Exhibit 10.1

 

 

 

REVOLVING CREDIT AGREEMENT

Dated as of July 18, 2013

by and among

TRI POINTE HOMES, INC.,

a Delaware corporation,

as Borrower

and

U.S. BANK NATIONAL ASSOCIATION,

d/b/a Housing Capital Company,

as Lender

Loan No. 2094B

 

 

 

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

TABLE OF CONTENTS

 

          Page   ARTICLE I    DEFINITIONS      1   

Section 1.1

  

Definitions

     1   

Section 1.2

  

General; References

     20    ARTICLE II    CREDIT FACILITY      21   

Section 2.1

  

Revolving Advances

     21   

Section 2.2

  

Rates and Payment of Interest; Late Fees; Post-Default Rate

     22   

Section 2.3

  

Repayment of Advances

     24   

Section 2.4

  

Prepayments

     24   

Section 2.5

  

Note

     24   

Section 2.6

  

Extension of Maturity Date

     25   

Section 2.7

  

Full Recourse

     26   

Section 2.8

  

Voluntary Reduction of the Commitment Amount

     26    ARTICLE III    PAYMENTS, FEES AND OTHER GENERAL PROVISIONS      26   

Section 3.1

  

Payments

     26   

Section 3.2

  

Fees

     26   

Section 3.3

  

Computations

     27   

Section 3.4

  

Usury

     27   

Section 3.5

  

Agreement Regarding Interest and Charges

     28   

Section 3.6

  

Statements of Account

     28   

Section 3.7

  

Taxes

     28   

Section 3.8

  

Funds Transfer Disbursements

     28    ARTICLE IV    BORROWING BASE PROPERTIES      29   

Section 4.1

  

Eligibility of Properties

     29   

Section 4.2

  

Bulk Sales

     32   

Section 4.3

  

Partial Release of Eligible Property

     33   

Section 4.4

  

Release of a Project

     35   

Section 4.5

  

Frequency of Appraisals; Updating of Appraisals

     35   

Section 4.6

  

Frequency of Calculations of Borrowing Base

     36    ARTICLE V    CONDITIONS PRECEDENT      36   

Section 5.1

  

Initial Conditions Precedent

     36   

Section 5.2

  

Conditions Precedent to All Advances

     38   

Section 5.3

  

Conditions as Covenants

     39   

 

i

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

ARTICLE VI

   REPRESENTATIONS AND WARRANTIES      39   

Section 6.1

  

Representations and Warranties

     39   

Section 6.2

  

Survival of Representations and Warranties, Etc.

     45   

ARTICLE VII

   AFFIRMATIVE COVENANTS      45   

Section 7.1

  

Punctual Payment

     45   

Section 7.2

  

Maintenance of Office

     45   

Section 7.3

  

Preservation of Existence and Similar Matters

     45   

Section 7.4

  

Compliance with Applicable Law and Material Contracts

     46   

Section 7.5

  

Maintenance of Property; Completion of Construction

     46   

Section 7.6

  

Insurance

     46   

Section 7.7

  

Payment of Taxes and Claims

     47   

Section 7.8

  

Books and Records; Inspections

     48   

Section 7.9

  

Use of Proceeds

     48   

Section 7.10

  

Environmental Matters

     48   

Section 7.11

  

Further Assurances

     48   

Section 7.12

  

Material Contracts

     49   

Section 7.13

  

ERISA Compliance

     49   

Section 7.14

  

Business Operations

     49   

Section 7.15

  

Lien Free Completion

     49   

Section 7.16

  

Condominium Covenants

     49   

Section 7.17

  

Inspection of Borrowing Base Properties

     50   

Section 7.18

  

Intentionally Omitted

     50   

Section 7.19

  

Bonded Stop Notices

     50   

Section 7.20

  

Financial Covenants

     51   

ARTICLE VIII

   INFORMATION      52   

Section 8.1

  

Financial Statements

     52   

Section 8.2

  

Monthly and Weekly Reporting Requirements

     52   

Section 8.3

  

Other Information

     53   

ARTICLE IX

   NEGATIVE COVENANTS      54   

Section 9.1

  

Negative Pledge

     54   

Section 9.2

  

Merger, Consolidation, Sales of Assets and Other Arrangements

     54   

 

ii

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

Section 9.3

  

Modifications of Organizational Documents and Material Contracts

     55   

Section 9.4

  

Transactions with Affiliates

     55   

Section 9.5

  

Limitations On Distributions

     55   

Section 9.6

  

Unrelated Business

     55   

ARTICLE X

   DEFAULT      56   

Section 10.1

  

Events of Default

     56   

Section 10.2

  

Remedies Upon Event of Default

     58   

Section 10.3

  

Marshaling; Payments Set Aside

     59   

Section 10.4

  

Allocation of Proceeds

     60   

Section 10.5

  

Performance by Lender

     60   

Section 10.6

  

Rights Cumulative

     60   

ARTICLE XI

   MISCELLANEOUS      61   

Section 11.1

  

Notices

     61   

Section 11.2

  

Expenses

     61   

Section 11.3

  

Stamp, Intangible and Recording Taxes

     62   

Section 11.4

  

Setoff

     62   

Section 11.5

  

Litigation; Jurisdiction; Other Matters; Waivers

     63   

Section 11.6

  

Successors and Assigns

     65   

Section 11.7

  

Amendments

     66   

Section 11.8

  

Nonliability of Lender

     66   

Section 11.9

  

Tax Reporting

     66   

Section 11.10

  

Indemnification

     67   

Section 11.11

  

Termination; Survival

     68   

Section 11.12

  

Severability of Provisions

     69   

Section 11.13

  

GOVERNING LAW

     69   

Section 11.14

  

Counterparts

     69   

Section 11.15

  

Independence of Covenants

     69   

Section 11.16

  

Limitation of Liability

     69   

Section 11.17

  

Entire Agreement

     70   

Section 11.18

  

Construction

     70   

Section 11.19

  

Compliance with Anti-Terrorism Laws

     70   

 

iii

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

EXHIBITS AND SCHEDULES

 

SCHEDULE 1.1(a)

   Authorized Signatories

SCHEDULE 4.1(a)

   Initial Borrowing Base Properties

SCHEDULE 6.1(b)

   Ownership Chart

SCHEDULE 6.1(h)

   Material Contracts

SCHEDULE 6.1(x)

   Options to Acquire; Restrictions on Development

EXHIBIT A

   Form of Compliance Certificate

EXHIBIT B

   Form of Notice of Borrowing

EXHIBIT C

   Form of Borrowing Base Report

EXHIBIT D

   Form of Transfer Authorizer Designation

EXHIBIT E

   Form of Eligible Property Agreement

 

iv

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

REVOLVING CREDIT AGREEMENT

THIS REVOLVING CREDIT AGREEMENT (this “Agreement”) dated as of July 18, 2013 by
and between TRI POINTE HOMES, INC., a Delaware corporation (“Borrower”), and
U.S. BANK NATIONAL ASSOCIATION, d/b/a Housing Capital Company (“Lender”).

WHEREAS, the parties hereto are entering into this Agreement to, among other
things, make available to Borrower a secured revolving credit facility all on
the terms and conditions contained herein.

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

ARTICLE I

DEFINITIONS

Section 1.1 Definitions.

In addition to terms defined elsewhere herein, the following terms shall have
the following meanings for the purposes of this Agreement:

“Account” shall mean a deposit account maintained by Borrower with California
Bank & Trust as designated by Borrower to Lender in writing into which Advances
shall be deposited, or such replacement account as Borrower may designate to
Lender in writing from time to time.

“Actual Cost” means (a) the Home Cost for Sold Homes, Models and Spec Homes, and
(b) the Lot Cost for Finished Lots, Lots Under Development and Entitled Land.

“Advance” means an advance made by Lender to Borrower pursuant to
Section 2.1(a).

“Affiliate” means as to any Person: (a) any other Person directly or indirectly
controlling, controlled by, or under common control with such Person; (b) any
other Person directly or indirectly owning or holding ten percent (10%) or more
of any Equity Interest in such Person; or (c) any other Person where ten percent
(10%) or more of such other Person’s voting stock or other Equity Interest is
directly or indirectly owned or held by such Person. For purposes of this
definition, “control” (including with correlative meanings, the terms
“controlling”, “controlled by” and “under common control with”) means the
possession directly or indirectly of the power to direct or cause the direction
of the management and policies of a Person, whether through the ownership of
voting securities or by contract or otherwise. In no event shall Lender be
deemed to be an Affiliate of Borrower.

“Aggregate Borrowing Base Value” means an amount equal to the sum of the
Borrowing Base Values for all Borrowing Base Properties; provided, however, that
the Aggregate Borrowing Base Value shall be adjusted as follows:

(a) no amount shall be contributed to the Aggregate Borrowing Base Value by
Unentitled Land; and

 

1

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

(b) (i) during the initial twelve (12) month period after the Effective Date,
the aggregate amount contributed to the Aggregate Borrowing Base Value by
Entitled Land, Lots Under Development and Finished Lots shall not at any time
exceed sixty percent (60%) of the aggregate Borrowing Base Values for all
Borrowing Base Properties, and (ii) from and after the end of the initial twelve
(12) month period after the Effective Date, the aggregate amount contributed to
the Aggregate Borrowing Base Value by Entitled Land, Lots Under Development and
Finished Lots shall not at any time exceed fifty percent (50%) of the aggregate
Borrowing Base Values for all Borrowing Base Properties; and

(c) to the extent the aggregate number of Spec Homes in any Project (except a
Condominium Project) exceeds the Maximum Spec Home Limit for such Project, then
any Borrowing Base Value attributable to such excess shall be excluded from the
Aggregate Borrowing Base Value; and

(d) to the extent the aggregate number of Spec Homes in any Condominium Project,
exceeds the Maximum Condominium Spec Home Limit applicable to such Condominium
Project, then any Borrowing Base Value attributable to such excess shall be
excluded from the Aggregate Borrowing Base Value; and

(e) to the extent the aggregate number of Spec Homes and Sold Homes in any
Project (except a Condominium Project) exceeds the Maximum Total Home Limit for
such Project, then any Borrowing Base Value attributable to such excess shall be
excluded from the Aggregate Borrowing Base Value; and

(f) to the extent the aggregate number of Spec Homes and Sold Homes in any
Condominium Project, exceeds the Maximum Total Condominium Home Limit applicable
to such Condominium Project, then any Borrowing Base Value attributable to such
excess shall be excluded from the Aggregate Borrowing Base Value.

For the avoidance of doubt, if there are, for example, twenty (20) Spec Homes in
a Project (which is not a Condominium Project) and the Maximum Spec Home Limit
applicable to such Project is ten (10), then to be in compliance with subsection
(c) above, only ten (10) of such Spec Homes shall be included in the Aggregate
Borrowing Base Value. The same concept applies to subsections (d), (e) and (f),
respectively.

For the avoidance of doubt, if there are Spec Homes and/or Sold Homes in excess
of the limitations set forth in subsections (c), (d), (e) and (f) above (the
“Excess Homes”), for purposes of this definition of Aggregate Borrowing Base
Value only, such Excess Homes shall be deemed re-classified as Finished Lots.
Therefore, subject to the limitations set forth in subsection (b) above, the
value of such Excess Homes shall not be eliminated entirely from the Aggregate
Borrowing Base Value but rather the Borrowing Base Value attributable to such
Excess Homes shall be calculated as if such Excess Homes were classified as
Finished Lots.

The exclusion from time to time of any Borrowing Base Value from the calculation
of Aggregate Borrowing Base Value pursuant to any subsection above shall not
mean that the subject Borrowing Base Property (or any portion thereof) shall be
excluded from the Collateral.

“Agreement Date” means the date as of which this Agreement is dated.

 

2

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

“Applicable Law” means all applicable provisions of constitutions, statutes,
rules, regulations, orders and decrees of all Governmental Authorities.

“Applicable Rate” means, on any day of determination, a per annum rate equal to
the sum of the Base Rate then in effect, plus the then applicable margin, as
determined by Lender by reference to the chart below:

 

Leverage Ratio    Applicable Margin £ 0.5:1.0    250 basis points > 0.5:1.0, but
£ 1.0:1.0    275 basis points > 1.0:1.0, but £ 1.25:1.0    325 basis points >
1.25:1.0    370 basis points

“Appraisal” means, with respect to any Project, an M.A.I. appraisal commissioned
by and addressed to Lender (acceptable to Lender as to form, substance and
appraisal date), prepared by a professional appraiser acceptable to Lender,
having at least the minimum qualifications required under Applicable Law
governing Lender, including without limitation, FIRREA, and determining market
value as follows:

 

Eligible Property Type    Appraisal Basis Sold Homes    aggregate retail value
Spec Homes    aggregate retail value Models    aggregate retail value Finished
Lots    finished bulk value Lots Under Development    finished bulk value
Entitled Land    finished bulk value

“Appraised Value” means, with respect to any Project, the applicable as
completed market value of such Project as reflected in the most recent Appraisal
of such Project; provided, however, Lender shall have the right to review such
Appraisal for errors and request revisions to such Appraisal to correct such
errors, which review shall be conducted prior to acceptance of such Appraisal by
Lender.

“Authorized Signatories” means, collectively, all of the authorized agents
listed on Schedule 1.1(a) or such additional authorized agents as Borrower shall
designate in writing to Lender.

“Base Rate” means the one-month LIBOR rate quoted by USB from Reuters Screen
LIBOR01 Page, or any successor thereto, which shall be that one-month LIBOR rate
in effect and reset each Business Day, adjusted for any reserve requirement and
any subsequent costs

 

3

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

arising from a change in government regulation, such rate rounded up to the
nearest one-sixteenth percent. Notwithstanding the immediately preceding
sentence, if on any date for determining the one-month LIBOR rate, Lender shall
determine (which determination shall be conclusive in the absence of manifest
error) that (a) because of circumstances affecting the Money Markets, adequate
and fair means do not exist for ascertaining the one-month LIBOR rate, or (b) it
is unlawful to maintain any advance of the Loan at a rate based on the one-month
LIBOR rate, Lender shall promptly give to Borrower telephonic notice (confirmed
as soon as practicable in writing) of the nature and effect of such
circumstances and/or illegality. After receipt of such notice and during the
existence of such circumstances and/or illegality, the interest rate applicable
to the outstanding principal balance shall be determined based upon an alternate
index selected by Lender, in its sole discretion, reasonably comparable to that
of one-month LIBOR, intended to generate a return substantially the same as that
generated by the one-month LIBOR rate, and all references in the Loan Documents
to the Base Rate shall be deemed to be references to such alternate index while
such rate is in effect. Lender’s internal records of applicable interest rates
shall be determinative in the absence of manifest error. Each change in the Base
Rate shall become effective without prior notice to Borrower automatically as of
the opening of business on the date of such change in the Base Rate.

“Bonding Obligations” means the potential monetary liability of a Person with
respect to completion bonds, letters of credit or other similar instruments that
are required by insurance companies that issue completion bonds, cities,
counties, the California Department of Real Estate, sellers of Land or other
Governmental Authorities in connection with the development of Land, the
creation of residential communities and the construction of subdivisions of
Homes, the terms of which shall be normal and customary for similar
developments.

“Borrower” has the meaning set forth in the introductory paragraph hereof and
shall include Borrower’s successors and permitted assigns.

“Borrowing Base” means, at any time, all Borrowing Base Properties.

“Borrowing Base Property” means each Eligible Property, and “Borrowing Base
Properties” means all Eligible Properties included in calculations of the
Aggregate Borrowing Base Value pursuant to Section 4.1, which as of the
Effective Date shall include all Projects listed on Schedule 4.1(a). A Project
shall cease to be a Borrowing Base Property if (a) at any time such Project
shall cease to be an Eligible Property, or (b) Lender shall cease to hold a
valid and perfected first priority Lien in such Project; provided, however, that
Lender shall only be obligated to reconvey the lien encumbering any such Project
in accordance with the provisions of Section 4.1, Section 4.2, Section 4.3, or
Section 4.4.

“Borrowing Base Report” means a report prepared from time to time by Borrower in
accordance with the provisions of this Agreement which details (a) the then
Borrowing Base Properties, (b) the Appraised Value and Borrowing Base Value for
each such Borrowing Base Property, (c) the Aggregate Borrowing Base Value, and
(d) the then Maximum Availability, all in the form as set forth on Exhibit C
hereto, which report is certified by Borrower as being accurate and complete
pursuant to a certificate in the form attached on Exhibit C hereto.

 

4

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

“Borrowing Base Value” means, for each Eligible Property, the least of the
following amounts based upon the applicable Eligible Property type:

 

Eligible Property Type

   Borrowing Base Value
(the Lesser of in $$)        Appraised Value1     Actual Costs    
Costs as set forth
in Project Budget  

Sold Homes

     80 %      90 %      90 % 

Spec Homes

     75 %      90 %      90 % 

Models

     80 %      90 %      90 % 

Finished Lots

     75 %      80 %      80 % 

Lots Under Development

     70 %      80 %      80 % 

Entitled Land

     55 %      60 %2      60 % 

Unentitled Land

     0 %      0 %      0 % 

An Eligible Property shall be deemed moved from one Eligible Property type to
another Eligible Property type upon Lender’s receipt of a Borrowing Base Report
which identifies such re-classification from one Eligible Property type to
another Eligible Property type; provided, however, if, at any time after such
re-classification, Lender, in its reasonable discretion, determines that such
Eligible Property should not have been re-classified from one Eligible Property
type to another Eligible Property type, Lender may, in its reasonable
discretion, reclassify such Eligible Property to its former Eligible Property
type in which case Borrower shall immediately comply with the provisions of
Section 2.4(b)(ii), if applicable. No Finished Lot shall be reclassified as a
Sold Home if the anticipated delivery date of such Home is after the Maturity
Date.

Notwithstanding anything to the contrary set forth herein, (a) the Borrowing
Base Value of each Finished Lot shall be automatically reduced by Ten Percent
(10%) on the date that is eighteen (18) months after such Finished Lot was first
included in the calculation of the Borrowing Base as a Finished Lot, (b) the
Borrowing Base Value of each Spec Home and each Sold Home shall be automatically
reduced by Ten Percent (10%) on the date that is twelve (12) months after such
Spec Home or Sold Home was first included in the calculation of the Borrowing
Base (whether as a Spec Home or a Sold Home), (c) the Borrowing Base Value of
each Model Home shall be automatically reduced by Ten Percent (10%) on the date
that is twenty-four (24) months after such Model Home was first included in the
calculation of the Borrowing Base, and (d) to the extent Borrower commences
vertical construction of any Home on a Lot within ninety (90) days prior to the
then existing Maturity Date, there shall be no increase in the Borrowing Base
Value to the applicable Lot (or any re-classification thereof as a Sold Home,
Spec Home or Model, as the case may be, for purposes of the calculation of the
Borrowing Base) unless and until the Maturity Date is extended in accordance
with the terms and conditions of the Loan Documents.

 

 

1  In the case of Sold Homes, Spec Homes, Models and Lots Under Development,
there shall be deducted from the Appraised Value the development costs, if any,
necessary to complete the same. Also, notwithstanding the chart above, the
Borrowing Base Value for each Sold Home, Spec Home and Model in a Condominium
Project shall not exceed $999,000, and the Borrowing Base Value for each Sold
Home, Spec Home and Model in a Project which is not a Condominium Project shall
not exceed $1,500,000.

2  No construction costs shall be included in the calculation of Actual Costs.

 

5

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

“Bulk Sale” means, for any Project, a sale of (a) more than two (2) times the
actual Closings of Homes or Lots for the immediately preceding six (6) months,
or (b) if Homes or Lots at the applicable Project have been offered for sale for
less than six (6) months, then twelve (12) times the projected monthly
absorption rate set forth in the most recent Appraisal for such Project or
portion thereof.

“Business Day” means any day (other than a Saturday or Sunday) on which
commercial banks are open for business in New York, New York.

“Capitalized Lease” means a lease under which a Person is the lessee or obligor,
the discounted future rental payment obligations under which are required to be
capitalized on the balance sheet of the lessee or obligor in accordance with
GAAP.

“Change of Control” shall be deemed to occur if (a) all of Douglas F. Bauer,
Michael D. Grubbs and Thomas J. Mitchell shall cease, for any reason whatsoever,
to be responsible for the day to day operations of Borrower, and (b) one or more
replacement executives reasonably acceptable to Lender fail to assume
responsibility for the day to day operations of Borrower within thirty (30) days
after the last of Douglas F. Bauer, Michael D. Grubbs and Thomas J. Mitchell
cease being responsible for such day to day operations.

“Closing” means, with respect to the sale of any Home or Lot, when title to the
applicable Home or Lot passes to a third-party purchaser and Borrower receives
full payment in cash of the Net Sales Proceeds.

“Collateral” means any real or personal property directly or indirectly securing
any of the Obligations or any other obligation of a Person under or in respect
of any Loan Document to which it is a party, pursuant to a Security Document.

“Commitment Amount” means One Hundred Twenty Five Million and No/100 Dollars
($125,000,000.00), as such amount may be reduced from time to time pursuant to
Section 2.8.

“Completion” means, for each Home in the Borrowing Base and for each Lot Under
Development, that all lot development improvements on such Lot Under Development
and construction on such Home in the Borrowing Base has been completed, as
reasonably approved by Lender, and paid for in full, free of all mechanics’
liens and other similar lien claims (other than any Liens or similar claims
being contested in good faith and in accordance with the terms of this Agreement
or any other Loan Document); and Lender has received satisfactory evidence of
such completion which may include without limitation, as determined by Lender in
its reasonable discretion, evidence that (a) completion has been approved by an
engineer, architect or consultant selected by Lender, (b) a valid notice of
completion has been recorded, (c) a certificate of substantial completion for
the Home and/or Lot Under Development has been signed by Borrower and the
general contractor, (d) no punch-list items remain to be completed, and
(e) Lender has received evidence that all governmental requirements and all
private restrictions and covenants relating to such Home and/or Lot Under
Development have been complied with or satisfied and that all necessary
Governmental Approvals have been obtained, including a certificate of occupancy
for a completed Home.

 

6

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

“Compliance Certificate” means a report in substantially the form of Exhibit A,
certified by any Authorized Signatory certifying and setting forth compliance
with all financial covenants set forth herein, all in form and detail
satisfactory to Lender.

“Condominium Project” means each Borrowing Base Property identified on Schedule
4.1(a) or any applicable Eligible Property Agreement as a condominium project.

“Condominium Unit” means each of the spaces to be developed at a Condominium
Project as a “unit” and constituting a “unit” under applicable Law (including,
without limitation, California Civil Code Section 3051(f) with respect to
Condominium Projects in the State of California), together with an undivided
interest in the portions of such Condominium Project which are not Condominium
Units.

“Controlling Interests” means, with respect to any Person, (a) voting or
ownership interests or both totaling in excess of fifty percent (50%) of the
voting or ownership interests in such Person, or (b) such interests in such
entity which afford control over day-to-day operations of such Person.

“Deed of Trust” means a Construction Deed of Trust with Absolute Assignment of
Leases and Rents, Security Agreement and Fixture Filing or other mortgage/deed
of trust document executed by Borrower in favor of Lender, in form and substance
satisfactory to Lender.

“Default” means any of the events specified in Section 10.1, whether or not
there has been satisfied any requirement for the giving of notice, the lapse of
time, or both.

“Derivatives Obligations” means all obligations of any Person in respect of any
interest rate swap transaction, basis swap, forward rate transaction, commodity
swap, commodity option, equity or equity index swap, forward equity transaction,
equity or equity index option, bond option, interest rate option, foreign
exchange transaction, cap transaction, forward transaction, collar transaction,
currency swap, cross-currency rate swap transaction, currency option or any
other similar transaction (including any option with respect to any of the
foregoing transactions) or any combination of the foregoing transactions.

“Development Plan” means, with respect to each Project, Borrower’s development
plan for such project, which shall be in form and substance reasonably
acceptable to Lender, and shall include, without limitation, Borrower’s
construction progress schedule for all Homes to be constructed within such
Project (whether in one or more phases), and Borrower’s estimate of the maximum
number of Homes in such Project which may be under construction at any one time.

“Distribution” means, with respect to any Person, the declaration or payment of
any cash, cash flow, dividend, loan, distribution or other advance of any type
on or in respect of any shares of any class of capital stock, partner’s
interest, member’s interest or other beneficial interest of such Person; the
purchase, redemption, exchange or other retirement of any shares of any class of
capital stock, partner’s interest, member’s interest or other beneficial
interest of such Person, directly or indirectly through a Subsidiary of such
Person or otherwise; the return of capital by a Person to its shareholders,
partners, members or other beneficial owners as such; or any other distribution
on or in respect of any shares of any class of capital stock, partner’s

 

7

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

interest, member’s interest or other beneficial interest of such Person. This
definition of “Distribution” shall not be interpreted to include profit
participation fees, marketing fees, or similar amounts paid to third parties
(i.e., not Affiliates of Borrower).

“Dollars” or “$” means the lawful currency of the United States of America.

“EBITDA” means the net income of Borrower determined in accordance with GAAP
plus (a) in each case, determined in accordance with GAAP, Interest Paid, taxes
based on income or profits of Borrower, and depreciation and amortization of
Borrower to the extent that such depreciation and amortization were deducted in
computing net income, minus (b) non-cash items that increase net income other
than the accrual or reversal of revenue or cost in the ordinary course of
business determined in accordance with GAAP.

“Effective Date” means the later of: (a) the Agreement Date; and (b) the date on
which all of the conditions precedent set forth in Section 5.1 shall have been
fulfilled or waived in writing by Lender.

“Eligible Property” means each Project, and “Eligible Properties” means all
Projects, which satisfies all of the conditions set forth in Section 4.1(b), as
confirmed by Lender.

“Eligible Property Agreement” means an Eligible Property Agreement in the form
attached hereto as Exhibit E executed by Borrower and Lender with respect to
each Borrowing Base Property

“Entitled Land” means Land (based on evidence in form and substance satisfactory
to Lender) (a) that is zoned and otherwise suitable for the development of Homes
or certain limited commercial development incidental to the development and sale
of Lots or Homes, (b) which the Borrower intends to develop for the sale of Lots
or Homes or certain limited commercial development incidental to the development
and sale of Lots or Homes, and (c) with respect to which approval and
entitlement from required Governmental Authorities of a tentative map, a
preliminary development plan and all other plan and related Governmental
Approvals required by Applicable Law in accordance with the provisions of all
Applicable Law have been obtained such that in each instance Borrower has the
right to develop such Land for Homes substantially in accordance with Borrower’s
intentions and the Development Plan applicable thereto.

“Environmental Laws” means any Applicable Law relating to environmental
protection or the manufacture, storage, disposal or clean-up of Hazardous
Materials including, without limitation, the following: Clean Air Act, 42 U.S.C.
§ 7401 et seq.; Federal Water Pollution Control Act, 33 U.S.C. § 1251 et seq.;
Solid Waste Disposal Act, 42 U.S.C. § 6901 et seq.; Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. § 9601 et seq.; National
Environmental Policy Act, 42 U.S.C. § 4321 et seq.; regulations of the
Environmental Protection Agency, applicable provisions of the California Health
and Safety Code and the California Water Code, and any applicable rule of common
law and any judicial interpretation thereof relating primarily to the
environment or Hazardous Materials.

“Equity Interest” means, with respect to any Person, any share of capital stock
of (or other ownership or profit interests in) such Person, any warrant, option
or other right for the purchase or other acquisition from such Person of any
share of capital stock of (or other

 

8

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

ownership or profit interests in) such Person, any security convertible into or
exchangeable for any share of capital stock of (or other ownership or profit
interests in) such Person or warrant, right or option for the purchase or other
acquisition from such Person of such shares (or such other interests), and any
other ownership or profit interest in such Person (including, without
limitation, partnership, member or trust interests therein), whether voting or
nonvoting, and whether or not such share, warrant, option, right or other
interest is authorized or otherwise existing on any date of determination.

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

“Event of Default” means any of the events specified in Section 10.1, provided
that any requirement for notice or lapse of time or any other condition has been
satisfied.

“Federal Funds Rate” means, for any day, the rate per annum (rounded upward to
the nearest 1/100th of 1%) equal to the weighted average of the rates on
overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers on such day, as published by the Federal
Reserve Bank of New York on the Business Day next succeeding such day, provided
that (a) if such day is not a Business Day, the Federal Funds Rate for such day
shall be such rate on such transactions on the next succeeding Business Day, and
(b) if no such rate is so published on such next succeeding Business Day, the
Federal Funds Rate for such day shall be the average rate quoted to Lender by
federal funds dealers selected by Lender on such day on such transaction as
determined by Lender.

“Fees” means the fees payable by Borrower to Lender hereunder or under any other
Loan Document.

“Finished Lots” means Entitled Land that has been subdivided into Lots and as to
which (a) a final subdivision plat or map has been approved by all applicable
Governmental Authorities and recorded in all appropriate records, (b) Borrower
has legal and physical access to all Lots sufficient to commence vertical
construction of the applicable Homes thereon, (c) utilities have been stubbed
and utility services are available (subject only to Completion of the Home) to
each Lot in accordance with the applicable requirements of Governmental
Authorities, and (d) the building permits for the construction of Homes may be
promptly pulled and construction commenced by Borrower without satisfaction of
any further material conditions, and (e) all offsite construction and all major
infrastructure required to be completed by any Applicable Law as a condition of
commencing vertical construction on the applicable Lot or Lots have been
substantially completed in compliance with Applicable Law. As used in this
definition of “Finished Lots,” “substantially completed” shall not include the
completion of any punch list work with respect to the foregoing items of work
(provided that Borrower delivers to Lender for Lender’s review and approval
(which approval shall not be unreasonably withheld) a copy of such punch list
work), warranty work required by any Governmental Authority having jurisdiction
or the final lift of the street on which such Lots are located.

“FIRREA” means the Financial Institution Recovery, Reform and Enforcement Act of
1989, as amended.

 

9

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

“Force Majeure” means delays in the performance of Borrower’s construction and
development of a Project when caused by strikes, acts of God, failure of
transportation, lockouts, labor disputes, weather, natural disasters, inability
to obtain labor, equipment, facilities, energy, supplies or materials or
reasonable substitutes therefor, enemy or hostile governmental action, declared
or undeclared war, riots, mob violence, civil commotion, fire, earthquake,
flood, explosion, other casualty, or condemnation, and other causes beyond the
reasonable control of Borrower.

“GAAP” means generally accepted accounting principles set forth in the opinions
and pronouncements of the Accounting Principles Board of the American Institute
of Certified Public Accountants and statements and pronouncements of the
Financial Accounting Standards Board or in such other statements by such other
entity as may be approved by a significant segment of the accounting profession,
which are applicable to the circumstances as of the date of determination, and
which have been consistently applied.

“Governmental Approvals” means all authorizations, consents, approvals, licenses
and exemptions of, registrations and filings with, and reports to, all
Governmental Authorities.

“Governmental Authority” means any national, state or local government (whether
domestic or foreign), any political subdivision thereof or any other
governmental, quasi-governmental, judicial, public or statutory instrumentality,
authority, body, agency, bureau or entity (including, without limitation, the
Federal Deposit Insurance Corporation, the Comptroller of the Currency or the
Federal Reserve Board, any central lender or any comparable authority) or any
arbitrator with authority to bind a party at law.

“Guaranty”, “Guaranteed” or to “Guarantee” as applied to any obligation means
and includes: (a) a guaranty (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), directly or
indirectly, in any manner, of any part or all of such obligation, or (b) an
agreement, direct or indirect, contingent or otherwise, and whether or not
constituting a guaranty, the practical effect of which is to assure the payment
or performance (or payment of damages in the event of nonperformance) of any
part or all of such obligation whether by: (i) the purchase of securities or
obligations, (ii) the purchase, sale or lease (as lessee or lessor) of property
or the purchase or sale of services primarily for the purpose of enabling the
obligor with respect to such obligation to make any payment or performance (or
payment of damages in the event of nonperformance) of or on account of any part
or all of such obligation, or to assure the owner of such obligation against
loss, (iii) the supplying of funds to or in any other manner investing in the
obligor with respect to such obligation, (iv) repayment of amounts drawn by
beneficiaries of letters of credit, (v) legal or other flow-through liability
applicable to a Person (e.g., general partner liability) by virtue of ownership
interests owned by such Person, or (vi) the supplying of funds to or investing
in a Person on account of all or any part of such Person’s obligation under a
Guaranty of any obligation or indemnifying or holding harmless, in any way, such
Person against any part or all of such obligation.

“Hazardous Materials” means all or any of the following: (a) substances that are
defined or listed in, or otherwise classified pursuant to, any applicable
Environmental Laws as “hazardous substances”, “hazardous materials”, “hazardous
wastes”, “toxic substances” or any other formulation intended to define, list or
classify substances by reason of deleterious

 

10

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

properties such as ignitability, corrosivity, reactivity, carcinogenicity,
reproductive toxicity, “TCLP” toxicity, or “EP toxicity”; (b) oil, petroleum or
petroleum derived substances, natural gas, natural gas liquids or synthetic gas
and drilling fluids, produced waters and other wastes associated with the
exploration, development or production of crude oil, natural gas or geothermal
resources; (c) any flammable substances or explosives or any radioactive
materials; (d) asbestos in any form; and (e) electrical equipment which contains
any oil or dielectric fluid containing levels of polychlorinated biphenyls in
excess of fifty parts per million.

“Hazardous Materials Indemnity Agreement” means that certain Hazardous Materials
Indemnity Agreement (Unsecured) of even date herewith executed by Borrower in
favor of Lender.

“Home” means a for-sale detached single-family dwelling, constructed on a
separate fee simple absolute Lot or a for-sale Condominium Unit. “Home” shall
not include any housing developed for rental purposes.

“Home Construction Cost” means, with respect to each Home, the sum of (a) the
“hard costs” associated with the construction of the Home, (b) the “soft costs”
associated with the construction of the Home, including, without limitation,
architects’ and engineers’ fees, entitlement costs, project supervision costs,
development management costs, general and administrative expenses, and review
and inspection fees, (c) “up-front fees” with respect to such Home, including
building permit fees, tap fees and fees of any Governmental Authority which are
required to be paid prior to the start of the construction of the Home, (d) to
the extent not included in (a), (b), or (c) above, capitalized sales and
marketing costs, property taxes, HOA costs, insurance, contingency or other
construction costs and financing costs, and (e) any other amount approved by
Lender, all as set forth in the applicable approved Project Budget (including
any approved updates thereto). As used herein, “soft costs” shall not include
selling costs paid out of sales proceeds, including escrow fees and costs,
commissions, points paid to homebuyers’ lenders, and sales taxes. With respect
to each Condominium Project, Home Construction Costs shall be allocated on a pro
rata basis among the Condominium Units included in such Condominium Project
based on their relative sales value as determined in accordance with GAAP.

“Home Cost” for a particular Home means the sum of (a) the Lot Cost for the Lot
applicable to such Home and (b) the Home Construction Cost for the Home,
incurred as of the date of determination.

“Indebtedness” means, with respect to a Person, at the time of computation
thereof, all obligations, contingent and otherwise that in accordance with GAAP
should be classified upon the obligor’s balance sheet as liabilities, or to
which reference should be made by footnotes thereto, including in any event and
whether or not so classified: (a) all debt and similar monetary obligations,
whether direct or indirect; (b) all liabilities secured by any mortgage, pledge,
security interest, lien, charge or other encumbrance existing on property owned
or acquired subject thereto, whether or not the liability secured thereby shall
have been assumed; (c) all Guarantees; (d) any obligation as a lessee or obligor
under a Capitalized Lease; (e) all obligations with respect to letters of credit
or similar instruments issued by a Person; (f) all subordinated debt; (g) all
amounts available to be drawn under letters of credit for which such

 

11

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

Person is the applicant thereunder or is otherwise obligated for reimbursement
of any amounts drawn thereunder; (h) all Derivatives Obligations; (i) current
liabilities of a Person incurred in the ordinary course of business including
credit on an open account basis customarily extended and in fact extended in
connection with normal purchases of goods and services; and (j) Bonding
Obligations. Subsections (a) and (c) of the preceding sentence shall not include
indemnities and guarantees of performance, such as construction completion
guarantees, environmental indemnities and non-recourse carve-out guarantees that
are given in connection with the closing of a loan for the project described in
such instruments until such time as any of such obligations become quantified as
the Indebtedness becomes due or as the result of a judgment, settlement or other
agreement.

“Intellectual Property” has the meaning given that term in Section 6.1(s).

“Interest Paid” means all expensed interest, whether paid or accrued, and all
capitalized interest of Borrower determined in accordance with GAAP.

“Internal Revenue Code” means the Internal Revenue Code of 1986, as amended.

“Land” means real property, together with all of the tenements, hereditaments,
easements, rights-of-way, rights, privileges and appurtenances thereunto
belonging or in any way pertaining thereto, all reversions, remainders, and all
of the estate, right, title, interest, claim and demand whatsoever of any Person
therein and in the streets, alleys, vaults and ways adjacent thereto, all rights
to the use of common drive entries, all rights pursuant to any reciprocal
easement agreement or trackage agreement, all strips and gores within or
adjoining such property, the air space and right to use the air space above such
property, all transferable development rights arising therefrom or transferred
thereto, and the drainage, mineral, water, oil and gas rights with respect to
such property, either at law or in equity, if any, in possession or expectancy,
now or hereafter acquired.

“Land Assets” means the value, as determined on a consolidated basis in
accordance with GAAP, of all real estate assets owned by Borrower and/or any of
its Subsidiaries which are in the nature of Unentitled Land, Entitled Land, Lots
Under Development and/or Finished Lots on which no vertical improvements are
located and no construction of any such vertical improvements has commenced.

“Lender” has the meaning set forth in the introductory paragraph hereof and
shall include Borrower’s successors and permitted assigns.

“Leverage Ratio” means, on any date of determination, the ratio of Borrower’s
Total Liabilities to Borrower’s Tangible Net Worth.

“Lien” as applied to the property of any Person means: (a) any security
interest, encumbrance, mortgage, deed to secure debt, deed of trust, pledge,
lien, Capitalized Lease, conditional sale or other title retention agreement, or
other security title or encumbrance of any kind in respect of any property of
such Person, or upon the income or profits therefrom; (b) any arrangement,
express or implied, under which any property of such Person is transferred,
sequestered or otherwise identified for the purpose of subjecting the same to
the payment of indebtedness or performance of any other obligation in priority
to the payment of the general,

 

12

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

unsecured creditors of such Person; (c) the filing of any financing statement
under the UCC or its equivalent in any jurisdiction; and (d) any agreement by
such Person to grant, give or otherwise convey any of the foregoing.

“Liquid Assets” means the following assets of Borrower: (a) cash;
(b) certificates of deposit or time deposits with terms of six (6) months or
less; (c) A-1/P-1 commercial paper with a term of three (3) months or less;
(d) U.S. treasury bills and other obligations of the federal government, all
with terms of six (6) months or less; (e) readily marketable securities
(excluding “margin stock” (within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System), restricted stock and stock subject to
the provisions of Rule 144 of the Securities and Exchange Commission); and
(f) undrawn amounts available under any of Borrower’s lines of credit.

“Loan” means the credit facility provided to Borrower pursuant to the terms of
this Agreement.

“Loan Document” means this Agreement, the Note, the Hazardous Materials
Indemnity Agreement, each Security Document, each Eligible Property Agreement,
and each other document or instrument now or hereafter executed and delivered by
Borrower in connection with, pursuant to or relating to this Agreement.

“Lot” or “Lots” means an individual residential lot designated on the final
subdivision plat, map or filing (or in the case of Lots Under Development and
Entitled Land, an individual lot designated on an approved tentative tract map,
preliminary plat map, preliminary subdivision plat or similar plat or map).

“Lot Cost” means, with respect to each Lot in question, the Lot Improvement
Construction Costs incurred as of the date of determination allocable to such
Lot, less (a) the amount of any write downs or impairments, and (b) the amount
of any Governmental Authority reimbursements received by Borrower.

“Lot Improvement Construction Costs” means the aggregate “hard” and “soft” costs
incurred by Borrower to acquire each Lot and to plan, design and construct the
applicable Lot improvements on each Lot. As used in this definition, “hard”
costs shall include the actual net purchase price paid by Borrower to acquire
the Lot(s) in question, as reasonably determined by Lender. With respect to each
Condominium Project, Lot Improvement Construction Costs shall be allocated on a
pro rata basis among the Condominium Units included in such Condominium Project
based on their relative sales value as determined in accordance with GAAP.

“Lots Under Development” means Entitled Land where (a) a tentative subdivision
plat or map has been approved by all applicable Governmental Authorities to the
extent necessary to permit the development of such Entitled Land, (b) all
governmental permits, consents and other Governmental Approvals have been
obtained to permit the commencement and grading of such Entitled Land as
necessary to improve such Entitled Land to a Finished Lot, (c) all fees required
in connection with such licenses, permits, Governmental Approvals and grading
have been paid, and (d) no material impediments exist to the issuance of all
further permits, licenses or Governmental Approvals necessary or appropriate in
connection with the development of utilities, infrastructure and other physical
site improvements on such Lots.

 

13

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

“Material Adverse Effect” means a materially adverse effect on (a) the business,
assets, liabilities, financial condition, or results of operations of Borrower
which would materially and adversely impact the ability of Borrower to perform
its obligations under any Loan Document, (c) the validity or enforceability of
any of the Loan Documents, (d) the rights and remedies of Lender under any of
the Loan Documents, or (e) the timely payment of the principal of or interest on
the Advances or other amounts payable in connection therewith.

“Material Contract” means any contract or other arrangement (other than Loan
Documents), whether written or oral, to which Borrower is a party as to which
the breach, nonperformance, cancellation or failure to renew by any party
thereto could have a Material Adverse Effect. This definition of “Material
Contract” is not intended to include trade contracts.

“Maturity Date” means July 18, 2016, as the same may be extended by the Borrower
as provided in Section 2.6, or such earlier date on which the Loan shall become
due and payable pursuant to the terms hereof.

“Maximum Availability” shall, at any time, be the lesser of (a) the Commitment
Amount and (b) the Aggregate Borrowing Base Value.

“Maximum Condominium Spec Home Limit” means, with respect to each Condominium
Project, except as may otherwise be expressly provided in the Eligible Property
Agreement applicable to such Condominium Project, the lesser of (a) the Spec
Home limit specified with respect to such Condominium Project in the Eligible
Property Agreement applicable to such Condominium Project, which limit shall be
determined by Lender based on the phasing, product type, site configuration and
appraised absorption of such Condominium Project, or (b) (i) within the initial
six (6) month period after construction of Homes commenced in such Condominium
Project, the appraised unit absorption over a four (4) month period, as
determined by Lender based on the then-current Appraisal of such Condominium
Project, and (ii) after the end of the initial six (6) month period after
construction of Homes commenced in such Condominium Project, the number of
Closings of Homes in such Condominium Project over the immediately preceding
four (4) months.

“Maximum Spec Home Limit” means, on any date of determination with respect to
each Project that is not a Condominium Project, except as may otherwise be
expressly provided in the Eligible Property Agreement applicable to such
Project, an amount equal to unit absorption over a four (4) month period, as
determined by Lender based on (a) within the initial six (6) month period after
construction of Homes commenced in such Project, the then-current Appraisal of
such Project, and (b) after the end of the initial six (6) month period after
construction of Homes commenced in such Project, the number of Closings of Homes
in such Project over the immediately preceding four (4) months.

“Maximum Total Condominium Home Limit” means, with respect to each Project that
is a Condominium Project, thirty (30) Condominium Units (including Sold Homes
which are Condominium Units, but excluding Models).

 

14

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

“Maximum Total Home Limit” means, with respect to each Project that is not a
Condominium Project, thirty (30) Homes (including Sold Homes and Spec Homes, but
excluding Models).

“Model” means a single-family residential model which is designated by Borrower
to be utilized in the sales and marketing for a Project.

“Mold Condition” means, with respect to any Project, a condition whereby such
Project (or any operations or improvements thereon) is or has been damaged,
impacted, or otherwise affected by or subject to the growth or existence of
surficial or airborne microbial constituents, regardless of genus, species, or
whether commonly referred to as mildew, mold, mold spores, fungi, bacteria or
similar description, in such condition, location or quantity as would,
individually or in the aggregate, have any material adverse effect on (a) human
health or the environment; (b) the value or condition of such Project; or
(c) the business or financial condition as a whole of Borrower.

“Money Markets” refers to one or more wholesale funding markets available to
Lender, including negotiable certificates of deposit, commercial paper,
Eurodollar deposits, bank notes, federal funds and others.

“Net Sales Proceeds” means, with respect to the sale of any Collateral, the
gross sales price payable by the purchaser thereof less all customary and
reasonable costs of sale that are charged to sellers of property and standard
for such market as determined by Lender in its sole discretion, including
without limitation, title insurance charges, escrow fees, legal fees, homeowner
association and homeowner insurance fees, mortgage brokerage fees, buyer
incentives, loan fees, real estate taxes, transfer taxes, community facilities
district fees or assessments, real estate brokers’ commissions, warranty
reserves (not to exceed 1.5% of the gross sales price) and development
management fees. In addition, Borrower may include any profit participation
fees, marketing fees, or similar amounts paid to third parties in connection
with a Project pursuant to agreements delivered to Lender prior to the
acceptance by Lender of such Project as a Borrowing Base Property as a “cost of
sale” in the calculation of Net Sales Proceeds.

“Note” means that certain Revolving Note of even date herewith made by Borrower
payable to the order to Lender in the principal amount of One Hundred
Twenty-Five Million and No/100 Dollars ($125,000,000.00), as amended, restated
or otherwise modified from time to time.

“Notice of Borrowing” means a notice substantially in the form of Exhibit B to
be delivered to Lender pursuant to Section 2.1, signed by any Authorized
Signatory and evidencing Borrower’s request for an Advance.

“Obligations” means, individually and collectively: (a) the aggregate principal
balance of, and all accrued and unpaid interest on, all Advances, and (b) all
other indebtedness, liabilities, obligations, covenants and duties of Borrower
owing to Lender of every kind, nature and description, under or in respect of
this Agreement or any of the other Loan Documents, including, without
limitation, the Fees and indemnification obligations, whether direct or
indirect, absolute or contingent, due or not due, contractual or tortious,
liquidated or unliquidated, and whether or not evidenced by any promissory note.

 

15

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

“Participant” has the meaning given that term in Section 11.6(b).

“Permitted Liens” means (a) Liens securing taxes, assessments (including any
community facilities district bond assessments or similar bond assessments) and
other charges or levies imposed by any Governmental Authority (excluding any
Lien imposed pursuant to any of the provisions of ERISA or pursuant to any
Environmental Laws) or the inchoate claims of materialmen, mechanics, carriers,
warehousemen or landlords for labor, materials, supplies or rentals incurred in
the ordinary course of business, which are not at the time required to be paid
or discharged under Section 7.7; (b) any restrictions, easements, rights, Liens
or other matters of record appearing in Part I of Schedule B to the mortgagee
title insurance policies issued with respect to the Deeds of Trust; (c) all
profit participation agreements and repurchase agreements delivered to Lender
prior to the acceptance by Lender of the applicable Project as a Borrowing Base
Property and which are, to the extent required by Lender, the subject of a
subordination agreement in form and substance satisfactory to Lender; (d) Liens
consented to in writing by Lender; and (e) Liens in favor of Lender.

“Permitted States” means the States of Arizona, California, Colorado, Nevada,
Texas, Utah and Washington.

“Person” means an individual, corporation, partnership, limited partnership,
limited liability company, association, trust or unincorporated organization, or
a government or any agency or political subdivision thereof.

“Post-Default Rate” means a rate per annum equal to five percent (5.0%) plus the
Applicable Rate as in effect from time to time.

“Project” means a parcel or parcels of real property owned by Borrower which
constitutes Collateral and which is comprised of (or will be comprised of) a
discrete single-family residential development on which Borrower will develop
Lots for the construction of Homes to be sold by Borrower to individual buyers
or sales of Lots in bulk to other developers, including, without limitation, the
initial Projects described on Schedule 4.1(a) attached hereto.

“Project Budget” means, with respect to each Project, the budget for total
estimated Project Costs (including among other things any Project contingencies
in connection with such Project) as well as the number of units and projected
sales and sales prices for each type of Lot or Home for each Project, as
submitted by Borrower. Borrower shall submit all proposed updates, amendments or
modifications to any Project Budget for Lender’s approval, which approval shall
not be unreasonably withheld.

“Project Costs” means, with respect to each Project, the sum of all costs
related to the Project including but not limited to (a) acquisition costs,
(b) the costs of all entitlements and all labor, materials, fixtures, machinery
and equipment required to develop, construct, equip and complete the development
of the Finished Lots on Entitled Land and construction of Homes and related
amenities (such as recreation centers and swimming pools) thereon, and (c) title
insurance premiums, survey charges, engineering fees, architectural fees, real
estate taxes, Appraisal costs,

 

16

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

premiums for insurance, marketing, advertising and sales costs, legal fees,
accounting fees, and all other expenses, which are fees for reimbursement of
expenditures relating to the Project and are not described in clauses (a) or
(b) above, that will be incurred by Borrower in connection with the development
and construction of the Project (including, among other things, any Project
contingencies or interest expenses incurred in connection with such as
identified in the applicable Project Budget).

“Project Information” means the following information and other items with
respect to any parcel of real property which has been deemed approved as a
Borrowing Base Property or which Borrower is requesting that Lender approve as a
Borrowing Base Property:

(a) an Appraisal of such parcel;

(b) a soils report for such parcel;

(c) a copy of Borrower’s most recent Owner’s Policy of Title Insurance covering
such parcel (if applicable), together with a preliminary title report covering
such parcel dated no earlier than a date thirty (30) days prior to the date that
such preliminary title report is delivered to Lender along with copies of all
exceptions to title with respect to such parcel;

(d) copies of the plans and specifications for all improvements located or to be
located on such parcel, including, without limitation, all Homes (provided that,
if the plans and specifications for such Homes have not been prepared when
Borrower submits its Eligible Property Notice to Lender for such parcel of real
property, then Borrower shall deliver such plans and specifications to Lender as
soon as such plans and specifications have been prepared);

(e) all Material Contracts relating to the development, use, occupancy,
operation, maintenance, enjoyment or ownership of such Project;

(f) a Borrowing Base Report for such Project in form and substance satisfactory
to Lender;

(g) a Site Assessment for such Project in form and substance satisfactory to
Lender;

(h) the Project Budget for such Project, including, without limitation, a cost
estimate of all on-site and off-site improvements to be constructed on such
parcel, prepared by a third party consultant acceptable to Lender;

(i) copies of all tract maps and, if applicable, condominium plans, which have
been obtained by Borrower (including, without limitation, the approved vesting
tentative map or tentative map covering such parcel, and the recorded final map
covering such parcel);

(j) a copy of the conditions of approval of any vesting tentative map or
tentative map covering such parcel, which conditions shall be acceptable to
Lender in its sole and absolute discretion;

 

17

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

(k) such consents, subordination agreements and other documents and instruments
executed by Persons party to Material Contracts relating to such parcel as
Lender may request;

(l) certificates of insurance and loss payable endorsements for all policies
required pursuant to Section 7.6, showing the same to be in full force and
effect with respect to such parcel;

(m) upon Lender’s request, copies of all building permits and similar permits,
licenses, approvals and other authorizations of Governmental Authorities;

(n) a schedule of all Mello-Roos community facility district taxes, special
assessment district assessments, homeowners’ association dues and assessments
and other regularly scheduled fees and charges which will be applicable to each
Home to be built within such parcel;

(o) the Development Plan for such Project;

(p) upon Lender’s request, copies of all construction, architectural and
engineering contracts; and

(q) such other information, documents and materials with respect to such parcel
as Lender may reasonably request.

“Qualified Contract” means a written contract or reservation for the sale of a
Home, made and entered into by and between Borrower, or its duly authorized
agent, and a bona fide third party purchaser, on a form approved by Lender, and
(a) the consideration for such sale consists solely of cash, (b) the purchaser
has deposited earnest money thereunder in an amount not less than (i) $1,000.00
with respect to conventionally financed Homes or (ii) the minimum required
percentage of the sale price under applicable programs of the Federal Housing
Administration and/or the Department of Veterans Affairs, (c) the sale is
approved by any and all appropriate Governmental Authorities to the extent that
such approval is required by such Governmental Authority, (d) the sale is in
compliance with any and all Applicable Law and agreements, (e) the contract or
reservation was not entered into more than eighteen (18) months prior to the
date of such determination with respect to the applicable Project, (f) no
defaults exist under such contract or reservation as of the date of such
determination and (g) the contract or reservation shall not be subject to
contingencies other than timely Completion of the Home, obtaining financing for
the purchase of the Home by homebuyer and a contingency related to the sale of
the buyer’s existing residence.

“Security Document” means any Deed of Trust and any other security agreement,
financing statement, or other document, instrument or agreement creating,
evidencing or perfecting the Liens in favor of Lender in any of the Collateral.

“Site Assessment” means an environmental engineering report for a Project
prepared by an engineer engaged by Lender at Borrower’s expense, and in a manner
satisfactory to Lender, based upon an investigation relating to and making
appropriate inquiries concerning the existence of Hazardous Materials on or
about the Project, and the past or present discharge,

 

18

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

disposal, release or escape of any such substances, all consistent with ASTM
Standard E 1527 05 (or any successor thereto published by ASTM) and other good
customary and commercial practice.

“Sold Homes” means, as of any date, Homes and Lots thereunder, if applicable,
under construction on Entitled Land for which building permits have been issued
and for which Qualified Contracts have been entered into on or prior to such
date, and are still in effect on such date, but with respect to which a closing
under such Qualified Contract has not occurred. Sold Homes shall not include
Models or Homes which are intended for use as Models as designated by Borrower
to Lender.

“Solvent” means, when used with respect to any Person, that (a) the fair value
and the fair salable value of its assets (excluding any indebtedness due from
any Affiliate of such Person) are each in excess of the fair valuation of its
total liabilities (including all contingent liabilities); (b) such Person is
able to pay its debts or other obligations in the ordinary course as they
mature; and (c) such Person has capital not unreasonably small to carry on its
business and all business in which it proposes to be engaged.

“Spec Homes” means, as of any date, Homes (including the Lots thereunder, if
applicable) completed or under construction (i.e., on which construction of the
slab or foundation has commenced on Entitled Land for which building permits
have been issued), and for which Qualified Contracts (a) have not been entered
into on or prior to such date, or (b) do not then remain in effect. Spec Homes
shall not include Models or Homes which are intended for use as Models as
designated by Borrower to Lender.

“Subsidiary” means any corporation, association, partnership, limited
partnership, trust, or other business or legal entity of which the designated
parent shall at any time own directly or indirectly through a Subsidiary or
Subsidiaries at least a majority (by number of votes or Controlling Interests)
of the outstanding Voting Interests, and any other entity the accounts of which
are consolidated with the accounts of the designated parent.

“Tangible Net Worth” means, on any date of determination with respect to any
Person, the amount by which such Person’s Total Assets exceeds Total Liabilities
less, to the extent included in Total Assets, the sum of:

(a) the total book value of all assets of such Person and its Subsidiaries
properly classified as intangible assets under GAAP, including such items as
good will, the purchase price of acquired assets in excess of the fair market
value thereof, trademarks, trade names, service marks, brand names, copyrights,
patents and licenses, and rights with respect to the foregoing; plus

(b) all amounts representing any write-up in the book value of any assets of
such Person and its Subsidiaries resulting from a revaluation thereof subsequent
to the date of the applicable balance sheet.

“Taxes” has the meaning given that term in Section 3.11.

“Title Company” means First American Title Insurance Company.

 

19

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

“Total Assets” means, on any date of determination, all assets of a Person and
its Subsidiaries determined on a consolidated basis in accordance with GAAP.

“Total Liabilities” means, on any date of determination, all liabilities of a
Person and its Subsidiaries determined on a consolidated basis in accordance
with GAAP.

“UCC” means the Uniform Commercial Code as in effect in any applicable
jurisdiction.

“Unentitled Land” means Land which does not constitute Entitled Land, Lots Under
Development or Finished Lots.

“USB” means U.S. Bank National Association, a national banking association.

“Voting Interests” means stock or similar ownership interests of any class or
classes (however designated), the holders of which are at the time entitled, as
such holders, (a) to vote for the election of a majority of the directors (or
persons performing similar functions) of the corporation, association,
partnership, trust, limited partnership or other business entity involved, or
(b) to control, manage, or conduct the business of the corporation, partnership,
association, trust or other business entity involved.

“Work Stoppage Event” means (a) after the commencement of any work rising
vertically from the Land in connection with the construction of a Home, Borrower
discontinues further improvements of such Home without the written consent of
Lender for a period of thirty (30) consecutive days or more, or (b) after the
commencement of any lot development work on Lots Under Development in any
Project, Borrower discontinues all such lot development work within such Project
without the written consent of Lender for a period of thirty (30) consecutive
days or more, subject in each case, to any Force Majeure delays and any
reasonable seasonal delays in accordance with Borrower’s historical building
practices.

Section 1.2 General; References.

Unless otherwise indicated, all accounting terms, ratios and measurements shall
be interpreted or determined in accordance with GAAP or the federal income tax
basis method of accounting in effect as of the Agreement Date. References in
this Agreement to “Sections”, “Articles”, “Exhibits” and “Schedules” are to
sections, articles, exhibits and schedules herein and hereto unless otherwise
indicated. References in this Agreement to any document, instrument or agreement
(a) shall include all exhibits, schedules and other attachments thereto,
(b) shall include all documents, instruments or agreements issued or executed in
replacement thereof, to the extent permitted hereby and (c) shall mean such
document, instrument or agreement, or replacement or predecessor thereto, as
amended, supplemented, restated or otherwise modified from time to time to the
extent permitted hereby and in effect at any given time. Wherever from the
context it appears appropriate, each term stated in either the singular or
plural shall include the singular and plural, and pronouns stated in the
masculine, feminine or neuter gender shall include the masculine, the feminine
and the neuter. Titles and captions of Articles, Sections, subsections and
clauses in this Agreement are for convenience only, and neither limit nor
amplify the provisions of this Agreement. All references to time are references
to Costa Mesa, California time. Whenever in this Agreement or the other Loan
Documents reference is made to “at the discretion of” or “with consent of” (or
similar language) Lender, such discretion shall be deemed to be Lender’s sole
and absolute discretion, unless otherwise indicated.

 

20

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

ARTICLE II

CREDIT FACILITY

Section 2.1 Revolving Advances.

(a) Revolving Advances Generally. Subject to the terms and conditions hereof,
during the period from the Effective Date to but excluding the Maturity Date,
Lender agrees to make Advances to Borrower in an aggregate principal amount at
any one time outstanding up to, but not to exceed, the Maximum Availability.
Lender shall have no obligations to make any Advance to the extent that after
the making of such Advance, the aggregate principal amount of all outstanding
Advances would exceed the Maximum Availability. Subject to the terms and
conditions of this Agreement, Borrower may borrow, repay and reborrow Advances
hereunder.

(b) Requesting Advances. With respect to each Advance hereunder, Borrower shall
give Lender notice pursuant to a Notice of Borrowing of each borrowing of
Advances. Each Notice of Borrowing shall be delivered to Lender before 12:00
p.m. on the date three (3) Business Days prior to the proposed date of such
borrowing. Each Notice of Borrowing shall be irrevocable once given and binding
on Borrower. Unless otherwise approved by Lender in its sole discretion in each
instance, Borrower may only submit one Notice of Borrowing in any calendar week.

(c) Disbursements of Loan Proceeds.

(i) Lender shall disburse Loan proceeds pursuant to the Notices of Borrowing
received by Lender. If Lender determines that the applicable conditions set
forth in Section 5.2 for such Advance are satisfied, Lender will make the
proceeds of such Advance available to Borrower no later than 12:00 p.m. on the
date and at the account specified by Borrower in such Notice of Borrowing.
Unless directed otherwise by Borrower, Lender shall directly deposit proceeds of
each Advance directly into Borrower’s Account.

(ii) Disbursements of the Loan with respect to each Project shall be made on a
percentage of completion basis in accordance with the final approved Project
Budget for such Project (i.e., if the work on such Project is 25% complete, then
up to 25% of the costs set forth in the Project Budget for such Project shall be
included in the calculation of the Borrowing Base Value for such Project), all
as determined by Lender based on periodic inspections of such Project. In no
event shall Lender have any obligation to include any Project costs in the
Borrowing Base Value of a Project in excess of the then current percentage of
completion of the work on such Project, as determined by Lender based on
periodic inspections of such Project. Each Notice of Borrowing shall be
accompanied (if required by Lender) by invoices and lien releases satisfactory
to Lender, including partial lien releases executed by each contractor and
subcontractor who has received any payment for work performed, a detailed
disbursement schedule for each Project, and all other documents and information
reasonably required by Lender.

 

21

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

Section 2.2 Rates and Payment of Interest; Late Fees; Post-Default Rate.

(a) Rates. Borrower promises to pay to Lender interest on the unpaid principal
amount of each Advance made by Lender for the period from and including the date
of the making of such Advance to but excluding the date such Advance shall be
paid in full, at the Applicable Rate (as in effect from time to time).
Notwithstanding the foregoing, during the continuance of an Event of Default,
Borrower shall pay to Lender interest at the Post-Default Rate on the
outstanding principal amount of any Advance made by Lender and on any other
amount payable by Borrower hereunder or under the Note to or for the account of
Lender (including without limitation, accrued but unpaid interest to the extent
permitted under Applicable Law).

(b) Payment of Interest. All accrued and unpaid interest on the outstanding
principal amount of each Advance shall be payable (i) monthly in arrears
beginning on September 1, 2013, and on the same date of each consecutive month
thereafter, and (ii) on any date on which the principal balance of such Advance
is due and payable in full (whether at maturity, due to acceleration or
otherwise). Interest payable at the Post-Default Rate shall be payable from time
to time on demand. All determinations by Lender of an interest rate hereunder
shall be conclusive and binding on Borrower for all purposes, absent manifest
error.

(c) Late Fees. Borrower acknowledges that late payment to Lender will cause
Lender to incur costs not contemplated by this Agreement. Such costs include,
without limitation, processing and accounting charges. Therefore, if Borrower
fails to pay (whether by direct debit or otherwise) within fifteen (15) days of
the date when due any sum due and payable hereunder through the Maturity Date
(other than payment of the entire outstanding balance of the Loan on the
Maturity Date or any acceleration of the outstanding Advances), a late charge of
four percent (4%) of any such principal payment, interest or other charge due
hereunder shall be charged by Lender and paid by Borrower for the purpose of
defraying the expense incident to handling such delinquent payment. Borrower and
Lender agree that this late charge represents a reasonable sum considering all
of the circumstances existing on the date hereof and represents a fair and
reasonable estimate of the costs that Lender will incur by reason of late
payment. Borrower and Lender further agree that proof of actual damages would be
costly and inconvenient. Acceptance of any late charge shall not constitute a
waiver of the default with respect to the overdue installment, and shall not
prevent Lender from exercising any of the other rights available hereunder or
any other Loan Document. Such late charge shall be paid without prejudice to any
other rights of Lender.

 

22

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

(d) Yield Protection. If, on or 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
in the interpretation, promulgation, implementation or administration thereof by
any governmental or quasi-governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof including,
notwithstanding the foregoing, all requests, rules, guidelines or directives in
connection with Dodd-Frank Wall Street Reform and Consumer Protection Act
regardless of the date enacted, adopted or issued, or compliance by Lender with
any request or directive (whether or not having the force of law) of any such
authority, central bank or comparable agency:

(i) subjects Lender to any Taxes, or changes the basis of taxation of payments
to Lender in respect of the Loan or Lender’s commitment to lend under this
Agreement, or

(ii) 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 Lender, or

(iii) imposes any other condition the result of which is to increase the cost to
Lender of making, funding or maintaining the Loan or reduces any amount
receivable by Lender in connection with the Loan or Lender’s commitment to lend
under this Agreement, or requires Lender to make any payment calculated by
reference to the amount of the Loan by an amount deemed material by Lender,

and the result of any of the foregoing is to increase the cost to Lender of
making or maintaining the Loan or to reduce the return received by Lender, as
the case may be, in connection with the Loan, then, within thirty (30) days of
demand by Lender, Borrower shall pay Lender such additional amount or amounts as
will compensate Lender for such increased cost or reduction in amount received.

(e) Changes in Capital Adequacy Regulations. If Lender determines the amount of
capital required or expected to be maintained by Lender, or any corporation
controlling Lender is increased as a result of a Change (defined below), then,
within thirty (30) days of demand by Lender, Borrower shall pay Lender the
amount necessary to compensate for any shortfall in the rate of return on the
portion of such increased capital which Lender determines is attributable to
this Agreement (after taking into account Lender’s policies as to capital
adequacy). “Change” means (i) any change after the date of this Agreement in the
Risk-Based Capital Guidelines (defined below) or (ii) any adoption of or change
in any other law, governmental or quasi-governmental rule, regulation, policy,
guideline, interpretation, or directive (whether or not having the force of law)
or in the interpretation, promulgation, implementation or administration thereof
after the date of this Agreement which affects the amount of capital required or
expected to be maintained by Lender or any corporation controlling Lender.
Notwithstanding the foregoing, for purposes of this Agreement, all requests,
rules, guidelines or directives in connection with the Dodd-Frank Wall Street
Reform and Consumer Protection Act shall be deemed to be a Change regardless of
the date enacted, adopted or issued and all requests, rules, guidelines or
directives promulgated by the Bank for International Settlements, the Basel
Committee on Banking Regulations and Supervisory Practices (or any successor or
similar authority) or the United States financial regulatory authorities shall
be deemed to be a Change regardless of the date adopted, issued, promulgated or
implemented. “Risk-Based Capital Guidelines” means (i) the risk-based capital
guidelines in effect in the United States on the date of this Agreement,
including transition rules, and (ii) the corresponding capital regulations
promulgated by regulatory authorities outside the United States including
transition rules, and any amendments to such regulations adopted prior to the
date of this Agreement.

 

23

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

Section 2.3 Repayment of Advances.

Borrower shall repay the entire outstanding principal amount of, and all accrued
but unpaid interest on, the Advances on the Maturity Date.

Section 2.4 Prepayments.

(a) Optional. Borrower may prepay any Advance (or a portion thereof), or the
entire outstanding principal balance of the Loan at any time without premium or
penalty.

(b) Mandatory as a Result of Overadvance.

(i) Commitment Overadvance. If at any time the aggregate principal amount of all
outstanding Advances exceeds the Commitment Amount, Borrower shall immediately
upon demand pay to Lender the amount of such excess.

(ii) Borrowing Base Overadvance. If at any time the aggregate principal amount
of all outstanding Advances, exceeds the Aggregate Borrowing Base Value,
Borrower shall within thirty (30) days of Borrower obtaining knowledge of the
occurrence of any such excess, pay to Lender the amount of such excess.

All payments under this subsection (b) shall be applied to pay principal
outstanding under the Loan; provided, however, that, if an Event of Default has
occurred and is continuing, then such payment(s) received by Lender may be
applied to the Obligations in such manner and priority as Lender may determine
in its sole discretion.

(c) Instructions for Payment of Principal, Interest and Fees. All payments of
principal, interest and Fees to be made to Lender under this Agreement shall be
made as provided in the Agreement and in accordance with the following wiring
instructions:

 

ABA:    091 000 022 Name:    U.S. Bank National Association Account:    1 731
0007 7366 Account Name:    Housing Capital Company Address:    Minneapolis,
Minnesota OBI/BBI:   

Tri Pointe Homes, Inc.

Loan No. 2094B

Section 2.5 Note.

The Advances made by Lender shall, in addition to this Agreement, also be
evidenced by the Note.

 

24

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

Section 2.6 Extension of Maturity Date.

Provided that no Default or Event of Default shall have occurred and be
continuing, Borrower may request a one (1) year extension of the term of the
Loan by submitting a request for an extension to Lender (an “Extension Request”)
by no earlier than one-hundred eighty (180) days and no later than forty-five
(45) days prior to the then existing Maturity Date. Borrower may revoke such
Extension Request at any time at least forty-five (45) days prior to the then
existing Maturity Date; provided, however, Borrower shall reimburse Lender for
all costs and expenses incurred by Lender in connection with such Extension
Request. The right of Borrower to obtain an extension of the term of the Loan as
provided in this Section shall be subject to the satisfaction of the following
conditions precedent on or prior to the then existing Maturity Date:

(a) No Default. On the date the Extension Request is submitted and on the then
existing Maturity Date, there shall exist no Default or Event of Default;

(b) Title Reports. Borrower shall cause to be delivered to Lender an updated
title report for each Borrowing Base Property, which shall show no new Liens
(other than Permitted Liens) or other adverse matters or items;

(c) No Material Adverse Effect. There shall not have occurred or become known to
Lender any event, condition, situation or status since the date of the
information contained in the most recent financial and business projections,
budgets, pro forma data and forecasts concerning Borrower delivered to Lender
prior to the then existing Maturity Date that has had or could be expected to
result in a Material Adverse Effect;

(d) Overadvance. On the date the Extension Request is submitted and on the then
existing Maturity Date, Borrower shall be in compliance with Section 2.4(b) of
this Agreement as determined by Lender. Lender may, for the purpose of such
determination obtain, at Borrower’s sole cost and expense, an Appraisal for each
Project at the time of such Extension Request;

(e) Representations and Warranties. The representations and warranties made by
or on behalf of Borrower in the Loan Documents or otherwise made by or on behalf
of the Borrower in connection therewith or after the date thereof shall have
been true and correct on the date the Extension Request is made and on the then
existing Maturity Date with the same force and effect as if made on and as of
such date except to the extent that such representations and warranties
expressly relate solely to an earlier date (in which case such representations
and warranties shall have been true and accurate on and as of such earlier date)
and except for changes in factual circumstances specifically and expressly
permitted hereunder;

(f) Extension Fee. Borrower shall have paid to Lender the extension fee
described in Section 3.2(c) with respect to such extension. Borrower authorizes
and directs Lender to debit the Loan to pay such extension concurrently with
such extension of the Maturity Date;

(g) Documentation. No later than the then existing Maturity Date, the extension
shall have been consented to and documented to Lender’s satisfaction by Borrower
and all other parties deemed necessary by Lender (such as any permitted
subordinate lienholders); and

 

25

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

(h) Costs and Expenses. Borrower shall pay all costs and expenses incurred by
Lender in connection with such extension of the Loan, including Appraisal costs,
attorneys’ fees and disbursements.

Each Extension Request shall constitute a representation and warranty by the
Borrower that all of the foregoing conditions have been satisfied on the date of
such Extension Request or will be satisfied prior to the approaching Maturity
Date.

Section 2.7 Full Recourse.

The Obligations of Borrower hereunder shall be full recourse to Borrower and all
of Borrower’s assets.

Section 2.8 Voluntary Reduction of the Commitment Amount.

As long as no Event of Default exists, Borrower may, upon not less than ten
(10) days’ prior written notice to Lender, permanently reduce the Commitment
Amount by an aggregate minimum amount of $5,000,000 or any multiple of
$1,000,000 in excess thereof, provided that, after giving effect thereto and any
prepayments of Advances made on the effective date thereof, no amounts payable
under Section 2.4(b) shall then remain unpaid. No loan fees, unused fees, or
extension fees paid prior to the effective date of any reduction of the
Commitment Amount shall be refunded.

ARTICLE III

PAYMENTS, FEES AND OTHER GENERAL PROVISIONS

Section 3.1 Payments.

Except to the extent otherwise provided herein, all payments of principal,
interest and other amounts to be made by Borrower under this Agreement or any
other Loan Document shall be made in Dollars, in immediately available funds,
without deduction, set-off or counterclaim, to Lender, not later than 11:00 a.m.
on the date on which such payment shall become due (each such payment made after
such time on such due date to be deemed to have been made on the next succeeding
Business Day). If the due date of any payment under this Agreement or any other
Loan Document would otherwise fall on a day which is not a Business Day such
date shall be extended to the next succeeding Business Day and interest shall be
payable for the period of such extension.

Section 3.2 Fees.

(a) Loan Fee. Borrower agrees to pay to Lender upon the closing of the Loan a
loan fee in an amount equal to Six Hundred Twenty-Five Thousand Dollars
($625,000), which loan fee shall be non-refundable and fully earned when paid.

 

26

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

(b) Unused Facility Fee. Commencing as of the quarterly period ending on
June 30, 2014 and until the Maturity Date, following the end of each subsequent
September, December, March and June until all of the Obligations have been
repaid in full and Lender’s obligation to lend under the Loan Documents has
terminated (each, a “Facility Fee Test Date”), Lender shall calculate and report
to Borrower the average daily principal balance of all Advances as determined
for the three (3) month period ending on such Facility Fee Test Date. For
purposes of this subsection, the “average daily principal balance” means the sum
of the outstanding principal balance of the Loan reported on each day during the
three (3) month period ending on each Facility Fee Test Date, as determined by
Lender in its sole and absolute discretion, divided by the total number of days
in such three (3) month period. Following each Facility Fee Test Date, Borrower
shall pay to Lender a fee accruing at the rate of three-twentieths of one
percent (0.15%) per annum upon an amount equal to the Pro Rata Commitment Amount
for such three (3) month period, minus the average daily principal balance
outstanding during such three (3) month period; provided, however, that, if, the
average daily principal balance during such three (3) month period exceeds the
amount that is thirty-five percent (35%) of the Pro Rata Commitment Amount for
such three (3) month period, then no unused fee will be due for such three
(3) month period. Any unused fee payable under this subsection shall be payable
by Borrower within five (5) Business Days of Lender’s calculation thereof and
notice to Borrower of same. As used herein “Pro Rata Commitment Amount” means,
for each three (3) month measuring period, an amount equal to (a) the sum of the
Commitment Amount outstanding on each day during such three (3) month period,
divided by (b) the total number of days during such three (3) month period. For
example, if the Commitment Amount was $125,000,000 for 75 days out of a 90-day
measuring period and $115,000,000 for 15 days out of a 90-day measuring period,
the Pro Rata Commitment Amount would be $123,333,333.33 (($9,375,000,000 (i.e.,
$125,000,000 X 75) + $1,725,000,000 (i.e., $115,000,000 X 15)) / 90).

(c) Extension Fee. If the Maturity Date is extended pursuant to Section 2.6,
Borrower shall pay to Lender an extension fee with respect to each such
extension period in an amount equal to (i) one-eighth of one percent (0.1250%),
multiplied by (ii) the Commitment Amount in effect immediately prior to the
effectiveness of such extension, which extension fee shall be due and payable as
and when contemplated by Section 2.6 above and shall be non-refundable and fully
earned when paid.

Section 3.3 Computations.

Unless otherwise expressly set forth herein, any accrued interest on the Loan,
any Fees or other Obligations due hereunder shall be computed on the basis of a
year of 360 days and the actual number of days elapsed.

Section 3.4 Usury.

In no event shall the amount of interest due or payable on the Advances or other
Obligations exceed the maximum rate of interest allowed by Applicable Law and,
if any such payment is paid by Borrower or received by Lender, then such excess
sum shall be credited as a payment of principal, unless Borrower shall notify
Lender in writing that Borrower elects to have such excess sum returned to it
forthwith. It is the express intent of the parties hereto that Borrower not pay
and Lender not receive, directly or indirectly, in any manner whatsoever,
interest in excess of that which may be lawfully paid by Borrower under
Applicable Law.

 

27

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

Section 3.5 Agreement Regarding Interest and Charges.

The parties hereto hereby agree and stipulate that the only charge imposed upon
Borrower for the use of money in connection with this Agreement is and shall be
the interest specifically described in Section 2.2(a). Notwithstanding the
foregoing, the parties hereto further agree and stipulate that all agency fees,
syndication fees, facility fees, letter of credit fees, underwriting fees,
default charges, late charges, funding or “breakage” charges, increased cost
charges, attorneys’ fees and reimbursement for costs and expenses paid by Lender
to third parties or for damages incurred by Lender, are charges made to
compensate Lender for underwriting or administrative services and costs or
losses performed or incurred, and to be performed or incurred, by Lender in
connection with this Agreement and shall under no circumstances be deemed to be
charges for the use of money. All charges other than charges for the use of
money shall be fully earned and nonrefundable when due.

Section 3.6 Statements of Account.

Lender will account to Borrower monthly with a statement of Advances, accrued
interest and Fees, charges and payments made pursuant to this Agreement and the
other Loan Documents, and such account rendered by Lender shall be deemed
conclusive upon Borrower absent manifest error. The failure of Lender to deliver
such a statement of accounts shall not relieve or discharge Borrower from any of
its obligations hereunder.

Section 3.7 Taxes.

All payments by Borrower of principal of, and interest on, the Advances and all
other Obligations shall be made free and clear of and without deduction for any
present or future excise, stamp or other taxes, fees, duties, levies, imposts,
charges, deductions, withholdings or other charges of any nature whatsoever
imposed by any taxing authority, but excluding (i) franchise taxes, and (ii) any
taxes imposed on or measured by Lender’s assets, net income, receipts or branch
profits.

Section 3.8 Funds Transfer Disbursements.

(a) Borrower hereby authorizes Lender to disburse the proceeds of any Advance as
requested by any Authorized Signatory pursuant to a completed Transfer Statement
in the form of Exhibit D attached hereto to the account designated thereon.
Borrower agrees to be bound by any transfer request: (i) authorized or
transmitted by Borrower; or, (ii) made in Borrower’s name and accepted by Lender
in good faith and in compliance with these transfer instructions, even if not
properly authorized by Borrower. Borrower further agrees and acknowledges that
Lender may rely solely on any lender routing number or identifying lender
account number or name provided by Borrower to effect a wire or funds transfer
even if the information provided by Borrower identifies a different lender or
account holder than named by Borrower. Lender is not obligated or required in
any way to take any actions to detect errors in information provided by
Borrower.

 

28

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

(b) If Lender takes any actions in an attempt to detect errors in the
transmission or content of transfer requests or takes any actions in an attempt
to detect unauthorized funds transfer requests, Borrower agrees that no matter
how many times Lender takes these actions Lender will not in any situation be
liable for failing to take or correctly perform these actions in the future and
such actions shall not become any part of the transfer disbursement procedures
authorized under this provision, the Loan Documents, or any agreement between
Lender and Borrower. Borrower agrees to notify Lender of any errors in the
transfer of any funds or of any unauthorized or improperly authorized transfer
requests within fourteen (14) days after Lender’s confirmation to Borrower of
such transfer. Lender will, in its sole discretion, determine the funds transfer
system and the means by which each transfer will be made.

(c) Lender may delay or refuse to accept a funds transfer request if the
transfer would: (i) violate the terms of this authorization; (ii) require use of
a lender unacceptable to Lender or prohibited by any Governmental Authority;
(iii) cause Lender to violate any Federal Reserve or other regulatory risk
control program or guideline, or (iv) otherwise cause Lender to violate any
Applicable Law or regulation.

(d) Lender shall not be liable to Borrower or any other parties for (i) errors,
acts or failures to act of others, including other entities, lenders,
communications carriers or clearinghouses, through which Borrower’s transfers
may be made or information received or transmitted, and no such entity shall be
deemed an agent of Lender, (ii) any loss, liability or delay caused by fires,
earthquakes, wars, civil disturbances, power surges or failures, acts of
government, labor disputes, failures in communications networks, legal
constraints or other events beyond Lender’s control, or (iii) any special,
consequential, indirect or punitive damages, whether or not (A) any claim for
these damages is based on tort or contract or (B) Lender or Borrower knew or
should have known the likelihood of these damages in any situation. Lender makes
no retranslations or warranties with respect to the foregoing or otherwise other
than as expressly set forth in this Agreement.

ARTICLE IV

BORROWING BASE PROPERTIES

Section 4.1 Eligibility of Properties.

(a) Initial Borrowing Base Properties. As of the date hereof, Lender has
approved the Borrowing Base Properties identified on Schedule 4.1(a), as well as
the Appraised Value and Borrowing Base Value initially attributable to each such
Project and all of the conditions precedent to each such Project being an
Eligible Property have been satisfied.

 

29

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

(b) Additional Borrowing Base Properties. Subject to the terms and conditions of
this Agreement, Borrower shall have the right to add additional Borrowing Base
Properties to the Collateral from time to time on any Business Day during the
period from the Effective Date through the date that is ninety (90) days prior
to the Maturity Date, by delivering to Lender a written notice (each an
“Eligible Property Notice”). Each Eligible Property Notice shall include, with
respect to the real property covered by such Eligible Property Notice, the
Project Information with respect to such real property. A parcel of real
property shall be considered a Borrowing Base Property for purposes of this
Agreement upon the approval of such parcel of real property by Lender in its
sole discretion so long as such real property satisfies all of the following
conditions precedent:

(i) such Project is owned in fee simple by Borrower;

(ii) Lender has received all Project Information with respect to such Project as
may be required by Lender, and an Appraised Value shall have been established
with respect to such Project;

(iii) such Project is comprised of Entitled Land, Lots Under Development,
Finished Lots and/or Homes;

(iv) Borrower and Lender shall have executed an Eligible Property Agreement with
respect to such Project, which agreement shall be executed upon the satisfaction
of all other requirements under this Section 4.1(a);

(v) Lender shall have received and approved the Project Budget applicable to
such Project in Lender’s sole discretion

(vi) such Project is not subject to any Lien other than Permitted Liens;

(vii) such Project is free from all Hazardous Materials (other than such
Hazardous Materials which may be at the Project in strict compliance with all
applicable Environmental Laws, but only to the extent that such Hazardous
Materials are in the nature and amount customarily used or present in connection
with the development and construction of single-family homes), and Lender shall
have received evidence in form and substance satisfactory to Lender of such
parcel’s compliance with this condition;

(viii) such Project has not been deemed otherwise ineligible in accordance with
Section 4.1(c);

(ix) such Project is encumbered by a first priority Deed of Trust in favor of
Lender subject only to Permitted Exceptions;

(x) a first priority UCC-1 financing statement shall have been filed with the
Secretary of State of Borrower’s state of formation and all other officials
necessary, in Lender’s sole judgment, to perfect the security interests created
by the Security Documents relating to such Project and all related personal
property;

(xi) Lender shall have completed, at Borrower’s cost and expense, a site visit
and inspection;

(xii) if requested by Lender, Lender shall have received collateral assignments
in favor of Lender covering any Material Contracts relating to the development,
use, occupancy, operation, maintenance, enjoyment or ownership of such Project;

 

30

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

(xiii) Lender holds an ALTA 2006 Form, or other form acceptable to Lender,
extended coverage mortgagee’s policy of title insurance with respect to such
Project, including endorsements with respect to such items of coverage as Lender
may request (or an irrevocable, unconditional commitment from Title Company to
issue same), in an amount of coverage equal to the Commitment Amount then in
effect, issued by the Title Company and (if required by Lender) with coinsurance
or reinsurance (with direct access agreements) with title insurance companies
acceptable to Lender, showing the fee simple title to the land and improvements
described in the applicable Deed of Trust as vested in Borrower and insuring
that the Lien granted by such Deed of Trust is a valid first priority Lien
against said Project, subject only to Permitted Liens; and copies of all
documents of record reflected in Schedule B of such policies of title insurance;

(xiv) Lender shall have received such UCC, tax, judgment and lien search reports
as it may require with respect to Borrower and such Project in all necessary or
appropriate jurisdictions as Lender may require indicating that there are no
Liens of record on such Project or any of the Collateral relating thereto other
than Permitted Liens;

(xv) Borrower shall have paid to Lender all amounts payable pursuant to
Section 11.2 in connection with such Project and the Security Documents relating
to such Project;

(xvi) Lender shall have received written confirmation from Borrower that no
condemnation proceedings are pending or, to Borrower’s knowledge, threatened
against any portion of such Project; and

(xvii) Lender shall have received satisfactory evidence that Borrower has paid
all title insurance premiums, tax service charges, documentary stamp taxes,
recording fees and mortgage taxes payable in connection with such Project, the
recording of the Security Documents relating to such Project and the issuance of
an ALTA extended coverage mortgagee’s policy of title insurance in the amount of
the Commitment Amount in favor of Lender.

(c) Ineligibility. If, at any time, Lender determines in its reasonable
discretion that a Borrowing Base Property (i) fails to satisfy the conditions
set forth in subsections (i), (iii), (v), (vi) and (ix) of Section 4.1(b) above,
or (ii) contains structural defects, title defects, environmental conditions or
other materially adverse matters which prevent or materially impede the
development or sale of such Project in accordance with the Project Information
for such Project provided to Lender in connection with the admission of such
Project to the Borrowing Base, Lender may thereafter, in its sole and absolute
discretion, direct that such Project be no longer considered a Borrowing Base
Property in which case Borrower shall immediately comply with the provisions of
Section 2.4(b)(ii), if applicable. In the event that Lender directs that a
Project no longer be considered a Borrowing Base Property or to avoid an Event
of Default caused by an adverse matter or condition related solely to a specific
Project, subject to the satisfaction of Section 2.4(b)(ii), if applicable,
Borrower may remove such Project from the Borrowing Base so long as no other
Default or Event of Default shall have occurred and be

 

31

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

continuing or will occur or continue upon the removal of such Project from the
Borrowing Base. If Borrower subsequently repairs or remedies such adverse matter
or condition and such Project continues to satisfy the requirements for being an
Eligible Property, in each case as determined by Lender in its reasonable
discretion, Lender shall redesignate such Project a Borrowing Base Property at
Borrower’s request. For the avoidance of doubt the rights provided to Borrower
under this Section 4.1(c) are independent of Borrower’s rights under Section 4.4
of this Agreement.

Section 4.2 Bulk Sales.

From time to time Borrower may request, upon not less than fifteen (15) days
prior written notice to Lender, that Lots or Homes be released from the Liens
created by the Security Documents applicable thereto in connection with a Bulk
Sale, which release shall be effected by Lender if all of the following
conditions are satisfied as of the date of such Bulk Sale:

(a) No Default or Event of Default exists or will exist immediately after giving
effect to such Bulk Sale and after giving effect to the resulting reduction in
the Aggregate Borrowing Base Value (and Borrower’s delivery of a request in
accordance with this Section 4.2 shall be deemed to be a representation by
Borrower that the foregoing statement is true and correct);

(b) Borrower shall have delivered to Lender an updated interim Borrowing Base
Report confirming to the satisfaction of Lender that the outstanding principal
balance of the Advances will not exceed the Maximum Availability, after giving
effect to such request for a Bulk Sale and any prepayment to be made
concurrently with such request in accordance with subsection (c) below or
otherwise;

(c) Borrower shall have paid to Lender an amount equal to the greater of (i) the
Net Sales Proceeds derived from the applicable Bulk Sale, and (ii) any amounts
required to ensure that the outstanding principal balance of the Advances does
not exceed the Maximum Availability after giving effect to such release;

(d) If the Bulk Sale covers less than all of a Borrowing Base Property, Lender
shall have received evidence satisfactory to Lender that: (i) the portion(s) of
the applicable Borrowing Base Property to be reconveyed and the portion of such
Borrowing Base Property which shall remain encumbered by the applicable Security
Document are all legal parcels lawfully created in compliance with all
subdivision laws and ordinances and, at Borrower’s sole cost, Lender shall have
received any title insurance endorsements to that effect requested by Lender;
(ii) that the portion of such Borrowing Base Property which shall remain
encumbered by the Security Documents have the benefit of all utilities,
easements, public and/or private streets, covenants, conditions and restrictions
as may be necessary, in Lender’s sole discretion, for the anticipated
development and improvement thereof in accordance with the applicable
Development Plan; and (iii) with respect to the release of a Condominium Unit
only, the building in which the Condominium Unit is located, and all related
improvements necessary for the use and occupancy thereof have been completed in
Lender’s reasonable opinion;

(e) Lender shall have received evidence satisfactory to Lender that any tax,
bond or assessment, including, without limitation, under the Mello-Roos
Community Facilities

 

32

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

Act of 1982, which constitutes a lien against such Borrowing Base Property has
been properly allocated between the portion of such Borrowing Base Property to
be reconveyed and the portion of such Borrowing Base Property which shall remain
encumbered by the Security Documents; and

(f) Lender shall have received any and all sums then due and owing under the
Loan Documents (including pursuant to subsection (c) above), together with all
escrow, closing and recording costs, the costs of preparing and delivering such
partial reconveyance(s) or release(s) and the cost of any title insurance
endorsements required by Lender, including, without limitation, to the extent
required by Lender, a CLTA 116.3 and CLTA 111 endorsement or the equivalents
thereof;

(g) Borrower shall have delivered to Lender all documents and instruments
reasonably and timely requested by Lender in connection with such Bulk Sale
including, without limitation, the following: (i) the reconveyance or other
instruments to be used to effect such Bulk Sale; and (ii) if required by Lender,
an appropriate endorsement to the mortgagee title insurance policies in effect
with respect to the remaining Borrowing Base Properties; and

(h) In addition to the requirements set forth in Section 4.2(a)-(e) above, in
the event any such Bulk Sale is to include a Model, either (i) another Home of
the same plan type shall have been designated, furnished and equipped as an
alternate Model, all as reasonably acceptable to Lender, or (ii) not less than
ninety percent (90%) of the Homes with that Model’s same plan type located
(including any Homes to be constructed) within the applicable Project must have
then sold and closed or, in the alternative, not more than three (3) Homes with
that Model’s same plan type located (including any Homes to be constructed)
within the applicable Project remain to be sold and closed.

Except as set forth in this Section 4.2, Section 4.3, or Section 4.4 below, no
Borrowing Base Property shall be released from the Liens created by the Security
Documents applicable thereto.

Section 4.3 Partial Release of Eligible Property.

At any time prior to the Maturity Date, in connection with the sale of one or
more Lots or Homes to third-party purchasers or the transfer of Streets (as
defined below) or Common Area (as defined below) to the applicable Governmental
Authority or homeowners association, as the case may be, Lender shall, at
Borrower’s request (i) issue a payoff demand to the applicable escrow with
respect to the any such sale or transfer of Eligible Property, which demand
shall, if required by Lender, be in an amount not to exceed the amount, if any,
due and payable under Section 2.4(b)(ii) after giving effect to each such
requested reconveyance, and (ii) on a monthly basis after Lender’s receipt of
the monthly Borrowing Base Report, issue partial reconveyances from the lien of
the applicable Security Documents of the affected Eligible Property; provided,
however, that prior to or simultaneously with each such partial reconveyance all
of the following conditions shall be satisfied:

(a) No Default or Event of Default exists or will exist immediately after giving
effect to such partial release(s) (and Borrower’s delivery of a request in
accordance with this Section 4.3 shall be deemed to be a representation by
Borrower that the foregoing statement is true and correct);

 

33

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

(b) Lender shall have received any and all sums then due and owing under the
Loan Documents (including pursuant to subsection (d) below), together with all
escrow, closing and recording costs, the costs of preparing and delivering such
partial reconveyance(s) or release(s) and the cost of any title insurance
endorsements required by Lender, including, without limitation, to the extent
required by Lender, a CLTA 116.3 and CLTA 111 endorsement or the equivalents
thereof;

(c) Lender shall have received evidence satisfactory to Lender that: (i) the
portion(s) of the applicable Borrowing Base Property to be reconveyed and the
portion of such Borrowing Base Property which shall remain encumbered by the
applicable Security Document are all legal parcels lawfully created in
compliance with all subdivision laws and ordinances and, at Borrower’s sole
cost, Lender shall have received any title insurance endorsements to that effect
requested by Lender; (ii) that the portion of such Borrowing Base Property which
shall remain encumbered by the Security Documents have the benefit of all
utilities, easements, public and/or private streets, covenants, conditions and
restrictions as may be necessary, in Lender’s reasonable opinion, for the
anticipated development and improvement thereof in accordance with the
applicable Development Plan; and (iii) with respect to the release of a
Condominium Unit only, the building in which the Condominium Unit is located,
and all related improvements necessary for the use and occupancy thereof have
been completed in Lender’s reasonable opinion;

(d) Borrower shall have paid to Lender an amount equal to the greater of (i) the
Net Sales Proceeds derived from the applicable sale, and (ii) any amounts
required to ensure that the outstanding principal balance of the Advances for
all remaining Borrowing Base Properties does not exceed the Maximum Availability
after giving effect to such release(s);

(e) Lender shall have received evidence satisfactory to Lender that any tax,
bond or assessment, including, without limitation, under the Mello-Roos
Community Facilities Act of 1982, which constitutes a lien against such
Borrowing Base Property has been properly allocated between the portion of such
Borrowing Base Property to be reconveyed and the portion of such Borrowing Base
Property which shall remain encumbered by the Security Documents; and

(f) In addition to the requirements set forth in Section 4.3(a)-(e) above, with
respect any requested release of a Model, either (i) another Home of the same
plan type shall have been designated, furnished and equipped as an alternate
Model, all as reasonably acceptable to Lender, or (ii) not less than ninety
percent (90%) of the Homes with that Model’s same plan type located (including
any Homes to be constructed) within the applicable Project must have then sold
and closed or, in the alternative, not more than three (3) Homes with that
Model’s same plan type located (including any Homes to be constructed) within
the applicable Project remain to be sold and closed.

Lender shall issue a partial reconveyance of any private or public street or
road located within a Project (collectively, the “Street”) and of any “common
area” located within a project (“Common Area”) which is to be conveyed to any
Governmental Authority or any homeowners association, provided that (1) the
conditions set forth in Section 4.3(a)-(e) above shall have been satisfied with
respect to such reconveyance, and (2) not more than ten (10) days after such
partial reconveyance, the applicable Street or the Common Area, as the case may
be, shall be conveyed by Borrower to such Governmental Authority or homeowners
association.

 

34

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

Neither the acceptance of any payment nor the issuance of any partial
reconveyance or release by Lender shall affect Borrower’s obligation to repay
all amounts owing under the Loan Documents or under the Lien of the Security
Documents on the remainder of the applicable Borrowing Base Property which is
not reconveyed or released.

Section 4.4 Release of a Project.

From time to time Borrower may request, upon not less than fifteen (15) days
prior written notice to Lender, that a Project be released from the Liens
created by the Security Documents applicable thereto, which release shall be
effected by Lender if all of the following conditions are satisfied as of the
date of such release:

(a) No Default or Event of Default exists or will exist immediately after giving
effect to such release and after giving effect to the resulting reduction in the
Aggregate Borrowing Base Value (and Borrower’s delivery of a request in
accordance with this Section 4.4 shall be deemed to be a representation by
Borrower that the foregoing statement is true and correct);

(b) Borrower shall have delivered to Lender an updated interim Borrowing Base
Report confirming to the satisfaction of Lender that the outstanding principal
balance of the Advances will not exceed the Maximum Availability, after giving
effect to such request for a release and any prepayment to be made concurrently
with such request in accordance with subsection (d) below or otherwise;

(c) Lender shall have received any and all sums then due and owing under the
Loan Documents (including pursuant to subsection (d) below), together with all
escrow, closing and recording costs, the costs of preparing and delivering such
full reconveyance(s) or release(s) and the cost of any title insurance
endorsements required by Lender; and

(d) Borrower shall have paid any amounts as are required pursuant to subsection
(b) above in order to ensure that the outstanding principal balance of the
Advances will not exceed the Maximum Availability after giving effect to such
release.

For the avoidance of doubt, Borrower may request that a Project be released from
the Liens created by the Security Documents applicable thereto in accordance
with this Section 4.4 to avoid an Event of Default related to solely to such
Project.

Section 4.5 Frequency of Appraisals; Updating of Appraisals.

(a) Lender may obtain, at Borrower’s sole cost and expense, Appraisals for each
Project (i) at least once every twelve (12) months from the Effective Date,
(ii) each time Borrower submits an Extension Request, and (iii) after the
occurrence and during the continuance of an Event of Default.

 

35

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

(b) Lender may at any time or from time to time obtain, at Lender’s sole cost
and expense, interim Appraisals updating and revising prior Appraisals with
respect to the Borrowing Base Properties; provided; however, that, so long as no
Event of Default shall have occurred and be continuing, Lender shall not use an
updated Appraisal of a Project obtained pursuant to this Section 4.5(b) to
recalculate the Appraised Value of any Borrowing Base Property more frequently
than once during any six (6) month period.

(c) In connection with Borrower’s notice to Lender that Borrower is materially
changing the plans for individual Homes at a Project (such notice shall be
delivered to Lender promptly after Borrower decides to materially change the
plans for individual Homes at a Project), Lender, may, if it deems necessary in
its reasonable discretion, at Borrower’s sole cost and expense, for the purpose
of determining the Appraised Value of the redesigned Homes at the Project,
obtain an interim Appraisal updating and revising the prior Appraisal obtained
in connection with such Project.

(d) At all times based upon the results of any re-Appraisal, Borrower shall
immediately comply with the provisions of Section 2.4(b)(ii), if applicable.

Section 4.6 Frequency of Calculations of Borrowing Base.

Initially, the Aggregate Borrowing Base Value shall be the amount set forth as
such in the Borrowing Base Report delivered under Section 5.1. Thereafter, the
Aggregate Borrowing Base Value shall be the amount set forth as such in the
Borrowing Base Report (which shall be subject to Lender’s approval) delivered
from time to time under Section 8.2, or on an interim basis in accordance with
Sections 4.2, or 4.3. Any change (based on an updated Appraisal or otherwise) in
the Borrowing Base Value of a Borrowing Base Property shall become effective as
of the next determination of the Aggregate Borrowing Base Value as provided in
this Section.

ARTICLE V

CONDITIONS PRECEDENT

Section 5.1 Initial Conditions Precedent.

The effectiveness of this Agreement, and the obligation of Lender to make the
initial Advance hereunder is subject to the satisfaction or waiver of the
following conditions precedent; provided, however, disbursement of the first
Advance shall constitute Lender’s acknowledgement that all of the following
conditions have been satisfied or waived.

(a) Lender shall have received each of the following, in form and substance
satisfactory to Lender:

(i) counterparts of this Agreement executed by each of the parties hereto;

(ii) the Note executed by Borrower;

(iii) a Hazardous Materials Indemnity Agreement executed by Borrower;

 

36

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

(iv) an opinion of counsel to Borrower, in form and substance acceptable to
Lender, addressed to Lender and providing an opinion to the effect that:
(A) upon due authorization, execution and recordation or filing as may be
specified in the opinion, each of the Loan Documents shall be legal, valid and
binding instruments, enforceable against the makers thereof in accordance with
their respective terms; (B) Borrower is duly formed and has all requisite
authority to enter into the Loan Documents; (C) none of the execution and
delivery of the Loan Documents on behalf of Borrower, the payment of Borrower’s
obligations under the Loan Documents, nor the creation of the liens and security
interests purported to be created by the Loan Documents (1) violates any
provision of Borrower’s organizational documents, (2) violates any law
applicable to Borrower, or (3) results in a breach or violation of, or
constitutes a default under, any term of any agreement or instrument of
Borrower, (D) upon due recordation of the Deeds of Trust and each related UCC-1
Financing Statement, Lender shall have a perfected security interest in each
Borrowing Base Property, and (E) such other matters, incident to the
transactions contemplated hereby, as Lender may reasonably request;

(v) the certificate or articles of incorporation, articles of organization,
certificate of limited partnership, declaration of trust or other comparable
organizational instrument (if any) of Borrower certified as of a recent date by
the Secretary of State of the State of formation of Borrower;

(vi) a certificate of good standing (or certificate of similar meaning) with
respect to Borrower issued as of a recent date by the Secretary of State of the
State of formation of Borrower and certificates of qualification to transact
business or other comparable certificates issued by each Secretary of State (and
any state department of taxation, as applicable) of each state in which Borrower
is required to be so qualified;

(vii) a certificate of incumbency signed by the Secretary or Assistant Secretary
(or other individual performing similar functions) or other comparable document
of Borrower with respect to each of the Authorized Signatories;

(viii) copies certified by the Secretary or Assistant Secretary (or other
individual performing similar functions) of Borrower of (A) Borrower’s by-laws,
and (B) all corporate or other necessary action taken by Borrower to authorize
the execution, delivery and performance of the Loan Documents;

(ix) a Compliance Certificate calculated as of the Effective Date;

(x) a Borrowing Base Report calculated as of the Effective Date, based upon the
initial Borrowing Base Properties;

(xi) with respect to each Project identified on Schedule 4.1(a), all
requirements for being an Eligible Property have been satisfied;

 

37

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

(xii) evidence satisfactory to Lender that the Fees, if any, then due and
payable under Section 3.2, together with all other fees, expenses and
reimbursement amounts due and payable to Lender, including without limitation,
the fees and expenses of counsel to Lender, have been paid or will be paid with
the first Advance;

(xiii) evidence satisfactory to Lender that Borrower has obtained Property
Insurance for each Project in accordance with Section 7.6(b); and

(xiv) such other documents and instruments as Lender may reasonably request.

(b) In the good faith judgment of Lender:

(i) There shall not have occurred or become known to Lender any event,
condition, situation or status since the date of the information contained in
the financial and business projections, budgets, pro forma data and forecasts
concerning Borrower delivered to Lender prior to the Agreement Date that has had
or could be expected to result in a Material Adverse Effect;

(ii) No litigation, action, suit, investigation or other arbitral,
administrative or judicial proceeding shall be pending or threatened which could
reasonably be expected to (A) result in a Material Adverse Effect or
(B) restrain or enjoin, impose burdensome conditions on, or otherwise affect the
ability of Borrower to fulfill its obligations under the Loan Documents; and

(iii) Borrower shall have received all approvals, consents and waivers, and
shall have made or given all necessary filings and notices as shall be required
to consummate the transactions contemplated hereby without the occurrence of any
default under, conflict with or violation of (A) any Applicable Law or (B) any
agreement, document or instrument to which Borrower is a party or by which
Borrower or its properties is bound, except for such approvals, consents,
waivers, filings and notices the receipt, making or giving of which, or the
failure to make, give or receive which, would not reasonably be likely to
(1) have a Material Adverse Effect, or (2) restrain or enjoin, impose materially
burdensome conditions on, or otherwise materially and adversely affect the
ability of Borrower to fulfill its obligations under the Loan Documents.

Section 5.2 Conditions Precedent to All Advances.

The obligation of Lender to make any Advances is subject to the further
condition precedent that: (a) no Default or Event of Default shall exist as of
the date of the making of such Advance or would exist immediately after giving
effect thereto and Borrower shall be in full compliance with the provisions of
ARTICLE VII; (b) the representations and warranties made or deemed made by
Borrower in the Loan Documents shall be true and correct in all material
respects on and as of the date of the making of such Advance with the same force
and effect as if made on and as of such date except to the extent that such
representations and warranties expressly relate solely to an earlier date (in
which case such representations and warranties shall

 

38

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

have been true and accurate on and as of such earlier date) and except for
changes in factual circumstances specifically and expressly permitted hereunder
and (c) in the case of the borrowing of Advances (other than the first Advance),
Lender shall have received a timely Notice of Borrowing. Each Advance shall
constitute a certification by Borrower to the effect set forth in the preceding
sentence (both as of the date of the giving of notice relating to such Advance
and, unless Borrower otherwise notifies Lender prior to the date of such
Advance, as of the date of the occurrence of such Advance). In addition,
Borrower shall be deemed to have represented to Lender at the time such Advance
is made that all conditions to the making of such Advance contained in this
Section have been satisfied.

Section 5.3 Conditions as Covenants.

If, in is sole discretion, Lender elects to make any Advances prior to the
satisfaction of all conditions precedent set forth in Section 5.1 and
Section 5.2, Borrower shall nevertheless cause such condition or conditions to
be satisfied within five (5) Business Days after the date of the making of such
Advances. No such election by Lender shall constitute a waiver by Lender of the
requirements of Section 5.1 and Section 5.2 with respect to any subsequent
Advance.

ARTICLE VI

REPRESENTATIONS AND WARRANTIES

Section 6.1 Representations and Warranties.

In order to induce Lender to enter into this Agreement and to make Advances,
Borrower represents and warrants to Lender as follows:

(a) Organization; Power; Qualification. Borrower is a corporation duly formed,
validly existing and in good standing under the jurisdiction of its
incorporation, has the power and authority to own or lease its properties and to
carry on its business as now being and hereafter proposed to be conducted and is
duly qualified and is in good standing as a foreign corporation, and authorized
to do business, in each jurisdiction in which the character of its properties or
the nature of its business requires such qualification or authorization and
where the failure to be so qualified or authorized could be expected to have, in
each instance, a Material Adverse Effect.

(b) Intentionally Omitted.

(c) Authorization of Agreement, Note, Loan Documents and Borrowings. Borrower
has the right and power, and has taken all necessary action to authorize it, to
borrow and obtain other extensions of credit hereunder and to execute, deliver
and perform its obligations under each of the Loan Documents in accordance with
their respective terms and to consummate the transactions contemplated hereby
and thereby, as the case may be. Each of this Agreement, the Note and each of
the other Loan Documents has been duly executed and delivered by the duly
authorized officers of Borrower and each is a legal, valid and binding
obligation of Borrower enforceable against Borrower in accordance with its
terms, except as the same may be limited by bankruptcy, insolvency, and other
similar laws affecting the rights of creditors generally and the availability of
equitable remedies for the enforcement of certain obligations contained herein
or therein may be limited by equitable principles generally.

 

39

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

(d) Compliance of Agreement, Etc. with Laws. The execution, delivery and
performance of this Agreement and the other Loan Documents in accordance with
their respective terms and the borrowings and other extensions of credit
hereunder do not and will not, by the passage of time, the giving of notice, or
both: (i) require any Governmental Approval or violate any Applicable Law
(including all Environmental Laws) relating to Borrower; (ii) conflict with,
result in a breach of or constitute a default under the articles of
incorporation, bylaws or other organizational documents of Borrower, or any
indenture, agreement or other instrument to which Borrower is a party or by
which it or any of its properties may be bound; or (iii) result in or require
the creation or imposition of any Lien upon or with respect to any property now
owned or hereafter acquired by Borrower other than in favor of Lender.

(e) Compliance with Law; Governmental Approvals. Borrower is in compliance with
each Governmental Approval and all other Applicable Law relating to it except
for noncompliances which, and Governmental Approvals the failure to possess
which, could not, individually or in the aggregate, be expected to cause a
Default or Event of Default or have a Material Adverse Effect.

(f) Title to Properties; Liens. Borrower has good, marketable and legal title to
its assets. None of the Collateral is subject to any Lien other than Permitted
Liens.

(g) Existing Indebtedness. As of the Agreement Date, Borrower has performed and
is in compliance with all of the terms of any Indebtedness and all instruments
and agreements relating thereto, and no default or event of default, or event or
condition which with the giving of notice, the lapse of time, or both, would
constitute a default or event of default, exists with respect to any such
indebtedness, which default or non-compliance would have a Material Adverse
Effect. As of the Agreement Date, other than the Indebtedness set forth in the
financial statements of Borrower dated as of March 31, 2013, Borrower has no
Indebtedness.

(h) Material Contracts. Schedule 6.1(h) is, as of the Agreement Date, a true,
correct and complete listing of all Material Contracts. Borrower has performed
and is in compliance with all of the terms of all Material Contracts, and no
default or event of default, or event or condition which with the giving of
notice, the lapse of time, or both, would constitute a default or event of
default, exists with respect to any such Material Contract.

(i) Litigation. (i) There are no actions, suits or proceedings pending (nor, to
the knowledge of Borrower, are there any actions, suits or proceedings
threatened, nor is there any basis therefor) against or in any other way
relating adversely to or affecting Borrower or any of its property in any court
or before any arbitrator of any kind or before or by any other Governmental
Authority which, if adversely determined, could be expected to have a Material
Adverse Effect, (ii) there are no strikes, work slowdowns, work stoppages or
walkouts or other labor disputes in progress or threatened relating to any
Project, and (iii) there are no strikes, work slowdowns, work stoppages or
walkouts or other labor disputes in progress or threatened relating to any other
property of Borrower which could be expected to have a Material Adverse Effect.

(j) Taxes; Tax Shelter Regulations.

(i) All federal, state and other tax returns of Borrower required by Applicable
Law to be filed have been duly filed (subject to any permitted

 

40

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

extensions thereof), and all federal, state and other taxes, assessments and
other governmental charges or levies upon Borrower and its properties, income,
profits and assets which are due and payable have been paid prior to delinquency
thereof, except any such nonpayment or non-filing which is at the time permitted
under Section 7.7. As of the Agreement Date, none of the United States income
tax returns of Borrower is under audit. All charges, accruals and reserves on
the books of Borrower in respect of any taxes or other governmental charges are
in accordance with GAAP.

(ii) Neither Borrower nor any subsidiary or Affiliate of Borrower intends to
treat the Loan or the transactions contemplated by this Agreement and the other
Loan Documents as being a “reportable transaction” (within the meaning of
Treasury Regulation Section 1.6011-4). If Borrower determines to take any action
inconsistent with such intention, Borrower will promptly notify Lender thereof.
If Borrower so notifies Lender, Borrower acknowledges that Lender may treat the
Loan as part of a transaction that is subject to Treasury Regulation
Section 301.6112-1, and that Lender will maintain the lists and other records,
including the identity of the applicable party to the Loan as required by such
Treasury Regulation.

(k) Financial Statements. Borrower has furnished to each Lender copies of the
audited financial statements for Borrower (consisting of a balance sheet, income
statement, and a statement of sources and uses of funds, together with related
schedules and supplemental reports) for the calendar year ending December 31,
2012. Such balance sheets and statements (including in each case related
schedules and notes) are complete and correct and present fairly, in accordance
with GAAP throughout the periods involved, the financial position of Borrower
and each other Person combined therein as at their respective dates and the
results of operations and the cash flow for such periods (subject, as to interim
statements, to changes resulting from normal year-end audit adjustments).
Borrower does not have any material contingent liabilities, liabilities,
liabilities for taxes, unusual or long-term commitments or unrealized or forward
anticipated losses from any unfavorable commitments, except as referred to or
reflected or provided for in said financial statements to the extent required by
GAAP.

(l) No Material Adverse Change; Solvency. There has been no material adverse
change in the financial condition, or business of Borrower reflected in the most
recent financial statements of Borrower provided to Lender. Borrower is Solvent.

(m) ERISA. Borrower shall at all times comply with the provisions of ERISA with
respect to any retirement or other employee benefit plan to which it is a party
as employer, and as soon as possible after Borrower knows, or has reason to
know, that any Reportable Event (as defined in ERISA) with respect to any such
plan of Borrower has occurred, it shall furnish to Lender a written statement
setting forth details as to such Reportable Event and the action, if any, which
Borrower proposes to take with respect thereto, together with a copy of the
notice of such Reportable Event furnished to the Pension Benefit Guaranty
Corporation.

(n) Absence of Defaults. Borrower is not in default under its articles of
incorporation, bylaws or other similar organizational documents, and no event
has occurred,

 

41

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

which has not been remedied, cured or waived: (i) which constitutes a Default or
an Event of Default; or (ii) which constitutes, or which with the passage of
time, the giving of notice, or both, would constitute, a default or event of
default by Borrower under any agreement or judgment, decree or order to which
Borrower is a party or by which Borrower or any of its properties may be bound
where such default or event of default could, individually or in the aggregate,
have a Material Adverse Effect.

(o) Environmental Laws.

(i) In the ordinary course of business and from time to time Borrower conducts
reviews of the effect of Environmental Laws on its business, operations and
properties, including without limitation, the Properties, in the course of which
Borrower identifies and evaluates associated liabilities and costs (including,
without limitation, determining whether any capital or operating expenditures
are required for clean-up or closure of properties presently or previously
owned, determining whether any capital or operating expenditures are required to
achieve or maintain compliance in all material respects with Environmental Laws
or required as a condition of any Governmental Approval, any contract, or any
related constraints on operating activities, determining whether any costs or
liabilities exist in connection with off-site disposal of wastes or Hazardous
Materials, and determining whether any actual or potential liabilities to third
parties, including employees, and any related costs and expenses exist).

(ii) To Borrower’s knowledge after due inquiry, except as disclosed in any Site
Assessment delivered to Lender prior to the acceptance of any applicable Project
as a Borrowing Base Property, Borrower is in compliance with all applicable
Environmental Laws and has obtained all Governmental Approvals which are
required under Environmental Laws and is in compliance with all terms and
conditions of such Governmental Approvals, where with respect to each of the
foregoing the failure to obtain or to comply with could be reasonably expected
to have a Material Adverse Effect.

(iii) Borrower is not aware of, nor has it received notice of, except as
disclosed in any Site Assessment delivered to Lender prior to the acceptance of
any applicable Project as a Borrowing Base Property, any past or present events,
conditions, circumstances, activities, practices, incidents, actions, or plans
which, with respect to Borrower, may unreasonably interfere with or prevent
compliance or continued compliance with Environmental Laws, or may give rise to
any common-law or legal liability, based on or related to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or
handling or the emission, discharge, release or threatened release into the
environment, of any Hazardous Materials; and to Borrower’s knowledge after due
inquiry, (A) there is no civil, criminal, or administrative action, suit,
demand, claim, hearing, notice, or demand letter, notice of violation,
investigation, or proceeding pending or threatened, against or in relation to
any current or prior Borrowing Base Property relating in any way to
Environmental Laws, and (B) without limitation of the representations made
pursuant to clause (A) above, there is no civil, criminal, or

 

42

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

administrative action, suit, demand, claim, hearing, notice, or demand letter,
notice of violation, investigation, or proceeding pending or threatened, against
Borrower relating in any way to Environmental Laws which could be expected to
have a Material Adverse Effect.

(iv) To Borrower’s knowledge after due inquiry, except as disclosed in any Site
Assessment delivered to Lender prior to the acceptance of any applicable Project
as a Borrowing Base Property, none of the Borrowing Base Properties has a Mold
Condition.

As used in this Section 6.1(o), “due inquiry” means the examination or
investigation of facts required as a result of some suspicion that such set of
facts are no longer true. For example, in Section 6.1(o)(iv), Borrower
represents that “to Borrower’s knowledge after due inquiry, none of the
Borrowing Base Properties has a Mold Condition.” In accordance with Section 5.2,
as a condition precedent to each Advance, Borrower must assure Lender that such
representation is still correct. The phrase “due inquiry” does not obligate the
Borrower to reexamine each Borrowing Base Property for a Mold Condition each
time an Advance is requested; rather the phrase “due inquiry” obligates the
Borrower to reexamine a Borrowing Base Property for a Mold Condition if Borrower
has some reason to believe that a Mold Condition may exist on such Borrowing
Base Property.

(p) Investment Company; Public Utility Holding Company. Borrower is not (i) an
“investment company” or a company “controlled” by an “investment company” within
the meaning of the Investment Company Act of 1940, as amended, or (ii) subject
to any other Applicable Law which purports to regulate or restrict its ability
to borrow money or obtain other extensions of credit or to consummate the
transactions contemplated by this Agreement or to perform its obligations under
any Loan Document.

(q) Margin Stock. Borrower is not engaged principally, or as one of its
important activities, in the business of extending credit for the purpose,
whether immediate, incidental or ultimate, of buying or carrying “margin stock”
within the meaning of Regulation U of the Board of Governors of the Federal
Reserve System.

(r) Affiliate Transactions. Except as permitted by Section 9.4, Borrower is not
a party to or bound by any agreement or arrangement (whether oral or written)
with any Affiliate.

(s) Intellectual Property. Borrower owns or has the right to use, under valid
license agreements or otherwise, all patents, licenses, franchises, trademarks,
trademark rights, trade names, trade name rights, trade secrets and copyrights
(collectively, “Intellectual Property”) necessary to the conduct of its
businesses, without known conflict with any patent, license, franchise,
trademark, trade secret, trade name, copyright, or other proprietary right of
any other Person. All such Intellectual Property is fully protected and/or duly
and properly registered, filed or issued in the appropriate office and
jurisdictions for such registrations, filing or issuances. No material claim has
been asserted by any Person with respect to the use of any such Intellectual
Property, or challenging or questioning the validity or effectiveness of any
such Intellectual Property.

 

43

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

(t) Business. Borrower is engaged primarily and predominantly in the business of
acquiring, developing and constructing residential Homes, together with related
business activities and investments incidental thereto.

(u) Broker’s Fees. No broker’s or finder’s fee, commission or similar
compensation will be payable with respect to the transactions contemplated
hereby. No other similar fees or commissions will be payable by Borrower for any
other services rendered to Borrower ancillary to the transactions contemplated
hereby.

(v) Accuracy and Completeness of Information. To the best of Borrower’s
knowledge, all written information, reports and other papers and data furnished
to Lender by, on behalf of, or at the direction of, Borrower were, at the time
the same were so furnished, complete and correct to the extent necessary to give
the recipient a true and accurate knowledge of the subject matter in all
material respects, or, in the case of financial statements, present fairly, in
accordance with GAAP consistently applied throughout the periods involved, the
financial position of the Persons involved as at the date thereof and the
results of operations for such periods. No document furnished or written
statement made to Lender pursuant to, or in connection with the negotiation,
preparation or execution of, this Agreement or any of the other Loan Documents
contains or will contain any untrue statement of a fact material to the
creditworthiness of Borrower or omits or will omit to state a fact necessary in
order to make the statements contained therein not misleading.

(w) Collateral. Each Borrowing Base Property satisfies all requirements under
the Loan Documents for being an Eligible Property.

(x) Options to Acquire; Restrictions on Development. None of the Borrowing Base
Properties are subject to any right of first refusal, right of first offer or
other options to purchase except as set forth on Schedule 6.1(x) attached hereto
or as otherwise provided to Lender in connection with Borrower’s request to add
an additional Project to the Borrowing Base pursuant to the terms and conditions
set forth in this Agreement. Other than the Permitted Liens and any other
standard and customary development agreements entered into in the ordinary
course of the Borrower’s business or standard and customary conditions and
restrictions of record affecting the applicable Project (including any
disposition and development agreements) which do not, taken individually, have
an economic impact on the development of the applicable Project as contemplated
in the materials submitted by Borrower to Lender prior to the Agreement Date,
none of the Properties is subject to any agreement restricting or limiting its
development except as set forth on such Schedule 6.1(x).

(y) Restrictions. Borrower is familiar with all restrictions that affect each
Project and the construction of the improvements thereon and the contemplated
use thereof. Borrower has obtained, or will be able to obtain, all permits,
Governmental Approvals, consents and other authorization necessary under the
restrictions for such construction and use, and such construction and use will
comply with the restrictions. There is no violation or asserted violation of any
zoning, use or other recorded restrictions concerning any of the Projects or the
existing or contemplated use thereof.

 

44

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

Section 6.2 Survival of Representations and Warranties, Etc..

All statements contained in any certificate, financial statement or other
instrument delivered by or on behalf of Borrower to Lender pursuant to or in
connection with this Agreement or any of the other Loan Documents (including,
but not limited to, any such statement made in or in connection with any
amendment thereto or any statement contained in any certificate, financial
statement or other instrument delivered by or on behalf of Borrower prior to the
Agreement Date and delivered to Lender in connection with closing the
transactions contemplated hereby) shall constitute representations and
warranties made by Borrower under this Agreement. All representations and
warranties made under this Agreement and the other Loan Documents shall be
deemed to be made at and as of the Agreement Date, the Effective Date and at and
as of the date of each Advance, except to the extent that such representations
and warranties expressly relate solely to an earlier date (in which case such
representations and warranties shall have been true and accurate on and as of
such earlier date) and except for changes in factual circumstances specifically
permitted hereunder. All such representations and warranties shall survive the
effectiveness of this Agreement, the execution and delivery of the Loan
Documents and the making of the Advances.

ARTICLE VII

AFFIRMATIVE COVENANTS

For so long as this Agreement is in effect, Borrower shall comply with the
following covenants:

Section 7.1 Punctual Payment.

Borrower will duly and punctually pay or cause to be paid the principal and
interest on the Loan and all interest and fees provided for in this Agreement,
all in accordance with the terms of this Agreement and the Note as well as all
other sums owing pursuant to the Loan Documents.

Section 7.2 Maintenance of Office.

Borrower will maintain its chief executive office at 19520 Jamboree Road, Suite
200, Irvine, California 92612, or at such other place in the United States of
America as Borrower shall designate upon prior written notice to Lender, where
notices, presentations and demands to or upon Borrower in respect of the Loan
Documents may be given or made.

Section 7.3 Preservation of Existence and Similar Matters.

Borrower shall preserve and maintain its existence, rights, franchises, licenses
and privileges in the jurisdiction of its incorporation and qualify and remain
qualified and authorized to do business in each jurisdiction in which the
character of its properties or the nature of its business requires such
qualification and authorization and where the failure to be so authorized and
qualified could be expected to have a Material Adverse Effect.

 

45

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

Section 7.4 Compliance with Applicable Law and Material Contracts.

Borrower shall comply with (a) all Applicable Law, including the obtaining of
all Governmental Approvals, the failure with which to comply could be expected
to have a Material Adverse Effect, and (b) all terms and conditions of all
Material Contracts to which it is a party.

Section 7.5 Maintenance of Property; Completion of Construction.

In addition to the requirements of any of the other Loan Documents, Borrower
shall (a) protect and preserve each Project, including, but not limited to, all
Intellectual Property necessary to the conduct of its business with respect to
the Projects, and maintain in good repair, working order and condition all
tangible properties which constitute Collateral, ordinary wear and tear
excepted, (b) from time to time make or cause to be made all needed and
appropriate repairs, renewals, replacements and additions to each Project, so
that the business carried on in connection therewith may be properly and
advantageously conducted at all times, (c) protect and preserve all of its
properties other than the Collateral, including, but not limited to, all
Intellectual Property necessary to the conduct of its business with respect to
such other property, and maintain in good repair, working order and condition
all tangible properties other than the Collateral, ordinary wear and tear
excepted where the failure to do so would result in a Material Adverse Effect,
and (d) from time to time make or cause to be made all needed and appropriate
repairs, renewals, replacements and additions to all properties of its
properties other than the Collateral if the failure to do so would result in a
Material Adverse Effect. Borrower shall diligently prosecute to Completion
development and construction of all Lots and Homes on which such development or
construction is commenced.

Section 7.6 Insurance.

Borrower shall, while any obligation of Borrower under any Loan Document remains
outstanding, at Borrower’s sole expense, maintain the following policies of
insurance in form and substance satisfactory to Lender. Capitalized terms used
in this Section shall have the same meaning as such terms are commonly and
presently defined in the insurance industry.

(a) Title Insurance. With respect to each Project covered by any Security
Document, a title policy, together with any endorsements which Lender may
require, insuring Lender, in the Commitment Amount then in effect, of the
validity and the priority of the lien of the Deed of Trust covering such
Project, subject only to matters approved by Lender in writing. During the term
of the Loan, Borrower shall deliver or cause to be delivered to Lender, within
ten (10) days of Lender’s written request, such other endorsements to the title
policies as Lender may require with respect to the Properties.

(b) Property Insurance. With respect to each Project, a Builders All
Risk/Special Form Completed Value (Non-Reporting Form) Hazard Insurance policy,
including without limitation, theft coverage and such other coverages and
endorsements as Lender may require, insuring Lender against damage to such
Project in an amount not less than one hundred percent (100%) of the full
replacement cost at the time of Completion of any improvements on such Project.
Such coverage should adequately insure any and all Collateral, whether such
Collateral is onsite, stored offsite or otherwise. Lender shall be named on the
policy as Mortgagee and named under a Lender’s Loss Payable Endorsement (form
#438BFU or equivalent).

 

46

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

(c) Flood Hazard Insurance. With respect to each Project, a policy of flood
insurance, as required by applicable governmental regulations, or as deemed
necessary by Lender, in an amount sufficient to meet the requirements of
Applicable Law.

(d) Liability Insurance. With respect to Borrower, a policy of Commercial
General Liability insurance on an occurrence basis, with coverages and limits as
required by Lender insuring against liability for injury and/or death to any
person and/or damage to any property occurring on a Project. During the period
of any construction, Borrower may cause its respective contractors and/or
subcontractors to maintain in full force and effect any or all of the liability
insurance required hereunder. Lender may require that Lender and/or Borrower be
named as an additional insured on any such policy(ies). Whether Borrower employs
a general contractor or performs as an owner-builder, Lender may require that
coverage include statutory workers’ compensation insurance.

(e) Other Coverage. Borrower shall provide to Lender evidence of such other
insurance in such amounts as Lender may from time to time request against such
other insurable hazards which are commonly insured against for property similar
to the subject Project located in or around the region in which the subject
Project is located; provided, however, that earthquake insurance shall not be
required.

(f) General. Borrower shall provide to Lender insurance certificates or other
evidence of coverage in form acceptable to Lender, with coverage amounts,
deductibles, notice requirements, limits and retentions as required by Lender.
Lender shall be named under a Lender’s Loss Payable Endorsement (form #438BFU or
equivalent) on all insurance policies which Borrower actually maintains with
respect to the Properties. All insurance policies shall be issued and maintained
by insurers approved to do business in the state in which the applicable Project
is located and must have an A.M. Best Company financial rating and policyholder
surplus acceptable to Lender.

Section 7.7 Payment of Taxes and Claims.

Borrower shall pay and discharge prior to delinquency (a) all taxes, assessments
and governmental charges or levies imposed upon it or upon its income or profits
or upon the Projects, and (b) all lawful claims of materialmen, mechanics,
carriers, warehousemen and landlords for labor, materials, supplies and rentals
which, if unpaid, might become a Lien on any of the Projects; provided, however,
that this Section shall not require the payment or discharge of any such tax,
assessment, charge, levy or claim which is being contested in good faith by
appropriate proceedings which operate to suspend the collection thereof and for
which adequate reserves have been established on the books of such Person in
accordance with GAAP or federal income tax accounting principles consistently
applied; provided, further however, that if any claims of materialmen,
mechanics, carriers, warehousemen and landlords for labor, materials, supplies
and rentals, whether lawful or unlawful, result in a Lien being filed against
any Collateral, then, notwithstanding any continuing contest of such claim in
accordance with this Section 7.7, Borrower shall cause each such Lien to be
released, removed from record title by court order or bonded in a manner and in
an amount sufficient to remove such Lien from the

 

47

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

Collateral within thirty (30) days (or such longer period as may be approved by
Lender in writing in each instance, which approval may be given or withheld in
Lender’s sole discretion) after the filing thereof.

Section 7.8 Books and Records; Inspections.

Borrower will keep proper books of record and account in which full, true and
correct entries shall be made of all dealings and transactions in relation to
its business and activities. Borrower will permit representatives of Lender to
visit and inspect any of its properties, to examine and make abstracts from any
of their respective books and records and to discuss their respective affairs,
finances and accounts with their respective officers, employees and independent
public accountants, all at such reasonable times during business hours and as
often as may be requested and, so long as no Event of Default exists, with
reasonable prior notice.

Section 7.9 Use of Proceeds.

Borrower may use the proceeds of Advances solely for payment of costs,
reimbursement of costs, or return of capital, in each case related to (a) land
acquisition, development and construction of single-family residential Lots and
Homes on and with respect to Borrowing Base Properties, or (b) paying off any
existing financing secured by the initial Borrowing Base Properties on the
Effective Date.

Section 7.10 Environmental Matters.

Borrower shall comply with all Environmental Laws. To the extent required by any
Environmental Law, Borrower shall include a deed restriction which complies with
such Environmental Law in any deed pursuant to which Borrower transfers any Lot
or Home comprising Collateral to any other Person. If Borrower shall (a) receive
notice that any violation of any Environmental Law may have been committed or is
about to be committed by such Person, (b) receive notice that any administrative
or judicial complaint or order has been filed or is about to be filed against
any such Person alleging violations of any Environmental Law or requiring any
such Person to take any action in connection with the release of Hazardous
Materials or (c) receive any notice from a Governmental Authority or private
party alleging that any such Person may be liable or responsible for costs
associated with a response to or cleanup of a release of Hazardous Materials or
any damages caused thereby, and such notices, individually or in the aggregate,
could be expected to have a Material Adverse Effect, Borrower shall provide
Lender with a copy of such notice within ten (10) days after the receipt thereof
by Borrower. Borrower shall promptly take all actions necessary to prevent the
imposition of any Liens on any of the Properties covered by any Security
Document arising out of or related to any Environmental Laws. Notwithstanding
the foregoing, Borrower may contest the existence of any such Lien in good faith
by appropriate proceedings which operate to suspend the collection thereof and
for which adequate reserves have been established on the books of such Person in
accordance with GAAP or federal income tax accounting principles consistently
applied.

Section 7.11 Further Assurances.

At Borrower’s cost and expense and upon request of Lender, Borrower shall duly
execute and deliver or cause to be duly executed and delivered, to Lender such
further instruments,

 

48

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

documents and certificates, and do and cause to be done such further acts that
may be necessary or advisable in the opinion of Lender to carry out more
effectively the provisions and purposes of this Agreement and the other Loan
Documents.

Section 7.12 Material Contracts.

Borrower shall duly and punctually perform and comply with any and all
representations, warranties, covenants and agreements expressed as binding upon
any such Person under any Material Contract. Borrower shall not do or knowingly
permit to be done anything to impair the value of any of the Material Contracts
without adequate replacement or substitution thereof.

Section 7.13 ERISA Compliance.

Borrower shall at all times comply with the provisions of ERISA with respect to
any retirement or other employee benefit plan to which it is a party as
employer, and as soon as possible after Borrower knows, or has reason to know,
that any Reportable Event (as defined in ERISA) with respect to any such plan of
Borrower has occurred, it shall furnish to Lender a written statement setting
forth details as to such Reportable Event and the action, if any, which Borrower
proposes to take with respect thereto, together with a copy of the notice of
such Reportable Event furnished to the Pension Benefit Guaranty Corporation. If
Borrower forms any employee benefit plan subject to ERISA, Borrower shall
promptly disclose same to Lender and shall promptly thereafter execute an
amendment to this Agreement to add appropriate representations, covenants and
defaults with respect to such ERISA plan and compliance.

Section 7.14 Business Operations.

Borrower and its Subsidiaries shall operate their respective businesses
generally in the same general manner as such businesses have been previously
conducted and shall not change the fundamental nature of such businesses.
Borrower shall not engage in any other businesses or activities. Borrower and
its Subsidiaries shall further operate their respective businesses in compliance
with the terms and conditions of this Agreement and the Loan Documents.

Section 7.15 Lien Free Completion.

Borrower shall cause Completion, in accordance with each applicable Development
Plan (subject to Force Majeure) and each applicable Project Budget, of all lot
development improvements on Lots Under Development necessary to re-classify such
Lots to Finished Lots and all Homes in the Borrowing Base on which vertical
construction has commenced but has not yet been completed.

Section 7.16 Condominium Covenants.

(a) Borrower promptly shall observe and perform all of Borrower’s obligations
under each Condominium Project’s Constituent Documents. As used herein, the term
“Constituent Documents” shall mean all of the following, as applicable to a
Condominium Unit, a Condominium Project and the owners association or other
entity which acts for the Condominium Project (the “Owners Association”):
(i) the declaration or any other document which creates the Condominium Project;
(ii) the by-laws; (iii) the code of regulations; and (iv) other similar
documents.

 

49

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

(b) Borrower shall take such actions to ensure that each Condominium Unit and
the common elements of each Condominium Project are covered by public liability
insurance conforming to the standards of this Agreement, whether carried by
Borrower or by the Owners Association.

(c) Borrower shall not, without the prior written consent of Lender, consent to
(i) the abandonment or termination of the Condominium Project; (ii) any
amendment to any provision of the Constituent Documents; or (iii) any action
which would have the effect of causing the public liability insurance coverage
maintained by the Owners Association to fail to comply with the standards of the
Constituent Documents.

(d) Each Condominium Project shall at all times be in compliance with the
requirements of applicable statutes and ordinances which govern the formation
and governance of condominiums.

Section 7.17 Inspection of Borrowing Base Properties.

Borrower shall permit Lender, by its employees and independent contractors, to
enter upon and inspect, at any time and from time to time, all Borrowing Base
Properties, provided, that such inspections shall not be made more frequently
than once per month per Project; provided further, however, that (a) if a
Default or Event of Default shall have occurred and be continuing, (b) if, in
Lender’s reasonable discretion, unusual or unforeseen circumstances should
arise, or (c) should any such inspections uncover unanticipated or unusual
situations, Lender may elect to conduct additional inspections. Upon demand,
Borrower shall pay to Lender Five Hundred and No/100 Dollars ($500.00) per
inspection per Borrowing Base Property.

Section 7.18 Intentionally Omitted.

Section 7.19 Bonded Stop Notices.

In the event that any bonded stop notice is served on Lender in connection with
the Loan or any Project, within thirty (30) days after Lender delivers notice
thereof to Borrower, Borrower shall either (a) cause such bonded stop notice to
be fully satisfied or withdrawn, or (b) deposit with Lender an amount acceptable
to Lender in its sole discretion (provided that such amount shall not exceed
equal to one hundred fifty percent (150%) of the amount of such bonded stop
notice), which amount shall be held by Lender in an account with USB (the
“Borrower’s Deposit Account”) as additional security for the Obligations.
Borrower agrees that it shall include any and all interest and earnings on any
such deposit as its income, and shall be the owner of all funds on deposit in
such Borrower’s Deposit Account for federal and applicable state and local tax
purposes. Lender shall have the exclusive right to manage and control all funds
in the Borrower’s Deposit Account, but Lender shall have no fiduciary duty with
respect to such funds. In the event that litigation is commenced against Lender
in connection with any such bonded stop notice, Lender shall provide prompt
written notice thereof to Borrower and, in connection with any answer filed by
Lender in any such action, Lender may advance funds on deposit in the Borrower’s
Deposit Account to the claimant under such bonded stop notice in an amount

 

50

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

reasonably necessary to satisfy such bonded stop notice in full. Any account
fees and charges may be deducted from the balance, if any, in the Borrower’s
Deposit Account. Borrower grants to Lender a security interest in the Borrower’s
Deposit Account and all such deposited funds hereafter deposited to such deposit
account, and any proceeds thereof, as security for the Obligations. Such
security interest shall be governed by the Uniform Commercial Code of the State
of California, and Lender shall have available to it all of the rights and
remedies available to a secured party thereunder. The Borrower’s Deposit Account
may be established and held in such name or names as Lender shall deem
appropriate, including in the name of Lender. Borrower hereby constitutes and
appoints Lender and any officer or agent of Lender its true and lawful
attorneys-in-fact with full power of substitution to open the Borrower’s Deposit
Account and to do any and every act that Borrower might do on its own behalf to
fulfill the terms of this Section 7.19. To the extent permitted by law, Borrower
hereby ratifies all that said attorneys shall lawfully do or cause to be done by
virtue hereof. It is understood and agreed that this power of attorney, which
shall be deemed to be a power coupled with an interest, cannot be revoked. In
the event that any bonded stop notice with respect to which Borrower has
deposited funds into the Borrower’s Deposit Account in accordance with this
Section 7.19 is withdrawn or satisfied in full (and Lender shall have received
evidence thereof reasonably satisfactory to Lender), then, so long as no Event
of Default shall have occurred and be continuing, Lender shall return to
Borrower any remaining funds deposited into the Borrower’s Deposit Account with
respect to such bonded stop notice promptly after Borrower’s written request
therefor.

Section 7.20 Financial Covenants.

Borrower shall maintain and Lender shall test of a quarterly basis:

(a) Liquid Assets. Borrower shall maintain at all times unencumbered Liquid
Assets equal to or greater than Ten Million and No/100 Dollars ($10,000,000.00).

(b) Fixed Charge Coverage Ratio. Borrower shall maintain at all times a ratio of
EBITDA to Interest Paid equal to or greater than 1.60:1.00, which shall be
determined as of the end of each fiscal quarter of Borrower on a rolling
four-quarters basis.

(c) Tangible Net Worth. Borrower shall maintain at all times Tangible Net Worth
equal to or greater than the sum of (i) Two Hundred Million and No/100 Dollars
($200,000,000.00), plus (ii) fifty percent (50%) of all consolidated net income
(as determined in accordance with GAAP) earned from and after December 31, 2012,
plus (iii) fifty percent (50%) of the proceeds of all additional equity capital
invested in Borrower, whether through public offerings or otherwise.

(d) Leverage Ratio. Borrower shall maintain at all times a Leverage Ratio of
less than 1.50:1.00.

(e) Land Ratio. Borrower shall maintain a ratio of Land Assets to Tangible Net
Worth of less than 1.50:1.00.

 

51

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

ARTICLE VIII

INFORMATION

For so long as this Agreement is in effect, Borrower shall furnish to Lender:

Section 8.1 Financial Statements.

Borrower shall furnish or cause to be furnished to Lender:

(a) Annual. As soon as practicable, but in any event within one-hundred twenty
(120) days after the end of each calendar year financial statements of Borrower.
Such financial statements shall be prepared in accordance with GAAP or the
federal income tax basis method of accounting consistently applied and shall be
prepared and audited (without qualification) by a national accounting firm. The
required financial statements shall include a balance sheet, income statement, a
statement showing sources and uses of funds, Borrower’s Form 10-K filed with the
Securities and Exchange Commission, and such related schedules and supplemental
reports as required pursuant to GAAP.

(b) Quarterly. As soon as practicable, but in any event within ninety (90) days
after the end of each calendar quarter unaudited financial statements of
Borrower. The required financial statements shall include a balance sheet,
income statement, a statement showing sources and uses of funds, Borrower’s Form
10-Q filed with the Securities and Exchange Commission, and such related
schedules and supplemental reports as required pursuant to GAAP. Such financial
statements shall set forth in comparative form the figures as of the end of and
for the corresponding period of the previous calendar year and shall contain a
certification by the chief financial officer (or similar financial officer) of
Borrower that, in his or her opinion, such financial statements present fairly,
in accordance with GAAP or the federal income tax basis method of accounting
consistently applied, the financial position of Borrower as of the date thereof
and the results of operations for such period.

(c) Compliance Certificate. Contemporaneously with the delivery of the financial
statements delivered pursuant to this Section, a Compliance Certificate setting
forth the information to be contained therein and evidencing compliance with the
financial covenants set forth in Section 7.20 above, as of the last day of such
calendar year or calendar quarter, as applicable.

Section 8.2 Monthly and Weekly Reporting Requirements.

Within twenty (20) days after the end of each calendar month, Borrower shall
(a) certify and deliver a Borrowing Base Report, (b) deliver a listing of each
Project and its location, its size, unit sales and unsold inventory of Lots and
Homes for each Project, a breakdown of the composition of such inventory, a
summary of the status of existing Projects, a report of the historical cost
expended on each Project, current reporting period net income and such other
information as Lender may reasonably request, (c) deliver to Lender, for each
residential subdivision then being developed into Finished Lots or Homes, the
last closing report for each month with cumulative information for the month,
together with a current sales report, and (d) indicate any Projects for which
Borrower requests a re-classification from one type of Project to another (e.g.,
from Lots Under Development to Finished Lots). In addition, within seven (7)

 

52

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

days after the end of each week, Borrower shall deliver to Lender on a weekly
basis a “sales in contract” and closing report with respect to each Project then
under development. All of the foregoing information shall be in form and
substance reasonably acceptable to Lender.

Section 8.3 Other Information.

Borrower shall also provide, or cause to be provided, the following information
to Lender:

(a) To the extent Borrower is aware of the same, prompt notice of the
commencement of any proceeding or investigation by or before any Governmental
Authority and any action or proceeding in any court or other tribunal or before
any arbitrator against or in any other way relating to, or affecting, Borrower
or any of its properties, assets or businesses which, if determined or resolved
adversely to Borrower, could be expected to have a Material Adverse Effect, and
prompt notice of the receipt of notice that any United States income tax returns
of Borrower are being audited;

(b) A copy of any amendment to the articles of incorporation, bylaws or other
similar organizational documents of Borrower not less than five (5) Business
Days prior to the effectiveness thereof;

(c) Prompt notice of any change in the management of Borrower and any change in
the business, assets, liabilities, financial condition, or results of operations
of Borrower which has had or could have Material Adverse Effect;

(d) Prompt notice of the occurrence of any Default or Event of Default or any
event which constitutes or which with the passage of time, the giving of notice,
or both, would constitute a material default or event of default by Borrower
under any Material Contract to which Borrower is a party or by which Borrower or
any of its properties may be bound;

(e) Promptly upon entering into any Material Contract after the Agreement Date,
a copy of such Material Contract to Lender;

(f) Prompt notice of any proposed material acquisition, merger, asset
disposition or public debt offerings by Borrower or of any proposed material
merger contemplated by Borrower or any contemplated disposition by Borrower of
all or substantially all of Borrower’s assets;

(g) Prompt notice of any final, non-appealable order, judgment or decree in
excess of $500,000.00 having been entered against Borrower or any of its
properties or assets;

(h) Prompt notice of any litigation affecting Borrower in which the amount of
damages not fully covered (excluding any applicable deductible) by insurance
sought is $500,000.00 or more or in which the award of any non-monetary relief
sought might have a Material Adverse Effect on the business, assets or financial
condition of Borrower;

(i) Any notification of a material violation of any Applicable Law or regulation
or any inquiry received by Borrower from any Governmental Authority;

 

53

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

(j) Prompt notice upon Borrower obtaining knowledge of (i) any potential or
known release, or threat of release, of any Hazardous Materials at or from any
Borrowing Base Property which is not in compliance with all Applicable Law or
which a reasonably prudent person would investigate; (ii) any violation of any
Environmental Law with respect to any Collateral that Borrower reports in
writing or is required under any Environmental Law to be reported by Borrower in
writing (or for which any written report supplemental to any oral report is
made) to any federal, state or local environmental agency; and (iii) any
inquiry, proceeding, investigation, or other action, including a notice from any
agency of potential environmental liability, or any federal, state or local
environmental agency or board, that in either case involves a Borrowing Base
Property or has the potential to affect the assets, liabilities, financial
conditions or operations of Borrower or Lender’s liens on any Collateral
pursuant to the Security Documents;

(k) Prompt notice upon Borrower obtaining knowledge or otherwise becoming aware
of any Mold Condition affecting a Borrowing Base Property;

(l) Prompt notice of any material casualty to or any condemnation of all or any
portion of a Borrowing Base Property;

(m) Prompt notice of any Work Stoppage Event or any other event which might
disqualify a Borrowing Base Property as an Eligible Property; and

(n) From time to time and promptly upon each request, such data, certificates,
reports, statements, opinions of counsel, documents or further information
regarding any Project or the business, assets, liabilities, financial condition,
or results of operations of Borrower as Lender may reasonably request (without
duplication and after taking into account all previously delivered information).

ARTICLE IX

NEGATIVE COVENANTS

For so long as this Agreement is in effect, Borrower shall comply with the
following covenants:

Section 9.1 Negative Pledge.

Borrower shall not create, assume or suffer to exist any Lien on any Borrowing
Base Property or any of the other Collateral, now owned or hereafter acquired,
except for Permitted Liens.

Section 9.2 Merger, Consolidation, Sales of Assets and Other Arrangements.

Borrower shall not (a) enter into any transaction of merger or consolidation
with another Person where Borrower will not be the survivor; (b) liquidate, wind
up or dissolve itself (or suffer any liquidation or dissolution); (c) convey,
sell, lease, sublease, transfer or otherwise dispose of, in one transaction or a
series of transactions, substantially all of its business or assets, whether now
owned or hereafter acquired, except in the ordinary course of business or as

 

54

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

otherwise contemplated by the Loan Documents, or (d) make any material change in
the general nature and purpose of its business as presently conducted. Further,
Borrower shall not enter into any sale-leaseback transactions or other
transaction by which Borrower shall remain liable as lessee (or the economic
equivalent thereof) of any real or personal property that it has sold or leased
to another Person, other than the sale-leaseback of Models on customary,
arms’-length terms.

Section 9.3 Modifications of Organizational Documents and Material Contracts.

(a) Borrower shall not enter into (or allow to be entered into) any amendment or
modification to any Material Contract that could reasonably be expected to have
a Material Adverse Effect or default in the performance of any obligations of
Borrower in any Material Contract or permit any cancellation or termination of a
Material Contract prior to its stated maturity to the extent such cancellation
or termination could reasonably be expected to have a Material Adverse Effect.

(b) Borrower shall not amend, supplement, restate or otherwise modify its
articles of incorporation, bylaws or other organizational documents in any
material respects without the prior written consent of Lender, which consent
shall not be unreasonably withheld, conditioned or delayed.

Section 9.4 Transactions with Affiliates.

Borrower shall not permit to exist or enter into, any transaction (including the
purchase, sale, lease or exchange of any property or the rendering of any
service) with any Affiliate of Borrower, or with any director, officer or
employee of Borrower, except transactions in the ordinary course of and pursuant
to the reasonable requirements of the business of Borrower and upon fair and
reasonable terms that, on an overall basis, are no less favorable to Borrower
than would be obtained in a comparable arm’s length transaction with a Person
that is not an Affiliate.

Section 9.5 Limitations On Distributions.

Following the occurrence and during the continuance of Default or Event of
Default, Borrower shall not make any Distributions.

Section 9.6 Unrelated Business.

Borrower shall not engage, directly or indirectly, in any activities in the
Permitted States except as described in Section 7.14. Notwithstanding the
foregoing, the following activities shall not be engaged in or undertaken
directly, indirectly, in whole or in part by Borrower: (a) acquiring, owning,
operating or managing rental housing or apartments, other than the sale and
lease back of model homes; (b) acquiring, constructing, owning, operating or
managing office, hotel, retail, industrial, mixed-use or other income-producing
facilities or acquiring or holding any debt secured by the same other than
limited commercial development which is incidental to the construction and
development of Homes, (c) acquiring unimproved Land for any of the purposes
described in clause (b) of this sentence, provided Borrower may acquire some
retail Land if it is part of a larger acquisition that includes for sale housing
so long as Borrower will ultimately sell such retail Land to another developer
or user, or (d) engaging in Projects located outside of the Permitted States.

 

55

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

ARTICLE X

DEFAULT

Section 10.1 Events of Default.

Each of the following shall constitute an Event of Default, whatever the reason
for such event and whether it shall be voluntary or involuntary or be effected
by operation of Applicable Law or pursuant to any judgment or order of any
Governmental Authority:

(a) Default in Payment. Borrower shall fail to pay (i) any amount due on the
Maturity Date, (ii) any principal when due (whether upon demand, at maturity, a
scheduled amortization payment, by reason of acceleration or otherwise), or
(iii) any interest or other amount due under this Agreement or any other Loan
Document when due (whether upon demand, at maturity, by reason of acceleration
or otherwise).

(b) Default in Performance. Borrower shall fail to perform or observe any term,
covenant, condition or agreement contained in this Agreement or any other Loan
Document party and not otherwise mentioned in this Section 10.1 and such failure
shall continue for a period of thirty (30) days after the earlier or (i) the
date upon which Borrower first obtains actual knowledge of such failure, or
(ii) the date upon which Borrower receives written notice of such failure from
Lender; provided that (1) if such failure cannot, by its nature, be cured within
such thirty (30) day period, (2) Borrower commences efforts to cure such failure
within the initial thirty (30) day period and is diligently pursuing such cure,
and (3) the continuation of such failure does not otherwise have a Material
Adverse Effect, Borrower shall up to an additional sixty (60) days in which to
cure such failure.

(c) Misrepresentations. Any written statement, representation or warranty made
or deemed made by or on behalf of Borrower under this Agreement or under any
other Loan Document, or any amendment hereto or thereto, or in any other writing
or statement at any time furnished by, or at the direction of, Borrower to
Lender, shall at any time prove to have been incorrect or misleading in any
material respect when furnished or made or deemed made, provided, that, if
Borrower did not knowingly make a misrepresentation, Borrower shall have the
right to cure such matter within the applicable notice and cure periods set
forth in Section 10.1(b) above.

(d) Indebtedness Cross-Default.

(i) Borrower shall fail to pay when due and payable the principal of, or
interest on, any other recourse Indebtedness to Lender, and such failure shall
continue beyond any applicable notice and cure period; or

(ii) The maturity of any other recourse Indebtedness of Borrower to Lender shall
have (A) been accelerated in accordance with the provisions of any indenture,
contract or instrument evidencing, providing for the creation of or otherwise
concerning such indebtedness or (B) been required to be prepaid or repurchased
prior to the stated maturity thereof; or

 

56

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

(iii) Any other un-waived event shall have occurred and be continuing which,
with or without the passage of time, the giving of notice, or both, would permit
Lender (or any trustee or agent acting on its behalf), as the holder or holders
of any other recourse Indebtedness of Borrower, to accelerate the maturity of
such Indebtedness or require any such Indebtedness to be prepaid or repurchased
prior to its stated maturity.

(e) Voluntary Bankruptcy Proceeding. Borrower shall: (i) commence a voluntary
case under the Bankruptcy Code of 1978, as amended or other federal bankruptcy
laws (as now or hereafter in effect); (ii) file a petition seeking to take
advantage of any other Applicable Law, domestic or foreign, relating to
bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment
of debts; (iii) consent to, or fail to contest in a timely and appropriate
manner, any petition filed against it in an involuntary case under such
bankruptcy laws or other Applicable Law or consent to any proceeding or action
described in the immediately following subsection; (iv) apply for or consent to,
or fail to contest in a timely and appropriate manner, the appointment of, or
the taking of possession by, a receiver, custodian, trustee, or liquidator of
itself or of a substantial part of its property, domestic or foreign; (v) be
unable to or admit in writing its inability to pay its debts as they become due;
(vi) make a general assignment for the benefit of creditors; (vii) make a
fraudulent conveyance as to creditors under any Applicable Law; or (viii) take
any corporate or partnership action for the purpose of effecting any of the
foregoing.

(f) Involuntary Bankruptcy Proceeding. A case or other proceeding shall be
commenced against Borrower in any court of competent jurisdiction seeking:
(i) relief under the Bankruptcy Code of 1978, as amended or other federal
bankruptcy laws (as now or hereafter in effect) or under any other Applicable
Law, domestic or foreign, relating to bankruptcy, insolvency, reorganization,
winding-up, or composition or adjustment of debts; or (ii) the appointment of a
trustee, receiver, custodian, liquidator or the like of Borrower, or of all or
any substantial part of the assets, domestic or foreign, of Borrower, and in the
case of either clause (i) or (ii) such case or proceeding shall continue
undismissed or unstayed for a period of sixty (60) days, or an order granting
the relief requested in such case or proceeding (including, but not limited to,
an order for relief under such Bankruptcy Code or such other federal bankruptcy
laws) shall be entered.

(g) Revocation of Loan Documents. Borrower shall (or shall attempt to) disavow,
revoke or terminate any Loan Document or shall otherwise challenge or contest in
any action, suit or proceeding in any court or before any Governmental Authority
the validity or enforceability of any Loan Document.

(h) Judgment. A judgment or order for the payment of money shall be entered
against Borrower by any court or other tribunal and (i) such judgment or order
shall continue for a period of thirty (30) days without being paid, bonded,
stayed or dismissed through appropriate appellate proceedings, and (ii) either
(A) the amount for which insurance has not been acknowledged in writing by the
applicable insurance carrier (or the amount as to which the

 

57

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

insurer has denied liability) exceeds, individually or together with all other
such judgments or orders entered against Borrower, $500,000.00, or (B) such
judgment or order could be expected to have a Material Adverse Effect.

(i) Attachment. A warrant, writ of attachment, execution or similar process
shall be issued against any property of Borrower, which exceeds, individually or
together with all other such warrants, writs, executions and processes,
$500,000.00 in amount and such warrant, writ, execution or process shall not be
paid, discharged, vacated, stayed or bonded for a period of thirty (30) days.

(j) Loan Documents. An Event of Default (as defined therein) shall occur under
any of the other Loan Documents.

(k) Change of Control. The occurrence of a Change of Control.

(l) Work Stoppage Event. The occurrence of a Work Stoppage Event.

(m) Mechanic’s Liens. Borrower fails, for any reason, to comply with the
requirements of Section 7.7.

(n) Bonded Stop Notice. Borrower fails, for any reason, to comply with the
requirements of Section 7.19 hereof.

(o) Financial Covenants. Borrower fails, for any reason, to comply with the
requirements of Section 7.20 hereof

(p) Damage; Strike; Casualty. Any material damage to, or loss or destruction of,
any Collateral, whether or not insured, or any strike, lockout, labor dispute,
embargo, condemnation, act of God or public enemy, or other casualty which
causes, for more than sixty (60) days beyond the coverage period of any
applicable business interruption insurance, the cessation or substantial
curtailment of revenue producing activities of a Borrower; provided that no such
event shall constitute an Event of Default if (i) after deeming such Collateral
as ineligible pursuant to Section 4.1(c) any required payment under
Section 2.4(b) has been paid or (ii) such Collateral has been released pursuant
to and in accordance with Section 4.2, Section 4.3 or Section 4.4.

In the event that any Event of Default shall occur under Sections 10.1(b), (c),
(i), (j), (l) or (m) only with respect to a specific Project (a “Designated
Event of Default”), Borrower may cure such Designated Event of Default within
fifteen (15) days after notice thereof by causing the release of such Project
pursuant to and in accordance with Section 4.2, Section 4.3 or Section 4.4, and,
so long as no other Event of Default shall have occurred and be continuing,
Lender shall permit the release of such Property pursuant to and in accordance
with Section 4.2, Section 4.3 or Section 4.4 notwithstanding the continuance of
such Designated Event of Default.

Section 10.2 Remedies Upon Event of Default.

 

58

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

If any Event of Default exists, the following provisions shall apply:

(a) Acceleration; Termination of Facilities.

(i) Automatic. Upon the occurrence of an Event of Default specified in
Section 10.1(e) or Section 10.1(f), (A)(1) the principal of, and all accrued
interest on, the Advances and the Note at the time outstanding, and (2) all of
the other Obligations of Borrower, including, but not limited to, the other
amounts owed to Lender under this Agreement, the Note or any of the other Loan
Documents shall become immediately and automatically due and payable by Borrower
without presentment, demand, protest, or other notice of any kind, all of which
are expressly waived by Borrower, and (B) the Commitment Amount and the
obligation of Lender to make Advances hereunder shall immediately and
automatically terminate.

(ii) Optional. If any other Event of Default shall exist, Lender may (A) declare
(1) the principal of, and accrued interest on, the Advances and the Note at the
time outstanding, and (2) all of the other Obligations, including, but not
limited to, the other amounts owed to Lender under this Agreement, the Note or
any of the other Loan Documents to be forthwith due and payable, whereupon the
same shall immediately become due and payable without presentment, demand,
protest or other notice of any kind, all of which are expressly waived by
Borrower, and (B) terminate the Commitment Amount and the obligation of Lender
to make Advances hereunder.

(b) Loan Documents. Lender may, in its sole discretion, exercise any and all of
its rights under any and all of the other Loan Documents.

(c) Applicable Law. Lender may, in its sole discretion, exercise all other
rights and remedies it may have under any Applicable Law.

(d) Appointment of Receiver. To the extent permitted by Applicable Law, Lender
shall be entitled to the appointment, without bond, of a receiver for the assets
and properties of Borrower, without notice of any kind whatsoever and without
regard to the adequacy of any security for the Obligations or the solvency of
any party bound for its payment, to take possession of all or any portion of the
Collateral and/or the business operations of Borrower and to exercise such power
as the court shall confer upon such receiver.

Section 10.3 Marshaling; Payments Set Aside.

Lender shall not be under any obligation to marshal any assets in favor of
Borrower or any other party or against or in payment of any or all of the
Obligations. To the extent that Borrower makes a payment or payments to Lender,
or Lender enforces its security interests or exercises its rights of setoff, and
such payment or payments or the proceeds of such enforcement or setoff or any
part thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside and/or required to be repaid to a trustee, receiver or
any other party under any bankruptcy law, state or federal law, common law or
equitable cause, then to the extent of such recovery, the Obligations or part
thereof originally intended to be satisfied, and all Liens, rights and remedies
therefor, shall be revived and continued in full force and effect as if such
payment had not been made or such enforcement or setoff had not occurred.

 

59

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

Section 10.4 Allocation of Proceeds.

If an Event of Default exists and maturity of any of the Obligations has been
accelerated, all payments received by Lender under any of the Loan Documents, in
respect of any principal of or interest on the Obligations or any other amounts
payable by Borrower hereunder or thereunder, shall be applied in the following
order and priority:

(a) amounts due to Lender in respect of Fees and expenses due under
Section 11.2;

(b) payments of interest on Advances;

(c) payments of principal of Advances;

(d) amounts due to Lender pursuant to Section 11.10;

(e) payments of all other amounts due under any of the Loan Documents, if any;
and

(f) any amount remaining after application as provided above, shall be paid to
Borrower or whomever else may be legally entitled thereto.

Section 10.5 Performance by Lender.

If Borrower shall fail to perform any covenant, duty or agreement contained in
any of the Loan Documents, Lender may perform or attempt to perform such
covenant, duty or agreement on behalf of Borrower after the expiration of any
cure or grace periods set forth herein. In such event, Borrower shall, at the
request of Lender, promptly pay any amount reasonably expended by Lender in such
performance or attempted performance to Lender, together with interest thereon
at the applicable Post-Default Rate from the date of such expenditure until
paid. Notwithstanding the foregoing, Lender shall have no liability or
responsibility whatsoever for the performance of any obligation of Borrower
under this Agreement or any other Loan Document.

Section 10.6 Rights Cumulative.

The rights and remedies of Lender under this Agreement and each of the other
Loan Documents shall be cumulative and not exclusive of any rights or remedies
which Lender may otherwise have under Applicable Law. In exercising its rights
and remedies, Lender may be selective and no failure or delay by Lender in
exercising any right shall operate as a waiver of it, nor shall any single or
partial exercise of any power or right preclude its other or further exercise or
the exercise of any other power or right.

 

60

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

ARTICLE XI

MISCELLANEOUS

Section 11.1 Notices.

Unless otherwise provided herein, communications provided for hereunder shall be
in writing and shall be mailed, sent by overnight delivery, sent by facsimile or
delivered as follows:

If to Borrower:

TRI Pointe Homes, Inc.

19520 Jamboree Road, Suite 200

Irvine, California 92612

Attn: Michael Grubbs

Telephone: (949) 478-8663

Facsimile: (949) 478-8601

If to Lender:

US Bank National Association

d/b/a Housing Capital Company

3200 Bristol Street, Suite 800

Costa Mesa, CA 92626

Attn: Loan Administration

Telephone: (714) 438-4412

Facsimile: (714) 438-4435

Each of Borrower and Lender may designate an alternative notice address for
itself in a written notice to the other party delivered in compliance with this
Section. All such notices and other communications shall be effective (a) if
mailed or sent by overnight courier, when received; (b) if sent by facsimile,
when transmitted; or (c) if hand delivered, when delivered. Notwithstanding the
immediately preceding sentence, all notices or communications to Lender under
ARTICLE II shall be effective only when actually received. Lender shall not
incur any liability to Borrower for acting upon any telephonic notice referred
to in this Agreement which Lender believes in good faith to have been given by a
Person authorized to deliver such notice or for otherwise acting in good faith
hereunder. The failure of any Person designated to receive only a copy of any
notice shall not render ineffective notice otherwise properly given to the
Person to receive such notice.

Section 11.2 Expenses.

Borrower agrees (a) to pay or reimburse Lender for all of its reasonable
out-of-pocket costs and reasonable expenses incurred in connection with the
preparation, negotiation and execution of, and any amendment, supplement or
modification to, any of the Loan Documents (including due diligence expenses and
reasonable travel expenses related to closing), and the consummation of the
transactions contemplated thereby, including the reasonable fees and
disbursements of counsel to Lender and all costs and expenses of Lender in
connection with the review of Properties for (i) inclusion in calculations of
the Borrowing Base and Lender’s other

 

61

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

activities under ARTICLE IV, including the cost of Appraisals, a one-time
Appraisal review fee of $3,000.00 with respect to all Appraisals obtained in
connection with the initial request for including Projects in the Borrowing
Base, and the reasonable fees and disbursements of counsel to Lender relating to
all such activities, and (ii) in connection with any subsequent Project
inspections conducted by Lender from time to time in Lender’s reasonable
discretion, (b) to pay or reimburse Lender for all its costs and expenses
incurred in connection with the enforcement or preservation of any rights under
the Loan Documents, including the reasonable fees and disbursements of Lender’s
counsel and any payments in indemnification or otherwise payable to Lender
pursuant to the Loan Documents, (c) to pay, and indemnify and hold harmless
Lender from any and all recording and filing fees and any and all liabilities
with respect to, or resulting from any failure to pay or delay in paying,
documentary, stamp, excise and other similar taxes, if any, which may be payable
or determined to be payable in connection with the execution and delivery of any
of the Loan Documents, or consummation of any amendment, supplement or
modification of, or any waiver or consent under or in respect of, any Loan
Document, and (d) to the extent not already covered by any of the preceding
subsections, to pay the fees and disbursements of counsel to Lender incurred in
connection with the representation of Lender in any matter relating to or
arising out of any bankruptcy or other proceeding of the type described in
Section 10.1(e) or Section 10.1(f), including, without limitation (i) any motion
for relief from any stay or similar order, (ii) the negotiation, preparation,
execution and delivery of any document relating to the Obligations, and
(iii) the negotiation and preparation of any debtor-in-possession financing or
any plan of reorganization of Borrower, whether proposed by Borrower, Lender or
any other Person, and whether such fees and expenses are incurred prior to,
during or after the commencement of such proceeding or the confirmation or
conclusion of any such proceeding.

Section 11.3 Stamp, Intangible and Recording Taxes.

Borrower will pay any and all stamp, intangible, registration, recordation and
similar taxes, fees or charges and shall indemnify Lender against any and all
liabilities with respect to or resulting from any delay in the payment or
omission to pay any such taxes, fees or charges, which may be payable or
determined to be payable in connection with the execution, delivery, recording,
performance or enforcement of this Agreement, the Note and any of the other Loan
Documents or the perfection of any rights or Liens thereunder.

Section 11.4 Setoff.

In addition to any rights now or hereafter granted under any Applicable Law and
not by way of limitation of any such rights, Lender is hereby authorized by
Borrower, at any time or from time to time while an Event of Default exists,
without notice to Borrower or to any other Person, any such notice being hereby
expressly waived, to set off and to appropriate and to apply any and all
deposits (general or special, including, but not limited to, indebtedness
evidenced by certificates of deposit, whether matured or unmatured) and any
other indebtedness at any time held or owing by Lender to or for the credit or
the account of Borrower against and on account of any of the Obligations,
irrespective of whether or not any or all of the Advances and all other
Obligations have been declared to be, or have otherwise become, due and payable
as permitted by Section 10.2, and although such obligations shall be contingent
or unmatured.

 

62

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

Section 11.5 Litigation; Jurisdiction; Other Matters; Waivers.

(a) EACH PARTY HERETO ACKNOWLEDGES THAT ANY DISPUTE OR CONTROVERSY BETWEEN OR
AMONG BORROWER AND LENDER WOULD BE BASED ON DIFFICULT AND COMPLEX ISSUES OF LAW
AND FACT AND WOULD RESULT IN DELAY AND EXPENSE TO THE PARTIES. ACCORDINGLY, TO
THE EXTENT PERMITTED BY APPLICABLE LAW, EACH OF LENDER AND BORROWER HEREBY
WAIVES ITS RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING OF ANY KIND OR
NATURE IN ANY COURT OR TRIBUNAL IN WHICH AN ACTION MAY BE COMMENCED BY OR
AGAINST ANY PARTY HERETO ARISING OUT OF THIS AGREEMENT, THE NOTE, OR ANY OTHER
LOAN DOCUMENT OR IN CONNECTION WITH ANY COLLATERAL OR ANY LIEN OR BY REASON OF
ANY OTHER SUIT, CAUSE OF ACTION OR DISPUTE WHATSOEVER BETWEEN OR AMONG BORROWER
AND LENDER OF ANY KIND OR NATURE.

(b) EACH OF BORROWER AND LENDER HEREBY AGREES THAT THE FEDERAL DISTRICT COURT OF
THE CENTRAL DISTRICT OF CALIFORNIA OR, AT THE OPTION OF LENDER, ANY STATE COURT
LOCATED IN ORANGE COUNTY, CALIFORNIA SHALL HAVE JURISDICTION TO HEAR AND
DETERMINE ANY CLAIMS OR DISPUTES BETWEEN OR AMONG BORROWER AND LENDER PERTAINING
DIRECTLY OR INDIRECTLY TO THIS AGREEMENT, THE LOAN, THE NOTE OR ANY OTHER LOAN
DOCUMENT OR TO ANY MATTER ARISING HEREFROM OR THEREFROM OR THE COLLATERAL. EACH
OF BORROWER AND LENDER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED IN SUCH COURTS. BORROWER
HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS AND COMPLAINT, OR OTHER PROCESS OR
PAPERS ISSUED THEREIN, AND AGREES THAT SERVICE OF SUCH SUMMONS AND COMPLAINT, OR
OTHER PROCESS OR PAPERS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO
BORROWER AT ITS ADDRESS FOR NOTICES PROVIDED FOR HEREIN.

(c) EACH PARTY FURTHER WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO
THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION
OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT FORUM AND EACH AGREES NOT TO PLEAD
OR CLAIM THE SAME.

(d) THE CHOICE OF FORUM SET FORTH IN THIS SECTION SHALL NOT BE DEEMED TO
PRECLUDE THE BRINGING OF ANY ACTION BY LENDER OR THE ENFORCEMENT BY LENDER OF
ANY JUDGMENT OBTAINED IN SUCH FORUM IN ANY OTHER APPROPRIATE JURISDICTION.

(e) BORROWER AGREES THAT ALL OF ITS PAYMENT OBLIGATIONS HEREUNDER SHALL BE
ABSOLUTE AND UNCONDITIONAL, AND FOR THE PURPOSES OF MAKING PAYMENTS HEREUNDER,
BORROWER HEREBY WAIVES ANY RIGHT TO ASSERT ANY SETOFF, COUNTERCLAIM OR
CROSS-CLAIM.

 

63

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

(f) THE FOREGOING WAIVERS HAVE BEEN MADE WITH THE ADVICE OF COUNSEL AND WITH A
FULL UNDERSTANDING OF THE LEGAL CONSEQUENCES THEREOF, AND SHALL SURVIVE THE
PAYMENT OF THE LOAN AND ALL OTHER AMOUNTS PAYABLE HEREUNDER OR UNDER THE OTHER
LOAN DOCUMENTS AND THE TERMINATION OF THIS AGREEMENT.

(g) Notwithstanding the foregoing, any and all disputes, claims and
controversies arising out of the Loan Documents or the transactions contemplated
thereby (including, but not limited to, actions arising in contract or tort) and
any claims by Lender against Borrower or Borrower against Lender (each a “Party”
and together collectively the “Parties”) related in any way to the Loan
(individually, a “Dispute”) that are brought before a forum in which pre-dispute
waivers of the right to trial by jury are invalid under applicable law shall be
subject to the terms of this Agreement in lieu of the jury trial waivers
otherwise provided in the Loan Documents.

(h) Any and all Disputes shall be heard by a referee and resolved by judicial
reference pursuant to California Code of Civil Procedure Sections 638 et seq.

(i) The referee shall be a retired California state court judge. The Parties
shall not seek to appoint a referee that may be disqualified pursuant to
California Code of Civil Procedure Section 641 or 641.2 without the prior
written consent of all Parties.

(j) If the Parties are unable to agree upon a referee within ten (10) days after
one Party serves a written notice of intent for judicial reference upon the
other Party or Parties, then the referee will be selected by the court in
accordance with California Code of Civil Procedure Section 640(b).

(k) The referee shall render a written statement of decision and shall conduct
the proceedings in accordance with the California Code of Civil Procedure, the
Rules of Court, and California Evidence Code, except as otherwise specifically
agreed by the Parties and approved by the referee. The referee’s statement of
decision shall set forth findings of fact and conclusions of law. The decision
of the referee shall be entered as a judgment in the court in accordance with
the provisions of California Code of Civil Procedure Sections 644 and 645. The
decision of the referee shall be appealable to the same extent and in the same
manner that such decision would be appealable if rendered by a judge of the
superior court.

(l) Nothing in this Agreement shall be deemed to apply to or limit the right of
Lender (i) to exercise self-help remedies such as (but not limited to) setoff,
or (ii) to foreclose judicially or nonjudicially against any real or personal
property collateral, or to exercise judicial or nonjudicial power of sale
rights, (iii) to obtain from a court provisional or ancillary remedies
(including, but not limited to, injunctive relief, a writ of possession,
prejudgment attachment, a protective order or the appointment of a receiver), or
(iv) to pursue rights against a Party in a third-party proceeding in any action
brought against Lender (including actions in bankruptcy court). Lender may
exercise the rights set forth in the foregoing clauses (i) through (iv),
inclusive, before, during or after the pendency of any judicial reference
proceeding. Neither the exercise of self-help remedies nor the institution or
maintenance of an action for foreclosure or provisional or ancillary remedies or
the opposition to any such provisional remedies shall constitute a waiver of the
right of any Party, including, but not limited to, the claimant in any

 

64

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

such action, to require submission to judicial reference the merits of the
Dispute occasioning resort to such remedies. No provision in the Loan Documents
regarding submission to jurisdiction and/or venue in any court is intended or
shall be construed to be in derogation of the provisions in any Loan Document
for judicial reference of any of Dispute.

(m) If a Dispute includes multiple claims, some of which are found not subject
to this Agreement, the Parties shall stay the proceedings of the Disputes or
part or parts thereof not subject to this Agreement until all other Disputes or
parts thereof are resolved in accordance with this Agreement. If there are
Disputes by or against multiple parties, some of which are not subject to this
Agreement, the Parties shall sever the Disputes subject to this Agreement and
resolve them in accordance with this Agreement.

(n) During the pendency of any Dispute which is submitted to judicial reference
in accordance with this Agreement, each of the Parties to such Dispute shall
bear equal shares of the fees charged and costs incurred by the referee in
performing the services described in this Agreement. The compensation of the
referee shall not exceed the prevailing rate for like services. The prevailing
party shall be entitled to reasonable court costs and legal fees, including
customary attorney fees, expert witness fees, paralegal fees, the fees of the
referee and other reasonable costs and disbursements charged to the party by its
counsel, in such amount as is determined by the referee.

(o) In the event of any challenge to the legality or enforceability of this
Agreement, the prevailing Party shall be entitled to recover the costs and
expenses from the non-prevailing Party, including reasonable attorneys’ fees,
incurred by it in connection therewith.

(p) THIS AGREEMENT CONSTITUTES A “REFERENCE AGREEMENT” BETWEEN OR AMONG THE
PARTIES WITHIN THE MEANING OF AND FOR PURPOSES OF CALIFORNIA CODE OF CIVIL
PROCEDURE SECTION 638.

Section 11.6 Successors and Assigns.

(a) Generally. The provisions of this Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns, except that Borrower may not assign or otherwise transfer any of its
rights under this Agreement without the prior written consent of all Lender (and
any such assignment or transfer to which Lender has not consented shall be
void).

(b) Loan Sales and Participations. Borrower agrees that Lender may elect, at any
time, to sell, assign or grant participations in all or any portion of its
rights and obligations under the Loan Documents, and that any such sale,
assignment or participation may be to one or more financial institutions,
private investors, and/or other entities, at Lender’s sole discretion
(“Participant”). In the event of any such sale, assignment or participation,
Lender and the parties to such transaction shall share in the rights and
obligations of Lender as set forth in the Loan Documents only as and to the
extent they agree among themselves. In connection with any such sale, assignment
or participation, Borrower further agrees that the Loan Documents shall be
sufficient evidence of the obligations of Borrower to each purchaser, assignee,
or participant, and upon written request by Lender, Borrower shall enter into
such amendments or modifications to the Loan Documents as may be reasonably
required in order to evidence any such sale, assignment or participation. The
indemnity obligations of Borrower under the Loan Documents shall also apply with
respect to any purchaser, assignee or participant.

 

65

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

(c) Federal Reserve Bank Assignments. Lender may at any time and from time to
time, pledge and assign all or any portion of its rights under all or any of the
Loan Documents to a Federal Reserve Bank; provided that no such pledge of
assignment shall release Lender from its obligation thereunder.

(d) Information to Assignee, Etc. Lender may furnish any information concerning
Borrower and its properties in the possession of Lender from time to time to
assignees and participants (including prospective assignees and participants),
provided that all such information shall only be shared pursuant to a
confidentiality agreement, signed by the recipient of such information, which
requires that such recipient take commercially customary and reasonable
precautions to maintain the confidentiality of all such non-public information
(subject to customary exceptions). In connection with such negotiation,
execution and delivery, Borrower authorizes Lender to communicate all
information and documentation related to the Loan (whether to Borrower or to any
participant, assignee, legal counsel, appraiser or other necessary party)
directly by e-mail, fax, or other electronic means used to transmit information.

Section 11.7 Amendments.

No amendment, waiver or consent unless in writing and signed by Lender, shall
affect the rights or duties of Lender under this Agreement or any of the other
Loan Documents. No waiver shall extend to or affect any obligation not expressly
waived or impair any right consequent thereon and any amendment, waiver or
consent shall be effective only in the specific instance and for the specific
purpose set forth therein. No course of dealing or delay or omission on the part
of Lender in exercising any right shall operate as a waiver thereof or otherwise
be prejudicial thereto. Any Event of Default occurring hereunder shall continue
to exist until such time as such Event of Default is waived in writing in
accordance with the terms of this Section, notwithstanding any attempted cure or
other action by Borrower subsequent to the occurrence of such Event of Default.
Except as otherwise explicitly provided for herein or in any other Loan
Document, no notice to or demand upon Borrower shall entitle Borrower to other
or further notice or demand in similar or other circumstances.

Section 11.8 Nonliability of Lender.

The relationship between Borrower, on the one hand, and Lender, on the other
hand, shall be solely that of borrower and lender. Lender shall have no
fiduciary responsibilities to Borrower and no provision in this Agreement or in
any of the other Loan Documents, and no course of dealing between or among any
of the parties hereto, shall be deemed to create any fiduciary duty owing by
Lender to Borrower. Lender does not undertake, and expressly disclaims, any
responsibility to Borrower to review or inform Borrower of any matter in
connection with any phase of Borrower’s business or operations.

Section 11.9 Tax Reporting.

Notwithstanding anything to the contrary set forth herein or in any other
written or oral understanding or agreement to which the parties hereto are
parties or by which they are bound,

 

66

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

the parties hereto acknowledge and agree that (a) any obligations of
confidentiality contained herein and therein do not apply and have not applied
from the commencement of discussions between the parties to the tax treatment
and tax structure of the transactions contemplated by the Loan Documents (and
any related transactions or arrangements), and (b) each party (and each of its
employees, representatives, or other agents) may disclose to any and all parties
as required, without limitation of any kind, the tax treatment and tax structure
of the transactions contemplated by the Loan Documents and all materials of any
kind (including opinions or other tax analyses) that are provided to such party
relating to such tax treatment and tax structure, all within the meaning of
Treasury Regulations Section 1.6011-4; provided, however, that each party
recognizes that the privilege each has to maintain, in its sole discretion, the
confidentiality of a communication relating to the transactions contemplated by
the Loan Documents, including a confidential communication with its attorney or
a confidential communication with a federally authorized tax practitioner under
Section 7525 of the Internal Revenue Code, is not intended to be affected by the
foregoing.

Section 11.10 Indemnification.

(a) Borrower shall and hereby agrees to indemnify, defend and hold harmless
Lender, any Affiliate of Lender and their respective directors, officers,
shareholders, agents, employees and counsel (each referred to herein as an
“Indemnified Party”) from and against any and all actual losses, costs, claims,
damages, liabilities, deficiencies, judgments or expenses of every kind and
nature (including, without limitation, amounts paid in settlement, court costs
and the fees and disbursements of counsel incurred in connection with any
litigation, investigation, claim or proceeding or any advice rendered in
connection therewith) incurred by an Indemnified Party in connection with,
arising out of, or by reason of, any suit, cause of action, claim, arbitration,
investigation or settlement, consent decree or other proceeding (the foregoing
referred to herein as an “Indemnity Proceeding”) which is in any way related
directly or indirectly to: (i) this Agreement or any other Loan Document or the
transactions contemplated thereby; (ii) the making of any Advances; (iii) any
actual or proposed use by Borrower of the proceeds of the Advances;
(iv) Lender’s entering into this Agreement; (v) the fact that Lender has
established the credit facility evidenced hereby in favor of Borrower; (vi) the
fact that Lender is a creditor of Borrower and has or is alleged to have
information regarding the financial condition, strategic plans or business
operations of Borrower; (vii) the fact that Lender is a material creditor of
Borrower and is alleged to influence directly or indirectly the business
decisions or affairs of Borrower or its financial condition; (viii) the exercise
of any right or remedy Lender may have under this Agreement or the other Loan
Documents including, but not limited to, the foreclosure upon, or seizure of,
any Collateral or the exercise of any other rights of a secured party; (ix) any
violation or non-compliance by Borrower of any Applicable Law (including any
Environmental Law) including, but not limited to, any Indemnity Proceeding
commenced by (A) the Internal Revenue Service or state taxing authority or
(B) any Governmental Authority or other Person under any Environmental Law,
including any Indemnity Proceeding commenced by a Governmental Authority or
other Person seeking remedial or other action to cause Borrower (or its
properties) (or Lender as successor-in-interest to Borrower) to be in compliance
with such Environmental Laws; provided, however, that Borrower shall not be
obligated to indemnify any Indemnified Party for any acts or omissions of such
Indemnified party in connection with matters described in this clause (a) that
constitute gross negligence or willful misconduct. Notwithstanding anything to
the contrary contained herein, the foregoing

 

67

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

indemnification obligations shall not apply to any acts or events that first
occur subsequent to the date Lender acquires title to the Properties by
foreclosure (as evidenced by the recordation of a trustee’s deed or order of
judicial foreclosure in the applicable public records) or acceptance of a deed
in lieu thereof unless such acts or events are caused by Borrower or any
Affiliate of Borrower.

(b) The Borrower’s indemnification obligations under this Section shall apply to
all Indemnity Proceedings arising out of, or related to, the foregoing whether
or not an Indemnified Party is a named party in such Indemnity Proceeding. In
this connection, this indemnification shall cover all costs and expenses of any
Indemnified Party in connection with any deposition of any Indemnified Party or
compliance with any subpoena (including any subpoena requesting the production
of documents). This indemnification shall, among other things, apply to any
Indemnity Proceeding commenced by other creditors of Borrower, any account
debtor of Borrower or by any Governmental Authority.

(c) This indemnification shall apply to any Indemnity Proceeding arising during
the pendency of any bankruptcy proceeding filed by or against Borrower.

(d) All out-of-pocket fees and expenses of, and all amounts paid to
third-persons by, an Indemnified Party shall be advanced by Borrower at the
request of such Indemnified Party notwithstanding any claim or assertion by
Borrower that such Indemnified Party is not entitled to indemnification
hereunder upon receipt of an undertaking by such Indemnified Party that such
Indemnified Party will reimburse Borrower if it is actually and finally
determined by a court of competent jurisdiction that such Indemnified Party is
not so entitled to indemnification hereunder.

(e) An Indemnified Party may conduct its own investigation and defense of, and
may formulate its own strategy with respect to, any Indemnity Proceeding covered
by this Section and, as provided above, all costs and expenses incurred by such
Indemnified Party shall be reimbursed by Borrower. No action taken by legal
counsel chosen by an Indemnified Party in investigating or defending against any
such Indemnity Proceeding shall vitiate or in any way impair the obligations and
duties of Borrower hereunder to indemnify and hold harmless each such
Indemnified Party; provided, however, that (i) if Borrower is required to
indemnify an Indemnified Party pursuant hereto and (ii) Borrower has provided
evidence reasonably satisfactory to such Indemnified Party that Borrower has the
financial wherewithal to reimburse such Indemnified Party for any amount paid by
such Indemnified Party with respect to such Indemnity Proceeding, such
Indemnified Party shall not settle or compromise any such Indemnity Proceeding
without the prior written consent of Borrower (which consent shall not be
unreasonably withheld or delayed).

(f) If and to the extent that the obligations of Borrower hereunder are
unenforceable for any reason, Borrower hereby agrees to make the maximum
contribution to the payment and satisfaction of such obligations which is
permissible under Applicable Law.

Section 11.11 Termination; Survival.

At such time as (a) Lender’s commitment to lend under the Loan Documents has
been terminated and Lender is no longer obligated under this Agreement to make
any Advances, and

 

68

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

(b) all Obligations (other than obligations which survive as provided in the
following sentence) have been paid and satisfied in full, this Agreement shall
terminate. The indemnities to which Lender is entitled under the provisions of
Section 3.8, Section 11.2, Section 11.7 and Section 11.10 and any other
provision of this Agreement and the other Loan Documents, and the provisions of
Section 11.5, shall continue in full force and effect and shall protect Lender
(i) notwithstanding any termination of this Agreement, or of the other Loan
Documents, against events arising after such termination as well as before and
(ii) if applicable, at all times after Lender ceases to be a party to this
Agreement with respect to all matters and events existing on or prior to the
date Lender ceased to be a party to this Agreement.

Section 11.12 Severability of Provisions.

Any provision of this Agreement which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective only to the extent
of such prohibition or unenforceability without invalidating the remainder of
such provision or the remaining provisions or affecting the validity or
enforceability of such provision in any other jurisdiction.

Section 11.13 GOVERNING LAW.

THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS
OF THE STATE OF CALIFORNIA APPLICABLE TO CONTRACTS EXECUTED, AND TO BE FULLY
PERFORMED, IN SUCH STATE.

Section 11.14 Counterparts.

This Agreement and any amendments, waivers, consents or supplements may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed an original, but all of which counterparts together shall constitute but
one and the same instrument.

Section 11.15 Independence of Covenants.

All covenants hereunder shall be given in any jurisdiction independent effect so
that if a particular action or condition is not permitted by any of such
covenants, the fact that it would be permitted by an exception to, or be
otherwise within the limitations of, another covenant shall not avoid the
occurrence of a Default or an Event of Default if such action is taken or
condition exists.

Section 11.16 Limitation of Liability.

Neither Lender, nor any Affiliate, officer, director, employee, attorney, or
agent of Lender shall have any liability with respect to, and Borrower hereby
waives, releases, and agrees not to sue any of them upon, any claim for any
special, indirect, incidental, or consequential damages suffered or incurred by
Borrower in connection with, arising out of, or in any way related to, this
Agreement or any of the other Loan Documents, or any of the transactions
contemplated by this Agreement or any of the other Loan Documents. Borrower
hereby waives, releases, and agrees not to sue Lender or any of Lender’s
Affiliates, officers, directors, employees, attorneys, or agents for punitive
damages in respect of any claim in connection with, arising out of, or in any
way related to, this Agreement or any of the other Loan Documents, or any of the
transactions contemplated by this Agreement or financed hereby.

 

69

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

Section 11.17 Entire Agreement.

This Agreement, the Note, and the other Loan Documents referred to herein embody
the final, entire agreement among the parties hereto and supersede any and all
prior commitments, agreements, representations, and understandings, whether
written or oral, relating to the subject matter hereof and thereof and may not
be contradicted or varied by evidence of prior, contemporaneous, or subsequent
oral agreements or discussions of the parties hereto. There are no oral
agreements among the parties hereto.

Section 11.18 Construction.

Lender and Borrower each acknowledge that it has had the benefit of legal
counsel of its own choice and has been afforded an opportunity to review this
Agreement and the other Loan Documents with its legal counsel and that this
Agreement and the other Loan Documents shall be construed as if jointly drafted
by Lender and Borrower.

Section 11.19 Compliance with Anti-Terrorism Laws.

(a) Notice. To help the government fight the funding of terrorism and money
laundering activities, Federal law requires Lender to obtain, verify, and record
information that identifies each person who opens an account. This means that
Lender will ask for Borrower’s name, Tax ID number, address, and other
information, as applicable, including identifying documents that will allow
Lender to properly identify Borrower.

(b) Representations and Warranties. Borrower represents and warrants as follows:

(i) Borrower is not in violation of any laws relating to terrorism or money
laundering, including, but not limited to, Executive Order No. 13224 on
Terrorist Financing, effective September 24, 2001 (the “Executive Order”) and
the Uniting and Strengthening America by Providing Appropriate Tools Required to
Intercept and Obstruct Terrorism Act of 2001, Public Law 107-56 (the “Patriot
Act”), collectively referred to herein as “Anti-Terrorism Laws”.

(ii) No action, proceeding, investigation, charge, claim, report, or notice has
been filed, commenced, or threatened against Borrower alleging any violation of
any Anti-Terrorism Law.

(iii) Borrower has not, after due investigation and inquiry, knowledge, or
notice of any fact, event, circumstance, situation, or condition that could
reasonably be expected to result in (A) any action, proceeding, investigation,
charge, claim, report, or notice being filed, commenced, or threatened against
Borrower alleging any violation of, or failure to comply with, any
Anti-Terrorism Law, or (B) the imposition of any civil or criminal penalty
against Borrower for any failure to so comply.

 

70

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

(iv) Borrower is not a Prohibited Person. As used herein, “Prohibited Person”
means any of the following:

(A) a Person that is listed in the Annex to, or is otherwise subject to the
provisions of, the Executive Order;

(B) a Person owned or controlled by, or acting for or on behalf of, any Person
that is listed in the Annex to, or is otherwise subject to the provisions of,
the Executive Order;

(C) a Person with whom Lender is prohibited from dealing or otherwise engaging
in any transaction by any Anti-Terrorism Law;

(D) a Person who commits, threatens, or conspires to commit or supports
“terrorism” as defined in the Executive Order; or

(E) a Person that is named as a “specially designated national and blocked
person” on the most current list published by the U.S. Treasury Department
Office of Foreign Assets Control at its official website or any replacement
website or other replacement official publication of such list.

(v) Borrower does not (A) conduct any business or engage in making or receiving
any contribution of funds, goods, or services to or for the benefit of any
Prohibited Person, (B) deal in, or otherwise engage in any transaction relating
to, any property or interests in property blocked pursuant to the Executive
Order, or (C) engage in or conspire to engage in any transaction that evades or
avoids, or has the purpose of evading or avoiding, or attempts to violate, any
of the prohibitions set forth in any Anti-Terrorism Law.

(vi) Borrower agrees to provide Lender, from time to time, with sufficient
information (including names, addresses, and where applicable, jurisdiction of
formation or organization) to reasonably permit Lender to verify the foregoing.

(c) Covenants.

(i) Borrower shall not (A) conduct any business or engage in making or receiving
any contribution of funds, goods, or services to or for the benefit of any
Prohibited Person, (B) deal in, or otherwise engage in any transaction relating
to, any property or interests in property blocked pursuant to the Executive
Order or any other Anti-Terrorism Law, or (C) engage in or conspire to engage in
any transaction that evades or avoids, or has the purpose of evading or
avoiding, or attempts to violate, any of the prohibitions set forth in any
Anti-Terrorism Law.

(ii) Borrower agrees to deliver to Lender any certification or other evidence
requested from time to time by Lender in its reasonable discretion, and
sufficient information (including names, addresses, and where applicable,

 

71

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

jurisdiction of formation or organization) to reasonably permit Lender to verify
and confirm the accuracy of, and Borrower’s compliance with, the foregoing
representations, warranties and agreements.

[Signatures on Following Page]

 

72

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

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above set forth.

 

BORROWER:

TRI POINTE HOMES, INC.,

a Delaware corporation

By:

 

 

Name:

 

 

Title:

 

 

By:

 

 

Name:

 

 

Title:

 

 

LENDER:

U.S. BANK NATIONAL ASSOCIATION,

d/b/a Housing Capital Company

By:

 

 

Name:

 

Title:

 

 

S-1

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

SCHEDULE 1.1(a)

Authorized Signatories

Douglas F. Bauer

Michael D. Grubbs

Thomas J. Mitchell

 

Schedule 1.1(a)

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

SCHEDULE 4.1(a)

Initial Borrowing Base Properties

Each of the following properties, as more particularly described in the
applicable Deed of Trust:

 

  1. Barrington (Brentwood);

  2. Arcadia (Irvine);

  3. Wardlow (Huntington Beach);

  4. Paseo del Sol (Temecula);

  5. Bay Meadows Canterbury (San Mateo).

As each such Project is more particularly described in the separate Eligible
Property Agreement of even date herewith between Borrower and Lender executed
with respect thereto.

 

Schedule 4.1(a)

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

SCHEDULE 6.1(h)

Material Contracts

 

1.     

 

Schedule 6.1(h)

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

SCHEDULE 6.1(x)

Options to Acquire; Restrictions on Development

 

1.     

 

Schedule 6.1(x)

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

EXHIBIT A

Form of Compliance Certificate

U.S. Bank National Association

d/b/a Housing Capital Company

3200 Bristol Street, Suite 800

Costa Mesa, CA 92626

Attn: Loan Administration

Ladies and Gentlemen:

Reference is made to the Revolving Credit Agreement dated as of July 18, 2013
(as amended, supplemented or restated from time to time, the “Credit Agreement”)
by and among TRI POINTE HOMES, INC., a Delaware corporation (“Borrower”), and
U.S. BANK NATIONAL ASSOCIATION, d/b/a Housing Capital Company. All capitalized
defined terms used herein shall have the meanings given to them in the Credit
Agreement.

Pursuant to Section 8.1 of the Credit Agreement, the undersigned, on behalf of
Borrower, is furnishing to you herewith (or has most recently furnished to you)
(a) the financial statements of Borrower for the fiscal period ended
                    , 20     (the “Balance Sheet Date”), (b) the information
attached hereto as Schedule 1 of this Compliance Certificate to demonstrate
compliance as of the Balance Sheet Date with the financial covenants set forth
in the Credit Agreement, and (c) a Borrowing Base Report current as of the
Balance Sheet Date. The undersigned further certifies that all of the
aforementioned information (including all information on attached Schedule 1)
accurately and completely sets forth in all material respects, as of the
calendar [quarter/year] ending                     , the information provided
therein.

A review of the activities of Borrower during the calendar period covered by
this Certificate has been made under my supervision with a view towards
determining whether during such calendar period Borrower performed and observed
all obligations under the Loan Documents. Accordingly, the undersigned knows of
no Default or Event of Default under the Loan Documents, or any physical or
environmental condition which will or could be reasonably anticipated to cause
the Appraised Value of any Borrowing Base Property to be materially less than
the amount set forth on the attached Borrowing Base Report.

[Signature on the Following Page]

 

A-1

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

Dated:                        BORROWER:   TRI POINTE HOMES, INC.,   a Delaware
corporation   By:  

 

  Name:  

 

  Title:  

 

  By:  

 

  Name:  

 

  Title:  

 

 

A-2

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

EXHIBIT B

Form of Notice of Borrowing

                    , 20    

U.S. Bank National Association

d/b/a Housing Capital Company

3200 Bristol Street, Suite 800

Costa Mesa, CA 92626

Attn: Loan Administration

Ladies and Gentlemen:

Reference is made to that certain Revolving Credit Agreement dated as of
July 18, 2013 (as amended, restated, supplemented or otherwise modified from
time to time, the “Credit Agreement”), by and among TRI POINTE HOMES, INC., a
Delaware corporation (“Borrower”), and U.S. BANK NATIONAL ASSOCIATION, d/b/a
Housing Capital Company (“Lender”). Capitalized terms used herein, and not
otherwise defined herein, have their respective meanings given them in the
Credit Agreement.

(a) Pursuant to Section 2.1(b) of the Credit Agreement, Borrower hereby requests
that Lender make an Advance to Borrower in an amount equal to $            .

(b) Borrower requests that such Advance be made available on             ,
20    .

(c) The aggregate principal amount of all outstanding Advances as of the date
hereof, as of the date of the making of the requested Advances, and after making
such Advances does not exceed the Maximum Availability as of the date hereof.

Borrower hereby certifies to Lender that as of the date hereof and as of the
date of the making of the requested Advances (after taking into effect such
requested Advances), (a) no Default or Event of Default exists or will exist
(including, without limitation, under the financial covenants set forth in the
Guaranty) and (b) the representations and warranties of Borrower contained in
the Credit Agreement and the other Loan Documents are and shall be true and
correct in all material respects, except to the extent such representations or
warranties specifically relate to an earlier date or such representations or
warranties become untrue by reason of events or conditions otherwise permitted
under the Credit Agreement or the other Loan Documents. In addition, Borrower
certifies to Lender that all conditions to the making of the requested Advances
contained in Section 5.2 of the Credit Agreement will have been satisfied at the
time such Advances are made.

 

B-1

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

BORROWER:

TRI POINTE HOMES, INC.,

a Delaware corporation

By:  

 

Name:  

 

Title:  

 

By:  

 

Name:  

 

Title:  

 

 

B-2

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

EXHIBIT C

Form of Borrowing Base Report

[See Attached]

 

C-1

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

EXHIBIT D

Transfer Authorization Designation

(For Disbursement of Loan Proceeds by Funds Transfer)

 

¨ NEW

  ¨ REPLACE PREVIOUS DESIGNATION    ¨ ADD    ¨ CHANGE   ¨ DELETE LINE NUMBER

The following representatives of TRI POINTE HOMES, INC., a Delaware corporation
(“Borrower”) are authorized to request the disbursement of Loan Proceeds and
initiate funds transfers for Loan Number 2094B made under a Revolving Credit
Agreement dated as of July 18, 2013 between Borrower and U.S. BANK NATIONAL
ASSOCIATION, d/b/a Housing Capital Company (“Lender”). Lender is authorized to
rely on this Transfer Authorizer Designation until it has received a new
Transfer Authorizer Designation signed by Borrower, even in the event that any
or all of the foregoing information may have changed.

 

Name    Title       1. Douglas F. Bauer    CEO       2. Michael D. Grubbs   
CFO       3. Thomas J. Mitchell    COO       4.      5.     

 

Beneficiary Lender and Account Holder Information

1.

Transfer Funds to (Receiving Party Account Name): TRI Pointe Homes, Inc.

Receiving Party Account Number:                                

Receiving Bank Name, City and State:

   Receiving Lender Routing (ABA) Number

 

 

 

    

 

 

    

Further Credit Information/Instructions:

 

D-1

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

NOTE: Maximum Wire Amount may not exceed the Maximum Availability.

Date:                     , 20    

 

BORROWER:

TRI POINTE HOMES, INC.,

a Delaware corporation

By:  

 

Name:  

 

Title:  

 

By:  

 

Name:  

 

Title:  

 

 

D-2

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

EXHIBIT E

Form of Eligible Property Agreement

ELIGIBLE PROPERTY AGREEMENT

(                                         )

THIS ELIGIBLE PROPERTY AGREEMENT (this “Agreement”), dated as of
                    , 20    , executed by U.S. BANK NATIONAL ASSOCIATION, d/b/a
Housing Capital Company (“Lender”), and TRI POINTE HOMES, INC., a Delaware
corporation (“Borrower”), is entered into with reference to that certain
Revolving Credit Agreement dated July 18, 2013 (as amended, restated,
supplemented or otherwise modified from time to time, the “Credit Agreement”)
between Borrower and Lender. Capitalized terms used and not otherwise defined
herein have the meanings set forth for them in the Credit Agreement. This
Agreement is also entered into with reference to the following facts:

A. FIRST AMERICAN TITLE INSURANCE COMPANY (“Title Company”) has issued its
preliminary title report no(s).                     ,                     ,
                     and                      with respect to that certain
detached single-family residential real estate project located in
                    ,                      and commonly referred to as the
                     Project (collectively, the “New Property”) that is owned,
or is being acquired concurrently herewith, by Borrower.

B. Borrower has requested that Lender approve the New Property as Eligible
Property for purposes of the Credit Agreement, and Lender has agreed to so
approve the New Property, subject to all applicable terms and conditions of the
Credit Agreement and this Agreement.

C. Substantially concurrently with the execution of this Agreement, Borrower is
executing one or more Construction Deeds of Trust with Absolute Assignments of
Leases and Rents, Security Agreements and Fixture Filings of even date herewith
(collectively, the “New Deed of Trust”), which encumbers the New Property.

In consideration of the foregoing, and for other valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:

1. Approval of New Property as Eligible Property. Upon (a) the recording of the
New Deed of Trust in accordance with Lender’s title instructions, and (b) the
satisfaction of all other conditions set forth in Section 4.1(b) of the Credit
Agreement with respect to the New Property (other than the approval of Lender
required under Section 4.1(b) of the Credit Agreement, which approval is hereby
granted), the New Property shall constitute Eligible Property for purposes of
the Credit Agreement. Recordation of the New Deed of Trust will constitute
confirmation that all such conditions have been satisfied and that the New
Property constitutes Eligible Property.

 

E-1

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

2. New Project Budget. The initial approved Project Budget for the New Property
is attached hereto as Exhibit A.

3. New Property Initial Borrowing Base Report. The initial approved Borrowing
Base Report for the New Property is attached hereto as Exhibit B.

4. New Property Terms. The initial New Property numbers, values and other terms
are as follows:

 

  (a) Total Number of Lots:                       

 

  (b) Maximum Spec Home Limit:             

 

  (c) Maximum Condominium Spec Home Limit:             

 

  (d) Initial Eligible Property Types:

 

    

Eligible Property Type

  

Included/
Not Included

  

Number

  

Number of Sold Homes

     

                      

  

Number of Spec Homes

     

                      

  

Number of Models

     

                      

  

Number of Finished Lots

     

                      

  

Number of Lots Under Development

     

                      

  

Entitled Land

      N/A

 

  (e) Appraised Value:

 

     Eligible Property Type    Appraisal Basis    Appraised Value   

Sold Home

   aggregate retail value   

$            

  

Spec Homes

   aggregate retail value   

$            

  

Models

   aggregate retail value   

$            

  

Finished Lots

   finished bulk value   

$            

  

Lots Under Development

   finished bulk value   

$            

  

Entitled Land

   finished bulk value   

$            

5. Representations and Warranties. Borrower hereby represents and warrants to
Lender that all of the representations and warranties set forth in ARTICLE VI of
the Credit Agreement are true and correct in all material respects as of the
date hereof (except to the extent such representations or warranties
specifically relate to an earlier date or such representations or warranties
become untrue by reason of events or conditions otherwise permitted under the
Credit Agreement or the other Loan Documents), including, without limitation,
with respect to the New Property.

 

E-2

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

6. Miscellaneous. Except as expressly modified by this Agreement, the Credit
Agreement remains in full force and effect. This Agreement constitutes a Loan
Document. This Agreement may be executed in counterparts with the same force and
effect as if the parties had executed one instrument, and each such counterpart
shall constitute an original hereof.

[Signatures Appear on Following Page]

 

E-3

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

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above set forth.

 

BORROWER:

TRI POINTE HOMES, INC.,

a Delaware corporation

By:  

 

Name:  

 

Title:  

 

By:  

 

Name:  

 

Title:  

 

LENDER:

U.S. BANK NATIONAL ASSOCIATION,

d/b/a Housing Capital Company

By:  

 

Name:  

 

Title:  

 

 

E-4

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

EXHIBIT A

Project Budget

 

E-5

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

EXHIBIT B

Initial Borrowing Base Report

 

E-6