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, 1998 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 12, 1998, 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)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31, 1997
------------- -----------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 2,076 $ 1,979
Restricted cash 3,484 1,947
Receivables 1,438 1,410
Notes receivable - affiliates 1,296 1,066
Deposits and prepaid expenses 3,353 3,042
Inventories 39,097 35,614
Income taxes receivable 173 334
Land option and earnest money deposits 1,656 1,138
Property and equipment, net 1,551 1,517
Deferred income taxes 206 206
Other assets 4,775 4,531
------- -------
Total assets $59,105 $52,784
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Obligations under bank lines of credit $ 8,139 $ 7,457
Debt obligations 32,146 27,730
Obligations under capital leases 435 447
Accounts payable 7,501 7,185
Cost to complete sold homes 986 469
Customer deposits 2,470 1,060
Accrued expenses 1,084 1,687
------- -------
Total liabilities 52,761 46,035
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 6,245 6,650
------- -------
6,344 6,749
------- -------
Total liabilities and stockholders' equity $59,105 $52,784
======= =======
</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,
-------- --------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $ 19,594 $ 15,396 $ 31,688 $ 27,492
Cost of revenues 17,279 13,816 28,158 24,411
-------- -------- -------- --------
Gross profit 2,315 1,580 3,530 3,081
Operating expenses:
Selling 782 576 1,472 1,138
General and administrative 1,011 1,000 1,655 1,785
-------- -------- -------- --------
522 4 403 158
Other income (expense):
Interest expense (641) (759) (1,186) (1,338)
Other, net 27 13 71 35
-------- -------- -------- --------
Loss before income taxes (92) (742) (712) (1,145)
Income tax benefit (41) (299) (307) (460)
-------- -------- -------- --------
Net loss (51) (443) (405) (685)
Retained earnings, beginning of period 6,296 7,055 6,650 7,297
-------- -------- -------- --------
Retained earnings, end of period $ 6,245 $ 6,612 $ 6,245 $ 6,612
======== ======== ======== ========
Net loss per share - basic and diluted $ (5) $ (42) $ (38) $ (64)
======== ======== ======== ========
Common shares outstanding 10,625 10,625 10,625 10,625
</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,
--------
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (405) $ (685)
Loss from discontinued operations -- --
-------- --------
Loss from continuing operations (405) (685)
Adjustments to reconcile loss from continuing
operations to net cash used in operating activities:
Depreciation and amortization 238 225
Gain on disposal of property and equipment -- (7)
Changes in operating assets and liabilities (4,676) (2,809)
-------- --------
Net cash used in continuing operating activities (4,843) (3,276)
Net cash used in discontinued operations -- (115)
-------- --------
Net cash used in operating activities (4,843) (3,391)
Cash flows from investing activities:
Expenditures for property and equipment (219) (68)
Proceeds on disposal of property and equipment 7 37
Other 4 5
Increase in cash surrender value of
life insurance (243) (224)
-------- --------
Net cash used in investing activities (451) (250)
Cash flows from financing activities:
Proceeds from bank lines of credit 16,138 16,234
Payment of principal on bank lines of credit (15,456) (11,908)
Proceeds from debt obligations 26,969 22,620
Payment of principal on debt obligations (22,248) (22,624)
Payment of principal on capital lease obligations (12 (43)
Payment of debt issuance costs -- (30)
-------- --------
Net cash provided by financing activities 5,391 4,249
-------- --------
Increase in cash and cash equivalents 97 608
Cash and cash equivalents, beginning of the period 1,979 1,253
-------- --------
Cash and cash equivalents, end of the period $ 2,076 $ 1,861
======== ========
</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 1997 Annual Report on Form 10-K. During the first quarter of 1998, the
Company implemented SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities," SFAS No. 130, "Reporting
Comprehensive Income," and SFAS No. 131, "Disclosures About Segments of and
Enterprise and Related Information." The adoption of these standards did not
have a material effect on the results of operations of the Company. For the
periods presented comprehensive income (loss) is the same as net income (loss).
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 30, 1998 and 1997 was 10,625. During 1997, the Company adopted SFAS No.
128, EARNINGS PER SHARE. This statement establishes standards for computing and
presenting basic and diluted earnings per share (EPS). The adoption of this
statement did not effect the Company's reported EPS for all periods presented.
NOTE 2. SELECTED FINANCIAL DATA
June 30, 1998 December 31, 1997
------------- -----------------
(UNAUDITED)
RECEIVABLES
Trade $ 900 $1,014
Escrows 489 336
Contracts and notes 12 6
Employees and officers 56 37
Other 36 72
------ ------
1,493 1,465
Less allowance for doubtful accounts 55 55
------ ------
$1,438 $1,410
====== ======
<PAGE>
LUNDGREN BROS. CONSTRUCTION, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(UNAUDITED)
(DOLLARS IN THOUSANDS)
SELECTED FINANCIAL DATA, CONTINUED
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------- -----------------
(UNAUDITED)
<S> <C> <C>
INVENTORIES
Homes under construction $19,729 $13,808
Model homes 971 492
Lots held for sale 8,520 12,338
Land under development 3,930 --
Land held for future development 5,947 8,976
------- -------
$39,097 $35,614
======= =======
ACCRUED EXPENSES
Payroll, bonuses and payroll taxes $ 186 $ 609
Other 898 1,078
------- -------
$ 1,084 $ 1,687
======= =======
DEBT OBLIGATIONS
Construction loans on single family homes $15,572 $ 9,253
Promissory notes 2,671 6,128
Development loans 6,712 4,658
Subordinate debenture series 5,945 5,945
Street, sewer and water assessments on land
under development and lots held for sale 565 1,047
Installment loans 632 622
Unsecured demand notes payable, stockholders 49 77
------- -------
$32,146 $27,730
======= =======
</TABLE>
Supplemental disclosure of noncash transactions:
The Company acquired land for future development under promissory notes with the
sellers aggregating $305 and $1,773 in the six months ended June 30, 1998 and
1997, respectively. In addition, the Company sold $230 of land and related
research costs in exchange for a note receivable in the six months ended June
30, 1998 and $954 of land and related research costs along with related debt of
$182 in exchange for a $768 note receivable in the 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 3. RELATED PARTY TRANSACTIONS:
In May 1998, the Company sold $230 of undeveloped land and related research
costs to a Limited Liability Corporation ("LLC") related through common
ownership, in exchange for a note receivable. The note receivable is due on
demand and matures on December 31, 2000, with interest payable at 1% above the
prime rate. In May and September 1997, the Company sold $1,330 of undeveloped
land and related research costs to two LLC's, in exchange for $1,145 notes
receivable and one LLC assumed two land mortgages totaling $182. The notes
receivable are due on demand and mature in December 31, 1999 with interest
payable at 1% above the prime rate. The outstanding balance as of September 30,
1997 was $1,066. The LLC's will develop the land and the Company has option
agreements with the LLC's that gives the Company exclusive rights, but no
obligation, to purchase the developed lots under terms similar to other
agreements with non-related parties.
<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, 1998 increased $4.2 million
or 27.3% and 15.3%, respectively, from the same periods in 1997. The Company
closed on sales of 61 and 98 homes in the three and six months ended June 30,
1998, respectively, as compared to 47 and 81 closings, respectively, in the same
periods in 1997. The average selling price of homes closed in the three and six
months ended June 30, 1998 decreased by 1.3% and 5.6%, respectively, as compared
to the average selling price of homes closed in the same periods in 1997. The
decrease in average selling price is due to an increase in the number of homes
closed in the Company's new standard product lines in the three and six months
ended June 30, 1998 compared to the same period in 1997.
The Company's gross profit margin in the three months ended June 30, 1998
increased to 11.8% as compared to 10.3% for the three months ended June 30,
1997. Gross profit margins remained constant at 11.1% for the six months ended
June 30, 1998 as compared to the same period in 1997. This increase in gross
profit margin for the three months ended June 30, 1998 is primarily due to the
sale and leaseback, in 1997, of seven model homes at no profit. This increase in
gross profit margins was partially offset by fluctuations 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, 1998 increased
$217,000 and $204,000, respectively as compared to the same periods in 1996. As
a percentage of total revenues, these expenses decreased to 9.2% and 9.9%,
respectively, for the three and six months ended June 30, 1998 as compared to
10.2% and 10.6%, respectively, in 1997, as most are fixed in nature. The
operating expenses increased in 1998 due to rental fees incurred in 1998 as a
result of model home sale-leaseback transactions during 1997 and increased
advertising costs for special promotions during 1998. These increased costs were
offset by a decrease in the Company's personnel costs in 1998.
OTHER INCOME (EXPENSE), NET
Interest expense for the three months and six months ended June 30, 1998
decreased $118,000 and $152,000, respectively, or 20.0% and 11.4%, respectively,
from the same periods in 1997. This decrease is mainly due to decreased interest
costs for the Company's model homes sold as part of a sale-leaseback program.
This decrease is partially offset by increased borrowings on the Company's lines
of credit for working capital.
NET INCOME(LOSS)
Net loss in the three and six months ended June 30, 1998 was $51,000 and
$405,000, respectively, compared to $443,000 and $685,000, respectively, in the
same periods in 1997. The decreased loss is primarily due to an increase in
revenues and decrease in interest expense in 1998.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash increased $97,000 to $2.1 million in 1998 from $1.9 million in 1997.
Cash flows used in operating activities were $4.8 million for the six months
ended June 30, 1998, an increase of $1.4 million from the same period in 1997,
during which operating activities used $3.4 million of cash. During the six
months ended June 30, 1998, cash was used for a $3.9 million seasonal increase
in homes under construction; a $1.5 million increase in restricted cash; a
$603,000 decrease in accrued expenses and $197,000 related to other changes in
operating assets and liabilities. These cash uses were partially offset by $1.4
million of cash provided by increases in customer deposits.
Cash flows used in investing activities increased by $201,000 from $250,000 for
the six months ended June 30, 1997 to $451,000 for the same period in 1998. The
increase was primarily due purchases of vehicles and other construction
equipment.
Cash flows provided by financing activities increased $1.1 million to $5.4
million for the six months ended June 30, 1998 from $4.3 million in the same
period in 1997. The cash provided by financing activities for the six months
ended June 30, 1998 was primarily due to increased net borrowings on the
Company's debt obligations as a result of cash used for the seasonal increase in
homes under construction.
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. In
addition, the Company has entered into arrangements involving the sale of raw
land to other entities for which the Company has an option to subsequently
purchase back as developed lots.
The Company also utilizes secured lines of credit to finance its operations. The
Company has an approved aggregate credit of $11.7 million, subject to a
borrowing base. At June 30, 1998, the aggregate maximum credit available under
the lines of credit was $10.1 million, of which $8.1 million was utilized and
$2.0 million was available.
The Company's outstanding indebtedness as of June 30, 1998 included $18.8
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 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>
The forward-looking statements contained in this quarterly report on Form 10-Q,
including without limitations forward-looking statements contained in
Management's Discussion and Analysis, are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Certain
important factors could cause results to differ materially from those
anticipated by some statements made herein. You are cautioned that all
forward-looking statements involve risks and uncertainties. Among the factors
that could cause results to differ materially are the following: Cyclical
economic conditions; fluctuations in operating results; continuing need to
acquire land for future development; substantial leverage; reliance on financing
and no assurance of availability of credit; extensive government regulation; and
environmental factors. Reference is also made to the risk factors contained in
the Company's Registration Statement on Form S-1, as filed with the Securities
and Exchange Commission on October 18, 1996.
YEAR 2000 COMPLIANCE
The Company has and will continue to make certain investments in its software
systems and applications to ensure the Company is year 2000 compliant. Also, the
Company has and will continue to review and make changes to its facilities,
equipment and computer hardware to ensure the Company is year 2000 compliant.
The financial impact has not been and is not anticipated to be material to its
financial position or results of operations in any given year.
<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, 1998.
<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 12, 1998 By /s/Peter Pflaum
-----------------------------
Peter Pflaum
(Principal Executive Officer)
(Principal Financial Officer)
<PAGE>
LUNDGREN BROS. CONSTRUCTION, INC. EXHIBITS
10.1 Partial Assignment of Option, dated May 29, 1998, between the Company
and Plum Tree 4th LLC.
10.2 Form of Option Agreement between the Company and Plum Tree 4th LLC.
10.3 Third Amendment to Letter Agreement, dated April 29, 1998, between the
Company and U.S. Bank National Association.
10.4 Third Amendment, Extension and Reaffirmation Agreement, dated as of May
31, 1998, by and between the Company and Norwest Bank Minnesota,
National Association.
10.5 Sixth Amended and Restated Revolving Note, dated as of May 31, 1998, by
and between the Company and Norwest Bank Minnesota, National
Association
10.6 Consent and Reaffirmation of Guaranty, dated as of May 31, 1998, by
Peter Pflaum, Edmund M. Lundgren, Allan D. Lundgren, and Gerald T.
Lundgren in favor of Norwest Bank Minnesota, National Association.
10.7 Acquisition and Closing Agreement, dated as of June 9, 1998, by and
between the Company and BF Holding Company.
10.8 Form of Option Agreement between the Company and BF Holding Company.
10.9 Revolving Construction and Development Loan Agreement, dated as of July
13, 1998, by and between the Company and U.S. Bank National
Association.
10.10 Development Note, dated as of July 13, 1998, by and between the Company
and U.S. Bank National Association.
10.11 Revolving Note, dated as of July 13, 1998, by and between the Company
and U.S. Bank National Association.
27 Financial Data Schedule
EXHIBIT 10.1
PARTIAL ASSIGNMENT OF OPTION
(PLUM TREE 4TH ADDITION)
THIS PARTIAL ASSIGNMENT OF OPTION ("ASSIGNMENT") is entered into
effective as of ____________, 1998, by and between Lundgren Bros. Construction,
Inc., a Minnesota corporation ("LUNDGREN") and Plum Tree 4th 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. Lundgren and Chanhassen Center Partnership ("CCP") have previously entered
into that certain Option Agreement dated February 1, 1993 (the "INITIAL
OPTION AGREEMENT") for certain real property described therein and
situated in the City of Plymouth, Minnesota (the "OPTION PROPERTY").
B. The Initial Option Agreement has been previously amended by that certain
First Amendment to Purchase [SIC] Agreement, signed by CCP on March 29,
1994 and signed by Lundgren on March 25, 1994; by that certain Second
Amendment to Option Agreement signed by CCP on May 3, 1994 and signed by
Lundgren on May 2, 1994; by that certain Third Amendment to Option
Agreement dated as of March 22, 1995; by that certain Fourth Amendment to
Option Agreement dated as of September 30, 1995; by that certain Fifth
Amendment to Option Agreement dated as of August 26, 1996; by that certain
Sixth Amendment to Option Agreement dated as of June 1, 1997, and by that
certain Seventh Amendment to Option Agreement of even date herewith (the
Initial Option Agreement as amended is referred to herein as the "OPTION
AGREEMENT").
C. Lundgren desires to assign to LLC its rights under the Option Agreement
with respect to that portion of the Option Property described in attached
EXHIBIT A ("4TH ADDITION PROPERTY") which is being platted as Plum Tree
4th Addition. LLC desires to acquire the 4th Addition Property pursuant to
the Option Agreement.
THEREFORE, in consideration of LLC's assumption of Lundgren's Option
Agreement obligations with respect to the 4th Addition 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. DEFINITIONS. Except as expressly provided herein, words and phrases in
this Assignment have the same meanings as defined in the Option
Agreement.
2. ASSIGNMENT. Lundgren hereby transfers and assigns to LLC all of
Lundgren's right, title and interest in and to all of the following:
2.1. OPTION TO PURCHASE THE 4TH ADDITION PROPERTY. All of
Lundgren's rights under the Option Agreement with respect to
the 4th Addition Property, including, without limitation,
the right to purchase the 4th Addition Property from CCP and
any representations and warranties of CCP under the Option
Agreement and the documents delivered pursuant thereto
pertaining to the 4th Addition Property. The
<PAGE>
assignment under this Subsection is expressly limited to the
4th Addition Property and Lundgren retains all rights under
the Option Agreement with respect to the remainder of the
Option Property.
2.2. WORK PRODUCT. All drawings, plats, plans, reports, studies,
appraisals, analyses an other documents or data pertaining
to the 4th Addition Property and/or the development of the
4th Addition 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.
2.3. CONSULTANT AGREEMENTS. All agreements with third party
consultants engaged by or on behalf of Lundgren to produce
or provide Work Product pertaining to the 4th Addition
Property ("CONSULTANT AGREEMENTS").
2.4. 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 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 4th Addition 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.
3. ASSUMPTION. LLC assumes all of Lundgren's executory obligations with
respect to the 4th Addition Property under the Option Agreement, the
Consultant Agreements and the Property Approvals, as of the effective
date of this Assignment; provided, however, that Lundgren remains
responsible for payment of all amounts due all third parties, whether
pursuant to Consultant Agreements or otherwise, incurred prior to the
date of this Assignment for Work Product and grading, utility
installations or other improvements to the Property ("WORK IN
PROCESS"). Notwithstanding the immediately preceding sentence, LLC
shall pay for any Work in Process which is included on the Sworn Cost
Statement approved by Builders Development & Finance, Inc. as a part
of LLC's acquisition and development loan for the 4th Addition
Property. Subject to LLC's limited obligation to pay for Work in
Process funded through its development loan, 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. Lundgren remains responsible for all of Lundgren's
executory obligations under the Option Agreement with respect to the
remainder of the Option Property.
4. ACKNOWLEDGMENT. The Parties agree that, as of June 1, 1998, the Option
Purchase Price of the 4th Addition Property is $667,897.10, calculated
at the rate of $25,688.35 per residential Lot. The Option Purchase
Price of the 4th Addition Property is inclusive of all accrued and
unpaid Monthly Holding Fees attributable to the 4th Addition Property
through May 31, 1998. Although LLC is acquiring the Option and paying
the Option
<PAGE>
Purchase Price for the 4th Addition Property, the Parties acknowledge
that CCP will only deed the 4th Addition Property to Lundgren.
Lundgren agrees to accept title to the 4th Addition Property from CCP
and concurrently convey the same to LLC for no additional
consideration beyond the consideration provided herein for assignment
of Lundgren's 4th Addition Property Option rights.
5. ASSIGNMENT CONSIDERATION. LLC shall pay Lundgren $229,771 in
consideration of the assignment of Lundgren's Option rights in the 4th
Addition Property, which payment shall be in the form of LLC's
promissory note, bearing interest at the rate of 1% over prime,
secured by a fourth mortgage on the 4th Addition residential lots
(subordinate to $425,000 first and $1,340,000 second mortgages in
favor of the development loan lender and the $670,000 "Shared Costs"
third mortgage in favor of BF Holding Company. At the closing LLC
shall execute a Modification of the Shared Costs mortgage to include
the 4th Addition residential lots as additional collateral for the
Shared Costs loan.
6. LUNDGREN'S REPRESENTATIONS AND WARRANTIES. Except for those matters
disclosed in the Option Agreement and in the Work Product, Lundgren
represents and warrants to LLC as follows:
6.1. PROPERTY AGREEMENTS AND APPROVALS. The Option Agreement,
Consultant Agreements and Property Approvals are currently
in full force and effect; Lundgren is not in default in
performing Lundgren's obligations under the Option
Agreement, the Consultant Agreements or the Property
Approvals; Lundgren is not aware of any default in
performance of CCP's or consultants' obligations under the
Option Agreement and Consultant Agreements; and Lundgren has
not previously assigned, sold, pledged, mortgaged or
otherwise transferred Lundgren's interest in the Option
Agreement, the Consultant Agreements or the Property
Approvals.
6.2. LITIGATION. Lundgren does not have knowledge of any
litigation, investigation, condemnation or legal proceedings
of any kind which are threatened or pending against the 4th
Addition Property or which pertain to or may affect the 4th
Addition Property.
6.3. 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:
6.3.1. The 4th Addition Property does not violate any
federal, state or local statute, regulation or
ordinance dealing with environmental protection or
hazardous waste;
6.3.2. The 4th Addition Property's soil and water table
are free and clear of any and all contaminants,
including hazardous waste;
6.3.3. The 4th Addition Property has not been used for
the storage or disposal of any hazardous waste;
and
<PAGE>
6.3.4. Lundgren has received no notice from any
governmental authority concerning the removal of
hazardous waste from the 4th Addition Property.
6.4. STORAGE TANKS. Lundgren knows of no underground or
aboveground storage tanks that now exist or ever existed on
any portion of the 4th Addition Property.
6.5. WELLS; PRIVATE SEWER SYSTEMS. Lundgren does not know of any
well(s) or private sewer system(s) on the 4th Addition
Property.
6.6. 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 Assignment.
6.7. NO THIRD PARTY BENEFICIARIES. Lundgren's representations,
warranties and indemnities made and given to LLC pursuant to
Section 6 or elsewhere in this Assignment are for the
exclusive benefit of LLC and no other person, and neither
CCP nor any other person shall be deemed a "third party
beneficiary" of any such representations, warranties or
indemnities made or given by Lundgren to LLC hereunder.
7. NOTICE. Any notice or other communication under this Agreement shall
be in writing, addressed to Lundgren at the address specified for
notices in the Option Agreement and to LLC at its 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 (4th business
day after mailing. A Party may change its address under this section
by giving notice to the other Party.
8. NO BROKERS. Each Party warrants to the other Parties that it 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 person. Each party agrees to indemnify,
defend and hold harmless the other Parties 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
Assignment or the transaction contemplated herein. Lundgren hereby
discloses that Lundgren is a licensed real estate broker and is
assigning its option in the 4th Addition Property for Lundgren's own
account.
9. MISCELLANEOUS.
9.1. LUNDGREN'S FILES AND RECORDS. Lundgren's files and records
relating to the 4th Addition Property shall be made
available to LLC at reasonable times for inspection and
copying by LLC at LLC's sole cost and expense.
<PAGE>
9.2. AMENDMENT. This Assignment 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 Assignment is
invalid or unenforceable, the remainder of this Assignment
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 Assignment 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 Parties in or pursuant to this
Assignment or the Option Agreement shall survive this
partial assignment of the Option Agreement and conveyance of
the 4th Addition Property 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.
9.5. SUCCESSORS; NO ASSIGNMENT. This Assignment shall be binding
upon and inure to the benefit of the Parties, and their
respective successors and assigns, subject to the
restrictions on assignment contained in the Option
Agreement.
9.6. ATTORNEYS' FEES. If any Party defaults under this
Assignment, the defaulting Party shall be responsible for
all reasonable expenses (including attorneys' fees) incurred
by the other Parties in enforcing any rights and remedies
under this Assignment.
9.7. HOLD HARMLESS. LLC shall indemnify and hold Lundgren
harmless from any and all claims arising from third parties
as a result of LLC's acts or omissions. Lundgren shall
indemnify and hold LLC harmless from any and all claims
arising from third parties as a result of Lundgren's acts or
omissions.
9.8. AUTHORITY TO CONTRACT. The Parties represent to each other
that the execution and delivery of this Assignment 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 Assignment the
valid and binding obligation upon each of the Parties
hereto.
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Assignment
effective as of the date first written above.
LLC: LUNDGREN:
PLUM TREE 4TH LLC LUNDGREN BROS. CONSTRUCTION, INC.
By By
----------------------------------- -----------------------------------
Its Its
-------------------------------- --------------------------------
EXHIBITS:
A Legal Description of the 4th Addition Property
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION OF 4TH ADDITION PROPERTY
That certain real property located in the City of Plymouth, Hennepin
County, Minnesota, described as follows:
Lots 1 through 5, Block 1;
Lots 1 through 8, Block 2;
Lots 1 through 11, Block 3;
Lots 1 and 2, Block 4; and
Outlots A and B; PLUM TREE 4TH ADDITION,
according to the plat thereof on file and of record in the offices
of the Registrar of Titles and the County Recorder for
Hennepin County, Minnesota.
EXHIBIT 10.2
PLUM TREE 4TH ADDITION
OPTION AGREEMENT
1. DEFINITIONS.
1.1. DEFINITIONS OF PERSONS.
1.1.1. "SELLER" means Plum Tree 4th LLC, a Minnesota limited
liability company.
1.1.2. "BUYER" means Lundgren Bros. Construction, Inc., a
Minnesota corporation.
1.1.3. "CCP" means Chanhassen Center Partnership, a
Minnesota general partnership.
1.1.4. "CITY" means the City of Plymouth, a Minnesota
municipal corporation.
1.1.5. "COUNTY" means Hennepin County, Minnesota.
1.1.6. "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 Option Agreement
dated February 1, 1993, between Buyer and CCP, as
amended by the First Amendment dated March 25/29,
1994; the Second Amendment dated May 2/3, 1994; the
Third Amendment dated as of March 22, 1995; the
Fourth Amendment dated as of September 30, 1995; the
Fifth Amendment dated as of August 26, 1996; the
Sixth Amendment dated as of June 1, 1997, and the
Seventh Amendment dated as of May 29, 1998.
1.3.2. "ACQUISITION ASSIGNMENT" means the Partial Assignment
of Option dated as of May 29, 1998, between Seller
and Buyer, whereby Buyer assigned to Seller Buyer's
right to acquire the Property pursuant to the
Acquisition Agreement.
1.3.3. "AGREEMENT" means this Option Agreement.
1.3.4. "AGREEMENT DATE" means May 29, 1998.
1.3.5. "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
<PAGE>
remaining Lots for which Closings have not occurred
shall be recalculated as provided in Section 3.
1.3.6. "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.
1.3.7. "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.
1.3.8. "CLOSING DATE" means the date on which the Closing of
each Lot occurs.
1.3.9. "DEVELOPMENT MANAGEMENT SERVICES" means the services
to be performed by Buyer pursuant to Section 5 of
this Agreement.
1.3.10. "OPTION PERIOD(S)" are set forth in Section 2.2.
1.3.11. "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 fees or 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. Except as
otherwise expressly provided in this Agreement, 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.
1.3.12. "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.
1.3.13. "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.
1.3.14. "PURCHASE PRICE" means the purchase price of each Lot
determined in accordance with 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
<PAGE>
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, 1998, in the initial amount of $20,000.00
per month, subject to adjustment periodically in accordance
with actual operating results. The Monthly Option Fee payments
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 at 6 p.m. on March 1, 1999. In order to
extend the Option into the Second Option Period,
Buyer must Close on at least 7 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 at 6 p.m. on November 30, 1999. In
order to extend the Option into the Final Option
Period, Buyer must have Closed on at least a combined
20 of the Lots ("SECOND TAKEDOWN") before the Second
Option Period expires.
2.2.3. FINAL OPTION PERIOD; FINAL TAKEDOWN. If Buyer Closes
on the Second Takedown before the Second Option
Period expires, the "FINAL OPTION PERIOD" shall
commence when the Second Option Period expires and
shall expire at 6 p.m. on May 31, 2000.
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
<PAGE>
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.
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. CALCULATION OF 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 Parties shall in good faith
update the Project Proforma quarterly and at such more frequent
intervals as the parties deem necessary or appropriate to reflect
actual Project Costs and results of operations. Any material changes
<PAGE>
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, 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 (i) filing any approved
final plat of the Property, (ii) processing and diligently attempting
to obtain any required zoning, rezoning or planned unit development
approvals, development agreements 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 (iv) coordinating and supervising all
construction activities. 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. Buyer may appoint one-half
of the members of the architectural committees of the associations.
Buyer agrees that its right to appoint architectural committee
representatives pursuant to this section shall expire concurrently with
the termination of Buyer's right to purchase the Property pursuant to
this Agreement, whether as a result of expiration of the Option Period,
Buyer's default or otherwise. Effective upon the expiration or
termination of Buyer's purchase rights under this Agreement, Buyer, on
behalf of itself and its appointed Committee members, hereby resigns
all positions on the association committees and agrees that the
vacancies thereby created may be filled by Seller.
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. 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.
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 Project 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,
provided that all invoices for Project Costs must first be
approved by Buyer. 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
<PAGE>
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.
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. 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;
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 CCP 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
<PAGE>
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 the title objections, said
proceedings to be at Seller's sole expense
(which expense shall not be included in the
Project Costs); 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
<PAGE>
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 in
Buyer's possession ("REPORTS"), 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 investigated it prior to assigning to Seller
Buyer's right to purchase the Property from CCP. 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 the Reports and documents pertaining
to the Property, 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
<PAGE>
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.
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,
<PAGE>
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;
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
(which amounts are includable in Seller's Project
Costs).
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 Costs)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, including deferred taxes which are payable
at or after Closing.
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.
<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.
12. SELLER'S REPRESENTATIONS AND WARRANTIES. Subject to those matters
disclosed in the Acquisition Agreement, the closing documents delivered
pursuant to the Acquisition Agreement, and the Reports, 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 SUBSTANCES. 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 Substance (as defined in
Section 9.4); and
12.2.2. NO NOTICE OF CONTAMINATION. Seller has received no
notice from any governmental authority concerning the
removal of Hazardous Substances from the Property.
12.3. STORAGE TANKS. Except as disclosed to Seller by CCP at the
time Seller acquired the Property from CCP, 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 CCP at the time Seller
acquired the Property from CCP, 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 CCP at the time Seller acquired the Property from
CCP, 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 ASSIGNMENT WARRANTIES. Nothing in this
Agreement shall be deemed to amend or supersede Buyer's
representations and warranties to Seller
<PAGE>
contained in the Acquisition Assignment, 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 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. 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 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.
<PAGE>
17.1.2. 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 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.
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
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.
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
<PAGE>
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 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.
18.10. 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 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.
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.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the Agreement Date.
SELLER: BUYER:
PLUM TREE 4TH 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
That certain real property located in the City of Plymouth, Hennepin
County, Minnesota, described as follows:
Lots 1 through 5, Block 1;
Lots 1 through 8, Block 2;
Lots 1 through 11, Block 3;
Lots 1 and 2, Block 4; and
Outlots A and B; PLUM TREE 4TH ADDITION,
according to the plat thereof on file and of record in the offices
of the Registrar of Titles and the County Recorder for
Hennepin County, Minnesota.
<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)
PLUM TREE 4TH ADDITION
MEMORANDUM OF OPTION FOR PURCHASE OF REAL PROPERTY
This Memorandum of Option Agreement ("MEMORANDUM") is made as of May
29, 1998, by PLUM TREE 4TH 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 May 29, 1998 ("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 at 6 p.m. on March
1, 1999; provided that the Option may be extended to and including 6 p.m. May
31, 2000, 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 Agreement were fully set forth herein. This Memorandum
shall not be deemed to supplement,
<PAGE>
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 $425,000 and
$1,340,000, respectively, executed by Seller to Builders Development & Finance,
Inc., a Third Mortgage in the amount of $670,000 executed by Seller to B F
Holding Company, and a Fourth Mortgage in the amount of $229,771 executed by
Seller to Buyer, all of which are recorded concurrently with this Memorandum.
The parties have executed this Memorandum effective as of __________,
1998.
SELLER: BUYER:
PLUM TREE 4TH LLC LUNDGREN BROS. CONSTRUCTION, INC.
By By
----------------------------------- -----------------------------------
Its Its
-------------------------------- --------------------------------
THIS INSTRUMENT WAS DRAFTED BY:
LEONARD, STREET AND DEINARD P.A. (DGB)
150 South Fifth Street, Suite 2300
Minneapolis, MN 55402
(612) 335-1888
STATE OF MINNESOTA )
) ss
COUNTY OF _________ )
The foregoing instrument was acknowledged before me this ___ day of
___________, 1998, by ___________________, the _________________ of PLUM TREE
4TH LLC, a Minnesota limited liability company, on behalf of the company.
----------------------------------------
Notary Public
<PAGE>
STATE OF MINNESOTA )
) ss
COUNTY OF HENNEPIN )
The foregoing instrument was acknowledged before me this ____ day of
___________, 1998 by ______________________, the ____________________ of
LUNDGREN BROS. CONSTRUCTION, INC., a Minnesota corporation, on behalf of the
corporation.
----------------------------------------
Notary Public
<PAGE>
EXHIBIT "1"
TO MEMORANDUM OF OPTION
LEGAL DESCRIPTION OF PROPERTY
That certain real property located in the City of Plymouth, Hennepin
County, Minnesota, described as follows:
Lots 1 through 5, Block 1;
Lots 1 through 8, Block 2;
Lots 1 through 11, Block 3;
Lots 1 and 2, Block 4;
and Outlots A and B; PLUM TREE 4TH ADDITION,
according to the plat thereof on file and of record in the offices
of the Registrar of Titles and the County Recorder for
Hennepin County, Minnesota.
EXHIBIT 10.3
April 29, 1998
To: Lundgren Bros. Construction, Inc.
935 East Wayzata Boulevard
Wayzata, Minnesota 55391
THIRD AMENDMENT
TO LETTER AGREEMENT
Ladies and Gentlemen:
This third amendment to letter agreement (the "Amendment") is being
executed in order to amend certain of the terms and conditions contained in that
certain letter agreement dated March 21, 1996, as previously amended by
Amendment to Letter Agreement dated March 21, 1997, and by Second Amendment to
Letter Agreement dated March 21, 1998 (hereinafter referred to as the "Letter
Agreement") between Lundgren Bros. Construction, Inc., a Minnesota corporation
(the "Borrower"), and U.S. Bank National Association, a national banking
association, formerly known as First Bank National Association (the "Bank"). In
consideration of the mutual agreements set forth herein, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged by the parties, the Borrower and the Bank agree to further amend
the Letter Agreement as follows:
(a) Paragraph 1 of the Letter Agreement, as previously amended, is
hereby deleted in its entirety and the following paragraph
inserted in lieu thereof effective as of April 29, 1998:
"1. Subject to the provisions of this letter
agreement, at the Borrower's request, the Bank shall
make loans to the Borrower (a) during the period from
the date of this letter agreement to August 31, 1998
in an aggregate amount not exceeding $2,300,000.00 at
any time outstanding, and (b) during the period from
September 1, 1998 to May 31, 1999 in an aggregate
amount not exceeding $1,500,000.00 at any time
outstanding (the "Line of Credit"). The Line of
Credit is a revolving line of credit, and the
Borrower may borrow, prepay and reborrow under the
Line of Credit. The Borrower's obligation to repay
such loans and to pay interest and other charges,
fees and expenses thereon is evidenced by the
Borrower's Third Amendment and Restatement of
Promissory Note dated April 29, 1998, payable to the
order of the Bank in the principal amount of
$2,300,000.00 (together with any additional
amendments, extensions, renewals and replacements
thereof, called the "Revolving Note"). The Bank shall
have no obligation to make any such loan after the
occurrence
<PAGE>
of any default or event of default under the
Revolving Note or any other agreement of the Borrower
with the Bank, or any other event that would
accelerate or allow the Bank to accelerate payment of
the Revolving Note. The Borrower shall use all
proceeds of such loans solely for working capital of
the Borrower."
(b) Paragraph 4(a) of the Letter Agreement is hereby deleted in
its entirety and the following paragraph inserted in lieu
thereof effective as of April 29, 1998:
"`Borrowing Base' shall mean:
(a) during the period from April 29, 1998
through August 31, 1998, the sum of (i)
$1,100,000.00, plus (ii) the aggregate fair
market value of the Borrower's investments
which the Bank, in its sole discretion,
shall deem acceptable, and in which the Bank
shall have a perfected security interest
constituting a first lien in form and
substance acceptable to the Bank; and
(b) during the period from September 1, 1998
through May 31, 1999, the sum of (i)
$300,000.00, plus (ii) the aggregate fair
market value of the Borrower's investments
which the Bank, in its sole discretion,
shall deem acceptable, and in which the Bank
shall have a perfected security interest
constituting a first lien in form and
substance acceptable to the Bank."
(c) Exhibit A attached to the Letter Agreement is hereby deleted
in its entirety and replaced with Exhibit A attached hereto
and made a part hereof.
(d) Except as herein expressly modified, all of the terms and
conditions of the Letter Agreement shall remain in full force
and effect.
Sincerely,
U.S. BANK NATIONAL ASSOCIATION,
a national banking association, formerly known as
First Bank National Association
By:
----------------------------------------------
Its:
---------------------------------------------
<PAGE>
Lundgren Bros. Construction, Inc. agrees to this Third Amendment to
Letter Agreement.
Executed as of April 29, 1998.
LUNDGREN BROS. CONSTRUCTION, INC.,
a Minnesota corporation
By:
---------------------------------------
Its:
--------------------------------------
<PAGE>
EXHIBIT A
LUNDGREN BROS. CONSTRUCTION, INC.
BORROWER'S CERTIFICATE
I, _______________________, the chief financial officer of Lundgren
Bros. Construction, Inc., a Minnesota corporation (the "Borrower"), pursuant to
the letter agreement dated March 21, 1996, as modified by amendments to letter
agreement dated March 21, 1997, March 21, 1998 and April 29, 1998, respectively
(collectively, the "Agreement"), hereby certify to U.S. Bank National
Association, formerly known as First Bank National Association (the "Bank"):
1. As of the close of business on ____________, 199___ (the most
recent Determination Date), the aggregate fair market value of
the Borrower's investments in account number 000303451 at FBS
Investment Services, Inc. was $_______________.
2. As of the date of this Certificate, no event has occurred
which constitutes a default or an event of default under the
Revolving Note (as defined in the Agreement), or an event that
would accelerate or allow the Bank to accelerate payment of
the Revolving Note, or would constitute any default or event
of default under the Revolving Note with notice or the passage
of time or both.
Date of Certificate: __________________, 19_____
----------------------------------------
Signature
EXHIBIT 10.4
THIRD AMENDMENT, EXTENSION
AND REAFFIRMATION AGREEMENT
This Agreement, is effective as of the 31st day of May, 1998, by and among
Lundgren Bros. Construction, Inc., a Minnesota corporation ("Borrower"), Peter
Pflaum, Edmund M. Lundgren, Allan D. Lundgren, and Gerald T. Lundgren
(collectively, the "Guarantors") and Norwest Bank Minnesota, National
Association, a national banking association ("Lender").
RECITALS
WHEREAS, Borrower and Lender entered into that certain Amended and Restated
Demand Discretionary Revolving Credit Agreement dated as of March 18, 1994 (the
"Original Credit Agreement"), concerning the extension by the Lender to the
Borrower of a $2,200,000 Revolving Line of Credit (the "Revolving Credit
Facility"); and
WHEREAS, Borrower and Lender subsequently entered into that certain Amendment,
Extension and Reaffirmation Agreement dated as of March 14, 1995 (the "First
Amendment"), pursuant to which the Lender increased the maximum amount available
at any one time under the Revolving Credit Facility from $2,200,000 to
$3,500,000.
WHEREAS, Borrower and Lender subsequently entered into that certain Second
Amendment, Extension and Reaffirmation Agreement dated as of February 24, 1997
(the "Second Amendment"), pursuant to which the Lender increased the maximum
amount available at any one time under the Revolving Credit Facility from
$3,500,000 to $4,250,000. The Original Credit Agreement, the First Amendment and
the Second Amendment shall hereinafter collectively be referred to as the
"Credit Agreement".
WHEREAS, the obligation of the Borrower to repay advances under the Credit
Agreement is evidenced by a certain Fifth Amended and Restated Revolving Note
dated February 24, 1997, executed by the Borrower in the original principal
amount of $4,250,000 and payable to the order of the Lender (the "Fifth Amended
Note"); and
WHEREAS, in consideration of the increase in the Revolving Credit Facility
pursuant to the First Amendment, the Borrower granted the Lender additional
collateral pursuant to a Third Life Insurance Assignment and the Guarantor Life
Insurance Assignments (as those terms are defined in the First Amendment).
WHEREAS, the obligations of the Borrower under and pursuant to the Fifth Amended
Note and the Credit Agreement are secured by, among other things, the First Life
Insurance Assignment, the Second Life Insurance Assignment; the Third Life
Insurance Assignment and the Guarantor Life Insurance Assignments (all as
defined in the First Amendment).
WHEREAS, payment and performance of the obligations of the Borrower under and
pursuant to the Fifth Amended Note and the Credit Agreement have, among other
things, been jointly and
<PAGE>
severally guaranteed by the Guarantors and Patrick C. Wells pursuant to that
certain Guaranty dated as of November 5, 1990, executed by the Guarantors and
delivered to the Lender (the "Guaranty"); and
WHEREAS, the Borrower has requested that the Lender increase the maximum amount
available at any one time under the Revolving Credit Facility from $4,250,000.00
to $4,750,000.00.
WHEREAS, the Lender is willing to do so on the terms and subject to the
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing Recitals, which are hereby
made a part hereof, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto do hereby
agree as follows:
1. Revolving Credit Facility. Section 1 of the Credit Agreement is hereby
deleted in its entirety and the following should be substituted therefor:
Subject to and upon the terms, covenants and conditions hereinafter set
forth, the Lender hereby agrees to make loans to the Borrower under
this Section 1 from time to time until and including May 31, 1999 (and
thereafter until and including May 31 of each succeeding calendar year
if the line of credit is extended in writing by the Lender and the
Borrower for an additional one (1) year period(s) pursuant to Section
13.J. herein) (such date hereinafter referred to as the "Expiration
Date"), at such time and in such amount as to each loan as the Borrower
shall request, up to but not exceeding in aggregate principal amount at
any one time outstanding the lesser of (i) the sum of Four Million
Seven Hundred Fifty Thousand and 00/100 Dollars ($4,750,000.00) or (ii)
the sum of $500,000 plus the "Aggregate Net Cash Surrender Value"
("Maximum Loan Amount"). For purposes hereof, the term "Aggregate Net
Cash Surrender Value" shall mean the aggregate net cash surrender value
of the "Assigned Policies" (as defined in Section 6.A. of this Credit
Agreement) after payment of all policy loans, as confirmed in writing
by the respective issuers of the Assigned Policies in form acceptable
to the Lender in its discretion. Such advances shall be used for
working capital needs, including but not limited to work in progress,
payroll, general and administrative expenses and expenses incurred in
connection with land purchases. So long as no demand for payment has
been made, and so long as the Borrower has otherwise complied with the
terms and conditions hereof, the Borrower may borrow, repay and
reborrow within such limit under this Section 1 from the date hereof to
and including the Expiration Date. The line of credit described above
is hereinafter referred to as the "Revolving Credit Facility."
2. New Revolving Note. The Borrower has executed and delivered to the Lender
that certain Sixth Amended and Restated Revolving Note of even date herewith in
the original principal
<PAGE>
amount of $4,750,000 made payable to the order of the Lender (the "New Revolving
Note"). The Borrower and Guarantors acknowledge and agree that the New Revolving
Note is a complete restatement and amendment of the Fifth Amended Note and
supersedes the Fifth Amended Note in its entirety. Borrower acknowledges and
agrees that any and all references contained in the Credit Agreement, the First
Life Insurance Assignment, the Second Life Insurance Assignment, the Third Life
Insurance Assignment, the Guarantor Life Insurance Assignments or any other
document or agreement executed in connection therewith to the term "Note" or
"Revolving Note" shall henceforth mean and refer to the New Revolving Note.
Borrower fully acknowledges and agrees that any indebtedness of the Borrower to
the Lender pursuant to the New Revolving Note shall be secured by, among other
things, the First Life Insurance Assignment, the Second Life Insurance
Assignment, the Third Life Insurance Assignment and the Guarantor Life Insurance
Assignments. Upon execution of this Agreement and the New Revolving Note, the
Lender shall return the Fifth Amended Note to the Borrower.
3. Outstanding Balance. Borrower acknowledges that the unpaid principal balance
of the New Revolving Note as of the effective date hereof is $_________________.
4. Representations. The Borrower and the Guarantors each hereby warrant and
represent to the Lender that each and all of the representations and warranties
set forth and contained in the Credit Agreement, the Guaranty, the First Life
Insurance Assignment, the Second Life Insurance Assignment, the Third Life
Insurance Assignment, the Guarantor Life Insurance Assignments, and the
documents and agreements related hereto or thereto are true, correct and
complete in all respects as of the date hereof. The Borrower hereby supplements
the representations set forth in Section 8.D. of the Credit Agreement as
described on EXHIBIT A attached hereto and incorporated herein.
5. No Waiver. The Borrower and the Guarantors each hereby acknowledge and agree
that by executing and delivering this Agreement the Lender is not waiving any
existing default, whether known or unknown, nor is the Lender waiving any of its
rights or remedies under the Credit Agreement, the New Revolving Note, the First
Life Insurance Assignment, the Second Life Insurance Assignment, the Third Life
Insurance Assignment, the Guarantor Life Insurance Assignments and the Guaranty,
or any of the documents related to or executed in connection with the Revolving
Credit Facility.
6. Costs and Expenses. In accordance with Section 13.B. of the Credit Agreement,
the Borrower shall pay all reasonable costs and expenses, including reasonable
attorneys' fees, incurred by the Lender in connection with the preparation of
this Agreement and the New Revolving Note and any documents relating thereto.
7. No Set-Off. The Borrower hereby acknowledges to and agrees with the Lender
that no events, conditions or circumstances have arisen or exist as of the date
hereof which would give the Borrower the right to assert a defense, counterclaim
and/or setoff to any claim by the Lender for payments of amounts owing under the
Fifth Amended Note, the New Revolving Note, the Credit Agreement, the First Life
Insurance Assignment, the Second Life Insurance Assignment, the Third Life
Insurance Assignment, the Guarantor Life Insurance Assignments or any of the
<PAGE>
documents related thereto. Any defense, right of set off or counterclaim which
might otherwise be available to Borrower is hereby fully and finally waived and
released in all respects in consideration of the Lender's agreement to increase
the amount available to the Borrower pursuant to the Revolving Credit Facility
as set forth herein; provided, however, that the release shall not apply to any
possible errors by the Lender involving strict mathematical calculation of
principal and/or interest due from time to time under the Fifth Amended Note or
the New Revolving Note.
8. Consent of Guarantors. The Guarantors hereby consent to each and all of the
provisions of this Agreement. Guarantors further acknowledge and agree that the
Guaranty shall be and is hereby amended to provide that all references contained
in the Guaranty to the term "Note" shall henceforth refer to the New Revolving
Note.
9. Acknowledgment of Guarantors. Each of the Guarantors hereby acknowledges and
agrees that the Guaranty and the Guarantor Life Insurance Assignment executed by
him and delivered to the Lender remain fully enforceable and in full force and
effect in accordance with their original terms, except as expressly amended
hereby, and are not subject to any defense, counterclaim or right of set-off.
10. Demand Feature. The Borrower and the Guarantors each hereby acknowledge that
the New Revolving Note continues to be due and payable in full ON DEMAND, and
this Agreement shall not in any way constitute or be deemed to constitute an
amendment, modification or limitation of such provision.
11. No Other Amendments. Except as expressly amended hereby, the Credit
Agreement, the First Life Insurance Assignment, the Second Life Insurance
Assignment, the Third Life Insurance Assignment, the Guarantor Life Insurance
Assignments, the Guaranty and all documents and agreements executed in
connection therewith or otherwise related thereto shall remain in full force and
effect in accordance with their original terms, and no course of dealing or
other action or statement of the Lender or any of its officers, directors,
agents, employees, legal counsel or other representatives shall amend, or be
deemed an amendment of, this Agreement, the Credit Agreement, the Fifth Amended
Note, the New Revolving Note, the First Life Insurance Assignment, the Second
Life Insurance Assignment, the Third Life Insurance Assignment, the Guaranty,
the Guarantor Life Insurance Assignments or any of the documents or agreements
related thereto or hereto (collectively, the "Loan Documents").
12. Merger. All prior oral and written communications, commitments, alleged
commitments, promises, alleged promises, agreements and alleged agreements by or
among the Lender, the Borrower and/or the Guarantors are hereby merged into the
Loan Documents. All commitments, promises and agreements of the parties hereto
are set forth in the Loan Documents and no other commitments, promises or
agreements, oral or written, of any of the parties hereto shall be enforceable
against any such party.
13. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Minnesota.
<PAGE>
14. Successors. This Agreement shall be binding upon and inure to the benefit of
the respective heirs, successors or assigns of the parties hereto; provided,
however, that any right the Borrower may have, as set forth in the Credit
Agreement, to obtain advances under the Revolving Credit Facility is not
assignable.
15. Counterparts. This Agreement may be executed in counterparts, each of which
shall be deemed an original but all of which, taken together, shall constitute
one and the same instrument.
16. Value of Assigned Policies. Borrower agrees that it shall give notice to the
Lender in writing at least ten (10) days prior to any decrease in the Aggregate
Net Cash Surrender Value of the Assigned Policies (as those terms are defined in
the Loan Agreement).
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
LENDER:
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By
-----------------------------------
Its Vice President
BORROWER:
LUNDGREN BROS. CONSTRUCTION,
INC.
By
-----------------------------------
Its
<PAGE>
GUARANTORS:
-------------------------------------
Peter Pflaum
-------------------------------------
Edmund M. Lundgren
-------------------------------------
Allan D. Lundgren
-------------------------------------
Gerald T. Lundgren
STATE OF MINNESOTA )
) ss.
COUNTY OF )
The foregoing instrument was acknowledged before me this ______ day of
___________, 1998, by ________________________________, the Vice President of
Norwest Bank Minnesota, National Association, a national banking association,
for and on behalf of said association.
--------------------------------------
Notary Public
STATE OF MINNESOTA )
) ss.
COUNTY OF )
The foregoing instrument was acknowledged before me this ______ day of
___________, 1998, by Peter Pflaum, the President of Lundgren Bros.
Construction, Inc., a Minnesota corporation, for and on behalf of said
corporation.
--------------------------------------
Notary Public
<PAGE>
STATE OF )
) ss.
COUNTY OF )
The foregoing instrument was acknowledged before me this ______ day of
____________, 1998, by Peter Pflaum.
--------------------------------------
Notary Public
STATE OF )
) ss.
COUNTY OF )
The foregoing instrument was acknowledged before me this ______ day of
____________, 1998, by Edmund M. Lundgren.
--------------------------------------
Notary Public
STATE OF )
) ss.
COUNTY OF )
The foregoing instrument was acknowledged before me this ______ day of
____________, 1998, by Allan D. Lundgren.
--------------------------------------
Notary Public
STATE OF )
) ss.
COUNTY OF )
The foregoing instrument was acknowledged before me this ______ day of
____________, 1998, by Gerald T. Lundgren.
--------------------------------------
Notary Public
<PAGE>
THIS INSTRUMENT WAS DRAFTED BY:
Winthrop & Weinstine, P.A.
ATTN: Thomas M. Hart (Atty #41816)
3200 Minnesota World Trade Center
30 East Seventh Street
St. Paul, Minnesota 55101
<PAGE>
EXHIBIT A
(Supplemental Disclosure of Pending Litigation)
EXHIBIT 10.5
SIXTH AMENDED AND RESTATED
REVOLVING NOTE
(DEMAND)
$4,750,000.00 Minneapolis, Minnesota
May 31, 1998
1. FOR VALUE RECEIVED, LUNDGREN BROS. CONSTRUCTION, INC., a Minnesota
corporation ("Borrower"), hereby promises to pay to the order of NORWEST BANK
MINNESOTA, NATIONAL ASSOCIATION, a national banking association ("Lender"), at
its banking house located at 425 East Hennepin Avenue, Minneapolis, Minnesota,
ON DEMAND the principal sum of FOUR MILLION SEVEN HUNDRED FIFTY THOUSAND AND
00/100 DOLLARS ($4,750,000.00), or so much thereof as may be advanced by the
Lender to or for the benefit of the Borrower pursuant to that certain Amended
and Restated Demand Discretionary Revolving Credit Agreement dated March 18,
1994 by and between the Borrower and the Lender ("Credit Agreement"), as amended
by that certain Amendment, Extension and Reaffirmation Agreement of even date
herewith by and among the Lender, the Borrower and the Guarantors (the "First
Amendment") and as amended by that certain Second Amendment, Extension and
Reaffirmation Agreement dated February 24, 1997 by and among the Lender, the
Borrower and the Guarantors (the "Second Amendment") and as amended by that
certain Third Amendment, Extension and Reaffirmation Agreement of even date
herewith by and among the Lender, the Borrower and the Guarantors (the "Third
Amendment"), and which remains unpaid, in lawful money of the United States and
immediately available funds, together with interest on the unpaid balance
accruing as of the date hereof at the per annum rates, subject to adjustment as
hereinafter set forth, equal to (i) as to all principal at any one time
outstanding in an aggregate amount equal to or less than the Aggregate Net Cash
Surrender Value, one-half percent (0.50%) in excess of the "Base Rate of
Interest" (as that term is defined below) as the same changes from time to time,
and (ii) as to all principal at any one time outstanding in excess of the
Aggregate Net Cash Surrender Value, one and one-quarter percent (1.25%) in
excess of the Base Rate of Interest, as the same changes from time to time, all
such changes to be made and become effective on the same day the Base Rate of
Interest changes. Interest hereunder shall be computed on the basis of a 360-day
year but charged for actual days principal is unpaid.
2. The principal balance hereof shall be due and payable ON DEMAND. The
principal balance hereof shall also be due and payable in full on the Expiration
Date.
3. Accrued interest shall be payable monthly on the first (1st) day of each
calendar month so long as all or any portion of the principal balance hereof
remains unpaid. Accrued interest shall also be payable at the time principal is
due hereunder.
4. The term "Base Rate of Interest" shall mean the rate of interest set and
publicly announced from time to time by the Lender as its "prime" or "base" rate
(or equivalent successor rate), whether or not the Lender makes loans to its
customers at rates at, above or below said Base Rate of Interest.
<PAGE>
5. All payments and prepayments shall, at the option of the Lender, be applied
first to costs of collection, second to any late charges, third to accrued
interest and the remainder thereof to principal.
6. If any installment or payment of principal is not paid within ten (10) days
of the due date thereof, Borrower shall pay to Lender a late charge equal to
five percent (5%) of the amount of such installment or payment.
7. This Sixth Amended and Restated Revolving Note is issued pursuant to the
terms and conditions of the Credit Agreement, as amended pursuant to the First
Amendment, is secured by the First Life Insurance Assignment, the Second Life
Insurance Assignment, the Third Life Insurance Assignment and the Guarantor Life
Insurance Assignments is guaranteed by the Guarantors pursuant to the Guaranty
and is entitled to all of the benefits provided for in each of said agreements.
8. Upon demand for payment hereunder, the outstanding principal balance hereof
and accrued interest herein shall become immediately due and payable without
notice.
9. Upon demand for payment hereunder, the Lender shall have the immediate right
to set off any and all amounts due hereunder by the Borrower to the Lender
against any indebtedness or obligation of the Lender to the Borrower.
10. The outstanding principal balance of this Sixth Amended and Restated
Revolving Note may be prepaid at any time, in whole or in part, without premium
or penalty. This Sixth Amended and Restated Revolving Note is also subject to
mandatory partial prepayment at any time to the extent that the outstanding
principal balance hereunder exceeds the Maximum Loan Amount.
11. The Borrower promises to pay all costs of collection of this Sixth Amended
and Restated Revolving Note, including but not limited to attorneys' fees, paid
or incurred by the Lender on account of such collection, whether or not suit is
filed with respect thereto and whether or not such costs are paid or incurred,
or to be paid or incurred, prior to or after the entry of judgment.
12. Demand, presentment, protest and notice of nonpayment and dishonor of this
Sixth Amended and Restated Revolving Note are hereby waived.
13. THIS SIXTH AMENDED AND RESTATED REVOLVING NOTE IS PAYABLE ON DEMAND. THE
RIGHT OF THE LENDER TO MAKE SUCH DEMAND SHALL BE UNQUALIFIED AND ABSOLUTE AND,
WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, SUCH RIGHT MAY BE EXERCISED BY
THE LENDER EVEN IF THE BORROWER HAS COMPLIED AND IS THEN COMPLYING WITH THE
VARIOUS COVENANTS SET FORTH HEREIN, IN THE CREDIT AGREEMENT, THE FIRST
AMENDMENT, THE SECOND AMENDMENT AND THE THIRD AMENDMENT AND IN THE OTHER
BORROWER DOCUMENTS.
<PAGE>
14. This Sixth Amended and Restated Revolving Note shall be governed by and
construed in accordance with the laws of the State of Minnesota.
15. This Sixth Amended and Restated Revolving Note constitutes a complete
amendment and restatement of, and supersedes in its entirety, that certain
$4,250,000 Fifth Amended and Restated Revolving Note dated February 24, 1997
executed by Borrower and made payable to the order of Lender, and does not
constitute payment or satisfaction of the indebtedness evidenced thereby.
16. As used herein, the terms Expiration Date, First Life Insurance Assignment,
Second Life Insurance Assignment, Third Life Insurance Assignment, Aggregate Net
Cash Surrender Value, Guaranty, Guarantor Life Insurance Assignments,
Guarantors, Maximum Loan Amount, and Borrower Documents shall have the meanings
assigned to such terms in the Credit Agreement, the First Amendment and/or the
Second Amendment, as the case may be.
LUNDGREN BROS. CONSTRUCTION,
INC.
By:
-----------------------------------
Its President
STATE OF MINNESOTA )
) ss
COUNTY OF )
The foregoing instrument was acknowledged before me this _______ day of
___________________, 1998, by Peter Pflaum, the President of LUNDGREN BROS.
CONSTRUCTION, INC., a Minnesota corporation, for and on behalf of said
corporation.
--------------------------------------
Notary Public
EXHIBIT 10.6
CONSENT AND REAFFIRMATION
OF GUARANTY
THIS CONSENT AND REAFFIRMATION, made and entered into as of the 31st day of May,
1998 by PETER PFLAUM, EDMUND M. LUNDGREN, ALLAN D. LUNDGREN and GERALD T.
LUNDGREN (collectively, the "Guarantors") in favor of NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION, a national banking association (the "Lender").
WHEREAS, the Lender entered into a certain Amended and Restated Demand
Discretionary Revolving Credit Agreement dated as of March 18, 1994 (the "Credit
Agreement") with Lundgren Bros. Construction, Inc., a Minnesota corporation (the
"Borrower") concerning the extension by the Lender to the Borrower of a
$2,200,000 Revolving Line of Credit; and
WHEREAS, the Borrower subsequently requested that the Lender agree to an
increase in the "Maximum Loan Amount" as set forth in that certain Amendment,
Extension and Reaffirmation Agreement dated March 14, 1995, among the Lender,
the Borrower and the undersigned (the "First Amendment"); and
WHEREAS, the Borrower subsequently requested that the Lender agree to an
increase in the "Maximum Loan Amount" as set forth in that certain Second
Amendment, Extension and Reaffirmation Agreement dated February 24, 1997, among
the Lender, the Borrower and the undersigned (the "Second Amendment"); and
WHEREAS, the obligation of the Borrower to repay advances under the Credit
Agreement was evidenced by that certain Fifth Amended and Restated Revolving
Note dated February 24, 1997, executed by the Borrower in the original principal
amount of Four Million Two Hundred Fifty Thousand Dollars and payable to the
order of Lender (the "Fifth Amended Note"); and
WHEREAS, the Borrower has now requested that the Lender agree to an increase in
the Maximum Loan Amount as set forth in that certain Third Amendment, Extension
and Reaffirmation Agreement of even date herewith among the Lender, the Borrower
and the undersigned (the "Third Amendment"); and
WHEREAS, the Fifth Amended Note has now been superseded in its entirety by a
certain Sixth Amended and Restated Revolving Note of even date herewith executed
by the Borrower in the original principal amount of $4,750,000.00 and payable to
the order of the Lender (the "New Revolving Note"); and
WHEREAS, the obligations of the Borrower under and pursuant to the Credit
Agreement, the First Amendment, Second Amendment, Third Amendment, and the New
Revolving Note are secured by, among other things, the First Life Insurance
Assignment, the Second Life Insurance Assignment, the Third Life Insurance
Assignment and the Guarantor Life Insurance Assignments (as those terms are
defined in the First Amendment); and
<PAGE>
WHEREAS, the payment and performance of the obligations of the Borrower under
and pursuant to the Fourth Amended Note and the Credit Agreement, as amended,
among other things, have been jointly and severally guaranteed by the Guarantors
pursuant to that certain Guaranty dated as of November 5, 1990, executed by the
Guarantors and Patrick C. Wells and delivered to the Lender (the "Guaranty");
and
WHEREAS, the Lender is willing to execute the Third Amendment and to extend
advances to or for the benefit of the Borrower pursuant to the New Revolving
Note only upon receipt of this Consent and Reaffirmation from the Guarantors.
NOW, THEREFORE, in consideration of the foregoing Recitals, which are hereby
made a part hereof, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto, do hereby
agree as follow:
1. Each of the Guarantors hereby consents to the terms of the Third Amendment
and the New Revolving Note and all of the terms and provisions contained
therein.
2. Each of the Guarantors hereby repeats, reasserts, and reaffirms as of the
date hereof, all of the representations, warranties and covenants contained in
the Guaranty and the documents executed in connection therewith, as if said
representations, warranties and covenants were fully set forth herein.
3. Each of the Guarantors hereby acknowledges and agrees that any and all
references contained in the Guaranty to the term "Note" shall henceforth mean
and refer to the New Revolving Note and that all indebtedness of the Borrower to
the Lender pursuant to the New Revolving Note shall constitute "Obligations,"
the payment and performance of which are absolutely and unconditionally
guaranteed to the Lender by the Guarantors pursuant to the Guaranty.
4. The Guarantors further acknowledge and agree that the Guaranty shall be and
is hereby amended to provide that all references contained in the Guaranty to
the term "Credit Agreement" shall henceforth mean and refer to the Credit
Agreement, as amended by the First Amendment, the Second Amendment and the Third
Amendment.
5. The Guarantors hereby further acknowledge and agree that the Guaranty remains
fully enforceable and in full force and effect in accordance with its original
terms, except as expressly amended hereby and as previously amended in writing,
and is not subject to any defense, counterclaim or right of setoff as of the
date hereof. The Guarantors further acknowledge that the liability of the
Guarantors under the Guaranty is and continues to be joint and several.
6. Each of the Guarantors hereby releases the Lender, and each of its officers,
directors, agents, employees, legal counsel and other representatives from any
and all claims, demands, causes of action, liability, damage, loss, cost and
expense which any of them have paid, incurred, or sustained, known or unknown,
absolute or contingent, as a result of or related to (a) the transactions
evidenced by or related to any of the Loan Documents (as that term is defined in
the
<PAGE>
Third Amendment) or (b) any acts or omissions of the Lender, or any of its
officers, directors, agents, employees, legal counsel or other representatives
in connection therewith or related thereto.
7. In light of the impending separation of Patrick C. Wells from service with
the Borrower, the Lender has not required Mr. Wells to execute this Consent and
Reaffirmation. Guarantors acknowledge, however, that the Lender intends that Mr.
Wells remain obligated and liable to the Lender under the Guaranty, in
accordance with its terms, notwithstanding his failure to execute this Consent
and Reaffirmation. Nothing contained herein should be interpreted as an
expression of intent by the Lender to release or reduce the liability of Mr.
Wells under the Guaranty.
8. This Consent and Reaffirmation of Guaranty may be executed in counterparts,
each of which shall be deemed an original but all of which, taken together,
shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Guarantors have executed and delivered this Consent and
Reaffirmation of Guaranty as of the day and year first above written.
--------------------------------------
PETER PFLAUM
--------------------------------------
EDMUND M. LUNDGREN
--------------------------------------
ALLAN D. LUNDGREN
--------------------------------------
GERALD T. LUNDGREN
EXHIBIT 10.7
NOTTINGHAM SIXTH ADDITION
ACQUISITION AND CLOSING AGREEMENT
THIS ACQUISITION AND CLOSING AGREEMENT ("CLOSING AGREEMENT") is
entered into as of June 9, 1998, 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").
B. The Parties desire to (i) provide for BFH's assumption of specified
executory obligations of Lundgren pertaining to the Property, and (ii)
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 $821,938.00, of
which $281,938.00 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. 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.
2.2. CONSULTANT AGREEMENTS. Those agreements described in EXHIBIT
B with third party consultants engaged by or on behalf of
Lundgren to produce or provide Work Product ("CONSULTANT
AGREEMENTS").
2.3. 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 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
<PAGE>
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. 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.
3.2. 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 Work Product, Lundgren represents and warrants to BFH
as follows:
4.1. PROPERTY AGREEMENTS AND APPROVALS. The Consultant Agreements
and Property Approvals are currently in full force and
effect; Lundgren is not in default in performing Lundgren's
obligations under the Consultant Agreements or the Property
Approvals; Lundgren is not aware of any default in
performance of the consultants' obligations under the
Consultant Agreements; and Lundgren has not previously
assigned, sold, pledged, mortgaged or otherwise transferred
Lundgren's interest in the 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.
<PAGE>
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
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.
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
<PAGE>
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.
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.
<PAGE>
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 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 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:
<PAGE>
BF HOLDING COMPANY LUNDGREN BROS. CONSTRUCTION, INC.
By By
----------------------------------- -----------------------------------
Its Its
-------------------------------- --------------------------------
EXHIBITS
A Legal Description of the Property
B 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:
Lots 1 through 20, Block 1;
Lots 1 through 7, Block 2; and
Lots 1 through 7, Block 3;
All in Nottingham Sixth Addition according to the recorded plat thereof.
<PAGE>
EXHIBIT B
SCHEDULE
OF
CONSULTANT AGREEMENTS
1. Enebak Construction Company - Proposal dated February 20, 1998.
2. John Oliver & Associates - Proposal dated March 11, 1998.
3. Braun Intertec - Proposal dated April 14, 1998.
EXHIBIT 10.8
NOTTINGHAM SIXTH ADDITION
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. "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 9, 1998.
1.3.4. "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.
1.3.5. "CLOSE" OR "CLOSING" means the completion of the
transaction whereby Buyer purchases one or more Lots
in the Property and Seller deeds such Lot(s) to
Buyer.
1.3.6. "CLOSING DATE" means the date on which the Closing of
each Lot occurs.
1.3.7. "DEVELOPMENT MANAGEMENT SERVICES" means the services
to be performed by Buyer pursuant to Section 5 of
this Agreement.
1.3.8. "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.
<PAGE>
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.
1.3.9. "OPTION PERIODS" and the Lot takedown schedule are
set forth in attached EXHIBIT E.
1.3.10. "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.
1.3.11. "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 B hereto.
1.3.12. "PROJECT RETURN" means the amount which is the sum of
the Project Investment PLUS the Holding Fee.
1.3.13. "PURCHASE PRICE" means the purchase price of each Lot
determined in accordance with Section 3 below.
<PAGE>
2. GRANT OF OPTION. Seller hereby grants to Buyer the exclusive Option to
purchase the Lots 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 $281,938.00 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 E 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"). 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 have access to a public road right-of-way and municipal
utilities.
2.3.1. EXERCISE NOTICE. Buyer's 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.
2.3.2. 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." Seller shall be released from the
following executory BFH Assumed Obligations
("REVERTED OBLIGATIONS"):
i. Effective at the Closing of each Lot, Seller
is released from any executory BFH Assumed
Obligations pertaining to that Lot which are
not budgeted in the Project Proforma.
<PAGE>
ii. Effective at the Closing of the final Lot or
group of Lots, Seller is released from all
remaining executory BFH Assumed Obligations
pertaining to the Property.
Buyer shall be responsible for performing any
Reverted Obligations as if the effective date
specified in subsections (i) and (ii) above, as
applicable. 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 a Lot Closing.
2.3.3. LETTER OF CREDIT OBLIGATIONS. Following the Closing
of the final Lot or group of Lots at which the
Purchase Price is paid in full, Buyer shall exercise
diligent efforts to obtain as soon as possible the
City's release of all outstanding letters of credit
for the Property issued to the City as security for
performance of Seller's BFH Assumed Obligations
(including outstanding letters of credit securing
Reverted Obligations).
3. PURCHASE PRICE. The Purchase Price of each Lot is initially the amount
set forth in EXHIBIT D; 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 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 Purchase Price of the
final Lot(s) to close shall be the Project Return minus the amount of
all Holding Fees and Lot Purchase Prices previously paid to Seller.
4. DEVELOPMENT PLAN; PROJECT PROFORMA. The parties have agreed upon (i) a
proposed plan for developing the Property as single family 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) processing and diligently attempting to obtain any
required zoning, rezoning or planned unit development approvals,
development agreements and permits, and utility service arrangements
for the Property, (ii) 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
<PAGE>
infrastructure improvements contemplated by the Development Plan and
Project Proforma, and (iii) 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. For so long as this Option
remains in effect, Buyer shall appoint one-third and Seller shall
appoint two-thirds 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.
5.2. PAYMENT OF PROJECT INVESTMENT COSTS. Seller is responsible for
paying all Project Investment costs (as described in Section
1.3.10 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.
<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 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;
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.
<PAGE>
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.
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 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 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
<PAGE>
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 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
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
<PAGE>
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.
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,
<PAGE>
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 Limited Warranty Deed, on Minnesota Uniform
Conveyancing Blank Form No. 23-M, conveying the Lot(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) 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; 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, including levied, deferred,
pending and proposed special assessments.
<PAGE>
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.
11.5. IMPOUND FOR LETTER OF CREDIT OBLIGATIONS. At the Closing Buyer
shall deliver to Seller funds (the "IMPOUND") in the amount of
$1,756 for each Lot which is then Closing. 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
<PAGE>
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 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,
<PAGE>
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 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 reasonable attorneys' fees, which Seller may incur
because of any of the following:
<PAGE>
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
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,
<PAGE>
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 C 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 Project Proforma
C Memorandum of Option
D Initial Lot Purchase Prices
E 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:
Lots 1 through 20, Block 1;
Lots 1 through 7, Block 2; and
Lots 1 through 7, Block 3;
All in Nottingham Sixth Addition according to the recorded plat thereof.
<PAGE>
EXHIBIT B
PROJECT PROFORMA
<PAGE>
EXHIBIT C
MEMORANDUM OF OPTION
<PAGE>
- --------------------------------------------------------------------------------
(SPACE ABOVE FOR RECORDER/REGISTRAR USE)
NOTTINGHAM SIXTH ADDITION
MEMORANDUM OF OPTION FOR PURCHASE OF REAL PROPERTY
THIS MEMORANDUM of Option Agreement ("MEMORANDUM") is made as of June
9, 1998, 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 9, 1998 ("OPTION AGREEMENT") whereby Buyer has granted to Seller an
Option to purchase individual Lots 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, 1998;
provided that the Option may be extended to and including June 30, 2000, on the
terms and conditions specified in the Option Agreement.
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.
<PAGE>
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 9, 1998.
SELLER: BUYER:
BF HOLDING COMPANY LUNDGREN BROS. CONSTRUCTION, INC.
By By
----------------------------------- -----------------------------------
Its Its
-------------------------------- --------------------------------
THIS INSTRUMENT WAS DRAFTED BY:
LEONARD, STREET AND DEINARD (JCK)
Suite 2300
150 South Fifth Street
Minneapolis, MN 55402
(612) 335-1500
STATE OF MINNESOTA )
) ss
COUNTY OF HENNEPIN )
The foregoing instrument was acknowledged before me this ___ day of
June, 1998, by _____________________, the ___________________ of BF Holding
Company, a Minnesota corporation, on behalf of the corporation.
----------------------------------------
Notary Public
<PAGE>
STATE OF MINNESOTA )
) ss
COUNTY OF HENNEPIN )
The foregoing instrument was acknowledged before me this ___ day of
June, 1998, by _____________________, the ___________________ of Lundgren Bros.
Construction, Inc., a Minnesota corporation, on behalf of the corporation.
----------------------------------------
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:
Lots 1 through 20, Block 1;
Lots 1 through 7, Block 2; and
Lots 1 through 7, Block 3;
All in Nottingham Sixth Addition according to the recorded plat thereof.
<PAGE>
EXHIBIT D
INITIAL LOT PURCHASE PRICES
<PAGE>
EXHIBIT E
OPTION PERIODS
AND
TAKEDOWN SCHEDULE
-------------------- ---------------------------------- ----------------
OPTION PERIOD CUMULATIVE TOTAL(1) OF LOTS TO REQUIRED
EXPIRATION DATES BE CLOSED BY APPLICABLE TAKEDOWN PER
OPTION PERIOD EXPIRATION PERIOD
DATE
-------------------- ---------------------------------- ----------------
9/30/98 1 1
-------------------- ---------------------------------- ----------------
12/31/98 4 3
-------------------- ---------------------------------- ----------------
3/31/99 9 5
-------------------- ---------------------------------- ----------------
6/30/99 16 7
-------------------- ---------------------------------- ----------------
9/30/99 22 6
-------------------- ---------------------------------- ----------------
12/31/99 28 6
-------------------- ---------------------------------- ----------------
3/31/00 32 4
-------------------- ---------------------------------- ----------------
6/30/00 34 2
-------------------- ---------------------------------- ----------------
- -------------------------
(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 4 Lots are Closed by
September 30, 1998, the Option Period shall be deemed extended through March 31,
1999.
EXHIBIT 10.9
REVOLVING CONSTRUCTION AND DEVELOPMENT LOAN AGREEMENT
THIS AGREEMENT, made and entered into as of the 13th day of July, 1998,
by and between LUNDGREN BROS. CONSTRUCTION, INC., a Minnesota corporation
(hereinafter referred to as "Borrower"), whose address is 935 East Wayzata
Boulevard, Wayzata, Minnesota 55391, and U.S. BANK NATIONAL ASSOCIATION, a
national banking association (hereinafter referred to as "Lender"), whose
address is 601 Second Avenue South, Minneapolis, Minnesota 55402-4302.
WITNESSETH THAT, in consideration of the mutual covenants and
agreements hereinafter set forth, the parties hereto hereby agree as follows:
DEFINITIONS
For the purposes of this Agreement, the following terms shall have the
following meanings:
Acquisition Costs: The total costs of acquiring Development Project
Land as set forth in the Budget for the Development Project as approved by the
Lender.
Advance: Any portion of the Loan advanced by Lender to or for the
benefit of Borrower in accordance with the terms hereof.
Advance Date: The date on which an Advance of Loan proceeds requested
by Borrower hereunder is funded.
Affiliate: When used with reference to any Person, (a) each Person
that, directly or indirectly, controls, is controlled by or is under common
control with, the Person referred to, (b) each Person which beneficially owns or
holds, directly or indirectly, five percent (5%) or more of any class of voting
stock of the Person referred to (or if the Person referred to is not a
corporation, five percent (5%) or more of the equity interest therein), (c) each
Person, five percent (5%) or more of the voting stock (or if such Person is not
a corporation, five percent (5%) or more of the equity interest therein) of
which is beneficially owned or held, directly or indirectly, by the Person
referred to, and (d) each of such Person's officers, directors, joint venturers
and partners. The term control (including the terms "controlled by" and "under
common control with") means the possession directly or indirectly, of the power
to direct or cause the direction of the management and policies of the Person in
question.
Agreement: This Revolving Construction and Development Loan Agreement
including all Project Addenda and any other amendments hereof and supplements
hereto executed by Borrower and Lender.
Applicable Margin: As to the Development Note, at any time that the
Loan to Cost Ratio on the outstanding principal balance of such note is over
seventy percent (70%), the Applicable Margin is two and one-half percent (2.5%),
and at any time that the Loan to Cost Ratio on the outstanding principal balance
of such note is equal to or less than seventy percent (70%), the
<PAGE>
Applicable Margin is one and one-quarter percent (1.25%). As to the Revolving
Note, the Applicable Margin at all times is one percent (1.0%).
Application and Certificate For Payment: The Application and
Certificate for Payment in the form of that attached hereto as Exhibit "B" which
shall be used in connection with all Advances for Development Loans.
Appraisal: As to the Development Project, the appraisal by Towle Real
Estate Company dated March 11, 1998, and as to a Construction Project, a
third-party appraisal of the retail sales value of the finished lot and the home
to be constructed thereon commissioned and/or approved by, and addressed to,
Lender, and prepared at the expense of Borrower by a qualified and licensed MAI
appraiser acceptable to Lender, which complies with all applicable Governmental
Requirements and the requirements of Lender and its chief review appraiser.
Back-end Equity: The total amount of the Costs shown under the column
"Back-end Equity" in the schedule of Total Development Costs for Stonecliffe
attached hereto as Exhibit J.
Board: The Board of Governors of the Federal Reserve System or any
successor thereto.
Bond Financial Covenants: The financial covenants as contained in
Sections 10.15 and 10.16 of that certain Indenture dated as of October 18, 1996,
by and between Lundgren Bros. Construction, Inc., and National City Bank of
Minneapolis, National Association as Trustee, regarding the Senior Subordinated
Debentures, Series Eleven Percent, in the amount of $3,000,000.00 and due 2004.
Borrowing Base Certificate: The Borrowing Base Certificate in the form
of that attached hereto as Exhibit "C".
Budget:
(a) As to a Development Project loan, an itemized, certified statement
of actual and estimated Costs, including all Acquisition Costs, Construction
Costs, Soft Costs and special assessments, of a Project, in Lender's form,
signed and sworn to by Borrower, as the same may be amended or supplemented with
approval of Lender from time to time.
(b) As to a Construction Project loan, an itemized, certified statement
of actual and estimated Costs of the Construction Project Improvements but
excluding Soft Costs, in Lender's form, signed and sworn to by Borrower, as the
same may be amended or supplemented with approval of Lender from time to time.
Business Day: Any day (other than a Saturday, a Sunday or a legal
holiday in the State of Minnesota) on which national banks are permitted to be
open.
City: The City of Eagan, a municipal corporation.
Closing Date: The date of this Agreement.
Code: The Internal Revenue Code of 1986, as amended.
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Completion: Either Development Project Completion or Construction
Project Completion as applicable.
Completion Date: The date on which Completion of a Project occurs, but
in no event later than (a) the date specified therefor on the Phase Addendum
relating to a Development Project, and (b) the date specified in Column I of the
Borrowing Base Certificate.
Consolidated Subsidiary: A Subsidiary of Borrower whose financial
statements are included in the most recent annual consolidated financial
statements of Borrower and its Subsidiaries.
Consolidated Tangible Net Worth: The dollar amount of:
(a) the tangible assets of Borrower and its Consolidated
Subsidiaries (excluding intercompany items) after deducting
for minority interests and adequate reserves in each case
where, in accordance with GAAP, a reserve is proper, in excess
of
(b) the aggregate amount of all Indebtedness of Borrower and its
Consolidated Subsidiaries (excluding intercompany items),
after making appropriate deductions for any minority
interests;
provided, however, that (i) inventory shall be taken into account on the basis
of the cost or current market value, whichever is lower, (ii) in no event shall
there be included as such tangible assets (a) any assets typically classified as
intangible assets, including but not limited to patents, trademarks, trade
names, copyrights, licenses, goodwill and debt issuance costs, or (b) treasury
stock or any securities or Indebtedness of Borrower or a Consolidated
Subsidiary, or any other equity, convertible or unsecured debt securities unless
the same are readily marketable in the United States of America or entitled to
be used as a credit against Federal income tax liabilities, and (iii) securities
included as such tangible assets shall be taken into account at their current
market price or cost, whichever is lower.
Construction Costs: All hard costs of constructing Project
Improvements, including site preparation costs and the costs of all materials,
labor and equipment.
Construction Project: The construction of a single-family home on
Construction Project Land, all as approved by Lender in accordance with Section
2.4 hereof.
Construction Project Completion: All Construction Project Improvements
included within a Construction Project are completed in accordance with the
Plans therefor and paid for in full, free of all mechanics', laborers',
materialmen's and other similar lien claims; a certificate of substantial
completion for the Construction Project Improvements has been signed by Borrower
and Borrower has received a certificate of occupancy from the City and has
otherwise complied with all Governmental Requirements with respect to completion
of construction of the Construction Project.
Construction Project Improvements: New single-family homes and related
improvements to be constructed upon Construction Project Land and owned by
Borrower.
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Construction Project Land: That portion of Development Project Land
owned in fee simple by Borrower to be used for a Construction Project and upon
which Construction Improvements are located or are to be constructed.
Construction Project Loan. A Construction Project Loan made pursuant to
Section 2.4.
Consultants: Third party experts retained by Lender to assist it in
connection with approving, closing, advancing or administering the Project
Loans.
Contingency Reserve: A reserve of Development Project Loan proceeds to
pay Costs which are in excess of the amounts thereof anticipated on the date of
approval of the Development Project, whether as a result of price increases,
changes in the Plans or otherwise, in an amount equal to a percentage of all
Construction Costs of a Development Project as mutually agreed to by Borrower
and Lender.
Contractor: Any Person, party or entity which has a contract or
subcontract under which payment may be required for any work done, material
supplied or services furnished in connection with acquiring, constructing,
financing, equipping and/or developing a Project.
Costs: All Acquisition Costs, Construction Costs and Soft Costs of a
Project.
Default Rate: The Default Rate of interest specified in Section 1.2(b)
hereof.
Development Agreement: Collectively the City of Eagan Pinetree Pass
Development Contract between Borrower and the City of Eagan, Minnesota, dated
April 7, 1998, the City of Eagan Pinetree Pass 2nd Addition Development Contract
between Borrower and the City of Eagan, Minnesota, dated June 9, 1998, the City
of Eagan Pinetree Pass 3rd Addition Development Contract between Borrower and
the City of Eagan, Minnesota, dated June 9, 1998, and all amendments, additions
or supplements thereto.
Development Contract. Any contract entered into between Borrower for
the construction of the Development Project.
Development Note: The Development Note, dated of even date herewith,
executed and delivered by Borrower to Lender, in the face principal amount of
Six Million One Hundred Thousand and 00/100 Dollars ($6,100,000.00), to evidence
the Development Project Loan, as the same may be amended, modified or replaced
from time to time.
Development Project: The acquisition and development of Development
Project Land into single family housing subdivisions, as approved by Lender in
accordance with Section 2.2 hereof.
Development Project Completion: All Development Project Improvements
included within the entire Development Project or any Phase thereof as
applicable (except for final paving or other similar items, the completion of
which is secured by a Letter of Credit deposited with the City) are completed in
accordance with the Plans therefor, as approved by Lender, and paid for in full,
free of all mechanics', laborers', materialmen's and other similar lien claims;
said completion has been approved and certified by the General Contractors and
by the Inspecting Architect; a
<PAGE>
certificate of substantial completion for the Development Project Improvements
has been signed by Borrower and the General Contractors and delivered to Lender,
and no punch-list items remain to be completed; Lender has received acceptable
evidence that all Governmental Requirements and all private restrictions and
covenants relating to the Development Project have been complied with or
satisfied; Lender has received copies of all warranties, if any, from suppliers
covering materials included within the Development Project (or Phase thereof as
applicable); Lender has received an as-built survey of the Development Project
which conforms with Lender's requirements.
Development Project Improvements: All improvements, including all
improvements required by the City, which are necessary for the completion of a
Development Project including, but not limited to, the construction of roads,
utilities, curbs, gutters, signage, grading and landscaping, all in accordance
with Plans approved by Lender and Inspecting Architect.
Development Project Land: Land owned or to be acquired in fee simple by
Borrower pursuant to the Option Agreement to be used for the Development Project
and upon which Development Project Improvements are located or are to be
constructed, and legally described in Exhibit "A" attached hereto.
Development Project Loan: A Project Loan made pursuant to Sections 2.2
and 2.3.
Draw Request: A written request by Borrower for an Advance of
Construction Project Loan proceeds under this Agreement, in the form Exhibit "E"
attached hereto and with the certifications set forth therein, including the
Borrowing Base Certificate.
Environmental Audit: A written Phase I environmental review, audit,
assessment or report commissioned and/or approved by, and currently addressed
and certified to, Lender, or accompanied by a reliance letter addressed which
complies with ASTM Practice E 1527 and which is otherwise acceptable to Lender,
setting forth the results of an investigation of a Development Project,
including an historical investigation of the uses and ownership of the
Development Project Land included therein, contacts with appropriate
governmental agencies and any Tests which may be requested by Lender, prepared
by a competent, qualified environmental engineer or consultant which is
acceptable to Lender and is licensed, bonded and insured in accordance with all
applicable statutes, and all supplements, updates and recertifications thereof
required by Lender.
GAAP: Generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession, which are applicable to the circumstances as of any date of
determination.
General Contractor: The general contractor or construction manager
(whether one or more) retained by Borrower and approved by Lender, which
approval shall not be unreasonably withheld with respect to any Project, if
different from Borrower. Borrower may act as its own general contractor with
respect to any Project.
<PAGE>
Governmental Requirements: All laws, statutes, codes, ordinances and
governmental rules, regulations and requirements applicable to Borrower, Lender
and/or the Projects.
Immediately Available Funds: Funds with good value on the day and in
the city in which payment is received.
Improvements: The buildings and other improvements which are to be
placed or constructed upon the Project Land as a part of any Project, all of
which shall be owned by Borrower.
Indebtedness: With respect to any Person at any date, the
"Indebtedness" means and includes all items of indebtedness which, in accordance
with GAAP, would be included in determining total liabilities as shown on the
liabilities side of a balance sheet of such Person at such date, and in addition
shall include (i) all indebtedness guaranteed or endorsed (other than for
purposes of collection in the ordinary course of business), directly or
indirectly, in any manner by such Person, and contingent obligations of such
Person in respect of, or to purchase or otherwise acquire, indebtedness of
others, (ii) all lease obligations of such Person required under GAAP to be
capitalized and reflected as a liability on the balance sheet of such Person,
and (iii) all indebtedness secured by any mortgage, lien, pledge, charge or
encumbrance upon property owned by such Person, whether or not the indebtedness
so secured has been assumed by such Person.
Indemnification Agreement: Lender's form of joint and several
indemnification agreement relating to environmental matters and executed by
Borrower, in favor of Lender, including any amendments thereof and supplements
thereto executed by Borrower which agreement as amended will cover all Project
Land.
Inspecting Architect: The independent architect, engineer or consultant
(whether one or more) selected by Lender to advise Lender with respect to any
Project.
Lender Debt: Any recourse indebtedness or any guaranty of Borrower or
of any Affiliate of Borrower to the Lender or to any Affiliate of Lender, except
the Loan.
Letter of Credit: A performance letter of credit required to be issued
by a City or a public utility in connection with a Development Project.
Letter of Instructions: The Letter of Instructions in the form of that
attached hereto as Exhibit "F".
Loan: The aggregate of all Project Loans made by Lender to Borrower
pursuant to the terms of this Agreement in an amount of up to Ten Million One
Hundred Thousand and 00/100 Dollars ($10,100,000.00) outstanding at any given
time (subject to the limitations set forth in Section 1.1).
Lot: Any platted lot within the Project which is designated for a
single family residence.
Loan Documents: The documents which evidence, secure or otherwise
relate to the Loan including, but not limited to, the Note, this Agreement, the
Mortgage (all Amendments to
<PAGE>
Mortgage) and the Indemnification Agreement, and including any amendments
thereof and supplements thereto executed by Lender and Borrower (and/or any
other party thereto).
Loan to Cost Ratio: The ratio calculated by taking the sum on any date
of the amounts on such date of (i) the outstanding principal balance on the
Development Note, plus (ii) the remaining amount available to be funded under
the Development Note, plus (iii) the amounts of outstanding Letters of Credit
(to the extent not previously included), plus (iv) the amount of Back-end Equity
(as defined in Section 2.3(e) below) which Borrower has not yet paid for and
given Lender evidence of such payment as of such date, and dividing that total
by the product of the total number of lots remaining in the Project (whether
they are owned in fee by Borrower or are yet to be acquired pursuant to the
Option Agreement) multiplied by the average per lot cost as shown on the most
recent Budget approved by Lender.
Maturity Date: The third anniversary of the date of this Agreement,
unless extended as set forth in Section 1.8 herein.
Maximum Construction Project Advance: The Maximum Construction Project
Advance as defined in Section 2.4 hereof.
Model Home: A Construction Project which (a) is a single family home,
(b) not a Pre-Sold Home, and (c) will be used as a model home by Borrower.
Mortgage: A first Mortgage and Security Agreement and Fixture Financing
Statement and Assignment of Leases and Rents, dated of even date herewith,
executed and delivered by Borrower in favor of Lender to secure the Loan,
including all amendments thereof and supplements thereto, which Mortgage shall
be a first lien Borrower's interest on all Project Land to which Borrower owns
fee title or on which Borrower has an option to purchase.
Note or Notes: Collectively, the Development Note and the Revolving
Note.
Option Agreement: The Rolling Option Agreement dated April 22, 1997,
between J. David Brown, William D. Brown, James P. Brown and Borrower for the
purchase of the Project Land to be acquired for the Development Project and the
Construction Projects, as amended by the Amendment to Rolling Option Agreement
dated April 8, 1998, and the Second Amendment to Rolling Option Agreement dated
May 22, 1998, and any other amendments, additions or other supplements thereto.
Permitted Encumbrances: The liens, charges and encumbrances on title to
a Project approved as such by Lender prior to any Advance of proceeds of the
Project Loan therefor.
Person: Any natural person, corporation, limited liability company,
partnership (general or limited), limited liability partnership, joint venture,
firm, association, trust, unincorporated organization, government or
governmental agency or political subdivision or any other entity, whether acting
in an individual, fiduciary or other capacity.
Phase: Any phase of the Development Project as defined in the Phase
Addendum, or the corresponding Development Project Land as the context may
require.
<PAGE>
Plans: The final working plans for Project Improvements, including
drawings, specifications, details and manuals (which in the case of Development
Projects shall have been approved by Lender).
Phase Addendum: An addendum to this Agreement between Borrower and
Lender for each Phase of the Development Project approved by Lender pursuant to
Section 2.2, identifying and describing the next Phase of the Development
Project in detail, supplementing this Agreement as it applies to said
Development Project, setting forth the amount of the Development Project Loan
allocated thereto, setting forth the date by which construction of the
Development Project must begin ("Commencement Date") and the outside Completion
Date therefor, setting forth the estimated Costs of the Development Project and
adding to this Agreement any requirements, representations and covenants which
are required by Lender as a condition to its approval of said Phase of the
Development Project.
Pollutant: Any hazardous or toxic substance, waste or material, or
other pollutant or contaminant (including, but not limited to, radioactive
materials, gasoline, asbestos, dioxin, methane, radon, urea-formaldehyde and
polychlorinated biphenyls), as those terms are defined or used in any
Governmental Requirement.
Pre-Sold Home: A Construction Project that is subject to a
non-cancelable and non-contingent purchase agreement between Borrower as seller
and a bona fide third party buyer.
Project: The Project Land and the Project Improvements which
collectively make up either a Development Project or a Construction Project.
Project Improvements: All Construction Project Improvements and
Development Project Improvements.
Project Land: All Development Project Land and Construction Project
Land.
Project Loan: The portion of the Loan set aside to fund an approved
Development Project pursuant to Section 2.2 or the amount Advanced on a
Construction Project pursuant to Section 2.4.
Reference Rate: The rate of interest from time to time publicly
announced by Lender as its "reference rate". Lender may lend to its customers at
rates that are at, above or below the Reference Rate. For purposes of
determining any interest rate hereunder or under any Loan Document which is
based on the Reference Rate, such interest rate shall change as and when the
Reference Rate shall change.
Regulatory Change: Any change after the date hereof in federal, state
or foreign laws or regulations or the adoption or making after such date of any
interpretations, directives or requirements applying to a class of banks
including Lender under any federal, state or foreign laws or regulations
(whether or not having the force of law) by any court or governmental or
monetary authority charged with the interpretation or administration thereof.
Release Price: See Exhibit "D" attached hereto.
<PAGE>
Revolving Commitment: The obligation of Lender to make Construction
Project Loans to Borrower on a revolving basis in an aggregate principal amount
outstanding at any time not to exceed the Revolving Loan Amount upon the terms
and subject to the conditions and limitations set forth in this Agreement.
Revolving Loan Amount: Four Million and 00/100 Dollars ($4,000,000.00).
Revolving Note: The Revolving Note, dated of even date herewith,
executed and delivered by Borrower to Lender in the face principal amount of
Four Million and 00/l00 Dollars ($4,000,000.00), to evidence the Construction
Project Loan, as the same may be amended, modified or replaced from time to
time.
Senior Subordinated Debentures: Both (a) the Senior Subordinated
Debentures, Series Ten Percent, in the amount of $3,000,000.00 and due in the
year 2003 as described in and governed by that certain Indenture dated May 14,
1993, by and between Borrower and National City Bank of Minneapolis, National
Association as Trustee, and (b) the Senior Subordinated Debentures, Series
Eleven Percent, in the amount of $3,000,000.00 and due 2004 as described in and
governed by that certain Indenture dated as of October 18, 1996, by and between
Lundgren Brothers Construction, Inc., and National City Bank of Minneapolis,
National Association as Trustee.
Soft Costs: Costs of a Project not attributable to Acquisition Costs or
Construction Costs, including interest on the Project Loan, fees payable to
Lender pursuant hereto, fees of Borrower's and Lender's counsel, fees of outside
accountants, costs of feasibility studies, environmental studies, permit fees,
inspection fees, fees of the Inspecting Architect and other Consultants, ad
valorem taxes, insurance premiums, recording and filing fees and taxes, title
insurance premiums and fees, surveyor's fees and costs of internal and outside
appraisals.
Speculative Home: A Construction Project which is a single family home,
not a Pre-Sold Home and not anticipated to be used as a Model Home.
Subsidiary: Any corporation of which at least a majority of the
outstanding voting stock is owned, at the time, directly or indirectly, by
Borrower, or by one or more Subsidiaries of Borrower. For purposes of this
definition, "voting stock" means stock which ordinarily has voting power for the
election of directors, whether at all times or only so long as no senior class
of stock has such voting power by reason of any contingency.
Sworn Construction Cost Statement: An itemized, certified statement of
actual and estimated Construction Costs of a Project, in Lender's form, signed
and sworn to by Borrower and the General Contractor (if any), as the same may be
amended or supplemented with the approval of Lender from time to time.
Termination Date: The earlier of (a) the Maturity Date, or (b) the date
on which the Note is declared to be immediately due and payable pursuant to
the terms hereof or of the Note.
Tests: Such soil tests, water tests, chemical tests, materials tests
and other tests and analyses as are appropriately required to confirm, with
relative certainty, the absence of Pollutants from a Project.
<PAGE>
Title Company: Chicago Title Insurance Company, a Missouri corporation.
Title Policy: A loan policy of title insurance in favor of Lender
issued by the Title Company together with such endorsements and otherwise
complying with Lender's standard requirements therefor.
Total Revolving Outstandings: As of any date of determination, the sum
of the aggregate unpaid principal balance of Advances on the Construction
Project Loan outstanding on such date.
Transfer Price: The price designated for each lot when it is
transferred from the Development Project Loan to the Construction Project Loan
shall be $48,800.00 per lot.
Unused Revolving Commitment: As of any date of determination, the
amount by which the Revolving Loan Amount exceeds the Total Revolving
Outstandings.
1.LOAN
1.1 Principal Advances
Upon the terms and subject to the conditions set forth in this
Agreement, Lender agrees to make Project Loans, for the purpose of acquiring,
developing and constructing Projects. The Construction Project Loan only shall
be on a revolving basis, in Advances, at any time and from time to time, in
accordance with the terms hereof, from the Closing Date to the Termination Date,
during which period Borrower may borrow, repay and reborrow as to the
Construction Project Loan. The Development Project Loan shall be made on a term
basis in accordance with the terms hereof. Such loans are subject to the
provision, however, that (a) at no time shall Lender be obligated to lend to
Borrower more than the total amount of proceeds of the Loan which Borrower has
then qualified to receive hereunder; (b) the aggregate unpaid principal balance
of all Total Revolving Outstandings shall never exceed the Revolving Loan
Amount; and (c) the aggregate unpaid principal balance of the Development
Project Loan, plus all outstanding Letters of Credit, shall never exceed Six
Million One Hundred Thousand and 00/100 Dollars ($6,100,000.00). All Advances
shall be evidenced by the Notes. Lender shall enter in its ledgers and records
under which Note the Advance is made, the amount of each such Advance and of
each payment made upon such Advances, and Lender is authorized by Borrower to
enter on a schedule attached to the Note under which the Advance is made a
record of Advances and payments; provided, however, that the failure by Lender
to make any such entry or any error by Lender in making such entry shall not
limit or otherwise affect the obligations of Borrower hereunder and under the
Note. Notwithstanding the expressed principal amount of the Note, Borrower shall
not at any time be obligated to repay more or less than the total of all
Advances made by Lender pursuant hereto, together with interest thereon at the
rates specified below and in the Note, computed on each Advance from the date it
is so made by Lender, and all other advances made by Lender pursuant to the
terms of the Loan Documents, with interest thereon as therein provided, less all
payments of principal of and interest on the Note, and of such advances and
interest thereon, made by Borrower. The entire unpaid principal amount of the
Loan shall be due and payable on the Termination Date.
1.2 Interest Rate, Interest Payments and Default Interest
<PAGE>
Interest shall accrue and be payable on the Advances from the date made
as follows:
(a) Each Advance shall bear interest on the unpaid principal
amount thereof at a varying rate per annum equal to the sum of
(i) the Reference Rate, plus (ii) the Applicable Margin.
(b) Any Advance not paid when due, whether at the date scheduled
therefor or earlier upon acceleration, shall bear interest
until paid in full at a rate per annum equal to the sum of (A)
the Reference Rate, plus (B) the Applicable Margin, plus (C)
five percent (5%) (herein called the "Default Rate").
(c) Interest shall be payable (i) with respect to each Advance, on
the first Business Day of each calendar month, commencing on
the first Business Day of the next calendar month after the
calendar month in which the first Advance is made and on the
Termination Date; (ii) with respect to any portion of an
Advance which is prepaid in accordance with the terms hereof,
on the date of such prepayment; and (iii) with respect to
interest at the Default Rate, on demand at Lender's option.
Interest on the Loan shall be computed on the basis of actual days elapsed and a
year of three hundred sixty (360) days.
1.3 Prepayments
Borrower may prepay Advances, in whole or in part, at any time after
three (3) Business Days' prior written notice of said prepayment from Borrower
to Lender, without premium or penalty. Any such prepayment must be accompanied
by payment, in full, of all unpaid, accrued interest on the amount prepaid.
Except as otherwise provided in Section 3.5 herein, amounts so prepaid shall be
applied to such Project Loan or Project Loans as designated by Borrower unless a
default or event of default then exists hereunder, in which event said amounts
shall be applied as Lender may elect. If no default or event of default exists
hereunder, amounts so prepaid on the Construction Project Loan may be reborrowed
from time to time as parts of other Construction Project Loans (but not the same
Construction Project on the Construction Project Loan) in accordance with the
terms of this Agreement.
1.4 Optional Termination of Revolving Commitment
Borrower may, at any time, upon not less than three (3) Business Days'
prior written notice to Lender, terminate the Revolving Commitment in its
entirety. Upon termination of the Revolving Commitment pursuant to this Section,
Borrower shall pay to Lender the full amount of all Loan Advances, all accrued
and unpaid interest thereon, and all other amounts then owing from Borrower to
Lender pursuant to the Loan Documents, and Lender shall have no further
obligation to make Advances on the Loan hereunder.
1.5 Fees
Borrower shall pay to Lender the following fees as and when hereinafter
provided: (a) a commitment fee in the amount of One Hundred Five Thousand and
00/100 Dollars ($105,000.00), payable on the Closing Date; and (b) an annual
Letter of Credit fee for each Letter
<PAGE>
of Credit issued pursuant to Section 2.2 hereof in an amount equal to one and
one-quarter percent (1.25%) per annum of the outstanding amount of such Letter
of Credit payable quarterly, in advance, commencing on the date of issuance of
the Letter of Credit.
1.6 Payments
Payments and prepayments of principal of, and interest on, the Note and
all fees, expenses and other obligations under this Agreement payable to Lender
shall be made without setoff or counterclaim in Immediately Available Funds not
later than 1:00 P.M. (Minneapolis time) on the dates called for under this
Agreement and the Note to the Lender at its main office in Minneapolis,
Minnesota. Funds received after such time shall be deemed to have been received
on the next Business Day. Whenever any payment to be made hereunder or on the
Note shall be stated to be due on a day which is not a Business Day, such
payment shall be made on the next succeeding Business Day and such extension of
time, in the case of a payment of principal, shall be included in the
computation of any interest on such principal payment.
1.7 Capital Adequacy
In the event that any Regulatory Change reduces or shall have the
effect of reducing the rate of return on Lender's capital or the capital of its
parent corporation (by an amount Lender deems material) as a consequence of the
Loan to a level below that which Lender or its parent corporation could have
achieved but for such Regulatory Change (taking into account Lender's policies
and the policies of its parent corporation with respect to capital adequacy),
then Borrower shall, within ten (10) days after written notice and demand from
Lender, pay to Lender additional amounts sufficient to compensate Lender, or its
parent corporation, for such reduction. Any determination by Lender under this
Section and any certificate as to the amount of such reduction given to Borrower
by Lender shall be final, conclusive and binding for all purposes, absent error.
1.8 Extensions
Not more than ninety (90) days and not less than sixty (60) days prior
to the Maturity Date, and if no default or event of default then exists
hereunder, Borrower may, at its option, request that Lender extend the Maturity
Date for an additional period of one (1) year. Any such request shall be
accompanied by an extension fee in the amount of Thirty-five Thousand and 00/100
Dollars ($35,000.00) ("Extension Fee").
2. CONDITIONS OF BORROWING
Lender shall not be required to make any Advances hereunder until the
pre-closing requirements, conditions and other requirements set forth below have
been completed and fulfilled to the satisfaction of Lender, with respect to said
Advance, at Borrower's sole cost and expense. It is agreed, however, that Lender
may, in its discretion, make such Advances prior to completion and fulfillment
of any or all of such pre-closing requirements, conditions and other
requirements, without waiving its right to require such completion and
fulfillment before any additional Advances are made.
<PAGE>
2.1 Prerequisites to Effectiveness of Agreement
The obligations of Lender to make Advances and the effectiveness of
this Agreement are subject to delivery to Lender by Borrower the following
documents, certificates and opinions, each in form and substance acceptable to
Lender:
(a) This Agreement duly executed by Borrower and Lender; the Note,
Mortgage and Indemnity Agreement duly executed by Borrower;
(b) A copy of the Articles of Incorporation of Borrower, together
with all amendments thereto, and a Certificate of Good
Standing for Borrower, each currently certified by the
Secretary of State of Minnesota; Borrower's By-Laws and
Resolutions of Borrower's Board of Directors authorizing the
transactions described herein, and an incumbency certificate
for Borrower (including the names, titles and specimen
signatures of officers thereof authorized to execute Loan
Documents), all currently certified by Borrower's corporate
secretary and upon which Lender may rely until revoked by
written notice to Lender;
(c) A Certificate from a duly authorized officer of Borrower
setting forth the names, titles, specimen signatures and
telephone numbers of all Persons authorized to (i) sign Draw
Requests and/or other documents, instruments, certificates and
agreements to be delivered by Borrower to Lender hereunder,
and/or (ii) give instructions to Lender hereunder, which
Certificate shall be deemed to be in full force and effect
until receipt by Lender of an amendment thereof duly executed
by said duly authorized officer of Borrower;
(d) A signed, written opinion from Borrower's counsel, addressed
to Lender and currently dated, as to the due organization,
existence, qualification and good standing of Borrower; as to
the due authorization, validity, legality, binding nature and
enforceability of the Loan Documents listed in Section 2.1(a);
that, to such counsel's knowledge, the execution, delivery and
performance by Borrower of the Loan Documents to which each is
a party will not violate any contracts or agreements of
Borrower or any applicable Governmental Requirements; as to
the absence, to such counsel's knowledge, of litigation or
governmental proceedings which could materially adversely
affect Borrower; and such other matters as may be required by
Lender;
(e) The most current available annual audited financial statements
for Borrower, as well as financial statements for each of the
three (3) full fiscal years immediately preceding the time
period covered by said current financial statements, and
Borrower shall also certify that there has been no material
adverse change in the financial condition of Borrower since
the dates of such financial statements.
Lender may advance to itself, pursuant to the provisions of Sections
3.1 and 5.5, proceeds of the Loan sufficient to pay all reasonable costs and
expenses incurred by Lender in connection with preparation, negotiation and
extension of the Loan Documents and the review of the foregoing.
<PAGE>
2.2 Conditions Precedent to Funding of the Development Project
Prior to the funding of any Advances on each Phase of the Development
Project, Borrower shall submit to Lender the following documentation for any
Phase for which funding is requested (the "Development Project Approval
Prerequisites"), all of which shall be acceptable in form and content to Lender:
(a) A copy of the signed Option Agreement and all amendments
thereto covering the Development Project Land pursuant to
which Borrower has acquired or is acquiring the same,
including a signed copy of the Second Amendment to Rolling
Option Agreement and any subsequent amendments, additions or
supplements to the Option Agreement.
(b) A memorandum of option agreement in recordable form setting
forth the Borrower's interest in the Development Project Land
under the Option Agreement.
(c) A Sworn Construction Cost Statement setting forth in detail
all Construction Costs of the Development Project.
(d) A Budget setting forth in detail all of the overall Costs of
the Development Project, including all Acquisition Costs,
Construction Costs and Soft Costs associated with the
Development Project, and for each Phase a Budget for such
Phase, together with a summary of the Costs of the Development
Project to date and a projected Budget for the completion of
the entire Development Project within the Budget approved for
the entire Development Project Budget as of the date of this
Agreement or as otherwise approved by the Lender in its sole
discretion.
(e) An Appraisal of the Development Project at the cost of
Borrower.
(f) A commitment for a Title Policy from the Title Company
covering the Development Project, together with copies of each
document referred to therein and together with searches for
state and federal tax liens, bankruptcies and judgments
against the Borrower and any other Person or entity which may
have an interest in the Development Project.
(g) A current, certified ALTA/ACSM Land Title Survey of the
Development Project Land, which shall also be prepared in
accordance with Lender's standard requirements therefor.
(h) Two (2) complete sets of the Plans for the Development
Project, approved by the City and including a copy of the site
plan with respect to the Development Project.
(i) Soil reports on the Development Project Land, showing that the
soil will adequately support the Development Project
Improvements when constructed in accordance with the Plans.
<PAGE>
(j) The construction contract for each General Contractor, a
schedule listing all contracts and subcontracts relating to
the Development Project, and copies of such subcontract as
Lender may require, specifically identifying those which are
with Borrower or Affiliates thereof. In addition, Borrower
will obtain a conditional assignment of the construction
contract and an agreement from the general contractor to honor
and perform the same for Lender in the event of default under
the Loan Documents.
(k) Lender has obtained an Environmental Audit which indicates
that no Pollutant is present above, on, in or under the
Development Project, together with all reports, data and other
information produced in connection with the Tests at the cost
of Borrower.
(l) Insurance policies and/or certificates of insurance written by
insurers satisfactory to Lender and in amounts satisfactory to
Lender and which comply with the requirements of this
Agreement.
(m) A flood zone certification from Flood Data Services, Inc. (or
another Consultant acceptable to Lender), indicating that the
Development Project is not located in a flood plain or any
other flood prone area, as designated by any governmental
agency; provided, however, that if the Development Project is
so located, Borrower shall provide evidence of flood insurance
acceptable to Lender.
(n) Borrower's time schedules for commencement of construction and
completion of the Development Project Improvements for the
Phase for which the request is being made and for disbursement
of the Development Project Loan proceeds.
(o) A current letter, prepared in accordance with Lender's
standard form therefor, addressed to Lender from an
appropriate City officer regarding the zoning status and
classification of the Development Project, certifying that the
Development Project Land may be used for construction and
operation of the Development Project Improvements without
violation of any applicable Governmental Requirements.
(p) Letters addressed to Lender from the utility companies or
licensed surveyor confirming the availability of water, storm
and sanitary sewer, gas, electric and telephone utilities for
the Development Project, prepared in accordance with Lender's
standard requirements therefor.
(q) UCC chattel lien searches from the appropriate office(s) in
the jurisdictions in which the Development Project is located,
covering the Borrower and of each other owner of the
Development Project Land during the previous five (5) years
(if Lender determines that the same are required).
(r) Information concerning current ad valorem property taxes and
special assessments to which the Development Project is
subject, including copies of tax statements, tax parcel
number(s) and payment dates.
<PAGE>
(s) A certified copy of the recorded plat of the Development
Project Land and for each Phase a copy of the proposed final
plat or plats for such Phase prepared in accordance with the
Development Agreement, and resulting in the creation of the
individual lots contemplated in the Development Agreement to
be fully executed and in recordable form. The Plats shall be
recorded immediately prior to the first Advance on any Phase
and certified copies of the same provided to Lender, provided,
however, the Borrower shall not be required to file the plats
of Pinetree Pass 2nd Addition and Pinetree Pass 3rd Addition
until the day the Mortgage is recorded.
(t) Any other documents and items which Lender, in its sole
discretion, reasonably requires to evaluate the Development
Project.
Upon receipt of the above-mentioned information regarding the
Development Project Approval Prerequisites, Lender may engage an Inspecting
Architect to review the Development Project, and legal counsel and/or a
Consultant to review the Environmental Audit, title commitment and related
documents, all at Borrower's sole cost and expense. If all of the Development
Approval Prerequisites are acceptable to Lender, in its sole discretion,
including but not limited to the Budget for any Phase of the Development
Project, and if the proposed Phase of the Development Project complies with all
of the terms, provisions, requirements and conditions of this Agreement, Lender
shall fund an amount equal up to eighty-five percent (85%) of the Costs as shown
in the Budget of the Development Project for the Phase for which the Advance was
requested pursuant to the provisions of Section 2.3 below. Any Advance of the
Development Project Loan is a term loan which shall mature on the Maturity Date
if not paid earlier pursuant to Section 3.5 hereof, and is not a revolving loan,
i.e., sums prepaid upon a Development Project Loan may not be reborrowed.
Upon approval of the requirements for an Advance on the Development
Project Loan on any Phase of the Development Project and prior to any Advance
thereon, Borrower and Lender shall enter into a Phase Addendum for such Phase of
the Development Project, which shall, among other things, set forth the amount
of the Development Project Loan allocated to such Phase, the Commencement Date
and Completion Date for such Phase.
A portion of the Development Project Loan may be used for the issuance
by Lender of Letters of Credit required by the City or the public telephone
company in connection with the Development Loan, provided that no more than One
Million and 00/100 Dollars ($1,000,000.00) may be reserved for such purpose, in
the aggregate, for the entire Development Project. The amount of any outstanding
Letter of Credit shall reduce the amount of the Development Project Loan
available to the Borrower, and any draw on such Letters of Credit which is not
immediately paid by Borrower shall be deemed to be an Advance under the
Development Note and shall be added to and constitute a part of the applicable
Development Project Loan. Borrower shall pay an annual Letter of Credit Fee as
forth in Section 1.5 hereof for any such Letter of Credit .
2.3 Development Project Loan Pre-Funding Requirements
(a) In order to qualify for the first Advance of proceeds with
respect to the first Phase of the Development Project, the
following conditions shall be satisfied:
<PAGE>
(i) Borrower shall have paid the fees set forth in
Section 1.5 hereof.
(ii) Lender shall have delivered a fully executed copy of
the Mortgage to the Title Company.
(iii) Lender shall have issued the Letter of Instructions
to the Title Company which shall include instructions
to record the Mortgage and to issue the Title Policy
for the Development Project, subject only to such
Permitted Exceptions as are acceptable to the Lender.
(iv) Lender has received evidence that Borrower has paid
in cash at least Five Hundred Eighty-nine Thousand
Two Hundred and 00/100 Dollars ($589,200.00) of the
Costs of the Project.
(v) Upon recording of the Mortgage, execution of the
Letter of Instructions and issuance to Lender of the
Title Policy and submission to Lender of all items
referenced in Section 2.2 above, in form and content
acceptable to Lender, and upon receipt and approval
of the items set forth in Section 2.3(b) and 2.3(c)
herein Borrower shall be entitled to obtain Advances
with respect to the applicable Phase of the
Development Project Loan.
(b) At least five (5) days prior to the first Advance for each
Phase of the Development Project of funds from the Development
Project Loan or such later date as is approved by Lender,
Borrower shall provide to Lender each of the following as
applicable for the Phase for which the Advance is requested,
in form and substance acceptable to Lender, not previously
supplied to and approved by Lender:
(i) An Application and Certificate for Payment.
(ii) Copies of all grading and building permits required
to complete construction of the Development Project
Improvements applicable to such Phase.
(iii) Copies of all insurance policies and certificates
required under Section 5.10 below.
(iv) If applicable an Assignment of General Contract in
the form attached hereto as Exhibit "G".
(v) A copy of the Development Agreement duly executed by
Borrower and the City.
(vi) Evidence of access to the Phase for which the Advance
is requested by publicly dedicated streets.
(vii) A certified copy of the final plat of the Phase of
the Development Project Land ("Final Plat") for which
the Advance is requested showing recording
information or if not yet recorded, a copy of the
Final Plat as approved by
<PAGE>
the City which plat is to be recorded immediately
prior the first Advance of Funds for such Phase.
(viii) A certified copy of the resolutions adopted by the
city council of the City indicating the City's
approval of the plats, the Development Agreement, the
plans and the construction of the Development Project
Improvements for the Phase for which the Advance is
requested.
(c) At least ten (10) days prior to any additional Advances for
any Phase with respect to the Development Loan, Borrower shall
provide to Lender the following, in form and substance
acceptable to Lender:
(i) An Application and Certificate for Payment.
(ii) A certificate signed by Borrower and the General
Contractor, if applicable, certifying as to the
Development Project Improvements completed at the
time that Borrower or the General Contractor and any
subcontractor specified in the relevant Application
and Certificate for Payment has satisfactorily
completed the work or furnished the materials for
which payment is requested in accordance with the
applicable contracts; that all work for which an
Application and Certificate for Payment is made
conforms to the applicable contracts and any approved
changes and is in place and sufficient Development
Project Loan proceeds remain undisbursed to complete
the Development Project and that all Development Loan
Project proceeds previously disbursed have been
applied as per the previously submitted applications
for payment.
(iii) Waivers of mechanics' liens and materialmen's liens
executed by Borrower and General Contractor, if
applicable and all subcontractors for all work done
and all materials furnished to the Development
Project and included in the previous Application and
Certificate for Payment.
(iv) Such other supporting evidence, including invoices
and receipts as may be requested by Lender to
substantiate all payments which are to be made out of
the disbursement of Development Project Loan proceeds
or to substantiate all payments then made in respect
to the Development Project.
Upon receipt of the Application and Certificate for Payment by
the Lender, Lender shall proceed to obtain a certificate by
the Inspecting Architect stating that all work done as
specified in the Application and Certificate for Payment
conforms to the contract documents, the amount requested for
the work done and the materials furnished reasonably
approximates the value of such work or materials and is in
place and that the undisbursed Development Project Loan
proceeds hereunder are then, in its opinion, sufficient to
complete the Development Project.
(d) Notwithstanding anything to the contrary contained herein,
<PAGE>
(i) Lender shall not be required to fund any Development
Project Loan Advance on the first Phase or any Phase
thereafter, until after Borrower has obtained fee
simple title to such Phase as evidenced by the Title
Policy or an endorsement thereto from the Title
Company showing the same subject only to such matters
approved by Lender.
(ii) Lender shall not be required to fund any Development
Project Loan Advance on the second Phase or any Phase
thereafter for Development Project Improvements until
after at least fifty percent (50%) of the lots in the
Phase prior to the Phase for which the Advance is
requested have been sold, as evidenced by either the
release of such lots from the Mortgage as provided
for herein or delivery to Lender of copies
non-cancelable and non-contingent purchase agreements
selling such lots, provided, however, Lender may
Advance for first Phase such Costs as listed on
Exhibit "I" hereto for work which is necessary for
the Development Project and which must be performed
in conjunction with the first Phase even though
Borrower does not yet own fee simple title to the
successive Phases over which such work will be
performed.
(iii) Nothing herein shall be construed as limiting the
Borrower's right to complete the purchase of any of
the Project Land and obtaining fee simple title
thereto and obtaining Advances for such Acquisition
Costs whether or not Borrower is entitled to any
Advances hereunder for Development Project
Improvements at the time of the closing of such
purchase.
(e) Notwithstanding anything to the contrary contained herein,
Lender shall not be required to make the last Advance
hereunder of the Development Project Loan, or any further
Advances of the Construction Project Loan after the last
Advance of the Development Project Loan, until Borrower
provides evidence to Lender that it has paid (in addition to
the amount required in Section 2.3(a)(iv) hereof) all of the
Back-end Equity towards the Costs of the Development Project.
As to any item identified on Exhibit J as a Back-end Equity
item as well as a Loan Budget item, Borrower shall pay such
items up to the required Back-end Equity amount as shown on
Exhibit J prior to obtaining a disbursement of Loan proceeds
for such item.
2.4 Conditions Precedent to Approval of a Construction Project
To obtain any Advance of the Construction Project Loan, Borrower shall
submit to Lender a written request for such Advance, accompanied by the
following documentation (the "Construction Project Approval Prerequisites"), all
of which shall be acceptable in form and content to Lender:
(a) A written description of the Construction Project, including
the legal description of the Lot and the location of the
Construction Project Improvements to be constructed thereon,
the model of house to be constructed thereon, the total costs
<PAGE>
of such Construction Project Improvements, and the
Commencement Date and Completion Date thereof.
(b) In the case of a Pre-Sold Home, a copy of the signed
non-cancelable and non-contingent purchase agreement covering
the Construction Project pursuant to which Borrower is selling
the same.
(c) Insurance policies and/or certificates of insurance (to the
extent not previously provided) written by insurers
satisfactory to Lender and in amounts satisfactory to Lender
and which comply with the requirements of this Agreement.
(d) Lender will obtain at Borrower's cost an Appraisal with
respect to all Construction Projects. It is anticipated that
the standard values for each home model built by Borrower will
be appraised. In addition, a value will be assigned to
pre-approved options and upgrades. It is the Lender's intent
that Borrower will not have to obtain a separate Appraisal for
each single family home financed as a Construction Project.
Rather, it is anticipated that a single Appraisal will be used
for all homes of the same model in the Project.
(e) A Construction Cost Statement, and at Lender's request a
statement setting forth in detail all Construction Costs of
the Construction Project.
(f) A Budget setting forth all Costs of the Construction Project,
together with evidence that Borrower has paid, in cash, all
Costs of the Construction Project in excess of the
Construction Project Loan unless the Construction Project
Improvement to be constructed is a Pre-Sold Home. In such
event Borrower shall not be required to pay such costs until
the Construction Project Loan has been fully disbursed.
(g) If so requested by Lender, a copy of the Plans for the
Construction Project.
(h) Any other documents and items which Lender, in its sole
discretion, reasonably requires to evaluate a proposed
Construction Project.
If all of the Construction Project Approval Prerequisites are
acceptable to Lender, in its sole discretion, and if the proposed Construction
Project complies with all of the terms, provisions, requirements and conditions
of this Agreement, and Borrower has provided to Lender the documentation
necessary to satisfy the requirements of Sections 2.2 and 2.3 hereof regarding
the Phase in which the Construction Project is located, Lender shall make an
Advance of the Construction Project Loan as follows.
(i) The Inspecting Architect shall determine the Costs to
complete said Construction Project (the "Completion
Costs"), by determining the items which remain to be
completed, assuming that all the work which is or has
been certified as completed in the current or any
previous Draw Request has been completed, and then
determining the total Costs as shown in the Budget to
complete such remaining items.
<PAGE>
(ii) The "Eligible Advance Amount" shall be the result of
subtracting from the overall Budget for the
Construction Project the sum of the Completion Costs,
plus the sum total of all prior Advances for such
Construction Project.
(iii) The "Maximum Construction Project Advance" shall be
result determined as follows:
(1) For a Pre-Sold Home for which the sale price
is $312,500 or more, subtract from eighty
percent (80%) of the lesser of either the
appraised value or the sale price for such
Pre-Sold Home, the sum of the Transfer
Price, plus any special assessments levied
or pending or otherwise allocated by the
Borrower to Lot, plus the sum total of all
prior Advances for such Construction
Project.
(2) For a Pre-Sold Home for which the sale price
is less than $312,500, subtract from eighty
percent (80%) of the sale price for such
Pre-Sold Home the sum of the Transfer Price,
plus any special assessments levied or
pending or otherwise allocated by the
Borrower to Lot, plus the sum total of all
prior Advances for such Construction
Project.
(3) For any Model Home or Speculative Home,
subtract from seventy-five percent (75%) of
the appraised value for such Model Home or
Speculative Home, as shown by the Appraisal,
the sum of the Transfer Price, plus any
special assessments levied or pending or
otherwise allocated by the Borrower to Lot,
plus the sum total of all prior Advances for
such Construction Project.
(4) In no event shall the total amounts of all
Advances on any Construction Project exceed
one hundred percent (100%) of the Cost of
such Construction Project as set forth in
the Budget.
(iv) The Lender shall Advance to Borrower the amount
requested in the Draw Request up to the lesser of
either the Eligible Advance Amount or the Maximum
Construction Project Advance as defined above.
(v) Once funds are Advanced on any Construction Project,
said amount may be used only to fund said
Construction Project until said Construction Project
Loan has been repaid in full. Construction Project
Loans are term loans, each of which shall mature on
the Maturity Date applicable to such Construction
Project, and are not themselves revolving loans,
i.e., sums prepaid upon a Construction Project Loan
may not be reborrowed as a part of the same
Construction Project Loan, but may be reborrowed only
as part of another Construction Project Loan in
accordance with the terms of this Agreement.
<PAGE>
(vi) Construction Project Loans for Model Homes and
Speculative Homes will be limited to a maximum of
three (3) Model Homes at any point in time during the
term of the Loan and five (5) Speculative Homes at
any point in time during the term of the Loan.
2.5 Construction Project Loan Pre-Funding Requirements
In order to qualify for the first Advance of proceeds with respect to a
Construction Project Loan, the following conditions shall be satisfied:
(a) Upon submission to Lender of all items referenced in Section
2.4 above, in form and content acceptable to Lender, the
Construction Project shall be entered by Borrower on the
Borrowing Base Certificate as an approved Construction Project
Loan, provided, however, no Pre-Sold Home shall be eligible to
be entered on the Borrowing Base Certificate, and no Advances
shall be made against such Pre-Sold Home, if the Draw Request
for an Advance on such Pre-Sold Home is made more than six (6)
months after the Completion Date specified for such Pre-Sold
Home, and no Speculative Home shall be eligible to be entered
on the Borrowing Base Certificate, and no Advances shall be
made against such Speculative Home, if the Draw Request for an
Advance on such Speculative Home is made more than twelve (12)
months after the Completion Date specified for such
Speculative Home.
(b) Upon submission to Lender of the revised Borrowing Base
Certificate in which all of the requirements set forth in
subsections 2.5(a) above have been complied with, the Borrower
shall be entitled to obtain Advances with respect to such
Construction Project Loan in accordance with the provisions of
this Agreement.
3. ADVANCES OF PROJECT LOAN PROCEEDS
3.1 Procedure for Advances
(a) Each Advance shall be made pursuant to (i) a Draw Request with
respect to Construction Project Loans, or (ii) an Application
and Certificate for Payment with respect to Development
Project Loans, both of which shall be submitted by Borrower to
Lender and to the Inspecting Architect. With respect to each
Development Project, Borrower shall not submit more than one
(1) Application and Certificate for Payment during any thirty
(30) day period. With respect to Construction Projects,
Borrower shall not submit more than two (2) Draw Requests
during any thirty (30) day period.
(b) Borrower shall deliver to Lender an updated Borrowing Base
Certificate on the first (1st) day of each month. Borrower
shall also deliver to Lender a revised Borrowing Base
Certificate with each request for an Advance with respect to
each Construction Project Loan.
(c) On each Advance Date, if all the terms and conditions of this
Agreement have been complied with by Borrower to the
satisfaction of Lender, if no default or event of
<PAGE>
default exists hereunder, and if Lender has approved (i) each
Draw Request for each Construction Project for which Borrower
has submitted a Draw Request, and (ii) each Application and
Certificate for Payment for each Development Project for which
Borrower has submitted an Application and Certificate for
Payment, Lender shall advance to Borrower the principal amount
of each requested Advance by wire transfer of funds for the
amount set forth in the applicable Draw Request or Application
and Certificate of Payment (less any required retainage, which
retainage shall not be deemed to be advanced hereunder and
shall not bear interest until actually advanced, and less any
amounts so advanced by Lender to itself). All Advances
actually so made shall be deemed to be loans to Borrower, and
all Construction Project Loan Advances shall reduce the
available amount of the Revolving Loan and of the Construction
Project Loan for the related Project (if any), and shall bear
interest at the rates provided herein from the date so
advanced.
(d) Lender may take such steps as it may deem appropriate, at its
option, to verify the application of Project Loan proceeds to
Costs of the related Project, and to vary the advancement
procedures herein set forth if the same becomes necessary or
desirable to assure the proper application of Project Loan
proceeds and/or to preserve the first lien status of the
Mortgage covering the Project with respect to Advances made
pursuant hereto including, but not limited to, making Advances
directly to the General Contractors and/or subcontractors, and
the amount of Advances to be made to the Borrower hereunder
shall be correspondingly reduced. However, Lender shall not be
obligated to conduct any such verification or to so vary said
procedures.
(e) In the event that Lender shall determine, in its reasonable
judgment, that proper documentation to support a given
Advance, as required by this Agreement, has not been
furnished, it may withhold payment of such Advance, or of such
portion of such Advance as shall not be so supported by proper
documentation, and shall promptly notify Borrower of the
discrepancy in or omission of such documentation. Until such
time as such discrepancy or omission is corrected to the
satisfaction of Lender, it may withhold such funds.
(f) At the time of each Advance, there shall exist no default or
event of default hereunder, and all representations and
warranties made herein shall be true and correct on and as of
each Advance Date with the same effect as if made on that
date.
3.2 Inspections
Lender, Inspecting Architects, Consultants and their representatives
shall have access to each Project at all reasonable times and shall have the
right to enter each Project and to conduct such inspections thereof as they
shall deem necessary or desirable for the protection of Lender's interests.
However, Lender shall not be obligated to conduct any inspection of any Project.
With respect to Construction Projects, Lender shall retain an
Inspecting Architect at Borrower's expense to make inspections of all existing
Projects prior to the first draw and then
<PAGE>
every thirty (30) days, commencing the first month after the commencement of the
first Construction Project, and to review all Draw Requests relating to such
Projects for the purpose of confirming that (a) each Project has been completed
to date in a good and workmanlike manner, and (b) that the percentages of
completion certified to by the Borrower in the most recent Draw Request are
accurate. The Inspecting Architect shall issue a written report to Lender with
respect to such matters for approved Construction Projects on a monthly basis.
With respect to Development Projects, Lender shall also retain an
Inspecting Architect and any other Consultants deemed necessary or desirable by
Lender, at Borrower's expense, to inspect the Development Project and review the
Plans, Contracts and Sworn Construction Cost Statements for each Phase of the
Development Project and to review all change orders relating to said Development
Project. Such inspection and reviews shall be completed prior to approval of
each Application and Certificate for Payment made with respect to a Development
Project Loan.
Neither Borrower nor any third party shall have the right to use or
rely upon the reports of the Inspecting Architect or any other reports generated
by Lender or its Consultants for any purpose whatsoever, whether made prior to
or after commencement of construction. Borrower shall be responsible for making
its own inspections of each Project during the course of construction,
renovation or expansion and shall determine to its own satisfaction that the
work done and materials supplied are in accordance with applicable contracts
with its Contractors. By advancing funds after any inspection of any Project by
Lender or an Inspecting Architect, Lender shall not be deemed to waive any event
of default, waive any right to require construction defects to be corrected, or
acknowledge that all construction conforms with the Plans.
Notwithstanding any provision of this Agreement to the contrary, in the
event that Lender should determine that (a) the actual quality or value of the
work performed or the materials furnished does not correspond with the quality
or value of the work required by the Plans for any Project, or (b) the
percentage of completion certified to in any Draw Request is inaccurate, or (c)
any Project Loan is not in balance, Lender shall notify Borrower of its
objections thereto, and, upon demand, Borrower shall correct the conditions to
which Lender objects.
3.3 Project Loans In Balance
(a) Lender shall not be obligated to make any Advance of any
Project Loan proceeds unless and until Borrower has certified
that the Development Project Loan is in Balance. Such Loan
shall be in balance if (a) Borrower has paid, in cash, the
amount required under Section 2.3(a)(iv) hereof towards the
Costs, and has paid the Costs identified as Back-end Equity,
to the extent such Costs are incurred at the time the Advance
is requested, which Back-end Equity Costs are shown as
Back-end Equity in the Total Development Costs for Stonecliffe
attached hereto as Exhibit J, both of the above shall be in
excess of the Development Project Loan and as shown on the
most current Budget and Sworn Construction Cost Statement for
the Development Project approved by Lender; and (b) all
remaining unpaid Costs, as determined by Lender, including the
Contingency Reserve, with respect to a Development Loan, where
applicable, do not exceed the amount of the Development
Project Loan proceeds not yet advanced by Lender plus the
Back-end Equity not yet paid by Borrower. The amount of the
Contingency Reserve for
<PAGE>
any Development Project Loan shall be designated in the Sworn
Construction Cost Statement, and shall be included in the
Development Phase Addendum, for the Development Project. The
required amount of the Contingency Reserve shall decline as
Construction Costs for which it is maintained are paid
therefrom; provided, however, that the amount of the
Contingency Reserve shall never decline below an amount
sufficient to pay all costs and payments for which it is
maintained which then remain unpaid, as determined by Lender,
and shall equal a mutually agreed upon percentage of all
Construction Costs of the Development Project. If the
Contingency Reserve becomes depleted, such depletion shall not
limit Borrower's obligation hereunder to pay all sums which
otherwise would have been payable from the Contingency
Reserve.
(b) Notwithstanding any provision of this Agreement to the
contrary, in the event that Lender or Borrower determines that
the unadvanced balance of any Project Loan proceeds is
insufficient to cover any category of Costs set forth on the
Budget and the Sworn Construction Cost Statement for the
Project and/or to complete the Project, and to pay all costs
and expenses of completion and to pay interest on the Project
Loan, through the Maturity Date, it shall notify the other
party hereto of such determination, and Borrower shall, at
Lender's option, either (a) be ineligible for further Advances
of the proceeds of said Project Loan until Borrower has
directly paid (without any right to reimbursement therefor
hereunder) sufficient Costs, or (b), within three (3) Business
Days, deposit with Lender funds equal to said insufficiency,
in order to bring the Project Loan back into balance. All sums
so deposited may be advanced by Lender to pay Costs in the
same manner as, and prior to, Advances of Project Loan
proceeds hereunder.
3.4 General
The Project Loan proceeds shall be advanced by Lender, to or for the
benefit of Borrower, in accordance with the terms and conditions set forth in
this Article 3. All monies advanced by Lender (including amounts payable to
Lender and advanced by Lender to itself pursuant to the terms hereof) shall
constitute loans made to Borrower under this Agreement, evidenced by the Note
and secured by the other Loan Documents, and interest shall be computed thereon
as prescribed by this Agreement and the Note, from the date advanced to or for
the benefit of Borrower.
Borrower may not reallocate Project Loan proceeds to payment of
different items in the Sworn Construction Cost Statement for the Project in
question without the prior written consent of Lender, which consent shall not be
unreasonably withheld or delayed. Lender reserves the right to make Advances for
payment of amounts which are allocated to any of the designated items in any
Sworn Construction Cost Statement for such other purposes or in such different
proportions as Lender may, in its sole discretion, deem necessary or advisable.
No Advance shall constitute a waiver of any condition precedent to the
obligation of Lender to make any further Advance or preclude Lender from
thereafter requiring Borrower to satisfy any such condition precedent with
respect to any prior or further Advance. No Advance shall constitute a waiver of
any default or event of default hereunder which may exist at the time
<PAGE>
of said Advance, whether or not the same is known to Lender. All conditions
precedent to the obligation of Lender to make any Advance are imposed hereby
solely for the benefit of Lender, and no other party may require satisfaction of
any such condition precedent or shall be entitled to assume that Lender will
make or refuse to make any Advance in the absence of strict compliance with such
condition precedent. All requirements of this Agreement may be waived by Lender,
in whole or in part, at any time.
Lender may, but shall not be obligated to, advance to itself, when due,
from the proceeds of the Loan, without further order or request from Borrower,
all interest payable to Lender under the terms hereof or of the Note, and may,
at Lender's option, without any obligation to do so, advance to itself all other
sums due or to become due to Lender under this Agreement or under any of the
other Loan Documents including, but not limited to, its reasonable fees,
administration fees, attorneys' fees, appraisal fees, internal appraisal review
fees, engineer's and Inspecting Architect's fees, Consultant's fees and all
out-of-pocket expenses incurred by Lender in connection with this Agreement and
with the Loan, whether or not any Project Loan has yet been approved by Lender
pursuant to Section 2.2 or 2.4. Lender shall also have the right, but not the
obligation, after the occurrence of an event of default, to advance and directly
apply the proceeds of the Loan to the satisfaction of any of Borrower's other
obligations hereunder or under any of the other Loan Documents. Borrower hereby
assigns and pledges the proceeds of each Project Loan and funds deposited by
Borrower pursuant to Section 3.3 hereof (if any) to Lender for such purposes.
Lender may advance such funds and incur such expenses as Lender deems necessary
for the completion of construction of all Project Improvements and to preserve
the Projects and any security for the Project Loans, and such expenses, even
though causing the amount of the Project Loans to exceed the amount of the Loan,
shall be secured by any and all documents securing the Loan, shall be evidenced
by the Note and shall be payable to Lender upon demand.
In the event that the total amount of the aggregate Development Project
Loans exceed the amount needed to fully pay all Costs set forth on the Sworn
Construction Cost Statement for the Development Project (after subtracting
Borrower's equity contribution required by Sections 2.3(a)(iv), 2.3(e) and 3.3),
Lender shall not be required to advance, and Borrower shall not be entitled to
receive, the excess.
3.5 Releases of Lots
If no event of default exists hereunder, Lender agrees to release any
Lot from the Mortgage upon payment to the Lender of the Release Price designated
for such Lot.
3.6 Transfers of Lots
If no event of default exists hereunder, Lender agrees that a Lot may
be transferred from the Development Project Loan to a Construction Project Loan
at such time as the Borrower desires to construct Construction Project
Improvements on such Lot. After the Borrower has followed the procedure for
approval of a Construction Project Loan with respect to such Lot and approval
has been obtained in accordance with the terms of Section 2.4 hereof, the amount
of the Development Project Loan shall be reduced by an amount equal to the
Transfer Price designated for such Lot and the Construction Project Loan shall
reflect an Advance of said Transfer Price effective as of the date of the first
Advance for such Construction Project.
<PAGE>
3.7 Lender Responsibility
It is expressly understood and agreed that Lender assumes no liability or
responsibility for the sufficiency of Project Loan proceeds to complete the
related Project, for protection of any Project, for the satisfactory completion
of any Project, for inspection during construction, for the adequacy of the
Contingency Reserve, for the adequacy or accuracy of any Sworn Construction Cost
Statement, for any representations made by Borrower, or for any acts on the part
of Borrower or its Contractors to be performed in the construction of any
Project.
4. REPRESENTATIONS AND WARRANTIES OF BORROWER
Borrower represents and warrants to Lender that:
4.1 Legal Status of Borrower
Borrower is a corporation duly organized, validly existing and in good
standing under the laws of the State of Minnesota, and has all power, authority,
permits, consents, authorizations and licenses necessary to carry on its
business, to acquire, develop, construct, equip, own and operate each Project
and to execute, deliver and perform this Agreement and the other Loan Documents;
and this Agreement and the other Loan Documents executed to date by Borrower
have been duly authorized, executed and delivered by and on behalf of Borrower
so as to constitute this Agreement and said other Loan Documents the valid and
binding obligations of Borrower, enforceable in accordance with their terms.
4.2 No Breach of Applicable Agreements or Laws
The consummation of the transactions contemplated hereby and the
execution, delivery and/or performance of this Agreement and the other Loan
Documents will not result in any breach of or constitute a default under any
mortgage, deed of trust, lease, bank loan, credit agreement, guaranty or other
instrument or violate any Governmental Requirements, to which Borrower is a
party, or by which Borrower may be bound or affected.
4.3 No Litigation or Defaults
There are no actions, suits or proceedings pending or, to the knowledge
of Borrower, threatened against or affecting Borrower in which an adverse result
would have a material adverse impact upon Borrower or involving the validity or
enforceability of the Loan Documents or the priority of the lien thereof, at law
or in equity; and Borrower is not in default under any order, writ, injunction,
decree or demand of any court or any administrative body having jurisdiction
over Borrower.
4.4 Financial and Other Information
The financial statements of, and other financial and cash flow
information for, Borrower previously or hereafter delivered to Lender fairly and
accurately present, or will fairly and accurately present, the financial
condition of Borrower as of the dates of such statements and information, and
the cash flow of Borrower for the periods covered by such information, and
neither this Agreement nor any document, financial statement, financial, cash
flow or credit
<PAGE>
information, certificate or statement referred to herein or furnished to Lender
by Borrower contains, or will contain, any untrue statement of a material fact
or omits, or will omit, a material fact, or is or will be misleading in any
material respect. There has been no material adverse change in the financial
condition of Borrower since the most recent financial statements for each
heretofore delivered to Lender.
4.5 No Defaults under Loan Documents or Other Agreements
(a) There is no default or event of default on the part of
Borrower under the Loan Documents or under any other document
to which Borrower is a party and which relates to the
acquisition, ownership, occupancy, use, development,
construction or management of a Project.
(b) Borrower is not in default in the payment of the principal of
or interest on any of its indebtedness for borrowed money,
including any Lender Debt.
(c) Borrower is not in default under any instrument or agreement
under and subject to which any indebtedness for borrowed
money, including any Lender Debt, has been issued or is
secured, including but not limited to the Bond Financial
Covenants. Borrower's representations and warranties with
respect to the Bond Financial Covenants are made to the best
of Borrower's knowledge as of the date hereof for the period
up to June 30, 1998 and are based upon Borrower's projections
as of the date hereof.
(d) No event has occurred which, with the lapse of time or the
giving of notice or both, would constitute an event of default
under any of the above-referenced instruments or agreements.
4.6 Fiscal Years
The fiscal year of Borrower ends on December 31.
4.7 Intentionally Omitted
4.8 Miscellaneous
Borrower is not:
(a) Engaged principally or as one of its important activities in
the business of extending credit for the purpose of purchasing
or carrying margin stock (as defined in Regulation U of the
Board), and the value of all margin stock owned by Borrower
does not constitute more than twenty-five percent (25%) of the
value of the assets of Borrower.
(b) An "investment company" or a company "controlled" by an
investment company within the meaning of the Investment
Company Act of 1940, as amended.
(c) A "holding company" or a "subsidiary company" of a holding
company or an "affiliate" of a holding company or a subsidiary
company of a holding company
<PAGE>
within the meaning of the Public Utility Holding Company Act
of 1935, as amended.
THE WARRANTIES AND REPRESENTATIONS IN THIS ARTICLE 4, AND ANY
ADDITIONAL WARRANTIES AND REPRESENTATIONS CONTAINED HEREIN AND IN THE OTHER LOAN
DOCUMENTS, SHALL BE DEEMED TO HAVE BEEN RENEWED AND RESTATED BY BORROWER AT THE
TIME OF EACH REQUEST BY BORROWER FOR AN ADVANCE.
5. COVENANTS OF BORROWER
While this Agreement is in effect, and until Lender has been paid in
full the principal of and interest on all Advances made by Lender hereunder and
under the other Loan Documents, Borrower makes the following covenants to
Lender:
5.1 Completing Construction
(a) Borrower shall commence construction of the first Phase of the
Development Project within 60 days of the date of this
Agreement, and thereafter shall commence each Project on or
before the Commencement Date specified in the Phase Addendum
with respect to Development Projects and the Borrowing Base
Certificate with respect to Construction Projects, and shall
expeditiously complete and fully pay for the development and
construction of each Project in a good and workmanlike manner
and in accordance with the contracts, subcontracts and Plans
(which in the case of Development Contracts shall be submitted
to and approved by Lender), and in compliance with all
applicable Governmental Requirements, and any covenants,
conditions, restrictions and reservations applicable thereto,
so that Completion of the Project Improvements occurs on or
before the Completion Date specified for said Project in the
Phase Addendum with respect to Development Projects and the
Borrowing Base Certificate with respect to Construction
Projects. Borrower assumes full responsibility for the
compliance of the Plans for each Project and of each Project
itself with all applicable Governmental Requirements, and with
sound building and engineering practices, and, notwithstanding
any approvals by Lender, Lender shall have no obligation or
responsibility whatsoever for such Plans or any other matter
incident to any Project or the construction of the Project
Improvements.
(b) In the case of a Development Contract, Borrower shall become a
party to no General Contractor's contract, for the performance
of any work on any Development Project except upon such terms
and with such parties as shall be approved, in writing, by
Lender.
(c) No approval by Lender of any contract relating to any Project
or of any change order shall make Lender responsible for the
adequacy, form or content of such contract or change order.
(d) Borrower shall correct or cause to be corrected (a) any defect
in the Project Improvements, (b) any departure in the
construction of the Project Improvements
<PAGE>
from the Plans therefor or applicable Governmental
Requirements, and (c) any encroachment by any part of the
Project Improvements or any other structure located on the
Project Land on or over any building setback line, easement,
property line or restricted area, unless expressly permitted
by appropriate easements, licenses or other instruments.
(e) Borrower shall cause all roads necessary for the utilization
of each Project for its intended purposes to be completed and
dedicated, the bearing capacity of the soil on all Project
Land to be made sufficient to support the Project Improvements
situated or to be situated thereon, and sufficient local
utilities to be made available to each Project and installed
at Costs (if any) set out in the Sworn Construction Cost
Statement therefor, on or before the Completion Date therefor.
5.2 Borrowing Base Certificate
Borrower shall deliver to Lender a completed fully executed Borrowing
Base Certificate on the first day of each month during the term of the Loan.
Borrower shall also deliver to Lender a fully executed Borrowing Base
Certificate at the time of submitting each Draw Request.
5.3 Changing Costs, Scope or Timing of Work
Borrower shall deliver to Lender revised Budgets and/or Construction
Cost Statements for each Construction Project, showing changes in or variations
from the current Budget and/or Construction Cost Statement therefor which
involve changes in the costs of five percent (5%) or more for any single change,
or if the aggregate amount of all changes exceeds five percent (5%) or more, as
soon as such changes are known to Borrower. Borrower shall deliver to Lender a
revised construction schedule for any Construction Project, if and when any
target date set forth therein has been delayed by ten (10) consecutive days or
more, or when the aggregate of all such delays equals thirty (30) days or more.
Borrower shall promptly furnish Lender with two (2) copies of each new
change or modification in the design or style of the Construction Project or
change or modification in the Plans, contracts or subcontracts for any
Construction Project, as approved by Lender, prior to incorporation of any such
change or modification into the Construction Project, whether or not Lender's
consent to such change or modification is required hereby. Borrower shall not
make or consent to any change or modification in the Plans, contracts or
subcontracts, and no work shall be performed with respect to any such change or
modification, without the prior written consent of Lender, if such change or
modification would in any way alter the design or structure of the Construction
Project or increase or decrease Costs of said Construction Project by five
percent (5%) or more for any single change or modification, or if the aggregate
amount of all changes and modifications in Costs of said Construction Project
exceeds ten percent (10%) of such Costs.
Borrower shall deliver to Lender revised Budgets and/or Sworn
Construction Cost Statements for each Phase of the Development Project, showing
changes in or variations from the current Budget and/or Sworn Construction Cost
Statement therefor which involve amounts of $50,000 or more for any single
change, or if the aggregate amount of all changes exceeds $100,000, as soon as
such changes are known to Borrower. Borrower shall deliver to Lender a revised
construction schedule for any Development Project, if and when any target date
set forth
<PAGE>
therein has been delayed by ten (10) consecutive days or more, or when the
aggregate of all such delays equals thirty (30) days or more.
Borrower shall promptly furnish Lender with two (2) copies of each new
change or modification in the Plans, contracts or subcontracts for any Phase of
the Development Project, as approved by Lender, prior to incorporation of any
such change or modification into the Development Project, whether or not
Lender's consent to such change or modification is required hereby. Borrower
shall not make or consent to any change or modification in the Plans, contracts
or subcontracts, and no work shall be performed with respect to any such change
or modification, without the prior written consent of Lender, if such change or
modification would in any way alter the design or structure of the Development
Project or increase or decrease Costs of said Development Project by $50,000 or
more for any single change or modification, or if the aggregate amount of all
changes and modifications in Costs of said Development Project exceeds $100,000.
5.4 Balancing Project Loans
Borrower shall furnish to Lender, as and when requested by Lender, at
Lender's option (a) satisfactory evidence of Borrower's ability to pay all
unpaid Costs of completing and operating the Project through the Maturity Date,
and/or (b) cash equal to any difference between such unpaid Costs and the sum of
(i) Project Loan proceeds which have not yet been advanced, plus the Back-end
Equity in the Project required in Section 2.3(e) hereof which has not yet been
paid, which cash shall be held and advanced by Lender pursuant to the terms
hereof.
5.5 Paying Costs of Loan, Projects and Project Loans
Borrower shall pay and discharge, as and when required by the Mortgage,
all taxes, assessments and other governmental charges upon a Project, as well as
all claims for labor and materials which, if unpaid, might become a lien or
charge upon said Project; provided, however, that Borrower shall have the right
to bond off, to remove or to contest the amount, validity and/or applicability
of any of the foregoing in strict accordance with the terms of the Mortgage.
Borrower shall also pay all reasonable costs and expenses of Lender and
all costs and expenses of Borrower in connection with the Project, the
preparation and review of the Loan Documents and the evaluation, making,
closing, administration, transfer and/or repayment of the Loan and of each
Project Loan including, but not limited to, the fees of Lender's attorneys, the
Inspecting Architect and Consultants (including preliminary cost review,
construction progress inspection reports, engineers' fees and environmental
Consultants' fees), costs of Environmental Audits, appraisal fees, internal
appraisal review fees, administration fees, title insurance costs, filing and
recording fees, mortgage registration or similar taxes, and all other costs and
expenses payable to third parties incurred by Lender or Borrower in connection
with the Loan. Such costs and expenses shall be so paid by Borrower whether or
not the Loan or any particular Project Loan is fully advanced.
5.6 Using Project Loan Proceeds
Borrower shall use the Project Loan proceeds solely to pay, or to
reimburse Borrower for paying, Costs shown on the Budget and the Sworn
Construction Cost Statement for the relevant
<PAGE>
Project. Borrower shall take all steps necessary to assure similar use of
Project Loan proceeds by its Contractors and subcontractors.
5.7 Keeping of Records
Borrower shall set up and maintain accurate and complete books,
accounts and records pertaining to each Project and the development and
construction thereof in a manner reasonably acceptable to Lender. Borrower will
permit representatives of Lender and the Inspecting Architect to have free
access to and to inspect and copy all books, records and contracts of Borrower
relating to each Project and the acquisition, development and construction
thereof, and will permit representatives of Lender to have free access to and to
inspect and copy all other books, records and contracts of Borrower. Any such
inspection shall be for the sole benefit and protection of Lender, and Lender
shall have no obligation to disclose the results thereof to Borrower or to any
third party.
5.8 Providing Financial Information
Borrower shall furnish to the Lender at the times set forth below the
following financial statements, reports and certificates:
(a) As soon as available, but in any event within ninety (90) days
after each fiscal year end, an audited financial statement of
the Borrower consisting of a balance sheet, profit and loss
statement and sources of cash flow prepared and certified to
by an independent certified public accountant satisfactory to
the Lender together with a copy of Borrower's applicable 10K
Report;
(b) As soon as available, but in any event within forty-five (45)
days after the last day of each fiscal quarter, a balance
sheet and profit and loss statement of the Borrower dated as
of the last business day of such fiscal quarter in form and
detail as required by the Lender certified by an officer of
the Borrower together with a copy of Borrower's applicable 10Q
Report;
(c) On the first (1st) Business Day of each month, a copy of the
updated Borrowing Base Certificate, together with a report
regarding sales of all lots located within the Development
Project, including any lots on hold, closings for the previous
month, year-to-date closings and closings since the start of
the Project;
(d) Forty-five (45) days after the end of each calendar quarter, a
certification from an officer of the Borrower that Borrower is
in compliance with all of the financial covenants contained
herein and is in compliance with the absorption requirement
specified in Section 6.1(o) hereof;
(e) Within ten (10) days after Borrower receives notice of any
non-monetary default on any recourse indebtedness of the
Borrower or any Affiliate, and immediately upon receipt of any
notice of any monetary default on any recourse indebtedness of
the Borrower or any Affiliate, Borrower shall give Lender
notice of such default notice and a written plan as to
Borrower's plan to cure such default; and
<PAGE>
(f) Such other information concerning the business, operations and
condition (financial or otherwise) of the Borrower as the
Lender may reasonably request.
All financial statements shall be prepared in reasonable detail, shall
be prepared for partnerships and corporations in accordance with GAAP (except
with respect to quarterly or other interim financial statements, for the
requirements of footnotes and for annual audit adjustments) and for individuals
in accordance with accounting principles consistently applied and shall be
signed and certified by the party to which they apply as true, correct and
complete. In the event the Borrower fails to furnish any of the above statements
or information or upon the occurrence of an event of default hereunder, the
Lender may cause an audit to be made of the respective books and records of the
Borrower at the sole cost and expense of the Borrower. The Lender also shall
have the right to examine at their place of safekeeping all books, accounts and
records relating to the operation of the Projects and make copies thereof or
extracts therefrom and to discuss the affairs, finances or accounts with the
employees and officers of the Borrower and the Borrower's independent
accountants. Said examinations shall be at the Lender's expense unless the
Borrower's statements are found to contain significant discrepancies, in which
case the examination shall be at the Borrower's expense.
5.9 Providing Evidence of Completion
Upon Completion of each of the Project Improvements included within
each Project, and, unless the Project Improvement is a Construction Project
Improvement which is a Pre-Sold Home, prior to the final advance of Project Loan
proceeds to pay for Construction Costs thereof including, but not limited to,
any retainage therefor, and as a condition of the same, Borrower shall furnish
Lender with all items required to evidence Completion.
5.10 Maintaining Insurance Coverage; Collection and Application of
Insurance Proceeds
Borrower shall, at all times until Lender has been fully repaid all
indebtedness evidenced by the Note, maintain, or cause to be maintained, in
effect, the following insurance with respect to each Project for the benefit of
Lender:
(a) Builder's risk insurance, written on an "all-risk", completed
value, nonreporting basis, covering one hundred percent (100%)
of the replacement cost of all Project Improvements under
construction at any time upon the Project Land;
(b) Insurance upon all completed Project Improvements against loss
or damage by fire, lightning and other risks customarily
covered by standard "all risk" (or special form cause of loss)
and extended coverage endorsements, together with theft,
vandalism, malicious mischief, collapse, earthquake,
replacement cost, agreed amount (if there is co-insurance),
and restoration in conformance with applicable laws and
ordinances endorsements, all in such amounts as may be from
time to time required by Lender, but in no event less than the
full replacement cost of the completed Project Improvements at
any time erected or placed upon the Project Land, including
the cost of debris removal, including the value of all Project
Improvements which cannot be replaced due to changes in
applicable laws, codes,
<PAGE>
ordinances and/or regulations since the original construction
thereof, and, in any event, in an amount not less than the
unpaid principal balance of the Project Loan;
(c) Comprehensive commercial general public liability insurance
against claims for bodily injury, personal injury, death
and/or property damage occurring in, on or about the Project,
with coverage limits satisfactory to Lender (which shall
initially be at least equal to $1,000,000.00 with respect to
any one (1) Person, accident or occurrence, with at least
$10,000,000.00 in umbrella excess-liability coverage), and
including contractual liability coverage for the tort
liability with respect to the Project assumed by Borrower
hereunder and under any other Loan Document;
(d) Flood insurance upon any Project in such form and amount as
may from time to time be required by Lender, if such Project
or any portion thereof is located in a designated flood zone,
flood plain or other flood hazard or danger area; and
(e) Insurance upon the Project against such other casualties and
contingencies as Lender may from time to time require
including, but not limited to, workers' compensation in
amounts acceptable to Lender, all in such manner and form as
may be satisfactory to Lender.
Borrower shall, at its sole cost and expense, from time to time and at
any time when Lender shall so request, provide Lender with evidence of the full
replacement cost of a Project in a form acceptable to Lender. Borrower shall
promptly notify Lender and the appropriate insurer in writing of any loss
covered by any of the insurance required hereby.
All insurance provided for in this Section 5.10 shall be in effect
under a valid and enforceable policy or policies of insurance in form and
substance approved by Lender, shall be issued by insurers of recognized
responsibility, which are licensed to do business in the state in which the
Project is located, and which are acceptable to Lender, and shall be
satisfactory to Lender in all other respects.
All hazard and casualty insurance policies maintained by Borrower
pursuant to the foregoing provisions of this Section 5.10 shall (i) provide that
any losses payable thereunder shall (pursuant to a standard first mortgagee
clause in favor of, and acceptable to, Lender, to be attached to each such
policy) be payable to Lender and assigns, (ii) include effective waivers by the
insurer of all claims for insurance premiums against Lender, (iii) provide that
any losses shall be payable notwithstanding (A) any act of negligence by
Borrower or Lender, (B) any foreclosure or other proceedings or notice of sale
relating to the Project, (C) any waiver of subrogation rights by the insured, or
(D) any change in the title to or ownership of the Project or any portion
thereof, and (iv) be written in amounts sufficient to prevent Borrower from
becoming a co-insurer under said policies. All liability insurance policies
maintained by Borrower pursuant to this Section 5.10 shall name Lender as an
additional insured and shall waive contribution from any other insurance carried
by Lender in the event of loss. Borrower shall furnish Lender with evidence that
each Project is insured without interruption as required hereunder and, upon
request, Borrower shall cause the originals or certified copies of the policies
of all such insurance to be deposited with Lender or to be otherwise held as
directed by Lender. At least fifteen (15) days prior to the date on which the
premiums on each such policy shall become due and payable, Borrower shall
furnish
<PAGE>
Lender with proof reasonably satisfactory to Lender of payment thereof. Each of
such policies shall contain an agreement by the insurer that the same shall not
be amended, modified, canceled, reduced or terminated for any reason including,
but not limited to, a failure to pay premiums and/or expiration by its terms,
without at least thirty (30) days' prior written notice to Lender. If the
Mortgage covering any Project is foreclosed, the purchaser at the foreclosure
sale shall, after the expiration of any statutory period of redemption become
the sole and absolute owner of any and all such policies, with the sole right to
collect and retain all unearned premiums thereon, and, for this purpose,
Borrower hereby assigns and grants a security interest in said policies and
unearned premiums to Lender.
In the event of loss, Borrower shall immediately give written notice
thereof to Lender, and Borrower shall promptly make proof of loss and shall in
good faith and with due diligence file, prosecute, settle, adjust or compromise
any claims for insurance proceeds and cause the same to be paid to Lender;
provided, however, that Borrower agrees not to finally settle, adjust or
compromise any such claims without the prior written consent of Lender. If
Borrower does not itself promptly do so, or if any event of default exists
hereunder, Lender is authorized and empowered (but not obligated or required) to
make proof of loss, to settle, adjust or compromise any claims for loss, damage
or destruction under, to appear in, prosecute, settle and compromise any suit or
proceeding relating to, and to collect and receive all proceeds of, any policies
of hazard and casualty insurance maintained pursuant hereto. Borrower shall
reimburse Lender, on demand, for all reasonable costs and expenses including,
but not limited to, court costs and attorneys fees, incurred by Lender in
connection therewith, plus interest thereon from the date incurred at the
Default Rate. All proceeds of such insurance are hereby absolutely and
unconditionally assigned, and shall be paid, to Lender. Such proceeds shall, at
Lender's option, be applied first to the payment of all costs and expenses
incurred by Lender in obtaining such proceeds, and the remainder ("Net Insurance
Proceeds") shall be applied, at Lender's option, either to the reduction of the
indebtedness secured by the Mortgage covering the damaged or destroyed Project
in such order as Lender may elect, whether then due and payable or not, or to
the restoration or repair of said Project, without affecting the lien of said
Mortgage or the obligations of Borrower hereunder or thereunder. Interest upon
the entire indebtedness secured thereby shall continue until any such proceeds
are received and applied to such indebtedness by Lender. Pending a decision as
to the proper use and application of any insurance proceeds, and during any such
restoration or repair, Lender shall not be liable for interest on such proceeds.
If Lender elects to apply any such insurance proceeds to the restoration or
repair of a Project, such disbursement shall proceed in accordance with the
procedures set forth in this Agreement governing disbursement of the proceeds of
Project Loans. In such event, Borrower shall, prior to commencing any such
restoration or repair, deposit with Lender the amount, if any, by which the cost
of such restoration or repair, as determined by Lender, exceeds the amount of
the Net Insurance Proceeds, which amount shall be disbursed to pay costs of such
restoration and repair prior to, and in the same manner as, such Net Insurance
Proceeds. Any surplus which may remain after payment of all costs of restoration
or repair and/or all indebtedness evidenced hereby shall be paid to Borrower,
its successors, transferees or assigns, as their interests may appear.
Notwithstanding any provision contained in this Section to the
contrary, in the event that no event of default then exists hereunder, Lender
shall, at Borrower's written request, permit the Net Insurance Proceeds to be
deposited in an interest bearing escrow account at Lender or at another
financial institution acceptable to Lender, or to be otherwise invested in
liquid, secure
<PAGE>
investments acceptable and pledged to Lender, with Borrower bearing all risk of
loss thereof, and Lender shall further permit such proceeds and all interest
accrued thereon ("Insurance Interest") to be drawn upon to pay the costs of
restoration, rebuilding or repair of the Project in accordance with all of the
terms of this Agreement applicable to the original construction of the Project
Improvements; provided that (i) the Project Improvements can be restored,
rebuilt or repaired substantially to the condition, and can then continue to be
operated for the purposes, required by this Agreement; (ii) the restoration,
rebuilding or repair of the Project Improvements shall be in strict accordance
with the Plans there for approved by Lender, pursuant to which such Project
Improvements were originally constructed, or Borrower has obtained the prior
written approval by Lender of any other plans and specifications for such
restoration, rebuilding and repair; (iii) the restoration, rebuilding or repair
shall be commenced within sixty (60) days after the date of the loss; (iv) all
restoration, rebuilding and repair shall be performed in a good and workmanlike
manner and in accordance with all applicable Plans, Governmental Requirements
and private restrictions; (v) Borrower has, prior to the commencement of any
restoration, rebuilding or repair, deposited with Lender the amount by which the
Net Insurance Proceeds and Insurance Interest will be insufficient to cover the
total Costs of the planned restoration, rebuilding or repair, as evidenced by a
Sworn Construction Cost Statement acceptable to Lender, which shall be submitted
by Borrower to Lender and shall be signed and sworn to by Borrower and by the
General Contractor for the planned restoration, rebuilding or repair, who must
both be acceptable to Lender; (vi) there is sufficient time for Borrower to
complete said restoration, rebuilding or repair and repay the Project Loan prior
to the Maturity Date for said Project, and (vii) Borrower proceeds diligently to
complete said restoration, rebuilding or repair prior to said Maturity Date. If
at any time during the course of any such restoration, rebuilding or repair, the
amount so deposited is not sufficient, in Lender's judgment, to pay the cost of
said restoration, rebuilding or repair, Borrower shall deposit additional funds
in an amount equal to the amount of such insufficiency. Borrower hereby grants
to Lender a security interest in all Net Insurance Proceeds, in all Insurance
Interest and in all sums deposited pursuant to this Section 5.10, to secure
payment and performance by Borrower of all of its obligations hereunder and
under the other Loan Documents. In the event that the Net Insurance Proceeds,
plus the Insurance Interest, exceed the cost of said restoration, rebuilding or
repair, and if no event of default exists hereunder, said excess shall be paid
to Borrower.
5.11 Transferring Conveying or Encumbering Projects
Borrower shall not voluntarily or involuntarily agree to, cause, suffer
or permit (a) any sale, transfer or conveyance of any interest of Borrower,
legal or equitable, in any Project (as defined on page 8 herein) or any part or
portion thereof; (b) any transfer of stock in Borrower; or (c) any mortgage,
pledge, encumbrance or lien to be imposed or remain outstanding against any
Project, or any security interest to exist therein, except as created by the
Loan Documents, without, in each instance, the prior written consent of Lender.
Borrower shall maintain its existence as a duly organized and qualified
corporation, in good standing under the laws of the State of Minnesota and the
laws of each state in which any Project is located, and shall not be dissolved,
merged, wound up or terminated. Notwithstanding the above restrictions and
provided no default or Event of Default has occurred and is continuing
hereunder, stock in Borrower may be transferred so long as such Transfer is not
a Change in Control as defined in that certain Indenture dated as of October 18,
1996 by and between Borrower and National City Bank of Minneapolis, National
Association as Trustee and so long as Peter Pflaum shall, at all times, own
<PAGE>
at least a fifty (50%) voting and controlling interest in Borrower and so long
as Peter Pflaum shall continue to be the President of Borrower and shall
continue to be in control of the day-to-day operations of Borrower.
5.12 Complying with the Loan Documents and Contracts
Borrower shall comply with and perform all of its agreements and
obligations under the Loan Documents, and under all other contracts and
agreements to which Borrower is a party relating to the ownership, occupancy,
use, development or construction of the Projects and shall comply with all
requests by Lender which are consistent with the terms thereof. No contract or
other agreement which has been or is required hereby to be assigned by Borrower
to Lender as security for the Loan, shall be changed, modified, amended, revoked
or terminated without the prior written consent of Lender.
5.13 Agreements with Affiliates
Any development, management, leasing or other agreement relating to any
Project between Borrower (or any Affiliate of Borrower ), which requires
Borrower to pay any fee, commission or other compensation of any kind to
Borrower or any such Affiliate, must be approved by Lender, in writing, and all
such agreements shall be subordinate to the Mortgage covering the Project as to
lien and time of payment.
5.14 Updated Appraisals
Borrower agrees that Lender shall have the right to obtain, once during
the term of the Loan as to each Phase of the Development Project and as to each
Construction Project Loan, at Borrower's expense, an updated Appraisal of any
Project for which an Appraisal is required under the terms hereof, acceptable to
Lender's internal appraisal group, in the event that (a) an event of default
shall have occurred hereunder, (b) Lender determines in its reasonable opinion
that the security for the Project Loan for said Project has been physically or
financially impaired in any material respect, or (c) such Appraisal is required
by then current Governmental Requirements applicable to Lender. In the event
that Lender shall elect to obtain such an Appraisal, Lender may immediately
commission an appraiser acceptable to Lender, at Borrower's cost and expense, to
prepare the Appraisal, and Borrower shall fully cooperate with Lender and the
appraiser in obtaining the necessary information to prepare such an Appraisal.
In the event that Borrower fails to cooperate with Lender in obtaining such an
Appraisal, or in the event that Borrower shall fail to pay for the cost of such
an Appraisal, within ten (10) days following demand, such event shall constitute
an event of default hereunder, and Lender shall be entitled to exercise all
remedies therefor available to it hereunder.
5.15 Bond Financial Covenants
So long as the Bond Financial Covenants apply to the Borrower, Borrower
shall provide copies of all reporting certificates required to comply with the
Bond Financial Covenants as and when required by that certain Indenture dated as
of October 18, 1996 by and between Borrower and National City Bank of
Minneapolis, National Association, as Trustee. In the event of any
non-compliance with the Bond Financial Covenants, Borrower shall deliver to
Lender a certificate
<PAGE>
from Borrower's independent public accountants as to subsequent compliance to
cure any such default.
5.16 Minimum Consolidated Tangible Net Worth
In the event that the Bond Financial Covenants no longer apply to the
Borrower or are otherwise amended, then the following covenants shall apply.
Borrower will maintain, at all times until the maturity of all Project Loans, a
Consolidated Tangible Net Worth, determined as of December 31 of each year,
based upon the annual audited financial statements, of the greater of (i) Four
Million Five Hundred Thousand and 00/100 Dollars ($4,500,000.00), or (ii) eighty
percent (80%) of the Consolidated Tangible Net Worth as of the previous fiscal
year end audited financial statements. Compliance with this covenant shall be
determined as of each fiscal year end. Borrower shall provide Lender with a
detailed calculation of the Consolidated Tangible Net Worth as of each fiscal
year end within seventy-five (75) days after such fiscal year end. Borrower
shall have thirty (30) days to cure any default in this Consolidated Tangible
Net Worth covenant. In the event of any non-compliance with this covenant,
Borrower shall deliver to Lender a certificate from Borrower's independent
public accountants as to subsequent compliance to cure any such default.
5.17 Miscellaneous
Borrower shall also:
(a) Maintain its qualification to transact business in Minnesota.
(b) File all tax returns and reports which are required by law to
be filed by it and pay before they become delinquent all
taxes, assessments and governmental charges and levies imposed
upon it and all claims or demands of any kind which, if
unpaid, might result in the creation of a lien upon its
property; provided that the foregoing items need not be paid
if they are being contested in good faith by appropriate
proceedings in accordance with applicable terms of the
Mortgage covering said property, and as long as the Borrower's
title to its property is not materially adversely affected,
its use of such property in the ordinary course of its
business is not materially interfered with, and adequate
reserves with respect thereto have been set aside on the
Borrower's books in accordance with GAAP.
(c) Give prompt written notice to Lender of the commencement of
any action, suit or proceeding before any court or arbitrator
or any governmental department, board, agency or other
instrumentality affecting Borrower or any property of Borrower
or to which Borrower is a party in which an adverse
determination or result could have a material adverse effect
on the business, operations, property or condition (financial
or otherwise) of Borrower or on the ability of any of them to
perform its obligations under this Agreement and the other
Loan Documents, stating the nature and status of such action,
suit or proceeding.
6. DEFAULTS
6.1 Events of Default
<PAGE>
Any of the following events shall constitute an event of default under
this Agreement:
(a) Borrower shall default in the payment of principal due
according to the terms hereof or of the Note.
(b) Borrower shall default in the payment of interest on Advances
made by Lender, or in the payment of fees or any other amounts
payable hereunder, under the Note or under any of the other
Loan Documents.
(c) Borrower shall default in the performance or observance of any
other agreement, covenant or condition required to be
performed or observed by Borrower under the terms of this
Agreement, which default, if curable, is not cured within
thirty (30) days after Lender gives Borrower written notice
thereof; provided, however, that if said curable default
cannot reasonably be cured within said thirty (30) day period,
but Borrower commences the cure thereof within said thirty
(30) day period and thereafter prosecutes such cure
diligently, continuously and in good faith, said thirty (30)
day period shall be extended by the period of time reasonably
required to cure the same, not to exceed an additional ninety
(90) days.
(d) Any representation or warranty made by Borrower in this
Agreement or in any of the other Loan Documents, or in any
certificate or document furnished under the terms of this
Agreement or in connection with the Loan, shall be untrue or
incomplete in any material respect.
(e) An event of default shall exist under the terms of any other
Loan Document or under any other document to which Borrower is
a party and which relates to the acquisition, ownership,
occupancy, use, development, construction or management of a
Project, including but not limited to the Development
Agreement.
(f) Work on any Project shall be substantially abandoned, or
shall, by reason of Borrower's fault, be delayed or
discontinued for an unreasonably long period or for no valid,
good faith business reason, or such construction shall be
delayed for any reason to the extent that Completion of the
Project cannot, in the reasonable judgment of Lender, be
accomplished prior to the Completion Date for the Project.
(g) Borrower or any Affiliate of Borrower shall become insolvent
or shall commit an act of bankruptcy; or shall apply for,
consent to or permit the appointment of a receiver, custodian,
trustee or liquidator for it or any of its property or assets;
or shall fail to, or admit in writing its inability to, pay
its debts as they mature; or shall make a general assignment
for the benefit of creditors or shall be adjudicated bankrupt
or insolvent; or shall take other similar action for the
benefit or protection of its creditors; or shall give notice
to any governmental body of insolvency or pending insolvency
or suspension of operations; or shall file a voluntary
petition in bankruptcy or a petition or an answer seeking
reorganization or an arrangement with creditors, or to take
advantage of any bankruptcy, reorganization, insolvency,
readjustment of debt, rearrangement, dissolution, liquidation
or other similar debtor relief law or statute; or shall file
an answer admitting the material allegations of a petition
filed against it in any proceeding
<PAGE>
under any such law or statute; or shall be dissolved,
liquidated, terminated or merged without Lender's prior
written consent; or shall effect a plan or other arrangement
with creditors; or a trustee, receiver, liquidator or
custodian shall be appointed for it or for any of its property
or assets and shall not be discharged within sixty (60) days
after the date of his appointment; or a petition in
involuntary bankruptcy or similar proceedings is filed against
it and is not dismissed within sixty (60) days after the date
of its filing.
(h) A judgment or judgments for the payment of money in excess of
the sum of $25,000.00 in the aggregate shall be rendered
against Borrower and Borrower shall not (i) discharge the same
or provide for the discharge thereof in accordance with the
terms thereof, or (ii) procure a stay of execution thereof,
prior to any execution on such judgment by the judgment
creditor, within sixty (60) days from the date of entry
thereof, and within said period of sixty (60) days, or such
longer period during which execution of such judgment shall be
stayed, appeal therefrom and cause the execution thereof to be
stayed during such appeal.
(i) The maturity of any Lender Debt of Borrower or any Affiliate
of Borrower (other than indebtedness under this Agreement)
shall be accelerated, or Borrower or any such Affiliate shall
fail to pay any such Lender Debt when due (after the lapse of
any applicable grace period) or, in the case of such
indebtedness payable on demand, when demanded (after the lapse
of any applicable grace period), or any event shall occur or
condition shall exist and shall continue for more than the
period of grace, if any, applicable thereto and shall have the
effect of causing, or permitting the holder of any such Lender
Debt any trustee or other Person, party or entity acting on
behalf of such holder to cause, such or Lender Debt to become
due prior to its stated maturity or to realize upon any
collateral given as security therefor.
(j) An Event of Default occurs under the terms of the Senior
Subordinated Debentures, whereby the maturity of any of such
debentures is accelerated or such debentures are not paid when
due (after the lapse of any applicable grace period)
(k) Borrower shall be terminated, dissolved, liquidated or
wound-up.
(l) Peter Pflaum shall die or shall become legally incompetent.
(m) Borrower shall fail to comply with the covenants set forth in
Section 5.15 and 5.16 hereof.
(n) Any Letter of Credit is presented for payment and Borrower
does not pay the amount so demanded within three (3) business
days the payment so demanded .
(o) Borrower shall fail to close on the sale and obtain a release
of the Mortgage for three Lots per quarter, reported quarterly
beginning on the earlier of (i) the first calendar year
quarter end after the closing of the sale of the first lot, or
(ii) June 30, 1999, but measured cumulatively from the first
quarter from which such report is required.
<PAGE>
(p) Borrower shall fail to exercise any of the options to purchase
the Project Land and close on the purchase thereof in the
times and manner as provided for in the Option Agreement, or
otherwise is in default under the Option Agreement.
(q) Borrower shall fail to file the plats of Pinetree Pass 2nd
Addition and Pinetree Pass 3rd Addition with the County
Recorder for Dakota County, Minnesota, before the Mortgage is
recorded.
6.2 Rights and Remedies
Upon the occurrence of an event of default, unless such event of
default is subsequently waived in writing by Lender, Lender shall be entitled,
at the option of Lender, to exercise any or all of the following rights and
remedies, consecutively or simultaneously, and in any order:
(a) Lender may make one (1) or more further Advances, without
liability to make any subsequent Advances.
(b) Lender may suspend its obligation to make Advances under this
Agreement, without notice to Borrower.
(c) Lender may terminate its obligation to make Advances under
this Agreement, and may declare the entire unpaid principal
balance of the Advances made under this Agreement to be
immediately due and payable, together with accrued and unpaid
interest on such Advances, without notice to or demand on
Borrower.
(d) Lender may exercise any or all remedies specified herein
and/or in the other Loan Documents, including (without
limiting the generality of the foregoing) the right to
foreclose the Mortgage or to sell the property covered thereby
pursuant to the terms thereof, and/or any other remedies which
it may have therefor at law, in equity or under statute.
(e) Lender may cure the event of default on behalf of Borrower,
including the cure of any default under the Option Agreement
or the failure of Borrower to exercise any option provided for
therein, and, in doing so, may enter upon any Project, and may
expend such sums as it may deem desirable, including
attorneys' fees, and including but not limited to such
Advances as necessary to cure any default under the Option
Agreement and to purchase all or any portion of the
Development Project Land not yet purchased by Borrower
pursuant to the Option Agreement, all of which shall be deemed
to be Advances hereunder, even though such Advances may cause
the Loan to exceed the face amount of the Note, and which
shall bear interest at the Default Rate and shall be payable
by Borrower on demand. Borrower by executing this Agreement
and accepting the terms of the Loan represents and
acknowledges that it is a sophisticated real estate developer
and has been fully advised by its legal counsel of the nature
and consequences of this remedy and agrees to the terms of the
Agreement, including specifically this Section 6.2(e).
<PAGE>
(f) Borrower hereby irrevocably authorizes Lender to set off any
sum due to or incurred by Lender against all deposits and
credits of Borrower with, and any and all claims of Borrower
against, Lender. Such right shall exist whether or not Lender
shall have made any demand hereunder or under any other Loan
Document, whether or not said sums, or any part thereof, or
deposits and credits held for the account of Borrower is or
are matured or unmatured, and regardless of the existence or
adequacy of any collateral, guaranty or any other security,
right or remedy available to Lender. Lender agrees that, as
promptly as is reasonably possible after the exercise of any
such setoff right, it shall notify Borrower of its exercise of
such setoff right; provided, however, that the failure of
Lender to provide such notice shall not affect the validity of
the exercise of such setoff rights. Nothing in this Agreement
shall be deemed a waiver or prohibition of or restriction on
Lender to all rights of banker's lien, setoff and counterclaim
available pursuant to law.
In addition, upon the occurrence of any event described in Section
6.1(g) hereof which will not become an event of default prior to the expiration
of some period of time, Lender may suspend its obligations to fund Advances
hereunder immediately upon the occurrence of said event.
6.3 Completion of a Project by Lender
In addition, in case of the occurrence of an event of default specified
in Section 6.1(f) hereof, or any event of default caused by, or which results
in, Borrower's failure, for any reason, to continue with construction of a
Project as required by this Agreement, then Lender may (but shall not be
obligated to), in addition to, or in concert with, the other remedies referred
to above, take over and complete construction of the Project in accordance with
the Plans, with such changes therein as Lender may, in its discretion, deem
appropriate, all at the risk, cost and expense of Borrower. Lender may assume or
reject any contracts entered into by Borrower in connection with the Project,
may enter into additional or different contracts for work, services, labor and
materials required, in the judgment of Lender, to complete the Project, and may
pay, compromise and settle all claims in connection with the Project. All sums,
including reasonable attorneys' fees, and charges or fees for supervision and
inspection of the construction and for any other necessary or desirable purpose
in the discretion of Lender expended by Lender in completing or attempting to
complete the Project (whether aggregating more, or less, than the face amount of
the Note), shall be deemed Advances made by Lender to Borrower hereunder, and
Borrower shall be liable to Lender, on demand, for the repayment of such sums,
together with interest on such sums from the date of their expenditure at the
Default Rate. Lender may, in its discretion, at any time abandon work on the
Project, after having commenced such work, and may recommence such work at any
time, it being understood that nothing in this Section shall impose any
obligation on Lender either to complete or not to complete the Project. For the
purpose of carrying out the provisions of this Section, Borrower irrevocably
appoints Lender its attorney-in-fact, with full power of substitution, to
execute and deliver all such documents, to pay and receive such funds, and to
take such action as may be necessary, in the judgment of Lender, to complete the
Project. This power of attorney is coupled with an interest and is irrevocable.
Lender, however, shall have no obligation to undertake any of the foregoing,
and, if Lender does
<PAGE>
undertake any of the same, it shall have no liability for the adequacy,
sufficiency or completion thereof.
7. MISCELLANEOUS
7.1 Binding Effect; Waivers; Cumulative Rights and Remedies
The provisions of this Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective heirs, executors,
administrators, personal representatives, legal representatives, successors and
assigns, subject to the provisions of Section 5.11; provided, however, that
neither this Agreement nor the proceeds of the Loan may be assigned by Borrower
voluntarily, by operation of law or otherwise, without the prior written consent
of Lender. No delay on the part of Lender in exercising any right, remedy, power
or privilege hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise of any right, remedy, power or privilege hereunder
constitute such a waiver or exhaust the same, all of which shall be continuing.
The rights and remedies of Lender specified in this Agreement shall be in
addition to, and not exclusive of, any other rights and remedies which Lender
would otherwise have at law, in equity or by statute, and all such rights and
remedies, together with Lender's rights and remedies under the other Loan
Documents, are cumulative and may be exercised individually, concurrently,
successively and in any order.
7.2 Survival
All agreements, representations and warranties made in this Agreement
shall survive the execution of this Agreement, the making of the Advances by
Lender, and the execution of the other Loan Documents, and shall continue until
Lender receives payment in full of all indebtedness of Borrower incurred under
this Agreement, under the Indemnification Agreements and under the other Loan
Documents and Lender has no obligation to make any further Advances hereunder.
7.3 Governing Law; Waiver of Jury Trial; Venue
THIS AGREEMENT, THE RIGHTS OF THE PARTIES HEREUNDER, AND THE
CONSTRUCTION, INTERPRETATION, VALIDITY AND ENFORCEABILITY HEREOF SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF
MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES THEREOF, BUT
GIVING EFFECT TO FEDERAL LAWS OF THE UNITED STATES RELATING TO NATIONAL BANKS.
BORROWER AND LENDER HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR
PROCEEDING RELATING TO THE LOAN, THE LOAN DOCUMENTS AND/OR THE TRANSACTIONS
CONTEMPLATED THEREBY. AT THE OPTION OF LENDER, THIS AGREEMENT MAY BE ENFORCED IN
ANY FEDERAL COURT OR MINNESOTA STATE COURT SITTING IN HENNEPIN OR RAMSEY COUNTY,
MINNESOTA; AND BORROWER CONSENTS TO THE JURISDICTION AND VENUE OF ANY SUCH COURT
AND WAIVES ANY ARGUMENT THAT VENUE IN SUCH FORUMS IS NOT CONVENIENT. IN THE
EVENT BORROWER COMMENCES ANY ACTION IN ANOTHER JURISDICTION OR VENUE UNDER ANY
TORT OR CONTRACT THEORY
<PAGE>
ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS AGREEMENT,
LENDER, AT ITS OPTION, SHALL BE ENTITLED TO HAVE THE CASE TRANSFERRED TO ONE OF
THE JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF SUCH TRANSFER CANNOT BE
ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED WITHOUT
PREJUDICE.
7.4 Counterparts
This Agreement may be executed in any number of counterparts, all of
which shall constitute a single Agreement.
7.5 Notices
Any notice required or permitted to be given by any party hereto to the
other under the terms of this Agreement, or documents related hereto, shall be
in writing and shall be sent by manual delivery, telegram, facsimile
transmission, overnight courier, or United States registered or certified mail,
return receipt requested (postage prepaid), addressed to such party at the
address specified on the signature page(s) hereof, or at such other address in
the United States of America as such party shall have specified to the other
party hereto in writing, at least ten (10) days prior to the effective date of
said change of address. All periods of notice shall be measured from the date of
delivery thereof if manually delivered, from the date of sending thereof if sent
by telegram or facsimile transmission, from the first Business Day after the
date of sending if sent by overnight courier, or from four (4) days after the
date of mailing if so mailed.
7.6 Lender's Signs
Lender may, if it so desires, at Borrower's cost and expense, place a
sign of reasonable size on any Project Land, indicating that Lender is providing
financing for the Project to be constructed thereon, and/or may otherwise
publicize its involvement with said Project including, but not limited to,
issuing press releases.
7.7 No Third Party Reliance
No third party shall be entitled to rely upon this Agreement or to have
any of the benefits of Lender's interest hereunder, unless such third party is
an express assignee of all or a portion of Lender's interest hereunder.
7.8 Time of the Essence
Time is of the essence hereof with respect to the dates, terms and
conditions of this Agreement.
7.9 Entire Agreement: No Oral Modifications
This Agreement, the other Loan Documents and the other documents
mentioned herein set forth the entire agreement of the parties with respect to
the Loan and supersede all prior written or oral understandings and agreements
between them with respect thereto. No
<PAGE>
modification or waiver of any provision of this Agreement shall be effective
unless set forth in writing and signed by the parties hereto.
7.10 Captions
The headings or captions of the Articles and Sections set forth herein
are for convenience only, are not a part of this Agreement and are not to be
considered in interpreting this Agreement.
7.11 Borrower-Lender Relationship
The relationship between Borrower and Lender created hereby and by the
other Loan Documents shall be that of a borrower and a lender only, and in no
event shall Lender be deemed to be a partner of, or a joint venturer with,
Borrower.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
Address: LUNDGREN BROS. CONSTRUCTION, INC.,
a Minnesota corporation
935 East Wayzata Boulevard
Wayzata, Minnesota 55391 By:
-----------------------------------
Its:
----------------------------------
Address: U.S. BANK NATIONAL ASSOCIATION
U.S. Bank Place - MPFP0509
601 Second Avenue South By:
Minneapolis, Minnesota 55402-4302 -----------------------------------
Attention: Real Estate Banking Its:
Division Head ----------------------------------
<PAGE>
EXHIBIT "A"
LEGAL DESCRIPTION
LOTS OWNED IN FEE SIMPLE BY LUNDGREN BROS. CONSTRUCTION, INC. AS OF THE DATE
HEREOF:
LOTS 1, 2 AND 3, BLOCK 1;
LOT 1, BLOCK 2;
ALL IN PINETREE PASS, DAKOTA COUNTY, MINNESOTA.
LOTS 1 THROUGH 5, BLOCK 1;
LOTS 1 THROUGH 7, BLOCK 2;
LOT 1, BLOCK 3;
LOTS 1 THROUGH 9, BLOCK 4; AND
LOTS 1 THROUGH 8, BLOCK 5;
ALL IN PINETREE PASS 2ND ADDITION, DAKOTA COUNTY, MINNESOTA.
LOT 1, BLOCK 1;
LOTS 1 THROUGH 5, BLOCK 2;
LOTS 1 THROUGH 5, BLOCK 3;
ALL IN PINETREE PASS 3RD ADDITION, DAKOTA COUNTY, MINNESOTA.
OUTLOTS SUBJECT TO ROLLING OPTION AGREEMENT IN FAVOR OF LUNDGREN BROS.
CONSTRUCTION, INC. AS OF THE DATE HEREOF:
OUTLOTS F, G AND H, PINETREE PASS 2ND ADDITION, DAKOTA COUNTY, MINNESOTA.
<PAGE>
EXHIBIT "B"
APPLICATION AND CERTIFICATE FOR PAYMENT
(Use AIA form or such other form as specified by Lender)
<PAGE>
EXHIBIT "C"
BORROWING BASE CERTIFICATE
<PAGE>
LUNDGREN BROS. CONSTRUCTION, INC. -- U.S. BANK NATIONAL ASSOCIATION
BORROWING BASE CERTIFICATE _____________, 199___
The undersigned hereby certifies to U.S. Bank National Association ("Bank") that
(a) all information set forth on this Borrowing Base Certificate and the
attached Borrowing Base Certificate Exhibit A is true, correct, complete and
accurate on the date set forth below; (b) no uncured Event of Default (as that
term is defined in the Revolving Construction and Development Loan Agreement
("Loan Agreement"), dated July ____, 1998, between the Bank and Lundgren Bros.
Construction, Inc.) exists on the date set forth below, except as set forth
below or in previous notices sent, or certificates delivered to the Bank as set
forth below; and (c) this Certificate complies with all of the terms and
provisions of the Loan Agreement.
Unit Summary
Number of Units Amount of
Construction
Project Loans
_____________ _____________
Total Housing Units Under Construction _____________ _____________
Presold Units _____________ _____________
Models (maximum of 3 units) _____________ _____________
Spec Units (maximum of 5 units eligible _____________ _____________
for funding)
Spec units above the funding limit _____________ _____________
Notices The following notices have been provided to U.S. Bank National
Association and remain effective as of the date hereof:
None.
Certified: Lundgren Bros. Construction, Inc.
By: Date:
----------------------------------- -------------------------
Its:
----------------------------------
<PAGE>
EXHIBIT "D"
RELEASE PRICE
(1) If the Loan to Cost Ratio is greater than seventy percent (70%), the
Release Price for each Lot shall be (i) the outstanding debt under the
Construction Project Loan allocated hereunder to said lot (which
includes the Transfer Price of $48,800.00), plus (ii) the accelerated
Development Project Loan payment, plus (iii) the accrued and unpaid
interest on the foregoing. In calculating the above, the following
definitions shall apply:
a) The accelerated Development Project Loan payment shall be the
greater of:
i) the retail price of the lot as shown on Schedule 1
attached hereto, plus $10,000.00, minus $48,800.00;
or
ii) $21,200.00.
(2) If the Loan to Cost Ratio is equal to or less than seventy percent
(70%), then the Release Price shall be the outstanding debt under the
Construction Project Loan allocated hereunder to said lot (which
includes the Transfer Price of $48,800.00), plus $4,880.00.
(3) The Release Price for Model Homes which are sold on a sale-leaseback
program approved by Lender shall be the outstanding debt under the
Construction Project Loan allocated hereunder to said lot (which
includes the Transfer Price of $48,800.00).
The proceeds from releases under Sections 1-3 above shall be applied to the Loan
as follows: The proceeds shall first be applied accrued and unpaid interest on
such proceeds, then to the Construction Project Loan to reduce the principal
outstanding thereon by the amount of the outstanding debt under the Construction
Project Loan as described above, and the balance applied to the principal
outstanding on the Development Project Loan.
(4) Borrower may obtain releases for vacant lots which have not been
transferred to the Construction Project Loan only with the prior
consent of Lender. In the event Lender approves such a release, the
Release Price shall be the greater of (i) the actual sale price of the
lot plus $10,000.00, or (ii) the retail price of the lot as shown on
Schedule 1 attached hereto plus $10,000.00.
<PAGE>
EXHIBIT "E"
DRAW REQUEST CERTIFICATION
<PAGE>
DRAW REQUEST
In accordance with the attached Collateral Certificate and Borrowing Base
Certificate, Borrower has requested a draw in the amount of $_______________ as
of ________________, 1998.
BORROWER
LUNDGREN BROS. CONSTRUCTION, INC.,
a Minnesota corporation
By:
-----------------------------------
Its:
----------------------------------
<PAGE>
EXHIBIT "F"
LETTER OF INSTRUCTIONS
<PAGE>
July 13, 1998
HAND DELIVERED
Chicago Title Insurance Company
2740 West 80th Street, Suite 120
Bloomington, Minnesota 55431
Attention: Dianne Hensley
Re: $10,100,000.00 Revolving Single Family Residential
Development Loan from U.S. Bank National
Association ("Bank") to Lundgren Bros. Construction, Inc., ("Borrower")
Mortgage and Security Agreement and Fixture Financing Statement by
and between Bank and Borrower dated July 13, 1998, ("Mortgage")
Your Mortgagee's Policy of Title Insurance No. ____________ ("Policy")
Dear Dianne
Enclosed please find a fully completed, dated, executed and acknowledged
Mortgage and Security Agreement and Fixture Financing Statement ("Mortgage"),
covering real property located in Dakota County, Minnesota ("Subject Property").
Please record the Mortgage in the office of the County Recorder in and for said
County, at the sole cost and expense of the Borrower named therein at such time
as you are prepared to issue to the Bank a Policy covering the Subject Property
and insuring that the Mortgage is a first lien on then Borrower's interest in
the Subject Property, free and clear of all mortgages, liens, exceptions,
encumbrances or objections to title except (a) the liens of unpaid taxes which
are not yet delinquent and (b) the items numbered 10, 13, 16, 17, 18, 19 and 20
of Schedule B of your Commitment to Insure covering the Order Number 2495268
Effective Date: May 6, 1998, a copy of which is attached hereto and is hereby
made a part hereof. Please have an appropriate, authorized officer of Chicago
Title Insurance Company date, sign and return to the undersigned a copy of this
letter. Notwithstanding our failure to receive a copy of this letter executed by
an authorized agent of Chicago Title Insurance Company, your recordation of the
Mortgage and issuance of the Policy shall constitute evidence of your agreement
with these instructions.
All premiums and other costs associated with the issuance of the Policy and
compliance with these instructions must be paid by the Borrower.
<PAGE>
If you have any questions concerning any of these instructions, please contact
the undersigned before acting thereon.
Sincerely,
Greg Fiedorow
Loan Administrator
GF:
Attachment
cc: Steven Bailey
ACKNOWLEDGMENT AND ACCEPTANCE
The undersigned hereby acknowledges receipt of the foregoing letter of
instructions, agrees to comply therewith and agrees to issue the Endorsement in
accordance with the terms thereof.
CHICAGO TITLE INSURANCE COMPANY
By:
-----------------------------------
Its:
----------------------------------
<PAGE>
EXHIBIT "G"
ASSIGNMENT OF GENERAL CONTRACT
<PAGE>
ASSIGNMENT OF GENERAL CONTRACT
THIS ASSIGNMENT is made this _____ day of July, 1998, by LUNDGREN BROS.
CONSTRUCTION, INC., a Minnesota corporation (hereinafter collectively referred
to as the "Borrower"), whose address is c/o Peter Pflaum, 935 East Wayzata
Boulevard, Wayzata, Minnesota 55391, to U.S. BANK NATIONAL ASSOCIATION, a
national banking association (hereinafter referred to as the "Lender"), whose
address is U.S. Bank Place, 601 Second Avenue South, Minneapolis, Minnesota
55402-4302.
RECITALS
A. The Borrower is the owner of certain real property and the
improvements thereon located in the City of ______________,
County of ____________, State of Minnesota (hereinafter
referred to as the "Premises").
B. The Borrower has executed and delivered to and with __________
_______________________, a _____________________ (hereinafter
referred to as the "Contractor") a certain agreement dated as
of _____________, 19 ____ (hereinafter referred to as the
"Contract") providing that Contractor will act as general
contractor in connection with the construction of certain
improvements upon the Premises (hereinafter referred to as the
"Improvements").
C. The Lender has made to the Borrower a $10,100,000.00 revolving
and development construction loan (hereinafter referred to as
the "Loan") pursuant to a certain Revolving Construction and
Development Loan Agreement of even date herewith (hereinafter
referred to as the "Loan Agreement") for the purpose of
financing a portion of the costs of the construction of the
Improvements, and as a condition of making certain advances
under the Loan, the Lender requires the assignment to it of
the Contract and certain subcontracts and the consent of the
Contractor and certain subcontractors thereto as herein set
forth.
D. The Loan is evidenced by a Development Note and a Revolving
Note (hereinafter collectively referred to as the "Note") and
secured by a Mortgage and Security Agreement and Fixture
Financing Statement (hereinafter referred to as the
"Mortgage"), both dated July ___, 1998 (the Note, the Mortgage
and all other documents securing the Loan are hereinafter
collectively referred to as the "Loan Documents").
NOW, THEREFORE, to secure the Loan and all advances to and obligations
of the Borrower under the Loan Agreement and the Loan Documents for the
Improvements, the Borrower hereby sells, assigns and transfers and sets over
unto the Lender and its successors and assigns, and grants a security interest
in all of the right, title and interest of the Borrower in and to the Contract
and in and to any and all subcontracts (hereinafter referred to as the
"Subcontracts") now or hereafter entered into by Contractor in connection with
the construction of the Improvements, and the Borrower hereby represents,
warrants and agrees as follows:
<PAGE>
1. The copy of the Contract attached hereto as Exhibit "A" is a
true, correct and complete copy of the Contract; there have
been no prior assignments of the Contract; the Contract is
valid, enforceable and in full force and effect and has not
been amended or modified in any manner; neither party to the
Contract is in default under the terms of the Contract; and
all covenants, conditions and agreements contained in the
Contract have been performed as required therein, except those
not due to be performed until after the date hereof.
2. The Borrower agrees not to further assign, sell, pledge,
mortgage or otherwise transfer or encumber its interest in the
Contract so long as this Assignment is in effect. The Borrower
agrees that it shall not amend or modify the terms of the
Contract without the prior written approval of the Lender.
3. This Assignment shall constitute a perfected, absolute and
present assignment provided that the Lender shall have no
right under this Assignment to enforce the provisions of the
Contract until an Event of Default shall have occurred under
the terms of the Construction Loan Agreement. Upon the
occurrence of such an Event of Default, the Lender may,
without affecting any of its rights or remedies against the
Borrower under any other instrument, document or agreement,
exercise its rights under this Assignment as the Borrower's
attorney-in-fact in any manner permitted by law, and in
addition, the Lender shall have the right to exercise and
enforce any or all rights and remedies available to a secured
party under the Uniform Commercial Code.
4. The Borrower hereby irrevocably constitutes and appoints the
Lender as its attorney-in-fact upon the occurrence of an Event
of Default under the Construction Loan Agreement to demand,
receive and enforce the Borrower's rights with respect to the
Contract, to make payments under the Contract and to give
appropriate receipts, releases and satisfactions for and on
behalf of and in the name of the Borrower or, at the option of
the Lender, in the name of the Lender, with the same force and
effect as if the Lender had originally executed the Contract.
5. The Lender does not assume any of the obligations or duties of
the Borrower under or with respect to the Contract unless and
until the Lender shall have given the Contractor written
notice that it is exercising its right to complete or cause
the completion of the construction of the Improvements
following the occurrence of an Event of Default under the
Construction Loan Agreement. If the Lender does not undertake
to complete or cause the completion of the construction of the
Improvements, the Lender shall have no liability whatsoever
for the performance of any of the obligations or duties under
the Contract. The Lender may reassign, in its sole discretion,
and for the purpose of completing the Improvements, its right,
title and interest in the Contract and Subcontracts upon
notice to the Contractor and Subcontractors, but without any
requirement for the consent of the Borrower.
<PAGE>
6. The Borrower agrees to pay all costs and expenses, including
attorney's fees, which the Lender may incur by exercising any
of its rights under this Assignment.
7. Neither this Assignment nor any provision hereof may be
changed, waived, discharged or terminated, except by an
instrument in writing signed by the Borrower and the Lender.
IN WITNESS WHEREOF, the Borrower has executed this Assignment as of the
day and year first written above.
LUNDGREN BROS. CONSTRUCTION,
INC., a Minnesota corporation
By:
-----------------------------------
Peter Pflaum
Its: President
<PAGE>
CONTRACTOR'S CONSENT
The undersigned, _____________________________, a ____________________
(hereinafter referred to as the "Contractor"), does hereby consent to the above
Assignment and acknowledges and agrees with U.S. BANK NATIONAL ASSOCIATION, a
national banking association (hereinafter referred to as the "Lender") as
follows:
1. The Contractor acknowledges that it has entered into a certain
construction and development contract with the Borrower
(hereinafter referred to as the "Contract") dated __________,
19 ____, a true and correct copy of which is attached hereto
as Exhibit "A", and that it is the Contractor under the
Contract referred to in the foregoing Assignment. The Contract
is valid, enforceable and in full force and effect and has not
been amended or modified in any respect.
2. The Contractor acknowledges that the rights of the Borrower
under the Contract have been collaterally assigned by the
Borrower to the Lender.
3. Upon the occurrence of an Event of Default under the terms of
the Loan Agreement, the Contractor shall, at the Lender's
written request, continue performance on the Lender's behalf
under the Contract in accordance with the terms thereof,
conditioned only upon receipt by the Contractor of payment on
account of its compensation in accordance with the terms and
provisions of the Contract.
4. The disbursement provisions contained in the Loan Agreement
shall control the disbursement of Loan proceeds to the
Borrower notwithstanding any conflicting provisions contained
in the Contract.
5. The Lender may enforce the obligations of the Contractor under
the Contract with the same force and effect as if enforced by
the Borrower and may perform the obligations of the Borrower.
The Contractor will accept such performance in lieu of
performance by the Borrower in satisfaction of the Borrower's
obligations thereunder.
6. The Contractor will give the Lender prompt written notice of
any default by the Borrower under the Contract. The Contractor
will not terminate the Contract on account of any default of
the Borrower thereunder without written notice of such default
to the Lender and will give the Lender thirty (30) days to
cure the default. In the event the Lender elects to cure the
default and does, in fact, cure such default within the time
period set forth herein, the Contractor agrees not to
terminate the Contract. If, however, the Lender elects not to
enforce the Contract against the Contractor, the Lender shall
have no obligation to cure any default of the Borrower under
the Contract.
<PAGE>
7. The Contractor has full authority under all state and local
laws and regulations to perform all of its obligations under
the Contract in accordance with the terms thereof and the
Contractor will comply with all applicable local, state and
federal laws and regulations. Upon completion of the
Improvements, the Contractor will certify to the Lender or its
successors or assigns that the Improvements have been
completed in substantial accordance with the Plans and
Specifications as prepared by _________________________, a
______________________ and all applicable building, fire,
health, zoning, environmental and energy legislation,
ordinances, rules and regulations.
8. The Contractor hereby collectively assigns to the Lender as
collateral security for the Loan all of Contractor's right,
title and interest under the Subcontracts under the same terms
and conditions as contained herein with reference to the
Contract which assignment shall become operative upon the
occurrence of an event of default by the Contractor under the
terms of the Contract or the Subcontracts and the written
assumption by Lender of the Contractor's obligations under the
Subcontracts.
9. The Contractor agrees not to modify or amend the Contract or
any Subcontracts or give effect to any change order without
the Lender's specific written consent.
10. All terms defined in the foregoing Assignment shall have the
same meanings when used in this Consent.
Dated: July ____, 1998
CONTRACTOR:
-------------------------------------,
a
------------------------------------
By:
----------------------------------
Its:
---------------------------------
<PAGE>
EXHIBIT "A"
CONTRACT
<PAGE>
EXHIBIT "H"
CERTIFICATE REGARDING CONSOLIDATED
NET WORTH
The undersigned, being the Borrower or an authorized representative of the
Borrower, delivers this certificate pursuant to the terms of Section 5.16 of the
Revolving Construction and Development Loan Agreement dated as of ___________,
1998, and hereby certifies that for the fiscal year immediately preceding the
date of this Certificate:
(1) Consolidated Tangible Net Worth $______________ *
BORROWER
LUNDGREN BROS. CONSTRUCTION,
INC., a Minnesota corporation
By:
-----------------------------------
Its:
----------------------------------
Date:
---------------------------------
*Calculations attached
<PAGE>
EXHIBIT "I"
DEVELOPMENT PROJECT
PHASE I SHARED COSTS
<PAGE>
EXHIBIT "J"
TOTAL DEVELOPMENT COSTS FOR STONECLIFFE AND PHASE ONE
EXHIBIT 10.10
DEVELOPMENT NOTE
$6,100,000.00 Minneapolis, Minnesota
July _____, 1998
FOR VALUE RECEIVED, the undersigned, LUNDGREN BROS. CONSTRUCTION, INC.,
a Minnesota corporation (the "Borrower"), promises to pay to the order of U.S.
BANK NATIONAL ASSOCIATION, a national banking association (the "Lender"), its
successors and assigns, at its office at 601 Second Avenue South, Minneapolis,
Minnesota 55402-4302, or such other place as the holder hereof may designate in
writing from time to time, the principal sum of Six Million One Hundred Thousand
and 00/100 Dollars ($6,100,000.00), or so much thereof as may be advanced from
time to time pursuant to that certain Revolving Construction and Development
Loan Agreement dated of even date herewith between the Borrower and the Lender
(as originally executed and as may be amended, modified, supplemented or
restated from time to time, the "Loan Agreement"), in lawful money of the United
States, together with interest from the date hereof on the unpaid principal
balance hereof from time to time outstanding at the variable annual rate as
provided for in Section 1.2 of the Loan Agreement. In the event that the Lender
ceases to establish and announce a Reference Rate at any time during the term of
this Note, the Lender shall be entitled to designate a reasonably comparable
substitute index for the calculation of the interest rate hereon so long as any
amount remains outstanding hereunder.
This Note is the Development Note issued pursuant to the terms and
provisions of the Loan Agreement and this Note and the Lender are entitled to
all of the benefits provided for in the Loan Agreement. Reference is made to the
Loan Agreement for a statement of the terms and conditions under which this
indebtedness was incurred, is to be advanced and is to be repaid and under which
the due date of this Note may be accelerated. The provisions of the Loan
Agreement are hereby incorporated by reference with the same force and effect as
if fully set forth herein. Capitalized terms used in this Note shall have the
meanings ascribed to them in the Loan Agreement.
Accrued interest on the unpaid principal balance hereof shall be due
and payable on the first (1st) day of each calendar month, commencing August 1,
1998, until all indebtedness evidenced hereby is paid in full. Advances of
principal shall be disbursed for individual Development Project Loans and shall
be repaid, all in accordance with the terms and conditions of the Loan
Agreement. All outstanding principal and accrued and unpaid interest shall be
due and payable on the third anniversary of the date hereof (the "Maturity
Date") unless the Maturity Date is extended as set forth in the Loan Agreement.
Borrower may prepay principal, in whole or in part, at any time after
three (3) Business Days' prior written notice of said prepayment from Borrower
to Lender, without premium or penalty. Any such prepayment must be accompanied
by payment, in full, of all unpaid, accrued interest on the amount prepaid.
Amounts so prepaid shall be applied to such Development Project Loan or
Development Project Loans as provided for in the Loan Agreement.
Upon the occurrence of an Event of Default hereunder the interest rate
shall thereafter increase and shall be payable on the whole of the unpaid
principal balance at the Default Rate as provided for in Section 1.2 of the Loan
Agreement, which Default Rate shall be effective as of the
<PAGE>
date of the occurrence of such Event of Default. The above increase in the
interest rate upon the occurrence of an Event of Default shall be applicable
whether or not the Lender has exercised its option to accelerate the maturity of
this Note and declared the entire unpaid principal indebtedness to be due and
payable. The Default Rate shall continue until such Event of Default is cured,
payment in full of all indebtedness evidenced by this Note, or completion of all
foreclosure proceedings and redemption periods, whichever shall occur first.
This Note is secured by (i) a Mortgage and Security Agreement and
Fixture Financing Statement and Assignment of Leases and Rents dated of even
date herewith (the "Mortgage"), which Borrower has granted to the holder a first
mortgage lien on and security interest in the Premises, as therein defined (the
"Premises"), (ii) the Loan Agreement, and (iii) other collateral security
agreements (the "Security Documents") given by Borrower to Lender, all dated of
even date herewith.
The occurrence of an Event of Default, as defined in the Loan
Agreement, shall constitute an Event of Default hereunder ("Event of Default"),
and upon the occurrence of such an Event of Default, the entire unpaid principal
balance, together with accrued interest at the Default Rate, shall become,
without notice, immediately due and payable at the option of the Lender.
The Borrower agrees that if, and as often as, this Note is placed in
the hands of an attorney for collection or to defend or enforce any of the
Lender's rights hereunder or under the Mortgage, the Loan Agreement or any other
Security Document securing payment of this Note, the Borrower will pay to the
Lender its attorneys' fees and all court costs (including attorney's fees and
court costs prior to trial, at trial and on appeal, or in any bankruptcy
proceeding) and other expenses incurred in connection therewith.
Time is of the essence. No delay or omission on the part of the Lender
or other holder hereof in exercising any right or remedy hereunder shall operate
as a waiver of such right or of any other right or remedy under this Note or any
other document or agreement executed in connection herewith. All waivers by the
Lender must be in writing to be effective and a waiver on any occasion shall not
be construed as a bar to or a waiver of any similar right or remedy on a future
occasion.
The Borrower, endorsers, sureties, guarantors and all other persons
liable for all or any part of the indebtedness evidenced by this Note jointly
and severally waive presentment for payment, protest, notice of nonpayment and
notice of dishonor. Such parties hereby consent without affecting their
liability to any extension or alteration of the time or terms of payment hereof,
any renewal, any release of all or any part of the security given for the
payment hereof, any acceptance of additional security of any kind, and any
release of, or resort to any party liable for payment hereof and such parties
shall remain bound in the same capacities as prior thereto upon each such event.
Any payment due on any day which is not a Business Day shall be due
upon (and interest shall accrue to) the next Business Day.
This Note represents a loan negotiated, executed and to be performed in
the State of Minnesota and shall be construed, interpreted and governed by the
law of said state.
<PAGE>
The Borrower hereby consents to the personal jurisdiction of the state
and federal courts located in the State of Minnesota in connection with any
controversy related to this Note, waives any argument that venue in such forums
is not convenient and agrees that any litigation instigated by the Borrower
against the Lender in connection with this Note shall be venued in either the
District Courts of Hennepin County, Minnesota, or the United States District
Court for the District of Minnesota.
THE LENDER BY ITS ACCEPTANCE HEREOF AND THE BORROWER HEREBY
VOLUNTARILY, KNOWINGLY AND INTENTIONALLY WAIVES ANY AND ALL RIGHTS TO TRIAL BY
JURY IN ANY LEGAL ACTION OR PROCEEDING ARISING UNDER THIS NOTE OR CONCERNING THE
INDEBTEDNESS EVIDENCED THEREBY AND/OR ANY COLLATERAL CONTEMPLATED THEREBY,
REGARDLESS OF WHETHER SUCH ACTION OR PROCEEDING CONCERNS ANY CONTRACTUAL OR
TORTIOUS OR OTHER CLAIM. THE BORROWER ACKNOWLEDGES THAT THIS WAIVER OF JURY
TRIAL IS A MATERIAL INDUCEMENT TO THE LENDER IN EXTENDING CREDIT TO THE
BORROWER, THAT THE LENDER WOULD NOT HAVE EXTENDED SUCH CREDIT WITHOUT THIS JURY
TRIAL WAIVER, AND THAT SUCH BORROWER HAS BEEN REPRESENTED BY AN ATTORNEY OR HAS
HAD AN OPPORTUNITY TO CONSULT WITH AN ATTORNEY IN CONNECTION WITH THIS JURY
TRIAL WAIVER AND UNDERSTANDS THE LEGAL EFFECT OF THIS WAIVER.
IN WITNESS WHEREOF, the Borrower has executed and delivered this Note
to the Lender as of the day and year first above written.
LUNDGREN BROS. CONSTRUCTION, INC.,
a Minnesota corporation
By:
-------------------------------------
Its:
------------------------------------
STATE OF MINNESOTA )
) ss.
COUNTY OF HENNEPIN )
The foregoing instrument was acknowledged before me this _____ day of
July, 1998, by _______________________________, the _________________________ of
Lundgren Bros. Construction, Inc., a Minnesota corporation, on behalf of the
corporation.
----------------------------------------
Notary Public
EXHIBIT 10.11
REVOLVING NOTE
$4,000,000.00 Minneapolis, Minnesota
July _____, 1998
FOR VALUE RECEIVED, the undersigned, LUNDGREN BROS. CONSTRUCTION, INC.,
a Minnesota corporation (the "Borrower"), promises to pay to the order of U.S.
BANK NATIONAL ASSOCIATION, a national banking association (the "Lender"), its
successors and assigns, at its office at 601 Second Avenue South, Minneapolis,
Minnesota 55402-4302, or such other place as the holder hereof may designate in
writing from time to time, the principal sum of Four Million and 00/100 Dollars
($4,000,000.00), or so much thereof as may be advanced from time to time
pursuant to that certain Revolving Construction and Development Loan Agreement
dated of even date herewith between the Borrower and the Lender (as originally
executed and as may be amended, modified, supplemented or restated from time to
time, the "Loan Agreement"), in lawful money of the United States, together with
interest from the date hereof on the unpaid principal balance hereof from time
to time outstanding at the variable annual rate as provided for in Section 1.2
of the Loan Agreement. In the event that the Lender ceases to establish and
announce a Reference Rate at any time during the term of this Note, the Lender
shall be entitled to designate a reasonably comparable substitute index for the
calculation of the interest rate hereon so long as any amount remains
outstanding hereunder.
This Note is the Revolving Note issued pursuant to the terms and
provisions of the Loan Agreement and this Note and the Lender are entitled to
all of the benefits provided for in the Loan Agreement. Reference is made to the
Loan Agreement for a statement of the terms and conditions under which this
indebtedness was incurred, is to be advanced and is to be repaid and under which
the due date of this Note may be accelerated. The provisions of the Loan
Agreement are hereby incorporated by reference with the same force and effect as
if fully set forth herein. Capitalized terms used in this Note shall have the
meanings ascribed to them in the Loan Agreement.
Accrued interest on the unpaid principal balance hereof shall be due
and payable on the first (1st) day of each calendar month, commencing August 1,
1998, until all indebtedness evidenced hereby is paid in full. Advances of
principal shall be disbursed for individual Construction Project Loans and shall
be repaid, all in accordance with the terms and conditions of the Loan
Agreement. All outstanding principal and accrued and unpaid interest shall be
due and payable on the third anniversary of the date hereof (the "Maturity
Date") unless the Maturity Date is extended as set forth in the Loan Agreement.
Borrower may prepay principal, in whole or in part, at any time after
three (3) Business Days' prior written notice of said prepayment from Borrower
to Lender, without premium or penalty. Any such prepayment must be accompanied
by payment, in full, of all unpaid, accrued interest on the amount prepaid.
Amounts so prepaid shall be applied to such Construction Project Loan or
Construction Project Loans as provided for in the Loan Agreement. If no default
or Event of Default exists hereunder, amounts so prepaid may be reborrowed from
time to time as parts of other Construction Project Loans (but not the same
Construction Project Loan) in accordance with the terms of the Loan Agreement.
<PAGE>
Upon the occurrence of an Event of Default hereunder the interest rate
shall thereafter increase and shall be payable on the whole of the unpaid
principal balance at the Default Rate as provided for in Section 1.2 of the Loan
Agreement, which Default Rate shall be effective as of the date of the
occurrence of such Event of Default. The above increase in the interest rate
upon the occurrence of an Event of Default shall be applicable whether or not
the Lender has exercised its option to accelerate the maturity of this Note and
declared the entire unpaid principal indebtedness to be due and payable. The
Default Rate shall continue until such Event of Default is cured, payment in
full of all indebtedness evidenced by this Note, or completion of all
foreclosure proceedings and redemption periods, whichever shall occur first.
This Note is secured by (i) a Mortgage and Security Agreement and
Fixture Financing Statement and Assignment of Leases and Rents dated of even
date herewith (the "Mortgage"), which Borrower has granted to the holder a first
mortgage lien on and security interest in the Premises, as therein defined (the
"Premises"), (ii) the Loan Agreement, and (iii) other collateral security
agreements (the "Security Documents") given by Borrower to Lender, all dated of
even date herewith.
The occurrence of an Event of Default, as defined in the Loan
Agreement, shall constitute an Event of Default hereunder ("Event of Default"),
and upon the occurrence of such an Event of Default, the entire unpaid principal
balance, together with accrued interest at the Default Rate, shall become,
without notice, immediately due and payable at the option of the Lender.
The Borrower agrees that if, and as often as, this Note is placed in
the hands of an attorney for collection or to defend or enforce any of the
Lender's rights hereunder or under the Mortgage, the Loan Agreement or any other
Security Document securing payment of this Note, the Borrower will pay to the
Lender its attorneys' fees and all court costs (including attorney's fees and
court costs prior to trial, at trial and on appeal, or in any bankruptcy
proceeding) and other expenses incurred in connection therewith.
Time is of the essence. No delay or omission on the part of the Lender
or other holder hereof in exercising any right or remedy hereunder shall operate
as a waiver of such right or of any other right or remedy under this Note or any
other document or agreement executed in connection herewith. All waivers by the
Lender must be in writing to be effective and a waiver on any occasion shall not
be construed as a bar to or a waiver of any similar right or remedy on a future
occasion.
The Borrower, endorsers, sureties, guarantors and all other persons
liable for all or any part of the indebtedness evidenced by this Note jointly
and severally waive presentment for payment, protest, notice of nonpayment and
notice of dishonor. Such parties hereby consent without affecting their
liability to any extension or alteration of the time or terms of payment hereof,
any renewal, any release of all or any part of the security given for the
payment hereof, any acceptance of additional security of any kind, and any
release of, or resort to any party liable for payment hereof and such parties
shall remain bound in the same capacities as prior thereto upon each such event.
Any payment due on any day which is not a Business Day shall be due
upon (and interest shall accrue to) the next Business Day.
<PAGE>
This Note represents a loan negotiated, executed and to be performed in
the State of Minnesota and shall be construed, interpreted and governed by the
law of said state.
The Borrower hereby consents to the personal jurisdiction of the state
and federal courts located in the State of Minnesota in connection with any
controversy related to this Note, waives any argument that venue in such forums
is not convenient and agrees that any litigation instigated by the Borrower
against the Lender in connection with this Note shall be venued in either the
District Courts of Hennepin County, Minnesota, or the United States District
Court for the District of Minnesota.
THE LENDER BY ITS ACCEPTANCE HEREOF AND THE BORROWER HEREBY
VOLUNTARILY, KNOWINGLY AND INTENTIONALLY WAIVES ANY AND ALL RIGHTS TO TRIAL BY
JURY IN ANY LEGAL ACTION OR PROCEEDING ARISING UNDER THIS NOTE OR CONCERNING THE
INDEBTEDNESS EVIDENCED THEREBY AND/OR ANY COLLATERAL CONTEMPLATED THEREBY,
REGARDLESS OF WHETHER SUCH ACTION OR PROCEEDING CONCERNS ANY CONTRACTUAL OR
TORTIOUS OR OTHER CLAIM. THE BORROWER ACKNOWLEDGES THAT THIS WAIVER OF JURY
TRIAL IS A MATERIAL INDUCEMENT TO THE LENDER IN EXTENDING CREDIT TO THE
BORROWER, THAT THE LENDER WOULD NOT HAVE EXTENDED SUCH CREDIT WITHOUT THIS JURY
TRIAL WAIVER, AND THAT SUCH BORROWER HAS BEEN REPRESENTED BY AN ATTORNEY OR HAS
HAD AN OPPORTUNITY TO CONSULT WITH AN ATTORNEY IN CONNECTION WITH THIS JURY
TRIAL WAIVER AND UNDERSTANDS THE LEGAL EFFECT OF THIS WAIVER.
IN WITNESS WHEREOF, the Borrower has executed and delivered this Note
to the Lender as of the day and year first above written.
LUNDGREN BROS. CONSTRUCTION, INC.,
a Minnesota corporation
By:
-------------------------------------
Its:
------------------------------------
STATE OF MINNESOTA )
) ss.
COUNTY OF HENNEPIN )
The foregoing instrument was acknowledged before me this _____ day of July,
1998, by __________________________________________, the _____________________
of Lundgren Bros. Construction, Inc., a Minnesota corporation, on behalf of the
corporation.
----------------------------------------
Notary Public
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