BORROWING BASE REVOLVING LINE OF CREDIT AGREEMENT

EXHIBIT 10.50

BORROWING BASE REVOLVING LINE

OF CREDIT AGREEMENT

by and among

WILLIAM LYON HOMES, INC.,

a California corporation

(together with any additional borrower which may be added as a co-borrower

pursuant to this Agreement, “ Borrower ”)

and

WACHOVIA FINANCIAL SERVICES, INC., a North Carolina corporation,

by and through its Agent, WACHOVIA BANK, NATIONAL ASSOCIATION, a national banking association

(collectively referred to as “ Lender ”)

Dated: February 14, 2006

TABLE OF CONTENTS

 

 

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BORROWING BASE REVOLVING LINE

OF CREDIT AGREEMENT

This BORROWING BASE REVOLVING LINE OF CREDIT AGREEMENT is dated as of February 14, 2006 (together with any amendments or modifications hereto in effect from time to time, the “ Agreement ”), between WILLIAM LYON HOMES, INC., a California corporation (together with any additional borrower which may be added as a co-borrower pursuant to this Agreement, the “ Borrower ”) and WACHOVIA FINANCIAL SERVICES, INC., a North Carolina corporation, by and through its Agent, WACHOVIA BANK, NATIONAL ASSOCIATION, a national banking association (collectively referred to as “ Lender ”).

RECITALS:

WHEREAS, Borrower is engaged in the business of developing residential subdivisions and constructing and selling residential units in such subdivisions;

WHEREAS, Borrower has requested that Lender establish a borrowing base line of credit for Borrower pursuant to which Borrower may finance the development of subdivisions and construction of units therein by Borrower;

WHEREAS, Lender is willing to provide such a borrowing base line of credit upon the terms and conditions hereinafter set forth; and

THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

AGREEMENT:

ARTICLE 1

DEFINITIONS

1.1 Definitions . In this Agreement, the following capitalized terms have the following meanings:

“ A&D Completed Lot ” means an A&D Lot for which the A&D Lot Improvements have achieved a 90% A&D Lot Development Completion Percentage and is otherwise eligible for transfer to Unit construction pursuant to Section 3.4 .

“ A&D Lot ” means a lot shown on an approved, vesting preliminary subdivision plat or tentative map for Entitled Land, which Entitled Land constitutes an Approved Subdivision which is not included in Eligible Collateral as Pre-Development Land or Units and with respect to which Borrower has satisfied the conditions precedent set forth in Section 4.2 .

“ A&D Lot Development Budget ” means the budget for the construction of A&D Lot Improvements in connection with A&D Lots in an Approved Subdivision approved by Lender, as amended and modified from time to time, with any aggregate change in the total A&D Lot Development Budget for A&D Lots in an Approved Subdivision in excess of 5% of the total A&D Lot Development Budget for such A&D Lots to require advance approval of Lender.

“ A&D Lot Development Completion Percentage ” means the current percentage of completion of A&D Lot Improvements in the applicable Approved Subdivision as determined by Lender based on its review of the current Collateral Certificate and inspections of the Collateral made pursuant to this Agreement.

“ A&D Lot Development Plans and Specifications ” means the plans and specifications for the development of A&D Lot Improvements in an Approved Subdivision that have been prepared by an engineer, together with any amendments or modifications to those plans and specifications, all as approved by the Lender.

“ A&D Lot Eligibility Date ” means the date an A&D Lot is first included as such in a Borrowing Base Report.

“ A&D Lot Improvement Construction Costs ” means the aggregate “hard” and “soft” costs to plan, design, and construct the applicable A&D Lot Improvements as set forth in the applicable A&D Lot Development Budget (including, without limitation, fees payable to Governmental Authorities); provided, however, that the A&D Lot Improvement Construction Costs shall not exceed the amount of such costs actually incurred by Borrower to plan, design, and construct such A&D Lot Improvements.

“ A&D Lot Improvements ” means improvements which may exist or which are to be constructed (including, without limitation, curbs, grading, landscaping, sprinklers, storm and sanitary sewers, paving, sidewalks, and utilities) necessary to make an Approved Subdivision suitable for the construction of single family homes (including attached and detached Units) and any common area improvements which may exist or which are to be constructed, together with the associated fixtures and other tangible personal property located or used in or on land on which such improvements are constructed.

“ Acquisition ” shall mean any transaction, or any series of related transactions, consummated on or after the date of this Agreement, by which any Borrower (a) acquires any going business or all or substantially all of the assets of any firm, corporation or limited liability company, or division thereof, whether through purchase of assets, merger or otherwise or (b) directly or indirectly acquires (in one transaction or as the most recent transaction in a series of transactions) at least a majority (in number of votes) of the securities of a corporation which have ordinary voting power for the election of directors (other than securities having such power only by reason of the happening of a contingency) or a majority (by percentage or voting power) of the outstanding ownership interests of a partnership or limited liability company.

“ Acquisition Cost ” means, with respect to any Subdivision (including any Land contained therein), the actual net purchase price paid by any Borrower to acquire such Subdivision, after deducting any write-downs in the acquisition cost of such Subdivision in accordance with GAAP and without including any step-ups in the value of such Subdivision, whether or not permitted under GAAP.

“ Advance ” means an advance of Loan proceeds by Lender to Borrower hereunder.

 

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Advance Request ” means as defined in Section 2.2 .

“ Affiliate ” of any Person means any other Person directly or indirectly controlling, controlled by or under common control with such Person. A Person shall be deemed to control another Person if the controlling Person owns 10% or more of any class of voting securities (or other ownership interests) of the controlled Person or possesses, directly or indirectly, the power to direct or cause the direction of the management or policies of the controlled Person, whether through ownership of stock, by contract or otherwise.

“ Agreement ” means this Borrowing Base Revolving Line of Credit Agreement, as it may be amended, modified, extended, renewed, restated, or supplemented from time to time.

“ Appraisal ” means an appraisal with respect to any of the Approved Subdivisions, Lots and/or Units thereon (i) ordered by Lender, (ii) prepared by an appraiser satisfactory to Lender, (iii) in compliance with all federal and state standards for appraisals and all MAI and FIRREA requirements, (iv) reviewed by Lender, and (v) in form and substance satisfactory to Lender in its sole discretion.

“ Appraised Absorption ” means, with respect to Units in each Approved Subdivision, the number of such Units estimated to be sold and released (in accordance with Section 2.7(a) ) in calendar quarter, as determined by Lender at the time of Lender’s approval of such Approved Subdivision on the basis of the applicable Appraisal and thereafter each calendar quarter on a trailing basis.

“ Appraised Value ” means the market value “as if completed” of any Approved Subdivision, including without limitation any Entitled Land, Lot or Unit (excluding therefrom the value of any Land and Improvements that have been sold and transferred) as determined pursuant to this Agreement based on Appraisals or updated Appraisals, less , to the extent not otherwise included as a deduction in the determination of Appraised Value pursuant to the Appraisal or Updated Appraisal, (a) the aggregate unpaid amount of all Liens and Encumbrances adversely affecting the value such Approved Subdivision, Lot and Unit which are senior to the lien of the Deed of Trust, including without limitation, arising in connection with any improvement districts, “Mello-Roos” districts, community facilities districts, and similar assessment districts or bonds issued in connection therewith and (b) the reasonable and customary costs of sale related to the sale of each Approved Subdivision, Lot and Unit.

“ Approvals and Permits ” means each and all approvals, authorizations, bonds, consents, certificates, franchises, licenses, permits, registrations, qualifications, entitlements and other actions and rights granted by or filings with any Person necessary or appropriate for acquisition, entitlement, development and completion of the Lots and Improvements with respect to the Approved Subdivisions (and the Land contained therein), the infrastructure within such Approved Subdivision, and any common area improvements which may exist or which are to be constructed), for construction of Units and A&D Lot Improvements for the sale of Units and Lots for occupancy, and the ownership and use by Borrower and other Persons of Units and Lots or otherwise for the conduct of, or in connection with the business and operations of Borrower (including without limitation, satisfaction of Borrower’s obligations with respect to Purchase Agreements).

 

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“ Approved Subdivision ” means any Subdivision (and each of the Lots and Units contained therein) approved by Lender as of the Closing Date, and such other Subdivisions which may be approved by Lender from time to time after the Closing Date pursuant to Article 4 .

“ Approved Subdivision Closing Date ” means that date upon which a Subdivision is approved by Lender as an Approved Subdivision pursuant to this Agreement, with such date being evidenced by the effective date of the Subdivision Loan Addendum between Borrower and Lender.

“ Article ” means an article of this Agreement unless another document is specifically referenced.

“ Assignments ” means those certain Loan Documents executed by any Person in favor of Lender, whereby such Person has assigned all of its right, title and interest in certain property as additional security with respect to the Loan, including without limitation, the Assignments of Plans and Specifications, Contracts and Permits and any development agreement assignments with respect to any Approved Subdivision, as may be requested by Lender from time to time.

“ Attached A&D Lots ” means A&D Lots on which Attached Units are or are to be constructed.

“ Attached Units ” means four (4) or more Units per building attached to each through common walls and which do not exceed two stories in height and are not otherwise High Density Units.

“ Authorized Representative ” means the authorized agent or designated Person of each Borrower certified by Borrower to Lender for the purpose of making certifications, including Advance Requests, required by this Agreement.

“ Available Liquidity ” means, with respect to any Person, that amount which is equal to the sum of (i) aggregate unpledged, unreserved and unrestricted cash; (ii) unpledged, unreserved and unrestricted Cash Equivalent Investments, and (iii) Undrawn Availability.

“ Available Loan Commitment ” means, at any time with respect to the Loan and the amount of Commitment available to Borrower, the result of subtracting the aggregate amount then outstanding under the Loan from the lesser of: (a) the Commitment Amount; or (b) the result of multiplying the aggregate Collateral Value of all Eligible Collateral in the Borrowing Base (as such Collateral Value may be adjusted from time to time pursuant to Article 3 ) by the applicable Maximum Allowed Advance Rate with respect to such Eligible Collateral.

“ Borrower ” means as defined in the in the opening paragraph of this Agreement.

“ Borrower Equity ” means, as determined by Lender from time to time and at any time, that amount contributed by Borrower as capital with respect to any Approved Subdivision.

“ Borrowing Base ” consists of the Eligible Collateral as reflected in the most current Borrowing Base Report.

 

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“ Borrowing Base Report ” means a report prepared by Borrower and approved by Lender as provided in this Agreement setting forth the Eligible Collateral then constituting the Borrowing Base, the Collateral Value of the Borrowing Base, and certain other information, in the format prescribed by Lender from time to time.

“ Budget ” means, the A&D Lot Development Budget and the Unit Budgets, with respect to each Approved Subdivision, as approved by Lender and as may be amended and modified from time to time pursuant to the terms of this Agreement.

“ Business Day ” means, a day (other than a Saturday or Sunday) on which (a) Lender is generally open in North Carolina for the conduct of substantially all of its commercial lending activities and (b) with respect to the determination by Lender of the Interest Rate based on the LIBOR Rate, dealings in United States dollars are carried on in the London interbank market.

“ CC&Rs ” means and includes restrictive covenants, conditions, restrictions, easements, and other rights that exist or are contemplated with respect to an Approved Subdivision.

“ Calendar Month ” means any of the twelve (12) calendar months of the year.

“ Cash Equivalent Investments ” means (a) short-term obligations of, or fully guaranteed by, the United States of America, (b) commercial paper rated A-1 or better by S&P or P-1 or better by Moody’s, (c) demand deposit accounts maintained in the ordinary course of business, and (d) certificates of deposit issued by and time deposits with commercial banks (whether domestic or foreign) having capital and surplus in excess of $100,000,000; provided , in each case, that the same provides for payment of both principal and interest (and not principal alone or interest alone) and is not subject to any contingency regarding the payment of principal or interest.

“ Certification of Non-Foreign Status ” means an affidavit, signed under penalty of perjury by an Authorized Representative, stating (a) that Borrower is not a “foreign corporation,” “foreign partnership,” “foreign trust,” or “foreign estate,” as those terms are defined in the Code and the regulations promulgated thereunder, (b) Borrower’s U.S. employer identification number, and (c) the address of Borrower’s principal place of business. Such affidavit shall be consistent with the requirements of the regulations promulgated under Section 1445 of the Code, and shall otherwise be in form and substance acceptable to the Lender.

“ Closing Date ” means the earlier of the date of the disbursement of the first Advance or the recordation of the first Deed of Trust following satisfaction of the requirements in Section 4.2 , as determined by the Lender.

“ Code ” means the United States Internal Revenue Code of 1986, as amended from time to time.

“ Collateral ” means all real and personal property with respect to each Approved Subdivision, as such real and personal property is described in each of the Deeds of Trust.

 

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“ Collateral Certificate ” means the certificate of Borrower, in form and substance satisfactory to Lender and containing such certifications as Lender may require, setting forth the information required by Section 3.11(b) .

“ Collateral Value ” means, at the time the Collateral Value of the Borrowing Base is determined, the aggregate total of the Unit Collateral Values for all Units, the Lot Collateral Values for all Lots and Pre-Development Land Collateral Values for all Pre-Development Land.

“ Commitment Amount ” means FIFTY MILLION AND NO/100THS DOLLARS ($50,000,000.00) subject to such increases or decreases thereof pursuant to Section 2.1(d) ; provided, however, upon the occurrence of a Term Out Date pursuant to Section 2.1(h) , the Commitment Amount shall be deemed to be that amount which is equal to the aggregate amount of Outstanding Loan Borrowings as of such Term Out Date.

“ Compliance Certificate ” shall have the meaning set forth in Section 6.4(g) .

“ Contingent Obligation ” of a Person means any agreement, undertaking, arrangement or obligation, other than those expressly excluded from the definition of “Indebtedness”, by which such Person: (a) assumes, guarantees, endorses, contingently agrees to purchase or provide funds for the payment of, or otherwise becomes or is contingently liable upon, or effectively guarantees, any obligation or liability of any other Person, in any manner, whether directly or indirectly; or (b) agrees to maintain the net worth, working capital or other financial condition of any other Person, or otherwise assures any creditor of such other Person against loss; including, in either case (a) or (b) above, (i) any comfort letter, operating agreement, take-or-pay contract, agreement to indemnify or hold harmless, performance bond or other suretyship arrangement or any other form of assurance against loss (except for the endorsement of negotiable or other instruments for deposit or collection in the ordinary course of business) or (ii) the obligations of any such Person as the general partner of a partnership with respect to the liabilities of the partnership.

“ Controlled Group ” means all members of a controlled group of corporations or other business entities and all trades or businesses (whether or not incorporated) under common control which, together with Borrower, are treated as a single employer under Section 414 of the Code.

“ Controlling Interest ” means, with respect to any Person (other than an individual), (a) an Ownership Interest totaling in excess of fifty percent (50%) of the voting and ownership interests of such Person, and (b) control of the management and day-to-day operations of such Person .

“ Deed of Trust ” means as appropriate, one or more construction deeds of trust and fixture filing, with assignment of rents and security agreement executed by Borrower, as trustor, to a trustee selected by Lender (which trustee may be the applicable Title Company with respect to the applicable Approved Subdivision), for the benefit of the Lender, as beneficiary, creating a first lien on the Approved Subdivisions and all other Improvements now or hereafter owned or acquired by Borrower and situated thereon, and all rights and easements appurtenant thereto, securing the Obligations, as such deed of trust may currently exist and as may be amended, modified, supplemented, renewed or restated from time to time.

 

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“ Default Rate ” shall mean from and after the Maturity Date or at any time during the occurrence of an Event of Default, irrespective of any declaration of acceleration or maturity, all amounts remaining unpaid or thereafter accruing, shall, at Lender’s option, bear interest at a default rate equal to the sum of five percent (5%) per annum plus the Prime Based Rate (as defined under the definition of Interest Rate).

“ Detached Lots ” means Lots on which Detached Units are or are to be constructed.

“ Detached Units ” means Units consisting of four or less single-family dwellings on a Lot.

“ Distributions ” means any of the following:

(a) Any dividend, distribution or advance paid or declared by any Borrower to its respective members in respect of any Ownership Interest therein;

(b) Any purchase, redemption, retirement or other acquisition by any Borrower for value, of any of the respective Ownership Interests therein now or hereafter outstanding, or any interest therein;

(c) Any return of any capital of any Borrower to its respective members; and

(d) Any other distribution of the assets, properties, cash, rights, obligations or securities of any Borrower to its respective members.

“ Dollar ,” “ U.S. Dollar ” and the symbol $ means lawful money of the United States of America.

“ EBITDA ” means, with respect to any Person, such Person’s Net Income plus , to the extent deducted from revenues in determining Net Income, (i) Interest Expenses, (ii) expenses for taxes paid or accrued, (iii) depreciation, (iv) amortization and (v) extraordinary losses incurred other than in the ordinary course of business, minus , to the extent included in Net Income, extraordinary gains realized other than in the ordinary course of business, all as determined in accordance with GAAP.

“ Effective Date ” means the date set forth in the opening paragraph of this Agreement.

“ Eligible Collateral ” means any Pre-Development Land, A&D Lots, and any Units in each of the Approved Subdivisions that meet the requirements of this Agreement for inclusion as Eligible Collateral in the Borrowing Base and that are included in the current Borrowing Base Report.

“ Entitled Land ” means Lots and other real property with respect to which the following is correct: (a) such Lots are in a zoning classification that is consistent with Borrower’s actual and proposed use of such real property; and (b) (i) a preliminary subdivision plat or tentative map has been completed and has been approved by all applicable Governmental Authorities and is not subject to further discretionary approvals or conditions and, as applicable, (ii) final discretionary approval has been obtained, such as site plan, conditional use permit, site development permit, or other similar discretionary permit required by the local jurisdiction prior to issuance of building

 

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permits; and (iii) the project has obtained the appropriate permits or authorizations required pursuant to the Federal Clean Water Act, the Federal Endangered Species Act, and any equivalent State Law permit or authorization.

“ Environmental Agreement ” means, individually and collectively, each environmental indemnity agreement executed by Borrower for the benefit of Lender with respect to each Approved Subdivision, as such agreements may be amended, modified, extended, renewed, restated, or supplemented from time to time.

“ Environmental Laws ” means any and all federal, state, local and foreign statutes, laws, judicial decisions, regulations, ordinances, rules, judgments, orders, decrees, plans, injunctions, permits, concessions, grants, franchises, licenses, agreements and other governmental restrictions relating to (i) the protection of the environment, (ii) the effect of the environment on human health, (iii) emissions, discharges or releases of pollutants, contaminants, hazardous substances or wastes into surface water, ground water or land, or (iv) the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, hazardous substances or wastes or the clean-up or other remediation thereof.

“ ERISA ” means the Employee Retirement Income Security Act of 1974 and the regulations and published interpretations thereunder, as in effect from time to time.

“ Event of Default ” means as defined in Section 9.1 .

“ Exhibit ” refers to an exhibit to this Agreement, unless another document is specifically referenced.

“ Facility Anniversary Date ” means each annual anniversary of the Effective Date beginning February 14, 2006.

“ Facility Increase ” means as defined in Section 2.1(d)(i) .

“ Facility LC ” is defined in Section 2.10(a) .

“ Facility LC Application ” is defined in Section 2.10(b) .

“ Facility LC Collateral Account ” is defined in Section 2.10(i) .

“ Facility LC Sublimit ” means the amount of Fifteen Million Dollars ($15,000,000).

“ Financial Covenants ” means the covenants set forth in Article 7 .

“ Financing Statements ” means such UCC financing statements perfecting Lender’s security interest in the Collateral now owned or hereafter acquired by any Borrower.

“ Fund ” means any Person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business.

 

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“ GAAP ” means generally accepted accounting principles consistently applied.

“ Governmental Authority ” or “ Governmental Authorities ” means any and all governments or courts and/or any and all agencies, authorities, bodies, bureaus, departments, or instrumentalities of any government having jurisdiction over the Collateral, any Subdivision, any agreement with respect thereto, any Borrower.

“ Guarantor ” means WLH, or any other Person who may execute a Guaranty as a condition precedent to the effectiveness of this Agreement or in connection with the addition of a New Borrower as an additional Borrower under this Agreement.

“ Guarantor Senior Credit Facility ” means any loan agreement, note, indenture, credit agreement or similar agreement or agreements evidencing a loan or loans to Guarantor, as borrower, pursuant to which Guarantor has granted to such lender or lenders a lien against any assets of Guarantor.

“ Guaranty ” means any guaranty, including without limitation, any payment or completion guaranty, executed by any Guarantor in favor of Lender as of the effective date of this Agreement and as a condition precedent thereto, or executed by a Guarantor in connection with the addition of a New Borrower as an additional Borrower under this Agreement, as such guaranty or guaranties may be amended, modified, restated, renewed and supplemented from time to time.

“ Hard Costs ” means all costs incurred for labor performed in the construction of the Improvements and for the materials incorporated into the Improvements.

“ High Density Lots ” means Lots on which High Density Units are to be constructed.

“ High Density Units ” means Attached Units of at least three (3), but not greater than five (5) stories, constructed or to be constructed with wood framing and which include podium parking.

“ High-End Lot ” means a Lot offered or to be offered for sale by Borrower to the general public for a price equal to at least $600,000, but not greater than $1,500,000.

“ High-End Unit ” means a Detached Unit offered or to be offered for sale by Borrower to the general public for a price equal to at least $1,200,000, but not greater than $2,500.000.

“ Impositions ” means any and all of the following:

(a) Real property taxes and assessments (general and special) assessed against or imposed upon or in respect of any of the Collateral or the Obligations;

(b) Personal property taxes assessed against or imposed upon or in respect of any of the Collateral or the Obligations;

(c) Other taxes and assessments of any kind or nature that are assessed or imposed upon or in respect of the Collateral or the Obligations or that may result in a

 

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Lien or Encumbrance upon any of the Collateral (including, without limitation, non-governmental assessments, levies, maintenance and other charges whether resulting from covenants, conditions, and restrictions or otherwise, water and sewer rents and charges, assessments on any water stock, utility charges and assessments, and owner association dues, fees, and levies);

(d) Taxes or assessments on any of the Collateral in lieu of or in addition to any of the foregoing;

(e) Taxes on income, revenues, rents, issues, and profits, and franchise taxes;

(f) Costs, expenses, and fees arising from or related to any of the Approvals and Permits or the Requirements; and

(g) Assessment, documentary, indebtedness, license, stamp, and revenue charges, fees, and taxes and any other fees or taxes imposed on Lender and measured by or based in whole or in part upon ownership of any Deed of Trust, interest in Collateral, or any promissory note, guaranty, or indebtedness secured by any Deed of Trust or upon the nature or amount of the Obligations, excluding, however, from all of the foregoing any estate, excess profits, franchise, income, inheritance, or similar tax levied on Lender.

“ Improvements ” means the improvements to be constructed with respect to each Approved Subdivision, including without limitation, infrastructure construction and grading necessary to improve each Lot in the Approved Subdivision to A&D Completed Lot condition and any Units thereon.

“ Indebtedness ” means, without duplication, (i) principal and interest and all other sums payable under the Note and all other indebtedness of any Borrower to Lender arising under or in connection with the Note, this Agreement and other Loan Documents, and (ii) as to any Person at any time, any and all indebtedness, obligations or liabilities (whether matured or unmatured, liquidated or unliquidated, direct or indirect, absolute or contingent, or joint or several) of such Person for or in respect of: (a) borrowed money; (b) amounts raised under or liabilities in respect of any note purchase or acceptance credit facility; (c) reimbursement obligations under any letter of credit, Rate Management Obligations, currency swap agreement, interest rate swap, cap, collar or floor agreement or other interest rate management device; (d) any other transaction (including forward sale or purchase agreements, capitalized leases and conditional sales agreements) having the commercial effect of a borrowing of money entered into by such Person to finance its operations or capital requirements (but not including trade payables and accrued expenses incurred in the ordinary course of business which are not represented by a promissory note or other evidence of indebtedness and which are not more than thirty (30) days past due); (e) any other obligation which in accordance with GAAP would be shown as a liability on the consolidated balance sheet of such Person; (f) all Contingent Obligations; (g) all liabilities and obligations in connection with any Rate Management Transaction; and (h) all liabilities and obligations in connection with sale and leaseback transactions, synthetic leases and other forms of “off-balance sheet” financing; provided , however , in determining Borrower or Guarantor’s compliance with the financing covenants set forth in Article 7 , Indebtedness will not include liabilities with respect to surety bonds, completion or performance bonds and other similar Contingent Obligations to the extent such Contingent Obligations are not accruable as liabilities on the balance sheet of either Borrower pursuant to GAAP.

 

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“ Intangible Assets ” means, with respect to any Person, all intangible assets of such Person under GAAP, determined on a consolidated basis, including, without limitation, copyrights, franchises, goodwill, licenses, non-competition covenants, organization or formation expenses, patents, service marks, service names, trademarks, trade names, write-up in the book value of any asset in excess of the acquisition cost of the asset, any amount, however designated on the balance sheet, representing the excess of the purchase price paid for assets or stock acquired over the value assigned thereto on the books of such Person, loans and advances to partners and officers, employees, or directors of such Person (or members of their immediate families), unamortized leasehold improvement expense not recoverable at the end of the lease term, unamortized debt discount, and deferred discount.

“ Interest Expense ” means, for any period, the sum of all interest expensed by a Person on a consolidated basis during such period, including amounts previously capitalized and amortized through costs of sale for the current period, all as determined in accordance with GAAP.

“ Interest Incurred ” means, for any period, interest incurred by a Person on a consolidated basis during such period, including without limitation, capitalized interest, all as determined in accordance with GAAP.

“ Interest Period ” means (a) for the initial Interest Period, that period of time commencing on the Closing Date and ending on (and including) the last day of the calendar month in which the Closing Date occurred and (b) for each Interest Period thereafter (commencing on the first (1st) day of the first full calendar month after the Closing Date), that period of time commencing on the first (1st) calendar day of each calendar month and ending on (and including) the last day of each such calendar month; provided that (y) whenever the last day of an Interest Period would otherwise occur on a day other than a Business Day, the last day of the Interest Period shall be extended to occur on the next succeeding Business Day, provided, however, that if the extension would cause the last day of the Interest Period to occur in the next following calendar month, the last day of the Interest Period shall occur on the next preceding Business Day; and (z) no Interest Period shall extend beyond the Maturity Date.

“ Interest Rate ” means, at the election of Borrower in connection with any Advance Request pursuant to Section 2.2(a) (and otherwise subject to the provisions of Section 2.3 ), either:

(a) The LIBOR Rate plus 225 basis points (i.e., 2.25%), which combined figure shall be rounded upwards to the nearest one-eighth percent (.125%), with such interest rate being adjusted from time to time as of each Interest Rate Adjustment Date (“ LIBOR Based Rate ”); or

(b) The Prime Rate (rounded upwards to the nearest one-eighth percent (.125%)), with such interest rate being adjusted from time to time as and when the Prime Rate is adjusted “ Prime Based Rate ”).

 

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Borrower may not elect to convert or otherwise change the Interest Rate except in connection with an Advance Request. Interest shall accrue on the entire outstanding balance of the Loan at the Interest Rate selected by Borrower until such time as Borrower elects to convert such Interest Rate to the other available Interest Rate (i.e., LIBOR Based Rate or Prime Based Rate); provided that the applicable Interest Rate shall be the Default Rate at any time an Event of Default has occurred and is continuing. In the event no such Interest Rate election is made by Borrower, the Interest Rate shall be deemed to be the LIBOR Based Rate.

“ Interest Rate Adjustment Date ” means, with respect to each Interest Period, the date that is two (2) Business Days prior to the first day of each Interest Period; provided, however, that Lender shall have the right to change the Interest Rate Adjustment Date to any other day upon notice to Borrower (in which event such change shall then be deemed effective) and, if requested by Lender, Borrower shall promptly execute an amendment to this Agreement to evidence such change.

“ Involuntary Lien ” means any Lien or Encumbrance securing the payment of money or the performance of any other obligation created involuntarily under any law, ordinance, regulation, rule, or otherwise and any claim of any such Lien or Encumbrance. For purposes of this Agreement and the other Loan Documents, and the rights and remedies with respect thereto, “stop notices” or similar notices and demands from Persons performing work or supplying materials with respect to any Collateral and who are asserting lien rights, shall be considered as Involuntary Liens.

“ Land ” means any land within an Approved Subdivision, including without limitation, Entitled Land.

“ Land Under Development ” means, with respect to any Approved Subdivision and any Lot identified therein, Land which constitutes Pre-Development Land upon which construction of the Improvements has commenced and is continuing, or is to commence within nine (9) months after the inclusion of such Approved Subdivision in the Borrowing Base, all as determined by Lender based upon a physical inspection of such Approved Subdivision (and the subject Land therein.

“ LC Fee ” is defined in Section 2.10(c) .

“ LC Obligations ” means, at any time, the sum, without duplication, of (i) the aggregate undrawn stated amount under all Facility LCs outstanding at such time plus (ii) the aggregate unpaid amount at such time of all Reimbursement Obligations.

“ LC Payment Date ” is defined in Section 2.10(d) .

“ Lender ” means as defined in the opening paragraph of this Agreement, together with any successors and assigns.

“ LIBOR Rate ” means, with respect to each Interest Period, the average of London Interbank Offered Rates (in U.S. dollar deposits) for a term of one month determined solely by Lender as of each Interest Rate Adjustment Date. On each Interest Rate Adjustment Date, Lender will obtain the close-of-business LIBOR Rate from “Page 3750” on the Telerate Service.

 

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If Telerate Service ceases publication or ceases to publish the LIBOR Rate, Lender shall select a comparable publication to determine the LIBOR Rate and provide notice thereof to Borrower. The LIBOR Rate may or may not be the lowest rate based upon the market for U.S. dollar deposits in the London Interbank Eurodollar Market at which Lender prices loans on the date on which the LIBOR Rate is determined by Lender as set forth above.

“ Lien or Encumbrance ” and “ Liens and Encumbrances ” mean, respectively, each and all of the following:

(a) Any lease or other right to use;

(b) Any assignment as security, conditional sale, grant in trust, lien, mortgage, pledge, security interest, title retention arrangement, other encumbrance, or other interest or right securing the payment of money or the performance of any other liability or obligation, whether voluntarily or involuntarily created (including, without limitation, Involuntary Liens) and whether arising by agreement, document, or instrument, under any law, ordinance, regulation, or rule (federal, state, or local), or otherwise; and

(c) Any option, right of first refusal, or other interest or right.

“ Loan ” means, individually and collectively, all Loans made by the Lender pursuant to Article 2 .

“ Loan Documents ” means this Agreement, the Note, any Guaranty, the Security Instruments, the Environmental Agreement, the Assignments, and any guaranties, agreements, assignments, documents, or instruments now or hereafter evidencing, guarantying or securing the Loan and any and all Advances of the Loan made hereunder (but expressly excluding any Rate Management Transactions), as any of the same may presently exist or as may be amended, modified, extended, renewed, restated, or supplemented from time to time.

“ Lot ” means an individual lot designated as such on a subdivision plat or map (whether preliminary or final, provided that any preliminary plat must not be conditioned on any discretionary approvals that would prevent the filing of a final plat). Unless the context otherwise requires, the term “Lot” refers to the lot prior to a transfer of the lot for Unit construction and inclusion of the Lot in Eligible Collateral as a Unit.

“ Lot Allocation ” means, (i) with respect to each Lot included as Eligible Collateral in the Borrowing Base, the Maximum Allowed Advance for the Lot reduced by that amount which is equal to the result obtained by multiplying the A&D Lot Improvement Construction Costs as set forth in the applicable A&D Lot Development Budget by the applicable Maximum Allowed Advance for that Lot and (ii) with respect to each Unit included as Eligible Collateral in the Borrowing Base, the Maximum Allowed Advance for the Unit reduced by that amount which is equal to the result obtained by multiplying the “hard” and “soft” costs of constructing the Unit as set forth in the applicable Unit Budget by the Maximum Allowed Advance for such Unit.

“ Lot Collateral Value ” means, for a particular Lot which constitutes Eligible Collateral, the sum of (i) the Lot Allocation for such Lot and (ii) the result (but not less than zero) obtained by subtracting the Lot Allocation for such Lot from the Maximum Allowed Advance for such Lot and then multiplying the difference by the A&D Lot Development Completion Percentage.

 

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“ Lot Eligibility Date ” means, with respect to any each Lot (and including any Land Under Development), the date such Lot (or Land Under Development) is first included as such in a Borrowing Base Report.

“ Material Adverse Change ” means any change in the assets, liabilities, financial condition, or results of operations of Borrower, Guarantor, or the members or partners of Borrower, any other event or condition with respect to Borrower, Guarantor, such members or partners, or any change in sales of Units, development of Lots and Units, costs and expenses with respect to such development of Lots and Units with respect to an Approved Subdivision that materially and adversely affects any of the following: (i) the likelihood of performance by Borrower, Guarantor, such members or partners of any of their respective Obligations or the ability of Borrower, Guarantor or such members or partners to perform such Obligations, (ii) the likelihood of performance by any such members or partners of any of their material obligations to Borrower (including, without limitation, the obligation to make capital contributions to Borrower), (iii) the likelihood that the costs and expenses of developing the Lots and Units within each of the Approved Subdivisions will be within the budgets approved by Lender, (iv) the legality, validity or binding nature of any of the Obligations of Borrower, Guarantor, or such members or partners (including, without limitation, the obligation to make capital contributions to Borrower), (v) any Lien or Encumbrance securing any of such Obligations, or (vi) the priority of any Lien or Encumbrance securing any of such Obligations.

“ Maturity Date ” means February 14, 2008, as such date may be extended from time to time pursuant to Sections 2.1(g) or 2.1(h) . In the event the term out provisions of Section 2.1(h) are implemented, the Maturity Date shall be extended to, and have the same meaning as, the Term Out Maturity Date.

“ Maximum Allowed Advance ” means the maximum advance rate with respect to any Pre-Development, Land, Lot or Unit, with such rate being equal to the following:

(a) With respect to Pre-Development Land, the Lesser of (i) 60% of the Appraised Value of the Pre-Development Land, or (ii) 60% of the Pre-Development Land Acquisition Cost.

(b) With respect to Land Under Development:

(i) which constitutes Detached Lots, the lesser of (A) 75% of the Appraised Value of the Land Under Development, or (B) 80% of the A&D Lot Development Budget Costs for such Land Under Development;

(ii) which constitutes Attached Lots (but excluding any High Density Lots), the lesser of (A) 70% of the Appraised Value of the Land Under Development, or (B) 75% of the A&D Lot Development Budget Costs for such Land Under Developments;

 

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(iii) which constitutes High End Lots (but excluding any High Density Lots), the lesser of (A) 65% of the Appraised Value of the Land Under Development, or (B) 70% of the A&D Lot Development Budget Costs for such Land Under Development; and

(iv) with respect to any Land Under Development which constitutes High Density Lots, the Maximum Allowed Advance shall be determined by Lender as a condition precedent to the inclusion of the applicable Subdivision as an Approved Subdivision.

(c) With respect to A&D Completed Lots:

(i) which constitute Detached Lots, the lesser of (A) 75% of the Appraised Value of the A&D Completed Lot, or (B) 85% of the Total Lot Cost for the A&D Completed Lot;

(ii) which constitute Attached Lots (but excluding High Density Lots), the lesser of (A) 75% of the Appraised Value of the A&D Completed Lot, or (B) 80% of the Total Lot Cost for the A&D Completed Lot;

(iii) which constitute High End Lots (but excluding High Density Lots), the lesser of (A) 70% of the Appraised Value of the A&D Completed Lot, or (B) 75% of the Total Lot Cost for the A&D Completed Lot; and

(iv) which constitute High Density Lots, the Maximum Allowed Advance shall be determined by Lender as a condition precedent to the inclusion of the applicable Subdivision as an Approved Subdivision.

(d) With respect to each Detached Unit:

(i) For each Presold Unit, the lesser of (A) 80% of the lower of the Appraised Value for that Unit or the estimated Net Sales Proceeds to be received with respect to that Unit pursuant to the applicable Purchase Contract, or (B) 100% of the Unit Cost for that Unit;

(ii) For each Spec Unit, the lesser of (A) 80% of the Appraised Value for that Unit or (B) 95% of the Unit Cost for that Unit; and

(iii) For each Model Unit, the lesser of (A) 80% of the Appraised Value for that Unit or (B) 90% of the Unit Cost for that Unit.

(e) With respect to each Attached Unit:

(i) For each Presold Unit, the lesser of (A) 80% of the lower of the Appraised Value for that Unit or the estimated Net Sales Proceeds to be received with respect to that Unit pursuant to the applicable Purchase Contract of the Appraised Value for that Unit, or (B) 90% of the Unit Cost for that Unit;

 

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(ii) For each Spec Unit, the lesser of (A) 75% of the Appraised Value for that Unit or (B) 85% of the Unit Cost for that Unit; and

(iii) For each Model Unit, the lesser of (A) 75% of the Appraised Value for that Unit or (B) 75% of the Unit Cost for that Unit.

Provided, however, notwithstanding the foregoing in clauses (d) and (e), (i) with respect to each High End Unit, the foregoing Maximum Allowed Advance Rates with respect to such High End Unit, whether constituting an Attached Unit or a Detached Unit, shall be reduced by 5%; and (ii) with respect to any High Density Units, the Maximum Allowed Advance shall be determined by Lender as a condition precedent to the inclusion of the applicable Subdivision (which contains such High Density Units) as an Approved Subdivision.

“ Model Unit ” means a Unit which is open to the general public for viewing purposes and which is not available for sale until all of its corresponding plan type in the applicable Subdivision have been sold.

“ Net Income ” means, with respect to any Person, the net income (or loss) of such Person for the applicable period, as such net income is determined in accordance with GAAP.

“ Net Sales Proceeds ” means in the case of a Unit or Lot, the gross sales price of the Unit (including, without limitation, all options and upgrades) set forth in the Purchase Contract for such Lot or Unit, less (i) customary tax and assessment prorations; (ii) reasonable and customary warranty costs and closing costs, including without limitation, sales commissions (provided that such costs shall not, in the aggregate, exceed 6% with respect to any Unit or Lot) and (iii) such other costs which may be approved by Lender in writing.

“ New Borrower ” means as defined in Section 8.1 .

“ Note ” or “ Notes ” means, individually and collectively, the note of Wachovia as Lender and such other promissory notes of even date herewith, executed by Borrower and payable to Lender, and the additional promissory notes executed after the date hereof, in each case evidencing Borrower’s indebtedness hereunder, as the same may be amended, modified, extended, renewed or supplemented from time to time.

“ Obligations ” means (i) the obligations of Borrower under this Agreement and the applicable Loan Documents; (ii) the obligations of any Borrower under any International Swap Dealers Association Master Agreement entered into by and between Borrower and Lender with respect to the Loan, or any other party and any similar agreement, including any Rate Management Transaction with respect to any “Transaction” (as defined in such master agreement) entered into pursuant thereto, whether such amounts are due and payable on the date(s) scheduled therefor, on the occurrence of an “Early Termination” (as defined in such master agreement), or otherwise and (iii) the obligations of each member and partner under the applicable Loan Documents, including, without limitation, any Assignment of Ownership Interests.

 

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“ Organizational Documents ” means, with respect to any Person: (a) if such Person is a limited liability company, such Person’s articles of organization, operating agreement, limited liability company agreement and other documents governing the management and operation of such Person; (b) if such Person is a general or limited partnership, such Person’s certificate of limited partnership, partnership agreement and other documents governing the management and operation of such Person; (c) if such Person is a corporation, such Person’s articles of incorporation, bylaws and the other documents and instruments governing the management and operation of such Person; (d) if such Person is a trust, such Person’s certificate of trust, trust agreement and the other documents and instruments governing the management and operation of such Person; and (e) if such Person is another type of entity, the documents and instruments pursuant to which such Person is formed, managed and operated; in each case, certified by (i) the applicable Secretary of State (for any Organizational Documents that have been filed with any Secretary of State) or (ii) an Authorized Representative (for any Organizational Documents that have not been filed with any Secretary of State).

“ Other Amounts ” means all amounts, other than principal and interest, payable by Borrower under this Agreement and any of the other Loan Documents to or for the benefit of the Lender, including, without limitation, fees, costs and expenses pursuant to Section 2.5 .

“ Outstanding Loan Borrowings ” means from time to time and at any time, the aggregate amount of then outstanding Advances with respect to the Loan.

“ Ownership Interest ” means any and all shares, rights to purchase, warrants or options (whether or not currently exercisable), participations, or other equivalents of or interests in (however designated) the equity (which includes, but is not limited to, common stock, preferred stock and partnership, joint venture and limited liability company interests) of a designated Person (excluding any debt securities that are convertible into, or exchangeable for, such equity).

“Payment Date ” means the fifth (5 ^th ) day of each Calendar Month, with the first Payment Date being the Fifth (5 ^th ) day of the first full Calendar Month after the Effective Date.

“ PBGC ” means the Pension Benefit Guaranty Corporation, or any successor thereto.

“ Permitted Exceptions ” means:

(a) Involuntary Liens for Impositions that are not yet delinquent;

(b) Involuntary Liens (other than for Impositions) with respect to which Borrower satisfies each of the following requirements: (i) Borrower contests the validity of such Involuntary Lien in good faith by appropriate legal proceedings; (ii) Borrower gives written notice to Lender of Borrower’s intent to contest or object to the same; (iii) Borrower demonstrates to Lender’s satisfaction that the procedures will conclusively operate to prevent the sale of any part of the Collateral to satisfy the Involuntary Lien prior to final determination of such proceedings; (iv) the amount of any such Involuntary Liens (individually or in the aggregate) does not exceed five percent (5%) of the Collateral Value of the Eligible Collateral within that Approved Subdivision unless otherwise approved by Lender; and (v) Borrower takes any and all other actions (including, without limitation, obtaining bonds, title insurance endorsements, or other security) as Lender may deem necessary or appropriate in order to

 

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prevent the sale of any Collateral to satisfy the Involuntary Lien and prevent any impairment of any such Collateral or, if such Collateral is Eligible Collateral, Borrower removes the affected Collateral from the Eligible Collateral.

(c) All items, except Impositions, in Schedule B to any Title Policy that have been approved by Lender; and

(d) Any other Liens and Encumbrances consented to by Lender in advance in writing from time to time.

“ Permitted Transfer ” means each of the following:

(a) Transfers of any Ownership Interests (whether direct or indirect) in Borrower which, in the aggregate over the term of the Loan (i) do not exceed forty-nine percent (49%) of the Ownership Interests in Borrower and (ii) do not result in a change in the Controlling Interest of Borrower;

(b) Transfers with respect to any Person whose stocks or certificates are traded on a nationally recognized stock exchange;

(c) Permitted Exceptions; and

(d) All Transfers of worn out or obsolete furnishings, fixtures or equipment that are promptly replaced with property of equivalent value and functionality.

“ Person ” means a natural person, a partnership, a joint venture, an unincorporated association, a limited liability company, a corporation, a trust, any other legal entity, any Governmental Authority, or any other entity, whether acting in an individual capacity, fiduciary capacity or other capacity.

“ Plan ” means an employee pension benefit plan which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code as to which any Borrower or any member of the Controlled Group may have any liability.

“ Plans and Specifications ” means the plans and specifications with respect to the Improvements within any Approved Subdivision as approved by all applicable Governmental Authorities, as such plans and specifications may be modified from time to time upon the prior review and approval of Lender to the extent requested by Lender, which approval shall not be unreasonably withheld, delayed or conditioned.

“ Pre-Development Land ” means any Entitled Land in any Approved Subdivision designated for the development of detached single family Units and/or attached single family dwellings where (i) a preliminary subdivision plat or map has been approved by all applicable governmental authorities to the extent necessary to permit the development of such Entitled Land, (ii) all governmental permits, consents and approvals have been obtained to permit the commencement and grading of such Entitled Land as necessary to improve such Entitled Land to an A&D Completed Lot, (iii) all fees required in connection with such licenses, permits, approvals and grading have been paid, and (iv) no material impediments exist to the issuance of all further permits, licenses or approvals necessary or appropriate in connection with the development of utilities, infrastructure and other physical site improvements on such Lots.

 

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“ Presold Unit ” means a Unit that is subject to a Purchase Contract.

“ Prime Rate ” means a rate per annum equal to the prime rate of interest announced from time to time by Lender (which is not necessarily the lowest rate charged to any customer), changing when and as said prime rate changes.

“ Product Line ” means a group of Units which, in the ordinary course of Borrower’s business, are marketed together under a common plan or plans based upon the type of Unit constructed and the price of such Units.

“ Project Cost ” means, with respect to any Approved Subdivision (or any Lot or Unit contained therein), the total of the following amounts: (a) the Acquisition Cost, (b) the amounts set forth on the Budget (as adjusted from time to time pursuant to this Agreement) to commence, construct and complete all of the Improvements, including without limitation, both Hard and Soft Costs and (c) the amounts, whether or not reflected on the Budget, determined by the Lender from time to time to be necessary to complete the Improvements and maintain the subject property, including without limitation, cost overruns, contingency reserves (including without limitation, interest reserves), taxes, assessments, insurance costs and all other operating expenses.

“ Protective Advances ” means all sums expended by the Lender: (a) to protect the priority, validity and enforceability of the lien of the Deeds of Trust and any and all other Loan Documents encumbering any of the Collateral; (b) to protect the value or the security of any of the Collateral, including any amounts expended in accordance with this Agreement or any other Loan Document; and (c) if any Approved Subdivision is acquired by Lender or some other entity on behalf of Lender, amounts expended to complete any Improvements on the Approved Subdivisions.

“ Purchase Contract ” means a bona fide written agreement between Borrower and a purchaser who is not an Affiliate of Borrower entered into in the ordinary course of Borrower’s business and pursuant to which such purchaser has agreed to purchase a Unit, which agreement (i) shall be accompanied by a non-refundable cash earnest money deposit or down payment of at least $5,000.00; (ii) shall be with a buyer who has been prequalified for a purchase money loan for the Lot and Unit by Borrower or a mortgage broker, mortgage banker or other residential lending institution; (iii) not subject to any contingency related to the sale of the buyer’s existing residence; and (iv) any closing contingencies, including any financing contingency, being required to be removed no later than 60 days prior to closing.

“ Rate Management Transaction ” means any transaction (including an agreement with respect thereto) now existing or hereafter entered into between Borrower and Lender which is a rate swap, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, forward transaction, currency swap transaction, cross-currency rate swap transaction, currency option or any other

 

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similar transaction (including any option with respect to any of these transactions) or any combination thereof, whether linked to one or more interest rates, foreign currencies, commodity prices, equity prices or other financial measures.

“ Reclassification Adjustment ” means, for any Unit reclassified as a Spec Unit or Presold Unit pursuant to any provision of this Agreement, a change in the Maximum Allowed Advance for such Unit to the Maximum Allowed Advance applicable to the type of Unit as so reclassified.

“ Reimbursement Obligations ” means, at any time, the aggregate of all obligations of Borrower then outstanding under Section 2.10 to reimburse Lender for amounts paid by Bank on account of any one or more drawings under Facility LCs.

“ Reportable Event ” means a reportable event as defined in Section 4043 of ERISA and the regulations issued under such section, with respect to a Plan, excluding, however, such events as to which the PBGC has waived the requirement of Section 4043(a) of ERISA that it be notified within 30 days of the occurrence of such event, provided, however , that a failure to meet the minimum funding standard of Section 412 of the Code and of Section 302 of ERISA shall be a Reportable Event regardless of the issuance of any such waiver of the notice requirement in accordance with either Section 4043(a) of ERISA or Section 412(d) of the Code.

“ Requirements ” means any and all obligations, other terms and conditions, requirements, and restrictions in effect now or in the future by which any Borrower or any or all of the Collateral are bound, or which are otherwise applicable to any or all of the Collateral, construction of any Units or A&D Lot Improvements, until this Agreement has terminated or expired, the Loan has been paid in full, and all other Obligations are paid and performed in full and all obligations of Lender arising under the Loan Documents have terminated, the development or construction of any of the Approved Subdivisions, or occupancy, operation, ownership, or use of Collateral, Lots, Units, or A&D Lot Improvements, including, without limitation, any obligations, terms, conditions, restrictions, or requirements imposed by any law, ordinance, regulation, or rule (federal, state, or local); any Approvals and Permits; any Permitted Exceptions; any condition, covenant, restriction, easement, right-of-way, or reservation applicable to such Collateral; any insurance policies; any other agreement, document, or instrument to which any Borrower is a party or by which any Borrower, or any of the Collateral or the business or operations of Borrower is bound; or any judgment, order, or decree of any arbitrator, other private adjudicator, or Governmental Authority to which any Borrower is a party or by which any Borrower or any of the Collateral is bound.

“ S&P ” means Standard and Poor’s Ratings Services, a division of The McGraw Hill Companies, Inc.

“ Security Instruments ” means, collectively and individually, the Deeds of Trust, the Assignments, the Financing Statements, and any other documents pursuant to which Borrower or any other Person assigns, pledges or otherwise grants Lender or its assignee a security interest in the Collateral, as any of the same may currently exist or as may be amended, modified, supplemented, extended, restated, or renewed from time to time.

 

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“ Soft Costs ” means all costs designated as “Soft Costs” on the Budget and which are not otherwise identified as Hard Costs.

“ Spec Unit ” means a Unit constructed for the purpose of addition to Borrower’s inventory of Units and which is not subject to a Purchase Contract and is not a Model Unit.

“ Subdivision ” means a group of Lots upon which Units are intended to be constructed, marketed and sold as a single Product Line or otherwise marketed and sold together regardless of whether Units in such group of Lots are to be constructed at the same time or in phases. If required by Bank, subdivisions located in the same area and similar in product and market segment shall be treated as a single subdivision in this Borrowing Base Loan and no subdivision will exceed the limitations set forth in Article 3 of this Agreement, whether such Lots are purchased pursuant to an option agreement over time or purchased in bulk.

“ Subdivision Documents ” means a tentative and/or final plat map or similar document covering a Subdivision and dividing the Subdivision into lots in accordance with the Requirements of the applicable Governmental Authorities.

“ Survey ” means a current ALTA survey of any Approved Subdivision prepared by a surveyor registered or licensed in the state where the Approved Subdivision is located, which survey shall be in form and substance acceptable to Lender.

Tangible Net Worth means as defined by or otherwise determined in conformity with GAAP; provided , however , in determining such Tangible Net Worth, the following shall be excluded with respect to such determination: (a) Intangible Assets, (b) any notes or obligations receivable from Affiliates except to the extent such notes or obligations receivable are on terms which are fair, reasonable and equivalent of an arm’s length transaction with an unrelated third Person, (c) any “step-up” in value of assets that results from a transaction with an Affiliate or between Affiliates, or recognition of a gain or profit from a sale or contribution of an asset to an Affiliate or a transaction between Affiliates except to the extent such transactions are on terms which are fair, reasonable and equivalent of an arm’s length transaction with an unrelated third Person, and (e) any subordinated debt (other than as may be specifically approved by Lender in writing) shall be excluded, all determined on a consolidation basis.

“ Term Out Commencement Period Date ” means as defined in Section 2.1(h) .

“ Term Out Date ” means as defined in Section 2.1(h)(i) .

“ Term Out Maturity Date ” means as defined in Section 2.1(h)(ii) .

“ Title Company ” means any title insurance company approved by Lender to issue a Title Policy in connection with Lender’s Deeds of Trust; unless otherwise permitted by Lender, Borrower shall be required to use the same Title Company for all Approved Subdivisions.

“ Title Policy ” and “Title Policies ” mean, respectively, each and all title insurance policies and endorsements thereto issued pursuant to the requirements of this Agreement and any reinsurance or co-insurance agreements and endorsements as Lender may require, including without limitation, reinsurance for any title policy amount of $100,000,000 or greater pursuant to a reinsurance agreement (utilizing the ALTA Facultative Reinsurance Agreement (9-24-94) form) with another Title Company acceptable to Lender.

 

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“ Total Lot Cost ” means with respect to each Lot in each Approved Subdivision, the sum of the Acquisition Cost and the aggregate of “hard” and “soft” costs to plan, design, and construct applicable improvements such as curbs, grading, landscaping, sprinklers, storm and sanitary sewers, paving, sidewalks and utilities, as are necessary to make an Approved Subdivision suitable for the construction of single family homes (including Attached and Detached Units) on the applicable underlying Lots, together with any common area improvements which may exist, allocated on a per Lot basis.

“ Transfer ” means:

(a) any sale, transfer, conveyance, assignment, hypothecation, encumbrance, lease or vesting of any Approved Subdivision or any part thereof or interest therein to or in any Person, whether voluntary, involuntary, by operation of law, or otherwise, except the Permitted Exceptions; and

(b) any sale, transfer, conveyance, assignment, hypothecation, or encumbrance of any ownership interest of any Borrower or in the managing member or manager of any Borrower, whether direct or indirect; provided , however , a sale, transfer or assignment of any membership interest in any Borrower or in the managing member or manager of any Borrower (whether direct or indirect), shall be permitted so long as the requirements of Section 6.17 continue to be satisfied at all times;

(c) any merger or consolidation of any Borrower and/or Guarantor; provided, however, a merger or consolidation shall be permitted so long as the requirements of Section 8.1 continue to be satisfied at all times; or

(d) the execution of any agreements to do any of the foregoing.

“ Undrawn Availability ” means the sum of (a) that portion of the Available Loan Commitment which is available for Advance (including satisfaction of all conditions precedent thereto except for a request for such Advance) but has not yet been disbursed pursuant to the terms and conditions of this Agreement and (b) that portion of any line of credit facility held by Borrower with any financial institution which is available for immediate disbursement (including satisfaction of all conditions precedent thereto except for a request for such disbursement) to Borrower pursuant to that credit facility’s loan terms but has not yet been disbursed.

“ Unit ” means a residential dwelling constructed or to be constructed on a Lot, together with the associated Lot.

“ Unit Budget ” means a budget setting forth the Unit Construction Costs with respect to each Unit. Each Unit Budget will be subject to review and approval by Lender.

“ Unit Collateral Value ” means a valuation of each Unit based upon the Unit’s stage of construction. The Unit Collateral Value for a particular Unit equals the sum of (a) the Lot Allocation and Lender approved Up Front Costs for the Unit and (b) the result obtained by

 

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subtracting the Lot Allocation and Lender approved Up Front Costs for the Unit from the Maximum Allowed Advance (taking into account any applicable Reclassification Adjustment) for the Unit and then multiplying the difference by the Unit Completion Percentage.

“ Unit Completion Percentage ” means for any Unit, the current percentage of construction completed as reflected in each Borrowing Base Report in increments of 5% each, based upon the stages of construction set forth in Exhibit ”A” .

“ Unit Construction Cost ” as set forth in the Unit Budget approved by Lender in its sole discretion, means, with respect to each Unit, the sum of (i) the “hard costs” associated with the construction of the Unit, (ii) the “soft costs” associated with the construction of the Unit, including property taxes, appraisal costs, architects and engineers fees, entitlement costs, project supervision costs and review and inspection fees, (iii) Up Front Costs, specifically approved by Lender, in it’s sole discretion and (iv) an amount approved by Lender representing the allocated financing costs with respect to such Unit.

“ Unit Construction Threshold ” means, with respect to a Unit, a Unit Completion Percentage of at least 5%.

“ Unit Cost ” for a particular Unit means the sum of (i) the Unit Lot Cost for the Unit and (ii) the Unit Construction Cost for the Unit.

“ Unit Eligibility Date ” means, with respect to each Unit, the date on which that Unit is first included in Eligible Collateral as a Unit pursuant to this Agreement, as reflected on the Borrowing Base Report, and regardless of whether periods exist during which such Unit is not included as Eligible Collateral.

“ Unit Lot Cost ” means, with respect to each Unit included in Eligible Collateral, the cost of the Lot as determined by Lender in connection with the approval of each Approved Subdivision, based upon one or more of the following: (i) the Total Lot Cost of the Lots in such Approved Subdivision divided by the number of such Lots; or (ii) the book value of such Lots as determined in accordance with GAAP or based on the applicable Appraised Value if Lender determines such valuation is reasonable and the Lot is not subject to any other Liens and Encumbrances securing Indebtedness of Borrower (whether junior or senior in priority to the applicable Deed of Trust).

“ Unmatured Event of Default ” means any condition or event that with notice, passage of time, or both, would be an Event of Default.

“ Up Front Costs ” includes only those fees and costs specifically identified and approved by Lender, in Lender’s sole discretion. Such fees and costs, may but shall not necessarily include, without limitation, building permit fees, tap fees and fees of Governmental Authorities which are required to be paid prior to the start of the construction of the Unit.

“ WLH ” means WILLIAM LYON HOMES, a Delaware corporation.

1.2 Other Terms . Other terms defined herein shall have the meaning ascribed to them herein.

 

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1.3 Interpretation . Unless the context of this Agreement otherwise clearly requires, the following rules of construction shall apply to this Agreement and each of the other Loan Documents:

(a) Number; Inclusion . References to the plural include the singular, the plural, the part and the whole; “or” has the inclusive meaning represented by the phrase “and/or”; and “including” has the meaning represented by the phrase “including without limitation.”

(b) Documents Taken as a Whole . The words “hereof,” “herein,” “hereunder,” “hereto” and similar terms in this Agreement or any other Loan Document refer to this Agreement or such other Loan Document as a whole and not to any particular provision of this Agreement or such other Loan Document.

(c) Headings . The section and other headings contained in this Agreement or the other Loan Documents and the Table of Contents (if any) preceding this Agreement or the other Loan Documents are for reference purposes only and shall not control or affect the construction of this Agreement or the other Loan Documents or the interpretation thereof in any respect.

(d) Implied References to This Agreement . Article, section, subsection, clause, schedule and exhibit references are to this Agreement unless otherwise specified.

(e) Persons . Reference to any Person includes such Person’s successors and assigns but, if applicable, only if such successors and assigns are permitted by this Agreement or the other Loan Documents, as the case may be.

(f) Modifications to Documents . Reference to any agreement (including this Agreement and any other Loan Document together with the schedules and exhibits hereto or thereto), document or instrument means such agreement, document or instrument as amended, modified, replaced, substituted for, superseded or restated.

(g) Accounting Terms . For purposes of this Agreement, all accounting terms not otherwise defined herein shall have the meanings assigned to them in conformity with GAAP.

ARTICLE 2

LOAN FACILITY

2.1 Loan Facility .

(a) The Loan . In reliance upon the representations and warranties of Borrower, and subject to the terms and conditions of this Agreement and the Loan Documents, Lender hereby agrees to lend to or for the benefit of Borrower of the Loan, and Borrower agrees to pay all outstanding Indebtedness evidenced and secured by the Loan Documents, in the manner and upon the terms and conditions expressed in the Loan Documents.

 

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(b) Revolving Nature of Loan . Subject to the limitations described in this Agreement, the Loan shall constitute a revolving line of credit and advances repaid may be reborrowed on a revolving basis through the Maturity Date. Although the outstanding principal of the Loan may be zero from time to time, the Loan Documents will remain in full force and effect until all obligations of Lender pursuant to this Agreement and the Loan Documents expire and all Obligations have been paid and performed in full. Upon the occurrence of an Unmatured Event of Default, Lender, may cause or declare any commitment of the Lender to make Advances to be suspended, whereupon any obligation to make further Advances will immediately be suspended. Upon the occurrence of an Event of Default, Lender, may cause or declare any commitment of the Lender to make Advances to be suspended or terminated, whereupon any obligation to make further Advances will immediately be suspended or terminated

(c) Evidence of Loan . The Loan is and shall be evidenced by the Note and shall bear interest calculated and payable as provided in this Article 2 . Lender will maintain in accordance with its usual practice an account or account evidencing the Outstanding Loan Borrowings and other Obligations due Lender with respect to the Loan, including without limitation, as a result of Advances made from time to time pursuant to this Agreement and any payments of principal and interest by Borrower from time to time. Such accounting and records shall be deemed conclusive of the amounts due and owing Lender and shall be binding upon Borrower absent manifest error.

(d) Increase In Commitment Amount .

(i) Request for Increase . Provided that no Event of Default or Unmatured Event of Default has occurred and is continuing, Borrower may, at any time and from time to time, request, by notice to Lender, Lender’s approval of an increase of the Commitment Amount (a “ Facility Increase ”) within the limitations hereafter described, which request shall set forth the amount of each such requested Facility Increase. Within twenty (20) days of such request, Lender shall advise Borrower of its approval or disapproval of such request, and failure to so advise Borrower shall constitute disapproval. If Lender approves of any such Facility Increase, then the Commitment Amount may be so increased up to the amount of such approved Facility Increase.

(ii) Requirements . Any Facility Increase shall be subject to the following requirements, limitations and conditions: (A) any increase in the Commitment Amount shall not be less than $10,000,000 (and shall be in integral multiples of $10,000,000 if in excess thereof); (B) after giving effect to the Facility Increase and all prior Facility Increases, the Commitment Amount shall not exceed Eighty Million Dollars ($80,000,000); (C) Borrower shall have executed and delivered to Lender such Note or Notes as Lender shall require to reflect such Facility Increase; (D) Borrower shall have delivered to Lender appropriate opinions of counsel as to such matters as Lender may request; (E) any other Person who has executed any Loan Documents, shall have consented in writing to the Facility Increases and shall have agreed that their obligations under such Loan Documents continue in full force and effect; and (F) Borrower, and

 

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Lender shall otherwise have executed and delivered such other instruments and documents as Lender shall have reasonably requested in connection with such Facility Increase. The form and substance of the documents required under clauses (C) through (F) above shall be fully acceptable to Lender.

(e) Reduction of Commitment Amount . From and after the first Facility Anniversary Date, so long as no Unmatured Event of Default or Event of Default has occurred and is continuing, Borrower may permanently reduce the Commitment Amount in whole or in part; provided , however , (i) each such request shall be in writing and delivered to Lender at least thirty (30) days’ prior to such requested reduction and shall specify the date and amount of any such reduction, (ii) each such reduction shall be in the minimum amount of $10,000,000.00 (and in multiples of $10,000,000.00 if in excess thereof); (iii) Borrower shall have executed and delivered to Lender any documents, instruments or certificates that Lender may reasonably request in connection with such reduction, and (iv) Borrower shall have paid all of Lender’s fees and costs incurred in connection with such reduction, including without limitation, reasonable attorneys’ fees and costs. Any reduction in the Commitment Amount pursuant to this section shall likewise reduce the amount by which the Commitment Amount may be subsequently increased pursuant to Section 2.1(d) above.

(f) Maturity Date . Notwithstanding any other provision of this Agreement or any Loan Documents to the contrary, all Outstanding Loan Borrowings, accrued but unpaid interest, Other Amounts, and any other amounts which may be due pursuant to this Agreement or any other Loan Document, shall be due and payable in full on the Maturity Date.

(g) Extension of Maturity Date . On or before each Facility Anniversary Date, upon any written request by Borrower delivered to Lender no earlier than ninety (90) days prior to such Facility Anniversary Date but no later than thirty (30) days prior to such Facility Anniversary Date, Lender, may extend the Maturity Date then in effect for an additional twelve (12) month period; provided , however in no event shall any extension of the Maturity Date be considered or granted if any Unmatured Event of Default or Event of Default has occurred and is continuing, any of the representations and warranties set forth in this Agreement or any other Loan Document shall be determined to be, and remains, untrue or incorrect in any material respect, or any Material Adverse Change has occurred and is continuing. Borrower hereby acknowledges and agrees that Lender has not made any commitment to extend the Maturity Date and that Lender is not under any obligation to extend such Maturity Date or to consider any request for any such extension.

(h) Term Out Provisions . In the event the Maturity Date is not extended on any such Facility Anniversary Date pursuant to Section 2.1(g) above (such date being a “ Term Out Commencement Period Date ”), the Loan shall be “termed out” as follows:

(i) The then existing Maturity Date (i.e., that date which is twelve (12) Calendar Months after the Term Out Commencement Period Date) shall constitute the “ Term Out Date ”.

 

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(ii) The Maturity Date shall be extended to a date which is twelve (12) Calendar Months from the Term Out Date (the “ Term Out Maturity Date ”).

(iii) For the period between the Term Out Commencement Period Date and the Term Out Date, the Loan shall continue to be a revolving line of credit Loan for the period of time from and after the Term Out Commencement Period Date until the Term Out Date; provided , however , during such period (A) Borrower shall only be entitled, subject to the terms and conditions set forth in this Agreement, to Advances with respect to Eligible Collateral existing at any time that was prior to the day immediately preceding the Term Out Period Commencement Date (and Lender shall have no obligation to review and consider any requests by Borrower for the addition of any Subdivision as an Approved Subdivision or any Collateral which is not Eligible Collateral as of the Term Out Commencement Date), (B) no New Borrower may be admitted as a Borrower under this Agreement; and (C) Borrower shall be not entitled to request any increase in the Commitment Amount pursuant to Section 2.1(d) or otherwise (and Lender shall have no obligation to review and consider such request).

(iv) From and after the Term Out Date until the Term Out Maturity Date: (A) the terms, conditions and restrictions set forth in clause (h)(iii) immediately above shall continue to apply and (B) the Commitment Amount shall be deemed to be equal to the aggregate amount of Outstanding Loan Borrowings as of the Term Out Date (the “ Term Out Loan Balance ”) and, without further notice, shall thereafter be automatically reduced on the last day of each three month period after the Term Out Date (with the last day being the Term Out Maturity Date) with each such Commitment Amount reduction being equal to one quarter of the Term Out Loan Balance; and (C) in addition to any and all other payment Obligations of Borrower under this Agreement and the other Loan Documents, Borrower shall pay to Lender that amount necessary to reduce the Outstanding Loan Borrowings to no greater than the Commitment Amount as reduced from time to time pursuant this Section, with such payments being due on the last day of each three month period after the Term Out Date, such that the Loan is paid in full as of the Term Out Maturity Date.

(v) Notwithstanding any other provision of this Agreement or any Loan Documents to the contrary, all Outstanding Loan Borrowings, accrued but unpaid interest, Other Amounts, and any other amounts which may be due pursuant to this Agreement or any other Loan Document, shall be due and payable in full on the Term Out Maturity Date.

2.2 Advances .

(a) Advance Request . Subject to the terms and conditions set forth in this Agreement, including continued satisfaction of the applicable conditions precedent set forth in Article 4 , and so long as no Event of Default has occurred and is continuing, Borrower may request such Advances in writing from time to time and at any time prior to the Maturity Date (each request being an “ Advance Request ”). Each such Advance Request (and corresponding Advance) shall be subject to following conditions and restrictions:

(i) Frequency of Advances . Borrower may submit Advance Requests no more frequently than once each Business Day.

 

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(ii) Request for Advance . Borrower shall make an Advance Request by giving Lender irrevocable notice by not later than 2 p.m. (Eastern time) at least one (1) Business Day before the requested date of such Advance. Each such Advance Request shall: (A) specify the amount of the requested Advance; (B) if Borrower elects to change the applicable Interest Rate, the applicable Interest Rate; (C) the date for the requested Advance to be disbursed to Borrower; and (D) at the request of Lender, include such invoices, cost summaries, comparisons of actual costs to budgeted costs, and any other information, statements, documents as Lender may reasonably request, together with all necessary documents and information required to satisfy the conditions precedent to an Advance set forth in Section 4.5 . Each Advance Request submitted to Lender pursuant to this Section shall be certified by an Authorized Representative of Borrower to Lender as being complete, true and accurate in all material respects. Any Advance Request shall be made by an Authorized Representative or such other Person or Persons designated in writing by Borrower from time to time to Lender in form and substance acceptable to Lender; provided, however, Lender shall have acknowledged receipt of any changes in the Person or Persons designated by Borrower, and such Person or Persons designated by Borrower will have executed a new signature authorization form.

(iii) Electronic Transmission of Advance Request . Lender, in its sole and absolute discretion, may elect to permit Borrower to transmit Advance Requests electronically through an Internet website or other electronic system developed and maintained by Lender and any transmission using such system shall be considered a “writing” in satisfaction of the requirement under this Agreement for a written Advance Request for any Advance. Lender reserves the right to deny Borrower access to such system, or withdraw its permission for Borrower to furnish Advance Requests through such system at any time, for any reason, without notice.

(b) Minimum Amount of Advances . In addition to the other terms and conditions set forth in this Agreement, any request for a subsequent Advance shall be in a minimum amount of $100,000.00.

(c) Use of Advances . Advances may be used to pay or reimburse Borrower for Project Costs incurred and paid (or to be paid from the requested Advance) by Borrower with respect to any Eligible Collateral to the extent included in the Budget for any Approved Subdivision, to pay for Borrower’s operating and overhead expenses and to make such distributions as deemed appropriate by Borrower so long as the terms and conditions of this Agreement continue to be satisfied, including without limitation, Section 8.5 ; provided , however , nothing contained in this Section shall prohibit or

 

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otherwise restrict Lender from making Protective Advances or from making Advances as otherwise permitted by this Agreement or any other Loan Document. Notwithstanding the foregoing, at the sole option of Lender, Advances may be paid in the joint names of Borrower and the contractor, engineer, subcontractor(s), or supplier(s) in payment of sums due under any applicable construction or similar contract to which Borrower is a party. All Advances shall be disbursed, at Lender’s option: (i) directly to Borrower; (ii) directly to such Person who has performed the work, is requesting payment, and is identified in the Advance Request; (iii) jointly to Borrower and such Person; (iv) directly to Persons supplying labor, materials and/or services in connection with the work, (v) jointly to Borrower and such Persons, or (vi) any combination of the foregoing. Borrower appoints Lender as its attorney-in-fact to make such payments. This power shall be deemed to be coupled with an interest, shall be irrevocable, and shall survive an Event of Default under this Agreement.

(d) Warranty . Each request for Advance shall constitute, without the necessity of specifically containing a written statement, a representation and warranty by Borrower that all of the representations and warranties in the Loan Documents are true and correct in all material respects, no Material Adverse Change, no Unmatured Event of Default and no Event of Default has occurred and is continuing.

(e) Funding Indemnification . Each request for an Advance shall be irrevocable and binding on Borrower. Borrower shall indemnify Lender against any loss or expense incurred by Lender as a result of any failure of Borrower to fulfill, on or before the date specified for such Advance, the applicable conditions precedent to such Advance as set forth in this Agreement.

2.3 Interest Rate Provisions .

(a) Interest Rate and Interest Rate Adjustment Date . Interest shall accrue on the outstanding principal at the Interest Rate, calculated based on a 360-day year and paid for the actual number of days elapsed for any whole or partial month in which interest is being calculated.

(b) LIBOR Unascertainable . Any obligation of Lender to maintain interest based on the LIBOR Rate shall be suspended and the Interest Rate shall be based on the Prime Rate upon Lender’s determination, in good faith, that adequate and reasonable means do not exist for ascertaining the LIBOR Rate or that a contingency has occurred which materially and adversely affects the London Interbank Eurodollar Market at which Lender may price loans (which determination by Lender shall be conclusive and binding on Borrower in the absence of manifest error). Computation of the Interest Rate based on the Prime Rate shall continue until Lender determines that the circumstances giving rise to Lender’s substitution of the Prime Rate for the LIBOR Rate no longer exist, in which event the Interest Rate shall be the LIBOR Rate commencing with the first day of the Interest Period next following such determination unless Borrower has elected to maintain interest at the Prime Rate in connection with the most recent Advance Request. Lender shall promptly notify Borrower of each such determination.

 

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(c) Adjustment Due to Calculation Errors . If, at any time, Lender determines that it has miscalculated the Interest Rate (whether because of a miscalculation of the LIBOR Rate or otherwise), Lender shall notify Borrower of the necessary correction. If the corrected Interest Rate represents an increase in the applicable monthly payment, Borrower shall, within ten (10) days thereafter, pay to Lender the corrected amount. If the corrected Interest Rate represents an overpayment by Borrower to Lender and no Event of Default then exists, Lender shall refund the overpayment to Borrower or, at Lender’s option, credit such amounts against Borrower’s payment next due hereunder.

(d) Adjustment for Impositions on Loan Payment . All payments made by Borrower hereunder shall be made free and clear of, and without reduction for, or on account of, any income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings hereafter imposed, levied, collected, withheld or assessed by any government or taxing authority (other than taxes on the overall net income or overall gross receipts of Lender imposed as a result of a present or former connection between Lender and the jurisdiction of the government or taxing authority imposing such that this exclusion shall not apply to a connection arising solely from Lender’s having executed, delivered, performed its obligations under, received a payment under, or enforced this Loan Agreement or any other Loan Document). If any such amounts are required to be withheld from amounts payable to Lender, the amounts payable to Lender under these Loan Documents shall be increased to the extent necessary to yield to Lender, after payment of such amounts, interest or any such other amounts payable at the rates or in the amounts specified herein. If any such amounts are payable by Borrower, Borrower shall pay all such amounts by their due date and promptly send Lender a certified copy of an original official receipt showing payment thereof. If Borrower fails to pay such amounts when due or to deliver the required receipt to Lender, Borrower shall indemnify Lender for any incremental taxes, interest or penalties that may become payable by Lender as a result of any such failure.

(e) Increased Costs of Maintaining Interest . If Lender determines that the adoption of any law, regulation, rule or guideline (including, without limitation, any change regarding the imposition or increase in reserve requirements), whether or not having the force of law, does or will have the effect of reducing Lender’s rate of return on the Loan or results in an increase in the cost to Lender in making, funding or maintaining interest on the Loan at the rate herein provided, then, from time to time, within five (5) business days after written demand by Lender, Borrower shall pay Lender such additional amount as will compensate Lender for its reduction or increased costs. Borrower agrees to indemnify Lender and hold Lender harmless from any loss or expenses (other than consequential and punitive damages) which Lender may sustain or incur arising from any interest or fees payable by Lender to lenders of funds obtained by it in order to maintain the LIBOR Rate.

(f) Default Rate . If the Loan is not paid in full on or before the Maturity Date (subject to any extension thereto properly exercised by Borrower in accordance with this Agreement), any other payment due hereunder (including, without limitation, late charges and fees for legal counsel) is not received by Lender on or before the date on which such payment originally was due without regard to any notice or cure periods provided for

 

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herein or in the other Loan Documents or following any other Event of Default and during the continuance thereof, the interest rate payable on the Loan shall immediately increased to the Default Rate and interest shall continue to accrue at the Default Rate until full payment is received or such Event of Default is cured, as applicable. Interest at the Default Rate also shall accrue on any judgment obtained by Lender in connection with collection of the Loan or enforcement of any obligations due under the other Loan Documents until such judgment amount is paid in full.

(g) Usury Savings Clause . All agreements herein are expressly limited so that in no contingency or event whatsoever, whether by reason of the disbursement of Loan proceeds, the acceleration of the maturity of the unpaid principal balance of the Loan, or otherwise, shall the amount paid or agreed to be paid to the Lender for the use, forbearance or detention of the money to be advanced under the Loan exceed the highest lawful rate permissible under any usury laws which may be applicable to this Loan. If, from any circumstances whatsoever, the fulfillment of any provision of this Agreement or any of the other Loan Documents, at the time performance of such provision shall be due, shall involve transcending the limit of validity prescribed by law which a court of competent jurisdiction may deem applicable to the Loan, then, ipso facto, the obligation to be fulfilled shall be reduced to the limit of such validity; and if, from any circumstance, the Lender shall never receive as interest an amount which would exceed the highest lawful rate, such amount which would be excessive interest shall be applied to the reduction of Lender’s portion of the unpaid principal balance due on the Loan and not to the payment of interest.

2.4 Payments .

(a) Interest Payments . All accrued interest shall be payable on each Payment Date, commencing with the first such Payment Date to occur after the date hereof, and shall otherwise be payable on any other date on which such Advance is prepaid, whether by acceleration or otherwise, and at maturity. Interest shall be payable for the day an Advance is made but not for the day of any payment on the amount paid if payment is received prior to 2:00 p.m. (Eastern Time) at the place of payment. If any payment of principal of or interest on an Advance shall become due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and, in the case of a principal payment, such extension of time shall be included in computing interest in connection with such payment. In no event shall Borrower’s obligation to pay interest be excused, delayed or diminished notwithstanding that there are insufficient funds in any interest reserve to pay the full amount of the interest then due.

(b) Principal Payments .

(i) Payment of Net Sales Proceeds . Borrower will cause to be paid to Lender all payments which may be payable or otherwise received by Borrower upon or pursuant to (i) the closing of a sale of a Unit, or, (ii) the closing of any other transaction in which Borrower is required to pay a release price to Lender pursuant to Section 2.7 . If any such amounts are held by any Title Company, escrow agent, or any other Person, including without limitation, any purchaser or

 

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optionee, Borrower will direct such Title Company, escrow agent or other Person to pay all such amounts directly to Lender, and to take all other action required by Lender to cause such amounts to be paid directly to Lender from such Title Company, escrow agent or other Person. If Borrower collects or receives any such amounts in violation of this Section, Borrower will forthwith, upon receipt, transmit and deliver to Lender, in the form received, all cash, checks, drafts, chattel paper, and other instruments or writings for the payment of money (endorsed without recourse, where required, so that such items may be collected by Lender). Any such items which may be so received by Borrower shall be delivered by Borrower to Lender within three (3) Business Days of receipt and, pending such delivery, shall not be commingled with any other of Borrower’s funds or property, but will be held separate and apart from Borrower’s own funds or property and in express trust for Lender.

(ii) Remargining Principal Payments . Notwithstanding anything to the contrary set forth elsewhere in any Loan Document, at no time shall the aggregate Outstanding Loan Borrowings exceed the Available Loan Commitment. If, at any time, the aggregate Outstanding Loan Borrowings exceed the Available Loan Commitment, (including, without limitation, by reason of Commitment Amount reductions, changes in Appraised Values, exclusion of Eligible Collateral, adjustments to the Borrowing Base or Collateral Value, or otherwise), Borrower shall be obligated to make a payment to Lender in an amount equal to that amount by which the Outstanding Loan Borrowings exceed the Available Loan Commitment (a “Remargining Payment”). Any such Remargining Payment will be due no later than 2:00 p.m. (Eastern Time) on the fifth (5th) day after the day upon which Lender notifies Borrower (which notice may be given telephonically, by facsimile or in writing to the chief financial officer, corporate controller, or treasurer of Borrower) that such Remargining Payment is required.

(iii) Other Principal Payments . Any other principal payments which may become due and owing pursuant to this Agreement or any other Loan Document shall be paid as and when due pursuant to the terms and conditions of this Agreement or such other Loan Document.

(c) Payment at Maturity . All accrued and unpaid interest, together with all other sums owed to the Lender pursuant to any of the Loan Documents, including without limitation, any outstanding principal amounts, fees, costs and other charges, shall be paid in full on the Maturity Date.

(d) Prepayments . In addition to any principal payments required pursuant to this Section 2.3(d) and (e) , Borrower may from time to time pay, without penalty or premium, all or any portion of outstanding principal balance of the Loan upon three (3) Business Days’ prior written notice to Lender; provided , however , such prepayment shall be in a minimum amount of $1,000,000.00; and Borrower shall be required to pay to Lender (i) all accrued and unpaid interest on the principal so prepaid, (ii) pay any and all funding indemnification amounts required by Section 2.3(d) and (e) ; and (iii) on demand, reimburse Lender for, and hold Lender harmless from, all losses and expenses actually

 

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incurred by Lender as a result of such prepayment, including, any losses and expenses actually arising from the liquidation or redeployment of deposits acquired to fund or maintain the principal amount prepaid.

(e) Making Payments . Borrower will make each payment hereunder and under the Note, whether on account of principal, interest, fees or otherwise, not later than 2:00 p.m. (Eastern Time) addressed to: Attention: Commercial Loan Payment Center, P.O. Box 7405021, Atlanta, GA 30374-0502, unless otherwise directed in writing, on the day when due. Payments received after the required time on a Business Day will be deemed to have been received on the next succeeding Business Day and will bear interest accordingly. All payments shall be made, without setoff, deduction, or counterclaim, in immediately available funds to Lender.

(f) Late Charges . If any payment required under this Agreement or any other Loan Document is not paid within ten (10) days after such payment is due, then, at the option of Lender, and in addition to the remedies conferred upon Lender pursuant to this Agreement and the other Loan Documents (including, without limitation, the right to charge the Default Rate), a late charge of five percent (5%) of the amount of the regularly scheduled payment or $25.00, whichever is greater, to compensate Lender for administrative expenses and other costs related to such delinquent payment. This late charge may be assessed without notice, shall be immediately due and payable and shall be in addition to all other rights and remedies available to Lender.

(g) Application of Payments . All payments received by Lender pursuant to this Section 2.4 will be applied to interest, principal and Other Amounts in such order and priority as Lender may determine from time to time subject to the terms and conditions set forth in this Agreement and, with respect to the application of such payments to the Obligations due Lender pursuant to this Agreement, in accordance with the Pro Rata Share of each Lender.

(h) Business Days . Whenever any payment hereunder or with respect to the Loan is due on a day other than a Business Day, such payment will be made on the next succeeding Business Day, and such extension of time will in such case be included in the computation of interest or fees, as the case may be.

(i) Payment of Interest and Other Amounts by Advance . Borrower hereby authorizes the Lender to utilize Advances to pay interest accrued on any Note, and to pay taxes, insurance premiums and other Protective Advances, notwithstanding that Borrower may not have requested a disbursement of such amount. Lender, to the extent it has received sufficient funds from the Lender, may make such disbursements notwithstanding the existence of any Unmatured Default or a Event of Default. Such disbursements shall be added to the outstanding principal balance of the Loan. The authorization hereby granted shall be irrevocable and no further direction or authorization from Borrower shall be necessary for the Lender to make such disbursements. However, the provisions of this Section 2.4(i) shall not prevent Borrower from paying or otherwise release Borrower from its obligation to pay, any amounts due pursuant to this Loan Agreement or any other Loan Document from its own funds.

 

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2.5 Fees and Costs .

(a) Fees . On the Closing Date (and as a condition of closing of the Loan), and on each Facility Anniversary Date thereafter, Borrower agrees to pay Lender a facility fee equal to 0.35% of the Commitment Amount then in effect. As additional consideration for the Commitment, Borrower agrees to pay to Lender any other fees which may be due under this Agreement or any other Loan Document, including without limitation those fees identified in any separate agreement by and between Lender and Borrower. All such fees being deemed earned in full on the date or dates such fees are due and payable and non-refundable to Borrowers, regardless of any subsequent reduction in the Commitment Amount, any prepayment of the Loan, any termination of the Commitment or otherwise.

(b) Costs and Expenses - Generally . Borrower agrees to pay on demand all reasonable costs, expenses, and fees of Lender arising in connection with (i) this Agreement, the other Loan Documents and the Loan (including, without limitation, reasonable fees and expenses for outside attorneys, consultants, inspectors and other professional advisers, paralegals, document clerks and specialists, and costs and expenses of market studies, absorption studies, appraisals, appraisal review, title review, title insurance, surveys, environmental assessments, environmental testing, environmental cleanup, other inspection, processing, title, filing, and recording costs, expenses, fees and Protective Advances); (ii) the negotiation, execution, delivery, administration and modification of this Agreement and the other Loan Documents; (iii) inspecting the Collateral; and (iv) as otherwise provided herein or in the other Loan Documents.

(c) Costs and Expenses - After Default . In addition, after the occurrence and during the continuation of an Event of Default or an Unmatured Event of Default, Borrower agrees to pay on demand, all costs, expenses, and fees of Lender arising in connection with (i) this Agreement, the other Loan Documents and the Loan (including, without limitation, fees and reasonable expenses for outside attorneys, consultants, inspectors and other professional advisors, paralegals, documents clerks and specialists, and costs and expenses of market studies, absorption studies, appraisals, appraisal review, title review, title insurance, surveys, environmental assessments, environmental testing, environmental clean-up, other inspection, processing, title, filing and recording costs, expenses, fees and Protective Advances); (ii) the enforcement of this Agreement and the other Loan Documents and exercise of the rights and remedies of the Lender; (iii) the defense of the legality, validity, binding nature, and enforceability of this Agreement and the other Loan Documents and the perfection and priority of the Liens and Encumbrances granted in the other Loan Documents; (iv) gaining possession of, holding, repairing, maintaining, preserving, and protecting any Collateral; (v) selling or otherwise disposing of the Collateral; (vi) as otherwise related to this Agreement, the Loan Documents, such Collateral, or the rights and remedies of the Lender with respect thereto; and (vii) preparing for the foregoing, whether or not any legal proceeding is brought or other action is taken. Such costs, expenses, and fees will include, without limitation, all such costs, expenses, and fees incurred in connection with any court proceedings (whether at the trial or appellate level).

 

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(d) Failure to Pay . If any costs, expenses and fees or any other costs, expenses and fees from time to time due under the Loan Documents are not paid upon demand by Lender, Borrower agrees to pay interest on such costs, expenses, and fees at the Interest Rate from the date incurred until five (5) days after such demand and at the Default Rate thereafter until such amounts are paid in full. In addition, if such costs, expenses and fees are not paid within such five (5) day period, Lender may cause Advances to be made to pay such costs, expenses and fees, whether or not such Advance has been requested and whether or not the conditions precedent to an Advance have been satisfied.

2.6 Security . Payment of the Loan, all indebtedness and liabilities of Borrower to Lender and the performance of all Obligations, whether due or to become due, shall be secured by the Collateral, the Security Documents, and such other and further assignments and security interests as may be required or granted pursuant to the terms of the Loan Documents.

2.7 Releases of Collateral .

(a) Releases of Units and Lots . Borrower may request releases of Lots and Units from the lien and encumbrance of the applicable Deed of Trust from time to time; provided , however , Lender has no obligation to release any Collateral unless each of the following conditions precedent is satisfied:

(i) Generally . With respect to all releases:

(A) Notification to Lender . Borrower or the closing agent handling the sale shall have notified Lender in writing of the requested release.

(B) Release Price . Borrower shall have paid at or prior to closing, the greater of the Maximum Allowed Advance with respect to such Lot or Unit requested to be released or the Net Sales Proceeds to be received by Borrower in connection with such sale or transfer.

(C) No Default; Material Adverse Change . No Event of Default, Unmatured Event of Default nor any Material Adverse Change shall have occurred and be continuing.

(D) Remargining Payments . Lender shall have determined that, after giving effect to such release, no Remargining Payment would be required to be paid pursuant to Section 2.4(b)(ii) .

(E) Endorsements . Borrower shall provide Lender with such endorsements to the Title Policy as Lender may reasonably request in connection with such release.

(F) Escrow Arrangements . Each release shall be made by Lender by delivery of the release documents to a title company or other escrow agent satisfactory to Lender on such conditions as shall assure Lender that all conditions precedent to such release have been fully satisfied and the applicable transaction will be completed.

 

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(G) Payment of Costs and Expenses . Borrower shall have paid to Lender at closing and directly from escrow, an amount equal to all costs and expenses incurred by Lender in connection with such release.

(H) Legal Parcel . The Lot (or group of Lots) to be released constitute a legally subdivided interest in real property, and the release of such Lot will not impair access to the remaining Collateral or otherwise violate any requirements of any document of record covering the Approved Subdivision or any applicable law regarding subdivisions, parcel maps, lots or parcels and/or the sale of real property.

(ii) Releases of Units . In addition to the requirements of Section 2.7(a)(i) , Unit releases shall satisfy the following:

(A) Releases in the Ordinary Course of Business . With respect to any release of Units, the requested release shall be for the purpose of sale in the ordinary course of Borrower’s business pursuant to a Purchase Contract;

(B) Payment of Release Price . Borrower shall have paid to Lender the greater of (i) the Net Sales Proceeds for such Units, or (ii) the mandatory release price established for such Unit upon the Lender’s approval of the Approved Subdivision, which release amount shall in no event be less than the Maximum Allowed Advance for such Unit; and

(C) Restrictions on Release of Model Units . In addition to the conditions set forth in this Section 2.8 , Any release of a Model Unit is subject to Section 6.3(i) .

(iii) Releases for Dedications and Similar Purposes . Upon written request of Borrower and so long as clauses A, C, D, and G of Section 2.7(a)(i) have been satisfied Lender may consent to the release of such portions of the Collateral as Borrower (A) is required to convey to a Governmental Authority or a bona fide public utility in connection with the development of an Approved Subdivision (such as roads, drainage easements, and utility easements) and for which Borrower receives no monetary compensation; or (B) proposes to convey to a homeowners’ association or similar Person in connection with the development of an Approved Subdivision (such as common areas) and for which Borrower receives no monetary compensation. Releases that satisfy the requirements of this Section do not require the payment of any release price; provided , however , such releases shall be made by Lender by delivery of the release documents to a title company or other escrow agent reasonably satisfactory to Lender on such conditions as shall assure Lender that all conditions precedent to such release have been satisfied and that the applicable transaction will be completed and Borrower shall provide Lender with such endorsements to the Title Policy as Lender may reasonably request in connection with each such release.

 

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(iv) Other Releases . Collateral not eligible to be released pursuant to Section 2.7(a) or no longer Eligible Collateral pursuant to Article 3 of the Agreement will be released only with the prior written consent of Lender upon no less than thirty (30) days written request to Lender, and only upon such terms and conditions acceptable to Lender, including without limitation, no Unmatured Event of Default, Event of Default or Material Adverse Change has occurred and is continuing. Notwithstanding anything to the contrary set forth elsewhere herein, Lender shall have no obligation to consider or approve any request for the release of Collateral if the requested release does not satisfy the applicable release requirements set forth in Section 2.7(a) .

(v) Adjustment to Borrowing Base Upon Release . Any Collateral released shall no longer be Eligible Collateral and the Collateral Value of Eligible Collateral shall be immediately and automatically adjusted to reflect such release.

2.8 Condominium Provisions . The Loan shall be subject to the following additional terms relating to the condominium nature of any Approved Subdivision:

(a) Lender’s security for the Loan shall extend to and include all of Borrower’s right, title, and interest in and to any and all Units, common elements, development rights, and special declarant rights created pursuant to any condominium declaration or plan recorded against the applicable Approved Subdivision in accordance with applicable law.

(b) Borrower shall not record any condominium declaration, plat, plan, or survey on applicable Approved Subdivision or make any amendment thereto or file, amend, or adopt any articles of incorporation, bylaws, or rules and regulations for any condominium owner’s association for the Approved Subdivision without Lender’s prior written consent, which shall not be unreasonably withheld, conditioned or delayed. To the extent such documentation includes portions of the Approved Subdivision not included in phases currently under development with residential Units, Borrower shall (i) ensure that the documentation allows the property that is to be developed in subsequent phases to be withdrawn from the condominium project in separately conveyable parcels should declarant or its successors elect not to proceed with development of such phases and (ii) reserve such easements and other rights as may be necessary for the development of the withdrawn parcel.

(c) Borrower shall make such representations, warranties, appointments and agreements with regard to the condominium that Borrower anticipates creating in connection with the Approved Subdivision as are set forth in the applicable Deed of Trust and all other applicable Loan Documents.

 

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(d) Prior to completion of construction or, in the case of a project comprised of more than one building or phase, prior to completion of construction of the first building to be developed on the Approved Subdivision, Borrower shall provide Lender with condominium documentation for the Approved Subdivision satisfactory to Lender, in its reasonable discretion, including the condominium declaration for the Approved Subdivision and the related plat or survey, the articles of incorporation, bylaws, or rules and regulations for the condominium owner’s association for the Approved Subdivision, a proposed budget for the condominium association, and evidence of all required approvals of the same and all opinion letters submitted by Borrower in connection therewith, together with evidence reasonably satisfactory to Lender of the availability of financing for the purchase of individual Units on the Approved Subdivision, and shall make all necessary amendments thereto in a form reasonably satisfactory to Lender prior to the completion of any subsequent phases of the development of the Approved Subdivision.

2.9 [Intentionally Omitted]

2.10 Facility LCs .

(a) Issuance . Lender hereby agrees, on the terms and conditions set forth in this Agreement, to issue standby letters of credit (each, a “ Facility LC ”) and to renew, extend, increase, decrease or otherwise modify each Facility LC (“ Modify ,” and each such action a “ Modification ”), from time to time from and including the date of this Agreement and prior to the Term Out Date upon the request of Borrower; provided that immediately after each such Facility LC is issued or Modified, (i) the _. Sum of all outstanding LC Obligations shall not exceed the Facility LC Sublimit and (ii) the Outstanding Loan Borrowings shall not exceed the Available Commitment. No Facility LC shall have an expiry date later than the earlier of (x) the fourteenth (14 ^th ) Business Day prior to the Maturity Date and (y) one (1) year after its issuance; provided that any Facility LC may provide for renewal for additional one (1) year periods so long as in no event shall the expiry extend beyond the date specified in clause (x) of this Section or if such expiry is extended beyond such date Borrower shall have provided Lender with readily available funds to secure such Facility LC at the time of issuance. Each Facility LC shall be issued in connection with obligations incurred by Borrower in the ordinary course of the Borrower’s business with respect to the acquisition and development of the Subdivisions.

(b) Notice . Borrower shall give Lender notice prior to 2:00 p.m. Eastern Time) at least five (5) Business Days prior to the proposed date of issuance or Modification of each Facility LC, specifying the beneficiary, the proposed date of issuance (or Modification) and the expiry date of such Facility LC, and describing the proposed terms of such Facility LC and the nature of the transactions proposed to be supported thereby. The issuance or Modification of any Facility LC shall, in addition to the conditions precedent set forth in Article 4, be subject to the conditions precedent that such Facility LC shall be satisfactory to Lender and that Borrower shall have (i) specified in writing to Lender the nature and purpose of the proposed Facility LC and (ii) executed and delivered such application agreement and/or such other instruments and agreements

 

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relating to such Facility LC as Lender shall have reasonably requested (each, a “Facility LC Application”). In the event of any conflict between the terms of this Agreement and the terms of any Facility LC Application, the terms of this Agreement shall control.

(c) LC Fees . Borrower shall pay to Lender, with respect to each standby Facility LC, a letter of credit fee at a per annum rate of one and a quarter percent (1.25%) on the average daily undrawn stated amount under such standby Facility LC, such fee to be payable in arrears on the first day of each January, April, July and October (each such fee described in this sentence an “ LC Fee ”). Borrower shall pay to Lender any documentary and processing charges in connection with the issuance or Modification of and draws under Facility LCs in accordance with Lender’s standard schedule for such charges as in effect from time to time.

(d) Administration . Upon receipt from the beneficiary of any Facility LC of any demand for payment under such Facility LC, Lender shall notify Borrower as to the amount to be paid by Lender as a result of such demand and the proposed payment date (the “ LC Payment Date ”). The responsibility of Lender to Borrower shall be only to determine that the documents (including each demand for payment) delivered under each Facility LC in connection with such presentment shall be in conformity in all material respects with such Facility LC.

(e) Reimbursement by Borrower . Borrower shall be irrevocably and unconditionally obligated to reimburse Bank on or before the applicable LC Payment Date for any amounts to be paid by Bank upon any drawing under any Facility LC, without presentment, demand, protest or other formalities of any kind; provided that Borrower shall not be precluded from asserting any claim for direct (but not consequential) damages suffered by Borrower to the extent, but only to the extent, caused by (i) the willful misconduct or gross negligence of Bank in determining whether a request presented under any Facility LC issued by it complied with the terms of such Facility LC or (ii) Bank’s failure to pay under any Facility LC issued by it after the presentation to it of a request strictly complying with the terms and conditions of such Facility LC. All such amounts paid by Bank and remaining unpaid by Borrower shall bear interest, payable on demand, for each day until paid at a rate per annum equal to (x) the applicable Interest Rate for such day if such day falls on or before the applicable LC Payment Date or (y) the sum of 3% plus the applicable Interest Rate for such day if such day falls after such LC Payment Date.

(f) Obligations Absolute . Borrower’s obligations under this Section 2.11 shall be absolute and unconditional under any and all circumstances and irrespective of any setoff, counterclaim or defense to payment which Borrower may have or have had against Bank or any beneficiary of a Facility LC. Borrower further agrees with Bank that Bank shall not be responsible for, and the Borrower’s Reimbursement Obligation in respect of any Facility LC shall not be affected by, among other things, the validity or genuineness ^’ of documents or of any endorsements thereon, even if such documents should in fact prove to be in any or all respects invalid, fraudulent or forged, or any dispute between or among Borrower, any of its Affiliates, the beneficiary of any Facility LC or any financing institution or other party to whom any Facility LC may be transferred or any claims or

 

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defenses whatsoever of Borrower or of any of its Affiliates against the beneficiary of any Facility LC or any such transferee. Bank shall not be liable for any error, omission, interruption or delay in transmission, dispatch or delivery of any message or advice, however transmitted, in connection with any Facility LC. Borrower agrees that any action taken or omitted by under or in connection with each Facility LC and the related drafts and documents, if done without gross negligence or willful misconduct, shall be binding upon Borrower and shall not put Bank under any liability to Borrower. Nothing in this Section 2.10(f) is intended to limit the right of Borrower to make a claim against for damages as contemplated by the proviso to the first sentence of Section 2.10(e).

(g) Actions of Lender . Lender shall be entitled to rely, and shall be fully protected in relying, upon any Facility LC, draft, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons, and upon advice and statements of legal counsel, independent accountants and other experts selected by Lender.

(h) Indemnification . Borrower hereby agrees to indemnify and hold harmless Lender, and its directors, officers, agents and employees from and against any and all claims and damages, losses, liabilities, costs or expenses which Lender may incur (or which may be claimed against Lender by any Person whatsoever) by reason of or in connection with the issuance, execution and delivery or transfer of or payment or failure to pay under any Facility LC or any actual or proposed use of any Facility LC, including, without limitation, any claims, damages, losses, liabilities, costs or expenses which Lender may incur by reason of or on account of Lender issuing any Facility LC which specifies that the term “Beneficiary” included therein includes any successor by operation of law of the named Beneficiary, but which Facility LC does not require that any drawing by any such successor Beneficiary be accompanied by a copy of a legal document, satisfactory to Lender, evidencing the appointment of such successor Beneficiary; provided, that Borrower shall not be required to indemnify Lender for any claims, damages, losses, liabilities, costs or expenses to the extent, but only to the extent, caused by (x) the willful misconduct or gross negligence of Lender in determining whether a request presented under any Facility LC complied with the terms of such Facility LC or (y) Lender’s failure to pay under any Facility LC after the presentation to it of a request strictly complying with the terms and conditions of such Facility LC. Nothing in this Section 2.10(h) (i) is intended to limit the obligations of Borrower under any other provision of this Agreement or (ii) is intended to limit the rights of Borrower to make claims as described in the proviso in the first sentence of Section 2.10(e).

(i) Facility LC Collateral Account . Borrower agrees that it will, upon the request of Lender after the breach of Borrower’s obligations under this Section 2.10, after the expiration of all applicable notice and cure periods, the occurrence of an Event of Default or if otherwise required by this Agreement and until the final expiration date of any Facility LC and thereafter as long as any amount is payable to Lender in respect of any Facility LC, maintain a special collateral account pursuant to arrangements satisfactory to Lender (the “ Facility LC Collateral Account ”) at

 

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Lender’s office at the address specified in Section 2.4 , in the name of Borrower but under the sole dominion and control of Lender, and in which Borrower shall have no interest. Borrower hereby pledges, assigns and grants to Lender a security interest in all of Borrower’s right, title and interest in and to all funds which may from time to time be on deposit in the Facility LC Collateral Account to secure the prompt and complete payment and performance of the Obligations . Lender will invest any funds on deposit from time to time in the Facility LC Collateral Account in certificates of deposit of Lender One having a maturity not exceeding thirty (30) days. Nothing in this Section 2.10(i) shall either obligate Lender to require Borrower to deposit any funds in the Facility LC Collateral Account or limit the right of Lender to release any funds held in the Facility LC Collateral Account.

ARTICLE 3

BORROWING BASE

3.1 Determination of Eligible Collateral/Borrowing Base . Eligible Collateral in the Borrowing Base will be determined by Lender from time to time as set forth in this Article 3 . The Borrowing Base will consist of the Collateral Values of the Eligible Collateral in the Borrowing Base as determined from time to time in accordance with this Agreement and subject to the limitations set forth in this Article 3 .

3.2 Lot Term Limits .

(a) Pre-Development Land . Pre-Development Land in each Approved Subdivision may be included in the Borrowing Base as Eligible Collateral for a period of not more than twelve (12) Calendar Months after the applicable Approved Subdivision Closing Date, subject to the Maximum Allowed Advance limitations for the aggregate amount of the Commitment Amount applicable to the Pre-Development Land for such Approved Subdivision.

(b) Land Under Development . Land Under Development in each Approved Subdivision may be included in the Borrowing Base as Eligible Collateral for a period of not more than: (A) with respect to any Attached Lots or High Density Lots within an Approved Subdivision (Subject to Lender’s right to adjust such High Density Lot eligibility term, either by increasing or decreasing same, in connection with Lender’s approval of the applicable Subdivision as an Approved Subdivision), twenty-four (24) Calendar Months after the first applicable Lot Eligibility Date for such Attached Lots or High Density Lots, or (B) with respect to Detached Lots, thirty (30) Calendar Months after the first applicable Lot Eligibility Date for such Land Under Development, subject to the Maximum Allowed Advance limitations for the aggregate amount of the Commitment Amount applicable to the Land Under Development for such Approved Subdivision. The foregoing eligibility periods for Land Under Development may be extended for an additional six (6) Calendar Months upon written notice to the Lender no earlier than 90 days and no later than thirty (30) days prior to the expiration of such original time period and provided no Material Adverse Change, no Unmatured Event of Default nor any Event of Default has occurred and is continuing.

 

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(c) A&D Completed Lots . A&D Completed Lots in each Approved Subdivision may be included in the Borrowing Base as Eligible Collateral for a period of not more than eighteen (18) Calendar Months after the first applicable Lot Eligibility Date for such A&D Completed Lots, subject to the Maximum Allowed Advance limitations for the aggregate amount of the Commitment Amount applicable to the A&D Completed Lots for such Approved Subdivision.

(d) Expiration of Lot Term . Any Land (and any Lots therein), including without limitation, any Pre-Development Land, Land Under Development or any A&D Completed Lots, that have been included as Eligible Collateral for the maximum term determined in accordance with the provisions of this Section 3.2 will no longer be considered Eligible Collateral upon expiration of such term and shall be excluded from any determination of the Collateral Value of the Borrowing Base. Notwithstanding that such Land (and any Lots therein) is no longer Eligible Collateral, such Land (together with any Lots therein and any Improvements thereon) will nevertheless remain part of the Collateral until released as permitted by this Agreement.

3.3 Other Limitation of Lot Eligibility .

(a) Land Under Development Commencement Date . Borrower shall commence development of any Land Under Development within nine (9) Calendar Months of the first Lot Eligibility Date with respect to such Land Under Development and shall, thereafter, prosecute such development in good faith and due diligence until completion thereof. In the event Borrower fails to commence such development within that nine (9) Calendar Month Period, or otherwise fails to continue with such development at all times thereafter, such Land Under Development shall be excluded from Eligible Collateral. Notwithstanding such ineligibility, however, such ineligible Land Under Development may later qualify as Eligible Collateral as A&D Completed Lots and/or as Units, subject to the terms, conditions and limitations with respect thereto as set forth in this Agreement.

(b) Aggregate Lot Concentration Limitation . Commencing as of the 271st day following the Effective Date and continuing at all time thereafter, in no event shall the aggregate Collateral Value with respect to all Pre-Development Land, Land Under Development and A&D Finished Lots exceed 40% of the aggregate Collateral Value with respect to all Eligible Collateral within the Borrowing Base. Further, with respect to each Project, at no time shall the aggregate amount of the Project Costs for all Land Under Development for that Project exceed $30,000,000 unless consented to by Lender in writing as an additional condition precedent to the addition of such Project as an Approved Subdivision under the Borrowing Base.

(c) High End Lot Concentration Limitation . Commencing as of the 271st day following the Effective Date and continuing at all time thereafter, in no event shall the aggregate Collateral Value with respect to all High End Lots exceed 25% of the aggregate Collateral Value with respect to all Eligible Collateral within the Borrowing Base.

 

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(d) Attached Lots and High Density Lot Concentration Limitation . Commencing as of the 271st day following the Effective Date and continuing at all time thereafter, in no event shall the aggregate Collateral Value with respect to all Attached Lots and High Density Lots exceed 30% of the aggregate Collateral Value with respect to all Eligible Collateral within the Borrowing Base.

(e) Lots to Be Excluded From Eligible Collateral . In the event the limitations set forth in this Section 3.3 have been exceeded, the last applicable Lots added to the Borrowing Base will be the first excluded as Eligible Collateral until such time as such limitations are no longer exceeded. The limitations set forth in this Section 3.3 shall be tested on a monthly basis by Lender and as a condition precedent to the approval of any Subdivision as an Approved Subdivision.

3.4 Transfer of Lots for Unit Construction . Borrower may transfer a Lot for Unit construction upon inclusion of the Lot in the Unit Cost component of a Borrowing Base Report, identifying the specific Lot that is being converted, with such converted Lot thereafter to be classified as a Model Unit, Spec Unit, or a Presold Unit as appropriate and to be subject to the provisions of this Agreement relating to Units; provided, however, that before any Lot is included in Eligible Collateral as a Unit, the conditions precedent set forth in Section 4.4 must have been satisfied with respect to such Lot, including, without limitation, the provisions of Section 4.4(n) imposing the requirement that the Unit Construction Threshold must be met. Effective upon such a transfer of the classification of a Lot to a Unit, the Lot’s Collateral Value is automatically replaced on the Borrowing Base Report by the Unit Collateral Value with respect to such Lot.

3.5 Unit Term Limits; Reclassification of Units .

(a) Presold Units . Each Presold Unit may be included in Eligible Collateral for not more than twelve (12) Calendar Months from the Unit Eligibility Date for such Unit. A Presold Unit no longer subject to a Purchase Contract will be deemed to be a Spec Unit as of the date the Unit is no longer subject to a Purchase Contract; subject, however, to the provisions of Section 3.5(e) . A Unit will not be considered to be a Presold Unit unless and until a final public report (if a public report is required by applicable Requirements) has been obtained by Borrower and delivered to the purchaser of such Unit and all cancellation periods in favor of such purchaser with respect to such public report have expired.

(b) Spec Units . Each Spec Unit may be included in Eligible Collateral for not more than twelve (12) Calendar Months from the original Unit Eligibility Date for such Unit.

(c) Model Units . Each Model Unit that is a Detached Unit may be included in Eligible Collateral for a period of not more than thirty- six (36) Calendar Months from the original Unit Eligibility Date for such Unit as determined by Lender in connection with any approval of the applicable Subdivision as an Approved Subdivision. Each Model Unit that is an Attached Unit may be included in Eligible Collateral for a period of not more than twenty-four (24) Calendar Months from the original Unit Eligibility Date

 

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for such Unit as determined by Lender in connection with any approval of the applicable Subdivision as an Approved Subdivision. After the expiration of such approved period, the Model Units will not be considered Eligible Collateral but shall continue to be included as Collateral unless and until reclassified as Presold Units and sold and released pursuant to Section 2.7 .

(d) Conversion of Presold Units . If a Presold Unit is reclassified as a Spec Unit, such Spec Unit may be included in Eligible Collateral for not more than twelve (12) Calendar Months from the Unit’s original Unit Eligibility Date as a Unit and, on reclassification, such Spec Unit will be subject to a Reclassification Adjustment; provided, however, that no such Spec Unit will be entitled to be included in Eligible Collateral if the effect of inclusion would be to cause the limitations of Section 3.6 to be exceeded.

(e) Conversion of Spec Units . If a Spec Unit is reclassified as a Presold Unit (by reason of the execution and delivery of a Purchase Contract), such Unit may be included in Eligible Collateral as a Presold Unit for not more than twelve (12) Calendar Months from the original Unit Eligibility Date of such Unit and, on reclassification, such Presold Unit will be subject to a Reclassification Adjustment.

(f) Classification and Reclassification of Units; Adjustment of Borrowing Base . Lender may classify or reclassify Units as to type from time to time, or change Borrower’s proposed classification of any and all Units, provided that such reclassification shall be based upon the definitions of Spec Units, Presold Units and Model Units set forth herein and each such reclassified Unit shall meet the requirements set forth herein for that type of Unit. Effective as of the date that a Unit is reclassified as to type, such reclassification will give rise to a Reclassification Adjustment.

(g) Expiration of Unit Term . In no event may any Unit be included as Eligible Collateral beyond the applicable Unit term as set forth in this Section 3.5 . Units that are sold, that have been included as Eligible Collateral for the maximum term determined in accordance with the provisions of this Section 3.5 or that are otherwise not eligible to be Eligible Collateral pursuant to any provision of this Agreement will no longer be Eligible Collateral upon sale and release in compliance with the provisions of this Agreement, upon expiration of such term, or upon such Units becoming ineligible, as the case may be. However, a Unit that is no longer Eligible Collateral because of expiration of the term during which such Unit was entitled to be Eligible Collateral or because of its becoming ineligible pursuant to any provision of this Agreement will nevertheless remain part of the Collateral until released as permitted by this Agreement.

3.6 Other Limitations on Unit Eligibility .

(a) Concentration Limitation on Spec and Model Units . Commencing as of the 271st day following the Effective Date and continuing at all time thereafter, in no event shall the aggregate Collateral Value with respect to all Spec Units and Model Units included in Eligible Collateral exceed 30% of the aggregate Collateral Value with respect to all Eligible Collateral within the Borrowing Base.

 

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(b) Concentration Limitation on High-End Units . Commencing as of the 271st day following the Effective Date and continuing at all time thereafter, in no event shall the aggregate Collateral Value with respect to all High End Units included in Eligible Collateral exceed 25% of the aggregate Collateral Value with respect to all Eligible Collateral within the Borrowing Base.

(c) Concentration Limitation on Attached Units and High Density Units . Commencing as of the 271st day following the Effective Date and continuing at all time thereafter, in no event shall the aggregate Collateral Value with respect to all Attached Units and High Density Units included in Eligible Collateral exceed 30% of the aggregate Collateral Value with respect to all Eligible Collateral within the Borrowing Base.

(d) Limitation on Number of Spec Units and Model Units . At no time shall the aggregate number of Spec Units and Model Units exceed thirty (30) Units with respect to any Approved Subdivision.

(e) Units to be Excluded From Eligible Collateral . In the event any of the limitations set forth in this Section 3.6 have been exceeded, the last applicable Units added to the Borrowing Base will be the first to be excluded as Eligible Collateral until such time as such limitations are no longer exceeded. The limitations set forth in this Section 3.6 shall be tested on a monthly basis by Lender and as a condition precedent to the approval of any Subdivision as an Approved Subdivision.

3.7 Events Affecting Units and Lots; Exclusions from Eligible Collateral .

(a) If (i) any Unit or Lot included in Eligible Collateral is materially damaged, destroyed, or becomes subject to any condemnation proceeding, (ii) Borrower violates any provisions of, or breaches any representations and warranties in, the Loan Documents (including, without limitation, any Environmental Agreement) with respect to such Lot or Unit or (iii) Lender makes or is entitled to make any claim under any title insurance policy with respect to such Lot or Unit, such item, at Lender’s sole option, may be declared by Lender to no longer be Eligible Collateral or Lender may adjust its Collateral Value.

(b) If any such item does not continue to meet all the requirements applicable to Eligible Collateral, such item will no longer constitute Eligible Collateral. Any determination by Lender as to whether Units or Lots constitute Eligible Collateral will be final, conclusive, binding and effective immediately.

3.8 Other Limitations on Borrowing Base .

(a) General Limitations . The portion of any A&D Lot Development Budget and Unit Budget attributable to “soft costs” and “hard costs” line items will be limit