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CREDIT AGREEMENT
among
MONTEREY HOMES CONSTRUCTION II, INC.,
an Arizona corporation
and
MONTEREY HOMES ARIZONA II, INC.,
an Arizona corporation,
as Borrowers,
and
NORWEST BANK ARIZONA, NATIONAL ASSOCIATION,
a national banking association,
and
BANK ONE, ARIZONA, NA,
a national banking association,
as Lenders
and
NORWEST BANK ARIZONA, NATIONAL ASSOCIATION,
a national banking association,
as Agent
December 20, 1996
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TABLE OF CONTENTS
Page
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1. CERTAIN DEFINED TERMS..............................................2
1.1. Certain Defined Terms.....................................2
1.2. Computation of Time Periods...............................20
1.3. Accounting Terms..........................................20
2. EXISTING LOANS 20
2.1. Outstanding Loans; Payment Upon Effective Date............20
3. CONDITIONS PRECEDENT...............................................21
3.1. Conditions of Effectiveness...............................21
3.2. Conditions Precedent to All Borrowings After the Merger...23
3.3. Conditions Precedent to All Borrowings....................24
4. THE GENERAL TERMS OF THE LOANS.....................................25
4.1. Loan Structure............................................25
4.2. Maximum Amount of All Loans...............................25
4.3. Ratable Loans.............................................25
4.4. Types of Advances, Final Maturity.........................25
4.5. Guaranties................................................26
4.6. Collateral................................................26
4.7. Single Obligation.........................................27
5. MASTER CONSTRUCTION LINE...........................................27
5.1. The Construction Line.....................................27
5.2. Collateral Base...........................................28
5.3. Limitations on Residential Units in Collateral Base.......30
5.4. Monthly Construction Status Report to Agent...............31
5.5. Inclusion in Collateral Base..............................32
5.6. Inspections...............................................32
5.7. Collateral Base Adjustments...............................33
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5.8. Defective Work............................................33
5.9. Budget Shortfall..........................................33
5.10. Obligations...............................................33
6. TERM LOAN .........................................................34
6.1. The Term Loan.............................................34
7. GUIDANCE LINE OF CREDIT............................................34
7.1. Guidance Line of Credit...................................35
7.2. Existing Subdivisions.....................................37
7.3. Approval of New Projects..................................38
7.4. Letters of Credit.........................................41
7.5. Disbursement Procedures...................................43
7.6. Interest..................................................43
8. BORROWINGS ........................................................43
8.1. Method of Borrowing.......................................43
8.2. Method of Selecting Types and Interest Periods for
Advances.................................................43
8.3. Method of Selecting Types and Interest Periods for
Conversion and Continuation of Advances..................45
8.4. Maximum Number of Eurodollar Advances and Minimum Amount
of Each Eurodollar Advance...............................45
8.5. Rate after Maturity.......................................45
8.6 Method of Payment.........................................46
8.7. Notes; Telephonic Notices.................................46
8.8. Interest Payment Dates: Interest and Fee Basis............46
8.9. Notification of Advances, Interest Rates, Prepayments and
Commitment Reductions....................................46
8.10. Non-Receipt of Funds by the Agent.........................47
8.11. Unconditional Obligation to Make Payments.................47
8.12. Advances During Default...................................47
8.13. Draw Requests.............................................48
8.14. Disbursements to Other Parties............................51
9. CHANGE IN CIRCUMSTANCES............................................51
9.1. Yield-Protection..........................................51
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9.2. Changes in Capital Adequacy Regulations...................51
9.3. Availability of Types of Advances.........................52
9.4. Lender Statements; Survival of Indemnity..................52
10. REAL ESTATE COLLATERAL.............................................52
10.1. First Mortgages...........................................52
10.2. Title Insurance or Commitment.............................52
10.3. Appraisal Requirements....................................53
10.4. Flood Report..............................................53
10.5. Releases..................................................53
11. REPRESENTATIONS AND WARRANTIES.....................................54
11.1. Organization, Powers, etc.................................54
11.2. Authorization and Validity of this Agreement. etc.........54
11.3. Financial Statements......................................55
11.4. No Material Adverse Effect................................56
11.5. Title to Properties.......................................56
11.6. Litigation................................................56
11.7. Payment of Taxes..........................................56
11.8. Agreements................................................56
11.9. Foreign Direct Investment Regulations.....................57
11.10. Federal Reserve Regulations...............................57
11.11. Consents, etc.............................................57
11.12. Compliance with Applicable Laws...........................57
11.13. Relationship of the Borrower..............................58
11.14. Subsidiaries..............................................58
11.15. ERISA.58
11.16. Investment Company Act....................................59
11.17. Public Utility Holding Company Act........................59
11.18. Subordinated Debt.........................................59
11.19. Post-Retirement Benefits..................................59
11.20. INTENTIONALLY DELETED.....................................59
11.21. Environmental Representations.............................59
11.22. No Misrepresentation......................................59
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12. AFFIRMATIVE COVENANTS..............................................60
12.1. Existence, Properties, etc................................60
12.2. Notice....................................................60
12.3. Payments of Debts, Taxes, etc.............................60
12.4. Accounts and Reports......................................61
12.5. Access to Premises and Records............................64
12.6. Maintenance of Properties and Insurance...................64
12.7. Compliance with Applicable Laws...........................64
12.8. Change in Collateral......................................65
12.9. Use of Proceeds...........................................65
13. NEGATIVE COVENANTS.................................................65
13.1. Minimum Adjusted Tangible Net Worth.......................65
13.2. Minimum Liquidity.........................................65
13.3. Maximum Leverage..........................................65
13.4. Minimum Debt Coverage....................................66
13.5. Guaranties................................................66
13.6. Sale of Assets; Acquisitions; Merger......................66
13.7. INTENTIONALLY DELETED....................................67
13.8. Dividends and Distributions...............................67
13.9. Subordinated Debt........................................67
13.10. Construction in Progress..................................67
13.11. No Margin Stock...........................................67
13.12. Transactions with Affiliates..............................67
14. EVENTS OF DEFAULT; REMEDIES........................................67
14.1. Events of Default.........................................67
14.2. General Remedies..........................................70
14.3. Advances to Protect Lenders' Interests....................70
14.4. Cease Funding.............................................70
14.5. Acceleration and Increased Rate of Interest...............70
14.5. Lenders' Attorneys' Fees..................................70
14.6. Specific Performance......................................71
14.7. Other Remedies............................................71
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14.8. Application of Funds......................................71
15. BENEFIT OF AGREEMENT; DISSEMINATION OF INFORMATION.................71
15.1. Successors and Permitted Assigns..........................71
15.2. Dissemination of Information..............................72
16. SETOFF; RATABLE PAYMENTS...........................................72
16.1. Setoff....................................................72
16.2. Ratable Payments..........................................72
17. MISCELLANEOUS .....................................................72
17.1. Notice....................................................72
17.2. Survival of Representations...............................74
17.3. Expenses..................................................74
17.4. Indemnification of the Lenders and the Agent..............75
17.5. Release of Claims.........................................75
17.6. Maximum Interest Rate.....................................76
17.7. Modification of Agreement.................................76
17.8. Preservation of Rights....................................76
17.9. Joint and Several Obligations of Borrower; Several
Obligations of Lenders...................................76
17.10. Severability..............................................77
17.11. Counterparts..............................................77
17.12. Loss, etc., Notes.........................................77
17.13. Governmental Regulation...................................77
17.14. Taxes.....................................................77
17.15. Headings..................................................77
17.16. Entire Agreement..........................................77
17.17. Signs.....................................................78
17.18. ARBITRATION AGREEMENT; WAIVER OF RIGHT TO
JURY TRIAL................................................79
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CREDIT AGREEMENT
THIS CREDIT AGREEMENT (the "Agreement") is made as of the 20th day of
December, 1996 by and among Monterey Homes Construction II, Inc., an Arizona
corporation ("MHC II") and Monterey Homes Arizona II, Inc., an Arizona
corporation ("MHA II") (MHC II and MHA II are sometimes hereinafter referred to
collectively as the "Borrower"), Norwest Bank Arizona, National Association, a
national banking association, and Bank One, Arizona, NA, a national banking
association (collectively, the "Lenders") and Norwest Bank Arizona, National
Association, a national banking association, as Agent (the "Agent").
R E C I T A L S:
WHEREAS, Borrower desires to obtain from Lenders (a) a $20,000,000
master construction line of credit to finance vertical construction in the
Subdivisions, (b) a $20,000,000 guidance line of credit to finance acquisition
and development in existing Subdivisions and to finance new acquisition and
development on a project specific basis as approved by Lenders from time to
time, and (c) a $6,052,500 term loan to refinance an existing loan made by
Norwest which was used by Borrower to fund a portion of the distribution of
retained earnings of Borrower to its shareholders prior to the Merger;
WHEREAS, Borrower intends to merge with and into Public Company, which
will be the surviving company and which will thereafter change its name to
Monterey Homes Corporation;
WHEREAS, immediately prior to the Merger, Borrower intends to form the
Drop-Down Subsidiaries and transfer all of their assets and liabilities,
including, without limitation, Borrower's Real Estate and all of Borrower's
right, title, interest, obligations and liabilities under this Agreement and the
Loan Documents, to the Drop-Down Subsidiaries;
WHEREAS, subject to the terms and conditions of this Agreement, the
Drop-Down Subsidiaries will assume all of the Borrower's Obligations under this
Agreement and the Loan Documents, and Borrower will guarantee the payment and
performance of the Obligations;
WHEREAS, after the effective date of the Merger, Public Company intends
to form the New Business Subsidiaries which, subject to the terms and conditions
of this Agreement, will assume the Obligations and become a "Borrower"
hereunder;
WHEREAS, Lenders desire to proceed with the making of the Loans on the
terms and conditions contained herein;
NOW, THEREFORE, in consideration of the premises, the mutual covenants
and agreements contained herein and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereby
agree as follows:
1. CERTAIN DEFINED TERMS
1.1. Certain Defined Terms. As used herein, each of the following terms
shall have the meaning ascribed to it below, which meaning shall be applicable
to both the singular and plural forms of the terms defined:
"Agreed Cost" means the agreed-upon cost of each Residential Unit Base
Plan, including Approved Upgrades, as shown on Exhibit "A" attached hereto and
incorporated herein by this reference, and as revised from time to time by Agent
in its sole and absolute discretion based upon Borrower's updated cost
estimates.
"Adjusted Tangible Net Worth" means, as of any date of determination,
the amount of consolidated Owners' Equity of the Obligated Group as shown on its
consolidated balance sheet, plus Subordinated Debt, minus the Net Book Value
(after deducting reserves applicable thereto) of all assets classified as
intangible assets under GAAP, including, without limitation, goodwill,
trademarks, trade names, service marks, copyrights, patents, licenses, permits,
covenants not to compete, and rights related thereto, minus any stock or other
securities or evidences of indebtedness of any other Person, any loans or
advances to any other Person, or any investment or interest whatsoever in any
other Person, including specifically, but without limitation, any partnership or
joint venture, except (a) investments in Cash Equivalents and (b) investments
in, or receivables from , joint ventures and partnerships, or seller-carryback
financing secured by a First Mortgage in favor of Borrower, but which, in the
aggregate with respect to clause (b), do not exceed ten percent (10%) of the
Obligated Group's Tangible Assets.
"Advance" means a borrowing hereunder consisting of the aggregate
amount of the several Loans, made by the Lenders to the Borrower, of the same
Type.
"Affiliate" of any Person means any other Person directly or indirectly
controlling, controlled by or under common control with such Person. A Person
shall be deemed to control another Person if the controlling Person owns 10% or
more of any class of voting securities (or other ownership interests) of the
controlled Person or possesses, directly or indirectly, the power to direct or
cause the direction of the management or policies of the controlled Person,
whether through ownership of stock, by contract or otherwise.
"Agent" means Norwest Bank Arizona, National Association, in its
capacity as agent for the Lenders, and not in its individual capacity as a
Lender, and any successor Agent appointed pursuant to the Co-Lender Agreement.
"Aggregate Commitment" means the aggregate of the Commitments of all
the Lenders, as reduced from time to time pursuant to the terms hereof.
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"Agreement" means this Credit Agreement, as it may be amended,
modified, supplemented, restated or replaced from time to time.
"Applicable Margin" means:
(a) prior to the Merger:
(i) with respect to Floating Interest Rate Advances
under the Construction Line, 50 basis points;
(ii) with respect to a Eurodollar Advances under the
Construction Line, 275 basis points;
(iii) with respect to Floating Interest Rate Advances
under the Guidance Line, 50 basis points;
(iv) with respect to a Eurodollar Advances under the
Guidance Line, 300 basis points; and
(v) with respect to Floating Interest Rate Advances
under the Term Loan, 50 basis points;
(b) on or after the Merger:
(i) with respect to Floating Interest Rate Advances
under the Construction Line, 25 basis points;
(ii) with respect to a Eurodollar Advances under the
Construction Line, 250 basis points;
(iii) with respect to Floating Interest Rate Advances
under the Guidance Line, 50 basis points;
(iv) with respect to a Eurodollar Advances under the
Guidance Line, 300 basis points; and
(v) with respect to Floating Interest Rate Advances
under the Term Loan, 25 basis points.
"Appraisal" means a written appraisal of the Real Estate or one or more
Lots, Models or Base Plans prepared by a qualified appraiser who is a member of
the American Institute of Real Estate Appraisers or of another nationally
recognized group of professional appraisers, selected by the Agent, setting
forth an opinion as to the Appraised Value.
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"Appraised Value" means, with respect to an interest in Real Estate as
of a given date, the then current fair market value of that interest, as
determined by a qualified appraiser who is a member of the American Institute of
Real Estate Appraisers or of another nationally recognized group of professional
appraisers, selected by the Agent, based upon generally accepted methods of
appraising and in conformity with the requirements of any applicable law, rule,
regulation, policy, guideline or directive (whether or not having the force of
law) of any Governmental Authority, or any interpretation thereof, including,
without limitation, the provisions of Title XI of the Financial Institutions
Reform, Recovery and Enforcement Act of 1989, as amended, reformed or otherwise
modified from time to time, and any rules promulgated to implement such
provisions.
"Approved Upgrade" means the agreed value of the flooring and in-ground
swimming pools for each Project, as more particularly described in Exhibit "A"
attached hereto and incorporated herein by this reference, and, with respect to
new Projects, as agreed upon in writing by Borrower and Agent, and any other
upgrades to the Base Plans approved in writing by Agent.
"Article" means an article of this Agreement unless another document is
specifically referenced.
"Assignment and Assumption Agreement" means that certain assignment and
assumption agreement among the Borrower and the Drop-Down Subsidiaries, with the
consent and release of MHC II and MHA II (and the affirmative acknowledgment
that the Public Company is not a "Borrower" or primary obligor under this
Agreement) by Lenders, in form and substance satisfactory to Lenders, pursuant
to which the Borrower assigns, and the Drop-Down Subsidiaries assume, all of the
Borrower's right, title, interest, obligations and Liabilities under the Loan
Documents.
"Audited Financial Statements" is defined in Section 11.3(a).
"Authorized Officer" means any of the officers of any Borrower, as more
particularly described on Exhibit "B" attached hereto and incorporated herein by
this reference, or any other Person designated by the Borrower in writing
(together with an incumbency certificate and specimen signature of such
Authorized Officer) to act as an Authorized Officer hereunder, acting singly.
"Average Lost Monthly Interest Income" means the amount determined by
dividing (i) the product of the Average Principal and the Lost Rate, by (ii) 12,
where:
"Average Principal" means the amount equal to either (i) one-half the
sum of (A) the amount of principal being prepaid and (B) the amount of principal
that is scheduled to be due
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on the last Business Day of the Interest Period for such Eurodollar Loan
("Balloon Amount"), or (ii) the amount of principal being prepaid, if such
amount is less than the Balloon Amount; and
"Lost Rate" means the rate per annum equal to the percentage, if any,
by which (i) the yield to maturity of United States Treasury debt obligations
having a maturity date nearest to the last Business Day of the Interest Period
for such Eurodollar Loan ("Treasury Obligations") determined on the first day of
the Interest Period exceeds (ii) the yield to maturity of Treasury Obligations
determined on the date of prepayment.
"Base Lot" means the standard Lot for each Project, without any premium
based upon location, view or other special characteristics of the particular
Lot.
"Base Plan" means the standard floor plans with standard features of
each type of Residential Unit, including Approved Upgrades, plus the Base Lot,
as more particularly described on Exhibit "A" attached hereto and incorporated
herein by this reference.
"Base Plan Budget" means, with respect to each type of Residential
Unit, the sum of (a) the cost of all on-site labor and materials to be
incorporated into such Residential Unit, (b) the engineering, architectural,
permitting, land use planning and other approved "soft costs" related to the
Residential Unit, (c) the Lot Release Price or Lot Option Price, as applicable,
(d) an overhead factor equal to four percent (4%) of the construction costs
referred to in clause (a) above, and (e) an interest reserve equal to two
percent (2%) of the construction costs referred to in clause (a) above, as more
particularly described on Exhibit "C" attached hereto and incorporated herein by
this reference.
"BOAZ" means Bank One, Arizona, NA, and its successors and permitted
assigns, in its capacity as Lender.
"Borrower" means:
(i) prior to the formation of the Drop-Down Subsidiaries and
the Merger, MHC II and MHA II;
(ii) after the formation of the Drop-Down Subsidiaries and the
assignment and assumption by the Drop-Down Subsidiaries of the Loans, this
Agreement and the Loan Documents, the Drop-Down Subsidiaries; and
(iii) after the formation of the New Business Subsidiaries and
the assumption by the New Business Subsidiaries of the Loans, this Agreement and
the Loan Documents, the Drop-Down Subsidiaries and the New Business
Subsidiaries.
Whenever used in this Agreement, the term "Borrower" refers to and
means each of the entities comprising the Borrower, individually, and all of
such entities, collectively. All of the
5
entities comprising the Borrower shall be jointly and severally liable as
Borrower under this Agreement, the Notes, and all other Loan Documents.
"Borrowing Date" means a date on which an Advance is made hereunder.
"Borrowing Notice" is defined in Section 8.2.
"Bulk Land Price" means the lesser of (a) seventy-five percent (75%) of
the aggregate as-developed bulk wholesale Appraised Value of all Real Estate
purchased and which may be developed under a single Guidance Loan, including,
without limitation, unsubdivided Real Estate and subdivided Real Estate, or (b)
eighty percent (80%) of the Bulk Land Budget in connection with a single
Guidance Loan.
"Bulk Land Budget" means, with respect to a single Guidance Loan, the
budgeted cost to acquire and develop the Real Estate and install any off-site
and on-site infrastructure improvements, as approved by Lenders in their sole
and absolute discretion. The Bulk Land Budget may be allocated between Real
Estate intended to be subdivided by Borrower and Real Estate not intended to be
subdivided by Borrower.
"Business Day" means (i) with respect to any borrowing, payment or rate
selection of Eurodollar Advances, a day (other than a Saturday or Sunday) on
which banks are open for business in Phoenix, Arizona and New York, New York and
on which dealings in United States dollars are carried on in the London
interbank market and (ii) for all other purposes, a day (other than a Saturday
or Sunday) on which banks are open for business in Phoenix, Arizona.
"Calendar Quarter" means the three-month periods from January 1 through
March 31; April 1 through June 30; July 1 through September 30; and October 1
through December 31.
"Capitalized Lease" of a Person means any lease of property by such
Person as lessee which would be capitalized on a balance sheet of such Person
prepared in accordance with GAAP.
"Capitalized Lease Obligations" of a Person means the amount of the
obligations of such Person under Capitalized Leases which would be shown as a
liability on a balance sheet of such Person prepared in accordance with GAAP.
"Cash Equivalents" means investments (directly or through a money
market fund) in (a) certificates of deposit and other interest bearing deposits
or accounts with United States commercial banks (including all affiliates and
subsidiaries) having a combined capital and surplus of at least $300,000,000,
which certificates, deposits, and accounts mature within one year from the date
of investment and are fully insured as to principal by the Federal Deposit
Insurance Corporation or any successor agency, (b) obligations issued or
unconditionally guaranteed by the United States government, or issued by an
agency thereof and backed by the
6
full faith and credit of the United States government, which obligations mature
within one year from the date of investment, (c) direct obligations issued by
any state or political subdivision of the United States, which mature within one
year from the date of investment and have the highest rating obtainable from
Standard & Poor's Corporation or Moody's Investors Service, Inc. on the date of
investment, (d) commercial paper which has one of the two highest ratings
obtainable from Standard & Poor's Corporation or by Moody's Investors Service,
Inc., (e) funds held in a brokered money market account with a net worth in
excess of $500,000,000 and approved for investment by insurance companies by the
National Association of Insurance Commissioners, (f) the amount available under
the Construction Line for Advances to Borrower pursuant to the most recent
Construction Status Report and Collateral Base Certificate approved by Agent,
but not yet drawn by Borrower, and (g) collateral mortgage obligations
classified as short-term investments by Borrower in accordance with GAAP.
"Change in Law" means (i) any change after the date of this Agreement
in the Risk-Based Capital Guidelines or (ii) any adoption of or change in any
other law, governmental or quasi-governmental rule, regulation, policy,
guideline, interpretation, or directive (whether or not having the force of law)
after the date of this Agreement which affects the amount of capital required or
expected to be maintained by any Lender or any corporation controlling any
Lender.
"Check Release Methodology" means a methodology allowing for loan
availability only when a check to a third party has been released, or will be
released within one (1) Business Day of the funding of an Advance, to pay for
the construction item (work and/or materials) which is completed and where
reasonable evidence of such check payment to a third party is provided to Agent.
"Code" means the Internal Revenue Code of 1986, as amended, reformed or
otherwise modified from time to time.
"Co-Lender Agreement" means that certain Co-Lender Agreement of even
date herewith among Lenders and Agent, as it may be amended, modified,
supplemented, restated or replaced from time to time.
"Collateral" means, at any time, any assets owned by the Borrower or
any Guarantor that then are subject to a Mortgage or other security instrument
in favor of the Agent as security for all or any part of the Obligations.
"Collateral Base" is defined in Section 5.2.
"Collateral Base Certificate" means a certificate in substantially the
form attached hereto as Exhibit "D" and incorporated herein by this reference.
7
"Commitment" means, for each of the Lenders, the obligation of such
Lender to make Loans not exceeding the amounts set forth on Schedule "1"
attached hereto and incorporated herein by this reference, as such amounts may
be modified from time to time pursuant to the terms hereof.
"Completion Percentage" means the percentage (in 5% increments rounded
down to the nearest multiple of 5 and expressed as a decimal fraction) of
construction completed as of the date of the Construction Status Report, based
upon the actual field percentage of work completed for such Residential Unit, as
determined by the Agent's inspection of the Residential Unit; provided, however,
from and after written request by Agent to Borrower, Borrower shall provide
Agent information reasonably satisfactory to Agent to determine the ratio of
costs already incurred by Borrower for material and labor incorporated into the
applicable Residential Unit to Borrower's total anticipated cost (reasonably
estimated in good faith) to construct such Residential Unit, as said total
anticipated costs are promptly adjusted from time to time to reflect changes in
anticipated costs, and the Completion Percentage shall be based upon the lesser
of (a) the actual field percentage of work completed for such Residential Unit,
as determined by the Agent's inspection of the Residential Unit; and (b) the
ratio of costs already incurred by Borrower for material and labor incorporated
into the applicable Residential Unit to Borrower's total anticipated cost
(reasonably estimated in good faith) to construct such Residential Unit, as said
total anticipated costs are promptly adjusted from time to time to reflect
changes in anticipated costs.
"Consolidated Net Income" means, for any period, the combined Net
Income (or loss) of the Obligated Group for such period (taken as a cumulative
whole), as determined in accordance with GAAP, after eliminating all offsetting
debits and credits between or among the Obligated Group and all other items
required to be eliminated in the course of the preparation of consolidated
financial statements of the Obligated Group in accordance with GAAP.
"Construction Line Commitment" means $20,000,000.
"Construction Line" is defined in Section 5.1.
"Construction Line Maturity Date" is defined in Section 5.1(c).
"Contingent Obligation" of a Person means any agreement, undertaking or
arrangement by which such Person assumes, guarantees, endorses, contingently
agrees to purchase or provide funds for the payment of, or otherwise becomes or
is contingently liable upon, the obligation or liability of any other Person, or
agrees to maintain the net worth or working capital or other financial condition
of any other Person, or otherwise assures any creditor of such other Person
against loss, including, without limitation, any comfort letter, operating
agreement, take-or-pay contract and reimbursement agreements with financial
institutions (including Lenders) relating to letters of credit issued by such
financial institutions for the account of Borrower.
8
"Controlled Group" means all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with the Borrower or any of its Subsidiaries, are
treated as a single employer under Section 414 of the Code.
"Corporate Base Rate" means the rate of interest publicly announced
from time to time by Agent as its "base rate" or, if Agent ceases to announce,
or does not announce, a rate so designated, any similar successor rate
designated by the Agent. Each change in the Corporate Base Rate shall be
effective, without notice to Borrower, on the effective date of each such change
by Agent. Borrower acknowledges that Agent may, from time to time, extend credit
to other Persons at rates of interest varying from and having no relationship to
the Corporate Base Rate. A certificate signed by any Vice President of Agent
shall be conclusive evidence of the Corporate Base Rate at any given time.
"Default Rate" means a rate per annum equal to the Floating Interest
Rate plus 500 basis points, but in no event greater than the maximum contracted
rate of interest available under applicable law. In the case of a Eurodollar
Advance the maturity of which is accelerated, such Eurodollar Advance shall bear
interest at the Eurodollar Rate plus 500 basis points until the next Eurodollar
Advance Date, and thereafter at the Floating Interest Rate plus 500 basis
points, but in no event greater than the maximum contracted rate of interest
available under applicable law.
"Discount Rate" means the rate per annum equal to the yield to maturity
of Treasury Obligations determined on the date of prepayment.
"Dollars" and the sign "$" each means lawful money of the United States
of America.
"Drop-Down Subsidiaries" means Monterey Homes Construction I, Inc., an
Arizona corporation to be formed, and Monterey Homes Arizona I, Inc., an Arizona
corporation to be formed.
"EBITDA" means, for any period, an amount equal to (a) Consolidated Net
Income for such period, plus (b) gross accrued interest expense of the Obligated
Group on a consolidated basis (other than capitalized interest) during such
period, plus (c) accruals for federal, state and local income taxes attributable
to such Consolidated Net Income, plus (d) depreciation and amortization expense
of the Obligated Group on a consolidated basis during such period.
"Effective Date" means December 20, 1996.
"Environmental Indemnity Agreement" means that certain Environmental
Certification and Unsecured Environmental Indemnity Agreement of even date
herewith from Borrower and Individual Guarantors in favor of Agent, as it may be
amended, modified, supplemented, restated
9
or replaced from time to time, and any other Environmental Certification and
Unsecured Environmental Indemnity Agreement required to be provided in
accordance with this Agreement.
"Environmental Laws" means any federal, state or local statute,
ordinance, or regulation pertaining to health, industrial hygiene, or the
environment, including, without limitation, the Comprehensive Environmental
Response, Compensation, and Liability act of 1980, as amended, 42 U.S.C. ss
9601, et seq. ("CERCLA"); the Resource Conservation and Recovery Act of 1976, 42
U.S.C. ss 6901, et seq. ("RCRA"); and the Arizona Environmental Quality Act,
A.R.S. ss 49-201, et seq., the Arizona Hazardous Waste Management Act, as
amended, A.R.S. ss 49-921, et seq., and all rules adopted and guidelines
promulgated pursuant to the foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Eurodollar Advance" means an Advance which bears interest at a
Eurodollar Rate.
"Eurodollar Advance Date" means the fifteenth day of any month or, if
the fifteenth day of any month is not a Business Day, the next succeeding
Business Day.
"Eurodollar Base Rate" means the three month London interbank offered
rate for U.S. dollar deposits (expressed as an annual rate) as of 11:00 a.m.
(London time) two (2) Business Days prior to the Eurodollar Advance Date
(rounded up to the nearest 1/16 of 1%, as quoted on Telerate page 3750 or on
such replacement system as is then customarily used to quote the London
interbank offered rate. If, on the date of determination, there is no quoted
London interbank offered rate for U.S. dollar deposits, the Eurodollar Base Rate
shall be determined as of the first calendar day thereafter that London
interbank offered rates for U.S. dollar deposits are quoted. If two or more such
rates appear on Telerate page 3750 or associated pages, the rate shall be the
arithmetic mean of such offered rates (rounded up to the nearest 1/16 of 1%).
"Eurodollar Interest Period" means, with respect to a Eurodollar
Advance, a period of three months, commencing on any Eurodollar Advance Date
selected by the Borrower pursuant to this Agreement and ending on (but
excluding) the Eurodollar Advance Date of the month three months thereafter, but
in no event ending after the Maturity Date of the applicable Loan.
"Eurodollar Loan" means a Loan which bears interest at a Eurodollar
Rate.
"Eurodollar Rate" means, with respect to a Eurodollar Advance, the sum
of (i) the quotient of (a) the Eurodollar Base Rate divided by (b) one minus the
Reserve Requirement (expressed as a decimal), plus (ii) the Applicable Margin.
"Event" means an event, circumstance, condition or state of facts.
"Event of Default" is defined in Section 14.1 hereof.
10
"Federal Funds Effective Rate" means for any day an interest rate per
annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published for such day (or, if such day is not a
Business Day, for the immediately preceding Business Day) by the Federal Reserve
Bank of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations at approximately 10:00 a.m. (Phoenix
time) on such day on such transactions received by the Agent from three Federal
funds brokers of recognized standing selected by the Agent in its sole
discretion.
"First Mortgage" means a Mortgage in favor of Agent that (i) creates a
lien that covers any Real Estate and all developments thereto and/or
improvements thereon, whether existing at the time the lien is created or
thereafter made, (ii) takes priority or precedence over all other liens and
encumbrances to which the Real Estate is subject, except Permitted Exceptions,
and (iii) must be satisfied before all other liens and encumbrances to which the
Real Estate is subject are entitled to participate in the proceeds of any sale
or other disposition of such Real Estate, except Permitted Exceptions.
"Floating Interest Rate" means, with respect to a Floating Interest
Rate Advance, a rate per annum equal to the sum of (i) the Corporate Base Rate,
plus (ii) the Applicable Margin.
"Floating Interest Rate Advance" means an Advance which bears interest
at the Floating Interest Rate.
"Floating Interest Rate Loan" means a Loan which bears interest at the
Floating Interest Rate.
"GAAP" means generally accepted accounting principles as in effect from
time to time in the United States, applied in a manner consistent with those
used in preparing the financial statements referred to in Section 11.3.
"Governmental Authority" means any body politic, including without
limitation the United States of America, the State of Arizona, and any other
state, county, parish, city, town, township or municipality, and any subpart
thereof or any Person(s) deriving their authority from any such body politic,
including, without limitation, any department, agency, commission, board,
division, bureau or office, or any subpart thereof, of any body politic.
"Guarantor" or "Guarantors" means, prior to the Merger, Individual
Guarantors, and after the Merger, Public Company and all of its Subsidiaries
that are not Borrower.
"Guaranty" or "Guaranties" means, individually and collectively,
subject to the terms and conditions of this Agreement, from the Effective Date
to the consummation of the Merger, the joint and several continuing guaranties
of the Obligations by Individual Guarantors, and subject
11
to the terms and conditions of this Agreement, after the Merger, the joint and
several continuing guaranties of Public Company and all of its Subsidiaries and
Affiliate entities that are not the Borrower.
"Guidance Line Commitment" means $20,000,000.
"Guidance Line" is defined in Section 7.1.
"Guidance Loan" is defined in Section 7.1(b).
"Guidance Line Maturity Date" is defined in Section 7.1(c).
"Guidance Note" means, individually and collectively, the multiple
advance promissory notes from Borrower to Lenders in the maximum amount of each
Lender's Pro Rata Share of a Guidance Loan available for acquisition and on-site
and off-site infrastructure development of Real Estate for a Project, and any
amendments, modifications or supplements thereto and any note or notes taken
wholly or partially in renewal or extension thereof or substitution or
replacement therefor.
"Hazardous Substances" means any toxic or hazardous wastes, pollutants
or substances, including, without limitation, asbestos, PCBs, petroleum products
and by-products, substances defined or listed as "hazardous substances" or
"toxic substances" or similarly identified in or pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, 42
U.S.C. ss 9061 et seq., hazardous materials identified in or pursuant to the
Hazardous Materials Transportation Act 49 U.S.C. ss 1802 et seq., hazardous
wastes identified in or pursuant to The Resource Conservation and Recovery Act,
42 U.S.C. ss 6901 et seq., any chemical substance or mixture regulated under the
Toxic Substance Control Act of 1976, as amended, 15 U.S.C. ss 2601 et seq., any
"toxic pollutant" under the Clean Water Act, 33 U.S.C. ss 466 et seq., as
amended, any hazardous air pollutant under the Clean Air Act, 42 U.S.C. ss 7401
et seq., and any hazardous or toxic substance or pollutant regulated under any
other applicable federal, state or local Environmental Laws.
"Improvements" means any equipment, structures, improvements, fixtures
and buildings attached or affixed, or intended to be attached or affixed, to the
Real Estate.
"Indebtedness" of a Person means such Person's (i) obligations for
borrowed money, (ii) obligations representing the deferred purchase price of
property or services (other than accounts payable arising in the ordinary course
of such Person's business payable on terms customary in the trade), (iii)
obligations, whether or not assumed, secured by Liens or payable out of the
proceeds or production from property now or hereafter owned or acquired by such
Person, (iv) obligations which are evidenced by notes, acceptances, or other
instruments, (v) Capitalized Lease Obligations and (vi) liabilities and
obligations under any sale/leaseback and receivable
12
sales transactions. With respect to the Borrower, Indebtedness includes, without
limitation, all Obligations.
"Individual Guarantors" means William W. Cleverly, a married man
dealing with his sole and separate property, and Steven J. Hilton and Benee
Hilton, husband and wife.
"Investment" of a Person means any loan, advance extension of credit
(other than accounts receivable arising in the ordinary course of business on
terms customary in the trade), deposit account or contribution of capital by
such Person to any other Person or any investment in, or purchase or other
acquisition of, the stock, partnership interests, notes, debentures or other
securities of any other Person made by such Person.
"Lender" or "Lenders" mean, individually or in the aggregate, Norwest
Bank Arizona, National Association, and Bank One, Arizona, NA, and their
respective successors and permitted assigns.
"Letter of Credit" means a letter of credit issued by Norwest at the
request of Borrower for the benefit of a Governmental Authority, in form and
content satisfactory to Norwest, for the purposes of providing credit
enhancement to assure installation of infrastructure improvements intended to be
funded with proceeds from a Guidance Loan.
"Liabilities" of a Person means all items included in the liability
section of a balance sheet of that Person prepared in accordance with GAAP
applied as of the date of calculation. Without limiting the generality of the
foregoing, the term "Liabilities" shall include: (i) all Indebtedness secured by
any Mortgage, lien, pledge, security interest, charge or encumbrance upon or in
property owned by that Person, to the extent attributable to that Person's
interest in the property, even though that Person has not assumed or become
liable for the payment of the Indebtedness: (ii) contractual obligations for
payment of marketing, advertising and promotion and deferred lot premiums, and
(iii) the aggregate amount of the reserves established on the books of that
Person in respect of contingent Liabilities and other contingencies (except
reserves which are properly treated as deductions from assets) and in any event
shall include with respect to the Borrower the amount of all outstanding Loans.
"Lien" means any lien (statutory or other), mortgage (including,
without limitation, purchase money mortgages), pledge, hypothecation,
assignment, deposit arrangement, encumbrance or preference, priority or other
security agreement or preferential arrangement of any kind or nature whatsoever
(including, without limitation, the interest of a vendor or lessor under any
conditional sale, Capitalized Lease or other title retention agreement and
contractual obligations for payment of marketing, advertising and promotion and
deferred lot premiums), but specifically excluding ad valorem real estate taxes,
assessments, community facilities district and other similar improvement lien
assessments not yet delinquent.
13
"Loan" or "Loans" means, individually or in the aggregate, the
Construction Line, any Guidance Loan and the Term Loan.
"Loan Documents" means this Agreement, the Notes, any Mortgages, the
Guaranties, the Securities Pledge Agreement, the Environmental Indemnity
Agreement and any and all other instruments or documents now or hereafter
delivered by the Borrower, the Guarantors, the Drop-Down Subsidiaries, the New
Business Subsidiaries, Public Company or any of their Subsidiaries pursuant
hereto, as such documents may be amended, modified, supplemented, restated or
replaced from time to time.
"Lot" means a subdivided parcel of Real Estate owned by Borrower in any
Subdivision, held for development by Borrower and encumbered by a First
Mortgage.
"Lot Release Price" means the agreed-upon release price for each Lot
under each Guidance Loan. The Lot Release Price for existing Projects is shown
on each Guidance Loan Addendum and incorporated herein by this reference.
"Lot Option Price" means ninety-five percent (95%) of the contracted
for Lot release price provided in the applicable Option Contract, excluding any
lot premium. The Lot Option Price for existing Projects is attached hereto as
Exhibit "C" and incorporated herein by this reference.
"Material Adverse Effect" means a material adverse effect on (i) the
business, properties, assets, condition (financial or otherwise), results of
operations, or prospects of (a) the Obligated Group, (b) the Borrower, taken as
a whole, or (c) any entity comprising the Borrower, (ii) the ability of the
Borrower to perform its obligations under the Loan Documents, or (iii) the
validity or enforceability of any of the Loan Documents or the rights or
remedies of the Agent or the Lenders thereunder.
"Maturity Date" means, with respect to each Note, the date upon which
the outstanding principal amount of such Note, all accrued but unpaid interest
thereof, and all other Obligations become due and payable, whether as a result
of the occurrence of the stated maturity date or the acceleration of maturity
pursuant to the terms of any of the Loan Documents.
"Merger" means the merger of Borrowers with and into Public Company,
which will be the surviving corporation of the merger, which is intended to
occur on or about December 31, 1996.
"Model Home" means a Residential Unit, completed or under construction,
designated by Borrower as a model home.
"Monthly Payment Date" means the tenth day of each calendar month.
14
"Mortgage" means any mortgage, deed of trust or other security deed in
Real Estate, or in rights or interests, including leasehold interests, in Real
Estate.
"Multiemployer Plan" means a Plan maintained pursuant to a collective
bargaining agreement or any other arrangement to which the Borrower or any
member of the Controlled Group is a party to which more than one employer is
obligated to make contributions.
"Net Book Value" means, with respect to an asset owned by a Borrower,
the gross investment of that Borrower in the asset, less all reserves (including
loss reserves and reserves for depreciation) attributable to that asset, all
determined in accordance with GAAP.
"Net Income" means, for any period, after-tax consolidated net income
from continuing operations, less any extraordinary income, non-operating income
(except interest income and income from collateral mortgage obligations) or
non-cash income recorded by such Person as determined in accordance with GAAP
and less any income from mortgage Subsidiaries or title company, escrow agent or
title underwriter Subsidiaries.
"Net Proceeds" means, in connection with the sale of any Lot or
Residential Unit by the Borrower, the gross sales price less (a) all bona fide
prorations and adjustments to the sales price required to be made pursuant to
the terms of the Purchase Contract, (b) the aggregate amount of bona fide
closing costs due to any Person that is not an Affiliate of the Borrower, and
(c) commissions actually paid to Borrower's sales representatives in connection
with the sale of any Residential Unit not to exceed three percent (3%) of the
gross sales price of such Residential Unit.
"New Business Subsidiaries" means Monterey Homes Arizona, Inc., an
Arizona corporation to be formed, and Monterey Homes Construction, Inc., an
Arizona corporation to be formed.
"Norwest" means Norwest Bank Arizona, National Association, and its
successors and permitted assigns, in its capacity as Lender.
"Note" or "Notes" means, individually and collectively, the promissory
notes evidencing the Construction Line, the Guidance Loans and the Term Loan,
completed, executed and delivered by the Borrower and payable to the order of a
Lender in the amount of its Commitment, including any amendment, modification,
renewal or replacement of any such promissory note.
"Obligations" means all unpaid principal of, and accrued and unpaid
interest on, the Notes, disbursements in respect of any Letter of Credit, all
accrued and unpaid fees and all expenses, reimbursements, indemnities and other
obligations of the Borrower to the Lenders or to any Lender, the Agent or any
indemnified party arising under the Loan Documents.
15
"Obligated Group" means the Borrower, the Drop-Down Subsidiaries, when
formed, the New Business Subsidiaries, when formed and, after the Merger, the
Public Company.
"Option Contract" means any executory purchase and sale agreement or
option agreement providing for the sale of Lots in a Subdivision by a bona fide
third party Person to Borrower.
"Other Amounts" means all amounts payable by Borrower to Lenders under
this Agreement and any other Loan Document.
"Owner's Equity" means such Person's total assets minus total
Liabilities, each as determined in accordance with GAAP.
"PBGC" means the Pension Benefit Guaranty Corporation, or any successor
thereto.
"Permitted Exceptions" means current taxes, assessments, community
facilities district and other improvement lien assessments; statutory liens
securing obligations not yet due, contractual obligations for payment of
marketing, advertising and promotion costs not yet due, and contractual
obligations for deferred lot premiums approved by Lenders and not yet due;
easements, covenants, conditions and restrictions and other matters disclosed by
any Title Policy obtained by Agent; and any matters customarily associated with
residential real estate developments which do not secure the payment of money or
do not otherwise have any Material Adverse Effect on the value, operation,
marketability on sale of the property in question.
"Person" means any natural person, corporation, firm, enterprise,
trust, association, company, limited liability company, partnership, limited
liability partnership, joint venture or other entity or organization, or any
government or political subdivision or any agency, department, or
instrumentality thereof.
"Plan" means an employee pension benefit plan which is covered by Title
IV of ERISA or subject to the minimum funding standards under Section 412 of the
Code as to which the Borrower or any member of the Controlled Group may have any
liability.
"Presold" means a Residential Unit subject to a Purchase Contract as of
the date of determination.
"Project" means a product line of Residential Units of substantially
the same type design and price range that have been constructed, are under
construction, or are to be constructed, within a Subdivision.
"Pro Rata Share" means, for each Lender, the ratio that such Lender's
Commitment bears to the Aggregate Commitment.
16
"Public Company" means Homeplex Mortgage Investment Corporation, a
Maryland corporation, which, as part of the Merger, will change its corporate
name to Monterey Homes Corporation.
"Purchase Contract" means a bona fide enforceable purchase contract for
a Residential Unit executed by Borrower and a bona fide third party purchaser
who is not an Affiliate of Borrower with no contingencies (except a financing
contingency provided the purchaser has delivered a preliminary loan approval
letter to Borrower, which is acceptable to Agent) and with a nonrefundable cash
deposit from the purchaser of not less than two percent (2%) of the sale price
of the Residential Unit, which Purchase Contract continues to be effective and
which Borrower reasonably and in good faith believes will close.
"Real Estate" means any interest in real property, including, without
limitation, leasehold interests, together with all Improvements, now or
hereafter located thereon, all privileges and other rights now or hereafter made
appurtenant thereto, and all easements and rights of way, public or private, now
or hereafter used in connection therewith, all tenements, hereditaments, rights,
benefits, privileges, water, water rights, shares of stock evidencing water
rights, oil, gas, minerals and appurtenances now or hereafter belonging or in
any manner appurtenant thereto, and all the reversions, remainders, rents,
issues and profits thereof.
"Recent Balance Sheet" is defined in Section 11.5.
"Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor thereto
or other regulation or official interpretation of said Board of Governors
relating to reserve requirements applicable to member banks of the Federal
Reserve System.
"Regulation U" means Regulation U of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor or other
regulation or official interpretation of said Board of Governors relating to the
extension of credit by banks for the purpose of purchasing or carrying margin
stocks applicable to member banks of the Federal Reserve System.
"Reportable Event" means a reportable event as defined in Section 4043
of ERISA and the regulations issued under such section, with respect to a Plan,
excluding, however, such events as to which the PBGC by regulation waived the
requirement of Section 4043(a) of ERISA that it be notified within 30 days of
the occurrence of such event, provided. however, that a failure to meet the
minimum funding standard of Section 412 of the Code and of Section 302 of ERISA
shall be a Reportable Event regardless of the issuance of any such waiver of the
notice requirement in accordance with either Section 4043(a) of ERISA or Section
412(d) of the Code.
17
"Reserve Requirement" means the reserve requirement for member banks of
the Federal Reserve System pursuant to Regulation D.
"Residential Unit" means a Lot with a residential housing unit located
thereon, or intended to be located thereon, that is (or, upon completion of
construction thereof, will be) available for sale.
"Risk-Based Capital Guidelines" means the risk-based capital guidelines
in effect in the United States on the date of this Agreement, including
transition rules, and any amendments to such regulations adopted prior to the
date of this Agreement.
"Section" means a numbered section of this Agreement, unless another
document is specifically referenced.
"Securities" of any Person means equity securities and debt securities
and any other instrument commonly understood to be a security issued by that
Person.
"Securities Pledge Agreement" means, prior to the Merger, those certain
Securities Account Pledge and Security Agreements of even date herewith from
Individual Guarantors in favor of Agent, together with the Acknowledgment of
Control of Pledged Securities from Norwest Bank Arizona, National Association,
as Account Holder, and after the Merger, that certain Securities Account Pledge
and Security Agreement dated as of the effective date of the Merger from Public
Company in favor of Agent, together with the Acknowledgment of Control of
Pledged Securities from PaineWebber Incorporated, as Account Holder.
"Single Employer Plan" means a Plan maintained by the Borrower or any
member of the Controlled Group for employees of the Borrower or any member of
the Controlled Group.
"Spec" means either (i) a Residential Unit under construction or
completed (other than a Model Home) that is not subject to a Purchase Contract
thereon or (ii) a Residential Unit that is subject to a Purchase Contract under
which there exists any contingency which has not been removed to the
satisfaction of Agent.
"Subdivision" or "Subdivisions" means, individually or collectively,
Rancho Vistoso (55' and 70'), Lincoln Place, Palos Verde, Scottsdale Country
Club, Portales, Tierra Bella, including Chama Lots 34 and 35 (Construction Line
only), Eagle Mountain, Sunridge Canyon, Grayhawk, Canada Vista, Castle Rock A
(Construction Line only), Castle Rock F and Castle Rock G, and any other
subdivision approved by Lenders as provided herein.
"Subordinated Debt" of a Person means any Indebtedness of that Person
which by its terms is subordinated, in form and substance and in a manner
satisfactory to Agent, in lien and right of payment to the prior payment in full
of the Obligations.
18
"Subsidiary" of a Person means (i) any corporation of which more than
50% of the outstanding Securities having ordinary voting power shall at the time
be owned or controlled, directly or indirectly, by such Person, by one or more
of such Person's Subsidiaries, or by such Person and one or more of its
Subsidiaries, or (ii) any partnership, association, limited liability company,
joint venture or similar business organization of which more than 50% of the
ownership interests having ordinary voting power shall at the time be owned or
controlled, directly or indirectly, by such Person, by one or more of such
Person's Subsidiaries, or by such Person and one or more of its Subsidiaries.
"Tangible Assets" means, as of any date of determination, the
consolidated assets of the Obligated Group as shown on its consolidated balance
sheet, minus all assets classified as intangible assets under GAAP, including,
without limitation, goodwill, trademarks, trade names, service marks,
copyrights, patents, licenses, permits, covenants not to compete, and rights
related thereto, minus any stock or other securities or evidences of
indebtedness of any other Person, any loans or advances to any other Person, or
any investment or interest whatsoever in any other Person, including
specifically, but without limitation, any partnership or joint venture.
"Term Loan Maturity Date" is defined in Section 6.1(c).
"Term Note" is defined in Section 6.1(c).
"Termination Date" means December 19, 1998.
"Title Policy" means an ALTA Lender's Title Policy (1992), with Form
3R, 5, 6, 7 (deleting creditors' rights exception), 8.1, patent and water rights
endorsements or equivalent, and such other endorsements as Agent shall require,
in an amount and by a title insurance company satisfactory to Lenders insuring
the applicable First Mortgage in Agent's favor to be a valid first lien and
encumbrance on the Real Estate, Lots and/or Residential Units described therein,
subject only to the Permitted Exceptions.
"Total Draws" means, with respect to the Construction Line, the total
amount of Advances made with respect to a particular Residential Unit in the
Collateral Base, including, without limitation, interest payments made directly
by Agent from the interest reserve established in connection with each
Residential Unit in the Collateral Base.
"Type" means, with respect to any Advance, its nature as a Floating
Interest Rate Advance or Eurodollar Advance.
"Unaudited Financial Statements" is defined in Section 11.3(b).
"Unfunded Liabilities" means the amount (if any) by which the present
value of all vested nonforfeitable benefits under all Single Employer Plans
exceeds the fair market value of all such
19
Plan assets allocable to such benefits, all determined as of the then most
recent valuation date for such Plans.
"Unmatured Default" means an Event that with the giving of notice
and/or passage of time, if not cured, would constitute an Event of Default.
1.2. Computation of Time Periods. For the purposes of this Agreement,
in the computation of periods of time from a specified date to a later specified
date, the word "from" means "from and including", the words "to" and "until"
each mean "to but excluding" and the word "through" means "to and including".
1.3. Accounting Terms. All accounting terms used and not specifically
defined herein shall be construed in accordance with GAAP.
2. EXISTING LOANS
2.1. Outstanding Loans; Payment Upon Effective Date.
(a) Borrower acknowledges with respect to the amounts owing to
Lenders by Borrower or by Subsidiaries under any prior credit agreements that
Borrower or Subsidiaries have no offset, defense or counterclaim with respect
thereto, no claim or defense in abatement or reduction thereof, nor any other
claim against Lenders or with respect to any document forming part of the
transaction in respect of which prior credit agreements were made or forming
part of any other transaction under which Borrower or any of the Subsidiaries is
indebted to Lenders. Borrower acknowledges that all interest imposed under any
such prior credit agreements through the Effective Date, and all fees and other
charges that have been collected from or imposed upon Borrower or Subsidiaries
with respect to the loans evidenced by prior credit agreements (including the
effective rate of interest which said fees and charges may represent), were and
are agreed to, and were properly computed and collected, and that Lenders have
fully performed all obligations that they may have had or now have to Borrower
and Subsidiaries. As of the date of this Agreement and prior to the funding of
any Advances hereunder, the outstanding principal balance, accrued and unpaid
interest and other charges due under all prior credit agreements between
Borrower and its Subsidiaries and Norwest is $11,614,135.61. As of the date of
this Agreement and prior to the funding of any Advances hereunder, the
outstanding principal balance, accrued and unpaid interest and other charges due
under all prior credit agreements between Borrower and its Subsidiaries and BOAZ
is $6,006,713.89 (collectively, the "Existing Loans").
(b) On the Effective Date, the Lenders shall severally make an
Advance to the Borrower in the aggregate amount of the then outstanding
principal amount of the Existing Loans (but, as to each Lender, not exceeding
the amount of its Aggregate Commitment), the proceeds of which shall be applied
by the Borrower to repay the Existing Loans in full.
20
(c) The Loans are being made to refinance the Existing Loans
and other existing indebtedness of Borrower. It is the intention of the parties
that Lenders will be subrogated to, and succeed to, the lien priority of all
prior lenders.
3. CONDITIONS PRECEDENT
3.1. Conditions of Effectiveness. This Agreement shall become effective
when the Lenders shall have received counterparts of this Agreement executed by
the Borrower and each of the Lenders; provided, however, that the Lenders shall
not be required to make the initial Advance hereunder, unless and until the
Agent shall have received each of the documents specified in subsections (a) -
(p) below (with all documents required below, except as otherwise specified, to
be dated the date of receipt thereof by the Agent, which date shall be the same
for all such documents), and each of such documents to be in form and substance
satisfactory to the Agent, and the conditions specified in subsections (q) and
(r) below shall have been satisfied:
(a) Payoff statements from all of Borrower's existing lenders
which set forth all amounts owed by the Borrower to the existing lenders.
(b) The Notes evidencing the Loans to be made hereunder.
(c) The Mortgages encumbering all of the Real Estate, Lots and
Residential Units for the benefit of Agent.
(d) Solvency Certificates from each Borrower.
(e) The Guaranties.
(f) The Securities Pledge Agreement.
(g) The Environmental Indemnity Agreement.
(h) The Title Policy(ies) (or an irrevocable commitment by the
title insurance underwriter to issue such Title Policy) in the aggregate amount
of $29,757,045.00.
(i) The favorable written opinion by counsel for the Borrower,
dated the Effective Date, addressed to the Lenders and in form and substance
satisfactory to the Agent. The Borrower hereby instructs its counsel to prepare
its opinion and deliver it to Lenders for their benefit, and such opinion shall
contain a statement to such effect.
(j) The following supporting documents with respect to each
Borrower: (i) a copy of its certificate of incorporation, certified as of a
current date to be a true and accurate copy by the appropriate Governmental
Authority of its state of incorporation; (ii) a certificate of the appropriate
Governmental Authority, dated as of a date reasonably close to the Effective
Date, as
21
to its existence and good standing; (iii) a certificate of the appropriate
Governmental Authority of each jurisdiction, other than its state of
incorporation, in which it does business, as to its qualification as a foreign
corporation; (iv) a copy of its by-laws, certified by its Secretary or Assistant
Secretary to be a true and accurate copy of its by-laws in effect on the
Effective Date; (v) a certificate of its Secretary or Assistant Secretary, dated
the Effective Date, as to the incumbency and signatures of its officers who have
executed any documents in connection with the transactions contemplated by this
Agreement; (vi) a copy of resolutions of its Board of Directors, certified by
its Secretary or Assistant Secretary to be a true and accurate copy of
resolutions duly adopted by the Board of Directors that are in full force and
effect on the Effective Date, authorizing the execution and delivery by it of
this Agreement, the Notes and the other Loan Documents and the performance by it
of all its obligations thereunder; and (vii) such additional supporting
documents and other information with respect to its operations and affairs as
the Agent may reasonably request.
(k) A certificate signed by a duly authorized officer of each
Borrower certifying: (i) that the representations and warranties of the Borrower
contained in Article 11 hereof are correct and accurate on and as of the date of
that certificate as though made on and as of that date, (ii) that no Event has
occurred and is continuing which constitutes an Event of Default or Unmatured
Default hereunder, (iii) copies of each Option Contract and security instrument
given by Borrower to the optionor under any such Option Contract, as true,
correct and complete copies of the original documents; and (iv) such other
matters as Lenders shall request.
(l) The projected average quarterly absorption of all Lots to
be refinanced with each Guidance Loan under the Guidance Line as of the
Effective Date, in form and substance satisfactory to Lenders.
(m) The Collateral Base Certificate to be effective as of the
Effective Date, as required pursuant to Section 5.2(d).
(n) Current Uniform Commercial Code lien, litigation and
judgment searches from the applicable Governmental Authority or a search company
or on-line service satisfactory to Agent, in each jurisdiction where Borrower is
transacting business and in its state of incorporation, satisfactory to Lenders
in their sole and absolute discretion.
(o) Written disbursement instructions, signed by an Authorized
Officer, together with such other related money transfer authorizations as the
Agent may reasonably request.
(p) Such other documents as any Lender or its counsel may
reasonably request.
22
(q) There shall not have occurred any changes in the
consolidated financial condition or results of operations of the Borrower from
that reflected in the financial statements dated September 30, 1996, which have,
or reasonably could be expected to have, in the judgment of the Lenders, a
Material Adverse Effect on the Borrower's operations, taken as a whole.
(r) The Existing Loans and all of the other credit
arrangements relating to the Collateral shall have been simultaneously repaid in
full from the proceeds of the initial Advance hereunder and any credit
agreements in connection with the Existing Loans and all other credit
arrangements relating to the Collateral shall have been terminated.
3.2. Conditions Precedent to All Borrowings After the Merger.
(a) The Lenders shall not be required to make any Loan on or
after the effective date of the Merger unless on or prior to the applicable
Borrowing Date:
(i) Lenders shall have received an executed
Assignment and Assumption Agreement from Borrower, as assignor, and the
Drop-Down Subsidiaries, as assignee, in form and substance satisfactory to
Lenders, together with such corporate resolutions, officers' certificates,
attorneys' opinions, solvency certificates, and other documentation as Lenders
shall require.
(ii) Lenders shall have received (A) the Securities
Pledge Agreement from Public Company and evidence that there are cash and Cash
Equivalents with a market value of no less than the then outstanding principal
balance of the Term Loan in the securities account referred to therein (or, to
the extent of any shortfall, Borrower has unused availability under the
Construction Line equal to or greater than such shortfall based upon the latest
Construction Status Report and Collateral Base Certificate and all conditions to
such Construction Line Advances have been satisfied), (B) Guaranties from Public
Company and all of the direct and indirect Subsidiaries of Public Company that
are not Borrower, and (C) the Environmental Indemnity Agreement from Public
Company and all of the direct and indirect Subsidiaries of Public Company, that
are not Borrower, and in each case in form and substance satisfactory to Lender,
together with such corporate resolutions, officers' certificates, solvency
certificates, attorneys' opinions and other documentation as Lenders shall
require.
(iii) the Agent shall have received a certified copy
of the Articles of Merger from the applicable Governmental Authorities of the
States of Arizona and Maryland, and any other documents or instruments filed
with any Governmental Authority with respect to the Merger and any subsequent
amendments to the Certificate of Incorporation of Public Company.
(iv) Lenders shall have a received opinions of
counsel that the Merger has been duly approved by the Board of Directors and
shareholders of the constituent
23
corporations, the Articles of Merger have been duly filed with the applicable
Governmental Authorities and the Merger has become effective.
(v) Lenders shall have received such opinions of
counsel with respect to the due formation, corporate authority, execution and
delivery and enforceability of the Loan Documents, and such other matters as
Lenders or their respective counsel may require, with respect to the Drop-Down
Subsidiaries, the Public Company and the Subsidiaries.
3.3. Conditions Precedent to All Borrowings.
(a) The Lenders shall not be required to make any Advance (or
any continuation of an existing Borrowing) or issue a Letter of Credit, unless
on the applicable Borrowing Date:
(i) all of the matters described in Section 3.1 have
been satisfied, and, after the Merger, all of the matters described in Section
3.2 have been satisfied.
(ii) the Agent shall have received notice of
Borrower's request for the Advance with respect thereto as provided in Sections
8.2 and 8.13, if applicable, and such other approvals, opinions or documents as
the Agent may reasonably request;
(iii) the representations and warranties of the
Borrower contained in Article 11 hereof are true and correct as of such
Borrowing Date; provided, however, that for the purposes hereof, (A) from and
after the date of delivery by the Borrower pursuant to Section 12.4 (a) of their
consolidated financial statements for the year ended December 31, 1996, the
references in Section 11.3(a) to "Audited Financial Statements" shall be deemed
to be references to the annual audited financial statements most recently
delivered by the Borrower pursuant to Section 12.4(a) as of the date of the
request for an Advance; and (B) from and after that date of delivery by the
Borrower pursuant to Section 12.4(b) of their financial statements for the
period ended October 31, 1996, the references in Section 11.3(b) to "Unaudited
Financial Statements" shall be deemed to be references to the monthly or
quarterly unaudited financial statements most recently delivered by the Borrower
pursuant to Sections 12.4(b) or (c) as of the date of that request for an
Advance;
(iv) All legal matters incident to the making of such
Advance shall be satisfactory to the Lenders and their counsel;
(v) The Agent shall have prepared a current
Construction Status Report and a current Collateral Base Certificate from
Borrower;
(vi) There exists no Event of Default or Unmatured
Default;
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(vii) The making of the Advance will not cause the
outstanding principal amount of the Construction Line to exceed the Collateral
Base or the Construction Line Commitment, or the making of the Advance will not
cause the outstanding principal amount of the Guidance Loans, plus any
outstanding Letter of Credit commitments, plus the applicable interest reserves,
to exceed the Guidance Line Commitment, as applicable, nor will the making of
the Advance result in any Event of Default or Unmatured Default;
(viii) Each Subsidiary of any member of the Obligated
Group shall have executed and delivered to Agent a Guaranty in form and
substance satisfactory to Lender; and
(ix) If the merger has not occurred on or prior to
March 31, 1996, then, on such date, Individual Guarantors shall contribute as
paid-in capital, and/or advance as Subordinated Debt with no interest or
principal payments required so long as the Loans are outstanding or Lenders have
any obligation to make Advances or issue Letters of Credit, an aggregate amount
equal to the greater of (i) $4,000,000 or (ii) the then outstanding indebtedness
under the Term Loan.
(b) Each Borrowing Notice with respect to each such Advance
shall constitute a representation and warranty by the Borrower that all of the
conditions contained in this Section 3 have been satisfied.
4. THE GENERAL TERMS OF THE LOANS
4.1. Loan Structure. The Loans shall consist of the following
components, and Advances for each of the components shall be limited to the
purposes specified herein unless Lenders shall expressly agree otherwise:
(a) The Construction Line described in Article 5.
(b) The Term Loan described in Article 6.
(c) The Guidance Line described in Article 7.
4.2. Maximum Amount of All Loans. The maximum principal amount of
outstanding Advances shall not at any time exceed $46,052,500.00.
4.3. Ratable Loans. Each Advance shall be made by the several Lenders
ratably in their respective Pro Rata Shares.
4.4. Types of Advances, Final Maturity.
25
(a) The Advances may be Floating Interest Rate Advances or
Eurodollar Advances, or a combination thereof, selected by the Borrower in
accordance with Section 8.2.
(b) All Obligations shall be fully repaid and satisfied by the
Borrower on or before the applicable Maturity Date or shall become due and
payable pursuant to Section 14.1 below.
(c) The maximum number of Eurodollar Loans outstanding at any
time shall not exceed five (5).
4.5. Guaranties. On the Effective Date, Individual Guarantors will
deliver to Lenders their joint and several Guaranties of the Obligations, and,
upon satisfaction of all conditions precedent in Section 3.1 hereof, all prior
guaranties of Individual Guarantors with respect to the Existing Loans are
hereby terminated. Provided that no Event of Default or Unmatured Default has
occurred and is continuing, after the effectiveness of the Merger, Public
Company and all of its direct and indirect Subsidiaries that are not Borrower,
will deliver to Lenders their joint and several Guaranties of the Obligations
and, if the Term Loan remains outstanding, the Securities Pledge Agreement from
Public Company, together with evidence that the securities account referenced
therein contains cash and Cash Equivalents equal to the then outstanding
principal balance of the Term Loan, and the Environmental Indemnity Agreement,
and, subject to the terms and conditions of this Agreement, Lenders shall,
immediately upon satisfaction of the conditions set forth in Section 3.2 of this
Agreement, cancel and return the Guaranties of Individual Guarantors and
terminate the Securities Pledge Agreements from, and Environmental Indemnity
Agreement with respect to, the Individual Guarantors. Agent shall execute such
documents and instruments as the Individual Guarantors shall reasonably request
to evidence the cancellation and termination of the Guaranties, the Securities
Pledge Agreement and the Environmental Indemnity Agreement with respect to the
Individual Guarantors.
4.6. Collateral. The Guaranty of William W. Cleverly is secured by cash
and/or Cash Equivalents in an amount equal to one-half (1/2) of the outstanding
principal balance of the Term Loan, and the Guaranty of Steven J. Hilton and
Benee Hilton is secured by cash and/or Cash Equivalents in an amount equal to
one-half (1/2) of the outstanding principal balance of the Term Loan. After the
effectiveness of the Merger, Public Company will deliver to Agent a Securities
Pledge Agreement, and an Acknowledgment of Pledged Securities from PaineWebber
Incorporated, as Account Holder, with respect to Public Company's securities
account holding an amount equal to no less than the then outstanding principal
balance of the Term Loan, in cash and/or Cash Equivalents, and provided that no
Event of Default or Unmatured Default has occurred and is continuing, Lender
shall release its lien and security interest in the securities accounts of
Individual Guarantors. Agent shall execute such documents and instruments as
Individual Guarantors shall reasonably request to evidence the cancellation and
termination of the Guaranties and Securities Pledge Agreement.
26
4.7. Single Obligation. All of the Loans shall constitute one general
obligation secured by Agent's security interest in all the Collateral and by all
other security interests, liens, claims and encumbrances, now, or at any time
hereafter, granted by Borrower to Agent. All of the rights of Agent and Lenders
set forth in this Agreement shall apply to any modification, amendment,
supplement or restatement of this Agreement and the other Loan Documents
5. MASTER CONSTRUCTION LINE
5.1. The Construction Line. Subject to the terms and conditions of this
Agreement, Lenders agrees to make available to Borrower a construction line of
credit (the "Construction Line") as follows:
(a) Amount. The maximum principal amount outstanding shall not
exceed the Construction Line Commitment.
(b) Purpose. The Construction Line Commitment will be
available to Borrower on a revolving basis to finance Lot Release Prices, Lot
Option Prices and construction of Presolds, Specs and Model Homes in the
Projects.
(c) Evidence of the Construction Line. The Construction Line
Commitment will be evidenced by revolving credit promissory notes from Borrower
to Lenders in the amount of each Lender's Pro Rata Share of the Construction
Line Commitment, and any amendments, modifications or supplements thereto and
any note or notes taken wholly or partially in renewal or extension thereof or
substitution or replacement therefor. Each Advance under the Construction Line
shall bear interest in accordance with this Agreement and shall be payable in
monthly installments of interest only on each Monthly Payment Date, beginning on
January 10, 1997 ("Starting Date"), with the entire unpaid principal balance
plus accrued interest due and payable, absent earlier acceleration, on the June
19, 2000 (the "Construction Line Maturity Date").
(d) Advances. From and including the Effective Date, and prior
to the Maturity Date, each Lender severally agrees, on the terms and conditions
set forth in this Agreement and in reliance upon the representations and
warranties of Borrower herein, to make Advances to or on behalf of Borrower, as
Borrower shall request, but in no event more frequently than four (4) times per
calendar month, provided immediately upon the disbursement of each Advance, the
outstanding principal balance of the Construction Line does not exceed the
lesser of the Collateral Base or the Construction Line Commitment. Subject to
the terms and conditions hereof, Borrower may borrow, prepay and reborrow under
this Section 5.1(d) so long as the principal balance of the Construction Line at
any time outstanding does not exceed the lesser of the Collateral Base or the
Construction Line Commitment. Borrower shall repay the unpaid principal amount
of the Loan, all accrued interest thereon, and any other amount outstanding
hereunder on or before the Construction Line Maturity Date.
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(e) Mandatory Principal Payments. Upon the conveyance of any
Residential Unit subject to a Mortgage in favor of Agent and at such time as any
Residential Unit may no longer be included in the Collateral Base, Borrower
shall pay to Agent an amount equal to the Total Draws with respect to such
Residential Unit. Upon the occurrence of an Event of Default or Unmatured
Default and during the continuance thereof, upon the conveyance of any
Residential Unit subject to a Mortgage in favor of Agent, Borrower shall pay to
Agent an amount equal to the Net Proceeds of such sale.
(f) Optional Principal Payments. The Construction Line or any
portion thereof may be prepaid at any time in any amount without premium or
penalty. Notice of prepayment and payment shall be made to Agent prior to 10:00
a.m., Phoenix time, on any Business Day.
(g) Unused Commitment Fee. The Borrower agrees to pay to the
Agent for the account of each Lender an unused commitment fee (the "Unused
Commitment Fee") of 25 basis points per annum on the weekly (as determined on
the last Business Day of each week) weighted average unborrowed and unused
portion of such Lender's Construction Line Commitment (i.e., after deducting
from the Construction Line Commitment of such Lender the outstanding amount of
all Loans under the Construction Line made by such Lender) from the Effective
Date to and including the Construction Line Maturity Date (to be prorated for
any partial calendar quarter). The Unused Commitment Fee shall be payable
quarterly in arrears as of the end of March, June, September and December and
the Construction Line Maturity Date, and on or before ten (10) days after
delivery of a written statement from Agent of the amount of the Unused
Commitment Fee. Borrower's obligation to pay the Unused Commitment Fee shall be
secured by the Collateral.
(h) Loan Fee. The Borrower agrees to pay to the Agent for the
account of each Lender a loan fee (the "Construction Line Loan Fee") of 45 basis
points per annum on the weekly (as determined on the last Business Day of each
week) weighted average outstanding Advances from the Effective Date to and
including the Termination Date, payable quarterly in arrears as of the end of
March, June, September and December and the Construction Line Maturity Date, and
on or before ten (10) days after delivery of a written statement from Agent of
the amount of the Construction Line Loan Fee. Borrower's obligation to pay the
Construction Line Loan Fee shall be secured by the Collateral.
5.2. Collateral Base. The Collateral Base shall equal the sum of the
amounts described in Subsections (a), (b) and (c) below (the "Collateral Base"):
(a) For all Presolds (excluding those Residential Units that
were previously included in the Collateral Base as Specs), the product of the
following:
(i) the lesser of the following:
28
(A) eighty percent (80%) of the Appraised
Value of the Residential Unit's Base Plan, or
(B) the sum of (i) ninety-five percent (95%)
of the Agreed Cost of such Residential Unit's Base Plan Budget plus (ii) sixty
percent (60%) of the agreed value of the Approved Upgrades, multiplied by
(ii) such Residential Unit's Completion Percentage,
as calculated by Agent as set forth herein, plus
(b) For all Residential Units that are initially Specs, and
for all Presolds that become Specs (after the expiration of nine month period
applicable to Presolds), the product of the following:
(i) the lesser of the following:
(A) seventy-five percent (75%) of the
Appraised Value of the Residential Unit's Base Plan, or
(B) the sum of (i) eighty-five percent (85%)
of the Agreed Cost of such Residential Unit's Base Plan Budget plus (ii) sixty
percent (60%) of the agreed value of the Approved Upgrades, multiplied by
(ii) such Residential Unit's Completion Percentage,
as calculated by Agent as set forth herein, plus
(c) For all Model Homes, the product of the following:
(i) the lesser of the following:
(A) eighty percent (80%) of the Appraised
Value of the Model Home, including Lot, or
(B) ninety percent (90%) of the actual cost
of the Model Home, excluding furniture and other furnishings, multiplied by
(ii) such Model Home's Completion Percentage, as
calculated by Borrower and confirmed from time to time by Agent as set forth
herein.
(d) The Collateral Base shall be determined monthly based on
the Construction Status Report and shall be calculated by Agent on the
Collateral Base Certificate. The Collateral Base applicable to the reporting
month shall not be revised until receipt by Agent of the next monthly
Construction Status Report and inspections of the Residential Units. No
Residential
29
Units not then included in the Collateral Base shall be eligible for inclusion
in the Collateral Base after the Termination Date. On the Termination Date, the
Construction Line shall cease to be a revolving commitment and from and after
such date Lenders shall not be obligated to include any new Residential Units
within the Construction Line and shall not be obligated to make any Advance for
new Residential Units for which an Advance has not already been made; provided,
however, Borrower shall continue to be entitled to Advances for Residential
Units for which an Advance has already been made in accordance with the terms of
this Agreement.
5.3. Limitations on Residential Units in Collateral Base.
(a) Notwithstanding anything to the contrary contained in
subsections (b) and (c) below, the total of all Residential Units that are Model
Homes or Specs shall not exceed six (6) Residential Units in any Project (with
any excess being excluded from the Collateral Base). If, at any time, a Presold
becomes a Spec and, at the time of the delivery of the next Construction Status
Report and Collateral Base Certificate, there are more than six (6) Model Homes
and Specs combined in such Project (including the Presold(s) that became
Spec(s)), Borrower shall determine which Specs or Model Homes to exclude from
the Collateral Base and Borrower shall pay to Agent the amount of the Total
Draws with respect to such Residential Unit(s). So long as Borrower has not
requested that the Mortgage in favor of Agent with respect to such Residential
Unit be released and reconveyed, if such Residential Unit subsequently becomes a
Presold or there are less than six (6) Model Homes and Specs combined in such
Project, Borrower may thereafter include such Residential Unit in the next
Construction Status Report and Collateral Base Certificate for purposes of
determining the Collateral Base; provided, however, for purposes of determining
the period of time that such Residential Unit may thereafter remain in the
Collateral Base, the period of time that such Residential Unit was previously
included in the Collateral Base shall be included.
(b) Notwithstanding anything to the contrary contained in
Section 5.2(a) above, a Presold may only remain in the Collateral Base for nine
(9) months from the first inclusion of such Residential Unit in the Collateral
Base; provided, however, Borrower may thereafter continue to include a Presold
in the Collateral Base for an additional three (3) months (and shall denote such
inclusion on the Construction Status Report and the Collateral Base Certificate)
if the Purchase Contract continues to be effective and Borrower reasonably and
in good faith believes the sale of the Residential Unit will close in accordance
with the Purchase Contract. Any Presold included in the Collateral Base for
twelve (12) months shall thereafter be excluded from the Collateral Base and
Borrower shall pay to Agent the amount of the Total Draws with respect to such
Residential Unit.
(c) Notwithstanding anything to the contrary contained in
Section 5.2(b) above, but subject to Section 5.3(a) above, a Spec, or a Presold
that becomes a Spec, may only remain in the Collateral Base for twelve (12)
months (including any period of time that such Residential Unit was a Presold);
provided, however, Borrower may thereafter continue to include
30
a Spec in the Collateral Base for two consecutive additional ninety (90) day
periods provided that Borrower makes a ten percent (10%) principal curtailment
payment for each ninety (90) day period, concurrently with the delivery of the
first Collateral Base Certificate on or after the expiration of the period for
inclusion of such Spec in the Collateral Base and concurrently with the delivery
of the first Collateral Base Certificate on or after the expiration of the first
90-day extension period, as the case may be. Any Residential Unit that is or
becomes a Spec and has been included in the Collateral Base for twelve (12)
months (and one or both of the extension periods have lapsed, if applicable)
shall thereafter be excluded from the Collateral Base and Borrower shall pay to
Agent the amount of the Total Draws (less any curtailment payments made by
Borrower) with respect to such Residential Unit. If a Presold becomes a Spec, on
the later of delivery of the first Collateral Base Certificate after such
Residential Unit has been included in the Collateral Base for nine (9) months or
delivery of the first Collateral Base Certificate after such Presold becomes a
Spec, Borrower shall pay to Agent any amount necessary to reduce the Total Draws
with respect to such Residential Unit to comply with the Collateral Base
requirements for Specs in Section 5.2(b).
(d) Notwithstanding anything to the contrary contained in
Section 5.2(c) above, but subject to Section 5.3(a) above, a Model Home may only
remain in the Collateral Base for twenty-four (24) months; provided, however,
Borrower may thereafter continue to include a Model Home in the Collateral Base
for one additional twelve (12) month period provided that Borrower makes a
fifteen percent (15%) principal curtailment payment concurrently with the
delivery of the first Collateral Base Certificate on or after the expiration of
the period for inclusion of such Residential Unit in the Collateral Base. Any
Model Home that has been included in the Collateral Base for twenty-four (24)
months (and the extension period has lapsed, if applicable) shall thereafter be
excluded from the Collateral Base and Borrower shall pay to Agent the amount of
the Total Draws (less any curtailment payments made by Borrower) with respect to
such Residential Unit.
5.4. Monthly Construction Status Report to Agent. On or before the
fifth (5th) Business Day prior to the end of each calendar month during the term
of this Agreement, Borrower shall deliver to Agent a report of new Residential
Units to be added to the Collateral Base (with the Residential Unit's
designation as a Presold, Spec or Model Home), any Presolds that are no longer
subject to a Purchase Contract and any Residential Units previously included in
the Collateral Base that Borrower desires to now exclude from the Collateral
Base, and based upon the foregoing information, Agent will prepare a report
substantially in the form attached hereto as Exhibit "E" and incorporated herein
by this reference, or in a form otherwise approved by Borrower and Agent (the
"Construction Status Report"). To the extent not previously delivered to Agent,
there shall be delivered to Agent with Borrower's report referenced above (a) a
copy of each Purchase Contract, including any addenda or schedules thereto,
setting forth the purchase price thereof, the date of the Purchase Contract, the
location of the applicable Residential Unit, the signatures of the purchaser and
Borrower and any applicable Lot premium, options, extra
31
items, upgrades, etc.; (b) a copy of the preliminary loan approval executed by
the lender or mortgage broker under the Purchase Contract, if applicable; (c) if
requested by Agent, a copy of escrow instructions, if any, relating to each such
Purchase Contract; and (d) if requested by Agent, a copy of the building permits
for each Residential Unit to be added to the Collateral Base. Agent shall verify
that it has satisfactory evidence that a First Mortgage in favor of Agent,
subject only to the Permitted Exceptions, has been recorded as a Lien against
each Residential Unit included in the Collateral Base, Agent has received an
appraisal for each such Residential Unit's Base Plan and Agent has received the
Title Policy commitment with respect to each such Residential Unit, all in form
and substance acceptable to Agent.
5.5. Inclusion in Collateral Base. No Residential Unit shall be
included in the Collateral Base until such time as:
(a) The First Mortgage in favor of Agent encumbering said
Residential Unit shall have been recorded, and Agent shall have received a Title
Policy or an irrevocable commitment from the title insurer to issue the Title
Policy, evidencing a first lien and security interest in the Residential Unit,
subject only to the Permitted Exceptions;
(b) An appraisal setting forth an Appraised Value to be used
with respect to such Residential Unit's Base Plan has been received and approved
by Lenders;
(c) A Phase 1 Environmental Report and additional
environmental reports or assessments, if required by Agent, with respect to the
Project in which the Residential Unit is located have been received and approved
by Lenders.
(d) Such other documentation as the Agent may reasonably
request (including, without limitation, an Assignment of Leases, Rents and
Profits, UCC-1 Financing Statements, collateral assignments of agreements
relating to the Residential Unit, a survey or plat of the property, and
insurance certificates naming the Agent under a mortgagee endorsement which is
acceptable to Agent).
5.6. Inspections. Agent will contract with independent inspectors, or
use its internal inspecting engineers (and charge Borrower such amount as Agent
determines to be reasonable compensation for such internal inspecting engineers)
to conduct monthly inspections of the Residential Units included in the
Collateral Base and Borrower shall pay the cost of such inspections and any
inspections undertaken by or on behalf of Agent or any Lender after the
occurrence, and during the continuance, of an Unmatured Default or an Event of
Default. In addition to such inspections, Agent, at its own expense and at any
time, shall be entitled to send its officers or inspecting engineers to each
Project for inspections to review the status of construction and to prepare the
Construction Status Reports and determine the Completion Percentage.
32
5.7. Collateral Base Adjustments. The Collateral Base shall be
determined each month based upon the current Construction Status Report. Agent
shall adjust the Collateral Base during each calendar month, on or before the
later of (a) the eighth (8th) calendar day of each calendar month or (b) fifteen
(15) calendar days after Agent's receipt from Borrower of the information
necessary to complete the Construction Status Report and the Collateral Base
Certificate, as required to reflect (i) any release of a Residential Unit
included in the Collateral Base from the Collateral, (ii) any change in status
of a Residential Unit, and (iii) after notice to Borrower, any Event known to
Agent which results in any Residential Unit included in the Collateral Base
becoming ineligible for inclusion in the Collateral Base. Agent's calculation of
the Collateral Base shall be conclusive and binding on Borrower upon
readjustment, absent manifest error. If the outstanding Advances under the
Construction Line exceed the maximum availability under the Collateral Base,
Borrower shall, upon telephonic notice from Agent, immediately repay all amounts
necessary to reduce the outstanding Advances under the Construction Line to the
Collateral Base and/or pay to Agent the amount of the Total Draws with respect
to any Residential Unit no longer included in the Collateral Base.
5.8. Defective Work. Agent may withhold from any Advance or, on account
of subsequently discovered evidence, withhold from a later Advance, as Agent in
its discretion considers necessary to protect Lenders from loss on account of
(i) defective work on the Lots or Residential Units that has not been remedied,
(ii) any obligation required by this Agreement or the Loan Documents to have
been performed that has not been performed, (iii) liens filed against the Lots
or Residential Units, which are not being disputed in accordance with Section
12.3, (iv) failure of Borrower to make payments to the contractors or
contractor's failure to pay subcontractors for material or labor, which are not
being disputed in accordance with Section 12.3, or (v) a reasonable doubt by
Agent that development of the Lots or construction of the Residential Units can
be completed for the undisbursed proceeds of the Loan.
5.9. Budget Shortfall. In the event that the applicable Loan amount or
so much thereof as Lenders are obligated to Advance is not sufficient in Agent's
sole judgment to pay ninety-five percent (95%) of all costs contained in the
Base Plan Budget, or other costs necessary to complete the Lots or Residential
Units, Borrower shall be solely responsible to provide sufficient funds to pay
all costs not Advanced by Lenders, and within three days of demand of Agent,
Borrower shall deposit with Agent the amount of funds estimated by Agent to be
necessary to remain in compliance with the Base Plan Budget and such funds will
disbursed under the terms hereof before any further Advances under the Loan.
Failure to make the deposit required by Agent within three days after notice to
Borrower from Agent shall be an Event of Default hereunder.
5.10. Obligations. It is the intention of the parties hereto that the
Obligations shall constitute one indebtedness, and shall constitute one general
obligation, including all whole or
33
partial extensions, renewals or replacements thereof, and including any
obligation to perform or forbear from any action as well as any obligation to
pay money.
6. TERM LOAN
6.1. The Term Loan. Subject to the terms and conditions of this
Agreement, Lenders agree to make available to Borrower the Term Loan as follows:
(a) Amount. The amount of the Term Loan shall be
$6,052,500.00.
(b) Purpose. The Term Loan will be advanced to Borrower in one
Advance on the Effective Date for the purpose of refinancing an existing loan
made by Norwest to Borrower which was used to fund a portion of the
distributions of retained earnings of the Borrower to the shareholders prior to
the Merger.
(c) Evidence of Term Loan. The Term Loan will be evidenced by
installment promissory notes from Borrower to Lenders in the amount of each
Lender's Pro Rate Share of the Term Loan, and any amendments, modifications or
supplements thereto and any note or notes taken wholly or partially in renewal
or extension thereof or substitution or replacement therefor (individually, a
"Term Note" and collectively, the "Term Notes"). The Term Loan shall bear
interest in accordance with this Agreement and shall be payable in nine (9)
monthly principal installments of $500,000, plus interest, on December 28, 1996
and on the fifteenth (15th) day of each month beginning on January 15 1997, and
in two (2) quarterly principal installments of $750,000 each, plus interest, on
June 15, 1997 and August 15, 1997, with the entire unpaid principal balance plus
accrued interest due and payable, absent earlier acceleration, on August 28,
1997 (the "Term Loan Maturity Date").
(d) Optional Principal Payments. The Term Loan or any portion
thereof may be prepaid at any time in any amount without premium or penalty, and
all prepayments shall be applied to payments due in the order of their maturity.
Notice of prepayment and payment shall be made to Agent prior to 10:00 a.m.,
Phoenix time, on any Business Day.
(e) Origination Fee. Borrower has paid to Norwest an
origination fee of $52,500, receipt of which is hereby acknowledged by Norwest.
No additional origination fee will payable in connection with the Term Loan.
(f) Collateral. The Term Loan is secured by the securities
accounts, the financial assets in the securities accounts and the security
entitlements with respect to each securities account and the financial assets
therein, as more particularly described in the Securities Pledge Agreements.
7. GUIDANCE LINE OF CREDIT
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7.1. Guidance Line of Credit. Subject to the terms and conditions of
this Agreement, Lenders agree to make available to Borrower the Guidance Line of
Credit (the "Guidance Line") as follows:
(a) Amount. The maximum principal amount of the Guidance Line
shall not exceed the Guidance Line Commitment.
(b) Purpose. The Guidance Line will be advanced using several
individual non-revolving lines of credit for the purpose of refinancing all
Existing Loans that are acquisition and development loans of Borrower upon the
Effective Date and, thereafter, for providing new acquisition and development
financing on a project specific basis as determined by Lenders in their sole and
absolute discretion, and for providing credit enhancement as required by
Governmental Authorities in connection with infrastructure improvements (each, a
"Guidance Loan"). Upon the payment of the principal indebtedness under any
Guidance Loan, the amount of such principal reductions (but, together with the
maximum commitments of all other outstanding Guidance Loans, not to exceed the
Guidance Line Commitment) will be available for reborrowing by Borrower in
accordance with this Agreement.
(c) Evidence of Guidance Line. Each Guidance Loan will be
evidenced by Guidance Notes from Borrower to Lenders in the amount of each
Lender's Pro Rata Share of the Guidance Loan, and any amendments, modifications
or supplements thereto and any note or notes taken wholly or partially in
renewal or extension thereof or substitution or replacement therefor. Each
Guidance Note shall bear interest in accordance with this Agreement and shall be
payable in monthly installments of interest only on the Monthly Payment Date
beginning on the month immediately succeeding the first Advance with respect to
such Guidance Note, with the entire unpaid principal balance plus accrued
interest due and payable, absent earlier acceleration, no more than two years
after the first Advance (or, in the case of Advances made on the Effective Date
to refinance Existing Loans that are acquisition and development loans, the
existing maturities if less than two years). No Guidance Loan will have a
maturity date later than two (2) years after the Termination Date (the "Guidance
Line Maturity Date").
(d) Advances. From and including the Effective Date, and prior
to the maturity date of each Guidance Note, each Lender severally agrees, on the
terms and conditions set forth in this Agreement and in reliance upon the
representations and warranties of Borrower herein, to make Advances to or on
behalf of Borrower, as Borrower shall request, provided immediately upon the
disbursement of each Advance, the outstanding principal balance of such Guidance
Loan does not exceed the Bulk Land Budget in respect of such Guidance Loan and,
provided, further, the aggregate Advances previously made under the Guidance
Loan, plus Lenders' commitments to make subsequent Advances under all Guidance
Notes and Letters of Credit, plus the remaining balance of all interest reserves
established in connection with all outstanding Guidance Notes, does not exceed
the Guidance Line Commitment. Each Guidance Loan is a closed-end, non-revolving
line of credit and Advances made under such Guidance Loan
35
may not be reborrowed. All change orders shall be submitted to Agent. All change
orders involving additional costs in excess of $100,000 individually or in the
aggregate, shall require that Borrower immediately provide evidence to Agent
that Borrower possesses sufficient funds for the completion of such extras or
changes.
(e) Interest Reserve. There shall be established in connection
with each Guidance Loan, an interest reserve equal to one-hundred fifteen
percent (115%) of the anticipated interest expense during the term of such
Guidance Loan. The interest reserve will be applied by Agent to Borrower's
monthly interest payments under each Guidance Loan and shall not bear interest
until so applied. The interest reserve shall not be available for Advances to
Borrower other than to pay monthly interest under the Guidance Notes. If, at any
time, Lender reasonably determines that the interest reserve with respect to a
Guidance Loan is not sufficient to pay the remaining monthly interest payments
with respect to such Guidance Loans, Agent may, to the extent of funds available
under such Guidance Loan, increase the interest reserve by an amount determined
by Agent in its sole and absolute discretion. To the extent that the interest
reserve has been depleted and there is not sufficient funds available under the
Guidance Loan to replenish the interest reserve, Agent may require that Borrower
deposit with Agent sufficient funds to pay interest for the remainder of the
term of such Guidance Loan and, if Agent does not so require Borrower to deposit
additional funds for payment of interest, Borrower shall pay all subsequent
interest payments on the Monthly Payment Date from its own funds.
(f) Mandatory Lot Takedowns. With respect to the Lots acquired
in connection with each Guidance Loan, as of the end of each three-month period
from the effective date of such Guidance Loan, on a cumulative basis, Borrower
shall have made mandatory Lot release payments to Agent at the Lot Release
Prices for no less than seventy-five percent (75%) of the projected average
absorption (as approved by Lenders at the time of the making of the Guidance
Loan) of Lots acquired in connection with such Guidance Loan. Notwithstanding
the foregoing, with respect to the Existing Loans which are being refinanced on
the Effective Date, this Section shall not apply and the existing takedown
schedules, if any, under such Existing Loans will remain in full force and
effect. Subject to the terms and conditions of this Agreement, mandatory Lot
takedowns may be accomplished by transferring such Lots to the Construction
Line.
(g) Mandatory Principal Payments. All Lot Release Price
Advances under the Construction Line shall be applied directly by the Lenders as
mandatory principal payments with respect to the applicable Guidance Loan.
(h) Optional Principal Payment. Any Guidance Loan, or any
portion thereof, may be prepaid at any time in any amount without premium or
penalty. Notice of prepayment and payment shall be made prior to 10:00 a.m.,
Phoenix time, on any Business Day.
(i) Origination Fee.Borrower shall pay to the Agent for the
account of each Lender an annual origination fee (the "Origination Fee") of 37.5
basis points (prorated for
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any partial year) of the maximum commitment available (including outstanding
commitments under Letters of Credit) under each Guidance Loan on the date of
execution of such Guidance Loan and as of January 1 of each year during the term
of such Guidance Loan, on or before ten (10) days after delivery of a written
statement from Agent to Borrower of the amount of the Origination Fee.
Notwithstanding the foregoing, with respect to the Origination Fee payable on
the Effective Date only, Borrower shall have no obligation to pay an Origination
Fee with respect to the Guidance Loans for the Rancho Vistoso 55' Project or the
Lincoln Place Project. Borrower will pay Origination Fees with respect to the
Rancho Vistoso 55' Guidance Loan and the Lincoln Place Guidance Loan beginning
on January 1, 1998 unless such Guidance Loans shall have been paid in full prior
to such date. Borrower's obligation to pay the Origination Fee shall be secured
by the Collateral. For example, if a Guidance Loan is made on July 1, 1997 and
the maximum commitment when made for such Guidance Loan is $2,000,000, the
initial Origination Fee for such Guidance Loan to be paid on the execution date
of such Guidance Loan will be $7,500, prorated for one-half of the year; if the
maximum commitment under such Guidance Loan is $1,500,000 (including outstanding
commitments under Letters of Credit) on January 1, 1998, the annual Origination
Fee for 1998 will be $5,625; and if maximum commitment under such Guidance Loan
is $1,000,000 (including outstanding commitments under Letters of Credit) on
January 1, 1999 and the Guidance Loan matures on June 30, 1999, the annual
Origination Fee for 1999 will be $3,750, prorated for one-half of the year. Any
Origination Fee payable on the Effective Date or January 1 of any year during
the term of the Guidance Loan will not be prorated due to a voluntary or
involuntary prepayment.
(j) Guidance Loan Documentation. In connection with the making
of any Guidance Loan, Borrower and Lenders shall agree upon all of the terms and
conditions with respect to such Guidance Loan and, to the extent inconsistent
with this Agreement or not addressed in this Agreement, such terms and
conditions shall be incorporated into a Guidance Loan addendum, which shall be
deemed to be incorporated by this reference into this Agreement. Borrower shall
execute and deliver, or cause to be executed and delivered, any required
Guidance Loan addenda or supplements, Guidance Notes, First Mortgages,
environmental questionnaires and environmental reports, Title Policies, consents
of Guarantors and such other agreements, certificates, documents and other
instruments as Lenders shall require in connection with their approval of such
new Guidance Loan.
7.2. Existing Projects. Upon the Effective Date, Lender shall make
sufficient Advances to repay all Existing Loans and other credit arrangements
that are acquisition and development loans approved by Lenders. The existing
acquisition and development loans that will be refinanced upon the Effective
Date will be margined at the lower of (a) the existing margins under such
acquisition and development loans, except to replenish the interest reserve, or
(b) the Bulk Land Price with respect to such Project.
7.3. Approval of New Projects.To the extent that Borrower desires to
finance acquisition and development of additional Projects located in the
Phoenix metropolitan area or
37
the Tucson metropolitan area, Borrower shall offer Lenders the first right to
finance such new Projects under the Guidance Line. Approval of new Projects
shall be at Bank's sole and absolute discretion and Lenders shall have no
obligation to approve any new Project. If Borrower requests approval of a new
Project, Borrower shall provide Lenders written notice of the request for
approval, accompanied by the information below, to the extent available, which
is complete and accurate (to the extent provided) and is in form and content
acceptable to Lenders in its sole and absolute discretion. As any of the
information listed below subsequently becomes available, Borrower shall timely
submit such information to Lenders. Lenders shall have fifteen (15) days after
receipt of such notice to preliminarily approve or to deny such requested
Guidance Loan approval. If preliminary approval is not granted within said
fifteen (15) day period or the terms of such approval are not acceptable to
Borrower, as determined by Borrower in its sole and absolute discretion, it will
be deemed that approval has been denied and Borrower may seek financing for such
new Project from other sources. If preliminary approval is timely granted, as
any of the information listed below subsequently becomes available, Borrower
shall timely submit such information to Lenders and Lenders shall finally
approve or disapprove such Guidance Loan request within a commercially
reasonable period of time:
(a) Surveys or Plat Maps. One or more recorded Plat Maps
covering the Project, containing a legal description of the Lots covered by the
Plat Map, and showing all boundaries of and lines within such Lots, all streets
and other dedications, and all easements affecting such Lots, or a current
survey certified to Lenders and prepared in accordance with the Minimum Standard
Detail Requirements for ALTA/ACSM Land Title Surveys as adopted by the American
Land Title Association and the American Congress on Surveying and Mapping
approved in (1992), including items 1-4, 6, 8, 10, 11 and 13 of Table A, by a
registered civil engineer acceptable to Agent in its sole and absolute
discretion covering the Project for which Borrower is requesting approval;
(b) CC&R's. All covenants, conditions and restrictions,
easements and other rights that exist or are contemplated with respect to the
Project for which Borrower is requesting approval;
(c) Types of Units. A description of the types of Residential
Units to be constructed within such Project, together with plans and drawings of
the Base Plan Residential Unit for each type of Residential Unit;
(d) Base Plan Unit Budgets. A Base Plan Budget for each type
of Residential Unit to be constructed within the Project.
(e) Lot Option Price. If applicable, the Lot Option Price with
respect to the Lots in the Project, together with the Option Contract and any
other documents evidencing or relating to such Lot Option Price.
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(f) Option Information. If applicable, a copy of any Option
Contract under which Borrower plans to purchase the Project or Lots within the
Project, and any other pertinent information relating to such Option Contract.
(g) Lot Takedown Exhibit. A schedule of the projected average
monthly absorption of all Lots to be constructed within the Project.
(h) Approvals. Evidence of appropriate zoning and existence of
all necessary governmental and other third-party approvals, including, without
limitation, building permits, Arizona Department of Real Estate conditional
sales approvals and public reports, architectural committee approvals (to the
extent Borrower does not control the granting of such approvals) and any other
approvals required under the covenants, conditions and restrictions.
(i) Zoning. Evidence of such zoning (including variances) and
other land use entitlements as may be necessary to permit any intended or
foreseeable use of the Lots, Project and Residential Units.
(j) Environmental Report. An environmental questionnaire with
respect to the Project on Lender's then standard form and a current (dated less
than six months from submission) Phase 1 Environmental Site Assessment Report
addressed or certified to Lenders and prepared by a registered environmental
engineer or other qualified party chosen by Borrower and approved by Agent
stating that there are no hazardous substances present in, on, under or around
the Property, and that there is no condition or circumstance which warrants
further investigation or analysis in the opinion of the preparer of the report.
(k) Utilities. Evidence that all utilities shall be provided
which are necessary to develop and subdivide the Lots, and to sell and occupy
the Residential Units, including written assurances from such utility companies
as Lenders may require.
(l) Taxes. Evidence acceptable to Lenders in their sole and
absolute discretion that all real property taxes, assessments, water, sewer or
other charges levied or assessed against the Project have been paid in full.
(m) Flood Report. Evidence acceptable to Lenders in their sole
and absolute discretion, as to whether (a) the Project is located in an area
designated by the Department of Housing and Urban Development as having special
flood or mudslide hazards, and (b) the community in which the Project is located
is participating in the National Flood Insurance Program.
(n) Preliminary Title Report. A commitment for an ALTA Loan
Policy, including all Schedule B exception and requirement items, and evidence
satisfactory to Lenders that a reputable title insurance company satisfactory to
Lender is prepared to issue title insurance
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policies with respect to each Project for which Borrower is requesting approval,
subject only to the Permitted Exceptions.
(o) Base Plan Appraisals. Agent shall have ordered, reviewed
and approved the Base Plan appraisals for each type of Residential Unit to be
constructed in the Project.
(p) Bulk Sale Appraisals. Agent shall have ordered, reviewed
and approved the Bulk Land Price appraisals for the Real Estate.
(q) Governmental Approvals. Any environmental licenses or
approvals for operation within or on the Project, if any; and any other
applicable governmental permits, approvals, consents, licenses and certificates
for the use and operation of the Project or which may affect the value of the
Project, including, without limitation, any approvals, licenses or ownership
rights for any water or irrigation utilized on the Project, and any and all
reports and/or approvals issued with or by the Arizona Department of Real Estate
and/or the United States Department of Housing and Urban Development.
(r) Other Items. The following additional items:
(i) If requested by Lenders, all construction and
development contracts related to the Project with scheduled values in excess of
$100,000, including, without limitation, the names and addresses of persons
providing labor or materials in connection with the Project; and all
subcontracts with scheduled values in excess of $100,000.
(ii) If requested by Lenders, soils reports for each
Project;
(iii) If requested by Lenders, drainage reports (if
applicable) for each Project;
(iv) If requested by Lenders, Project projections and
analysis for each Project in form and substance acceptable to Lenders in its
sole and absolute discretion, including, without limitation, (A) projected Lot
and Residential Unit sale prices, absorption and closings, (B) if applicable,
projected Lot takedowns under Option Contract or otherwise, (C) projected number
of Unsold Units and Model Homes, (D) projected construction and sales time line,
and (E) if applicable, as to already active Projects, an Unsold Units report
which will indicate the total number of Lots, Lots closed, number of existing
Residential Units Under Purchase Contract, Model Homes and Unsold Units, and a
historical sales and closing report;
(v) If requested by Lenders, and if applicable,
description of any bonding requirements related to each Project; and
(vi) If requested by Lenders, marketing information
for each Project; and
40
(s) Other. such other documents and information that Lenders
may require in their sole and absolute discretion.
7.4. Letters of Credit.
(a) General. Borrower may request that Norwest issue a Letter
of Credit, in a form reasonably acceptable to Norwest, appropriately completed,
for the account of the Borrower, at any time and from time to time while any
Guidance Loan remains in effect for the purpose of providing credit enhancement
as required by the applicable Governmental Authorities in connection with
infrastructure improvements to be installed under any Guidance Loan. This
Section 7.4 shall not be construed to impose an obligation upon Norwest to issue
any Letter of Credit that is inconsistent with the terms and conditions of this
Agreement.
(b) Notice of Issuance, Amendment, Renewal, Extension; Certain
Conditions. In order to request the issuance of a Letter of Credit (or to amend,
renew or extend an existing Letter of Credit), Borrower shall hand deliver or
telecopy to Norwest (reasonably in advance of the requested date of issuance,
amendment, renewal or extension) a notice requesting the issuance of a Letter of
Credit, or identifying the Letter of Credit to be amended, renewed or extended,
the date of issuance, amendment, renewal or extension, the date on which such
Letter of Credit is to expire (which shall comply with subsection (c) below),
the amount of such Letter of Credit, the name and address of the beneficiary
thereof and such other information as shall be necessary to prepare such Letter
of Credit. A Letter of Credit shall be issued, amended, renewed or extended only
if, and upon issuance, amendment, renewal or extension of each Letter of Credit,
the Borrower shall be deemed to represent and warrant that, after giving effect
to such issuance, amendment, renewal or extension, the sum of the outstanding
principal amount of such Guidance Loan, any interest reserve for such Guidance
Loan and the aggregate outstanding Letter of Credit commitments for such
Guidance Loan do not exceed the maximum commitment with respect to such Guidance
Loan.
(c) Expiration Date. Each Letter of Credit shall expire at the
close of business on the earlier of the date one year after the date of the
issuance of such Letter of Credit or the date that is five (5) Business Days
prior to the Maturity Date of such Guidance Loan, unless such Letter of Credit
expires by its terms on an earlier date.
(d) Disbursements in Respect of Letters of Credit. Each Lender
hereby absolutely and unconditionally agrees to pay to Norwest such Lender's Pro
Rata Share of each disbursement made by Norwest in respect of a Letter of
Credit. Each Lender acknowledges and agrees that its obligation to pay such
Lender's Pro Rata Share of each disbursement in respect of a Letter of Credit
pursuant to this Section is absolute and unconditional and shall not be affected
by any circumstance whatsoever, including the occurrence and continuance of an
Unmatured Default or an Event of Default, and that each such payment shall be
made without any offset, abatement, withholding or reduction whatsoever.
41
(e) Obligations/Absolute. Borrower's obligations to reimburse
disbursements in respect of Letters of Credit shall be absolute, unconditional
and irrevocable, and shall be performed strictly in accordance with the terms of
this Agreement, under any and all circumstances whatsoever, and irrespective of:
(i) any lack of validity or enforceability of any
Letter of Credit or any Loan Document, or any term or provision therein;
(ii) any amendment or waiver of or any consent to
departure from all or any of the provisions of any Letter of Credit or any Loan
Document;
(iii) Borrower, any other party guaranteeing, or
otherwise obligated with, Borrower, any member of the Obligated Group, any
Subsidiary or other Affiliate thereof or any other person may at any time have
against the beneficiary under any Letter of Credit, Norwest or any Lender or any
other Person, whether in connection with this Agreement, any other Loan Document
or any other related or unrelated agreement or transaction;
(iv) any draft or other document presented under a
Letter of Credit proving to be forged, fraudulent, invalid or insufficient in
any respect or any statement therein being untrue or inaccurate in any respect;
(v) payment by Norwest under a Letter of Credit
against presentation of a draft or other document that does not comply with the
terms of such Letter of Credit; and
(vi) any other act or omission to act or delay of any
kind of Norwest, the Lenders, or any other person or any other event or
circumstance whatsoever, whether or not similar to any of the foregoing, that
might, but for the provisions of this Section 7.4(e), constitute a legal or
equitable discharge of Borrower's obligations hereunder.
(vii) Without limiting the generality of the
foregoing, it is expressly understood and agreed that the absolute and
unconditional obligation of Borrower to reimburse disbursements in respect of
Letters of Credit will not be excused by the gross negligence or willful
misconduct of Norwest. However, the foregoing shall not be construed to excuse
Norwest from liability to Borrower to the extent of any direct damages (as
opposed to consequential damages, claims in respect of which are hereby waived
by the Borrower to the extent permitted by applicable law) suffered by Borrower
that are caused by Norwest's gross negligence or willful misconduct or failure
to examine drafts and other documents presented under a Letter of Credit to
determine whether such drafts and other documents presented under a Letter of
Credit comply with the terms thereof; it is understood that Norwest may accept
documents that appear on their face to be in order, without responsibility for
further investigation, regardless of any notice or information to the contrary
and, in making any payment under any Letter of Credit (A) Norwest's exclusive
reliance on the documents presented to it
42
under such Letter of Credit as to any and all matters set forth therein,
including reliance on the amount of any draft presented under such Letter of
Credit, whether or not the amount due to the beneficiary thereunder equals the
amount of such draft and whether or not any document presented pursuant to such
Letter of Credit proves to be insufficient in any respect, if such document on
its face appears to be in order, and whether or not any other statement or any
other document presented pursuant to such Letter of Credit proves to be forged
or invalid or any statement therein proves to be inaccurate or untrue in any
respect whatsoever and (B) any noncompliance in any immaterial respect of the
documents presented under such Letter of Credit with the terms thereof shall, in
each case, be deemed not to constitute willful misconduct or gross negligence of
Norwest.
(f) Disbursement Procedures. Norwest shall, promptly following
its receipt thereof, examine all documents purporting to represent a demand for
payment under a Letter of Credit issued by Norwest. Norwest shall as promptly as
possible give telephonic notification, confirmed by telecopy, to Borrower and
the Lenders of such demand for payment and whether Norwest has made or will make
a disbursement thereunder; provided, however, that any failure to give or delay
in giving such notice shall not relieve Borrower of its obligation to reimburse
Norwest and the Lenders with respect to any such disbursement in respect of a
Letter of Credit or relieve Lenders from their obligation to Advance
disbursements under the Letters of Credit.
(g) Interest. If Norwest shall make any disbursement in
respect of a Letter of Credit, the unpaid amount thereof shall bear interest for
the account of Lenders thereafter as a Floating Interest Rate Advance, unless
and until converted to a Eurodollar Advance in accordance with this Agreement.
8. BORROWINGS
8.1. Method of Borrowing. Not later than 10:00 a.m., Phoenix time, on
each Borrowing Date, each Lender shall make available its Loan or Loans, in
funds immediately available in Phoenix, Arizona to the Agent at its address
specified in the Co-Lender Agreement. The Agent will make the funds so received
from the Lenders available to the Borrower by deposit into one or more operating
accounts at Norwest designated from time to time by Borrower.
8.2. Method of Selecting Types and Interest Periods for Advances.
(a) The Borrower shall select the Type of Advance by giving
the Agent irrevocable notice (a "Borrowing Notice") not later than 10:00 a.m.,
Phoenix time, at least one (1) Business Day before the Borrowing Date for each
Floating Interest Rate Advance and at least three (3) Business Days before the
Borrowing Date for each Eurodollar Advance, specifying:
(i) the Borrowing Date, which shall be a Business
Day, of such Advance;
43
(ii) the aggregate amount of such Advance; and
(iii) the Type of Advance selected.
The Borrower shall be entitled to obtain only one (1) Advance per
Guidance Loan per month and only four (4) Construction Line Advances per month
(Eurodollar Advances may only be made on the Eurodollar Advance Date) and only
one Advance in any single Business Day. Changes in the rate of interest on that
portion of any Advance maintained as a Floating Interest Rate Advance will take
effect simultaneously with each change in the Floating Interest Rate. Each
Eurodollar Advance shall bear interest from and including the first day of the
Eurodollar Interest Period applicable thereto to, but not including, the
Eurodollar Advance Date three months thereafter. Changes in the rate of interest
on that portion of any Advance maintained as a Eurodollar Advance will take
effect on the first Business Day after the expiration of the Eurodollar Interest
Period.
(b) Each Borrowing Notice shall be irrevocable and binding on
the Borrower and, in respect of the borrowing specified in the Borrowing Notice,
the Borrower shall indemnify each Lender against any loss or expense incurred by
that Lender as a result of any failure to fulfill the applicable conditions set
forth in Sections 8.1 and 8.2 on or before the proposed Borrowing Date specified
in the Borrowing Notice, including, without limitation, any loss (including loss
of profit) or expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by any Lender to fund the Loan to be made by
that Lender as part of that borrowing when that Loan, as a result of that
failure, is not made on that date.
(c) In the event of any prepayment of a Eurodollar Loan or
with any conversion of a Eurodollar Loan to a Floating Interest Rate Loan, in
either case other than on the last Business Day of the Interest Period for such
Eurodollar Loan (including any such prepayment made voluntarily or involuntarily
as a result of the acceleration of maturity upon a default or otherwise),
Borrower shall also pay (a) all accrued and unpaid interest on the principal
being prepaid, (b) all Other Amounts then due, and (c) a premium, if any, equal
to the product of (i) the Average Lost Monthly Interest Income and (ii) the
number of months from the date of prepayment or conversion to the last Business
Day of the Interest Period for such Eurodollar Loan (with any fraction of a
month counted as a month), discounted to present value at the Discount Rate over
a period equal to one-half of the number of months in clause (ii) above. The
maturity date and yield to maturity of Treasury Obligations shall be determined
by Agent, on the basis of quotations published in The Wall Street Journal or
other comparable sources. Failure of Agent to exercise any option hereunder
shall not constitute a waiver of Agent's right to exercise the same in the event
of any subsequent prepayment of a Eurodollar Loan or with any subsequent
conversion of a Eurodollar Loan to a Floating Interest Rate Loan, in either case
other than on the last Business Day of the Interest Period for such Eurodollar
Loan (including any such prepayment made voluntarily or involuntarily as a
result of the acceleration of maturity upon a default or otherwise).
44
8.3. Method of Selecting Types and Interest Periods for Conversion and
Continuation of Advances.
(a) Right to Convert. The Borrower may elect from time to
time, subject to the provisions of Section 8.4, to convert all or any part of,
an Advance of any Type into any other Type or Types of Advances; provided that
any conversion of any Advance shall be made effective on, and only on, a
Eurodollar Advance Date.
(b) Automatic Conversion and Continuation. Floating Interest
Rate Advances shall continue as Floating Interest Rate Advances unless and until
such Floating Interest Rate Advances are converted into Eurodollar Advances.
Eurodollar Advances shall convert to Floating Interest Rate Advances on the
expiration of the Eurodollar Interest Period unless Agent timely receives a
Conversion/Continuation Notice (as defined below) from Borrower.
(c) No Conversion in Case of an Event of Default or Unmatured
Default. Notwithstanding anything to the contrary contained in Section 8.3(b),
no Advance may be converted into or continued as a Eurodollar Advance (except
with the consent of the Lenders) when any Event of Default or Unmatured Default
has occurred and is continuing. As of the first Business Day on or after the
expiration of the Eurodollar Interest Period, after the occurrence of an Event
of Default or Unmatured Default and during the continuance of such Event of
Default or Unmatured Default, all Eurodollar Advances shall convert to Floating
Interest Rate Advances.
(d) Conversion/Continuation Notice. The Borrower shall give
the Agent irrevocable notice (a "Conversion/Continuation Notice") of each
continuation of a Eurodollar Advance and each conversion of a Floating Interest
Rate Advance to a Eurodollar Advance not later than 10:00 a.m., Phoenix time, on
or before three (3) Business Days preceding the expiration of the applicable
Eurodollar Interest Period.
8.4. Maximum Number of Eurodollar Advances and Minimum Amount of Each
Eurodollar Advance. At no time may Borrower have more than five (5) Eurodollar
Advances outstanding. Each Eurodollar Advance shall be in the minimum amount of
$3,000,000 (and in multiples of $100,000 if in excess thereof). Eurodollar
Advances shall be available under the Construction Line from and after the
Effective Date, subject to any limitations contained in this Agreement, and
Eurodollar Advances will be available under the Guidance Line when Agent and
Lenders notify Borrower that Eurodollar Advances under the Guidance Line can be
properly administered.
8.5. Rate after Maturity. Notwithstanding anything to the contrary
contained herein, any Advance not paid at maturity, whether by acceleration or
otherwise, shall bear interest until paid in full at the Default Rate.
45
8.6. Method of Payment. All payments of principal, interest and fees
hereunder shall be made, without setoff, deduction, or counterclaim, in
immediately available funds to the Agent by wire transfer of immediately
available federal funds pursuant to instructions provided by Agent to Borrower
from time to time, by 10:00 a.m., Phoenix time, on the date when due and shall
be made ratably among the Lenders. Each payment delivered to the Agent for the
account of any Lender shall be delivered promptly by the Agent to such Lender in
the same type of funds which the Agent received. The Agent is hereby authorized
to charge any account of the Borrower maintained with Norwest for each payment
of principal, interest and fees as it becomes due hereunder. The Agent shall
endeavor in good faith to provide telephonic notice to Borrower prior to any
such charge, but the Agent shall not be liable to Borrower or any other Person
if Agent fails to provide any such notice. If and to the extent payment owed to
any Lender is not made by the Borrower to the Agent or that Lender, as the case
may be, when due hereunder or under the Note held by that Lender, the Borrower
further authorizes such Lender to charge from time to time against any or all of
the accounts maintained by the Borrower with the Lender, its subsidiaries,
affiliates or branches any amount so due, subject to the provisions of Article
16.
8.7. Notes; Telephonic Notices. The Borrower hereby authorizes the
Lenders and the Agent to extend, convert or continue Advances, effect selections
of Types of Advances and to transfer funds based on telephonic notices made by
any person or persons the Agent or any Lender in good faith believes to be
acting on behalf of the Borrower. All actions taken by the Lenders and the Agent
upon such telephonic notices are hereby approved by the Borrower, and the
Lenders and the Agent shall incur no liability as a result of any such actions.
The Borrower agrees to deliver promptly to the Agent a written confirmation, if
such confirmation is requested by the Agent or any Lender, of each telephonic
notice, signed by an Authorized Officer. If the written confirmation differs in
any material respect from the action taken by the Agent and the Lenders, the
records of the Agent and the Lenders shall govern absent manifest error.
8.8. Interest Payment Dates: Interest and Fee Basis. Interest accrued
on each Advance shall be payable on each Monthly Payment Date (or as otherwise
provided herein with respect to the Term Notes), commencing with the first such
date to occur after the Effective Date, and on the maturity date of such
Advance. Interest on all Loans and commitment fees shall be calculated for
actual days elapsed on the basis of a 360-day year. Interest shall be payable
for the day an Advance is made but not for the day of any payment on the amount
paid if payment is received prior to 10:00 a.m., Phoenix time, at the place of
payment. If any payment of principal of, or interest on, an Advance shall become
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 shall be included in
computing interest in connection with such payment.
8.9. Notification of Advances, Interest Rates, Prepayments and
Commitment Reductions. Promptly after receipt thereof, the Agent will notify
each Lender of the contents of each Borrowing Notice, Conversion/Continuation
Notice, and repayment notice received by it
46
hereunder. The Agent will notify each Lender of the interest rate applicable to
each Eurodollar Advance promptly upon determination of such interest rate.
8.10. Non-Receipt of Funds by the Agent. Unless the Borrower or a
Lender, as the case may be, notifies the Agent prior to the date on which it is
scheduled to make payment to the Agent of (i) in the case of a Lender, the
proceeds of a Loan or (ii) in the case of the Borrower, a payment of principal,
interest or fees to the Agent for the account of the Lenders, that it does not
intend to make such payment, the Agent may assume that such payment has been
made. The Agent may, but shall not be obligated to, make the amount of such
payment available to the intended recipient in reliance upon such assumption. If
such Lender or the Borrower, as the case may be, has not in fact made such
payment to the Agent, the recipient of such payment shall, on demand by the
Agent, repay to the Agent the amount so made available together with interest
thereon in respect of each day during the period commencing on the date such
amount was so made available by the Agent until the date the Agent recovers such
amount. With respect to any payments required under this Section from Borrower,
interest shall accrue at a rate per annum equal to the interest rate applicable
to the relevant Loan, including the Default Rate, if applicable. With respect to
any payments required under this Section from any Lender, interest shall accrue
at a rate per annum equal to the Federal Funds Effective Rate.
8.11. Unconditional Obligation to Make Payments. To the fullest extent
permitted by law, the Borrower shall make all payments hereunder, under the
Notes and under all of the other Loan Documents regardless of any defense or
counterclaim, including any defense or counterclaim based on any law, rule or
policy which is now or hereafter promulgated by any Governmental Authority and
which may adversely affect the Borrower's obligations to make, or the right of
the holder of any Note to receive, those payments. Borrower shall make all
payments under the Loans to Agent for the benefit of Lenders and, upon such
payment to Agent, Borrower shall be relieved of liability for such payment to
each Lender (subject to any requirement that Agent or such Lender disgorge such
payment).
8.12. Advances During Default. Upon the occurrence, and during the
continuance, of any Event of Default or Unmatured Default, or at any time that
Agent determines from its own inspection that the Lots or Residential Units are
not being constructed in substantial compliance with the plans and
specifications approved by Agent or within the Bulk Land Budget, Agent shall
have the right to take over and complete construction of the Collateral by or
through any agent, contractor or subcontractor of its selection and may make
Advances and disburse any funds deposited with Agent by Borrower in payment of
the costs, expenses, fees, attorneys' fees and other charges, together with
reasonable allowances for supervision, incurred in connection with such taking
over and completion. In the event proceeds of the Loan and amounts deposited by
Borrower are insufficient to pay all of the same, the unpaid amount thereof
shall be an indebtedness of Borrower to Lenders, payable immediately upon demand
or notice, shall bear interest at the Default Rate, and shall be secured by all
of the Collateral. In the absence of an Event of Default or Unmatured Default,
the rights of Agent hereunder to take over and complete
47
construction shall not mature until ten (10) days after Agent gives notice of
its intention to exercise such rights. If, within such ten (10) day period,
Borrower commences to cure the construction defects upon which Agent's rights in
this Section are predicated and completes the cure within thirty (30) days after
Agent's notice of intent to exercise such rights is given, Agent's rights
hereunder shall not mature.
8.13. Draw Requests. For each Advance under the Guidance Line, Borrower
shall submit to Agent a written draw request on AIA Form G 702 and G 703 or like
form (a "Draw Request") signed by the Borrower.
(a) Each Draw Request shall be accompanied by such additional
items of information and documentation as Agent may require in its sole and
absolute discretion.
(b) Borrower may submit Draw Requests to Agent not more than
once in any calendar month for each Guidance Loan (unless Agent agrees to make
disbursements more frequently than once a month) and, subject to the terms and
conditions of this Agreement, Agent will fund such draw request (subject to
Borrower's compliance with the Loan Documents) no later than ten (10) Business
Days after Agent's receipt of such complete and accurate Draw Request, including
all information and documentation requested by Agent, and Agent will fund such
Draw Request (subject to Borrower's compliance with the Loan Documents) only
after the Completion Percentage (supported by Check Release Methodology if
required by Agent) is verified by Agent. A Draw Request shall not be considered
complete and accurate, and Lenders' obligation to fund Advances as to such Draw
Request within the time set forth in this Section shall not begin, unless and
until such Draw Request includes and is accompanied by all items requested by
Agent, which are complete and accurate, and in form and content acceptable to
Agent in its reasonable discretion. At Agent's option, but in no event more
frequently than once per Calendar Quarter, Borrower shall pay all costs to
provide "date down" endorsements to Agent's Title Policies if requested by
Agent, in Agent's sole and absolute discretion. Borrower shall use all Advances
strictly for the purposes for which they were disbursed by Agent. In the event
that Agent desires to make any Advance after an Unmatured Default or Event of
Default, Agent may require an ALTA No. 10 full bring-down endorsement to its
Title Policy.
(c) Unless Borrower has notified Agent in writing to the
contrary, each Draw Request shall constitute Borrower's representation and
warranty to Agent that: (a) the Completion Percentage set forth in the Draw
Request is true and correct and is supported by Check Release Methodology,
evidence of which shall be provided to Agent upon Agent's request in its sole
and absolute discretion; (b) all prior Advances, as well as that currently being
requested, were and will be used in compliance with the Bulk Land Budget; and
(c) no Event of Default or Unmatured Default has occurred and is continuing.
(d) Together with each Draw Request, Borrower shall deliver to
Agent evidence of the Completion Percentage (supported by Check Release
Methodology if required by
48
Agent in its sole and absolute discretion) and such evidence as Agent may
require, in its sole and absolute discretion, to show that all items included in
the Draw Request are supported by Check Release Methodology.
(e) Together with each Draw Request, from and after written
request by Agent to Borrower, Borrower shall deliver to Agent lien waivers from
all contractors, subcontractors and materialmen paid pursuant to the immediately
preceding Advance and all prior Advances to the extent not previously provided
to Agent.
(f) Borrower acknowledges that (i) Agent may Advance and use
Loan proceeds to pay certain fees and expenses of Agent and Lenders in
accordance with this Agreement, (ii) for purposes of Advances related to these
fees and expenses, Agent is not restricted to the items set forth in the Bulk
Land Budget, and (iii) such items may reduce Borrower's allowed Advance pursuant
to Borrower's Draw Request.
(g) Any materials covered by a Draw Request must be suitably
stored at the construction site or actually incorporated into the Improvements
and there shall have been established construction staging and storage areas on
the Project site in a manner and location satisfactory to Lender. No
disbursement of the Loan shall be made for materials stored at any location
other than the Project.
(h) Any Advance made by Agent under any option for
disbursement, or so much thereof as Agent may consider proper, may be disbursed
to Borrower or its order, or if an Unmatured Default or Event of Default exists
and is continuing or Agent has evidence that Borrower is not timely paying its
contractors and materialmen, at Agent's election, directly to the persons
furnishing labor and/or materials, or to both. Agent shall have no obligation to
see that the disbursements made by it to Borrower or any designee of Borrower
are actually used to pay for labor and materials furnished for acquisition or
development of the Real Estate or Lots, as applicable. Borrower acknowledges
that this is its responsibility and Borrower assumes all risks in connection
with any disbursement to any such designee.
(i) Agent may withhold from any Advance or, on account of
subsequently discovered evidence, withhold from a later Advance, as Agent in its
discretion considers necessary to protect Lenders from loss on account of (i)
defective work on the Project that has not been remedied, (ii) any obligation
required by this Agreement or the Loan Documents to have been performed that has
not been performed, (iii) liens filed against the Project, which liens are not
being disputed in the manner provided in Section 12.3, (iv) failure of Borrower
to make payments to the contractors or contractor's failure to pay
subcontractors for material or labor, or (v) a reasonable doubt by Agent that
development of the Project can be completed for less than the undisbursed
proceeds of the Loan.
49
(j) Lenders, from time to time, may make Advances in payment
of insurance premiums, taxes, assessments, liens or encumbrances existing
against the Collateral, interest accrued and payable upon the applicable Loan,
and any charges and expenses that are the obligation of Borrower under this
Agreement or any Loan Document and any charges or matters necessary to preserve
the Collateral or to cure any Unmatured Default or Event of Default.
(k) In the event of any dispute that, in the good faith
opinion of Agent, may endanger the timely completion of the Project or the
fulfillment of any condition precedent or covenant herein, Lenders may make
Advances for the account of Borrower without prejudice to Borrower's rights, if
any, to recover such funds from the party to whom paid. Such agreement or
agreements may take any form that Lenders in their reasonable discretion deem
proper, including, without limitation, agreements to indemnify a title insurer
against possible assertion of lien claims and agreements to pay disputed amounts
to contractors in the event Borrower is unable or unwilling to pay the same. All
sums paid or agreed to be paid pursuant to such agreement shall be for the
account of Borrower and shall be charged as an Advance.
(l) Although Lenders shall have no obligation to make any
Advance unless and until all of the conditions and prior performances set forth
herein have been kept, fulfilled or performed, and until all inspections,
certifications, releases, waivers, or other requirements set forth in this
Agreement have been made, delivered and complied with, Lenders, at their sole
discretion, may make Advances prior to that time without waiving or releasing
any of the requirements or conditions of this Agreement, but Borrower shall
continue to be strictly obligated and subject thereto, and all such conditions,
prior performances and other requirements shall nevertheless be strictly and
punctually complied with, fulfilled and performed; and, notwithstanding any such
disbursement, Lenders, at their discretion, may discontinue any further Advances
at any time until all of the conditions, prior performances and other
requirements of this Agreement have been strictly fulfilled, performed and
complied with.
(m) Borrower shall have no right to any Advance other than to
have the same disbursed by Lenders in accordance with one or more of the
disbursement provisions contained in this Agreement. Any assignment or transfer,
voluntary or involuntary, of this Agreement or any Loan or any right hereunder
or thereunder shall not be binding upon or in any way affect Lenders without
their written consent; Lenders may make Advances under one or more of the
disbursement provisions herein, notwithstanding any such assignment or transfer.
(n) In the event that the applicable Loan amount or so much
thereof as Lenders are obligated to Advance is not sufficient in Agent's sole
judgment to pay all costs contained in the Bulk Land Budget, or other costs
necessary to complete the Project, Borrower shall be solely responsible to
provide sufficient funds to pay all costs not advanced by Lenders, and within
three days of demand of Agent, Borrower shall deposit with Agent the amount of
funds estimated by Agent to be necessary to complete the Project to be disbursed
under the terms hereof before any
50
further Advances under the Loan. Failure to make the deposit required by Agent
within three days after notice to Borrower from Agent shall be an Event of
Default hereunder.
(o) Advances under the Guidance Line will only be available
for acquisition of Real Estate and certain engineering, land planning,
permitting and other approved "soft costs" until such time as a plat of
subdivision approved by Agent has been recorded in the official records of the
county where the Real Estate is located.
8.14. Disbursements to Other Parties. Agent may, but shall not be
obligated to, make disbursements directly to any contractor, subcontractors,
laborers or material suppliers if an Event of Default or Unmatured Default
exists or upon the filing of a mechanics' or materialmen's lien against any
Collateral, which is not being contested by Borrower in accordance with Section
12.3 or bonded over or insured over by the title insurer.
9. CHANGE IN CIRCUMSTANCES
9.1. Yield-Protection. If any law or any governmental or
quasi-governmental rule, regulation, policy, guideline or directive (whether or
not having the force of law), or any interpretation thereof, or the compliance
of any Lender therewith:
(a) subjects any Lender to any tax, duty, charge or
withholding on or from payments due from the Borrower (excluding federal
taxation of the overall net income of any Lender), or changes the basis of
taxation of payments to any Lender in respect of its Loans or other amounts due
it hereunder; or
(b) imposes or increases or deems applicable any reserve,
assessment, insurance charge, special deposit or similar requirement against
assets of, deposits with or for the account of, or credit extended by, any
Lender; or
(c) imposes any other condition the result of which is to
increase the cost to any Lender of making, funding or maintaining loans or
reduces any amount receivable by any Lender in connection with loans, or
requires any Lender to make any payment calculated by reference to the amount of
loans held or interest received by it, by an amount deemed material by such
Lender, then, within fifteen (15) days of demand by such Lender, the Borrower
shall pay such Lender that portion of such increased expense incurred or
reduction in amount received which such Lender determines is attributable to
making, funding and maintaining its Loans and its Aggregate Commitment.
9.2. Changes in Capital Adequacy Regulations. If a Lender determines
the amount of capital required or expected to be maintained by such Lender, or
any corporation controlling such Lender, is increased as a result of a Change in
Law, then, within fifteen (15) days of demand by such Lender, the Borrower shall
pay such Lender the amount necessary to compensate for any
51
shortfall in the rate of return on the portion of such increased capital which
such Lender determines is attributable to this Agreement, its Loans or its
obligation to make Loans hereunder (after taking into account such Lender's
policies as to capital adequacy).
9.3. Availability of Types of Advances. If any Lender determines that
maintenance of its Eurodollar Loans would violate any applicable law, rule,
regulation, or directive, whether or not having the force of law, or if the
Agent determines that (i) Eurodollar Loans are not available or (ii) the
interest rate applicable to a Eurodollar Loan does not accurately reflect the
cost of making or maintaining such Advance, then the Agent shall suspend the
availability of the Eurodollar Loans and convert all such Eurodollar Loans to
Floating Interest Rate Loans on the next succeeding Eurodollar Advance Date.
9.4. Lender Statements; Survival of Indemnity. Each Lender shall
deliver a written statement of such Lender as to the amount due, if any, under
Sections 9.1 or 9.2. Such written statement shall set forth in reasonable detail
the calculations upon which such Lender determined such amount and shall be
final, conclusive and binding on the Borrower in the absence of manifest error.
Determination of amounts payable under such Sections in connection with a
Eurodollar Loan shall be calculated as though each Lender funded its Eurodollar
Loan through the purchase of a deposit of the type and maturity corresponding to
the deposit used as a reference in determining the Eurodollar Rate applicable to
such Loan, whether in fact that is the case or not. Unless otherwise provided
herein, the amount specified in the written statement shall be payable on demand
after receipt by the Borrower of the written statement. The obligations of the
Borrower under Sections 9.1 and 9.2 shall survive payment of the Obligations and
termination of this Agreement.
10. REAL ESTATE COLLATERAL
10.1. First Mortgages. As security for the payment and performance of
the Obligations, on the Effective Date and prior to making any Advance secured
by such Collateral, Borrower shall execute and deliver to Agent First Mortgages,
subject only to the Permitted Exceptions, of all Real Estate, Residential Units
and Lots which are intended to be Collateral for the Obligations. To the extent
permitted by the optionor under any Option Contract, Borrower shall execute and
deliver to Agent, Mortgages of all Lots and Residential Units subject to such
Option Contract. The Mortgages shall be in form satisfactory to Agent. It is
understood by the parties that the forms of Mortgages and amendments thereto,
may vary on a state by state basis.
10.2. Title Insurance or Commitment. On the Effective Date, Borrower,
at its sole cost and expense, shall cause to be delivered to Agent one or more
Title Policies. Lots and Residential Units for which a Title Policy is to be
issued shall be eligible for being included in the Collateral Base upon receipt
by Agent of an irrevocable commitment by the title insurance company to promptly
issue the Title Policy or an endorsement to the existing Title Policy
52
insuring the validity and first lien priority, subject only to the Permitted
Exceptions, of the First Mortgage with respect to such Lot or Residential Unit.
10.3. Appraisal Requirements.
(a) Prior to making any Guidance Loan, Agent shall obtain, at
Borrower's sole cost and expense, and Lenders shall approve an appraisal setting
forth the as-developed bulk wholesale Appraised Value of all Lots or Real Estate
to be included in such Guidance Loan.
(b) Agent may from time to time, but not more frequently than
once in any calendar year at the cost of Borrower, during the term of this
Agreement, obtain appraisals setting forth the Appraised Value of each type of
Base Plan that Borrower then constructs in the Projects, of each Approved
Upgrade, and of all Lots or Real Estate subject to a Guidance Loan.
(c) Prior to the time that Borrower intends to include a Model
Home in the Collateral Base, Borrower shall notify Agent thereof and Agent shall
obtain, at Borrower's sole cost and expense, and Lenders shall approve an
appraisal setting forth the as-is Appraised Value of such Model Home for
purposes of inclusion in the Collateral Base.
(d) Borrower and its Affiliates shall not employ or otherwise
engage or contact any Appraiser that prepares an appraisal for any of the
Collateral. Agent may employ a staff appraiser or a fee appraiser. Subject to
Section 10.3(b), Borrower shall reimburse Agent at Agent's cost for a fee
appraiser and at Agent's standard scheduled rates for a staff appraiser.
10.4. Flood Report. As a condition precedent to including any Lot or
Residential Unit under a Guidance Loan or the Construction Line, Agent shall
have determined, in its sole and absolute discretion, that (a) the Real Estate,
Lot or Residential Unit is located in an area designated by the Department of
Housing and Urban Development as not having special flood hazards, or (b) if the
Real Estate, Lot or Residential Unit is located in an area designated by the
Department of Housing and Urban Development as having special flood or mudslide
hazards, the community in which the Real Estate, Lot or Residential Unit is
located is participating in the National Flood Insurance Program and Borrower
has provided to Agent evidence of satisfactory insurance.
10.5. Releases.
(a) Each Mortgage executed and delivered by the Borrower to
the Agent hereunder shall provide that, so long as no Event of Default or
Unmatured Default shall have occurred and be continuing, the Agent shall execute
and deliver, or cause the trustee to execute and deliver, partial releases of
liens so that the purchasers may obtain title to any Real Estate, Lot or
Residential Unit free and clear of the applicable First Mortgage. The delivery
of such releases will be made to escrow agents satisfactory to Agent to insure
that, upon the close of the sale of
53
any Real Estate, Lot or Residential Unit, the agreed release price or Total
Draws for such Real Estate, Lot or Residential Unit is transmitted directly to
Agent from each closing for repayment of Advances hereunder. The release price
for any Real Estate shall be agreed upon by Lenders and Borrower in connection
with each Guidance Loan and included in the Guidance Loan Addendum; the release
price for each Lot shall be the Lot Release Price or Lot Option Price, as
applicable; and the release price for each Residential Unit shall be the amount
of the Total Draws made with respect to the Residential Unit to be released. At
the first Advance after Borrower includes any Lot subject to a First Mortgage in
the Collateral Base, Lenders shall make an Advance under the Construction Line
in the amount of the applicable Lot Release Price which will be applied to the
outstanding principal balance of the Guidance Loan with respect to such Lot.
(b) In addition, from time to time upon Borrower's request,
Agent will release its lien on any unsold Unit or Model Home designated by
Borrower concurrent with receipt of payment of the Total Draws made with respect
to such Residential Unit. Agent shall have no obligation to release any
Residential Unit from the lien of the First Mortgage if there exists an Event of
Default or an Unmatured Default; provided, however, that Agent shall release the
lien of its First Mortgage after the occurrence of an Event of Default or
Unmatured Default on any Presold to be conveyed to a bona fide third party
purchaser under a Purchase Contract entered into prior to the occurrence of said
Event of Default or Unmatured Default if Agent receives all of the Net Proceeds
payable to Borrower upon such sale and the Net Proceeds exceed the Total Draws
made with respect to such Residential Unit.
11. REPRESENTATIONS AND WARRANTIES
The entities comprising the Borrower jointly and severally represent
and warrant to each of the Lenders that:
11.1. Organization, Powers, etc. Each Borrower (i) is a corporation
duly organized, validly existing and in good standing under the laws of its
state of incorporation, (ii) has the corporate power and corporate authority to
own or hold the properties it purports to own or hold and to carry on its
business as now conducted, (iii) is duly qualified or licensed to transact
business in every jurisdiction in which such qualification or licensing is
necessary to enable it to enforce all of its material contracts and other
material rights and to avoid any material penalty or forfeiture, or the failure
to so qualify or be licensed would otherwise have a Material Adverse Effect.
11.2. Authorization and Validity of this Agreement. etc. Each Borrower
has the corporate power and corporate authority to execute and deliver this
Agreement, the Notes and the other Loan Documents and to perform all its
obligations hereunder and thereunder. The execution and delivery by each of the
entities comprising the Borrower of this Agreement, the Notes and the other Loan
Documents and the performance by the Borrower of all its obligations
54
hereunder and thereunder and any and all actions taken by the Borrower (i) have
been duly authorized by all requisite corporate action, (ii) will not violate or
be in conflict with (a) any provisions of law (including, without limitation,
any applicable usury or similar law), (b) any order, rule, regulation, writ,
judgment, injunction, decree or award of any court or other agency of
government, or (c) any provision of its certificate or articles of incorporation
or by-laws, (iii) will not violate, be in conflict with, result in a breach of
or constitute (with or without the giving of notice and/or the passage of time)
a default under any material indenture, agreement or other instrument to which
it is a party or by which it or any of its properties or assets is or may be
bound, and (iv) except as otherwise contemplated by this Agreement, will not
result in the creation or imposition of any lien, charge or encumbrance upon, or
any security interest in, any of its properties or assets. This Agreement, the
Notes and the other Loan Documents have been duly executed and delivered by the
Borrower. The Loan Documents constitute legal, valid and binding obligations of
the Borrower enforceable against the Borrower in accordance with their terms,
except as enforceability may be limited by bankruptcy, insolvency or similar
laws affecting the enforcement of creditors' rights generally and general
principles of equity.
11.3. Financial Statements.
(a) Borrower has provided to the Lenders the combined balance
sheet of the Obligated Group and its Subsidiaries as of December 31, 1995, and
the related combined statements of earnings, stockholders' equity and cash flows
for the year ended on that date, audited and reported upon by KPMG Peat Marwick
LLP, independent certified public accountants (the "Audited Financial
Statements"). The Audited Financial Statement and the related notes and
schedules (if any) (i) were prepared in accordance with GAAP consistently
applied throughout the respective periods covered thereby, (ii) present fairly
the combined financial condition of the Obligated Group and its Subsidiaries as
of the respective dates thereof, (iii) show all material Liabilities, direct or
contingent, of the Obligated Group and its Subsidiaries as of those dates
(including, without limitation, Liabilities for taxes and material commitments),
and (iv) present fairly the combined results of operations of the Obligated
Group and its Subsidiaries for the respective periods covered thereby.
(b) Borrower has provided to the Lenders the combined balance
sheet of the Obligated Group and its Subsidiaries as of September 30, 1996, and
the related combined statements of earnings, stockholders' equity and cash flows
for the 9-month period ended on that date (the "Unaudited Financial
Statements"). The Unaudited Financial Statement (i) were prepared in accordance
with GAAP consistently applied throughout the respective periods covered
thereby, (ii) present fairly the combined financial condition of the Obligated
Group and its Subsidiaries as of the respective dates thereof, (iii) show all
material Liabilities, direct or contingent, of the Obligated Group and its
Subsidiaries as of those dates (including, without limitation, Liabilities for
taxes and material commitments), and (iv) present fairly the combined results of
operations of the Obligated Group and its Subsidiaries for the respective
periods covered thereby.
55
11.4. No Material Adverse Effect. Since the date of the Audited
Financial Statements, no Event has occurred that has had or could reasonably be
expected to have a Material Adverse Effect. There are no material unrealized or
expected losses in connection with loans, advances and other commitments of the
Borrower.
11.5. Title to Properties. Exhibit "F" attached hereto and incorporated
herein by this reference, contains a complete and accurate list of all Real
Estate owned by the Borrower and its Subsidiaries, except those properties
acquired or disposed of by the Borrower or its Subsidiaries after November 30,
1996 in the ordinary course of business. The Borrower and its Subsidiaries have
good and marketable fee title to such Real Estate and to all the other assets
owned by them and either reflected on the balance sheet and related notes and
schedules most recently delivered by the Borrower to the Lenders (the "Recent
Balance Sheet") or acquired by them after the date of that balance sheet and
prior to the Effective Date, except for those properties and assets which have
been disposed of since the date of that balance sheet or which no longer are
used or useful in the conduct of their business. All such Real Estate and other
assets owned by the Borrower and its Subsidiaries are free and clear of all
Mortgages, pledges, liens, charges and other encumbrances, except for the liens
and security interests of Agent hereunder.
11.6. Litigation. There is no action, suit, proceeding, arbitration,
inquiry or investigation (whether or not purportedly on behalf of the Borrower)
pending or, to the best knowledge of Borrower, threatened against or affecting
the Borrower or any of the Subsidiaries which could reasonably be expected to
have a Material Adverse Effect. The Borrower is not in default with respect to
any final judgment, writ, injunction, decree, rule or regulation of any
Governmental Agency, which default would or could have a Material Adverse Effect
on the Borrower. The Borrower has no material contingent obligations not
provided for or disclosed in the Audited Financial Statements.
11.7. Payment of Taxes. Borrower and its Subsidiaries have filed all
federal, state and local tax returns with respect to the operations of the
Borrower and its Subsidiaries which are required to be filed, including federal
tax returns for the fiscal year ended December 31, 1995, and all prior fiscal
years of the Borrower and its Subsidiaries, except where extensions of time to
make those filings have been granted by the appropriate taxing authorities and
the extensions have not expired. The Borrower has paid or caused to be paid to
the appropriate taxing authorities all taxes as shown on those returns and on
any assessment received by any of them, to the extent that those taxes have
become due, except for taxes the failure to pay which do not violate the
provisions of Section 12.3 hereof.
11.8. Agreements. Neither the Borrower nor any Subsidiary is a party to
any agreement or instrument or is subject to any charter or other restriction
that could reasonably be expected to have a Material Adverse Effect on it.
Neither the Borrower nor any Subsidiary is in material default in the
performance, observance or fulfillment of any of the obligations, covenants or
56
conditions contained in any material agreement or instrument to which it is a
party and consummation of the transactions will not cause any Borrower to be in
material default thereof.
11.9. Foreign Direct Investment Regulations. Neither the making of the
Advances nor the repayment thereof nor any other transaction contemplated hereby
will involve or constitute a violation by the Borrower of any provision of the
Foreign Direct Investment Regulations of the United States Department of
Commerce or of any license, ruling, order, or direction of the Secretary of
Commerce thereunder.
11.10. Federal Reserve Regulations.
(a) The Borrower is not engaged principally, or as one of its
important activities, in the business of extending credit for the purpose of
purchasing or carrying any margin stock (within the meaning of Regulation U or
Regulation X of the Board of Governors of the Federal Reserve System of the
United States). Margin stock (as defined in Regulation U) constitutes less than
25% of those assets of the Borrower and its Subsidiaries which are subject to
any limitation on sale, pledge, or other restriction hereunder.
(b) No part of the proceeds of any of the Advances will be
used to purchase or carry any such margin stock or to extend credit to others
for the purpose of purchasing or carrying any such margin stock. If requested by
the Lenders, the Borrower shall furnish to the Lenders a statement in conformity
with the requirements of Federal Reserve Form U-1 referred to in Regulation U of
said Board of Governors. No part of the proceeds of the Advances or any Letter
of Credit will be used for any purpose that violates, or which is inconsistent
with, the provisions of Regulation X of said Board of Governors.
11.11. Consents, etc. No order, license, consent, approval,
authorization of, or registration, declaration, recording or filing with, or
validation of, or exemption by, any Governmental Authority is required in
connection with, or as a condition precedent to, the due and valid execution,
delivery and performance by Borrower of this Agreement, the Notes or the other
Loan Documents, or the legality, validity, binding effect or enforceability of
any of the respective terms, provisions or conditions thereof. To the extent
that any franchises, licenses, certificates, authorizations, approvals or
consents from any Governmental Authority are required for the acquisition,
ownership, operation or maintenance by the Borrower of properties now owned,
operated or maintained by it, those franchises, licenses, certificates,
authorizations, approvals and consents have been validly granted, are in full
force and effect and constitute valid and sufficient authorization therefor.
11.12. Compliance with Applicable Laws. The Borrower and its
Subsidiaries are in compliance with and conform to all statutes, laws,
ordinances, rules, regulations, orders, restrictions and all other legal
requirements of any Governmental Authority having jurisdiction over the conduct
of their respective businesses or the ownership of their respective properties,
the
57
violation of which would have a Material Adverse Effect, including, without
limitation, regulations of the Board of Governors of the Federal Reserve System
and the Federal Interstate Land Sales Full Disclosure Act. Neither the Borrower
nor any Subsidiary has received any notice to the effect that its operations are
not in material compliance with any of the requirements of applicable federal,
state and local environmental, health and safety statutes and regulations or the
subject of any federal or state investigation evaluating whether any remedial
action is needed to respond to a release of any toxic or hazardous waste or
substance into the environment.
11.13. Relationship of the Borrower. The entities comprising the
Borrower are engaged as an integrated group in the business of owning,
developing and selling Real Estate, Lots and Residential Units and of providing
the required services, credit and other facilities for those integrated
operations. The Borrower requires financing on such a basis that funds can be
made available from time to time to such entities, to the extent required for
the continued successful operation of their integrated operations. The Advances
to be made to the Borrower under this Agreement are for the purpose of financing
the integrated operations of the Borrower, and each of the entities comprising
the Borrower expects to derive benefit, directly or indirectly, from the
Advances, both individually and as a member of the integrated group, since the
financial success of the operations of each Borrower is dependent upon the
continued successful performance of the integrated group as a whole.
11.14. Subsidiaries. Exhibit "G" attached hereto and incorporated
herein by this reference, contains a complete and accurate list of all
Subsidiaries, including (a) its state of incorporation or formation, (b) all
jurisdictions (if any) in which it is qualified to transact business as a
foreign Person, (c) the number of units of beneficial interest outstanding, and,
(d) the number and percentage of those units of beneficial interest owned by
each Borrower and/or by any other Subsidiary. All the outstanding beneficial
interests of each Subsidiary are validly issued, fully paid and nonassessable.
All of the beneficial interests of each Subsidiary owned by the Borrower are
owned free and clear of all liens, pledges, security interests, equity or other
beneficial interests, charges and encumbrances of any kind whatsoever. None of
the entities comprising the Borrower owns of record or beneficially any shares
of the capital stock of any corporation (other than the Subsidiaries) that is
not a Borrower.
11.15. ERISA. The Borrower is not executing or delivering any of the
Loan Documents or entering into any of the transactions contemplated hereby,
directly or indirectly, in connection with any arrangement or understanding in
any respect involving any "employee benefit plan" with respect to which the
Borrower is a "party in interest" within the meaning of the Employee Retirement
Income Security Act of 1974, or a "disqualified person", within the meaning of
the Internal Revenue Code 1986, as amended. No Unfunded Liabilities exist with
respect to any Single Employer Plans. Each Plan complies in all material
respects with all applicable requirements of law and regulations, no Reportable
Event has occurred with respect to any Plan, neither the Borrower nor any other
members of the Controlled Group has withdrawn from any Plan or initiated steps
to do so, and no steps have been taken to reorganize or terminate any Plan.
58
11.16. Investment Company Act. Neither the Borrower nor any Subsidiary
thereof is an "investment company" or a company "controlled" by an "investment
company", within the meaning of The Investment Company Act of 1940, as amended.
11.17. Public Utility Holding Company Act. Neither the Borrower nor any
Subsidiary is a "holding company" or a "subsidiary company" of a "holding
company", or an "affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company", within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
11.18. Subordinated Debt. The Obligations constitute senior
indebtedness which is entitled to the benefits of the subordination provisions
of all outstanding Subordinated Debt.
11.19. Post-Retirement Benefits. Borrower and its Subsidiaries have no
obligation to pay post-retirement medical and insurance benefits to its
employees and former employees
11.20. INTENTIONALLY DELETED.
11.21. Environmental Representations. To the best of the Borrower's
knowledge and belief, no Hazardous Substances in violation of any Environmental
Laws are present upon any of the Real Estate, Lots or Residential Units owned by
Borrower or any of the Collateral which are encumbered by any Mortgage held by
Borrower, and the Borrower has not received any notice to the effect that any of
the Real Estate, Lots or Residential Units owned by Borrower or any its
operations are not in compliance with any of the requirements of applicable
Environmental Laws or are the subject of any federal or state investigation
evaluating whether any remediation is needed to respond to a release of any
Hazardous Substance into the environment which, in either case, could be
reasonably expected to have a Material Adverse Effect.
11.22. No Misrepresentation. No representation or warranty contained
herein or made hereunder and no certificate, schedule, exhibit, report or other
document provided or to be provided in connection with the transactions
contemplated hereby (including, without limitation, the negotiation of and
compliance with the Loan Documents) contains or will contain a misstatement of a
material fact or omit to state a material fact required to be stated therein in
order to make the statements contained therein, in the light of the
circumstances under which made, not misleading.
59
12. AFFIRMATIVE COVENANTS
The Borrower covenants and agrees that from the Effective Date until
payment in full of all the Obligations and the termination of all Letters of
Credit and Commitments of Lenders, the Borrower will, and will cause each of its
Subsidiaries to:
12.1. Existence, Properties, etc. Do or cause to be done all things or
proceed with due diligence with any actions or courses of action which may be
necessary to preserve and keep in full force and effect its existence under the
laws of their respective states of incorporation and all qualifications or
licenses in jurisdictions in which such qualification or licensing is required
for the conduct of its business or in which the Lenders shall request such
qualification; provided, however, that nothing herein shall be deemed to
prohibit any Borrower from (i) merging into or consolidating with any other
Borrower or (ii) consummating the Merger. The Borrower will, and will cause each
Subsidiary to, carry on and conduct its business in substantially the same
manner and in substantially the same fields of enterprise as it is presently
conducted and maintain all requisite authority to conduct its business in each
jurisdiction in which its business is conducted. The primary business of the
Borrower and the Subsidiaries shall at all times be the acquisition,
development, management, rental and/or sale of real estate assets.
12.2. Notice. Give prompt written notice to the Agent of (i) any
proceeding instituted by or against the Borrower or any of the Subsidiaries by
any Governmental Authority, which, if adversely determined, could reasonably be
expected to have a Material Adverse Effect on the Borrower, and (ii) any other
Event which may lead to or result in a Material Adverse Effect on the Borrower,
or which, with or without the giving of notice and/or the passage of time, would
constitute an event of default or a default under any material agreement other
than this Agreement to which the Borrower is a party or by which any of its
properties or assets is or may be bound.
12.3. Payments of Debts, Taxes, etc. Pay all its debts and perform all
its obligations promptly and in accordance with the respective terms thereof,
and pay and discharge or cause to be paid and discharged promptly all taxes,
assessments and governmental charges or levies imposed upon the Borrower or upon
its incomes or receipts or upon any of its properties before the same shall
become in default or past due, as well as all lawful claims for labor, materials
and supplies or otherwise which, if unpaid, might result in the imposition of a
lien or charge upon such properties or any part thereof; provided, however, that
it shall not constitute a violation of the provisions of this Section 12.3 if
the Borrower shall fail to perform any such obligation or fail to pay any such
debt (except for obligations for money borrowed), tax, assessment, governmental
charge or levy or claim for labor, materials or supplies which is being
contested in good faith in a normal and customary manner (including litigation,
if appropriate,) and diligently pursued, and as to which adequate reserves have
been provided in accordance with GAAP. Borrower acknowledges and agrees that
upon the occurrence of an Unmatured Default or Event of Default and during the
continuance thereof, Borrower shall make, when required by Agent,
60
monthly deposits into an account with Norwest which account shall be subject to
the control of Agent, of a sum equal to one-twelfth (1/12th) of the yearly taxes
and assessments which may be levied against the Projects or Borrower, including,
without limitation, any sales or use taxes in any state, and local privilege,
sales, use or excise taxes based on gross revenues and the annual premiums, to
become due for all insurance policies required hereunder. The amount of such
taxes, assessment and premiums, when unknown, shall be estimated by Agent. Any
insufficiency of such account to pay such charges as aforesaid shall be paid by
Borrower to Agent on demand
12.4. Accounts and Reports. Maintain a standard system of accounting
established and administered in accordance with GAAP, and provide to the Lenders
the following:
(a) as soon as available and in any event within 120 days
after the end of each fiscal year of the Borrower (commencing with the fiscal
year ending December 31, 1996), combined (prior to the Merger) and consolidated
(after the Merger) and consolidating balance sheets of the Obligated Group and
its Subsidiaries as of the end of that fiscal year and the related consolidated
and consolidating statements of earnings, stockholders' equity and cash flows
for that fiscal year, all with accompanying notes and schedules, setting forth,
in each case, in comparative form, the corresponding figures for the preceding
year, all in reasonable detail and prepared in accordance with GAAP consistently
applied and audited and reported upon by KPMG Peat Marwick LLP or another
national firm of independent certified public accountants of recognized standing
selected by the Borrower and reasonably acceptable to the Agent (such audit
report shall be unqualified except for qualifications relating to changes in
GAAP and required by the Borrower's independent certified public accountants);
(b) Prior to the Merger, as soon as available and in any event
within 30 days after the end of each month of Borrower's fiscal year (commencing
with the month ending October 31, 1996), combined balance sheets of the
Obligated Group and its Subsidiaries, the related combined statement of
stockholders' equity of the Obligated Group and its Subsidiaries, as of the end
of that month, and for the period from the beginning of the fiscal year to the
end of that month, setting forth, in each case, in comparative form, the
corresponding figures for the preceding year, all in reasonable detail and
prepared in accordance with GAAP consistently applied, unaudited but certified
to be true and accurate, subject to normal year-end audit adjustments, by the
chief financial officer of each member of the Obligated Group;
(c) as soon as available and in any event within 60 days after
the end of each quarter of Borrower's fiscal year (commencing with the quarter
ending September 30, 1996), combined (and after the Merger, consolidated)
balance sheets of the Obligated Group and its Subsidiaries, the related combined
(and after the Merger, consolidating) statement of stockholders' equity of the
Obligated Group and its Subsidiaries, as of the end of that quarter, and the
related consolidating statements of earnings and cash flows of the Obligated
Group and its Subsidiaries for that quarter and for the period from the
beginning of the fiscal year to the end of
61
that quarter, setting forth, in each case, in comparative form, the
corresponding figures for the preceding year, all in reasonable detail and
prepared in accordance with GAAP consistently applied, unaudited but certified
to be true and accurate, subject to normal year-end audit adjustments, by the
chief financial officer of each member of the Obligated Group;
(d) concurrently with the delivery of the financial statements
described in subsections (b) and (c) above, a certificate signed by the
President or Executive Vice President and the Chief Financial Officer of each
member of the Obligated Group to the effect that, having read this Agreement,
and based upon an examination which they deemed sufficient to enable them to
make an informed statement, there does not exist any Event of Default or
Unmatured Default, or if such Event of Default or Unmatured Default has
occurred, specifying the facts with respect thereto;
(e) as soon as available and in any event within 30 days after
the end of each calendar month of Borrower's fiscal year (commencing with the
month ending November 30, 1996), a monthly sales report of all activity during
the preceding calendar month, in the form presently provided to Lenders in
connection with the Existing Loans, or as otherwise reasonably required by
Agent;
(f) as soon as available and in any event within 60 days after
the end of each calendar quarter of Borrower's fiscal year (commencing with the
calendar quarter ending September 30, 1996) a schedule of all Real Estate, Lots
and Residential Units owned by the Borrower by Project;
(g) within 60 days prior to each fiscal year of the Borrower
(commencing with the fiscal year beginning January 1, 1998) a projection, in
reasonable detail and in form and substance satisfactory to the Agent, on a
quarterly basis of the cash flow and of the earnings of the Obligated Group for
such fiscal year, together with gross and net margin analysis of each Project by
quarter;
(h) as soon as available and in any event within 60 days after
the end of each quarter of Borrower's fiscal year (commencing with the quarter
ending March 31, 1997), a copy of the Obligated Group's quarterly report on Form
10-Q filed with the Securities and Exchange Commission;
(i) as soon as available and in any event within 120 days
after the end of Borrower's fiscal year (commencing with the fiscal year ending
December 31, 1996), a copy of the Obligated Group's annual report on Form 10-K
filed with the Securities Exchange Commission;
(j) within forty-eight (48) hours after filing with the
Securities Exchange Commission, a copy of any report filed on Form 8K;
62
(k) except as otherwise provided in subsections (h), (i) and
(j) above, promptly upon becoming available, copies of all financial statements,
reports, notices and proxy statements sent by any number of the Obligated Group
to its stockholders, and of all regular and periodic reports and other material
(including copies of all registration statements and reports under the
Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as
amended) filed by any number of the Obligated Group with any securities exchange
or any Governmental Authority, except material filed with Governmental
Authorities relating to the development of Lots and Residential Units in the
ordinary course of the business of the Borrower and which does not disclose any
Material Adverse Effect on the affairs of the Borrower;
(l) On or before fifteen (15) days after filing, a copy of the
Obligated Group's annual federal corporate income tax return, and, if such
federal corporate income tax return is not filed on or before April 15, then, on
or before May 1, a copy of the Request for Extension Form, as filed.
(m) as soon as possible and in any event within ten (10) days
after the Borrower knows that any Reportable Event has occurred with respect to
any Plan, a statement, signed by the Chief Financial Officer of the Borrower,
describing said Reportable Event and the action that the Borrower proposes to
take with respect thereto;
(n) as soon as possible and in any event within ten (10) days
after receipt by the Borrower, a copy of (a) any notice or claim to the effect
that the Borrower or any of its Subsidiaries is or may be liable to any Person
as a result of the release by the Borrower, any of its Subsidiaries, or any
other Person of any toxic or hazardous waste or substance into the environment,
and (b) any notice alleging any violation of any federal, state or local
environmental, health or safety law or regulation by any member of the Obligated
Group or any of its Subsidiaries, that, in either case, could reasonably be
expected to have a Material Adverse Effect;
(o) promptly upon the request of the Agent or any Lender, an
accurate legal description of any Real Estate of Lots included under a Guidance
Loan or any Units included in the calculation of the Collateral Base;
(p) such supplements to the aforementioned documents and
additional information (including, without limitation, leasing, occupancy and
non-financial information) and reports as the Agent or any Lender may from time
to time reasonably require;
12.5. Access to Premises and Records. At all reasonable times during
normal business hours and as often as any Lender may reasonably request, permit
authorized representatives and agents designated by that Lender to (i) have
access to the premises of the Borrower and each Subsidiary and to their
respective corporate books and financial records, and all other records relating
to their respective operations and procedures, (ii) make copies of or excerpts
from those
63
books and records and (iii) upon reasonable notice to the Borrower, discuss the
respective affairs, finances and operations of the Obligated Group with, and to
be advised as to the same by, their respective officers and directors.
12.6. Maintenance of Properties and Insurance. Maintain all its
properties and assets in good working order and condition and make all necessary
repairs, renewals and replacements thereof so that its business carried on in
connection therewith may be properly conducted at all times; and maintain or
require to be maintained at its expense, and furnish to Agent (i) a policy or
policies of comprehensive general liability insurance with coverage in an amount
not less than $1,000,000 per occurrence and $2,000,000 general aggregate,
together with "umbrella" excess liability insurance in an amount not less than
$5,000,000 (and during any period of development or work upon the Property,
contractor's and independent contractor's liability and workers' compensation
insurance in an amount not less than $1,000,000) to protect Lenders and Borrower
against liability for personal injury and property damage, including coverage
for contractual liability, employees (to the extent not covered by workers'
compensation insurance), and underground property damage, and completed
operations; (ii) flood insurance acceptable to Agent, unless Agent shall have
received satisfactory evidence, which may be in the form of a letter from the
appropriate agent of the National Flood Insurance Association or an appropriate
Governmental Authority that no portion of the Project is located in an area
designated by the Secretary of Housing and Urban Development as having special
flood hazards; (iii) a so-called Builder's Risk Completed Value nonreporting
form of policy, with an ISO special form or other form that provides equivalent
or better coverage attached and endorsements to cover demolition expenses and
increased cost of development/construction for one hundred percent (100%) of the
insurable replacement value of the Project without reduction for depreciation;
(iv) workers' compensation insurance as required by law; and (v) such other
insurance as Agent shall reasonably require. Each such insurance policy shall
have premiums prepaid through one quarter of one year from the date hereof (and
thereafter Borrower shall prepay one quarter of one year's premium quarterly),
be with companies satisfactory to Agent with such other coverage and in such
amounts as Agent may request, contain the New York Standard Noncontributory
Mortgagee clause or an equivalent mortgagee's loss payable clause appropriate
for the type of policy and satisfactory to Agent, and be endorsed in favor of
Agent and provide that it may not be canceled or amended by any party for any
reason whatsoever without first giving Agent at least thirty (30) calendar days
prior written notice of any proposed cancellation or amendment.
12.7. Compliance with Applicable Laws. Promptly and fully comply with,
conform to and obey all present and future laws, ordinances, rules, regulations,
orders, writs, judgments, injunctions, decrees, awards and all other legal
requirements applicable to the Borrower, its Subsidiaries and their respective
properties, including Regulation Z of the Board of Governors of the Federal
Reserve System and the Federal Interstate Land Sales Full Disclosure Act, the
violation of which would have a Material Adverse Effect on the Borrower.
64
12.8. Change in Collateral. Give the Agent immediate notice of any
material change in the status of the Collateral.
12.9. Use of Proceeds. Use the proceeds of the Advances for the
purposes provided herein and for no other purposes.
13. NEGATIVE COVENANTS
The Borrower covenants and agrees that from the Effective Date until
payment in full of all the Obligations and termination of all Letters of Credit
and Commitment of Lender, unless the Lenders otherwise shall consent in writing
as provided in Section 17.1 hereof, Borrower will not, either directly or
indirectly:
13.1. Minimum Adjusted Tangible Net Worth. Permit the consolidated
Adjusted Tangible Net Worth of the Obligated Group determined as of the end of
each quarter of Borrower's fiscal year to be less than the sum of (a) $7,000,000
prior to the Merger and $25,000,000 after the Merger and (b) fifty percent (50%)
of Consolidated Net Income for each fiscal quarter of the Obligated Group
(commencing with Borrower's fiscal quarter ending March 31, 1997 and ending with
the fiscal quarter immediately preceding the date of determination) in which
Consolidated Net Income is positive (without offset for any fiscal quarter in
which the Obligated Group's Consolidated Net Income is negative). MHA II, and
Monterey Homes Arizona, Inc. and Monterey Homes Arizona I, Inc., after each
assumes the Obligations of the Borrower hereunder, shall advance to MHC II, or
Monterey Homes Construction, Inc. and Monterey Homes Construction I, Inc.,
respectively, after each assumes the Obligations of the Borrower hereunder, all
of the quarterly Net Income attributable to MHA II, Monterey Homes Arizona, Inc.
and Monterey Homes Arizona I, Inc. as Subordinated Debt in a form satisfactory
to Agent.
13.2. Minimum Liquidity. Permit the unrestricted cash and unrestricted
Cash Equivalents of the Obligated Group, plus the restricted Cash Equivalents
subject to any Securities Pledge Agreement, plus the available (assuming that
all conditions to such Advances have been satisfied), but undrawn, Advances
under the Construction Line, determined as of the end of each quarter of
Borrower's fiscal year, to be less than (a) prior to the Merger, $1,000,000, and
(b) after the Merger, the greater of (i) the then outstanding principal balance
of the Term Loan or (ii) $2,000,000.
13.3. Maximum Leverage. Permit the ratio of (a) the Obligated Group's
consolidated Liabilities, minus Subordinated Debt to (b) Adjusted Tangible Net
Worth, to be greater than 5.0 to 1.0 prior to the Merger, and, after the Merger,
to be greater than 2.5 to 1.0 as of the end of the first three fiscal quarters
of each fiscal year of Borrower and to be greater than 2.25 to 1.0 as of the end
of the fourth fiscal quarter of each fiscal year of Borrower, determined as of
the end of each fiscal quarter of Borrower's fiscal year.
65
13.4. Minimum Debt Coverage. Permit the ratio of the Obligated Group's
consolidated EBITDA to total interest incurred, to be less than 1.5 to 1.0,
determined as of the end of each fiscal quarter of Borrower's fiscal year for
the immediately preceding four fiscal quarters.
13.5. Guaranties. Make or suffer to exist any Contingent Obligation
(including, without limitation, any Contingent Obligation with respect to the
obligations of a Subsidiary or joint venture) or otherwise assume, guarantee or
in any way become contingently liable or responsible for obligations of any
other Person, whether by agreement to purchase those obligations of any other
Person, or by agreement for the furnishing of funds through the purchase of
goods, supplies or services (whether by way of stock purchase, capital
contribution, advance or loan) for the purpose of paying or discharging the
obligations of any other Person, except for: (a) guaranties of obligations of
another Borrower issued in the ordinary course of business; (b) the endorsement
of negotiable instruments in the ordinary course of business; and (c) guaranties
of performance and completion and performance and completion bonds issued in
connection with the development and construction of Real Estate, Lots and
Residential Units owned by the Borrower.
13.6. Sale of Assets; Acquisitions; Merger.
(a) Do either of the following:
(i) sell any single asset that is Collateral with a
book value of $1,000,000 or more or
(ii) sell or dispose of assets with an aggregate book
value of $5,000,000 or more, other than in the ordinary course of business, in
any single calendar year unless approved in connection with any Guidance Loan.
(b) Do any of the following:
(i) sell, assign, lease or otherwise dispose of
(whether in one transaction or in a series of transactions) all or substantially
all of the assets (whether now owned or hereafter acquired) of any member of the
Obligated Group and the Subsidiaries (on a consolidated basis);
(ii) merge into or consolidate with any other Person
or permit any other Person to merge into or consolidate with it, except pursuant
to the Merger or where such member of the Obligated Group will be the surviving
entity and the then existing management of such member of the Obligated Group
will continue to control the management and operations of the merged entity, or
as otherwise provided in Section 13.6(a) above; or
(iii) dissolve, liquidate or wind up its business by
operation of law or otherwise.
66
(c) Engage in any business other than the acquisition,
development, management, rental and/or sale of residential real estate assets.
Nothing contained in this Section 13.6, however, shall restrict any
sale of assets between the entities comprising the Borrower which is in
compliance with all other provisions of this Agreement.
13.7. INTENTIONALLY DELETED
13.8. Dividends and Distributions. Declare or pay any dividends with
respect to the Borrower's capital stock or apply any of its assets to the
purchase, redemption or other retirement of, or set apart any sum for the
payment of, or make any distribution by reduction of capital or otherwise in
respect of, any of the shares of the Borrower's capital stock.
13.9. Subordinated Debt. Directly or indirectly make any payment of
principal or interest with respect to any Subordinated Debt prior to the date
the same is due, or amend or modify the terms of any Subordinated Debt except
for extensions of the due date thereof, or directly or indirectly redeem,
retire, defease, purchase, retire or otherwise acquire any Subordinated Debt.
13.10. Construction in Progress. Cause, suffer or permit to exist any
Mortgage, security interest or other encumbrance to secure Indebtedness on any
Residential Unit financed by the Loans, except the Mortgage in favor of Agent
and the Permitted Exceptions.
13.11. No Margin Stock. Use any of the proceeds of the Advances to
purchase or carry any "margin stock" (as defined in Regulation U).
13.12. Transactions with Affiliates. Enter into any transaction
(including, without limitation, the purchase or sale of any property or service)
with, or make any payment or transfer to, any Affiliate, except in the ordinary
course of business and pursuant to the reasonable requirements of the Borrower's
or a Subsidiary's business and upon fair and reasonable terms no less favorable
to the Borrower or such Subsidiary than the Borrower or such Subsidiary would
obtain in a comparable arms-length transaction.
14. EVENTS OF DEFAULT; REMEDIES
14.1. Events of Default. It is an Event of default hereunder ("Event of
Default") if:
(a) any representation or warranty made or deemed made by or
on behalf of the Borrower to the Lenders or the Agent under or in connection
with this Agreement shall be false or misleading in any material respect when
made:
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(b) any report, certificate, financial statement or other
document or instrument furnished in connection with this Agreement or the Loans
hereunder shall be false or misleading in any material respect when furnished;
(c) default shall be made in the payment of (i) the principal
of any of the Notes when and as due and payable, or (ii) the interest on any of
the Notes, any fees or any other sums due pursuant to the Loan Documents, within
five (5) days after the same becomes due and payable;
(d) default shall be made with respect to any Indebtedness or
Contingent Obligations of any member of the Obligated Group (other than the
Indebtedness evidenced by the Notes), or in any net Liabilities under interest
rate swap, exchange or cap agreements, beyond any applicable period of grace, or
default shall be made with respect to the performance of any other obligation
incurred in connection with any such Indebtedness or Liabilities beyond any
applicable period of grace, or default shall be made with respect to any other
liability of $1,000,000 or more, if the effect of any such default is to
accelerate the maturity of such Indebtedness or liability or to cause any other
liability to become due prior to its stated maturity, or any such Indebtedness
or liability shall not be paid when due and such default shall not have been
remedied or cured by the Borrower or waived by the obligor;
(e) default shall be made in the due observance or performance
of any of the provisions of Sections 12.5, 12.6 or Article 13 of this Agreement;
(f) default shall be made in the due observance or performance
of any other covenant, agreement or condition on the part of the Borrower to be
performed, and such default shall continue for a period of 30 days after the
occurrence thereof;
(g) any member of the Obligated Group shall (i) petition or
apply for, seek, consent to, or acquiesce in, the appointment of a receiver,
trustee, examiner, custodian, liquidator or similar official of the Borrower or
any of its properties or assets, (ii) be unable, or admit in writing its
inability, to pay its debts as they mature; (iii) make a general assignment for
the benefit of or a composition with its creditors, (iv) respect to it under the
Federal bankruptcy laws as now or hereafter in effect, (v) institute any
proceeding seeking an order for relief under the Federal bankruptcy laws as now
or hereafter in effect, or file a petition or an answer seeking dissolution,
winding up, liquidation or reorganization or an arrangement with creditors or a
composition of its debts or to take advantage of any bankruptcy, reorganization,
insolvency, readjustment of debts, dissolution or liquidation law or statute or
other statute or law for the relief of debtors, or file any answer admitting the
material allegations of a petition filed against it in any proceeding under such
law, or fail to file an answer or other pleading denying the material
allegations of any such proceeding filed against it, or if corporate or other
action shall be taken by the Borrower for the purpose of effecting any of the
foregoing, or (vi) fail to contest in good faith any appointment or proceeding
described in Section 14.1(h);
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(h) an order, judgment, or decree shall be entered without the
application, approval, or consent of the applicable member of the Obligated
Group by any court of competent jurisdiction appointing a receiver, trustee or
liquidator of the applicable member of the Obligated Group or a proceeding
described in Section 14.1(g) shall be instituted against any member of the
Obligated Group, and such appointment shall continue undischarged or such
proceeding continues undismissed or unstayed for any period of 45 days;
(i) final judgment for the payment of money in excess of
$1,000,000 shall be rendered against any member of the Obligated Group and the
same shall remain undischarged for a period of thirty (30) days during which
execution shall not be effectively stayed or contested in good faith;
(j) final judgment(s) for the payment of money in excess of an
aggregate of $5,000,000 shall be rendered against the Obligated Group (or any of
them) after the Effective Date and shall remain undischarged for a period of ten
(10) days;
(k) there shall occur any Event or Events that, individually
or in the aggregate, shall be deemed by the Lenders to have had a Material
Adverse Effect;
(l) Any member of the Obligated Group shall be the subject of
any proceeding or investigation pertaining to the release by any member of the
Obligated Group or any other Person of any toxic or hazardous waste or substance
into the environment, or any violation of any federal, state or local
environmental, health or safety law or regulation, that, in either case, could
reasonably be expected to have a Material Adverse Effect;
(m) The occurrence of any "default", as defined in any Loan
Document (other than this Agreement) or the breach of any of the terms or
provisions of any Loan Document (other than this Agreement), which default or
breach continues beyond any period of grace therein provided;
(n) The discontinuance of development work on any Project for
more than thirty (30) calendar days, which discontinuance is, in the sole
determination of Agent, not caused by events outside of Borrower's control, or
the failure to pursue the construction of the Project with reasonable diligence;
(o) Any suit which Agent reasonably determines not to be
frivolous or spurious that shall be filed against Borrower or Guarantor, or the
Project, and which, if adversely determined, could in the opinion of Agent
substantially impair the ability of Borrower to perform any of its obligations
under and by virtue of the Loan Documents;
(p) The death, incapacity or dissolution of any Guarantor; or
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(q) The existence of any condition or situation which Agent,
in its sole discretion, determines to constitute a danger or impairment to the
security for the Loans.
14.2. General Remedies. Upon the occurrence of an Event of Default,
Lenders shall have all rights and remedies provided to it hereunder or under the
other Loan Documents, or any other document under which Borrower shall be
obligated to Lenders, or otherwise provided by law, and, without limiting the
generality of the foregoing, Lenders may do any one or more of the acts
described in this Section, under this Agreement or under any of the Loan
Documents, in any order it deems appropriate. Lenders shall have the right to
enforce any one or more of the remedies provided hereunder or by law or in
equity either successively or concurrently, and any such action by Lenders shall
not be deemed an election of remedies or otherwise prevent Lenders from pursuing
any further remedy it may have hereunder or at law or in equity. Any election by
Lenders to waive or forbear from enforcing any of its rights and remedies
hereunder shall not prevent Lenders from so enforcing its rights and remedies in
the event that the Default continues or upon the occurrence of a subsequent
Default.
14.3. Advances to Protect Lenders' Interests. Without notice to or
consent from Borrower, Lenders shall have the right, but not the obligation, at
any time, to Advance to any person any sum which Lenders in their sole
discretion deem necessary or desirable to protect or preserve the Collateral or
Lenders' assignment of, or security interest in, the Collateral (or the priority
thereof), or to cure any Unmatured Default or Event of Default which shall then
exist. Each such Advance shall be secured by the Collateral and, at Lenders'
election, shall either be reimbursed to it by Borrower immediately upon demand
or added to the balance of the Loan and bear interest at the rate applicable
under the Note. It is understood and agreed that nothing herein contained shall
obligate Lenders to make any such Advance, nor shall the making of one or more
such Advances constitute an agreement by Lenders to make any further Advance or
be deemed a waiver of any Unmatured Default or Event of Default by Borrower
under the terms hereof or of any other Loan Documents.
14.4. Cease Funding. Without notice to or consent of Borrower, Lenders
shall have the right upon the occurrence of an Unmatured Default or an Event of
Default to cease making any disbursements or Advances hereunder or pursuant to
any of the Loan Documents.
14.5. Acceleration and Increased Rate of Interest. Without notice or
demand, except as expressly provided herein, Lenders shall have the right, upon
the occurrence of an Event of Default, to accelerate the maturity of the Loans
and require immediate payment of the entire principal sum owing, together with
all accrued interest, advances, costs and Lenders' attorneys' fees. During the
existence of an Event of Default after such acceleration, interest under the
Notes shall accrue at the Default Rate.
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14.6. Specific Performance. Lenders shall have the right to institute
appropriate proceedings to specifically enforce performance of the terms and
conditions of all or any of the Loan Documents.
14.7. Other Remedies. Lenders shall have the right to exercise any
other right, privilege, or remedy available to Lenders under any of the Loan
Documents, under any other agreement or instrument or as may be provided by
applicable law or in equity. Lenders shall have the right to enforce any one or
more of the remedies provided hereunder or by law or in equity either
successively or concurrently, and any such action by Lenders shall not be deemed
an election of remedies or otherwise prevent Lenders from pursuing any further
remedy it may have hereunder or at law or in equity.
14.8. Application of Funds. In the event that all the Obligations shall
have become or been declared due and payable pursuant to the terms of Section
14.5 hereof, the Lenders agree, by and among themselves, that any funds received
from or on behalf of the Borrower by the Agent or any of the Lenders (except
funds retained by any Lender pursuant to the terms of Section 16.1 hereof) shall
be remitted to the Agent, if received by any Lender, and applied by the Agent
(in the case of subsections (c), (d) and (e) below), on a pro rata basis among
the Lenders in accordance with their respective Pro Rata Shares of the Aggregate
Commitment in the following manner and order:
(a) first, to pay to or reimburse the Agent for any
out-of-pocket expenses for which it is entitled to be paid or reimbursed
pursuant to the provisions of Section 17.3 hereof;
(b) second, to reimburse any of the Lenders pursuant to the
provisions of Section 17.4 hereof;
(c) third, to payment of accrued and unpaid interest due on
the Notes;
(d) fourth, to payment of the outstanding principal of the
Notes;
(e) fifth, to payment in full of all the remaining
Obligations; and
(f) sixth, any remainder shall be returned to the Borrower or
as otherwise required by applicable law.
15. BENEFIT OF AGREEMENT; DISSEMINATION OF INFORMATION
15.1. Successors and Permitted Assigns. The terms and provisions of the
Loan Documents shall be binding upon and inure to the benefit of the Borrower
and the Lenders and their respective successors and permitted assigns, except
that (i) the Borrower shall not have the
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right to assign its rights or obligations under the Loan Documents and (ii) any
assignment by any Lender must be made in compliance with the Co-Lender
Agreement.
15.2. Dissemination of Information. The Borrower authorizes each Lender
to disclose to any prospective participant or prospective purchaser or any other
Person acquiring an interest in the Loan Documents by operation of law any and
all information in such Lender's possession concerning the creditworthiness of
the members of the Obligated Group.
16. SETOFF; RATABLE PAYMENTS
16.1. Setoff. In addition to, and without limitation of, any rights of
the Lenders under applicable law, if the Borrower becomes insolvent, however
evidenced, or any Event of Default or Unmatured Default occurs, any indebtedness
from any Lender to the Borrower (including all account balances, whether
provisional or final and whether or not collected or available) may be offset
and applied toward the payment of the Obligations owing to such Lender, whether
or not the Obligations, or any part thereof, shall then be due. Each Lender
agrees promptly to notify the Borrower after any such set-off and application
made by such Lender; provided, however, that the failure to give such notice
shall not affect the validity of any such set-off and application. The rights of
each Lender under this Section 16.1 are in addition to any other rights and
remedies which that Lender may have under this Agreement or otherwise.
16.2. Ratable Payments. If any Lender, whether by setoff or otherwise,
has payment made to it upon its Loans (other than payments received pursuant to
Sections 9.1 or 9.2) in a greater proportion than that received by any other
Lender, such Lender agrees, promptly upon demand, to purchase a portion of the
Loans held by the other Lenders so that after such purchase each Lender will
hold its Pro Rata Share of Loans. If any Lender, whether in connection with
setoff or amounts which might be subject to setoff or otherwise, receives
collateral or other protection for its Obligations or such amounts which may be
subject to setoff, such Lender agrees, promptly upon demand, to take such action
necessary such that all Lenders share in the benefits of such collateral ratably
in accordance with their respective Pro Rata Shares. In case any such payment is
disturbed by legal process, or otherwise, appropriate further adjustments shall
be made.
17. MISCELLANEOUS
17.1. Notice.
(a) Except as otherwise permitted by Article 8 with respect to
Borrowing Notices, all notices and other communications provided for under this
Agreement or any of the Loan Documents shall be in writing (including
telegraphic, telecopy or other facsimile communication) and mailed, telecopied
(or communicated by other means of facsimile
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transmission) or delivered (by hand or by courier service), to the parties at
their respective addresses set forth below or at such other address as shall be
designated by such party in a written notice to the other parties. All notices
and communications, shall be effective upon the earliest of actual receipt or
the following: (a) in the case of delivery by United States mail, three (3)
Business Days after deposit in the United States mail (postage prepaid); (b) in
the case of delivery by telecopy or other facsimile transmission, upon
confirmation of error-free transmission; (c) in the case of hand delivery, upon
actual receipt against signed acknowledgment of receipt or an affidavit of
delivery; and (d) in the case of delivery by overnight courier, one (1) Business
Day after deposit with a reputable overnight courier service:
To Agent and Norwest as follows:
Norwest Bank Arizona, National Association
3300 North Central Avenue
M.S. 9008
Phoenix, Arizona 85012
Attention: Mr. Kevin Kosan, Vice President
FAX: (602) 248-3661
To BOAZ as follows:
Bank One, Arizona, NA
Bank One Tower
P.O. Box 29542
Phoenix, Arizona 85038
Attention: Mr. Kevin Schillig, Vice President
FAX: (602) 221- 0301
or for hand delivery only:
Bank One, Arizona, NA
Bank One Tower
201 North Central Avenue, Floor 20
Phoenix, Arizona 85004
Attention: Mr. Kevin Schillig, Vice President
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To Borrower and its Subsidiaries as follows:
Monterey Homes
6613 North Scottsdale Road
Suite 200
Scottsdale, Arizona 85250
Attention: Mr. Larry W. Seay, Chief Financial Officer
FAX: (602) 998-9162
To Guarantors:
Monterey Homes
6613 North Scottsdale Road
Suite 200
Scottsdale, Arizona 85250
Attention: Mr. William W. Cleverly
Attention: Mr. Steven J. Hilton
FAX: (602) 998-9162
(b) The Borrower, the Agent and any Lender may each change the
address for service of notice upon it by a notice in writing to the other
parties hereto.
17.2. Survival of Representations. All covenants, agreements,
representations and warranties made herein and in the certificates delivered
pursuant hereto shall survive the making by the Lenders of any Loans and the
execution and delivery to the Lenders of the Notes evidencing the Commitments,
and shall continue in full force and effect until all of the Obligations have
been paid in full, all of the Letters of Credit have been terminated and the
Aggregate Commitment has been terminated.
17.3. Expenses. The Borrower shall pay (i) all expenses, including
attorneys' fees and disbursements (which attorneys may be employees of the Agent
or any Lender), incurred by the Agent and any Lender in connection with the
administration of this Agreement and the other Loan Documents (except for the
normal and customary administration expenses which are subject to a separate
letter agreement between Borrower and Agent), any amendments, modifications or
waivers with respect to any of the provisions thereof and the enforcement and
protection of the rights of the Lenders and the Agent under this Agreement or
any of the other Loan Documents, after the occurrence of an Unmatured Default or
Event of Default or if requested by Borrower, and including costs, expenses and
fees incurred before, after or irrespective of whether suit is commenced and
including costs, expenses and fees incurred by Lender in any bankruptcy
proceedings (including, without limitation, efforts to modify or vacate any
automatic stay or injunction) or appellate proceeding, and in the event suit or
arbitration is brought to enforce payment hereof, such costs, expenses and fees
and all other issues in such suit
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shall be determined by a court sitting without a jury or by the arbitrator(s),
as applicable, including all recording and filing fees, documentary stamp,
intangibles and similar taxes, title insurance premiums, appraisal fees and
other costs and disbursements incurred in connection with the taking of
collateral and the perfection and preservation of the Agent's security therein,
and (ii) the reasonable fees and the disbursements of attorneys (which attorneys
may be employees of the Agent or Lenders) in connection with the preparation,
negotiation, execution, delivery and review of this Agreement, the Notes and the
other Loan Documents (whether or not the transactions contemplated by this
Agreement shall be consummated) and the closing of the transactions contemplated
hereby.
17.4. Indemnification of the Lenders and the Agent. The Borrower shall
indemnify and hold harmless the Agent and each Lender, and their respective
affiliates, subsidiaries, shareholders, directors, officers, agents, employees
and attorneys against all third Person claims, damages, penalties, judgments,
Liabilities and expenses (including, without limitation, all expenses of
litigation or preparation therefor whether or not the Agent or any Lender is a
party thereto) which any of them may pay or incur arising out of or relating to,
directly or indirectly, this Agreement, the other Loan Documents, the
transactions contemplated hereby or the direct or indirect application or
proposed application of the proceeds of any Loan hereunder; provided, however,
that in no event shall the Agent or a Lender have the right to be indemnified
hereunder for its own gross negligence or willful misconduct. The obligations of
the Borrower under this Section shall survive the termination of this Agreement.
17.5. Release of Claims.
(a) As additional consideration for the agreements by Lenders
as set forth in this Agreement, Borrower hereby releases and forever discharges
Lenders, their agents, servants, employees, directors, officers, attorneys,
branches, affiliates, subsidiaries, successors and assigns and all persons,
firms, corporations, and organizations in their behalf of and from all damage,
loss, claims, demands, Liabilities, obligations, actions and causes of action
whatsoever which Borrower may now have or claim to have against Lenders, whether
presently known or unknown, and of every nature and extent whatsoever on account
of or in any way touching, concerning, arising out of or founded upon the
Existing Loans or upon this Agreement, any negotiations, loan administration,
extension or denial of credit, exercise of rights and remedies, payment, offset
with respect to, or other matter relating to such indebtedness, any collateral
securing payment and performance of such indebtedness, or any matter preliminary
to the execution and delivery by Borrower and Lender of this Agreement, or any
statement, action, omission or conduct of Lender or any of its officers,
directors, agents, employees, servants, partners, shareholders, attorneys and
managers relating in any manner to such indebtedness, collateral or this
Agreement. The release set forth above shall not extend to any claim arising
after the date hereof to the extent based on acts or omissions of Lender
occurring after such date, except that such release is specifically intended by
the parties to include the transactions leading
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up to the execution of this Agreement. This Agreement and the release provisions
contained in this Section 17.5 are contractual, and not a mere recital.
(b) Borrower acknowledges and agrees that Lender is not, and
shall not be, obligated in any way to continue or undertake any loan, financing
or other credit arrangement with Borrower, including, without limitation, any
renewal of the indebtedness evidenced by the Loan Documents.
17.6. Maximum Interest Rate. It is the intention of the Lenders and the
Borrower that the interest (as defined under applicable law) on the Indebtedness
evidenced by the Notes that may be charged to, or collected or received from the
Borrower, shall not exceed the maximum contract rate permissible under
applicable law. Accordingly, notwithstanding any other provision of this
Agreement to the contrary, should any interest (as so defined) be charged to, or
collected or received from the Borrower by the Lenders pursuant hereto or
thereto in excess of the maximum legal rate, then the excess payment shall be
applied to the reduction of the aggregate outstanding principal balance of the
Obligations, and any portion of the excess payment remaining after payment in
full thereof shall be returned by the Lenders to the Borrower and the Borrower
agrees to accept such returned payment.
17.7. Modification of Agreement. No modification, amendment or waiver
of any provision of this Agreement or the Notes, nor any consent to any
departure by the Borrower therefrom, in any event shall be effective unless the
same shall be in writing and signed by the Borrower and the Agent on behalf of
the Lenders, and then the waiver or consent shall be effective only in the
specific instance and for the purpose for which given.
17.8. Preservation of Rights. No delay or omission of the Lenders or
the Agent to exercise any right under the Loan Documents shall impair such right
or be construed to be a waiver of any Event of Default or an acquiescence
therein, and the making of a Loan notwithstanding the existence of an Event of
Default or Unmatured Default, or the inability of the Borrower to satisfy the
conditions precedent to such Loan shall not constitute any waiver or
acquiescence. Any single or partial exercise of any such right shall not
preclude other or further exercise thereof or the exercise of any other right,
and no waiver, amendment or other variation of the terms, conditions or
provisions of the Loan Documents whatsoever shall be valid unless in writing
signed by the Lenders, and then only to the extent specifically set forth in
such writing. All remedies contained in the Loan Documents or available at law
or in equity shall be cumulative and all such remedies shall be available to the
Agent and the Lenders until the Obligations have been paid in full.
17.9. Joint and Several Obligations of Borrower; Several Obligations of
Lenders. All obligations, representations and warranties hereunder and under any
of the Loan Documents, unless otherwise expressly stated, shall be the joint and
several liability of all of the entities comprising the Borrower. The respective
obligations of the Lenders hereunder are several and
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not joint and no Lender shall be the partner or agent of any other (except to
the extent to which the Agent is authorized to act as such). The failure of any
Lender to perform any of its obligations hereunder shall not relieve any other
Lender from any of its obligations hereunder. Borrower shall have no cause of
action, claim for damages or liability or any other rights of indemnity or
otherwise against any other Lender due to the failure of any Lender to perform
its obligations under this Agreement. This Agreement shall not be construed so
as to confer any right or benefit upon any Person other than the parties to this
Agreement and their respective successors and permitted assigns.
17.10 Severability. If any one or more of the provisions contained in
this Agreement or the Notes is held invalid, illegal or unenforceable in any
respect, the validity, legality or enforceability of the remaining provisions
contained herein and therein shall not in any way be affected or impaired
thereby.
17.11. Counterparts. This Agreement may be executed in two or more
counterparts, each of which may be executed by one or more of the parties
hereto, but all of which combined shall constitute a single instrument binding
on all the parties hereto.
17.12. Loss, etc., Notes. Upon receipt by the Borrower of reasonably
satisfactory evidence of the loss, theft, destruction or mutilation of any of
the Notes, and upon surrender and cancellation of the relevant Note, if
mutilated, the Borrower shall make and deliver in lieu of that Note (the "Prior
Note") a new Note of like tenor, except that no reference need be made in the
new Note to any installment or installments of principal, if any, previously due
and paid upon the Prior Note. Any Note made and delivered in accordance with the
provisions of this Section shall be dated as of the date to which interest has
been paid on the unpaid principal amount of the Prior Note.
17.13. Governmental Regulation. Notwithstanding anything to the
contrary contained herein, no Lender shall be obligated to extend credit to the
Borrower in violation of any limitation or prohibition provided by any
applicable statute or regulation.
17.14. Taxes. Any taxes (excluding federal income taxes on the overall
net income of any Lender) or other similar assessments or charges payable or
ruled payable by any Governmental Authority in respect of the Loan Documents
shall be paid by the Borrower, together with interest and penalties, if any.
17.15. Headings. Section headings in the Loan Documents are for
convenience of reference only, and shall not govern the interpretation of any of
the provisions of the Loan Documents.
17.16. Entire Agreement. This Agreement sets forth the entire agreement
of the parties hereto with respect to the subject matter hereof; provided,
however, that the fees payable by
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Borrower to Norwest in consideration of its agreement to serve as Agent
hereunder are set forth in a separate letter agreement between Borrower and
Norwest. The parties hereto agree that on the Effective Date, the commitments of
the Lenders under the Existing Loans shall be terminated and of no further force
and effect.
17.17. Signs. Provided there is no conflict with the Permitted
Exceptions and subject to Borrower's reasonable approval as to design and
location, Borrower shall allow Lenders to erect a sign that will be supplied by
Lenders upon commencement of development indicating Lenders as the source of the
development financing. Said sign shall be of sufficient size as to be easily
recognizable from a distance of 150 feet, provided that such signage is
consistent with applicable municipal and governmental ordinances and does not
materially inhibit Borrower's ability to erect signage upon the Project.
Borrower shall have the sole responsibility for permitting and maintaining the
sign until completion of the Project.
17.18. ARBITRATION AGREEMENT; WAIVER OF RIGHT TO JURY TRIAL. EXCEPT FOR
"CORE PROCEEDINGS" UNDER THE UNITED STATES BANKRUPTCY CODE, THE PARTIES AGREE TO
SUBMIT TO BINDING ARBITRATION ALL CLAIMS, DISPUTES AND CONTROVERSIES BETWEEN OR
AMONG THEM, WHETHER IN TORT, CONTRACT OR OTHERWISE (AND THEIR RESPECTIVE
EMPLOYEES, OFFICERS, DIRECTORS, ATTORNEYS, AND OTHER AGENTS) ARISING OUT OF OR
RELATING TO IN ANY WAY THIS AGREEMENT. ANY ARBITRATION PROCEEDING WILL (A)
PROCEED IN PHOENIX, ARIZONA; (B) BE GOVERNED BY THE FEDERAL ARBITRATION ACT
(TITLE 9 OF THE UNITED STATES CODE); AND (C) BE CONDUCTED IN ACCORDANCE WITH THE
COMMERCIAL ARBITRATION RULES OF THE AMERICAN ARBITRATION ASSOCIATION ("AAA").
THIS ARBITRATION REQUIREMENT DOES NOT LIMIT THE RIGHT OF ANY PARTY TO (I)
FORECLOSE AGAINST REAL OR PERSONAL PROPERTY AFTER OBTAINING A JUDGMENT OR
ARBITRATION AWARD OR ENFORCE A DEFICIENCY JUDGMENT AFTER FORECLOSURE; (II)
EXERCISE SELF-HELP REMEDIES SUCH AS SETOFF; OR (III) OBTAIN PROVISIONAL
ANCILLARY REMEDIES SUCH AS REPLEVIN, INJUNCTIVE RELIEF, ATTACHMENT OR THE
APPOINTMENT OF A RECEIVER, BEFORE, DURING OR AFTER THE PENDENCY OR ANY
ARBITRATION PROCEEDING. THIS EXCLUSION DOES NOT CONSTITUTE A WAIVER OF THE RIGHT
OR OBLIGATION OF ANY PARTY TO SUBMIT ANY DISPUTE TO ARBITRATION, INCLUDING THOSE
ARISING FROM THE EXERCISE OF THE ACTIONS DETAILED IN CLAUSES (I), (II) AND (III)
ABOVE. ANY ARBITRATION PROCEEDING WILL BE BEFORE A SINGLE ARBITRATOR SELECTED
ACCORDING TO THE COMMERCIAL ARBITRATION RULES OF THE AAA. THE ARBITRATOR WILL BE
A NEUTRAL ATTORNEY WHO HAS PRACTICED IN THE AREA OF COMMERCIAL LAW FOR A MINIMUM
OF TEN YEARS. THE
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ARBITRATOR WILL DETERMINE WHETHER OR NOT AN ISSUE IS ARBITRABLE AND WILL GIVE
EFFECT TO THE STATUTES OF LIMITATION IN DETERMINING ANY CLAIM. JUDGMENT UPON THE
AWARD RENDERED BY THE ARBITRATOR MAY BE ENTERED IN ANY COURT HAVING
JURISDICTION. IN ANY ARBITRATION PROCEEDING, THE ARBITRATOR WILL DECIDE (BY
DOCUMENTS ONLY OR WITH A HEARING AT THE ARBITRATOR'S DISCRETION) ANY PRE-HEARING
MOTIONS WHICH ARE SIMILAR TO MOTIONS TO DISMISS FOR FAILURE TO STATE A CLAIM OR
MOTIONS FOR SUMMARY ADJUDICATION. IN ANY ARBITRATION PROCEEDING DISCOVERY WILL
BE PERMITTED AND WILL BE GOVERNED BY THE ARIZONA RULES OF CIVIL PROCEDURE. ALL
DISCOVERY MUST BE COMPLETED NO LATER THAN 20 DAYS BEFORE THE HEARING DATE AND
WITHIN 180 DAYS OF THE COMMENCEMENT OF ARBITRATION PROCEEDINGS. ANY REQUESTS FOR
AN EXTENSION OF THE DISCOVERY PERIODS, OR ANY DISCOVERY DISPUTES, WILL BE
SUBJECT TO FINAL DETERMINATION BY THE ARBITRATOR UPON A SHOWING THAT THE REQUEST
FOR DISCOVERY IS ESSENTIAL FOR THE PARTY'S PRESENTATION AND THAT NO ALTERNATIVE
MEANS FOR OBTAINING INFORMATION IS AVAILABLE. THE ARBITRATOR SHALL AWARD COSTS
AND EXPENSES OF THE ARBITRATION PROCEEDING IN ACCORDANCE WITH THE PROVISIONS OF
THE LOAN AGREEMENT. EXCEPT AS OTHERWISE PROVIDED HEREIN, THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ARIZONA,
WITHOUT REGARD TO ITS CONFLICT OF LAWS RULES. IN THE EVENT THAT LENDER EXERCISES
ITS RIGHTS TO FORECLOSE AGAINST REAL OR PERSONAL PROPERTY COLLATERAL OR OBTAIN
PROVISIONAL ANCILLARY REMEDIES SUCH AS REPLEVIN, INJUNCTIVE RELIEF, ATTACHMENT
OR THE APPOINTMENT OF A RECEIVER, THE PARTIES AGREE THAT ANY LAWSUIT ARISING OUT
OF ANY SUCH CONTROVERSY SHALL BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A
JUDGE SITTING WITHOUT A JURY. EACH LETTER OF CREDIT SHALL BE GOVERNED BY, AND
SHALL BE CONSTRUED IN ACCORDANCE WITH, THE LAWS OR RULES DESIGNATED IN SUCH
LETTER OF CREDIT, OR IF NO SUCH LAWS OR RULES ARE DESIGNATED, THE UNIFORM
CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS (1993 REVISION), INTERNATIONAL
CHAMBER OF COMMERCE, PUBLICATION NO. 500 (THE "UNIFORM CUSTOMS") AND, AS TO
MATTERS NOT GOVERNED BY THE UNIFORM CUSTOMS, THE LAWS OF THE STATE OF ARIZONA.
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Initial Initial
79
[THE REMAINDER OF THIS PAGE IS
LEFT INTENTIONALLY BLANK]
80
IN WITNESS WHEREOF, this Agreement is executed as of the date first
above written.
BORROWERS:
Monterey Homes Construction II, Inc., an
Arizona corporation
By: /s/ Larry W. Seay
------------------------------------------
Name: Larry W. Seay
----------------------------------------
Title: Chief Financial Officer
---------------------------------------
Monterey Homes Arizona II, Inc., an Arizona
corporation
By: /s/ Larry W. Seay
------------------------------------------
Name: Larry W. Seay
----------------------------------------
Title: Chief Financial Officer
---------------------------------------
LENDERS:
Norwest Bank Arizona, National Association, a
national banking association
By: /s/ Kevin Kosan
------------------------------------------
Name: Kevin Kosan
----------------------------------------
Title: Vice President
---------------------------------------
Bank One, Arizona, NA, a national banking
association
By: /s/ Kevin C. Schillig
------------------------------------------
Name: Kevin C. Schillig
----------------------------------------
Title:
---------------------------------------
AGENT:
Norwest Bank Arizona, National Association, a
national banking association
By: /s/ Kevin Kosan
------------------------------------------
Name: Kevin Kosan
----------------------------------------
Title: Vice President
---------------------------------------