Model Home Lease Back

Transaction No.: 22
Builder: Monterey Homes
Locations: Phoenix, AZ
Tucson, AZ


REVOLVING MODEL HOME LEASE BACK AGREEMENT


This Revolving Model Home Lease Back Agreement is made and entered into by and between AMHM-1, L.P., a California limited partnership ("AMH"), and MONTEREY HOMES ARIZONA II, INC., an Arizona corporation, ("Builder").
TABLE OF CONTENTS
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Page
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1. Recitals Incorporated by Reference . . . 2


2. Multiple Models in Multiple Projects . . 2


3. Models . . . . . . 2
3.1 Security Deposit. . . . . 2


4. Lease Rate . . . . . 3
4.1 Variable Lease Rate . . . 3
4.2 Generally . . . . 3


5. Lease Term . . . . . 3
5.1 Length of Lease . . . . 3
5.2 Early Termination by Builder During Lease Term 4
5.3 Rent . . . . . 5
5.4 Payment Agent. . . . . 5


6. Conversion of Model . . . . 6
6.1 Conversion Prior to Expiration Date. . 6
6.2 Definition of Conversion . . . 6
6.3 Acceptable Condition . . . 6


7. Additional Options . . . . 7


8. Sales of Models . . . . . 7
8.1 Marketing Efforts . . . . 7
8.2 Request by AMH for Builder's Assistance . 7
8.3 Early Sales . . . . 8
8.4 Unrestricted Sales . . . 8


9. Offset Rights . . . . . 8


10. Customer Service and Warranty by Builder Following Sales 8


11. Absolute Obligation to Pay Rent . . . 9


12. AMH's Voluntary Expenses . . . . 9
(i) 13. Taxation . . . . . . 10
13.1 Payment of Real Property Taxes . . 10
13.2 Joint Assessment . . . . 10
13.3 Definition of Taxes . . . 10


14. Use . . . . . . 11


15. Utilities . . . . . 11


16. Maintenance and Repairs . . . . 11


17. AMH's Right to Maintain . . . . 11


18. Entry for Inspection . . . . 12


19. Sales Reports . . . . . 12
19.1 Frequency . . . . 12
19.2 Confidentiality . . . . 12
19.3 Supplemental Reports . . 12


20. Liens . . . . . . 12
20.1 Generally . . . . 12
20.2 Builder's Right to Challenge . . 13
20.3 Notices of Non-Responsibility . . 13


21. Indemnity of AMH and Property by Builder . . 13


22. Insurance . . . . . 14
22.1 Liability Insurance . . . 14
22.2 Property Insurance . . . 15
22.3 Waiver of Subrogation . . . 15


23. Damage or Destruction . . . . 15


24. Assignment & Subletting . . . . 15
24.1 AMH's Consent Required . . . 15
24.2 No Release of Builder . . . 16
24.3 Collateral Assignment by AMH . . 16


25. Subordination . . . . 16
25.1 Generally . . . . 16
25.2 Subordination Agreements/Non-Disturbance 17
25.3 Quiet Enjoyment . . . . 17
25.4 Covenant to Pay . . . . 17
(ii) 26. Default; Remedies . . . . . 17
26.1 Default . . . . . 17
26.2 Remedies . . . . . 18
26.3 Late Charges . . . . 19
26.4 Default by AMH . . . . 19
26.5 No Waiver of Remedies . . . 20


27. Guaranty . . . . . . 20


28. Miscellaneous . . . . 20
28.1 Estoppel Certificate . . . 20
28.2 Entire Agreement . . . . 21
28.3 Severability . . . . 21
28.4 Costs of Suit . . . . 21
28.5 Binding Effect; Choice of Law . . 21
28.6 Surrender of Models . . . 21
28.7 Holding Over . . . . 21
28.8 Recording . . . . 22
28.9 Notices . . . . . 22
28.10 Time . . . . . 23
28.11 Reasonableness . . . . 23


List of Exhibits
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Exhibit "A" Model Chart and Purchase Price Schedule


Exhibit "B" Early Termination Release Prices


Exhibit "C" Form of Sales Report


Exhibit "D" Form of Acknowledgment of Lease Term Expiration


Exhibit "E" Buyer's Addendum #1 to Real Estate Purchase Contract


Exhibit "F" Guarantee


Exhibit "G" Minimum Lease Term and Termination Schedule


Exhibit "H" Hazardous Materials Laws and Hazardous Materials Definition
(iii)
REVOLVING MODEL HOME LEASE BACK AGREEMENT


This Revolving Model Home Lease Back Agreement (the "Lease") is dated for reference purposes only as of the 18th day of December, 1996 and is entered into by and between AMHM-1, L.P., a California limited partnership ("AMH") and MONTEREY HOMES ARIZONA II, INC., an Arizona corporation ("Builder").


RECITALS
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A. Builder and AMH have previously entered into that Revolving Model Home Purchase Agreement (the "Purchase Agreement") whereby AMH has purchased certain model homes identified on the "Model Chart" attached hereto as Exhibit "A", as the same may be revised from time to time, (the "Models") located in one or more housing projects (the "Projects"). The related Purchase Agreement and this Lease have the same "Transaction Number" as assigned by AMH, for accounting purposes, and shown on the cover of both the Purchase and Lease Agreements. All initial-capitalized terms not otherwise defined herein shall have the same meaning ascribed to them in the Purchase Agreement. The terms of the Purchase Agreement are incorporated herein by this reference.


B. AMH has purchased the Models and AMH now desires to lease back the Models to Builder. Under the Purchase Agreement, additional Models not shown on the Model Chart may yet become subject to the Purchase Agreement and may yet be purchased by AMH after the conduct of AMH's Feasibility Review (as defined below) for such additional Models. Upon the Settlement of any such additional Model, such Model shall become subject to this Lease by a modification of the Model Chart by the parties. This Lease shall become effective for each respective Model as of the Settlement Date for such Model, which is also the "Lease Commencement Date" for such Model.


C. The Lease Term (as hereinafter defined) may expire with respect to certain Models while remaining in effect for other Models until the date of expiration of the Lease Term (the "Lease Expiration Date") for such other Models. The terms of this Lease may vary with respect to different Models as further described herein.


D. This Lease governs and affects only those Models which are described on the Model Chart, as the same may be revised from time to time by the parties. A default under this Lease (taking into account all applicable grace and cure periods) with respect to any Model now or hereafter described on the Model Chart, constitutes a default with respect to all Models described on the Model Chart.


NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, AMH hereby leases the Models to the Builder upon the following terms and conditions.
1 1. Recitals Incorporated by Reference.
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AMH and Builder acknowledge that the recitals are true and correct representations, warranties, covenants and agreements by and between the parties. Such recitals are incorporated herein by this reference.


2. Multiple Models in Multiple Projects.
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Certain terms of this Lease with respect to each Model are set forth in the Model Chart, as the same may be revised from time to time by mutual agreement. This Lease is applicable to each Model described on the Model Chart, as the same may be revised from time to time, the same as if each of the Models, respectively were the only property subject to this Lease. A Model may be "Converted" (as defined in Paragraph 6.2 below) and sold without affecting the validity and enforceability of this Lease with respect to remaining Models in other Projects.


3. Models.
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The term "Models" includes (i) with respect to free-standing homes, the underlying realty and all the improvements located thereon, including without limitation, the landscaping, irrigation equipment, sidewalks, walls and the house, and (ii) with respect to condominiums, an undivided interest in the underlying realty and all common improvements located thereon, plus title to the subject individual dwelling unit as defined in the governing documents applicable thereto. Fixtures located within the house or condominium which cannot be removed without damage to the Models, the draperies and drapery hardware, built-in home entertainment systems excluding televisions, the built-in appliances located in the Models as of the Lease Commencement Date, pools and pool equipment and built-in or custom cabinetry or woodworking are deemed to be a part of the Models. The term "Models" does not include furniture (unless built-in), accessories such as vases, paintings, and other art and decorating objects; office furniture and equipment, or office fixtures located in the Models (unless otherwise specified on the Exhibit A Model Chart).


3.1 Security Deposit: Builder shall deposit with AMH, cash or an acceptable Letter of Credit, in the amount of one month's rent, which shall be held as a security deposit by AMH until such time as the proposed merger between Builder and Homeplex is completed or prorated until all the units on the Model Chart have been resold by AMH and Builder pursuant to the Purchase and Lease Agreement. Failure by Builder to replace any Letter of Credit within 10 business days of the expiration of the Letter of Credit will constitute an Event of Default under this Lease Agreement.
2 4. Lease Rate.
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4.1 Variable Lease Rate. Builder shall pay to AMH as monthly installments of "Rent" under this Lease, for each of the Models subject hereto, variable amounts which are calculated by determining the "Lease Rate" for each month of the Lease Term. In this connection, the monthly Lease Rate for all Models subject to this Lease for each calendar month of the Lease Term shall be equal to the amount determined by the following calculation: one-twelfth of the product of (i) the 3-month LIBOR Rate as published by the Wall Street Journal on the first business day of the prior month, plus 650 basis points, multiplied by (ii) the Purchase Price of all Models then covered by this Lease (as set forth in the Model Chart as same may be revised from time to time) on the date such Rent is due. With respect to any Model for which the Lease has terminated or expired on any day other than the first day of a calendar month, the installment of Rent which is due on the first day of the following calendar month shall be prorated to take into account such Lease termination or expiration.


4.2 Generally. Builder shall pay to AMH, as Rent for the Models, IN ADVANCE ON THE FIRST DAY OF EACH CALENDAR MONTH OF THE LEASE TERM without deduction, offset, prior notice or demand, in lawful money of the United States, the amount of monthly Rent calculated pursuant to the formula set forth in Paragraph 4.1 above. Rent shall be paid commencing on the Lease Commencement Date and until the Lease Expiration Date for the respective Models. If the Lease Commencement Date for the Models in a Project is not the first day of a month, Builder shall pay a prorated portion of the Rent for that month. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH HEREIN, THERE IS NO GRACE PERIOD FOR THE PAYMENT OF RENT. The first full monthly installment of Rent payable by Builder pursuant to this Lease shall be paid to AMH on January 1, 1997.


5. Lease Term.
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5.1 Length of Lease. The term of this Lease (the "Lease Term") for each of the Models covered respectively by this Lease (including Models subsequently added to the Model Chart by addendum as Additional Model(s)) shall commence on the Settlement Date (as defined in the Purchase Agreement) for such Model, and shall expire, subject to the provisions of Paragraph 6 below, on the six (6) month or first (1st) anniversary thereof pursuant to the scheduled maximum mandatory lease term date on Exhibit "G", unless sooner terminated pursuant to the provisions hereof. Notwithstanding the foregoing, Builder shall have the right to cause early termination of the Lease Term for individual Models covered by the Lease pursuant to the terms of Paragraphs 5.2.1, 5.2.2 and 5.2.3 below. In its exercise of any such early termination rights, however, Builder may not terminate the Lease if, as a result of such proposed termination and taking into account any previous instances where Builder may have exercised any of its early termination rights, more than four (4) Models may remain unsold within a given Development (the "Inventory Restriction"). As to Additional Models, in its exercise of any such early termination rights, Builder may not terminate the Lease for a particular Model or group of Models within a specific master planned community or subdivision ("Development") under any circumstance, if,
3 as a result of such proposed termination and taking into account any previous instances where Builder may have exercised any of its early termination rights, more than four (4) Models may remain unsold within a three (3) mile radius of a given Development (the "Inventory Restriction"), unless mutually modified by both parties. Builder shall have the right to extend the term of this Lease for each model, prior to the initial lease term expiration date, on a month to month basis or, if builder, at builder's option, elects to extend the lease for a minimum of six (6) months, for a maximum of two (2) six (6) month extensions. The builder shall have the option to extend the lease on each unit on a month to month basis, after either the expiration of the lease term or expiration of any six (6) month options previously exercised.


5.2 Early Termination by Builder During Lease Term. Builder is hereby provided three separate methods (set forth, respectively, in Sections 5.2.1, 5.2.2 and 5.2.3) by which Builder may cause early termination of the Lease Term for a particular Model. Each method of termination is independent of the others but may be exercised in conjunction with other termination methods so long as there is no violation of the Inventory Restriction. Furthermore, the exercise of any termination right described herein requires at least ninety (90) days prior notice from Builder to AMH of Builder's intent to exercise such early termination right (the "Termination Notice"), and no Lease for a particular Model shall be deemed to have terminated unless such Model has been "Converted" as provided in Paragraph 6 below. However, notwithstanding that the Builder has given such Termination Notice, the Expiration Date of the Lease Term shall be the later to occur of (a) 90 days following receipt of such written notice from Builder, or 30 days from the completion of Conversion of the Models.


5.2.1 Lease Termination: At Builder's option, Builder may elect to terminate the Lease with respect to a Model described in the Model Chart pursuant to the schedule shown on Exhibit "G" which allows for the termination of those Models on the date(s) prescribed per the notice described in Section 5.2 above. Should Builder elect not to cancel a lease with respect to a particular unit per Schedule "G" or, if Builder cancels or rescinds a Termination Notice previously given to AMH, Builder may elect to extend the lease for that unit on a month to month basis, provided however that Builder repeats to the 90 day notice provision described in Section 5.2 above. If Additional Model(s) are added to the Model Chart by addendum, Builder may release said Additional Models at any time beginning at one (1) year after the Lease Commencement Date for that Additional Model(s) so long as the aggregate releases for all Additional Model(s) in any one month complies with the inventory restriction as defined in Paragraph 5.1.


5.2.2 Early Termination. Notwithstanding Section 5.2.1, with respect to each Model or Additional Models leased hereunder, at any time beginning before the date which is six (6) months or one (1) year after the Lease Commencement Date for that Model Builder may elect to terminate the Lease prior to expiration of the Lease Term of that Model or Additional Models if circumstances change such that there is no longer any business purpose served by the continued use of such Model or Additional Models as a model home. Builder may discontinue such use upon providing the applicable Termination Notice to AMH specifying the change in circumstances. Irrespective of the number of models released under 5.2.1 above, Builder agrees to give AMH such Early Termination Notice immediately upon Builder's determination that it no
4 longer intends to use the Model as a model home with a date that the use as a Model shall be discontinued. The purpose of the Early Termination Notice shall be to give AMH and Builder an opportunity to sell the Model while marketing traffic is still visiting the Model. For that reason, Builder shall give such Early Termination Notice as soon as possible, and maintain current marketing efforts, including using furnished and decorated models, similar sales hours and advertising. Within sixty (60) days of sending such Early Termination Notice, Builder shall begin to Convert the Model. On behalf of AMH, Builder shall attempt to obtain an agreement to sell such Model at a price equal to or greater than the price established solely by AMH within ten (10) days after its receipt of the Early Termination Notice(s), at which price Builder shall offer the said Model for sale (the "Early Termination Price") substantially as scheduled on Exhibit "B", and Builder shall continuously thereafter offer the Model for sale to the buying public at such price for a period of sixty (60) days or less, as determined by AMH. Builder's right to terminate the Lease pursuant to the foregoing is expressly conditioned upon Builder obtaining a purchase price which equals or exceeds the Early Termination Price.


5.2.3 Minimum Sale Price: Provided, however, that if such sixty (60) day period referenced in 5.2.2 above shall expire without Builder having sold the Model in question at a price equal to or greater than the Early Termination Price, Builder shall have a continuing right to elect to terminate the Lease as to such Model by (i) obtaining an agreement, previously approved by AMH, to sell such Model for a price which, equals or exceeds the price for such Model specified in Exhibit "B" attached hereto (such price is referred to herein as the "Minimum Sales Price") or (ii) obtains an agreement, previously approved by AMH, to sell such Model for a price less than the Minimum Sales Price, but pays into the sale escrow the difference between such sales price and the Minimum Sales Price prior to close of escrow for such sale, with such amount to be paid to AMH at close of escrow. Notwithstanding any other provision of this paragraph or Section 5.2.2, no Lease shall terminate under this paragraph or Section 5.2.2 until the closing of the sale of that Model for a price equal to or greater than the Early Termination Price or, after the initial sixty (60) day sale period, during the subsequent sales period described in paragraph 5.23, for a price equal to or greater than the Minimum Sales Price. Until such termination of the Lease occurs, however, all the provisions of the Lease shall continue to be effective with respect to such Model, including all the maintenance requirements, payments of Rent and Conversion requirements set forth in the Lease.


5.3 Rent. Each and every obligation of Builder to pay money to or for the benefit of AMH under this Lease is hereby deemed to be included within the term "Rent". Rent due for any partial month shall be based on a thirty (30) day month, regardless of the actual days in such month.


5.4 Payment Agent. AMH may enter into an arrangement whereby Rent is paid by Builder to a payment agent (the "Custodial Account") for disbursement to secured parties, and then to AMH. AMH shall provide notice to Builder of the name, address and method by which Rent payments are to be sent to the Custodial Account. Builder shall have no liability for the acts or failures to act of the Custodial Account agent so long as Builder makes the payments directed by AMH as and when required.
5 6. Conversion of Model.
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6.1 Conversion Prior to Expiration Date. Prior to the Lease Expiration Date for each Model, Builder shall "Convert" (as defined below) each Model to a single family residence ready for sale to the public and immediate occupancy. In no event shall the Lease Expiration Date for any Model occur prior to the Conversion of such Model.


6.2 Definition of Conversion. As used herein, the term "Convert" (and its derivations) means (a) the obtaining by Builder of a certificate of occupancy (or its equivalent in the subject jurisdiction) for the Model, (b) restoring the Model to the "Acceptable Condition" (as defined below), (c) completing any other work required to remove special improvements installed for marketing purposes, and (d) generally transforming the Model and applicable portions of the model complex to an ordinary, habitable home. Without limiting the generality of the foregoing, Conversion includes removing and properly disposing of all asphalt from the applicable model lot used as a parking lot; transforming all garages used as offices into garages; and removing all railings, fencing, walls, sidewalks and other devices which were installed to direct sales traffic to said Model; removing all sales signs and other sales equipment and fixtures; removing all of Builder's property from the Model; repainting, cleaning, replacing or repairing, as appropriate, all damages caused by marketing traffic, Builder's activities or other conversion activities to bring the Model to the Acceptable Condition (as hereafter defined) and performing all repairs, retrofits and other work required to make the Model a fully functioning and occupiable home.


6.3 Acceptable Condition.


6.3.1. Generally, the Acceptable Condition of all mechanical equipment, appliances and structural components shall be their clean, used, properly functioning condition with all repairs and maintenance performed to date and without obvious physical blemish or other signs of deferred maintenance or physical damage. Such items as fans, air conditioning units, toilets and plumbing fixtures, ranges, ovens, and lighting fixtures are subject to this standard.
6.3.2. The Acceptable Condition of all painted items, such as walls, where the paint is still intact and in good condition is thoroughly cleaned without visible smudges or other soiling; if there are any areas where the paint has been removed through abrasion or collision, such areas shall be repaired and painted with matching paint. The Acceptable Condition of wall papered surfaces is clean without any obvious physical damage or sagging; areas of physical damage or sagging shall be replaced with matching wallpaper. The Acceptable Condition of carpeting is thoroughly cleaned without physical damage or noticeably worn areas. The Acceptable Condition of all other flooring shall be thoroughly cleaned. The Acceptable Condition of all brick work and concrete work shall be clean and without visible physical damage; all physical damage shall be properly repaired. The Acceptable Condition of drapes, curtains, blinds, tinting and mirroring and other window coverings and treatments is thoroughly cleaned and in good mechanical condition. The Acceptable Condition of any option item or
6 upgrades installed in the Models shall be the acceptable condition for similar features, appliances or surfaces, minimal wear and tear excepted. The buyers of each model home shall sign an Addendum to the Purchase Agreement (attached as Exhibit "E") relating to the model home condition.


7. Additional Options.
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At the request of AMH, and upon reasonable notice, Builder shall install any of those options available, such as home theater equipment and non-built-in appliances, for a si ...