Document:

EXHIBIT 10.1

INCYTE
CORPORATION

1997
EMPLOYEE STOCK PURCHASE PLAN

(as amended and restated
September 15, 2006)

The following constitute
the provisions of the 1997 Employee Stock Purchase Plan of Incyte Corporation,
as amended and restated September 15, 2006.

1.             Purpose.  The purpose of the Plan is to provide
employees of the Company and its Designated Subsidiaries with an opportunity to
purchase Common Stock of the Company through accumulated payroll deductions.  It is the intention of the Company to have the
Plan qualify as an “Employee Stock Purchase Plan” under Section 423 of the
Internal Revenue Code of 1986, as amended. 
The provisions of the Plan, accordingly, shall be construed so as to
extend and limit participation in a manner consistent with the requirements of
that section of the Code.

2.             Definitions.

(a)           “Administrator” shall mean the
Board or a committee consisting exclusively of members of the Board that has
been appointed by the Board and authorized to administer the Plan.

(b)           “Board” shall mean the Board
of Directors of the Company.

(c)           “Code” shall mean the Internal
Revenue Code of 1986, as amended.

(d)           “Common Stock” shall mean the
Common Stock, $.001 par value, of the Company.

(e)           “Company” shall mean Incyte
Corporation.

(f)            “Compensation” shall mean all
cash salary, wages, commissions and bonuses, but shall not include any imputed
income or income arising from the exercise or disposition of equity
compensation.

(g)           “Effective Date” shall mean
September 15, 2006.

(h)           “Designated Subsidiary” shall
mean any Subsidiary which has been designated by the Board from time to time in
its sole discretion as eligible to participate in the Plan.

(i)            “Employee” shall mean any
individual who is an Employee of the Company or its Designated Subsidiaries for
tax purposes whose customary employment is at least twenty (20) hours per week
and more than five (5) months in any calendar year.  For purposes of the Plan, the employment
relationship shall be treated as continuing intact while the individual is on
sick leave or other leave of absence approved by the Company or its Designated
Subsidiaries, as applicable.  Where the
period of leave exceeds 90 days and the individual’s right

 

 

to reemployment is not guaranteed either by
statute or by contract, the employment relationship shall be deemed to have
terminated on the 91st day of such leave.

(j)            “Enrollment Date” shall mean
the first day of each Offering Period.

(k)           “Exercise Date” shall mean the
last Trading Day of each Purchase Period.

(l)            “Fair Market Value” shall
mean, as of any date, the value of Common Stock determined as follows:

(1)           If the Common Stock is listed on any
established stock exchange other than The NASDAQ Stock Market, its Fair Market
Value shall be the last reported sale price for the Common Stock reported by
the applicable composite transactions report for such exchange on the date of
determination, as reported on such stock exchange’s website or such other
source, including The Wall Street Journal, as the
Administrator deems reliable; or

(2)           If the Common Stock is listed on The
NASDAQ Stock Market, its Fair Market Value shall be the last reported sale
price for the Common Stock quoted on The NASDAQ Stock Market on the date of
determination, as reported on www.nasdaq.com or such other source, including The Wall Street Journal, as the Administrator deems
reliable;

(3)           If the Common Stock is traded
over-the-counter and is quoted on the OTC Bulletin Board, its Fair Market Value
shall be the last transaction price for the Common Stock quoted by the OTC
Bulletin Board on the date of determination, as reported on www.otcbb.com or
such other source as the Administrator deems reliable;

(4)           If the Common Stock is traded
over-the-counter but is not quoted on the OTC Bulletin Board, its Fair Market
Value shall be the mean of the closing bid and asked prices for the Common
Stock on the date of determination, as reported on www.pinksheets.com or such
other source as the Administrator deems reliable; or

(5)           In the absence of an established
market for the Common Stock, the Fair Market Value thereof shall be determined
in good faith by the Board.

(m)          “Offering Periods” shall mean
the periods of approximately twenty-four (24) months during which an option
granted pursuant to the Plan may be exercised, commencing on the first Trading
Day on or after May 1 and November 1 of each year and terminating on the last
Trading Day in the periods ending twenty-four months later.  The duration and timing of Offering Periods
may be changed pursuant to Section 4 of this Plan.

(n)           “Plan” shall mean this
Employee Stock Purchase Plan.

(o)           “Purchase Price” shall mean an
amount equal to 85% of the Fair Market Value of a share of Common Stock on the
Enrollment Date or on the Exercise Date, whichever is lower.

(p)           “Purchase Period” shall mean
the approximately six-month period commencing after one Exercise Date and
ending with the next Exercise Date, except that the first

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Purchase Period of any Offering Period shall
commence on the Enrollment Date and end with the next Exercise Date.  The duration and timing of Purchase Periods
may be changed pursuant to Section 4 of this Plan.

(q)           “Reserves” shall mean the
number of shares of Common Stock covered by each option under the Plan which
have not yet been exercised and the number of shares of Common Stock which have
been authorized for issuance under the Plan but not yet placed under option.

(r)            “Subsidiary” shall mean a
corporation (as defined in Treasury Regulation section 1.421-1(i)), domestic or
foreign, of which not less than 50% of the voting shares are held by the
Company or a Subsidiary, whether or not such corporation now exists or is
hereafter organized or acquired by the Company or a Subsidiary.

(s)           “Trading Day” shall mean a day
on which the national securities exchange or stock market on which the Common
Stock is principally traded, or, if the Common Stock is not listed or quoted on
any securities exchange or stock market, the New York Stock Exchange, is open
for trading.

3.             Eligibility.

(a)           Any Employee who has been employed
for one month or more on a given Enrollment Date shall be eligible to
participate in the Plan.

(b)           Any provisions of the Plan to the
contrary notwithstanding, no Employee shall be granted an option under the Plan
(i) to the extent that, immediately after the grant, such Employee (or any
other person whose stock would be attributed to such Employee pursuant to
Section 424(d) of the Code) would own stock and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined voting
power or value of all classes of stock of the Company, its parent or any
Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company, its parent and
Subsidiaries accrues at a rate which exceeds Twenty-Five Thousand Dollars
($25,000) worth of stock (determined at the fair market value of the shares at
the time such option is granted) for each calendar year in which such option is
outstanding at any time.

4.             Offering
Periods.  The Plan shall be
implemented by consecutive, overlapping Offering Periods with a new Offering
Period commencing on the first Trading Day on or after May 1 and November 1
each year, or on such other dates as the Board shall determine, and continuing
thereafter until terminated in accordance with Section 19 hereof.  The Board or a committee thereof shall have
the power to change the duration of Offering Periods (including the
commencement dates thereof) and Purchase Periods thereunder with respect to
future offerings without stockholder approval if such change is announced at
least five (5) days prior to the scheduled beginning of the first Offering
Period to be affected thereafter.

5.             Participation.

(a)           An eligible Employee may become a
participant in the Plan by completing a subscription agreement authorizing
payroll deductions substantially in the form of Exhibit A to

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this Plan and filing it with the Company’s
stock administrator not later than ten (10) business days prior to the
applicable Enrollment Date.

(b)           Payroll deductions for a participant
shall commence on the first payroll following the Enrollment Date and shall end
on the last payroll in the Offering Period to which such authorization is
applicable, unless sooner terminated by the participant as provided in Section
10 hereof.

6.             Payroll
Deductions.

(a)           At the time a participant files his
or her subscription agreement, he or she shall elect to have payroll deductions
made on each pay day during the Offering Period in an amount not less than one
percent (1%) and not more than ten percent (10%) of the participant’s
Compensation, with such amount designated in integral multiples of one percent
(1%); provided, however, that the aggregate of such payroll deductions during
any Offering Period shall not exceed ten percent (10%) of the participant’s
aggregate Compensation during such Offering Period.

(b)           All payroll deductions made for a
participant shall be credited to his or her account under the Plan and shall be
withheld in whole percentages only.  A
participant may not make any additional payments into such account.

(c)           A participant may discontinue his or
her participation in the Plan as provided in Section 10, or may increase or
decrease the rate of his or her payroll deductions as provided in this Section 6(c).  A participant may increase the rate of his or
her payroll deductions only as of the beginning of a Purchase Period.  Such increase shall take effect with the
first payroll following the beginning of the new Purchase Period provided the
participant has completed and delivered to the Company’s stock administrator a
new subscription agreement authorizing the increase in the payroll deduction
rate at least ten (10) business days prior to the beginning of the new Purchase
Period.  A participant may decrease the
rate of his or her payroll deductions each month.  Any decrease shall become effective as of the
first payroll of the next calendar month following the date that the
participant completes and delivers to the Company’s stock administrator a new
subscription agreement authorizing the decrease in the payroll deduction
rate.  However, if the subscription
agreement is not received at least five (5) business days prior to such
payroll, the decrease shall become effective as of the first payroll of the
second succeeding calendar month.  The
Administrator may, in its discretion, limit the number of participation rate
changes during any Offering Period. 
Subject to the foregoing, a participant’s subscription agreement shall
remain in effect for successive Offering Periods unless terminated as provided
in Section 10 hereof.

(d)           Notwithstanding the foregoing, to the
extent necessary to comply with Section 423(b)(8) of the Code and Section 3(b)
hereof, a participant’s payroll deductions may be decreased to zero percent
(0%) at any time during a Purchase Period. 
Such a decrease shall not be treated as a withdrawal from the Plan
subject to Section 10, unless the participant elects to withdraw pursuant to
Section 10.  Payroll deductions shall
recommence at the rate provided in such participant’s subscription agreement at
the beginning of the first Purchase Period which is

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scheduled to end in the following calendar
year, unless the participant elects to withdraw from the Plan as provided in
Section 10 hereof.

(e)           At the time the option is exercised,
in whole or in part, or at the time some or all of the Common Stock issued
under the Plan is disposed of, the participant must make adequate provision for
the federal, state, or other tax withholding obligations, if any, which arise
upon the exercise of the option or the disposition of the Common Stock.  At any time, the Company or a Designated
Subsidiary, as applicable, may, but shall not be obligated to, withhold from
the participant’s compensation the amount necessary to meet applicable
withholding obligations, including any withholding required to make available
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.

7.             Grant
of Option.  On the Enrollment Date of
each Offering Period, each eligible Employee participating in such Offering
Period shall be granted an option to purchase on each Exercise Date during such
Offering Period (at the applicable Purchase Price) up to a number of shares of
Common Stock determined by dividing such Employee’s payroll deductions
accumulated prior to such Exercise Date and retained in the Participant’s
account as of the Exercise Date by the applicable Purchase Price; provided that
in no event shall an Employee be permitted to purchase during each Purchase
Period more than eight thousand (8,000) shares of Common Stock (subject to any
adjustment pursuant to Section 18) on the Enrollment Date, and provided further
that such purchase shall be subject to the limitations set forth in Sections 3(b)
and 13 hereof.  Exercise of the option
shall occur as provided in Section 8 hereof, unless the participant has
withdrawn pursuant to Section 10 hereof. 
The option shall expire on the last day of the Offering Period.

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8.             Exercise
of Option.  Unless a participant
withdraws from the Plan as provided in Section 10 hereof, his or her option for
the purchase of shares of Common Stock shall be exercised automatically on the
Exercise Date, and the maximum number of full shares of Common Stock subject to
option shall be purchased for such participant at the applicable Purchase Price
with the accumulated payroll deductions in his or her account.  No fractional shares shall be purchased; any
payroll deductions accumulated in a participant’s account which are not sufficient
to purchase a full share shall be retained in the participant’s account for the
subsequent Purchase Period or Offering Period, subject to earlier withdrawal by
the participant as provided in Section 10 hereof.  Any other monies left over in a participant’s
account after the Exercise Date shall be returned to the participant.  During a participant’s lifetime, a
participant’s option to purchase shares hereunder is exercisable only by him or
her.

9.             Delivery.  As promptly as practicable after each Exercise
Date on which a purchase of shares occurs, a share certificate or certificates
representing the number of shares of Common Stock so purchased shall be
delivered to a brokerage account designated by the Company and kept in such
account pursuant to a subscription agreement between each participant and the
Company and subject to the conditions described therein which may include a
requirement that shares be held and not sold for certain time periods, or the
Company shall establish some other means for such participants to receive
ownership of the shares.

10.           Discontinuation;
Withdrawal.

(a)           A participant may discontinue his or
her participation in the Plan only by withdrawing from the Plan as provided in
this Section 10.  A participant may
withdraw all but not less than all the payroll deductions credited to his or
her account and not yet used to exercise his or her option under the Plan by
giving written notice to the Company substantially in the form of
Exhibit B to this Plan.  Such notice
must be received by the Company no later than 2:00 p.m. Pacific Standard Time
on the second Trading Day preceding the Exercise Date.  All of the participant’s payroll deductions
credited to his or her account shall be paid to such participant promptly after
receipt of notice of withdrawal and such participant’s option for the Offering
Period shall be automatically terminated, and no further payroll deductions for
the purchase of shares shall be made for such Offering Period.  If a participant withdraws from an Offering
Period, payroll deductions shall not resume at the beginning of the succeeding
Offering Period unless the participant delivers to the Company a new
subscription agreement in accordance with Section 5(a) .

(b)           A participant’s withdrawal from an
Offering Period shall not have any effect upon his or her eligibility to
participate in any similar plan which may hereafter be adopted by the Company
or in succeeding Offering Periods which commence after the participant
withdraws from the Plan, subject to compliance with Section 5(a).

11.           Termination
of Employment.

Upon a participant’s
ceasing to be an Employee, for any reason, he or she shall be deemed to have
elected to withdraw from the Plan and the payroll deductions credited to such
participant’s account during the Offering Period but not yet used to exercise
the option shall be

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returned to such
participant or, in the case of his or her death, to the person or persons
entitled thereto under Section 15 hereof, and such participant’s option shall
be automatically terminated.

12.           Interest.  No interest shall accrue on the payroll
deductions of a participant in the Plan.

13.           Stock.

(a)           The maximum number of shares of
Common Stock which shall be made available for sale under the Plan shall be
three million eight hundred fifty thousand (3,850,000) shares, subject to
adjustment upon changes in capitalization of the Company as provided in Section
18 hereof.  If, on a given Exercise Date,
the number of shares with respect to which options are to be exercised exceeds
the number of shares then available under the Plan, the Company shall make a
pro rata allocation of the shares remaining available for purchase in as
uniform a manner as shall be practicable and as it shall determine to be
equitable.

(b)           The participant shall have no
interest or voting right in shares covered by his option until such option has
been exercised.

(c)           Shares purchased by a participant
under the Plan shall be registered in the name of the participant or in the
name of the participant and his or her spouse.

14.           Administration.  The Plan shall be administered by the
Administrator.  The Administrator shall
have full and exclusive discretionary authority to adopt such rules, guidelines
and forms as it deems appropriate to implement the Plan, to construe, interpret
and apply the terms of the Plan, to determine eligibility and to adjudicate all
disputed claims filed under the Plan. 
Every finding, decision and determination made by the Administrator
shall, to the full extent permitted by law, be final and binding upon all
parties.

15.           Designation
of Beneficiary.

(a)           A participant may file a written
designation of a beneficiary who is to receive any shares and cash, if any,
from the participant’s account under the Plan in the event of such participant’s
death subsequent to an Exercise Date on which the option is exercised but prior
to delivery to such participant of such shares and cash.  In addition, a participant may file a written
designation of a beneficiary who is to receive any cash from the participant’s
account under the Plan in the event of such participant’s death prior to
exercise of the option.  If a participant
is married and the designated beneficiary is not the spouse, spousal consent
shall be required for such designation to be effective.

(b)           Such designation of beneficiary may
be changed by the participant at any time by written notice.  In the event of the death of a participant
and in the absence of a beneficiary validly designated under the Plan who is
living at the time of such participant’s death, the Company shall deliver such
shares and/or cash to the executor or administrator of the estate of the
participant, or if no such executor or administrator has been appointed (to the
knowledge of the Company), the Company, in its discretion, may deliver such
shares and/or cash to the spouse or to any one or more dependents or relatives
of the participant, or if no spouse,

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dependent or relative is known to the
Company, then to such other person as the Company may designate.

16.           Transferability.  Neither payroll deductions credited to a
participant’s account nor any rights with regard to the exercise of an option
or to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant.  Any such attempt at assignment, transfer,
pledge or other disposition shall be without effect, except that the Company
may treat such act as an election to withdraw funds from an Offering Period in
accordance with Section 10 hereof.

17.           Use
of Funds.  All payroll deductions
received or held by the Company under the Plan may be used by the Company for
any corporate purpose, and the Company shall not be obligated to segregate such
payroll deductions.

18.                                 Adjustments
Upon Changes in Capitalization, Dissolution, Liquidation, Merger or Asset Sale.

(a)           Changes in Capitalization.  Subject to any required action by the
stockholders of the Company, the Reserves, the maximum number of shares each
participant may purchase each Purchase Period (pursuant to Section 7), as
well as the Purchase Price per share and the number of shares of Common Stock
covered by each option under the Plan which has not yet been exercised shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of outstanding shares of Common Stock
effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not be
deemed to have been “effected without receipt of consideration”.  Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and
conclusive.  Except as expressly provided
herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of Common Stock subject to an option.

(b)           Dissolution or Liquidation.  In the event of the proposed dissolution or
liquidation of the Company, the Offering Periods shall terminate immediately
prior to the consummation of such proposed action, unless otherwise provided by
the Board.

(c)           Merger or Asset Sale.  In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, limited liability company or other entity,
the Plan shall terminate upon the date of the consummation of such transaction
and any Purchase Periods then in progress shall be shortened by setting a new
Exercise Date (the “New Exercise Date”) and any Offering Periods then in
progress shall end on the New Exercise Date, unless the plan of merger,
consolidation or reorganization provides otherwise.  The New Exercise Date shall be determined by
the Board in its sole discretion; provided, that the New Exercise Date shall be
before the date of the Company’s proposed sale or merger.  The Administrator shall notify each
participant in writing,

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at least ten (10) business days prior to the
New Exercise Date, that the Exercise Date for the participant’s option has been
changed to the New Exercise Date and that the participant’s option shall be
exercised automatically on the New Exercise Date, unless prior to such date the
participant has withdrawn from the Offering Period as provided in Section 10
hereof.  The Plan shall in no event be
construed to restrict the Company’s right to undertake any liquidation,
dissolution, merger, consolidation or other reorganization.

19.           Amendment
or Termination.

(a)           The Board may at any time and for any
reason terminate or amend the Plan. 
Except as provided in Section 18 hereof, no such termination can affect
options previously granted, provided that an Offering Period may be terminated
by the Board on any Exercise Date if the Board determines that the termination
of the Plan is in the best interests of the Company and its stockholders.  Except as provided in Section 18 hereof, no
amendment may make any change in any option theretofore granted which adversely
affects the rights of any participant. 
To the extent necessary to comply with Section 423 of the Code (or any
successor rule or provision or any other applicable law, regulation or stock
exchange rule), the Company shall obtain stockholder approval in such a manner
and to such a degree as required.

(b)           Without stockholder consent and
without regard to whether any participant rights may be considered to have been
“adversely affected,” the Administrator shall be entitled to change the
Offering Periods or Purchase Periods, limit the frequency and/or number of
changes in the amount withheld during an Offering Period, establish the
exchange ratio applicable to amounts withheld in a currency other than U.S.
dollars, permit payroll withholding in excess of the amount designated by a
participant in order to adjust for delays or mistakes in the Company’s
processing of properly completed withholding elections, establish reasonable
waiting and adjustment periods and/or accounting and crediting procedures to
ensure that amounts applied toward the purchase of Common Stock for each
participant properly correspond with amounts withheld from the participant’s
Compensation, and establish such other limitations or procedures as the
Administrator determines in its sole discretion advisable which are consistent
with the Plan.

20.           Notices.  All notices or other communications by a
participant to the Company under or in connection with the Plan shall be deemed
to have been duly given when received in the form specified by the Company at
the location, or by the person, designated by the Company for the receipt
thereof.

21.           Conditions
Upon Issuance of Shares.  Shares
shall not be issued with respect to an option unless the exercise of such
option and the issuance and delivery of such shares pursuant thereto shall
comply with all applicable provisions of law, domestic or foreign, including,
without limitation, the Securities Act of 1933, as amended, the Securities
Exchange Act of 1934, as amended, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange or stock market upon
which the shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.

As a condition to
the exercise of an option, the Company may require the person exercising such
option to represent and warrant at the time of any such exercise that the
shares

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are being purchased only
for investment and without any present intention to sell or distribute such
shares if, in the opinion of counsel for the Company, such a representation is
required by any of the aforementioned applicable provisions of law.

22.           No
Rights As An Employee.  Nothing in
the Plan or in any right granted under the Plan shall confer upon a participant
any right to continue in the employ of the Company or any Designated Subsidiary
for any period of specific duration or interfere with or otherwise restrict in
any way the rights of the Company or any Designated Subsidiary or of a
participant, which rights are hereby expressly reserved by each, to terminate
his or her employment at any time and for any reason, with or without cause.

23.           Term
of Plan.  The Plan, as amended and
restated, shall become effective upon the Effective Date.  It shall continue until terminated under
Section 19 hereof.

24.           Automatic
Transfer to Low Price Offering Period. 
To the extent permitted by any applicable laws, regulations, or stock
exchange rules, if the Fair Market Value of the Common Stock on any Exercise
Date in an Offering Period is lower than the Fair Market Value of the Common
Stock on the Enrollment Date of such Offering Period, then all participants in
such Offering Period shall be automatically withdrawn from such Offering Period
immediately after the exercise of their option on such Exercise Date and
automatically re-enrolled in the immediately following Offering Period as of
the first day thereof.

25.           Execution.  To record the amendment and restatement of
the Plan by the Board as of the Effective Date, the Company has caused its
authorized officer to execute the same.

	
  

  	
  INCYTE
  CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ Patricia A. Schreck

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Its

  	
  General Counsel

  
	
   

  	
   

  
	
   

  
	
   

  

 

 

 10Exhibit 10.1

$125 Million Senior Secured Term Loan Agreement among
California Coastal Communities, Inc., as Borrower, and KeyBank National
Association, as Lender and Agent, et. al., dated September 15, 2006.

$125,000,000.00

SENIOR SECURED
TERM LOAN AGREEMENT

AMONG

CALIFORNIA COASTAL
COMMUNITIES, INC.,

AS BORROWER

AND

CERTAIN
SUBSIDIARIES OF BORROWER FROM TIME TO TIME PARTY HERETO, AS GUARANTORS

AND

KEYBANK NATIONAL
ASSOCIATION, AS LENDER AND AGENT

AND

WACHOVIA BANK, N.A
AS SYNDICATION AGENT

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

  	
   

  	
  15

  
	
  2.

  	
   

  	
  THE TERM LOAN FACILITY

  	
   

  	
  16

  
	
   

  	
   

  	
  2.1

  	
  Relationship of the Borrower and the Guarantors

  	
   

  	
  16

  
	
   

  	
   

  	
  2.2

  	
  Term Loan

  	
   

  	
  17

  
	
   

  	
   

  	
  2.3

  	
  Notes

  	
   

  	
  17

  
	
  3.

  	
   

  	
  FEES, INTEREST, AND OTHER CHARGES

  	
   

  	
  17

  
	
   

  	
   

  	
  3.1

  	
  Closing Fees

  	
   

  	
  17

  
	
   

  	
   

  	
  3.2

  	
  Interest on Loans

  	
   

  	
  18

  
	
   

  	
   

  	
  3.3

  	
  Payment of Interest on Loans and Choice of Interest
  Rate

  	
   

  	
  18

  
	
   

  	
   

  	
  3.4

  	
  Conversion Options

  	
   

  	
  18

  
	
   

  	
   

  	
  3.5

  	
  Inability to Determine LIBOR Rate

  	
   

  	
  19

  
	
   

  	
   

  	
  3.6

  	
  Illegality

  	
   

  	
  19

  
	
   

  	
   

  	
  3.7

  	
  Interest on Overdue Amounts; Late Charges; Default
  Rate Interest

  	
   

  	
  19

  
	
   

  	
   

  	
  3.8

  	
  Computations

  	
   

  	
  20

  
	
   

  	
   

  	
  3.9

  	
  Limitation on Interest

  	
   

  	
  20

  
	
  4.

  	
   

  	
  REPAYMENT AND CERTAIN GENERAL PROVISIONS

  	
   

  	
  20

  
	
   

  	
   

  	
  4.1

  	
  Maturity

  	
   

  	
  20

  
	
   

  	
   

  	
  4.2

  	
  Mandatory Prepayments

  	
   

  	
  20

  
	
   

  	
   

  	
  4.3

  	
  Optional Prepayments

  	
   

  	
  21

  
	
   

  	
   

  	
  4.4

  	
  Funds for Payments

  	
   

  	
  21

  
	
   

  	
   

  	
  4.5

  	
  Additional Costs, Etc

  	
   

  	
  22

  
	
   

  	
   

  	
  4.6

  	
  Capital Adequacy

  	
   

  	
  23

  
	
  5.

  	
   

  	
  COLLATERAL

  	
   

  	
  24

  
	
   

  	
   

  	
  5.1

  	
  Collateral

  	
   

  	
  24

  
	
   

  	
   

  	
  5.2

  	
  Appraisals; Adjusted Value

  	
   

  	
  24

  
	
   

  	
   

  	
  5.3

  	
  Project Inspections

  	
   

  	
  25

  
	
   

  	
   

  	
  5.4

  	
  Release of Brightwater Collateral

  	
   

  	
  25

  
	
  6.

  	
   

  	
  REPRESENTATIONS AND WARRANTIES

  	
   

  	
  26

  

 

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  6.1

  	
  Corporate Authority, Enforceability, and Ownership

  	
   

  	
  26

  
	
   

  	
   

  	
  6.2

  	
  Default Under Organizational Documents and Operating
  Agreements

  	
   

  	
  27

  
	
   

  	
   

  	
  6.3

  	
  Subsidiaries and Joint Ventures

  	
   

  	
  27

  
	
   

  	
   

  	
  6.4

  	
  Governmental Approvals

  	
   

  	
  27

  
	
   

  	
   

  	
  6.5

  	
  Chief Executive Office

  	
   

  	
  28

  
	
   

  	
   

  	
  6.6

  	
  Fiscal Year

  	
   

  	
  28

  
	
   

  	
   

  	
  6.7

  	
  Transaction in Best Interests of Borrower and
  Guarantors; Consideration

  	
   

  	
  28

  
	
   

  	
   

  	
  6.8

  	
  No Fraudulent Intent

  	
   

  	
  28

  
	
   

  	
   

  	
  6.9

  	
  Regulations U and X

  	
   

  	
  28

  
	
   

  	
   

  	
  6.10

  	
  Investment Company Act

  	
   

  	
  28

  
	
   

  	
   

  	
  6.11

  	
  Reportable Transaction

  	
   

  	
  28

  
	
   

  	
   

  	
  6.12

  	
  Tax Status

  	
   

  	
  29

  
	
   

  	
   

  	
  6.13

  	
  Financial Statements

  	
   

  	
  29

  
	
   

  	
   

  	
  6.14

  	
  Brokers

  	
   

  	
  29

  
	
   

  	
   

  	
  6.15

  	
  No Material Changes

  	
   

  	
  29

  
	
   

  	
   

  	
  6.16

  	
  Solvency

  	
   

  	
  30

  
	
   

  	
   

  	
  6.17

  	
  No Bankruptcy Filing

  	
   

  	
  30

  
	
   

  	
   

  	
  6.18

  	
  Other Indebtedness

  	
   

  	
  30

  
	
   

  	
   

  	
  6.19

  	
  Litigation

  	
   

  	
  30

  
	
   

  	
   

  	
  6.20

  	
  Insurance

  	
   

  	
  31

  
	
   

  	
   

  	
  6.21

  	
  No Material Adverse Contracts

  	
   

  	
  31

  
	
   

  	
   

  	
  6.22

  	
  No Material Adverse Restrictions

  	
   

  	
  31

  
	
   

  	
   

  	
  6.23

  	
  Compliance with Other Instruments, Laws, Etc

  	
   

  	
  31

  
	
   

  	
   

  	
  6.24

  	
  Certain Transactions

  	
   

  	
  31

  
	
   

  	
   

  	
  6.25

  	
  ERISA Compliance; Severance Obligations

  	
   

  	
  31

  
	
   

  	
   

  	
  6.26

  	
  Franchises, Patents, Copyrights, Etc

  	
   

  	
  32

  
	
   

  	
   

  	
  6.27

  	
  Title to Properties

  	
   

  	
  32

  
	
   

  	
   

  	
  6.28

  	
  Absence of UCC Financing Statements, Etc

  	
   

  	
  33

  
	
   

  	
   

  	
  6.29

  	
  Property Status and Condition

  	
   

  	
  33

  

 

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  Page

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  6.30

  	
  Options to Acquire; Restrictions on Development

  	
   

  	
  33

  
	
   

  	
   

  	
  6.31

  	
  Restrictions

  	
   

  	
  33

  
	
   

  	
   

  	
  6.32

  	
  Compliance of Projects with Law

  	
   

  	
  34

  
	
   

  	
   

  	
  6.33

  	
  Environmental Compliance

  	
   

  	
  34

  
	
   

  	
   

  	
  6.34

  	
  Loan Documents

  	
   

  	
  35

  
	
   

  	
   

  	
  6.35

  	
  No Default or Event of Default

  	
   

  	
  36

  
	
  7.

  	
   

  	
  AFFIRMATIVE COVENANTS OF THE BORROWER AND GUARANTORS

  	
   

  	
  36

  
	
   

  	
   

  	
  7.1

  	
  Punctual Payment

  	
   

  	
  36

  
	
   

  	
   

  	
  7.2

  	
  Maintenance of Office

  	
   

  	
  36

  
	
   

  	
   

  	
  7.3

  	
  Existence

  	
   

  	
  36

  
	
   

  	
   

  	
  7.4

  	
  Subsidiaries and Joint Ventures

  	
   

  	
  36

  
	
   

  	
   

  	
  7.5

  	
  Records and Accounts

  	
   

  	
  36

  
	
   

  	
   

  	
  7.6

  	
  Financial Statements, Certificates and Information

  	
   

  	
  37

  
	
   

  	
   

  	
  7.7

  	
  Inspection of Projects and Books

  	
   

  	
  38

  
	
   

  	
   

  	
  7.8

  	
  Insurance

  	
   

  	
  39

  
	
   

  	
   

  	
  7.9

  	
  Condemnation

  	
   

  	
  42

  
	
   

  	
   

  	
  7.10

  	
  Business Operations

  	
   

  	
  43

  
	
   

  	
   

  	
  7.11

  	
  Use of Proceeds

  	
   

  	
  43

  
	
   

  	
   

  	
  7.12

  	
  Compliance with Laws, Contracts, Licenses, and
  Permits

  	
   

  	
  43

  
	
   

  	
   

  	
  7.13

  	
  Taxes

  	
   

  	
  44

  
	
   

  	
   

  	
  7.14

  	
  Plan Assets, Etc

  	
   

  	
  44

  
	
   

  	
   

  	
  7.15

  	
  Notices

  	
   

  	
  44

  
	
   

  	
   

  	
  7.16

  	
  More Restrictive Agreements

  	
   

  	
  45

  
	
   

  	
   

  	
  7.17

  	
  Additional Guarantors

  	
   

  	
  46

  
	
   

  	
   

  	
  7.18

  	
  Guaranties

  	
   

  	
  46

  
	
   

  	
   

  	
  7.19

  	
  Trade Name

  	
   

  	
  46

  
	
   

  	
   

  	
  7.20

  	
  Interest Rate Hedge Agreement

  	
   

  	
  46

  
	
   

  	
   

  	
  7.21

  	
  Further Assurances

  	
   

  	
  46

  
	
  8.

  	
   

  	
  CERTAIN NEGATIVE COVENANTS OF THE BORROWER AND
  GUARANTORS

  	
   

  	
  46

  

 

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  8.1

  	
  Restrictions on Indebtedness

  	
   

  	
  46

  
	
   

  	
   

  	
  8.2

  	
  Restrictions on Liens, Etc

  	
   

  	
  47

  
	
   

  	
   

  	
  8.3

  	
  Restrictions on Investments

  	
   

  	
  48

  
	
   

  	
   

  	
  8.4

  	
  Distributions.

  	
   

  	
  49

  
	
   

  	
   

  	
  8.5

  	
  Asset Sales

  	
   

  	
  50

  
	
   

  	
   

  	
  8.6

  	
  Merger, Consolidation

  	
   

  	
  50

  
	
   

  	
   

  	
  8.7

  	
  Change of Control and Transfers

  	
   

  	
  50

  
	
   

  	
   

  	
  8.8

  	
  Unrelated Business

  	
   

  	
  50

  
	
   

  	
   

  	
  8.9

  	
  Sale and Leaseback

  	
   

  	
  50

  
	
   

  	
   

  	
  8.10

  	
  Transactions with Affiliates and Officers

  	
   

  	
  50

  
	
   

  	
   

  	
  8.11

  	
  Compliance with Environmental Laws

  	
   

  	
  51

  
	
   

  	
   

  	
  8.12

  	
  ERISA Compliance

  	
   

  	
  52

  
	
   

  	
   

  	
  8.13

  	
  Spec Homes per Project

  	
   

  	
  53

  
	
   

  	
   

  	
  8.14

  	
  Model Homes per Project

  	
   

  	
  53

  
	
  9.

  	
   

  	
  FINANCIAL COVENANTS

  	
   

  	
  53

  
	
   

  	
   

  	
  9.1

  	
  Leverage Ratio

  	
   

  	
  53

  
	
   

  	
   

  	
  9.2

  	
  Tangible Net Worth

  	
   

  	
  53

  
	
   

  	
   

  	
  9.3

  	
  Project Indebtedness to Project Value Ratio

  	
   

  	
  53

  
	
   

  	
   

  	
  9.4

  	
  Minimum EBITDA/Interest Incurred

  	
   

  	
  53

  
	
  10.

  	
   

  	
  CLOSING CONDITIONS

  	
   

  	
  54

  
	
   

  	
   

  	
  10.1

  	
  Loan Documents

  	
   

  	
  54

  
	
   

  	
   

  	
  10.2

  	
  Certificates of Existence

  	
   

  	
  54

  
	
   

  	
   

  	
  10.3

  	
  Certified Organization Documents

  	
   

  	
  54

  
	
   

  	
   

  	
  10.4

  	
  Board of Director’s Resolutions

  	
   

  	
  54

  
	
   

  	
   

  	
  10.5

  	
  Incumbency Certificate; Authorized Signers

  	
   

  	
  54

  
	
   

  	
   

  	
  10.6

  	
  Opinion of Counsel

  	
   

  	
  54

  
	
   

  	
   

  	
  10.7

  	
  Payment of Fees

  	
   

  	
  55

  
	
   

  	
   

  	
  10.8

  	
  Insurance

  	
   

  	
  55

  
	
   

  	
   

  	
  10.9

  	
  Performance; No Default

  	
   

  	
  55

  
	
   

  	
   

  	
  10.10

  	
  Representations and Warranties

  	
   

  	
  55

  

 

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  10.11

  	
  Proceedings and Documents

  	
   

  	
  55

  
	
   

  	
   

  	
  10.12

  	
  Compliance Certificate

  	
   

  	
  55

  
	
   

  	
   

  	
  10.13

  	
  Other Documents

  	
   

  	
  55

  
	
   

  	
   

  	
  10.14

  	
  No Condemnation/Taking

  	
   

  	
  55

  
	
   

  	
   

  	
  10.15

  	
  Hedging Agreement

  	
   

  	
  55

  
	
   

  	
   

  	
  10.16

  	
  Senior Project Revolver Closing and Purchase Option
  Provisions

  	
   

  	
  56

  
	
   

  	
   

  	
  10.17

  	
  Other

  	
   

  	
  56

  
	
  11.

  	
   

  	
  EVENTS OF DEFAULT; ACCELERATION; ETC

  	
   

  	
  56

  
	
   

  	
   

  	
  11.1

  	
  Events of Default and Acceleration

  	
   

  	
  56

  
	
   

  	
   

  	
  11.2

  	
  Remedies

  	
   

  	
  59

  
	
   

  	
   

  	
  11.3

  	
  Distribution of Collateral Proceeds

  	
   

  	
  60

  
	
  12.

  	
   

  	
  RESERVED

  	
   

  	
  60

  
	
  13.

  	
   

  	
  THE AGENT

  	
   

  	
  60

  
	
   

  	
   

  	
  13.1

  	
  Authorization

  	
   

  	
  60

  
	
   

  	
   

  	
  13.2

  	
  Employees and Agents of the Agents

  	
   

  	
  60

  
	
   

  	
   

  	
  13.3

  	
  No Liability

  	
   

  	
  61

  
	
   

  	
   

  	
  13.4

  	
  No Representations

  	
   

  	
  61

  
	
   

  	
   

  	
  13.5

  	
  Payments

  	
   

  	
  61

  
	
   

  	
   

  	
  13.6

  	
  Holders of Notes

  	
   

  	
  62

  
	
   

  	
   

  	
  13.7

  	
  Indemnity

  	
   

  	
  62

  
	
   

  	
   

  	
  13.8

  	
  The Agent as Lender

  	
   

  	
  63

  
	
   

  	
   

  	
  13.9

  	
  Resignation or Removal

  	
   

  	
  63

  
	
   

  	
   

  	
  13.10

  	
  Duties in the Case of Enforcement

  	
   

  	
  63

  
	
   

  	
   

  	
  13.11

  	
  Bankruptcy

  	
   

  	
  64

  
	
  14.

  	
   

  	
  EXPENSES

  	
   

  	
  64

  
	
  15.

  	
   

  	
  INDEMNIFICATION

  	
   

  	
  66

  
	
  16.

  	
   

  	
  SURVIVAL OF COVENANTS, ETC

  	
   

  	
  66

  
	
  17.

  	
   

  	
  ASSIGNMENT AND PARTICIPATION

  	
   

  	
  66

  
	
   

  	
   

  	
  17.1

  	
  Conditions to Assignment by the Lenders

  	
   

  	
  67

  
	
   

  	
   

  	
  17.2

  	
  Certain Representations and Warranties; Limitations;
  Covenants

  	
   

  	
  68

  

 

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  Page

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  17.3

  	
  Register

  	
   

  	
  69

  
	
   

  	
   

  	
  17.4

  	
  New Notes

  	
   

  	
  69

  
	
   

  	
   

  	
  17.5

  	
  No Assignment by Borrower

  	
   

  	
  69

  
	
   

  	
   

  	
  17.6

  	
  Disclosure

  	
   

  	
  69

  
	
   

  	
   

  	
  17.7

  	
  Withholding Tax

  	
   

  	
  70

  
	
  18.

  	
   

  	
  NOTICES

  	
   

  	
  72

  
	
  19.

  	
   

  	
  RELATIONSHIP

  	
   

  	
  74

  
	
  20.

  	
   

  	
  GOVERNING LAW; CONSENT TO JURISDICTION AND SERVICE

  	
   

  	
  74

  
	
  21.

  	
   

  	
  HEADINGS

  	
   

  	
  74

  
	
  22.

  	
   

  	
  COUNTERPARTS

  	
   

  	
  74

  
	
  23.

  	
   

  	
  ENTIRE AGREEMENT, ETC

  	
   

  	
  75

  
	
  24.

  	
   

  	
  WAIVER OF JURY TRIAL AND CERTAIN DAMAGE CLAIMS

  	
   

  	
  75

  
	
  25.

  	
   

  	
  DEALINGS WITH THE BORROWER AND GUARANTORS

  	
   

  	
  75

  
	
  26.

  	
   

  	
  CONSENTS, AMENDMENTS, WAIVERS, ETC

  	
   

  	
  75

  
	
  27.

  	
   

  	
  SEVERABILITY

  	
   

  	
  76

  
	
  28.

  	
   

  	
  NO UNWRITTEN AGREEMENTS

  	
   

  	
  77

  
	
  29.

  	
   

  	
  REPLACEMENT OF NOTES

  	
   

  	
  77

  
	
  30.

  	
   

  	
  TIME OF THE ESSENCE

  	
   

  	
  77

  
	
  31.

  	
   

  	
  RIGHTS OF THIRD PARTIES

  	
   

  	
  77

  
	
  32.

  	
   

  	
  CONFIDENTIALITY EXCEPTION

  	
   

  	
  77

  

 

 vi

THIS SENIOR SECURED TERM LOAN AGREEMENT (this “Agreement”) is
made as of the 15th day of September, 2006, by and among CALIFORNIA COASTAL
COMMUNITIES, INC., a Delaware corporation (“Borrower”), certain
subsidiaries of the Borrower time to time party 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 §17 (each individually the “Lender” and collectively, the “Lenders”),
KEYBANK NATIONAL ASSOCIATION, a national
banking association, as Agent for the Lenders (the “Agent”), WACHOVIA
BANK, N.A. as Syndication Agent and Lender and 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,
the 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,
the Borrower, the Guarantors, the Lenders, and the Agent desire to fund a term
loan in the amount of $125,000,000.00; 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:

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.

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 Term Loan Agreement,
including the Schedules and Exhibits attached hereto.

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 the 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.

Applicable
Margin. For each Libor Rate Loan the Applicable Margin shall be
2.75% and for each Prime Rate Loan the Applicable Margin shall be .25%.

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

Assignment
and Acceptance. 
See §17.1.

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

Balance
Sheet Date. 
June 30, 2006.

Bonding
Obligations. 
The potential monetary liability of the Borrower or any Guarantor 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 Owned
Land, 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.

Brightwater
Project.  The 356 unit
planned residential community located in Huntington Beach, California which
constitutes one or more Units of Owned Land together with any other
improvements constructed or under construction thereon.

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.

Business
Plan.  The annual Business
Plan of Borrower, which Business Plan shall be a detailed estimate of projected
income, cash flow, land development costs and other capital expenditures of
Borrower for each Fiscal Quarter.  Each
Business Plan shall contain a reasonable estimate by the Borrower of the income
and expenditures for the Borrower for the period covered thereby and shall be
prepared by the Borrower in good faith and in accordance with sound accrual
basis accounting practices applied on a consistent basis in accordance with
GAAP.

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

 2
 

 

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); 

(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)           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 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 second lien and
mortgage created by the Second Lien Security Documents, together with all of
the property, rights and interests of the Borrower and each Pledgor in the
Equity Interests and including without limitation all other collateral now or
hereafter existing and pledged or conveyed as security for the Obligations and
created by the Security Documents.

Collateral
Assignment of Hedge Agreement. 
That certain Collateral Assignment of Hedge Agreement dated as of the
effective date hereof together with all other documents, instruments or

 3
 

 

agreements
now or hereafter executed or delivered by or on behalf of the Borrower or the
Guarantors in connection with the Collateral Assignment of Hedge Agreement. 

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 on the Effective Date to the Borrower 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.” 

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 the Borrower determined on a Consolidated basis in
accordance with GAAP.

Consolidated
Total Liabilities. 
Total Liabilities of the 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%).

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

 4
 

 

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.

EBITDA.  For any period, the sum of the amounts for
such period of Borrower’s Net Income on a Consolidated basis, plus (i) charges
against income for foreign, federal, state and local taxes, plus (ii) Interest
Expense, plus (iii) depreciation, plus (iv) amortization expense, including,
without limitation, amortization of goodwill and other intangible assets, plus
(v) extraordinary losses, minus (vi) extraordinary gains.

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 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
development of Lots and construction of Homes in connection with any Project or
Other Project which shall mean the following together with all governmental
prerequisites thereto: (i) a vesting tentative map for the Land which
authorizes residential uses has been approved by the applicable local authority
or governmental body responsible for recording such plats in the county or city
where such Project or Other Project is situated; and (ii) the Borrower or
Guarantor has obtained site plan approval for such Project or Other Project by
the applicable division of such local authority or governmental body
responsible for approving such site plan where such Project or Other 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

 5
 

 

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 the 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.

Equity
Interest.  The voting and
economic interest of each Person whether now existing or hereafter acquired by
Borrower and its Subsidiaries and which shall be pledged as collateral for the
Obligations hereunder pursuant to the Pledge Agreement.

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.

Event
of Default. 
The occurrence of any of the events set forth in §11.1.

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.

 6
 

 

Fiscal
Quarter.  The fiscal quarter
of the Borrower or each Guarantor as applicable, 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 the
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 the Borrower concur result in a change in the basis of calculating any of
the Financial Covenants, standards or terms contained in this Agreement, the
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 the 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 the 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.

Guarantor(s).  Individually and collectively all material
Subsidiaries of the Borrower, whether now or hereafter existing.  As the effective date the Guarantors are as
designated on Schedule 1.1(g) attached hereto and thereafter shall
include any other Subsidiary that may execute and deliver a guaranty of the
Obligations after the date hereof.

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
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 which are 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 Projects.

Hedge
Agreement.  Any interest rate
cap, collar, or swap agreement or similar protective arrangement entered into
between Borrower or any Guarantor and any Bank with respect to the Loans,
including without limitation that certain ISDA Master Agreement to be entered
into by

 7
 

 

Borrower
as of the Effective Date hereof for a minimum of fifty percent (50%) of the
Total Commitment and with a termination date of not less than thirty (30)
months after the Effective Date.

Home.  A for sale attached or detached single family
dwelling, whether a conventional home constructed on a separate fee simple
absolute lot, a condominium, a townhome, or as part of a planned unit
development.  This definition shall not
include any housing developed for rental purposes.

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

Indebtedness.  All obligations, contingent and otherwise
that in accordance with Generally Accepted Accounting Principles should be
classified upon such Person’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 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; (vi) 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 (vii) Bonding Obligations.  

 8
 

 

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

Installment
Amount.  The amount so
calculated pursuant to §4.7(a).

Interest
Expense.  With respect to any
fiscal period, all interest expense (whether
directly expensed or included in costs of goods sold) determined in the
calculation of Net Income (Loss) in accordance with GAAP.

Interest Incurred. All interest paid or accrued by Borrower and each Subsidiary on a
Consolidated basis.

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.

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 Amount from the proceeds of the Loan.

Interest
Reserve Amount. 
As defined in §2.2(b).  

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 Projects
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.

 9
 

 

Joinder
Agreement.  An agreement in the
form attached to the Guaranty, whereby a Person shall become an additional
joint and several Guarantor.

Joint
Venture.  Any Person (other
than a Subsidiary) in which Borrower 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 §17, as is defined in the first paragraph of
this Agreement.   

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.

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

 10
 

 

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 term
loan or the aggregate term loans, as the case may be, to be made by the Lenders
on the Effective Date 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 the Borrower or the Guarantors in connection with
the Loan.

Lock
Out Period. 
The period commencing on the Effective Date and continuing until the one
year anniversary thereof.

Lot.  A single family residential lot located or to
be located within any Project.

Majority
Lenders.  As of any date, 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 this definition of Majority Lender shall include the Sole Majority Lender
and a minimum of one other Lender. 

Material
Adverse Effect. 
A materially adverse effect on (a) the business, assets,
liabilities, condition (financial or otherwise), results of operations or
business prospects of the Borrower, Guarantors or any Project, (b) the
ability of the 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 any Project or any portion thereof which would
prevent it from completion of a master planned community as set forth in each
Project Budget. 

Maturity
Date.  September 15, 2011
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 under the
Senior Project Revolver 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 the
Borrower or any ERISA Affiliate.

 11
 

 

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 term loan promissory notes, by the
Borrower, in favor of the Lenders evidencing the Loans in substantially the
form of Exhibit “A” attached hereto.

Notice.  See §18.

Obligations.  All Indebtedness, obligations and liabilities
of the 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.

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 second in 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
Project.  Any other 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.

Owned
Land.  Any Project
(including a Qualified Project) and each Other Project.

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.

Pension
Plan.  See §6.25(a).

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

 12
 

 

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.

Pledge
Agreement.  That certain Pledge
Agreement by Borrower and the Pledgors in favor of the Agent for the benefit of
the Lenders whereby Agent and Lenders shall receive a first in priority pledge
of and security interest in 100% of the Equity Interest of each material
Subsidiary of Borrower and each material Subsidiary of the Pledgors.

Pledgors.  Those Pledgors from time to time party to the
Pledge Agreement. 

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(s).  The Brightwater Project together with any
Other Projects classified as Qualified Projects from time to time. 

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

Project
Costs.  For any Project,
the sum of (i) the costs of the land development costs and of the Land (if
applicable) and all labor, materials, fixtures, machinery and equipment
required to develop, construct, equip and complete the development of the
residential Lots and construction 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 any Project and are not described in clause (i) above, that will be incurred
by Borrower or any Subsidiary in connection with the acquisition (if
applicable), development and construction of the Project.  Overhead and administrative costs shall be
limited to the amounts set forth in the Project Budget.

Project
Indebtedness to Project Value Ratio.  As of any date, the ratio of (i) the sum of
the principal amount of (x) the Obligations hereunder (y) Indebtedness in
connection with the Senior Project Revolver and (z) all other Indebtedness
associated with any Qualified Project to the (ii) Asset Value of the Projects
(including any Qualified Project).

Qualified
Project.  The Brightwater
Project and any Other Project which the Lenders may approve as a Qualified
Project in their sole and complete discretion.

Reemployment
Period.  The period of time
so defined under §4.7(a).

Reference
Lender.  KeyBank.

 13
 

 

Register.  See §17.3.

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

Release
Price.  See §5.4(d).

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.

Second
Lien Security Documents. 
That certain Second Lien Deed of Trust from Signal Landmark, a
California corporation (“Signal Landmark”) to the Agent for the benefit
of the Lenders, together with the Other Collateral Documents relating to the
Brightwater Project and granting Agent for the benefit of the Lender a second
in priority lien and mortgage in all of Signal Landmark’s interest therein, as
the same may be modified or amended from time to time.  

Section
or §.  Any particular
section of this Agreement.

Security
Documents.  Each Pledge Agreement
and any further endorsements or collateral assignments to the Agent for the
benefit of the Lenders, including, without limitation, UCC financing statements
in connection with the pledge of the Equity Interest, the Collateral Assignment
of Hedge Agreement and the Second Lien Security Documents.

Senior
Project Revolver. 
That certain $100,000,000.00 Senior Secured Project  Revolver Facility 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 that is secured by the Brightwater Project. 

Senior
Project Revolver Loan Documents. 
That certain Senior Secured Revolving Credit Facility Agreement together
with all other documents, instruments or agreements now or hereafter executed
or delivered by or on behalf of the Borrower or Signal  Landmark or Signal Holdings in connection
with the Senior Project Revolver.  

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.

 14
 

 

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

Total
Assets.  All assets of the
Borrower calculated in accordance with GAAP.

Total
Commitment. 
The sum of the Commitments of the Lenders which are to be fully funded
on the Effective Date being $125,000,000.00. Any repayments of the Total
Commitment shall permanently reduce the amounts available to Borrower and the
Total Commitment or the Loans funded thereto may not be re-borrowed or re-advanced
thereafter.

Total
Liabilities. 
All liabilities of the Borrower calculated 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
under the Senior Project Revolver 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.

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).

Yield
Termination Amount. 
An amount equal to the product of (i) the (a) Applicable Margin as of
such date multiplied by (b) the existing Total Commitment as of such date
multiplied by (ii) the number of days then remaining until the expiration of
the Lock Out Period divided by 365 days.

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.

 15
 

 

(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 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
TERM LOAN FACILITY.

2.1           Relationship of the Borrower and
the Guarantors.

Each of
the Guarantors is a Subsidiary of the 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.

 16

 

2.2           Term Loan.

(a)           Loans.
Subject to the terms and conditions set forth in this Agreement, each of the
Lenders severally agrees to lend to the Borrower the Loans on the Effective
Date in an amount equal to the Total Commitment; provided that no Lender shall
have any obligation to make Loans to the Borrower in an aggregate principal
amount outstanding of more than the principal amount of such Lender’s
Commitment herein.

(b)           Interest Reserve.  On the Effective Date, Agent shall set aside
out of the undisbursed proceeds of the Loan an interest reserve for payment of
Interest Incurred in the amount equal to not less than twelve (12) months of
projected Interest Incurred for the Loan (the “Interest Reserve Amount”). The
Interest Reserve Amount shall be deposited in the Interest Reserve Account.
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. Nothing set forth in this Section 2.2(b)
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. The
aggregate amount of the Interest Reserve shall be deducted from the proceeds of
the Loan otherwise available for disbursement in accordance with this
Agreement.  Notwithstanding the
foregoing, Agent may in its commercially reasonable discretion disburse the
Interest Reserve Amount in payment of Interest Incurred. The Interest Reserve
Amount shall be required to be fully funded at all times (with Borrower
agreeing to repay any balance or disbursements in such Interest Reserve Account
on each Interest Payment Date and in any event no later than five (5) Business
Days after notice from Agent as to such deficiency).  At such time as the  Borrower commences deliveries of Homes for
the Brightwater Project pursuant to the Housing Purchase Contracts the Interest
Reserve Amount shall be reduced to an amount not less than three (3) months of
projected Interest Incurred for the Loan.

2.3           Notes.  The Loans shall be evidenced by separate
Notes, each executed by the 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, the 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 the Borrower to the
Lenders on account of the Loans made pursuant to this Agreement.

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.

 17
 

 

3.2           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.

3.3           Payment of Interest on Loans and
Choice of Interest Rate.  Interest
shall be payable by the 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.

3.4           Conversion Options.

(a)           Conversion.  Borrower may elect from time to time to
convert any of the 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 the 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 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 $225,000.00 or a LIBOR Rate Loan in an aggregate principal
amount of less than $1,000,000.00 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 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

 18
 

 

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.

3.5           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 the Borrower and the Lenders) to the
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.

3.6           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.

3.7           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, the
Borrower

 19
 

 

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 Loans shall bear interest at the Default Rate prior to
acceleration.  All late charges and Default
Rate interest shall be immediately due and payable.

3.8           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.

3.9           Limitation on Interest.  Notwithstanding anything in this Agreement to
the contrary, all agreements between the 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 the 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 §3.9 shall
control all agreements between the 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 on such date, together with any and all accrued and unpaid
interest thereon and all fees owed hereunder.

4.2           Mandatory Prepayments.  Borrower promises to pay when the same may
become due and payable the following amounts:

 20
 

 

(a)           Required Amortization.
Borrower shall make principal installments to the Agent for the benefit of the
Lenders in an amount sufficient to cause the outstanding principal balance of
the Loans to be at or below the following levels by the following dates:  December 31, 2008: $110,000,000.00; on
September 30, 2009:  $85,00,000.00; on
September 30, 2010: $50,000,000.00. Thereafter the remaining principal balance
of the Loans shall be payable in four consecutive quarterly equal installments
of $12,500,000.00 at the end of such quarter with the outstanding principal
balance of the Loan together with all accrued and unpaid interest thereon and
any other Obligations maturing and becoming immediately due and payable on the
Maturity Date.

(b)           Project Indebtedness to Project
Value Compliance.  In addition, in
the event that Borrower shall not comply with the Project Indebtedness to
Project Value ratio as set forth in §9.3 herein, Borrower shall repay the
portion of the outstanding principal balance of the Loan necessary to resume
and continue in compliance with such ratio.

4.3           Optional Prepayments.  After the Lock Out Period, the Borrower shall
have the right, at its election, to prepay the Loans as a whole or in part, at
any time without penalty or premium, except as provided in §4.7.  The 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.
If Borrower pays any installment of principal prior to the end of the Lock Out
Period, Borrower shall pay the Yield Termination Amount in connection with such
prepayment. The terms and conditions of this Section 4.3 shall not be
applicable to receipt of proceeds from Release Prices as provided herein.

4.4           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 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 the Borrower does not pay
such amounts when due.

(b)           Setoff, Deduction, Etc.  All payments by the 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 imposed or levied by
any jurisdiction or any political subdivision thereof or taxing or other
authority therein unless the Borrower is compelled by law to make such deduction
or withholding.  If any such obligation
is imposed upon the Borrower with respect to any amount payable by it under any
of the Loan Documents, the Borrower will pay to the Agent, for the account of
the Lenders or the Agent (as the case

 21
 

 

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
the 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 the
Borrower hereunder or under such other Loan Document.

4.5           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 the Borrower hereunder, then, and in each such case,
such Lender shall deliver to the Borrower thirty (30) days prior written notice
of such Lender’s intent to request payment pursuant to this §4.5, and the
Borrower will, within thirty (30) days of demand made by such Lender or (as the
case may be) the

 22
 

 

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.

4.6           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, the Borrower shall have the right, in lieu of making the payment
referred to in this §4.6, 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 §4.6, provided, however, that the 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.

4.7.          Indemnity by Borrower.  If, due to prepayments made by the 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, the 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 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

 23
 

 

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 the 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.

5.                                       COLLATERAL.

5.1           Collateral.  The Obligations shall be secured by (i) a
perfected first priority lien (or with respect to the Second Lien Security
Documents, by a perfected second priority lien) or security title and security
interest to be held by the Agent for the benefit of the Lenders in all of the
Collateral, all pursuant to the terms of the Security Documents, (ii) the
Guarantees and (iii) 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. Borrower shall, and or Borrower shall cause Guarantors to,
grant a perfected first priority (or second priority with respect to Signal
Landmark) security interest in the Collateral.

5.2           Appraisals; Adjusted Value.

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

(b)           Subsequent Appraisals.  The Agent may also, for the purpose of
determining the current Asset Value of any Project or Other Projects of
Borrower or Guarantors obtain additional or interim Appraisals updating and
revising prior Appraisals with respect to any Project or Other Projects (i) in
any event not later than after twelve (12) months from the date of the
commission of the preceding Appraisal, (ii) at any time, at the Agent’s
commercially reasonable discretion; provided no Default or Event of Default
exists, Borrower shall not be required to pay for Appraisals from and after the
Effective Date obtained pursuant to this subsection (ii) more frequently than
once every twelve (12) months, or (iii) at any time following a condemnation of
more than an immaterial portion of any Project (as reasonably determined by the
Agent) or any material adverse change with respect to any Project (provided
that such Appraisal shall

 24
 

 

be
limited to the affected Project). 
Subject to the limitation set forth in the immediately preceding
sentence, the expense of such Appraisals and updates performed pursuant to this
§5.2 shall be at the cost of Borrower.

(c)           Appraisal Variations.  The Borrower 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 the Borrower’s idea of the value of such property.

5.3           Project Inspections.  The Agent, through the Inspector or any other
designee, may inspect each Project at its commercially reasonable discretion
during normal business hours to confirm compliance with this Agreement and each
Project Budget.  The reasonable fees and
expenses of all such inspections shall be at the expense of the 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 the Borrower or the
Lenders regarding the condition of the Projects.

5.4           Release of Brightwater Collateral.  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 Collateral conveyed pursuant
to the Second Lien Security Documents from time to time subject to the
following terms and conditions:

(a)           Purchase Price Such Collateral
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 Collateral being
equal to the Fair Market Value; and

(b)           Compliance with Agreements The
purchaser of such Collateral 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 Collateral.

(c)           Mechanics of Releases.  Signal Landmark shall prepare such deeds,
surveys, title insurance endorsements, proof of zoning and utility availability
and

 25
 

 

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.

(d)           Minimum Release Prices.  At such time that Borrower delivers a Unit,
Borrower shall pay the following amount to the Agent under the Senior Project
Revolver at the time of such sale, transfer or conveyance equal to:

(i)            $600,000.00 per Unit until such time
as fifty (50) Units are delivered; and

(ii)           $1,000,000.00 per Unit thereafter.

The
Agent under the Senior Project Revolver shall immediately deliver sixty (60)
percent of the applicable amount to the Agent for application to the
Obligations.

The
Release Price shall be delivered to the Agent of the Senior Project Revolver
for application in the following percentages: 
(i) sixty (60) percent to this Senior Term Loan and (ii)  forty (40) percent to the Senior Project Revolver.  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 Agent under the Senior Project Revolver and applied in
accordance with the agreements governing the Senior Project Revolver.  During this period the Lenders shall have no
right to any of the proceeds.

(e)           Other Releases     The
requirements set forth above shall not apply and the Agent or its duly
authorized attorney-in-fact shall release any Collateral 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 any liens imposed by the
other Security Documents to subdivision declarations, utility easements, and
similar instruments appropriate for development.

6.                                       REPRESENTATIONS
AND WARRANTIES.

Each
of Borrower and the Guarantors hereby makes the following representations and
warranties to the Agent and the Lenders (with respect to any representation
made herein exclusively by Borrower or by any Guarantor such representation or
warranty shall be deemed to be additionally made on behalf of any Consolidated
Person with respect to such Borrower or such Guarantor in each instance):

6.1           Corporate Authority, Enforceability,
and Ownership.

(a)           Organization; Good Standing.  Borrower and each Guarantor is 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

 26
 

 

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 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 or any 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 the 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, 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 the 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
of Borrower or any Guarantor and Joint Venture of Borrower or any Guarantor is
as set forth on the organizational chart set forth as Exhibit “B”
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 nor any Guarantor owns any
Subsidiary or any interest in any other Person or in any Joint Venture except
as shown on Exhibit “C” hereto.

6.4           Governmental Approvals.  The execution, delivery and performance of
this Agreement and the other Loan Documents to which the Borrower or the
Guarantors

 27
 

 

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 the Borrower is
and shall be located at 6 Executive Circle, Suite 250, Irvine, CA
92614.

6.6           Fiscal Year.  The Borrower and each Guarantor 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. The transaction evidenced by the Loan Documents is in the
best interests of the Borrower, the Guarantors and the creditors of such
Persons.  The direct and indirect
benefits to inure to the 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 “fair consideration” (as such
terms are used in any applicable state fraudulent conveyance law), in exchange
for the Obligations of the Borrower and the Guarantors, and but for the
willingness of the Guarantors to execute and deliver the Guaranties, the
Borrower would be unable to obtain the financing contemplated hereunder which
financing will enable the 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 the
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 the 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 the 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 the Borrower, or any other party to the Loan Documents, determines to
take any action inconsistent with such intention, the Borrower will promptly
notify the Agent

 28
 

 

thereof.  If the Borrower so notifies the Agent, the
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 the 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.

6.13         Financial Statements.  The Borrower has furnished or has caused to
be furnished to the Agent:  (a) the
Consolidated and Consolidating balance sheets of Borrower as of the dates
designated therein certified by Borrower’s chief finance or accounting officer
as fairly presenting the balance sheet of the respective entity for such
period, (b) the Business Plan for the current and following fiscal year for Borrower,
(c) the Project Budget for the Brightwater Project and financial
statements with respect to the Brightwater Project, and (d) 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 the
Borrower, the Guarantors, and the Projects as of such dates and the results of
the operations of the Borrower and each Guarantor for such periods.  There are no material liabilities, contingent
or otherwise, of the Borrower not disclosed in the financial statements and the
related notes thereto.  All such business
plans accurately reflect the Borrower’s reasonable anticipation of income and
expenses for the subject periods.

6.14         Brokers.  Neither the Borrower nor any Guarantor has
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
the Borrower or Guarantors as shown on or reflected in the Consolidated balance
sheet of the 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 the Borrower or
Guarantor.  There has occurred no
material adverse change in the financial condition or business of any Project
from the condition shown on the statements delivered to the Agent other than
changes in the ordinary course of business

 29
 

 

that
have not had any material adverse effect either individually or in the
aggregate on the business or financial condition of any 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 the 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 the 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 the 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 Borrower nor any Guarantor has any
Indebtedness not permitted by §8.1.  All
Indebtedness of the 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 the 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 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 the Borrower or the Guarantors. 
Neither the Borrower nor any Guarantor is 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
and each Guarantor  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 the
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 set forth 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 the 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

 30
 

 

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 the 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
the Borrower, 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 each Guarantor, as applicable, has maintained commercially reasonable
and adequate amounts of insurance.

6.21         No Material Adverse Contracts.  Neither the 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 the 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 the
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.

6.24         Certain Transactions.  None of the members, officers, directors, or
employees of the Borrower is a party to any transaction with the Borrower or
Guarantors (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 the
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 the 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

 31

 

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 the 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 the 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 the 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 the 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.

(e)           Except as disclosed in writing (in
their respective financial statements) to the Agent and the Lenders prior to
the Effective Date, neither the Borrower nor the Guarantors has any obligation
to make severance payments materially adversely affecting the properties,
assets, financial condition or business of the Borrower or the Guarantors or
provide post-employment benefits materially adversely affecting the properties,
assets, financial condition or business of the 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 the Borrower.

6.27         Title to Properties.  The Borrower or each Guarantor (as
applicable) owns all of the assets reflected in the Consolidated balance sheet
of the Borrower, as of the Balance Sheet Date or acquired since that date
(except property and assets sold or

 32
 

 

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 or each Guarantor has good and marketable title to all real
property reasonably necessary for the operation of its business, and all
Projects  and Other Projects free from
all liens or encumbrances of any nature whatsoever, except for Permitted
Liens.  Borrower or each Guarantor as the
case may be is the insured under a policy for owner’s title insurance covering
such Project or Other Project owned by Borrower or such Guarantor in an amount
not less than the purchase price of such Project or Other Project paid by the
Borrower or such Guarantor.

6.28         Absence of UCC Financing Statements,
Etc.  Except as permitted pursuant to
§8.1(h) herein, 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 the 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 any property of the Borrower or Guarantors
which are payable by the Borrower or Guarantors (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 any Project or any part thereof, and, to the
knowledge of the Borrower and each Guarantor, no such proceedings are presently
threatened or contemplated by any taking authority which in either case may
individually or in the aggregate have any material adverse effect on the
business or financial condition of the Borrower or any Guarantor.  None of the Projects or Other Projects is now
damaged as a result of any fire, explosion, accident, flood or other casualty
in any manner which individually or in the aggregate would have any material
adverse effect on the business or financial condition as a whole of the
Borrower or any Guarantor.

6.30         Options to Acquire; Restrictions on
Development.  Except in connection
with Housing Purchase Contracts, neither the Owned Land nor the Collateral is
subject to any right of first refusal, right of first offer or other options to
purchase.  Other than standard and
customary development agreements entered into in the ordinary course of the
Borrower’s or Guarantor’s business or standard and customary covenants and
restrictions of record affecting the applicable Project or Other Project, which
do not, taken individually, have a material economic impact on the applicable
Project or Other Project, none of the Projects or Other Project is subject to
any material agreement restricting or limiting its development.

6.31         Restrictions.  Borrower and each Guarantor is familiar with
all restrictions that affect its Projects and the Other Projects and the
construction of the improvements

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thereon
and the contemplated use thereof. 
Borrower 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 the Borrower
not any Guarantor has received any written notification that there is any
violation nor to Borrower’s or any Guarantor’s knowledge is there an asserted
violation of any restrictions concerning any of the Projects or Other Projects
or the existing or contemplated use thereof.

6.32         Compliance of Projects with Law.  The location, construction, occupancy,
development, operation and use of the Projects and the Other Projects 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
Guarantor has obtained (or caused to be obtained) all necessary, licenses,
authorizations, registrations, permits and/or approvals necessary for the use
and operation of the Projects and the Other Projects or any part thereof in
accordance with all applicable laws. 
Without limiting the foregoing, the Borrower and each Guarantor hereby
warrants and represents to the Agent and the Lenders as follows:

(a)           The Projects and Other Projects are
zoned to allow the development, construction and occupancy of Homes. No action
is pending to change or modify any zoning applicable to such Project and the
Other Projects, 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
Projects and Other Projects as currently developed are Vested and run with and
benefit the land.

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

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

(b)           No Notice of Liability.  Except as may be disclosed on Schedule
6.33(b) attached hereto, neither the 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 Owned Land, or (iii) that any claim, action, cause of
action, complaint, or legal or administrative proceeding is pending or
threatened against

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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 Owned Land, to the knowledge
and belief of the 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 Owned Land 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 Owned Land; (ii) in the course of any activities conducted
by the Borrower, the Guarantors or the operators of any of their properties, no
Hazardous Materials have been generated or are being used on the Owned Land
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 any Owned Land 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 Owned Land 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 Owned Land; and (v) any Hazardous
Materials that have been generated by the 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 the Borrower, the Guarantors, any Project or the 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 the 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
misleading in any material respect. 
There is no material fact or circumstance known to the Borrower or
Guarantors that would have a

 35
 

 

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 the Borrower, the Guarantors, the
Projects 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:

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.  Except as set forth on Exhibit “C”
herein or as otherwise permitted by §8.3 herein without the prior written
consent of the Majority Lenders, neither the Borrower nor any Subsidiary shall
create or form any 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.  Neither Borrower nor
any Guarantor shall, 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 the Borrower’s or such
Guarantor’s fiscal year.

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7.6           Financial Statements, Certificates
and Information.  The Borrower and
Signal Landmark 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 sheets 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, statements of 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);

 37
 

 

(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 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, such information as Agent shall reasonably request
showing any changes in the Asset Value of the Projects (including any Hard
Costs).  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 Asset Value calculations;

(f)            Not later than 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 Unit 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 any 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, a Project Budget for each Project. 
Each 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 Projects and Books.  The Borrower and the Guarantors shall permit
the Lenders, through the Agent, the Inspector or any representative designated
by

 38
 

 

the
Agent, upon reasonable advance written notice to Borrower, to visit and inspect
any Project, any of the other properties of the Borrower, to examine the books
of account of the Borrower and the Guarantors, as such books relate to any
Project (and to make copies thereof and extracts therefrom) and to discuss the
affairs, finances and accounts of the Borrower with, and to be advised as to
the same 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 each Guarantor will, at its
expense, procure and maintain for the benefit of the Agent and the Lenders,
insurance policies 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 business and similarly situated, which
insurance may provide for reasonable deductibility from coverage thereof.  The Borrower and each Guarantor (as
applicable) shall pay all premiums on insurance policies.  As customary or appropriate, the insurance
policies shall name the Agent and each Lender as an additional insured and
contain a cross liability/severability endorsement.  The Borrower and each Guarantor (as applicable)
shall deliver duplicate originals or certified copies of all such policies to
the Agent, and the 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, the Borrower and each Guarantor (as
applicable) 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 the Borrower or Guarantor 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 any Project for purposes more
hazardous then permitted by the terms of the policy, and no foreclosure or any
other change in title to any 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 the Borrower, each Guarantor and other Persons, provided that
such blanket policy or

 39
 

 

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 and also in the states where any 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.  Neither Borrower nor any Guarantor shall
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 any
Project or Other Project, the Borrower and each Guarantor (as applicable) 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 and each Guarantor hereby
irrevocably authorizes and empowers the Agent, at the Agent’s option and in the
Agent’s commercially reasonable discretion, as attorney in fact for the
Borrower or each Guarantor (as applicable), 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
the Borrower shall in good faith diligently pursue such claim, the Borrower may
make proof of loss and appear in any proceedings or negotiations with respect
to the adjustment of such claim, except that the 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 the
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 the 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 any Project or Other Project and the
Obligations as they become due during the course of reconstruction or repair of
any Project and to reimburse the Borrower, in accordance with such terms and
conditions as the Agent may prescribe, for the costs of reconstruction or
repair of any 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

 40
 

 

Event of
Default shall have occurred and be continuing (provided that such condition
shall be deemed satisfied if the Borrower shall cure such Default prior to the
expiration of any applicable grace or notice and cure period), (ii) the
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, 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 the 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 the 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 Collateral is acquired by the Agent,
all right, title and interest of the Borrower in and to any insurance policies
and unearned premiums thereon and in and to the proceeds thereof resulting from
loss or damage to any Project or Other Project prior to the acquisition shall
pass to the Agent as its interest may appear.

(g)           Subcontractor Insurance.  The Borrower and each Guarantor will require
its subcontractors to obtain and maintain insurance at all times during the
construction of any improvements to any Project or Other 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 and each Guarantor 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 any Project or Other
Project to obtain and maintain professional liability insurance covering any
claims asserted with respect to any Project or Other 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.

 41
 

 

(h)           Other Insurance.  The Borrower and each Guarantor (as applicable)
will, at its expense, procure and maintain insurance covering such Persons and
any Project or Other Projects 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 any Project or Other 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 the Borrower or Guarantor promptly upon
obtaining knowledge of the institution of any proceeding therefore, shall
notify the Agent of the pendency of such proceeding.  The Borrower and each Guarantor authorizes
the Agent, at the Agent’s option (but in no event shall the Agent be obligated
to), as attorney in fact for the Borrower or Guarantor, to commence, appear in
and prosecute, in the Agent’s or the Borrower’s or Guarantor’s name, any action
or proceeding relating to any condemnation or other taking of any Project or
Other 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 the Borrower
shall in good faith diligently pursue such claim, the Borrower may make proof
of loss and appear in any proceedings or negotiations with respect to the
settlement of such claim, except that the 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 the
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 the 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 and each
Guarantor (as applicable) 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
any Project or Other 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 the Borrower.  Notwithstanding
anything in this §7.9 to the contrary, the Agent shall make the net
condemnation award available to the Borrower to restore and repair the Project,
provided that (a) no Default or Event of Default shall have occurred and
be continuing, (b) the Borrower and each Guarantor, as applicable, 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 any Project or Other Project can be restored to the same value, utility
and substantially similar condition existing immediately prior to such taking,
(e) the plans and specifications,

 42
 

 

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 and each Guarantor 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 the 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 unimproved Land acquired
by it, including the zoning and rezoning of such Land for the development of
Homes thereon; (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 Projects;
(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
notwithstanding anything to the contrary set forth above in this §7.10, (i) the
Borrower’s and each Guarantor’s development of each Project shall be consistent
with the Project Budgets, except as otherwise approved in writing by the Agent,
and (ii) the 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.

7.11         Use of Proceeds.  The Borrower will use the proceeds of the
Loans solely for permitted Distributions to its shareholders and for such other
incidental costs incurred in connection therewith or herewith as contemplated
by the Loan Documents.

7.12         Compliance with Laws, Contracts,
Licenses, and Permits.  Each of the
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 the 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

 43
 

 

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 any Project or
Other Projects 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 or Note is outstanding, 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 and each Guarantor 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 any Project or Other 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 the 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, the 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 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, the 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.

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(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 any Owned
Land 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 Owned Land.

(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 Owned Land,
environmental claims), withholdings or other defenses to which any of the
Collateral or Projects, 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 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 or
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 any Project or Other Project having a value in excess of $500,000.00

7.16         More Restrictive Agreements.  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, the Borrower
and each Guarantor 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.

 45
 

 

7.17         Additional Guarantors.  Upon the formation of any Subsidiary, Joint
Venture or other Affiliate of the Borrower or any Guarantor, the Borrower or
the Guarantor as applicable shall cause such Subsidiary, Joint Venture or
Affiliate to take all action necessary to join in this Agreement, including the
execution of a Joinder Agreement.

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

7.19         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 for the conduct
of their businesses.  In the event that
Borrower or any Guarantor should ever change its name or trade name, Borrower
and each Guarantor 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 the Borrower.

7.20         Interest Rate Hedge Agreement.  The Borrower and each Guarantor shall enter
into and maintain in full force and effect at all times the Hedge Agreement
entered into as of the Effective Date with a Termination Date (as defined in
the Schedules therein) of not earlier than thirty months from the Effective
Date.

7.21         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.

8.                                       CERTAIN
NEGATIVE COVENANTS OF THE BORROWER AND GUARANTORS.

8.1           Restrictions on Indebtedness.  Subject to the further restrictions of §9,
neither the 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;

 46

 

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

(g)           Indebtedness in respect of the Senior
Project Revolver; and

(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 the 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 the Borrower and each Guarantor shall have the right
to contest assessments or bond off liens as long as such actions do not
jeopardize the Projects or Other Projects and, in the case of tax assessments,
the 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 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 Projects and Other Projects) consisting of easements,
rights of way, zoning restrictions, mineral rights reservations, restrictions
on the use of real property, landlord’s or lessor’s

 47
 

 

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 the 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 Indebtedness permitted by §8.1(h); and

(v)           liens and encumbrances incurred in
connection with the Senior Project Revolver.

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;

(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;

 48
 

 

(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 of Default exists Borrower may invest in such other
Subsidiaries or Joint Ventures 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)           the 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)            the 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 Neither
the Borrower nor any Guarantor shall pay any Distribution except as permitted
as follows: Borrower may make Distributions from time to time 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 Project Revolver
Loan Documents), and (ii) Borrower maintains sufficient liquidity equal to an
amount necessary to complete the Project, all Other Projects 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 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

 49
 

 

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; (iv) Borrower is in compliance with all
covenants contained herein.

8.5           Asset Sales.  Neither the Borrower nor any Guarantor shall
sell, transfer or otherwise dispose of any asset other than in the ordinary
course of business without Agent approval.

8.6           Merger, Consolidation.  Neither the 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,
except for acquisitions otherwise allowed under this Agreement, without the
prior written consent of the Majority Lenders.

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

8.8           Unrelated Business.  Neither the 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 disclosed in Borrower’s financial
statements. Notwithstanding the foregoing prohibitions, Borrower and each
Guarantor 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 developed in connection with any Project.

8.9           Sale and Leaseback.  Neither Borrower nor any Guarantor will enter
into any arrangement, directly or indirectly, whereby such Person shall sell or
transfer any portion of any Project or Other Project in order that then or
thereafter such Person shall lease back such Land, except in connection with
Model Homes.

8.10         Transactions with Affiliates and
Officers.  Neither the 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

 50
 

 

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 §8.10(a).

8.11         Compliance with Environmental Laws.

(a)           Neither the Borrower nor any of its
Affiliates will do any of the following: 
(i) use any of the Owned Land 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 Owned Land any underground tank or
other underground storage receptacle for Hazardous Materials, (iii) generate
any Hazardous Materials on any of the Owned Land except in full compliance with
Environmental Laws, (iv) conduct any activity at any Owned Land or use any
Owned Land in any manner so as to cause a Release or a threat of a Release of
Hazardous Materials on, upon or into the Owned Land 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 any Project or other 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 expense of the Borrower) to confirm that no Hazardous Materials are
or ever were released or disposed on the Owned Land; and

(ii)           If any Release or disposal of
Hazardous Materials shall occur or shall have occurred on the Owned Land (including
without limitation any such Release or disposal occurring prior to the
acquisition or occupation of such Owned Land), 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 Owned Land in full
compliance with all applicable laws and regulations and to the

 51
 

 

reasonable
satisfaction of the Agent; provided, that the 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 the 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
Owned Land other than de minimis quantities not in violation of Environmental
Laws, or that the Owned Land is not in compliance with Environmental Laws, the
Agent may at its election obtain such environmental assessments of the Owned
Land 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 Owned Land and (ii) whether
the use and operation of the Owned Land comply with all Environmental
Laws.  Environmental assessments may
include detailed visual inspections of the Owned Land 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 Owned Land and the use and operation
thereof with all applicable Environmental Laws. 
All such environmental assessments shall be at the sole cost and expense
of the Borrower.

(d)           The Agent may, but shall never be
obligated to remove or cause the removal of any Hazardous Materials from the
Owned Land (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 Owned Land 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 the Borrower to the Agent upon
demand by the Agent and shall be additional obligations secured by the Security
Documents.

8.12         ERISA Compliance.  Except for the Welfare Plans in effect on the
Effective Date, the Borrower will not, without giving prior notice to the
Agent, establish,

 52
 

 

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.

8.13         Spec Homes per Project.  There shall be no more than thirty two (32)
Spec Homes in the Project at any one time; provided that for purposes of this
§8.13 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.

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

9.             FINANCIAL COVENANTS.

So long
as any Obligation is outstanding, 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
to 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 the 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 at requirement at any given
time shall not require Borrower to maintain Tangible Net Worth in excess of
$125,000,000 plus the amount set forth at (ii) above.

9.3           Project Indebtedness to Project
Value Ratio.  The Borrower shall at
all times maintain a maximum Project Indebtedness to Project Value Ratio of
less than 65%.

9.4           Minimum EBITDA/Interest Incurred.  Borrower shall maintain on a rolling four
quarters basis  (i) commencing as of
March 31, 2008, a minimum ratio of EBITDA to Interest Incurred equal to or
greater than 1.00:1.00; (ii) commencing as of June 30, 2008 a minimum ratio at
all times of EBITDA to Interest Incurred in an amount equal to or greater than
2.00:1; (iii) commencing as of December 31, 2008 and for each Fiscal Quarter
thereafter, a minimum ratio at all times of EBITDA to Interest Incurred in an
amount equal to or greater then 2.50:1. 

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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 each Lender 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 the 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 the
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 the 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.

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 the Borrower and the Guarantors and from local counsel in each State
where the Mortgaged Land is

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located,
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.

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
the 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       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.

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

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

10.15       Hedging Agreement.  Borrower shall have delivered the Hedging
Agreement substantially in the form attached hereto as Exhibit “E”
together with the

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Collateral
Assignment of Hedging Agreement substantially in the form attached hereto as Exhibit
“F”.

10.16       Senior Project Revolver Closing and Purchase
Option Provisions.  The Senior
Project Revolver shall have at least $50,000,000 in total commitments
thereunder and all conditions precedent to the closing of the Senior Project
Revolver shall have been satisfied or waived by the agent thereunder and each
of the Senior Project Revolver 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 on behalf of the Lenders and the Senior Project Revolver lenders (the
(“Project Lenders”) shall have entered into an Acknowledgment and
Purchase Agreement, whereby the Obligations hereunder shall be subordinate to
the obligations of Borrower under the Senior Project Revolver and whereby in
exchange Agent on behalf of the Lenders shall have received the right to
purchase such obligations upon the occurrence of a default or event of default
under the Senior Project Revolver.

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

11.           EVENTS OF DEFAULT; ACCELERATION;
ETC.

11.1         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; provided however, that Borrower shall have thirty (30) additional
days to make any payment required by Section 4.2(a) herein.

(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 §11) that are applicable to them;

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(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 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;

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(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 that would
materially adversely affect the properties, assets, financial condition or
business of the 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

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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 Project Revolver;

(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 the 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 the Borrower; provided that in the event of any Event of
Default specified in §11.1(f), §11.1(g) §11.1(h), or 11(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.

11.2         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 §11.1, 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, the 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.

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11.3         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 outstanding interest under the Prime Rate Loans,
(iv) next to any accrued and outstanding interest under the LIBOR Rate Loans,
(v) next to any outstanding principal on the Prime Rate Loans, (vi) next to any
outstanding principal on the LIBOR Rate Loans, and (vii) last to any remaining
Obligations (including with respect to any Hedge Agreement) in such order as
the Majority Lenders may determine; and

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

12.           RESERVED

13.           THE AGENT.

13.1         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.

13.2         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

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Agent
may reasonably determine and all reasonable fees and expenses of any such
Persons shall be paid by the Borrower.

13.3         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.

13.4         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 the 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.

13.5         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.

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(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 to comply with the provisions of §12 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 the 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.

13.6         Holders of Notes.  Subject to the terms of §17, 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.

13.7         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 the 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

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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.

13.8         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.

13.9         Resignation or Removal.  The Agent may resign at any time by giving
thirty (30) calendar days’ prior written notice thereof to the Lenders and the
Borrower.  The Agent may be removed as
Agent upon thirty (30) days prior written notice by the Required Lenders.  The Required Lenders shall mean Lenders whose
aggregate principal amount of the outstanding Loans are greater than sixty six
and two-thirds percent (66.2/3%) of the Total Commitment (the “Required
Lenders”) 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 this definition of Required
Lender shall include the Sole Majority Lender and a minimum of one other
Required Lenders  Upon any such
resignation or removal, the Majority Lenders, subject to the terms of §17.1,
shall have the right to appoint as a successor 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 the
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.

13.10       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 Majority Lenders and (b) the 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 Required 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

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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.

13.11       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.

14.                                 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 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 (the 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 in connection with the performance of due
diligence, underwriting analysis, credit reviews and inspection of Projects,
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

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recordings. 
The covenants of this §14 shall survive payment or satisfaction of
payment of amounts owing with respect to the Notes.

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15.           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 §15 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 any Projector 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) the Borrower and the Guarantors entering
into or performing this or any 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 Projects or the other
Collateral, or (g) with respect to the 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 the Borrower shall not be obligated under this §15 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, the Borrower agrees to pay promptly the
reasonable fees and expenses of such counsel. 
The foregoing provision shall not preclude any Lender or Agent from
retaining its own counsel in such actions at its own expense.   If, and to the extent that the obligations
of the Borrower under this §15 are unenforceable for any reason, the 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 §15 shall survive the
repayment of the Loans and the termination of the obligations of the Lenders
hereunder.

16.           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 the Borrower or the Guarantors pursuant hereto or
thereto shall be deemed to have been relied upon

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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. 
The indemnification obligations of the 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.

17.           ASSIGNMENT AND PARTICIPATION.

17.1         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, (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 “G” (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 §17.3, 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

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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 the 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 the 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
hereunder to the 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 the Borrower or Guarantors, and (iv) such sale is
effected in accordance with all Applicable Laws.

17.2         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 the Borrower or any other
Person primarily or secondarily liable in respect of any of the Obligations, or
the performance or observance by the 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

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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.

17.3         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 the 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 the Borrower and Lenders at any reasonable time and from time to
time upon reasonable prior notice.  Upon
each such recordation, (i) the 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.

17.4         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 the
Borrower and Lenders (other than the assigning Lender).  Within five (5) Business Days after receipt
of such notice, the 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 §17.4, 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.

17.5         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.

17.6         Disclosure.  Each Lender agrees to take normal and
reasonable precautions and exercise due care to maintain the confidentiality of
all information

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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 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.

17.7         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:

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(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 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 the 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.

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(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 §17.7(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 §17.7, 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 §17.7(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 §17.7(f) rather than §17.7(e).  In addition to any other rights of offset
contained in this Agreement or under any applicable law, in the event that any
amounts would otherwise be covered by an indemnity under §17.7(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.

18.           NOTICES.

Each
notice, demand, election or request provided for or permitted to be given
pursuant to the Loan Documents (hereinafter in this §18 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

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If
to the Agent:

KeyBank National
Association

1200 Abernathy Rd 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, CA 92614
Attention: Raymond J. Pacini

with copy to:

Gregory W. Preston, Esq.

Corporate Law Solutions, P.C.

2112 Business Center Drive

2nd Floor 

Irvine, CA  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

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respective addresses and
each shall have the right to specify as its address any other address within
the United States of America.

19.           RELATIONSHIP.

Neither
the Agent nor any Lender has any fiduciary relationship with or fiduciary duty
to the 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, the Borrower and the Guarantors
acknowledge that the Agent and the Lenders may enforce certain limitations on
and requirements with respect to the business of the Borrower and the
Guarantors, and the 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.

20.           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 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.

21.           HEADINGS.

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

22.           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.

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23.           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 §26.

24.           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 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 §24 SHALL BE OF NO FURTHER
FORCE AND EFFECT, AND (III) THE REMAINDER OF THIS AGREEMENT SHALL REMAIN IN
FULL FORCE AND EFFECT.

25.           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 the Borrower, the Guarantors or any of their
Affiliates regardless of the capacity of the Lenders hereunder.

26.           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 the 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.  Notwithstanding
the foregoing, no amendment to the Financial Covenants or any of the defined
terms used therein shall occur without written consent of the Majority Lenders;
provided however, that neither the definition of “Asset Value” nor the terms of
§9.3

 75
 

 

shall
be amended without the written consent of each Lender. Further, notwithstanding
the foregoing, subject to §13.9, no change shall occur with respect to the
identity of the Agent without the written consent of the Majority Lenders.  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 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, of the definition of
Required Lenders, 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 §26; the extension of an Interest Period to a
term of longer than six months, or an amendment of any provision of this
Agreement or the Loan Documents which requires the approval of all of the
Lenders or the Required 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 §13 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 Loans provided that no such amendment or modification materially affects or
increases any of the obligations of the 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.

27.           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.

 76

 

28.           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.

29.           REPLACEMENT OF NOTES.

Upon receipt of evidence reasonably satisfactory
to the 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 the Borrower or, in the case of any such
mutilation, upon surrender and cancellation of the applicable Note, the
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.

30.           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.

31.           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 the 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 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
commercially reasonable discretion they deems 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 the Borrower of any Projector the absence
therefrom of defects.

32.           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

 77
 

 

recognizes
that the privilege each has to maintain, in its 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.

 

 78

 

IN
WITNESS WHEREOF, the undersigned have duly executed this Senior Secured Term
Loan 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]

 

 

 

	
  

  	
   

  	
  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]

 

 

 80
 

 

 

	
  

  	
   

  	
  GUARANTOR:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  SIGNAL LANDMARK,

  

 

	
  

  	
   

  	
  a California
  Corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Raymond J.
  Pacini

  	
   

  
	
   

  	
   

  	
   

  	
  Raymond J.
  Pacini

  
	
   

  	
   

  	
   

  	
  Chief Executive
  Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  [SEAL]

  
						

 

[SIGNATURES
CONTINUED ON FOLLOWING PAGE]

 81
 

 

 

	
  

  	
   

  	
  AGENT:

  
	
   

  	
   

  	
  KEYBANK NATIONAL ASSOCIATION, a

  national banking association, as Agent

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Andrew D. Stickney

  	
   

  
	
   

  	
   

  	
   

  	
  Andrew Stickney

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  [SEAL]

  

 

[SIGNATURES CONTINUED ON FOLLOWING PAGE]

 82

 

 

	
  

  	
   

  	
  LENDERS:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  KEYBANK NATIONAL ASSOCIATION, a national banking association,
  as Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Andrew D. Stickney

  	
   

  
	
   

  	
   

  	
   

  	
  Andrew Stickney

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  [SEAL]

  
						

 

[SIGNATURES CONTINUED ON FOLLOWING PAGE]

 

 

	
  

  	
   

  	
  WACHOVIA
  NATIONAL BANK, N.A., AS

  Syndication Agent and as a Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Brian A.
  Phillips

  	
   

  
	
   

  	
   

  	
   

  	
  Brian A.
  Phillips

  	
   

  
	
   

  	
   

  	
   

  	
  Vice President

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  [SEAL]

  
						

 

[SIGNATURES CONTINUED ON FOLLOWING PAGE]

 

 

	
   

  	
  FRANKLIN BANK, SSB, as a
  Lender

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Susan Conrad

  	
   

  
	
   

  	
   

  	
  Susan Conrad

  	
   

  
	
   

  	
   

  	
  Senior Vice
  President

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  [SEAL]

  
					

 

 

 

	
   

  	
  COMERICA BANK, as a Lender

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Anthony
  Lopilato

  	
   

  
	
   

  	
   

  	
  Anthony Lopilato

  	
   

  
	
   

  	
   

  	
  Senior Vice
  President – Western Market

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  [SEAL]

  
					

 

 

 

	
  

  	
  GUARANTY BANK,
  as a Lender

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Jon M.
  Larson

  	
   

  
	
   

  	
   

  	
  Jon M. Larson

  	
   

  
	
   

  	
   

  	
  Senior Vice
  President 

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  [SEAL]

  
					

 

 

Exhibits
and Schedules

	
  Exhibit “A”

  	
   

  	
  Form of Note

  
	
   

  	
   

  	
   

  
	
  Exhibit “B”

  	
   

  	
  Organizational Chart of Borrower

  
	
   

  	
   

  	
   

  
	
  Exhibit “C”

  	
   

  	
  Subsidiaries and Joint Ventures

  
	
   

  	
   

  	
   

  
	
  Exhibit “D”

  	
   

  	
  Form of Compliance Certificate

  
	
   

  	
   

  	
   

  
	
  Exhibit “E”

  	
   

  	
  Hedging Agreement

  
	
   

  	
   

  	
   

  
	
  Exhibit “F”

  	
   

  	
  Collateral Assignment of Hedging Agreement

  
	
   

  	
   

  	
   

  
	
  Exhibit “G”

  	
   

  	
  Form of Assignment and Acceptance Agreement

  
	
   

  	
   

  	
   

  
	
  Exhibit “H”

  	
   

  	
  Project Budget

  
	
   

  	
   

  	
   

  
	
  Schedule 1.0

  	
   

  	
  Lenders and Commitment Percentages

  
	
   

  	
   

  	
   

  
	
  Schedule 1.1(g)

  	
   

  	
  Guarantors

  
	
   

  	
   

  	
   

  
	
  Schedule 6.19

  	
   

  	
  Existing or Threatened Litigation

  
	
   

  	
   

  	
   

  
	
  Schedule 6.33(b)

  	
   

  	
  Notices of Environmental Claims

  
	
   

  	
   

  	
   

  
	
  Schedule 6.33(c)

  	
   

  	
  Existing Environmental Reports and Disclosures

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