FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1997 or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transaction period from______________to__________________
Commission File Number: 33-58934
LUNDGREN BROS. CONSTRUCTION, INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-0970679
(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)
935 East Wayzata Boulevard
Wayzata, Minnesota 55391
(Address of principal executive offices) (Zip Code)
(612)473-1231
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes_X_ No__
On August 13, 1997, there were 594 voting shares and 10,031 nonvoting shares of
the registrant's no par value common stock outstanding.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
LUNDGREN BROS. CONSTRUCTION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, 1997 DECEMBER 31, 1996
------- -------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,861 $ 1,253
Restricted cash 2,869 1,072
Receivables 1,492 1,276
Notes receivable - affiliate 689 -
Deposits and prepaid expenses 4,471 3,663
Inventories 37,744 37,828
Income taxes receivable 492 32
Land option and earnest money deposits 1,131 795
Property and equipment, net 1,420 1,564
Deferred income taxes 130 130
Other assets 4,367 4,082
------- -------
Total assets $56,666 $51,695
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Obligations under bank lines of credit $ 7,313 $ 2,987
Debt obligations 32,239 30,673
Obligations under capital leases 456 499
Accounts payable 6,349 5,996
Cost to complete sold homes 755 995
Customer deposits 1,591 1,249
Accrued expenses 1,252 1,900
------- -------
Total liabilities 49,955 44,299
Commitments and contingencies - -
Stockholders' equity:
Common stock, no par value; authorized, 12,000
shares; 594 shares voting and 10,031
shares nonvoting issued and outstanding 99 99
Retained earnings 6,612 7,297
------- -------
6,711 7,396
------- -------
Total liabilities and stockholders' equity $56,666 $51,695
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
LUNDGREN BROS. CONSTRUCTION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $ 15,396 $ 18,253 $ 27,492 $ 28,177
Cost of revenues 13,816 15,765 24,411 24,089
-------- -------- -------- --------
Gross profit 1,580 2,488 3,081 4,088
Operating expenses:
Selling 576 544 1,138 1,038
General and administrative 1,000 928 1,785 1,811
-------- -------- -------- --------
4 1,016 158 1,239
Other income (expense):
Interest expense (759) (549) (1,338) (1,015)
Other, net 13 9 35 143
-------- -------- -------- --------
Income (loss) from continuing operations before
income taxes (742) 476 (1,145) 367
Income tax provision (benefit) (299) 190 (460) 147
-------- -------- -------- --------
Income (loss) from continuing operations (443) 286 (685) 220
Loss from discontinued operations, net of income taxes - (57) - (110)
-------- -------- -------- --------
Net income (loss) (443) 229 (685) 110
Retained earnings, beginning of period 7,055 6,167 7,297 6,286
-------- -------- -------- --------
Retained earnings, end of period $ 6,612 $ 6,396 $ 6,612 $ 6,396
======== ======== ======== ========
Net income (loss) per share:
Continuing operations $ (42) $ 27 $ (64) $ 20
Discontinued operations - (5) - (10)
-------- -------- -------- --------
$ (42) $ 22 $ (64) $ 10
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
LUNDGREN BROS. CONSTRUCTION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (685) $ 110
Loss from discontinued operations - 110
-------- --------
Income (loss) from continuing operations (685) 220
Adjustments to reconcile loss from continuing
operations to net cash used in operating activities:
Depreciation and amortization 225 192
Gain on disposal of property and equipment (7) -
Gain on sale of investment - (123)
Changes in operating assets and liabilities (2,809) (6,431)
-------- --------
Net cash used in continuing operating activities (3,276) (6,142)
Net cash used in discontinued operations (115) (142)
-------- --------
Net cash used in operating activities (3,391) (6,284)
Cash flows from investing activities:
Expenditures for property and equipment (68) (34)
Proceeds on disposal of property and equipment 37 -
Proceeds on sale of investment - 159
Other 5 14
Increase in cash surrender value of
life insurance (224) (260)
-------- --------
Net cash used in investing activities (250) (121)
Cash flows from financing activities:
Proceeds from bank lines of credit 16,234 18,115
Payment of principal on bank lines of credit (11,908) (16,319)
Proceeds from debt obligations 22,620 22,135
Payment of principal on debt obligations (22,624) (19,436)
Payment of principal on capital lease obligations (43) (3)
Payment of debt issuance costs (30) -
-------- --------
Net cash provided by financing activities 4,249 4,492
-------- --------
Increase (decrease) in cash and cash equivalents 608 (1,913)
Cash and cash equivalents, beginning of the period 1,253 2,984
-------- --------
Cash and cash equivalents, end of the period $ 1,861 $ 1,071
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
LUNDGREN BROS. CONSTRUCTION, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
NOTE 1. GENERAL
INTERIM FINANCIAL STATEMENTS
The interim financial statements are unaudited but, in the opinion of
management, reflect all adjustments necessary for a fair presentation of
financial position, results of operations and cash flows for the periods
presented. These adjustments consist of normal, recurring items. The results of
operations for any interim period are not necessarily indicative of results for
the full year. The financial statements and notes are presented as permitted by
the requirements for Form 10-Q and do not contain certain information included
in the Company's annual financial statements and Notes. This Form 10-Q should be
read in conjunction with the Company's financial statements and notes included
in its 1996 Annual Report on Form 10-K.
PER SHARE AMOUNTS
Per share amounts are computed by dividing by the weighted average number of
shares of voting and nonvoting common stock outstanding during each period. The
number of outstanding shares of common stock for the three and six months ended
June, 1997 and 1996 was 10,625. In February 1997, the Financial Accounting
Standards Board issued statement No. 128, "Earnings Per Share." This statement
establishes standards for computing and presenting basic and diluted earnings
per share (EPS) for financial statements issued for periods ending after
December 15, 1997. The adoption of this statement will not effect the Company's
reported EPS.
NOTE 2. SELECTED FINANCIAL DATA
June 30, 1997 December 31, 1996
------ ------
(UNAUDITED)
RECEIVABLES
Trade $ 962 $ 961
Escrows 419 202
Contracts and notes 18 18
Employees and officers 11 11
Other 137 139
------ ------
1,547 1,331
Less allowance for doubtful accounts 55 55
------ ------
$1,492 $1,276
====== ======
<PAGE>
LUNDGREN BROS. CONSTRUCTION, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA, CONTINUED
June 30, 1997 December 31, 1996
------- -------
(UNAUDITED)
<S> <C> <C>
INVENTORIES
Homes under construction $17,720 $11,939
Model homes 1,417 3,783
Lots held for sale 10,893 15,069
Land under development 2,184 337
Land held for future development 5,530 6,700
------- -------
$37,744 $37,828
======= =======
ACCRUED EXPENSES
Payroll, bonuses and payroll taxes $ 305 $ 958
Other 947 942
------- -------
$ 1,252 $ 1,900
======= =======
DEBT OBLIGATIONS
Construction loans on single family homes $12,363 $10,692
Promissory notes 5,022 5,231
Development loans 6,774 6,243
Subordinate debenture series 5,945 5,951
Street, sewer and water assessments on land
under development and lots held for sale 1,056 1,471
Installment loans 977 978
Unsecured demand notes payable, stockholders 102 107
------- -------
$32,239 $30,673
======= =======
</TABLE>
Supplemental disclosure of noncash transactions:
The Company acquired land for future development under promissory notes with the
sellers aggregating $1,773 and $1,238 in the six months ended June 30, 1997 and
1996, respectively. In addition, the Company sold $954,000 of land and related
research costs along with related debt of $182,000 in exchange ofr a $768,000
note receivable in the six months ended June 30, 1997, see Note 4.
NOTE 3. DISCONTINUED OPERATIONS:
In November 1996, the Company discontinued operations of its remodeling
division. An estimated loss on disposal of $41 was accrued in the fourth quarter
of 1996. The consolidated statements of operations and retained earnings and
consolidated statement of cash flows for the periods ended June 30, 1996 have
been restated to report separately the net assets and operating results of this
discontinued business. This discontinued business had revenues of $849 and
$1,755, respectively, during the three and six months ended June 30, 1996. There
were no revenues related to the discontinued business in the three and six
months ended June 30, 1997.
<PAGE>
LUNDGREN BROS. CONSTRUCTION, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
(DOLLARS IN THOUSANDS)
NOTE 4. RELATED PARTY TRANSACTIONS:
In May 1997, the Company sold $954,000 of undeveloped land and related research
costs to Marsh Pointe L.L.C. ("Marsh Pointe"), a company related through common
ownership, in exchange for a $768,000 note receivable and Marsh Pointe assumed
two land mortgages totaling $182,000. The note receivable is due on demand and
matures December 31, 1999 with interest payable at 1% above the prime rate. The
outstanding balance as of June 30, 1997 was $689,000. Marsh Pointe will develop
the land and the Company has an option agreement with Marsh Pointe that gives
the Company exclusive rights, but no obligation, to purchase the developed lots
under terms similar to other agreements with non-related parties.
NOTE 5. MODEL HOME SALE AND LEASEBACK:
In May 1997, the Company entered into an agreement to sell and leaseback seven
model homes. The model homes were sold at 83% of the appraised value and leased
back under operating leases for an average term of 15 months at LIBOR plus
5.25%. The Company may sell the homes at the end of the lease term as the
selling agent. Upon the sale of the homes to third parties, the Company will be
paid 75% of the net profit.
The book values of the models totaling $2.1 million have been removed from the
balance sheet. As noted above, under the agreement, the model homes were sold at
a discount from the appraised value but the Company participates in the profit
on the eventual sale of the model homes. The discount has been deferred based on
the Company's expectation that it will be recovered upon the sale of the model
homes. Rentals on these transactions average $215,000 annually. Proceeds from
the sale were used to payoff $1.7 million of debt obligations.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenues for the three and six months ended June 30, 1997 decreased $2.9 million
and $685,000, respectively or 15.7% and 2.4%, respectively, from the same
periods in 1996. The Company closed on sales of 47 and 81 homes in the three and
six months ended June 30, 1997, respectively, as compared to 53 and 80 closings,
respectively, in the same periods in 1996. The average selling price of homes
closed in the three and six months ended June 30, 1997 decreased by 5.4% and
3.5%, respectively, as compared to the average selling price of homes closed in
the same periods in 1996. The decrease in average selling price is due to a
change in the mix of homes closed in the three and six months ended June 30,
1997 compared to the same period in 1996, the sale of seven model homes at 83%
of appraised value under a sales-leaseback agreement and the effect of a special
promotion on pricing offered in late 1996 through the first quarter of 1997.
The Company's gross profit margin in the three and six months ended June 30,
1997 decreased to 10.3% and 11.2%, respectively, as compared to 13.6% and 14.5%,
respectively, in the same periods in 1996. This decrease in gross profit margin
is primarily due to the sale and leaseback of seven model homes at no profit,
and to a lower average sales price as a result of the special promotion in late
1996 through the first quarter of 1997 on sales of the Company's completed house
inventories. The decrease in gross profit margins were also due to changes in
the mix of homes sold and increases in the cost of land developed by the Company
due to competition for, and reductions in the availability of, raw land within
the Twin Cities metropolitan area. The Company expects that the increased costs
of land will continue to negatively impact the gross margins in the future.
Operating expenses for the three and six months ended June 30, 1997 were
approximately the same as in 1996. As a percentage of total revenues, these
expenses increased to 10.2% and 10.6%, respectively, for the three and six
months ended June 30, 1997 as compared to 8.1% and 10.1%, respectively, in 1996,
as most are fixed in nature. The operating expenses increased in 1997 as a
result of an increase in carrying costs of model homes and finished home
inventory. These increased costs were offset by a decrease in the Company's
advertising expenses.
OTHER INCOME (EXPENSE), NET
Interest expense for the three months and six months ended June 30, 1997
increased $210,000 and $323,000, respectively, or 38.3% and 31.8%, respectively,
from the same periods in 1996. This increase is mainly due to higher interest
rates and increased borrowings on the Company's lines of credit to finance
increased working capital needs, including an increase in finished home
inventory.
Other income (expense), net decreased $108,000 in the six months ended June 30,
1997 from the same period in 1996. The decrease is mainly due to a $123,000 gain
in 1996 on the sale of an investment in a land development partnership.
<PAGE>
NET INCOME (LOSS) FROM CONTINUING OPERATIONS
Loss from continuing operations in the three and six months ended June 30, 1997
was $443,000 and $685,000, respectively, compared to income from continuing
operations of $286,000 and $220,000, respectively, in the same periods in 1996.
The increased loss is primarily due to a decrease in revenues, decrease in gross
profit margins and increase in interest expense in 1997, and a gain in 1996 on
the sale of an investment in a land development partnership.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows used in operating activities were $3.4 million for the six months
ended June 30, 1997, a decrease of $2.9 million from the same period in 1996,
during which operating activities used $6.3 million of cash. During the six
months ended June 30, 1997, cash was used for an increase in restricted cash of
$1.8 million; a $1.5 million increase in prepaid expenses, principally for costs
incurred in research of potential land projects; a $648,000 decrease in accrued
expenses, principally for payment of bonuses to employees other than
stockholders; a $685,000 loss from continuing operations and $404,000 related to
other changes in operating assets and liabilities. These cash uses were
partially offset by $1.6 cash provided by a decrease in cash used for land under
development.
Cash flows used in investing activities increased by $129,000 from $121,000 for
the six months ended June 30, 1996 to $250,000 for the same period in 1997. The
increase was primarily due to the effect of proceeds from the sale of an
investment in a land development partnership in 1996.
Cash flows provided by financing activities decreased $243,000 to $4.2 million
for the six months ended June 30, 1997 from $4.5 million in the same period in
1996. The cash provided by financing activities for the six months ended June
30, 1997 was primarily due to increased net borrowings on the Company's bank
lines of credit as a result of cash used for the seasonal increase in house
inventories and an increase in costs incurred in research of potential land
projects in 1997 compared to 1996.
Financing
The Company believes that internally-generated funds, amounts available under
its four lines of credit and borrowing arrangements entered into in the ordinary
course of business will continue to be the primary sources of capital for
liquidity.
The Company's financing needs depend primarily upon sales volume, asset
turnover, land acquisition and inventory balances. The Company presently
finances substantially all of its land acquisition and development and home
construction activities through borrowing arrangements for individual projects
or homes under construction. The borrowing arrangements for each individual
project evolve as the project matures from land acquisition, to development, to
construction of a home and, and finally, to sale of the home and lot. During
1997, the Company entered into two new borrowing arrangements. The first
involves the sale of raw land to other entities, that is subsequently purchased
back by the Company as developed lots. The second involves a sale and leaseback
program for its model homes. As of June 30, 1997, there are seven model homes
under this program.
<PAGE>
The Company also utilizes secured lines of credit to finance its operations. The
Company has an approved aggregate credit of $10.4 million, subject to a
borrowing base. At June 30, 1997, the aggregate maximum credit available under
the lines of credit was $9.8 million, of which $7.3 million was utilized and
$2.5 million was available.
The Company's outstanding indebtedness as of June 30, 1997 included $22.1
million due within one year. The Company has historically operated with a
substantial amount of its outstanding indebtedness due within one year,
historically paying such debt out of earnings or through refinancing, where
applicable. The Company believes that the amounts available under its lines of
credit and amounts generated from operations will be sufficient to satisfy its
debt obligations due in the next year. However, there can be no assurance that
the Company will be able to continue to obtain adequate short-term financing,
including bank financing, in the future.
<PAGE>
PART II. OTHER INFORMATION
Items 1 through 5.
Not applicable
Item 6. Exhibits and Reports on Form 8-K.
(a) See exhibit index attached.
(b) Reports on Form 8-K.
The Registrant filed no reports on Form 8-K during the quarter ended
June 30, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LUNDGREN BROS. CONSTRUCTION, INC.
Date: August 13, 1997 By: /s/ Peter Pflaum
--------------------------------
Peter Pflaum
(Principal Executive Officer)
(Principal Financial Officer)
<PAGE>
LUNDGREN BROS. CONSTRUCTION, INC. EXHIBITS
10.1 Acquisition and Closing Agreement, dated as of May 16, 1997, by and
between the Company and Marsh Point L.L.C.
10.2 Form of Option Agreement between the Company and Marsh Pointe L.L.C.
10.3 Building Loan Agreement, dated as of June 26, 1997, by and between the
Company and CWM Mortgage Holdings, Inc., d/b/a Construction Lending
Corporation of America.
10.4 Master Sale and Rental Agreement, dated as of May 27, 1997, by and
between the Company and National Model Homes, Inc.
10.5 Acquisition and Closing Agreement, dated as of June 10, 1997, by and
between the Company and BF Holding Company.
10.6 Form of Option Agreement between the Company and BF Holding Company.
27 Financial Data Schedule
MARSH POINTE
ACQUISITION AND CLOSING AGREEMENT
THIS ACQUISITION AND CLOSING AGREEMENT ("CLOSING AGREEMENT") is entered
into as of ____________, 1997, by and between Lundgren Bros. Construction, Inc.,
a Minnesota corporation ("LUNDGREN") and Marsh Pointe LLC, a Minnesota limited
liability company ("LLC"). Lundgren and LLC are sometimes hereafter individually
or collectively referred to as a "PARTY" or the "PARTIES."
PREAMBLE
A. Concurrently herewith LLC is acquiring from Lundgren certain real
property in the City of Shorewood, Hennepin County, Minnesota,
described in attached EXHIBIT A ("PROPERTY"). Lundgren acquired the
Property from the sellers described in attached EXHIBIT B ("FORMER
OWNERS") pursuant to certain option or purchase agreements between
Lundgren and the Former Owners which are also described in EXHIBIT B
("FORMER OWNER AGREEMENTS").
B. The Parties desire to (i) provide for the assignment to and assumption
by LLC of Lundgren's rights and obligations under the Former Owner
Agreements, and (ii) memorialize certain terms and agreements of the
Parties pertaining to the sale of the Property by Lundgren to LLC.
THEREFORE, in consideration of LLC's purchase of the Property, the
mutual covenants and agreements contained herein, and for other good and
valuable consideration, the receipt and sufficiency of which is acknowledged,
the Parties agree as follows:
1. ASSIGNMENT. Lundgren hereby transfers and assigns to LLC all of
Lundgren's right, title and interest in and to all of the following:
1.1. FORMER OWNER AGREEMENTS. All of the Former Owner Agreements
including, but not limited to, all of Lundgren's right, title
and interest in and to any representations and warranties of
the Former Owners under the Former Owner Agreements.
1.2. WORK PRODUCT. All drawings, plats, plans, reports, studies,
appraisals, analyses an other documents or data pertaining to
the Property and/or the development of the Property, whether
prepared by Lundgren or third party consultants ("WORK
PRODUCT"). At LLC's request Lundgren shall provide LLC with
full-size copies of all Work Product which is in Lundgren's
possession, together with a computer diskette(s) containing
all Work Product that is available in a format readable by a
computer.
1.3. CONSULTANT AGREEMENTS. All agreements with third party
consultants engaged by or on behalf of Lundgren to produce or
provide Work Product ("CONSULTANT AGREEMENTS").
1.4. APPROVALS. All requests or applications, together with all
implementing and supporting documentation and agreements, for
governmental, public utility or other Property approvals or
permits, including, without limitation, subdivision and zoning
<PAGE>
approvals, development agreements, utility will serve
authorizations and agreements, and any other permit,
authorization, approval or agreement relating to the use or
development of the Property (collectively the "PROPERTY
APPROVALS").
If requested by LLC, Lundgren shall execute and deliver to LLC
such further documents and instruments that may be reasonably required
from time to time in order to evidence and perfect this assignment.
2. ASSUMPTION. LLC assumes all of Lundgren's executory obligations under
the Former Owner Agreements, the Consultant Agreements and the Property
Approvals, effective on the date of this Closing Agreement; provided,
however, that Lundgren remains responsible for payment of all amounts
due all third party consultants, whether pursuant to Consultant
Agreements or otherwise, incurred prior to the date of this Closing
Agreement for the production or preparation of Work Product. Lundgren
shall ensure that all amounts due consultants for Work Product are
promptly paid in order to facilitate the transfer to and use by LLC of
the consultants' Work Product.
3. LUNDGREN'S REPRESENTATIONS AND WARRANTIES. Except for those matters
disclosed in the Former Owner Agreements, the closing documents
delivered by Lundgren and the Former Owner's at the closing of the
Former Owner Agreement transactions, and in the Work Product, Lundgren
represents and warrants to LLC as follows:
3.1. PROPERTY AGREEMENTS AND APPROVALS. The Former Owner and
Consultant Agreements and Property Approvals are currently in
full force and effect; Lundgren is not in default in
performing Lundgren's obligations under the Former Owner and
Consultant Agreements or the Property Approvals; Lundgren is
not aware of any default in performance of the Former Owners'
or consultants' obligations under the Former Owner and
Consultant Agreements; and Lundgren has not previously
assigned, sold, pledged, mortgaged or otherwise transferred
Lundgren's interest in the Former Owner or Consultant
Agreements or the Property Approvals.
3.2. LITIGATION. Lundgren does not have knowledge of any
litigation, investigation, condemnation or legal proceedings
of any kind which are threatened or pending against the
Property or which pertain to or may affect the Property.
3.3. HAZARDOUS WASTE. "Hazardous waste" means any waste, substance
or other material which is defined by or determined by any
federal, state or local statute, regulation, ordinance or
ruling to be hazardous, toxic, poisonous or dangerous. To the
best of Lundgren's knowledge:
3.3.1. The Property does not violate any federal, state or
local statute, regulation or ordinance dealing with
environmental protection or hazardous waste;
3.3.2. The Property's soil and water table are free and
clear of any and all contaminants, including
hazardous waste;
3.3.3. The Property has not been used for the storage or
disposal of any hazardous waste; and
<PAGE>
3.3.4. Lundgren has received no notice from any governmental
authority concerning the removal of hazardous waste
from the Property.
3.4. STORAGE TANKS. Lundgren knows of no underground or aboveground
storage tanks that now exist or ever existed on any portion of
the Property.
3.5. WELLS; PRIVATE SEWER SYSTEMS. Lundgren does not know of any
well(s) or private sewer system(s) on the Property.
3.6. INDEMNITY. Lundgren shall indemnify LLC, its successors and
assigns, against, and shall hold LLC, its successors and
assigns, harmless from, any fines, penalties, liabilities,
claims, suits, actions, damages, losses, costs and expenses,
including reasonable attorneys' fees, which LLC may incur
because of any breach of any of Lundgren's representations and
warranties in this Closing Agreement.
4. NOTICE. Any notice or other communication under this Agreement shall be
in writing, addressed to the Parties at their registered address on
file from time to time with the Office of the Minnesota Secretary of
State. Delivery may be made by (1) United States Mail, registered or
certified mail, postage prepaid, return receipt requested; (2)
commercial delivery service with its customary receipts; or (3)
noncommercial delivery with a notarized affidavit of delivery to the
relevant address. Notices are deemed received on the date of delivery
if sent by delivery service, or, if mailed, on the third (3rd business
day after mailing. A Party may change its address under this section by
giving notice to the other Party.
5. NO BROKERS. Lundgren warrants to LLC that Lundgren has not taken any
action in connection with this transaction which would result in any
real estate broker's fee, finder's fee, or other fee being due or
payable to any Party. LLC warrants to Lundgren that LLC has not taken
any action in connection with this transaction which would result in
any real estate broker's fee, finder's fee, or other fee being due or
payable to any Party. Lundgren and LLC respectively agree to indemnify,
defend and hold harmless the other from and against any and all claims,
fees, commissions and suits of any real estate broker or agent with
respect to services claimed to have been rendered for or on behalf of
such Party in connection with the execution of this Closing Agreement
or the transaction contemplated herein. Lundgren hereby discloses that
Lundgren is a licensed real estate broker and is selling the Property
for Lundgren's own account.
6. MISCELLANEOUS.
6.1. LUNDGREN'S FILES AND RECORDS. Lundgren's files and records
relating to the Property shall be made available to LLC at
reasonable times for inspection and copying by LLC at LLC's
sole cost and expense.
6.2. AMENDMENT. This Closing Agreement may not be amended, waived,
or modified except by an instrument in writing executed by the
Party against whom enforcement of such amendment, waiver or
modification is sought.
6.3. SEVERABILITY. If any term or provision of this Closing
Agreement is invalid or unenforceable, the remainder of this
Closing Agreement shall not be affected and shall remain in
full force and effect. It is the intention of the Parties that
if any
<PAGE>
provision of this Closing Agreement is held to be illegal,
invalid or unenforceable, there will be substituted in lieu
thereof a legal, valid and enforceable provision as similar in
terms to such unenforceable provision as is possible.
6.4. SURVIVAL. All covenants, agreements, obligations and
undertakings made by Lundgren and LLC in or pursuant to this
Closing Agreement shall survive conveyance of the Property and
assignment of the Former Owner and Consultant Agreements to
LLC, whether or not so expressed in the immediate context of
any such covenant, agreement, obligation or undertaking.
Consummation of this transaction by a Party with knowledge of
any breach by the other Party shall not be deemed a waiver or
release of any claims hereunder due to such breach.
6.5. SUCCESSORS; NO ASSIGNMENT. This Closing Agreement shall be
binding upon and inure to the benefit of Lundgren and LLC, and
their respective successors. This Closing Agreement may not be
assigned by either Party without the prior written consent of
the other, which consent may be withheld in its sole
discretion for any reason whatsoever.
6.6. ATTORNEYS' FEES. If either Party defaults under this Closing
Agreement, the defaulting Party shall be responsible for all
reasonable expenses (including attorneys' fees) incurred by
the other Party in enforcing any rights and remedies under
this Closing Agreement.
6.7. HOLD HARMLESS. LLC shall hold Lundgren harmless from any and
all claims arising from third parties as a result of LLC's
acts or omissions. Lundgren shall hold LLC harmless from any
and all claims arising from third parties as a result of
Lundgren's acts or omissions.
6.8. AUTHORITY TO CONTRACT. Lundgren and LLC represent to each
other that the execution and delivery of this Closing
Agreement and the consummation of the transactions
contemplated hereby are within each of the Party's purposes
and powers and all requisite action has been taken to make
this Closing Agreement the valid and binding obligation upon
each of the Parties hereto.
6.9. STANDARD OF PERFORMANCE. Nothing contained in this Closing
Agreement shall limit the right of a Party to exercise its
business judgment, or act, in a subjective manner, with
respect to any matter as to which it has specifically been
granted such right or the right to act in its sole discretion
or sole judgment or the right to make a subjective judgment
under any provision of this Closing Agreement, whether
"objectively" reasonable under circumstances, and any such
exercise shall not be deemed inconsistent with any covenant of
good faith and fair dealing otherwise implied by law to be
part of this Closing Agreement; and the Parties intend by this
provision to set forth their entire understanding with respect
to the terms, covenants, conditions and standards pursuant to
which their obligations are to be judged and their performance
measured.
IN WITNESS WHEREOF, the Parties hereto have executed this Closing
Agreement effective as of the date first written above.
<PAGE>
SELLER: BUYER:
MARSH POINTE LLC LUNDGREN BROS. CONSTRUCTION, INC.
By_________________________________ By_________________________________
Its______________________________ Its______________________________
EXHIBITS
A Legal Description of the Property
B Schedule of Former Owners and Former Owner Agreements
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION OF PROPERTY
That certain real property located in the City of Shorewood, Hennepin
County, Minnesota, described as follows:
Lots 1 through 25, Block 1 and Lots 1 through 6, Block 2, Marsh Pointe,
as shown on the recorded or filed Plat thereof.
<PAGE>
EXHIBIT B
SCHEDULE OF FORMER OWNERS
AND
FORMER OWNER AGREEMENTS
FORMER OWNER: Independent School District No. 276
FORMER OWNER AGREEMENT:
Purchase Agreement dated November 30, 1993 between Independent School
District No. 276 as Seller and Lundgren as Buyer, and all amendments
thereto together with all closing documents generated to date,
including those documents set forth in the Lundgren Closing Book dated
March 29, 1996.
FORMER OWNER: Roman and Adeline Wortman
FORMER OWNER AGREEMENT:
Option Agreement dated April 29, 1994 granted by Roman and Adeline
Wortman as Sellers to Lundgren and all amendments thereto, together
with all closing documents generated to date, including those documents
set forth in the Lundgren Closing Book dated March 29, 1996.
FORMER OWNER: Robert Ledin
FORMER OWNER AGREEMENT:
Purchase Agreement dated December 30, 1993 between Robert Ledin as
Seller and Lundgren as Buyer, and all amendments thereto, together with
all closing documents set forth in the Lundgren Closing Book dated
April 29, 1996.
MARSH POINTE
OPTION AGREEMENT
1. DEFINITIONS.
1.1. DEFINITIONS OF PERSONS.
1.1.1. "SELLER" means Marsh Pointe LLC, a Minnesota limited
liability company.
1.1.2. "BUYER" means Lundgren Bros. Construction, Inc., a
Minnesota corporation.
1.1.3. "CITY" means the City of Shorewood, a Minnesota
municipal corporation.
1.1.4. "COUNTY" means Hennepin County, Minnesota.
1.1.5. "TITLE INSURER" means Chicago Title Insurance
Company, a Missouri corporation.
1.2. DEFINITIONS OF REAL PROPERTY.
1.2.1. "LOT" means a numbered parcel of land in the Property
established by a recorded final plat and authorized
under applicable zoning ordinances for development
with a single-family residential dwelling.
1.2.2. "OUTLOT" means a lettered parcel of land established
by a recorded final plat as a possible common area,
public area or future development area.
1.2.3. "PROPERTY" means the real property legally described
in EXHIBIT A.
1.3. DEFINITIONS OF OTHER TERMS.
1.3.1. "ACQUISITION AGREEMENT" means the Acquisition and
Closing Agreement between Buyer and Seller of even
date pursuant to which Seller purchased the Property
from Buyer.
1.3.2. "AGREEMENT" means this Option Agreement.
1.3.3. "AGREEMENT DATE" means May 16, 1997.
1.3.4. "ALLOCATION PERCENTAGE" for each Lot means the
percentage derived by dividing the value of each
separate Lot for which there has been no Closing, by
the total value of all Lots in the Property for which
there have been no Closings. The initial Allocation
Percentages and values of all Lots are attached as
EXHIBIT B hereto. As Closings occur, the Allocation
Percentages for the remaining Lots for which Closings
have not occurred shall be recalculated as provided
in Section 3.
1.3.5. "BUSINESS DAYS" means all days other than Saturdays,
Sundays and legal holidays defined in Minnesota
Statutes ss. 645.44 for the purpose of serving civil
process.
1.3.6. "CLOSE" OR "CLOSING" means the completion of the
transaction whereby Buyer purchases one or more Lots
in the Property and Seller deeds the Lot(s) to Buyer.
1.3.7. "CLOSING DATE" means the date on which the Closing of
each Lot occurs.
<PAGE>
1.3.8. "DEVELOPMENT MANAGEMENT SERVICES" means the services
to be performed by Buyer pursuant to Section 5 of
this Agreement.
1.3.9. "OPTION PERIOD(S)" are set forth in Section 2.2.
1.3.10. "PROJECT COSTS" means the total sum of ALL EXPENSES
(other than those expressly excluded in this
subsection) paid or incurred by Seller in the
operation of its business, whether direct or
indirect. By way of example, Project Costs include
but are not limited to (a) Property acquisition and
development costs, whether incurred pursuant to the
Acquisition Agreement, this Agreement or otherwise,
(b) all loan fees, points, interest, mortgage
registration fees, appraisal fees and other financing
or holding expenses, (c) all legal, accounting,
engineering, survey, environmental, appraisal,
planning, brokerage or other professional fees, (d)
all real estate taxes and assessments, recording
fees, deed taxes, sales or use taxes (e) liability,
casualty, workers compensation and title insurance,
(f) development or "in lieu" fees and dedications,
(g) Property infrastructure costs, and (h)
organizational, operational and other indirect costs
of conducting Seller's business. The ONLY expenses of
Seller's business operations which are excluded from
the definition of Project Costs are (i) salaries or
other compensation paid to Seller's members, (ii)
capital distributions to Seller's members, and (iii)
income taxes payable by Seller.
1.3.11. "PROJECT PROFORMA" means the schedule of actual and
estimated Project Costs, disbursement schedules and
Lot Closings for the Property approved by the parties
from time to time. The initial Project Proforma is
attached as EXHIBIT C hereto.
1.3.12. "PROJECT RETURN" means the amount which is the sum of
the Project Costs PLUS simple interest on disbursed
Project Costs calculated at the rate of 2% per annum.
Project Costs disbursements shall be determined no
less frequently than monthly during the course of
development and sale of the Lots.
1.3.13. "PURCHASE PRICE" is defined in Section 3.
2. GRANT OF OPTION. Seller hereby grants to Buyer the exclusive Option to
purchase Lots platted on the Property ("OPTION"), in accordance with
the terms and conditions of this Agreement. The Option does not include
the right to purchase any Outlot or other portion of the Property not
platted as a residential Lot.
2.1. OPTION CONSIDERATION. The Parties expect to fund as much of
the Project Costs as possible through a development loan. As
sole consideration for the grant of the Option (i) Buyer shall
provide liability insurance pursuant to Section 7 insuring
Seller as a named insured, (ii) Buyer agrees to perform the
Development Management Services, and (iii) Buyer will pay
monthly the amount by which Project Costs exceed disbursements
from the development loan ("MONTHLY OPTION FEE"). The Monthly
Option Fee shall be payable on the first of each month,
commencing June 1, 1997, in the initial amount of $20,000 per
month, subject to adjustment periodically in accordance with
actual operating results. The Monthly Option Fee
<PAGE>
shall be credited against the Purchase Price of the Lots
remaining subject to the Option after the development loan is
paid in full, based upon an equal allocation among such Lots.
2.2. OPTION PERIODS
2.2.1. INITIAL OPTION PERIOD; INITIAL TAKEDOWN. The "INITIAL
OPTION PERIOD" shall commence on the Agreement Date
and expire on December 31, 1997. In order to extend
the Option into the Second Option Period, Buyer must
Close on at least 9% of the Lots, as shown on the
recorded final plat of the Property ("INITIAL
TAKEDOWN") before the Initial Option Period expires.
2.2.2. SECOND OPTION PERIOD; SECOND TAKEDOWN. If Buyer
Closes on the Initial Takedown before the Initial
Option Period expires, the "SECOND OPTION PERIOD"
shall commence when the Initial Option Period expires
and shall expire on June 30, 1998 In order to extend
the Option into the Third Option Period, Buyer must
have Closed on at least a combined 35% of the Lots
("SECOND TAKEDOWN") before the Second Option Period
expires.
2.2.3. THIRD OPTION PERIOD; THIRD TAKEDOWN. If Buyer Closes
on the Second Takedown before the Second Option
Period expires, the "THIRD OPTION PERIOD" shall
commence when the Second Option Period expires and
shall expire on December 31, 1998. In order to extend
the Option into the Fourth Option Period, Buyer must
have Closed on at least a combined 64% of the Lots
("THIRD TAKEDOWN") before the Third Option Period
expires.
2.2.4. FINAL OPTION PERIOD; FINAL TAKEDOWN. If Buyer Closes
on the Third Takedown before the Third Option Period
expires, the "FINAL OPTION PERIOD" shall commence
when the Third Option Period expires and shall expire
on September 30, 1999.
2.3. EXERCISE OF OPTION. Provided that Buyer is not then in default
under this Agreement, this Option may be exercised with
respect to one or more whole Lots (but not partial Lots) shown
on a final recorded plat of the Property by delivering to
Seller a notice exercising this Option ("EXERCISE NOTICE").
The Exercise Notice: (a) must identify the Lot(s) to be
acquired by Buyer pursuant to the Exercise Notice; (b) must
specify a Closing Date for the purchase of the designated
Lot(s); and (c) must specify any title objections (in which
case the Exercise Notice shall be accompanied by a copy of
Buyer's title commitment and the documents forming the basis
of the title objection). The Closing Date must be during the
current Option Period. The selection of Lots designated for
purchase in the Exercise Notice shall be at Buyer's sole
discretion, provided that all Lots remaining subject to the
Option and any Outlots have access to a public road
right-of-way and municipal utilities.
2.4. FAILURE TO MEET DEADLINES. If Buyer fails to meet any of the
foregoing deadlines or if Seller believes that Buyer's
performance to meet the deadline was deficient in any respect,
Seller shall promptly notify Buyer of the deficiency and give
Buyer at least five (5) Business Days to cure the deficiency.
If Buyer fails to meet the deadline with said 5-day grace
period, this Agreement shall expire without further notice.
<PAGE>
3. PURCHASE PRICE. The Purchase Price of each Lot shall be determined as
follows:
3.1. ALLOCATION PERCENTAGE. Buyer and Seller have agreed upon the
value of each Lot and the resulting initial Allocation
Percentage for each Lot in the Property as set forth in
EXHIBIT B hereto. As Closings occur for each Lot or group of
Lots, the Allocation Percentages for the remaining Lots for
which Closings have not occurred shall be recalculated based
upon the agreed upon values of such Lots. If at any time the
parties are unable to agree upon the Allocation Percentage,
the matter shall be conclusively determined by a majority vote
of a panel of three arbitrators. Buyer shall appoint one
arbitrator; Seller shall appoint another arbitrator; and the
two arbitrators so chosen shall appoint a third arbitrator.
Each arbitrator must have at least 5 years experience in land
development and single family home construction in Minnesota.
The arbitration shall be conducted under the Construction
Industry Rules of the American Arbitration Association.
3.2. PROJECT RETURN. For purposes of calculating the Purchase Price
of each Lot, the Project Return shall be determined based upon
the current Project Proforma approved by the parties from time
to time pursuant to Section 4. If Buyer exercises the Option
to purchase all the Lots, the Purchase Price of the final Lot
or group of Lots to Close shall be based on the actual Project
Return as of the date of the final Closing.
3.3. LOT PURCHASE PRICE. The Purchase Price of each Lot shall be
the product of (i) the Project Return determined pursuant to
Section 3.2 minus the amount of the Purchase Prices (exclusive
of any Lender Release Surcharges described below) paid to
Seller for previously Closed Lots, multiplied by (ii) the
Allocation Percentage for such Lot. The Purchase Price for a
particular Lot resulting from such calculations ("BASE PRICE")
shall, however, be subject to the following adjustments:
3.3.1. LENDER RELEASE SURCHARGE. If the Lot is subject to a
mortgage(s) securing financing contemplated by the
Project Proforma and the release price(s) which
Seller must pay to obtain the release of the Lot from
such mortgage(s) exceed the Base Price calculated
pursuant to Section 3.3 above, then such excess
("LENDER RELEASE SURCHARGE") shall be added to the
Base Price of the Lot. When the mortgage(s) have been
fully satisfied, the amount of any Lender Release
Surcharges shall be allocated equally among the
remaining Lots, the Base Price of which shall be
reduced by a like amount at Closing.
3.3.2. PURCHASE PRICE CREDITS. Buyer is not entitled to any
cash rebate or refund of Lender Release Surcharges.
Purchase Price credits for Lender Release Surcharges
are subject to strict compliance with the Lot Closing
requirements of Section 3.3.1.
4. DEVELOPMENT PLAN; PROJECT PROFORMA. The parties have agreed upon (i) a
proposed plan for developing the Property as single family residential
lots with necessary streets, utilities and other infrastructure
improvements pursuant to the approved Project Proforma and final plat
for the Property ("DEVELOPMENT Plan"). The Project Proforma shall be
updated to reflect actual Project Costs and results of operations at
the beginning of each Option Period and at such more frequent intervals
as the parties deem necessary or appropriate. Any material changes to
or deviations from the Development Plan or Project Proforma must be
approved
<PAGE>
by the parties. Until Buyer receives notice from Seller to the
contrary, Peter Pflaum is Seller's "AUTHORIZED MEMBER" for purposes of
approving Development Plan and Project Proforma changes on behalf of
Seller. If the parties are unable to agree on a proposed change in the
Development Plan or Project Proforma, the matter shall be determined by
arbitration pursuant to the procedures specified in Section 3.1.
5. DEVELOPMENT MANAGEMENT SERVICES. Buyer shall manage and be responsible
for the day to day implementation of the Development Plan, including
coordination of all services by consultants hired pursuant to the
Development Plan. Buyer is responsible for filing the approved final
plat of the Property, processing and diligently attempting to obtain
any required zoning, rezoning or planned unit development approvals,
development agreements and utility service arrangements and preparing,
processing and administering plans, specifications and contracts for
the construction and installation of all grading, streets, curbs,
gutters, sanitary sewers, storm sewers, water facilities and
infrastructure improvements contemplated by the Development Plan. Buyer
shall also be responsible for forming and operating the homeowner
association, if any, as contemplated by the Development Plan, and
staffing positions on the board of directors and officers of the
association, as necessary, until such time as control of the
association passes to the residents.
5.1. SELLER APPROVAL. All applications, plans, specifications,
contracts and other documents necessary for implementation of
the Development Plan after the Agreement Date must be approved
by Seller's Authorized Member and must be in the name of and
executed by Seller as owner of the Property.
5.2. SELLER'S DEVELOPMENT PLAN COSTS. Seller is responsible for
satisfaction of all City and County conditions and
requirements (such as park and street dedications and transfer
of common areas to any owners association) and payment of all
third party costs and expenses associated with processing and
implementing the Development Plan, including reimbursement of
such third party expenses that may be advanced after the
Agreement Date by Buyer on Seller's behalf. All costs and
expenses incurred by Seller to implement the Development Plan
are included as a part of the Project Costs.
5.3. BUYER'S OVERHEAD COSTS. As consideration for the grant of the
Option, Buyer is responsible for paying its own overhead
expenses associated with the Development Management Services
furnished to Seller pursuant to this Section. Overhead as used
herein specifically includes salaries and payroll expenses of
Buyer's employees in directing, administering and supervising
development of the Property; all employee bonuses; the
services of the project manager and support staff necessary to
process and implement the Development Plan; general legal and
accounting fees; all transportation costs; and the operating
expenses of Buyer's home and branch offices such as rent,
utilities, insurance, stationery, office machines and supplies
and other office related expenses. Buyer is not entitled to
any fee or compensation for performing the Development
Management Services, even if Buyer does not exercise the
Option or Close on any Lots.
<PAGE>
6. TITLE.
6.1. TITLE INSURANCE COMMITMENT. Buyer is responsible for obtaining
any title commitment or survey of the Property sufficiently in
advance of the scheduled Closing Date in order to satisfy any
title requirements of Buyer or Buyer's lender by the scheduled
Closing Date, subject to extension for title clearance matters
as provided below. Buyer shall pay for the cost of any survey
and title commitment.
6.2. PERMITTED ENCUMBRANCES; TITLE OBJECTIONS. Buyer's title
objections, if any, shall be contained in Buyer's Notice of
Exercise of the Option or deemed waived. No objections shall
be made for the following "PERMITTED ENCUMBRANCES":
6.2.1. LAWS AND ORDINANCES. Federal, state and local
building, zoning and environmental statutes,
ordinances and regulations;
6.2.2. MINERALS. Reservation of any minerals, or mineral
rights to the State of Minnesota;
6.2.3. ACQUISITION AGREEMENT EXCEPTIONS. All matters (other
than mortgages) existing at the time Buyer conveyed
title to Seller pursuant to the Acquisition
Agreement; and
6.2.4. DEVELOPMENT PLAN EXCEPTIONS. All matters resulting
from Buyer's implementation of the Development Plan
including, without limitation, the recorded plat,
utility and drainage easements, development
agreements, covenants and restrictions and similar
matters.
6.3. TITLE CLEARANCE. If any objections to title are made as
provided in Section 6.2, Seller shall clear all the title
objections within sixty (60) days after receipt of Buyer's
written title objections.
6.3.1. TIME EXTENSIONS. Pending correction of title, the
following time extensions shall occur automatically:
i. The expiration date of the remaining Option
Periods shall be extended for a period of
time equal to the number of days after the
day Seller received Buyer's title objections
and through the day title has been made
marketable and Seller has so notified Buyer;
and
ii. If a Closing Date has been scheduled, it
shall be postponed until the later of the
scheduled Closing Date or ten days after
title has been made marketable and Seller
has so notified Buyer.
iii. Liens for liquidated amounts that can be
released by payment or escrow from proceeds
of the Closing shall not cause any such time
extensions.
6.3.2. BUYER'S REMEDIES. Title clearance by Seller shall be
reasonable, diligent and prompt. If the Closing
proceeds will be inadequate to pay all liquidated
liens or if title is not made marketable within sixty
(60) days after Seller received Buyer's written
objections to title, Buyer may within seventy (70)
days after Seller received Buyer's written objections
to title:
<PAGE>
i. terminate this Agreement, whereupon neither
party shall have any further obligations
under this Agreement;
ii. waive the objections and accept title
subject to the objections;
iii. require Seller to commence proceedings to
correct the title objections, said
proceedings to be at Seller's sole expense;
or
iv. commence proceedings to correct the title
objections and deduct the cost thereof from
the Purchase Price.
If Buyer does not timely give written notice of its election,
then Buyer shall be deemed to have elected to terminate pursuant to
Subsection (i).
7. PROPERTY ACCESS; INSURANCE. For so long as this Agreement is in force,
Buyer and its representatives may enter the Property for all purposes
reasonably necessary for Buyer to perform Buyer's Development
Management Services. Buyer shall defend, indemnify and hold harmless
Seller from any resulting liability, injury or damage to persons or
property. The indemnity provisions of this section shall survive the
expiration, termination or Closing of this Agreement. For so long as
this Agreement is in force, Buyer shall provide Seller with (i)
comprehensive general public liability insurance insuring Seller as a
named insured with coverage amounts not less than the coverage amounts
maintained by Buyer for Buyer's own business operations, and (ii)
evidence that Buyer maintains statutory workers compensation insurance.
The insurance required hereunder shall be issued by insurers reasonably
acceptable to Seller and shall be evidenced by certificates of
insurance which shall provide that not less than 10 days prior notice
will be given to Seller prior to cancellation or reduction in the
coverage or amounts. The evidence of insurance pursuant to this section
shall be furnished concurrently with the parties' execution of this
Agreement.
8. INTELLECTUAL PROPERTY.
8.1. OWNERSHIP. Buyer and Seller acknowledge, stipulate and agree
that all drawings, plans, submittals and other documents
prepared for the Property and all governmental approvals
obtained for the Property (collectively the "INTELLECTUAL
PROPERTY") shall remain Seller's property, provided that (i)
Buyer may utilize the Intellectual Property for development of
those Lots for which Closings have occurred, (ii) upon Buyer's
Closing on a Lot, any warranties and contract rights in which
Seller may then have an interest relating to work, labor,
skill or materials furnished in connection with the design,
development or improvement of such Lot shall be deemed
assigned to Buyer (such assignment shall not preclude the
coordinate assertion of such warranties and contract rights by
Seller with respect to Seller's interest in the Property) ,
and (iii) Seller will transfer the Intellectual Property to
Buyer at no additional cost when Buyer Closes on all Lots in
the Property. This paragraph shall survive the expiration or
termination of this Agreement and shall be enforceable at law
or in equity.
8.2. REPORTS. If this Agreement terminates and Buyer has not Closed
on all Lots in the Property, then within ten Business Days
after such termination, Buyer shall provide Seller with
full-size copies of all engineering reports, soil tests,
surveys, topographical maps and other Intellectual Property
relating to the Property which were prepared as a part of
Buyer's Development Management Services or which are
<PAGE>
in Buyer's possession, together with a computer diskette(s)
containing all such information that is available in a format
readable by a computer.
9. CONDITION OF PROPERTY
9.1. AS-IS PURCHASE. Buyer is thoroughly familiar with the
Property, having sold it to Seller pursuant to the Acquisition
Agreement. Therefore, except as expressly contained in this
Agreement, Buyer agrees to accept the condition of the
Property, including specifically without limitation, the
environmental and geological condition of the Property, in an
"AS-IS" and with "ALL FAULTS" condition. Buyer's acceptance of
title to a Lot represents Buyer's acknowledgment and agreement
that, except as expressly contained in this Agreement (i)
Seller has not made any written or oral representation or
warranty of any kind with respect to the Property (including
without limitation express or implied warranties of title,
merchantability, or fitness for a particular purpose); (ii)
Buyer has not relied on any written or oral representation or
warranty made by Seller, its agents or employees with respect
to the condition or value of the Property; (iii) Buyer has had
an adequate opportunity to inspect the condition of the
Property, including without limitation, any environmental
testing, and to inspect documents applicable thereto, and
Buyer is relying solely on such inspection and testing; and
(iv) the condition of the Property is fit for Buyer's intended
use. Buyer agrees to accept all risk of Claims (including
without limitation all Claims under any Environmental Law and
all Claims arising at common law, in equity or under a
federal, state or local statute, rule or regulation) whether
past, present or future, existing or contingent, known or
unknown, arising out of, resulting from or relating to the
condition of the Property, known or unknown, contemplated or
uncontemplated, suspected or unsuspected, including without
limitation, the presence of any Hazardous Substance on the
Property, whether such Hazardous Substance is located on or
under the Property, or has migrated or will migrate from or to
the Property.
9.2. RELEASE. Buyer, for itself, its directors, officers,
stockholders, divisions, agents, affiliates, subsidiaries,
predecessors, successors, and assigns and anyone acting on its
behalf or their behalf hereby fully releases and forever
discharges Seller from any and all Claims (including without
limitation all Claims arising under any Environmental Law and
all Claims arising at common law, in equity or under a
federal, state or local statute, rule or regulation), past,
present and future, known and unknown, existing and
contingent, arising out of, resulting from, or relating to the
condition of the Property, and Buyer hereby waives any and all
causes of action (including without limitation any right of
contribution) Buyer had, has or may have against Seller and
its respective members, managers, agents, affiliates,
subsidiaries, predecessors, successors and assigns, grantors
or anyone acting on its behalf or their behalf with respect to
the condition of the Property, whether arising at common law,
in equity or under a federal, state or local statute, rule or
regulation. The foregoing shall apply to any condition of the
Property, known or unknown, contemplated or uncontemplated,
suspected or unsuspected, including without limitation, the
presence of any Hazardous Substance on the Property, whether
such Hazardous Substance is located on or under the Property,
or has migrated or will migrate from or to the Property.
<PAGE>
9.3. INDEMNITY. To the extent permitted by applicable law, Buyer
agrees to indemnify, hold harmless and defend Seller and its
respective members, managers, agents, affiliates,
subsidiaries, predecessors, successors and assigns, grantors
or anyone acting on its behalf or their behalf for, from and
against any and all Claims (including without limitation all
Claims arising under any Environmental Law and all Claims
arising at common law, in equity or under a federal, state or
local statute, rule or regulation) past, present and future,
existing and contingent, known and unknown arising out of,
resulting from, or relating to the condition of the Property.
The foregoing shall apply to any condition of the Property,
known or unknown, contemplated or uncontemplated, suspected or
unsuspected, including without limitation, the presence of any
Hazardous Substance on the Property, whether such Hazardous
Substance is located on or under the Property, or has migrated
or will migrate from or to the Property, regardless of whether
the foregoing condition of the Property was caused in whole or
in part by the Seller's actions or omissions.
9.4. DEFINITIONS.
9.4.1. "ENVIRONMENTAL LAW" means the Comprehensive
Environmental Response, Compensation and Liability
Act ("CERCLA"), 42 U.S.C. ss. 9601 et seq., the
Resource Conservation and Recovery Act, 42 U.S.C. ss.
9601 et seq., the Federal Water Pollution Control
Act, 33 U.S.C. ss. 1201 et seq., the Clean Water Act,
33 U.S.C. ss. 1321 et seq., the Clean Air Act, 42
U.S.C. ss. 7401 et seq., the Toxic Substances Control
Act, 33 U.S.C. ss. 1251 et seq., all as amended from
time to time, and any other federal, state, local or
other governmental statute, regulation, rule, law or
ordinance dealing with the protection of human
health, safety, natural resources or the environment
now existing and hereafter enacted; and
9.4.2. "HAZARDOUS SUBSTANCE" means any pollutant,
contaminant, hazardous substance or waste, solid
waste, petroleum product, distillate, or fraction,
radioactive material, chemical known to cause cancer
or reproductive toxicity, polychlorinated biphenyl or
any other chemical, substance or material listed or
identified in or regulated by any Environmental Law.
9.4.3. "CLAIM" or "CLAIMS" means any and all liabilities,
suits, claims, counterclaims, causes of action,
demands, penalties, debts, obligations, promises,
acts, fines, judgments, damages, consequential
damages, losses, costs, and expenses of every kind
(including without limitation any attorney's fees,
consultant's fees, costs, remedial action costs,
cleanup costs and expenses which may be related to
any claims).
10. CLOSING DOCUMENTS. The Closing of each Lot or group of Lots for which
Buyer has exercised the Option and delivery of all Closing documents
shall take place on the Closing Date at Buyer's offices, or at such
other place as may be agreed upon by Buyer and Seller. On the Closing
Date, Seller and Buyer shall execute, where necessary, and deliver to
each other the following:
10.1. DEED. A recordable Warranty Deed, on Minnesota Uniform
Conveyancing Blank Form No. 9-M, conveying the Lot(s) from
Seller to Buyer, free and clear of all liens, charges and
encumbrances, except the Permitted Encumbrances;
<PAGE>
10.2. SELLER'S AFFIDAVIT. An affidavit by Seller stating that on the
Closing Date (i) there are no unsatisfied judgments, tax liens
or bankruptcies against or involving the Seller, (ii) there
has been no labor or material furnished to the Property for
which mechanics liens could be filed (or an appropriate
undertaking with Buyer's title insurance company for any
potential mechanics liens), and (iii) there is no other
unrecorded interest in the Property made or suffered by
Seller;
10.3. MISCELLANEOUS DOCUMENTS. Any other documents reasonably
required by the Title Insurer.
10.4. PURCHASE PRICE; POSSESSION. At the Closing, Buyer shall
deliver to Seller the Purchase Price of the Lot(s) in cash,
cashier's check or certified funds. Seller shall deliver
possession of the Lot(s) to Buyer on the Closing Date.
11. CLOSING COSTS.
11.1. REAL ESTATE TAXES.
11.1.1. PRIOR YEAR TAXES. Seller shall pay all real estate
taxes due and payable in years before the Closing and
all real estate taxes which have been deferred.
11.1.2. CURRENT YEAR TAXES. There shall be no proration of
real estate taxes due in the calendar year of
Closing. Seller shall pay all installments of current
taxes with a delinquency date prior to the date of
Closing and Buyer shall pay all installments with a
delinquency date on or after the date of Closing.
11.1.3. FUTURE YEARS TAXES. Buyer shall pay all real estate
taxes due in years after the calendar year of
Closing, except deferred taxes which are Seller's
responsibility.
11.2. SPECIAL ASSESSMENTS. At the Closing of the sale of each Lot,
Buyer shall assume all special assessments on the Lot,
including levied, deferred, pending and proposed special
assessments.
11.3. TITLE INSURER COSTS. Buyer shall pay all title costs,
including the abstracting, photocopying and service charges
for any title insurance commitment and background title
documents required by Buyer, and the premium for any owner's
or lender's title insurance policy required by Buyer. Any
Closing fees charged by the Title Insurer shall be paid by
Buyer.
11.4. RECORDING FEES. Buyer shall pay all document recording fees
and mortgage registration taxes required in connection with
the transaction. Buyer shall pay the state deed tax,
conservation fees, and any recording fees and taxes for title
clearance documents.
12. SELLER'S REPRESENTATIONS AND WARRANTIES. Subject to those matters
encompassed within Buyer's Acquisition Agreement representations and
warranties to Seller, Seller represents and warrants to Buyer as
follows:
12.1. LITIGATION. Seller does not have knowledge of any litigation,
investigation, condemnation or legal proceedings of any kind
pending against Seller or against the Property.
<PAGE>
12.2. HAZARDOUS WASTE. To the best of Seller's knowledge:
12.2.1. SELLER'S USE. During the time that Seller has owned
the Property, it has not been used for the storage or
disposal of any hazardous waste; and
12.2.2. NO NOTICE OF CONTAMINATION. Seller has received no
notice from any governmental authority concerning the
removal of hazardous waste from the Property.
"Hazardous waste" means any waste, substance or other material
which is defined by or determined by any federal, state or
local statute, regulation, ordinance or ruling to be
hazardous, toxic, poisonous or dangerous.
12.3. STORAGE TANKS. Except as disclosed to Seller by Buyer at the
time Seller originally acquired the Property from Buyer,
Seller knows of no underground or aboveground storage tanks
that now exist or ever existed on any portion of the Property.
If any tanks are discovered on the Property, Seller shall be
responsible for removing the tanks and any soils contaminated
with materials (such as petroleum products) which may have
leaked from the tanks, and the cost of such removal shall be
included in the Project Costs.
12.4. WELLS. Except as disclosed to Seller by Buyer at the time
Seller originally acquired the Property from Buyer, Seller
does not know of any wells on the Property. Seller shall be
responsible for sealing all wells in accordance with all
applicable laws, and the cost thereof shall be included in the
Project Costs.
12.5. INDIVIDUAL SEWAGE TREATMENT SYSTEM. Except as disclosed to
Seller by Buyer at the time Seller originally acquired the
Property from Buyer, Seller does not know of any private sewer
system on the Property. Seller shall be responsible for
removing any private sewer systems on the Property and the
cost thereof shall be included in the Project Costs.
13. REPRESENTATIONS AND WARRANTIES GENERALLY.
13.1. SELLER'S REPRESENTATIONS AND WARRANTIES CONDITION PRECEDENT.
Seller agrees that the truthfulness and continuing accuracy of
each and every representation and warranty in this Agreement
is a condition precedent to the performance by Buyer of its
obligations hereunder. Upon the breach of or material change
in any of Seller's warranties, Buyer may, prior to the Closing
Date, terminate this Agreement or Buyer may elect to Close
this sale.
13.2. BUYER'S ACQUISITION AGREEMENT WARRANTIES. Nothing in this
Agreement shall be deemed to amend or supersede Buyer's
representations and warranties to Seller contained in the
Acquisition Agreement, which representations and warranties of
Buyer are hereby affirmed by Buyer and incorporated in this
Agreement as if set forth in their entirety.
13.3. SURVIVAL OF WARRANTIES AND REPRESENTATIONS. The parties'
representations and warranties in this Agreement shall be
deemed to have been remade as of Closing, as if made on and as
of such date, except for such factual matters, if any,
occurring subsequent to the date of this Agreement, which are
set forth in a certificate of changed circumstances delivered
on or before the Closing Date, which certificate upon delivery
<PAGE>
shall be deemed to constitute a part of this Agreement,
provided that such matter shall not affect Buyer's termination
rights under Subsection 13.1. Consummation of this Agreement
by either party with knowledge of any breach by the other
party shall not be deemed a waiver or release of any claims
hereunder due to such breach. All representations and
warranties contained in this Agreement shall survive Closing.
14. CONDEMNATION. If any part of the Property is condemned under a power of
eminent domain, then Buyer may terminate this Agreement; or Buyer may
Close on the purchase and the condemnation proceeds received by Seller
shall be credited against the Purchase Price payable by Buyer.
15. NO BROKERS. Seller warrants to Buyer that Seller has not taken any
action in connection with this transaction which would result in any
real estate broker's fee, finder's fee, or other fee being due or
payable to any party. Buyer warrants to Seller that Buyer has not taken
any action in connection with this transaction which would result in
any real estate broker's fee, finder's fee, or other fee being due or
payable to any party. Seller and Buyer respectively agree to indemnify,
defend and hold harmless the other from and against any and all claims,
fees, commissions and suits of any real estate broker or agent with
respect to services claimed to have been rendered for or on behalf of
such party in connection with the execution of this Agreement or the
transaction contemplated herein. Buyer hereby discloses that Buyer is a
licensed real estate broker and is purchasing the Lots for Buyer's own
account.
16. NOTICE. Any notice or other communication under this Agreement shall be
in writing, addressed to the parties at their registered address on
file from time to time with the Office of the Minnesota Secretary of
State. Notices shall be deemed timely if sent on or before the deadline
OR if received on or before three Business Days after the deadline.
Delivery may be made by (1) United States Mail, registered or certified
mail, postage prepaid, return receipt requested; (2) commercial
delivery service with its customary receipts; or (3) noncommercial
delivery with a notarized affidavit of delivery to the relevant
address. Any person may change his address under this section by giving
notice to the other party.
17. MISCELLANEOUS.
17.1. SELLER'S BOOKS AND RECORDS. Seller shall keep and maintain
accurate financial books and records of the Project Costs in
accordance with generally accepted accounting principals.
These financial books and records shall include all supporting
documentation relative to Project Costs. Seller's books and
records shall be made available to Buyer at reasonable times
for inspection and audit by Buyer at Buyer's sole cost and
expense.
17.2. AMENDMENT. This Agreement may not be amended, waived, or
modified except by an instrument in writing executed by the
party against whom enforcement of such amendment, waiver or
modification is sought.
17.3. NO IMPLIED WARRANTIES. No representations or warranties have
been given by either party to the other which are not fully
embodied in this Agreement.
17.4. SEVERABILITY. If any term or provision of this Agreement is
invalid or unenforceable, the remainder of this Agreement
shall not be affected and shall remain in full force and
effect. It is the intention of the parties that if any
provision of this Agreement is held to be illegal, invalid or
unenforceable, there will be substituted in lieu thereof a
<PAGE>
legal, valid and enforceable provision as similar in terms to
such unenforceable provision as is possible.
17.5. SURVIVAL. Except as may otherwise be expressly provided in
this Agreement, all covenants, agreements, obligations and
undertakings made by Seller and Buyer in or pursuant to this
Agreement shall survive Closing, whether or not so expressed
in the immediate context of any such covenant, agreement,
obligation or undertaking.
17.6. SUCCESSORS; NO ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of Seller and Buyer, and their
respective successors. This Agreement may not be assigned by
either party without the prior written consent of the other,
which consent may be withheld in its sole discretion for any
reason whatsoever.
17.7. ATTORNEYS' FEES. If either party defaults under this
Agreement, the defaulting party shall be responsible for all
reasonable expenses (including attorneys' fees) incurred by
the other party in enforcing any rights and remedies under
this Agreement.
17.8. HOLD HARMLESS. Buyer shall hold Seller harmless from any and
all claims arising from third parties as a result of Buyer's
acts or omissions. Seller shall hold Buyer harmless from any
and all claims arising from third parties as a result of
Seller's acts or omissions.
17.9. AUTHORITY TO CONTRACT. Seller and Buyer represent to each
other that the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby are
within each of the party's purposes and powers and all
requisite action has been taken to make this Agreement the
valid and binding obligation upon each of the parties hereto.
17.10. RECORDING. This Agreement shall not be recorded, but a
memorandum of this Agreement in the form of EXHIBIT D may be
recorded by either party. This Agreement and Buyer's Option
shall be subordinate to any mortgage financing that Seller
deems reasonably necessary or appropriate to finance Project
Costs. Upon request Buyer shall execute and deliver such
recordable subordination agreements and other documents or
instruments reasonably required by any title insurance company
in order to establish the priority of any mortgage securing
such financing as a Property encumbrance with lien priority
over the Option.
17.11. STANDARD OF PERFORMANCE. Nothing contained in this Agreement
shall limit the right of a party to exercise its business
judgment, or act, in a subjective manner, with respect to any
matter as to which it has specifically been granted such right
or the right to act in its sole discretion or sole judgment or
the right to make a subjective judgment under any provision of
this Agreement, whether "objectively" reasonable under
circumstances, and any such exercise shall not be deemed
inconsistent with any covenant of good faith and
<PAGE>
fair dealing otherwise implied by law to be part of this
Agreement; and the parties intend by this provision to set
forth their entire understanding with respect to the terms,
covenants, conditions and standards pursuant to which their
obligations are to be judged and their performance measured.
17.12. FIRST REFUSAL AGREEMENT. Concurrently with Seller's purchase
of the Property from Buyer Seller acquired all of Buyer's
rights pursuant to that Right of First Refusal Agreement with
Roman A. and Adeline M. Wartman dated March 29, 1996, as
amended ( "FIRST REFUSAL AGREEMENT"). The First Refusal
Agreement was recorded on April 5, 1996, as Document No.
6557575, and amended by an Amendment and Assignment filed
concurrently with the deed conveying the Property to Seller.
If during the Option Period Seller receives notice of an
opportunity to acquire property ("SALE PARCEL") under the
First Refusal Agreement, Seller shall immediately notify Buyer
of same. If Buyer timely notifies Seller that Buyer desires to
purchase the Sale Parcel, then Seller will exercise the right
of refusal and thereafter substitute Buyer as the purchaser of
the Sale Parcel. If the First Refusal Agreement is still in
effect when Buyer Closes on all of the Lots in the Property,
Seller will assign the First Refusal Agreement back to Buyer
concurrently with the Closing of the last Lot(s).
17.13. ENTIRE AGREEMENT. The Acquisition Agreement and this Agreement
embody the entire agreement and understanding between Buyer
and Seller relating to the Property. The Acquisition Agreement
and this Agreement supersede all prior agreements between the
parties relating to the Property.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the Agreement Date.
SELLER: BUYER:
MARSH POINTE LLC LUNDGREN BROS. CONSTRUCTION, INC.
By_________________________________ By_________________________________
Its______________________________ Its______________________________
EXHIBITS
A Legal Description of the Property
B Lot Values and Initial Allocation Percentages
C Project Proforma
D Memorandum of Option
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION OF PROPERTY
Lots 1 through 25, Block 1 and Lots 1 through 6, Block 2, Marsh Pointe,
Hennepin County, Minnesota, according to the recorded plat thereof.
<PAGE>
EXHIBIT B
LOT VALUES
AND
INITIAL ALLOCATION PERCENTAGES
<PAGE>
EXHIBIT C
PROJECT PROFORMA
<PAGE>
EXHIBIT D
MEMORANDUM OF OPTION
<PAGE>
________________________________________________________________________________
(SPACE ABOVE FOR RECORDER/REGISTRAR USE)
MARSH POINTE
MEMORANDUM OF OPTION FOR PURCHASE OF REAL PROPERTY
This Memorandum of Option Agreement ("MEMORANDUM") is made as of
___________, 19__, by MARSH POINTE LLC, a Minnesota limited liability company
("SELLER"), and LUNDGREN BROS. CONSTRUCTION, INC., a Minnesota Corporation
("BUYER").
PREAMBLE
A. Buyer and Seller have entered into that certain Option Agreement
dated _________, 19__ ("OPTION AGREEMENT") whereby Seller has granted to Buyer
an Option to purchase residential Lots platted on the property described on
EXHIBIT "1" attached hereto ("PROPERTY").
B. Buyer and Seller desire to execute and record this Memorandum to
evidence the existence of the Option Agreement and Seller's rights thereunder.
THEREFORE, in consideration of the covenants and agreements contained
in the Option Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are acknowledged, Seller and Buyer agree as
follows:
1. GRANT OF OPTION. Seller grants to Buyer an Option to purchase
residential Lots platted on the Property on the terms and conditions set forth
in the Option Agreement.
2. OPTION PERIOD. The Initial Option Period expires December 31, 1997;
provided that the Option may be extended to and including September 30, 1999, on
the terms and conditions specified in the Option Agreement.
3. LIMITED PURPOSE OF MEMORANDUM. The purpose of this Memorandum is
solely to give notice of the Option Agreement and all of its terms, to the same
extent as if the Option
<PAGE>
Agreement were fully set forth herein. This Memorandum shall not be deemed to
supplement, amend or modify the terms and conditions contained in the Option
Agreement. Except as expressly provided herein, words and phrases in this
Memorandum have the same meanings as defined in the Option Agreement.
4. SUBORDINATION. The Option and the Option Agreement are subject and
subordinate to First and Second Mortgages in the amounts of $1,200,000 and
$1,815,000, respectively, executed by Seller to Builders Development & Finance,
Inc., and a Third Mortgage in the amount of $768,000 executed by Seller to
Buyer, all of which are recorded concurrently with this Memorandum.
The parties have executed this Memorandum effective as of
_____________, 19__.
SELLER: BUYER:
MARSH POINTE LLC LUNDGREN BROS. CONSTRUCTION, INC.
By_________________________________ By_________________________________
Its______________________________ Its______________________________
THIS INSTRUMENT WAS DRAFTED BY:
THIS INSTRUMENT WAS DRAFTED BY:
LEONARD, STREET AND DEINARD P.A. (JCK)
150 South Fifth Street, Suite 2300
Minneapolis, MN 55402
STATE OF MINNESOTA )
) ss
COUNTY OF __________ )
The foregoing instrument was acknowledged before me this ___ day of
_______, 19__ by _____________________, the ___________________ of Marsh Pointe
Limited Liability Company, a Minnesota limited liability company, on behalf of
the company.
[SEAL] ____________________________________
Notary Public
<PAGE>
STATE OF MINNESOTA )
) ss
COUNTY OF HENNEPIN )
The foregoing instrument was acknowledged before me this 16th day of
May 1997 by Terry Forbord, the Vice-President of Lundgren Bros. Construction,
Inc., a Minnesota corporation, on behalf of the corporation.
[SEAL] ____________________________________
Notary Public
STATE OF MINNESOTA )
) ss
COUNTY OF HENNEPIN )
The foregoing instrument was acknowledged before me this 16th day of
May, 1997, by Peter Pflaum, the President of Marsh Pointe LLC, a Minnesota
limited liability company, on behalf of the company.
[SEAL] ____________________________________
Notary Public
<PAGE>
EXHIBIT "1"
TO MEMORANDUM OF OPTION
LEGAL DESCRIPTION OF PROPERTY
Lots 1 through 25, Block 1 and Lots 1 through 6, Block 2, Marsh Pointe,
Hennepin County, Minnesota, according to the recorded plat thereof.
BUILDING LOAN AGREEMENT
(Revolving)
(Residential Tract Construction)
Dated as of June 26, 1997
LUNDGREN BROS. CONSTRUCTION, INC., a Minnesota corporation ("Borrower")
and CWM MORTGAGE HOLDINGS, INC., a Delaware Corporation, d/b/a CONSTRUCTION
LENDING CORPORATION OF AMERICA (the "Lender"), agree as follows:
1 Preliminary Statement. The Borrower desires to finance with the
Lender from time-to-time, certain developed lots in various subdivisions which
are being developed or acquired by Borrower and to construct on such lots
detached and attached single family homes in accordance with Improvement Plans
submitted by Borrower to Lender and approved by Lender. In order to finance the
acquisition of such developed lots and the construction of the Improvements and
the payment of various costs and expenses relating to the Project, the Borrower
has applied to the Lender for a revolving Loan in the amount of EIGHT MILLION
AND NO/100 DOLLARS ($8,000,000.00) the repayment of which will be secured by the
Borrower's interest in the Lots and the Improvements and the other Collateral
covered by the Mortgage and amendments thereto to be executed by the Borrower in
favor of the Lender. The Lender is willing to make the Loan to the Borrower to
acquire the Lots and to develop the Units and other Improvements on the Lots
pursuant to the Improvement Plans all on the terms and conditions set forth in
this Agreement.
Capitalized terms used in this Agreement and not otherwise defined are
used with the meanings set forth in Exhibit "A".
2 Initial Documentation. Upon execution of this Agreement the Borrower
shall deliver or cause to be delivered to the Lender, in form and substance
satisfactory to the Lender, the documents specified in Exhibit "B", together
with such other documents and information relating to any Loan Party, the
Project or the transactions contemplated by the Loan Documents as the Lender may
reasonably request.
3 Additions to Collateral. When Borrower has identified one or more
Lots for which it desires the acquisition or refinance and the construction of
Improvements thereon to be financed by Lender hereunder it shall furnish to
Lender for its approval the documents listed in Paragraph 1 of Exhibit "C"
attached hereto. Among other things, the documents so furnished shall
demonstrate to Lender's satisfaction (a) the location, (b) product type, (c)
profitability, (d) success of prior phases, and (e) that the sales price of each
of the Units to be constructed does not exceed
<PAGE>
$750,000.00. Units which are to be located within Subdivisions listed on Exhibit
"E" attached hereto shall be acceptable additions to the Collateral provided
such Units are similar to other Units in such Subdivisions. Any new product not
previously developed by Borrower will require a new appraisal to be commissioned
by Lender at Borrower's sole cost and expense. If Lender approves in writing the
additions of such Lots as Collateral hereunder, and prior to the first
Disbursement of the proceeds of the Loan requested by Borrower with respect to
such Lots, Borrower shall deliver or cause to be delivered to Lender, each in
form and substance satisfactory to Lender, the documents specified in Paragraph
2 of Exhibit "C", together with such other documents and information relating to
any Loan Party, the Collateral, the Project or the transaction contemplated by
the Loan Documents as the Lender may reasonably require. No Lots will be added
as Collateral during the 90-day period preceding the Maturity Date.
4 Disbursements and Additions to the Collateral.
.1 Disbursements. Subject to the terms, conditions and procedures set
forth in this Agreement and in the "Disbursement Schedule" attached hereto as
Exhibit "D", the Lender shall make Disbursements to or for the account of the
Borrower on a Lot by Lot basis from time to time from the date of this Agreement
to the last Banking Day which is on or preceding the Final Funding Date, but in
no event shall more than two Disbursements be made during any calendar month.
Subject to such limitations, the proceeds of the Loan may be borrowed, repaid
and reborrowed in accordance with this Agreement. All Disbursements of the
proceeds of the Loan shall be evidenced by and repayable in accordance with the
terms of the Notes.
.2 Uses For Which Disbursements May Be Made.
(a) Disbursements of the Loan shall be used solely to finance
the acquisition or refinance of the Lots, the payment of hard
construction costs for the construction of Improvements, the payment of
interest on the Loan and the payment of Financing Costs, in amounts not
to exceed amounts set forth therefor in each applicable Unit Budget.
(b) At the time of the initial Disbursement for any Lot, a
Mortgage or an amendment thereto shall be recorded with respect to such
Lot or Lots and, subject to the terms and conditions of this Agreement,
the initial Disbursement shall include the portion of the applicable
Unit Budget to which Borrower may be entitled pursuant to such Lots.
<PAGE>
(c) No Disbursements shall be made with respect to any Unit
which is not one of the Units encumbered by the Mortgage.
(d) Except for Model Units approved by Lender no Disbursements
shall be made for more than seven (7) Spec Units (excluding any Model
Units approved by Lender) in any Unit of which no more than three (3)
Units may have a base sales price exceeding $400,000.00 nor for more
than a total of twenty-five (25) Spec Units (excluding Model Units
approved by Lender) with respect to all Lots in all subdivisions.
The failure by Lender to insist upon any such limitations with
respect to any Disbursement shall not be deemed to be a waiver by
Lender of its rights to thereafter adhere to such limitations with
respect to that or any other Disbursement.
.3 Limitation on Amount of Disbursements.
(a) Lender shall be under no obligation to make any
Disbursement if, following such Disbursement, the aggregate amount of
all Disbursements then outstanding would exceed the Loan Amount;
(b) Lender shall be under no obligation to make any
Disbursement to finance the acquisition of any Lot in excess of 70% of
the retail value of such Lot as determined by Lender or by an appraisal
performed for Lender.
(c) Lender shall be under no obligation to make any
Disbursement for any Unit the Improvements on which were not financed
by Lender under this Agreement. No completed Unit shall be accepted as
Collateral.
(d) Disbursements on account of interest on the Loan shall be
limited to and be disbursed only from the Interest Reserve Line Item
contained in each Unit Budget in an aggregate amount not to exceed
$960,000.00.
(e) No disbursements shall be made with respect to (a) more
than 100 Lots at any time or (b) more than 30 Lots in any Subdivision
at any time.
(f) Lender shall be under no obligation to make any
Disbursement for hard construction costs for any Unit if, following
such Disbursement, the aggregate amount of all Disbursements for such
Unit would exceed 100% of the hard construction costs of such Unit.
<PAGE>
(g) Lender shall be under no obligation to make any
Disbursement for any Unit if, following such Disbursement, the
aggregate amount of all Disbursements for such Unit would exceed 75% of
the value of the completed Unit as determined by Lender based upon (i)
a valid sales contract, or if (i) does not apply, then (ii) the Average
Residual Value of units in prior phases of the Subdivision in which
such Unit is being constructed, or, if neither (i) or (ii) applies,
then (iii) if a new Subdivision of Borrower, by an appraisal of such
completed Unit performed for Lender.
(h) Lender shall be under no obligation to make any
Disbursement for the acquisition of Lots and the construction of Units
which are not Pre-Sold Units if, following such Disbursement, the
aggregate amount of all Disbursements for the acquisition of Lots and
the construction of Units which are not Pre-Sold Units would exceed
$4,000,000.00.
(i) If any completed Unit is not sold within six (6) months
after the initial Disbursement for such Unit, Borrower must repay that
portion of the Loan relating to such Unit to the extent necessary to
reduce the amount of the Loan disbursed and outstanding with respect to
such Unit to sixty-five (65%) percent of the value of such Unit (as
determined in accordance with Section 4.3(g) above).
(j) If any completed Unit is not sold within twelve (12)
months after the initial Disbursement for such Unit, Borrower must
repay Lender an amount equal to the Release Price (as defined in
Paragraph 5(d) herein) applicable to such Unit.
5 Partial Releases. From time to time on or prior to the Maturity Date
of the Loan, Lender shall, at Borrower's request, issue a payoff letter
acceptable to the title company for a partial release of a Unit from the lien of
the applicable Mortgage provided all of the following conditions are satisfied
at the time of, and with respect to, each such partial release, but the failure
by Lender to insist upon the satisfaction of any of the following prior to any
such partial release shall not be deemed to be a waiver by Lender of its rights
to thereafter require satisfaction of the same with respect to that or any other
partial release:
(a) Not less than ten (10) days prior to the date of such
partial release, Lender shall have received from Borrower written
notice identifying, by Lot, the Unit to be released and the date for
recordation of such partial release;
<PAGE>
(b) There shall exist no Event of Default, or event, omission
or failure of condition which would constitute such an Event of Default
after notice or passage of time, or both;
(c) Borrower shall pay all escrow, closing and recording
costs, the costs of preparing and delivering such partial release and
any other sums then due and payable under the Loan Documents;
(d) For each Unit to be partially released, Lender shall have
been paid, in immediately available funds, an amount equal to 100% of
all amounts disbursed by Lender to Borrower with respect to such Unit,
including, without limitation, cost of acquisition of the Lot,
construction cost for such Unit, and an allocable share of interest and
other financing costs associated with such Unit ("Release Price").
Borrower shall have complied with all applicable Laws, including
without limitation ordinances, rules and regulations governing the
subdivision and transfer of real property, with respect to the Unit to
be released;
(e) Borrower shall have reserved such easements over the
applicable Unit being released appurtenant to the Units remaining
subject to the applicable Mortgage and other Loan Documents as Lender
deems necessary or desirable for the efficient and orderly development
and operation of the Units remaining; and
(f) Unit partial releases issued pursuant to payoff letters
shall be processed and issued not more frequently than once each month
per Unit unless special circumstances require more frequent processing.
Neither the acceptance of any payment nor the issuance of any partial release by
Lender shall affect Borrower's obligation to repay all amounts owing under the
Loan Documents or under the lien of the Mortgage on the remainder of the Units
not released.
6 Covenants of the Borrower. Unless the Lender otherwise consents in
writing:
.1 Construction of Improvements. Borrower shall cause construction of
the Improvements to be promptly commenced and diligently and continuously
prosecuted to completion, subject in each case to the following requirements:
(a) the Improvements shall be constructed in substantial conformity with the
Improvement Plans and in compliance in all material respects with all applicable
Laws and Other Requirements, and in a good and workmanlike manner with new
materials of good quality; (b) each Unit shall be constructed entirely on its
applicable Lot and shall
<PAGE>
not encroach upon or overhang any lot line, boundary, set-back, easement,
right-of-way or other land.
If at any time the Lender notifies the Borrower that construction of
the Improvements does not conform to the requirements of this Section 6.1 or any
such nonconformity is otherwise discovered by the Borrower, the Borrower shall
immediately cause such nonconforming construction to be stopped and all
necessary corrective work to be commenced and diligently and continuously
prosecuted to completion.
.2 Change Orders. The Borrower shall not permit any Change Order to the
Improvement Plans to be implemented without the prior approval of the Lender,
provided that this Section 6.2 shall not prevent routine changes in construction
which would not cause the Improvements to fail to be in substantial conformity
with the approved Improvement Plans and which individually or in the aggregate
would not require disclosure pursuant to Section 6.11; and provided further,
however, that Lender shall not unreasonably withhold approval of any such Change
Order.
.3 Compliance with Laws and Other Requirements. The Borrower shall (a)
designate the Lender as "construction lender" in all applications for building
permits and in the Construction Contract, if any, and provide the Lender's name
and address to all Lien Claimants; (b) comply in all material respects with all
applicable Laws and Other Requirements relating to the Collateral or the
Project, and (c) obtain and maintain all Authorizations required in connection
with the Collateral or the Project.
.4 Project Agreements. The Borrower shall (a) take all action
reasonably necessary or appropriate to maintain and enforce its rights and
interests under each of the Project Agreements (including the Architect
Agreement, if any, the Construction Contract, if any, and any Financing
Commitment), (b) comply in all material respects with its obligations under each
of the Project Agreements, (c) not permit or agree to any supplement,
modification, amendment or termination of, or consent or agree to any waiver of
or departure from the terms of, any of the Project Agreements, and (d) not
transfer, encumber (except for Permitted Exceptions) or release any interest in,
or commit or permit any material breach or default on the part of the Borrower
under, any of the Project Agreements, except that so long as no Event of Default
has occurred and is continuing, this Section 6.4 shall not apply (i) with
respect to any Project Agreements, other than any required Financing Commitment,
to any failure of the Borrower to comply with such requirements which in the
aggregate does not, and in the reasonable judgment of the Borrower and the
Lender will not, materially impair the Borrower's ability to perform its
Obligations under the Loan Documents, (ii) to any amendment of the Architect
Agreement or the Construction Contract, if any, to
<PAGE>
incorporate any Change Orders which are permitted to be implemented by Section
6.2, or (iii) to the termination of any Project Agreement as a result of a
material breach or default by the other party.
.5 Collateral. The Borrower shall take all action necessary or
appropriate from time to time to maintain a Mortgage as indefeasible first
priority perfected Liens in the Collateral, and shall not at any time part with
possession of or abandon any of the Collateral or cause or permit any interest
in any of the Collateral to be sold, transferred, leased, encumbered (except for
Permitted Exceptions), released, relinquished or otherwise disposed of (whether
voluntarily, by operation of law or otherwise), provided that: (a) so long as
Borrower complies with Section 5, (i) the Borrower may sell Units in the
ordinary course of business and transfer common areas, if any, to a homeowners
association if and when required by applicable Laws or Other Requirements, (ii)
the Lender shall release Units and common areas or interests in common areas so
sold or transferred from the Lien of the applicable Mortgage, and (iii) the
Borrower may, in the ordinary course of business, receive, hold and dispose of
any excess proceeds resulting from the sale of any Unit after payment of the
applicable "Release Price"; and (b) the requirements of this sentence shall not
prohibit (1) the creation or existence of any Permitted Exceptions or other
Permitted Transfers, or (2) any action with respect to any Project Agreements to
the extent permitted by Section 6.4.
The amount of any "Release Price" received by the Lender shall be
applied to the principal of the Notes, provided that if such amount exceeds the
principal of the Notes then outstanding, the excess shall be held by the Lender
in a Cash Collateral Account and thereafter applied by the Lender (A) so long as
no Event of Default has occurred and is continuing, to future advances of
principal under the Notes as and when made, or (B) if an Event of Default has
occurred and is continuing, to any Obligations of the Borrower under the Loan
Documents at such time or times and in such manner as the Lender deems
appropriate. Upon payment in full of all Obligations of the Borrower and
termination of all obligations of the Lender under the Loan Documents, the
Lender shall release its interest in any amounts then held in any such Cash
Collateral Account.
The Borrower shall at all times use its best efforts to market and sell
Units in compliance with the terms of this Agreement.
.6 Personal Property. The Borrower shall not (a) install or otherwise
use or acquire for use in connection with the Collateral or the Project any
Personal Property (including replacement Personal Property pursuant to clause
(iii) below)
<PAGE>
which is not owned by the Borrower free and clear of all Liens (including
conditional sale contracts) and Rights of Others (other than Permitted
Exceptions) or which is not a part of the Collateral, or (b) cause or permit the
removal from the Lots of any Personal Property which is installed or otherwise
used or acquired for use in connection with the Collateral or the Project,
except that so long as no Event of Default has occurred and is continuing, this
clause (b) shall not prohibit (i) the temporary removal of Personal Property for
repairs in the ordinary course of business, (ii) the removal of Personal
Property of insignificant value which is not reasonably necessary or appropriate
to the completion of the Project, or (iii) the removal of defective or worn out
Personal Property which has been replaced by other Personal Property of equal or
greater suitability and value which is intended for the same purpose. Upon
removal of any Personal Property in compliance with clauses (ii) and (iii)
above, the Borrower shall be permitted to transfer or otherwise dispose of such
Personal Property as the Borrower may determine.
.7 Liens and Taxes. The Borrower shall (a) pay, prior to delinquency,
all Taxes which are or may become a Lien affecting any of the Collateral, and
not consent to any Special Taxes which affect or may affect any of the
Collateral, (b) keep the Collateral free and clear of all Liens and Rights of
Others, subject only to Permitted Exceptions and Permitted Transfers, (c)
promptly pay or cause to be paid, and obtain valid and enforceable lien releases
or waivers (together with invoices or receipts identifying the nature of each
payment) from, all Lien Claimants, (d) to the extent permitted by applicable
Laws, diligently file or procure the filing of valid notices of completion upon
completion of construction of any Improvements and a notice of cessation of
labor upon cessation of construction for a continuous period of 30 days or more,
and take all other steps necessary to forestall the assertion of Lien Claims,
and (e) pay and perform when due all other obligations secured by or
constituting a Lien affecting any of the Collateral, except that the Borrower
shall not be required to pay or perform any such Taxes, Lien Claims or other
obligations which are being actively contested in good faith by appropriate
proceedings, provided that the Borrower has posted such security for the payment
or performance of such Taxes, Lien Claims or other obligations as the Lender may
reasonably require and, by reason of nonpayment, none of the Collateral or any
Lien or other interest of the Lender under the Loan Documents is prejudiced or
in danger of being sold, foreclosed or otherwise lost or forfeited.
In the event that a mechanic's lien is filed or any action or other
proceeding is instituted to enforce any Lien (including any mechanic's lien, and
whether or not such Lien constitutes a Permitted Exception) against any of the
Collateral, the Borrower shall immediately make such payments, obtain such
surety bonds and/or take such other action as the Lender may reasonably require
<PAGE>
in order to release the Lien. Upon failure of the Borrower to release any such
Lien, the Lender may, at its option, file an interpleader action to resolve any
pending claims.
The Borrower irrevocably appoints the Lender as its agent (such agency
being coupled with an interest) to file any notices (including notices of
completion and cessation of labor) that the Lender deems appropriate in order to
protect its interests under the Loan Documents.
.8 Property and Liability Insurance. The Borrower shall at all times
maintain the following policies of insurance:
(a) with respect to any Improvements as to which construction
has commenced but has not been completed and any Personal Property used
or to be used in connection with such Improvements, builder's "all
risk" insurance ("completed value" form), including "course of
construction" coverage;
(b) with respect to any Improvements as to which construction
has been completed and any other improvements now or in the future
located on the Lots and any Personal Property used or to be used in
connection with such Improvements, property "all risk" insurance;
(c) with respect to any Personal Property used or to be used
in connection with such Units, fire and extended coverage insurance
(including coverage for vandalism and malicious mischief);
(d) commercial general liability insurance in favor of the
Borrower (and naming the Lender and its Affiliates as additional
insureds) in an aggregate amount not less than $2,000,000 (or such
greater amount as may be specified by the Lender from time to time)
combined single limit, plus an umbrella policy in the amount of not
less than $10,000,000.00; and
(e) such other insurance as may be required by applicable Laws
(including worker's compensation and employer's liability insurance) or
as the Lender may reasonably require from time to time (including
comprehensive form boiler and machinery insurance, if applicable).
The Borrower shall also cause the Contractor, if any, and each
subcontractor to maintain a policy of commercial general liability insurance
and, upon request by the Lender, shall cause the Architect and any engineer
engaged in connection with the Project, if any, to maintain a policy of
professional liability insurance, in each case for such periods and in such
amounts as the Lender may reasonably require from time to time.
<PAGE>
Each policy of property insurance required by this Section 6.8 shall be
in an amount not less than the full replacement cost of the property covered by
such policy, shall contain a "full replacement cost" indorsement, shall insure
against flood loss risk if the Lots are located in a Flood Hazard Area, and
shall name the Lender and its Affiliates as "loss payee" pursuant to form BFU
438 or other form approved by the Lender. Each policy of commercial general
liability insurance required by this Section 6.8 shall cover personal injury,
property damage, blanket contractual liability and (where applicable) completed
operations, with x, c and u exclusions deleted. All insurance policies shall be
in form and substance and issued by insurers reasonably satisfactory to the
Lender, and shall contain such deductibles and such endorsements as the Lender
may reasonably require. Upon request by the Lender from time to time, the
Borrower shall deliver to the Lender originals or copies of all such insurance
policies and certificates evidencing such policies.
.9 Title Insurance and Searches. The Borrower shall deliver to the
Lender, in form and substance satisfactory to the Lender, such endorsements to
the Title Policy and such preliminary title insurance commitments and other
title or lien searches (including UCC searches) and tax service contracts as the
Lender may reasonably require from time to time.
.10 Books, Records and Inspections. The Borrower shall at all times
maintain (a) full and complete books of account and other records with respect
to the Collateral and the Project and its business and operations, (b) complete
copies of the Improvement Plans, all Project Agreements and all Authorizations
issued in connection with the Collateral or the Project, and (c) a complete file
of all invoices, receipts and lien releases and waivers obtained by the Borrower
with respect to amounts paid for Project Costs, and shall permit the Lender and
its agents, upon request from time to time, to inspect and copy any of such
books, records and other Documents and to enter and inspect the Real Property
and any other Collateral and all work and materials furnished in connection with
the Project.
.11 Construction Information and Reporting Requirements. The Borrower
shall cause to be delivered to the Lender, in form and detail satisfactory to
the Lender:
(a) promptly after discovery by the Borrower, notice of (i)
any fact or circumstance that may or will cause the Project Costs
associated with any Line Item to exceed or be less than the
corresponding amount set forth in the Unit Budget by more than 7%
(excluding standard upgrades or nonstandard upgrades for which the home
purchaser has deposited at least 50% of the cost hereof), (ii) any
failure of the Project or the Improvements to be in substantial
conformity with the Improvement Plans and in compliance in
<PAGE>
all material respects with all applicable Laws and Other Requirements,
(iii) any actual or anticipated material delays in construction, (iv)
any serious threat or the commencement of any action or other
proceeding (including any action to foreclose or otherwise enforce any
Lien Claim or other Lien and any proceedings in condemnation or eminent
domain) affecting or relating to any of the Collateral or the Project,
(v) the occurrence or allegation of any termination, material breach or
default, or failure of any material condition or other requirement
under the Architect Agreement, if any, the Construction Contract, if
any, or any Financing Commitment, (vi) any dispute between the Borrower
and any Governmental Agency relating to any of the Collateral or the
Project, the adverse determination of which could adversely affect the
Collateral or the Project in any material respect, (vii) any injury or
damage to or loss or destruction of any of the Collateral if the cost
of repair, restoration or replacement exceeds $25,000, (viii) any
imposition of or proposal for any Special Taxes which affect or may
affect any of the Collateral, (ix) any material adverse change in the
financial condition, operations, properties or prospects of any Loan
Party, (x) any event which has or may have a material adverse impact on
the Collateral or the Project, and (xi) the occurrence of any Event of
Default or event which, with the giving of notice and/or the passage of
time, could become an Event of Default;
(b) promptly after receipt by the Borrower, copies of all
notices or other communications delivered to the Borrower or the Real
Property which are addressed to the Lender or to "construction lender";
(c) on or before the 5th day of each month, a report on a form
approved by the Lender describing sales activities for the Project as
of the end of the prior month;
(d) within 90 days after the end of each fiscal year of each
Loan Party, Financial Statements for such Loan Party for and as at the
end of such fiscal year, and copies of any audited Financial Statements
prepared for Borrower, in each case certified in a manner acceptable to
the Lender; and
(e) such other Documents or information relating to any Loan
Party, the Collateral, the Project or the transactions contemplated by
the Loan Documents as the Lender may reasonably request from time to
time.
The Lender is authorized at any time and from time to time to directly
contact the Contractor, if any, or any subcontractor or other Lien Claimant or
potential Lien Claimant or other Person to
<PAGE>
verify any information provided by the Borrower or for any other
reasonable purpose.
.12 Costs, Fees and Expenses.
(a) The Borrower shall bear sole responsibility for and
promptly pay or cause to be paid all costs and expenses relating to the
performance by the Borrower of its Obligations or the delivery to the
Lender of any Documents or other items or information under or in
connection with any of the Loan Documents, and any Taxes (other than
income taxes of the Lender), costs, expenses, fees or charges payable
or determined to be payable in connection with the preparation,
execution, delivery, filing or recording of, or otherwise with respect
to, any Loan Document or any other Document delivered under or in
connection with any Loan Document.
(b) Upon execution of this Agreement, the Borrower shall pay a
Loan Fee to the Lender in the amount of $80,000.00 and an additional
$80,000.00 on the anniversary of the date of the execution of this
Agreement.
(c) Each Unit Budget shall include an allocation for an
administration fee to compensate Lender for time expended to monitor
the Loan and for legal fees incurred in connection with loan
documentation for such Unit.
(d) Borrower shall also pay to the Lender on demand all
reasonable costs, expenses and charges of the Lender in connection with
the approval of the Loan by the Lender and the negotiation,
preparation, execution, delivery, administration, supplementation,
modification, amendment, waiver and enforcement of, and any other
action taken by the Lender under or otherwise to protect its rights and
interests in respect of, any Loan Document, and any litigation,
dispute, action or other proceeding (including bankruptcy proceedings)
relating thereto, including recording fees, filing fees, search fees,
reconveyance fees, title insurance premiums, appraisal, engineering,
inspection and consulting fees, the reasonable fees and disbursements
of the Lender's legal counsel and other out-of-pocket expenses, the
reasonable charges of the Lender's internal legal counsel, and any fees
or other charges of the Lender for appraisals or inspections or for
review of appraisals, budgets, plans and specifications or other
matters relating to the Project or the Collateral.
(e) Any amount payable to the Lender under any of the Loan
Documents (including any amount payable under this Section 6.12) which
is not paid on the date when due shall, from and after such date, bear
interest at the Alternate Rate
<PAGE>
until paid. Such interest shall be payable by the Borrower
to the Lender immediately and without demand.
.13 Indemnification by the Borrower. The Borrower shall indemnify,
defend and save and hold harmless the Lender and its Affiliates, and the
respective directors, officers, agents, attorneys and employees of each
(collectively the "Indemnitees") from and against, and shall pay on demand, any
and all losses, liabilities, damages, costs, expenses and charges (including the
reasonable fees, charges and disbursements of internal and external legal
counsel) suffered or incurred by any Indemnitee as a result of (a) any failure
of the Borrower to perform any of its Obligations under any Loan Document, (b)
any failure of any Representation by the Borrower to be correct in all respects
when made, (c) injury or death to persons or damage to property or other loss
occurring on or in connection with the Collateral or the Project, whether caused
by the negligence or any other act or omission of the Borrower or any Lien
Claimant or any other Person or by negligent, faulty, inadequate or defective
design, building, construction or maintenance or any other condition or
otherwise, (d) any claim of any surety in connection with any bond relating to
construction of any Improvements or offsite improvements, and (e) any claim,
demand or cause of action, or any action or other proceeding, whether
meritorious or not, brought or asserted against any Indemnitee which relates to
or arises out of the Loan Documents, the Loan, the Collateral, the Project or
any transaction contemplated by, or the relationship between the Borrower and
the Lender or any action or inaction by the Lender under, the Loan Documents,
provided that no Indemnitee shall be entitled to indemnification under this
Section 6.13 for matters caused solely by such Indemnitee's gross negligence,
willful misconduct or breach of the Loan Documents. Any obligation of the
Borrower under this Section 6.13 shall survive the making and repayment of the
Loan and the expiration or termination of this Agreement and shall not be
secured by the Mortgage.
.14 Actions and Further Assurances. The Borrower shall appear in and
defend all actions and other proceedings purporting to affect any of the
Collateral or the Project or the rights or interests of the Lender under the
Loan Documents (and the Lender may, at the Borrower's expense, appear in and
defend any such action or other proceeding as the Lender may determine), and the
Borrower shall take or cause to be taken such further action and execute and
deliver or cause to be executed and delivered such further Documents as the
Lender from time to time may reasonably require to maintain, perfect, protect,
assure and confirm the Lender's rights and interests (including rights and
interests in the Collateral), the Borrower's Obligations and the intention of
the parties under the Loan Documents.
<PAGE>
.15 Performance by Lender. If the Borrower fails to perform any of its
Obligations under any Loan Document and the Lender reasonably determines that
remedial action is necessary to protect the rights or interests of the Lender,
the Lender may perform, after providing Borrower with ten (10) days advance
written notice, any such Obligations in such manner and to such extent and take
such other action as the Lender may deem appropriate, and all costs, expenses
and charges of the Lender relating to any such action shall be payable by the
Borrower to the Lender in accordance with Section 6.12.
.16 Loan to Value Ratio. At any time, Lender may elect to reappraise
the Real Property in accordance with Lender's then applicable appraisal and
underwriting guidelines. The Borrower shall reimburse Lender for the reasonable
cost of any such appraisal. If, based upon such appraisal, the actual ratio
established (a) of the outstanding principal balance of the Loan less the total
of all Borrower's Funds previously deposited by Borrower with Lender pursuant to
this provision, (b) to the value of the Real Property then encumbered by the
Mortgage, exceeds the Loan to Value Ratio, then the Borrower shall deposit with
the Lender, on demand, additional Borrower's Funds in an amount deemed necessary
by the Lender to reduce the ratio of the amount described in (a) to the amount
described in (b) of this provision to the Loan to Value Ratio. Any Borrower's
Funds deposited with Lender pursuant to this provision shall be held in a Cash
Collateral Account in which Lender has a valid perfected first priority security
interest and, at Lender's sole discretion may be applied to reduce the principal
amount of the Loan, or shall be disbursed by the Lender to pay Project Costs
which would have been paid out of the Loan prior to further Disbursements of the
Loan. In no event shall Lender be obligated to make Disbursements of the Loan
which, in the aggregate, would exceed the Lender's then most recent
determination of the value of the Real Property then encumbered by the Mortgage
as calculated as provided in Section 4.3(g) herein multiplied by the Loan to
Value Ratio (expressed in decimal form).
.17 Financial Covenants.
(a) Borrower shall maintain a minimum Net Worth (as defined
herein) of $5,000,000.00.
(b) Borrower shall maintain a maximum ratio of Debt to Net
Worth of 7.0 to 1 "Debt" shall mean "Funded Debt" as that term is
defined in the prospectus dated October 18, 1996 for the issuance of
Senior Subordinated Debentures Series 11% by Borrower (as defined
herein).
7 Representations of the Borrower. The Borrower represents and warrants
to the Lender that:
<PAGE>
.1 Formation and Qualification. Each Loan Party which is a corporation
is duly incorporated, validly existing and in good standing under the Laws of
the jurisdiction of its incorporation and is duly qualified in each and every
jurisdiction where its activities require it to be so qualified; each Loan Party
which is a partnership, trust or other entity is duly formed and validly
existing under the Laws of the jurisdiction of its formation and, is duly
qualified to do business in each and every jurisdiction where its activities
require it to be so qualified; and each Loan Party has all requisite power and
authority to conduct its business and to own, sell and lease its properties.
.2 Loan Documents. The execution, delivery and performance of the Loan
Documents by each Loan Party are within such Loan Party's power and authority,
have been duly authorized by all necessary action and do not and will not (a)
require any Authorization which has not been obtained (except to the extent
indicated in Section 7.4(b) with respect to Authorizations required in
connection with the Collateral or the Project), (b) contravene the Charter
Documents of any Loan Party, any applicable Laws or Other Requirements or any
agreement or restriction binding on or affecting any Loan Party or its property,
or (c) result in or require the creation or imposition of any Lien or Right of
Others upon or with respect to any property now or in the future owned by any
Loan Party (other than Liens in favor of the Lender). No Authorization which has
not been obtained is required for the creation of the Liens or the enforcement
by the Lender of its Remedies under the Loan Documents. Each Loan Document, when
executed and delivered, will constitute the legal, valid and binding obligations
of each Loan Party which is a party to or bound by such Loan Document,
enforceable against such party in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency or other similar Laws
affecting the rights of creditors generally.
.3 Collateral. The Borrower has and will continue to have (or upon
recordation of the Mortgage applicable to such Collateral will have and from and
after such recordation will continue to have) good and marketable title to the
Collateral, free and clear of all Liens and Rights of Others, subject only to
Permitted Exceptions and Permitted Transfers. Upon recordation of each Mortgage
and filing of the Financing Statement executed by the Borrower, each Mortgage
will create a valid and indefeasible first priority perfected Lien in the
Collateral so encumbered securing the payment and performance of all
Obligations, subject only to Permitted Prior Exceptions and Permitted Transfers.
No financing statements covering any of the Collateral are on file in any public
office, except Financing Statements in favor of the Lender and any other
financing statements approved by the Lender in writing.
<PAGE>
.4 Project Information. (a) The Borrower and, to the best knowledge of
the Borrower, any Governmental Agency having jurisdiction over the Project have
complied in all material respects with all applicable Laws and Other
Requirements relating to the division and development of the Real Property, and
the Borrower is, and the construction of the Improvements in accordance with the
terms of this Agreement will be, in compliance in all material respects with all
applicable Laws and Other Requirements relating to the Collateral or the Project
(b) except as otherwise agreed to in writing by Lender, (i) all Authorizations
required in connection with the Collateral or the Project have been regularly
and finally received (other than routine building permits for work which has not
yet commenced and any required certificates of occupancy or other approvals of
construction by any Governmental Agency which (in each case) are to be issued on
a ministerial basis as required from time to time during the course of
construction and after completion), and (ii) the development and use of the Real
Property for its intended purpose do not require the payment of extraordinary
fees or assessments or the construction of other improvements, will not
contravene any applicable Laws or Other Requirements, and are not subject to any
other legal, contractual or practical impediments which are material in the
aggregate. (c) The Unit Budgets are based on information deemed reliable by the
Borrower and represent the Borrower's best estimate of all Project Costs that
will be required in connection with the Project, and all Project Costs shown in
the Unit Budgets as "Previously Paid By Borrower" have been paid in full. (d)
All Utility Services, streets, walks and other offsite improvements relating to
or adjoining the Lots or necessary for the development of the Project and the
occupancy of the Real Property for its intended purpose have been or will be
promptly completed and/or otherwise made available at no further expense to the
Borrower and are not and will not be subject to any conditions or restrictions
which may adversely affect the Collateral or the Project in any material
respect. (e) Except as otherwise agreed to in writing by Lender, (i) the Lots
are not located in a Flood Hazard Area, nor are the Lots subject to or affected
by any existing or proposed Special Taxes (other than Special Taxes approved in
writing by the Lender after the date of this Agreement), and (ii) each Unit
(together with any undivided interests in common areas to be transferred to the
purchaser of such Unit) and any common areas to be transferred to a homeowners
association are separately transferable in compliance with all applicable
subdivision Laws and Other Requirements. (f) Except as otherwise disclosed in
writing to the Lender, the Architect Agreement and the Construction Contract, if
any, are in full force and effect, and free from any material breach or default
by any party.
.5 Financial Information. (a) The Financial Statements of each Loan
Party which have been furnished to the
<PAGE>
Lender fairly present such Loan Party's financial condition as at the dates of
such Financial Statements and the results of operations for the periods covered
by such Financial Statements in accordance with generally accepted accounting
principles consistently applied (or such other method of preparation approved by
the Lender in writing), and since the respective dates of such Financial
Statements, there has been no material adverse change in the financial
condition, operations, properties or prospects of such Loan Parties. (b) Each
Loan Party has filed all tax returns required to be filed by it, and has paid
all Taxes due pursuant to such returns or in respect of any of its properties
(except for any such Taxes which are being actively contested in good faith by
appropriate proceedings), and to the best knowledge of each Loan Party, no basis
exists for additional assessments which have not been adequately reserved
against in the Financial Statements referred to above or otherwise disclosed in
writing to the Lender.
.6 Litigation and Other Matters. Except as otherwise disclosed in
writing to the Lender: (a) no actions or other proceedings affecting or relating
to the Collateral or the Project are pending or, to the best knowledge of each
Loan Party, threatened, (b) no actions or other proceedings are pending or, to
the best knowledge of each Loan Party, threatened against or affecting any Loan
Party or any property of any Loan Party which, if determined adversely to such
Loan Party, could materially impair the financial condition, operations,
properties or prospects of such Loan Party or the ability of such Loan Party to
perform its obligations under the Loan Documents, and (c) the Borrower has given
notice to the Lender of any other matters which the Borrower is required to
disclose to the Lender under Section 6.11(a).
.7 Documents and Other Information. All Documents and other information
delivered to the Lender pursuant to any of the Loan Documents are and will be
complete and correct in all material respects at the time of delivery to the
Lender.
8 Events of Default and Remedies of the Lender.
.1 Events of Default. The occurrence of any one or more of the
following events shall constitute an Event of Default:
(a) the Borrower shall fail to pay all or any portion of the
principal of the Notes when due; or
(b) the Borrower shall fail to pay any installment of interest
on the Notes within 10 days after the date when due; or Borrower shall
fail to pay any other amount payable by the Borrower to the Lender
under the Loan Documents (including any deposit of Borrower's Funds
required by any Disbursement Schedule) within ten (10) days after
written demand therefor;
<PAGE>
or the Borrower shall fail to pay all accrued interest and all other
amounts then payable by the Borrower to the Lender under the Loan
Documents on the Maturity Date or the date of final payment of the
principal of the Notes in full; or
(c) any Loan Party shall fail to perform or observe any other
term, covenant or agreement contained in any Loan Document on its part
to be performed or observed and either (i) such failure shall continue
for more than 30 days after notice of such failure is given by the
Lender to such Loan Party, unless such failure is not reasonably
capable of being cured within such 30-day period (but is reasonably
capable of being cured within 60 days after such notice) and such Loan
Party commences action to cure such failure within such 30- day period
and diligently and continuously prosecutes such action to completion
and causes such failure to be cured within 60 days after such notice,
or (ii) such failure is not reasonably capable of being cured within 60
days after notice of such failure is given by the Lender to such Loan
Party; or
(d) any Representation proves to have been incorrect in any
material respect when made; or
(e) work relating to construction of the Improvements ceases
for 30 consecutive days for any reason other than acts of God or other
causes beyond the reasonable control of the Borrower, or such work
ceases for 60 consecutive days for any reason; or
(f) the Borrower is enjoined by any court or other
Governmental Agency from constructing any of the Improvements or
selling any of the Units or performing any of the Obligations and such
injunction continues unreleased and unstayed for 60 days; or
(g) any Loan Party is dissolved or liquidated or merged with
or into any other Person; or for any period of more than 30 days any
Loan Party which is a corporation, partnership, trust or other entity
ceases to exist in its present form and (where applicable) in good
standing and duly qualified under the Laws of the jurisdiction of its
incorporation or formation and each jurisdiction where its activities
require it to be so qualified; or any Loan Party who is an individual
dies or becomes incapacitated; or all or substantially all of the
assets of any Loan Party are sold or otherwise transferred; or
(h) any Loan Party ceases to be managed and controlled by
Peter Pflaum, or any Loan Party assigns or attempts to assign any
rights or interests under any Loan Document without the prior written
consent of the Lender; or any Loan
<PAGE>
Document becomes or is claimed by any Loan Party to be unenforceable
against any Loan Party; or any of the Mortgage shall cease to
constitute a valid and indefeasible first priority perfected Lien in
the Collateral, subject only to Permitted Prior Exceptions and
Permitted Transfers; or
(i) any Loan Party is subject to an order for relief by the
bankruptcy court, or is unable or admits in writing its inability to
pay its debts as they mature or makes an assignment for the benefit of
creditors; or any Loan Party applies for or consents to the appointment
of any receiver, trustee or similar official for it or for all or any
part of its property (or any such appointment is made without its
consent and the appointment continues undischarged and unstayed for 60
days); or any Loan Party institutes or consents to any bankruptcy,
insolvency, reorganization, arrangement, readjustment of debt,
dissolution, custodianship, conservatorship, liquidation,
rehabilitation or similar proceeding relating to it or to all or any
part of its property under the Laws of any jurisdiction (or any such
proceeding is instituted without its consent and continues undismissed
and unstayed for 60 days); or any judgment, writ, warrant of attachment
or execution or similar process is issued or levied against any of the
Collateral or any other property of any Loan Party and is not released,
vacated or fully bonded within 60 days after its issue or levy; or
(j) any material adverse change shall occur in the financial
condition, operations, properties or prospects of any Loan Party, or
any event shall occur which has a material adverse impact on the
Collateral or the Project.
.2 Remedies of the Lender. Upon the occurrence of any Event of Default,
the Lender may, without notice to or demand upon the Borrower, which are
expressly waived by the Borrower (except for notices or demands otherwise
required by applicable Laws to the extent not effectively waived by the Borrower
and any notices or demands specified in the Loan Documents), exercise any one or
more of the following Remedies as the Lender may determine:
(a) the Lender may, at its option, terminate all commitments
to make Disbursements, or to release any Collateral from the Mortgage,
or the Lender may waive the Event of Default or, without waiving,
determine, upon terms and conditions satisfactory to the Lender, to
make further Disbursements, or to release any Collateral from the
Mortgage;
(b) the Lender may declare the unpaid principal of the Notes
and all accrued interest and other amounts payable under the Loan
Documents to be immediately due and payable,
<PAGE>
in which event all such amounts shall immediately be due and payable
without protest, notice of dishonor, demand or further notice of any
kind, all of which are expressly waived by the Borrower;
(c) the Lender may perform any of the Borrower's Obligations
in such manner as the Lender may determine;
(d) the Lender may, either directly or through an agent or
court-appointed receiver, take possession of the Collateral and enter
into such contracts and take such other action as the Lender deems
appropriate to complete or partially construct all or any part of the
Improvements, subject to such modifications and changes in the Project
or the plan of development as the Lender may deem appropriate; and
(e) the Lender may proceed to protect, exercise and enforce
any and all other Remedies provided under the Loan Documents or by
applicable Laws.
All reasonable costs, expenses, charges and advances of the Lender in
exercising any such Remedies (including any such amounts which cause the
obligations of the Borrower to exceed the face amount of the Note) shall be
payable by the Borrower to the Lender in accordance with Section 6.12.
Each of the Remedies of the Lender provided in the Loan Documents is
cumulative and not exclusive of, and shall not prejudice, any other Remedy
provided in the Loan Documents or by applicable Laws. To the maximum extent
allowed by law, each Remedy may be exercised from time to time as often as
deemed necessary by the Lender, and in such order and manner as the Lender may
determine. No failure or delay on the part of the Lender in exercising any
Remedy shall operate as a waiver of such Remedy; nor shall any single or partial
exercise of any Remedy preclude any other or further exercise of such Remedy or
of any other Remedy. No application of payments, or any advances or other action
by the Lender, will cure or waive any Event of Default or prevent acceleration,
or continued acceleration, of amounts payable under the Loan Documents or
prevent the exercise, or continued exercise, of any Remedies of the Lender.
9 Miscellaneous.
.1 Waivers and Amendments. No supplement to, modification or amendment
of, or waiver, consent or approval under, any of the Loan Documents shall be
effective unless in writing and signed by the Lender and Borrower, and any
waiver, consent or approval shall be effective only in the specific instance and
for the specific purpose for which given.
<PAGE>
.2 Survival of Representations. All Representations shall survive the
making and repayment of the Loan and the expiration or termination of this
Agreement and have been or will be relied upon by the Lender, notwithstanding
any investigation made by the Lender or on its behalf.
.3 Notices. All notices and other communications provided under any
Loan Document shall be in writing and mailed or personally delivered to the
appropriate party at the address set forth on the signature page of this
Agreement or any other Loan Document or, as to any party, at any other address
as shall be designated by it in a written notice sent to the other party. All
notices and other communications by the Borrower which are expressly subject to
receipt by the Lender under the terms of the Loan Documents will be effective
when received by an officer or other representative of the Lender having direct
responsibility for administration of the Loan. In all other cases, any notice or
other communication will be effective (a) if given by mail, on the earlier of
receipt or the third day after deposit in the United States mails as registered
or certified mail postage prepaid, (b) if given by personal delivery, when
delivered, or (c) on the day on which the party to whom notice is addressed
refuses delivery by mail or by personal delivery provided that the requirements
of this sentence shall not impair or delay the effectiveness of any notice or
other communication given by the Lender under any Mortgage or any Loan Documents
when such notice or other communication is given in compliance with and would
otherwise be effective under applicable Laws.
.4 Relationship of Parties. The relationship between the Borrower and
the Lender is, and at all times shall remain, solely that of debtor and
creditor, and shall not be, or be construed to be, a joint venture, equity
venture, partnership or other relationship of any nature.
.5 Nonliability of the Lender. The Borrower acknowledges and agrees
that:
(a) the Borrower shall be solely responsible for and shall
rely solely on its own judgment with respect to all matters relating to
the Collateral or the Project, including the conduct of the Borrower
and its agents and employees, the quality, adequacy and suitability of
the Improvement Plans and any Change Orders and any work or materials
furnished or to be furnished in connection with the Project, the skill,
qualifications and performance of architects, contractors,
subcontractors and suppliers, the feasibility of the Project and the
sufficiency of budgets, cost projections and insurance, the
supervision, status and progress of construction and compliance by the
Borrower with the
<PAGE>
requirements of this Agreement with respect to such construction and
the accuracy and completeness of all Disbursement Requests, and the
Lender does not assume any responsibility to the Borrower or any other
Person to review, inspect, supervise or approve, or to provide any
advice or information with respect to, any such matters;
(b) inspections of construction made by or on behalf of the
Lender, and acceptance, approval or review by the Lender of any
Documents, information, conditions or performance or any other action
by the Lender under any of the Loan Documents, are for purposes of
administration of the Loan only and for the sole protection of the
Lender, and shall not constitute a representation or warranty by the
Lender to the Borrower or any other Person or be relied upon by the
Borrower or any other Person for any other purpose;
(c) the Lender shall have no responsibility or liability for
any delays in funding or construction caused by any inspection of
construction or review of Documents, information, conditions or
performance or any other action by the Lender in connection with any
Disbursement or Change Order so long as Lender acts reasonably and
without intentional delay; and
(d) the Lender does not owe any duty of care to protect the
Borrower or any other Person against or to inform the Borrower or any
other Person of, and the Lender shall not be responsible or liable to
the Borrower or any other Person for any loss, damage, liability or
claim of any kind relating to injury or death to persons or damage to
property or other loss resulting from, the negligence or any other act
or omission of the Borrower or any Lien Claimant or any other Person or
any negligent, faulty, inadequate or defective design, building,
construction or maintenance or any other condition or the improper
application of any Disbursements.
.6 Benefits and Assignment. The Loan Documents are made for the purpose
of defining the rights and obligations of the Loan Parties and the Lender in
connection with the Loan and are intended for the sole protection of the Loan
Parties and the Lender and their respective permitted successors and assigns,
and no other Person shall have any rights of any nature under or by reason of
the Loan Documents. The Loan Documents shall be binding on and inure to the
benefit of each of the Loan Parties and the Lender and their respective
successors and assigns, except that no Loan Party shall have the right to assign
any rights or interests under any Loan Document without the prior written
consent of the Lender. The Lender may from time to time sell participations in
the Loan to any Person (including Affiliates of the Lender) without notice to or
the consent of any Loan Party.
<PAGE>
.7 Payments and Computations. All payments by any Loan Party under the
Loan Documents shall be made in lawful money of the United States free and clear
of, and without reduction by reason of, any Taxes. Any payment which is stated
to be due on a day which is not a Banking Day shall be made on the next
succeeding Banking Day, and any such extension shall be included in the
computation of the payment of interest. Whenever any interest or other amount
payable under the Loan Documents is to be computed on the basis of a year of a
specified number of days, the amount shall be calculated on the basis of a year
of such specified number of days for the actual number of days (including the
first, but excluding the last) occurring in the period for which such
calculation is made. For purposes of calculating amounts paid or payable under
the Loan Documents, credit for payments shall be given upon receipt of same day
funds by the Lender at its office located at 155 North Lake Avenue, Mail Stop
#C-CLCAB, Pasadena, California 91101, Attention: Construction Lending Division
(or such other location specified by the Lender from time to time in writing) at
or before the close of business, Los Angeles time, on any Banking Day. Except as
otherwise expressly provided in the Loan Documents, all payments on the
Obligations received by the Lender shall be applied to the Obligations in such
order and manner as the Lender may determine.
.8 Publicity. During the course of construction of the Improvements and
until the Loan is repaid in full, the Lender may place signs on the Lots
(subject to Borrower's approval of such signs and their location) and issue or
publish releases or announcements stating that construction financing is being
provided by the Lender to the Borrower.
.9 Rules of Construction. (a) For purposes of this Agreement and the
other Loan Documents: (i) any reference to "days" or "months" shall mean
calendar days or months, (ii) the word "including" shall mean "including without
limitation", (iii) any reference in any of the Loan Documents to any Loan
Document or other Document or exhibit shall mean such Loan Document or other
Document or exhibit as it may from time to time be supplemented, modified,
amended and extended in accordance with the terms of this Agreement, (iv)
defined terms shall be equally applicable to the singular and plural forms, and
(v) all existing and future exhibits to this Agreement are incorporated in this
Agreement by this reference. (b) Time is of the essence of the Loan Documents,
and the provisions of the Loan Documents are declared to be severable. (c) All
accounting terms used and not otherwise defined in any Loan Document shall be
construed in conformity with, and all financial information maintained or
submitted by any Loan Party or other Person under any Loan Document shall be
prepared in accordance with, generally accepted accounting principles
consistently applied (or such other principles approved
<PAGE>
by the Lender in writing). (d) If more than one Loan Party signs or is otherwise
bound by any Loan Document, the liability of each shall be joint and several.
(e) Except as expressly set forth therein, the Loan Documents shall be governed
by, and construed and enforced in accordance with, the Laws of Minnesota.
.10 Counterparts; Facsimile Signatures. This Agreement may be executed
in any number of counterparts each of which shall be deemed an original and all
of which shall constitute one and the same agreement with the same effect as if
all parties had signed the same signature page. Any signature page of this
Agreement may be detached from any counterpart of this Agreement and reattached
to any other counterpart of this Agreement identical in form hereto but having
attached to it one or more additional signature pages. This Agreement shall be
deemed executed and delivered upon both partys' delivery of executed signature
pages of this Agreement, which signature pages may be delivered by facsimile
with the same effect as delivery of the originals.
.11 Waiver of Jury Trial. Each of the Lender and the Borrower waive
trial by jury in any action or other proceeding (including counterclaims),
whether at law or equity, brought by the Lender or the Borrower against the
other on matters arising out of or in any way related to or connected with this
Agreement, the other Loan Documents, the Loan or any transaction contemplated
by, or the relationship between the Lender and the Borrower or any action or
inaction by either party under, any of the Loan Documents.
.12 Commissions. Borrower and Lender represent and warrant to each
other that no real estate broker or agent has been authorized to act on their
behalf. Borrower hereby agrees to indemnify and hold Lender harmless from any
and all demands, claims and liabilities which now have or hereafter may be
asserted against Lender for any brokerage or finder's fees, commissions or
similar types of compensation from brokers or finders claiming to have been
engaged by Borrower. Lender hereby agrees to indemnify and hold Borrower
harmless from any and all demands, claims and liabilities which now have or
hereafter may be asserted against Borrower for any brokerage or finders' fees,
commissions or similar types of compensation from brokers or finders claiming to
have been engaged by Lender.
.13 Minnesota Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Minnesota.
<PAGE>
IN WITNESS WHEREOF, the Borrower and the Lender have caused this
Agreement to be duly executed as of the date first written above.
"LENDER"
CWM MORTGAGE HOLDINGS, INC., a Delaware
Corporation, d/b/a CONSTRUCTION LENDING
CORPORATION OF AMERICA
By:_____________________________
Its:____________________________
[Printed Name and Title)
Lender's Address:
Construction Lending Corporation
of America
155 North Lake Avenue
Mail Stop #6-CLCAB
Pasadena, California 91101
Attn: Construction Lending Division
"BORROWER"
LUNDGREN BROS. CONSTRUCTION, INC., a
Minnesota corporation
By:_____________________________
Its:____________________________
ADDRESS:
935 East Wayzata Blvd.
Wayzata, MN 55391
Attn: Laurie Vercnocke
SML4766
06/26/97
<PAGE>
LIST OF EXHIBITS
Exhibit A - Definitions
Exhibit B - Loan Requirements - Initial Documentation
Exhibit C - Requirements for Adding Lots as Collateral
under the Building Loan Agreement
Exhibit D - Disbursement Schedule
Exhibit E - Approved Projects
<PAGE>
EXHIBIT "A"
DEFINITIONS
(Residential Tract Construction)
As used in this Agreement, the following terms shall have the following
meanings:
"Affiliate" means, as to any Person, any other Person that directly or
indirectly controls or is controlled by or under common control with the Person
specified.
"Agreement" means this Building Loan Agreement, including all
exhibits.
"Alternate Rate" means the "Alternate Rate" set forth in the Note.
"Architect" means any Person engaged by the Borrower from time to time
as an architect or to perform similar functions in connection with the Project.
"Architect Agreement" means, as to any Architect, the agreement between
the Borrower and the Architect relating to services to be provided by the
Architect in connection with the Project.
"Authorization" means any authorization, consent, approval, order,
license, permit, exemption or other action by or from, or any filing,
registration or qualification with, any Governmental Agency or other Person.
"Authorizing Resolutions" means (a) in the case of a corporation, a
certified copy of resolutions adopted by its board of directors, (b) in the case
of a partnership (whether general or limited), a certificate signed by all of
its general partners, and (c) in the case of a trust or any other entity,
evidence of such other action as the Lender may require, in each case
authorizing the execution, delivery and performance of all Loan Documents to
which it is a party or by which it is bound.
"Average Residual Value" means the average base sales price over the
preceding six month period of comparable Units sold in current or prior phases
of the subdivision in which such Units are located.
"Banking Day" means any day (excluding Saturdays and Sundays) on which
banks located in Illinois are not authorized or required by law to close.
<PAGE>
"Borrower's Funds" means funds of the Borrower deposited with the
Lender pursuant to the Disbursement Schedule.
"Cash Collateral Account" means a cash collateral account maintained by
the Lender for the account of the Borrower for purposes of this Agreement or any
of the other Loan Documents which shall be subject to a security interest in
favor of the Lender for the purpose of securing the Borrower's Obligations and
over which the Lender shall have sole and exclusive control and right of
withdrawal.
"Certificate of Reasonable Value" means a Master Certificate of
Reasonable Value issued by the United States Veterans Administration with
respect to Units constructed or to be constructed.
"Change Order" means a change in, or supplement to, the Unit Plans.
"Charter Documents" means (a) in the case of a corporation, its
articles of incorporation and bylaws, (b) in the case of a partnership, its
partnership agreement and any certificate or statement of partnership, and (c)
in the case of a limited liability company, a trust or any other entity, its
formation documents, in each case as amended from time to time.
"Collateral" means all property in which from time to time the Lender
is granted or purportedly granted a Lien by Borrower pursuant to the Mortgage.
"Conditional Commitment" means a HUD Conditional Commitment issued by
the Federal Housing Administration or the United States Veterans Administration
with respect to Units constructed or to be constructed.
"Construction Contract" means, as to any Contractor, the agreement
between the Borrower and the Contractor relating to services to be provided by
the Contractor in connection with the Project.
"Contractor" means any Person engaged by the Borrower from time to time
as a general contractor in connection with the Project.
"Cost Savings" means the excess, if any, of any Line Item over the
actual Project Costs incurred in connection with the work associated with such
Line Item, as determined by the Lender after such work has been completed and
all such Project Costs have been paid in full and all Lien Claims and potential
Lien Claims relating to such work have been released or otherwise discharged to
the satisfaction of the Lender.
<PAGE>
"Disbursement" means each disbursement of the proceeds of the Loan and
each disbursement of any Borrower's Funds in accordance with the Disbursement
Schedule.
"Disbursement Account" has the meaning set forth in paragraph 1 of the
Disbursement Schedule.
"Disbursement Request" means an Owner's Sworn Statement and request for
a Disbursement in a form approved by the Lender.
"Disbursement Schedule" means the "Disbursement Schedule" attached
hereto as Exhibit "D".
"Documents" means written documents and materials, including
agreements, approvals, certificates, consents, instruments, financing
statements, reports, budgets, forecasts and opinions.
"Environmental Indemnity" means the Environmental Indemnity Agreements
to be executed by the Borrower in favor of the Lender.
"Events of Default" means the events set forth in Section 8.1.
"Final Funding Date" means the date which is thirty (30) days prior to
the Maturity Date.
"Financial Statements" means balance sheets and income statements.
"Financing Commitment" means any Certificate of Reasonable Value,
Conditional Commitment or Takeout Commitment.
"Financing Costs" means all reasonable costs incurred by Lender in
connection with the Loan which Borrower is obligated to pay under Section 6.12
of this Agreement including, without limitation, the Loan Fee, appraisal fees,
Lender's attorneys' fee and Lender's construction consultant fees.
"Financing Statement" means individually and collectively any and all
financing statements executed by the Borrower to evidence the security for the
Loan.
"Flood Hazard Area" means an area which has been designated as a
special flood hazard area or subject to comparable risks by the Federal
Emergency Management Agency or any successor to such Agency.
"Governmental Agency" means (a) any government or municipality or
political subdivision of any government or municipality, (b) any assessment,
improvement, community
<PAGE>
facilities or other special taxing district, (c) any governmental or
quasi-governmental agency, authority, board, bureau, commission, corporation,
department, instrumentality or public body, (d) any court, administrative
tribunal, arbitrator, public utility or regulatory body, or (e) any central bank
or comparable authority.
"Improvements" means the Units and other improvements, including site
development work (if any), constructed or to be constructed pursuant to the Unit
Plans.
"Interest Reserve" means an aggregate interest reserve of $960,000
which will be allocated to Unit Budgets sufficient to carry interest for twelve
(12) months.
"Laws" means all federal, state and local laws, rules, regulations,
ordinances and codes.
"Lien" means any lien, mortgage, deed of trust, pledge, security
interest or other charge or encumbrance.
"Lien Claim" means (a) any mechanic's lien affecting any of the
Collateral, (b) any right of any Person to assert or maintain any such
mechanic's lien, and (d) any other claim to payment by any Lien Claimant.
"Lien Claimant" means the Contractor, if any, and any other Person who
has furnished labor, service, equipment or material in connection with the
Project or who is otherwise entitled to payment for any Project Costs.
"Line Item" means each of the separate items set forth in the Unit
Budget.
"Loan" means the loan to be made by the Lender to the Borrower pursuant
to this Agreement in an amount not to exceed the Loan Amount.
"Loan Amount" means the amount of the Loan set forth in Section 1.
"Loan Documents" means this Agreement, the Note, the Mortgage, the
Environmental Indemnity, and any other documents which evidence, secure or are
otherwise given by any Loan Party to Lender in connection with the Loan,
including without limitation, the Modification Documents.
<PAGE>
"Loan Fee" means the nonrefundable loan fees to be paid by the Borrower
to the Lender in the amount and as provided in Section 6.12(b).
"Loan Party" means (a) the Borrower or (b) any guarantor which at the
time has or may have any obligation or liability (whether fixed, contingent or
otherwise) under any guaranty executed or to be executed by it.
"Loan to Value Ratio" means (1) with respect to acquiring Lots, seventy
percent (70%) of the appraised value of the land and (2) as to the Units,
seventy-five percent (75%) of the appraised value of such completed Units;
provided, however, that if a completed Unit does not sell within six (6) months
after the first Disbursement for such Unit, "Loan to Value Ratio" shall mean
sixty-five percent (65%) of the appraised value of such completed Unit, and,
provided further, that if a completed Unit does not sell within twelve (12)
months after the first Disbursement for the Unit, "Loan to Value Ratio" shall
mean zero for such Unit.
"Lot" means any one of the Lots which from time to time are encumbered
by the Mortgage. Each Lot shall be fully developed prior to being encumbered by
the Mortgage.
"Maturity Date" means the maturity date of the Note, as such maturity
date may be extended from time to time.
"Modification Documents" means those documents executed by Borrower and
any other Loan Party which, in Lender's sole judgment are necessary or desirable
to modify this Agreement, Mortgage or other Loan Documents in connection with
adding Lots as Collateral hereunder.
"Model Units" means Units to be constructed on Lots in accordance with
the Unit Plans to be used by Borrower as models for the marketing of Units.
"Mortgage" means the Construction Mortgage with Assignments of Rents,
Security Agreements and Fixture Filings which will be executed by the Borrower
and delivered to Lender and amended from time to time when Lots are added as
Collateral which shall secure the Loan.
"Net Worth" means the "Consolidated Tangible Net Worth" as that term is
defined in the prospectus dated October 18, 1996 for the issuance of Senior
Subordinated Debentures Series 11% of Borrower.
"Note" means the Promissory Note executed by the Borrower in favor of
the Lender to evidence the Loan.
<PAGE>
"Obligations" means all obligations of the Borrower of every nature
under the Loan Documents.
"Other Requirements" means (a) the terms, conditions and requirements
of all Project Agreements, Authorizations and Rights of Others relating to the
Collateral or the Project and all other Documents, agreements and restrictions
relating to, binding on or affecting the Collateral or the Project, including
covenants, conditions and restrictions, leases, easements, reservations, rights
and rights-of-way, (b) requirements relating to the sale or transfer of
individual Units or common areas or portions of common areas or the supply of
Utility Services to the Real Property, (c) requirements and recommendations of
the soils report and any environmental impact report or negative declaration,
(d) all building, zoning, land use, planning and subdivision requirements, and
(e) requirements relating to construction of any offsite improvements.
"Permitted Exceptions" means (a) Liens in favor of the Lender, (b)
Permitted Prior Exceptions, and (c) other matters expressly approved by the
Lender in writing which are subject and subordinate to the Lien of the Mortgage.
No subordinated debt shall be secured by the Collateral.
"Permitted Prior Exceptions" means (a) general ad valorem real property
taxes which are not delinquent, (b) Special Taxes approved in writing by the
Lender which in each case are not delinquent, (c) mechanics liens affecting the
Real Property and arising from the construction of the Improvements, over which
the Title Policy has insured the priority of the Lien of the Mortgage, and (d)
such other matters as the Lender shall expressly approve in writing as
"Permitted Prior Exceptions" for purposes of this Agreement.
"Permitted Transfer" means (a) any sale or other transfer of Units and
common areas (or undivided interests in common areas) and the disposition of any
excess proceeds of sale, in each case to the extent permitted by Section 6.5,
and (b) any transfer or other disposition of Personal Property permitted by
Section 6.6.
"Person" means any person or entity, whether an individual, trustee,
corporation, partnership, joint stock company, trust, unincorporated
organization, bank, business association or firm, joint venture, Governmental
Agency or otherwise.
"Personal Property" means tangible personal property and fixtures,
including building materials and supplies, appliances, furnishings owned by
Borrower, equipment and other "Goods" (as defined in the Mortgage), but
excluding construction equipment of a type intended for use in connection with
other projects.
<PAGE>
"Pre-Sold" means Units for which there are approved sales contracts to
sell the Units to an ultimate bona fide third-party purchaser with an earnest
money deposit in an amount which is customary in the market where such Unit is
located, and no financing contingency exceeding thirty (30) days in the sales
contract.
"Project" means the acquisition of the Lots, the construction of the
Improvements and the acquisition and installation of certain Personal Property
in accordance with the Unit Plans, and the marketing and sale of Units.
"Project Agreements" means (a) the Architect Agreement, if any, the
Construction Contract, if any, any Financing Commitment and any other takeout,
refinancing or permanent loan commitment issued or assigned to the Borrower with
respect to the Real Property, and (b) all leases, rental agreements, service and
maintenance agreements, purchase and sale agreements, purchase options and other
agreements of any nature relating to the Collateral or the Project, including
agreements with contractors, subcontractors, suppliers, project managers and
supervisors, designers, architects, engineers, sales agents and consultants.
"Project Costs" means all costs and expenses of any nature relating to
the Project or the financing of the Project.
"Real Property" means the Lots and the Improvements and all other
buildings, structures and improvements now or in the future located on the Lots.
"Remedy" means any right, power or remedy.
"Representations" means the representations and warranties of the
Borrower set forth in Section 7 and all other representations, warranties and
certifications to the Lender in the Loan Documents or in any other Document
delivered under or in connection with the Loan Documents.
"Right of Others" means, as to any property in which a Person has an
interest, any legal or equitable claim or other interest (other than a Lien but
including a leasehold interest, a right of first refusal or a right of
repossession or removal) in or with respect to such property held by any other
Person, and any option or right held by any other Person to acquire any such
claim or other interest or any Lien in or with respect to such property.
"Special Tax" means, as to any property, (a) any special assessment or
other Tax which is or may become a Lien affecting such property, other than
general ad valorem real property taxes, and (b) any assessment, improvement,
community facilities or other special taxing district in or into which such
property is or may
<PAGE>
be located or incorporated or under which any special assessment or other Tax
which is or may become a Lien affecting such property is or may be imposed.
"Spec Units" means the Units which are not Pre-Sold Units.
"Subdivision" means a group of Lots to be financed hereunder which are
part of the same plat of subdivision.
"Takeout Commitment" means a commitment issued by an institutional
lender to make permanent loans to purchasers of Units.
"Taxes" means all taxes, assessments, charges, fees and levies
(including interest and penalties) imposed, assessed or collected by any
Governmental Agency.
"Title Policy(ies)" means an ALTA extended coverage lender's
policy(ies) of title insurance in form and substance satisfactory to the Lender,
issued by an insurer selected by the Borrower and satisfactory to the Lender,
together with such endorsements and policies of coinsurance and/or reinsurance
as may be required by the Lender, in a policy amount as determined by Lender,
insuring the Mortgage to be valid first priority Lien on the Lots and showing
the Lots to be subject only to Permitted Prior Exceptions.
"Unit" means a Lot together with a single-family residential housing
unit constructed or to be constructed thereon in accordance with the applicable
Unit Plans.
"Unit Budget" means the individual budget for a Unit which shall be
agreed to by Lender and Borrower in connection with adding a Lot as Collateral.
"Unit Plan" means the particular type or plan of the Unit to be
constructed.
"Utility Services" means all utility services, including water, gas,
electricity, telephone, garbage removal and sewer services.
<PAGE>
EXHIBIT "B"
LOAN REQUIREMENTS - INITIAL DOCUMENTATION
The following documents must be furnished by Borrower to Lender upon
execution of the Agreement:
(a) Promissory Note in the face amount of $8,000,000.00
executed by Borrower in favor of Lender to evidence the Loan;
(b) Authorizing Resolutions for each Loan Party authorizing
execution and delivery of the Note and the Building Loan Agreement and
the performance of each Loan Party's obligations thereunder;
(c) Charter Documents for each Loan Party;
(d) Current Financial Statements for all Loan Parties;
(e) Certificate of Good Standing for Borrower in the state of
formation of Borrower and in the state where Borrower's activities
require its qualification;
(f) an opinion of Borrower's counsel stating (a) that the Note
and Building Loan Agreement have been duly authorized, executed and
delivered by Borrower, and are valid and enforceable in accordance with
their terms, subject to bankruptcy and equitable principles; (b) that
Borrower is qualified to do business and in good standing under the
laws of state where the Lots are located; and (c) such other opinions
as Lender may require;
(g) payment of all transaction costs and other expenses
incurred by Lender including reasonable counsel fees and disbursements
in connection with the preparation of the Note and Building Loan
Agreement;
(h) UCC Searches with respect to Borrower and Guarantors;
(i) Payment of the Loan Fee; and
(j) Such other certificates, opinions, documents and
instruments relating to the addition of Lots as Collateral reasonably
requested by Lender.
<PAGE>
EXHIBIT "C"
REQUIREMENTS FOR ADDING LOTS AS COLLATERAL
UNDER THE BUILDING LOAN AGREEMENT
10 The following documents must be furnished by Borrower to Lender
together with each of Borrower's request to add additional Lots as Collateral
under the Building Loan Agreement:
.1 Unit Budgets for such Lots;
.2 a construction and disbursement schedule for such Lots;
.3 at Lender's request, Unit Plans for such Lots;
.4 at Lender's request, copies of soil reports for such Lots;
.5 at Lender's request, evidence of adequate utility service
for such Lots;
.6 at Lender's request, copy of budget for any homeowner's
association applicable to such Lots, if any; and
.7 statement of conditions for transfer of common areas to be
located in such Lots to homeowner's associations, if any.
11 The following documents must be furnished by Borrower to Lender
prior to the initial Disbursement of the Loan for the acquisition or development
of any Lot added as Collateral under the Building Loan Agreement:
.1 An amendment to the Construction Mortgage with Assignments
of Rents, Security Agreements and Fixture Filings executed by the
Borrower in favor of the Lender to secure the Loan and other
Obligations of the Borrower, which shall cover the Lots being added as
Collateral, any Units to be constructed thereon, certain Personal
Property pertaining to such Lots and Units, the Project Agreements
pertaining to such Lots, the Unit Plans pertaining to such Lots and
such other rights, properties and interests relating to the Lots and
Units to be constructed thereon as the Lender may require.
.2 The Financing Statements executed by the Borrower in favor
of the Lender with respect to such Lot as the Lender may require.
.3 Environmental Indemnity executed by the Borrower and
Guarantor with respect to such Lots.
<PAGE>
.4 Assignment of Plans and Specifications pertaining to such
Lots.
.5 Authorizing Resolutions for each Loan Party authorizing
execution and delivery of the Mortgage, Loan Documents and Modification
Documents pertaining to the Lots and the performance of each Loan
Party's obligations thereunder.
.6 General Collateral Assignment pertaining to such Lots.
.7 Evidence of insurance required by Section 6.8.
.8 Copy of title insurance commitment and recorded exceptions,
together with extended coverage, 3.0 zoning endorsement, variable rate
endorsement, comprehensive endorsement, contiguity endorsement,
revolving credit endorsement, access endorsement, deletion of
creditor's rights endorsement, and other endorsements requested by
Lender.
.9 Copy of final plat.
.10 Evidence of compliance with zoning and other land use
restrictions.
.11 Environmental investigative reports concerning the
Subdivision in form and content and prepared by a consultant
satisfactory to Lender.
.12 List of bonds, security deposits or letters of credit
required in connection with the Lots.
.13 Evidence of recording/filing of the required Mortgage and
the Financing Statements.
.14 Confirmation that an endorsement to the Title Policy has
been or will be issued with respect to the Lots at or prior to first
Disbursement.
.15 original Loan Documents and Modifications Documents
pertaining to such Lots;
.16 copies of all documents which are title exceptions,
including, without limitation, any applicable CC&R's or easements for
such Lots;
.17 payment of all transaction costs and other expenses
incurred by Lender including reasonable counsel fees
<PAGE>
and disbursements in connection with the addition of such
Lots as Collateral;
.18 payment of all recording charges, filing fees, taxes, or
other expenses, including but not limited to intangibles taxes and
documentary stamp taxes in connection with the recording of the
Mortgage, or modification of Mortgage, and other Loan Documents and the
lien necessary to grant and perfect in favor of Lender a first priority
lien on and security interest in such Lots as Collateral;
.19 evidence, as Lender may deem necessary or appropriate, to
indicate complete compliance with all requirements of applicable laws;
.20 a certification by a duly authorized officer of Borrower
certifying that all of the representations and warranties contained in
the Mortgage, in the other Loan Documents and Modification Documents,
after giving effect to the addition of such Lots, are true and correct
with respect to such Lots and that there is no Event of Default
hereunder; and
.21 Such other certificates, opinions, documents and
instruments relating to the addition of such Lots as Collateral
reasonably requested by Lender.
<PAGE>
EXHIBIT "D"
DISBURSEMENT SCHEDULE
All Disbursements shall be made or issued in accordance with the
following terms, conditions and procedures:
12. Disbursement Account. A demand deposit account (the "Disbursement
Account") shall be identified at an financial institution acceptable to Lender.
13. Method of Disbursement. Subject to fulfillment of all applicable
conditions and the terms and procedures set forth in the Agreement and this
Disbursement Schedule: (i) each Disbursement shall be made on the basis of a
Disbursement Request submitted (in duplicate) by the Borrower to the Lender,
which shall certify that the Project Costs covered by the Disbursement Request
have been paid or incurred by the Borrower, and (ii) upon the Lender's approval
of the Disbursement Request, the proceeds of the Disbursement shall be deposited
into the Disbursement Account, except that (A) the proceeds of any Disbursement
to pay interest or other amounts owing to the Lender shall be made by book
entry, and (B) at the Lender's option, Disbursements may otherwise be made by
the Lender directly to the Borrower, to the Contractor, if any, or to any other
Lien Claimant, or jointly to one or more of such Persons or to other Persons
designated by the Borrower, or in such other manner as the Lender may approve or
require.
14. Disbursement Draws.
.1 Unit Budgets. Except for interest, disbursements will be provided on
a staged draw basis for each Unit in accordance with the construction and
disbursement draw schedule for each Unit as agreed to by Lender and Borrower
when the Lot on which such Unit is to be located was added as Collateral based
upon a sworn owner's and contractor's statement approved by Lender and Lender's
construction consultant.
.2 Interest. Accrued interest shall be disbursed on a monthly basis on
account of the applicable Line Item in each Unit Budget.
15. Budgets; Use of Proceeds. When a Lot is added as Collateral under
the Agreement, Lender and Borrower shall agree to a Unit Budget for such Lot.
Unless the Lender otherwise consents: (i) each Disbursement shall be made and
used solely to pay or reimburse the Borrower for payment of Project Costs
associated with specific Line Items set forth in the applicable Unit Budget, and
(ii) the total amount disbursed for Project Costs associated with any Line Item
shall not exceed the corresponding amount set forth in the applicable Unit
Budget less the total of all amounts previously disbursed for such Line Item.
<PAGE>
Unless the Lender otherwise consents, no modifications shall be made to
the Unit Budget at any time, except that the Unit Budget and any applicable
shall be appropriately modified by the Lender from time to time to reflect any
increase in Project Costs for which additional Borrower's Funds have been
deposited by the Borrower with the Lender in accordance with paragraph 6 below.
16. Disbursement Procedures. Each Disbursement (other than
Disbursements to pay interest or other amounts owing to the Lender) shall be
subject to prior receipt by the Lender, in form and substance satisfactory to
the Lender, of each of the following items: (i) a Disbursement Request submitted
(in duplicate) by the Borrower, certifying the status of construction of the
Improvements and the amount requested (and the total of all amounts previously
requested) with respect to each Line Item in each Unit Budget, and also
certifying that no Event of Default has occurred and is continuing and that all
Representations made by the Borrower in any of the Loan Documents are correct in
all material respects as of the date of the Disbursement Request (ii) a
Contractor's Application for Payment and Sworn Contractor's Statement with
respect to each Unit under construction in form acceptable to Lender, a
certificate or statement from the Contractor, if any, and/or the Architect with
respect to the status of construction or the amount requested, (iii) at the
request of Lender, originals or copies of such bills, invoices, receipts, lien
releases or waivers or other evidence of payment or information as the Lender
may reasonably require with respect to any Lien Claims or potential Lien Claims
or the status of construction or amounts paid or payable for any Project Costs,
(iv) to the extent that any Disbursement relates to costs for building
materials, equipment or other Personal Property, evidence that such building
materials, equipment or other Personal Property have been incorporated into the
Improvements or have been delivered to the Borrower and stored and insured in a
manner satisfactory to the Lender, (v) a certificate from Lender's construction
consultant in form satisfactory to Lender (provided such certificate shall not
be required to be obtained more than once during each thirty (30) day period),
(vi) evidence of any insurance required by Section 6.8 (if not previously
furnished to the Lender) and, if requested by the Lender, evidence that any
required Financing Commitment is in full force and effect, (vii) a date down
endorsement, interim mechanic's lien endorsement and such endorsements to the
Title Policy and such other Documents and information relating to the Collateral
or the Project as the Lender may reasonably request, and (viii) in the case of
the initial Disbursement for any Lot, the documents described in Exhibit "C" and
(ix) in the case of the initial disbursement with respect to a particular Unit
(a) a copy of the fully executed sales contract relating to the Unit (except in
the case of a Spec Unit) along with evidence of the deposit of earnest money;
and (b) a building permit with respect to such Unit. Subject to all of
<PAGE>
the terms and conditions of this Agreement, Lender agrees to use diligent
efforts to make each Disbursement within five (5) business days of Lender's
receipt of the foregoing items with respect thereto.
Unless the Lender otherwise consents, not more than two Disbursements
(other than Disbursements to pay interest or other amounts owing to the Lender)
shall be made during any month. Unless otherwise paid by the Borrower, and
notwithstanding paragraph 2 above, Disbursements for interest and other amounts
owing to the Lender may be made by the Lender without further authorization from
the Borrower.
Unless the Lender otherwise consents, the Lender shall not be obligated
to make any Disbursement if (A) the Lender has determined that an Event of
Default has occurred and is continuing or that any Representation made by the
Borrower in any of the Loan Documents would not be correct in all material
respects if made on and as of the date of the Disbursement or (B) the Lender has
determined, based on inspections by or on behalf of the Lender or such other
information as the Lender deems appropriate, that the construction of the
Improvements is not substantially as represented by the Borrower or is not in
compliance with the requirements of the Agreement, or (C) the Borrower has
failed to deposit with the Lender any Borrower's Funds required by paragraph 6
below, or (D) the Lender is required under applicable Laws to withhold the
Disbursement or a stop notice has been asserted against the Lender and has not
been fully released, or (E) the Lender has determined that any Liens or Rights
of Others, other than Permitted Prior Exceptions, may have priority over any of
the Mortgage with respect to the Disbursement.
17. Deposit of Borrower's Funds. The Borrower may from time to time
deposit additional Borrower's Funds with the Lender as the Borrower deems
appropriate to cover any increase in Project Costs. In addition, if the Lender
at any time determines that any actual or estimated Project Costs, including
without limitation interest, have exceeded or can reasonably be expected to
exceed the corresponding amount set forth in the Unit Budgets (whether as a
result of Change Orders or otherwise), or that Project Costs for any matters not
covered by specific Line Items have been or may be incurred by the Borrower, or
that the undisbursed portion of the Loan (together with the undisbursed portion
of all Borrower's Funds deposited with the Lender under this paragraph 6) is or
may be insufficient to pay all Project Costs that may be payable under the Loan
Documents or otherwise required in connection with the Project (including a
reasonable reserve for contingency, interest and other costs and expenses), then
the Borrower shall deposit with the Lender, on demand, additional Borrower's
Funds in an amount deemed reasonably necessary by the Lender to pay such Project
Costs or to cover such insufficiency. Any Borrower's
<PAGE>
Funds deposited with the Lender under this paragraph 6 shall be held in a Cash
Collateral Account and shall be disbursed by the Lender prior to further
Disbursements of the Loan.
<PAGE>
EXHIBIT "E"
APPROVED SUBDIVISIONS
Date of Execution: _______________
MASTER SALE AND RENTAL AGREEMENT
THIS MASTER SALE AND RENTAL AGREEMENT (the "Agreement ") is made and
entered into by and between Lundgren Bros. Construction, Inc., a Minnesota
corporation (the "Builder") and NATIONAL MODEL HOMES, INC., a Virginia
corporation (the "Company").
WHEREAS, Builder, who builds single-family residential houses, and in
conjunction with the marketing of houses, constructs Homes, wishes to sell
certain Homes to the Company and then lease the Homes back.
WHEREAS, the Company is in the business of purchasing model homes from
Builders and then leasing the same back to the Builders.
WHEREAS, the Company by the terms hereof shall purchase the Homes and
Builder shall lease back the Homes from the Company.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:
1. Definitions.
1.1 Defined Terms. Except where otherwise specifically stated,
capitalized terms used in this Agreement have the meanings assigned to them
below or elsewhere in this Agreement :
"Additional Homes" shall mean additional model homes, not
described herein, that Builder proposes to sell to the Company and lease back
under this Agreement, as further described in Section 2.4. Once an Additional
Home is added to the Schedule, such Additional Home shall thereafter be referred
to as a Home.
"Agreement" shall have the meaning given such term in the
introductory paragraph hereof. The lease terms of this Agreement may also be
referred to herein as the Lease. As used herein, Lease may sometimes refer to
this
<PAGE>
Agreement as applicable to the lease terms hereof as to particular Home or as to
all Homes.
"Business Day" shall mean any other day than a Saturday, a
Sunday or a day on which banks in Minnesota are authorized or obligated to close
their regular banking business.
"Closing" shall mean the closing of the purchase of Homes,
including, without limitation, (i) conveying fee title to the Homes to the
Company, (ii) issuing the Policy to the Company, (iii) delivering the Purchase
Price to Builder, and (iv) delivering executed copies of this Agreement and
other documents executed in connection with the sale and leaseback to the
parties. The date of the Closing is referred to herein as the "Closing Date";
the Closing Date is also the Commencement Date and as of that date all the
rights and duties of the parties under the Lease commence. Closing when used in
conjunction with the sale of the property to a third party at the termination of
the lease, will be defined as the moment when ownership has been successfully
and completely transferred to that new buyer from the Company.
"Commencement Date" shall mean the date the Home is purchased
and the simultaneous execution of this Agreement and the Closing Date. With
respect to Additional Homes, the Commencement Date shall be the date that this
Agreement is amended by adding such Additional Home to the Schedule.
"Commitment Fee" shall be the fee paid by Builder intended to
cover Company's due diligence which includes ordering and paying for the
appraisals for those Homes bought in the first transaction. It is not intended
to pay for the appraisals for Additional Homes, as the appraisal costs for such
Homes shall be paid by Builder as a closing cost. This fee is refundable less
third party costs if NMH chooses not to complete the transaction.
"Contingency Balance" shall mean that balance established for
the benefit of the Company. Beginning with the sale of the first model to a
third party, a Contingency Balance will be established and funded with net
proceeds, against which the Company will have a claim should a Home sell for
less than the purchase price. The Balance will be funded with available "Net
Proceeds" (defined as the proceeds available to the Builder after distributions
(a) through (d) detailed in section 7.4) to a maximum of 2% of the Purchase
Price as detailed in Exhibit A of this Agreement. Once the Balance has been
fully funded such that the Balance has grown to 2% of the then outstanding
portfolio value, quarterly adjustments will be made to maintain a level of 2% of
the portfolio value, except that at no time shall the Balance dip below $25,000.
An accounting of the amount owed to the
<PAGE>
Company from the Contingency Balance shall be kept, recognizing that should more
be owed the Company than is available in the Balance, then future Net Proceeds
up to 2% of the appraised value from each Home sold to a third party shall be
paid to the Company until all past losses have been made up, at which point
funding of the Contingency Balance shall proceed as provided for in section 7.5.
"Contract Expiration Date" shall be that date detailed in
section 2.5 where the terms of this Agreement no longer apply to unclosed homes.
"Default" shall mean any uncurrable, or any uncured (after the
giving of notice, the lapse of time or both, as applicable) Event of Default.
"Distributions" shall mean those monies paid to appropriate
parties as detailed in Section 7.4 hereof.
"Event of Default" shall mean the occurrence of any of the
conditions or events as described or referred to in Section 11.1.
"Expiration Date" shall mean the earlier of the expiration
date in the Schedule or the expiration date determined by Section 5.5 hereof.
"Hazardous Materials" shall mean any substance or material
that is described as a toxic or hazardous substance, waste or material or a
pollutant or contaminant, or words of similar import, in any of the
environmental laws, and includes asbestos, petroleum (including crude oil or any
fraction thereof, natural gas, natural gas liquids, liquefied natural gas, or
synthetic gas usable for fuel, or any mixture thereof), petroleum products,
polychlorinated biphenyls, urea formaldehyde, radon gas, radioactive matter,
medical waste, and chemicals which may cause cancer or reproductive toxicity.
"Homes" shall mean (i) with respect to single-family detached
homes, town homes or condominiums, the underlying realty and all the
improvements located thereon, including without limitation, the landscaping,
irrigation equipment, sidewalks, walls and the house, and (ii) with respect to
condominiums, an undivided interest in the undivided realty and all common
improvements located thereon, plus title to the subject individual dwelling unit
as defined in the governing documents applicable thereto. Fixtures located
within the Homes which cannot be removed without damage to the Homes, the
draperies and drapery hardware, the built-in appliances located in the Homes as
of the Commencement Date, and built-in or custom cabinetry or woodworking are
deemed to be a part of the Homes. The term "Homes" does not include furniture
(unless built-in), accessories such as vases, paintings, and other art and
decorating objects, office furniture and
<PAGE>
equipment, or office fixtures located in the Homes (unless otherwise specified
on the Schedule).
"LIBOR" shall mean the London InterBank Offered Rates
("LIBOR") for a one-month period as publicly quoted in the Wall Street Journal.
"Lien" shall mean any lien, mortgage, deed of trust, pledge,
security interest, charge or encumbrance of any kind (including any conditional
sale or other title retention agreement, any lease in the nature thereof and any
agreement to give any security interest).
"Minimum Amount" shall mean the proceeds, net of all closing
costs, to the Company from a sale of a Home concurrent with an early termination
of this Lease as to such Home to be paid to the Company which proceeds must in
all cases equal or exceed one hundred and two percent (102%) of such Home's
Purchase Price per Schedule A.
"Net Proceeds" shall be defined as the gross sales price
received at closing from the ultimate third party buyer of the homes, less the
appropriate and necessary Distributions as described in Section 7.4 hereof.
"Notice" shall mean the written notice from Builder to the
Company of Builder's intent to exercise of any termination right described in
Section 5.5 hereof. Such notice, substantially in the form of Exhibit C as
attached hereto, must be received by the Company at least ninety (90) days prior
the requested termination date.
"Past Due Rate" shall mean the rate of interest on any
obligation not paid when due, from the date due until paid in full such rate
shall equal the sum of the Lease Rate plus four percent (4%).
"Person" shall mean any corporation, limited liability
company, natural person, firm, joint venture, partnerships, trust or
unincorporated organization or any other entity.
"Personal Property Taxes" shall mean all taxes assessed
against and levied upon trade fixtures, furnishings, equipment and all other
personal property of Builder contained in the Homes. When possible, Builder
shall cause said trade fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of the
Company.
"Policy" shall mean an ALTA (extended coverage) or equivalent
form Policy, including all riders or endorsements thereto, in an amount not less
than the
<PAGE>
Purchase Price of the Home, insuring the Company, or its assigns and successors,
clear title to the Home, subject only to (i) liens for real estate taxes and
government improvement assessments not delinquent or (ii) easements and
restrictions that do not adversely affect the marketability of title to the Home
or prohibit or interfere with the use of the Home as a single-family residential
dwelling.
"Preliminary Title Report" shall mean a title report prepared
by a company qualified to issue the Policy that sets forth (i) the legal
description of the Homes and (ii) the complete status of title as to the Homes.
"Proposed Sale Price" shall mean the price established by the
Company in its sole discretion.
"Purchase Price" shall mean the total purchase price for the
Homes described in the Schedule.
"Real Property Taxes" shall mean any form of assessment, levy,
penalty or tax (other than inheritance, estate, net income or franchise taxes)
imposed by any authority having the direct or indirect power to tax, including
any city, county, state or federal government or any school, agricultural,
lighting, drainage or other improvement district thereof, whether such tax is
(i) upon, allocable to or measured by the area or value of the Home or the
rental payable hereunder, including without limitation any gross rental tax or
sales tax levied by the state, city or federal government or any political
subdivision thereof, being assessed with respect to the receipt of such rental,
or (ii) upon or with respect to the possession, leasing, operation, management,
maintenance, alteration, repair, use or occupancy by Builder of the Home(s) or
any portion thereof, or (iii) upon or measured by the value of Builder's
personal property, equipment or fixtures located in the Home(s), or (iv) upon
this transaction or any document to which Builder is a party creating or
transferring an interest or an estate in the Homes, and (v) whether or not any
such tax is now customary or within the contemplation of the parties.
"Rent" shall mean the monthly installments of rental payments
under this Agreement for each of the Homes as calculated pursuant to Section
5.2.
"Retrofit" (and all other derivatives) shall mean (i)
obtaining a certificate of occupancy (or its equivalent in the subject
jurisdiction) for the Home, (ii) completing any other work required to remove
special improvements installed for marketing purposes, and (iii) generally
transforming the Home to an ordinary, habitable, fully functioning, single
family residential home. The Retrofit standard shall mean, without limitation,
that (a) all structural components (including roof, walls, floors, foundation)
of the Home shall be sound and in good condition, (b) all areas of the Home
(including painted walls, wallpaper, carpets, linoleum, tile and all
<PAGE>
other flooring) shall be thoroughly clean, without signs of physical blemish or
damage or signs of unperformed maintenance, warping, tears, cuts, cracking or
other physical damage, (such repairs to include repainting with matching paint,
replacement of damaged wall paper, replacement of damaged carpet with new carpet
and pad of equal grade with matching color and (c) equipment, and appliances
(including, without limitation, HVAC system, ranges, ovens, dishwashers, ceiling
fans, and all lights) shall be in good working order, and properly functioning,
without physical blemish or other signs of unperformed maintenance or physical
damage. Retrofit shall further include removing and properly disposing of all
asphalt from the applicable model lot used as a parking lot, transforming all
garages used as offices into garages, removing all railings, fencing, walls,
sidewalks and other devices which were installed to direct sales traffic to said
Home, removing all sales signs and other sales equipment and fixtures, removing
all of Builder's property from the Home.
"Sales Reports" shall mean the quarterly reports to be
delivered by Builder to the Company in accordance with Section 10.14 summarizing
the activity in each project using the Home as a sales center (the "Project"),
in such form as Company may reasonably require.
"Schedule" shall mean a schedule which describes the Homes
sold to the Company and leased back to Builder pursuant to this Agreement
attached as Exhibit A hereto. The Schedule as used herein shall mean the
Schedule as revised from time to time in accordance with the terms hereof.
"Term" shall mean the period of time that the Homes are
subject to the terms and conditions of the Lease.
"Title Company" shall mean a company, selected by the Company,
qualified to issue the Policy and shall be Chicago Title.
"Total Portfolio Value" shall mean the total appraised value
of Homes on Exhibit A as the same may be revised from time to time to reflect
additional Homes added to the Lease and Homes removed from the Lease upon resale
to third parties.
2. Purchase.
2.1 Purchase Transactions. Builder agrees to sell an initial purchase
of $2.3895 million worth of model homes from LUNDGREN consisting of seven models
currently constructed, followed by a second purchase of six additional models
valued at
<PAGE>
approximately $2.0 million, and the Company agrees to purchase the Homes from
Builder pursuant to the terms and conditions of this Agreement.
2.2 Purchase Price. The purchase price by the Company will be 83% of
the appraised value of the models as described in Exhibit A of this Agreement.
In addition, Builder will be entitled to a 75% share of the net proceeds from
the sale of each model.
2.3 Closing Costs. Builder shall pay all escrow fees, recorded plat,
Title Company charges and all other costs of Closing including all costs
reflected on all settlement statements for Closing the Homes plus a document
preparation fee payable to the Company in the amount of $250 per home
representing a total of $1750.
2.4 Additional Homes. From time to time, Builder or the Company may, in
their discretion, propose subjecting additional homes not described herein
("Additional Homes") to this Agreement. The Company is under no obligation to
purchase and lease back Additional Homes; Builder is under no obligation to sell
and lease back Additional Homes. In the event the Company and Builder agree to
sale/leaseback Additional Homes, at the time of Closing and conveyance of fee
title to the Company of such Additional Homes, the Schedule shall be revised as
agreed upon by the parties and the Lease portions hereof shall become
immediately effective as to such Additional Homes.
3. Conditions Precedent.
3.1 Initial Purchase of Homes. The obligation of the Company to
purchase the Homes and lease the Homes back to Builder hereunder is subject to
and conditioned upon the receipt by the Company, on or before the Commencement
Date, of each and all of the following, in form and content reasonably
satisfactory to the Company:
(a) A duly executed copy of this Agreement;
(b) Intentionally left blank;
(c) A certificate, dated no less recently than one (1) month
prior to the Commencement Date, of the Secretary of State of the State of
Minnesota, certifying that Builder is in good standing;
<PAGE>
(d) Copies of resolutions of the board of directors of
Builder, certified by the corporate secretary, authorizing the execution,
delivery and performance by Builder of this Agreement;
(e) Fee simple title (or marketable if appropriate in the
state where the Homes are located) to the Homes or Additional Homes shall be
conveyed to the Company in the customary form of deed used in the jurisdiction
in which the Homes or Additional Homes are located, which shall be prepared by
the Title Company in a form acceptable to Company;
(f) All liens and encumbrances on the Homes representing
monies owed, other than non-delinquent real property taxes and assessments, are
hereby disapproved and shall be paid or satisfied by Builder on or prior to the
Closing Date and therefore need not be further disapproved by the Company. To
the extent Builder fails to pay or satisfy such liens and encumbrances, the same
shall be satisfied with the cash proceeds of the Purchase Price as of the
Closing Date;
(g) At Closing, Builder at its sole cost and expense shall
deliver to the Company with respect to each Home a Policy issued by the Title
Company, in the amount of the purchase price, insuring title in the Company in
the condition described herein, together with and subject to routine
sub-division covenants, conditions, restrictions and easements;
(h) At Closing, with respect to each Home, a certificate of
occupancy or like document (or temporary COA by jurisdiction), from the
applicable governmental jurisdiction;
(i) Copies of all insurance policies, or certificates of
insurance or binders, as required by Sections 10.3 and hereof, naming the
Company and its assigns as additional insureds and primary insureds as the case
may be;
(j) Intentionally left blank;
(k) Certificate for each Home from an independent third party
specializing in such evaluations or an appraiser that such Home does not
currently lie in a FEMA flood zone; and
(l) A set of duplicate keys for each Home;
(m) Delivery to the Title Company pursuant to the Escrow
Agreement for deposit in the Retrofit Escrow Account the sum of $13,500
representing $4500 for each home that has been identified as needing Retrofit
<PAGE>
3.2 Additional Homes. Subject to Section 2.4, the obligation of the
Company to purchase and lease Additional Homes back to Builder hereunder is
further subject to and conditioned upon, but not limited to, the receipt by the
Company of the following:
(a) The representations and warranties of Builder contained in
this Agreement shall be accurate and complete in all respects as if made on and
as of the date of closing of the Additional Homes;
(b) A duly executed amendment to this Agreement which revises
the Schedule for the inclusion of the Additional Homes;
(c) With respect to each Additional Home(s), the documents
required by Section 3.1 (e) through (h), (k) through (n);
(d) the delivery of additional funds, if necessary, so that
the Retrofit Escrow Account contains $4,500 for each Retrofit Home required by
Section 3.1(m);
(e) Current financial information in accordance with Section
10.15.
4. Closing.
The parties shall Close this transaction at the offices of the Title
Company, on the Closing Date.
4.1 No Proration of Recurring Taxes. Builder shall be solely
responsible for payment of all recurring property taxes, special taxes and
assessments which are assessed against the Homes (or Additional Homes, if any);
accordingly, there shall be no proration of taxes and assessments between the
parties at Closing. Builder's responsibility for all taxes and assessments shall
survive the Closing and continue for each Home until the applicable Expiration
Date. Real estate taxes and other items due in a calendar year shall be
attributed to that calendar year.
4.2 Payment of Non-Recurring Taxes Arising Out of Transaction. At the
Closing, all non-recurring state and local taxes, special taxes, assessments,
surcharges, and fees imposed by applicable jurisdictions upon the transaction
shall be paid by Builder to the extent same are then due and payable. This
specifically includes, but is not limited to, documentary taxes, deed taxes,
mortgage taxes incurred by the Company, intangible taxes, transfer taxes,
recording taxes and filing fees for affidavits of value.
<PAGE>
4.3 Sale / Leaseback Closing Documents. At the closing of every sale /
leaseback transaction between the Builder and the Company:
a) The Builder shall execute and deliver to the Company a general
warranty deed conveying marketable fee simple title in the Homes(s) to the
Company;
b) The Title Company shall issue to the Company a Title Policy
complying with Section 3.1(d) of this agreement;
c) The Company shall deliver the Purchase Price through the Title
Company to the Builder by certified check, cashier's check or wire transfer
d) The Builder and the Company shall execute all customary minor
closing documents deemed reasonably necessary by the Title Company.
4.4 Resale Closing Documents. At the closing of every resale of a Home
from the Company to a third party:
a) The Company and the Builder shall execute and deliver to the third
party their respective limited warranty deeds, which together shall convey
marketable fee simple title in the Home to the third party;
b) The Title Company shall issue to the third party a title insurance
policy complying with the terms of the Purchase Ageement between the Company and
the third party;
c) The Company shall deliver Builder's share of the net proceeds as
described in section 7.4 (g) of this Agreement;
d) The Builder, the Company and the third party shall execute all
customary minor closing documents deemed reasonably necessary by the Title
Company;
e) The Builder shall deliver to the third part buyer a copy of the
warranty attached hereto as Exhibit ___.
5. Lease Terms.
5.1 Demise. The Company now hereby leases back on an absolutely net
basis the Homes to peaceably have, hold and enjoy to Builder pursuant to the
terms and conditions of this Lease. This Lease is applicable to each Home
described on the Schedule, the same as if each of the Homes, respectively were
the only property subject to this Agreement. Neither the Retrofit nor the resale
of a Home
<PAGE>
shall affect the validity and enforceability of this Lease with respect to the
remaining Homes.
5.2 Lease Payments. Builder shall pay Rent in advance on the first day
of each calendar month without deduction, offset, prior notice or demand, in
lawful money of the United States. Rent shall be paid commencing on the
Commencement Date and until the Expiration Date for the respective Homes. If the
Commencement Date for a Home is not the first day of a month, Builder shall,
respectively, pay a prorated Rent for that month upon the effective date of this
Agreement for such Home. In addition, if the Commencement Date is on or after
the 20th of a calendar month, Rent shall also be paid for the next calendar
month. As Rent is prepaid the next monthly payment of Rent to the Company shall
be equitably adjusted for any Home which had its Expiration Date during the
prior month. The first full monthly installment of Rent payable by Builder
pursuant to this Agreement shall be paid to the Company on ___________________.
(a) Rental. The monthly Rent due for all Homes for each
calendar month of the Term shall be equal to the quotient of: (x) the product of
(i) the 1-month LIBOR on the fifteenth day of the immediately preceding calendar
month if a Business Day or if not a Business Day the Business Day immediately
preceding the fifteenth, plus five and one quarter percent (5.25%) ("Lease
Rate"), times (ii) the Purchase Price of all Homes then covered by this Lease on
the first day of the applicable calendar month divided by (y) twelve.
5.3 Late Charges. Builder agrees and acknowledges that late payment of
Rent and other sums due hereunder will cause the Company to incur costs not
contemplated by this Agreement, the exact amount of which will be extremely
difficult, if not impossible, to ascertain. Such costs include, but are not
limited to, processing and accounting charges and late charges which may be
imposed on the Company by the terms of any finance documents, mortgage or trust
deed covering the Homes. Accordingly, if any installment of Rent or any other
amount due from Builder shall not be received by the Company or its designee
when due, Builder shall pay to the Company a late charge equal to five percent
(5%) of such overdue amount. Builder acknowledges that such late charge will be
due and payable if payment is delivered more than ten (10) days late. The
parties hereby agree that such late charge represents a fair and reasonable
estimate of the costs the Company will incur by reason of a late payment.
Acceptance of such late charge by the Company shall in no event prevent the
Company from exercising any of the other rights and remedies granted hereunder.
5.4 Term. The Term for the Homes (including the Additional Homes) shall
commence on the Commencement Date for such Home, and shall expire on the
applicable Expiration Date as set forth on the Schedule except that in no case
shall
<PAGE>
the Lease or the obligation to pay Rent terminate as to any Home which has not
been Retrofitted..
5.5 Builder Election for Early Termination. Builder may cause early
termination of the Term for a particular Home as set forth in this Section.
Builder may elect to terminate the Lease prior to the Expiration Date for that
Home if circumstances change such that there is no longer any business purpose
served by the continued use of such Home as a model. In order to terminate the
Lease prior to the Expiration Date, Builder shall give Notice to the Company of
the desire to terminate early and immediately begin marketing the Home pursuant
to section 7. If at least ninety (90) days before the originally scheduled
Expiration Date a purchase agreement has been signed that will close on or
before the scheduled Expiration Date, then Builder shall guarantee that at the
closing the Company shall receive the Minimum Amount, rather than the Purchase
Price in section 7.4.c. Any purchase agreement signed thereafter shall be
subject to section 7.4.c as written, In any event the other distribution rules
of section 7.4 shall apply and the marketing rules of 7.1 will apply ninety (90)
days prior to the Expiration Date. Unless and until termination or expiration,
Builder shall continue to comply with all provisions of this agreement as to
such home, including, without limitation, the payment of rent, continued
maintenance and retrofit requirements, and under no circumstances may a Lease
terminate prior to completion of the retrofit.
5.6 Monthly Extensions. Builder may, subject to the prior approval of
the Company (which approval shall not be unreasonably withheld), elect to extend
the Term, with respect to each Home, on a month to month basis, provided
however, that Builder provides the ninety (90) day Notice and Builder is
complying with all other provisions herein or causes to happen a closing to a
third party netting the Company at least the Purchase Price
5.7 Holding Over. If Builder remains in possession of all or any part
of any Home after the expiration of the Term hereof, with or without the express
or implied consent of the Company, such tenancy shall be from month to month
only, and not a renewal hereof or an extension for any further term, and in such
case, Rent and other monetary sums due hereunder shall be payable in the amount
and at the time specified in this Agreement and such month to month tenancy
shall be subject to every other term, covenant and agreement contained herein.
Notwithstanding the foregoing, after the expiration of the Term with respect to
any Home, the Company may terminate any holdover tenancy in that Home upon
giving Builder thirty (30) days written notice.
6. Retrofit Obligation; Remodeling.
<PAGE>
6.1 Retrofitting. Not earlier than twenty (20) days before the
Expiration Date for each Home, Builder shall, at Builder's sole cost and
expense, Retrofit such Home as put forth in the definition of Retrofit. Without
limiting the other requirements herein, the Lease for a Home shall not terminate
prior to its Retrofit.
6.2 Remodeling. The Builder may at any time elect to remodel, redesign
and / or expand (herein collectively "Remodel") a Home, upon giving the Company
ten days advance notice of the same, together with a) a good faith estimate of
the cost of the Remodeling, and b) a good faith estimate of the value added by
the remodeling upon the completion of the same. Remodeling may occur during the
middle of the Lease; near the end of the Lease in anticipation of sale to a
third party; or at any other time during the Term of the Lease. Upon completion
of the remodeling, Builder shall provide to the Company an accounting of the
actual cost of the Remodeling and a revised good faith estimate of the value
added by the remodeling . Upon resale any net profits attributable to the
Remodeling shall be shared 75% / 25% just like the base Home.
<PAGE>
7. Sale.
7.1 Sale Efforts. Builder shall be given the exclusive right to market
a Home on behalf of the Company for the first ninety (90) days prior to the
Lease Expiration Date. The Builder shall use its reasonable efforts to sell each
Home on behalf of the Company beginning not less than ninety (90) days prior to
the expected Expiration Date. Builder shall give written Notice of the date it
intends to begin its marketing efforts, which date shall be not less than ten
(10) days prior to the expected Marketing Date. For the first 60 days of this
period Builder shall provide the Proposed Sale Price, Ten days prior to the
expiration of this 60 day period, should the Builder and Company be unable to
decide upon a mutually agreeable revised price, an appraisal will be ordered and
performed by an SRA designated appraiser and the resulting value used as the new
list price. The cost of such an appraisal will be paid for by the Company and be
treated as a closing cost when the home is ultimately sold. On the first of each
month following the institution of such a pricing mechanism, the Company shall
have the ability to lower the list price by 1%. An acceptable sale price shall
be any value acceptable to the Company within 5% of the list price. The Company
shall always respond within 36 hours to a proposed contract. Provided
nevertheless if the Builder procures a bona fide third party who signs a resale
purchase agreement in the form of Exhibit E that nets the company at least the
Purchase Price, then the Company shall promptly execute and diligently perform
the resale purchase agreement according to its terms. Attached hereto as Exhibit
D is the master form of the listing agreement which shall apply to all sales
efforts by the Builder for the Company, hereunder. In the event of any
discrepancy between Exhibit D and this Agreement, this Agreement shall govern.
Attached hereto as Exhibit E is the form of resale purchase agreement to be used
whenever the Builder markets a Home for the Company pursuant to this Agreement.
In the event of any discrepancy between Exhibit E and this Agreement, this
Agreement shall govern.
Upon, and only upon, a consummated sale procured by the Builder, the Company
shall pay Builder a broker's commission as a percent of the sale price as full
compensation to Builder for its efforts in selling such Homes, not to exceed the
schedule below. Should a Builder sales agent successfully obtain a firm contract
acceptable to NMH that closes within the Sales Period, the commission will be
increased by 1/2% and will be paid directly to the sales agent.
<PAGE>
Net Sales Price*
as % of Original Earned Commission
Appraised Value No Co-Broker With Co-Broker
--------------- ------------ --------------
89% or less 2.0% 5.0%
More than 89% 3.0% 6.0%
*Net Sales Price shall be defined as gross sales price less concessions
and closing costs.
The Company shall have the right to market the Home at any time after ninety
(90) days after Builder has begun its marketing efforts. Company shall give
Notice of its intent to control and oversee marketing. The Company may then use
any marketing methods and techniques commonly utilized, including, without
limitation, (i) posting "For Sale" signs, (ii) listing the Home with a multiple
listing service, (iii) listing the Home with a local Realtor, (iv) placing
advertisements in local media, which advertising is allowed to use the Builder's
name and the name of the subdivision after Builder approval of copy such
approval not unreasonably withheld, and (v) engaging other brokers or sales
persons to market the Home. Notwithstanding anything to the contrary, in the
event Builder elects to exercise any of its termination rights under Section
5.5, any time after five (5) days after Builder has delivered the applicable
Notice to the Company, and not before, the Company may also place a "For Sale"
sign on the front yard of the Home's lot, and conduct open houses in the Home.
Each party shall conduct its activities in a courteous and reasonable manner and
avoid unnecessary interference with each other's activities.
7.2 Waiver of Conflict. The parties acknowledge that Builder may have
other production homes to market, the sale of which may directly compete with
the sale of the Homes. The Company acknowledges the existence of such conflict
of interest and waives any right to object to Builder's efforts to market its
production units at any price it elects.
7.3 Intentionally Left Blank
7.4 Distribution of Proceeds. Net sale proceeds from the sale of a Home
shall be distributed as follows:
<PAGE>
(a) First, to any due and unpaid Rent amount;
(b) Next, to any and all closing costs in connection with
the Home's sale;
(c) Next, to the Company in the amount of the Purchase
Price;
(d) Next, to any commission due Builder;
(e) Next, 25% of the remaining proceeds to the Company;
(f) Next, to the Contingency Balance, and;
(g) Remaining net proceeds paid to Builder.
7.5 Contingency Balance. An escrow account will be established pursuant
to the Escrow Agreement attached as Exhibit B, for the purposes of maintaining
the funds accumulated as the Contingency Balance. The escrow agent will be the
Title Company. The parties will execute the Escrow Agreement upon execution of
this Agreement.
(a) The escrow account will be funded with available funds as
described by section 7.4 "Distribution of Proceeds." The Contingency Balance
distribution does not have to be made if the amount in escrow is at least equal
to 2% of the Purchase Price for the remaining Homes covered by this agreement
and is greater than $25,000.
(b) The account is not to exceed 2% of the Purchase Price for
remaining Homes covered by this agreement. If at anytime the fund is greater
than 2% of the Purchase Price for the remaining Homes, then distribution to the
Builder is permitted provided that the balance of the account does not go below
$25,000.
(c) A final distribution of funds along with the closing of
the escrow account will not occur until there is a final accounting of the
remaining balance as described in section 7.6.
7.6 Final Accounting A final accounting of all activity will occur when
the final Home is sold by the Company. Once all amounts have been satisfied from
the final sale then the escrow agent will be required to distribute any
remaining funds to the Builder along with any interest earned during the escrow
period, less escrow agent fees. If there are no funds available at the time of
final accounting then no disbursement is made and the escrow account shall be
closed.
<PAGE>
8. Representations and Warranties of Builder.
Builder hereby warrants and represents that the facts set forth in this
Section 8 and any other representations and warranties of Builder set forth
elsewhere in this Agreement are true and correct as of the date hereof and shall
be true and correct as of the Closing Date. Furthermore, the Company's
obligation to close this transaction for the purchase of the Homes or Additional
Homes is expressly conditioned on Builder's representations and warranties being
true and correct as of the Closing Date.
8.1 Existence and Authority. The Builder (i) is duly organized, validly
existing and in good standing under the laws of the state in which it is
incorporated or organized, as the case may be, and is qualified to do business
in the jurisdictions in which its ownership of property or conduct of business
requires such authorization, and has full power, authority and legal right to
own and operate its property and to conduct its business as presently conducted;
and (ii) has the full corporate power and authority to execute and deliver this
Agreement and to perform in accordance herewith.
8.2 Title to Homes. The Builder is the owner of fee simple (or
marketable if appropriate in the applicable state) title in and to the Homes and
any Additional Homes. The permission and consent of no other person or entity is
required to approve this Agreement and convey the Homes to the Company.
8.3 Used as Homes. Unless specifically waived in writing by the
Company, each Home has been used and occupied by Builder only as model homes
and/or as sales offices for the marketing of other model homes in the respective
Projects in compliance with applicable laws and ordinances and for no other
purpose. Builder is the party which constructed the Homes and agrees that they
are in every way suitable for the use which Builder intends to make of them.
8.4 Payment of Taxes. The Builder has paid all taxes due pursuant to
any assessment received by Builder, except such taxes, the payment of which is
not yet due, or which if due, is not yet delinquent or is being contested in
good faith or which has not been fully determined.
8.5 Withholding of Taxes. Builder hereby represents and warrants and
certifies, that withholding of federal and state income taxes is not required as
a result of the sale of the Homes or Additional Homes to the Company. Builder
acknowledges that the Company is relying upon this certification in determining
not to withhold taxes. Builder shall indemnify and hold the Company harmless
from all cost, liability, and expense if withholding is required.
<PAGE>
8.6 Pending Disputes. To the best of Builder's knowledge, there are not
any pending disputes concerning the Homes, or concerning the obligations or
rights of Builder or other persons in and to the Homes.
8.7 No Liens or Encumbrances. There are no liens or encumbrances on, or
claims to, or covenants, conditions and restrictions, easements, rights of way
or other matters which may adversely affect the marketability of title to the
Homes, except as disclosed in the Preliminary Title Report for the Homes or
Additional Homes. Builder shall not encumber the Homes or Additional Homes or
allow the Homes or Additional Homes to be further encumbered without the prior
written consent of the Company.
8.8 Sales in Projects. Except for normal seasonal changes, Builder has
no plans to curtail or reduce (i) the number of hours or days open for sales, or
(ii) the amount of advertising in the projects for which the Homes or Additional
Homes are being used during the Term. As of the date of this Agreement, Builder
intends to continue to sell the production units in the projects for which the
Homes or Additional Homes are being used until sales of all such production
units have been completed, and intends to use the Homes for that purpose.
8.9 Studies. Copies of all studies, documents, reports and other
correspondence pertaining to the Homes or Additional Homes which have been
previously delivered to the Company are true and correct copies of the originals
and Builder is not aware of material errors in any of the same.
8.10 Construction in Compliance with Laws. The construction of the
Homes or Additional Homes and all other improvements in the project have been
completed in compliance with applicable federal, state and local laws,
ordinances, regulations and codes.
8.11 No Defaults. Builder and any related party of Builder are not in
default under any of their respective agreements concerning the projects,
including but not limited to agreements with any lender(s), nor is Builder or
any related party of Builder in default under any publicly issued bond financing
requirements or under any documents related thereto.
8.12 Continued Operations. Builder has no intention at this time of
discontinuing building operations in the states in which the Homes are located.
8.13 Survival. All representations and warranties made by Builder
herein or in any certificate delivered pursuant hereto shall survive the Closing
hereunder and the execution and delivery of this Agreement.
<PAGE>
In the event that the Company discovers a breach of representation and
warranty set forth in this Section that materially and adversely affects the
value of the Homes or the interest of the Company therein, the Company shall
give prompt notice to Builder. Builder shall have thirty (30) days, after
receipt of notice of such breach in which to cure in all material respects such
breach. In the event that Builder is unable to cure in all material respects a
breach of representation and warranty set forth in this Section as to any Home,
then Builder shall promptly repurchase each affected Home in its current
condition (i.e., as is, where is, with all faults) at a price equal to the
Purchase Price. Failure by Builder to repurchase any affected Home will
constitute an Event of Default under this Agreement.
9. Representations and Warranties of the Company.
The Company hereby warrants and represents that the facts set forth in
this Section and any other representations and warranties of the Company set
forth elsewhere in this Agreement are true and correct as of the date hereof and
shall be true and correct as of the Closing Date. Furthermore, Builder's
obligation to close this transaction for the purchase of the Homes or Additional
Homes is expressly conditioned on the Company's representations and warranties
being true and correct as of the Closing Date.
9.1 Organization. The Company is duly organized and validly existing
and in good standing under the laws of the Commonwealth of Virginia and has full
right, power and authority to enter into and perform its obligations under this
Agreement.
9.2 No Defaults. The Company is not in default under any of its
respective agreements concerning this transaction.
9.3 Authority. The permission and consent of no other person or entity
is required to approve this agreement or this transaction other than as
disclosed to Builder.
9.4 Confidentiality. The Company shall keep confidential all sales
information obtained from Builder and shall disclose it only to those who (i)
reasonably require such information from the Company as a condition to doing
business with the Company, and (ii) who likewise enter into written agreements
covenanting to keep such information confidential unless the prior written
consent of Builder is first obtained. Under no circumstances shall the Company
disclose sales information to any homebuilder or developer.
Company's warranties will survive close of escrow.
<PAGE>
10. Further Builder Covenants, Agreements and Representations.
10.1 Absolute Obligation to Pay Rent. Builder is obligated to pay the
Rent until the termination of the Term for each Home, which obligation is a
separate, absolute, unconditional and independent covenant to be performed
notwithstanding any other conditions. The Builder shall have no right to
terminate except as provided herein, or to be relieved of any obligation to pay
the Rent for any reason whatsoever not expressly set forth herein, including
without limitation:
(a) any set off, counterclaim, defense or other right which
the Builder may have against the Company;
(b) any defect in the condition, design, operation or fitness
for use of, or any damage or loss or destruction of the Homes or any portion
thereof (including any environmental condition or contamination even if the
Builder is not responsible or liable under this Agreement for such condition or
contamination);
(c) any interruption or cessation in the use or possession of
the Homes by Builder for any reason whatsoever; with the exception of the
Company deciding not to rebuild a Home catastrophically damaged thus depriving
the Builder the ability to use the Home for which it was intended. In such a
circumstance, Builder's responsibility to pay Rent will cease ninety (90) days
following the occurrence of damage or closing on the sale of the remaining
assets, whichever occurs first.
(d) the existence of any Liens against the Homes;
(e) any insolvency, bankruptcy, reorganization or similar
proceedings by or against the Company or Builder;
(f) any default by the Company under this Agreement or under
any instrument to which the Company may be a party;
(g) any change in tax or other laws of the United States, or
any state thereof, or any political subdivision of any of them;
(h) any title defect or encumbrance or any eviction from the
Homes or any part thereof by title paramount or otherwise, provided, however,
Builder shall have a right to terminate with respect to those material title
defects, encumbrances or evictions which are caused by Company;
<PAGE>
(i) any change, waiver, extension, indulgence or failure to
perform or comply with, or other action or omission in respect of, any
obligation or liability of the Company contained in this Lease; or
Except for any overpayments of Rent (which overpayments shall be credited
against the next installment of Rent then becoming due), each payment of the
Rent shall be final, and Builder shall have no right to seek to recover all or
any part of such payment from the Company for any reason whatsoever, with the
exception of the final payment which shall be refunded. It is the purpose and
intent of the parties that the Rent paid shall be net to the Company and that
all costs and expenses and charges related to the Homes as set forth herein,
except for debt service and general overhead of the Company, shall be paid by
Builder.
Any language herein to the contrary notwithstanding, in the event the Company
fails to close on the resale of a Home to a third party buyer in the manner
provided herein, the Rent otherwise payable hereunder shall, on the date
otherwise appointed for the closing for such sale, cease to be owed hereunder
and the Lease shall expire with regard to the Home.
10.2 Taxes. Builder shall pay before delinquency all Real Property
Taxes and Personal Property Taxes due on or applicable to the Homes and property
contained therein. Builder shall provide evidence of payment satisfactory to the
Company. If payment of the taxes has not been made ten (10) days before
delinquency date, the Company, at any time thereafter as long as still unpaid,
shall have the right, but not the obligation, to pay the same after delivery of
reasonable prior notice to Builder, in which case Builder shall immediately
reimburse the Company together with interest at the Past Due Rate. Real Property
Taxes for any partial year shall be prorated as appropriate.
10.3 Insurance. Builder shall, at its sole cost and expense, procure
and maintain at all times during the Term policies as described below issued by
companies rated by A. M. Best with an "A" designation:
(a) a policy of commercial general liability insurance
insuring Builder, and naming the Company, or its assigns, as an additional
insured, against any liability arising out of the ownership, use, occupancy, or
maintenance of the Homes and appurtenant areas. Such insurance shall at all
times be in an amount of not less than One Million Dollars ($1,000,000) for
injury to or death of any one, or more than one, person in any one accident or
occurrence, and in an amount of not less than Five Hundred Thousand Dollars
($500,000) for liability for property damage. Builder shall provide the Company
with certificates of insurance evidencing such insurance coverage prior to the
applicable Commencement Date and whenever reasonably requested. No policy of
liability insurance procured by or
<PAGE>
on behalf of Builder as required hereunder shall be cancelable or subject to
reduction of coverage or other modification except at Builder's expense after
thirty (30) days prior written notice to the Company by the insurer. All such
policies shall be written as primary policies, not contributing with and not in
excess of coverage which the Company may carry. Builder shall, within thirty
(30) days prior to the expiration of such policy, furnish the Company with
evidence of renewals or binders. Builder shall have the right to provide such
insurance coverage pursuant to blanket policies obtained by Builder provided
such blanket policies expressly afford coverage for the Homes and to Builder as
required by this Lease, and
(b) a policy or policies of insurance covering loss or damage
to the Homes in the amount of the full replacement value thereof (exclusive of
Builder's trade fixtures and equipment but including all options, extras and
upgrades) providing protection against all perils included within the
classification of fire, extended coverage, vandalism, malicious mischief,
sprinkler leakage and special extended peril (all-risk). Certificates evidencing
such insurance shall be delivered to the Company prior to the Commencement Date.
Such insurance shall provide for direct payment of loss thereunder to the
Company or its successors and assigns.
10.4 Casualty Repairs. If any Home is damaged by any casualty
(including, without limitation, flood, earthquake, mud slides or any other like
act of God whether insured or not) at any time during the Term, Builder shall
repair such damage and rebuild the Home at Builder's sole cost and expense
(after access to applicable insurance proceeds, if any) as soon as reasonably
possible and the Lease for such Home shall continue in full force and effect. In
any event, there shall be no abatement of Rent during any period of repair or
reconstruction unless caused by the Company. Furthermore, the Home shall be
reconstructed to the same plans and specifications as originally constructed and
finished in first class, lien free and new condition.
10.5 Utilities and Services. Builder shall pay, before delinquency, all
costs of water, gas, heat, light, power, telephone, sewage, air conditioning and
ventilating, janitorial, landscaping and all other materials, services and all
other utilities of every kind and nature supplied to the Homes.
10.6 Maintenance and Repairs. The Homes shall be maintained in like new
condition. Builder, at its sole expense, shall keep in good order, condition and
repair the foundations, exterior walls and the exterior roof of the Homes. The
Builder shall also maintain the exterior and the interior surfaces of the Homes
and maintain all walls, windows, doors and plate glass, and maintain all
plumbing, heating, air conditioning, ventilating, electrical and lighting
facilities and equipment within the Homes and all sidewalks, driveways, parking
lots, fences and signs located in the areas which are adjacent to and included
with the Homes. If Builder
<PAGE>
fails to promptly begin and diligently prosecute to completion any maintenance
failures within ten (10) Business Days after written notice to Builder with
reasonable detail of the maintenance problems, then the Company shall have the
right (but not the obligation) to do such acts and expend such funds as are
reasonably required to perform such work at the expense of Builder. Any amount
so expended by the Company shall be paid by Builder within five (5) Business
Days after written demand with interest at the Past Due Rate from the date of
such work. If Builder is in breach of its repair and maintenance obligations and
the Company elects to perform the same, Builder hereby waives any claim for
abatement of Rent or for damages for any injury or inconvenience to or
interference with Builder's business, any loss of occupancy or quiet enjoyment
of the Homes, and any other loss occasioned thereby.
10.7 Liens. Builder shall keep each Home free from any liens arising
out of work performed, materials furnished or obligations incurred by or on
behalf of Builder. If Builder fails to obtain the release of the lien within
thirty (30) days of its imposition, the Company may require Builder to post a
bond equal to the greater of (i) one hundred percent (100%) of the amount of the
lien or encumbrance or (ii) such amount as may be required by applicable law in
order to dispute the imposition of the lien. If Builder has posted the required
security under (ii) in the prior sections to challenge the imposition of a lien
of the type described above and so long as Builder is pursuing the challenge in
a diligent manner which does not create a risk that the lien shall be foreclosed
or which prevents the Company from selling the Home(s) in question, the Company
shall allow Builder to prosecute such challenge. However, the Company's
cooperation with Builder's challenge shall not constitute a waiver or release of
any right of the Company against Builder and Builder shall be directly
responsible in all respects for any and all direct and actual damages suffered
by the Company as a result of Builder's challenge, whether in excess of the bond
and without pursing the bond. If Builder fails to post the bond, the Company
may, at its option, cause the lien to be released by such means as it shall deem
proper, including payment of the claim giving rise to such lien notwithstanding
the fault or relative fault of the parties. All such sums paid by the Company
and all expenses incurred by it in connection therewith including attorney's
fees and costs shall be payable to the Company by Builder on demand with
interest at the Past Due Rate.
10.8 Use. The Homes shall be used only as models and/or as sales
offices for the marketing of other homes and for no other purpose. Builder is
the party which designed and constructed the Homes and represents that they
comply with applicable laws and are in every way suitable for the use which
Builder intends to make of them.
<PAGE>
10.9 Builder Warranty. When the company sells a Home to a third party
hereunder, the Builder shall, at the closing thereon, deliver to such third
party purchaser the Builder's standard warranty program then provided by the
Builder on sales of new homes to its customers. The period of time from
warranties will run thereunder shall commence as of the date of closing on the
sale to such third parties. The Builder's current warranty program is attached
as exhibits to the resale purchase agreement attached hereto as Exhibit E.
10.10 Intentionally omitted.
10.11 Entry for Inspection. Builder shall allow the Company and its
agents, during regular business hours, to enter the Homes to inspect the Homes
or to show the Homes to prospective purchasers or lenders in accordance with the
terms of this Agreement.
10.12 Assignment and Subletting. Builder shall not assign, transfer,
mortgage, pledge, hypothecate or encumber (referred to collectively as
"Assignment") this Agreement or any Lease or any interest herein, and shall not
sublet the Homes or any part thereof, without the prior written consent of the
Company, which may be withheld in its sole discretion, and any attempt to do so
without such consent being first had and obtained shall be wholly void and shall
constitute an Event of Default; provided however, the Company's consent shall
not be required for assignment to a parent, sister, or subsidiary corporation so
long as Builder provides prior notice of the assignment so long as the Builder
also remains liable in accordance with Section 5.2. Further, as long as no
direct or indirect violation of Section 10.13 occurs, the Company shall not
unreasonably withhold or delay its consent to any collateral assignment or other
encumbrance of this Agreement by Builder to any and all institutional lenders
with loans secured by interests in the subdivision from time to time.
10.13 Recording. Builder shall not record this Agreement nor a
memorandum of this Agreement or Lease, and such recordation shall, at the option
of the Company, constitute a non-curable Default of Builder hereunder.
10.14 Sales Reports. The Builder shall mail quarterly sales reports to
the Company. The sales reports to be delivered shall include lot absorption,
remaining lots, sales prices (net of concessions and other costs), firm and
contingent sales, and cancellations. At any time reasonably requested in writing
the Builder shall provide the Company with additional sales reports routinely
prepared by the Builder.
10.15 During the Term, the Builder will furnish to the Company a copy
of the Builder's annual report on S.E.C. Form 10-k, and the Builder's quarterly
reports
<PAGE>
on S.E.C. Form 10-Q, each within 30 days of filing the same with the Securities
and Exchange Commission.
10.16 HOA Dues. Without limiting any other payment obligation of
Builder hereunder, Builder shall pay before delinquency all homeowner
association and other like dues, fees and assessments.
10.17 Keys. To the extent locks are replaced on any Home, Builder shall
provide the Company with a duplicate set within ten (10) days.
11. Events of Default.
11.1 Default. The occurrence of any of the following with respect to
any Home (an "Event of Default") shall constitute a Default hereunder by Builder
with respect to that Home, or, at the election of the Company, with respect to
all the Homes:
(a) Builder shall fail to pay the Rent on any Home when due.
(b) Builder shall abandon or vacate a Home without the
Company's prior written consent; however, if Builder promptly provides the
Company with a Notice in connection with such vacation or abandonment, Builder
shall have the right to terminate the Lease for the Home in question, pursuant
and subject to the provisions of Section 5.5, in which event Builder shall not
be in Default hereunder so long as (i) Builder pays the Company the appropriate
Minimum Amount for such Home, if applicable, and (ii) Builder remains obligated
to pay Rent for such Home (with the Lease for such Home to remain in effect)
until the earlier of (A) the Closing Date of the sale of the Home, (B) the Term
of this Agreement (applicable to said Home) or (C) ninety (90) days after the
Notice was received by the Company.
(c) Builder shall fail to observe and perform any other
material provisions of this Agreement to be observed or performed by Builder
with respect to any Home, which failure continues for fifteen (15) calendar
days, (unless specified otherwise, elsewhere in this contract), after written
notification from the Company to Builder of Builder's failure to observe or
perform the obligation in question; provided, however, if the nature of such
Event of Default is such that the same cannot reasonably be cured within such
fifteen (15) calendar day period, Builder shall not be deemed to be in Default
if Builder, within such period, commences such cure and thereafter diligently
prosecutes the same to completion.
(d) Builder shall make any general assignment or general
arrangement for the benefit of creditors, the filing by or against Builder of a
petition to have
<PAGE>
Builder adjudged a bankrupt or of a petition for reorganization or arrangement
under any law relating to bankruptcy (unless, in the case of a petition filed
against Builder, the same is dismissed within sixty (60) days), the appointment
of a trustee or receiver to take possession of substantially all of Builder's
assets or of Builder's interest in this Agreement, where possession is not
restored to Builder within thirty (30) days, or the attachment, execution or
other judicial seizure of substantially all of Builder's assets or of Builder's
interest in this Agreement where such seizure is not discharged within thirty
(30) days.
11.2 Cross Default. As this Agreement governs and affects only those
Homes or Additional Home(s) which are described on the Schedule, as same may be
amended from time to time, a Default under this Agreement with respect to any
Home described on the Schedule (including any Additional Homes subsequently
added to the Schedule) shall, constitute a Default with respect to all Homes
covered by the Agreement.
11.3 Cure Period. In the event either party fails to perform any of its
obligations required under this Agreement, such party shall not be in Default
under this agreement unless such failure continues for more than fifteen
calendar days after written notification from the other party of such failure;
provided, however, if the nature of such Default is such that the same cannot
reasonably be cured within such fifteen calendar day period but can be cured
within a sixty (60) day period, defaulting party shall not be deemed to be in
default for purposes of this Agreement or the Guarantee if such party commences
such cure within such period and thereafter diligently prosecutes the same to
completion. Notwithstanding the provisions of this Section, there will be no
cure period for a Default under Sections 11.1(a) or 11.1(d) except as otherwise
provided.
11.4 Cure or Waiver. If: (i) an Event of Default shall occur but
subsequently either (x) in the reasonable judgment of the Company, Builder shall
fully cure it and all of its material effects within any cure period specified
in this Agreement for the cure of such Event of Default or (y) the Company shall
waive the Event of Default and its rights to exercise remedies on account of its
waiver (whether temporarily or permanently and whether conditionally or
absolutely) provided that the Company shall have no obligation to do so, and
(ii) Builder shall request in writing that the Company declare to have been
cured or waived whichever of those events has occurred, then the Company shall
make such declaration in writing and shall deliver a copy of the declaration to
Builder.
11.5 Remedies. In the event of any such Default by Builder with respect
to any Home, the Company may, at any time after any applicable grace period has
expired, exercise any of the following rights and remedies with respect to that
Home or with respect to all Homes, with or without notice and demand, and
<PAGE>
without limiting the Company in the exercise of any right or remedy at law or in
equity which the Company may have by reason of such Default or breach:
(a) Cure by Company. Company may, at Company's option but
without obligation to do so, and without releasing Builder from any obligations
under this Agreement, after giving any applicable notice hereunder, make any
payment or take any action as Company deems necessary or desirable to cure any
Event of Default in such manner and to such extent as Company deems necessary or
desirable. Builder will pay Company, upon demand, all advances, costs and
expenses of Company in connection with making any such payment or taking any
such action, including reasonable attorneys' fees, together with interest at the
Past Due Rate from the date of payment of any such advances, costs and expenses
by Company.
(b) Termination of Lease and Damages. Company may terminate
this Agreement or any individual Lease as to any Home, effective at such time as
may be specified by notice to Builder, and demand (and, if such demand is
refused, recover) possession of the Home(s) from Builder. In such event, Company
will be entitled to recover from Builder, as damages for loss of the bargain and
not as a penalty, an aggregate sum equal to (i) all unpaid Rent and all other
sums due hereunder for any period prior to the termination date (including
interest from the due date to the date of payment at the Past Due Rate); plus
(ii) the present value at the time of termination (calculated by discounting on
a monthly basis at a discount rate equal to the rate payable on U.S. Treasury
securities offered at the time of such calculation having a maturity closest to
the date on which the Term would have expired but for such termination) of the
amount, if any, by which (A) the aggregate of the Rent and all other sums
payable by Builder that would have accrued for the balance of the Term after
termination, exceeds (B) the amount of such Rent and other sums payable
hereunder which could reasonably be recovered (less customary leasing
commissions and other reasonable costs of leasing), if any, by reletting the
Homes for the remainder of the Term at the then current fair rental value; plus
(iii) interest on the amount described in (ii) above from the termination date
to the date of the payment at the Past Due Rate.
(c) Repossession and Reletting. Company may reenter and take
possession of all or any part of the Homes, without additional demand or notice,
and repossess the same and expel Builder and any party claiming by, through or
under Builder, and remove the effects of both using such force for such purposes
as may be necessary, without being liable for prosecution for such action or
being deemed guilty of any manner of trespass, and without prejudice to any
remedies for arrears of Rent or right to bring any proceeding for any other
breach or Default. No such reentry or taking possession of the Homes by Company
will be construed as an election by Company to terminate this Agreement or a
Lease as to any Home
<PAGE>
unless a notice of such intention is given to Builder. No notice from Company or
notice given under a forcible entry and detainer statute or similar laws will
constitute an election by Company to terminate this Lease as to any Home unless
such notice specifically so states. Company reserves the right, following any
reentry or reletting, to exercise its right to terminate this Lease as to any
Home by giving Builder written notice of the termination. After recovering
possession of the Homes, Company may, at its option, relet the Homes on such
terms and conditions as the Company deems desirable. Company may make such
repairs, alterations or improvements as Company considers appropriate to
accomplish such reletting, and Builder will reimburse Company upon demand for
all reasonable costs and expenses, including attorneys' fees, which Company may
incur in connection with such reletting. Company may collect and receive the
rents for such reletting but Company will in no way be responsible or liable for
any inability to relet the Homes or to collect any rent due upon such reletting.
Regardless of Company's recovery of possession of the Homes, so long as not
terminated, Builder will continue to pay, on the dates specified, the Rent and
other sums due which would be payable if such repossession had not occurred,
less a credit for the net amounts, if any, actually received by Company through
any reletting of the Homes.
(d) Bankruptcy Relief. Nothing contained in this Agreement
will limit or prejudice Company's right to prove and obtain as liquidated
damages in any bankruptcy, insolvency, receivership, reorganization or
dissolution proceeding, an amount equal to the maximum allowable by any Laws
governing such proceeding in effect at the time when such damages are to be
proved, whether or not such amount be greater than, equal to or less than the
amount recoverable, either as damages or Rent, under this Agreement.
(e) Remedies Cumulative. Any and all remedies hereunder may be
exercised by Company as to any single Home or multiple Homes without the
requirement that such remedy including, without limitation, termination, be
applied against all Home(s). To this end, at Company's sole option to be
exercised in its sole and absolute discretion, this Agreement can be treated as
a separate Lease or several Leases for one or more Homes. All remedies are
cumulative and concurrent and no remedy is exclusive of any other remedy. Each
remedy may be exercised at any time a Default has occurred and is continuing and
may be exercised from time to time. No remedy shall be exhausted by any exercise
thereof. Notwithstanding anything to the contrary herein contained, in lieu of
or in addition to any of the foregoing remedies and damages, Company may
exercise any remedies and collect any damages available to it at law or in
equity. If Company is unable to obtain full satisfaction pursuant to the
exercise of any remedy, it may pursue any other remedy which it has hereunder or
at law or in equity.
<PAGE>
(f) Recovery of Enforcement Costs. All costs and expenses,
including attorneys' fees and disbursements, incurred by either the Company or
the Builder in connection with the exercise of any permitted remedy, or the
enforcement of the provisions of this Agreement, together with interest thereon
at the Past Due Rate from the date incurred, shall be paid to the prevailing
party upon demand.
(g) No Mitigation. Company shall not be required to mitigate
any of its damages hereunder unless required to by applicable law. If any law
shall validly limit the amount of any damages provided for herein to an amount
which is less than the amount agreed to herein, Company shall be entitled to the
maximum amount available under such law.
(h) No Waiver. No failure of Company (i) to insist at any time
upon the strict performance of any provision of this Agreement or (ii) to
exercise any option, right, power or remedy contained in this Agreement shall be
construed as a waiver, modification or relinquishment thereof. A receipt by
Company of any sum in satisfaction of any obligation with knowledge of the
breach of any provision hereof shall not be deemed a waiver of such breach, and
no waiver by Company of any provision hereof shall be deemed to have been made
unless expressed in a writing signed by Company.
11.6 Right of Offset. Cumulative of all other rights of offset and
without limiting any of the Company's rights under this Agreement, Builder
hereby grants to the Company a right of offset, to secure repayment of the Rent
and all other obligations hereunder, upon any and all monies, securities or
other property of Builder (including the Net Proceeds and Deposit), and the
proceeds from it now or hereafter held or received by or in transit to the
Company. Upon the occurrence of any Event of Default, the Company is hereby
authorized at any time and from time to time, without notice to Builder, to
offset, appropriate and apply any and all items referred to in this Section
against the obligations.
11.7 Default by the Company. The Company shall not be in default unless
it fails to perform its obligations after receiving notification of such failure
from Builder. However, if the cure of the default cannot be completed
immediately, the Company shall have a reasonable period of time to complete the
cure of such default. A reasonable period of time should not normally exceed
fifteen (15) calendar days provided that (i) the Company commences to cure such
default immediately upon receipt of Builders notice, and (ii) the Company
diligently and without interruption pursues such cure to completion.
12. Mandatory Mediation/Arbitration.
<PAGE>
Any controversy or claim between or among the parties, their agents,
employees and affiliates, including but not limited to those arising out of or
relating to this agreement or any related agreements or instruments (the
"Subject Documents"), including without limitation any claim based on or arising
from an alleged tort, shall be submitted to binding arbitration, using the
American Arbitration Association ("AAA") in Minneapolis, MN, in accordance with
the Construction Industry Arbitration Rules of the AAA before a single
arbitrator chosen by the parties, or, if the parties cannot agree upon the same
with thirty days of the day one party notifies the other of a dispute hereunder
and demands arbitration of the same in writing, then by a single arbitrator
chosen by the Chief Judge of the Hennepin County District Court. The arbitrator
shall prepare written reasons for the award. Judgment upon the award rendered
may be entered in any court having jurisdiction. The expenses of the
mediator/arbitrator and related costs of mediation/ arbitration (excluding fees
of counsel and other professional fees, experts, etc. for each party) shall be
borne equally by the parties.
13. Notices.
All demands, notices and communications hereunder shall be in writing
and shall be deemed to have been duly given (i) when mailed by registered or
certified mail, return receipt requested or (ii) sent by nationally recognized
courier service. The parties may deliver notice to each other by electronically
transmitted facsimile copies ("Fax") provided that such notice is followed
within twenty-four (24) hours by any type of notice otherwise provided for in
this Section. Fax notice shall be deemed given upon confirmed transmission
thereof. Any notice shall be duly addressed to the parties as follows:
If to Builder:
President
Lundgren Bros. Construction, Inc.
935 East Wayzata Boulevard
Wayzata, MN 55391
Phone: (612) 473-1231
If to the Company:
National Model Homes, Inc.
10900 Nuckols Road
<PAGE>
Glen Allen, Virginia 23060
Attn: Thomas R. Kranz
Phone: (804) 217-5878
Fax: (804) 217-5859
14. Miscellaneous Provisions.
14.1 Broker Commissions. Builder and the Company hereby represent and
warrant to each other that no broker, agent or finder, licensed or otherwise,
has been engaged by it in connection with the transaction contemplated by this
Agreement except that the Company will retain the Builder as the Company's
broker pursuant to section 7.1 and Exhibit D of this Agreement. In the event of
any claim for a broker's, agent's or finder's fee or commission in connection
with this transaction, the party upon whose alleged statement, representation or
agreement such claim or liability arises shall indemnify, save, hold harmless
and defend the other party from and against such claim and liability.
14.2 No Release of Builder. No consent by the Company to any assignment
or subletting by Builder, nor any Assignment to an affiliate of Builder, shall
relieve Builder of any obligation to be performed by the Builder under this
Agreement, whether occurring before or after such consent, assignment,
subletting or after Assignment to an affiliate of Builder. The consent by the
Company to any assignment or subletting shall not relieve Builder from the
obligation to obtain the Company's express written consent to any other
assignment or subletting. The acceptance of Rent by the Company from any other
person shall not be deemed to be a waiver by the Company of any provision of
this Agreement or to be a consent to any assignment, subletting or other
transfer. Consent to one assignment, subletting or other transfer shall not be
deemed to constitute consent to any subsequent assignment, subletting or other
transfer.
14.3 Collateral Assignment by the Company. The Company shall have the
right, without obtaining the consent of Builder, to assign this Agreement as
collateral to secure repayment of financing obtained by the Company, so long as
said assignment creates no direct and documented costs or material impact to the
Builder. Such an assignment for collateral purposes shall not affect any of the
rights and duties of the parties hereunder. Any funding obtained by the Company
that encumbers the title must not exceed the Purchase Price, the payments
associated with the funding may not exceed the lease payments and must allow
individual releases without penalty.
14.4 Subordination. The Company, provided it complies with the
provisions of Section 14.3 above and this Section 14.4, may subject and
subordinate this
<PAGE>
Agreement to the lien of a mortgage in any amount, provided the individual
release price per Home under said mortgage does not exceed the Purchase Price,
and the Builder is able to obtain such release without additional cost, upon
complying with this Agreement. In order to subordinate this Agreement to a
mortgage, the secured party thereunder shall agree in writing to release the
same per Home upon fulfillment by the Builder of the Builder's obligations
hereunder, and shall execute a non-disturbance and attornment agreement with the
Builder reasonable satisfactory to the Builder.
14.5 Non-Disturbance. Builder covenants and agrees to execute and
deliver upon demand without charge therefore such further instruments evidencing
such subordination of this Agreement to such mortgages or deeds of trust as may
be required by the Company so long as said delivery creates no direct and
documented costs of material impact to the Builder. If requested, the Company
shall provide Builder with non-disturbance and attornment agreements from
secured parties for Builder's execution.
14.6 Appointment as Agent. Builder agrees to cooperate with the Company
and provide such information as may be required by law in order for the Company
to timely and accurately file governmental reports.
<PAGE>
14.7 Amendment. This Agreement may not be amended or terms or
provisions hereof waived unless such amendment or waiver is in writing and
signed by Builder and the Company.
14.8 Entire Agreement. This Agreement and the documents and agreements
referred to herein embody the entire agreement and understanding between the
parties hereto and supersede all prior agreements and understandings relating to
the subject matter hereof and thereof.
14.9 Survival. The terms and provisions of this Agreement shall survive
the Expiration Date and shall continue to be binding on the parties.
14.10 Binding Effect. This Agreement shall be binding upon, and inure
to the benefit of, the parties hereto, and their successors and assigns.
14.11 Further Assurances. The parties hereby agree to execute such
other documents and take such other actions as may be reasonably required to
give effect to the intent and agreements of the parties as set forth in this
Agreement.
14.12 Headings. The headings of the sections of this Agreement are
inserted for convenience only and shall not be deemed to constitute thereof.
14.13 Severability. Whenever possible each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be or become
prohibited or invalid under applicable law, such provision shall be ineffective
to the extent of such prohibition or invalidity without invalidating the
remainder of such provision or the remaining provisions of this Agreement.
14.14 Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the state of Minnesota, notwithstanding any
Virginia or other choice of law provisions to the contrary.
14.15 Counterparts. 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.
14.16 Intentionally Left Blank.
14.17 Indemnification by Builder. Builder shall indemnify and hold the
Company, officers, directors, employees, financial partners, and lenders (the
"Indemnified Persons") and the homes harmless from and against any and all
claims of liability for any injury or damage to any person or property arising
from Builder's ownership and/or use of the homes, or from the conduct of
Builder's business, or from any activity, work or thing done, permitted or
suffered by Builder in or about the homes,
<PAGE>
the projects designated within the schedule or elsewhere with respect to the
homes. Builder shall further indemnify and hold the Indemnified Persons and the
homes harmless from and against any and all claims arising from any breach or
default in the performance of any obligation of Builder to be performed under
this agreement, or arising from any negligence of Builder or Builder's agents,
contractors or employees, and from and against all costs, attorney's fees,
expenses and liabilities incurred in the defense of any such claim or any action
or proceeding brought thereon. In the event any action or proceeding is brought
against the Indemnified Persons by reason of any such claim, Builder, upon
written notice from the Indemnified Persons shall defend same at Builder's
expense by counsel (or insurance counsel if available) reasonably satisfactory
to the Indemnified Persons. Builder, as a material part of the consideration to
the Indemnified Persons, hereby assumes all risk of damage to property or injury
to persons, in, upon or about the homes arising from any cause except the
intentional misconduct or negligence of the Indemnified Persons or its
contractors or employees. Builder hereby indemnifies, defends and agrees to hold
the Indemnified Persons harmless from any and all liability arising out of the
ownership of the homes during the term of the agreement. In addition to the
foregoing, Builder shall indemnify and hold the Indemnified Persons and their
successors and assigns harmless from and against any and all claims, demands,
causes of action, damages, costs, expenses, lawsuits and liabilities, at law or
in equity, of every kind or nature whatsoever, directly or indirectly arising
out of or attributable to, with respect to the projects, hazardous and toxic
materials as defined by applicable laws including the use, generation, storage,
release, threatened release, discharge, disposal or presence of hazardous
materials on, under or about the homes whether occurring prior to or during the
term of the ownership of the homes and whether caused by Builder or any
predecessor in title or any owner of land adjacent to the homes or any other
third party, or any employee, agent, tenant, contractor or subcontractor of
Builder, or any predecessor in title or any such adjacent land owner or any
third person not affiliated with the Indemnified Persons including, without
limitation:
(a) claims of third parties (including governmental agencies)
for injury to or death of any person or for damage to or destruction of any
property;
(b) claims for response costs, clean-up costs, costs and
expenses of removal and restoration, including fees of attorneys and experts,
and costs of determining the existence of hazardous materials and reporting same
to any governmental agency;
(c) any and all other claims for expenses or obligations,
including attorneys' fees, costs, and other expenses related to hazardous
materials and the homes;
(d) any and all penalties threatened, sought or imposed on
account of a violation of any hazardous materials laws; and
<PAGE>
(e) any loss occasioned and actually realized by diminution in
the value of the homes which may result from: (i) soils settlement, soils
subsidence, and other soils problem and defects, or (ii) mechanics lien claims
and claims for damages to property or injuries to persons arising out of
Builder's use of the homes. Builder's indemnification obligations set forth in
this section and elsewhere in this agreement shall survive the settlement.
14.18 Notwithstanding the provisions of section14.17, Builder's indemnification
and defense obligations to the Indemnified Persons as set forth in this section
shall not apply to any liability arising out of the acts, including, but not
limited to, negligent or intentional acts or failures to act, of the Indemnified
Persons, or the Company's contractors or employees.
IN WITNESS WHEREOF, the Company and Builder have each executed this
Agreement as of the date first indicated above.
LUNDGREN BROS. CONSTRUCTION, INC.
By: __________________________
Name: ________________________
Title: _________________________
NATIONAL MODEL HOMES, INC.
By: __________________________
Name: ________________________
Title: _________________________
<PAGE>
LIST OF EXHIBITS
Exhibit A - Schedule (Homes, Purchase Price, Term/Termination Schedule)
Exhibit B - Escrow Agreement
Exhibit C - Form of Notice
Exhibit D - Additional Homes Addendum
Exhibit E - Resale Purchase Agreement
Exhibit F - Listing Agreement
<PAGE>
Exhibit A to Master Sale and Rental Agreement
YOUR VERSION!!!
DATE: __/__/__
SCHEDULE
Home Purchase Expiration
Home Address Price Date
- ---- ------- ----- ----
<PAGE>
Exhibit C to Master Sale and Rental Agreement
FORM OF NOTICE
{Date}
National Model Homes, Inc.
10900 Nuckols Road
Glen Allen, Virginia 23060
Attn: Senior Vice President
Dear _______:
Pursuant to Section 5.5 of the Master Sale and Rental Agreement between National
Model Homes, Inc. (the "Company") and Lundgren Bros. Construction, Inc.
("Builder") dated as of ___________________, 199_ (the "Agreement"), Builder
hereby notifies the Company of its desire to terminate the Lease(s) prior to the
Expiration Date, as described on Schedule 1 attached hereto.
As a condition to the Company consenting to the Early Termination, Builder
represents and warrants that:
(i) Builder shall deliver this Notice in the appropriate amount of time
prior to the requested termination date;
(ii) Builder shall Retrofit the Home(s) beginning not earlier than 20
days prior to lease expiration;
(iii) Builder shall, on behalf of the Company, commence marketing such
Home(s) at a price sufficient to net to the Company (after all costs of closing,
including, without limitation, sales commissions, the Minimum Amount (where
applicable per section 5.5 of the Agreement); and
(iv) Builder shall continue to comply with all provision of the
Agreement as to such Home(s), including, without limitation, the payment of
Rent, continued maintenance (including the payment of all applicable taxes and
insurance) and
<PAGE>
(v) Retrofit requirements, when due, until the Home(s) are sold
pursuant to (iii) above or the original Expiration Date.
Further, Builder understands that no Lease for Home(s) may terminate early
unless and until that Home has been sold and the Minimum Amount has been
received by the Company.
Sincerely,
{Builder Name}
{Name and Title of Authorized Officer}
<PAGE>
Schedule 1 to
Exhibit C to Master Sale and Rental Agreement
FORM OF NOTICE
Early Termination Original Expiration Minimum
Home Home Address Date Date Amount
- ---- ------------ ----------------- ------------------- -------
<PAGE>
EXHIBIT D
ADDENDUM TO
MASTER SALE AND RENTAL AGREEMENT
"ADDITIONAL HOMES"
According to the provisions of section 2.4 of the document entitled Master Sale
and Rental Agreement, (AGREEMENT) signed by National Model Homes, Inc., (the
"Company"), and Lundgren Bros. Construction Inc., (the "Builder"), on June 28,
1996, the Builder has agreed to sell and lease back "Additional Homes" from the
Company, and the Company has agreed to purchase and lease back these same homes,
as detailed in the attached and revised "Schedule," Exhibit A.
It is understood that all the terms and conditions in regard to the sale and
leasing of these "Additional Homes" detailed in the section of the AGREEMENT
referred to in the above paragraph, will apply to these "Additional Homes."
___________________________ Date: ____/____/____
Thomas R. Kranz
Senior Vice President
National Model Homes, Inc.
__________________________ Date: ____/____/____
Builder Officer
NOTTINGHAM
ACQUISITION AND CLOSING AGREEMENT
THIS ACQUISITION AND CLOSING AGREEMENT ("CLOSING AGREEMENT") is entered
into as of June 10, 1997, by and between Lundgren Bros. Construction, Inc., a
Minnesota corporation ("LUNDGREN") and BF Holding Company, a Minnesota
corporation ("BFH"). Lundgren and BFH are sometimes hereafter individually or
collectively referred to as a "PARTY" or the "PARTIES."
PREAMBLE
A. Concurrently herewith BFH is acquiring from Lundgren certain real
property in the City of Maple Grove, Hennepin County, Minnesota,
described in attached EXHIBIT A ("PROPERTY"). Lundgren acquired the
Property from the sellers described in attached EXHIBIT B ("FORMER
OWNERS") pursuant to certain option or purchase agreements between
Lundgren and the Former Owners which are also described in EXHIBIT B
("FORMER OWNER AGREEMENTS").
B. The Parties desire to (i) provide for the assignment to BFH of
Lundgren's assignable rights and obligations under the Former Owner
Agreements, (ii) provide for BFH's assumption of specified executory
obligations of Lundgren pertaining to the Property, and (iii)
memorialize certain terms and agreements of the Parties pertaining to
the sale of the Property by Lundgren to BFH.
THEREFORE, in consideration of BFH's purchase of the Property, the
mutual covenants and agreements contained herein, and for other good and
valuable consideration, the receipt and sufficiency of which is acknowledged,
the Parties agree as follows:
1. PURCHASE PRICE. The purchase price of the Property is $1,638,713.00, of
which $548,497.00 is being paid by an offsetting credit for the Option
Fee due BFH from Lundgren pursuant to the Option Agreement of even date
between BFH, as optionor, and Lundgren, as optionee (the "BFH/LUNDGREN
OPTION").
2. ASSIGNMENT. Lundgren hereby transfers and assigns to BFH all of
Lundgren's right, title and interest in and to all of the following:
2.1. FORMER OWNER AGREEMENTS. All representations, warranties and
other rights benefiting Lundgren under the Former Owner
Agreements and pertaining to the Property, to the maximum
extent permitted by law and the Former Owner Agreements. The
parties acknowledge that the Former Owner Agreement with Terry
and Phillip O'Brien may not permit an assignment of Lundgren's
rights under that agreement. Therefore, upon BFH's request and
at BFH's cost and expense, Lundgren shall take such actions as
BFH reasonably requests in order to enforce Lundgren's rights
under the Former Owner Agreement with Terry and Phillip
O'Brien for the benefit of BFH.
2.2. WORK PRODUCT. All drawings, plats, plans, reports, studies,
appraisals, analyses an other documents or data pertaining to
the Property and/or the development of the Property, whether
prepared by Lundgren or third party consultants ("WORK
PRODUCT"). At BFH's request Lundgren shall provide BFH with
full-size copies of all Work Product which is in Lundgren's
possession.
<PAGE>
2.3. CONSULTANT AGREEMENTS. Those agreements described in EXHIBIT C
with third party consultants engaged by or on behalf of
Lundgren to produce or provide Work Product ("CONSULTANT
AGREEMENTS").
2.4. PROPERTY APPROVALS. All requests or applications, together
with all implementing and supporting documentation and
agreements, for governmental, public utility or other Property
approvals or permits, including, without limitation,
subdivision and zoning approvals, development agreements,
utility will serve authorizations and agreements, and any
other permit, authorization, approval or agreement relating to
the use or development of the Property (collectively the
"PROPERTY APPROVALS").
Buyer has reviewed the Former Owner Agreements, the Work
Product, the Consultant Agreements and the Property Approvals and is
familiar with the terms and provisions of these materials. If requested
by BFH, Lundgren shall execute and deliver to BFH such further
documents and instruments that may be reasonably required from time to
time in order to evidence and perfect this assignment.
3. ASSUMPTION. BFH assumes the following obligations of Lundgren
pertaining to the Property ("BFH ASSUMED OBLIGATIONS"):
3.1. FORMER OWNER AGREEMENT OBLIGATIONS. The following specific
executory obligations of Lundgren under the following
specified Former Owner Agreements:
3.1.1. The obligation to extend a sanitary sewer line to the
boundary of the Weed Homestead parcel pursuant to
Section 5(b) of the Option Agreement between Lundgren
and Douglas and Ellen Weed; and
3.1.2. The obligation to permit the harvesting of hay
pending development of that portion of the Property
acquired from the Radintz Family, as provided in
Section 16.2 of the Purchase Agreement between
Lundgren and the Radintz Family.
3.2. FUTURE CONSULTANT COSTS. The obligation to pay for all work
and services performed on and after the date of this Closing
Agreement pursuant to the Consultant Agreements. Lundgren
remains responsible for payment of all amounts due all third
party consultants, whether pursuant to Consultant Agreements
or otherwise, incurred prior to the date of this Closing
Agreement for the production or preparation of Work Product.
Lundgren shall ensure that all amounts due consultants for
Work Product furnished prior to the date of this Closing
Agreement are promptly paid in order to facilitate the
transfer to and use by BFH of the consultants' Work Product.
3.3. EXECUTORY PROPERTY APPROVAL OBLIGATIONS. All of Lundgren's
executory obligations under the Property Approvals, including,
without limitation, all of Lundgren's executory obligations
under any Development Agreement(s) for the Property between
Lundgren and the City of Maple Grove.
4. LUNDGREN'S REPRESENTATIONS AND WARRANTIES. Except for those matters
disclosed in the Former Owner Agreements, the closing documents
delivered by Lundgren and the Former Owner's at the closing of the
Former Owner Agreement transactions, and in the Work Product, Lundgren
represents and warrants to BFH as follows:
<PAGE>
4.1. PROPERTY AGREEMENTS AND APPROVALS. The Former Owner and
Consultant Agreements and Property Approvals are currently in
full force and effect; Lundgren is not in default in
performing Lundgren's obligations under the Former Owner and
Consultant Agreements or the Property Approvals; Lundgren is
not aware of any default in performance of the Former Owners'
or consultants' obligations under the Former Owner and
Consultant Agreements; and Lundgren has not previously
assigned, sold, pledged, mortgaged or otherwise transferred
Lundgren's interest in the Former Owner or Consultant
Agreements or the Property Approvals.
4.2. LITIGATION. Lundgren does not have knowledge of any
litigation, investigation, condemnation or legal proceedings
of any kind which are threatened or pending against the
Property or which pertain to or may affect the Property.
4.3. HAZARDOUS WASTE. "Hazardous waste" means any waste, substance
or other material which is defined by or determined by any
federal, state or local statute, regulation, ordinance or
ruling to be hazardous, toxic, poisonous or dangerous. To the
best of Lundgren's knowledge:
4.3.1. The Property does not violate any federal, state or
local statute, regulation or ordinance dealing with
environmental protection or hazardous waste;
4.3.2. The Property's soil and water table are free and
clear of any and all contaminants, including
hazardous waste;
4.3.3. The Property has not been used for the storage or
disposal of any hazardous waste; and
4.3.4. Lundgren has received no notice from any governmental
authority concerning the removal of hazardous waste
from the Property.
4.4. STORAGE TANKS. Lundgren knows of no underground or aboveground
storage tanks that now exist or ever existed on any portion of
the Property.
4.5. WELLS; PRIVATE SEWER SYSTEMS. Lundgren does not know of any
well(s) or private sewer system(s) on the Property.
5. INDEMNIFICATION.
5.1. BY LUNDGREN. Lundgren shall indemnify BFH, its successors and
assigns, against, and shall hold BFH, its successors and
assigns, harmless from, any fines, penalties, liabilities,
claims, suits, actions, damages, losses, costs and expenses,
including reasonable attorneys' fees, which BFH may incur
because of any of the following:
5.1.1. Breach of any of Lundgren's representations and
warranties in this Closing Agreement.
5.1.2. Breach of any obligation of Lundgren under the Former
Owner Agreements, the Consultant Agreements or the
Property Approvals, OTHER than those BFH Assumed
Obligations which are NOT reclassified as Lundgren's
"Reverted Obligations" under the BFH/Lundgren Option.
5.1.3. Any and all claims arising from third parties as a
result of Lundgren's acts or omissions.
<PAGE>
5.2. BY BFH. BFH shall indemnify Lundgren, its successors and
assigns, against, and shall hold Lundgren, its successors and
assigns, harmless from, any fines, penalties, liabilities,
claims, suits, actions, damages, losses, costs and expenses,
including reasonable attorneys' fees, which Lundgren may incur
because of any of the following:
5.2.1. Failure to perform the BFH Assumed Obligations, OTHER
than those BFH Assumed Obligations which are
reclassified as Lundgren's "Reverted Obligations"
under the BFH/Lundgren Option.
5.2.2. Any and all claims arising from third parties as a
result of BFH's acts or omissions.
6. NOTICE. Any notice or other communication under this Closing Agreement
shall be in writing, addressed as follows:
if to BFH: BF Holding Company
1055 Wayzata Blvd.
Wayzata, MN 55391
with a copy to: Dorsey & Whitney
2200 First Bank Place East
Minneapolis, MN 55402
Attention: William R. Soth
if to Lundgren: Lundgren Bros. Construction, Inc.
935 East Wayzata Boulevard
Wayzata, MN 55391
Attention: Peter Pflaum
with copies to: Lundgren Bros. Construction, Inc.
935 East Wayzata Boulevard
Wayzata, MN 55391
Attention: Terry M. Forbord
and
Leonard, Street and Deinard P.A.
South Fifth Street, Suite 2300
Minneapolis, MN 55402
Attention: John C. Kuehn
Notices shall be deemed timely if sent on or before the deadline OR if
received on or before three Business Days after the deadline. Delivery
may be made by (1) United States Mail, registered or certified mail,
postage prepaid, return receipt requested; (2) commercial delivery
service with its customary receipts; or (3) noncommercial delivery with
a notarized affidavit of delivery to the relevant address. Any person
may change his address under this section by giving notice to the other
Party.
<PAGE>
7. PRORATIONS; CLOSING COSTS. BFH shall pay all unpaid real estate taxes
and certified special assessments due in the calendar year of closing,
including any prepayments required in order to file the plats for the
Property. BFH shall also pay all costs of this transaction, including
title insurance premiums, recording and filing fees and the title
company's closing fee. Any taxes, special assessments and closing costs
paid by BFH pursuant to this section shall be included in the "Project
Investment" pursuant to the BFH/Lundgren Option Agreement.
8. NO BROKERS. Lundgren warrants to BFH that Lundgren has not taken any
action in connection with this transaction which would result in any
real estate broker's fee, finder's fee, or other fee being due or
payable to any Party. BFH warrants to Lundgren that BFH has not taken
any action in connection with this transaction which would result in
any real estate broker's fee, finder's fee, or other fee being due or
payable to any Party. Lundgren and BFH respectively agree to indemnify,
defend and hold harmless the other from and against any and all claims,
fees, commissions and suits of any real estate broker or agent with
respect to services claimed to have been rendered for or on behalf of
such Party in connection with the execution of this Closing Agreement
or the transaction contemplated herein. Lundgren hereby discloses that
Lundgren is a licensed real estate broker and is selling the Property
for Lundgren's own account.
9. MISCELLANEOUS.
9.1. LUNDGREN'S FILES AND RECORDS. Lundgren's files and records
relating to the Property shall be made available to BFH at
reasonable times for inspection and copying by BFH at BFH's
sole cost and expense.
9.2. AMENDMENT. This Closing Agreement may not be amended, waived,
or modified except by an instrument in writing executed by the
Party against whom enforcement of such amendment, waiver or
modification is sought.
9.3. SEVERABILITY. If any term or provision of this Closing
Agreement is invalid or unenforceable, the remainder of this
Closing Agreement shall not be affected and shall remain in
full force and effect. It is the intention of the Parties that
if any provision of this Closing Agreement is held to be
illegal, invalid or unenforceable, there will be substituted
in lieu thereof a legal, valid and enforceable provision as
similar in terms to such unenforceable provision as is
possible.
9.4. SURVIVAL. All covenants, agreements, obligations and
undertakings made by Lundgren and BFH in or pursuant to this
Closing Agreement shall survive conveyance of the Property and
assignment of the Former Owner and Consultant Agreements and
the Property Approvals to BFH, whether or not so expressed in
the immediate context of any such covenant, agreement,
obligation or undertaking. Consummation of this transaction by
a Party with knowledge of any breach by the other Party shall
not be deemed a waiver or release of any claims hereunder due
to such breach.
9.5. SUCCESSORS; NO ASSIGNMENT. This Closing Agreement shall be
binding upon and inure to the benefit of Lundgren and BFH, and
their respective successors. This Closing Agreement may not be
assigned by either Party without the prior written consent of
the other, which consent may be withheld in its sole
discretion for any reason or no reason whatsoever.
Notwithstanding the immediately preceding sentence, BFH may
collaterally assign its rights (but not delegate its duties)
under this Agreement as security for such financing as BFH
deems reasonably necessary or appropriate to fund its
obligations under
<PAGE>
this Closing Agreement and/or the BFH/Lundgren Option. BFH
shall promptly notify Lundgren of any collateral assignment of
its rights under this Closing Agreement or any mortgage or
other monetary encumbrance of the Property. Any such
encumbrance of the Property shall be subordinate to the
BFH/Lundgren Option and BFH shall be responsible for obtaining
a satisfaction of any such encumbrance with respect to any
portion of the Property transferred pursuant to the
BFH/Lundgren Option.
9.6. ATTORNEYS' FEES. If either Party defaults under this Closing
Agreement, the defaulting Party shall be responsible for all
reasonable expenses (including attorneys' fees) incurred by
the other Party in enforcing any rights and remedies under
this Closing Agreement.
9.7. AUTHORITY TO CONTRACT. Lundgren and BFH represent to each
other that the execution and delivery of this Closing
Agreement and the consummation of the transactions
contemplated hereby are within each of the Party's purposes
and powers and all requisite action has been taken to make
this Closing Agreement the valid and binding obligation upon
each of the Parties hereto.
9.8. STANDARD OF PERFORMANCE. Subject to Section 9.5 concerning
assignments, a request for consent or approval required of a
Party shall be evaluated in good faith and such consent or
approval shall not be unreasonably withheld. The standards for
assignments shall be as set forth in Section 9.5. The parties
intend by this provision to set forth their entire
understanding with respect to the standards pursuant to which
their obligation to give consents and approvals are to be
judged and their performance in that regard measured.
IN WITNESS WHEREOF, the Parties hereto have executed this Closing
Agreement effective as of the date first written above.
BFH: LUNDGREN:
BF HOLDING COMPANY LUNDGREN BROS. CONSTRUCTION, INC.
By_________________________________ By_________________________________
Its______________________________ Its______________________________
EXHIBITS
A Legal Description of the Property
B Schedule of Former Owners and Former Owner Agreements
C Schedule of Consultant Agreements
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION OF PROPERTY
All of the following described real property located in the City of
Maple Grove, Hennepin County, Minnesota:
PARCEL A [Phase I]:
Lots 1 through 5, Block 1, Palisades At Nottingham, according to the
recorded plat thereof.
Lots 1 through 3, Block 2, Palisades At Nottingham, according to the
recorded plat thereof.
Lots 1 through 9, Block 3, Palisades At Nottingham, according to the
recorded plat thereof.
Lots 1 through 8, Block 4, Palisades At Nottingham, according to the
recorded plat thereof.
Lots 1 and 2, Block 5, Palisades At Nottingham, according to the
recorded plat thereof.
Outlots E, F and G, Palisades At Nottingham, according to the recorded
plat thereof.
PARCEL B [Phase II]:
Lots 1 through 5, Block 1, Nottingham Second Addition, according to the
recorded plat.
Lots 1 through 11, Block 2, Nottingham Second Addition, according to
the recorded plat.
Lots 1 through 4, Block 3, Nottingham Second Addition, according to the
recorded plat.
Lots 1 through 4, Block 4, Nottingham Second Addition, according to the
recorded plat.
Lots 1 through 3, Block 5, Nottingham Second Addition, according to the
recorded plat.
Lots 1 through 9, Block 6, Nottingham Second Addition, according to the
recorded plat.
Lots 1 and 2, Block 7, Nottingham Second Addition, according to the
recorded plat.
Outlots A through I, Nottingham Second Addition, according to the
recorded plat.
<PAGE>
EXHIBIT B
SCHEDULE OF FORMER OWNERS
AND
FORMER OWNER AGREEMENTS
FORMER OWNER: Radintz Family
FORMER OWNER AGREEMENT:
Purchase Agreement dated January 8, 1993 between the Radintz Family
members as Seller and Lundgren as Buyer, and all amendments thereto,
together with all closing documents delivered concurrently herewith.
FORMER OWNER: Terry and Phillip O'Brien
FORMER OWNER AGREEMENT:
Option Agreement dated January 28, 1993, granted by Terry, Margaret,
Phillip and LaVonne O'Brien as Sellers to Lundgren and all amendments
thereto, together with all closing documents generated to date,
including those documents set forth in the Lundgren Closing Book dated
June 27, 1996.
FORMER OWNER: Thomas M. Gearty, as personal representative of the Estate of
Thomas D. Gearty, and Ellen Jean Scholer.
FORMER OWNER AGREEMENT:
Option Agreement dated June 18, 1993, between Thomas M. Gearty, as
personal representative of the Estate of Thomas D. Gearty, and Ellen
Jean Scholer, as Seller and Lundgren as Buyer, and all amendments
thereto, together with all closing documents set forth in the Lundgren
Closing Book dated October 10, 1995.
FORMER OWNER: Douglas and Ellen Weed
FORMER OWNER AGREEMENT:
Option Agreement dated February 20, 1995, between the Douglas and Ellen
Weed as Seller and Lundgren as Buyer, and all amendments thereto,
together with all closing documents delivered concurrently herewith.
FORMER OWNER: Shamrock Development, Inc.
<PAGE>
FORMER OWNER AGREEMENT:
Short Form Purchase Agreement dated April 1, 1996, between Shamrock
Development, Inc. as Seller and Lundgren as Buyer, and all amendments
thereto, together with all closing documents set forth in the Lundgren
Closing Book dated May 20, 1996.
<PAGE>
EXHIBIT C
SCHEDULE
OF
CONSULTANT AGREEMENTS
NOTTINGHAM
OPTION AGREEMENT
1. DEFINITIONS.
1.1. DEFINITIONS OF PERSONS.
1.1.1. "SELLER" means BF Holding Company, a Minnesota
corporation.
1.1.2. "BUYER" means Lundgren Bros. Construction, Inc., a
Minnesota corporation.
1.1.3. "CITY" means the City of Maple Grove, a Minnesota
municipal corporation.
1.1.4. "COUNTY" means Hennepin County, Minnesota.
1.1.5. "TITLE INSURER" means Chicago Title Insurance
Company, a Missouri corporation.
1.2. DEFINITIONS OF REAL PROPERTY.
1.2.1. "LOT" means a numbered parcel of land in the Property
as shown on a recorded final plat or a City approved
preliminary plat as the possible site of a
single-family attached or detached residential
dwelling.
1.2.2. "OUTLOT" means a lettered parcel of land established
by a recorded final plat as a possible common area
("ASSOCIATION OUTLOT"), future development area
("DEVELOPMENT OUTLOT") or public area.
1.2.3. "PROPERTY" means the real property legally described
in EXHIBIT A.
1.3. DEFINITIONS OF OTHER TERMS.
1.3.1. "ACQUISITION AGREEMENT" means the Acquisition and
Closing Agreement between Buyer and Seller of even
date pursuant to which Seller purchased the Property
from Buyer.
1.3.2. "AGREEMENT" means this Option Agreement.
1.3.3. "AGREEMENT DATE" means June 10, 1997.
1.3.4. "ALLOCATION PERCENTAGE" for each Lot means the
percentage derived by dividing (i) the value of each
separate Lot for which there has been no Closing by
(ii) the total value of all Lots in the Property for
which there have been no Closings. The initial
Allocation Percentages and values of all Lots created
or proposed to be created on the Property are
attached as EXHIBIT B hereto.
1.3.5. "BUSINESS DAYS" means all days other than Saturdays,
Sundays and legal holidays defined in Minnesota
Statutes ss. 645.44 for the purpose of serving civil
process.
<PAGE>
1.3.6. "CLOSE" OR "CLOSING" means the completion of the
transaction whereby Buyer purchases one or more Lots
and/or Development Outlots in the Property and Seller
deeds such Lot(s) and/or Development Outlots to
Buyer.
1.3.7. "CLOSING DATE" means the date on which the Closing of
each Lot and/or Development Outlot occurs.
1.3.8. "DEVELOPMENT MANAGEMENT SERVICES" means the services
to be performed by Buyer pursuant to Section 5 of
this Agreement.
1.3.9. "HOLDING FEE" means an amount calculated monthly on
the average outstanding Project Investment balance
during the previous month, such calculation to be at
the rate of 18% per annum based on a 360 day year.
Buyer may, but need not, pay the Holding Fee monthly
as invoiced by Seller or Buyer may elect to accrue
any or all monthly Holding Fees, provided that
Purchase Price payments to Seller shall be credited
first against accrued but unpaid Holding Fees and
next to the outstanding Project Investment. Any
accrued and unpaid Holding Fees shall be added to the
outstanding Project Investment for purpose of
calculating each subsequent month's Holding Fee.
1.3.10. "OPTION PERIODS" and the Lot takedown schedule are
set forth in attached EXHIBIT F.
1.3.11. "PROJECT INVESTMENT" means the total sum of all funds
actually paid out by Seller in satisfaction of costs
directly related to the acquisition , land planning
and development of the Property, including but not
limited to (a) that portion of the Property purchase
price paid by Seller in cash, (b) project consultant
costs such as engineering, survey, environmental,
architectural, and similar professional fees, (c)
contractor and construction costs and the cost of
construction materials, (d) the cost of letters of
credit securing subdivision improvements, (e) title
costs, recording fees, deed taxes, real estate taxes
and special assessments on the Property, (f)
development fees, and (g) reimbursements paid to
Buyer for any of the foregoing expenses that may be
advanced after the Agreement Date by Buyer in the
course of performing Development Management Services.
The Project Investment does NOT include (i) any
portion of the purchase price of the Property
satisfied by a credit against the Option
consideration due from Buyer under this Agreement
(ii) any financing costs incurred by Seller,
including loan fees, points, interest, mortgage
registration fees, appraisal fees and other financing
or holding expenses of Seller (iii) legal,
accounting, appraisal or other expenses incurred by
Seller in connection with the negotiation,
documentation, closing or administration of this
Agreement or the Acquisition Agreement, and (iv) any
allocation of Seller's overhead or other
administrative expenses.
<PAGE>
1.3.12. "PROJECT PROFORMA" means the schedule of the
projected and actual Project Investment, projected
Project Investment disbursement schedules, and
projected Lot Closings for the Property as approved
by the parties from time to time. The initial Project
Proforma is attached as EXHIBIT C hereto.
1.3.13. "PROJECT RETURN" means the amount which is the sum of
the Project Investment PLUS the Holding Fee.
1.3.14. "PURCHASE PRICE" means the purchase price of each Lot
and Development Outlot determined in accordance with
Section 3 below.
2. GRANT OF OPTION. Seller hereby grants to Buyer the exclusive Option to
purchase platted Lots and Development Outlots on the Property
("OPTION"), in accordance with the terms and conditions of this
Agreement.
2.1. OPTION CONSIDERATION. As consideration for the grant of the
Option (i) Buyer has paid Seller $548,497.00 in the form of an
offsetting credit against the purchase price of the Property
paid by Seller pursuant to the Acquisition Agreement, and (ii)
Buyer agrees to perform the Development Management Services.
2.2. OPTION PERIODS AND TAKEDOWN SCHEDULE. The initial and
sequential quarterly Option Periods, together with the Lot
takedown schedule, are specified in Exhibit F attached hereto.
In order to automatically extend the Option through each
successive quarterly Option Period, before the expiration date
of the then current Option Period Buyer must have Closed on
the total cumulative number of Lots specified in the takedown
schedule for the current quarterly Option Period. If Buyer
fails to meet any of the foregoing Closing deadlines or if
Seller believes that Buyer's performance to meet the deadline
was deficient in any respect, Seller shall promptly notify
Buyer of the deficiency and give Buyer at least five (5)
Business Days to cure the deficiency. If Buyer meets the
deadline with said 5-day grace period, this Agreement shall
remain in full force and effect. If Buyer fails to meet the
deadline with said 5-day grace period, this Agreement shall
expire without further notice.
2.3. EXERCISE OF OPTION. Provided that Buyer is not then in
default under this Agreement, Buyer may exercise this Option
and buy one or more whole platted Lots for the Purchase Price
(but not partial Lots) by delivering to Seller a notice
exercising this Option ("EXERCISE NOTICE"). Buyer may purchase
a Development Outlot as a whole, but may not purchase a
Development Outlot in part until it is platted with
residential Lots. The selection of Lots and/or Development
Outlots designated for purchase in the Exercise Notice shall
be at Buyer's sole discretion, provided that all Lots and
Outlots remaining subject to the Option have access to a
public road right-of-way and municipal utilities.
<PAGE>
2.3.1. PURCHASE OF DEVELOPMENT OUTLOTS. Buyer is expressly
granted the right to purchase Development Outlots
before the final plat for the residential Lots in
such Development Outlots has been filed or the Lots
developed.
2.3.2. EXERCISE NOTICE. Buyer's Exercise Notice: (a) must
identify the Lot(s) and/or Development Outlot(s) to
be acquired by Buyer pursuant to the Exercise Notice;
(b) must specify a Closing Date for the purchase of
the designated Lot(s) and/or Development Outlot(s);
(c) must specify any title objections (in which case
the Exercise Notice shall be accompanied by a copy of
Buyer's title commitment and the documents forming
the basis of the title objection); and (d) in the
case of a Development Outlot, must specify Buyer's
proposed Purchase Price pursuant to Section 3.2
below. The Closing Date must be during the current
Option Period.
2.3.3. ASSOCIATION OUTLOTS. Concurrently with the Closing of
the first residential Lot in each filed plat for the
Property, Seller shall convey all Association Outlots
in that plat to the appropriate homeowners
associations formed for the purpose of owning and
administering the Association Outlots. Seller is not
entitled to any consideration for the conveyance of
Association Outlots other than the Purchase Price of
the concurrently closed Lots.
2.3.4. REVERTED OBLIGATIONS. Pursuant to the Acquisition
Agreement Seller assumed specified obligations of
Buyer pertaining to the Property which are described
in the Acquisition Agreement as the "BFH ASSUMED
OBLIGATIONS." Effective at the Closing of each Lot
and Development Outlot and/or the transfer of any
Association Outlot, Seller is released from any
executory BFH Assumed Obligations pertaining to that
Lot and/or Outlot which are not budgeted in the
Project Proforma (collectively "REVERTED
OBLIGATIONS") and thereafter Buyer shall be
responsible for performing the Reverted Obligations.
The foregoing shall not be deemed to release Seller
from timely performance of those BFH Assumed
Obligations that are required to be performed prior
to Closing the Lot or Development Outlot and/or
transferring the Association Outlot.
3. PURCHASE PRICE. The Purchase Price of each Lot and Development Outlot
shall be determined as follows:
3.1. PLATTED LOTS. For each Lot Closed after the final plat for
such Lot is filed, the Purchase Price of the Lot is initially
the amount set forth in EXHIBIT E; provided that at any time
during the term of the Option either party may require a
recalculation and an adjustment, if necessary, of the Purchase
Prices of those Lots for which Closing has not occurred in
order to reflect changes in the Project Proforma. If all of
the Lots are ultimately platted and Buyer exercises the Option
to purchase all of the Lots, the Purchase Price of the final
Lot or group of Lots to Close shall be recalculated as of the
date of the final Closing. The adjusted
<PAGE>
Purchase Price of each Lot shall be the product of (i) the
Project Return minus the amount of all Holding Fees and Lot
Purchase Prices previously paid to Seller, multiplied by (ii)
the Allocation Percentage for such Lot.
3.2. DEVELOPMENT OUTLOTS. If Buyer purchases a Development Outlot
before the residential Lots in such Development Outlot have
been platted or developed, the parties shall in good faith
negotiate the Purchase Price of the Development Outlot.
4. DEVELOPMENT PLAN; PROJECT PROFORMA. The parties have agreed upon (i) a
proposed plan for developing the Property as single family attached and
detached residential lots with necessary streets, utilities, common
areas and other infrastructure improvements pursuant to the approved
Project Proforma and final and City approved preliminary plats for the
Property ("DEVELOPMENT PLAN"). The Parties shall in good faith update
the Project Proforma quarterly and at such more frequent intervals as
they deem necessary or appropriate in order to reflect actual Project
Investment and results of operations or to adjust the Lot Purchase
Prices. Any material changes to or deviations from the Development Plan
or Project Proforma must be approved by the parties. Until Buyer
receives notice from Seller to the contrary, William T. Keenan is
Seller's "DESIGNATED REPRESENTATIVE" for purposes of approving
Development Plan and Project Proforma changes on behalf of Seller.
5. DEVELOPMENT MANAGEMENT SERVICES. Buyer shall manage and be responsible
for the day to day implementation of the Development Plan, including
coordinating and supervising all services by consultants and
contractors hired pursuant to the Development Plan. Buyer is
responsible for (i) filing the approved final plat(s) for the
Development Outlots, (ii) processing and diligently attempting to
obtain any required zoning, rezoning or planned unit development
approvals, development agreements and permits, and utility service
arrangements, (iii) preparing, processing and administering plans,
specifications and contracts for the construction and installation of
all grading, streets, curbs, gutters, sanitary sewers, storm sewers,
water facilities and infrastructure improvements contemplated by the
Development Plan and Project Proforma, and (iv) coordinating and
supervising all construction activities. Buyer shall also be
responsible for forming and operating the homeowner associations
contemplated by the Development Plan, and staffing positions on the
board of directors and officers of the associations, as necessary,
until such time as control of the associations pass to the residents.
Buyer and Seller shall each appoint one-half of the members of the
architectural committees of the associations.
5.1. SELLER APPROVAL. All applications, plans, specifications,
contracts and other documents necessary for implementation of
the Development Plan after the Agreement Date must be approved
by Buyer and Seller's Designated Representative and must be in
the name of and executed by Seller as owner of the Property.
Seller will cooperate with Buyer in implementing the
Development Plan, including execution of plats, development
agreements, easements and other documents and instruments
reasonably necessary in order to complete the platting and
development of the Property.
<PAGE>
5.2. PAYMENT OF PROJECT INVESTMENT COSTS. Seller is responsible for
paying all Project Investment costs (as described in Section
1.3.11 above) incurred to implement the Development Plan in
accordance with the approved Project Proforma, provided that
all invoices for Project Investment costs must first be
approved by Buyer. Subdivision improvements are being
constructed under a contract with the City and paid through
special assessments on the Property. On November 15th special
assessment principal and interest payments are certified to
the next year's tax rolls. To avoid a full year's interest
being charged to Lots which Buyer anticipates acquiring in the
following year, Buyer may request and Seller will pay in full
the special assessments on specified Lots designated in a
notice delivered to Seller on or before November 1st of the
year in which the certification is to occur. Buyer's request
for payment of special assessments shall not be deemed a
material change in the Development Plan or the Project
Proforma.
5.3. BUYER'S OVERHEAD COSTS. As consideration for the grant of the
Option, Buyer is responsible for paying its own overhead
expenses associated with the Development Management Services
furnished to Seller pursuant to this Section. Overhead as used
herein specifically includes salaries and payroll expenses of
Buyer's employees in directing, administering and supervising
development of the Property; all employee bonuses; the
services of the project manager and support staff necessary to
process and implement the Development Plan; general legal and
accounting fees; all transportation costs; and the operating
expenses of Buyer's home and branch offices such as rent,
utilities, insurance, stationery, office machines and supplies
and other office related expenses. Buyer is not entitled to
any fee or compensation for performing the Development
Management Services, even if Buyer does not exercise the
Option or Close on any Lots or Development Outlots.
6. TITLE.
6.1. TITLE INSURANCE COMMITMENT. Buyer is responsible for obtaining
any title commitment or survey of the Property sufficiently in
advance of each scheduled Closing Date in order to satisfy any
title requirements of Buyer or Buyer's lender by the scheduled
Closing Date, subject to extension for title clearance matters
as provided below. Buyer shall pay for the cost of any survey
and title commitment.
6.2. TITLE OBJECTIONS; PERMITTED ENCUMBRANCES. Seller is
responsible for obtaining satisfaction of any mortgage(s) or
other monetary lien placed on the Property after title was
conveyed to Seller pursuant to the Acquisition Agreement. Any
other title objections of Buyer must be contained in Buyer's
Notice of Exercise of the Option or deemed waived. No
objections shall be made for the following "PERMITTED
ENCUMBRANCES":
6.2.1. LAWS AND ORDINANCES. Federal, state and local
building, zoning and environmental statutes,
ordinances and regulations;
<PAGE>
6.2.2. MINERALS. Reservation of any minerals, or mineral
rights to the State of Minnesota;
6.2.3. ACQUISITION AGREEMENT EXCEPTIONS. All matters (other
than mortgages) existing at the time Buyer conveyed
title to Seller pursuant to the Acquisition
Agreement; and
6.2.4. DEVELOPMENT PLAN EXCEPTIONS. All matters resulting
from Buyer's implementation of the Development Plan
including, without limitation, recorded plats,
utility and drainage easements, development
agreements, covenants and restrictions and similar
matters.
6.3. TITLE CLEARANCE. If any objections to title are made as
provided in Section 6.2, Seller shall clear all the title
objections within sixty (60) days after receipt of Buyer's
written title objections.
6.3.1. TIME EXTENSIONS. Pending correction of title, the
following time extensions shall occur automatically:
i. The expiration date of the remaining Option
Periods shall be extended for a period of
time equal to the number of days after the
day Seller received Buyer's title objections
and through the day title has been made
marketable and Seller has so notified Buyer;
and
ii. If a Closing Date has been scheduled, it
shall be postponed until the later of the
scheduled Closing Date or ten days after
title has been made marketable and Seller
has so notified Buyer.
iii. Liens for liquidated amounts that can be
released by payment or escrow from proceeds
of the Closing shall not cause any such time
extensions.
6.3.2. BUYER'S REMEDIES. Title clearance by Seller shall be
reasonable, diligent and prompt. If the Closing
proceeds will be inadequate to pay all liquidated
liens or if title is not made marketable within sixty
(60) days after Seller received Buyer's written
objections to title, Buyer may within seventy (70)
days after Seller received Buyer's written objections
to title:
i. terminate this Agreement, whereupon neither
party shall have any further obligations
under this Agreement;
ii. waive the objections and accept title
subject to the objections;
iii. require Seller to commence proceedings to
correct non liquidated title objections,
said proceedings to be at Seller's sole
expense; or
iv. commence proceedings and/or advance funds to
correct the title objections and deduct the
cost thereof from the Purchase Price.
<PAGE>
If Buyer does not timely give written notice of its election,
then Buyer shall be deemed to have elected to correct the title
objections pursuant to Subsection (iv).
7. PROPERTY ACCESS; LIABILITY INSURANCE. For so long as this Agreement is
in force, Buyer and its representatives may enter the Property for all
purposes reasonably necessary for Buyer to perform Buyer's Development
Management Services and for the design, preconstruction and marketing
of residences. Buyer shall defend, indemnify and hold harmless Seller
from any resulting liability, injury or damage to persons or property.
The indemnity provisions of this section shall survive the expiration,
termination or Closing of this Agreement. For so long as this Agreement
is in force, Buyer shall maintain (i) comprehensive general public
liability insurance with coverage of not less than $2,000,000 single
coverage limits for each occurrence of injury or property damage, and
(ii) evidence that Buyer maintains statutory workers compensation
insurance. The insurance required hereunder shall be evidenced by
certificates of insurance which shall designate Seller as an additional
insured and shall provide that not less than 10 days prior notice will
be given to Seller prior to cancellation or reduction in the coverage
or amounts. The evidence of insurance pursuant to this section shall be
furnished concurrently with the parties' execution of this Agreement.
8. INTELLECTUAL PROPERTY.
8.1. OWNERSHIP. Buyer and Seller acknowledge, stipulate and agree
that all drawings, plans, submittals and other documents
prepared for the Property and all governmental permits and
approvals obtained for the Property (collectively the
"INTELLECTUAL PROPERTY") shall remain Seller's property,
provided that (i) Buyer may utilize the Intellectual Property
for development of those Lots and Development Outlots for
which Closings have occurred, (ii) upon Buyer's Closing on a
Lot or Development Outlot, any warranties and contract rights
in which Seller may then have an interest relating to work,
labor, skill or materials furnished in connection with the
design, development or improvement of such Lot or Development
Outlot shall be deemed assigned to Buyer (such assignment
shall not preclude the assertion of such warranties and
contract rights by Seller with respect to Seller's interest in
the Property) , and (iii) Seller will transfer the
Intellectual Property to Buyer at no additional cost when
Buyer Closes on all Lots in the Property. This paragraph shall
survive the expiration or termination of this Agreement and
shall be enforceable at law or in equity.
8.2. REPORTS. If this Agreement terminates and Buyer has not Closed
on all Lots and Development Outlots in the Property, then upon
request by Seller, Buyer shall provide Seller with full-size
copies of all engineering reports, soil tests, surveys,
topographical maps and other Intellectual Property relating to
the Property which (i) were prepared as a part of Buyer's
Development Management Services or which are in Buyer's
possession, and (ii) which have not been furnished to Seller
prior to such termination.
9. CONDITION OF PROPERTY
<PAGE>
9.1. AS-IS PURCHASE. Buyer is thoroughly familiar with the
Property, having sold it to Seller pursuant to the Acquisition
Agreement. Therefore, except as expressly contained in this
Agreement, Buyer agrees to accept the condition of the
Property, including specifically without limitation, the
environmental and geological condition of the Property, in an
"AS-IS" and with "ALL FAULTS" condition. Buyer's acceptance of
title to a Lot represents Buyer's acknowledgment and agreement
that, except as expressly contained in this Agreement (i)
Seller has not made any written or oral representation or
warranty of any kind with respect to the Property (including
without limitation express or implied warranties of title,
merchantability, or fitness for a particular purpose); (ii)
Buyer has not relied on any written or oral representation or
warranty made by Seller, its agents or employees with respect
to the condition or value of the Property; (iii) Buyer has had
an adequate opportunity to inspect the condition of the
Property, including without limitation, any environmental
testing, and to inspect documents applicable thereto, and
Buyer is relying solely on such inspection and testing; and
(iv) the condition of the Property is fit for Buyer's intended
use. Buyer agrees to accept all risk of Claims (including
without limitation all Claims under any Environmental Law and
all Claims arising at common law, in equity or under a
federal, state or local statute, rule or regulation) whether
past, present or future, existing or contingent, known or
unknown, arising out of, resulting from or relating to the
condition of the Property, known or unknown, contemplated or
uncontemplated, suspected or unsuspected, including without
limitation, the presence of any Hazardous Substance on the
Property, whether such Hazardous Substance is located on or
under the Property, or has migrated or will migrate from or to
the Property.
9.2. RELEASE. Buyer, for itself, its directors, officers,
stockholders, divisions, agents, affiliates, subsidiaries,
predecessors, successors, and assigns and anyone acting on its
behalf or their behalf hereby fully releases and forever
discharges Seller from any and all Claims (including without
limitation all Claims arising under any Environmental Law and
all Claims arising at common law, in equity or under a
federal, state or local statute, rule or regulation), past,
present and future, known and unknown, existing and
contingent, arising out of, resulting from, or relating to the
condition of the Property, and Buyer hereby waives any and all
causes of action (including without limitation any right of
contribution) Buyer had, has or may have against Seller and
its directors, officers, stockholders, divisions, agents,
affiliates, subsidiaries, predecessors, successors and
assigns, grantors or anyone acting on its behalf or their
behalf with respect to the condition of the Property, whether
arising at common law, in equity or under a federal, state or
local statute, rule or regulation. The foregoing shall apply
to any condition of the Property, known or unknown,
contemplated or uncontemplated, suspected or unsuspected,
including without limitation, the presence of any Hazardous
Substance on the Property, whether such Hazardous Substance is
located on or under the Property, or has migrated or will
migrate from or to the Property,
<PAGE>
9.3. INDEMNITY. To the extent permitted by applicable law, Buyer
agrees to indemnify, hold harmless and defend Seller and its
respective members, managers, agents, affiliates,
subsidiaries, predecessors, successors and assigns, grantors
or anyone acting on its behalf or their behalf for, from and
against any and all Claims (including without limitation all
Claims arising under any Environmental Law and all Claims
arising at common law, in equity or under a federal, state or
local statute, rule or regulation) past, present and future,
existing and contingent, known and unknown arising out of,
resulting from, or relating to the condition of the Property.
The foregoing shall apply to any condition of the Property,
known or unknown, contemplated or uncontemplated, suspected or
unsuspected, including without limitation, the presence of any
Hazardous Substance on the Property, whether such Hazardous
Substance is located on or under the Property, or has migrated
or will migrate from or to the Property, regardless of whether
the foregoing condition of the Property was caused in whole or
in part by the Seller's actions or omissions.
9.4. DEFINITIONS.
9.4.1. "ENVIRONMENTAL LAW" means the Comprehensive
Environmental Response, Compensation and Liability
Act ("CERCLA"), 42 U.S.C. ss. 9601 et seq., the
Resource Conservation and Recovery Act, 42 U.S.C. ss.
9601 et seq., the Federal Water Pollution Control
Act, 33 U.S.C. ss. 1201 et seq., the Clean Water Act,
33 U.S.C. ss. 1321 et seq., the Clean Air Act, 42
U.S.C. ss. 7401 et seq., the Toxic Substances Control
Act, 33 U.S.C. ss. 1251 et seq., all as amended from
time to time, and any other federal, state, local or
other governmental statute, regulation, rule, law or
ordinance dealing with the protection of human
health, safety, natural resources or the environment
now existing and hereafter enacted; and
9.4.2. "HAZARDOUS SUBSTANCE" means any pollutant,
contaminant, hazardous substance or waste, solid
waste, petroleum product, distillate, or fraction,
radioactive material, chemical known to cause cancer
or reproductive toxicity, polychlorinated biphenyl or
any other chemical, substance or material listed or
identified in or regulated by any Environmental Law.
9.4.3. "CLAIM" or "CLAIMS" means any and all liabilities,
suits, claims, counterclaims, causes of action,
demands, penalties, debts, obligations, promises,
acts, fines, judgments, damages, consequential
damages, losses, costs, and expenses of every kind
(including without limitation any attorney's fees,
consultant's fees, costs, remedial action costs,
cleanup costs and expenses which may be related to
any claims).
10. CLOSING DOCUMENTS. The Closing of each Lot or group of Lots and/or
Development Outlot for which Buyer has exercised the Option and
delivery of all Closing documents shall take place on the Closing Date
at Buyer's offices, or at such other place as may be
<PAGE>
agreed upon by Buyer and Seller. On the Closing Date, Seller and Buyer
shall execute, where necessary, and deliver to each other the
following:
10.1. DEED. A recordable Limited Warranty Deed, on Minnesota Uniform
Conveyancing Blank Form No. 23-M, conveying the Lot(s) and/or
Development Outlot(s) from Seller to Buyer, free and clear of
all liens, charges and encumbrances, except the Permitted
Encumbrances and any other matter approved or waived by Buyer;
10.2. SELLER'S AFFIDAVIT. An affidavit by Seller stating that on the
Closing Date (i) there are no unsatisfied judgments, tax liens
or bankruptcies against or involving the Seller, (ii) there
has been no labor or material furnished to the Property for
which mechanics liens could be filed (or Seller's undertaking
with Buyer's title insurance company for any potential
mechanics liens), and (iii) there is no other unrecorded
interest in the Property made or suffered by Seller;
10.3. MISCELLANEOUS DOCUMENTS. Any other documents reasonably
required by the Title Insurer.
10.4. PURCHASE PRICE; POSSESSION. At the Closing, Buyer shall
deliver to Seller the Purchase Price of the Lot(s) and/or
Development Outlot(s) in cash, cashier's check or certified
funds. Seller shall deliver possession of the Lot(s) and/or
Development Outlot(s) to Buyer on the Closing Date.
11. CLOSING COSTS; IMPOUND
11.1. REAL ESTATE TAXES.
11.1.1. PRIOR YEAR TAXES. Seller shall pay all real estate
taxes due and payable in years before the Closing and
all real estate taxes which have been deferred (which
amounts are includable in Seller's Project
Investment).
11.1.2. CURRENT YEAR TAXES. There shall be no proration of
real estate taxes due in the calendar year of
Closing. Seller shall pay all installments of current
taxes with a delinquency date prior to the date of
Closing (which amounts are includable in Seller's
Project Investment) and Buyer shall pay all
installments with a delinquency date on or after the
date of Closing.
11.1.3. FUTURE YEARS TAXES. Buyer shall pay all real estate
taxes due in years after the calendar year of
Closing.
11.2. SPECIAL ASSESSMENTS. At the Closing, Buyer shall pay all
special assessments on the Lot and/or Development Outlot,
including levied, deferred, pending and proposed special
assessments.
11.3. TITLE INSURER COSTS. Buyer shall pay all title costs,
including the abstracting, photocopying and service charges
for any title insurance commitment and background title
documents required by Buyer, and the premium for any owner's
or lender's title insurance policy required by Buyer. Any
Closing fees charged by the Title Insurer shall be paid by
Buyer.
<PAGE>
11.4. RECORDING FEES. Buyer shall pay all document recording fees
and mortgage registration taxes required in connection with
the transaction. Buyer shall pay the state deed tax,
conservation fees, and any recording fees and taxes for title
clearance documents.
11.5. IMPOUND FOR LETTER OF CREDIT OBLIGATIONS. At the Closing Buyer
shall deliver to Seller funds (the "IMPOUND") in the amount of
$1,000 for each Lot which is then Closing (the Impound for a
Development Outlot is $1,000 for each proposed Lot in the
Development Outlot as shown on the approved preliminary plat).
The Impound shall be held by Seller in an interest bearing
account without penalty for early withdrawal pending the
City's release of the letters of credit for the Property
issued to the City by Builders Development and Finance, Inc.
(the "L/C's"). If the L/C's are drawn upon by the City, Seller
may retain the Impound and interest thereon to the extent of
the L/C drawings. If and when the L/C's are surrendered by the
City for cancellation, then the Impound and interest thereon
shall be returned to Buyer. If at any time the Impound exceeds
the amount of the outstanding L/C's, any such excess shall be
immediately returned to Buyer.
12. SELLER'S REPRESENTATIONS AND WARRANTIES. Subject to those matters
encompassed within Buyer's Acquisition Agreement representations and
warranties to Seller, Seller represents and warrants to Buyer as
follows:
12.1. LITIGATION. Seller does not have knowledge of any litigation,
investigation, condemnation or legal proceedings of any kind
pending against Seller or against the Property.
12.2. HAZARDOUS WASTE. To the best of Seller's knowledge:
12.2.1. SELLER'S USE. During the time that Seller has owned
the Property, it has not been used for the storage or
disposal of any hazardous waste; and
12.2.2. NO NOTICE OF CONTAMINATION. Seller has received no
notice from any governmental authority concerning the
removal of hazardous waste from the Property.
"Hazardous waste" means any waste, substance or other material
which is defined by or determined by any federal, state or
local statute, regulation, ordinance or ruling to be
hazardous, toxic, poisonous or dangerous.
12.3. STORAGE TANKS. Except as disclosed to Seller by Buyer at the
time Seller originally acquired the Property from Buyer,
Seller knows of no underground or aboveground storage tanks
that now exist or ever existed on any portion of the Property.
If any tanks are discovered on the Property, Seller shall be
responsible for removing the tanks and any soils contaminated
with materials (such as petroleum products) which may have
leaked from the tanks, and the cost of such removal shall be
included in the Project Investment costs.
12.4. WELLS. Except as disclosed to Seller by Buyer at the time
Seller originally acquired the Property from Buyer, Seller
does not know of any wells on the
<PAGE>
Property. Seller shall be responsible for sealing all wells in
accordance with all applicable laws, and the cost thereof
shall be included in the Project Investment costs.
12.5. INDIVIDUAL SEWAGE TREATMENT SYSTEM. Except as disclosed to
Seller by Buyer at the time Seller originally acquired the
Property from Buyer, Seller does not know of any private sewer
system on the Property. Seller shall be responsible for
removing any private sewer systems on the Property and the
cost thereof shall be included in the Project Investment
costs.
13. REPRESENTATIONS AND WARRANTIES GENERALLY.
13.1. SELLER'S REPRESENTATIONS AND WARRANTIES CONDITION PRECEDENT.
Seller agrees that the truthfulness and continuing accuracy of
each and every representation and warranty in this Agreement
is a condition precedent to the performance by Buyer of its
obligations hereunder. Upon the breach of or material change
in any of Seller's warranties, Buyer may, prior to the Closing
Date, terminate this Agreement or Buyer may elect to Close
this sale.
13.2. BUYER'S ACQUISITION AGREEMENT WARRANTIES. Nothing in this
Agreement shall be deemed to amend or supersede Buyer's
representations and warranties to Seller contained in the
Acquisition Agreement, which representations and warranties of
Buyer are hereby affirmed by Buyer and incorporated in this
Agreement as if set forth in their entirety.
13.3. SURVIVAL OF WARRANTIES AND REPRESENTATIONS. The parties'
representations and warranties in this Agreement shall be
deemed to have been remade as of Closing, as if made on and as
of such date, except for such factual matters, if any,
occurring subsequent to the date of this Agreement, which are
set forth in a certificate of changed circumstances delivered
on or before the Closing Date, which certificate upon delivery
shall be deemed to constitute a part of this Agreement,
provided that such matter shall not affect Buyer's termination
rights under Subsection 13.1. Consummation of this Agreement
by either party with knowledge of any breach by the other
party shall not be deemed a waiver or release of any claims
hereunder due to such breach. All representations and
warranties contained in this Agreement shall survive Closing.
14. CONDEMNATION. If any part of the Property is condemned under a power of
eminent domain, then Buyer may terminate this Agreement; or Buyer may
Close on the purchase and the condemnation proceeds received by Seller
shall be credited against the Purchase Price payable by Buyer.
15. NO BROKERS. Seller warrants to Buyer that Seller has not taken any
action in connection with this transaction which would result in any
real estate broker's fee, finder's fee, or other fee being due or
payable to any party. Buyer warrants to Seller that Buyer has not taken
any action in connection with this transaction which would result in
any real estate broker's fee, finder's fee, or other fee being due or
payable to any party. Seller and Buyer respectively agree to indemnify,
defend and hold harmless the other from and against any
<PAGE>
and all claims, fees, commissions and suits of any real estate broker
or agent with respect to services claimed to have been rendered for or
on behalf of such party in connection with the execution of this
Agreement or the transaction contemplated herein. Buyer hereby
discloses that Buyer is a licensed real estate broker and is purchasing
the Lots for Buyer's own account.
16. NOTICE. Any notice or other communication under this Agreement shall be
in writing, addressed as follows:
if to Seller: Builder's Development, Inc.
1055 Wayzata Blvd.
Wayzata, MN 55391
with a copy to: Dorsey & Whitney
2200 First Bank Place East
Minneapolis, MN 55402
Attention: William R. Soth
if to Buyer: Lundgren Bros. Construction, Inc.
935 East Wayzata Boulevard
Wayzata, MN 55391
Attention: Peter Pflaum
with copies to: Lundgren Bros. Construction, Inc.
935 East Wayzata Boulevard
Wayzata, MN 55391
Attention: Terry M. Forbord
and
Leonard, Street and Deinard P.A.
South Fifth Street, Suite 2300
Minneapolis, MN 55402
Attention: John C. Kuehn
Notices shall be deemed timely if sent on or before the deadline OR if
received on or before three Business Days after the deadline. Delivery
may be made by (1) United States Mail, registered or certified mail,
postage prepaid, return receipt requested; (2) commercial delivery
service with its customary receipts; or (3) noncommercial delivery with
a notarized affidavit of delivery to the relevant address. Any person
may change his address under this section by giving notice to the other
party.
17. INDEMNIFICATION.
17.1. BY BUYER. Buyer shall indemnify Seller, its successors and
assigns, against, and shall hold Seller, its successors and
assigns, harmless from, any fines, penalties, liabilities,
claims, suits, actions, damages, losses, costs and expenses,
including
<PAGE>
reasonable attorneys' fees, which Seller may incur
because of any of the following:
17.1.1. Breach of any of Buyer's representations and
warranties in this Agreement.
17.1.2. Breach of any Reverted Obligations.
17.1.3. Any and all claims arising from third parties as a
result of Buyer's performance of the Development
Management Services or other acts or omissions of
Buyer.
17.2. BY SELLER. Seller shall indemnify Buyer, its successors and
assigns, against, and shall hold Buyer, its successors and
assigns, harmless from, any fines, penalties, liabilities,
claims, suits, actions, damages, losses, costs and expenses,
including reasonable attorneys' fees, which Buyer may incur
because of any of the following:
17.2.1. Any and all claims arising from third parties as a
result of Seller's acts or omissions.
17.2.2. Breach of any of Seller's representations and
warranties in this Agreement.
18. MISCELLANEOUS.
18.1. SELLER'S BOOKS AND RECORDS. Seller shall keep and maintain
accurate financial books and records of the Project Investment
and the cost components of the Project Investment in
accordance with generally accepted accounting principals.
These financial books and records shall include all supporting
documentation relative to Project Investment costs. Seller's
books and records pertaining to the Project Investment shall
be made available to Buyer at reasonable times for inspection
and audit by Buyer at Buyer's sole cost and expense.
18.2. AMENDMENT. This Agreement may not be amended, waived, or
modified except by an instrument in writing executed by the
party against whom enforcement of such amendment, waiver or
modification is sought.
18.3. NO IMPLIED WARRANTIES. No representations or warranties have
been given by either party to the other which are not fully
embodied in this Agreement.
18.4. SEVERABILITY. If any term or provision of this Agreement is
invalid or unenforceable, the remainder of this Agreement
shall not be affected and shall remain in full force and
effect. It is the intention of the parties that if any
provision of this Agreement is held to be illegal, invalid or
unenforceable, there will be substituted in lieu thereof a
legal, valid and enforceable provision as similar in terms to
such unenforceable provision as is possible.
18.5. SURVIVAL. Except as may otherwise be expressly provided in
this Agreement, all covenants, agreements, obligations and
undertakings made by Seller and Buyer in or pursuant to this
Agreement shall survive Closing, whether or not so expressed
<PAGE>
in the immediate context of any such covenant, agreement,
obligation or undertaking.
18.6. SUCCESSORS; NO ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of Seller and Buyer, and their
respective successors. This Agreement may not be assigned by
either party without the prior written consent of the other,
which consent may be withheld in its sole discretion for any
reason or no reason whatsoever. Notwithstanding the
immediately preceding sentence, Seller may collaterally assign
its rights (but not delegate its duties) under this Agreement
as security for such financing as Seller deems reasonably
necessary or appropriate to fund its Project Investment
obligations. Seller shall promptly notify Buyer of any
collateral assignment of its rights under this Agreement or
any mortgage or other monetary encumbrance of the Property.
Any such encumbrance of the Property shall be subordinate to
this Agreement and Buyer's Option, and Seller shall be
responsible for obtaining a satisfaction of any such
encumbrance with respect to any portion of the Property to be
transferred pursuant to this Agreement.
18.7. ATTORNEYS' FEES. If either party defaults under this
Agreement, the defaulting party shall be responsible for all
reasonable expenses (including attorneys' fees) incurred by
the other party in enforcing any rights and remedies under
this Agreement.
18.8. AUTHORITY TO CONTRACT. Seller and Buyer represent to each
other that the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby are
within each of the party's purposes and powers and all
requisite action has been taken to make this Agreement the
valid and binding obligation upon each of the parties hereto.
18.9. RECORDING. This Agreement shall not be recorded, but a
memorandum of this Agreement in the form of EXHIBIT D may be
recorded by either party. This Agreement and Buyer's Option
shall be a priority encumbrance on the Property and Buyer is
not required to subordinate its Option or rights under this
Agreement to any mortgage or other encumbrance affecting the
Property.
18.10. STANDARD OF PERFORMANCE. Subject to Section 18.6 regarding
assignments, any consent or approval required of a party shall
be evaluated in good faith and such consent or approval shall
not be unreasonably withheld. The standards for assignments
shall be as set forth in Section 18.6. The parties intend by
this provision to set forth their entire understanding with
respect to the standards pursuant to which their obligation to
give consents and approvals are to be judged and their
performance in that regard measured.
18.11. ENTIRE AGREEMENT. The Acquisition Agreement and this Agreement
embody the entire agreement and understanding between Buyer
and Seller relating to the Property. The Acquisition Agreement
and this Agreement supersede all prior agreements between the
parties relating to the Property.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the Agreement Date.
SELLER: BUYER:
BF HOLDING COMPANY LUNDGREN BROS. CONSTRUCTION, INC.
By_________________________________ By_________________________________
Its______________________________ Its______________________________
EXHIBITS
A Legal Description of the Property
B Lot Values and Initial Allocation Percentages
C Project Proforma
D Memorandum of Option
E Initial Lot Purchase Prices
F Option Periods and Takedown Schedule
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION OF PROPERTY
All of the following described real property located in the City of
Maple Grove, Hennepin County, Minnesota:
PARCEL A [Phase I]:
Lots 1 through 5, Block 1, Palisades At Nottingham, according to the
recorded plat.
Lots 1 through 3, Block 2, Palisades At Nottingham, according to the
recorded plat.
Lots 1 through 9, Block 3, Palisades At Nottingham, according to the
recorded plat.
Lots 1 through 8, Block 4, Palisades At Nottingham, according to the
recorded plat.
Lots 1 and 2, Block 5, Palisades At Nottingham, according to the
recorded plat.
Association Outlots E, F and G, Palisades At Nottingham, according to
the recorded plat.
PARCEL B [Phase II]:
Lots 1 through 5, Block 1, Nottingham Second Addition, according to the
recorded plat.
Lots 1 through 11, Block 2, Nottingham Second Addition, according to
the recorded plat.
Lots 1 through 4, Block 3, Nottingham Second Addition, according to the
recorded plat.
Lots 1 through 4, Block 4, Nottingham Second Addition, according to the
recorded plat.
Lots 1 through 3, Block 5, Nottingham Second Addition, according to the
recorded plat.
Lots 1 through 9, Block 6, Nottingham Second Addition, according to the
recorded plat.
Lots 1 and 2, Block 7, Nottingham Second Addition, according to the
recorded plat.
Association Outlots A, B, and E through I, Nottingham Second Addition,
according to the recorded plat.
Development Outlots C and D, Nottingham Second Addition, according to
the recorded plat.
<PAGE>
EXHIBIT B
LOT VALUES
AND
INITIAL ALLOCATION PERCENTAGES
<PAGE>
EXHIBIT C
PROJECT PROFORMA
<PAGE>
EXHIBIT D
MEMORANDUM OF OPTION
<PAGE>
________________________________________________________________________________
(SPACE ABOVE FOR RECORDER/REGISTRAR USE)
NOTTINGHAM
MEMORANDUM OF OPTION FOR PURCHASE OF REAL PROPERTY
This Memorandum of Option Agreement ("MEMORANDUM") is made as of June
10, 1997, by BF HOLDING COMPANY, a Minnesota corporation ("SELLER"), and
LUNDGREN BROS. CONSTRUCTION, INC., a Minnesota Corporation ("BUYER").
PREAMBLE
A. Buyer and Seller have entered into that certain Option Agreement
dated June 10, 1997 ("OPTION AGREEMENT") whereby Buyer has granted to Seller an
Option to purchase residential Lots and Development Outlots platted on the
property described on EXHIBIT "1" attached hereto ("PROPERTY").
B. Buyer and Seller desire to execute and record this Memorandum to
evidence the existence of the Option Agreement and Seller's rights thereunder.
THEREFORE, in consideration of the covenants and agreements contained
in the Option Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which are acknowledged, Seller and Buyer agree as
follows:
1. GRANT OF OPTION. Buyer grants to Seller an Option to purchase the
Property on the terms and conditions set forth in the Option Agreement.
2. OPTION PERIOD. The Initial Option Period expires September 30, 1997;
provided that the Option may be extended to and including September 30, 2000, on
the terms and conditions specified in the Option Agreement.
<PAGE>
3. PRIORITY OF OPTION. This Option and Buyer's rights to acquire the
Property pursuant to the Option Agreement is a lien on the Property with first
priority over any mortgage or other encumbrance of the Property that may be
recorded concurrently with this Memorandum.
4. LIMITED PURPOSE OF MEMORANDUM. The purpose of this Memorandum is
solely to give notice of the Option Agreement and all of its terms, to the same
extent as if the Option Agreement were fully set forth herein. This Memorandum
shall not be deemed to supplement, amend or modify the terms and conditions
contained in the Option Agreement. Except as expressly provided herein, words
and phrases in this Memorandum have the same meanings as defined in the Option
Agreement.
The parties have executed this Memorandum effective as of June 10, 1997
SELLER: BUYER:
BF HOLDING COMPANY LUNDGREN BROS. CONSTRUCTION, INC.
By_________________________________ By_________________________________
Its______________________________ Its______________________________
THIS INSTRUMENT WAS DRAFTED BY:
THIS INSTRUMENT WAS DRAFTED BY:
LEONARD, STREET AND DEINARD P.A. (JCK)
150 South Fifth Street, Suite 2300
Minneapolis, MN 55402
STATE OF MINNESOTA )
) ss
COUNTY OF __________ )
The foregoing instrument was acknowledged before me this ___ day of
_______, 19__ by _____________________, the ___________________ of BF Holding
Company, a Minnesota corporation, on behalf of the corporation.
[SEAL] ____________________________________
Notary Public
<PAGE>
STATE OF MINNESOTA )
) ss
COUNTY OF __________ )
The foregoing instrument was acknowledged before me this ___ day of
_______, 19__ by _____________________, the ___________________ of Lundgren
Bros. Construction, Inc., a Minnesota corporation, on behalf of the corporation.
[SEAL] ____________________________________
Notary Public
<PAGE>
EXHIBIT "1"
TO MEMORANDUM OF OPTION
LEGAL DESCRIPTION OF PROPERTY
All of the following described real property located in the City of
Maple Grove, Hennepin County, Minnesota:
PARCEL A [Phase I]:
Lots 1 through 5, Block 1, Palisades At Nottingham, according to the
recorded plat.
Lots 1 through 3, Block 2, Palisades At Nottingham, according to the
recorded plat.
Lots 1 through 9, Block 3, Palisades At Nottingham, according to the
recorded plat.
Lots 1 through 8, Block 4, Palisades At Nottingham, according to the
recorded plat.
Lots 1 and 2, Block 5, Palisades At Nottingham, according to the
recorded plat.
Outlots E, F and G, Palisades At Nottingham, according to the recorded
plat.
PARCEL B [Phase II]:
Lots 1 through 5, Block 1, Nottingham Second Addition, according to the
recorded plat.
Lots 1 through 11, Block 2, Nottingham Second Addition, according to
the recorded plat.
Lots 1 through 4, Block 3, Nottingham Second Addition, according to the
recorded plat.
Lots 1 through 4, Block 4, Nottingham Second Addition, according to the
recorded plat.
Lots 1 through 3, Block 5, Nottingham Second Addition, according to the
recorded plat.
Lots 1 through 9, Block 6, Nottingham Second Addition, according to the
recorded plat.
Lots 1 and 2, Block 7, Nottingham Second Addition, according to the
recorded plat.
Outlots A through I, Nottingham Second Addition, according to the
recorded plat.
<PAGE>
EXHIBIT E
INITIAL LOT PURCHASE PRICES
<PAGE>
EXHIBIT F
OPTION PERIODS
AND
TAKEDOWN SCHEDULE
------------------------------ ---------------------------------
OPTION PERIOD CUMULATIVE TOTAL(1) OF LOTS TO BE
EXPIRATION DATES CLOSED BY APPLICABLE OPTION
PERIOD EXPIRATION DATE
------------------------------ ---------------------------------
09/30/1997 2
------------------------------ ---------------------------------
12/31/1997 6
------------------------------ ---------------------------------
03/31/1998 14
------------------------------ ---------------------------------
06/30/1998 33
------------------------------ ---------------------------------
09/30/1998 52
------------------------------ ---------------------------------
12/31/1998 66
------------------------------ ---------------------------------
03/31/1999 78
------------------------------ ---------------------------------
06/30/1999 92
------------------------------ ---------------------------------
09/30/1999 98
------------------------------ ---------------------------------
12/31/1999 101
------------------------------ ---------------------------------
03/31/2000 104
------------------------------ ---------------------------------
06/30/2000 106
------------------------------ ---------------------------------
09/30/2000 All Lots
------------------------------ ---------------------------------
- ---------------------------
(1) The specified number of required Lot Closings for each Option Period is
INCLUSIVE of the Closings required for all previous Option Periods. Closings in
excess of the number specified for an Option Period shall apply to the Closing
requirements for the next Option Period(s). For example, if 22 Lots are Closed
by December 31, 1997, the Option Period shall be deemed extended through June
30, 1998.
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,861
<SECURITIES> 0
<RECEIVABLES> 2,236
<ALLOWANCES> 55
<INVENTORY> 37,744
<CURRENT-ASSETS> 0
<PP&E> 3,251
<DEPRECIATION> 1,831
<TOTAL-ASSETS> 56,666
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0
0
<COMMON> 99
<OTHER-SE> 6,612
<TOTAL-LIABILITY-AND-EQUITY> 56,666
<SALES> 27,492
<TOTAL-REVENUES> 27,492
<CGS> 24,411
<TOTAL-COSTS> 24,411
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,338
<INCOME-PRETAX> (1,145)
<INCOME-TAX> (460)
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