14
10q0198 prepared by: LAB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: January 31, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF SECURITIES EXCHANGE ACT OF 1934
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 (IRS 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)
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 ___
Number of shares of each of the registrant's classes of common stock outstanding
at January 31, 1998:
Class Number of Shares
Common Stock (voting), $.01 par value 7,914,433
Common Stock (non-voting), $.01 par value 28,330
WASHINGTON HOMES, INC.
FORM 10-Q
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets
- - January 31, 1998 and July 31, 1997 (Unaudited) 3
Condensed Consolidated Statements of Net Earnings
- Three Months and Six Months Ended January 31, 4
1998 and 1997 (Unaudited)
Condensed Consolidated Statement of Shareholder's
Equity 5
- Six Months Ended January 31, 1998 (Unaudited)
Condensed Consolidated Statements of Cash Flows
- Six Months Ended January 31, 1998 and 1997 6
(Unaudited)
Notes to Condensed Consolidated Financial Statements 7
(Unaudited)
ITEM 2. Management's Discussion and Analysis of
Financial Condition and 8
Results of Operations
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of 12
Security Holders
ITEM 5. Other Information 12
ITEM 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
PART 1. ITEM 1. Financial Statements
WASHINGTON HOMES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
ASSETS January 31, July 31,
1998 1997
(in thousands)
<S> <C> <C>
Cash and cash equivalents $ 8,920 $ 10,313
Residential inventories 112,653 111,520
Excess of cost over net assets acquired, net 6,116 6,216
Investment in joint ventures 3,068 3,058
Other 11,455 11,735
Total Assets $142,212 $142,842
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities
Notes and loans payable $69,184 $65,569
Trade accounts payable 12,172 16,231
Income taxes 2,028 2,056
Other 3,548 4,506
Total Liabilities 86,932 88,362
Shareholders' Equity
Common Stock
15,000,000 shares voting common stock authorized,
7,914,433 and 7,015,025 shares issued and 79 70
outstanding;
1,100,000 shares non-voting common stock
authorized, 0 9
28,330 and 927,738 shares issued and outstanding;
Additional paid - in capital 35,147 35,147
Retained earnings 20,054 19,254
Total Shareholders' Equity 55,280 54,480
Total Liabilities and Shareholders' Equity $142,212 $142,842
</TABLE>
[FN]
See accompanying Notes.
</FN>
WASHINGTON HOMES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF NET EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
January 31, January 31,
1998 1997 1998 1997
(in thousands except per share
amounts)
<S> <C> <C> <C> <C>
Revenues
Homebuilding $45,916 $46,336 $86,953 $90,356
Land sales 1,545 1,730 2,737 3,406
Other income 574 615 1,151 1,580
Total revenues 48,035 48,681 90,841 95,342
Expenses
Cost of sales - homebuilding 37,906 38,027 71,182 73,981
Cost of sales - land 1,585 1,494 2,426 2,964
Selling, general and administrative 7,055 6,539 13,190 12,687
Interest 1,056 1,007 1,993 1,976
Financing fees 197 181 332 378
Amortization and depreciation expense 99 188 197 382
Total expenses 47,898 47,436 89,320 92,368
Earnings before income taxes 137 1,245 1,521 2,974
Income tax expense 73 590 721 1,389
Net earnings $ 64 $655 $800 $1,585
Earnings per common share,
7,942,763 weighted average shares $ 0.01 $ 0.08 $ 0.10 $ 0.20
outstanding
</TABLE>
[FN]
See accompanying Notes.
</FN>
WASHINGTON HOMES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Six Months Ended January 31, 1998
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Additional Total
Common Stock Paid -in Retained Shareholders'
Voting Non voting Capital Earnings Equity
<S> <C> <C> <C> <C> <C>
Balance, August 1, $70 $9 $35,147 $19,254 $54,480
1997
Convert non-voting to 9 (9) -- -- --
voting
Net earnings -- -- -- 800 800
Balance, January 31, $79 $0 $35,147 $20,054 $55,280
1998
</TABLE>
[FN]
See accompanying Notes
</FN>
.WASHINGTON HOMES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended January 31,
1998 1997
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 800 $1,585
Adjustments to reconcile net earnings to
net cash used in operating activities:
Amortization and depreciation 197 382
Changes in assets and liabilities:
Residential inventories (1,134) 2,303
Other assets 231 (1,053)
Trade accounts payable (4,059) (4,872)
Income taxes (28) (247)
Other liabilities (958) (1,266)
Net cash used in operating activities (4,951) (3,168)
Cash flows from investing activities:
Purchases of property and equipment, net of (48) (4)
disposals
Advances to joint ventures (10) (221)
Net cash used in investing activities (58) (225)
Cash flows from financing activities:
Proceeds from notes and loans payable 43,421 51,612
Repayments of notes and loans payable (39,805) (52,697)
Net cash provided 3,616 (1,085)
by (used in) financing activities
Net decrease in cash and cash equivalents (1,393) (4,478)
Cash and cash equivalents, beginning of 10,313 15,384
period
Cash and cash equivalents, end of period $ 8,920 $10,906
</TABLE>
[FN]
See accompanying Notes.
</FN>
WASHINGTON HOMES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Basis of Presentation
The unaudited condensed consolidated financial statements include the
accounts of Washington Homes, Inc. and its wholly-owned subsidiaries (the
"Company").
The Company is principally engaged in the business of the construction and
sale of residential housing. All significant intercompany balances and
transactions have been eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and SEC regulations. Accordingly, they do not
include all of the information and notes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting only of normal recurring accruals)
considered necessary for a fair presentation have been included. These
condensed consolidated financial statements should be read in conjunction with
the financial statements and notes thereto in the Company's Annual Report to
Shareholders for the year ended July 31, 1997. Operating results for the three
and six months ended January 31, 1998 are not necessarily indicative of the
results that may be expected for the year ending July 31, 1998.
2. Shareholders' Equity
Common Stock. The Company has 7,942,763 shares of Common Stock outstanding
at January 31, 1998 of which 7,914,433 are voting and 28,330 are non-voting.
Except for voting rights, the non-voting common stock is substantially the same
as the Company's voting common stock. The non-voting common stock can be
converted into voting common stock on a share-for-share basis. During the first
quarter of fiscal 1998, 899,408 shares of non-voting common stock were converted
to voting common stock.
3. Earnings Per Share
Earnings per common share are based on the weighted average number of
shares of common stock outstanding during each period. Basic and fully diluted
earnings per share are the same for all periods presented.
4. Notes and Loans Payable
Notes and loans payable consist of the following:
<TABLE>
<CAPTION>
January 31, July 31,
1998 1997
(in thousands)
<S> <C> <C>
Senior Notes $43,000 $43,000
Revolving Credit Facilities 23,418 19,455
Land Acquisition and Other 2,766 3,114
$69,184 $65,569
</TABLE>
Senior Notes. In April 1994, the Company issued $43,000,000 principal
amount of Senior Notes. 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 LIBOR plus
2.4% (7.96% at January 31, 1998), with interest payable July 1994 and either
quarterly or semi-annually thereafter at the option of the Company. Beginning
April 1998 interest will be payable on a quarterly basis for both series of
Senior Notes (see Item 5). Principal repayments are due in three equal annual
installments commencing in October 1998 and continuing to October 2000.
Revolving Credit Facility. At January 31, 1998, the Company had a $70
million facility to fund land acquisition and home construction, letters of
credit, and the initial principal repayment on its Senior Notes. The facility
has a maturity date (which may be extended) of October 30, 1999. At January 31,
1998, $23.4 million was outstanding. Borrowings under the facility bear
interest at 30 day LIBOR (5.6% at January 31, 1998) plus either 1.55% or 1.75%,
depending upon the mix of collateral and are secured by the related inventory.
Land Acquisition Loans. The Company has loans with various land sellers
and lenders for the acquisition of land which bear interest at fixed rates
ranging from 8.0% to 10% or variable rates of prime to prime plus 1% and are
collateralized by the related land under development.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Annual Operating Cycle
The homebuilding industry in general and the operations of the Company are
seasonal in nature. The number of new orders signed is generally higher in the
period from February through May compared to the balance of the year.
Deliveries peak in the fiscal quarter ending July 31 as a substantial portion of
homes for which contracts are written during the fiscal quarter ending April 30
are delivered. Delivery volume is relatively constant during the remainder of
the year. Backlog is the number of homes under contract but not delivered at
the end of the period. Revenue is recognized upon the delivery of finished
homes. The following table, which sets forth the quarterly operating results
for the Company during the last five fiscal quarters illustrates this cycle:
<TABLE>
<CAPTION>
Three Months Ended
January April 30, July 31, October January
31, 1997 1997 1997 31, 1997 31, 1998
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Selected Operating Data
Revenues -homebuilding $46,336 $41,431 $74,789 $41,037 $45,916
Number of homes delivered 298 258 478 265 290
Number of net new orders 312 438 228 289 382
Number of homes in backlog 661 841 591 615 707
Sales value of backlog $109,436 $135,042 $96,343 $101,227 $118,464
</TABLE>
Geographic Breakdown of Operations
Set forth below is information for the Company's operations by geographic
markets:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
January 31, January 31,
Net New Orders 1998 1997 1998 1997
<S> <C> <C> <C> <C>
Maryland 79 112 166 243
Virginia 94 54 163 127
North Carolina 170 112 270 209
Nashville 16 13 29 25
Pittsburgh 23 21 43 35
382 312 671 639
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
January 31, January 31,
Homes Delivered 1998 1997 1998 1997
<S> <C> <C> <C> <C>
Maryland 94 92 172 214
Virginia 60 67 119 124
North Carolina 116 108 216 194
Nashville 12 10 22 20
Pittsburgh 8 21 26 27
290 298 555 579
</TABLE>
<TABLE>
<CAPTION>
January 31,
Backlog of Sold Homes 1998 1997
<S> <C> <C>
Maryland 222 256
Virginia 182 187
North Carolina 239 166
Nashville 31 27
Pittsburgh 33 25
707 661
</TABLE>
Results of Operations
Three Months Ended January 31, 1998 Compared to Three Months Ended January 31,
1997
Total revenues decreased 1.3% to $48.0 million during the three months
ended January 31, 1998 as compared to $48.7 million during the three month
period ended January 31, 1997 as the number of homes delivered decreased to 290
in the second quarter of fiscal 1998 from 298 homes in the second quarter of
fiscal 1997. The average sales price of homes delivered increased to $158,300
for the second quarter of fiscal 1998 from $155,500 for the second quarter of
fiscal 1997. Changes in the average selling price of homes delivered may vary
from period to period based on product mix and pricing of specific communities.
Revenues from land sales were $1.5 million for the three months ended
January 31, 1998 as compared to $1.7 million during the same three month period
in fiscal 1997. Gross profit from land sales decreased $276,000 during the
three months ended January 31, 1998 compared to the same three month period in
fiscal 1997. The decrease is primarily due to the disposal of properties in
several close out communities in the Maryland market.
Other income decreased $41,000 to $574,000 during the three months ended
January 31, 1998 as compared to $615,000 in the same three month period in
fiscal 1997.
Gross profit as a percentage of revenues from homes delivered decreased to
17.4% during the three months ended January 31, 1998 compared to 17.9% during
the same three month period in fiscal 1997. The decrease in gross profit
margins is due to the implementation by the Company of an aggressive pricing
strategy specifically related to aged inventory.
Selling, general and administrative expenses increased $517,000 to $7.1
million during the three month period ended January 31, 1998, compared to $6.5
million in the same three month period in fiscal 1997. The increase is
principally due to increased marketing and advertising expenses intended to
increase new orders and backlog; to costs associated with opening new
communities; and to the expansion of the Company's mortgage brokerage
operations. In addition, selling, general and administrative expenses increased
as a percentage of revenue to 15.4% in the three months ended January 31, 1998,
compared to 14.1% for the same period in fiscal 1997 as a result of decreased
deliveries and increased expenditures.
Operating income (earnings before interest, financing fees and taxes)
decreased to $1.4 million in the three months ended January 31, 1998 as compared
to $2.4 million for the same period in fiscal 1997 and decreased as a percentage
of homebuilding revenues to 3.0% from 5.2% for the same period in fiscal 1997.
Interest and financing fees increased slightly to $1.3 million during the
three months ended January 31, 1998 as compared to $1.2 million in the same
three month period in fiscal 1997.
Six Months Ended January 31, 1998 Compared to Six Months Ended January 31, 1997
Total revenues decreased $4.5 million (4.7%) to $90.8 million during the
six months ended January 31, 1998 compared to $95.3 million during the six month
period ended January 31, 1997. The number of homes delivered decreased 4.0% to
555 homes in the first half of fiscal 1998 from 579 homes in the first half of
fiscal 1997. During this period the average sale price of homes delivered
increased slightly to $156,700 in the first half of fiscal 1998 from $156,100 in
the first half of fiscal 1997. Changes in average selling price of homes
delivered may vary from period to period based on product mix and pricing of
specific communities .
Revenues and gross profit from land sales were $2.7 million and $311,000,
respectively, for the six month period ended January 31, 1998 compared to $3.4
million and $442,000 during the six month period in fiscal 1997. The decrease
is primarily due to the disposal of properties in several close out communities
in the Maryland market. In the prior year the Company had recognized profit
mainly from one transaction.
Gross profit as a percentage of revenues from homes delivered remained flat
at 18.1% during the six month period ended January 31, 1998 compared to the six
month period ended January 31, 1997.
Selling, general and administrative expenses increased $503,000 to $13.2
million during the six month period ended January 31, 1998 as compared to $12.7
million for the six month period in fiscal 1997. The increase is due primarily
to increased marketing and advertising costs directed at increasing new orders
and backlog; the additional costs associated with opening new communities; and
the expansion of the mortgage brokerage operations. In addition, selling,
general and administrative expenses increased as a percentage of homebuilding
revenues to 15.2% in the six months ended January 31, 1998 compared to 14.0% for
the same period in fiscal 1997.
Operating income (earnings before interest, financing fees and taxes)
decreased to $3.8 million in the six months ended January 31, 1998 as compared
to $5.3 million for the same period in fiscal 1997. In addition, operating
income as a percentage of homebuilding revenues decreased to 4.4% during the
first half of fiscal 1998 compared to 5.9% during the first half of fiscal 1997.
Interest and financing fees decreased slightly to $2.3million in the six
months ended January 31, 1998 as compared to $2.4 million for the same period in
fiscal 1997.
Capital Resources and Liquidity
Funding for the Company's residential building and land development
activities is provided principally by cash flows from operations and borrowings
from banks and other financial institutions. The Company's capital needs depend
upon its sales volume, asset turnover, land purchases and inventory levels.
At January 31, 1998, the Company had cash and cash equivalents of $8.9
million of which $128,00 was restricted to collateralize customer deposits and
other escrows. The remaining $8.8 million was available to the Company.
The Company had $108 million in borrowing availability from various lending
institutions and land sellers of which $69.2 million was outstanding at January
31, 1998.
The Company believes that it will be able to fund its activities through
fiscal 1998 through a combination of operating cash flow, existing cash balances
and borrowings from banks and other lending institutions. 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.
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
(a) The registrant's annual meeting of shareholders was held on November
20, 1997.
(b) Shareholders elected the following persons as members of the Board of
Directors to serve until the next annual meeting and until their
successors are elected and qualified:
Geaton A. DeCesaris, Sr.
Geaton A. DeCesaris, Jr.
Thomas Connelly
Paul C. Sukalo
Ronald M. Shapiro
Richard B. Talkin
Richard S. Frary
(c) The following additional matters were approved at the Annual Meeting:
* amendment of the Employee Stock Option Plan to authorize the
increase in the number of shares for which options could be
granted from 500,000 shares to 1,000,000 shares, which
amendment was approved by a vote of 4,949,345 for, 1,019,254
against and 15,625 abstentions.
* amendment of the Stock Option Plan for Non-Employee Directors to
authorize the increase in the number of shares available for
option from 30,000 shares to 100,000 shares, which amendment was
approved by a vote of 5,086,190 for, 881,675 against and 16,359
abstentions.
* appointment of Deloitte & Touche LLP as independent public
accountants for the registrant and its subsidiaries for the year
ending July 31,1998 which appointment was approved by a vote of
6,580,827 for, 14,900 against and 14,184 abstentions.
ITEM 5. Other Information
As of January 30, 1998 the Registrant amended its agreements with the
holders of $43 million of its Series A and Series B Senior Notes due
October 15, 2000. The amendment changed certain provisions of the note
agreements covering the Senior Notes so that (1) interest is required to be
paid quarterly rather than semi-annually; (2) the amount payable to
noteholders for early retirement of the notes is reduced during fiscal
1998; (3) dividend and other restricted payments by the Registrant are
prohibited; (4) a financial covenant dealing with interest coverage is
reduced for the second and third quarters of fiscal 1998; and (5) the
Registrant is required to pay holders certain adjustment fees during fiscal
1998.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10. Second Amendment Agreement dated as of January 30, 1998 to Note
Agreements dated as of April 15, 1994.
27. Financial Data Schedule
(b) Reports on Form 8-K
The registrant did not file any reports on Form 8-K during the quarter
ended January 31, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WASHINGTON HOMES, INC.
(Registrant)
Date: March 13, 1998 By:/s/ GEATON A. DECESARIS, JR.
Geaton A. DeCesaris, Jr.
President and Chief Executive Officer
Date: March 13, 1998 By:/s/ CLAYTON W. MILLER
Clayton W. Miller
Principal Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
registrant's condensed consolidated balance sheet and condensed consolidated
statement ofnet earnings at and for the period ended January 31, 1998 and is
qualified in its entirety by reference to such financial statements
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-END> JAN-31-1998
<CASH> 8,920
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 112,653
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 142,212
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 79
<OTHER-SE> 55,201
<TOTAL-LIABILITY-AND-EQUITY> 142,212
<SALES> 89,690
<TOTAL-REVENUES> 90,841
<CGS> 73,608
<TOTAL-COSTS> 86,995
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,325
<INCOME-PRETAX> 1,521
<INCOME-TAX> 721
<INCOME-CONTINUING> 800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 800
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
Washington Homes, Inc.
Second Amendment Agreement
Dated as of January 30, 1998
Re: Note Agreements Dated as of April 15, 1994
and
$30,000,000 aggregate principal amount of
8.61% Senior Notes, Series A
Due October 15, 2000
and
$13,000,000 aggregate principal amount of
Adjustable Rate Senior Notes, Series B
Due October 15, 2000
Table of Contents
(Not a part of the Agreement)
Section Heading
Page
Section 1. Amendments to Existing Note Agreements
2
Section 2. Amendments to Outstanding Notes
4
Section 3. Conditions Precedent
4
Section 4. Representations and Warranties.
5
Section 5. Miscellaneous
6
Signature Page 8
Washington Homes, Inc.
Second Amendment Agreement
Re: Note Agreements Dated as of April 15, 1994
and
$30,000,000 original principal amount of
8.61% Senior Notes, Series A
Due October 15, 2000
and
$13,000,000 original principal amount of
Adjustable Rate Senior Notes, Series B
Due October 15, 2000
Dated as of
January 30, 1998
To Each of the Holders
of Notes listed in Schedule I
to this Second Amendment Agreement
Gentlemen:
Reference is made to (i) the separate Note Agreements each dated as of
April 15, 1994 (the "1994 Note Agreements") between Washington Homes, Inc., a
Maryland corporation (the "Company"), and the Purchasers named on Schedule I
attached thereto, respectively (the Purchasers and any subsequent holders of the
Notes are hereinafter referred to as the "Noteholders"), as amended by the First
Amendment Agreement dated as of April 28, 1995 between the Company and the
holders of Notes (the "First Amendment", the 1994 Note Agreements, as amended by
the First Amendment, are hereinafter referred to as the "Existing Note
Agreements"), (ii) the $30,000,000 aggregate principal amount of 8.61% Senior
Notes, Series A due October 15, 2000 originally issued pursuant to the Existing
Note Agreements and currently outstanding (the "Series A Notes"), and
(iii) $13,000,000 aggregate principal amount of the Adjustable Rate Senior
Notes, Series B due October 15, 2000 originally issued pursuant to the Existing
Note Agreements and currently outstanding (the "Series B Notes", the Series A
Notes and the Series B Notes being hereinafter collectively referred to as, the
"Notes"). The Notes are sometimes hereinafter referred to as the "Outstanding
Notes".
For good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Company requests the amendment of certain
provisions of the Existing Note Agreements as hereinafter provided.
Upon your acceptance hereof in the manner hereinafter provided and upon
satisfaction of all conditions to the effectiveness hereof and receipt by the
Company of similar acceptances from the holders of the requisite percentage of
the Outstanding Notes, this Second Amendment Agreement shall constitute a
contract between us amending the Existing Note Agreements as of January 30,
1998, but only in the respects hereinafter set forth:
.c1.Section 1. Amendments to Existing Note Agreements;.
Section 1.1. Section 1 of each of the Existing Note Agreements shall be
and is hereby amended by amending subsection 1.1(a)(i) by deleting the word
"semi-annually" and replacing it with the word "quarterly" and by deleting the
phrase "April and October in each year (commencing October 15, 1994)" and by
inserting "January, April, July and October in each year (commencing on
April 15, 1998, it being acknowledged that the payment on April 15, 1998 shall
include all accrued and unpaid interest from and after October 15, 1997)".
Section 1 shall also be amended by adding the following Section 1.4 to the
end thereof:
"Section 1.4. Adjustment Fee. (a) In addition to, and not in
limitation of, any other amounts due hereunder and under the Notes, the
Company shall pay an adjustment fee (referred to as "Adjustment Fees") in
the respective amounts and on the respective dates and to the respective
Holders set forth below (it being agreed that any amounts described below
in dollars as opposed to percentages shall be allocated on a pro rata basis
to the Holders of the respective series receiving such amounts based on the
unpaid principal amount of Notes of such series held by such Holders):
<TABLE>
<CAPTION>
Date of Payment Amount of Recipients of
of Adjustment Fee Adjustment Fee Adjustment Fee
<S> <C> <C>
Second Amendment $200,000.00 Series A Noteholders
Closing Date
Second Amendment $16,250.00 Series B Noteholders
Closing Date
Second Amendment .25% of all Notes All Noteholders
Closing Date
April 30, 1998 .25% of all Notes All Noteholders
May 30, 1998 .125% of all Notes All Noteholders
June 30, 1998 .125% of all Notes All Noteholders
</TABLE>
(b) Each Adjustment Fee referred to hereinabove shall be non-
refundable and shall be earned in full as of the date payment thereof as
required hereunder.
(c) In the event the entire issue of Series A Notes is prepaid
pursuant to and in accordance with 2.2(a), the Make-Whole Amount payable
in connection with such prepayment will be reduced by $200,000 provided,
that in no event, shall the Make-Whole Amount be reduced below zero. In
the event the entire issue of Series B Notes is prepaid pursuant to and in
accordance with 2.2(b), the Make-Whole Amount payable in connection with
such prepayment will be reduced by $16,250 but, in no event, shall the
Make-Whole Amount be reduced below zero."
Section 1.2. 2.2(b) of each of the Existing Note Agreements shall be and is
hereby amended (i) by deleting the reference to "April 14, 1998" from the top of
the left hand column of said Section 2.2(b) and, in substitution therefor,
"July 31, 1998" shall be inserted, (ii) by deleting the reference to "3.75" from
the top of the right hand column of said Section 2.2(b) and, in substitution
therefor, the number ".25%" shall be inserted and (iii) by deleting the
reference to "April 15, 1998" from the second line of the left hand column of
said Section 2.2(b) and, in substitution therefor, "August 1, 1998" shall be
inserted.
Section 1.3. 5.8 of each of the Existing Note Agreements shall be and is
hereby amended and restated in its entirety as follows:
"Section 5.8. Interest Charges Coverage Ratio. The Company will keep
and maintain the ratio of Net Income Available for Interest Charges to
Interest Charges (determined as of the end of each fiscal quarter) for any
four fiscal quarters selected by the Company (taken together as a single
accounting period) out of the immediately preceding five consecutive fiscal
quarters at not less than (i) 1.7 to 1 for the fiscal quarters ending
January 31, 1998 and April 30, 1998, and (ii) 2 to 1 for each fiscal
quarter ending July 31, 1998 and thereafter."
Section 1.4. 5.11 of each of the Existing Note Agreements shall be and is
hereby amended by adding as the last paragraph thereof the following:
"Notwithstanding anything contained in this 5.11 to the contrary, the
Company will not make a Restricted Payment at any time prior to July 31,
1998."
Section 1.5. 6.1(c) of each of the Existing Note Agreements shall be and is
hereby amended in its entirety as follows:
"(c) Default shall occur in the making of any payment of the
principal of any Note or premium, if any, thereon, at the expressed or any
accelerated maturity date or at any date fixed for prepayment or in the
making of any payment of an Adjustment Fee on the date such payment is
required to be made pursuant to 1.4; or"
Section 1.6. The definition of the term "Interest Charges" set forth in 8.1
of each of the Existing Note Agreements shall be and is hereby amended and
restated in its entirety as follows:
"`Interest Charges' for any period shall mean on a consolidated basis
all interest and all amortization of debt discount and expense on any
particular Indebtedness (including the interest component of Rentals on
Capitalized Leases) for which such calculations are being made.
Computations of Interest Charges on a pro forma basis for Indebtedness
having a variable interest rate shall be calculated at the rate in effect
on the date of any determination. For purposes of Section 5, computations
of Interest Charges shall exclude Adjustment Fees."
Section 1.7. The first sentence of the definition of the term "Reinvestment
Rate" set forth in Section 8.1 shall be and is hereby amended and restated as
follows:
"`Reinvestment Rate' shall mean (i) in the event of a prepayment of
the Series A Notes pursuant to 2.2(a) at any time from and after
January 30, 1998 to and including April 30, 1998, 2.25%, or (ii) in the
event of a prepayment of the Series A Notes pursuant to 2.2(a) at any time
from and after May 1, 1998 to and including July 31, 1998, 1.75% or
(iii) in the event of a prepayment of the Series A Notes pursuant to
2.2(a) after July 31, 1998 or in the event of any acceleration of the
Series A Notes, 0.50%, plus, in the case of each of clause (i), (ii) and
(iii) above, the arithmetic mean of the yields under the respective
headings "This Week" and "Last Week" published in the Statistical Release
under the caption "Treasury Constant Maturities" for the maturity (rounded
to the nearest month) corresponding to the Weighted Average Life to
Maturity of the principal being prepaid (taking into account the
application of such prepayment required by 2.1)."
.c1.Section 2. Amendments to Outstanding Notes;.
Section 2.1. Each of the Series A Notes shall be and is hereby amended by
deleting therefrom the phrase "semiannually on the fifteenth day of each April
and October in each year (commencing on the first of such dates after the date
hereof) and at maturity" and inserting therefor the phrase "quarterly on the
fifteenth day of each January, April, July and October in each year (commencing
on April 15, 1998, it being acknowledged that the payment on April 15, 1998
shall include all accrued and unpaid interest from and after October 15, 1997)
and at maturity."
.c1.Section 3. Conditions Precedent;.
Section 3.1. This Second Amendment Agreement shall not become effective
until, and shall become effective on the Business Day when each of the following
conditions shall have been satisfied (such Business Day being referred to as the
"Second Amendment Closing Date"):
(a) Each Noteholder shall have received this Second Amendment Agreement,
duly executed by the Company.
(b) The Holders holding 100% of the outstanding principal amount of the
Notes shall have consented to this Second Amendment Agreement as evidenced
by their execution thereof.
(c) The representations and warranties of the Company set forth in
Section 4 hereof are true and correct in all material respects as of the
date of the execution and delivery of this Second Amendment Agreement.
(d) The payment of all Adjustment Fees required to be paid on the Second
Amendment Closing Date as contemplated hereinabove, shall be paid by the
Company in full in immediately available funds.
(e) Counsel for the Company shall have delivered its opinion to each of
the Holders dated the Second Amendment Closing Date, covering each of the
matters set forth in 4.1(a) through (g) hereof (excluding, however
4.1(e)), and such other matters as the Holders may reasonably request, in
form and substance satisfactory to such holders.
(f) Any consents or approvals from any holder or holders of any
outstanding Security of the Company or any Subsidiary and any amendments of
agreements pursuant to which any Securities may have been issued which
shall be necessary to permit the consummation of the transactions
contemplated hereby shall have been obtained and all such consents or
amendments shall be reasonably satisfactory in form and substance to the
Noteholders and their special counsel.
(g) The Company shall have paid the fees and disbursements of the
Noteholders' special counsel, Chapman and Cutler, incurred in connection
with the negotiation, preparation, execution and delivery of this Second
Amendment Agreement and the transactions contemplated hereby which fees and
disbursements are reflected in the statement of such special counsel
delivered to the Company at the time of the execution and delivery of this
Second Amendment Agreement. Upon receipt of any supplemental statement
after the execution of this Second Amendment Agreement, the Company will
pay such additional fees and disbursements of the Noteholders' special
counsel which were not reflected in its accounting records as of the time
of the delivery of the initial statement of fees and disbursements.
.c1.Section 4. Representations and Warranties.
Section 4.1. The Company hereby represents and warrants that as of the date
hereof and as of the date of execution and delivery of this Second Amendment
Agreement:
(a) The Company is duly incorporated, validly existing and in good
standing under the laws of the State of Maryland.
(b) The Company has the corporate power to own its property and to carry
on its business as now being conducted.
(c) The Company is duly qualified and in good standing as a foreign
corporation authorized to do business in each jurisdiction in which the
failure to do so would, individually or in the aggregate, have a material
adverse effect on the business, condition (financial or other), assets,
operations, properties or prospects of the Company.
(d) This Second Amendment Agreement and the Existing Note Agreements (as
amended hereby) are within the corporate powers of the Company, have been
duly authorized by all necessary corporate action on the part of the
Company, have been duly executed and delivered by the Company and
constitute legal, valid and binding obligations of the Company enforceable
in accordance with their respective terms.
(e) After giving effect to the amendments set forth in Sections 1 and 2
hereof, no Default or Event of Default has occurred and is continuing.
(f) The execution, delivery and performance of this Second Amendment
Agreement by the Company does not and will not result in a violation of or
default under (A) the certificate of incorporation or bylaws of the
Company, (B) any material agreement to which the Company is a party or by
which it is bound or to which the Company or any of its properties is
subject, (C) any material order, writ, injunction or decree binding on the
Company, or (D) any material statute, regulation, rule or other law
applicable to the Company.
(g) No authorization, consent, approval, exemption or action by or
notice to or filing with any court or administrative or governmental body
(other than periodic filings with regulatory authorities, none of which are
required to be filed as of the effective date of this Second Amendment
Agreement) is required in connection with the execution and delivery of
this Second Amendment Agreement or the consummation of the transactions
contemplated thereby.
.c1.Section 5. Miscellaneous;.
Section 5.1. Except as amended herein, all terms and provisions of the
Existing Note Agreements are hereby ratified, confirmed and approved in all
respects.
Section 5.2. Any and all notices, requests, certificates and other
instruments, including the Notes, may refer to the "Note Agreements" or the
"Note Agreements each dated as of April 15, 1994" without making specific
reference to this Second Amendment Agreement, but nevertheless all such
references shall be deemed to include this Second Amendment Agreement unless the
context shall otherwise require. Your acceptance hereof will also constitute
your agreement that prior to any sale, assignment, transfer, pledge or other
disposition by you of any Notes, you shall either (i) impose on the Notes so to
be disposed of an appropriate endorsement referring to this Second Amendment
Agreement as binding on the parties hereto and upon any and all future holders
of such Notes or (ii) at your option, surrender such Notes for new Notes of the
same form and tenor as the Notes so surrendered but revised to contain express
textual reference to this Second Amendment Agreement. All expenses for the
preparation of such new Notes and the exchange for such new Notes are to be
borne by the Company.
Section 5.3. This Second Amendment Agreement and all covenants herein
contained shall be binding upon and inure to the benefit of the respective
successors and assigns of the parties hereunder. All covenants made by the
Company herein shall survive the closing and the delivery of this Second
Amendment Agreement.
Section 5.4. This Second Amendment Agreement shall be governed by and
construed in accordance with Maryland law.
Section 5.5. The capitalized terms used in this Second Amendment Agreement
shall have the respective meanings specified in the Existing Note Agreements
unless otherwise herein defined or the context hereof shall otherwise require.
The execution hereof by the Noteholders shall constitute a contract among
the Company and the Noteholders for the uses and purposes hereinabove set forth.
This Second Amendment Agreement may be executed in any number of counterparts,
each executed counterpart constituting an original but all together only one
agreement.
.c4.Signature Page;
Washington Homes, Inc.
By
Its
This foregoing Second Amendment Agreement is hereby accepted and agreed to
as of the date aforesaid.
Life Investors Insurance Company of America
By
Its
PFL Life Insurance Company
By
Its
AUSA Life Insurance Company, Inc.
By
Its
Monumental Life Insurance Company
By
Its
The Life Insurance Company of Virginia
By
Its
Alexander Hamilton Life Insurance Company
of America
By
Its
Washington National Insurance Company
By: Conseco Capital Management, Inc., its
investment advisors
By
Its
Sun Life Insurance Company of America
By
Its
ACACIA Life Insurance Company
By
Its
ACACIA National Life Insurance Company
By
Its
Outstanding
Principal
Amount and Series
of Notes
Name of Holder Held as of January 30,
1998
of Notes
Life Investors Insurance Company
of America $6,500,000 Series A
PFL Life Insurance Company $4,000,000 Series A
AUSA Life Insurance Company, Inc. $3,500,000 Series A
Monumental Life Insurance Company $1,000,000 Series A
The Life Insurance Company of
Virginia $7,000,000 Series A
Alexander Hamilton Life Insurance
Company of America $5,000,000 Series A
Washington National Insurance $3,000,000 Series A
Company
ACACIA Life Insurance Company $2,000,000 Series B
ACACIA National Life Insurance $2,000,000 Series B
Company
Sun Life Insurance Company of
America $9,000,000 Series B
