1
EXHIBIT 10.2
William Lyon Homes, Inc.
Loan No. 906-0100
MASTER LOAN AGREEMENT
This Master Loan Agreement (this "Loan Agreement") dated as of August
31, 2000, is made by and between WILLIAM LYON HOMES, INC., a California
corporation ("Borrower"), whose address is 4490 Von Karman Avenue, Newport
Beach, CA 92660 and GUARANTY FEDERAL BANK, F.S.B., a federal savings bank
organized and existing under the laws of the United States ("Lender"), whose
address is 8333 Douglas Avenue, Dallas, Texas 75225, in connection with a
revolving loan (hereinafter called the "Loan"), from Lender to Borrower, for the
acquisition and development of lots (the "Lots Being Actively Developed"),
and/or refinancing of residential lots (the "Finished Lots"), and the
construction of single-family residences thereon (the "Residences") (the Lots
Being Actively Developed and Finished Lots may be collectively referred to as
"Lots," and with the Residences and all related improvements ("Improvements")
thereto, are sometimes collectively referred to hereinafter as the "Real
Property" or the "Properties," and individually, as a "Property.") The Lots
Being Actively Developed and Finished Lots are more particularly defined in the
Specific Loan Terms, Conditions and Definitions (the "Specific Loan Terms")
attached hereto as Exhibit "A". Except as expressly consented to in writing, in
advance by Lender, the Properties shall be located only in residential
subdivisions ("Subdivisions") approved in advance by Lender, and otherwise
meeting the criteria set forth in Paragraph 4 of the Specific Loan Terms. The
initial list of Subdivisions approved for purposes of the Loan (the "Initial
Approved Subdivisions") is set forth in Paragraph 2 of the Specific Loan Terms
and may be supplemented with such additional Subdivisions (the "Additional
Approved Subdivisions") such as may hereafter be approved by Lender from time to
time pursuant to all the terms and provisions of this Loan Agreement
(collectively, the "Approved Subdivisions"). The price range of the Residences
in the Initial Approved Subdivisions shall be as stipulated in Paragraph 2 of
the Specific Loan Terms, and, for Additional Approved Subdivisions, as approved
by Lender in connection therewith. The number of Residences to be constructed at
any time shall be as stipulated in Paragraph 4 of the Specific Loan Terms. The
Loan shall be in the principal amount of FIFTY-FIVE MILLION DOLLARS
($55,000,000.00). This Loan Agreement is a master agreement and shall govern all
of the disbursements (each, a "Disbursement") of the proceeds of the Loan ("Loan
Proceeds") made under a revolving promissory note secured by one or more deeds
of trust, from time to time executed by Borrower, for the benefit of Lender,
covering the Lots and Residences constructed or to be constructed thereon and
such other property as may be described in any such deeds of trust, all as more
fully provided herein below.
In connection with the Loan, Borrower and Lender hereby agree as
follows:
1. THE LOAN. Lender shall make and disburse, and Borrower shall accept
and use, the Loan in accordance with all the provisions of this Loan Agreement
and the other Loan Instruments (defined below). Lender shall make the Loan to
Borrower by means of Disbursements over time in accordance with this Loan
Agreement, and there shall be no funding of the Loan other than to the extent of
the Disbursements actually made. Lender's agreement to make the Loan is subject
to Borrower's satisfaction of all the conditions precedent applicable to the
initial Disbursement of Loan Proceeds (the "Initial Disbursement") with respect
to the Initial Approved Subdivisions in advance, as such conditions are set
forth in Section 2.1 below, not later than the deadline ("Loan Closing
Deadline") for the closing for the Loan ("Loan Closing"), as set forth in
Paragraph 1 of the Specific Loan Terms. This Loan Agreement, the Note, each
Mortgage (defined below), the Guaranty and any other documents evidencing or
securing the Loan whether or not specified in this Loan Agreement or the
Specific Loan Terms are collectively called hereinafter the "Loan Instruments."
As used in this Loan Agreement, the term "Applicable Law" means all Restrictions
(defined below) and all present and future federal, state and local laws,
ordinances, rules, regulations, decisions, and other requirements of
Governmental Authorities applicable thereto.
2. DISBURSEMENTS. All Disbursements shall be made in accordance with and
subject to the following:
2.1 Requirements for Initial Disbursement. Prior to the Initial
Disbursement of the Loan Proceeds, as a condition to the Loan Closing, Borrower
shall execute, acknowledge and deliver to, procure for, deposit with and pay to,
Lender, the following, all in form and substance satisfactory to Lender:
2
(a) A Revolving Promissory Note evidencing the Loan (the "Note")
in the principal amount of FIFTY-FIVE MILLION DOLLARS ($55,000,000.00)
executed by Borrower in favor of Lender and otherwise in form and
content acceptable to Lender. Notwithstanding such stated principal
amount, Borrower shall not be entitled to borrow more than is permitted
under the then effective Borrowing Base (as defined in Paragraph 5(a)(i)
below).
(b) Such documents and instruments as Lender may require to
evidence the status, organization or authority of Borrower and any
guarantor ("Guarantor") of the Loan identified in the Specific Loan
Terms.
(c) If indicated in Paragraph 7 of the Specific Loan Terms,
continuing guaranties (collectively, the "Guaranty") of the Loan
executed by the Guarantor(s) identified in Paragraph 5 of the Specific
Loan Terms.
(d) Construction cost breakdowns for the construction and
completion of all Lots, Improvements and Residences comprising the
Properties (each, a "Construction Cost Breakdown") within the Initial
Approved Subdivisions then forming a part of the Borrowing Base, each in
form and content satisfactory to Lender, and otherwise meeting the
criteria set forth in Paragraph 2.2(m) below.
(e) Financial statements of Borrower, Borrower's general partner
("General Partner") or managing member ("Managing Member"), if
applicable, and any Guarantor (the "Financial Statements"), acceptable
in form and content to Lender for such operational periods as are
required by Lender.
(f) A written opinion of Borrower's counsel, satisfactory to
Lender, in form and content satisfactory to Lender, addressed to Lender
("Opinion Letter"), opining as to the matters described in Paragraph 10
of the Specific Loan Terms.
(g) Such sums required by Lender in connection with the Loan
("Loan Fees"), including, but not limited to, a loan facility fee ("Loan
Facility Fee"), cost analysis and inspection fee in the amounts set
forth in Paragraph 19 below, and payment of all accrued and owing Lender
Costs (defined in Paragraph 19 below).
(h) Such other documents and instruments as Lender may require to
evidence, govern or secure payment of the Loan, including one or more
Mortgages encumbering the Approved Subdivisions forming the Borrowing
Base and such other documents and instruments as may be specified in
Paragraph 7 of the Specific Loan Terms.
(i) If required by Lender, evidence that the Properties within
the Initial Approved Subdivisions are not located within any designated
flood plain or special flood, earthquake, or other hazard area.
2.2 Additional Borrowing Base Availability Requirements For Initial
Approved Subdivisions And For First Disbursements Based On Inclusion Of
Additional Approved Subdivisions In Borrowing Base. For Disbursements based on
availability under the Borrowing Base with respect to each Additional Approved
Subdivision, and in order for such Approved Subdivision to be available for
inclusion in the Borrowing Base, Borrower shall execute and deliver to, procure
for and deposit with and pay to Lender the following, all in form and substance
satisfactory to Lender, such requirements also being applicable to the
availability of Disbursements based on the Initial Approved Subdivisions as part
of the Borrowing Base in addition to the requirements of Paragraph 2.1 above
(without duplication):
(a) Lender shall have received such documents as Lender has
required as part of its approval of the subject Approved Subdivision and
to evidence, govern or secure the payment of the Loan, including
indemnity agreements executed by Borrower and Guarantor covering
liability for hazardous materials on, under or about the subject Lots or
Properties, and a Construction Deed of Trust (With Security Agreements,
Fixture Filing, and Assignment of Rents and Leases) (individually and
collectively, the "Mortgage"), securing the payment of the Note and Loan
and evidencing a first
-2-
3
lien or charge on all Real Property within the applicable Approved
Subdivision, all in form and content satisfactory to Lender.
(b) Evidence that the Mortgage encumbering the Real Property to
be included in the Borrowing Base has been recorded in the official real
property records ("Official Records") of the county where such Real
Property is located ("Recordation").
(c) At Recordation for the subject Mortgage, Lender shall have
received a commitment for, and subsequent delivery thereof within the
time therefor required by Lender, an ALTA LP policy of title insurance
or its equivalent, on the LP form required by Lender, together with any
endorsements that Lender may require ("Title Endorsements Required"), as
set forth in Paragraph 8 of the Specific Loan Terms, with a liability
limit of not less than the maximum aggregate amounts of the Loan
Allocations (as hereinafter defined) for each Property covered by such
Mortgage assuming that Residences are to be constructed on each Lot in
the Approved Subdivision (the "Aggregate Loan Allocation"), issued by an
issuer of title insurance, acceptable to Lender as set forth in
Paragraph 8 of the Specific Loan Terms ("Title Insurer"), insuring
Lender's interest under each such Mortgage as a valid first-priority
lien on the Lots and Properties with full coverage against mechanics'
and materialmen's liens, subject only to the permitted exceptions
acceptable to Lender ("Permitted Exceptions") (each, a "Title Policy").
In order for each Approved Subdivision to remain eligible under the
Borrowing Base for Disbursement availability after Recordation in the
Official Records in the counties in which the subject Real Property is
located, Borrower shall, at its own cost and expense, maintain the first
priority of the Mortgages as a lien on the subject Lots and Properties
and deliver or cause to be delivered to Lender from time to time such
endorsements to the Title Policies as Lender deems necessary to insure
such priority; provided, however, the maximum title insurance for title
insurance underwriters must be acceptable to Lender, and if required by
Lender, from time to time, Borrower shall cause to be issued to Lender
re-insurance or an additional Title Policy or Title Policies, in such
amounts and from such title insurance underwriters, as are acceptable to
Lender.
(d) Policies of risk insurance in form and content and from
insurers acceptable to Lender, which policies shall include clauses
requiring a minimum of thirty (30) days' written notice to Lender before
such insurance may be canceled or reduced, and which shall not include
any coinsurance provision, and which shall provide coverage, in amounts
satisfactory to Lender ("Insurance Required"), for the risks set forth
in, and otherwise meeting the requirements of, Paragraph 9 of the
Specific Loan Terms. Notice is hereby given to Borrower pursuant to the
provisions on California Civil Code Section 2955.5 that no lender shall
require a borrower, as a condition of receiving or maintaining a loan
secured by real property, to provide hazard insurance coverage against
risks to the improvements on that real property in an amount exceeding
the replacement value of the improvements on the property. Borrower
hereby acknowledges and agrees that it has received and reviewed the
foregoing notice prior to its execution of the Note and any other
security documents comprising the Loan Instruments.
(e) To the extent the same exist at the time Borrower requests
Disbursements based on availability of Loan Proceeds due to the
inclusion of a subject Approved Subdivision in the Borrowing Base, and
in all events prior to the first Disbursement for the construction of a
Residence in such Approved Subdivision, a complete set of representative
construction plans and specifications, including grading, mechanical and
electrical (the "Plans") with respect to each type or model of Residence
to be constructed by Borrower on every Lot in such Approved Subdivision
prepared by a licensed civil engineer or architect acceptable to Lender.
(f) If and when the same exist, if requested by Lender,
assignment of any construction contract(s), engineering contract(s) and
architectural contract(s), including the Plans for such Approved
Subdivision.
(g) Recorded Subdivision Map or Plat, as applicable based on the
location of the Approved Project ("Final Map"), meeting the requirements
of Applicable Law, legally describing all Lots covered by the Mortgage
encumbering such Approved Subdivision, approved by all applicable
governmental authorities having jurisdiction (collectively,
"Governmental Authorities"), so that for all purposes and under all
Applicable Law, each such Lot or Property may be mortgaged, conveyed and
otherwise dealt with as a separate legal lot or parcel. For Lots Being
Actively Developed, Lender may
-3-
4
accept an approved tentative map or plat if such map or plat and all
conditions thereto are approved by Lender and if the Final Map for all
such Lots will be recorded on a date approved in writing by Lender prior
to the making of any Disbursement based on Borrowing Base availability
for such Approved Subdivision; provided, however, no Disbursements for
construction of Residences, other than Models (as defined in Paragraph 2
of the Specific Loan Terms) in any Approved Subdivision shall be
permitted until the Final Map is recorded in the Official Records as
contemplated above and only to the extent permitted under Applicable
Law.
(h) Appraisal of the Real Property in the subject Approved
Subdivision, which shall be ordered directly by Lender, at Borrower's
expense, prepared by an appraiser satisfactory to Lender and otherwise
in form and substance satisfactory to Lender.
(i) Any sums for Lender Costs which are then due and payable.
(j) Evidence that each Lot covered by the applicable Mortgage is
not located within any designated flood plain or special hazard area.
(k) True, correct and complete copies of all executed contracts
of sale and escrow instructions (the "Contracts") for Borrower's
acquisition of the Real Property within such Approved Subdivision.
(l) If construction or site development work has commenced on the
Real Property located within the subject Approved Subdivision, and as
requested by Lender, a waiver of mechanics lien and stop notice rights
from each original contractor, subcontractor and material supplier,
enforceable in accordance with Applicable Law, to be submitted with the
initial Application for Disbursement (as defined in Paragraph 5(a)
below) based on Borrowing Base availability for such Approved
Subdivision, or with a Residential Draw Request (as defined in Paragraph
5(a) below) for such Approved Subdivision, as applicable.
(m) A detailed Construction Cost Breakdown of all costs and
expenses required to acquire, develop and complete construction of the
Lots and Properties in the relevant Approved Subdivision as to the
following:
(i) with respect to acquisition of the Real Property and
construction of the Lots and Improvements in such Approved
Subdivision to be financed with proceeds of the Loan; and
(ii) with respect to construction of the Residences and
any Improvements in such Approved Subdivision to be financed with
proceeds of the Loan.
Each Construction Cost Breakdown shall be approved by
Lender in its sole discretion and is subject to change only with the prior
written consent of Lender which may be withheld in its sole discretion.
(n) If and as requested by Lender and depending on the Stage (as
defined in Paragraph 5(a)(i) below) of development of the Approved
Subdivision in question, (i) evidence that all applicable zoning
ordinances, map approvals and conditions, permit requirements and
restrictive covenants (collectively, "Restrictions") affecting the Real
Property covered by such Mortgage permit the construction of and use and
density intended for the Residences to be constructed thereon and have
been or will be complied with; (ii) evidence of building permits and all
other permits and governmental approvals reasonably required with
respect to the Real Property covered by such Mortgage, (iii) evidence of
the availability of all utilities to and for the Real Property covered
by such Mortgage; (iv) evidence that all streets providing access to the
Real Property covered by such Mortgage have been or will be dedicated to
public use (if such dedication is then required by applicable
governmental authorities) and installed and accepted by the applicable
governmental authorities (if such installation and/or acceptance is then
required by such authorities); (v) a Phase 1 and, if recommended
therein, Phase 2 environmental site assessment report with respect to
the Real Property covered by such Mortgage (together with any additional
studies, tests or reports recommended therein) which is
-4-
5
prepared by a qualified firm acceptable to Lender and which certifies as
follows: (a) that the Lots and Properties are in compliance with the
requirements of Paragraph 14 below and meeting Lender's other standard
requirements for such reports; and (b) there is no publicly available
information or records, or evidence at the Property covered by such
Mortgage or visible in the surrounding community, of environmental
matters that could restrict the development or use of such Properties or
of any high voltage transmission lines, wetlands, or hazardous material
except as to such matters consented to in writing by Lender, in advance
of any disbursement with respect to such Properties, and (vi) such other
information and evidence as Lender shall require relating to Borrower or
such Property.
(o) Evidence, which may take the form of a certification thereof
by Borrower provided Lender has no reason to believe such certification
is inaccurate or misleading as to any such matter stated therein, that
all representations and warranties of Borrower set forth in this Loan
Agreement are true and correct and that no Default or Event of Default
(as each such term is hereafter defined in Paragraph 11 below) shall
exist.
(p) Evidence that performance and labor and material payment
bonds required by applicable Governmental Authorities with respect to
such Approved Subdivision have been posted in accordance with Applicable
Law.
(q) Subordination agreements, in form and content satisfactory to
Lender, providing for the subordination to the lien and charge of the
relevant Mortgage any liens, rights to payment or performance or clouds
on title affecting the Real Property in such Approved Subdivision,
including, without limitation, pursuant to any Contracts under which
Borrower has acquired such Real Property.
(r) If requested by Lender following the imposition of any lien
filed against any of the Lots or Properties with respect to site
improvement work in such Approved Subdivision, which lien is susceptible
of having preference over the lien of the Mortgage encumbering such
Approved Subdivision under California Civil Code Section 3137, as
determined by Lender in its sole discretion, Lender shall have received
evidence satisfactory to Lender of Borrower's procurement and
recordation of a payment bond meeting the requirements of California
Civil Code Section 3139. The requirements of this subparagraph shall
apply (with such modifications as are necessary to accommodate
Applicable Laws in such jurisdiction) equally to Approved Subdivisions
in jurisdictions other than California.
(s) Evidence that Borrower is in compliance with any development
agreements, public or private, affecting the Real Property in such
Approved Subdivision.
2.3 Requirements For Certain Borrowing Base Stages. Borrower shall
satisfy the following requirements and, if required by Lender, deliver to Lender
evidence of such satisfaction, (i) to establish availability under the Borrowing
Base for Disbursements based on the below specified Stages of construction in an
Approved Subdivision, or (ii) as a condition to Disbursements pursuant to the
draw procedure set forth in Paragraph 5(a)(ii) below if the Borrowing Base has
been discontinued, as applicable:
(a) As to any Stage, all material conditions to precedent
availability of Disbursements for any prior Stage shall have been
satisfied, or if Lender has deferred the satisfaction of any such
conditions to a later date, the satisfaction of such conditions by the
required date.
(b) As to Stage 1, specified in the attached Exhibit "B",
building permit(s) and all other permits required with respect to the
Residences covered by such Mortgage shall have been issued and in full
force and effect.
(c) As to Stage 2, specified in the attached Exhibit "B", if
requested by Lender, Lender's Inspector (defined in Paragraph 7(c)
below) shall have certified in writing, as to the completion of the
foundation and Title Insurer shall have issued its foundation
endorsement to the Title Policy, in the form of CLTA endorsement No.
102.5 or 102.7 or as Lender may otherwise require, assuring Lender that
such foundation is constructed wholly within the boundaries of the
Properties, does not encroach on any easements, and does not violate any
applicable set-back requirements.
-5-
6
(d) Availability under the Borrowing Base for Disbursements based
on the final Stage (Stage 9 in "Exhibit B") for a Property will not be
deemed to exist until Lender has received, if Lender so requests, an
affidavit or certificate executed by Borrower certifying that, as to
such Property (1) all requirements of Governmental Authorities having
jurisdiction have been satisfied; (2) no mechanics' or materialmen's
liens or other encumbrances have been filed against the Property; (3) a
final certificate of occupancy or an unconditional temporary certificate
of occupancy has been issued by the governing municipal authority; and
(4) all invoices, bills, and other payments have been paid in full to
the appropriate parties with respect to such Property other than
invoices or bills being paid from such final Disbursement; however,
Lender shall have the right to require at any time the evidence of such
certified matters, including without limitation, evidence that either
(i) the Property has been completed; or (ii) a certificate of occupancy
has been issued by the appropriate Governmental Authority and final lien
releases or waivers by all parties who have supplied labor, materials,
or services for the construction of such Property, or who otherwise
might be entitled to claim a contractual, statutory, or constitutional
lien against such Property.
(e) As to any Stage, the applicable Mortgage shall continue to
constitute a valid first-priority lien on the Properties encumbered
thereby and a valid first-priority security interest in any related
personal property for the full amount then outstanding on account of the
Loan, and, if requested by Lender, Title Insurer shall have issued its
endorsement to the Title Policy (which may be in the form of a CLTA 122
endorsement) insuring the continuing first priority of such Mortgage for
all prior Disbursements and/or its commitment to insure such priority as
to any pending Disbursements, subject only to such exceptions thereto as
have been approved in writing by Lender.
(f) As to each Stage, if requested by Lender, such certificates,
approvals and evidence of completion, in whole or in part, of the
applicable construction item described on the applicable Construction
Cost Breakdown from the prior Stage of construction of the Properties in
such Approved Subdivision, together with copies of contracts and
subcontractors' bills and invoices as Lender may request.
(g) Lender shall have timely received any applicable Lender Costs
then required to have been paid pursuant to this Loan Agreement with
respect to such Approved Subdivision.
3. DISBURSEMENT PRIOR TO RECORDATION. Notwithstanding any contrary
provisions of the Note, this Loan Agreement, or any of the other Loan
Instruments, and in consideration of Lender's Disbursement of all or part of the
Loan Proceeds prior to the Recordation of a Mortgage on Lots or Property for
which such Loan Proceeds are being disbursed, Borrower and Lender covenant and
agree as follows as to such Mortgage and such Loan Proceeds:
(a) Provided Borrower has then satisfied all conditions to
Disbursement of the Loan Proceeds under this Loan Agreement, except
those requiring the Recordation of the subject Mortgage, Lender agrees
to make Disbursements of the Loan Proceeds, or so much thereof as
Borrower shall request, directly to the Title Insurer as part of the
closing of the transaction whereby an Additional Approved Subdivision is
included in the Borrowing Base to provide availability of Loan Proceeds
based on such Approved Subdivision, or for availability of Loan Proceeds
to acquire or construct such Approved Subdivision (in each case, the
"Loan Closing") prior to Recordation of said Mortgage. Said Disbursement
shall be made in accordance with and subject to Lender's escrow
instructions to the Title Insurer which shall provide, among other
things, that the funds so disbursed may be used for the benefit of
Borrower only when Recordation of the subject Mortgage has occurred and
the conditions for the Loan Closing can be complied with.
(b) For purpose of this Loan Agreement, all terms and provisions
of the Note, and Borrower's obligations thereunder, shall be deemed
effective and in full force and effect on the date the requested
Disbursement is made to the Title Insurer, except as those terms and
provisions are amended hereby.
(c) Interest shall commence and accrue at the rate provided in
the Note on all Loan Proceeds disbursed by Lender to the Title Insurer
from the date of such Disbursement irrespective of
-6-
7
when or if the subject Mortgage is recorded or when or if such Loan
Proceeds are disbursed by the Title Insurer to or for the benefit of
Borrower.
(d) Unless and until Recordation has occurred, the Note shall be
deemed unsecured as to such Approved Subdivision and, if such Mortgage
is not recorded within three (3) Business Days following the date of
said Disbursement to the Title Insurer, the principal amount of such
Disbursement, and all interest accrued thereon in accordance herewith,
shall be due and payable by Borrower to Lender upon Lender's demand made
at any time after said third Business Day. Until the Recordation of the
subject Mortgage has occurred, the Note shall be deemed amended to
conform to the provisions of this Paragraph 3.
This Section is intended to cover the rights and obligations of the
parties relative to the Disbursement of Loan Proceeds applicable to Lots and
Property covered by a specific Mortgage prior to Recordation of such Mortgage
and, except as to the provisions hereof relating to commencement of interest,
the provisions of this Section shall be deemed canceled and of no further effect
upon Recordation of the subject Mortgage. Lender's election to make any
Disbursement of Loan Proceeds prior to Recordation of such Mortgage shall be in
Lender's sole and absolute discretion and the provisions of this Section shall
in no event be deemed to compel Lender to waive any condition to Disbursements
under this Loan Agreement, including without limitation, Recordation of the
subject Mortgage prior to any Disbursement of Loan Proceeds as to the Initial
Disbursements.
4. PROCEDURE FOR APPROVAL OF NEW SUBDIVISIONS. Disbursements shall only
be made, and availability of Loan Proceeds under the Borrowing Base shall only
exist, with respect to Approved Subdivisions. Lender shall have approved all
aspects of each Subdivision for which Disbursements are sought, in advance of
any such Disbursement for acquisition or construction of such Approved
Subdivision, or based on its inclusion in the Borrowing Base. Borrower shall
request approval of each Subdivision prior to a request for Disbursements with
respect thereto, and shall provide Lender with all information required by
Lender in connection therewith, including, without limitation, a Construction
Cost Breakdown applicable to such Subdivision. Lender's failure to approve a
Subdivision in writing, or any portion thereof, within fifteen (15) business
days of its receipt of all information required in connection therewith shall be
deemed a disapproval thereof. Upon, and as a condition to, any approval of a new
Subdivision by Lender, Borrower shall execute and deliver to Lender a
confirmation of any restrictions or requirements imposed by Lender as a
condition to its approval of such Subdivision, including any required
supplements or modifications to the Loan Instruments, or confirmations thereof,
as may be required by Lender in connection therewith. A Subdivision which is
approved in writing by Lender for inclusion in the Borrowing Base and/or for
Disbursements for acquisition or construction thereof, and otherwise meeting the
requirements of this Loan Agreement, shall be an "Approved Subdivision."
5. PROCEDURE FOR DISBURSEMENTS. Subject to all of the terms and
provisions of this Loan Agreement, Disbursements under the Loan shall be in
accordance with the following:
(a) Except as set forth in subsection (ii) below, Disbursements
of the Loan shall be made in accordance with the Borrowing Base (as
defined in subsection (i) below) and in accordance with the following:
(i) Borrower shall be entitled only to Disbursements in the
amount approved by Lender, based upon: (A) as to Lots, the
percentage of completion of each such Lot, as reasonably
determined by Lender based on the Construction Cost Breakdown for
the Approved Subdivision in which such Lots are located, as the
same may be verified by Lender's Inspector, and (B) as to
Properties, the stage, as specified in Exhibit "B" attached
hereto (the "Stage"), of construction of the Properties in the
subject Approved Subdivision and for which all other requirements
under this Loan Agreement for Disbursement have been met. On a
monthly basis, Borrower shall submit to Lender a work in progress
report (the "WIP Report") which identifies each Property by
Subdivision, its address, lot and block number, plan type, Loan
Allocation (as defined below), whether or not it is Under
Contract (as defined in Paragraph 3 of the Specific Loan Terms),
sales price, and its Stage of completion either as a Residence, a
Finished Lot or a Lot Being Actively Developed, according to the
applicable Construction Cost Breakdown therefor (as approved by
Lender, the "Borrowing Base Summary"). The Borrowing Base
Summary, as approved by Lender, shall establish the
-7-
8
current Borrowing Base availability (subject to reduction for
Lots and Residences released or required to be released from
Mortgages after the date of such WIP Report), and shall be
certified on behalf of Borrower by Borrower's Agent (as
identified in Paragraph 6 of the Specific Loan Terms) as true and
correct. To request a Disbursement based on the Borrowing Base,
Borrower's Agent shall execute and deliver an Application for
Disbursement in the form of the attached Exhibit "C"
("Application for Disbursement") accompanied by such information
as Lender may reasonably request regarding satisfaction of any
conditions to the requested Disbursement required under the terms
of this Loan Agreement. At any given time, the Borrowing Base
will be determined by the most recent Borrowing Base Summary
based on the most recent WIP Report, as received and accepted by
Lender. However, if inspections by Lender reveal that the WIP
Report overstates the actual work in progress in the aggregate,
the Borrowing Base for that and subsequent WIP Reports will be
reduced by the amount of overstatement until another inspection
has been performed by Lender. If inspection by Lender reveals
that more than one WIP Report by Borrower overstates the actual
work in progress, Lender may restrict the Borrowing Base to that
amount determined by the last inspection by Lender or discontinue
Borrowing Base Disbursements, as contemplated under subparagraph
(ii) below. The aggregate amount, determined by Lender in its
sole discretion, available from time to time, of the Stage of
Lots Being Actively Developed (as such Stage is set forth in
Exhibit "B" attached hereto) and the Stage of actual work in
process (as such Stage is set forth in Exhibit "B" attached
hereto) of the Residences, is referred to herein as the
"Borrowing Base."
(ii) Notwithstanding anything to the contrary in this Loan
Agreement or the other Loan Instruments, at any time (and from
time to time) Lender may, in its sole discretion, following the
occurrence of an Event of Default, elect, pursuant to written
notice thereof given to Borrower, to discontinue the Borrowing
Base method of Disbursement hereunder and require that any and
all future Disbursements of the Loan shall be made in
installments to Borrower for the payment of the acquisition and
development and refinancing costs of Lots and/or, after actual
commencement of construction hereunder, for payment of all costs
of labor, materials or services for the construction of the
Residences based on work actually done in accordance with the
applicable Construction Costs Breakdown for such Properties. From
and after the date of such written notice, Paragraph 5(a)(i)
above shall be of no force and effect. Thereafter, Disbursements
under this Loan Agreement shall be based upon work actually done
during the preceding period less retainage (if required by
Lender), and all draw requests shall be executed and certified on
behalf of Borrower by Borrower's Agent and shall be in the form
of, and contain the information as set forth in a residential
draw request, in the form of Exhibit "D" attached hereto
("Residential Draw Request"), accompanied by such other
information as may be requested by Lender from time to time, such
information and documentation to include invoices, canceled
checks, lien waivers and other evidence as may be reasonably
required by Lender, such as: (i) unconditional lien releases and
waivers, in form and content acceptable to Lender, from the
general contractor and all other contractors, subcontractors and
suppliers of materials or labor, acknowledging receipt of, and
release and waiver of any lien, stop notice or other right with
respect to, amounts equal to prior Disbursements made for such
materials or labor; (ii) if Lender so requests, unconditional
lien releases and waivers to similar effect, with respect to the
requested Disbursements; and (iii) evidence reasonably
satisfactory to Lender establishing actual payment of Property
costs of a type which does not give rise to lien rights and for
which lien releases are, as a result, not appropriate (such as
permits), for which prior Disbursements were made. In addition,
delivery to Lender of information and of evidence of the
satisfaction of certain conditions specified under Sections 2.2
and 2.3 above, shall be a condition precedent to any
Disbursements upon any discontinuation of the Borrowing Base
hereunder and such requirements may be applied on an individual
Property-by-Property basis.
(b) Any provision herein to the contrary notwithstanding, for
purposes of determining the Borrowing Base and/or as to Disbursements
for the construction of a Property, the maximum amount of the Loan
allocated to be disbursed for a Property (the "Loan Allocation" or if
applicable to more than one Property, the "Loan Allocations") shall not
exceed the lesser of: (1) the percentage set forth in Paragraph 11 of
the Specific Loan Terms of the direct costs of such Property, as
determined by Lender (the "Loan to Cost Ratio"); or (2) the percentage
set forth in Paragraph 11 of the Specific Loan
-8-
9
Terms of the lesser of the following values which is applicable to such
Property (the "Loan to Value Ratio"):
(i) The actual price of the Property as stated in a Sales
Contract; or
(ii) The value established in an appraisal prepared at
Borrower's cost and expense by an appraiser satisfactory to
Lender and in form and substance satisfactory to Lender; or
(iii) The list price offered by Borrower.
(c) Anything herein or in any of the other Loan Instruments to
the contrary notwithstanding, at no time shall Lender be obligated to
make any Disbursement hereunder if the outstanding balance of the Loan
equals or exceeds the Loan Amount or the then amount of the Borrowing
Base, or the loans-to-one-borrower limitation imposed upon Lender by any
applicable laws, rules, and regulations of entities having jurisdiction
over Lender in connection with indebtedness owing by Borrower and its
affiliates to Lender (the "Loans-to-One Borrower Limitation").
(d) Anything herein or in any of the other Loan Instruments to
the contrary notwithstanding, Lender will disburse Loan Proceeds,
provided Borrower is not in Default, or an Event of Default has occurred
and is continuing, and subject to the limitations in Paragraphs 5(b) and
(c), in a single Disbursement to Borrower for the payment of the
acquisition or refinancing costs for any Finished Lots. Nothing herein
shall be construed as an obligation or commitment on the part of Lender
to finance the construction of Residences on any Inventory Lots, except
as may be otherwise expressly approved in writing by Lender, other than
as part of an Approved Subdivision. Lender shall have the right to
approve in advance Borrower's acquisition of an Inventory Lot that is to
be encumbered by a Mortgage in favor of Lender.
6. BORROWER'S DEPOSIT.
(a) With respect to any Approved Subdivision, if in Lender's
reasonable judgment, there are insufficient funds remaining in the Loan,
or insufficient availability under the Borrowing Base, as applicable,
for the completion of the Properties in such Approved Subdivision in
accordance with the then-effective Construction Cost Breakdown for such
Approved Subdivision and Borrower fails, within ten (10) business days
of Lender's delivery of notice to Borrower of Lender's determination of
the existence of such insufficiency as to such Approved Subdivision, to
submit a revised Construction Cost Breakdown for such Approved
Subdivision addressing such apparent or actual insufficiency of funds,
which Construction Cost Breakdown shall be acceptable in form and
content to Lender's satisfaction, and which takes into account
Borrower's compliance with all other Construction Cost Breakdowns then
in effect as to all other Approved Subdivisions then included in the
Borrowing Base, it shall constitute a Default hereunder. If Lender
determines, based on its review of the revised Construction Cost
Breakdown, together with such other information required in connection
therewith by Lender, that the Loan will not be In-Balance (as defined
below) after giving effect to such revised Construction Cost Breakdown,
then in such case, Borrower shall deposit with Lender, within fifteen
(15) days after demand by Lender, such sums, either in the form of cash
or letter(s) of credit acceptable to Lender ("Borrower's Deposit"), as
Lender may deem necessary, in addition to the Loan, for the completion
of the Properties in such Approved Subdivision, the payment of all costs
in connection with the construction of such Properties, and the
performance of any obligation of Borrower to Lender owed with respect
thereto. Borrower hereby agrees that Lender (i) shall have a security
interest in any Borrower's Deposit in any form to secure all of
Borrower's obligations under the Loan Instruments, and (ii) may apply
any proceeds of any Borrower's Deposit for the purposes contemplated
herein without any further consent or action on Borrower's part. Lender
shall not be required to pay interest on the Borrower's Deposit. Lender
will disburse all or a portion of the Borrower's Deposit prior to any
disbursement of any portion of the Loan Proceeds to complete Properties
in the affected Approved Subdivision(s). Borrower shall promptly notify
Lender in writing if and when the cost of the construction of the
Properties in an Approved Subdivision materially exceeds, or appears
likely to materially exceed, the amounts budgeted therefor in the
then-current Construction Cost-Breakdown for
-9-
10
such Approved Subdivision. For purposes hereof, "materially" shall mean
a variance of ten percent (10%) from the budgeted amounts for such item.
(b) The Loan is in-balance whenever the amount of the undisbursed
Loan Proceeds or availability under the Borrowing Base (taking into
account Borrower's compliance with the Construction Cost Breakdowns then
in effect as to all Approved Subdivisions then included in the Borrowing
Base), as applicable, plus any sums on deposit in the Borrower's
Deposit, are sufficient in the reasonable judgment of Lender to pay,
through completion of the Properties, in accordance with the
then-applicable Construction Cost Breakdowns for each Approved
Subdivision then subject to a Mortgage and maturity of the Loan, all of
the following sums ("In-Balance"):
(i) All costs of construction, ownership and maintenance of
the Properties;
(ii) All costs of marketing and sale of the Properties (if
this Loan Agreement contemplates such marketing and sale during
the term of the Loan); and
(iii) All interest and all other sums which may accrue or be
payable under the Loan Instruments.
(c) Failure of the Loan to be In-Balance shall mean that the Loan
is out-of-balance ("Out-Of-Balance"); provided, however, Borrower shall
have the right to submit revised Construction Cost Breakdowns for the
Approved Projects in the Borrowing Base, which shall be subject to the
approval of Lender, which, in the aggregate, shall bring the Loan
In-Balance;
(i) Borrower acknowledges that the Loan may become
Out-Of-Balance in numerous ways, not all of which may now be
foreseen. Borrower further acknowledges that the Loan may become
Out-Of-Balance from a shortage of funds in any single line item
or category of the Construction Cost Breakdowns, even if there
are undisbursed Loan Proceeds in other line items or categories.
Undisbursed Loan Proceeds in one category or line item (e.g.,
construction costs) may not be applied to another category or
line item (e.g., interest reserve) unless either the Construction
Cost Breakdowns allow such use (and only to the extent
specifically allowed) or Lender consents in writing to such use
in each instance.
(ii) Whenever the Loan becomes Out-Of-Balance, Lender may
make written demand on Borrower to deposit Borrower's own funds
into Borrower's Deposit in an amount sufficient, in Lender's
reasonable judgment, to cause the Loan to be In-Balance. Borrower
must immediately deposit all funds required by Lender's demand.
Borrower must also submit, for Lender's approval, revised
Construction Cost Breakdowns as to all Approved Subdivisions
affected thereby within fifteen (15) days after any such demand.
Lender shall disburse all funds held in Borrower's Deposit in the
manner provided in this Loan Agreement for Disbursements of the
Loan Proceeds.
7. WARRANTIES, REPRESENTATIONS AND COVENANTS. As a material inducement
to Lender to enter into this Loan Agreement, Borrower warrants, represents,
covenants and agrees as follows:
(a) Commencement, Continuation and Completion. Borrower will
diligently prosecute construction of all Lots Being Actually Developed and
Residences, as applicable, after the commencement of construction thereon, and
will complete same, including all necessary utility connections, in substantial
accordance with the Plans submitted to and approved by Lender, and in accordance
with good building practices and Applicable Laws.
(b) No Changes to Plans. Without the prior written consent of
Lender, Borrower will make no material change in the Plans submitted to Lender
that either reduces the value of the Properties or causes the Loan to be
Out-Of-Balance.
(c) Inspections. Lender shall have the right to inspect the
Properties either itself or using Lender's inspector or appraiser ("Lender's
Inspector"), at Borrower's cost and expense (subject to Paragraph 19 below), to
determine Borrower's compliance with the requirements of this Loan Agreement.
-10-
11
Borrower will permit Lender and Lender's agents and representatives, at any and
all times, during regular business hours, to inspect construction in the
Approved Subdivisions in the Borrowing Base, including the Residences located
therein and to examine and copy all of Borrower's books and records and all
contracts and bills pertaining to said construction and the Residences. After a
Default hereunder, if Lender shall examine the aforesaid books and records,
Borrower shall pay on demand by Lender, subject to Paragraph 19 hereof,
reasonable expenses incurred by Lender as a result of such examination.
(d) Use of Disbursements. Borrower will accept Disbursements in
accordance with the provisions hereof and, if made to Borrower, will use or
cause each such Disbursement to be used solely for the payment (or
reimbursement) of materials, labor, services, costs and expenses incurred or
expended in connection with the construction of the Lots and/or Properties
within Approved Subdivisions or for such additional costs and expenses as may be
approved in writing by Lender, and in payment or performance of any obligation
of Borrower to Lender, and for no other purpose. If requested by Lender, Lender
shall have received within fifteen (15) days of its request therefor all
information and documentation, including invoices, canceled checks, lien waivers
and other evidence as may be required by Lender with respect to any Approved
Subdivision, such as: (i) unconditional lien releases and waivers, in form and
content acceptable to Lender, from the general contractor and all other
contractors, subcontractors and suppliers of materials or labor, acknowledging
receipt of, and release and waiver of any lien, stop notice or other right with
respect to, amounts equal to payments made by Borrower for such materials or
labor for such Subdivision and depending on the Stage of development of the Lot
or Property in question, and (ii) evidence satisfactory to Lender establishing
actual payment of Property costs of a type which does not give rise to lien
rights and for which lien releases are, as a result, not appropriate (such as
permits), for which prior Disbursements for such Subdivision were made.
(e) Borrower Liability for Construction. Borrower is solely
liable for construction and completion of the Lots and/or Properties in
accordance with this Loan Agreement. Lender has no liability or obligation
whatsoever for the Lots or Properties or the construction or completion thereof
or work performed thereon, and has no obligation except to disburse the Loan as
herein agreed, and is not obligated to inspect the Lots or Properties; nor is
Lender liable for the performance or default of any contractor or subcontractor,
or for any failure to construct, complete, protect or insure the Lots or
Properties, or for the payment of any cost or expense incurred in connection
therewith, or for the performance or nonperformance of any obligation of
Borrower to Lender; and nothing, including without limitation any Disbursement
hereunder or the deposit or acceptance of any document or instrument, shall be
construed as a representation or warranty, express or implied, on Lender's part.
(f) No Conditional Sale Contracts. Without the prior written
consent of Lender, no materials, equipment, fixtures or any other part of the
Residences shall be purchased or installed under security agreements,
conditional sale contracts or lease agreements, or other arrangement wherein a
security interest or title to said property is retained or the right is reserved
or accrues to anyone to remove or repossess any such items or to consider them
as personal property.
(g) Right to Defend. Lender may (but shall not be obligated to)
commence, appear in or defend any action or proceeding purporting to affect any
Real Property or the rights or duties of Lender or Borrower or the payment of
any funds hereunder, and in connection therewith may pay all necessary expenses,
including reasonable attorneys' fees, which Borrower agrees to pay to Lender
upon demand.
(h) Borrower's Approval of Plans. The Plans submitted to Lender
by Borrower are satisfactory to Borrower, have been approved by any
Guarantor(s), and to the extent required by Applicable Law or any restrictive
covenant, by all Governmental Authorities and beneficiary of any such covenant
respectively. Any existing improvements on the Properties are within the
perimeter of the Properties (except any required off-site Property) in
accordance with the Plans and any Restrictions applicable thereto. There are no
encroachments, defects or conditions (including unstable soil conditions) in, on
or about any of the Properties that would or could render it unfit for
Residences. There are no structural defects in the Properties, and no violation
of any Applicable Law exists with respect to the Lots or Properties.
(i) Notice of Litigation. Borrower shall promptly inform Lender
of (i) any litigation, proceeding or enforcement of judgment (collectively,
"litigation") threatened or commenced against Borrower, General Partner,
Managing Member or any Guarantor(s) or affecting the Lots or Properties, which,
if
-11-
12
determined adversely, might have a material adverse effect upon the financial
condition of Borrower, General Partner, Managing Member or Guarantor(s) or upon
the Lots or Properties, or might cause a Default; (ii) any material claim or
controversy which might become the subject of such litigation; and (iii) any
material adverse change in the financial condition of Borrower, General Partner,
Managing Member or Guarantor(s). For the purposes hereof, material adverse
change and/or material adverse effect shall mean a decline of fifteen percent
(15%) in the net worth of Borrower, General Partner, Managing Member or
Guarantor(s) as shown on the Financial Statements delivered to Lender from time
to time in connection with the Loan or an event which places Borrower out of
compliance with any Additional Loan Covenants (as defined in Paragraph 15
below).
(j) Financial Statements and Reports. As required by Lender,
Borrower shall provide Lender with the Financial Statements and other reports
during the term of the Loan in accordance with Paragraph 12 of the Specific Loan
Terms. Borrower shall also provide, on or before the thirtieth (30th) day of
each calendar month, sales, closings and inventory reports on all for-sale
residential construction projects owned by Borrower, General Partner, Managing
Member or Guarantor, acceptable to Lender, and for Properties securing the Loan,
including a sales report showing all currently pending sales (separated into new
sales entered into during the month being reported on and previous sales
contracted for in preceding months), all closings which took place during the
month being reported on, all sales previously reported that for any reason will
not close, the status of all inventory and all other sales information
reasonably requested by Lender, all in form and content acceptable to Lender.
All Financial Statements and other reports shall be true, correct, and complete
as of the dates specified therein and, in the case of the Financial Statements,
shall fully and accurately present the financial condition of Borrower and any
other party obligated for the Loan, as appropriate, as of the dates specified.
Borrower represents to Lender that on the date hereof, no material adverse
change has occurred in the financial condition of Borrower or, to Borrower's
knowledge, any other party obligated for the Loan since the dates the initial
Financial Statements of Borrower or any other party obligated for the Loan were
delivered to Lender. Borrower shall also promptly deliver to Lender such other
sales information and documents that Lender from time to time may request,
including operating statements, any one or more of the sales agreements ("Sales
Agreements") for particular Residences or Lots, or notice of or information
regarding any claimed breach or disavowal of buyer's or seller's obligations
under any one or more Sales Agreements, and any written marketing report(s)
including all brochures and prospective purchaser lists.
(k) Required Releases. Subject to the provisions of Paragraph 20
hereof, Borrower shall cause a Lot or Property to be released from a Mortgage at
such times as provided in the Specific Loan Terms attached hereto (the "Required
Release Date").
(l) Occupancy. Neither Borrower nor any other party shall occupy
any Residence which is covered by a Mortgage.
(m) Discharge of Liens. Borrower shall pay and discharge all
lawful claims, including taxes, assessments, and governmental charges or levies
imposed upon it or its income or profits or upon any properties belonging to it,
prior to the date upon which penalties attach thereto and deliver receipts of
those payments to Lender as required under the Mortgage; however, Borrower shall
not be required to pay any such tax, assessment, charge or levy, the payment of
which Borrower is diligently contesting in good faith and by proper proceedings
and for which a bond and/or other security to prevent impairment of Lender's
security is posted as Lender may require. Borrower shall pay upon demand any
costs incurred by Lender for realty tax service if required by Lender. Each Lot
is taxed separately without regard to any other real property.
(n) Formation, Existence. Borrower warrants and represents as to
standing and organization as follows: (i) If Borrower is a corporation, it is
duly organized and validly existing, in good standing under the laws of the
state of its incorporation, and is qualified to do business, and in good
standing, in the state in which the Lots and Properties are situated (and all
other states if any in which Borrower is required to be qualified); (ii) If
Borrower is a partnership, it is duly organized and validly existing, is in good
standing under the laws of the state of its formation and is qualified to do
business in the state in which the Lots and Properties are situated (and all
other states if any in which Borrower is required to be qualified); (iii) If
Borrower is a trust, it is duly organized, validly existing, the trustees
thereof are qualified to act as trustees, and the trust is qualified to do
business in the state in which the Lots and Properties are situated (and all
other states if any in which Borrower is required to be qualified); (iv) If
Borrower is a limited liability company, it is duly organized and validly
existing, in good standing under the laws of the State of its organization, and
is
-12-
13
qualified to do business, and in good standing, in the State in which the
Properties are situated (and all other States, if any), in which Borrower is
required to be qualified.
(o) Proper Authority. Borrower has full right, power and
authority to own the Properties, execute and deliver the Loan Instruments to be
executed and delivered by it, consummate the transactions contemplated thereby,
and perform its obligations thereunder. The Loan Instruments to be executed and
delivered by Borrower have been duly authorized, executed and delivered, and
constitute valid and legally binding obligations of Borrower, enforceable in
accordance with their terms, and the Loan is not usurious. The individual(s)
executing the Loan Instruments on behalf of Borrower or any person comprising a
part of Borrower are authorized and empowered by his/her or their signatures
alone to bind Borrower. If Borrower is more than one person, firm or
corporation, all receipts, requests and instructions pertaining to the Loan, or
for any Disbursement thereof, may be made by any one of the undersigned
Borrowers with the same effect as if signed by all.
(p) No Pending Actions. As of the date of Recordation of any
Mortgage, other than as disclosed to Lender in writing, there are no actions,
suits or proceedings pending or, to the knowledge of Borrower, threatened
against or affecting it, the Properties, or any Guarantor(s) of the nature or
type required to be reported to Lender under Section 7(i) hereof or involving
the validity or enforceability of any Mortgage or the priority of the lien
thereof, at law or in equity, or before or by any Governmental Authority.
Borrower is not in default with respect to any order, writ, injunction, decree
or demand of any court or any Governmental Authority.
(q) CC&Rs. Borrower may submit to Lender a proposed form of
declaration of covenants, conditions and restrictions ("CC&Rs") affecting all or
part of the Properties which may include provisions for the formation of an
owner's association for the Approved Subdivisions, and may request Lender to
approve and to subordinate the Mortgage to the CC&Rs. Lender shall have no
obligation to grant such a request by Borrower. However, Lender shall consider
and honor any such request if that would not impair or adversely affect the
security of any obligation evidenced by the Loan Instruments. Lender may require
as a condition to its consent to such subordination the issuance of one or more
endorsements to the Title Policy at Borrower's sole cost and expense.
(r) Notice of Completion, Notice of Cessation. Borrower shall
fully pay and discharge all claims for labor done and materials and services
furnished in connection with the Properties, diligently file or procure the
filing of a valid Notice of Completion upon completion of construction,
diligently file or procure the filing of a Notice of Cessation upon a cessation
of labor on the work of improvement for a continuous period of thirty (30) days
or more, and take all other reasonable steps to forestall the assertion of
claims of lien against the Properties, and of stop notices against Lender of
claims against any funds to be advanced hereunder. Nothing herein contained
shall require Borrower to pay any claims for labor, materials, or services which
Borrower is diligently contesting in good faith and by proper proceedings, if
Borrower posts a surety bond, in the required statutory amounts, sufficient to
release any claim of lien or stop notice within ten (10) days after the filing
or service thereof. Borrower agrees, upon demand by Lender, to defend, indemnify
and hold Lender harmless against any action filed or claim asserted against
Lender for any reason in connection with any such lien claim or stop notice.
Borrower hereby irrevocably appoints and authorizes Lender, as Borrower's
attorney-in-fact under a power of attorney coupled with interest, to execute,
file and record any Notice of Completion or Cessation of Labor or any other
notice which Lender deems necessary or advisable to protect its interest
hereunder or the security for the Loan.
(s) Correcting Defects. Within thirty (30) days after demand by
Lender, Borrower shall correct any defect in the Properties or any change in or
deviation from the Plans not approved by Lender, and the making of any
Disbursements shall not constitute a waiver of this covenant; provided, however,
if such thirty (30) day period is insufficient to make such correction, Borrower
shall nonetheless promptly commence such correction and submit a schedule to
Lender, satisfactory in form and content to Lender, within said thirty-day
period providing for the completion of such correction within a time period
approved by Lender therefor. Borrower shall thereafter diligently prosecute such
correction to completion and, in all events, not later than the expiration of
the time period approved by Lender for such correction.
(t) Cancellation of Contracts. Borrower shall promptly inform
Lender if any Contracts are canceled and/or materially modified.
-13-
14
(u) Preliminary Notices. At Lender's request, Borrower shall
deliver to Lender, so that Lender receives within three (3) business days after
Borrower receives, copies of all preliminary notices and related documents
served on Borrower pursuant to California Civil Code Sections 3097 and 3097.1
and any similar or successor statutes including all such notices and documents
addressed to Lender or to "Construction Lender" and received by Borrower. This
subparagraph shall also apply to Approved Subdivisions in jurisdictions other
than California (with such conforming changes as are necessary to comply with
the statutory requirements in such jurisdiction).
(v) Use of Models. With respect to any Approved Subdivision that
does not include as part of the Real Property encumbered by the lien of the
Mortgage applicable to such Approved Subdivision, Models (as defined in the
Specific Loan Terms) to be used in connection with the marketing and sale of
Residences in such Approved Subdivision, Borrower hereby grants to, and for the
benefit of, Lender, such use and access rights to any such Models, to the extent
of Borrower's interest therein, as may be required by Lender in connection with
Lender's exercise of its rights and remedies under this Loan Agreement and the
other Loan Instruments as the same apply to any such Approved Subdivision.
8. REQUIRED PRINCIPAL PAYMENTS. Borrower shall pay the principal of the
Note as therein provided and as may be provided in the Specific Loan Terms
attached hereto. Further, if, at any time, the outstanding balance of the Loan
exceeds (a) the Loan Amount, (b) the Loans-to-One-Borrower Limitation, (c) the
Borrowing Base approved by Lender, or (d) as to any individual Property, the
Loan Allocation for that Property then Borrower shall immediately pay in cash to
Lender, following receipt of a written demand therefor, the amount of such
excess. Further, at any time after the recording of a Mortgage in the Official
Records, Lender shall have the right, but not at the expense of Borrower, unless
such appraisal is required by federal regulations applicable to Lender, to
obtain an appraisal of any Property covered by such Mortgage, from an appraiser
satisfactory to Lender, and in the event such appraisal determines that the
portion of the Loan disbursed by Lender for such Property exceeds the Loan
Allocation for such Property, then Borrower shall also immediately pay in cash
to Lender, following demand therefor, the amount of such excess.
9. REVOLVING LOAN. All or any portion of the principal of the Loan may
be borrowed, paid, prepaid, repaid and reborrowed from time to time prior to
maturity in accordance with the provisions of the Loan Instruments. The excess
of borrowing (Disbursements and re-Disbursements) over repayments shall be the
principal balance of the Loan from time to time and at any time. The aggregate
amount of all Disbursements under the Loan may exceed the Loan Amount, but
neither the outstanding principal balance of the Loan nor the outstanding
aggregate amount of the Loan Allocations (not including those with respect to
Properties released of record by Lender) shall ever exceed the Loan Amount.
10. MATURITY AND EXTENSION. The Loan shall mature as provided in the
Note and as described in Paragraph 14 of the Specific Loan Terms.
11. DEFAULT. Each of the following events shall constitute a default
("Default") under this Loan Agreement prior to the giving of notice or
expiration of a cure period, as may be required hereunder, and, following the
giving of such notice and/or expiration of such cure period, or if no notice or
cure period is provided, shall constitute an "Event of Default" under this Loan
Agreement and under the other Loan Instruments:
(a) Failure to Pay Principal or Interest. Any failure to pay or
deposit when due or required any sum of principal or, subject to any cure
periods which may be set forth on the Note, interest under the Note.
(b) Breach of Other Monetary Obligations. Any failure to pay or
deposit when due or required any sum (other than principal or interest) under
this Loan Agreement or other Loan Instruments which is not cured within fifteen
(15) days of Lender's delivery of written notice thereof to Borrower.
(c) Breach of Condition/Covenant. Any breach or failure to
satisfy or perform any condition, covenant or other provision of this Loan
Agreement which is not cured within thirty (30) days of Lender's delivery of
written notice thereof to Borrower.
-14-
15
(d) Breach of Other Obligation. The occurrence of any breach or
default which is not cured within the applicable time periods (if any)
designated therein by Borrower, General Partner, Managing Member or any
Guarantor(s) under: (i) any other Loan Instruments, evidencing, securing or
relating to the Loan, in addition to this Loan Agreement; (ii) any Guaranty (or
any revocation thereof); (iii) if the Properties are subject to any leasehold
estate, the lease creating such estate; or (iv) any general contract for
construction of the Properties; (v) any Contract, with respect to any material
continuing obligations of Borrower thereunder; or (vi) any evidences of
indebtedness or undertakings with respect to any other loan(s) extended by
Lender to Borrower.
(e) Suspension of Business/Bankruptcy. Borrower, General
Partner, Managing Member or any Guarantor(s): (i) voluntarily suspends the
transaction of business; (ii) becomes insolvent or unable to pay its debts as
they mature; (iii) makes an assignment for the benefit of creditors; (iv)
becomes the subject of a bankruptcy, reorganization or similar debtor-relief
proceeding unless, in the case of an involuntary petition filed against
Borrower, General Partner, Managing Member or any Guarantor(s), the petition is
dismissed within sixty (60) days; (v) becomes, or any material part of its
property becomes, the subject of appointment of a receiver, trustee, or
conservator, unless, in the case of such appointment without Borrower's, General
Partner's, Managing Member's or a Guarantor's consent, the appointment is
vacated within sixty (60) days; (vi) has any of its property become subject to
any attachment, execution, sequestration or other judicial seizure not
discharged within sixty (60) days; (vii) fails to pay or discharge any judgment
against it, singly or in the aggregate, in excess of TWO HUNDRED FIFTY THOUSAND
DOLLARS ($250,000.00) as to Borrower, or to appeal such judgment(s) and obtain a
stay thereof within ten (10) days of entry; or (viii) is dissolved or
terminated.
(f) False Representations. Any representation by Borrower,
General Partner, Managing Member or any Guarantor(s) of any material fact herein
or in any Financial Statement or other submittal delivered to Lender is false,
incorrect or misleading as of the date made.
(g) Project Enjoined. Any court of competent jurisdiction issues
an order or decree enjoining the construction on any Lot, or enjoining or
prohibiting the performance of this Loan Agreement or any other Loan Instrument,
and any such decree or order is not vacated within sixty (60) days after its
issuance.
(h) Lapsed Permit/License. Borrower neglects, fails or refuses
to keep in full force and effect any permit, license or approval necessary for
the construction, sale, use, and/or occupancy of the Properties.
(i) Bonded Notice. Any bonded stop or other notice to withhold
in connection with the Loan is served on Lender pursuant to the provisions of
Title 15, Division 3, Part 4 of the California Civil Code or any similar or
successor statute, and within ten (10) days of the receipt of such notice the
claim set forth therein is not discharged or, if the amount claimed is disputed
in good faith by Borrower, an appropriate counter bond or equivalent acceptable
to Lender is not filed with Lender.
(j) Liens; Priority of Mortgage. Other than the statutory lien
for non-delinquent real property taxes and assessments, the imposition of any
voluntary or involuntary lien upon any of the Properties, except as permitted by
the Mortgage or approved by Lender in writing, unless (i) a bond in an amount
not less than that required by statute or other security acceptable to Lender is
provided within ten (10) days following actual knowledge by Borrower of such
lien, or (ii) such lien is released within ten (10) days of the Borrower's
knowledge thereof; provided, however, no Disbursements will be available until
such lien is released or bonded over.
(k) Destruction. The demolition, destruction or material damage
of any of the Properties, if Lender determines that the Properties cannot be
restored or rebuilt within a reasonable time (not later than the applicable
Completion Date) at a cost not exceeding the aggregate amount then undisbursed
by Lender for Disbursements and allocated to such Properties plus insurance
proceeds, plus Borrower's contributions as more particularly provided in the
Mortgage.
(l) Uninsured Casualty. The occurrence of an uninsured casualty
with respect to any material portion of the Properties, if Lender determines
that the Properties cannot be restored or rebuilt
-15-
16
within a reasonable time (not later than the applicable Completion Date), at a
cost not exceeding the aggregate amount then held by Lender for Disbursements
and allocated to such Properties, plus Borrower's contributions as more
particularly provided in the Mortgage.
(m) No Pledge or Change of Stock or Partnership Interest. If
Borrower is a corporation, the shareholders of Borrower shall not sell, pledge
or assign any shares of the stock of Borrower without the prior written consent
of Lender; provided, however, any transfer of up to ten percent (10%) in the
aggregate of Borrower's shares shall not constitute a Default hereunder. If
Borrower is a partnership or joint venture, the partners, members or joint
venturers of Borrower shall not sell, pledge or assign any of their partnership,
membership or joint venture interest nor shall any general partner, member or
joint venturer be removed as the managing general partner, member or joint
venturer or withdraws from or is admitted to Borrower without the prior written
consent of Lender.
(n) Criminal Activity. The occurrence of any criminal activity,
regardless of whether Borrower or any person under Borrower's control is at
fault, which could result in the forfeiture of the Properties to any
Governmental Authority.
(o) Adverse Change. A material adverse change in the business or
financial condition of Borrower, any General Partner, Managing Member or
Guarantor(s) which materially potentially or adversely affects (a) the Approved
Subdivisions, (b) the performance by Borrower, General Partner, Managing Member
or Guarantor(s) of any of their respective obligations under any of the Loan
Instruments or any Guaranty, or (c) the priority of the liens, charges,
encumbrances or security interests created by any of the Loan Instruments.
(p) Unapproved Deviation. The occurrence of substantial
deviations in the work of construction from the Plans or any Subdivision
completion schedule without the prior approval of Lender, or the appearance of
defective workmanship or materials, which deviations or defects are not
corrected within thirty (30) days after Borrower's discovery or receipt of
written notice thereof.
(q) Valuation. The amount of the Loan with respect to any
Approved Subdivision exceeds one hundred percent (100%) of the discounted bulk
value thereof at completion.
(r) Non-Monetary Defaults.
(i) Generally. Notwithstanding any other provision of this
Paragraph, if Lender determines in its reasonable judgment that the
Default complained of, other than a Default for the payment of monies,
cannot be cured within the period requiring curing as specified in
Lender's written notice of Default, then the Default shall be deemed to
be cured if Borrower within the notice period shall have commenced the
curing of the Default and shall thereafter diligently prosecute the same
to completion. If in Lender's reasonable judgment Borrower fails to
diligently prosecute the curing of the Default or Lender determines that
said Default is incurable, then this Default shall constitute an Event
of Default.
(ii) Affecting Approved Subdivisions. The Defaults specified
in Paragraph 11(c) (with respect to breaches of covenants,
representations or warranties set forth in any of Paragraphs 7(a), 7(b),
or 7(s)), 11(d)(i) (with respect to defaults under other Loan
Instruments that are breaches of covenants or representations relating
to individual Approved Subdivisions or are Events of Default relating to
acts or omissions concerning individual Approved Subdivisions),
11(d)(iii), 11(d)(iv), 11(d)(v), 11(g), 11(h), 11(i), 11(j), 11(k),
11(l), 11(p) and 11(q) shall be deemed to apply to each Approved
Subdivision on an individual basis only and shall be deemed cured as to
the subject Approved Subdivision to which the Default applies on the
first to occur of: (A) Borrower's cure of such Default within the cure
periods specified, if any, for such Default; or (B) removal of the
subject Approved Subdivision from the Borrowing Base and re-margining of
the Loan, if required by Lender, such that the outstanding principal
amount of the Loan does not exceed the amounts permitted to be borrowed
by Borrower under this Loan Agreement based on the Borrowing Base as
reduced due to the elimination of the Approved Subdivision required to
be removed as provided hereinabove; provided that Borrower shall repay
within three (3) business days of demand by
-16-
17
Lender any principal amounts outstanding with respect to the Loan as may
be required to effect such re-margining. Upon the occurrence of any
Default referenced in this subsection (ii), no Disbursements based on
availability under the Borrowing Base with respect to the Approved
Subdivision which is the subject of such Default shall be available to
the Borrower until such Default is cured under subsection (A)
hereinabove.
(s) Additional Defaults. Any "Additional Defaults" set forth in
Paragraph 15 of the Specific Loan Terms shall have occurred and are continuing.
12. REMEDIES. Upon the occurrence of any Event of Default, Lender may at
its option, without prior demand or notice, exercise any one or more of the
following remedies, and any one or more of such other remedies as may be
provided by any Loan Instrument or by law or equity, all of which remedies shall
be cumulative:
(a) Right to Terminate Disbursements. Terminate the obligation
of Lender to make Disbursements hereunder.
(b) Right to Call Loan. Declare the Loan and all obligations of
Borrower under the Loan Instruments immediately due and payable.
(c) Correction. Where substantial deviations from the Plans and
Specifications appear which have not been approved, or defective or
unworkmanlike labor or materials are being used in the Properties, or there
exist encroachments to which there has been no consent, Lender may order
immediate stoppage of construction, after which no further work shall be done
without the prior written consent of Lender unless and until such condition has
been fully corrected notwithstanding any cure periods set forth hereunder.
(d) No Waiver. Notwithstanding the exercise of any or all of the
remedies described in Sections 12(a), (b) or (c) hereof, make any Disbursements
without thereby waiving (i) its right to demand payment of the Note, (ii) its
right not to make any further Disbursements, or (iii) any of its other rights or
remedies.
(e) Possession and Completion.
(i) To disburse and directly apply the proceeds of any
Disbursement under the Loan to the satisfaction of any of Borrower's
obligations hereunder. Any Disbursement by Lender for such purpose shall
be part of the Loan and shall be secured by the Mortgages, except a
Disbursement of a Borrower's Deposit. Borrower hereby authorizes Lender
to hold, use, disburse, and apply the Loan and the Borrower's Deposit
for payment of costs of construction of the Properties, expenses
incident to the Loan and each Property, costs of completion of all
necessary off-site development of each Property, and the payment or
performance of any obligation of Borrower hereunder. Borrower hereby
assigns and pledges the proceeds of the Loan and Borrower's Deposit to
Lender for such purposes. Lender may disburse and incur such expenses as
Lender deems necessary for the completion of construction of the
Properties and to preserve each Property and any other security for the
Loan, and such expenses, even though in excess of the amount of the
Loan, shall be secured by the Mortgages, and payable to Lender upon
demand. Lender may disburse any portion of any Disbursement at any time,
and from time to time, to persons other than Borrower for the purposes
specified herein irrespective of the provisions of Paragraph 5 hereof,
including without limitation, to general contractors, subcontractors,
laborers, material suppliers, or to hire an escrow firm to make such
Disbursements, and the amount of Disbursements to which Borrower shall
thereafter be entitled shall be correspondingly reduced.
(ii) Without limiting the provisions of subparagraph (i)
above, Lender may also take possession of the Properties and perform all
work and labor necessary to complete the work of construction, in which
event such expenditures (except to the extent made from funds of
Borrower) shall be deemed Disbursements under the Note, and any
expenditures in excess of the total amount advanced under the Loan shall
be deemed an
-17-
18
additional Disbursement to Borrower, payable on demand and bearing
interest at the rate specified in the Note. In addition, Borrower shall
pay Lender a supervision fee at the current market rate, but not to
exceed fifteen percent (15%) of the cost of such completion, for
supervision of construction. Such additional Disbursement and the
supervision fee is secured by the Mortgages and all other agreements
securing the performance of Borrower's obligations under this Loan
Agreement and the other Loan Instruments. Borrower hereby irrevocably
constitutes and appoints Lender its attorney-in-fact, coupled with an
interest, with full power of substitution, to complete the construction
of the Project, or any part thereof in Borrower's name or Lender's name
(but with no obligation to do so), and in connection therewith to: (a)
use any funds of Borrower to complete the construction; (b) make such
additions, changes and corrections in the Plans as Lender deems
desirable to complete the Residences or any part thereof in an
economically sound manner; (c) discharge, replace or employ such
contractors, subcontractors, agents, architects and inspectors as may be
deemed necessary for such purposes; (d) make Disbursements directly to
any general contractor, subcontractors, laborers, material suppliers, or
to hire an escrow firm to make such Disbursements; (e) pay, settle, or
compromise bills and claims; (f) execute applications and certificates;
(g) employ watchmen to protect the Properties (including personal
property located thereon) from damage, injury, or (h) prosecute and
defend actions or proceedings in connection with any of the Properties,
and (i) do any act which Borrower might do in its own behalf. In no
event shall Lender be required to expend its own funds to complete any
of the Properties.
13. INDEMNITY. Borrower hereby agrees to defend (by counsel satisfactory
to Lender), indemnify and hold harmless Lender, its officers, directors,
shareholders, agents, employees, affiliates, subsidiaries, successors and
assigns, from and against all losses, damages, liabilities, claims, actions,
judgments, costs and attorneys' fees which Lender may incur, in any capacity, as
a direct or indirect consequence of (a) the making of the Loan (except for
violations of banking law or regulations by Lender), (b) Borrower's failure to
perform any obligations as and when required by any Loan Instrument, (c) the
failure at any time of any of Borrower's representations or warranties to be
true and correct, or (d) any act or omission by Borrower, any contractor,
subcontractor, engineer, architect or other person with respect to any Property.
14. HAZARDOUS MATERIALS.
(a) Representations and Definitions. Borrower and the Properties
are in compliance with all applicable present and future federal, state and
local laws, ordinances, rules, regulations, decisions and other requirements of
governmental authorities relating to hazardous materials, including, without
limitation, any substance now or in the future defined or listed in, or
otherwise classified pursuant to, or regulated by, any applicable laws or
regulations as a hazardous substance, hazardous material, hazardous waste,
infectious waste, toxic substance, toxic pollutant or any other term used to
define, list, classify or regulate substances by reason of deleterious
properties such as ignitability, corrosivity, reactivity, carcinogenicity,
toxicity or reproductive toxicity, including asbestos and polychlorinated
biphenyls ("Hazardous Materials"), including the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, the Superfund Amendment and
Reauthorization Act of 1980, the Resource Conservation and Recovery Act, the
Hazardous Materials Transportation Act, the Clean Water Act, the Clean Air Act,
the Toxic Substances Control Act, the Safe Drinking Water Act, and regulations
thereunder ("Hazardous Materials Laws").
(b) Covenants. Borrower shall: (i) keep and maintain the
Properties in compliance with, and shall not cause or permit the Properties to
be in violation of, any present or future Hazardous Materials Laws; (ii) not
engage in or permit the use, generation, manufacture, production, storage,
release, discharge, disposal or transportation on, under or about the Properties
of any Hazardous Materials; provided, however, that materials containing
Hazardous Materials which are normally, prudently and properly used in
connection with the development, construction or operation of a project of the
same type as the Properties may be stored and used on the Properties, in
reasonably necessary quantities, provided such use and storage is incident to
and reasonably necessary for normal, prudent and proper development,
construction or operation of the Properties, in all respects in strict
compliance with all present or future Hazardous Materials Laws, but in no event
shall asbestos or asbestos-containing material be incorporated into or placed
upon the Properties, nor shall polychlorinated biphenyls be brought onto the
Properties; (iii) in the event that any Hazardous Materials are found on, under
or about the Properties (except as provided in (ii) above), take all
-18-
19
necessary and appropriate actions, at its own expense, to cause them to be
cleaned up and immediately removed, all in compliance with all present or future
Hazardous Materials Laws and all other applicable laws.
(c) Notice. Borrower shall immediately advise Lender in writing
upon Borrower's receipt of all notices of (i) enforcement, clean up, removal,
mitigation or other governmental or regulatory acts instituted, contemplated or
threatened pursuant to any present or future Hazardous Materials Laws affecting
the Properties; (ii) claims made or threatened by any third party against
Borrower or the Properties relating to damage, contribution, cost recovery,
compensation, loss or injury resulting from any Hazardous Material or violation
of any present or future Hazardous Materials Laws; (iii) acts, events or
conditions on any real property adjoining or in the vicinity of the Properties
that could cause the Properties or any part thereof to be classified as
"border-zone property" under the provisions of California Health & Safety
Section 25220 et seq., or any regulation thereunder, or which may support a
similar claim or cause of action under any present or future Hazardous Materials
Laws; and (iv) occurrences or conditions on the Properties or any real property
adjoining or in the vicinity of the Properties which could subject Borrower or
the Properties to any restrictions on ownership, occupancy, transferability or
use of the Properties under any present or future Hazardous Materials Laws.
(d) Border Zone. There is no occurrence or condition on any
other real property that could cause the Properties or any part thereof to be
classified as "border-zone property" under California Health and Safety Code
Sections 25220 et seq., or any regulation related thereto, or to be otherwise
subject to any restriction on ownership, occupancy, transferability or use.
(e) Inquiry. Borrower has conducted an appropriate inquiry into
the present and prior condition, uses, and ownership of the Properties and has
disclosed in writing to Lender all violations of Hazardous Materials Laws
discovered as a result of such inquiry.
(f) Actions. Lender shall have the right but not the duty to
join and participate in, as a party if it so elects, any settlements, legal
proceedings or actions initiated in connection with any Hazardous Materials or
present or future Hazardous Materials Laws and to have its reasonable attorneys'
fees and expenses in connection therewith paid by Borrower.
(g) Testing. If Lender reasonably believes that Borrower may be
in violation of this Section, Lender has the right to enter the Properties and
conduct testing, at Borrower's cost and expense to satisfy itself that Borrower
is in full compliance with the Loan Instruments.
15. ADDITIONAL LOAN COVENANTS. If there are any additional loan
covenants (the "Additional Loan Covenants") listed in Paragraph 16 of the
Specific Loan Terms attached hereto, and in the event Borrower or Guarantor (if
applicable to Guarantor) breaches any of the Additional Loan Covenants, such
breach shall constitute an Event of Default under the provisions of Paragraph 11
above applicable to such breach and Lender shall be entitled to exercise all
rights and remedies under this Loan Agreement with respect to such Event of
Default.
16. LIMITATION ON INTEREST. All agreements between Borrower and Lender,
whether now existing or hereafter arising and whether written or oral, are
hereby limited so that in no contingency, whether by reason of acceleration of
the maturity of the Note or otherwise, shall the interest contracted for,
charged or received by Lender exceed the maximum amount permissible under
Applicable Law. If, from any circumstance whatsoever, interest would otherwise
be payable to Lender in excess of the maximum lawful amount, the interest
payable to Lender shall be reduced to the maximum amount permitted under
Applicable Law, and if from any circumstance Lender shall ever receive anything
of value deemed interest by Applicable Law in excess of the maximum lawful
amount, an amount equal to any excessive interest shall be applied to the
reduction of the principal of the Note and not to the payment of interest, or if
such excessive interest exceeds the unpaid balance of principal of the Note such
excess shall be refunded to Borrower. All interest paid or agreed to be paid to
the holder of the Note shall, to the extent permitted by Applicable Law, be
amortized, prorated, allocated, and spread throughout the full period from the
date of the Note until payment in full of the principal (including the period of
any renewal or extension thereof) so that the interest thereon for such full
period shall not exceed the maximum amount permitted by Applicable Law. This
Paragraph shall control all agreements between Borrower and Lender.
-19-
20
17. CHOICE OF LAW. EXCEPT WHERE FEDERAL LAW IS APPLICABLE (INCLUDING,
WITHOUT LIMITATION, ANY FEDERAL USURY CEILING OR OTHER FEDERAL LAW WHICH, FROM
TIME TO TIME, IS APPLICABLE TO THE INDEBTEDNESS HEREIN AND WHICH PREEMPTS STATE
USURY LAWS), THIS LOAN AGREEMENT, THE NOTE, THE MORTGAGES AND THE OTHER LOAN
INSTRUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF CALIFORNIA.
18. NOTICES. All notices, demands, requests, and other communications
required or permitted hereunder shall be in writing and shall be deemed
effective (a) upon actual delivery if delivered by personal delivery or
certified postage prepaid mail; or (b) on the next business day after timely and
proper deposit with an overnight air courier with request for next business day
delivery; or (c) within two (2) business days after deposit with the U.S. Postal
Services by registered or certified mail; or (d) by confirmed facsimile telecopy
transmission, in each such case, addressed to Borrower or Lender, as the case
may be, at the respective addresses set forth on the first page of this Loan
Agreement, or such other address or facsimile telecopier number as Borrower or
Lender may from time to time designate by written notice to the other as herein
required.
19. FEES AND EXPENSES. Borrower agrees to pay when due (a) a
non-refundable Loan Facility Fee to Lender of TWO HUNDRED SEVENTY-FIVE THOUSAND
DOLLARS ($275,000.00) each calendar year during the term (or extended term if
permitted by Lender) of the Loan, payable at Recordation of the first Mortgage
and annually thereafter on the anniversary thereof, (b) fees of Lender's
Inspector, (c) cost review expenses of Lender of up to FIVE THOUSAND DOLLARS
($5,000.00) for each requested update and/or change to the Construction Cost
Breakdowns, (d) the reasonable attorneys' fees and expenses of Lender's counsel,
(e) actual title insurance and examination charges, (f) actual survey costs, (g)
actual hazard insurance premiums, (h) actual filing and recording fees, and (i)
other reasonable expenses payable to third parties incurred by Lender in
connection with the consummation of the transactions contemplated by this Loan
Agreement, the exercise of Lender's rights under this Loan Agreement and the
other Loan Instruments, and the verification of the performance and satisfaction
of all obligations of Borrower, General Partner, Managing Member (and any
constituent entities or individuals thereof)and Guarantor under this Loan
Agreement and the other Loan Instruments, including all renewals, extensions and
modifications thereof. In the event it becomes necessary for Lender to utilize
legal counsel for the enforcement of the Loan Instruments or any of their terms,
if successful in such enforcement by legal proceedings or otherwise, Lender
shall be reimbursed immediately by Borrower for reasonably incurred attorneys'
fees (including fees for Lender's in-house attorneys) and other costs and
expenses. Borrower shall also immediately reimburse Lender for all attorneys'
fees and costs reasonably incurred in connection with the representation of
Lender in any bankruptcy, insolvency, reorganization or other debtor-relief or
similar proceeding of or relating to Borrower, any General Partner, Managing
Member or Guarantor(s), the Property, or any other property which secures the
obligations of any of the Loan Instruments. All amounts due under this Section
shall bear interest from the date of expenditure until paid at the rate
specified in the Note and are collectively referred to as "Lender Costs". All
facility fees payable to Lender hereunder shall be deemed earned when due and
are non-refundable to Borrower. All such fees shall be retained by Lender and
shall not be applied to any payments of principal or interest due from Borrower
under the Loan Instruments.
20. PARTIAL RELEASES. Borrower shall have the right to obtain partial
releases of the Property subject to the following terms and conditions:
(a) There shall not be a Default or Event of Default hereunder or
under any other of the Loan Instruments;
(b) Borrower shall submit to Lender a request for partial release
of a Property (the "Partial Release") in form and substance satisfactory
to Lender together with a lot and block description of the Residence to
be released. In addition, the Partial Release should be accompanied with
information necessary for Lender to process the Partial Release,
including the name and address of the title insurance company, if any,
to whose attention the Partial Release should be directed, numbers that
reference the Partial Release (i.e., order numbers, release numbers,
assessor's parcel numbers, etc.) and the date when the Partial Release
is to become effective;
-20-
21
(c) If required by Lender, all accrued and unpaid interest on the
principal amount of the Loan being prepaid shall be paid at the time
such Partial Release is requested; provided that any payment in
immediately available funds, received by Lender after one-thirty
o'clock, p.m. (1:30 p.m.), Dallas, Texas time, will be deemed to have
been made on the next following business day;
(d) Payment to Lender of an amount in cash equal to the Release
Price as provided, and as such term is defined in Paragraph 18 of the
Specific Loan Terms attached hereto; and
(e) Payment to Lender of all reasonable costs and expenses
arising in connection with any Partial Release.
Notwithstanding any provision herein to the contrary, at such time as
Lender provides to the title company (which is closing the sale of a Property) a
"payoff" quote for a Property being released from a Mortgage, in accordance with
this Paragraph 20, Borrower shall not be entitled to any further Disbursements
under the Loan with respect to such Property. Notwithstanding any provision
herein to the contrary, Lots Being Actively Developed cannot be released from a
particular Subdivision until all work is completed to finish the Lot.
21. GENERAL PROVISIONS.
(a) Waiver. No delay or omission of Lender in exercising any
right or power arising from any Default or Event of Default by Borrower shall be
construed as a waiver of such Default or as an acquiescence therein, nor shall
any single or partial exercise of any such right or power preclude any further
exercise thereof. Lender may, at its option, waive or postpone satisfaction of
any condition herein, all of which are for its benefit, and any such waiver or
postponement shall not be deemed to have occurred unless set forth in writing,
signed by Lender and delivered to Borrower, and any such written waiver shall be
operative only for the time and to the extent expressly stated therein.
(b) No Assignment. Borrower may not assign or otherwise transfer
this Loan Agreement or any right hereunder, and this Loan Agreement shall be
binding upon Borrower and the representatives and successors of Borrower. In the
event of the termination or dissolution of Borrower prior to the completion of
the Residences or prior to the use, release or disbursement of all proceeds of
the Loan and any Borrower's Deposit, this Loan Agreement shall not, at the
option of Lender, be terminated or affected by such dissolution or termination.
Except as provided in the foregoing sentences, this Loan Agreement is made for
the sole benefit of Borrower and Lender, their successors and assigns, and no
other person or persons shall have any rights or remedies under or by reason of
this Loan Agreement. Lender shall not owe any duty whatsoever to any claimant
(i) for labor performed or material furnished in connection with the
construction of the improvements, (ii) to advance any portion of the Loan to pay
any such claim, or (iii) to exercise any right or power of Lender hereunder or
arising from any Default.
(c) Payments. Borrower agrees to make each payment which it owes
under the Loan Instruments not later than one-thirty (1:30 p.m.) o'clock, p.m.,
Dallas, Texas time, or such other time as is specifically provided herein, on
the date such payment becomes due and payable (or the date any voluntary
prepayment is made), in immediately available funds. Any payment received by
Lender after such time will be deemed to have been made on the next following
business day.
(d) Writing Necessary. No approval, acceptance or consent of
Lender required by any provision of the Loan Instruments, nor any waiver of any
required approval, acceptance, consent or condition, shall be deemed to have
occurred until set forth in writing, signed by Lender, and delivered to
Borrower.
(e) Time Is of the Essence. Time is of the essence of the Loan
Instruments and of every part hereof, and Borrower therefore acknowledges that
Lender has no obligation to grant any extension of any provision thereof, and
any extension which Lender may elect to grant may be conditioned upon such terms
and conditions as Lender may impose in its sole discretion.
(f) Joint and Several Obligation. If more than one person has
executed this Loan Agreement as Borrower, the obligations of all such persons
shall be joint and several. Any married person who executes this Loan Agreement
agrees that recourse may be had against his or her separate
-21-
22
property. If Borrower is a partnership, the obligations of Borrower shall be the
joint and several obligations of all general partners therein. If Borrower is a
limited liability company, the obligations of Borrower hereunder shall bind all
members of Borrower to the extent of their interests therein.
(g) Government Regulation. If payment of the Loan is to be
insured or guaranteed by any governmental agency, Borrower shall comply with all
rules, regulations, requirements and statutes relating thereto or provided in
any commitment issued by any such agency to insure or guarantee such payment.
(h) Headings. The Paragraph headings hereof and in the Exhibits
hereto are inserted for convenience of reference only and shall not alter,
define, or be used in construing the text of such Paragraphs or limit the scope
of provisions of this Loan Agreement.
(i) Survival. All provisions of the Loan Instruments shall
survive each Recordation of a Mortgage and all Disbursements of the Loan.
(j) Severability. In the event of any invalidity or
unenforceability of any Loan Instrument or any provision of any Loan
Instruments, the remainder of the Loan Instruments shall remain in full force
and effect.
(k) Disclosure. Lender may disclose terms of the Loan and
payment information (i) whenever a request for a credit rating is received; (ii)
pursuant to a court or regulatory order; (iii) pursuant to regulatory reporting
requirements; or (iv) to facilitate a sale by Lender of all or any part of the
Loan.
(l) Interpretation: Include, Day, Person. Each of the Loan
Instruments shall be construed without regard to whether it was prepared or
drafted by one party or other or either of their attorneys. As used herein: (i)
the terms "include," "including" and forms thereof are not exclusive; (ii) the
term "day" means calendar day, except when used in the defined term "Business
Day" which shall mean any day on which Lender is open for business at its
Dallas, Texas main office; and (iii) the term "person" means any individual,
corporation, partnership, Governmental Authority, or other entity of any kind.
(m) Exhibits. All Exhibits referred to herein are incorporated
herein by this reference and are a part hereof.
(n) Waiver of Judicial Procedural Matters. Borrower hereby
expressly and unconditionally waives, in connection with any suit, action or
proceeding brought by Lender in connection with any of the Loan Instruments, any
and every right it may have to (i) injunctive relief; (ii) a trial by jury;
(iii) interpose any counterclaim therein; and (iv) have the same consolidated
with any other or separate suit, action or proceeding, with respect to any
matter arising out of the Loan Instruments.
(o) Counterparts. This Loan Agreement may be executed in one or
more counterparts, all of which, taken together, shall constitute one and the
same agreement.
(p) Use of Certain Terms. As used in this Loan Agreement, the
term "General Partner" shall apply only if Borrower's form of legal existence is
that of a partnership and the term "Managing Member" shall apply only if
Borrower's form of legal existence is that of a limited liability company.
22. FINAL AGREEMENT. THIS LOAN AGREEMENT AND THE OTHER LOAN INSTRUMENTS
REPRESENT THE FINAL LOAN AGREEMENT BETWEEN LENDER AND BORROWER CONCERNING THE
LOAN, AND THE LOAN INSTRUMENTS MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF LENDER AND BORROWER OR ANY
AGENT, BROKER, EMPLOYEE OR REPRESENTATIVE OF EITHER OF THEM. THERE ARE NO ORAL
AGREEMENTS BETWEEN LENDER AND BORROWER.
-22-
23
IN WITNESS WHEREOF, this Loan Agreement has been executed by the
undersigned as of the date first set forth above.
BORROWER: LENDER:
WILLIAM LYON HOMES, INC., GUARANTY FEDERAL BANK, F.S.B., a federal
a California corporation savings bank organized and existing under the
laws of the United States
By: /s/ MICHAEL D. GRUBBS By: /s/ JON M. LARSON
-------------------------- ----------------------
Name: Michael D. Grubbs, SVP Name: Jon M. Larson
Title: Chief Financial Officer Title: Vice President
By: /s/ RICHARD S. ROBINSON
--------------------------
Name: Richard S. Robinson
Title: Senior Vice President
-23-
24
EXHIBITS
TO LOAN AGREEMENT
- --------------------------------------------------------------------------------
EXHIBIT "A" SPECIFIC LOAN TERMS, CONDITIONS AND DEFINITIONS
EXHIBIT "B" STAGE DRAW BREAKDOWN
EXHIBIT "C" APPLICATION FOR DISBURSEMENT
EXHIBIT "D" RESIDENTIAL DRAW REQUEST
EXHIBIT "E" CONSTRUCTION COST BREAKDOWN
-24-