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, 1999
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
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(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 [ ]
On October 11, 1999, the aggregate market value of the voting and
non-voting common stock held by non-affiliates of the registrant was
approximately $20,618,279.
Number of shares of each of the registrant's classes of common stock
outstanding at September 30, 1999:
Class Number of Shares
----- ----------------
Common Stock (voting), $.01 par value 7,949,013
Common Stock (non-voting), $.01 par value -0-
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for fiscal year ended July 31,
1999 (Part II). Proxy statement to be filed pursuant to Regulation 14A for 1999
Annual Meeting of Shareholders to be held November 19, 1999 (Part III).
<PAGE>
WASHINGTON HOMES, INC.
FORM 10-K REPORT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
PART I. PAGE
----
Item 1. Business 3
Item 2. Properties 10
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 11
Executive Officers 11
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder 12
Matters
Item 6. Selected Financial Data 12
Item 7. Management's Discussion and Analysis of Financial Condition and 13
Results of Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 13
Item 8. Financial Statements and Supplementary Data 13
Item 9. Changes in or Disagreements with Accountants on Accounting and 13
Financial Disclosure
PART III.
Item 10. Directors and Executive Officers of the Registrant 13
Item 11. Executive Compensation 13
Item 12. Security Ownership of Certain Beneficial Owners and Management 13
Item 13. Certain Relationships and Related Transactions 13
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 14
SIGNATURES 16
</TABLE>
EXHIBITS
Note: This report on Form 10-K contains statements which may be construed as
"Forward-Looking Statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements may involve known and unknown
risks, uncertainties, and other factors that may cause actual results,
performance, achievements or industry results to vary materially from predicted
results, performance, achievements or those of the industry. Such risks,
uncertainties and other factors include, but are not limited to changes in
general economic conditions, fluctuations in interest rates, increases in costs
and availability of materials, supplies and labor and general competitive
conditions.
2
<PAGE>
PART I
Item 1. Business
General
Washington Homes, Inc. designs, builds and markets single-family detached
homes, townhomes and condominium homes in the metropolitan areas of Washington,
D.C-Baltimore, Maryland; Greensboro, Raleigh and Charlotte, North Carolina;
Nashville, Tennessee; Pittsburgh, Pennsylvania; Huntsville, Alabama and the
Mississippi Gulf Coast. 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 year 1996, the Company began operating in
Charlotte, North Carolina and Nashville, Tennessee and expanded operations in
Pittsburgh, Pennsylvania. During fiscal year 1999, the Company entered the
Huntsville, Alabama and the Mississippi Gulf Coast markets through an
acquisition effective as of March 1, 1999. The Company operates under the name
"Washington Homes" in Maryland, Virginia and Pennsylvania and as "Westminster
Homes" in North Carolina, Tennessee, Alabama and Mississippi.
The Company focuses its marketing efforts on consumers whose top priorities
are price and value. During the five years ended July 31, 1999 the Company
delivered 7,172 homes and currently offers homes for sale in 82 communities at
base sales prices ranging from $80,000 to $400,000. The Company delivered 2,124
homes during the fiscal year ended July 31, 1999 generating homebuilding
revenues of $353.7 million. The average selling price of homes delivered by the
Company during fiscal year 1999 was approximately $166,500. At July 31, 1999
there was a backlog of 1,008 homes under contract with a sales value of $197.1
million.
Washington Homes, Inc. was incorporated in the State of Maryland in 1965.
The terms "Company" and "WHI" as used in this report refer to Washington Homes,
Inc. and its subsidiaries unless defined otherwise. 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 personnel with assistance from
outside architectural firms. It strives to create a diversity of architectural
styles in each residential community 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, 1999 was as follows:
Base Sales Price Range of Sizes
---------------- --------------
Single-family detached homes $80,000 - $400,000 1,000 to 4,000 sq. ft.
Townhomes $96,000 - $204,000 1,050 to 2,350 sq. ft.
Condominiums $82,800 - $131,000 600 to 1,400 sq. ft.
In all of WHI's communities, certain options including fireplaces, finished
basements, brick fronts, expanded rooms, upgraded appliances, upgraded carpet
and premium lot locations are available to the purchaser for an additional
charge.
3
<PAGE>
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,
----------------------------------------------------------------------------------------
1999 1998 1997
--------------------------- --------------------------- --------------------------
(dollars in thousands)
Homes % Amount Homes % Amount Homes % Amount
----- --- ------ ----- --- ------ ----- --- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Single-family
detached homes 1,519 71.5 $271,376 990 66.9 $170,139 890 67.7 $152,155
Townhomes 571 26.9 78,971 420 28.4 56,054 355 27.0 46,515
Condominiums 34 1.6 3,382 69 4.7 6,918 70 5.3 7,906
-- --- ----- -- --- ----- -- --- -----
Total 2,124 100.0 $353,729 1,479 100.0 $233,111 1,315 100.0 $206,576
===== ===== ======== ===== ===== ======== ===== ===== ========
</TABLE>
During fiscal 1997, the Company decided to phase out its condominium operations.
Organization
The Company's homebuilding operations are organized into nine geographically
based homebuilding divisions grouped into three operating regions. Division
offices for the Mid-Atlantic region are maintained in Landover, Maryland,
Chantilly, Virginia and Upper St. Clair, Pennsylvania. Division offices for the
Southeast region are maintained in Cary, Charlotte and Greensboro, North
Carolina. Division offices for the Mid-South region are maintained in Brentwood,
Tennessee, Huntsville, Alabama and Ocean Springs, Mississippi. Corporate
headquarters are located in Landover, Maryland.
Each division is headed by a division president who reports to a Regional
President or the President-Homebuilding Operations. Division presidents have
responsibility for day-to-day operations, including implementation of community
marketing strategies, pricing of homes, managing subcontractors, delivering
finished homes and providing attendant service work. Division presidents are
supported by sales and production managers. Sales managers coordinate marketing
and advertising programs and oversee the sales representatives based at each
community. Production managers oversee field operations with managerial
responsibility for on-site production superintendents and are 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 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
superintendent coordinates the work of subcontractors and is responsible for
quality control and delivery of the finished product in a timely manner.
4
<PAGE>
Residential Developments
As of July 31, 1999 the Company controlled over 11,000 homesites, as
follows:
<TABLE>
<CAPTION>
Lots Owned
Communities in Which -----------------------
Homes are Currently Total Finished Lots Under Lots Under
Market Offered For Sale Lots Lots Development Option
- ------ ---------------- ---- ---- ----------- ------
<S> <C> <C> <C> <C> <C>
Maryland 16 1,792 504 669 619
Virginia 16 2,108 313 56 1,739
Pennsylvania 5 177 34 15 128
--- ------ ----- ----- -----
Mid-Atlantic Region 37 4,077 851 740 2,486
Raleigh 10 1,051 100 108 843
Greensboro 8 1,644 306 158 1,180
Charlotte 8 975 88 -- 887
--- ------ ----- ----- -----
Southeast Region 26 3,670 494 266 2,910
Tennessee 6 883 95 -- 788
Alabama 9 1,744 212 -- 1,532
Mississippi 4 555 94 -- 461
--- ------ ----- ----- -----
Mid-South Region 19 3,182 401 -- 2,781
Corporate Land * -- 295 22 273 --
--- ------ ----- ----- -----
Combined Total 82 11,224 1,768 1,279 8,177
=== ====== ===== ===== =====
</TABLE>
- -----------
* Land controlled by the Company's land department which has not been
assigned to an operating division.
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, 1999, the
Company owned or held options for 11,224 building lots.
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 sales. As a result, the Company generally does not purchase the
building lot 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 generally 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, 1999, the Company owned 1,768
finished lots and had under option 8,177 homebuilding lots for which it had
posted deposits of approximately $3.1 million in the form of cash, letters of
credit and promissory notes.
The Company develops land for its own residential operations, and 509 or
24.0% of the homes delivered in fiscal 1999 were built on land developed by the
Company. As of July 31, 1999, the Company owned 1,279 residential lots in 17
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.
5
<PAGE>
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
completing development. 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
Generally, 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. The Company's sales personnel are compensated with salary and/or
incentive compensation and are trained by the Company. Sales personnel attend
weekly meetings to be updated on financing availability, construction schedules,
new land acquisitions, and marketing and advertising plans. The concentration of
the Company's communities allows the Company to employ sales personnel 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 in newspapers, local and regional publications, on radio, as well as
on 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 $5,000.
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 frequently.
The Company has established new home design centers in Bowie, Maryland;
Chantilly, Virginia; Greensboro, North Carolina; Huntsville, Alabama and
Gulfport, Mississippi for the marketing of options available on the Company's
homes. The Company intends to expand this concept to other divisions in fiscal
2000.
Building
In its construction of homes, the Company acts as a general contractor with
independent contractors performing all home construction and site improvements
work generally under fixed-price contracts. Construction is performed under the
direction of 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.
6
<PAGE>
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. 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, generally following the
guidelines established by the Federal National Mortgage Association (FNMA) and
the Federal Home Loan Mortgage Corporation (FHLMC).
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 primarily processes mortgage
applications with underwriting and funding provided by independent wholesale
lenders. In fiscal 1999, Homebuyer's closed 1,406 loans totaling $210.6 million
in permanent residential financing compared to 898 loans totaling $121.9 million
the previous fiscal year. The Company's capture rate (the percentage of
Washington Homes' homebuyers using the Company's mortgage services) increased to
60% from 55% the previous fiscal year.
During fiscal 1999, 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 that government programs providing
assistance for homebuyers will continue in the future.
The following table summarizes certain mortgage operating information
(dollars in thousands) for Homebuyer's Mortgage, Inc.:
Years Ended July 31,
-----------------------------------
1999 1998 1997
---- ---- ----
Number of loans originated 1,406 898 580
Average amount of loan originated $ 150 $ 136 $ 142
Total amount of loans originated $210,605 $121,920 $82,253
Capture Rate 60% 55% 42%
Other Services
Through various joint ventures, the Company provides title insurance agency
services in Maryland, Virginia and Tennessee and other insurance agency services
in Maryland and Virginia.
7
<PAGE>
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 requires
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 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 served 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 its homes.
The housing industry is cyclical and affected generally by consumer
confidence levels, employment growth, prevailing economic conditions 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.
8
<PAGE>
Bonds, Warranties and Other Obligations
The Company is frequently required, in conjunction with the development of
its communities, to obtain performance or maintenance bonds 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, 1999, the Company had approximately $19.6 million in letters of credit
and surety bonds outstanding.
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, and other similar warranty
programs. 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, 1999, the Company employed 442 full time personnel of whom 83
were sales and marketing personnel, 209 were executive, administrative and
clerical personnel and 150 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 four land development joint ventures. Two joint
ventures were formed to develop residential land into finished building lots for
sale to the Company and other homebuilders in Maryland utilizing non-recourse
acquisition and development loans. These ventures covered approximately 310 lots
at July 31, 1999. During fiscal year 1999 the Company formed an additional joint
venture with US Home Corporation to construct and market active adult housing on
approximately 300 building lots in the Raleigh, North Carolina market. During
fiscal 1999, the Company also entered into a joint venture agreement with a
local real estate developer to develop residential building lots for the
Huntsville, Alabama and Mississippi Gulf Coast markets.
The Company has a series of joint ventures which are utilized to provide
title services and provide insurance to its homebuyers.
The Company's interest in the joint ventures' operating results have not
been significant to date.
The Company expects to continue to evaluate potential joint ventures and
other strategic alliances as part of its operations.
Recent Developments
In November 1998 the Company acquired certain assets of Regency Homes, a
financially troubled homebuilder operating in Maryland and Virginia, consisting
of items of personal property, rights to various architectural and other plans
and drawings, assignments of lot takedown agreements and approximately 100
building lots and/or homes under construction for $7.3 million. The acquisition
provided the Company with an expanded product line of homes targeted to a higher
priced market segment than the Company's traditional market. In addition, the
Company obtained operations in five on-going communities.
9
<PAGE>
On April 20, 1999, WHI, through two newly formed wholly-owned subsidiaries,
acquired a substantial part of the assets and assumed liabilities of Breland
Homes, Inc., Breland Properties Inc. and Breland Homes of Mississippi LLC
(collectively "Sellers"), entities owned by Louis W. Breland (the "Breland
Acquisition"). The Sellers operated a homebuilding and land development business
in the areas in and around Huntsville, Alabama and Gulfport and Biloxi,
Mississippi under the name "Breland Homes."
In the Breland Acquisition WHI assumed approximately $9.0 million of
Seller's bank debt and assumed liabilities of approximately $675,000 as of the
closing date and paid Sellers a cash amount of approximately $5.3 million. WHI
acquired inventory of finished building lots, completed homes, model homes and
houses in various stages of construction and was assigned lot option contracts
to acquire additional building lots and customer contracts for the delivery of
finished houses. WHI acquired control of approximately 2,600 building lots and a
backlog of 90 homes under contract with a delivery value of $12.1 million.
Other assets acquired included the name "Breland Homes" and other
intellectual and personal property. WHI did not acquire any cash items or
certain accounts receivable and inter-company obligations, among other things.
The Breland Acquisition was made using in part the proceeds from a newly
established $15 million revolving line of credit from Compass Bank which is
based in Alabama. This line is intended to provide the operations of Alabama and
Mississippi with working capital.
WHI also entered into a newly formed venture with Louis W. Breland to be
owned 50% by each to develop building lots for the use by the Company in Alabama
and Mississippi
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 May 2008.
During the fiscal year ended July 31, 1999, the Company paid Citadel Land,
Inc. approximately $396,000 in rentals. Citadel Land, Inc. is a company
beneficially owned by various members of the family of Geaton A. DeCesaris, Jr.,
Chairman of the Board of the Company.
The Company also leases office space for division offices in Chantilly,
Virginia; Charlotte, Cary and Greensboro, North Carolina; Brentwood, Tennessee;
Upper St. Clair, Pennsylvania; Huntsville, Alabama and Ocean Springs,
Mississippi.
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.
10
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the
period from May 1, 1999 to July 31, 1999.
Executive Officers
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Positions with Company
- ---- --- ----------------------
<S> <C> <C>
Geaton A. DeCesaris, Jr. 44 Chairman of the Board, President and Chief Executive Officer
Thomas J. Pellerito 52 President--Homebuilding Operations, Chief Operating Officer and
Director
Christopher Spendley 40 Senior Vice President, Chief Financial Officer and Secretary
Clayton W. Miller 48 Senior Vice President, Chief Accounting Officer and Treasurer
Paul C. Sukalo 48 Senior Vice President - Construction and Director
</TABLE>
Geaton A. DeCesaris, Jr. has served as President, Chief Executive Officer
and a Director of the Company since August 1988 and as Chairman of the Board
since April 1999. Prior thereto, Mr. DeCesaris was Managing General Partner of
Sonny DeCesaris and Sons Development Group (real estate development and
construction) from June 1985 to August 1988 and Vice President of Sonny
DeCesaris and Sons Builders, Inc. from 1973 to June 1985.
Thomas J. Pellerito has served as President-Homebuilding Operations and
Chief Operating Officer since July 1997 and a Director since November 1998.
Prior thereto from 1985 to July 1997 he was President of Richmond American
Homes, the Northern Virginia based subsidiary of a national homebuilder. Mr.
Pellerito has over 19 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, a subsidiary of The 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 1983 to 1994. He
has over 16 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 and Treasurer since November
1997. From November 1989 to September 1994, he served as Chief Financial Officer
of the Company. Mr. Miller has over 20 years experience in finance and real
estate development.
Paul C. Sukalo has served as Senior Vice President and a Director of the
Company since August 1988. Prior thereto, he was a general partner of Sonny
DeCesaris and Sons Development Group from June 1985 to August 1988. He has over
19 years of related construction experience, principally in residential
construction and related services. Mr. Sukalo is the brother-in-law of Geaton
DeCesaris, Jr.
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.
11
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
(a) Market Information
The Company's Common Stock 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 1999 High Low
----------- ---- ---
August 1 to October 31,1998 $ 6.25 $ 4.00
November 1, 1998 to January 31, 1999 6.50 4.63
February 1 to April 30, 1999 7.00 5.13
May 1 to July 31, 1999 8.38 6.00
Fiscal 1998 High Low
----------- ---- ---
August 1 to October 31, 1997 4.88 3.69
November 1, 1997 to January 31, 1998 4.50 3.50
February 1 to April 30, 1998 5.38 3.75
May 1 to July 31, 1998 6.25 4.65
(b) Holders
On September 30, 1999, there were approximately 195 holders of record of
the Company's Common Stock (voting).
(c) Dividends
During fiscal 1999 and 1998 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 cumulative
net income for the four prior fiscal quarters. The Company does not anticipate
paying dividends in the foreseeable future.
(d) Sales of Unregistered Securities
During the fiscal year ended July 31, 1999, the registrant did not sell any
securities which were not registered under the Securities Act of 1933.
Item 6. Selected Financial Data
The information required by this item is incorporated herein by reference
from "Financial Highlights" on page 1 of the Company's Annual Report to
Shareholders for the fiscal year ended July 31, 1999.
12
<PAGE>
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 11 to 14 of the Company's Annual Report to Shareholders for the
fiscal year ended July 31, 1999.
Item 7A. Quantitative and Qualitative Disclosure about Market Risk
The information required by this item is incorporated herein by reference
from page 14 of the Company's Annual Report to Shareholders for the fiscal year
ended July 31, 1999.
Item 8. Financial Statements and Supplementary Data
The information required by this item is incorporated herein by reference
from pages 15 to 24 of the Company's Annual Report to Shareholders for the
fiscal year ended July 31, 1999.
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, 1999.
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 1999 Annual Meeting of Shareholders.
The information required by this item on Executive Officers is included in
Part I.
Item 11. Executive Compensation
The information required by this item is incorporated herein by reference
to the registrant's Proxy Statement relating to the 1999 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 1999 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 1999 Annual Meeting of
Shareholders.
13
<PAGE>
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, 1999 and 1998
Consolidated Statements of Operations for each of the years in the three
year period ended July 31, 1999
Consolidated Statements of Shareholders' Equity for each of the years in
the three year period ended July 31, 1999
Consolidated Statements of Cash Flows for each of the years in the three
year period ended July 31, 1999
Notes to Consolidated Financial Statements for each of the years in the
three year period ended July 31, 1999
(b) Reports on Form 8-K
During the period from May 1, 1999 to July 31, 1999, the registrant filed the
following reports on Form 8-K:
Date of Report Items Reported
- -------------- --------------
April 20, 1999 Items 2, 7
Amendment to Report Financial Statements and Pro Forma Financial Information
Dated April 20, 1999 for Breland Homes, Inc. and related entities.
(c) Exhibits
There are included in this report or incorporated herein by reference the
following exhibits:
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ----------- ----------------------
<S> <C>
2 (a) Asset Purchase Agreement #1 dated as of March 24, 1999 (Filed as Exhibit 2(a) to 8-K
Report dated April 20, 1999) *
2 (b) Asset Purchase Agreement #2 dated as of March 24, 1999 (Filed as Exhibit 2 (b) to 8-K
Report dated April 20, 1999) *
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) *
4 (a) Specimen Common Stock Certificate (Filed as Exhibit 4 (a) to Registration No. 33-52648)*
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ----------- ----------------------
<S> <C>
10 (a) Office Lease Agreement between Citadel Land, Inc. and the Company dated as of January 1,
1997 (Filed as Exhibit 10 (a) to 10-K Report for year ended July 31, 1998) *
10 (b) First Amendment to Office Lease Agreement between Citadel land, Inc. and the Company
dates as of May 14, 1998(Filed as Exhibit 10 (b) to 10-K Report for year ended July 31,
1998) *
10 (c) Second Amendment to Office Lease Agreement between Citadel Land, Inc. and the Company
dated as of June 1, 1998 (filed as Exhibit 10 (c) to 10-K Report for year ended July
31, 1998) *
10 (d) 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 (e) 1999 Amended and Restated Loan Agreement for $120 Million Credit Facility dated as of
September 17, 1999 with a group of lenders and First Union National Bank as Collateral
Agent and First Union Capital Markets Corp. as Administrative Agent.
10 (f) Second Amendment Agreement dated as of January 30, 1998 to
Note Agreement dated April 15, 1994 (Filed as Exhibit 10 to
10-Q Report for quarter ended January 31, 1998) *
10 (g) Washington Homes, Inc. 401(k) Plan (Filed as Exhibit 10 (i) to 10-K Report for year
ended July 31, 1996) *
10 (h) Amendment to Washington Homes, Inc. 401(k) Plan
10 (i) Washington Homes, Inc. Employee Stock Option Plan (Filed as Exhibit 10 (f) to
Registration No. 33-52648) *
10 (j) Amendment to Employee Stock Option Plan (Filed as Exhibit 10 (f) (1) to Registration No.
33-52648) *
10 (k) Amendment Number 2 to Employee Stock Option Plan (Filed as Exhibit 10 (k) to 10-K for
year ended July 31, 1998) *
10 (l) Washington Homes, Inc. Non-Employee Directors' Stock Option Plan (Filed as Exhibit A to
Definitive Proxy Statement for meeting held December 9, 1994) *
10 (m) Amendment to Non- Employee Directors' Stock Option Plan (Filed as Exhibit 10(o) to 10-K
for year ended July 31, 1998) *
10 (n) Form of Change of Control Employment Agreements with Thomas Pellerito, Christopher
Spendley, Paul Sukalo, Clayton Miller
13 1999 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 Power of Attorney
27 Financial Data Schedule
</TABLE>
- --------------------
* Incorporate 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.
15
<PAGE>
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 25th of October, 1999 by the undersigned, thereunto duly
authorized.
WASHINGTON HOMES, INC.
(Registrant)
By: /s/ GEATON A. DECESARIS, JR.
----------------------------
Geaton A. DeCesaris, Jr., Chairman of the Board,
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/
<TABLE>
<CAPTION>
Name Position Date
---- -------- ----
<S> <C> <C>
/s/ GEATON A. DECESARIS, JR. Chairman of the Board, President and October 25, 1999
- ---------------------------- Principal Executive Officer
Geaton A. DeCesaris, Jr.
GEATON A. DECESARIS, SR.* Director October 25, 1999
- ---------------------------
Geaton A. DeCesaris, Sr.
THOMAS CONNELLY* Director October 25, 1999
- ---------------------------
Thomas Connelly
PAUL C. SUKALO* Director October 25, 1999
- ---------------------------
Paul C. Sukalo
RONALD M. SHAPIRO* Director October 25, 1999
- ---------------------------
Ronald M. Shapiro
RICHARD S. FRARY* Director October 25, 1999
- ---------------------------
Richard S. Frary
RICHARD B. TALKIN* Director October 25, 1999
- ---------------------------
Richard B. Talkin
THOMAS J. PELLERITO* Director October 25, 1999
- ---------------------------
Thomas J. Pellerito
/s/ CHRISTOPHER SPENDLEY Principal Financial Officer October 25, 1999
- ---------------------------
Christopher Spendley
/s/ CLAYTON W. MILLER Principal Accounting Officer October 25, 1999
- ---------------------
Clayton W. Miller
</TABLE>
*By: /s/ GEATON A. DECESARIS, JR.
----------------------------
Geaton A. DeCesaris, Jr.
Attorney-in-fact
16
1999 AMENDED AND RESTATED
LOAN AGREEMENT
among
WASHINGTON HOMES, INC.
WASHINGTON HOMES, INC. OF VIRGINIA
DESIGNED CONTRACTS, INC.
HOUSING-HOME SALES, INC.
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.
PRESTON GRANDE HOMES, INC.
WH PROPERTIES, INC.
(collectively, the "Borrowers")
The Lenders Who Are or May Become a Party To This Agreement
(collectively, the "Lenders")
FIRST UNION CAPITAL MARKETS CORP.,
as Administrative Agent for the Lenders and Arranger
("Administrative Agent")
and
FIRST UNION NATIONAL BANK,
as Collateral Agent for the Lenders and Issuing Lender
("Collateral Agent")
$120,000,000 CREDIT FACILITY
Dated as of September ____, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
STATEMENT OF PURPOSE..............................................................................................1
I. DEFINITIONS............................................................................................1
1.1 Definitions....................................................................................1
1.2 General.......................................................................................20
1.3 Other Definitions and Provisions..............................................................20
(a) Use of Capitalized Terms................................................................20
(b) Miscellaneous...........................................................................20
II. REVOLVING CREDIT FACILITY.............................................................................21
2.1 Revolving Loans...............................................................................21
2.2 Procedures for Advances of Revolving Credit...................................................21
(a) Borrowing Base Report and Notice of Borrowing...........................................21
(b) Adjustments in Borrowing Base...........................................................22
(c) Funding Procedure.......................................................................23
2.3 Repayment of Revolving Loans..................................................................24
(a) Repayment on Revolving Credit Maturity Date.............................................24
(b) Certain Payments........................................................................24
(c) Mandatory Prepayment of Revolving Loans.................................................24
(d) Mandatory Prepayments in the Ordinary Course of the Borrowers' Business.................24
(e) Voluntary Prepayments...................................................................25
(f) Application of Payments.................................................................25
(g) Prepayment Procedures...................................................................25
2.4 Revolving Credit Notes........................................................................25
2.5 Permanent Reduction of Revolving Credit Commitment............................................26
2.6 Revolving Credit Maturity Date Extension......................................................26
III. L/C FACILITY..........................................................................................27
3.1 L/C Commitment................................................................................27
3.2 Procedure for Issuance of Letters of Credit...................................................27
3.3 Commissions and Other Charges.................................................................28
3.4 L/C Participations............................................................................28
3.5 Reimbursement Obligation of the Borrowers.....................................................29
3.6 Obligations Absolute..........................................................................29
3.7 Effect of Application and Letter of Credit Agreement..........................................30
3.8 Resignation of the Issuing Lender, Successor Issuing Lender...................................30
IV. TERM LOAN FACILITY....................................................................................31
4.1 Term Loan.....................................................................................31
4.2 Permanent Reduction of Term Loan Commitment...................................................31
4.3 Procedures for Advances of Term Loan..........................................................31
(a) Requests for Term Loan Borrowing........................................................31
</TABLE>
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<S> <C>
(b) Funding Procedure.......................................................................32
4.4 Repayment of Term Loan........................................................................32
4.5 Prepayment of Term Loan.......................................................................32
(a) Voluntary Prepayments...................................................................32
(b) Prepayment Procedures...................................................................33
(c) No Reborrowing of Term Loan.............................................................33
4.6 Term Loan Maturity Date Extension.............................................................33
4.7 Term Notes....................................................................................34
V. GENERAL LOAN PROVISIONS...............................................................................34
5.1 Interest......................................................................................34
(a) Interest on Revolving Loans.............................................................34
(b) Interest on Term Loan...................................................................34
(c) Late Charges; Post-Default Interest.....................................................34
(d) Interest Payment and Computation........................................................35
(e) Maximum Rate............................................................................35
5.2 Loan Fees.....................................................................................35
(a) Term Loan Commitment Fee................................................................35
(b) Term Loan Draw Fee......................................................................35
(c) Term Loan Extension Fee.................................................................36
(d) Annual Revolving Loan Fee...............................................................36
(e) Administrative Agent's and Other Fees...................................................36
5.3 Manner of Payments............................................................................36
5.4 Crediting of Payments and Proceeds............................................................37
5.5 Adjustments...................................................................................37
5.6 Nature of Obligations of Lenders Regarding Extensions of Credit, Assumption
by the Administrative Agent..................................................................38
5.7 Changed Circumstances.........................................................................38
(a) Circumstances Affecting LIBOR Rate Availability.........................................38
(b) Laws Affecting LIBOR Rate Availability..................................................39
(c) Increased Costs.........................................................................39
5.8 Indemnity.....................................................................................40
5.9 Capital Requirements..........................................................................40
5.10 Taxes.........................................................................................41
(a) Payments Free and Clear.................................................................41
(b) Stamp and Other Taxes...................................................................41
(c) Indemnity...............................................................................41
(d) Evidence of Payment.....................................................................42
(e) Delivery of Tax Forms...................................................................42
(f) Survival................................................................................42
5.11 Security......................................................................................42
VI. CONDITIONS OF CLOSING AND BORROWING...................................................................43
6.1 Conditions to Closing and Initial Extensions of Credit........................................43
(a) Executed Loan Documents.................................................................43
(b) Closing Certificates; etc...............................................................43
</TABLE>
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<CAPTION>
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<S> <C>
(c) Borrowing Base Assets...................................................................44
(d) Financial Matters.......................................................................44
(e) Consents; Defaults......................................................................45
(f) Miscellaneous...........................................................................45
(g) Refinancing.............................................................................46
6.2 Conditions to All Extensions of Credit........................................................46
(a) Continuation of Representations and Warranties..........................................46
(b) No Existing Default.....................................................................46
(c) Payment of Loan Fees....................................................................46
(d) Inspections.............................................................................46
(e) Title Insurance.........................................................................47
(f) Material Adverse Change.................................................................48
(g) Contracts of Sale.......................................................................48
(h) Approved Contracts......................................................................48
6.3 Conditions for Additional Lots and Subdivisions...............................................48
(a) Additional Lots in Approved Subdivision.................................................48
(b) Approval of Proposed Subdivision........................................................48
(c) Joinder of New Borrower.................................................................50
(d) Mortgage on Property Not in an Approved Subdivision.....................................50
(e) Delivery of Original Recorded Documents.................................................50
6.4 Conditions to Revolving Loans for Construction of Units.......................................50
(a) Certificate of Compliance Inspector.....................................................50
(b) Notice of Borrowing.....................................................................51
(c) Insurance...............................................................................51
6.5 Hedging Agreement.............................................................................51
VII. REPRESENTATIONS AND WARRANTIES.......................................................................51
7.1 Existence, Etc................................................................................51
7.2 Financial Condition...........................................................................51
7.3 Litigation....................................................................................52
7.4 No Breach.....................................................................................52
7.5 Authority.....................................................................................52
7.6 Approval......................................................................................52
7.7 Employee Benefit Plans........................................................................52
7.8 Taxes, Etc....................................................................................52
7.9 Structure and Ownership of the Borrowers......................................................53
7.10 Principal Place of Business...................................................................53
7.11 Ownership of Collateral.......................................................................53
7.12 Year 2000.....................................................................................53
7.13 Existing Loan Documents.......................................................................53
7.14 Released Borrowers............................................................................53
7.15 Survival......................................................................................53
VIII. COVENANTS OF THE BORROWERS...........................................................................54
8.1 Financial Statements, Etc.....................................................................54
8.2 Disposition of Assets.........................................................................55
</TABLE>
- iii -
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<TABLE>
<CAPTION>
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- ------- ----
<S> <C>
8.3 Existence, Etc................................................................................55
8.4 Liens.........................................................................................55
8.5 Use of the Credit Facility....................................................................55
8.6 Access........................................................................................55
8.7 Leases........................................................................................55
8.8 Quality of Work: Changes; Etc.................................................................56
8.9 Insurance.....................................................................................56
(a) Types of Insurance......................................................................56
(b) Policy Requirements.....................................................................56
(c) Failure to Maintain Insurance...........................................................57
(d) Casualty Loss and Application of Insurance Proceeds.....................................57
(e) Application of Insurance Proceeds After Event of Default................................57
(f) Insurance After Foreclosure.............................................................58
8.10 Year 2000 Compatibility.......................................................................58
8.11 Other Documents...............................................................................58
8.12 Notice of Changes in Registration Statements..................................................58
8.13 Amendments to Charters........................................................................58
8.14 Hedging Agreements............................................................................58
8.15 Additional Debt...............................................................................59
(a) Acquisition Debt........................................................................59
(b) Unsecured Debt..........................................................................60
IX. FINANCIAL COVENANTS...................................................................................60
9.1 Liquidity.....................................................................................60
9.2 Consolidated Tangible Net Worth...............................................................60
9.3 Interest Coverage Ratio.......................................................................60
9.4 Total Debt to Consolidated Tangible Net Worth Ratio...........................................60
9.5 Land Under Development/Net Tangible Assets Ratio..............................................60
9.6 Current Debt Ratio............................................................................61
9.7 Loan to Value Ratio...........................................................................61
9.8 Restricted Payments...........................................................................61
9.9 Joint Ventures................................................................................61
9.10 Senior Notes..................................................................................61
9.11 Financial Covenant Calculations...............................................................61
9.13 Appraisals....................................................................................61
X. EVENTS OF DEFAULT AND REMEDIES........................................................................62
10.1 Events of Default.............................................................................62
(a) Default in Payment of Obligations.......................................................62
(b) Default in Payment of Other Debts of Lenders............................................62
(c) Misrepresentation.......................................................................62
(d) Default in Performance of Covenants.....................................................62
(e) Voluntary Bankruptcy Proceeding.........................................................62
(f) Involuntary Bankruptcy Proceeding.......................................................63
(g) Dissolution.............................................................................63
</TABLE>
- iv -
<PAGE>
<TABLE>
<CAPTION>
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- ------- ----
<S> <C>
(h) Default Under Other Liens or Encumbrances Affecting Borrowing Base Assets...............63
(i) Debt in Breach of Financial Covenants...................................................63
(j) Default Under Senior Notes..............................................................63
10.2 Remedies......................................................................................63
(a) Acceleration; Termination of Facilities.................................................63
(b) Letters of Credit.......................................................................64
(c) Rights of Collection....................................................................64
10.3 Rights and Remedies Cumulative; Non-Waiver; etc...............................................64
10.4 Defaults Affecting Borrowing Base Assets......................................................64
XI. THE AGENTS............................................................................................65
11.1 Appointment...................................................................................65
11.2 Delegation of Duties..........................................................................65
11.3 Exculpatory Provisions........................................................................65
11.4 Reliance by the Agents........................................................................66
11.5 Notice of Default.............................................................................66
11.6 Non-Reliance on the Agents and Other Lenders..................................................66
11.7 Indemnification...............................................................................67
11.8 The Agents in Its Individual Capacity.........................................................67
11.9 Resignation of the Agents, Successor Agents...................................................68
11.10 Effect of Article on Borrowers................................................................68
XII. MISCELLANEOUS.........................................................................................68
12.1 Notices.......................................................................................68
(a) Method of Communication.................................................................68
(b) Addresses for Notices...................................................................68
(c) Administrative Agent's Office...........................................................70
12.2 Expenses, Indemnity...........................................................................70
12.3 Set-off.......................................................................................70
12.4 Governing Law.................................................................................71
12.5 Consent to Jurisdiction.......................................................................71
12.6 Binding Arbitration; Waiver of Jury Trial.....................................................71
(a) Binding Arbitration.....................................................................71
(b) Jury Trial..............................................................................71
(c) Preservation of Certain Remedies........................................................71
12.7 Reversal of Payments..........................................................................72
12.8 Injunctive Relief; Punitive Damages...........................................................72
12.9 Accounting Matters............................................................................72
12.10 Successors and Assigns; Participations........................................................73
(a) Benefit of Agreement....................................................................73
(b) Assignment by Lenders...................................................................73
(c) Rights and Duties Upon Assignment.......................................................74
(d) Register................................................................................74
(e) Issuance of New Notes...................................................................74
(f) Participations..........................................................................74
</TABLE>
- v -
<PAGE>
<TABLE>
<CAPTION>
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- ------- ----
<S> <C>
(g) Disclosure of Information, Confidentially...............................................75
(h) Certain Pledges or Assignment...........................................................75
12.11 Amendments, Waivers and Consents..............................................................75
12.12 Performance of Duties.........................................................................76
12.13 All Powers Coupled with Interest..............................................................76
12.14 Survival of Indemnities.......................................................................76
12.15 Titles and Captions...........................................................................76
12.16 Severability of Provisions....................................................................76
12.17 Counterparts..................................................................................76
12.18 Term of Agreement.............................................................................76
12.19 WHI as Agent for Borrowers; Obligations Joint and Several; Contributions and Indemnity........77
12.20 Time is of the Essence........................................................................78
12.21 Brokerage.....................................................................................78
12.22 Public Notice.................................................................................78
12.23 Entire Agreement..............................................................................78
12.24 Inconsistencies with Other Documents; Covenants...............................................78
12.25 List of Deliveries to be Submitted at the Request of an Agent and Deliveries to
be Made to All Agents and Lenders Simultaneously..............................................78
</TABLE>
<PAGE>
1999 AMENDED AND RESTATED LOAN AGREEMENT
THIS AMENDED AND RESTATED LOAN AGREEMENT (this "Agreement") is made as
of September ___, 1999, by and among WASHINGTON HOMES, INC. ("WHI") and each of
the other entities identified on the signature pages hereto as Borrower and each
additional entity that becomes a Borrower pursuant to Section 6.3(c) (together
with WHI, individually a "Borrower" and collectively the "Borrowers"), the
Lenders who are or may become a party to this Agreement, FIRST UNION NATIONAL
BANK (successor to First Union National Bank of Maryland), a national banking
association, (sometimes referred to as "First Union"), as a Lender, as
Collateral Agent for the Lenders and as Issuing Lender, and FIRST UNION CAPITAL
MARKETS CORP., as Administrative Agent for the Lenders and as Arranger.
STATEMENT OF PURPOSE
The Borrowers have requested, and the Lenders have agreed, to amend and
restate the Existing Facility (as defined below) pursuant to which the Lenders
have agreed to extend certain credit facilities to the Borrowers on the terms
and conditions of this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties hereto, such parties
hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. The following terms shall have the meanings assigned
to them below when used in this Agreement.
"Acquisition Debt" shall have the meaning set forth in Section
8.15(a).
"Actual Costs Incurred" with respect to any Unit that is or is to
become a Borrowing Base Asset means the actual costs incurred by the
Borrowers to acquire, develop, and construct such Unit to the date of the
Notice of Borrowing.
"Adjusted Revolving Loan Commitment" means (a) if the L/C Commitment
Increase is not in effect, the Revolving Credit Commitment less the L/C
Obligations or (b) if the L/C Commitment Increase is in effect, the
Revolving Credit Commitment less the greater of (a) the L/C Obligations or
(b) $5,000,000. For the convenience of the parties, Exhibit "M" summarizes
the calculation of Revolving Loan amounts, which calculation involves the
application of this term.
-1-
<PAGE>
"Administrative Agent" means First Union Capital Markets Corp. in its
capacity as Administrative Agent hereunder, and any successor thereto
appointed pursuant to Section 11.9.
"Administrative Agent's Office" means the office of the Administrative
Agent specified in or determined in accordance with the provisions of
Section 12.1(c).
"Affiliate" means, with respect to any Person, any individual,
corporation, partnership, association, trust, or other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with such Person.
"Aggregate Commitment" means the aggregate amount of the Lenders'
Commitments hereunder, as such amount may be reduced or modified at any
time or from time to time pursuant to the terms of this Agreement. On the
Closing Date, the Aggregate Commitment shall be One Hundred Twenty Million
and no/100 Dollars ($120,000,000.00).
"Agreement" means this 1999 Amended and Restated Loan Agreement, as
further amended, restated or otherwise modified hereafter.
"Annual Revolving Loan Fee" has the meaning given to it in Section
5.2(d)(1).
"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.
"Appraisal" means an appraisal ordered by the Collateral Agent, on
behalf of the Lenders, performed by an appraiser approved by the Collateral
Agent 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.
"Approved Contract" means a residential contract of sale between a
Borrower seller and a non-Affiliate third party purchaser for the sale of a
Lot or Unit so long as such contract is written on the Borrowers' standard
form contract that has been approved by the Collateral Agent and has not
been modified in any material respect without the approval of the
Collateral Agent.
"Approved Subdivisions" means those residential developments that are
subject to a recorded subdivision or condominium plat or a subdivision or
condominium plat approved by the appropriate Governmental Authorities in
the jurisdiction in which they are located, and either (a) contain Lots for
which advances have been made under the Existing Facility, or (b) have been
approved in accordance with Section 6.3(b). The Approved Subdivisions as of
the Closing Date are listed on Exhibit "A".
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<PAGE>
"Arranger" means First Union Capital Markets Corp.
"As Is Value" or "As Is Appraised Value" of a Lot or Unit means the
value as determined by the most recent Appraisal pertaining to such Lot or
Unit.
"Assignment and Acceptance" shall have the meaning assigned thereto in
Section 12.10(b).
"Benefited Lender" has the meaning given to it in Section 5.5.
"Borrower" or "Borrowers" shall have the meaning assigned thereto in
the preamble of this Agreement.
"Borrowing Base" means at any date of determination the sum of the
Actual Costs Incurred for Borrowing Base Assets in each of the following
categories multiplied by the applicable advance rate shown in the following
chart, but subject to the indicated sublimit, if any, for each category of
Borrowing Base Assets.
<TABLE>
<CAPTION>
CATEGORY ADVANCE RATE SUBLIMITS
- -------- ------------ ---------
(as % of Actual Costs Incurred)
<S> <C> <C>
Land under Development 45% $ 9,000,000
Finished Lots 75% $17,000,000
Model Units 75% $ 5,000,000
Spec Units $23,000,000
<180 days since Completion 75%
180-269 days since Completion 35%
>270 days since Completion 0%
Sold Inventory Lesser of 100% of No sublimit
Actual Costs Incurred or
80% of Contract
Price
</TABLE>
At the time of submission of the monthly Borrowing Base Report, the Borrowers
shall have the option, by providing written notice to the Collateral Agent, to
increase or decrease the sublimit for Model Units, in $500,000 increments, up to
a maximum sublimit of $10,000,000 or down to a minimum sublimit of $5,000,000.
Such increase or decrease shall result in a corresponding decrease or increase
in the sublimits for Finished Lots and/or Spec Units, in such amounts as the
Borrowers shall elect; provided that the sum of the sublimits for Finished Lots,
Model Units, and Spec Units shall at no time exceed $45,000,000. Optional
sublimit adjustments shall not be
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available for any other category of Borrowing Base Assets except to make
corresponding adjustments up or down as a result of increases or decreases in
the Model Unit sublimit.
"Borrowing Base Assets" means those real estate assets of the
Borrowers designated as "Borrowing Base Assets" on the monthly Borrowing
Base Report which are Lots or Units in Approved Subdivisions, and upon
which the Collateral Agent has a recorded first priority Mortgage for the
benefit of the Lenders.
"Borrowing Base Report" means the monthly report provided by the
Borrowers to the Collateral Agent containing the information shown on
Exhibit "B" and such other information concerning the Borrowing Base Assets
as the Collateral Agent shall request.
"Business Day" means (a) for all purposes other than as set forth in
clause (b) below, any day other than a Saturday, Sunday or legal holiday on
which banks in Charlotte, North Carolina, Tysons Corner, Virginia, New
York, New York, and each jurisdiction where a Lender has its Lending Office
are open for the conduct of their commercial banking business, and (b) with
respect to all notices and determinations in connection with the LIBOR Rate
or the LIBOR Market Index Rate, any day that is a Business Day described in
clause (a) and that is also a day for trading by and between banks in
Dollar deposits in the London interbank market.
"Capitalized Lease" means any lease with respect to which is required
to be capitalized on a consolidated balance sheet of the lessee and its
subsidiaries in accordance with GAAP. This defined term is used exclusively
in the determination of Funded Debt and Current Debt for the calculation of
the Current Debt Ratio. When the Current Debt Ratio is no longer in effect,
this term shall no longer be applicable.
"Capitalized Rentals" of any Person means as of the date of any
determination thereof, the amount at which the aggregate Rentals due and to
become due under all Capitalized Leases under which such Person is a lessee
would be reflected as a liability on a consolidated balance sheet of such
Person. This defined term is used exclusively in the determination of
Funded Debt and Current Debt for the calculation of the Current Debt Ratio.
When the Current Debt Ratio is no longer in effect, this term shall no
longer be applicable.
"Closing Date" means the date of this Agreement or such later Business
Day upon which each condition described in Section 6.1 shall be satisfied
or waived in all respects in a manner acceptable to the Agents, in their
mutual sole discretion.
"Collateral" means all property of the Borrowers, or any of them,
including Borrowing Base Assets, which is encumbered by a Mortgage or
otherwise granted by the Borrowers as security for the Credit Facility
under any of the Loan Documents.
"Collateral Agent" means First Union in its capacity as Collateral
Agent hereunder, and any successor thereto appointed pursuant to Section
11.9.
"Commitment" means, as to any Lender, the sum of such Lender's (a)
Revolving Credit Commitment and (b) Term Loan Commitment.
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<PAGE>
"Commitment Percentage" means, as to any Lender at any time, the
ratio, stated as a percentage, of (a) the amount of the Commitment of such
Lender to (b) the Aggregate Commitment.
"Completion" means as to each Unit that is a Borrowing Base Asset, the
effective date of the first Borrowing Base Report upon which the Actual
Costs Incurred for the Unit, as shown in the "WIP (actual)" column of the
Borrowing Base Report, equals or exceeds 95% of the budgeted costs to
complete, as shown in the "WIP (budgeted)" column of the Borrowing Base
Report.
"Compliance Inspector" means an independent architect or engineer
selected and retained by the Collateral Agent at the Collateral Agent's
expense (subject to Section 6.2(d)), in order from time to time as required
by Collateral Agent, (i) to conduct inspections of the Borrowing Base
Assets in connection with requests for Revolving Loans, (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, and (iv)
to consult on such other matters as provided for herein or that the
Collateral Agent may request in its sole discretion.
"Consolidated" means, when used with reference to financial statements
or financial statement items of the Borrowers, such statements or items on
a consolidated basis in accordance with applicable principles of
consolidation under GAAP.
"Consolidated Net Income" means 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" means the total assets after
deducting goodwill of WHI and its Consolidated Subsidiaries, all as shown
in the consolidated balance sheet of WHI and its Consolidated Subsidiaries
prepared in accordance with GAAP.
"Consolidated Subsidiary(ies)" means any Person whose accounts would
be consolidated with those of WHI in its consolidated financial statements
in accordance with GAAP.
"Consolidated Tangible Net Worth" means the shareholders' equity minus
goodwill as shown in the consolidated balance sheet of WHI and its
Consolidated Subsidiaries.
"Contract Price" means the sales price payable to a Borrower pursuant
to an Approved Contract.
"Control" means possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of a Person,
whether through the ownership of voting securities, by contract, or
otherwise.
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<PAGE>
"Covenant Compliance Certificate" means a certificate signed by the
chief financial officer, chief accounting officer or treasurer of WHI
certifying that the Borrowers are in compliance with all covenants under
the Loan Documents and with all financial covenants under all other debt
facilities, including without limitation the Senior Notes, and with respect
to financial covenants under the Loan Documents, demonstrating such
compliance with specific figures. The form of the Covenant Compliance
Certificate is attached to this Agreement as Exhibit "C".
"Credit Facility" means collectively the Revolving Credit Facility,
including the L/C Facility, and the Term Loan Facility.
"Current Debt" of WHI and its consolidated Subsidiaries means as of
the date of any determination thereof (but without duplication) (i) all
Debt of WHI or any Subsidiary other than Funded Debt, (ii) all Debt of WHI
or any Subsidiary incurred pursuant to revolving credit working capital
facilities if (i) the obligations of WHI and such Subsidiary thereunder are
classified as current liabilities in accordance with GAAP, and (ii) WHI or
such Subsidiary is required to repay all extensions of credit within one
year from the date of incurrence thereof, except where such credit
facility, by its terms, permits such repayment to be made substantially
concurrently with the sale of real property, the acquisition of which was
financed by the incurrence of such credit, and (iii) Guaranties by WHI or
any Subsidiary of Debt of others described in clauses (i) and (ii). This
defined term is used exclusively in the determination of Funded Debt and
Current Debt for the calculation of the Current Debt Ratio. When the
Current Debt Ratio is no longer in effect, this term shall no longer be
applicable.
"Debt" of any Person means and includes (i) all obligations of such
Person for borrowed money or credit extended (including any outstanding
bank overdraft) or which has been incurred in connection with the
acquisition of property or assets, (ii) obligations secured by any Lien
upon property or assets owned by such Person, even though such Person has
not assumed or become liable for the payment of such obligations, (iii)
obligations created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person,
notwithstanding the fact that the rights and remedies of the seller, lender
or lessor under such agreement in the event of default are limited to
repossession or sale of property, (iv) Capitalized Rentals, (v) Guaranties
of such Person of obligations of others of the type described in clauses
(i), (ii), (iii) or (iv) hereof, (vi) all obligations of a Person under
contracts or other agreements whereunder such Person agrees to lease or
purchase property, assets or services and to pay for such lease or purchase
regardless of whether such Person actually receives, takes or otherwise
accrues the benefit of any such property, assets or services, and (vii)
reimbursement obligations of such Person in respect of letters of credit
other than letters of credit described in clause (b) below. "Debt" shall
not, in any event, include (a) trade payables incurred in the ordinary
course of business, (b) commercial payment and performance bonds issued in
lieu thereof, (c) land acquisition options and deposits in connection
therewith of such Person, and (d) obligations of the Homebuyer's Mortgage,
Inc., a Maryland corporation, that would otherwise constitute Debt
hereunder. This defined term is used exclusively in the determination of
Funded Debt and Current Debt for the calculation of the Current Debt Ratio.
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<PAGE>
When the Current Debt Ratio is no longer in effect, this term shall no
longer be applicable. For all other purposes, "debt" shall mean debt as
determined in accordance with GAAP.
"Debt Service Coverage Ratio" for any period means the ratio of the
EBITDA for such period to the interest and principal payments due under the
Credit Facility for such period.
"Default" means the occurrence of any condition, event, act or
omission that, with the giving of notice or passage of time, or both, would
constitute an Event of Default.
"EBITDA" means, for any period, the sum of (i) Consolidated Net
Income; (ii) income tax expense (benefit); (iii) Interest Expense; (iv)
capitalized interest in cost of goods sold, (v) amortization and
depreciation expense, which shall include financing fees for any such
period, (vi) any other non-cash expenses, and (vii) any losses arising
outside the ordinary course of business which have been excluded in the
determination of Consolidated Net Income, less interest income.
"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 Borrowers and the Administrative
Agent.
"Environmental Laws" means any and all federal, state and local laws,
statutes, ordinances, rules, regulations, permits, licenses, approvals,
interpretations, and orders of courts or Governmental Authorities, relating
to the protection of human health or the environment, including, but not
limited to, requirements pertaining to the manufacture, processing,
distribution, use, treatment, storage, disposal, transportation, handling,
reporting, licensing, permitting, investigation or remediation of Hazardous
Materials.
"Existing Facility" means the credit facility made available under the
Consolidated, Amended and Restated Loan Agreement dated as of July 31, 1997
among the Borrowers and the Released Borrowers, as borrowers thereunder,
and First Union National Bank of Maryland, as Agent, and one or more other
lenders, as lenders, as amended.
"Existing Loans" means the outstanding loans under the Existing
Facility.
"Existing Letters of Credit" means those letters of credit issued by
First Union existing on the Closing Date and identified on Exhibit "D".
"Extensions of Credit" means (a) with respect to all Lenders, the
aggregate principal amount of all outstanding Loans and L/C Obligations and
(b) with respect to each Lender, an amount equal to the sum of (a) the
aggregate principal amount of all Loans made by
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<PAGE>
such Lender then outstanding and (b) such Lender's Commitment Percentage of
the L/C Obligations then outstanding.
"Event of Default" means any event or condition specified as an Event
of Default in Section 10.1.
"Federal Funds Rate" means the rate per annum (rounded upwards, if
necessary, to the next higher 1/100th of 1%) representing the daily
effective federal funds rate as quoted by the Administrative Agent and
confirmed in Federal Reserve Board Statistical Release H.15 (519) or any
successor or substitute publications selected by the Administrative Agent.
If, for any reason, such rate is not available, then "Federal Funds Rate"
shall mean a daily rate that is determined, in the opinion of the
Administrative Agent, to be the rate at which federal funds are being
offered for sale in the national federal funds market at 9:00 a.m.
(Charlotte time). Rates for weekends or holidays shall be the same as the
rate for the immediately preceding Business Day.
"Fee Letter" means that certain letter agreement among the Borrowers
and the Agents concerning the payment of certain fees in connection with
the Credit Facility.
"Financial Covenants" has the meaning given to it in Article IX.
"Finished Lot" means any Lot that is not Sold Inventory and 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.
"First Union" means First Union National Bank, a national banking
association, and its successors.
"Fiscal Quarter" means each of the four calendar periods of three
months ending on October 31, January 31, April 30 and July 31.
"Fiscal Year" means the calendar period beginning August 1 and ending
July 31.
"Funded Debt" of WHI and its consolidated Subsidiaries means (i) all
Debt of WHI or any Subsidiary having a final maturity of one or more than
one year from the date of origin thereof (or which is renewable or
extendible at the option of the obligor for a period or periods more than
one year from the date of origin) including all payments in respect thereof
that are required to be made within one year from the date of any
determination of Funded Debt, whether or not the obligation to make such
payments shall constitute a current liability of the obligor under GAAP,
(ii) all Capitalized Rentals, and (iii) all Guaranties by WHI or any
Subsidiary of Funded Debt of others. "Funded Debt" shall not include Debt
of WHI or any Subsidiary incurred pursuant to revolving credit working
capital facilities if (i) the obligations of
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<PAGE>
WHI and such Subsidiary thereunder are classified as current liabilities in
accordance with GAAP, and (ii) WHI or such Subsidiary is required to repay
all extensions of credit within one year from the date of incurrence
thereof, except where such credit facility, by its terms, permits such
repayment to be made substantially concurrently with the sale of real
property, the acquisition of which was financed by the incurrence of such
credit. This defined term is used exclusively in the determination of
Funded Debt and Current Debt for the calculation of the Current Debt Ratio.
When the Current Debt Ratio is no longer in effect, this term shall no
longer be applicable.
"GAAP" means generally accepted accounting principles as promulgated
by the Financial Accounting Standards Board from time to time; provided
that if changes to GAAP are promulgated by the Financial Accounting
Standards Board, the Borrowers' compliance with the reporting requirements
and covenants set forth in the Loan Documents shall not be tested based on
such changes in GAAP (but shall be tested on the GAAP in effect immediately
prior to the promulgation of such changes) until the second calendar
quarter after the quarter in which such changes in GAAP become effective.
"Governmental Approvals" means all authorizations, consents,
approvals, or licenses issued by Governmental Authorities.
"Governmental Authority" means 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.
"Guaranties" by any Person means all obligations (other than
endorsements in the ordinary course of business of negotiable instruments
for deposit or collection) of such Person guaranteeing, or in effect
guaranteeing, any Indebtedness, dividend or other obligation of any other
Person (the "primary obligor") in any manner, whether directly or
indirectly, including, without limitation, all obligations incurred through
an agreement, contingent or otherwise, by such Person: (i) to purchase such
Indebtedness or obligation or any property or assets constituting security
therefor, (ii) to advance or supply funds (x) for the purchase or payment
of such Indebtedness or obligation, (y) to maintain working capital or
other balance sheet condition or otherwise to advance or make available
funds for the purchase or payment of such Indebtedness or obligation, (iii)
to lease property or to purchase securities or other property or services
primarily for the purpose of assuring the owner of such Indebtedness or
obligation of the ability of the primary obligor to make payment of the
Indebtedness or obligation, or (iv) otherwise to assure the owner of the
Indebtedness or obligation of the primary obligor against loss in respect
thereof. For the purposes of all computations made under this Agreement, a
Guaranty in respect of any Indebtedness for borrowed money shall be deemed
to be Indebtedness equal to the principal amount of such Indebtedness for
borrowed money that has been guaranteed, and a Guaranty in respect of any
other obligation or liability or any dividend shall be deemed to be
Indebtedness equal to the maximum aggregate amount of such obligation,
liability or dividend. This defined term is used exclusively in the
determination of Funded Debt and Current Debt for the calculation of the
Current Debt Ratio. When the Current Debt Ratio is no longer in effect,
this term shall no longer be applicable.
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"Hazardous Materials" means 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
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 the Borrowers 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 Borrowers under this Agreement, and any confirming letter executed
pursuant to such Hedging Agreement, all as amended, restated or otherwise
modified.
"Indebtedness" of any Person means and includes all obligations of
such Person which in accordance with GAAP shall be classified upon a
balance sheet of such Person as liabilities of such Person, and in any
event shall include Debt. This defined term is used exclusively in the
determination of Funded Debt and Current Debt for the calculation of the
Current Debt Ratio. When the Current Debt Ratio is no longer in effect,
this term shall no longer be applicable.
"Indemnified Loss or Expense" means Lenders' loss or expense in
employing deposits as a consequence of (a) the Borrowers' failure to make
any payment when due under the Loans, or (b) any prepayment of the Loans on
a date other than the last day of an interest period.
"Interest Expense" means for any period the interest expense as shown
in the consolidated income statement of WHI and its Consolidated
Subsidiaries for such period. "Interest Incurred" means for any period, the
aggregate amount (without duplication and determined in each case in
accordance with GAAP) of interest expensed or capitalized whether paid or
accrued during such period, including any interest relating to the Hedging
Agreement, less any interest income.
"Interest Period" has the meaning assigned in Section 5.1(b).
"Issuing Lender" means First Union, in its capacity as issuer of any
Letter of Credit, or any successor thereto.
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"Joinder Agreement" means an agreement substantially in the form of
Exhibit "E," pursuant to which one or more Subsidiaries of any of the
Borrowers becomes a Borrower in accordance with Section 6.3(c).
"Land Under Development" means Lots that are subject to a recorded
subdivision or condominium plat or a subdivision or condominium plat
approved by the appropriate Governmental Authorities in the jurisdiction in
which the Lots are located and that are not considered Finished Lots or
Sold Inventory.
"L/C Commitment" means Five Million and no/100 Dollars
($5,000,000.00), as such amount may be increased by an L/C Commitment
Increase to Ten Million and no/100 Dollars ($10,000,000.00).
"L/C Commitment Increase" means the one-time increase of $5,000,000.00
in the L/C Commitment, which may be effected pursuant to Section 3.1(b).
"L/C Facility" means the letter of credit facility established
pursuant to Article III hereof.
"L/C Maximum Availability" means, for any given Letter of Credit, the
lowest of:
(a) the L/C Commitment minus the L/C Obligations; or
(b) the then applicable Revolving Credit Commitment, including all
L/C Commitment Increases, minus the sum of ((i) all outstanding
Revolving Loans and (ii) the L/C Obligations); or
(c) while any portion of the Term Loan is outstanding after October
30, 2000, 80% of the Value of Borrowing Base Assets minus the sum
of ((i) the outstanding principal balance of the Term Loan, (ii)
all outstanding Revolving Loans, and (iii) the L/C Obligations.
"L/C Obligations" means at any time, an amount equal to the sum of (a)
the aggregate undrawn and unexpired amount of the then issued Letters of
Credit and (b) the aggregate amount of drawings under Letters of Credit
that have not then been reimbursed pursuant to Section 3.5.
"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 12.10(b).
"Lending Office" means, with respect to any Lender, the office of such
Lender administering such Lender's Commitment Percentage of the Credit
Facility.
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"Letter of Credit Agreement" means the Letter of Credit Agreement in
the Issuing Lender's standard form, as such form may be revised from time
to time, entered into by and between the Borrowers and the Issuing Lender
in connection with the issuance of each Letter of Credit; provided that
each Letter of Credit Agreement shall be modified to include a provision
that in the event of any inconsistency between the terms of the Issuing
Lender's standard form Letter of Credit Agreement and the terms of this
Agreement, this Agreement shall control. The Issuing Lender's current
standard form of Letter of Credit Agreement is attached to this Agreement
as Exhibit "F".
"Letters of Credit" shall have the meaning assigned thereto in Section
3.1(a).
"LIBOR Based Rate Loan" means any Loan, either a Revolving Loan or a
Term Loan advance, accruing interest at a rate based on the LIBOR Rate or
the LIBOR Market Index Rate.
"LIBOR Market Index Rate" for any day, is the rate for 1-month U.S.
dollar deposits as reported on Telerate page 3750 as of 11:00 a.m., London
time, on such day, or if such day is not a London Business Day, then the
immediately preceding London Business Day (or if not so reported, then as
determined by the Administrative Agent from another recognized source or
interbank quotation).
"LIBOR Rate" means, with respect to each day during each 1-month
Interest Period, reserve adjusted LIBOR for U.S. dollar deposits of one (1)
month maturity, as reported on Telerate page 3750 as of 11:00 a.m., London
time, two (2) London business days prior to the beginning of such interest
period, for the number of days comprised therein and in an amount
comparable to the Loan to be outstanding during such interest period (or if
not so reported, then as determined by the Administrative Agent from
another recognized source or interbank quotation).
"Lien" means 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).
"Liquidity" means the available liquid assets (cash or cash
equivalents) of the Borrowers.
"Loan Documents" means those documents executed and delivered by the
Borrowers to the Lenders or the Agents to evidence and/or secure the Loans.
"Loan Fees" means the fees provided for in Section 5.2.
"Loans" means the collective reference to the Revolving Loans and the
Term Loan, and "Loan" means any of such Loans.
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"Lot" means 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.
"Material Adverse Change" means any change in the properties,
business, operation or condition (financial or otherwise) of one or more
Borrowers or any of their Subsidiaries that results in a material adverse
change in the properties, business, operation or condition (financial or
otherwise) of the Borrowers taken as a whole or a material adverse change
in the ability of the Borrowers to perform their obligations under the Loan
Documents.
"Model Unit" means any Unit which is not Sold Inventory and which is
intended to be used as a model or sales office to conduct the business of
marketing and selling homes.
"Modified Extension Period" has the meaning given to it in Section
2.6(c).
"Mortgage" means collectively each mortgage, deed of trust, trust
deed, or deed to secure debt, supplemental mortgage or deed of trust, as
the same may be modified or amended from time to time (by spreader
agreement or otherwise), granted and delivered to the Collateral Agent by
one or more Borrowers for the benefit of the Lenders to secure the
indebtedness under the Credit Facility.
"Notes" means, collectively, the Revolving Credit Notes and the Term
Notes. The term "Note" includes each modification, amendment or replacement
of such promissory notes.
"Notice of Account Designation" means a notice, substantially in the
form of Exhibit "G" attached to this Agreement, which identifies the
deposit account of the Borrower to which the Administrative Agent is
authorized to disburse the proceeds of each borrowing under this Agreement.
"Notice of Borrowing" means a notice, substantially in the form of
Exhibit "H" attached to this Agreement, which must be submitted to the
Administrative Agent in connection with a borrowing pursuant to Article II
with respect to Revolving Loans and pursuant to Article IV with respect to
the Term Loan.
"Notice of Prepayment" means a notice, substantially in the form of
Exhibit "I" attached to this Agreement, which must be submitted to the
Administrative Agent in connection with a prepayment pursuant to Article II
with respect to Revolving Loans and pursuant to Article IV with respect to
the Term Loan.
"Obligations" means any and all obligations (now existing or hereafter
arising) of the Borrowers under the Loan Documents.
"Other Taxes" has the meaning given to it in Section 5.10(b).
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"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 Borrowers, or (c) arise out of judgments
or awards against the Borrowers with respect to which the Borrowers at the
time shall currently be prosecuting an appeal or proceedings for review;
provided that in the case of (b) and (c) above involving amounts in excess
of $250,000 individually or in the aggregate, the Borrowers shall have
obtained a bond or stay of execution satisfactory to the Collateral Agent,
within ten (10) days after item (b) or (c) becomes a Lien on all or any
portion of the Borrowing Base Assets, 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 each
Mortgage; (iv) each Mortgage; (v) any Spreader Agreement; and (vi) Liens or
other encumbrances set forth on the relevant schedules of the title
insurance policies provided to the Collateral Agent pursuant to Section
6.2(e) hereof and approved by the Collateral Agent 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" means the plans and specifications
(including the architect's final drawings) describing any Unit or other
improvements to be constructed within the Borrowing Base Assets.
"Post-Default Rate" means, in respect of any principal of the Loan or
any other amount payable by the Borrowers under this 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.
"Prior Lender" means each lender under the Existing Facility.
"Register" has the meaning given to it in Section 12.10(d).
"Reimbursement Obligation" means the obligation of the Borrowers to
reimburse the Issuing Lender pursuant to Section 3.5 for amounts drawn
under Letters of Credit.
"Released Borrowers" means, collectively, each of the following
limited partnerships: WH Properties Limited Partnership; Potomac Knolls A3
Limited Partnership; Potomac Knolls B1 Limited Partnership; and Potomac
Knolls B2 Limited Partnership, each of which was a borrower under the
Existing Facility, but, at the Borrowers' request, have been excluded as
Borrowers hereunder.
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"Rentals" of a Person means and includes as of the date of any
determination thereof all fixed payments (including as such all payments
that the lessee is obligated to make to the lessor on termination of the
lease or surrender of the property) payable by such Person or its
subsidiary, as lessee or sublessee under a lease of real or personal
property, but shall be exclusive of any amounts required to be paid by such
Person or its subsidiary (whether or not designated as rents or additional
rents) on account of maintenance, repairs, insurance, taxes and similar
charges. Rents under any so-called "percentage leases" shall be computed
solely on the basis of minimum rents, if any, required to be paid by the
lessee regardless of sales volume or gross revenues. This defined term is
used exclusively in the determination of Funded Debt and Current Debt for
the calculation of the Current Debt Ratio. When the Current Debt Ratio is
no longer in effect, this term shall no longer be applicable.
"Required Lenders" means any combination of Lenders holding at least
sixty-six and two-thirds percent (66 2/3%) of the Extensions of Credit or,
if there are no outstanding Loans and Letters of Credit, any combination of
Lenders whose Commitment equals at least sixty-six and two-thirds percent
(66 2/3%) of the Aggregate Commitment.
"Responsible Officer" means any of the following: the chief executive
officer, chief accounting officer, treasurer, or chief financial officer of
WHI or any other officer of WHI reasonably acceptable to the Agents.
"Revolving Credit Commitment" means (a) as to any Lender, the
obligation of such Lender to make Revolving Loans to and to issue or
participate in Letters of Credit issued for the account of the Borrowers
hereunder in an aggregate principal amount or face amount at any time
outstanding not to exceed the amount set forth opposite such Lender's name
on Schedule 1 hereto as such amount may be reduced or modified at any time
and from time to time pursuant to the terms hereof and (b) as to all
Lenders, the aggregate Commitment of the Lenders to make Revolving Loans in
the maximum aggregate amount of up to $100,000,000.00, which is subject to
reduction by the Borrowers pursuant to Section 2.5; provided that the
Revolving Credit Commitment may be increased by $5,000,000.00 if and only
if the L/C Commitment is increased to $10,000,000.00; provided further that
such increase in the Revolving Credit Commitment shall be available
exclusively in connection with the issuance of Letters of Credit and shall
not increase the amount otherwise available for Revolving Loans.
"Revolving Credit Commitment Percentage" means, as to the respective
Revolving Credit Commitment of any Lender at any time, the ratio of (a) the
amount of the Revolving Credit Commitment of such Lender to (b) the
Revolving Credit Commitments of all Lenders.
"Revolving Credit Facility" means the revolving credit facility
established pursuant to Article II, including the L/C Facility established
pursuant to Article III.
"Revolving Credit Maturity Date" means October 30, 2001 or such later
date to which the Revolving Credit 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 Revolving Credit Term.
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"Revolving Credit Notes" means the collective reference to the
Revolving Credit Notes made by the Borrowers payable to the order of each
Lender, substantially in the form of Exhibit "J-1" hereto, evidencing the
Revolving Credit Facility, and any amendments and modifications thereto,
any substitutes therefor, and any replacements, restatements, renewals or
extensions thereof, in whole or in part; "Revolving Credit Note" means any
of such Revolving Credit Notes.
"Revolving Credit Term" means the period ending on the Revolving
Credit Maturity Date, unless such term is extended from time to time by the
Lenders, pursuant to the terms hereof, in which case the "Revolving Credit
Term" for the Revolving Credit Facility shall be the period ending on the
date to which such Revolving Credit Maturity Date was extended.
"Revolving Loan" means any Loan made by the Lenders pursuant to
Article II hereof.
"Revolving Loan Borrowing Limit" means, through October 30, 2000, the
lesser of (a) the Adjusted Revolving Loan Commitment or (b) the Borrowing
Base. From and after October 31, 2000, the term means the lesser of (a) the
Revolving Credit Commitment (including the L/C Commitment Increase, if any)
or (b) the Borrowing Base. For the convenience of the parties, Exhibit "M"
summarizes the calculation of Revolving Loan amounts, which calculation
involves the application of this term.
"Revolving Loan Maximum Availability" means the maximum aggregate
amount that is available to be advanced for any given Revolving Loan.
Through October 30, 2000, the Revolving Loan Maximum Availability for any
given Revolving Loan is the lower of:
(a) the then applicable Revolving Loan Borrowing Limit minus all
outstanding Revolving Loans; or
(b) while any portion of the Term Loan is outstanding, 75% of the
Value of Borrowing Base Assets minus the sum of ((i) the
outstanding balance of the Term Loan and (ii) all outstanding
Revolving Loans).
From and after October 31, 2000, if the L/C Commitment Increase is not in
effect, the Revolving Loan Maximum Availability for any given Revolving
Loan is the lowest of:
(a) the Revolving Loan Borrowing Limit minus the sum of (all
outstanding Revolving Loans and the L/C Obligations); or
(b) while any portion of the Term Loan is outstanding, 75% of the
Value of Borrowing Base Assets minus the sum of ((i) the
outstanding balance of the Term Loan and (ii) all outstanding
Revolving Loans); or
(c) while any portion of the Term Loan is outstanding, 80% of the
Value of Borrowing Base Assets minus the sum of ((i) the
outstanding balance
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of the Term Loan, (ii) all outstanding Revolving Loans, and (iii)
the L/C Obligations).
From and after October 31, 2000, if the L/C Commitment Increase is in
effect, the Revolving Loan Maximum Availability for any given Revolving
Loan is the lowest of:
(a) the Revolving Loan Borrowing Limit minus the sum of [all
outstanding Revolving Loans and the greater of (the L/C
Obligations or $5,000,000)]; or
(b) while any portion of the Term Loan is outstanding, 75% of the
Value of Borrowing Base Assets minus the sum of ((i) the
outstanding balance of the Term Loan and (ii) all outstanding
Revolving Loans); or
(c) while any portion of the Term Loan is outstanding, 80% of the
Value of Borrowing Base Assets minus the sum of ((i) the
outstanding balance of the Term Loan, (ii) all outstanding
Revolving Loans, and (iii) the L/C Obligations).
For the convenience of the parties, Exhibit "M" summarizes the calculation
of Revolving Loan amounts, which calculation involves the application of
this term.
"Revolving Loan Rate" means the LIBOR Market Index Rate plus 175 basis
points per annum.
"Senior Notes" means, collectively, certain Senior Notes, Series A, in
the original principal amount of $30,000,000, with a final maturity of
October 15, 2000, and a certain Adjustable Rate Senior Note, Series B, in
the original principal amount of $13,000,000, with a final maturity of
October 15, 2000, issued under that certain Note Agreement dated as of
April 15, 1994 entered into by WHI and certain Purchasers named therein.
"Spec Unit" means any Unit under construction that is not Sold
Inventory or a Model Unit.
"Sold Inventory" means any Unit or Lot subject to an Approved
Contract.
"Spreader Agreement" means a spreader agreement or supplemental
Mortgage, duly executed by a Borrower, in substantially the form attached
as Exhibit "K" and in content acceptable to the Collateral Agent in its
sole discretion, which spreads the lien of the applicable Mortgage to
additional property to be included as Borrowing Base Assets.
"Subdivision Approval Submissions" has the meaning given to it in
Section 6.3(b).
"Subsidiary" means as to any Person, any corporation, partnership,
limited liability company or other entity of which more than fifty percent
(50%) of the outstanding capital stock or other ownership interests having
ordinary voting power to elect a majority of the
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board of directors or other managers of such corporation, partnership,
limited liability company or other entity is at the time, directly or
indirectly, owned by or the management is otherwise controlled by such
Person (irrespective of whether, at the time, capital stock or other
ownership interests of any other class or classes of such corporation,
partnership, limited liability company or other entity shall have or might
have voting power by reason of the happening of any contingency).
"Taxes" has the meaning given to it in Section 5.10(a).
"Term Loan" means the Loan made by the Lenders pursuant to Article IV
hereof.
"Term Loan Commitment" means (a) as to any Lender, the obligation of
such Lender to make a Term Loan for the account of the Borrowers hereunder
in an aggregate principal amount or face amount at any time outstanding not
to exceed the amount set forth opposite such Lender's name on Schedule 1
and (b) as to all Lenders, the aggregate Commitment of the Lenders to make
the Term Loan. The aggregate Term Loan Commitment of all Lenders as of the
Closing Date shall be $20,000,000.00.
"Term Loan Commitment Fee" has the meaning given to it in Section
5.2(a).
"Term Loan Commitment Percentage" means, as to the respective Term
Loan Commitment of any Lender at any time, the ratio of (a) the amount of
the Term Loan Commitment of such Lender to (b) the Term Loan Commitments of
all Lenders.
"Term Loan Draw Fee" has the meaning given to it in Section 5.2(b).
"Term Loan Extension Fee" has the meaning given to it in Section
5.2(c).
"Term Loan Facility" means the term loan facility established pursuant
to Article IV.
"Term Loan Maturity Date" means October 30, 2001 or such later date to
which the Term Loan Maturity Date may be extended under Section 4.6 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 Loan
Term.
"Term Loan Maximum Availability" means the maximum amount of the Term
Loan Commitment available for any given Term Loan advance after giving
effect to the aggregate outstanding balance of the Loans and the L/C
Obligations. The Term Loan Maximum Availability for each Term Loan advance
is the lowest of:
(a) the Term Loan Commitment minus the sum of the prior Term Loan
advances; or
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(b) 75% of the Value of Borrowing Base Assets minus the sum of ((i)
all outstanding Revolving Loans and (ii) the outstanding
principal balance of the Term Loan); or
(c) after October 30, 2000, 80% of the Value of Borrowing Base Assets
minus the sum of ((i) the outstanding balance of the Term Loan,
(ii) all outstanding Revolving Loans, and (iii) the L/C
Obligations); or
(d) the highest amount that, when added to Total Debt (as of the end
of the preceding quarter plus any Loans made and L/C Obligations
incurred since the end of the preceding quarter) and compared to
the Consolidated Tangible Net Worth (as of the end of the
preceding quarter), would not cause the Total Debt to Net Worth
Ratio to exceed 2.0:1.0.
"Term Loan Rate" means the LIBOR Rate plus 285 basis points per annum.
"Term Loan Term" means the period ending on the Term Loan Maturity
Date, unless such term is extended from time to time by the Lenders,
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 Notes" means the collective reference to the Term Notes made by
the Borrowers payable to the order of each Lender, substantially in the
form of Exhibit "J-2" hereto, evidencing the Term Loan Facility, and any
amendments and modifications thereto, any substitutes therefor, and any
replacements, restatements, renewals or extensions thereof, in whole or in
part; "Term Note" means any of such Term Notes.
"Title Confirmation Letter" means a letter from a Title Insurance
Company or attorney handling title matters for the Borrowers which confirms
(a) the ownership of the Borrowing Base Asset or Assets that are the
subject of the letter, (b) the recordation of the Mortgage or Spreader
Agreement that encumbers the applicable Borrowing Base Asset or Assets, and
(c) the first priority of such Mortgage or Spreader Agreement. Such letter
shall include or have as attachments the information listed in Exhibit "L."
"Title Insurance Company" means the title insurance company or
companies selected by the Borrowers and approved by the Collateral Agent to
provide title services and insurance, when required, in connection with the
Credit Facility.
"Total Inventory" means all Finished Lots, work in process (i.e.,
Units under construction, Model Units, Spec Units, and Sold Inventory) and
Land Under Development as shown on the consolidated balance sheet of WHI
and its Consolidated Subsidiaries.
"Total Debt" means all debt shown as notes and loans payable (or
similarly titled) in the consolidated balance sheet of WHI and its
Consolidated Subsidiaries.
"Total Debt to Net Worth Ratio" has the meaning given to it in Section
9.4.
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"Uniform Customs" the Uniform Customs and Practice for Documentary
Credits (1994 Revision), International Chamber of Commerce Publication No.
500.
"Unit" means 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.
"Unsecured Debt" has the meaning given to it in Section 8.15(b).
"Value of Borrowing Base Assets" means the sum of the Contract Price
for each Unit or Lot that is a Borrowing Base Asset and Sold Inventory and
the As Is Appraised Value for all other Units and Lots that are Borrowing
Base Assets.
"WHI" means Washington Homes, Inc., a Maryland corporation.
"Year 2000 Problem" means, with respect to any Person, the possibility
that the computer applications and software programs used by such Person in
the operation of its business will be unable to effectively process data,
including data fields requiring references to dates on and after January 1,
2000, and may experience or produce invalid or incorrect results or
abnormal operations related to or as a result of the occurrence of such
dates.
1.2 General. Unless otherwise specified, a reference in this Agreement
to a particular section, subsection, Schedule or Exhibit is a reference to that
section, subsection, Schedule or Exhibit of this Agreement. Wherever from the
context it appears appropriate, each term stated in either the singular or
plural shall include the singular and plural, and pronouns stated in the
masculine, feminine or neuter gender shall include the masculine, the feminine
and the neuter.
1.3 Other Definitions and Provisions.
(a) Use of Capitalized Terms. Unless otherwise defined therein, all
capitalized terms defined in this Agreement shall have the defined meanings
when used in this Agreement, the Notes and the other Loan Documents or any
certificate, report or other document made or delivered pursuant to this
Agreement.
(b) Miscellaneous. The word "hereof," "herein" and "hereunder" and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement.
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ARTICLE II
REVOLVING CREDIT FACILITY
2.1 Revolving Loans.
(a) On the terms and conditions hereof, each Lender severally agrees
to make Revolving Loans to the Borrowers on a joint and several basis from
time to time from the Closing Date until the Revolving Credit Maturity Date
as requested by WHI on behalf of the Borrowers in accordance with the terms
of Section 2.2; provided that (i) each Lender's Revolving Credit Commitment
Percentage of the sum of the aggregate amount of all outstanding Revolving
Loans and L/C Obligations shall at no time exceed such Lender's Revolving
Credit Commitment and (ii) no borrowing of Revolving Loans shall be made if
the requested Revolving Loan would exceed the Revolving Loan Maximum
Availability.
(b) Each Revolving Loan made by a Lender shall be in a principal
amount equal to such Lender's Revolving Credit Commitment Percentage of the
aggregate principal amount of Revolving Loans requested on such occasion.
Within such limit and the other limits set forth herein, the Borrowers may
borrow, repay and reborrow Revolving Loans pursuant to this Agreement until
the Revolving Credit Maturity Date. Revolving Loans shall be made only for
the purposes of (i) repaying the outstanding balance of the Existing
Facility; (ii) funding the acquisition of Finished Lots (as determined by
the Collateral Agent) and Land Under Development to be simultaneously added
to the Borrowing Base Assets; (iii) funding other Actual Costs Incurred
with respect to the Borrowing Base Assets; (iv) making advances to
reimburse the Issuing Lender for L/C Obligations that have been drawn upon;
and (v) general working capital and other home building activities.
2.2 Procedures for Advances of Revolving Credit.
(a) Borrowing Base Report and Notice of Borrowing.
(1) The Borrowers shall deliver a Borrowing Base Report to the
Agents once each calendar month during the Term. Such Borrowing Base
Report shall be current through the last day of the preceding month.
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.
The Lenders shall not be required to fund any Revolving Loan to the
Borrowers during any calendar month until five (5) Business Days after
the Collateral Agent's receipt of the Borrowing Base Report for such
month. The Lenders shall not be required to fund Revolving Loans more
than three (3) times in any calendar month.
(2) Each Notice of Borrowing for a Revolving Loan shall (i) be
delivered to each Agent not later than 11:00 a.m. Maryland time, at
least two (2) Business Days before the date upon which a 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 each
Borrower, to the best of its knowledge, that, (a) in respect of any
advance based on construction of a Unit, the conditions set forth in
Article
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VI hereof have been satisfied by the Borrowers in all material
respects, all work and materials have been physically incorporated
into the applicable Borrowing Base Assets 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 based on the
acquisition of a Lot, the conditions set forth in Section 6.3 hereof
have been satisfied by the Borrowers; and (iii) constitute the
Borrowers' certification that the representations and warranties set
forth in Article VII of this Agreement are true and correct in all
material respects except as may be otherwise disclosed to the Agents
in writing (it being understood that such disclosure is not intended
to constitute a waiver or approval by the Agents or Lenders of any
matter so disclosed), that the Borrowers are in compliance with all
covenants contained in Article VIII of this Agreement, and that no
Default or Event of Default exists on the date of the Notice of
Borrowing or will exist on the date any Revolving Loan is made
pursuant to such Notice of Borrowing. Notices of Borrowing received
after 11:00 a.m. Maryland time shall be deemed received on the next
Business Day. The Administrative Agent shall promptly notify the
Lenders of each Notice of Borrowing.
(3) Each Notice of Borrowing shall include the following information:
(A) the amount of the Revolving Loan requested;
(B) the date the requested borrowing is to be made, which shall
be a Business Day;
(C) the Borrowers' certification that all representations
contained in the Loan Documents, including the most recently submitted
Borrowing Base Report and Covenant Compliance Certificate, (X) are
true and correct in all material respects as of the date of the Notice
of Borrowing except as may be otherwise disclosed to the Agents in
writing (it being understood that such disclosure is not intended to
constitute a waiver or approval by the Agents or Lenders of any matter
so disclosed), and, (Y) unless the Borrowers notify the Agents to the
contrary in writing before a Revolving Loan is made, will continue to
be true and correct in all material respects from the date of the
Notice of Borrowing to the date of the Revolving Loan requested in the
Notice of Borrowing; and
(D) The Borrowers' certification that all applicable conditions
to a Revolving Loan set forth in Article VI have been satisfied,
including a certification that the requested Revolving Loan does not
exceed the then applicable Revolving Loan Maximum Availability.
(b) Adjustments in Borrowing Base. If the Borrowers fail to provide
any information required in their Notice of Borrowing, or fail to provide
the supporting documentation that the Borrowers are required to provide in
order to determine the collateral category and advance rate for each Unit
in the Borrowing Base Assets, the Collateral Agent shall advise the
Borrowers of the omission and exclude each such Unit from the calculation
of the Borrowing Base unless and until the information or documentation, as
applicable, is provided.
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The Collateral Agent shall also exclude from the calculation of the
Borrowing Base any Borrowing Base Asset that has been a Borrowing Base
Asset more than one year and for which the Collateral Agent does not have a
policy of title insurance as required under Section 6.2(e). With respect to
the aging of a completed Unit of Sold Inventory that becomes a Spec Unit
upon cancellation of an Approved Contract, the number of days that such
Unit was properly categorized as Sold Inventory from and after the date of
Completion of such Unit shall be excluded from the calculation of "days
since Completion" and the total number of days since Completion before the
advance rate for such Spec Unit reduces to 0% shall be increased to 360
days. For the purposes of the preceding sentence, the date of contract
cancellation shall be the effective date of the monthly Borrowing Base
Report first submitted after such contract cancellation.
(c) Funding Procedure. Upon receipt of a Notice of Borrowing and an
updated Borrowing Base Report, the Collateral Agent will verify and
recompute, as necessary, the calculations in the Notice of Borrowing and
Borrowing Base Report until the Collateral Agent is satisfied, in its sole
discretion, that the Notice of Borrowing and Borrowing Base Report comply
with the terms of this Agreement. On the basis of the Notice of Borrowing
and Borrowing Base Report, as so modified if necessary, the Collateral
Agent will determine the Revolving Loan amount to be advanced. For the
convenience of the parties, the calculations needed to determine the
Revolving Loan amount are set out on Exhibit "M." Not later than 2:00 p.m.
(Charlotte time) on the proposed borrowing date, each Lender will make
available to the Administrative Agent, for the account of the Borrowers, at
the Administrative Agent's Office in funds immediately available to the
Administrative Agent, such Lender's Revolving Credit Commitment Percentage
of the Revolving Loans to be made on such borrowing date. The failure or
refusal of any Lender to make available to the Administrative Agent at the
aforesaid time and place on any borrowing date the amount of its Revolving
Credit Commitment Percentage of the requested Revolving Loans shall not
relieve any other Lender from its several obligation hereunder to make
available to the Administrative Agent the amount of such other Lender's
Revolving Credit Commitment Percentage of any requested Revolving Loan.
Upon receipt from each Lender of such amount, and upon the Borrowers'
satisfaction of the conditions to funding set forth in this Agreement, the
Administrative Agent will make available to the Borrowers the aggregate
amount of such Revolving Loan made available to the Administrative Agent by
the Lenders. The Borrowers hereby irrevocably authorize the Administrative
Agent to disburse the proceeds of each borrowing requested pursuant to this
Section 2.2 in immediately available funds by crediting or wiring such
proceeds to the deposit account of the Borrowers identified in the most
recent Notice of Account Designation delivered by the Borrowers to the
Administrative Agent or as may be otherwise agreed upon by the Borrowers
and the Agent from time to time. Subject to Section 5.6 hereof, the
Administrative Agent shall not be obligated to disburse the portion of the
proceeds of any Revolving Loan requested pursuant to this Section 2.2 to
the extent that any Lender has not made available to the Administrative
Agent its Revolving Credit Commitment Percentage of such Loan.
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2.3 Repayment of Revolving Loans
(a) Repayment on Revolving Credit Maturity Date. If not previously
paid, the Borrowers shall repay the outstanding principal amount of all
Revolving Loans in full on the Revolving Credit Maturity Date together with
all accrued but unpaid interest thereon.
(b) Certain Payments. The Borrowers shall have the obligation to
prepay the Revolving Loans in accordance with Section 2.3(c) and (d) herein
and shall have the right to prepay the Revolving Loans in whole or in part
in accordance with Section 2.3(e); however, any prepayment, in whole or in
part, shall not affect the Borrowers' 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 in accordance with its
terms notwithstanding such prepayment. The Borrowers shall have no right to
the release of any Borrowing Base Asset from the lien of the Mortgages at
any time an Event of Default exists and is continuing.
(c) Mandatory Prepayment of Revolving Loans. If at any time through
October 30, 2000, the aggregate principal amount of all Revolving Loans
outstanding exceeds the then applicable Revolving Loan Borrowing Limit, the
Borrowers shall repay an amount equal to such excess to the Administrative
Agent for the account of the Lenders immediately upon notice from the
Administrative Agent. If at any time from and after October 31, 2000, the
sum of (A) the aggregate principal amount of all Revolving Loans
outstanding at such time plus (B) the aggregate L/C Obligations outstanding
at such time (or, if the L/C Commitment Increase is in effect, the greater
of the outstanding L/C Obligations or $5,000,000) exceeds the Revolving
Loan Borrowing Limit at such time, the Borrowers shall repay an amount
equal to such excess by payment to the Administrative Agent for the account
of the Lenders immediately upon notice from the Administrative Agent.
(d) Mandatory Prepayments in the Ordinary Course of the Borrowers'
Business. In order to obtain a partial release of the Mortgage encumbering
a Unit of Sold Inventory upon the settlement of such Unit, the Borrowers
shall prepay the Revolving Loans as and when such Sold Inventory is settled
in the ordinary course of the Borrowers' business in accordance with the
provisions of this Section 2.3.
(1) Upon the closing of the sale of Sold Inventory, the Borrowers
shall pay the Administrative Agent an amount equal to the then
applicable Borrowing Base amount for such Unit, as shown on the
Borrowing Base Report most recently submitted by the Borrowers and
approved by the Collateral Agent in its sole discretion (the "Release
Amount"). Such Release Amount will be applied to repayment of the
Revolving Loans in accordance with Section 2.3(f).
(2) Regardless of the payment of the Release Amount or any other
prepayment under this Section 2.3, the Collateral Agent shall have no
obligation to release any Collateral from the lien of a Mortgage
during the continuation of an Event of Default. If the Required
Lenders (each Lender deciding to approve or disapprove in its sole
discretion) elect to release any Unit from the lien of a Mortgage
during the continuation of any Event of Default, the
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Release Amount shall be the greatest of (i) 100% of the Actual Costs
Incurred for such Unit, (ii) 80% of the Contract Price for such Unit,
or (iii) 100% of the net sales proceeds for such Unit.
(e) Voluntary Prepayments. The Borrowers shall have the right to
prepay the amount outstanding under the Revolving Loans in whole or in part
at any time on any Business Day as long as such prepayment is in accordance
with the terms of this Section 2.3(e). The Borrowers shall be entitled to
have Lots and Units released from the lien of the applicable Mortgage, upon
payment to the Administrative Agent of the amounts specified in Section
2.3(d)(1) hereof with respect to each such Lot or Unit, if any.
Notwithstanding the foregoing, the Collateral Agent shall not release a Lot
or Unit from the lien of a Mortgage if such release would cause the
outstanding principal balance of the Revolving Loans to exceed the then
applicable Revolving Loan Borrowing Limit or, while the Term Loan is
outstanding, cause the aggregate outstanding balance of the Loans to exceed
75% of the Value of Borrowing Base Assets after such release or, after
October 30, 2000, cause the aggregate outstanding balance of the Loans and
the L/C Obligations to exceed 80% of the Value of Borrowing Base Assets
after such release.
(f) Application of Payments. Payments received by the Administrative
Agent pursuant to this Section 2.3 shall be applied first to the principal
amount of outstanding Revolving Loans and second to the principal amount of
the outstanding Reimbursement Obligation, if any.
(g) Prepayment Procedures.
(1) Each prepayment, other than a prepayment made under Section
2.3(d), shall be made pursuant to a Notice of Prepayment from the
Borrowers to the Lender, which notice shall be substantially in the
form attached hereto as Exhibit "I" 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 Administrative Agent not later than 1:00 p.m. Charlotte time on
the prepayment date. Upon receipt of such notice the Administrative
Agent shall promptly notify each Lender. If a Notice of Prepayment is
given, the amount specified in such notice shall be due and payable on
the date set forth in such Notice.
(2) If no Event of Default exists and is continuing, any
prepayment made pursuant to the provisions of Section 2.3(c), Section
2.3(d) or Section 2.3(e), as applicable, shall be applied in
accordance with the provisions of Section 2.3(f). 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 Credit Facility, in any order and in any manner that the
Required Lenders deem desirable in their collective absolute
discretion.
2.4 Revolving Credit Notes. Each Lender's Revolving Loans and the
obligation of the Borrowers to repay such Revolving Loans shall be evidenced by
a separate Revolving Credit Note executed by the Borrowers payable to the order
of such Lender representing the obligation of the Borrowers to pay such Lender's
Revolving Credit Commitment or, if less, the aggregate unpaid principal amount
of all Revolving Loans made and to be made by such Lender to the Borrowers
hereunder, plus interest and all other fees, charges and other amounts due
thereon.
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Each Revolving Credit Note shall bear interest on the unpaid principal amount
thereof at the applicable interest rate per annum specified in Section 5.1.
2.5 Permanent Reduction of Revolving Credit Commitment. The Borrowers
shall have the right, to be exercised no more than once in any calendar quarter
upon thirty (30) days' prior written notice to the Administrative Agent, to
reduce by $5,000,000.00 or an integral multiple thereof or terminate entirely
the Revolving Credit Commitment, whereupon the Commitments of the Lenders shall
be reduced pro tanto in accordance with their respective Commitment Percentages
of the amount specified in such notice or, as the case may be, terminated. In no
event may the Borrowers reduce the Revolving Credit Commitment to an amount less
than the outstanding principal balance of the Revolving Loan, including the L/C
Obligations, unless the Borrowers make a prepayment in accordance with Section
2.3. Promptly after receiving any notice of the Borrowers delivered pursuant to
this Section 2.5, the Administrative Agent will notify the Lenders of the
substance thereof. No reduction or termination of the Commitments may be
reinstated.
2.6 Revolving Credit Maturity Date Extension.
(a) Upon receipt of an application from the Borrowers for an extension
of the Revolving Credit Maturity Date, received by the Agents at least
fourteen (14) months before the then current Revolving Credit Maturity Date
(as the same may be extended from time to time), the Lenders will consider
a one-year extension of the then current Revolving Credit Maturity Date so
as to effect a two-year rolling maturity for the Revolving Credit Facility.
Each Lender may grant or withhold approval of such extension in its sole
and unreviewable discretion. The Administrative Agent will advise the
Borrowers of the Lenders' decision with respect to renewal no later than
October 1 of each year in which the Borrowers have requested an extension
of the then current Revolving Credit Maturity Date.
(b) If the Lenders holding 75% or more of the outstanding principal
balance of the Revolving Credit Facility, but not all Lenders, elect to
extend the Revolving Credit Maturity Date, the Arranger shall use
commercially reasonable efforts to find a replacement Lender or Lenders for
the Lender or Lenders that did not elect to extend the Revolving Credit
Maturity Date and shall do so within three (3) months after the Lenders
notify the Administrative Agent of such Lenders' initial decision not to
extend the Revolving Credit Maturity Date. If the Arranger is successful in
finding a replacement Lender or Lenders, such that there is then unanimous
consent by the Lenders to extend the Revolving Credit Maturity Date, then
the Revolving Credit Maturity Date shall be extended for an additional
year.
(c) If the Arranger is not successful in finding a replacement Lender
or Lenders or if the Lenders holding more than 25% of the outstanding
principal balance of the Revolving Credit Facility elect not to extend the
then current Revolving Credit Maturity Date for a one year period, the
Lenders will in any event extend the then current Revolving Credit Maturity
Date for a period of six (6) months (the "Modified Extension Period").
During the Modified Extension Period, the Lenders shall continue to make
Revolving Loans subject to all of the terms and conditions of this
Agreement; provided that the Lenders shall have no obligation to make
advances for Lots that are not in Approved Subdivisions at the commencement
of the
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Modified Extension Period or for Lots that are not either owned by one of
the existing Borrowers or under contract or option to purchase by one of
the Borrowers at the commencement of the Modified Extension Period. If the
Borrowers elect to accept such funds during the Modified Extension Period,
the Borrowers will pay the Annual Revolving Loan Fee provided for in
Section 5.2(d)(3).
ARTICLE III
L/C FACILITY
3.1 L/C Commitment.
(a) Subject to the terms and conditions hereof, the Issuing Lender, in
reliance on the agreements of the other Lenders set forth in Section 3.4,
agrees to issue standby letters of credit ("Letters of Credit") for the
account of the Borrowers on a joint and several basis on any Business Day
from the Closing Date through but not including the Revolving Credit
Maturity Date (as the same may be extended pursuant to Section 2.6) 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, the L/C Obligations would
exceed the L/C Maximum Availability.
(b) Increase in L/C Commitment. At any time after the outstanding
principal balance of the Term Loan plus the remaining unfunded availability
under the Term Loan Commitment is less than or equal to $15,000,000, then
upon request of the Borrowers the Administrative Agent shall increase the
L/C Commitment from $5,000,000 to $10,000,000. The L/C Commitment Increase
shall be effective upon the Borrowers' payment of the increased Annual
Revolving Loan Fee under Section 5.2(d), if applicable. The Administrative
Agent shall promptly notify the Lenders that the L/C Commitment Increase is
in effect.
(c) Each Letter of Credit shall (i) be denominated in U.S. Dollars,
(ii) be a standby letter of credit issued to support obligations of the
Borrowers or any of their Subsidiaries, contingent or otherwise, incurred
in the ordinary course of business in connection with the purchase or
development of real estate assets and such other purposes as may be
approved by the Collateral Agent, (iii) expire on a date no later than the
then applicable Revolving Credit 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.
3.2 Procedure for Issuance of Letters of Credit. The Borrowers may from
time to time request that the Issuing Lender issue a Letter of Credit by
delivering to the Issuing Lender at the Administrative Agent's Office an
Application therefor, completed to the satisfaction of the
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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 3.1 and Article VI and to closing hereof, and to the
execution by the Borrowers of a Letter of Credit Agreement, 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 Borrowers. The Issuing Lender shall
furnish to the Borrowers a copy of such Letter of Credit and notify each Lender
of the issuance and upon request by any Lender furnish to such 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.
3.3 Commissions and Other Charges. There shall be no commission or
other charges payable by the Borrowers in connection with issuance of Letters of
Credit hereunder; provided, however, that this provision shall not be deemed a
waiver of any of the terms and conditions of the Letter of Credit Agreement.
3.4 L/C Participations.
(a) 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
Revolving Credit 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 Borrowers 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, that is not so reimbursed. The
obligation of each L/C Participant to pay such amount shall be
unconditional and irrevocable under any and all circumstances and may not
be terminated, suspended or delayed for any reason, including any Default
or Event of Default.
(b) Upon becoming aware of any amount required to be paid by any L/C
Participant to the Issuing Lender pursuant to this Section 3.4 in respect
of 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
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product of (i) such amount, times (ii) the daily average Federal Funds Rate
as determined by the Administrative 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 3.4(b) 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 3.4(b), if the
L/C Participants receive notice (A) prior to 1:00 p.m. (Charlotte time) on
any Business Day, such payment shall be due that Business Day, and (B)
after 1:00 p.m. (Charlotte time) on any Business Day, such payment shall be
due on the following Business Day.
(c) 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
Revolving Credit Commitment Percentage of such payment in accordance with
this Section 3.4, the Issuing Lender receives any payment related to such
Letter of Credit (whether directly from any 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.
3.5 Reimbursement Obligation of the Borrowers. The Borrowers jointly
and severally agree to reimburse the Issuing Lender on each date on which the
Issuing Lender notifies the Borrowers 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 Borrowers under this Article III
from the date such amounts become payable (whether at stated maturity, by
acceleration or otherwise) until payment in full at the rate that is provided
for in the Letter of Credit Agreement. Unless the Borrowers have otherwise
previously reimbursed the Issuing Lender, then on the date on which the Issuing
Lender notifies the Borrowers of the date and amount of a draft paid under any
Letter of Credit, the Borrowers shall be deemed to have timely given a Notice of
Borrowing hereunder to the Administrative Agent requesting the Lenders to make a
Revolving Loan on such date in an amount equal to the amount of such drawing
and, regardless of whether the conditions precedent specified in Article VI have
been satisfied, the Lenders shall make Revolving Loans in such amount, the
proceeds of which shall be applied to reimburse the Issuing Lender for the
amount of the related drawing and costs and expenses.
3.6 Obligations Absolute. The obligations of the Borrowers under this
Article III (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 that the Borrowers may have or
have had against the Issuing Lender or any beneficiary of a Letter of Credit.
The Borrowers also agree with the Issuing Lender that, except as otherwise
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provided by Applicable Law, the Issuing Lender shall not be responsible for, and
the Reimbursement Obligation of the Borrowers under Section 3.5 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 Borrowers 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 Borrowers agree 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 Borrowers
and shall not result in any liability of the Issuing Lender to the Borrowers.
The responsibility of the Issuing Lender to the Borrowers 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.
3.7 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 Article III, the provisions of this Article III shall
apply.
3.8 Resignation of the Issuing Lender, Successor Issuing Lender.
Subject to the appointment and acceptance of a successor as provided below, the
Issuing Lender may resign at any time by giving notice thereof to the
Administrative Agent, the L/C Participants and the Borrowers. Upon any such
resignation, the Administrative Agent, with the consent of the Required Lenders,
shall appoint a successor Issuing Lender, which successor shall be a Lender and
shall have minimum capital and surplus of at least $500,000,000. If no successor
Issuing Lender shall have been so appointed and shall have accepted such
appointment within thirty (30) days after the Issuing Lender's giving of notice
of resignation, then the Administrative Agent shall, on behalf of the Lenders,
appoint a successor Lender as Issuing Lender, which successor shall have minimum
capital and surplus of at least $500,000,000. Upon the acceptance of any
appointment as Issuing Lender hereunder by a successor Issuing Lender, such
successor Issuing Lender shall thereupon succeed to and become vested with all
rights, powers, privileges and duties of the retiring Issuing Lender, and the
retiring Issuing Lender shall be discharged from all future duties and
obligations hereunder as Issuing Lender; provided that in no event shall such
appointment of a successor Issuing Lender affect the obligations of the retiring
Issuing Lender and the L/C Participants under any then outstanding Letters of
Credit, including Letters of Credit issued during the thirty (30) day notice
period. After any retiring Issuing Lender's resignation hereunder as Issuing
Lender, the provisions of this Section 3.8 shall continue in effect for its
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benefit in respect of any actions taken or omitted to be taken by it while it
was acting as Issuing Lender.
ARTICLE IV
TERM LOAN FACILITY
4.1 Term Loan. The Term Loan shall be in an amount not to exceed the
Term Loan Commitment. Subject to the terms and conditions of this Agreement,
each Lender severally agrees to make advances under the Term Loan to the
Borrowers on a joint and several basis from the Closing Date through October 30,
2000 (at which time the Term Loan Commitment shall expire), as requested by WHI
on behalf of the Borrowers in accordance with Section 4.3(a); provided that (a)
each Term Loan advance shall not exceed the Term Loan Maximum Availability; (b)
the aggregate principal amount of the Term Loan from any Lender shall not exceed
such Lender's Term Loan Commitment; and (c) the proceeds of the Term Loan shall
be used solely for payments due under the Senior Notes (or to reimburse WHI for
payments made under the Senior Notes). The Term Loan may be funded in one or two
advances, at Borrowers' election, as long as the final advance of the Term Loan
occurs not later than October 30, 2000.
4.2 Permanent Reduction of Term Loan Commitment. The Borrowers shall
have the right, to be exercised no more than once, upon thirty (30) days' prior
written notice to the Administrative Agent, to reduce or terminate entirely the
Term Loan Commitment, whereupon the Commitments of the Lenders shall be reduced
pro tanto in accordance with their respective Commitment Percentages of the
amount specified in such notice or, as the case may be, terminated. In no event
may the Borrowers reduce the Term Loan Commitment to an amount less than the
outstanding principal balance of the Term Loan unless the Borrowers make a
prepayment in accordance with Section 4.5. Promptly after receiving any notice
of the Borrowers delivered pursuant to this Section 4.2, the Administrative
Agent will notify the Lenders of the substance thereof. No reduction or
termination of the Commitments may be reinstated.
4.3 Procedures for Advances of Term Loan.
(a) Requests for Term Loan Borrowing. WHI, on behalf of the Borrowers,
shall give the Agents irrevocable prior written Notice of Borrowing in the
form attached hereto as Exhibit "H", not later than 11:00 a.m. Charlotte
time, at least two (2) Business Days before the date upon which the
Borrowers intend the Lenders to make an advance under the Term Loan. Such
Notice of Borrowing shall specify (A) the date of such proposed borrowing,
which shall be a Business Day; (B) the amount of such borrowing; and (C) a
recalculation of the Value of Borrowing Base Assets and Total Debt to Net
Worth Ratio to demonstrate that the Borrowers qualify for the requested
advance. Notices received after 11:00 a.m. Charlotte time shall be deemed
received on the next Business Day. The Administrative Agent shall promptly
notify the Lenders of each Notice of Borrowing.
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(b) Funding Procedure. Upon receipt of a Notice of Borrowing and
supporting information, the Collateral Agent will verify and recompute, as
necessary, the calculations in the Notice of Borrowing and supporting
information until the Collateral Agent is satisfied that the Notice of
Borrowing and supporting information comply with the terms of this
Agreement. On the basis of the Notice of Borrowing and supporting
information, as so modified if necessary, the Collateral Agent will
determine the Term Loan amount for which the Borrowers satisfy all funding
conditions set forth in this Agreement. Not later than 2:00 p.m. (Charlotte
time) on the proposed borrowing date, each Lender will make available to
the Administrative Agent, for the account of the Borrowers, at the
Administrative Agent's Office in funds immediately available to the
Administrative Agent, such Lender's Term Loan Commitment Percentage of the
Term Loan advance to be made on such borrowing date. The failure or refusal
of any Lender to make available to the Administrative Agent at the
aforesaid time and place on any borrowing date the amount of its Term Loan
Commitment Percentage of the requested Term Loan advance shall not relieve
any other Lender from its several obligation hereunder to make available to
the Administrative Agent the amount of such other Lender's Term Loan
Commitment Percentage of any requested Term Loan advance. Upon receipt from
each Lender of such amount, and upon the Borrowers' satisfaction of the
conditions to funding set forth in this Agreement, the Administrative Agent
will make available to the Borrowers the aggregate amount of such Term Loan
advance made available to the Administrative Agent by the Lenders. The
Borrowers hereby irrevocably authorize the Administrative Agent to disburse
the proceeds of each borrowing requested pursuant to this Section 4.3 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 delivered by the Borrowers to the Administrative Agent
or as may be otherwise agreed upon by the Borrowers and the Administrative
Agent from time to time. Subject to Section 5.6, the Administrative Agent
shall not be obligated to disburse the portion of the proceeds of any Term
Loan advance requested pursuant to this Section 4.3 to the extent that any
Lender has not made available to the Administrative Agent its Term Loan
Commitment Percentage of such advance
4.4 Repayment of Term Loan The Borrowers shall repay the aggregate
outstanding principal amount of the Term Loan in principal payments of Two
Million and 00/100 Dollars ($2,000,000.00) every six (6) months during the Term
Loan Term, the first payment being due on the first day of the month that is six
(6) months after the initial advance of the Term Loan. At the commencement of
the first extension term of the Term Loan, if the option to extend is exercised
by the Borrowers in accordance with Section 4.6, the semiannual principal
payment due during each extension term shall be recalculated to be the greater
of (a) Two million and 00/100 Dollars ($2,000,000.00) or (b) the amount that
would cause the then outstanding principal balance of the Term Loan to amortize
fully in three (3) years (i.e., the amount resulting from the division of the
then outstanding principal balance of the Term Loan by six [6]). All remaining
principal and interest shall be due on the then current Term Loan Maturity Date.
4.5 Prepayment of Term Loan
(a) Voluntary Prepayments. The Borrowers shall have the right to
prepay the principal outstanding under the Term Loan in whole or in part on
the last day of the then
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applicable Interest Period. The Borrowers may not prepay part or all of the
Term Loan on any day other than on the last day of the Interest Period
applicable thereto unless such prepayment is accompanied by any amount
required to be paid pursuant to Section 5.8. Any prepayment will also be
accompanied by payment of all accrued and unpaid interest due to the date
of prepayment on the principal amount prepaid and all other fees, expenses
and other sums due and owing under the Loan Documents. Any partial
prepayment of the Term Loan will be applied to installments of principal
due in their inverse order of maturity. A prepayment of the Term Loan shall
not entitle the Borrowers to have any Borrowing Base Asset released from
the lien of any of the Mortgages.
(b) Prepayment Procedures.
(1) Each prepayment shall be pursuant to a Notice of Prepayment
from the Borrowers to the Administrative Agent, which Notice 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 Administrative Agent not later than 1:00 p.m.
Charlotte time three (3) Business Days before the prepayment date.
Upon receipt of such notice the Administrative Agent shall promptly
notify each Lender. If such notice is given, the amount specified in
such notice shall be due and payable on the date set forth in such
notice.
(2) 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 Credit Facility, in any order
and in any manner that the Required Lenders deem desirable in their
collective absolute discretion.
(c) No Reborrowing of Term Loan. Amounts paid under the Term Loan
pursuant to Section 4.4, Section 4.5 or otherwise may not be reborrowed and
will constitute a permanent reduction in the Term Loan Commitment.
4.6 Term Loan Maturity Date Extension. By written notice to the Agents
given at least sixty (60) days before the then current Term Loan Maturity Date,
the Borrowers shall have three (3) separate one-year options to extend the Term
Loan Maturity Date subject to satisfaction of each of the following extension
conditions.
(a) The Borrowers shall have paid to the Administrative Agent the Term
Loan Extension Fee described in Section 5.2(c) on or before five (5)
Business Days before the then current Term Loan Maturity Date.
(b) No Event of Default shall have occurred.
(c) The Borrowers are in compliance with all Financial Covenants and
all other covenants to be kept or performed by any of the Borrowers under
the Loan Documents.
(d) The Borrowers shall have made all principal payments due under the
Term Loan in accordance with this Agreement.
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(e) The Borrowers shall demonstrate an annual Debt Service Coverage
Ratio of at least 1.2:1 measured for the Borrowers' immediately prior
Fiscal Year.
(f) No Material Adverse Change in the Borrowers' Consolidated
financial condition shall have occurred since such financial condition was
most recently tested by the Collateral Agent (as of the Closing Date or the
commencement of the then current extension term, whichever is applicable).
4.7 Term Notes. Each Lender's Term Loan and the obligation of the
Borrowers to repay such Term Loan shall be evidenced by a separate Term Note
executed by the Borrowers payable to the order of such Lender representing the
obligation of the Borrowers to pay such Lender's Term Loan Commitment in
accordance with the terms of this Agreement. Each Term Note shall bear interest
on the unpaid principal amount thereof at the applicable interest rate per annum
specified in Section 5.1.
ARTICLE V .
GENERAL LOAN PROVISIONS .
5.1 Interest.
(a) Interest on Revolving Loans. Interest shall accrue and be payable
on the outstanding principal balance of the Revolving Loans at a
fluctuating per annum rate of interest equal to the Revolving Loan Rate,
which shall be subject to daily adjustments based upon daily fluctuations
in the LIBOR Market Index Rate.
(b) Interest on Term Loan. Interest shall accrue and be payable on the
outstanding principal balance of the Term Loan at a fluctuating per annum
rate of interest equal to the Term Loan Rate, which shall be effective for
a one month interest period (each, an "Interest Period"). The Interest
Period shall commence on the date each Term Loan advance and, in the case
of immediately successive Interest Periods, each successive Interest Period
shall commence on the date on which the next preceding Interest Period
expires. If any Interest Period would otherwise expire on a day that is not
a Business Day, such Interest Period shall expire on the next succeeding
Business Day; provided that if any Interest Period would otherwise expire
on a day that is not a Business Day but is a day of the month after which
no further Business Day occurs in such month, such Interest Period shall
expire on the next preceding Business Day. Any Interest Period that begins
on the last Business Day of a calendar month (or on a day for which there
is no numerically corresponding day in the calendar month at the end of
such Interest Period) shall end on the last Business Day of the relevant
calendar month at the end of such Interest Period. No Interest Period shall
extend beyond the Term Loan Maturity Date.
(c) Late Charges; Post-Default Interest. If any regularly scheduled
monthly installment of principal and/or interest is not paid within ten
(10) calendar days after it is due, the Borrowers agree to pay to the
Administrative Agent for the account of the Lenders as a late
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charge, and in addition to the amount of such payment, a sum equal to five
percent (5%) of the amount of such delinquent payment. Notwithstanding the
provisions of Sections 5.1(a) and 5.1(b), each Borrower, jointly and
severally, hereby promises to pay to the Lenders interest at the
Post-Default Rate on the full principal amount outstanding of all Loans,
and (to the fullest extent permitted by law) on any interest or other
amount payable by the Borrowers hereunder or under the Notes, (i) for any
period during which an Event of Default under any of the Loans has occurred
and is continuing and (ii) when any amount payable under any of the Notes
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 to the extent permitted by
Applicable Law. Interest shall continue to accrue on the Notes after the
filing by or against any Borrower of any petition seeking any relief in
bankruptcy or under any act or law pertaining to insolvency or debtor
relief, whether state, federal or foreign.
(d) Interest Payment and Computation. The Borrowers, jointly and
severally, shall pay to the Administrative Agent monthly, in arrears, on
the 15th day of each month (commencing on the date hereof) and on the date
the Loans are paid in full and the Aggregate Commitment is terminated,
interest on the unpaid principal amount of the Loans at the applicable
interest rates set forth in this Section 5.1. All interest rates, fees and
commissions provided in this Agreement shall be computed on the basis of a
360-day year and assessed for the actual number of days elapsed.
(e) Maximum Rate. In no contingency or event whatsoever shall the
aggregate of all amounts deemed interest hereunder or under any of the
Notes charged or collected pursuant to the terms of this Agreement or
pursuant to any of the Notes exceed the highest rate permissible under any
Applicable Law which a court of competent jurisdiction shall, in a final
determination, deem applicable hereto. In the event that such a court
determines that the Lenders have charged or received interest hereunder in
excess of the highest applicable rate, the rate in effect hereunder shall
automatically be reduced to the maximum rate permitted by Applicable Law
and the Lenders shall at the Administrative Agent's option (i) promptly
refund to the Borrowers any interest received by the Lenders in excess of
the maximum lawful rate or (ii) shall apply such excess to the principal
balance of the Obligations. It is the intent hereof that the Borrowers not
pay or contract to pay, and that neither the Administrative Agent nor any
Lender receive or contract to receive, directly or indirectly in any manner
whatsoever, interest in excess of that which may be paid by the Borrowers
under Applicable Law.
5.2 Loan Fees
(a) Term Loan Commitment Fee. The Borrowers shall pay a non-refundable
commitment fee for the Term Loan (the "Term Loan Commitment Fee") in an
amount equal to 0.25% of the Term Loan Commitment. The Term Loan Commitment
Fee has been fully earned and is payable to the Administrative Agent, for
the account of the Lenders, on the Closing Date. No portion of the Term
Loan Commitment Fee shall be refunded upon a reduction or termination of
the Term Loan Commitment.
(b) Term Loan Draw Fee. The Borrowers shall pay a draw fee (the "Term
Loan Draw Fee") in an amount equal to 0.15% of each advance of the Term
Loan. Such Term
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Loan Draw Fee shall be due and payable to the Administrative Agent, for the
account of the Lenders, at the time of each Term Loan advance.
(c) Term Loan Extension Fee. As a condition to exercising each option
to extend the Term Loan Maturity Date pursuant to Section 4.6, the
Borrowers shall pay to the Administrative Agent, for the account of the
Lenders, an extension fee (the "Term Loan Extension Fee") in an amount
equal to 0.30% of the outstanding principal balance of the Term Loan on or
before five (5) Business Days before the then current Term Loan Maturity
Date.
(d) Annual Revolving Loan Fee.
(1) The Borrowers shall pay to the Administrative Agent, for the
account of the Lenders, an annual fee (the "Annual Revolving Loan
Fee") in the amount of 0.40% of the aggregate Revolving Credit
Commitment as of October 30 of each year during the Revolving Credit
Term, as the Revolving Credit Commitment may be reduced or increased
in accordance with this Agreement. The Annual Revolving Loan Fee shall
be payable in advance on October 30 of each year during the Revolving
Credit Term. The Borrowers shall pay on the Closing Date a prorated
fee for the period from the Closing Date through October 30, 2000. If
the Borrowers elect to reduce the Revolving Credit Commitment as of a
date other than October 30 of any year, there will be no pro rata
reduction of the Annual Revolving Loan Fee with respect to the
remaining portion of such year.
(2) If the Borrowers elect to increase the L/C Commitment (as
provided in the definition of "L/C Commitment"), thereby increasing
the Revolving Credit Commitment accordingly and elect to do so as of a
date other than October 30 of any year, the Borrowers shall pay a pro
rata increase in the Annual Revolving Loan Fee calculated on the
increase in the L/C Commitment prorated from the effective date of the
L/C Commitment increase to the next October 30. The payment of such
increased Annual Revolving Loan Fee shall be a condition to the
effectiveness of the L/C Commitment increase.
(3) If the Revolving Credit Facility is extended for a Modified
Extension Period as provided for in Section 2.6(c), the Borrowers will
pay an Annual Revolving Loan Fee for such period, pro-rated over such
six month period and based on the Revolving Credit Commitment at the
commencement of the Modified Extension Period.
(e) Administrative Agent's Fees. In order to compensate the
Administrative Agent for structuring and syndicating the Credit Facility
and for its obligations hereunder, the Borrowers agree to pay to the
Administrative Agent, for its account, the fees set forth in the Fee
Letter.
5.3 Manner of Payment. Each payment by the Borrowers on account of the
principal of or interest on the Loans or of any fee or other amounts (including
the Reimbursement Obligation) payable to the Lenders under this Agreement or the
Notes shall be made not later than 1:00 p.m. (Charlotte time) on the date
specified for payment under this Agreement to the Administrative Agent at the
Administrative Agent's Office for the account of the Lenders (other than as set
forth below) pro rata in accordance with their respective
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Commitment Percentages, in U.S. 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. (Charlotte time) on such
day shall be deemed a payment on such date for the purposes of Section 10.1(a),
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. (Charlotte time)
shall be deemed to have been made on the next succeeding Business Day for all
purposes. Upon receipt by the Administrative Agent of each such payment, the
Administrative 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 Administrative Agent of Agents' fees
or expenses shall be made for the account of the Administrative Agent and any
amount payable to any Lender hereunder shall be paid to the Administrative Agent
for the account of the applicable Lender. Subject to Section 5.1(b), if any
payment under this Agreement or any Note shall be specified to be made upon a
day that is not a Business Day, it shall be made on the next succeeding day that
is a Business Day and such extension of time shall in such case be included in
computing any interest if payable along with such payment.
5.4 Crediting of Payments and Proceeds. If the Borrowers shall fail to
pay any of the Obligations when due and the Obligations have been accelerated
pursuant to Section 10.2, 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
Borrowers hereunder, then to all indemnity obligations then due and payable by
the Borrowers hereunder, then to all Agents' fees then due and payable, then to
all other fees then due and payable, then to accrued and unpaid interest on the
Notes and the Reimbursement Obligation (pro rata in accordance with all such
amounts due), then to the principal amount of the Notes and Reimbursement
Obligation, and then to the cash collateral account described in Section 10.2 to
the extent of any L/C Obligations then outstanding.
5.5 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 (relative to such Lender's Commitment
Percentage) 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 in accordance with their respective Commitment Percentages;
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 Borrowers agree 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.
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5.6 Nature of Obligations of Lenders Regarding Extensions of Credit,
Assumption by the Administrative 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 Administrative
Agent shall have received notice from a Lender prior to a proposed borrowing
date that such Lender will not make available to the Administrative 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 Administrative
Agent may assume that such Lender has made such portion available to the
Administrative Agent on the proposed borrowing date in accordance with Sections
2.2(c) and 4.3(b), and the Administrative Agent may, in reliance upon such
assumption, make available to the Borrowers on such date a corresponding amount.
If such amount is made available to the Administrative Agent on a date after
such borrowing date, such Lender shall pay to the Administrative 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 Administrative 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
Administrative Agent and the denominator of which is 360. A certificate of the
Administrative Agent with respect to any amounts owing under this Section 5.6
shall be conclusive, absent manifest error. If such Lender's Commitment
Percentage of such borrowing is not made available to the Administrative Agent
by such Lender within three (3) Business Days of such borrowing date, the
Administrative Agent shall be entitled to recover such amount made available by
the Administrative Agent with interest thereon at the Revolving Loan Rate if the
Loan is a Revolving Loan or at the Term Loan Rate if the Loan is a Term Loan
advance, on demand, from the Borrowers. The failure of any Lender to make
available its Commitment Percentage of any Loan 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.
5.7 Changed Circumstances.
(a) Circumstances Affecting LIBOR Rate Availability. If with respect
to any Term Loan Interest Period the Administrative Agent or any Lender
(after consultation with Administrative 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 Administrative
Agent or such Lender for such period, then the Administrative Agent shall
forthwith give notice thereof to the Borrowers. Thereafter, until the
Administrative Agent notifies the Borrowers that such circumstances no
longer exist, the obligation of the Lenders to make Term Loan advances at
the Term Loan Rate shall be suspended, and the then outstanding principal
amount of the Term Loan, shall be converted to accrue interest at a rate
based upon an alternate index reasonably selected by the Administrative
Agent as comparable to the LIBOR Rate plus the applicable margin included
in the Term Loan Rate as of the date of such notice.
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(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 Based Rate Loan, such Lender shall promptly give
notice thereof to the Administrative Agent and the Administrative Agent
shall promptly give notice to the Borrowers and the other Lenders.
Thereafter, until the Administrative Agent notifies the Borrowers that such
circumstances no longer exist, the obligations of the Lenders to make LIBOR
Based Rate Loans shall be suspended and thereafter the outstanding balance
under the Revolving Credit Notes shall bear interest at a rate based upon
an alternate index selected by the Administrative Agent as reasonably
comparable to LIBOR plus 175 basis points and the outstanding balance under
the Term Notes shall bear interest at a rate based upon an alternate index
selected by the Administrative Agent as reasonably comparable to LIBOR the
285 basis points.
(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 Lenders (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 d 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 Based 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
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Notes in respect of a LIBOR Based Rate Loan or Letter of Credit or
Application, then such Lender shall promptly notify the Administrative
Agent, and the Administrative Agent shall promptly notify the
Borrowers of such fact and demand compensation therefor and, within
fifteen (15) days after such notice by the Administrative Agent, the
Borrowers 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 Administrative
Agent will promptly notify the Borrowers of any event of which it has
knowledge which will entitle such Lender to compensation pursuant to
this Section 5.7(c); provided that the Administrative Agent shall
incur no liability whatsoever to the Lenders or the Borrowers in the
event the Administrative Agent 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 Based 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 Borrowers through the Administrative Agent and shall
be conclusively presumed to be correct save for manifest error.
5.8 Indemnity. The Borrowers hereby indemnify 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 Borrowers
to make any payment when due of any amount due hereunder in connection with the
Term Loan, (b) due to any failure of the Borrowers to borrow a Term Loan advance
on a date specified therefor in a Notice of Borrowing or (c) due to any payment
or prepayment of the Term 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 Term Loan 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 Borrowers through the Administrative Agent
and shall be conclusively presumed to be correct save for manifest error.
5.9 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 that 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 Borrowers shall pay to such Lender from time to time as
specified by such Lender additional
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amounts sufficient to compensate such Lender or other corporation for such
reduction. A certificate as to such amounts submitted to the Borrowers and the
Administrative Agent by such Lender, shall, in the absence of manifest error, be
presumed to be correct and binding for all purposes.
5.10 Taxes.
(a) Payments Free and Clear. Any and all payments by the Borrowers
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
Administrative Agent, income, gross receipts and franchise taxes imposed by
the jurisdiction under the laws of which such Lender or the Administrative
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 Borrowers
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 Administrative 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 5.10)
such Lender or the Administrative 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 Borrowers shall make such deductions, (C) the
Borrowers shall pay the full amount deducted to the relevant taxing
authority or other authority in accordance with Applicable Law, and (D) the
Borrowers shall deliver to the Administrative Agent evidence of such
payment to the relevant taxing authority or other authority in the manner
provided in Section 5.10(d).
(b) Stamp and Other Taxes. In addition, the Borrowers 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 Borrowers shall indemnify each Lender and the
Administrative 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 5.10) paid by such
Lender or the Administrative 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 that the Borrowers shall be subrogated to the
rights of such Lender or Administrative Agent with respect to any claim
that such Taxes or Other Taxes were not correctly or legally asserted. Such
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indemnification shall be made within thirty (30) days from the date such
Lender or the Administrative 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 5.10(a) above, upon request of the
Lender, the Borrowers shall furnish to the Administrative Agent, at its
address referred to in Section 12.1, the original or a certified copy of a
receipt evidencing payment thereof or other evidence of payment
satisfactory to the Administrative Agent. Upon request of the
Administrative Agent, the Borrowers shall furnish to the Administrative
Agent, at its address referred to in Section 12.1, evidence of the payment
of real estate taxes relating to the Borrowing Base Assets satisfactory to
the Administrative 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 Borrowers, with a copy to the Administrative 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 Borrowers, with a copy to the
Administrative 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 Borrowers, 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 Borrowers and the Administrative
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 Borrowers hereunder, the agreements and obligations of the Borrowers
contained in this Section 5.10 shall survive the payment in full of the
Obligations and the termination of the Commitments.
5.11 Security. The Obligations of the Borrowers shall be secured as
provided in the Mortgages.
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ARTICLE VI
CONDITIONS OF CLOSING AND BORROWING
6.1 Conditions to Closing and Initial Extensions of Credit. The
obligation of the Lenders to close this Agreement and to make the initial
Extensions of Credit hereunder is subject to each of the following conditions:
(a) Executed Loan Documents. This Agreement, the Revolving Credit
Notes, the Term Notes, the Mortgages, and each of the other Loan Documents
shall have been duly authorized and executed by the parties thereto, shall
be in full force and effect and no default shall exist thereunder, and the
Borrowers shall have delivered original counterparts thereof to the Agents.
(b) Closing Certificates; etc.
(1) Officer's Certificate of the Borrowers. The Agents shall have
received a certificate from a Responsible Officer, in form and
substance satisfactory to the Collateral Agent, to the effect that all
representations and warranties of the Borrowers contained in this
Agreement and the other Loan Documents are true, correct and complete
in all material respects; that the Borrowers are not in violation of
any of the covenants contained in this Agreement and the other Loan
Documents; that, after giving effect to the transactions contemplated
by this Agreement, no Default or Event of Default has occurred and is
continuing; and that the Borrowers have satisfied each of the closing
conditions.
(2) Certificate of Secretary of each Borrower. The Agents shall
have received a certificate of the secretary or assistant secretary of
each Borrower certifying as to the incumbency and genuineness of the
signature of each officer of such Borrower executing Loan Documents to
which it is a party and certifying that attached thereto is a true,
correct and complete copy of (A) the articles of incorporation of such
Borrower and all amendments thereto, (B) the bylaws of such Borrower
as in effect on the date of such certifications, (C) resolutions duly
adopted by the Board of Directors of such Borrower authorizing the
borrowings contemplated hereunder and the execution, delivery and
performance of this Agreement and the other Loan Documents to which it
is a party, and (D) each certificate required to be delivered pursuant
to the following subsection.
(3) Certificates of Good Standing. The Agents shall have received
long-form certificates as of a recent date of the good standing of
each Borrower under the laws of its jurisdiction of organization and
each other jurisdiction where such Borrower is qualified to do
business.
(4) Opinions of Counsel. The Agents shall have received favorable
opinions of counsel to the Borrowers (including opinions of counsel
admitted to practice in each state where the Borrowing Base Assets are
located) addressed to the Agents and the Lenders with respect to the
Borrowers, the Loan Documents and such other matters as the Lenders
shall request. With respect to matters of entity formation, existence,
power, and authority, an opinion
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of in-house counsel to the Borrowers that is in form and substance
satisfactory to the Collateral Agent shall be acceptable.
(5) Tax Forms. The Agents shall have received copies of the
United States Internal Revenue Service form required by Section
5.10(e), if any.
(6) Borrowing Base Report and Covenant Compliance Certificate.
The Agents shall have received a Borrowing Base Report and Covenant
Compliance Certificate certified as true and correct by a Responsible
Officer of the Borrowers.
(c) Borrowing Base Assets.
(1) Filings and Recordings. The Collateral Agent shall have
received, ready for filing or recording, all Loan Documents and all
other documents necessary to perfect the security interests of the
Lenders in the collateral described in the Mortgages.
(2) UCC Search. The Collateral Agent shall have received the
results of a UCC search for the state office filings on all Borrowers
in those jurisdictions in which such Borrowers own Borrowing Base
Assets.
(3) Title Matters. The Collateral Agent shall have received a
Title Confirmation Letter for each Borrowing Base Asset.
(4) Hazard and Liability Insurance. The Collateral Agent shall
have received certificates of insurance, evidence of payment of all
insurance premiums for the current premium period (i.e., one month) of
each, and, if requested by the Collateral Agent, copies of insurance
policies in the form required under Section 8.9 and otherwise in form
and substance reasonably satisfactory to the Collateral Agent.
(5) Flood Insurance. The Collateral Agent shall have obtained
evidence that each Approved Subdivision 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 Borrowers' expense and acceptable to
the Collateral Agent as to form, substance and coverage.
(6) Record Plats. The Collateral Agent shall have received the
record plat for each Approved Subdivision showing buildings, location
of streets, lot lines, setback lines, easements, encroachments and all
other matters affecting each Approved Subdivision prepared by a
licensed surveyor with a surveyor's certification to the Collateral
Agent, on behalf of the Lenders, in a form acceptable to the
Collateral Agent.
(d) Financial Matters.
(1) Financial Statements. The Agents shall have received copies
of the consolidated financial statements of WHI and its Consolidated
Subsidiaries as of a date not earlier than April 30, 1999, along with
a certification from a Responsible Officer of each
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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.
(2) Payment at Closing; Fee Letter. The Borrowers shall have paid
the fees set forth or referenced in Section 5.2 and any other accrued
and unpaid fees due hereunder (including, without limitation, legal
fees and expenses) to the Administrative Agent and the Lenders, and to
any other Person such amount as may be due thereto in connection with
the transactions contemplated hereby, including all taxes, fees and
other charges in connection with the execution, delivery, recording,
and filing of any of the Loan Documents. The Agents shall have
received duly authorized and executed copies of the Fee Letter.
(e) Consents; Defaults.
(1) Governmental and Third Party Approvals. The Borrowers shall
have obtained all necessary approvals, authorizations and consents of
any Person and of all Governmental Authorities and courts having
jurisdiction with respect to the transactions contemplated by this
Agreement and the other Loan Documents.
(2) No Injunction, Etc. No action, proceeding, investigation,
regulation or legislation shall have been instituted, threatened or
proposed before any Governmental Authority to enjoin, restrain, or
prohibit, or to obtain substantial damages in respect to, or which is
related to or arises out of this Agreement or the other Loan Documents
or the consummation of the transactions contemplated hereby or
thereby, or which, in the Agent's sole discretion, would make it
inadvisable to consummate the transactions contemplated by this
Agreement and such other Loan Documents.
(3) No Default. No Default or Event of Default shall have
occurred and be continuing.
(f) Miscellaneous.
(1) Notice of Borrowing. The Agents shall have received a Notice
of Borrowing from WHI on behalf of the Borrowers in accordance with
Section 2.2(a), and a Notice of Account Designation specifying the
account or accounts to which the proceeds of any Loans made after the
Closing Date are to be disbursed.
(2) Proceedings and Documents. All opinions, certificates and
other instruments and all proceedings in connection with the
transactions contemplated by this Agreement shall be satisfactory in
form and substance to the Lenders. The Lenders shall have received
copies of all other instruments and other evidence as the Lenders may
reasonably request, in form and substance satisfactory to the Lenders,
with respect to the transactions contemplated by this Agreement and
the taking of all actions in connection therewith.
(3) Tax ID. The Administrative Agent shall have received the tax
identification or social security number of each Borrower.
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(4) Due Diligence and Other Documents. The Borrowers shall have
delivered to the Agents such other documents, certificates and
opinions as the Agents may reasonably request in connection with the
transactions contemplated hereby.
(g) Refinancing. On the Closing Date, (i) all Existing Loans made by
any Prior Lender that is not a Lender hereunder shall be repaid in full and
commitments and other obligations and (except as expressly set forth in the
Existing Facility) rights of such Prior Lender shall be terminated; (ii)
all outstanding Existing Loans shall be deemed Loans hereunder and the
Agent shall make such transfers of funds as are necessary in order that the
outstanding balance of such Loans, together with any Loans funded on the
Closing Date, reflect the Commitments of the Lenders hereunder; (iii) all
Existing Letters of Credit shall be deemed Letters of Credit hereunder and
each Lender agrees to purchase an L/C Participation therein pursuant to
Section 3.4 in accordance with its Revolving Credit Commitment Percentage;
(iv) there shall have been paid in cash in full all accrued but unpaid
interest due on the Existing Loans to but excluding the Closing Date; (v)
there shall have been paid in cash in full all accrued but unpaid fees
under the Existing Facility due to but excluding the Closing Date and all
other amounts, costs and expenses then owing to any of the Prior Lenders
and/or any agent under the Existing Facility, in each case to the
satisfaction of such agent or Prior Lender, as the case may be, regardless
of whether such amounts would otherwise be due and payable at such time
pursuant to the terms of the Existing Facility; and (vi) all outstanding
promissory notes issued by the Borrowers to the Prior Lenders under the
Existing Facility shall have been endorsed and delivered to the Agent to be
amended and restated in the form of the Revolving Credit Note and Term Note
attached to this Agreement and assigned to the Lenders.
6.2 Conditions to All Extensions of Credit. The obligations of the
Lenders to make any Extensions of Credit is subject to the satisfaction of the
following conditions precedent on the relevant borrowing or issue date, as
applicable:
(a) Continuation of Representations and Warranties. The
representations and warranties made by the Borrowers in each Loan Document
shall be true in all material respects on and as of the date of the
proposed Loan or issuance and after giving effect to the proposed Loan or
issuance.
(b) No Existing Default. No Default or Event of Default shall have
occurred and be continuing hereunder (i) on the borrowing date with respect
to a Loan or after giving effect to the Loans to be made on such date or
(ii) on the issue date with respect to a Letter of Credit or after giving
effect to such Letter of Credit on such date.
(c) Payment of Loan Fees. All Loan Fees have been paid in respect of
each Loan advance.
(d) Inspections. At the Collateral Agent's option, each Approved
Subdivision, Lot and Unit within the Borrowing Base Assets may be inspected
by the Compliance Inspector, who shall certify that in the Compliance
Inspector's opinion, the Borrowing Base Assets are being developed and the
Units are being built in compliance with the terms of this Agreement. Such
inspection is solely for the benefit of the Lenders and may not be
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relied upon by the Borrowers or by any third party. The Collateral Agent
intends to cause the Compliance Inspector to inspect fifty percent (50%) of
all work in progress on a quarterly basis at the Collateral Agent's
expense. If discrepancies, unfavorable to the Lenders, between the
percentage of completion represented by the Borrowers and that found by the
Compliance Inspector are identified in five percent (5%) or more of the
inspected Lots or Units in two consecutive quarters, the Collateral Agent
shall have the right to require monthly inspections at Borrowers' expense
for as long as the Collateral Agent deems necessary thereafter.
Notwithstanding any of the above, the Collateral Agent reserves the right
to increase or decrease the frequency of inspections at any time that the
Collateral Agent deems necessary or appropriate, in the Collateral Agent's
sole discretion and at the Collateral Agent's expense, except as otherwise
provided above.
(e) Title Insurance.
(1) The Collateral Agent, on behalf of the Lenders, must be
provided with a title policy in standard ALTA form (1970 - last
amended 10/17/84) from the Title Insurance Company on all Land Under
Development that is a Borrowing Base Asset and is reasonably expected
to remain a Borrowing Base Asset for more than one year. At the
Collateral Agent's discretion, the Collateral Agent may also require
that title insurance be provided on Finished Lots that have been
Borrowing Base Assets for more than one year.
(2) Each title policy required under this Agreement shall be in
an amount equal to the amount of the Revolving Loans allocated to such
Borrowing Base Asset, as determined by the Collateral Agent in its
sole discretion, without exceptions as to mechanics' liens, with no
other exceptions objectionable to the Collateral Agent, and with a
"last dollar" endorsement and other endorsements as the Collateral
Agent shall reasonably request. If required by the Title Insurance
Company in order to delete mechanics' lien exceptions, the Borrowers
must agree to provide an indemnification agreement satisfactory to the
Title Insurance Company. Upon the Collateral Agent's request (if the
insured amount exceeds the limits from time to time promulgated by the
Collateral Agent for the title insurer or insurers providing the title
insurance), the Lenders must receive reinsurance and direct access
agreements in form and substance reasonably satisfactory to the
Collateral Agent in form and amount and with companies acceptable to
the Collateral Agent. The Collateral Agent and its counsel must each
be provided with legible record copies of all documents listed as
exceptions in the title binder. The title policy must assure the
Lenders that the roads and ways, upon which the applicable Borrowing
Base Asset bounds, are duly dedicated public ways or that other
reasonable vehicular access is available. No subsequent title
bring-to-date reports will be required so long as the Borrowers pay
all payables within 45 days of the date rendered and obtain lien
waivers at the time of payment from those contractors who have the
right to file mechanic's liens.
(3) Title insurance will not be required on Sold Inventory, Spec
Units, or Model Units, or on Finished Lots that will be Borrowing Base
Assets for less than one year so long as the Borrowers pay all
payables within 45 days of the date rendered and obtain lien waivers
at the time of payment from their contractors who have the right to
file mechanics' liens. Notwithstanding the foregoing, whenever new
Lots or Units are added as Borrowing Base
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Assets, the Borrowers must submit to the Collateral Agent a Title
Confirmation Letter for each such Lot or Unit. In addition, at the
Collateral Agent's option, the Collateral Agent may from time to time
obtain, at Lenders' expense, separate title reports for such Lots or
Units. Such title reports must indicate that a Borrower owns each Lot
or Unit free and clear of all liens and other encumbrances reasonably
objectionable to the Collateral Agent, and that such Lot or Unit is
subject to a first priority recorded Mortgage. The quarterly Covenant
Compliance Certificate will include a certification by the Borrowers
that, to the Borrowers' knowledge, no Finished Lot for which the
Lenders do not have title insurance has been a Borrowing Base Asset
for more than one year. The Collateral Agent will reserve the right to
inspect the Borrowers' books and records upon reasonable advance
notice to the Borrowers during normal business hours to further
monitor compliance with this requirement.
(f) Material Adverse Change. It shall be a precondition to each
advance under the Credit Facility that there has been no Material Adverse
Change in the Borrowing Base Assets or the business, operations, or
condition (financial or otherwise) of the Borrowers taken as a whole and no
event has occurred or condition arisen that could reasonably be expected to
have such effect since the Closing Date.
(g) Contracts of Sale. At the Collateral Agent's option and request,
the Collateral Agent shall have received conformed copies of the
acquisition or option contracts for all Lots being purchased by the
Borrowers within Approved Subdivisions.
(h) Approved Contracts. At the Collateral Agent's option, the
Collateral Agent may from time to time request a copy of the Approved
Contract for each Borrowing Base Asset that is identified by the Borrowers
as Sold Inventory.
6.3 Conditions for Additional Lots and Subdivisions. In addition to the
requirements set forth above, the Lenders' agreement to make Revolving Loans
subsequent to the Closing Date is also conditioned upon satisfaction of the
following conditions and receipt by the Collateral Agent of the following
documents, each of which shall be satisfactory in form and substance to the
Collateral Agent:
(a) Additional Lots in Approved Subdivision. If the Borrowers request
a Revolving Loan to acquire or develop any Lots or construct Units on Lots
that are not Borrowing Base Assets, but are in an Approved Subdivision and
owned by an existing Borrower, the Borrower or Borrowers that own such Lots
shall execute and deliver to the Collateral Agent a Spreader Agreement,
which shall be recorded among the land records in the jurisdiction in which
such Lots are located, spreading the lien of the applicable Mortgage to
such Lots. If the additional Units or Lots are located in a jurisdiction
where there are no existing Borrowing Base Assets and, therefore, no
Mortgage already of record or if a new Borrower is joining in the Mortgage,
the Borrowers shall execute and record a full Mortgage rather than a
Spreader Agreement in the applicable jurisdiction. In addition, the
Borrowers shall have complied with the applicable provisions of Sections
6.2(e) regarding title matters.
(b) Approval of Proposed Subdivision. Before the Borrowers request a
Revolving Loan to acquire or develop any Lots or construct Units on Lots
that are owned by an
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existing Borrower, but are not in an Approved Subdivision, the proposed
subdivision must first be approved. If, at the time of subdivision approval
request, (i) the proposed subdivision is located in a state where WHI or
any of its Subsidiaries already conducts business as a homebuilder, (ii)
the proposed subdivision is located in a state where the Collateral Agent
maintains branch banking offices or (iii) the average projected sales price
for the proposed subdivision is equal to or less than $500,000, the
proposed subdivision shall be subject to the approval of the Collateral
Agent, which approval shall not be unreasonably withheld or delayed. If, at
the time of subdivision approval request, none of the foregoing criteria is
satisfied, the proposed subdivision shall be subject to the approval of the
Required Lenders, which approval shall not be unreasonably withheld or
delayed. Following approval of a proposed subdivision by the Required
Lenders, subsequent proposed subdivisions in the same state may be approved
by the Collateral Agent. The Borrowers shall submit all of the materials
itemized in Exhibit "N" (the "Subdivision Approval Submissions") to the
Collateral Agent at least thirty (30) days before the Borrowers intend to
submit a Notice of Borrowing with respect to the additional Lots or Units.
The Collateral Agent will provide written notice of approval or disapproval
of the proposed subdivision not later than ten (10) Business Days after the
Collateral Agent's receipt of the information described in the following
conditions.
Approval of the proposed subdivision shall be subject to the
following conditions:
(1) The Collateral Agent shall have commissioned, received,
reviewed, and approved, at the Collateral Agent's expense (subject to
Section 9.12), an Appraisal of the Lots in the proposed subdivision
intended to be added to the Borrowing Base Assets.
(2) The Collateral Agent shall have received, reviewed, and
approved a Phase I Environmental Site Assessment performed by a firm
acceptable to the Collateral Agent, at Borrowers' expense, which
indicates that the proposed subdivision is either free from Hazardous
Materials or affected only by such environmental matters as may be
acceptable to the Collateral Agent in its sole discretion.
(3) The Borrowers shall have delivered to the Collateral Agent a
copy of the title report received by WHI or the applicable Borrower in
connection with the acquisition of the Lots to be added as Borrowing
Base Assets, which must be in form and substance acceptable to the
Collateral Agent, indicating that the land to be added to the
Borrowing Base Assets within the proposed subdivision is not subject
to any Liens that, in the Collateral Agent's judgment, would adversely
affect the Borrowers' ability to develop and sell the improvements to
be constructed on the affected property.
(4) The Collateral Agent shall have obtained evidence that the
Lots in the proposed subdivision intended to be added to the Borrowing
Base Assets (A) are not located in a flood hazard area requiring flood
insurance or are insured by the necessary flood insurance coverage and
(B) are covered by all insurance coverage required in Section 8.9.
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(5) The Collateral Agent shall have received, reviewed and
approved the other Subdivision Approval Submissions and such other
real estate documents in respect of the subdivision as the Collateral
Agent shall have reasonably requested.
(c) Joinder of New Borrower. If the Borrowers desire to request a
Revolving Loan for the acquisition or development of Lots or construction
of Units on Lots that are owned or to be purchased by a Subsidiary of one
of the Borrowers which is not itself a Borrower, then before the Borrowers
comply with Sections 6.3(a) and 6.3(b), the Borrowers and each such
Subsidiary shall execute and deliver to the Administrative Agent a Joinder
Agreement pursuant to which such Subsidiary shall become a Borrower
hereunder and shall provide each of the deliveries listed in Section
6.1(b), including a favorable legal opinion addressed to the Agents and
Lenders in form and substance satisfactory to the Agents, with respect to
the joinder of such Subsidiary. The Borrowers and each such Subsidiary
shall execute a sufficient number of original counterparts of the Joinder
Agreement so that the Administrative Agent will have one fully executed
original to deliver to each of the Lenders.
(d) Mortgage on Property Not in an Approved Subdivision. At the
Borrowers' sole election, the Borrowers may subject land in a proposed
subdivision to the lien of a Mortgage before such proposed subdivision has
received final approval as an Approved Subdivision if (i) the Collateral
Agent has reviewed and approved a Phase I environmental assessment, a title
report, and the recorded subdivision plat for such proposed subdivision and
(ii) the Borrowers maintain insurance on such proposed subdivision in
accordance with this Agreement.
(e) Delivery of Original Recorded Documents. The Borrowers shall
deliver or cause to be delivered each original recorded Spreader Agreement
or Mortgage, as applicable, to the Collateral Agent promptly after receipt
from the record office. If the Collateral Agent does not receive such
original documents, or in the absence of the original documents a certified
copy of the recorded documents, within 60 days after recordation and if
thereafter the Borrowers do not deliver the originals or certified copies
within 15 days after notice from the Collateral Agent, the Lots that are
encumbered by such Spreader Agreement or Mortgage shall not be included in
the Borrowing Base nor be the subject of further Revolving Loans unless and
until the Collateral Agent receives the originals or certified copies.
6.4 Conditions to Revolving Loans for Construction of Units. The
obligation of the Lenders to make Revolving Loans for the construction of Units
is further subject to the receipt by the Collateral Agent of the following
documents, each of which shall be satisfactory in form and substance to the
Collateral Agent:
(a) Certificate of Compliance Inspector. If required by the Collateral
Agent, a certificate by the Compliance Inspector approving in all respects
any Notice of Borrowing required under paragraph (b) of this Section 6.4.
The Collateral Agent will not require a certificate from the Compliance
Inspector as a condition to funding unless the Compliance Inspector has
identified discrepancies, unfavorable to the Lenders, between the
percentage of completion represented by the Borrowers and that found by the
Compliance Inspector in five percent (5%) or more of the inspected Lots or
Units in two consecutive quarters. Thereafter,
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the Collateral Agent may require in its sole discretion a certificate of
Compliance Inspector as a condition to Revolving Loans.
(b) Notice of Borrowing. 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 Collateral Agent reasonably
deems the Lenders insecure that any design professional, contractor or
subcontractor and other Persons who may be entitled to a Lien on any
Borrowing Base Asset is not being paid when payments are due from a
Borrower, the Collateral Agent may request that the Borrowers provide
releases and waivers for work performed and materials furnished through the
date of the Notice of Borrowing simultaneously with the requested
disbursement and, in such event, the Lenders shall not be required to make
any advance hereunder prior to the Collateral Agent's receipt of such
releases and waivers.
(c) Insurance. In the case of the first advance in respect of any new
Borrowing Base Asset, evidence of insurance that meets the requirements of
Section 8.9, in form and substance acceptable to the Collateral Agent.
6.5 Hedging Agreement. Before any Extension of Credit on or after
October 30, 2000 and, in any event, before the first advance of the Term Loan,
the Borrowers shall comply with the requirements of Section 8.14.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
Each Borrower represents and warrants to the Lenders, as of the date
hereof and at any time reaffirmed pursuant to the terms hereof, that:
7.1 Existence, Etc. Each Borrower consists of a corporation that is:
(a) duly organized and validly existing under the laws of the state in which it
was formed; (b) has all requisite power and has all material governmental
licenses, authorizations, consents and approvals necessary (at the time the
representation is made) to own its assets and carry on its business as now being
conducted and as contemplated hereby (except any such licenses, authorizations,
consents or approvals as are being renewed); and (c) is 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. If any Borrower that joins in this Agreement after
the date hereof is a general partnership, limited partnership, limited liability
partnership, limited liability limited partnership, limited liability company,
or has any other organizational structure, such Borrower makes the foregoing
representations as applicable to its organizational form.
7.2 Financial Condition. Except as otherwise disclosed to the Agent in
writing, the consolidated financial statements of WHI and its Consolidated
Subsidiaries heretofore furnished to the Agent in connection with the
transactions contemplated hereby, fairly present the financial
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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, operations, or the business, taken as a whole, of the
entities comprising the Borrowers from that set forth therein.
7.3 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 Borrowers, threatened against any Borrower
in which there is a reasonable probability of an adverse decision that could
cause a Material Adverse Change.
7.4 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
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.
7.5 Authority. The Loan Documents, when executed and delivered, have
been duly and validly executed and delivered by the parties named therein other
than the Agent, the Arranger and the Lenders, and constitute the legal, valid
and binding obligations of the parties named therein other than the Agent, the
Arranger and the Lenders, 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.
7.6 Approval. No authorizations, approvals or consents of, and no
filings or registrations with (other than the recording of the Mortgages with
the Recorder of Deeds in the jurisdictions in which the Borrowing Base Assets
are located and the filing of the Financing Statement referred to in the
Mortgages in the applicable financing statement records office of such
jurisdictions) any Governmental Authority are necessary for the execution,
delivery or performance by the Borrowers of the Loan Documents or for the
validity or enforceability of any thereof, or for any of the Borrowers to
consummate the transactions contemplated hereby.
7.7 Employee Benefit Plans. None of the Borrowers maintains any
employee defined benefit pension plan subject to the Employee Retirement Income
Security Act of 1974.
7.8 Taxes, Etc. The Borrowers 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 have paid all taxes due pursuant to such returns or
pursuant to any assessment received by the Borrowers, 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 Borrowers in respect of taxes
and other
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governmental charges are, in the reasonable opinion of the Borrowers, adequate
in all material respects.
7.9 Structure and Ownership of the Borrowers. The entities comprising
the Borrowers are related to one another as described on Exhibit "O" hereto.
7.10 Principal Place of Business. The chief executive office and
principal place of business of each Borrower is located in Maryland.
7.11 Ownership of Collateral. At least one Borrower is the fee simple
owner of record and in fact of all Collateral. With respect to new Borrowing
Base Assets acquired with Revolving Loans, the Spreader Agreement perfecting the
Lenders' first priority security interest in each such Borrowing Base Asset has
been recorded prior to the disbursement of the Revolving Loan for acquisition.
7.12 Year 2000. As of the Closing Date, WHI (i) has initiated a review
and assessment of all areas of its business and operations (including those
affected by information received from suppliers and vendors) that may be
adversely affected by a Year 2000 Problem, (ii) has developed or is in the
process of developing a comprehensive and detailed strategic plan to address its
Year 2000 Problem, if any, and will, on a timely basis (but in no event later
than September 30, 1999), implement such plan, and (iii) reasonably believes
that the necessary expenditure of capital and resources to eliminate any such
Year 2000 Problem will not result in a Material Adverse Change.
7.13 Existing Loan Documents. The loan documents evidencing and
securing the Existing Facility, as amended and restated hereby, are in full
force and effect, valid, binding and enforceable in accordance with their
respective terms (subject to applicable bankruptcy, insolvency and similar laws,
and the application of equitable principles whether by a court of law or
equity). To the knowledge of the Borrowers, there exists no default by the Prior
Lenders thereunder nor any defense to payment of amounts payable pursuant to
such loan documents.
7.14 Released Borrowers. None of the Released Borrowers owns any
Borrowing Base Asset. Each of the Released Borrowers has merged into WH
Properties, Inc. The removal of the Released Borrowers as co-obligors hereunder
shall not in any way release any Borrower hereunder or diminish the obligations
of any Borrower hereunder or under any of the other Loan Documents.
7.15 Survival. All representations and warranties made by the Borrowers
herein or made in any certificate delivered pursuant hereto shall survive the
making of the Loans hereunder and the execution and delivery to the
Administrative Agent of the Notes evidencing such Loans.
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ARTICLE VIII
COVENANTS OF THE BORROWERS
Each Borrower agrees that from the date hereof, until payment in full
of the Obligations, all interest thereon and all other amounts payable by the
Borrowers under the Loan Documents and all Letters of Credit:
8.1 Financial Statements, Etc. The Borrowers (for purposes of this
Section 8.1 unless otherwise specified, actions that the Borrowers are required
to take will be taken by WHI on behalf of all of the Borrowers) shall deliver to
the Collateral Agent:
(a) within 75 days of the end of each Fiscal Year, (i) audited
consolidated financial statements of WHI and its Consolidated Subsidiaries
prepared in accordance with GAAP, consistently applied and certified by an
independent certified public accountant, without exception, to fairly
present the financial condition of the Person to which it relates and (ii)
the SEC Form 10K report filed annually on behalf of WHI with the Securities
and Exchange Commission;
(b) 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 Borrower or its affiliates proposes to
take to cure such Default;
(c) monthly, a Borrowing Base Report;
(d) at the same time as the submission of the annual financial
statements under clause (a) above and the quarterly statements under clause
(g) below, a Covenant Compliance Certificate;
(e) upon request of the Collateral Agent, an accounts payable aging
report, which report shall include the amount and age of each payable, the
name of each payee, and such other information as the Collateral Agent may
request;
(f) from time to time such other information regarding the business,
affairs or financial condition of the Borrowers as the Collateral Agent may
reasonably request; and
(g) within 45 days of the end of each of the Fiscal Quarters (other
than the final Fiscal Quarter of each Fiscal Year) of WHI and its
Consolidated Subsidiaries, an SEC Form 10Q report filed quarterly on behalf
of WHI with the Securities and Exchange Commission.
The Borrowers will furnish to the Collateral Agent, at the time they
furnish each set of financial statements and other documents pursuant to clauses
(a) and (g) above, a certificate of the Borrowers to the effect that to the best
of the Borrowers' 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 Borrowers propose to take to cure the
same).
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8.2 Disposition of Assets. The Borrowers will not sell or otherwise
transfer (in a single transaction or series of related transactions) their
assets, including the Borrowing Base Assets 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.
8.3 Existence, Etc. Each Borrower shall: (a) preserve and maintain its
existence and all of its material rights and privileges (as long as it owns and
develops assets); (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 result in a Material Adverse
Change; (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 to the extent required by this Agreement);
and (d) not suffer to occur any material amendment to the organizational
documents without the Collateral Agent's consent, which shall not be
unreasonably withheld, and without at least ten (10) days notice to the Agents
before such amendment is made and supplying the Agents with a copy of the
proposed amendment. Without limiting the generality of the foregoing, if a
Borrower has conveyed the last of the Borrowing Base Assets owned by it and has
no intent to own or develop additional Borrowing Base Assets, such Borrower
shall provide written notice of such fact to the Agents, together with the
proposed merger or other applicable documents to effect the merger or
dissolution of such Borrower.
8.4 Liens. No Borrower will create or suffer to be created or to exist
any Lien upon any part of the Borrowing Base Assets other than the Permitted
Liens. The Borrowers shall obtain lien waivers from each contractor and
subcontractor that has a right to obtain a Lien on any Borrowing Base Asset
(upon payment to such Person).
8.5 Use of the Credit Facility. The Borrowers shall use the Revolving
Loans only for the purposes stated in Section 2.1. The Borrowers shall use
Letters of Credit only for the purposes stated in Section 3.1(c) and proceeds of
the Term Loan only for the purposes stated in Section 4.1.
8.6 Access. The Borrowers will permit any representative authorized by
the Collateral Agent (including, but not limited to, appraisers), upon
reasonable notice and during business hours, to visit and inspect the Collateral
and the Borrowers' books and records and to make extracts and copies therefrom,
and to discuss their affairs, finances and accounts with the Borrowers; as often
as may be reasonably requested, but without unreasonably interfering with the
Borrowers' business operations.
8.7 Leases. The Borrowers shall send to the Collateral Agent any and
all leases for any portion of the Borrowing Base Assets which exceed six (6)
months in length. All such leases for the Borrowing Base Assets must be
subordinate to and subject to the relevant Mortgage and shall contain a clause
to that effect.
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8.8 Quality of Work: Changes; Etc. All work on the Lots and Units shall
conform substantially to the Plans and Specifications and shall be of good
quality and workmanship. Any work, material or equipment not so conforming that
would in any way affect the structural soundness, utility, or value of the Lots
and Units may be disapproved by the Collateral Agent and shall be replaced or
revised as may be required to bring about conformity promptly thereafter, at the
sole expense of the Borrowers.
8.9 Insurance.
(a) Types of Insurance. The Borrowers shall maintain and keep in
force, or cause to be maintained and kept in force, the following policies
of insurance:
(1) During the course of any construction of or repairs to any
building or improvement on the Borrowing Base Assets, builder's
completed value risk insurance against "all risks of physical loss,"
including (i) collapse and transit coverage, with deductibles not to
exceed Twenty-Five Thousand Dollars ($25,000), in non-reporting form,
covering the total value of work performed and equipment (to be
installed in a Borrowing Base Asset), supplies, and materials
furnished; and (ii) a full installation floater to insure all
materials stored on and off a Borrowing Base Asset but not yet part of
the permanent installation.
(2) Commercial general liability insurance, including coverage
against claims for personal injury, including bodily injury, death, or
property damage occurring on, in, or about the Collateral and
adjoining streets and sidewalks, which insurance shall be in an amount
reasonably satisfactory to the Collateral Agent.
(3) During the course of any construction or repair of any
improvement in a Borrowing Base Asset, the Borrowers shall use
commercially reasonable efforts to require that their contractors and
subcontractors to provide worker's compensation insurance (including
employer's liability insurance if requested by the Collateral Agent)
for all employees of such contractors and subcontractors engaged in
work on or with respect to the applicable Borrowing Base Asset, in
such amount as is satisfactory to the Collateral Agent or, if such
amount is established by law, in such lawfully required amount.
(4) Flood insurance in the aggregate maximum amount of the Notes
or the maximum amount obtainable, whichever is less, with respect to
any Lots within the Collateral if any such Lots are located within a
Flood Zone C as designated on the Maps of the Army Corps of Engineers
or if any such Lots within the Collateral are otherwise located within
a flood prone area from and after the date construction has commenced
on such Lots.
(5) Such other insurance, and in such amounts, as may from time
to time be reasonably required by the Collateral Agent.
(b) Policy Requirements. All policies of insurance required hereunder
shall contain an endorsement or agreement by the insurer that any loss
shall be payable in accordance with the terms of such policy
notwithstanding any act or negligence of any Borrower which might otherwise
result in forfeiture of said insurance, and the further agreement of the
insurer waiving all rights of set off, counterclaim, or deduction against
the Borrowers. All builder's risk
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and other property damage policies of insurance shall have attached thereto
a Standard Mortgagee Endorsement for the benefit of the Administrative
Agent, on behalf of the Lenders, in form satisfactory to the Collateral
Agent. All liability policies shall name the Administrative Agent, on
behalf of the Lenders, as an additional insured as its interest may appear.
All such policies shall contain a provision that such policies will not be
cancelled or materially amended, which term shall include any reduction in
the scope or limits of coverage, without at least thirty (30) days' prior
written notice to the Administrative Agent. All policies of insurance
required hereunder shall be issued by companies having a Best's rating of
at least A-/XII, and shall be in amounts specified herein or otherwise
satisfactory to the Collateral Agent. All insurance obtained by the
Borrowers shall be primary and non-contributory. The Borrowers shall
furnish the Collateral Agent with an original copy of all policies of
required insurance. At least ten (10) days prior to the expiration date of
each such policy, the Borrowers shall furnish the Administrative Agent with
evidence satisfactory to the Administrative Agent of the payment of the
premium thereon and the reissuance of a policy conforming to the
requirements set forth in this Agreement.
(c) Failure to Maintain Insurance. In the event the Borrowers fail to
provide, maintain, keep in force, or deliver and furnish to the Collateral
Agent the policies of insurance required hereunder, the Administrative
Agent may procure such insurance or single-interest insurance for such
risks covering the Administrative Agent's interest (on behalf of the
Lenders), and the Borrowers will reimburse the Administrative Agent for all
premiums paid by the Administrative Agent, together with interest thereon
from the date paid at the Term Loan Rate, promptly upon demand by the
Administrative Agent. Until such payment is made by the Borrowers, the
amount of all such premiums, together with interest thereon, shall be
secured by the Mortgages.
(d) Casualty Loss and Application of Insurance Proceeds. After the
occurrence of any material casualty or damage to a Borrowing Base Asset, or
any part thereof, the Borrowers shall give prompt written notice thereof to
the Agents. The Administrative Agent agrees to make available to the
Borrowers all insurance proceeds on account of any damage or destruction to
a Borrowing Base Asset as long as no Event of Default exists and remains
uncured under any of the Loan Documents. The Borrowers shall have the
option, in their reasonable discretion, of applying all or part of the
insurance proceeds resulting from casualty or property damage (i) to the
Loans in accordance with the terms of the Notes and this Agreement, or (ii)
to the repair and restoration of the affected Borrowing Base Asset upon
such terms and conditions as the Borrowers may determine. Repairing or
maintaining the affected Borrowing Base Asset or restoring all damage or
destruction to such Borrowing Base Asset after such occurrence shall be at
the reasonable discretion of the Borrowers, regardless of whether or not
the insurance proceeds are made available for such purpose or whether or
not any such proceeds are sufficient for such purpose; provided that
failure to restore may result in the recalculation of the Revolving Loan
Borrowing Limit. The application by the Borrowers of any insurance proceeds
to the indebtedness secured hereby shall not cure nor shall the
Administrative Agent be deemed to have waived any Event of Default under
this Agreement or any other Loan Document.
(e) Application of Insurance Proceeds After Event of Default.
Notwithstanding the preceding subparagraph, during the continuation of an
Event of Default, the
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Administrative Agent shall apply casualty insurance proceeds to restoration
of the damaged Borrowing Base Assets or to repayment of the Loans pursuant
to the direction of the Required Lenders. If the Administrative Agent shall
make said proceeds available to the Borrowers, such proceeds shall be made
available in the manner and under such terms and conditions as are set
forth herein; further, no insurer shall claim any rights of participation
and/or assignment of rights with respect to the indebtedness secured by the
Mortgages. If such proceeds are made available by the Administrative Agent
to the Borrowers, any surplus that may remain out of said insurance
proceeds after payment of all costs and expenses of such repairs and
restoration shall, at the option of the Administrative Agent, be applied on
account of the Obligations in such order as the Administrative Agent may
determine.
(f) Insurance After Foreclosure. In the event one or more Mortgages
are foreclosed, or title to any portion of the Collateral is transferred in
extinguishment, in whole or in part, of the Obligations, all right, title,
and interest of the Borrowers in and to all policies of insurance required
hereunder (with respect to acts or events prior to foreclosure or other
title transfer) shall inure to the benefit of and pass to the successor in
interest of the Borrowers or the purchaser or grantee of the Collateral;
provided, however, that the Administrative Agent shall have the right, but
not the obligation, to cancel any or all of the above-described policies of
insurance, and any unearned premium or premiums returned shall be applied
to payment of the Obligations.
8.10 Year 2000 Compatibility. The Borrowers shall take all action
reasonably necessary to assume that each Borrower's computer based systems are
able to operate and effectively process data that includes dates on and after
January 1, 2000. At the request of the Collateral Agent, each Borrower shall
provide reasonable assurances satisfactory to the Collateral Agent of such
Borrower's Year 2000 compatibility.
8.11 Other Documents. The Borrowers shall furnish to the Agents such
other documents relating to the Borrowers or the Borrowing Base Assets as the
Agents shall reasonably request.
8.12 Notice of Changes in Registration Statements. The Borrowers will
promptly forward to the Agents copies of all filings made with the Securities
and Exchange Commission or any other Governmental Authority and required of
publicly traded companies.
8.13 Amendments to Charters. The Borrowers will not amend their
Articles of Incorporation or by-laws without the Administrative Agent's consent,
if the same would have a material and adverse effect on the Borrowing Base
Assets, the financial condition of WHI and its Consolidated Subsidiaries or the
Loans. If Lenders' consent to any such amendment is required, such consent shall
not be unreasonably withheld.
8.14 Hedging Agreements. The Borrowers will be required to hedge the
floating interest expense of at least $40,000,000.00 of the Loans on or before
October 30, 2000, for the duration of the term of the Loans, by maintaining one
or more Hedging Agreements with First Union or with another financial
institution approved by the Collateral Agent in writing, with the Borrowers
making fixed rate payments and receiving floating rate payments to offset
changes in the variable interest expense of the Loans, all upon terms and
subject to such conditions as shall
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be acceptable to First Union in its sole discretion (or if such transaction is
with another financial institution, all upon terms and subject to conditions as
shall be approved by the Collateral Agent, in its sole discretion, in writing);
provided, however, that any and all advances under the Term Loan must be fully
hedged at the time of each Term Loan advance.
8.15 Additional Debt. The Borrowers shall not be permitted to incur
debt in addition to the Obligations (other than trade payables, capital leases,
and bonds posted for work completion incurred in the ordinary course of
business) without the prior written consent of the Required Lenders, except
under the following circumstances:
(a) Acquisition Debt. The Borrowers shall be permitted to incur
additional secured debt in conjunction with any acquisition or the
refinancing of any acquisition (collectively, the "Acquisition Debt")
without the prior written consent of the Required Lenders if all of the
following criteria are satisfied:
(1) The Borrowers notify the Agents in writing prior to incurring
the Acquisition Debt and deliver to Agents a current Covenant
Compliance Certificate (i.e., updated as applicable from the last
quarterly Covenant Compliance Certificate submitted to the Agents),
which shall include the Acquisition Debt as if made.
(2) The Acquisition Debt must be subject to the same material
covenants (including financial covenants) as the Credit Facility and
subject to the same advance ratios and proportionate sublimits as the
Revolving Credit Facility; provided that Acquisition Debt that is
seller take-back financing shall not be subject to the foregoing
requirement.
(3) The ratio of Total Debt (including the permissible amount of
Acquisition Debt as determined under the covenants, advance ratios,
and proportionate sublimits of the Credit Facility based on the value
of the collateral pool to be acquired with the Acquisition Debt, and
not the commitment amount) at the time the Acquisition Debt is
incurred to Consolidated Tangible Net Worth does not exceed 1.75:1.0.
If such ratio exceeds 1.75:1.0, then the Required Lenders' consent is
required, and the Lenders shall have a right of first refusal to fund
the contemplated acquisition under the Credit Facility. If this right
of first refusal is triggered, the Borrowers shall deliver to the
Agents a written summary of the terms of the proposed acquisition and
funding, together with such other information as either Agent shall
request. The Lenders, shall have thirty (30) Business Days from the
date of the receipt of all requested information relating to the
proposed acquisition in which to exercise the right of first refusal.
The Lenders' failure to respond within such time period shall be
deemed automatic approval for the Borrowers to incur the Acquisition
Debt. If the Lenders decline to either fund the proposed acquisition
under the Credit Facility or approve the Acquisition Debt, and the
Borrowers elect to incur the Acquisition Debt, then (x) both the Term
Loan and the Revolving Credit Facility shall mature on the date that
is the earlier of (i) the then current Revolving Credit Maturity Date,
giving effect to the Modified Extension Period, (ii) the then current
Term Loan Maturity Date, or (iii) twelve (12) months from the date the
Acquisition Debt is incurred; and (y) all remaining extension options
under the Credit Facility shall terminate as of the date the
Acquisition Debt is incurred.
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(b) Unsecured Debt. The Borrowers shall be permitted to incur
additional unsecured debt other than for purposes of acquiring real
property ("Unsecured Debt") without the prior written consent of the
Required Lenders if the following criteria are satisfied:
(1) The Borrowers notify the Agents in writing prior to incurring
the Unsecured Debt and deliver to the Agents a current Covenant
Compliance Certificate (i.e., updated as applicable from the last
quarterly Covenant Compliance Certificate submitted to the Agents),
which must include the Unsecured Debt as if made; and
(2) After inclusion of the Unsecured Debt, as incurred, in Total
Debt, the Total Debt to Consolidated Tangible Net Worth Ratio remains
satisfied.
ARTICLE IX
FINANCIAL COVENANTS
The Borrowers shall comply with the following financial covenants
(collectively, the "Financial Covenants") as long as any of the Obligations or
the Commitments remains outstanding.
9.1 Liquidity. The Liquidity of the Borrowers shall be at least
$7,500,000 as reported on a quarterly basis; provided, however, that if the
Borrowers elect, and the Administrative Agent is willing (in its sole
discretion), to have all excess cash swept, on a daily basis, to be applied to
the outstanding principal balances under the Loans, the minimum Liquidity
requirement shall be $2,000,000. If the Administrative Agent agrees to have all
excess cash swept on a daily basis, the parties to this Agreement shall enter
into a supplement to this Agreement, which will set forth the procedures for
such daily cash sweep, including the procedures for transferring and reconciling
potentially daily principal payments to the Lenders.
9.2 Consolidated Tangible Net Worth. The Consolidated Tangible Net
Worth of the Borrowers as of the last day of each Fiscal Quarter shall equal or
exceed the sum of (i) $48,000,000, plus (ii) 50% of cumulative positive annual
net earnings from and after July 31, 1998, plus (iii) 100% of any cumulative net
equity proceeds raised after July 31, 1998.
9.3 Interest Coverage Ratio. The ratio of (i) EBITDA, to (ii) Interest
Incurred as of the last day of each Fiscal Quarter (in each case using four (4)
of the last five (5) quarters ending on such date), shall not be less than 2.0
to 1.0.
9.4 Total Debt to Consolidated Tangible Net Worth Ratio. The ratio of
Total Debt to Consolidated Tangible Net Worth shall not be more than 2.0:1.0 at
the end of each fiscal quarter (the "Total Debt to Net Worth Ratio").
9.5 Land Under Development/Net Tangible Assets Ratio. The cost basis
(as calculated in accordance with GAAP) of Land Under Development shall not
exceed 30% of Consolidated Net Tangible Assets.
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9.6 Current Debt Ratio. The Current Debt of WHI and its Consolidated
Subsidiaries shall not exceed 35% of Total Inventory; provided that if the
comparable financial covenant under the Senior Notes is modified, this Financial
Covenant shall automatically be modified to mirror the change in the comparable
covenant in the Senior Notes; and further provided that this Financial Covenant
shall cease upon the earlier of repayment of the Senior Notes in full or waiver
or removal of this financial covenant from the Senior Notes by the holder of the
Senior Notes (the "Current Debt Ratio").
9.7 Loan to Value Ratio. After the funding of the Term Loan and
throughout the Term Loan Term, (a) the ratio of the aggregate outstanding
principal balance of the Loans to the Value of Borrowing Base Assets shall not
exceed 75% and (b) after October 30, 2000, the ratio of the aggregate
outstanding principal balance of the Loans and the L/C Obligations to the Value
of Borrowing Base Assets shall not exceed 80%.
9.8 Restricted Payments. In any Fiscal Year, aggregate dividend
payments or payments in lieu of dividends shall not exceed 25% of Consolidated
Net Income.
9.9 Joint Ventures. None of the Borrowers shall make an investment in
any new joint ventures in which any such Person is a 50% or more owner which are
off-balance sheet or make any other off-balance sheet investments, which exceed
$1,500,000 each or $3,000,000 in the aggregate (direct or contingent), without
the prior written approval of the Required Lenders, which approval may be
withheld in the sole and absolute discretion of the Required Lenders. Lenders
acknowledge their approval of the level of investment currently existing with
respect to WH/PR Land Company; Arbor West LTD.; Bozzutto-Bowie New Town Center;
New Home Buyers Title Co., Inc.; New Homebuyers Title Co. (Virginia), LLC;
Homebuyer's Insurance Agency, LLC; and US Homes Joint Venture.
9.10 Senior Notes. Redemption of the Senior Notes shall not exceed the
amount required by the terms of such Senior Notes without the prior consent of
the Required Lenders, which consent shall not be unreasonably withheld. The
repayment terms of the Senior Notes shall not be modified without the prior
written consent of the Required Lenders, which consent shall not be unreasonably
withheld.
9.11 Financial Covenant Calculations. All Financial Covenants shall be
determined on a consolidated basis for WHI and its Consolidated Subsidiaries in
accordance with GAAP and are subject to reporting and testing on a quarterly
basis; provided that after the funding of the Term Loan, the Financial Covenant
in Section 9.7 will be tested monthly with the Borrowers' submission of the
monthly Borrowing Base Report.
9.12 Appraisals. The Collateral Agent shall have the right to obtain
Appraisals of one or more of the Borrowing Base Assets from time to time to the
extent that the Collateral Agent, in its sole discretion, (i) determines that
such Appraisals are necessary, or (ii) determines that such Appraisals are
required by any law or governmental rule, regulation, policy, guideline or
directive (whether or not having the force of law), or any interpretation
thereof, including without limitation, the provisions of Title XI of the
Financial Institutions Reform, Recovery and Enforcement Act of 1989, and any
rules promulgated to implement such provisions. The Collateral Agent shall have
the right to select the appraiser or firm to conduct all such Appraisals
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and the form of such Appraisals shall be satisfactory to the Collateral Agent in
the Collateral Agent's discretion. The cost of such Appraisals, or the cost to
retain an appraiser to opine on the validity of any Appraisal undertaken by an
appraiser or firm selected by the Collateral Agent, shall be paid by the
Collateral Agent; provided that if the representative Lot and Unit values
obtained by the Collateral Agent indicate that the Borrowing Base Assets are not
in compliance with the Loan-to-Value Ratio set forth in Section 9.7, the
Collateral Agent will reserve the right to require the Borrowers to bear all
additional costs of the Appraisals.
ARTICLE X
EVENTS OF DEFAULT AND REMEDIES
10.1 Events of Default. If one or more of the following events or
conditions shall occur and be continuing, the Required Lenders shall have the
right to declare such event or condition to be an event of default hereunder
(each [when so declared], an "Event of Default"):
(a) Default in Payment of Obligations. Any Borrower shall default in
the payment when due of the Reimbursement Obligations or of any principal
of or interest on the Loans or any other amount payable by it under this
Agreement, the Notes or any of the other Loan Documents and such Default
shall continue without having been remedied for a period of fifteen (15)
days.
(b) Default in Payment of Other Debts to Lenders. The Borrowers shall
default beyond any applicable notice and cure period under any debt
facility or facilities (other than the Credit Facility), secured or
unsecured, in excess of $1,000,000.00 in the aggregate; provided that so
long as the holder of the defaulted indebtedness has not yet accelerated or
commenced legal action to enforce such indebtedness, the Borrowers shall
have a cure period of fifteen (15) days after notice from the
Administrative Agent to remedy such default.
(c) Misrepresentation. Any representation, warranty or certification
made in any of the Loan Documents or in any document furnished in
connection herewith or therewith (including any representation or warranty
made in connection with the Borrowers' application for the Credit Facility)
by any Borrower proves to have been false or misleading in any materially
adverse respect as of the time made or furnished.
(d) Default in Performance of Covenants. Any Borrower shall default in
the performance of any of its other obligations or covenants set forth in
this Agreement or any other Loan Document (and not otherwise addressed in
this Section 10.1) and such default remains uncured for thirty (30) days
after written notice of default to the Borrowers.
(e) Voluntary Bankruptcy Proceeding. Any Borrower shall (i) apply for
or consent to the appointment of, or the taking of possession by, a
receiver, custodian, trustee or liquidator of itself or of all or a
substantial part of its property; (ii) make a general assignment for the
benefit of its creditors; (iii) commence a voluntary case under the
Bankruptcy Code (as now or hereafter in effect); (iv) file a petition
seeking to take advantage of any other law relating to bankruptcy,
insolvency, reorganization, winding-up, or composition or readjustment of
debts; (v)
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fail to controvert within 90 days or such lesser period as may be provided
in the Bankruptcy Code, or acquiesce in writing to, any petition filed
against it in an involuntary case under the Bankruptcy Code; or (vi) admit
in writing its inability to, or be generally unable to, pay its debts as
such debts become due.
(f) Involuntary Bankruptcy Proceeding. A proceeding or case shall be
commenced, without the application or consent of any Borrower in any court
of competent jurisdiction, seeking (i) liquidation, reorganization,
dissolution or winding-up, or the composition or readjustment of debts of
any Borrower; (ii) the appointment of a trustee, receiver, custodian,
liquidator or the like of any Borrower of all or any substantial part of
any of their assets; or (iii) similar relief in respect of any Borrower
under any law relating to bankruptcy, insolvency, reorganization,
winding-up, or composition or adjustment of debts, and such proceeding or
case shall continue without dismissal, or an order, judgment or decree
approving or ordering any of the foregoing shall be entered and continue
unstayed and in effect, for a period of 90 days, or an order for relief
against any Borrower shall be entered in an involuntary case under the
Bankruptcy Code.
(g) Dissolution. Any Borrower shall dissolve or otherwise terminate
its existence except in accordance with Section 8.3.
(h) Default Under Other Liens or Encumbrances Affecting Borrowing Base
Assets. Any Borrower defaults in the performance of any of its obligations
under any Permitted Lien affecting any Borrowing Base Asset, irrespective
of whether such Lien is subordinate to the lien of the Mortgages, and such
default continues beyond the notice or grace period provided in the
documents evidencing such Lien; provided that the Borrowers may cure such
default by excluding the affected Borrowing Base Asset(s) from the
Borrowing Base pursuant to Section 10.4.
(i) Debt in Breach of Financial Covenants. The incurring of any
liability for any debt, whether primary or secondary, and whether fixed or
contingent, if immediately following the incurring of such liability the
Borrowers would fail as a result thereof, to comply with the Financial
Covenants.
(j) Default Under Senior Notes. WHI shall default in the payment of
the Senior Notes beyond the period of grace if any, provided in the
instrument or agreement under which such debt was created.
10.2 Remedies. Upon the occurrence and during the continuation of an
Event of Default, with the consent of the Required Lenders, the Administrative
Agent may, or upon the request of the Required Lenders, the Administrative Agent
shall, by notice to the Borrowers:
(a) Acceleration; Termination of Facilities. Declare the principal of
and interest on the Loans, the Notes and the Reimbursement Obligations at
the time outstanding, and all other amounts owed to the Lenders and to the
Agents under this Agreement or any of the other Loan Documents (other than
any Hedging Agreement) (including, without limitation, all L/C Obligations,
whether or not the beneficiaries of the then outstanding Letters of Credit
shall have presented the documents required thereunder) and all other
Obligations, to be forthwith due
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and payable, whereupon the same shall immediately become due and payable
without presentment, further demand, protest or other notice of any kind,
all of which are expressly waived, anything in this Agreement or the other
Loan Documents to the contrary notwithstanding, and terminate the Credit
Facility and any right of the Borrowers to request borrowings or Letters of
Credit thereunder; provided that upon the occurrence of an event specified
in Section 10.1(e) or (f), the Credit Facility shall be automatically
terminated and all Obligations shall automatically become due and payable.
(b) Letters of Credit. With respect to all Letters of Credit with
respect to which presentment for honor shall not have occurred at the time
of an acceleration pursuant to the preceding paragraph, require the
Borrowers at such time to deposit in a cash collateral account opened by
the Administrative Agent an amount equal to the aggregate then undrawn and
unexpired amount of such Letters of Credit. The Borrowers hereby assign to
the Administrative Agent, on behalf of the Issuing Lender, and grant a
security interest in all amounts so held in any cash collateral account as
cash collateral for the Obligations. Amounts held in such cash collateral
account shall be applied by the Administrative Agent to the payment of
drafts drawn under such Letters of Credit, and the unused portion thereof
after all such Letters of Credit shall have expired or been fully drawn
upon, if any, shall be applied to repay the other Obligations. After all
such Letters of Credit shall have expired or been fully drawn upon, the
Reimbursement Obligation shall have been satisfied and all other
Obligations shall have been paid in full, the balance, if any, in such cash
collateral account shall be returned to the Borrowers.
(c) Rights of Collection. Exercise on behalf of the Lenders all of its
other rights and remedies under this Agreement, the other Loan Documents
and Applicable Law, in order to satisfy all of the Obligations of the
Borrowers.
10.3 Rights and Remedies Cumulative; Non-Waiver; etc. The enumeration
of the rights and remedies of the Agents and the Lenders set forth in this
Agreement is not intended to be exhaustive and the exercise by the Agents and
the Lenders of any right or remedy shall not preclude the exercise of any other
rights or remedies, all of which shall be cumulative, and shall be in addition
to any other right or remedy given hereunder or under the Loan Documents or that
may now or hereafter exist in law or in equity or by suit or otherwise. No delay
or failure to take action on the part of any Agent or any Lender in exercising
any right, power or privilege shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right, power or privilege preclude other
or further exercise thereof or the exercise of any other right, power or
privilege or shall be construed to be a waiver of any Event of Default. No
course of dealing between the Borrowers, the Agents and the Lenders or their
respective agents or employees shall be effective to change, modify or discharge
any provision of this Agreement or any of the other Loan Documents or to
constitute a waiver of any Event of Default.
10.4 Defaults Affecting Borrowing Base Assets. Notwithstanding anything
in this Agreement to the contrary, if (a) a default arises from a condition or
event affecting one or more Borrowing Base Assets; (b) the Borrowers cannot or
elect not to cure such default within the applicable cure period, if any; (c)
before the default becomes an Event of Default, the Borrowers notify the Agents
of the Borrowers' intent to exclude the affected Borrowing Base Asset from the
Borrowing Base; (d) the Borrowers effect such exclusion by submission of a
revised current
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Borrowing Base Report to the Agents not later than ten (10) Business Days after
the Borrowers notify the Agents of the proposed exclusion; and (e) following the
exclusion of the affected Borrowing Base Asset(s), the aggregate outstanding
Revolving Loans shall not exceed the then applicable Revolving Loan Borrowing
Limit, as determined from the revised Borrowing Base Report, and no Event of
Default shall then exist, then the Lenders shall permit the exclusion of a
Borrowing Base Asset to cure a default. If the exclusion of one or more
Borrowing Base Assets would cause the aggregate outstanding Revolving Loans to
exceed the then applicable Revolving Loan Borrowing Limit, the Borrower may also
cure the default (i) by making a principal prepayment of the Revolving Loans in
an amount equal to or greater than the difference between the Revolving Loan
Borrowing Limit and the aggregate outstanding Revolving Loans or (ii) by
subjecting sufficient additional property that would qualify as a Borrowing Base
Asset to the lien of a Mortgage so that the Revolving Loan Borrowing Limit is
increased to an amount greater than the aggregate outstanding Revolving Loans.
ARTICLE XI
THE AGENTS
11.1 Appointment. Each of the Lenders hereby irrevocably designates and
appoints First Union as Collateral Agent and First Union Capital Markets Corp.
as Administrative Agent of such Lender under this Agreement and the other Loan
Documents, and each such Lender irrevocably authorizes each of First Union as
Collateral Agent and First Union Capital Markets Corp. as Administrative Agent
for such Lender, to take such action on its behalf under the provisions of this
Agreement and the other Loan Documents and to exercise such powers and perform
such duties as are expressly delegated to the Agents by the terms of this
Agreement and such other Loan Documents, together with such other powers as are
reasonably incidental thereto. Notwithstanding any provision to the contrary
elsewhere in this Agreement or such other Loan Documents, neither Agent shall
have any duties or responsibilities except those expressly set forth herein and
therein, or any fiduciary relationship with any Lender, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities shall
be read into this Agreement or the other Loan Documents or otherwise exist
against any Agent.
11.2 Delegation of Duties. The Agents may execute any of their
respective duties under this Agreement and the other Loan Documents by or
through agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. No Agent shall be responsible
for the negligence or misconduct of any agents or attorneys-in-fact selected by
such Agent with reasonable care.
11.3 Exculpatory Provisions. Neither Agent nor any of such Agent's
officers, directors, employees, agents, attorneys-in-fact, Subsidiaries or
Affiliates shall be (a) liable for any action lawfully taken or omitted to be
taken by it or such Person under or in connection with this Agreement or the
other Loan Documents (except for actions occasioned solely by its or such
Person's own gross negligence or willful misconduct), or (b) responsible in any
manner to any of the Lenders for any recitals, statements, representations or
warranties made by any Borrower or any of its Subsidiaries or any officer
thereof contained in this Agreement or the other Loan Documents or in any
certificate, report, statement or other document referred to or provided for
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in, or received by such Agent under or in connection with, this Agreement or the
other Loan Documents or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or the other Loan Documents or
for any failure of any Borrower or any of its Subsidiaries to perform its
obligations hereunder or thereunder. No Agent shall be under any obligation to
any Lender to ascertain or to inquire as to the observance or performance of any
of the agreements contained in, or conditions of, this Agreement, or to inspect
the properties, books or records of the Borrowers or any of their Subsidiaries.
11.4 Reliance by the Agents. Each Agent shall be entitled to rely, and
shall be fully protected in relying, upon any note, writing, resolution, notice,
consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or
teletype message, statement, order or other document or conversation believed by
it to be genuine and correct and to have been signed, sent or made by the proper
Person or Persons and upon advice and statements of legal counsel (including,
without limitation, counsel to the Borrowers), independent accountants and other
experts selected by such Agent. The Agents may deem and treat the payee of any
Note as the owner thereof for all purposes unless such Note shall have been
transferred in accordance with Section 12.10 hereof. Each Agent shall be fully
justified in failing or refusing to take any action under this Agreement and the
other Loan Documents unless it shall first receive such advice or concurrence of
the Required Lenders (or, when expressly required hereby or by the relevant
other Loan Document, all the Lenders) as it deems appropriate or it shall first
be indemnified to its satisfaction by the Lenders against any and all liability
and expense that may be incurred by it by reason of taking or continuing to take
any such action except for its own gross negligence or willful misconduct. The
Agents shall in all cases be fully protected in acting, or in refraining from
acting, under this Agreement and the Notes in accordance with a request of the
Required Lenders (or, when expressly required hereby, all the Lenders), and such
request and any action taken or failure to act pursuant thereto shall be binding
upon all the Lenders and all future holders of the Notes.
11.5 Notice of Default. No Agent shall be deemed to have knowledge or
notice of the occurrence of any Default or Event of Default hereunder unless it
has received notice from a Lender or the Borrowers referring to this Agreement,
describing such Default or Event of Default and stating that such notice is a
"notice of default." In the event that any Agent receives such a notice, it
shall promptly give notice thereof to the Lenders. The Agents shall take such
action with respect to such Default or Event of Default as shall be reasonably
directed by the Required Lenders; provided that unless and until an Agent shall
have received such directions, such Agent may (but shall not be obligated to)
take such action, or refrain from taking such action, with respect to such
Default or Event of Default as it shall deem advisable in the best interests of
the Lenders.
11.6 Non-Reliance on the Agents and Other Lenders. Each Lender
expressly acknowledges that neither Agent nor any of such Agent's respective
officers, directors, employees, agents, attorneys-in-fact, Subsidiaries or
Affiliates has made any representations or warranties to it and that no act by
such Agent hereinafter taken, including any review of the affairs of the
Borrowers or any of their Subsidiaries, shall be deemed to constitute any
representation or warranty by such Agent to any Lender; provided that each
Lender may rely on the Collateral Agent's determination of Loan amounts and
Letter of Credit amounts after the
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Collateral Agent's review and, as applicable, adjustment of the Borrowing Base
Report and determination of the Borrowers' satisfaction of the applicable
advance conditions. Each Lender represents to the Agents that it has,
independently and without reliance upon the Agents (except as permitted in the
preceding sentence) or any other Lender, and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, operations, property, financial and other
condition and creditworthiness of the Borrowers and their Subsidiaries and made
its own decision to make its Loans and issue or participate in Letter of Credit
hereunder and enter into this Agreement. Each Lender also represents that it
will, independently and without reliance upon the Agents (except as permitted in
the first sentence of this paragraph) or any other Lender, and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit analysis, appraisals and decisions in taking or not taking
action under this Agreement and the other Loan Documents, and to make such
investigation as it deems necessary to inform itself as to the business,
operations, property, financial and other condition and creditworthiness of the
Borrowers and their Subsidiaries. Except for notices, reports and other
documents expressly required to be furnished to the Lenders by the Agents
hereunder or by the other Loan Documents, the Agents shall not have any duty or
responsibility to provide any Lender with any credit or other information
concerning the business, operations, property, financial and other condition or
creditworthiness of the Borrowers or any of their Subsidiaries which may come
into the possession of any Agent or any of such Agent's respective officers,
directors, employees, agents, attorneys-in-fact, Subsidiaries or Affiliates.
11.7 Indemnification. The Lenders agree to indemnify each of the Agents
in their respective capacity as such and (to the extent not reimbursed by the
Borrowers and without limiting the obligation of the Borrowers to do so),
ratably according to the respective amounts of their Commitment Percentages,
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind whatsoever which may at any time (including, without limitation, at any
time following the payment of the Notes or any Reimbursement Obligation) be
imposed on, incurred by or asserted against any Agent in any way relating to or
arising out of this Agreement or the other Loan Documents, or any documents
contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby or any action taken or omitted by any Agent under
or in connection with any of the foregoing; provided that no Lender shall be
liable for the payment of any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting solely from such Agent's bad faith, gross negligence or willful
misconduct. The agreements in this Section 11.7 shall survive the payment of the
Notes, any Reimbursement Obligation and all other amounts payable hereunder and
the termination of this Agreement.
11.8 The Agents in Its Individual Capacity. Each Agent and its
respective Subsidiaries and Affiliates may make loans to, accept deposits from
and/or generally engage in any kind of business with the Borrowers as though
such Agent were not an Agent hereunder. With respect to any Loans made or
renewed by it and any Note issued to it and with respect to any Letter of Credit
issued by it or participated in by it, such Agent shall have the same rights and
powers under this Agreement and the other Loan Documents as any Lender and may
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exercise the same as though it were not an Agent, and the terms "Lender" and
"Lenders" shall include the Agents in their individual capacity, if applicable.
11.9 Resignation of the Agents, Successor Agents. Subject to the
appointment and acceptance of a successor as provided below, any Agent may
resign at any time by giving notice thereof to the Lenders and the Borrowers.
Upon any such resignation, the Required Lenders shall have the right to appoint
a successor Agent, which successor shall be a Lender and shall have minimum
capital and surplus of at least $500,000,000. If no successor Agent shall have
been so appointed by the Required Lenders and shall have accepted such
appointment within thirty (30) days after such Agent's giving of notice of
resignation, then such Agent may, on behalf of the Lenders, appoint a successor
Agent, which successor shall have minimum capital and surplus of at least
$500,000,000. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all rights, powers, privileges and duties of the retiring Agent, and
the retiring Agent shall be discharged from all future duties and obligations
hereunder. After any retiring Agent's resignation hereunder as Agent, the
provisions of this Section 11.9 shall continue in effect for its benefit in
respect of any actions taken or omitted to be taken by it while it was acting as
Agent.
11.10 Effect of Article on Borrowers. This Article XI governs certain
rights and obligations between the Agents and the Lenders. The provisions of
this Article are not intended to limit or expand in any way the rights or
obligations of the Borrowers with respect to the Credit Facility, the Agents, or
the Lenders.
ARTICLE XII
MISCELLANEOUS
12.1 Notices.
(a) Method of Communication. Except as otherwise provided in this
Agreement, all notices and communications hereunder shall be in writing, or
by telephone subsequently confirmed in writing. Any notice shall be
effective if delivered by hand delivery or sent via telecopy, recognized
overnight courier service or certified mail, return receipt requested, and
shall be presumed to be received by a party hereto (and deemed effective)
(i) on the date of delivery if delivered by hand, (ii) on the next Business
Day if sent by recognized overnight courier service, (iii) upon receipt of
acknowledgment, if sent by telecopy, and (iv) on the third Business Day
following the date sent by certified mail, return receipt requested. A
telephonic notice to either Agent as understood by such Agent will be
deemed to be the controlling and proper notice in the event of a
discrepancy with or failure to receive a confirming written notice.
(b) Addresses for Notices. Notices to any party shall be sent to it at
the following addresses, or any other address as to which all the other
parties are notified in writing.
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If to the Borrowers: Washington Homes, Inc.
1802 Brightseat Road
Landover, Maryland 20785
Attention: Geaton A. DeCesaris, Jr.
Telephone No.: (301) 772-8900
Telecopy No.: (301) 772-1380
With copy to: Washington Homes, Inc.
1802 Brightseat Road
Landover, Maryland 20785
Attention: Chris Spendley
Telephone No.: (301) 772-8900
Telecopy No.: (301) 772-1380
If to the Collateral Agent: First Union National Bank
1970 Chain Bridge Road
McLean, Virginia 22102-4099
Attention: Carolyn W. Hall
Vice President
Telephone No.(703) 760-6181
Telecopy No. (703) 760-5554
and: First Union National Bank
1970 Chain Bridge Road
McLean, Virginia 22102-4099
Attention: Ronald Sanders
Vice President
Telephone No.(703) 760-6116
Telecopy No. (703) 760-6744
If to the Administrative Agent: First Union Capital Markets Corp.
One First Union Center, DC-5 (NC-0608)
301 South College Street
Charlotte, North Carolina 28288-0608
Attention: Lawrence R. Grames III
Telephone No.: (704) 374-6794
Telecopy No.: (704) 383-0550
With copy to: First Union Capital Markets Corp.
One First Union Center, DC-6 (NC-0166)
301 South College Street
Charlotte, North Carolina 28288-0608
Attention: Jane Hurley
Telephone No.: (704) 383-3812
Telecopy No.: (704) 374-7102
If to any Lender: To the Address set forth on Schedule 1
hereto
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(c) Administrative Agent's Office. The Administrative Agent hereby
designates its office located at the address set forth above, or any
subsequent office that shall have been specified for such purpose by
written notice to the Borrowers and Lenders, as the Administrative Agent's
Office referred to herein, to which payments due are to be made and at
which Loans will be disbursed and Letters of Credit issued.
12.2 Expenses, Indemnity. The Borrowers will (a) pay all reasonable
out-of-pocket expenses of the Agents in connection with: (i) the preparation,
execution and delivery of this Agreement and each other Loan Document, whenever
the same shall be executed and delivered, including without limitation all
reasonable fees and disbursements of counsel for the Agents, (ii) the
preparation, execution and delivery of any waiver, amendment or consent by the
Agents or the Lenders relating to this Agreement or any other Loan Document,
including without limitation reasonable fees and disbursements of counsel for
the Agents, and (iii) after the occurrence of an Event of Default, enforcement
of any rights and remedies of the Agents and Lenders under this Agreement and
the other Loan Documents, including consulting with appraisers, accountants,
engineers, attorneys and other Persons concerning the nature, scope or value of
any right or remedy of the Agents or any Lender hereunder or under any other
Loan Document or any factual matters in connection therewith, which expenses
shall include without limitation the reasonable fees and disbursements of such
Persons; and (b) defend, indemnify and hold harmless the Agents and the Lenders,
and their respective parents, Subsidiaries, Affiliates, employees, agents,
officers and directors, from and against any losses, penalties, fines,
liabilities, settlements, damages, costs and expenses, suffered by any such
Person in connection with any claim, investigation, litigation or other
proceeding (whether or not the Agents or any Lender is a party thereto) and the
prosecution and defense thereof, arising out of or in any way connected with the
Agreement, any other Loan Document or the Credit Facility, including without
limitation reasonable attorney's and consultant's fees, except to the extent
that any of the foregoing directly result from the gross negligence or willful
misconduct of the party seeking indemnification therefor.
12.3 Set-off. In addition to any rights now or hereafter granted under
Applicable Law and not by way of limitation of any such rights, upon and after
the occurrence of any Event of Default and during the continuance thereof, the
Lenders and any assignee or participant of a Lender in accordance with Section
12.10 are hereby authorized by the Borrowers at any time or from time to time,
to the extent permitted by Applicable Law, without notice to the Borrowers or to
any other Person, any such notice being hereby expressly waived, to set off and
to appropriate and to apply any and all deposits (general or special, time or
demand, including, but not limited to, indebtedness evidenced by certificates of
deposit, whether matured or unmatured) and any other indebtedness at any time
held or owing by the Lenders, or any such assignee or participant to or for the
credit or the account of the Borrowers against and on account of any unpaid
Obligations irrespective of whether or not (a) the Lenders shall have made any
demand under this Agreement or any of the other Loan Documents or (b) the
Administrative Agent shall have declared any or all of the Obligations to be due
and payable as permitted by Section 10.2 and although such Obligations shall be
contingent or unmatured. The Agents and Lenders acknowledge that the rights of
the Lenders under this Section 12.3 are subject to the rights of residential
contract purchasers of Borrowing Base Assets in any contract deposits held in an
account with any Lender or Agent.
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12.4 Governing Law. This Agreement, the Notes and the other Loan
Documents, unless otherwise expressly set forth therein, shall be governed by,
construed and enforced in accordance with the laws of the State of Maryland,
without reference to the conflicts or choice of law principles thereof.
12.5 Consent to Jurisdiction. The Borrowers hereby irrevocably consent
to the personal jurisdiction of the state and federal courts located in Prince
George's County, Maryland, in any action, claim or other proceeding arising out
of any dispute in connection with this Agreement, the Notes and the other Loan
Documents, any rights or obligations hereunder or thereunder, or the performance
of such rights and obligations. Nothing in this Section 12.5 shall affect the
right of the Agents or any Lender to serve legal process in any other manner
permitted by Applicable Law or affect the right of the Agents or any Lender to
bring any action or proceeding against the Borrowers or their properties in the
courts of any other jurisdictions.
12.6 Binding Arbitration; Waiver of Jury Trial.
(a) Binding Arbitration. Upon demand of any party, whether made before
or after institution of any judicial proceeding, any dispute, claim or
controversy arising out of, connected with or relating to the Notes or any
other Loan Documents ("Disputes"), between or among parties to the Notes or
any other Loan Document shall be resolved by binding arbitration as
provided herein. Institution of a judicial proceeding by a party does not
waive the right of that party to demand arbitration hereunder. Disputes may
include, without limitation, tort claims, counterclaims, claims brought as
class actions, claims arising from Loan Documents executed in the future,
or claims concerning any aspect of the past, present or future
relationships arising out of or connected with the Loan Documents.
Arbitration shall be conducted under and governed by the Commercial
Financial Disputes Arbitration Rules (the "Arbitration Rules") of the
American Arbitration Association and Title 9 of the U.S. Code. All
arbitration hearings shall be conducted in Prince George's County,
Maryland. The expedited procedures set forth in Rule 51, et seq. of the
Arbitration Rules shall be applicable to claims of less than $1,000,000.
All applicable statutes of limitation shall apply to any Dispute. A
judgment upon the award may be entered in any court having jurisdiction.
The panel from which all arbitrators are selected shall be comprised of
licensed attorneys. The single arbitrator selected for expedited procedure
shall be a retired judge from the highest court of general jurisdiction,
state or federal, of the state where the hearing will be conducted.
(b) JURY TRIAL. TO THE EXTENT PERMITTED BY LAW, EACH AGENT, EACH
LENDER AND THE BORROWERS HEREBY IRREVOCABLY WAIVE THEIR RESPECTIVE RIGHTS
TO A JURY TRIAL WITH RESPECT TO ANY ACTION, CLAIM OR OTHER PROCEEDING
ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT, THE NOTES OR
THE OTHER LOAN DOCUMENTS, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR
THEREUNDER, OR THE PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS.
(c) Preservation of Certain Remedies. Notwithstanding the preceding
binding arbitration provisions, the parties hereto and to the other Loan
Documents preserve, without diminution, certain remedies that such Persons
may employ or exercise freely, either alone, in conjunction with or during
a Dispute. Each such Person shall have and hereby reserves the right to
proceed in any court of proper jurisdiction or by self help to exercise or
prosecute the
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following remedies to the extent available: (i) all rights to foreclose
against any real or personal property or other security by exercising a
power of sale or assent to decree granted in the Loan Documents or under
Applicable Law or by judicial foreclosure and sale, (ii) all rights of self
help including peaceful occupation of property and collection of rents, set
off, and peaceful possession of property, and (iii) obtaining provisional
or ancillary remedies including injunctive relief, sequestration,
garnishment, attachment, appointment of receiver and in filing an
involuntary bankruptcy proceeding. Preservation of these remedies does not
limit the power of an arbitrator to grant similar remedies that may be
requested by a party in a Dispute.
12.7 Reversal of Payments. To the extent any Borrower makes a payment
or payments to the Administrative Agent for the ratable benefit of the Lenders
or the Administrative Agent receives any payment or proceeds of the Collateral
which payments or proceeds or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside and/or required to be
repaid to a trustee, receiver or any other party under any bankruptcy law, state
or federal law, common law or equitable cause, then, to the extent of such
payment or proceeds repaid, the Obligations or part thereof intended to be
satisfied shall be revived and continued in full force and effect as if such
payment or proceeds had not been received by the Administrative Agent.
12.8 Injunctive Relief; Punitive Damages.
(a) The Borrowers recognize that, in the event the Borrowers fail to
perform, observe or discharge any of their obligations or liabilities under
this Agreement, any remedy of law may prove to be inadequate relief to the
Lenders. Therefore, the Borrowers agree that the Lenders, at the Lenders'
option, shall be entitled to seek and pursue all available equitable
relief, including, but not limited to, temporary and permanent injunctive
relief in any such case without the necessity of proving actual damages.
(b) The Agents, Lenders and Borrowers (on their own behalf and on
behalf of their Subsidiaries) hereby agree that no such Person shall have a
remedy of punitive or exemplary damages against any other party to a Loan
Document and each such Person hereby waives any right or claim to punitive
or exemplary damages that they may now have or may arise in the future in
connection with any Dispute, whether such Dispute is resolved through
arbitration or judicially.
(c) The parties agree that they shall not have a remedy of punitive or
exemplary damages against any other party in any Dispute and hereby waive
any right or claim to punitive or exemplary damages they have now or which
may arise in the future in connection with any Dispute whether the Dispute
is resolved by arbitration or judicially.
12.9 Accounting Matters. All financial and accounting calculations,
measurements and computations made for any purpose relating to this Agreement,
including, without limitation, all computations utilized by the Borrowers or any
Subsidiary thereof to determine compliance with any covenant contained herein,
shall, except as otherwise expressly contemplated hereby or unless there is an
express written direction by the Collateral Agent to the contrary agreed to by
the Borrowers, be performed in accordance with GAAP as in effect on the Closing
Date. In the event that changes in GAAP shall be mandated by the Financial
Accounting Standards Board, or
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any similar accounting body of comparable standing, or shall be recommended by
the Borrowers' certified public accountants, to the extent that such changes
would modify such accounting terms or the interpretation or computation thereof,
such changes shall be followed in defining such accounting terms only from and
after the date the Borrowers and the Lenders shall have amended this Agreement
to the extent necessary to reflect any such changes in the Financial Covenants
and other terms and conditions of this Agreement.
12.10 Successors and Assigns; Participations.
(a) Benefit of Agreement. This Agreement shall be binding upon and
inure to the benefit of the Borrowers, the Agents and the Lenders, all
future holders of the Notes, and their respective successors and assigns.
Notwithstanding the foregoing, the Borrowers shall not assign or transfer
any of their rights or obligations under this Agreement without the prior
written consent of each Lender except in connection with a merger or
consolidation of two or more Borrowers with WHI surviving.
(b) Assignment by Lenders. Each Lender may, with the consent of the
Borrowers (so long as no Default or Event of Default has occurred and is
continuing) and the consent of the Administrative Agent, which consents
shall not be unreasonably withheld, assign to one or more Eligible
Assignees all or a portion of its interests, rights and obligations under
this Agreement (including, without limitation, all or a portion of the
Extensions of Credit at the time owing to it and the Notes held by it);
provided that:
(1) each such assignment shall be of a constant, and not a
varying, percentage of all the assigning Lender's rights and
obligations under this Agreement;
(2) if less than all of the assigning Lender's Commitment is to
be assigned, the Commitment so assigned shall not be less than
$10,000,000;
(3) the parties to each such assignment shall execute and deliver
to the Administrative Agent, for its acceptance and recording in the
Register, an Assignment and Acceptance in the form of Exhibit "P"
attached hereto (an "Assignment and Acceptance"), together with any
Note or Notes subject to such assignment;
(4) such assignment shall not, without the consent of the
Borrowers, require any Borrower to file a registration statement with
the Securities and Exchange Commission or apply to or qualify the
Loans or the Notes under the blue sky laws of any state; and
(5) the assigning Lender shall pay to the Administrative Agent an
assignment fee of $3,000 upon the execution by such Lender of the
Assignment and Acceptance; provided that no such fee shall be payable
upon any assignment by a Lender to an Affiliate thereof or by a Lender
to another Lender hereunder.
Upon such execution, delivery, acceptance and recording, from and after the
effective date specified in each Assignment and Acceptance, which effective date
shall be at least five (5) Business Days after the execution thereof, (A) the
assignee thereunder shall be a party hereto
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and, to the extent provided in such Assignment and Acceptance, have the rights
and obligations of a Lender hereby and (B) the Lender thereunder shall, to the
extent provided in such assignment, be released from obligations thereafter
arising under this Agreement.
(c) Rights and Duties Upon Assignment. By executing and delivering an
Assignment and Acceptance, the assigning Lender thereunder and the assignee
thereunder confirm to and agree with each other and the other parties
hereto as set forth in such Assignment and Acceptance.
(d) Register. The Administrative Agent shall maintain a copy of each
Assignment and Acceptance delivered to it and a register for the
recordation of the names and addresses of the Lenders and the amount of the
Extensions of Credit with respect to each Lender from time to time (the
"Register"). The entries in the Register shall be conclusive, in the
absence of manifest error, and the Borrowers, the Administrative Agent and
the Lenders may treat each Person whose name is recorded in the Register as
a Lender hereunder for all purposes of this Agreement. The Register shall
be available for inspection by the Borrowers or any Lender at any
reasonable time and from time to time upon reasonable prior notice.
(e) Issuance of New Notes. Upon its receipt of an Assignment and
Acceptance executed by an assigning Lender and an Eligible Assignee
together with any Note or Notes subject to such assignment and the written
consent to such assignment, the Administrative Agent shall, if such
Assignment and Acceptance has been completed and is substantially in the
form of Exhibit "P":
(1) accept such Assignment and Acceptance;
(2) record the information contained therein in the Register;
(3) give prompt notice thereof to the Lenders and the Borrowers;
and
(4) promptly deliver a copy of such Assignment and Acceptance to
the Borrowers.
Within five (5) Business Days after receipt of notice, the Borrowers shall
execute and deliver to the Administrative Agent, in exchange for the surrendered
Note or Notes, a new Note or Notes to the order of such Eligible Assignee in
amounts equal to the Commitment assumed by it pursuant to such Assignment and
Acceptance and a new Note or Notes to the order of the assigning Lender in an
amount equal to the Commitment retained by it hereunder, if any. Such new Note
or Notes shall be in an aggregate principal amount equal to the aggregate
principal amount of such surrendered Note or Notes, shall be dated the effective
date of such Assignment and Acceptance and shall otherwise be in substantially
the form of the assigned Notes delivered to the assigning Lender. Each
surrendered Note or Notes shall be canceled and returned to the Borrowers.
(f) Participations. Except as may be set forth above, no Lender may
sell further participations in the Credit Facility.
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(g) Disclosure of Information, Confidentially. The Agents and the
Lenders shall hold all non-public information with respect to the Borrowers
obtained pursuant to the Loan Documents in accordance with Applicable Law
and their customary procedures for handling confidential information. Any
Lender may, in connection with any assignment or proposed assignment
pursuant to this Section 12.10, disclose to an Eligible Assignee, any
information relating to any Borrower furnished to such Lender by or on
behalf of the Borrowers; provided that prior to any such disclosure, each
such assignee or proposed assignee shall agree with the Borrowers or such
Lender to preserve the confidentiality of any confidential information
relating to the Borrowers received from such Lender.
(h) Certain Pledges or Assignment. Nothing herein shall prohibit any
Lender from pledging or assigning any Note to any Federal Reserve Bank in
accordance with Applicable Law.
12.11 Amendments, Waivers and Consents. Except as set forth below, any
term, covenant, agreement or condition of this Agreement or any of the other
Loan Documents may be amended or waived by the Lenders, and any consent given by
the Lenders, if, but only if, such amendment, waiver or consent is in writing
signed by the Required Lenders (or by the Administrative Agent with the consent
of the Required Lenders) and delivered to the Administrative Agent and, in the
case of an amendment, signed by the Borrowers; provided that no amendment,
waiver or consent shall:
(a) (i) increase the Revolving Credit Commitment of any Lender, (ii)
reduce the rate of, or forgive any, interest or fees payable on any
Revolving Loan or Reimbursement Obligation, (iii) reduce or forgive the
principal amount of any Revolving Loan or Reimbursement Obligation, (iv)
extend the originally scheduled time or times of payment of the principal
of any Revolving Loan or Reimbursement Obligation or any fee or commission
with respect thereto except in accordance with this Agreement, (v) permit
any subordination of the principal or interest on, or any Lien securing,
any Revolving Loan or Reimbursement Obligation, or (vi) extend the time of
the obligation of the Lenders to make or issue or participate in Letters of
Credit without the written consent of each Lender holding Revolving Loans
or a Revolving Credit Commitment except in accordance with this Agreement;
(b) (i) increase the Term Loan Commitment of any Lender, (ii) reduce
the rate of, or forgive any, interest or fees payable on the Term Loan,
(iii) reduce or forgive the principal amount of the Term Loan, (iv) permit
any subordination of the principal or interest on, or any Lien securing,
the Term Loan, or (v) extend the originally scheduled time or times of
payment of the principal of the Term Loan except in accordance with this
Agreement or the time or times of payment of interest on the Term Loan or
any fee or commission with respect thereto, in any case, without the
written consent of each Lender holding a portion of the Term Loan or a Term
Loan Commitment; or
(c) release or subordinate any material portion of the Borrowing Base
Assets or release or subordinate any Mortgage (other than as specifically
permitted in this Agreement or the applicable Mortgage); amend the
definition of Revolving Loan Borrowing Limit or any constituent definitions
therein; amend the list of Events of
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Default in Section 10.1; amend the Financial Covenants in Sections 9.3 or
9.4; or amend the provisions of this Section 12.11 or the definition of
Required Lenders without the prior written consent of each Lender.
In addition, no amendment, waiver or consent to the provisions of (a) Article XI
or any Mortgage shall be made without the written consent of the Collateral
Agent and (b) Article III without the written consent of the Issuing Lender.
12.12 Performance of Duties. The obligations of the Borrowers under
this Agreement and each of the Loan Documents shall be performed by the
Borrowers at their sole cost and expense except as expressly provided otherwise
in this Agreement.
12.13 All Powers Coupled with Interest. All powers of attorney and
other authorizations granted to the Lenders, the Agents and any Persons
designated by any Agent or any Lender pursuant to any provisions of this
Agreement or any of the other Loan Documents shall be deemed coupled with an
interest and shall be irrevocable so long as any of the Obligations remain
unpaid or unsatisfied or the Credit Facility has not been terminated.
12.14 Survival of Indemnities. Notwithstanding any termination of this
Agreement, the indemnities to which the Agents and the Lenders are entitled
under the provisions of this Agreement and the Loan Documents shall continue in
full force and effect and shall protect the Agents and the Lenders against
events arising after such termination as well as before except to the extent
expressly provided otherwise herein or therein or limited by Applicable Law.
12.15 Titles and Captions. Titles and captions of Articles, Sections
and subsections in this Agreement are for convenience only, and neither limit
nor amplify the provisions of this Agreement.
12.16 Severability of Provisions. Any provision of this Agreement or
any other Loan Document which is prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective only to the extent of such
prohibition or unenforceability without invalidating the remainder of such
provision or the remaining provisions hereof or thereof or affecting the
validity or enforceability of such provision in any other jurisdiction.
12.17 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and shall be binding
upon all parties, their successors and assigns, and all of which taken together
shall constitute one and the same agreement.
12.18 Term of Agreement. This Agreement shall remain in effect from the
Closing Date through and including the date upon which all Obligations shall
have been indefeasibly and irrevocably paid and satisfied in full. The
Collateral Agent is hereby permitted to partially release Liens as expressly
provided in this Agreement and in the Mortgages and to release fully all Liens
on the Collateral in favor of the Collateral Agent, for the ratable benefit of
the Collateral Agent and the Lenders, upon repayment of the outstanding
principal of and all accrued interest on the Loans, payment of all outstanding
fees and expenses hereunder and the
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termination of the Lenders' Commitments. No termination of this Agreement shall
affect the rights and obligations of the parties hereto arising prior to such
termination.
12.19 WHI as Agent for Borrowers; Obligations Joint and Several;
Contributions and Indemnity.
(a) The Borrowers hereby irrevocably appoints and authorize WHI (i) to
provide the Agents with all notices with respect to Loans and Letters of
Credit obtained for the benefit of any Borrower and all other notices and
instructions under this Agreement, and (ii) to take such action on behalf
of the Borrowers as WHI deems appropriate on their behalf to obtain Loans
and Letters of Credit and to exercise such other powers as are reasonably
incidental thereto to carry out the purposes of this Agreement.
(b) All of the Borrowers shall be jointly and severally liable for the
Obligations, however incurred. References to the Borrowers with respect to
the Obligations or any portion thereof shall mean each Borrower on a joint
and several basis.
(c) To the extent any Borrower is required, by reason of its
Obligations hereunder, to pay to the Agents and the Lenders an amount
greater than the amount of Loans or L/C Obligations actually made available
to or for the account of such Borrower, such Borrower shall have an
enforceable right of contribution against the remaining Borrowers, and each
remaining Borrower shall be severally liable for such contribution to the
paying Borrower to the extent of the amount of Loans or L/C Obligations
actually made available to or for the account of such remaining Borrower.
Subject only to the subordination provided in the following subsection (f),
such Borrower further shall be subrogated to any and all rights of the
Agents and the Lenders against the remaining Borrowers to the extent of
such excess payment.
(d) To the extent that any Borrower would, but for the operation of
this Section 12.19 and by reason of its Obligations hereunder or its
obligations to other Borrower under this Section 12.19, be rendered
insolvent for any purpose under Applicable Law, each of the Borrowers
hereby agrees to indemnify such Borrower in an amount at least equal to the
amount necessary to prevent such Borrower from having been rendered
insolvent by reason of the incurring of any such obligations.
(e) To the extent that any Borrower would, but for the operation of
this Section 12.19 and by reason of its Obligations hereunder or its
obligations to other Borrower under the foregoing subsections (c) and (d)
above, such Borrower shall, in turn, have rights of contribution and
indemnity, to the full extent provided in the foregoing subsections (c) and
(d) above, against the remaining Borrowers, such that all Obligations of
all of the Borrowers hereunder and under this Section 12.1 shall be
allocated in a manner such that no Borrower shall be rendered insolvent for
any purpose under Applicable Law by reason of its incurring of such
obligations.
(f) The rights of any Borrower to contribution, subrogation and
indemnity under this Section 12.19 or under Applicable Law shall in all
events and all respects be subject and subordinate to the rights of the
Agents and the Lenders under this Agreement and subject to the prior full,
final and indefeasible payment to the Agents and the Lenders of all
Obligations
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and no such right may be exercised until all of such Obligations have been
fully, finally and indefeasibly paid and such payments are in no event
subject to avoidance under Title 11 of the United States Code or any other
Applicable Law.
12.20 Time is of the Essence. The parties to this Agreement agree that
time is of the essence to the performance of the Borrowers' obligations
described herein.
12.21 Brokerage. No Lender shall be required to pay any brokerage fees,
finder's fees or commissions arising from the Credit Facility as a result of any
Borrower's actions, and the Borrowers agree to indemnify and hold the Lenders
harmless against any and all expenses, damages, liabilities and costs resulting
from claims in connection therewith arising by reason of any Borrower's actions,
including payment of the Lenders' attorneys' fees and expenses.
12.22 Public Notice. The Administrative Agent may, at its expense
publish a notice setting forth the Lenders' financing of the Borrowing Base
Assets.
12.23 Entire Agreement. This Agreement together with the other Loan
Documents constitutes the entire agreement between the parties with respect to
the subject matter hereof and supersedes and replaces in their entirety all
prior agreements between the parties with respect to the subject matter hereof.
12.24 Inconsistencies with Other Documents; Covenants. In the event
there is a conflict or inconsistency between this Agreement and any other Loan
Document, the terms of this Agreement shall control; provided that any provision
of the Mortgages that imposes additional burdens on any Borrower or further
restricts the rights of any Borrower or gives the Agents or Lenders additional
rights shall not be deemed to be in conflict or inconsistent with this Agreement
and shall be given full force and effect.
12.25 List of Deliveries to be Submitted at the Request of an Agent and
Deliveries to be Made to All Agents and Lenders Simultaneously. Pursuant to
several Sections of this Agreement, the Borrowers are required to submit various
types of information to the Agents upon request. For the convenience of the
parties, attached to this Agreement as Exhibit "Q" is a list of information that
the Borrowers may from time to time be requested to submit. In the event of an
inconsistency between the main text of this Agreement and Exhibit "Q", the main
text of this Agreement will control. Pursuant to several Sections of this
Agreement, the Borrowers are required to submit various types of information to
either or both Agents from time to time. Notwithstanding anything in this
Agreement to the contrary, the Borrowers agree to submit each of the deliveries
so designated on Exhibit "Q" to each of the Agents and Lenders simultaneously in
order to facilitate prompt and timely review by the Agents and Lenders.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
ATTEST: BORROWERS:
WASHINGTON HOMES, INC.,
WESTMINSTER HOMES (CHARLOTTE), INC.,
THE SOUTHAMPTON CORPORATION,
WASHINGTON HOMES, INC., OF VIRGINIA,
DESIGNED CONTRACTS, INC.,
HOUSING-HOME SALES, INC.
and
CONDOMINIUM COMMUNITY
(QUAIL RUN), INC.
CONDOMINIUM COMMUNITY
(LARGO TOWN), INC.,
ALL SEASONS, INC.,
CONSULTANTS CORPORATION,
WESTMINSTER HOMES OF TENNESSEE, INC.,
WESTMINSTER HOMES, INC.,
PRESTON GRANDE HOMES, INC.,
WH PROPERTIES, INC.
_________________________________ By: _________________________________(SEAL)
Name: Name:
Title: Title:
of each of the foregoing
corporations
WITNESS: COLLATERAL AGENT AND LENDER:
FIRST UNION NATIONAL BANK
_________________________________ By: _________________________________(SEAL)
Name:
Title:
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<PAGE>
WITNESS: ADMINISTRATIVE AGENT AND ARRANGER:
FIRST UNION CAPITAL MARKETS CORP.
_________________________________ By: _________________________________(SEAL)
Name:
Title:
LENDERS:
AMSOUTH BANK
_________________________________ By: _________________________________(SEAL)
Name:
Title:
GUARANTY FEDERAL BANK
_________________________________ By: _________________________________(SEAL)
Name:
Title:
NATIONAL CITY BANK
_________________________________ By: _________________________________(SEAL)
Name:
Title:
COMERICA BANK
_________________________________ By: _________________________________(SEAL)
Name:
Title:
PROVIDENT BANK OF MARYLAND
_________________________________ By: _________________________________(SEAL)
Name:
Title:
-80-
Exhibit 10h
ADOPTION AGREEMENT #005
NONSTANDARDIZED CODE ss.401(k) PROFIT SHARING PLAN
The undersigned, Washington Homes, Inc. ("Employer"), by executing this
Adoption Agreement, elects to become a participating Employer in the First Union
National Bank Defined Contribution Master Plan (basic plan document #01) by
adopting the accompanying Plan and Trust in full as if the Employer were a
signatory to that Agreement. The Employer makes the following elections granted
under the provisions of the Master Plan.
ARTICLE I
DEFINITIONS
1.02 TRUSTEE. The Trustee executing this Adoption Agreement is: (Choose (a)
or (b))
[ ] (a) A discretionary Trustee. See Section 10.03[A] of the Plan.
[X] (b) A nondiscretionary Trustee. See Section 10.03[B] of the Plan. [Note:
The Employer may not elect Option (b) if a Custodian executes the Adoption
Agreement.]
1.03 PLAN. The name of the Plan as adopted by the Employer is Washington
Homes, Inc. 401(k) Plan. ----
1.07 EMPLOYEE. The following Employees are not eligible to participate in
the Plan: (Choose (a) or at least one of (b) through (g))
[X] (a) No exclusions.
[ ] (b) Collective bargaining employees (as defined in Section 1.07 of the
Plan). [Note: If the Employer excludes union employees from the Plan, the
Employer must be able to provide evidence that retirement benefits were the
subject of good faith bargaining.]
[ ] (c) Nonresident aliens who do not receive any earned income (as defined in
Code ss.911(d)(2)) from the Employer which constitutes United States source
income (as defined in Code ss.861(a)(3)).
[ ] (d) Commission Salesmen.
[ ] (e) Any Employee compensated on a salaried basis.
[ ] (f) Any Employee compensated on an hourly basis.
[ ] (g) (Specify)______________________________________________________.
Leased Employees. Any Leased Employee treated as an Employee under Section 1.31
of the Plan, is: (Choose (h) or (i))
[ ] (h) Not eligible to participate in the Plan.
[X] (i) Eligible to participate in the Plan, unless excluded by reason of an
exclusion classification elected under this Adoption Agreement Section
1.07.
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Related Employers. If any member of the Employer's related group (as defined in
Section 1.30 of the Plan) executes a Participation Agreement to this Adoption
Agreement, such member's Employees are eligible to participate in this Plan,
unless excluded by reason of an exclusion classification elected under this
Adoption Agreement Section 1.07. In addition: (Choose (j) or (k))
[X] (j) No other related group member's Employees are eligible to participate
in the Plan.
[ ] (k) The following nonparticipating related group member's Employees are
eligible to participate in the Plan unless excluded by reason of an
exclusion classification elected under this Adoption Agreement Section
1.07:________________________________________________.
1.12 COMPENSATION.
Treatment of elective contributions. (Choose (a) or (b))
[X] (a) "Compensation" includes elective contributions made by the Employer on
the Employee's behalf.
[ ] (b) "Compensation" does not include elective contributions.
Modifications to Compensation definition. (Choose (c) or at least one of (d)
through (j))
[X] (c) No modifications other than as elected under Options (a) or (b).
[ ] (d) The Plan excludes Compensation in excess of $_____________.
[ ] (e) In lieu of the definition in Section 1.12 of the Plan, Compensation
means any earnings reportable as W-2 wages for Federal income tax
withholding purposes, subject to any other election under this Adoption
Agreement Section 1.12.
[ ] (f) The Plan excludes bonuses.
[ ] (g) The Plan excludes overtime.
[ ] (h) The Plan excludes Commissions.
[ ] (i) Compensation will not include Compensation from a related employer (as
defined in Section 1.30 of the Plan) that has not executed a Participation
Agreement in this Plan unless, pursuant to Adoption Agreement Section 1.07,
the Employees of that related employer are eligible to participate in this
Plan.
[ ] (j) (Specify)_____________________________________________________.
If, for any Plan Year, the Plan uses permitted disparity in the contribution or
allocation formula elected under Article III, any election of Options (f), (g),
(h) or (j) is ineffective for such Plan Year with respect to any Nonhighly
Compensated Employee.
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<PAGE>
Special definition for matching contributions. "Compensation" for purposes of
any matching contribution formula under Article III means: (Choose (k) or (l)
only if applicable)
[X] (k) Compensation as defined in this Adoption Agreement Section 1.12.
[ ] (l) (Specify)____________________________________________________.
Special definition for salary reduction contributions. An Employee's salary
reduction agreement applies to his Compensation determined prior to the
reduction authorized by that salary reduction agreement, with the following
exceptions: (Choose (m) or at least one of (n) or (o), if applicable)
[X] (m) No exceptions.
[ ] (n) If the Employee makes elective contributions to another plan maintained
by the Employer, the Advisory Committee will determine the amount of the
Employee's salary reduction contribution for the withholding period:
(Choose (1) or (2))
[ ] (1) After the reduction for such period of elective contributions to
the other plan(s).
[ ] (2) Prior to the reduction for such period of elective contributions
to the other plan(s).
[ ] (o) (Specify)____________________________________________________.
1.17 PLAN YEAR/LIMITATION YEAR.
Plan Year. Plan Year means: (Choose (a) or (b))
[X] (a) The 12 consecutive month period ending every 12/31.
[ ] (b) (Specify)____________________________________________________.
Limitation Year. The Limitation Year is: (Choose (c) or (d))
[X] (c) The Plan Year.
[ ] (d) The 12 consecutive month period ending every ________________.
1.18 EFFECTIVE DATE.
New Plan. The "Effective Date" of the Plan is _____________________________.
Restated Plan. The restated Effective Date is January 1, 1999.
This Plan is a substitution and amendment of an existing retirement plan(s)
originally established August 1, 1988.
[Note: See the Effective Date Addendum.]
1.27 HOUR OF SERVICE. The crediting method for Hours of Service is: (Choose
(a) or (b))
[X] (a) The actual method.
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[ ] (b) The _____________________________ equivalency method, except:
[ ] (1) No exceptions.
[ ] (2) The actual method applies for purposes of: (Choose at least one)
[ ] (i) Participation under Article II.
[ ] (ii) Vesting under Article V.
[ ] (iii) Accrual of benefits under Section 3.06.
[Note: On the blank line, insert "daily," "weekly," "semi-monthly payroll
periods" or "monthly."]
1.29 SERVICE FOR PREDECESSOR EMPLOYER. In addition to the predecessor
service the Plan must credit by reason of Section 1.29 of the Plan, the Plan
credits Service with the following predecessor employer(s): Richter-Dial.
Service with the designated predecessor employer(s) applies: (Choose at least
one of (a) or (b); (c) is available only in addition to (a) or (b))
[X] (a) For purposes of participation under Article II.
[X] (b) For purposes of vesting under Article V.
[ ] (c) Except the following Service:________________________________.
[Note: If the Plan does not credit any predecessor service under this provision,
insert "N/A" in the first blank line. The Employer may attach a schedule to this
Adoption Agreement, in the same format as this Section 1.29, designating
additional predecessor employers and the applicable service crediting
elections.]
1.31 LEASED EMPLOYEES. If a Leased Employee is a Participant in the Plan
and also participates in a plan maintained by the leasing organization: (Choose
(a) or (b))
[ ] (a) The Advisory Committee will determine the Leased Employee's allocation
of Employer contributions under Article III without taking into account the
Leased Employee's allocation, if any, under the leasing organization's
plan.
[X] (b) The Advisory Committee will reduce a Leased Employee's allocation of
Employer nonelective contributions (other than designated qualified
nonelective contributions) under this Plan by the Leased Employee's
allocation under the leasing organization's plan, but only to the extent
that allocation is attributable to the Leased Employee's service provided
to the Employer. The leasing organization's plan:
[X] (1) Must be a money purchase plan which would satisfy the definition
under Section 1.31 of a safe harbor plan, irrespective of whether the
safe harbor exception applies.
[ ] (2) Must satisfy the features and, if a defined benefit plan, the
method of reduction described in an addendum to this Adoption
Agreement, numbered 1.31.
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<PAGE>
ARTICLE II
EMPLOYEE PARTICIPANTS
2.01 ELIGIBILITY.
Eligibility conditions. To become a Participant in the Plan, an Employee must
satisfy the following eligibility conditions: (Choose (a) or (b) or both; (c) is
optional as an additional election)
[X] (a) Attainment of age 21 (specify age, not exceeding 21).
[X] (b) Service requirement. (Choose one of (1) through (3))
[X] (1) One Year of Service.
[ ] (2) ___ months (not exceeding 12) following the Employee's Employment
Commencement Date.
[ ] (3) One Hour of Service.
[ ] (c) Special requirements for non - 401(k) portion of plan. (Make elections
under (1) and under (2))
(1) The requirements of this Option (c) apply to participation in:
(Choose at least one of (i) through (iii))
[ ] (i) The allocation of Employer nonelective contributions and
Participant forfeitures.
[ ] (ii) The allocation of Employer matching contributions
(including forfeitures allocated as matching contributions).
[ ] (iii) The allocation of Employer qualified nonelective
contributions.
(2) For participation in the allocations described in (1), the
eligibility conditions are: (Choose at least one of (i) through (iv))
[ ] (i) ______ (one or two) Year(s) of Service, without an
intervening Break in Service (as described in Section
2.03(A) of the Plan) if the requirement is two Years of
Service.
[ ] (ii) ______ months (not exceeding 24) following the
Employee's Employment Commencement Date.
[ ] (iii) One Hour of Service.
[ ] (iv) Attainment of age ___ (Specify age, not exceeding 21).
Plan Entry Date. "Plan Entry Date" means the Effective Date and:(Choose (d), (e)
or (f))
[ ] (d) Semi-annual Entry Dates. The first day of the Plan Year and the first
day of the seventh month of the Plan Year.
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<PAGE>
[ ] (e) The first day of the Plan Year.
[X] (f) (Specify entry dates) Any January 1, April 1, July 1 or October 1 of
the Plan Year.
Time of Participation. An Employee will become a Participant (and, if
applicable, will participate in the allocations described in Option (c)(1)),
unless excluded under Adoption Agreement Section 1.07, on the Plan Entry Date
(if employed on that date): (Choose (g), (h) or (i))
[X] (g) immediately following
[ ] (h) immediately preceding
[ ] (i) nearest
the date the Employee completes the eligibility conditions described in Options
(a) and (b) (or in Option (c)(2) if applicable) of this Adoption Agreement
Section 2.01. [Note: The Employer must coordinate the selection of (g), (h) or
(i) with the "Plan Entry Date" selection in (d), (e) or (f). Unless otherwise
excluded under Section 1.07, the Employee must become a Participant by the
earlier of: (1) the first day of the Plan Year beginning after the date the
Employee completes the age and service requirements of Code ss.410(a); or (2) 6
months after the date the Employee completes those requirements.]
Dual eligibility. The eligibility conditions of this Section 2.01 apply
to: (Choose (j) or (k))
[X] (j) All Employees of the Employer, except: (Choose (1) or (2))
[X] (1) No exceptions.
[ ] (2) Employees who are Participants in the Plan as of the Effective
Date.
[ ] (k) Solely to an Employee employed by the Employer after __________. If the
Employee was employed by the Employer on or before the specified date, the
Employee will become a Participant: (Choose (1), (2) or (3))
[ ] (1) On the latest of the Effective Date, his Employment Commencement
Date or the date he attains age _________ (not to exceed 21).
[ ] (2) Under the eligibility conditions in effect under the Plan prior to
the restated Effective Date. If the restated Plan required more than
one Year of Service to participate, the eligibility condition under
this Option (2) for participation in the Code ss.401(k) arrangement
under this Plan is one Year of Service for Plan Years beginning after
December 31, 1988. [For restated plans only]
[ ] (3) (Specify) ___________________________________________.
2.02 YEAR OF SERVICE - PARTICIPATION.
Hours of Service. An Employee must complete: (Choose (a) or (b))
[X] (a) 1,000 Hours of Service
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<PAGE>
[ ] (b) ________ Hours of Service
during an eligibility computation period to receive credit for a Year of
Service. [Note: The Hours of Service requirement may not exceed 1,000.]
Eligibility computation period. After the initial eligibility computation period
described in Section 2.02 of the Plan, the Plan measures the eligibility
computation period as: (Choose (c) or (d))
[ ] (c) The 12 consecutive month period beginning with each anniversary of an
Employee's Employment Commencement Date.
[X] (d) The Plan Year, beginning with the Plan Year which includes the first
anniversary of the Employee's Employment Commencement Date.
2.03 BREAK IN SERVICE-PARTICIPATION. The Break in Service rule described in
Section 2.03(B) of the Plan:(Choose (a) or (b))
[X] (a) Does not apply to the Employer's Plan.
[ ] (b) Applies to the Employer's Plan.
2.06 ELECTION NOT TO PARTICIPATE. The Plan: (Choose (a) or (b))
[X] (a) Does not permit an eligible Employee or a Participant to elect not to
participate.
[ ] (b) Does permit an eligible Employee or a Participant to elect not to
participate in accordance with Section 2.06 and with the following rules:
(Complete (1), (2), (3) and (4))
(1) An election is effective for a Plan Year if filed no later than
___________________________________________.
(2) An election not to participate must be effective for at least
___________________ Plan Year(s).
(3) Following a re-election to participate, the Employee or Participant:
[ ] (i) May not again elect not to participate for any subsequent
Plan Year.
[ ] (ii) May again elect not to participate, but not earlier than the
______________ Plan Year following the Plan Year in which the
re-election first was effective.
(4) (Specify) ___________________ [Insert "N/A" if no other rules apply].
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<PAGE>
ARTICLE III
EMPLOYER CONTRIBUTIONS AND FORFEITURES
3.01 AMOUNT.
Part I. [Options (a) through (g)] Amount of Employer's contribution. The
Employer's annual contribution to the Trust will equal the total amount of
deferral contributions, matching contributions, qualified nonelective
contributions and nonelective contributions, as determined under this Section
3.01. (Choose any combination of (a), (b), (c) and (d), or choose (e))
[X] (a) Deferral contributions (Codess.401(k) arrangement). (Choose (1) or (2)
or both)
[X] (1) Salary reduction arrangement. The Employer must contribute the
amount by which the Participants have reduced their Compensation for
the Plan Year, pursuant to their salary reduction agreements on file
with the Advisory Committee. A reference in the Plan to salary
reduction contributions is a reference to these amounts.
[ ] (2) Cash or deferred arrangement. The Employer will contribute on
behalf of each Participant the portion of the Participant's
proportionate share of the cash or deferred contribution which he has
not elected to receive in cash. See Section 14.02 of the Plan. The
Employer's cash or deferred contribution is the amount the Employer
may from time to time deem advisable which the Employer designates as
a cash or deferred contribution prior to making that contribution to
the Trust.
[X] (b) Matching contributions. The Employer will make matching contributions
in accordance with the formula(s) elected in Part II of this Adoption
Agreement Section 3.01.
[X] (c) Designated qualified nonelective contributions. The Employer, in its
sole discretion, may contribute an amount which it designates as a
qualified nonelective contribution.
[X] (d) Nonelective contributions. (Choose any combination of (1) through (4))
[X] (1) Discretionary contribution. The amount (or additional amount) the
Employer may from time to time deem advisable.
[ ] (2) The amount (or additional amount) the Employer may from time to
time deem advisable, separately determined for each of the following
classifications of Participants: (Choose (i) or (ii))
[ ] (i) Nonhighly Compensated Employees and Highly Compensated
Employees.
[ ] (ii) (Specify classifications) ______________________.
Under this Option (2), the Advisory Committee will allocate the amount
contributed for each Participant classification in accordance with
Part II of Adoption Agreement Section 3.04, as if the Participants in
that classification were the only Participants in the Plan.
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<PAGE>
[ ] (3) _______% of the Compensation of all Participants under the Plan,
determined for the Employer's taxable year for which it makes the
contribution. [Note: The percentage selected may not exceed 15%.]
[ ] (4) _______% of Net Profits but not more than $________.
[ ] (e) Frozen Plan. This Plan is a frozen Plan effective . The Employer will
not contribute to the Plan with respect to any period following the stated
date.
Net Profits. The Employer: (Choose (f) or (g))
[X] (f) Need not have Net Profits to make its annual contribution under this
Plan.
[ ] (g) Must have current or accumulated Net Profits exceeding $____________ to
make the following contributions: (Choose at least one)
[ ] (1) Cash or deferred contributions described in Option (a)(2).
[ ] (2) Matching contributions described in Option (b), except: __________
__________________________________________________________.
[ ] (3) Qualified nonelective contributions described in Option (c).
[ ] (4) Nonelective contributions described in Option (d).
The term "Net Profits" means the Employer's net income or profits for any
taxable year determined by the Employer upon the basis of its books of account
in accordance with generally accepted accounting practices consistently applied
without any deductions for Federal and state taxes upon income or for
contributions made by the Employer under this Plan or under any other employee
benefit plan the Employer maintains. The term "Net Profits" specifically
excludes N/A. [Note: Enter "N/A" if no exclusions apply.]
If the Employer requires Net Profits for matching contributions and the Employer
does not have sufficient Net Profits under Option (g), it will reduce the
matching contribution under a fixed formula on a prorata basis for all
Participants. A Participant's share of the reduced contribution will bear the
same ratio as the matching contribution the Participant would have received if
Net Profits were sufficient bears to the total matching contribution all
Participants would have received if Net Profits were sufficient. If more than
one member of a related group (as defined in Section 1.30) execute this Adoption
Agreement, each participating member will determine Net Profits separately but
will not apply this reduction unless, after combining the separately determined
Net Profits, the aggregate Net Profits are insufficient to satisfy the matching
contribution liability. "Net Profits" includes both current and accumulated Net
Profits.
Part II. [Options (h) through (j)] Matching contribution formula. [Note: If the
Employer elected Option (b), complete Options (h), (i) and (j).]
[X] (h) Amount of matching contributions. For each Plan Year, the Employer's
matching contribution is: (Choose any combination of (1), (2), (3), (4) and
(5))
[X] (1) An amount equal to 50% of each Participant's eligible
contributions for the Plan Year.
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[ ] (2) An amount equal to ____% of each Participant's first tier of
eligible contributions for the Plan Year, plus the following matching
percentage(s) for the following subsequent tiers of eligible
contributions for the Plan ________________________.
[ ] (3) Discretionary formula.
[ ] (i) An amount (or additional amount) equal to a matching
percentage the Employer from time to time may deem advisable of
the Participant's eligible contributions for the Plan Year.
[ ] (ii) An amount (or additional amount) equal to a matching
percentage the Employer from time to time may deem advisable of
each tier of the Participant's eligible contributions for the
Plan Year.
[ ] (4) An amount equal to the following percentage of each Participant's
eligible contributions for the Plan Year, based on the Participant's
Years of Service:
Number of Years of Service Matching Percentage
-------------------------- -------------------
______ ___%
______ ___%
______ ___%
______ ___%
The Advisory Committee will apply this formula by determining Years of
Service as follows:______________________________________________.
[X] (5) A Participant's matching contributions may not:(Choose (i) or
(ii))
[X] (i) Exceed the greater of $1000.00 or 1.5% of salary.
[ ] (ii) Be less than ___________________________________.
Related Employers. If two or more related employers (as defined in
Section 1.30) contribute to this Plan, the related employers may elect
different matching contribution formulas by attaching to the Adoption
Agreement a separately completed copy of this Part II. Note: Separate
matching contribution formulas create separate current benefit
structures that must satisfy the minimum participation test of Code
ss.401(a)(26).]
[X] (i) Definition of eligible contributions. Subject to the requirements of
Option (j), the term "eligible contributions" means: (Choose any
combination of (1) through (3))
[X] (1) Salary reduction contributions.
[ ] (2) Cash or deferred contributions (including any part of the
Participant's proportionate share of the cash or deferred contribution
which the Employer defers without the Participant's election).
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[ ] (3) Participant mandatory contributions, as designated in Adoption
Agreement Section 4.01. See Section 14.04 of the Plan.
[X] (j) Amount of eligible contributions taken into account. When determining a
Participant's eligible contributions taken into account under the matching
contributions formula(s), the following rules apply: (Choose any
combination of (1) through (4))
[X] (1) The Advisory Committee will take into account all eligible
contributions credited for the Plan Year.
[ ] (2) The Advisory Committee will disregard eligible contributions
exceeding ___________________________________.
[ ] (3) The Advisory Committee will treat as the first tier of eligible
contributions, an amount not exceeding: _____________________________.
The subsequent tiers of eligible contributions are: _________________.
[ ] (4) (Specify)_____________________________________________.
Part III. [Options (k) and (l)]. Special rules for Code ss. 401(k) Arrangement.
Choose (k) or (l), or both, as applicable)
[X] (k) Salary Reduction Agreements. The following rules and restrictions apply
to an Employee's salary reduction agreement: (Make a selection under (1),
(2), (3) and (4))
(1) Limitation on amount. The Employee's salary reduction contributions:
(Choose (i) or at least one of (ii) or (iii))
[ ] (i) No maximum limitation other than as provided in the Plan.
[X] (ii) May not exceed 15% of Compensation for the Plan Year,
subject to the annual additions limitation described in Part 2 of
Article III and the 402(g) limitation described in Section 14.07
of the Plan.
[X] (iii) Based on percentages of Compensation must equal at least
1%.
(2) An Employee may revoke, on a prospective basis, a salary reduction
agreement: (Choose (i), (ii), (iii) or (iv))
[ ] (i) Once during any Plan Year but not later than ______________
_____________________________ of the Plan Year.
[ ] (ii) As of any Plan Entry Date.
[ ] (iii) As of the first day of any month.
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[X] (iv) (Specify, but must be at least once per Plan Year) on any
day of the month.
(3) An Employee who revokes his salary reduction agreement may file a new
salary reduction agreement with an effective date: (Choose (i), (ii),
(iii) or (iv))
[ ] (i) No earlier than the first day of the next Plan Year.
[X] (ii) As of any subsequent Plan Entry Date.
[ ] (iii) As of the first day of any month subsequent to the month in
which he revoked an Agreement.
[ ] (iv) (Specify, but must be at least once per Plan Year following
the Plan Year of revocation) _______________________________.
(4) A Participant may increase or may decrease, on a prospective basis,
his salary reduction percentage or dollar amount: (Choose (i), (ii),
(iii) or (iv))
[ ] (i) As of the beginning of each payroll period.
[ ] (ii) As of the first day of each month.
[X] (iii) As of any Plan Entry Date.
[ ] (iv) (Specify, but must permit an increase or a decrease at least
once per Plan Year) ________________________________________.
[ ] (l) Cash or deferred contributions. For each Plan Year for which the
Employer makes a designated cash or deferred contribution, a Participant
may elect to receive directly in cash not more than the following portion
(or, if less, the 402(g) limitation described in Section 14.07 of the Plan)
of his proportionate share of that cash or deferred contribution: (Choose
(1) or (2))
[ ] (1) All or any portion.
[ ] (2) _______________________________%.
3.04 CONTRIBUTION ALLOCATION. The Advisory Committee will allocate deferral
contributions, matching contributions, qualified nonelective contributions and
nonelective contributions in accordance with Section 14.06 and the elections
under this Adoption Agreement Section 3.04.
Part I. [Options (a) through (d)]. Special Accounting Elections. (Choose
whichever elections are applicable to the Employer's Plan)
[X] (a) Matching Contributions Account. The Advisory Committee will allocate
matching contributions to a Participant's: (Choose (1) or (2); (3) is
available only in addition to (1))
[X] (1) Regular Matching Contributions Account.
[ ] (2) Qualified Matching Contributions Account.
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[ ] (3) Except, matching contributions under Option(s) of Adoption
Agreement Section 3.01 are allocable to the Qualified Matching
Contributions Account.
[X] (b) Special Allocation Dates for Salary Reduction Contributions. The
Advisory Committee will allocate salary reduction contributions as of the
Accounting Date and as of the following additional allocation dates: as of
each day payroll funds are deposited by the Trustee..
[X] (c) Special Allocation Dates for Matching Contributions. The Advisory
Committee will allocate matching contributions as of the Accounting Date
and as of the following additional allocation dates: as of each day payroll
funds are deposited by the Trustee..
[X] (d) Designated Qualified Nonelective Contributions - Definition of
Participant. For purposes of allocating the designated qualified
nonelective contribution, "Participant" means: (Choose (1), (2) or (3))
[ ] (1) All Participants.
[X] (2) Participants who are Nonhighly Compensated Employees for the Plan
Year.
[ ] (3) (Specify) __________________________________________________.
Part II. Method of Allocation - Nonelective Contribution. Subject to any
restoration allocation required under Section 5.04, the Advisory Committee will
allocate and credit each annual nonelective contribution (and Participant
forfeitures treated as nonelective contributions) to the Employer Contributions
Account of each Participant who satisfies the conditions of Section 3.06, in
accordance with the allocation method selected under this Section 3.04. If the
Employer elects Option (e)(2), Option (g)(2) or Option (h), for the first 3% of
Compensation allocated to all Participants, "Compensation" does not include any
exclusions elected under Adoption Agreement Section 1.12 (other than the
exclusion of elective contributions), and the Advisory Committee must take into
account the Participant's Compensation for the entire Plan Year. (Choose an
allocation method under (e), (f), (g) or (h); (i) is mandatory if the Employer
elects (f), (g) or (h); (j) is optional in addition to any other election.)
[X] (e) Nonintegrated Allocation Formula. (Choose (1) or (2))
[X] (1) The Advisory Committee will allocate the annual nonelective
contributions in the same ratio that each Participant's Compensation
for the Plan Year bears to the total Compensation of all Participants
for the Plan Year.
[ ] (2) The Advisory Committee will allocate the annual nonelective
contributions in the same ratio that each Participant's Compensation
for the Plan Year bears to the total Compensation of all Participants
for the Plan Year. For purposes of this Option (2), "Participant"
means, in addition to a Participant who satisfies the requirements of
Section 3.06 for the Plan Year, any other Participant entitled to a
top heavy minimum allocation under Section 3.04(B), but such
Participant's allocation will not exceed 3% of his Compensation for
the Plan Year.
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[ ] (f) Two-Tiered Integrated Allocation Formula - Maximum Disparity. First,
the Advisory Committee will allocate the annual Employer nonelective
contributions in the same ratio that each Participant's Compensation plus
Excess Compensation for the Plan Year bears to the total Compensation plus
Excess Compensation of all Participants for the Plan Year. The allocation
under this paragraph, as a percentage of each Participant's Compensation
plus Excess Compensation, must not exceed the applicable percentage (5.7%,
5.4% or 4.3%) listed under the Maximum Disparity Table following Option
(i).
The Advisory Committee then will allocate any remaining nonelective
contributions in the same ratio that each Participant's Compensation for
the Plan Year bears to the total Compensation of all Participants for the
Plan Year.
[ ] (g) Three-Tiered Integrated Allocation Formula. First, the Advisory
Committee will allocate the annual Employer nonelective contributions in
the same ratio that each Participant's Compensation for the Plan Year bears
to the total Compensation of all Participants for the Plan Year. The
allocation under this paragraph, as a percentage of each Participant's
Compensation may not exceed the applicable percentage (5.7%, 5.4% or 4.3%)
listed under the Maximum Disparity Table following Option (i). Solely for
purposes of the allocation in this first paragraph, "Participant" means, in
addition to a Participant who satisfies the requirements of Section 3.06
for the Plan Year: (Choose (1) or (2))
[ ] (1) No other Participant.
[ ] (2) Any other Participant entitled to a top heavy minimum allocation
under Section 3.04(B), but such Participant's allocation under this
Option (g) will not exceed 3% of his Compensation for the Plan Year.
As a second tier allocation, the Advisory Committee will allocate the
nonelective contributions in the same ratio that each Participant's Excess
Compensation for the Plan Year bears to the total Excess Compensation of
all Participants for the Plan Year. The allocation under this paragraph, as
a percentage of each Participant's Excess Compensation, may not exceed the
allocation percentage in the first paragraph.
Finally, the Advisory Committee will allocate any remaining nonelective
contributions in the same ratio that each Participant's Compensation for
the Plan Year bears to the total Compensation of all Participants for the
Plan Year.
[ ] (h) Four-Tiered Integrated Allocation Formula. First, the Advisory
Committee will allocate the annual Employer nonelective contributions in
the same ratio that each Participant's Compensation for the Plan Year bears
to the total Compensation of all Participants for the Plan Year, but not
exceeding 3% of each Participant's Compensation. Solely for purposes of
this first tier allocation, a "Participant" means, in addition to any
Participant who satisfies the requirements of Section 3.06 for the Plan
Year, any other Participant entitled to a top heavy minimum allocation
under Section 3.04(B) of the Plan.
As a second tier allocation, the Advisory Committee will allocate the
nonelective contributions in the same ratio that each Participant's Excess
Compensation for the Plan Year bears to the total Excess Compensation of
all Participants for the Plan Year, but not exceeding 3% of each
Participant's Excess Compensation.
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<PAGE>
As a third tier allocation, the Advisory Committee will allocate the annual
Employer contributions in the same ratio that each Participant's
Compensation plus Excess Compensation for the Plan Year bears to the total
Compensation plus Excess Compensation of all Participants for the Plan
Year. The allocation under this paragraph, as a percentage of each
Participant's Compensation plus Excess Compensation, must not exceed the
applicable percentage (2.7%, 2.4% or 1.3%) listed under the Maximum
Disparity Table following Option (i).
The Advisory Committee then will allocate any remaining nonelective
contributions in the same ratio that each Participant's Compensation for
the Plan Year bears to the total Compensation of all Participants for the
Plan Year.
[ ] (i) Excess Compensation. For purposes of Option (f), (g) or (h), "Excess
Compensation" means Compensation in excess of the following Integration
Level: (Choose (1) or (2))
[ ] (1) ____% (not exceeding 100%) of the taxable wage base, as determined
under Section 230 of the Social Security Act, in effect on the first
day of the Plan Year: (Choose any combination of (i) and (ii) or
choose (iii))
[ ] (i) Rounded to _______ (but not exceeding the taxable wage base).
[ ] (ii) But not greater than $________________________________.
[ ] (iii) Without any further adjustment or limitation.
[ ] (2) $_________________ [Note: Not exceeding the taxable wage base for
the Plan Year in which this Adoption Agreement first is effective.]
Maximum Disparity Table. For purposes of Options (f), (g) and (h), the
applicable percentage is:
Integration Level
(as percentage of Applicable Percentages for Applicable Percentages
taxable wage base) Option (f) or Option (g) for Option (h)
------------------ -------------------------- ----------------------
100% 5.7% 2.7%
More than 80% but
less than 100% 5.4% 2.4%
More than 20% (but
not less than $10,001)
and not more than 80% 4.3% 1.3%
20% (or $10,000, if
greater) or less 5.7% 2.7%
[ ] (j) Allocation offset. The Advisory Committee will reduce a Participant's
allocation otherwise made under Part II of this Section 3.04 by the
Participant's allocation under the following qualified plan(s) maintained
by the Employer: _________________________________________________________.
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<PAGE>
The Advisory Committee will determine this allocation reduction: (Choose
(1) or (2))
[ ] (1) By treating the term "nonelective contribution" as including all
amounts paid or accrued by the Employer during the Plan Year to the
qualified plan(s) referenced under this Option (j). If a Participant
under this Plan also participates in that other plan, the Advisory
Committee will treat the amount the Employer contributes for or during
a Plan Year on behalf of a particular Participant under such other
plan as an amount allocated under this Plan to that Participant's
Account for that Plan Year. The Advisory Committee will make the
computation of allocation required under the immediately preceding
sentence before making any allocation of nonelective contributions
under this Section 3.04.
[ ] (2) In accordance with the formula provided in an addendum to this
Adoption Agreement, numbered 3.04(j).
Top Heavy Minimum Allocation-Method of Compliance. If a Participant's allocation
under this Section 3.04 is less than the top heavy minimum allocation to which
he is entitled under Section 3.04(B): (Choose (k) or (l))
[X] (k) The Employer will make any necessary additional contribution to the
Participant's Account, as described in Section 3.04(B)(7)(a) of the Plan.
[ ] (l) The Employer will satisfy the top heavy minimum allocation under the
following plan(s) it maintains: _____________________________. However, the
Employer will make any necessary additional contribution to satisfy the top
heavy minimum allocation for an Employee covered only under this Plan and
not under the other plan(s) designated in this Option (l). See Section
3.04(B)(7)(b) of the Plan.
If the Employer maintains another plan, the Employer may provide in an addendum
to this Adoption Agreement, numbered Section 3.04, any modifications to the Plan
necessary to satisfy the top heavy requirements under Code ss.416.
Related employers. If two or more related employers (as defined in Section 1.30)
contribute to this Plan, the Advisory Committee must allocate all Employer
nonelective contributions (and forfeitures treated as nonelective contributions)
to each Participant in the Plan, in accordance with the elections in this
Adoption Agreement Section 3.04: (Choose (m) or (n))
[ ] (m) Without regard to which contributing related group member employs the
Participant.
[X] (n) Only to the Participants directly employed by the contributing
Employer. If a Participant receives Compensation from more than one
contributing Employer, the Advisory Committee will determine the
allocations under this Adoption Agreement Section 3.04 by prorating among
the participating Employers the Participant's Compensation and, if
applicable, the Participant's Integration Level under Option (i).
3.05 FORFEITURE ALLOCATION. Subject to any restoration allocation required
under Sections 5.04 or 9.14, the Advisory Committee will allocate a Participant
forfeiture in accordance with Section 3.04: (Choose (a) or (b); (c) and (d) are
optional in addition to (a) or (b))
[ ] (a) As an Employer nonelective contribution for the Plan Year in which the
forfeiture occurs, as if the Participant forfeiture were an additional
nonelective contribution for that Plan Year.
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<PAGE>
[ ] (b) To reduce the Employer matching contributions and nonelective
contributions for the Plan Year: (Choose (1) or (2))
[ ] (1) in which the forfeiture occurs.
[ ] (2) immediately following the Plan Year in which the forfeiture
occurs.
[ ] (c) To the extent attributable to matching contributions: (Choose (1), (2)
or (3))
[ ] (1) In the manner elected under Options (a) or (b).
[ ] (2) First to reduce Employer matching contributions for the Plan Year:
(Choose (i) or (ii))
[ ] (i) in which the forfeiture occurs,
[ ] (ii) immediately following the Plan Year in which the forfeiture
occurs, then as elected in Options (a) or (b).
[ ] (3) As a discretionary matching contribution for the Plan Year in
which the forfeiture occurs, in lieu of the manner elected under
Options (a) or (b).
[ ] (d) First to reduce the Plan's ordinary and necessary administrative
expenses for the Plan Year and then will allocate any remaining forfeitures
in the manner described in Options (a), (b) or (c), whichever applies. If
the Employer elects Option (c), the forfeitures used to reduce Plan
expenses: (Choose (1) or (2))
[ ] (1) relate proportionately to forfeitures described in Option (c) and
to forfeitures described in Options (a) or (b).
[ ] (2) relate first to forfeitures described in Option _______.
Allocation of forfeited excess aggregate contributions. The Advisory Committee
will allocate any forfeited excess aggregate contributions (as described in
Section 14.09): (Choose (e), (f) or (g))
[ ] (e) To reduce Employer matching contributions for the Plan Year: (Choose
(1) or (2))
[ ] (1) in which the forfeiture occurs.
[ ] (2) immediately following the Plan Year in which the forfeiture
occurs.
[ ] (f) As Employer discretionary matching contributions for the Plan Year in
which forfeited, except the Advisory Committee will not allocate these
forfeitures to the Highly Compensated Employees who incurred the
forfeitures.
[ ] (g) In accordance with Options (a) through (d), whichever applies, except
the Advisory Committee will not allocate these forfeitures under Option (a)
or under Option (c)(3) to the Highly Compensated Employees who incurred the
forfeitures.
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3.06 ACCRUAL OF BENEFIT.
Compensation taken into account. For the Plan Year in which the Employee first
becomes a Participant, the Advisory Committee will determine the allocation of
any cash or deferred contribution, designated qualified nonelective contribution
or nonelective contribution by taking into account: (Choose (a) or (b))
[ ] (a) The Employee's Compensation for the entire Plan Year.
[X] (b) The Employee's Compensation for the portion of the Plan Year in which
the Employee actually is a Participant in the Plan.
Accrual Requirements. Subject to the suspension of accrual requirements of
Section 3.06(E) of the Plan, to receive an allocation of cash or deferred
contributions, matching contributions, designated qualified nonelective
contributions, nonelective contributions and Participant forfeitures, if any,
for the Plan Year, a Participant must satisfy the conditions described in the
following elections: (Choose (c) or at least one of (d) through (f))
[ ] (c) Safe harbor rule. If the Participant is employed by the Employer on the
last day of the Plan Year, the Participant must complete at least one Hour
of Service for that Plan Year. If the Participant is not employed by the
Employer on the last day of the Plan Year, the Participant must complete at
least 501 Hours of Service during the Plan Year.
[X] (d) Hours of Service condition. The Participant must complete the following
minimum number of Hours of Service during the Plan Year: (Choose at least
one of (1) through (5))
[X] (1) 1,000 Hours of Service.
[ ] (2) (Specify, but the number of Hours of Service may not exceed 1,000)
_________________________________________________.
[X] (3) No Hour of Service requirement if the Participant terminates
employment during the Plan Year on account of: (Choose (i), (ii) or
(iii))
[X] (i) Death.
[X] (ii) Disability.
[X] (iii) Attainment of Normal Retirement Age in the current Plan
Year or in a prior Plan Year.
[ ] (4) ____________________________________________ Hours of Service (not
exceeding 1,000) if the Participant terminates employment with the
Employer during the Plan Year, subject to any election in Option (3).
[X] (5) No Hour of Service requirement for an allocation of the following
contributions: Employer Matching Contribution.
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<PAGE>
[X] (e) Employment condition. The Participant must be employed by the Employer
on the last day of the Plan Year, irrespective of whether he satisfies any
Hours of Service condition under Option (d), with the following exceptions:
(Choose (1) or at least one of (2) through (5))
[ ] (1) No exceptions.
[X] (2) Termination of employment because of death.
[X] (3) Termination of employment because of disability.
[X] (4) Termination of employment following attainment of Normal
Retirement Age.
[X] (5) No employment condition for the following contributions: Employer
Matching Contributions.
[ ] (f) (Specify other conditions, if applicable): __________________________.
Suspension of Accrual Requirements. The suspension of accrual requirements of
Section 3.06(E) of the Plan: (Choose (g), (h) or (i))
[X] (g) Applies to the Employer's Plan.
[ ] (h) Does not apply to the Employer's Plan.
[ ] (i) Applies in modified form to the Employer's Plan, as described in an
addendum to this Adoption Agreement, numbered Section 3.06(E).
Special accrual requirements for matching contributions. If the Plan allocates
matching contributions on two or more allocation dates for a Plan Year, the
Advisory Committee, unless otherwise specified in Option (l), will apply any
Hours of Service condition by dividing the required Hours of Service on a
prorata basis to the allocation periods included in that Plan Year. Furthermore,
a Participant who satisfies the conditions described in this Adoption Agreement
Section 3.06 will receive an allocation of matching contributions (and
forfeitures treated as matching contributions) only if the Participant satisfies
the following additional condition(s): (Choose (j) or at least one of (k) or
(l))
[X] (j) No additional conditions.
[ ] (k) The Participant is not a Highly Compensated Employee for the Plan Year.
This Option (k) applies to: (Choose (1) or (2))
[ ] (1) All matching contributions.
[ ] (2) Matching contributions described in Option(s) _______ of Adoption
Agreement Section 3.01.
[ ] (l) (Specify) ______________________________________________________.
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<PAGE>
3.15 MORE THAN ONE PLAN LIMITATION. If the provisions of Section 3.15
apply, the Excess Amount attributed to this Plan equals: (Choose (a), (b) or
(c))
[ ] (a) The product of:
(i) the total Excess Amount allocated as of such date (including any
amount which the Advisory Committee would have allocated but for the
limitations of Code ss.415), times
(ii) the ratio of (1) the amount allocated to the Participant as of such
date under this Plan divided by (2) the total amount allocated as of
such date under all qualified defined contribution plans (determined
without regard to the limitations of Code ss.415).
[X] (b) The total Excess Amount.
[ ] (c) None of the Excess Amount.
3.18 DEFINED BENEFIT PLAN LIMITATION.
Application of limitation. The limitation under Section 3.18 of the Plan:
(Choose (a) or (b))
[X] (a) Does not apply to the Employer's Plan because the Employer does not
maintain and never has maintained a defined benefit plan covering any
Participant in this Plan.
[ ] (b) Applies to the Employer's Plan. To the extent necessary to satisfy the
limitation under Section 3.18, the Employer will reduce: (Choose (1) or
(2))
[ ] (1) The Participant's projected annual benefit under the defined
benefit plan under which the Participant participates.
[ ] (2) Its contribution or allocation on behalf of the Participant to the
defined contribution plan under which the Participant participates and
then, if necessary, the Participant's projected annual benefit under
the defined benefit plan under which the Participant participates.
[Note: If the Employer selects (a), the remaining options in this Section 3.18
do not apply to the Employer's Plan.]
Coordination with top heavy minimum allocation. The Advisory Committee will
apply the top heavy minimum allocation provisions of Section 3.04(B) of the Plan
with the following modifications: (Choose (c) or at least one of (d) or (e))
[ ] (c) No modifications.
[ ] (d) For Non-Key Employees participating only in this Plan, the top heavy
minimum allocation is the minimum allocation described in Section 3.04(B)
determined by substituting % (not less than 4%) for "3%," except: (Choose
(i) or (ii))
[ ] (i) No exceptions.
[ ] (ii) Plan Years in which the top heavy ratio exceeds 90%.
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<PAGE>
[ ] (e) For Non-Key Employees also participating in the defined benefit plan,
the top heavy minimum is: (Choose (1) or (2))
[ ] (1) 5% of Compensation (as determined under Section 3.04(B) or the
Plan) irrespective of the contribution rate of any Key Employee,
except: (Choose (i) or (ii))
[ ] (i) No exceptions.
[ ] (ii) Substituting "7 1/2%" for "5%" if the top heavy ratio does
not exceed 90%.
[ ] (2) 0%. [Note: The Employer may not select this Option (2) unless the
defined benefit plan satisfies the top heavy minimum benefit
requirements of Code ss.416 for these Non-Key Employees.]
Actuarial Assumptions for Top Heavy Calculation. To determine the top heavy
ratio, the Advisory Committee will use the following interest rate and mortality
assumptions to value accrued benefits under a defined benefit plan: ____________
______________________________________________.
If the elections under this Section 3.18 are not appropriate to satisfy the
limitations of Section 3.18, or the top heavy requirements under Code ss.416,
the Employer must provide the appropriate provisions in an addendum to this
Adoption Agreement.
ARTICLE IV
PARTICIPANT CONTRIBUTIONS
4.01 PARTICIPANT NONDEDUCTIBLE CONTRIBUTIONS. The Plan: (Choose (a) or (b);
(c) is available only with (b))
[X] (a) Does not permit Participant nondeductible contributions.
[ ] (b) Permits Participant nondeductible contributions, pursuant to Section
14.04 of the Plan.
[ ] (c) The following portion of the Participant's nondeductible contributions
for the Plan Year are mandatory contributions under Option (i)(3) of
Adoption Agreement Section 3.01: (Choose (1) or (2))
[ ] (1) The amount which is not less than: _____________________________.
[ ] (2) The amount which is not greater than: __________________________.
Allocation dates. The Advisory Committee will allocate nondeductible
contributions for each Plan Year as of the Accounting Date and the following
additional allocation dates: (Choose (d) or (e))
[ ] (d) No other allocation dates.
[ ] (e) (Specify) ______________________________________________________.
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As of an allocation date, the Advisory Committee will credit all nondeductible
contributions made for the relevant allocation period. Unless otherwise
specified in (e), a nondeductible contribution relates to an allocation period
only if actually made to the Trust no later than 30 days after that allocation
period ends.
4.05 PARTICIPANT CONTRIBUTION - WITHDRAWAL/DISTRIBUTION. Subject to the
restrictions of Article VI, the following distribution options apply to a
Participant's Mandatory Contributions Account, if any, prior to his Separation
from Service: (Choose (a) or at least one of (b) through (d))
[ ] (a) No distribution options prior to Separation from Service.
[ ] (b) The same distribution options applicable to the Deferral Contributions
Account prior to the Participant's Separation from Service, as elected in
Adoption Agreement Section 6.03.
[ ] (c) Until he retires, the Participant has a continuing election to receive
all or any portion of his Mandatory Contributions Account if: (Choose (1)
or at least one of (2) through (4))
[ ] (1) No conditions.
[ ] (2) The mandatory contributions have accumulated for at least Plan
Years since the Plan Year for which contributed.
[ ] (3) The Participant suspends making nondeductible contributions for a
period of _____ months.
[ ] (4) (Specify) _________________________________________________.
[ ] (d) (Specify) _________________________________________________.
ARTICLE V
TERMINATION OF SERVICE - PARTICIPANT VESTING
5.01 NORMAL RETIREMENT. Normal Retirement Age under the Plan is: (Choose
(a) or (b))
[ ] (a) _______ [State age, but may not exceed age 65].
[X] (b) The later of the date the Participant attains 55 years of age or the
5th anniversary of the first day of the Plan Year in which the Participant
commenced participation in the Plan. [ The age selected may not exceed age
65 and the anniversary selected may not exceed the 5th.]
5.02 PARTICIPANT DEATH OR DISABILITY. The 100% vesting rule under Section
5.02 of the Plan: (Choose (a) or choose one or both of (b) and (c))
[ ] (a) Does not apply.
[X] (b) Applies to death.
[X] (c) Applies to disability.
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5.03 VESTING SCHEDULE.
Deferral Contributions Account/Qualified Matching Contributions
Account/Qualified Nonelective Contributions Account/Mandatory Contributions
Account. A Participant has a 100% Nonforfeitable interest at all times in his
Deferral Contributions Account, his Qualified Matching Contributions Account,
his Qualified Nonelective Contributions Account and in his Mandatory
Contributions Account.
Regular Matching Contributions Account/Employer Contributions Account. With
respect to a Participant's Regular Matching Contributions Account and Employer
Contributions Account, the Employer elects the following vesting schedule:
(Choose (a) or (b); (c) and (d) are available only as additional options)
[X] (a) Immediate vesting. 100% Nonforfeitable at all times. [ Note: The
Employer must elect Option (a) if the eligibility conditions under Adoption
Agreement Section 2.01(c) require 2 years of service or more than 12 months
of employment.]
[ ] (b) Graduated Vesting Schedules.
Top Heavy Schedule Non Top Heavy Schedule
(Mandatory) (Optional)
Years of Nonforfeitable Years of Nonforfeitable
Service Percentage Service Percentage
-------- -------------- -------- --------------
Less than 1 .................... 0% Less than 1 .................... 0%
1 .................... 0% 1 .................... 0%
2 .................... 0% 2 .................... 0%
3 .................... 0% 3 .................... 0%
4 .................... 0% 4 .................... 0%
5 .................... 0% 5 .................... 0%
6 or more .......... 100% 6 .................... 0%
7 or more .......... 100%
[ ] (c) Special vesting election for Regular Matching Contributions Account. In
lieu of the election under Options (a) or (b), the Employer elects the
following vesting schedule for a Participant's Regular Matching
Contributions Account: (Choose (1) or (2))
[ ] (1) 100% Nonforfeitable at all times.
[ ] (2) In accordance with the vesting schedule described in the addendum
to this Adoption Agreement, numbered 5.03(c). [Note: If the Employer
elects this Option (c)(2), the addendum must designate the applicable
vesting schedule(s) using the same format as used in Option (b).]
[Note: Under Options (b) and (c)(2), the Employer must complete a Top Heavy
Schedule which satisfies Code ss.416. The Employer, at its option, may complete
a Non Top Heavy Schedule. The Non Top Heavy Schedule must satisfy Code
ss.411(a)(2). Also see Section 7.05 of the Plan.]
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[ ] (d) The Top Heavy Schedule under Option (b) (and, if applicable, under
Option (c)(2)) applies: (Choose (1) or (2))
[ ] (1) Only in a Plan Year for which the Plan is top heavy.
[ ] (2) In the Plan Year for which the Plan first is top heavy and then in
all subsequent Plan Years. [Note: The Employer may not elect Option
(d) unless it has completed a Non Top Heavy Schedule.]
Minimum vesting. (Choose (e) or (f))
[X] (e) The Plan does not apply a minimum vesting rule.
[ ] (f) A Participant's Nonforfeitable Accrued Benefit will never be less than
the lesser of $ or his entire Accrued Benefit, even if the application of a
graduated vesting schedule under Options (b) or (c) would result in a
smaller Nonforfeitable Accrued Benefit.
Life Insurance Investments. The Participant's Accrued Benefit attributable to
insurance contracts purchased on his behalf under Article XI is: (Choose (g) or
(h))
[X] (g) Subject to the vesting election under Options (a), (b) or (c).
[ ] (h) 100% Nonforfeitable at all times, irrespective of the vesting election
under Options (b) or (c)(2).
5.04 CASH-OUT DISTRIBUTIONS TO PARTIALLY-VESTED PARTICIPANTS/ RESTORATION
OF FORFEITED ACCRUED BENEFIT. The deemed cash-out rule described in Section
5.04(C) of the Plan: (Choose (a) or (b))
[ ] (a) Does not apply.
[ ] (b) Will apply to determine the timing of forfeitures for 0% vested
Participants. A Participant is not a 0% vested Participant if he has a
Deferral Contributions Account.
5.06 YEAR OF SERVICE - VESTING.
Vesting computation period. The Plan measures a Year of Service on the basis of
the following 12 consecutive month periods: (Choose (a) or (b))
[X] (a) Plan Years.
[ ] (b) Employment Years. An Employment Year is the 12 consecutive month period
measured from the Employee's Employment Commencement Date and each
successive 12 consecutive month period measured from each anniversary of
that Employment Commencement Date.
Hours of Service. The minimum number of Hours of Service an Employee must
complete during a vesting computation period to receive credit for a Year of
Service is: (Choose (c) or (d))
[X] (c) 1,000 Hours of Service.
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[ ] (d) _____ Hours of Service. [Note: The Hours of Service requirement may not
exceed 1,000.]
5.08 INCLUDED YEARS OF SERVICE - VESTING. The Employer specifically
excludes the following Years of Service: (Choose (a) or at least one of (b)
through (e))
[X] (a) None other than as specified in Section 5.08(a) of the Plan.
[ ] (b) Any Year of Service before the Participant attained the age of _______.
Note: The age selected may not exceed age 18.]
[ ] (c) Any Year of Service during the period the Employer did not maintain
this Plan or a predecessor plan.
[ ] (d) Any Year of Service before a Break in Service if the number of
consecutive Breaks in Service equals or exceeds the greater of 5 or the
aggregate number of the Years of Service prior to the Break. This exception
applies only if the Participant is 0% vested in his Accrued Benefit derived
from Employer contributions at the time he has a Break in Service.
Furthermore, the aggregate number of Years of Service before a Break in
Service do not include any Years of Service not required to be taken into
account under this exception by reason of any prior Break in Service.
[ ] (e) Any Year of Service earned prior to the effective date of ERISA if the
Plan would have disregarded that Year of Service on account of an
Employee's Separation from Service under a Plan provision in effect and
adopted before January 1, 1974.
ARTICLE VI
TIME AND METHOD OF PAYMENTS OF BENEFITS
Code ss.411(d)(6) Protected Benefits. The elections under this Article VI may
not eliminate Code ss.411(d)(6) protected benefits. To the extent the elections
would eliminate a Code ss.411(d)(6) protected benefit, see Section 13.02 of the
Plan. Furthermore, if the elections liberalize the optional forms of benefit
under the Plan, the more liberal options apply on the later of the adoption date
or the Effective Date of this Adoption Agreement.
6.01 TIME OF PAYMENT OF ACCRUED BENEFIT.
Distribution date. A distribution date under the Plan means the first day of
each month. [Note: The Employer must specify the appropriate date(s). The
specified distribution dates primarily establish annuity starting dates and the
notice and consent periods prescribed by the Plan. The Plan allows the Trustee
an administratively practicable period of time to make the actual distribution
relating to a particular distribution date.]
Nonforfeitable Accrued Benefit Not Exceeding $3,500. Subject to the limitations
of Section 6.01(A)(1), the distribution date for distribution of a
Nonforfeitable Accrued Benefit not exceeding $3,500 is: (Choose (a), (b), (c),
(d) or (e))
[ ] (a) _______________________________________ of the ________________________
Plan Year beginning after the Participant's Separation from Service.
[X] (b) As soon as administratively feasible following the Participant's
Separation from Service.
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[ ] (c) ____________________________________________ of the Plan Year after the
Participant incurs ____________________________________________ Break(s) in
Service (as defined in Article V).
[ ] (d) ___________________________________________ following the Participant's
attainment of Normal Retirement Age, but not earlier than ____________ days
following his Separation from Service.
[ ] (e) (Specify) ________________________________________________________.
Nonforfeitable Accrued Benefit Exceeds $3,500. See the elections under Section
6.03.
Disability. The distribution date, subject to Section 6.01(A)(3), is: (Choose
(f), (g) or (h))
[ ] (f) _________________________________________________ after the Participant
terminates employment because of disability.
[X] (g) The same as if the Participant had terminated employment without
disability.
[ ] (h) (Specify) ________________________________________________________.
Hardship. (Choose (i) or (j))
[X] (i) The Plan does not permit a hardship distribution to a Participant who
has separated from Service.
[ ] (j) The Plan permits a hardship distribution to a Participant who has
separated from Service in accordance with the hardship distribution policy
stated in: (Choose (1), (2) or (3))
[ ] (1) Section 6.01(A)(4) of the Plan.
[ ] (2) Section 14.11 of the Plan.
[ ] (3) The addendum to this Adoption Agreement, numbered Section 6.01.
Default on a Loan. If a Participant or Beneficiary defaults on a loan made
pursuant to a loan policy adopted by the Advisory Committee pursuant to Section
9.04, the Plan: (Choose (k), (l) or (m))
[X] (k) Treats the default as a distributable event. The Trustee, at the time
of the default, will reduce the Participant's Nonforfeitable Accrued
Benefit by the lesser of the amount in default (plus accrued interest) or
the Plan's security interest in that Nonforfeitable Accrued Benefit. To the
extent the loan is attributable to the Participant's Deferral Contributions
Account, Qualified Matching Contributions Account or Qualified Nonelective
Contributions Account, the Trustee will not reduce the Participant's
Nonforfeitable Accrued Benefit unless the Participant has separated from
Service or unless the Participant has attained age 59 1/2.
[ ] (l) Does not treat the default as a distributable event. When an otherwise
distributable event first occurs pursuant to Section 6.01 or Section 6.03
of the Plan, the Trustee will reduce the Participant's Nonforfeitable
Accrued Benefit by the lesser of the amount in default (plus accrued
interest) or the Plan's security interest in that Nonforfeitable Accrued
Benefit.
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<PAGE>
[ ] (m) (Specify) ________________________________________________________.
6.02 METHOD OF PAYMENT OF ACCRUED BENEFIT. The Advisory Committee will
apply Section 6.02 of the Plan with the following modifications: (Choose (a) or
at least one of (b), (c), (d) and (e))
[ ] (a) No modifications.
[ ] (b) Except as required under Section 6.01 of the Plan, a lump sum
distribution is not available: _____________________________________ .
[ ] (c) An installment distribution: (Choose (1) or at least one of (2) or (3))
[ ] (1) Is not available under the Plan.
[ ] (2) May not exceed the lesser of ________ years or the maximum period
permitted under Section 6.02.
[ ] (3) (Specify) __________________________________________________.
[X] (d) The Plan permits the following annuity options: Joint and survivor for
married participants; 75% or 100% for married participants; or a life
annuity for unmarried participants.
Any Participant who elects a life annuity option is subject to the
requirements of Sections 6.04(A), (B), (C) and (D) of the Plan. See Section
6.04(E). [Note: The Employer may specify additional annuity options in an
addendum to this Adoption Agreement, numbered 6.02(d).]
[ ] (e) If the Plan invests in qualifying Employer securities, as described in
Section 10.03(F), a Participant eligible to elect distribution under
Section 6.03 may elect to receive that distribution in Employer securities
only in accordance with the provisions of the addendum to this Adoption
Agreement, numbered 6.02(e).
6.03 BENEFIT PAYMENT ELECTIONS.
Participant Elections After Separation from Service. A Participant who is
eligible to make distribution elections under Section 6.03 of the Plan may elect
to commence distribution of his Nonforfeitable Accrued Benefit: (Choose at least
one of (a) through (c))
[ ] (a) As of any distribution date, but not earlier than _____________________
of the ________________________ Plan Year beginning after the Participant's
Separation from Service.
[X] (b) As of the following date(s): (Choose at least one of Options (1)
through (6))
[ ] (1) Any distribution date after the close of the Plan Year in which
the Participant attains Normal Retirement Age.
[X] (2) Any distribution date following his Separation from Service with
the Employer.
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<PAGE>
[ ] (3) Any distribution date in the ________________________ Plan Year(s)
beginning after his Separation from Service.
[ ] (4) Any distribution date in the Plan Year after the Participant
incurs ________________ Break(s) in Service (as defined in Article V).
[ ] (5) Any distribution date following attainment of age ____________ and
completion of at least ___ Years of Service (as defined in Article V).
[ ] (6) (Specify) __________________________________________________.
[ ] (c) (Specify) __________________________________________________.
The distribution events described in the election(s) made under Options
(a), (b) or (c) apply equally to all Accounts maintained for the
Participant unless otherwise specified in Option (c).
Participant Elections Prior to Separation from Service - Regular Matching
Contributions Account and Employer Contributions Account. Subject to the
restrictions of Article VI, the following distribution options apply to a
Participant's Regular Matching Contributions Account and Employer Contributions
Account prior to his Separation from Service: (Choose (d) or at least one of (e)
through (h))
[ ] (d) No distribution options prior to Separation from Service.
[X] (e) Attainment of Specified Age. Until he retires, the Participant has a
continuing election to receive all or any portion of his Nonforfeitable
interest in these Accounts after he attains: (Choose (1) or (2))
[ ] (1) Normal Retirement Age.
[X] (2) 59 1/2 years of age and is at least 100% vested in these Accounts.
[Note: If the percentage is less than 100%, see the special vesting
formula in Section 5.03.]
[ ] (f) After a Participant has participated in the Plan for a period of not
less than _________ years and he is 100% vested in these Accounts, until he
retires, the Participant has a continuing election to receive all or any
portion of the Accounts. [Note: The number in the blank space may not be
less than 5.]
[ ] (g) Hardship. A Participant may elect a hardship distribution prior to his
Separation from Service in accordance with the hardship distribution
policy: (Choose (1), (2) or (3); (4) is available only as an additional
option)
[ ] (1) Under Section 6.01(A)(4) of the Plan.
[ ] (2) Under Section 14.11 of the Plan.
[ ] (3) Provided in the addendum to this Adoption Agreement, numbered
Section 6.03.
[ ] (4) In no event may a Participant receive a hardship distribution
before he is at least ______% vested in these Accounts. [Note: If the
percentage in the blank is less than 100%, see the special vesting
formula in Section 5.03.]
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[ ] (h) (Specify) _______________________________________________________.
[Note: The Employer may use an addendum, numbered 6.03, to provide additional
language authorized by Options (b)(6), (c), (g)(3) or (h) of this Adoption
Agreement Section 6.03.]
Participant Elections Prior to Separation from Service - Deferral Contributions
Account, Qualified Matching Contributions Account and Qualified Nonelective
Contributions Account. Subject to the restrictions of Article VI, the following
distribution options apply to a Participant's Deferral Contributions Account,
Qualified Matching Contributions Account and Qualified Nonelective Contributions
Account prior to his Separation from Service: (Choose (i) or at least one of (j)
through (l))
[ ] (i) No distribution options prior to Separation from Service.
[X] (j) Until he retires, the Participant has a continuing election to receive
all or any portion of these Accounts after he attains: (Choose (1) or (2))
[ ] (1) The later of Normal Retirement Age or age 59 1/2.
[X] (2) Age 59.5 (at least 59 1/2).
[X] (k) Hardship. A Participant, prior to this Separation from Service, may
elect a hardship distribution from his Deferral Contributions Account in
accordance with the hardship distribution policy under Section 14.11 of the
Plan.
[ ] (l) (Specify) __________________________________. [Note: Option (l) may not
permit in service distributions prior to age 59 1/2 (other than hardship)
and may not modify the hardship policy described in Section 14.11.]
Sale of trade or business/subsidiary. If the Employer sells substantially all of
the assets (within the meaning of Code ss.409(d)(2)) used in a trade or business
or sells a subsidiary (within the meaning of Code ss.409(d)(3)), a Participant
who continues employment with the acquiring corporation is eligible for
distribution from his Deferral Contributions Account, Qualified Matching
Contributions Account and Qualified Nonelective Contributions Account: (Choose
(m) or (n))
[ ] (m) Only as described in this Adoption Agreement Section 6.03 for
distributions prior to Separation from Service.
[X] (n) As if he has a Separation from Service. After March 31, 1988, a
distribution authorized solely by reason of this Option (n) must constitute
a lump sum distribution, determined in a manner consistent with Code
ss.401(k)(10) and the applicable Treasury regulations.
6.04 ANNUITY DISTRIBUTIONS TO PARTICIPANTS AND SURVIVING SPOUSES. The
annuity distribution requirements of Section 6.04: (Choose (a) or (b))
[ ] (a) Apply only to a Participant described in Section 6.04(E) of the Plan
(relating to the profit sharing exception to the joint and survivor
requirements).
[X] (b) Apply to all Participants.
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<PAGE>
ARTICLE IX
ADVISORY COMMITTEE - DUTIES WITH RESPECT TO PARTICIPANTS' ACCOUNTS
9.10 VALUE OF PARTICIPANT'S ACCRUED BENEFIT. If a distribution (other than
a distribution from a segregated Account and other than a corrective
distribution described in Sections 14.07, 14.08, 14.09 or 14.10 of the Plan)
occurs more than 90 days after the most recent valuation date, the distribution
will include interest at: (Choose (a), (b) or (c))
[X] (a) 0% per annum. [Note: The percentage may equal 0%.]
[ ] (b) The 90 day Treasury bill rate in effect at the beginning of the current
valuation period.
[ ] (c) (Specify) _______________________________________________________.
9.11 ALLOCATION AND DISTRIBUTION OF NET INCOME GAIN OR LOSS. Pursuant to
Section 14.12, to determine the allocation of net income, gain or loss:
(Complete only those items, if any, which are applicable to the Employer's Plan)
[X] (a) For salary reduction contributions, the Advisory Committee will:
(Choose (1), (2), (3), (4) or (5))
[ ] (1) Apply Section 9.11 without modification.
[ ] (2) Use the segregated account approach described in Section 14.12.
[ ] (3) Use the weighted average method described in Section 14.12, based
on a _____________ weighting period.
[X] (4) Treat as part of the relevant Account at the beginning of the
valuation period 100% of the salary reduction contributions: (Choose
(i) or (ii))
[X] (i) made during that valuation period.
[ ] (ii) made by the following specified time: _____________________.
[ ] (5) Apply the allocation method described in the addendum to this
Adoption Agreement numbered 9.11(a).
[X] (b) For matching contributions, the Advisory Committee will: (Choose (1),
(2), (3) or (4))
[ ] (1) Apply Section 9.11 without modification.
[ ] (2) Use the weighted average method described in Section 14.12, based
on a _____________ weighting period.
[X] (3) Treat as part of the relevant Account at the beginning of the
valuation period 100% of the matching contributions allocated during
the valuation period.
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[ ] (4) Apply the allocation method described in the addendum to this
Adoption Agreement numbered 9.11(b).
[ ] (c) For Participant nondeductible contributions, the Advisory Committee
will: (Choose (1), (2), (3), (4) or (5))
[ ] (1) Apply Section 9.11 without modification.
[ ] (2) Use the segregated account approach described in Section 14.12.
[ ] (3) Use the weighted average method described in Section 14.12, based
on a _____________ weighting period.
[ ] (4) Treat as part of the relevant Account at the beginning of the
valuation period ____% of the Participant nondeductible contributions:
(Choose (i) or (ii))
[ ] (i) made during that valuation period.
[ ] (ii) made by the following specified time: _____________________.
[ ] (5) Apply the allocation method described in the addendum to this
Adoption Agreement numbered 9.11(c).
ARTICLE X
TRUSTEE AND CUSTODIAN, POWERS AND DUTIES
10.03 INVESTMENT POWERS. Pursuant to Section 10.03[F] of the Plan, the
aggregate investments in qualifying Employer securities and in qualifying
Employer real property: (Choose (a) or (b))
[ ] (a) May not exceed 10% of Plan assets.
[X] (b) May not exceed 100% of Plan assets. [Note: The percentage may not
exceed 100%.]
10.14 VALUATION OF TRUST. In addition to each Accounting Date, the Trustee
must value the Trust Fund on the following valuation date(s): (Choose (a) or
(b))
[ ] (a) No other mandatory valuation dates.
[X] (b) (Specify) as of each day in which the financial markets are open.
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EFFECTIVE DATE ADDENDUM
(Restated Plans Only)
The Employer must complete this addendum only if the restated Effective
Date specified in Adoption Agreement Section 1.18 is different than the restated
effective date for at least one of the provisions listed in this addendum. In
lieu of the restated Effective Date in Adoption Agreement Section 1.18, the
following special effective dates apply: (Choose whichever elections apply)
[ ] (a) Compensation definition. The Compensation definition of Section 1.12
(other than the $200,000 limitation) is effective for Plan Years beginning
after _______. [Note: May not be effective later than the first day of the
first Plan Year beginning after the Employer executes this Adoption
Agreement to restate the Plan for the Tax Reform Act of 1986, if
applicable.]
[ ] (b) Eligibility conditions. The eligibility conditions specified in
Adoption Agreement Section 2.01 are effective for Plan Years beginning
after _____________.
[ ] (c) Suspension of Years of Service. The suspension of Years of Service rule
elected under Adoption Agreement Section 2.03 is effective for Plan Years
beginning after _____________.
[ ] (d) Contribution/allocation formula. The contribution formula elected under
Adoption Agreement Section 3.01 and the method of allocation elected under
Adoption Agreement Section 3.04 is effective for Plan Years beginning after
_____________.
[ ] (e) Accrual requirements. The accrual requirements of Section 3.06 are
effective for Plan Years beginning after _____________.
[ ] (f) Employment condition. The employment condition of Section 3.06 is
effective for Plan Years beginning after _____________.
[ ] (g) Elimination of Net Profits. The requirement for the Employer not to
have net profits to contribute to this Plan is effective for Plan Years
beginning after _______. [Note: The date specified may not be earlier than
December 31, 1985.]
[ ] (h) Vesting Schedule. The vesting schedule elected under Adoption Agreement
Section 5.03 is effective for Plan Years beginning after _____________.
[ ] (i) Allocation of Earnings. The special allocation provisions elected under
Adoption Agreement Section 9.11 are effective for Plan Years beginning
after _____________.
[ ] (j) (Specify) _______________________________________________________.
For Plan Years prior to the special Effective Date, the terms of the Plan
prior to its restatement under this Adoption Agreement will control for purposes
of the designated provisions. A special Effective Date may not result in the
delay of a Plan provision beyond the permissible Effective Date under any
applicable law requirements.
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Execution Page
The Trustee (and Custodian, if applicable), by executing this Adoption
Agreement, accepts its position and agrees to all of the obligations,
responsibilities and duties imposed upon the Trustee (or Custodian) under the
Master Plan and Trust. The Employer hereby agrees to the provisions of this Plan
and Trust, and in witness of its agreement, the Employer by its duly authorized
officers, has executed this Adoption Agreement, and the Trustee (and Custodian,
if applicable) signified its acceptance, on this 31st day of December, 96.
Name and EIN of Employer: Washington Homes, Inc. 52-0818872
Signed: __________________________________________________
Name(s) of Trustee: First Union National Bank
Signed: __________________________________________________
__________________________________________________
Name of Custodian: _______________________________________
Signed: __________________________________________________
[Note: A Trustee is mandatory, but a Custodian is optional. See Section 10.03 of
the Plan.]
Plan Number. The 3-digit plan number the Employer assigns to this Plan for ERISA
reporting purposes (Form 5500 Series) is: 002.
Use of Adoption Agreement. Failure to complete properly the elections in this
Adoption Agreement may result in disqualification of the Employer's Plan. The
3-digit number assigned to this Adoption Agreement (see page 1) is solely for
the Master Plan Sponsor's recordkeeping purposes and does not necessarily
correspond to the plan number the Employer designated in the prior paragraph.
Master Plan Sponsor. The Master Plan Sponsor identified on the first page of the
basic plan document will notify all adopting employers of any amendment of this
Master Plan or of any abandonment or discontinuance by the Master Plan Sponsor
of its maintenance of this Master Plan. For inquiries regarding the adoption of
the Master Plan, the Master Plan Sponsor's intended meaning of any plan
provisions or the effect of the opinion letter issued to the Master Plan
Sponsor, please contact the Master Plan Sponsor at the following address and
telephone number: 1751 Pinnacle Drive McLean, VA 22102 (703) 760-6297.
Reliance on Opinion Letter. The Employer may not rely on the Master Plan
Sponsor's opinion letter covering this Adoption Agreement. For reliance on the
Plan's qualification, the Employer must obtain a determination letter from the
applicable IRS Key District office.
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PARTICIPATION AGREEMENT
For Participation by Related Group Members (Plan Section 1.30)
The undersigned Employer, by executing this Participation Agreement, elects
to become a Participating Employer in the Plan identified in Section 1.03 of the
accompanying Adoption Agreement, as if the Participating Employer were a
signatory to that Agreement. The Participating Employer accepts, and agrees to
be bound by, all of the elections granted under the provisions of the Master
Plan as made by Washington Homes, Inc., the Signatory Employer to the Execution
Page of the Adoption Agreement.
1. The Effective Date of the undersigned Employer's participation in the
designated Plan is: _______________________.
2. The undersigned Employer's adoption of this Plan constitutes:
[ ] (a) The adoption of a new plan by the Participating Employer.
[ ] (b) The adoption of an amendment and restatement of a plan currently
maintained by the Employer, identified as ________________________________,
and having an original effective date of ________________________.
Dated this _____________ day of _____________, _______.
Name of Participating Employer: _________________________________
Signed: __________________________________________
Participating Employer's EIN: ____________________
Acceptance by the Signatory Employer to the Execution Page of the Adoption
Agreement and by the Trustee.
Name of Signatory Employer: Washington Homes, Inc.
Accepted: ______________
[Date] Signed: ____________________________
Name(s) of Trustee: _______________________________
_______________________________
Accepted: ______________
[Date] Signed: ____________________________
[Note: Each Participating Employer must execute a separate Participation
Agreement. See the Execution Page of the Adoption Agreement for important Master
Plan information.]
34
CHANGE OF CONTROL
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT by and between Washington Homes, Inc. a Maryland corporation
(the "Company") and __________________________ (the "Executive"), dated as of
the 1st day of December, 1998.
The Board of Directors of the Company (the "Board"), has determined
that it is in the best interests of the Company and its shareholders to assure
that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined below) of the Company. The Board believes it is imperative to diminish
the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control and
to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change of Control which ensure that the compensation and benefits expectations
of the Executive will be satisfied and which are competitive with those of other
corporations. Therefore, in order to accomplish these objectives, the Board has
caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. CERTAIN DEFINITIONS. (a) The "Effective Date" shall mean the first
date during the Change of Control Period (as defined in Section 1 (b)) on which
a Change of Control (as defined in Section 2) occurs. Anything in this Agreement
to the contrary notwithstanding, if a Change of Control occurs and if the
Executive's employment with the Company is terminated prior to the date on which
the Change of Control occurs, and if it is reasonably demonstrated by the
Executive that such termination of employment (i) was at the request of a third
party who has taken steps reasonably calculated to effect a Change of Control,
or (ii) otherwise arose in connection with or anticipation of a Change of
Control, then for all purposes of this Agreement the "Effective Date" shall mean
the date immediately prior to the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period commencing on
the date hereof and ending on the second anniversary of the date hereof;
provided, however, that commencing on the date one year after the date
hereof, and on each annual anniversary of such date (such date and each
annual anniversary thereof shall be hereinafter referred to as the "Renewal
Date"), unless previously terminated, the Change of Control Period shall be
automatically extended so as to terminate two years from such Renewal Date,
unless at least 60 days prior to the Renewal Date the Company shall give
notice to the Executive that the Change of Control Period shall not be so
extended.
(c) The term "Company" shall mean Washington Homes, Inc. and its
subsidiaries and any successor in interest to the business and/or assets or
such entities as provided for herein.
2. CHANGE OF CONTROL. For the purpose of this Agreement, a "Change of
Control", shall mean:
(a) The acquisition of any individual, entity, group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of
fifty percent (50%) or more of either (i) the then outstanding shares of
common stock of the Company (the "Outstanding Company Common Stock") or
(ii) the combined voting power of the then outstanding voting securities of
the Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however, that for
purposes of this subsection (a), the following acquisitions shall not
constitute a Change of Control: (i) any acquisition directly from the
Company, (ii) any acquisition by the Company, (iii) any acquisition by
Geaton A. DeCesaris, Sr., or Geaton A. DeCesaris, Jr. or members of their
family, or (iv) any acquisition in which Geaton A. DeCesaris, Sr., or
Geaton A. DeCesaris, Jr. and members of their family control the acquiring
<PAGE>
entity following the acquisition of the Company or hold forty percent (40%)
of the seats on the acquiring entity's Board of Directors.
(b) Consummation of a reorganization, merger or consolidation or sale
or other disposition of all or substantially all of the assets of the
Company (a "Business Combination"), in each case, unless, following such
Business Combination, (i) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately
prior to such Business Combination beneficially own, directly or
indirectly, more than fifty percent (50%) of, respectively, the then
outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, of the corporation resulting
from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all
or substantially all of the Company's assets either directly or through one
or more subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination of the
Outstanding Company Common Stock and Outstanding Company Voting Securities,
as the case may be, (ii) no Person (excluding any corporation resulting
from such Business Combination or any employee benefit plan (or related
trust) of the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, fifty percent (50%)
or more of, respectively, the then outstanding shares of common stock of
the corporation resulting from such Business Combination or the combined
voting power of the then outstanding voting securities of such corporation
except to the extent that such ownership existed prior to the Business
Combination or (iii) at least a majority of the members of the board of
directors of the corporation resulting from such Business Combination were
members of the incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such Business
Combination; provided, however, that any Business Combination in which
Geaton A. DeCesaris, Sr. or Geaton A. DeCesaris, Jr. or members of their
family control the acquiring or resulting entity or forty percent (40%) of
the seats on such entity's Board of Directors shall not be deemed a "Change
of Control".
3. EMPLOYMENT PERIOD. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the employ
of the Company subject to the terms and conditions of this Agreement, for the
period commencing on the Effective Date and ending on the second anniversary of
such date (the "Employment Period").
4. TERMS OF EMPLOYMENT.
(a) POSITION AND DUTIES.
(i) During the Employment Period, (A) the Executive's position
(including status, offices, titles and reporting requirements),
authority, duties and responsibilities shall be at least commensurate
in all material respects with the most significant of those held,
exercised and assigned at any time during the 120-day period
immediately preceding the Effective Date and (B) the Executive's
services shall be performed at the location where the Executive was
employed immediately preceding the Effective Date or any office or
location less than 50 miles from such location.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote full attention and time to the business and
affairs of the Company and, to the extent necessary to discharge the
responsibilities assigned to the Executive hereunder, to use the
Executive's best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a
violation of this Agreement for the Executive to (A) serve on
corporate, civic or charitable boards or committees, (B) deliver
lectures, fulfill speaking engagements or teach at educational
institutions and (C) manage personal investments, so long as such
activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in
accordance with this Agreement. It is expressly understood and agreed
that to the extent that any such activities have been conducted by the
Executive prior to the Effective Date, the continued conduct of such
activities (or the conduct of activities similar in nature and scope
thereto) subsequent to the Effective Date shall not thereafter be
deemed to interfere with the performance of the Executive's
responsibilities to the Company.
2
<PAGE>
(b) COMPENSATION. (i) BASE SALARY. During the Employment Period, the
Executive shall receive an annual base salary ("Annual Base Salary"), at
least equal to twenty-six times the highest bi-weekly base salary paid or
payable, in respect of the twelve-month period immediately preceding the
month in which the Effective Date occurs.
(ii) ANNUAL BONUS. In Addition to Annual Base Salary, the
Executive shall be awarded, for each fiscal year ending during the
Employment Period, an annual bonus (the "Annual Bonus") in cash in
accordance with the standards set forth in the Company's annual
incentive plans.
(iii) INCENTIVE, SAVINGS AND RETIREMENT PLANS. During the
Employment Period, the Executive shall be entitled to participate in
all incentive, savings and retirement plans, practices, policies and
programs applicable generally to other peer executives of the Company
and its affiliated companies, but in no event shall such plans,
practices, policies and programs provide the Executive with incentive
opportunities (measured with respect to both regular and special
incentive opportunities, to the extent, if any, that such distinction
is applicable), savings opportunities and retirement benefit
opportunities, in each case, less favorable, in the aggregate, than
the most favorable of those provided by the Company and its affiliated
companies for the Executive under such plans, practices, policies and
programs as in effect at any time during the 120-day period
immediately preceding the Effective Date.
(iv) WELFARE BENEFIT PLANS. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be
eligible for participation in and shall receive all benefits under
welfare benefit plans, practices, policies and programs provided by
the Company and its affiliated companies (including, without
limitation, medical, prescription, dental, disability, employee life,
group life, accidental death and travel accident insurance plans and
programs) to the extent applicable generally to other peer executives
of the Company and its affiliated companies, but in no event shall
such plans, practices, policies and programs provide the Executive
with benefits which are less favorable, in the aggregate, than the
most favorable of such plans, practices, policies and programs in
effect for the Executive at anytime during the 120-day period
immediately preceding the Effective Date.
(v) EXPENSES. During the Employment Period, the Executive shall
be entitled to receive prompt reimbursement for all reasonable
expenses incurred by the Executive in accordance with the most
favorable policies, practices and procedures of the Company and its
affiliated companies in effect for the Executive at any time during
the 120-day period immediately preceding the Effective Date or, if
more favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company and
its affiliated companies.
(vi) FRINGE BENEFITS. During the Employment Period, the Executive
shall be entitled to fringe benefits, including, without limitation,
tax and financial planning services, payment of club dues, and, if
applicable, use of an automobile and payment of related expenses, in
accordance with the most favorable plans, practices, programs and
policies of the Company and its affiliated companies in effect for the
Executive at any time during the 120-day period immediately preceding
the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer
executives of the Company and its affiliated companies.
(vii) VACATION. During the Employment Period, the Executive shall
be entitled to paid vacation in accordance with the most favorable
plans, policies, programs and practices of the Company and its
affiliated companies as in effect for the Executive at any time during
the 120-day period immediately preceding the Effective Date.
5. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY. The Executive's
employment shall terminate automatically upon the Executive's death during the
Employment Period. If the Company determines in good faith that the Disability
of the Executive has occurred during the Employment Period (pursuant to the
definition of Disability set forth below), it may give to the Executive written
notice in accordance
3
<PAGE>
with Section 12(b) of this Agreement of its intention to terminate the
Executive's employment. In such event, the Executive's employment with the
Company shall terminate effective on the 30th day after receipt of such notice
by the Executive (the "Disability Effective Date"), provided that, within the 30
days after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for 180 consecutive business days as a
result of incapacity due to mental or physical illness which is determined to be
total and permanent by a physician selected by the Company or its insurers.
(b) CAUSE. The Company may terminate the Executive's employment during
the Employment Period for Cause. For purposes of this Agreement, "Cause"
shall mean:
(i) the willful and continued failure of the Executive to perform
substantially the Executive's duties with the Company or one of its
affiliates (other than any such failure resulting from incapacity due
to physical or mental illness), after a written demand for substantial
performance is delivered to the Executive by the Board or the Chief
Executive Officer of the Company which specifically identifies the
manner in which the Board or Chief Executive Officer believes that the
Executive has not substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct or
gross misconduct.
(c) GOOD REASON. The Executive' s employment may be terminated by the
Executive for Good Reason. For purposes of this Agreement, "Good Reason"
shall mean:
(i) the assignment to the Executive of duties materially
inconsistent with the Executive's position (including status, offices,
titles and reporting requirements), authority, duties or
responsibilities as contemplated by Section 4(a) of this Agreement, or
any other action by the Company which results in a permanent
diminution in such position, authorities or responsibilities,
excluding for this purpose a temporary (not to exceed 90 days)
isolated, insubstantial or inadvertent action not taken in bad faith
and which is remedied by the Company promptly after receipt of notice
thereof given by the Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and
which is remedied by the Company promptly after receipt of notice
thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any
office or location other than as provided in Section 4(a)(i)(B) hereof
or the Company's requiring the Executive to travel on Company business
to a substantially greater extent than required immediately prior to
the Effective Date;
(iv) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement.
(d) NOTICE OF TERMINATION. Any termination by the Company for Cause,
or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section
12(b) of this Agreement. For purposes of this Agreement, a "Notice of
Termination" means a written notice which (i) indicates the specific
termination provision in this Agreement relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment
under the provision so indicated and (iii) if the Date of Termination (as
defined below) is other than the date of receipt of such notice, specifies
the termination date (which date shall be not more than thirty days after
the giving of such notice). The failure by the Executive or the Company to
set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right
of the Executive or the Company, respectively, hereunder or preclude the
Executive or the Company, respectively, from asserting such fact or
circumstance in enforcing the Executive's or the Company's rights
hereunder.
4
<PAGE>
(e) DATE OF TERMINATION. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination
or any later date specified therein, as the case may be, (ii) if the
Executive's employment is terminated by the Company other than for Cause or
Disability, the Date of Termination shall be the date on which the Company
notifies the Executive of such termination and (iii) if the Executive's
employment is terminated by reason of death or Disability, the Date of
Termination shall be the date of death of the Executive or the Disability
Effective Date, as the case may be.
6. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) GOOD REASON; OTHER
THAN FOR CAUSE, DEATH OR DISABILITY. If, during the Employment Period, the
Company shall terminate the Executive's employment other than for Cause or
Disability or the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the
following amounts:
A. the Executive's Annual Base Salary through the Date of Termination
to the extent not theretofore paid; and
B. an amount equal to the Executive's Annual Base Salary (* 18 months
in the case of Mr. Sukalo) and the greater of (a) 50% of Annual Base Salary
or (b) the amount of bonus which would be payable to Executive under the
current Company bonus plans in effect on the date of this Agreement accrued
to the Date of Termination.
(b) DEATH. If the Executive's employment is terminated by reason of
the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal
representatives under this Agreement.
(c) DISABILITY. If the Executive's employment is terminated by reason
of the Executive's Disability during the Employment Period, this Agreement
shall terminate without further obligation to the Executive.
(d) CAUSE: OTHER THAN FOR GOOD REASON. If the Executive's employment
shall be terminated for Cause during the Employment Period, this Agreement
shall terminate without further obligations to the Executive other than the
obligation to pay to the Executive the Annual Base Salary through the Date
of Termination. If the Executive voluntarily terminates employment during
the Employment Period, excluding a termination for Good Reason, this
Agreement shall terminate without further obligations to the Executive.
7. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent
or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies and for which the Executive may qualify, nor, subject to Section
12(f), shall anything herein limit or otherwise affect such rights as the
Executive may have under any contract or agreement with the Company or any of
its affiliated companies. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan, policy, practice or
program of or any contract or agreement with the Company or any of its
affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, practice or program or contract or
agreement except as explicitly modified by this Agreement.
8. FULL SETTLEMENT. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and such amounts
shall not be reduced whether or not the Executive obtains other employment.
5
<PAGE>
9. CONFIDENTIAL INFORMATION. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by the Executive
during the Executive's employment by the Company or any of its affiliated
companies and which shall not be or become public knowledge (other than by acts
by the Executive or representatives of the Executive in violation of this
Agreement). After termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent of the Company or as
may otherwise be required by law or legal process, communicate or divulge any
such information, knowledge or data to anyone other than the Company and those
designated by it.
10. SUCCESSORS. (a) This Agreement is personal to the Executive and
without the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if no such
succession had taken place.
11. NON-COMPETE. During the period ending on the earlier of (a) two
years following the date of this Agreement or (b) the occurrence of the
Effective Date, Executive shall not become an employee, agent, consultant,
representative, shareholder, owner, partner, member, director or officer of any
person or entity which is engaged in any business which is similar to or in
competition with the business of the Company. Executive shall not during the
Employment Period and for one year following termination of employment hereunder
(1) solicit or hire for employment any person who was employed by the Company
during the preceding twelve months, (2) attempt to contract for or acquire land
for which the Company was negotiating during the previous 12 months. The
forgoing restrictions shall be limited to all Metropolitan Statistical Areas in
which the Company conducts its homebuilding activities.
12. MISCELLANEOUS. (a) This Agreement shall be governed by and
construed in accordance with the laws of the State of Maryland, without
reference to principles of conflict of laws. The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors and legal
representatives.
(b) All notices and other communications hereunder shall be in writing
and shall be given by hand delivery to the other party or, by registered or
certified mail, return receipt requested, postage prepaid addressed as
follows:
IF TO THE EXECUTIVE: IF TO THE COMPANY:
Washington Homes, Inc.
- ---------------------------
1802 Brightseat Road
- ---------------------------
Landover, MD 20785
- ---------------------------
Attention: President
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
6
<PAGE>
d) The Company may withhold from any amount payable under this
Agreement such Federal, state, local or foreign taxes as shall be
required to be withheld pursuant to any applicable law or regulation.
e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to
assert any right the Executive or the Company may have hereunder,
including, without limitation, the right of the Executive to terminate
employment for Good Reason pursuant to Section 5(c)(i)-(iv) of this
Agreement, shall not be deemed to be a waiver of such provision or
right or any other provision or right of this Agreement.
(f) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the
Executive and the Company, the employment of the Executive by the
Company is "at will" and, subject to Section 1 hereof, prior to the
Effective Date, the Executive's employment and/or this Agreement may
be terminated by either the Executive or the Company at any time prior
to the Effective Date, in which case the Executive shall have no
further rights under this Agreement. From and after the Effective Date
this Agreement shall supersede any other agreement between the parties
with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
- ---------------------------
Executive
WASHINGTON HOMES, INC.
By:
- ---------------------------
Geaton A. DeCesaris, Jr.
President
7
W A S H I N G T O N H O M E S
[PHOTO OMITTED]
B U I L D I N G
I N T O T H E Annual Report 1999
N E W M I L L E N N I U M
<PAGE>
B U I L D I N G I N T O T H E N E W M I L L E N N I U M
Washington Homes
is an innovative
[LOGO] company of choice
for homebuyers,
employees, and
shareholders.
Four years ago we launched a series of strategic
initiatives to challenge ourselves to become a leading
homebuilder in the United States. By the turn of the
century we are poised to exceed all of our goals. As we
prepare to enter the new millennium, we have raised the
bar on financial and operating goals to sustain our strong
growth and build shareholder value. This report outlines
our vision for the next five years.
The award winning Landan model, named Best Home in its class, is featured on our
cover.
<PAGE>
WASHINGTON HOMES 1
F I N A N C I A L H I G H L I G H T S
<TABLE>
<CAPTION>
Years Ended July 31,
--------------------------------------------------------
(dollars in thousands except per share amounts) 1999 1998 1997* 1996 1995
Statement of Operations Data
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total revenues $362,733 $240,703 $217,459 $175,025 $183,485
Gross profit 67,717 42,539 37,551 33,829 36,428
Earnings (loss) before interest,
financing fees and taxes* 24,710 11,801 (8,399) 11,240 13,520
Total interest and financing fees expense 7,356 5,793 5,836 4,771 4,921
Net earnings (loss)* 10,648 3,790 (13,289) 3,747 5,045
Earnings (loss) per common share--basic* 1.34 0.48 (1.67) 0.47 0.64
Earnings (loss) per common share--diluted 1.30 0.48 (1.67) 0.47 0.64
Dividends per common share -- -- -- -- 0.05
Selected Operating Data
- ---------------------------------------------------------------------------------------------------------
Number of homes delivered 2,124 1,479 1,315 1,087 1,167
Number of net new orders 2,229 1,709 1,305 1,127 1,124
Number of homes in backlog at end of period 1,008 821 591 601 561
Balance Sheet Data
- ---------------------------------------------------------------------------------------------------------
Cash $ 12,734 $ 10,324 $ 10,335 $ 15,384 $ 15,111
Residential inventories 130,502 115,249 114,228 125,033 119,652
Total assets 167,455 147,355 144,745 170,227 164,063
Notes and loans payable 59,526 59,230 67,104 74,282 72,608
Shareholders' equity 68,949 58,270 54,480 67,769 64,022
</TABLE>
* 1997 includes an after-tax, non-cash charge of $15.8 million for the
impairment of long-lived assets. 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.
Total Revenues Shareholders' Equity Total Debt
In Millions of Dollars In Millions of Dollars In Millions of Dollars
[THREE GRAPHS OMITTED]
<PAGE>
2 ANNUAL REPORT 1999
L E T T E R T O S H A R E H O L D E R S
- --------------------------------------------------------------------------------
"We enter fiscal
2000 with a record
backlog as well [PHOTO OMITTED]
as tremendous
momentum and
enthusiasm."
Dear Fellow Shareholders:
We have just completed the best year -- by a wide margin -- in our Company's
history. Our revenue of $362.7 million was 51% ahead of the record revenue
achieved last year and our earnings of $10.6 million or $1.30 per fully diluted
share, was 171% ahead of last year.
We had record deliveries of 2,124 homes versus 1,479 a year ago, a 44% increase.
We received record new orders of 2,229 homes versus 1,709 last year, a 30%
increase. Most importantly, we have entered the new year with 1,008 homes under
contract in backlog, valued at $197.1 million, up from last year's 821 homes in
backlog valued at $141.6 million.
Building on this success, I believe Washington Homes is poised for continued
growth and profitability. Since our business plan adopted in 1995 resulted in
such tremendous success, we have embarked upon a similar plan for building into
the new millennium.
Regional Operations
- -------------------
With the acquisition of the operations of Breland Homes in Huntsville, Alabama
and the Gulf Coast of Mississippi, we are now focused on three regions -- the
Mid-Atlantic, which encompasses Maryland, Virginia and Pennsylvania; the
Southeast, which is comprised of North and South Carolina; and the Mid-South,
consisting of Tennessee, Alabama and Mississippi.
Many people have contributed to our successful year. Thomas J. Pellerito, our
Chief Operating Officer and President of Homebuilding, oversees the Division
Presidents in the Mid-Atlantic region as well as Regional Presidents in both the
Southeast (Robert Hurson) and Mid-South (Tony L. Kennicott). Tom as recently
completed the task of carefully evaluating each of the many quality products
used in building our homes, as well as adding over 40 new home plans of various
sizes and price points to our product line. This includes homes designed to
accommodate the narrower lots being developed today as part of the industry's
effort to promote Smart Growth. He also supervised the coordination of volume
purchases from suppliers and manufacturers by our National Purchasing Manager,
Larry Gorman, that helped improve
<PAGE>
WASHINGTON HOMES 3
our homebuilding gross profit margin to 19.1% from 17.9% last year.
Christopher Spendley, our Chief Financial Officer, is completing the recruitment
and installation of controllers in each of our nine divisions. Chris is also
managing our MIS department, ensuring that all systems are both Y2K ready and
capable of handling the Company's growth.
Land Holdings
- -------------
We continue to improve our land holdings, in terms of the number of lots we
control, as well as the quality of new communities. Of the approximately 11,000
lots we control, 73% are under rolling option contracts, meaning a third party
land developer owns the land. We have the right to acquire the lots in
accordance with predetermined schedules consistent with anticipated sales and
production. This method of purchasing lots allows us to invest our capital in
work-in-process, thereby minimizing our debt levels. This practice has also
allowed us, over a three-year period, to double the size of our Company, expand
into four additional markets and reduce our overall debt levels by approximately
20%. This disciplined management of our balance sheet also affords us protection
in a possible down turn and, more importantly, gives us the flexibility to
expand during strong economic periods.
Ancillary Business
- ------------------
Our mortgage company now operates in all of our market areas and we have
increased our capture rate of mortgages placed on homes we build to 60% this
year versus 55% a year ago. Our title service operation is now operating in
Maryland, Virginia and Tennessee, and will soon open in Alabama and Mississippi.
Our Design Showcase is open in Maryland, Virginia, and Greensboro, North
Carolina, and will soon open in Alabama and Mississippi.
We believe we can increase future earnings from our ancillary businesses by
expanding our Design Showcase, adding title services in Alabama and Mississippi,
and increasing our mortgage capture rate.
New Business
- ------------
We have achieved greater product diversity through our acquisition of assets of
Regency Homes, a Maryland-based homebuilder. Regency's product offerings were
primarily 2,700 to 4,500 square feet in size, in contrast to our product, which
traditionally did not exceed 3,000 square feet. These larger homes provide for
more sales opportunities in the affluent and growing Northern Virginia market,
as well as additional land opportunities that are available to us because of our
wider product diversity.
During 1999, we broke ground on Heritage Pines in Raleigh, North Carolina, an
active adult community being developed through a joint venture with U.S. Home
Corporation. Additionally, we are in final negotiations and feasibility analysis
to expand our existing joint venture with U.S. Home Corporation to include
Heritage Woods, located just north of Charlotte, North Carolina. We are also in
the process of identifying other sites to continue our expansion into this
market segment.
Looking Ahead
- -------------
We are currently in one of the best housing markets in history. Although we have
seen interest rates begin to creep up a bit, we have not seen a significant drop
off in traffic or sales in our communities. I believe this is a direct result of
continued strong job growth in our market areas, which are some of the strongest
markets in the country. Even if interest rates increase, as long as the economy
remains strong, I believe we will continue to have a favorable housing market.
History shows job growth is the primary driver of housing starts, while interest
rates generally determine the price point and option level that a homebuyer will
select.
This report outlines our 2004 Plan -- which calls for us to repeat what we did
in the past three years -- double our size. While this may sound difficult to
accomplish, and unforeseen factors such as changes in the economy could alter or
delay achievement of our plan, we believe we can meet our stated objectives. As
we analyze the size and strength of each of our three regions, we believe 5,000
deliveries are possible. We are confident that this can be done prudently and
done profitably. We have begun investing for the future, without sacrificing
current earnings. In addition to identifying new, adjacent markets, we continue
to explore opportunities in our existing markets to leverage our management and
staff, as well as the infrastructure in each of our three regions.
I can assure you that your management team remains focused on profitability. We
share the short and long term goals of all of our shareholders. We will continue
to analyze strategic opportunities that emphasize maximizing investment returns
as well as provide for long term growth. This past year, we were able to achieve
an 18.3% return on equity and we are focused on further improvement in fiscal
year 2000.
Thank you for being with us for this record-breaking year. Washington Homes
looks forward to achieving greater success as we build in to the new millennium.
Sincerely,
/s/ Geaton A. DeCesaris, Jr.
Geaton A. DeCesaris, Jr.
Chairman of the Board,
President & Chief Executive Officer
<PAGE>
4 ANNUAL REPORT 1999
R A I S I N G E X P E C T A T I O N S
[PHOTO OMITTED]
The Chesterfield is one of the models offered in our new Monogram Series, luxury
homes of 3,000 square feet and larger.
Total Deliveries by Region
[GRAPH OMITTED]
2000 and Beyond
- ---------------
In the past three years, Washington Homes has doubled in size by executing its
strategic plan.
o We have successfully expanded our home sales to a wider geographic area,
which has resulted in a record number of home deliveries in 1999.
o We continue to expand our ancillary services: mortgages, titles,
homeowner's insurance and design centers in each of our markets.
o We have dramatically expanded our product offerings to include homes over
3,000 square feet.
The plan for building into the new millennium provides for significant growth
yet continues the emphasis on a disciplined and focused approach to maximize
shareholder value.
<PAGE>
WASHINGTON HOMES 5
top: The Oxford model features a light-filled,
two-story living room, four bedrooms, and luxury baths.
bottom: A gorgeous two-story family room is just one
of the features of the Van Buren model, a perennial favorite.
"Our customers can
[PHOTO OMITTED] purchase a home,
obtain a mortgage,
title insurance, and
homeowner's
[PHOTO OMITTED] insurance through
Washington Homes."
Homebuyer's Mortgage, Inc.
- --------------------------
In fiscal year 1999, Homebuyer's Mortgage
provided 1,406 loans for homebuyers. With an
excellent customer approval rating, Homebuyer's
Mortgage has achieved 60% capture rate
company wide and increased profitability.
Keys to Future Success
o Offering competitive mortgage programs through
offices conveniently located adjacent to each of our
homebuilding offices
o Experienced loan officers that are accustomed to
working closely with customers to find the specified
loan programs that meet individual customer needs.
o Superior communication between lender and
builder results in a seamless experience for the
customer while allowing the builder to better
manage the delivery of its backlog [PHOTO OMITTED]
New Homebuyers Title
- --------------------
Providing title services to 1,060 customers in fiscal
1999, New Homebuyers Title and affiliates offer
convenience to our buyers through offices located
in Maryland, Virginia and Tennessee. The capture
rate in the Mid-Atlantic region was over 95%.
Keys to Future Success
o Expansion of title services to other markets
o Providing better customer service
o Establishment of a national title insurance
relationship
Spacious two-story great rooms are a popular
feature of many of our new home designs.
<PAGE>
6 ANNUAL REPORT 1999
P R O D U C T D I V E R S I T Y
"We have
dramatically
expanded our
[PHOTO OMITTED] offerings of
home designs
and available
features..."
This Landan model, whose exterior is featured on the cover, showcases the
optional see-through fireplace and sunroom.
Expanding Choices
-----------------
From townhomes, single family homes, and
active adult communities, Washington Homes
offers homes for first-time homebuyers, move-
up buyers, as well as active adults and retirees.
1999 Home Deliveries In addition to our standard features, our Design
by Selling Price Showcase displays the wide variety of choices
available to homebuyers to personalize and
[GRAPH OMITTED] customize their home.
Expanding Goals
---------------
Our management team is committed to firmly
establishing Washington Homes' reputation as a
builder of choice by designing homes that appeal
to today's homebuyer. Management is also com-
mitted to allocating capital to expand to new
areas with expected strong ecomonic growth, as
well as primarily managing its land inventory
through lot option contracts rather than outright
purchase. Furthermore, the Company has devel-
oped comprehensive agreements with many of
our vendors that have resulted in better pricing
and strengthened alliances that offer substantial
benefits to our customers.
<PAGE>
WASHINGTON HOMES 7
Thomas J. Pellerito (left), our Chief
Operating Officer and Christopher Spendley
(right), our Chief Financial Officer
[PHOTO OMITTED] [PHOTO OMITTED]
Design Showcase
---------------
Our design centers display the wide variety
of custom options that are available
to our homebuyers.
Keys to Future Success
o Expansion of the Design Showcase
to all markets
o Increasing the variety of additional
options available in all markets
o Offering purchasers the ability to
personalize their home while creating
enthusiasm for their new home
purchase
Homebuyer's Insurance
---------------------
Our streamlined process offers our
homebuyers convenience in purchasing
homeowner's insurance.
Keys to Future Success
o Expansion of business through our
mortgage offices to provide better
customer service and convenience
o Increasing the number of new
policies sold
Our beautiful Delaware model features a two-story center family room
a well-appointed kitchen and up to five large bedrooms.
<PAGE>
8 ANNUAL REPORT 1999
M A R K E T D I V E R S I T Y
[PHOTO OMITTED]
The Remington offers the convenience of single-level living with the luxury of
soaring cathedral ceilings, a large master bedroom suite, and country kitchen
with breakfast area.
Lots Under Control Total Lots Under Control
- ------------------
[GRAPH OMITTED]
Our regional divisions, Mid-Atlantic, Southeast
and Mid-South, are locations where strong eco-
nomic growth is expected to continue. By reduc-
ing our reliance upon any one geographic area,
Washington Homes is endeavoring to be less
dependent upon cyclical economic trends that
might affect an individual region.
[PHOTO OMITTED] Washington Homes offers traditional, garage,
and neo-traditional townhome designs. Many of
these homes feature spacious living areas,
luxury baths, and open foyers.
<PAGE>
WASHINGTON HOMES 9
Mid-Atlantic Region
- -------------------
The federal government and major corporations
such as Marriott, Lockheed Martin and Mobil Oil
have traditionally been major regional employers.
More recently, the area's economy has been
transformed by the rapid growth of biotechnology,
telecommunications and computer technology
as businesses such as America Online and MCI/
Worldcom have established themselves in the
greater Washington/Northern Virginia area.
[MAP OMITTED] [PHOTO OMITTED]
The classic Ohio model has proven popular with many
move-up buyers and will be built in each of our regions.
This home features an expansive family room, a gourmet
kitchen and a luxurious master suite.
Southeast Region
----------------
The major cities of this region, Raleigh, Greensboro,
and Charlotte have benefited from the growth of existing
businesses and the relocation of nationally known corpora-
tions to this area. Major employers are: IBM Corporation,
Northern Telecom, GlaxoWellcome, Environmental
Protection Agency as well as Research Triangle Institute.
Charlotte is the home of Carolinas Healthcare System,
First Union Corporation, Bank of America, Duke Energy,
and Winn-Dixie. We expect to expand into South Carolina
from our Charlotte base.
Mid-South Region
- ----------------
The growth and relocation of a number of large
corporations has expanded the Nashville area's
economy. Its educated workforce and mild climate
have drawn employers such as Dell computers,
Spring PCS, and Hewlett Packard, to the area. In
addition, educational institutions such as Vanderbilt
University rank high on the list of large area
employers. Major employers in the Huntsville area
are SCI Systems, Boeing, the US Army Redstone
Arsenal, Huntsville Hospital System, Intergraph
Corporation and the Huntsville City School system.
The Gulf Coast area is a desirable place to live with
the area's growth assisted by tourism and gaming.
[PHOTO OMITTED] Active adult
communities are
offered in our
Southeast region in
conjunction with our
joint venture with U.S.
Home Corporation.
<PAGE>
10 ANNUAL REPORT 1999
T R I B U T E T O C H A I R M A N
E M E R I T U S , S O N N Y D E C E S A R I S
[PHOTO OMITTED]
Tribute to Geaton A. DeCesaris, Sr.
- -----------------------------------
In 1999, my father, Geaton A. (Sonny) DeCesaris, Sr. chose to move into the next
stage of his life and become our Company's Chairman Emeritus. A good friend
recently shared with me the true meaning of "Emeritus." It is a title reserved
for the heart and soul of an organization - a true description of my father.
After co=founding our predecessor company, Sonny DeCesaris and Sons Development
Group (SDS), and overseeing the merger of SDS with Washington Homes in August
1988, Sonny was elected Chairman of the Board. Even then, he planned for the
future well being of the Company and prepared a succession plan. Now his plan is
being carried out.
My father is far more than just the Chairman of Washington Homes. He is a
husband of 49 years to my mother, Elizabeth, the father of nine children, the
grandfather of twenty-nine grandchildren, and recently became a great
grandfather. His legacy of hard work, his insistence on quality, and his
fairness to all, has served this company well and will continue to be the
guiding moral and ethical compass that Washington Homes will follow.
Washington Homes' 650 full and part time employees know that they are not only
part of a company, but part of a company with a heart and soul. My goal is to
emulate the leadership and vision exhibited by my father during his tenure as
Chairman. I promise to work extraordinarily hard to measure up to his success as
both a businessman and a person.
It is with great pride and anticipation that I accept the challenges ahead to
fulfill the role of Chairman that my father did so well. We are pleased that he
remains a member of our Board of Directors and will continue to lend his
guidance and assistance as the Company builds into the new millennium. This
tribute is just a small token of appreciation that I can offer Sonny, my dad, my
mentor and my friend, for his many years of hard work, unwavering dedication and
service to Washington Homes.
Geaton A. DeCesaris, Jr.
Chairman of the Board,
President & Chief Executive Officer
<PAGE>
WASHINGTON HOMES 11
Management's Discussion and Analysis of
Financial Condition and Results of Operations
---------------------------------------------
Results of Operations
- ---------------------
The following table presents certain information regarding the Company's
operations for the last three fiscal years.
(dollars in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
Revenues:
Homebuilding $353,729 $233,111 $206,576
Land 4,922 4,483 7,958
Other 4,082 3,109 2,925
Total $362,733 $240,703 $217,459
Homes delivered 2,124 1,479 1,315
Net new orders 2,229 1,709 1,305
Homes in backlog
at end of period 1,008 821 591
Sales value of backlog $197,135 $141,619 $ 96,343
- --------------------------------------------------------------------------------
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 tables contain quarterly operating information for the Company's
last two fiscal years and illustrates the annual operating cycle (dollars in
thousands except per share amounts):
Three Months Ended
-------------------------------------------------------
October 31, January 31, April 30, July 31,
1998 1999 1999 1999
- --------------------------------------------------------------------------------
Number of homes
delivered 407 427 533 757
Net new orders 430 432 836 531
Total revenues $69,128 $74,262 $89,397 $129,946
Gross profit from
homebuilding $12,319 $13,394 $17,152 $ 24,643
Net earnings $ 1,269 $ 1,839 $ 3,047 $ 4,493
Basic earnings per share $ 0.16 $ 0.23 $ 0.38 $ 0.57
Diluted earnings per
share $ 0.16 $ 0.23 $ 0.37 $ 0.54
- --------------------------------------------------------------------------------
Three Months Ended
-------------------------------------------------------
October 31, January 31, April 30, July 31,
1997 1998 1998 1998
- --------------------------------------------------------------------------------
Number of homes
delivered 265 290 340 584
Net new orders 289 382 640 398
Total revenues $42,806 $48,035 $54,444 $95,418
Gross profit from
homebuilding $ 7,761 $ 8,010 $ 9,244 $16,715
Net earnings $ 736 $ 64 $ 564 $ 2,426
Basic and diluted
earnings per share $ 0.09 $ 0.01 $ 0.07 $ 0.31
- --------------------------------------------------------------------------------
<PAGE>
Geographic Concentration
- ------------------------
During the last three fiscal years the Company has built quality homes in the
metropolitan areas of Washington, DC-Baltimore, Maryland; Raleigh, Greensboro,
and Charlotte, North Carolina; Nashville, Tennessee and Pittsburgh,
Pennsylvania. In fiscal 1999, the Company acquired the assets of a local
homebuilder in the Huntsville, Alabama and the Mississippi Gulf Coast markets.
Since the purchase of the assets in Alabama and Mississippi, the Company formed
three operating regions: Mid-Atlantic (Maryland, Virginia and Pennsylvania),
Southeast (North Carolina) and Mid-South (Tennessee, Alabama, and Mississippi).
The following tables describe the Company's operations in each of its regions
during the last three fiscal years:
Net New Orders 1999 1998 1997
- --------------------------------------------------------------------
Mid-Atlantic 1,314 893 785
Southeast 666 703 454
Mid-South 249 113 66
- --------------------------------------------------------------------
Total Net New Orders 2,229 1,709 1,305
- --------------------------------------------------------------------
Homes Delivered 1999 1998 1997
- --------------------------------------------------------------------
Mid-Atlantic 1,118 832 828
Southeast 755 560 420
Mid-South 251 87 67
- --------------------------------------------------------------------
Total Homes Delivered 2,124 1,479 1,315
- --------------------------------------------------------------------
Backlog of Homes
Under Contract 1999 1998 1997
- --------------------------------------------------------------------
Mid-Atlantic 647 451 390
Southeast 239 328 185
Mid-South 122 42 16
- --------------------------------------------------------------------
Total Backlog 1,008 821 591
- --------------------------------------------------------------------
Active Communities 1999 1998 1997
- --------------------------------------------------------------------
Mid-Atlantic 37 37 35
Southeast 26 29 23
Mid-South 19 6 4
- --------------------------------------------------------------------
Total Active Communities 82 72 62
- --------------------------------------------------------------------
<PAGE>
12 ANNUAL REPORT 1999
Management's Discussion and Analysis of
Financial Condition and Results of Operations
- ---------------------------------------------
Financial Services
- ------------------
Financial services consist primarily of providing mortgage loan and title
services to the Company's homebuyers and others. During the fiscal year ended
July 31, 1999, the mortgage operations provided revenue of $4.8 million, up 67%
from $2.9 million in fiscal 1998 and up 135% from $2.0 million in fiscal 1997.
The increase in revenues in 1999 from 1998 and 1997 was primarily due to
increases in mortgage loan originations. The Company's financial services goals
are to improve profitability by increasing the capture rate of providing
mortgages for its homebuyers and expanding its originations of mortgages to
others.
Year Ended July 31, 1999
Compared To Year Ended July 31, 1998
- ------------------------------------
Total revenues increased by 50.7% to $362.7 million in fiscal 1999 from $240.7
in fiscal 1998, as the number of homes delivered increased by 43.6% to 2,124
units from 1,479 units. The average sales price of homes delivered in fiscal
1999 increased 5.6% to $166,500 from $157,600.
Gross profit margin as a percentage of homebuilding revenues increased to 19.1%
from 17.9% primarily as a result of the Company's cost reduction initiatives,
sales price increases and strong overall market conditions.
Selling, general and administrative expenses increased to $46.7 million in
fiscal 1999 from $33.2 million in the prior year due to increased volume, an
increase in the number of active communities and the growth in the Company's
financial services. Selling, general and administrative expenses as a percentage
of homebuilding revenues decreased to 13.2% in fiscal 1999 from 14.2% in fiscal
1998.
Interest and financing expenses increased to $7.4 million in fiscal 1999 from
$5.8 million in fiscal 1998, however, interest and financing expenses as a
percentage of homebuilding revenues decreased to 2.1% from 2.5% in fiscal 1998
due to improved inventory turnover.
Gross profit from land sales was $209,000, on revenues of $4.9 million in fiscal
1999 compared to $809,000 on revenues of $4.5 million in fiscal 1998.
Net earnings increased to $10.6 million in fiscal 1999 from $3.8 million in
fiscal 1998. The increase in deliveries which resulted in the increased revenues
was a major factor in the Company's improved earnings performance.
Year Ended July 31, 1998
Compared To Year Ended July 31, 1997
- ------------------------------------
Total revenues increased by 10.7% to $240.7 million in fiscal 1998 from $217.5
million in fiscal 1997, as the number of homes delivered increased by 12.5% to
1,479 units from 1,315 units. The average sales price of homes delivered in
fiscal 1998 increased slightly to $157,600 from $157,100.
Gross profit margin as a percentage of homebuilding revenues remained flat at
17.9% largely due to cost reduction initiatives along with a focused effort on
improving the Company's land position for each homebuilding operation, and the
Company's pricing strategy to increase inventory turnover in order to reallocate
capital to better markets.
Total selling, general, and administrative expenses increased to $33.2 million
in fiscal 1998 from $29.1 million in the prior year due to increased volume, an
increase in the number of active communities and the growth in the Company's
financial services. Selling, general, and administrative expenses as a
percentage of homebuilding revenues increased slightly to 14.2% in fiscal 1998
from 14.1% in fiscal 1997.
Interest and financing expenses remained constant at $5.8 million in fiscal
1998, however interest and financing expenses as a percentage of homebuilding
revenues decreased to 2.5% from 2.8% in fiscal 1997 due to improved inventory
turnover and better terms on the revolving credit facility which was put in
place at the beginning of fiscal year 1998.
Gross profit from land sales was $809,000 on revenues of $4.5 million in fiscal
1998 compared to $673,000 on revenues of $8.0 million in fiscal 1997. The
Company's initiative to reduce its exposure to land under development resulted
in the decrease in land sales revenues for fiscal 1998.
Net earnings increased to $3.8 million in fiscal 1998 from a net loss of $13.3
million in fiscal 1997. In fiscal 1997 the Company incurred an after-tax,
non-cash charge of $15.8 million for the impairment of long-lived assets, and an
extraordinary loss of $390,000 related to the extraordinary gain on debt
forgiveness associated with the exchange of subordinated debt during the 1992
tax year.
<PAGE>
WASHINGTON HOMES 13
Management's Discussion and Analysis of
Financial Condition and Results of Operations
---------------------------------------------
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, 1999, the Company had cash and cash equivalents of $12.7 million, of
which $607,000 was restricted to collateralize deposits and escrows. The
remaining $12.1 million was available to the Company.
In April 1994, the Company issued $43 million 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 required to be repaid in three equal annual principal
installments which commenced October 1998 and will continue to October 2000.
At July 31, 1999, the Company had two secured revolving credit facilities
totaling $85 million. These facilities provide funding for land acquisition and
home construction, letters of credit, and principal repayments on the Senior
Notes. At July 31, 1999, $27.6 million was outstanding under these facilities.
Borrowings under the facilities bear interest at LIBOR plus 1.55% or 1.75%,
depending on the type of collateral and are secured by the related inventory.
In September 1999, the Company retired a $70 million revolving credit facility
and replaced it with a $120 million credit facility. This facility consists of a
$100 million revolver and a $20 million term loan which matures in October 2001
with annual renewal thereafter. Interest on the revolving credit facility and
term loan is LIBOR plus 1.75% and 2.85%, respectively.
In addition to the Senior Notes and revolving credit facilities, the Company has
loans with various lenders providing $3.0 million for land acquisition,
development and home construction. These loans bear interest at fixed rates
ranging from 8% to 10% or a variable rate of prime with maturities ranging from
the date of lot recordation through July 2000.
At July 31, 1999, the Company in the aggregate had $116.9 million in borrowing
capacity of which $57.4 million was available. During fiscal 1999, the Company's
average interest rate was 7.6%, an improvement of 40 basis points when compared
to its average interest rate during fiscal 1998 of 8.0%
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. The Company also
participates in a joint venture formed to develop and market an active adult
community in the Raleigh, North Carolina market.
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 credit 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 July 31,
1999.
Year 2000 Issue
- ---------------
The Year 2000 (Y2K) issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Thus the year 1999 is
represented by the number "99" in many legacy software applications.
Consequently, on January 1, 2000, the year will jump back to "00" in accordance
with many non-Y2K ready applications. To systems that are non-Y2K ready, the
time will seem to have reverted back 100 years. So, when computing basic lengths
of time, the Company's computer programs, certain building infrastructure
components (including elevators and certain HVAC systems) and any additional
time-sensitive software that are non-Y2K ready may recognize a date using "00"
as the Year 1900. This could result in system failures or miscalculations which
could cause personal injury, property damage, disruption of operations, and/or
delays in payments from the Company's customers, any or all of which could
materially adversely effect the Company's business, financial condition, or
results of operations.
State of Readiness:
- -------------------
During fiscal 1998 the Company began a formal year 2000 readiness assessment on
all information technology assets to ensure the readiness of all applications,
operating systems and hardware on its PC desktop suites and LAN and WAN server
and communications platforms; the readiness of voice and data network software
and hardware and to address the readiness of key vendors and other third
parties.
The Company's assessment involves five phases: (1) inventory Y2K items and
assigning priorities, (2) assessing the Y2K readiness of items, (3) remediating
or replacing items that are determined not to be Y2K ready, (4) testing items
for Y2K readiness and (5) designing and implementing Y2K contingency and
business continuity plans. To determine that all IT systems (whether internally
developed or purchased) are Y2K ready, each system is tested using a standard
testing methodology which includes unit testing, baseline testing, and future
date testing. Future date testing includes critical dates near the end of 1999
and into the year 2000, including leap year testing.
The inventory and assessment phases were completed in fiscal 1998. At July 31,
1999, all of the Company's application systems had been remediated and current
date tested. Essentially all but one critical hardware component was ready and
tested by July 1999. This one remaining hardware item is expected to be
resolved, tested and remediated in October 1999.
<PAGE>
14 ANNUAL REPORT 1999
Management's Discussion and Analysis of
Financial Condition and Results of Operations
- ---------------------------------------------
Cost:
- -----
The costs of the Company's Y2K readiness efforts are being funded with cash
flows from operations. The estimated total cost of the Y2K project is
approximately $75,000. Costs incurred during fiscal 1999 were approximately
$37,000, with the remainder of the estimated total being incurred during the
first and second quarters of fiscal 2000. In total, these costs are not expected
to have a material adverse effect on the Company's overall results of operations
or cash flows.
Risk:
- -----
The Company believes that its Y2K readiness program will prepare the Company for
Year 2000 compliance in a timely manner. However, there can be no assurance that
the Company's internal systems or equipment or those external parties on which
the Company relies will be Y2K ready in a timely manner or that the Company's
external parties contingency plans will mitigate the effects of any
non-compliance. Given the current status of the Company's Y2K assessment,
management believes that the most probable worst case scenario could result in
short term business interruptions. However, failure by the Company and/or
external parties to complete Y2K readiness work in a timely manner could have a
material adverse affect on the Company's financial position and results of
operations.
Contingency Plans:
- ------------------
The Company is developing a Y2K contingency plan designed to address problems
arising from Year 2000 failures of critical third parties and will be directed
towards providing alternate sources of supply to the Company. The Company
expects to complete its contingency planning phase for Year 2000 by October 31,
1999.
The foregoing assessment of the impact of the Y2K issue on the Company is based
on management's best estimate at the present time, and could change
substantially. The assessment is based upon numerous assumptions as to future
events. There can be no guarantee that these estimates will prove accurate, and
actual results could differ from those estimated if these assumptions prove
inaccurate.
Quantitative and Qualitative Disclosures
About Market Risk
- ----------------------------------------
The Company is exposed to market risk from changes in interest rates. Adverse
changes in interest rates can have a material effect on the Company's
operations.
At July 31, 1999, the Company had $59.5 million of debt outstanding of which
$21.8 million bears fixed interest rates. If the interest rate charged to the
Company on its variable rate debt were to increase significantly, the effect
could be materially adverse to future operations.
The Company's objective in its risk management program is to seek a reduction in
the potential negative earnings effects from changes in interest rates. The
Company's strategy to meet this objective is to maintain a balance between
fixed-rate and variable-rate debt, varying the proportion based on the Company's
perception of interest rate trends and the market place for various debt
instruments. In addition, the Company has entered into an interest rate swap
agreement which effectively converts $15 million of its variable rate debt to
fixed in an effort to minimize its market risk from changes in interest rates.
The fair values of all financial instruments approximate their carrying values
(see Note 5 to the consolidated financial statements).
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" within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements may involve
known and unknown risks, uncertainties and other factors that may cause actual
results, performance, achievements or industry results to vary materially from
predicted results, performance, achievements or those of the industry. Such
risks, uncertainties and other factors include, but are not limited to, changes
in general economic conditions; fluctuations in interest rates; increases in
costs and availability of materials, supplies and labor; and general competitive
conditions.
<PAGE>
WASHINGTON HOMES 15
Consolidated Financial Statements
---------------------------------
Consolidated Balance Sheets
- ---------------------------
July 31,
---------------------
(dollars in thousands) 1999 1998
- --------------------------------------------------------------------------------
Assets
- ------
Cash and cash equivalents $ 12,734 $ 10,324
Residential inventories 130,502 115,249
Excess of cost over net assets acquired,
(net of accumulated amortization of
$4,934 and $4,650) 8,731 6,015
Investment in join ventures 3,876 2,276
Other 11,612 13,491
- --------------------------------------------------------------------------------
Total Assets $167,455 $147,355
================================================================================
Liabilities and Shareholders' Equity
- ------------------------------------
Liabilities
Notes and loans payable $ 59,526 $ 59,230
Trade accounts payable 24,568 21,647
Income taxes payable 2,770 1,179
Deferred income taxes 1,216 2,038
Other 10,426 4,991
- --------------------------------------------------------------------------------
Total liabilities 98,506 89,085
- --------------------------------------------------------------------------------
Commitments and Contingent Liabilities
- --------------------------------------
Shareholders' equity
Common stock $.01 par value; 15,000,000 shares
authorized; 7,949,013 and 7,914,433 shares issued
and outstanding, 79 79
Non-voting common stock $.01 par
value, 1,100,000 shares authorized;
0 and 28,330 shares issued and outstanding, -- --
Additional paid-in capital 35,178 35,147
Retained earnings 33,692 23,044
- --------------------------------------------------------------------------------
Total shareholders' equity 68,949 58,270
- --------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $167,455 $147,355
================================================================================
See Accompanying Notes to Consolidated Financial Statements.
<PAGE>
16 ANNUAL REPORT 1999
Consolidated Financial Statements
- ---------------------------------
Consolidated Statements of Operations
- -------------------------------------
Year Ended July 31,
----------------------------------
(in thousands except per share amounts) 1999 1998 1997
- --------------------------------------------------------------------------------
Revenues:
- ---------
Homebuilding $ 353,729 $ 233,111 $ 206,576
Land sales 4,922 4,483 7,958
Other income 4,082 3,109 2,925
- --------------------------------------------------------------------------------
Total revenues 362,733 240,703 217,459
================================================================================
Expenses:
- ---------
Cost of sales--homebuilding 286,221 191,381 169,698
Cost of sales--land sales 4,713 3,674 7,285
Cost of sales--impairment loss -- -- 9,200
Selling, general, and administrative 46,671 33,206 29,078
Interest expense 6,334 5,172 5,059
Financing fees 1,022 621 777
Write-down in carrying value of goodwill -- -- 9,981
Amortization and depreciation 418 641 616
- --------------------------------------------------------------------------------
Total expenses 345,379 234,695 231,694
================================================================================
Earnings (Loss) Before Income Taxes
and Extraordinary Item 17,354 6,008 (14,235)
Income tax expense (benefit) 6,706 2,218 (1,336)
- --------------------------------------------------------------------------------
Earnings (Loss) Before Extraordinary Item 10,648 3,790 (12,899)
Extraordinary item -- -- (390)
- --------------------------------------------------------------------------------
Net Earnings (Loss) $ 10,648 $ 3,790 $ (13,289)
================================================================================
Earnings (Loss) Per Share:
- --------------------------
Basic:
- ------
Earnings (Loss) Before Extraordinary Item $ 1.34 $ 0.48 $ (1.62)
Extraordinary item -- -- (0.05)
- --------------------------------------------------------------------------------
Basic Earnings (Loss) Per Share $ 1.34 $ 0.48 $ (1.67)
================================================================================
Assuming Dilution:
- ------------------
Earnings (Loss) Before Extraordinary Item $ 1.30 $ 0.48 $ (1.62)
Extraordinary item -- -- (0.05)
- --------------------------------------------------------------------------------
Diluted Earnings (Loss) Per Share $ 1.30 $ 0.48 $ (1.67)
================================================================================
See Accompanying Notes to Consolidated Financial Statements.
<PAGE>
WASHINGTON HOMES 17
Consolidated Financial Statements
---------------------------------
Consolidated Statements of Shareholders' Equity
- -----------------------------------------------
<TABLE>
<CAPTION>
Years Ended July 31, 1999, 1998, and 1997
-------------------------------------------------------------------
Common Stock Additional Total Total
---------------------------- Paid-in Retained Shareholders'
(in thousands) Shares Voting Non-voting Capital Earnings Equity
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, August 1, 1996 7,943 $ 70 $ 9 $35,147 $ 32,543 $ 67,769
Net loss -- -- -- -- (13,289) (13,289)
- ----------------------------------------------------------------------------------------------------
Balance, July 31, 1997 7,943 70 9 35,147 19,254 54,480
Conversion of non-voting
to voting -- 9 (9) -- -- --
Net earnings -- -- -- -- 3,790 3,790
- ----------------------------------------------------------------------------------------------------
Balance, July 31, 1998 7,943 79 -- 35,147 23,044 58,270
Exercise of stock options 6 -- -- 31 -- 31
Net earnings -- -- -- -- 10,648 10,648
- ----------------------------------------------------------------------------------------------------
Balance, July 31, 1999 7,949 $ 79 $ 0 $35,178 $ 33,692 $ 68,949
====================================================================================================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
<PAGE>
18 ANNUAL REPORT 1999
Consolidated Financial Statements
- ---------------------------------
Consolidated Statements of Cash Flows
- -------------------------------------
Year Ended July 31,
------------------------------------
(in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
Cash Flows From Operating Activities:
Net earnings (loss) $ 10,648 $ 3,790 $ (13,289)
Adjustments to reconcile net earnings
(loss) to net cash provided by
operating activities:
Amortization and depreciation 418 641 616
Deferred income taxes (822) 119 (3,314)
Write-down of goodwill -- -- 9,981
Impairment loss -- -- 9,200
Changes in assets and liabilities, net
of effects from acquisition:
Residential inventories (5,971) (1,021) 1,605
Other assets 2,639 (2,151) (901)
Trade accounts payable 1,910 5,416 (1,341)
Income taxes payable 1,591 1,042 (271)
Other liabilities 5,257 117 (89)
- --------------------------------------------------------------------------------
Net cash provided by operating
activities 15,670 7,953 2,197
Cash Flows From Investing Activities:
Purchases of property and equipment,
net of disposals (327) (90) (68)
Purchase of Breland Homes' net assets (5,272) -- --
Investment in joint venture (1,600) -- --
- --------------------------------------------------------------------------------
Net cash used in investing activities (7,199) (90) (68)
Cash Flows From Financing Activities:
Proceeds from notes and loans payable 221,771 111,967 121,977
Repayments of notes and loans payable (227,863) (119,841) (129,155)
Additional paid in capital 31 -- --
- --------------------------------------------------------------------------------
Net cash used in financing activities (6,061) (7,874) (7,178)
- --------------------------------------------------------------------------------
Net Increase (Decrease) In Cash and
Cash Equivalents 2,410 (11) (5,049)
Cash and Cash Equivalents, Beginning
of Year 10,324 10,335 15,384
- --------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Year $ 12,734 $ 10,324 $ 10,335
================================================================================
See Accompanying Notes to Consolidated Financial Statements.
<PAGE>
WASHINGTON HOMES 19
Notes to Consolidated Financial Statements
Years Ended July 31, 1999, 1998 and 1997
------------------------------------------
1. Summary of Significant Accounting Policies
- ---------------------------------------------
Organization
- ------------
The Company is principally engaged in the business of the construction and sale
of quality residential housing in the states of Maryland, North Carolina,
Virginia, Pennsylvania, Tennessee, Alabama and Mississippi. 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 and 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 consolidated 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, 1999 and
1998 were $607,000 and $238,000, 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 from 15 to 40 years. The Company annually
reviews its goodwill recoverability by assessing historical profitability and
expectations as to future nondiscounted cash flows and net income. Based upon an
analysis of the market potential associated with the goodwill in fiscal 1997,
the Company wrote down to fair value the carrying value of goodwill by
approximately $10.0 million. Based upon its most recent analysis, the Company
believes that no material impairment of gooodwill exists at July 31, 1999.
Warranties
- ----------
The Company records an accrual at the date of closing for future warranty costs
based upon the relationship of deliveries to actual warranty costs.
Income Taxes
- ------------
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards ("SFAS") 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, land sales and financial services revenues are recorded at the
date of closing with the purchaser.
Earnings (Loss) Per Common Share
- --------------------------------
Basic earnings (loss) per common share are computed based on the weighted
average number of common shares outstanding during each period. diluted earnings
(loss) per common share are computed based on the weighted average number of
shares of common stock outstanding plus equivalent shares relating to stock
options outstanding.
Financial Instruments
- ---------------------
The Company utilizes an interest rate swap agreement to reduce its exposure
resulting from fluctuations in interest rates. The interest rate swap is matched
as a hedge against the Company's variable rate debt.
Stock-Based Compensation
- ------------------------
SFAS No. 123, "Accounting for Stock-Based Compensation," requires expanded
disclosures of stock-based compensation arrangements with employees. The Company
has chosen to continue to account for employee stock-based compensation using
the intrinsic value method prescribed in Accounting Principles Board Opinion
("APB") No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. Accordingly, compensation costs for stock options are measured
as the excess, if any, of the quoted market price of the Company's stock at the
measurement date (typically the date of the grant) over the amount the employee
must pay to acquire the stock (see Note 7).
Recent Accounting Pronouncements
- --------------------------------
In June 1998, the Financial Accounting Standards Board issued SFAS No.133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
for hedging activities. The Company has not determined the effect that the
adoption of SFAS No. 133 will have on its financial statement presentation or
disclosures, or on its earnings and financial position. SFAS No. 133 is
effective for fiscal years beginning after June 15, 2000.
Reclassifications
- -----------------
Certain amounts previously reported for 1998 and 1997 have been reclassified to
conform to classifications used in 1999.
2. Residential Inventories
- --------------------------
Homes in process are stated at cost (determined by accumulating actual costs,
including construction, interest and related direct over-head 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.
<PAGE>
20 ANNUAL REPORT 1999
Notes to Consolidated Financial Statements
Years Ended July 31, 1999, 1998 and 1997
- ------------------------------------------
The Company's inventory consists of the following:
July 31,
--------------------------
(in thousands) 1999 1998
- --------------------------------------------------------------------------------
Homes in process $ 55,226 $ 44,942
Finished lots 55,836 45,917
Land under development 19,440 24,390
- --------------------------------------------------------------------------------
$130,502 $115,249
================================================================================
In fiscal 1997, the Company adopted SFAS 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-live 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 in fiscal
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
write-down is related to six close-out and three condominium communities. Based
upon the Company's most recent analysis, no impairment exists at July 31, 1999.
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. The Company also
participates in a joint venture formed to develop and market an active adult
community in the Raleigh, North Carolina market. 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) 1999 1998
- --------------------------------------------------------------------------------
Senior notes $28,667 $43,000
Revolving credit facilities 27,639 12,197
Land acquisition and development 3,042 3,954
Mortgages and other notes payable 178 79
- --------------------------------------------------------------------------------
$59,526 $59,230
================================================================================
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
LIBOR plus 2.4%, (7.59% at July 31, 1999), with interest payable July 1994 and
either quarterly or semi-annually thereafter at the option of the Company.
Beginning April 1998 interest became payable on a quarterly basis for both
series of Senior Notes. Principal repayments became due in three equal annual
installments which commenced October 1998 and will continue to October 2000.
Revolving Credit Facilities
- ---------------------------
At July 31, 1999, the Company had two secured revolving credit facilities
totaling $85,000,000 to fund land acquisition and home construction, letters of
credit, and the initial principal repayments on its Senior notes. The facilities
have maturity dates (which may be extended) of October 30, 2000 and April 19,
2001. Borrowings under the facilities bear interest at thirty-day LIBOR (5.19%
at July 31, 1999) plus either 1.55% or 1.75% depending upon the type of
collateral and are secured by the related inventory.
The Senior Notes and revolving credit facilities require the Company, among
other things, to meet certain 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.
Land Acquisition and Development Loans
- --------------------------------------
The Company has loans with various lenders for the acquisition and development
of land amounting to $3,042,000 and $3,954,000 at July 31, 1999 and 1998,
respectively. These loans bear interest at fixed rates ranging from 8% to 10% or
a variable rate of prime and are collateralized by the related inventory.
Mortgages and Other Notes Payable
- ---------------------------------
Mortgages and other notes payable, amounting to approximately $178,000 and
$79,000 at July 31, 1999 and 1998 respectively, bear interest at rates ranging
from 4.8% to 10% and mature in varying periods of up to 3 years.
Aggregate maturities of notes and loans payable are as follows:
For the year ending July 31, (in thousands)
- --------------------------------------------------------------------------------
2000 $17,538
2001 41,972
2002 16
- --------------------------------------------------------------------------------
$59,526
================================================================================
In January 1998, the Company entered into an interest rate swap agreement to
manage interest rate exposure on the Company's variable rate debt. Amounts to be
paid or received under the swap agreement are accrued as interest rates change
and are recognized as adjustments to interest incurred during the period. This
swap agreement expires in January 2002 and effectively converts $15 million of
variable LIBOR based borrowings to a fixed LIBOR of 5.67% at July 31, 1999.
Capitalized Interest
- --------------------
A summary of capitalized interest follows:
Year Ended July 31,
------------------------------------
(in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
Interest capitalized at
beginning of year $ 8,140 $ 9,108 $ 9,762
Interest incurred 6,329 6,164 6,513
Interest expense (6,334) (5,172) (5,059)
Interest in cost of sales (2,483) (1,960) (2,003)
Interest in writedown from
impairment -- -- (105)
Interest capitalized at end
of year $ 5,652 $ 8,140 $ 9,108
- --------------------------------------------------------------------------------
Interest paid $ 6,141 $ 6,705 $ 6,886
Interest capitalized during the land development period is charged to cost of
sales as the related inventory is sold. Interest capitalized during the
construction period is charged to interest expense when the related inventory is
sold.
<PAGE>
WASHINGTON HOMES 21
Notes to Consolidated Financial Statements
Years Ended July 31, 1999, 1998 and 1997
------------------------------------------
5. Fair Value of Financial Instruments
- --------------------------------------
The methods and assumptions used to estimate the fair value of each class of
financial instrument are as follows:
Cash and cash equivalents, receivables,
notes payable and accounts payable
- ---------------------------------------
The carrying amounts approximate fair value because of the short maturity of
these amounts.
Long-term debt
- --------------
The carrying amounts of the Company's bank borrowings under its short-term bank
lines and revolving credit agreements are based on floating rates identified by
reference to market rates. The fair value of the Company's other long-term debt
approximate carrying value based on quoted market prices for the same or similar
issues or on the current rates offered to the Company for debt of the same
remaining maturities.
Interest rate swaps
- -------------------
The Company uses interest rate swap agreements to manage exposure to interest
rate fluctuations. The Company does not use derivative instruments for
speculative purposes. The differential paid or received on interest rate swap
agreements is recognized as an adjustment to interest incurred in the period.
The fair value of the Company's interest rate swap is not considered significant
based on the swap agreement's duration and terms.
6. Acquisitions
- ---------------
During the fiscal year ended July 31, 1999, the Company purchased certain
homebuilding assets and assumed the related liabilities of Breland Homes, Inc.;
Breland Homes of Mississippi, LLC; and Breland Properties, Inc. (collectively
"Breland Homes"). Breland Homes is a privately-owned homebuilder with
operations in Huntsville, Alabama and the Mississippi Gulf Coast. The
transaction was effective as of March 1, 1999. Included in the purchase were 82
homes in backlog.
The allocation of the purchase price is as follows:
Residential inventories $11,471,000
Excess of cost over net assets acquired 3,000,000
Other Assets 476,000
Less: liabilities assumed (9,675,000)
- -------------------------------------------------------------------------------
Net cash paid $ 5,272,000
The following unaudited pro forma information reflects the Company's results for
the years ended July 31, 1999 and July 31, 1998 adjusted to include the results
of Breland Homes.
The pro forma information is not necessarily indicative of future operations or
the actual results that would have occurred had the combination been consummated
at the beginning of the periods indicated above.
Year Ended July 31,
-----------------------
1999 1998
- --------------------------------------------------------------------------------
Total revenue $380,144 $276,623
Net earnings $ 11,033 $ 4,612
Earnings per common share
Basic $ 1.39 $ 0.58
Diluted $ 1.35 $ 0.58
<PAGE>
7. Shareholders' Equity
- -----------------------
Common Stock
- ------------
The Company has 7,949,013 shares of Common Stock outstanding at July 31, 1999,
all of which are voting shares. During the fiscal year ended July 31, 1999,
6,250 shares of common stock were issued under the Company's Employee Stock
Option Plan. Also, during fiscal 1999, all of the remaining 28,330 shares of
non-voting common stock were exchanged with the Company for newly-issued shares
of voting common stock on a share for share basis. Except for voting right, the
non-voting common stock was substantially the same as the Company's voting
stock.
Stock Options
- -------------
The Company has adopted two plans for the issuance of stock options to its
employees and members of its Board of Directors.
On September 17, 1992, the Company adopted the Washington Homes Employee Stock
Option Plan (the "Employee Option Plan") pursuant to which options for up to
500,000 shares of Common Stock could be granted to officers and other key
employees of the Company. In July 1997, the Board of Directors voted to increase
the number of shares for which options could be granted to 1,000,000. The
amendment to the plan was subsequently approved by the shareholders in November
1997. 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. Certain options are not exercisable until fiscal 2000.
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. In November 1997, the shareholders approved an amendment to
increase the number of shares available for options to 100,000. Options that are
Non-Qualified Options, generally become exercisable in part after one year from
date of grant and generally remain exercisable for ten years from the date of
grant.
In September, 1996, options for 47,000 shares exercisable at $9.00 were
exchanged for new options for 47,000 shares exercisable at $3.69.
In February 1997, the Company granted options for 10,000 shares of Common Stock
exercisable at $5.36 to a non-employee consultant.
The following summarizes information about the Company's stock options
outstanding at July 31, 1999.
Options Outstanding Options Exercisable
------------------------------------ -----------------------
Weighted Average
--------------------- Weighted
Remaining Average
Exercise Number Term Exercise Number Exercise
Price Range Outstanding in Years Price Exercisable Price
- --------------------------------------------------------------------------------
$3.63 - $4.00 292,500 8.18 $3.90 62,000 $3.76
4.06 - 4.50 261,500 7.99 4.43 79,375 4.38
4.69 - 4.75 218,000 8.57 4.74 19,500 4.72
4.88 - 6.00 256,000 5.93 5.24 204,750 5.17
- --------------------------------------------------------------------------------
$3.63 - $6.00 1,028,000 7.65 $4.55 365,625 $4.73
<PAGE>
22 ANNUAL REPORT 1999
Notes to Consolidated Financial Statements
Years Ended July 31, 1999, 1998 and 1997
- ------------------------------------------
Option activity for the Company is summarized below:
Employees Non-Employees
-------------------- --------------------
Weighted Weighted
Number Average Number Average
of Shares Price of Shares Price
- --------------------------------------------------------------------------------
Outstanding -- July 31, 1996 332,000 $5.66 10,000 $5.05
Granted 189,000 4.09 19,000 4.57
Canceled 89,000 4.43 -- --
Exercised -- -- -- --
- --------------------------------------------------------------------------------
Outstanding -- July 31, 1997 432,000 5.23 29,000 4.74
Granted 592,000 4.46 40,000 4.00
Canceled 43,000 4.76 -- --
Exercised -- -- -- --
- --------------------------------------------------------------------------------
Outstanding -- July 31, 1998 981,000 4.53 69,000 4.31
Granted 39,000 5.87 -- --
Canceled 54,750 4.83 -- --
Exercised 6,250 5.04 -- --
- --------------------------------------------------------------------------------
Outstanding -- July 31, 1999 959,000 4.57 69,000 4.31
Exercisable at July 31, 1999 336,125 4.75 29,500 4.54
- --------------------------------------------------------------------------------
At July 31, 1999, there were 75,750 shares reserved for future grants under both
plans.
The Company adopted 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 No. 25 and related interpretations in accounting for
its stock option plans and, accordingly, does not recognize compensation cost
based on the fair value of the options granted at grant date as prescribed by
SFAS No. 123. Had compensation been recorded consistent with SFAS No. 123, net
earnings (loss) and earnings (loss) per share would have been reduced to the pro
forma amounts indicated in the table below:
Year Ended July 31,
(in thousands except ---------------------------------
per share amounts) 1999 1998 1997
- --------------------------------------------------------------------------------
Net earnings (loss)--as reported $10,648 $3,790 (13,289)
Net earnings (loss)--pro forma 10,465 3,621 (13,314)
Basic earnings (loss) per share--as reported 1.34 0.48 (1.67)
Basic earnings (loss) per share--pro forma 1.32 0.46 (1.68)
Diluted earnings (loss) per share--as reported 1.30 0.48 (1.67)
Diluted earnings (loss) per share--pro forma 1.28 0.46 (1.68)
The fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions:
Year Ended July 31,
------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Expected dividend yield -- -- --
Expected stock price volatility 40% 46% 27%
Risk-free interest rate 5.0% 5.2% 6.2%
Expected life of options 8 8 9
- --------------------------------------------------------------------------------
The weighted average fair value of options granted during 1999, 1998 and 1997
were $3.18, $2.62 and $1.96 per option, respectively.
8. Earnings per Share
- ---------------------
Earnings per share are presented in accordance with SFAS No. 128, "Earnings Per
Share." This statement requires dual presentation of basic and diluted earnings
per share on the face of the statement of operations. Basic earnings per share
excludes dilution and is computed by dividing income available to common
shareholders by the weighted-average number of shares outstanding for the
period. Diluted earnings per share reflects the potential dilution that could
occur if securities or other contracts to issue common stock were exercised or
converted to common stock. Options to purchase 1,028,000 shares of common stock
at $4.55 were outstanding at July 31, 1999. Options to purchase 1,050,000 shares
of common stock at $4.52 were outstanding at July 31, 1998. Options to purchase
461,000 shares of common stock at $5.20 were outstanding at July 31, 1997 but
were not included in the computation of diluted earnings per share for the year
ended July 31, 1997 because the option's exercise prices were greater than the
average market price of the common shares.
The following is a reconciliation of the amounts used in calculating basic and
diluted earnings per common share.
Per Share
(dollars in thousands) Earnings Shares Amount
- --------------------------------------------------------------------------------
Basic earnings per common share for
the year ended July 31, 1999:
Earnings available to common shareholders $10,648 7,943,996 $1.34
Effect of dilutive stock options -- 257,503 (.04)
- --------------------------------------------------------------------------------
Diluted earnings per common share for
the year ended July 31, 1999 $10,648 8,201,499 $1.30
================================================================================
Basic earnings per common share for
the year ended July 31, 1998:
Earnings available to common shareholders $ 3,790 7,942,763 $0.48
Effect of dilutive stock options -- 22,430 --
- --------------------------------------------------------------------------------
Diluted earnings per common share for
the year ended July 31, 1998 $ 3,790 7,965,193 $0.48
================================================================================
<PAGE>
WASHINGTON HOMES 23
Notes to Consolidated Financial Statements
Years Ended July 31, 1999, 1998 and 1997
------------------------------------------
9. Segment Reporting
- --------------------
SFAS No. 131, "Disclosure About Segments of an Enterprise and Related
Information," establishes the standard 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 to shareholders. In accordance
with SFAS No. 131, the Company has determined that its operating activities
consist of one reportable segment, the homebuilding segment, which specializes
in the construction and sale of residential housing. Accordingly, no additional
disclosures are required.
10. Income Taxes
- ----------------
As discussed in Note 1, the Company follows the provisions of SFAS No. 109. The
provision (benefit) for income taxes includes the following:
Year Ended July 31,
--------------------------------------
(In thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
Current:
Federal $6,551 $1,982 $ 1,619
State 976 117 359
- --------------------------------------------------------------------------------
7,527 2,099 1,978
- --------------------------------------------------------------------------------
Deferred:
Federal (662) 112 (2,713)
State (159) 7 (601)
- --------------------------------------------------------------------------------
(821) 119 (3,314)
- --------------------------------------------------------------------------------
Total Provision (Benefit) $6,706 $2,218 $(1,336)
================================================================================
The difference between the effective tax rate and the expected statutory tax
rate computed on earnings before taxes is attributable to the following:
Year Ended July 31,
--------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------
Taxes computed at statutory rate 35.0% 34.0% (34.0)%
Increases (decreases):
State income taxes 3.1 1.4 (1.7)
Excess of cost over net assets acquired .4 1.1 24.7
Other .1 .4 1.6
- --------------------------------------------------------------------------------
Effective tax rate 38.6% 36.9% (9.4)%
================================================================================
The deferred income tax liability at July 31, 1999 and 1998 represents the tax
effect of temporary differences as follows:
July 31,
----------------------
1999 1998
- --------------------------------------------------------------------------------
Land step up in basis $ 289 $ 151
Capitalized interest 1,325 1,665
Uniform capitalized costs 572 250
Investment in joint ventures (388) 124
Warranty reserve (293) --
Accrued compensation cost (297) --
Other 8 (152)
- --------------------------------------------------------------------------------
$1,216 $2,038
================================================================================
During the years ended July 31, 1999, 1998 and 1997, income taxes in the amount
of $5,994,000, $922,000 and $3,807,000, respectively, were paid.
The Internal Revenue Service has examined the Company's tax returns for the
years ended July 31, 1992, 1993, and 1994. The IRS raised issues primarily
related to matters having to do with 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. 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.
11. 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, 1999,
1998 and 1997 were approximately $163,700, $124,600 and $112,900, respectively.
Under this plan, the Company has elected to make a $250,000 profit sharing
contribution in January 2000 to all eligible non-highly compensated personnel
employed as of December 31, 1999.
12. Related Party Transactions
- ------------------------------
The Company leases certain office space from an affiliated entity. During the
years ended July 31, 1999, 1998 and 1997, $396,000, $435,000 and $443,000 were
paid, respectively.
13. Commitments and Contingent Liabilities
- ------------------------------------------
The Company leases its headquarters offices and offices for certain divisions
from an affiliate and certain other facilities from unrelated parties, all under
non-cancelable operating leases with terms ending through May 2008. 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, 1999, are as follows:
For the year ending July 31, (in thousands)
- -------------------------------------------------------------------
2000 $1,588
2001 1,276
2002 716
2003 652
2004 588
Thereafter 1,740
- -------------------------------------------------------------------
Total future rental payments $6,560
===================================================================
Rental expense was $3,053,000, $2,857,000 and $2,732,000 for the years ended
July 31, 1999, 1998 and 1997, respectively.
At July 31, 1999 the Company was contingently liable to banks and other
financial institutions for approximately $19.6 million for outstanding letters
of credit and surety bonds relating to building lot acquisition contracts and
municipal bonding for land development activities.
The Company is involved in various claims and legal actions arising in the
normal course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position or results of operations.
<PAGE>
24 ANNUAL REPORT 1999
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, 1999 and 1998 and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended July 31, 1999. 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, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended July 31,
1999 in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
McLean, VA
September 3, 1999
<PAGE>
Directors and Officers
- ----------------------
Board of Directors
- ------------------
Geaton A. DeCesaris, Sr.(1)
Chairman Emeritus
Geaton A. DeCesaris, Jr.(1)
Chairman of the Board, President,
and Chief Executive Officer
Thomas J. Pellerito
President--Homebuilding Operations,
Chief Operating Officer
Paul C. Sukalo(1)
Senior Vice President
Construction
Thomas Connelly(2)
Chief Financial Officer
Western Pacific Housing
El Segundo, California
Richard S. Frary(2,3)
President
Tallwood Associates, Inc.
New York, New York
Ronald M. Shapiro(2,3)
Counsel to the Firm
Shapiro & Olander
Baltimore, Maryland
Chairman, Shapiro Negotiations Institute
Richard B. Talkin(2,3)
Attorney
Columbia, Maryland
(1) Executive Committee
(2) Audit Committee
(3) Compensation Committee
Executive Officers
- ------------------
Geaton A. DeCesaris, Jr.
Chairman of the Board, President,
and Chief Executive Officer
Thomas J. Pellerito
President--Homebuilding Operations,
Chief Operating Officer
Christopher Spendley
Senior Vice President, Chief Financial
Officer and Secretary
Clayton W. Miller
Senior Vice President, Chief Accounting
Officer and Treasurer
Paul C. Sukalo
Senior Vice President
Construction
<PAGE>
Other Officers of the
Company and/or Subsidiaries
- ---------------------------
Robert Hutson
Executive Vice President
Southeast Region President
Tony L. Kennicott
Executive Vice President
Mid-South Region President
Senior Vice Presidents
- ----------------------
Jeffrey Donohue
Homebuyer's Mortgage, Inc.
Dorothy Minich
Sales and Marketing
William A. Wilder
Land Operations
Vice Presidents
- ---------------
Deborah A. Ailiff
Associate General Counsel
Timothy M. Bates
Virginia Division President
Paul Carty
Charlotte Division President
A. Hugo DeCesaris
Maryland Division President
Marco A. DeCesaris
Design Showcase
David C. DeMarco
Land Acquisitions
Larry Gorman
National Purchasing
Laurence Jaffe
General Counsel
A. J. McMurphy, III
Gulf Coast Division President
Craig Smith
Greensboro Division President
Neil Traurig
Pittsburgh Division President
Robert Yeatman
Nashville Division President
<PAGE>
Corporate Information
- ---------------------
Company Profile
- ---------------
Ranked as one of the top 40 builders in the United States, Washington Homes
designs, builds and markets quality homes in 82 communities in Maryland,
Virginia, and Pennsylvania; and under the Westminster Homes name in North
Carolina, Tennessee, Alabama and Mississippi. The Company is an acknowledged
leader in the construction of condominiums, townhouses and single-family homes.
As a full-service homebuilder, Washington Homes also is engaged in related
businesses: Homebuyer's Mortgage, Inc., New Homebuyer's Title, Homebuyer's
Insurance, and Design Showcase. The Company has constructed over 24,000 homes
in its 34-year history.
Annual Meeting
- --------------
November 19, 1999--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
Corporate Office
- ----------------
1802 Brightseat Road, 6th floor
Landover, Maryland 20785
Transfer Agent & Registrar
- --------------------------
ChaseMellon Shareholder Services, L.L.C.
Overpeek Centre
85 Challenger Road
Ridgefield Park, New Jersey 07660
www.chasemellon.com
Independent Auditors
- --------------------
Deloitte & Touche LLP
McLean VA
Common Price Range
- ------------------
The common stock is traded on the New York Stock Exchange, Symbol "WHI."
- ----------------------------------------
Fiscal 1999 High Low
- ----------------------------------------
1st Quarter 6.25 4.00
2nd Quarter 6.50 4.63
3rd Quarter 7.00 5.13
4th Quarter 8.38 6.00
- ----------------------------------------
Fiscal 1998 High Low
- ----------------------------------------
1st Quarter 4.88 3.69
2nd Quarter 4.50 3.50
3rd Quarter 5.38 3.75
4th Quarter 6.25 4.65
As of September 30, 1999, there were approximately 195 holders of record
representing an estimated 3,300 beneficial owners of the Company's common stock.
<PAGE>
Washington
Homes
Logo
Making the American dream affordable.(R)
1802 Brightseat Road
Landover, MD 20785
phone (301) 772-8900 o fax (301) 772-1380
www.washhomes.com
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
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
Preston Grande Homes, Inc. North Carolina
Westminster Homes of Alabama LLC Alabama
Westminster Homes of Mississippi LLC Mississippi
Century Land LLC Alabama
Washwest II L.P. Alabama
Washington Homes of Delaware, Inc. Delaware
Heritage Pines, LLC North Carolina
Title Group II, LLC Tennessee
Omitted subsidiaries would not in the aggregate
constitute a Significant Subsidiary.
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement (No.
33-75305) of Washington Homes, Inc. on Form S-8 of our report dated September 3,
1999, incorporated by reference in this Annual Report on Form 10-K of Washington
Homes, Inc. for the year ended July 31, 1999.
Deloitte & Touche LLP
McLean, VA
October 25, 1999
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, 1999; 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 22nd day of October, 1999.
/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 /s/ CHRISTOPHER SPENDLEY
- ---------------------------- ----------------------------
Clayton Miller Christopher Spendley
/s/ RICHARD B. TALKIN /s/ THOMAS J. PELLERITO
- ---------------------------- ----------------------------
Richard B. Talkin Thomas J. Pellerito
/s/ RONALD M. SHAPIRO
- ----------------------------
Ronald M. Shapiro
<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 OF OPERATIONS AT AND FOR THE PERIOD ENDED JULY 31,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-END> JUL-31-1999
<CASH> 12,734
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 130,502
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 167,455
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 79
<OTHER-SE> 68,949
<TOTAL-LIABILITY-AND-EQUITY> 167,455
<SALES> 358,651
<TOTAL-REVENUES> 362,733
<CGS> 290,934
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 47,089
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,356
<INCOME-PRETAX> 17,354
<INCOME-TAX> 6,706
<INCOME-CONTINUING> 10,648
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<NET-INCOME> 10,648
<EPS-BASIC> 1.34
<EPS-DILUTED> 1.30
</TABLE>
