axr8k1209_exh101.htm


    

      Exhibit
10.1

      


      LOAN
AGREEMENT

      


      THIS LOAN AGREEMENT ("Agreement") is
dated effective December 17, 2009, by and between AMREP SOUTHWEST INC., a New
Mexico corporation ("Borrower"), and COMPASS BANK,
("Bank").  This Agreement replaces and supersedes the Loan Agreement
between the parties dated effective January 8, 2007 as amended.

      


      SECTION
ONE

      CREDIT
TERMS

          SECTION
1.1.    CREDIT FACILITY.

      


      (a)           Credit
Facility.  Subject to the terms and conditions of this
Agreement, Bank hereby agrees to refinance the existing September 18, 2006
promissory note in the original principal of $25,000,000, upon receipt by
Borrower of a $2,500,000 capital contribution from its parent company and
establishment of an interest reserve account, as provided below.  Such
refinance is evidenced by the replacement promissory note dated December 17,
2009, in the principal amount of $22,500,000.00 (the “Note”) with a maturity
date of December 16, 2010, (the “Maturity Date.”)  This Agreement
applies to all amendments, modifications, replacements, and renewals of such
Note.

      


      SECTION
1.2.       INTEREST/FEES.

      


      (a)           Interest. The
outstanding principal balance of the Note shall bear interest from the date of
origination on such note at the rate set forth in the Note.

      


      (b)           Computation and
Payment.  Interest shall be computed on the basis of a 360-day
year, actual days elapsed.  Interest shall be payable at the times and
place set forth in the note or other instrument or document required
hereby.

      


      (c)           Documentation
Fees.  Borrower shall pay to Bank at closing a loan
documentation fee of $2,500.00, plus all attorney fees and costs incurred by
Bank for the negotiation and preparation of this Agreement, the Note, Mortgage
and all other related loan documents, including recording fees and title
insurance premiums.  Borrower agrees that all loan fees and other
prepaid charges are earned fully as of the date of this agreement and will not
be subject to refund, except as required by law.

      


      SECTION
1.3.    NOTE PRINCIPAL PAYMENT.  The Note
principal balance is payable as provided in the Note, which includes payments
based on a percentage of net cash from land sales received by Borrower in fiscal
years 2010 and 2011, with the balance due and payable in full at the Maturity
Date.

      


      SECTION
1.4     LOAN DOCUMENTS.  This Agreement, the
Note, the Mortgage described below, and all other documents previously,
contemporaneously, or hereafter executed in connection with the loans and credit
facilities referenced herein or hereafter made pursuant to this Agreement are,
collectively, the “Loan Documents.”


      
        
           


        

        
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      SECTION 1.5.   
COLLATERAL.  As security for the Note, Borrower grants to Bank the Mortgage
dated December 17, 2009 as a first and superior lien on all land and
improvements that comprise the Lomas Encantadas, Hawksite, Paseo Gateway, and
Enchanted Hills master-planned developments.  The developments are
comprised of approximately 448+/- acres, 387+/- acres, 276 +/- acres, and 80 +/-
acres, respectively.

      


      SECTION
TWO

      REPRESENTATIONS AND
WARRANTIES

      


      Borrower makes the following
representations and warranties to Bank, which representations and warranties
shall survive the execution of this Agreement and shall continue in full force
and effect until the full and final payment, and satisfaction and discharge, of
all obligations of Borrower to Bank subject to this Agreement. As used in this
Section 2, Borrower includes, to the extent necessary as to any collateral Loan
Document, Borrower’s wholly owned subsidiary Outer Rim Investments,
Inc.

      


      SECTION 2.1.   
CORPORATE STATUS.   The Borrower is a duly organized and validly
existing corporation in good standing and duly authorized to carry on its
business in the State of New Mexico as now conducted and to enter into and
perform its obligations under this Agreement and each of the Loan
Documents.

      


      SECTION 2.2.   
MAINTENANCE OF STATUS.  The Borrower will maintain its existence as a
corporation which is duly authorized to do business in the State of New Mexico,
will comply with all statutes and rules and regulations applicable to its
organization and existence and its business in New Mexico or
elsewhere.

      


      SECTION 2.3.    DUE
AUTHORIZATION.  The execution, delivery and performance by the
Borrower of this Agreement, each Note and each Loan Document has been duly
authorized by all necessary corporate action by the Borrower and its Board of
Directors.

      


      SECTION
2.4.    VALIDITY AND BINDING EFFECT.  The Loan
Documents have been duly and validly executed, issued and delivered by the
Borrower and constitute valid and legally binding obligations of the Borrower,
enforceable in accordance with their terms except as may be limited by
bankruptcy, insolvency, reorganization or other similar laws related to or
affecting enforcement of creditors’ rights.

      


      SECTION
2.5.    COMPLIANCE.  The execution and delivery by
the Borrower of the Loan Documents and compliance by the Borrower with the terms
thereof will not violate (i) any law or regulation, including but not limited to
any securities law or regulation, (ii) Borrower’s organizational documents, or
(iii) any other instrument or agreement binding upon the Borrower.

      


      SECTION
2.6     INCOME TAX RETURNS.  At the time of
execution of this Agreement, Borrower has no knowledge of any pending
assessments or adjustments of its income tax payable with respect to any
year.

      


      SECTION 2.7.    NO
SUBORDINATION.  There is no agreement, indenture, contract or
instrument to which Borrower is a party or by which Borrower may be bound that
requires the subordination in right of payment of any of Borrower's obligations
subject to this Agreement to any other obligation of Borrower.


      
        
           


        

        
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         SECTION
2.8.    ERISA.  Borrower is in compliance in all
material respects with all applicable provisions of the Employee Retirement
Income Security Act of 1974, as amended or recodified from time to time
("ERISA"); Borrower has not violated any provision of any defined employee
pension benefit plan (as defined in ERISA) maintained or contributed to by
Borrower (each, a "Plan"); no Reportable Event as defined in ERISA has occurred
and is continuing with respect to any Plan initiated by Borrower; Borrower has
met its minimum funding requirements under ERISA with respect to each Plan; and
each Plan will be able to fulfill its benefit obligations as they come due in
accordance with the Plan documents and under generally accepted accounting
principles.

      


      SECTION
2.9.    OTHER OBLIGATIONS.  Borrower is not in
default on any obligation for borrowed money, any purchase money obligation or
any other material lease, commitment, contract, instrument or obligation, in
excess of $300,000.00.

      


      SECTION 2.10.  ENVIRONMENTAL
MATTERS.  Except as disclosed by Borrower to Bank in writing prior to
the date hereof, Borrower is in compliance in all material respects with all
applicable federal or state environmental, hazardous waste, health and safety
statutes, and any rules or regulations adopted pursuant thereto, which govern or
affect any of Borrower's operations and/or properties, including without
limitation, the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, the Superfund Amendments and Reauthorization Act of 1986, the
Federal Resource Conservation and Recovery Act of 1976, and the Federal Toxic
Substances Control Act, as any of the same may be amended, modified or
supplemented from time to time.  None of the operations of Borrower is
the subject of any federal or state investigation evaluating whether any
remedial action involving a material expenditure is needed to respond to a
release of any toxic or hazardous waste or substance into the
environment.  Borrower has no material contingent liability in
connection with any release of any toxic or hazardous waste or substance into
the environment.

      


      SECTION 2.11.  ACCURACY OF
REPRESENTATIONS.  No certificate, statement, document, valuation,
financial or other information delivered by or on behalf of Borrower to the Bank
in connection herewith or in connection with the Loan contains any untrue
statement of a material fact or fails to state any material fact necessary to
keep such information from being misleading.  Borrower represents and
warrants all financial and other information hereafter furnished to the Bank
will be materially accurate and complete and acknowledges that such information
will be submitted to the Bank with the intent that the Bank will rely upon such
information.

      


      SECTION
2.12.  SOLVENCY.  The Borrower is solvent, and has no actual
knowledge that there are any proceedings, pending or threatened, against it,
which could materially adversely affect its financial condition or its ability
to timely perform all obligations, nor are there any governmental or any
judicial proceedings of any kind pending or threatened against it except as
disclosed to the Bank in writing prior to closing.

      


      SECTION 2.13   NO
MISREPESENTATION.  No certificate, statement, information or documents
delivered by or on behalf of Borrower, to the Bank in connection with this
Agreement or in connection with the Loan contains any untrue statement of a
material fact or fails to state any material fact necessary to keep the
statements contained in this Agreement from being misleading.


      
        
           


        

        
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        SECTION
THREE

        CONDITIONS

      

       

      


      SECTION
3.1.    CONDITIONS OF INITIAL EXTENSION OF
CREDIT.  The obligation of Bank to fund the Note is subject to the
fulfillment to Bank's satisfaction of all of the following
conditions:

      


      (a)           Approval of Bank
Counsel.  All legal matters incidental to the extension of
credit by Bank shall be satisfactory to Bank's counsel.

      


      (b)           Documentation.  Bank
shall have received, in form and substance satisfactory to Bank, each of the
following, duly executed:

      


      
        	
                 
      

              	
                (i)

              	
                This
      Agreement, the Note, the Mortgage, and other instrument or document
      required hereby,

              


      

      
        	
                 
      

              	
                (ii)

              	
                Resolutions
      authorizing borrowing and the pledge of
  collateral,

              


      

      
        	
                 
      

              	
                (iii)

              	
                An
      ALTA mortgage title policy in form satisfactory to Bank insuring the
      Mortgage in the amount of
$22,500,000.

              


      

      
        	
                 
      

              	
                (iv)

              	
                Such
      other documents as Bank may require under any other Section of this
      Agreement, including Borrower’s organizational
  documents.

              


      

      


      (c)           Participation.  Bank
shall have received its pro-rata share of the Note pursuant to a participation
agreement in form and with a financial institution or institutional lender
acceptable to Bank, for not less than 25% of the Note.

      


      (d)           Capital
Contribution.  Borrower shall have received from its parent
company a capital contribution of not less than $2,500,000.

      


      (e)           Interest
Reserve.    Borrower shall establish in a Bank
controlled interest bearing deposit account, a reserve for payment of interest
on the Note (“Interest Reserve”) in the initial amount of
$1,100,000.  Interest on the deposit account shall accrue to the
benefit of Borrower.  Additional requirements for the Interest Reserve
are contained in Section 4.11, below.

      


      


      SECTION
FOUR

      AFFIRMATIVE
COVENANTS

      


      Borrower covenants that so long as
Borrower remains obligated to Bank under the Note, this Agreement, or any other
obligations or liabilities (whether direct or contingent, liquidated or
unliquidated) and until payment in full of all obligations of Borrower subject
hereto, Borrower shall, unless Bank otherwise consents in writing:

      


      SECTION
4.1.    PUNCTUAL PAYMENTS.  Punctually pay all
principal, interest, fees or other liabilities due under any of the Loan
Documents at the times and place and in the manner specified therein, and
immediately repay the amount by which the outstanding principal balance of any
credit subject hereto at any time exceeds any limitation on borrowings
applicable thereto.

      


      SECTION
4.2.    RECORDS.  The Borrower will keep accurate
records, in accordance with generally accepted accounting principles, of all its
transactions so that at any time, and from time to time, its true and complete
financial condition may be readily determined and, at


      
        
           


        

        
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      the
Bank’s reasonable request, make such records available for the Bank’s inspection
and permit the Bank to make and retain copies thereof.

      


      SECTION
4.3.    FINANCIAL REPORTING
REQUIREMENTS.  Borrower will provide the following information to
Bank:

      


      
        	
                 
      

              	
                (a)

              	
                Quarterly
      consolidated balance sheets and consolidated statements of income,
      retained earnings and cash flow, prepared in accordance with generally
      accepted accounting principles, together with calculations confirming
      Borrower's compliance with all financial covenants and real estate
      inventory report, certified by a senior financial officer of Borrower,
      within 60 days after the end of each
quarter.

              


      

       

      
        	
                 
      

              	
                (b)

              	
                Annual
      consolidated financial statements as described above, with an unqualified
      opinion from a nationally or regionally recognized independent accounting
      firm acceptable to Bank, together with calculations confirming Borrower's
      compliance with all financial covenants, certified by a senior financial
      officer of Borrower, within 120 days after the end of each fiscal
      year.

              


      

       

      
        	
                 
      

              	
                (c)

              	
                Projections
      of consolidated financial statements for each fiscal year through the
      maturity of the credit facilities, no later than 60 days after the first
      day of the fiscal year.

              


      

       

      
        	
                 
      

              	
                (d)

              	
                Copy
      of Quarterly 10Q Report for AMREP Corporation within 30 days of
      filing.

              


      

      


      
        	
                 
      

              	
                (e)

              	
                Copy
      of Annual 10K Report for AMREP Corporation within 30 days of
      filing.

              


      

       

      
        	
                 
      

              	
                (f)

              	
                All other information reasonably
      requested by the Bank.

              


      

      


         SECTION 4.4 
 FINANCIAL RATIO REQUIREMENTS.  Borrower will maintain at
all times:

      


      
        	
                 
      

              	
                (a)

              	
                a
      minimum Tangible Net Worth at the end of each fiscal quarter of not less
      than $57,500,000.00.  “Tangible Net Worth” means stockholder's
      equity, minus the aggregate of any treasury stock, any intangible assets
      and any obligations due from stockholders, employees and/or affiliated
      entities.

              


      

      


      
        	
                 
      

              	
                (b)

              	
                a
      Debt Service Coverage Ratio of not less than 1.50 to 1.00, tested
      quarterly beginning 1/31/10.  The 1/31/10 ratio test will be
      performed on a 9-month basis.  Beginning 4/30/10, this ratio
      test will be performed on a rolling 12-month basis.  Debt
      Service Coverage is defined as the quotient of Modified Gross Cash Flow
      divided by Debt Service.  Modified Gross Cash Flow is defined as
      [Net Income + Cost of Sales – Development Spending + Collection of
      Receivables – Receivables from New Term Sales + Depreciation + Interest
      Expense +/- Non-Cash Items + Net Cash Proceeds from the 1031 Exchange
      Funding + Cash from AMREP Corp. (or ARIC) – Cash paid to AMREP Corp. (or
      ARIC) excluding management fees paid to AMREP Corp. (or ARIC) which have
      been recognized as an expense during the period incurred] for the
      respective period.  Debt Service is defined as [Cash Paid for
      Interest + Regular Principal Payments for any Amortizing Debt] for the
      respective period.

                 

                Proceeds
      from the 1031 exchange funding represent a one-time cash source for
      covenant purposes, to be funded by mortgaging a commercial property in
      Florida purchased with 1031 monies that is leased to the Borrower’s
      related company, Palm


                 

              


      

       

      
         

      

      
        
           


        

        
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      Coast
Data, LLC.  Principal payments by Borrower resulting from excess cash
from land sales (required by Section 1.3 above) shall not be considered as
Regular Principal Payments for the purposes of this Loan Agreement.

       

      In the
event the Borrower fails to meet this Debt Service Coverage Ratio requirement in
any quarter, but within sixty (60) days after the end of such quarter AMREP
Corporation makes a cash contribution to the Borrower sufficient to allow
Borrower to meet the requirement for such quarter, then the Borrower shall be
deemed to have met the Debt Service Coverage Ratio for such
quarter.

       

      SECTION
4.5.    INSURANCE.  Maintain fire and other risk
insurance, public liability insurance, and such other insurance as the Bank may
require with respect to Borrower’s properties and operations, in form, amounts,
coverages, and with insurance companies reasonably acceptable to the
Bank.  Borrower, upon request of the Bank, will deliver to the Bank
from time to time the policies or certificates of insurance in form satisfactory
to the Bank, including stipulations that coverages will not be canceled or
diminished without at least ten (10) days’ prior written notice to the
Bank.  In connection with all policies covering assets in which the
Bank holds or is offered a security interest for the Loans, Borrower will
provide the Bank with such loss payable or other endorsements as Bank may
require.  Notwithstanding the preceding provisions of this paragraph,
the Bank has reviewed the Borrower’s existing insurance policies, and has
determined that Borrower’s existing insurance coverage is acceptable to the Bank
for the purposes of this Loan and that the Bank will not require any additional
insurance coverage from Borrower during the term of this Loan, unless an event
of default has occurred.

      


      SECTION
4.6.    IMPOSITIONS.  The Borrower will comply
with all legal requirements and will pay all taxes, assessments, governmental
charges and other obligations which, if unpaid, might become a lien against the
Borrower’s property, except liabilities being contested in good faith and
against which, if requested by the Bank, the Borrower will set up reserves to
satisfy such obligations as they become due.

      


      SECTION
4.7.    NOTICE TO BANK OF ADVERSE CLAIMS.  The
Borrower will promptly notify the Bank of (i) any litigation or any claim or
controversy which might be the subject of litigation against the Borrower, if
such litigation or potential litigation might, in the event of an unfavorable
outcome, have a material adverse effect on Borrower’s financial condition or
might cause an Event of Default; (ii) any material adverse change in the
financial condition or business of the Borrower, (iii) any other matter which in
the opinion of the Borrower might materially adversely affect the financial
condition of the Borrower; and (iv) the occurrence of any Event of
Default.  As used in this paragraph, the terms “material adverse
effect,” “material adverse change” and “materially adversely affect” shall refer
to an event which potentially could cause the Borrower to be in violation of the
Loan Agreement.

      


      SECTION 4.8.    NO
CHANGE OF OWNERSHIP/CONTROL.  No change of Borrower’s present majority
ownership by, or control by, its parent company AMREP Corporation shall
occur.

      


      SECTION
4.9.    TAXES AND REPORTS.  Borrower’s tax returns
that are or were required to be filed, have been filed, and all taxes and any
property assessments or similar governmental charges, have been paid in full,
except any currently being contested in good faith where adequate reserves have
been provided and written disclosure of such contest has been made to
Bank.


      
        
           


        

        
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      SECTION 4.10   MAXIMUM LOAN
TO VALUE COLLATERAL RATIO.  Borrower shall maintain sufficient
Collateral for the Note such that the Note balance does not exceed 40% of the
Current Fair Market Value.  “Current Fair Market Value” of any
Collateral means the value as determined solely by the Bank based on an
appraisal(s) in form acceptable to Bank and conforming to applicable regulatory
requirements, at any time and from time to time, or other qualifying values
acceptable to the Bank.  In the event such ratio exceeds 40%, Borrower
shall within 30 days of receipt of notice from Bank; 1) reduce the Note balance
or 2) provide additional Collateral acceptable in form and value to Bank,
sufficient to conform to such 40% loan to value ratio.

      


      SECTION 4.11   INTEREST
RESERVE.  At any time the Interest Reserve balance is reduced to less
than $500,000, Borrower shall immediately deposit not less than $250,000 into
such Interest Reserve account.   Bank shall debit (charge) such
Interest Reserve account for any interest payments due on the
Note.  Borrower’s obligation to pay the Note are not reduced or
limited by this provision.  Borrower grants Bank a right of setoff as
to all amounts in the Interest Reserve account.

      


      SECTION
4.12   RELEASE OF COLLATERAL.  Provided no Event of Default
has occurred, Borrower may request a release of a portion of the Collateral
subject to: 1) continued compliance with all requirements of this Agreement, 2)
the maximum loan to value ratio in Section 4.10, and 3) the Bank’s sole
determination (and any necessary approval by any participant), that the proposed
remaining collateral is of sufficient value, based on current approved
appraisals, to support the requested release.

      


      SECTION
FIVE

      NEGATIVE
COVENANTS

      


      Borrower further covenants that so long
as Bank remains committed to extend credit to Borrower pursuant hereto, or any
liabilities (whether direct or contingent, liquidated or unliquidated) of
Borrower to Bank under any of the Loan Documents remain outstanding, and until
payment in full of all obligations of Borrower subject hereto, Borrower will not without
Bank's prior written consent:

      


      SECTION 5.1.    USE
OF FUNDS.  Use any of the proceeds of any credit extended hereunder
except for the purposes stated in Section I hereof.

      


      SECTION 5.2.    NO
ASSIGNMENT.  Assign any interest, complete or partial, in this
Agreement, the Note, the Loan, the Loan proceeds or any other Loan
Documents.  Any such assignment without such consent shall be
void.

      


      SECTION
5.3.    LIMITATION ON OTHER BORROWINGS AND PLEDGE OF
ASSETS.

      


      
        	
                 
      

              	
                1)

              	
                obtain
      loans or other borrowings from third parties, with the exception of
      Borrower’s parent/affiliated corporations: AMREP Corporation and/or
      American Republic Investment Co. (however, the proposed financing in an
      amount not to exceed $4,000,000 (“1031 Exchange Financing”) of the 1031
      exchange property, located at 2 Commerce Blvd, Palm Coast, Florida (“1031
      Property”) will be permitted),

              


      

      


      
        	
                 
      

              	
                2)

              	
                grant
      or assign to any third party any liens, mortgages, security interest, or
      interest in any assets owned by Borrower at the effective date of this
      Agreement

              


      


      
        
           


        

        
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                without
      the prior written consent of Bank. (however, a lien on the 1031 Property
      to secure the 1031 Exchange Financing will be permitted),
    or

              


      

      


      
        	
                 
      

              	
                3)

              	
                make
      any distributions to its parent company, AMREP
      Corporation.  [However, provided no Event of Default has
      occurred, Borrower may pay to AMREP Corporation an amount not to exceed
      $58,000 per month as reimbursement for expenses incurred by AMREP
      Corporation on behalf of Borrower.

              


      

      


      SECTION
5.4.    LOANS, ACQUISITIONS, GUARANTIES. Borrower shall not
make loans or advances to third parties, or incur any liability or obligation
for the benefit of any third party (whether direct, indirect, as surety, or as
guarantor), except: 1) purchase money financing for the sale of land by
Borrower, or 2) as specifically allowed by this Agreement including Section 5.3.
above.

      


      SECTION
SIX

      EVENTS OF
DEFAULT

      


      SECTION 6.1.    The
occurrence of any of the following shall constitute an "Event of Default" under
this Agreement:

      


      (a)           Borrower
shall fail to pay within five (5) days of the date due any amount due under the
Note, the Mortgage, this Agreement, any other Loan Documents, or any other
agreement with Bank.  Provided however, the first time in any calendar
year Borrower fails to timely make a payment of principal, interest, fees or
other amounts payable under any of the Loan Documents shall not be an Event of
Default unless and until Bank shall give notice of nonpayment to Borrower and
Borrower shall fail to make such required payment within five (5) days of
delivery of such notice.

      


      (b)           Any
financial statement or certificate furnished to Bank in connection with, or any
representation or warranty made by Borrower or any other party under this
Agreement or any other Loan Document shall prove to be incorrect, false or
misleading in any material respect when furnished or made.

      


      (c)           Any
default by Borrower in the performance of or compliance with any obligation,
agreement or other provision contained herein, including any requirement or
restriction in Sections 2, 3, 4, or 5 hereof, or in any other Loan
Document,

      


      (d)           Any
default by Borrower’s subsidiary Outer Rim Investments, Inc. (other than those
referred to in subsections (a) and (b) above), and with respect to any such
default which by its nature can be cured, such default shall continue for a
period of twenty (20) days from its occurrence.

      


      (e)           Any
default in the payment or performance of any obligation, or any defined event of
default, under the terms of any contract or instrument (other than any of the
Loan Documents) after the expiration of any applicable time or grace period
pursuant to which Borrower has incurred any debt or other liability to any
person or entity, including Bank, in excess of $300,000.00.

      


      (f)           Unless
Borrower shall post a bond, which shall be in form and amount acceptable to
Bank, within twenty (20) days of such event, the filing of a notice of judgment
lien in excess of $300,000.00 against Borrower; or the recording of any abstract
of judgment in


      
        
           


        

        
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      excess
of $300,000.00 against Borrower in any county in which Borrower has an interest
in real property; or the service of a notice of levy and/or of a writ of
attachment or execution, or other like process in excess of $300,000.00, against
the assets of Borrower; or the entry of a judgment in excess of $300,000.00
against Borrower.

      


      (g)           Borrower
shall become insolvent, or shall suffer or consent to or apply for the
appointment of a receiver, trustee, custodian or liquidator of itself or any of
its property, or shall generally fail to pay its debts as they become due, or
shall make a general assignment for the benefit of creditors; Borrower shall
file a voluntary petition in bankruptcy, or seeking reorganization, in order to
effect a plan or other arrangement with creditors or any other relief under the
Bankruptcy Reform Act, Title 11 of the United States Code, as amended or
recodified from time to time ("Bankruptcy Code"), or under any state or federal
law granting relief to debtors, whether now or hereafter in effect; or any
involuntary petition or proceeding pursuant to the Bankruptcy Code or any other
applicable state or federal law relating to bankruptcy, reorganization or other
relief for debtors is filed or commenced against Borrower, or Borrower shall
file an answer admitting the jurisdiction of the court and the material
allegations of any involuntary petition; or Borrower shall be adjudicated a
bankrupt, or an order for relief shall be entered against Borrower by any court
of competent jurisdiction under the Bankruptcy Code or any other applicable
state or federal law relating to bankruptcy, reorganization or other relief for
debtors.

      


      (h)           The
dissolution or liquidation of Borrower; or Borrower, or any of its directors,
stockholders or members, shall take action seeking to effect the dissolution or
liquidation of Borrower.

      


      SECTION
6.2.    REMEDIES.  Upon the occurrence of any
Event of Default:  (a) Borrower shall not make any payments to its
parent company, Amrep Corporation, allowed under Section 5.3(3), unless and
until the default has been cured to the satisfaction of the Bank (b) all
indebtedness of Borrower under each of the Loan Documents, any term thereof to
the contrary notwithstanding, shall at Bank's option and without notice become
immediately due and payable without presentment, demand, protest or notice of
dishonor, all of which are hereby expressly waived by each Borrower;
(c) the obligation, if any, of Bank to extend any further credit under any
of the Loan Documents shall immediately cease and terminate; and (d) Bank
shall have all rights, powers and remedies available under each of the Loan
Documents, or accorded by law, including without limitation the right to resort
to any or all security for any credit subject hereto and to exercise any or all
of the rights of a beneficiary or secured party pursuant to applicable
law.  All rights, powers and remedies of Bank may be exercised at any
time by Bank and from time to time after the occurrence of an Event of Default,
are cumulative and not exclusive, and shall be in addition to any other rights,
powers or remedies provided by law or equity.

      


      SECTION
SEVEN

      MISCELLANEOUS

      


      SECTION 7.1.    NO
WAIVER.  No delay, failure or discontinuance of Bank in exercising any
right, power or remedy under any of the Loan Documents shall affect or operate
as a waiver of such right, power or remedy; nor shall any single or partial
exercise of any such right, power or remedy preclude, waive or otherwise affect
any other or further exercise thereof or the exercise of any other right, power
or remedy.  Any waiver, permit, consent or approval of any kind by
Bank of any breach of or default under any of the Loan Documents must be in
writing and shall be effective only to the extent set forth in such
writing.   Whenever the consent of


      
        
           


        

        
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      Bank is
required under this Agreement, the granting of such consent by Bank in any
instance shall not constitute continuing consent to subsequent instances where
such consent (required and in all cases such consent may be granted or withheld
in the sole discretion of Bank.)

      


      SECTION
7.2.    NOTICES.  All notices, requests and
demands which any party is required or may desire to give to any other party
under any provision of this Agreement must be in writing delivered to each party
at the following address:

      


      BORROWER:   AMREP
Southwest Inc.

      333 Rio Rancho Drive S.W., Suite
400

      Rio Rancho, New Mexico
87124

      Attn:  Gary
Sullivan

      Fax:  (505)
896-9180

      


      


      With a copy
to:   Matthew W. Spangler, Esq.

      Lastrapes, Spangler & Pacheco,
P.A.

      P.O. Box 15698

      Rio Rancho, New Mexico
87174-0698

      Fax:  (505)
892-1864

      


      BANK:                Compass
Bank

      505 Marquette, NW

      Albuquerque, New Mexico
87102

      Attn: Rick White, Senior Vice
President

      Manager Residential Real Estate – New
Mexico and El Paso

      Fax:  (505)
888-9021

      


      or to
such other address as any party may designate by written notice to all other
parties.  Each such notice, request and demand shall be deemed given
or made as follows:  (a) if sent by hand delivery, upon delivery;
(b) if sent by mail, upon the earlier of the date of receipt or three (3)
days after deposit in the U.S. mail, first class and postage prepaid; and
(c) if sent by telecopy, upon receipt.

      


      SECTION
7.3.    COSTS, EXPENSES AND ATTORNEYS'
FEES.  Borrower shall pay to Bank immediately upon demand the full
amount of all payments, advances, charges, costs and expenses, including
reasonable attorneys' fees (to include outside counsel fees and all allocated
costs of Bank's in-house counsel), expended or incurred by Bank in connection
with (a) the negotiation and preparation of this Agreement and the other
Loan Documents (to a maximum of $5,800 plus costs and taxes), Bank's continued
administration hereof and thereof, and the preparation of any amendments and
waivers hereto and thereto; provided, however, Bank will not charge an annual,
quarterly, or other periodic fee for loan administration, (b) the
enforcement of Bank's rights and/or the collection of any amounts which become
due to Bank under any of the Loan Documents, and (c) the prosecution or
defense of any action in any way related to any of the Loan Documents, including
without limitation, any action for declaratory relief, whether incurred at the
trial or appellate level, in an arbitration proceeding or otherwise, and
including any of the foregoing incurred in connection with any bankruptcy
proceeding (including without limitation, any adversary proceeding, contested
matter or motion brought by Bank or any other person) relating to any Borrower
or any other person or entity.


      
        
           


        

        
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         SECTION
7.4.    SUCCESSORS, ASSIGNMENT.  This Agreement
shall be binding upon and inure to the benefit of the heirs, executors,
administrators, legal representatives, successors and assigns of the parties;
provided however, that Borrower may not assign or transfer its interest
hereunder without Bank's prior written consent.  Bank may sell,
assign, transfer, negotiate or grant participations in all or any part of, or
any interest in, Bank's rights and benefits under each of the Loan Documents and
in connection therewith, the Bank may receive servicing, brokerage or other
fees.  In connection with such sale, assignment, transfer, negotiation
or grant of participations, Bank may disclose all documents and information
which Bank now has or may hereafter acquire relating to any credit subject
hereto, Borrower or its business, or any collateral required hereunder, but only
to the extent necessary for bank purposes.  The Bank and its
successors and assigns shall have no obligation to disclose to Borrower the
receipt, or contemplated receipt, of any such fees, nor shall the Borrower have
any claim or right to the same.  In the event the Bank sells or
transfers its entire interest in the Loan and the Loan Documents, the Bank or
such purchaser or assignee will notify Borrower of such event within 30
days.  Borrower further agrees that the purchaser of any such
participation interests may enforce its interests irrespective of any personal
claims or defenses that Borrower may have against Bank.

      


      SECTION
7.5.    ENTIRE AGREEMENT; AMENDMENT.  This
Agreement and the other Loan Documents constitute the entire agreement between
Borrower and Bank with respect to each credit subject hereto and supersede all
prior negotiations, communications, discussions and correspondence concerning
the subject matter hereof.  This Agreement may be amended or modified
only in writing signed by each party hereto.

      


      SECTION 7.6.    NO
THIRD PARTY BENEFICIARIES.  This Agreement is made and entered into
for the sole protection and benefit of the parties hereto and their respective
permitted successors and assigns, and no other person or entity shall be a third
party beneficiary of, or have any direct or indirect cause of action­ or
claim in connection with, this Agreement or any other of the Loan Documents to
which it is not a party.

      


      SECTION
7.7.    TIME.  Time is of the essence of each and
every provision of this Agreement and each other of the Loan
Documents.

      


      SECTION
7.8.    SEVERABILITY OF PROVISIONS.  If any
provision of this Agreement shall be prohibited by or invalid under applicable
law, such provision shall be ineffective only to the extent of such prohibition
or invalidity without invalidating the remainder of such provision or any
remaining provisions of this Agreement.

      


      SECTION
7.9.    COUNTERPARTS.  This Agreement may be
executed in any number of counterparts, each of which when executed and
delivered shall be deemed to be an original, and all of which when taken
together shall constitute one and the same Agreement.

      


      SECTION 7.10.  BANK/BORROWER
RELATIONSHIP.  The relationship between Borrower and Bank created by
this Agreement is strictly a debtor and creditor relationship and not fiduciary
in nature, nor is the relationship to be construed as creating any partnership
or joint venture between Bank and Borrower.  Borrower is exercising
Borrower’s own judgment with respect to Borrower’s business.  All
information supplied to Bank is for Bank’s protection only and no other party is
entitled to rely on such information. There is no duty for Bank to review,
inspect, supervise or inform Borrower of any matter with respect to Borrower’s
business.  Bank and Borrower intend that Bank may reasonably rely on
all information supplied by Borrower to Bank, together with all representations
and warranties given by Borrower to Bank, without


      
        
           


        

        
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      investigation
or confirmation by Bank and that any investigation or failure to investigate
will not diminish Bank’s right to so rely.

      


       

      SECTION
7.11.  INDEMNIFICATION OF BANK.  Borrower agrees to
indemnify, to defend and to save and hold Bank harmless from any and all claims,
suits, obligations, damages, losses, liabilities, costs and expenses (including,
without limitation, Bank’s attorneys’ fees) of any nature whatsoever that may be
asserted by a third party against Bank, its officers, directors, employees, and
agents, arising out of, or relating to Borrower and its relationship to Bank
under this Agreement, including the lender/borrower relationship arising
hereunder or the exercise of the rights and remedies granted Bank under this
Agreement or any related loan document. The foregoing indemnity provisions shall
survive the cancellation of this Agreement as to all matters arising or accruing
prior to such cancellation and the foregoing indemnity shall survive in the
event that Bank elects to exercise any of the remedies as provided under this
Agreement following default hereunder. Borrower’s indemnity obligations under
this section shall not in any way be affected by the presence or absence of
covering insurance, or by the amount of such insurance or by the failure or
refusal of any insurance carrier to perform any obligation on its part under any
insurance policy or policies affecting the Borrower’s business activities.
Should any claim, action or proceeding be made or brought against Bank by reason
of any event as to which Borrower’s indemnification obligations apply, then,
upon Bank’s demand, Borrower, at its sole cost and expense, shall defend such
claim, action or proceeding in Borrower’s name, if necessary, by the attorneys
for Borrower’s insurance carrier (if such claim, action or proceeding is covered
by insurance), or otherwise by such attorneys as Bank shall approve. Bank may
also engage its own attorneys at its reasonable discretion to defend Borrower
and to assist in its defense and Borrower agrees to pay the fees and
disbursements of such attorneys.

       

       

                 
SECTION 7.12.  NO WAIVER BY BANK. Bank shall not be deemed to have
waived any rights under this Agreement unless such waiver is given in writing
and signed by Bank. No delay or omission on the part of Bank in exercising any
right shall operate as a waiver of such right or any other right. A waiver by
Bank of a provision of this Agreement shall not prejudice or constitute a waiver
of Bank’s right otherwise to demand strict compliance with that provision or any
other provision of this Agreement. No prior waiver by Bank, nor any course of
dealing between Bank and Borrower or between Bank and any
Grantor,  shall constitute a waiver of any of Bank’s rights or of any
of Borrower’s or any Grantor’s obligations as to any future
transactions.

       

                  SECTION
7.13.  GOVERNING LAW.  This Agreement shall be governed by
and construed in accordance with the laws of the State of New
Mexico.

      


      BORROWER
ACKNOWLEDGES THAT IT IS AWARE OF THE PROVISIONS OF §58-6-5 OF THE NEW MEXICO
STATUTES WHICH PROVIDES THAT A CONTRACT, PROMISE OR COMMITMENT TO LOAN MONEY OR
TO GRANT, EXTEND OR RENEW CREDIT OR ANY MODIFICATION THEREOF, IN AN AMOUNT
GREATER THAN $25,000, NOT PRIMARILY FOR PERSONAL, FAMILY OR HOUSEHOLD PURPOSES,
MADE BY A FINANCIAL INSTITUTION SHALL NOT BE ENFORCEABLE UNLESS IN WRITING AND
SIGNED BY THE PARTY TO BE CHARGED OR THAT PARTY’S AUTHORIZED
REPRESENTATIVE.


      
        
           


        

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

      


      AMREP SOUTHWEST INC.

      


      


      By:    /s/ James H.
Wall                                                                                                                        

             James
H. Wall, President

      


      


      COMPASS
BANK

      


      


      By:    /s/ Rick
White                                                                                                                                    

             Rick
White, Senior Vice President

             Manager
Residential Real Estate – New Mexico and El Paso

      


      
 

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