EXHIBIT 10.8

 

THIRD AMENDMENT TO LOAN AGREEMENT

AND TO OTHER LOAN DOCUMENTS

 

THIS THIRD AMENDMENT TO LOAN AGREEMENT AND TO OTHER LOAN DOCUMENTS (this “Third
Amendment”) dated as of January 10, 2003, is entered into by and between WILLIAM
LYON HOMES, INC., a California corporation (the “Borrower”) and RFC CONSTRUCTION
FUNDING CORP., a Delaware corporation (the “Lender”).

 

RECITALS

 

A. Lender, as assignee of Residential Funding Corporation, a Delaware
corporation, has agreed to make a loan to Borrower, in the original principal
amount of up to One Hundred Million Dollars ($100,000,000) (the “Loan”) pursuant
to the terms of the Loan Agreement dated as of September 25, 2000, as amended by
a First Amendment to Loan Agreement dated as of July 13, 2001, as amended by a
Second Amendment to Loan Agreement and to Other Loan Documents dated as of March
28, 2002 (as the same may be amended or otherwise modified from time to time,
the “Loan Agreement”), and in connection therewith Borrower has made, executed
and delivered to Lender that certain Promissory Note dated March 28, 2002 (as
the same may be restated, renewed, amended or otherwise modified from time to
time, the “First Replacement Note”) payable to the order of the Lender in the
original principal amount of One Hundred Million Dollars ($100,000,000).

 

B. The Borrower has requested that the Lender amend the Loan Agreement to, among
other things, (i) increase the Loan Amount from $100,000,000 to $150,000,000,
(ii) include a new $15,000,000 letter of credit facility in the Loan Agreement,
and (iii) make certain other amendments to the Loan Agreement and the other Loan
Documents.

 

C. As a condition to granting the Borrower’s requests, the Lender has required
the execution and delivery of this Third Amendment by the Borrower.

 

D. Unless otherwise defined herein, capitalized terms used herein shall have the
meanings given those terms in Loan Agreement.

 

AGREEMENT

 

NOW THEREFORE, in consideration of the foregoing Recitals and the covenants and
conditions, representations and warranties contained herein, the parties hereto
agree as follows:

 

Section 1. Recitals. The Recitals hereinabove contained are true and correct and
made a part of and incorporated into the Loan Agreement.

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Section 2. Amendments to Existing Definitions of the Loan Agreement. Section 1.1
of the Loan Agreement is hereby amended by replacing the existing definitions of
“Borrowing Base Allowable Disbursement Amount”, “Commitment Fee”, “Independent
Project Commitment Amount”, “Letter of Credit”, “Letter of Credit Amount”, “Loan
Amount” and “Note” with the following amended definitions of “Borrowing Base
Allowable Disbursement Amount”, “Commitment Fee”, “Independent Project
Commitment Amount”, “Letter of Credit”, “Letter of Credit Amount”, “Loan Amount”
and “Note”:

 

“‘Borrowing Base Allowable Disbursement Amount’ shall mean, on any date of
determination, as determined by Lender, the amount of the Loan available to be
disbursed with respect to the Borrowing Base Collateral, which amount shall be
the lesser of (a) the Loan Amount minus the sum of (i) the outstanding principal
balance of advances under the Loan made for the acquisition of Land and
Development Work for all Projects, plus (ii) the sum of the Borrowing Base
Outstanding Amount and the aggregate amount of all outstanding Obligations of
Reimbursement with respect to Letters of Credit which have been drawn upon, or
(b) the Borrowing Base Value minus the sum of the Borrowing Base Outstanding
Amount and the aggregate amount of all outstanding Obligations of Reimbursement
with respect to Letters of Credit which have been drawn upon.”

 

“‘Commitment Fee’ shall mean the fee the Borrower is required to pay to the
Lender during the period from the date of this Loan Agreement through the
Maturity Date, which fee shall be (i) for the period through and including March
31, 2002, an amount equal to one-half of one percent (.50%) per annum of
Seventy-Five Million Dollars ($75,000,000), to be paid in quarterly installments
as provided in Section 2.4, (ii) for the period from and after April 1, 2002
through and including January 10, 2003, an amount equal to one-half of one
percent (.50%) per annum of One Hundred Million Dollars ($100,000,000), to be
paid in quarterly installments as provided in Section 2.4, and (iii) for the
period from and after January 10, 2003, an amount equal to one-half of one
percent (.50%) per annum of One Hundred Fifty Million Dollars ($150,000,000), to
be paid in quarterly installments as provided in Section 2.4; provided, however,
to the extent that after January 10, 2003 the maximum amount of the Loan Amount
is reduced by the Borrower to less than One Hundred Fifty Million Dollars
($150,000,000) in accordance with the provisions of Section 2.15, the Commitment
Fee shall be payable on such reduced maximum amount of the Loan Amount from and
after the date on which such reduction under Section 2.15 becomes effective.”

 

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“‘Independent Project Commitment Amount’ shall mean, at any date of
determination, the aggregate amount of outstanding loan commitments issued by
the Lender (RFC Construction Funding Corp.) and/or Residential Funding
Corporation to the Borrower or its Affiliates with respect to projects which are
not cross-collateralized with the Projects and which are evidenced by promissory
notes other than the Note, which “Independent Project Commitment Amount” shall
(i) specifically include the loan commitment in the initial amount of
$23,473,200 with respect to the project known as Sterling Glen at Ladera Ranch
in Orange County, California, the loan commitment in the initial amount of
$20,644,320 with respect to the project known as Davenport at Ladera Ranch in
Orange County, California, and any loan commitment now or hereafter with respect
to the project known as Walden Park at Ladera Ranch in Orange County,
California, and (ii) specifically not include that certain loan commitment in
the initial amount of $12,566,362 issued by Residential Funding Corporation to
the Borrower with respect to the acquisition and development project known as
Sycamore Ranch located in Fallbrook, San Diego County, California. For purposes
of this Agreement, the “Independent Project Commitment Amount” shall (i)
automatically increase by the amount of any new loan commitment issued by the
Lender (RFC Construction Funding Corp.) or Residential Funding Corporation to
the Borrower or its Affiliates with respect to a project which is not
cross-collateralized with the Projects and which is evidenced by a promissory
note other than the Note, with such automatic increase to become effective on
the date of issuance of such new loan commitment, and (ii) reduce by the amount
of any reduction in the Independent Project Commitment Amount, with such
reduction to become effective only upon delivery by the Lender (RFC Construction
Funding Corp.) or Residential Funding Corporation to the Borrower or its
applicable Affiliate of a written notice which serves to reduce a specific loan
commitment by the amount specified in such written notice.”

 

“‘Letter of Credit’ shall mean any letter of credit issued by GMAC as
contemplated by Section 6.24 of this Agreement.”

 

“‘Letter of Credit Amount’ shall mean the sum of (a) the aggregate amount
available for drawing under all of the outstanding Letters of Credit and (b) the
aggregate amount of all outstanding Obligations of Reimbursement with respect to
Letters of Credit which have been drawn upon.”

 

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“‘Loan Amount’ shall mean, at any date of determination, an amount equal to (a)
One Hundred Fifty Million Dollars ($150,000,000), minus (b) the outstanding
principal amount of the loans under the Independent Project Commitment Amount,
subject to reduction pursuant to Section 2.15.”

 

“‘Note’ shall mean that certain Revolving Promissory Note dated as of the date
of the Third Amendment to Loan Agreement and to Other Loan Documents and
executed by Borrower, as maker, and made payable to the order of Lender, as
holder, in the amount of One Hundred Fifty Million Dollars ($150,000,000) and
maturing on the Maturity Date, to evidence the Loan, as such Revolving
Promissory Note may be amended or otherwise modified from time to time, which
Note has been issued in replacement of and substitution for, but not in payment
of, that certain Revolving Promissory Note dated as of March 28, 2002 and
executed by Borrower, as maker, and made payable to the order of the Lender, as
holder, in the amount of One Hundred Million Dollars ($100,000,000).”

 

Section 3. Addition of New Definitions to Loan Agreement. Section 1.1 of the
Loan Agreement is hereby amended by adding the following new definitions of
“GMAC”, “Obligation of Reimbursement”, “Special Collateral Account” and “Third
Amendment to Loan Agreement and to Other Loan Documents”:

 

“‘GMAC’ means General Motors Acceptance Corporation, a Delaware corporation.

 

“‘Obligation of Reimbursement’ has the meaning specified in Section 6.24(e) of
the Loan Agreement.”

 

“‘Special Collateral Account’ has the meaning specified in Section 6.24(i) of
the Loan Agreement.

 

“‘Third Amendment to Loan Agreement and to Other Loan Documents’ means that
certain Third Amendment to Loan Agreement and to other Loan Documents dated as
of January 10, 2003, between the Borrower and the Lender.”

 

Section 4. Amendment to Section 2.1(a) of the Loan Agreement. Section 2.1(a) of
the Loan Agreement is hereby amended in its entirety to read as follows:

 

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“(a) Lender agrees, on the terms and conditions hereinafter set forth, to make
the Loan to Borrower for the purpose of providing financing for Projects;
provided, however, that (i) the sum of the outstanding principal balances of
advances under the Loan made for the acquisition of Land and Development Work
for all Projects, the Borrowing Base Outstanding Amount and the Letter of Credit
Amount shall not exceed at any time the Loan Amount, (ii) the advances of the
Loan made with respect to the acquisition of Land and the Development Work for
any given Project shall not exceed at any time the Acquisition and Development
Amount for such Project, (iii) the Borrowing Base Outstanding Amount shall not
exceed at any time the Borrowing Base Value, and (iv) the obligation of the
Lender to make the Loan is conditioned upon, among other things, the Lender’s
receipt of the documents set forth in Exhibit A attached hereto. Borrower and
Lender acknowledge that although the sum of the Acquisition and Development
Amounts for all Projects, the Borrowing Base Outstanding Amount and the Letter
of Credit Amount at any given date of determination may exceed the Loan Amount,
Lender shall have no obligation to make any advance of Loan proceeds which would
cause the sum of the outstanding principal balance of the Loan and the Letter of
Credit Amount to exceed the Loan Amount. The Borrower shall repay the Loan
pursuant to Section 2.6, may prepay the Loan pursuant to Section 2.8 and may
reborrow proceeds of the Loan pursuant to this Section 2.1(a). The Borrower
acknowledges and agrees that the Borrower will not request, and the Lender shall
have no obligation to make available to the Borrower, any advance of the Loan
which, after giving effect to such advance of the Loan, would cause the
outstanding principal balance of the Loan to exceed $100,000,000 until such time
as the requirements in subsections (a) and (b) of Section 5.8 of this Loan
Agreement shall have been satisfied.”

 

Section 5. Amendment to Section 5.4 of the Loan Agreement. Section 5.4 of the
Loan Agreement is hereby amended in its entirety to read as follows:

 

“Section 5.4 Financial Covenants. Borrower shall cause the Guarantor to comply
with each of the following financial covenants:

 

“(a) Tangible Net Worth. The Guarantor and its Subsidiaries (including the
Borrower) shall maintain at all times a Tangible Net Worth equal to or in excess
of the amount set forth below opposite the applicable period set forth below:

 

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Applicable Period

  

Minimum Tangible Net Worth
Amount

As of March 31, 2002

  

$120,000,000

June 30, 2002 and each calendar
quarter thereafter

  

The Required Tangible Net
Worth Amount

 

As used in this Section 5.4, the “Required Tangible Net Worth Amount” for any
given calendar quarter shall be an amount equal to the sum of the minimum
Tangible Net Worth required under this Section 5.4 as of the immediately
preceding calendar quarter plus fifty percent (50%) of the Net Income realized
by the Guarantor and its Subsidiaries (including the Borrower) during the
then-ended calendar quarter (with any net loss counting as zero in such
calculation).

 

(b) Ratio of Total Liabilities to Tangible Net Worth. The Guarantor and its
Subsidiaries (including the Borrower) will maintain at all times the ratio of
its Total Liabilities to Tangible Net Worth of not more than 3.50 to 1.00.”

 

Section 6. Addition of New Section 5.8 to the Loan Agreement. Article V of the
Loan Agreement is hereby amended by adding the following new Section 5.8
immediately after existing Section 5.7:

 

“Section 5.8. Deed of Trust Modification Agreements and Title Policy
Endorsements related to the Third Amendment to Loan Agreement and to Other Loan
Documents. Within thirty (30) calendar days after the date of the Third
Amendment to Loan Agreement and to Other Loan Documents, the Borrower will (a)
execute and deliver to the Lender a Deed of Trust Modification Agreement in form
and content acceptable to the Lender with respect to each existing Deed of
Trust, which shall, among other things, amend each such Deed of Trust to
expressly secure the Loan in the principal amount of $150,000,000, and (b) will
cause the Title Company to issue to the Lender a Title Policy Endorsement in
form and content acceptable to the Lender with respect to each Title Policy,
pursuant to which the aggregate amount of title insurance provided under the
Title Policies is increased to $150,000,000 and pursuant to which the Title
Company expressly insures the lien of each existing Deed of Trust, as amended by
the applicable Deed of Trust Modification Agreement, subject only to such
exceptions as are approved by the Lender.”

 

Section 7. Amendment to Section 6.24 of the Loan Agreement. Section 6.24 of the
Loan Agreement is hereby amended in its entirety to read as follows:

 

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“Section 6.24 Letters of Credit.

 

(a) Subject to the terms and conditions set forth in this Section 6.24 and
elsewhere in this Loan Agreement, the Lender agrees to use its best efforts to
arrange for the issuance by GMAC of Letters of Credit requested by the Borrower,
in substantially the form of Exhibit A to the Third Amendment to Loan Agreement
and to Other Loan Documents, subject to the following conditions: (i) the
Lender, in its sole discretion, shall have approved the issuance of any such
requested Letter of Credit, and such Letter of Credit is to be issued for the
exclusive purpose of providing security to a seller in lieu of a cash deposit
with respect to a proposed purchase of land by the Borrower from such seller or
for such other purpose as the Lender shall have approved in its sole discretion,
(ii) the Letter of Credit Amount shall not exceed Fifteen Million Dollars
($15,000,000) at any time, (iii) the Lender shall not arrange for the issuance
of any such requested Letter of Credit if, after giving effect to the issuance
of such Letter of Credit, the outstanding principal balance of the Loan and the
Letter of Credit Amount would exceed the Loan Amount, (iv) the Lender shall not
arrange for the issuance of any such requested Letter of Credit if, after giving
effect to the issuance of such Letter of Credit, the Letter of Credit Amount
would exceed fifty percent (50%) of the outstanding principal balance of the
Loan, (v) the Lender shall not arrange for the issuance of any such requested
Letter of Credit which would have an expiry date which is more than one (1) year
from the date of issuance of such Letter of Credit or which is later than the
Approval Period Termination Date, and (vi) the Lender shall not attempt to
arrange for the issuance of any such requested Letter of Credit if GMAC is
unable or unwilling to issue such requested Letter of Credit.

 

(b) Whenever the Borrower desires to obtain issuance of a Letter of Credit, the
Borrower shall request the same by written notice to the Lender, which notice
shall specify the requested amount of such Letter of Credit, the requested
beneficiary of such Letter of Credit and the purpose of such requested Letter of
Credit, together with all relevant information related to the requested Letter
of Credit, including, without limitation, a copy of the related land purchase
agreement, and such other information related to such requested Letter of Credit
as the Lender shall request. If requested by the Lender, the Borrower shall
execute such letter of credit applications, agreements and other documentation
as the Lender may require on the forms provided by the Lender. Upon the Lender’s
approval of a requested Letter of Credit and upon satisfaction of all other
conditions to issuance of such Letter of Credit set forth in this Agreement, the
Lender shall request that GMAC issue and deliver the requested Letter of Credit;
provided, however, in no event shall the Lender have any liability to the
Borrower or to any other Person in the event GMAC does not issue or deliver the
Letter of Credit as requested. In the event that GMAC advises the Lender that
GMAC

 

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will not issue a requested Letter of Credit, the Lender shall promptly notify
the Borrower of GMAC’s determination not to issue the requested Letter of
Credit.

 

(c) The Borrower hereby agrees to pay to the Lender, for each Letter of Credit,
a fee equal to the sum of (i) one and one-fourth of one percent (1.25%) per
annum of the face amount of such Letter of Credit for the period commencing on
the date of issuance of such Letter of Credit and ending on the expiry day of
such Letter of Credit, and (ii) the fees, if any, required by GMAC for issuing
such Letter of Credit. In the event that GMAC advises the Lender that GMAC will
charge a fee for issuing any requested Letter of Credit, the Lender shall
promptly notify the Borrower of the amount of such fee prior to issuance of such
requested Letter of Credit. The foregoing letter of credit fees shall be payable
in advance to the Lender prior to issuance of such Letter of Credit. In addition
to the foregoing fees, the Borrower shall pay to the Lender, on written demand
by the Lender, all administrative fees charged by the Lender or GMAC in
connection with the honoring of drafts under such Letter of Credit and all other
activity with respect to such Letter of Credit.

 

(d) The Borrower and the Lender acknowledge and agree as follows:

 

(1) The Lender is not obligated to provide, obtain or procure any Letter of
Credit;

 

(2) The Lender’s sole obligation to the Borrower with respect to the Letters of
Credit are as set forth in this Agreement and the other Loan Documents;

 

(3) The Lender has an absolute right to decline approval for any requested
Letter of Credit if (i) any Event of Default or Potential Default has occurred
and is continuing, or (ii) the Lender decides, in its sole discretion for any
reason, not to approve the requested Letter of Credit.

 

(e) The Borrower hereby irrevocably agrees to reimburse the Lender with respect
to all amounts drawn on any Letter of Credit plus any and all reasonable charges
and expenses incurred relative to any such drawing on any such Letter of Credit
(all such amounts with respect to any such Letter of Credit are hereinafter
referred to, collectively, as the “Obligation of Reimbursement” with respect to
such Letter of Credit). Subject to all of the terms and conditions set forth in
this Agreement, in the event the Borrowing Base Allowable Disbursement Amount
(excluding any reduction thereto attributable to the Obligation of Reimbursement
related to any given Letter of Credit) is sufficient to permit the Borrower to
request a disbursement of the Loan under the ABF Program for the purposes of
repaying the Obligation of Reimbursement with respect to such Letter of Credit,
then the Borrower

 

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may request a disbursement under the ABF Program for the purpose of repaying the
Obligation of Reimbursement with respect to such Letter of Credit. In addition,
in the event that the Obligation of Reimbursement with respect to such Letter of
Credit has not been fully repaid within five (5) Business Days following any
drawing under such of Letter of Credit, the Lender, without any request from or
notice to the Borrower, is hereby irrevocably authorized to (but has no
obligation to) make a disbursement of the Loan in an amount equal to the amount
paid by the Lender or any Affiliate of the Lender to GMAC to reimburse GMAC for
any amount paid by GMAC in connection with a draw on any Letter of Credit plus
any and all reasonable charges and expenses incurred relative to any such
drawing, regardless of whether the Borrowing Base Allowable Disbursement Amount
(excluding any reduction thereto attributable to the Obligation of Reimbursement
related to such Letter of Credit) is sufficient to permit the Borrower to
request a disbursement of the Loan under the ABF Program. The Borrower’s failure
to fully repay any Obligation or Reimbursement with respect to a Letter of
Credit within five (5) Business Days following any drawing under such Letter of
Credit shall constitute an Event of Default under this Agreement.

 

(f) Any unpaid Obligation of Reimbursement with respect to a Letter of Credit
shall bear interest at the interest rate then in effect under the Note and shall
be calculated on the basis of a 360 day year, comprised of twelve (12) thirty
(30) day months. Interest due with respect to an unpaid Obligation of
Reimbursement shall be due and payable from time to time on demand of the
Lender.

 

(g) The obligations of the Borrower to the Lender with respect to repayment of
any Obligation or Reimbursement with respect to any Letter of Credit, or any
disbursement of the Loan under this Section 6.24 with respect thereto, shall be
absolute, unconditional and irrevocable to the extent permitted by law, and
shall be performed strictly in accordance with the terms of this Loan Agreement,
irrespective of any of the following circumstances:

 

(1) any lack of validity or enforceability of any Loan Document, any Letter of
Credit, any of the documents relating to any Letter of Credit, or any other
agreement or instrument underlying any Loan Documents or any Letter of Credit,
or any failure to comply strictly with the terms of any Loan Document, any
Letter of Credit or any other agreement or instrument;

 

(2) any amendment or waiver of, or consent to departure from, any Letter of
Credit, any document relating thereto or any Loan Document;

 

(3) the existence of any claim, setoff, defense or other right which the Lender,
any Affiliate of Lender or the Borrower may have at any time against any other
party or any beneficiary or any transferee of any Letter of

 

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Credit (or any persons or entities for whom any such party or beneficiary or any
such transferee may be acting), the issuer of any Letter of Credit or any other
person or entity, whether in connection with a Letter of Credit, any document
relating thereto, any Loan Document, any agreement or transaction underlying a
Letter of Credit or any unrelated transactions;

 

(4) any statement, certificate, draft or other document presented under a Letter
of Credit proving to be forged, fraudulent, invalid or insufficient in any
respect or any statement therein being untrue or inaccurate in any respect
whatsoever;

 

(5) payment by the issuer of a Letter of Credit under such Letter of Credit
against presentation of a draft or certificate which does not comply with the
terms of the Letter of Credit; or

 

(6) any other circumstance or happening whatsoever, whether or not similar to
any of the foregoing.

 

(h) Without limiting in any way any Obligation of Reimbursement with respect to
a Letter of Credit or any disbursement of the Loan under this Section 6.24 which
is owing by the Borrower to the Lender, the Borrower reserves any claim which
the Borrower may have against the Lender to the extent of any direct damages (as
opposed to consequential or exemplary damages) suffered by the Borrower as a
result of the gross negligence or willful misconduct of the Lender or GMAC in
connection with the honoring or other administration of such Letter of Credit.
Nothing in this Section 6.24(h) shall be construed as a reservation by the
Borrower of a claim against GMAC to the extent of any damages suffered by the
Borrower as a result of the gross negligence or willful misconduct of the Lender
or GMAC in connection with the honoring or other administration of any Letter of
Credit.

 

(i) If at any time the Letter of Credit Amount shall exceed fifty percent (50%)
of the outstanding principal balance of the Loan, upon request of the Lender,
the Borrower shall immediately deliver to Lender for deposit by the Lender in a
collateral account pledged to the Lender (the “Special Collateral Account”) an
amount equal to the amount by which the Letter of Credit Amount exceeds fifty
percent (50%) of the outstanding principal balance of the Loan. The Borrower
hereby grants the Lender a security interest in the Special Collateral Account
and in all amounts now or hereafter in the Special Collateral Account to secure
payment of all obligations now or hereafter owing by the Borrower to the Lender.
The Borrower agrees to execute such agreements and other documentation as the
Lender shall reasonably request from time to time to evidence such security
interest. All interest or other earnings on amounts in the Special Collateral
Account shall be credited to the Special Collateral

 

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Account. Following the occurrence of an Event of Default, amounts in the Special
Collateral Account may be applied by the Lender at any time or from time to time
to the obligations now or hereafter owing by the Borrower to the Lender in such
order of application as the Lender shall determine in its sole discretion. The
Borrower shall have no right to withdraw or otherwise obtain any funds from the
Special Collateral Account. In the event that the Letter of Credit Amount shall
cease to exceed fifty percent (50%) of the outstanding principal balance of the
Loan or to the extent that the amount of funds in the Special Collateral Account
exceeds the amount by which the Letter of Credit Amount exceeds fifty percent
(50%) of the outstanding principal balance of the Loan, so long as no Potential
Default or Event of Default exists, upon written request received by the Lender
form the Borrower, the Lender shall release such excess amount from the Special
Collateral Account to the Borrower.

 

(j) The Borrower recognizes and acknowledges that all real and personal property
given as security for the Loan also secures the Borrower’s obligations to the
Lender with respect to the Letters of Credit.

 

Section 8. Amendment to Section 8.1(l) of the Loan Agreement. Section 8.1(l) of
the Loan Agreement is hereby amended in its entirety to read as follows:

 

“(l) the Borrower shall fail to comply with, or shall fail to cause the
Guarantor to comply with, any of the covenants set forth in Section 5.2, Section
5.3, Section 5.4, Section 5.5, Section 5.6, or Section 5.7 or Section 5.8.”

 

Section 9. Amendment to Section 8.1(x) of the Loan Agreement. Section 8.1(x) of
the Loan Agreement is hereby amended in its entirety to read as follows:

 

“(x) an event of default (however described) shall occur under any loan
agreement or related loan document (other than under the Loan Agreement or under
the Loan Documents) between the Borrower and the Lender (RFC Construction
Funding Corp.), Residential Funding Corporation or any successor or assign
thereof; or”

 

Section 10. Addition of Section 8.1(y) to the Loan Agreement. Section 8.1 of the
is hereby amended by adding the following new subsection (y) immediately
following existing subsection (x):

 

“(y) the failure of the Borrower to pay in full any Obligation of Reimbursement
owing by the Borrower to the Lender with respect to a Letter of Credit within
five (5) Business Days following any drawing under such Letter of Credit.”

 

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Section 11. Maximum Sum of Outstanding Principal Amount of Advances under the
Loan under the Loan Agreement, Letter of Credit Amount under the Loan Agreement
and Outstanding Principal Balance of Loans under the Independent Project
Commitment Amount. Notwithstanding anything to the contrary in the Loan
Agreement or in any other loan agreement related to any loan included in the
Independent Project Commitment Amount, neither the Lender (RFC Construction
Funding Corp.) nor Residential Funding Corporation shall have any obligation to
make any advance of the Loan under the Loan Agreement, to consider a request for
issuance of a Letter of Credit under the Loan Agreement or to make any advance
under any loan under the Independent Project Commitment Amount if, after giving
effect to the making of any such advance or the issuance of any such Letter of
Credit, the sum of the aggregate outstanding principal amount of advances under
the Loan under the Loan Agreement, the Letter of Credit Amount under the Loan
Agreement and the aggregate outstanding principal amount of loans under the
Independent Project Commitment Amount would exceed One Hundred Fifty Million
Dollars ($150,000,000).

 

Section 12. Amendment to Environmental Indemnity. Recital A of the Environmental
Indemnity is hereby amended in its entirety to read as follows:

 

“A. Lender and Indemnitor have entered into a Loan Agreement dated as of
September 25, 2000, as amended by a First Amendment to Loan Agreement dated as
of July 13, 2001, by a Second Amendment to Loan Agreement and to Other Loan
Documents dated as of March 28, 2002 and by a Third Amendment to Loan Agreement
and to Other Loan Documents dated as of January 10, 2003 (as the same may be
amended, supplemented or otherwise modified from time to time, including any
other instruments executed and delivered in renewal, extension, rearrangement or
otherwise in replacement of such Loan Agreement, the “Loan Agreement”), pursuant
to which Lender has agreed to make a revolving acquisition, development and
construction loan to Indemnitor in the principal amount of up to One Hundred
Fifty Million Dollars ($150,000,000) (the “Loan”), which Loan is evidenced by
that certain Revolving Promissory Note dated as of January 10, 2003, made by
Indemnitor to Lender (as the same may be amended, supplemented or otherwise
modified from time to time, including any other instruments executed and
delivered in renewal, extension, rearrangement or otherwise in replacement of
such Revolving Promissory Note, the ‘Note’).”

 

Section 13. Amendment to Assignment. Recital A of the Assignment is hereby
amended in its entirety to read as follows:

 

“A. Lender has agreed to make a revolving loan to Borrower in a principal amount
of up to One Hundred Fifty Million Dollars ($150,000,000) (the “Loan”) pursuant
to the terms of a Loan Agreement dated as of September 25, 2000, as amended by a
First Amendment to Loan Agreement dated as of July 13, 2001, by a

 

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Second Amendment to Loan Agreement and to Other Loan Documents dated as of March
28, 2002 and by a Third Amendment to Loan Agreement and to Other Loan Documents
dated as of January 10, 2003 (as the same may be amended, supplemented or
otherwise modified from time to time, including any other instruments executed
or delivered in renewal, extension, rearrangement or otherwise in replacement of
said Loan Agreement, the “Loan Agreement”), the proceeds of which Loan are
available to the Borrower subject to the terms and conditions of the Loan
Agreement.”

 

Section 14. Conditions Precedent to Effectiveness of the Third Amendment to Loan
Agreement and to Other Loan Documents. This Third Amendment shall become
effective when the Lender shall have received the following, each in form and
content acceptable to the Lender in its sole discretion:

 

(a) This Third Amendment, duly executed on behalf of the Borrower and duly
consented to by the Guarantor;

 

(b) A Revolving Promissory Note of the Borrower, payable to the order of the
Lender in the original principal amount of $150,000,000, duly executed on behalf
of the Borrower;

 

(c) A Second Amendment to Guaranty, duly executed on behalf of the Guarantor;

 

(d) A copy of the resolutions adopted by the board of directors of the Borrower
authorizing the Borrower to enter into this Third Amendment, the Revolving
Promissory Note described in (b) above, the Deed of Trust Modification
Agreements and any other documents or agreements contemplated by this Third
Amendment, certified as true and correct and in full force and effect by the
Secretary or other appropriate officer of the Borrower;

 

(e) A copy of the resolutions adopted by the board of directors of the Guarantor
authorizing the Guarantor to enter into the Second Amendment to Guaranty and any
other documents or agreements contemplated by this Third Amendment, certified as
true and correct and in full force and effect by the Secretary or other
appropriate officer of the Guarantor;

 

(f) An opinion of counsel to Borrower and Guarantor in form and content
acceptable to the Lender.

 

Section 15. Representations and Warranties of Borrower. The Borrower represents,
warrants and agrees that: (i) there exists no Potential Default or Event of
Default under the Loan Documents; (ii) the Loan Documents continue to be the
legal, valid and binding

 

13

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agreements and obligations of the Borrower, enforceable in accordance with their
terms, as modified herein; (iii) the Lender is not in default under any of the
Loan Documents; (iv) the Borrower does not have any offset or defense to its
performance or obligations under any of the Loan Documents; (v) the
representations contained in the Loan Documents remain true and accurate in all
respects; and (vi) there has been no Material Adverse Change from the date of
any of the Loan Documents to the date of this Third Amendment.

 

Section 16. Effect on Documents. Except as expressly modified by this Third
Amendment, the Loan Agreement shall otherwise be unchanged and shall remain in
full force and effect and the Borrower ratifies and reaffirms all of the
obligations of the Borrower thereunder.

 

Section 17. Execution in Counterparts. This Third Amendment may be executed in
any number of counterparts, each of which when so executed and delivered shall
be an original, but all of which shall together constitute one and the same
instrument.

 

14

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IN WITNESS WHEREOF, the Borrower and the Lender have executed this Third
Amendment as of the date first written above by and through their duly
authorized representatives.

 

BORROWER:
    

WILLIAM LYON HOMES, INC.,

a California corporation

By:

 

/s/    RICHARD S. ROBINSON        

--------------------------------------------------------------------------------

   

Richard S. Robinson
Senior Vice President

 

And

By:

 

/s/    MICHAEL D. GRUBBS        

--------------------------------------------------------------------------------

   

Michael D. Grubbs
Senior Vice President

 

LENDER:
    

RFC CONSTRUCTION FUNDING CORP.,

a Delaware corporation

By:

 

/s/    BRIAN L. CLAUSON        

--------------------------------------------------------------------------------

   

Brian L. Clauson
Assistant Vice President

 

15

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ACKNOWLEDGMENT

OF GUARANTOR

 

The undersigned, a guarantor of all of the debts, liabilities and obligations of
William Lyon Homes, Inc., a California corporation (the “Borrower”) to RFC
Construction Funding Corp., a Delaware corporation (the “Lender”) pursuant to
its Guaranty Agreement dated as of September 25, 2000, as amended by a First
Amendment to Guaranty Agreement dated as of March 28, 2002 and by a Second
Amendment to Guaranty Agreement dated as of January 10, 2003 (as the same may be
amended or restated from time to time, the “Guaranty”), hereby (i) acknowledges
receipt of the foregoing Third Amendment to Loan Agreement and to Other Loan
Documents, (ii) consents to the terms of the foregoing Third Amendment to Loan
Agreement and to Other Loan Documents, (iii) reaffirms its obligations to the
Lender under the Guaranty, and (iv) acknowledges that the Lender and the
Borrower may amend, restate, extend, renew, or otherwise modify the Loan
Agreement (as defined in the foregoing Third Amendment to Loan Agreement and to
Other Loan Documents or any other Loan Document (as defined in the foregoing
Third Amendment to Loan Agreement and to Other Loan Documents), without
notifying or obtaining the consent of the undersigned and without impairing the
liability of the undersigned under its Guaranty.

 

GUARANTOR:

 

WILLIAM LYON HOMES, a Delaware corporation

 

By:

 

/s/    RICHARD S. ROBINSON        

--------------------------------------------------------------------------------

   

Richard S. Robinson

Senior Vice President

 

And

 

By:

 

/s/    MICHAEL D. GRUBBS        

--------------------------------------------------------------------------------

   

Michael D. Grubbs

Senior Vice President

 

 

16

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EXHIBIT A TO THIRD AMENDMENT

TO LOAN AGREEMENT AND TO

OTHER LOAN DOCUMENTS

 

GENERAL MOTORS ACCEPTANCE CORPORATION

200 RENAISSANCE CENTER

Mailing Address:  P.O. Box 200, Detroit, Michigan 48265-2000

 

BRANCHES THROUGHOUT

                THE WORLD

    

EXECUTIVE OFFICES

DETROIT

 

FORM OF

IRREVOCABLE LETTER OF CREDIT

 

                     , 200_

 

Addressee

Address

 

Attn:                                 

 

RE:

  

Irrevocable  Letter of Credit

    

Amount:

  

$        ,        ,        .        

    

Term:

  

                             , 200_

    

Applicant:

  

RFC Construction Funding Corp. (for William Lyon Homes, Inc., a

    

California corporation—            )

    

Beneficiary:

              

Address

 

Dear Sir or Madam:

 

For the account of RFC Construction Funding Corp. (for William Lyon Homes, Inc.,
a California corporation—            ) we hereby open in your favor our
Irrevocable Letter of Credit (“Credit”) for an amount not exceeding a total of

 

17

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             and 00/100 U.S. dollars (U.S.
$            ,            ,            .             ), effective immediately
and expiring at the offices of General Motors Acceptance Corporation (“GMAC”) on
                         , 200_.

 

Funds under this Credit are available to you against your sight draft(s) drawn
on us, bearing the clause “Drawn under General Motors Acceptance Corporation
                         , 200_ Irrevocable Letter of Credit for the account of
RFC Construction Funding Corp. (for William Lyon Homes, Inc., a California
corporation—            ) completed by you in substantially the form attached as
Exhibit 1, for all or any part of this Credit.

 

All drafts drawn in compliance with the terms of this Credit shall be duly
honored if presented together with document(s) as specified and the original of
this Credit if received on or before the expiration date at:

 

200 Renaissance Center

Detroit, MI 48265

Attention: Managing Director and Chief Financial Officer

GMAC Mortgage Group, Inc.

 

Drafts presented at our office at the address set forth above no later than
10:00 a.m. shall be honored on the date of presentation, by payment, in
accordance with your payment instructions that accompany each such draft.
Payment under this Credit shall be made by wire transfer of immediately
available funds to your account as specified in the draft.

 

If any amounts are available under this Credit following honor of a draft drawn
under this Credit, we will endorse the amount of such draft drawn under this
Credit on the reverse of this Credit and we will return this Credit to you
following such honor.

 

This Credit sets forth in full the terms of our understanding. Such undertaking
shall not in any way be modified, amended or amplified by reference to any
document or instrument referred to herein or in which this Credit is referred to
or to which this Credit relates and any such reference shall not be deemed to
incorporate herein by reference any document or instrument.

 

This Credit, including the right to draw under this Credit, is not transferable.

 

All bank charges and commissions incurred in this transaction are for the
applicant’s account.

 

18

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We hereby agree with drawers, endorsers and bona fide holders of drafts drawn
under and in compliance with the terms of this Credit that such drafts will be
duly honored upon presentation to the drawee. The obligation of GMAC under this
Credit is the individual obligation of GMAC, and is not contingent upon
reimbursement with respect thereto.

 

This Credit shall be governed by and subject to the Uniform Customs and Practice
for Documentary Credits (1993 version), International Chamber of Commerce
Publication No. 500 (“UCP”) and to the extent not inconsistent with the UCP,
laws of the State of New York, and, in the event of conflict the laws of the
State of New York will control. If this Credit expires during an interruption of
business as described in Article 17 of said I.C.C. publication, we agree to
effect payment if this Credit is drawn against within 30 days after the
resumption of business.

 

GENERAL MOTORS ACCEPTANCE CORPORATION

By:

 

--------------------------------------------------------------------------------

   

Name:

Title:

 

19

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Exhibit 1

 

SIGHT DRAFT

 

General Motors Acceptance Corporation

200 Renaissance Center

Detroit, MI 48265

Attention: Managing Director and Chief Financial Officer  

                  GMAC Mortgage Group, Inc.

 

            , 200_

 

Pay on demand to the undersigned the sum of U.S. $            . This draft is
drawn under General Motors Acceptance Corporation                     
            , 200_ Irrevocable Letter of Credit for the account of RFC
Construction Funding Corp. (for William Lyon Homes, Inc., a California
corporation—            ).

 

The undersigned hereby certifies that the amount specified above is due and
owing to the undersigned pursuant to the terms of that certain             
Agreement dated as of                     ,     , between the undersigned and
William Lyon Homes, Inc., a California corporation.

 

The amount specified above should be paid to the undersigned by your wire
transfer of the amount specified above to the following account of the
undersigned:

 

 

 

 

 

 

 

 

By:

 

Name:

 

Title: