Prepared by MerrillDirect





 


EXHIBIT
10.1


AGREEMENT OF SETTLEMENT,
COMPROMISE, AND RELEASE

BETWEEN

AV PARTNERSHIP AND AV DEVELOPMENT CORPORATION

AND

CALIFORNIA COASTAL COMMUNITIES, INC., HEARTHSIDE HOMES, INC. AND

HEARTHSIDE
HOLDINGS, INC.


                           This
agreement of settlement, compromise, and release (“Settlement Agreement”) is
entered into as of March 27, 2001 by and between, on the one hand, plaintiff
and cross-defendant AV PARTNERSHIP and cross-defendant AV DEVELOPMENT
CORPORATION (“AVD Corp.”) (collectively, the “AVP Parties”) and, on the other
hand, defendant and cross-complainant CALIFORNIA COASTAL COMMUNITIES, INC.,
(“CCC”) and cross-complainants HEARTHSIDE HOMES, INC., (“Homes, Inc.”) and
HEARTHSIDE HOLDINGS, INC. (“Holdings, Inc.”) (collectively, the “CCC Parties”)
[the AVP Parties and the CCC Parties each individually are referred to as
“Party” and collectively are referred to as the “Parties”] with FS Equity
Partners III, L.P., a Delaware limited partnership, in its capacity as the
holder of the Secured Promissory Notes (as hereinafter defined) made by AV
Partnership (in such capacity “FSEP”), joining in solely for the limited
purposes set forth in Section 2.8 hereof.


                           This
Settlement Agreement is entered into with reference to the following facts:


                           A.         On or about October 28, 1994, CC
C
(formerly known as Koll Real Estate Group, Inc.) and Holdings, Inc. formerly
known as Kathryn G. Thompson Company, Inc., a Delaware corporation, executed a
written guarantee with AV Partnership whereby they guaranteed payment and
performance of four promissory notes that Homes, Inc. had executed and
delivered to AV Partnership for the purposes of evidencing its contribution of
its share of equity capital to AV Partnership (“Equity Notes”).  The Equity Notes in the aggregate total Four
Million, Seven Hundred and Seventy-Five Thousand Dollars ($4,775,000) in
principal amount  and carry interest
accruing at Ten Percent (10%) per annum since the deemed dates of disbursement,
all due and payable on or prior to April 4, 1999.





                           B.          The CCC Parties disputed
the
enforceability of the written guarantee on the grounds that a certain financial
projection pre-dating the execution of the guarantee should have been, but was
not, disclosed to them, and had such projection been disclosed, it would have
caused the CCC Parties to not execute the guarantee.  Consequently, the CCC Parties refused to pay the monies due and
owing on April 4, 1999.  In order to
have sufficient time to conduct informal negotiations to attempt a voluntary
resolution of this dispute, the Parties extended the due date on the promissory
notes and guarantee to October 31, 1999.


                           C.          Unable to resolve the
dispute, on
November 1, 1999 AV Partnership filed its verified complaint against CCC, AV Partnership
v. California Coastal Communities, Inc. (Case No. BC 219402).  The complaint alleges a single cause of
action to enforce the collection of the principal and interest due and payable
on the four promissory notes pursuant to the written guarantee.


                           D.         On December 2, 1999, CCC
answered AV
Partnership’s verified complaint and, together with Homes, Inc. and Holdings,
Inc. filed a cross-complaint against AV Partnership and AVD Corp., among
others.  The cross-complaint contains
six causes of action, four of which are brought against the AVP Parties: (1)
fraud; (2) rescission of the guarantee; (3) breach of fiduciary duty; and (4)
declaratory relief.


                           E.          These matters came on
for a mandatory
settlement conference before the Honorable Owen L. Kwong on January 25,
2001.  At that conference, the Parties
reached a settlement and compromise of all the claims asserted in the complaint
and cross-complaint, and entered that settlement and compromise on the record
pursuant to California Code of Civil Procedure Section 664.6.





                           F.        
  The Parties desire to provide for the
liquidation, final dissolution and orderly winding up of the business of AV
Partnership and desire to dissolve AV Partnership on or prior to December 31,
2001.  In connection therewith, the
Parties have agreed that (i) AVD Corp. shall be the successor-in-interest to,
and shall receive all of the Assets (as hereinafter defined) on behalf of, AV
Partnership and the AVP Affiliates, and shall assume and undertake to perform
the obligations of the AV Partnership and the AVP Affiliates to FSEP pursuant
to the Secured Promissory Notes (as hereinafter defined) made payable to FSEP
and other FSEP Loan Documents (the “FS Obligations”), and (ii) the CCC Parties
shall assume and undertake to perform all Obligations (as hereinafter defined)
of AV Partnership and the AVP Affiliates (other than the FS Obligations and any
Federal or state income taxes that may be payable by AVD Corp., AV Development
Corporation-2, a Delaware corporation (“AVDC-2”) and/or RSB Investment, Inc., a
California corporation (“RSB”) and their respective shareholders and any other
parent Persons thereof (the “AVP Tax Obligations”).


                           G.          In connection with the
activities of
the AV Partnership, AV Partnership and FSEP entered into that certain Loan
Agreement dated as of March 4, 1994 (as amended, the “Loan Agreement”) pursuant
to which FSEP agreed to make, from time to time, certain loans (the “Loans”) to
AV Partnership and its affiliates, which Loans were evidenced by five secured
promissory notes made payable to the order of FSEP (the “Secured Promissory
Notes”).  The Loans and Secured
Promissory Notes were secured by various deeds of trust, security agreements
and guarantees made by AV Partnership, its general partners and their
respective affiliates in favor of FSEP as secured party and/or beneficiary (collectively,
with the Loan Agreement and the Secured Promissory Notes, the “FSEP Loan
Documents”).  Some or all of the
indebtedness and obligations of AV Partnership and its affiliates evidenced by
and as set forth in the Secured Promissory Notes and the other Loan Documents
remain outstanding and owing to FSEP.





                           In
consideration of the mutual promises and respective agreements and conditions
contained in this Settlement Agreement, and intending to be mutually bound
thereby, the AVP Parties and the CCC Parties agree as follows:


             1.          Definitions and Rules of Construction


                           As
used in this Settlement Agreement, and for the purpose of this Settlement
Agreement only, the following terms have the following meanings:


                           1.1        “AVP Group” means
AV Partnership, AV Development Corporation, RSB
Investment, Inc. and their past, present, and future employees, officers,
directors, principals, parent entities, subsidiaries, affiliates, divisions,
joint ventures, agents, servants, shareholders, attorneys, representatives, predecessors,
successors, assigns, and acquired entities (including, without limitation, the
past, present, and future employees, officers, directors, principals, parent
entities, subsidiaries, affiliates, divisions, joint ventures, agents,
servants, shareholders, attorneys, representatives, predecessors, successors,
and assigns of any such acquired entities), and all Persons acting by, through,
under or in concert with any of them, and each of them other than the CCC
Group.





                           1.2       
“CCC
Group” means California Coastal Communities, Inc., Hearthside Homes, Inc. and
Hearthside Holdings, Inc. and their past, present, and future employees,
officers, directors, principals, parent entities, subsidiaries, affiliates,
divisions, joint ventures, agents, servants, shareholders, attorneys,
representatives, predecessors, successors, assigns, and acquired entities
(including, without limitation, the past, present, and future employees,
officers, directors, principals, parent entities, subsidiaries, affiliates,
divisions, joint ventures, agents, servants, shareholders, attorneys,
representatives, predecessors, successors, and assigns of any such acquired
entities), and all Persons acting by, through, under or in consent with any of
them, and each of them.


                           1.3        
“Person” means any individual, corporation,
partnership, association, trust, or any other entity (or estate, guardian, or
beneficiary thereof) or organization.


                           1.4        “Action” means the
complaint and cross-complaint filed in the Superior
Court of Los Angeles under Case No. BC 219402.


                           1.5        “AVP Affiliates”
shall mean AVP Partners Corporation, AVP Partners
Corporation-2, Ridge/Meadows, L.P., AV/Sea Country, L.L.C. and Vistas Audubon.


                           1.6        “Guarantee” means
the Third Amended and Restated Guarantee Agreement
executed by the partners of the AV Partnership and Koll Real Estate Group, Inc.
(n.k.a. CCC) and Kathryn G. Thompson Company, a Delaware corporation (n.k.a.
Holdings, Inc.), a copy of which is attached as Exhibit “A” to the verified
complaint in this Action.


                           1.7        “Equity Notes”
means the four Amended and Restated Promissory Notes
executed by Kathryn G. Thompson Company, a California corporation (n.k.a.
Homes, Inc.), copies of which are attached as Exhibits “B,” “C,” “D” and “E” to
the verified complaint in this Action.





                           1.8       
“Claims”
means any past, present, or future actual, threatened, or potential claims,
insurance claims, cross complaints, third-party claims, rights, proceedings,
demands, requests, suits, law suits, administrative proceedings, causes of
actions, orders, actions, debts, dues, sums of money, accounts, reckonings,
bonds, bills, specialties, covenants, contracts, torts, controversies,
judgments, executions, liabilities, and obligations whatsoever whether in law
or equity, whether formal or informal, whether in tort or breach of contract,
and whether in writing.


                           1.9        “Assets” shall
have the meaning set forth in Section 2.4.


                           1.10     “Obligation” shall have the meaning
set forth in Section 2.6.


                           1.11     Rules of Construction: 
Capitalized terms in this Settlement Agreement shall have their
respective meanings specified in Section 1 of the Settlement Agreement or as
defined elsewhere in this Settlement Agreement.  The definitions in Section 1 of this Settlement Agreement apply
equally to both the singular and plural forms of the terms defined.  The words “shall” and “will” are used
interchangeably throughout this Settlement Agreement.  The use of either connotes a mandatory requirement and does not
connote a different degree, right, or obligation for either party.  Use of the word “and” shall include in its
meaning the word “or” and vice versa. 
Use of the word “any” shall include within its meaning the word “all”
and vice versa.





             2.          Payment and Releases


                          2.1        
Each of the undersigned desires to provide for the
liquidation, final dissolution and orderly winding up of the business of AV
partnership and hereby agree to dissolve AV Partnership on or prior to December
31, 2001.  In connection therewith, the
AVP Group and the CCC Group hereby agree that (i) AVD Corp. shall be the
successor-in-interest to, and shall receive all of the Assets on behalf of, AV
Partnership and the AVP Affiliates, and shall assume and undertake to perform
the FS Obligations of AV Partnership and the AVP Affiliates to FSEP pursuant to
the Secured Promissory Notes, and (ii) the CCC Parties shall assume and
undertake to perform all Obligations of AV Partnership and the AVP Affiliates
(other than the FS Obligations and the AVP Tax Obligations).  The dissolution and distributions shall be
accomplished in the manner set forth herein irrespective of the capital
accounts of the partners.  Debts and
liabilities of AV Partnership shall be paid or provided for in accordance with
these provisions.  All interests in
Assets shall be distributed to AVD Corp. and are hereby assigned to AVD Corp.
and all Obligations (other than the FS Obligations and the AVP Tax Obligations)
are hereby assumed by the CCC Parties. 
The CCC Parties shall be responsible for all legal fees and other costs
for dissolving, terminating and/or winding up AV Partnership and the AVP
Affiliates, provided, that, the CCC Parties shall have no responsibility for
the legal fees and other costs for dissolving, terminating and/or winding up
AVD Corp., AVDC-2, RSB and/or their respective shareholder Persons and/or any
other parent Persons thereof.


                           2.2        In consideration for the
releases and agreements and covenants contained
in this Settlement Agreement, the CCC Parties hereby agree to pay AV
Partnership Three Million, Seven Hundred and Fifty Thousand Dollars
($3,750,000.00) on or before April 2, 2001, which will be paid by check made
payable to AVD Corp. or its designee.





                           2.3        In addition, the Parties
agree to split in equal shares the petty cash and cash on deposit in the AV
Partnership cash accounts as of the opening of business on January 25,
2001.  The Parties agree that the amount
on deposit at that time was Four Hundred and Seventy-Four Thousand, Seven
Hundred Sixty-Three Dollars and Eighty-Eight Cents ($474,763.88).  Upon the execution of this Settlement
Agreement, the CCC Parties shall cause to be issued from the AV Partnership
account two checks, each in the amount of Two Hundred and Thirty-Seven
Thousand, Three Hundred and Eighty-One Dollars and Ninety-Four Cents
($237,381.94), one of which shall be made payable to AVD Corp. or its designee
and which shall be delivered to AVD Corp. or its designee on or before April 2,
2001, and the other check made payable to Homes, Inc. and which shall be
delivered to Homes, Inc. on or before April 2, 2001.  Interest on said cash accounts of AV Partnership which accrues on
the opening of business on January 25, 2001, through April 2, 2001 shall be
retained by and payable to Homes, Inc.


                           2.4        Further, except as expressly
provided in Section 2.3 above or this
Section 2.4 below, all money and other things of value of any kind or character
received by the AV Partnership or by any of the AVP Group and/or CCC Group on
behalf of or relating to AV Partnership or the AVP Affiliates after the opening
of business on January 25, 2001, in excess of the cash on deposit in the AV
Partnership cash accounts at the start of business on that date, shall be the
sole and exclusive property of the AVP Parties (collectively, the “Assets”),
and the CCC Group hereby:  (i) assign to
AVD Corp. or its designee the Assets and all rights to the Assets; and (ii)
expressly waive any interest in or Claim to such money or property; and (iii)
agree to take or cause to be taken all actions, including the execution of all
documents, as may be necessary or desirable to effect the foregoing.  The Parties currently understand, but the
CCC Parties do not warrant, that such anticipated receipts include, without
limitation,





          (1)         Approximately Five Hundred and
Forty-Eight Thousand, Nine Hundred and Seventy-Seven Dollars and Eighty-Three
Cents ($548,977.83) plus interest minus bank fees and charges on deposit with
Imperial Bank which serves as collateral for an AV Partnership line of credit;



             (2)         Approximately
$70,000 due from Sea Country Homes; and



             (3)         Approximately
$25,000 due from the proceeds of the sale to the CCC Parties of the stocks and
assets of Hearthside Funding.



Starting on April 2, 2001, and on the
first business day of every month thereafter until all Assets have been
collected, the CCC Group will remit or cause to be remitted to AVD Corp. or its
designee any such monies or other things of value received since the last
distribution to AVD Corp. or its designee together with an accounting of the
source of all such Assets; provided, that, any interest that accrues on Assets
which are collected by the CCC Parties from the time of the last distribution
until the next monthly scheduled distribution shall be retained by and shall be
payable to Homes, Inc. (with the understanding that interest accruing on the
Imperial Bank deposit identified in Section 2.4(1), minus any bank fees or
charges incurred to maintain said line of credit, and on the Zurich Insurance
Co. premiums identified in Section 2.5 are the sole and exclusive property of
AVD Corp. or its designee). 
Notwithstanding the foregoing, if, and to the extent that, the CCC
Parties shall receive a payment on the insurance which is described in Section
2.5 below for claims made under the described policies and which relates to a
reimbursement of actual expenses incurred by the CCC Parties, said payments
shall be retained by and payable to Homes, Inc.  All checks shall be made payable to AVD Corp. or its designee.





                           2.5       
The
Parties agree that the excess insurance premiums paid by or on behalf of the AV
Partnership or the CCC Group and currently held by the Zurich Insurance Co.
(which the Parties estimate to be approximately Five Hundred and Forty Thousand
Dollars ($540,000.00)) including any interest accruing thereon are the sole and
exclusive property of AVD Corp. or its designee and the CCC Group does hereby
irrevocably transfer and assign all such amounts or rights to AVD Corp. or its
designee.  The CCC Parties shall execute
all documents and take all other reasonable steps necessary to secure and
deliver payment by Zurich Insurance Co. of those excess premiums to AVD Corp.
or its designee.  The CCC Parties
represent and warrant that attached as Exhibit A hereto is a true and correct
copy of the irrevocable written instruction and direction by the CCC Parties to
Zurich Insurance Co. to pay said amounts to AVD Corp. or its designee and that
they do not presently have knowledge of any fact or reason why Zurich Insurance
Co. would not honor such instruction. 
The CCC Parties shall take or cause to be taken all other requests or
requirements of Zurich Insurance Co. to effect the payments to AVD Corp. or its
designee.  If litigation with Zurich
Insurance Co. is needed to obtain these funds, either in whole or in part, the
CCC Parties will participate in and prosecute an action at law or equity to its
final nonappealable resolution at the direction of the AVP Parties by and
through attorneys that the AVP Parties will select in their sole discretion;
provided that the AVP Parties shall fund the costs of said litigation,
including attorneys fees.  In addition,
the CCC Parties agree to maintain in place without modification insurance
policies numbers UMB8321-901-00 and WC8321-903-00 with Zurich to cover the
potential liabilities related to the operations of AV Partnership.


                           2.6        From the opening of business
on January 25, 2001 and forever more, the
CCC Parties further agree to assume, undertake, perform and be solely
responsible for, and shall indemnify, defend and hold the AVP Group harmless
from, any and all (i) obligations, liabilities, duties, responsibilities,
commitments, assessments, taxes (other than the AVP Tax Obligations) and tasks
of or relating to AV Partnership and/or the AVP Affiliates, whether now
existing or hereinafter arising, other than the FS Obligations, without any
set-off, deduction, deferment or reduction of any Asset (collectively, the
“Obligations”), and (ii) Claims, known and unknown, whether now existing or
hereinafter arising, brought against the AVP Group arising out of or relating to
the AV Partnership and/or AVP Affiliates, including without limitation:





             (1)         All Claims related to or arising from
construction defects;



             (2)         All
Claims related to or arising from home purchaser warranties;



             (3)         All
Claims related to or arising from customer service liabilities;



             (4)         All
Claims related to or arising out of the performance or failure to perform any
Obligations; and



             (5)         All
Claims relating to or arising out of the business undertaken by the AV
Partnership and/or the AVP Affiliates, including without limitation, the
acquisition of land, grading of land, and development, construction and sales
of homes.



                           In
connection with the Obligations, the CCC Parties agree to keep or cause to be
kept adequate books of account of AV Partnership and the AVP Affiliates.  The AVP Group and their authorized
representatives shall have at all times, during normal business hours, free
access to and the right to inspect and copy, at its expense, the books of
account.  The CCC Parties shall cause to
be prepared all tax returns and statements, if any, which must be filed on
behalf of AV Partnership, the AVP Affiliates and AV Holdings Corp., a Delaware
corporation and its subsidiaries, for tax years 2000 and 2001 and shall submit
such returns and statements to the AVP Parties for their approval prior to
filing and, when approved by the AVP Parties, shall make timely filing
thereof.  The CCC Parties shall be paid
a fee of $17,000.00 upon completion of the 2000 tax returns for all of the AVP
Group and a fee of $8,000.00 upon completion of the 2001 tax returns.  In addition, the CCC Parties shall cause to
be furnished to the AVP Parties such additional information regarding the
business of AV Partnership and the AVP Affiliates as may be necessary to enable
the AVP Parties to prepare their federal, state and local tax returns.  Each of the CCC Parties and the AVP Parties
hereby agrees to use its best efforts to resolve any disputes with respect to
the proposed treatment of any item on a tax return of AV Partnership and/or the
AVP Affiliates prior to the required filing date therefor.  The AVP Parties shall be responsible for any
and all costs incurred in obtaining an independent review of the tax returns.





                           2.7        In consideration of the
promises contained in this Settlement Agreement, both Parties and each of them
agree to dismiss with prejudice, on or before April 6, 2001, the complaint and
cross-complaint filed in this Action. 
Each Party is to bear its own attorneys’ fees, expenses, and all other
costs in connection with the conduct and dismissal of the Action.


                           2.8        In consideration of the
promises contained in this Settlement Agreement
and the compromise of the amounts due and payable on the Equity Notes and
Guarantee, the CCC Group hereby release and forever discharge the AVP Group
from any claims, obligations, liabilities or duties, known or unknown,
regardless of whether such claims were included in the Action including,
without limitation, any and all claims against FSEP.  Likewise, in consideration for the promises contained in this
Settlement Agreement and the payment of the Settlement Sum, the AVP Parties
Group releases and forever discharges the CCC Group from any claims,
liabilities, duties, or obligations, known or unknown, regardless of whether
such claims were included in the Action except as otherwise expressly provided
in this Settlement Agreement.  Further,
both Parties and each of them waive any claims for malicious prosecution and
abuse of process arising from the filing, prosecution, or defense of this Action.  In consideration of the promises contained
in this Settlement Agreement and the payment of the Settlement Sum, FSEP hereby
agrees to look solely to AVD Corp. for the payment and performance of the FS
Obligations and does hereby release and forever discharge the CCC Group from
any claims, liabilities, duties or obligations, known or unknown, relating to
or arising out of the Secured Promissory Notes and the other Loan Documents
(provided, however, that the foregoing release is not, and shall not be deemed
to be, a novation or satisfaction of the indebtedness and obligations evidenced
by the Secured Promissory Notes and the other Loan Documents).  To the maximum extent allowed by law, the
release provided in this Section 2.8 to the CCC Group will be void ab initio
and will be of no force or effect and the obligations of the CCC Group will be
automatically reinstated if the proceeds obtained by the AVP Group must be
restored or returned by the AVP Group as a preference, fraudulent conveyance or
otherwise under any bankruptcy, insolvency or similar law by or on behalf of
any of the CCC Group.





                           2.9       
Each
Party represents, warrants, and agrees that it is the sole and lawful owner of
all rights, titles, and interests in and to every claim or matter released herein;
and has not assigned or transferred or purported to or attempted to assign or
transfer to any person or entity any claim or other matter related herein.  A Party shall defend, indemnify and hold the
other Party harmless from any and all claims arising out of or relating to any
assignment or transfer and any purported or attempted assignment or transfer
contrary to the terms of this paragraph.


                           2.10     It is the intention of the Parties that the
foregoing releases shall be
effective as a bar to all matters released herein.  In furtherance, and not in limitation, of such intention the
releases described herein shall be, and shall remain in effect as, full and
complete releases, notwithstanding the discovery or existence of any additional
or different claims or facts.  To
further effectuate this intention, both Parties and each of them hereby waives
any rights under California Civil Code Section 1542 for any and all matters
released herein.  California Civil Code
Section 1542 reads as follows:





A
GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR
SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF
KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.



In waiving the provisions of
Section 1542 of the California Civil Code, the Parties acknowledge that
they may hereafter discover claims or facts in addition to or different from
those which they now believe to be true with respect to the subject matter of
the Action and other matters released herein, but agree that they have taken
that possibility into account in reaching this Settlement Agreement and that
the releases given herein shall be and remain in effect as full and complete
releases notwithstanding the discovery or existence of such additional or
different claims or facts, as to which each Party expressly assumes the risk.


                           2.11     Notwithstanding paragraph 2.10 above, nothing
in said paragraph is
intended to waive or modify and shall not be deemed to be a waiver or
modification of the Party’s respective rights, remedies or obligations under
this Settlement Agreement.  Further,
nothing in this instrument shall limit the right of any Party to enforce the
terms of this Settlement Agreement. 
Accordingly, pursuant to California Code of Civil Procedure Section
664.6, the Parties request, and hereby agree and stipulate to, the Court's
retention of jurisdiction to enforce the terms of the Settlement Agreement
until performance in full of its terms.





                           2.12     Nothing
in this Settlement Agreement is or should be construed to be an acknowledgement
or admission by CCC that it is liable with respect to Persons not a party to
this Settlement Agreement for the business of the AV Partnership or Hearthside
Homes, Inc.  CCC’s joint and several
liability and duty to defend and indemnify as provided in Sections 2.3, 2.4,
2.5 and 2.6 of this Settlement Agreement do not create or confer any benefit on
Persons not a party to the Settlement Agreement, but are solely and exclusively
for the benefit of the AVP Group.  Further,
these provisions (1) do not reflect any obligation to the AV Partnership that
CCC had prior to the date of the Settlement Agreement; and (2) do not create
any obligation or duty to Persons not a party to this Settlement Agreement that
did not previously exist between CCC and that Person prior to the date of the
Settlement Agreement.


             3.          Other Terms and Conditions


                           3.1        In consideration of the
mutual promises set forth in this Settlement
Agreement, the Parties have agreed to settle all Claims strictly as a business
accommodation unrelated to the merits of the respective Claims of the
Parties.  The Parties represent, warrant
and agree that neither the execution of this Settlement Agreement nor the
provision of any consideration pursuant thereto is intended as, nor shall it be
construed or referred to in any way as, an admission of the liability or
responsibility at any time or for any purpose whatsoever, including as an
admission of the truth of the allegations, interpretations, claims, or
contentions of either Party.


                           3.2        The Parties agree that this
Settlement Agreement has been negotiated at
arm’s length by parties of equal bargaining power, each of whom was represented
by competent counsel of its own choosing. 
Accordingly, it is acknowledged that each Party, with the assistance of
competent counsel, has participated in the drafting of this Settlement
Agreement, and that any ambiguity should not be construed for or against any
Party on account of such drafting.  The
Parties further acknowledge that the obligations and releases herein described
are in good faith and are reasonable in the context of the matters released.





                           3.3       
Except
as required pursuant to corporate securities laws, the existence of this
Settlement Agreement and the terms and conditions of this Settlement Agreement
are confidential and shall not be disclosed by either Party to any Person
unless, upon advice of counsel, either Party or both are compelled or required
by applicable law; provided, that the foregoing shall not preclude a party from
discussing this Settlement Agreement or disclosing the contents thereof to said
Parties’ accountants, lawyers, lenders, advisors, and others who may have a
reason to know, each of whom shall be bound by the confidentiality provisions
of this Settlement Agreement.  The
provisions of this Section 3.3 shall not, however, include any information
which either (a) is demonstrated by a Party to have been independently
developed by said Party (or independently developed by a third party, and
lawfully disclosed to said Party) and is in said Party’s possession prior to
the disclosure by the other Party, (b) is or becomes part of the general public
or industry knowledge, other than as a result of said Party’s violation of this
Settlement Agreement, or (c) has been disclosed by said Party following
approval by the other Party.  Prior to
any disclosure compelled or required by applicable law, the disclosing Party
shall to the extent possible provide notice to the nondisclosing Party in time
sufficient for the nondisclosing Party to seek a protective order.  Attached as Exhibit B is a draft of
disclosure to be included in CCC’s Annual Report and Form 10-K.  Furthermore, this agreement will be filed as
an exhibit to CCC’s Form 10-K.  The
Parties agree that disclosure (not legally compelled or required) shall be a
material breach of the Settlement Agreement and cause irreparable harm to the
nondisclosing Party, and that the nondisclosing Party may seek equitable, as
well as legal, relief to enforce this provision provided, that, the terms and
provisions of Section 2 of this Settlement Agreement shall not be altered or
amended in any fashion.  Further,
nothing herein prohibits a Party from disclosing the Settlement Agreement to a
court of competent jurisdiction in an action to enforce the terms and
conditions of the Settlement Agreement.





                           3.4        No amendment, modification,
addendum, or revision of this Settlement
Agreement shall be valid unless it is in writing and signed by the Party or
Parties to be bound, in which event there need be no separate consideration
therefor.


                           3.5        No waiver or indulgence of
any breach or series of breaches of this
Settlement Agreement shall be deemed or construed as a waiver of any other
breach of the same or any other provision hereof or affect the enforceability
of any part or all of this Settlement Agreement, and no waiver shall be valid
unless executed in writing by the waiving Party.


                           3.6        This Settlement Agreement
shall be subject to any statute or rule of
court that restricts or prohibits the admission into evidence of any offer or
agreement to compromise. 
Notwithstanding the foregoing sentence, this Settlement Agreement may be
admitted into evidence in any action to enforce its terms or secure its
benefits.


                           3.7        The Parties represent,
warrant, and agree to execute all documents and to
do all things necessary to fully effectuate the terms of this Settlement
Agreement.





                           3.8        Each Party to this
Settlement Agreement agrees to bear its own costs,
expenses and attorneys’ fees with respect to all matters encompasses in the
Action and with respect to the negotiation and drafting of this Settlement
Agreement.


                           3.9        This Settlement Agreement
may be executed in any number of counterparts,
each of which shall be deemed to be an original and all of which together shall
be deemed one and the same instrument. 
However, this Settlement Agreement is not and shall not be effective
unless and until each Party executes the original or a counterpart.


                           3.10     The Parties represent, warrant and agree that
this Settlement Agreement
shall bind them and each of their personal and legal representatives,
successors, assigns, executors and administrators, and all other Persons who
may claim under or through them and shall inure to the benefit of each Party
released herein, and to their personal and legal representatives, successors,
assigns, executors, and administrators, and all other Persons who may claim
under or through them.


                           3.11     This Settlement Agreement shall be deemed
made and entered into in the
State of California, and shall in all respects be governed, enforced, and
construed in accordance with the laws of the State of California.


                           3.12     Each Party acknowledges and represents that
it has fully and carefully
read this Settlement Agreement prior to execution; that it has been fully
apprised by its attorneys of the legal effect and meaning of this document and
all terms and conditions hereof; that it has had the opportunity to make
whatever investigation or inquiry it deemed necessary or appropriate in connection
with the subject matter of this Settlement Agreement; that it has been afforded
the opportunity to negotiate as to any and all terms hereof; and that it is
executing this Settlement Agreement voluntarily, free from any undue influence,
coercion, duress, or menace of any kind.





                           3.13     The
Parties represent, warrant, and agree that this Settlement Agreement contains
the entire Settlement Agreement between the Parties; that this Settlement
Agreement supersedes any and all prior agreements or understandings relating to
the comprise that is the subject matter of this Settlement Agreement between
the Parties; that the terms of this Settlement Agreement are contractual and
not a mere recital; that in executing this Settlement Agreement, no Party is
relying on any statement or representation made by the other Party, or the
other Party’s agents, servants, or attorneys concerning the subject matter,
basis, or effect of this Settlement Agreement other than as set forth herein;
and that each Party is relying solely on its own judgment and knowledge.


                           3.14     The Parties shall not use the documents
produced by the other party (for
which said Party did not already have a copy) and depositions taken during the
course of litigation of the Action for any purpose without the written consent
of the other Party.  Each Party agrees
to destroy or cause to be destroyed all copies of documents produced by the
other Party and that within thirty (30) days of executing the Settlement
Agreement counsel for each party shall send written confirmation that those
documents have been destroyed.  Copies
of the documents attached as exhibits to depositions are excluded from the
obligation to destroy such documents; provided however, that all deposition transcripts
and their exhibits will be kept confidential if not destroyed.





                           3.15     It
is the express intention of all Parties hereto that this Settlement Agreement
shall not create in or convey to any Person who or which is not a Party to this
Settlement Agreement any rights against the AVP Parties or the CCC Parties.


                           3.16     Each of the undersigned further declares and
represents that he or she is
competent to execute this instrument and that he or she is duly authorized, and
has the full right and authority, to execute this Settlement Agreement on
behalf of the Party for whom he or she is signing.


                           3.17     If a provision of this Settlement Agreement
or the application thereof is
held invalid or unenforceable, its invalidity or unenforceability shall not
affect any other provisions or applications of this Settlement Agreement, and
such other provisions or applications shall be given effect without the invalid
or unenforceable provision or application, and to this end the Settlement
Agreement is deemed to be severable.


                           3.18     The representations, warranties, agreements,
and promises made by each
Party to this Settlement Agreement and contained herein shall survive the
execution of this Settlement Agreement.





             IN
WITNESS WHEREFORE, this Settlement Agreement has been read and signed in
duplicate originals by the duly authorized representative of the Parties as of
the date first above written.


	AV
  PARTNERSHIP


	By:	AV
  Development Corporation
	 	Its
  General Partner


	 	By:	/s/  WILLIAM M. WARDLAW


	 	Name:	William
  M. Wardlaw
	 	Title:	President
	 	Date:	



	 	 	 
	By:	RSB
  Investment, Inc.
	 	Its
  General Partner


	 	By:	/s/
  ROBERT S. BENNETT


	 	Name:	Robert
  S. Bennett
	 	Title:	President
	 	Date:	3/30/01
	 	 	 
	By:	Hearthside
  Homes, Inc.


	 	By:	 /s/ RAYMOND J. PACINI


	 	Name:	Raymond
  J. Pacini
	 	Title:	CEO
	 	Date:	3/29/01
	 	 	 
	AV
  DEVELOPMENT CORPORATION, INC.


	By:	/s/  WILLIAM M. WARDLAW


	 	Name:	William
  M. Wardlaw
	 	Title:	President
	 	Date	



	 	 	 



 





 


	CALIFORNIA
  COASTAL COMMUNITIES, INC.
	 	 	 
	By:	/s/
  RAYMOND J. PACINI


	 	 	 
	 	Raymond
  J. Pacini


	 	Name


	 	President
  and CEO


	 	Title


	 	3/29/01


	 	Date
	 	 	 
	HEARTHSIDE
  HOMES, INC.
	 	 	 
	By:	/s/
  RAYMOND J. PACINI


	 	 	 
	 	Raymond
  J. Pacini


	 	Name


	 	CEO


	 	Title


	 	3/29/01


	 	Date
	 	 
	HEARTHSIDE
  HOLDINGS, INC.
	 	 	 
	By:	/s/
  RAYMOND J. PACINI


	 	 	 
	 	Raymond
  J. Pacini


	 	Name


	 	President
  and CEO


	 	Title


	 	3/29/01


	 	Date
	 	 	 






JOINING IN SOLELY FOR THE LIMITED
PURPOSES SET FORTH IN SECTION 2.8 HEREOF;


	FS
  EQUITY PARTNERS III, L.P., a Delaware limited partnership


	By:	FS
  Capital Partners, L.P.
	 	A
  California limited partnership
	 	Its
  General Partner


	 	By:	FS
  Holdings, Inc.
	 	 	A
  Delaware corporation
	 	 	Its
  General Partner
	 	 	 	 
	By:	/s/  WILLIAM M. WARDLAW


	 	 	 	 
	 	William
  M. Wardlaw


	 	Name


	 	Vice
  President


	 	Title


	 	


	 	Date
	 	 	 	 
	 	 	 	 
	APPROVED
  AS TO FORM AND CONTENT


	O’MELVENY
  & MYERS LLP


	By:	/s/  THOMAS M. RIORDAN


	 	Thomas
  M. Riordan
	Attorneys
  for Plaintiff and Cross-Defendants
	AV
  PARTNERSHIP and AV DEVELOPMENT CORPORATION


	         3/30/01


	Date	 	 	 
							



 





 


	ALLEN
  MATKINS LECK GAMBLE & MALLORY LLP


	By	/s/
  GREORY G. GORMAN


	 	Gregory
  G. Gorman	 	 
	Attorneys
  for Defendant and Cross-Complainants
	CALIFORNIA
  COASTAL COMMUNITIES, INC., 

  HEARTHSIDE HOMES, INC., and 

  HEARTHSIDE HOLDINGS INC.


	         4/4/01


	Date