Exhibit 10.3

 

 

SECOND AMENDMENT TO

AMENDED AND RESTATED LOAN AGREEMENT

 

THIS SECOND AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT (this “Amendment”)
dated as of January 23, 2008, but effective as of January 1, 2008, is entered
into by and between WILLIAM LYON HOMES, INC., a California corporation (the
“Borrower”) and RFC CONSTRUCTION FUNDING, LLC, a Delaware limited liability
company, formerly known as RFC Construction Funding Corp. (the “Lender”).

RECITALS

A. Borrower and the Lender are parties to that certain Amended and Restated Loan
Agreement dated as of September 17, 2004, as amended by a First Amendment to
Amended and Restated Loan Agreement and Other Loan Documents dated as of
August 17, 2006 (as amended, restated or otherwise modified from time to time,
the “Loan Agreement”), pursuant to which Lender has made a revolving loan to
Borrower (the “Loan”) to finance various acquisition, development and
construction projects. Capitalized terms used in this Amendment and not
otherwise defined in this Amendment shall have the meanings given those terms in
the Loan Agreement.

B. The Loan is evidenced by the Borrower’s Revolving Promissory Note dated as of
September 17, 2004, payable to the order of the Lender in the principal amount
of One Hundred Fifty Million Dollars ($150,000,000) (as the same may be amended,
extended, renewed, replaced or otherwise modified from time to time, the
“Note”). As of December 31, 2007, the outstanding principal balance of the Note
was $31,419,696.29.

C. The Borrower has requested that the Lender amend the Loan Agreement to
(i) reduce the Loan Amount from $150,000,000 to $100,000,000, and (ii) amend the
financial covenants set forth in Section 5.4 of the Loan Agreement.

D. As a condition to granting the Borrower’s requests, the Lender has required,
among other things, the execution and delivery of this Amendment by the
Borrower.

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

AGREEMENT

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

Section 1    Amendments to Loan Agreement

(a) The term “Loan Amount” as defined in Section 1.1 of the Loan Agreement is
hereby amended in its entirety to read as follows:

 

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

“Loan Amount” shall mean, at any date of determination, an amount equal to
(a) One Hundred Million Dollars ($100,000,000), minus (b) the outstanding
principal amount of the loans under the Independent Project Commitment Amount,
subject to reduction pursuant to Section 2.15.

(b) The term “Transfer” as defined in Section 1.1 of the Loan Agreement is
hereby amended in its entirety to read as follows:

“Transfer” shall mean the occurrence of any of the following:

(a) any sale, conveyance, assignment, transfer, alienation, mortgage,
conveyance, of security title, encumbrance or other disposition of any Project,
of any kind, or any other transaction the result of which is, directly or
indirectly, to divest Borrower of any portion of its title to or interest in any
Project, voluntarily or involuntarily;

(b) any merger, consolidation or dissolution involving Borrower or the sale or
transfer of a significant portion of the assets of Borrower;

(c) any merger, consolidation or dissolution involving Guarantor or any sale,
conveyance, assignment, transfer, alienation, encumbrance or other disposition
by Guarantor of any of its stock in Borrower or any other transaction or event
the result of which is directly or indirectly to cause Guarantor to own less
than one hundred percent (100%) of the outstanding stock of Borrower;

(d) any conveyance, assignment, transfer or other disposition (at one time or
over a period of time) of any of the stock of Guarantor owned at any time by
William Lyon (“General Lyon”) or William H. Lyon (“Mr. Lyon”) (collectively,
General Lyon and Mr. Lyon are herein called the “Lyons”) or any issuance of
additional stock in Guarantor or any other event the result of which is to
dilute, decrease or eliminate the Lyons’ ownership interest in Guarantor,
unless, after giving effect to any such conveyance, assignment, transfer, other
disposition, issuance or other event, the Lyons and/or a Qualified Transferee
(defined below) (i) retain control of Guarantor, (ii) continue to own at least
forty percent (40%) of the outstanding stock of Guarantor at all times
subsequent to such conveyance, assignment, transfer, other disposition, issuance
or other event on a continuous and full time basis with the power and
responsibility to manage the material day to day operations of Guarantor,
Borrower and their Subsidiaries, and (iii) any three (3) of Thomas J. Mitchell,
Douglas F. Bauer, Richard S. Robinson, Michael D. Grubbs or Mr. Lyon continue to
be employed by Guarantor and Borrower at all times subsequent to the transfer on
a continuous and full time basis with power and responsibility to manage the
material day to day operations of Guarantor, Borrower and their Subsidiaries.
For purposes of this subsection (d), a “Qualified Transferee” is a transferee
which must be (1) the executor of the estate of General Lyon, (2) a member of
the immediate family of General Lyon, or (3) the trustee of a trust established
and continuously maintained for the sole benefit of the immediate family of
General Lyon.

 

-2-

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

(c) Section 5.4 of the Loan Agreement is hereby amended in its entirety to read
as follows:

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

(a) Tangible Net Worth. The Guarantor and its Subsidiaries (including the
Borrower) shall maintain at all times a Tangible Net Worth equal to or in excess
of $175,000,000.

(b) Ratio of Total Liabilities to Tangible Net Worth. The Guarantor and its
Subsidiaries (including the Borrower) will maintain at all times the ratio of
its Total Liabilities (exclusive of consolidated liabilities of variable
interest entities) to Tangible Net Worth of not more than (i) 5.00 to 1.00 at
all times during the period from January 1, 2008 through and including
December 31, 2008, and (ii) 3.50 to 1.00 at all times from and after January 1,
2009.

(d) Section 8.1(v) of the Loan Agreement is hereby amended in its entirety to
read as follows:

(v) the Borrower’s pre-tax net income is negative in each of two (2) consecutive
fiscal quarters or for any four (4) consecutive fiscal quarters on a cumulative
basis and the ratio of the Total Liabilities of the Guarantor and its
Subsidiaries (excluding the Borrower) is more than (i) 5.00 to 1.00 if such
determination is made during the period from January 1, 2008 through
December 31, 2008, or (ii) 3.50 to 1.00 if such determination is made from and
after January 1, 2009.

(e) Section 8.1(w) of the Loan Agreement is hereby amended in its entirety to
read as follows:

(w) any two (2) or more of Thomas J. Mitchell, Douglas F. Bauer, Richard S.
Robinson, Michael D. Grubbs or William H. Lyon shall cease to be employed by the
Guarantor or the Borrower on a continuous and full time basis with power and
responsibility to manage the material day to day operations of the Guarantor,
the Borrower and their Subsidiaries; or

Section 2    Loan Continues to be Evidenced by the Note

Although the Loan Amount has been reduced from $150,000,000 to $100,000,000, the
Loan continues to be evidenced by the Note. Notwithstanding that the face amount
of the Note is $150,000,000, Lender has no obligation to consider making any
loan or advance to Borrower which would result in the outstanding principal
balance of the Loan exceeding the Loan Amount of $100,000,000.

Section 3    Conditions Precedent to Effectiveness of this Second Amendment

This Amendment shall become effective when the Lender shall have received each
of the following items in form and content acceptable to the Lender:

 

-3-

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

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

(b) the First Amendment to Guaranty, duly executed on behalf of the Guarantor;

(c) evidence that there are amendments to the Borrower’s credit facilities with
other lenders amending the financial covenants contained therein in a manner
satisfactory to the Lender;

(d) such other items as the Lender shall require.

Section 4    Representations and Warranties of Borrower

Borrower represents, warrants and agrees that: (i) there exists no Potential
Default or Event of Default under the Loan Documents; (ii) the Loan Documents
continue to be the legal, valid and binding agreements and obligations of the
Borrower, enforceable in accordance with their terms, as modified herein;
(iii) the Lender is not in default under any of the Loan Documents; (iv) the
Borrower does not have any offset or defense to its performance or obligations
under any of the Loan Documents; (v) the representations contained in the Loan
Documents remain true and accurate in all respects; and (vi) there has been no
Material Adverse Change from the date of any of the Loan Documents to the date
of this Amendment.

Section 5    No Defenses

Borrower hereby agrees and stipulates that Borrower has no defenses, affirmative
defenses, rights to offset, or counterclaims against the exercise of any of the
rights or remedies of Lender under the Loan Documents or under applicable law.

Section 6    Release of Claims Against Lender

Borrower absolutely and unconditionally releases and forever discharges Lender
and any and all of its parent corporations, subsidiary corporations, affiliated
corporation, insurers, indemnitors, successors and assigns, together with all of
its present and former directors, officers, agents and employees from any and
all claims, demands or causes of action of any kind, nature or description,
whether arising in law or equity or upon contract or tort or under any state or
federal law or otherwise, which Borrower has had, now has or had made claim to
have against any such party for or by reason of any act, omission, matter, cause
or thing whatsoever arising from the beginning of time to and including the date
of this Amendment, whether such claims, demands and cause of action are matured
or unmatured or known or unknown.

Section 7    Effect on Documents

Except as expressly modified by this Amendment, the Loan Agreement shall
otherwise be unchanged and shall remain in full force and effect and the
Borrower ratifies and reaffirms all of the obligations of the Borrower
thereunder. All references in other Loan Documents to the Loan Agreement shall
be deemed reference to the Loan Agreement as amended by this Amendment.

 

-4-

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

Section 8    Execution in Counterparts

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

 

-5-

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

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

 

BORROWER: WILLIAM LYON HOMES, INC., a California corporation By:   /s/ Richard
S. Robinson Printed Name:   Richard S. Robinson Title:   Senior Vice President

 

And By:   /s/ Michael D. Grubbs Printed Name:   Michael D. Grubbs Title:  
Senior Vice President

 

LENDER: RFC CONSTRUCTION FUNDING, LLC., a Delaware limited liability company By:
  /s/ Donald V. Pierce Printed Name:   Donald V. Pierce Title:   Vice President

 

-6-

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

ACKNOWLEDGMENT

OF GUARANTOR

The undersigned, a guarantor of all of the debts, liabilities and obligations of
William Lyon Homes, Inc., a California corporation (the “Borrower”) to RFC
Construction Funding, LLC, a Delaware limited liability company, formerly known
as RFC Construction Funding Corp. (the “Lender”) pursuant to its Guaranty
Agreement dated as of September 17, 2004, as amended (as the same may be amended
or restated from time to time, the “Guaranty”), hereby (i) acknowledges receipt
of the foregoing Second Amendment to Amended and Restated Loan Agreement,
(ii) consents and agrees to the terms of the foregoing Second Amendment to
Amended and Restated Loan Agreement, (iii) reaffirms its obligations to the
Lender under the Guaranty, and (iv) acknowledges that the Lender and the
Borrower may amend, restate, extend, renew, or otherwise modify the Loan
Agreement (as defined in the foregoing Second Amendment to Amended and Restated
Loan Agreement or any other Loan Document (as defined in the foregoing Second
Amendment to Amended and Restated Loan Agreement), without notifying or
obtaining the consent of the undersigned and without impairing the liability of
the undersigned under its Guaranty.

 

GUARANTOR: WILLIAM LYON HOMES, a Delaware corporation By:   /s/ Richard S.
Robinson Printed Name:   Richard S. Robinson Title:   Senior Vice President

 

And By:   /s/ Michael D. Grubbs Printed Name:   Michael D. Grubbs Title:  
Senior Vice President

 

-7-