EXHIBIT 10.6

EIGHTH MODIFICATION AGREEMENT TO BORROWING BASE REVOLVING

LINE OF CREDIT AGREEMENT

 

DATE:    June 5, 2008     

PARTIES:

         Borrower:    WILLIAM LYON HOMES, INC., a California corporation   
Guarantor:    WILLIAM LYON HOMES, a Delaware corporation    Bank:    JPMORGAN
CHASE BANK, N.A. (successor by merger to Bank One, NA (Main Office Chicago,
Illinois)), a national banking association

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

RECITALS

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

B. The Loan is secured by, among other things, certain Construction Deeds of
Trust and Fixture Filing (With Assignment of Rents and Security Agreement)
executed by Borrower as Trustor for the benefit of Bank (such Deeds of Trust, as

 

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

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

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

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

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

AGREEMENT

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

1. ACCURACY OF RECITALS.

Borrower acknowledges the accuracy of the Recitals.

2. MODIFICATION OF LOAN DOCUMENTS.

2.1 The Commitment Amount is hereby reduced from $70,000,000 to $50,000,000. In
no event shall the Bank be obligated to make any disbursement of the Loan which
would cause the outstanding principal balance of the Loan to exceed the
Commitment Amount, as reduced hereby.

2.2 The Facility LC Sublimit is hereby reduced from $10,000,000 to $5,000,000.
In no event shall the Bank be obligated to issue or Modify any Facility LC if

 

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the issuance or Modification of any such Facility LC would cause the aggregate
amount of the outstanding LC Obligations to exceed the Facility LC Sublimit, as
reduced hereby.

2.3 Notwithstanding any provision in the Loan Agreement or in any other Loan
Document to the contrary, with respect to the Approved Subdivision commonly
known as “Altair,” which was approved as an Approved Subdivision pursuant to
that certain Project Loan Addendum (the “Altair Project Loan Addendum”), dated
as of June 26, 2007:

(a) The MFR A&D Lots in such Approved Subdivision may be included in the
Borrowing Base as Eligible Collateral for a term of thirty-six (36) Calendar
Months from the original Lot Eligibility Date for such A&D Lots.

(b) The MFR Model Units in such Approved Subdivision may be included in the
Borrowing Base as Eligible Collateral for a term of thirty-six (36) Calendar
Months from the original Unit Eligibility Date for such Model Units.

(c) The Mandatory Lot Commitment Reduction Schedule attached as Exhibit B to the
Altair Project Loan Addendum is hereby amended and restated in it entirety by
the Revised Mandatory Lot Commitment Reduction Schedule attached hereto as
Schedule 1.

2.4 Notwithstanding any provision in the Loan Agreement or in any other Loan
Document to the contrary, with respect to the Approved Subdivision commonly
known as “Rosabella at Shady Trails,” which was approved as an Approved
Subdivision pursuant to that certain Project Loan Addendum (the “Rosabella
Project Loan Addendum”), dated as of April 3, 2006:

(a) The MFR A&D Lots in such Approved Subdivision may be included in the
Borrowing Base as Eligible Collateral for a term of forty-five (45) Calendar
Months from the original Lot Eligibility Date for such A&D Lots.

(b) The MFR Model Units in such Approved Subdivision may be included in the
Borrowing Base as Eligible Collateral for a term of thirty-six (36) Calendar
Months from the original Unit Eligibility Date for such Model Units.

(c) The Mandatory Lot Commitment Reduction Schedule attached as Exhibit B to the
Rosabella Project Loan Addendum is hereby amended and restated in it entirety by
the Revised Mandatory Lot Commitment Reduction Schedule attached hereto as
Schedule 2.

2.5 Notwithstanding any provision in the Loan Agreement or in any other Loan
Document to the contrary, with respect to the Approved Subdivision commonly
known as “Tradition at Arboreta,” which was approved as an Approved Subdivision
pursuant to that certain Project Loan Addendum (the “Arboreta Project Loan
Addendum”), dated as of November 28, 2007, the Mandatory Lot Commitment
Reduction Schedule attached as Exhibit B to the Arboreta Project Loan Addendum
is

 

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hereby amended and restated in it entirety by the Revised Mandatory Lot
Commitment Reduction Schedule attached hereto as Schedule 3.

2.6 Notwithstanding any provision in the Loan Agreement or in any other Loan
Document to the contrary, with respect to the Approved Subdivision commonly
known as “Tramonto,” which was approved as an Approved Subdivision pursuant to
that certain Project Loan Addendum (the “Tramonto Project Loan Addendum”), dated
as of October 7, 2005, the Mandatory Lot Commitment Reduction Schedule attached
as Exhibit B to the Tramonto Project Loan Addendum is hereby amended and
restated in it entirety by the Revised Mandatory Lot Commitment Reduction
Schedule attached hereto as Schedule 4.

2.7 Notwithstanding any provision in the Loan Agreement or in any other Loan
Document to the contrary, with respect to the Approved Subdivision commonly
known as “The Lofts,” which was approved as an Approved Subdivision pursuant to
that certain Project Loan Addendum (the “Lofts Project Loan Addendum”), dated as
of June 20, 2007:

(a) Each of the MFR Spec Units in such Approved Subdivision included in the
Borrowing Base, other than the MFR Spec Units identified as Unit Nos. 333, 334
and 335, are hereby converted from MFR Spec Units to MFR A&D Lots and shall
continue to be included in the Borrowing Base as MFR A&D Lots. The MFR Spec
Units in such Approved Subdivision included in the Borrowing Base which are
identified as Unit Nos. 333, 334 and 335 shall continue to be included in the
Borrowing Base as MFR Spec Units.

(b) The Maximum Allowed Advance for each MFR A&D Lot in such Approved
Subdivision included in the Borrowing Base is hereby reduced to the lesser of
(i) 50% of the “bulk wholesale as-if complete” value of such Approved
Subdivision divided by the total number of Lots in such Approved Subdivision
(regardless of whether such total number of Lots are Eligible Collateral), or
(ii) 50% of the Total Lot Cost for such Approved Subdivision divided by the
total number of Lots in such Approved Subdivision (regardless of whether such
total number of Lots are Eligible Collateral).

(c) The Maximum Allowed Advance for each MFR Spec Unit in such Approved
Subdivision included in the Borrowing Base is hereby reduced to the lesser of
(i) 60% of the Appraised Value for that Unit or (ii) 60% of the Unit Cost for
that Unit.

(d) The Maximum Allowed Advance for each MFR Model Unit in such Approved
Subdivision included in the Borrowing Base is hereby reduced to the lesser of
(i) 60% of the Appraised Value for that Unit or (ii) 60% of the Unit Cost for
that Unit.

(e) From and after the date of this Modification, Borrower shall no longer be
required to comply with the Mandatory Lot Commitment Reduction

 

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Schedule attached as Exhibit B to the Lofts Project Loan Addendum, and such
Mandatory Lot Commitment Reduction Schedule shall no longer be of any force or
effect.

(f) The MFR A&D Lots in such Approved Subdivision may be included in the
Borrowing Base as Eligible Collateral for a term of twenty-four (24) Calendar
Months from the original Lot Eligibility Date for such MFR A&D Lots.

(g) The MFR Model Units in such Approved Subdivision may be included in the
Borrowing Base as Eligible Collateral for a term of twenty-four (24) Calendar
Months from the original Unit Eligibility Date for such MFR Model Units.

(h) The MFR Spec Units in such Approved Subdivision may be included in the
Borrowing Base as Eligible Collateral for a term of twenty-four (24) Calendar
Months from the original Unit Eligibility Date for such MFR Spec Units.

2.8 The Deeds of Trust are modified to secure payment and performance of the
Loan as amended to date, in addition to all other “Obligations” of Borrower as
therein defined. The foregoing notwithstanding, certain obligations continue to
be excluded from the Obligations, as provided in the Deeds of Trust.

2.9 Each of the Loan Documents is modified to provide that it shall be a default
or an event of default thereunder if Borrower shall fail to comply with any of
the covenants of Borrower herein or if any representation or warranty by
Borrower herein or by any guarantor in any related Consent and Agreement of
Guarantor is materially incomplete, incorrect, or misleading as of the date
hereof.

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

3. RATIFICATION OF LOAN DOCUMENTS AND COLLATERAL.

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

4. CONDITIONS PRECEDENT.

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

4.1 Bank shall have received fully executed and, where appropriate, acknowledged
originals of this Modification, the attached consents signed by Guarantor, and
any other documents which Bank may require or request in accordance with this
Agreement or the other Loan Documents.

 

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

 

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

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

6. BINDING EFFECT.

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

7. CHOICE OF LAW.

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

8. COUNTERPART EXECUTION.

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

[Signatures on following page]

 

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DATED as of the date first above stated.

 

BORROWER:    

WILLIAM LYON HOMES, INC.,

a California corporation

    By:   /s/ Richard S. Robinson     Name:   Richard S. Robinson     Title:  
Senior Vice President     By:   /s/ Michael D. Grubbs     Name:   Michael D.
Grubbs     Title:   Senior Vice President

 

BANK:    

JPMORGAN CHASE BANK, N.A.

(successor by merger to Bank One, NA

(Main Office Chicago, Illinois)), a national

banking association

    By:   /s/ Kimberlee Edwards     Name:   Kimberlee Edwards     Title:  
Senior Vice President

 

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CONSENT AND AGREEMENT OF GUARANTOR

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

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

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

 

“Guarantor”    

WILLIAM LYON HOMES,

a Delaware corporation

    By:   /s/ Richard S. Robinson     Name:   Richard S. Robinson     Title:  
Senior Vice President     By:   /s/ Michael D. Grubbs     Name:   Michael D.
Grubbs     Title:   Senior Vice President

 

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SCHEDULE 1

REVISED MANDATORY LOT COMMITMENT REDUCTION SCHEDULE

(ALTAIR)

 

Mandatory Lot Commitment Reduction Schedule Total Lots    65    Altair @ Padre
Dam Total Lot Commitment/MAA per lot    $4,128,000    $63,507.69/Lot Reductions
Start At End Of Month >>    12    Final Quarterly Reduction At End Of Month >>
   36 Appraised Absorption/
Required Qtrly Takedown (75% Appr. Abs)    8    6.00    $381,046 (Par Quarterly
Reduction Amount)

Appraised Bulk Value

   $6,880,000    $105,846/Lot    Total Cost    $13,390,737    $206,011/Lot End
of Month    Development & Marketing Period    % OF Par
Release Price    Reduction
Amount/Qtr    Lot
Sub-Commit.    Maximum
Lots With
Availability    Maximum
Advance Rates                   LTV    LTC

9

   Unit Construction Continues; Units
Begin to Close – 03/31/2008    0%    $0    $4,128,000    65    60%    31%

12

   Unit Construction Continues; Units
Begin to Close – 06/30/2008    125%    $476,308    $3,651,692    59    58%   
30%

15

   Unit Construction Continues; Units
Begin to Close – 09/30/2008    125%    $476,308    $3,175,384    53    57%   
29%

18

   Unit Construction Continues; Units
Begin to Close – 12/31/2008    125%    $476,308    $2,699,076    47    54%   
28%

21

   Unit Construction & Closings
Continue – 03/31/2009    125%    $476,308    $2,222,768    41    51%    26%

24

   Unit Construction & Closings
Continue – 06/30/2009    125%    $476,308    $1,746,460    35    47%    24%

27

   Unit Construction & Closings
Continue – 09/30/2009    125%    $476,308    $1,270,152    29    41%    21%

30

   Unit Construction & Closings
Continue – 12/31/2009    125%    $476,308    $793,844    23    33%    17%

33

   Unit Construction & Closings
Continue – 03/31/2010    125%    $476,308    $317,536    17    18%    9%

36

   Unit Construction & Closings
Continue – 06/30/2010    83%    $317,536    0%    0    0%    0%

 

SCHEDULE 1

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SCHEDULE 2

REVISED MANDATORY LOT COMMITMENT REDUCTION SCHEDULE

(ROSABELLA AT SHADY TRAILS)

 

Mandatory Lot Commitment Reduction Schedule Total Lots    82    Rosabella at
Shady Trails Total Lot Commitment/MAA per lot    $2,634,000    $32,122.00/Lot
Reductions Start At End Of Month >>    15    Final Quarterly Reduction At End Of
Month >>    45 Appraised Absorption/
Required Qtrly Takedown (75% Appr. Abs)    9    8.00    $256,976 (Par Quarterly
Reduction Amount)

Appraised Bulk Value

   $4,390,034    $53,537/Lot    Total Cost    $12,623,408    $153,944/Lot End of
Month    Development & Marketing Period    % OF Par
Release Price    Reduction
Amount/
Qtr    Lot
Sub-Commit.    Maximum
Lots With
Availability    Maximum
Advance Rates                   LTV    LTC

21

   Unit Construction Continues    0%    $0    $2,634,004    82    60%    21%

24

   Unit Construction Continues; Units
Begin to Close – 04/30/2008    125%    $321,220    $2,312,784    74    58%   
20%

27

   Unit Construction & Closings
Continue – 07/31/2008    125%    $321,220    $1,991,564    66    56%    20%

30

   Unit Construction & Closings
Continue – 10/31/2008    125%    $321,220    $1,670,344    58    54%    19%

33

   Unit Construction & Closings
Continue – 01/31/2009    125%    $321,220    $1,349,124    50    50%    18%

36

   Unit Construction & Closings
Continue – 04/30/2009    125%    $321,220    $1,027,904    42    46%    16%

39

   Unit Construction & Closings
Continue – 07/31/2009    125%    $321,220    $706,684    34    39%    14%

42

   Unit Construction & Closings
Continue – 10/31/2009    125%    $321,220    $385,464    26    28%    10%

45

   Unit Construction & Closings
Continue – 01/31/2010    150%    $385,464    $0    0    0%    0%

 

SCHEDULE 2

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SCHEDULE 3

REVISED MANDATORY LOT COMMITMENT REDUCTION SCHEDULE

(TRADITION AT ARBORETA)

 

Mandatory Lot Commitment Reduction Schedule Total Lots    53    Tradition at
Arboreta Total Lot Commitment/MAA per lot    $9,533,848    $179,883.92/Lot
Reductions Start At End Of Month >>    3    Final Quarterly Reduction At End Of
Month >>    27 Appraised Absorption/
Required Qtrly Takedown (75% Appr. Abs)    6    5.00    $899,420 (Par Quarterly
Reduction Amount)

Appraised Bulk Value

   $14,667,458    $276,744/Lot    Total Cost    $15,615,005    $294,623/Lot End
of Month    Development & Marketing Period    % OF Par
Release Price    Reduction
Amount/Qtr    Lot
Sub-Commit.    Maximum
Lots With
Availability    Maximum
Advance Rates                   LTV    LTC

0

   Unit Construction Begins    0%    $0    $9,533,848    53    65%    61%

3

   Unit Construction Continues 02/29/2008    100%    $899,420    $8,634,428   
48    65%    61%

6

   Unit Construction Continues
05/31/2008    100%    $899,420    $7,735,008    43    65%    61%

9

   Unit Construction Continues; Units
Begin to Close – 08/31/2008    125%    $1,124,275    $6,610,733    38    63%   
59%

12

   Unit Construction & Closings
Continue – 11/30/2008    125%    $1,124,275    $5,486,458    33    60%    56%

15

   Unit Construction & Closings
Continue – 02/28/2009    125%    $1,124,275    $4,362,183    28    56%    53%

18

   Unit Construction & Closings
Continue – 05/31/2009    125%    $1,124,275    $3,237,908    23    51%    48%

21

   Unit Construction & Closings
Continue – 08/31/2009    125%    $1,124,275    $2,113,633    18    42%    40%

24

   Unit Construction & Closings
Continue – 11/30/2009    125%    $1,124,275    $989,358    13    27%    26

27

   Unit Construction & Closings
Continue – 02/28/2010    110%    $989,358    0%    0    0%    0%

 

SCHEDULE 3

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SCHEDULE 4

REVISED MANDATORY LOT COMMITMENT REDUCTION SCHEDULE

(TRAMONTO)

 

Mandatory Lot Commitment Reduction Schedule Total Lots    49    Tramonto Total
Lot Commitment/MAA per lot    $2,199,169    $44,881.00/Lot Reductions Start At
End Of Month >>    3    Final Quarterly Reduction At End Of Month >>    36
Appraised Absorption/
Required Qtrly Takedown (75% Appr. Abs)    15    12.00    $538,572 (Par
Quarterly Reduction Amount)

Appraised Bulk Value

   $3,523,688    $71,912/Lot    Total Cost    $3,141,684    $64,116/Lot End of
Month    Development & Marketing Period    % OF Par
Release Price    Reduction
Amount/
Qtr    Lot
Sub-Commit.    Maximum
Lots With
Availability    Maximum
Advance Rates                   LTV    LTC

27

   Unit Construction & Closings
Continue – 01/31/2008    0%    $0    $2,199,169    49    62%    70%

30

   Unit Construction Continues; Units
Begin to Close – 04/30/2008    125%    $673,215    $1,525,954    37    57%   
64%

33

   Unit Construction & Closings
Continue – 07/31/2008    125%    $673,215    $852,739    25    47%    53%

36

   Unit Construction & Closings
Continue – 10/31/2008    158%    $852,739    $0    0    0%    0%

 

SCHEDULE 4