Exhibit 10.4

TENTH MODIFICATION AGREEMENT TO BORROWING BASE REVOLVING LINE OF

CREDIT AGREEMENT

 

DATE:    December 19, 2008    PARTIES:          Borrower:   

WILLIAM LYON HOMES, INC., a

California corporation

   Guarantor:   

WILLIAM LYON HOMES, a

Delaware corporation

   Bank:   

JPMORGAN CHASE BANK, N.A.

(successor by merger to Bank One, NA

(Main Office Chicago, Illinois)), a national

banking association

JPMORGAN CHASE BANK, N.A. (successor by merger to Bank One, NA (Main Office
Chicago, Illinois)), a national banking association (“Bank”), and WILLIAM LYON
HOMES, INC., a California corporation (“Borrower”), hereby enter into this Tenth
Modification Agreement to Borrowing Base Revolving Line of Credit Agreement (the
“Modification”) to the Borrowing Base Revolving Line of Credit Agreement dated
as of June 28, 2004, as modified by a Modification Agreement, dated as of
December 7, 2004, by a Second Modification Agreement to Borrowing Base Revolving
Line of Credit Agreement, dated as of July 14, 2005, by a Third Modification
Agreement to Borrowing Base Revolving Line of Credit Agreement, dated as of
October 23, 2006, by a Fourth Modification Agreement to Borrowing Base Revolving
Line of Credit Agreement, dated as of April 26, 2007, by a Fifth Modification
Agreement to Borrowing Base Revolving Line of Credit Agreement, dated as of
November 6, 2007, by a Sixth Modification Agreement to Borrowing Base Revolving
Line of Credit Agreement, dated as of February 20, 2008, by a Seventh
Modification Agreement to Borrowing Base Revolving Line of Credit Agreement,
dated as of March 12, 2008, by an Eighth Modification Agreement to Borrowing
Base Revolving Line of Credit Agreement, dated as of June 5, 2008, and by a
Ninth Modification Agreement to Borrowing Base Revolving Line of Credit
Agreement, dated as of September 16, 2008 (the “Loan Agreement”), with the
consent of guarantor WILLIAM LYON HOMES, a Delaware corporation (“Guarantor”).

RECITALS

A. Bank has extended to Borrower credit (“Loan”) up to the maximum principal
amount of Seventy Million Dollars ($70,000,000) pursuant to the Loan Agreement,
as presently evidenced by that certain Amended and Restated Promissory Note
dated as of July 14, 2005 (the “Note”) executed by Borrower and payable to the
order of Bank.

B. The Loan is secured by, among other things, certain Construction Deeds of
Trust and Fixture Filing (With Assignment of Rents and Security Agreement)
executed by

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Borrower as Trustor for the benefit of Bank (such Deeds of Trust, as amended to
dated, shall be hereinafter referred to, individually, as a “Deed of Trust” and,
collectively, as the “Deeds of Trust”). The Loan is further secured by the
personal property described in certain UCC-1 Financing Statements relating to
the property encumbered by the Deeds of Trust naming Borrower as Debtor and Bank
as Secured Party (as amended to date, the “UCC Financing Statements”). The Deeds
of Trust, the UCC Financing Statements, and such other agreements, documents and
instruments securing the Loan are referred to individually and collectively as
the “Security Documents”).

C. Repayment of the Loan and the completion of the improvements have been, and
continue to be, guaranteed by the Repayment Guaranty dated as of June 28, 2004
and executed by Guarantor in favor of Bank (the “Guaranty”). The Guaranty and
any other agreements, documents and instruments guarantying the Loan are
referred to individually and collectively as the “Guaranty Documents”.

D. The Loan Agreement, the Note, the Security Documents, the Guaranty Documents,
any environmental certification and indemnity agreement, and all other
agreements, documents, and instruments evidencing, securing, or otherwise
relating to the Loan, as may be amended, modified, extended or restated from
time to time, are sometimes referred to individually and collectively as the
“Loan Documents”. Hereinafter, the Loan Documents shall mean such documents as
modified in this Modification.

E. The Borrower and the Bank have agreed to modify the Loan as provided herein.

F. All capitalized terms used herein and not otherwise defined shall have the
meanings given to such terms in the Loan Agreement.

AGREEMENT

For good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Borrower and Bank agree as follows:

 

1. ACCURACY OF RECITALS.

Borrower acknowledges the accuracy of the Recitals.

 

2. MODIFICATION OF LOAN DOCUMENTS.

2.1 The Commitment Amount is hereby reduced from $40,000,000 to $30,000,000. In
no event shall the Bank be obligated to make any disbursement of the Loan which
would cause the outstanding principal balance of the Loan to exceed the
Commitment Amount, as reduced hereby.

2.2 The Maturity Date is hereby shortened from June 28, 2010 to December 28,
2009. All principal, interest and Other Amounts shall be immediately due and
payable on the Maturity Date, as shortened hereby.

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2.3 The definition of “Interest Rate” set forth in Section 1.1 of the Loan
Agreement is deleted in its entirety and replaced with the following:

“‘Interest Rate’ means the LIBOR Rate or the Floating Rate, as applicable,
provided that the Interest Rate shall never be less than 5.5% per annum.”

2.4 The definition of “Floating Rate” set forth in Section 1.1 of the Loan
Agreement is deleted in its entirety and replaced with the following:

“‘Floating Rate’ means, for any day, a rate per annum equal to the sum of
(a) the Prime Rate for such day, plus (b) the Applicable Margin; provided that
the Floating Rate shall never be less than the Applicable Margin plus the
Adjusted One Month LIBOR Rate for a one month Interest Period on such day (or if
such day is not a Business Day, the immediately preceding Business Day). Any
change in the Floating Rate due to a change in the Prime Rate or the Adjusted
One Month LIBOR Rate shall be effective from and including the effective date of
such change in the Prime Rate or the Adjusted One Month LIBOR Rate,
respectively.”

2.5 The following definition is hereby added to Section 1.1 of the Loan
Agreement:

“‘Adjusted One Month LIBOR Rate’ means, an interest rate per annum equal to the
sum of (i) 2.50% per annum plus (ii) the LIBOR Base Rate for a one month
Interest Period on such day (or if such day is not a Business Day, the
immediately preceding Business Day); provided that, for the avoidance of doubt,
the LIBOR Base Rate for any day shall be based on the rate appearing on the
Reuters Screen LIBOR01 Page (or on any successor or substitute page) at
approximately 11:00 a.m. London time on such day.”

2.6 Section 2.3(a) of the Loan Agreement is hereby deleted in its entirety and
restated to provide as follows:

“(a) Rate of Interest. Each Advance will bear interest from the date of the
Advance at a per annum Interest Rate which is either the LIBOR Rate or the
Floating Rate, as elected by Borrower in accordance with Section 2.4, provided
that the Interest Rate shall never be less than 5.5% per annum.”

2.7 Section 2.11(d) of the Loan Agreement is hereby deleted in its entirety and
restated to provide as follows:

“(d) Payments During Term Out. From and after the Revolving Credit Termination
Date, the Borrower shall make the following principal payments:

(i) On the last day of the second Calendar Month after the Revolving Credit
Termination Date, on the last day of each fourth Calendar Month after the
Revolving Credit Termination Date, and on the Maturity Date, the Borrower will
make a principal payment, as necessary to reduce the Outstanding Loan Borrowings
to an amount no greater than the Commitment Amount. For the purposes of this
Section 2.11(d), on the last day of the second Calendar Month after the
Revolving Credit Termination Date, the Commitment Amount shall be

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reduced to an amount equal to Twenty Million Dollars ($20,000,000), and on the
last day of the fourth Calendar Month after the Revolving Credit Termination
Date, the Commitment Amount shall be reduced to an amount equal to Ten Million
Dollars ($10,000,000); and

(ii) To the extent that the Outstanding Loan Borrowings exceed the Available
Commitment at any time, then within one (1) Business Day the Borrower shall make
a principal payment in the amount of the excess.”

2.8 Section 7.1 of the Loan Agreement is deleted in its entirety and replaced
with the following:

“7.1 Minimum Tangible Net Worth Covenant. Guarantor shall maintain a Tangible
Net Worth of at least $90,000,000.00.”

2.9 Section 7.2 of the Loan Agreement is deleted in its entirety and replaced
with the following:

“7.2 [Intentionally Omitted.]”

2.10 Section 7.3 of the Loan Agreement is deleted in its entirety and replaced
with the following:

“7.3 Minimum Available Liquidity Covenant. On the Effective Date and at all
times thereafter, Guarantor will have Available Liquidity of no less than
$30,000,000.00, of which no less than $10,000,000.00 shall consist of
consolidated aggregate unpledged, unreserved, and unrestricted cash and
unpledged, unreserved, and unrestricted Cash Equivalents, and the balance of
which may consist of either (a) consolidated aggregate unpledged, unreserved,
and unrestricted cash and unpledged, unreserved, and unrestricted Cash
Equivalents, (b) the unadvanced portion of any revolving lines of credit loans
available to Guarantor as a borrower with respect to which (i) all conditions
precedent to such advance have been satisfied (with the exception of a request
for such advance) and (ii) no default, event of default or unmatured event of
default has occurred, or (c) a combination of the Available Liquidity described
in clauses (a) and (b) above.”

2.4 The Pricing Schedule set forth in Exhibit C of the Loan Agreement is deleted
in its entirety and replaced with the Pricing Schedule attached hereto as
Appendix I.

2.5 Notwithstanding any provision in the Loan Agreement or in any other Loan
Document to the contrary, with respect to the Approved Subdivision commonly
known as “The Lofts,” which was approved as an Approved Subdivision pursuant to
that certain Project Loan Addendum dated as of June 20, 2007, (i) the Maximum
Allowed Advance for the MFR A&D Lots in such Approved Subdivision included in
the Borrowing Base is hereby reduced to $0.00, (ii) the Maximum Allowed Advance
for each MFR Spec Unit in such Approved Subdivision included in the Borrowing
Base is hereby reduced to the lesser of (A) 50% of the Appraised Value for that
Unit or (B) 50% of the Unit Cost for that Unit, and (iii) the Maximum Allowed
Advance for each MFR Model Unit in such Approved Subdivision included in the
Borrowing

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Base is hereby reduced to the lesser of (A) 50% of the Appraised Value for that
Unit or (B) 50% of the Unit Cost for that Unit.

2.6 Each reference in the Loan Documents to any of the Loan Documents shall be a
reference to such document as modified herein.

 

3. RATIFICATION OF LOAN DOCUMENTS AND COLLATERAL.

The Loan Documents are ratified and affirmed by Borrower and shall remain in
full force and effect as modified herein. Any property or rights to or interests
in property granted as security in the Loan Documents shall remain as security
for the Loan and the obligations of Borrower in the Loan Documents.

 

4. CONDITIONS PRECEDENT.

Before this Agreement becomes effective and any party becomes obligated under
it, all of the following conditions shall have been satisfied at Borrower’s sole
cost and expense in a manner acceptable to Bank in the exercise of Bank’s sole
judgment:

4.1 Bank shall have received such assurance as Bank may require that the
validity and priority of the Deeds of Trust have not been and will not be
impaired by this Agreement or the transactions contemplated by it, including the
issuance by the title company of CLTA Endorsement No. 110.5 to be attached to
Bank’s title policies insuring the liens of the Deeds of Trust.

4.2 Bank shall have received fully executed and, where appropriate, acknowledged
originals of this Modification, the attached consents signed by Guarantor,
certain Modification Agreements (Short Form) dated of even date herewith (the
“Short Form Modifications”) relating to each of the Deeds of Trust, and any
other documents which Bank may require or request in accordance with this
Agreement or the other Loan Documents.

4.3 The Short Form Modifications shall have been recorded in the Official
Records of the Counties in which the Deeds of Trust were originally recorded, in
addition to all other documents which Bank may require to be recorded.

4.4 Bank shall have received reimbursement, in immediately available funds, of
all costs and expenses incurred by Bank in connection with this Agreement,
including charges for title insurance (including endorsements), recording,
filing and escrow charges, fees for appraisal, architectural and engineering
review, construction services and environmental services, mortgage taxes, and
legal fees and expenses of Bank’s counsel. Such costs and expenses may include
the allocated costs for services of Bank’s in-house staffs, such as legal,
appraisal, construction services and environmental services. Borrower
acknowledges that any extension and modification fees payable in connection with
this transaction do not include the amounts payable by Borrower under this
subsection.

 

5. ENTIRE AGREEMENT, CHANGE, DISCHARGE, TERMINATION, OR WAIVER.

The Loan Documents as modified herein contain the entire understanding and
agreement

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of Borrower and Bank in respect of the Loan and supersede all prior
representations, warranties, agreements, arrangements, and understandings. No
provision of the Loan Documents as modified herein may be changed, discharged,
supplemented, terminated, or waived except in a writing signed by Bank and
Borrower.

 

6. BINDING EFFECT.

The Loan Documents as modified herein shall be binding upon, and inure to the
benefit of, Borrower and Bank and their respective successors and assigns.

 

7. CHOICE OF LAW.

This Agreement shall be governed by and construed in accordance with the laws of
the State of California, without giving effect to conflicts of law principles.

 

8. COUNTERPART EXECUTION.

This Agreement may be executed in one or more counterparts, each of which shall
be deemed an original and all of which together shall constitute one and the
same document. Signature pages may be detached from the counterparts and
attached to a single copy of this Agreement to physically form one document.

[Signatures on following page]

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DATED as of the date first above stated.

 

BORROWER:     WILLIAM LYON HOMES, INC.,     a California corporation     By:  

/s/ Michael D. Grubbs

    Name:  

Michael D. Grubbs

    Title:  

Senior Vice President

    By:  

/s/ Richard S. Robinson

    Name:  

Richard S. Robinson

    Title:  

Senior Vice President

BANK:     JPMORGAN CHASE BANK, N.A. (successor by merger to Bank One, NA (Main
Office Chicago, Illinois)), a national banking association     By:  

/s/ Kimberlee Edwards

    Name:  

Kimberlee Edwards

    Title:  

Senior Vice President

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CONSENT AND AGREEMENT OF GUARANTOR

With respect to that certain Tenth Modification Agreement to Borrowing Base
Revolving Line of Credit Agreement (hereinafter, the “Modification”) between
WILLIAM LYON HOMES, INC., a California corporation (“Borrower”), and JPMORGAN
CHASE BANK, N.A. (successor by merger to Bank One, NA (Main Office Chicago,
Illinois)), a national banking association (“Bank”), to which this Consent is
attached, the undersigned (“Guarantor”), hereby (i) ratifies and reaffirms all
of its obligations to Bank under the Guaranty, (ii) consents to the execution
and delivery by Borrower of the attached Modification, and (iii) confirms that
the Guaranty remains in full force and effect notwithstanding Borrower’s
execution of the attached Modification. The undersigned agrees that the
execution of this Consent and Agreement of Guarantor (the “Consent”) is not
necessary for the continued validity and enforceability of the Guaranty, but it
is executed to induce Bank to enter into the Modification.

This Consent may be executed in one or more counterparts, each of which shall be
deemed an original and all of which together shall constitute one and the same
document. Signature pages may be detached from the counterparts and attached to
a single copy of this Consent to physically form one document. Facsimile
transmission of the signed original of this Consent or the retransmission of any
signed facsimile transmission will be deemed the same as delivery of an
original.

IN WITNESS WHEREOF, Guarantor has executed this Agreement as of the date set
forth on the attached Tenth Modification Agreement.

 

“Guarantor”    

WILLIAM LYON HOMES,

a Delaware corporation

    By:  

/s/ Michael D. Grubbs

    Name:  

Michael D. Grubbs

    Title:  

Senior Vice President

    By:  

/s/ Richard S. Robinson

    Name:  

Richard S. Robinson

    Title:  

Senior Vice President

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APPENDIX I

PRICING SCHEDULE

 

APPLICABLE

MARGIN

   LEVEL I
STATUS     LEVEL II
STATUS     LEVEL III
STATUS     LEVEL IV
STATUS  

LIBOR Rate

   4.50 %   4.00 %   3.50 %   3.00 %

Floating Rate

   2.00 %   1.50 %   1.00 %   0.50 %

The Applicable Margin shall be determined on a quarterly basis, commencing as of
December 1, 2008 and on each March 1, June 1, September 1 and December 1
thereafter, and shall be determined based on the weighted average of the dollar
deposits maintained by Borrower in deposit accounts established with Bank during
the preceding three (3) month period, all as determined by Bank.

For the purposes of this Schedule, the following terms have the following
meanings, subject to the final paragraph of this Schedule:

“Level I Status” exists for each three (3) month period that the weighted
average of the dollar deposits maintained by Borrower in deposit accounts
established with Bank during the preceding three (3) month period, as determined
by Bank, is less than or equal to $2,499,999.99.

“Level II Status” exists for each three (3) month period that the weighted
average of the dollar deposits maintained by Borrower in deposit accounts
established with Bank during the preceding three (3) month period, as determined
by Bank, is greater than $2,499,999.99 but less than or equal to $4,999,999.99.

“Level III Status” exists for each three (3) month period that the weighted
average of the dollar deposits maintained by Borrower in deposit accounts
established with Bank during the preceding three (3) month period, as determined
by Bank, is greater than $4,999,999.99 but less than or equal to $9,999,999.99.

“Level IV Status” exists for each three (3) month period that the weighted
average of the dollar deposits maintained by Borrower in deposit accounts
established with Bank during the preceding three (3) month period, as determined
by Bank, is greater than $10,000,000.00.

“Status” means either Level I Status, Level II Status, Level III Status, or
Level IV Status.

 

APPENDIX I