9.14 Substitution of Trustee. Beneficiary, acting alone, may, from
-----------------------
time to time, by instrument in writing, substitute a successor or successors to
any Trustee named herein or acting hereunder. Such instrument, executed,
acknowledged and recorded in the manner required by law, shall be conclusive
proof of proper substitution of such successor Trustee or Trustees, who shall
(without conveyance from the preceding Trustee) succeed to all of the title,
estate, rights, powers and duties of such preceding Trustee. Such instrument
shall contain the name of the original Trustor, Trustee and Beneficiary
hereunder, the book and page or instrument number where this Deed of Trust is
recorded and the name and address of the new Trustee. If a notice of default
has been recorded, this power of substitution cannot be exercised until after
the costs, fees, and expenses, of the then acting Trustee have been paid to such
Trustee, who shall endorse receipt thereof upon such instrument of substitution.
9.15 No Representations by Beneficiary. By accepting or approving
---------------------------------
anything required to be observed, performed or fulfilled or to be given to
Beneficiary, pursuant to the Loan Documents, including (but not limited to) any
officer's certificate, survey, appraisal or insurance policy, Beneficiary 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 be or
constitute any warranty or representation with respect thereto by Beneficiary.
9.16 Acceptance of Trust. Trustee accepts the Trust created by this
-------------------
Deed of Trust when this Deed of Trust, duly executed and acknowledged, is made a
public record a provided by law.
9.17 Waiver of Statute of Limitations and Rights to Trial by Jury.
------------------------------------------------------------
The pleading of any statute of limitations as a defense to any and all
obligations secured by this Deed of Trust and the right to a jury trial in any
action under or relating to the Loan Documents is hereby waived, to the fullest
extent allowed by law.
9.18 Partial Reconveyance. Upon the prior written request by Trustor
--------------------
to Beneficiary requesting that a portion of the Mortgaged Property that
constitutes a separate legal parcel (hereinafter referred to as a "Parcel") be
reconveyed, Beneficiary shall cause such Parcel(s) to be released from the lien
of this Deed of Trust by depositing a request for such reconveyance into an
escrow opened by or for Trustor in connection with the sale or refinance of such
Parcel(s) provided that:
-------- ----
(a) No Event of Default has occurred and is continuing and no
event has occurred which, with notice or lapse of time or both, would constitute
an Event of Default;
(b) Beneficiary is paid the "Release Price" for such Parcel, as
that term is defined in the Note;
(c) Trustor shall be responsible for obtaining (and providing
evidence of such to Beneficiary's satisfaction) all governmental approvals which
may be required in order that the reconveyance or a subsequent foreclosure of
the Mortgaged Property remaining subject to the lien of this Deed of Trust will
not result in a disposition of property constituting a violation of any
ordinance, law or regulation of any public authority relating to the
subdivision, development or sale or resale of real property;
(d) Beneficiary shall not be required to direct Trustee to
reconvey any Parcel if:
(i) Such reconveyance would, in the opinion of
Beneficiary, (A) result in a disposition of property constituting the
violation of any ordinance, law or regulation of any public authority
or covenant, condition or restriction affecting the Mortgaged Property
relating to the subdivision, development, sale or resale of real
property, or (B) result in the violation of any ordinance, law or
regulation of any public authority or covenant, condition or
restriction affecting
20
<PAGE>
the Mortgaged Property relating to the subdivision, development, sale
or resale of real property upon foreclosure by Beneficiary of any
portion of the Mortgaged Property remaining subject to the lien of
this Deed of Trust; or
(ii) Such reconveyance would, in the opinion of
Beneficiary, deny any portion of the Mortgaged Property remaining
subject to the lien of this Deed of Trust the right of ingress and
egress to and from any dedicated street to which such Mortgaged
Property would otherwise be entitled or the right of access to any
public utility services, lines and facilities to which such Mortgaged
Property would otherwise be entitled or would restrict or adversely
affect any such rights of ingress, egress or access.
(e) Beneficiary shall have obtained a form CLTA 111 endorsement to
its lender's policy of title insurance, and if requested by Beneficiary, an
endorsement ensuring that the partial reconveyance does not constitute a
violation of the California Subdivision Map Act, all at the cost and expense of
Trustor;
(f) Trustor shall have reimbursed Beneficiary for all its costs and
expenses incurred in effectuating the release requested by Trustor; and
(g) For the release of the last Parcel remaining subject to the lien
of this Deed of Trust, the total amount of the Indebtedness shall be reduced to
zero and all Obligations then outstanding shall be performed in full.
9.19 Compensation of Trustee. Trustee shall be entitled to reasonable
-----------------------
compensation for all services rendered or expenses incurred in the
administration or execution of the trusts hereby created and Trustor hereby
agrees to pay same. Trustee and Beneficiary shall be indemnified, held harmless
and reimbursed by Trustor for any liability, damage or expense, including
attorneys' fees and amounts paid in settlement, which they or either of them may
incur or sustain in the execution of this trust or in the doing of any act which
they, or either of them are required or permitted to do by the terms hereof or
by law.
9.20 Assignability. Trustor acknowledges that Beneficiary may grant
-------------
and assign all or any portion of its beneficial interest under this Deed of
Trust to one or more third parties. Trustor agrees that, upon such grant and
assignment, such third parties shall be entitled to all of the rights, remedies
and benefits provided to the beneficiary hereunder.
9.21 Entire Agreement. This Deed of Trust, Note and the Loan
----------------
Documents constitute the entire agreement between or among the parties hereto
with respect to the matters addressed therein, and supersede all prior oral or
written communications or agreements with respect to such matters.
9.22 Remedies. No right, power or remedy given Beneficiary by the
--------
terms of this Deed of Trust is intended to be exclusive of any other right,
power or remedy. Each and every such right, power or remedy shall be cumulative
and in addition to every other right, power or remedy given to Beneficiary by
the terms of any of the foregoing, by any statute or otherwise against Trustor
or any other person.
9.23 No Waiver. No delay or omission by Beneficiary in exercising any
---------
right or power arising from any default by Trustor shall be construed as a
waiver of such default or as an acquiescence therein, nor shall any single or
partial exercise thereof preclude any further exercise thereof. Beneficiary
may, at its option, waive any of the conditions herein and any such waiver shall
not be deemed to be a modification of the terms hereof. No waiver of any event
of default shall be construed to be a waiver of or acquiescence in or consent to
any preceding or subsequent event of default.
9.24 Headings. The article headings and the section and subsection
--------
captions are inserted for convenience of reference only and shall in no way
alter or modify the text of such articles, sections and subsections.
9.24 Attorneys' Fees. If any action or proceeding is commenced to
---------------
interpret or enforce the terms of this Deed of Trust, the prevailing party shall
be entitled to attorneys' fees and costs, as well as the costs of
21
<PAGE>
such action or proceeding, including, without limitation, (a) attorneys' fees,
costs and expenses incurred in appellate proceedings or in any action or
participation in, or in connection with, any case or proceeding under Chapters 7
or 11 of the Bankruptcy Code or any successor thereto, and (b) attorneys' fees,
costs and expenses incurred as a result of Beneficiary exercising its rights to
cure any Event of Default by Borrower under this Deed of Trust or any other Loan
Document, or as a result of the foreclosure of the Deed of Trust, deed in lieu
thereof, or trustee's sale thereunder.
9.25 Time of Essence. Time is of the essence to each and every
---------------
provision of this Deed of Trust, the Note and the other Loan Documents.
9.26 Amendment and Restatement. Trustor acknowledges that the Note
-------------------------
constitutes an amendment and restatement of that certain Amended and Restated
Promissory Note dated June 1, 1996 in the original principal amount of
$2,927,500 given by Inco Homes Corporation for the benefit of Riverside National
Bank (the "Original Note"). The Original Note was secured by, among other
things, (i) a Deed of Trust dated March 24, 1995 given by Inco Homes
Corporation, as trustor, for the benefit of Riverside National Bank, as
beneficiary, and recorded on March 31, 1995 in the Official Records of San
Bernardino County, California as Instrument No. 1995-0100038, as amended and
modified, that encumbers the Land (the "Original Deed of Trust"), and (ii) a
Deed of Trust dated March 24, 1995 given by Palmdale Vistas Housing
Developments, a California limited partnership, as trustor, for the benefit of
Riverside National Bank, as beneficiary, and recorded on March 31, 1995 in the
Official Records of Los Angeles County, California as Instrument No. 95-462578,
as amended and modified, that encumbers certain real property located in Los
Angeles County, California, as more particularly described therein (the
"Palmdale Deed of Trust"). Palmdale Vistas Housing Developments has dissolved,
and a portion of the property encumbered by the Original Palmdale Deed of Trust
has been distributed to Trustor.
Beneficiary has purchased the Original Note from City National Bank,
successor by statutory merger to Riverside National Bank. In connection with
this purchase, City National Bank has endorsed and delivered the Original Note
to Beneficiary and has assigned its beneficial interest under the Original Deed
of Trust and the Palmdale Deed of Trust to Beneficiary.
On the date Beneficiary purchased the Original Note, Borrower was in
default under the terms of the Original Note and the Original Deed of Trust and
Trustor was in default under the Palmdale Deed of Trust. Borrower and Trustor
requested that Beneficiary restructure the terms of the Original Note as
provided in the Note and amend and restate the terms of the Original Deed of
Trust and the Palmdale Deed of Trust. Beneficiary agrees to restructure the
terms of the Original Note and such deeds of trust (this Deed of Trust
constitutes an amendment and restatement of the Palmdale Deed of Trust), and in
consideration of such restructuring and amending, Trustor hereby absolutely and
unconditionally waives and relinquishes all rights, benefits and protections
otherwise afforded to it under California Civil Code Sections 580a, 580b, 580d
and California Code of Civil Procedure Section 726, which waiver and
relinquishment shall include all rights, benefits and protections otherwise
afforded to it under any common law cases that interpret or apply any of the
foregoing statutes.
9.27 Third Party Trustor Waivers.
---------------------------
(a) Definitions. As used in this Section 9.27, "Third Party
-----------
Indebtedness" means the amounts owing under the Note and all other indebtedness
and other obligations owing by Inco Homes Corporation ("Borrower") under the
Vista Verde Deed of Trust and the other documents executed by Borrower that
evidence, secure or relate to the Note.
(b) Rights of Beneficiary. Trustor authorizes Beneficiary to perform
---------------------
any or all of the following acts at any time in its sole discretion, all without
notice to Trustor and without affecting Beneficiary's rights or Trustor's
obligations under this Deed of Trust.
(i) Beneficiary may alter any terms of the Third Party
Indebtedness or any part of it, including renewing, comprising, modifying,
extending or accelerating, or otherwise changing the time for payment of or
increasing or decreasing the rate of interest on, the Third Party Indebtedness
or any part of it.
22
<PAGE>
(ii) Beneficiary may take and hold security for the Third Party
Indebtedness, accept additional or substituted security for that obligation, and
subordinate, exchange, enforce, waive, release, reconvey, comprise, fail to
perfect and sell or otherwise dispose of any such security.
(iii) Beneficiary may direct the order and manner of any sale of
all or any part of any security now or later to be held for the Third Party
Indebtedness, and Beneficiary may also bid at any such sale and may apply all or
any part of the Third Party Indebtedness against the amount so bid.
(iv) Beneficiary may apply any payments or recoveries from
Borrower, Trustor or any other source, and any proceeds of any security, to the
Third Party Indebtedness in such manner, order and priority as Beneficiary may
elect, whether that obligation is secured by this Deed of Trust or not at the
time of the application.
(v) Beneficiary may release Borrower of its liability for the
Third Party Indebtedness or any part of it.
(vi) Beneficiary may substitute, add or release any one or more
Borrowers, guarantors or endorsers.
(vii) In addition to the Third Party Indebtedness, Beneficiary
may extend other credit to Borrower, and may take and hold security for the
credit so extended, whether or not such security is also security for the Third
Party Indebtedness, all without affecting Beneficiary's rights or Trustor's
liability under this Deed of Trust.
(c) Deed of Trust to be Absolute. Trustor expressly agrees that
----------------------------
until the Third Party Indebtedness is paid and performed in full and each and
every term, covenant and condition of this Deed of Trust is fully performed,
Trustor shall not be released by or because of-
(i) Any act or event which might otherwise discharge, reduce,
limit or modify Trustor's obligations under this Deed of Trust;
(ii) Any waiver, extension, modification, forbearance, delay or
other act or omission of Beneficiary, or its failure to proceed promptly or
otherwise against Borrower, any security encumbered by the Vista Verde Deed of
Trust or any security;
(iii) Any action, omission or circumstance which might increase
the likelihood that Trustor may be called upon to perform under this Deed of
Trust or which might affect the rights or remedies of Trustor against Borrower;
(iv) Any dealings occurring at any time between Borrower and
Beneficiary, whether relating to the Third Party Indebtedness or otherwise,
(v) Borrower becoming insolvent or subject to any bankruptcy or
other voluntary or involuntary proceeding, in or out of court, for the
adjustment of debtor-creditor relationships ("Insolvency Proceeding") and as a
result thereof some or all of the Third Party Indebtedness being terminated,
rejected, discharged, modified or abrogated; or
(vi) Any action of Beneficiary described in subsection (b)
above.
Trustor hereby acknowledges that, absent this subsection (c), Trustor
might have a defense to the enforcement of this Deed of Trust as a result of one
or more of the foregoing acts, omissions, agreements, waivers or matters.
Trustor hereby expressly waives and surrenders any defense to any liability
under this Deed of Trust based upon any such acts, omissions, agreements,
waivers or matters. It is the express intent of Trustor that Trustor's
obligations under this Deed of Trust are and shall be absolute, unconditional
and irrevocable.
23
<PAGE>
(d) Trustor's Waivers. Trustor waives:
-----------------
(i) All statutes of limitations as a defense to any action or
proceeding brought against Trustor by Beneficiary, to the fullest extent
permitted by law;
(ii) Any right it may have to require Beneficiary to proceed
against Borrower or any other party, proceed against or exhaust any security
held from Borrower or any other party (including, without limitation, any
security encumbered by the Vista Verde Deed of Trust), or pursue any other
remedy in Beneficiary's power to pursue;
(iii) To the extent permitted by applicable law, the benefit of
all laws now existing or which may hereafter be enacted providing for any
appraisement, valuation, stay, extension, redemption or moratorium;
(iv) For itself and its successors and assigns, all rights of
marshaling in the event of foreclosure;
(v) Any defense based on any claim that Trustor's obligations
exceed or are more burdensome than those of Borrower;
(vi) Any defense based on: (A) any legal disability of
Borrower, (B) any release, discharge, modification, impairment or limitation of
the liability of Borrower to Beneficiary from any cause, whether consented to by
Beneficiary or arising by operation of law or from any Insolvency proceeding and
(C) any rejection disallowance or disaffirmance of the Third Party Indebtedness,
or any part of it, or any security held for it, in any such Insolvency
Proceeding;
(vii) Any defense based on any action taken or omitted by
Beneficiary in any Insolvency Proceeding involving Borrower, including without
limitation, filing, defending, settling or obtaining a judgment or order on any
proof of claim, making any election to have Beneficiary's claim allowed as being
secured, partially secured or unsecured, including any election under 11 U.S.C.
Section 1111 (b), seeking relief from the automatic stay or adequate protection,
including submitting an appraisal of any security, voting to reject or accept or
failing to vote on any reorganization plan, making any extension of credit by
Beneficiary to Borrower in any Insolvency Proceeding, and the taking and holding
by Beneficiary of any security for any such extension of credit, whether or not
such security is also security for the Third Party Indebtedness;
(viii) All presentments, demands for performance, notices of
nonperformance, protests, notices of protest, notices of dishonor, notices of
acceptance of this Deed of Trust and of the existence, creation, or incurring of
new or additional indebtedness, and demands and notices of every kind;
(ix) Any defense based on or arising out of any defense that
Borrower may have to the payment or performance of the Third Party Indebtedness
or any part of it; and
(x) Any defense based on or arising out of any action of
Beneficiary described in subsections (b) and (c) above.
(e) Waivers of Subrogation and Other Rights and Defenses.
----------------------------------------------------
(i) The obligations of Trustor hereunder are independent of
the obligations of Borrower, and a separate action or actions may be brought
against Trustor whether or not action or suit is brought against Borrower or
Borrower is joined in any such action or actions. At the option of Beneficiary,
Trustor may be joined in any action or proceeding commenced by Beneficiary
against Borrower in connection with or based on the Third Party Indebtedness or
any security for such obligation, and recovery may be had against Trustor in
such action or proceeding without any requirement that Beneficiary first assert,
prosecute or exhaust any remedy or claim against Borrower.
24
<PAGE>
(ii) Upon a default by Borrower, Beneficiary in its sole
discretion, without prior notice to or consent of Trustor, may elect to: (A)
foreclose either: judicially or nonjudicially against any real or personal
property security it may hold for the Third Party Indebtedness, (B) accept a
transfer of any such security in lieu of foreclosure, (C) compromise or adjust
the Third Party Indebtedness or any part of it or make any other accommodation
with Borrower or Trustor, or (D) exercise any other remedy against Borrower or
any security. With respect to security other than the Mortgaged Property hereby
encumbered, no such action by Beneficiary shall release or limit the liability
of Trustor, who shall remain liable under this Deed of Trust after the action,
even if the effect of the action is to deprive Trustor of any subrogation
rights, rights of indemnity, rights of contribution, or other rights to collect
reimbursement from Borrower for any recovery by Beneficiary against Trustor,
whether contractual or arising by operation of law or otherwise. After any
foreclosure or deed in lieu of foreclosure of any real or personal property
pledged to secure the Third Party Indebtedness, Trustor shall under no
circumstances be deemed to have any right, title, interest or claim in or to
such property, whether it is held by Beneficiary or any third party.
(iii) Regardless of whether Beneficiary may have recovered
against Trustor, Trustor hereby waives: (A) all rights of subrogation, all
rights of indemnity, and any other rights to collect reimbursement or
contribution from Borrower or any other person or entity for any recovery by
Beneficiary against Trustor, whether contractual or arising by operation of law
(including the United States Bankruptcy Code or any successor or similar
statute) or otherwise (collectively, "Reimbursement Rights"), (B) all rights to
enforce any remedy that Beneficiary may have against Borrower, and (C) all
rights to participate in any security now or later to be hold by Beneficiary for
the Third Party Indebtedness. Without limiting any other waivers or covenants of
Trustor, this waiver of Reimbursement Rights by Trustor applies before or after
the Third Party Indebtedness has been paid and performed in full, if and to the
extent that any enforcement of this Deed of Trust by itself or in combination
with the previous or subsequent exercise by Beneficiary of any right or remedy
hereunder or under any other Loan Document, would directly or indirectly result
in or be deemed to be a violation of California Civil Code Sections 580a, 580b,
580d or California Code of Civil Procedure Section 726. To the extent Trustor's
waiver of Reimbursement Rights is found by a court of competent jurisdiction to
be void or voidable for any reason, any Reimbursement Rights Trustor may have
against Borrower or any collateral or security shall be junior and subordinate
to any rights Beneficiary may have against Borrower and to all right, title and
interest Beneficiary may have in any such collateral or security. If any amount
should be paid to Trustor on account of any Reimbursement Rights at any time
when the Third Party Indebtedness has not been paid in full, such amount shall
be held in trust for Beneficiary and shall immediately be paid over to
Beneficiary to be credited and applied against the Third Party Indebtedness,
whether matured or not yet mature, in accordance with the terms of the Loan
Documents. The covenants and waivers of Trustor set forth in this subsection
(e)(iii) shall be effective until the Third Party Indebtedness has been paid and
performed in full and are made solely for the benefit of Beneficiary.
(iv) Trustor understands and acknowledges that if Beneficiary
forecloses judicially or nonjudicially against any real property securing the
Third Party Indebtedness other than the Property hereby encumbered, that
foreclosure could impair or destroy any ability that Trustor may have to seek
reimbursement, contribution or indemnification from Borrower or others based on
any Reimbursement Right Trustor may have for any recovery by Beneficiary under
this Deed of Trust. Trustor further understands and acknowledges that in the
absence of this subsection (e), such potential impairment or destruction of
Trustor's rights, if any, may entitle Trustor to assert a defense to this Deed
of Trust based on Section 580d of the California Code of Civil Procedure as
interpreted in Union Bank v. Gradsky, 265 Cal.App.2d 40 (1968). By executing
---------------------
this Deed of Trust, Trustor freely, irrevocably and unconditionally: (A) waives
and relinquishes that defense and agrees that Trustor will be fully liable under
this Deed of Trust even though Beneficiary may foreclose judicially or
nonjudicially against any real property security for the Third Party
Indebtedness other than the Property; (B) agrees that Trustor will not assert
that defense in any action or proceeding which Beneficiary may commence to
enforce this Deed of Trust; (C) acknowledges and agrees that the rights and
defenses waived by Trustor under this Deed of Trust include any right or defense
that Trustor may have or be entitled to assert based upon or arising out of any
one or more of California Civil Code Sections 580a, 580b, 580d or 2848, or
California Code of Civil Procedure Section 726; and (D) acknowledges and agrees
that Beneficiary is relying on this waiver in extending credit to Borrower in
the form of the Third Party Indebtedness, and that this waiver is a material
part of the consideration which Beneficiary is receiving for extending such
credit to Borrower.
25
<PAGE>
(v) Trustor waives any rights and defenses described in
Section 2856(a) of the California Civil Code that are or may become available to
Trustor, including without limitation, any rights and defenses by reason of
Sections 2787 to 2855, inclusive, of the California Civil Code.
(vi) Trustor waives all rights and defenses that Trustor may
have because the Third Party Indebtedness may be secured by real property other
than the Mortgaged Property hereby encumbered. This means, among other things:
(A) Beneficiary may collect from Trustor (including
enforcing this Deed of Trust against Trustor) without first foreclosing on any
real or personal property collateral pledged by Borrower including, without
limitation, any real or personal property collateral pledged under the Vista
Verde Deed of Trust.
(B) If Beneficiary forecloses on any real property
collateral pledged by Borrower:
(a) The amount of the Third Party Indebtedness may be
reduced only by the price for which that collateral is sold at the foreclosure
sale, even if the collateral is worth more than the sale price. The "price" that
collateral is sold at a foreclosure sale shall mean the credit bid made by
Beneficiary, if such credit bid is the winning bid at such foreclosure sale.
(b) Beneficiary may collect from Trustor (including
enforcing this Deed of Trust against Trustor) even if Beneficiary, by
foreclosing on the real property collateral pledged by Borrower, has destroyed
any right Trustor may have to collect from Borrower.
This subsection (e)(vi) is an unconditional and irrevocable
waiver of any rights and defenses Trustor may have because the Third Party
Indebtedness may be secured by real property other than the Property hereby
encumbered. These rights and defenses include, but are not limited to, any
rights or defenses based upon Section 580a, 580b, 580d, or 726 of the California
Code of Civil Procedure.
(vii) Trustor waives any right or defense it may have at law or
equity, including California Code of Civil Procedure Section 580a, to a fair
market value hearing or action to determine a deficiency judgment after a
foreclosure of any property other than the Property hereby encumbered.
(viii) No provision or waiver in this Deed of Trust shall be
construed as limiting the generality of any other provision or waiver contained
in this Deed of Trust.
(f) Revival and Reinstatement. If Beneficiary is required to pay,
-------------------------
return or restore to Borrower or any other person any amounts previously paid on
the Third Party Indebtedness because of any Insolvency Proceeding of Borrower,
any stop notice or any other reason, the obligations of Trustor shall be
reinstated and revived and the rights of Beneficiary shall continue with regard
to such amounts, all as though they had never been paid, and this Deed of Trust
shall continue to be effective or be reinstated, as the case may be.
(g) Information Regarding Borrower. Trustor acknowledges that the
------------------------------
Deed of Trust secures, among other things, credit extended to Borrower. Trustor
represents that: (i) this Deed of Trust is executed at Borrower's request, (ii)
Beneficiary has made no representation to Trustor as to the creditworthiness of
Borrower, and (iii) no oral promises, assurances, representations or warranties
have been made by or on behalf of Beneficiary to induce Trustor to execute and
deliver this Deed of Trust. Trustor has received and approved copies of all
other requested Loan Documents. Before signing this Deed of Trust, Trustor
investigated the financial condition and business operations of Borrower and
such other matters as Trustor deemed appropriate to assure itself of Borrower's
ability to discharge its obligations in connection with the Third Party
Indebtedness. Trustor assumes full responsibility for that due diligence and
for keeping informed of all matters which may affect Borrower's ability to pay
and perform its obligations to Beneficiary. Beneficiary has no duty to disclose
to Trustor any information which Beneficiary may have or receive about
Borrower's financial condition or business operations or any other circumstances
bearing on Borrower's ability to perform.
26
<PAGE>
(h) Counsel. Trustor acknowledges that Trustor has had adequate
-------
opportunity to carefully read this Deed of Trust and to consult with an attorney
of Trustor's choice prior to signing it. No consent, approval or authorization
of or notice to any person or entity is required in connection with Trustor's
execution of and obligations under this Deed of Trust, and Trustor acknowledges
its execution and delivery of this Deed of Trust is made voluntarily without any
duress or undue influence of any kind.
9.28 Loan Servicing Agent. Trustor acknowledges that Beneficiary may
--------------------
engage a loan servicing agent to service the Note and protect and enforce
Beneficiary's rights under this Deed of Trust, the Note and the other Loan
Documents. Trustor agrees that it shall cooperate with such loan servicing
agent and recognize it as Beneficiary's representative with respect to all
rights and benefits under this Deed of Trust, the Note, the Loan Agreement, and
the other Loan Documents upon being notified in writing of the appointment of
such loan servicing agent by Beneficiary.
IN WITNESS WHEREOF, Trustor has executed this Deed of Trust as of the
date first above written.
TRUSTOR: PALMDALE VISTAS HOUSING DEVELOPMENTS,
a California limited partnership
By: Inco Development Corporation,
a California corporation,
General Partner
By: ___________________________
Ira C. Norris,
President
27
<PAGE>
EXHIBIT 10.103
RESTRUCTURING AGREEMENT
THIS RESTRUCTURING AGREEMENT (this "Agreement") is entered into as of
December 4, 1997 among INCO HOMES CORPORATION, a Delaware corporation
("Borrower"), PALMDALE VISTAS HOUSING DEVELOPMENTS, a California limited
partnership ("Palmdale Vistas"), INCO DEVELOPMENT CORPORATION, a California
corporation ("Inco Development"), and the parties listed on Exhibit A-1 attached
-----------
hereto ("Lenders").
RECITALS
--------
A. Borrower is the maker and obligor under a $2,927,500 Promissory
Note dated June 1, 1996 (the "Note") given by Borrower to Riverside National
Bank. The Note is secured by (i) a Deed of Trust dated March 24, 1995 given by
Borrower, as trustor, for the benefit of Riverside National Bank, as
beneficiary, and recorded on March 31, 1995 as Instrument No. 1995-0100038 in
the Official Records of San Bernardino County, California, as amended and
otherwise modified, and (ii) a Deed of Trust dated March 24, 1995 given by
Palmdale Vistas, as trustor, for the benefit of Riverside National Bank, as
beneficiary, and recorded on March 31, 1995 as Instrument No. 95-462578 in the
Official Records of Los Angeles County, California, as amended and otherwise
modified. The foregoing deeds of trust, as amended and otherwise modified, shall
be referred to as the "Deeds of Trust."
B. Lenders seek to purchase the Note from City National Bank,
successor by statutory merger to Riverside National Bank, and, in connection
with such purchase, obtain an assignment of the beneficial interest under the
Deeds of Trust (the "Purchase and Assignment"). Following the Purchase and
Assignment, (i) Palmdale Vistas will dissolve and will distribute approximately
17 +/- acres of the Palmdale property, zoned for commercial use (the "Commercial
Parcels"), to Palmdale Vistas Housing Investments, the sole limited partner of
Palmdale Vistas ("PVHI"), and the balance of the Palmdale property (the
"Residential Parcels") will be distributed to Inco Development, the sole general
partner of Palmdale Vistas, and (ii) Lenders, Borrower and Inco Development will
restructure the terms of the Note and the Deeds of Trust consistent with the
terms set forth in this Agreement.
C. As a condition to Lenders' entering into the Purchase and
Assignment, and in order to induce Lenders to enter into the Purchase and
Assignment, Lenders are requiring Borrower, Palmdale Vistas and Inco Development
to enter into this Agreement.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. Restructuring. No later than thirty (30) days after the
-------------
closing of the Purchase and Assignment, Lenders, Borrower, Palmdale Vistas and
Inco Development Corporation will restructure the terms of the Note and the Deed
of Trust consistent with the following terms:
(a) The Note will be amended and restated, with the original amount of
the Note reduced to $2,350,000 ("New Note"). Interest will accrue under the New
Note at the rate of 14 1/4% per annum commencing on December 1, 1997, and the
New Note will have a maturity date of May 31, 1999.
(b) The New Note will continue to be secured by the properties
currently encumbered by the Deeds of Trust, other than the Commercial Parcels
(the "Properties"). The Deeds of Trust will be amended and restated pursuant to
form deeds of trust prepared by Lenders ("New Deeds of Trust").
1
<PAGE>
(c) As additional consideration for the restructuring, Borrower will
absolutely and unconditionally assign to Lenders all of its right, title and
interest under that certain Residential Property Option Agreement dated as of
June 12, 1997 by and between Borrower and the parties listed on Exhibit A
---------
attached hereto (the "Option Agreement"). The Option Agreement covers certain
real property consisting of approximately 213 acres located in Victorville,
California (the "Eagle Ranch Property").
(d) The release prices for the Properties shall be as follows:
(i) For the Vista Verde property, Borrower shall pay
to Lenders 100% of the net sales proceeds resulting from the sale of
each portion of the Vista Verde property ("net sales proceeds" means
the gross sales price for each portion of the Vista Verde property,
less reasonable and customary closing costs and broker's commissions,
provided that the broker's commission paid to Borrower or an affiliate
of Borrower shall not exceed 1 1/2%), which payment shall be due at
the time of each sale.
(ii) For the Residential Parcels, (i) Inco Development
shall pay an amount equal to $10,000 per lot if Inco Development sells
the undeveloped lot, which payment shall be due at the time of each
sale, or (ii) Lenders will subordinate the lien of the New Deed of
Trust as to any lot or groups of lots to the lien of a construction
deed of trust obtained by Inco Development, provided that (x) at the
time of the subordination, Lenders are paid an amount equal to $5,000
per lot for which subordination is requested ("Developed Lot"), and
(y) at the time each Developed Lot is sold, Lenders are paid an amount
equal to $5,000 per Developed Lot (thus, as to any particular
Developed Lot, Lenders will receive $10,000; $5,000 upon subordination
and $5,000 upon the sale of the Developed Lot).
(iii) The Lenders will release the Option Agreement on
the Eagle Ranch Property at the close of escrow of the sale of the
Eagle Ranch Property, provided that the Lenders are paid an amount
equal to $300,000, which amount shall be applied against the balance
owing under the New Note.
(e) Borrower will obtain the release of all of the partners to
Palmdale Vistas and will dissolve Palmdale Vistas. Concurrently with this
dissolution, the Lenders will reconvey the Commercial Parcels to PVHI, in
accordance with a letter agreement and mutual release among Borrower, Palmdale
Vistas and PVHI.
(f) Borrower must obtain subordination agreements from those parties
who are beneficiaries of deeds of trust that encumber the Vista Verde Property
such that the New Deed of Trust, when recorded, will be in a first lien priority
as to the Vista Verde Property. If required by the Lenders, Borrower will also
cause Inco Development to obtain subordination agreements from those parties who
are ostensibly beneficiaries of deeds of trust that encumber the Residential
Parcels recognizing that the New Deed of Trust, when recorded, will be in a
first lien priority as to the Residential Parcels.
(g) Borrower and Inco Development shall execute and deliver such other
loan documents as Lenders shall request in connection with the restructuring
including, without limitation, environmental agreements and indemnities, UCC-1
financing statements and FIRPTA affidavits.
(h) All of the above-referenced restructuring documents shall be in a
form acceptable to Lenders.
2. Conditions Precedent. It shall be a condition precedent to Lenders'
--------------------
obligation to enter into the restructuring that, among other things:
2
<PAGE>
(a) Borrower, Palmdale Vistas and/or Inco Development shall provide
the Lenders with reasonably satisfactory evidence that the improvement plans for
the Residential Parcels have been submitted for first plan check and that the
related plan check fees have been paid.
(b) Lawyers Title Insurance Company shall be committed to issue
lenders' title insurance policies insuring the lien priority of the New Deeds of
Trust, which title insurance policies shall reflect such exceptions and contain
such endorsements as shall be acceptable to Lenders.
(c) Palmdale Vistas is dissolved and the Commercial Parcels and
Residential Parcels are distributed as provided in Recital B above.
3. Miscellaneous.
(a) All notices, requests, demands and other communications given or
required to be given under this Agreement shall be in writing, duly addressed to
the parties as follows:
To Borrower: Inco Homes Corporation
1282 West Arrow Highway
Upland, California 91786
To Palmdale Vistas
and Inco Development: c/o Inco Homes Corporation
1282 West Arrow Highway
Upland, California 91786
To Lenders: c/o USA Commercial Mortgage Company
3900 Paradise Road, Suite 263
Las Vegas, Nevada 89109
Attn: Joseph D. Milanowski
(b) This Agreement shall be binding upon and inure to the benefit of
the parties and their respective transferees, successors and assigns.
(c) This Agreement shall be governed by and construed in accordance
with the laws of the State of California.
(d) This Agreement contains all of the agreements of the parties with
respect to the matters contained in this Agreement and no proof of
contemporaneous agreements or understandings, oral or written, pertaining to any
such matters shall be effective for any purpose. No provision of this Agreement
may be amended or added to except by an agreement in writing signed by the
parties to this Agreement or their respective successors in interest expressly
stating that it is an amendment of this Agreement.
(e) This Agreement may be executed in any number of counterparts,
each of which shall be an original but all of which shall constitute one and the
same instrument.
(f) In the event that any suit or action be brought hereon, or an
attorney be employed or expenses be incurred to interpret or enforce the terms
of this Agreement, including any action for injunctive relief, the prevailing
party shall be entitled to recover its attorneys' fees, costs and expenses
incurred in connection with such suit or action.
(g) Time is of the essence to each and all of the provisions of this
Agreement.
3
<PAGE>
(h) Lenders have appointed USA Commercial Mortgage Company as their
agent and attorney-in-fact to handle all matters contemplated by this Agreement,
including signing documents and taking action on behalf of Lenders.
(i) The parties acknowledge that if there should occur a default
hereunder, that damages would be inadequate to compensate the non-defaulting
party and, accordingly, that the non-defaulting party may seek injunctive
relief, including specific performance, to enforce the terms of this Agreement.
IN WITNESS WHEREOF, Lenders, Borrower, Palmdale Vistas and Inco
Development Corporation have executed this Agreement as of the date first
written above.
LENDERS: USA COMMERCIAL MORTGAGE COMPANY,
a Nevada Corporation,
as agent and attorney-in-fact for Lenders
By: __________________________
Name: _____________________
Its: ____________________
BORROWER: INCO HOMES CORPORATION,
a Delaware corporation
By: __________________________
Name: _____________________
Its: ____________________
PALMDALE VISTAS: PALMDALE VISTAS HOUSING DEVELOPMENTS,
a California limited partnership
By: Inco Development Corporation,
a California corporation,
General Partner
By: ____________________
Ira C. Norris,
President
INCO DEVELOPMENT: INCO DEVELOPMENT CORPORATION
a California corporation
By: ____________________
Ira C. Norris
President
4
<PAGE>
EXHIBIT 10.104
December 19, 1997
Ira C. Norris
Chairman and CEO
Inco Homes Corporation
Suite 200
1282 West Arrow Highway
Upland, CA. 91786
Re: Agreement and Escrow Instructions
Palmdale Vistas Housing Developments / Investments
Dear Ira:
Palmdale Vistas Housing Developments ("Developments") of which Inco Developments
Corporation (or its successor) ("Inco Developments") is its sole general partner
and Palmdale Vistas Housing Investments ("Investments"), the sole limited
partner of Developments, of which Thomas E. Gibbs, Jr. is its sole general
partner, have all agreed to liquidate and distribute assets as appropriate and
to dissolve. This letter agreement ("Agreement") shall document the agreement
among Developments, Inco Developments and Investments with respect to such
dissolution and shall be the escrow instructions for the escrow agent ("Escrow
Agent") who executes a copy of this agreement and thereby agrees to conduct the
escrow ("Escrow") for such dissolution.
Inco Developments, Developments and Investments shall deposit with the Escrow
Agent three (8) signed copies of this Agreement. The Escrow Agent shall sign and
return one fully executed copy to each of Developments, Inco Developments and
Investments.
All of the following conditions must be satisfied as conditions precedent to the
close of the Escrow:
(a) Fidelity National Title Company ("Title Company") shall deliver to
Investments a CLTA owners title insurance policy with liability in the amount of
$500,000 subject only to those exceptions as set forth in that certain
Preliminary Title Report issued by the Title Company dated June 9, 1997, File
10149-PM ("Title Policy") showing that Investments is the fee owner of that
certain 17 +/- acre parcel of unimproved real property, the legal description of
which is attached as Exhibit A ("Real Property"), except that the Real Property
shall be lien free with all real estate taxes paid.
(b) Developments is the named insured and fee owner of the real property
described on Exhibit B attached hereto (the "Residential Property" under that
certain _____ owner's policy of title insurance no. ___________ dated ______ 19
--
and issued by __________________ (the "Owner's Policy"). As part of the
liquidation and dissolution of Developments, the Residential Property will be
distributed to Inco Developments. _______________ Title Company shall deliver a
OLTA form 107.10 endorsement naming Inco Developments as a named insured under
the Owners Policy and such other endorsement that affirms the effectiveness of
the Owner's Policy with respect to the Residential Property notwithstanding that
the Real Property has been distributed to Investments (the "Endorsements").
(c) Escrow Agent shall be holding in Escrow all documents and ftinds
necessary to close the Escrow a provided hereunder.
Developments shall deliver to the Escrow Agent the following to be delivered
through the Escrow:
(a) A duly executed Grant Deed to the Real Property in favor of Investments
in recordable form ("Grant Deed").
(b) A duly executed Grant Deed to the Residential Property in favor of Inco
Developments in recordable form ("Inco Grant Deed").
(c) A duly executed LP-3 and LP-4 which indicates that Developments is
liquidated and dissolved.
<PAGE>
(d) Funds in the lawful money of the United States in an amount necessary
to comply with the terms of this Agreement and close the Escrow.
(e) A duly executed Mutual Release in the form attached hereto is Exhibit O
("Mutual Release").
(f) Such other documents or monies as the Escrow Agent or Title Company may
require to consummate the transaction contemplated by this Escrow.
Investments shall deliver to the Escrow Agent the following to be delivered
through Escrow:
(a) A Duly executed Mutual Release.
(b) Such other documents as the Escrow Agent or Title Company may require
to consummate the transaction contemplated by this Escrow.
Inco Developments shall deliver to Escrow Agent the following to be
delivered through Escrow:
(a) A duly executed Mutual Release
(b) Such other documents as the Escrow Agent or ___________ Title Company
may require to consummate the transactions contemplated by this Escrow.
Escrow Agent shall close the Escrow as soon as the Escrow Agent can comply
with all of the terms of this Agreement.
At the close of the Escrow, the Escrow Agent shall:
(a) Pay all real estate taxes due and payable (including the installment
due on December 10, 1997) on the Real Property, including all penalties and
interest. Following such payment, the Real Property shall not have any real
estate taxes assessed against it for which payment is currently due.
(b) Record such deeds of reconveyance and take all other action required
remove all encumbrances recorded against the Red Property.
(c) Record the Grant Deed and the Inco Grant Deed in the office of the
County Recorder of Los Angeles County.
(d) File the LP-3 and LP-4 in the office of the California Secretary of
State.
(e) Deliver one fully executed copy of the Mutual Release to Developments,
Inco Developments and Investments.
(f) Cause the Title Company to deliver the Title Policy to Investments.
(g) Cause __________ Title Company to issue the Endorsements, and deliver
the Endorsements and the Owner's Policy to Inco Developments.
All costs, fees and expenses, including all recording fees, documentary
transfer taxes, title insurance premium for the Title Policy, escrow fees and
the like pertaining to this transaction shall be paid solely by Developments.
Investments shall incur no costs or fees with respect to these transactions.
By signing this document on behalf of Inco Developments, Ira C. Norris
hereby represents and warrants to Investments that he has obtained all requisite
corporate authorizations and approvals required under Inco Developments'
governing documents and by law in order to dissolve Developments and to
consummate the transactions decribed in this Agreement.
<PAGE>
By signing this document on behalf of Investments, Thomas E. Gibbs, Jr.
hereby represents and warrants to Inco Developments that he has obtained all
requisite authorizations and approvals required under Investments' governing
documents and by law in order to dissolve Developments and to consummate the
transactions described in the Agreement.
If any controversy, claim or action is brought between or among the parties
with respect to or arising out of this Agreement, the prevailing part shall be
entitled, in addition to all expenses, costs or damages, to reasonable
attorneys' fees, whether or not such controversy, claim or action is litigated
or prosecuted to judgement.
This Agreement represents the entire understanding among the parties with
respect to the subject matter hereof and superseded all other prior oral or
written agreements. This Agreement may only be modified by a written instrument
signed by all parties.
If the forgoing is acceptable to you, please sign three copies of this
letter and deliver all three copies to the Escrow Agent.
Palmdale Vistas Housing Investments,
a California limited partnership
By:
-----------------------------------
Thomas E. Gibbs, Jr.
General Partner
Palmdale Vistas Housing Investments and Inco Development Corporation hereby
accepts and agrees to all of the terms and conditions set forth in the foregoing
Agreement.
Palmdale Vistas Housing Developments,
a California limited partnership
By Inco Development Corporation,
A California corporation
General Partner
By:
-------------------------------------
Ira C. Norris
Inco Developments Corporation,
A California corporation
By:
-------------------------------------
Ira C. Norris, CEO
__________________ hereby agrees to act as the Escrow Agent for this
transaction in accordance with the foregoing Agreement.
-------------------------------------
By
-----------------------------------
("Escrow Agent")
<PAGE>
EXHIBIT C
PALMDALE HOUSING
MUTUAL RELEASE
--------------
IN CONSIDERATION OF the execution by PALMDALE VISTAS HOUSING DEVELOPMENTS, a
California limited partnership ("Developments" herein), and the delivery and
recordation in the Office of the Los Angeles County Recorder of (i) the Grant
Deed, in the form attached hereto as Exhibit A, in favor of PALMDALE VISTAS
HOUSING INVESTMENTS, a California limited partnership ("Investments" herein) to
approximately Seventeen (17) acres of undeveloped, commercially zoned real
property in Palmdale, California, which property is free of all taxes, liens,
and encumbrances, and (ii) the Grand deed, in the form attached hereto as
Exhibit B, in favor of INCO DEVELOPMENTS CORPORATION, a California corporation
("Inco Developments" herein) to approximately _____ acres of undeveloped,
residentially zoned real property in Palmdale, California, the receipt and
sufficiency of which are hereby acknowledged, the parties agree to concurrently
herewith dissolve and terminate Developments.
In addition, Developments for itself and its respective partners, successors and
assigns, Inco Developments for itself and its respective successors and assigns,
and Investments for itself and its respective partners, successors and assigns,
each hereby releases, forgives and discharges the other and all members and
entities thereof, from any and all manner of claims, demands, equity interests
in, debts or other obligations due from, actions and causes of action, at law or
in equity, known or unknown, suspected or unsuspected, which they or anyone of
them have has, now have, or may, shall or can hereafter ever have against all
other, or any one of them for any matter arising from the beginning of time to
the date hereof. This is a general release. Accordingly, each party hereto
hereby waives the provisions of Section 1542 of the California Civil Code which
provides the following:
"Civil Code Section 1542. A general release does not extend to claims
which the creditor does not know or suspect to exist in his favor at the
time of executing the release, which if known by him, must have materially
affected his settlement with the debtor."
If any controversy, claim or action is brought between or amount the parties
with respect to or arising out of this Agreement, the prevailing part shall be
entitled, in addition to all expenses, costs or damages, to reasonable
attorneys' fees, whether or not such controversy, claim or action is litigated
or prosecuted to judgment.
IN WITNESS WHEREOF, the parties here to have executed and delivered this
Mutual Release as of this _____ day of December 1997.
Palmdale Vistas Housing Developments, Palmdale Vistas Housing Investments,
a California limited partnership a California limited partnership
By Inco Developments Corporation,
A California corporation
General Partner By _____________________________________
Thomas E. Gibbs, Jr., General Partner
By _________________________________ Inco Developments Corporation,
Ira C. Norris a California corporation
CEO of Inco Developments
Corporation
By _____________________________________
Ira C. Norris
CEO of Inco Development Corporation
<PAGE>
EXHIBIT 21.1
INCO HOMES CORPORATION
EXHIBIT 21.1 - SUBSIDIARIES OF THE REGISTRANT
STATE OF INCORPORATION
NAME OR ORGANIZATION
- ---- ----------------------
Norris Homes, Inc. (formerly Inco Homes) California
Inco Development Corporation California
Inco Homes Sales Group, Inc. California
Freedom Mortgage, Inc. California
Inco Insurance Services, Inc. California
Huntington Homes, LLC Delaware
<PAGE>
EXHIBIT 23.1
INCO HOMES CORPORATION
EXHIBIT 23.1 -- CONSENT OF CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 Registration No. 33-68220) of Inco Homes Corporation 1992 Stock Option/Stock
Issuance Plan of our report dated March 27, 1998 appearing on page F-2 of this
Form 10-KSB.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Costa Mesa, California
March 27, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000897432
<NAME> INCO HOMES CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 736
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 27,329
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 30,934
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
2,340
<COMMON> 16
<OTHER-SE> 1,734
<TOTAL-LIABILITY-AND-EQUITY> 30,934
<SALES> 21,721
<TOTAL-REVENUES> 21,721
<CGS> 20,946
<TOTAL-COSTS> 20,946
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (13,074)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13,074)
<DISCONTINUED> 0
<EXTRAORDINARY> 1,425
<CHANGES> 0
<NET-INCOME> (11,649)
<EPS-PRIMARY> (7.15)
<EPS-DILUTED> (7.15)
</TABLE>
