exv10w3



 







Exhibit 10.3




CREDIT AGREEMENT




among




WACHOVIA BANK, NATIONAL ASSOCIATION (“Lender”)




and




COMSTOCK HOMEBUILDING COMPANIES, INC.

(“Borrower”)




joined in by




CAPITOL HOMES INC. and COMSTOCK WESEL, L.L.C.




(Collectively, “Guarantor”)




FOR $40,000,000 SENIOR SECURED REVOLVING CREDIT FACILITY




 









 





TABLE OF CONTENTS




	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	Page
	 
	ARTICLE 1 DEFINITIONS AND REFERENCE TERMS	 	 	1	 
	 
	 	 	 	 	 	 	 	 	 	 
	ARTICLE 2 DESCRIPTION OF FACILITY	 	 	6	 
	 

	 	 	2.01	 	 	Facility
	 	 	6	 
	 

	 	 	2.02	 	 	Additional Provisions Related to Principal, Interest and Costs
	 	 	7	 
	 

	 	 	2.03	 	 	Revolving Credit Feature
	 	 	9	 
	 

	 	 	2.04	 	 	Commitment Fee
	 	 	9	 
	 

	 	 	2.05	 	 	Conditions Precedent
	 	 	9	 
	 
	 	 	 	 	 	 	 	 	 	 
	ARTICLE 3 ADVANCE CONDITIONS	 	 	12	 
	 

	 	 	3.01	 	 	Procedures for Advances
	 	 	12	 
	 

	 	 	3.02	 	 	Repayment of Advances
	 	 	12	 
	 

	 	 	3.03	 	 	Advance Rates
	 	 	13	 
	 

	 	 	3.04	 	 	Borrowing Base Availability
	 	 	13	 
	 

	 	 	3.05	 	 	Partial Releases
	 	 	15	 
	 

	 	 	3.06	 	 	Periodic Appraisals
	 	 	15	 
	 
	 	 	 	 	 	 	 	 	 	 
	ARTICLE 4 REPRESENTATIONS AND WARRANTIES	 	 	15	 
	 

	 	 	4.01	 	 	Good Standing
	 	 	15	 
	 

	 	 	4.02	 	 	Authority and Compliance
	 	 	15	 
	 

	 	 	4.03	 	 	Binding Agreement
	 	 	15	 
	 

	 	 	4.04	 	 	Litigation
	 	 	16	 
	 

	 	 	4.05	 	 	No Conflicting Agreements
	 	 	16	 
	 

	 	 	4.06	 	 	Ownership of Assets
	 	 	16	 
	 

	 	 	4.07	 	 	Financial Statements
	 	 	16	 
	 

	 	 	4.08	 	 	Place of Business
	 	 	16	 
	 

	 	 	4.09	 	 	Environmental Matters
	 	 	16	 
	 

	 	 	4.10	 	 	Federal Reserve Regulations
	 	 	16	 
	 

	 	 	4.11	 	 	Consents, Etc.
	 	 	17	 
	 

	 	 	4.12	 	 	Governmental Authorizations
	 	 	17	 
	 

	 	 	4.13	 	 	Title to Properties
	 	 	17	 
	 

	 	 	4.14	 	 	Solvent
	 	 	17	 
	 

	 	 	4.15	 	 	Intent and Effect of Transactions
	 	 	17	 
	 

	 	 	4.16	 	 	Incorporation of Representations and Warranties
	 	 	17	 
	 

	 	 	4.17	 	 	Material Contracts
	 	 	18	 
	 

	 	 	4.18	 	 	Use of Proceeds
	 	 	18	 
	 

	 	 	4.19	 	 	Tax Returns and Payment
	 	 	18	 
	 

	 	 	4.20	 	 	Investment Company Act of 1940
	 	 	18	 
	 

	 	 	4.21	 	 	Management and Other Agreements
	 	 	18	 
	 
	 	 	 	 	 	 	 	 	 	 
	ARTICLE 5 AFFIRMATIVE COVENANTS	 	 	18	 
	 

	 	 	5.01	 	 	Financial Statements and Other Information
	 	 	18	 
	 

	 	 	5.02	 	 	Financial Covenants
	 	 	19	 
	 

	 	 	5.03	 	 	Restrictions on Investment
	 	 	20	 
	 

	 	 	5.04	 	 	Restrictions on Liabilities
	 	 	20	 
	 

	 	 	5.05	 	 	Existence and Compliance
	 	 	20	 
	 

	 	 	5.06	 	 	Adverse Conditions or Events
	 	 	20	 
	 

	 	 	5.07	 	 	Taxes and Other Obligations
	 	 	20	 
	 

	 	 	5.08	 	 	Maintenance
	 	 	20	 
	 

	 	 	5.09	 	 	Notification
	 	 	21	 
	 

	 	 	5.10	 	 	Organizational Structure
	 	 	21	 






 









 






	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	 

	 	 	5.11	 	 	Observe All Laws
	 	 	21	 
	 

	 	 	5.12	 	 	Governmental Licenses
	 	 	21	 
	 

	 	 	5.13	 	 	Compliance with Laws
	 	 	21	 
	 

	 	 	5.14	 	 	Visitation Rights
	 	 	21	 
	 

	 	 	5.15	 	 	Payment of Indebtedness
	 	 	21	 
	 

	 	 	5.16	 	 	Subordination
	 	 	21	 
	 

	 	 	5.17	 	 	Notice of Default
	 	 	22	 
	 

	 	 	5.18	 	 	Interstate Land Sales Full Disclosure Act
	 	 	22	 
	 
	 	 	 	 	 	 	 	 	 	 
	ARTICLE 6 NEGATIVE COVENANTS	 	 	22	 
	 

	 	 	6.01	 	 	Character of Business
	 	 	22	 
	 

	 	 	6.02	 	 	Additional Negative Covenants
	 	 	22	 
	 
	 	 	 	 	 	 	 	 	 	 
	ARTICLE 7 DEFAULT	 	 	23	 
	 
	 	 	 	 	 	 	 	 	 	 
	ARTICLE 8 REMEDIES UPON DEFAULT	 	 	24	 
	 
	 	 	 	 	 	 	 	 	 	 
	ARTICLE 9 JOINDER INTO DECLARATIONS	 	 	25	 
	 

	 	 	9.01	 	 	Consent to Master Association Declarations, Easements and Plats
	 	 	25	 
	 
	 	 	 	 	 	 	 	 	 	 
	ARTICLE 10 NOTICES	 	 	25	 
	 
	 	 	 	 	 	 	 	 	 	 
	ARTICLE 11 COSTS, EXPENSES AND ATTORNEYS’ FEES	 	 	26	 
	 
	 	 	 	 	 	 	 	 	 	 
	ARTICLE 12 MISCELLANEOUS	 	 	26	 
	 

	 	 	12.01	 	 	Cumulative Rights and No Implied Waiver
	 	 	26	 
	 

	 	 	12.02	 	 	Applicable Law
	 	 	26	 
	 

	 	 	12.03	 	 	Amendment
	 	 	26	 
	 

	 	 	12.04	 	 	Documents
	 	 	26	 
	 

	 	 	12.05	 	 	Partial Invalidity
	 	 	26	 
	 

	 	 	12.06	 	 	Indemnification
	 	 	27	 
	 

	 	 	12.07	 	 	Survivability
	 	 	27	 
	 

	 	 	12.08	 	 	Course of Dealing
	 	 	27	 
	 

	 	 	12.09	 	 	Successors and Assigns
	 	 	27	 
	 

	 	 	12.10	 	 	Net Payments
	 	 	27	 
	 

	 	 	12.11	 	 	Further Assurances
	 	 	28	 
	 

	 	 	12.12	 	 	Resurrection of Borrower’s Indebtedness
	 	 	28	 
	 

	 	 	12.13	 	 	Equitable Relief
	 	 	28	 
	 

	 	 	12.14	 	 	Multiple Borrowers
	 	 	28	 
	 

	 	 	12.15	 	 	Identification of Lender
	 	 	28	 
	 

	 	 	12.16	 	 	Broker’s Commission
	 	 	28	 
	 

	 	 	12.17	 	 	No Usurious Amounts
	 	 	28	 
	 

	 	 	12.18	 	 	Approvals
	 	 	28	 
	 

	 	 	12.19	 	 	Documentary and Intangible Taxes
	 	 	29	 
	 

	 	 	12.20	 	 	Confidentiality
	 	 	29	 
	 

	 	 	12.21	 	 	USA Patriot Act Notice
	 	 	29	 
	 

	 	 	12.22	 	 	Counterparts; Effective Date
	 	 	29	 
	 
	 	 	 	 	 	 	 	 	 	 
	ARTICLE 13 AMBIGUITY OR CONFLICT	 	 	29	 
	 
	 	 	 	 	 	 	 	 	 	 
	ARTICLE 14 JURISDICTION, SERVICE OF PROCESS	 	 	30	 
	 
	 	 	 	 	 	 	 	 	 	 
	ARTICLE 15 NO ORAL AGREEMENT	 	 	30	 
	 
	 	 	 	 	 	 	 	 	 	 
	ARTICLE 16 WAIVER OF JURY TRIAL	 	 	30	 






ii









 






	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	 

	 	 	16.01	 	 	Waiver of Jury Trial
	 	 	30	 






Index to Schedules




	 	 	 
	Schedule A

	 	Borrowing Base Certificate
	 
	 	 
	Schedule B

	 	Certificate of Compliance
	 
	 	 
	Schedule C

	 	Request for Advance
	 
	 	 
	Schedule One

	 	Advance Rates






iii









 





CREDIT AGREEMENT




     THIS CREDIT AGREEMENT (the “Agreement”) is dated as of                     , 2006, between Lender
and Borrower joined into by Guarantor and to be joined into from time to time by each Future
Guarantor.



     Lender has agreed to extend a senior secured revolving credit facility to Borrower and
Borrower has agreed to accept the proceeds thereof of up to the principal amount of Forty Million
Dollars ($40,000,000) on a revolving basis (the “Facility”), on the terms and conditions set forth
in this Agreement.



     For good and valuable consideration, the receipt and sufficiency of which each of the parties
acknowledges, and intending to be legally bound, the parties agree as follows:



ARTICLE 1




DEFINITIONS AND REFERENCE TERMS




     In addition to any other terms defined in this Agreement, the following terms shall have the
meanings indicated below:



          Accounting Terms. All accounting terms not specifically defined or specified in this
Agreement shall have the meanings generally attributed to them under generally accepted accounting
principles (“GAAP”), as in effect from time to time, consistently applied.




          Advance. An advance of Facility proceeds to or for the benefit of Borrower subject to the
terms and conditions of this Agreement.




          Amenities. With respect to a particular project, the improvements to be constructed on common
areas, such as entrance monuments, landscaping and recreational facilities.




          Authorized Signatory. Christopher Clemente.




          Borrower. Comstock Homebuilding Companies, Inc., a Delaware corporation.




          Borrowing Base. All Lender-approved Projects existing from time to time as specified in the
Borrowing Base Certificate approved by Lender.




          Borrowing Base Certificate. The certificate attached as Schedule A, which shall be
delivered from Borrower to Lender from time to time under this Agreement.




          Borrowing Base Availability. The amount available under the Facility from time to time, as
determined under Section 3.04.




          Borrowing Base Maximum Eligibility. The amount that would be available under the Facility
from time to time, as determined under Section 3.04, but assuming 100% completion of LUD and Units.




          Borrowing Date. The date on which an Advance is made.




          Budgeted Project Cost. The actual cost incurred to purchase Projects and obtain all required
governmental approvals plus the cost to be incurred on the total approved budget, including hard
costs of labor, materials, land improvements, Amenities, utility installation and other work to be
performed and Project related soft costs (survey costs, permit fees, insurance, impact fees,
interest, overhead and professional fees) in connection with the construction and completion of the
improvements in substantial compliance with the construction plans and specifications, all as
approved by Lender.




 









 








          Business Day. A day that is not a Saturday, Sunday or a day on which Lender is closed
pursuant to authorization or requirement of law.




          Closing. The date that this Agreement and the other Loan Documents are executed and delivered
by the parties.




          Collateral Pool. All Projects comprising the Borrowing Base as specified in the Borrowing
Base Certificate as approved by Lender from time to time.




          Commitment. Lender’s commitment to make Advances to Borrower up to the Commitment Amount.




          Commitment Amount. The aggregate principal amount of Advances which Lender shall make
available and is permitted to be outstanding at any one time under the Facility up to Forty Million
Dollars ($40,000,000).




          Contingent Liability. Without reference to the Indebtedness as to any Person: (a) any
guaranty obligation of that Person; and (b) any direct or indirect recourse obligation or
liability, contingent or otherwise, of that Person: (i) relating to any letter of credit, bond or
similar instrument issued for the account of that Person or for which that Person is otherwise
liable for reimbursement, (ii) to purchase any materials, supplies or other property from, or to
obtain the services of, another Person if the relevant contract or other related document or
obligation requires that payment for those materials, supplies or other property, or for those
services, shall be made if delivery of those materials, supplies or other property is not made or
tendered, or the services are never performed or tendered or (iii) incurred pursuant to any
interest rate swap or similar agreement. The amount of any Contingent Liability shall be deemed
equal to the maximum anticipated liability in respect thereof as determined by Lender in its sole
discretion. Contingent Liabilities will be computed at the amount which, in light of all the facts
and circumstances existing at a given time, represents the amount that can reasonably be expected
to become an actual or matured liability.




          Debt Service. During the relevant accounting period: (a) interest paid (whether expensed or
capitalized); plus (b) required principal payments on any debt of Borrower excluding any lump sum
principal payments at maturity.




          Deed of Trust. Individually and collectively, the Deed of Trust (or Mortgage, as applicable),
Security Agreement and Financing Statement encumbering each Project executed by Borrower, Guarantor
or a Future Guarantor in favor of Lender which secures the Note and any sums advanced by Lender
pursuant to this Agreement or the other Loan Documents. Future Guarantors shall from time to time,
at Land Closings, execute Deeds of Trust in favor of Lender securing their applicable Guarantees.




          Default. Any event or condition which, with the giving of notice or the passage of time or
both, would become an Event of Default.




          Default Rate. Four percent (4%) per annum above the then current Interest Rate under the
Note, not to exceed the highest non-usurious interest rate permitted by law.




          Development Agreement. Any agreement between Borrower, Guarantor and any Future Guarantors,
if applicable and any governmental or quasi-governmental entity or any utility company or authority
relating to a Project.




          Dollars and/or the symbol $. Lawful money of the United States of America.




2









 








          Effective Tangible Net Worth. Total assets minus Senior Liabilities. For purposes of this
computation, the aggregate amount of any intangible assets of Borrower including without
limitation, goodwill, franchises, licenses, patents, trademarks, trade names, copyrights, service
marks, and brand names, shall be subtracted from total assets.




          Entitled Land. Land owned by Borrower, Guarantor or a Future Guarantor that is to be acquired
or held for future development that is zoned to allow for the development of single-family
residential Lots, and that does not meet the definitions of Land Under Development or Finished
Lots.




          Event of Default. The meaning set forth in Article 7.




          Facility. The extension of credit (whether through Advances or letters of credit) made by
Lender to Borrower pursuant to the terms and conditions of this Agreement and the other Loan
Documents.




          Financing Statements. The UCC-1 financing statements (including fixture filings), amendments
and continuations in favor of Lender with respect to any Project. Borrower, Guarantor and any
Future Guarantor authorize Lender to file the Financing Statements.




          Finished Lots. Any Lot (A) with respect to which all off-site and on-site infrastructure
improvements (other than final paving) have been completed, including: (i) all utilities (water,
sewer and electric) being installed to the Lots (or bonded for completion); and (ii) all conditions
to subdivision approval imposed by the applicable governmental authorities being satisfied (or
bonded for completion) so that a building permit for a Unit can be obtained, and (B) located in a
subdivision approved by Lender. Under subsections (A)(i) and (ii) above, the bonding must be
acceptable to Lender in its discretion.




          Future Guarantors. The Facility shall require the joint and several unconditional guarantees
(the “Guarantees”) of any fee simple owners (other than Borrower) of any real property added to the
Collateral Pool (“Future Guarantors”) for the payment and performance of all obligations of
Borrower to Lender under the Facility. Each Future Guarantor shall acknowledge upon execution of
its Guarantee at a Land Closing that it is solvent, it is receiving equivalent value in return for
guaranteeing the obligations of Borrower and the Guarantee does not violate any lending
restrictions imposed on the Future Guarantor by a third party.




          Guarantor. Capitol Homes Inc. and Comstock Wesel, L.L.C., jointly and severally, with the
guaranty of the Indebtedness and Obligations of Borrower owed to Lender under this Agreement and
the other Loan Documents executed by Guarantor as of Closing collectively referred to as the
“Guaranty.” The term “Guarantor” shall apply to either Capitol Homes Inc. or Comstock Wesel,
L.L.C. or both as applicable in this Agreement.




          Hazardous Materials. All materials defined as hazardous or biohazardous wastes or substances
under any local, state or federal environmental laws, rules or regulations, and petroleum,
petroleum products, oil and asbestos.




          Indebtedness. All obligations now or in the future owed to Lender by Borrower under the terms
of the Note, this Agreement or the other Loan Documents, together with all interest accruing
thereon, all fees, all costs of collection, attorneys’ fees and expenses of or advances by Lender
which Lender pays or incurs in discharge of obligations of Borrower, whether the amounts are now
due or in the future become due, direct or indirect and whether the amounts due are from time to
time reduced or extinguished and thereafter re-incurred.




          Land Closing. Those times during the Term of the Facility when real property (each a Project)
becomes encumbered by the lien and operation of the Deed of Trust.




3









 








          Land Under Development or LUD. Land acquired by Borrower, Guarantor or a Future Guarantor
which is (A) zoned for its intended use, (B) has a preliminary plan approval (or its equivalent) by
the appropriate governmental authorities in the jurisdiction in which the land is located, (C) is
under development as determined by Lender, meaning that it is expected, in Lender’s sole
discretion, to commence development work within ninety (90) days and (D) is expected by Borrower,
and by Lender in its sole discretion, to be developed into Finished Lots within 36 months of
admittance to the Borrowing Base as LUD.




          Liquidation Proceeds. All amounts received by Lender in the exercise of the rights and
remedies under the Loan Documents (including upon foreclosure of the Deed of Trust and/or
realization on the Financing Statements), but not including either: (a) any amount bid at a
foreclosure sale by a Lender or otherwise credited to Borrower in any deed-in-lieu of foreclosure
or similar transaction or (b) any breakage amount due to Borrower under any Swap agreement after
the acceleration of the Facility, which breakage amount may be retained by Lender and applied
toward Lender’s portion of the Advances then outstanding after the application of all Liquidation
Proceeds.




          Loan Documents. This Agreement, the Note, the Deed of Trust, Financing Statements, and all
other documents executed and/or delivered by Borrower, Guarantor or a Future Guarantor or any third
party in connection with the Facility.




          Lot. Any single-family residential lot, or building site for a residential condominium or
townhome building, located in a Project approved by Lender and (A) created pursuant to a duly
recorded plat or (B) if allowed under applicable subdivision laws or ordinances, described by metes
and bounds description in designated platted tracts.




          Material Adverse Effect. A material adverse effect (as determined in Lender’s sole
discretion) upon: (i) the business, assets, operating ability or condition (financial or
otherwise) of Borrower taken as a whole, Guarantor or any Future Guarantor; or (ii) the ability of
Borrower, Guarantor and any Future Guarantor to repay the Obligations or other Indebtedness or
otherwise perform Obligations under the Loan Documents.




          Maturity Date. May ___, 2009, at which time the entire outstanding principal balance of the
Note plus all accrued unpaid interest and all other fees and amounts for which Borrower is
obligated to pay under this Agreement and the other Loan Documents shall be due and payable by
Borrower to Lender. Borrower shall have the right, upon written notice given to Lender no earlier
than one hundred twenty (120) days and no later than sixty (60) days prior to the annual
anniversary date of this Facility, to request that the Maturity Date be extended for one (1) year,
but the extension shall be subject to Lender’s approval (in its sole discretion). If Borrower
fails to extend the Maturity Date, as provided above, Lender shall not permit (i) the addition of
Entitled Land, LUD or Finished Lots into the Facility, or (ii) the addition of any Units into the
Facility from the date that is six (6) months prior to the Maturity Date.




          Model Units. Any Unit which is not a Sold Unit and which is located on a Lot intended to be
used as a model or sales office to conduct the business of marketing and selling Units.




          Note. The promissory note of Borrower payable to Lender in the stated principal amount of
$40,000,000.




          Obligations. The performance obligations of Borrower, Guarantor and any Future Guarantor
created under this Agreement and the other Loan Documents, including any expenses incurred by
Lender to cure any non-performance by Borrower, Guarantor or any Future Guarantor, whether primary
or secondary, absolute or contingent, direct or indirect, sole, joint or several, secured or
unsecured, due or to become due, contractual or tortious, arising by operation of law or otherwise,
or now or in the future, existing, and whether incurred by Borrower, Guarantor or any Future
Guarantor as principal, surety, endorser, guarantor, accommodation party or otherwise, including
principal, interest, fees, late charges and expenses, including reasonable attorneys’ fees.
Obligations shall also include, the




4









 




obligation of Borrower to pay the Indebtedness and the obligations of Borrower in favor of
Lender (or its affiliates) now or in the future, existing or arising under Swap agreements (as
defined in 11 U.S.C. §101).




          Permitted Liabilities. (a) The indebtedness under the Facility; (b) normal operating
liabilities such as trade accounts payable, accrued expenses, taxes payable, lease obligations,
customer deposits and estimated cost to complete; (c) reimbursement obligations under surety bonds;
(d) monies owed pursuant to the terms of any Swap that is contracted by Borrower with respect to
the Facility; and (e) liabilities associated with financings other than the Facility for the
Borrower’s real estate business, including, without limitation,acquisition of land, Finished Lots
or for-sale residential housing developments.




          Person. Any natural person, entity, corporation, limited liability partnership or company,
unincorporated organization, trust, joint-stock company, joint venture, association, company,
partnership or government, or any agency or political subdivision of any government.




          Project. The real property and improvements located thereon which constitute Lender-approved
Land Under Development or a Lender-approved group of Finished Lots. Each Project shall be
encumbered by a Deed of Trust and Financing Statements and shall collectively constitute the
Collateral Pool and/or the Borrowing Base.




          Secured Debt. The aggregate amount of all liabilities of Borrower, as determined in
accordance with Accounting Terms, that are supported by a mortgage, pledge of collateral, or other
lien, including those for which a creditor has the right to pursue specific pledged property upon
default.




          Senior Liabilities. The sum of Total Liabilities, including capitalized leases and all
reserves for deferred taxes and other deferred sums appearing on the liabilities side of a balance
sheet, in accordance with generally accepted accounting principles applied on a consistent basis,
excluding debt fully subordinated to Bank on terms and conditions acceptable to Bank and FIN 46
items.




          Sold Units. A Unit, located on a Lot, which is subject to a valid, bona-fide contract of sale
that: (a) is with an unrelated third-party purchaser, for fair market value; (b) provides for a
cash deposit of at least $1,000.00; and (c) provides for construction completion and closing within
12 months from the contract execution date.




          Solvent. With respect to any Person on a particular date (i) the fair value of the assets of
the Person is greater than the total amount of liabilities, including Contingent Liabilities, of
the Person, (ii) the present fair saleable value of the assets of the Person is not less than the
amount that will be required to pay the probable liability of the Person on its debts as they
become absolute and matured, (iii) the Person is able to realize upon its assets and pay its debts
and other liabilities, Contingent Liabilities and other commitments as they mature in the normal
course of business, (iv) the Person does not intend to, and does not believe that it will, incur
debts or liabilities beyond the Person’s ability to pay as the debts and liabilities mature, and
(v) the Person is not engaged in business or a transaction, and is not about to engage in business
or a transaction, for which the Person’s property would constitute unreasonably small capital after
giving due consideration to the prevailing practice in the industry in which the Person is engaged.




          Speculative Condos/Townhomes. Any Unit that is subject to a common ownership regime and that
is part of a newly constructed four story or less wood frame building(s) and Lender has advanced
funds for the construction of the foundation or slab for that Unit. Speculative Condos/Townhomes
specifically excludes any rented condominiums or townhomes.




          Speculative Units. Any Unit, located on a Lot, that is not a Sold Unit, Model Unit or
Speculative Condo/Townhome and Lender has advanced funds for the construction of the foundation or
slab for that Unit.




5









 








          Submission Package. Any information required by Lender in its sole discretion in order to add
a proposed Project into the Borrowing Base. This would include, but not be limited to: (a)
purchase contract; (b) appraisal; (c) environmental study; and (d) title, platting and entitlement
status.




          Tangible Net Worth. Total Net Tangible Assets less Total Liabilities and less those assets
qualified on the Borrower’s balance sheet as “obligations to real estate not owned” or a similar
designation. Total Net Tangible Assets means Total Assets less any Intangible Assets. Total
Assets means the sum of the Borrower’s assets, current and noncurrent, as shown on Borrower’s
balance sheet prepared in accordance with GAAP. Intangible Assets means all nonphysical,
long-lived legal rights, entitlements, competitive advantages and goodwill developed or acquired by
Borrower and shown on Borrower’s audited balance sheet as one or more noncurrent assets in
accordance with GAAP, including patents, trademarks, trade names, licenses and goodwill.




          Term. The period during which the Facility is scheduled to be outstanding, commencing as of
Closing and ending on the Maturity Date.




          Total Liabilities. (a) All liabilities shown on Borrower’s balance sheet in accordance with
Accounting Terms and FASB Interpretation No. 46, excluding accounts payables in the normal course
of business; (b) all outstanding loan balances associated with obligations for which Borrower is
responsible, but which are not shown on Borrower’s balance sheet; (c) the principal amount of all
surety bonds, letters of credit and/or tri-party agreements whether presented for payment or not
but excluding performance related liabilities for which payment has not been demanded by the
beneficiary and for which reimbursement by Borrower has not been made; (d) net liabilities under
interest rate swaps or cap agreements; (e) any liabilities of partnerships or joint ventures that
should be included in accordance with FIN 46 other than as qualified on the Borrower’s balance
sheet as “obligations to real estate not owned” or a similar designation; and (f) any non-option
related purchase agreements for which Borrower is obligated to pay at a future date.




          Unit. A single family residential house, condominium or townhome, whether completed or under
construction and located within a Project.




          Unsubordinated Total Liabilities. All Total Liabilities, other than those Total Liabilities
which are expressly and unconditionally subordinate to the Facility as determined by Lender in its
sole discretion.




ARTICLE 2




DESCRIPTION OF FACILITY




     2.01 Facility.



          (a) Obligation to Make Advances. Subject to the terms and conditions of this
Agreement, Lender will make Advances to Borrower in an aggregate amount not to exceed the lesser of
(i) the Borrowing Base Availability or (ii) the Commitment Amount (less the amount of Lender’s
letters of credit issued under this Agreement). Borrower’s obligation to repay the Facility is
evidenced by the Note. Borrower may draw up to $40,000,000.00 from time to time on a revolving
basis to finance (i) land acquisition, (ii) the purchase of Finished Lots, (iii) the development of
land into Finished Lots, and (iv) the construction of single-family residential Units on Finished
Lots. If all conditions for Advances are met and subject to the other terms and conditions of this
Agreement, Lender will make Advances to Borrower or disburse to third parties as Borrower may
direct and Lender may approve, commencing on the date of this Agreement and continuing until the
Maturity Date.




          (b) Security for Facility. As security for the payment and performance of the
Indebtedness and Obligations of Borrower to Lender under the Loan Documents, Borrower has delivered




6









 







to Lender the Deed of Trust and Financing Statements encumbering the Projects comprising the
Collateral Pool. Borrower grants to Lender a continuing security interest in all personal property
of Borrower, now or in the future, in the possession of Lender, as security for the payment of the
Note and any other liabilities of Borrower arising under the other Loan Documents, which security
interest shall be enforceable as if the property were specifically pledged under this Agreement
excluding any swap agreements (as defined in 11 U.S.C. §101) to Lender or any of its affiliates.




          (c) Interest Rate. Advances outstanding under the Note (principal) shall bear
interest at the interest rate set forth in the Note (“Interest Rate”), subject to the conditions
and limitations contained in this Agreement and in the Note.




          (d) Termination of Facility. The Facility shall terminate at the close of business
(5:00 p.m.) on the day prior to the Maturity Date unless Lender has exercised its demand right or
there shall have sooner occurred an Event of Default under this Agreement, in which event Lender
may immediately accelerate the Facility without prior notice to Borrower; in any event, that,
notwithstanding the foregoing, this Agreement shall continue in full force and effect until the
Obligations are paid in full and the Facility has been terminated.




     2.02 Additional Provisions Related to Principal, Interest and Costs.



          (a) Increased Costs. If, due to one or more of: (i) the introduction of any
applicable law or regulation or any change in the interpretation or application of any law or
regulation by any applicable governmental authority; or (ii) the compliance with any guideline or
request from any governmental authority, there shall be an increase in the cost to Lender of
agreeing to, issuing or participating in letters of credit, including changes which affect or would
affect the amount of capital or reserves required or expected to be maintained by Lender, or any
corporation controlling Lender, with respect to any portion of this Facility, then Borrower, from
time to time, shall, on written demand by Lender, pay Lender additional amounts sufficient to
indemnify Lender against the increased cost. A certificate as to the amount of the increased cost
and the reason for that increase submitted to Borrower by Lender, in the absence of manifest error,
shall be conclusive and binding for all purposes.




          (b) Payments Net of Taxes. All payments and prepayments of principal and interest
under the Note shall be made net of any taxes and costs resulting from having principal
outstanding. Without limiting the generality of the preceding obligation, taxes shall include
illustrations of the taxes and costs, the withholding of amounts for taxes, of any nature
whatsoever including income, excise, interest equalization taxes (other than United States or state
income taxes), as well as all levies, imposts, duties or fees whether now in existence or as the
result of a change in or promulgation of any treaty, statute, regulation or interpretation thereof
or any directive guideline or otherwise by a central bank or fiscal authority (whether or not
having the force of law) or a change in the basis of, or the time of payment of, those taxes or
other amounts resulting therefrom.




          (c) Repayment of Principal and Interest. Commencing on the 10th day of June, 2006,
and continuing on the 10th day of each succeeding month until the Maturity Date (each, a “Payment
Date”), interest only on the outstanding principal advances under the Note based on the Interest
Rate shall be due and payable in arrears by Borrower to Lender.




          (d) Prepayment. Subject to the terms and conditions of this Agreement and the other
Loan Documents, Borrower may prepay the Note at any time. Any prepayment shall include accrued and
unpaid interest to the date of prepayment on the principal amount prepaid and all other sums due
and payable under the Note. Any prepayment shall not affect Borrower’s obligation to continue
making payments under any swap agreement (as defined in 11 U.S.C. §101), which shall remain in full
force and effect notwithstanding prepayment, subject to the terms of the swap agreement.




          (e) Application of Payments. Each payment or prepayment, if any, made under the Note
shall be applied to pay late charges, accrued and unpaid interest, principal, escrows (if any), and




7









 







any other fees, costs and expenses which Borrower is obligated to pay under the Note, in the order
as Lender may elect from time to time in its sole discretion.




          (f) Late Charge. If any installment of principal or interest required to be made by
Borrower under the Note shall not be received by Lender within fifteen (15) days of when due, then
Borrower shall pay to Lender, without further demand, a late charge of five percent (5%) of the
delinquent payment. The foregoing right is in addition to, and not in limitation of, any other
rights which Lender may have upon Borrower’s failure to make timely payment of any amount due.




          (g) Default Rate. Any payment of principal or interest or both not made when due
shall itself bear interest on the principal and interest amount of the payment at the Default Rate,
commencing on the due date until payment, maturity or the occurrence of an Event of Default. After
the maturity of the Note or the occurrence of an Event of Default, interest shall accrue on the
entire outstanding balance of principal at the Default Rate.




          (h) Letters of Credit Sub-limit Under the Facility. At Borrower’s request, Lender may
issue letters of credit (subject to compliance with Lender’s standard procedures for issuance of
letters of credit and in form and substance satisfactory to Lender) if required by a governmental
authority or utility or as required under Borrower’s purchase contract to secure Borrower’s
obligations under a Development Agreement and to secure the performance of improvements benefiting
a Project (“Work”) (collectively referred to as “Letters of Credit”), but the aggregate amount of
all Letters of Credit outstanding shall not exceed $1,000,000 at any one time (“Letters of Credit
Sub-Limit”), and the aggregate amount of all Letters of Credit outstanding and all outstanding
Advances shall not exceed the Commitment Amount.




                  All cost estimates for the Work are subject to an acceptable review by a third-party engineer
or Lender’s in-house engineer prior to the issuance of any Letters of Credit. Each Letter of
Credit shall be reduced from time to time as the Work is completed with the consent of the
beneficiary thereof. Letters of Credit shall be governed by Borrowing Base Availability. Any
amounts paid by Lender under Letters of Credit shall be treated for all purposes as an Advance.



                  When a Letter of Credit is required, (a) Borrower shall execute an Application and Agreement
For Irrevocable Standby Letter of Credit; (b) the Letter of Credit will be deemed secured by the
Deed of Trust and Financing Statements and guaranteed by Guarantor and any applicable Future
Guarantor; (c) the Letter of Credit shall have an expiration date no later than twelve (12) months
(with annual renewal options upon payment of a renewal fee), or such other expiration date as the
Lender may agree; (d) any sums paid by Lender under the Letter of Credit shall initially accrue
interest at the Interest Rate and that sum, together with accrued interest, shall be repaid by
Borrower within two (2) days from receipt of notice from Lender that the Letter of Credit (or
portions thereof) have been paid; (e) if the Letter of Credit is paid (and not repaid by Borrower
as provided immediately above), then the payment may be deemed by Lender as a default by Borrower
under the Facility and interest shall commence to accrue on the amount of the payment at the
Default Rate; and (f) the Deed of Trust shall not be released until all Letter of Credit are
returned to Lender or the Letter of Credit are cash secured. Borrower shall pay to Lender a fee of
the greater of (i) $500.00 or (ii) one percent (1.00%) of the face amount of a Letter of Credit for
each new Letter of Credit and $150.00 for each automatic renewal of a Letter of Credit, the initial
fee payable upon issuance and the renewal fee upon each renewal.



          (i) Swap. Lender (or its affiliate) will offer Borrower an opportunity to hedge the
floating interest expense under the Note by entering into an interest rate swap (the “Swap”) on or
after Closing. If Borrower chooses to obtain the Swap from Lender (or its affiliate), then
Borrower shall
execute documentation required by Lender (or its affiliate), including the ISDA Master Agreement.
Lender reserves the right not to release any portion of the Collateral Pool while Borrower’s
obligations under the ISDA Master Agreement remain unsatisfied if Lender determines it is not
adequately secured. If Borrower chooses to obtain the Swap from Lender, the Deed of Trust and all
other security documents securing the Note shall also secure Borrower’s obligation under the ISDA
Master Agreement and any




8









 







amounts due and payable by Borrower under the Swap, including early
termination payments. Any payments shall include amounts payable in connection with the
disposition of any collateral encumbered by the Deed of Trust and other security documents.
Additionally, Borrower’s attorney shall furnish an opinion of counsel relating to those documents
in substantially the same form provided by Lender or alternatively shall provide appropriate
corporate resolutions.




     2.03 Revolving Credit Feature. The outstanding balance of the Facility may increase
and decrease from time to time, and Advances thereunder may be borrowed, repaid and reborrowed, but
the total of Advances outstanding at any one time under the Facility shall never exceed the lesser
of (i) the Borrowing Base Availability or (ii) the Commitment Amount. Borrower shall immediately
pay to Lender any amount by which the Facility exceeds the Commitment Amount.



     2.04 Commitment Fee. Borrower shall pay to Lender an annual commitment fee
(“Commitment Fee”) equal to 25 basis points (.25%) of the Commitment Amount, with the first (1st)
payment of the Commitment Fee due at Closing and each subsequent payment of the Commitment Fee due
at the succeeding annual anniversaries of Closing. Beginning on the 1st day of the
13th month after Closing, if the average amount of principal outstanding under the Note
is less than $20,000,000, as determined by Lender on a quarterly basis by averaging the amount of
principal outstanding under the Note on the 1st day of each month in each applicable
quarter, then a non-use fee of 0.15% (“Non-Use Fee”) will be charged to Borrower on the difference
between the average amount of principal outstanding under the Note and $20,000,000. The quarterly
average will be calculated beginning with the 13th, 14th and 15th
month’s outstanding principal balance under the Note.



     2.05 Conditions Precedent. The obligation of Lender to make the Advances and issue
Letters of Credit under the Facility is subject to the following additional conditions:



          (a) No Default. As of the date of this Agreement, and at the date of each Advance and
Letter of Credit after giving effect to the Advance and Letter of Credit, Borrower, Gurantor and
each Future Guarantor shall have observed and performed all their respective obligations under the
Loan Documents, all warranties of Borrower, Guarantor and each Future Guarantor in the Loan
Documents shall be true and correct in all material respects, and no Default or Event of Default
shall have occurred and be continuing.




          (b) Opinions of Counsel. As of the date of this Agreement and as of each Land
Closing, Lender shall have received from counsel for Borrower, Guarantor and any Future Guarantor,
as the case may be, an opinion addressed to Lender (in form and substance satisfactory to Lender).




          (c) Loan Documents. As of the date of this Agreement and each Land Closing, all of
the Loan Documents shall have been executed by Borrower, Guarantor and any Future Guarantor, as the
case may be, and delivered to Lender.




          (d) Appraisal. An independent appraisal or evaluation for each Project in form and
substance acceptable to Lender showing: (i) standard floor plan appraisals or evaluations on each
floor plan constructed, if applicable and required by Lender; (ii) Subdivision appraisal or
evaluation on typical
Lots, including values of Lot premiums; and (iii) acquisition and development property value
including bulk value and “as is” valuations. The “appraised value” for Units means the sum of the
value from the applicable floor plan appraisal plus the value of the typical Lot within the
subdivision plus any applicable premium value placed upon that Lot. MAI appraisals will be
required for: Entitled Land, LUD, and for bulk purchases of Finished Lots, as required by Lender.
Lender will require an annual master appraisal or evaluation for all Finished Lots and Model Units.
However, copies of recent HUD-1 statements for each model type may be substituted for obtaining
new appraisals annually. Borrower shall pay all appraisal costs.




          (e) Environmental Assessment. If required by Lender, a Phase I environmental
assessment or other required environmental assessment on all Entitled Land, LUD and otherwise as




9









 







determined by Lender in its sole discretion, and ordered, at Borrower’s expense, from an
environmental engineering company acceptable to Lender, assessing the environmental condition and
certified to Lender. For Finished Lots, the Environmental Assessment may be as to the overall
acreage from which the Finished Lots originated. Lender may require additional environmental
investigations, including a Phase II environmental assessment, which additional work shall
constitute a part of the Environmental Assessment. Lender shall have the right to reject any
Project if the Environmental Assessment discloses environmental concerns as determined by Lender in
its sole discretion. Borrower, Guarantor and any Future Guarantor shall execute an Affidavit and
Indemnity of Mortgagor and Guarantor Regarding Hazardous Waste or Toxic Materials at each Land
Closing.




          (f) Title Insurance and Survey. A mortgagee title insurance commitment with all
endorsements requested by Lender and otherwise acceptable to Lender in its sole discretion (the
“Title Commitment”) in the initial amount of $                                         (policy increases will be required
as Projects are added to the Facility) covering each Project from a title company (the “Title
Company”) that is acceptable to Lender (subject to any reinsurance requirements of Lender). Lender
is to be named as the insured mortgagee. The Deed of Trust must constitute a perfected, first lien
with no other financial liens of record. There are to be no exceptions other than current year’s
taxes not yet due and payable and those approved by Lender in writing in its sole discretion. No
secondary financing shall be allowed without the Lender’s written consent. The title insurance,
searches and survey requirements of Lender have been provided to Borrower, the terms of which are
incorporated in this Agreement by reference. As required by Lender, a non-expiring mortgagee title
insurance policy is to be submitted to Lender naming Lender as insured mortgagee (the “Policy”).
All exceptions to the Policy are subject to the approval of Lender. No Notice of Contract under
NCGS §44A-23 or equivalent shall be filed prior to the Deed of Trust. Prior to a Project being
included in the Collateral Pool, Borrower must furnish a survey and a surveyor’s certificate in
accordance with Lender’s survey requirements and subject to Lender’s approval (i) reflecting all
matters shown on the Title Commitment and (ii) certified to Lender, the Title Company and any title
agent. The Lender’s form of surveyor’s certificate has been provided to Borrower, the terms of
which are incorporated in this Agreement by reference.




          (g) Insurance. Original or duplicate policies of insurance or evidence of insurance
on an ACORD 27 (in the case of property insurance) or ACORD 25 (in the case of liability insurance)
form of certificate (satisfactory to Lender), each with a term of not less than one year and in
effect as of the date of this Agreement as follows: (i) builders’ all-risk extended coverage
insurance (non-reporting Completed Value with Special Cause of Loss form) in amounts based on the
completed replacement value of the improvements (excluding roads, foundations, parking areas,
paths, walkways and like improvements), endorsed to provide that occupancy by any person shall not
void the coverage and naming Lender (and its successors and assigns) as their interests may appear,
as the first mortgagee under a standard Mortgagee endorsement clause; (ii) upon completion of
construction of each Unit, All-Risk fire and extended coverage hazard insurance (non-reporting
Commercial Property Policy with Special Cause of Loss form) covering that Unit in an aggregate
amount not less than 100% of the agreed upon full insurable replacement value of that Unit, and
naming Lender and its successors and assigns as their interests may appear, as the first mortgagee
under a standard mortgagee endorsement clause; (iii) comprehensive general public liability
insurance of at least $5,000,000 covering injury and damage to persons and property with limits
acceptable to Lender and naming Lender (and its successors and
assigns) as their interests may appear, as an additional insured; (iv) if the applicable real
property is located within a special flood hazard area as identified by the Secretary of Housing
and Urban Development under the National Flood Insurance Reform Act of 1994, flood insurance in the
amount equal to the lesser of (A) the agreed upon full insurable replacement value of each Unit
(less any value attributable to the applicable real property), or if agreed to in writing by Lender
(B) the maximum available amount through the Federal Flood Insurance Program, and naming Lender
(and its successors and assigns) as their interests may appear, as the first mortgagee under a
standard mortgagee endorsement clause; (v) insurance which complies with the workers’ compensation
and employers’ liability laws of all states in which the Projects are located and, if required by
Lender, such other states as Borrower is required to maintain insurance; and (vi) other insurance
as Lender may require in amounts and with carriers satisfactory to Lender.




10









 








                  Each policy or certificate shall indicate Lender’s address as Wachovia Bank, National
Association, Insurance Department, P.O. Box 700308, Dallas, TX 75370. In addition, each insurance
policy or certificate shall include a provision that the policy will not be cancelled, altered or
in any way limited in coverage or reduced in amount unless Lender is notified of same in writing at
least thirty (30) days prior to cancellation or change. Each insurance policy will be written on
forms as are acceptable to Lender by insurance companies authorized or licensed to do business in
North Carolina having an Alfred M. Best Company, Inc. rating of “A-” or higher and a financial size
category of not less than IX, and which companies are otherwise acceptable to Lender.



                  The above insurance requirements may be satisfied by appropriate endorsements to a blanket
policy covering the Projects and other property.



          (h) Flood Zone Certification. If the applicable Unit to be included in the
Collateral Pool is located in an area that has been identified as a Special Flood Hazard Area as
that term is used in the National Flood Insurance Reform Act of 1994, flood insurance shall be
required.




          (i) Organizational Documents. Copies of the organizational documents of Borrower,
Guarantor and each Future Guarantor.




          (j) Governmental Permits. Prior to adding any Project to the Collateral Pool,
Borrower must submit evidence satisfactory to Lender that the Project has received zoning approvals
and master site plan approval consistent with the intended residential development, including full
compliance with any applicable comprehensive land use plan. All governmental approvals must be
legally valid and remain in full force and effect throughout the term of the Facility. If any
approval or permit is invalidated, rescinded or suspended, then Lender may exclude the Project from
the Collateral Pool during the period that any invalidation, rescission or suspension continues.




          (l) Other Documents. Other documents, instruments, certificates and opinions as
Lender or Lender’s counsel may reasonably require.




          (m) Supporting Documents and Other Conditions. Lender shall have received a
certificate from Borrower, Guarantor and each Future Guarantor, as the case may be, in the form
attached as Schedule B (“Certificate of Compliance”) as of the date of each Advance or
Letter of Credit.




          (n) Litigation. There shall be no order, injunction, decree, judgment or verdict
prohibiting or restraining Lender from making Advances or issuing Letters of Credit, or Borrower,
Guarantor or any Future Guarantor from performing its Obligations as of the date of each Advance or
Letter of Credit.




          (o) Documents. This Agreement and the other necessary Loan Documents must be
simultaneously executed and delivered to Lender as of the date of this Agreement. At each Land
Closing, the applicable Guarantor or Future Guarantor shall execute a Guaranty (if Future
Guarantor),
Deed of Trust and other Loan Documents as required by Lender and Borrower shall execute the
Loan Documents required by Lender.




          (p) Subordination to Loan. Except as may otherwise be specifically provided in the
Loan Documents, all loans to Borrower, Guarantor and/or any Future Guarantor from any parties in
any way related to or affiliated with Borrower, Guarantor or any Future Guarantor (including,
without limitation, trustees, beneficiaries, shareholders, and partners of Borrower, Guarantor or
Future Guarantor), if applicable, shall be subordinated to the Facility.




          (q) Inspections. Inspections may be made by Lender, solely for the benefit of Lender,
at the expense of Borrower, subject to the following: (i) Lender may inspect up to approximately
15% of all Units each quarter; and (ii) inspections of Land Under Development may be made by Lender to




11









 







coincide with each of Borrower’s requests for an Advance; however, Lender may inspect Land Under
Development on a quarterly basis at a minimum. If Unit inspections reveal material differences
from the percentage of work completed as identified on the most recently submitted Borrowing Base
Certificate, then Lender may elect to conduct additional inspections of up to 100% of all Units at
the expense of Borrower. In addition, Lender may inspect any asset at Borrower’s expense at the
time a proposed asset is added to the Borrowing Base.




ARTICLE 3




ADVANCE CONDITIONS




     3.01 Procedures for Advances. Any request for an Advance must be received in writing
by Lender prior to 11:00 a.m. North Carolina Time on a Business Day which is five (5) Business Days
prior to the Borrowing Date. If each of the other conditions precedent to the Advance have been
satisfied, then the Advance will be available prior to 2:00 p.m. North Carolina Time on the
Borrowing Date. Unless Lender is notified otherwise by Borrower in a signed writing from an
Authorized Signatory which is accepted and agreed to by Lender, Lender shall cause the amount of
any Advance requested by Borrower to be paid to the credit of Borrower’s account with Lender
approved by Lender. Advances shall be limited to no more than two (2) per month.



          (a) All requests for Advances shall be in the form attached as Schedule C (“Request
for Advance” or “Advance Request”). Any notice delivered or given by Borrower to Lender as
provided shall be irrevocable and binding on Borrower upon receipt by Lender.




          (b) All Advances by Lender, whether or not in excess of the Commitment Amount, shall be
considered part of the Indebtedness under the Note and shall bear interest as provided in the Note.
Borrower shall not request and Lender will not consider requests for Advances after the Maturity
Date.




          (c) Borrowing Base Compliance. At any time the outstanding principal balance of the
Facility (including outstanding Letters of Credit) exceeds the Borrowing Base Availability on the
most recently submitted Borrowing Base Certificate, Borrower will have fifteen (15) days (without
notice from Lender) from the date the Borrowing Base Certificate was delivered to either: (a) make
a principal payment in an amount that restores compliance; or (b) deliver a new Borrowing Base
Certificate that demonstrates compliance with the then current outstanding principal balance. No
new Advances will be made or Letters of Credit issued during the time period the Borrowing Base is
not in compliance. The business records of Lender shall be conclusive as to the date and amount of
any Advance and any payment or prepayment of interest or principal, absent manifest error.




     3.02 Repayment of Advances. All funds paid to Lender under the Facility shall be paid to Lender in Dollars at its
office set forth below or any other office in the United States as Lender may designate, in
actually and finally collected federal funds or equivalent and shall be deemed paid only if
received by Lender on or before 2:00 p.m. (North Carolina local time) on the date when due.
Payments shall not be deemed made or received until they are received by Lender as actually and
finally collected federal funds or equivalent. If any payment is received after 2:00 p.m. (North
Carolina local time) on any Business Day, then it shall, for the purposes of determining time of
payment under this Agreement as between Borrower and Lender only, be treated as received on the
next following Business Day; but, that the treatment shall not postpone the time of receipt for any
other purpose or computation, such as preference periods applicable to bankruptcy laws, or dates
relative to priority between creditors. Payments shall be directed to Lender at the following
address:



12









 




Wachovia Bank, NA

Commercial Loan Payment Center

PO Box 2715

Winston-Salem, NC 27102-2715




          The outstanding principal balance under the Note as of any day shall be the outstanding
principal balance as of the beginning of the day (exclusive of interest), plus any Advances made
for that day, and less any payments of principal credited to the account on that day.




     3.03 Advance Rates. The Facility shall be subject to the advance rates shown on
Schedule One.



     3.04 Borrowing Base Availability. Borrowing Base Availability will be based on a
Borrowing Base Certificate, acceptable to Lender, prepared by and submitted by Borrower on a
monthly basis. The Borrowing Base Certificate will recap all Projects in the Borrowing Base and
will provide specific component breakdowns by collateral type and on a per Lot and per Unit basis,
as applicable, to determine aggregate Borrowing Base Availability based on the Advance Rates shown
on Schedule One.



          (a) Borrowing Base Availability for:




                  (i) Entitled Land is based on the applicable Advance Rate multiplied by the lesser of: (a) the
appraised value, or (b) the actual costs incurred for purchase of the Entitled Land. The Advance
Rate for Entitled Land applies only to Entitled Land with entitlements (i.e., applicable zoning is
in place and all utilities are expected to be available at the time the Entitled Land is to be
developed). The Advance Rate for any Entitled Land asset owned more than one year will be zero,
except to the extent it has been converted to Land Under Development or Finished Lots.



                  (ii) Land Under Development within Projects is based on the applicable Advance Rate multiplied
by the lesser of: (a) the appraised value of Lots to be developed on that Land Under Development,
or (b) the Budgeted Project Cost. Any Land Under Development asset owned more than 36 months shall
be excluded from the Borrowing Base Availability, except to the extent it has been converted to
Finished Lots.



                  (iii) Speculative Condos/Townhomes, Model Units, Speculative Units, Sold Units and Finished
Lots are based on the applicable Advance Rate multiplied by the lesser of: (a) hard costs for the
acquisition of those Finished Lots and construction of the Unit to be constructed on said Finished
Lots, as approved by Lender, (b) the appraised or evaluated value, or (c) the purchase price of
that Unit or Lot plus Budgeted Project Cost, as applicable. The maximum time a Finished Lot may
remain in the Borrowing Base as Finished Lot is 18 months. The maximum time a Sold Unit may remain
in the
Borrowing Base as a Sold Unit is 12 months. The maximum time a Speculative Unit may remain in the
Borrowing Base as a Speculative Unit is 18 months. The maximum time a Model Unit may remain in the
Borrowing Base as a Model Unit is 60 months. The maximum time a Speculative Condo/Townhome may
remain in the Borrowing Base as a Speculative Condo/Townhome is 15 months.



          (b) The Advance Rates for certain categories of assets change over time as shown under the
Aging Elimination portion of Schedule One, and subject to the following additional
provisions:





	 	•	 	Aging Elimination on Entitled Land begins on the date the Entitled Land is admitted to
the Borrowing Base, and resets when the Entitled Land becomes LUD.
	 
	 	•	 	Aging Elimination on LUD begins when the LUD first enters the Land Under Development
category, and resets when LUD becomes Finished Lots.




13









 






	 	•	 	Aging Elimination on a Finished Lot resets when the Finished Lot becomes a Speculative
Condo/Townhome, Model, Speculative or Sold Unit.
	 
	 	•	 	Aging Elimination on a Speculative Condo/Townhome, Speculative Unit or Sold Unit
begins when the Unit is added to the Borrowing Base as a Speculative Condo/Townhome, Speculative
Unit or Sold Unit, and does not reset when a Speculative Condo/Townhome or Speculative Unit becomes
a Sold Unit.





     For purposes of “Aging Elimination”, Projects are deemed to enter into the Borrowing Base on
the closing date for each Project.



          (c) Borrowing Base Certificate cost data for Land Under Development and Sold Units must be
updated at least quarterly. Borrowing Base Certificate cost data for Finished Lots, Speculative
Condos/Townhomes, Model Units and Speculative Units must be updated at least monthly.




          (d) Collateral that remains in a Borrowing Base category longer than the maximum time
permitted will be excluded from Borrowing Base Availability and Lender will agree to release that
Collateral from the Deed of Trust, provided: (a) no Default or Event of Default exists; and (b)
Borrower is in compliance under its most recent Borrowing Base Certificate without that Collateral.




          (e) Borrowing Base Limitations:




                  (i) Model Units and Speculative Units may not exceed 65% of the principal amount outstanding
under the Note designated by Lender for Units. A Unit may not remain in the Borrowing Base longer
than 36 months.



                  (ii) Entitled Land, LUD and Finished Lots may not exceed the greater of (i) 50% of the
principal amount outstanding under the Note or (ii) $20,000,000.



                  (iii) Entitled Land may not exceed 10% of the principal amount outstanding under the Note.



          (f) Borrower shall deliver to Lender a Submission Package with all relevant information
concerning a proposed Project. A proposed Project will be added to the Borrowing Base as Entitled
Land, Land Under Development, Finished Lots, Speculative Condos/Townhomes, Model Units, Speculative
Units or Sold Units, unless rejected by Lender as provided in the next sentence. Lender must
notify Borrower in writing of its decision to reject a proposed Project within thirty (30) days of
receiving a complete Submission Package; provided, Lender not responding within the above timeframe
shall be deemed rejection of the proposed Project. Regarding each Project added to the Borrowing
Base,
Borrower, Guarantor or the Future Guarantor holding title to the added Project (as the case may be)
shall execute and deliver at each Land Closing the following: documents as deemed necessary to
encumber the added Project by a first priority deed of trust lien and a first priority collateral
assignment of all presently existing and future sales contracts, construction, architectural and
engineering contracts relating to the added Project and all presently existing and future
developmental approvals, density allocations, land development, building permits, utility
agreements and any concurrency exemptions relating to the added Project as well as a first lien
security interest in all documents, books records, computer disks and other personal property
relating solely to the added Project. Projects that do not conform to the conditions above may be
admitted to the Borrowing Base, but only with the approval of Lender in its sole discretion.




          (g) A Project may remain in the Borrowing Base only so long as it continues to qualify as
Entitled Land, Land Under Development, Finished Lots, Model Units, Speculative Condos/Townhomes,
Speculative Units or Sold Units.




14









 








     3.05 Partial Releases. Within seven (7) Business Days from receipt by Lender from
Borrower of a letter detailing which Lots, Units or parcels of land and other related encumbered
assets should be released in the ordinary course of business, Lender will release (or confirm to
Borrower in writing that Lender will release) those Lots, Units or land parcels from the Facility,
provided that:



          (a) There is no Default or Event of Default; and




          (b) No more than fifteen percent (15%) of assets in the Borrowing Base may be released in a
monthly cycle unless: (i) Borrower pays down the portion of the outstanding balance of the Facility
associated with the released Lots and/or land such that outstanding Advances after the pay-down do
not exceed the Borrowing Base Availability; or (ii) Borrower submits to Lender a new Borrowing Base
Certificate that demonstrates Borrower remains in compliance.




          Borrower, at its cost, shall prepare and furnish to Lender the documentation for the releases,
and shall pay Lender’s third party costs incurred in connection with the releases, including
reasonable attorneys’ fees.




     3.06 Periodic Appraisals. In addition to the initial appraisals required under
Section 2.05(d), Lender may, as often as Lender shall deem necessary, obtain appraisals of any or
all of the Projects prepared by an appraisal firm or firms chosen by Lender and ordered by Lender.
The appraisals shall be at the expense of Borrower if Borrower is in default under this Agreement
or any of the other Loan Documents.



ARTICLE 4




REPRESENTATIONS AND WARRANTIES




     In order to induce Lender to enter into this Agreement, Borrower, Guarantor and each Future
Guarantor (as the case may be) make the following representations and warranties, all of which
shall survive the execution and delivery of the applicable Loan Documents. The representations and
warranties shall be deemed made as of the date of this Agreement and as of the date of any Advance
by Lender to Borrower or the issuance of any Letters of Credit for the account of Borrower as to
the following in respect of Borrower or the issuance of any Letters of Credit for the account of
Borrower, Guarantor or a Future Guarantor (as the case may be):



     4.01 Good Standing. Borrower, Guarantor and each Future Guarantor (and any Person constituting a part of
Borrower, Guarantor or any Future Guarantor that is a corporation or limited partnership or limited
liability company) is duly organized, validly existing and in good standing under the laws of its
state of incorporation and/or formation and have the power and authority to own its property and to
carry on its respective business in each jurisdiction in which it does business.



     4.02 Authority and Compliance. Borrower, Guarantor and each Future Guarantor have
full power and authority to execute and deliver the Loan Documents and to incur and perform the
obligations provided in the Loan Documents, all of which have been duly authorized by all proper
and necessary action of the appropriate governing body of Borrower, Guarantor and each Future
Guarantor. No consent or approval of any public authority or other third party is required as a
condition to the validity of any Loan Document, and Borrower, Guarantor and each Future Guarantor
are in compliance in all material respects with all laws and regulatory requirements.



     4.03 Binding Agreement. This Agreement and the other Loan Documents executed by
Borrower, Guarantor and each Future Guarantor constitute the valid and legally binding Obligations
of Borrower, Guarantor and each Future Guarantor, enforceable in accordance with their terms. The
execution, delivery and performance by Borrower, Guarantor and each Future Guarantor of the Loan
Documents will not violate any indenture, agreement or other instrument to which Borrower,
Guarantor or



15









 







each Future Guarantor is a party or by which it or any of its property is bound, or be
in conflict with, result in a breach of or constitute a default under any indenture, agreement or
other instrument, or result in the creation or imposition of any lien, charge or encumbrance of any
nature whatsoever on any of its property or assets, except as contemplated by the provisions of the
Loan Documents.



     4.04 Litigation. There is no proceeding involving Borrower, Guarantor or each Future
Guarantor pending or, to the knowledge of Borrower, Guarantor or Future Guarantor, threatened
before any court or governmental authority, agency or arbitration authority, that materially and
adversely affects Borrower’s ability to repay the loan, except as disclosed to Lender in writing
and acknowledged by Lender prior to the date of this Agreement.



     4.05 No Conflicting Agreements. There is no charter, bylaw, stock provision,
shareholder agreement, trust agreement or other document pertaining to the organization, power or
authority of Borrower, Guarantor or Future Guarantor and no provision of any existing agreement,
mortgage, deed of trust, indenture or contract binding on Borrower, Guarantor or Future Guarantor
or affecting any of their respective properties, which would conflict with or in any way prevent
the execution, delivery or carrying out of the terms of this Agreement and the other Loan
Documents.



     4.06 Ownership of Assets. Borrower, Guarantor and any Future Guarantors (as the case
may be) have good title to the Projects constituting the Collateral Pool.



     4.07 Financial Statements. The financial statements of Borrower delivered to Lender
fairly present the financial condition of Borrower as of the date of delivery of each financial
statement to Lender, and there has been no Material Adverse Effect in the financial condition or
operations since the financial statements furnished
to Lender at Closing. All factual information furnished by Borrower to Lender in connection
with this Agreement and the other Loan Documents is and will be accurate and complete in all
material respects on the date as of which the information is delivered to Lender and is not and
will not be incomplete in any material respect by the omission of any material fact necessary to
make the information not misleading. All financial projections represent the best estimate of
future financial performance and those assumptions are reasonable and believed by Borrower to be
fair in light of current business conditions.



     4.08 Place of Business. As of the date of this Agreement, the chief executive office and
business address of Borrower is 11465 Sunset Hills Road, Reston, Virginia 20190. Borrower shall
notify Lender in writing of any address changes no later than thirty (30) days prior to the change.



     4.09 Environmental Matters. Except as disclosed in writing to the Lender, the conduct
of business operations by Borrower, Guarantor and each Future Guarantor do not and will not violate
any federal laws, rules or ordinances for environmental protection, regulations of the
Environmental Protection Agency and any applicable local or state law, rule, regulation or rule of
common law and any judicial interpretation thereof relating primarily to the environment or
Hazardous Materials. Neither Borrower, nor Guarantor, nor any Future Guarantor shall use or permit
any other party to use any Hazardous Materials at or upon a Project except those materials as are
incidental to Borrower’s or Future Guarantor’s normal course of business, maintenance and repairs
and which are handled in compliance with all applicable environmental laws.



4.10 Federal Reserve Regulations.




          (a) Borrower is not engaged principally, or as one of Borrower’s important activities, in the
business of extending credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulation U of the Board of Governors of the Federal Reserve System of the United
States);




          (b) no part of the Advances or Letters of Credit shall be used to purchase or carry any margin
stock or to extend credit to others for the purpose of purchasing or carrying any margin stock; and




16









 








          (c) no part of the Advances or Letters of Credit shall be used for any purpose that violates,
or which is inconsistent with, the provisions of Regulation T, U or X of said Board of Governors.




     4.11 Consents, Etc. No consent, approval, authorization of, or registration,
declaration or filing with, any governmental authority (federal, state or local, domestic or
foreign) is required in connection with the execution or delivery by Borrower, Guarantor or any
Future Guarantor of the Loan Documents or the performance of or compliance with the Loan Documents.



     4.12 Governmental Authorizations. Except for development approvals and building
permits to be obtained by Borrower, Guarantor or any of the Future Guarantors in the ordinary
course of business, all authorizations, consents, approvals, licenses, and permits required under
applicable law or regulation for the ownership or operation of the property owned or operated by
Borrower, Guarantor or any Future Guarantor or for the conduct of the business in which Borrower,
Guarantor or any Future Guarantor are engaged have been duly issued (or if not issued, the failure
to have obtained same are of an immaterial nature and would not have a Material Adverse Effect on
Borrower, Guarantor or any Future Guarantor) and are in full force and
effect and neither Borrower, nor Guarantor nor any Future Guarantor is in default under any
order, decree, rule and regulation, closing agreement or other decision or instrument of any
Governmental Authority, which default could reasonably be expected to have a Material Adverse
Effect.



     4.13 Title to Properties. Borrower, Guarantor and any Future Guarantor, as the case
may be, shall have good and marketable fee title to all real property, and good and marketable
title to all other property (including leases) and assets reflected in the financial statements
delivered to Lender or purported to have been acquired by Borrower, Guarantor or Future Guarantor
subsequent to that date, except as disclosed in said financial statements, and except as to the
property or assets sold or otherwise disposed of by Borrower, Guarantor and any Future Guarantor
subsequent to that date in the ordinary course of business. All of the property and assets of any
kind of Borrower, Guarantor and Future Guarantor are free from any liens, except as otherwise set
forth on their financial statement delivered to Lender. As to any Projects comprising the
Collateral Pool, there shall be no secondary financing without the prior written approval of
Lender.



     4.14 Solvent. Each of Borrower, Guarantor and each Future Guarantor is, and after
having given effect to all Indebtedness incurred in connection with the Facility, will be Solvent.



     4.15 Intent and Effect of Transactions. This Agreement and the transactions
contemplated in this Agreement (a) are not made or incurred with intent to hinder, delay or defraud
any person to whom Borrower, Guarantor or any Future Guarantor has been, is now, or may in the
future become indebted; (b) do not render Borrower, Guarantor or any Future Guarantor insolvent nor
is Borrower, Guarantor or Future Guarantor insolvent on the date of this Agreement; (c) do not
leave Borrower, Guarantor or Future Guarantor with an unreasonably small capital with which to
engage in its business or in any business or transaction in which it intends to engage; and (d) are
not entered into with the intent to incur, or with the belief that Borrower, Guarantor or Future
Guarantor would incur, debts that would be beyond its ability to pay as the debts mature.



     4.16 Incorporation of Representations and Warranties. The representations and
warranties made by Borrower, Guarantor or each Future Guarantor to Lender pursuant to the other
Loan Documents are incorporated by reference and made a part of this Agreement. A breach by
Borrower, Guarantor or any Future Guarantor of any representation or warranty under the other Loan
Documents shall constitute a breach of a representation or warranty by Borrower, Guarantor or any
Future Guarantor under this Agreement. No Loan Document or other document, certificate or
statement furnished to Lender by or on behalf of Borrower, Guarantor or any Future Guarantor
contains any untrue statement of a material fact or, to Borrower’s, Guarantor’s and any Future
Guarantor’s knowledge, omits to state a material fact necessary to make the statements contained in
this Agreement and the Loan Documents not misleading. Borrower, Guarantor and each Future
Guarantor acknowledge that all statements,



17









 







representations and warranties shall be deemed to have
been relied on by Lender as an inducement to extend the Facility to Borrower and to make Advances
and issue Letters of Credit.



     4.17 Material Contracts. Neither the execution and delivery of the Loan Documents,
nor the consummation of the Facility or the performance by Borrower, Guarantor or any Future
Guarantor of any obligations under the Loan Documents shall constitute a default or right of
termination under any agreement to which Borrower, Guarantor or Future Guarantor is a party.



     4.18 Use of Proceeds. The proceeds of the Facility shall be used by Borrower solely
for the purposes stated in this Agreement.



     4.19 Tax Returns and Payment. Borrower, Guarantor and each Future Guarantor have
filed all federal, state, local and other tax returns which are required to be filed and have paid
prior to delinquency all taxes which have become due pursuant to those returns and all other taxes,
assessments, fees and other governmental charges upon Borrower, Guarantor and each Future Guarantor
and upon its respective properties, assets, income and franchises which have become due and payable
by Borrower, Guarantor or any Future Guarantor, except those wherein the amount, applicability or
validity are being contested by Borrower, Guarantor or Future Guarantor and by appropriate
proceedings being diligently conducted in good faith and in respect of which adequate reserves have
been established (in accordance with Accounting Terms should Lender so require after a default by
Borrower). All material tax liabilities of Borrower, Guarantor and Future Guarantor were
adequately provided for as of the year 2005, and are now so provided for on the books of Borrower.
There is no known proposed, asserted or assessed tax deficiency against Borrower, Guarantor or any
Future Guarantor which, if adversely determined, could reasonably be expected to have a Material
Adverse Effect.



     4.20 Investment Company Act of 1940. Neither Borrower, nor Guarantor nor any Future
Guarantor is an investment company as that term is defined in, and is not otherwise subject to
regulation under, the Investment Company Act of 1940, as amended.



     4.21 Management and Other Agreements. There are no material agreements for
managerial, consulting or similar services to which Borrower, Guarantor or any Future Guarantor is
a party or by which Borrower, Guarantor or any Future Guarantor is bound except as disclosed to
Lender in writing.



ARTICLE 5




AFFIRMATIVE COVENANTS




     Until full payment and performance of all Indebtedness and Obligations of Borrower to Lender
under the Loan Documents and the termination of any obligation of Lender to make any Advances or to
issue Letters of Credit, Borrower, Guarantor and each Future Guarantor (as the case may be) shall
maintain the following covenants, conditions and restrictions (and without limiting any requirement
of any other Loan Documents):



     5.01 Financial Statements and Other Information. Maintain a system of accounting
satisfactory to Lender (in accordance with Accounting Terms applied on a consistent basis)
throughout the period involved, permit Lender’s officers or authorized representatives to visit and
inspect Borrower’s and any Future Guarantor’s books of account and other records at times and as
often as Lender may desire, and pay the reasonable fees and disbursements of any accountants or
other agents of Lender selected by Lender for the foregoing purposes. The foregoing shall include
Lender’s performing a field audit, at times during normal business hours and as often as Lender may
request, of Borrower’s and any Future Guarantor’s assets and systems. Borrower’s books and records
will be located at the address set forth in Section 4.09 above.



18









 





     Borrower, Guarantor and each Future Guarantor shall furnish to Lender the following financial
information, in each instance prepared in accordance with Accounting Terms and in form and
substance satisfactory to Lender (collectively, “Financial Reporting”):



          (a) Not later than 45 days after the end of each fiscal quarter, company-prepared financial
statements signed by Borrower’s Chief Financial Officer in the form required to be reported to the
Securities and Exchange Commission and if the Securities and Exchange Commission no longer applies
to the Borrower, then in the form and substance acceptable to Lender in its sole discretion. An
audited financial statement for Borrower, Guarantor and any Future Guarantor (if Future Guarantor
is an entity) shall be presented to Lender not later than 120 days after the end of each fiscal
year. Any Future Guarantor (if Future Guarantor is a person) shall provide to Lender their
personal financial statements (to the extent said guarantors’ financial statements are not
consolidated with those of Borrower), including a schedule of that Person’s Contingent Liabilities,
within 90 days after the end of each calendar year.




          (b) Not later than 30 days after filing with the Internal Revenue Service, a true and complete
copy of the federal tax returns, including all applicable schedules of Borrower, Guarantor and any
Future Guarantor.




          (c) Borrower shall submit to Lender quarterly inventory reports within fifteen (15) Business
Days of each quarter end on all residential communities of Borrower and its subsidiaries and
partnerships existing now or formed in the future that are subject to the Global Sold / Unsold
Ratio. The inventory reports shall include a recap of all Lots and Units.




          (d) Borrower shall submit to Lender monthly Borrowing Base Certificates and Lot and Unit
contract reports including advance availability calculations within fifteen (15) Business Days of
each month end and quarterly Financial Covenants calculations as stated below in Section 5.02
hereof, all to be signed by the Chief Financial Officer, and other information as required by
Lender from time to time.




          (e) On request, Management prepared annual business plan and annual budget of Borrower with
business plan results (actual vs. budget).




          (f) Borrower shall provide to Lender a copy of all Securities and Exchange Commission filings
(if applicable and if requested by Lender) within fifteen (15) days following filing.




          (g) Furnish to Lender promptly additional information, reports and statements respecting the
business operations and financial condition of Borrower, Guarantor and each Future Guarantor,
respectively, from time to time, as Lender may request.




          (h) Borrower, Guarantor and any Future Guarantor shall furnish to Lender, with each set of
financial statements described above, a Certificate of Compliance certificate signed by Borrower’s
chief financial officer and, Guarantor and any Future Guarantor (as applicable). In addition,
Borrower, Guarantor and any Future Guarantor shall promptly notify Lender of the occurrence of any
Event of Default, adverse litigation or material adverse change in its financial condition.




     5.02 Financial Covenants. Borrower shall maintain the following financial covenants
(“Financial Covenants”) during the Term, compliance of which shall be determined on the basis of
the Financial Reporting and other information to be provided to Lender by Borrower as described
below. Except as may be specifically noted otherwise, review of the Financial Covenants shall be
completed quarterly within forty-five (45) days of the end of the first three (3) annual quarters
and one hundred twenty (120) days of fiscal year-end (12/31) by a compliance certificate signed by
Borrower’s Chief Financial Officer certifying that the certificate is true and correct subject to
Lender’s receipt of the Financial Reporting on a timely basis. Notwithstanding anything contained
to the contrary in this Agreement or in the other Loan Documents, the
Financial Covenants must be complied with by Borrower



19









 







regardless of which Projects comprise
the Collateral Pool at any given time and regardless of which, Guarantor or Future Guarantors own
fee simple title to the Projects comprising the Collateral Pool.



          (a) Senior Liabilities to Effective Tangible Net Worth Ratio. Borrower shall maintain
a ratio of Senior Liabilities to Effective Tangible Net Worth that is less than or equal to 2.50:1.




          (b) Global Sold/Un-sold Unit Ratio. Borrower shall maintain a global ratio of Sold
Units to Speculative Condos/Townhomes, Speculative Units and Model Units (excluding any Units
financed on a non-recourse basis) of less than or equal to 1.00:2. For purposes of this Section
5.02(b), all Speculative condos/Townhomes and Speculative, Model and Sold Units of Borrower shall
be included, not just those in a Project under this Facility.




          (c) EBITDA/Debt Service Ratio. Borrower shall maintain a ratio of EBITDA to Debt
Service that is equal to or greater than 2.50:1 to be calculated quarterly on a rolling
four-quarter basis. EBITDA means the sum of net income plus interest incurred, income tax expense,
depreciation and amortization.




          (d) Tangible Net Worth. Borrower shall maintain its Tangible Net Worth at a minimum
of $125,000,000. This minimum amount shall increase each year by 25% of the Net Income Before
Taxes, as shown on Borrower’s audited year-end financial statements provided to Lender, beginning
with the 2006 fiscal year.




          (e) Deposit Accounts. All deposit accounts for North Carolina and South Carolina of
Borrower shall be maintained by Lender.




     5.03 Restrictions on Investment. Borrower shall not directly or indirectly make any
investments that may have a Material Adverse Effect on Borrower’s ability to repay the advances
made under this Facility (provided, however, that Lender shall determine Material Adverse Effect in
its reasonable discretion as it pertains to this Section).



     5.04 Restrictions on Liabilities. Borrower shall have no liabilities other than the
Permitted Liabilities.



     5.05 Existence and Compliance. Maintain its existence, good standing and
qualification to do business, where required and comply with all laws, regulations and governmental
requirements including environmental laws applicable to it or to any of its property, business
operations and transactions.



     5.06 Adverse Conditions or Events. Advise Lender in writing within three (3) days of:
(a) any condition, event or act (other than general economic conditions or events which generally
affect economic conditions) which comes to its attention that would or might materially adversely
affect its financial condition or operations, the Collateral Pool, or Lender’s rights under the
Loan Documents; (b) any litigation filed by or against it which, if determined against it, would be
materially adverse to it; (c) any event that has occurred that would constitute a Default or an
Event of Default under any Loan Documents; or (d) any uninsured or partially uninsured loss through
fire, theft, liability or property damage in excess of an aggregate of Fifty Thousand Dollars
($50,000).



     5.07 Taxes and Other Obligations. Pay all of its respective taxes, assessments and other obligations, including taxes, costs
or other expenses arising out of this transaction, prior to delinquency, except to the extent the
same are being contested in good faith by appropriate proceedings in a diligent manner and with
appropriate security posted.



     5.08 Maintenance. Maintain all of its respective relevant tangible property in good
condition and repair and make all necessary replacements thereof, and preserve and maintain all
licenses, trademarks, privileges, permits, franchises, certificates and the like necessary for the
operation of their



20









 







respective business. The aforesaid shall not apply where it is not commercially
reasonable to do so, nor a good business practice.



     5.09 Notification. Immediately notify Lender of the occurrence of any Default or
Event of Default of which it has knowledge and immediately advise Lender in writing of: (a) all
enforcement, cleanup, remedial, removal, or other governmental or regulatory actions instituted,
completed or threatened pursuant to any applicable federal, state or local laws, ordinances or
regulations relating to any Hazardous Materials affecting any Project; and (b) all claims made or
threatened by any third party against it relating to damages, contribution, cost recovery,
compensation, loss or injury resulting from any Hazardous Materials located on or under any
Project.



     5.10 Organizational Structure. Without the prior written consent of Lender: (i) a
material alteration in the kind or type of Borrower’s, Guarantor’s or any Future Guarantor’s
business; (ii) the sale of substantially all of the business or assets of Borrower or Guarantor, or
a material portion (10% or more) of such business or assets if such a sale is outside the ordinary
course of business of Borrower or Guarantor, or (iii) the acquisition of substantially all of the
business or assets or more than 50% of the outstanding stock or voting power of any other entity
which may have a Material Adverse Effect on Borrower’s ability to repay the advances under this
Facility (provided, however, that Lender shall determine Material Adverse Effect in its reasonable
discretion as it pertains to this Section); or (iv) should Borrower or any Guarantor merge or
consolidate with any other entity, or change its organizational structure such that the change may
have a Material Adverse Effect on Borrower’s ability to repay the advances under this Facility
(provided, however, that Lender shall determine Material Adverse Effect in its reasonable
discretion as it pertains to this Section and provided that any objection to a merger or
consolidation that results in a change of control of Borrower shall be deemed reasonable).



     5.11 Observe All Laws. Conform to and duly observe all laws, rules and regulations
and all other valid requirements of any regulatory authority with respect to the conduct of its
business.



     5.12 Governmental Licenses. Obtain and maintain all licenses, permits, certifications
and approvals of all applicable governmental authorities as are required for the conduct of its
business as currently conducted and contemplated in this Agreement.



     5.13 Compliance with Laws. Duly observe, conform and comply with all laws, decisions,
judgments, rules, regulations and orders of all governmental authorities relative to the conduct of
its business, its properties, and assets, except those being contested in good faith by appropriate
proceedings diligently
pursued; and obtain, maintain and keep in full force and effect all governmental licenses,
authorizations, consents and permits necessary to the proper conduct of its business.



     5.14 Visitation Rights. Permit any authorized representative of Lender, on reasonable
notice to Borrower, Guarantor or any Future Guarantor, as applicable, and during normal business
hours, to examine and copy the records and books of, and visit and inspect the properties of,
Borrower, Guarantor or any Future Guarantor, and to discuss the affairs and finances of Borrower,
Guarantor or any Future Guarantor or with any of their respective officers, directors or employees,
and at the expense of Borrower, independent public accountants.



     5.15 Payment of Indebtedness. Pay all of its Indebtedness and perform all of its
Obligations promptly and in accordance with normal terms and comply in all material respects with
all agreements, indentures, deeds of trust or documents binding on it; pay and discharge or cause
to be paid and discharged promptly all taxes, assessments and governmental charges or levies
imposed on it or on its property or any part thereof, but in all events before the same shall
become in default, as well as all claims for labor, materials and supplies or otherwise which, if
unpaid, might become a lien on those properties or any part thereof unless properly contested.



     5.16 Subordination. Borrower shall cause Guarantor and each Future Guarantor at the
applicable Land Closing to unconditionally subordinate to the Facility the payment of any principal
and



21









 







interest of all obligations of any kind owing from Borrower to Guarantor or a Future Guarantor
or to a Future Guarantor from another Future Guarantor (collectively, “Junior Claims”). Each
Guarantor and Future Guarantor shall not accept any payments on Junior Claims except: (i) profit
distributions payable in the ordinary course of business and only if no Default has occurred and is
continuing; and (ii) as otherwise approved by Lender.



     5.17 Notice of Default. Borrower, Guarantor and each Future Guarantor (as the case
may be) shall promptly provide Lender with written notice of any notice of default received by any
of them on any other credit facility or other indebtedness from any other source that relates to an
obligation of the Borrower, Guarantor or Future Guarantor that equals or exceeds Five Million
($5,000,000.00).



     5.18 Interstate Land Sales Full Disclosure Act. The development, marketing and sale
of all Units (including the purchase contract between Borrower and all Unit purchasers) shall
comply with the Improved Lot Exemption to the Interstate Land Sales Full Disclosure Act 15 U.S.C.
1702(a)(2).



ARTICLE 6




NEGATIVE COVENANTS




     Until full payment and performance of all Indebtedness and Obligations of Borrower to Lender
and Lender under the Loan Documents and the termination of any obligation of Lender to make any
Advances and issue any Letters of Credit, Borrower, Guarantor and each Future Guarantor (as the
case
may be) will not, without the prior written consent of Lender (and without limiting any
requirement of any other Loan Documents):



     6.01 Character of Business. Change the general character of business as conducted at
the date hereof, or engage in any type of business not reasonably related to its business as
presently conducted.



     6.02
Additional Negative Covenants.



          (a) Guarantee, endorse or assume debt, except (i) debt in the normal course of business; and
(ii) Permitted Liabilities;




          (b) Acquire all or substantially all the assets, stock or ownership interest of another entity
whether by direct purchase, merger or other method (except for a newly formed Future Guarantor) and
that acquisition may have a Material Adverse Effect on Borrower’s ability to repay the advances
under this Facility (provided, however, that Lender shall determine Material Adverse Effect in its
reasonable discretion as it pertains to this Section);




          (c) Sell, lease, assign or otherwise dispose of or transfer any assets, except in the ordinary
course of business; or




          (d) Become a party to any transaction whereby all or substantially all of the properties,
assets or undertakings of Borrower, Guarantor or any Future Guarantor (whether legally or
beneficially owned) would become the property of any other person, whether by way of
reorganization, amalgamation, merger, transfer, sale, lease, sale and leaseback or otherwise.




22









 








ARTICLE 7




DEFAULT




     The occurrence of any of the following as they relate to Borrower, Guarantor or any Future
Guarantor shall constitute an “Event of Default” after the giving of any required notice and the
expiration of any applicable grace period:



     7.01 Failure to pay any Indebtedness within five (5) Business Days after its due date, without
notice or demand, including the failure to pay principal or interest or any other payment under the
Note, or failure to pay any other Obligation within ten (10) Business Days after receipt of notice
thereof from Lender.



     7.02 A breach of any other term, covenant, condition, obligation or agreement under this
Agreement or the other Loan Documents, and the continuance of the breach for a period of thirty
(30) days after the earlier of: (i) knowledge thereof by Borrower, Guarantor or any Future
Guarantor, that knowledge to be that of the President, Chief Financial Officer or General Counsel;
or (ii) written notice thereof shall have been given by Lender to Borrower, Guarantor or any Future
Guarantor, but, if Lender reasonably determines that the default cannot be cured within the thirty
(30) day period, then no cure period shall be provided.



     7.03 Failure to be in compliance with any of the Financial Covenants not cured to Lender’s
satisfaction within ten (10) days from the commencement of that failure.



     7.04 Any representation, warranty, statement or certificate determined by Lender to be untrue
in any material adverse respect.



     7.05 Filing of any petition for adjudication as a bankrupt or for reorganization not dismissed
within thirty (30) days from filing, whether voluntary or involuntary; the appointment of a
receiver or trustee or other similar officer with respect to any substantial part of their
property; a general assignment for the benefit of creditors; any other insolvency proceeding, any
dissolution or liquidation or winding up of affairs.



     7.06 Entry of a final judgment in an amount exceeding $10,000, other than a final judgment in
connection with any condemnation, not discharged or a stay of execution procured within sixty (60)
days of entry.



     7.07 Recordation of any federal, state or local tax lien or any claim of lien for labor,
materials or any other lien or encumbrance of any nature whatsoever not removed by payment or
transferred to substitute security in the manner provided by law within thirty (30) days after it
is recorded in accordance with applicable law or contested in accordance with law and in a manner
acceptable to Lender.



     7.08 Failure to exist or to be qualified to do or transact business in the jurisdictions where
assets are located, the dissolving of the corporation, or a sale of all or substantially all of its
assets.



     7.09 Any sale, conveyance, transfer, assignment or other disposition of all or substantially
all of assets not in the ordinary course of business.



     7.10 Default under any obligation imposed by any indemnity, contained in any of the Loan
Documents.



     7.11 The results of any field audit performed by Lender are not satisfactory to Lender, as
determined in Lender’s sole discretion, and the expiration of sixty (60) days after notice from
Lender to Borrower of said dissatisfaction and the failure of the Borrower to cure said default.



23









 





     7.12 The happening of any of the following: the cancellation or suspension for a period of
sixty (60) days of any material permits, licenses, authorizations, certifications, contracts or
approvals from or with any federal, state or local governmental authority.



     7.13 A voluntary or involuntary proceeding being filed or commenced for dissolution or
liquidation which is not dismissed within thirty (30) days.



     7.14 A Material Adverse Change.



     7.15 The acquisition by a Person of 50% or more of the aggregate voting power of all classes
of common equity of Borrower or Guarantor (or of any Future Guarantor that is an entity).



     7.16 The liquidation or dissolution of Borrower, or the death of any Future Guarantor that is
a person.



     7.17 A majority of the Board of Directors of Borrower as of the date hereof are no longer
members of the Board of Directors unless the new Board Members were nominated and elected to the
Board of Directors with an affirmative vote of at least a majority of a quorum of the Directors who
were Directors as of the date hereof or who were similarly nominated for election or elected.



ARTICLE 8




REMEDIES UPON DEFAULT




     If an Event of Default occurs, then Lender may terminate the Commitment and/or declare this
Agreement and the other Loan Documents in default and all Indebtedness and Obligations shall on
demand by Lender immediately become due; but, upon the occurrence of an Event of Default under
Section 7.05, the Commitment shall automatically terminate and all Indebtedness and Obligations
shall automatically become due and payable without any action by Lender. Further, if an Event of
Default occurs, then Lender may exercise any right, power or remedy permitted by law or in equity
or as set forth in this Agreement or any other Loan Document including the right to declare the
entire unpaid principal amount of the Note and all interest accrued thereon, and all other sums
secured by the Deed of Trust or any other Loan Document, to be, and the principal, interest and
other sums shall become, immediately due and payable.



     If after receipt of any payment of or any part of Indebtedness and Obligations, Lender is for
any reason compelled to surrender that payment to any person because that payment is determined to
be void or voidable as a preference, an impermissible setoff, or a diversion of trust funds, or for
any other reason, then this Agreement shall continue in full force and Borrower shall remain liable
to Lender for the amount of that payment surrendered. The provisions of this Article 8 shall be
and remain effective notwithstanding any contrary action which may have been taken by Lender in
reliance on that payment, and any contrary action so taken shall be without prejudice to the rights
of Lender under this Agreement and shall be deemed to have been conditioned on the payment having
become final and irrevocable. The provisions of this Article 8 shall survive the termination of
this Agreement until all periods for surrender have ended without the action having been
instituted.



     Borrower makes, constitutes and appoints Lender (and all Persons designated by Lender) the
true and lawful agent and attorney-in-fact of Borrower with full power of substitution so that if
an Event of Default has occurred to do all things necessary and take those actions in the name and
on behalf of Borrower to carry out the intent of this Agreement, including to protect rights
created under this Agreement. Borrower agrees that neither Lender nor any of its agents, designees
or attorneys-in-fact will be liable for any acts or omissions (other than for acts or omissions
which constitute gross negligence or willful misconduct as determined by a court of competent
jurisdiction in a final, nonappealable order), or for any error of judgment or mistake of fact or
law in respect to the exercise of the power of attorney



24









 







granted under this Article 8. The power of
attorney granted under this Article 8 shall be irrevocable during the term of this Agreement.



ARTICLE 9




JOINDER INTO DECLARATIONS




     9.01 Consent to Master Association Declarations, Easements and Plats. If no Default
or Event of Default exists, then Lender will join in and consent to the execution and recording of:
(a) any Declaration of Covenants, Restrictions, Easements and Plats for a Project within the
Collateral Pool and in form approved by Lender; and (b) reasonable access, utility and other
easements if same are required by governmental requirements or otherwise necessary in connection
with the development of the Property in order to construct a Project within the Collateral Pool,
provided that the applicable easement is acceptable to Lender.



ARTICLE 10




NOTICES




     All notices, requests or 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 the other party
at the following address:



	 	 	 	 	 
	 

	 	Borrower:
	 	Comstock Homebuilding Companies, Inc.
	 

	 	 	 	11465 Sunset Hills Road, 5th Floor
	 

	 	 	 	Reston, Virginia 20190
	 

	 	 	 	Attn: Christopher Clemente
	 

	 	 	 	Telephone: (703) 883-1700
	 

	 	 	 	Fax: (703) 760-1520
	 
	 	 	 	 
	 

	 	Borrower:
	 	Comstock Homebuilding Companies, Inc.
	 

	 	 	 	11465 Sunset Hills Road, 5th Floor
	 

	 	 	 	Reston, Virginia 20190
	 

	 	 	 	Attn: Jubal Thompson
	 

	 	 	 	Telephone: (703) 883-1700
	 

	 	 	 	Fax: (703) 760-1520
	 
	 	 	 	 
	 

	 	Lender:
	 	Wachovia Bank, National Association
	 

	 	 	 	150 Fayetteville Street, NC 3288
	 

	 	 	 	Raleigh, North Carolina 27602
	 

	 	 	 	Attention: Joe Morrocco
	 

	 	 	 	Telephone: (919) 881-7237
	 

	 	 	 	Fax: (919) 881-6647
	 

	 	 	 	Email: joe.morrocco@wachovia.com
	 
	 	 	 	 
	 

	 	With a copy to:
	 	Parker Poe Adams & Bernstein LLP
	 

	 	 	 	Three Wachovia Center
	 

	 	 	 	Suite 3000
	 

	 	 	 	401 South Tryon Street
	 

	 	 	 	Charlotte, North Carolina 28202-1935
	 

	 	 	 	Attention: Alan G. Dexter, Esq.
	 

	 	 	 	Telephone: (704) 335-9042
	 

	 	 	 	Fax: (704) 335-9559
	 

	 	 	 	Email: alandexter@parkerpoe.com






25









 




or to any other address as any party may designate by written notice to the other party. Each
notice, request and demand shall be deemed given or made upon receipt or refusal to accept
delivery.




ARTICLE 11




COSTS, EXPENSES AND ATTORNEYS’ FEES




     Borrower shall pay to Lender immediately on demand the full amount of all costs and expenses,
including reasonable attorneys’ fees and costs (to include outside counsel fees) incurred by Lender
in connection with: (a) the negotiation and preparation of this Agreement and each of the Loan
Documents; and (b) Lender’s reasonable attorneys’ fees and costs incurred in connection with the
addition of a Project to the Collateral Pool from time to time or in connection with any other
matter related to this Agreement or the other Loan Documents (including any consent or approval
request from Borrower to Lender). Borrower shall pay to Lender immediately on demand the full
amount of all costs and expenses, including reasonable attorneys’ fees and costs (to include
outside counsel fees) incurred by Lender in connection
with the enforcement of the Loan Documents, including all costs and expenses incurred during
any “workout” or restructuring after an Event of Default, whether or not pursuant to any legal
proceeding.



ARTICLE 12




MISCELLANEOUS




     Borrower, Guarantor, Lender and each Future Guarantor covenant and agree as follows, without
limiting any requirement of this Agreement or any other Loan Document:



     12.01 Cumulative Rights and No Implied Waiver. Each right granted to Lender,
Borrower, Guarantor or any Future Guarantor, as the case may be, under any Loan Document or allowed
it by law or equity shall be cumulative of each other and may be exercised in addition to all other
rights of Lender, Borrower, Guarantor or any Future Guarantor, as the case may be, and no delay in
exercising any right shall operate as a waiver thereof, nor shall any single or partial exercise by
Borrower, Guarantor or any Future Guarantor, as the case may be, of any right preclude any other or
future exercise thereof or the exercise of any other right No notice to or demand on Borrower,
Guarantor or any Future Guarantor in any case shall, of itself, entitle Borrower, Guarantor or any
Future Guarantor to any other or future notice or demand in similar or other circumstances.



     12.02 Applicable Law. This Agreement and the rights and obligations of the parties
under this Agreement shall be governed by and interpreted in accordance with the laws of North
Carolina and applicable United States federal law. No defense given or allowed by the laws of any
other state or country shall be interposed in any action, case or proceeding unless the defense is
also given or allowed by the laws of the State of North Carolina.



     12.03 Amendment. No modification, consent, amendment or waiver of any provision of
this Agreement, nor consent to any departure by Borrower, Guarantor or any Future Guarantor
therefrom, shall be effective unless the same shall be in writing and signed by an officer of
Lender, and then shall be effective only in the specified instance and for the purpose for which
given.



     12.04 Documents. All documents, certificates and other items required under this
Agreement to be executed and/or delivered to Lender shall be in form and content satisfactory to
Lender and its counsel.



     12.05 Partial Invalidity. The unenforceability or invalidity of any provision of this
Agreement or any other Loan Document shall not affect the enforceability or validity of any other
provision in this Agreement and the invalidity or unenforceability of any provision of this
Agreement or any other Loan Document to any person or circumstance shall not affect the
enforceability or validity of the provision as it may apply to other persons or circumstances.



26









 





     12.06 Indemnification. Borrower indemnifies and agrees to defend and hold harmless
Lender and its officers, employees and agents, from and against all losses, damages, liabilities,
suits, claims or demands, including reasonable attorneys’ fees incurred in investigating or
defending that claim, suffered by any of
them and caused by, arising out of or in any way connected with the Loan Documents or the
transactions contemplated therein (unless determined by a final judgment of a court of competent
jurisdiction to have been caused by the gross negligence or willful misconduct of any of the
indemnified parties), including (i) disputes with any architect, general contractor, subcontractor,
materialman or supplier, or on account of any act or omission to act by Lender in connection with
any Project; (ii) losses, damages, expenses or liabilities sustained by Lender resulting directly
from any environmental inspection, monitoring, sampling or clean up of any Project required or
mandated by any applicable environmental law; (iii) claims by any tenant, contract purchaser or any
other party arising under or in connection with any lease or contract for all or any portion of any
Project (if the lease or contract is otherwise permitted under the Loan Documents); (iv) any untrue
statement of a material fact contained in information submitted to Lender by Borrower, Guarantor or
any Future Guarantor or the omission of any material fact necessary to be stated therein in order
to make that statement not misleading or incomplete; (v) the failure of Borrower, Guarantor or any
Future Guarantor to perform any obligations in this Agreement required to be performed by any of
them; and (vi) the ownership, construction, occupancy, operation use or maintenance of any Project.



          If any action shall be brought against Lender or any of its officers, employees or agents, in
respect to which indemnity may be sought against Borrower, then Lender shall notify Borrower and
Borrower shall assume the defense thereof, including the employment of counsel selected by Borrower
and satisfactory to Lender, the payment of all costs and expenses and the right to negotiate and
consent to settlement. Lender shall have the right, at its sole option, to employ separate counsel
in any action and to participate in the defense thereof.




          The provisions of this Section 12.06 shall survive the repayment or other satisfaction of the
Indebtedness.




     12.07 Survivability. All covenants, agreements, representations and warranties made
in this Agreement or in the other Loan Documents shall survive the making of the Facility and shall
continue in full force and effect so long as the Facility is outstanding or the obligation of
Lender to make any Advances shall not have expired.



     12.08 Course of Dealing. No course of dealing between Lender and Borrower, Guarantor
or any Future Guarantor shall be effective to amend, modify or change any provision of this
Agreement.



     12.09 Successors and Assigns. This Agreement shall be binding upon Borrower,
Guarantor and each Future Guarantor and shall inure to the benefit of and shall be binding upon
Lender and its successors and assigns. Lender may, without the consent of Borrower, Guarantor or
any Future Guarantor or any other Person, assign, negotiate, hypothecate or grant assignments of or
participations in this Agreement or in any of its rights and security under this Agreement and each
of the other documents contemplated to be executed in conjunction herewith. Borrower, Guarantor
and each Future Guarantor shall accord full recognition to any assignment or participation, and all
rights and remedies of Lender in connection with the interest so assigned shall be as fully
enforceable by the assignee. In connection with any proposed assignment or participation, Lender
may disclose to the proposed assignee or participant any information that Borrower, Guarantor and
each Future Guarantor is required to deliver to Lender pursuant to this Agreement. There is no
third party beneficiary of this Agreement.



     12.10 Net Payments. All payments by Borrower under this Agreement and the Note shall be made without set-off or
counterclaim and in amounts as may be necessary in order that all payments, after deduction or
withholding for or on account of any present or future taxes, levies, imposts, duties or other
charges of whatsoever nature imposed by any government or any political subdivision or taxing
authority thereof, including documentary and intangible taxes payable by Borrower (collectively,
the “Taxes”), shall not be less than the amounts otherwise specified to be paid under this
Agreement and the



27









 







Note. Borrower shall not be liable for the payment of any tax on or measured by
net income imposed on Lender pursuant to the income tax laws of the United States or any political
subdivision thereof. Borrower shall pay all Taxes prior to delinquency (and indemnify Lender
against any liability therefor) and shall promptly (and in any event not later than thirty [30]
days thereafter) furnish to Lender any certificates, receipts and other documents which may be
required (in the judgment of Lender) to establish any tax credit to which Lender may be entitled.
The obligations of Borrower under this Article 12.10 shall survive the termination of this
Agreement and the repayment of the Facility.



     12.11 Further Assurances. Borrower will, at its own cost and expense, execute and
deliver to Lender all further agreements, documents and instruments, and take all further actions
which may be required under applicable law or which Lender may request, in order to effectuate the
intent of the transactions contemplated by this Agreement and the other Loan Documents.



     12.12 Resurrection of Borrower’s Indebtedness. To the extent that Lender receives any
payment on account of any of Borrower’s Indebtedness, and any of the payment(s) or any part thereof
are subsequently invalidated, declared to be fraudulent or preferential, set aside, subordinated
and/or required to be repaid to a trustee, receiver or any other Person under any bankruptcy act,
state or Federal law, common law or equitable cause, then, to the extent of the payment(s)
received, Borrower’s Indebtedness or part thereof intended to be satisfied shall be revived and
continue in full force and effect, as if the payment(s) had not been received by Lender and applied
on account of Borrower’s Indebtedness.



     12.13 Equitable Relief. Borrower recognizes that, if Borrower fails to perform,
observe or discharge any of Borrower’s Obligations under this Agreement and any remedy at law may
prove to be inadequate relief to Lender, then Lender shall be entitled to temporary and permanent
injunctive relief in any case without the necessity of proving actual damages.



     12.14 Multiple Borrowers. If more than one Person is named as Borrower, then all
obligations, representations and covenants in this Agreement and in other Loan Documents to which
Borrower is a party shall be joint and several.



     12.15 Identification of Lender. No officer, director or shareholder of Lender shall
incur any liability or obligation on an individual basis to Borrower and shall not be individually
responsible to Borrower for the performance or non-performance of any obligations of Lender.



     12.16 Broker’s Commission. Borrower represents and warrants to Lender that it has
dealt with no broker, finder or similar entity in connection herewith. Borrower agrees to
indemnify, defend and hold Lender free and
harmless from brokerage claims made by any person or entity, claiming through or as a result
of dealings with Borrower relative to this transaction, including attorneys’ fees.



     12.17 No Usurious Amounts. Borrower does not agree and shall not be obligated to pay
interest under the Note at a rate which is in excess of the maximum non-usurious rate permitted by
law. If by the terms of the Note, Borrower is, at any time, required to pay interest at a rate in
excess of the maximum non-usurious rate, then the rate of interest under the Note shall be deemed
to be immediately reduced to the maximum non-usurious legal rate and the portion of all prior
interest payments in excess of the maximum non-usurious legal rate shall be applied to and shall be
deemed to have been payments in reduction of the outstanding principal balance. Borrower agrees
that in determining whether or not any interest payable under the Note exceeds the highest rate
permitted by law, any non-principal payment, including late charges, shall be deemed to the extent
permitted by law to be an expense, fee or premium rather than interest.



     12.18 Approvals. Except as provided elsewhere in this Agreement, if this Agreement
calls for the approval or consent of Lender, then the approval or consent must, if given, be in
writing and may be given or withheld in the sole discretion of Lender. If at any time Borrower
believes that Lender has not acted reasonably in granting or withholding any approval or consent
under the Loan Documents as to



28









 







which approval or consent Lender has expressly agreed to act
reasonably, or absent agreement, a court of law having jurisdiction over the subject matter would
require Lender to act reasonably, then Borrower’s sole remedy shall be to seek injunctive relief or
specific performance and no action for monetary damages or punitive damages shall in any event or
under any circumstances be maintained by Borrower against Lender.



     12.19 Documentary and Intangible Taxes. Borrower, Guarantor and any Future Guarantor
shall be liable for all documentary stamp and intangible taxes (including any penalties and
interest charged for the late payment of any taxes) assessed upon execution of the Note or as
renewed from time to time during the term of the Facility or assessed upon execution of any
Guarantees by a Future Guarantor (or assessed upon execution of any security instruments executed
by a Future Guarantor securing its Guarantee).



     12.20 Confidentiality. Lender shall not disclose any Financial Reporting, Borrowing
Base Certificates, Submission Packages or other financial reports, appraisals or insurance
certificates or policies or any other material non-public information concerning Borrower,
Guarantor or any Future Guarantor obtained by or furnished to Lender in connection with the
transactions contemplated by this Agreement, to any person other than (a) Lender’s affiliates, and
to Lender’s and its affiliates’ respective directors, officers, employees, agents, contractors,
representatives and advisors (collectively, the “Representatives”), who shall only use this
information in connection with the consummation or administration of the transactions contemplated
by this Agreement or (b) any prospective assignees of the Commitment or the Facility, any
prospective participant in the Facility, or any actual or prospective counterparty (or its
advisors) to any swap or derivative transaction relating to Borrower and its obligations, provided
that Lender shall inform the parties of the confidential nature of the information with respect to
the transactions contemplated by this Agreement and direct them to treat all information in the
same manner that is required of Lender in this Agreement or (c) in connection with the exercise of
any remedies or in any action or proceeding relating to this Agreement or any other Loan Document.
Notwithstanding the foregoing, Lender shall be permitted to disclose any information obtained by
Lender: (a) which is incorporated in any Loan Documents subject to recordation and/or filing in
applicable public records or is otherwise a matter of public record; (b) as shall be required by
law, for instance, in the context of interrogatories, requests for information or documents,
subpoenas, civil investigative demands or similar process; (c) as shall be
required by any regulatory or governmental authorities; or (d) as shall be otherwise required
in connection with the transactions contemplated by this Agreement.



     12.21 USA Patriot Act Notice. Lender notifies Borrower that, pursuant to the requires
of the USA Patriot Act (Title III of Pub. L. 107-56 [signed into law October 26, 2003]) (the
“Act”), it is required to obtain, verify and record information that identifies Borrower, which
information includes the name and address of Borrower and other information that will allow Lender
to identify Borrower in accordance with the Act.



     12.22 Counterparts; Effective Date. This Agreement and any amendments, waivers,
consents or supplements hereto may be executed in any number of separate counterparts, no one of
which need contain all of the signatures of the parties, and as many of the counterparts as shall
together contain all of the signatures of the parties shall be deemed to constitute one and the
same instrument. A set of the counterparts of this Agreement signed by all parties to this
Agreement shall be delivered to and held by Lender. This Agreement shall become effective upon the
receipt by Lender of signed counterparts of this Agreement from each of the parties hereto or
telecopy confirmation of the signing of counterparts of this Agreement by each of the parties to
this Agreement.



ARTICLE 13




AMBIGUITY OR CONFLICT




     If there is an ambiguity or conflict of terms between the Note, this Agreement and/or any
other Loan Document, then the terms of this Agreement shall be deemed to amend and control all of
the other



29









 







agreements; and, to the extent that any of the agreements are silent, each shall
supplement the others; but, if there is any conflict between the terms of this Agreement, the Note
and/or any other Loan Document, then the terms which, in Lender’s sole discretion, grant Lender the
greater protection, shall control. All other provisions of contemporaneous or previous agreements
and understandings between Borrower and Lender relating to the commitment of Lender and the Note in
conflict with any expressed provision hereof shall be merged into this Agreement and be
extinguished and of no further force and effect.



ARTICLE 14




JURISDICTION, SERVICE OF PROCESS




     Any suit, action or proceeding against Borrower, Guarantor or any Future Guarantor directly or
indirectly connected to this Agreement or any other Loan Document, or any judgment entered by any
court in respect thereof, may be brought in the courts of Mecklenburg County, North Carolina or in
the U.S. District Court, Middle District of North Carolina as Lender (in its sole discretion) may
elect, and Borrower, Guarantor and each Future Guarantor accepts the non-exclusive jurisdiction of
those courts for the purpose of any suit, action or proceeding. Service of process in any case may
be had against Borrower, Guarantor and each Future Guarantor by delivery in accordance with the
notice provisions in this Agreement or as otherwise permitted by law, and Borrower, Guarantor and
each Future Guarantor agrees that the service shall be valid in all respects for establishing
personal jurisdiction over it. Borrower, Guarantor and each Future Guarantor waive any right which
it may have with respect to any litigation arising with respect to this Agreement, any Loan
Document or any judgment to remove the litigation from state court to federal court or to require
that the litigation take place in federal court instead of state court.



     In addition, Borrower, Guarantor and each Future Guarantor irrevocably waive, to the fullest
extent permitted by law, any objection which it may now or in the future have to the laying of
venue of any
suit, action or proceeding arising out of or relating to this Agreement, the Loan Documents or
any judgment entered by any court in respect of any thereof brought in Mecklenburg County, North
Carolina or in the U.S. District Court, Middle District of North Carolina as selected by Lender,
and further irrevocably waives any claim that any suit, action or proceeding brought in Mecklenburg
County, North Carolina or in the District Court has been brought in an inconvenient forum.



ARTICLE 15




NO ORAL AGREEMENT




     THIS WRITTEN LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.



ARTICLE 16




WAIVER OF JURY TRIAL




     16.01 Waiver of Jury Trial. TO THE EXTENT PERMITTED BY LAW, BORROWER, GUARANTOR, EACH
FUTURE GUARANTOR, AND LENDER KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT ANY OF THEM
MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON THIS AGREEMENT OR ARISING OUT OF,
UNDER OR IN CONNECTION WITH THIS AGREEMENT AND ANY OTHER LOAN DOCUMENT AND ANY OTHER AGREEMENT
CONTEMPLATED TO BE EXECUTED IN CONJUNCTION WITH THIS AGREEMENT, OR



30









 







ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY. THIS PROVISION IS A
MATERIAL INDUCEMENT FOR THE PARTIES ENTERING INTO THIS AGREEMENT.



31









 





     IN WITNESS WHEREOF, the parties hereto have caused this Credit Agreement to be duly executed
under seal by their duly authorized representatives as of the date first above written.



	 	 	 	 	 
	 	 	LENDER:
	 
	 	 	 	 
	 	 	WACHOVIA BANK, NATIONAL ASSOCIATION
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	Name:	 	 
	 

	 	 	 	 
	 

	 	Title:	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 	 	AGREED TO AND ACCEPTED BY:
	 
	 	 	 	 
	 	 	BORROWER:
	 
	 	 	 	 
	 	 	COMSTOCK HOMEBUILDING COMPANIES, INC.,
	 	 	a Delaware corporation
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 	 
	 

	 	Name:	 	 
	 

	 	 	 	 
	 

	 	Title: