A:\10K797wpd.wpd
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 31, 1997
Commission file number 1-7643
WASHINGTON HOMES, INC
(Exact name of registrant as specified in its charter)
Maryland 52-0818872
(State or other jurisdiction of (I.R.S.
Employer
incorporation or organization)
Identification No.)
1802 Brightseat Road, Landover, MD 20785-4235
(Address of principal executive offices) (Zip Code)
(301) 772-8900
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
which registered
Common Stock (voting), $.01 par value New York Stock
Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
On October 15, 1997, the aggregate market value of the voting stock held
by non-affiliates of the registrant was approximately $18,244,528.
Number of shares of each of the registrant's classes of common stock
outstanding at September 30, 1997:
Class Number of Shares
Common Stock (voting), $.01 par value 7,914,433
Common Stock (non-voting), $.01 par value 28,330
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Annual Report to Shareholders for fiscal year ended July 31, 1997
(Part II).
Proxy statement to be filed pursuant to Regulation 14A for 1997 Annual
Meeting of Shareholders to be held November 20, 1997 (Part III).
WASHINGTON HOMES, INC.
FORM 10-K REPORT
TABLE OF CONTENTS
PART I. PAGE
Item 1. Business ............................................. 3
Item 2. Properties ........................................... 9
Item 3. Legal Proceedings .................................... 9
Item 4. Submission of Matters to a Vote of Security Holders .. 9
PART II.
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters .................................. 10
Item 6. Selected Financial Data .............................. 10
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations .................. 10
Item 8. Financial Statements and Supplementary Data .......... 10
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure .................. 11
PART III.
Item 10. Directors and Executive Officers of the Registrant .. 11
Item 11. Executive Compensation .............................. 12
Item 12. Security Ownership of Certain Beneficial Owners
and Management ...................................... 12
Item 13. Certain Relationships and Related Transactions ...... 12
PART IV.
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K ................................ 13
SIGNATURES ......................................................... 15
EXHIBITS ...........................................................
Note: This report contains statements which may be construed as "forward-
looking statements" as defined in the Private Securities Litigation Reform
Act of 1995. Such statements may involve unstated risks, uncertainties, and
other factors that may cause actual results to differ materially. Such
risks, uncertainties and other factors include, but are not limited to,
changes in general economic conditions, fluctuations in interest rates,
increases in costs of materials, supplies and labor and general competitive
conditions.
Part I
Item 1. Business
General
Washington Homes, Inc. designs, builds and markets single-family
detached homes, townhomes and condominium homes primarily to first-time and
first move-up homebuyers in the metropolitan areas of Washington, D.C.-
Baltimore, Maryland; Greensboro, Raleigh and Charlotte, North Carolina;
Nashville, Tennessee; and Pittsburgh, Pennsylvania. The Company's largest
market is the Washington-Baltimore corridor. The Company commenced operations
in 1965 and entered the Raleigh and Greensboro, North Carolina markets
through an acquisition effective as of May 1, 1994. During fiscal 1996 the
Company began operating in Charlotte, North Carolina and Nashville, Tennessee
and expanded operations in Pittsburgh. The Company operates under the name
"Washington Homes" in Maryland, Virginia and Pennsylvania and as "Westminster
Homes" in North Carolina and Tennessee.
The Company focuses its marketing efforts on consumers whose top
priorities are price and value. During the five years ended July 31, 1997 the
Company delivered 5,520 homes and currently offers homes for sale in 62
communities at base sales prices ranging from $79,990 to $270,000. The
Company delivered 1,315 homes during the fiscal year ended July 31, 1997
generating homebuilding revenues of $206.5 million. The average sales price
of homes delivered by the Company during fiscal 1997 was approximately
$157,100. At July 31, 1997 there was a backlog of 591 homes under contract
with a sales value of $96.3 million.
Washington Homes, Inc. was incorporated in the State of Maryland in
1965. Unless the context otherwise requires, the terms "Company" and "WHI" as
used in this report refer to Washington Homes, Inc. and its subsidiaries. The
Company's principal executive offices are located at 1802 Brightseat Road,
Landover, Maryland 20785-4235, and its telephone number is (301) 772-8900.
Products
The Company builds homes designed by its own personnel with assistance
from outside architectural firms. It strives to create a diversity of
architectural styles in each residential community by providing exterior and
interior design options for homes with the same basic floor plans that are
intended to appeal to a broad range of potential buyers and respond to
changes in the market place.
Each residential community offers several home plans, with the
opportunity to select various exterior styles. The Company develops new
designs to replace or augment existing ones as part of its continuing efforts
to assure that its homes are responsive to current consumer preferences.
The range of base sales prices and home sizes for the Company's homes as
of July 31, 1997 was as follows:
Base Sales Range of Sizes
Prices
Single-family detached $97,000 - 1,100 to 3,000 sq.
homes $270,000 ft.
Townhomes $96,000 - 1,050 to 1,600 sq.
$157,000 ft.
Condominiums $79,900 - 600 to 1,400 sq.
$131,000 ft.
In all of WHl's communities, certain options including fireplaces, finished
basements, brick fronts, upgraded appliances, carpet and lot location are
available to the purchaser for an additional charge.
The following table sets forth a breakdown of the Company's deliveries
by housing type in each of the last three years:
<TABLE>
<CAPTION> Years Ended July 31,
1997 1996 1995
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Home % Amoun Home % Amount Homes % Amount
s t s
Single-family
detached 890 67.7 $152,1 668 61.5 $112,6 602 51.6% $102,27
homes... % 55 % 55 3
Townhomes...... 355 27.0 46,515 366 33.7 49,117 533 45.7% 70,689
... % %
Condominiums... 70 5.3% 7,906 53 4.8% 6,049 32 2.7% 3,647
...
1,31 100. $206,5 1,08 100. $167,8 1,167 100.0 $176,60
Total.......... 5 0% 76 7 0% 21 % 9
</TABLE>
During fiscal 1997, the Company decided to phase out its condominium
operations.
Organization
The Company's homebuilding operations are organized into eight
geographically based homebuilding divisions. Division offices are maintained
in Landover, Maryland; Manassas, Virginia; Charlotte, Cary and Greensboro,
North Carolina; Nashville, Tennessee; and Pittsburgh, Pennsylvania.
Corporate headquarters are located in Landover, Maryland.
Each division is headed by a division manager who reports to the
President-Homebuilding Operations. Division managers have responsibility for
day-to-day operations, including implementation of community marketing
strategies, pricing of homes, managing subcontractors, delivering of finished
homes and providing attendant service work. Division managers are supported
by sales and production managers. The sales manager coordinates marketing and
advertising programs and oversees the sales representatives based at each
community. One production manager oversees field operations with managerial
responsibility for on-site production superintendents. A second production
manager is responsible for purchasing materials, procuring subcontractor
services, technical design and construction issues.
Sales and building activities are managed at each community by a sales
representative and a production superintendent. The sales representative is
responsible for implementing the Company's marketing programs and for
follow-through with customers, from contract signing and loan application
through delivery. The production superintendent coordinates the work of
subcontractors and is responsible for quality control and delivery of the
finished product in a timely manner.
Residential Developments
As of July 31, 1997, the Company was actively building homes in 62
communities and controlled over 6,900 homesites, as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Communities in Lots Owned
Which
Homes Are Future Tota Finishe Lots Lots
Currently l d Under Under
Market Offered For Sale Communiti Lots Lots Developm Option
es ent
Washington, DC- 30 8 3,79 700 1,714 1,376
0
Baltimore,
MD
Greensboro, NC 9 1 778 158 386 234
Raleigh, NC 9 1 821 159 183 479
Charlotte, NC 5 4 586 52 -- 534
Nashville, TN 4 4 716 56 -- 660
Pittsburgh, PA 5 1 214 43 15 156
Combined Total 62 19 6,90 1,168 2,298 3,439
5
</TABLE>
Operations
Land Acquisition and Development
The Company builds homes on building lots which it either acquires as
finished lots from developers or which it develops itself. At July 31, 1997,
the Company owned or held options for 6,905 building lots, providing over
five years of supply at the Company's current pace of home deliveries.
The Company's general strategy is to purchase, to the extent feasible,
finished building lots through land acquisition option contracts which
provide the maximum degree of flexibility for the timing of land purchases
and minimizes the Company's investment outlay. Through the utilization of
land acquisition option contracts, the Company purchases the right, but not
the obligation, to buy a large number of building lots from a land developer.
The options allow the Company to purchase building lots on a takedown
schedule commensurate with anticipated home deliveries. As a result, the
Company generally does not purchase the building lot or pay the purchase
price until the building lot can be utilized in its construction schedule.
The purchase agreements generally limit the Company's financial exposure to
amounts placed with property sellers as deposits. Although option contracts
may contain predetermined lot takedown schedules and price escalation
provisions, the Company believes use of such contracts significantly reduces
risk since the Company is able to minimize its investment in land and limit
its exposure to debt financing. At July 31, 1997, the Company owned 1,168
homebuilding lots and held options for 3,439 homebuilding lots for which it
had posted deposits of approximately $3.6 million in the form of cash,
letters of credit and promissory notes.
The Company also develops land for its own residential operations, and
618 or 47.0% of the homes delivered in fiscal 1997 were built on land
developed by the Company. As of July 31, 1997, the Company owned 2,298
residential lots in 25 communities which were in the process of land
development. All communities have obtained the required zoning and public
approvals and, with two exceptions, have physical construction underway. The
Company does not buy land for the purpose of speculation.
The Company from time to time experiences difficulties in obtaining
building lots. The Company has experienced delays in acquiring lots from land
developers, primarily due to the difficulty experienced by developers in
obtaining financing. In certain instances, the Company acquired the land from
the developer and completed the development process itself. The imposition of
sewer moratoria, zoning changes and other governmental actions also can
affect the availability and use of land.
In its land development operations, the Company employs experienced
supervisory personnel who deal directly with independent engineers and
consultants for land and site planning, obtaining governmental and
environmental approvals, and constructing on and off-site improvements where
necessary (such as roads, water, sewers, storm drainage and other public
facilities and amenities). Actual development work is performed by
independent contractors, utility companies and/or local governmental water
and sewer agencies.
Marketing
A sales office is located in each community which is staffed by a
Company sales representative. In addition, a significant portion of sales are
derived from the introduction of customers to the Company's communities by
local independent real estate brokers. The Company maintains an extensive
broker co-op program which includes a progressive commission schedule based
on incremental sales generated. The Company's sales personnel are compensated
with salary and incentive compensation and are trained by the Company. They
attend weekly meetings to be updated on financing availability, construction
schedules, new land acquisitions, marketing and advertising plans. The
concentration of the Company's communities allows the Company to employ
salespersons on a long-term, rather than a single community basis, which
management believes results in reduced training costs and a more motivated
sales force with extensive knowledge of the Company's operating policies and
housing products.
The Company utilizes model home presentations (generally one per
community) as an integral part of the Company's marketing program. In
addition, the Company advertises extensively in newspapers, local and
regional publications, on radio, as well as utilizing billboards and roadside
signage.
The Company utilizes standard sales contracts which require the customer
to make an earnest money deposit which is generally in the range of $500 to
$3,000. Upon execution of the contract and receipt of the deposit, the home
sale is included in backlog. The sales contract is generally cancelable
without forfeiture of deposit if the customer is unable to sell an existing
home or obtain permanent financing. The sales contract sets forth details of
the home being purchased, location, options ordered, details of financing
sought and closing requirements.
In addition to relying on management's extensive experience, the Company
determines the prices for its homes through a Company-designed competitive
analysis program that compares a WHI home with homes offered by other
builders in the relevant marketing area. The Company accomplishes this by
evaluating differences in product features, amenities and location and
updates such analyses periodically.
Building
In its construction of homes, the Company acts as a general contractor
with independent contractors performing all home construction and site
improvement work generally under fixed-price contracts. Construction is
performed under the direction of production superintendents employed by the
Company. The Company enforces its commitment to quality by providing its
construction superintendents with incentive compensation arrangements based
on the homebuyer's satisfactory responses to pre-closing and post-closing
checklists.
Operating Controls
The Company attempts to limit exposure resulting from speculative
building. Generally, construction of single-family homes is commenced only
after a sales contract has been executed and the customer has received
preliminary loan approval. Construction of multi-family buildings is
generally commenced after sales contracts have been executed for a majority
of the homes in a particular building. The Company may begin construction of
detached homes prior to obtaining sales contracts in order to maintain a
limited inventory, in anticipation of winter weather conditions or to conform
to local market requirements.
When possible, the Company contracts on a fixed-price basis for
materials, such as appliances, lumber and carpeting, in an effort to minimize
the effects of changes in costs and to take advantage of bulk purchase
discounts. The Company focuses on the gross profit margins of each home sold
in each community and the monitoring of selling, general and administrative
expenses. Every home and every community is considered a profit center for
budgeting and cost control purposes.
Financing for Customers
The Company builds, markets and prices its homes under the guidelines
and specifications of the Federal Housing Administration ("FHA") and the
Veterans Administration ("VA"), in order to afford its prospective purchasers
the added benefits of FHA insured and VA guaranteed mortgages. The majority
of the Company's home deliveries are financed through these agencies. In some
areas, the Company has obtained lower than market interest rate financing for
purchasers of its homes through state or county bond programs. The Company
also assists its homebuyers in obtaining conventional mortgage financing.
In fiscal 1993, the Company established Homebuyer's Mortgage, Inc.
("Homebuyer's") as a subsidiary to provide residential mortgage services to
the Company's customers and others. Homebuyer's initially has been processing
mortgage applications with underwriting and funding provided by independent
wholesale lenders. In fiscal 1997, Homebuyer's closed 580 loans totaling
$82.2 million in permanent residential financing compared to 360 loans
totaling $50.3 million the previous year.
During fiscal 1997 the homebuilding industry experienced a
continuation of relatively low home mortgage interest rates. There can be no
assurance that a favorable interest rate environment or government programs
providing assistance for homebuyers will continue in the future.
Regulation
The Company is subject to a variety of federal, state and local
statutes, ordinances, rules and regulations concerning protection of health,
safety and the environment. The particular environmental laws which apply to
any given community vary greatly according to the community site, the site's
environmental condition and the present and former uses of the site. These
environmental laws may result in delays, cause the Company to incur
compliance and other costs and prohibit or restrict development in certain
environmentally sensitive regions or areas. Prior to consummating the
purchase of land, the Company engages independent environmental engineers to
evaluate such land for the presence of wetlands and hazardous or toxic
materials, wastes or substances. The Company has not been materially affected
to date by the presence or potential presence of such conditions.
To varying degrees, site development and building permits and approvals
are required to complete the residential developments currently being planned
by the Company. The timing and ability of the Company to obtain necessary
approvals and permits for these communities is often beyond the Company's
control. The length of time necessary to obtain permits and approvals
increases the carrying costs of unimproved property acquired for the purpose
of development and construction. In addition, the continued effectiveness of
permits already granted may be subject to factors such as changes in
policies, rules and regulations and their interpretation and application.
When developing land, the Company must obtain the approval of numerous
government authorities regulating such matters as permitted land uses and
levels of density, the installation of utility services such as water and
waste disposal and the dedication of acreage for open space, parks, schools
and other community purposes. To date, the governmental approval process and
restrictive zoning and moratoria have not had a material adverse effect on
the Company's development activities nor does the Company currently have any
lots that cannot be developed due to local or federal regulatory
restrictions. There is no assurance, however, that these or other
restrictions will not adversely affect the Company in the future.
Competition and Market Factors
The metropolitan housing markets serviced by the Company are highly
competitive. In its marketing efforts, the Company encounters competition
from other homebuilders and apartment and condominium developers, as well as
from sellers of existing homes. In the locations where the Company builds,
there is intense competition among numerous large and small homebuilders.
Competition in the homebuilding industry is intense in part because of the
historic ease with which large national homebuilders, many of which may have
greater financial resources than the Company, can expand their operations.
The Company competes on the basis of price, location, mortgage financing
terms, design and the Company's reputation for quality. Based upon the
experience of its management, the Company believes that it compares favorably
with its principal competitors in terms of its knowledge, expertise and its
ability to obtain building lots at prices and locations which allow it to
offer a well-priced, quality product and to obtain financing for its
customers.
The Company also competes with other builders for the acquisition of
building lots. This competition is based primarily on a builder's reputation,
and perceived abilities to market homes and price.
The housing industry is cyclical and affected by consumer confidence
levels, prevailing economic conditions generally and particularly by interest
rate levels. A variety of other factors affect the housing industry and
demand for new homes, including the availability of labor and materials and
increases in the costs thereof, changes in costs associated with home
ownership, such as increases in property taxes and energy costs, changes in
consumer preferences, demographic trends and the availability of and changes
in mortgage financing programs.
Bonds, Warranties and Other Obligations
The Company is frequently required, in connection with the development
of its communities, to obtain performance or maintenance bonds (or letters of
credit in lieu thereof) to ensure completion of the Company's development
obligations. The amount of such obligations outstanding at any time varies in
accordance with the Company's pending development activities. To date, the
Company has fulfilled its development obligations. Should the Company fail to
build required improvements and the bonds backing such obligations were
called, the Company would be obligated to reimburse the issuing surety
company or bank. The Company's financial exposure in this regard is reduced
as improvements are completed and bonds released. At July 31, 1997, the
Company had approximately $19.1 million in letters of credit and surety bonds
outstanding for the previously enumerated purposes.
All homes delivered by the Company are sold with the benefit of the
Company's two-year limited warranty as to workmanship supplemented by a
limited ten-year warranty as to structural integrity under the Residential
Warranty Corporation program, a privately insured program. To assist the
Company in meeting its warranty obligations to customers, the Company
requires subcontractors to provide warranties of their workmanship to the
Company.
Employees
At July 31, 1997, the Company employed 347 full time personnel of whom
64 were sales and marketing personnel, 151 were executive, administrative and
clerical personnel and 132 were involved in construction. Although none of
the Company's employees are covered by collective bargaining agreements,
certain of the independent contractors which the Company engages employ
personnel who may be represented by labor unions or may be subject to
collective bargaining agreements. The Company believes that its relations
with its employees and independent contractors are good.
Joint Ventures
The Company participates in two joint ventures formed to develop
residential land into finished building lots for sale to the Company and
other homebuilders utilizing non-recourse acquisition and development loans.
In forming one of the joint ventures in April 1995, the Company contributed
land with a book value of $9.6 million and the Company has received cash
proceeds to date of $7.4 million which was used to reduce outstanding amounts
under revolving credit facilities. The Company's interest in the joint
ventures' operating results has not been significant to date.
Item 2. Properties
The Company leases over 24,000 square feet of office space from Citadel
Land, Inc. for its corporate headquarters and offices for certain of its
divisions and subsidiaries in a six story office building located in
Landover, Maryland pursuant to a lease expiring in October 2000.
During the fiscal year ended July 31, 1997, the Company paid Citadel
Land, Inc. approximately $443,000 in rentals. Citadel Land is a company
beneficially owned by the family of Geaton A. DeCesaris, Sr., Chairman of the
Board of the Company.
The Company also leases office space for division offices in Manassas,
Virginia; Charlotte, Cary and Greensboro, North Carolina; Nashville,
Tennessee; and Pittsburgh, Pennsylvania.
Item 3. Legal Proceedings
The Company is involved in various claims and proceedings arising out of
the normal course of business involving customers, contractors and others.
The Company believes that it is not a party to any pending or threatened
litigation or administrative proceeding which is expected to have a material
adverse impact on the Company's financial position or operating results.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the
Company's fiscal quarter ended July 31, 1997.
Executive Officers
Information on executive officers is set forth in Item 10.
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
(a) Market Information.
The Company's Common Stock (voting) trades on the New York Stock
Exchange under the symbol WHI.
The high and low sale prices for the Company's Common Stock for each
quarterly period within the last two fiscal years have been as follows:
Fiscal 1997 High Low
August 1 to October 31, 1996 $ 4.13 $ 3.38
November 1, 1996 to January 31, 4.75 3.63
1997
February 1 to April 30, 1997 5.00 3.88
May 1 to July 31, 1997 4.13 3.63
Fiscal 1996 High Low
August 1 to October 31, 1995 $ 5.63 $4.25
November 1, 1995 to January 31, 6.38 4.88
1996
February 1 to April 30, 1996 5.75 4.50
May 1 to July 31, 1996 4.75 3.75
(b) Holders
On October 16, 1997, there were approximately 211 holders of record of
the Company's Common Stock (voting) and one holder of record of the Common
Stock (non-voting).
During July and August 1997 holders of 914,433 shares of non-voting
Common Stock converted their shares to shares of voting Common Stock on a
share for share basis.
(c) Dividends
During fiscal 1997 and 1996, the Company did not pay any dividends on
its Common Stock.
The payment of cash dividends is at the discretion of the Board of
Directors of the Company and will depend upon, among other things, future
earnings, results of operations, capital requirements and the Company's
financial condition. The Company's lending agreements limit the amount of
annual cash dividends that the Company may pay to its shareholders. The most
restrictive of these limits dividends to no more than 25 percent of net
income in any four fiscal quarters.
Item 6. Selected Financial Data
The information required by this item is incorporated herein by
reference from "Washington Homes, Inc. Selected Financial Data" on page 1 of
the Company's Annual Report to Shareholders for the fiscal year ended July
31, 1997.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information required by this item is incorporated herein by
reference from pages 9 to 11 of the Company's Annual Report to Shareholders
for the fiscal year ended July 31, 1997.
Item 8. Financial Statements and Supplementary Data
The information required by this item is incorporated herein by
reference from pages 12 to 20 of the Company's Annual Report to Shareholders
for the fiscal year ended July 31, 1997.
Item 9. Changes in or Disagreements with Accountants on Accounting and
Financial Disclosure
There have been no changes in or disagreements with accountants during
the two fiscal years ended July 31, 1997.
Part III
Item 10. Directors and Executive Officers of the Registrant
The information required by this item with respect to Directors of the
Company is incorporated herein by reference to the registrant's Proxy
Statement relating to the 1997 Annual Meeting of Shareholders.
The executive officers of the Company are as follows:
Name Ag Position with Company
e
Geaton A. 66 Chairman of the Board of Directors
DeCesaris,Sr.....
Geaton A. 42 President, Chief Executive Officer and
DeCesaris,Jr..... Director
Thomas J. Pellerito 50 President-Homebuilding Operations and Chief
........ Operating Officer
Christopher Spendley 38 Senior Vice President, Chief Financial Officer
....... and Secretary
Clayton W. Miller 47 Senior Vice President, Chief Accounting Officer
and Assistant Secretary
Paul C. Sukalo 46 Senior Vice President - Construction and
............. Director
William Wilder 52 Senior Vice President - Land Operations
.............
A. Hugo DeCesaris 38 Vice President in charge of Northwest Division
..........
Timothy Bates 36 Vice President in charge of Virginia Division
..............
Dorothy Minich 49 Vice President in charge of Patuxent Division
.............
Marco A. DeCesaris 46 Vice President in charge of Chesapeake
......... Division
Lawrence M. Breneman 40 Vice President in charge of Pittsburgh
....... Division
Geaton A. DeCesaris, Sr. has served as Chairman of the Board of the
Company since August 1988. Prior thereto from June 1985 to August 1988, Mr.
DeCesaris served as Senior General Partner of Sonny DeCesaris and Sons
Development Group, a real estate development and construction firm; from 1973
to June 1985, he was founder and President of Sonny DeCesaris and Sons
Builders, Inc. and from 1960 to 1973 President of Procopio and DeCesaris
Construction Company. Mr. DeCesaris is the father of Geaton A. DeCesaris,
Jr., A. Hugo DeCesaris and Marco A. DeCesaris and is the father-in-law of
Paul C. Sukalo.
Geaton A. DeCesaris, Jr. has served as President, Chief Executive
Officer and a Director of the Company from August 1988 to the present. Prior
thereto, Mr. DeCesaris was Managing General Partner of Sonny DeCesaris and
Sons Development Group from June 1985 to August 1988 and Vice President of
Sonny DeCesaris and Sons Builders, Inc. from 1973 to June 1985. Mr. DeCesaris
is the son of Geaton A. DeCesaris, Sr.
Thomas J. Pellerito has served as President-Homebuilding Operations and
Chief Operating Officer since August 1997. Prior thereto from 1985 to July
1997 he was President of Richmond American Homes, a major regional
homebuilder based in northern Virginia. Mr. Pellerito has over 18 years
experience in residential construction and related services.
Christopher Spendley has served as Senior Vice President and Chief
Financial Officer since September 1996 and Secretary since September 1997.
Prior thereto Mr. Spendley was with Ryland Homes, Inc., a subsidiary of
Ryland Group, Inc. for 14 years where he served most recently as President of
the Baltimore Division from February 1994 to August 1996 and Controller from
1989 to 1994. He has over 15 years of experience in real estate and finance.
Clayton W. Miller has served as Senior Vice President since November
1989 and Chief Accounting Officer since September 1994. From November 1989 to
September 1994, he served as Chief Financial Officer of the Company. Mr.
Miller has over 19 years experience in finance and real estate development.
Paul C. Sukalo has served as Senior Vice President and a Director of the
Company from August 1988 to the present. Prior thereto, he was a general
partner of Sonny DeCesaris and Sons Development Group from June 1985 to
August 1988. He has over 18 years of related construction experience,
principally in residential construction and related services. Mr. Sukalo is
the son-in-law of Geaton A. DeCesaris, Sr.
William Wilder has served as Senior Vice President - Land Operations
since September 1994. Prior thereto, he held the position of Vice President
of the Company's Land Department from April 1990 to August 1994. Mr. Wilder
has over 19 years of real estate experience in both the public and private
sectors.
A. Hugo DeCesaris has served as Vice President in charge of the
Company's Northwest Division since February 1997 and has held an executive
position in the Company's Land Department since 1991. He is the son of
Geaton A. DeCesaris, Sr.
Timothy Bates has served as Vice President in charge of the Company's
Virginia Division since January 1994. Prior thereto, he served as division
manager for the Company's Virginia Division from 1988 through 1990 and
division sales manager from 1990 through 1993. Mr. Bates has over 13 years
experience in new home construction and marketing in the Washington,
D.C.-Baltimore marketplace.
Dorothy Minich has served as Vice President of the Company since August
1993 and is currently in charge of the Company's Patuxent Division. Prior
thereto, Ms. Minich was a division sales manager from January 1989 to August
1993. From May 1983 to January 1989 she was a community sales representative
at various Washington Homes' communities and has over 13 years experience in
sales and marketing for the Company.
Marco A. DeCesaris has been Vice President in charge of the Chesapeake
Division since February 1997. Prior thereto since 1990 he has served with
the Company in various executive positions overseeing the Company's
architectural department and Design Center. He is the son of Geaton A.
DeCesaris, Sr.
Lawrence M. Breneman has been a Vice President in charge of the
Pittsburgh Division since October 1996. Prior thereto from 1991 to October
1996 he was the Division Manager of the Pittsburgh Division. Mr. Breneman
joined the Company in 1987.
Officers are appointed by the Board of Directors to serve at the
pleasure of the Board. There are no arrangements or understandings with
respect to the selection of executive officers.
Item 11. Executive Compensation
The information required by this item is incorporated herein by
reference to the registrant's Proxy Statement relating to the 1997 Annual
Meeting of Shareholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated herein by
reference to the registrant's Proxy Statement relating to the 1997 Annual
Meeting of Shareholders.
Item 13. Certain Relationships and Related Transactions
The information required by this item is incorporated herein by
reference to the registrant's Proxy Statement relating to the 1997 Annual
Meeting of Shareholders.
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Financial Statements
The following consolidated financial statements of Washington
Homes, Inc. and subsidiaries have been incorporated herein by
reference as set forth in Item 8:
Independent Auditors' Report
Consolidated Balance Sheets at July 31, 1997 and 1996
Consolidated Statements of Operations for each of the years in the
three year period ended July 31, 1997
Consolidated Statements of Shareholders' Equity for each of the
years in the three year period ended July 31, 1997
Consolidated Statements of Cash Flows for each of the years in the
three year period ended July 31, 1997
Notes to Consolidated Financial Statements for each of the years in
the three year period ended July 31, 1997
(b) Reports on Form 8-K
During the period from May 1, 1997 to July 31, 1997, there were no
reports on Form 8-K filed by the registrant.
(c) Exhibits
There are included in this report or incorporated herein by
reference the following exhibits:
Exhibit No. Description of Exhibit
3(a) Articles of Incorporation of registrant, as amended
(Filed as Exhibit 3(a) to Registration No. 33-52648)*
3(a)(1 Articles of Merger merging WH Holdings, Inc. into
) registrant (Filed as Exhibit 3(a)(1) to Registration
No. 33-52648)*
3(a)(2 Articles of Restatement of Charter of registrant (Filed
) as Exhibit 3(a)(2) to Registration No. 33-52648)*
3(a)(3 Articles Supplementary to the Charter of registrant
) (Filed as Exhibit 3(a)(3) to Registration No.
33-52648)*
3(b) By-Laws of registrant, as amended
4(a) Specimen Common Stock Certificate (Filed as Exhibit
4(a) to Registration No. 33-52648)*
10(a) Office Lease Agreements between Citadel Land, Inc. and
the Company dated as of August 1, 1994. (Filed as
Exhibit 10(a) to 10-K Report for year ended July 31,
1994)*
10(b) Amendment to Office Lease Agreements between Citadel
Land, Inc. and the Company dated as of August 1, 1995
(Filed as Exhibit 10(b) to 10-K Report for year ended
July 31, 1995)*
10(c) Note Agreement dated as of April 15, 1994 with respect
to $43,000,000 Senior Notes due October 2000 (Filed as
Exhibit 19 to 10-Q Report for quarter ended April 30,
1994 - File No. 1-7643).*
10(d) $70,000,000 Revolving Acquisition and Development Loan
and Term Loan, Consolidated Amended and Restated Loan
Agreement dated as of July 31, 1997 with First Union
National Bank of Maryland.
10(e) Washington Homes, Inc. 401(k) Plan (filed as Exhibit
10(i) to 10-K Report for year ended July 31, 1996)*
10(f) Washington Homes, Inc. Employee Stock Option Plan
(Filed as Exhibit 10(f) to Registration No. 33-52648)*
10(g) Amendment to Employee Stock Option Plan (Filed as
Exhibit 10(f)(1) to Registration No. 33-52648)*
10(h) Form of non-compete agreements with officers (Filed as
Exhibit 10(g) to Registration No. 33-52648)*
10(i) Noncompete agreements with Geaton A. DeCesaris, Sr. and
Geaton A. DeCesaris, Jr. (Filed as Exhibit 10(g)(1) to
Registration No. 33-52648)*
10(j) Washington Homes Inc. Non-Employee Directors' Stock
Option Plan (Filed as Exhibit A to Definitive Proxy
Statement for meeting held December 9, 1994)*
13 1997 Annual Report to Shareholders (except for the
portions incorporated herein by reference, this Exhibit
is filed for informational purposes only)
21 Subsidiaries of registrant
23 Consent of Independent Auditors
24 Powers of Attorney
27 Financial Data Schedule
* Incorporated herein by reference.
d) Financial Statement Schedules
All schedules are omitted because the information is not applicable or
is presented in the financial statements or related notes.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf on the 28th of October, 1997, by the undersigned, thereunto
duly authorized.
WASHINGTON HOMES, INC.
(Registrant)
By: /s/ GEATON A. DECESARIS, JR.
Geaton A. DeCesaris, Jr., President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Name Position Date
/s/ GEATON A. DECESARIS, JR. President, Principal October 28,
1997
Geaton A. DeCesaris, Jr. Executive Officer
and Director
GEATON A. DECESARIS, SR.* Director October 28,
1997
Geaton A. DeCesaris, Sr.
THOMAS CONNELLY* Director October 28,
1997
Thomas Connelly
PAUL C. SUKALO* Director October 28,
1997
Paul C. Sukalo
Director October ,
1997
Ronald M. Shapiro
RICHARD S. FRARY* Director October 28,
1997
Richard S. Frary
RICHARD B. TALKIN* Director October 28,
1997
Richard B. Talkin
/s/ CHRISTOPHER SPENDLEY Principal Financial October 28,
1997
Christopher Spendley Officer
/s/ CLAYTON W. MILLER Principal Accounting October 28,
1997
Clayton W. Miller Officer
*By: /s/ GEATON A. DECESARIS, JR.
Geaton A. DeCesaris, Jr.
Attorney-in-fact
-17-
C:\adocs\Deb\bylaws\WHIbylaws.doc
EXHIBIT 3(b)
WASHINGTON HOMES, INC.
BYLAWS
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The principal
office of the corporation in the State of Maryland shall be
located in Landover, Prince George=s County or at any other
place or places as the board of directors may designate.
Section 2. ADDITIONAL OFFICES. The
corporation may have additional offices at such places as
the board of directors may from time to time determine or
the business of the corporation may require.
ARTICLES II
MEETINGS OF STOCKHOLDERS
Section 1. PLACE. All meetings of
stockholders shall be held at the principal office of the
corporation or at such other place within the United States
as shall be stated in the notice of the meeting.
Section 2. ANNUAL MEETING. An annual meeting
of the stockholders for the election of directors and the
transaction of any business within the powers of the
corporation shall be held during the month of November or
December in each year on a date and at the time set by the
board of directors.
Section 3. SPECIAL MEETINGS. The president or
board of directors may call special meetings of the
stockholders. Special meetings of stockholders shall also
be called by the secretary upon the written request of the
holders of shares entitled to cast not less than 25% of all
the votes proposed to be acted on at such meeting. The
secretary shall inform such stockholders of the reasonably
estimated cost of preparing and mailing notice of the
meeting and, upon payment to the corporation of such costs,
the secretary shall give notice to each stockholder entitled
to notice of the meeting. Unless requested by stockholders
entitled to cast a majority of all the votes entitled to be
cast at such meeting, a special meeting need not be called
to consider any matter which is substantially the same as a
matter voted on at any special meeting of the stockholders
held during the preceding twelve months.
Section 4. NOTICE. Not less than ten nor more
than 90 days before each meeting of stockholders, the
secretary shall give to each stockholder entitled to vote at
such meeting and to each stockholder not entitled to vote
who is entitled to notice of the meeting, written or printed
notice stating the time and place of the meeting and, in the
case of a special meeting or as otherwise may be required by
statute, the purpose for which the meeting is called, either
by mail or by presenting it to such stockholder personally
or by leaving it at such person=s residence or usual place
of business. If mailed, such notice shall be deemed to be
given when deposited in the United States mail addressed to
the stockholder at the post office address of such
stockholder as it appears on the records of the corporation,
with postage thereon prepaid.
Section 5. SCOPE OF NOTICE. No business
shall be transacted at a special meeting of stockholders
except that specifically designated in the notice. Any
business of the corporation may be transacted at the annual
meeting without being specifically designated in the notice,
except such business as is required by statute to be stated
in such notice.
Section 6. QUORUM. At any meeting of
stockholders, the presence in person or by proxy of
stockholders entitled to cast a majority of all the votes
entitled to be cast at such meeting shall constitute a
quorum; but this section shall not affect any requirement
under any statute or the charter for the vote necessary for
the adoption of any measure. If, however, such quorum shall
not be present at any meeting of the stockholders, the
stockholders entitled to vote at such meeting, present in
person or by proxy, shall have power to adjourn the meeting
from time to time to a date not more than 120 days after the
original record date without notice other than announcement
at the meeting until such quorum shall be present. At such
adjourned meeting at which a quorum shall be present, any
business may be transacted which might have been transacted
at the meeting as originally notified.
Section 7. VOTING. A plurality of all the
votes cast at a meeting of stockholders duly called and at
which a quorum is present shall be sufficient to elect a
director. Each share of stock may be voted for as many
individuals as there are directors to be elected and for
whose election the share is entitled to be voted. A
majority of the votes cast at a meeting of stockholders duly
called and at which a quorum is present shall be sufficient
to approve any other matter which may properly come before
the meeting, unless more than a majority of the votes cast
is required by statute or by the charter. Unless otherwise
provided in the charter, each outstanding share of stock,
regardless of class, shall be entitled to one vote on each
matter submitted to a vote at a meeting of stockholders.
Section 8. PROXIES. A stockholder may vote
the shares of stock owned of record by such stockholder,
either in person or by proxy executed in writing by the
stockholder or by such person's duly authorized attorney in
fact. Such proxy shall be filed with the secretary of the
corporation before or at the time of the meeting. No proxy
shall be valid after eleven months from the date of its
execution, unless otherwise provided in the proxy.
Section 9. VOTING OF SHARES BY CERTAIN
HOLDERS. Shares registered in the name of another
corporation, if entitled to be voted, may be voted by the
president, a vice president or a proxy appointed by the
president or a vice president of such other corporation,
unless some other person who has been appointed to vote such
shares pursuant to a bylaw or a resolution of the board of
directors of such other corporation presents a certified
copy of such bylaw or resolution, in which case such person
may vote such shares. Any fiduciary may vote shares
registered in the name of such fiduciary, either in person
or by proxy.
Shares of its own stock indirectly owned by this
corporation shall not be voted at any meeting and shall not
be counted in determining the total number of outstanding
shares entitled to be voted at any given time, unless they
are held by it in a fiduciary capacity, in which case they
may be voted and shall be counted in determining the total
number of outstanding shares at any given time.
The board of directors may adopt by resolution a
procedure by which a stockholder may certify in writing to
the corporation that any shares of stock registered in the
name of the stockholder are held for the account of a
specified person other than the stockholder. The resolution
shall set forth the class of stockholders who may make the
certification, the purpose for which the certification may
be made, the form of certification and the information to be
contained in it; if the certification is with respect to a
record date or closing of the stock transfer books, the time
after the record date or closing of the stock transfer books
within which the certification must be received by the
corporation; and any other provisions with respect to the
procedure which the board of directors considers necessary
or desirable. On receipt of such certification, the person
specified in the certification shall be regarded as, for the
purposes set forth in the certification, the stockholder of
record of the specified stock in place of the stockholder
who makes the certification.
Section 10. INSPECTORS. At any meeting of
stockholders, the chairman of the meeting may, or upon the
request of any stockholder shall, appoint one or more
persons as inspectors for such meeting. Such inspectors
shall ascertain and report the number of shares represented
at the meeting based upon their determination of the
validity and effect of proxies, count all votes, report the
results and perform such other acts as are proper to conduct
the election and voting with impartiality and fairness to
all the stockholders.
Each report of an inspector shall be in writing and
signed by such inspector or by a majority of them if there
is more than one inspector acting at such meeting. If there
is more than one inspector, the report of a majority shall
be the report of the inspectors. The report of the
inspector or inspectors on the number of shares represented
at the meeting and the results of the voting shall be prima
facie evidence thereof.
Section 11. INFORMAL ACTION BY STOCKHOLDERS.
Any action required or permitted to be taken at a meeting of
stockholders may be taken without a meeting if a consent in
writing, setting forth such action, is signed by each
stockholder entitled to vote on the matter and any other
stockholder entitled to notice of a meeting of stockholders
(but not to vote thereat) has waived in writing any right to
dissent from such action, and such consent and waiver are
filed with the minutes of proceedings of the stockholders.
Section 12. VOTING BY BALLOT. Voting on any
question or in any election may be viva voce unless the
presiding officer shall order or any stockholder shall
demand that voting be by ballot.
ARTICLE III
DIRECTORS
Section 1. GENERAL POWERS. The business and
affairs of the corporation shall be managed under the
direction of its board of directors.
Section 2. NUMBER, TENURE AND QUALIFICATIONS.
The number of directors of the corporation shall be not less
than three (3) and shall not be more than ten (10). At any
regular meeting or at any special meeting called for that
purpose, a majority of the entire board of directors may
establish, increase or decrease the number of directors,
provided that the number thereof shall never be less than
three (3), nor more than ten (10), and further provided that
the tenure of office of a director shall not be affected by
any decrease in the number of directors. Each director
shall hold office until the next annual meeting of
stockholders and until his successor is elected and
qualified.
Section 3. ANNUAL AND REGULAR MEETINGS. An
annual meeting of the board of directors shall be held
immediately after and at the same place as the annual
meeting of stockholders, no notice other than this bylaw
being necessary. The board of directors may provide, by
resolution, the time and place, either within or without the
State of Maryland, for the holding of regular meetings of
the board of directors without other notice than such
resolution.
Section 4. SPECIAL MEETINGS. Special
meetings of the board of directors may be called by or at
the request of the president or by a majority-of the
directors then in office. The person or persons authorized
to call special meetings of the board of directors may fix
any place, either within or without the State of Maryland,
as the place for holding any special meeting of the board of
directors called by them.
Section 5. NOTICE. Notice of any special
meeting shall be given by written notice delivered
personally, telecopied or mailed to each director at his
business or residence address. Personally delivered or
telecopied notices shall be given at least two days prior to
the meeting. Notice by mail shall be given at least five
days prior to the meeting. If mailed, such notice shall be
deemed to be given when deposited in the United States mail
properly addressed, with postage thereon prepaid. If given
by telecopy, such notice shall be deemed to be given when
the telecopy is transmitted. Neither the business to be
transacted at, nor the purpose of, any annual, regular or
special meeting of the board of directors need be stated in
the notice, unless specifically required by statute or the
bylaws.
Section 6. QUORUM. A majority of the entire
board of directors shall constitute a quorum for transaction
of business at any meeting of the board of directors,
provided that, if less than a majority of such number of
directors are present at said meeting, a majority of the
directors present may adjourn the meeting from time to time
without further notice.
The directors present at a meeting which has been duly
called and convened may continue to transact business until
adjournment, notwithstanding the withdrawal of enough
directors to leave less than a quorum.
Section 7. VOTING. The action of the
majority of the directors present at a meeting at which a
quorum is present shall be the action of the board of
directors, unless the concurrence of a greater proportion is
required for such action by applicable statute.
Section 8. TELEPHONE MEETINGS. Members of the
board of directors may participate in a meeting by means of
a conference telephone or similar communications equipment
if all persons participating in the meeting can hear each
other at the same time. Participation in a meeting by these
means shall constitute presence in person at the meeting.
Section 9. INFORMAL ACTION BY DIRECTORS. Any
action required or permitted to be taken at any meeting of
the board of directors may be taken without a meeting, if a
consent in writing to such action is signed by each director
and such written consent is filed with the minutes of
proceedings of the board of directors.
Section 10. VACANCIES. Any vacancy on the
board of directors for any cause other than an increase in
the number of directors may be filled by a majority of the
remaining directors, although such majority is less than a
quorum. Any vacancy on the board of directors by reason of
an increase in the number of directors may be filled by a
majority vote of the entire board of directors. A director
elected by the board of directors to fill a vacancy shall
serve until the next annual meeting of stockholders and
until his successor is elected and qualified.
Section 11. COMPENSATION. Directors shall
not receive any stated salary for their services as
directors but, by resolution of the board of directors, a
fixed sum and expenses of attendance, if any, may be allowed
to directors for attendance at each annual, regular or
special meeting of the board of directors or of any
committee thereof, but nothing herein contained shall be
construed to preclude any director from serving the
corporation in any other capacity and receiving compensation
therefor.
Section 12. REMOVAL OF DIRECTORS. The
stockholders may, at any time, remove any director, with or
without cause, by the affirmative vote of a majority of all
the votes entitled to be cast on the matter and may elect a
successor to fill any resulting vacancy for the balance of
the term of the removed director.
ARTICLE IV
COMMITTEES
Section 1. NUMBER, TENURE AND QUALIFICATIONS.
The board of directors may appoint from among its members an
Executive Committee and other committees, composed of two or
more directors, to serve at the pleasure of the board of
directors.
Section 2. POWERS. The board of directors
may delegate to committees appointed under Section I of this
Article any of the powers of the board of directors, except
as prohibited by law.
Section 3. MEETINGS. In the absence of any
member of any such committee, the members thereof present
at any meeting, whether or not they constitute a quorum, may
appoint a director to act in the place of such absent
member.
Section 4. TELEPHONE MEETINGS. Members of a
committee of the board of directors may participate in a
meeting by means of a conference telephone or similar
communications equipment if all persons participating in the
meeting can hear each other at the same time. Participation
in a meeting by these means shall constitute presence in
person at the meeting.
Section 5. INFORMAL ACTION BY COMMITTEES. Any
action required or permitted to be taken at any meeting of a
committee of the board of directors may be taken without a
meeting, if a consent in writing to such action is signed by
each member of the committee and such written consent if
filed with the minutes of proceedings of such committee.
ARTICLE V
OFFICERS
Section 1. GENERAL PROVISIONS. The officers
of the corporation may consist of a chairman of the board, a
president, a president - homebuilding operations, one or
more senior vice presidents, one or more vice presidents in
charge of an operating division, a treasurer, a secretary, a
general counsel and one or more assistant secretaries. The
officers of the corporation shall be elected annually by the
board of directors at the first meeting of the board of
directors held after each annual meeting of stockholders.
If the election of officers shall not be held at such
meeting, such election shall be held as soon thereafter as
may be convenient. Each officer shall hold office until his
successor is elected and qualified or until his death,
resignation or removal in the manner hereinafter provided.
Any two or more offices, except president and senior vice
president, may be held by the same person. In its
discretion, the board of directors may leave unfilled any
office except that of president, treasurer and secretary.
Election or appointment of an officer or agent shall not of
itself create contract rights between the corporation and
such officer or agent.
Section 2. REMOVAL AND RESIGNATION. Any
officer or agent of the corporation may be removed by the
board of directors if in its judgment the best interests of
the corporation would be served thereby, but such removal
shall be without prejudice to the contract rights, if any,
of the person so removed. Any officer of the corporation
may resign at any time by giving written notice of his
resignation to the board of directors, the chairman of the
board, the president or secretary. Any resignation shall
take effect at the time specified therein or, if the time
when it shall become effective is not specified therein,
immediately upon its receipt. The acceptance of a
resignation shall not be necessary to make it effective
unless otherwise stated in the resignation.
Section 3. VACANCIES. A vacancy in any office
may be filled by the board of directors for the balance of
the term.
Section 4. CHIEF EXECUTIVE OFFICER. The board
of directors may designate a chief executive officer from
among the elected officers. The chief executive officer
shall have responsibility for implementation of the policies
of the corporation, as determined by the board of directors,
and for the administration of the business affairs of the
corporation.
Section 5. CHIEF OPERATING OFFICER. The
board of directors may designate a chief operating officer
from among the elected officers. Said officer will have the
responsibility and duties as set forth by the board of
directors or the chief executive officer.
Section 6. CHAIRMAN OF THE BOARD. The
chairman of the board shall perform such duties as may be
assigned to him by the board of directors.
Section 7 A. PRESIDENT. The president shall
in general supervise and control all of the business and
affairs of the corporation. The president shall preside at
all meetings of the board of directors and of the
stockholders at which he shall be present. In the absence
of a designation of a chief executive officer by the board
of directors, the president shall be the chief executive
officer and shall be ex officio a member of all committees
that may, from time to time, be constituted by the board of
directors except for any audit committee. The president may
execute any deed, mortgage, bond, contract or other
instrument to which the corporation is a party except in
cases where the execution thereof shall be expressly
delegated by the board of directors or by these bylaws to
some other officer or agent of the corporation or shall be
required by law to be otherwise executed, and in general
shall perform all duties incident to the office of president
and such other duties as may be prescribed by the board of
directors from time to time.
Section 7 B. President-Homebuilding
Operations. The president-homebuilding operations shall be
in charge of all day-to-day homebuilding activities of the
corporation and its subsidiaries. The president-
homebuilding operations shall perform such duties as are
assigned to him and as are prescribed by the Chief Executive
Officer of the Corporation and the Board of Directors. The
president-homebuilding operations may execute any deed,
mortgage, bond, contract or other instrument to which the
corporation is a party except in cases where the execution
thereof shall be expressly delegated by the board of
directors or by these bylaws to some other officer or agent
of the corporation or shall be required by law to be
otherwise executed.
Section 8. SENIOR VICE PRESIDENTS OR VICE
PRESIDENT (IN CHARGE OF AN OPERATING DIVISION). In the
absence of the president or in the event of a vacancy in
such office, the senior vice president (or in the event
there be more than one vice president, the senior vice
presidents in the order designated at the time of their
election or, in the absence of any designation, then in the
order of the election) shall perform the duties of the
president and when so acting shall have all the powers of
and be subject to all the restrictions upon the president;
and shall perform such other duties as from time to time may
be assigned by the president or by the board of directors.
The board of directors may designate one or more senior vice
presidents as executive vice president or as senior vice
president for particular areas of responsibility. A vice
president in charge of an operating division shall perform
such duties as are assigned by the president or the board of
directors.
Section 9. SECRETARY. The secretary shall (a)
keep the minutes of the proceedings of the stockholders, the
board of directors and committees of the board of directors
in one or more books provided for that purpose; (b) see that
all notices are duly given in accordance with the provisions
of these bylaws or as required by law; (c) be custodian of
the corporate records and of the seal of the corporation;
(d) keep a register of the post office address of each
stockholder which shall be furnished to the secretary by
such stockholder; (e) have general charge of the stock
transfer books of the corporation; and (f) in general
perform such other duties as from time to time may be
assigned to the secretary by the president or by the board
of directors.
Section 10. TREASURER. The treasurer shall
have the custody of the corporate funds and securities and
shall deposit all moneys and other valuable effects in the
name and to the credit of the corporation in such
depositories as may be designated by the board of directors.
The treasurer shall disburse the funds of the corporation as
may be ordered by the board of directors, taking proper
vouchers for such disbursements, and shall render to the
president and board of directors, at the regular meetings of
the board of directors or whenever they may require it, an
account of all transactions as treasurer and of the
financial condition of the corporation.
If required by the board of directors, the
treasurer shall give the corporation a bond in such sum and
with such surety or sureties as shall be satisfactory to the
board of directors for the faithful performance of the
duties of office and for the restoration to the corporation,
in case of death, resignation, retirement, or removal from
office, of all books, papers, vouchers, moneys and other
property of whatever kind belonging to the corporation and
in the possession or under the control of such person.
Section 11. GENERAL COUNSEL. The general
counsel shall be the chief legal officer of the corporation
and shall otherwise perform such duties as are assigned by
the board of directors.
Section 12. ASSISTANT SECRETARIES. The
assistant secretaries, in general, shall perform such duties
as shall be assigned to them by the secretary, or by the
president, or by the board of directors.
Section 13. ANNUAL REPORT. The president or
other executive officer of the corporation shall prepare or
cause to be prepared annually a full and correct statement
of the affairs of the corporation, including a balance sheet
and a statement of the results of operations for the
preceding fiscal year, which shall be submitted at the
annual meeting of the stockholders and filed within 20 days
thereafter at the principal office of the corporation in the
State of Maryland.
Section 14. SALARIES. The salaries of the
officers shall be fixed from time to time by the board of
directors and no officer shall be prevented from receiving
such salary by reason of the fact that such person is also a
director of the corporation.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. CONTRACTS. The board of directors
may authorize any officer or agent to enter into any
contract or to execute and deliver any instrument in the
name of and on behalf of the corporation and such authority
may be general or confined to specific instances.
Section 2. CHECKS AND DRAFTS. All checks,
drafts or other orders for the payment of money, notes or
other evidences of indebtedness issued in the name of the
corporation shall be signed by such officer or officers,
agent or agents of the corporation and in such manner as
shall from time to time be determined by the board of
directors.
Section 3. DEPOSITS. All funds of the
corporation not otherwise employed shall be deposited from
time to time to the credit of the corporation in such banks,
trust companies or other depositories as the board of
directors may designate.
ARTICLE VII
SHARES OF STOCK
Section 1. CERTIFICATES OF STOCK. Each
stockholder shall be entitled to a certificate or
certificates which shall represent and certify the number of
shares of each class of stock held by such stockholder in
the corporation. Each certificate shall be signed by the
president or a senior vice president and countersigned by
the secretary or an assistant secretary and may be sealed
with the corporate seal. The signatures may be either
manual or facsimile. Certificates shall be consecutively
numbered; and if the corporation shall, from time to time,
issue several classes of stock, each class may have its own
number series. A certificate shall be valid and may be
issued whether or not an officer who signed it is still an
officer when it is issued. Each certificate representing
stock which is restricted as to its transferability or
voting powers, which is preferred or limited as to its
dividends or as to its share of the assets upon liquidation
or which is redeemable at the option of the corporation,
shall have a statement of such restriction, limitation,
preference or redemption provision, or a summary thereof,
plainly stated on the certificate. In lieu of such
statement or summary, the corporation may set forth upon the
face or back of the certificate a statement that the
corporation will furnish to any stockholder, upon request
and without charge, a full statement of such information.
Section 2. TRANSFERS OF STOCK. Upon surrender
to the corporation or the transfer agent of the corporation
of a certificate of stock duly endorsed or accompanied by
proper evidence of succession, assignment or authority to
transfer, the corporation shall issue a new certificate to
the person entitled thereto, cancel the old certificate and
record the transaction upon its books.
The corporation shall be entitled to treat the holder of
record of any share or shares of stock as the holder in fact
thereof and, accordingly, shall not be bound to recognize
any equitable or other claim to or interest in such share on
the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise
provided by the laws of the State of Maryland.
Section 3. LOST CERTIFICATE. The board of
directors may direct a new certificate to be issued in place
of any certificate previously issued by the corporation
alleged to have been lost, stolen or destroyed upon the
making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed.
When authorizing the issuance of a new certificate, the
board of directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed certificate or his legal
representative to advertise the same in such manner as it
shall require and/or to give bond, with sufficient surety,
to the corporation to indemnify it against any loss or claim
which may arise as a result of the issuance of a new
certificate.
Section 4. CLOSING OF TRANSFER BOOKS OR FIXING
OF RECORD DATE. The board of directors may set, in advance,
a record date for the purpose of determining stockholders
entitled to notice of or to vote at any meeting of
stockholders, or stockholders entitled to receive payment of
any dividend or the allotment of any other rights, or in
order to make a determination of stockholders for any other
proper purpose. Such date, in any case, shall not be prior
to the close of business on the day the record date is fixed
and shall be not more than 90 days, and in the case of a
meeting of stockholders not less than ten days, before the
date on which the meeting or particular action requiring
such determination of stockholders is to be held or taken.
In lieu of fixing a record date, the board of directors
may provide that the stock transfer books shall be closed
for a stated period but not longer than 20 days. If the
stock transfer books are closed for the purpose of
determining stockholders entitled to notice of or to vote at
a meeting of stockholders, such books shall be closed for at
least ten days before the date of such meeting.
If no record date is fixed and the stock transfer books
are not closed for the determination of stockholders, (a)
the record date for the determination of stockholders
entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day on
which the notice of meeting is mailed or the 30th day before
the meeting, whichever is the closer date to the meeting;
and (b) the record date for the determination of
stockholders entitled to receive payment of a dividend or an
allotment of any other rights shall be the close of business
on the day on which the resolution of the board of
directors, declaring the dividend or allotment of rights, is
adopted.
When a determination of stockholders entitled to vote
at any meeting of stockholders has been made as provided in
this section, such determination shall apply to any
adjournment thereof, except where the determination has been
made through the closing of the stock transfer books and the
stated period of closing has expired.
Section 5. STOCK LEDGER. The corporation
shall maintain at its principal office or at the office of
its counsel, accountants or transfer agent, an original or
duplicate stock ledger containing the name and address of
each stockholder and the number of shares of stock of each
class held by such stockholder.
ARTICLE VIII
ACCOUNTING YEAR
The board of directors shall have the power, from time
to time, to fix the fiscal year of the corporation by a duly
adopted resolution.
ARTICLE IX
DIVIDENDS
Section 1. DECLARATION. Dividends upon
the shares of stock of the corporation may be declared by
the board of directors, subject to the provisions of law and
the charter. Dividends may be paid in cash, property or
shares of the corporation, subject to the provisions of law
and the charter.
Section 2. CONTINGENCIES. Before payment
of any dividends, there may be set aside any funds of the
corporation available for dividends such sum or sums as the
board of directors may from time to time, in its absolute
discretion, think proper as a reserve fund for
contingencies, for equalizing dividends, for repairing or
maintaining any property of the corporation or for such
other purpose as the board of directors shall determine to
be in the best interest of the corporation, and the board of
directors may modify or abolish any such reserve in the
manner in which it was created.
ARTICLE X
SEAL
Section 1. SEAL. The corporate seal shall
have inscribed thereon the name of the corporation, the year
of its organization and the words "Corporate Seal." The
board of directors may authorize one or more duplicate seals
and provide for the custody thereof.
Section 2. AFFIXING SEAL. Whenever the
corporation is required to place its corporate seal to a
document, it shall be sufficient to meet the requirements of
any law, rule or regulation relating to a corporate seal to
place the word "(SEAL)" adjacent to the signature of the
person authorized to execute the document on behalf of the
corporation.
ARTICLE XI
INDEMNIFICATION
To the maximum extent permitted by Maryland law in
effect from time to time, the corporation shall indemnify,
and shall pay or reimburse reasonable expenses in advance of
final disposition of a proceeding to, (i) any individual who
is a present or former director or officer of the
corporation or (ii) any individual who, while a director of
the corporation and at the request of the corporation,
serves or has served another corporation, partnership, joint
venture, trust, employee benefit plan or any other
enterprise as a director, officer, partner or trustee of
such corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise. The corporation
may, with the approval of its board of directors, provide
such indemnification and advancement of expenses to a person
who served a predecessor of the corporation in any of the
capacities described in (i) or (ii) above and to any
employee or agent of the corporation or a predecessor of the
corporation.
Neither the amendment nor repeal of this Article, nor
the adoption or amendment of any other provision of the
bylaws or charter of the corporation inconsistent with this
Article, shall apply to or affect in any respect the
applicability of the preceding paragraph with respect to any
act or failure to act which occurred prior to such
amendment, repeal or adoption.
ARTICLE XII
WAIVER OF NOTICE
Whenever any notice is required to be given pursuant to
the charter or bylaws of the corporation or pursuant to
applicable law, a waiver thereof in writing, signed by the
person or persons entitled to such notice, whether before or
after the time stated therein, shall be deemed equivalent to
the giving of such notice. Neither the business to be
transacted at nor the purpose of any meeting need to set
forth in the waiver of notice, unless specifically required
by statute. The attendance of any person at any meeting
shall constitute a wavier of notice of such meeting, except
where such person attends a meeting for the express purpose
of objecting to the transaction of any business on the
ground that the meeting is not lawfully called or convened.
ARTICLE XII
AMENDMENT OF BYLAWS
Section 1. BY DIRECTORS. The board of
directors shall have the power to adopt, alter or repeal any
bylaws of the corporation and to make new bylaws, except
that the board of directors shall not alter or repeal this
Section or any bylaws made by the stockholders.
Section 2. BY STOCKHOLDERS. The stockholders
shall have the power to adopt, alter or repeal any bylaws of
the corporation and to make new bylaws.
The foregoing are certified as the bylaws of the
corporation as amended by the board of directors on July 18,
1997.
Christopher R. Spendley, Secretary
$70,000,000 REVOLVING ACQUISITION AND DEVELOPMENT
LOAN AND TERM LOAN
CONSOLIDATED, AMENDED AND RESTATED
LOAN AGREEMENT
Dated as of July 31, 1997
the Lenders who are or may become a party to this Agreement
(collectively, the "Lender")
and
FIRST UNION NATIONAL BANK OF MARYLAND, as Agent for the
Lender
CONSOLIDATED, AMENDED AND RESTATED LOAN AGREEMENT
THIS CONSOLIDATED, AMENDED AND RESTATED
LOAN AGREEMENT (this "Agreement") is made as of July
31, 1997, by and among those entities comprising the
Borrower (the "Borrower") (as that term is defined in
Section 1 of this Loan Agreement), the Lenders who
are or may become a party to this Agreement (each,
individually, a "Lender" and collectively, the
"Lender"), and FIRST UNION NATIONAL BANK OF MARYLAND,
as a Lender and as Agent for the Lender.
WHEREAS, Washington Homes, Inc., The
Southampton Corporation, Washington Homes, Inc., of
Virginia, Designed Contracts, Inc., Housing Home
Sales, Inc. WH Properties Limited Partnership,
Potomac Knolls A.1 Limited Partnership, Potomac
Knolls A.2 Limited Partnership, Potomac Knolls A.3
Limited Partnership, Potomac Knolls B.1 Limited
Partnership, Potomac Knolls B.2 Limited Partnership,
Potomac Knolls B.3 Limited Partnership, Potomac
Knolls B.4 Limited Partnership, Potomac Knolls B.5
Limited Partnership, Potomac Knolls D.1 Limited
Partnership, Potomac Knolls D.2 Limited Partnership,
Potomac Knolls D.3 Limited Partnership, Potomac
Knolls D.4 Limited Partnership, Potomac Knolls D.5
Limited Partnership, Potomac Knolls E.1 Limited
Partnership, Potomac Knolls E.2 Limited Partnership,
Potomac Knolls E.3 Limited Partnership, Potomac
Knolls E.4 Limited Partnership, and Potomac Knolls
E.5 Limited Partnership entered into a Loan Agreement
with First Union National Bank of Maryland dated as
of January 11, 1994 (the "$15,000,000 Loan
Agreement") and certain related documents, all as
amended, evidencing a revolving loan in a principal
amount not to exceed $15,000,000, a term loan in a
principal amount not to exceed $4,000,000, and a
letter of credit facility in a principal amount not
to exceed $2,000,000 (the "$15,000,000 Facility");
WHEREAS, Washington Homes, Inc.,
Westminster Homes of North Carolina, Inc., The
Southampton Corporation, Washington Homes, Inc., of
Virginia, WH Properties Limited Partnership, Potomac
Knolls A.1 Limited Partnership, Potomac Knolls A.2
Limited Partnership, Potomac Knolls A.3 Limited
Partnership, Potomac Knolls B.1 Limited Partnership,
Potomac Knolls B. 2
Limited Partnership, Potomac Knolls B.3 Limited
Partnership, Potomac Knolls B.4 Limited Partnership,
Potomac Knolls B. 5 Limited Partnership, Potomac
Knolls D.1 Limited Partnership, Potomac Knolls D.2
Limited Partnership, Potomac Knolls D.3 Limited
Partnership, Potomac Knolls D.4 Limited Partnership,
Potomac Knolls D.5 Limited Partnership, Potomac
Knolls E.1 Limited Partnership, Potomac Knolls E.2
Limited Partnership, Potomac Knolls E.3 Limited
Partnership, Potomac Knolls E. 4 Limited Partnership,
and Potomac Knolls E.5 Limited Partnership entered
into a Loan Agreement with First Union National Bank
of Maryland dated as of January 26, 1995 (the
"$10,000,000 Loan Agreement"), and certain related
documents, all as amended, evidencing a revolving
loan in a principal amount not to exceed $10,000,000
(the "$10,000,000 Facility"); and
WHEREAS, Washington Homes, Inc., Washington
Homes, Inc. of Virginia, All Seasons, Inc., Housing
Home Sales, Inc., Designed Contracts, Inc., and
Consultants Corporation entered into a Second Amended
and Restated Credit Agreement with Signet
Bank/Maryland and Bank One West Virginia, dated
September 14, 1994 (the "Signet Credit Agreement"),
and certain related documents (the "Signet
Facility"); and
WHEREAS, Borrower and Lender desire to
modify, amend, restate, consolidate, extend and renew
the $15,000,000 Loan Agreement, the $10,000,000 Loan
Agreement and the Signet Credit Agreement in their
entirety by deleting each document in its entirety
and substituting in its place the terms set forth
below; and
WHEREAS, the entities which comprise
Borrower desire to borrow up to Seventy Million
Dollars ($70,000,000) under a revolving line of
credit and term loan facility (the "Loan"), all under
the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the
foregoing, the mutual promises set forth herein, the
execution and delivery by the entities which comprise
Borrower to the Lender of the Loan Documents
(hereinafter defined), and the Lender's acceptance
thereof, and for other good and valuable
consideration, the receipt and adequacy of which are
hereby acknowledged by all parties, the parties
hereto, intending to be legally bound hereby, agree
as follows:
PREAMBLE
I. The recitals set forth herein above are
hereby incorporated herein by this reference with the
same force and effect as if fully hereinafter set
forth.
II. Nothing in the provisions of this Loan
Agreement shall be deemed in any way to affect the
priority of any existing deed of trust or mortgage
securing the $15,000,000 Facility, the $10,000,000
Facility or the Signet Facility (each, a "Facility")
over any other lien, charge, encumbrance, or
conveyance, or to release or change the liability of
any Person who is now or hereafter liable under or on
account of any note, loan agreement, credit agreement
or other document given to evidence the obligations
of any such Person under any such Facility; provided,
however, as of the date hereof, any Person which was
obligated under an existing Facility which is not
also a Borrower shall be and hereby is released from
any further obligation under such existing Facility
effective as of the date hereof.
III. The Persons which comprise Borrower
hereby represent, warrant and agree that, with
respect to each Facility to which such Person is a
party, as of the date hereof, such Facility, as
amended and restated hereby, is in full force and
effect, valid, binding and enforceable in accordance
with its terms (subject to applicable bankruptcy,
insolvency and similar laws, and the application of
equitable principles whether by a court of law or
equity), and that there exists no default by the
Lender thereunder nor any defense to payment of
amounts payable pursuant to the loan documents
evidencing any such Facility.
IV. Neither this Loan Agreement nor
anything contained herein shall be construed as a
substitution or novation of the Persons which
comprise Borrower or the indebtedness to any lender,
which shall remain in full force and effect, as
hereby confirmed.
V. The Persons which comprise Borrower
shall pay all costs and expenses incurred by the
Lender in connection with the execution and delivery
of this Loan Agreement and the Loan Documents,
including without limitation, the reasonable fees and
expenses of the Lender's counsel, the costs of
transfer and recording costs or taxes, and any
mortgage or similar taxes, and, only to the extent
specifically provided for herein, title charges.
VI. The Persons which comprise the
Borrower desire to borrow from the Lender a total
principal amount at any one time not exceeding
Seventy Million Dollars ($70,000,000), consisting of
(a) a Revolving Loan (as hereinafter defined) in an
amount not to exceed Fifty-five Million Dollars
($55,000,000) (except to the extent increased by the
Overline (as hereinafter defined)) for the purpose of
financing the acquisition of residential building
lots in subdivisions approved as provided for herein,
to develop such lots, and to construct, in accordance
with the Plans and Specifications (as hereinafter
defined) , single-family detached homes, and single-
family townhomes and condominium homes on said lots
in certain subdivisions comprising the Project (as
hereinafter defined) and to establish a credit
facility that may from time to time be utilized in
connection with the financing of additional
subdivisions, which financing and subdivisions shall
be approved by the Lender as provided for herein, and
(b) a Term Loan (as hereinafter defined) in an amount
not to exceed $15,000,000 (the proceeds of which
shall be made available to Washington Homes, Inc.,
only) for the purpose of making payments which are to
be come due on October 15, 1998, under the WHI Senior
Notes (as hereinafter defined) and for working
capital purposes. The Lender is prepared to lend
such amounts upon the terms and conditions hereof.
Accordingly, the parties hereto agree as follows:
Section 1 Definitions
Except as otherwise provided, any agreement
referred to below shall mean such agreement as
amended, supplemented or
otherwise modified.
"Affiliate" shall mean, with respect to the
Persons which comprise Borrower, any individual,
corporation, partnership, association, trust, or
other Person directly or indirectly controlling,
controlled by, or under direct or indirect or common
control with the Persons which comprise Borrower.
"Agent" means First Union National Bank of
Maryland in its capacity as Agent hereunder, and any
successor thereto appointed pursuant to 7.1.
"Agent's Office" means the office of the
Agent specified in or determined in accordance with
the provisions of 8.1(c).
"Aggregate Commitment" means the aggregate
amount of the Lender's Commitments hereunder, as such
amount may be reduced or modified at any time or from
time to time pursuant to the terms hereof. On the
Closing Date, the Aggregate Commitment shall be
Seventy Million Dollars ($70,000,000).
"Agreement" shall mean this Loan Agreement.
"Applicable Law" means all applicable
provisions of the constitutions, statutes, laws,
rules, treaties, regulations and orders of all
Governmental Authorities and all orders and decrees
of all courts and arbitrators.
"Application" means an application, in the
form specified by the Issuing Lender from time to
time, requesting the Issuing Lender to issue a Letter
of Credit.
"As Is Value" or "As Is Appraised Value" of
a Lot or Unit shall mean the value as determined by
the most recent appraisal pertaining to such Lot or
Unit, performed by an appraiser approved by the
Lender and prepared in accordance with policies and
procedures for real estate appraisals supporting
extensions of credit by banking institutions subject
to regulation by the Comptroller of the Currency, the
Board of Governors of the Federal Reserve System or
the Federal Deposit Insurance corporation.
"Assignment and Acceptance" shall have the
meaning assigned thereto in 8.10(b). .
"Available Commitment" means, as to any
Lender at any time, an amount equal to the excess, if
any, of (a) such Lender's Commitment over (b) such
Lender's Extensions of Credit, including the issuance
of letters of credit, with respect to the Revolving
Loan, the Term Loan, or the Loan, as the context may
require.
"Base Rate" means, at any time, the Prime
Rate (i) minus 50 basis points for amounts
outstanding under the Pre-Sold Tranche (as defined
below); and (ii) minus 25 basis points for amounts
outstanding under the Unsold Tranche (as defined
below).
Each change in the Base Rate shall take effect
simultaneously with the corresponding change or
changes in the Prime Rate.
"Base Rate Loan" means any Loan bearing
interest at a rate based upon the Base Rate as
provided in Section 2.11.
"Borrower" shall mean, collectively, each
of the following corporations and Maryland limited
partnerships, as Persons which comprise co-
borrowers under the Loan Documents:
Washington Homes, Inc.
Washington Homes, Inc. of
Virginia Designed
Contracts, Inc.
Housing-Home Sales,
Inc.
WH Properties Limited
Partnership
Potomac Knolls A3 Limited
Partnership Potomac Knolls
B1 Limited Partnership
Potomac Knolls B2 Limited
Partnership
Condominium Community (Quail
Run), Inc. Condominium
Community (Largo Town), Inc.
All Seasons, Inc.
Consultants
Corporation
The Southampton
Corporation
Westminster Homes,
Inc.
Westminster Homes
(Charlotte), Inc.
Westminster Homes of
Tennessee, Inc.
All references to the Borrower in the Loan Documents
shall refer to each of the Persons set forth in this definition
and the obligations of the Persons comprising the Borrower shall
be joint and several except as specifically otherwise set forth
herein.
"Borrowing Base Report" or "Report" shall mean the
monthly report from the Borrower to the Lender in the form
attached hereto as Exhibit "G".
"Budget" shall mean a detailed breakdown of all items of
direct and indirect costs associated with the construction of each
Unit, which shall be based upon actual contracts and other costs;
(i) shall not include "soft" costs which are not funded by the
Revolving Loan and (ii) shall be approved by the Lender and the
Compliance Inspector in their sole discretion.
"Business Day" shall mean any day other than one on
which commercial banks are not authorized to conduct business or
are required to be closed in the State of Maryland.
"Closing Date" shall mean the date on which this
Agreement is executed by Borrower and Lender.
"Collateral" shall mean any real property pledged to the
Lender by the Borrower, as security for the Loan and reflected on
the most recent Borrowing Base Report, including the Project,
together with any improvements thereon, and together
with all personal property, contracts, contract deposits, claims,
rights of any kind, and tangible and intangible assets now owned
or hereafter acquired and relating to such real property.
"Commitment" means, as to any Lender, the obligation of
such Lender to make Loans to and issue or participate in Letters
of Credit issued for the account of the Borrower hereunder in an
aggregate principal or face amount at any time outstanding not to
exceed the amount set forth opposite such Lender's name on
Schedule 1 hereto, as the same may be reduced or modified at any
time or from time to time pursuant to the terms hereof.
"Commitment Percentage" means, as to any Lender at any
time, the ratio of (a) the amount of the Commitment of such Lender
to (b) the Aggregate Commitment.
"Completion" shall mean with respect to any Unit the
fulfillment of all of the following conditions: (i) all of the
conditions precedent to any advance under the Loan requested by
Borrower subsequent to the Closing Date shall have been satisfied,
(ii) the Lender shall have received a certificate satisfactory to
the Lender, in its sole discretion, from Borrower, and, if
required by Lender, approved by the Compliance Inspector after
inspection of the relevant Unit, to the effect that the Unit is
complete and is substantially in accordance with the Plans and
Specifications (including completion of all on- and off- site
work, off-site utilities, streets, and public improvements or
satisfactory evidence of bonded assurances (other than from the
Lender) for the completion thereof) and (iii) the Lender shall
have received copies of all permits necessary or desirable for the
use or occupancy of the Unit, in each case issued by the
appropriate governmental authority.
"Compliance Inspector" shall mean an independent
architect or engineer selected and retained by the Lender at the
Lender's expense, in order from time to time as required by
Lender, (i) to conduct inspections of the Project in connection
with requests for advances under the Revolving Loan, (ii) to
determine whether construction is proceeding on schedule in
substantial accordance with the Plans and Specifications, (iii) to
determine whether the necessary work has been completed in order
to justify the advance requested, (iv) to determine whether the
undisbursed portion of the Revolving Loan will be sufficient to
complete the construction substantially in accordance with the
Plans and Specifications and (v) to consult on such other matters
as provided for herein or that the Lender may request in its sole
discretion.
"Consolidated Net Income" shall mean for any period, the
net income (or net loss) as shown on the consolidated income
statement of WHI and its Consolidated Subsidiaries for such period
prepared in accordance with GAAP.
"Consolidated Net Tangible Assets" shall mean the total
assets after deducting goodwill, all as shown in the consolidated
balance sheet of WHI and its Consolidated Subsidiaries all
prepared in accordance with GAAP.
"Consolidated Subsidiary(ies)" shall mean any Person
whose accounts would be consolidated with those of WHI in its
consolidated financial statements in accordance with GAAP.
"Consolidated Tangible Net Worth" shall mean the
shareholders' equity minus goodwill as shown in the consolidated
balance sheet of WHI and its Consolidated Subsidiaries.
"Contract Price" shall mean the sales price payable to
Borrower pursuant to a fully executed, binding and enforceable
sales contract (on Borrower's standard form as approved by Lender,
including any modifications which may be approved by Lender) with
a non-Affiliate third party purchaser.
"Control" shall mean possession, directly or
indirectly, of the power to direct or cause the direction of the
management or policies of any Borrower, whether through the
ownership of shares, by contract, or otherwise.
"Coverage Ratio" shall mean the ratio of (i) Income
Available for Debt Service to (ii) Interest Expense.
"Current Debt" shall mean revolving credit and any other
debt having an original maturity less than one year from
inception.
"Deeds of Trust" shall mean individually or
collectively, the Maryland Deed of Trust and/or the Virginia Deed
of Trust and/or the North Carolina Deed of Trust and/or the
Tennessee Deed of Trust.
"Default" shall mean the occurrence of any condition,
event, act or omission which, with the giving of notice or passage
of time, or both, would constitute an Event of Default (as defined
in Section 6 hereof).
"Eligible Assignee" means, with respect to any
assignment of the rights, interest and obligations of a Lender
hereunder, a Person that is at the time of such assignment (a) a
commercial bank organized under the laws of the United States or
any state thereof, having combined capital and surplus in excess
of $500,000,000, (b) already a Lender hereunder (whether as an
original party to this Agreement or as the assignee of another
Lender), (c) the successor (whether by transfer of assets, merger
or otherwise) to all or substantially all of the commercial
lending business of the assigning Lender, or (d) any other Person
that has been approved in writing as an Eligible Assignee by the
Borrower and the Agent.
"Eligible Funding Amount" shall mean the following
amounts not to exceed a total Available Commitment of Fifty-five
Million Dollars ($55,000,000), plus the Term Loan when made
available, plus any amount of the Overline advanced to Borrower at
Borrower's request, less the L/C Obligations.
(i) with respect to any Pre-Sold Unit, the lesser of (i)
ninety per cent (90%) of the actual costs incurred by Borrower to
acquire, develop, and construct such Unit to the date of the
Notice of Borrowing ("Actual Costs Incurred") or (ii) eighty
percent (80%) of the Contract Price of such Pre-Sold Unit;
(ii) with respect to any Spec Home, seventy percent (70%) of
the Actual Costs Incurred in a total amount not to exceed
$15,000,000 outstanding at any time; provided, however, Spec Homes
which are unsold one hundred eighty (180) days or more after date
of Completion shall be subject to a maximum funding amount of
thirty-five (35%) of Actual Costs Incurred, and Spec Homes which
are unsold two hundred seventy (270) days or more after the date
of Completion will not be eligible for any funding amount;
(iii) with respect to any Model Home, seventy percent (70%)
of the Actual Costs Incurred, in a total amount not to exceed
$5,000,000 outstanding at any time;
(iv) with respect to any Finished Lot, seventy percent (70%)
of Actual Costs Incurred, in a total amount not to exceed
$15,000,000 outstanding at any time.
(v) with respect to any Land Under Development, a maximum of
forty percent (40%) of Actual Costs Incurred, in a total amount
not to exceed $13,000,000 outstanding at any time.
"Extensions of Credit" means, as to any Lender at any
time, an amount equal to the sum of (a) the aggregate principal
amount of all Loans made by such Lender then outstanding and (b)
such Lender's Commitment Percentage of the L/C Obligations then
outstanding.
"Event of Default" shall mean any event or condition
specified as an Event of Default in Section 6 hereof.
"Finished Lots" shall mean Lots with respect to which
all off-site and on-site infrastructure improvements have been
completed including, without limitation (i) all
utilities being installed to the Lot, and (ii) all
conditions to subdivision approval imposed by the
applicable governmental authorities being satisfied so
that a building permit for a Unit can be obtained. To
the extent that one or more of the requirements have
not been completed, such requirement shall be deemed
to have been completed if such requirement is fully
bonded.
"Fiscal Quarter" shall mean each of the four calendar
periods of three months ending on October 31, January
31, April 30 and July 31.
"Governmental Authority" shall mean any nation,
province, state or political subdivision thereof, and
any government or any Person exercising executive,
legislative, regulatory or administrative functions of
or pertaining to government, and any corporation or
other Person owned or controlled, through stock or
capital ownership or otherwise, by any of the
foregoing.
"Hazardous Materials" shall mean any
substances or materials (a) which are or become
defined as hazardous wastes, hazardous substances,
pollutants, contaminants, chemical substances or
mixtures or toxic substances under any Environmental
Law, (b) which are toxic, explosive, corrosive,
flammable, infectious, radioactive, carcinogenic,
mutagenic or
otherwise harmful to human health or the environment
and are or become regulated by any Governmental
Authority, (c) the presence of which require
investigation or remediation under any Environmental
Law or common law, (d) the, discharge or emission or
release of which requires a permit or license under
any Environmental Law or other Governmental Approval,
(e) which are deemed to constitute a nuisance, a
trespass or pose a health or safety hazard to persons
or neighboring properties, (f) which are materials
consisting of underground or aboveground storage
tanks, whether empty, filled or partially filled with
any substance, or (g) which contain, without
limitation, asbestos, polychlorinated biphenyls, urea
formaldehyde foam insulation, petroleum hydrocarbons,
petroleum derived substances or waste, crude oil,
nuclear fuel, natural gas or synthetic gas.
"Hedging Agreement" means any agreement
executed by Borrower with respect to an interest rate
swap, collar, cap, floor or a forward rate agreement
or other agreement regarding the hedging of interest
rate risk exposure executed in connection with hedging
the interest rate exposure of the Borrower under this
Agreement, and any confirming letter executed pursuant
to such hedging agreement, all as amended, restated or
otherwise modified.
"Income Available for Debt Service" shall
mean for any period the sum of (i) Consolidated Net
Income, (ii) income tax expense (benefit), (iii)
Interest Expense, and (iv) amortization and
depreciation expenses for such period.
"Interest Expense" shall mean for any period
the interest expense as shown in the consolidated
income statement of WHI and its Consolidated
Subsidiaries for such period .
"Issuing Lender" means First Union National
Bank of Maryland, in its capacity as issuer of any
Letter of Credit, or any successor thereto.
"Land Under Development" shall mean Lots
within recorded subdivisions or within approved
subdivision plans which are not considered Finished
Lots.
"L/C Commitment" means the lesser of (a)
Seven Million Five Hundred Thousand Dollars
($7,500,000) or (b) the Available Commitment under the
Revolving Loan.
"L/C Facility" means the letter of credit
facility established pursuant to Section 2.2 hereof.
"L/C Obligations" means at any time, an
amount equal to the sum of (a) the aggregate undrawn
and unexpired amount of the then outstanding Letters
of Credit and (b) the aggregate amount of drawings
under Letters of Credit which have not then been
reimbursed pursuant to Section 2.2(e).
"L/C Participants" means the collective
reference to all the Lenders other than the Issuing
Lender.
"Lender" means each Person executing this
Agreement as a Lender set forth on the signature pages
hereto and each Person that hereafter becomes a party
to this Agreement as a Lender pursuant to Section
8.10(b). "Lender" shall also refer
collectively to all of the individual Lenders.
Furthermore, in any instance in which the Borrower is
required by this Agreement to obtain the approval or
consent of Lender, to make any submission to or
request of Lender, or to send any notice to Lender,
"Lender" shall be deemed to mean the Person which is
at that time acting as Agent.
"Lending Office" means, with respect to any
Lender, the office of such Lender administering such
Lender's Commitment Percentage of the Loans.
"Letter of Credit Agreement" shall mean the
Letter of Credit Agreement entered into by and between
the Borrower and the Issuing Lender in connection with
the L/C Facility.
"Letters of Credit" shall have the meaning
assigned thereto in Section 2.2(a).
"LIBOR" means the Libor Market Index Rate as
defined in the Note.
"LIBOR Rate Loan" means any Loan bearing
interest at a rate based upon LIBOR as provided in
Section 2.11.
"Lien" shall mean any mortgage, pledge,
security interest, encumbrance, lien or charge of any
kind (including any agreement to give any of the
foregoing, any conditional sale or other title
retention agreement, and the filing of or agreement to
give any financing statement or other similar form of
public notice regarding encumbrances under the laws of
any jurisdiction).
"Loan" shall mean individually and
collectively, the Revolving Loan (as well as periodic
advances thereunder), the Term Loan, and amounts
outstanding under any Letter of Credit Agreement.
"Loan Documents" shall mean this Loan
Agreement, the Notes, the Deeds of Trust and all other
instruments, documents or certificates delivered to or
in the possession of the Lender evidencing or securing
the Loan.
"Loan Fees" shall mean the fees provided for
in Section 2.7.
"Lot" shall mean any lot, created pursuant
to a duly recorded record plat or within approved
subdivision plans or approved condominium plans in the
jurisdiction in which such lot is located, which is
part of the Collateral.
"Maryland Deed of Trust" shall mean the
Amended and Restated Deed of Trust and Security
Agreement With Assignment of Leases, Rents and
Profits, duly executed in substantially the form
attached as of Exhibit "B" hereto covering the Lots
located in the State of Maryland in respect of which
advances under the
Loan are requested or made.
"Material Adverse Change" means, with
respect to the Borrower or any of its Subsidiaries
taken as a whole, a material adverse change in the
properties, business, operation or condition
(financial or otherwise) of any such Person or the
ability of such Person to perform its obligations
under the Loan Documents, in each case to which it is
a party.
"Material Adverse Effect" means, with
respect to the Borrower or any of its Subsidiaries
taken as a whole, a material adverse effect on the
properties, business, operations or condition
(financial or otherwise) of any such Person or the
ability of such Person to perform its obligations
under the Loan Documents, in each case to which it is
a party.
"Maturity Date" means October 30, 1999 or
such later date to which the Maturity Date may be
extended under Section 2.6 hereof (but, if any such
date shall not be a Business Day, the next Business
Day thereafter), which date shall constitute the last
day of the term of the Revolving Loan, the Term Loan
and the Letter of Credit Facility.
"Maximum Funding" shall have the meaning
ascribed to it in Section 2.1(d) herein.
"Model Home" means any Unit which is not a
Pre-Sold Unit and which is intended to be used as a
sales office to conduct the business of marketing and
selling homes.
"Mortgage" means the Amended and Restated
Mortgage and Security Agreement With Assignment of
Leases, Rents and Profits, duly executed in
substantially the form attached as of Exhibit "C"
hereto covering the Lots located in the Commonwealth
of Pennsylvania in respect of which advances under the
Loan are requested or made.
"North Carolina Deed of Trust" means the
Credit Line Deed of Trust and Security Agreement With
Assignment of Leases, Rents and Profits, duly executed
in substantially the form attached as Exhibit "D"
hereto covering the Lots located in North Carolina in
respect of which advances under the Loan are requested
or made.
"Note" means the promissory note or notes
evidencing the Loan.
"Notice of Borrowing" or "Notice" means a
notice, in form and substance satisfactory to the
Lender setting forth the information specified in
Section 2.1(c)(3) hereof.
"Notice of Prepayment" means the notice
referred to in Section 2.8(e)(1) hereof.
"Obligations" means any and all obligations
(now
existing or hereafter arising) of the Borrower under
the Loan Documents or any Hedge Agreement.
"Operating Companies" means WHI, Washington
Homes of Virginia, Inc., Westminster Homes, Inc.,
Westminster Homes (Charlotte), Inc., and Westminster
Homes of Tennessee, Inc.
"Outstanding Loan Advance" means the sum of
the amount which the Lender has disbursed, from time
to time, under the Loan. In addition, if at any time
the Borrower is required to pay the Lender fees,
interest or any other amount under the terms of any of
the Loan Documents, including without limitation, any
Reimbursement Obligations, and does not pay such
amounts when due, the Lender, in addition to any other
rights or remedies it may have, shall have the right
to include such amounts in the calculation of the
Outstanding Loan Advance until such amounts are paid.
"Overline" means an amount not to exceed
$5,000,000 which shall be made available to Borrower
pursuant to Section 2.3(b) hereof.
"Permitted Liens" means (i) Liens imposed by
law, such as mechanics' liens that (a) arise in the
ordinary course of business and that secure amounts
not yet due and payable, (b) secure amounts due and
payable that are in good faith disputed by the Persons
which comprise Borrower, or (c) arise out of judgments
or awards against the Borrower with respect to which
the Borrower at the time shall currently be
prosecuting an appeal or proceedings for review,
provided that in the case of (b) and (c) above, the
Borrower shall have obtained a bond or stay of
execution satisfactory to the Lender, within ten (10)
days after item (b) or (c) becomes a Lien on all or
any portion of the Project, for the full amount of the
Lien; (ii) Liens for taxes or assessments or other
governmental charges not yet due and payable; (iii)
the UCC-1 financing statements contemplated by the
Deeds of Trust and Mortgage; (iv) the Deeds of Trust
and Mortgage; (v) any Spreader Agreement; (vi)
purchase money liens not to exceed $200,000 in the
aggregate on personal property and (vii) Liens or
other encumbrances set forth on the relevant schedules
of the title insurance policies provided to the Lender
pursuant to Section 5.01(i) hereof and approved by the
Lender in its sole discretion.
"Person" means an individual, corporation,
partnership, association, trust, business trust, joint
venture, joint stock company, pool, syndicate, sole
proprietorship, unincorporated organization,
Governmental Authority or any other form of entity or
group thereof.
"Plans and Specifications" shall mean the
plans and specifications (including the architect's
final drawings) describing any Unit or other
improvements to be constructed within the Collateral
provided by the Borrower to the Lender.
"Post-Default Rate" shall mean, in respect
of any principal of the Loan or any other amount
payable by the Borrower under this Loan Agreement, the
Note or any other Loan Document, if an Event of
Default has occurred and is continuing, or if the
Note is not paid in full when due (whether on demand
or at stated maturity, by acceleration or otherwise),
a rate per annum during the period commencing on the
date of the Event of Default or due date, as
applicable, until such amount is paid in full, equal
to two percent (2%) above any interest rate or rates
then in effect in respect of the principal of the Loan
or any portion thereof.
"Pre-Sold" with respect to any Unit or Lot
shall mean subject to a fully executed, binding and
enforceable sales contract (on Borrower's standard
form as approved by Lender, including any
modifications which may be approved by the Lender)
with a non-Affiliate third-party purchaser.
"Pre-Sold Tranche" shall have the meaning
ascribed to it in Section 2.4(a).
"Prime Rate" means, at any time, the rate of
interest per annum publicly announced from time to
time by First Union National Bank of Maryland as its
prime rate. Each change in the Prime Rate shall be
effective as of the opening of business on the day
such change in the Prime Rate occurs. The parties
hereto acknowledge that the rate announced publicly by
First Union National Bank of Maryland as its Prime
Rate is an index or base rate and shall not
necessarily be its lowest or best rate charged to its
customers or other banks.
"Project" or "Property" shall mean real
property used as Collateral, with improvements
thereon, including Lots and Units, owned by one or
more of the Borrowers and located in subdivisions or
developments described in the Deeds of Trust and
Mortgage as of the Closing Date, as well as additional
subdivisions used as Collateral from time to time,
after approval by the Lender in its sole discretion.
"Reimbursement Obligations" shall mean all
amounts for which the Borrower are obligated to
reimburse the Lender pursuant to Section 2.2(e) hereof
or otherwise under any of the Loan Documents.
"Required Lenders" means, at any date, (i)
at any time when there are no more than two (2)
Lenders (or at any time that there are more than two
(2) lenders, but the requirements of (ii)(b) below are
not satisfied), any combination of holders of at least
seventy-five percent (75%) of the aggregate unpaid
principal amount of the Note, or if no amounts are
outstanding under the Note, any combination of Lenders
whose Commitment Percentages aggregate at least
seventy-five percent (75%) or (ii) at any time when
(a) there are more than two (2) Lenders and (b) no one
Lender has sixty-six and two-thirds percent(66-2/3%)
or more of the Commitment Percentages, any combination
of holders of at least sixty-six and two-thirds
percent (66-2/3%) of the aggregate unpaid principal
amount of the Note, or if no amounts are outstanding
under the Note, any combination of Lenders whose
Commitment Percentages aggregate at least sixty-six
and twothirds percent (66-2/3%); except that, with
respect to waivers or amendments of any financial
covenant set forth in Section 5.10(a) through 5.10(g),
inclusive, the term "Required Lenders" shall
mean, at any date, any combination of holders of at
least seventyfive percent (75%) of the aggregate
unpaid principal amount of
the Note, or if no amounts are outstanding under the
Note, any
combination of Lenders whose Commitment Percentages
aggregate at least seventy-five percent (75%).
"Revolving Loan" shall mean any loan made
by the Lender pursuant to Section 2.1 hereof.
"SDS Group" shall mean Geaton A. DeCesaris,
Sr., Geaton A. DeCesaris, Jr., Paul C. Sukalo, Marco
A. DeCesaris, Joseph A. DeCesaris, Anthony H.
DeCesaris, and the spouses of such individuals.
"Spec Home" shall mean any Unit other than
a Pre-Sold Unit or a Model Home.
"Spreader Agreement" shall mean a spreader
agreement, duly executed by a Borrower, in form and
content acceptable to the Lender in its sole
discretion, which spreads the lien of the Mortgage
and Deeds of Trust to additional property to be added
to the Project and to be included as Collateral.
"Tennessee Deed of Trust" shall mean the
Amended and Restated Deed of Trust and Security
Agreement With Assignment of Leases, Rents and
Profits, duly executed in substantially the form
attached as of Exhibit "E" hereto covering the Lots
located in the State of Tennessee in respect of which
advances under the Loan are requested or made.
"Term" shall mean the period ending on
October 30, 1999, unless such term is extended from
time to time by the Lender, pursuant to the terms
hereof, in which case the "Term" for each such Loan
shall be the period ending on the date to which each
such Loan was extended.
"Term Loan" shall mean the loan made by the
Lender pursuant to Section 2.3 hereof.
"Title Insurance Company" shall mean the
title insurance company or companies selected by the
Borrower and approved by the Lender to provide title
services and insurance, when required, in connection
with the Loan.
"Total Inventory" shall mean all Finished
Lots, work in process and Land Under Development as
shown on the consolidated balance sheet of WHI and
its Consolidated Subsidiaries.
"Total Debt" shall mean all debt shown as
notes and loans payable (or similarly titled) in the
consolidated balance sheet of WHI and its
Consolidated Subsidiaries.
"Unit" shall mean any single family
residential, condominium or townhouse home, including
all appurtenances and other structures constructed
therewith, constructed or to be constructed on a Lot
in accordance with the Plans and Specifications.
"Uniform Customs" the Uniform Customs and
Practice for Documentary Credits (1994 Revision),
International Chamber of Commerce Publication No.
500.
"Unsold" with respect to any Unit or Lot
shall mean any Unit or Lot which is not Pre-Sold.
"Unsold Tranche" shall have the meaning
ascribed to it in the Note.
"Value of Collateral" shall mean the
Contract Price for each Pre-Sold Unit and Pre-Sold
Lot and the As Is Appraised Value for all other Units
and Lots.
"Virginia Deed of Trust" shall mean the
Credit Line Deed of Trust and Security Agreement With
Assignment of Leases, Rents and Profits , duly
executed in substantially the form attached as of
Exhibit "F" hereto covering the Lots located in the
Commonwealth of Virginia in respect of which advances
under the Loan are requested or made.
"WHI" shall mean Washington Homes, Inc., a
Maryland corporation.
"WHI Senior Notes" shall mean,
collectively, certain Senior Notes, Series A, in the
amount of $30,000,000, due October 15, 2000, and a
certain Adjustable Rate Senior Note, Series B, in the
amount of $13,000,000, due October 15, 2000, issued
under that certain Note Agreement dated as of April
15, 1994 entered into by WHI and certain Purchasers
named therein.
Section 1 The Loans
Section 1.1. Revolving Loan.
(a) Revolving Loan Commitment. On the terms and
conditions hereof, from the Closing Date for the
balance of the Term, Lender hereby agrees to make the
Revolving Loan in an aggregate principal amount at
any one time outstanding not to exceed $55,000,000,
plus the amount of the Overline (if advanced at the
request of the Borrower as a part of the Revolving
Loan) in the form of advances, together constituting
the Revolving Loan, disbursed pursuant to a Notice of
Borrowing. Within such limit and the other limits
set forth herein, the Borrower may borrow, repay and
reborrow funds pursuant to the Revolving Loan.
Advances subsequent to the Closing Date shall be
disbursed not more frequently than three (3) times
per calendar month as provided for in Section 2.1(c)
below. The Borrower shall only be entitled to
advances in amounts approved by the Lender in
accordance with this Agreement.
(b) Note. The Revolving Loan (together with the
Term Loan)
shall be evidenced by a promissory note or notes made
by the Borrower (the "Note"), substantially in the
form of Exhibit "A" hereto, payable to the order of
the Lenders and otherwise duly
completed and executed .
(c) Borrowing Base Report and Notice of
Borrowing.
(1) Borrower shall deliver a Borrowing Base
Report to Lender
once each calendar month during the term of the Loan.
Any Borrowing Base Report delivered later than 11:00
a.m. Maryland time shall be deemed to have been
delivered on the next Business Day. Lender shall not
be required to fund any advances to Borrower during
any calendar month until five (5) Business Days after
Lender's receipt of the Borrowing Base Report for
such month.
(2) Each Notice of Borrowing for an advance of
the Revolving
Loan shall (i) be delivered to the Lender's Real
Estate Department not later than 11:00 a.m. Maryland
time, at least two (2) Business Days before the date
upon which an advance under the Revolving Loan is
desired, which date shall be at least five (5)
Business Days after the delivery of the Borrowing
Base Report for such calendar month; (ii) be
irrevocable and constitute a representation by
Borrower, to the best of its knowledge, that, (a) in
respect of any advance for a Unit, the conditions set
forth in Section 2.1(g) hereof have been satisfied by
the Borrower in all material respects or waived in
writing by the Lender, all work and materials for
which payment is requested have been physically
incorporated into the Project free of Liens (except
for Permitted Liens), that all improvements have been
performed or installed in a good and workmanlike
manner, and that the work and materials conform in
all material respects to the Plans and Specifications
and all applicable legal requirements and building
restrictions; and (b) in respect of an advance for
the acquisition of a Lot, the conditions set forth in
Section 2.1(f) hereof have been satisfied by the
Borrower or waived in writing by the Lender; and
(iii) constitute Borrower's certification that the
representations and warranties set forth in Section 4
of this Agreement are true and correct in all
material respects except as otherwise disclosed to
the Lender in writing, Borrower is in compliance with
all covenants contained in Section 5 of this
Agreement and that no Default or Event of Default
exists on the date of the notice and on the date any
advance under the Revolving Loan is made pursuant to
such Notice. Notices received after 11:00 a.m.
Maryland time shall be deemed received on the next
Business Day. The Agent shall promptly notify the
Lenders of each Notice of Borrowing.
(3) Each Notice of Borrowing shall include the
information set forth on the form attached hereto as
Exhibit "M" and shall also include a statement of (i)
the date of such borrowing, which shall be a Business
Day, (ii) the amount of Monthly Funding (as
hereinafter defined) which the Lender is requested to
disburse after receipt of such Notice and (iii)
Borrower's certification that all representations
that are required to be made as a condition of each
advance (X) are true and correct in all material
respects as of the date of the Notice except as
otherwise disclosed to Lender in writing, and, (Y)
unless Borrower notifies the Lender to the contrary
in writing before an advance is made, will continue
to be true and correct in all material respects from
the date of the Notice to the date of the Monthly
Funding which is requested in the Notice. If the
Borrowing Base Report contains all of the foregoing
information, the Borrower may use the updated monthly
Borrowing Base Report, supplemented with additional
forms as required, as the
information required to accompany the Notice of
Borrowing. If Borrower fails to provide any
information required in its Notice of Borrowing, or
fails to provide the backup documentation which the
Borrower is required to provide, the Lender shall
have the right to make conservative assumptions in
calculating the Funding Amount. For example, if
Borrower does not indicate whether a Unit was Pre-
sold, the Lender may assume, for purposes of its
calculations, that the Unit was not Pre-Sold.
(d) Funding Procedure.
Upon receipt of a Notice of Borrowing and
an updated Borrowing Base Report, the Lender will
verify the calculations and will recompute the
figures in the Notice and Report until the Lender is
satisfied, in its sole discretion, that the Notice
and Report comply with the terms of this Loan
Agreement. On the basis of the Notice and Report, as
so modified, the Lender will subtract from the
Eligible Funding Amount the Outstanding Loan Advance
as of the date of such Notice, and, provided that all
other conditions of this Loan Agreement have been
satisfied, the Borrower will be eligible to receive
an amount equal to the difference ("Maximum
Funding"). Not later than 2:00 p.m. (Maryland time)
on the proposed borrowing date, each Lender will make
available to the Agent, for the account of the
Borrower, at the office of the Agent in funds
immediately available to the Agent, such Lender's
Commitment Percentage of the Loans to be made on such
borrowing date. The Borrower hereby irrevocably
authorizes the Agent to disburse the proceeds of each
borrowing requested pursuant to this Section 2.1 in
immediately available funds by crediting or wiring
such proceeds to the deposit account of the Borrower
identified in the most recent Notice of Account
Designation substantially in the form of Exhibit "H"
hereto (a "Notice of Account Designation") delivered
by the Borrower to the Agent or as may be otherwise
agreed upon by the Borrower and the Agent from time
to time. Subject to Section 2.10 hereof, the Agent
shall not be obligated to disburse the portion of the
proceeds of any Loan requested pursuant to this
Section 2.1 to the extent that any Lender has not
made available to the Agent its Commitment Percentage
of such Loan.
(e) Limitation on Advances.
(1) Advances under the Revolving Loan shall be
made only for the purposes of (i) funding the
acquisition of Finished Lots (as determined by the
Lender) and Land Under Development in the Project,
and (ii) funding other Actual Costs Incurred with
respect to the Collateral.
(2) The aggregate principal amount of all
advances under the
Revolving Loan shall not exceed the caps for each
category of Collateral provided for hereinabove.
(3) The aggregate principal amount of all
advances of the
Revolving Loan in respect of all Lots and Units
within the Collateral, shall not exceed the aggregate
Eligible Funding Amount for all Lots and Units within
the Collateral.
Accordingly, no requested advance shall be made if,
after giving effect to such advance, the Outstanding
Loan Advance aggregates an amount in excess of the
Eligible Funding Amount.
(4) At the Lender's option, each subdivision, Lot
and Unit within the Project may be inspected by the
Compliance Inspector, who shall certify that in the
Compliance Inspector's opinion, the Project is being
developed and the Units are being built in compliance
with the terms of this Loan Agreement. Such
inspection is solely for the benefit of the Lender and
may not be relied upon by the Borrower or by any third
party. It is Lender's current intention to cause the
Compliance Inspector to inspect fifty percent (50%) of
all work in progress on a quarterly basis. If
discrepancies are identified in five percent (5%) or
more of the Collateral in two consecutive quarters,
the Lender shall have the right to require monthly
inspections at Borrower's expense for as long as the
Lender deems necessary thereafter. Notwithstanding
any of the above, the Lender reserves the right to
increase or decrease the frequency of inspections at
any time that the Lender deems necessary or
appropriate, in the Lender's sole discretion.
(5) For all portions of the Project which the
Borrower expects to hold title to for more than one
year, title insurance policies will be required as
hereinafter described. For parcels of the Property
which the Borrower expects to sell within one year of
acquisition and provided that the Borrower pays all
payables within forty-five (45) days of the date
rendered and obtains lien waivers from its contractors
in accordance with its current procedures, the
Borrower shall have the option of providing to Lender
a title/lien search report on such parcels in lieu of
a title insurance policy. However, in the event the
Borrower fails to satisfy any of the aforementioned
conditions, Lender retains the right to require such
title insurance coverage as it may reasonably deem
necessary. For any parcel of Property for which title
insurance coverage is required in accordance with the
above, the following shall be required: a title
insurance company acceptable to Lender shall be
prepared to issue unconditionally to Lender at closing
on such parcel of Property an ALTA standard form, full
coverage mortgagee title policy, as evidenced by a
title commitment delivered to Lender. If requested by
Lender, the Borrower shall obtain such re-insurance as
Lender shall reasonably require. The title policy
shall insure each portion of the Property in an amount
equal to the portion of the Loan reasonably allocated
to such portion of the Property by Lender and shall
insure that Lender's lien against the Property is a
valid first priority lien, subject only to such
matters of record as are reasonably acceptable to
Lender. The title policy shall (i) not contain, and
shall affirmatively insure against, any exceptions or
exclusions for filed or unfiled mechanics' or
materialmen's liens; (ii) contain such other
endorsements and affirmative coverages as Lender shall
reasonably require; and (iii) otherwise be in form and
substance satisfactory to Lender. Legible copies of
all easements, covenants and other matters affecting
title to or use of the Property shall be submitted to
Lender. The Borrower hereby covenants and agrees to
take any and all steps, and provide any and all
documents, required by the title company in order to
permit the title company to provide affirmative
mechanics' lien coverage, including, but not limited
to, providing mechanics' lien affidavits, indemnity
agreements, certified financial statements of the
Borrower or their Affiliates and/or conforming or
modifying existing disbursement procedures to those
deemed necessary by the title company. All existing
liens, mortgages, and deeds of trust against the
Property, other than the $10,000,000 Facility, the
$15,000,000 Facility, and the Signet Facility, must be
removed at or before the Closing Date. Prior to the
Closing Date, the Title Insurance Company also shall
perform (i) a UCC search for the state office filings
only on WHI, Washington Homes of Virginia, Inc.,
Westminster homes, Inc., Westminster Homes
(Charlotte), Inc., and Westminster Homes of Tennessee,
Inc.; and (ii) a state search (or in instances in
which a state search is not available, a search of the
county in which the Person has its headquarters) of
all judgment lien, federal and state tax and lis
pendens records with respect to such entities. Such
searches shall be delivered to Lender prior to the
Closing Date, and shall be performed in the
jurisdiction of incorporation of each such Person. To
the extent available, the Title Insurance Company
shall issue an Insured Closing Letter, in the form
acceptable to Lender stating that the proposed closing
attorney is the duly authorized agent for said Title
Insurance Company for the purpose of issuing or
amending a policy to provide or continue title
insurance, recording Loan Documents or a Spreader
Agreement, and otherwise acting as closing agent with
respect to the transactions contemplated herein.
(f) Additional Lots and Subdivisions. In
addition to the requirements set forth above, the
Lender's agreement to make advances under the
Revolving Loan subsequent to the Closing Date is also
conditioned upon satisfaction of the following
conditions and receipt by the Lender of the following
documents, each of which shall be satisfactory in form
and substance to the Lender:
(1) In the case an advance to acquire any Lots
not constituting a part of the Collateral (whether or
not the Lots are in a subdivision, a portion of which
is in the Collateral), a Spreader Agreement will be
executed and recorded among the land records in the
jurisdiction in which such Lots are located, spreading
the lien of the applicable Deed of Trust to such Lots,
and the Borrower shall have complied with any
applicable provisions of Section 2.1(e)(5) relating to
title insurance and Insured Closing Letters.
(2) The Lender may, in its sole discretion, elect
to incorporate into the Collateral, Lots in a
subdivision which currently do not constitute part of
the Collateral ("Proposed Subdivision") provided that
the Borrower submits to Lender the materials itemized
in Exhibit "I" attached (the "New Project
Requirements") and the Lender approves same, such
approval not to be unreasonably withheld.
(g) Conditions to Advances Under the Revolving
Loan for Construction of Units. The obligation of the
Lender to make each advance under the Revolving Loan
for the construction of Units is further subject to
the receipt by the Lender of the following documents,
each of which shall be satisfactory in form and
substance to the Lender:
(1) If required by Lender, a certificate by, the
Inspector approving in all respects any Notice of
Borrowing required under clause (2) of this Section
2.1(g).
(2) A Notice of Borrowing for payment, which
shall set forth each element of the Borrowing Base
Report and the amount sought to be borrowed in respect
of each such element. While any Default shall have
occurred and be continuing, if the Lender reasonably
deems itself insecure that any design professional,
contractor or subcontractor and other persons who may
be entitled to a Lien on the Project is not being paid
when payments are due from the entities which comprise
the Borrower, the Lender may request that the Borrower
provide releases and waivers for work performed and
materials furnished through the date of the
requisition simultaneously with the requested
disbursement and, in such event, the Lender shall not
be required to make any advance hereunder prior to
receipt of such releases and waivers.
(3) In the case of any advance in respect of the
foundation
of any Unit and in any event, when the foundation of
each Unit has been completed, upon request of Lender,
receipt of a "wallcheck" survey made by a surveyor
licensed in the jurisdiction in which the Unit is
located (as applicable) and acceptable to the Lender,
in its sole discretion, which shall show that there
are no encroachments with respect to any building
restriction lines, boundary lines, easements, rights-
of-way, covenants or conditions.
(4) Upon request of Lender, copies of all
permits, licenses
and certificates required to undertake the activity to
be paid for with the proceeds of the requested
advance.
(5) In the case of the first advance in respect
of any new
Collateral, all risk builder's risk insurance
(extended coverage, replacement value form to include
vandalism, malicious mischief and risk of collapse) ,
written only by a company certified by the insurance
agent to be a company with a non-contingent "All or
"A+" rating as reported in the latest A.M. Best
Insurance Report, all in amounts as may be required by
the Lender, and such other insurance with respect to
those portions of the Project that are of an insurable
character as may be required by the Lender; Such
policies shall contain a standard non-contributory
mortgagee clause in favor of the Lender and shall
provide that they may not be materially altered or
cancelled without 30 days' advance written notice to
the Lender.
(h) General Conditions. The obligation of the
Lender to
continue the advance currently outstanding and to make
any future advance constituting the Loan is further
subject to all of the additional conditions precedent:
(1) No Default shall have occurred and be
continuing either
immediately prior to, or in the Lender's reasonable
judgment, would occur immediately after the making of
any advance.
(2) The representations and warranties made by
the Borrower
in each Loan Document shall be true in all material
respects on the date of the proposed advance and
immediately after the proposed advance.
(3) All Loan Fees have been paid in respect of
each advance.
Section 1.1. Letter of Credit Facility.
(a) Letter of Credit Commitment. Subject to the
terms and
conditions hereof, the Issuing Lender, in reliance on
the agreements of the other Lenders set forth in
Section 2.2(d), agrees to issue standby letters of
credit ("Letters of Credit")
for the account of the Borrower on any Business Day
from the Closing Date through but not including the
Maturity Date in such form as may be approved from
time to time by the Issuing Lender; provided, that the
Issuing Lender shall have no obligation to issue any
Letter of Credit if, after giving effect to such
issuance, (a) the L/C Obligations would exceed the L/C
Commitment or (b) the Available Commitment of any
Lender would be less than zero. Accordingly, no
Letter of Credit shall be issued if, after giving
effect to the issuance of such Letter of Credit, the
Maximum Funding Amount is exceeded. Each Letter of
Credit shall (i) be denominated in Dollars, be a
standby letter of credit issued to support obligations
of the Borrower or any of its Subsidiaries, contingent
or otherwise, incurred in the ordinary course of
business in connection with the purchase or
development of the Collateral, the construction
thereon of single family residences, and such other
purposes as may be approved by Lender, (iii) expire on
a date satisfactory to the Issuing Lender, which date
shall be no later than the Maturity Date and (iv) be
subject to the Uniform Customs and, to the extent not
inconsistent therewith, the laws of the State of
Maryland. The Issuing Lender shall not at any time be
obligated to issue any Letter of Credit hereunder if
such issuance would conflict with, or cause the
Issuing Lender or any L/C Participant to exceed any
limits imposed by any Applicable Law. References
herein to "issue" and derivations thereof with respect
to Letters of Credit shall also include extensions or
modifications of any existing Letters of Credit,
unless the context otherwise requires.
(b) Procedure for Issuance of Letters of Credit.
The Borrower may from time to time request that the
Issuing Lender issue a Letter of Credit by delivering
to the Issuing Lender at the Agent's Office an
Application therefor, completed to the satisfaction of
the Issuing Lender, and such other certificates,
documents and other papers and information as the
Issuing Lender may reasonably request. Upon receipt
of any Application, the Issuing Lender shall process
such Application and the certificates, documents and
other papers and information delivered to it in
connection therewith in accordance with its customary
procedures and shall, subject to Section 2.2(a) and
Section 3 and to closing hereof, and to the execution
by the Borrower of the Issuing Lender's then current
standard form Letter of Credit Agreement (a copy of
which is attached hereto as Exhibit "J"), promptly
issue the Letter of Credit requested thereby (but in
no event shall the Issuing Lender be required to issue
any Letter of Credit earlier than three (3) Business
Days after its receipt of the Application therefor and
all such other certificates, documents and other
papers and information relating thereto) by issuing
the original of such Letter of Credit to the
beneficiary thereof or as otherwise may be agreed by
the Issuing Lender and the Borrower. The Issuing
Lender shall furnish to the Borrower a copy of such
Letter of Credit and furnish to each Lender a copy of
such Letter of Credit and the amount of each Lender's
L/C Participation therein, all promptly following the
issuance of such Letter of Credit.
(c) Commissions and Other Charges. There shall
be no commission or other charges payable by the
Borrower in connection with issuance of Letters of
Credit hereunder; provided, however, this provision
shall not be deemed a waiver of any of the terms and
conditions of the Letter of Credit Agreement.
(d) Letter of Credit Participations.
(1) The Issuing Lender irrevocably agrees to
grant and hereby grants to each L/C Participant, and,
to induce the Issuing Lender to issue Letters of
Credit hereunder, each L/C Participant irrevocably
agrees to accept and purchase and hereby accepts and
purchases from the Issuing Lender, on the terms and
conditions hereinafter stated, for such L/C
Participant's own account and risk an undivided
interest equal to such L/C Participant's Commitment
Percentage in the Issuing Lender's obligations and
rights under each Letter of Credit issued hereunder
and the amount of each draft paid by the Issuing
Lender thereunder. Each L/C Participant
unconditionally and irrevocably agrees with the
Issuing Lender that, if a draft is paid under any
Letter of Credit for which the Issuing Lender is not
reimbursed in full by the Borrower in accordance with
the terms of this Agreement, such L/C Participant
shall pay to the Issuing Lender upon demand at the
Issuing Lender's address for notices specified herein
an amount equal to such L/C Participant's Commitment
Percentage of the amount of such draft, or any part
thereof, which is not so reimbursed.
(2) Upon becoming aware of any amount required
to be paid by any L/C Participant to the Issuing
Lender pursuant to Section 2.2(d)(1) in respect to any
unreimbursed portion of any payment made by the
Issuing Lender under any Letter of Credit, the Issuing
Lender shall notify each L/C Participant of the amount
and due date of such required payment and such L/C
Participant shall pay to the Issuing Lender the amount
specified on the applicable due date. If any such
amount is paid to the Issuing Lender after the date
such payment is due, such L/C Participant shall pay to
the Issuing Lender on demand, in addition to such
amount, the product of (i) such amount, times (ii) the
daily average Federal Funds Rate as determined by the
Agent during the period from and including the date
such payment is due to the date on which such payment
is immediately available to the Issuing Lender, times
(iii) a fraction the numerator of which is the number
of days that elapse during such period and the
denominator of which is 360. A certificate of the
Issuing Lender with respect to any amounts owing under
this Section shall be conclusive in the absence of
manifest error. With respect to payment to the
Issuing Lender of the unreimbursed amounts described
in this Section 2.2(d)(2), if the L/C Participants
receive notice that any such payment is due (A) prior
to 1:00 p.m. (Maryland time) on any Business Day, such
payment shall be due that Business Day, and (B) after
1:00 p.m. (Maryland time) on any Business Day, such
payment shall be due on the following Business Day.
(3) Whenever, at any time after the Issuing
Lender has made payment under any Letter of Credit and
has received from any L/C Participant its Commitment
Percentage of such payment in accordance with this
Section 2.2, the Issuing Lender receives any payment
related to such Letter of Credit (whether directly
from the Borrower or otherwise, or any payment of
interest on account thereof, the Issuing Lender will
distribute to such L/C Participant its pro rata share
thereof; provided, that in the event that any such
payment received by the Issuing Lender shall be
required to be returned by the Issuing Lender, such
L/C Participant shall return to the Issuing Lender the
portion thereof previously distributed by the Issuing
Lender to it.
(e) Reimbursement Obligation of the Borrower.
The Borrower agrees to reimburse the Issuing Lender on
each date on which the
Issuing Lender notifies the Borrower of the date and
amount of a draft paid under any Letter of Credit for
the amount of (a) such draft properly paid and (b) any
taxes, fees, charges or other costs or expenses
incurred by the Issuing Lender in connection with such
payment. Each such payment shall be made to the
Issuing Lender at its address for notices specified
herein in lawful money of the United States and in
immediately available funds. Interest shall be
payable on any and all amounts remaining unpaid by the
Borrower under this Section 2.2(e) from the date such
amounts become payable (whether at stated maturity, by
acceleration or otherwise) until payment in full at
the rate which is provided for in the Letter of Credit
Agreement.
(f) Obligations Absolute. The Borrower's
obligations under this Section 2.2 (including without
limitation the Reimbursement Obligation) shall be
absolute and unconditional under any and all
circumstances and irrespective of any set-off,
counterclaim or defense to payment which the Borrower
may have or have had against the Issuing Lender or any
beneficiary of a Letter of Credit. The Borrower also
agrees with the Issuing Lender that, except as
otherwise provided by applicable law, the Issuing
Lender shall not be responsible for, and the
Borrower's Reimbursement Obligation under Section
2.2(e) shall not be affected by, among other things,
the validity or genuineness of documents or of any
endorsements thereon, even though such documents shall
in fact prove to be invalid, fraudulent or forged, or
any dispute between or among the Borrower and any
beneficiary of any Letter of Credit or any other party
to which such Letter of Credit may be transferred or
any claims whatsoever of a Borrower against any
beneficiary of such Letter of Credit or any such
transferee. The Issuing Lender shall not be liable
for any error, omission, interruption or delay in
transmission, dispatch or delivery of any message or
advice, however transmitted, in connection with any
Letter of Credit, except for errors or omissions
caused by the Issuing Lender's gross negligence or
willful misconduct. The Borrower agrees that any
action taken or omitted by the Issuing Lender under or
in connection with any Letter of Credit or the related
drafts or documents, if done in the absence of gross
negligence or willful misconduct and in accordance
with the standards of care specified in the Uniform
Customs and, to the extent not inconsistent therewith,
the UCC shall be binding on the Borrower and shall not
result in any liability of the Issuing Lender to the
Borrower. The responsibility of the Issuing Lender to
the Borrower in connection with any draft presented
for payment under any Letter of Credit shall, in
addition to any payment obligation expressly provided
for in such Letter of Credit, be limited to
determining that the documents (including each draft)
delivered under such Letter of Credit in connection
with such presentment are in conformity with such
Letter of Credit.
(g) Effect of Application and Letter of Credit
Agreement. To the extent that any provision of any
Application related to any Letter of Credit or the
Letter of Credit Agreement executed in connection
therewith is inconsistent with the provisions of this
Section 2.2, the provisions of this Section 2.2 shall
apply.
Section 1.2. Term Loan and Overline.
(a) The Term Loan shall be in an amount not to
exceed Fifteen Million Dollars ($15,000,000) and shall
be made for the benefit of and shall be the obligation
solely of WHI. Except as
hereinafter provided in Section 2.3(b) below, no
advances shall be made under the Term Loan until
October 1, 1998, and the proceeds of the Term Loan are
to be used for payments due at that time under the WHI
Senior Notes, with the balance, if any, made available
for working capital. Payments of interest only on the
outstanding principal balance shall be due and payable
monthly during the period between funding and the
initial Maturity Date at the rate as follows: During
this period, amounts outstanding under the Term Loan
will be allocated to either the "Pre-Sold Tranche" (as
defined in Section 2.4(a) below) as the same shall be
allocated and reallocated from time to time pursuant
to the Borrowing Base Report and which shall bear
interest as provided in Section 2.4 below, or the
"Unsold Tranche" (as defined in Section 2.4(a)
below), as the same shall be allocated and reallocated
from time to time pursuant to the Borrowing Base
Report and which shall bear interest as provided for
in Section 2.4 below, and will be subject to the
maximum Eligible Funding Amounts provided for with
respect to the Revolving Loan. Accordingly, no
requested advance under the Term Loan shall be made
if, after giving effect to such advance, the
Outstanding Loan Advance aggregates an amount in
excess of the Eligible Funding Amount. In the event
the Term Loan is extended beyond the initial Maturity
Date, payments of principal and interest (based on an
amortization schedule to be determined by Lender in
its sole discretion based on its receipt and analysis
of fiscal year end consolidated financial statements
dated July 31, 1999) shall be due and payable monthly.
(b) Notwithstanding the provisions of Section
2.3(a) above, and only in the event there exists no
uncured default under any of the Loan Documents (as
hereinafter defined), at any time prior to and until
the first principal payment is made on the WHI Senior
Notes, a temporary overline in the maximum amount of
Five Million Dollars ($5,000,000) (the "Overline") may
be reallocated at the election of the Borrower from
the amount available to be funded under the Term Loan
to instead be available to be funded under the
Revolving Loan, to meet seasonal inventory demands.
Once such election is made, the amount of the Overline
will temporarily be deducted from the amount available
to be funded under the Term Loan and will be
temporarily added to the amount available to be funded
under the Revolving Loan. During such temporary
overline period, any portion of the Overline which is
advanced to the Borrower shall be deemed to be
advanced pursuant to the terms governing the Revolving
Loan and shall be subject to repayment terms as set
forth above with respect to the Revolving Loan.
Section 1.3. Interest.
(a) Regular Interest. The Borrower, jointly and
severally, hereby promises to pay to the Lender
monthly, in arrears, on the 15th day of each month
(commencing on the date hereof) and on the date the
Loan is paid in full and the Commitment is terminated,
interest on the unpaid principal amount of the Loan at
the applicable interest rates set forth below. The
Note provides for interest to accrue at two different
rates: the "Pre-Sold Rate" and the "Unsold Rate."
Principal outstanding from time to time
under the Loan will be designated as principal in
either the "PreSold Tranche" or the "Unsold Tranche"
and will bear interest in accordance with the terms of
the Note from and after the actual date advanced at
either the Pre-Sold Rate or the Unsold Rate
based on the allocation of outstanding principal to
each Unit or Lot submitted by the Borrower monthly in
the Borrowing Base
Report as approved by the Lender. The Pre-Sold Rate
is a floating rate which is 155 basis points in
excess of LIBOR. The Unsold Rate is a floating rate
which is 175 basis points in excess of LIBOR. Any
amounts outstanding under the Loan not designated by
the Borrower as being in the Pre-Sold Tranche or the
Unsold Tranche, including, but not limited to,
amounts advanced by Lender to protect the Collateral,
shall bear interest at the Unsold Rate.
(b) Post-Default Interest. Notwithstanding the
provisions
of clause (a) above, each Person comprising the
Borrower, jointly and severally, hereby promises to
pay to the Lender interest at the Post-Default Rate
on the full principal amount outstanding of all Loans
of the Lender, and (to the fullest extent permitted
by law) on any interest or other amount payable by
the Borrower hereunder or under the Note held by the
Lender, (i) for any period during which an Event of
Default under the Loan has occurred and is continuing
and (ii) when any amount payable under the Note is
not paid in full when due (whether on demand or at
stated maturity, by acceleration or otherwise), for
the period commencing on the date such amount is due
until the same is paid in full.
Section 1.4. Principal. Each Borrower, jointly
and severally, hereby promises to pay to the Lender
the entire unpaid principal balance of the Revolving
Loan on the Maturity Date.
WHI hereby promises to the to the Lender the entire
unpaid principal balance of the Term Loan on the
Maturity Date.
Section 1.5. Maturity Date Extension. Upon
receipt of an application from the Borrower for an
extension of the Maturity Date, received by the
Lender at least fourteen months before the Maturity
Date (as the same may be extended from time to time),
the Lender will consider a one-year extension of the
then current Maturity Date which the Lender may grant
or withhold in its sole and unreviewable discretion.
Lender will advise the Borrower of its decision with
respect to renewal no later than October 1 of each
year in which the Borrower has requested an extension
of the then current Maturity Date. In the event the
Lender elects not to extend the then current Maturity
Date for a one year period, Lender will in any event
extend the then current Maturity Date for a period of
six (6) months (the "Six Month Extension"). Provided
that all other conditions of funding have been
satisfied from time to time, from and after the
commencement of the Six Month Extension, the Lender
will be obligated to continue to make funds available
from the Revolving Loan, under the terms hereof only
for those subdivisions constituting part of the
Collateral as of the date of commencement of the Six
Month Extension.. If the Borrower elects to accept
such funds, the Borrower will pay the Annual Loan Fee
provided for in Section 2.7(b).
Section 1.6. Loan Fees
(a) Commitment Fees.
(1) Revolving Loan Commitment Fee. The Borrower
shall pay to the Lender, a Revolving Loan commitment
fee on the Closing Date in an amount equal to 0.45%
of $55,000,000 (the "Revolving Loan Commitment Fee").
The Revolving Loan Commitment Fee shall be payable in
full upon the closing of the Loan.
(2) Overline Commitment Fee. In addition, in the
event that
the Borrower draws down any amount under the
Overline, the Borrower shall also pay to the Lender
on the date that any funds are first advanced from
the Overline (the "Initial Overline Draw Date"), an
Overline commitment fee (the "Overline Commitment
Fee") in an amount equal to the product of (i) 0.45%
times (ii) $5,000,000 times (iii) a fraction, the
numerator of which is the number of days from the
Initial Overline Draw Date to and including October
30, 1998 and the denominator of which is the number
of days from the Closing Date to and including
October 30, 1998.
(b) Annual Loan Fee.
(1) In addition, the Borrower shall pay to Lender
an annual
loan fee (the "Annual Loan Fee") on October 31, 1998,
and annually each year thereafter until the Loan is
paid in full, in the amount of 0.45% of the lesser of
(i) $70,000,000 (ii) any amount to which the Borrower
has elected to reduce the Aggregate Commitment, or
(iii) in the event that Lender has elected not to
extend the Maturity Date after being requested to do
so by Borrower, the maximum amount that the Borrower
and Lender reasonably expect to be outstanding under
the Loan during the six months period next preceding
the Maturity Date. In the event the Borrower elects
to reduce the Aggregate Commitment as of a date other
than October 31 of any year, there will be no pro
rata reduction of the Annual Loan Fee with respect to
such portion of a year.
(2) In the event the Loan is extended for a Six
Month
Extension as provided for in Section 2.6, the
Borrower will pay an Annual Loan Fee for such period,
pro-rated over such six month period and based on the
maximum amount the Borrower and Lender reasonably
expect to be outstanding during such Six Month
Extension.
(c) Agent's and Other Fees. In order to
compensate the
Agent for structuring and syndicating the Loan and
for its obligations hereunder, the Borrower agrees to
pay to the Agent, for its account, the fees set forth
in the separate fee letter agreement executed by the
Borrower and the Agent dated as of the date hereof.
Section 1.7. Prepayments and Other Payments
(a) Certain Payments. The Borrower shall have
the
obligation to prepay the Loan in accordance with the
terms of Section 2.8(b) herein and shall have the
right to prepay the Loan
in whole or in part; however, any prepayment, in
whole or in part, shall not affect the Borrower's
obligation to continue making payments in connection
with any swap agreements (as defined in 11 U.S.C.
101), which will remain in full force and effect
notwithstanding such prepayment, The Borrower shall
have no right to the release of all or any portion of
the Project from the lien of the Deeds of Trust or
Mortgage at any time an Event of Default exists and
is continuing.
(b) Mandatory Prepayments in the Ordinary Course
of the
Borrower's Business. The Borrower shall prepay the
Loan as and when Lots and Units are sold in the
ordinary course of the Borrower's business in
accordance with the provisions of this Section 2.8
and shall receive a partial release of the Mortgage
or Deed of Trust securing such Unit or Lot, in
accordance with the terms of the applicable Mortgage
or Deed of Trust.
(1) Upon the closing of the sale of any Unit,
the Borrower
shall pay the Lender an amount equal to the amount
advanced by the Lender or deemed to have been
advanced under the Loan with respect to such Unit or
Lot ("Advance Amount"). Such Advance Amount shall
include that amount allocated to such Lot or Unit as
shown on the Base Borrowing Report most recently
submitted by the Borrower, including amounts advanced
under the Term Loan. Such amount will be applied to
repayment of the Loan.
(2) Upon the closing of the sale of any Lot or
Unit, the
Borrower shall provide the Lender with a detailed
statement (Form HUD 1 or equivalent) setting forth
the gross proceeds of the sale and all expenses
associated with such sale.
(c) Voluntary Prepayments. The Borrower shall
have the
right to prepay the amount outstanding under the Loan
in whole or in part at any time on any Business Day;
provided that such prepayment is in accordance with
the terms of this Section 2.8(c). If the Borrower
shall prepay the Revolving Loan in part, the Borrower
shall be entitled to have Lots and Units released
from the Lien of the applicable Deed of Trust, upon
payment to the Lender of the amounts specified in
Section 2.8(b) hereof with respect to each such Lot
or Unit to the Lender. Such payment will be applied
or set forth in Section 2.8(d).
(d) Application of Payments. Payments received
by Lender
representing the settlement of a Unit will be applied
as a principal curtailment to the Pre-Sold Tranche.
Any payments received by the Borrower representing
additional principal curtailments will be applied to
the Unsold Tranche. Any payments received as a
result of sales of Lots will be applied as a
principal curtailment to the Unsold Tranche.
(e) Prepayment Procedures.
(1) Each prepayment shall be pursuant to a
notice from the
Borrower to the Lender ("Notice of Prepayment"),
which notice shall be substantially in the form
attached hereto as Exhibit "N" and shall specify the
principal amount to be prepaid and the date of
prepayment (which shall be a Business Day), be
irrevocable, and be effective only if received by the
Lender not later than 1:00 p.m. Maryland time on the
prepayment date.
(2) If no Event of Default exists and is
continuing, any
prepayment made pursuant to the provisions of Section
2.8(b) or Section 2.8(c), as applicable, shall be
applied in accordance
with the provisions of Section 2.8(d). Any
prepayment made while an Event of Default exists and
is continuing shall be applied to accrued and unpaid
fees, late charges, interest, and principal due under
the Loan, in any order and in any manner which the
Lender deems desirable in its sole and absolute
discretion.
Section 1.8. Payments; Computations; Etc.
(a) Manner of Payment. Each payment by the
Borrower on account of the principal of or interest
on the Loans or of any fee, commission or other
amounts (including the Reimbursement Obligation)
payable to the Lenders under this Agreement or the
Note shall be made not later than 1:00 p.m. (Maryland
time) on the date specified for payment under this
Agreement to the Agent at the Agent's Office for the
account of the Lenders (other than as set forth
below) pro rata in accordance with their respective
Commitment Percentages, in Dollars, in immediately
available funds and shall be made without any set-
off, counterclaim or deduction whatsoever. Any
payment received after such time but before 2:00 p.m.
(Maryland time) on such day shall be deemed a payment
on such date for the purposes of the Note, but for
all other purposes shall be deemed to have been made
on the next succeeding Business Day. Any payment
received after 2:00 p.m. (Maryland time) shall be
deemed to have been made on the next succeeding
Business Day for all purposes. Upon receipt by the
Agent of each such payment, the Agent shall
distribute to each Lender at its address for notices
set forth herein its pro rata share of such payment
in accordance with such Lender's Commitment
Percentage and shall wire advice of the amount of
such credit to each Lender. Each payment to the
Agent of Agent's fees or expenses shall be made for
the account of the Agent and any amount payable to
any Lender hereunder shall be paid to the Agent for
the account of the applicable Lender.
(b) Crediting of Payments and Proceeds. In the
event that the Borrower shall fail to pay any of the
Obligations when due and the Obligations have been
accelerated pursuant to Section 6, all payments
received by the Lenders upon the Notes and the other
Obligations and all net proceeds from the enforcement
of the Obligations shall be applied first to all
expenses then due and payable by the Borrower
hereunder, then to all indemnity obligations then due
and payable by the Borrower hereunder, then to all
Agent's fees then due and payable, then to all other
fees and any commissions then due and payable, then
to accrued and unpaid interest on the Note, the
Reimbursement Obligation and (pro rata in accordance
with all such amounts due), then to the principal
amount of the Note and Reimbursement Obligation.
(c) Adjustments. If any Lender (a "Benefited
Lender") shall at any time receive any payment of all
or part of its Extensions of Credit, or interest
thereon, or if any Lender shall at any time receive
any collateral in respect to its Extensions of Credit
(whether voluntarily or involuntarily, by set-off or
otherwise) in a greater proportion than any such
payment to and collateral received by any other
Lender, if any, in respect of such other Lender's
Extensions of Credit, or interest thereon, such
Benefited Lender shall purchase for cash from the
other Lenders such portion of each such other
Lender's Extensions of Credit, or shall provide such
other Lenders with the benefits of any such
collateral, or the proceeds thereof, as shall be
necessary to cause such Benefited Lender to share the
excess payment or benefits of such collateral or
proceeds ratably with each of the Lenders; provided,
that if all or any portion of such excess payment or
benefits is thereafter recovered from such Benefited
Lender, such purchase shall be rescinded, and the
purchase price and benefits returned to the extent of
such recovery, but without interest. The Borrower
agrees that each
Lender so purchasing a portion of another Lender's
Extensions of Credit may exercise all rights of
payment (including, without limitation, rights of set-
off) with respect to such portion as fully as if such
Lender were the direct holder of such portion.
Section 1.9. Nature of Obligations of Lenders
Regarding Extensions of Credit, Assumption by the
Agent. The obligations of the Lenders under this
Agreement to make the Loans and issue or participate
in Letters of Credit are several and are not joint or
joint and several. Unless the Agent shall have
received notice from a Lender prior to a proposed
borrowing date that such Lender will not make
available to the Agent such Lender's ratable portion
of the amount to be borrowed on such date (which
notice shall not release such Lender of its
obligations hereunder), the Agent may assume that
such Lender has made such portion available to the
Agent on the proposed borrowing date in accordance
with Section 2.2(b) and the Agent may, in reliance
upon such assumption, make available to the Borrower
on such date a corresponding amount. If such amount
is made available to the Agent on a date after such
borrowing date, such Lender shall pay to the Agent on
demand an amount, until paid, equal to the product of
(a) the amount of such Lender's Commitment Percentage
of such borrowing, times (b) the daily average
Federal Funds Rate during such period as determined
by the Agent, times (c) a fraction the numerator of
which is the number of days that elapse from and
including such borrowing date to the date on which
such Lender's Commitment Percentage of such borrowing
shall have become immediately available to the Agent
and the denominator of which is 360. A certificate
of the Agent with respect to any amounts owing under
this Section shall be conclusive, absent manifest
error. If such Lender's Commitment Percentage of
such borrowing is not made available to the Agent by
such Lender within three (3) Business Days of such
borrowing date, the Agent shall be entitled to
recover such amount made available by the Agent with
interest thereon at the rate per annum applicable to
Base Rate Loans hereunder, on demand, from the
Borrower. The failure of any Lender to make its
Commitment Percentage of any Loan available shall not
relieve it or any other Lender of its obligation, if
any, hereunder to make its Commitment Percentage of
such Loan available on such borrowing date, but no
Lender shall be responsible for the failure of any
other Lender to make its Commitment Percentage of
such Loan available on the borrowing date.
Section 1.10. Changed Circumstances.
(a) Circumstances Affecting LIBOR Rate
Availability. If with respect to any period during
which the Loan is outstanding the Agent or any Lender
(after consultation with Agent) shall determine that,
by reason of circumstances affecting the foreign
exchange and interbank markets generally, deposits in
eurodollars, in the applicable amounts are not being
quoted via Telerate Page 3750 or offered to the Agent
or such Lender for such period, then the Agent shall
forthwith give notice thereof to the Borrower.
Thereafter, until the Agent notifies the Borrower
that such circumstances no longer exist, the
obligation of the Lenders to make LIBOR Rate Loans
shall be suspended, and the then outstanding
principal amount of each such LIBOR Rate Loans
together with accrued interest thereon, shall be
converted o a Base Rate Loan as of the date of such
notice.
(b) Laws Affecting LIBOR Rate Availability. If,
after the
date hereof, the introduction of, or any change in,
any Applicable Law or any change in the
interpretation or administration thereof by any
Governmental Authority, central bank or comparable
agency charged with the interpretation or
administration thereof, or compliance by any Lender
(or any of their respective Lending Offices) with any
request or directive (whether or not having the force
of law) of any such Authority, central bank or
comparable agency, shall make it unlawful or
impossible for any of the Lenders (or any of their
respective Lending Offices) to honor its obligations
hereunder to make or maintain any LIBOR Rate Loan,
such Lender shall promptly give notice thereof to the
Agent and the Agent shall promptly give notice to the
Borrower and the other Lenders. Thereafter, until
the Agent notifies the Borrower that such
circumstances no longer exist, (i) the obligations of
the Lenders to make LIBOR Rate Loans shall be
suspended and thereafter the Note shall bear interest
on a Base Rate basis, and (ii) if any of the Lenders
may not lawfully continue to maintain a LIBOR Rate
Loan, then the applicable LIBOR Rate Loan shall
immediately be converted to a Base Rate Loan for the
remainder of the term of the Loan.
(c) Increased Costs. If, after the date
hereof, the introduction of, or any change in, any
Applicable Law, or in the interpretation or
administration thereof by any Governmental Authority,
central bank or comparable agency charged with the
interpretation or administration thereof, or
compliance by any of the Lender ' s (or any of their
respective Lending Offices) with any request or
directive (whether or not having the force of law) of
such Governmental Authority, central bank or
comparable agency:
(1) shall subject any of the Lenders (or any of
their respective Lending Offices) to any tax, duty or
other charge with respect to any Note, Letter of
Credit or Application (except such taxes, duties or
charges that are imposed as a result of the financial
condition of the particular Lender, as opposed to
being imposed on lenders generally) or shall change
the basis of taxation of payments to any of the
Lenders (or any of their respective Lending Offices)
of the principal of or interest on any Note, Letter
of Credit or Application or any other amounts due
under this Agreement in respect thereof (except for
changes in the rate of tax on the overall net income
or gross receipts of any of the Lenders or any of
their respective Lending Offices imposed by the
jurisdiction in which such Lender is organized or is
or should be qualified to do business or such Lending
Office is located); or
(2) shall impose, modify or deem applicable
any reserve
(including, without limitation, any imposed by the
Board of Governors of the Federal Reserve System),
special deposit, insurance or capital or similar
requirement against assets of, deposits with or for
the account of, or credit extended by any of the
Lenders (or any of their respective Lending Offices)
or shall impose on any of the Lenders (or any of
their respective Lending Offices) or the foreign
exchange and interbank markets any other condition
affecting any Note; and the result of any of the
foregoing is to increase the costs to any of the
Lenders of maintaining any LIBOR Rate Loan or issuing
or participating in Letters of Credit or to reduce
the yield or amount of any sum received or receivable
by any of the Lenders under this Agreement or under
the Notes in respect of a LIBOR Rate Loan or Letter
of Credit or Application, then such Lender shall
promptly notify the Agent, and the Agent shall
promptly notify the Borrower of such
fact and demand compensation therefor and, within
fifteen (15) days after such notice by the Agent, the
Borrower shall pay to such Lender such additional
amount or amounts as will compensate such Lender or
Lenders for such increased cost or reduction (except
to the extent such increased cost or reduction is a
consequence of the financial condition of the
particular Lender, as opposed to being imposed on
Lenders generally). The Agent will promptly notify
the Borrower of any event of which it has knowledge
which will entitle such Lender to compensation
pursuant to this Section 2.11(c); provided, that the
Agent shall incur no liability whatsoever to the
Lenders or the Borrower in the event it fails to do
so. The amount of such compensation shall be
determined, in the applicable Lender's sole
discretion, based upon the assumption that such
Lender funded its Commitment Percentage of the LIBOR
Rate Loans in the London interbank market, and using
any reasonable attribution or averaging methods which
such Lender deems appropriate and practical. A
certificate of such Lender setting forth the basis
for determining such amount or amounts necessary to
compensate such Lender shall be forwarded to the
Borrower through the Agent and shall be conclusively
presumed to be correct save for manifest error.
Section 1.11. Indemnity. The Borrower hereby
indemnifies each of the Lenders against any loss or
expense which may arise or be attributable to each
Lender's obtaining, liquidating or employing deposits
or other funds acquired to effect, fund or maintain
any Loan (a) as a consequence of any failure by the
Borrower to make any payment when due of any amount
due hereunder in connection with a LIBOR Rate Loan,
(b) due to any failure of the Borrower to borrow on a
date specified therefor in a Notice of Borrowing or
(c) due to any payment, prepayment of any LIBOR Rate
Loan on a date other than the last day of the
Interest Period therefor. The amount of such loss or
expense shall be determined, in the applicable
Lender's sole discretion, based upon the assumption
that such Lender funded its Commitment Percentage of
the LIBOR Rate Loans in the London interbank market,
and using any reasonable attribution or averaging
methods which such Lender deems appropriate and
practical. A certificate of such Lender setting
forth the basis for determining such amount or
amounts necessary to compensate such Lender shall be
forwarded to the Borrower through the Agent and shall
be conclusively presumed to be correct save for
manifest error.
Section 1.12. Capital Requirements. If either
(a) the introduction of, or any change in, or in the
interpretation of, any Applicable Law or (b)
compliance with any guideline or request from any
central bank or comparable agency or other
Governmental Authority (whether or not having the
force of law but provided such request is made to
lenders generally and not to a particular Lender by
reason of its financial condition), has or would have
the effect of reducing the rate of return on the
capital of, or has affected or would affect the
amount of capital required to be maintained by, any
Lender or any corporation controlling such Lender as
a consequence of, or with reference to the
Commitments and other commitments of this type, below
the rate which the Lender or such other corporation
could have achieved but for such introduction, change
or compliance, then within five (5) Business Days
after written demand by any such Lender, the Borrower
shall pay to such Lender from time to time as
specified by such Lender additional amounts
sufficient to compensate such Lender or other
corporation for such reduction.
A certificate as to such amounts submitted to the
Borrower and the Agent by such Lender, shall, in the
absence of manifest error, be presumed to be correct
and binding for all purposes.
Section 1.13. Taxes.
(a) Payments Free and Clear. Any and all
payments by the Borrower hereunder or under the Notes
or the Letters of Credit shall be made free and clear
of and without deduction for any and all present or
future taxes, levies, imposts, deductions, charges or
withholding, and all liabilities with respect thereto
excluding, (i) in the case of each Lender and the
Agent, income, gross receipts and franchise taxes
imposed by the jurisdiction under the laws of which
such Lender or the Agent (as the case may be) is
organized or is or should be qualified to do business
or any political subdivision thereof and (ii) in the
case of each Lender, income and franchise taxes
imposed by the jurisdiction of such Lender's Lending
Office or any political subdivision thereof (all such
non-excluded taxes, levies, imposts, deductions,
charges, withholdings and liabilities being
hereinafter referred to as "Taxes"). If the Borrower
shall be required by law to deduct any Taxes from or
in respect of any sum payable hereunder or under any
Note or Letter of Credit to any Lender or the Agent,
(A) the sum payable shall be increased as may be
necessary so that after making all required
deductions (including deductions applicable to
additional sums payable under this Section 2.14) such
Lender or the Agent (as the case may be) receives an
amount equal to the amount such party would have
received had no such deductions been made, (B) the
Borrower shall make such deductions, (C) the Borrower
shall pay the full amount deducted to the relevant
taxing authority or other authority in accordance
with applicable law, and (D) the Borrower shall
deliver to the Agent evidence of such payment to the
relevant taxing authority or other authority in the
manner provided in Section 2.13(d).
(b) Stamp and Other Taxes. In addition, the
Borrower shall
pay any present or future stamp, registration,
recordation or documentary taxes or any other similar
fees or charges or excise or property taxes, levies
of the United States or any state or political
subdivision thereof or any applicable foreign
jurisdiction which arise from any payment made
hereunder or from the execution, delivery or
registration of, or otherwise with respect to, this
Agreement, the Loans, the Letters of Credit, the
other Loan Documents, or the perfection of any rights
or security interest in respect thereto (hereinafter
referred to as "Other Taxes").
(c) Indemnity. The Borrower shall indemnify
each Lender
and the Agent for the full amount of Taxes and Other
Taxes (including, without limitation, any Taxes and
Other Taxes imposed by any jurisdiction on amounts
payable under this Section 2.14) paid by such Lender
or the Agent (as the case may be) and any liability
(including penalties, interest and expenses) arising
therefrom or with respect thereto, whether or not
such Taxes or Other Taxes were correctly or legally
asserted; provided, however, the Borrower shall be
subrogated to the rights of such Lender or Agent with
respect to any claim that such Taxes or Other Taxes
were not correctly or legally asserted. Such
indemnification shall be made within thirty (30) days
from the date such Lender or the Agent (as the case
may be) makes written demand therefor.
(d) Evidence of Payment. Within thirty (30)
days after the
date of any payment of Taxes or Other Taxes required
to be
deducted from any sum payable hereunder as provided
in Section 2.14(a) above, upon request of the
Lender, the Borrower shall furnish to the Agent, at
its address referred to in Section 8.1, the original
or a certified copy of a receipt evidencing payment
thereof or other evidence of payment satisfactory to
the Agent. Upon request of the Agent, the Borrower
shall furnish to the Agent, at its address referred
to in Section 8.1 , evidence of the payment of real
estate taxes relating to the Collateral satisfactory
to the Agent.
(e) Delivery of Tax Forms. Each Lender
organized under the laws of a jurisdiction other than
the United States or any state thereof shall deliver
to the Borrower, with a copy to the Agent, on the
Closing Date or concurrently with the delivery of the
relevant Assignment and Acceptance, as applicable,
(i) two United States Internal Revenue Service Forms
4224 or Forms 1001, as applicable (or successor
forms) properly completed and certifying in each case
that such Lender is entitled to a complete exemption
from withholding or deduction for or on account of
any United States federal income taxes, and (ii) an
Internal Revenue Service Form W-8 or W-9 or successor
applicable form, -as the case may be, to establish an
exemption from United States backup withholding
taxes. Each such Lender further agrees to deliver to
the Borrower, with a copy to the Agent, a Form 1001
or 4224 and Form W-8 or W-9, or successor applicable
forms or manner of certification, as the case may be,
on or before the date that any such form expires or
becomes obsolete or after the occurrence of any event
requiring a change in the most recent form previously
delivered by it to the Borrower, certifying in the
case of a Form 1001 or 4224 that such Lender is
entitled to receive payments under this Agreement
without deduction or withholding of any United States
federal income taxes (unless in any such case an
event (including without limitation any change in
treaty, law or regulation) has occurred prior to the
date on which any such delivery would otherwise be
required which renders such forms inapplicable or the
exemption to which such forms relate unavailable and
such Lender notifies the Borrower and the Agent that
it is not entitled to receive payments without
deduction or withholding of United States federal
income taxes) and, in the case of a Form W-8 or W-9,
establishing an exemption from United States backup
withholding tax.
(f) Survival. Without prejudice to the
survival of any other agreement of the Borrower
hereunder, the agreements and obligations of the
Borrower contained in this Section 2.14 shall
survive the payment in full of the Obligations and
the termination of the Commitments.
Section 1.14. Power of Attorney. To facilitate
the administration of the Loan, each Borrower hereby
irrevocably appoints Washington Homes, Inc. as its
true and lawful agent and attorney-in-fact with full
power and authority to execute, deliver and
acknowledge, as appropriate, each Request for Advance
and Certification, Borrowing Base Certificate and all
other Loan Documents or certificates from time to
time deemed necessary or appropriate by Washington
Homes, Inc. or the Agent in connection with the Loan.
This power-of-attorney is coupled with an interest
and cannot be revoked, modified or amended without
the prior written consent of the Agent. Upon request
of the Agent, each Borrower shall execute,
acknowledge and deliver to the Agent a form Power of
Attorney confirming and restating the power-of
attorney granted herein.
Section 2 Conditions to Closing
The obligation of the Lender to provide an
increase in the amount of the Revolving Loan on the
Closing Date is subject to (i) there being no Default
on the Closing Date, and (ii) except as set forth in
that certain letter agreement between Borrower and
Lender of even date herewith confirming the temporary
waiver by Lender of certain closing conditions, the
receipt by (or availability to) the Lender of the
following documents on or before the Closing Date,
each of which shall be satisfactory in form and
substance to the Lender:
(a) The Deeds of Trust and Mortgage, duly
completed and
executed, covering the Lots acquired with the
proceeds of the advances currently outstanding under
the Revolving Loan.
(b) The Note and the Letter of Credit Agreement,
duly
completed and executed.
(c) UCC-l financing statements in connection
with all
security interests granted to the Lender, duly
completed and executed by the appropriate debtors.
(d) A conformed copy of the acquisition or
option contract
for all Lots within subdivisions in the Project with
respect to Lots in the Collateral.
(e) (1) The certificate of limited partnership
of each
partnership entity comprising the Borrower, certified
by the appropriate governmental authority, the
agreement of limited partnership of each limited
partnership, certified by the general partner of each
limited partnership, and evidence of, all action
taken by each limited partnership approving the Loan
Documents to which. it is contemplated to be a party;
and (2) certificate of good standing and certified
articles of incorporation for each corporate entity
comprising the Borrower certified by the appropriate
governmental authority and copies of the by-laws and
duly adopted resolutions of the boards of directors
of such corporations authorizing the transactions
contemplated hereby in form and content approved by
the Lender, in its sole discretion, certified by the
secretary or assistant secretary to each corporate
entity comprising the Borrower.
(f) A signed opinion of counsel to the Borrower
in form and
content satisfactory to the Lender in its sole
discretion.
(g) Proof that the Borrower has obtained
adequate liability,
casualty and worker's compensation insurance, written
only by a company certified by the insurance agent to
be a company with a non-contingent "All or 11A+11
rating as reported in the latest A.M. Best Insurance
Report for a period of not less ten (10) months and
that the Borrower is not in default in paying its
installments of premiums on such policies of
insurance. Such policies of insurance shall be in
amounts as may be required by the Lender and shall
contain a standard non-contributory mortgagee clause
in favor of the Lender and shall provide that they
may not be altered in any material respect or
cancelled without 30 days' advance written notice to
the Lender. The Borrower agrees to obtain other
insurance with respect to those
portions of the Project that are of an insurable
character as may be reasonably required by the
Lender. Acceptance of a binder shall not imply the
Lender's approval of the policy, which policy or
binder shall be delivered to the Lender prior to the
Closing Date.
(h) Proof that the Borrower has complied with
any
requirements for title insurance as provided for in
Section 2.1(e)(5).
(i) To the extent reasonably obtainable, an
insured "Closing
Letter" prepared by the Title Company stating that
the proposed settlement agent is the duly authorized
agent for said title insurance company for purposes
of closing the transactions contemplated herein and
issuing the Title Insurance Policy, and all
amendments thereto that might subsequently be issued
to subject additional property to the lien of the
Deed of Trust, and the said title insurance company
shall indemnify, defend and hold the Lender harmless
from and against any errors and omissions that may
arise out of or occur in connection with such agent's
title services. The record plat for each subdivision
constituting the Project showing buildings, location
of streets, lot lines, setback lines, easements,
encroachments and all other matters affecting each
subdivision constituting the Project prepared by a
licensed surveyor with a surveyor's certification to
the Lender in a form acceptable to Lender.
(j) Evidence that each subdivision constituting
the Project
is not in a flood hazard area designated as such
pursuant to the Flood Disaster Act of 1973, as
amended, or if it is in such an area, evidence of an
appropriate flood insurance policy obtained at the
Borrower's expense and acceptable to the Lender as to
form, substance and coverage. The Lender shall have
also received a flood hazard certification acceptable
to it from a surveyor licensed in the jurisdiction in
which each such subdivision is located.
(k) Copies of any engineering reports relating
to each of
the subdivisions and in the unsubdivided real
property within the Project, prepared for the
Borrower or its contractors, agents, architects or
engineers.
(l) Copies of the consolidated financial
statements of WHI
and its Consolidated Subsidiaries as of a date not
earlier than April 30, 1997, along with a
certification from each Borrower that there has been
no Material Adverse Change in the financial condition
of WHI and its Consolidated Subsidiaries since the
date of the statement.
(m) The Borrowing Base Report.
(n) Two sets of final Plans and Specifications
for the
construction contemplated to be done on each
subdivision constituting the Project approved by the
Lender and by all appropriate governmental
authorities. Such Plans and specifications shall be
assigned to the Lender.
(o) The tax identification or social security
number of each
person comprising the Borrower.
(p) Any document or certification from the
Borrower which
the title company insuring title requires as a
condition to issuing the Title Insurance Policy
described in Section 2.1(e)(5) hereof.
(q) Such other documents as the Lender may have
listed on the Preliminary Check List delivered to the
Borrower prior to Closing or which Lender may
otherwise reasonably request in connection with the
transactions contemplated hereby.
Section 1 Representations and Warranties.
Each Borrower represents and warrants to
the Lender, as of the date hereof and at any time
reaffirmed pursuant to the terms hereof, that:
Section 1.1. Existence, Etc. The Borrower
consists of
limited partnerships and corporations which are: (a)
duly organized and validly existing under the laws of
the state in which they were formed; (b) have all
requisite power , and has all material governmental
licenses, authorizations, consents and approvals
necessary (at the time the representation is made) to
own their respective assets and carry on their
respective businesses as now being conducted and as
contemplated hereby (except any such licenses,
authorizations, consents or approvals as are being
renewed) ; and (c) are qualified to do business in
all jurisdictions in which the nature of the business
conducted by it makes such qualification necessary
and where failure to so qualify would have a
Materially Adverse Effect.
Section 1.2. Financial, Condition. Except as
otherwise
disclosed to the Lender in writing, the consolidated
financial statements of WHI and its Consolidated
Subsidiaries heretofore furnished to the Lender in
connection with the transactions contemplated hereby,
fairly present the financial condition of such
entities as at said dates all in accordance with
generally accepted accounting principles applied on a
consistent basis. Since the dates of said financial
statements there has been no Material Adverse Change
in the financial condition or operations, or the
business taken as a whole, of the entities comprising
the Borrower from that set forth therein.
Section 1.3. Litigation. There are no legal or
arbitral
proceedings or any proceedings by or before any
governmental or regulatory authority or agency now
pending or, to the knowledge of the Borrower ,
threatened against the Borrower in which there is a
reasonable probability of an adverse decision that
could materially and adversely affect the financial
condition or operations, or the business taken as a
whole, of the Borrower.
Section 1.4. No Breach. None of the execution
and delivery
of the Loan Documents, the consummation of the
transactions therein contemplated and compliance with
the terms and provisions thereof will conflict with
or result in a breach of, or require any consent (not
theretofore obtained at the time the representation
is made) under any applicable law or regulation,
or any order, writ, injunction, judgment or decree of
any court or governmental authority or agency, or any
agreement or instrument to which any Borrower is a
party or by which it or any of them is bound or to
which it or any of them is subject, or constitute a
default under any such agreement or instrument, or
result in the creation or imposition of any Lien upon
any of the revenues or assets of any Borrower
pursuant to the terms of any such agreement or
instrument other than the lien created by the Loan
Documents.
Section 1.5. Authority. The Loan Documents,
when executed and delivered, have been duly and
validly executed and delivered by the parties named
therein other than the Lender, and constitute the
legal, valid and binding obligations of the parties
named therein other than the Lender, enforceable in
accordance with their terms except as enforceability
may be limited by bankruptcy, insolvency and other
similar laws affecting creditor's rights generally,
and the application of equitable principles.
Section 1.6. Approval. No authorizations,
approvals or consents of, and no filings or
registrations with (other than the recording of the
Deeds of Trust with the Recorder of Deeds in the
jurisdictions in which the Project is located and the
recording of the Financing Statement referred to in
the Deed of Trust in the chattel and land financing
statement records office of such counties) any
governmental or regulatory authority or agency are
necessary for the execution, delivery or performance
by the Borrower of the Loan Documents or for the
validity or enforceability of any thereof, or for any
of the entities comprising the Borrower to consummate
the transactions contemplated hereby.
Section 1.7. Employee Benefit Plans. None of
the entities comprising the Borrower maintains any
employee defined benefit pension plan subject to the
Employee Retirement Income Security Act of 1974.
Section 1.8. Taxes, Etc. The Borrower, and the
general partner of each of the partnership entities
comprising the Borrower, have filed all United States
federal and state tax returns and all other material
tax returns that are required to be filed by each of
them and has paid all taxes due pursuant to such
returns or pursuant to any assessment received by the
Borrower, except such taxes, the payment of which is
not yet due, or which if due is not yet delinquent or
is being contested in good faith or which has not
been finally determined. The charges, accruals and
reserves on the books of the entities comprising the
Borrower in respect of taxes and other governmental
charges are, in the opinion of the entities
comprising the Borrower adequate in all material
respects.
Section 1.9. Structure and Ownership of the
Borrower. The entities comprising the Borrower are
related to one another as described on Exhibit "K"
hereto.
Section 1.10. Survival. All representations and
warranties made by the Borrower herein or made in any
certificate delivered pursuant hereto shall survive
the making of the Loan hereunder and the execution
and delivery to the Lender of the Notes
evidencing such Loan.
Section 2 Covenants of the Borrower.
Each Borrower agrees that from the date
hereof, until payment in full of the Loan, all
interest thereon and all other amounts payable by the
Borrower under the Loan Documents and all Letters of
Credit:
Section 1.1. Financial Statements, Etc. The
Borrower (for
purposes of this Section 5.1 unless otherwise
specified actions which the Borrower is required to
take will be taken by Washington Homes, Inc. on
behalf of all the entities comprising the Borrower)
shall deliver to the Lender:
(a) within 90 days of the end of each Fiscal
Year, (i) audited consolidated financial statements
of Washington Homes, Inc. and subsidiaries prepared
in accordance with generally accepted accounting
principles, consistently applied and certified by an
independent certified public accountant, to fairly
present the financial condition of the person to
which it relates;
(b) as soon as practicable after the end of each
fiscal year of each Borrower and in any event within
ten (10) days of the due date thereof (as the same
may have been extended), copies of the annual federal
tax returns of such entities;
(c) promptly after any Borrower knows or has
reason to know
that any Default has occurred, a notice of such
Default, describing the same in reasonable detail and
the steps such Person or its affiliates proposes to
take to cure such Default;
(d) monthly, a Borrowing Base Report;
(e) from time to time such other information
regarding the business, affairs or financial
condition of the Borrower as the Lender may
reasonably request; and
(f) within 45 days of the end of each of the
fiscal quarters (other than the final fiscal quarter
of each year) of WHI and its Consolidated
Subsidiaries, internally prepared financial
statements of WHI and its Consolidated Subsidiaries
prepared in accordance with generally accepted
accounting principles consistently applied and
certified by two officers of Washington Homes, Inc.
as complete, true and correct and to fairly present
the financial condition of the Borrower, or in lieu
thereof an SEC Form 10Q report filed quarterly on
behalf of Washington Homes, Inc. with the Securities
and Exchange Commission and presenting substantially
the same information as is required hereby.
The Borrower will furnish to the Lender, at
the time it furnishes each set of financial
statements and other documents pursuant to clauses
(a) and (f) above, a certificate of the Borrower to
the effect that to the best of the Borrower's
knowledge, no Default has occurred and is continuing
(or, if any Default has occurred and is continuing,
describing the same in
reasonable detail and describing the action the
Borrower proposes to take to cure the same).
Section 1.1. Disposition of Assets. The
Operating Companies will not sell or otherwise
transfer (in a single transaction or series of
related transactions) its assets, including the
Project or any contractual or other interest therein,
except the sale of Units (and Lots without Units, to
the extent permitted by the terms of the Loan
Documents in the ordinary course of business and
except for bulk sales, the net proceeds of which are
used solely to acquire substantially similar assets
or to repay corporate debt.
Section 1.2. Existence, Etc. Each Operating
Company shall: (a) preserve and maintain its
existence and all of its material rights and
privileges; (b) comply with the requirements of all
applicable laws, rules, regulations and orders of
governmental or regulatory authorities if failure to
comply with such requirements could materially and
adversely affect the financial condition or
operations, or the business, taken as a whole, of the
Borrower; (c) pay and discharge all taxes,
assessments and governmental charges or levies
imposed on it or its income or profits or any of its
property prior to the date on which penalties attach
thereto, except for any such tax, assessment, charge
or levy the payment of which is being contested in
good faith and by proper proceedings and with
security; (d) not suffer to occur any material
amendment to the organizational documents (which, in
the case of a limited partnership agreement, shall
not include assignment of a limited partnership
interest) without the Lender's consent, which shall
not be unreasonably withheld, and without at least
ten (10 ) days notice to the Lender before such
amendment is made and supplying the Lender with a
copy of the proposed amendment; and (e) keep, or
cause to be kept, insured by financially sound and
reputable insurers all property of a character
usually insured by business entities engaged in the
same or similar businesses similarly situated against
loss or damage of the kinds and in the amounts
customarily insured against by such business and
carry such other insurance as is consistent with the
requirements of the Deeds of Trust and is usually
carried by such businesses.
Section 1.3. Liens. No Operating Company will
create or suffer to be created or to exist any Lien
upon the any part of Project other than the Permitted
Liens. The Operating Companies shall continue to
obtain lien waivers from contractors and
subcontractors in accordance with its normal and
customary procedures in effect on the date hereof.
Section 1.4. Use of the Revolving Loan. The
Borrower shall use the proceeds of the Revolving Loan
only for the purpose of financing the acquisition,
construction and development of the Project
consistent with the Borrowing Base Report. All of
the entities comprising the Borrower other than the
Operating Companies (collectively, the "Non-Operating
Companies") acknowledge that funds advanced to the
Operating Companies directly benefit the Non-
Operating Companies since the Operating Companies
intend to use the proceeds to pay debts on behalf of
the Non-Operating Companies, and all funds advanced
to the Operating Companies on behalf of the Non-
Operating Companies will be deemed to have been
advanced directly to the Non-Operating Companies.
Section 1.5. Access. The Borrower will permit
any
W A S H I N G T O N H O M E S
-----------------------------------
1 9 9 7 A N N U A L R E P O R T
[PHOTO OMITTED]
<PAGE>
Washington Homes designs, builds, and markets
single-family detached homes and townhomes.
It is a leading provider of moderately-priced,
quality homes with 62 communities in five states.
Washington Homes is comprised of eight home-
building divisions: four in Maryland, Virginia, and
Pennsylvania, and four under the Westminster
Homes name in North Carolina and Tennessee.
The Company reached two significant bench-
marks in fiscal 1997--Westminster Homes cele-
brated its 30th anniversary and in June of 1997
Washington Homes delivered its 20,000th home.
[MAP OMITTED WITH STATES LISTED BELOW]
MARYLAND
PENNSYLVANIA
VIRGINIA
NORTH CAROLINA
TENNESSEE
<PAGE>
Washington Homes, Inc. Selected Financial Data
- --------------------------------------------------------------------------------
Years Ended July 31, In Thousands, Except Per Share Amounts and Number of Homes
<TABLE>
<CAPTION>
Statement of Operations 1997 1996 1995 1994 1993
- ----------------------- --------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total revenues $217,459 $175,025 $183,485 $143,240 $134,125
Gross profit 37,551 33,829 36,428 29,761 29,626
Earnings before interest and taxes* 10,782 11,240 13,520 10,006 14,722
Total interest and finance expense 5,836 4,771 4,921 2,874 3,219
Net earnings from operations* 2,878 3,747 5,045 4,426 7,006
Earnings per common share* 0.36 0.47 0.64 0.56 1.23
Dividends per common share -- -- 0.05 0.20 0.05
Selected Operating Data
- -----------------------
Number of homes delivered 1,315 1,087 1,167 991 960
Number of net new orders 1,305 1,127 1,124 1,024 1,009
Number of homes in backlog at end of period 591 601 561 604 571
Balance Sheet Data
- ------------------
Cash $ 10,313 $ 15,384 $ 15,111 $ 20,076 $ 22,882
Residential inventories 111,520 125,033 119,652 118,379 69,162
Total assets 142,842 170,227 164,063 166,025 116,226
Notes and loans payable 65,569 74,282 72,608 76,832 29,280
Shareholders' equity $ 54,480 $ 67,769 $ 64,022 $ 59,374 $ 56,536
</TABLE>
Earnings Before
Total Revenues Interest and Taxes* Shareholders' Equity
- ---------------------- ------------------------ ----------------------
In Millions of Dollars In Millions at Dollars In Millions of Dollars
[THREE GRAPHS OMITTED]
* Presented on a pro-forma basis to exclude the $19.1 million pre-tax,
non-cash charge for impairment of long-lived assets recorded in the third
quarter of fiscal 1997. For further discussion of the non-cash charge, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the accompanying consolidated financial statements and
notes thereto.
1
<PAGE>
L E T T E R T O S H A R E H O L D E R S
- --------------------------------------------------------------------------------
Dear Fellow Shareholders:
Fiscal 1997 was a year in which Washington Homes positioned itself to maximize
its long-term potential. I am pleased to report, the Company achieved record
levels of revenues, deliveries, and net new orders. Total revenues increased 24%
to $217.5 million, deliveries increased 21% to 1,315 homes, and net new orders
increased 16% to 1,305 orders in the year. The gross margin, however, decreased
from 20.0% to 17.9% due to our previously announced Washington inventory
turnover strategy, initial closings in the expansion cities, and reduced margins
in our existing North Carolina markets. Gross margins in the fourth quarter
increased to 18.1% compared with 17.9% and 16.8% in the second and third
quarters, which would indicate that margins are stabilizing going forward.
Results by Market
- -----------------
Deliveries in the Washington market increased 14% while net new orders were up
10% over fiscal 1996. With more than 25,000 new home starts last year,
Washington remains the fourth largest market in the United States. We look to
take advantage of more than 50,000 new jobs created in the past twelve months,
primarily in the technology sector of northern Virginia, by expanding our
presence in the northern Virginia market.
Deliveries and net new orders in our existing North Carolina markets of Raleigh
and Greensboro decreased 7%, year-over-year. The declines were a result of
delays in development, which strained an already tight labor market. In the past
several months, we have reallocated management resources from other areas of the
Company to expand our subcontractor base, as well as introduce new suppliers to
the market.
Expansion Markets
- -----------------
Despite achieving our anticipated delivery volume in our three expansion
markets, we sustained an operating loss due to costs associated with opening an
additional six communities and introductory pricing needed to generate
momentum. Going forward, we expect that increased volume and better margins in
these cities will positively affect our 1998 results.
Significant Events
- ------------------
As previously reported, our successful inventory turnover strategy, adopted in
the summer of 1996, resulted in lower gross margin levels. The adoption of FASB
121, coupled with lower margins, forced the Company to re-evaluate the carrying
value of its land inventory. As a result, we took a $9 million after-tax,
non-cash charge to inventory. The Company also re-evaluated the goodwill
established with the 1988 acquisition of Washington Homes, and consequently
reduced the goodwill from $16 million to $6 million.
In the third quarter, the Company reached an agreement with the Internal Revenue
Service on all previously announced, outstanding tax issues. As as result of the
settlement, the Company recorded an extraordinary loss of $390,000 or $0.05 per
share.
Inventory Turnover
- ------------------
We were successful in reducing our overall inventory levels during the year,
albeit at
2
<PAGE>
lower margins. Our inventory of land, both finished and unfinished, was reduced
by $19 million during fiscal 1997. The reduction consisted, in part, of $7
million from land sales and $9 million in inventory adjustments. The benefit of
reduced land inventory allowed the Company to reduce its debt by $9 million. In
the future, we look to allocate capital for inventory among our eight
homebuilding operations based on the highest level of returns.
Capital Availability
- --------------------
At year-end, the Company signed a new $70 million credit agreement with First
Union National Bank replacing $49 million of credit lines with several lenders.
This new facility lowered our cost of funds and reduced the costs associated
with administering the facility. It provides a significant portion of the
financial capacity needed to meet our strategic growth objectives over the next
few years. This facility is in addition to the Company's $43 million Senior
Notes, which were issued in April 1994 with principal curtailments beginning in
October 1998.
Strategic Alliances
- -------------------
We have entered into strategic alliances with many of our vendors, including
General Electric, Progress Lighting, Timberlake Cabinets, and Jacuzzi. Most of
these alliances involve comprehensive agreements under which the vendors not
only supply and deliver their products, but also install them in each house. Our
agreements provide for quality assurance, on-time delivery, ease in scheduling,
solid warranties, rebates, and reductions in cost for Washington Homes. Our size
gives us national purchasing power with the benefit of
[PHOTO OMITTED]
Geaton A. DeCesaris, Sr.
Chairman of the Board
[PHOTO OMITTED]
Geaton A. DeCesaris, Jr.
President and
Chief Executive Officer
3
<PAGE>
R E L A T I O N S H I P S
- ---------------------------------------------
Our agreements provide for quality assurance,
on-time delivery, ease in scheduling, solid
warranties, rebates, and reductions in cost.
- ---------------------------------------------
volume discounts and local distribution. This program is well underway in our
Washington market and in process in North Carolina and our expansion cities.
This fall, we are designing a new, value-engineered product line that will help
reduce construction costs and increase margins, allowing us to be more
competitive, while passing savings on to our customers. We are including our
major suppliers in the process in order to benefit from their product specific
expertise.
Ancillary Businesses
- --------------------
As expected, all of our ancillary businesses contributed to our overall
profitability in fiscal 1997. Our mortgage subsidiary, Homebuyer's Mortgage,
closed 45% of our loans in Washington and 35% in North Carolina. Our title
company, New Homebuyer's Title, closed 98% of our homes in Maryland and
Virginia, an increase of 150 closings over the prior year period. Although not a
separate profit center, the Design Showcase continued to provide our Maryland
customers with a comfortable, warm environment to select their options away from
the buzz of activity in our sales centers. This high-traffic retail center
provides greater visibility and attracts a wider audience, outside the typical
real estate environment. All these services provide a "one-stop shopping"
experience for our customers, further
[PHOTO OMITTED]
4
<PAGE>
[PHOTO OMITTED]
Strengthening strategic alliances has been a major focus of
fiscal year 1997. Our size gives us national purchasing
power. Expanding the use of panelization throughout the
Company is an example of how Washington Homes is reducing
the building-cycle time and incorporating its cost saving
technology Company-wide.
5
<PAGE>
M A N A G E M E N T
- --------------------------------------------
Our corporate and divisional management team
members average more than fifteen years
of industry experience, including ten years
with Washington Homes.
- --------------------------------------------
[PHOTO OMITTED]
distinguishing Washington Homes from other homebuilders.
Experienced Management
- ----------------------
As the Company continued to expand outside our core Washington market, we
recognized the need to further strengthen our management team. In July, Thomas
J. Pellerito joined us in the newly created position of President--Homebuilding
Operations and as Chief Operating Officer. Tom came to us with more than
eighteen years' experience in the homebuilding industry and has headed
homebuilding operations that have delivered over 12,000 new homes, primarily in
the Washington, D.C. market. In August, we hired Robert Hutson to head our
Raleigh division and to eventually oversee all of our homebuilding operations at
Westminster Homes. Robert came to us after heading a Florida division that
delivered over 800 homes annually for a national builder. Tom and Robert joined
our corporate and divisional management team whose members average more than
fifteen years of industry experience, including ten years with Washington Homes.
In addition to working with Tom, I expect to spend more time in our North
Carolina operations and will be concentrating on increasing the profitability of
our ancillary businesses and other activities that will maximize shareholder
value.
6
<PAGE>
In conjunction with its expansion into new markets, the
Company has added management talent, which strengthens an
already experienced team. Executive management is involved
in key divisional strategic decisions, such as capital
allocation and land acquisition.
[PHOTO OMITTED]
7
<PAGE>
G R O W T H
- ---------------------------------------------
Our goal is to become one of the nation's top
twenty-five homebuilders.
- ---------------------------------------------
[PHOTO OMITTED]
Washington Homes' Mission Statement: "We are people working
as a team proudly committed to building affordable homes of
quality and value, while serving our community and achieving
a superior performance for our investors."
Looking Ahead
- -------------
With our 1996 expansion markets now fully operational, we believe we are on
track to meet our objective to become one of the nation's top twenty-five
homebuilders. Our gross margins stabilized in the fourth quarter and we expect
gross margins to remain relatively stable throughout the year. We are focused on
increasing efficiencies and growing our existing markets. Additionally, we are
reviewing opportunities in several markets that fit into our long-term plan, and
if the right situation presents itself, we would consider a new market entry.
In summation, our short- and mid-term objectives are to centralize the
purchasing process, increase the profitability of the expansion cities,
value-engineer our product line, increase absorptions, and reduce the
building-cycle time. We hope to look back on 1997 as a year in which we
strengthened our core to achieve these objectives.
In closing, I would like to thank all of our employees, shareholders,
suppliers, and vendors for their unwavering support and belief in Washington
Homes. We look forward to all of you being a part of our success in 1998 and
beyond.
/s/ Geaton A. DeCesaris, Jr.
Geaton A. DeCesaris, Jr.
President and Chief Executive Officer
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Results of Operations
- ---------------------
The following tables present certain information regarding the Company's
operations for the last three fiscal years (dollars in thousands):
1997 1996 1995
- --------------------------------------------------------------------------------
Revenues:
Homebuilding $206,576 $167,821 $176,609
Land 7,958 5,145 5,398
Other 2,925 2,059 1,478
------------------------------------------------
Total $217,459 $175,025 $183,485
------------------------------------------------
Homes delivered 1,315 1,087 1,167
Net new orders 1,305 1,127 1,124
Homes in backlog at end
of period 591 601 561
Sales value of backlog $ 96,343 $ 97,625 $ 91,062
------------------------------------------------
Annual Operating Cycle
- ----------------------
The homebuilding industry in general, and the operations of the Company, are
seasonal in nature. The number of new sales contracts signed escalates from
January through April, compared to the balance of the year. Deliveries peak in
the fiscal quarter ended July 31, as a substantial portion of homes contracted
during the fiscal quarter ended April 30 are delivered. Delivery volume is
relatively constant during the remainder of the year. As a result of increased
deliveries and reduced selling, general and administrative costs as a percent of
revenues, net earnings are substantially greater in the fourth quarter, compared
to the prior three quarters.
The following table contains quarterly operating information for the Company's
last two fiscal years and illustrates the annual operating cycle (in thousands
except per share amounts and number of homes):
Three Months Ended
- --------------------------------------------------------------------------------
October 31, January 31, April 30, July 31,
1996 1997 1997 1997
- --------------------------------------------------------------------------------
Number of homes
delivered 281 298 258 478
Net new orders 327 312 438 228
Total revenues $46,662 $48,681 $ 42,801 $79,316
Gross profit from
homebuilding $ 8,067 $ 8,308 $ 6,966 $13,536
Net earnings (loss)* $ 931 $ 655 $(16,834) $ 1,960
Net earnings (loss)
per share, based
on 7,942,763
shares* $ 0.12 $ 0.08 $ (2.12) $ 0.25
-----------------------------------------------------
* The quarter ended April 30, 1997 includes an after-tax, non-cash charge of
$15.8 million for the write-down of goodwill and certain land inventory and
an extraordinary loss of $390,000 from an IRS settlement.
- --------------------------------------------------------------------------------
October 31, January 31, April 30, July 31,
1995 1996 1996 1996
- --------------------------------------------------------------------------------
Number of homes
delivered 246 219 245 377
Net new orders 251 218 410 248
Total revenues $37,827 $34,882 $39,404 $62,911
Gross profit from
homebuilding $ 7,550 $ 6,981 $ 7,278 $11,737
Net earnings $ 710 $ 385 $ 614 $ 2,037
Net earnings per
share, based on
7,942,763 shares $ .09 $ .05 $ .08 $ .26
-----------------------------------------------------
<PAGE>
Product Mix
- -----------
Since the spring of 1994, the Company has expanded into markets in North
Carolina and Tennessee. This expansion is in part responsible for a shift in the
Company's product mix to more detached homes. The following table sets forth a
breakdown of the Company's deliveries by housing type in each of the last three
fiscal years:
1997 1996 1995
- -----------------------------------------------------------------
Detached 890 668 602
Attached 425 419 565
---------------------------------------
Total 1,315 1,087 1,167
---------------------------------------
Geographic Concentration
- ------------------------
During the last three fiscal years the Company has built moderately priced,
quality homes in the metropolitan areas of Washington, DC-Baltimore, Maryland,
Raleigh and Greensboro, North Carolina and Pittsburgh, Pennsylvania. In fiscal
1996, the Company commenced operations in the Charlotte, North Carolina and
Nashville, Tennessee markets. The following tables describe the Company's
operations in each of its markets during the last three fiscal years:
1997 1996 1995
- --------------------------------------------------------------------
Net New Orders
Washington-Baltimore 730 664 750
North Carolina 454 409 354
Pittsburgh 55 33 20
Nashville 66 21 --
---------------------------------------
Total Net New Orders 1,305 1,127 1,124
---------------------------------------
1997 1996 1995
- --------------------------------------------------------------------
Homes Delivered
Washington-Baltimore 775 677 857
North Carolina 420 382 287
Pittsburgh 53 24 23
Nashville 67 4 --
---------------------------------------
Total Deliveries 1,315 1,087 1,167
---------------------------------------
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- ---------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------
Backlog of Sold Homes
Washington-Baltimore 366 411 424
North Carolina 185 151 124
Pittsburgh 24 22 13
Nashville 16 17 --
---------------------------------------
Total Backlog 591 601 561
---------------------------------------
1997 1996 1995
- --------------------------------------------------------------------
Active Communities
Washington-Baltimore 30 33 44
North Carolina 23 18 13
Pittsburgh 5 3 1
Nashville 4 5 --
---------------------------------------
Total Active Communities 62 59 58
---------------------------------------
Year Ended July 31, 1997 Compared to Year Ended July 31, 1996
- -------------------------------------------------------------
Total revenues increased by 24.3% to $217.5 million in Fiscal 1997 from $175.0
million in Fiscal 1996, as the number of homes delivered increased by 21.0% to
1,315 units from 1,087 units. The average sales price of homes delivered in
Fiscal 1997 increased to $157,100 from $154,400. Deliveries in the existing
North Carolina markets declined by 5.3%, but were offset by growth in the new
markets (Charlotte, Nashville, Pittsburgh) and a 14.5% increase in the
Washington market.
The gross profit margin as a percentage of homebuilding revenues decreased to
17.9% in fiscal 1997 from 20.0% largely due to the competitive Washington
market, the Company's strategy to increase inventory turnover, lower margins on
initial closings in our expansion cities, and reduced margins in our existing
North Carolina markets.
Total selling, general, and administrative expenses increased to $29.1 million
in fiscal 1997 from $23.9 million in the prior year due to increased volume,
expanded number of division operations, and the growth of the Company's mortgage
subsidiary. However, selling, general, and administrative expenses as a
percentage of homebuilding revenues decreased to 14.1% in fiscal 1997 from 14.2%
in fiscal 1996.
Interest and financing expenses increased to $5.8 million in fiscal 1997 from
$4.8 million but remained constant at 2.8% as a percentage of homebuilding
revenues.
Gross profit from land sales increased in 1997 to $673,000 from $282,000 in
fiscal 1996.
In fiscal 1997, the Company reported earnings from operations before non-cash
charges and extraordinary items of $2.9 million, or $0.36 per share, as compared
to $3.7 million, or $0.47 per share, in fiscal 1996. During fiscal 1997, the
Company recorded an after-tax, non-cash charge of $15.8 million for the
write-down of goodwill and certain land inventory in suburban Maryland, and an
extraordinary loss of $390,000 from an IRS settlement. As a result, the Company
reported a net loss of $13.3 million or $1.67 per share for the year.
Year Ended July 31, 1996 Compared to Year Ended July 31, 1995
- -------------------------------------------------------------
Total revenues decreased by 4.6% to $175.0 million in fiscal 1996 from $183.5
million in fiscal 1995 as the number of homes delivered decreased by 6.9% to
1,087 units from 1,167. The fiscal 1996 decrease was partially offset by an
increase in the average sales price of homes delivered to $154,400 from
$151,300. Deliveries in the Washington market declined by 21.0%, offset by a
33.1% increase in North Carolina.
The gross profit margin as a percentage of homebuilding revenues increased to
20.0% in fiscal 1996 from 19.8% largely due to higher deliveries in the North
Carolina markets where higher margins were achieved.
Total selling, general and administrative expenses were relatively constant at
$23.9 million in fiscal 1996 as compared to $23.5 million in the prior year.
Selling, general and administrative expenses as a percentage of homebuilding
revenues increased to 14.2% in fiscal 1996 from 13.3% in fiscal 1995 as a result
of lower delivery volume.
10
<PAGE>
Interest and financing expenses were relatively constant at $4.8 million in
fiscal 1996 compared to $4.9 million in the prior year.
Gross profit from land sales were lower in 1996 at $282,000 from $1.5 million in
fiscal 1995.
Net earnings decreased by 26% to $3.7 million in fiscal 1996 from $5.0 million
in fiscal 1995 due to the decreased number of home deliveries and lower profits
from land sales.
Capital Resources and Liquidity
- -------------------------------
Funding for the Company's residential building and land development activities
is provided principally by cash flows from homebuilding operations and borrowing
from banks and other financial institutions. The Company's capital needs depend
upon its sales volume, asset turnover, land purchases and inventory levels.
At July 31, 1997, the Company had cash and cash equivalents of $10.3 million, of
which $118,000 was restricted to collateralize deposits and escrows. The
remaining $10.2 million was available to the Company.
In April 1994, the Company issued $43,000,000 principal amount of Senior Notes
due October 2000. Two series of Senior Notes were issued: $30.0 million with a
fixed rate of 8.61% per annum and $13.0 million with a floating rate of LIBOR
plus 2.4%. The notes are to be repaid in three equal annual principal
installments commencing in October 1998.
In July 1997, the Company obtained a new $70 million revolving credit facility
replacing two credit facilities totaling $49 million. The new facility provides
funding for land acquisition and home construction, letters of credit, and the
initial principal payment on the Senior Notes. At July 31, 1997, $19.5 million
was outstanding. Borrowings under the facility bear interest at LIBOR plus 1.55%
or 1.75%, depending on the type of collateral and are secured by the related
inventory.
In addition to the Senior Notes and revolving credit facility, the Company has
loans with various lenders providing $5.2 million for land acquisition,
development and home construction. These loans bear interest at fixed rates
ranging from 8% to 10% or variable rates ranging from prime to prime plus 1%
with maturities ranging from the date of lot recordation through December 1999.
At July 31, 1997, in the aggregate, the Company had $103.2 million in borrowing
availability of which $34.4 million was available. During fiscal 1997, the
Company's average interest rate was 8.2%.
The Company participates in two joint ventures formed to develop residential
land into finished building lots for sale to the Company and other homebuilders
utilizing non-recourse acquisition and development loans. In one of the joint
ventures, in April 1995, the Company contributed land with a book value of $9.6
million and the Company has received cash proceeds to date of $7.4 million which
was used to reduce outstanding amounts under revolving credit facilities.
The Company believes that it will be able to fund its activities for the
foreseeable future through a combination of operating cash flow, existing cash
balances and existing facilities. Except for ordinary expenditures for the
construction of homes and acquisition and development of land, the Company does
not have any material commitments for capital expenditures at the present time.
Safe Harbor Statement
- ---------------------
Certain statements in the Company's Form 10-K, this Annual Report to
Shareholders, as well as statements made by the Company in periodic press
releases, oral statements made by the Company's officials to analysts and
shareholders in the course of presentations about the Company and conference
calls following the quarterly earnings releases, may be construed as
"Forward-Looking Statements" as defined in the Private Securities Litigation
Reform Act of 1995 (the "Reform Act"). Such statements may involve unstated
risks, uncertainties and other factors that may cause actual results to differ
materially. Such risks, uncertainties and other factors include, but are not
limited to, changes in general economic condition; fluctuations in interest
rates; increases in costs of materials, supplies and labor; and general
competitive conditions.
11
<PAGE>
C O N S O L I D A T E D B A L A N C E S H E E T S
- -----------------------------------------------------
July 31,
-------------------
(Dollars in thousands) 1997 1996
- --------------------------------------------------------------------------------
Assets
Cash and cash equivalents $ 10,313 $ 15,384
Residential inventories 111,520 125,033
Excess of cost over net assets acquired, net 6,216 16,553
Investment in joint ventures 3,058 2,751
Other 11,735 10,506
-------------------
Total Assets $142,842 $170,227
-------------------
Liabilities and Shareholders' Equity
Liabilities
Notes and loans payable $ 65,569 $ 74,282
Trade accounts payable 16,231 17,572
Income taxes payable 137 408
Deferred income taxes 1,919 5,233
Other 4,506 4,963
-------------------
Total liabilities 88,362 102,458
-------------------
Commitments and contingent liabilities
Shareholders' equity:
Common stock $.01 par value; 15,000,000 shares authorized;
7,015,025 and 7,000,000 shares issued and outstanding 70 70
Non-voting common stock, 1,100,000 shares authorized;
927,738 and 942,763 shares issued and outstanding 9 9
Additional paid-in capital 35,147 35,147
Retained earnings 19,254 32,543
-------------------
Total shareholders' equity 54,480 67,769
-------------------
Total Liabilities and Shareholders' Equity $142,842 $170,227
-------------------
See Accompanying Notes to Consolidated Financial Statements.
12
<PAGE>
C O N S O L I D A T E D S T A T E M E N T S O F O P E R A T I O N S
-------------------------------------------------------------------------
Year Ended July 31,
----------------------------------
(In thousands except per share amounts) 1997 1996 1995
- --------------------------------------------------------------------------------
Revenues:
Homebuilding $206,576 $167,821 $176,609
Land sales 7,958 5,145 5,398
Other income 2,925 2,059 1,478
----------------------------------
Total revenues 217,459 175,025 183,485
----------------------------------
Expenses:
Cost of sales--homebuilding 169,698 134,274 141,656
Cost of sales--land sales 7,285 4,863 3,923
Cost of sales--impairment loss 9,200 -- --
Selling, general, and administrative 29,078 23,885 23,475
Interest expense 5,059 3,975 4,185
Financing fees 777 796 736
Write-down in carrying value of goodwill 9,981 -- --
Amortization and depreciation 616 763 912
----------------------------------
Total expenses 231,694 168,556 174,887
----------------------------------
Earnings (Loss) Before Income Taxes (14,235) 6,469 8,598
Income tax expense (benefit) (1,336) 2,722 3,553
----------------------------------
Earnings (Loss) Before Extraordinary Item (12,899) 3,747 5,045
Extraordinary loss--IRS settlement (390) -- --
----------------------------------
Net Earnings (Loss) $(13,289) $ 3,747 $ 5,045
----------------------------------
Earnings (Loss) Per Common Share Before
Extraordinary Item $ (1.62) $ 0.47 $ 0.64
----------------------------------
Earnings (Loss) Per Common Share $ (1.67) $ 0.47 $ 0.64
----------------------------------
C O N S O L I D A T E D S T A T E M E N T S
O F S H A R E H O L D E R S ' E Q U I T Y
---------------------------------------------
Years Ended July 31, 1997, 1996 and 1995 (in thousands)
- --------------------------------------------------------------------------------
Common Stock Additional Total Total
------------------------ Paid-in Retained Shareholders'
Shares Voting Non-voting Capital Earnings Equity
- --------------------------------------------------------------------------------
Balance, August 1, 1994 7,943 $70 $9 $35,147 $ 24,148 $ 59,374
Dividends -- -- -- -- (397) (397)
Net earnings -- -- -- -- 5,045 5,045
---------------------------------------------------------
Balance, July 31, 1995 7,943 70 9 35,147 28,796 64,022
Net earnings -- -- -- -- 3,747 3,747
---------------------------------------------------------
Balance, July 31, 1996 7,943 70 9 35,147 32,543 67,769
Net earnings (loss) -- -- -- -- (13,289) (13,289)
---------------------------------------------------------
Balance, July 31, 1997 7,943 $70 $9 $35,147 $ 19,254 $ 54,480
---------------------------------------------------------
See Accompanying Notes to Consolidated Financial Statements.
13
<PAGE>
C O N S O L I D A T E D S T A T E M E N T S O F C A S H F L O W S
- -------------------------------------------------------------------------
Year Ended July 31,
------------------------------
(In thousands) 1997 1996 1995
- -------------------------------------------------------------------------------
Cash Flows From Operating Activities:
Net earnings (loss) $(13,289) $ 3,747 $ 5,045
Adjustments to reconcile net earnings (loss)
to net cash provided by (used in) operating
activities:
Amortization and depreciation 616 763 912
Deferred income taxes (3,314) 22 (1,374)
Write-down of goodwill 9,981 -- --
Impairment loss 9,200 -- --
Changes in assets and liabilities:
Residential inventories 4,313 (5,382) (10,838)
Other assets (1,421) (535) (447)
Trade accounts payable (1,341) 638 301
Income taxes payable (271) (298) (639)
Other liabilities (457) 381 (674)
------------------------------
Net cash provided by (used in) operating
activities 4,017 (664) (7,714)
Cash Flows From Investing Activities:
Purchases of property and equipment, net
of disposals (68) (262) (40)
Proceeds from (investment in) joint venture (307) (475) 7,410
------------------------------
Net cash provided by (used in) investing
activities (375) (737) 7,370
Cash Flows From Financing Activities:
Proceeds from notes and loans payable 120,442 103,917 81,469
Repayments of notes and loans payable (129,155) (102,243) (85,693)
Dividends paid -- -- (397)
------------------------------
Net cash provided by (used in) financing
activities (8,713) 1,674 (4,621)
------------------------------
Net Increase (Decrease) In Cash And Cash
Equivalents (5,071) 273 (4,965)
Cash And Cash Equivalents, Beginning Of Year 15,384 15,111 20,076
------------------------------
Cash And Cash Equivalents, End Of Year $ 10,313 $ 15,384 $ 15,111
------------------------------
See Accompanying Notes to Consolidated Financial Statements.
14
<PAGE>
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Y E A R S E N D E D J U L Y 3 1 , 1 9 9 7 , 1 9 9 6 A N D 1 9 9 5
-------------------------------------------------------------------------------
1. Summary of Significant Accounting Policies
- ---------------------------------------------
Organization. The Company is principally engaged in the business of the
construction and sale of moderately priced, quality residential housing in the
states of Maryland, North Carolina, Virginia, Pennsylvania, and Tennessee.
Generally, construction is not commenced until the Company has entered into a
sales contract with a customer. Homes are built on land that has been developed
by the Company or others.
Basis of Presentation. The consolidated financial statements include the
accounts of Washington Homes, Inc. and its wholly-owned subsidiaries
(collectively, the "Company"). All significant intercompany balances and
transactions have been eliminated in consolidation. The Company's investment in
joint ventures is accounted for using the equity method.
Use of Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents. For purposes of the statements of cash flows, the
Company considers its cash, including temporary investments with original
maturities of three months or less, to be cash equivalents. Included in these
amounts at July 31, 1997 and 1996 were $118,000 and $600,000, respectively, that
are restricted to collateralize certain obligations of the Company.
Excess of Cost Over Net Assets Acquired, Net. Excess of cost over net assets
acquired (goodwill) represents the excess of purchase price over the fair value
of assets acquired less any write down to fair value and is being amortized over
a 40-year period. The Company annually reviews its goodwill recoverability by
assessing historical profitability and expectations as to future nondiscounted
cash flows and net income. Based upon its most recent analysis of the market
potential associated with the goodwill, the Company wrote down to fair value the
carrying value of goodwill by $10.0 million during fiscal 1997.
Warranties. The Company records an accrual at the date of closing for future
warranty costs based upon the relationship of historical homebuilding revenues
to actual warranty costs.
Income Taxes. The Company accounts for income taxes in accordance with the
provisions of Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes." Deferred income taxes are provided for temporary differences
in the recognition of certain income and expenses for financial and tax
reporting purposes.
Revenue Recognition. Homebuilding revenues and land sales are recorded at the
date of closing with the purchaser.
Earnings Per Common Share. Earnings per common share are based on the weighted
average number of common shares outstanding during each period. The weighted
average number of common and common equivalent shares outstanding was 7,943,000
for the years ended July 31, 1997, 1996 and 1995. Common stock equivalents for
stock options have not been included because the effect would be antidilutive.
Statement of Financial Accounting Standards No. 128, Earnings Per Share ("SFAS
No. 128") was issued in February 1997 by the Financial Accounting Standards
Board. SFAS No. 128 is effective for periods ending after December 15, 1997 and
early adoption is not permitted. SFAS No. 128 will require the Company to
compute and present basic and diluted earnings per share. Had the Company
computed net earnings per share in accordance with SFAS No. 128, both basic and
diluted earnings per share would have been the same as earnings per share
presented in the Company's consolidated statements of operations.
Recent Accounting Pronouncements. Effective for fiscal 1997, the Company adopted
SFAS No. 123, "Accounting for Stock-Based Compensation," and, as permitted by
this standard, will continue to apply the recognition and measurement principles
of Accounting Principles Board Opinion No. 25 to its stock options. This
statement requires footnote disclosure of the pro forma impact on net income and
earnings per share of the compensation cost that would have been recognized if
the fair value of all stock-based awards was recorded in the statements of
operations (see Note 5).
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information." As
specified by this statement, the Company will apply this statement beginning in
fiscal 1999 and reclassify its financial statements for earlier periods provided
for comparative purposes.
SFAS 131 establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. This statement supersedes FASB Statement
No. 14, "Financial Reporting for Segments of a Business Enterprise," but retains
the requirement to report information about major customers.
15
<PAGE>
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Y E A R S E N D E D J U L Y 3 1 , 1 9 9 7 , 1 9 9 6 A N D 1 9 9 5
- -------------------------------------------------------------------------------
It amends FASB No. 94, "Consolidation of All Majority-Owned Subsidiaries," to
remove the special disclosure requirements for previously unconsolidated
subsidiaries.
At this point, the Company has not determined the impact of adopting SFAS No.
131.
2. Residential Inventories
- --------------------------
Homes in process are stated at cost (determined by accumulating actual costs,
including construction, interest and related overhead costs), which is not in
excess of market. Finished building lots represents the cost, which is not in
excess of market, of finished lots developed by the Company or acquired from
other developers. Upon delivery, the costs of the homes and related lots are
expensed on a specific identification basis. Land under development consists of
land being developed into finished building lots. Certain costs, including
interest, are capitalized as incurred during the development process. The
Company's inventory consists of the following:
July 31,
--------------------------
(in thousands) 1997 1996
- -----------------------------------------------------------------
Homes in process $ 41,389 $ 36,168
Finished lots 40,560 43,304
Land under development 29,571 45,561
--------------------------
$111,520 $125,033
--------------------------
In the first quarter of fiscal 1997, the Company adopted FASB Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of," which, among other things, requires impairment losses to be
recorded on long-lived assets that are expected to be disposed of when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount. Based
on a review of long-lived assets during the third quarter of fiscal year 1997,
the Company wrote down to fair value, determined based on the present value of
expected future cash flows, the carrying value of certain land inventory by $9.2
million.
A significant portion of the land inventory write-down was attributable to two
long-term development projects in suburban Maryland. The remainder of the
writedown related to six close-out and three condominium communities. The
Company has made a decision to phase out its condominium operations which have
had results well below management's expectations.
3. Investment In Joint Ventures
- -------------------------------
The Company participates in two joint ventures formed to develop residential
land into finished building lots for sale to the Company and other homebuilders
utilizing non-recourse acquisition and development loans. In forming one of the
joint ventures in April 1995, land with a book value of $9.6 million was
contributed by the Company for which it received cash proceeds of $7.4 million
which were used to reduce outstanding amounts under Revolving Credit Facilities
(see Note 4). The Company's interest in the joint ventures operating results
has not been significant to date.
4. Notes and Loans Payable
- --------------------------
Notes and loans payable consist of the following:
July 31,
--------------------------
(in thousands) 1997 1996
- -----------------------------------------------------------------
Senior notes $43,000 $43,000
Revolving credit and term facility 19,455 22,852
acquisition, development and
construction loans 3,034 8,268
Mortgages and other notes payable 80 162
--------------------------
$65,569 $74,282
--------------------------
Senior Notes. In April 1994, the Company issued $43,000,000 principal amount of
unsecured Senior Notes due October 2000. Two series of Senior Notes were issued:
$30,000,000 with a fixed rate of 8.61% per annum, with interest payable
semi-annually beginning in October 1994 and $13,000,000 with a floating rate of
three or six-month LIBOR (5.844% at July 31, 1997) plus 2.4%, with interest
payable beginning October 1994 and either quarterly or semi-annually thereafter
at the option of the Company. Principal repayments are due in three equal annual
installments commencing October 1998.
Revolving Credit and Term Facility. At July 31, 1997, the Company had a $70.0
million facility to fund land acquisition and home construction, letters of
credit, and the initial payment of the senior notes.
The facility has a maturity date (which may be extended) of October 30, 1999. At
July 31, 1997, $19.5 million was outstanding. Borrowings under the facility bear
interest at thirty-day LIBOR (5.625% at July 31, 1997) plus either 1.55% or
1.75%, depending on the type of collateral and is secured by the related
inventory.
16
<PAGE>
The senior notes and revolving credit agreements require the Company to meet net
worth, leverage, and cash flow coverage tests and place limitations on
dividends, the securing of additional loans, investments, and finished lot
purchases. These provisions do not significantly restrict the Company's
operations.
Acquisition, Development, and Construction Loans. The Company has loans with
various lenders for acquisition, development, and construction amounting to
$3,034,000 and $8,268,000 at July 31, 1997 and 1996, respectively. These loans
bear interest at fixed rates ranging from 8% to 10% or variable rates of prime
to prime plus 1% and are collateralized by the related inventory.
Mortgages and Other Notes Payable. Mortgages and other notes payable, amounting
to approximately $80,000 and $162,000 at July 31, 1997 and 1996 respectively,
bear interest at rates ranging from 4.9% to 15% and mature in varying periods of
up to 13 years.
Future maturities of various notes and loans payable are as follows:
For the year ending July 31, (in thousands)
- --------------------------------------------------------------
1998 $ 1,119
1999 14,510
2000 35,607
2001 14,333
-------
$65,569
-------
The carrying amounts reported above for $13,000,000 of the senior notes, the
revolving credit facility and the land acquisition and development loans
approximate their fair value based upon the indebtedness having, for the most
part, short-term maturities and variable interest rates. The fair value of the
remaining $30,000,000 of senior notes is estimated to be $30,115,000 based upon
debt with interest rates currently available and similar terms and remaining
maturities.
Capitalized Interest. A summary of capitalized interest follows:
Year Ended July 31,
------------------------------------------
(In thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
Interest capitalized $1,454 $2,728 $3,167
Interest expense 5,059 3,975 4,185
Interest incurred 6,513 6,703 7,352
Interest paid 6,886 6,643 7,073
Interest in cost of sales 2,108 1,561 1,201
------------------------------------------
5. Shareholders' Equity
- -----------------------
Common Stock. The Company has 7,942,763 shares of Common Stock outstanding at
July 31, 1997, of which 7,015,025 shares are voting and 927,738 shares are
non-voting.
Stock Options. The Company has adopted two plans for the issuance of stock
options to its employees and members of its Board of Directors, respectively.
On September 17, 1992, the Company adopted the Washington Homes Stock Option
Plan (the "Employee Option Plan") pursuant to which options for up to 500,000
shares of Common Stock can be granted to officers and other key employees of the
Company. Options granted under the Employee Option Plan can be either incentive
stock options ("Incentive Stock Options") or non-qualified options
("Non-Qualified Options") as determined by a committee of the independent
directors of the Board of Directors. Options granted under the Employee Option
Plan will have an exercise price not less than fair market value at date of
grant.
Options will become exercisable, in part, after 12 months from the date of grant
and will generally remain exercisable for ten years from the date of grant.
<PAGE>
In September, 1996, options for 47,000 shares at $9.00 were exchanged for 47,000
shares at $3.69.
Number Option
of Shares Price
- --------------------------------------------------------------------------------
Outstanding at July 31, 1994 157,000 $9.00
Granted 153,500 $5.25
Canceled 133,500 $5.25- 9.00
Exercised -- --
---------------------------
Outstanding at July 31, 1995 177,000 $5.25- 9.00
Granted 173,000 $4.75- 5.50
Canceled 18,000 $4.87- 9.00
Exercised -- --
---------------------------
Outstanding at July 31, 1996 332,000 $4.75- 9.00
Granted 189,000 $3.69- 5.50
Canceled 89,000 $3.57- 5.50
Exercised -- --
---------------------------
Outstanding at July 31, 1997 432,000 $3.69- 5.50
Exercisable at July 31, 1997 86,250 $4.87- 5.50
---------------------------
At July 31, 1997, there were 68,000 shares reserved for future grants.
On September 15, 1994 the Company adopted the Washington Homes Non-Employee
Directors' Stock Option Plan pursuant to which options for up to 30,000 shares
of Common Stock can be granted to directors who are not employees of the Company
or its subsidiaries. Options that are Non-Qualified Options, are not exercisable
for one year and then can be exercised over a three-year period. During the year
ended July 31, 1997, options for 9,000 shares were granted at $3.69 per share.
During the year ended July 31, 1996 options for 6,000 shares were granted at
$6.00 per
17
<PAGE>
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Y E A R S E N D E D J U L Y 3 1 , 1 9 9 7 , 1 9 9 6 A N D 1 9 9 5
- -------------------------------------------------------------------------------
share and options for 2,000 shares at $3.63 were canceled. During the year ended
July 31, 1995, options for 6,000 shares were granted at $3.63 per share.
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 123
"Accounting for Stock-Based Compensation," issued in October 1995. In accordance
with the provisions of SFAS No. 123, the Company applies APB Opinion 25 and
related interpretations in accounting for its stock option plans and,
accordingly, does not recognize compensation cost. If the Company had elected to
recognize compensation cost based on the fair value of the options granted at
grant date as prescribed by SFAS No. 123, net income and earnings per share
would have been reduced to the pro forma amounts indicated in the table below
(in thousands except per share amounts):
Year Ended July 31,
-----------------------
1997 1996
- --------------------------------------------------------------------------------
Net earnings (loss)--as reported $(13,289) $3,747
Net earnings (loss)--pro forma (13,314) 3,717
Earnings (loss) per share--as reported (1.67) 0.47
Earnings (loss) per share--pro forma (1.68) 0.47
-----------------------
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions:
Year Ended July 31,
-------------------
1997 1996
- --------------------------------------------------------------------------------
Expected dividend yield -- --
Expected stock price volatility 27% 37%
Risk-free interest rate 6.2% 6.8%
Expected life of options 9 9
--------------------
The weighted average fair value of options granted during 1997 and 1996 was
$1.96 and $2.92 per option, respectively.
6. Income Taxes
- ---------------
As discussed in Note 1, the Company follows the provisions of SFAS 109. The
provision (benefit) for income taxes includes the following:
Year Ended July 31,
--------------------------------------
(In thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
Current:
Federal $ 1,619 $2,210 $ 4,033
State 359 490 894
--------------------------------------
1,978 2,700 4,927
Deferred:
Federal (2,713) 18 (1,125)
State (601) 4 (249)
--------------------------------------
(3,314) 22 (1,374)
--------------------------------------
Total Provision (Benefit) $(1,336) $2,722 $ 3,553
--------------------------------------
The deferred income tax components of the provision for income taxes from
operations consists of the tax effect of the following temporary differences:
Year Ended July 31,
--------------------------------------
(In thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
Land basis $(3,088) $(206) $ (927)
Capitalized interest and points (682) 124 (671)
Uniform capitalized costs 877 301 (273)
Investment in joint ventures (406) -- 645
Other (15) (197) (148)
--------------------------------------
Total Deferred Provision (Benefit) $(3,314) $ 22 $(1,374)
--------------------------------------
<PAGE>
The difference between the effective tax rate and the expected statutory tax
rate computed on earnings from continuing operations is attributable to the
following:
Year Ended July 31,
--------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------
Taxes computed at statutory rate (34.0)% 34.0% 34.0%
Increases (decreases):
State income taxes (1.7) 5.3 5.0
Excess over net assets acquired 24.7 2.7 2.0
Other 1.6 .1 .3
--------------------------------------
Effective tax rate (9.4)% 42.1% 41.3%
--------------------------------------
The deferred income tax at July 31, 1997 and 1996 represents the tax effect of
temporary differences as follows:
July 31,
----------------------
(in thousands) 1997 1996
- --------------------------------------------------------------------------------
Land basis $ (189) $2,900
Capitalized interest 1,782 2,464
Uniform capitalized costs 281 (596)
Investment in joint venture 239 645
Other (194) (180)
----------------------
Deferred Income Taxes $1,919 $5,233
----------------------
During the years ended July 31, 1997, 1996 and 1995, income taxes in the amount
of $3,807,000, $2,998,000 and $5,509,000, respectively, were paid.
The Internal Revenue Service has examined the Company's tax return for the years
ended July 31, 1992, 1993, and 1994. The IRS raised issues primarily related to
the Company's recapitalization in 1992 and 1993, including a $20.0 million gain
on debt forgiveness which the Company treated as non-taxable under the
provisions of Section 108 of the Internal Revenue Code.
18
<PAGE>
In March 1997, the Company reached a settlement with the IRS for all items in
question. As a result, the Company recognized an extraordinary loss of $390,000
which relates to the extraordinary gain on debt forgiveness in fiscal 1992.
7. Employee Retirement Plan
- ---------------------------
The Company has a 401(k) Plan which allows eligible employees to defer a portion
of their total compensation subject to limitations of the Internal Revenue Code.
The Company matches 50% of participant contributions, up to a maximum of the
greater of $1,000 or 1.5% of compensation for each participant. The Company's
total matching contributions under the Plan for the years ended July 31, 1997,
1996 and 1995 were approximately $112,900, $67,500 and $50,000, respectively.
8. Related Party Transactions
- -----------------------------
In prior years, the Company engaged in transactions with related parties for the
acquisition of building lots. During the years ended July 31, 1996, and 1995,
the Company paid $2,596,000 and $1,253,000, respectively, to companies owned by
relatives of the Chairman of the Board to acquire building lots.
The Company leases certain office space from an affiliated entity (see Note 9).
9. Commitments and Contingent Liabilities
- -----------------------------------------
To assure the future availability of various building lots, in the ordinary
course of business the Company enters into option agreements to purchase
finished building lots. Deposits of approximately $2,028,000 at July 31, 1997,
secure the Company's performance under these agreements.
The Company leases its headquarters offices and offices for certain divisions
from an affiliate and certain other facilities from unrelated parties, all under
operating leases with terms ending at various dates from August 1997 through
October 2001. Future minimum rental payments required under operating lease
commitments that have initial or remaining non-cancelable lease terms in excess
of one year subsequent to July 31, 1997, are as follows:
For the year ending July 31, (in thousands)
- -------------------------------------------------------------------
1998 $ 957
1999 856
2000 756
2001 and thereafter 147
------
Total future rental payments $2,716
------
Rental expense under long-term leases amounted to $1,227,000, $1,072,000 and
$816,000 for the years ended July 31, 1997, 1996 and 1995, respectively.
At July 31, 1997 the Company was contingently liable to banks and other
financial institutions for approximately $20.6 million for outstanding letters
of credit and surety bonds relating to building lot acquisition contracts and
municipal bonding for land development activities.
The Company believes that it is not a party to any pending or threatened
litigation or administrative proceeding which is expected to have a material
adverse impact on the Company's financial position or results of operations.
19
<PAGE>
I N D E P E N D E N T A U D I T O R S ' R E P O R T
- -------------------------------------------------------
To the Shareholders and Board of Directors
of Washington Homes, Inc.:
We have audited the accompanying consolidated balance sheets of Washington
Homes, Inc. and subsidiaries as of July 31, 1997 and 1996 and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended July 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Washington Homes, Inc. and
subsidiaries as of July 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended July 31,
1997 in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Washington, D.C.
September 12, 1997
20
<PAGE>
C O R P O R A T E I N F O R M A T I O N
-----------------------------------------
Annual Meeting
- --------------
November 20, 1997--10 a.m.
Greenbelt Marriott Hotel, Greenbelt, Maryland
Form 10-K
- ---------
A copy of the Company's Annual Report on Form 10-K, as filed with the Securities
and Exchange Commission, is available without charge upon written request to:
Investor Relations
Washington Homes, Inc.
1802 Brightseat Road, 6th floor
Landover, Maryland 20785-4238
Corporate Office
- ----------------
1802 Brightseat Road, 6th floor
Landover, Maryland 20785-4238
Transfer Agent & Registrar
- --------------------------
Chase Mellon
Shareholder Services
New York, New York
http://www.cmssonline.com
Auditors
- --------
Deloitte & Touche LLP
Washington, D.C.
Common Price Range
- ------------------
The common stock is traded on the New York Stock Exchange, Symbol "WHI".
Fiscal 1997 High Low
- ----------------------------------------
1st Quarter 4.13 3.38
2nd Quarter 4.75 3.63
3rd Quarter 5.00 3.88
4th Quarter 4.13 3.63
Fiscal 1996 High Low
- ----------------------------------------
1st Quarter 5.63 4.25
2nd Quarter 6.38 4.88
3rd Quarter 5.75 4.50
4th Quarter 4.75 3.75
As of October 16, 1997, there were approximately 212 holders of record
representing an estimated 3,250 beneficial owners of the Company's common stock.
<PAGE>
D I R E C T O R S A N D O F F I C E R S
-------------------------------------------
Board of Directors
- ------------------
Geaton A. DeCesaris, Sr.+
Chairman of the Board
Geaton A. DeCesaris, Jr.+
President, Chief Executive Officer
Paul Sukalo
Senior Vice President
Thomas Connelly
Chief Financial Officer Western Pacific Housing
El Segundo, California
Richard S. Frary*
Managing Director Tallwood Associates, Inc.
New York, New York
Ronald M. Shapiro*
Counsel to the Firm Shapiro and Olander
Baltimore, Maryland
President, Shapiro, Robinson & Associates
Richard B. Talkin*
Attorney
Columbia, Maryland
Corporate Officers
- ------------------
Geaton A. DeCesaris, Sr.
Chairman of the Board
Geaton A. DeCesaris, Jr.
President, Chief Executive Officer
Thomas J. Pellerito
President--Homebuilding Operations, Chief Operating Officer
Christopher Spendley+
Secretary, Senior Vice President, Chief Financial Officer
Clayton W. Miller
Senior Vice President, Chief Accounting Officer
Paul Sukalo
Senior Vice President Production
Jacqueline A. Lozier
Treasurer
Division and Subsidiary Officers
- --------------------------------
William A. Wilder
Senior Vice President Land Operations
Timothy M. Bates
Vice President Virginia Division
Lawrence Breneman, Jr.
Vice President Pittsburgh Division
Marco A. DeCesaris
Vice President Chesapeake Division
Dorothy Minich
Vice President Patuxent Division
Robert Hutson
Executive Vice President Westminster Homes, Inc.
Paul Carty
Vice President Westminster Homes, Inc.
Charlotte Division
Craig Smith
Vice President Westminster Homes, Inc.
Greensboro Division
Robert Yeatman
Vice President Westminster Homes, Inc.
Nashville Division
Jeffrey Donohue
Senior Vice President Homebuyer's Mortgage, Inc.
+ Executive Committee
* Audit Committee and Compensation Committee
<PAGE>
Washington
Homes
Logo
Making the American dream affordable.(R)
- --------------------------------------------------------------------------------
1802 Brightseat Road
Landover, MD 20785
301-772-8900
http://www.washhomes.com
A:\10K797wpd.wpd
EXHIBIT 21
Jurisdiction
of
Subsidiary
Organization
Housing - Home Sales, Inc.
Maryland
The Southampton Corporation
Maryland
All Seasons, Inc.
Maryland
Washington Homes, Inc. of Virginia
Virginia
Designed Contracts, Inc.
Maryland
Consultants Corporation
Maryland
WH Land I, Inc.
Maryland
WH Land II, Inc.
Maryland
WH Properties, Inc.
Maryland
WH Land III, Inc.
Maryland
WH Properties Limited Partnership
Maryland
WH Properties II Limited Partnership
Maryland
Potomac Knolls A1 Limited Partnership
Maryland
Potomac Knolls A3 Limited Partnership
Maryland
Potomac Knolls B1 Limited Partnership
Maryland
Potomac Knolls B2 Limited Partnership
Maryland
Potomac Knolls E1 Limited Partnership
Maryland
Homebuyer's Mortgage, Inc.
Maryland
Westminster Homes, Inc. North
Carolina
WH/PR Land Company LLC
Delaware
New Homebuyer's Title Company, Inc.
Maryland
Homebuyer's Insurance Agency LLC
Maryland
New Homebuyer's Title Company (Virginia) LLC
Virginia
Westminster Homes (Charlotte), Inc. North
Carolina
Westminster Homes of Tennessee, Inc.
Tennessee
Arbor West LLC
Maryland
Condominium Community (Park Place), Inc.
Maryland
Condominium Community (Truman Drive), Inc.
Maryland
Condominium Community (Bowie New Town), Inc.
Maryland
Condominium Community (Quail Run), Inc.
Maryland
Condominium Community (Largo Town), Inc.
Maryland
Quarry Services, Inc.
Maryland
Carrington Homes LLC North
Carolina
Washington Homes of West Virginia, Inc. West
Virginia
Washwest, L.P.
Delaware
Omitted subsidiaries would not in the aggregate constitute a Significant
Subsidiary.
EXHIBIT 27
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement (No.
33-64144) of Washington Homes, Inc. on Form S-8 of our report dated September
12, 1997, incorporated by reference in this Annual Report on Form 10-K of
Washington Homes, Inc. for the year ended July 31, 1997.
DELOITTE & TOUCHE LLP
Washington, D.C.
October 28, 1997
EXHIBIT 27
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors
or officers of Washington Homes, Inc., a Maryland corporation, does hereby
constitute and appoint Geaton A. DeCesaris, Jr. his or her true and lawful
attorney-in-fact and agent, with full power to act, for him or her, in his or
her name, place and stead, in any and all capacities, to do any and all acts
and things and execute any and all instruments which said attorney and agent
may deem necessary or desirable to enable Washington Homes, Inc. to comply
with the Securities Exchange Act of 1934, as amended, and any rules,
regulations and requirements of the Securities and Exchange Commission in
respect thereof, in connection with the filing with said Commission of an
Annual Report on Form 10-K for the fiscal year ended July 31, 1997; but
without limiting the generality of the foregoing, power and authority to sign
the name of the undersigned to such Report, and any and all amendments
thereto, and to any instruments and documents filed as part of or in
connection with such Report or amendments thereto; and the undersigned hereby
ratifies and confirms all that said attorney and agent shall do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has subscribed to these
presents as of the 21st day of October, 1997.
/s/ GEATON A. DECESARIS, SR. /s/ PAUL C. SUKALO
Geaton A. DeCesaris, Sr. Paul C. Sukalo
/s/ THOMAS CONNELLY /s/ RICHARD S. FRARY
Thomas Connelly Richard S. Frary
/s/ ____________________
Clayton Miller Christopher Spendley
/s/ RICHARD B. TALKIN
Richard B. Talkin
_____________________
Ronald M. Shapiro
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<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> JUL-31-1997
<CASH> 10313
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<INVENTORY> 111520
<CURRENT-ASSETS> 0
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0
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<TOTAL-LIABILITY-AND-EQUITY> 142842
<SALES> 214534
<TOTAL-REVENUES> 217459
<CGS> 176983
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<INCOME-PRETAX> (14235)
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