EXHIBIT 10.2

 

CONSTRUCTION LOAN AGREEMENT

 

This Construction Loan Agreement, dated as of XX, 2004, is entered into by and
among XX (“Borrower”), and those persons and entities listed on Exhibit “A”
attached hereto (collectively, “Lender”).

 

SECTION 1: DEFINITIONS AND ACCOUNTING TERMS.

 

1.1 Defined Terms. As used in this Agreement, the following terms shall have the
meanings set forth respectively after each:

 

“Actual Line Item Cost” means, with respect to each line item in the Approved
Budget, the actual cost reasonably determined by Lender or Borrower required to
complete all matters included in such line item.

 

“Agreement” means this Construction Loan Agreement.

 

“Approved Budgets” means the budgets for all Project Costs approved by Lender as
provided herein. The Approved Budgets showing the amounts allocated for all
Project Costs are attached hereto as Exhibit “B.”

 

“Approved Line Item Cost” means, with respect to each line item in the Approved
Budgets, the amount allocated to that line item under the Approved Budgets.

 

“Assignment of Architect’s Contract, Plans and Drawings” means the assignment by
Borrower of its agreement with the architect, to be executed by Borrower.

 

“Assignment of Construction Contract” means the assignment by Borrower of its
agreement with the Contractor, to be executed by Borrower.

 

“Assignment of Engineer’s Contract, Improvement Plans, Specifications and
Drawings” means the Assignment of Improvement Plans, Specifications and Drawings
executed by Borrower.

 

“Assignment of Permits, Licenses, Franchises and Authorizations” means the
Assignment of Permits, Licenses, Franchises and Authorizations executed by
Borrower.

 

“Assignment of Rents” means the Assignment of Rents contained in the Deed of
Trust.

 

“Business Day” means any Monday, Tuesday, Wednesday, Thursday, or Friday on
which banks in the State of Nevada are open for business.

 

“Change Order” means a change in the Improvement Plans or in their
implementation.

 

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“Completion of Construction” means: (i) the improvements have been constructed
in accordance with the Improvement Plans and all applicable Laws; (ii) a valid
notice of completion has been filed for record in the County Recorder’s Office
for the county in which the Property is located; (iii) all inspections by
Governmental Agencies have been completed; (iv) all necessary certificates and
approvals have been obtained; and (v) the period for filing mechanic’s and
materialmen’s liens has expired without any such liens having been filed or
recorded.

 

“Control Account” means Disbursement Agent’s account in which the Control
Account Funds shall be held.

 

“Contractor” means XX, or any other general contractor which Lender has approved
in writing.

 

“Control Account Escrow Agreement” means the Control Account Escrow Agreement
and Security Agreement by and between Borrower, Lender and Disbursement Agent of
even date herewith.

 

“Control Account Funds” means the portion of the Loan funds held in the Control
Account at any time, together with interest accrued thereon, any additions
thereto made pursuant to this Agreement, and any and all investments and
reinvestments of any such sums now or hereafter made.

 

“Debt” means any indebtedness of the Borrower other than indebtedness owed to
trade creditors incurred in the ordinary course of business and payable in 180
days or less.

 

“Deed of Trust” means the Deed of Trust, Assignment of Rents, Security Agreement
and Fixture Filing of even date herewith, executed by Borrower in favor of
Lender with respect to the Property or portions thereof, either as originally
executed or as it may from time to time be supplemented, modified or amended.

 

“Default Rate” shall have the meaning set forth in the Note.

 

“Disbursement” means each of the disbursements by Lender or Disbursement Agent
of the Proceeds of the Loan or other funds (including the Control Account Funds)
pursuant to this Agreement.

 

“Disbursement Agent” means, or any other licensed construction control company
approved by Lender which may at any time hold any portion of the Control Account
Funds pursuant to this Agreement.

 

“Disbursement Schedule” means the schedule for Disbursements attached hereto as
Exhibit “C.”

 

“Effective Date” means the date the Deed of Trust is recorded in the Official
Records of Clark County, Nevada.

 

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“Environmental Indemnity” means the Environmental and Accessibility Indemnity
Agreement executed by Borrower and the Guarantors.

 

“Events of Default” means each of those events so designated in Section 7.1 of
this Agreement.

 

“Excess Cost” means, with respect to any line item in the Approved Budgets, the
amount, if any, by which the Actual Line Item Cost for such line item exceeds
the Approved Line Item Cost for such line item.

 

“Financing Statement” means financing statement of even date herewith executed
by Borrower in favor of Lender with respect to the Personal Property.

 

“First Parcels” means the parcels of the Real Property as to which the Deed of
Trust shall, upon the Effective Date, be a first priority lien.

 

“Governmental Agency” means any governmental or quasi-governmental agency,
authority, board, bureau, commission, department, instrumentality or public
body, court, administrative tribunal or public utility.

 

“Guarantors” means, collectively, XX.

 

“Guaranty” means the Unconditional Repayment and Completion Guaranty executed by
the Guarantors in favor of Lender, either as originally executed or as it may
from time to time be supplemented, modified or amended.

 

“Hard Costs” means Project Costs for labor, services, material, and equipment
used in or rendered directly on the construction of the Improvements.

 

“Improvement Plans” means the final, approved, and initialed improvement plans
and specifications for the Project identified in Exhibit “D” as accepted by
Lender.

 

“Improvements” means any and all improvements now existing or hereafter
constructed on the Real Property.

 

“Initial Advance” means the amount of the Loan that is disbursed to or on behalf
of Borrower at the initial closing of the Loan.

 

“Interest Reserve” means that portion of the Control Account Funds allocated to
interest reserve pursuant to Section 3.3 below.

 

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“Laws” means, collectively, all federal, state and local laws, rules,
regulations, ordinances and codes.

 

“Lender” means, collectively, those persons and entities listed on Exhibit “A”
attached hereto and any other persons or entities who may be added to that list
pursuant to an amendment to the Note.

 

“Lender’s Agent” means USA Commercial Mortgage Company, or any other Agent
appointed by Lender pursuant hereto.

 

“Loan” means the loan to be made by Lender to Borrower pursuant to Section 3
hereof.

 

“Loan Documents” means, collectively, this Agreement, the Note, the Security
Documents, the Environmental Indemnity, the Guaranty and the Project
Assignments, in each case either as originally executed or as may from time to
time be supplemented, modified or amended, together with any other documents or
instruments which may at any time be executed by Borrower in connection with the
Loan.

 

“Maturity Date” means the date which is (XX) months after the Deed of Trust is
recorded.

 

“Mortgaged Property” means the Property together with the Personal Property.

 

“Note” means the promissory note of even date herewith, in the original
principal amount of $XX,000, executed by Borrower in favor of Lender to evidence
the Loan, either as originally executed or as it may from time to time be
supplemented, modified or amended.

 

“NRS” means the Nevada Revised Statutes, as amended from time to time.

 

“Offsite Materials” means any materials to be used in connection with the
construction of the Improvements stored at a location other than the Property.

 

“Offsite Supplier” means a supplier of Offsite Materials.

 

“Operation” means the operation of Borrower’s business on the Property,
including the operation, sales, leasing, running and maintenance of the Property
and the Improvements.

 

“Overrun Account” means a noninterest-bearing account established with Lender
into which Borrower shall deposit the Excess Cost, if any, for each line item of
the Approved Budgets.

 

“Permitted Exceptions” means the matters identified in Exhibit “E” attached
hereto and made part hereof.

 

“Person” means any entity, whether an individual, trustee, corporation,
partnership, trust, unincorporated organization or otherwise.

 

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“Personal Property” means all present and future personal property (including
the Project Documents) of Borrower of every kind and nature, whether tangible or
intangible, now or hereafter located at, upon or about the Property, or used or
to be used in connection with or relating or arising with respect to the
Property and/or the Project, including but not limited to the property described
in the Deed of Trust.

 

“Project” means the project for the development of, and construction of
Improvements on, the Property, as such exists at any time, in accordance with
the Improvement Plans.

 

“Project Assignments” means, collectively, the Assignment of Permits, Licenses,
Franchises and Authorizations, the Assignment of Engineer’s Contract,
Improvement Plans, Specifications and Drawings, the Assignment of Construction
Contract, the Assignment of Architect’s Contract, Plans and Drawings, and such
other assignments as Lender shall require.

 

“Project Cost Allocation” means the portion of the total Project Costs allocated
to a particular item in the Approved Budgets.

 

“Project Costs” means all of the costs to complete the Project.

 

“Project Documents” means, collectively, all agreements, documents, instruments
and materials of whatever kind or nature relating to the Project, including but
not limited to: (a) the improvement plans and all other plans, specifications
and drawings relating to the Project, (b) all approvals, consents, licenses and
permits issued, or to be issued, by any Governmental Agency in connection with
the Project, (c) the engineer’s contract, architect’s contract and any and all
construction contracts, and all other agreements relating to the Project between
Borrower and any contractor, subcontractor, independent project manager or
supervisor, architect, engineer, laborer or supplier of materials, and (d) any
take-out, refinancing or permanent loan commitment issued to Borrower with
respect to the Property.

 

“Property” means, collectively, the Real Property, the Improvements, and any
other buildings, structures, or improvements now or hereafter located on all or
any portion of the Real Property.

 

“Real Property” means the real property and interests in real property described
in Exhibit “F”.

 

“Request for Disbursement” means a written request for a Disbursement signed by
a designated representative on behalf of Borrower, in the form approved by
Lender.

 

“Second Parcels” means the parcels of the Real Property as to which the Deed of
Trust shall, upon the Effective Date, be a junior lien.

 

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“Security Agreement” means the Security Agreement contained herein and in the
Deed of Trust.

 

“Security Documents” means the Deed of Trust, the Project Assignments, the
Financing Statements and any other mortgage, deed of trust, assignment of
leases, security agreement or assignment executed to secure the Note, either as
originally executed or as they may from time to time be supplemented, modified
or amended.

 

“Senior Encumbrances” means the deeds of trust or other encumbrances which shall
encumber the Second Parcels as of the Effective Date in a priority position
senior to the Deed of Trust.

 

“Title Company” means Title Company.

 

“Title Policy” means the Lender’s policy of title insurance and endorsements
thereto required by this Agreement as a condition of the first Disbursement.

 

“Undisbursed Construction Funds” means, as of any time of determination, the sum
of the undisbursed portion of the Loan Amount (i.e., that portion that has never
been advanced by Lender) and the Control Account Funds.

 

“USA” means USA Commercial Mortgage Company, a Nevada corporation, the mortgage
company which arranged the Loan.

 

“Use” means ownership, use, development, construction, maintenance, management,
operation or occupancy.

 

1.2 Use of Defined Terms. Any defined term used in the plural refers to all
members of the relevant class, and any defined term used in the singular shall
refer to any number of the members of the relevant class. Any reference to the
Loan Documents and other instruments, documents and agreements shall include
such Loan Documents and other instruments, documents and agreements as
originally executed or as the same may be supplemented, modified or amended.

 

1.3 Accounting Terms. All accounting terms not specifically defined in this
Agreement shall be construed in conformity with, and all financial data required
to be submitted by this Agreement shall be prepared in conformity with,
generally accepted accounting principles applied on a consistent basis.

 

1.4 Exhibits. All exhibits to this Agreement, either as now existing or as the
same may from time to time be supplemented, modified or amended, are
incorporated herein by this reference.

 

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SECTION 2: RECITALS.

 

Borrower has applied to Lender for a Loan to acquire and develop, by
constructing thereon lots suitable for the construction of single family
residences, the Real Property. Lender is willing to make the Loan to Borrower on
the terms and conditions contained in this Agreement and the other Loan
Documents.

 

SECTION 3: THE LOAN.

 

3.1 Amount of the Loan. Subject to the terms and conditions set forth in this
Agreement, Lender agrees to make a loan (“Loan”) to Borrower in a principal
amount of XX Dollars ($XX,000) (the “Loan Amount”), Lender’s disbursement of
which is subject to the terms and conditions of the Loan Documents. The Loan
Amount shall be disbursed in accordance with Lender’s instructions to the Title
Company. From XX and after the XX (notwithstanding that the Effective Date shall
be a later date) the entire Loan Amount (whether paid to, or on behalf of,
Borrower or held by the Disbursement Agent) shall bear interest at the rate set
forth in the Note until fully repaid to Lender.

 

3.2 Increase in Loan Amount. From the Effective Date through and including XX,
Lender and USA shall have the exclusive right, but not the obligation, to
increase the Loan Amount to an amount not to exceed XX ($XX ). All amounts that
Lender may advance after the Effective Date shall increase the Loan Amount and
be used for the following purposes: (i) to repay certain of the notes secured by
the Senior Encumbrances, such that the Senior Encumbrances securing those notes
shall be reconveyed, (ii) to pay the loan fees due with regard to such advance,
and (iii) to fund the Interest Reserve (defined below). In the event of any such
increase, Lender shall determine which of the Senior Encumbrances it wishes to
have reconveyed. Upon each increase in the Loan Amount, Borrower shall execute
amendments to the Note and the Deed of Trust which shall memorialize the
increase in the Loan Amount, the change in the identity of the persons and
entities which comprise Lender and their respective undivided interests in the
Loan. Upon the recordation of the amendment(s) to the Deed of Trust, the Title
Company shall issue to Lender, at Borrower’s expense, an endorsement or
endorsements to the Title Policy which shall (i) insure the continued priority
of the Deed of Trust, including the deletion of the Senior Encumbrances that
were reconveyed, and that the additional advance is secured thereby, (ii)
reflect the increase in the face amount of the policy corresponding to the
increase in the Loan Amount, and (iii) set forth the change in the identity of
the insured lenders and their respective undivided interests in the Loan. Upon
any such additional advance, a portion thereof shall be deposited into the
Interest Reserve (defined below) for the Loan. Nothing herein shall constitute a
commitment by Lender or USA to fund to Borrower any more than the initial Loan
Amount.

 

3.3 Interest Reserve. The Title Company shall disburse a portion of the Loan
Amount, as reasonably determined by Lender, to the Disbursement Agent to be held
as interest reserve for the benefit of Lender (the “Interest Reserve”).
Disbursement Agent shall hold and disburse the Interest Reserve in accordance
with the Control Account Escrow Agreement. As additional advances are made, as
provided in Section 3.2 above, a portion of such advances, the amount of which
shall be reasonably determined by Lender, shall be deposited into the Interest

 

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Reserve. Interest accrued on the Note Amount shall be paid from the Interest
Reserve upon presentation of a monthly interest statement by Lender, without the
necessity of any instruction or request from Borrower. Except as provided in
this paragraph, the funds in the Interest Reserve shall never be used for any
other purpose without the express written consent of Lender. Depletion of the
Interest Reserve shall not release Borrower from any of Borrower’s obligations
under the Loan Documents, including but not limited to the obligation to pay
interest accruing under the Note. After depletion of the Interest Reserve, or so
long as any Event of Default has occurred and is continuing, all interest
payments under the Note shall be made by Borrower using its own funds; provided
that Lender, at its option and in its sole discretion, may obtain disbursements
from the Interest Reserve notwithstanding such Event of Default. Upon the
occurrence of an Event of Default, the entire balance of the Interest Reserve
shall be paid to Lender upon demand and applied to the then outstanding balance
of the Loan.

 

3.4 Disbursements.

 

(a) The Initial Advance shall be made in accordance with instructions that
Lender shall deliver to the Title Company.

 

(b) Construction Disbursements. Except as otherwise provided herein, the Loan
funds remaining from the Initial Advance shall be held in the Control Account,
and disbursed therefrom in accordance with this Agreement. Disbursement Agent,
upon satisfaction of the requirements of the Disbursement Schedule, shall then
disburse such funds from the Control Account for the payment of such costs. The
funds disbursed by the Lender to the Control Account shall thereafter comprise
the Control Account Funds. Unless Lender otherwise agrees:

 

(i) the principal amount of each Disbursement shall not be less than XX Thousand
Dollars ($XX,000), or an amount equal to the Undisbursed Construction Funds;

 

(ii) no more than two Disbursements shall be made in any calendar month;

 

(iii) Disbursements shall be made in accordance with the terms of the
Disbursement Schedule and the Control Account Escrow Agreement;

 

(iv) Disbursement Agent shall make no Disbursement from the Control Account
Funds for any cost expended or incurred by Borrower on any real property (x) not
owned by Borrower, or (y) on which the Deed of Trust is not a first priority
lien.

 

The proceeds of the Loan shall be used solely to pay or reimburse Borrower for
Project Costs described in the Approved Budgets and the Disbursement Schedule.
The total amount disbursed for each item of Project Cost described in the
Approved Budgets shall not exceed the applicable amounts set forth in the
Approved Budgets. If Borrower is not required to pay, for any reason, any amount
earned by any contractor, subcontractor, materialman, supplier or any other
Person who has furnished labor, services, equipment, or material to the Project,
then Borrower shall not request a Disbursement for such amount until such time
as Borrower is required to pay such amounts.

 

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(c) Procedure for Disbursement. Not later than 10:00 a.m. Pacific Time, at least
five (5) Business Days before a proposed Disbursement is to be made,
Disbursement Agent shall have received a Request for Disbursement which shall
indicate the amount of the Disbursement. Upon compliance with all of the
above-referenced conditions and the conditions set forth in Section 4 and the
Disbursement Schedule, Disbursement Agent shall cause disbursement to be made
from the Control Account in the manner provided herein on the date requested.
Lender may, at its option and in its sole discretion, waive any such conditions
as to any Disbursement, provided that any such waiver shall not constitute a
waiver of any such conditions as to any subsequent Disbursements.

 

(d) Lender’s Obligation. Notwithstanding anything to the contrary contained
herein or in any other Loan Document, the execution of this Agreement by
Borrower shall, and hereby does, constitute an irrevocable direction and
authorization to so disburse the funds to the Control Account. No further
direction or authorization from Borrower shall be necessary to warrant
Disbursement and such Disbursement shall satisfy the obligations of Lender
hereunder and the amount hereof shall be, and continue to be, secured by the
Deed of Trust and the other Security Documents, regardless of the disposition of
such funds by Borrower or Contractor.

 

(e) Interest Reserve. The total interest reserve portion of the Control Account
Funds shall be XX. Disbursement Agent shall pay an amount for interest from the
Interest Reserve Account as billed by Lender monthly. Borrower shall pay the
remainder of the accrued interest for each month directly from its own funds.

 

(f) Excess Costs; Loan Balancing. As a material condition of the Loan and a
condition precedent to the duty of Disbursement Agent to make any Disbursement,
Borrower shall pay when invoiced all Project Costs. Except for the payment of
interest from the Interest Reserve Account and the payment of expenses, charges,
costs, and fees pursuant to Section 6.14 and 8.11 hereof, Disbursement Agent may
disburse proceeds of the Loan only when the Loan is “in balance.” The Loan shall
be “in balance” only at such times as Borrower has invested sufficient funds to
the payment of Project Costs so that, in Lender’s sole judgment, the remaining
Control Account Funds will be sufficient to fully complete and operate the
Improvements and pay all Project Costs therefor as they are incurred. The
determination as to whether the Loan is “in balance” may be made by the Lender
at any time, including with each request for a Disbursement. Borrower shall,
within five (5) days after notice from Lender that the Loan is not “in balance,”
deposit with Disbursement Agent for the benefit of Lender, in cash, the amount
necessary to put the Loan “in balance.” Any amounts which Borrower deposits to
put the Loan “in balance” shall be the next funds disbursed by Disbursement
Agent, subject to the terms and conditions of this Agreement.

 

(g) Reserves. Regardless of anything contained herein to the contrary, at any
time Borrower is in default hereunder, Lender may, at its option, direct
Disbursement Agent to establish reserves from the undisbursed portion of the
Control Account Funds in such amounts which, in Lender’s sole discretion, are
necessary to complete the Improvements and sufficient to pay or satisfy

 

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or comply with, in whole or in part, (i) any lien or claim relating to, or
prejudicial to, the liens or security interests of Lender; (ii) any expenditure
or allocation of funds shown on the Approved Budgets; and (iii) interest yet to
accrue on the Loan prior to the Maturity Date. The aggregate amount of any such
reserves shall be deducted from the Control Account Funds otherwise available
for advance.

 

3.5 Approved Budgets. Attached hereto as Exhibit “B” are line-item budgets for
the construction of the Improvements. Borrower represents and warrants that said
budgets are based on information deemed reliable by Borrower and represent
Borrower’s best estimate of all required Project Costs. The Approved Budgets
shall include funds for construction costs and permit costs. Unless Lender
otherwise consents in writing, Borrower shall not supplement, modify, or amend
the Approved Budgets. During the term of the Loan, Borrower may submit revised
budgets to Lender for approval, in Lender’s sole discretion. Disbursement Agent
shall disburse the Control Account Funds to Borrower in strict accordance with
the Approved Budgets. In the event Borrower requests a Disbursement which
exceeds the line item therefor in the existing Approved Budget, then such excess
payment shall be made only according to Section 6.7 hereof. With the approval of
Lender on each occasion, Borrower may reallocate amounts from line items in
which it will have a cost savings to the “Contingency” line item of the Approved
Budgets. Said funds may then be used as provided in Section 6.7 hereof.

 

3.6 Security. The indebtedness evidenced by the Note, and all other indebtedness
and obligations of Borrower under the Loan Documents, shall be secured by the
Security Documents. The Environmental Indemnity and the Guaranties and the
respective obligations of any of Borrowers and the Guarantors under each shall
be unsecured.

 

3.7 Repayment of the Loan. The Loan shall be evidenced by the Note, shall bear
interest at the rate set forth in the Note from the date set forth in Section
3.1 hereof, and shall be repaid per the terms of the Note. The principal balance
outstanding under the Note, and all accrued and unpaid interest not sooner paid
when due under the Note, and all other indebtedness and obligations of Borrower
owing under any and all of the Loan Documents shall be due and payable in full
on the Maturity Date.

 

3.8 Prepayment. Borrower agrees that all loan fees and any prepaid finance
charges are fully earned as of the date they are paid and will not be subject to
refund upon any early payment hereof (whether voluntarily or as a result of
default). Subject to the foregoing, Borrower may prepay the Loan, in full or in
part, at any time; provided, however, that if Borrower repays the Loan within
the first nine (9) months after the Effective Date (whether voluntarily or as a
result of default), then Borrower shall pay to Lender a prepayment fee equal to
all interest which would accrue on the full Loan Amount during said nine (9)
month period, less all interest previously paid. Notwithstanding anything to the
contrary hereunder, Lender shall receive a minimum of nine (9) months’ interest
on the full Loan Amount.

 

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3.9 No Work on Real Property. Borrower acknowledges that, because the Deed of
Trust may be amended pursuant to Section 3.2 above, it is necessary that
Borrower refrain from employing any contractors, laborers or materialmen to
furnish any labor or materials to the Real Property prior to
                    , 1999. In the event any such labor is performed or material
supplied, then Borrower shall provide to the Title Company any documents or
agreements, including indemnity agreements and any deposits required therewith,
in order for the Title Company to insure the continued priority of the Deed of
Trust.

 

3.10 Effective Date. Borrower and Lender agree that the date of the Loan
Documents is for reference purposes only and the effective date (“Effective
Date”) of the delivery and the transfer to Lender of the security under the Loan
Documents and of Borrower’s and Lender’s obligations under the Loan Documents is
the date of recordation of the Deed of Trust in the office of the County
Recorder of the county where the Property is located.

 

3.11 Subordination. Lender hereby agrees that the Deed of Trust securing this
Loan may be subordinated to a deed of trust (or deeds or trust) securing a
construction or development loan (or loans) on a lot or lots encumbered by the
Deed of Trust provided that the amount of the construction or development loan
(or loans) does not exceed 80% of the value of the property subject to the
construction loan (or loans). With respect to this provision, Lender
acknowledges the following:

 

(a) development loans may be necessary to complete the construction of lots or
infrastructure (such as sidewalks, streets or utilities); construction loans may
be necessary to complete the construction of homes on the lots; without either
or both of which the lots are difficult to sell, and are not likely to produce
as much cash flow;

 

(b) the term “value of the property” as used in this section means the appraised
value of the property (based on actual sales of homes within the subdivision,
whenever possible); and

 

(c) depending on the amount of the construction or development loan, and the
value of the property without the construction as compared to with the
construction, the subordination of this Loan to a construction or development
loan could either increase, decrease, or leave unchanged the value of the
property securing this Loan, which outcome would depend, among other things, on
whether the construction was actually completed; and

 

(d) a subordination of the Deed of Trust results in Lender’s security interest
in the Property becoming subject to and of lower priority than the lien of some
other or later security instrument.

 

Lender further agrees that USA may, pursuant to a limited power of attorney
given in connection with this Loan, sign for subordinations consistent with this
section.

 

3.12 Yield Protection. If, after the date of this Agreement, the adoption of any
law or any governmental or quasi-governmental rule, regulation, policy,
guideline or directive (whether or not having the force of law), or any change
therein, or any change in the interpretation or administration thereof, or the
compliance of the Lender therewith,

 

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(a) subjects the Lender to any tax, duty, charge or withholding on or from
payments due from Borrower (excluding taxation of the overall net income of the
Lender), or changes the basis of taxation of payments to the Lender in respect
of its Loans or other amounts due it hereunder; or

 

(b) imposes or increases or deems applicable any reserve, assessment, insurance
charge, special deposit or similar requirement against assets of, deposits with
or for the account of, or credit extended by, the Lender; or

 

(c) imposes any other condition the result of which is to increase the cost to
the Lender of making, funding or maintaining advances or reduces any amount
receivable by the Lender in connection with advances, or requires the Lender to
make any payment calculated by reference to the amount of advances held or
interest received by it, by an amount deemed material by the Lender;

 

then, within fifteen (15) days of demand by the Lender, the Borrower shall pay
the Lender that portion of such increased expense incurred (including, in the
case of clause (c), any reduction in the rate of return on capital to an amount
below that which it could have achieved but for such law, rule, regulation,
policy, guideline or directive and after taking into account the Lender’s
policies as to capital adequacy) or reduction in an amount received which the
Lender determines is attributable to making, funding and maintaining the Loans.

 

SECTION 4: CONDITIONS TO DISBURSEMENTS.

 

4.1 Initial Advance Conditions. The obligation of Lender to initially close the
Loan is subject to the following conditions precedent:

 

(a) Borrower shall, at its sole expense, deliver or cause to be delivered to
Lender, in form and substance satisfactory to Lender:

 

  (i) the original Note;

 

  (ii) the original Deed of Trust;

 

  (iii) the original Financing Statement;

 

  (iv) the original Guaranty;

 

  (v) the original Environmental Indemnity;

 

  (vi) the original Control Account Escrow Agreement, executed by Borrower,
Lender and Disbursement Agent;

 

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  (vii) the original Assignment of Permits, Licenses, Franchises and
Authorizations executed by Borrower;

 

  (viii) the original Assignment of Architect’s Contract, Plans and Drawings;

 

  (ix) the original Assignment of Engineer’s Contract, Improvement Plans,
Specifications and Drawings;

 

  (x) the original Assignment of the Construction Contract and consent thereto
executed by the Contractor;

 

  (xi) a certificate of consent of Borrower, authorizing the execution, delivery
and performance of the Loan Documents to be executed by a specified authorized
officer on behalf of Borrower;

 

  (xii) an ALTA form of extended coverage lender’s policy of title insurance, or
evidence of a commitment therefor, issued by an insurer satisfactory to Lender,
together with such endorsements and binders thereto as may be required by Lender
pursuant to Section 6.16 hereof, in a policy amount of not less than the face
amount of the Note, insuring the Deed of Trust to be a valid lien upon the
Property, and showing the Property to be subject only to the Permitted
Exceptions;

 

  (xiii) an appraisal of the Real Property certified to Lender, performed by an
appraiser acceptable to Lender;

 

  (xiv) certified copies of, or certificate evidencing, all insurance policies
required to be delivered pursuant to this Agreement;

 

  (xv) copies of all permits and approvals by Governmental Agencies necessary to
construct the Improvements (if available);

 

  (xvi) current Financial Statements of Borrower and the Guarantors;

 

  (xvii) evidence, in form and substance acceptable to Lender, of the
availability and sufficiency of all utilities to the Project;

 

  (xviii) copies of any proposed, or approved final Covenants, Conditions and
Restrictions recorded or to be recorded on the Project;

 

  (xix) a Phase I Hazardous Waste Survey, prepared by an entity approved by
Lender, in form and substance acceptable to, and approved by, Lender; and

 

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  (xx) such additional agreements, certificates, reports, approvals,
instruments, documents, financing statements, consent and opinions as Lender may
reasonably request; including, without limitation, a soils report for the Real
Property (including, without limitation, all determinations required by Lender
with respect to hazardous waste (as such term is defined in the Environmental
Indemnities) and water located on the Real Property).

 

(b) Lender shall have reviewed and approved the Permitted Exceptions;

 

(c) Borrower has acquired fee title to all of the Property free and clear of all
liens and encumbrances which are not Permitted Exceptions;

 

(d) The Deed of Trust shall have been recorded in the Official Records of the
County in which the Property is located as a first priority lien on the First
Parcels, and as a junior lien on the Second Parcels;

 

(e) The Financing Statement shall have been filed for record with the Nevada
Secretary of State.

 

4.2 Any Disbursement. The obligation of Lender to make any Disbursement
(including the first Disbursement) is subject to the terms and conditions of the
Disbursement Schedule and, in addition, the following conditions precedent:

 

(a) the representations and warranties of Borrower contained in all of the Loan
Documents shall be correct on and as of the date of the advance as though made
on and as of that date and no Event of Default (or event which, with the giving
of notice and/or the passage of time, would become an Event of Default) shall
have occurred and be continuing;

 

(b) Borrower shall have received (i) valid and enforceable partial or complete
lien releases or waivers, as may be appropriate, from all Persons who have
furnished labor, services, equipment, or material to the Project, accompanied by
a written accounting signed by such Persons showing all amounts owed to such
Persons, except that Borrower shall not be required to pay any claim for labor,
service, equipment, or material that is being contested in good faith by
appropriate proceedings as long as no claim of lien has been recorded, or, if a
claim of lien has been recorded, within ten (10) days thereafter Borrower either
has obtained and recorded a surety bond, in form and substance satisfactory to
Lender, sufficient to release the Property from the lien or from any action
brought to foreclose the lien, or has caused the title insurer who has issued
the Title Policy to issue, in form and substance satisfactory to Lender, an
endorsement to the policy insuring the priority of the lien of the Deed of Trust
over the claim of lien, and (ii) an invoice or receipt with respect to each
payment made on account of labor, service, equipment, or material furnished to
the Project in sufficient detail so that the particular nature of the labor,
service, equipment, or material may be identified;

 

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(c) the construction of the Improvements shall in all respects conform to the
Improvement Plans and all applicable Laws and other requirements;

 

(d) Lender has received copies of all permits and approvals by Governmental
Agencies necessary to construct the Improvements that have been obtained as of
the date of Lender’s request therefor;

 

(e) Lender has received and approved line-item budgets for the costs to be paid
and such Approved Budgets have been forwarded to the Disbursement Agent;

 

(f) Borrower shall, at its sole expense, deliver or cause to be delivered to
Lender, in form and substance satisfactory to Lender:

 

(i) from the title insurer who has issued the Title Policy, such endorsements,
binders, or modifications thereto as Lender may require;

 

(ii) a Request for Disbursement, certifying the matters set forth in Sections
4.2(a, b, and c) above;

 

(iii) (A) an itemization of the amounts requested and/or of all amounts
previously expended in connection with the Improvements, in either case
identified to the corresponding item in the Approved Budgets, and, if demanded
by Lender, (B) a certificate signed by an inspector acceptable to Lender
verifying the matters set forth in Sections 4.2 (b and c); and

 

(iv) such additional agreements, certificates, reports, approvals, instruments,
documents, consents, or opinions as Lender may reasonably request.

 

(g) Lender is reasonably satisfied, based upon periodic inspections and such
other information as Lender deems relevant, that (i) the progress of
construction of the Improvements is as represented by Borrower, and (ii)
construction of the Improvements conforms to the Improvement Plans and all
applicable Laws and other requirements;

 

(h) All conditions to the making of the first Disbursement have been satisfied,
and Lender does not waive any of these conditions even though one or more
Disbursements may have been made prior to the satisfaction of all such
conditions.

 

4.3 Final Disbursement of Hard Costs. With respect to each line item of the
Approved Budgets which is subject to retention of Loan Funds as set forth in the
Disbursement Schedule, the obligation of Lender to make the final Disbursement
is subject to Lender’s receiving satisfactory evidence that the following
conditions precedent have been satisfied:

 

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(a) The Improvements shall have been completed according to the Improvement
Plans and all applicable permits, Laws, and other requirements of all
Governmental Agencies and public utility companies, and Borrower and Contractor
shall deliver to Lender a certificate to this effect;

 

(b) Borrower shall, at its sole expense, deliver or cause to be delivered to
Lender an endorsement to Lender’s ALTA form extended coverage to lender’s policy
of title insurance, or evidence of a commitment therefor satisfactory to Lender,
in form and substance and issued by an insurer satisfactory to Lender, insuring
the Deed of Trust to be a valid first position lien upon the Property, and
showing the Property to be subject only to the Permitted Exceptions and such
other exceptions as shall have been approved in writing by Lender pursuant to
this Agreement (the “Endorsement”);

 

(c) If demanded by Lender, and required by Title Company, Borrower shall deliver
or cause to be delivered to Lender a copy of the ALTA survey prepared by
Borrower, at Borrower’s sole expense, if the title insurer requires such in
connection with the issuance of the Endorsement, which survey shall be
satisfactory to Lender and shall (i) show compliance of the Property with any
and all setbacks and other restrictions applicable to the Property pursuant to
the requirements of any Governmental Agency or any applicable covenants,
conditions, or other private restrictions; (ii) show all easements, licenses,
and other rights of way; (iii) show no encroachments onto the Property or from
the Property onto adjoining property; and (iv) certify the legal description of
the Property as insured in the Endorsement;

 

(d) Any portion of the Improvements requiring inspection or certification by
municipal or other Governmental Agencies shall have been inspected and certified
as complete, and all other necessary permits, approvals, and certificates shall
have been duly issued;

 

(e) All conditions for Completion of Construction, as defined in Section 1.1,
shall have been satisfied;

 

(f) Borrower shall have delivered to Lender, if appropriate, a list of all of
the Personal Property, providing a general description of such Property,
together with all other information reasonably required by Lender;

 

(g) Borrower shall deliver to Lender a copy of any recorded covenants,
conditions, and restrictions, in a form previously approved by Lender; and

 

(h) Borrower shall deliver to Lender such instruments and documents as Lender
may require, including without limitation, supplemental security agreements and
form UCC-1 and/or UCC-2 financing statements, in order to extend or perfect
Lender’s first priority security interest in and to the Personal Property,
together with evidence satisfactory to Lender that all such Personal Property
has been paid for in full and is owned by Borrower, and that Lender’s security
interest in and to such Personal Property is a valid first priority security
interest;

 

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Provided that, notwithstanding the satisfaction of the conditions in this
Section 4.3, Lender may withhold the final Disbursement until the expiration of
forty-five (45) days after the recording of a valid notice of completion (or, if
no notice of completion has been recorded, ninety-five (95) days after actual
completion) to assure that there can be no claims for mechanic’s or
materialmen’s liens against the Property with respect to the construction of the
Improvements, or until Lender receives assurance satisfactory to it that there
are and will be no such liens. Lender agrees that a CLTA Form 101.2 endorsement
to the Title Policy, in form and substance reasonably satisfactory to Lender,
shall satisfy this requirement.

 

4.4 Cost Overruns. In the event that, for any reason, the actual cost reasonably
determined by Lender or Borrower to assure completion of all matters included in
any line item in the Approved Budgets exceeds the amount allocated to such line
item, Lender shall have no obligation to make further Disbursements until
Borrower has paid or otherwise provided for the overrun as required under
Section 6.7(c). Amounts deposited by Borrower in the Overrun Account for any
line item shall be held by Lender as collateral and disbursed by Lender prior
any further Disbursement for that line item; provided, however, that Lender
shall have no obligation to Borrower to supervise or otherwise see to the proper
application of such amounts following disbursement.

 

4.5 Offsite Materials. In the event that any Disbursement Request includes the
cost of Offsite Materials, such Disbursement Request shall include each of the
following:

 

(a) evidence that Borrower has paid for the Offsite Materials;

 

(b) if the Offsite Materials are stored at the facility of an Offsite Supplier,
a written statement from the Offsite Supplier that Borrower has paid for the
Offsite Materials, that they have been segregated from other materials in the
facility, and have been marked with Borrower’s name. Such statement shall also
acknowledge (i) Lender’s right to enter the facility at reasonable times to
inspect or remove the Offsite Materials, and (ii) Lender’s first priority
security interest in the Offsite Materials;

 

(c) if the Offsite Materials are stored in a place other than the facility of
the Offsite Supplier, a written statement from the bailee or other custodian
acknowledging (i) Lender’s right to enter the storage site at reasonable times
to inspect or remove the Offsite Materials, and (ii) Lender’s first priority
security interest in the Offsite Materials;

 

(d) Certificates of insurance showing the Offsite Materials to be insured as
required hereunder and showing Lender as co-insured; and

 

(e) evidence that Borrower has paid all personal property taxes applicable to
the Offsite Materials.

 

Lender need not make Disbursements for any Offsite Materials until Lender has
inspected and approved the Offsite Materials.

 

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SECTION 5: REPRESENTATIONS AND WARRANTIES BY BORROWER.

 

5.1 Formation, Qualification and Powers of Borrower. Borrower is a XX duly
formed and validly existing under the laws of the State of XX, and is qualified
to do business in the State of Nevada. The XX of Borrower is a duly formed and
validly existing XX under the laws of the State of Nevada. Borrower has all
requisite power and authority to conduct its business, to own its properties,
and to execute, deliver and perform all of its obligations under the Loan
Documents.

 

5.2 Authority and Compliance with Instruments and Government Regulations.
Borrower has duly authorized by all necessary action the execution, delivery and
performance of all of its obligations under each Loan Document, and the same do
not and will not:

 

(a) require any consent or approval not heretofore obtained of any Person
holding any security or interest or entitled to receive any security or interest
in Borrower;

 

(b) violate any provision of any organizational document or certificate of
Borrower;

 

(c) result in or require the creation or imposition of any mortgage, deed of
trust, pledge, lien, security interest, claim, charge, right of others or other
encumbrance of any nature, other than under the Loan Documents, upon or with
respect to any property now owned or leased or hereafter acquired by Borrower;

 

(d) violate any provision of any Law, order, writ, judgment, injunction, decree,
determination or award presently in effect having applicability to Borrower or
the Property, which violation would have a material, adverse impact thereon;

 

(e) result in a breach of or constitute a default under, cause or permit the
acceleration of any obligation owed under, or require any consent under, any
indenture or loan or credit agreement or any other agreement, lease or
instrument to which Borrower is a party or by which Borrower or any property of
Borrower is bound or affected; and Borrower is not in default in any respect
that is materially adverse to the interest of Lender or that would have any
material adverse effect on the financial condition of Borrower or the conduct of
its business under any Law, order, writ, judgment, injunction, decree,
determination, award, indenture, agreement, lease or instrument described in
Sections 5.2(d) and 5.2(e).

 

5.3 Execution of the Guaranty by the Guarantors. The execution and delivery of
the Guaranty:

 

(a) has been duly authorized by all necessary action;

 

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(b) does not require the consent, authorization or approval of any Governmental
Agency or Person;

 

(c) will not result in the creation of any lien or other claim of any nature
upon or with respect to the property of the Guarantors, other than as may be set
forth in the Guaranty; and

 

(d) will not violate any provision of any Law having applicability to the
Guarantors, in a manner which would have a material, adverse impact on any
Guarantor; and, when executed and delivered, the Guaranty will constitute the
legal, valid and binding obligation of the Guarantors enforceable against the
Guarantors in accordance with its terms.

 

5.4 No Governmental Approvals Required. No authorization, consent, approval,
order, license, exemption from, or filing, registration or qualification with,
any Governmental Agency is or will be required to authorize, or is otherwise
required in connection with:

 

(a) the execution, delivery and performance by Borrower and the Guarantors of
the Loan Documents; or

 

(b) the creation of the liens, security interests or other charges or
encumbrances described in the Security Documents; except that filing and/or
recording may be required to perfect Lender’s interest under the Security
Documents.

 

5.5 Binding Obligations. The Loan Documents, when executed and delivered, will
constitute the legal, valid and binding obligations of Borrower and the
Guarantors, as the case may be, enforceable against them in accordance with
their respective terms.

 

5.6 Financial Statements. Borrower and the Guarantors have furnished to Lender a
copy of recent financial statements relating to Borrower’s and the Guarantors’
financial condition and Borrower represents and warrants to Lender that such
financial statements present fairly the financial position of Borrower and the
Guarantors as of the date thereof.

 

5.7 No Material Adverse Change. Borrower represents and warrants to Lender that
there has been no material adverse change in the condition, financial or
otherwise, of Borrower or the Guarantors since the date of the financial
statements described in Section 5.6; since that date, neither Borrower nor the
Guarantors have entered into any material transaction not disclosed in such
financial statements; neither Borrower nor the Guarantors have any material
liabilities or contingent liabilities not reflected or disclosed in such
financial statements; and there are no material mortgages, deeds of trust,
pledges, liens, security interests, claims, charges, rights of others or
encumbrances (including liens or retained security titles of conditional
vendors) of any nature whatsoever on any property of Borrower or the Guarantors,
and no material indebtedness, not disclosed in such financial statements.

 

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5.8 Tax Liability. Borrower and the Guarantors have filed all tax returns
(federal, state and local) required to be filed and have paid all taxes shown
thereon to be due and all property taxes due, including interest and penalties,
if any. Borrower and the Guarantors have established and are maintaining
necessary reserves for tax liabilities, if any.

 

5.9 Compliance with Law. Borrower and the Guarantors are in compliance in all
material respects with all Laws and other requirements applicable to their
business and have obtained all authorizations, consents, approvals, orders,
licenses and exemptions from, and have accomplished all filings, registrations
or qualifications with, any Governmental Agency that is necessary for the
transaction of their business.

 

5.10 Compliance with Requirements. Throughout the term of the Loan, Borrower
shall comply with all applicable covenants, conditions and restrictions, Laws
and other requirements, and all necessary approvals, consents, licenses and
permits of any Governmental Agency have been regularly and finally received with
respect thereto, including without limitation each of the following as
applicable:

 

(a) all zoning, land use and planning requirements;

 

(b) subdivision and/or parcel map requirements, including without limitation
requirements of applicable Law regarding subdivisions, parcel maps and the
division of land into lots or parcels;

 

(c) environmental requirements and preparation and approval of any necessary
environmental impact statements or reports;

 

(d) all requirements regarding the provision of all necessary utilities to the
Real Property including the irrevocable allocation to the Property of sufficient
domestic and fire protection water service to the Property;

 

(e) all requirements imposed by any public utility in connection with the supply
of utilities to the Property; and

 

(f) all requirements imposed in connection with any approval, consent, license
or permit issued or required by any Governmental Agency in connection with the
Project.

 

5.11 Litigation. There are no actions, suits or proceedings pending or, to the
best of Borrower’s or any Guarantor’s knowledge, threatened against or affecting
Borrower or the Guarantors or any property of Borrower or the Guarantors before
any court or Governmental Agency that would have a material adverse affect on
the Property, or Borrower’s or the Guarantors’ ability to perform their
respective obligations under the Loan Documents.

 

5.12 Title to Property. Borrower has good and merchantable title to all of its
property and assets as disclosed in the financial information provided Lender
and at the time of the recordation of the Security Documents shall have good and
merchantable title to the Property, and there shall be no mortgages, liens,
pledges or other encumbrances of any character on the Property, other than the
Security Documents and Permitted Exceptions, without prior consent of Lenders.

 

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5.13 Subsidiaries: Divisions: Joint Ventures. As of the date hereof, other than
as disclosed on Exhibit XX, Borrower (a) has no other Subsidiaries; (b) has no
divisions; and (c) is not engaged in any joint venture or partnership with any
other Person.

 

5.14 ERISA. The Borrower, Guarantor and each Subsidiary are in compliance in all
Material respects with all applicable provisions of the Employee Retirement
Income Security Act of 1974, as amended (“ERISA”). Neither a Reportable Event
nor a Prohibited Transaction has occurred and is continuing with respect to any
Plan; no notice of intent to terminate a Plan has been filed, nor has any Plan
been terminated; no circumstances exist which constitute grounds entitling the
PBGC to institute proceedings to terminate, or appoint a trustee to administer,
a Plan, nor has the PBGC instituted any such proceedings; neither the Borrower
nor any Commonly Controlled Entity has completely or partially withdrawn from a
Multiemployer Plan; the Borrower and each Commonly Controlled Entity have met
their minimum funding requirements under ERISA with respect to all of their
Plans and the present value of all vested benefits under each Plan exceeds the
fair market value of all Plan assets allocable to such benefits, as determined
on the most recent valuation date of the Plan and in accordance with the
provisions of ERISA; and neither the Borrower nor any Commonly Controlled Entity
has incurred any liability to the PBGC under ERISA.

 

SECTION 6: AFFIRMATIVE AND NEGATIVE COVENANTS.

 

Until payment of the Note in full and performance of all obligations of Borrower
under the Loan Documents, unless Lender otherwise consents in writing:

 

6.1 Completion of Improvements. Borrower shall proceed with all due diligence to
comply with the requirements set forth in Section 5.10 above and to commence and
complete construction of the Improvements. Borrower shall complete construction
of the Improvements (as Completion of Construction is defined in Section 1.1)
whether commenced prior to or after the date hereof within XX days of
commencement of construction.

 

6.2 Conformity with Improvement Plans and Other Requirements. Borrower agrees to
construct the Improvements to conform to the Improvement Plans and all
applicable Laws and other requirements, and in a good and workmanlike manner
with materials of good quality. If at any time construction of the Improvements
does not conform to the foregoing, Borrower shall promptly give notice thereof
to Lender, and Lender shall have the right to stop construction and order repair
or reconstruction in accordance with the same, and to withhold all further
Disbursements until construction is in satisfactory compliance therewith. Upon
notice from Lender to Borrower, or Borrower’s discovery irrespective of such
notice, that construction of the Improvements does not conform to the
Improvement Plans or to all applicable Laws or other requirements, or is not in
a good and workmanlike manner with materials of good quality, Borrower shall
commence correcting the deviation as soon as practical and in any event within
fifteen (15) calendar days after such notice or

 

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discovery. Borrower shall prosecute such work diligently to completion, which in
no event shall be later than forty-five (45) calendar days after such notice or
discovery. If Lender determines that the corrective work is not proceeding
satisfactorily, Lender may, upon not less than fifteen (15) calendar days’
notice to Borrower, take over such corrective work itself and prosecute it to
completion at Borrower’s expense.

 

6.3 Encroachments. Borrower agrees that the Improvements shall be constructed
entirely on the Property and will not encroach upon or overhang any boundary,
easement, right-of-way, or the land of others.

 

6.4 Compliance with Requirements. Borrower shall comply with all conditions,
covenants, restrictions, leases, easements, reservations, rights and
rights-of-way and all applicable Laws and other requirements relating to the
Property and the Project, and obtain all necessary approvals, consents, licenses
and permits of any Governmental Agency, including without limitation those set
forth in Section 5.10.

 

6.5 Completion of Offsite Improvements. Borrower represents and agrees that all
streets and offsite improvements adjacent to and serving the Property have been
or shall be completed, and all utility services necessary for construction of
the Improvements and the full utilization of the Property for its intended
purpose, including water, sewer, gas, electric, and telephone, have been or
shall be completed and are available to the perimeter of the Property.

 

6.6 Change Orders. All Change Orders:

 

(a) shall be in writing, numbered in sequence, and signed by Borrower;

 

(b) shall be certified by Borrower and/or the Contractor to comply with all
applicable Laws and other requirements;

 

(c) shall contain an estimate by Borrower of the increase or decrease in Project
Costs that would result from the change (or, if the Change Order involves both
changes increasing and decreasing estimated Project Costs, both the amount of
the increase and the decrease shall be stated), as well as the aggregate amount
of changes in estimated Project Costs, both increases and decreases, previously
made;

 

(d) shall be submitted to Lender prior to the proposed effectiveness thereof if
Lender shall at any time in the future request that Change Orders be submitted
to Lender in advance;

 

(e) shall be subject to the prior written approval of Lender where (i) the
increase or decrease in any item of Project Cost set forth in the Approved
Budgets that each change or related change would cause equals at least the sum
of $10,000, or (ii) Change Orders not previously approved involve an aggregate
amount, including both increases and decreases, of over $30,000; and

 

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(f) both Borrower and Contractor certify the aggregate amount, including both
increases and decreases, of all changes in Project Costs reflected in Change
Orders for which Lender’s written approval has not been obtained or has not been
required hereunder.

 

If any Change Order requires Lender’s approval pursuant to subsection (e) of
this section and involves a net increase in estimated Project Costs, Lender
shall have no obligation to make any further Disbursements until Borrower
furnishes to Lender evidence, in form and substance satisfactory to Lender, that
funds are available in the Approved Budgets or as a result of payment by
Borrower from Borrower’s own funds of Project Costs thereafter accruing in the
total amount of such net increase.

 

6.7 Deficiency in Proceeds; Overruns.

 

(a) Borrower agrees to promptly notify Lender of any fact or circumstance that
may render the Approved Budgets inaccurate with respect to the Project Costs
shown thereon.

 

(b) If at any time (including, without limitation, any time after the occurrence
and during the continuance of any Event of Default) Lender determines, in its
discretion, that any Project Costs have exceeded or may exceed the amounts
budgeted for such Project Costs in the Approved Budgets, or that the Undisbursed
Construction Funds are or may be insufficient to pay for the costs of completion
of the Project and other costs and expenses, then Lender may, at its option,
terminate further Disbursements until Borrower pays from its own funds Project
Costs then unpaid or thereafter accruing in an amount deemed necessary by
Lender, and furnishes to Lender evidence, in form and substance satisfactory to
Lender, of such payment. Borrower shall, upon demand by Lender, deposit such
amount into an account with Lender, in which case Lender shall disburse such
amount prior to the disbursement of any remaining proceeds of the Loan.

 

(c) In the event that, for any reason, the Actual Line Item Cost for any line
item in the Approved Budgets exceeds the Approved Line Item Cost for that line
item, Borrower shall, within fourteen (14) days after it learns (or receives
notice from Lender) of the overrun, do one or more of the following:

 

(i) provide satisfactory evidence to Lender that Borrower has paid the amount of
the Excess Cost for such line item from sources other than the Loan;

 

(ii) reallocate sufficient funds to such line item from funds (if any) allocated
to “Contingency” in the Approved Budgets; provided, however, that Lender must
consent to any such reallocation unless the reallocated funds were originally
transferred to “Contingency” from cost savings pursuant to Section 3.4; or

 

(iii) deposit an amount equal to the Excess Costs for such line item into the
Overrun Account, to be disbursed according to Section 4.4.

 

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6.8 Construction Information. Upon demand by Lender, Borrower shall promptly
deliver to Lender, not more frequently than monthly, a report in form and
substance satisfactory to Lender, which Borrower certifies as correct, setting
forth all accrued Project Costs, all Project Costs projected to complete the
Project, any variance between actual and projected Project Costs and the amounts
set forth in the Approved Budgets, and all changes from the previous report
which Borrower knows or reasonably anticipates.

 

6.9 Subcontractors. Upon demand by Lender, Lender shall have the right to
reasonably approve all contractors and subcontractors employed in connection
with the construction of the Improvements. All such contractors and
subcontractors shall be licensed and bonded as required by the State of Nevada.
Borrower shall deliver to Lender correct lists of all such contractors and
subcontractors. Borrower shall deliver a copy of each such list to Lender prior
to the first Disbursement for any item of Hard Costs. Thereafter, within twenty
(20) calendar days of a change to any list, Borrower shall deliver an amended
list correctly reflecting such change. Each list shall show the name, address,
and telephone number of each such contractor and subcontractor, a general
statement of the nature of the work to be done, the labor and materials to be
supplied, the names of the materialmen, if known, the approximate dollar value
of such labor, work, and materials itemized with respect to each contractor,
subcontractor, and materialman, and the unpaid portion and status of such work,
or whether such materials have been delivered. Lender and its agents shall have
the right, without either the obligation or the duty, to directly contact each
contractor, subcontractor, and materialman to verify the facts disclosed by such
list, and in so doing Lender or its agent shall not represent itself as the
agent of Borrower.

 

6.10 Permits and Warranties. Borrower shall deliver to Lender originals or
copies of (a) all permits and authorizations required in connection with the
construction of the Improvements or the occupation or operation of the Property
or any part thereof promptly upon issuance, and in any event before any act is
done which requires the issuance of the respective permit or authorization, and
(b) all warranties and guaranties received from any Person furnishing labor,
materials, equipment, fixtures, or furnishings in connection with the Project or
the Property.

 

6.11 Protection Against Liens and Claims.

 

(a) Borrower agrees to file or procure the filing of a valid notice of
completion of construction of the Improvements, diligently file or procure the
filing of a notice of cessation upon the event of a cessation of labor on the
work of construction on the Improvements for a continuous period of thirty (30)
calendar days or more, and take all other reasonable steps to forestall the
assertion of claims of liens against the Property or the Project or any part
thereof. Borrower irrevocably appoints, designates, and authorizes Lender as its
agent, said agency being coupled with an interest, with the authority upon the
occurrence and continuance of an Event of Default, but without any obligation,
to file for record any notices of completion, cessation of labor, or any similar
or other notices that Lender deems necessary or desirable to protect its
interests hereunder or under the Loan Documents.

 

(b) Upon demand by Lender, Borrower agrees to make such demands or claims as
Lender shall specify upon any or all Persons who have furnished labor, service,
equipment, or material

 

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to the Project. Borrower agrees to pay and obtain valid and enforceable lien
releases or waivers from all Persons who have furnished labor, service,
equipment, or material to the Project, except that Borrower shall not be
required to pay any claim for labor, service, equipment, or material that is
being contested in good faith by appropriate proceedings as long as no claim of
lien has been recorded or, if a claim of lien has been recorded, within ten (10)
calendar days thereafter, Borrower either has obtained and recorded a surety
bond, in form and substance satisfactory to Lender, sufficient to release the
Property from the lien and from any action brought to foreclose the lien, or has
caused the title insurer who has issued the Title Policy to issue, in form and
substance satisfactory to Lender, an endorsement to the Title Policy insuring
the priority of the lien of the Deed of Trust over the claim of lien.

 

(c) In the event that any Person furnishing labor, service, equipment, or
material to the Project asserts a claim against Lender or the Undisbursed
Construction Funds, Borrower shall, upon demand by Lender, take such action as
Lender may require to release Lender and the Undisbursed Construction Funds from
any obligation or liability with respect to such claim, including, without
limitation, (i) if the claim is being contested in good faith by appropriate
proceedings, obtaining a bond or other security, in form and substance
satisfactory to Lender, or (ii) payment of such claim. If Borrower fails to take
such action, Lender may, in its sole discretion, file an interpleader action
requiring all claimants to interplead and litigate their respective claims, and
in any such action Lender shall be released and discharged from all obligations
with respect to any funds deposited in court, and Lender’s costs and expenses,
including without limitation actual attorney’s fees, shall be paid from such
funds or from any other Undisbursed Construction Funds. Any such funds deposited
in court and all costs and expenses of Lender in connection therewith shall
constitute Disbursements under the Note.

 

6.12 Sale or Other Encumbrances. Borrower specifically agrees that:

 

(a) In order to induce Lender to make the Loan, Borrower agrees that if Borrower
shall sell, assign, transfer, convey, pledge, hypothecate, mortgage or encumber
with financing other than that secured hereby, or otherwise alienate, whether
voluntarily or involuntarily or by operation of law, the Property or any part
thereof or any interest therein except as shall be specifically hereinafter
permitted or without the prior written consent of Lender, then Lender, at its
option, may declare the Note, including the prepayment fee, if applicable,
secured hereby and all other obligations hereunder to be forthwith due and
payable. Except as shall be otherwise specifically provided herein, (a) any
change in the legal or equitable ownership of the Mortgaged Property whether or
not of record, or (b) any change in the form of entity or ownership (including
the hypothecation or encumbrance thereof) of the stock or any other ownership
interest in Borrower shall be deemed a transfer of an interest in the Mortgaged
Property; provided, however, that any transfer of the Property or any interest
therein to an entity which controls, is controlled by or is under common control
with Borrower shall not be considered a transfer hereunder. In connection
herewith, the financial stability and managerial and operational ability of
Borrower is a substantial and material consideration to Lender in its agreement
to make the loan to Borrower secured hereby. The transfer of an interest in the
Property may materially alter and reduce Lender’s security for the indebtedness
secured hereby. Moreover, Lender

 

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has agreed to make its loan based upon the presumed value of the Property and
the Rents and Profits (as such are defined in the Deed of Trust) thereof.
Therefore, it will be a diminution of Lender’s security if junior financing,
except as shall be permitted Lender, or if other liens or encumbrances should
attach to the Property.

 

(b) Borrower may request Lender to approve a sale or transfer of the Property to
a party who would become the legal and equitable owner of the Property and would
assume any and all obligations of Borrower under the Loan Documents (the
“Purchaser”). Lender shall not be obligated to consider or approve any such
sale, transfer or assumption or request for the same. However, upon such
request, Lender may impose limiting conditions and requirements to its consent
to an assumption.

 

(c) In the event ownership of the Mortgaged Property, or any part thereof,
becomes vested in a Person or Persons other than Borrower, the Lender may deal
with such successor or successors in interest with reference to the Note or the
Deed of Trust in the same manner as with Borrower, without in any way releasing,
discharging or otherwise affecting the liability of Borrower under the Note, the
Deed of Trust or the other Loan Documents. No sale of Borrower’s interest in the
Property, no forbearance on the part of Lender, no extension of the time for the
payment of the Deed of Trust indebtedness or any change in the terms thereof to
which Lender consents shall in any way whatsoever operate to release, discharge,
modify, change or affect the original liability of the Borrower herein, either
in whole or in part. Any deed conveying the Mortgaged Property, or any part
thereof, shall provide that the grantee thereunder assume all of Borrower’s
obligations under the Note, the Deed of Trust and all other Loan Documents. In
the event such deed shall not contain such assumption, Lender shall have all
rights reserved to it hereunder in the event of a default or if Lender shall not
elect to exercise such rights and remedies, the grantee under such deed shall
nevertheless assume such obligations by acquiring the Mortgaged Property or such
portion thereof subject to the Deed of Trust. Nothing contained in this section
shall be construed to waive the restrictions against the transfer of the
Mortgaged Property contained in Section 6.12(a).

 

6.13 Removal of Personalty. Borrower shall not:

 

(a) install in or otherwise use in connection with the Project any materials,
equipment or fixtures under any security agreements or similar agreements
however denominated whereby the right is reserved or accrues to anyone to remove
or repossess any such items or whereby any Person other than Lender reserves or
acquires a lien upon such items; or

 

(b) remove or permit the removal of any fixtures or personalty located on the
Property or used in connection with the Project, except for tools and
construction equipment intended for use in connection with the construction of
other improvements, unless actually replaced by an article of equal suitability
and value, owned by Borrower free and clear of any lien or security interest
other than the Security Documents.

 

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6.14 Payment of Taxes, Assessments and Charges. Borrower shall pay, prior to
delinquency, all taxes, assessments, charges and levies imposed by any
Governmental Agency which are or may become a lien affecting the Property or any
part thereof, including without limitation assessments on any appurtenant water
stock; except that Borrower shall not be required to pay and discharge any tax,
assessment, charge or levy that is being actively contested in good faith by
appropriate proceedings, as long as Borrower has established and maintains
reserves adequate to pay any liabilities contested pursuant to this Section in
accordance with generally accepted accounting principles and, by reason of
nonpayment, none of the property covered by the Security Documents or the lien
or security interest of Lender is in danger of being lost or forfeited.

 

6.15 Insurance. The Borrower shall at all times maintain the following policies
of insurance:

 

(a) prior to completion of the Improvements, builder’s “all risk” insurance
(“completed value” form), including “course of construction” coverage, covering
the Improvements and any Personal Property;

 

(b) from and after completion of the Improvements, property “all risk” insurance
covering the Improvements and any Personal Property;

 

(c) commercial general liability insurance in favor of the Borrower (and naming
the Lender as an additional insured) in an aggregate amount not less than
$2,000,000.00 (or such greater amount as may be specified by the Lender from
time to time) combined single limit; and

 

(d) such other insurance as may be required by applicable Laws (including
worker’s compensation and employer’s liability insurance) or as the Lender may
reasonably require from time to time (including “all risk” insurance with
respect to any other improvements now or in the future located on the Real
Property and comprehensive form boiler and machinery insurance, if applicable,
rental loss insurance and business interruption insurance).

 

The Borrower shall also cause any contractor and each subcontractor employed on
the Property to maintain a policy of commercial general liability insurance and,
upon request by the Lender, shall cause the Architect and any Engineer engaged
in connection with the Project to maintain a policy of professional liability
insurance, in each case for such periods and in such amounts as the Lender may
reasonably require from time to time.

 

Each policy of builder’s-risk and all-risk insurance required by this Section
6.15 shall be in an amount not less than the full replacement cost of the
property covered by such policy, shall contain a “waiver of coinsurance”
provision, a “full replacement cost” endorsement, a “Mortgagee Loss Payable”
clause, and a “Betterments” or “Building Ordinance” endorsement, and shall
insure the Property against flood loss risk to the maximum available policy
amount if the Real Property is located in a “Flood Hazard Area” (as determined
by the Federal Emergency Management Agency). Each policy of commercial general
liability insurance required by this Section shall cover personal

 

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injury, property liability, and contractual liability, including coverage for
Borrower’s indemnity obligations under the Loan Documents, and shall name Lender
as an “additional insured”. The commercial general liability insurance shall
also cover completed operations, and such insurance shall be primary and
non-contributing with any other insurance available to the Lender. All insurance
policies shall be in form and substance and issued by insurers reasonably
satisfactory to the Lender, and shall contain such deductible and such
endorsements as the Lender may reasonably require. Each policy shall require
thirty (30) day written notice to Lender prior to any cancellation thereof. As a
condition to funding the Loan, Borrower shall provide to Lender an ACORD 27 form
certificate evidencing such policies. Upon request by the Lender from time to
time, the Borrower shall deliver to the Lender originals or copies of all such
insurance policies.

 

6.16 Title Insurance Endorsements. Borrower shall deliver or cause to be
delivered to Lender, in form and substance satisfactory to Lender, endorsement
numbers 100, 100.29, 101.3, 116, 116.7, and 122 (upon each Disbursement) to the
Title Policy and such other endorsement and binders as Lender may from time to
time reasonably require.

 

6.17 Books and Records. Borrower shall: (a) maintain full and complete books of
account and other records reflecting the results of its operations (in
conjunction with any other business as well as specifically with respect to the
Project) in accordance with generally accepted accounting principles applied on
a consistent basis; and (b) permit Lender and its agents, at any time and from
time to time, upon twenty-four (24) hours telephonic notice to Borrower, to
inspect and copy all of such books and records, including without limitation any
books and records pertaining to the Project or the Project Documents.

 

6.18 Entry and Inspection. Lender and its agents shall, at all times, upon
twenty-four (24) hours telephonic notice to Borrower, have the right of entry
and free access to the Project and the right to inspect all work done, labor
performed, and materials furnished in and about the Project. If, at any time,
Lender determines, in its sole discretion, that regular inspections of the
Project are required, the Borrower shall allow free access to such inspector.
Such inspection shall be performed at Borrower’s expense, with the actual cost
thereof, reasonably incurred, to be paid by Borrower upon seventy-two (72) hours
notice from Lender.

 

6.19 Physical Security of Project. Borrower shall take appropriate measures to
protect the physical security of the Project and the Property.

 

6.20 Reporting and Requirements. Borrower shall cause to be delivered to Lender,
in form and detail satisfactory to Lender:

 

(a) promptly upon Borrower’s learning thereof, notice of:

 

(i) any litigation affecting or relating to Borrower, the Guarantors, the
Property, or the Project;

 

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(ii) any dispute between Borrower and any Governmental Agency relating to the
Property or the Project, the adverse determination of which would adversely
affect the Property or the Project;

 

(iii) any threat or commencement of proceedings in condemnation or eminent
domain relating to the Property;

 

(iv) any Event of Default or event which, with the giving of notice and/or the
passage of time, could become and Event of Default; and

 

(v) any change in the executive management personnel of Borrower.

 

(b) as soon as available, and in any event within thirty (30) calendar days
after the end of each month during the term of the Loan, a status report for the
Project for the month most recently ended (which status report shall contain an
itemized breakdown of the progress of construction, sales of lots, the gross
revenues and all costs and expenses with respect to the Project for such month),
in reasonable detail and prepared in accordance with generally accepted
accounting principles applied on a consistent basis, and certified as accurate
by an officer of Borrower;

 

(c) as soon as available, and in any event within forty-five (45) calendar days
after the close of each fiscal quarter of Borrower and each of the Guarantors,
quarterly financial statements applicable to Borrower and each of the
Guarantors, all in reasonable detail and prepared in accordance with generally
accepted accounting principles applied on a consistent basis;

 

(d) as soon as available, and in any event within ninety (90) calendar days
after the close of each fiscal year of Borrower, annual financial statements
applicable to Borrower, all in reasonable detail and prepared in accordance with
generally accepted accounting principles applied on a consistent basis;

 

(e) as soon as available, and in any event within ninety (90) calendar days
after the close of each fiscal year of each of the Guarantors, annual financial
statements applicable to the Guarantors, all in reasonable detail and prepared
in accordance with generally accepted accounting principles applied on a
consistent basis;

 

(f) promptly upon receipt thereof, any audited financial information applicable
to Borrower or the Guarantors; and

 

(g) such other information relating to Borrower, the Guarantors, the Property
and/or the Project as Lender may reasonably request from time to time, including
without limitation (i) tax returns, to be provided concurrently with the filing
thereof with the relevant government authority or (ii) if Borrower or the
Guarantors receive an extension from the relevant governmental authority for
filing a tax return, satisfactory evidence of such extension.

 

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6.21 Surveys. Borrower agrees to furnish Lender all of the following:

 

(a) a perimeter survey of the Property (a copy of the Subdivision Map of the
Property shall satisfy this requirement); and

 

(b) upon request by Lender, immediately upon completion of the Improvements, a
survey made and certified by a licensed engineer or surveyor showing the
locations of the Improvements located on the Property and showing that the
Improvements are located entirely within the Property lines and do not encroach
upon any easement, or breach or violate any Law or any covenant, condition or
restriction of record, or any building or zoning ordinance.

 

6.22 Management of Property and Project. Borrower shall not enter into any
agreement providing for the management, leasing or operation of the Property or
the Project without the prior written consent of the Lender.

 

6.23 Defense of Vested Right, Modification of Vested Rights. Borrower shall at
all times, at its own cost and expense take, pursue and assert all such actions
and defenses as are necessary to perfect, maintain and protect its vested
development rights with respect to the Property. Should Borrower fail to do so,
Lender may do so either in its own name or the name of the Borrower, and all
unrecovered fees, costs and expenses incurred by Lender in connection therewith
shall be payable by Borrower to Lender on demand, shall bear interest at the
Default Rate specified in the Note, and shall be secured by the Deed of Trust.
Borrower shall not modify, amend, cancel, terminate or otherwise alter any
development rights or entitlements with respect to the Property, without
Lender’s prior written consent, which consent shall not be unreasonably
withheld.

 

6.24 No Gifting. Until this Loan has been fully repaid, Borrower agrees not to
transfer more than a total of five percent (5%) of its assets unless receiving
full consideration therefore without the written permission of Lender.

 

6.25 ERISA Reports. As soon as possible, and in any event within thirty (30)
days after the Borrower knows or has reason to know that any circumstances exist
that constitute grounds entitling the PBGC to institute proceedings to terminate
a Plan subject to ERISA with respect to the Borrower or any Commonly Controlled
Entity, and promptly but in any event within two (2) Business Days of receipt by
the Borrower or any Commonly Controlled Entity of notice that the PBGC intends
to terminate a Plan or appoint a trustee to administer the same, and promptly
but in any event within five (5) Business Days of the receipt of notice
concerning the imposition of withdrawal liability with respect to the Borrower
or any Commonly Controlled Entity, the Borrower will deliver to the Lender a
certificate of the chief financial officer of the Borrower setting forth all
relevant details and the action which the Borrower proposes to take with respect
thereto.

 

6.26 Debt. Create, incur, assume, or suffer to exist, or permit any Subsidiary
to create, incur, assume, or suffer to exist, any Debt, except:

 

(a) Debt of the Borrower under this Agreement or the Note;

 

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(b) Debt described in Exhibit “G”, but no voluntary prepayments, renewals,
extensions, or refinancings thereof;

 

(c) Debt of the Borrower subordinated on terms satisfactory to the Lender to the
Borrower’s Liabilities;

 

(d) Accounts payable to trade creditors for goods or services which are not aged
more than forty-five (45) days from the billing date and current operating
liabilities (other than for borrowed money) which are not more than thirty (30)
days past due, in each case incurred in the ordinary course of business, as
presently conducted, and paid within the specified time, unless contested in
good faith and by appropriate proceedings; Debt of the Borrower or any
Subsidiary secured by purchase-money Liens permitted by Section 8.1(i).

 

6.27 Guaranties, Etc. Assume, guaranty, endorse, or otherwise be or become
directly or contingently responsible or liable, or permit Borrower, Guarantor or
any Subsidiary to assume, guaranty, endorse, or otherwise be or become directly
or contingently responsible or liable (including, but not limited to, an
agreement to purchase any obligation, stock, assets, goods, or services, or to
supply or advance any funds, assets, goods, or services, or an agreement to
maintain or cause such Person to maintain a minimum working capital or net
worth, or otherwise to assure the creditors of any Person against loss) for
obligations of any Person, except guaranties by endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary
course of business.

 

SECTION 7: EVENTS OF DEFAULT AND REMEDIES UPON DEFAULT.

 

7.1 Events of Default. The occurrence of any one or more of the following,
whatever the reason therefor, shall constitute an Event of Default hereunder:

 

(a) Borrower shall fail to pay when due any installment of principal or interest
on the Note or any other amount owing under this Agreement or the other Loan
Documents; or

 

(b) Borrower or any of the Guarantors shall fail to perform or observe any term,
covenant or agreement contained in any of the Loan Documents on its part to be
performed or observed, other than the failure to make a payment covered by
Section 7.1(a), and such failure shall continue uncured as of ten (10) calendar
days after the occurrence of such failure; provided, however, that if Borrower
has commenced to cure the default within said 10-day period and is diligently
pursuing such cure, but the default is of such a nature that it cannot be cured
within 10 days, then the cure period shall be extended for the number of days
necessary to complete the cure, but in no event shall the total cure period be
longer than 30 days (the cure period set forth in this Section 7.1(b) shall not
apply to any other Events of Default); or

 

(c) any representation or warranty in any of the Loan Documents or in any
certificate, agreement, instrument or other document made or delivered pursuant
to or in connection with any of the Loan Documents proves to have been incorrect
in any material respect when made; or

 

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(d) the Project, or any portion thereof, is not completed in conformity with the
Improvement Plans in an orderly and expeditious manner, free and clear of
mechanic’s, materialmen’s, or other liens asserted by suppliers of labor,
service, equipment, or material to the Project (except for liens for which
Borrower has provided a surety bond pursuant to Section 6.11 hereof); or

 

(e) work ceases on the Project for thirty (30) consecutive calendar days for any
reason whatsoever; or

 

(f) the Property is destroyed by fire or other casualty or damaged thereby to an
extent that would, in Lender’s reasonable judgment, prevent or preclude the
completion of the Project in conformity with the Improvement Plans in an orderly
and expeditious manner; or

 

(g) any condition or circumstance arises or exists at any time by reason of
governmental order, decree, or regulation, shortage of materials, or for any
other reason whatsoever that would, in Lender’s reasonable judgment, prevent or
preclude the completion of the Project in conformity with the Improvement Plans
in an orderly and expeditious manner; or

 

(h) Borrower is enjoined by any Governmental Agency from constructing the
Improvements or performing its obligations hereunder, such injunction is not
released or stayed within thirty (30) calendar days after the granting thereof,
and Lender reasonably determines that such injunction may prevent or preclude
the completion of the Project in conformity with the Improvement Plans in and
orderly and expeditious manner; or

 

(i) Borrower (which term shall include any entity comprising Borrower) is
dissolved or liquidated, or otherwise ceases to exist, or all or substantially
all of the assets of Borrower or any Guarantor are sold or otherwise transferred
without Lender’s written consent; or

 

(j) Borrower or any Guarantor is the subject of an order for relief by the
bankruptcy court, or is unable or admits in writing its inability to pay its
debts as they mature, or makes an assignment for the benefit of creditors; or
Borrower or any Guarantor applies for or consents to the appointment of any
receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar
officer (“Receiver”); or a Receiver is appointed without the application or
consent of Borrower or any Guarantor, as the case may be, and the appointment
continues undischarged or unstayed for thirty (30) calendar days; or Borrower or
any Guarantor institutes or consents to any bankruptcy, insolvency,
reorganization, arrangement, readjustment of debt, dissolution, custodianship,
conservatorship, liquidation, rehabilitation or similar proceedings relating to
it or to all or any part of its property under the laws of any jurisdiction; or
any similar proceeding is instituted without the consent of Borrower or any
Guarantor, as the case may be, and continues undismissed or unstayed for sixty
(60) calendar days; or any judgment, writ, attachment, execution or similar
process is issued or levied against all or any part of the Property or against
Borrower or any Guarantor, and is not released, vacated or fully bonded within
sixty (60) calendar days after such issue or levy; or

 

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(k) there shall occur a material adverse change in the financial condition of
Borrower or any Guarantor from their respective financial conditions as of the
date of the Note, as determined by Lender in its reasonable discretion, and
Lender reasonably believes that such adverse change shall jeopardize (i)
Lender’s ability to collect the amounts due under the Note, as they become due,
or (ii) Lender’s ability to foreclose on the Mortgaged Property; or

 

(l) the Contractor shall cease to act as general contractor for the Project, and
Borrower shall fail to obtain Lender’s approval of a new general contractor
within twenty (20) calendar days thereafter; or

 

(m) any Loan Document, at any time after its execution and delivery and for any
reason other than the agreement of Lender or the satisfaction in full of all
indebtedness and obligations of Borrower under the Loan Documents, ceases to be
in full force and effect or is declared to be null and void by a court of
competent jurisdiction; or Borrower or any trustee, officer, director,
shareholder or partner of any entity comprising Borrower or any Guarantor claims
that any Loan Document is ineffective or unenforceable, in whole or in part, or
denies any or further liability or obligation under any Loan Document unless all
indebtedness and obligations of Borrower thereunder have been fully paid and
performed; or

 

(n) any Governmental Agency condemns, seizes or appropriates all or a
substantial portion of the Property; or

 

(o) any lien or security interest created by any Security Document, at any time
after the execution and delivery of that Security Document and for any reason
other than the agreement of Lender or the satisfaction in full of all
indebtedness and obligations of Borrower under the Loan Documents, ceases or
fails to constitute a valid, perfected and subsisting lien of the priority
required by this Agreement or security interest in and to the Property purported
to be covered thereby, subject only to the Permitted Exceptions; or

 

(p) any default occurs in any Loan Document or other agreement by and between
Borrower and Lender or by Borrower in favor of Lender with reference to the Loan
or otherwise, or any default occurs in any Loan Document regarding any loan or
other obligation secured by the Property or any portion thereof.

 

7.2 Remedies Upon Default. Upon the occurrence of any Event of Default, Lender
may, at its option, do any or all of the following:

 

(a) declare the principal of all amounts owing under the Note, this Agreement
and the other Loan Documents and other obligations secured by the Security
Documents, together with interest thereon, and any other obligations of Borrower
to Lender to be forthwith due and payable, regardless of any other specified
maturity or due date, without notice of default, presentment or demand for
payment, protest or notice of nonpayment or dishonor, or other notices or
demands of any kind or character, and without the necessity of prior recourse to
any security;

 

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(b) take possession of the Property and, at Lender’s option, let contracts for,
or otherwise proceed to finish the Improvements and pay the cost thereof; and if
Lender advances its own funds for such purposes, such funds shall be considered
advanced under the Note and shall be secured by the Security Documents,
notwithstanding that such advances may cause the total amount advanced under the
Note to exceed the face amount of the Note or the amount Lender is committed to
advance pursuant to this Agreement, and Borrower shall immediately upon demand
reimburse Lender therefor, together with interest thereon as if such advances
were advances under the Note, from the date of such advance until the date of
reimbursement (nothing contained in this Section 7.2(b) or elsewhere in this
Loan Agreement shall be construed to make Lender a “mortgagee in possession”
unless and until Lender actually takes possession of the Property either in
person or through an agent or receiver);

 

(c) terminate all Disbursements from the Control Account Funds and immediately
demand from the Disbursement Agent all of the Control Account Funds then on
deposit with Disbursement Agent;

 

(d) terminate all rights of Borrower and obligations of Lender under the Loan
Documents;

 

(e) exercise its right and power to sell, or otherwise dispose of, the Personal
Property, or any part thereof, and for that purpose may take immediate and
exclusive possession of the Personal Property, or any part thereof, and with or
without judicial process to the extent permitted by law, enter upon any premises
on which the Personal Property or any part thereof, may be situated and remove
the same therefrom without being deemed guilty of trespass and without liability
for damages thereby occasioned, or at Lender’s option Borrower shall assemble
the Personal Property and make it available to the Lender at the place and the
time designated in the demand; and

 

(f) exercise any and all of its rights under the Loan Documents, including but
not limited to the right to take possession of and foreclose on any security,
and exercise any other rights with respect to any security, whether under the
Security Documents or any other agreement or as provided by Law, all in such
order and in such manner as Lender in its sole discretion may determine.

 

7.3 Cumulative Remedies; No Waiver. All remedies of Lender provided for herein
are cumulative and shall be in addition to any and all other rights and remedies
provided in the other Loan Documents or provided by Law from time to time. The
exercise of any right or remedy by Lender hereunder shall not in any way
constitute a cure or waiver of any default hereunder or under any of the other
Loan Documents, nor invalidate any notice of default or any act done pursuant to
any such notice, nor prejudice Lender in the exercise of any rights hereunder or
under the Loan Documents. No waiver by Lender of any default by Borrower
hereunder shall be implied from any omission by Lender to take action on account
of such default if such default persists or is repeated, and no express waiver
shall affect any default other than the default expressly made the subject of
the waiver. Any

 

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such express waiver shall operate only for the time and to the extent therein
stated. Any waiver of any covenant, term or condition contained herein shall not
be construed as a waiver of any subsequent breach of the same covenant, term or
condition. Lender’s consent to or approval of any act by Borrower requiring
further consent or approval shall not waive or render unnecessary consent to or
approval of any subsequent act.

 

SECTION 8: MISCELLANEOUS.

 

8.1 Performance by Lender. In the event that Borrower shall default in or fail
to perform any of its obligations under the Loan Documents, Lender, without
limiting any of its rights, may, but is not obligated to, perform the same, and
Borrower agrees to pay to Lender, within seventy-two (72) hours after demand,
all costs and expenses incurred by Lender in connection therewith, including
without limitation actual attorneys’ fees reasonably incurred, together with
interest thereon from the date of expenditure at the Default Rate.

 

8.2 Actions. Provided Borrower has not promptly so acted, Lender shall have the
right to commence, appear in, and defend any action or proceeding purporting to
affect the rights or duties of the parties hereunder or the payment of any
funds, and in connection therewith Lender may pay necessary expenses, employ
counsel, and pay reasonable attorneys’ fees. Borrower agrees to pay to Lender,
within seventy-two (72) hours after demand, all costs and expenses incurred by
Lender in connection therewith, including without limitation actual attorneys’
fees reasonably incurred, together with interest thereon from the date of
expenditure at the Default Rate.

 

8.3 Advances Obligatory. Anything herein to the contrary notwithstanding, the
parties specifically understand and agree that any advances that Lender makes
pursuant to this Agreement, including, but not limited to, all funds advanced by
Lender, shall be advanced under an obligation to do so, regardless of the person
or entity to whom such advance is made. Advances made in the reasonable exercise
of Lender’s judgment that such are necessary to complete the Improvements or to
protect its security are obligatory advances hereunder and are to be secured by
the Note and Deed of Trust, and such security shall relate back to the original
recording of the Deed of Trust.

 

8.4 Nonliability of Lender. Borrower acknowledges and agrees that:

 

(a) any inspections of the Property, of the construction, or of the Improvements
made by or through Lender are for purposes of administration of the Loan only
and Borrower is not entitled to rely upon the same with respect to the quality,
adequacy or suitability of materials or workmanship, conformity to the plans
therefor, state of completion or otherwise; Borrower shall make its own
inspections of such construction to determine that the quality of the
Improvements and all other requirements of such construction are being performed
in a manner satisfactory to Borrower and as required by the Improvement Plans
and all applicable Laws; and Borrower shall immediately notify Lender, in
writing, should the same not conform to the plans therefor and all applicable
laws;

 

(b) by accepting or approving anything required to be observed, performed,

 

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fulfilled or given by or to Lender pursuant to the Loan Documents, including any
certificate, statement of profit and loss or other financial statement, survey,
appraisal, lease or insurance policy, Lender does not thereby warrant or
represent the sufficiency, legality, effectiveness or legal effect of the same,
or of any term, provision or condition thereof, and such acceptance or approval
thereof shall not constitute a warranty or representation to anyone with respect
thereto by Lender;

 

(c) Lender neither undertakes nor assumes any responsibility or duty to Borrower
to select, review, inspect, supervise, pass judgment upon or inform Borrower of
any matter in connection with the Project, including without limitation matters
relating to the quality, adequacy or suitability of: (i) any plans or
specifications, (ii) architects, contractors, subcontractors and materialmen
employed or utilized in connection with the construction of the Improvements, or
the workmanship of or the materials used by any of them, or (iii) the progress
or course of any construction and its conformity or nonconformity with the plans
therefor. Borrower shall rely entirely upon its own judgment with respect to
such matters, and any review, inspection, supervision, exercise of judgment or
information that Lender supplies to Borrower in connection with such matters is
for the protection of Lender only and neither Borrower nor any third party is
entitled to rely thereon;

 

(d) Lender owes no duty of care to protect Borrower against negligent, faulty,
inadequate or defective building or construction;

 

(e) Borrower and Lender’s relationship under the Loan Documents is, and at all
times shall remain, solely that of borrower and lender, and Lender neither
undertakes nor assumes any responsibility or duty to Borrower or to any other
Person with respect to the Property or Loan, except as expressly provided in the
Loan Documents. Notwithstanding any other provision of the Loan Documents: (i)
Lender is not, and shall not be construed as, a partner, joint venturer,
alter-ego, manager, controlling person or an insider or other business associate
or participant of any kind of Borrower, and Lender does not intend to ever
assume such status; (ii) Lender’s activities in connection with the Loan
Documents shall not be “outside the scope of the activities of a lender of
money” under Nevada law, as amended or recodified from time to time, and Lender
does not intend to ever assume any responsibility to any Person for the quality,
suitability, safety or condition of the Property or Improvements; and (iii)
Lender shall not be responsible for or a participant in any acts, omissions or
decisions of Borrower; and

 

(f) Lender shall not be directly or indirectly liable or responsible for any
loss, claim, cause of action, liability, indebtedness, damage or injury of any
kind or character to any Person or property arising from any construction on, or
occupancy or use of, any of the Property, whether caused by, or arising from:
(i) any defect in any building, structure, soil condition, grading, fill,
landscaping, or other improvements thereon or in any on-site or off-site
improvement or other facility therein or thereon; (ii) any act or omission of
Borrower or any of Borrower’s agents, employees, independent contractors,
licensees or invitees; (iii) any accident in or on any of the Property or any
fire, flood or other casualty or hazard thereon; (iv) the failure of Borrower,
any of Borrower’s licensees, employees, invitees, agents, independent
contractors or other representatives to maintain any of the Property in a safe
condition; and (v) any nuisance made or suffered on any part of the Property.

 

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8.5 No Third Parties Benefitted. This agreement is made for the purpose of
defining and setting forth certain obligations, rights and duties of Borrower,
Lender and USA in connection with the Loan. It constitutes a supplement to the
Note and the Security Documents, and is not a modification of the Note or the
Security Documents, except as provided herein. It is made for the sole
protection of Borrower, Lender, and USA, and their successors and assigns. No
other Person shall have any rights of any nature hereunder of by reason hereof.

 

8.6 Indemnity. Borrower indemnifies Lender against, and holds Lender harmless
from, any and all losses, damages (whether general, punitive or otherwise),
liabilities, claims, cause of action (whether legal, equitable or
administrative), judgments, court costs and legal or other expenses, including
attorneys’ fees, which Lender may suffer or incur as a direct or indirect
consequence of: (a) Lender’s performance of this Agreement or any of the Loan
Documents, including, without limitation, Lender’s exercise or failure to
exercise any rights, remedies or powers in connection with this Agreement or any
of the Loan Documents but excluding charges and assessments by Governmental
Agencies imposed upon the Lender in the normal course of the Lender’s business
such as taxes and regulatory fees; (b) Borrower’s failure to perform any of
Borrower’s obligations as and when required by this Agreement or any of the
other Loan Documents, including, without limitation, any failure, at any time,
of any representation or warranty of Borrower to be true and correct and any
failure by Borrower to satisfy any condition; (c) any claim or cause of action
of any kind by any Person to the effect that Lender is in any way responsible or
liable for any act or omission by Borrower, whether on account of any theory of
derivative liability or otherwise, including but not limited to any claim or
cause of action for fraud, misrepresentation, tort or willful misconduct; (d)
any act or omission by Borrower, any contractor, subcontractor or material
supplier, engineer, architect, or any other Person with respect to any of the
Property or Improvements; or (e) any claim or cause of action of any kind by any
Person which would have the effect of denying Lender the full benefit or
protection of any provision of this Agreement or the Loan Documents but
excluding charges and assessments by Governmental Agencies imposed upon Lender
in the normal course of Lender’s business such as taxes and regulatory fees.
Lender’s rights of indemnity shall not be directly or indirectly limited,
prejudiced, impaired or eliminated in any way by any finding or allegation that
Lender’s conduct is active, passive or subject to any other classification or
that Lender is directly or indirectly responsible under any theory of any kind,
character or nature for any act or omission by Borrower or any other Person.
Notwithstanding the foregoing, Borrower shall not be obligated to indemnify
Lender with respect to any intentional tort or act of negligence which Lender is
personally determined by the judgment of a court of competent jurisdiction
(sustained on appeal, if any) to have committed. Borrower shall pay any
indebtedness arising under this indemnity to Lender immediately within
seventy-two (72) hours after demand therefor by Lender together with interest
thereon from the date such indebtedness arises until paid at the Default Rate.
Borrower’s duty to defend and indemnify Lender shall survive the release and
cancellation of the Note and the release and reconveyance or partial release and
reconveyance of the Deed of Trust.

 

8.7 Commissions. Borrower hereby indemnifies Lender from the claim of any Person
for a commission or fee in connection with the Loan.

 

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8.8 Lenders’ Representative. The persons and entities which comprise Lender
hereby collectively appoint USA Commercial Mortgage Company (“USA”) to
administer the Loan on their behalf, to make all necessary demands on Borrower
and to execute and deliver all approvals and notices to be given by Lender
hereunder.

 

8.9 Binding Effect; Assignment. This Agreement shall be binding upon and inure
to the benefit of Borrower and Lender and their respective successors and
assigns; however, except as provided herein, Borrower may not assign its rights
or interest or delegate any of its duties under this Agreement or any of the
other Loan Documents without prior written consent of Lender.

 

8.10 Amendments; Consents. No amendment, modification, supplement, termination
or waiver of any provision of this Agreement or any of the other Loan Documents,
and no consent to any departure by Borrower therefrom, may, in any event, be
effective unless in writing signed by Lender, and then only in the specific
instance and for the specific purpose given.

 

8.11 Costs, Expenses and Taxes. Borrower shall pay to Lender, within seventy-two
(72) hours after demand therefor:

 

(a) the actual attorneys’ fees and out-of-pocket expenses incurred by Lender in
connection with the negotiation, preparation, execution, delivery and
administration of this Agreement and any other Loan Documents and any matter
related thereto;

 

(b) the actual costs and expenses of Lender in connection with any modification
of any Loan Document or in connection with the enforcement of this Agreement and
any other Loan Document and any matter related thereto, including the actual
fees and out-of-pocket expenses, reasonably incurred, of any legal counsel,
independent public accountants and other outside experts retained by Lender; and

 

(c) all costs, expenses, fees, premiums and other charges relating or arising
with respect to the Loan Documents or any transactions contemplated thereby or
the compliance with any of the terms and conditions thereof, including, without
limitation, the Disbursement Agent’s fee, appraisal fees, inspection fees, cost
review fees, recording fees, filing fees, release or reconveyance fees, title
insurance premiums, and the cost of realty tax service for the term of the Loan.

 

All sums that Lender pays or expends under the terms of this Agreement and the
other Loan Documents are a part of the Loan. Except as otherwise specifically
stated herein, all such sums shall be secured by the Security Documents, shall
bear interest from the date of expenditure as if such sums were advances under
the Note, and shall be immediately due and payable by Borrower within
seventy-two (72) hours after demand therefor.

 

8.12 Survival of Representations and Warranties. All representations and
warranties of Borrower and the Guarantors contained herein or in any other Loan
Document shall survive the

 

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making of the Loan and execution and delivery of the Note, are material, and
Lender has or will rely upon them, notwithstanding any investigation made by or
on behalf of Lender. For the purpose of the foregoing, all statements contained
in any certificate, agreement, financial statement, or other writing delivered
by or on behalf of Borrower or the Guarantors pursuant hereto or to any other
Loan Document or in connection with the transactions contemplated hereby or
thereby constitute representations and warranties of Borrower or the Guarantors
contained herein or in the other Loan Documents, as the case may be.

 

8.13 Notices. All notices to be given pursuant to this Agreement shall be
sufficient if given by personal service, by guaranteed overnight delivery
service, by telex, telecopy or telegram or by being mailed postage prepaid,
certified or registered mail, return receipt requested, to the addresses of the
parties hereto as set forth below, or to such other address as a party may
request in writing. Any time period provided in the giving of any notice
hereunder shall commence upon the date of personal service, the date after
delivery to the guaranteed overnight delivery service, the date of sending the
telex, telecopy or telegram or two (2) days after mailing certified or
registered mail.

 

BORROWER’S ADDRESS:

 

 

 

LENDER’S ADDRESS:

   USA Commercial Mortgage Company.     

4484 South Pecos Road

Las Vegas, Nevada 89121

Attn: Joe Milanowski

 

8.14 Further Assurances. Borrower shall, at its sole expense and without expense
to Lender, do such further acts and execute and deliver such additional
documents as Lender from time to time may require for the purpose of assuring
and confirming unto Lender the rights hereby created or intended now or
hereafter so to be, or for carrying out the intention or facilitating the
performance of the terms of any Loan Document, or for assuring the validity of
any security interest or lien under any Security Document.

 

8.15 Governing Law; Jurisdiction; Waiver of Jury Trial.

 

(a) The laws of the State of Nevada, without regard to its choice of law
provisions, shall govern the construction and enforcement of the Loan Documents.

 

(b) BORROWER, TO THE FULL EXTENT PERMITTED BY LAW, HEREBY KNOWINGLY,
INTENTIONALLY AND VOLUNTARILY, WITH AND UPON THE ADVICE OF COMPETENT COUNSEL,
(i) SUBMITS TO PERSONAL JURISDICTION IN THE STATE OF NEVADA OVER ANY SUIT,
ACTION OR PROCEEDING BY ANY PERSON ARISING FROM OR RELATING TO THE NOTE, THIS
INSTRUMENT OR ANY OTHER OF THE LOAN DOCUMENTS, (ii) AGREES THAT ANY SUCH ACTION,
SUIT

 

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OR PROCEEDING MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT
JURISDICTION SITTING IN CLARK COUNTY, NEVADA, (iii) SUBMITS TO THE JURISDICTION
OF SUCH COURTS, AND, (iv) TO THE FULLEST EXTENT PERMITTED BY LAW, AGREES THAT IT
WILL NOT BRING ANY ACTION, SUIT OR PROCEEDING IN ANY FORUM OTHER THAN CLARK
COUNTY, NEVADA (BUT NOTHING HEREIN SHALL AFFECT THE RIGHT OF LENDER TO BRING ANY
ACTION, SUIT OR PROCEEDING IN ANY OTHER FORUM). BORROWER FURTHER CONSENTS AND
AGREES TO SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER LEGAL PROCESS IN ANY SUCH
SUIT, ACTION OR PROCEEDING BY REGISTERED OR CERTIFIED U.S. MAIL, POSTAGE
PREPAID, TO THE BORROWER AT THE ADDRESS FOR NOTICES DESCRIBED IN SECTION 8.13
HEREOF, AND CONSENTS AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE IN EVERY
RESPECT VALID AND EFFECTIVE SERVICE (BUT NOTHING HEREIN SHALL AFFECT THE
VALIDITY OR EFFECTIVENESS OF PROCESS SERVED IN ANY OTHER MANNER PERMITTED BY
LAW).

 

(c) BORROWER, TO THE FULL EXTENT PERMITTED BY LAW, HEREBY KNOWINGLY,
INTENTIONALLY AND VOLUNTARILY, WITH AND UPON THE ADVICE OF COMPETENT COUNSEL,
WAIVES, RELINQUISHES AND FOREVER FORGOES THE RIGHT TO A TRIAL BY JURY IN ANY
ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO THE
INDEBTEDNESS SECURED HEREBY OR ANY CONDUCT, ACT OR OMISSION OF LENDER, TRUSTEE
OR BORROWER, OR ANY OF THEIR DIRECTORS, OFFICERS, PARTNERS, MEMBERS, EMPLOYEES,
AGENTS OR ATTORNEYS, OR ANY OTHER PERSONS AFFILIATED WITH LENDER, TRUSTEE OR
BORROWER, IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT, TORT OR
OTHERWISE.

 

8.16 Severability of Provisions. Any provision in any Loan Document that is held
to be inoperative, unenforceable or invalid shall be inoperative, unenforceable
or invalid without affecting the remaining provisions, and to this end the
provisions of all Loan Documents are declared to be severable.

 

8.17 Assignment or Sale of Participation by Lender; Advertising. Lender may, at
any time, sell, transfer, assign or grant participation in the Loan and in the
Loan Documents and Lender may forward to its partners or to such participant and
prospective participant all documents and information relating to the Loan and
to Borrower, whether furnished by Borrower or otherwise, as Lender determines
necessary or desirable. Lender and USA may also reasonably divulge and advertise
the making of the Loan and the amount thereof.

 

8.18 Headings. Section headings in this Agreement are included for convenience
of reference only and are not part of this Agreement for any other purpose.

 

8.19 Time of the Essence. Time is of the essence with respect to all duties and
obligations of Borrower under any Loan Document.

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the date first above written.

 

BORROWER:

 

 

 

LENDER:

 

By:

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

   By:

 

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EXHIBIT “A”

 

LENDERS

 

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EXHIBIT “B”

 

APPROVED BUDGETS

 

43

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EXHIBIT “C”

 

DISBURSEMENT SCHEDULE

 

44

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EXHIBIT “D”

 

IMPROVEMENT PLANS

 

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EXHIBIT “E”

 

PERMITTED EXCEPTIONS

 

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EXHIBIT “F”

 

LEGAL DESCRIPTION

 

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