Document:

Exhibit
10.2

$100 Million Senior Secured Revolving
Credit Agreement among California Coastal Communities, Inc., as Borrower, and
KeyBank National Association, as Lender and Agent, et. al., dated September 15,
2006.

$100,000,000.00

SENIOR SECURED
REVOLVING CREDIT AGREEMENT

AMONG

CALIFORNIA COASTAL
COMMUNITIES, INC.,

AS BORROWER

AND

SIGNAL LANDMARK
AND SIGNAL LANDMARK HOLDINGS INC., AND CERTAIN OTHER NAMED HEREIN AS GUARANTORS

AND

KEYBANK NATIONAL
ASSOCIATION, AS LENDER, SWINGLINE LENDER AND AGENT

AND

WACHOVIA BANK,
N.A., AS SYNDICATION AGENT

AND

THE OTHER
FINANCIAL INSTITUTIONS WHICH ARE OR MAY BECOME A LENDER PARTY TO THIS AGREEMENT

AND

KEYBANC CAPITAL MARKETS, AS LEAD ARRANGER

 

TABLE OF CONTENTS

	
  

  	
   

  	
   

  	
   

  	
  Page

  
	
  1.

  	
  DEFINITIONS AND RULES OF INTERPRETATION

  	
   

  	
  1

  
	
   

  	
  1.1

  	
  Definitions

  	
   

  	
  1

  
	
   

  	
  1.2

  	
  Rules of Interpretation

  	
   

  	
  19

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
  THE REVOLVING CREDIT FACILITY

  	
   

  	
  20

  
	
   

  	
  2.1

  	
  Relationship of Borrower and the Guarantors

  	
   

  	
  20

  
	
   

  	
  2.2

  	
  Commitment to Lend.

  	
   

  	
  20

  
	
   

  	
  2.3

  	
  Notes

  	
   

  	
  23

  
	
   

  	
  2.4

  	
  Requests for Loans

  	
   

  	
  23

  
	
   

  	
  2.5

  	
  Funds for Loans

  	
   

  	
  24

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
  FEES, INTEREST, AND OTHER CHARGES

  	
   

  	
  25

  
	
   

  	
  3.1

  	
  Closing Fees

  	
   

  	
  25

  
	
   

  	
  3.2

  	
  Unused Facility Fee

  	
   

  	
  25

  
	
   

  	
  3.3

  	
  Interest on Loans

  	
   

  	
  25

  
	
   

  	
  3.4

  	
  Payment of Interest on Loans and Choice of Interest
  Rate

  	
   

  	
  26

  
	
   

  	
  3.5

  	
  Conversion Options

  	
   

  	
  26

  
	
   

  	
  3.6

  	
  Inability to Determine LIBOR Rate

  	
   

  	
  27

  
	
   

  	
  3.7

  	
  Illegality

  	
   

  	
  27

  
	
   

  	
  3.8

  	
  Interest on Overdue Amounts; Late Charges; Default
  Rate Interest

  	
   

  	
  28

  
	
   

  	
  3.9

  	
  Computations

  	
   

  	
  28

  
	
   

  	
  3.10

  	
  Limitation on Interest

  	
   

  	
  28

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
  REPAYMENT AND CERTAIN GENERAL PROVISIONS

  	
   

  	
  28

  
	
   

  	
  4.1

  	
  Maturity

  	
   

  	
  28

  
	
   

  	
  4.2

  	
  Mandatory Prepayments

  	
   

  	
  29

  
	
   

  	
  4.3

  	
  Optional Prepayments

  	
   

  	
  29

  
	
   

  	
  4.4

  	
  Amount and Application of Prepayments

  	
   

  	
  29

  
	
   

  	
  4.5

  	
  Effect of Prepayments

  	
   

  	
  29

  
	
   

  	
  4.6

  	
  Funds for Payments

  	
   

  	
  29

  
	
   

  	
  4.7

  	
  Additional Costs, Etc.

  	
   

  	
  30

  
						

 

 i
 

 

 

	
  

  	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
  4.8

  	
  Capital Adequacy

  	
   

  	
  31

  
	
   

  	
  4.9

  	
  Indemnity by Borrower

  	
   

  	
  31

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
  COLLATERAL

  	
   

  	
  32

  
	
   

  	
  5.1

  	
  Collateral

  	
   

  	
  32

  
	
   

  	
  5.2

  	
  Appraisals

  	
   

  	
  32

  
	
   

  	
  5.3

  	
  Project Inspections

  	
   

  	
  33

  
	
   

  	
  5.4

  	
  Release of Project Units

  	
   

  	
  33

  
	
   

  	
  5.5

  	
  Master Account

  	
   

  	
  34

  
	
   

  	
  5.6

  	
  Advance Account

  	
   

  	
  35

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
  REPRESENTATIONS AND WARRANTIES

  	
   

  	
  35

  
	
   

  	
  6.1

  	
  Corporate Authority, Enforceability, and Ownership

  	
   

  	
  35

  
	
   

  	
  6.2

  	
  Default Under Organizational Documents and Operating
  Agreements

  	
   

  	
  36

  
	
   

  	
  6.3

  	
  Subsidiaries and Joint Ventures

  	
   

  	
  36

  
	
   

  	
  6.4

  	
  Governmental Approvals

  	
   

  	
  36

  
	
   

  	
  6.5

  	
  Chief Executive Office

  	
   

  	
  36

  
	
   

  	
  6.6

  	
  Fiscal Year

  	
   

  	
  36

  
	
   

  	
  6.7

  	
  Transaction in Best Interests of Borrower and
  Guarantors; Consideration

  	
   

  	
  36

  
	
   

  	
  6.8

  	
  No Fraudulent Intent

  	
   

  	
  37

  
	
   

  	
  6.9

  	
  Regulations U and X

  	
   

  	
  37

  
	
   

  	
  6.10

  	
  Investment Company Act

  	
   

  	
  37

  
	
   

  	
  6.11

  	
  Reportable Transaction

  	
   

  	
  37

  
	
   

  	
  6.12

  	
  Tax Status

  	
   

  	
  37

  
	
   

  	
  6.13

  	
  Financial Statements

  	
   

  	
  38

  
	
   

  	
  6.14

  	
  Brokers

  	
   

  	
  38

  
	
   

  	
  6.15

  	
  No Material Changes

  	
   

  	
  38

  
	
   

  	
  6.16

  	
  Solvency

  	
   

  	
  38

  
	
   

  	
  6.17

  	
  No Bankruptcy Filing

  	
   

  	
  38

  
	
   

  	
  6.18

  	
  Other Indebtedness

  	
   

  	
  38

  
						

 

 ii
 

 

 

	
  

  	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
  6.19

  	
  Litigation

  	
   

  	
  39

  
	
   

  	
  6.20

  	
  Insurance

  	
   

  	
  39

  
	
   

  	
  6.21

  	
  No Material Adverse Contracts

  	
   

  	
  39

  
	
   

  	
  6.22

  	
  No Material Adverse Restrictions

  	
   

  	
  39

  
	
   

  	
  6.23

  	
  Compliance with Other Instruments, Laws, Etc.

  	
   

  	
  39

  
	
   

  	
  6.24

  	
  Certain Transactions

  	
   

  	
  40

  
	
   

  	
  6.25

  	
  ERISA Compliance; Severance Obligations

  	
   

  	
  40

  
	
   

  	
  6.26

  	
  Franchises, Patents, Copyrights, Etc.

  	
   

  	
  41

  
	
   

  	
  6.27

  	
  Title to Properties

  	
   

  	
  41

  
	
   

  	
  6.28

  	
  Absence of UCC Financing Statements, Etc.

  	
   

  	
  41

  
	
   

  	
  6.29

  	
  Property Status and Condition

  	
   

  	
  41

  
	
   

  	
  6.30

  	
  Options to Acquire; Restrictions on Development

  	
   

  	
  42

  
	
   

  	
  6.31

  	
  Restrictions

  	
   

  	
  42

  
	
   

  	
  6.32

  	
  Compliance of Project with Law

  	
   

  	
  42

  
	
   

  	
  6.33

  	
  Environmental Compliance

  	
   

  	
  42

  
	
   

  	
  6.34

  	
  Loan Documents

  	
   

  	
  43

  
	
   

  	
  6.35

  	
  No Default or Event of Default

  	
   

  	
  44

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7.

  	
  AFFIRMATIVE COVENANTS OF THE BORROWER AND GUARANTORS

  	
   

  	
  44

  
	
   

  	
  7.1

  	
  Punctual Payment

  	
   

  	
  44

  
	
   

  	
  7.2

  	
  Maintenance of Office

  	
   

  	
  44

  
	
   

  	
  7.3

  	
  Existence

  	
   

  	
  44

  
	
   

  	
  7.4

  	
  Subsidiaries and Joint Ventures

  	
   

  	
  44

  
	
   

  	
  7.5

  	
  Records and Accounts

  	
   

  	
  44

  
	
   

  	
  7.6

  	
  Financial Statements, Certificates and Information

  	
   

  	
  45

  
	
   

  	
  7.7

  	
  Inspection of Project and Books

  	
   

  	
  46

  
	
   

  	
  7.8

  	
  Insurance

  	
   

  	
  47

  
	
   

  	
  7.9

  	
  Condemnation

  	
   

  	
  49

  
	
   

  	
  7.10

  	
  Business Operations

  	
   

  	
  50

  
						

 

 iii
 

 

 

	
  

  	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
  7.11

  	
  Use of Proceeds

  	
   

  	
  51

  
	
   

  	
  7.12

  	
  Compliance with Laws, Contracts, Licenses, and
  Permits

  	
   

  	
  51

  
	
   

  	
  7.13

  	
  Taxes

  	
   

  	
  51

  
	
   

  	
  7.14

  	
  Plan Assets, Etc.

  	
   

  	
  51

  
	
   

  	
  7.15

  	
  Notices

  	
   

  	
  52

  
	
   

  	
  7.16

  	
  More Restrictive Agreements and Modification to
  Senior Term Loan Documents

  	
   

  	
  53

  
	
   

  	
  7.17

  	
  Guaranties

  	
   

  	
  53

  
	
   

  	
  7.18

  	
  Trade Name

  	
   

  	
  53

  
	
   

  	
  7.19

  	
  Interest Reserve

  	
   

  	
  53

  
	
   

  	
  7.20

  	
  Further Assurances

  	
   

  	
  53

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  8.

  	
  CERTAIN NEGATIVE COVENANTS OF THE BORROWER AND GUARANTORS

  	
   

  	
  54

  
	
   

  	
  8.1

  	
  Restrictions on Indebtedness

  	
   

  	
  54

  
	
   

  	
  8.2

  	
  Restrictions on Liens, Etc.

  	
   

  	
  54

  
	
   

  	
  8.3

  	
  Restrictions on Investments

  	
   

  	
  55

  
	
   

  	
  8.4

  	
  Distributions

  	
   

  	
  56

  
	
   

  	
  8.5

  	
  Asset Sales

  	
   

  	
  57

  
	
   

  	
  8.6

  	
  Merger, Consolidation

  	
   

  	
  57

  
	
   

  	
  8.7

  	
  Change of Control and Transfers

  	
   

  	
  57

  
	
   

  	
  8.8

  	
  Unrelated Business

  	
   

  	
  57

  
	
   

  	
  8.9

  	
  Operations

  	
   

  	
  57

  
	
   

  	
  8.10

  	
  Sale and Leaseback

  	
   

  	
  57

  
	
   

  	
  8.11

  	
  Transactions with Affiliates and Officers

  	
   

  	
  58

  
	
   

  	
  8.12

  	
  Compliance with Environmental Laws

  	
   

  	
  58

  
	
   

  	
  8.13

  	
  ERISA Compliance

  	
   

  	
  59

  
	
   

  	
  8.14

  	
  Compliance with Budget

  	
   

  	
  60

  
	
   

  	
  8.15

  	
  Spec Homes

  	
   

  	
  60

  
	
   

  	
  8.16

  	
  Model Homes

  	
   

  	
  60

  
						

 

 iv
 

 

 

	
  

  	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
  8.17

  	
  Home Sales

  	
   

  	
  60

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  9.

  	
  FINANCIAL COVENANTS

  	
   

  	
  60

  
	
   

  	
  9.1

  	
  Leverage Ratio

  	
   

  	
  60

  
	
   

  	
  9.2

  	
  Tangible Net Worth

  	
   

  	
  60

  
	
   

  	
  9.3

  	
  Project Loan Indebtedness to Project Value

  	
   

  	
  60

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10.

  	
  CLOSING CONDITIONS

  	
   

  	
  61

  
	
   

  	
  10.1

  	
  Loan Documents

  	
   

  	
  61

  
	
   

  	
  10.2

  	
  Certificates of Existence

  	
   

  	
  61

  
	
   

  	
  10.3

  	
  Certified Organization Documents

  	
   

  	
  61

  
	
   

  	
  10.4

  	
  Board of Director’s Resolutions

  	
   

  	
  61

  
	
   

  	
  10.5

  	
  Incumbency Certificate; Authorized Signers

  	
   

  	
  61

  
	
   

  	
  10.6

  	
  Opinion of Counsel

  	
   

  	
  61

  
	
   

  	
  10.7

  	
  Payment of Fees

  	
   

  	
  62

  
	
   

  	
  10.8

  	
  Insurance

  	
   

  	
  62

  
	
   

  	
  10.9

  	
  Performance; No Default

  	
   

  	
  62

  
	
   

  	
  10.10

  	
  Representations and Warranties

  	
   

  	
  62

  
	
   

  	
  10.11

  	
  Proceedings and Documents

  	
   

  	
  62

  
	
   

  	
  10.12

  	
  Project Qualification Documents

  	
   

  	
  62

  
	
   

  	
  10.13

  	
  Compliance Certificate

  	
   

  	
  62

  
	
   

  	
  10.14

  	
  Borrowing Base Report

  	
   

  	
  62

  
	
   

  	
  10.15

  	
  Other Documents

  	
   

  	
  62

  
	
   

  	
  10.16

  	
  No Condemnation/Taking

  	
   

  	
  62

  
	
   

  	
  10.17

  	
  Senior Term Loan Closing and Subordinated Lender
  Purchase Option Provisions

  	
   

  	
  63

  
	
   

  	
  10.18

  	
  Interest Reserve

  	
   

  	
  63

  
	
   

  	
  10.19

  	
  Other

  	
   

  	
  63

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  11.

  	
  CONDITIONS TO ALL BORROWINGS

  	
   

  	
  63

  
	
   

  	
  11.1

  	
  Prior Conditions Satisfied

  	
   

  	
  63

  
						

 

 v
 

 

 

	
  

  	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
  11.2

  	
  Representations True; No Default

  	
   

  	
  63

  
	
   

  	
  11.3

  	
  No Legal Impediment

  	
   

  	
  64

  
	
   

  	
  11.4

  	
  Governmental Regulation

  	
   

  	
  64

  
	
   

  	
  11.5

  	
  Proceedings and Documents

  	
   

  	
  64

  
	
   

  	
  11.6

  	
  Borrowing Documents

  	
   

  	
  64

  
	
   

  	
  11.7

  	
  Endorsement to Title Policy

  	
   

  	
  64

  
	
   

  	
  11.8

  	
  Future Advances Tax Payment

  	
   

  	
  64

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  12.

  	
  EVENTS OF DEFAULT; ACCELERATION; ETC.

  	
   

  	
  64

  
	
   

  	
  12.1

  	
  Events of Default and Acceleration

  	
   

  	
  64

  
	
   

  	
  12.2

  	
  Termination of Commitments

  	
   

  	
  67

  
	
   

  	
  12.3

  	
  Remedies

  	
   

  	
  67

  
	
   

  	
  12.4

  	
  Distribution of Collateral Proceeds

  	
   

  	
  68

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  13.

  	
  SETOFF

  	
   

  	
  69

  
	
   

  	
   

  	
   

  	
   

  
	
  14.

  	
  THE AGENT

  	
   

  	
  69

  
	
   

  	
  14.1

  	
  Authorization

  	
   

  	
  69

  
	
   

  	
  14.2

  	
  Employees and Agents of the Agents

  	
   

  	
  69

  
	
   

  	
  14.3

  	
  No Liability

  	
   

  	
  70

  
	
   

  	
  14.4

  	
  No Representations

  	
   

  	
  70

  
	
   

  	
  14.5

  	
  Payments

  	
   

  	
  70

  
	
   

  	
  14.6

  	
  Holders of Notes

  	
   

  	
  71

  
	
   

  	
  14.7

  	
  Indemnity

  	
   

  	
  71

  
	
   

  	
  14.8

  	
  The Agent as Lender

  	
   

  	
  71

  
	
   

  	
  14.9

  	
  Resignation or Removal

  	
   

  	
  72

  
	
   

  	
  14.10

  	
  Duties in the Case of Enforcement

  	
   

  	
  72

  
	
   

  	
  14.11

  	
  Bankruptcy

  	
   

  	
  72

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  15.

  	
  EXPENSES

  	
   

  	
  73

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  16.

  	
  INDEMNIFICATION

  	
   

  	
  73

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  17.

  	
  SURVIVAL OF COVENANTS, ETC.

  	
   

  	
  74

  
						

 

 vi
 

 

 

	
  

  	
   

  	
   

  	
   

  	
  Page

  
	
  18.

  	
  ASSIGNMENT AND PARTICIPATION

  	
   

  	
  75

  
	
   

  	
  18.1

  	
  Conditions to Assignment by the Lenders

  	
   

  	
  75

  
	
   

  	
  18.2

  	
  Certain Representations and Warranties; Limitations;
  Covenants

  	
   

  	
  76

  
	
   

  	
  18.3

  	
  Register

  	
   

  	
  77

  
	
   

  	
  18.4

  	
  New Notes

  	
   

  	
  77

  
	
   

  	
  18.5

  	
  No Assignment by Borrower

  	
   

  	
  77

  
	
   

  	
  18.6

  	
  Disclosure

  	
   

  	
  77

  
	
   

  	
  18.7

  	
  Withholding Tax

  	
   

  	
  78

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  19.

  	
  NOTICES

  	
   

  	
  80

  
	
   

  	
   

  	
   

  	
   

  
	
  20.

  	
  RELATIONSHIP

  	
   

  	
  81

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  21.

  	
  GOVERNING LAW; CONSENT TO JURISDICTION AND SERVICE

  	
   

  	
  81

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  22.

  	
  HEADINGS

  	
   

  	
  82

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  23.

  	
  COUNTERPARTS

  	
   

  	
  82

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  24.

  	
  ENTIRE AGREEMENT, ETC.

  	
   

  	
  82

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  25.

  	
  WAIVER OF JURY TRIAL AND CERTAIN DAMAGE CLAIMS

  	
   

  	
  82

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  26.

  	
  DEALINGS WITH THE BORROWER AND GUARANTORS

  	
   

  	
  83

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  27.

  	
  CONSENTS, AMENDMENTS, WAIVERS, ETC.

  	
   

  	
  83

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  28.

  	
  SEVERABILITY

  	
   

  	
  84

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  29.

  	
  NO UNWRITTEN AGREEMENTS

  	
   

  	
  84

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  30.

  	
  REPLACEMENT OF NOTES

  	
   

  	
  84

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  31.

  	
  TIME OF THE ESSENCE

  	
   

  	
  84

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  32.

  	
  RIGHTS OF THIRD PARTIES

  	
   

  	
  85

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  33.

  	
  CONFIDENTIALITY EXCEPTION

  	
   

  	
  85

  
						

 vii

 

THIS SENIOR
SECURED REVOLVING CREDIT AGREEMENT (this “Agreement”) is made as of the
15th day of September, 2006, by and among CALIFORNIA COASTAL COMMUNITIES, INC.,
a Delaware corporation (“Borrower”), SIGNAL LANDMARK, a California
Corporation and SIGNAL LANDMARK HOLDINGS INC., a Delaware corporation and the
entities named on Exhibit “J” hereto (each individually a “Guarantor”
and collectively the “Guarantors”), KEYBANK NATIONAL ASSOCIATION, a
national banking association (“KeyBank”), the other financial
institutions which are or may become lender parties hereto pursuant to §18
(each individually the “Lender” and collectively, the “Lenders”),
KEYBANK NATIONAL ASSOCIATION, a national banking association, as Agent for the
Lenders (the “Agent”) and as Swingline Lender, WACHOVIA BANK, N.A., as
Syndication Agent and as a Lender, KEYBANC CAPITAL MARKETS, a business unit of
KeyBank, as Lead Arranger.

RECITALS

WHEREAS, all
capitalized terms used herein shall have the meanings ascribed thereto under
§1.1;

WHEREAS, Borrower
and the Guarantors are affiliated entities engaged in a common enterprise, and
will each benefit from each being a party to this Agreement;

WHEREAS, Borrower,
the Guarantors, the Lenders, and the Agent desire to create a revolving credit
facility in the amount of $100,000,000.00; and

WHEREAS, the
parties desire to enter into this Agreement in order to accomplish the
foregoing.

NOW, THEREFORE, in
consideration of the above recitals and the mutual covenants contained herein,
the parties hereto hereby agree as follows:

1.             DEFINITIONS AND RULES OF
INTERPRETATION.

1.1           Definitions.  The following terms shall have the meanings
set forth in this §1 or elsewhere in the provisions of this Agreement referred
to below:

Advance Account.  The account established pursuant to §5.6.

Affiliates.  As applied to any Person, any other Person
(i) which directly, or indirectly through one or more intermediaries, controls,
or is controlled by, or is under common control with that Person, or (ii) which
owns beneficially or of record twenty percent (20%) or more of the voting stock
or other voting equity interests of that Person.  For purposes of this definition, the term “control”
(including, with correlative meanings, the terms “controlling”, “controlled by”
and “under common control with”), as applied to any Person, means the
possessing directly or indirectly, the power to direct or cause the direction
of the management and policies of a Person, whether through the ownership of voting
securities, limited liability company or partnership interests, by contract,
family relationship or otherwise.

Agent.  KeyBank, acting as Agent for the Lenders, and
its successors and assigns.

 1
 

 

Agent’s Head
Office.  Agent’s
administrative office located at 127 Public Square, Cleveland, OH 44114, Attn:
Real Estate Division, or at such other location as Agent may designate from
time to time.

Agreement.  This Senior Secured Revolving Credit
Agreement, including the Schedules and Exhibits attached hereto.

Amortization Date.  Each date upon which the Commitment is
reduced and paid down in accordance with §2.2(d)(i) herein.

Applicable Margin.  See §3.3.

Appraisal.  An appraisal of the Fair Market Value of real
property, in full compliance with FIRREA, taking into account the current
permissible uses and future development for such property under existing laws
and regulations applicable thereto, independently and impartially prepared in
writing by a qualified appraiser selected and retained by the Agent, who is not
employed by Borrower or an Affiliate of Borrower; the form and substance of
such appraisal to be reviewed and approved by the Agent in the exercise of its
commercially reasonable discretion.

Appraised Value.  The Fair Market Value determined by the most
recent Appraisal obtained pursuant to §5.2.

Assignment and
Acceptance.  See §18.1.

Authorized Officer.  The President, Chief Executive Officer, Vice
President, Secretary or Assistant Secretary of Borrower, or Borrower’s managing
constituents.

Balance Sheet Date.  June 30, 2006.

Bonding
Obligations.  The
potential monetary liability of Borrower with respect to completion bonds,
letters of credit or other similar instruments that are required by insurance
companies that issue completion bonds, cities, counties or governmental
agencies in connection with the development of The Project, the creation of
residential communities, and the construction of Homes, but excluding letters
of credit delivered as earnest money, option deposits or other consideration in
connection with the purchase of Land.

Borrower.  California Coastal Communities, Inc., a
Delaware corporation.

Borrowing Base.  At any time of determination an amount equal
to 50% of the Borrowing Base Value of the Project.

Borrowing Base
Asset.  The Project
together with any one or more Units or other improvements constructed or under
construction within the Brightwater community in Huntington Beach, California,
which as of any date of determination are subject to the lien of the Security
Deed.

Borrowing Base
Report.  The report
required under §7.6(e).

 2
 

 

Borrowing Base
Value.  The most recent
Appraised Value for the Project plus the sum of (y) Hard Costs incurred
subsequent to the most recent Appraisal allocated to the Project less (z) an
amount equal to seventy-two percent (72%) of the gross proceeds from the
closing of any Unit; provided however, if such gross sales proceeds are less
than ninety percent (90%) of the projected gross sales proceeds as set forth in
the Project Budget for such Unit, Agent may reset the percentage set forth
above for purposes of determining the Borrowing Base Value in its commercially
reasonable discretion.

Business Day.  Any day on which banking institutions in
Cleveland, Ohio are open for the transaction of banking business and, in the
case of LIBOR Rate Loans, which also is a LIBOR Business Day.

CERCLA.  The Comprehensive Environmental Response,
Compensation, and Liability Act, as amended, 42 U.S.C. §9601, et seq.

Change of Control.  A Change of Control shall occur if, without Agent’s
prior written consent:

(a)           any “person” or “group” (as such
terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, but excluding any employee benefit plan of such person or its
subsidiaries, and any person or entity acting in its capacity as trustee, agent
or other fiduciary or administrator of any such plan) becomes the “beneficial
owner” (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act
of 1934, except that a person or group shall be deemed to have “beneficial
ownership” of all securities that such person or group has the right to acquire
(such right, an “option right”), whether such right is exercisable immediately
or only after the passage of time), directly or indirectly, of fifty percent
(50%) or more of the equity securities of Borrower entitled to vote for members
of the board of directors or equivalent governing body of Borrower on a
fully-diluted basis (and taking into account all such securities that such
person or group has the right to acquire pursuant to any option right); or

(b)           during any period of twelve (12)
consecutive months, a majority of the members of the board of directors or
other equivalent governing body of Borrower cease to be composed of individuals
(i) who were members of that board or equivalent governing body on the first
day of such period, (ii) whose election or nomination to that board or
equivalent governing body was approved by individuals referred to in clause (i)
above constituting at the time of such election or nomination at least a
majority of that board or equivalent governing body or (iii) whose election or
nomination to that board or other equivalent governing body was approved by
individuals referred to in clauses (i) and (ii) above constituting at the time
of such election or nomination at least a majority of that board or equivalent
governing body (excluding, in the case of both clause (ii) and clause (iii),
any individual whose initial nomination for, or assumption of office as, a
member of that board or equivalent governing body occurs as a result of an
actual or threatened solicitation of proxies or consents for the election or
removal of one or more directors by any person or group other than a
solicitation for the election of one or more directors by or on behalf of the
board of directors); or

(c)           (i) with respect to any Guarantor, if
Borrower or Guarantor Transfers any of its respective interest in such
Guarantor or Transfers any rights to control the decision making

 3
 

 

of any such Guarantor;
(ii) there is an admission of any new stockholder of any Guarantor; or (iii)
there is a Transfer of all or substantially all of the assets of Borrower or
any Guarantor in violation of the terms of this Agreement.

Code.  The Internal Revenue Code of 1986, as
amended.

Collateral.  All of the property, rights and interests of
Signal Landmark in the Project which are subject to the security interests,
liens and mortgage created by the Security Documents.

Commitment.  With respect to each Lender, the amount set
forth on Schedule 1.0 hereto as the amount of such Lender’s commitment to make
or maintain Loans to Borrower or purchase participations in Swingline Loans in
accordance with §2.2 in each case, in an amount up to, but not exceeding, the
amount set forth for such Lender on Schedule 1.0 hereto as such Lender’s “Commitment
Amount” as the same may be decreased on each Termination Date pursuant to
§2.2(d) or as may be increased or reduced as appropriate to reflect any
assignments to or by such Lender effected in accordance with §18.

Commitment
Percentage.  With
respect to each Lender, the percentage set forth on Schedule 1.0 hereto as such
Lender’s percentage of the Total Commitment.

Commitment
Reduction Amount. An amount by which the Total Commitment may
decrease equal to the Release Price upon any Required Commitment Reduction.

Compliance
Certificate.  See
§7.6(d).

Consolidated.  With reference to any term defined herein,
that term as applied to the accounts of a Person and its Affiliates,
consolidated or combined in accordance with Generally Accepted Accounting
Principles.

Consolidated
Tangible Net Worth. 
The amount by which Consolidated Total Assets exceeds Consolidated Total
Liabilities less, to the extent included in Consolidated Total Assets, the sum
of (a)-(b) below (provided that for purposes of this definition any deferred
tax asset shall, with out double counting, be included in the definition of
Total Assets and not excluded as an intangible asset pursuant to (a) or (b)
below):

(a)           the total book value of all assets of
a Person properly classified as intangible assets under Generally Accepted
Accounting Principles, including such items as goodwill, the purchase price of
acquired assets in excess of the fair market value thereof, trademarks, trade
names, service marks, brand names, copyrights, patents and licenses, and rights
with respect to the foregoing (but excluding without duplication the sum of any
deferred tax assets to the extent included in the calculation of Consolidated
Total Assets of the Borrower);

(b)           all amounts representing any write-up
in the book value of any assets of a Person resulting from a revaluation
thereof subsequent to the Balance Sheet Date;

Consolidated Total
Assets. Total Assets of Borrower determined on a Consolidated
basis in accordance with GAAP.

 4
 

 

Consolidated Total
Liabilities.  Total
Liabilities of Borrower determined on a Consolidated basis in accordance with
GAAP.

Conversion Request.  A notice given by Borrower to the Agent to
convert or continue a Loan in accordance with §3.5.

Default.
 The occurrence of any event that would
constitute an Event of Default, but for the giving of notice or the passage of
time or both.

Default Rate.  As to any loan Type the rate of interest then
in effect for such loan plus four percent (4%).

Delinquent Lender.  A Lender so designated under §14.5.

Distribution.  With respect to any Person, the declaration
or payment of any cash, cash flow, dividend, distribution (including without
limitation any share repurchase), on or in respect of any shares of any class of
capital stock, partner’s interest, member’s interest or other beneficial
interest of such Person; the purchase, redemption, exchange or other retirement
of any shares of any class of capital stock, partner’s interest, member’s
interest or other beneficial interest of such Person, directly or indirectly
through a Subsidiary of such Person or otherwise; the return of capital by a
Person to its shareholders, partners, members or other beneficial owners as
such; or any other distribution on or in respect of any shares of any class of
capital stock, partner’s interest, member’s interest or other beneficial
interest of such Person.

Dollars or $.  Dollars in lawful currency of the United
States of America.

Domestic Lending
Office.  Initially, the
office of each Lender designated as such in Schedule 1.0, hereto, and;
thereafter, such other office of such Lender, if any, located within the United
States that will be making or maintaining Prime Rate Loans.

Drawdown Date.  The date on which any Loan (other than a Swingline
Loan) is made or is to be made, and the date on which any Loan which is made
prior to the Maturity Date is converted to a Loan of the other Type.

Effective Date.  The date of this Agreement first above
written.

Eligible Assignee.  Any of (i) a commercial bank organized under
the laws of the United States, any State thereof or the District of Columbia,
and having total assets in excess of $5,000,000,000.00, (ii) a savings and loan
association or savings bank organized under the laws of the United States, any
State thereof or the District of Columbia, and having a net worth of at least
$100,000,000.00, calculated in accordance with generally accepted accounting
principles, (iii) a commercial bank organized under the laws of any other
country which is a member of the OECD, or a political subdivision of any such
country, and having total assets in excess of $1,000,000,000.00, provided that
such bank has a branch or agency in the United States and is acting through a
branch or agency located in the country in which it is organized or another
country which is also a member of the OECD, (iv) the central bank of any
country which is a member of the OECD, (v) the then existing Lenders, (vi)
investment or mutual funds managed by an investment advisor which manages or
advises a Lender, and (vii) all of the entities

 5
 

 

described in subsections (i) through (iv), (vi),
and other lending institutions or entities, all being reasonably acceptable to
the Agent and to Borrower so long as no Default or Event of Default has occurred
and is continuing.

 Employee Benefit Plan.  Any employee benefit plan within the meaning
of §3(3) of ERISA maintained or contributed to by Borrower or Guarantor or any
ERISA Affiliate thereof, other than a Multiemployer Plan.

Entitlements.  All licenses, permits, zoning designations,
and other rights granted by any applicable governmental authority that are
required for the construction of the Horizontal Improvements and the
construction of Units on the Project which shall mean the following together
with all governmental prerequisites thereto: (i) a vesting tentative map for
the Land which authorizes residential uses consistent with those contemplated
for the Project has been approved by the applicable local authority or
governmental body responsible for recording such maps in the county where the
Project is situated; and (ii) Borrower has obtained site plan approval for the
Project by the applicable division of such local authority or governmental body
responsible for approving such site plan where the Project is situated. For
purposes of Borrower’s representations and warranties herein, the foregoing
definition shall not apply to those certain seven (7) lots located on the
northeastern corner of the Brightwater Project laying outside of Borrower’s tentative
tract map and which are awaiting approval from the City of Huntington Beach.

Environmental
Engineer.  A firm of
independent professional engineers or other scientists generally recognized as
expert in the detection, analysis and remediation of Hazardous Materials and
related environmental matters, such firm being reasonably acceptable to the
Agent.

Environmental
Indemnity Agreement. 
An agreement made by Borrower and the Guarantors in favor of the Agent,
pursuant to which Borrower and Guarantors agree to indemnify the Agent and the
Lenders with respect to Hazardous Materials and Environmental Laws pursuant to
the terms and subject to the limitations of such agreement, such Environmental
Indemnity Agreement to be in form and substance reasonably acceptable to the
Agent.

Environmental Laws.  Any federal, state or local judgment, decree,
order, law, license, rule or regulation pertaining to the protection of human
health or the environment, including without limitation, those arising under
the Resource Conservation and Recovery Act, CERCLA, the Superfund Amendments
and Reauthorization Act of 1986, the Federal Clean Water Act, the Federal Clean
Air Act, the Toxic Substances Control Act.

ERISA.  The Employee Retirement Income Security Act
of 1974, as amended and in effect from time to time.

ERISA Affiliate.  Any Person which is treated as a single
employer with Borrower or a Guarantor under §414 of the Code.

ERISA Reportable
Event.  A reportable
event with respect to a Guaranteed Pension Plan within the meaning of §4043 of
ERISA and the regulations promulgated thereunder as to which the requirement of
notice has not been waived.

 6
 

 

Event of Default.  The occurrence of any of the events set forth
in §12.1.

Fair Market Value.  The price a willing buyer would pay to a
willing seller in an arm’s length transaction with neither party being under a
compulsion to act as determined by the Agent in its commercially reasonable
discretion.

Federal Funds Rate.  Any day, the rate per annum equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business Day
next succeeding such day; provided that (i) if such day is not a Business Day,
the Federal Funds Rate for such day shall be such rate on such transactions on
the next preceding Business Day as so published on the next succeeding Business
Day, and (ii) if no such rate is so published on such next succeeding Business
Day, the Federal Funds Rate for such day shall be the average rate (rounded
upward, if necessary, to a whole multiple of 1/100 of 1%) charged to KeyBank on
such day on such transactions as determined by Agent.

Financial
Covenants.  The covenants
and conditions set forth at §9 of this Agreement.

FIRREA.  Title XI of the Financial Institutions
Reform, Recovery, and Enforcement Act of 1989 (12 U.S.C. 3331 et seq.), as
amended from time to time.

Fiscal Quarter.  The fiscal quarter of Borrower, being a three
(3) month period, corresponding with a calendar quarter.

Generally Accepted
Accounting Principles or GAAP.  Principles that are (i) consistent with the
principles promulgated or adopted by the Financial Accounting Standards Board
and its predecessors (or successor organizations), as in effect from time to
time and (ii) consistently applied with past financial statements of Borrower
adopting the same principles; provided that a certified public accountant
would, insofar as the use of such accounting principles is pertinent, be in a
position to deliver an unqualified opinion (other than a qualification
regarding changes in Generally Accepted Accounting Principles) as to the
financial statements in which such principles have been properly applied.  If any changes in Generally Accepted
Accounting Principles with which the independent certified accountants of
Borrower concur result in a change in the basis of calculating any of the
Financial Covenants, standards or terms contained in this Agreement, Borrower
and the Agent agree to amend such covenant calculations, standards or terms to
reflect such changes in Generally Accepted Accounting Principles so that the
criteria for evaluating the financial condition of Borrower shall be the same
after such changes as if such changes had not been made.

Guaranteed Pension
Plan.  Any employee
pension benefit plan within the meaning of §3(2) of ERISA maintained or
contributed to by Borrower or any ERISA Affiliate the benefits of which are
guaranteed on termination in full or in part by the PBGC pursuant to Title IV
of ERISA, other than a Multiemployer Plan.

Guarantors.  Collectively, the Subsidiaries listed on Exhibit
“J” hereto.

Guaranty
or Guarantees.  The Unconditional
Guaranty Agreement whereby each Guarantor agrees to jointly and severally pay
to the Agent and be personally responsible for the

 7
 

 

payment of all of the
Obligations and the Environmental Indemnity Agreements each dated of even date
herewith made by each of the Guarantors in favor of the Agent and any
guaranties of the Obligations executed by a Guarantor after the date hereof,
all such guaranties to be in form and substance reasonably satisfactory to the
Agent as of the date such guaranties are delivered, and as the same may be
modified or amended hereafter.

Hard Costs.  The actual direct costs of the development
and construction of the Project together with such additional costs of the
Project deemed to create value and typically capitalized in accordance with
GAAP (as the same may be approved by Agent in its commercially reasonable
discretion).

Hazardous Material.  Any substance regulated under any
Environmental Law due to its carcinogenic, corrosive, inflammable, or toxic
characteristics, any “hazardous substances” as defined under CERCLA, any
poly-chlorinated biphenyl, any asbestos containing materials, any mold or
fungus, and any petroleum products or wastes, except those substances, used in
accordance with applicable law, that are customarily used in the development of
real estate similar to the Project.

Hedge Agreement.  Any interest rate cap, collar, or swap
agreement or similar protective arrangement entered into between any Borrower
and any Bank with respect to the Loans.

Home.  A detached single family dwelling constructed
on a separate fee simple absolute lot as part of a planned unit development for
the Project.

Homeowners
Association.  Any
association formed with respect to a Project for the governance of a Project
eventually by third-party homeowners, and for the ownership of common areas or amenities
of a Project.

Horizontal
Improvements. 
Utilities, including water and sewer, curbs, gutters, stormwater
detention structures, and dedicated roadways built in relation to Homes and/or
Lots, and in material compliance with and permitted under applicable
governmental laws and regulations all constructed within easements or
rights-of-way dedicated or granted to the applicable governmental authority,
utility company or Homeowners Association or created or reserved pursuant to a
declaration of easements or similar instrument.

Housing Purchase
Contract.  Any legal,
valid, binding and enforceable written agreement in substantially such form as
has been approved in writing by the Agent for the sale of individual Homes to
any bona fide unaffiliated purchaser entered into by a Borrower in the ordinary
course of its business, with customary terms and conditions and that provides
for a cash down payment of not less than the lesser of (i) 3.0% of the purchase
price or (ii) such smaller percentage as prevailing for that product type in
the market where the Unit is located. 
Such contract shall contain no contingencies other than those that are
customary in the market for which the Homes are located including without
limitation contingencies pertaining to the completion and inspection of the
Home, purchaser’s financing, condition of title or the sale of the purchaser’s
existing home (unless terminable at the request of the Borrower within 72 hours
of request) or as otherwise permitted in writing by the Agent.

 8
 

 

Indebtedness.  All obligations, contingent and otherwise
that in accordance with Generally Accepted Accounting Principles should be
classified upon the obligor’s balance sheet as liabilities, or to which
reference should be made by footnotes thereto, including in any event and
whether or not so classified:  (i) all
debt and similar monetary obligations, whether direct or indirect; (ii) all
liabilities secured by any mortgage, pledge, security interest, lien, charge or
other encumbrance existing on property owned or acquired subject thereto,
whether or not the liability secured thereby shall have been assumed; (iii) all
guarantees, endorsements and other contingent obligations whether direct or
indirect in respect of indebtedness of others, including any obligation to
supply funds to or in any manner to invest directly or indirectly in a Person,
to purchase indebtedness, or to assure the owner of indebtedness against loss
through an agreement to purchase goods, supplies or services for the purpose of
enabling the debtor to make payment of the indebtedness held by such owner or
otherwise, and the obligation to reimburse the issuer in respect of any letter
of credit; (iv) all subordinated debt; (v) all amounts available to be drawn
under letters of credit; (vii) all indebtedness, obligations or other
liabilities under or with respect to (a) interest rate swap, collar, cap or
similar agreements providing interest rate protection and (b) foreign currency
exchange agreements; (viii) current liabilities of a Person incurred in the
ordinary course of business including credit on an open account basis
customarily extended and in fact extended in connection with normal purchases
of goods and services; and (ix) Bonding Obligations.

Inspector.  The third-party construction inspector
retained by the Agent at the expense of Borrower.

Installment Amount.  The amount so calculated pursuant to §4.9(a).

Interest Cost.  With respect to any fiscal period, interest
cost for the Loans.

Interest Payment
Date.  As to each Prime
Rate Loan, the first day of each calendar month after the making of such Loan,
and with respect to each LIBOR Rate Loan, the last day of the applicable
Interest Period therefore; provided that if any such Interest Period is greater
than one (1) month, then the Interest Payment Date shall be at each one (1)
month interval following the making of the LIBOR Rate Loan.

Interest Period.  With respect to each LIBOR Rate Loan, (i)
initially, the period commencing on the Drawdown Date for such Loan and ending
1, 2, 3 or 6 months thereafter and (ii) thereafter, each subsequent period
commencing on the day following the last day of the preceding Interest Period
and ending 1, 2, 3 or 6 months thereafter provided that all of the foregoing
provisions relating to Interest Periods are subject to the following:

(a)           if any Interest Period with respect
to a LIBOR Rate Loan would otherwise end on a day that is not a LIBOR Business
Day, that Interest Period shall end and the next Interest Period shall commence
on the next preceding or succeeding LIBOR Business Day as determined
conclusively by the Reference Lender in accordance with the then current bank
practice in the London Interbank Market; and

(b)           no Interest Period relating to any
LIBOR Rate Loan shall extend beyond the Maturity Date.

 9
 

 

Interest
Reserve.  An interest
reserve for payment of projected Interest Cost in an amount equal to the
greater of (i) three (3) months of projected Interest Cost at the then
Applicable Margin in effect for Prime Rate Loans or (ii) $1,500,000.

Interest Reserve
Account.  The interest
bearing account opened in the name of the Borrower with the Agent at the
Administrative Agent’s Head Office for deposit of the Interest Reserve from the
proceeds of the Loan.

Investment.  With respect to any Person, all shares of
capital stock, partnership interests, limited liability company interests,
evidences of Indebtedness and other securities issued by any other Person, all
loans, advances, or extensions of credit to, or contributions to the capital
of, any other Person, all purchases of the securities or business or integral
part of the business of any other Person and commitments and options to make
such purchases, all interests in real property, and all other investments;
provided, however, that the term “Investment” shall not include (i) equipment,
vehicles, construction equipment, heavy machines, tools, building materials,
fixtures, appliances, inventory and other tangible personal property acquired
in the ordinary course of business or used in the development of the Project or
the construction of Homes, or (ii) current trade and customer accounts
receivable for services rendered in the ordinary course of business and payable
in accordance with customary trade terms.

Joint Venture.  Any Person (other than a Subsidiary) in which
Person holds any stock, partnership interest, joint venture interest, limited
liability company interest or other equity interest.

KeyBank.  KeyBank National Association, a national
banking association.

Land.  Real property, together with all of the
tenements, hereditaments, easements, rights-of-way, rights, privileges and
appurtenances thereunto belonging or in any way pertaining thereto, all
reversions, remainders, and all of the estate, right, title, interest, claim
and demand whatsoever of any Person therein and in the streets, alleys, vaults
and ways adjacent thereto, all rights to the use of common drive entries, all
rights pursuant to any reciprocal easement agreement or trackage agreement, all
strips and gores within or adjoining such property, all the air space and right
to use the air space above such property, all transferable development rights
arising therefrom or transferred thereto, and all drainage, mineral, water, oil
and gas rights with respect to such property, either at law or in equity, if
any, in possession or expectancy, now or hereafter acquired.

Lenders.  KeyBank, each other financial institution
party hereto as Lender and any other Person who becomes an assignee of any
rights of a Lender pursuant to §18, as is defined in the first paragraph of
this Agreement, and as the context requires, includes the Swingline Lender.

Leverage Ratio.  The ratio of Consolidated Total Liabilities
(and including without duplication all guarantees, endorsements and other
contingent obligations whether direct or indirect in respect of indebtedness of
others) to Consolidated Tangible Net Worth.

LIBOR Business Day.  Any day on which commercial banks are open
for international business (including dealings in Dollar deposits) in London.

 10
 

 

LIBOR Lending Office.  Initially, the office of each Lender
designated as such on Schedule 1.0 hereto, and, thereafter, such other office
of such Lender, if any, designated by such Lender to make or maintain its LIBOR
Rate Loans.

LIBOR Rate.  As applicable to any LIBOR Rate Loan, the
rate per annum as determined on the basis of the offered rates for deposits in
Dollars, for a period of time comparable to the Interest Period for such LIBOR
Rate Loan which appears on the Dow Jones Market Services (f/k/a Telerate News
Services), page 3750, titled as “British Banker Association Interest
Settlement Rates,” as of 11:00 a.m. 
London time on the day that is two LIBOR Business Days preceding the
first day of the Interest Period for such LIBOR Rate Loan; provided, however,
if the rate described above does not appear on such service on any applicable
interest determination date, the LIBOR Rate shall be the rate (rounded upward,
if necessary, to the nearest one one-hundredth of a percentage point),
determined on the basis of the offered rates for deposits in Dollars for a
period of time comparable to the Interest Period for such LIBOR Rate Loan which
are offered by four major banks in the London interbank market at approximately
11:00 a.m.  London time, on the day that
is two (2) LIBOR Business Days before the first day of the Interest Period for
the LIBOR Rate Loan as selected by the Agent. 
The principal London office of each of the four major London banks will
be requested to provide a quotation of its Dollar deposit offered rate.  If at least two such quotations are provided,
the rate for that date will be the arithmetic mean of the quotations.  If fewer than two quotations are provided as
requested, the rate for that date will be determined on the basis of the rates
quoted for loans in Dollars to leading European banks for a period of time
comparable to the Interest Period for such LIBOR Rate Loan offered by major
banks in New York City at approximately 11:00 a.m. New York City time, on the
day that is two LIBOR Business Days before the first day of the Interest Period
for the LIBOR Rate Loan.  In the event
that the Agent is unable to obtain any such quotation as provided above, it
will be deemed that the LIBOR Rate for a LIBOR Rate Loan cannot be
determined.  In such event, the Loan shall
bear interest at the Prime Rate as adjusted by the Applicable Margin.  In the event that the Board of Governors of
the Federal Reserve System shall impose a Reserve Percentage with respect to
LIBOR deposits of the Agent, then for any period during which such Reserve
Percentage shall apply, the LIBOR Rate shall be equal to the amount determined
above divided by an amount equal to 1 minus the Reserve Percentage.

LIBOR Rate Loans.  Loans bearing interest calculated by
reference to a LIBOR Rate.

Loan or Loans.  An individual loan or the aggregate loans, as
the case may be, to be made by the Lenders or Swingline Lender hereunder as
provided in §2.2

Loan Documents.  This Agreement, the Note, the Fee and Expense
Letter, the Guaranty, the Security Documents, and all other documents,
instruments or agreements now or hereafter executed or delivered by or on
behalf of Borrower or the Guarantors in connection with the Loans.

Loan Request.  A request for a Loan in the form of Exhibit
“B” attached hereto made pursuant to §2.5 which at the request of Agent may
include such invoices, work orders and other documentation reasonably
satisfactory to the Agent supporting the calculation of the costs included in
the Loan Request.

 11
 

 

Lot.  A single family residential lot located on
the Project.

Majority Lenders.  As of any date, the Lender or Lenders (not
including any Delinquent Lender who shall not be entitled to vote) whose
aggregate Commitment Percentage (as set forth on Schedule 1.0) is greater than
fifty percent (50%), or if the Commitments have been terminated or reduced to
zero, Lenders (other than Delinquent Lenders who shall not be entitled to vote)
holding at greater than fifty percent (50%) of the principal amount of the
aggregate outstanding Loans; provided that in the event that one Lender (other
than any Delinquent Lender) has an aggregate Commitment Percentage or principal
amount of the outstanding Loans equal to or greater than such percentage (the “Sole
Majority Lender”) then this definition of Majority Lender shall include the
Sole Majority Lender and a minimum of one other Lender (other than a Delinquent
Lender, if any) regardless of aggregate Commitment Percentage. Commitments held
by Delinquent Lenders shall be disregarded when determining the Majority
Lenders.  For purposes of this
definition, a Lender (other than the Swingline Lender) shall be deemed to hold
a Swingline Loan to the extent such Lender has acquired a participation therein
under the terms of this Agreement and has not failed to perform its obligations
in respect of such participation.

Master Account.  The account opened by the Agent in the name
of Borrower as contemplated by §5.5.

Material Adverse
Effect.  A materially
adverse effect on (a) the business, assets, liabilities, condition (financial
or otherwise), results of operations or business prospects of Borrower,
Guarantors, or the Project, (b) the ability of Borrower or the Guarantors to
perform their obligations under any Loan Document to which it is a party, (c)
the validity or enforceability of any of the Loan Documents, (d) the rights and
remedies of the Lenders and the Agent under any of the Loan Documents or (e)
the impairment or condition of the Project or any portion thereof which would
prevent it from completion of a master planned community as set forth in the
Master Plan.

Maturity Date.  September 15, 2009 or such earlier date on
which the Loans shall become due and payable pursuant to the terms hereof.

Model Home.  Any Home used for prospective sales display.

Monetary Event of
Default means a Default that can be cured by the payment of
money.

Multiemployer Plan.  Any multiemployer plan within the meaning of
§3(37) of ERISA maintained or contributed to by Borrower or any ERISA
Affiliate.

Net Income (or
Loss).  With respect to
any Person, for any fiscal period, the net income (or loss) of such Person,
after deduction of all expenses, taxes and other proper charges, all determined
in accordance with Generally Accepted Accounting Principles.

Notes.  The revolving loan promissory notes, by Borrower,
in favor of the Lenders evidencing the Loans in substantially the form of Exhibit
“B” attached hereto together with the Swingline Note.

 12

 

Notice.  See §19.

Notice of
Swingline Borrowing. 
The notice in the form of Exhibit “B-1” to be delivered to the
Agent pursuant to § 2.2(b) evidencing Borrower’s request for a Swingline Loan.

Obligations.  All Indebtedness, obligations and liabilities
of Borrower to any of the Lenders and the Agent, individually or collectively,
jointly and severally, under any of the Loan Documents or in respect of any of
the Loans or the Notes, whether existing on the date of this Agreement or
arising or incurred hereafter, direct or indirect, joint or several, absolute
or contingent, matured or unmatured, liquidated or unliquidated, secured or
unsecured, arising by contract, operation of law or otherwise, including
advances made by the Agent to protect or preserve the Collateral or the
security interests therein, and including interest and fees that accrue after
the commencement by or against Borrower or any Guarantor of any proceeding
under the U.S.  Bankruptcy Code or other
similar law naming such Person as the debtor in such proceeding, regardless of
whether such interest and fees are allowed claims in such proceeding. To the
extent this definition of “Obligations” is referenced in any Security Document,
the definition shall also include any Indebtedness, obligations and liabilities
of any Borrower under any Hedge Agreements (but excluding such Hedge Agreements
as Borrower may be required to enter into pursuant to the Senior Term Loan).

OECD.  Organization for Economic Cooperation and
Development.

Other Collateral
Documents.  That
certain Collateral Assignment of Project Documents of even date executed by
Signal Landmark and that certain Collateral Assignment of Lot Purchase
Contracts of even date executed by Signal Landmark together with such other
security agreements or assignments as may be required by Agent from time in
connection with the grant of a first priority lien on the Project, and all as
amended, and any other document given to and accepted by the Agent purporting
to secure the Obligations.

Other Projects.
Any planned residential community which constitutes one or more Lots or parcels
together with any Homes, Lots or other improvements constructed or under
construction thereon located within a discrete single family residential
development on which a Subsidiary of Borrower (i) may develop or has developed
Lots for the construction of Homes to be sold to individual buyers, (ii) will
construct or has constructed Homes, or (iii) will develop or has developed Lots
for sales of Lots in bulk to other developers.

Other Project
Indebtedness. 
Indebtedness with respect to the Other Projects.

Outstanding.  With respect to the Loans, the aggregate
unpaid principal thereof as of any date of determination.

PATRIOT Act.  The Uniting and Strengthening America by
Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of
2001, as the same may be amended from time to time, and corresponding
provisions of future laws.

PBGC.  The Pension Benefit Guaranty Corporation
created by §4002 of ERISA and any successor entity or entities having similar
responsibilities.

 13
 

 

Pension Plan.  See §6.25(a).

Permitted Liens.  Liens, security interests and other
encumbrances permitted by §8.2.

Person.  Any individual, corporation, partnership,
limited liability company, trust, unincorporated association, business, or
other legal entity, and any government or any governmental agency or political
subdivision thereof.

Plan Asset
Regulations.  See
§7.14.

Prime Rate.  The higher of (i) the variable per annum rate
of interest so designated from time to time by the Agent at the Agent’s Head
Office as its “prime rate” or (ii) the Federal Funds Rate plus one-half percent
(0.5%).  The Prime Rate is a reference
rate and does not necessarily represent the lowest or best rate being charged
to any customer.  Changes in the rate of
interest resulting from changes in the Prime Rate shall take place immediately
without notice or demand of any kind.

Prime Rate Loans.  Those Loans bearing interest calculated by
reference to the Prime Rate.

Project.  The 356 Unit planned residential community
known as the Brightwater Community located in Huntington Beach, California
owned by Signal Landmark which constitutes one or more Units together with any
other improvements developed and constructed or to be developed and constructed
by Signal Landmark.

Project Budget.  With respect to the Project, the budget for
total estimated Project Costs as well as the number of units and projected
sales for the Project (including such information with respect to deliveries,
production, and revenues) as submitted by Signal Landmark to the Agent, in form
and substance acceptable to and approved by the Agent, in its commercially
reasonable discretion.  The Project
Budget is attached hereto as Exhibit “I”.

Project Costs.  For the Project, the sum of (i) land
development costs including all labor, materials, fixtures, machinery and
equipment required to develop, construct, equip and complete the development of
the residential Lots and construction costs of Homes and related amenities thereon,
and (ii) title insurance premiums, survey charges, engineering fees,
architectural fees, real estate taxes, appraisal costs, premiums for insurance,
marketing, advertising and sales costs, legal fees, accounting fees, overhead
and administrative costs and all other expenses which are expenditures relating
to the Project and are not described in clause (i) above, that will be incurred
by Borrower in connection with the acquisition, development and construction of
the Project.  Overhead and administrative
costs shall be limited to the amounts set forth in the Project Budget.

Project Loan
Indebtedness.  The
Obligations with respect to the Loans and advances made hereunder.

Project Loan
Indebtedness to Value Ratio. 
As of any date, the ratio of (i) the Project Loan Indebtedness to the
(ii) Borrowing Base Value for the Project.

 14
 

 

Project
Qualification Documents. 
With respect to the Project, each of the following, all to be obtained
at the expense of Borrower or Signal Landmark, as the case may be:

(a)           Security
Documents.  Such Security Documents
relating to the Project as the Agent shall require, in form and substance
reasonably satisfactory to the Agent and duly executed and delivered by the
respective parties thereto.

(b)           Enforceability
Opinion.  The favorable legal opinion
of counsel to Borrower and Guarantors reasonably acceptable to the Agent and
qualified to practice in the State of California, addressed to the Agent and in
form and substance satisfactory to the Agent as to the enforceability of such Security
Documents and such other matters as the Agent shall reasonably request.

(c)           Perfection
of Liens.  Evidence reasonably
satisfactory to the Agent that the Security Documents are effective to create
in favor of the Agent a legal, valid and enforceable first-in-priority lien and
security interest in the Project and that all filings, recordings, deliveries
of instruments, and the payment of all applicable recording fees and taxes, and
all other actions reasonably necessary or desirable to perfect the liens or
security interests created by the Security Documents have been duly effected.

(d)           Survey.  The Survey of the Project, acceptable to
Agent, together with the Surveyor Certification, provided that, in those
instances where a recorded subdivision plat qualifies as a Survey, no Surveyor
Certification shall be required.

(e)           Taxes.  Evidence of payment of all real estate taxes,
assessments and municipal charges on the Project which on the date of
determination are required to have been paid under §7.13.

(f)            Title
Insurance; Title Exception Documents. 
The Title Policy (or “marked” title binder which is the equivalent of
the Title Policy, provided the final Title Policy is issued in due course) in
an amount acceptable to the Agent (but not in excess of the amount of the Loan)
covering the Project, insuring the first-in-priority security interest of the
Agent in and to the Project subject only to the title exceptions reasonably
permitted by the Agent, and together with proof of payment of all fees and
premiums for such policy, and true and accurate copies of all documents listed
as exceptions under such policy.

(g)           UCC
Certification.  A certification from
the CT Corporations or other search firm reasonably satisfactory to the Agent
that a search of the public records designated by the Agent disclosed no
conditional sales contracts, security agreements, chattel mortgages, leases of
personalty, financing statements or title retention agreements which affect any
property, rights or interests of Signal Landmark that are or are intended to be
subject to the security interest, assignments, and mortgage liens created by
the Security Documents relating to the Project except to the extent that the
same are discharged and removed prior to the Effective Date hereof.

(h)           Environmental
Site Assessments.  An environmental
site assessment report concerning Hazardous Materials and other environmental
concerns on the Project, the form and results of such report to be acceptable
to the Agent in its commercially reasonable discretion, or a reliance letter
certifying the existing environmental site assessment to Agent,

 15
 

 

such reliance letter and
report to be acceptable to Agent in its commercially reasonable discretion.

(i)            Appraisal.  An Appraisal of the Project in form and
substance reasonably acceptable to the Agent.

(j)            Zoning
and Land Use.  Evidence in form and
substance reasonably satisfactory to the Agent confirming that the Project is
zoned to permit the development, construction and occupancy of Homes.  For the purposes of this definition, a letter
from the applicable governmental authority, addressed to the Agent, or a zoning
endorsement to the above-referenced Title Policy confirming that the zoning of
the Project allows the development, construction and occupancy of Homes shall be
sufficient to satisfy this requirement.

(k)           Permit
and Legal Compliance Assurances. 
Evidence reasonably satisfactory to the Agent that all development and
construction activities then being conducted on the Project, if any, which
require federal, state or local licenses or permits have been duly licensed and
that such licenses or permits are in full force and effect.

(l)            Additional
Documents.  Such other documents,
certificates, reports or assurances as the Agent may reasonably require in its
commercially reasonable discretion.

Reemployment
Period.  The period of
time so defined under §4.9(a).

Reference Lender.  KeyBank.

Register.  See §18.3.

Release.  Any release, spill, leak, discharge,
injection, escape, disposal or dumping of Hazardous Materials.

Release Price.  For the first 50 Units closed, the Release
Price shall be $600,000.00 per Unit and thereafter the Release Price shall be
$1,000,000.00 per Unit.

Required
Commitment Reduction. 
A reduction in the Total Commitment that equals the Release Price for
any Units which have been released from the lien of the Security Deed
multiplied by forty (40) percent.

Reserve Percentage.  As of any date, the maximum aggregate reserve
requirement (including all basic, supplemental, marginal and other reserves)
which is imposed on member banks of the Federal Reserve System against “Euro-currency
Liabilities” as defined in Regulation D.

SEC.  The United States Securities and Exchange
Commission.

Section or §.  Any particular section of this Agreement.

Security Deed.
The Deed of Trust from Signal Landmark to the Agent for the benefit of the
Lenders (or to a trustee named therein acting on behalf of the Agent), as the
same may be

 16
 

 

modified or amended,
pursuant to which Signal Landmark has conveyed the Project to the Agent as
security for the Obligations, any such instruments to be in form and substance
acceptable to the Agent.

Security Documents.  Each Guaranty, the Security Deeds, the Other
Collateral Documents and any further endorsements or collateral assignments to
the Agent for the benefit of the Lenders, including, without limitation, UCC
financing statements.

Senior Term Loan.  That certain $125,000,000.00 Senior Secured
Term Loan made by KeyBank and certain other financial institutions party
thereto in favor of Borrower dated as of the date hereof, as the same may be
amended, restated, supplemented or otherwise modified from time to time.

Senior Term Loan
Documents.  That
certain Senior Secured Term Loan Agreement together with all other documents,
instruments or agreements now or hereafter executed or delivered by or on
behalf of Borrower or the Guarantors in connection with the Senior Term Loan.

Signal Holdings.  Signal Landmark Holdings Inc., a Delaware
corporation and the 100% shareholder of Signal Landmark.

Signal Landmark.  Signal Landmark, a California corporation.

Spec Home.  A Lot on which vertical construction of a
Home beyond the foundation has commenced and for which no Housing Purchase
Contract has been executed by Signal Landmark and which remains in effect.

Subsidiary.  For any Person, any corporation, association,
partnership, limited liability company, trust, or other business or legal
entity of which such Person shall at any time own or control directly or
indirectly at least a majority (by number of votes or controlling interest) of
the outstanding voting power to elect a majority of the board of directors of
or other individual performing similar functions of such corporation,
association, partnership, limited liability company, trust, or other business
or legal entity (without regard to the occurrence of any contingency), and
shall include without limitation all Persons the accounts of which are
consolidated with those of such Person pursuant to GAAP.

Survey.  An instrument survey of a Project in form and
substance satisfactory to the Agent prepared by a registered land surveyor
which shall show the location of all buildings, structures, easements and
utility lines on such property, which shall be sufficient to remove the
standard survey exception from the Title Policy, and which shall show (a) that
any buildings and structures are within the lot lines of such Project and (b)
no encroachments by others (or to the extent any encroachments are shown, such
encroachments shall be acceptable to the Agent in its commercially reasonable
discretion), (c) rights of way, adjoining sites, establish building lines and
street lines, the distance to and names of the nearest intersecting streets and
such other details as the Agent may reasonably require, and (d) whether or not
such a Project is located in a flood hazard district as established by the
Federal Emergency Management Agency or any successor agency or is located in
any flood plain, flood hazard or wetland protection district established under
federal, state or local law.  A recorded
subdivision plat of such Project

 17
 

 

approved by the
appropriate governmental authority and in form and substance reasonably
satisfactory to the Agent shall be sufficient to qualify as a Survey under this
definition provided the Title Insurance Company agrees to remove its standard
survey exception from the Title Policy for such Land.

Swingline
Commitment.  The
Swingline Lender’s obligation to make Swingline Loans pursuant to §2.2(b) in an
amount up to, but not exceeding, $15,000,000.00, as such amount may be reduced
from time to time in accordance with the terms hereof.

Swingline Lender.  KeyBank, together with its respective
successors and assigns.

Swingline Loan.  A loan made by the Swingline Lender to
Borrower pursuant to §2.2(b).

Swingline Note.  The promissory note of Borrower payable to
the order of the Swingline Lender in a principal amount equal to the amount of
the Swingline Commitment as originally in effect and otherwise duly completed,
substantially in the form of Exhibit “A-1”.

Termination Date.  The dates set forth in Section 2.2(d).

Test Date.  With respect to any fiscal period the last
day of such fiscal period.

Title Insurance
Company.  First
American Title Company or another title insurance company or companies approved
by the Agent; subject, however, to Agent’s right to require reinsurance or
coinsurance as determined in Agent’s commercially reasonable discretion.

Title Policy.  With respect to the Project, an ALTA Standard
Loan Policy Form 1970, with ALTA Endorsement Form 1 Coverage (or if such form
is not available, an equivalent form of or legally promulgated form of
mortgagee title insurance policy reasonable acceptable to the Agent), including
an endorsement to any existing Title Policy, issued by Title Insurance Company
(with such reinsurance or co-insurance as the Agent may require, any such
reinsurance to be with direct access endorsements to the extent available under
applicable law) in such amount as the Agent may reasonably require insuring the
priority of the Security Deed and that Signal Landmark holds good and
marketable fee simple title to such parcel, subject only to the encumbrances
permitted by the Security Deed and which shall not contain standard exceptions
for mechanics’ liens, persons in occupancy or matters which would be shown by a
survey, shall not insure over any matter except to the extent that any such
affirmative insurance is acceptable to the Agent in its sole but commercially
reasonable discretion; and shall contain (a) the endorsements listed on Exhibit
“G” attached hereto, and (b) such other endorsements and affirmative
insurance with respect to the specific circumstances of the Project as the
Agent reasonably may require.

Total Assets.  All assets of Borrower as determined in
accordance with GAAP.

Total Commitment.  The sum of the Commitments of the Lenders, as
in effect from time to time, being $100,000,000.00 as of the Effective Date and
decreasing thereafter on each Termination Date in accordance with §2.2(d)
hereunder.

 18
 

 

Total Liabilities.  All liabilities of Borrower including as
determined in accordance with GAAP.

Transfer.  To sell, assign, convey, transfer, exchange,
give, grant, pledge, mortgage, grant a security interest in, encumber or
otherwise hypothecate or dispose of property, rights or interests, directly or
indirectly, voluntarily or by operation of law.

Type.  As to any Loan, its nature as a Prime Rate
Loan or a LIBOR Rate Loan.

Uncured
Non-Monetary Event of Default Shall mean a Default that
cannot be cured by the payment of money that has not been cured within ninety
(90) days of the date of its occurrence.

Unit.
Any Lot or Home in the Project.

Unused
Facility Fee.  The fee to be paid by
Borrower pursuant to §3.2.

Vested.  As to any permit, license, zoning ordinance
or rights thereunder, grant of rights under an order of development of regional
impact, or any other governmental entitlement, the status wherein such
governmental right has been granted in accordance with all applicable
governmental regulations, and all appeal periods have expired with respect to
such grant or issuance.

Welfare Plan.  See §6.25(b).

1.2           Rules
of Interpretation.  The following
general rules of construction shall apply to this Agreement:

(a)           A
reference to any document or agreement shall include such document or agreement
as amended, modified or supplemented from time to time in accordance with its
terms and the terms of this Agreement.

(b)           The
singular includes the plural and the plural includes the singular.

(c)           A
reference to any law includes any amendment or modification to such law.

(d)           A
reference to any Person includes its permitted successors and permitted
assigns.

(e)           Accounting
terms not otherwise defined herein have the meanings assigned to them by
Generally Accepted Accounting Principles applied on a consistent basis by the
accounting entity to which they refer.

(f)            The
words “include,” “includes” and “including” are not limiting.

(g)           The
words “approval” and “approved” as the context so determines, means an approval
in writing given to the party seeking approval after full and fair disclosure
to

 19
 

 

the party giving approval
of all material facts necessary in order to determine whether approval should
be granted.

(h)           All
terms not specifically defined herein, or by Generally Accepted Accounting Principles,
that are defined in the Uniform Commercial Code as in effect in the State of
California shall have the meanings assigned to them therein.

(i)            Reference
to a particular “§,” refers to that section of this Agreement unless otherwise
indicated.

(j)            The
words “herein,” “hereof,” “hereunder” and words of like import shall refer to
this Agreement as a whole and not to any particular section or subdivision of
this Agreement.

2.             THE
REVOLVING CREDIT FACILITY.  

2.1           Relationship
of Borrower and the Guarantors.

Each of the
Guarantors is a Subsidiary of Borrower and is engaged in a related business and
a common enterprise with Borrower.  Each
of the Guarantors acknowledges and agrees that it has and will receive value
and benefit from this Agreement, and that such value and benefit constitutes
good and valuable consideration for each Guarantor’s execution of this
Agreement, the Guaranties, and any of the other Loan Documents to which the
Guarantors are a party.  The Guarantors
have executed this Agreement at the request of the Agent and the Lenders to
evidence certain covenants, representations, and warranties as herein provided
of the Guarantors in favor of the Agent and the Lenders.  The Guarantors acknowledge that the Agent and
the Lenders would be unwilling to enter into this Agreement without the
execution hereof and the Guaranties by the Guarantors.

2.2           Commitment
to Lend.

(a)           Revolving
Loans. Subject to the terms and conditions set forth in this Agreement, each of
the Lenders severally agrees to lend to Borrower, and Borrower may borrow (and
repay and reborrow) from time to time between the Effective Date and the
Maturity Date, upon submission of a Loan Request by Borrower to the Agent given
in accordance with §2.5, such sums as are requested by Borrower up to the
lesser of (a) a maximum aggregate principal amount Outstanding at any one time
equal to such Lender’s Commitment herein and (b) such Lender’s Commitment
Percentage of the sum of (i) the Borrowing Base (after giving effect to any
adjustments to the Borrowing Base Value from time to time in accordance with
the terms hereof), less (ii) the Outstanding; provided, that, in all events no
Default or Event of Default shall have occurred and be continuing; and
provided, further, that the Outstanding Loans shall not at any time exceed the
Total Commitment herein.  Each Loan
Request shall constitute a representation and warranty by Borrower that all of
the conditions set forth in §10 in the case of the initial Loan, and §11, in
the case of all other Loans, have been satisfied on the date of such Loan
Request.  No Lender shall have any
obligation to make Loans to Borrower in an aggregate principal amount
outstanding of more than the principal amount of such Lender’s Commitment
herein.

 20
 

 

(b)           Swingline
Loans.  (i) Subject to the terms and
conditions hereof, from time to time from the Effective Date to but excluding
the Maturity Date, the Swingline Lender agrees to make Swingline Loans to
Borrower in an aggregate principal amount at any one time outstanding up to, but
not exceeding, the amount of the Swingline Commitment.  If at any time the aggregate principal amount
of the Swingline Loans outstanding at such time exceeds the Swingline
Commitment in effect at such time, Borrower shall immediately pay the Agent for
the account of the Swingline Lender the amount of such excess.  Subject to the terms and conditions of this
Agreement, Borrower may borrow, repay and reborrow Swingline Loans hereunder.

(ii)           Swingline
Loans shall bear interest at a per annum rate equal to the Prime Rate plus
the Applicable Margin for Prime Rate Loans. 
Interest payable on Swingline Loans is solely for the account of the
Swingline Lender.  All accrued and unpaid
interest on Swingline Loans shall be payable on the dates and in the manner
provided in §3.4 with respect to interest on Prime Rate Loans (except as the
Swingline Lender and Borrower may otherwise agree in writing in connection with
any particular Swingline Loan).

(iii)          Each
Swingline Loan shall be in the minimum amount of $1,000,000.00 and integral
multiples of $100,000.00 or such other minimum amounts agreed to by the
Swingline Lender and Borrower.  Any
voluntary prepayment of a Swingline Loan must be in integral multiples of
$100,000.00 or the aggregate principal amount of all outstanding Swingline
Loans (or such other minimum amounts upon which the Swingline Lender and
Borrower may agree in writing) and in connection with any such prepayment,
Borrower must give the Swingline Lender prior written notice thereof no later
than 12:00 Noon (Cleveland, Ohio time) on the date of such prepayment.  The Swingline Loans shall, in addition to
this Agreement, be evidenced by the Swingline Note.

(iv)          The
Borrower agrees to repay each Swingline Loan within one Business Day of demand
therefor by the Swingline Lender and, in any event, within five (5) days after
the date such Swingline Loan was made; provided, that the proceeds of a
Swingline Loan may not be used to repay a Swingline Loan.  Notwithstanding the foregoing, Borrower shall
repay the entire outstanding principal amount of, and all accrued but unpaid
interest on, the Swingline Loans on the Maturity Date (or such earlier date as
the Swingline Lender and Borrower may agree in writing).  In lieu of demanding repayment of any
outstanding Swingline Loan from Borrower, the Swingline Lender may, on behalf
of Borrower (which hereby irrevocably directs the Swingline Lender to act on
its behalf for such purpose), request a borrowing of Prime Rate Loans from the
Lenders in an amount equal to the principal balance of such Swingline
Loan.  The amount limitations of §2.5(a)
shall not apply to any borrowing of Prime Rate Loans made pursuant to this
subsection.  The Swingline Lender shall
give one Business Days prior notice to the Agent of any such borrowing of Prime
Rate Loans not later than 12:00 noon (Cleveland, Ohio time) on the proposed
date of such borrowing and the Agent shall give prompt notice of such borrowing
to the Lenders.  No later than 2:00 p.m.
(Cleveland, Ohio time) on the next Business Day following such notice, each
Lender will make available to the Agent at the Agent’s Head Office for the
account of Swingline Lender, in immediately available funds, the proceeds of
the Prime Rate Loan to be made by such Lender and, to the extent of such Prime Rate
Loan, such Lender’s participation in the Swingline Loan so repaid shall be
deemed to be funded by such Prime Rate Loan. 
The Agent shall pay the proceeds of such Prime Rate Loans to the
Swingline Lender, which shall apply such proceeds to repay such

 21
 

 

Swingline Loan.  At the time each Swingline Loan is made, each
Lender shall automatically (and without any further notice or action) be deemed
to have purchased from the Swingline Lender, without recourse or warranty, an
undivided interest and participation to the extent of such Lender’s Commitment
Percentage in such Swingline Loan.  If
the Lenders are prohibited from making Loans required to be made under this
subsection for any reason, including without limitation, the occurrence of any
Default or Event of Default described in §12.1.(h) or §12.1.(i), upon notice
from the Agent or the Swingline Lender, each Lender severally agrees to pay to
the Agent for the account of the Swingline Lender in respect of such
participation the amount of such Lender’s Commitment Percentage of each
outstanding Swingline Loan.  If such
amount is not in fact made available to the Agent by any Lender, the Swingline
Lender shall be entitled to recover such amount on demand from such Lender, together
with accrued interest thereon for each day from the date of demand thereof, at
the Federal Funds Rate.  If such Lender
does not pay such amount forthwith upon demand therefor by the Agent or the
Swingline Lender, and until such time as such Lender makes the required
payment, the Swingline Lender shall be deemed to continue to have outstanding
Swingline Loans in the amount of such unpaid participation obligation for all
purposes of the Loan Documents (other than those provisions requiring the other
Lenders to purchase a participation therein). 
Further, such Lender shall be deemed to have assigned any and all
payments made of principal and interest on its Loans, and any other amounts due
such Lender hereunder, to the Swingline Lender to fund Swingline Loans in the
amount of the participation in Swingline Loans that such Lender failed to
purchase pursuant to this Section until such amount has been purchased (as a
result of such assignment or otherwise). 
A Lender’s obligation to make payments in respect of a participation in
a Swingline Loan shall be absolute and unconditional and shall not be affected
by any circumstance whatsoever, including without limitation, (i) any claim of
setoff, counterclaim, recoupment, defense or other right which such Lender or
any other Person may have or claim against the Agent, the Swingline Lender or
any other Person whatsoever, (ii) the occurrence or continuation of a Default
or Event of Default (including without limitation, any of the Defaults or
Events of Default described in §12.1.(h) or §12.1.(i)) or the termination of
any Lender’s Commitment, (iii) the existence (or alleged existence) of an event
or condition which has had or could have a Material Adverse Effect, (iv) any
breach of any Loan Document by the Agent, any Lender or Borrower or (v) any
other circumstance, happening or event whatsoever, whether or not similar to
any of the foregoing.

(c)           [Intentionally
Deleted].

(d)           Automatic
Reductions to the Total Commitment. 
(i) On each Termination Date beginning December 31, 2008, the Total
Commitment shall automatically be reduced quarterly (and Borrower shall make
such mandatory payments on each Termination Date as necessary to cause the
Borrower to comply with the terms of §4.2 herein) by $25,000,000.00 as follows:

	
  Termination Date

  	
   

  	
  Commitment Amount

  	
   

  
	
  December 31,
  2008

  	
   

  	
  $

  	
  75,000,000.00

  	
   

  
	
  March 31, 2009

  	
   

  	
  $

  	
  50,000,000.00

  	
   

  
	
  June 30, 2009

  	
   

  	
  $

  	
  25,000,000.00

  	
   

  
	
  September 15, 2009

  	
   

  	
  $

  	
  0

  	
   

  

 

 22
 

 

and; (ii) the
Total Commitment shall be reduced by the Required Commitment Reduction

2.3           Notes.  The Loans shall be evidenced by separate
Notes, each executed by Borrower, dated of even date with this Agreement.  One Note shall be payable to the order of
each Lender in the principal amount equal to such Lender’s Commitment plus
interest accrued thereon, as set forth in this Agreement.  In the event a Note is lost, destroyed or
mutilated at any time prior to payment in full of the indebtedness evidenced
thereby, Borrower shall execute a new note substantially in the form of such
Note.  The replacement Note shall recite
the circumstances of the reissue of the Note and shall state that it is a
replacement promissory note.  The Notes
shall not be necessary to establish the indebtedness of Borrower to the Lenders
on account of the Loans made pursuant to this Agreement.

2.4           Requests
for Loans.

(a)           Borrower
Procedure for Revolving Loans. 
Borrower (i) shall notify the Agent of a potential request for a Loan as
soon as possible, and (ii) shall give to the Agent a Loan Request (or
telephonic notice confirmed in writing by a Loan Request) for each Loan
requested hereunder at least three (3) Business Days prior to the proposed
Drawdown Date for LIBOR Rate Loans, and at least one (1) Business Day prior to
the proposed Drawdown Date for Prime Rate Loans, and the Agent shall promptly
notify the Lenders of such Loan Request. 
Each Loan Request shall be (a) for a Prime Rate Loan in a minimum
aggregate amount of $1,000,000.00 or an integral multiple of $100,000.00 in
excess thereof, or (b) for a LIBOR Rate Loan in a minimum aggregate amount of
$5,000,000.00 or an integral multiple of $100,000.00 in excess thereof; provided,
however, that there shall be cumulatively for Borrower no more than four
(4) LIBOR Rate Loans outstanding at any one time and all LIBOR Rate Interest
Periods shall be for maturities of 1, 2, 3 or 6 months.  Any Loan Request shall be executed by an
Authorized Officer of Borrower and shall be given to the Agent prior to 1:00
p.m.  (Cleveland, Ohio time) in order for
such Business Day to count toward the minimum number of Business Days required
for such Loan Request.  Each Loan Request
shall specify with respect to the requested Loan the proposed principal amount,
Drawdown Date, Interest Period (if applicable) and Type.  Each Loan Request shall also contain (i) a
statement as to how Borrower shall use such advance and (ii) a certification by
the chief executive officer, chief financial officer, chief accounting officer,
or vice-president of finance of Borrower that Borrower is and will be in
compliance with all covenants under the Loan Documents after giving effect to
the making of such Loan and that Borrower has no claim against the Agent or the
Lenders as of that date.  Any Loan
Request for a Loan in excess of $10,000,000.00, shall also be accompanied by a
supplemental Borrowing Base Report. 
Borrower shall be permitted to use the proceeds of a Loan to reimburse
Borrower for amounts paid from its own funds within the preceding ninety (90)
days, except for the initial Loan Request which may be used to reimburse
Borrower for amounts paid since January 1, 2006.

 23
 

 

(b)           Borrower
Procedure for Borrowing Swingline Loans. 
The Borrower shall give the Agent and the Swingline Lender notice
pursuant to a Notice of Swingline Borrowing or telephonic notice of each
borrowing of a Swingline Loan.  Each
Notice of Swingline Borrowing shall be delivered to the Swingline Lender no
later than 1:00 p.m. (Cleveland, Ohio time) on the proposed date of such
borrowing.  Any such Notice given
telephonically shall include all information to be specified in a written Notice
of Swingline Borrowing and shall be promptly confirmed in writing by Borrower
pursuant to a Notice of Swingline Borrowing sent to the Swingline Lender by
telecopy on the same day of the giving of such telephonic notice.  On the date of the requested Swingline Loan
and subject to satisfaction of the applicable conditions set forth in §11 for
all borrowings, the Swingline Lender will make the proceeds of such Swingline
Loan available to Borrower in Dollars, in immediately available funds, at the
account specified by Borrower in the Notice of Swingline Borrowing not later
than 4:00 p.m. (Cleveland, Ohio time) on such date.

(c)           Lender
Procedure for Borrowing Loans. 
Promptly after any Swing Line Borrowing, the Agent shall notify each of
the Lenders thereof.  Except as provided
in this §2.4, each such Loan Request shall be irrevocable and binding on
Borrower and shall obligate Borrower to accept the Loan requested from the
Lenders on the proposed Drawdown Date, provided that, in addition to Borrower’s
other remedies against any Lender which fails to advance its proportionate
share of a requested Loan, such Loan Request may be revoked by Borrower by
notice received by the Agent no later than the Drawdown Date if any Lender
fails to advance its proportionate share of the requested Loan in accordance
with the terms of this Agreement, provided further that Borrower shall be
liable in accordance with the terms of this Agreement to any Lender, which is
prepared to advance its proportionate share of the requested Loan, for any
costs, expenses or damages actually incurred by such Lender as a result of
Borrower’s election to revoke such Loan Request.  Borrower shall not be responsible, however,
for costs arising from the default of a Lender in making a required advance.

2.5           Funds
for Loans.

(a)           Funding
by the Lenders.  Not later than 2:00
p.m. (Cleveland, Ohio time) on the proposed Drawdown Date of any Loan, each of
the Lenders will make available to the Agent, at the Agent’s Head Office, in
immediately available funds, the amount of such Lender’s Commitment Percentage
of the amount of the requested Loans which may be disbursed pursuant to
§2.2.  Upon receipt from each Lender of
such amount, and upon receipt of the documents required by §10 and §11 and the
satisfaction of the other conditions set forth therein, to the extent
applicable, the Agent will make available to Borrower the aggregate amount of
such Loans made available to the Agent by the Lenders by promptly crediting
such amount to the Advance Account.  The
failure or refusal of any Lender to make available to the Agent at the
aforesaid time and place on any Drawdown Date the amount of its Commitment
Percentage of the requested Loans to the extent it is obligated to fund such
Loan hereunder shall not relieve any other Lender from its several obligation
hereunder to make available to the Agent the amount of such other Lender’s
Commitment Percentage of any requested Loans, including any additional Loans
that may be requested by Borrower subject to the terms and conditions hereof to
provide funds to replace those not advanced by the Lender so failing or
refusing, provided that Borrower may by notice received by the Agent no later
than the Drawdown Date refuse to accept any Loan which is not fully funded in
accordance with such Loan Request subject to the terms of §2.4;

 24
 

 

provided further that no
Lender shall be obligated to advance any amount in excess of the limits set
forth in §2.2.  In the event of any such
failure or refusal, the Lenders not so failing or refusing shall be entitled to
a priority position as against the Lender or Lenders so failing or refusing to
provide funds for such Loans as provided in §14.5.

(b)           Assumption
of Funding.  Unless the Agent shall
have been notified by any Lender prior to the applicable Drawdown Date that
such Lender will not make available to the Agent such Lender’s pro rata share
of a proposed Loan, the Agent may in its commercially reasonable discretion
assume that such Lender has made such Loan available to the Agent in accordance
with the provisions of this Agreement and the Agent may, if it chooses, in
reliance upon such assumption make such Loan available to Borrower, and such
Lender shall be liable to the Agent for the amount of such advance.

3.             FEES,
INTEREST, AND OTHER CHARGES.  

3.1           Closing
Fees.  The Borrower agrees to pay the
Agent certain fees in connection with the Loans as expressly provided in the
Fee and Expense Letter which shall be withheld from the Loan proceeds on the
Effective Date.

3.2           Unused
Facility Fee.  The Borrower agrees to
pay to the Agent for the accounts of the Lenders in accordance with their
respective Commitment Percentages an Unused Facility Fee calculated at the rate
of three tenths of one percent (0.30%) per annum on the daily amount by which
the Total Commitment from time to time exceeds the Outstanding Loans during
each calendar quarter or portion thereof commencing nine months after the
Effective Date and ending on the Maturity Date. 
This Unused Facility Fee shall be payable quarterly in arrears on the first
day of each calendar quarter for the immediately preceding calendar quarter or
portion thereof, with a final payment due on the Maturity Date.  Any payment due under this Section shall be
prorated for any partial calendar quarter. Notwithstanding the foregoing, the
Unused Facility Fee will be reduced to two tenths of one percent (0.20%) per
annum during any Fiscal Quarter when the average amount Outstanding for such
Fiscal Quarter exceeds fifty percent (50%).

3.3           Interest
on Loans.  Each Prime Rate Loan shall
bear interest at the Prime Rate plus the Applicable Margin.  Each LIBOR Rate Loan shall bear interest at
the LIBOR Rate plus the Applicable Margin. 
The “Applicable Margin” for a LIBOR Rate Loan or a Prime Rate Loan for
each Fiscal Quarter shall be the margin corresponding to the Leverage Ratio for
the prior Fiscal Quarter as determined by reference to the following table:

	
  Leverage Ratio

  	
   

  	
  LIBOR Applicable Margin

  	
   

  	
  Prime Applicable Margin

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  < 40%

  	
   

  	
  2.00%

  	
   

  	
  -.25%

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  >40% to 50%

  	
   

  	
  2.25%

  	
   

  	
  0.00%

  	
   

  

 

 25
 

 

Upon the
determination of the Leverage Ratio for the prior Fiscal Quarter, the
Applicable Margin shall be established for the current Fiscal Quarter and shall
be retroactive to the first day of the current Fiscal Quarter.  The Borrower acknowledges and agrees that the
retroactive application of the Applicable Margin may result in Borrower having
overpaid or under-paid interest upon prior Interest Payment Dates.  In the event of any underpayment of interest,
such interest shortfall shall be paid upon the following Interest Payment
Date.  In the event of any overpayment of
interest, such overpayment shall be credited against interest owed on the
following Interest Payment Date.  In the
event that Borrower fails to correctly report the Leverage Ratio for any such
prior Fiscal Quarter then in the event of any underpayment of interest, in
addition to such other rights and remedies as Agent and Lenders may have
hereunder (including without limitation such rights and remedies as may be
specified in §3.9 herein), Borrower shall pay additional interest at the
highest Applicable Rate upon the following Interest Payment Date as Borrower
would have paid for such Fiscal Quarter after giving effect to the correct
determination of the Leverage Ratio for such prior Fiscal Quarter.

3.4           Payment
of Interest on Loans and Choice of Interest Rate.  Interest shall be payable by Borrower in
arrears on each Interest Payment Date, in installments of all accrued and
unpaid interest.  A final installment of
all accrued and unpaid interest shall be due and payable on the Maturity Date.
Any Loan shall, at the option of Borrower, be made either as a Prime Rate Loan
or as a LIBOR Rate Loan; provided, however, that (i) Borrower may not select a
LIBOR Rate Loan (i) with respect to a Loan, the proceeds of which are to
reimburse the Agent pursuant to an Obligation due and payable hereunder, or
(ii) if, at the time of such Loan, a Default or Event of Default has occurred
and is continuing.

3.5           Conversion
Options.

(a)           Conversion.  Borrower may elect from time to time to
convert any of the Outstanding Loans to a Loan of another Type and such Loan
shall thereafter bear interest as a Prime Rate Loan or a LIBOR Rate Loan, as
applicable; provided that (i) with respect to any such conversion of a LIBOR
Rate Loan to a Prime Rate Loan, Borrower shall give the Agent at least three
(3) Business Days’ prior written notice of such election (and the Agent will
notify the Lenders two (2) days prior to such conversion), and such conversion
shall only be made on the last day of the Interest Period with respect to such
LIBOR Rate Loan; (ii) with respect to any such conversion of a Prime Rate Loan
to a LIBOR Rate Loan, Borrower shall give the Agent at least three (3) Business
Days’ prior written notice of such election (and the Agent will notify the
Lenders two (2) days prior to such election) and the Interest Period requested
for such Loan.  The principal amount of
the Loan so converted shall be in a minimum aggregate amount of $1,000,000.00
or an integral multiple of $100,000.00 in excess thereof and, after giving
effect to the conversion of such Loan, there shall be cumulatively for Borrower
no more than four (4) LIBOR Rate Loans outstanding at any one time; and (iii)
no Loan may be converted into a LIBOR Rate Loan when any Default or Event of
Default has occurred and is continuing. 
All or any part of the Outstanding Loans of any Type may be converted as
provided herein, provided that no partial conversion shall result in a
Prime Rate Loan in an aggregate principal amount of less than $1,000,000.00 or
a LIBOR Rate Loan in an aggregate principal amount of less than $5,000,000.00
and that the aggregate principal amount of each Loan shall be in an integral
multiple of $100,000.00.  On the date on
which such conversion is being made, each Lender shall take such action as is
necessary to transfer its Commitment Percentage of such Loans to its

 26
 

 

Domestic Lending Office
or its LIBOR Lending Office, as the case may be.  Each Conversion Request relating to the
conversion of a Prime Rate Loan to a LIBOR Rate Loan shall be irrevocable by
Borrower.

(b)           Continuation.  Any Loan may be continued as such Type upon
the expiration of an Interest Period with respect thereto by compliance by
Borrower with the terms of this §3.6(b), provided that no LIBOR Rate Loan may
be continued as such when any Default or Event of Default has occurred and is
continuing, but shall be automatically converted to a Prime Rate Loan on the
last day of the Interest Period relating thereto ending during the continuance
of any Default or Event of Default.

(c)           Automatic
Conversion.  In the event that
Borrower does not notify the Agent of its election hereunder with respect to
any LIBOR Rate Loan at least three (3) Business Days prior to the last day of
the applicable Interest Period, such Loan shall be automatically converted to a
Prime Rate Loan at the end of the applicable Interest Period.

(d)           Timing
of Conversion Request.  Any
Conversion Request shall be given to the Agent prior to 1:00 p.m.  (Cleveland, Ohio time) in order for such
Business Day to count toward the minimum number of Business Days required.

3.6           Inability
to Determine LIBOR Rate.  In the
event that, prior to the commencement of any Interest Period relating to any
LIBOR Rate Loan, the Agent shall, in the exercise of its good faith business
judgment, determine that adequate and reasonable methods do not exist for
ascertaining the LIBOR Rate for such Interest Period, the Agent shall forthwith
give notice of such determination (which shall be conclusive and binding on
Borrower and the Lenders) to Borrower and the Lenders.  In such event (a) any Loan Request with
respect to LIBOR Rate Loans shall be automatically withdrawn and shall be deemed
a request for Prime Rate Loans, (b) all Conversion Requests shall be
automatically withdrawn and (c) each LIBOR Rate Loan will automatically, on the
last day of the then current Interest Period thereof, become a Prime Rate Loan,
and the obligations of the Lenders to make LIBOR Rate Loans shall be suspended
until the Agent determines in the exercise of its good faith business judgment
that the circumstances giving rise to such suspension no longer exist,
whereupon the Agent shall so notify Borrower and the Lenders.

3.7           Illegality.  Notwithstanding any other provisions herein,
if any present or future law, regulation, treaty or directive or the
interpretation or application thereof shall make it unlawful, or any central
bank or other governmental authority having jurisdiction over a Lender or its
LIBOR Lending Office shall assert that it is unlawful, for any Lender to make
or maintain LIBOR Rate Loans, such Lender, after taking all commercially
reasonable efforts to resolve such illegality, including the designation of a
different LIBOR Lending Office, shall forthwith give notice of such
circumstances to the Agent and Borrower and thereupon (a) the commitment of the
Lenders to make LIBOR Rate Loans or convert Loans of another Type to LIBOR Rate
Loans shall forthwith be suspended and (b) the LIBOR Rate Loans then
outstanding shall be converted automatically to Prime Rate Loans on the last
day of each Interest Period applicable to such LIBOR Rate Loans or within such
earlier period as may be required by law.

 27
 

 

3.8           Interest
on Overdue Amounts; Late Charges; Default Rate Interest.  Overdue principal and (to the extent
permitted by applicable law) interest on the Loans and all other overdue
amounts payable hereunder or under any of the other Loan Documents shall bear
interest at the Default Rate, until such amount shall be paid in full (after as
well as before judgment), or if such rate shall exceed the maximum rate
permitted by law, then at the maximum rate permitted by law.  In addition, Borrower shall pay a late charge
equal to four percent (4%) of any amount of interest and/or principal payable
on the Loans, except upon maturity or acceleration, or any other amounts
payable under the Loan Documents, which is not paid within ten (10) days of the
date when due.  Further in addition, upon
the occurrence of an Event of Default, at the election of the Agent, the
Outstanding Loans shall bear interest at the Default Rate prior to
acceleration.  All late charges and
Default Rate interest shall be immediately due and payable.

3.9           Computations.  All computations of interest on the Loans and
of other fees to the extent applicable shall be based on a 365-day year and
paid for the actual number of days elapsed. 
Whenever a payment hereunder or under any of the other Loan Documents
becomes due on a day that is not a Business Day, the due date for such payment
shall be extended to the next succeeding Business Day, and interest shall
accrue during such extension.

3.10         Limitation
on Interest.  Notwithstanding
anything in this Agreement to the contrary, all agreements between Borrower and
the Lenders and the Agent, whether now existing or hereafter arising and
whether written or oral, are hereby limited so that in no contingency, whether
by reason of acceleration of the maturity of any of the Obligations or
otherwise, shall the interest contracted for, charged or received by the
Lenders exceed the maximum amount permissible under applicable law.  If, from any circumstance whatsoever,
interest would otherwise be payable to the Lenders in excess of the maximum
lawful amount, the interest payable to the Lenders shall be reduced to the
maximum amount permitted under applicable law; and if from any circumstance the
Lenders shall ever receive anything of value deemed interest by applicable law
in excess of the maximum lawful amount, an amount equal to any excessive
interest shall be applied to the reduction of the principal balance of the
Obligations and to the payment of interest or, if such excessive interest
exceeds the unpaid balance of principal of the Obligations, such excess shall
be refunded to Borrower.  All interest
paid or agreed to be paid to the Lenders shall, to the extent permitted by
applicable law, be amortized, prorated, allocated and spread throughout the
full period until payment in full of the principal of the Obligations
(including the period of any renewal or extension thereof) so that the interest
thereon for such full period shall not exceed the maximum amount permitted by
applicable law.  This §3.11 shall control
all agreements between Borrower, the Lenders and the Agent.

4.             REPAYMENT
AND CERTAIN GENERAL PROVISIONS.  

4.1           Maturity.  The Borrower promises to pay on the Maturity
Date, and there shall become absolutely due and payable on the Maturity Date,
all of the Loans Outstanding on such date, together with any and all accrued
and unpaid interest thereon and all fees owed hereunder.

 28
 

 

4.2           Mandatory
Prepayments.  If at any time the
aggregate Outstanding Loans (including Swingline Loans) exceed the lesser of
the Total Commitment (as the same may be reduced on each Termination Date
pursuant to §2.2(d)) or the Borrowing Base, then Borrower shall immediately pay
the amount of such excess to the Agent for the respective accounts of the
Lenders for application to the Loans.

4.3           Optional
Prepayments.  The Borrower shall have
the right, at its election, to prepay the Outstanding Loans as a whole or in
part, at any time without penalty or premium, except as provided in §4.9.  Borrower shall give the Agent, no later than
2:00 p.m., Cleveland, Ohio time, at least three (3) Business Days prior written
notice of any prepayment pursuant to this §4.3, in each case specifying the
proposed date of payment of the Loans and the principal amount to be paid.

4.4           Amount
and Application of Prepayments.  Each
partial prepayment of the Outstanding Loans under §4.3 shall be in the minimum
amount of $1,000,000.00 or an integral multiple of $100,000.00 in excess
thereof (unless the applicable Loan is being prepaid in full and except with
respect to prepayments required under Section 4.2).

4.5           Effect
of Prepayments.  Except as provided
for payments required under §4.2 and pursuant to §5.4(c) herein, any amount of
the Loans prepaid prior to the Maturity Date, the Amortization Date or the date
of any Required Commitment Reduction, as the case may be shall be available for
re-borrowings as provided in §2.2. 
Except as otherwise expressly provided herein, all payments shall be
applied (a) first to any fees or other charges then due and payable to Agent
hereunder or under the other Loan Documents, (b) next to any Default Rate
interest accrued and outstanding, (c) next to any interest accrued and
outstanding on Swingline Loans, (d) next to any interest accrued and
outstanding on Prime Rate Loans, (e) next to any interest accrued, outstanding,
and payable on any LIBOR Rate Loans, (f) next to any outstanding principal on
any Swingline Loans, (g) next to any outstanding principal on any Prime Rate
Loans, (h) next to any outstanding principal on any LIBOR Rate Loans; and next
to any other Obligations owing to the Lenders hereunder.

4.6           Funds
for Payments.

(a)           Payment.  All payments of principal, interest, other
fees and any other amounts due hereunder or under any of the other Loan
Documents shall be made to the Agent, for the respective accounts of the Lenders
and the Agent, as the case may be, at the Agent’s Head Office, no later than
1:00 p.m.  (Cleveland, Ohio time) on the
day when due, in each case in immediately available funds.  The Agent is hereby authorized to apply funds
from the Master Account to the Obligations on a daily basis pursuant to
§5.5.  The Agent is further hereby
authorized to advance amounts as Loans for the payment of the Obligations on
the dates when the amount thereof shall become due and payable if Borrower does
not pay such amounts when due.

(b)           Setoff,
Deduction, Etc.  All payments by Borrower
hereunder and under any of the other Loan Documents shall be made without
setoff or counterclaim and free and clear of and without deduction for any
taxes, levies, imposts, duties, charges, fees, deductions, withholdings,
compulsory loans, restrictions or conditions of any nature now or hereafter

 29
 

 

imposed or levied by any
jurisdiction or any political subdivision thereof or taxing or other authority
therein unless Borrower is compelled by law to make such deduction or
withholding.  If any such obligation is
imposed upon Borrower with respect to any amount payable by it under any of the
Loan Documents, Borrower will pay to the Agent, for the account of the Lenders
or the Agent (as the case may be), on the date on which such amount is due and
payable under such Loan Document, such additional amount in Dollars as shall be
necessary to enable the Lenders or the Agent to receive the same net amount
which the Lenders or the Agent would have received on such due date had no such
obligation been imposed upon Borrower. 
The Borrower will deliver promptly to the Agent certificates or other
valid vouchers for all taxes or other charges deducted from or paid with respect
to payments made by Borrower hereunder or under such other Loan Document.

4.7           Additional
Costs, Etc.  Notwithstanding anything
herein to the contrary, if any present or future applicable law, or any
amendment or modification of present applicable law, which expression, as used
herein, includes statutes, rules and regulations thereunder and legally binding
interpretations thereof by any court or by any governmental or other regulatory
body or official with appropriate jurisdiction charged with the administration
or the interpretation thereof and requests, directives, instructions and
notices at any time or from time to time hereafter made upon or otherwise
issued to any Lender or the Agent by any central bank or other fiscal, monetary
or other authority (whether or not having the force of law), shall:

(a)           subject
any Lender or the Agent to any tax, levy, impost, duty, charge, fee, deduction
or withholding of any nature with respect to this Agreement, the other Loan
Documents, such Lender’s Commitment, or the Loans (other than taxes based upon
or measured by the income or profits of such Lender or the Agent);

(b)           materially
change the basis of taxation (except for changes in taxes on income or profits)
of payments to any Lender of the principal of or the interest on any Loans or
any other amounts payable to any Lender under the Loan Documents;

(c)           impose
or increase or render applicable any special deposit, reserve, assessment,
liquidity, capital adequacy or other similar requirements (whether or not
having the force of law) against any Loan; or

(d)           impose
on any Lender or the Agent any other conditions or requirements with respect to
this Agreement, the other Loan Documents, the Loans, such Lender’s Commitment
or the class of loans or commitments of which any of the Loans or such Lender’s
Commitment forms a part;

and the result of any of
the foregoing is (i) to increase the cost to any Lender of making, funding,
issuing, renewing, extending or maintaining any of the Loans or such Lender’s
Commitment, (ii) to reduce the amount of principal, interest or other amounts
payable to such Lender or the Agent hereunder on account of such Lender’s
Commitment or any of the Loans, or (iii) to require such Lender or the Agent to
make any payment or to forego any interest or other sum payable hereunder, the
amount of which payment or foregone interest or other sum is calculated by
reference to the gross amount of any sum receivable or deemed received by such
Lender or the Agent from Borrower hereunder, then, and in each such case, such
Lender shall deliver to

 30
 

 

Borrower thirty (30) days
prior written notice of such Lender’s intent to request payment pursuant to
this §4.7, and Borrower will, within thirty (30) days of demand made by such
Lender or (as the case may be) the Agent, pay to such Lender or the Agent such
additional amounts as such Lender or the Agent shall determine in good faith to
be sufficient to compensate such Lender or the Agent for such additional cost,
reduction, payment or foregone interest or other sum.  Each Lender and the Agent in determining such
amounts may use any reasonable averaging and attribution methods, generally
applied by such Lender or the Agent. 
Notwithstanding the foregoing, Borrower shall have the right, in lieu of
making the payment referred to in this §4.7, to prepay the Loan of the
applicable Lender within forty-five (45) days of such demand for payment and
avoid the payment of the amounts otherwise due under this §4.7, provided,
however, that Borrower shall be required to pay, together with such prepayment
of the Loan, all other costs, damages and expenses otherwise due under this
Agreement as a result of such prepayment.

4.8           Capital
Adequacy.  If after the date hereof
any Lender determines that (a) the adoption of or change in any law, rule,
regulation or guideline regarding capital requirements for banks or bank
holding companies or any change in the interpretation or application thereof by
any governmental authority charged with the administration thereof, or (b)
compliance by such Lender or its parent bank holding company with any
guideline, request or directive of any such entity regarding capital adequacy
or any amendment or change in interpretation of any existing guideline, request
or directive (whether or not having the force of law), has the effect of
reducing the return on such Lender’s or such holding company’s capital as a
consequence of such Lender’s commitment to make Loans hereunder to a level
below that which such Lender or holding company could have achieved but for
such adoption, change or compliance (taking into consideration such Lender’s or
such holding company’s then existing policies with respect to capital adequacy
and assuming the full utilization of such entity’s capital) by any amount
deemed by such Lender to be material, then such Lender may notify Borrower
thereof.  The Borrower agrees to pay to
such Lender the amount of such reduction in the return on capital as and when
such reduction is determined upon presentation by such Lender of a statement of
the amount setting forth the Lender’s calculation thereof.  In determining such amount, such Lender may
use any reasonable averaging and attribution methods.  Notwithstanding the foregoing, Borrower shall
have the right, in lieu of making the payment referred to in this §4.8, to
prepay the Loan of the applicable Lender within forty-five (45) days of such
demand for payment and avoid the payment of the amounts otherwise due under
this §4.8, provided, however, that Borrower shall be required to pay, together
with such prepayment of the Loan, all other costs, damages and expenses
otherwise due under this Agreement as a result of such prepayment.

4.9           Indemnity
by Borrower.  If, due to prepayments
made by Borrower or due to acceleration of the maturity date of any LIBOR Rate
Loans pursuant to the terms of this Agreement, or due to any other reason, the
Agent receives payments of principal on any LIBOR Rate Loans other than on the
last day of an Interest Period, Borrower shall, upon demand by the Agent, pay
to the Agent for the benefit of the applicable Lenders any amounts required to
compensate any such Lenders for any losses, costs or expenses which such
Lenders may reasonably and actually incur as a result of such prepayment,
including without limitation, any loss, costs or expenses incurred by reason of
liquidation or reemployment of deposits or

 31
 

 

other funds acquired by such Lenders to fund or
maintain their portion of the LIBOR Rate Loans. 
Such compensation shall include, without limitation, an amount
calculated as follows:

(a)           First,
the Agent shall determine in good faith the amount by which (i) the total
amount of interest which would have otherwise accrued hereunder on each
installment of principal so paid, during the period beginning on the date of
such payment and ending on the date such installment would have been due (the “Reemployment
Period”), exceeds (ii) the total amount of interest which would accrue
during the Reemployment Period, on a deposit in the interbank LIBOR borrowing
market in an amount equal (as nearly as may be) to the amount of principal so
paid and to have a maturity comparable to the Reemployment Period.  Each such amount is hereafter referred to as
an “Installment Amount”.

(b)           Second,
each Installment Amount shall be treated as payable as of the date on which the
related principal installment would have been payable by Borrower had such
principal installment not been prepaid.

(c)           Third,
the amount to be paid on each such date shall be the present value of the
Installment Amount determined by discounting the amount thereof from the date
on which such Installment Amount is to be treated as payable, at the same
annual interest rate as that payable upon the interbank LIBOR deposit
designated as aforesaid by the Agent.

(d)           Fourth,
no portion of the principal installments required pursuant to §5.5 shall be
considered prepayments of the principal of the LIBOR Rate Loans.

5.             COLLATERAL.  

5.1           Collateral.  The Obligations shall be secured by (i) a
perfected first priority lien or security title and security interest to be
held by the Agent for the benefit of the Lenders in all of the assets of Signal
Landmark, all pursuant to the terms of the Security Documents, (ii) the
Guarantees, (iii) the Other Collateral Documents, and (iv) such additional
collateral, if any, as the Agent for the benefit of the Lenders from time to
time may accept or require as security for the Obligations. Signal Landmark
shall, and or Borrower shall cause Signal Landmark to, grant a perfected first
priority security interest in all of the assets of Signal Landmark including
the Units, House Purchase Contracts and other agreements with respect to the
sale of any Unit including lot option agreements and all cash, letters of
credit or other deposits under any of the foregoing, and all Entitlements.

5.2           Appraisals.

(a)           Initial
Appraisal.  Agent has received and
approved that certain initial Appraisal report dated July 14, 2006 performed by
Cushman & Wakefield.

(b)           Subsequent
Appraisals.  The Agent may also
obtain additional Appraisals updating and revising prior Appraisals with
respect to the Project from time to time. Any such Appraisal shall be at the
cost of Borrower; provided that unless a Default or an Event of Default has
occurred Borrower shall not be required to pay for more than one Appraisal a
year.

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(c)           Appraisal
Variations.  The Borrower and each
Guarantor acknowledges that the Agent may make changes or adjustments to the
value set forth in any Appraisal as may be required by the appraisal department
of the Agent in the exercise of its good faith business judgment, and that the
Agent is not bound by the value set forth in any Appraisal performed pursuant
to this Agreement and does not make any representations or warranties with
respect to any such Appraisal.  The
Borrower further agrees that the Lenders shall have no liability as a result of
or in connection with any such Appraisal for statements contained in such
Appraisal, including without limitation, the accuracy and completeness of
information, estimates, conclusions and opinions contained in such Appraisal,
or variance of such Appraisal from the fair value of such property that is the
subject of such Appraisal given by the local tax assessor’s office, or Borrower’s
idea of the value of such property.

5.3           Project
Inspections.  The Agent, through the
Inspector or any other designee, may inspect the Project at its commercially
reasonable discretion during normal business hours to confirm compliance with
this Agreement.  The reasonable fees and
expenses of all such inspections shall be at the expense of Borrower, and the
Agent shall provide Borrower with a monthly invoice for such fees and
expenses.  Nothing contained herein,
however, shall operate to impose an inspection obligation on the Agent or to
create any representation or warranty by the Agent to Borrower or the Lenders
regarding the condition of the Project. 
At its sole cost and expense, any Lender may inspect the Project during
normal working hours and upon reasonable prior notice to Borrower.

5.4           Release
of Project Units.  Borrower may
request and Agent shall grant (so long as no Default or Event of Default has
occurred and is continuing or would occur as a result thereof) a release of any
Unit in the Borrowing Base from time to time subject to the following terms and
conditions:

(a)           Sales
Price. Such Unit is sold or conveyed pursuant to a bona fide arm’s length sale
or transaction in the ordinary course of Borrower’s business to a party that is
not an Affiliate of Borrower, with the sale price or contribution value of such
Unit being equal to the Fair Market Value;

(b)           Compliance
with Agreements. The purchaser of such Unit shall have complied with all the
material terms and conditions required to be performed by such purchaser under
its agreement with Borrower prior to the delivery of a deed for such Unit;

(c)           Delivery
of Proceeds.  Proceeds equal to the
Release Price shall be promptly delivered to the Agent in the manner required
under Section 5.5 or to such other Person as the Agent may from time to time
direct (to the extent that after giving effect to such release the Outstanding
would exceed the lesser of the Borrowing Base or the Total Commitment after
giving effect to any Required Commitment Reduction).  The proceeds equal to the Release Price shall
be divided sixty (60) percent to the Senior Term Loan and forty (40) percent to
the Loans and shall reduce the respective Commitments by the allocated amounts
thereto. The Agent shall deliver the proceeds in the amount equal to sixty
percent of the Release Price to the Agent of the Term Loan upon receipt. During
the pendency of a Monetary Event of Default or an Uncured Non-Monetary Event of
Default, all proceeds equal to the Release Price shall be retained by the

 33

 

Agent and applied in
accordance with this Agreement.  During
this period the lenders under the Senior Term Loan shall have no right to any
of the proceeds.  

(d)           Mechanics of Releases.  Signal Landmark shall prepare such deeds,
surveys, title insurance endorsements, proof of zoning and utility availability
and other requirements as the Agent may request in connection with any
release.  All of the foregoing shall be
at the sole cost of Signal Landmark.

(e)           Releases Without Release Price.  The requirements set forth above shall not
apply and the Agent or its duly authorized attorney-in-fact shall release any
Unit or other portion of the Project conveyed without consideration (i)
pursuant to a corrective deed, (ii) for use as greenbelt, (iii) to a Homeowners
Association in the normal course of business, (iv) for dedication of public
rights-of-way for roads or utilities or (v) in order to satisfy a requirement
of a governmental authority.  In addition
to the foregoing, the Agent shall in its commercially reasonable discretion
subordinate the Security Deeds and any liens imposed by the other Security
Documents to subdivision declarations, utility easements, and similar
instruments appropriate for the development of a Project.

5.5           Master Account.  To facilitate the release of Units and the
repayment of the Loans, the Agent may open a Master Account at the Agent’s Head
Office in the name of Signal Landmark. The Master Account shall be a
non-interest bearing account.

(a)           In the event any payment is required
pursuant to 5.4(c), at the beginning of each Business Day, Signal Landmark
shall wire transfer directly to the Master Account (or to such other account as
Agent may direct for application against the Obligations) the proceeds equal to
Release Price for each Unit sold.  Upon
the occurrence of a Default or Event of Default, all net proceeds of any sale
or conveyance of any Unit shall be paid directly to the Agent.

(b)           On a daily basis, the Agent shall
apply any funds received in accordance with §5.5(a) herein against the
Obligations in the following order:  (i)
first, to all costs or other amounts due and payable to the Agent and the
Lenders hereunder in the manner that the Agent and the Lenders in their
commercially reasonable discretion deem appropriate including the payment of
all legal fees and other costs of collection, default rate interest (if
applicable), (ii) second to any outstanding principal on the Prime Rate Loans,
and (ii) next to any outstanding principal on the LIBOR Rate Loans, provided
that, absent an acceleration of the Loans, no LIBOR Rate Loan shall be prepaid
hereunder prior to the end of its Interest Period.  The corresponding principal amount shall,
however, continue to bear interest until the amount in the Master Account is
applied against the Obligations.  

(c)           Signal Landmark hereby grants to the
Agent a perfected, first-in-priority security interest in and to all funds now
or at any time hereafter held on deposit in the Master Account to secure the
payment and performance of the Obligations, and the Agent shall have all rights
and remedies available to a secured party under the Uniform Commercial Code
with respect to such funds. 

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5.6                       Advance Account.  Upon the Effective Date, the Agent shall open
the Advance Account at the Agent’s Head Office in the name of Signal Landmark
to facilitate the funding of the Loans. 
The Advance Account shall be a non-interest bearing account.

(a)           Deposits of Loans to the Advance
Account.  The proceeds of all Loans shall
be deposited by the Agent to the Advance Account, and all Loans shall accrue
interest from the date of deposit in the Advance Account.  Provided no Default or Event of Default has
occurred and is continuing, Signal Landmark shall have access to all funds
contained in the Advance Account.  Upon
withdrawal of Loan proceeds from the Advance Account, Signal Landmark shall
disburse such Loan proceeds in the manner designated in the Loan Request.

(b)           Funds Following a Default or Event of
Default.  Upon the occurrence of an Event
of Default or upon the occurrence and during the continuance of a Default, the
Agent may terminate, and at the direction of the Majority Lenders shall
terminate, Borrower’s rights to access or direct the application of funds on
deposit in the Advance Account. 
Thereafter, the Agent shall either hold all or any portion of the funds
on deposit as security for the Obligations or apply all or any portion of such
funds in satisfaction of any part of the Obligations.

(c)           Security Interest.  Signal Landmark hereby grants to the Agent a
perfected, first-in-priority security interest in and to all funds now or at
any time hereafter held on deposit in the Advance Account to secure the payment
and performance of the Obligations, and the Agent shall have all rights and
remedies available to a secured party under the Uniform Commercial Code with
respect to such funds.

6.             REPRESENTATIONS AND WARRANTIES.

Each of Borrower
and the Guarantors hereby makes the following representations and warranties to
the Agent and the Lenders:  

6.1           Corporate Authority, Enforceability,
and Ownership.  

(a)           Organization; Good Standing.  Each of Borrower and each Guarantor are duly
incorporated or formed pursuant to its articles of incorporation or formation,
as the case may be, filed with the Secretary of State of Delaware or
California, respectively, and is validly existing and in good standing under
the laws of the State of California. Borrower and each Guarantor is qualified
to do business in each State where Borrower or such Guarantor is required to be
so qualified pursuant to the local laws thereof or where the failure to be
qualified could have a Material Adverse Effect on Borrower, the Guarantor or
the Project.  Each of Borrower and the
Guarantors (i) has all requisite power to own its respective properties and
conduct its respective business as now conducted and as presently contemplated,
and (ii) to the extent applicable, is in good standing as a foreign entity and
is duly authorized to do business in the jurisdictions where legally necessary
for the conduct of its business.

(b)           Authorization.  The execution, delivery and performance of
the Loan Documents to which Borrower or the Guarantors are or are to become a
party and the transactions contemplated hereby and thereby (i) are within the authority
of such Person, (ii) have been duly authorized by all necessary proceedings on
the part of such Person, (iii) do not and will not conflict with or result in
any breach or contravention of any provision of law,

 35
 

 

statute, rule or
regulation to which such Person is subject or any judgment, order, writ,
injunction, license or permit applicable to such Person, (iv) do not and will
not (whether with the passage of time or the giving of notice, or both)
conflict with or constitute a default under any provision of the articles of incorporation,
articles of organization, partnership agreement, declaration of trust or other
charter documents, bylaws or operating agreement of, or any agreement or other
instrument binding upon, such Person or any of its properties, and (v) do not
and will not result in or require the imposition of any lien or other
encumbrance on any of the properties, assets or rights of such Person, except
for the liens and security title granted by the Loan Documents.

(c)           Enforceability.  The execution and delivery of the Loan
Documents to which Borrower or the Guarantors are or are to become a party are
or will be, as the case may be, valid and legally binding obligations of such
Person enforceable in accordance with the respective terms and provisions
hereof and thereof, except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or other laws relating to or affecting
generally the enforcement of creditors’ rights.

(d)           Ownership.  The ownership of Borrower and each Subsidiary
and Joint Venture is as set forth on the organizational chart set forth as Exhibit
“F” hereto.

6.2           Default Under Organizational
Documents and Operating Agreements. 
No director, officer, member or shareholder of Borrower or Guarantor is
in default in the performance of any of its obligations under the respective
organizational documents of Borrower or Guarantor.

6.3           Subsidiaries and Joint Ventures.  Neither Borrower, Signal Holdings nor Signal
Landmark owns any Subsidiary or any interest in any other Person or in any
Joint Venture except as shown on Exhibit “C” attached hereto.

6.4           Governmental Approvals.  The execution, delivery and performance of
this Agreement and the other Loan Documents to which Borrower or the Guarantors
are or are to become a party and the transactions contemplated hereby and
thereby do not require the approval or consent of, or filing with, any
governmental agency or authority other than those already obtained and the
filing of the Security Documents in the appropriate records office.

6.5           Chief Executive Office.  The chief executive office of Borrower and
Signal Landmark is and shall be located at 6 Executive Circle, Suite 250,
Irvine, CA 92614. 

6.6           Fiscal Year.  The Borrower has a fiscal year ending
December 31 of each calendar year.

6.7           Transaction in Best Interests of
Borrower and Guarantors; Consideration. 
Borrower and Guarantors are engaged in a common enterprise and related
line of business with respect to the Project. The transaction evidenced by the
Loan Documents is in the best interests of Borrower, the Guarantors and the
creditors of such Persons.  The direct
and indirect benefits to inure to Borrower and the Guarantors pursuant to this
Agreement and the other Loan Documents constitute substantially more than “reasonably
equivalent value” (as such term is used in Section 548 of the Bankruptcy Code)
and “valuable consideration,” “fair value,” and

 36
 

 

“fair consideration” (as such terms are used in any
applicable state fraudulent conveyance law), in exchange for the Obligations of
Borrower and the Guarantors, and but for the willingness of the Guarantors to
execute and deliver the Guaranties, Borrower would be unable to obtain the
financing contemplated hereunder which financing will enable Borrower to have
available financing to conduct and expand its business.

6.8           No Fraudulent Intent.  Neither the execution and delivery of the
Loan Document nor the performance of any actions required hereunder or
thereunder is being undertaken by Borrower or any Guarantor with or as a result
of any actual intent by any of such Persons to hinder, delay or defraud any
entity to which any of such Persons is now or will hereafter become indebted.

6.9           Regulations U and X.  No portion of any Loan is to be used by
Borrower for the purpose of purchasing or carrying any “margin security” or “margin
stock” as such terms are used in Regulations U and X of the Board of Governors
of the Federal Reserve System, 12 C.F.R. Parts 221 and 224.

6.10         Investment Company Act.  Neither Borrower nor any of the Guarantors is
an “investment company,” or an “affiliated company” or a “principal underwriter”
of an “investment company,” as such terms are defined in the Investment Company
Act of 1940.

6.11         Reportable Transaction.  Neither Borrower, nor any Guarantor, any
non-Borrower trustor, nor any subsidiary of any of the foregoing intends to
treat the Loans or the transactions contemplated by this Agreement and the
other Loan Documents as being a “reportable transaction” (within the meaning of
Treasury Regulation Section 1.6011-4). If Borrower, or any other party to the
Loan Documents, determines to take any action inconsistent with such intention,
Borrower will promptly notify the Agent thereof.  If Borrower so notifies the Agent, Borrower
acknowledges that the Agent may treat the Loans as part of a transaction that
is subject to Treasury Regulation Section 301.6112-1, and the Agent will
maintain the lists and other records, including the identity of the applicable
party to the Loans as required by such Treasury Regulation.

6.12         Tax Status.  Each of Borrower and the Guarantors (a) has
made or filed all federal and state income and all other tax returns, reports
and declarations required by any jurisdiction to which it is subject, if
applicable or required, except to the extent such Person has obtained an
extension of the deadline to file such return, (b) has paid all taxes and other
private or governmental assessments and charges shown or determined to be due
on such returns, reports and declarations, if applicable or required, except those
being contested in good faith and by appropriate proceedings and (c) has set
aside on its books provisions reasonably adequate for the payment of all taxes
for periods subsequent to the periods to which such returns, reports or
declarations apply, if applicable or required. 
There are no unpaid taxes or assessments in any material amount claimed
to be due by the taxing authority of any jurisdiction or pursuant to any
private agreement except for those that are being contested as permitted in
this Agreement, and the members or officers of such Person know of no basis for
any such claim.

 37
 

 

6.13         Financial Statements.  The Borrower and each Guarantor has furnished
or has caused to be furnished to the Agent: 
(a) the Consolidated balance sheets of each Guarantor and Borrower as of
the dates designated therein certified by Borrower’s chief finance or
accounting officer and each Guarantor’s Chief Financial Officer as fairly
presenting the balance sheet of the respective entity for such period (b) the
Project Budget and financial statements with respect to the Project, and (c)
certain other financial information. 
Such balance sheets and statements have been prepared in accordance with
Generally Accepted Accounting Principles and fairly present the financial
condition of Borrower, the Guarantors, and the Project as of such dates and the
results of the operations of Borrower and each Guarantor for such periods.  There are no material liabilities, contingent
or otherwise, of Borrower not disclosed in the financial statements and the
related notes thereto.  All such business
plans accurately reflect Borrower’s reasonable anticipation of income and
expenses for the subject periods.  

6.14         Brokers.  The Borrower has not engaged or otherwise
dealt with any broker, finder or similar entity in connection with this
Agreement or the Loans contemplated hereunder.

6.15         No Material Changes.  Since the Balance Sheet Date, there has
occurred no material adverse change in the financial condition or business of
Borrower or Guarantors as shown on or reflected in the Consolidated balance
sheet of Borrower, other than changes in the ordinary course of business that
have not had any material adverse effect either individually or in the
aggregate on the business or financial condition of Borrower.  There has occurred no material adverse change
in the financial condition or business of the Project from the condition shown
on the statements delivered to the Agent other than changes in the ordinary
course of business that have not had any material adverse effect either
individually or in the aggregate on the business or financial condition of the
Project.

6.16         Solvency.  As of the Effective Date and after giving
affect to the transactions contemplated by the Loan Documents, including all of
the Loans made or to be made hereunder, neither Borrower nor the Guarantors is
insolvent on a balance sheet basis, the sum of each such Person’s assets
exceeds the sum of each such Person’s liabilities, each such Person is able to
pay its debts as they become due, and each such Person has sufficient capital
to carry on its business.

6.17         No Bankruptcy Filing.  Neither Borrower nor the Guarantor is
contemplating either the filing of a petition by it under any state or federal
bankruptcy or insolvency laws or the liquidation of its assets or properties,
and neither Borrower nor the Guarantor has any knowledge of any Person
contemplating the filing of any such petition against it or any of such other
Persons.

6.18         Other Indebtedness.  Neither the Borrower nor any Guarantor has
any Indebtedness not permitted by §8.1. 
All Indebtedness of Borrower and the Guarantors as of the Effective
Date, either jointly or severally, is shown on the balance sheet and other
financial information provided to the Agent and each Lender on or before the
Effective Date with respect to such entity. 
Of such entity, neither Borrower nor any Guarantor is in default (after
giving effect to applicable grace periods) in the payment of any Indebtedness
or the terms of any agreement, mortgage, deed of trust, security agreement, financing
agreement, indenture or

 38
 

 

other lease to which any of them is a party which
would have a material adverse effect on the business, assets or financial
condition of Borrower or the Guarantors. 
The Borrower is not a party to or bound by any agreement, instrument or
indenture that may require the subordination in right or time of payment of any
of the Obligations to any other Indebtedness or obligation of such Person.  The Borrower has provided to the Agent true,
correct and complete copies of all loan agreements, mortgage, deed of trust,
financing agreements or other material agreements binding upon Borrower, the
Guarantors or their respective properties and entered into by such Persons as
of the date of this Agreement with respect to any Indebtedness of such Person.

6.19         Litigation.  Except as disclosed in Schedule 6.19 there
are no actions, suits, proceedings or investigations of any kind pending or, to
the Borrower’s and the Guarantors’ knowledge and belief, threatened against
Borrower or any Guarantor before any court, tribunal or administrative agency
or board that, if adversely determined, might, either in any case or in the
aggregate, materially adversely affect the properties, assets, financial
condition or business of Borrower or the Guarantors or materially impair the
right of such Person to carry on business substantially as now conducted by it,
or result in any liability not adequately covered by insurance, or for which
adequate reserves are not maintained on the balance sheet of such Person, or
which might question the validity of any of the Loan Documents, any action
taken or to be taken pursuant hereto or thereto or any lien or security
interest created or intended to be created pursuant hereto or thereto, or which
will materially and adversely affect the ability of such Person to pay and
perform the Obligations in the manner contemplated by the Loan Documents.  There are no judgments outstanding against or
affecting Borrower, any Guarantor, or any of the Collateral which would
materially adversely affect the properties, assets, financial condition or
business of Borrower or the Guarantors.

6.20         Insurance.  The policies of insurance or certificates of
insurance furnished to the Agent with respect to the business and properties of
Borrower and each Guarantor, are in full force and effect, and no notice of
cancellation or non-renewal has been received with respect thereto.  Since the commencement of its business,
Borrower and its Guarantors have maintained commercially reasonable and
adequate amounts of insurance.

6.21         No Material Adverse Contracts.  Neither Borrower nor any Guarantor is a party
to any contract or agreement that has or is expected to have any material
adverse effect on the business of Borrower or the Guarantors.

6.22         No Material Adverse Restrictions.  Neither Borrower nor the Guarantors is
subject to any charter, corporate or other legal restriction, or any judgment,
decree, order, rule or regulation that has or is expected in the future to have
a material adverse effect on the business, assets or financial condition of
Borrower or the Guarantors.

6.23         Compliance with Other Instruments,
Laws, Etc.  To their knowledge and
belief, neither Borrower nor any Guarantor is in violation of any provision of
any agreement or instrument to which it may be subject or by which it or any of
its properties may be bound or any decree, order, judgment, statute, license,
rule or regulation, in any of the foregoing cases in a manner that could result
in the imposition of substantial penalties or materially and adversely affect
the financial condition, properties or business of Borrower or the Guarantors.

 39
 

 

6.24         Certain Transactions.  None of the members, officers, directors, or
employees of Borrower or Guarantor is a party to any transaction with Borrower
or any Guarantor (other than for services as members, employees, officers, and
directors), including any contract, agreement or other arrangement providing
for the furnishing of services to or by, providing for rental of real or
personal property to or from, or otherwise requiring payments to or from any
such member, officer, director or employee or, to the knowledge of Borrower,
any corporation, partnership, trust or other entity in which any such member,
officer, director, or any such employee has a substantial interest or is an
officer, director, trustee, member, or partner, unless such contract, agreement
or other arrangement is an arm’s-length arrangement with terms comparable to
those which would be obtained from an unaffiliated Person or as otherwise
approved by the Agent.

6.25         ERISA Compliance; Severance
Obligations.  

(a)           Each pension plan (as defined in
§3(2) of ERISA) established or assumed or maintained, or to which contributions
are made by Borrower or Guarantors or any member thereof or any Person which is
a member of the same controlled group, or under common control (within the
meaning of §414(b) or (c) of the Code or §4001(b)(l) of ERISA), with any of the
foregoing is referred to herein as a “Pension Plan.”  No Pension Plan is a multi-employer plan (as
defined in §4001(a)(3) of ERISA), and each Pension Plan is, and has at all
times been, in compliance in all material respects with the applicable
provisions of ERISA and the Code, including without limitation any minimum
funding requirements applicable with respect to such Pension Plan There have
been no reportable events within the meaning of §4043 of ERISA and the
regulations promulgated thereunder with respect to any Pension Plan.

(b)           Each welfare plan (as defined in
§3(1) of ERISA) established or assumed or maintained, or to which contributions
are made, by Borrower or the Guarantors or any member thereof is referred to
herein as a “Welfare Plan.”  No Welfare
Plan is a multi-employer plan, and each Welfare Plan is, and has at all times
been, in compliance in all material respects with the applicable provisions of
ERISA and the Code.  Neither Borrower nor
any Guarantor has any liability for post-retirement benefits provided or to be
provided to employees under any Welfare Plan, except to make available
continuous coverage as and to the extent required by the provisions regarding
employee benefit plans set forth in §4980(B) of the Code.

(c)           Except for the Pension Plans and the
Welfare Plans, neither Borrower nor any Guarantor has established or assumed or
maintains or makes any contributions to any employee benefit plan (as defined
in §3(3) of ERISA) except a Management Cash Incentive Bonus Plan, the details
of which have been disclosed in writing (in Borrower’s 2006 proxy statement) to
the Agent prior to the Effective Date. 
There is no material unfulfilled obligation on the part of Borrower or
the Guarantors to make any contribution with respect to either the Pension
Plans or the Welfare Plans.

(d)           The execution and delivery of the
Loan Documents and the consummation of the transactions contemplated hereby and
thereby will not involve any prohibited transaction within the meaning of
ERISA.

 40
 

 

(e)           Except as disclosed in writing (in
their respective financial statements) to the Agent and the Lenders prior to
the Effective Date, neither Borrower nor the Guarantors has any obligation to
make severance payments materially adversely affecting the properties, assets,
financial condition or business of Borrower or the Guarantors or provide
post-employment benefits materially adversely affecting the properties, assets,
financial condition or business of Borrower or the Guarantors pursuant to any
contract or other arrangement with any of its employees, officers or directors,
excluding the Pension Plans and Welfare Plans.

6.26         Franchises, Patents, Copyrights,
Etc..  The Borrower and each
Guarantor possesses all franchises, patents, copyrights, trademarks, trade
names and servicemarks and all licenses, permits, and rights in respect of the
foregoing, adequate for the conduct of their business substantially as now
conducted without known violation of any rights of others, except where a
failure to possess such rights could not have a material adverse effect on the
business, assets or financial condition of Borrower or such Guarantor.

6.27         Title to Properties.  Other than that certain un-entitled and
unimproved five (5) acre parcel adjacent to the Project, Signal Landmark does
not own any other project nor has it entered in to any agreements to acquire
additional real property other than with respect to the Project. The Borrower
and each of the Guarantors owns all of its assets reflected in the Consolidated
balance sheet of Borrower, as of the Balance Sheet Date or acquired since that
date (except property and assets sold or otherwise disposed of in the ordinary
course of business since that date), subject to no rights of others, including
any mortgage, leases, conditional sales agreements, title retention agreements,
liens or other encumbrances, except for Permitted Liens and the rights of third
parties under existing Housing Purchase Contracts.  Without limiting the foregoing, Borrower and
each Guarantor, as applicable, has good and marketable fee simple title to all
real property reasonably necessary for the operation of its business, and the
Project free from all liens or encumbrances of any nature whatsoever, except
for Permitted Liens.  Signal Landmark is
the insured under a policy for owner’s title insurance covering the Project in an
amount not less than the purchase price of the Project paid by Signal Landmark.

6.28         Absence of UCC Financing Statements,
Etc.  There is no financing
statement, security agreement, chattel mortgage, real estate mortgage or other
document filed or recorded with any filing records, registry, or other public
office, that purports to cover, affect or give notice of any present or
possible future lien on, or security interest or security title in, any
property of Borrower or any Guarantor or rights thereunder (excluding any such
items in favor of the Agent).

6.29         Property Status and Condition.  Except as disclosed to the Agent and the
Lenders in writing, there are no unpaid or outstanding real estate or other
taxes or assessments on or against the Project (except only real estate or
other taxes or assessments, that are not yet delinquent or are being protested
as permitted by this Agreement).  Except
as disclosed to the Agent and the Lenders in writing, there are no pending
eminent domain proceedings against the Project or any part thereof, and, to the
knowledge of Borrower or Guarantor, no such proceedings are presently
threatened or contemplated by any taking authority with respect to the
Project.  The Project is not damaged as a
result of any fire, explosion, accident, flood or other casualty in any manner.

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6.30         Options to Acquire; Restrictions on
Development.  Except in connection
with Housing Purchase Contracts, the Project is not subject to any right of
first refusal, right of first offer or other options to purchase.  Other than standard and customary development
agreements affecting the Project, the Project is not subject to any material
agreement restricting or limiting its development.

6.31         Restrictions.  Borrower and each Guarantor is familiar with
all restrictions that affect the Project and the construction of the
improvements thereon and the contemplated use thereof.  Borrower and each Guarantor, as applicable,
has obtained, or will be able to obtain, all permits, approvals, consents and
other authorizations necessary under such restrictions for such construction
and use, and such construction and use will comply with any restrictions.  Neither Borrower nor any Guarantor has
received any written notification that there is any violation nor to Borrower’s
or such Guarantor’s knowledge is there an asserted violation of any
restrictions concerning the Project or the existing or contemplated use
thereof.

6.32         Compliance of Project with Law.  The location, construction, occupancy,
development, operation and use of the Project comply in all material respects
with the terms of all applicable regional impact plans and reports, all
applicable restrictive covenants and deed restrictions, zoning and subdivision
ordinances, building codes, Environmental Laws, and other applicable laws,
statutes, ordinances, rules, regulations, orders or determinations of any
governmental authority.  Subject to
completion of infrastructure improvements and the issuance of final maps and
building permits, all Entitlements are Vested and Borrower or each Guarantor,
as applicable has obtained all necessary licenses, authorizations,
registrations, permits and/or approvals necessary for the use and operation of
the Project or any part thereof in accordance with all applicable laws.  Without limiting the foregoing, Borrower and
each Guarantor hereby warrants and represents to the Agent and the Lenders as
follows:

(a)           The Project is zoned to allow the
development, construction and occupancy of Homes.  No action is pending to change or modify any
zoning applicable to the Project, and the zoning rights are Vested; and

(b)           Other than the final maps and
building permits, all permits necessary for the use and operation of the
Project as currently developed are Vested and either run with and benefit the
land or are freely assignable to the Agent, and Borrower has taken (or has
caused to be taken) all required actions necessary to perfect a
first-in-priority security interest in such permits so that upon the succession
to ownership of the Project by the Agent, the Agent or its designee shall have
full ownership and the right to use the permits without payment of additional
fees, charges, or impositions other than currently required to be paid by
Borrower or a Guarantor, as applicable.

6.33         Environmental Compliance.  The Borrower and the Guarantors make the
following representations and warranties.

(a)           No Violations.  To the knowledge and belief of Borrower and
the Guarantors, neither Borrower, nor the Guarantors, the operators of the
Project, or any operations thereon are in violation, or alleged violation, of
any Environmental Law.

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(b)           No Notice of Liability.  Except as may be disclosed on Schedule
6.33(b) attached hereto, neither Borrower nor the Guarantors has received
notice from any third party including, without limitation, any federal, state
or local governmental authority, (i) that it has been identified as a
potentially responsible party under CERCLA with respect to a site listed on the
National Priorities List, 40 C.F.R. Part 300 Appendix B (1986); (ii) that any
Hazardous Material has been released or is threatened to be released at, on,
under or from the Project, or (iii) that any claim, action, cause of action,
complaint, or legal or administrative proceeding is pending or threatened
against Borrower or any Guarantor arising out of any third party’s incurrence
of costs, expenses, losses or damages of any kind whatsoever in connection with
any Environmental Law or any Release or threatened Release. 

(c)           No Releases.  With respect to the Project, to the knowledge
and belief of Borrower and the Guarantors and except as otherwise disclosed in
those certain environmental reports set forth in Schedule 6.33(c), (i)
no portion of the Project has been used as a landfill or for dumping or for the
handling, processing, storage or disposal of Hazardous Materials except in the
ordinary course of business and in accordance and in full compliance with all
Environmental Laws, and no underground tank or other underground storage
receptacle for Hazardous Materials is located on any portion of the Project;
(ii) in the course of any activities conducted by Borrower, the Guarantors or
the operators of any of their properties, no Hazardous Materials have been
generated or are being used on the Project except in the ordinary course of
business and in accordance with all Environmental Laws; (iii) there has been no
past or present or threatened Release on, upon, into or from the Project other
than de minimis quantities not in violation of Environmental Laws; (iv) to the
Borrower’s knowledge, there have been no Releases on, upon, from or into any
real property in the vicinity of any of the Project which, through soil or
groundwater contamination, may have come to be located on, and which would have
a material adverse effect on the value of, the Project; and (v) any Hazardous
Materials that have been generated by Borrower has been transported off site
only by approved licensed carriers of Hazardous Materials and treated or
disposed of only by treatment or disposal facilities maintaining valid permits
as required under all applicable Environmental Laws, which transporters and
facilities have been and are, to the Borrower’s knowledge, operating in
compliance with such permits and applicable Environmental Laws.

(d)           No Required Action.  Neither Borrower nor Guarantors have received
any written notification that and to the knowledge of Borrower and Guarantors,
neither Borrower, the Guarantors, the Project or the other Collateral is
subject to any applicable Environmental Law requiring the performance of site
assessments or the removal or remediation of Hazardous Materials, or the giving
of notice to any governmental agency or the recording or delivery to other
Persons of an environmental disclosure document or statement by virtue of the
transactions set forth herein and contemplated hereby, or as a condition to the
recording of the Security Deeds or any Security Document or to the
effectiveness of any other transactions contemplated hereby or thereby.

6.34         Loan Documents.  All of the representations and warranties
made by or on behalf of Borrower and the Guarantors in the Loan Documents or
any document or instrument delivered to the Agent or the Lenders pursuant to or
in connection with any of such Loan Documents are true and correct in all
material respects, and none of such Persons has failed to disclose such
information as is necessary to make such representations and warranties not

 43
 

 

misleading in any material respect.  There is no material fact or circumstance
known to Borrower or Guarantors that would have a material adverse effect on
their ability to perform their respective obligations under the Loan Documents
that has not been disclosed to the Agent and the Lenders, and the written
information, reports and other papers and data with respect to Borrower, the
Guarantors, the Project and the other Collateral (other than projections and
estimates) furnished to the Agent or the Lenders in connection with this
Agreement or the obtaining of the commitments of the Lenders hereunder were, at
the time so furnished and when considered as a whole, complete and correct in
all material respects, or have been subsequently supplemented by other
information, reports or other papers or data, to the extent necessary to give
in all material respects a true and accurate knowledge of the subject matter in
all material respects.

6.35         No Default or Event of Default.  No Default or Event of Default has occurred
and is continuing hereunder.

7.             AFFIRMATIVE COVENANTS OF THE BORROWER AND GUARANTORS.  

The Borrower and
the Guarantors covenant and agree as follows, so long as any Loan or Note is
outstanding or any Lender has any obligation to make any Loans:

7.1           Punctual Payment.  The Borrower will duly and punctually pay or
cause to be paid the principal and interest on the Loans and all interest, fees
and other amounts provided for in this Agreement, all in accordance with the
terms of this Agreement and the Notes as well as all other amounts owing
pursuant to the other Loan Documents.  

7.2           Maintenance of Office.  The Borrower will maintain its chief executive
office at the address set forth in §6.5.

7.3           Existence.  Borrower and each Guarantor will do or cause
to be done all things necessary to preserve and keep in full force and effect
its legal existence as a corporation or limited liability company in its state
of incorporation or formation, as applicable, and all of its material rights
and licenses.  The Borrower and the
Guarantors will continue to engage primarily in the businesses now conducted by
them and in related businesses.

7.4           Subsidiaries and Joint Ventures.  Borrower shall not create or form any Joint
Venture other than as set forth on Exhibit “C” attached hereto and as
permitted pursuant to §8.3 herein. 
Signal Holdings shall not create or form any Subsidiary or any Joint
Venture except for Signal Landmark. Signal Landmark shall not create or form
any Subsidiary or Joint Venture. 

7.5           Records and Accounts.  Borrower and each Guarantor will keep (a)
true and accurate records and books of account in which full, true and correct
entries will be made in accordance with Generally Accepted Accounting
Principles and (b) adequate accounts and reserves for all taxes (including
income taxes), depreciation and amortization of its properties, contingencies
and other reserves.  The Borrower shall
not, without the prior written consent of the Majority Lenders, which shall not
be unreasonably withheld, make any material change to the accounting procedures
used by such Person in preparing the financial statements and other information
described in §7.6 or change Borrower’s fiscal year.

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7.6           Financial Statements, Certificates
and Information.  The Borrower and
each Guarantor will deliver to the Agent (and the Agent will thereafter deliver
to the Lenders within a reasonable time) the following information on a
consolidated and consolidating basis:

(a)           As soon as practicable, but in any
event not later than ninety (90) days after the end of each fiscal year of
Borrower, the audited balance sheet of Borrower, on a combined and individual
basis with respect to each, together with the audited balance sheet, at the end
of such year, and the related individual audited statements of income, changes
in capital and cash flows for such year for Borrower, each setting forth in
comparative form the figures for the previous fiscal year and all such
statements to be in reasonable detail, prepared in accordance with Generally
Accepted Accounting Principles, and accompanied by an auditor’s report prepared
without qualification by an accounting firm reasonably acceptable to the Agent,
and any other information the Agent may reasonably require to complete a
financial analysis of Borrower and the Guarantors, together with a
certification by the principal financial or accounting officer of Borrower and
the chief financial officer of each such other entity that the information
contained in such financial statements fairly presents the financial position
of Borrower and the Guarantors on the date thereof, and together with a written
statement from the reviewing accountants to the effect that they have read a
copy of this Agreement, and that, in making the examination necessary to said
certification, they have obtained no knowledge of any Default or Event of
Default, or, if such accountants shall have obtained knowledge of any then
existing Default or Event of Default they shall disclose in such statement any
such Default or Event of Default;

(b)           As soon as practicable, but in any
event not later than forty five (45) days after the end of each Fiscal Quarter
of Borrower and Signal Landmark, the balance sheet of Borrower and Signal
Landmark, on an aggregated and individual basis, and the related Consolidated
statements of income, changes in capital and cash flows for the portion of the
fiscal year then elapsed on an aggregated and individual basis, all prepared in
accordance with Generally Accepted Accounting Principles, and showing any
variations for such quarter from the initial Project Budget, which information
shall be provided in the form of the balance sheet and statements previously
provided to the Agent, together with a certification by the principal financial
or accounting officer of each reporting entity that the information contained
in such financial statements fairly presents the financial position of such
entity on the date thereof (subject to year end adjustments).  The statements delivered at the end of the
fiscal year of Borrower shall be audited in accordance with subsection (a)
above;

(c)           Contemporaneously with the delivery
of the financial statements referred to in clause (a) and (b) above, a
statement of all contingent liabilities of Borrower, Signal Landmark and Signal
Holdings which are not reflected in such financial statements or referred to in
the notes thereto (including, without limitation, all guarantees, endorsements
and other contingent obligations in respect of indebtedness of others, and
obligations to reimburse the issuer in respect of any letters of credit);

(d)           Not later than forty-five (45) days
after the end of each month, except ninety (90) days after year-end, a
statement (a “Compliance Certificate”) certified by the chief executive
officer, chief financial officer, principal finance or accounting officer of
Borrower and Signal Landmark in the form of Exhibit “D” hereto evidencing
compliance with the applicable

 45
 

 

Financial Covenants, and
(if applicable) reconciliations to reflect changes in Generally Accepted
Accounting Principles since the Balance Sheet Date, and further certifying that
such officer has caused this Agreement to be reviewed and has no knowledge of
any Default or Event of Default in the performance or observance of any of the
provisions hereof during such Fiscal Quarter or at the end of such year, or, if
such officer has such knowledge, specifying each Default or Event of Default
and the nature thereof;

(e)           Simultaneously with the delivery of
the Compliance Certificate, the Borrowing Base Report in the form of Exhibit
“E” hereto calculating the Borrowing Base (including the detailed
calculation of the Borrowing Base Value) in such reasonable detail as Agent may
request.  In addition, at the request of
the Agent, Signal Landmark shall submit to the Agent invoices, work orders and
other documentation reasonably satisfactory to the Agent supporting the
calculation of the costs included in the Borrowing Base;

(f)            Not later than the seven (7) days
following the end of each month during the term of this Agreement (or on the
next Business Day as applicable), for review by the Agent only, a monthly sales
report reflecting the sale of any Borrowing Base Assets and a schedule of Homes
Under Contract, together with pricing and anticipated closing dates;

(g)           Contemporaneously with the delivery
of such information to Borrower, copies of all investment reports, investment
summaries, appraisals or other information relating to the Project;

(h)           Copies of all annual federal income
tax returns and amendments thereto of Borrower and the Guarantors;

(i)            Not later than the end of each
fiscal year, the Project Budget for the Project.  The Project Budget shall be in form reasonably
satisfactory to the Agent and shall contain such other information as the Agent
may request;

(j)            Simultaneously with the delivery of
the financial statements referred to in subsection (b) above, a statement of
all Distributions made by Borrower and the Guarantors and showing the flow of
such; and

(k)           From time to time such other
financial data and information in the possession of Borrower and the Guarantors
(including without limitation auditors’ management letters, market comparable
studies, property inspection and environmental reports and information as to
zoning and other legal and regulatory changes affecting Borrower and the
Guarantors) as the Agent may reasonably request.

7.7           Inspection of Project and Books.  The Borrower and the Guarantors shall permit
the Lenders, through the Agent, the Inspector or any representative designated
by the Agent, upon reasonable advance written notice to Borrower, to visit and
inspect the Project, any of the other properties of Borrower, to examine the
books of account of Borrower and the Guarantors, as such books relate to the
Project (and to make copies thereof and extracts therefrom) and to discuss the
affairs, finances and accounts of Borrower with, and to be advised as to the
same

 46
 

 

by, its officers, all at such reasonable times and
intervals during normal business hours as the Agent or any Lender may
reasonably request.

7.8           Insurance.  

(a)           Required Coverage.  The Borrower and Signal Landmark will, at its
expense, procure and maintain for the benefit of the Agent and the Lenders,
insurance policies for the Project issued by reputable insurance companies or
associations in such amounts and covering such risks as are usually carried by
companies engaged in the same or a similar line of business and similarly
situated, which insurance may provide for reasonable deductibility from
coverage thereof.  The Borrower or Signal
Landmark, as the case may be, shall pay all premiums on insurance policies.  As customary or appropriate in the
commercially reasonable discretion of the Agent, the insurance policies shall
either (i) name the Agent and each Lender as an additional insured and contain
a cross liability/severability endorsement or (ii) name the Agent as mortgagee
and loss payee, be first payable in case of loss to the Agent, and contain
mortgagee clauses and lender’s loss payable endorsements in form and substance
acceptable to the Agent.  The Borrower
shall deliver (or shall cause Signal Landmark to deliver) duplicate originals
or certified copies of all such policies to the Agent, and Borrower shall
promptly furnish to the Agent all renewal notices and evidence that all
premiums or portions thereof then due and payable have been paid.  At least 10 days prior to the expiration date
of the policies, Borrower shall deliver to the Agent evidence of continued
coverage, including a certificate of insurance, as may be satisfactory to the
Agent.

(b)           Clauses and Endorsements.  All policies of insurance required by this
Agreement shall contain clauses or endorsements to the effect that (i) no act
or omission of Borrower or anyone acting for such Person (including, without
limitation, any representations made in the procurement of such insurance),
which might otherwise result in a forfeiture of such insurance or any part
thereof, no occupancy or use of the Project for purposes more hazardous then
permitted by the terms of the policy, and no foreclosure or any other change in
title to the Project or any part thereof, shall affect the validity or
enforceability of such insurance insofar as the Agent is concerned, (ii) the
insurer waives any right of setoff, counterclaim, subrogation, or any deduction
in respect of any liability of any such Person and the Agent, (iii) such
insurance is primary and without right of contribution from any other insurance
which may be available, (iv) such policies shall not be modified, canceled or
terminated prior to the scheduled expiration date thereof without the insurer
thereunder giving at least thirty (30) days prior written notice to the Agent
by United States mail, and (v) that the Agent or the Lenders shall not be
liable for any premiums thereon or subject to any assessments thereunder, and
shall in all events be in amounts sufficient to avoid any coinsurance
liability.

(c)           Blanket Policy.  The insurance required by this Agreement may
be effected through a blanket policy or policies covering additional locations
and property of Borrower and other Persons, provided that such blanket policy
or policies comply with all of the terms and provisions of this §7.8 (excluding
products and completed operations coverage).

(d)           Required Rating.  All policies of insurance required by this
Agreement shall be issued by companies authorized to do business in the State
where the policy is issued

 47
 

 

and also in the states
where the Project of the insured Borrower is located and having a rating in
Best’s Key Rating Guide of at least “A” and a financial size category of at
least “X”.

(e)           Concurrent Insurance.  Borrower shall not carry separate insurance,
concurrent in kind or form or contributing in the event of loss, with any
insurance required under this Agreement unless such insurance complies with the
terms and provisions of this §7.8.

(f)            Insurance Proceeds.  In the event of any loss or damage to the
Project or any Home, Borrower shall give prompt written notice to the insurance
carrier and the Agent, and the Agent shall furnish a copy of such notice
promptly to each of the Lenders.  The Borrower
hereby irrevocably authorizes and empowers the Agent, at the Agent’s option and
in the Agent’s sole but commercially reasonable discretion, as attorney in fact
for Borrower, to make proof of such loss, to adjust and compromise any claim
under insurance policies, to appear in and prosecute any action arising from
such insurance policies, to collect and receive insurance proceeds, and to
deduct therefrom the Agent’s expenses incurred in the collection of such
proceeds; provided, however, that so long as no Default or Event of Default has
occurred and is continuing and so long as Borrower shall in good faith
diligently pursue such claim, Borrower may make proof of loss and appear in any
proceedings or negotiations with respect to the adjustment of such claim,
except that Borrower may not settle, adjust or compromise any such claim
without the prior written consent of the Agent, which consent shall not be
unreasonably withheld; provided, further, that Borrower may make proof of loss
and adjust and compromise any claim under casualty insurance policies which is
of an amount less than $1,000,000.00 so long as no Default or Event of Default
has occurred and is continuing and so long as Borrower shall in good faith
diligently pursue such claim.  The
Borrower further authorizes the Agent, at the Agent’s option, to (i) apply the
balance of such proceeds to the payment of the Obligations whether or not then
due, or (ii) if the Agent shall require the reconstruction or repair of the
Project, to hold the balance of such proceeds as trustee to be used to pay
taxes, charges, sewer use fees, water rates and assessments which may be
imposed on the Project and the Obligations as they become due during the course
of reconstruction or repair of the Project and to reimburse Borrower, in
accordance with such terms and conditions as the Agent may prescribe, for the
costs of reconstruction or repair of the Project, and upon completion of such
reconstruction or repair to apply any excess to the payment of the
Obligations.  Notwithstanding the
foregoing, the Agent shall make such net proceeds available to Borrower to
reconstruct and repair the Project, in accordance with such terms and
conditions as the Agent may reasonably prescribe in the Agent’s commercially
reasonable discretion for the disbursement of the proceeds, provided that (i)
no Default or Event of Default shall have occurred and be continuing (provided
that such condition shall be deemed satisfied if Borrower shall cure such
Default prior to the expiration of any applicable grace or notice and cure
period), (ii) Borrower shall have provided to the Agent additional cash
security in an amount equal to the amount reasonably estimated by the Agent to
be the amount in excess of such proceeds which will be required to complete
such repair or restoration, (iii)  the Agent
shall have approved the plans and specifications, construction budget,
construction contracts, and construction schedule for such repair or
restoration and reasonably determined that the repaired or restored Project
will provide the Agent with adequate security for the Obligations, (iv) the
Agent shall determine that such repair or reconstruction can be completed prior
to the Maturity Date, (v) the Agent receives evidence reasonably satisfactory
to it that any such restoration, repair or rebuilding complies in all material
respects with any and all applicable state, federal and local laws, ordinances
and regulations, including without limitation,

 48
 

 

zoning laws, ordinances
and regulations, and that all required permits, licenses and approvals relative
thereto have been issued, and (vi) the Agent receives evidence reasonably
satisfactory to it that the insurer under such policies of fire or other
casualty insurance does not assert any defense to payment under such policies
against Borrower or the Agent.  In the
event such proceeds are to be used to restore or repair the Project, the Agent
shall hold such proceeds in an interest bearing account.  Any excess insurance proceeds shall be paid
to Borrower, or if an Event of Default has occurred and is continuing, such
proceeds shall be applied to the payment of the Obligations, unless in either
case by the terms of the applicable insurance policy the excess proceeds are
required to be returned to such insurer. 
In no event shall the provisions of this §7.8 be construed to extend the
Maturity Date or to limit in any way any right or remedy of the Agent upon the
occurrence of an Event of Default hereunder. 
If the Project is acquired by the Agent, all right, title and interest of
Borrower in and to any insurance policies and unearned premiums thereon and in
and to the proceeds thereof resulting from loss or damage to the Project prior
to the acquisition shall pass to the Agent.

(g)           Subcontractor Insurance.  The Borrower will require its subcontractors
to obtain and maintain insurance at all times during the construction of any
improvements to the Project.  The
insurance required by the subcontractor’s contract shall be subject to approval
by the Agent and such other insurance as may be reasonably required by the
Agent (including, without limitation, commercial general liability insurance,
comprehensive automobile liability insurance, all-risk contractor’s equipment
floater insurance, workmen’s compensation insurance and employer liability
insurance).  The Borrower will use its
commercially reasonable efforts to cause its architects, engineers and any
other design professionals providing design or engineering services in
connection with the construction of any improvements to the Project to obtain
and maintain professional liability insurance covering any claims asserted with
respect to the Project for a period of not less than one (1) year after the
date of completion of such improvements, or if not commercially available, for
such period of time as the Agent may reasonably approve. 

(h)           Other Insurance.  The Borrower will, at its expense, procure
and maintain insurance covering such Persons and the Project other than the
Project in such amounts and against such risks and casualties as are customary
for properties of similar character and location, due regard being given to the
type of improvements thereon, their construction, location, use and occupancy,
excluding earthquake and subsidence insurance.

7.9           Condemnation.  If the Project or any portion thereof shall
be damaged or taken through condemnation (which term, when used in this
Agreement, shall include any damage or taking by any governmental authority,
quasi-governmental authority, any party having the power of condemnation, or
any transfer by private sale in lieu thereof), either temporarily or
permanently, then Borrower, promptly upon obtaining knowledge of the
institution of any proceeding therefore, shall notify the Agent of the pendency
of such proceeding.  The Borrower authorizes
the Agent, at the Agent’s option (but in no event shall the Agent be obligated
to), as attorney in fact for Borrower, to commence, appear in and prosecute, in
the Agent’s or Borrower’s name, any action or proceeding relating to any
condemnation or other taking of the Project and to settle or compromise any
claim in connection with such condemnation or other taking; provided, however,
that so long as no Default or Event of Default has occurred and is continuing
and so long as Borrower shall in good faith diligently pursue such claim, Borrower
may make proof of loss and appear in any proceedings or

 49
 

 

negotiations with respect to the settlement of such
claim, except that Borrower may not settle, adjust or compromise any such claim
without the prior written consent of the Agent, which consent shall not be
unreasonably withheld; provided, further, that Borrower may make proof of loss
and adjust and compromise any claim which is of an amount less than
$1,000,000.00 so long as no Default or Event of Default has occurred and is
continuing and so long as Borrower shall in good faith diligently pursue such
claim.  The proceeds of any award or
claim for damages, direct or consequential, in connection with any
condemnation, or other taking of the Project, or part thereof, or for
conveyances in lieu of condemnation, are hereby assigned and shall be paid to
the Agent.  The Borrower authorizes the
Agent to apply such awards, proceeds or damages, after the deduction of the
Agent’s expenses incurred in the collection of such amounts, at the Agent’s
option, to restoration or repair of the Project or to payment of the
Obligations, whether or not then due (and in such order as the Agent may
determine), with the balance, if any, to Borrower.  Notwithstanding anything in this §7.9 to the
contrary, the Agent shall make the net condemnation award available to Borrower
to restore and repair the Project, provided that (a) no Default or Event of
Default shall have occurred and be continuing, (b) Borrower shall have provided
to the Agent additional cash security in an amount equal to the amount
reasonably estimated by the Agent to be the amount in excess of such award
which would be required to complete such repair or restoration, (c) the Agent
shall determine that such repair or reconstruction can be completed prior to
the Maturity Date, (d) the Agent shall have determined that the Project can be
restored to the same value, utility and substantially similar condition
existing immediately prior to such taking, (e) the plans and specifications,
construction budget, construction contracts and construction schedule for any
such repair, rebuilding or restoration are furnished to the Agent in form and
substance satisfactory to the Agent and are approved by the Agent, and (f) the
Agent receives evidence satisfactory to it that any such restoration, repair or
rebuilding complies in all material respects with any and all applicable state,
federal and local laws, ordinances and regulations, including without
limitation, zoning laws, ordinances and regulations, and that all required permits,
licenses and approvals relative thereto have been issued and remain in full
force and effect.  Any excess
condemnation award shall be applied to the payment of the Obligations.  Borrower agrees to execute such further
assignment of any awards, proceeds, damages or claims arising in connection
with such condemnation or injury that the Agent may reasonably require.

7.10         Business Operations.  The Borrower and each Guarantor shall operate
its respective business generally in substantially the same manner as has been
previously conducted, and Borrower shall not materially change the nature of
such business or engage in any other unrelated businesses or activities except
for the following: (a) acquire unimproved or partially improved Land for use in
the construction of Homes; (b) engage in land enhancement activities for the
purpose of developing Homes or Lots with regard to the Project; (c) engage in
such other activities ancillary to the other purposes and businesses as set
forth in this §7.10; (d) subject to any restrictions contained elsewhere in
this Agreement, hire, train, employ and contract with such Persons as may be
reasonably necessary to conduct such business as set forth herein; (e) acquire
unimproved land for sale or to hold such property for the purpose of future
development of Homes or as otherwise allowed under §8.9; (g) investigate and
perform due diligence with respect to potential Project; (h) engage in such
other activities as are reasonably incidental with respect to the purposes and
businesses as set forth in this §7.10. 
The Borrower and each Guarantor shall further operate their respective
businesses in compliance with the terms and conditions of the Loan
Documents.  In addition and

 50
 

 

notwithstanding anything to the contrary set forth
above in this §7.10, (i) Borrower and each Guarantor as applicable shall
develop each Project in a manner and using materials such that the quality and
character of such Project is reasonably consistent with prior projects
developed and constructed by Borrower or Guarantor, and (ii) Borrower shall
develop each Project in accordance with each applicable Project Budget for the
Project.

7.11         Use of Proceeds.  Signal Landmark will use the proceeds of the
Loans solely to finance the development and construction of the Project as
shown in the Project Budget and for such other incidental costs incurred in
connection therewith as contemplated by the Loan Documents.

7.12         Compliance with Laws, Contracts,
Licenses, and Permits.  Each of
Borrower and the Guarantors will comply with all material agreements and
instruments to which it is a party or by which it or any of its properties may
be bound.  Each of Borrower and the
Guarantors will comply in all material respects with (i) all applicable laws
and regulations now or hereafter in effect wherever its business is conducted,
including all Environmental Laws and including the PATRIOT Act (including the
submission to Agent of all reasonably requested certificates and documentation
evidencing such compliance), (ii) all applicable decrees, orders, and
judgments, (iii) any requirement to obtain any permit or license in the lawful
conduct of its business, the development of the Project and the sale of the
Homes and (iv) all licenses and permits required by applicable laws and regulations
for the conduct of its business or the ownership, use or operation of its
properties.  If at any time while any
Loan, Note is Outstanding or the Lenders have any obligation to make Loans
hereunder, any authorization, consent, approval, permit or license from any
officer, agency or instrumentality of any government shall become necessary or
required in order that Borrower or any Guarantor may fulfill any of its
obligations hereunder, Borrower or such Guarantor will immediately take or
cause to be taken all steps necessary to obtain such authorization, consent,
approval, permit or license and furnish the Agent with evidence thereof.

7.13         Taxes.  The Borrower will duly pay and discharge, or
cause to be paid and discharged, before the same shall become overdue, all
taxes, assessments and other private or governmental charges imposed upon it
and upon the Project, sales and activities, or any part thereof, or upon the
income or profits therefrom, as well as all claims for labor, materials, or
supplies that if unpaid might by law become a lien or charge upon any of its
property; provided that any such tax, assessment, charge, levy or claim need
not be paid if the validity or amount thereof shall currently be contested in
good faith by appropriate proceedings and if Borrower shall have set aside on
its books reasonably adequate reserves with respect thereto; and provided,
further, that forthwith upon the commencement of proceedings to foreclose any
lien that may have attached as security therefore, Borrower either (i) will
provide a bond issued by a surety reasonably acceptable to the Agent and
sufficient to stay all such proceedings or (ii) if no such bond is provided,
will pay each such tax, assessment, charge, levy or claim, under protest or
otherwise.

7.14         Plan Assets, Etc.  The Borrower will do, or cause to be done,
all things necessary to ensure that its underlying assets will not be deemed to
be “plan assets” within the meaning of the regulations promulgated under ERISA
at 29 C.F.R. 2510.3-101 (the “Plan Asset Regulations”).  The Borrower shall conduct their affairs so
as to constitute either a “real

 51
 

 

estate operating company” or a “venture capital
operating company” within the meaning of the Plan Asset Regulations.

7.15         Notices.  

(a)           Defaults.  Upon discovery thereof, Borrower and each
Guarantor will promptly notify the Agent in writing of the occurrence of any
Default or Event of Default.  If any
Person shall give any notice or take any other action in respect of a claimed
default (whether or not constituting an Event of Default) under this Agreement
or under or with respect to any other Indebtedness, and such default would
permit the obligee for such Indebtedness to accelerate the maturity thereof,
such Person shall forthwith give written notice thereof to the Agent,
describing the notice or action and the nature of the claimed default.

(b)           Environmental Events.  The Borrower and each Guarantor will promptly
give notice to the Agent (i) upon Borrower or any Guarantor obtaining knowledge
of any potential or known Release, or threat of Release, at or from the Project
other than de minimis quantities not in violation of any Environmental Law;
(ii) of any violation of any Environmental Law that Borrower or any Guarantor
reports in writing or is reportable by such Person in writing to any federal,
state or local environmental agency and (iii) upon becoming aware thereof, of
any inquiry, proceeding, investigation, or other enforcement action under any
environmental lien with respect to the Project.

(c)           Notification of Claims Against
Collateral.  The Borrower and each
Guarantor will, promptly upon becoming aware thereof, notify the Agent in
writing of any setoff, claims (including, with respect to the Project,
environmental claims), withholdings or other defenses to which the Project, or
the rights of the Agent or the Lenders with respect to the Collateral, are
subject.

(d)           Notice of Litigation and Judgments.  The Borrower and each Guarantor will give
notice to the Agent in writing within thirty (30) days of becoming aware of any
litigation or proceedings threatened in writing or any pending litigation and
proceedings affecting Borrower or any Guarantor or to which any of such Persons
is or is to become a party involving an uninsured claim against any of such
Persons and stating the nature and status of such litigation or
proceedings.  The Borrower and each
Guarantor will give notice to the Agent, in writing, in form and detail
satisfactory to the Agent and each of the Lenders, within ten (10) business
days of any judgment, whether final or otherwise, against Borrower in an amount
in excess of Five Hundred Thousand and No/100ths Dollars ($500,000.00).

(e)           Notice of Material Adverse Effect.  The Borrower and each Guarantor will give
notice to the Agent in writing within ten (10) Business Days of becoming aware
of the occurrence of any event or circumstance which might have a material
adverse effect on the business, assets or financial condition of Borrower or
any Guarantor.

(f)            Notice of Casualty of
Condemnation.  The Borrower and each
Guarantor will give notice to the Agent in writing within ten (10) Business
Days of becoming aware of any casualty to or condemnation of all or any portion
of the Project having a value in excess of $500,000.00

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7.16                     More Restrictive
Agreements and Modification to Senior Term Loan Documents.  Without limiting the terms of §8.1, should
Borrower or any Guarantor enter into or modify any agreements or documents
pertaining to any existing or future Indebtedness, which agreements or
documents include covenants (whether affirmative, negative or financial in
nature) which are individually or in the aggregate materially more restrictive
against Borrower or Guarantor than those set forth in §8 or §9, Borrower shall
promptly notify the Agent and the Agent and the Lenders may promptly amend the
Loan Documents to include some or all of such more restrictive provisions as
determined by the Agent in its commercially reasonable discretion.
Notwithstanding the foregoing, Borrower shall not modify any provision of the
Senior Term Loan Documents governing subordination of the Senior Term Loan to
the Obligations outstanding hereunder without the prior written consent of the
Lenders.

7.17         Guaranties.  Guarantors shall execute and deliver and
continuously comply with all terms and conditions of the Guaranties.

7.18         Trade Name.  The Borrower and each Guarantor shall
diligently take and pursue all commercially reasonable actions to obtain and
maintain appropriate trade names, trademarks, and service marks required for
the operation of the Project.  In the
event that Borrower should ever change its name or trade name, Borrower shall
take such actions as may be reasonably required by the Agent to continue the
perfection of any security interest held by the Agent in and to the Collateral,
all at the sole cost and expense of Borrower.

7.19         Interest Reserve.  Borrower shall maintain with Agent the
Interest Reserve and fund any deficiencies arising with respect thereto
(including without limitation any deficiency on account of the change in the
Prime Rate or as a result of any application by Agent) on each Interest Payment
Date and in any event no later than five (5) Business Days after notice from
Agent as to such deficiency. Nothing set forth in this § 7.19 shall be deemed
to limit or impair Borrower’s obligation to pay interest and all other amounts
due hereunder as and when such amounts become due.  Agent may in its commercially reasonable
discretion disburse funds from the Interest Reserve in payment of Interest Cost
and when so advanced by Agent such advance shall be deemed proceeds of the Loan
advanced under this Agreement, whether or not advanced to Borrower, and shall
thereafter bear interest at a per annum rate equal to the Prime Rate plus the
Applicable Margin for Prime Rate Loans. Borrower hereby grants to the Agent on
behalf of the Lenders a perfected, first-in-priority security interest in and
to all funds now or at any time hereafter held on deposit in the Interest
Reserve Account to secure the payment and performance of the Obligations, and
the Agent shall have all rights and remedies available to a secured party under
the Uniform Commercial Code with respect to such funds. 

7.20         Further Assurances.  The Borrower and the Guarantors will
cooperate with the Agent and the Lenders and execute such further instruments
and documents as the Lenders or the Agent shall reasonably request to carry out
to their satisfaction the transactions contemplated by this Agreement and the
other Loan Documents.

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8.             CERTAIN NEGATIVE COVENANTS OF THE BORROWER AND
GUARANTORS.

8.1           Restrictions on Indebtedness.  Subject to the further restrictions of §9,
neither Borrower nor the Guarantors will create, incur, assume, guarantee or be
or remain liable, contingently or otherwise, with respect to any Indebtedness
other than:

(a)           Indebtedness to the Lenders and the
Agent arising under any of the Loan Documents;

(b)           current liabilities of such Persons
incurred in the ordinary course of business but not incurred through (i) the
borrowing of money or (ii) the obtaining of credit except for credit on an open
account basis customarily extended and in fact extended in connection with
normal purchases of goods and services;

(c)           Indebtedness in respect of taxes,
assessments, governmental charges or levies and claims for labor, materials and
supplies to the extent that payment therefore shall not at the time be required
to be made in accordance with the provisions of §7.12;

(d)           Indebtedness in respect of judgments
or awards that have been in force for less than the applicable period for
taking an appeal so long as execution is not levied thereunder or in respect of
which such Person shall at the time in good faith be prosecuting an appeal or
proceedings for review and in respect of which a stay of execution shall have
been obtained pending such appeal or review;

(e)           endorsements for collection, deposit
or negotiation and warranties of products or services, in each case incurred in
the ordinary course of business; 

(f)            Indebtedness of Borrower and
Guarantors with respect to Bonding Obligations (less the aggregate value of
completed work); 

(g)           Indebtedness in respect of the Senior
Term Loan;

(h)           Indebtedness of any Subsidiary or
Joint Venture with respect to Other Projects (but excluding any Indebtedness of
Signal Landmark or Signal Holdings).  

8.2           Restrictions on Liens, Etc.  Neither Borrower nor the Guarantor will (a)
create or incur or suffer to be created or incurred or to exist any lien,
encumbrance, mortgage, pledge, negative pledge, charge, restriction or other
security interest of any kind upon any of its property or assets of any
character whether now owned or hereafter acquired, or upon the income or
profits therefrom, provided that Borrower shall have the right to contest
assessments or bond off liens as long as such actions do not jeopardize the
Collateral and, in the case of tax assessments, Borrower posts additional cash
collateral as the Agent may request and in the case of liens, such bonds are
posted to completely remove the lien within thirty days of the filing of the
lien; (b) transfer any of its property or assets or the income or profits
therefrom for the purpose of subjecting the same to the payment of Indebtedness
or performance of any other obligation in priority to payment of its general
creditors; (c) acquire, or agree or have an option to acquire, any property or
assets upon conditional sale or other title retention or purchase money
security agreement, device or arrangement; (d) suffer to exist any Indebtedness
or claim

 54

 

or demand against it that
if unpaid might by law or upon bankruptcy or insolvency, or otherwise, be given
any priority whatsoever over its general creditors; (e) sell, assign, transfer,
pledge or otherwise encumber any accounts, contract rights, general intangibles,
chattel paper or instruments, with or without recourse; or (f) incur or
maintain any obligation to any holder of Indebtedness of any such Persons which
prohibits the creation or maintenance of any lien securing the Obligations;
provided that such Persons may create or incur or suffer to be created or
incurred or to exist:

(i)                           liens
on properties to secure (A) taxes, assessments and other governmental charges
not overdue or (B) claims for labor, material or supplies in respect of
obligations not overdue;

(ii)                        nonmonetary
encumbrances on properties (including the Collateral) consisting of easements,
rights of way, zoning restrictions, mineral rights reservations, restrictions
on the use of real property, landlord’s or lessor’s liens under leases to which
such Person is a party, and other minor non-monetary liens or encumbrances none
of which interferes materially with the use, marketability or development of
the property affected in the ordinary conduct of the business of such Person,
which encumbrances or liens do not individually or in the aggregate have a
materially adverse effect on the business of any such Person individually or of
Borrower on a consolidated basis;

(iii)                     liens
in favor of the Agent for the benefit of the Lenders under the Loan Documents; 

(iv)                    liens
and encumbrances incurred in connection with the Senior Term Loan; and

(v)                       liens
and encumbrances incurred in connection with Indebtedness permitted by section
8.1(h) provided no such encumbrance or lien shall affect any membership or stock
interest of any Subsidiary.

8.3                                 Restrictions
on Investments.  The Borrower and the
Guarantors will not make or permit to exist or to remain outstanding any
Investment except Investments in:

(a)                                  marketable
direct or guaranteed obligations of the United States of America that mature
within one (1) year from the date of purchase by such Person;

(b)                                 marketable
direct obligations of any of the following: Federal Home Loan Mortgage
Corporation, Student Loan Marketing Association, Federal Home Loan Lenders, Federal
National Mortgage Association, Government National Mortgage Association, Lender
for Cooperatives, Federal Intermediate Credit Lenders, Federal Financing
Lenders, Export-Import Lender of the United States, Federal Land Lenders, or
any other agency or instrumentality of the United States of America;

(c)                                  demand
deposits, certificates of deposit, bankers acceptances and time deposits of
United States banks having total assets in excess of $100,000,000.00; provided,
however, that the aggregate amount at any time so invested with any single bank
having total assets of less than $1,000,000,000.00 will not exceed $200,000.00;

 55
 

 

(d)                                 securities
commonly known as “commercial paper” issued by a corporation organized and
existing under the laws of the United States of America or any State which at
the time of purchase are rated by Moody’s Investors Service, Inc.  or by Standard & Poor’s Corporation at
not less than “P 1” if then rated by Moody’s Investors Service, Inc., and not
less than “A 1”, if then rated by Standard & Poor’s Corporation;

(e)                                  mortgage-backed
securities guaranteed by the Government National Mortgage Association, the
Federal National Mortgage Association or the Federal Home Loan Mortgage
Corporation and other mortgage-backed bonds which at the time of purchase are
rated by Moody’s Investors Service, Inc. 
or by Standard & Poor’s Corporation at not less than “AA” if then
rated by Moody’s Investors Service, Inc. 
and not less than “AA” if then rated by Standard & Poor’s
Corporation; 

(f)                                    shares
of so-called “money market funds” registered with the SEC under the Investment
Company Act of 1940 which maintain a level per-share value, invest principally
in investments described in the foregoing subsections (a) through (f) and have
total assets in excess of $50,000,000.00; 

(g)                                 Borrower
may invest in such Subsidiaries or Joint Ventures as described on Exhibit “C”
and so long as no Default or Event or Default exists Borrower may invest in
such other Subsidiaries or Joint Ventures as may be formed from time to time
including Investments in the form of capital contributions and the amount of
any future required capital contributions to existing or new Joint Ventures,
provided that any Investment in any such Joint Venture individually or in the
aggregate may not exceed fifteen percent (15%) of the Borrower’s Tangible Net
Worth and such Investments in a Subsidiary or Joint Venture shall be consistent
with the Borrower’s customary line of business; 

(h)                                 Borrower
may repurchase in the open market, or otherwise, any amount of its outstanding
shares of common stock, from time to time, as it may determine in its
commercially reasonable discretion; and

(i)                                     Borrower
may invest in auction rate securities. Auction rate securities are long-term
municipal bonds and preferred stock with interest rates that reset periodically
through an auction process, which occurs in 7, 28, 35, or 90-day periods.

8.4                                 Distributions

(a)                                  Borrower
Distributions.  The Borrower shall
not pay any Distribution except as permitted as follows: so long as (i) no
Default or Event of Default shall have occurred and be continuing or a Default
or Event of Default would occur as a result thereof (including without
limitation any Default or Event of Default under the Senior Term Loan
Documents), and (ii) Borrower maintains sufficient funds equal to an amount
necessary to complete the Project and fund the Project Costs and all other
capital needs.

(b)                                 Signal
Landmark Distributions.  Signal
Landmark shall not make any Distributions, prior to the closing and release of
seventy-five (75) Units.  Signal Landmark
may during this period, however, make Distributions to the Borrower for the
payment of required payments hereunder and with respect to the Senior Term Loan
and to pay the tax obligations of 

 56
 

 

Signal
Landmark. The conditions set forth below in (i) and (iv) shall apply to the
foregoing Distributions.  Thereafter, Signal
Landmark shall not pay any Distribution except as permitted as follows: Signal
Landmark and Signal Landmark Holdings may distribute (directly or indirectly as
the case may be) to Borrower, proceeds from closing so long as (i) no Default
or Event of Default shall have occurred and be continuing or a Default or Event
of Default would occur as a result thereof (including without limitation any
Default or Event of Default under the Senior Term Loan Documents), (ii) Signal
Landmark maintains liquidity (cash on hand and or availability under this
facility) equal to the greater of (x) $20,000,000; or (y) sufficient funds
equal to an amount necessary to complete the land development at the Project
and maintain twelve (12) months of budgeted operating costs (including without
limitation interest costs and Signal Landmark overhead); (iii)  no mandatory prepayments are due and payable
or would be due and payable after the payment of the Distribution; and (iv)
Borrower is in compliance with all covenants contained herein.

8.5                                 Asset
Sales.  Neither Borrower nor any
Guarantor shall sell, transfer or otherwise dispose of any asset other than in
the ordinary course of business, and with respect to the Project only as
allowed pursuant to §5.5.

8.6                                 Merger,
Consolidation.  Neither Borrower nor
any Guarantor may become a party to any merger, consolidation or other business
combination, or agree to effect any asset acquisition, stock acquisition or
other acquisition.

8.7                                 Change
of Control and Transfers.  Neither
Borrower nor the Guarantors shall consent to or otherwise permit a Change of
Control.

8.8                                 Unrelated
Business.  Neither Borrower nor any
Guarantor may engage, directly or indirectly, in any activities except as
described in §7.10.  Without limiting the
generality of the foregoing, the following activities shall not be directly
engaged in or undertaken in whole or in part by Borrower or any Guarantor: (a)
acquiring, owning, operating or managing rental housing or apartments; (b)
acquiring, constructing, owning, operating or managing office, hotel, retail,
industrial, mixed-use or other income-producing facilities or acquiring or
holding any debt secured by the same, or (c) acquiring unimproved land for any
of the purposes described in clauses (a) or (b) of this sentence except with
respect to Hearthside Homes Oxnard LLC’s ongoing development of its project
near Oxnard, California as described in Borrower’s financial statements.
Notwithstanding the foregoing prohibitions, Borrower and Signal Landmark may
acquire and hold for resale Land that is intended for commercial development,
mitigation or other similar purposes; provided that (i) such Land is adjacent
to or within Land otherwise acquired by Borrower in compliance with this
Agreement, (ii) such Land is not a substantial portion of the Land then
acquired, and (iii)  Borrower does not
develop such Land, other than as done in connection with a Project.

8.9                                 Operations.
 (a) Signal Landmark and Signal Holdings
shall not engage in any business activities other than those in connection with
the development, build out and sale of the Project; and (b) Borrower shall not
engage in any business activities other than as currently conducted and
customary in its line of business.

 57
 

 

8.10                           Sale
and Leaseback.  Signal Landmark will
not enter into any arrangement, directly or indirectly, whereby such Person
shall sell or transfer the Project in order that then or thereafter such Person
shall lease back such Land, except in connection with Model Homes.

8.11                           Transactions
with Affiliates and Officers. 
Neither Borrower nor any Guarantor will:

(a)                                  enter
into any transaction, including without limitation, the purchase, sale or
exchange of property or the rendering of any services, with any Affiliate or
any officer or director thereof, or enter into, assume or suffer to exist any
employment or consulting contract with any Affiliate or an officer or director
thereof, except any transaction or contract which is in the ordinary course of
such Person’s business and which is upon fair and reasonable terms no less
favorable to such Person than it could obtain in a comparable arm’s length
transaction with a Person not an Affiliate;

(b)                                 make
any advance or loan to any Affiliate or any director or officer thereof or to
any trust of which any of the foregoing is a beneficiary, or guarantee any such
loan to any such Person; or

(c)                                  pay
any fees or expenses to, or reimburse or assume any obligation for the reimbursement
of any expenses incurred by, any Affiliate or any officer or director thereof
except for any fees or expenses incurred in the ordinary course of business,
through indemnification provisions, or in connection with any transaction or
contract allowed under §8.11(a).

8.12                           Compliance
with Environmental Laws.

(a)                                  Neither
Borrower, Signal Landmark nor any of its Affiliates will do any of the
following:  (i) use any of the Project or
any portion thereof as a facility for the handling, processing, storage or
disposal of Hazardous Materials, except for small quantities of Hazardous
Materials used in the ordinary course of business and in compliance with all
applicable Environmental Laws, (ii) cause or permit to be located on any of the
Project any underground tank or other underground storage receptacle for
Hazardous Materials, (iii) generate any Hazardous Materials on any of the
Project except in full compliance with Environmental Laws, (iv) conduct any
activity at the Project or use the Project in any manner so as to cause a
Release or a threat of a Release of Hazardous Materials on, upon or into the
Project or any surrounding properties, except for de minimis quantities, (v)
directly or indirectly transport or arrange for the transport of any Hazardous
Materials except in compliance with all Environmental Laws, or (vi) conduct any
of its activities or any development of the Project in a manner that violates
any Environmental Law.

(b)                                 The
Borrower and the Guarantors shall:

(i)                           In
the event of any change in Environmental Laws governing the assessment, Release
or removal of Hazardous Materials, which change would lead a prudent lender to
require additional testing to avail itself of any statutory insurance or
limited liability, take all action (including, without limitation, the
conducting of engineering tests at the sole 

 58
 

 

expense
of Borrower) to confirm that no Hazardous Materials are or ever were released
or disposed on the Project; and

(ii)                        If
any Release or disposal of Hazardous Materials shall occur or shall have
occurred on the Project (including without limitation any such Release or
disposal occurring prior to the acquisition or occupation of the Project),
other than de minimis quantities not in violation of Environmental Laws, cause
the prompt containment and removal of such Hazardous Materials and remediation
of the Project in full compliance with all applicable laws and regulations and
to the reasonable satisfaction of the Agent; provided, that Borrower and the
Guarantors shall be deemed to be in compliance with Environmental Laws for the
purpose of this clause (ii) so long as it or a responsible third party with
sufficient financial resources is taking reasonable action to remediate or
manage any event of noncompliance to the reasonable satisfaction of the Agent
and no action shall have been commenced by any enforcement agency.  The Agent may engage its own environmental
engineer to review the environmental assessments and Borrower’s and the
Guarantors’ compliance with the covenants contained herein.

(c)                                  At
any time after an Event of Default shall have occurred hereunder, or, whether
or not an Event of Default shall have occurred, at any time that the Agent
shall have reasonable grounds to believe that a Release or threatened Release
may have occurred relating to the Project other than de minimis quantities not
in violation of Environmental Laws, or that the Project is not in compliance
with Environmental Laws, the Agent may at its election obtain such
environmental assessments of the Project prepared by an Environmental Engineer
as may be necessary or advisable for the purpose of evaluating or confirming
(i) whether any Hazardous Materials are present in the soil or water at or
adjacent to the Project and (ii) whether the use and operation of the Project comply
with all Environmental Laws. 
Environmental assessments may include detailed visual inspections of the
Project including, without limitation, any and all storage areas, storage
tanks, drains, dry wells and leaching areas, and the taking of soil samples, as
well as such other investigations or analyses as are necessary or appropriate
for a complete determination of the compliance of the Project and the use and
operation thereof with all applicable Environmental Laws.  All such environmental assessments shall be
at the sole cost and expense of Borrower.

(d)                                 The
Agent may, but shall never be obligated to remove or cause the removal of any
Hazardous Materials from the Project (or if removal is prohibited by any
Environmental Law, take or cause the taking of such other action as is required
by any Environmental Law or otherwise required by the Agent) if Borrower or any
Guarantor fails to comply with its obligation hereunder with respect thereto
(without limitation of the Agent’s rights to declare a Default or Event of
Default under any of the Loan Documents and to exercise all rights and remedies
available by reason thereof); and the Agent and its designees are hereby
granted access to the Project at any time or times, upon reasonable notice, and
a license which is coupled with an interest and irrevocable, to remove or cause
such removal or to take or cause the taking of any such other action.  All costs, including, without limitation, the
costs incurred by the Agent in taking the foregoing action, damages, liabilities,
losses, claims, expenses (including attorneys’ fees and disbursements) which
are incurred by the Agent as the result of Borrower’s or Guarantor’s failure to
comply with the provisions of this §8.14, shall be paid by Borrower to the
Agent upon demand by the Agent and shall be additional obligations secured by
the Security Documents.

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8.13                           ERISA
Compliance.  Except for the Welfare
Plans in effect on the Effective Date, Borrower will not, without giving prior
notice to the Agent, establish, assume, maintain or contribute to any employee
benefit plan (as that term is defined in §3(3) of ERISA).  Borrower will not permit any Pension Plan or
Welfare Plan to (a) engage in a “prohibited transaction” as such term is
defined in §4975 of the Code which would result in a liability for it; (b)
incur any “accumulated funding deficiency”, as such term is defined in §302 of
ERISA, whether or not waived; or (c) be terminated in a manner which would
result in the imposition of a lien or encumbrance on its assets pursuant to
§4068 of ERISA.

8.14                           Compliance
with Budget.  At no time shall the
Project Costs exceed fifteen percent (15%) of the anticipated Project Costs as
specified in the approved Project Budget (as may be updated and approved by each
Lender). This covenant shall be tested as of the end of each Fiscal Quarter.  In making such assessment, cost overruns
shall not include Home upgrades and other similar revenue enhancing
expenditures made at Borrower’s reasonable discretion.  An Event of Default shall not occur for the
Borrower’s lack of compliance with this §8.14 if the cost overrun is paid by
the Borrower or Signal Landmark pays such amount from its own internally
generated cash flow, each within thirty (30) days of the occurrence of the
non-compliance.

8.15                           Spec
Homes.  There shall be no more than
thirty two (32) Spec Homes in the Project at any one time; provided that for
purposes of this §8.16 Spec Homes shall not include Homes meeting the
classification for inclusion as Model Homes herein. At no time shall there
exist more than 40 Housing Purchase Contracts that contain a contingency for
the sale of a purchaser’s existing home.

8.16                           Model
Homes.  There shall be no more than
eighteen (18) Model Homes in the Project at any one time. 

8.17                           Home
Sales.  Signal Landmark shall
commence home sales (i.e. enter into Housing Purchase Contracts which comply
with the terms of this Agreement) no later than December 31, 2007  and the sales price for each Unit shall not be
reduced by more than 15% of the projected sales price for such Unit as specified
in the approved Project Budget.  

9.                                       FINANCIAL
COVENANTS.

So
long as any Obligation is outstanding or any Lender has any obligation to make
any Loans or the Agent, Borrower and Guarantors shall at all times comply with
the following financial covenants: 

9.1                                 Leverage
Ratio.  The Borrower shall not, at
the end of any Fiscal Quarter, permit the Leverage Ratio to exceed the
following amounts: 2.75: 1.00 prior to March 31, 2008; 2.50:1 on or after March
31, 2008 until June 30, 2008 and thereafter 2.25:1 at all times.

9.2                                 Tangible
Net Worth.  The Consolidated Tangible
Net Worth for any Fiscal Quarter shall not be less than the sum of (i)
$100,000,000, plus (ii) an amount equal to 100% of any net equity proceeds
during such Fiscal Quarter, plus (iii) twenty-five percent (25%) of Borrower’s
Net Income as of each fiscal quarter Test Date, as earned subsequent to
December 31, 2006; provided that this Consolidated Tangible Net Worth
requirement shall not require 

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Borrower to maintain a Tangible
Net Worth at any given time in excess of an amount equal to (A) $125,000,000
million plus (B) the amount set forth in clause (ii) above.

9.3                                 Project
Loan Indebtedness to Project Value.  Signal
Landmark shall at all times maintain a Project Loan Indebtedness to Value Ratio
of less than 50%. 

10.                                 CLOSING
CONDITIONS.

The
obligations of the Agent and the Lenders to make the initial Loans shall be
subject to the satisfaction of the following conditions precedent on or prior
to the Effective Date.

10.1                           Loan
Documents.  Each of the Loan
Documents shall have been duly executed and delivered by the respective parties
thereto, shall be in full force and effect and shall be in form and substance
satisfactory to the Agent and no Default or Event of Default shall exist.  The Agent shall have received a fully
executed counterpart of each such document, except that any Lender, upon its
request, shall have received the fully executed original of its Note or Notes.

10.2                           Certificates
of Existence.  The Agent shall have received
from Borrower and each Guarantor a copy, certified as of a recent date by the
appropriate officer of each State in which such Person is organized, a
certificate confirming that Borrower and each Guarantor is duly existing (and,
if available, in good standing) in such State.

10.3                           Certified
Organization Documents.  The Agent
shall have received copies, certified as true, correct, and complete by an
individual acceptable to the Agent, of all Articles of Incorporation, Bylaws,
Articles of Organization, Operating Agreements, and other formation documents,
and any and all amendments thereto, of Borrower and the Guarantors.

10.4                           Board
of Director’s Resolutions.  The Agent
shall have received written evidence in form satisfactory to the Agent that all
action on the part of Borrower and the Guarantors necessary for the valid
execution, delivery and performance by such Persons of this Agreement and the
other Loan Documents to which such Person is or is to become a party shall have
been duly and effectively taken.  Without
limiting the generality of the foregoing, the Agent shall have received from
such Persons, as applicable, copies, certified as true, correct and complete by
an individual acceptable to the Agent, of their respective resolutions adopted
by their respective boards of directors.

10.5                           Incumbency
Certificate; Authorized Signers.  The
Agent shall have received from Borrower and the Guarantors an incumbency
certificate, dated as of the Effective Date, signed by an Authorized Officer of
each such Person, as applicable, and giving the name and bearing a specimen
signature of each individual who shall be authorized to sign, in the name and
on behalf of such person, each of the Loan Documents to which such Person is or
is to become a party.  The Agent shall
have also received from Borrower a certificate, dated as of the Effective Date,
signed by an Authorized Officer of Borrower and giving the name and specimen
signature of each individual who shall be authorized to make Loan Requests and
give notices and to take other action on behalf of Borrower under the Loan
Documents.

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10.6                           Opinion
of Counsel.  The Agent shall have
received a favorable opinion addressed to the Agent and the Lenders and dated
as of the Effective Date, in form and substance reasonably satisfactory to the
Agent, from outside counsel of Borrower and the Guarantors, as to such matters
as the Agent shall reasonably request including the enforceability of the Loan
Documents.

10.7                           Payment
of Fees.  The Borrower shall have
paid to the Agent all fees required by the Fee and Expense Letter, which shall
be withheld from Loan proceeds on the Effective Date.

10.8                           Insurance.  The Agent shall have received certificates
evidencing that the Agent and the Lenders are named as additional insured on
all policies of insurance as required by this Agreement and the other Loan
Documents.

10.9                           Performance;
No Default.  The Borrower and the
Guarantors shall have performed and complied with all terms and conditions
herein required to be performed or complied with by them on or prior to the
Effective Date, and on the Effective Date there shall exist no Default or Event
of Default.

10.10                     Representations
and Warranties.  The representations
and warranties made by Borrower and the Guarantors in the Loan Documents or
otherwise made by or on behalf of such Persons in connection therewith or after
the date thereof shall have been true and correct in all material respects when
made and shall also be true and correct in all material respects on the
Effective Date.

10.11                     Proceedings
and Documents.  All proceedings in
connection with the transactions contemplated by the Loan Documents shall be
reasonably satisfactory to the Agent in form and substance, and the Agent shall
have received all information and such counterpart originals or certified
copies of such documents and such other certificates, opinions or documents as
the Agent may reasonably require.  No
proceeding challenging or seeking to enjoin any of the transactions
contemplated by the Loan Documents shall be pending or shall have been
threatened.

10.12                     Project
Qualification Documents.  The Project
Qualification Documents and Security Documents and Title Policies as required
by the Agent with respect to the Project as of the Effective Date shall have
been delivered to and re-approved by the Agent at Borrower’s expense.

10.13                     Compliance
Certificate.  The Agent shall have
received a Compliance Certificate dated as of the date of the Effective Date
demonstrating compliance with each of the covenants calculated therein.

10.14                     Borrowing
Base Report.  The Agent shall have
received a Borrowing Base Report dated as of the Effective Date calculating the
Borrowing Base.

10.15                     Other
Documents.  To the extent requested
by the Agent, the Agent shall have received executed copies of all material
agreements of any nature whatsoever to which 

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Borrower or the
Guarantors are a party affecting or relating to the use, operation,
development, construction or management of the Project.

10.16                     No
Condemnation/Taking.  The Agent shall
have received written confirmation from Borrower that no condemnation
proceedings are pending or to Borrower’s knowledge threatened against the
Project or, if any such proceedings are pending or threatened, identifying the
same and the Project affected thereby and the Agent shall have determined that
none of such proceedings is or will be material to the Project affected
thereby.

10.17                     Senior
Term Loan Closing and Subordinated Lender Purchase Option Provisions.  All conditions precedent to the closing of the
Senior Term Loan shall have been satisfied or waived by the agent thereunder
and each of the Senior Term Loan Documents shall have been duly executed and
delivered by the respective parties thereto, shall be in full force and effect
and shall be in form and substance satisfactory to the Agent (including without
limitation provisions governing self-subordination and such inter-creditor
arrangements as Agent may require) and no default or event of default shall
exist thereunder.  In addition, the Agent
and the Senior Term Loan lenders (the (“Term Loan Lenders”) shall have entered
into an Acknowledgment and Purchase Agreement, whereby the Term Loan Lenders
shall have acknowledged their subordination to the Obligations herein and
whereby Agent shall have granted such Term Loan Lenders the right to purchase
such Obligations upon the occurrence of a Default or Event of Default
hereunder.

10.18                     Interest
Reserve.  Borrower shall have funded
to Agent’s account at Administrative Agent’s Head Office the Interest Reserve,
which shall be withheld from Loan proceeds on the Effective Date and deposited
in the Interest Reserve Account. 

10.19                     Other.  The Agent shall have reviewed such other
documents, instruments, certificates, opinions, assurances, consents and
approvals as the Agent may reasonably have requested.

11.                                 CONDITIONS
TO ALL BORROWINGS.

The
obligations of the Lenders to make any Loan or of the Agent whether on or after
the Effective Date, shall also be subject to the satisfaction of the following
conditions precedent:

11.1                           Prior
Conditions Satisfied.  All conditions
set forth in §10 shall continue to be satisfied as of the date upon which any
Loan is to be made.

11.2                           Representations
True; No Default.  The Agent shall
have received a certificate from an Authorized Officer of Borrower confirming
that each of the representations and warranties made by or on behalf of
Borrower and the Guarantors contained in the Loan Documents or in any document
or instrument delivered pursuant to or in connection with this Agreement shall
be true and correct in all material respects as of the date as of which they
were made and shall also be true and correct in all material respects at and as
of the time of the making of such Loan, with the same effect as if made at and
as of that time (except to the extent of changes resulting from transactions
contemplated or permitted by the Loan Documents, changes occurring in the
ordinary course of business that singly or in the aggregate are not materially
adverse, changes previously disclosed to the Agent in writing and approved

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by the Agent in writing
and except to the extent that such representations and warranties relate
expressly to an earlier date) and no Default or Event of Default shall have
occurred and be continuing.

11.3                           No
Legal Impediment.  No change shall
have occurred in any law or regulations thereunder or interpretations thereof
that in the reasonable opinion of any Lender would make it illegal for such
Lender to make such Loan or Agent.

11.4                           Governmental
Regulation.  Each Lender shall have
received such statements in substance and form reasonably satisfactory to such
Lender as such Lender shall reasonably require for the purpose of compliance
with any applicable regulations of the Comptroller of the Currency or the Board
of Governors of the Federal Reserve System.

11.5                           Proceedings
and Documents.  All proceedings in
connection with the Loan shall be satisfactory in substance and in form to the
Agent in its commercially reasonable discretion, and the Agent shall have
received all information and such counterpart originals or certified or other
copies of such documents as the Agent may reasonably request.

11.6                           Borrowing
Documents.  In the case of any
request for a Loan, the Agent shall have received a fully completed Loan
Request.

11.7                           Endorsement
to Title Policy.  At such times as
the Agent shall reasonably determine in its commercially reasonable discretion,
to the extent available under applicable law, a “date down” endorsement to each
Title Policy indicating no material change in the state of title and containing
no survey exceptions not approved by the Agent, which endorsement shall,
expressly or by virtue of a proper “pending disbursements” clause or
endorsement in the Title Policy, increase the coverage of the Title Policy to
the aggregate amount of all Loans advanced and outstanding on or before the
effective date of such endorsement, or if such endorsement is not available,
such other evidence and assurances as the Agent may reasonably require (which
evidence may include, without limitation, a “nothing further” letter or
statement from Borrower stating that there have been no material changes in
title from the date of the last effective date of the Title Policy).

11.8                           Future
Advances Tax Payment.  As a condition
precedent to any Lender’s obligations to make any Loans, Borrower will provide
evidence to the Agent that Borrower has paid any mortgage, recording,
intangible, documentary stamp or other similar taxes and charges which the
Agent reasonably determines to be payable to any state or any county or
municipality thereof in which the Project is located and deliver to the Agent
such affidavits or other information which the Agent reasonably determines to
be necessary in connection with the payment of such tax, in order to insure
that the Security Deeds secure the Obligations. 
The provisions of this §11.8 shall be without impairment of Borrower’s’
obligations under other provisions of the Loan Documents, including without
limitation §15 hereof.

11.9. Additional Conditions for Disbursement of
Hard Costs. Notwithstanding any provision in this Agreement to the
contrary, as a condition precedent to any Lenders’ obligations to make any
Loans, the proceeds of which will be used by Borrower to pay Hard Costs
relating to the construction of any Home other than a Model Home, Agent shall
have ordered and 

 64
 

 

received at the Borrower’s expense, and Agent shall have approved, an
Appraisal which complies with all applicable laws, including, without
limitation, FIRREA, which establishes a base unit value for the Homes equal to
or greater than the base unit value for the Homes set forth in the projections
and other business plans delivered by Borrower to Agent and the Lenders on or
before the Effective Date.

12.                                 EVENTS
OF DEFAULT; ACCELERATION; ETC.

12.1                           Events
of Default and Acceleration.  The
occurrence of any of the following events shall constitute an Event of Default:

(a)                                  Borrower
shall fail to pay any principal of the Loans when the same shall become due and
payable, whether at the stated date of maturity or any accelerated date of
maturity or at any other date fixed for payment;

(b)                                 Borrower
shall fail to pay any interest on the Loans or any Interest Payment Date or if
Borrower or any Guarantor shall fail to pay any other sums due under the Loan
Documents, when the same shall become due and payable, whether at the stated
date of maturity or any accelerated date of maturity or at any other date fixed
for payment;

(c)                                  Borrower
or any Guarantor shall fail to comply with any covenant contained in §7, §8 and
the Financial Covenants which, in the case of the Guarantors, are applicable to
the Guarantors;

(d)                                 Borrower
or any Guarantor, as applicable to the Guarantors, shall fail to perform any
other term, covenant or agreement contained herein or in any of the other Loan Documents
(other than those specified above in this §12) that are applicable to them;

(e)                                  Any
representation or warranty made by or on behalf of Borrower or any Guarantor in
any Loan Document, or in any report, certificate, financial statement, Loan
Request or in any other document or instrument delivered pursuant to or in
connection with this Agreement, any advance of a Loan shall prove to have been
false in any material respect upon the date when made or deemed to have been
made or repeated;

(f)                                    Borrower
or any Guarantor shall fail to pay at maturity, or within any applicable period
of grace, any obligation for borrowed money or credit received or other
Indebtedness, in each case, in excess of $500,000.00, or fail to observe or
perform any material term, covenant or agreement contained in any agreement by
which it is bound (including any event or condition that requires such debt to
be prepaid or redeemed), evidencing or securing any such borrowed money or
credit received or other Indebtedness, in each case, in excess of $500,000.00,
for such period of time as would permit (assuming the giving of appropriate
notice if required) the holder or holders thereof or of any obligations issued
thereunder to accelerate the maturity thereof;

(g)                                 Borrower
or any Guarantor (i) shall make an assignment for the benefit of creditors, or
admit in writing its general inability to pay or generally fail to pay its
debts as they mature or become due, or shall petition or apply for the
appointment of a trustee or other 

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custodian,
liquidator or receiver of any such Person or of any substantial part of the
assets of any thereof, (ii) shall commence any case or other proceeding
relating to any such Person under any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, dissolution or liquidation or similar law of
any jurisdiction, now or hereafter in effect, or (iii) shall take any action to
authorize or in furtherance of any of the foregoing;

(h)                                 A
petition or application shall be filed for the appointment of a trustee or
other custodian, liquidator or receiver of Borrower or any Guarantor or any
substantial part of the assets of any thereof, or a case or other proceeding
shall be commenced against any such Person under any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt, dissolution or
liquidation or similar law of any jurisdiction, now or hereafter in effect, and
such Person shall indicate its approval thereof, consent thereto or
acquiescence therein or such petition, application, case or proceeding shall
not have been dismissed within ninety (90) days following the filing or
commencement thereof;

(i)                                     A
decree or order is entered appointing any such trustee, custodian, liquidator
or receiver or adjudicating Borrower or any Guarantor bankrupt or insolvent, or
approving a petition in any such case or other proceeding, or a decree or order
for relief is entered in respect of any such Person in an involuntary case
under federal bankruptcy laws as now or hereafter constituted;

(j)                                     There
shall remain in force, undischarged, unsatisfied and unstayed, for more than
sixty (60) days, whether or not consecutive, any uninsured final judgment
against Borrower or any Guarantor that, with other outstanding uninsured final
judgments, undischarged, against any such Person or other Borrower or
Guarantors exceeds in the aggregate $2,000,000.00;

(k)                                  If
all or any portion of the Loan Documents shall be canceled, terminated, revoked
or rescinded otherwise than in accordance with the terms thereof or with the
express prior written agreement, consent or approval of the Lenders, or any
action at law, suit in equity or other legal proceeding to cancel, revoke or
rescind any of the Loan Documents shall be commenced by or on behalf of
Borrower or Guarantor or any of their respective stockholders, partners,
members or beneficiaries, or any court or any other governmental or regulatory
authority or agency of competent jurisdiction shall make a determination that,
or issue a judgment, order, decree or ruling to the effect that, any one or
more of the Loan Documents is illegal, invalid or unenforceable in accordance
with their respective terms;

(l)                                     Any
dissolution, termination, partial or complete liquidation, merger or
consolidation of Borrower or any Guarantor or any Transfer of the assets of any
such Person, other than Transfers excluded from the definition of Change of
Control or otherwise permitted under the terms of the Loan Documents;

(m)                               Any
suit or proceeding shall be filed against Borrower or any Guarantor or any of
their respective assets which in the good faith business judgment of the
Majority Lenders after giving consideration to the likelihood of success of
such suit or proceeding and the availability of insurance to cover any judgment
with respect thereto and based on the information available to them, if
adversely determined, would result in an uninsured judgment or settlement 

 66
 

 

that
would materially adversely affect the properties, assets, financial condition
or business of Borrower or the Guarantors in any case or in the aggregate;

(n)                                 (i)
An ERISA Reportable Event shall occur with respect to, or proceedings shall
commence to have a trustee appointed, or a trustee shall be appointed, to
administer or to terminate, any Employee Benefit Plan, which ERISA Reportable
Event or institution of proceedings is, in the opinion of the Agent, likely to
result in the termination of such Employee Benefit Plan for purposes of Title
IV of ERISA, and, in the case of an ERISA Reportable Event, the continuance of
such ERISA Reportable Event unremedied for 30 days after notice of such ERISA
Reportable Event pursuant to Section 4043(a), (c) or (d) of ERISA is given or,
in the case of institution of proceedings, the continuance of such proceedings
for 45 days after commencement thereof, (ii) any Employee Benefit Plan shall
terminate for purposes of Title IV of ERISA, or (iii) any other event or
condition shall occur or exist with respect to an Employee Benefit Plan and in
each case in clauses (i) through (iii) above, such event or condition, together
with all other such events or conditions, if any, could subject Borrower or any
Guarantor to any tax, penalty or other liabilities in the aggregate material in
relation to the business, operations, property or financial or other condition of
Borrower or any Guarantor;

(o)                                 Any
Guarantor denies that such Guarantor has any liability or obligation under the
Guaranty or the Environmental Indemnity Agreement, or shall notify the Agent or
any of the Lenders of such Guarantor’s intention to attempt to cancel or
terminate the Guaranty or the Environmental Indemnity Agreement, or shall fail
to observe or comply with any term, covenant, condition or agreement under the
Guaranty or the Environmental Indemnity Agreement after the expiration of any
applicable cure periods provided therein, if any;

(p)                                 The
occurrence of a Change of Control;

(q)                                 An
Event of Default occurs under the Senior Term Loan;

(r)                                    Any
“Event of Default” as defined in any of the other Loan Documents, shall occur; 

(s)                                  The
Agent shall promptly notify the Lenders of the occurrence of any Event of
Default of which the Agent becomes aware. 
Upon the occurrence of any Event of Default, the Agent may, and upon the
request of the Majority Lenders shall, by notice in writing to Borrower declare
all amounts owing with respect to this Agreement, the Notes and the other Loan
Documents to be, and they shall thereupon forthwith become, immediately due and
payable without presentment, demand, protest or other notice of any kind, all
of which are hereby expressly waived by Borrower; provided that in the
event of any Event of Default specified in §12.1(f), §12.1(g), §12.1(h), or
12(i) all such amounts shall become immediately due and payable automatically
and without any requirement of notice from any of the Lenders or the Agent.

12.2                           Termination
of Commitments.  If any one or more
Events of Default specified in §12.1(f), §12.1(g), §12.1(h) or §12.1(i) shall
occur, then immediately and without any action on the part of the Agent or any
Lender any unused portion of the credit hereunder shall terminate and the
Lenders shall be relieved of all obligations to make any Loan.  If any other 

 67
 

 

Event of Default shall
have occurred, the Agent, upon the election of the Majority Lenders, shall by
notice to Borrower terminate the obligation to make Loans to Borrower.  No termination under this §12.2 shall relieve
Borrower or the Guarantors of their respective obligations to the Lenders
arising under the Loan Documents. 
Nothing in this §12.2 shall limit or impair the terms of this Agreement
(including §2.2) which provide that the Lenders shall have no obligation to
make Loans upon the occurrence of a Default or Event of Default.

12.3                           Remedies.  In case any one or more of the Events of
Default shall have occurred and be continuing, and whether or not the Lenders
shall have accelerated the maturity of the Loans pursuant to §12.1, the Agent
on behalf of the Lenders may proceed to protect and enforce their rights and
remedies under this Agreement, the Notes or any of the other Loan Documents by
suit in equity, the exercise of any remedy under the Loan Documents or under
applicable law, action at law or other appropriate proceeding, whether for the
specific performance of any covenant or agreement contained in this Agreement and
the other Loan Documents or any instrument pursuant to which the Obligations
are evidenced, including to the full extent permitted by applicable law the
obtaining of the ex parte appointment of a receiver, and, if such amount shall
have become due, by declaration or otherwise, proceed to enforce the payment
thereof or any other legal or equitable right. 
No remedy herein conferred upon the Agent or the holder of any Note is
intended to be exclusive of any other remedy and each and every remedy shall be
cumulative and shall be in addition to every other remedy given hereunder or
now or hereafter existing at law or in equity or by statute or any other
provision of law.  In the event that all
or any portion of the Obligations is collected by or through an attorney-at-law,
Borrower shall pay all reasonable costs of collection including, but not
limited to, reasonable attorney’s fees actually incurred.  Any recovery of attorney’s fees hereunder or
under any other Loan Document shall be limited to reasonable attorney’s fees
actually incurred.  Notwithstanding the
provisions of this Agreement providing that the Loans may be evidenced by
multiple Notes in favor of the Lenders, the Lenders acknowledge and agree that,
subject to this Agreement, only the Agent may exercise any remedies arising by
reason of a Default or Event of Default.

12.4                           Distribution
of Collateral Proceeds.  In the event
that, following the occurrence or during the continuance of any Event of
Default, any monies are received in connection with the enforcement of any of
the Security Documents, or otherwise with respect to the realization upon any
of the Collateral, such monies shall be distributed for application as follows:

(a)                                  First,
to the payment of, or (as the case may be) the reimbursement of, the Agent for
or in respect of all reasonable costs, expenses, disbursements and losses which
shall have been incurred or sustained by the Agent to protect or preserve the
Collateral or in connection with the collection of such monies by the Agent,
for the exercise, protection or enforcement by the Agent of all or any of the
rights, remedies, powers and privileges of the Agent under this Agreement or
any of the other Loan Documents or in respect of the Collateral or in support
of any provision of adequate indemnity to the Agent against any taxes or liens
which by law shall have, or may have, priority over the rights of the Agent to
such monies;

(b)                                 Second,
to all other Obligations in the following order:  (i) first to the payment of any fees or
charges outstanding hereunder or under the other Loan Documents, (ii) next to
any accrued and outstanding Default Rate interest, (iii) next to any accrued
and 

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outstanding
interest under the Swingline Loans, (iv) next to any accrued and outstanding
interest under the Prime Rate Loans, (v) next to any accrued and outstanding
interest under the LIBOR Rate Loans, (vi) next to any outstanding principal on
the Swingline Loans, (vii) next to any outstanding principal on the Prime Rate
Loans, (viii) next to any outstanding principal on the LIBOR Rate Loans, and
(ix) last to any remaining Obligations (including with respect to any Hedge
Agreement) in such order as the Majority Lenders may determine; provided,
however, that (A) in the event that any Lender shall have wrongfully failed or
refused to make an advance and such failure or refusal shall be continuing,
advances made by other Lenders during the pendency of such failure or refusal
shall be entitled to be repaid as to principal and accrued interest in priority
to the other Obligations described in this subsection (b), and (B) Obligations
owing to the Lenders with respect to each type of Obligation such as interest,
principal, fees and expenses, shall be made among the Lenders pro rata in
accordance with their Commitment Percentages; and provided, further that the
Majority Lenders may in their commercially reasonable discretion make proper
allowance to take into account any Obligations not then due and payable; and

(c)                                  Third,
the excess, if any, shall be returned to Borrower or to such other Persons as
are entitled thereto.

13.                                 INTENTIONALLY
DELETED

14.                                 THE
AGENT.

14.1                           Authorization.  The Agent is authorized to take such action
on behalf of each of the Lenders and to exercise all such powers as are
hereunder and under any of the other Loan Documents and any related documents
delegated to the Agent, together with such powers as are reasonably incident
thereto, provided that no duties or responsibilities not expressly assumed
herein or therein shall be implied to have been assumed by the Agent.  The obligations of the Agent hereunder are
primarily administrative in nature, and nothing contained in this Agreement or
any of the other Loan Documents shall be construed to constitute the Agent as a
trustee or fiduciary for any Lender.

14.2                           Employees
and Agents of the Agents.  The Agent
may exercise its powers and execute its duties by or through employees or
agents and shall be entitled to take, and to rely on, advice of counsel
concerning all matters pertaining to its rights and duties under the Loan
Documents.  The Agent may utilize the
services of such Persons as the Agent may reasonably determine and all
reasonable fees and expenses of any such Persons shall be paid by Borrower.

14.3                           No
Liability.  Neither the Agent nor any
of its shareholders, directors, officers or employees nor any other Person
assisting them in their duties nor any agent, or employee thereof, shall be
liable for any waiver, consent or approval given or any action taken, or
omitted to be taken, in good faith by it or them under any of the Loan
Documents, or in connection herewith or therewith, or be responsible for the
consequences of any oversight or error of judgment whatsoever, except that the
Agent or such other Person, as the case may be, shall be liable for losses due
to its willful misconduct or gross negligence.

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14.4                           No
Representations.  The Agent shall not
be responsible for the execution or validity or enforceability of this
Agreement, the Notes, any of the other Loan Documents or any instrument at any
time constituting, or intended to constitute, collateral security for the
Notes, or for the value of any such collateral security or for the validity,
enforceability or collectability of any such amounts owing with respect to the
Notes, or for any recitals or statements, warranties or representations made
herein, or any agreement, instrument or certificate delivered in connection
with any of the Loan Documents or in any certificate or instrument hereafter
furnished to it by or on behalf of Borrower or any Guarantor, or be bound to
ascertain or inquire as to the performance or observance of any of the terms,
conditions, covenants or agreements in any of the Loan Documents.  The Agent shall not be bound to ascertain
whether any notice, consent, waiver or request delivered to it by Borrower, any
Guarantor or any other Person or any holder of any of the Notes shall have been
duly authorized or is true, accurate and complete.  The Agent has not made nor does it now make
any representations or warranties, express or implied, nor does it assume any
liability to the Lenders, with respect to the creditworthiness or financial
condition of Borrower or the Guarantors. 
Each Lender acknowledges that it has, independently and without reliance
upon the Agent or any other Lender, and based upon such information and
documents as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. 
Each Lender also acknowledges that it will, independently and without
reliance upon the Agent or any other Lender, based upon such information and
documents as it deems appropriate at the time, continue to make its own credit
analysis and decisions in taking or not taking action under the Loan Documents.

14.5                           Payments.

(a)                                  A
payment by Borrower or a Guarantor to the Agent under any of the Loan Documents
for the account of any Lender shall constitute a payment to such Lender.  The Agent agrees to distribute to each Lender
not later than one Business Day after the Agent’s receipt of good funds,
determined in accordance with the Agent’s customary practices, such Lender’s pro rata
share of payments received by the Agent for the account of the Lenders except
as otherwise expressly provided in any of the Loan Documents. All payments of
principal, interest, fees and other amounts in respect of the Swingline Loans
shall be for the account of the Swingline Lender only (except to the extent any
Lender shall have acquired and funded a participating interest in any such
Swingline Loan pursuant to §2.2, in which case such payments shall be pro rata
in accordance with such participating interests).

(b)                                 If
in the opinion of the Agent the distribution of any amount received by it in
such capacity hereunder, under the Notes or under any of the other Loan
Documents might involve it in liability, it may refrain from making such
distribution until its right to make such distribution shall have been
adjudicated by a court of competent jurisdiction.  If a court of competent jurisdiction shall
adjudge that any amount received and distributed by the Agent is to be repaid,
each Person to whom any such distribution shall have been made shall either
repay to the Agent its proportionate share of the amount so adjudged to be
repaid or shall pay over the same in such manner and to such Persons as shall
be determined by such court.

(c)                                  Notwithstanding
anything to the contrary contained in this Agreement or any of the other Loan
Documents, any Lender that fails (i) to make available to the Agent its pro 

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rata share
of any Loan or (ii) to comply with the provisions of §13 with respect to making
dispositions and arrangements with the other Lenders, where such Lender’s share
of any payment received, whether by setoff or otherwise, is in excess of its pro rata
share of such payments due and payable to all of the Lenders, in each case as,
when and to the full extent required by the provisions of this Agreement, shall
be deemed delinquent (a “Delinquent Lender”) and shall be deemed a
Delinquent Lender until such time as such delinquency is satisfied.  A Delinquent Lender shall be deemed to have
assigned any and all payments due to it from Borrower and the Guarantors,
whether on account of outstanding Loans, interest, fees or otherwise, to the
remaining nondelinquent Lenders for application to, and reduction of, their
respective pro rata shares of all outstanding Loans in accordance with
the terms of this Agreement.  The
Delinquent Lender hereby authorizes the Agent to distribute such payments to
the nondelinquent Lenders in proportion to their respective pro rata
shares of all outstanding Loans in accordance with the terms of this
Agreement.  A non-funding Lender shall
not be a Delinquent Lender if it did not fund based on the occurrence of a
Force Majeure event provided that the non-funding Lender funds such amount
within two (2) Business Days of the receipt of notice of the non-funding.  A Delinquent Lender shall be deemed to have
satisfied in full a delinquency when and if, as a result of application of the
assigned payments to all outstanding Loans of the nondelinquent Lenders or as a
result of other payments by the Delinquent Lenders to the nondelinquent
Lenders, the Lenders’ respective pro rata shares of all outstanding Loans have
returned to those in effect immediately prior to such delinquency and without
giving effect to the nonpayment causing such delinquency.

14.6                           Holders
of Notes.  Subject to the terms of
§18, the Agent may deem and treat the payee of any Note as the absolute owner
or purchaser thereof for all purposes hereof until it shall have been furnished
in writing with a different name by such payee or by a subsequent holder,
assignee or transferee.

14.7                           Indemnity.  The Lenders ratably agree hereby to indemnify
and hold harmless the Agent from and against any and all claims, actions and
suits (whether groundless or otherwise), losses, damages, costs, expenses
(including any expenses for which the Agent has not been reimbursed by Borrower
as required by §15), and liabilities of every nature and character arising out
of or related to this Agreement, the Notes or any of the other Loan Documents
or the transactions contemplated or evidenced hereby or thereby, or the Agent’s
actions taken hereunder or thereunder, except to the extent that any of the
same shall be directly caused by the Agent’s willful misconduct or gross
negligence.

14.8                           The
Agent as Lender.  In its individual
capacity, KeyBank shall have the same obligations and the same rights, powers
and privileges in respect to its Commitment and the Loans made by it, and as
the holder of any of the Notes as it would have were it not also the Agent.

14.9                           Resignation
or Removal.  The Agent may resign at
any time by giving thirty (30) calendar days’ prior written notice thereof to
the Lenders and Borrower.  The Agent may
be removed as Agent upon thirty (30) days prior written notice by the Required
Lenders (Lenders or Lender whose aggregate principal amount of the outstanding
Loans are greater that sixty-six percent of the Total Commitment).  Upon any such resignation or removal, the
Majority Lenders, subject to the terms of §18.1, shall have the right to
appoint as a successor 

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Agent any Lender or any
bank whose senior debt obligations are rated not less than “A” or its
equivalent by Standard & Poor’s Corporation, subject to the prior written
approval of Borrower (provided no Event of Default has occurred and is
continuing), not to be unreasonably withheld or delayed.  Any such resignation or removal shall be
effective upon appointment and acceptance of a successor Agent selected by the
Majority Lenders and, provided no Default or Event of Default has occurred and
is continuing, approved by Borrower.  If
no successor Agent shall have been appointed and shall have accepted such
appointment within thirty (30) days after the retiring Agent’s giving notice of
resignation or the Majority Lender’s giving notice of removal, then the
retiring or removed Agent may, on behalf of the Lenders, appoint a successor
Agent, which shall be a Lender, if any Lender is willing to so serve.  Upon the acceptance of any appointment as
Agent hereunder by a successor Agent, such successor Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring or removed Agent, and the retiring Agent shall be discharged
from its duties and obligations hereunder as Agent.  After any retiring Agent’s resignation, the
provisions of the Loan Documents shall continue in effect for its benefit in
respect of any actions taken or omitted to be taken by it while it was acting
as the Agent.

14.10                     Duties
in the Case of Enforcement.  In case
one or more Events of Default have occurred and shall be continuing, and
whether or not acceleration of the Obligations shall have occurred, the Agent
shall, if (a) so requested by the Lender or Lenders whose aggregate principal
amount of the outstanding Loans are greater than fifty percent (50%) of the
Total Commitment provided that in the event that one Lender has an aggregate
principal amount of the outstanding Loans equal to or greater than such
percentage (the “Sole Majority Lender”) then the definition of Majority
Lenders shall include the Sole Majority Lender and a minimum of one other Lenders
have provided to the Agent such additional indemnities and assurances against
expenses and liabilities as the Agent may reasonably request, proceed to
exercise all or any legal and equitable and other rights or remedies as it may
have.  The Majority Lenders may direct
the Agent in writing as to the method and the extent of any such exercise, the
Lenders hereby agreeing to indemnify and hold the Agent harmless from all
liabilities incurred in respect of all actions taken or omitted in accordance
with such directions, provided that the Agent need not comply with any such
direction to the extent that the Agent reasonably believes the Agent’s
compliance with such direction to be unlawful or commercially unreasonable in
any applicable jurisdiction.

14.11                     Bankruptcy.  In the event a bankruptcy or other insolvency
proceeding is commenced by or against Borrower or any Guarantor, the Agent
shall have the sole and exclusive right and duty to file and pursue a joint
proof of claim on behalf of all Lenders. 
Each Lender irrevocably waives its right to file or pursue a separate
proof of claim in any such proceedings.

15.                                 EXPENSES.

The
Borrower agrees to pay (a) the reasonable costs of producing and reproducing
this Agreement, the other Loan Documents and the other agreements and
instruments mentioned herein; (b) any taxes (including any interest and
penalties in respect thereto) payable by the Agent or any of the Lenders,
including any recording, mortgage, documentary or intangibles taxes in
connection with the Security Deeds, the Security Documents and other Loan 

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Documents, or
other taxes payable on or with respect to the transactions contemplated by this
Agreement (other than taxes based upon the Agent’s or any Lender’s gross or net
income, such indemnification to be limited to taxes due solely on account of
the granting of Collateral under the Security Documents and to be net of any
credit allowed to the indemnified party from any other State on account of the
payment or incurrence of such tax by such indemnified party), including any
such taxes payable by the Agent or any of the Lenders after the Effective Date
(Borrower hereby agreeing to indemnify the Agent and each Lender with respect
thereto); (c) all title insurance premiums, appraisal fees, engineer’s fees,
charges for commercial finance exams and engineering and environmental reviews
and the reasonable fees, expenses and disbursements of the counsel to the Agent
and any local counsel to the Agent incurred in connection with the performance
of due diligence and the preparation, negotiation, administration or
interpretation of the Loan Documents and other instruments mentioned herein,
the addition of Collateral, each closing hereunder, and amendments,
modifications, approvals, consents or waivers hereto or hereunder; (d) the
reasonable fees, expenses and disbursements of the Agent actually incurred by
the Agent and the Lenders in connection with the performance of due diligence,
underwriting analysis, credit reviews and inspection of the Project, and the
preparation, negotiation, administration or interpretation of the Loan
Documents and other instruments mentioned herein, credit and collateral
evaluations, and the making of each advance hereunder; (e) all reasonable
out-of-pocket expenses (including reasonable attorneys’ fees and costs, which
attorneys may be employees of the Agent and the fees and costs of appraisers,
engineers, investment bankers or other experts retained by the Agent) actually
incurred by the Agent at standard hourly rates in connection with (i) the
enforcement of or preservation of rights under any of the Loan Documents
against Borrower or any Guarantor or the administration thereof after the
occurrence of a Default or Event of Default, (ii) the sale of, collection from
or other realization upon any of the Collateral, (iii) the failure of Borrower
or any Guarantor to perform or observe any provision of the Loan Documents, and
(iv) any litigation, proceeding or dispute whether arising hereunder or
otherwise, in any way related to the Agent’s or any of the Lender’s
relationship with Borrower or any Guarantor; and (f) all reasonable fees,
expenses and disbursements of the Agent incurred in connection with UCC
searches, UCC filings, title rundowns, title searches or mortgage
recordings.  The covenants of this §15
shall survive payment or satisfaction of payment of amounts owing with respect
to the Notes.

16.                                 INDEMNIFICATION.

The
Borrower agrees to indemnify and hold harmless the Agent and the Lenders and
each director, officer, employee, agent and Person who controls the Agent or
any Lender from and against any and all claims, actions and suits, whether
groundless or otherwise, and from and against any and all liabilities, losses,
damages and expenses of every nature and character arising out of or relating
to any of the Loan Documents or the transactions contemplated hereby and
thereby including, without limitation, (a) any leasing fees and any brokerage,
finders or similar fees asserted against any Person indemnified under this §16
based upon any agreement, arrangement or action made or taken, or alleged to
have been made or taken, by Borrower or any Guarantor, (b) any condition
(whether related to the quality of construction or otherwise), use, operation
or occupancy of the Project or other Collateral, (c) any actual or proposed use
by Borrower of the proceeds of any of the Loans, (d) any actual or alleged
infringement of any patent, copyright, trademark, service mark or similar right
of Borrower or any Guarantor constituting Collateral, (e) Borrower and the
Guarantors entering into or performing this or any 

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of the other Loan
Documents, (f) any actual or alleged violation of any law, ordinance, code,
order, rule, regulation, approval, consent, permit or license relating to the
Project or the other Collateral, or (g) with respect to Borrower and the
Guarantors and their respective properties and assets, the violation of any
Environmental Law, any Release or threatened Release or any action, suit,
proceeding or investigation brought or threatened with respect to any Hazardous
Materials (including, but not limited to claims with respect to wrongful death,
personal injury or damage to property), in each case occurring or arising from
occurrences prior to any transfer of title or possession to the Agent or any
third party by appointment of a receiver or foreclosure or deed in lieu of
foreclosure, including, without limitation, the reasonable fees and
disbursements of counsel and allocated costs of internal counsel incurred in
connection with any such investigation, litigation or other proceeding; provided,
however, that Borrower shall not be obligated under this §16 to indemnify
any Person for liabilities arising from such Person’s own gross negligence,
willful misconduct or illegal acts.  In
litigation, or the preparation therefore, the Lenders and the Agent shall be
entitled to jointly select a single law firm as their own counsel and, in
addition to the foregoing indemnity, Borrower agrees to pay promptly the
reasonable fees and expenses of such counsel. 
The foregoing provision shall not preclude any Lender or the Agent from
retaining its own counsel in such actions at its own expense.  If, and to the extent that the obligations of
Borrower under this §16 are unenforceable for any reason, Borrower hereby
agrees to make the maximum contribution to the payment in satisfaction of such
obligations which is permissible under applicable law.  There shall be specifically excluded from the
foregoing indemnification any claims, actions, suits, liabilities, losses,
damages and expenses arising from disputes among Lenders with respect to the
Loans or the Loan Documents.  In the
event that any such claims, actions, suits, liabilities, losses, damages and
expenses involve both a dispute among Lenders and other matters covered by this
indemnification provision, Agent shall make a reasonable good faith allocation
of all losses, damages and expenses incurred between Lenders’ dispute and the
other matters covered by this indemnification provision, which allocation by
Agent shall be final and binding upon the parties hereto.  The provisions of this §16 shall survive the
repayment of the Loans and the termination of the obligations of the Lenders
hereunder.

17.                                 SURVIVAL
OF COVENANTS, ETC.

All
covenants, agreements, representations and warranties made herein, in the
Notes, in any of the other Loan Documents or in any documents or other papers
delivered by or on behalf of Borrower or the Guarantors pursuant hereto or
thereto shall be deemed to have been relied upon by the Lenders and the Agent,
notwithstanding any investigation heretofore or hereafter made by any of them,
and shall survive the making by the Lenders of any of the Loans, as herein
contemplated, and shall continue in full force and effect so long as any Loan
remains outstanding or any Lender has any obligation to make any Loans.  The indemnification obligations of Borrower
provided herein and the other Loan Documents shall survive the full repayment
of amounts due and the termination of the obligations of the Lenders hereunder
and thereunder to the extent provided herein and therein.  All statements contained in any certificate
or other paper delivered to any Lender or the Agent at any time by or on behalf
of Borrower or any Guarantor pursuant hereto or in connection with the
transactions contemplated hereby shall constitute representations and
warranties by such Person.

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18.                                 ASSIGNMENT
AND PARTICIPATION.

18.1                           Conditions
to Assignment by the Lenders.

(a)                                  Except
as provided herein, each Lender may assign to one (1) or more Eligible
Assignees all or a portion of its interests, rights and obligations under this
Agreement (including all or a portion of its Commitment Percentage and
Commitment and the same portion of the Loans at the time owing to it, and the
Notes held by it); provided that (i) the Agent shall have given prior written
consent to such assignment, which consent shall not be unreasonably withheld or
delayed, provided that the Agent’s approval will not be required for any
assignment to (A) an Affiliate of the Assigning Lender or (B) any other Lender
under the Agreement, (ii) each such assignment shall be of a constant, and not
a varying, percentage of all the assigning Lender’s rights and obligations
under this Agreement, (iii) each assignment shall be in an amount that is at
least $1,000,000.00 (provided that if the Eligible Assignee is not already a
Lender, such assignment shall be in the amount of at least $5,000,000.00
without considering related investment or mutual funds that are also Eligible
Assignees)) and is a whole multiple of $1,000,000.00, unless otherwise
consented to by the Agent, which consent shall not be unreasonably withheld,
(iv) each Lender which is a Lender on the date hereof shall retain, free of any
such assignment, an amount of its Commitment of not less than $5,000,000.00,
unless it is assigning its entire Commitment, and (e) the parties to such
assignment shall execute and deliver to the Agent, for recording in the
Register (as hereinafter defined), an Assignment and Acceptance, substantially
in the form attached hereto as Exhibit “H” (an “Assignment and
Acceptance”), together with any Notes subject to such assignment.  Upon such execution, delivery, acceptance and
recording, from and after the effective date specified in each Assignment and
Acceptance, which effective date shall be at least five (5) Business Days after
the execution thereof, but in no event prior to the recording of same in the
Register, the assignee thereunder shall be a party hereto and, to the extent
provided in such Assignment and Acceptance, shall have the rights and
obligations of a Lender hereunder, and the assigning Lender shall, to the extent
provided in such assignment and upon payment to the Agent of the registration
fee referred to in §18.3, be released from its further obligations under this
Agreement with respect to the interest assigned.  The Agent, however, must maintain a minimum threshold
of $30,000,000.00 in the aggregate of the combined interest in this Loan and
the Senior Term Loan, subject to reduction based on amortization thereafter.

(b)                                 Any
Lender may at any time assign or pledge its Commitment or Note or any portion
of its rights under the Loan Documents to any of the twelve (12) Federal
Reserve Lenders organized under Section 4 of the Federal Reserve Act, 12 U.S.C.
§341, and, with the Agent’s consent, any Lender may at any time assign or
pledge all or any portion of its rights under this Agreement to an Eligible
Assignee to secure such Lender’s indebtedness, in each case without the prior
written consent of Borrower, provided that each such assignment shall be made
in accordance with applicable law, and no such assignment shall release a
Lender from any of its obligations hereunder. 
In order to facilitate any such assignment, Borrower shall, at the
request of the assigning Lender, duly execute a registered promissory note or
notes evidencing the Obligations made or extended to Borrower by the assigning
Lender hereunder, provided that the assignment is otherwise in compliance with
the terms hereof.

(c)                                  Each
Lender may sell participations to one or more banks or other entities in all or
a portion of such Lender’s rights and obligations the Loan Documents; provided
that (i) any such sale or participation shall not affect the rights and duties
of the selling Lender 

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hereunder
to Borrower, (ii) such participation shall not entitle such participant to any
rights or privileges under the Loan Documents, including, without limitation,
the right to approve waivers, amendments or modifications, except for voting
rights with respect to the extension of dates for payment and reduction of
principal, interest or fees, (iii) such participant shall have no direct rights
against Borrower or Guarantors, and (iv) such sale is effected in accordance
with all Applicable Laws.

18.2                           Certain
Representations and Warranties; Limitations; Covenants.  By executing and delivering an Assignment and
Acceptance, the parties to the Assignment and Acceptance thereunder confirm to
and agree with each other and the other parties hereto as follows: (a) other
than the representation and warranty that it is the legal and beneficial owner
of the interest being assigned thereby free and clear of any adverse claim, the
assigning Lender makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with this Agreement or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of this Agreement,
the other Loan Documents or any other instrument or document furnished pursuant
hereto; (b) the assigning Lender makes no representation or warranty and
assumes no responsibility with respect to the financial condition of Borrower
or any other Person primarily or secondarily liable in respect of any of the
Obligations, or the performance or observance by Borrower, or any other Person
primarily or secondarily liable in respect of any of the Obligations or any of
their obligations under this Agreement or any of the other Loan Documents or
any other instrument or document furnished pursuant hereto; (c) such assignee
confirms that it has received a copy of this Agreement, together with copies of
the most recent financial statements referred to in §7.6 and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into such Assignment and Acceptance; (d) such
assignee will, independently and without reliance upon the assigning Lender,
the Agent or any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions
in taking or not taking action under this Agreement; (e) such assignee
represents and warrants that it is an Eligible Assignee; (f) such assignee
appoints and authorizes the Agent to take such action as agent on its behalf
and to exercise such powers under this Agreement and the other Loan Documents
as are delegated to the Agent by the terms hereof or thereof, together with
such powers as are reasonably incidental thereto; (g) such assignee agrees that
it will perform in accordance with their terms all of the obligations that by
the terms of this Agreement are required to be performed by it as a Lender; and
(h) such assignee represents and warrants that it is legally authorized to
enter into such Assignment and Acceptance.

18.3                           Register.  The Agent shall maintain a copy of each
Assignment and Acceptance delivered to it and a register or similar list (the “Register”)
for the recordation of the names and addresses of Lenders and the Commitment
Percentages of, and principal amount of the Loans owing to Lenders from time to
time as a condition to the effectiveness thereof.  All assignments of any portion of the Loans
or Commitments must be reported to the Agent to permit registration in the
Register.  The entries in the Register
shall be conclusive, in the absence of manifest error, and Borrower, the Agent
and Lenders may treat each Person whose name is recorded in the Register as a
Lender hereunder for all purposes of this Agreement.  The Register shall be available for
inspection by Borrower and Lenders at any reasonable time and from time to time
upon reasonable prior notice.  Upon each
such recordation, (i) the 

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assigning Lender agrees
to pay to the Agent a registration fee in the sum of $3,500.00 and (ii) the
Agent will deliver a copy of the Register to Borrower.

18.4                           New
Notes.  Upon its receipt of an
Assignment and Acceptance executed by the parties to such assignment, together
with each Note subject to such assignment, the Agent shall (a) record the
information contained therein in the Register, and (b) give prompt notice
thereof to Borrower and Lenders (other than the assigning Lender).  Within five (5) Business Days after receipt of
such notice, Borrower, at their own expense, shall execute and deliver to the
Agent, in exchange for each surrendered Note, a new Note to the order of such
Eligible Assignee in an amount equal to the amount assumed by such Eligible
Assignee pursuant to such Assignment and Acceptance and, if the assigning
Lender has maintained some portion of its obligations hereunder, a new Note to
the order of the assigning Lender in an amount equal to the amount retained by
it hereunder.  Such new Notes shall
provide that they are replacements for the surrendered Notes, shall be in an
aggregate principal amount equal to the aggregate principal amount of the
surrendered Notes, shall be dated the effective date of such Assignment and
Acceptance and shall otherwise be in substantially the form of the Notes delivered
at the time of execution of this Agreement. 
Within five (5) Business Days upon request, following issuance of any
new Notes pursuant to this §18.4, Borrower shall deliver an opinion of counsel,
addressed to Lenders and the Agent, relating to the due authorization,
execution and delivery of such new Notes and the legality, validity,
enforceability and binding effect thereof and the applicability of the
Guaranties to the new Note.  The
surrendered Notes shall be canceled and returned to Borrower.

18.5                           No
Assignment by Borrower.  No Borrower
or Guarantor shall assign or transfer any of its rights or obligations under
any of the Loan Documents without the prior written consent of each of the
Lenders.

18.6                           Disclosure.  Each Lender agrees to take normal and reasonable
precautions and exercise due care to maintain the confidentiality of all
information identified as “confidential” or “secret” by Borrower and provided
to it by Borrower, or by the Agent on Borrower’s behalf, under any Loan
Document, and neither it nor any of its Affiliates shall use any such
information other than in connection with or in enforcement of the Loan
Documents; except to the extent such information (i) was or becomes generally
available to the public other than as a result of disclosure by the Lender, or
(ii) was or becomes available on a non-confidential basis from a source other
than Borrower, provided that such source is not bound by a confidentiality
agreement with Borrower known to the Lender; provided, however, that any Lender
may disclose such information (a) at the request or pursuant to any requirement
of any governmental authority to which the Lender is subject or in connection
with an examination of such Lender by any such governmental authority; (b)
pursuant to subpoena or other court process; (c) when required to do so in
accordance with the provisions of any applicable requirement of law; (d) to the
extent reasonably required in connection with any litigation or proceeding to
which the Agent, any Lender or their respective Affiliates may be party; (e) to
the extent reasonably required in connection with the exercise of any remedy
hereunder or under any other Loan Document; (f) to such Lender’s independent
auditors and other professional advisors; (g) to any participant or assignee,
actual or potential, provided that such Person agrees in writing to keep such
information confidential to the same extent required of the Lenders hereunder,
and (h) as to any Lender, as expressly permitted under the terms of any 

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other document or
agreement regarding confidentiality to which Borrower is party or is deemed
party with such Lender. Each Lender acknowledges its understanding that
Borrower is a public company and agrees that until it has been notified in
writing by Borrower that the confidential information is no longer non-public
material information, such Lender shall not in any manner, directly or
indirectly, acquire or dispose of, agree to acquire or dispose of or make any
proposal to acquire or dispose of, directly or indirectly, any securities of
Borrower, or any of its existing subsidiaries (except in connection with its
normal securities brokerage activities, provided that no brokerage transactions
shall be made on the basis of the non-public material information).  Borrower acknowledges and recognizes that:
(i)  the Lenders have multiple
departments and divisions and affiliates that may be involved in the securities
industry (“Securities Groups”) including underwriting of securities issues, the
sale and acquisition of securities, and other related activities, (ii) the team
of a Lender working on this Agreement, may be employed by or have involvement
from time to time with the Securities Groups; and (iii) the Lenders have
established certain ethical walls and procedures to assure that “insider
trading” does not occur.  Accordingly,
neither the inclusion of the foregoing individuals on the working team for this
Agreement nor any activities of the Securities Groups whatsoever shall breach
or violate the terms of this Agreement. 

18.7                           Withholding
Tax.

(a)                                  If
any Lender is a “foreign corporation, partnership or trust” within the meaning
of the Code and such Lender claims exemption from, or a reduction of, United
States withholding tax under Sections 1441 or 1442 of the Code, such Lender agrees
with and in favor of the Agent, to deliver to the Agent:

(i)                           if
such Lender claims an exemption from, or a reduction of, withholding tax under
a United States tax treaty, properly completed IRS Form 1098 W8-BEN or Form
1098 W8-ECI before the payment of any interest in the first calendar year and
before the payment of any interest in each third succeeding calendar year
during which interest may be paid under this Agreement;

(ii)                        if
such Lender claims that interest paid under this Agreement is exempt from
United States withholding tax because it is effectively connected with a United
States trade or business of such Lender, two (2) properly completed and
executed copies of IRS Form 4224 before the payment of any interest is due in
the first taxable year of such Lender and in each succeeding taxable year of
such Lender during which interest may be paid under this Agreement, and IRS
Form W-9;

(iii)                     such
other form or forms as may be required under the Code or other laws of the
United States as a condition to exemption from, or reduction of, United States
withholding tax; and

(iv)                    in
the case of any Lender claiming exemption from United States withholding tax
under Sections 871(b) or 881(c) of the Code, with respect to payments of “Portfolio
Interest,” a Form W-8, or any subsequent versions thereof or successors
thereto, and if the Lender delivers a Form W-8, a certificate representing that
such Lender is not a bank for purposes of Section 881(c) of the Code, is not a
ten percent (10%) shareholder (within the 

 78
 

 

meaning
of Section 871(h)(3)(b) of the Code) of Borrower, and is not a controlled
foreign corporation related to Borrower (within the meaning of Section
864(d)(4) of the Code).

Each such
certificate and form shall be properly completed and duly executed by such
Lender claiming complete exemption from a reduced rate of United States
withholding tax on payments by Borrower under the Loan Documents.  Each Lender agrees to promptly notify the
Agent of any change in circumstances which would modify or render invalid any
claimed exemption or reduction.

(b)                                 If
any Lender claims exemption from, or reduction of, withholding tax under a
United States tax treaty by providing IRS Form 1098 W8-BEN or Form 1098 W8-ECI,
and such Lender sells, assigns, grants a participation in, or otherwise
transfers all or part of the Obligations of Borrower to such Lender, such
Lender agrees to notify the Agent of the percentage amount in which it is no
longer the beneficial owner of Obligations of Borrower to such Lender.  To the extent of such percentage amount, the
Agent will treat such Lender’s IRS Form 1098 W8-BEN or Form 1098 W8-ECI as no
longer valid.

(c)                                  If
any Lender claiming exemption from United States withholding tax by filing IRS
Form 4224 with the Agent sells, assigns, grants a participation in, or
otherwise transfers all or part of the Obligations of Borrower to such Lender,
such Lender agrees to undertake sole responsibility for complying with the
withholding tax requirements imposed by Sections 1441 and 1442 of the Code.

(d)                                 If
any Lender is entitled to a reduction in the applicable withholding tax, the
Agent may withhold from any interest payment to such Lender an amount
equivalent to the applicable withholding tax after taking into account such
reduction.  If the forms or other
documentation required by §18.7(a) above are not delivered to the Agent, then
the Agent may withhold from any interest payment to such Lender not providing
such forms or other documentation an amount equivalent to the applicable
withholding tax.

(e)                                  If
the IRS or any other governmental authority of the United States or other
jurisdiction asserts a claim that the Agent did not properly withhold tax from
amounts paid to or for the account of any Lender (because the appropriate form
was not delivered, was not properly executed, or because such Lender failed to
notify the Agent of a change in circumstances which rendered the exemption
from, or reduction of, withholding tax ineffective, or for any other reason)
such Lender shall indemnify the Agent fully for all amounts paid, directly or
indirectly, by the Agent as tax or otherwise, including penalties and interest,
and including any taxes imposed by any jurisdiction on the amounts payable to
the Agent under this §18.7, together with all costs and expenses (including
reasonable attorneys’ fees and legal expenses). 
The obligation of Lenders under this subsection (e) shall survive the
payment of all Obligations and the resignation or replacement of the Agent.

(f)                                    Certain
Lenders that may enter into this Agreement from and after even date may be
unable to comply with the indemnity provision of §18.7(e).  In the event that the Agent agrees in the
applicable Assignment and Acceptance for any subsequent Lender, then such Lender
shall be governed by and shall comply with the provisions of this §18.7(f)
rather than §18.7(e).  In addition to any
other rights of offset contained in this Agreement or under any 

 79
 

 

applicable
law, in the event that any amounts would otherwise be covered by an indemnity
under §18.7(e) from such Lenders, such as United States withholding tax due and
payable and any penalties or interest with respect thereto and fees and
expenses of collection, then in such event, the Agent shall be authorized to
offset any such amounts against the amounts payable to such Lenders hereunder
until otherwise indemnified amounts are fully paid.  The right of offset contained herein shall be
in addition to and shall not limit or otherwise waive or diminish any right or
remedy that the Agent may have against such Lenders under any applicable law.

19.                                 NOTICES.

Each
notice, demand, election or request provided for or permitted to be given
pursuant to the Loan Documents (hereinafter in this §19 referred to as “Notice”),
but specifically excluding to the maximum extent permitted by law any notices
of the institution or commencement of foreclosure proceedings, must be in
writing and shall be deemed to have been properly given or served by personal
delivery or by sending same by nationally recognized overnight courier or by
depositing same in the United States Mail, postpaid and registered or
certified, return receipt requested, and addressed as follows:

If to
any Lender, at the address set forth on Schedule 1.0 for such Lender; and

If to
the Agent:

KeyBank National Association

1200 Abernathy Road, NE

Suite 1550

Atlanta, Georgia 30328

Attn:  Andrew Stickney

with a
copy to:

Paul, Hastings, Janofsky
& Walker LLP

600 Peachtree Street, NE

Suite 2400

Atlanta, Georgia 30308

Attn:  Charles T. 
Sharbaugh, Esq.

If to
Borrower or either Guarantor:

California Coastal
Communities, Inc.

6 Executive Circle

Suite 250 

Irvine, California 92614

Attn:
Raymond J. Pacini

 80
 

 

with
copy to: 

Gregory W. Preston, Esq.

Corporate Law Solutions,
P.C.

2112 Business Center
Drive

2nd Floor

Irvine,
California 92612

and to
each other Lender which may hereafter become a party to this Agreement at such
address as may be designated by such Lender. 
Each Notice shall be effective upon being personally delivered or upon
being sent by overnight courier or upon being deposited in the United States
Mail as aforesaid.  The time period in
which a response to such Notice must be given or any action taken with respect
thereto (if any), however, shall commence to run from the date of receipt if
personally delivered or sent by overnight courier, or if so deposited in the
United States Mail, the earlier of three (3) Business Days following such
deposit or the date of receipt as disclosed on the return receipt.  Rejection or other refusal to accept or the
inability to deliver because of changed address for which no notice was given
shall be deemed to be receipt of the Notice sent.  By giving at least fifteen (15) days prior
Notice thereof, Borrower, a Guarantor, a Lender or the Agent shall have the
right from time to time and at any time during the term of this Agreement to
change their respective addresses and each shall have the right to specify as
its address any other address within the United States of America.

20.                                 RELATIONSHIP.

Neither
the Agent nor any Lender has any fiduciary relationship with or fiduciary duty
to Borrower or the Guarantors arising out of or in connection with the
Agreement or the other Loan Documents or the transactions contemplated
hereunder and thereunder, and the relationship between the Agent, each Lender
and Borrower is solely that of a lender and borrower, and nothing contained
herein or in any of the other Loan Documents shall in any manner be construed
as making the parties hereto partners, joint venturers or any other
relationship other than lender and borrower. 
In furtherance of the foregoing, Borrower and the Guarantors acknowledge
that the Agent and the Lenders may enforce certain limitations on and
requirements with respect to the business of Borrower and the Guarantors, and
Borrower and the Guarantors nevertheless hereby release the Agent and the
Lenders from any and all claims arising from or attributable to the good faith
exercise or enforcement by the Agent or the Lenders of such limitations or
requirements, except if such claim or claims arise out of the gross negligence
or willful misconduct of Agent and/or the Lenders.

21.                                 GOVERNING
LAW; CONSENT TO JURISDICTION AND SERVICE.

THIS
AGREEMENT AND EACH OF THE OTHER LOAN DOCUMENTS EXCEPT AS OTHERWISE SPECIFICALLY
PROVIDED THEREIN, ARE CONTRACTS UNDER THE LAWS OF THE STATE OF CALIFORNIA AND
SHALL FOR ALL PURPOSES BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS
OF SUCH STATE (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF
LAW).  THE BORROWER AND THE GUARANTORS
AGREE THAT ANY SUIT FOR THE ENFORCEMENT OF THIS AGREEMENT OR ANY OF THE OTHER
LOAN DOCUMENTS 

 81
 

 

MAY BE BROUGHT IN
THE COURTS OF THE STATE OF CALIFORNIA OR ANY FEDERAL COURT SITTING THEREIN AND
CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND THE SERVICE OF
PROCESS IN ANY SUCH SUIT BEING MADE UPON THE BORROWER AND THE GUARANTORS BY
MAIL AT THE ADDRESS SPECIFIED IN §19. 
THE BORROWER AND THE GUARANTORS HEREBY WAIVE ANY OBJECTION THAT THEY MAY
NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH
SUIT IS BROUGHT IN AN INCONVENIENT COURT.

22.                                 HEADINGS.

The
captions in this Agreement are for convenience of reference only and shall not
define or limit the provisions hereof.

23.                                 COUNTERPARTS.

This
Agreement and any amendment hereof may be executed in several counterparts and
by each party on a separate counterpart, each of which when so executed and
delivered shall be an original, and all of which together shall constitute one
instrument.  In proving this Agreement it
shall not be necessary to produce or account for more than one such counterpart
signed by the party against whom enforcement is sought.

24.                                 ENTIRE
AGREEMENT, ETC.

The
Loan Documents and any other documents executed in connection herewith or
therewith express the entire understanding of the parties with respect to the
transactions contemplated hereby. 
Neither this Agreement nor any term hereof may be changed, waived,
discharged or terminated, except as provided in §27.

25.                                 WAIVER
OF JURY TRIAL AND CERTAIN DAMAGE CLAIMS.

TO THE
EXTENT ALLOWED BY AND ENFORCEABLE UNDER APPLICABLE LAW, EACH OF THE BORROWER,
THE GUARANTORS, THE AGENT AND EACH OF THE LENDERS HEREBY WAIVES ITS RIGHT TO A
JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN
CONNECTION WITH THIS AGREEMENT, ANY NOTE OR ANY OF THE OTHER LOAN DOCUMENTS,
ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THEREUNDER OR THE PERFORMANCE OF SUCH
RIGHTS AND OBLIGATIONS.  EXCEPT TO THE
EXTENT EXPRESSLY PROHIBITED BY LAW, EACH OF THE BORROWER, THE GUARANTORS, THE
AGENT AND EACH OF THE LENDERS HEREBY WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR
RECOVER IN ANY SUCH LITIGATION ANY SPECIAL, EXEMPLARY OR PUNITIVE DAMAGES OR
ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES OR CONSEQUENTIAL
DAMAGES.  BORROWER AND EACH GUARANTOR (A)
CERTIFIES THAT NO REPRESENTATIVE, THE AGENT OR ATTORNEY OF ANY BANK OR THE
AGENT HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH BANK OR THE AGENT
WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS
AND (B) ACKNOWLEDGES THAT THE AGENT AND THE LENDERS HAVE BEEN INDUCED TO 

 82
 

 

ENTER INTO THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS TO WHICH THEY ARE PARTIES BY, AMONG
OTHER THINGS, THE WAIVERS AND CERTIFICATIONS CONTAINED IN THIS §25.  TO THE EXTENT THE PROVISIONS OF THIS §25 ARE
DEEMED UNENFORCEABLE, (I) THIS §25 AND ANY SIMILAR PROVISIONS IN ANY OTHER LOAN
DOCUMENTS SHALL BE DEEMED TO BE REMOVED FROM THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS RESPECTIVELY, (II) THIS §25 SHALL BE OF NO FURTHER FORCE AND EFFECT,
AND (III) THE REMAINDER OF THIS AGREEMENT SHALL REMAIN IN FULL FORCE AND
EFFECT.

26.                                 DEALINGS
WITH THE BORROWER AND GUARANTORS.

The
Lenders and their Affiliates may accept deposits from, extend credit to and
generally engage in any kind of banking, trust or other business with Borrower,
the Guarantors or any of their Affiliates regardless of the capacity of the
Lenders hereunder.

27.                                 CONSENTS,
AMENDMENTS, WAIVERS, ETC.

Except
as otherwise expressly provided in this Agreement, any consent or approval
required or permitted by this Agreement may be given, and any term of this
Agreement or of any other instrument related hereto or mentioned herein may be
amended, and the performance or observance by Borrower of any terms of this
Agreement or such other instrument or the continuance of any Default or Event
of Default may be waived (either generally or in a particular instance and
either retroactively or prospectively) with, but only with, the written consent
of the Majority Lenders.  Any amendment,
waiver or consent relating to §2.2(b) or the obligations of the Swingline
Lender under this Agreement or any other Loan Document shall, in addition to
the Lenders required hereinabove to take such action, require the written
consent of the Swingline Lender. 
Further, notwithstanding the foregoing, none of the following may occur
without the written consent of each Lender: a change in the rate of interest on
and the term of the Notes; a change in the amount of the Commitments of the
Lenders (except as provided in §2.2); a forgiveness, reduction or waiver of the
principal of any unpaid loan or any interest thereon or fee payable under the
Loan Documents; a change in the amount of any fee payable to a Lender
hereunder; the postponement of any date fixed for any payment (including any
date of any required prepayment) of principal of or interest on the Loan; an
extension of the Maturity Date; a change in the manner of distribution of any
payments to the Lenders or the Agent; the release of Borrower, any Guarantor or
any Collateral except as otherwise provided herein; an amendment of the
definition of Majority Lenders, the provisions of Section 9.3, or of any
requirement for consent by all of the Lenders; any modification to require a
Lender to fund a pro rata share of a request for an advance of the Loan made by
Borrower other than based on its Commitment Percentage; an amendment to this
§27; or an amendment of any provision of this Agreement or the Loan Documents
which requires the approval of all of the Lenders or the Majority Lenders or
the Majority Lenders to require a lesser number of Lenders to approve such
action.  The amount of the Agent’s fee
payable for the Agent’s account and the provisions of §14 may not be amended
without the written consent of the Agent. 
The Borrower agrees to enter into such modifications or amendments of
this Agreement or the other Loan Documents as reasonably may be requested by
the Agent in connection with the assignment of Commitments provided that no
such amendment or modification materially affects or increases any of the
obligations of 

 83
 

 

Borrower
hereunder.  No waiver shall extend to or
affect any obligation not expressly waived or impair any right consequent
thereon.  No course of dealing or delay
or omission on the part of the Agent or any Lender in exercising any right
shall operate as a waiver thereof or otherwise be prejudicial thereto.  No notice to or demand upon Borrower shall
entitle Borrower to other or further notice or demand in similar or other
circumstances.  In the event any Lender
fails to expressly grant or deny any consent, amendment or waiver sought under
this Agreement within ten (10) Business Days of a written request therefor
submitted by the Agent, such Lender shall be deemed to have granted to the
Agent an irrevocable proxy with respect to such specific matter.

28.                                 SEVERABILITY.

The
provisions of this Agreement are severable, and if any one clause or provision
hereof shall be held invalid or unenforceable in whole or in part in any
jurisdiction, then such invalidity or unenforceability shall affect only such
clause or provision, or part thereof, in such jurisdiction, and shall not in
any manner affect such clause or provision in any other jurisdiction, or any
other clause or provision of this Agreement in any jurisdiction.

29.                                 NO
UNWRITTEN AGREEMENTS.

THE
WRITTEN 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.

30.                                 REPLACEMENT
OF NOTES.

Upon
receipt of evidence reasonably satisfactory to Borrower of the loss, theft,
destruction or mutilation of any Note, and in the case of any such loss, theft
or destruction, upon delivery of an indemnity agreement reasonably satisfactory
to Borrower or, in the case of any such mutilation, upon surrender and
cancellation of the applicable Note, Borrower will execute and deliver, in lieu
thereof, a replacement Note, identical in form and substance to the applicable
Note and dated as of the date of the applicable Note and upon such execution
and delivery all references in the Loan Documents to such Note shall be deemed
to refer to such replacement Note.

31.                                 TIME
OF THE ESSENCE.

Time
is of the essence with respect to each and every covenant, agreement and
obligation under this Agreement and the other Loan Documents.

32.                                 RIGHTS
OF THIRD PARTIES.

All
conditions to the performance of the obligations of the Agent and the Lenders
under this Agreement, including the obligation to make Loans, are imposed
solely and exclusively for the benefit of the Agent and the Lenders and no
other Person shall have standing to require satisfaction of such conditions in
accordance with their terms or be entitled to assume that the 

 84
 

 

Agent and the
Lenders will refuse to make advances of proceeds of the Loan in the absence of
strict compliance with any or all thereof and no other Person shall, under any
circumstances, be deemed to be a beneficiary of such conditions, any and all of
which may be freely waived in whole or in part by the Agent and the Lenders at
any time if in their sole but commercially reasonable discretion they deem it
desirable to do so.  In particular, the
Agent and the Lenders make no representations and assume no obligations as to
third parties concerning the quality of the construction by Borrower of the
Project or the absence therefrom of defects.

33.                                 CONFIDENTIALITY
EXCEPTION.

Notwithstanding
anything to the contrary set forth herein or in any other written or oral
understanding or agreement to which the parties hereto are parties or by which
they are bound, the parties hereto acknowledge and agree that (i) any
obligations of confidentiality contained herein and therein do not apply and
have not applied from the commencement of discussions between the parties to
the tax treatment and tax structure of the transactions contemplated by the
Loan Documents (and any related transactions or arrangements), and (ii) each
party (and each of its employees, representatives or other agents) may disclose
to any and all parties as required, without limitation of any kind, the tax
treatment and tax structure of the transactions contemplated by the Loan
Documents and all materials of any kind (including opinions or other tax
analyses) that are provided to such party relating to such tax treatment and
tax structure, all within the meaning of Treasury Regulations Section 1.6011-4;
provided, however, that each party recognizes that the privilege each has to
maintain, in its sole but commercially reasonable discretion, the
confidentiality of a communication relating to the transactions contemplated by
the Loan Documents, including a confidential communication with its attorney or
a confidential communication with a federally authorized tax practitioner under
Section 7525 of the Internal Revenue Code, is not intended to be affected by
the foregoing.

 85
 

 

IN
WITNESS WHEREOF, the undersigned have duly executed this Senior Secured
Revolving Credit Agreement as a sealed instrument the date first set forth
above.

	
  

  	
   

  	
  BORROWER:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  CALIFORNIA
  COASTAL COMMUNITIES, INC.,

  a Delaware corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Raymond J.
  Pacini

  	
   

  
	
   

  	
   

  	
   

  	
  Raymond J.
  Pacini

  Chief Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  [SEAL]

  
						

 

[SIGNATURES CONTINUED ON FOLLOWING PAGE]

 86
 

 

 

	
  

  	
   

  	
  GUARANTOR:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  SIGNAL LANDMARK
  HOLDINGS INC., a

  Delaware corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Raymond J.
  Pacini

  	
   

  
	
   

  	
   

  	
   

  	
  Raymond J.
  Pacini

  Chief Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  [SEAL]

  
						

 

[SIGNATURES CONTINUED ON FOLLOWING PAGE]

 87
 

 

 

	
  

  	
   

  	
  GUARANTOR:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  SIGNAL LANDMARK,
  

  a California corporation 

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Raymond J.
  Pacini

  	
   

  
	
   

  	
   

  	
   

  	
  Raymond J.
  Pacini

  Chief Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  [SEAL]

  
						

 

[SIGNATURES CONTINUED ON FOLLOWING PAGE]

 88
 

 

 

	
  

  	
   

  	
  AGENT:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  KEYBANK NATIONAL
  ASSOCIATION, 

  a national banking association, as Agent 

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Andrew
  Stickney

  	
   

  
	
   

  	
   

  	
   

  	
  Andrew Stickney

  Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  [SEAL]

  
						

 

[SIGNATURES CONTINUED ON FOLLOWING PAGE]

 89
 

 

 

	
  

  	
   

  	
  LENDERS:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  KEYBANK NATIONAL
  ASSOCIATION, a

  national banking association, as Lender 

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Andrew
  Stickney

  	
   

  
	
   

  	
   

  	
   

  	
  Andrew Stickney

  Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  [SEAL]

  
						

 

[SIGNATURES CONTINUED ON FOLLOWING PAGE] 

 90
 

 

 

	
  

  	
   

  	
  WACHOVIA BANK,
  N. A., as Syndication Agent

  and as a Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Brian A.
  Phillips

  	
   

  
	
   

  	
   

  	
   

  	
  Brian A.
  Phillips

  	
   

  
	
   

  	
   

  	
   

  	
  Vice President

  	
   

  
	
   

  	
   

  	
   

  

 

[SIGNATURES CONTINUED ON FOLLOWING PAGE]

 91
 

 

 

	
   

  	
  FRANKLIN BANK, S.S.B., as a
  Lender

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Susan Conrad

  	
   

  
	
   

  	
   

  	
  Susan Conrad

  	
   

  
	
   

  	
   

  	
  Senior Vice
  President

  	
   

  

 

[SIGNATURES CONTINUED ON FOLLOWING PAGE]

 92
 

 

 

	
   

  	
  COMERICA BANK, as a Lender

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Anthony
  Lopilato

  	
   

  
	
   

  	
   

  	
  Anthony Lopilato

  	
   

  
	
   

  	
   

  	
  Senior Vice
  President – Western Market

  	
   

  
	
   

  	
   

  

 

[SIGNATURES CONTINUED ON FOLLOWING PAGE]

 93
 

 

 

	
  

  	
  GUARANTY BANK,
  as a Lender

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jon M.
  Larson

  	
   

  
	
   

  	
   

  	
  Jon M. Larson

  	
   

  
	
   

  	
   

  	
  Senior Vice
  President 

  	
   

  
	
   

  	
   

  

 

 [SIGNATURES
CONTINUED ON FOLLOWING PAGE]

 94
 

 

 

	
  

  	
  UNITED OVERSEAS
  BANK LIMITED, as a

  Lender

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Hoong Chen

  	
   

  
	
   

  	
   

  	
  Hoong Chen

  	
   

  
	
   

  	
   

  	
  First Vice
  President and General Manager

  	
   

  
	
   

  	
   

  
					

 

[SIGNATURES CONTINUED ON FOLLOWING PAGE]

 95
 

 

 

	
  

  	
   

  	
  SWINGLINE LENDER:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  KEYBANK NATIONAL
  ASSOCIATION, a

  national banking association, as Swingline Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Andrew Stickney

  	
   

  
	
   

  	
   

  	
   

  	
  Andrew Stickney

  Vice President

  

 

[END OF SIGNATURES]

 96
 

 

Exhibits
and Schedules

	
  Exhibit “A”

  	
   

  	
  Form of Note

  
	
   

  	
   

  	
   

  
	
  Exhibit “A-1”

  	
   

  	
  Form of Swingline Note

  
	
   

  	
   

  	
   

  
	
  Exhibit “B”

  	
   

  	
  Form of Loan Request

  
	
   

  	
   

  	
   

  
	
  Exhibit “B-1”

  	
   

  	
  Notice of Swingline
  Request

  
	
   

  	
   

  	
   

  
	
  Exhibit “C”

  	
   

  	
  Subsidiaries and Joint
  Ventures

  
	
   

  	
   

  	
   

  
	
  Exhibit “D”

  	
   

  	
  Form of Compliance
  Certificate

  
	
   

  	
   

  	
   

  
	
  Exhibit “E”

  	
   

  	
  Form of Borrowing Base
  Report

  
	
   

  	
   

  	
   

  
	
  Exhibit “F”

  	
   

  	
  Organizational Chart of
  Borrower

  
	
   

  	
   

  	
   

  
	
  Exhibit “G”

  	
   

  	
  Endorsements

  
	
   

  	
   

  	
   

  
	
  Exhibit “H”

  	
   

  	
  Form of Assignment and
  Acceptance Agreement

  
	
   

  	
   

  	
   

  
	
  Exhibit “I”

  	
   

  	
  Project Budget

  
	
   

  	
   

  	
   

  
	
  Exhibit “J”

  	
   

  	
  Additional Guarantor
  Entities

  
	
   

  	
   

  	
   

  
	
  Schedule 1.0 

  	
   

  	
  Lenders and Commitment
  Percentages

  
	
   

  	
   

  	
   

  
	
  Schedule 6.19

  	
   

  	
  Existing or Threatened
  Litigation

  
	
   

  	
   

  	
   

  
	
  Schedule 6.33(b)

  	
   

  	
  Notices of Environmental
  Claims

  
	
   

  	
   

  	
   

  
	
  Schedule 6.33(c)

  	
   

  	
  Existing Environmental
  Reports and Disclosures

  

 

 97PATENT LICENSE AGREEMENT

This  Patent  License Agreement (the "AGREEMENT") is entered into by and between
Integral  Technologies,  Inc.,  a Nevada corporation located at 805 West Orchard
Street, #7, Bellingham, WA 98225 ("INTEGRAL") and  Jasper Rubber Products, Inc.,
an  Indiana  corporation  with  offices  at 101- First Avenue,  Jasper, IN 47546
("JASPER") and is effective as of August 25, 2006 (the "EFFECTIVE DATE").

WHEREAS, Integral is the owner of certain technology, generally characterized as
ElectriPlast  technology;

WHEREAS, particular applications of the technology are covered by certain patent
rights defined below and those patent rights are owned by Integral; and

WHEREAS,  Jasper  wishes to obtain a non-exclusive license under such patents to
develop,  manufacture,  and  sell  certain  products.

NOW, THEREFORE, in consideration of the promises and of the mutual covenants and
agreements  herein  contained,  receipt  and  sufficiency  of  which  is  hereby
acknowledged,  the  Parties  hereby  agree  as  follows:

1.     DEFINITIONS.

     1.1.     "CONFIDENTIAL  INFORMATION"  means  all  non-public  information
regarding  the  Disclosing  Party  or its business activities, including without
limitation  (i) its sublicensees, manufacturers, contractors, or sales, (ii) any
non-public  information  disclosed  in any report provided under this Agreement,
(iii)  the  Documentation  and  any  other  information  disclosed  during  any
consulting  services;  (v)  the terms of this Agreement; and (v) any information
disclosed  by  Jasper  pursuant  to  Section  3.

     1.2.     "LICENSED  FIELD"  means  the manufacture and sale of Products for
use  in  home  appliances  manufactured  and  sold by the entities listed in the
attached  Exhibit  A
          ----------

     1.3.      "LICENSED  PRODUCT"  means  any  Product  made,  used,  sold,  or
otherwise  disposed of by or for Jasper that (i) uses the Raw Materials and (ii)
is  either  branded  with  a  Jasper  brand or is designed by Jasper and sold in
Jasper's ordinary course of business.  Licensed Products do not include "private
label"  Products or other products sold without a designation that Jasper is the
source  of  the  Product.

     1.4.      "LICENSED  PATENTS"  means  the  (i)  patents, provisional patent
applications,  and  utility patent applications set forth in Exhibit B; (ii) any
                                                             ---------
divisions, continuations, continuations-in-part, reissues, or re-examinations of
such  patents  and  patent  applications;  (iii) all foreign counterparts of the
foregoing  (i)  and (ii); and (iv) all applications for any of the foregoing (i)
through (iii).  Licensed Patents do not include any patent claim that has either
expired  or  been  held  invalid  or  unenforceable  by a decision of a court or
governmental agency of competent jurisdiction, which decision is unappealable or
unappealed  within the time allowed for an appeal, or any other patent or patent
application.

     1.5.     "PRODUCT"  means any product (i) the manufacture, use, sale, offer
for  sale,  or  import of which is covered by at least one claim of the Licensed
Patents;  or  (ii) produced by a process, the practice of which is covered by at
least  one  claim  of  the  Licensed  Patents.

     1.6.     "RAW  MATERIALS"  means the Technology, as Integral provides it to
Jasper,  on  a  per  weight  basis  for  use in manufacturing Licensed Products.

     1.7.     "TECHNOLOGY"  means  Integral's  proprietary  ElectriPlast(TM)
technology,  portions  of  which  may  be  covered by the Licensed Patents.  The
Technology  is  a  compounded,  pelletized formulation of resin-based materials,
which  are  conductively loaded or doped with a proprietary controlled, balanced
concentration  of  micron conductive materials contained within the manufactured
pellet.  The conductive loading or doping within this pellet is then homogenized
using  conventional  molding  techniques and conventional molding equipment. The
resulting  polymer  is  electrically  conductive.

     1.8.     "THIRD  PARTY"  means corporate entities or individuals other than
Integral  or  Jasper.

                      INTEGRAL PROPRIETARY AND CONFIDENTIAL
                                  PAGE 1 OF 14

<PAGE>
2.     CONSULTING  SERVICES.

Integral  will provide Jasper with consulting services related to the Technology
at  Integral's standard hourly rates for such consulting services, on a date and
at a location mutually agreeable to the Parties.  If Jasper requests that all or
part  of  the consulting services take place at facilities other than Integral's
place  of business, Jasper will reimburse Integral for its reasonable and actual
meals,  travel,  and  lodging  expenses  incurred  as a result of providing such
consulting services.  Integral may, but is not obligated to, provide Jasper with
certain  pre-existing  or  developed written materials as part of the consulting
services ("DOCUMENTATION"), provided that in no event shall any Documentation be
deemed  a  "work  made for hire" or any ownership rights in the Documentation be
assigned  to  Jasper.  By  way  of  clarification,  Integral's  rights  in  the
Technology under U.S. patent application numbers not listed on Exhibit B are not
licensed  under  this  Agreement, except as otherwise covered under the Licensed
Patents.  Documentation  shall  be  treated  as  Confidential  Information.

3.     LICENSE  GRANTS.

     3.1.     To  Jasper.  Integral  grants  to  Jasper  a  non-exclusive,
              ----------
non-sublicensable,  non-assignable,  worldwide  license  under all of Integral's
rights  under  the  Licensed  Patents  to  (i) make, use, offer to sell, sell or
import  Licensed  Products  in  the  Licensed Field; and (ii) internally use the
Documentation  and  information  provided  solely for purposes of developing and
manufacturing  Licensed  Products  in  the  Licensed  Field.

     3.2.     No  Foundry Rights.  Without limiting the restrictions on "private
              ------------------
labeling" as provided in Section 1.2 above, Section 3.1 shall not be interpreted
as  granting  any  rights to Jasper to manufacture Third Party Products, wherein
such  products  are  designed  by  the  Third Party without substantial input of
Jasper  and  such  products  are  essentially  sold only to that designing Third
Party.

     3.3.     Ownership.  Except  as  expressly  set  forth  in  this Agreement,
              ----------
nothing in this Agreement shall be construed as a grant of any license or rights
by implication or estoppel and Integral retains all right, title and interest in
and  to  the  Licensed  Patents.  All  rights  not expressly granted by Integral
hereunder  are  reserved  and retained by Integral, including but not limited to
Integral's  rights  in  the  Technology  not  covered  by  the Licensed Patents.

     3.4.     New  Joint  Developments.  All  technology,  information  and
              ------------------------
inventions ("New Developments"), whether or not patentable, developed jointly by
Integral  and  Jasper  that concern the Technology (including the manufacture or
formulation  of  the Raw Materials) shall be the exclusive property of Integral.
[All  New Developments, whether or not patentable, developed jointly by Integral
and  Jasper  that  concern the design or manufacture of fabricated products made
using the Raw Materials shall be the exclusive property of Jasper; provided that
Jasper  shall  have  no  rights  in the Technology or Licensed Patents except as
provided  pursuant to the delivery of Raw Materials by Integral.  ]All other New
Developments  jointly  developed  by  the  Parties under this Agreement shall be
[jointly owned by the Parties;] provided that Jasper shall have no rights in the
Technology  or  Licensed  Patents except as provided pursuant to the delivery of
Raw  Materials  by Integral.  The Parties agree to discuss in good faith whether
and  how  to jointly prosecute or enforce any patents based on jointly owned New
Developments  in a mutually agreed fashion.  Neither Party shall be obligated to
pay the other any royalties or other consideration, nor account to the other for
any  royalties  or  other  consideration  it  may  receive,  for  any  licenses,
assignment,  sale,  lease  or  other  distribution  of  the  jointly  owned  New
Developments  or  any  derivative  technology  thereof.  Any  such  derivative
technology  made  after the termination or expiration of this Agreement shall be
owned  exclusively  by the creator of such derivative technology.  Additionally,
regardless  of  subject  matter, all New Developments discovered or developed by
one  Party  without  the  participation of the other Party shall become the sole
property of the discovering or developing Party; provided that Jasper shall have
no  rights  in the Technology or Licensed Patents except as provided pursuant to
the  delivery  of  Raw  Materials  by  Integral.

                      INTEGRAL PROPRIETARY AND CONFIDENTIAL
                                  PAGE 2 OF 14

<PAGE>
4.     CONSIDERATION.

Upon execution of this Agreement, Jasper shall pay Integral a non-refundable fee
of  One  U.S.  Dollar  ($1.00).

5.     RAW  MATERIALS  FEES.

The  Parties  agree to use good faith efforts to reach agreement on commercially
reasonable  terms for the pricing and delivery of the Raw Materials to Jasper by
Integral, and that agreement regarding the pricing and delivery of Raw Materials
shall  be  memorialized  as  an  amendment  to  this  Agreement.

6.     ENFORCEMENT  OF  PATENT  RIGHTS.

     6.1.     Notice;  Enforcement.  In  the  event that Jasper becomes aware of
              --------------------
actual  or  threatened  infringement  of  the  Patent  Rights  by  a Third Party
involving  Licensed  Products, Jasper shall promptly notify Integral in writing.
Integral may, at its discretion, take corrective action against the Third Party,
and  may  identify Jasper as having rights under the Licensed Patents.  Integral
shall  not  name  Jasper  as  a  co-party  in any such action without an express
written  request  from  Jasper.

     6.2.     Infringement Action.  In the event Integral brings an infringement
              -------------------
action  against  a Third Party, such action shall be at no cost to Jasper unless
Jasper  joins  the  suit  as  a  co-party,  and  any recovery shall go solely to
Integral.  Jasper  is  under  no obligation to join any such action and Integral
must  approve  the  addition  of  Jasper  as  a  co-party.

7.     TERM  AND  TERMINATION.

     7.1.     Term.  This  Agreement  shall be in full force and effect from the
              ----
Effective  Date  and  shall  remain  in  effect until the expiration of the last
patent  contemplated  to  be  licensed  by  this  Agreement,  or until otherwise
terminated pursuant to the terms and conditions of this Agreement.

     7.2.     Termination.  Jasper may terminate this Agreement upon thirty (30)
              -----------
days'  written  notice  at  any time.  Either Party may terminate this Agreement
immediately  upon  written  notice at any time if the other Party is in material
breach  of  any  material  warranty, term or condition of this Agreement and has
failed to cure that breach within thirty (30) days after written notice thereof.
Integral  may  terminate  this  Agreement  upon  written notice in the event (i)
Jasper  institutes any action or proceeding in which it claims that any Licensed
Patent  is  invalid  or  unenforceable;  or  (ii)  Jasper  institutes any action
(including  by  counter  or  cross-claim)  alleging  that Integral infringes any
Jasper  patent  and/or  patent application.  The terminating Party will incur no
liability  to  the  other  Party  for  damages of any kind resulting solely from
terminating  this  Agreement  in  accordance  with  its  terms.

     7.3.     Effect  of  Expiration  or  Termination.  Upon  expiration  or
              ---------------------------------------
termination  of  this Agreement, (i) Jasper shall pay all sums accrued hereunder
prior to such termination, (ii) Integral shall have the right to retain any sums
already  paid  by Jasper for this license and for any Raw Materials delivered or
created  for  Jasper  prior to expiration or termination, and (iii) Jasper shall
return  or certify in writing that it has destroyed all Documentation.  Upon the
termination  of  this  Agreement, Jasper shall have the right to use or sell all
Licensed  Product  on-hand at the time of such termination, provided that Jasper
shall  be obliged to pay Integral a royalty on use or such sales as set forth in
this  Agreement.

     7.4.     Survival.  In  the  event  of  expiration  or  termination of this
              --------
Agreement  for  any reason, the following sections will survive such termination
or expiration: 1, 3.4, 7.4, and 8 - 11.

8.     WARRANTIES,  REPRESENTATIONS,  AND  COVENANTS;  DISCLAIMER.

     8.1.     Mutual  Representations  and  Warranties.  Each  Party represents,
              ----------------------------------------
warrants,  and  covenants  that:  (i)  this  Agreement has been duly and validly
executed  and  delivered  by  such  Party  and  constitutes  a legal and binding
obligation  of  such Party, enforceable against it in accordance with its terms;
(ii)  such Party has all necessary power and authority to execute and perform in
accordance  with  this Agreement; and (iii) such Party's execution, delivery and
performance  of  this  Agreement  will  not  conflict  with  or  violate  any

                      INTEGRAL PROPRIETARY AND CONFIDENTIAL
                                  PAGE 3 OF 14

<PAGE>
provision of law, rule or regulation to which it is subject, or any agreement or
other obligation directly or indirectly applicable to such Party or binding upon
its  assets.

     8.2.     Representations  and  Warranties of Integral.  Integral represents
              --------------------------------------------
and  warrants  that  (i)  it has the lawful right to grant the license set forth
herein;  and  (ii)  as  of  the  Effective  Date, the Licensed Patents listed in
Exhibit  A  are  issued,  unexpired,  valid  according  to  the  U.S. Patent and
Trademark  Office  and  in  good  standing.

     8.3.     Representations,  Warranties,  and  Covenants  of  Jasper.  Jasper
              ---------------------------------------------------------
warrants that it has and will have throughout the Term the lawful right to grant
the  licenses  contemplated  herein.

     8.4.     WARRANTY  DISCLAIMER.  EXCEPT AS PROVIDED IN SECTIONS 8.1, AND 8.2
              --------------------
ABOVE,  INTEGRAL  EXPRESSLY  DISCLAIMS  ALL  WARRANTIES,  EXPRESS,  IMPLIED  OR
STATUTORY,  INCLUDING  BUT  NOT  LIMITED  TO  ANY  IMPLIED  WARRANTIES  OF
MERCHANTABILITY,  FITNESS FOR A PARTICULAR PURPOSE, OR NONINFRINGEMENT, ALL WITH
RESPECT  TO  THE PATENTS, DOCUMENTATION, AND ANY OTHER MATERIALS OR INTELLECTUAL
PROVIDED  OR  LICENSED  UNDER  THIS  AGREEMENT.  IN  ADDITION,  NOTHING  IN THIS
AGREEMENT  SHALL BE CONSTRUED AS (I) A WARRANTY OR REPRESENTATION BY INTEGRAL OF
THE  VALIDITY  OR  SCOPE  OF  ANY  OF  THE  LICENSED PATENTS; (II) A WARRANTY OR
REPRESENTATION  THAT  ANYTHING  MADE,  USED, SOLD OFFERED FOR SALE, IMPORTED, OR
OTHERWISE DISPOSED OF UNDER ANY LICENSE GRANTED IN THIS AGREEMENT IS OR SHALL BE
FREE  FROM  INFRINGEMENT  OF  PATENTS OR PROPRIETARY RIGHTS OF THIRD PARTIES; OR
(III)  AN  AGREEMENT  BY INTEGRAL TO BRING OR PROSECUTE ACTIONS OR SUITS AGAINST
THIRD  PARTIES  FOR  INFRINGEMENT  OF  THE  PATENT  RIGHTS.

9.     INDEMNIFICATION.

Each  Party (the "INDEMNIFYING PARTY") will indemnify, hold harmless, and defend
the  other  Party  (the  "INDEMNIFIED  PARTY")  and  its  subsidiary  and parent
entities,  successors,  affiliates,  and  assigns,  and  all of their respective
officers,  directors,  members,  stockholders, agents, employees, and attorneys,
from any and all actions, causes of action, suits, proceedings, claims, demands,
judgments,  bona  fide  settlements,  penalties,  damages,  losses, liabilities,
costs, and expenses (including without limitation reasonable attorneys' fees and
costs and those necessary to interpret or enforce this Section 9) arising out of
or  relating  to  any  claim  or  allegation arising out of (i) the Indemnifying
Party's  breach  of  this Agreement, including without limitation the warranties
set  forth  in  Section  8  above;  or  (ii)  in  the  case  where Jasper is the
Indemnifying  Party,  the  manufacture,  use,  or  sale of any Licensed Product,
including, but not limited to any damages, losses or liabilities whatsoever with
respect to death or injury to any person and damage to any property arising from
the  possession,  use  or  operation  of the Licensed Product by Jasper or their
customers  in any manner whatsoever; except to the extent that the claim results
from  Integral's  infringement  of the intellectual property rights of any third
party.  The  Indemnified  Party  may, at its expense, employ separate counsel to
monitor  and participate in the defense of any claim that the Indemnifying Party
is  defending  under  this  Section.  The  Indemnified  Party  will  provide the
Indemnifying  Party  with  reasonably  prompt  notice in writing of any claim to
which  this  Section  relates.

10.    CONFIDENTIALITY.

A  Party receiving Confidential Information (the "RECEIVING PARTY") of the other
Party  (the "DISCLOSING PARTY") shall not disclose or make any use of any of the
Disclosing  Party's  Confidential  Information except expressly as authorized in
writing  by  the  Disclosing  Party.  Authorized uses include use related to the
implementation  of this Agreement.  The Receiving Party agrees to take all steps
reasonably  requested  by  the  Disclosing  Party  to  confirm  and  protect the
Disclosing  Party's  interests in the Confidential Information.  For purposes of
clarification,  Confidential  Information shall not include information that the
Receiving  Party can establish by written evidence:  (i) entered or subsequently
enters  the  public  domain

                      INTEGRAL PROPRIETARY AND CONFIDENTIAL
                                  PAGE 4 OF 14

<PAGE>
without  the  Receiving  Party's  breach  of  any obligation owed the Disclosing
Party;  (ii) became known to the Receiving Party prior to the Disclosing Party's
disclosure of such information to the Receiving Party; (iii) became known to the
Receiving  Party from a source other than the Disclosing Party other than by the
breach of an obligation of confidentiality owed to the Disclosing Party; or (iv)
is  independently  developed  by the Receiving Party without reference to any of
the  Disclosing  Party's  Confidential  Information.

11.    GENERAL.

     11.1.     Notices.  All  notices,  requests,  consents,  approvals,  or
               -------
authorizations  in connection with this Agreement: (i) must be given in writing;
and (ii) will be deemed given as of (a) the day they are delivered on paper by a
nationally recognized express delivery service (such as Federal Express or DHL),
addressed  as set forth below; or (b) three (3) days after they are deposited in
the  sender's  national  mail  system, postage prepaid, certified or registered,
return  receipt  requested,  and  addressed  as  follows:

          To  Integral:  805  West  Orchard  Street,  #7,  Bellingham, WA 98225,
          -------------
          Attn:  William  Robinson

          To  Jasper:  1010  First  Avenue,  Jasper, IN 47546-3201 Attn: Douglas
          -----------
          Mathias

          Either  Party  may  change  the  address above by giving notice to the
          other  Party  pursuant  to  this  Section  11.1.

     11.2.     Assignment.  Integral may assign this Agreement or its rights and
               ----------
duties under this Agreement, but Jasper may not undertake any assignment of this
Agreement  or  any  of  its  rights  and  duties  under  this  Agreement without
Integral's  prior  written  consent.  However,  Jasper may assign this Agreement
without  Integral's  prior  written  consent  as  part of a merger, or a sale or
transfer of all or substantially all of its assets, provided such merger or sale
is  not with or to a competitor of Integral.  Any attempted assignment by Jasper
of  this  Agreement  or  all or part of its rights and/or obligations under this
Agreement  without  Integral's  prior written consent (except as provided by the
prior sentence) will be voidable at Integral's option.  This Agreement will bind
each  Party's  heirs  and  personal representatives, and inure to the benefit of
each  Party  and  its  successors,  heirs  and/or  personal  assigns.

     11.3.     Dispute  Resolution.  This  Agreement  will  be  governed  by and
               -------------------
construed  in  accordance  with the laws of the State of Washington as such laws
apply  to  contracts performed within Washington by its residents.  Any cause of
action  concerning  this contract shall be brought in the state court located in
Whatcom County, Washington, or the federal court located in the Western District
of Washington, and Jasper consents to the exclusive jurisdiction of such courts.
In  any  action  to  enforce  any  right  or  remedy  under this Agreement or to
interpret any provision of this Agreement, the prevailing Party will be entitled
to  recover  its  costs,  including  attorneys'  fees.

     11.4.     No Joint Venture.  Nothing in this Agreement will be construed to
               ----------------
mean  that any Party is appointed or in any way authorized to act as an agent of
any  other Party.  This Agreement does not create any joint venture, partnership
or  formal  business  entity  or  organization  of  any  kind.

     11.5.     Waiver.  No  waiver  of  any  provision of this Agreement will be
               ------
effective unless it is in a signed writing, and no such waiver will constitute a
waiver  of  any other provision(s) or of the same provision on another occasion.

     11.6.     Severability.  If  a  court  of  competent jurisdiction holds any
               ------------
term,  covenant  or  restriction  of  this  Agreement  to be illegal, invalid or
unenforceable, in whole or in part, the Parties agree to negotiate in good faith
to  create  an  appropriate  amendment  to  the  remaining  terms, covenants and
provisions  that  will  replicate the economic effect of the Parties' intentions
under  this  Agreement.

     11.7.     Injunctive  and  Equitable  Relief.  Each  Party acknowledges and
               ----------------------------------
agrees  that monetary damages may not be a sufficient remedy for a breach of the
terms  of  this  Agreement  respecting  Confidential  Information, and that such
breach  will  cause  the  owner  of  that Confidential Information immediate and
irreparable  injury.  In  such  cases, the non-breaching Party will be entitled,
without  waiving  or  prejudicing any other rights or remedies, to injunctive or
equitable  relief.

                      INTEGRAL PROPRIETARY AND CONFIDENTIAL
                                  PAGE 5 OF 14

<PAGE>
     11.8.     Entire  Agreement; Amendments.  This Agreement is not an offer by
               -----------------------------
Integral  and it is not effective until signed by both Parties.  This Agreement,
including the Exhibits attached hereto which are incorporated by this reference,
constitutes the entire agreement between the Parties with respect to the subject
matter  hereof  and  merges  all  prior  and  contemporaneous communications and
proposals, whether electronic, oral or written, between the Parties with respect
to  such subject matter.  This Agreement may not be modified except by a written
agreement  dated  subsequent  to  the  date of this Agreement and signed by duly
authorized  representatives  of  Integral  and  Jasper.

IN  WITNESS  WHEREOF,  both Integral and Jasper have executed this Agreement, in
duplicate  originals  by  their  respective  officers  hereunto duly authorized.

--------------------------------------------------------------------------------
INTEGRAL TECHNOLOGIES, INC.                 JASPER RUBBER PRODUCTS, INC.

By:  /s/ William S. Robinson                By:  /s/ Douglas R. Mathias

Title:  CEO                                 Title: President and CEO

Date: August 24, 2006                       Date: August 24, 2006
--------------------------------------------------------------------------------

     Before  me,  a  Notary  Public, in and for the County and State, personally
appeared  the within named Douglas R. Mathias, President and CEO of JSPER RUBBER
PORDUCTS,  INC.,  and William Robinson, Chairman & CEO or INTEGRAL TECHNOLOGIES,
INC.,  who  acknowledged the execution of the foregoing Patent License Agreement
to  be their voluntary act and deed and to be the voluntary act and deed of said
corporation.

     WITNESS my hand and Notarial Seal this 24 day of August, 2006.
                                           ----

                                           /s/  Janelle  S.  Durcholz
                                           (Janelle S. Durcholz) - Notary Public

My Commission Expires: Oct 19, 2007        My County of Residence is: Dubois

STATE OF INDIANA     )
                     )  SS:
COUNTY OF DUBOIS     )

                      INTEGRAL PROPRIETARY AND CONFIDENTIAL
                                  PAGE 6 OF 14

<PAGE>
                                    EXHIBIT A

                         CUSTOMERS IN THE LICENSED FIELD

[to  be  provided  by  Jasper]

                      INTEGRAL PROPRIETARY AND CONFIDENTIAL
                                  PAGE 7 OF 14

<PAGE>
                                    EXHIBIT B

                    LICENSED PATENTS AND PATENT APPLICATIONS

[to  be  provided  by  Integral]

                      INTEGRAL PROPRIETARY AND CONFIDENTIAL
                                  PAGE 8 OF 14

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