Document:

Exhibit 10.2

 

 

ARC LP GUARANTEE

 

GUARANTEE, dated as of April 6, 2005 (the “Guarantee”), made by
Affordable Residential Communities LP (the “Guarantor”) in favor of Merrill Lynch Mortgage
Capital Inc. (“MLMCI”),
party to that certain Credit Agreement dated April 6, 2005 (as amended,
restated, supplemented or otherwise modified and in effect from time to time,
the “Credit Agreement”) by and among MLMCI and ARC Housing LLC together
with ARC HousingTX LP (collectively, the “Borrowers”, each, a “Borrower”).

 

RECITALS

 

Reference is made to the Credit Agreement, pursuant to
which MLMCI agreed to enter into transactions with the Borrowers upon the terms
and subject to the conditions set forth therein.  It is a condition precedent to the obligation
of MLMCI to make loans to the Borrower under the Credit Agreement that the Guarantor
execute and deliver to MLMCI this Guarantee.

 

NOW, THEREFORE, in
consideration of the premises and to induce MLMCI to enter into the Credit
Agreement and make Loans to the Borrowers and for other good and valuable
consideration the payment, receipt and sufficiency of which is hereby
acknowledged, the Guarantor hereby agrees to guarantee the Borrowers’
obligations under the Credit Agreement, as may be amended from time to time, on
the terms and conditions set forth herein.

 

1.             Defined
Terms.

 

(a)           Unless
otherwise defined herein, terms defined in the Credit Agreement and used herein
shall have the meanings given to them in the Credit Agreement.

 

“Capitalized Leases” shall mean all leases that have been or
should be, in accordance with GAAP, recorded as capitalized leases.

 

“Cash” shall mean the sum of (i) cash and
Cash Equivalents as reflected as current assets on the consolidated financial
statements (and whose use is for short-term obligations only and not restricted
by any agreement), (ii) treasuries and (iii) cash and cash
equivalents held on behalf of any direct or indirect subsidiary (individually a
“Real Property Subsidiary” and collectively “Real Property Subsidiaries”) of
the REIT, that will be released to the Real Property Subsidiaries within 15
days of the last day of each Fiscal Quarter, and the use of such cash is not
otherwise restricted by any agreement.

 

“Consolidated” shall mean the consolidation of
accounts in accordance with GAAP.

 

“Contingent Obligation” shall mean, with respect to any
Person, any obligation or arrangement of such Person to guarantee or intended
to guarantee any Debt, leases, dividends or other payment obligations (“primary
obligations”) of any other Person (the “primary obligor”) in any manner,
whether directly or indirectly, including, without limitation, (a) the
direct or indirect guarantee, endorsement (other than for collection or deposit
in the ordinary course of business),

 

 

co-making, discounting with recourse or sale with recourse
by such Person of the obligation of a primary obligor, (b) the obligation
to make take-or-pay or similar payments, if required, regardless of
nonperformance by any other party or parties to an agreement or (c) any obligation
of such Person, whether or not contingent, (i) to purchase any such
primary obligation or any property constituting direct or indirect security
therefor, (ii) to advance or supply funds (A) for the purchase or
payment of any such primary obligation or (B) to maintain working capital
or equity capital of the primary obligor or otherwise to maintain the net worth
or solvency of the primary obligor, (iii) to purchase property, assets,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment
of such primary obligation or (iv) otherwise to assure or hold harmless
the holder of such primary obligation against loss in respect thereof.  The amount of any Contingent Obligation shall
be deemed to be an amount equal to the stated or determinable amount of the
primary obligation in respect of which such Contingent Obligation is made (or,
if less, the maximum amount of such primary obligation for which such Person
may be liable pursuant to the terms of the instrument evidencing such
Contingent Obligation) or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof (assuming such Person is
required to perform thereunder), as determined by such Person in good faith.

 

 “Debt to
Tangible Net Worth Ratio” shall mean the consolidated book value of
liabilities divided by Tangible Net Worth.

 

“Equity Interests”
shall mean, with respect to any Person, shares of capital stock of (or
other ownership or profit interests in) such Person, warrants, options or other
rights for the purchase or other acquisition from such Person of shares of
capital stock of (or other ownership or profit interests in) such Person,
securities convertible into or exchangeable for shares of capital stock of (or
other ownership or profit interests in) such Person or warrants, rights or
options for the purchase or other acquisition from such Person of such shares
(or such other interests), and other ownership or profit interests in such
Person (including, without limitation, partnership, member or trust interests
therein), whether voting or nonvoting, and whether or not such shares,
warrants, options, rights or other interests are authorized or otherwise
existing on any date of determination.

 

 “GAAP”
shall mean generally accepted accounting principles consistently applied and
maintained throughout the period indicated and, when used with reference to the
REIT, consistent with the prior financial practices of the REIT.

 

“Hedge Agreement” shall mean interest rate
swap, cap or collar agreements, interest rate future or option contracts,
currency swap agreements, currency future or option contracts and other hedging
agreements.

 

“Intangibles” shall mean accounts receivable
and advances due from officers, directors, members, owners, employees,
stockholders and affiliates; goodwill; loan origination costs; and such other
similar items as MLMCI may from time to time determine in its reasonable
discretion.

 

“Lien” shall mean any lien, security interest or other charge
or encumbrance of any kind, or any other type of preferential arrangement,
including, without limitation, the lien or

 

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retained security title of a conditional vendor and any
easement, right of way or other encumbrance on title to real property.

 

“Person” shall mean an individual, partnership, corporation
(including a business trust), limited liability company, joint stock company,
trust, unincorporated association, joint venture or other entity, or a
government or any political subdivision or agency thereof.

 

“Subsidiary” shall
mean, of any Person, any corporation, partnership, joint venture,
limited liability company, trust or estate of which (or in which) more than 50%
of (a) the issued and outstanding capital stock having ordinary voting
power to elect a majority of the Board of Directors of such corporation
(irrespective of whether at the time capital stock of any other class or
classes of such corporation shall or might have voting power upon the
occurrence of any contingency), (b) the interest in the capital or profits
of such partnership, joint venture or limited liability company or (c) the
beneficial interest in such trust or estate, in each case, is at the time directly
or indirectly owned or controlled by such Person, by such Person and one or
more of its other Subsidiaries or by one or more of such Person’s other
Subsidiaries.

 

“Subsidiary Guarantor”
shall mean entities listed on the signature pages of the Subsidiary
Guarantee as the guarantors and their successors and assigns.

 

“Tangible Net Worth” shall mean stockholders
equity plus minority interest minus Intangibles.

 

“Termination Date” shall have the meaning
specified in the Credit Agreement.

 

(b)           The words “hereof,”
“herein” and “hereunder” and words of similar import when used in this Guarantee
shall refer to this Guarantee as a whole and not to any particular provision of
this Guarantee, and section and paragraph references are to this Guarantee
unless otherwise specified.

 

(c)           The
meanings given to terms defined herein shall be equally applicable to both the
singular and plural forms of such terms.

 

2.             Guarantee.  (a) The Guarantor hereby,
unconditionally and irrevocably, guarantees to MLMCI and its successors, indorsees,
transferees and assigns, the prompt and complete payment and performance by any
Borrower when due (whether at the stated maturity, by acceleration or
otherwise) of the Obligations.

 

(b)           The
Guarantor further agrees to pay any and all expenses (including, without
limitation, all reasonable fees and disbursements of counsel) which may be paid
or incurred by MLMCI in enforcing, or obtaining advice of counsel in respect
of, any rights with respect to, or the collection of, any or all of the Obligations
and/or enforcing any rights with respect to, or collecting against, the
Guarantor under this Guarantee.

 

(c)           No payment
or payments made by any Borrower, the Guarantor, any other guarantor or any
other Person or received or collected by MLMCI from any Borrower, the
Guarantor, any other guarantor or any other Person by virtue of any action or
proceeding or any set-off or appropriation or application at any time or from
time to time in reduction of or in

 

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payment of the
Obligations shall be deemed to release or otherwise affect the liability of the
Guarantor hereunder, other than to reduce the amount of the Obligations by such
payment amount, which shall, notwithstanding any such payment or payments other
than payments made by the Guarantor in respect of the Obligations or payments
received or collected from the Guarantor in respect of the Obligations, remain
liable for the Obligations until the Obligations are paid in full and the Credit
Agreement is terminated.

 

(d)           The
Guarantor agrees that whenever, at any time, or from time to time, it shall
make any payment to MLMCI on account of its liability hereunder, it will notify
MLMCI in writing that such payment is made under this Guarantee for such
purpose.

 

3.             Right
of Set-off.  Upon the occurrence of
any Event of Default, the Guarantor hereby irrevocably authorizes MLMCI at any
time and from time to time without notice to the Guarantor, any such notice
being expressly waived by the Guarantor, to set-off and appropriate and apply
any and all deposits (general or special, time or demand, provisional or
final), in any currency, and any other credits, indebtedness or claims, in any
currency, in each case whether direct or indirect, absolute or contingent,
matured or unmatured, at any time held or owing by MLMCI to or for the credit
or the account of the Guarantor, or any part thereof in such amounts as MLMCI
may elect, against and on account of the obligations and liabilities of the
Guarantor to MLMCI hereunder and claims of every nature and description of
MLMCI against the Guarantor, in any currency, whether arising hereunder, under
the Credit Agreement, any promissory note, or otherwise, as MLMCI may elect,
whether or not MLMCI has made any demand for payment and although such
obligations, liabilities and claims may be contingent or unmatured. MLMCI shall
notify the Guarantor promptly of any such set-off and the application made by
MLMCI, provided that the failure to give such notice shall not affect
the validity of such set-off and application. 
The rights of MLMCI under this Section are in addition to other rights
and remedies (including, without limitation, other rights of set-off) which
MLMCI may have.

 

4.             No
Subrogation.  Notwithstanding any
payment or payments made by the Guarantor hereunder or any set-off or
application of funds of the Guarantor by MLMCI, the Guarantor shall not be
entitled to be subrogated to any of the rights of MLMCI against any Borrower or
any other guarantor or any collateral security or guarantee or right of offset
held by MLMCI for the payment of the Obligations, nor shall the Guarantor seek
or be entitled to seek any contribution or reimbursement from any Borrower or
any other guarantor in respect of payments made by the Guarantor hereunder,
until all amounts owing to MLMCI by each Borrower, on account of the
Obligations (other than contingent Obligations that are intended to survive the
termination of the Credit Agreement) are paid in full. The Guarantor hereby
subordinates all of its subrogation rights against any Borrower and any other
guarantor to the full payment of Obligations due MLMCI under the Credit
Agreement, for a period of 91 days following the final payment of the last of
all of the Obligations.  If any amount
shall be paid to the Guarantor on account of such subrogation rights at any
time when all of the Obligations (other than contingent Obligations that are
intended to survive the termination of the Credit Agreement) shall not have
been paid in full, such amount shall be held by the Guarantor in trust for MLMCI,
segregated from other funds of the Guarantor, and shall, forthwith upon receipt
by the Guarantor, be turned over to MLMCI in the exact form received by the
Guarantor (duly

 

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indorsed by the Guarantor to MLMCI, if
required), to be applied against the Obligations, whether matured or unmatured,
in such order as MLMCI may determine.

 

5.             Amendments,
Etc. with Respect to the Obligations; Waiver of Rights.  The Guarantor shall remain obligated
hereunder notwithstanding that, without any reservation of rights against the
Guarantor and without notice to or further assent by the Guarantor, any demand
for payment of any of the Obligations made by MLMCI may be rescinded by MLMCI and
any of the Obligations continued, and the Obligations, or the liability of any
other party upon or for any part thereof, or any collateral security or
guarantee therefor or right of offset with respect thereto, may, from time to
time, in whole or in part, be renewed, extended, amended, modified,
accelerated, compromised, waived, surrendered or released by MLMCI, and the Credit
Agreement and any other documents executed and delivered in connection
therewith may be amended, modified, supplemented or terminated, in whole or in
part, as MLMCI may deem advisable from time to time, and any collateral
security, guarantee or right of offset at any time held by MLMCI for the
payment of the Obligations may be sold, exchanged, waived, surrendered or
released.  MLMCI shall not have any
obligation to protect, secure, perfect or insure any lien at any time held by
it as security for the Obligations or for this Guarantee or any property
subject thereto.  When making any demand
hereunder against the Guarantor, MLMCI may, but shall be under no obligation
to, make a similar demand on any Borrower or any other guarantor, and any
failure by MLMCI to make any such demand or to collect any payments from any Borrower
or any such other guarantor or any release of any Borrower or such other
guarantor shall not relieve the Guarantor of its obligations or liabilities
hereunder, and shall not impair or affect the rights and remedies, express or
implied, or as a matter of law, of MLMCI against the Guarantor.  For the purposes hereof “demand” shall
include the commencement and continuance of any legal proceedings.

 

6.             Guarantee
Absolute and Unconditional.

 

(a)           The
Guarantor waives any and all notice of the creation, renewal, extension or
accrual of any of the Obligations and notice of or proof of reliance by MLMCI
upon this Guarantee or acceptance of this Guarantee, the Obligations, and any
of them, shall conclusively be deemed to have been created, contracted or
incurred, or renewed, extended, amended or waived, in reliance upon this Guarantee;
and all dealings between any Borrower, any other guarantor and the Guarantor,
on the one hand, and MLMCI, on the other hand, likewise shall be conclusively
presumed to have been had or consummated in reliance upon this Guarantee.

 

(b)           The
Guarantor hereby expressly waives all set-offs and counterclaims and all
diligence, presentments, demands for payment, demands for performance, notices
of nonperformance, protests, notices of protest, notices of dishonor, notices
of acceptance of this Guarantee, notices of sale, notice of default or
nonpayment to or upon any Borrower or any other guarantor or the Guarantor,
surrender or other handling or disposition of assets subject to the Credit
Agreement, any requirement that MLMCI exhaust any right, power or remedy or
take any action against any Borrower or any other guarantor or against any
assets subject to the Credit Agreement and other formalities of any kind.

 

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(c)           The
Guarantor understands and agrees that this Guarantee shall be construed as a
continuing, absolute and unconditional guarantee of payment without regard to (a) the
validity, regularity or enforceability of the Credit Agreement, any of the
Obligations or any other collateral security therefor or guarantee or right of
offset with respect thereto at any time or from time to time held by MLMCI, (b) any
defense, set-off or counterclaim (other than a defense of payment or
performance) which may at any time be available to or be asserted by any Borrower
or any other guarantor against MLMCI, or (c) any other circumstance
whatsoever (with or without notice to or knowledge of any Borrower or any other
guarantor or the Guarantor) which constitutes, or might be construed to
constitute, an equitable or legal discharge of such Borrower or any other
guarantor from the Obligations, or of the Guarantor from this Guarantee, in
bankruptcy or in any other instance.

 

(d)           When
pursuing its rights and remedies hereunder against the Guarantor, MLMCI may,
but shall be under no obligation to, pursue such rights and remedies as it may
have against any Borrower or any other Person or against any collateral
security or guarantee for the Obligations or any right of offset with respect
thereto, and any failure by MLMCI to pursue such other rights or remedies or to
collect any payments from any Borrower or any such other Person or to realize
upon any such collateral security or guarantee or to exercise any such right of
offset, or any release of any Borrower or any such other Person or any such
collateral security, guarantee or right of offset, shall not relieve the
Guarantor of any liability hereunder, and shall not impair or affect the rights
and remedies, whether express, implied or available as a matter of law, of MLMCI
against the Guarantor.

 

(e)           This Guarantee
shall remain in full force and effect and be binding in accordance with and to
the extent of its terms upon the Guarantor and the successors and assigns
thereof, and shall inure to the benefit of MLMCI, and its successors,
indorsees, transferees and assigns, until all the Obligations and the
obligations of the Guarantor under this Guarantee shall have been satisfied by
payment in full and the Credit Agreement, shall be terminated, notwithstanding
that from time to time prior thereto such Borrower may be free from any
Obligations.

 

(f)            The
Guarantor waives, to the fullest extent permitted by applicable law, all
defenses of surety to which it may be entitled by statute or otherwise.

 

7.             Reinstatement.  The Obligations of the Guarantor under this Guarantee,
and this Guarantee shall continue to be effective, or be reinstated, as the
case may be, and be continued in full force and effect, if at any time any
payment, or any part thereof, of any of the Obligations is rescinded, invalidated,
declared fraudulent or preferentially set aside or must otherwise be restored,
returned or repaid by MLMCI upon the insolvency, bankruptcy, dissolution,
liquidation or reorganization of any Borrower or any other guarantor or the
Guarantor, or upon or as a result of the appointment of a receiver, intervenor
or conservator of, or trustee or similar officer for, such Borrower or any
other guarantor or the Guarantor or any substantial part of its or their
property, or for any other reason, all as though such payments had not been
made.

 

8.             Payments.  The Guarantor hereby guarantees that payments
hereunder will be paid to MLMCI without set-off or counterclaim in U.S.
Dollars.

 

6

 

9.             Event
of Default.  If an Event of Default
under the Credit Agreement shall have occurred and be continuing, the Guarantor
agrees that, as between the Guarantor and MLMCI, the Obligations may be
declared to be due for purposes of this Guarantee notwithstanding any stay,
injunction or other prohibition which may prevent, delay or vitiate any such
declaration as against any Borrower or any other guarantor and that, in the
event of any such declaration (or attempted declaration), such Obligations
shall forthwith become due by the Guarantor for purposes of this Guarantee.

 

10.           Representations
and Warranties.

 

(a)           The
Guarantor represents and warrants that (i) it is duly authorized to
execute and deliver this Guarantee, to perform its obligations hereunder and
has taken all necessary action to authorize such execution, delivery and
performance; (ii) the person signing this Guarantee on its behalf is duly
authorized to do so on its behalf; (iii) this Guarantee is a legal, valid
and binding obligation of it, enforceable against it in accordance with its
terms, subject to applicable bankruptcy, insolvency, or similar debtor/creditor
laws and general principles of equity and public policy, (iv) no approval,
consent or authorization of this Guarantee from any federal, state, or local
regulatory authority having jurisdiction over it is required or, if required,
such approval, consent or authorization has been or will be obtained, prior to
the initial Transaction or initial Loan; (v) the execution, delivery, and
performance of this Guarantee will not violate any law, regulation, order,
judgment, decree, ordinance, charter, by law, or rule applicable to it or
its property or constitute a default (or an event which, with notice or lapse
of time, or both would constitute a default) under or result in a breach of any
material agreement or other material instrument by which it is bound or by
which any of its assets are affected; (vi) it has received approval and
authorization to enter into this Guarantee pursuant to its internal policies
and procedures; (vii) this Guarantee is not entered into in contemplation
of insolvency or with intent to hinder, delay or defraud any creditor and (viii) it
has examined and comprehends the Credit Agreement in its entirety.

 

(b)           Guarantor
represents, warrants and covenants to MLMCI that as of the date of this Guarantee,
as of the date of any Transaction under the Credit Agreement and at all times
while this Guarantee and any Transaction under the Credit Agreement are in
effect or there are Obligations outstanding:

 

(i)            Performance
of Guarantee.  Guarantor does not
believe, nor does it have any reason or cause to believe, that it cannot
perform each and every covenant contained in this Guarantee on its part to be performed.

 

(ii)           Guarantor
Not Insolvent.  Guarantor is not, and
with the passage of time does not expect to become, insolvent.

 

(iii)          Ownership
of Borrower.   Guarantor is now, and
will remain, the direct or indirect owner of 100% of the membership interests
of Housing LLC.

 

(iv)          Ownership
of Borrower.   Guarantor is now, and
will remain, the direct or indirect owner of 100% of the partnership interests
of HousingTX LP.

 

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11.           Covenants.  Guarantor covenants and agrees as follows:

 

(a)           Consolidations,
Mergers and Sales of Assets.  The
Guarantor shall not (i) consolidate with or merge with or into any other
Person or (ii) sell, lease or otherwise transfer all or substantially all
of its assets to any other Person; provided, the Guarantor may merge or
consolidate with another Person if the Guarantor is the Person surviving such
merger.

 

(b)           Guarantees.  The Guarantor shall not create, incur, assume
or suffer to exist any Guarantees other than this Guarantee except (i) to
the extent reflected in the Guarantor’s financial statements or notes thereto; (ii) to
the extent the aggregate Guarantees of the Guarantor (other than those made
pursuant to clauses (iii) and (iv) below) do not exceed $5,000,000; (iii) of
obligations of ARC Dealership Inc. to Textron Financial Corporation (“Textron”)
arising in connection with loans to ARC Dealership Inc. from Textron in an
aggregate amount of $ 50,000,000 at any time, (iv) the Guaranty to Textron
with respect to that certain $25,000,000 Agreement for Wholesale Financing from
Textron to ARC Housing LLC and ARC HousingTX LP dated February 18, 2005
and (v) the Guarantee to MLMCI under that certain Chattel Paper Facility;
provided, however, that for the purposes of this clause (b) only the term “Guarantees”
shall exclude Guarantees arising pursuant to customary carve-outs to limited
recourse debt such as, for example, personal recourse to the Guarantor or any
Subsidiary of the Guarantor for fraud, willful misrepresentation,
misapplication or misappropriation of cash, waste, environmental claims, damage
to properties, non-payment of taxes or other liens despite the existence of
sufficient cash flow, interference with the enforcement of loan documents upon
maturity or acceleration, violation of loan document prohibitions against
voluntary or involuntary bankruptcy filings, transfer of properties or
ownership interests therein and liabilities and other circumstances customarily
excluded by lenders from exculpation provisions and/or included in separate
indemnification agreements in non-recourse financings of real estate.

 

(c)           Minimum
Tangible Net Worth.  As of the last
day of each fiscal quarter, the REIT will have Tangible Net Worth of no less
than $500,000,000.

 

(d)           Ratio
of Indebtedness to Tangible Net to Worth. As of the last day of each quarter,
the REIT will have a Debt to Tangible Net Worth Ratio of no more than 3.0 to
1.0.

 

(e)           Liquidity.  As of the last day of each fiscal quarter,
the REIT will have no less than $15,000,000.00 of Cash.

 

(f)            Financial
Reporting.  The Guarantor shall
maintain a system of accounting established and administered in accordance with
GAAP.

 

(g)           Reporting
Requirements.  The Guarantor shall
provide all information, and take all actions necessary, to enable each Borrower
to comply with its obligations under the Credit Agreement, including, without
limitation, Financial Statements of the Guarantor.

 

(h)           No
Material Change in Business.  The
Guarantor shall not make any material change in the nature of its business as
carried on at the date of this Guarantee.

 

(i)            Limitation
on Dividends and Distributions. The Guarantor shall not make any payment on
account of, or set apart assets for, a sinking or other analogous fund for the
purchase, redemption, defeasance, retirement or other acquisition of any equity
interest of the Guarantor, whether now or hereafter outstanding, or make any
other distribution in respect of

 

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any of the
foregoing or to any shareholder or equity owner of the Guarantor, either
directly or indirectly, whether in cash or property or in obligations of the
Guarantor or any of the Guarantor’s consolidated Subsidiaries at any time
following the occurrence and during the continuation of an Event of Default, except that, following the occurrence and
during the continuation of an Event of Default, the Guarantor may make distributions
in cash or other property but only to the extent of the REIT’s distributable
share of the Guarantor ‘s net
taxable income and gain (as determined for federal income tax purposes) with respect
to such taxable year, and only to the extent reasonably necessary for the REIT
to satisfy its REIT Distribution Requirement with respect to such taxable year.

 

(j)            Preservation
of Existence; Compliance with Law.  The
Guarantor shall:

 

(i)            Preserve
and maintain its legal existence and all of its material rights, privileges,
licenses and franchises necessary for the operation of its business;

 

(ii)           Comply in
all material respects with the requirements of all applicable laws, rules,
regulations and orders, whether now in effect or hereafter enacted or
promulgated by any applicable Governmental Authority (including, without limitation,
all environmental laws);

 

(iii)          Maintain
all licenses, permits or other approvals necessary for the Guarantor to conduct
its business and to perform its obligations under the Loan Documents, and shall
conduct its business in all material respects in accordance with applicable
law;

 

(iv)          Keep
adequate records and books of account, in which complete entries will be made
in accordance with GAAP consistently applied; and

 

(v)           Permit
representatives of MLMCI, upon reasonable notice (unless an Event of Default
shall have occurred and is continuing, in which case, no prior notice shall be
required), during normal business hours, to examine, copy and make extracts
from its books and records, to inspect any of its Properties, and to discuss
its business and affairs with its officers, all to the extent reasonably
requested by the Lender, subject to the provisions set forth in Section [6.05]
of the Credit Agreement.

 

(k)           Taxes,
Etc.

 

(i)            The
Guarantor shall pay and discharge or cause to be paid and discharged, when due,
or adequately reserve for the payment of, all taxes, assessments and
governmental charges or levies imposed upon it or upon its income and profits
or upon any of its property, real, personal or mixed (including without
limitation, the Collateral) or upon any part thereof, as well as any other
lawful claims which, if unpaid, might become a Lien upon such properties or any
part thereof; except for any such taxes as are appropriately contested in good
faith by appropriate proceedings diligently conducted and with respect to which
adequate reserves are provided.

 

(ii)           The
Guarantor shall file on a timely basis all federal, state and local tax and
information returns, reports and any other information statements or schedules

 

9

 

required to be
filed by or in respect of it and pay all taxes due pursuant to such returns,
reports and other information statements or schedules or pursuant to any
assessment received by it.

 

(l)            Transactions
with Affiliates.  The Guarantor shall
not, and shall ensure that none of its direct or indirect Subsidiaries shall, enter
into any transaction, including, without limitation, the purchase, sale, lease
or exchange of property or assets or the rendering or accepting of any service,
but excluding indemnifications of officers and directors, equity awards or
grants, benefit plans and issuances of capital stock, with any Affiliate (other
than a direct or indirect Subsidiary of the Guarantor), unless such transaction
is (a) not otherwise prohibited in the Credit Agreement or this Guarantee,
(b) in the ordinary course of the Guarantor’s business and (c) upon
fair and reasonable terms no less favorable to the Guarantor, as the case may
be, than it would obtain in a comparable arm’s length transaction with a Person
which is not an Affiliate.

 

12.           Notices.  All notices, requests and other
communications provided for herein (including without limitation any
modifications of, or waivers, requests or consents under, this Guarantee) shall
be given or made via e-mail delivered to the intended recipient at the “E-mail Address
for Notices” specified below its name on the signature pages of the Credit
Agreement or, with respect to Guarantor, at the “E-mail Address for Notices”
specified below its name on the signature page to this Guarantee); or, as
to any party, at such other address as shall be designated by such party in an
e-mail or telecopier notice to each other party.  All such communications shall be deemed to
have been duly given when affirmatively confirmed by the MLMCI in an e-mail or
telecopier notice to such Borrower.

 

13.           Severability.  Any provision of this Guarantee which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions of this Guarantee, and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.

 

14.           Integration.  This Guarantee represents the agreement of
the Guarantor with respect to the subject matter hereof and thereof and there
are no promises or representations by MLMCI relative to the subject matter
hereof or thereof not reflected herein or therein.

 

15.           Amendments
in Writing; No Waiver; Cumulative Remedies. 
(a) None of the terms or provisions of this Guarantee may be waived,
amended, supplemented or otherwise modified except by a written instrument
executed by the Guarantor and MLMCI, provided that any provision of this
Guarantee may be waived by MLMCI.

 

(b)           MLMCI
shall not by any act (except by a written instrument pursuant to Section 15(a) of
this Guarantee), delay, indulgence, omission or otherwise be deemed to have
waived any right or remedy hereunder or to have acquiesced in any Default or
Event of Default or in any breach of any of the terms and conditions of this Guarantee.  No failure to exercise, nor any delay in
exercising, on the part of MLMCI, any right, power or privilege hereunder shall
operate as a waiver thereof.  No single
or partial exercise of any right,

 

10

 

power or privilege
hereunder shall preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. 
A waiver by MLMCI of any right or remedy hereunder on any one occasion
shall not be construed as a bar to any right or remedy which MLMCI would
otherwise have on any future occasion.

 

(c)           The rights
and remedies herein provided are cumulative, may be exercised singly or
concurrently and are not exclusive of any other rights or remedies provided by
law.

 

16.           Section Headings.  The section headings used in this Guarantee
are for convenience of reference only and are not to affect the construction of
this Guarantee or be taken into consideration in the interpretation of this
Guarantee.

 

17.           Successors
and Assigns.  This Guarantee shall be
binding upon the successors and assigns of the Guarantor and shall inure to the
benefit of MLMCI and its successors and assigns.  This Guarantee may not be assigned by the
Guarantor without the express written consent of MLMCI.

 

18.           Governing
Law.  This Guarantee shall be
governed by New York law without reference to its choice of law doctrine.

 

19.          SUBMISSION TO JURISDICTION; WAIVERS.  THE GUARANTOR HEREBY IRREVOCABLY AND
UNCONDITIONALLY:

 

(A)          SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR PROCEEDING RELATING
TO THIS GUARANTEE AND THE OTHER LOAN DOCUMENTS, OR FOR RECOGNITION AND
ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE NON-EXCLUSIVE GENERAL
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK, THE FEDERAL COURTS OF THE
UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND APPELLATE
COURTS FROM ANY THEREOF;

 

(B)          CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN SUCH
COURTS AND, TO THE EXTENT PERMITTED BY LAW, WAIVES ANY OBJECTION THAT IT MAY NOW
OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH
COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT
AND AGREES NOT TO PLEAD OR CLAIM THE SAME;

 

(C)          AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING MAY BE
EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL (OR ANY
SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO ITS ADDRESS SET
FORTH UNDER ITS SIGNATURE BELOW OR AT SUCH OTHER ADDRESS OF WHICH MLMCI SHALL
HAVE BEEN NOTIFIED; AND

 

11

 

(D)          AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT SERVICE OF
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT TO SUE IN
ANY OTHER JURISDICTION.

 

20.          WAIVER OF JURY TRIAL.  EACH OF THE GUARANTOR AND MLMCI HEREBY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND
ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING
TO THIS GUARANTEE, ANY OTHER LOAN DOCUMENT, ANY OTHER LOAN DOCUMENT OR THE
TRANSACTIONS OR LOANS CONTEMPLATED HEREBY OR THEREBY.

 

[SIGNATURE
PAGE FOLLOWS]

 

12

 

IN WITNESS WHEREOF, the undersigned has caused this Guarantee
to be duly executed and delivered by its duly authorized officer as of the day
and year first above written.

 

	
   

  	
  AFFORDABLE RESIDENTIAL

  
	
   

  	
  COMMUNITIES LP, as Guarantor

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John G. Sprengle

  	
   

  
	
   

  	
   

  	
  Name: John G. Sprengle

  
	
   

  	
   

  	
  Title: President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Address for Notices:

  
	
   

  	
   

  
	
   

  	
   

  	
  Affordable Residential Communities Inc.

  
	
   

  	
   

  	
  Attention: Alan Kessock, Treasurer

  
	
   

  	
   

  	
  alan.kessock@aboutarc.com

  
	
   

  	
   

  	
  600 Grant Street, Suite 900

  
	
   

  	
   

  	
  Denver, CO 80203

  
	
   

  	
   

  	
  Telecopier No.: (303) 749-2172

  
	
   

  	
   

  	
  Telephone No.: (303) 383-7523

  
	
   

  	
   

  	
   

  
	
   

  	
  with a copy to:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Affordable Residential Communities Inc.

  
	
   

  	
   

  	
  Attention: Scott Gesell, General Counsel

  
	
   

  	
   

  	
  scottg@arc.hs.com

  
	
   

  	
   

  	
  600 Grant Street, Suite 900

  
	
   

  	
   

  	
  Denver, CO 80203

  
	
   

  	
   

  	
  Telecopier No.: (303) 749-2073

  
	
   

  	
   

  	
  Telephone No.: (303) 383-7506

  

 

 

ARC LP GUARANTEE

 

 

ACKNOWLEDGED AND AGREED:

 

MERRILL LYNCH MORTGAGE CAPITAL INC.

 

 

	
  By:

  	
  /s/ Joshua A. Green

  	
   

  
	
   

  	
  Name: Joshua A. Green

  
	
   

  	
  Title: Vice PresidentExhibit 10.3

 

 

 

AMENDMENT NO. 1 

TO MASTER REPURCHASE AGREEMENT

 

AMENDMENT NO. 1 TO MASTER REPURCHASE AGREEMENT,
dated as of April 6, 2005, (the “Amendment”)
by and between Merrill Lynch Mortgage Capital Inc. (the “Buyer”), and Enspire Finance LLC (the “Seller”):

 

The
Buyer and the Seller are parties to that certain Master Repurchase Agreement,
dated as of February 18, 2004 (the “Existing
Repurchase Agreement”; as amended by this Amendment, the “Repurchase Agreement”).  Capitalized terms used but not otherwise
defined herein shall have the meanings given to them in the Existing Repurchase
Agreement.

 

Affordable
Residential Communities, LP (the “Parent Guarantor”) has made that
certain Second Amended and Restated Guaranty, dated as of April 6, 2005, (as
amended from time to time the “Parent Guaranty”) in favor of the Buyer.

 

ARC
Dealership, Inc. (the “Affiliate Guarantor”) has made that certain Amended
and Restated Guaranty, dated as of April 6, 2005, (as amended from time to
time the “Affiliate Guaranty” and together with the Parent Guaranty the “Guaranties”)
in favor of the Buyer.

 

The Buyer, the Seller, the Parent Guarantor and the
Affiliate Guarantor have agreed, subject to the terms and conditions of this
Amendment, that the Existing Repurchase Agreement be amended to reflect certain
agreed upon revisions to the terms of the Existing Repurchase Agreement. As a
condition precedent to amending the Existing Master Repurchase Agreement, the
Buyer has required the Parent Guarantor and the Affiliate Guarantor to ratify
and affirm their respective Guaranties on the date hereof.

 

Accordingly, the Buyer, the Seller, the Parent
Guarantor and the Affiliate Guarantor hereby agree, in consideration of the
mutual premises and mutual obligations set forth herein, that the Existing
Repurchase Agreement is hereby amended as follows:

 

Section 1.                                            Definitions.
Section 2 of the Existing Repurchase Agreement is hereby amended by:

 

1.1                                 deleting
clause (j) from the definition of Market Value in its entirety and replacing it
with the following:

 

“(j) when the Purchase Price for such Purchased MH
Loan is added to other Purchased MH Loans, the aggregate Purchase Price of all
Delinquent MH Loans that are Purchased MH Loans exceeds $5,600,000;”

 

1.2                                 deleting
clause (k) from the definition of Market Value in its entirety.

 

1.3                                 deleting
the definition of “Maximum Purchase Price” in its entirety and replacing it
with the following:

 

 

“Maximum Purchase Price” shall mean $125,000,000.

 

1.4                                 deleting
the definition of “Purchase Price Percentage” in its entirety and replacing it
with the following:

 

“Purchase Price Percentage” shall mean:

 

(a)                                  with
respect to each MH Loan (other than a Delinquent MH Loan), 75%; and

 

(b)                                 with
respect to each MH Loan which is a Delinquent MH Loan 60%,

 

provided, that in the event that (i) the
Seller or its Affiliates complete two (2) securitization transactions
through a public offering, (ii) each securitization transaction is at
least $200,000,000, (iii) MH Contracts that were Purchased MH Contracts
total at least fifty percent (50%) of the collateral underlying each
securitization transaction and (iii) each securitization transaction is
completed within twelve (12) months of the other, then the Purchase Price
Percentage shall be revised to equal the percentage after discounting the subordination
level required to achieve a AA level of risk as determined by S&P or Moody’s.

 

1.5                                 adding
the following definitions in their proper alphabetical order:

 

“Lease Receivables Facility” shall mean that
certain credit agreement among the Buyer, ARC Housing LLC and ARC HousingTX LP,
as amended from time to time.

 

“Maximum Exposure” shall mean the sum of the
aggregate outstanding purchase price of all Purchased MH Loans subject to
Transactions hereunder and the aggregate amount of all loans made under the
Lease Receivables Facility which shall not exceed $200,000,000.

 

Section 2.                                            Initiation;
Termination.  Section 3(b) of
the Existing Repurchase Agreement is hereby amended by deleting clause (iv) thereof
and replacing it with the following:

 

“(iv) After giving effect to the requested
Transaction, the aggregate outstanding Purchase Price for all Purchased MH
Loans subject to then outstanding Transactions under this Repurchase Agreement
shall not exceed (i) the Maximum Purchase Price or the (ii) Maximum Exposure;”

 

Section 3.                                            Covenants.  Section 12 of the Existing Repurchase
Agreement is hereby amended by:

 

3.1                                 deleting
clause (i) of subsection (j) in its entirety and replacing it with
the following:

 

“(i)  Maintenance of Tangible Net Worth.  (A) Seller shall maintain a Tangible Net
Worth of not less than $2,000,000 on and after June 30, 2005; and (B) Seller
shall maintain a Tangible Net Worth at the end of any calendar quarter of not
less than 80% of its Tangible Net Worth at the end of the second preceding calendar
quarter.  For example, Seller shall
maintain a

 

2

 

Tangible Net Worth on September 30th
of not less than 80% of its Tangible Net Worth on March 31st.”

 

3.2                                 deleting
clause (iii) of subsection (j) in its entirety and replacing it with
the following:

 

“(iii) Maintenance of Liquidity.  The Seller shall ensure that, as of the end
of each calendar month, it has Cash Equivalents in an amount not less than the
greater of (A) $250,000 and (B) one-half percent (0.5%) of the
aggregate daily Purchase Price of Purchased MH Loans at the end of each
calendar month.”

 

3.3                                 deleting
subsection (y) in its entirety and replacing it with the following:

 

“(y) Guarantees.  The Seller shall not create, incur, assume or
suffer to exist any Guarantees, other than (i) to the extent reflected in
the Seller’s financial statements or notes thereto and (ii) to the extent
the aggregate Guarantees of the Seller do not exceed $5,000,000.”

 

3.4                                 deleting
subsection (cc) in its entirety and replacing it with the following:

 

“(cc) Origination.  The Seller shall obtain and maintain such
licenses to originate MH Loans in each state where it acquires MH Paper as are
necessary to carry out its business as conducted.”

 

3.5                                 adding
the following subsection (ee) thereto with the following:

 

“(ee) Fees. 
On the same Business Day as the first borrowing under the Lease
Receivables Facility, the Seller shall pay the Buyer and Buyer’s counsel the
fees set forth in that certain payoff letter among the Buyer, the Seller and
the Affiliate Guarantor.”

 

Section 4.                                            Events
of Default. Section 13.01 of the Existing Repurchase Agreement is
hereby amended by deleting subclause (c) thereof and replacing it with the
following:

 

“(c) the failure of the Seller to perform, comply
with or observe any term, covenant or agreement applicable to the Seller
contained in Sections 12(a)(i), (h), (j), (r), (s), (t), (u), (v), (w), (y),
(z), (aa) or (ee); or”

 

Section 5.                                            Waiver.  For purposes of this Amendment, this Section 5
will be effective only for the period from and including February 18, 2004
through and including the Amendment Effective Date (the “Waiver Period”).

 

The Buyer hereby waives, solely during the Waiver
Period, any rights or remedies arising from the breach, if any, of clause (q)
of Section 11 of the Repurchase Agreement and clauses (d) (iii), (iv) and
(v), (j),(i), (ii) and (iii), (n), (x) and (z) of Section 12 of the
Repurchase Agreement (such clauses, the “Financial Covenants”) (including,
without limitation, a Default or Event of Default or a breach of any
representation that results from the breach of the Financial Covenants by the
Seller and any notice obligations of the Buyer under clauses (c) (i) or
(ii) of Section 12 of the Repurchase Agreement).

 

3

 

Section 6.                                            Conditions
Precedent.  This Amendment shall
become effective on the date hereof (the “Amendment Effective Date”)
subject to the satisfaction of the following conditions precedent:

 

6.1                                 Delivered
Documents.  On the Amendment
Effective Date, the Buyer shall have received the following documents, each of
which shall be satisfactory to the Buyer in form and substance:

 

(a)                                  this
Amendment, executed and delivered by a duly authorized officer of each of the
Buyer, the Seller, the Parent Guarantor and the Affiliate Guarantor; and

 

(b)                                 Termination
letter to the Loan and Security Agreement, executed and delivered by duly
authorized officers of the parties thereto;

 

(c)                                  Amended
and Restated Guaranty made by the Affiliate Guarantor, executed and delivered
by duly authorized officers of the parties thereto;

 

(d)                                 Second
Amended and Restated Guaranty made by the Parent Guarantor, executed and
delivered by duly authorized officers of the parties thereto;

 

(e)                                  Termination
letter to the Amended and Restated Guaranty made by the Seller, executed and
delivered by duly authorized officers of the parties thereto;

 

(f)                                    Lease
Receivables Facility, executed and delivered by duly authorized officers of the
parties thereto;

 

(g)                                 An
opinion of internal counsel that Seller is licensed as appropriate to conduct
its business; and

 

(h)                                 such
other documents as the Buyer or counsel to the Buyer may reasonably request.

 

Section 7.                                            Confidentiality.  The parties hereto acknowledge that Section 32
of the Repurchase Agreement shall apply to this Amendment.

 

Section 8.                                            Limited
Effect. Except as expressly amended and modified by this Amendment, the
Existing Repurchase Agreement shall continue to be, and shall remain, in full force
and effect in accordance with its terms. 
The waivers set forth in Section 5 of this Amendment shall expire
upon the expiration of the Waiver Period at which time the terms of the
Repurchase Agreement referenced in Section 5 of this Amendment shall revert
to that set forth in the Existing Repurchase Agreement.

 

Section 9.                                            Counterparts.  This
Amendment may be executed in one or more counterparts and by different parties
hereto on separate counterparts, each of which, when so executed, shall
constitute one and the same agreement.

 

SECTION 10.       GOVERNING LAW.  THIS AMENDMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,

 

4

 

AND THE
OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED
IN ACCORDANCE WITH SUCH LAWS.

 

Section 11.                                      Conflicts.  The parties hereto agree that in the event
there is any conflict between the terms of this Amendment, and the terms of the
Existing Repurchase Agreement, the provisions of this Amendment shall control.

 

Section 12.                                      Reaffirmation
of Guaranties.  The Parent Guarantor hereby ratifies and affirms
all of the terms, covenants, conditions and obligations of the Parent Guaranty
and acknowledges and agrees that such Parent Guaranty shall apply to all of the
Obligations under the Master Repurchase Agreement, as it may be amended,
modified and in effect, from time to time. 
The Affiliate Guarantor hereby ratifies and affirms all of the terms,
covenants, conditions and obligations of the ARC Dealership Guaranty and
acknowledges and agrees that such ARC Dealership Guaranty shall apply to all of
the Obligations under the Master Repurchase Agreement, as it may be amended,
modified and in effect, from time to time.

 

[SIGNATURE PAGE FOLLOWS]

 

5

 

IN WITNESS WHEREOF, the parties have caused their
names to be signed hereto by their respective officers thereunto duly
authorized as of the day and year first above written.

 

 

	
  Buyer:

  	
  MERRILL LYNCH MORTGAGE

  CAPITAL INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ James B. Cason

  
	
   

  	
   

  	
  Name: James B. Cason

  
	
   

  	
   

  	
  Title:   Vice
  President

  
	
   

  	
   

  
	
   

  	
   

  
	
  Seller:

  	
  ENSPIRE FINANCE LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John G. Sprengle

  
	
   

  	
   

  	
  Name: John G. Sprengle

  
	
   

  	
   

  	
  Title:   President

  
	
   

  	
   

  
	
   

  	
   

  
	
  Parent
  Guarantor:

  	
  AFFORDABLE RESIDENTIAL

  COMMUNITIES, LP

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John G. Sprengle

  
	
   

  	
   

  	
  Name: John G. Sprengle

  
	
   

  	
   

  	
  Title:   President

  
	
   

  	
   

  
	
   

  	
   

  
	
  Affiliate
  Guarantor:

  	
  ARC DEALERSHIP, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John G. Sprengle

  
	
   

  	
   

  	
  Name: John G. Sprengle

  
	
   

  	
   

  	
  Title:   Vice-Chairman

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