SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 1-8951
M.D.C. HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 84-0622967
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
3600 South Yosemite Street, Suite 900 80237
Denver, Colorado (Zip code)
(Address of principal executive offices)
(303) 773-1100
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
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
As of April 18, 1996, 18,801,000 shares of M.D.C. Holdings,
Inc. common stock were outstanding.
<PAGE>
M.D.C. HOLDINGS, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1996
INDEX
Page
No.
----
Part I. Financial Information:
Item 1. Condensed Consolidated Financial Statements:
Balance Sheets as of March 31, 1996 (Unaudited)
and December 31, 1995......................... 1
Statements of Income (Unaudited) for the three
months ended March 31, 1996 and 1995.......... 3
Statements of Cash Flows (Unaudited) for the
three months ended March 31, 1996 and 1995.... 4
Notes to Financial Statements (Unaudited)....... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............. 17
Part II. Other Information:
Item 1. Legal Proceedings............................... 29
Item 4. Submission of Matters to a Vote of Shareowners.. 30
Item 6. Exhibits and Reports on Form 8-K................ 30
(i)
<PAGE>
M.D.C. HOLDINGS, INC.
Condensed Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------- -----------
ASSETS (Unaudited)
<S> <C> <C>
Corporate
Cash and cash equivalents................................................... $ 10,013 $ 10,290
Property and equipment, net................................................. 9,549 9,550
Deferred income taxes....................................................... 8,669 13,730
Deferred issue costs, net................................................... 9,746 9,931
Other assets, net........................................................... 3,737 3,830
---------- -----------
41,714 47,331
Homebuilding
Cash and cash equivalents................................................... 10,074 5,096
Home sales and other accounts receivable.................................... 19,710 26,192
Investments and marketable securities, net.................................. 6,560 6,481
Inventories, net
Housing completed or under construction................................... 279,507 265,205
Land and land under development........................................... 171,802 176,960
Prepaid expenses and other assets, net...................................... 41,503 42,111
---------- -----------
529,156 522,045
Financial Services
Cash and cash equivalents................................................... 1,448 5,409
Accrued interest and other assets, net...................................... 4,304 3,129
Mortgage loans held in inventory, net....................................... 50,956 53,153
Mortgage Collateral, net of mortgage-backed bonds, and related assets and
liabilities............................................................... 3,925 3,744
---------- -----------
60,633 65,435
Total Assets.......................................................... $ 631,503 $ 634,811
========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
-1-
<PAGE>
M.D.C. HOLDINGS, INC.
Condensed Consolidated Balance Sheets
(In thousands, except share amounts)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------- -----------
LIABILITIES (Unaudited)
<S> <C> <C>
Corporate
Accounts payable and accrued expenses....................................... $ 20,791 $ 18,258
Income taxes payable........................................................ 8,564 11,930
Notes payable............................................................... 3,525 3,537
Senior Notes, net........................................................... 187,572 187,525
Subordinated notes, net..................................................... 38,222 38,221
----------- -----------
258,674 259,471
Homebuilding
Accounts payable and accrued expenses....................................... 89,310 82,164
Lines of credit............................................................. 42,359 43,490
Notes payable............................................................... 8,301 10,571
----------- -----------
139,970 136,225
Financial Services
Accounts payable and accrued expenses....................................... 10,143 12,092
Line of credit.............................................................. 15,013 21,990
----------- -----------
25,156 34,082
Total Liabilities..................................................... 423,800 429,778
----------- -----------
COMMITMENTS AND CONTINGENCIES.................................................. - - - -
----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; 25,000,000 shares authorized; none issued.. - - - -
Common Stock, $.01 par value; 100,000,000 shares authorized; 22,606,000
shares issued at March 31, 1996 and December 31, 1995................... 226 226
Additional paid-in capital.................................................. 135,884 136,022
Retained earnings........................................................... 91,595 87,476
----------- -----------
227,705 223,724
Less treasury stock, at cost; 3,332,000 and 3,157,000 shares, respectively,
at March 31, 1996 and December 31, 1995................................... (20,002) (18,691)
----------- -----------
Total Stockholders' Equity............................................ 207,703 205,033
----------- -----------
Total Liabilities and Stockholders' Equity............................ $ 631,503 $ 634,811
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
-2-
<PAGE>
M.D.C. HOLDINGS, INC.
Condensed Consolidated Statements of Income
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1996 1995
----------- -----------
REVENUES
<S> <C> <C>
Homebuilding............................................................... $ 191,276 $ 184,529
Financial Services......................................................... 7,738 6,150
Corporate.................................................................. 232 413
----------- -----------
Total Revenues......................................................... 199,246 191,092
----------- -----------
COSTS AND EXPENSES
Homebuilding............................................................... 185,242 176,520
Financial Services......................................................... 2,742 2,394
Corporate general and administrative....................................... 2,601 3,127
Corporate and homebuilding interest (Note C)............................... 1,851 2,839
----------- -----------
Total Expenses......................................................... 192,436 184,880
----------- -----------
Income before income taxes.................................................... 6,810 6,212
Provision for income taxes.................................................... 2,486 2,144
----------- -----------
Net Income.................................................................... $ 4,324 $ 4,068
=========== ===========
EARNINGS PER SHARE
Primary.................................................................... $ .22 $ .20
=========== ===========
Fully diluted.............................................................. $ .20 $ .19
=========== ===========
WEIGHTED-AVERAGE SHARES OUTSTANDING
Primary.................................................................... 19,863 20,323
=========== ===========
Fully diluted.............................................................. 23,510 23,936
=========== ===========
DIVIDENDS PER SHARE........................................................... $ .03 $ .02
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
-3-
<PAGE>
M.D.C. HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1996 1995
----------- -----------
OPERATING ACTIVITIES
<S> <C> <C>
Net Income.......................................................... $ 4,324 $ 4,068
Adjustments To Reconcile Net Income To Net Cash Provided By
Operating Activities:
Depreciation and amortization.................................. 2,519 2,123
Deferred income taxes.......................................... 5,061 109
Gains on sales of mortgage-related assets...................... (935) - -
Net Changes In Assets and Liabilities
Mortgage loans held in inventory............................... 2,197 4,199
Homebuilding inventories....................................... (9,178) 1,257
Receivables.................................................... 6,482 (4,530)
Accounts payable and accrued expenses.......................... 4,393 (6,476)
Other, net..................................................... (2,431) 3,565
------------ -----------
Net Cash Provided By Operating Activities............................ 12,432 4,315
----------- -----------
INVESTING ACTIVITIES
Net Proceeds From Mortgage-Related Assets and Liabilities........... 693 (92)
Other, net.......................................................... (31) 368
----------- -----------
Net Cash Provided By Investing Activities............................ 662 276
----------- -----------
(Continued)
</TABLE>
See notes to condensed consolidated financial statements.
-4-
<PAGE>
M.D.C. HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
(Continued)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1996 1995
------------ ------------
FINANCING ACTIVITIES
<S> <C> <C>
Lines of Credit
Advances....................................................... $ 179,344 $ 155,308
Principal payments............................................. (187,452) (172,586)
Notes Payable
Borrowings..................................................... 480 1,075
Principal payments............................................. (2,770) (8,315)
Treasury Stock Repurchases.......................................... (1,645) - -
Dividend Payments................................................... (576) (387)
Other, net.......................................................... 265 279
------------ ------------
Net Cash Used In Financing Activities............................... (12,354) (24,626)
------------ ------------
Net Increase (Decrease) In Cash and Cash Equivalents................ 740 (20,035)
Cash and Cash Equivalents
Beginning Of Period............................................ 20,795 43,564
------------ ------------
End Of Period.................................................. $ 21,535 $ 23,529
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest, net of amounts capitalized.......................... NA(1) NA(1)
Income taxes.................................................. $ 990 $ 657
(1) Interest capitalized exceeded interest paid during the period.
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS
Homebuilding land inventory sales financed by MDC................... $ - - $ 156
Homebuilding inventory purchases financed by seller................. - - 1,688
</TABLE>
See notes to condensed consolidated financial statements.
-5-
<PAGE>
M.D.C. HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
A. Presentation of Financial Statements
The condensed consolidated financial statements of M.D.C. Holdings,
Inc. ("MDC" or the "Company," which, unless otherwise indicated, refers to
M.D.C. Holdings, Inc. and its subsidiaries) have been prepared by MDC, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. These statements reflect all adjustments (including all normal
recurring accruals) which, in the opinion of management, are necessary to
present fairly the financial position, results of operations and cash flows of
MDC as of March 31, 1996 and for all of the periods presented. These statements
are condensed and do not include all of the information required by generally
accepted accounting principles in a full set of financial statements. These
statements should be read in conjunction with MDC's financial statements and
notes thereto included in MDC's Annual Report on Form 10-K for its fiscal year
ended December 31, 1995.
Price Waterhouse LLP has made a review, and not an audit, of the
unaudited condensed consolidated financial statements of the Company for the
three-month periods ended March 31, 1996 and 1995 (based on procedures adopted
by the American Institute of Certified Public Accountants) as set forth in their
separate report dated April 24, 1996, which is included as an exhibit to this
Form 10-Q. This report is not a "report" within the meaning of Sections 7 and 11
of the Securities Act of 1933, and the independent accountant's liability under
Section 11 does not extend to it.
Certain reclassifications have been made in the 1995 financial
statements to conform to the classifications used in the current year.
B. Information on Business Segments
The Company operates in two business segments: homebuilding and
financial services (which consists of mortgage lending and asset management
operations). A summary of the Company's segment information is shown below (in
thousands).
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1996 1995
----------- -----------
<S> <C> <C>
Homebuilding
Home sales.................................. $ 186,023 $ 182,064
Land sales.................................. 5,159 2,313
Other revenues.............................. 94 152
----------- -----------
191,276 184,529
----------- -----------
Home cost of sales.......................... 160,816 157,015
Land cost of sales.......................... 4,932 1,993
Marketing................................... 11,982 11,117
General and administrative.................. 7,512 6,395
----------- -----------
185,242 176,520
----------- -----------
Homebuilding Operating Profit........... 6,034 8,009
----------- -----------
-6-
<PAGE>
Three Months
Ended March 31,
1996 1995
----------- -----------
Financial Services
Mortgage Lending Revenues
Interest revenues......................... $ 805 $ 693
Origination fees.......................... 1,389 1,074
Gains on sale of mortgage servicing....... 2,622 2,670
Gains (losses) on sale of mortgage loans,
net..................................... 542 (336)
Mortgage servicing and other.............. 386 566
Asset Management Revenues
Management fees and other................. 1,059 1,483
Gains on sales of mortgage-related assets. 935 - -
----------- -----------
7,738 6,150
----------- -----------
General and Administrative Expenses
Mortgage Lending............................ 2,122 1,784
Asset Management............................ 620 610
----------- -----------
2,742 2,394
----------- -----------
Financial Services Operating Profit..... 4,996 3,756
----------- -----------
Total Operating Profit........................... 11,030 11,765
----------- -----------
Corporate
Other revenues.............................. 232 413
Interest expense............................ (1,851) (2,839)
General and administrative expense.......... (2,601) (3,127)
------------ ------------
Net Corporate Expenses.................. (4,220) (5,553)
----------- -----------
Income Before Income Taxes....................... $ 6,810 $ 6,212
=========== ===========
</TABLE>
-7-
<PAGE>
C. Corporate and Homebuilding Interest Activity
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1996 1995
----------- -----------
(In thousands)
<S> <C> <C>
Interest capitalized in homebuilding inventory,
beginning of period.............................. $ 40,217 $ 42,478
Interest incurred................................... 7,774 8,989
Interest expensed................................... (1,851) (2,839)
Previously capitalized interest included in cost of
sales............................................ (5,798) (6,590)
----------- -----------
Interest capitalized in homebuilding inventory, end
of period........................................ $ 40,342 $ 42,038
=========== ===========
Interest capitalized in homebuilding inventory as a
percent of homebuilding inventory................ 8.9% 9.1%
=========== ===========
</TABLE>
D. Stockholders' Equity
On January 19, 1996, the Company repurchased 230,000 shares of MDC
Common Stock at $7.13 per share, substantially completing a program authorized
by the MDC Board of Directors to repurchase up to 1,100,000 shares of MDC Common
Stock. During 1995, the Company repurchased 865,600 shares of Common Stock
pursuant to this program at prices ranging from $5.88 to $6.50 per share ($6.32
per share average, including commissions).
In April 1996, the Company repurchased 473,000 shares of MDC Common
Stock for $7.13 per share from Spencer I. Browne (former President, Co-Chief
Operating Officer and a director of the Company) pursuant to an agreement
between Mr. Browne and the Company.
-8-
<PAGE>
E. Earnings Per Share
Primary earnings per share are based on the weighted-average number of
common and common equivalent shares outstanding during each period. The
computation of fully diluted earnings per share also assumes the conversion into
MDC Common Stock of all of the $28,000,000 outstanding principal amount of the 8
3/4% convertible subordinated notes due December 2005 (the "Convertible Notes")
at a conversion price of $7.75 per share of MDC Common Stock. The primary and
fully diluted earnings per share calculations are shown below (in thousands,
except per share amounts).
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1996 1995
----------- -----------
<S> <C> <C>
Primary Earnings Per Share Calculation
Net Income................................................... $ 4,324 $ 4,068
=========== ===========
Weighted-average shares outstanding.......................... 19,284 19,128
Dilutive stock options....................................... 579 1,195
----------- -----------
Total Weighted-Average Shares........................... 19,863 20,323
=========== ===========
Primary Earnings Per Share................................... $ .22 $ .20
=========== ===========
Fully Diluted Earnings Per Share Calculation
Net Income................................................... $ 4,324 $ 4,068
Adjustment for interest on Convertible Notes, net of income
tax benefit; conversion assumed........................... 402 384
----------- -----------
Adjusted Net Income..................................... $ 4,726 $ 4,452
=========== ===========
Weighted-average shares outstanding.......................... 19,284 19,128
Dilutive stock options....................................... 613 1,195
Shares issuable upon conversion of Convertible Notes;
conversion assumed........................................ 3,613 3,613
----------- -----------
Total Weighted-Average Shares........................... 23,510 23,936
=========== ===========
Fully Diluted Earnings Per Share............................. $ .20 $ .19
=========== ===========
</TABLE>
F. Supplemental Guarantor Information
The Senior Notes are guaranteed unconditionally on an unsecured
subordinated basis, jointly and severally (the "Guaranties"), by Richmond
American Homes of California, Inc., Richmond American Homes of Maryland, Inc.,
Richmond American Homes of Nevada, Inc., Richmond American Homes of Virginia,
Inc., Richmond American Homes, Inc., Richmond Homes, Inc. I and Richmond Homes,
Inc. II (collectively, the "Guarantors"). The Guaranties are subordinated to all
Guarantor Senior Indebtedness (as defined in the Senior Notes Indenture).
Supplemental combining financial information follows.
-9-
<PAGE>
Supplemental Combining Balance Sheet
March 31, 1996
(In thousands)
<TABLE>
<CAPTION>
Unconsolidated
----------------------------------------
Non-
ASSETS Guarantor Guarantor Eliminating Consolidated
MDC Subsidiaries Subsidiaries Entries MDC
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Corporate
Cash and cash equivalents............... $ 10,013 $ - - $ - - $ - - $ 10,013
Investments in subsidiaries............. 208,029 - - 17,434 (225,463) - -
Advances and notes receivable - Parent
and subsidiaries...................... 227,304 6 20,157 (247,467) - -
Property and equipment, net............. 9,549 - - - - - - 9,549
Deferred income taxes................... 8,669 - - - - - - 8,669
Deferred issue costs, net............... 9,746 - - - - - - 9,746
Other assets, net....................... 3,386 - - 351 - - 3,737
------------ ------------ ------------ ------------ ------------
476,696 6 37,942 (472,930) 41,714
------------ ------------ ------------ ------------ ------------
Homebuilding
Cash and cash equivalents............... 6 10,067 1 - - 10,074
Home sales and other accounts
receivable............................ - - 28,468 - - (8,758) 19,710
Investments and marketable securities,
net................................... 6,560 - - - - - - 6,560
Inventories, net
Housing completed or under
construction........................ - - 279,507 - - - - 279,507
Land and land under
development......................... - - 144,390 28,417 (1,005) 171,802
Prepaid expenses and other assets ...... 3,411 38,092 - - - - 41,503
------------ ------------ ------------ ------------ ------------
9,977 500,524 28,418 (9,763) 529,156
------------ ------------ ------------ ------------ ------------
Financial Services
Cash and cash equivalents............... - - - - 1,448 - - 1,448
Accrued interest and other assets ...... - - - - 4,304 - - 4,304
Mortgage loans held in inventory ....... - - - - 50,956 - - 50,956
Mortgage Collateral, net of
mortgage-backed bonds, and related
assets and liabilities................ - - - - 3,925 - - 3,925
------------ ------------ ------------ ------------ ------------
- - - - 60,633 - - 60,633
------------ ------------ ------------ ------------ ------------
Total Assets...................... $ 486,673 $ 500,530 $ 126,993 $ (482,693) $ 631,503
============ ============ ============ ============= ============
</TABLE>
-10-
<PAGE>
Supplemental Combining Balance Sheet
March 31, 1996
(In thousands)
<TABLE>
<CAPTION>
(continued)
Unconsolidated
----------------------------------------
Non-
LIABILITIES Guarantor Guarantor Eliminating Consolidated
MDC Subsidiaries Subsidiaries Entries MDC
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Corporate
Accounts payable and accrued expenses... $ 20,339 $ - - $ 452 $ - - $ 20,791
Advances and notes payable - Parent and
subsidiaries.......................... 10,715 217,171 27,891 (255,777) - -
Income taxes payable.................... 8,564 - - - - - - 8,564
Notes payable........................... 3,525 - - - - - - 3,525
Senior Notes, net....................... 187,572 - - - - - - 187,572
Subordinated notes, net................. 38,222 - - - - - - 38,222
----------- ----------- ----------- ------------ -----------
268,937 217,171 28,343 (255,777) 258,674
----------- ----------- ----------- ------------ -----------
Homebuilding
Accounts payable and accrued expenses... 6,857 81,533 922 (2) 89,310
Lines of credit......................... - - 42,359 - - - - 42,359
Notes payable........................... 3,176 1,657 3,468 - - 8,301
----------- ----------- ----------- ------------ -----------
10,033 125,549 4,390 (2) 139,970
----------- ----------- ----------- ------------ -----------
Financial Services
Accounts payable and accrued expenses... - - - - 18,903 (8,760) 10,143
Line of credit.......................... - - - - 15,013 - - 15,013
----------- ----------- ----------- ------------ -----------
- - - - 33,916 (8,760) 25,156
----------- ----------- ----------- ------------ -----------
Total Liabilities................. 278,970 342,720 66,649 (264,539) 423,800
----------- ----------- ----------- ------------ -----------
STOCKHOLDERS' EQUITY
Preferred stock......................... - - - - 10 (10) - -
Common Stock............................ 226 19 81 (100) 226
Additional paid-in capital.............. 135,884 144,756 224,914 (369,670) 135,884
Retained earnings....................... 91,595 13,035 (164,652) 151,617 91,595
Less treasury stock..................... (20,002) - - (9) 9 (20,002)
----------- ----------- ----------- ------------ -----------
Total Stockholders' Equity........ 207,703 157,810 60,344 (218,154) 207,703
----------- ----------- ----------- ------------ -----------
Total Liabilities and
Stockholders' Equity............ $ 486,673 $ 500,530 $ 126,993 $ (482,693) $ 631,503
=========== =========== =========== ============= ===========
</TABLE>
-11-
<PAGE>
Supplemental Combining Balance Sheet
December 31, 1995
(In thousands)
<TABLE>
<CAPTION>
Unconsolidated
---------------------------------------
Non-
ASSETS Guarantor Guarantor Eliminating Consolidated
MDC Subsidiaries Subsidiaries Entries MDC
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Corporate
Cash and cash equivalents.............. $ 10,290 $ - - $ - - $ - - $ 10,290
Investments in subsidiaries............ 303,694 - - 17,434 (321,128) - -
Advances and notes receivable - Parent
and subsidiaries..................... 210,656 33 21,550 (232,239) - -
Property and equipment, net............ 9,550 - - - - - - 9,550
Deferred income taxes.................. 13,730 - - - - - - 13,730
Deferred issue costs, net.............. 9,931 - - - - - - 9,931
Other assets, net...................... 3,730 - - 100 - - 3,830
---------- ---------- ---------- ------------ ----------
561,581 33 39,084 (553,367) 47,331
---------- ---------- ---------- ------------ ----------
Homebuilding
Cash and cash equivalents.............. 6 5,054 36 - - 5,096
Home sales and other accounts
receivable........................... - - 37,726 - - (11,534) 26,192
Investments and marketable securities,
net.................................. 6,481 - - - - - - 6,481
Inventories, net
Housing completed or under
construction....................... - - 265,205 - - - - 265,205
Land and land under development...... - - 150,531 27,676 (1,247) 176,960
Prepaid expenses and other assets...... 3,633 38,453 25 - - 42,111
---------- ---------- ---------- ------------ ----------
10,120 496,969 27,737 (12,781) 522,045
---------- ---------- ---------- ------------ ----------
Financial Services
Cash and cash equivalents.............. - - - - 5,409 - - 5,409
Accrued interest and other assets...... - - - - 3,129 - - 3,129
Mortgage loans held in inventory....... - - - - 53,153 - - 53,153
Mortgage Collateral, net of
mortgage-backed bonds, and related
assets and liabilities............... - - - - 3,744 - - 3,744
---------- ---------- ---------- ------------ ----------
- - - - 65,435 - - 65,435
---------- ---------- ---------- ------------ ----------
Total Assets..................... $ 571,701 $ 497,002 $ 132,256 $ (566,148) $ 634,811
========== ========== ========== ============ ==========
</TABLE>
-12-
<PAGE>
Supplemental Combining Balance Sheet
December 31, 1995
(In thousands)
<TABLE>
<CAPTION>
(continued)
Unconsolidated
---------------------------------------
Non-
LIABILITIES Guarantor Guarantor Eliminating Consolidated
MDC Subsidiaries Subsidiaries Entries MDC
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Corporate
Accounts payable and accrued expenses.... $ 17,897 $ - - $ 361 $ - - $ 18,258
Advances and notes payable - Parent and
Subsidiaries........................... 98,525 210,754 20,434 (329,713) - -
Income taxes payable..................... 11,930 - - - - - - 11,930
Notes payable............................ 3,537 - - - - - - 3,537
Senior Notes, net........................ 187,525 - - - - - - 187,525
Subordinated notes, net.................. 38,221 - - - - - - 38,221
----------- ----------- ----------- ------------ -----------
357,635 210,754 20,795 (329,713) 259,471
----------- ----------- ----------- ------------ -----------
Homebuilding
Accounts payable and accrued expenses.... 5,403 75,831 924 6 82,164
Lines of credit.......................... - - 43,490 - - - - 43,490
Notes payable............................ 3,630 3,192 3,749 - - 10,571
----------- ----------- ----------- ------------ -----------
9,033 122,513 4,673 6 136,225
----------- ----------- ----------- ------------ -----------
Financial Services
Accounts payable and accrued expenses.... - - - - 23,655 (11,563) 12,092
Line of credit........................... - - - - 21,990 - - 21,990
----------- ----------- ----------- ------------ -----------
- - - - 45,645 (11,563) 34,082
----------- ----------- ----------- ------------ -----------
Total Liabilities.................. 366,668 333,267 71,113 (341,270) 429,778
----------- ----------- ----------- ------------ -----------
STOCKHOLDERS' EQUITY
Preferred stock.......................... - - - - 10 (10) - -
Common Stock............................. 226 19 82 (101) 226
Additional paid-in capital............... 136,022 144,756 224,914 (369,670) 136,022
Retained earnings........................ 87,476 18,960 (163,854) 144,894 87,476
Less treasury stock...................... (18,691) - - (9) 9 (18,691)
----------- ----------- ----------- ------------ -----------
Total Stockholders' Equity......... 205,033 163,735 61,143 (224,878) 205,033
----------- ----------- ----------- ------------ -----------
Total Liabilities and
Stockholders' Equity............. $ 571,701 $ 497,002 $ 132,256 $ (566,148) $ 634,811
=========== =========== =========== ============ ===========
</TABLE>
-13-
<PAGE>
Supplemental Combining Statements of Income
(In thousands)
<TABLE>
<CAPTION>
Unconsolidated
----------------------------------------
Non-
Guarantor Guarantor Eliminating Consolidated
MDC Subsidiaries Subsidiaries Entries MDC
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
THREE MONTHS ENDED MARCH 31, 1996
REVENUES
Homebuilding............................. $ 79 $ 191,194 $ 3 $ - - $ 191,276
Financial Services....................... - - - - 7,738 - - 7,738
Corporate................................ 217 6 9 - - 232
Equity in earnings of subsidiaries....... 5,591 - - - - (5,591) - -
----------- ----------- ----------- ----------- -----------
Total Revenues..................... 5,887 191,200 7,750 (5,591) 199,246
----------- ----------- ----------- ----------- -----------
COSTS AND EXPENSES
Homebuilding............................. 418 184,581 168 75 185,242
Financial Services....................... - - - - 2,742 - - 2,742
Corporate general and administrative..... 2,594 - - 7 - - 2,601
Corporate and homebuilding
interest............................... (3,935) 5,048 703 35 1,851
----------- ----------- ----------- ----------- -----------
Total Expenses..................... (923) 189,629 3,620 110 192,436
----------- ----------- ----------- ----------- -----------
Income before income taxes.................. 6,810 1,571 4,130 (5,701) 6,810
Provision for income taxes.................. 2,486 626 1,678 (2,304) 2,486
----------- ----------- ----------- ----------- -----------
NET INCOME.................................. $ 4,324 $ 945 $ 2,452 $ (3,397) $ 4,324
=========== =========== =========== =========== ===========
THREE MONTHS ENDED MARCH 31, 1995
REVENUES
Homebuilding............................. $ 33 $ 184,802 $ 91 $ (397) $ 184,529
Financial Services....................... - - - - 6,150 - - 6,150
Corporate................................ 413 - - - - - - 413
Equity in earnings of subsidiaries....... 6,000 1,196 - - (7,196) - -
----------- ----------- ----------- ----------- -----------
Total Revenues..................... 6,446 185,998 6,241 (7,593) 191,092
----------- ----------- ----------- ----------- -----------
COSTS AND EXPENSES
Homebuilding............................. 546 175,850 124 - - 176,520
Financial Services....................... - - - - 2,394 - - 2,394
Corporate general and
administrative......................... 3,092 - - 35 - - 3,127
Corporate and homebuilding
interest............................... (3,404) 5,959 740 (456) 2,839
----------- ----------- ----------- ----------- -----------
Total Expenses..................... 234 181,809 3,293 (456) 184,880
----------- ----------- ----------- ----------- -----------
Income before income taxes.................. 6,212 4,189 2,948 (7,137) 6,212
Provision for income taxes.................. 2,144 1,593 913 (2,506) 2,144
----------- ----------- ----------- ----------- -----------
NET INCOME.................................. $ 4,068 $ 2,596 $ 2,035 $ (4,631) $ 4,068
=========== =========== =========== =========== ===========
</TABLE>
-14-
<PAGE>
Supplemental Combining Statement of Cash Flows
Three Months Ended March 31, 1996
(In thousands)
<TABLE>
<CAPTION>
Unconsolidated
----------------------------------------
Non-
Guarantor Guarantor Eliminating Consolidated
MDC Subsidiaries Subsidiaries Entries MDC
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES............................... $ 73,593 $ 1,550 $ (4,003) $ (58,708) $ 12,432
----------- ----------- ----------- ----------- -----------
INVESTING ACTIVITIES
Net Proceeds From Mortgage-Related Assets
And Liabilities.......................... - - - - 693 - - 693
Affiliate Notes Receivable.................. 16,648 (27) (1,393) (15,228) - -
Other, net.................................. (299) 322 (54) - - (31)
----------- ----------- ----------- ----------- -----------
Net Cash Provided By (Used In) Investing
Activities............................... 16,349 295 (754) (15,228) 662
----------- ----------- ----------- ----------- -----------
FINANCING ACTIVITIES
Net Increase (Reduction) In Borrowings From
Parent and Subsidiaries.................. (87,810) 6,417 7,457 73,936 - -
Lines of Credit
Advances............................... - - 179,344 - - - - 179,344
Principal payments..................... - - (180,475) (6,977) - - (187,452)
Notes Payable
Borrowings............................. - - 480 - - - - 480
Principal payments..................... (453) (2,598) 281 - - (2,770)
Treasury Stock Repurchases.................. (1,645) - - - - - - (1,645)
Dividend Payments........................... (576) - - - - - - (576)
Other, net.................................. 265 - - - - - - 265
----------- ----------- ----------- ----------- -----------
Net Cash Provided By (Used In) Financing
Activities............................... (90,219) 3,168 761 73,936 (12,354)
----------- ----------- ----------- ----------- -----------
Net Increase (Decrease) In Cash And Cash
Equivalents.............................. (277) 5,013 (3,996) - - 740
Cash And Cash Equivalents
Beginning Of Period...................... 10,296 5,054 5,445 - - 20,795
----------- ----------- ----------- ----------- -----------
End Of Period............................ $ 10,019 $ 10,067 $ 1,449 $ - - $ 21,535
=========== =========== =========== =========== ===========
</TABLE>
-15-
<PAGE>
Supplemental Combining Statement of Cash Flows
Three Months Ended March 31, 1995
(In thousands)
<TABLE>
<CAPTION>
Unconsolidated
----------------------------------------
Non-
Guarantor Guarantor Eliminating Consolidated
MDC Subsidiaries Subsidiaries Entries MDC
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES............................... $ (23,026) $ (21,079) $ 6,233 $ 42,187 $ 4,315
----------- ----------- ----------- ----------- -----------
INVESTING ACTIVITIES
Net Proceeds From Mortgage-Related Assets And
Liabilities.............................. - - - - (92) - - (92)
Affiliate Notes Receivable.................. 14,257 - - - - (14,257) - -
Other, net.................................. - - - - 368 - - 368
----------- ----------- - ----------- ----------- - -----------
Net Cash Provided By Investing
Activities................................ 14,257 - - 276 (14,257) 276
----------- ----------- ----------- ----------- -----------
FINANCING ACTIVITIES
Net Increase (Reduction) In Borrowings
From Parent and Subsidiaries............. (8,545) 23,038 13,437 (27,930) - -
Lines of Credit
Advances............................... - - 155,308 - - - - 155,308
Principal payments..................... - - (152,865) (19,721) - - (172,586)
Notes Payable
Borrowings............................. - - 1,075 - - - - 1,075
Principal payments..................... (12) (7,243) (1,060) - - (8,315)
Dividend Payments........................... (387) - - - - - - (387)
Other, net.................................. 279 - - - - - - 279
----------- ----------- ----------- ----------- -----------
Net Cash Provided By (Used In)
Financing Activities...................... (8,665) 19,313 (7,344) (27,930) (24,626)
----------- ----------- ----------- ----------- -----------
Net Decrease In Cash And Cash Equivalents...
(17,434) (1,766) (835) - - (20,035)
Cash And Cash Equivalents
Beginning Of Period...................... 31,210 9,656 2,698 - - 43,564
----------- ----------- ----------- ----------- -----------
End Of Period............................ $ 13,776 $ 7,890 $ 1,863 $ - - $ 23,529
=========== =========== =========== =========== ===========
</TABLE>
-16-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
INTRODUCTION
MDC is the seventh largest homebuilder in the United States based on
homebuilding revenues. The Company operates in two segments: homebuilding and
financial services. In its homebuilding segment, MDC is engaged in the
construction and sale of residential housing in (i) metropolitan Denver and
Colorado Springs, Colorado; (ii) northern Virginia and suburban Maryland (the
"Mid-Atlantic"); (iii) Northern and Southern California; (iv) Phoenix and
Tucson, Arizona; and (v) Las Vegas, Nevada. In its financial services segment,
(i) HomeAmerican Mortgage Corporation (a wholly owned subsidiary of M.D.C.
Holdings, Inc., "HomeAmerican") provides mortgage loans primarily to the
Company's home buyers and, to a lesser extent, to others (the mortgage lending
operations); and (ii) Financial Asset Management LLC (an indirect subsidiary of
M.D.C. Holdings, Inc., "FAMC") manages, by contract, the operations of two
publicly traded real estate investment trusts (each, a "REIT") (the asset
management operations).
RESULTS OF OPERATIONS
The table below summarizes MDC's results of operations during each of
the periods presented (in thousands, except per share amounts).
Three Months
Ended March 31,
1996 1995
----------- -----------
Revenues.......................................... $ 199,246 $ 191,092
Income Before Income Taxes........................ 6,810 6,212
Net Income........................................ 4,324 4,068
Earnings Per Share:
Primary...................................... .22 .20
Fully diluted................................ .20 .19
Revenues for the first quarter of 1996 reached the highest first
quarter level in the Company's history and increased 4% compared with the same
period in 1995, primarily due to an increase in the number of homes closed. The
Company closed 1,051 homes during the first quarter of 1996, the highest level
of first quarter home closings in the Company's history and a 4% increase over
the 1,008 homes closed in the same period in 1995.
Income before income taxes and net income were higher in the first
quarter of 1996 compared with the first quarter of 1995 as a result of (i)
higher operating profit from the Company's financial services segment, primarily
due to larger gains on sales of mortgage loans and mortgage-related assets in
1996; (ii) lower interest expense as the Company had fewer completed unsold
homes in the first quarter of 1996 compared with 1995; and (iii) lower corporate
general and administrative expenses in 1996. These increases to income partially
were offset by a reduction in operating profit from the Company's homebuilding
operations in the first quarter of 1996 compared with the first quarter of 1995
primarily resulting from (i) lower operating profit from the Company's
Mid-Atlantic operations due to fewer home closings and a decline in Home Gross
Margins (as hereinafter defined); (ii) lower operating profit from the Company's
Colorado operations due to fewer home closings at lower average selling prices;
and (iii) increased marketing and general and administrative expenses incurred
in support of the Company's expanding homebuilding activities.
-17-
<PAGE>
Impact of Home Mortgage Interest Rates.
The Company's homebuilding and mortgage lending operations are
dependent upon the availability and cost of mortgage financing. Increases in
home mortgage interest rates (i) may reduce the demand for homes and home
mortgages; and (ii) generally will reduce home mortgage refinancing activity.
In October 1993, home mortgage interest rates reached their lowest
levels in 25 years, dropping to an average of 6.7% on a 30-year, fixed-rate
mortgage. From October 1993 to December 1994, home mortgage interest rates
increased to as high as 9.25%. During this period of rising interest rates, the
Company experienced a general weakening in demand for new homes in most of its
markets. This weakened demand, along with a general buildup in unsold homes
under construction by the Company and other homebuilders, adversely affected the
Company's home sales and Home Gross Margins on such sales in 1995, particularly
in the first quarter. Since December 1994, home mortgage interest rates
generally declined to as low as 6.9% in February 1996. The decline during 1995
and early 1996, among other things, led to improved home sales levels in the
last three quarters of 1995 and the first quarter of 1996 compared with the same
periods in the prior year. However, Home Gross Margins have not recovered as
quickly, as the Company and other homebuilders in the Company's markets have
continued to offer increased incentives to sell homes, especially unsold homes
under construction.
Mortgage interest rates have recently increased to as high as 8.1%. The
Company is unable to predict the extent to which recent or future increases in
home mortgage interest rates will affect adversely the Company's operating
activities and results of operations.
-18-
<PAGE>
Homebuilding Segment.
The table below sets forth certain information with respect to the
Company's homes sold, closed and delivered during each of the periods presented,
as well as units sold under a contract but not delivered ("Backlog") and active
subdivisions at each date shown (dollars in thousands).
<TABLE>
<CAPTION>
Three Months,
Ended March 31,
1996 1995
----------- ------------
<S> <C> <C>
Home sales revenues............................... $ 186,023 $ 182,064
Operating profit.................................. $ 6,034 $ 8,009
Average selling price per housing unit............ $ 177.0 $ 180.6
Home Gross Margins................................ 13.6% 13.8%
Homes (units)
Sales contracted, net
Colorado................................... 668 540
Mid-Atlantic............................... 427 330
California................................. 249 160
Arizona.................................... 326 178
Nevada..................................... 51 25
------------ ------------
Total................................ 1,721 1,233
============ ============
Closed and delivered
Colorado................................... 437 480
Mid-Atlantic............................... 157 191
California................................. 195 126
Arizona.................................... 216 184
Nevada..................................... 46 27
----------- ------------
Total................................ 1,051 1,008
=========== ============
</TABLE>
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1996 1995 1995
----------- ------------ -----------
<S> <C> <C> <C>
Backlog (units)
Colorado................................... 889 658 670
Mid-Atlantic............................... 545 275 476
California................................. 229 175 135
Arizona.................................... 344 234 251
Nevada..................................... 74 13 27
----------- ------------ -----------
Total................................ 2,081 1,355 1,559
=========== ============ ===========
Estimated sales value............................. $ 370,100 $ 243,000 $ 288,700
=========== ============ ===========
Active Subdivisions
Colorado................................... 51 49 52
Mid-Atlantic............................... 49 48 41
California................................. 20 23 16
Arizona.................................... 24 22 20
Nevada..................................... 6 2 3
----------- ------------ -----------
Total................................ 150 144 132
=========== ============ ===========
</TABLE>
-19-
<PAGE>
Home Sales Revenues and Homes Closed and Delivered. Home sales revenues
for the three months ended March 31, 1996 reached their highest first quarter
level in the Company's history, representing an increase of 2% over home sales
revenues for the same period in 1995, primarily as a result of increased home
closings, partially offset by reduced average selling prices on homes closed.
The Company experienced increases in home closings in (i) California (a 55%
increase) due to the Company's acquisition and opening of several new
subdivisions in Southern California, including five active subdivisions in
Paloma del Sol, a master planned community in Temecula, Riverside County,
acquired from Mesa Homes in July 1995; (ii) Arizona (a 17% increase) primarily
due to continued expansion of the Company's operations in Phoenix; and (iii)
Nevada (a 70% increase) as the Company began closing homes in four active
subdivisions acquired from Longford Homes in February 1996.
The Company's Mid-Atlantic and Colorado operations delivered fewer
homes in the first quarter of 1996 compared with the same period in 1995. Home
closings in the Company's Mid-Atlantic market adversely were impacted by lower
home sales Backlog at the end of 1995 than at the end of 1994 and adverse
weather conditions in the first three months of 1996 which delayed construction
and development activities and the delivery of certain homes. Such construction
and development delays will also impair the delivery of some homes originally
scheduled to close in the second quarter of 1996. Home closings were lower in
Colorado primarily due to the favorable impact in the first quarter of 1995 of
the sale and delivery of unsold homes under construction at December 31, 1994
which were considered to be in excess of the Company's plan and needs.
Average Selling Price Per Housing Unit. The decrease in the average
selling price per housing unit in the first quarter of 1996 compared with the
first quarter of 1995 reflects the impact of management's continuing emphasis on
offering lower-priced, more affordable homes primarily marketed to first-time
and first-time move-up home buyers. This strategy resulted in lower average
sales prices in the first quarter of 1996 compared with prices in the first
quarter of 1995 in (i) Colorado, Maryland and Arizona; and (ii) Southern
California and Nevada as the Company closed affordably priced homes in
subdivisions acquired from Mesa Homes and Longford Homes, respectively. These
decreases partially were offset by an increase in the average selling price in
the Northern California market principally due to the mix of homes closed. The
Company believes that its average selling price will be lower during the
remainder of 1996 than in comparable periods in 1995 and could decline an
additional two to three percent from the first quarter 1996 level.
Home Gross Margins. Gross margins (home sales revenues less cost of
goods sold, which primarily includes land and construction costs, capitalized
interest, a reserve for warranty expense and financing costs) as a percent of
home sales revenues ("Home Gross Margins") decreased slightly during the first
quarter of 1996 compared with the first quarter of 1995. The 1996 first quarter
decline largely was due to increased incentives offered to home buyers (i) in
order to stimulate sales in view of weakening conditions in the Mid-Atlantic
market; (ii) to counter increased competition in each of the Company's markets;
and (iii) to continue to reduce the Company's older inventory of unsold homes
under construction. Although the first quarter 1996 Home Gross Margins improved
from the fourth quarter of 1995, the Company believes that further growth in
Home Gross Margins over the next two quarters will be limited primarily due to
the continued impact of increased incentives offered to home buyers. In
addition, increases in, among other things, the costs of subcontracted labor,
finished lots and building materials may affect adversely future Home Gross
Margins to the extent that market conditions prevent the recovery of increased
costs through higher sales prices.
Home Sales and Backlog. Home sales increased 40% during the first
quarter of 1996 compared with the first quarter of 1995 primarily due to a 14%
increase in active subdivisions and a 29% increase
-20-
<PAGE>
in home sales per active subdivision to 3.6 per month during the first quarter
of 1996 compared with 2.8 per month during the same period in 1995. As a result
of these strong sales, the Company's Backlog at March 31, 1996 increased to
2,081 homes, representing a 54% increase from a Backlog of 1,355 homes at
December 31, 1995 and a 33% increase from 1,559 homes at March 31, 1995. These
strong year-over-year increases in sales and Backlog are a result of increased
sales in each of MDC's markets, particularly Southern California, Phoenix and
Las Vegas due to the Company's continued expansion in these markets. Strong
sales results also were experienced in Colorado and the Mid-Atlantic region
fueled in part by the relatively low level of mortgage interest rates during the
first quarter of 1996. Additionally, the Company increased the number of active
subdivisions in the Mid-Atlantic region by 14% in the first quarter of 1996
compared with the same period in 1995. MDC expects approximately 70% of its
March 31, 1996 Backlog to close under existing sales contracts during the
remainder of 1996, assuming no significant change in interest rates.
The Company's home sales in April 1996 totalled 457 units compared with
426 homes sold in April 1995. The Company is unable to predict if this trend of
higher home sales in 1996 compared with 1995 will continue in the future,
particularly in view of recent increases in mortgage interest rates.
Marketing. Marketing expenses (which include, among other things,
amortization of deferred marketing, model home expenses and sales commissions)
totalled $11,982,000 for the first quarter of 1996 compared with $11,117,000 for
the same period in 1995. This 8% increase during 1996 principally was due to (i)
variable cost increases resulting from the increase in homebuilding revenues;
and (ii) additional marketing-related salary, advertising and model home
operation expenses incurred to support the Company's expanded operations
and to stimulate sales in response to increased competition in each of its
markets.
General and Administrative. General and administrative expenses
increased to $7,512,000 during the first quarter of 1996 compared with
$6,395,000 during the same period in 1995 primarily due to additional costs
incurred in support of the Company's expanded operations in Southern California,
Phoenix and Las Vegas.
Land Sales.
Revenues from land sales totalled $5,159,000 and $2,313,000,
respectively, for the first quarter of 1996 and 1995. The land sales for both
periods primarily were in Colorado. Gross profits from these land sales were
$227,000 and $320,000, respectively, for the first quarter of 1996 and 1995.
First quarter 1996 land sales include a sale of approximately 54 acres
of land held for future development or sale in the Company's Rock Creek Ranch
development in Colorado for approximately $4,800,000, which generated gross
profit of $234,000. The purchaser acquired the option to purchase this land in
August 1995.
-21-
<PAGE>
Land Inventory.
The table below shows (in thousands) the carrying value of MDC's land
and land under development in each of its homebuilding markets at March 31,
1996, December 31, 1995 and March 31, 1995.
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1996 1995 1995
----------- ----------- -----------
<S> <C> <C> <C>
Finished or currently under development
Colorado............................... $ 29,009 $ 34,331 $ 42,033
Mid-Atlantic........................... 50,579 47,247 33,162
California............................. 18,451 26,694 32,642
Arizona................................ 23,247 20,586 22,073
Nevada................................. 10,011 4,559 6,414
----------- ----------- -----------
Total.............................. 131,297 133,417 136,324
Held for future development or sale*........ 40,505 43,543 49,827
----------- ----------- -----------
Total.............................. $ 171,802 $ 176,960 $ 186,151
=========== =========== ===========
</TABLE>
*The substantial majority of the land held for future
development or sale consists of unfinished lots located in
Colorado which generally are in close proximity to projects
currently being developed.
In addition to its land inventory, the Company controls a portion of
the land it will require for its homebuilding operations in future periods
utilizing "rolling" option contracts. Generally, in a rolling option contract,
the Company obtains the right to purchase finished lots in consideration for an
option deposit (generally $50,000 to $200,000 per contract). In the event the
Company elects not to purchase the finished lots within a specified period of
time (generally, 5 to 20 lots per project per calendar quarter), the agreements
limit the Company's loss to the option deposit, thereby limiting the Company's
risk while preserving its liquidity. At March 31, 1996, 7,708 lots were
controlled under rolling option agreements with $7,500,000 in total option
deposits. Because of increased demand for finished lots in certain of the
markets where the Company builds homes, the Company's ability to acquire lots
using rolling options has been reduced or has become more expensive.
-22-
<PAGE>
Financial Services Segment.
Mortgage Lending Operations.
The table below summarizes the results of HomeAmerican's operations
during each of the periods presented (in thousands).
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1996 1995
----------- -----------
<S> <C> <C>
Gains from sales of mortgage servicing:
Bulk........................................... $ 2,402 $ 2,218
Other.......................................... 220 452
Net interest income............................... 805 693
Origination fees.................................. 1,389 1,074
Gains (losses) on sales of mortgage loans......... 542 (336)
Mortgage servicing and other...................... 386 566
General and administrative expenses............... (2,122) (1,784)
----------- -----------
Operating profit......................... $ 3,622 $ 2,883
=========== ===========
Principal amount of originations and purchases:
MDC home buyers.............................. $ 99,401 $ 77,743
Spot......................................... 13,333 6,017
Correspondent................................ 10,963 9,130
----------- -----------
Total.................................... $ 123,697 $ 92,890
=========== ===========
Capture Rate...................................... 65.4% 53.8%
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1996 1995 1995
----------- ------------ -----------
<S> <C> <C> <C>
Composition of Servicing Portfolio at End of Period:
FHA insured/VA guaranteed...................... $ 96,946 $ 85,002 $ 208,981
Conventional................................... 347,959 401,809 416,409
----------- ------------ ----------
Total Servicing Portfolio.......................... $ 444,905 $ 486,811 $ 625,390
=========== ============ ==========
Salable Portion of Servicing Portfolio*............ $ 309,097 $ 429,328 $ 448,166
=========== ============ ==========
</TABLE>
*Salable servicing portfolio at March 31, 1996 includes servicing
originated prior to 1996 of $202,156.
HomeAmerican's operating profit for the first quarter of 1996 increased
compared with the same period in 1995 primarily due to the recording of gains on
sales of mortgage loans totalling $542,000 in 1996, compared with losses
totalling $336,000 in 1995. These increased gains primarily resulted from the
Company's adoption in 1996 of SFAS 122 (as hereinafter defined).
SFAS 122 requires the Company to allocate the cost of mortgage loans
originated by HomeAmerican after January 1, 1996 between the mortgage loans and
the right to service the mortgage loans, based on their relative values. Prior
to 1996, the cost of mortgage loans originated by HomeAmerican was assigned to
the mortgage loans, with no cost assigned to the servicing rights. The net
effect of the adoption of SFAS 122, all other factors held constant, will be
higher gains (or lower
-23-
<PAGE>
losses) on sales of mortgage loans originated by HomeAmerican after January 1,
1996 and lower gains on sales of the related servicing rights, compared with
gains on sales of mortgage loans and related servicing rights originated by
HomeAmerican prior to January 1, 1996.
The Company's adoption of SFAS 122 resulted in additional gains in the
first quarter of 1996 of approximately $830,000 on the sale of mortgage loans
which were originated and sold by HomeAmerican during such period. In addition,
gains from the non-bulk sale of mortgage servicing rights in the first quarter
of 1996 were reduced by $210,000 due to the allocation of mortgage loan costs to
the servicing rights sold in accordance with the requirements of SFAS 122. Gains
from bulk sales of mortgage servicing in the first quarter of 1996 were not
impacted significantly by the adoption of SFAS 122 as the servicing rights sold
primarily were originated by HomeAmerican prior to January 1, 1996.
HomeAmerican's loan originations and purchases increased by 33% in the
first quarter of 1996 compared with the same period in 1995 primarily due to
increases in (i) the Company's home closings; (ii) HomeAmerican's "Capture
Rate", or the number of mortgage loans originated for MDC home buyers as a
percentage of total MDC home closings; and (iii) the dollar amount of spot
originations primarily resulting from increased refinancing activity in view of
lower mortgage interest rates. HomeAmerican opened origination facilities in
Southern California and Nevada in late 1995 and February 1996, respectively,
which favorably affected, and favorably will affect in the future,
HomeAmerican's total originations and Capture Rate. HomeAmerican continues to
benefit from the Company's homebuilding growth as MDC home buyers were the
source of more than 80% of the principal amount of mortgage loans originated or
purchased in 1996 and throughout 1995.
Forward Sales Commitments. HomeAmerican's operations are affected by,
among other things, changes in mortgage interest rates. HomeAmerican utilizes
forward mortgage securities contracts to manage the interest rate risk on its
fixed-rate mortgage loans owned and rate-locked mortgage loans in the pipeline.
Such contracts are the only significant financial derivative instrument utilized
by HomeAmerican.
Asset Management Operations.
The following table summarizes the results of the asset management
operations during the periods presented (in thousands).
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1996 1995
----------- -----------
<S> <C> <C>
Management fees from REITs......................... $ 796 $ 637
Gains on sales of mortgage-related assets.......... 935 - -
Other revenues, net................................ 263 846
General and administrative expenses................ (620) (610)
----------- -----------
Operating profit........................ $ 1,374 $ 873
=========== ===========
</TABLE>
The Company currently does not anticipate making additional
mortgage-related investments. As a result, future income from the asset
management operations substantially will be dependent on management fees earned
from two publicly traded REITs. At March 31, 1996, the REITs had approximately
$151,500,000 in assets under management by the Company.
-24-
<PAGE>
Other Operating Results.
Interest Expense. Corporate and homebuilding interest incurred
decreased by 14% to $7,774,000 for the first quarter of 1996 compared with
$8,989,000 for the same period in 1995, primarily due to (i) lower average
effective interest rates with respect to the Company's variable-rate bank lines
of credit and project loans in 1996; and (ii) lower average outstanding
borrowings during the first quarter of 1996 compared with the first quarter of
1995 as the Company had lower levels of completed unsold homes in the first
quarter of 1996 compared with 1995.
The portion of corporate and homebuilding interest which was
capitalized (the Company capitalizes interest on its homebuilding inventories
during the period of active development and through the completion of
construction) during the first quarter of 1996 totalled $5,923,000, which was
slightly lower than the $6,150,000 of interest capitalized in the final quarter
of 1995.
Corporate and homebuilding interest incurred but not capitalized is
reflected as interest expense and totalled $1,851,000 for the first quarter of
1996 compared with $2,839,000 for the first quarter of 1995, reflecting the net
impact of the $1,215,000 decrease in interest incurred, partially offset by the
$227,000 decrease in interest capitalized.
For a reconciliation of interest incurred, capitalized and expensed,
see Note C to the Company's Condensed Consolidated Financial Statements.
Corporate General and Administrative Expenses. Corporate general and
administrative expenses totalled $2,601,000 during the three months ended March
31, 1996, compared with $3,127,000 during the first quarter of 1995. The
decrease in the first quarter of 1996 primarily was due to an insurance
settlement of $1,250,000 received in the first quarter of 1996 related to the
recovery of certain homebuilding expenditures which were previously expensed,
which more than offset increases in certain insurance costs and expenses
incurred in connection with the Company's new national marketing initiative.
Income Taxes. M.D.C. Holdings, Inc. and its wholly owned subsidiaries
file a consolidated federal income tax return (an "MDC Consolidated Return").
Richmond Homes and its wholly owned subsidiaries filed a separate consolidated
federal income tax return (each a "Richmond Homes Consolidated Return") from its
inception (December 28, 1989) through February 2, 1994, the date Richmond Homes
became a wholly owned subsidiary of MDC.
MDC's overall effective income tax rates of 36.5% and 34.5%,
respectively, for the first quarter of 1996 and 1995 differed from the federal
statutory rate of 35%. These differences primarily were due to, among other
things, (i) the impact of state income taxes; and (ii) in 1995, the realization
of non-taxable income for financial reporting purposes for which no tax
liability was recorded.
In April 1995, the Company and the Internal Revenue Service (the "IRS")
reached final agreement on the IRS examinations of (i) the MDC Consolidated
Returns for the years 1984 and 1985; and (ii) the Richmond Homes Consolidated
Returns for the years 1989 and 1990. These agreements had no material impact
upon the Company's financial position or results of operations.
The IRS has completed its examination of the MDC Consolidated Returns
for the years 1986 through 1990 and has proposed adjustments that would shift
the recognition of certain items of income and expense from one year to another
("Timing Adjustments"). To the extent taxable income in a prior
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year is increased by proposed Timing Adjustments, taxable income may be reduced
by a corresponding amount in other years; however, the Company would incur an
interest charge as a result of such adjustment. The Company currently is
protesting many of these proposed adjustments through the IRS appeals process.
In the opinion of management, adequate provision has been made for any
additional income taxes and interest which may result from the proposed
adjustments; however, it is reasonably possible that the ultimate resolution
could result in amounts which differ materially in the near-term from amounts
provided.
The IRS currently is examining the MDC and Richmond Homes Consolidated
Returns for the years 1991, 1992 and 1993. No reports have been issued by the
IRS in connection with these examinations. In the opinion of management,
adequate provision has been made for additional income taxes and interest, if
any, which may result from these examinations; however, it is reasonably
possible that the ultimate resolution could result in amounts which differ
materially in the near term from amounts provided.
LIQUIDITY AND CAPITAL RESOURCES
MDC uses its liquidity and capital resources to, among other things,
(i) support its operations, including its inventories of homes, home sites and
land; (ii) provide working capital; and (iii) provide mortgage loans for its
home buyers. Liquidity and capital resources are generated internally from
operations and from external sources.
Capital Resources.
The Company's capital structure is a combination of (i) permanent
financing, represented by Stockholders' Equity; (ii) long-term financing,
represented by publicly traded Senior Notes and subordinated notes due primarily
in 2003 and 2005, respectively; and (iii) current financing, primarily lines of
credit, as discussed below. The Company believes that its current financial
condition is both balanced to fit its current operational structure and adequate
to satisfy its current and near-term capital requirements.
The Company's debt-to-equity ratio improved to 1.42 to 1 at March 31,
1996 compared with 1.49 to 1 at December 31, 1995. The improvement primarily is
a result of (i) the earnings of the Company, which contributed to the increase
in the Company's Stockholders' Equity at March 31, 1996; and (ii) the use of
internally generated cash flow to reduce debt.
Based upon its current business plan, MDC anticipates the acquisition
of various parcels of finished lots and partially developed land for use in its
future homebuilding operations during the remainder of 1996. The Company
currently intends to acquire a portion of the land inventories required in
future periods through takedowns of lots subject to "rolling" options entered
into in prior periods and under new "rolling" options. The use of "rolling"
options lessens the Company's land-related risk and improves liquidity.
Based upon its current capital resources and additional liquidity
available under existing credit relationships, MDC anticipates that it has
adequate financial resources to satisfy its current and near-term capital
requirements. The Company believes that it can meet its long-term capital needs
(including, among other things, meeting future debt payments and refinancing or
paying off other long-term debt as it becomes due) from operations and external
financing sources, assuming that no significant adverse
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changes in the Company's business occur as a result of the various risk factors
described elsewhere herein, in particular, increases in interest rates.
Lines of Credit and Notes Payable.
Homebuilding. MDC's homebuilding bank line of credit facilities at
March 31, 1996 aggregated $158,500,000. At March 31, 1996, $42,359,000 was
borrowed and an additional $113,079,000 was collateralized and available to be
borrowed under the bank lines of credit. All such agreements were paid in full
and cancelled in April 1996 as discussed below.
In April 1996, the Company entered into a $150,000,000 unsecured
revolving credit agreement maturing June 30, 2000, although a term-out may
commence earlier under certain circumstances. The new unsecured line of credit
will result in reduced administrative expenses and related direct costs compared
with levels incurred under the secured line of credit agreements. Initial
advances at closing of $40,000,000 primarily were used to retire the borrowings
under the cancelled bank lines of credit collateralized by homebuilding
inventories.
Financial Services. To provide funds to originate and purchase mortgage
loans and to finance these mortgage loans on a short-term basis, HomeAmerican
utilizes its mortgage lending bank line of credit (the "Mortgage Line"). These
mortgage loans are pooled into GNMA, FNMA and FHLMC pools or retained as whole
loans and subsequently are sold in the open market on a "spot" basis or pursuant
to mortgage loan sale commitments. During the first quarter of 1996 and 1995,
respectively, HomeAmerican sold $125,452,000, and $85,350,000, respectively,
principal amount of mortgage loans and mortgage certificates to unaffiliated
purchasers.
The aggregate amount available under the Mortgage Line at March 31,
1996 was $51,000,000. Borrowings under the Mortgage Line are collateralized by
mortgage loans and mortgage-backed certificates and are limited to the value of
"eligible collateral" (as defined in the credit agreement). At March 31, 1996,
$15,013,000 was borrowed and an additional $23,557,000 was collateralized and
available to be borrowed under the Mortgage Line. The Company also has
additional borrowing capability with available repurchase agreements.
General. The Company's line of credit and notes payable require
compliance with certain covenants, representations and warranties. Currently,
the Company believes that it is in compliance with these covenants,
representations and warranties.
Consolidated Cash Flow.
During the first quarter of 1996, the Company generated $12,432,000 in
cash from operating activities. The Company primarily used this cash to pay down
lines of credit and notes payable by $10,398,000 and to repurchase, for
$1,645,000, 230,000 shares of MDC Common Stock at $7.13 per share. This stock
repurchase substantially completed an announced program to repurchase up to
1,100,000 shares of MDC Common Stock.
During the first quarter of 1995, MDC used $20,035,000 of cash and
other internally generated funds totalling $4,483,000 to pay down lines of
credit and notes payable by $24,518,000.
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<PAGE>
ADOPTION OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
("SFAS 121"). The Company's adoption of SFAS 121 on January 1, 1996 did not have
a material impact on the results of operations or financial position of the
Company upon adoption.
In May 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 122 "Accounting for Mortgage Servicing Rights
an Amendment of FASB Statement No. 65" ("SFAS 122"). As previously discussed,
the Company adopted this statement effective January 1, 1996.
OTHER
Forward-Looking Statements.
Some of the statements in this Form 10-Q Quarterly Report, as well as
statements made by the Company in periodic press releases, oral statements made
by the Company's officials to analysts and shareowners in the course of
presentations about the Company and conference calls following quarterly
earnings releases, constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the Company to be materially different from any future results, performance or
achievements expressed or implied by the forward-looking statements. Such
factors include, among other things, (i) general economic and business
conditions; (ii) interest rate changes; (iii) competition; (iv) the availability
and cost of land and other raw materials used by the Company in its homebuilding
operations; (v) unanticipated demographic changes; (vi) shortages of labor;
(vii) weather related slowdowns; (viii) slow growth initiatives; (ix) building
moratoria; (x) governmental regulation including environmental laws; and (xi)
other factors over which the Company has little or no control.
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<PAGE>
M.D.C. HOLDINGS, INC.
FORM 10-Q
PART II
ITEM 1. LEGAL PROCEEDINGS.
Expansive Soils Cases.
On October 21, 1994, a complaint was served on several of the Company's
subsidiaries in an action initiated by six homeowners in Highlands Ranch,
Colorado<F1>. On January 26, 1995, counsel for the Company accepted service of
two additional complaints by a homeowner in the Stonegate subdivision in Douglas
County, Colorado<F2> and by a homeowner in the Rock Creek development located in
Boulder County, Colorado<F3>. On September 12, 1995, the Company was served with
a similar complaint relating to homeowners in Douglas County, Colorado<F4>. The
complaints, each of which seek certification of a class action, purport to
allege substantially identical claims relating to the construction of homes on
lots with expansive soils, including negligence, breach of express and implied
warranties, violation of the Colorado Consumer Protection Act, non-disclosure
and a claim for exemplary damages. The homeowners in each complaint seek,
individually and on behalf of the alleged class, recovery in unspecified amounts
including actual damages, statutory damages, exemplary damages and treble
damages. The Company has filed a response to each of the complaints and to
initial discovery requests in the first filed case. The ultimate outcome of the
cases is uncertain at this time; however, management does not believe that the
outcome of these matters will have a material adverse effect on the financial
condition or results of operations of the Company.
The Company has notified its insurance carriers of these complaints and
currently is reviewing with the carriers how the Company will proceed. The
insurance carriers providing primary coverage have agreed to defend the Company
in the cases subject to reservations of rights.
Other.
The Company and certain of its subsidiaries and affiliates have been
named as defendants in various other claims, complaints and legal actions
arising in the normal course of business. Because of the nature of the
homebuilding business, and in the ordinary course of the Company's operations,
the Company from time to time may be subject to product liability claims,
including claims similar to those discussed under the description of the
Expansive Soils Cases, above. In the opinion of management, the outcome of these
matters will not have a material adverse effect upon the financial condition or
results of operations of the Company.
The Company is not aware of any litigation, matter or pending claim
against the Company which would result in material contingent liabilities
related to environmental hazards or asbestos.
- --------
<F1> Colescott, et al vs. Richmond Homes Limited, et al. in the District Court,
Douglas County, State of Colorado, Civil Action No. 94 CV 352, Division 2.
<F2> Moore vs. Richmond Homes Limited, et al. in the District Court, Douglas
County, State of Colorado, Civil Action No. 95 CV 321, Division 2.
<F3> Constantini vs. Richmond Homes Limited, et al. in the District Court,
Boulder County, State of Colorado, Civil Action No. 95 CV 1052, Division 3.
<F4> Rodenburg vs. Richmond Homes Limited, et al.in the District Court, Douglas
County, State of Colorado, Civil Action No. 95 CV 298, Division 1.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREOWNERS.
No matters were submitted to shareowners during the first quarter of
1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit:
4.1 Credit Agreement dated as of April 10,
1996 among Richmond American Homes of
California, Inc., Richmond American
Homes of Maryland, Inc., Richmond
American Homes of Nevada, Inc.,
Richmond American Homes of Virginia,
Inc., Richmond American Homes, Inc.,
Richmond Homes, Inc. I and Richmond
Homes, Inc. II as Borrowers and the
Banks Named Herein as Banks and Bank
One, Arizona, NA as Agent (the "Credit
Agreement").
4.2 Schedule "2.21" to Credit Agreement--
Terms Relating to Last 24 Months of
Term/No Extension.
4.3 Schedule "2.22" to Credit Agreement--
Terms Relating to Conversion Period.
4.4 Guaranty of Credit Agreement dated
as of April 10, 1996 by M.D.C.
Holdings, Inc.
4.5 Form of Promissory Note of Richmond
American Homes of California, Inc.,
Richmond American Homes of Maryland,
Inc., Richmond American Homes of
Nevada, Inc., Richmond American Homes
of Virginia, Inc., Richmond American
Homes, Inc., Richmond Homes, Inc. I
and Richmond Homes, Inc.
II as Makers dated April __, 1996.
27 Financial Data Schedule.
28 Form of Independent Accountants'
Review Report dated April 24, 1996.
(b) Reports on Form 8-K:
No Current Reports on Form 8-K were filed by the
Registrant during the period covered by this
Quarterly Report on Form 10-Q.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 14, 1996 M.D.C. HOLDINGS, INC.
(Registrant)
By: /s/ Paris G. Reece III
---------------------------
Paris G. Reece III,
Senior Vice President,
Chief Financial Officer and
Principal Accounting Officer
-31-
Exhibit 4.1
CREDIT AGREEMENT
DATED AS OF APRIL 10, 1996
AMONG
RICHMOND AMERICAN HOMES OF CALIFORNIA, INC.
RICHMOND AMERICAN HOMES OF MARYLAND, INC.
RICHMOND AMERICAN HOMES OF NEVADA, INC.
RICHMOND AMERICAN HOMES OF VIRGINIA, INC.
RICHMOND AMERICAN HOMES, INC.
RICHMOND HOMES, INC. I
and
RICHMOND HOMES, INC. II
as Borrowers
AND
THE BANKS NAMED HEREIN
as Banks
AND
BANK ONE, ARIZONA, NA
as Agent
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS.......................................... 1
ARTICLE II THE CREDITS.......................................... 22
2.1 Commitment........................................... 22
2.2 Required Payments.................................... 22
2.3 Ratable Loans........................................ 23
2.4 Types of Advances.................................... 23
2.5 Fees; Reduction in Commitment........................ 23
2.6 Minimum Amount of Each Advance....................... 25
2.7 Optional Principal Payments.......................... 25
2.8 Method of Selecting Types and Interest
Periods for New Advances........................... 26
2.9 Conversion and Continuation of Outstanding Advances.. 27
2.10 Changes in Interest Rate, etc........................ 28
2.11 Determination of Applicable Margins and Applicable
Unused Commitment Rate............................. 28
2.12 Rates Applicable After Event of Default.............. 29
2.13 Method of Payment.................................... 29
2.14 Notes; Telephonic Notices............................ 30
2.15 Interest Payment Dates; Interest Basis............... 30
2.16 Notification of Advances, Interest Rates,
Prepayments and Commitment Reductions.............. 30
2.17 Lending Installations................................ 30
2.18 Non-Receipt of Funds by Agent........................ 30
2.19 Swing Line........................................... 31
2.20 Withholding Tax Exemption............................ 32
2.21 Extension of Facility Termination Date............... 33
2.22 Conversion Period.................................... 35
2.23 Replacement of Certain Banks......................... 40
ARTICLE III CHANGE IN CIRCUMSTANCES.............................. 41
3.1 Yield Protection..................................... 41
3.2 Changes in Capital Adequacy Regulations.............. 42
3.3 Availability of Types of Advances.................... 43
3.4 Funding Indemnification.............................. 43
3.5 Bank Statements; Survival of Indemnity............... 43
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ARTICLE IV THE LETTER OF CREDIT FACILITY........................ 44
4.1 Facility Letters of Credit........................... 44
4.2 Limitations.......................................... 44
4.3 Conditions........................................... 45
4.4 Procedure for Issuance of Facility Letters of Credit..46
4.5 Duties of Issuing Bank............................... 47
4.6 Participation........................................ 48
4.7 Compensation for Facility Letters of Credit.......... 50
4.8 Issuing Bank Reporting Requirements.................. 51
4.9 Indemnification; Nature of Issuing Bank's Duties..... 52
4.10 No Obligation to Issue............................... 53
4.11 Obligations of Issuing Bank and Other Banks.......... 53
ARTICLE V CONDITIONS PRECEDENT................................. 54
5.1 Initial Advance...................................... 54
5.2 Each Advance......................................... 55
ARTICLE VI REPRESENTATIONS AND WARRANTIES....................... 56
6.1 Existence and Standing............................... 56
6.2 Authorization and Validity........................... 57
6.3 No Conflict; Government Consent...................... 57
6.4 Financial Statements................................. 57
6.5 Material Adverse Change.............................. 58
6.6 Taxes................................................ 58
6.7 Litigation and Contingent Obligations................ 58
6.8 Subsidiaries......................................... 58
6.9 ERISA................................................ 58
6.10 Accuracy of Information.............................. 58
6.11 Regulation U......................................... 59
6.12 Material Agreements.................................. 59
6.13 Labor Disputes and Acts of God....................... 59
6.14 Ownership............................................ 59
6.15 Operation of Business................................ 59
6.16 Laws; Environment.................................... 59
6.17 Investment Company Act............................... 60
6.18 Public Utility Holding Company Act................... 60
6.19 Subordination Provisions............................. 60
6.20 Indenture Provisions................................. 60
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<PAGE>
ARTICLE VII AFFIRMATIVE COVENANTS................................ 61
7.1 Financial Reporting.................................. 61
7.2 Use of Proceeds...................................... 63
7.3 Notice of Event of Default........................... 64
7.4 Conduct of Business.................................. 64
7.5 Taxes................................................ 64
7.6 Insurance............................................ 64
7.7 Compliance with Laws................................. 64
7.8 Maintenance of Properties............................ 64
7.9 Inspection........................................... 65
7.10 Environment.......................................... 65
ARTICLE VIII NEGATIVE COVENANTS................................... 65
8.1 Dividends............................................ 65
8.2 Indebtedness......................................... 66
8.3 Merger............................................... 67
8.4 Sale of Assets....................................... 68
8.5 Investments and Acquisitions......................... 68
8.6 Liens................................................ 70
8.7 Affiliates........................................... 72
8.8 Modifications to Certain Indebtedness................ 73
8.9 Amendments........................................... 73
ARTICLE IX FINANCIAL COVENANTS.................................. 73
9.1 Minimum Consolidated Tangible Net Worth.............. 73
9.2 Leverage Test; Interest Coverage Test................ 73
9.3 Net Worth............................................ 75
9.4 Spec Unit Inventory.................................. 75
ARTICLE X EVENTS OF DEFAULT.................................... 76
10.1 Representations and Warranties....................... 76
10.2 Non-payment.......................................... 76
10.3 Other Defaults....................................... 76
10.4 Other Indebtedness................................... 76
10.5 Bankruptcy........................................... 77
10.6 Receiver............................................. 77
10.7 Judgment............................................. 77
10.8 Unfunded Liabilities................................. 78
10.9 Withdrawal Liability................................. 78
10.10 Increased Contributions.............................. 78
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10.11 Change in Control.................................... 78
10.12 Dissolution.......................................... 78
10.13 Guaranty............................................. 78
10.14 Collateral........................................... 78
10.15 No Defaults.......................................... 78
ARTICLE XI ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES....... 79
11.1 Acceleration......................................... 79
11.2 Amendments........................................... 80
11.3 Preservation of Rights............................... 80
11.4 New Borrowers........................................ 81
ARTICLE XII GENERAL PROVISIONS................................... 81
12.1 Survival of Representations.......................... 81
12.2 Governmental Regulation.............................. 81
12.3 Taxes................................................ 82
12.4 Headings............................................. 82
12.5 Entire Agreement..................................... 82
12.6 Nature of Obligations; Benefits of this Agreement.... 82
12.7 Expenses; Indemnification............................ 82
12.8 Numbers of Documents................................. 83
12.9 Accounting........................................... 83
12.10 Severability of Provisions........................... 83
12.11 Nonliability of Banks and Issuing Bank............... 83
12.12 CHOICE OF LAW........................................ 83
12.13 Arbitration.......................................... 83
12.14 CONSENT TO JURISDICTION.............................. 85
12.15 WAIVER OF JURY TRIAL................................. 85
12.16 Confidentiality...................................... 85
ARTICLE XIII AGENT................................................ 86
13.1 Appointment.......................................... 86
13.2 Powers............................................... 86
13.3 General Immunity..................................... 86
13.4 No Responsibility for Loans, Recitals, etc........... 86
13.5 Action on Instructions of Banks...................... 86
13.6 Employment of Agents and Counsel..................... 87
13.7 Reliance on Documents; Counsel....................... 87
13.8 Agent's Reimbursement and Indemnification............ 87
13.9 Rights as a Bank or Issuing Bank..................... 87
13.10 Bank Credit Decision................................. 88
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<PAGE>
13.11 Successor Agent...................................... 88
13.12 Agent's Fee.......................................... 89
ARTICLE XIV RATABLE PAYMENTS..................................... 89
14.1 Ratable Payments..................................... 89
ARTICLE XV BENEFIT OF AGREEMENT, ASSIGNMENTS;
PARTICIPATIONS....................................... 89
15.1 Successors and Assigns............................... 89
15.2 Participations....................................... 90
15.2.1 Permitted Participants; Effect............. 90
15.2.2 Voting Rights.............................. 90
15.2.3 Waiver of Setoff........................... 90
15.3 Assignments.......................................... 90
15.3.1 Permitted Assignments...................... 90
15.3.2 Effect; Effective Date..................... 90
15.4 Dissemination of Information......................... 91
15.5 Tax Treatment........................................ 91
ARTICLE XVI NOTICES.............................................. 91
16.1 Giving Notice........................................ 91
16.2 Change of Address.................................... 92
ARTICLE XVII COUNTERPARTS......................................... 92
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<PAGE>
LIST OF SCHEDULES AND EXHIBITS
EXHIBITS:
Exhibit A Form of Deed of Trust
Exhibit B Form of Mortgage
Exhibit C Form of Environmental Agreement
Exhibit D Form of Guaranty
Exhibit E Form of Note
Exhibit F Form of Opinion of Haligman & Lottner
Exhibit G Form of Certificate of General Counsel
Exhibit H Form of Opinion of Local Counsel
Exhibit I Form of Borrowing Notice
Exhibit J Form of Compliance Certificate of Authorized Officer
(Financial Covenant Tests)
Exhibit K Form of Assignment (with Form of Notice of Assignment
attached)
SCHEDULES:
Schedule "1" Refinanced Loans
Schedule "2.21" Terms Relating to Last 24 Months of Term/No Extension
Schedule "2.22" Terms Relating to Conversion Period
Schedule "6.3" Required Orders, Consents and Approvals
Schedule "8.2(ii)" Existing Indebtedness
Schedule "8.6(iv)" Existing Liens
<PAGE>
CREDIT AGREEMENT
THIS AGREEMENT is entered into as of April 10, 1996, among the
Borrowers named herein, the Banks listed on the signature pages of this
Agreement, and BANK ONE, ARIZONA, NA, a national banking association, as Agent.
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement:
"Acquisition" means any transaction, or any series of related
transactions, consummated on or after the date of this Agreement, by which
Guarantor or any Borrower (i) acquires any going concern or all or substantially
all of the assets of any firm, corporation or division thereof, whether through
purchase of assets, merger or otherwise or (ii) directly or indirectly acquires
(in one transaction or as the most recent transaction in a series of
transactions) at least a majority (in number of votes) of the securities of a
corporation which have ordinary voting power for the election of directors
(other than securities having such power only by reason of the happening of a
contingency) or a majority (by percentage or voting power) of the outstanding
partnership or other ownership interests of a partnership, joint venture,
limited liability company or other similar business organization.
"Adjusted Consolidated Tangible Net Worth" means Consolidated Tangible
Net Worth, plus (i) Indebtedness evidenced by the Convertible Subordinated
Notes, but only to the extent that the maturity date of such Indebtedness will
occur after the Facility Termination Date, and (ii) any other Public
Indebtedness constituting convertible subordinated notes with convertible and
subordination features similar to the Convertible Subordinated Notes, but only
to the extent that the maturity date of such Indebtedness will occur after the
Facility Termination Date. Adjusted Consolidated Tangible Net Worth shall
specifically not include the Net Worth of any Subsidiary (taken as a whole on a
consolidated basis) engaged primarily or substantially in the business of
mortgage lending or asset management. As used in this definition, "Net Worth"
means, as to each such Subsidiary (taken as a whole on a consolidated basis),
the sum of (A) all capital accounts (including without limitation, any paid-in
capital, capital surplus, and retained earnings), less (B) all advances or other
sums or consideration paid and outstanding from such Subsidiary to Guarantor,
all as determined in conformity with Agreement Accounting Principles.
"Advance" means a borrowing hereunder consisting of the aggregate
amount of the several Loans made by Banks (or Swing Line Advances made by Bank
One) to a Borrower of the same Type and, in the case of a LIBOR Advance, for the
same Interest Period.
"Affected Bank" is defined in Section 2.23.
<PAGE>
"Affiliate" of any Person means any other Person directly or indirectly
controlling, controlled by or under common control with such Person. A Person
shall be deemed to control another Person if the controlling Person beneficially
owns (within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934,
as amended) 10% or more of any class of voting securities (or other ownership
interests) of the controlled Person or possesses, directly or indirectly, the
power to direct or cause the direction of the management or policies of the
controlled Person, whether through ownership of stock, by contract or otherwise.
"Agent" means Bank One, Arizona, NA, a national banking association, in
its capacity as agent for Banks pursuant to Article XIII, and not in its
individual capacity as a Bank, and any successor Agent appointed pursuant to
Article XIII.
"Aggregate Available Credit" means the aggregate of the Available
Credits of all of Banks.
"Aggregate Commitment" means the aggregate of the Commitments of all
Banks, as reduced from time to time pursuant to the terms hereof. As of the date
of this Agreement, the Aggregate Commitment is $150,000,000.
"Aggregate Debt Coverage Test" is defined in Section 9.3(b).
"Agreement" means this Credit Agreement, as it may be amended or
modified and in effect from time to time.
"Agreement Accounting Principles" is defined in Section 12.9.
"Applicable Floating Rate Margin" means, as at any date of
determination, the margin indicated in Section 2.11 as then applicable in the
determination of the Floating Rate.
"Applicable Letter of Credit Rate" means, as at any date of
determination, the rate per annum indicated in Section 4.7(b) as then applicable
in the determination of the Facility Letter of Credit Fee under Section 4.7.
"Applicable LIBOR Rate Margin" means, as at any date of determination,
the margin indicated in Section 2.11 as then applicable in the determination of
LIBOR Rates.
"Applicable Margin(s)" means the Applicable LIBOR Rate Margin and/or
the Applicable Floating Rate Margin, as the case may be.
"Applicable Unused Commitment Rate" means, as at any date of
determination, the rate per annum indicated in Section 2.11 as then applicable
in the determination of the Unused Commitment Fee under Section 2.5(b).
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<PAGE>
"Article" means an article of this Agreement unless another document is
specifically referenced.
"Authorized Officer" means any one or more of the Chairman, President,
Senior Vice President or any Vice President, Chief Financial Officer, or other
officer of each Borrower or Guarantor, as applicable, acting singly or together,
in accordance with the applicable resolutions and bylaws of such Borrower or
Guarantor.
"Available Credit" means, at any date with respect to any Bank, the
amount (if any) by which such Bank's Commitment exceeds the sum of (i) the
outstanding principal balance of such Bank's Loans as of such date, plus (ii)
such Bank's ratable share (determined in accordance with Section 4.6) of the
Facility Letter of Credit Obligations as of such date.
"Bank One" means Bank One, Arizona, NA, in its individual capacity, and
its successors.
"Banks" means the lending institutions listed on the signature pages of
this Agreement and their respective successors and assigns.
"Borrowers" means RICHMOND AMERICAN HOMES OF CALIFORNIA, INC., a
Colorado corporation, RICHMOND AMERICAN HOMES OF MARYLAND, INC., a Maryland
corporation, RICHMOND AMERICAN HOMES OF NEVADA, INC., a Colorado corporation,
RICHMOND AMERICAN HOMES OF VIRGINIA, INC., a Virginia corporation, RICHMOND
AMERICAN HOMES, INC., a Delaware corporation, RICHMOND HOMES, INC. I, a Delaware
corporation, and RICHMOND HOMES, INC. II, a Delaware corporation, and their
successors and assigns, and any Subsidiary that shall hereafter become a
Borrower in accordance with Section 11.4 hereof, and any successors and assigns
of any of the foregoing.
"Borrower" means any one of the Borrowers.
"Borrowing Base" means, with respect to an Inventory Valuation Date for
which it is to be determined, an amount equal to the sum of the following assets
of each Borrower (but only to the extent that such assets are not subject to any
Liens other than Permitted Liens):
(i) the Receivables, multiplied by ninety percent (90%), plus
(ii) the book value of Presold Units, multiplied by eighty percent
(80%), plus
(iii) the book value of Spec Units, multiplied by seventy percent
(70%), plus
(iv) the book value of Model Units, multiplied by seventy percent
(70%), plus
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(v) the book value of Land Under Development, multiplied by fifty
percent (50%);
provided, however, that (A) the aggregate of the amounts calculated pursuant to
clauses (iii) and (v) with respect to all Borrowers shall not exceed, on any
Inventory Valuation Date, the aggregate of the amounts calculated pursuant to
clauses (ii) and (iv) with respect to all Borrowers, and (B) the aggregate of
the amounts calculated pursuant to clause (v) shall not exceed at any time fifty
percent (50%) of the Aggregate Commitment.
"Borrowing Base Certificate" means, with respect to each Borrower, a
written certificate in a form acceptable to Agent setting forth the amount of
the Borrowing Base with respect to the calendar month most recently completed,
certified as true and correct by an Authorized Officer of the applicable
Borrower.
"Borrowing Date" means a date on which an Advance is made hereunder.
"Borrowing Notice" is defined in Section 2.8.
"Business Day" means (i) with respect to any borrowing, payment or rate
selection of LIBOR Advances, a day (other than a Saturday or Sunday) on which
banks generally are open in Phoenix and New York for the conduct of
substantially all of their commercial lending activities and on which dealings
in United States dollars are carried on in the London interbank market, and (ii)
for all other purposes, a day (other than a Saturday or Sunday) on which banks
generally are open in Phoenix for the conduct of substantially all of their
commercial lending activities.
"Capitalized Lease" of a Person means any lease of Property by such
Person as lessee which would be capitalized on a balance sheet of such Person
prepared in accordance with Agreement Accounting Principles.
"Capitalized Lease Obligations" of a Person means the amount of the
obligations of such Person under Capitalized Leases which would be shown as a
liability on a balance sheet of such Person prepared in accordance with
Agreement Accounting Principles.
"Cash Equivalents" means:
(a) U.S. Treasury bills and notes;
(b) GNMA securities;
(c) debt insured by other agencies guaranteed by the full
faith and credit of the United States of America;
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(d) commercial paper rated either "A1" or better by Standard
and Poor's or "P1" by Moody's Investor Service;
(e) Dutch Auction Preferred Stocks (DAP) rated either "AA"
or better by Standard & Poor's or Moody's Investor Service;
(f) certificates of deposit issued by commercial banks,
savings banks or savings and loan associations whose short-term debt is
rated either "A1" or better by Standard and Poor's or "P1" or better by
Moody's Investor Service, or if such an institution is a subsidiary
whose short-term debt is unrated, then its parent corporation must have
such a rating;
(g) bankers acceptances issued by financial institutions
that meet the requirements for certificates of deposit;
(h) deposits in institutions having the same qualifications
required for investments in certificates of deposit;
(i) repurchase agreements collateralized by any otherwise
acceptable collateral as defined above; and
(j) money market accounts a majority of whose assets are
composed of items described by any of the foregoing clauses (a) through
(i) through brokerage firms deemed acceptable by Guarantor's
management.
"Change in Control" means (a) as to Guarantor, the acquisition by any
Person, or two or more Persons acting in concert, of beneficial ownership
(within the meaning of Rule 13d-3 of the Securities and Exchange Commission
under the Securities Exchange Act of 1934) of 50% or more of the outstanding
shares of voting stock of Guarantor, or (b) as to any Borrower, the acquisition
by any Person (except Guarantor or one or more of the Borrowers), or two or more
Persons acting in concert of any beneficial ownership (within the meaning of
Rule 13d-3 of the Securities and Exchange Commission under the Securities
Exchange Act of 1934) of any of the outstanding shares of voting stock of such
Borrower.
"Code" means the Internal Revenue Code of 1986, as amended, reformed or
otherwise modified from time to time.
"Collateral" means the Presold Units, Spec Units, Model Units and Land
Under Development owned by Borrowers from time to time upon which Banks hold a
properly perfected first and prior Deed of Trust as security for the
Obligations.
"Collateral Documents" is defined in Paragraph C(5) of Schedule "2.22."
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"Commitment" means, for each Bank, the obligation of such Bank to make
Loans, and to participate in the Facility Letters of Credit in accordance with
Section 4.6(a), not exceeding the amount set forth opposite its signature below
or as set forth in any Notice of Assignment relating to any assignment that has
become effective pursuant to Section 15.3.2, as such amount may be modified from
time to time pursuant to the terms hereof.
"Consolidated Indebtedness" means, at any date, the outstanding amount
of all Indebtedness of Borrowers and Guarantor, without duplication, all
determined on a consolidated basis for Guarantor in conformity with Agreement
Accounting Principles. For purposes of this definition, "Consolidated
Indebtedness" shall specifically not include:
(i) Indebtedness of any Subsidiary that is not engaged in
either the construction of Housing Units and/or land development for
the future construction of Housing Units and such Indebtedness is not
otherwise directly related to the construction of Housing Units and/or
land development for the future construction of Housing Units; and
(ii) Indebtedness of Borrowers and Guarantor evidenced by
existing and future guarantees (or other enhancements) in favor of Rock
Creek special districts not to exceed in the aggregate $45,000,000; and
(iii) Indebtedness evidenced by the Convertible Subordinated
Notes, and any other Public Indebtedness constituting convertible
subordinated notes with convertible and subordination features similar
to the Convertible Subordinated Notes, but only to the extent, in each
case, that the maturity date of such Indebtedness will occur after the
Facility Termination Date.
"Consolidated Interest Expense" means for any period, without
duplication, the aggregate amount of interest which, in conformity with
Agreement Accounting Principles, would be set opposite the caption "interest
expense" or any like caption on a consolidated income statement for Guarantor
(other than for Guarantor's mortgage lending and financial asset management
Subsidiaries), including, without limitation, imputed interest included on
Capitalized Lease Obligations, all commissions, discounts and other fees and
charges owed with respect to Letters of Credit and bankers' acceptance
financing, the net costs associated with Rate Hedging Obligations, amortization
of other financing fees and expenses, the interest portion of any deferred
payment obligation, amortization of discount or premiums, if any, and all other
noncash interest expense, other than interest and other charges amortized to
cost of sales. Consolidated Interest Expense includes, with respect to Borrowers
and Guarantor (other than for Guarantor's mortgage lending and financial asset
management Subsidiaries), without duplication, all interest included as a
component of cost of sales for such period.
"Consolidated Interest Incurred" means for any period, without
duplication, the aggregate amount of interest which, in conformity with
Agreement Accounting Principles, would be set opposite the caption "interest
expense" or any like caption on a consolidated income statement
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for Guarantor (other than for Guarantor's mortgage lending and financial asset
management Subsidiaries), including, without limitation, imputed interest
included on Capitalized Lease Obligations, all commissions, discounts and other
fees and charges owed with respect to Letters of Credit and bankers' acceptance
financing, the net costs associated with Rate Hedging Obligations, amortization
of other financing fees and expenses, the interest portion of any deferred
payment obligation, amortization of discount or premium, if any, and all other
noncash interest expense other than interest and other charges amortized to cost
of sales. Consolidated Interest Incurred includes, with respect to a Borrower
and Guarantor, without duplication, all capitalized interest for such period,
all interest attributable to discontinued operations for such period to the
extent not set forth on the income statement under the caption "interest
expense" or any like caption, and all interest actually paid by a Borrower or
Guarantor (other than for Guarantor's mortgage lending and financial asset
management Subsidiaries) under any contingent obligation during such period.
"Consolidated Net Income" means, for any period, the net income (or
loss) of Guarantor on a consolidated basis for such period taken as a single
accounting period, determined in conformity with Agreement Accounting
Principles.
"Consolidated Tangible Net Worth" means, as to Guarantor, at any date,
the sum of all capital accounts (including without limitation, any paid-in
capital, capital surplus, and retained earnings) determined on a consolidated
basis in conformity with Agreement Accounting Principles, less (i) its
consolidated Intangible Assets, and (ii) loans and advances to directors,
officers and employees of Guarantor but excluding (I) loans for purposes of
exercising options to purchase capital stock in Guarantor to the extent not
otherwise netted out in the determination of shareholders equity, and (II) any
arms-length mortgage loans made by any Subsidiary in the ordinary course of such
Subsidiary's business, and (III) any advances made to employees in the ordinary
course of business for travel and other items, and (IV) other such loans and
advances not to exceed $5,000,000 in the aggregate outstanding at any one time,
all determined as of such date. For purposes of this definition "Intangible
Assets" means the amount (to the extent reflected in determining such
consolidated stockholders' equity) of (A) all write-ups in the book value of any
asset owned by Guarantor or any Subsidiary, (B) any amount, however designated
on the balance sheet, representing the excess of the purchase price paid for
assets or stock acquired over the value assigned thereto on the books of
Guarantor or any Subsidiary, (C) all unamortized debt discount, goodwill,
patents, trademarks, service marks, trade names, copyrights, organization or
developmental expenses and other intangible items, and (D) all items that would
be considered intangible assets under Agreement Accounting Principles.
"Consolidated Tangible Net Worth Test" is defined in Section 9.1.
"Controlled Group" means all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with Guarantor, a Borrower or any of their
respective Subsidiaries, are treated as a single employer under Section 414 of
the Code.
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"Conversion/Continuation Notice" is defined in Section 2.9.
"Convertible Subordinated Notes" means the 8-3/4% Convertible
Subordinated Notes due 2005 of Guarantor issued in the original principal amount
of $28,000,000.
"Conversion Date" means the first day of the Conversion Period,
determined pursuant to Section 2.22.
"Conversion Period" means the period of time commencing on the
Conversion Date and expiring on the Facility Termination Date. The Conversion
Period shall be either (i) a Secured Conversion Period, (ii) an Unsecured
Conversion Period, or (iii) a Modified Secured Conversion Period.
"Deed of Trust" means each and all Deeds of Trust, Assignment of Rents,
Security Agreement and Fixture Filing, securing the Obligations, granted from
time to time by a Borrower, as Trustor, for the benefit of Agent on behalf of
Banks, as Beneficiary, as the same may be amended or modified and in effect from
time to time, each being substantially in the form of Exhibit A attached hereto
(conformed as necessary with respect to the laws of the state where the
Collateral described therein is located), and each and all Mortgages, Assignment
of Rents, Security Agreement and Fixture Filing, securing the Obligations,
granted from time to time by a Borrower, as Mortgagor, for the benefit of Agent
on behalf of Banks, as Mortgagee, as the same may be amended or modified and in
effect from time to time, each being substantially in the form of Exhibit B
attached hereto (conformed as necessary with respect to the laws of the state
where the Collateral described therein is located).
"Dividend" means (i) any dividend paid or declared by any Borrower or
Guarantor, as applicable; (ii) any purchase, redemption, retirement or other
acquisition by any Borrower or Guarantor, as applicable for value, or the
setting aside of any funds or issuance of any warrants for such purpose, of any
of the capital stock of such Borrower or Guarantor, as applicable now or
hereafter outstanding or any interest therein; and (iii) as to any Borrower, any
distribution of assets, properties, cash, rights, obligations or other
consideration or securities of such Borrower, directly or indirectly, to
Guarantor.
"Dollars" and the sign "$" mean lawful money of the United States of
America.
"Due Diligence Documents" is defined in Paragraph C(6) of Schedule
"2.22."
"EBITDA" means, for any period, without duplication, the following, all
as determined on a consolidated basis for Guarantor in conformity with Agreement
Accounting Principles,
(i) the sum of the amounts for such period of (a) Consolidated
Net Income, (b) Consolidated Interest Expense, (c) charges against
income for all federal, state and local taxes, (d) depreciation
expense, (e) amortization expense, (f) other non-cash charges and
expenses, and (g) any losses arising outside of the
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ordinary course of business which have been included in the determin-
ation of Consolidated Net Income, less
(ii) any gains arising outside of the ordinary course of
business which have been included in the determination of Consolidated
Net Income.
"Environmental Agreement" means each and all Environmental Indemnity
Agreements executed by Borrowers and Guarantor from time to time for the benefit
of Banks and Agent, and relating to the Collateral, as the same may be amended
or modified and in effect from time to time, each being substantially in the
form of Exhibit C.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any rule or regulation issued thereunder.
"Event of Default" means an event described in Article X after the
expiration of any applicable cure or notice period provided in Article X.
"Excluded Taxes" is defined in Section 3.1(i).
"Existing Letters of Credit" is defined in Section 4.4(f).
"Extension Request" is defined in Section 2.21(a).
"Facility Letter of Credit" means a Letter of Credit issued by the
Issuing Bank for the account of a Borrower in accordance with Article IV.
"Facility Letter of Credit Fee" means a fee, payable with respect to
each Facility Letter of Credit issued by the Issuing Bank, in an amount per
annum equal to the product of (i) the Applicable Letter of Credit Rate
(determined as of the date on which the quarterly installment of such fee is
due) and (ii) the face amount of such Facility Letter of Credit.
"Facility Letter of Credit Obligations" means, at any date, the sum of
(i) the aggregate undrawn face amount of all outstanding Facility Letters of
Credit, plus (ii) the aggregate amount paid by an Issuing Bank on any Facility
Letters of Credit to the extent (if any) not reimbursed by a Borrower or by
Banks under Section 4.4.
"Facility Rating" means the publicly announced ratings by any two (2)
of the following nationally recognized rating agencies: Moody's Investors
Service, Inc., Standard & Poor's Corporation, Fitch's Investment Service, and
Duff & Phelps Credit Rating Co., as selected by Borrowers, on Borrowers' Debt
evidenced by this Agreement and the Notes; provided, however, (i) except as
provided in clause (ii), if the two ratings are not identical, the Facility
Rating shall be the lower of the two ratings, (ii) if more than one rating
gradation exists between the two ratings, the Facility Rating shall be the
rating that is one gradation below the higher of the two ratings, and (iii) if
only one rating is announced, the Facility Rating shall be the rating that is
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one gradation below the announced rating. The Facility Rating shall change if
and when such rating(s) change.
"Facility Termination Date" means June 30, 2000, as the same may be
extended as provided in Section 2.21.
"Federal Funds Effective Rate" means, for any day, an interest rate per
annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published for such day (or, if such day is not a
Business Day, for the immediately preceding Business Day) by the Federal Reserve
Bank of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations at approximately 10:00 a.m., Phoenix
time, on such day on such transactions received by Agent from three (3) Federal
funds brokers of recognized standing selected by Agent in its sole discretion.
"Financial Covenant Test" means each of the Consolidated Tangible Net
Worth Test, the Leverage Test, the Individual Debt Coverage Test and the
Aggregate Debt Coverage Test.
"Floating Rate" means, for any day, a rate per annum equal to (i) the
Prime Rate for such day, plus (ii) the Applicable Floating Rate Margin, in each
case changing when and as the Prime Rate changes.
"Floating Rate Advance" means an Advance which bears interest at the
Floating Rate.
"Floating Rate Loan" means a Loan which bears interest at the Floating
Rate.
"GAAP" means generally accepted accounting principles in effect from
time to time, consistently applied.
"Guarantor" means M.D.C. HOLDINGS, INC., a Delaware corporation.
"Guarantor Permitted Liens" means, as to Guarantor, any of the
following:
(i) Liens for taxes, assessments or governmental charges or
levies on Guarantor's Property if the same shall not at the time be
delinquent or thereafter can be paid without penalty, or are being
contested in good faith and by appropriate proceedings and for which
adequate reserves shall have been established on Guarantor's books in
accordance with Agreement Accounting Principles.
(ii) Liens imposed by law, such as carriers', warehousemen's,
mechanics' and materialmen's Liens and other similar Liens arising in
the ordinary course of business with respect to amounts that either (A)
are not yet delinquent, or (B) are delinquent but are being contested
in good faith by
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appropriate proceedings and for which adequate reserves shall have been
established on Guarantor's books in accordance with Agreement
Accounting Principles.
(iii) Utility easements, rights of way, zoning restrictions,
covenants, reservations, and such other burdens, encumbrances or
charges against real property, or other minor irregularities of title,
as are of a nature generally existing with respect to properties of a
similar character and which do not in any material way interfere with
the use thereof or the sale thereof in the ordinary course of business
of any Borrower or Guarantor.
(iv) Easements, dedications, assessment district or similar
Liens in connection with municipal financing and other similar
encumbrances or charges, in each case reasonably necessary or
appropriate for the development of real property of Guarantor, and
which are granted in the ordinary course of the business of Guarantor,
and which in the aggregate do not materially burden or impair the fair
market value or use of such real property (or the project to which it
is related) for the purposes for which it is or may reasonably be
expected to be held.
(v) Any option or right of first refusal to purchase real
property granted to the master developer or the seller of real property
that arises as a result of the non-use or non-development of such real
property by Guarantor.
(vi) Any agreement or contract to participate in the income or
revenue or to pay lot premiums, in each case derived from the sale of
Housing Units and granted in the ordinary course of business to the
seller of the real property upon which the Housing Unit is constructed.
"Guaranty" means a Guaranty, in substantially the form of Exhibit D,
duly executed by Guarantor, as the same may be amended or modified and in effect
from time to time.
"Housing Unit" means a single-family dwelling (where construction has
commenced), whether detached or attached (including condominiums but excluding
mobile homes), including the parcel of land on which such dwelling is located,
that is or will be available for sale by a Borrower. Each "Housing Unit" is
either a Presold Unit, a Spec Unit or a Model Unit.
"Housing Unit Closing" means a closing of the sale of a Housing Unit by
a Borrower to a bona fide purchaser for value.
"Indebtedness" of a Person means, without duplication, such Person's
(i) obligations for borrowed money,
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(ii) obligations representing the deferred purchase price of
Property or services (other than trade accounts payable and accrued
expenses arising or occurring in the ordinary course of such Person's
business, and other than the obligations evidenced by the Permitted
Liens or Guarantor Permitted Liens, as applicable, described in clause
(vi) of the definition of Permitted Liens or Guarantor Permitted Liens,
as applicable, all of which shall specifically not be included in the
calculation of Indebtedness),
(iii) obligations, whether or not assumed, secured by Liens
on, or payable out of the proceeds or production from, Property now or
hereafter owned or acquired by such Person, other than the obligations
evidenced by the Permitted Liens or Guarantor Permitted Liens, as
applicable, described in clause (vi) of the definition of Permitted
Liens or Guarantor Permitted Liens, as applicable,
(iv) obligations which are evidenced by notes, bonds,
debentures, or other similar instruments,
(v) Capitalized Lease Obligations,
(vi) net liabilities under Rate Hedging Obligations,
(vii) all liabilities and obligations of others of the kind
described in clauses (i) through (vi) and (viii) that such Person has
guaranteed or that is otherwise its legal liability, and
(viii) reimbursement obligations for which such Person is
obligated with respect to a Letter of Credit; Indebtedness shall
specifically not include contingent obligations with respect to a
Letter of Credit.
Indebtedness includes, without limitation, (A) in the case of each Borrower, the
Obligations, and (B) in the case of Guarantor, the obligations under the
Guaranty, and the obligations evidenced by the Senior Notes and the Convertible
Subordinated Notes and the documents executed in connection therewith.
"Indenture" means that certain Indenture, dated as of December 15,
1993, between Guarantor, Borrowers, the pledgors named therein, and First Bank
National Association pursuant to which the Senior Notes were issued, as amended
by the First Supplemental Indenture dated as of February 2, 1994.
"Individual Debt Coverage Test" is defined in Section 9.3(a).
"Interest Coverage Test" is defined in Section 9.2(b).
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"Interest Period" means, for each LIBOR Advance, the period commencing
on the date of such LIBOR Advance and ending on the last day of the period
selected by the applicable Borrower pursuant to the provisions herein and,
thereafter, each subsequent period commencing on the last day of the immediately
preceding Interest Period and ending on the last day of the period selected by
such Borrower pursuant to the provisions of this Agreement. The duration of each
Interest Period shall be 7 days or one (1), two (2), three (3), or six (6)
months as selected by the applicable Borrower (A), for a new Advance, in the
Borrowing Notice, or (B), for an outstanding Advance, in the
Conversion/Continuation Notice; provided, however, that:
(i) Whenever the last day of any Interest Period would
otherwise occur on a day other than a Business Day, the last day of
such Interest Period shall be extended to occur on the next succeeding
Business Day, provided that if such extension would cause the last day
of such Interest Period to occur in the next following calendar month,
the last day of such Interest Period shall occur on the next preceding
Business Day; and
(ii) No Interest Period with respect to any LIBOR Advance
shall extend beyond the Facility Termination Date.
"Inventory Valuation Date" means the last day of the most recent
calendar month with respect to which a Borrower is required to have delivered a
Borrowing Base Certificate pursuant to Section 7.1(vi) hereof.
"Investment" of a Person means any loan, advance, extension of credit
(other than accounts receivable arising in the ordinary course of business), or
contribution of capital by such Person to any other Person or any investment in,
or purchase or other acquisition of, the stock, partnership, joint venture or
limited liability company interests, notes, debentures or other securities of
any other Person made by such Person.
"Issuance Date" means the date on which a Facility Letter of Credit is
issued, amended or extended.
"Issuing Bank" means Bank One or such other Bank as Borrowers, Agent
and such other Bank may agree upon, that may from time to time issue Facility
Letters of Credit.
"Land Under Development" means parcels of land owned by any Borrower
(including without limitation Finished Lots, as defined in Schedule "2.22")
which are zoned for Housing Units with respect to which development activity has
commenced for the purpose of construction of Housing Units by such Borrower;
provided, however, that the term "Land Under Development" shall not include (i)
any real property upon which the construction of a Housing Unit has commenced,
and (ii) vacant land held by a Borrower for future development or sale and
designated as inactive land in the footnotes to Guarantor's financial
statements. For purposes of this definition, the construction of a Housing Unit
shall be deemed to have commenced upon commencement of the trenching for the
foundation of the Housing Unit.
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"Lending Installation" means, with respect to a Bank or Agent, any
office, branch, banking subsidiary of the holding company of a Bank or Agent, or
banking Affiliate of such Bank or Agent located in each event in the United
States.
"Letter of Credit" means a letter of credit or similar instrument which
is issued by a financial institution upon the application of a Person or upon
which such Person is an account party or for which such Person is in any way
liable.
"Leverage Multiplier" means, at the date hereof, 2.15, as such amount
may hereafter be adjusted from time to time as provided in Section 9.2(c).
"Leverage Test" is defined in Section 9.2(a).
"LIBOR Advance" means an Advance which bears interest at a LIBOR Rate.
"LIBOR Base Rate" means, with respect to a LIBOR Advance for the
relevant Interest Period, the rate of interest determined by Agent, based on
Telerate System reports or other source as may be selected by Agent, to be the
"London Interbank Offered Rate" at which deposits in United States dollars are
offered by major banks in London, England, two (2) Business Days before the
first day of the respective Interest Period, in the approximate amount of the
relevant LIBOR Advance and having a maturity approximately equal to such LIBOR
Advance's Interest Period.
"LIBOR Loan" means a Loan which bears interest at a LIBOR Rate.
"LIBOR Rate" means, with respect to a LIBOR Advance for the relevant
Interest Period, the sum of (i) the quotient of (a) the LIBOR Base Rate
applicable to such Interest Period, divided by (b) one minus the Reserve
Requirement (expressed as a decimal) applicable to such Interest Period, plus
(ii) the Applicable LIBOR Rate Margin. The LIBOR Rate shall be rounded to the
next higher multiple of 1/16 of 1% if the rate is not such a multiple.
"Lien" means any lien (statutory or other), mortgage, pledge,
hypothecation, assignment (the purpose of which is to grant a security
interest), deposit arrangement (the purpose of which is to grant a security
interest), encumbrance or other security agreement or arrangement of any kind or
nature whatsoever the purpose of which is to grant a security interest, whether
or not filed or recorded or otherwise perfected (including the interest of a
vendor or lessor under any conditional sale, any Capitalized Lease or any lease
deemed to constitute a security interest, any other title retention agreement).
"Loan" means, with respect to a Bank, such Bank's portion of any
Advance. For purposes of a Swing Line Advance, Bank One's portion of such
Advance is 100%.
"Loan Documents" means this Agreement, the Notes and any Reimbursement
Agreements, and if applicable, the Deeds of Trust and Environmental Agreements.
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"Majority Banks" means Banks in the aggregate having more than fifty
percent (50%) of the Aggregate Commitment, or if the Aggregate Commitment has
been terminated, Banks in the aggregate holding more than fifty percent (50%) of
the aggregate unpaid principal amount of the outstanding Advances; provided,
however, if Agent and any Lending Installation(s) of Agent have in the aggregate
fifty percent (50%) or more of the Aggregate Commitment or hold fifty percent
(50%) or more of the aggregate unpaid principal amount of the outstanding
Advances, as applicable, then "Majority Banks" shall mean all Banks other than
Agent and its Lending Installation(s).
"Material Adverse Effect" means a material adverse effect, based on
commercially reasonable standards, on (i) the business, Property, condition
(financial or otherwise), or results of operations of Borrowers and Guarantor,
taken as a whole, (ii) the ability of Guarantor to perform its obligations under
the Guaranty, or (iii) the validity or enforceability under applicable law of
any of the Loan Documents or the Guaranty or the rights or remedies of Agent,
Banks or any Issuing Bank thereunder (other than as to clause (iii), a Material
Adverse Effect resulting solely from the acts or omissions of Agent and/or any
Bank(s)). Items disclosed by Guarantor in its form 10-Q and form 10-K or any
other filings with the Securities and Exchange Commission shall not be deemed to
have a Material Adverse Effect solely because of such disclosure, and the
existence and content of such disclosure shall not be prima facia evidence of a
Material Adverse Effect.
"Model Unit" means a Housing Unit constructed initially for inspection
by prospective purchasers that is not intended to be sold until all or
substantially all other Housing Units in the applicable subdivision are sold.
"Modified Secured Conversion Period" means the period commencing on
the first day of the first month following the second consecutive fiscal quarter
in which Borrowers have breached a Financial Covenant Test and expiring on the
Facility Termination Date, all as more specifically described in Section 2.22,
during the term of which, among other things, (i) the Aggregate Commitment is
reduced from time to time, and (ii) Borrowers shall provide to Banks Collateral
for the Obligations.
"Multiemployer Plan" means a Plan maintained pursuant to a collective
bargaining agreement or any other arrangement as described in Section 3(37) of
ERISA to which Guarantor, any Borrower or any member of the Controlled Group is
a party to which more than one employer is obligated to make contributions.
"Net Worth" is defined in Section 9.3(a).
"Non-Recourse Indebtedness" with respect to any Person means
Indebtedness of such Person (i) for which the sole legal recourse for collection
of principal and interest on such Indebtedness is against the specific property
identified in the instruments evidencing or securing such Indebtedness and such
property was acquired with the proceeds of such Indebtedness or such
Indebtedness was incurred within ninety (90) days after the acquisition of such
property and
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for which no other assets of such Person may be realized upon in collection of
principal or interest on such Indebtedness, or (ii) that refinances Indebtedness
described in clause (i) and for which the recourse is limited to the same extent
described in clause (i).
"Note" means a promissory note, in substantially the form of Exhibit E
hereto, duly executed by Borrowers and payable to the order of a Bank in the
amount of its Commitment, including any amendment, modification, renewal or
replacement of such promissory note.
"Notice of Assignment" is defined in Section 15.3.2.
"Obligations" means all unpaid principal of and accrued and unpaid
interest on the Notes, the Facility Letter of Credit Obligations, all accrued
and unpaid fees and all expenses, reimbursements, indemnities and other
obligations of a Borrower to Banks or to any Bank, Agent, any Issuing Bank or
any indemnified party hereunder arising under the Loan Documents.
"Participants" is defined in Section 15.2.1.
"PBGC" means the Pension Benefit Guaranty Corporation, or any successor
thereto.
"Permitted Liens" means, as to each Borrower, any of the following:
(i) Liens for taxes, assessments or governmental charges or
levies on such Borrower's Property if the same (A) shall not at the
time be delinquent or thereafter can be paid without penalty, or (B)
are being contested in good faith and by appropriate proceedings and
for which adequate reserves shall have been established on such
Borrower's or Guarantor's books in accordance with Agreement Accounting
Principles.
(ii) Liens imposed by law, such as carriers', warehousemen's,
mechanics' and materialmen's Liens and other similar Liens arising in
the ordinary course of business with respect to amounts that either (A)
are not yet delinquent, or (B) are delinquent but are being contested
in good faith by appropriate proceedings and for which adequate
reserves shall have been established on such Borrower's or Guarantor's
books in accordance with Agreement Accounting Principles.
(iii) Utility easements, rights of way, zoning restrictions,
covenants, reservations, and such other burdens, encumbrances or
charges against real property, or other minor irregularities of title,
as are of a nature generally existing with respect to properties of a
similar character and which do not in any material way interfere with
the use thereof or the sale thereof in the ordinary course of business
of any Borrower.
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(iv) Easements, dedications, assessment district or similar
Liens in connection with municipal financing and other similar
encumbrances or charges, in each case reasonably necessary or
appropriate for the development of real property of such Borrower, and
which are granted in the ordinary course of the business of such
Borrower, and which in the aggregate do not materially burden or impair
the fair market value or use of such real property (or the project to
which it is related) for the purposes for which it is or may reasonably
be expected to be held.
(v) Any option or right of first refusal to purchase real
property granted to the master developer or the seller of real property
that arises as a result of the non-use or non-development of such real
property by the applicable Borrower.
(vi) Any agreement or contract to participate in the income or
revenue or to pay lot premiums, in each case derived from the sale of
Housing Units and granted in the ordinary course of business to the
seller of the real property upon which the Housing Unit is constructed.
"Person" means any natural person, corporation, firm, joint venture,
partnership, limited liability company, association, enterprise, trust or other
entity or organization, or any government or political subdivision or any
agency, department or instrumentality thereof.
"Plan" means an employee pension benefit plan which is covered by Title
IV of ERISA or subject to the minimum funding standards under Section 412 of the
Code as to which Guarantor, any Borrower or any member of the Controlled Group
may have any liability.
"Presold Unit" means a Housing Unit owned by a Borrower that is subject
to a bona fide written agreement between such Borrower and a third Person
purchaser for sale in the ordinary course of such Borrower's business of such
Housing Unit and the related lot, accompanied by a cash earnest money deposit or
down payment in an amount that is customary, and subject only to ordinary and
customary contingencies to the purchaser's obligation to buy the Housing Unit
and related Lot.
"Prime Rate" means the rate per annum most recently publicly announced
by Bank One, or its successors, in Phoenix, Arizona, as its "prime rate," as in
effect from time to time. The Prime Rate will change on each day the "prime
rate" changes. The "prime rate" is not necessarily the best or lowest rate
offered by said bank, and said bank my lend to its customers at rates that are
at, above, or below its "prime rate."
"Property" of a Person means any and all property, whether real,
personal, tangible, intangible, or mixed, of such Person, or other assets owned,
leased or operated by such Person.
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"Public Indebtedness" means Indebtedness evidenced by notes,
debentures, or other similar instruments issued after the date of this Agreement
pursuant to either (i) a registered public offering or (ii) a private placement
of such instruments in accordance with an exemption from registration (other
than Indebtedness evidenced by the Senior Notes, the Convertible Subordinated
Notes, or the 6.6421% Subordinated Exchangeable Variable Rate Notes of Guarantor
due April 1, 1998 in the existing amount of $10,230,000, or any Refinancing
Indebtedness with respect to any of the foregoing) under the Securities Act of
1933 and/or the Securities Exchange Act of 1934 or similar law.
"Purchasers" is defined in Section 15.3.1.
"Rate Hedging Obligations" of a Person means any and all obligations of
such Person, whether absolute or contingent and howsoever and whensoever
created, arising, evidenced or acquired (including all renewals, extensions and
modifications thereof and substitutions therefor), under (i) any and all
agreements, devices or arrangements designed to protect at least one of the
parties thereto from the fluctuations of interest rates, exchange rates or
forward rates applicable to such party's assets, liabilities or exchange
transactions, including, but not limited to, dollar-denominated or
cross-currency interest rate exchange agreements, forward currency exchange
agreements, interest rate cap or collar protection agreements, forward rate
currency or interest rate options, puts and warrants, and (ii) any and all
cancellations, buy backs, reversals, terminations or assignments of any of the
foregoing.
"Receivables" means the net proceeds payable to, but not yet received
by, any Borrower following a Housing Unit Closing.
"Refinanced Loans" means, severally and collectively, the loans listed
on Schedule "1" hereto.
"Refinancing Indebtedness" means Indebtedness that refunds, refinances
or extends any Indebtedness described in Schedule "8.2" hereto (or that refunds,
refinances or extends any refund, refinancing or extension of such
Indebtedness), but only to the extent that
(i) the Refinancing Indebtedness is subordinated to or pari
passu with the Obligations (or Guarantor's obligations under the
Guaranty, as applicable) to the same extent as the Indebtedness being
refunded, refinanced or extended,
(ii) the Refinancing Indebtedness is scheduled to mature
no earlier than the then current maturity date of such Indebtedness,
(iii) such Refinancing Indebtedness is in an aggregate amount
that is equal to or less than the sum of the aggregate amount then
outstanding plus all amounts committed but undisbursed under the
Indebtedness being refunded, refinanced or extended,
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(iv) the Person or Persons liable for the payment of such
Refinancing Indebtedness are the same Person or Persons (or
successor(s) thereto) that were liable for the Indebtedness being
refunded, refinanced or extended when such Indebtedness was initially
incurred, and
(v) such Refinancing Indebtedness is incurred within 120 days
after the Indebtedness being refunded, refinanced or extended is so
refunded, refinanced or extended.
"Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor thereto
or other regulation or official interpretation of said Board of Governors
relating to reserve requirements applicable to member banks of the Federal
Reserve System.
"Regulation U" means Regulation U of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor thereto
or other regulation or official interpretation of said Board of Governors
relating to the extension of credit by banks for the purpose of purchasing or
carrying margin stocks applicable to member banks of the Federal Reserve System.
"Related Business" means any line or lines of business or business
activity reasonably related to (i) the home building business, or (ii) a
substantial business segment of Guarantor, Borrowers, and their Subsidiaries on
the date hereof, all as reasonably determined by Agent.
"Rejecting Bank" is defined in Section 2.21(b).
"Reimbursement Agreement" means, with respect to a Facility Letter of
Credit, such form of application therefor and form of reimbursement agreement
therefor (whether in a single or several documents, taken together) as an
Issuing Bank may employ in the ordinary course of business for its own account,
with such modifications thereto as may be agreed upon by such Issuing Bank and a
Borrower and as are not materially adverse (in the reasonable judgment of such
Issuing Bank and Agent) to the interests of Banks; provided, however, in the
event of any conflict between the terms of any Reimbursement Agreement and this
Agreement, the terms of this Agreement shall control.
"Replacement Bank" is defined in Section 2.23.
"Reportable Event" means a reportable event as defined in Section 4043
of ERISA and the regulations issued under such Section, with respect to a Plan,
excluding, however, such events as to which the PBGC by regulation waived the
requirement of Section 4043(a) of ERISA that it be notified within thirty (30)
days of the occurrence of such event; provided, however, that a failure to meet
the minimum funding standard of Section 412 of the Code and of Section 302 of
ERISA shall be a Reportable Event regardless of the issuance of any such waiver
of the
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notice requirement in accordance with either Section 4043(a) of ERISA or waiver
of the funding requirements under Section 412(d) of the Code.
"Required Banks" means at least three (3) Banks in the aggregate having
at least 66-2/3% of the Aggregate Commitment or, if the Aggregate Commitment has
been terminated, at least three (3) Banks in the aggregate holding at least
66-2/3% of the aggregate unpaid principal amount of the outstanding Advances.
Solely for purposes of this definition, Agent and all of its Lending
Installations that are Banks shall be deemed to be a single Bank.
"Reserve Requirement" means, with respect to an Interest Period, the
maximum aggregate reserve requirement (including all basic, supplemental,
marginal and other reserves) which is imposed under Regulation D on Eurocurrency
liabilities (as defined therein).
"Section" means a numbered section of this Agreement, unless another
document is specifically referenced.
"Secured Conversion Period" means the 24-month Conversion Period
described in Section 2.22 during the term of which, among other things, (i) the
Aggregate Commitment is reduced from time to time, and (ii) Borrowers shall
provide to Banks Collateral for the Obligations.
"Senior Debt" means the Senior Notes or, if the Senior Notes are
refinanced, the Refinancing Indebtedness with respect thereto.
"Senior Debt Rating" means the publicly announced ratings by any two
(2) of the following nationally recognized rating agencies: Moody's Investors
Service, Inc., Standard & Poor's Corporation, Fitch's Investment Service, and
Duff & Phelps Credit Rating Co., as selected by Borrowers, on Guarantor's Senior
Debt; provided, however, (i) except as provided in clause (ii), if the two
ratings are not identical, the Senior Debt Rating shall be the lower of the two
ratings, (ii) if more than one rating gradation exists between the two ratings,
the Senior Debt Rating shall be the rating that is one gradation below the
higher of the two ratings, and (iii) if only one rating is announced, the Senior
Debt Rating shall be the rating that is one gradation below the announced
rating. The Senior Debt Rating shall change if and when such rating(s) change.
"Senior Notes" means the 11-1/8% Senior Notes due 2003 of Guarantor
issued in the original principal amount of $190,000,000 pursuant to the
Indenture.
"Single Employer Plan" means a Plan maintained by Guarantor, any
Borrower or any member of the Controlled Group for employees of Guarantor, any
Borrower or any member of the Controlled Group.
"Spec Unit" means any Housing Unit owned by any Borrower that is not a
Presold Unit or a Model Unit.
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"Subordinated Indebtedness" means any Indebtedness of Borrower the
payment of which is subordinated to payment of the Obligations to the reasonable
satisfaction of Agent, including Borrowers' Indebtedness under the guarantees of
the Senior Notes. Subordinated Indebtedness shall specifically not include
Indebtedness of any Borrower to Guarantor.
"Subsidiary" of a Person means (i) any corporation more than 50% of the
outstanding securities having ordinary voting power for the election of the
board of directors of which shall at the time be beneficially owned (within the
meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as amended)
directly or indirectly, by such Person or by one or more of its Subsidiaries or
by such Person and one or more of its Subsidiaries, or (ii) any partnership,
association, joint venture, limited liability company or similar business
organization more than 50% of the ownership interests having ordinary voting
power of which shall at the time be so owned or controlled. Unless otherwise
expressly provided, all references herein to a "Subsidiary" shall mean a direct
or indirect Subsidiary of Guarantor.
"Substantial Portion" means, with respect to the Property of Borrowers
and Guarantor, taken as a whole, Property which represents more than 10% of
Consolidated Tangible Net Worth, as would be shown in the consolidated financial
statements of Guarantor as of the beginning of the fiscal quarter in which such
determination is made.
"Swing Line Advances" has the meaning set forth in Section 2.19.
"Swing Line Advance Maturity Date" means that day that is the second
Business Day following the date in which a Swing Line Advance was funded by Bank
One.
"Transferee" is defined in Section 15.4.
"Type" means, with respect to any Advance, its nature as a Floating
Rate Advance or LIBOR Advance.
"Unfunded Liabilities" means the amount (if any) by which the present
value of all vested nonforfeitable benefits under all Single Employer Plans
exceeds the fair market value of the assets of such Plans allocable to such
benefits, all determined as of the then most recent valuation date for such
Plans, using the actuarial methods and assumptions utilized in the actuarial
report for each such Plan as of such date.
"Unmatured Event of Default" means an event which but for the lapse of
time or the giving of notice, or both, would constitute an Event of Default.
"Unsecured Conversion Period" means the 12-month Conversion Period
described in Section 2.22 during the term of which, among other things, (i) the
Aggregate Commitment shall be reduced from time to time, and (ii) Borrowers
shall not be required to provide to Banks Collateral for the Obligations.
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"Unused Commitment" means, at any date with respect to any Bank, the
amount (if any) by which such Bank's Commitment exceeds the sum of (i) the
outstanding principal balance of such Bank's Loans as of such date, plus (ii)
such Bank's ratable share (determined in accordance with Section 4.6) of the
outstanding amount of the Facility Letters of Credit.
"Unused Commitment Fee" means a fee payable by Borrowers to each Bank
with respect to such Bank's Unused Commitment, calculated in accordance with
Section 2.5(b).
"Wholly-Owned Subsidiary" of a Person means (i) any Subsidiary all of
the outstanding voting securities (or the election of the board of directors) of
which shall at the time be beneficially owned (within the meaning of Rule 13d-3
of the Securities Exchange Act of 1934, as amended) directly or indirectly, by
such Person or one or more Wholly-Owned Subsidiaries of such Person, or by such
Person and one or more Wholly-Owned Subsidiaries of such Person, or (ii) any
partnership, association, joint venture, limited liability company or similar
business organization 100% of the ownership interests having ordinary voting
power of which shall at the time be so owned or controlled.
The foregoing definitions shall be equally applicable to both the
singular and plural forms of the defined terms.
ARTICLE II
THE CREDITS
2.1 Commitment. From and including the date of this Agreement and prior
to the Facility Termination Date, each Bank severally agrees, on the terms and
conditions set forth in this Agreement, to make Loans and to issue Facility
Letters of Credit to Borrowers from time to time in amounts not to exceed in the
aggregate at any one time outstanding the amount of its Commitment; provided,
however, that (i) a Bank shall not be required to make any Loan or Loans in
excess of the amount of such Bank's then Available Credit, and (ii) the
aggregate principal amount of all Advances plus the aggregate amount of the
Facility Letter of Credit Obligations outstanding at any time and from time to
time to any individual Borrower shall not exceed the Borrowing Base for such
Borrower determined as of the most recent Inventory Valuation Date, and (iii)
the aggregate principal amount of all Advances plus the aggregate amount of the
Facility Letter of Credit Obligations outstanding with respect to all Borrowers
shall not exceed the aggregate of all Borrowing Bases for all Borrowers
determined as of the most recent Inventory Valuation Date. Subject to the terms
of this Agreement, each Borrower may borrow, repay and reborrow at any time
prior to the Facility Termination Date. The Commitments to lend hereunder shall
expire on the Facility Termination Date.
2.2 Required Payments. Any outstanding Advances and all other
unpaid Obligations shall be paid in full by Borrowers on the Facility
Termination Date. Additionally, if for any reason at any time either (i) the
principal amount of all Advances plus the aggregate amount of the Facility
Letter of Credit Obligations outstanding with respect to all Borrowers exceeds
the
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Aggregate Commitment, or (ii) the aggregate principal amount of all Advances
plus the aggregate amount of the Facility Letter of Credit Obligations
outstanding to any individual Borrower exceeds the Borrowing Base for such
Borrower determined as of the most recent Inventory Valuation Date, or (iii) the
aggregate principal amount of all Advances plus the aggregate amount of the
Facility Letter of Credit Obligations outstanding with respect to all Borrowers
exceeds the aggregate of all Borrowing Bases for all Borrowers determined as of
the most recent Inventory Valuation Date, then:
(a) Borrowers or the applicable Borrower shall, within five
(5) days after notice from Agent, make a payment to Agent for the
benefit of Banks from the funds of the applicable Borrower or Borrowers
in an amount equal to such excess principal amount; and
(b) Until Borrowers or the applicable Borrower shall have made
the payment to Agent described in subparagraph (a) above, Borrowers
shall not, directly or indirectly, declare, make or pay, or incur any
liability to make or pay, or cause or permit to be declared, made or
paid, any Dividend.
2.3 Ratable Loans. Each Advance hereunder, including without
limitation, any Advance made by the Banks pursuant to Section 2.19(d), but
excluding Swing Line Advances, shall consist of Loans made by the several Banks
ratably in proportion to the ratio that their respective Commitments bear to the
Aggregate Commitment. Swing Line Advances shall consist of Loans made by Bank
One.
2.4 Types of Advances. The Advances may be Floating Rate Advances or
LIBOR Advances, or a combination thereof, selected by Borrowers in accordance
with Sections 2.8 and 2.9.
2.5 Fees; Reduction in Commitment.
(a) Commitment Fee. Borrowers agree to pay to Agent, for the
account of each Bank, a commitment fee, at a rate equal to the
applicable rate set forth below, determined with respect to the amount
of such Bank's initial Commitment notified to Agent during syndication
and multiplied by the amount of such Bank's actual Commitment:
Commitment Fee (as a percentage
Bank's Initial Commitment of Bank's Commitment)
$30,000,000 or more .33%
Less than $30,000,000 .22%
The commitment fee shall be paid by Borrowers to Agent in advance,
contemporaneously with the execution of this Agreement, and shall be
non-
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refundable in any event. Notwithstanding anything herein to the
contrary, each Borrower shall be responsible to pay a portion of the
commitment fee calculated as follows: the total commitment fee divided
by the number of Borrowers equals the portion of the commitment fee to
be paid by each Borrower.
(b) Unused Commitment Fee. Borrowers agree to pay to Agent for
the account of each Bank an Unused Commitment Fee, at a rate per annum
equal to the Applicable Unused Commitment Rate, calculated on the basis
of a 365-day year in accordance with this Section from the date hereof
and to and including the Facility Termination Date, and payable
quarterly in arrears on the first day of each January, April, July and
October hereafter and on the Facility Termination Date. For each
quarter (or portion thereof), the Unused Commitment Fee shall be equal
to (A) such Bank's average daily Commitment during such quarter (or
portion thereof) minus (B) such Bank's "average daily outstandings" for
the quarter (or portion thereof) with respect to which the Unused
Commitment Fee is being computed, with the resulting number multiplied
by (C) the Applicable Unused Commitment Rate, and the final product
divided by (D) four (4).
As used herein, "average daily outstandings" means the sum of
(i) the outstanding principal balance of such Bank's Loans (including,
with respect to Bank One only, the outstanding principal balance of
Swing Line Advances) plus (ii) such Bank's ratable share (determined in
accordance with Section 4.5) of the outstanding amount of the Facility
Letters of Credit, all calculated for each day during the quarter (or
portion thereof) for which the fee is being computed, divided by the
number of days in that quarter (or portion thereof). If the Unused
Commitment Fee is being computed for less than a full quarter, the
number used in clause (D) above shall be computed on a daily basis for
the number of days for which the fee is being computed. The Unused
Commitment Fee shall continue to be payable during the Conversion
Period.
All accrued Unused Commitment Fees shall be payable on the
effective date of any termination of the obligations of Banks to make
Loans hereunder. Notwithstanding anything herein to the contrary, each
Borrower shall be responsible to pay a portion of the Unused Commitment
Fee calculated as follows: the total Unused Commitment Fee divided by
the number of Borrowers equals the portion of the Unused Commitment Fee
to be paid by each Borrower.
(c) Extension Fee. If the Facility Maturity Date is extended
pursuant to the provisions of Section 2.21, then Borrowers shall pay to
Agent, for the account of each Bank an extension fee for each such
extension, at a rate equal to the applicable rate set forth below
determined with respect to the amount of such Bank's initial Commitment
notified to Agent during syndication and multiplied by the amount of
such Bank's actual Commitment:
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Extension Fee (as a percentage
Bank's Initial Commitment of Bank's Commitment)
$30,000,000 or more .15%
Less than $30,000,000 .10%
The extension fee shall be paid by Borrowers to Agent in advance, in
the manner provided in Section 2.21(d). The extension fee shall be
non-refundable in any event. Notwithstanding anything herein to the
contrary, each Borrower shall be responsible to pay a portion of the
extension fee calculated as follows: the total extension fee divided by
the number of Borrowers equals the portion of the extension fee to be
paid by each Borrower.
(d) Reductions in Aggregate Commitment. Borrowers may
permanently reduce the Aggregate Commitment in whole, or in part
ratably among Banks (in proportion to the ratio that their respective
Commitment bear to the Aggregate Commitment) in integral multiples of
$5,000,000 at any time or from time to time, upon at least three (3)
Business Days' written notice to Agent, which notice shall specify the
amount of any such reduction; provided, however, that the amount of the
Aggregate Commitment may not be reduced below the sum of (i) the
aggregate principal amount of the outstanding Advances plus (ii) the
Facility Letter of Credit Obligations.
2.6 Minimum Amount of Each Advance. Except with respect to Swing Line
Advances, each Advance shall be in the minimum amount of $2,000,000 (and in
multiples of $1,000,000 if in excess thereof). Borrowers shall be entitled to
aggregate, on a single day, the amount of all Advances requested by Borrowers
solely for purposes of satisfying the minimum Advance amount set forth in this
Section 2.6. Any Advances that are so aggregated shall be deemed to be a single
Advance for purposes of complying with the provisions of this Agreement relating
to requesting, electing, repaying, and converting LIBOR Advances, and all
Borrowers requesting, electing, repaying and converting such Advances shall be
considered a single "Borrower" for purposes thereof and in computing the
outstanding number of LIBOR Advances.
2.7 Optional Principal Payments.
(a) Repayment of Advances. Any Borrower may at any time or
from time to time pay, without penalty or premium, all Floating Rate
Advances outstanding with respect to such Borrower, or, in a minimum
aggregate amount of $1,000,000 or any integral multiple of $500,000 in
excess thereof (except with respect to Swing Line Advances), any
portion of the outstanding Floating Rate Advances upon one (1) Business
Day's prior notice to Agent. Borrowers shall be entitled to aggregate,
on a single day, the amount of all repayments made by Borrowers solely
for purposes of satisfying the minimum repayment amount set forth in
this Section 2.7. Any Advances that are so aggregated shall be deemed
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to be a single Advance for purposes of complying with the provisions of
this Agreement relating to requesting, electing, repaying, and
converting LIBOR Advances, and all Borrowers requesting, electing,
repaying and converting such Advances shall be considered a single
"Borrower" for purposes thereof. Any Borrower may, (i) upon one (1)
Business Days' prior notice to Agent, pay, without penalty or premium,
any LIBOR Advance outstanding with respect to such Borrower in full on
the last day of the Interest Period for such LIBOR Advance, and (ii)
upon three (3) Business Days' prior notice to Agent, prepay any LIBOR
Advance outstanding with respect to such Borrower in full prior to the
last day of the Interest Period for such LIBOR Advance, provided that
such Borrower shall also pay at the time of such prepayment all amounts
payable with respect thereto pursuant to Section 3.4 hereof.
(b) Several Liability. Except as otherwise indicated in
Section 12.7 of this Agreement, the obligations of Borrowers under this
Agreement, the Notes and the other Loan Documents shall not be the
joint obligations of Borrowers, but shall instead be the several
obligations of each Borrower. Each Borrower shall only be obligated to
pay principal, interest, and other amounts that relate to Advances made
to such Borrower, or that relate to Property owned by such Borrower, or
that relate to such Borrower's obligations under this Agreement, the
Notes and the other Loan Documents.
2.8 Method of Selecting Types and Interest Periods for New Advances.
Any Borrower requesting an Advance shall select the Type of Advance and, in the
case of each LIBOR Advance, the Interest Period applicable to each Advance from
time to time. Such Borrower shall give Agent irrevocable notice (a "Borrowing
Notice") in the form of Exhibit I not later than (a) 10:00 a.m., Phoenix time,
one (1) Business Day before the Borrowing Date of each Floating Rate Advance
(except a Swing Line Advance), (b) 10:00 a.m., Phoenix time, three (3) Business
Days before the Borrowing Date of each LIBOR Advance, and (c) noon, Phoenix
time, on the Borrowing Date of each Swing Line Advance, specifying:
(i) the Borrower requesting the Advance,
(ii) the Borrowing Date, which shall be a Business Day,
of such Advance,
(iii) whether the Advance is a Swing Line Advance,
(iv) the aggregate amount of such Advance,
(v) the Type of Advance selected; provided, however, that the
aggregate number of LIBOR Advances of all Borrowers outstanding at any
one time shall not exceed five (5) (for purposes of this clause (v),
Borrowers shall be entitled to aggregate, on a single day, the number
of LIBOR Advances
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outstanding pursuant to the provisions of Sections 2.6 and 2.7), and
further provided that any Swing Line Advance shall be a Floating Rate
Advance, and
(vi) in the case of each LIBOR Advance, the Interest
Period applicable thereto.
Not later than 11:00 a.m., Phoenix time, on each Borrowing Date, each Bank shall
make available its Loan or Loans, in funds immediately available in Phoenix to
Agent at its address specified pursuant to Article XVI. Agent will make the
funds so received from Banks available to the applicable Borrower at Agent's
aforesaid address. Disbursements of all Advances (other than Swing Line
Advances) to any single Borrower may be made not more frequently than one time
per Business Day. Disbursements of all Swing Line Advances to any single
Borrower may be made not more frequently than one time per Business Day, or on a
more frequent basis as Bank One may agree. Interest on all Advances shall be
calculated on the basis of a 360 day year, based on the actual days elapsed.
2.9 Conversion and Continuation of Outstanding Advances. Floating Rate
Advances shall continue as Floating Rate Advances unless and until such Floating
Rate Advances are converted into LIBOR Advances. Each LIBOR Advance shall
continue as a LIBOR Advance until the end of the then applicable Interest Period
therefor, at which time such LIBOR Advance shall be automatically converted into
a Floating Rate Advance unless the applicable Borrower(s) shall have given Agent
a Conversion/Continuation Notice requesting that, at the end of such Interest
Period, such LIBOR Advance either continues as a LIBOR Advance for the same or
another Interest Period or be repaid. Subject to the terms of Section 2.6, the
applicable Borrower may elect from time to time to convert all or any part of an
Advance of any Type into any other Type or Types of Advances; provided, however,
that any conversion of any LIBOR Advance may be made on, and only on, the last
day of the Interest Period applicable thereto, and further provided that the
aggregate number of LIBOR Advances of all Borrowers outstanding at any one time
shall not exceed five (5).
The applicable Borrower(s) shall give Agent irrevocable notice (a
"Conversion/Continuation Notice") of each conversion of an Advance or
continuation of a LIBOR Advance not later than 10:00 a.m., Phoenix time, at
least one (1) Business Day, in the case of a conversion into a Floating Rate
Advance, or three (3) Business Days, in the case of a conversion into or
continuation of a LIBOR Advance, prior to the date of the requested conversion
or continuation, specifying:
(i) the Borrower(s) requesting the conversion or
continuation;
(ii) the requested date which shall be a Business Day, of
such conversion or continuation;
(iii) the aggregate amount and Type of the Advance which is
to be converted or continued; and
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(iv) the amount and Type(s) of Advance(s) into which such
Advance is to be converted or continued and, in the case of a
conversion into or continuation of a LIBOR Advance, the Interest Period
applicable thereto.
2.10 Changes in Interest Rate, etc. Each Floating Rate Advance shall
bear interest on the outstanding principal amount thereof, for each day from and
including the date such Advance is made or is converted from a LIBOR Advance
into a Floating Rate Advance pursuant to Section 2.9 to but excluding the date
it becomes due or is converted into a LIBOR Advance pursuant to Section 2.9
hereof, at a rate per annum equal to the Floating Rate for such day. Changes in
the rate of interest on any Advance maintained as a Floating Rate Advance will
take effect simultaneously with each change in the Floating Rate or in the
Applicable Floating Rate Margin. Each LIBOR Advance shall bear interest from and
including the first day of the Interest Period applicable thereto to (but not
including) the last day of such Interest Period at the interest rate determined
as applicable to such LIBOR Advance. No Interest Period may end after the
Facility Termination Date.
2.11 Determination of Applicable Margins and Applicable Unused
Commitment Rate.
(a) Facility Rating. The Applicable Margins and the Applicable
Unused Commitment Rate shall be determined by reference to the Facility
Rating or, if no Facility Rating exists, by reference to the Senior
Debt Rating, in accordance with the following table:
Facility or Applicable Applicable
Senior Debt LIBOR Rate Floating Rate Applicable Unused
Rating Margin (%) Margin (%) Commitment Rate (%)
BBB-/Baa3 or 1.00 0 0.250
higher
BB+/Ba1 1.25 0 0.300
BB/Ba2 1.50 0 0.350
BB-/Ba3 1.75 0.125 0.375
B+/B1 2.00 0.250 0.375
Lower or no 2.10 0.250 0.425
Rating
(b) Adjustment of Margins. The Applicable Floating Rate Margin
and the Applicable Unused Commitment Rate shall be adjusted, as
applicable from time to time, effective on the first Business Day after
any change in the Facility Rating or the Senior Debt Rating, as
applicable. The applicable LIBOR Rate Margin in respect of any LIBOR
Advance shall be adjusted, as applicable from time to time, effective
on the first day of the Interest Period for any LIBOR Advance after any
change in the Facility Rating or the Senior Debt Rating, as applicable.
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(c) Changes to Ratings. Notwithstanding the foregoing, (i) if
either of the two (2) rating agencies selected by Borrowers for
purposes of calculating the foregoing amounts shall not have in effect
a Facility Rating or a Senior Debt Rating for a reason related to the
creditworthiness of Borrowers or Guarantor or to any act or failure to
act on the part of Borrowers or Guarantor, then the Applicable Margins
and the Applicable Unused Commitment Rate shall be determined by
reference to the last category listed above, and (ii) if the rating
system used by either such rating agency shall change, or if neither
rating agency shall have in effect a Senior Debt Rating nor a Facility
Rating and clause (i) above shall not be applicable, then Borrowers and
Banks, acting through Agent, shall negotiate in good faith to amend the
references to specific ratings in this definition to reflect such
changed rating system or the non-availability of ratings from such
rating agencies.
2.12 Rates Applicable After Event of Default. Notwithstanding anything
to the contrary contained in Section 2.8, 2.9 or 2.10, during the continuance of
an Event of Default the Required Banks may, at their option, by notice to
Borrowers (which notice may be revoked at the option of the Required Banks
notwithstanding any provision of Section 11.2 requiring unanimous consent of
Banks to changes in interest rates), declare that no Advance may be made as,
converted into or continued as a LIBOR Advance. Notwithstanding anything to the
contrary contained in Section 2.8, 2.9 or 2.10, during the continuance of an
Unmatured Event of Default the Required Banks may, at their option, by notice to
Borrowers (which notice may be revoked at the option of the Required Banks
notwithstanding any provision of Section 11.2 requiring unanimous consent of
Banks to changes in interest rates), declare that no Advance may be made as or
converted into a LIBOR Advance. During the continuance of an Event of Default,
the Required Banks may, at their option, by notice to a Borrower (which notice
may be revoked at the option of the Required Banks notwithstanding any provision
of Section 11.2 requiring unanimous consent of Banks to changes in interest
rates), declare that (i) each LIBOR Advance shall bear interest for the
remainder of the applicable Interest Period at the rate otherwise applicable to
such Interest Period plus 2% per annum and (ii) each Floating Rate Advance shall
bear interest at a rate per annum equal to the Floating Rate otherwise
applicable to the Floating Rate Advance plus 2% per annum.
2.13 Method of Payment. All payments of the Obligations hereunder shall
be made, without setoff, deduction, or counterclaim, in immediately available
funds to Agent at Agent's address specified pursuant to Article XVI, or at any
other Lending Installation of Agent specified in writing by Agent to a Borrower,
by noon (local time at the place of receipt) on the date when due (or with
respect to Swing Line Advances, in accordance with Section 2.19), and, except
for Swing Line Advances shall be applied ratably by Agent among Banks, in
proportion to the ratio that each Bank's Commitment bears to the Aggregate
Commitment. Each payment delivered to Agent for the account of any Bank shall be
delivered promptly by Agent to such Bank in the same type of funds that Agent
received at its address specified pursuant to Article XVI or at any Lending
Installation specified in a notice received by Agent from such Bank. If Agent
receives, for the account of a Bank, a payment from a Borrower and fails to
remit such payment to the
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Bank on the Business Day such payment is received (if received by noon, Phoenix
time, by Agent) or on the next Business Day (if received after noon, Phoenix
time, by Agent), Agent shall pay to such Bank interest on such payment at a rate
per annum equal to the Federal Funds Effective Rate for each day for which such
payment is so delayed.
2.14 Notes; Telephonic Notices. Each Bank is hereby authorized to
record the principal amount of each of its Loans and each repayment on the
schedule attached to its Note; provided, however, that the failure to so record
shall not affect Borrowers' obligations under such Note. Each Borrower hereby
authorizes Agent to extend, convert or continue Advances, effect selections of
Types of Advances and to transfer funds based on telephonic notices made by any
person or persons who Agent in good faith believes to be acting on behalf of
such Borrower. Each Borrower agrees to deliver promptly to Agent a written
confirmation, if such confirmation is requested by Agent, of each telephonic
notice signed by an Authorized Officer of such Borrower. If the written
confirmation differs in any material respect from the action taken by Agent, the
records of Agent shall govern absent manifest error.
2.15 Interest Payment Dates; Interest Basis. Interest accrued on each
Advance shall be payable on the first day of each calendar month, commencing
with the first such date to occur after the date hereof, and on any date on
which the Advance is prepaid, whether due to acceleration or otherwise. Interest
shall be payable for the day an Advance is made but not for the day of any
payment on the amount paid if payment is received prior to noon (local time at
the place of receipt). If any payment of principal of or interest on an Advance
shall become due on a day which is not a Business Day, such payment shall be
made on the next succeeding Business Day, and such extension of time shall be
included in computing interest in connection with such payment.
2.16 Notification of Advances, Interest Rates, Prepayments and
Commitment Reductions. Promptly after receipt thereof, Agent will notify each
Bank of the contents of each Aggregate Commitment reduction notice, Borrowing
Notice, Conversion/Continuation Notice, and repayment notice received by it
hereunder. Agent will notify each Bank of the interest rate applicable to each
LIBOR Advance promptly upon determination of such interest rate and will give
each Bank prompt notice of each change in the Floating Rate, the applicable
Margin or the Applicable Unused Commitment Rate.
2.17 Lending Installations. Each Bank may book its Loans at any Lending
Installation selected by such Bank and may change its Lending Installation from
time to time. All terms of this Agreement shall apply to any such Lending
Installation and the Notes shall be deemed held by each Bank for the benefit of
such Lending Installation. Each Bank may, by written or telex notice to Agent
and Borrowers, designate a Lending Installation through which Loans will be made
by it and for whose account Loan payments are to be made.
2.18 Non-Receipt of Funds by Agent. Unless the applicable Borrower(s)
or a Bank, as the case may be, notifies Agent prior to the date on which such
payment is due to Agent of (i) in the case of a Bank, the proceeds of a Loan or
(ii) in the case of a Borrower, a payment
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of principal, interest, fees or other amounts due under the Loan Documents to
Agent for the account of Banks, that it does not intend to make such payment,
Agent may assume that such payment has been made. Agent may, but shall not be
obligated to, make the amount of such payment available to the intended
recipient in reliance upon such assumption. If the applicable Borrower(s) or
such Bank, as the case may be, has not in fact made such payment to Agent, the
recipient of such payment shall, on demand by Agent, repay to Agent the amount
so made available together with interest thereon in respect of each day during
the period commencing on the date such amount was so made available by Agent
until the date Agent recovers such amount at a rate per annum equal to (a) in
the case of payment by a Bank, the Federal Funds Effective Rate for such day or
(b) in the case of payment by a Borrower, the interest rate applicable to the
relevant Advance.
2.19 Swing Line. Notwithstanding the minimum amount of an Advance that
may be requested and the minimum amount of an Advance repaid under this
Agreement, Banks desire to fund Advances for Borrowers in amounts that may be
less than the minimum Advance amounts required under Section 2.6, and Banks
desire to permit Borrowers to repay Advances in amounts that may be less than
the minimum repayment amounts required under Section 2.7. Such Advances made
pursuant to this Section 2.19 shall be deemed to be Advances for purposes of
this Agreement and are referred to herein as "Swing Line Advances." Swing Line
Advances shall be requested, advanced, and repaid in accordance with the
provisions and limitations of this Agreement relating to all Advances, subject
to the following:
(a) Aggregate Limit. The aggregate amount of all
outstanding Swing Line Advances shall not exceed at any one time
$10,000,000.
(b) Floating Rate Advances. All Swing Line Advances
shall be Floating Rate Advances.
(c) Funding Swing Line Advances. Swing Line Advances shall be
funded by Bank One pursuant to the procedures set forth in Section 2.8
of this Agreement. The principal amount of each Swing Line Advance,
together with all accrued interest, shall be repaid by the applicable
Borrower to Bank One in same day funds by 5:00 p.m. (or such later time
as may be acceptable to Agent), Phoenix time, on the Swing Line Advance
Maturity Date. Additionally, if the aggregate principal amount of all
outstanding Swing Line Advances exceeds $10,000,000, Borrowers shall
pay to Bank One the excess amount in same day funds by noon, Phoenix
time, on the first Business Day following the day that the excess
amount occurs.
(d) Repayment of Swing Line Advances. If Borrowers fail to pay
any Swing Line Advances on the applicable Swing Line Advance Maturity
Date, then such Advances shall no longer be Swing Line Advances, but
shall continue to be Floating Rate Advances for purposes of this
Agreement. Each Bank shall be deemed to have irrevocably and
unconditionally purchased and received from
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Agent an undivided interest and participation (ratably in proportion to
the ratio that such Bank's Commitment bears to the Aggregate
Commitment) in such Advances. In such event, as of 11:59 p.m., Phoenix
time, on the Swing Line Advance Maturity Date, Agent shall notify each
Bank of the total principal amount of all Matured Swing Line Advances
and each Bank's ratable share thereof. Upon receipt of such notice,
each Bank shall promptly and unconditionally pay to Agent for the
account of Bank One the amount of such Bank's share (ratably in
proportion to the ratio that such Bank's Commitment bears to the
Aggregate Commitment) of such payment in same day funds, and Agent
shall promptly pay such amount, and any other amounts received by Agent
for Bank One's account pursuant to this Section 2.19(d), to Bank One.
If Agent so notifies such Bank prior to 10:00 a.m., Phoenix time, on
any Business Day, such Bank shall make available to Agent for the
account of Bank One such Bank's share of the amount of such payment on
such Business Day in same day funds. If Agent notifies such Bank after
10:00 a.m., Phoenix time, on any Business Day, such Bank shall make
available to Agent for the account of Bank One such Bank's share of the
amount of such payment on the next succeeding Business Day in same day
funds. If and to the extent such Bank shall not have so made its share
of the amount of such payment available to Agent for the account of
Bank One, such Bank agrees to pay to Agent for the account of Bank One
forthwith on demand such amount, together with interest thereon, for
each day from the date such payment was first due until the date such
amount is paid to Agent for the account of Bank One, at the Federal
Funds Effective Rate. The failure of any Bank to make available to
Agent for the account of Bank One such Bank's share of any such payment
shall not relieve any other Bank of its obligation hereunder to make
available to Agent for the account of Bank One its share of any payment
on the date such payment is to be made.
(e) Advances. The payments made by Banks to Bank One in
reimbursement of Swing Line Advances shall constitute, and Borrowers
hereby expressly acknowledge and agree that such payments shall
constitute, Advances hereunder to the applicable Borrower and such
payments shall for all purposes be treated as Advances to such Borrower
(notwithstanding that the amounts thereof may not comply with the
provisions of Section 2.6 and 2.7(a)). Such Advances shall be Floating
Rate Advances, subject to Borrowers' rights under Article II hereof.
2.20 Withholding Tax Exemption. At least five (5) Business Days prior
to the first date on which interest or fees are payable hereunder for the
account of any Bank, each Bank (if any) that is not incorporated under the laws
of the United States of America, or a state thereof, agrees that it will deliver
to each of Borrowers and Agent two (2) duly completed copies of United States
Internal Revenue Service Form 1001 or 4224, certifying in either case that such
Bank is entitled to receive payments under this Agreement and the Notes without
deduction or withholding of any United States federal taxes and an Internal
Revenue Service Form W-8 or
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W-9 entitling such Bank to receive a complete exemption from United States tax
backup withholding. Each Bank which so delivers a Form 1001 or 4224 further
undertakes to deliver to each of Borrowers and Agent two (2) additional copies
of such form (or a successor form) on or before the date that such form expires
(currently, three (3) successive calendar years for Form 1001 and one (1)
calendar year for Form 4224) or becomes obsolete or after the occurrence of any
event requiring a change in the most recent forms so delivered by it, and such
amendments thereto or extensions or renewals thereof as may be reasonably
requested by Borrowers or Agent, in each case certifying that such Bank is
entitled to receive payments under this Agreement and the Notes without
deduction or withholding of any United States federal taxes, unless 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 all such forms inapplicable or which would prevent such
Bank from duly completing and delivering any such form with respect to it and
such Bank advises Borrowers and Agent that it is not capable of receiving
payments without any deduction or withholding of United States federal tax.
If a Bank does not provide duly executed forms to Borrowers and Agent
within the time periods set forth in the preceding paragraph, Borrowers or Agent
shall withhold taxes from payments to such Bank at the applicable statutory
rates and Borrowers shall not be required to pay any additional amounts as a
result of such withholding. Upon the reasonable request of Borrowers or Agent,
each Bank that has not provided the forms or other documents, as provided above,
on the basis of being a "United States person," shall submit to Borrowers and
Agent a certificate or other evidence to the effect that it is such a "United
States person."
2.21 Extension of Facility Termination Date.
(a) Extension Requests. Borrowers may request a two-year
extension of the Facility Termination Date by submitting a request for
an extension to Agent (an "Extension Request") no more than 28 months
nor less than 26 months prior to the then scheduled Facility
Termination Date. Promptly upon (but not later than five (5) Business
Days after) receipt of the Extension Request, Agent shall notify each
Bank of the contents thereof and shall request each Bank to approve the
Extension Request. Each Bank approving the Extension Request shall
deliver its written approval no later than sixty (60) days after the
date of the Extension Request. If the approval of each of Banks is
received by Agent within sixty (60) days after the date of the
Extension Request (or as otherwise provided in Section 2.21(b)), Agent
shall promptly so notify Borrowers and each Bank, and the Facility
Termination Date shall be extended by two (2) years, and in such event
Borrowers may thereafter request further extension(s) of the then
scheduled Facility Termination Date in accordance with this Section
2.21. If any of Banks does not deliver to Agent such Bank's written
approval to any Extension Request within sixty (60) days after the date
of such Extension Request, the Facility Termination Date shall not be
extended, except as otherwise provided in Section 2.21(b) or 2.21(c).
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(b) Rejecting Banks/Full Assignment. If (i) any Banks whose
pro rata shares of the Aggregate Commitment do not exceed (in the
aggregate) 20% of the Aggregate Commitment ("Rejecting Banks") shall
not approve an Extension Request, (ii) all rights and obligations of
such Rejecting Banks under this Agreement and under the other Loan
Documents (including, without limitation, their Commitment and all
Loans owing to them) shall have been assigned, within ninety (90) days
following such Extension Request, in accordance with Section 2.23, to
one or more Replacement Banks who shall have approved in writing such
Extension Request at the time of such assignment, and (iii) no other
Bank shall have given written notice to Agent of such Bank's withdrawal
of its approval of the Extension Request, Agent shall promptly so
notify Borrowers and each Bank and the Facility Termination Date shall
be extended by two (2) years, and in such event Borrowers may
thereafter request further extension(s) as provided in Section 2.21(a).
(c) Rejecting Banks/No Full Assignment. If (A) the Rejecting
Banks shall not approve an Extension Request, (B) the provisions of
clause (b)(ii) above do not apply, and (iii) no other Bank shall have
given written notice to Agent of such Bank's withdrawal of its approval
of the Extension Request, Agent shall promptly notify Borrowers and
each Bank and any Replacement Bank, and the Facility Termination Date
shall be extended by two (2) years, and in such event Borrowers may
thereafter request further extension(s) as provided in Section 2.21
(a); provided, however, that the Aggregate Commitment shall be
automatically reduced, effective as of the first day of the extension
period, and shall equal the aggregate Commitments of the Banks who are
not Rejecting Banks and the Banks who are Replacement Banks. All rights
and obligations of such Rejecting Banks under this Agreement and under
the other Loan Documents (including, without limitation, their
Commitment and all Loans owing to them) shall either be (I) assigned to
Replacement Banks pursuant to Section 2.21(b), or (II) terminated,
effective as of the then existing Facility Termination Date (or such
earlier date as Borrowers and Agent may designate), in which case the
terminated Bank shall have concurrently received, in cash, all amounts
due and owing to the terminated Bank hereunder or under any other Loan
Document, including without limitation the aggregate outstanding
principal amount of the Loans owed to such Bank, together with accrued
interest thereon through the date of such termination, all amounts
payable under Sections 3.1 and 3.2 with respect to such Bank and all
fees payable to such Bank hereunder (and payment of such amount may not
be waived except with the consent of each Bank, as more specifically
provided in Section 11.2(i)); provided that, upon such Bank's
termination, such Bank shall cease to be a party hereto but shall
continue to be entitled to the benefits of Article III and Section
12.7, as well as to any fees accrued hereunder and not yet paid, and
shall continue to be obligated under Section 13.8 with respect to
obligations and liabilities accruing prior to the termination of such
Bank.
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(d) Approval of Extension. Within ten (10) days after Agent's
notice to Borrowers that all (or some, as applicable) of Banks have
approved an Extension Request (whether pursuant to Section 2.21(a), (b)
or (c)), Borrowers shall pay to Agent for the account of each Bank
approving the extension and each Replacement Bank an extension fee
calculated in the manner set forth in Section 2.5(c).
(e) No Extension. If the Extension Request is not approved
pursuant to Section 2.21(a), (b) or (c), or if Borrowers do not request
an extension pursuant to this Section 2.21, then during the twenty-four
(24) months preceding the Facility Termination Date, the terms and
conditions set forth on Schedule "2.21" shall be deemed to be
incorporated into this Agreement by this reference, and Borrowers,
Banks and Agent agree that the terms and conditions set forth in
Schedule "2.21" shall be controlling to the extent the same are
inconsistent with the terms and conditions of this Agreement, and
Borrowers, Banks and Agent shall act in accordance therewith.
2.22 Conversion Period.
(a) Commencement of Conversion Period. If (A) any Financial
Covenant Test is breached, and such breach in each case continues for
two (2) consecutive fiscal quarters, or (B) the representations and
warranties in Section 6.7 are untrue or incorrect as of the date which
the same were made (or deemed to be made), and such date is after the
date of this Agreement, then unless the Required Banks in their sole
and absolute discretion agree otherwise, the Conversion Period shall
automatically commence. In the case of clause (A), the Conversion Date
shall be first day of the first month after the second consecutive
fiscal quarter of such breach, and in the case of clause (B), the
Conversion Date shall be the first day of the first month after such
breach. If the Conversion Date occurs pursuant to clause (A), Borrowers
shall have the right to elect, by notice given to Agent on or before
that day that is thirty (30) days after the Conversion Date, that the
Conversion Period be an Unsecured Conversion Period or a Secured
Conversion Period. If Borrowers fail to provide such notice within such
30-day period, then Borrowers shall be deemed to have elected that the
Conversion Period be an Unsecured Conversion Period. If the Conversion
Date occurs pursuant to clause (B), the Conversion Period shall be a
Secured Conversion Period.
Notwithstanding the foregoing, with respect to clause (A), if
as of the end of the second consecutive fiscal quarter of such failure
to comply with the foregoing tests, either
(I) With respect to the Consolidated Tangible Net
Worth Test, Consolidated Tangible Net Worth is less than (i)
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$150,000,000 plus (ii) fifty percent (50%) of the Consolidated
Net Income earned after January 1, 1996 (excluding any quarter
in which there is a loss, but applying any Consolidated Net
Income thereafter first to such loss before determining 50% of
such amount for purposes of this calculation) plus (iii) one
hundred percent (100%) of the net proceeds of capital stock
issued by Guarantor after January 1, 1996, or
(II) With respect to the Leverage Test, Consolidated
Indebtedness exceeds the product of 2.50 multiplied by
Adjusted Consolidated Tangible Net Worth,
then the Conversion Period shall be a Secured Conversion Period (or,
subject to the provisions of Section 2.22(f) hereof, a Modified Secured
Conversion Provision, as applicable).
(b) Unsecured Conversion Period. If Borrowers elect, or
are deemed to have elected, that the Conversion Period be an Unsecured
Conversion Period, then:
(i) The Facility Termination Date shall be that date
that is the day preceding the first anniversary date of the
Conversion Date.
(ii) From and after three (3) calendar months after
the Conversion Date, the Aggregate Commitment (and each Bank's
Commitment) in effect as of the Conversion Date shall be
reduced on the first day after the end of each three-month
period by a percentage of such Aggregate Commitment amount (or
such
Bank's Commitment amount) as follows:
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Percentage Percentage
of Commitment of Commitment
Period Reduction Remaining
3 calendar months after
Conversion Date 25% 75%
6 calendar months after
Conversion Date 25% 50%
9 calendar months after
Conversion Date 25% 25%
12 calendar months after
Conversion Date 25% 0%
(c) Secured Conversion Period. If Borrowers elect, or
are deemed to have elected pursuant to Section 2.22(a), that the
Conversion Period be a Secured Conversion Period, then:
(i) The Facility Termination Date shall be that date
that is the day preceding the second anniversary date of the
Conversion Date.
(ii) From and after three (3) calendar months after
the Conversion Date, the Aggregate Commitment (and each Bank's
Commitment) in effect as of the Conversion Date shall be
reduced on the first day after the end of each three-month
period by a percentage of such Aggregate Commitment amount (or
such Bank's Commitment amount) as follows:
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Percentage Percentage
of Commitment of Commitment
Period Reduction Remaining
3 calendar months after
Conversion Date 5% 95%
6 calendar months after
Conversion Date 10% 85%
9 calendar months after
Conversion Date 10% 75%
12 calendar months after
Conversion Date 15% 60%
15 calendar months after
Conversion Date 15% 45%
18 calendar months after
Conversion Date 15% 30%
21 calendar months after
Conversion Date 15% 15%
24 calendar months after
Conversion Date 15% 0%
(iii) Borrowers shall provide, and Agent and Banks
shall accept, Collateral for the Obligations in accordance
with the terms of Schedule "2.22". Within thirty (30) days
after the Conversion Date, Borrowers shall provide to Agent
all Collateral Documents relating to the Collateral. Within
ninety (90) days after the Conversion Date, Borrowers shall
provide to Agent all Due Diligence Documents relating to the
Collateral.
(iv) During the Conversion Period, the terms and
conditions set forth on Schedule "2.22" shall be deemed to be
incorporated into this Agreement by this reference, and
Borrowers, Banks and Agent agree that the terms and conditions
set forth in Schedule "2.22" shall be controlling to the
extent the same are inconsistent with the terms and conditions
of this Agreement, and Borrowers, Banks and Agent shall act in
accordance therewith.
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(d) Breach During Certain Periods. Notwithstanding the
provisions of Section 2.22(a) above, if any Financial Covenant Test is
breached for two (2) consecutive fiscal quarters and the second such
fiscal quarter occurs (i) during an Unsecured Conversion Period, or
(ii) during a Secured Conversion Period, or (iii) during a Modified
Secured Conversion Period, or (iv) during the twelve-month period
immediately preceding the Facility Termination Date where no Conversion
Period is in effect, then the provisions of Section 2.22(a) shall not
apply, and such breach shall not be deemed to be an Event of Default
under this Agreement.
(e) Breach During End of Term. Notwithstanding the provisions
of subparagraph 2.22(a) above, if (A) any Financial Covenant Test is
breached for two (2) consecutive fiscal quarters and the second such
fiscal quarter occurs during the period that is twenty-four (24) months
to thirteen (13) months immediately preceding the Facility Termination
Date, or (B) the representations and warranties in Section 6.7 are
untrue or incorrect as of the date which the same were made (or deemed
to be made), and such date occurs during the period that is twenty-four
(24) to thirteen (13) months immediately preceding the Facility
Termination Date, and (C) in either event, no Conversion Period is then
in effect, then unless the Required Banks in their sole and absolute
discretion agree otherwise, the Conversion Period shall automatically
commence. The Conversion Date shall be first day of the first month
after (I) the second consecutive fiscal quarter of such breach, in the
case of clause (A), or (II) such breach, in the case of clause (B).
Borrowers shall have the right to elect, by notice given to Banks on or
before that day that is thirty (30) days after the Conversion Date,
that the Conversion Period be an Unsecured Conversion Period or a
Modified Secured Conversion Period; provided, however, that the
Conversion Period shall be a Secured Conversion Period if the
provisions of Section 2.22(a)(I) or (II) apply, or if the Conversion
Period results from a breach of Section 6.7. If Borrowers fail to
provide such notice within such 30-day period, then Borrowers shall be
deemed to have elected that the Conversion Period be an Unsecured
Conversion Period. If Borrowers elect (or are deemed to have elected)
that the Conversion Period be an Unsecured Conversion Period, then the
provisions of subparagraph 2.22(a) shall apply. If Borrowers elect that
the Conversion Period be a Modified Secured Conversion Period, then:
(i) the Aggregate Commitment (and each Bank's
Commitment) in effect as of end of the second fiscal quarter
to which such breach relates shall be reduced on the first day
after the end of each three-month period thereafter in an
equal portion of such Aggregate Commitment amount (or such
Bank's Commitment amount), such that the Aggregate Commitment
amount (and each Bank's Commitment amount) shall be zero on
the Facility Termination Date.
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(ii) Borrowers shall provide, and Agent and Banks
shall accept, Collateral for the Obligations in accordance
with the terms of Schedule "2.22". Within thirty (30) days
after the end of the second fiscal quarter to which the breach
relates, Borrowers shall provide to Agent all Collateral
Documents relating to the Collateral. Within ninety (90) days
after the end of the second fiscal quarter to which such
breach relates, Borrowers shall provide to Agent all Due
Diligence Documents relating to the Collateral.
(iii) During the Conversion Period, the terms and
conditions set forth on Schedule "2.22" shall be deemed to be
incorporated into this Agreement by this reference, and
Borrowers, Banks and Agent agree that the terms and conditions
set forth in Schedule "2.22" shall be controlling to the
extent the same are inconsistent with the terms and conditions
of this Agreement, and Borrowers, Banks and Agent shall act in
accordance therewith.
2.23 Replacement of Certain Banks. In the event a Bank
(the "Affected Bank"):
(i) shall have requested compensation from Borrowers under
Sections 3.1 or 3.2 to cover additional costs incurred by such Bank
that are not being incurred generally by the other Banks, or
(ii) shall have delivered a notice pursuant to Section 3.3
that such Affected Bank is unable to extend LIBOR Loans for reasons not
generally applicable to the other Banks, or
(iii) is a Rejecting Bank pursuant to Section 2.21,
then, in any such case, and at any time after such event occurs,
Borrowers or Agent may make written demands on such Affected Bank (with
a copy to Agent in the case of a demand by Borrowers and a copy to
Borrowers in the case of a demand by Agent) for the Affected Bank to
assign, and such Affected Bank shall assign, pursuant to one or more
duly executed assignment agreements in substantially the form provided
for in Section 15.3.1, within five (5) Business Days after the date of
such demand, to one or more financial institutions that comply with the
provisions of Section 15.3, and that are selected by Borrowers and/or
Agent, that are reasonably acceptable to Agent or Borrowers, as
applicable, that Borrowers or Agent, as the case may be, shall have
engaged for such purpose (the "Replacement Bank"), all of such Affected
Bank's rights and obligations under this Agreement and the other Loan
Documents (including, without limitation, its Commitment and all Loans
owing to it) in accordance with Section 15.3. If any Affected Bank
fails to execute and deliver such assignment
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agreements within thirty (30) days after demand, then such Affected
Bank shall have no further right to receive any amounts payable under
Sections 3.1 and 3.2 with respect to such Affected Bank.
Agent agrees, upon the occurrence of such events with respect to an
Affected Bank and upon written request of Borrowers, to use its reasonable
efforts to obtain the commitments from one or more financial institutions to act
as a Replacement Bank. Agent is authorized, but shall not be obligated to,
execute one or more of such assignment agreements as attorney-in-fact for any
Affected Bank failing to execute and deliver the same within five (5) Business
Days after the date of such demand. Further, with respect to such assignment,
the Affected Bank shall have concurrently received, in cash, all amounts due and
owing to the Affected Bank hereunder or under any other Loan Document, including
without limitation the aggregate outstanding principal amount of the Loans owed
to such Bank, together with accrued interest thereon through the date of such
assignment, amounts payable under Sections 3.1 and 3.2 with respect to such
Affected Bank and all fees payable to such Affected Bank hereunder; provided
that, upon such Affected Bank's replacement, such Affected Bank shall cease to
be a party hereto but shall continue to be entitled to the benefits of Article
III and Section 12.7, as well as to any fees accrued hereunder and not yet paid,
and shall continue to be obligated under Section 13.8 with respect to
obligations and liabilities accruing prior to the replacement of such Affected
Bank.
ARTICLE III
CHANGE IN CIRCUMSTANCES
3.1 Yield Protection. If any law or any governmental or
quasi-governmental rule, regulation, policy, guideline or directive (whether or
not having the force of law), or any interpretation thereof, or the compliance
of any Bank therewith,
(i) subjects any Bank or any applicable Lending Installation
to any tax, duty, charge or withholding on or from payments due from
Borrowers (excluding any taxes imposed on, or based on, or determined
by reference to the net income of any Bank or applicable Lending
Installation, including, without limitation, franchise taxes,
alternative minimum taxes and any branch profits tax (collectively,
"Excluded Taxes")), any taxes imposed on, or based on, or determined by
reference to or changes the basis of taxation of payments to any Bank
in respect of its Loans or other amounts due it hereunder (except for
Excluded Taxes),
(ii) imposes or increases or deems applicable any reserve,
assessment, insurance charge, special deposit or similar requirement
against assets of, deposits with or for the account of, or credit
extended by, any Bank or any applicable Lending Installation (other
than reserves and assessments taken into account in determining the
interest rate applicable to LIBOR Rates), or
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(iii) imposes any other condition or requirement the result of
which is to increase the cost to any Bank or any applicable Lending
Installation of making, funding or maintaining loans or reduces any
amount receivable by any Bank or any applicable Lending Installation in
connection with loans, or requires any Bank or any applicable Lending
Installation to make any payment calculated by reference to the amount
of loans held or interest received by it, by an amount deemed material
by such Bank,
then, within fifteen (15) days after demand by such Bank, Borrowers
shall pay such Bank that portion of such increased expense incurred or
reduction in an amount received which such Bank determines is
attributable to making, funding and maintaining its Loans and its
Commitment; provided, however, that Borrowers shall not be required to
increase any such amounts payable to any Bank (1) if such Bank fails to
comply with the requirements of Section 2.20 hereof or (2) to the
extent that such Bank determines, in its sole reasonable discretion,
that it can, after notice from Borrowers, through reasonable efforts,
eliminate or reduce the amount of tax liabilities payable (without
additional costs or expenses unless Borrowers agree to bear such costs
or expenses) or other disadvantages or risks (economic or otherwise) to
such Bank or Agent. If any Bank receives a refund in respect of any
amount described in clause (i), (ii) and (iii) above for which such
Bank has received payment from Borrowers hereunder, such Bank shall
promptly notify Borrowers of such refund and such Bank shall repay the
amount of such refund to Borrowers, provided that Borrowers, upon the
request of such Bank, agree to return such refund to such Bank in the
event such Bank is required to repay such refund. The determination as
to whether any Bank has received a refund shall be made by such Bank
and such determination shall be conclusive absent manifest error.
3.2 Changes in Capital Adequacy Regulations. If a Bank or Issuing Bank
determines the amount of capital required or expected to be maintained by such
Bank, any Lending Installation of such Bank or Issuing Bank or any corporation
controlling such Bank or Issuing Bank is increased as a result of a Change,
then, within fifteen (15) days after demand by such Bank or Issuing Bank,
Borrowers shall pay such Bank or Issuing Bank the amount necessary to compensate
for any shortfall in the rate of return on the portion of such increased capital
which such Bank or Issuing Bank determines is attributable to this Agreement,
its Loans or its obligation to make Loans hereunder, or its issuance or
maintenance of or participation in, or commitment to issue, to maintain or to
participate in, the Facility Letters of Credit hereunder (after taking into
account such Bank's or Issuing Bank's policies as to capital adequacy). "Change"
means (i) any change after the date of this Agreement in the Risk-Based Capital
Guidelines or (ii) any adoption of or change in any other law, governmental or
quasi-governmental rule, regulation, policy, guideline, interpretation, or
directive (whether or not having the force of law) after the date of this
Agreement which affects the amount of capital required or expected to be
maintained by any Bank, Issuing Bank, Lending Installation or any corporation
controlling any Bank or Issuing Bank. "Risk-Based Capital Guidelines" means (A)
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the risk-based capital guidelines in effect in the United States on the date of
this Agreement, including transition rules, and (B) the corresponding capital
regulations promulgated by regulatory authorities outside the United States
implementing the July 1988 report of the Basle Committee on Banking Regulation
and Supervisory Practices Entitled "International Convergence of Capital
Measurements and Capital Standards," including transition rules, and any
amendments to such regulations adopted prior to the date of this Agreement.
3.3 Availability of Types of Advances. If any Bank determines and
notifies Agent that maintenance of any of such Bank's LIBOR Loans at a suitable
Lending Installation would violate any applicable law, rule, regulation or
directive, whether or not having the force of law, Agent shall suspend the
availability of the affected Type of Advance and require any LIBOR Advances of
the affected Type to be repaid; or if the Required Banks determine and notify
Agent that (i) deposits of a type or maturity appropriate to match fund LIBOR
Advances are not available, Agent shall suspend the availability of the affected
Type of Advance with respect to any LIBOR Advances made after the date of any
such determination, or (ii) an interest rate applicable to a Type of Advance
does not accurately reflect the cost of making a LIBOR Advance of such Type,
then, if for any reason whatsoever the provisions of Section 3.1 are
inapplicable, Agent shall suspend the availability of the affected Type of
Advance with respect to any LIBOR Advance made after the date of any such
determination.
3.4 Funding Indemnification. If any payment of a LIBOR Advance occurs
on a date which is not the last day of the applicable Interest Period, whether
because of acceleration, prepayment or otherwise, or a LIBOR Advance is not made
on the date specified by Borrowers for any reason other than default by Banks,
Borrowers will indemnify each Bank for any loss or cost or expense incurred by
it resulting therefrom, including, without limitation, any loss or cost in
liquidating or employing deposits acquired to fund or maintain the LIBOR
Advance.
3.5 Bank Statements; Survival of Indemnity. To the extent reasonably
possible, each Bank shall designate an alternate Lending Installation with
respect to its LIBOR Advances to reduce any liability of Borrowers to such Bank
under Sections 3.1 and 3.2 or to avoid the unavailability of a Type of Advance
under Section 3.3, so long as such designation is not disadvantageous to such
Bank. Each Bank or Issuing Bank shall deliver a written statement of such Bank
or Issuing Bank as to the amount due, if any, under Sections 3.1, 3.2 or 3.4.
Such written statement shall set forth in reasonable detail the calculations
upon which such Bank or Issuing Bank determined such amount and shall be final,
conclusive and binding on Borrowers in the absence of manifest error.
Determination of amounts payable under such Sections in connection with a LIBOR
Advance shall be calculated as though each Bank funded its LIBOR Advance through
the purchase of a deposit of the type and maturity corresponding to the deposit
used as a reference in determining the LIBOR Advance applicable to such Loan,
whether in fact that is the case or not. Unless otherwise provided herein, the
amount specified in the written statement shall be payable within three (3) days
after receipt by Borrowers of the written statement. The obligations of
Borrowers under Sections 3.1, 3.2 and 3.4 shall survive payment of the
Obligations and termination of this Agreement.
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ARTICLE IV
THE LETTER OF CREDIT FACILITY
4.1 Facility Letters of Credit. The Issuing Bank agrees, on the terms
and conditions set forth in this Agreement, to issue from time to time for the
account of a Borrower, through such offices or branches as it and a Borrower may
jointly agree, one or more Facility Letters of Credit in accordance with this
Article IV, during the period commencing on the date hereof and ending on the
Business Day prior to the Facility Termination Date. Each Facility Letter of
Credit shall be either (i) a standby letter of credit to support obligations of
the requesting Borrower(s), contingent or otherwise, arising in the ordinary
course of business, or (ii) a documentary letter of credit in respect of the
purchase of goods or services by such Borrower(s) in the ordinary course of
business.
4.2 Limitations. No Issuing Bank shall issue, amend or extend,
at any time, any Facility Letter of Credit:
(i) if the aggregate maximum amount then available for drawing
under Letters of Credit issued by such Issuing Bank, after giving
effect to the Facility Letter of Credit or amendment or extension
thereof requested hereunder, shall exceed any limit imposed by law or
regulation upon such Issuing Bank;
(ii) if, after giving effect to the Facility Letter of Credit
or amendment or extension thereof requested hereunder, the aggregate
principal amount of the Facility Letter of Credit Obligations of all
Borrowers would exceed $20,000,000;
(iii) that, in the case of the issuance of a Facility Letter
of Credit, is in, or in the case of an amendment of a Facility Letter
of Credit, increases the face amount thereof by, an amount in excess of
the then Aggregate Available Credit;
(iv) if, after giving effect to the Facility Letter of Credit
or amendment or extension thereof requested hereunder, the aggregate
principal amount of the Facility Letter of Credit Obligations of such
Borrower plus the principal amount of all Advances outstanding with
respect to such Borrower would exceed the Borrowing Base for such
Borrower as of the most recent Inventory Valuation Date;
(v) if, after giving effect to the Facility Letter of Credit
or amendment or extension thereof requested hereunder, the aggregate
principal amount of all Facility Letter of Credit Obligations plus the
principal amount of all Advances outstanding would exceed the aggregate
Borrowing Bases determined as of the most recent Inventory Valuation
Date;
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(vi) if such Issuing Bank receives written notice from Agent
at or before noon, Phoenix time, on the proposed Issuance Date of such
Facility Letter of Credit that one or more of the conditions precedent
contained in Sections 5.1 or 5.2, as applicable, would not on such
Issuance Date be satisfied, unless such conditions are thereafter
satisfied and written notice of such satisfaction is given to such
Issuing Bank by Agent;
(vii) that has an expiration date (taking into account any
automatic renewal provisions thereof) that is later than one (1) year
after the Issuance Date, or such later time as the Issuing Bank may
agree; provided, however in no event shall the expiration date be later
than the Business Day next preceding the scheduled Facility Termination
Date; or
(viii) that is in a currency other than Dollars, or that is
not consistent with the Uniform Customs and Practice for Documentary
Credits (1993 Revision), International Chamber of Commerce Publication
No. 500, as the same may be updated.
4.3 Conditions. In addition to being subject to the satisfaction of the
conditions contained in Sections 5.1 and 5.2, as applicable, the issuance of any
Facility Letter of Credit is subject to the satisfaction in full of the
following conditions:
(i) the Borrower requesting the Facility Letter of Credit
shall have delivered to the Issuing Bank at such times and in such
manner as the Issuing Bank may reasonably prescribe a Reimbursement
Agreement and such other documents and materials as may be reasonably
required pursuant to the terms thereof, and the proposed Facility
Letter of Credit shall be reasonably satisfactory to such Issuing Bank
in form and content; and
(ii) as of the Issuance Date no order, judgment or decree of
any court, arbitrator or governmental authority shall enjoin or
restrain such Issuing Bank from issuing the Facility Letter of Credit
and no law, rule or regulation applicable to such Issuing Bank and no
directive from and governmental authority with jurisdiction over the
Issuing Bank shall prohibit such Issuing Bank from issuing Letters of
Credit generally or from issuing that Facility Letter or Credit.
4.4 Procedure for Issuance of Facility Letters of Credit.
(a) Request for Facility Letter of Credit. The requesting
Borrower shall give the Issuing Bank and Agent not less than five (5)
Business Days' prior written notice of any requested issuance of a
Facility Letter of Credit under this Agreement. Such notice shall
specify (i) the stated amount of the Facility Letter of Credit
requested, (ii) the requested Issuance Date, which shall be a Business
Day, (iii) the date on which such requested Facility Letter of Credit
is to expire,
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which date shall be in compliance with the requirements of Section
4.2(vii), (iv) the purpose for which such Facility Letter of Credit is
to be issued (which shall be a purpose permitted pursuant to Section
7.2), and (v) the Person for whose benefit the requested Facility
Letter of Credit is to be issued. At the time such request is made, the
requesting Borrower shall also provide Agent and the Issuing Bank with
a copy of the form of the Facility Letter of Credit it is requesting be
issued.
(b) Issuing Bank. Within two (2) Business Days after receipt
of a request for issuance of a Facility Letter of Credit in accordance
with Section 4.4(a), the Issuing Bank shall approve or disapprove, in
its reasonable discretion, the form of such requested Facility Letter
of Credit, but the issuance of such approved Facility Letter of Credit
shall continue to be subject to the provisions of this Article IV. The
Issuing Bank shall use reasonable efforts to notify the applicable
Borrower of any changes in the Issuing Bank's policies or procedures
that could reasonably be expected to affect adversely the Issuing
Bank's approval of the form of any requested Facility Letters of
Credit.
(c) Confirmation of Issuance. Upon receipt of a request for
issuance of a Facility Letter of Credit in accordance with Section
4.4(a), Agent shall determine, as of the close of business on the day
it receives such request, whether the issuance of such Facility Letter
of Credit would be permitted under the provisions of Sections 4.2(ii),
(iii), (iv) and (v) and, prior to the close of business on the second
Business Day after Agent received such request, Agent shall notify the
Issuing Bank and such Borrower (in writing or by telephonic notice
confirmed promptly thereafter in writing) whether issuance of the
requested Facility Letter of Credit would be permitted under the
provisions of Sections 4.2(ii), (iii), (iv) and (v). If Agent notifies
the Issuing Bank and the applicable Borrower that such issuance would
be so permitted, then, subject to the terms and conditions of this
Article IV and provided that the applicable conditions set forth in
Sections 5.1 and 5.2 have been satisfied, the Issuing Bank shall, on
the requested Issuance Date, issue the requested Facility Letter of
Credit in accordance with the Issuing Bank's usual and customary
business practices. The Issuing Bank shall give Agent written notice,
or telephonic notice confirmed promptly thereafter in writing, of the
issuance of a Facility Letter of Credit.
(d) Extension and Amendment. An Issuing Bank shall not extend
or amend any Facility Letter of Credit unless the requirements of this
Section 4.4 are met as though a new Facility Letter of Credit were
being requested and issued; provided, however, that if the Facility
Letter of Credit, as originally issued, sets forth such extension or
amendment, then the Issuing Bank shall so extend or amend the Facility
Letter of Credit upon the request of the applicable Borrower given in
the manner set forth in Section 4.4(a) and upon satisfaction of the
terms and conditions of Section 4.4(c).
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(e) Other Letters of Credit. Any Bank may, but shall not be
obligated to, issue to a Borrower Letters of Credit (that are not
Facility Letters of Credit) for its own account, and at its own risk.
None of the provisions of this Article IV shall apply to any Letter of
Credit that is not a Facility Letter of Credit.
(f) Existing Letters of Credit. As of the date of this
Agreement, certain of the Banks have previously issued, and there are
currently outstanding, Letters of Credit for the benefit of one or more
Borrowers (the "Existing Letters of Credit"), all pursuant to the
Refinanced Loans. Such Existing Letters of Credit shall remain
outstanding after the date of this Agreement. Borrowers remain
obligated with respect to the Existing Letters of Credit, and the
Refinanced Loans shall remain outstanding obligations of Borrowers to
the extent of such Existing Letters of Credit. At the request of the
applicable Borrower from time to time pursuant to, and subject to the
limitations and procedures of, Section 4.4(a), the Existing Letters of
Credit shall be converted to Facility Letters of Credit. The date of
such conversion shall be deemed to be the date of issuance of such
Facility Letter of Credit for purposes of this Agreement, including
without limitation, for purposes of calculating the fees payable under
Section 4.7. Immediately upon such conversion, the Issuing Bank,
through Agent, shall be deemed to have sold and transferred, and each
Bank shall be deemed to have irrevocably and unconditionally purchased
and received from Agent, without recourse or warranty, in each case
without further action on the part of any Person, an undivided interest
and participation, (ratably in proportion to the ratio that such Bank's
Commitment bears to the Aggregate Commitment) in such Facility Letter
of Credit. Each Bank severally agrees to fund any disbursements by the
Issuing Bank pursuant to Existing Letters of Credit by funding in
accordance with Section 4.6. The Existing Letters of Credit converted
to Facility Letters of Credit pursuant to this Section 4.4(f) shall be
deemed to be Facility Letters of Credit for all purposes under this
Agreement, and shall be subject to all terms and conditions hereof.
4.5 Duties of Issuing Bank. Any action taken or omitted to be taken by
an Issuing Bank under or in connection with any Facility Letter of Credit, if
taken or omitted in the absence of willful misconduct or gross negligence, shall
not put such Issuing Bank under any resulting liability to any Bank or, assuming
that such Issuing Bank has complied with the procedures specified in Section
4.4, relieve any Bank of its obligations hereunder to such Issuing Bank. In
determining whether to pay under any Facility Letter of Credit, the Issuing Bank
shall have no obligation relative to Banks other than to confirm that any
documents required to be delivered under such Facility Letter of Credit appear
to have been delivered in compliance and that they appear to comply on their
face with the requirements of such Facility Letter of Credit.
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4.6 Participation.
(a) Proportionate Share of Banks. Immediately upon issuance by
an Issuing Bank of any Facility Letter of Credit in accordance with
Section 4.4, each Bank shall be deemed to have irrevocably and
unconditionally purchased and received from such Issuing Bank, without
recourse or warranty, an undivided interest and participation (ratably
in proportion to the ratio that such Bank's Commitment bears to the
Aggregate Commitment) in such Facility Letter of Credit.
(b) Payment by Issuing Bank. In the event that an Issuing Bank
makes any payment under any Facility Letter of Credit and the
applicable Borrower shall not have repaid such amount to such Issuing
Bank on or before the date of such payment by such Issuing Bank, such
Issuing Bank shall promptly so notify Agent, which shall promptly so
notify each Bank. Upon receipt of such notice, each Bank shall promptly
and unconditionally pay to Agent for the account of such Issuing Bank
the amount of such Bank's share (ratably in proportion to the ratio
that such Bank's Commitment bears to the Aggregate Commitment) of such
payment in same day funds, and Agent shall promptly pay such amount,
and any other amounts received by Agent for such Issuing Bank's account
pursuant to this Section 4.6(b), to such Issuing Bank. If Agent so
notifies such Bank prior to 10:00 a.m., Phoenix time, on any Business
Day, such Bank shall make available to Agent for the account of such
Issuing Bank such Bank's share of the amount of such payment on such
Business Day in same day funds. If and to the extent such Bank shall
not have so made its share of the amount of such payment available to
Agent for the account of such Issuing Bank, such Bank agrees to pay to
Agent for the account of such Issuing Bank forthwith on demand such
amount, together with interest thereon, for each day from the date such
payment was first due until the date such amount is paid to Agent for
the account of such Issuing Bank, at the Federal Funds Effective Rate.
The failure of any Bank to make available to Agent for the account of
such Issuing Bank such Bank's share of any such payment shall not
relieve any other Bank of its obligation hereunder to make available to
Agent for the account of such Issuing Bank its share of any payment on
the date such payment is to be made.
(c) Advances. The payments made by Banks to an Issuing Bank in
reimbursement of amounts paid by it under a Facility Letter of Credit
shall constitute, and Borrowers hereby expressly acknowledge and agree
that such payments shall constitute, Advances hereunder to the
applicable Borrower and such payments shall for all purposes be treated
as Advances to such Borrower (notwithstanding that the amounts thereof
may not comply with the provisions of Section 2.6). Such Advances shall
be Floating Rate Advances, subject to Borrowers' rights under Article
II hereof.
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(d) Copies of Documents. Upon the request of Agent or any
Bank, an Issuing Bank shall furnish to the requesting Agent or Bank
copies of any Facility Letter of Credit or Reimbursement Agreement to
which such Issuing Bank is party and such other documentation as may
reasonably be requested by Agent or the Bank.
(e) Obligations of Banks. The obligations of Banks to make
payments to Agent for the account of an Issuing Bank with respect to a
Facility Letter of Credit shall be irrevocable, not subject to any
qualification or exception whatsoever and shall be made in accordance
with, but not subject to, the terms and conditions of this Agreement
under all circumstances notwithstanding:
(i) any lack of validity or enforceability of this
Agreement, any Facility Letter of Credit (except where due to
the gross negligence or willful misconduct of the Issuing
Bank), or any of the other Loan Documents;
(ii) the existence of any claim, setoff, defense or
other right which any Borrower may have at any time against a
beneficiary named in a Facility Letter of Credit or any
transferee of any Facility Letter of Credit (or any Person for
whom any such transferee may be acting), such Issuing Bank,
Agent, any Bank, or any other Person, whether in connection
with this Agreement, any Facility Letter of Credit, the
transactions contemplated herein or any unrelated transactions
(including any underlying transactions between a Borrower or
any Subsidiary and the beneficiary named in any Facility
Letter of Credit) other than the defense of payment in
accordance with this Agreement or a defense based on the gross
negligence or willful misconduct of the Issuing Bank;
(iii) any draft, certificate or any other document
presented under the Facility Letter of Credit proving to be
forged, fraudulent, invalid or insufficient in any respect of
any statement therein being untrue or inaccurate in any
respect so long as the payment by the Issuing Bank under such
Facility Letter of Credit against presentation of such draft,
certificate or other document shall not have constituted gross
negligence or willful misconduct;
(iv) the surrender or impairment of any security
for the performance or observance of any of the terms of any
of the Loan Documents;
(v) any failure by Agent or the Issuing Bank to
make any reports required pursuant to Section 4.8; or
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(vi) the occurrence of any Event of Default or
Unmatured Event of Default.
4.7 Compensation for Facility Letters of Credit.
(a) Payment of Facility Letter of Credit Fee. Each Borrower
agrees to pay to Agent, in the case of each outstanding Facility Letter
of Credit, the Facility Letter of Credit Fee therefor, payable in
quarterly installments in advance on the Issuance Date and on the first
day of each January, April, July and October after the Issuance Date
(which installment shall be a pro rata portion of the annual Facility
Letter of Credit Fee for the 3-month period in which such payment date
occurs). If the Issuance Date is a date other than the first day of
January, April, July or October, then the first quarterly installment
of the Facility Letter of Credit Fee shall be payable in arrears, on
the first day of January, April, July, or October, as applicable, next
following the Issuance Date. Such initial installment shall be a pro
rata portion of the annual Facility Letter of Credit Fee for the period
commencing on the Issuance Date and ending on the day preceding such
payment date. Facility Letter of Credit Fees shall be calculated, on a
pro rata basis for the period to which such payment applies, for actual
days that will elapse during such period, on the basis of a 365 day
year. Agent shall promptly remit such Facility Letter of Credit Fees,
when paid, to Banks (ratably in the proportion that each Bank's
Commitment bears to the Aggregate Commitment).
(b) Calculation of Fee. The Facility Letter of Credit Fee
shall be determined by reference to the Facility Rating or, if no
Facility Rating exists, by reference to the Senior Debt Rating, in
accordance with the following table:
Facility or Applicable
Senior Debt Letter of Credit
Rating Rate (%)
BBB-/Baa3 or higher 1.125
BB+/Ba1 1.125
BB/Ba2 1.250
BB-/Ba3 1.250
B+/B1 1.375
Lower or no 1.375
Rating
(c) Adjustment of Fee. The Applicable Letter of Credit Rate
shall be adjusted, as applicable from time to time, effective on the
first January 1, April 1, June 1, or October 1 to occur after any
change in the Facility Rating or the Senior Debt Rating, as applicable.
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(d) Changes to Ratings. Notwithstanding the foregoing, (i) if
either of the two (2) rating agencies selected by Borrowers for
purposes of calculating the Applicable Letter of Credit Rate shall not
have in effect a Facility Rating or a Senior Debt Rating for a reason
related to the creditworthiness of Borrowers or Guarantor or to any act
or failure to act on the part of Borrowers or Guarantor, then the
Applicable Letter of Credit Rate shall be determined by reference to
the last category listed above, and (ii) if the rating system used by
either such rating agency shall change, or if neither rating agency
shall have in effect a Senior Debt Rating nor a Facility Rating and
clause (i) above shall not be applicable, then Borrowers and Banks,
acting through Agent, shall negotiate in good faith to amend the
references to specific ratings in this definition to reflect such
changed rating system or the non-availability of ratings from such
rating agencies.
(e) Amounts Owed to Issuing Bank. An Issuing Bank shall have
the right to receive solely for its own account such amounts as the
applicable Borrower may agree, in writing, to pay to such Issuing Bank
with respect to issuance fees and for such Issuing Bank's out-of-pocket
costs of issuing and servicing Facility Letters of Credit.
4.8 Issuing Bank Reporting Requirements. Each Issuing Bank shall, no
later than the tenth day following the last day of each month, provide to Agent
a schedule of the Facility Letters of Credit issued by it, in form and substance
reasonably satisfactory to Agent, showing the Issuance Date, account party,
original face amount, amount (if any) paid thereunder, expiration date and the
reference number of each Facility Letter of Credit outstanding at any time
during such month and the aggregate amount (if any) payable by each Borrower to
such Issuing Bank during the month pursuant to Section 3.2. Copies of such
reports shall be provided promptly to each Bank and Borrowers by Agent.
4.9 Indemnification; Nature of Issuing Bank's Duties.
(a) Indemnity. In addition to amounts payable as elsewhere
provided in this Article IV, each Borrower hereby agrees to protect,
indemnify, pay and hold harmless Agent and each Bank and Issuing Bank
from and against any and all claims, demands, liabilities, damages,
losses, costs, charges and expenses (including reasonable attorneys'
fees) arising from the claims of third parties against Agent, Issuing
Bank or Bank as a consequence, direct or indirect, of (i) the issuance
of any Facility Letter of Credit for such Borrower other than, in the
case of an Issuing Bank, as a result of its willful misconduct or gross
negligence, or (ii) the failure of an Issuing Bank issuing a Facility
Letter of Credit for such Borrower to honor a drawing under such
Facility Letter of Credit as a result of any act or omission, whether
rightful or wrongful, of any present or future de jure or de facto
government or governmental authority.
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(b) Assumption of Risk. As among Borrowers, Banks, Agent and
the Issuing Bank, Borrowers assume all risks of the acts and omissions
of, or misuse of Facility Letters of Credit by, the respective
beneficiaries of such Facility Letters of Credit. In furtherance and
not in limitation of the foregoing, neither the Issuing Bank nor Agent
nor any Bank shall be responsible:
(i) for the form, validity, sufficiency, accuracy,
genuineness or legal effect of any document submitted by any
party in connection with the application for and issuance of
the Facility Letters of Credit, even if it should in fact
prove to be in any or all respects invalid, insufficient,
inaccurate, fraudulent or forged;
(ii) for the validity or sufficiency of any
instrument transferring or assigning or purporting to transfer
or assign a Facility Letter of Credit or the rights or
benefits thereunder or proceeds thereof, in whole or in part,
which may prove to be invalid or ineffective for any reason;
(iii) for failure of the beneficiary of a Facility
Letter of Credit to comply fully with conditions required in
order to draw upon such Facility Letter of Credit;
(iv) or errors, omissions, interruptions or delays in
transmission or delivery of any messages, by mail, cable,
telegraph, telex or otherwise, whether or not they be in
cipher;
(v) for errors in interpretation of technical terms;
(vi) for any loss or delay in the transmission or
otherwise of any document required in order to make a drawing
under any Facility Letter of Credit or of the proceeds
thereof;
(vii) for the misapplication by the beneficiary of a
Facility Letter of Credit of the proceeds of any drawing under
such Facility Letter of Credit; and
(viii) for any consequences arising from causes
beyond the control of Agent, the Issuing Bank and Banks
including, without limitation, any act or omission, whether
rightful or wrongful, of any present or future de jure or de
facto government or governmental authority. None of the above
shall affect, impair, or prevent the vesting of any of the
Issuing Bank's rights or powers under this Section 4.9.
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(c) Good Faith. In furtherance and extension and not in
limitation of the specific provisions hereinabove set forth, any action
taken or omitted by an Issuing Bank under or in connection with the
Facility Letters of Credit or any related certificates, if taken or
omitted in good faith under commercially reasonable standards, shall
not put such Issuing Bank, Agent or any Bank under any resulting
liability to any Borrower or relieve any Borrower of any of its
obligations hereunder to any such Person.
(d) Certain Acts of Issuing Bank. Notwithstanding anything to
the contrary contained in this Section 4.9, Borrowers shall have no
obligation to indemnify an Issuing Bank under this Section 4.9 in
respect of any liability incurred by such Issuing Bank arising
primarily out of the willful misconduct or gross negligence of such
Issuing Bank, as determined by a court of competent jurisdiction, or
out of the wrongful dishonor by such Issuing Bank of a proper demand
for payment made under the Facility Letters of Credit issued by such
Issuing Bank, unless such dishonor was made at the request of a
Borrower.
4.10 No Obligation to Issue. The Issuing Bank shall not at any time be
obligated to issue any Facility Letter of Credit if such issuance would conflict
with, or cause the Issuing Bank or any other Bank, to exceed any limits imposed
by any applicable law, rule or regulation.
4.11 Obligations of Issuing Bank and Other Banks. Except to the extent
that a Bank shall have agreed to be designated as an Issuing Bank, no Bank shall
have any obligation to accept or approve any request for, or to issue, amend or
extend, any Letter of Credit, and the obligations of the Issuing Bank to issue,
amend or extend any Facility Letter of Credit are expressly limited by and
subject to the provisions of this Article IV.
ARTICLE V
CONDITIONS PRECEDENT
5.1 Initial Advance. Banks shall not be required to make the initial
Advance hereunder, and the Issuing Bank shall not be required to issue the
initial Facility Letter of Credit hereunder, unless Borrowers have paid to Agent
the fees set forth in the letter agreement of even date herewith between Agent
and Borrowers, and Borrowers have furnished to Agent with sufficient copies for
Banks:
(i) Copies of the certificate of incorporation of
each Borrower and Guarantor, together with all amendments, and a
certificate of good standing, all certified by the appropriate
governmental officer in the jurisdiction of incorporation.
(ii) Copies, certified by the Secretary or Assistant
Secretary of each Borrower and Guarantor, of each such corporation's
by-laws and of its
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Board of Directors' resolutions (and resolutions of other bodies, if
any are deemed necessary by counsel for any Bank) authorizing the
execution of the Loan Documents and the Guaranty.
(iii) Incumbency certificates, executed by the
Secretary or Assistant Secretary of each Borrower and Guarantor, which
shall identify by name and title and bear the signature of the officers
of the such corporation authorized to sign the Loan Documents and the
Guaranty (as applicable) and (if applicable) to make borrowings
hereunder and to request, apply for and execute Facility Letter of
Credit Reimbursement Agreements with respect to Facility Letters of
Credit hereunder, upon which certificates Agent, Banks and the Issuing
Bank shall be entitled to rely until informed of any change in writing
by the applicable Borrower or Guarantor.
(iv) A written opinion of Haligman & Lottner, P.C.,
counsel to Borrowers and Guarantor, addressed to Agent and Banks in
substantially the form of Exhibit F hereto.
(v) A written certificate of General Counsel of
Guarantor, addressed to Agent and Banks in substantially the form of
Exhibit G hereto.
(vi) A written opinion of local counsel to Borrowers
and Guarantor, addressed to Agent and Banks in substantially the form
of Exhibit H hereto.
(vii) A letter or other evidence from Price
Waterhouse LLP, accountants for Borrowers and Guarantor, in form
acceptable to Agent, indicating that no material accounting adjustments
have occurred with respect to Guarantor's consolidated financial
statements in connection with the adoption of FASB 121.
(viii) Notes payable to the order of each of Banks.
(ix) Written money transfer instructions, in form
acceptable to Agent, addressed to Agent and signed by an Authorized
Officer, together with such other related money transfer authorizations
as Agent may have reasonably requested.
(x) The Guaranty duly executed by Guarantor.
(xi) Evidence satisfactory to Agent (A) of payment in
full (which payment may be made from the proceeds of the initial
Advance hereunder) of all obligations of Borrowers and Guarantor to,
and termination of the financing arrangements evidenced by, the
Refinanced Loans, and (B) that all Liens securing the obligations and
financing arrangements related to the Refinanced Loans shall
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be discharged promptly, but in no event later than ninety (90) days,
following the payment of such obligations.
(xii) An accurate list of all of the Subsidiaries of
Guarantor and each Borrower, setting forth their respective
jurisdictions of incorporation or formation and the percentage of their
respective capital stock or partnership interests owned by Guarantor or
any Borrower or their Subsidiaries.
(xiii) Such other documents as any Bank or Issuing
Bank or their respective counsel may have reasonably requested.
5.2 Each Advance. Banks shall not be required to make any Advance
(other than the conversion of an Advance of one Type to an Advance of another
Type that does not increase the aggregate amount of outstanding Advances),
unless on the applicable Borrowing Date, and an Issuing Bank shall not be
required to issue, amend or extend a Facility Letter of Credit unless on the
applicable Issuance Date:
(i) There exists no Event of Default or Unmatured Event of
Default.
(ii) The representations and warranties contained in Article
VI are true and correct in all material respects as of such Borrowing
Date or Issuance Date except to the extent any such representation or
warranty is stated to relate solely to an earlier date, in which case
such representation or warranty shall be true and correct in all
material respects on and as of such earlier date and except for changes
permitted by this Agreement. Solely for purposes of this Section 5.2,
the representations and warranties in Sections 6.5 and 6.7 relate
solely to the date of this Agreement.
(iii) After the making of such Advance or issuance of such
Facility Letter of Credit, (A) the principal amount of all Advances
plus the aggregate amount of the Facility Letter of Credit Obligations
outstanding shall not exceed the Aggregate Commitment, and (B) the
aggregate principal amount of all Advances plus the aggregate amount of
the Facility Letter of Credit Obligations outstanding to any individual
Borrower shall not exceed the Borrowing Base for such Borrower
(determined as of the most recent Inventory Valuation Date), and (C)
the aggregate principal amount of all Advances plus the aggregate
amount of the Facility Letter of Credit Obligations outstanding shall
not exceed the aggregate Borrowing Bases (determined as of the most
recent Inventory Valuation Date).
(iv) Borrowers shall have delivered to Agent, within the time
period specified in Section 2.8, a duly completed Borrowing Notice in
substantially the form of Exhibit I hereto.
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(v) All legal matters incident to (A) the making of such
Advance shall be reasonably satisfactory to Agent and its counsel and
(B) the issuance of such Facility Letter of Credit shall be reasonably
satisfactory to Agent, such Issuing Bank and their respective counsel.
Each Borrowing Notice with respect to each such Advance and each
request for a Facility Letter of Credit shall constitute a representation and
warranty by Borrowers that the conditions contained in Sections 5.2(i) and (ii)
have been satisfied.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
Borrowers represent and warrant to Banks and Agent that:
6.1 Existence and Standing. Each Borrower is a corporation duly
incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all requisite authority to conduct its
business in each jurisdiction in which its business is conducted (except to the
extent that a failure to maintain such existence, good standing or authority
would not reasonably be expected to have and does not have a Material Adverse
Effect). Guarantor is a corporation duly incorporated, validly existing and in
good standing under the laws of its jurisdiction of incorporation and has all
requisite authority to conduct its business in each jurisdiction in which its
business is conducted (except to the extent that a failure to maintain such
existence, good standing or authority would not reasonably be expected to have
and does not have a Material Adverse Effect).
6.2 Authorization and Validity. Each Borrower has the corporate power
and authority to execute and deliver the Loan Documents and to perform its
obligations hereunder and thereunder. The execution and delivery by each
Borrower of the Loan Documents and the performance of its obligations thereunder
have been duly authorized and the Loan Documents constitute legal, valid and
binding obligations of each Borrower enforceable against each Borrower in
accordance with their terms, subject to bankruptcy, insolvency or similar laws
affecting the enforcement of creditors' rights generally and general principles
of equity. Guarantor has the corporate power and authority to execute and
deliver the Guaranty and to perform its obligations thereunder. The execution
and delivery by Guarantor of the Guaranty and the performance of its obligations
thereunder have been duly authorized, and the Guaranty constitutes the legal,
valid and binding obligations of Guarantor enforceable against Guarantor in
accordance with its terms, subject to bankruptcy, insolvency or similar laws
affecting the enforcement of creditors' rights generally and general principles
of equity.
6.3 No Conflict; Government Consent. Neither the execution and delivery
by each Borrower of the Loan Documents or by Guarantor of the Guaranty, nor the
consummation of the transactions herein contemplated, nor compliance with the
provisions hereof or thereof will violate in any material respect any law, rule,
regulation, order, writ, judgment, injunction,
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decree or award binding on each Borrower or Guarantor or a Borrower's or
Guarantor's certificate of incorporation or bylaws or the provisions of any
indenture (including without limitation the Indenture), instrument or agreement
to which each Borrower or Guarantor is a party or is subject, or by which it, or
its Property, is bound, or conflict with or constitute a default thereunder, or
result in the creation or imposition of any Lien in, of or on the Property of
each Borrower or Guarantor pursuant to the terms of any such indenture,
instrument or agreement. Except as set forth on Schedule "6.3" hereto, no order,
consent, approval, license, authorization, or validation of, or filing,
recording or registration with, or exemption by, any governmental or public body
or authority, or any subdivision thereof, is required to authorize, or is
required in connection with the execution, delivery and performance of, or the
legality, validity, binding effect or enforceability of, any of the Loan
Documents or the Guaranty.
6.4 Financial Statements. The December 31, 1995 audited consolidated
financial statements of Guarantor and the December 31, 1995 unaudited financial
statements of Borrowers and the Subsidiaries delivered to Banks were prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Such statements fairly present, in all material respects, the consolidated
financial condition and operations of Guarantor, Borrowers and their
Subsidiaries at such date and the consolidated results of their operations for
the period then ended.
6.5 Material Adverse Change. Since the date of the financial statements
(whether quarterly or annual) of each Borrower and Guarantor described in
Section 6.4, there has been no change in the business, Property, condition
(financial or otherwise) or results of operations of Borrowers and Guarantor
(taken as a whole) that has had or would reasonably be expected to have a
Material Adverse Effect. The foregoing representation and warranty is made
solely as of the date of this Agreement.
6.6 Taxes. Each Borrower and Guarantor have filed all United States
federal income tax returns and all other material tax returns which are required
to be filed and have paid all taxes due pursuant to said returns or pursuant to
any assessment received by a Borrower or Guarantor, except such taxes, if any,
as are being contested in good faith and as to which adequate reserves have been
provided. No tax Liens (except Permitted Liens) have been filed and no claims
are being asserted with respect to any such taxes that have had or would
reasonably be expected to have a Material Adverse Effect. The charges, accruals
and reserves on the books of each Borrower and Guarantor in respect of any taxes
or other governmental charges are adequate in accordance with Agreement
Accounting Principles.
6.7 Litigation and Contingent Obligations. Except as set forth in
Guarantor's form 10-K report for the period ending December 30, 1995, there is
no litigation, arbitration, governmental investigation, proceeding or inquiry
pending or, to the knowledge of any Authorized Officer, threatened against or
affecting any Borrower or Guarantor that has had or would reasonably be expected
to have a Material Adverse Effect. Other than any liability incident to such
litigation, arbitration or proceedings, each Borrower and Guarantor have no
material contingent obligations not provided for or disclosed in the financial
statements (whether
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quarterly or annual) of Guarantor and Borrowers that have been most recently
delivered by Guarantor and Borrowers to Agent that has had or would reasonably
be expected to have a Material Adverse Effect.
6.8 Subsidiaries. All of the issued and outstanding shares of capital
stock of Borrowers have been duly authorized and validly issued and are fully
paid and non-assessable.
6.9 ERISA. The Unfunded Liabilities of all Single Employer Plans do not
in the aggregate exceed $5,000,000. The withdrawal liabilities to Multiemployer
Plans of the Guarantor, any Borrower and any other member of the Controlled
Group do not, and are not reasonably expected to, exceed $5,000,000 in the
aggregate. Each Plan complies in all material respects with all applicable
requirements of law and regulations, no Reportable Event has occurred with
respect to any Plan, neither Guarantor, nor any Borrower nor any other member of
the Controlled Group has withdrawn from any Multiemployer Plan or initiated
steps to do so, and no steps have been taken to terminate any Plan.
6.10 Accuracy of Information. All factual information heretofore or
contemporaneously furnished in writing by or on behalf of any Borrower or
Guarantor to Agent or any Issuing Bank for purposes of or in connection with
this Agreement or any transaction contemplated hereby is, and all other such
factual information hereafter furnished in writing by or on behalf of any
Borrower or Guarantor to Agent or any Issuing Bank will be, true and accurate
(taken as a whole), in all material respects, on the date as of which such
information is dated or certified and not incomplete by omitting to state any
material fact necessary to make such information (taken as a whole) not
misleading at such time.
6.11 Regulation U. Neither Guarantor, nor any Borrower nor any
Subsidiary is engaged principally, or as one of its important activities, in the
business of extending credit for the purpose of purchasing or carrying Margin
Stock (as defined in Regulation U).
6.12 Material Agreements. Neither any Borrower nor Guarantor is in
default in the performance, observance or fulfillment of any of the obligations,
covenants or conditions contained in (i) any agreement to which it is a party,
or (ii) any agreement or instrument evidencing or governing Indebtedness, which
default has had or would reasonably be expected to have a Material Adverse
Effect.
6.13 Labor Disputes and Acts of God. Neither the business nor the
Property of any Borrower or of Guarantor is affected by any fire, explosion,
accident, strike, lockout, or other labor dispute, drought, storm, hail,
earthquake, embargo, act of God or of the public enemy, or other casualty
(whether or not covered by insurance), which has had or would reasonably be
expected to have a Material Adverse Effect.
6.14 Ownership. Each Borrower and Guarantor have title to, or valid
leasehold interests in, all of their respective properties and assets, real and
personal, including the properties and assets and leasehold interests reflected
in the financial statements referred to in
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Section 6.4 (except to the extent that (i) such properties or assets have been
disposed of in the ordinary course of business or (ii) the failure to have such
title has not had and would not reasonably be expected to have a Material
Adverse Effect).
6.15 Operation of Business. Each Borrower and Guarantor possess all
licenses, permits, franchises, patents, copyrights, trademarks, and trade names,
or rights thereto, to conduct their respective businesses substantially as now
conducted, and as presently proposed to be conducted, with such exceptions as
have not had and would not reasonably be expected to have a Material Adverse
Effect.
6.16 Laws; Environment. Except as set forth in Guarantor's form 10-K
report for the period ending December 31, 1995, each Borrower and Guarantor have
duly complied, and their businesses, operations and Property are in compliance,
in all material respects, with the provisions of all federal, state, and local
statutes, laws, codes, and ordinances and all rules and regulations promulgated
thereunder (including without limitation those relating to the environment,
health and safety). Except as set forth in the form 10-K described herein, each
Borrower and Guarantor have been issued all required federal, state, and local
permits, licenses, certificates, and approvals relating to (1) air emissions;
(2) discharges to surface water or groundwater; (3) solid or liquid waste
disposal; (4) the use, generation, storage, transportation, or disposal of toxic
or hazardous substances or hazardous wastes (intended hereby and hereafter to
include any and all such materials listed in any federal, state, or local law,
code, or ordinance and all rules and regulations promulgated thereunder as
hazardous); or (5) other environmental, health or safety matters. Except in
accordance with a valid governmental permit, license, certificate or approval or
as set forth in the form 10-K described herein, to the best knowledge of each
Borrower, there has been no material emission, spill, release, or discharge into
or upon (1) the air; (2) soils, or any improvements located thereon; (3) surface
water or groundwater; or (4) the sewer, septic system or waste treatment,
storage or disposal system servicing any Property of a Borrower or Guarantor, of
any toxic or hazardous substances or hazardous wastes at or from such Property.
Neither Guarantor nor any Borrower has received notice of any written complaint,
order, directive, claim, citation, or notice from any governmental authority or
any person or entity with respect to violations of law or damage by reason of
any Borrower's or Guarantor's (1) air emissions; (2) spills, releases, or
discharges to soils or improvements located thereon, surface water, groundwater
or the sewer, septic system or waste treatment, storage or disposal systems
servicing any Property; (3) solid or liquid waste disposal; (4) use, generation,
storage, transportation, or disposal of toxic or hazardous substances or
hazardous waste; or (5) other environmental, health or safety matters affecting
any Borrower or Guarantor or its business, operation or Property. Except as set
forth in the form 10-K described herein, neither any Borrower nor Guarantor has
any material Indebtedness, obligation, or liability, absolute or contingent,
matured or not matured, with respect to the storage, treatment, cleanup, or
disposal of any solid wastes, hazardous wastes, or other toxic or hazardous
substances (including without limitation any such indebtedness, obligation, or
liability with respect to any current regulation, law or statute regarding such
storage, treatment, cleanup, or disposal). A matter will not constitute a breach
of this Section 6.16 unless it is reasonably likely to result in a Material
Adverse Effect.
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6.17 Investment Company Act. Neither Guarantor nor any Borrower is an
"investment company" or a company "controlled" by an "investment company,"
within the meaning of the Investment Company Act of 1940, as amended.
6.18 Public Utility Holding Company Act. Neither Guarantor nor any
Borrower nor any Subsidiary is a "holding company" or a "subsidiary company" of
a "holding company," or an "affiliate" of a "holding company" or of a
"subsidiary company" of a "holding company," within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
6.19 Subordination Provisions. The Obligations to the Banks constitute
senior indebtedness which is entitled to the benefits of the subordination
provisions of the Convertible Subordinated Notes. The Obligations to the Banks
constitute Guarantor Senior Indebtedness of Borrowers under the Indenture which
entitle the Banks to the benefits of the subordination provisions of the
Indenture.
6.20 Indenture Provisions. Each Borrower is a Wholly-Owned Restricted
Subsidiary, as that term is defined in the Indenture. Each Borrower is a
Guarantor, as that term is defined in the Indenture.
ARTICLE VII
AFFIRMATIVE COVENANTS
During the term of this Agreement, unless the Required Banks shall
otherwise consent in writing:
7.1 Financial Reporting. Each Borrower will maintain, and Guarantor
will maintain, a system of accounting established and administered in accordance
with GAAP, and furnish to Banks:
(i) Within 100 days after the close of each fiscal year, (A)
an unqualified (or qualified as reasonably acceptable to Agent) audited
financial statements of Guarantor certified by one of the "Big Six"
accounting firms or other nationally recognized independent certified
public accountants, reasonably acceptable to Banks, prepared in
accordance with GAAP on a consolidated basis, including balance sheets
as of the end of such fiscal year and statements of income and retained
earnings and a statement of cash flows, in each case setting forth in
comparative form the figures for the preceding fiscal year, and (B)
unaudited financial statements, prepared in accordance with GAAP
(excluding footnotes) on a consolidated basis for each Borrower and its
respective Subsidiaries, including balance sheets as of the end of such
fiscal year and statements of income and retained earnings and a
statement of cash flows, in each case setting forth in comparative form
the figures for the preceding fiscal year.
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(ii) Within sixty (60) days after the close of the first three
(3) quarterly periods of each fiscal year, for Guarantor and each
Borrower and their respective Subsidiaries, on a consolidated basis,
unaudited financial statements, including balance sheets as of the end
of such period, statements of income and retained earnings, and a
statement of cash flows for the portion of the fiscal year ending with
such fiscal period, all certified by an Authorized Officer. All such
balance sheets shall set forth in comparative form figures for the
preceding year end. All such income statements shall reflect current
period and year-to-date figures.
(iii) Annually, together with the financial statements
described in clause (i) above, a copy of the business plan of Guarantor
and each Borrower for the upcoming two (2) fiscal years, including, as
to Guarantor, a consolidated balance sheet, statement of income and
projection of cash flows.
(iv) Within sixty (60) days of the end of each of the first
three quarterly periods of each fiscal year, a quarterly variance
analysis comparing actual quarterly results versus projected quarterly
results for the fiscal quarter most recently ended, including an
analysis of revenues, Housing Unit Closings and operating profits (by
operating division) for such period, and such other items as are
reasonably requested by Agent, together with a written explanation of
material variances.
(v) Within 100 days after the end of each fiscal year, a
variance analysis comparing actual annual results versus the business
plan for the fiscal year most recently ended, including an analysis of
revenues, Housing Unit Closings and operating profits (by operating
division) for such period, and such other items as are reasonably
requested by Agent, together with a written explanation of material
variances.
(vi) By the twenty-fifth day of each calendar month, a
Borrowing Base Certificate of an Authorized Officer for each Borrower,
with respect to the Inventory Valuation Date occurring on the last day
of the immediately preceding calendar month.
(vii) Within sixty (60) days after the end of each quarterly
period of each fiscal year, a report identifying as to Guarantor and
its Subsidiaries the inventory of real estate operations, including
land and housing units as of such date, designated in the same
categories as are identified in Guarantor's corporate status report
currently delivered to Agent; such summary shall include a delineation
of sold or unsold items in each category.
(viii) Within sixty (60) days after the end of each of the
first three quarterly periods, and within one hundred (100) days after
the end, of each fiscal
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year, a certificate of an Authorized Officer as to Borrower's and
Guarantor's compliance with the Financial Covenant Tests in the form of
Exhibit J hereto.
(ix) Within 270 days after the close of each fiscal year, a
statement of the Unfunded Liabilities of each Single Employer Plan,
certified as correct by an actuary enrolled under ERISA (which
requirement may be satisfied by the delivery of the most recent
actuarial valuation of each such Single Employer Plan).
(x) As soon as possible and in any event within ten (10) days
after any Borrower knows that any Reportable Event has occurred with
respect to any Plan, a statement, signed by an Authorized Officer of
such Borrower, describing said Reportable Event and the action which
such Borrower (or Guarantor) proposes to take with respect thereto.
(xi) As soon as possible, and in any event within thirty (30)
days after any Borrower knows or has reason to know that any
circumstances exist that constitute grounds entitling the PBGC to
institute proceedings to terminate a Plan subject to ERISA with respect
to any Borrower or any member of the Controlled Group and promptly but
in any event within two (2) Business Days of receipt by Guarantor, any
Borrower or any member of the Controlled Group of notice that the PBGC
intends to terminate a Plan or appoint a trustee to administer the
same, and promptly but in any event within five (5) Business Days of
the receipt of notice concerning the imposition of withdrawal liability
in excess of $500,000 with respect to Guarantor, any Borrower or any
member of the Controlled Group, a certificate of an Authorized Officer
setting forth all relevant details of such event and the action which
any Borrower (or Guarantor) proposes to take with respect thereto.
(xii) Promptly after the sending or filing thereof, copies of
all proxy statements, financial statements (including form 10-K and
10-Q, exclusive of exhibits unless otherwise requested by Agent), and
reports which Guarantor sends to its stockholders, and copies of all
regular (except form S-8), periodic, and special reports, and all
registration statements (exclusive of exhibits unless otherwise
requested by Agent) which Guarantor is required to file with the
Securities and Exchange Commission or any governmental authority which
may be substituted therefor, or with any national securities exchange.
(xiii) Promptly after the commencement thereof, notice of all
actions, suits and proceedings before any court or governmental
department, commission, board, bureau, agency, or instrumentality,
domestic or foreign, affecting a Borrower or Guarantor (a) which, if
determined adversely to such Borrower or Guarantor, could reasonably be
expected to have a Material Adverse Effect or (b) in which liability in
excess of $2,500,000 (in the aggregate with respect to any
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action, suit or proceeding) is claimed and alleged against such
Borrower or Guarantor.
(xiv) As soon as possible and in any event within ten (10)
days after receipt by any Borrower or Guarantor, a copy of (a) any
written notice or claim to the effect that any Borrower or Guarantor is
or may be liable to any Person as a result of the release of any toxic
or hazardous waste or substance into the environment, and (b) any
notice alleging any violation of any federal, state or local
environmental, health or safety law or regulation by any Borrower or
Guarantor which, in the case of either (a) or (b), could reasonably be
expected to have a Material Adverse Effect or could result in liability
to any Borrower or Guarantor in excess of $2,500,000 (in the aggregate
with respect to any notice or claim).
(xv) Such other information (including non-financial
information) as Agent may from time to time reasonably request.
7.2 Use of Proceeds. Subject to the limitations contained in this
Agreement, each Borrower will use the proceeds of Advances for its own
acquisition, development or holding of real property or the construction of
improvements in connection with the home building, real estate operations or
related businesses of such Borrower (including payment of reimbursement
obligations with respect to Facility Letters of Credit), and any other use
permitted with the definition of "Guarantor Senior Indebtedness" under the
Indenture, and to repay outstanding Advances. Each Borrower will not, and
Guarantor and each Subsidiary will not, use any of the proceeds of the Advances
to purchase or carry any "margin stock" (as defined in Regulation U) or, except
as otherwise permitted by this Agreement, to purchase any securities in any
transaction that is subject to Sections 13 and 14 of the Securities Exchange Act
of 1934, as amended.
7.3 Notice of Event of Default. Each Borrower will, and Guarantor will,
give prompt notice in writing to Agent of the occurrence of (i) any Event of
Default or Unmatured Event of Default and (ii) any other development, financial
or otherwise, that has had or would be reasonably expected to have a Material
Adverse Effect.
7.4 Conduct of Business. Except as otherwise permitted under this
Agreement, each Borrower will, and Guarantor will, carry on and conduct business
in the same general manner and in substantially the same fields of enterprise as
presently conducted and to do all things necessary to remain duly incorporated,
validly existing and in good standing as a domestic corporation in their
respective jurisdictions of incorporation and maintain all requisite authority
to conduct business in each jurisdiction in which business is conducted;
provided, however, that nothing contained herein shall prohibit the dissolution
of any Borrower as long as another Borrower succeeds to the assets, liabilities
and business of the dissolved Borrower.
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7.5 Taxes. Each Borrower will, and Guarantor will, pay prior to
delinquency all taxes, assessments and governmental charges and levies upon them
or their income, profits or Property, except (i) those that solely encumber
property abandoned or in the process of being abandoned and with respect to
which there is no recourse to Guarantor or any Subsidiary; (ii) those that are
being contested in good faith by appropriate proceedings and with respect to
which adequate reserves have been established in accordance with GAAP, and (iii)
to the extent that the failure to do so would not reasonably be expected to have
and does not have a Material Adverse Effect.
7.6 Insurance. Each Borrower will, and Guarantor will, maintain with
financially sound and reputable insurance companies insurance on all their
Property in such amounts and covering such risks as is consistent with sound
business practice, and each Borrower will furnish to Agent upon request full
information as to the insurance carried.
7.7 Compliance with Laws. Each Borrower will, and Guarantor will,
comply with all laws, rules, regulations, orders, writs, judgments, injunctions,
decrees or awards to which it may be subject, except to the extent that the
failure to do so would not reasonably be expected to have and does not have a
Material Adverse Effect.
7.8 Maintenance of Properties. Each Borrower will, and Guarantor will,
do all things necessary to maintain, preserve, protect and keep its Property in
good repair, working order and condition, except to the extent that the failure
to do so would not reasonably be expected to have and does not have a Material
Adverse Effect.
7.9 Inspection. Each Borrower will, and Guarantor will, permit Agent
and Banks, by their respective representatives and agents, to inspect any of the
Property, corporate (or partnership) books and financial records of such
Borrower and Guarantor to examine and make copies of the books of accounts and
other financial records of such Borrower and Guarantor, and to discuss the
affairs, finances and accounts of such Borrower and Guarantor with, and to be
advised as to the same by, their respective officers at such reasonable times
and intervals as Agent may designate.
7.10 Environment. Each Borrower will, and Guarantor will, (i) comply,
in all material respects, with the provisions of all federal, state, and local
environmental, health, and safety laws, codes and ordinances, and all rules and
regulations issued thereunder; (ii) promptly contain and remove or otherwise
remediate any hazardous discharge from or affecting the Property of any Borrower
or Guarantor, to the extent required by and in compliance with all applicable
laws; (iii) promptly pay any fine or penalty assessed in connection therewith or
contest the same in good faith; and (iv) permit Agent to inspect such Property,
to conduct tests thereon, and to inspect all books, correspondence, and records
pertaining thereto at reasonable hours and places; and (v) at the request of the
Required Banks, and at such Borrower's expense, provide a report of a qualified
environmental engineer, satisfactory in scope, form, and content to the Required
Banks, and such other and further assurances reasonably satisfactory to the
Required Banks that any new condition or occurrence hereafter identified in any
updated form 10-K or 10-Q has been
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corrected; provided that a failure to comply with the provisions of clauses (i)
through (v) of this Section 7.10 shall not constitute an Event of Default or an
Unmatured Event of Default unless such noncompliance has resulted in or is
reasonably likely to result in a Material Adverse Effect.
ARTICLE VIII
NEGATIVE COVENANTS
During the term of the Agreement, unless the Required Banks shall
otherwise consent in writing:
8.1 Dividends. Each Borrower will not, directly or indirectly, declare,
make or pay, or incur any liability to make or pay, or cause or permit to be
declared, made or paid, any Dividend if, prior to or after giving effect to the
declaration and payment of any Dividend, there shall exist any Event of Default
under this Agreement, or Borrowers shall be in breach of the Individual Debt
Coverage Test or the Aggregate Debt Coverage Test. Guarantor will not, directly
or indirectly, declare, make or pay, or incur any liability to make or pay, or
cause or permit to be declared, made or paid, any Dividend if, prior to or after
giving effect to the declaration and payment of any Dividend, there shall exist
any Event of Default under this Agreement.
8.2 Indebtedness. Each Borrower will not, and Guarantor will not,
create, incur or suffer to exist any Indebtedness, except, without duplication
and without duplication as to Borrowers and Guarantor:
(i) The Loans.
(ii) Indebtedness existing on the date hereof (and not
otherwise permitted under this Section 8.2) and described in Schedule
"8.2(ii)" hereto and Refinancing Indebtedness with respect thereto.
(iii) Indebtedness of Guarantor's mortgage lending and
financial asset management Subsidiaries.
(iv) Rate Hedging Obligations.
(v) Intercompany Indebtedness between any Borrower, Guarantor
and/or any Subsidiary, provided that, as to Indebtedness of a Borrower
to Guarantor, such Indebtedness is subordinated by Guarantor under the
Guaranty to the reasonable satisfaction of Agent.
(vi) Trade accounts payable and accrued expenses arising
or occurring in the ordinary course of business.
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(vii) Indebtedness constituting Capitalized Lease
Obligations.
(viii) Indebtedness with respect to Letters of Credit
(including Facility Letters of Credit) in an aggregate face amount
outstanding at any time not to exceed $35,000,000.
(ix) Indebtedness secured by purchase-money Liens
permitted under Section 8.6(iii).
(x) Subordinated Indebtedness.
(xi) Non-Recourse Indebtedness incurred in the ordinary
course of business.
(xii) Performance bonds, completion bonds, guarantees of
performance, and guarantees of Indebtedness of a special district
entered into in the ordinary cause of business.
(xiii) Indebtedness of a Person existing as of the time of the
Acquisition of such Person by any Borrower or Guarantor, provided that,
after giving effect to such Acquisition, Borrowers or Guarantor, as
applicable, are in compliance with the terms of this Agreement
(including without limitation the Financial Covenant Tests).
(xiv) Indebtedness evidenced by the Senior Notes and the
Convertible Subordinated Notes and Refinancing Indebtedness with
respect thereto.
(xv) Public Indebtedness, so long as such Indebtedness (A) as
to Guarantor, is either subordinated to or pari passu with Guarantor's
obligations under the Guaranty; and (B) as to Borrowers, is
Subordinated Indebtedness.
(xvi) Indebtedness of a Borrower or Guarantor secured by a
Lien on real property owned by such Borrower or Guarantor, where (A)
the real property is not related to Housing Units or Land Under
Development, and (B) the aggregate outstanding amount of such
Indebtedness, plus all amounts committed but undisbursed in connection
with such Indebtedness, does not exceed seventy-five percent (75%) of
the fair market value of the real property encumbered by such Lien.
(xvii) Indebtedness, except Public Indebtedness, not otherwise
permitted by this Section 8.2 in an aggregate amount outstanding at any
time not to exceed $35,000,000.
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(xviii) Indebtedness of Guarantor which arises pursuant to a
guarantee of payment or collection executed by Guarantor, guaranteeing
the Indebtedness of one or more Borrowers which is permitted under
clauses (i) through (xvii) of this Section 8.2.
8.3 Merger. Each Borrower will not, nor will it permit Guarantor
to, merge or consolidate with or into any other Person, unless:
(i) the Borrower is merging with any other Borrower;
(ii) a Subsidiary (other than a Borrower) is merging with
any Borrower or Guarantor or another Subsidiary, and the Borrower or
Guarantor, if applicable, is the continuing corporation;
(iii) no Event of Default shall exist or shall occur after
giving effect to such transaction;
(iv) after giving effect to such transaction, Borrowers
and Guarantor, as applicable, shall be in compliance with the Financial
Covenant Tests;
(v) (a) the other Person to the transaction is in a Related
Business or, (b) if not in a Related Business, the aggregate net worth
of the acquired non-related entities of all such transactions during
any 24-month period shall not exceed $15,000,000, and the Borrower or
Guarantor, if involved in the merger, is the continuing corporation;
and
(vi) the transaction is not otherwise prohibited under
this Agreement.
8.4 Sale of Assets. Each Borrower will not lease, sell or otherwise
dispose of its Property, in a single transaction or a series of transactions, to
any other Person except (i) for sales or leases in the ordinary course of
business, and (ii) for leases, sales or other dispositions of its Property that,
together with all other Property of such Borrower previously leased, sold or
disposed of (other than in the ordinary course of business) as permitted by this
Section during the month in which any such lease, sale or other disposition
occurs, do not constitute a Material Portion of the Property of any Borrower.
For purposes of this Section 8.4, "Material Portion" means, with
respect to the Property of any Borrower, Property which represents more than 25%
of the book value of all assets of such Borrower. If a Material Portion of the
Property of any Borrower is leased, sold or disposed of in violation of this
Section 8.4, the applicable Borrower shall pay to Agent for the benefit of Banks
at the time of such lease, sale or disposal, all amounts owed by such Borrower
pursuant to Section 2.2, taking into account the effect of lease, sale or
disposal.
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8.5 Investments and Acquisitions. Each Borrower will not, and Guarantor
will not, make or suffer to exist any Investments (including without limitation,
loans and advances to, and other Investments in, Subsidiaries), or commitments
therefor, or to create any Subsidiary or to become or remain a partner in any
partnership or joint venture, or to make any Acquisition of any Person, except:
(i) Investments in Cash Equivalents.
(ii) Loans or advances made to officers, directors or
employees of Guarantor or any Borrower or any Subsidiary.
(iii) Carryback loans made in the ordinary course of business
in conjunction with the sale of Property of such Borrower or Guarantor.
(iv) Investments in interests in issuances of collateralized
mortgage obligations, mortgages, mortgage loan servicing or other
mortgage related assets.
(v) Investments in contract rights granted by, entitlements
granted by, interests in securities issued by, or tangible assets of,
political subdivisions or enterprises thereof related to the home
building or real estate operations of Guarantor or any Borrower or any
Subsidiary, including without limitation Investments in special
districts as described in Section 8.2(xii).
(vi) Investments in existing Subsidiaries and other
Investments in existence on the date hereof.
(vii) Investments in Subsidiaries or other Persons whose
primary business is not a Related Business in an aggregate amount
outstanding at any one time not to exceed $15,000,000.
(viii) The Acquisition of or Investment in a business or
entity engaged primarily in a Related Business, provided that (a)
immediately upon the consummation of any such Acquisition or Investment
each Borrower and Guarantor is in compliance with the terms, covenants
and conditions of this Agreement (including without limitation the
Financial Covenant Tests), and (b) Borrowers shall deliver to Agent a
certificate, signed by an Authorized Officer, certifying to the best
knowledge of Borrowers and Guarantor, that, on the date of, and taking
into account, the consummation of such Acquisition, and based on the
reasonable assumptions set forth in such Certificate, no Event of
Default has occurred and is continuing, and Borrowers and Guarantor, as
applicable, are in compliance with the Financial Covenant Tests.
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(ix) The creation of new Subsidiaries engaged primarily in a
Related Business (or the purpose of which is principally to preserve
the use of a name in which such business is conducted).
(x) stock, obligations or securities received in satisfaction
of debts owing to any Borrower or Guarantor in the ordinary course of
business.
(xi) Pledges or deposits in cash by a Borrower or Guarantor to
support surety bonds, performance bonds or guarantees of completion in
the ordinary course of business.
(xii) Loans representing intercompany Indebtedness between any
Borrower, Guarantor and/or any Subsidiary, provided as to Loans from
Guarantor to any Borrower, repayment of such Loans is subordinated to
payment of the Obligations to the reasonable satisfaction of Agent.
Borrowers shall be entitled to repay such loans, unless such repayment
is prohibited by Section 2.2 or Section 8.1.
(xiii) Investments pursuant to a Borrower's or Guarantor's
employment compensation plans or agreements.
(xiv) Payments on account of the purchase, redemption or other
acquisition or retirement for value, or any payment in respect of any
amendment (in anticipation of or in connection with any such
retirement, acquisition or defeasance) in whole or in part, of any
shares of capital stock or other securities of Guarantor, but only to
the extent the same is permitted under the Indenture.
(xv) Investments, in addition to those enumerated in this
Section 8.5, in an aggregate amount outstanding at any time not to
exceed $5,000,000.
8.6 Liens. Each Borrower will not, and Guarantor will not, create,
incur, or suffer to exist any Lien in, of or on the Property of any Borrower or
Guarantor, except:
(i) Permitted Liens and Guarantor Permitted Liens.
(ii) Liens for taxes, assessments or governmental charges or
levies which solely encumber property abandoned or in the process of
being abandoned and with respect to which there is no recourse to
Guarantor or any Borrower or any Subsidiary.
(iii) Purchase-money Liens on any Property hereafter acquired
or the assumption of any Lien on Property existing at the time of such
acquisition (and not created in contemplation of such acquisition), or
a Lien incurred in connection
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with any conditional sale or other title retention or a Capitalized
Lease; provided that
(a) Any Property subject to any of the foregoing is
acquired by any Borrower or Guarantor in the ordinary course
of its respective business and the Lien on any such Property
attaches to such asset concurrently or within ninety (90) days
after the acquisition thereof;
(b) The obligation secured by any Lien so created,
assumed, or existing shall not exceed ninety percent (90%) of
the cost the Property covered thereby by any Borrower or
Guarantor acquiring the same; and
(c) Each Lien shall attach only to the Property so
acquired.
(iv) Liens existing on the date hereof (and not otherwise
permitted under this Section 8.6) and described in Schedule "8.6(iv)"
hereto and Liens securing Refinancing Indebtedness with respect
thereto, but only to the extent such Liens encumber the same collateral
in whole or in part as the previous Liens securing the Indebtedness
being refunded, refinanced or extended.
(v) Liens incurred in the ordinary course of business not
otherwise permitted by this covenant, provided that the aggregate
amount of Indebtedness secured by such Liens outstanding at any time
shall not exceed $25,000,000.
(vi) Judgments and similar Liens arising in connection with
court proceedings; provided the execution or enforcement thereof is
stayed and the claim is being contested in good faith.
(vii) Liens securing Non-Recourse Indebtedness of Guarantor or
any Borrower, where the amount of such Indebtedness is greater than
fifty percent (50%) of the fair market value of the Property encumbered
by the Liens.
(viii) Liens existing with respect to Indebtedness of a Person
acquired in an Acquisition permitted by this Agreement.
(ix) Liens arising out of pledges or deposits under worker's
compensation laws, unemployment insurance, old age pensions, or other
social security or retirement benefits, or similar legislation.
(x) Liens incurred or deposits made to secure the
performance of tenders, bids, leases, statutory obligations, surety and
appeal bonds, progress
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payments, government contracts, utility services and other obligations
of like nature in each case incurred in the ordinary course of
business.
(xi) Leases or subleases granted to others not materially
interfering with the ordinary course of business of Guarantor or any
Borrower.
(xii) Any interest in or title of a lessor to property subject
to any Capitalized Lease Obligations.
(xiii) Liens in favor of the trustee named therein arising
under the Indenture and liens for trustee's fees and similar costs
under any Refinancing Indebtedness of the Senior Notes.
(xiv) Any option, contract or other agreement to sell or
purchase an asset or participate in the income or revenue derived
therefrom.
(xv) Any legal right of, or right granted in good faith to, a
lender or lenders to which a Borrower or Guarantor may be indebted to
offset against, or appropriate and apply to the payment of, such
Indebtedness any and all balances, credits, deposits, accounts, or
monies of Guarantor or Borrower with or held by such lender or lenders.
(xvi) Any pledge or deposit of cash or property by Borrower or
any Guarantor in conjunction with obtaining surety and performance
bonds and letters of credit required to engage in constructing on-site
and off-site improvements or as otherwise required by political
subdivisions or other governmental authorities in the ordinary course
of business.
(xvii) Liens incurred in the ordinary course of business as
security for Borrowers' or Guarantor's obligations with respect to
indemnification in favor of title insurance providers.
(xviii) Letters of credit, bonds or other assets pledged to
secure insurance in the ordinary course of business.
(xix) Liens on assets securing warehouse lines of credit and
other credit facilities to finance the operations of Guarantor's
mortgage lending Subsidiaries and/or financial asset management
Subsidiaries and Liens related to issuances of CMOs and
mortgage-related securities, so long as such assets are owned by such
mortgage lending Subsidiaries and financial asset Subsidiaries.
(xx) Liens described in Section 8.2(xvi) securing the
Indebtedness described therein, so long as (i) each such Lien attaches
only to the real property
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described in Section 8.2(xvi) and (ii) the obligation secured by such
Lien is limited to repayment of the Indebtedness permitted under
Section 8.2(xvi).
(xxi) Any other Liens; provided, however, that such Liens
under this clause (xxi) do not at any time attach to Property with a
book value, in the aggregate, in excess of $15,000,000.
Notwithstanding anything herein to the contrary, each Borrower will not, and
will not permit Guarantor to, create, incur, or suffer to exist any Lien in, of
or on the capital stock of any Borrower except Liens granted by Guarantor
pursuant to the Indenture and Refinancing Indebtedness with respect thereto.
8.7 Affiliates. Each Borrower will not, and Guarantor will not, enter
into any transaction (including, without limitation, the purchase or sale of any
Property or service) with, or make any payment or transfer to, any Affiliate
(other than a Subsidiary) except (i) in the ordinary course of business and
pursuant to the reasonable requirements of such Borrower's or Guarantor's
business and upon fair and reasonable terms no less favorable to such Borrower
or Guarantor than such Borrower or Guarantor would obtain in a comparable
arms-length transaction, (ii) Investments permitted under Section 8.5, (iii)
pursuant to employment compensation plans and agreements, and (iv) with
officers, directors and employees of Guarantor or any Subsidiary so long as the
same are duly authorized pursuant to the articles of incorporation or bylaws (or
procedures conducted in accordance therewith) of Guarantor or such Borrower.
8.8 Modifications to Certain Indebtedness. Each Borrower will not, and
Guarantor will not, make any amendment or modification to the subordination
provisions of any indenture, note or other agreement evidencing or governing (i)
as to any Borrower, any Subordinated Indebtedness, and (ii) as to Guarantor,
Indebtedness that has been subordinated to Guarantor's obligations under the
Guaranty.
8.9 Amendments. Each Borrower will not, nor will it permit Guarantor
to, amend or modify the Indenture or the Senior Notes, except for amendments or
modifications that do not (i) impose upon any Borrower or Guarantor obligations
not contained therein as of the date of this Agreement, (ii) change the
definition of Guarantor Senior Indebtedness or change any subordination
provisions, or (iii) otherwise adversely affect any Borrower or Guarantor.
ARTICLE IX
FINANCIAL COVENANTS
During the term of this Agreement, unless the Required Banks shall
otherwise consent in writing:
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9.1 Minimum Consolidated Tangible Net Worth. Guarantor's Consolidated
Tangible Net Worth shall not be less than (i) $170,000,000 plus (ii) fifty
percent (50%) of the Consolidated Net Income earned after January 1, 1996
(excluding any quarter in which there is a loss, but applying any Consolidated
Net Income thereafter first to such loss before determining 50% of such amount
for purposes of this calculation) plus (iii) one hundred percent (100%) of the
net proceeds of capital stock issued by Guarantor after January 1, 1996 (the
"Consolidated Tangible Net Worth Test"). Guarantor's compliance with the
foregoing covenant shall be measured on a quarterly basis, based on the
financial statements delivered to Agent pursuant to Section 7.1. Guarantor's
failure to maintain Consolidated Tangible Net Worth in the amount required
herein shall not constitute an Event of Default or an Unmatured Event of
Default; provided, however, that if Guarantor fail to maintain Consolidated
Tangible Net Worth in the amount required herein for two (2) consecutive fiscal
quarters, then the Conversion Period shall commence in accordance with, but
subject to the limitations of, Section 2.22.
9.2 Leverage Test; Interest Coverage Test.
(a) Leverage Test. Guarantor's Consolidated Indebtedness
shall not exceed the product of (i) the then applicable Leverage
Multiplier multiplied by (ii) Adjusted Consolidated Tangible Net Worth
(the "Leverage Test").
(b) Interest Coverage Test. If at any time Guarantor shall
fail to maintain, for two (2) consecutive fiscal quarters, a ratio,
determined as of the last day of each fiscal quarter for the
four-quarter period ending on such day, of (i) EBITDA to (ii)
Consolidated Interest Incurred, of at least 1.75 to 1.0 (the "Interest
Coverage Test"), then the Leverage Multiplier, effective as of the
first day of the fiscal quarter immediately following the second
quarter of such breach with respect to which Guarantor shall have so
failed the Interest Coverage Test, shall be decreased to the extent
herein provided. Upon any failure to satisfy the Interest Coverage Test
(i.e., a failure for two (2) consecutive fiscal quarters) that occurs
on a date on which the Leverage Multiplier is 2.15, the Leverage
Multiplier shall be decreased by 0.25 to 1.90. Upon any failure (i.e.,
a failure for two (2) consecutive fiscal quarters) to satisfy the
Interest Coverage Test that occurs on a date on which the Leverage
Multiplier is less than 2.15, the Leverage Multiplier shall be
decreased by 0.10.
(c) Adjustment of Leverage Multiplier. If at any time at which
the Leverage Multiplier is less than 2.15, Guarantor shall satisfy the
Interest Coverage Test (which for purposes of this Section 9.2(c) shall
be deemed satisfied only if, on the same day on which Guarantor
maintains the Interest Coverage Test, Guarantor is also in compliance
with the Leverage Test), then the Leverage Multiplier, effective as of
the first day of the fiscal quarter immediately following the fiscal
quarter with respect to which Guarantor shall have so satisfied the
Interest Coverage Test, shall be increased to the extent herein
provided. Upon satisfaction of the Interest Coverage Test on a date on
which the Leverage
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Multiplier is 1.90, the Leverage Multiplier shall be increased to 2.15.
Upon satisfaction of the Interest Coverage Test on a date on which the
Leverage Multiplier is less than 1.90, the Leverage Multiplier shall be
increased by 0.10. In no event shall the Leverage Multiplier exceed
2.15.
(d) Effectiveness of Change in Leverage Multiplier. Any
increase or decrease of the Leverage Multiplier provided for in this
Section 9.2 shall be effective as of the first day of a fiscal quarter
as provided in Section 9.2(b) or (c) (as applicable), and the Leverage
Multiplier (as adjusted) shall remain in effect for the entire fiscal
quarter and thereafter unless and until adjusted as of the first day of
any subsequent fiscal quarter as provided in this Section 9.2(b) or (c)
(as applicable).
(e) Measure of Compliance. Guarantor's compliance with
covenants in this Section 9.2 shall be measured on a quarterly basis,
based on the financial statements delivered to Agent pursuant to
Section 7.1. A failure to satisfy the Leverage Test or the Interest
Coverage Test shall not constitute an Event of Default or an Unmatured
Event of Default; provided, however, if Guarantor fails to satisfy the
Leverage Test for two (2) consecutive fiscal quarters, then the
Conversion Period shall commence in accordance with, but subject to the
limitations of, Section 2.22.
9.3 Net Worth of Borrowers.
(a) Individual Net Worth. Each Borrower will not at any time
permit the ratio of (i) the aggregate amount of all Advances
outstanding to such Borrower plus the aggregate amount paid by an
Issuing Bank on any Facility Letters of Credit for such Borrower to the
extent (if any) not reimbursed by such Borrower under Section 4.4 to
(ii) such Borrower's Net Worth, to be greater than .75 to 1 (the
"Individual Debt Coverage Test"). For purposes of this covenant, "Net
Worth" means, as to such Borrower, the sum of (A) all capital accounts
(including without limitation, any paid-in capital, capital surplus,
and retained earnings) plus (B) all advances or other sums or
consideration paid and outstanding from Guarantor to such Borrower to
the extent the same are subordinated to the Obligations, less (C) all
advances or other sums or consideration paid and outstanding from such
Borrower to Guarantor, all as determined in conformity with Agreement
Accounting Principles.
(b) Aggregate Net Worth. Borrowers will not at any time permit
the ratio of (i) the aggregate amount of all Advances plus the
aggregate amount paid by an Issuing Bank on any Facility Letters of
Credit for any Borrower to the extent (if any) not reimbursed by such
Borrower under Section 4.4, plus the aggregate amount, without
duplications, of all contingent obligations of any Borrower whereby
such Borrower guarantees any obligation or liability of
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Guarantor (except pursuant to the Indenture or any Refinancing
Indebtedness thereof), to (ii) the aggregate Net Worth of all
Borrowers, to be greater than .75 to 1 (the "Aggregate Debt Coverage
Test"). For purposes of this covenant, "Net Worth" shall have the
meaning set forth in subparagraph (a) above.
(c) Measure of Compliance. Borrowers' compliance with the
covenants in this Section 9.3 shall be measured on a quarterly basis,
based on the financial statements delivered to Agent pursuant to
Section 7.1. A failure to satisfy the Individual Debt Coverage Test or
the Aggregate Debt Coverage Test shall not constitute an Event of
Default or an Unmatured Event of Default; provided, however, if
Borrowers fail to satisfy the Individual Debt Coverage Test or the
Aggregate Debt Coverage Test for two (2) consecutive fiscal quarters,
then the Conversion Period shall commence in accordance with, but
subject to the limitations of, Section 2.22.
9.4 Spec Unit Inventory. Borrowers will not at any time permit the
aggregate number of all Spec Units owned by Borrowers to exceed the greater of
(i) fifty percent (50%) of the number of Housing Unit Closings during the
preceding twelve (12) months, or (ii) one hundred ten percent (110%) of the
number of Housing Unit Closings during the preceding six (6) months. A failure
to satisfy the requirements of this Section 9.4 shall not constitute an Event of
Default or an Unmatured Event of Default, but any Spec Units owned by Borrowers
in excess of the foregoing requirements shall not be included in the Borrowing
Base.
ARTICLE X
EVENTS OF DEFAULT
The occurrence of any one or more of the following events shall
constitute an Event of Default:
10.1 Representations and Warranties. Any representation or warranty
(except the representations and warranties in Section 6.7, but only to the
extent the same are made, or deemed made, after the date hereof) made or deemed
made by or on behalf of any Borrower or Guarantor to Banks, the Issuing Bank or
Agent under or in connection with this Agreement, any Loan Document, or any
certificate or information delivered in connection with this Agreement or any
other Loan Document shall not be true and correct in any material respect on the
date as of which made, and, with respect to any matter which is reasonably
capable of being cured, such Borrower or Guarantor, as applicable, shall have
failed to cure the occurrence causing the representation or warranty to be
materially untrue or incorrect within thirty (30) days after notice thereof by
Agent to Borrowers.
10.2 Non-payment. Nonpayment of principal of any Note when due, or
nonpayment of interest upon any Note or of any fees or other obligations under
any of the Loan Documents within five (5) days after billing therefor by Agent
or Banks.
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10.3 Other Defaults. The breach by any Borrower (other than a
breach which constitutes an Event of Default under any other Section of this
Article X) of any of the terms or provisions of this Agreement which is not
remedied within thirty (30) days after notice thereof to Borrowers.
10.4 Other Indebtedness.
(a) Failure of any Borrower or Guarantor to pay when due
(after any applicable grace period and after notice from the holder
thereof) any Indebtedness (other than Non-Recourse Indebtedness) equal
to or exceeding $5,000,000 (in the aggregate); or
(b) The default (after any applicable grace period and after
notice from the holder thereof) by any Borrower or Guarantor in the
performance of any term, provision or condition contained in any
agreement under which any Indebtedness (other than Non-Recourse
Indebtedness) equal to or exceeding $5,000,000 (in the aggregate) was
created or is governed; or
(c) Any other event shall occur or condition exist (after any
applicable grace period and after notice from the holder thereof), the
effect of which is to cause, or to permit the holder or holders of any
Indebtedness (other than Non- Recourse Indebtedness) of any Borrower or
Guarantor equal to or exceeding $5,000,000 to cause such Indebtedness
to become due prior to its stated maturity; or
(d) Any Indebtedness (other than Non-Recourse Indebtedness) of
any Borrower or Guarantor equal to or exceeding $5,000,000 (in the
aggregate) shall be declared to be due and payable or required to be
prepaid (other than by a regularly scheduled payment) prior to the
stated maturity thereof (after any applicable grace period and after
notice from the holder thereof); or
(e) Any Borrower or Guarantor shall not pay, or shall admit in
writing its inability to pay, its debts generally as they become due.
10.5 Bankruptcy. Any Borrower or Guarantor shall:
(i) have an order for relief entered with respect to it
under the Federal bankruptcy laws as now or hereafter in effect;
(ii) make an assignment for the benefit of creditors;
(iii) apply for, seek, consent to, or acquiesce in, the
appointment of a receiver, custodian, trustee, examiner, liquidator or
similar official for it or any Substantial Portion of the Property of
Borrowers and Guarantor;
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(iv) institute any proceeding seeking an order for relief
under the Federal bankruptcy laws as now or hereafter in effect or
seeking to adjudicate it a bankrupt or insolvent, or seeking
dissolution, winding up, liquidation, reorganization, arrangement,
adjustment or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors or fail
to file, within the applicable time period for the filing thereof, an
answer or other pleading denying the material allegations of any such
proceeding filed against it; or
(v) fail to contest in good faith any appointment or
proceeding described in Section 10.6.
10.6 Receiver. A receiver, trustee, examiner, liquidator or similar
official shall be appointed for any Borrower or Guarantor or any Substantial
Portion of the Property of Borrowers and Guarantor without the application,
approval or consent of any Borrower or Guarantor, or a proceeding described in
Section 10.5(iv) shall be instituted against any Borrower or Guarantor and such
appointment continues undischarged or such proceeding continues undismissed or
unstayed for a period of sixty (60) consecutive days.
10.7 Judgment. Any Borrower or Guarantor shall fail within thirty (30)
days to pay, bond or otherwise discharge any judgment or order for the payment
of money in excess of $10,000,000 which has not been stayed on appeal or is not
otherwise being appropriately contested in good faith.
10.8 Unfunded Liabilities. The Unfunded Liabilities of all Single
Employer Plans shall exceed in the aggregate $5,000,000 or any Reportable Event
shall occur in connection with any Plan, which Reportable Event has had or would
reasonably be expected to have a Material Adverse Effect.
10.9 Withdrawal Liability. Any Borrower, or Guarantor or any member of
the Controlled Group shall have been notified by the sponsor of a Multiemployer
Plan that it has incurred withdrawal liability to such Multiemployer Plan in an
amount which, when aggregated with all other amounts required to be paid to
Multiemployer Plans by any Borrower or Guarantor or any other member of the
Controlled Group as withdrawal liability (determined as of the date of such
notification), exceeds $5,000,000 or requires payments exceeding $2,000,000 per
annum; provided, however, that such event shall not constitute an Event of
Default as long as such Borrower, Guarantor or the Controlled Group member, as
applicable, is contesting in good faith the imposition of withdrawal liability.
10.10 Increased Contributions. Any Borrower, or Guarantor, or any other
member of the Controlled Group shall have been notified by the sponsor of a
Multiemployer Plan that such Multiemployer Plan is in reorganization, if as a
result of such reorganization the aggregate annual contributions of Borrowers,
Guarantor and the other members of the Controlled Group (taken as a whole) to
all Multiemployer Plans which are then in reorganization have been or will
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be increased over the amounts contributed to such Multiemployer Plans for the
respective plan years of each such Multiemployer Plan immediately preceding the
plan year in which the reorganization occurs by an amount exceeding $5,000,000.
10.11 Change in Control. Any Change in Control shall occur.
10.12 Dissolution. The dissolution or liquidation of Guarantor or any
Borrower shall occur, except as permitted under Section 8.3.
10.13 Guaranty. The Guaranty shall fail to remain in full force or
effect with respect to Guarantor or any action shall be taken by Guarantor to
discontinue or to assert the invalidity or unenforceability of the Guaranty, or
Guarantor shall fail to comply with any of the terms or provisions of the
Guaranty, or Guarantor denies that it has any further liability under the
Guaranty or gives notice to such effect.
10.14 Collateral. Borrowers shall fail to provide (i) Collateral for
the Obligations in accordance with Section 2.22(c), or (ii) all Collateral
Documents relating to the Collateral in accordance with Section 2.22(c).
10.15 No Defaults. The occurrence of any of the following events
shall specifically not be an Event of Default or an Unmatured Event of Default
under this Agreement:
(a) The breach of any Financial Covenant Test.
(b) The representations and warranties made by Borrowers and
Guarantor pursuant to Section 6.7 shall be untrue or incorrect on the
date as of which the same were made, and such date is after the date of
this Agreement.
(c) If any Borrower shall apply for, seek, consent to, or
acquiesce in, the appointment of a receiver, custodiation, trustee,
examiner, liquidator or similar official for it or for a Significant
Amount of its Property, or if a receiver, custodian, trustee, examiner,
liquidator or similar official shall be appointed for any Borrower
without its application, approval or consent for it or for a
Significant Amount of its Property; provided, however, that upon the
occurrence and during the continuation of the foregoing, all Property
of such Borrower shall be automatically excluded from the Borrowing
Base; and provided further, that upon any such appointment for any
Property of any Borrower that is not a Significant Amount of its
Property (which appointment shall not be an Event of Default or
Unmatured Event of Default under this Agreement), such Property shall
be automatically excluded from the Borrowing Base. "Significant Amount"
means, with respect to the Property of such Borrower and its
Subsidiaries, taken as a whole, Property which represents more than 10%
of the book value of the assets of such Borrower as would be shown on
the financial statements of such
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Borrower as of the beginning of the fiscal quarter in which such
determination is made, all as determined in accordance with Agreement
Accounting Principles.
(d) Borrowers' failure to provide all Due Diligence Documents
relating to the Collateral in accordance with Section 2.22(c);
provided, however, that the affected Collateral shall be automatically
excluded from the Borrowing Base.
ARTICLE XI
ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES
11.1 Acceleration; Remedies.
(a) If any Event of Default described in Section 10.5 or 10.6
occurs with respect to any Borrower, the obligations of Banks to make
Loans and of the Issuing Bank to issue Facility Letters of Credit
hereunder shall automatically terminate and the Obligations shall
immediately become due and payable without any election or action on
the part of Agent, the Issuing Bank or any Bank. If any other Event of
Default occurs, the Required Banks may terminate or suspend the
obligations of Banks to make Loans and of the Issuing Bank to issue
Facility Letters of Credit hereunder, or declare the Obligations to be
due and payable, or both, whereupon the Obligations shall become
immediately due and payable, without presentment, demand, protest or
notice of any kind, all of which each Borrower hereby expressly waives.
If, within five (5) days after acceleration of the maturity of the
Obligations or termination of the obligations of Banks to make Loans
hereunder as a result of any Event of Default (other than any Event of
Default as described in Section 10.5 or 10.6 with respect to a
Borrower) and before any judgment or decree for the payment of the
Obligations due shall have been obtained or entered, the Required Banks
(in their sole discretion) shall so direct, Agent shall, by notice to
Borrowers, rescind and annul such acceleration and/or termination.
(b) Upon the occurrence of any Event of Default and upon the
directive of the Required Banks, Agent or (but only upon directive of
the Required Banks) any Bank shall proceed to protect, exercise and
enforce the rights and remedies of Agent and Banks under the Loan
Documents and the Guaranty against any Borrower, Guarantor and any
other party and such other rights and remedies as are provided by law
or equity.
(c) The order and manner in which Banks' rights and remedies
are to be exercised shall be determined by the Required Banks in their
sole discretion, and all payments received by Agent and Banks, or any
of them, shall be applied first to the costs and expenses (including
attorneys' fees and disbursements) of Agent and of Banks, and
thereafter paid pro rata to each Bank in the same
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proportions that each Bank's Commitment bears to the Aggregate
Commitment, without priority or preference among Banks. Regardless of
how each Bank may treat payments for the purpose of its own accounting,
for the purpose of computing Borrower's obligations hereunder and under
the Notes, payments shall be applied first, to the costs and expenses
of Agent and Banks, as set forth above, second, to the payment of
accrued and unpaid interest due under any Loan Documents to and
including the date of such application (ratably, and without
duplication, according to the accrued and unpaid interest due under
each of the Loan Documents), and third, to the payment of all other
amounts (including principal and fees) then owing to Agent or Banks
under the Loan Documents. No application of payments will cure any
Event of Default, or prevent acceleration, or continued acceleration,
of amounts payable under the Loan Documents, or prevent the exercise,
or continued exercise, of rights or remedies of Banks hereunder or
thereunder or at law or in equity.
11.2 Amendments. Subject to the provisions of this Article XI, the
Required Banks (or Agent with the consent in writing of the Required Banks) and
Borrowers may enter into agreements supplemental hereto for the purpose of
adding or modifying any provisions to the Loan Documents or changing in any
manner the rights of Banks or any Borrower hereunder or waiving any Event of
Default hereunder; provided, however, that no such supplemental agreement shall,
without the consent of each Bank and Issuing Bank affected thereby:
(i) Extend the maturity of any Loan or Note or forgive all
or any portion of the principal amount thereof, or reduce the rate of,
or extend the time of payment of, interest or fees thereon;
(ii) Release Guarantor from any of its obligations under the
Guaranty or the Environmental Agreements;
(iii) Change the percentage specified in the definition of
Required Banks or Majority Banks;
(iv) Increase the amount of the Commitment of any Bank
hereunder, or permit any Borrower to assign its rights under this
Agreement except by operation of law pursuant to a merger permitted
under Section 8.3;
(v) Amend any provisions of this Agreement relating to
Facility Letters of Credit;
(vi) Amend any provisions of this Agreement relating to
Swing Line Advances without the consent of Bank One; or
(vii) Amend this Section 11.2, Section 12.7, Section 14.1 or
Section 15.2.3.
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No amendment of any provision of this Agreement relating to Agent shall be
effective without the written consent of Agent. Agent may waive payment or
reduce the amount of the fees referred to in Section 13.12 or the fee required
under Section 15.3.2 without obtaining the consent of any other party to this
Agreement.
11.3 Preservation of Rights. No delay or omission of any Bank or
Issuing Bank or Agent to exercise any right under the Loan Documents shall
impair such right or be construed to be a waiver of any Event of Default or an
acquiescence therein, and the making of a Loan or the issuance, amendment or
extension of a Facility Letter of Credit notwithstanding the existence of an
Event of Default or the inability of any Borrower to satisfy the conditions
precedent to such Loan or Facility Letter of Credit shall not constitute any
waiver or acquiescence. Any single or partial exercise of any such right shall
not preclude other or further exercise thereof or the exercise of any other
right, and no waiver, amendment or other variation of the terms, conditions or
provisions of the Loan Documents whatsoever shall be valid unless in writing
signed by Banks (and, if applicable, Agent) required pursuant to Section 11.2,
and then only to the extent in such writing specifically set forth. All remedies
contained in the Loan Documents or by law afforded shall be cumulative and all
shall be available to Agent, the Issuing Bank and Banks until the Obligations
have been paid in full.
11.4 New Borrowers. Additional Persons may be added as Borrowers
under this Agreement upon satisfaction of the following terms and conditions:
(i) such Person is (a) a Wholly-Owned Subsidiary of
Guarantor, (b) a Wholly Owned Restricted Subsidiary, as defined in the
Indenture, and (c) a "Guarantor" (as defined therein) under the
Indenture, and
(ii) the addition of such Person as a Borrower shall not
cause an Event of Default or an Unmatured Event of Default to occur,
and
(iii) Borrowers shall cause such Subsidiary to execute and
deliver to Agent such documents and instruments whereby such Subsidiary
assumes the obligations of a Borrower under this Agreement, the Notes
and the other Loan Documents, and
(iv) Borrowers shall deliver or cause to be delivered, by and
with respect to such Subsidiary, certificates, opinions and other
documents substantially similar to those required to be delivered under
the provisions of Sections 5.1(i), (ii), (iii), (v), (vi) and (vii) and
such other documents as Agent or any Issuing Bank or their respective
counsel may reasonably request; all of the foregoing shall be in form
and substance satisfactory to Agent or such Issuing Bank, as the case
may be.
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ARTICLE XII
GENERAL PROVISIONS
12.1 Survival of Representations. All representations and warranties of
each Borrower contained in this Agreement shall survive delivery of the Notes
and the making of the Loans and the issuance, amendment or extension of any
Facility Letter of Credit herein contemplated.
12.2 Governmental Regulation. Anything contained in this Agreement to
the contrary notwithstanding, no Bank or Issuing Bank shall be obligated to
extend credit to any Borrower in violation of any limitation or prohibition
provided by any applicable statute or regulation effective after the date of
this Agreement.
12.3 Taxes. Any recording, intangible, filing or stamp fees or taxes or
other similar assessments or charges made by any governmental or revenue
authority in respect of the Loan Documents shall be paid by Borrowers, together
with interest and penalties, if any.
12.4 Headings. Section headings in the Loan Documents are for
convenience of reference only, and shall not govern the interpretation of any of
the provisions of the Loan Documents.
12.5 Entire Agreement. The Loan Documents and the letter agreement(s)
referred to in this Agreement embody the entire agreement and understanding
among Borrowers, Agent and Banks and supersede all prior agreements and
understandings among Borrowers, Agent, and Banks relating to the subject matter
thereof.
12.6 Nature of Obligations; Benefits of this Agreement.
(a) The respective obligations of Banks hereunder are several
and not joint and no Bank shall be the partner or agent of any other
(except to the extent to which Agent is authorized to act as such). The
failure of any Bank to perform any of its obligations hereunder shall
not relieve any other Bank from any of its obligations hereunder.
(b) This Agreement shall not be construed so as to confer any
right or benefit upon any Person other than the parties to this
Agreement and their respective successors and assigns.
12.7 Expenses; Indemnification. Borrowers shall reimburse Agent for any
reasonable outside attorneys' fees and costs paid or incurred by Agent in
connection with the preparation, negotiation, execution, delivery, review,
amendment, modification, and administration of the Loan Documents. Borrowers
also agree to reimburse Agent, Banks and each Issuing Bank for any reasonable
costs and out-of-pocket expenses (including reasonable outside attorneys' fees
and time charges of attorneys for Agent, Banks and such Issuing Bank) paid or
incurred by Agent,
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any Bank or such Issuing Bank in connection with the collection and enforcement
of the Loan Documents. Borrowers further agrees to indemnify Agent and each Bank
or Issuing Bank, its directors, officers and employees against all losses,
claims, damages, penalties, judgments, liabilities and expenses (including,
without limitation, all expenses of litigation or preparation therefor whether
or not Agent or any Bank or Issuing Bank is a party thereto) which any of them
may pay or incur arising out of or relating to this Agreement, the other Loan
Documents, the transactions contemplated hereby or the direct or indirect
application or proposed application of the proceeds of any Loan hereunder
(except to the extent arising due to the gross negligence or willful misconduct
of the indemnified Person or the failure of the indemnified Person to comply
with regulatory requirements applicable to it). The obligations of Borrowers
under this Section shall be joint and several and shall survive the termination
of this Agreement.
12.8 Numbers of Documents. All statements, notices, closing documents,
and requests hereunder shall be furnished to Agent with sufficient counterparts
so that Agent may furnish one to each of Banks.
12.9 Accounting. Except as provided to the contrary herein, all
accounting terms used herein shall be interpreted and all accounting
determinations hereunder shall be made in accordance with GAAP applied on a
basis consistent with the consolidated audited financial statements of Guarantor
as of December 31, 1994 ("Agreement Accounting Principles"). If any change in
GAAP from the principles used in preparing such statements would have a material
effect upon the results of any calculation required by or compliance with any
provision of this Agreement, then such calculation shall be made or calculated
and compliance with such provision shall be determined using accounting
principles used in preparing the consolidated audited financial statements of
Guarantor as of December 31, 1994.
12.10 Severability of Provisions. Any provision in any Loan Document
that is held to be inoperative, unenforceable, or invalid in any jurisdiction
shall, as to that jurisdiction, be inoperative, unenforceable, or invalid
without affecting the remaining provisions in that jurisdiction or the
operation, enforceability, or validity of that provision in any other
jurisdiction, and to this end the provisions of all Loan Documents are declared
to be severable.
12.11 Nonliability of Banks and Issuing Bank. The relationship between
Borrowers and Banks and Agent shall be solely that of borrowers and lender.
Neither Agent nor any Bank or Issuing Bank shall have any fiduciary
responsibilities to any Borrower. Neither Agent nor any Bank or Issuing Bank
undertakes any responsibility to any Borrower to review or inform any Borrower
of any matter in connection with any phase of any Borrower's business or
operations.
12.12 CHOICE OF LAW. THE LOAN DOCUMENTS (OTHER THAN THOSE CONTAINING A
CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ARIZONA, BUT
GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.
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12.13 Arbitration. Subject to the provisions of this Section 12.13,
Borrowers, Banks and Agent agree to submit to binding arbitration any and all
claims, disputes and controversies between or among them (and their respective
employees, officers, directors, attorneys, and other agents if permitted by law
or a contract between them and such persons) relating to this Agreement and the
Loan Documents and the negotiation, execution, collateralization,
administration, repayment, modification, extension or collection thereof or
arising thereunder. Such arbitration shall proceed in Phoenix, Arizona, shall be
governed by Arizona law and shall be conducted in accordance with the Commercial
Arbitration Rules of the American Arbitration Association (the "AAA"), as
modified in this Section 12.13. Judgment upon the award rendered by each
arbitrator(s) may be entered in any court having jurisdiction.
(a) Nothing in the preceding paragraph, nor the exercise of
any right to arbitrate thereunder, shall limit the right of any party
hereto (1) to foreclose against any real or personal property
collateral encumbered by a Deed of Trust or other Loan Document, or
otherwise permitted under applicable law; (2) subject to provisions of
applicable law, to exercise self-help remedies such as setoff or
repossession or other self-help remedies provided in this Agreement or
any other Loan Document; or (3) to obtain provisional or ancillary
remedies such as replevin, injunctive relief, attachment, or
appointment of a receiver from a court having jurisdiction, before,
during or after the pendency of any arbitration proceeding, or (4) to
defend or obtain injunctive or other equitable relief from a court of
competent jurisdiction against the foregoing or assert mandatory
counterclaims, if any, prior to and during the pendency of a
determination in arbitration of issues of performance, default, damages
and other such claims and disputes.
(b) Arbitration hereunder shall be before a three-person panel
of neutral arbitrators, consisting of one person from each of the
following categories: (1) an attorney who has practiced in the area of
commercial real estate law for at least ten (10) years; (2) a person
with at least ten (10) years' experience in real estate lending; and
(3) a person with at least ten (10) years' experience in the
homebuilding industry. The AAA shall submit a list of persons meeting
the criteria outlined above for each category of arbitrator, and the
parties shall select one person from each category in the manner
established by the AAA.
(c) In any dispute between the parties that is arbitratable
hereunder, where the aggregate of all claims and the aggregate of all
counterclaims is an amount less than Fifty Thousand And No/100ths
Dollars ($50,000), the arbitration shall be before a single neutral
arbitrator to be selected in accordance with the Commercial Rules of
the American Arbitration Association and shall proceed under the
Expedited Procedures of said Rules.
(d) In any arbitration hereunder, the arbitrators shall decide
(by documents only or with a hearing, at the arbitrators' discretion)
any pre-hearing
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motions which are substantially similar to pre-hearing motions to
dismiss for failure to state a claim or motions for summary
adjudication.
(e) In any arbitration hereunder, discovery shall be permitted
in accordance with the Arizona Rules of Civil Procedure. Scheduling of
such discovery may be determined by the arbitrators, and any discovery
disputes shall be finally determined by the arbitrators.
(f) The Arizona Rules of Evidence shall control the admission
of evidence at the hearing in any arbitration conducted hereunder;
provided, however, no error by the arbitrators in application of the
Rules of Evidence shall be grounds, as such, for vacating the
arbitrators' award.
(g) Notwithstanding any AAA rule to the contrary, the
arbitration award shall be in writing and shall specify the factual and
legal basis for the award, including findings of fact and conclusions
of law.
(h) Each party shall each bear its own costs and expenses and
an equal share of the arbitrators' costs and administrative fees of
arbitration.
12.14 CONSENT TO JURISDICTION. EACH BORROWER AND BANK HEREBY
IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES
FEDERAL OR ARIZONA STATE COURT SITTING IN PHOENIX, ARIZONA IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENTS AND EACH BORROWER
AND BANK HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR
PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES
ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT,
ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN
INCONVENIENT FORUM. NOTHING IN THIS SECTION 12.14 SHALL LIMIT THE RIGHT OF AGENT
OR ANY BANK OR ISSUING BANK TO BRING PROCEEDINGS AGAINST ANY BORROWER IN THE
COURTS OF ANY OTHER JURISDICTION. SUBJECT TO THE PROVISIONS OF SECTION 12.13,
UNLESS PROHIBITED BY LAW, ANY JUDICIAL PROCEEDING BY ANY BORROWER AGAINST AGENT
OR ANY BANK OR ISSUING BANK OR ANY AFFILIATE OF AGENT OR ANY BANK OR ISSUING
BANK INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF,
RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT SHALL BE BROUGHT IN A COURT IN
PHOENIX, ARIZONA.
12.15 WAIVER OF JURY TRIAL. SUBJECT TO THE PROVISIONS OF SECTION
12.13, EACH BORROWER, AGENT AND EACH BANK AND ISSUING BANK HEREBY
WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR
INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR
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OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN
DOCUMENT OR THE RELATIONSHIP ESTABLISHED THEREUNDER.
12.16 Confidentiality. Each Bank and Agent agree to use commercially
reasonable efforts to keep confidential any financial reports and other
information from time to time supplied to them by any Borrower hereunder to the
extent that such information is not and does not become publicly available
through or with the consent or acquiescence of any Borrower, except for
disclosure (i) to Agent and the other Banks or to a Transferee, (ii) to legal
counsel, accountants, and other professional advisors to a Bank, Agent or a
Transferee, (iii) to regulatory officials, (iv) to any Person as required by
law, regulation, or legal process, (v) to any Person in connection with any
legal proceeding to which that Bank is a party, and (vi) permitted by Section
15.4. Any Bank or Agent disclosing such information shall use commercially
reasonable efforts to advise the Person to whom such information is disclosed of
the foregoing confidentiality agreement and to direct such Person to comply
therewith.
ARTICLE XIII
AGENT
13.1 Appointment. Bank One is hereby appointed Agent hereunder and
under each other Loan Document, and each of Banks irrevocably authorizes Agent
to act as the agent of such Bank. Agent agrees to act as such upon the express
conditions contained in this Article XIII. Agent shall not have a fiduciary
relationship in respect of any Borrower, any Bank or the Issuing Bank by reason
of this Agreement.
13.2 Powers. Agent shall have and may exercise such powers under the
Loan Documents as are specifically delegated to Agent by the terms of each
thereof, together with such powers as are reasonably incidental thereto. Agent
shall have no implied duties to Banks, or any obligation to Banks to take any
action thereunder except any action specifically provided by the Loan Documents
to be taken by Agent. Agent shall have the sole and exclusive right to take any
actions or to give any notices relating to this Agreement pursuant to the
Indenture.
13.3 General Immunity. Neither Agent (in its capacity as Agent and not
in its capacity as a Bank) nor any of its directors, officers, agents or
employees shall be liable to any Borrower or any Bank for action taken or
omitted to be taken by it or them hereunder or under any other Loan Document or
in connection herewith or therewith except for its or their own gross negligence
or willful misconduct.
13.4 No Responsibility for Loans, Recitals, etc. Neither Agent nor any
of its directors, officers, agents or employees shall be responsible for or have
any duty to ascertain, inquire into, or verify (i) any statement, warranty or
representation made in connection with any Loan Document or any borrowing or any
request for the issuance, amendment or extension of any Facility Letter of
Credit hereunder; (ii) the performance or observance of any of the covenants or
agreements of any obligor under any Loan Document or Reimbursement Agreement,
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including, without limitation, any agreement by an obligor to furnish
information directly to each Bank; (iii) the satisfaction of any condition
specified in Article IV or V, except receipt of items required to be delivered
to Agent; or (iv) the validity, effectiveness or genuineness of any Loan
Document (including without limitation any Reimbursement Agreement) or any other
instrument or writing furnished in connection with any of the foregoing. Agent
shall have no duty to disclose to Banks information that is not required to be
furnished by any Borrower to Agent at such time, but is voluntarily furnished by
any Borrower to Agent (either in its capacity as Agent or in its individual
capacity).
13.5 Action on Instructions of Banks. Agent shall in all cases be fully
protected in acting, or in refraining from acting, hereunder and under any other
Loan Document in accordance with written instructions signed by the Required
Banks (except as otherwise provided in Section 11.2), and such instructions and
any action taken or failure to act pursuant thereto shall be binding on all of
Banks and on all holders of Notes. Agent shall be fully justified in failing or
refusing to take any action hereunder and under any other Loan Document unless
it shall first be indemnified to its satisfaction by Banks pro rata against any
and all liability, cost and expense that it may incur by reason of taking or
continuing to take any such action.
13.6 Employment of Agents and Counsel. Agent may execute any of its
duties as Agent hereunder and under any other Loan Document by or through
employees, agents, and attorneys-in-fact and shall not be answerable to Banks,
except as to money or securities or other Property received by it or its
authorized agents, for the default or misconduct of any such agents or
attorneys-in-fact selected by it with reasonable care. Agent shall be entitled
to advice of counsel concerning all matters pertaining to the agency hereby
created and its duties hereunder and under any other Loan Document.
13.7 Reliance on Documents; Counsel. Agent shall be entitled to rely
upon any Note, notice, consent, certificate, affidavit, letter, telegram,
statement, paper or document believed by it to be genuine and correct and to
have been signed or sent by the proper person or persons, and, in respect to
legal matters, upon the opinion of counsel selected by Agent, which counsel may
be employees of Agent.
13.8 Agent's Reimbursement and Indemnification. Banks agree to
reimburse and indemnify Agent ratably in proportion to their respective
Commitments (i) for any amounts not reimbursed by Borrowers for which Agent is
entitled to reimbursement by Borrowers under the Loan Documents, (ii) for any
other expenses incurred by Agent on behalf of Banks, in connection with the
preparation, execution, delivery, administration and enforcement of the Loan
Documents, and (iii) for any liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind and nature whatsoever which may be imposed on, incurred by or asserted
against Agent in any way relating to or arising out of the Loan Documents or any
other document delivered in connection therewith or the transactions
contemplated thereby, or the enforcement of any of the terms thereof or of any
such other documents, provided that no Bank shall be liable for any of the
foregoing to the extent they arise
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from the gross negligence or willful misconduct of Agent. The obligations of
Banks under this Section 13.8 shall survive payment of the Obligations and
termination of this Agreement.
13.9 Rights as a Bank or Issuing Bank. In the event Agent is a Bank,
Agent shall have the same rights and powers hereunder and under any other Loan
Document as any Bank and may exercise the same as though it were not Agent, and
the term "Bank" or "Banks" shall, at any time when Agent is a Bank, unless the
context otherwise indicates, include Agent in its individual capacity. In the
event Agent is an Issuing Bank, Agent shall have the rights and powers of the
Issuing Bank hereunder and may exercise the same as though it were not Agent,
and the term "Issuing Bank" shall, at any time when Agent is the Issuing Bank,
unless the context otherwise indicates, include and mean Agent in its capacity
as the Issuing Bank. Agent may accept deposits from, lend money to, and
generally engage in any kind of trust, debt, equity or other transaction, in
addition to those contemplated by this Agreement or any other Loan Document,
with any Borrower or any of its Subsidiaries in which such Borrower or such
Subsidiary is not restricted hereby from engaging with any other Person.
13.10 Bank Credit Decision. Each Bank acknowledges that it has,
independently and without reliance upon Agent or any other Bank and based on the
financial statements prepared by Borrowers and Guarantor and such other
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement and the other Loan Documents.
Each Bank also acknowledges that it will, independently and without reliance
upon Agent or any other Bank and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Agreement and the other Loan Documents.
13.11 Successor Agent. Agent may resign at any time by giving written
notice thereof to Banks and Borrowers, such resignation to be effective upon the
appointment of a successor Agent or, if no successor Agent has been appointed,
sixty (60) days after the retiring Agent gives notice of its intention to
resign. Agent may be removed at any time with or without cause by written notice
received by Agent from the Majority Banks, such removal to be effective on the
date specified by such Banks. The consent of Borrowers shall be required prior
to any removal of Agent becoming effective; provided, however, that if an Event
of Default has occurred and is continuing, the consent of Borrowers shall not be
required. Upon any such resignation or removal, the Majority Banks shall have
the right to appoint, on behalf of a Borrower and Banks, a successor Agent. Any
Bank can be a successor Agent upon the approval of the Majority Banks. Any other
successor Agent shall be appointed only with the prior reasonable consent of
Borrowers. If no successor Agent shall have been so appointed by the Majority
Banks within forty-five (45) days after the resigning Agent's giving notice of
its intention to resign, then the resigning Agent may appoint, on behalf of
Borrowers and Banks, a successor Agent.
If Agent has resigned or been removed and no successor Agent has been
appointed, Banks may perform all the duties of Agent hereunder and each Borrower
shall make all payments in respect of the Obligations to the applicable Bank and
for all other purposes shall
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deal directly with Banks. No successor Agent shall be deemed to be appointed
hereunder until such successor Agent has accepted the appointment. Any such
successor Agent shall be a commercial bank having capital and retained earnings
of at least $50,000,000. 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 the rights, powers, privileges and duties of the
resigning or removed Agent. Upon the effectiveness of the resignation or the
Loan Documents, all amounts payable by Borrowers under this Agreement shall be
determined as if such Bank had not sold such participating interests, and each
Borrower, Agent and the Issuing Bank shall continue to deal solely and directly
with such Bank in connection with such Bank's rights and obligations under the
Loan Documents.
13.12 Agent's Fee. Borrowers agree to pay to Agent, for its own
account, the fees agreed to by Borrowers and Agent pursuant to that certain
letter agreement of even date herewith, or as otherwise agreed from time to
time.
ARTICLE XIV
RATABLE PAYMENTS
14.1 Ratable Payments. If any Bank (whether by common law right of
setoff or otherwise) has payment made to it upon its Loans (other than payments
received pursuant to Sections 3.1, 3.2 or 3.4) in a greater proportion than that
received by any other Bank, such Bank agrees, promptly upon demand, to purchase
a portion of the Loans held by the other Banks so that after such purchase each
Bank will hold its ratable proportion of Loans. If any Bank, whether in
connection with common law right of setoff or amounts which might be subject to
common law right of setoff or otherwise, receives collateral or other protection
for its Obligations or such amounts which may be subject to setoff, such Bank
agrees, promptly upon demand, to take such action necessary such that all Banks
share in the benefits of such collateral ratably in proportion to their Loans.
In case any such payment is prevented, restricted or otherwise impeded by legal
process, or otherwise, appropriate further adjustments shall be made.
ARTICLE XV
BENEFIT OF AGREEMENT, ASSIGNMENTS; PARTICIPATIONS
15.1 Successors and Assigns. The terms and provisions of the Loan
Documents shall be binding upon and inure to the benefit of Borrowers, Agent,
Banks and the Issuing Bank and their respective successors and assigns, except
that (i) no Borrower shall have the right to assign its rights or obligations
under the Loan Documents (except as otherwise permitted under Section 8.3), and
(ii) any assignment by any Bank must be made in compliance with Section 15.3.
Notwithstanding clause (ii) of this Section, any Bank may at any time, without
the consent of Borrowers or Agent, assign all or any portion of its rights under
this Agreement and its Notes to a Federal Reserve Bank; provided, however, that
no such assignment shall release the transferor Bank from its obligations
hereunder. Agent may treat the payee of any Note as the
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<PAGE>
owner thereof for all purposes hereof unless and until such payee complies with
Section 15.3 in the case of an assignment thereof or, in the case of any other
transfer, a written notice of the transfer is filed with Agent. Any assignee or
transferee of a Note agrees by acceptance thereof to be bound by all the terms
and provisions of the Loan Documents. Any request, authority or consent of any
Person, who at the time of making such request or giving such authority or
consent is the holder of any Note, shall be conclusive and binding on any
subsequent holder, transferee or assignee of such Note or of any Note or Notes
issued in exchange therefor.
15.2 Participations.
15.2.1 Permitted Participants; Effect. Any Bank may, in the
ordinary course of its business and in accordance with applicable law, at any
time sell to one or more banks or other Persons that are not, and that are not
Affiliates of a Person, in the home building business ("Participants")
participating interests in any Loan owing to such Bank, any Note held by such
Bank, any Commitment of such Bank or any other interest of such Bank under the
Loan Documents in an amount of not less than $5,000,000, so long as immediately
following such sale the selling Bank shall retain at least one-half (1/2) of its
Commitment. In the event of any such sale by a Bank of participating interests
to a Participant, such Bank's obligations under the Loan Documents shall remain
unchanged, such Bank shall remain solely responsible to the other parties hereto
for the performance of such obligations, such Bank shall remain the holder of
any such Note for all purposes under the Loan Documents, all amounts payable by
Borrowers under this Agreement shall be determined as if such Bank has not sold
such participating interests, and Borrowers, Agent and the Issuing Bank shall
continue to deal solely and directly with such Bank in connection with such
Bank's rights and obligations under the Loan Documents.
15.2.2 Voting Rights. Each Bank shall retain the sole right to
approve, and/or grant its consent to, without the consent of any Participant,
any amendment, modification or waiver or other matter relating to any provision
of the Loan Documents.
15.2.3 Waiver of Setoff. Each Participant shall be deemed to
have waived any and all rights of setoff, including any common law right of
setoff, in respect of its participating interest in amounts owing under the Loan
Documents.
15.3 Assignments.
15.3.1 Permitted Assignments. Any Bank may, in the ordinary
course of its business and in accordance with applicable law, at any time assign
to one or more banks or other financial institutions that are not, and that are
not Affiliates of a Person, in the home building business ("Purchasers") all or
any part of its rights and obligations under the Loan Documents in the amount of
not less than $10,000,000, provided that each such assignment shall be of a
constant, and not a varying, percentage of the assigning Bank's rights and
obligations under the Loan Documents; and provided further, that immediately
following such assignment, the assigning Bank either (i) shall retain a
Commitment of not less than $10,000,000 or, if the assigning Bank is Agent, not
less than $40,000,000, or (ii) shall have assigned all of its
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Commitment and have no remaining interest in the Obligations. Such assignment
shall be substantially in the form of Exhibit K hereto or in such other form as
may be agreed to by the parties thereto. The consent of Borrowers and Agent
shall be required prior to an assignment becoming effective; provided, however,
that if an Event of Default has occurred and is continuing, the consent of
Borrowers shall not be required.
15.3.2 Effect; Effective Date. Upon (i) delivery to Agent of a
notice of assignment, substantially in the form attached as Exhibit "1" to
Exhibit K hereto (a "Notice of Assignment"), together with any consents required
by Section 15.3.1, and (ii) payment by the Bank of a $5,000 fee to Agent for
processing such assignment, such assignment shall become effective on the
effective date specified in such Notice of Assignment. The Notice of Assignment
shall contain a representation by the Purchaser to the effect that none of the
consideration used to make the purchase of the Commitment and Loans under the
applicable assignment agreement are "plan assets" as defined under ERISA and
that the rights and interests of the Purchaser in and under the Loan Documents
will not be "plan assets" under ERISA.
On and after the effective date of such assignment, such Purchaser
shall for all purposes be a Bank party to this Agreement and any other Loan
Document executed by Banks and shall have all the rights and obligations of a
Bank under the Loan Documents, to the same extent as if it were an original
party hereto, and no further consent or action by Borrowers, Banks or Agent
shall be required to release the transferor Bank with respect to the percentage
of the Aggregate Commitment and Loans assigned to such Purchaser. Upon the
consummation of any assignment to a Purchaser pursuant to this Section 15.3.2,
the transferor Bank, Agent and Borrowers shall make appropriate arrangements so
that replacement Notes are issued to such transferor Bank and new Notes or, as
appropriate, replacement Notes, are issued to such Purchaser, in each case in
principal amounts reflecting their Commitment, as adjusted pursuant to such
assignment.
15.4 Dissemination of Information. Each Borrower authorizes each Bank
to disclose to any Participant or Purchaser or any other Person acquiring an
interest in the Loan Documents by operation of law (each a "Transferee") and any
prospective Transferee any and all public information in such Bank's possession
concerning the creditworthiness of such Borrower, Guarantor and their
Subsidiaries; provided that each Transferee and prospective Transferee agrees to
be bound by Section 12.15 of this Agreement.
15.5 Tax Treatment. If any interest in any Loan Document is transferred
to any Transferee which is organized under the laws of any jurisdiction other
than the United States or any State thereof, the transferor Bank shall cause
such Transferee, concurrently with the effectiveness of such transfer, to comply
with the provisions of Section 2.19.
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<PAGE>
ARTICLE XVI
NOTICES
16.1 Giving Notice. Except as otherwise permitted by Section 2.14 with
respect to borrowing notices, all notices and other communications provided to
any party hereto under this Agreement or any other Loan Document shall be in
writing or by telex or by facsimile and addressed or delivered to such party at
its address set forth below its signature hereto or at such other address as may
be designated by such party in a notice to the other parties. Any notice, if
mailed and properly addressed with postage prepaid, shall be deemed given when
received; any notice, if transmitted by telex or facsimile, shall be deemed
given when transmitted (answerback confirmed in the case of telexes).
16.2 Change of Address. Any Borrower, Agent, any Bank and the Issuing
Bank may each change the address for service of notice upon it by a notice in
writing to the other parties hereto.
ARTICLE XVII
COUNTERPARTS
This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute one agreement, and any of the parties
hereto may execute this Agreement by signing any such counterpart. This
Agreement shall be effective when it has been executed by all Borrowers, Agent,
and Banks and each party has notified Agent by telex or telephone, that it has
taken such action.
IN WITNESS WHEREOF, Borrowers, Banks, and Agent have executed this
Agreement as of the date first above written.
BORROWERS:
RICHMOND AMERICAN HOMES OF
CALIFORNIA, INC., a Colorado corporation
ATTEST:
By:
------------------------------------
- ------------------------- Name: John J. Heaney, Vice President
3600 South Yosemite, Suite 900
Denver, Colorado 80237
Attention: John J. Heaney
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<PAGE>
RICHMOND AMERICAN HOMES OF
MARYLAND, INC., a Maryland corporation
ATTEST:
By:
------------------------------------
- ------------------------- Name: John J. Heaney, Vice President
3600 South Yosemite, Suite 900
Denver, Colorado 80237
Attention: John J. Heaney
RICHMOND AMERICAN HOMES OF NEVADA,
INC., a Colorado corporation
ATTEST:
By:
------------------------------------
- ------------------------- Name: John J. Heaney, Vice President
3600 South Yosemite, Suite 900
Denver, Colorado 80237
Attention: John J. Heaney
RICHMOND AMERICAN HOMES OF
VIRGINIA, INC., a Virginia corporation
ATTEST:
By:
------------------------------------
- ------------------------- Name: John J. Heaney, Vice President
3600 South Yosemite, Suite 900
Denver, Colorado 80237
Attention: John J. Heaney
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<PAGE>
RICHMOND AMERICAN HOMES, INC., a
Delaware corporation
ATTEST:
By:
------------------------------------
- -------------------------- Name: John J. Heaney, Vice President
3600 South Yosemite, Suite 900
Denver, Colorado 80237
Attention: John J. Heaney
RICHMOND HOMES, INC. I, a Delaware
corporation
ATTEST:
By:
-----------------------------------
- -------------------------- Name: John J. Heaney, Vice President
3600 South Yosemite, Suite 900
Denver, Colorado 80237
Attention: John J. Heaney
RICHMOND HOMES, INC. II, a Delaware
corporation
ATTEST:
By:
-----------------------------------
- -------------------------- Name: John J. Heaney, Vice President
3600 South Yosemite, Suite 900
Denver, Colorado 80237
Attention: John J. Heaney
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<PAGE>
Commitments BANKS:
$75,000,000.00 BANK ONE, ARIZONA, NA, a national banking
association, Individually and as Agent
By:
------------------------------
Name: Rhonda R. Williams
Vice President
Western Region Real Estate
Department A-383
241 North Central Avenue
Phoenix, Arizona 85004
Attention: Rhonda R. Williams
$40,000,000.00 BANK UNITED OF TEXAS FSB, a federal
savings bank
By:
---------------------------------
Name: Thomas S. Griffin
Vice President
5970 South Greenwood Plaza Boulevard
Suite 110
Englewood, Colorado 80111
Attention: Thomas S. Griffin
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<PAGE>
$20,000,000.00 SANWA BANK CALIFORNIA, a California
corporation
By:
------------------------------
Name: Russ Wakeham
Vice President
4041 MacArthur Boulevard, Suite 100
Newport Beach, California 92660
Attention: Russ Wakeham
$15,000,000.00 KEY BANK OF COLORADO, a Colorado
state bank
By:
------------------------------
Name: James R. Peoples
Senior Vice President
Southeast Branch
3600 South Yosemite Street
Suite 410
Denver, Colorado 80237
Attention: James R. Peoples
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<PAGE>
The undersigned Guarantor is executing this Agreement solely to indicate its
confirmation of all of the representations, warranties, covenants, terms and
provisions that relate to Guarantor and to evidence its agreement to be bound by
the same.
Attest: M.D.C. HOLDINGS, INC., a Delaware corporation
- --------------------------
By:
------------------------------------------
Name: John J. Heaney
Title: Vice President
-97-
Exhibit 4.2
SCHEDULE "2.21"
Terms Relating to Last 24 Months of Term/No Extension
I. If the Extension Request is not approved pursuant to Section
2.21(a), (b) or (c) of the Agreement, or if Borrowers do not request an
extension pursuant to Section 2.21 of the Agreement, then during the twenty-four
(24) months preceding the Facility Termination Date, the terms and condition set
forth on this Schedule "2.21" shall be deemed to be incorporated into the
Agreement, and Borrowers, Banks and Agent shall act in accordance herewith:
(a) Section 2.1. Section 2.1(iii) of the Agreement
shall be deemed to be modified in its entirety to read as follows: "(iii) the
aggregate principal amount of all Advances plus the aggregate amount of the
Facility Letter of Credit Obligations outstanding with respect to all Borrowers
plus the aggregate principal amount outstanding of all Public Indebtedness
described in Section 8.2(xv) shall not exceed the aggregate of all Borrowing
Bases for all Borrowers determined as of the most recent Inventory Valuation
Date."
(b) Section 2.2. Section 2.2(iii) of the Agreement
shall be deemed to be modified in its entirety to read as follows: "(iii) the
aggregate principal amount of all Advances plus the aggregate amount of the
Facility Letter of Credit Obligations outstanding with respect to all Borrowers
plus the aggregate principal amount outstanding of all Public Indebtedness
described in Section 8.2(xv) exceeds the aggregate of all Borrowing Bases for
all Borrowers determined as of the most recent Inventory Valuation Date."
(c) Section 4.2. Section 4.2(v) of the Agreement
shall be deemed to be modified in its entirety to read as follows: "(v) if,
after giving effect to the Facility Letter of Credit or amendment or extension
thereof requested hereunder, the aggregate principal amount of all Facility
Letter of Credit Obligations plus the principal amount of all Advances
outstanding plus the aggregate principal amount outstanding of all Public
Indebtedness described in Section 8.2(xv) would exceed the aggregate of all
Borrowing Bases determined as of the most recent Inventory Valuation Date."
(d) Section 5.2. Section 5.2(iii)(C) of the
Agreement shall be deemed to be modified in its entirety to read as follows:
"(C) the aggregate principal amount of all Advances plus the aggregate amount of
the Facility Letter of Credit Obligations outstanding plus the aggregate
principal amount outstanding of all Public Indebtedness described in Section
8.2(xv) shall not exceed the aggregate of all Borrowing Bases (determined as of
the most recent Inventory Valuation Date)."
<PAGE>
(e) Section 8.2(xv). Section 8.2(xv) of the
Agreement shall be deemed to be modified in its entirety to read as follows:
(xv) Public Indebtedness, so long as such Indebtedness (A) as
to Guarantor, is either subordinated to or pari passu with Guarantor's
obligations under the Guaranty; and (B) as to Borrowers, is
Subordinated Indebtedness; provided, however, that the aggregate amount
of such Public Indebtedness shall be subject to the limitations in
Sections 2.1(iii), 2.2(iii), 4.2(v) and 5.2(iii)(C).
(f) Section 8.2(xviii). The following Section 8.2
(xviii) shall be deemed to be added to the Agreement:
8.2(xviii) Indebtedness, except Public Indebtedness, secured
by Liens permitted under Section 8.6(v).
(g) Section 8.6. Section 8.6(v) shall be deemed to
be modified in its entirety to read as follows:
8.6(v) Liens incurred in the ordinary course of business not
otherwise permitted by this covenant, provided that (I) the Liens
encumber real property owned by the obligor of the applicable
Indebtedness (provided that a Borrower may be the obligor of such
Indebtedness and Guarantor may guarantee such Indebtedness), and (II)
the obligations secured by any Lien shall not exceed eighty percent
(80%) of the fair market value of the real property covered thereby (if
the obligations do not relate to the construction of improvements on,
or development of, the real property) or eighty percent (80%) of the
value of the real property covered thereby as if all Improvements to be
located thereon have been completed (if the obligations relate to the
construction of Improvements on the real property), as applicable.
1. If the Extension Request is not approved pursuant to Section
2.21, or if Borrowers do not request an extension pursuant to Section 2.21, then
if a Conversion Period occurs during the twenty-four (24) months preceding the
Facility Termination Date, the terms and conditions of this Schedule "2.21"
shall be of no further force and effect, and the provisions of Schedule "2.22"
shall become effective.
-2-
Exhibit 4.3
SCHEDULE "2.22"
Terms Relating to Conversion Period
During any Conversion Period (including without limitation any
Conversion Period occurring during the twenty-four (24) months preceding the
Facility Termination Date), the terms and conditions set forth on this Schedule
"2.22" shall be deemed to be incorporated into the Agreement, and Borrowers,
Banks and Agent shall act in accordance herewith.
I. ADJUSTMENTS TO CERTAIN COVENANTS.
1. Adjustments During a Secured Conversion Period or a
Modified Secured Conversion Period. If the Conversion Period is a Secured
Conversion Period or a Modified Secured Conversion Period, then during the
Conversion Period, Sections 8.2, 8.4, 8.5 and 8.6 shall be deemed to be deleted
from the Agreement.
2. Adjustments to Certain Covenants During an Unsecured
Conversion Period. If the Conversion Period is an Unsecured Conversion Period,
then during the Conversion Period:
(a) Section 2.1. Section 2.1(iii) of the Agreement
shall be deemed to be modified in its entirety to read as follows: "(iii) the
aggregate principal amount of all Advances plus the aggregate amount of the
Facility Letter of Credit Obligations outstanding with respect to all Borrowers
plus the aggregate principal amount outstanding of all Public Indebtedness
described in Section 8.2(xv) shall not exceed the aggregate of all Borrowing
Bases for all Borrowers determined as of the most recent Inventory Valuation
Date."
(b) Section 2.2. Section 2.2(iii) of the Agreement
shall be deemed to be modified in its entirety to read as follows: "(iii) the
aggregate principal amount of all Advances plus the aggregate amount of the
Facility Letter of Credit Obligations outstanding with respect to all Borrowers
plus the aggregate principal amount outstanding of all Public Indebtedness
described in Section 8.2(xv) exceeds the aggregate of all Borrowing Bases for
all Borrowers determined as of the most recent Inventory Valuation Date."
(c) Section 4.2. Section 4.2(v) of the Agreement
shall be deemed to be modified in its entirety to read as follows: "(v) if,
after giving effect to the Facility Letter of Credit or amendment or extension
thereof requested hereunder, the aggregate principal amount of all Facility
Letter of Credit Obligations plus the principal amount of all Advances
outstanding plus the aggregate principal amount outstanding of all Public
Indebtedness described in Section 8.2(xv) would exceed the aggregate of all
Borrowing Bases determined as of the most recent Inventory Valuation Date."
<PAGE>
(d) Section 5.2. Section 5.2(iii)(C) of the
Agreement shall be deemed to be modified in its entirety to read as follows:
"(C) the aggregate principal amount of all Advances plus the aggregate amount of
the Facility Letter of Credit Obligations outstanding plus the aggregate
principal amount outstanding of all Public Indebtedness described in Section
8.2(xv) shall not exceed the aggregate of all Borrowing Bases (determined as of
the most recent Inventory Valuation Date)."
(e) Section 8.2(xv). Section 8.2(xv) of the
Agreement shall be deemed to be modified in its entirety to read as follows:
(xv) Public Indebtedness, so long as such
Indebtedness (A) as to Guarantor, is either subordinated to or pari
passu with Guarantor's obligations under the Guaranty; and (B) as to
Borrowers, is Subordinated Indebtedness; provided, however, that the
aggregate amount of such Public Indebtedness shall be subject to the
limitations in Sections 2.1(iii), 2.2(iii), 4.2(v) and 5.2(iii)(C).
(f) Section 8.2(xviii). The following Section 8.2
(xviii) shall be deemed to be added to the Agreement:
8.2(xviii) Indebtedness, except Public Indebtedness, secured
by Liens permitted under Section 8.6(v).
(g) Section 8.6. Section 8.6(v) shall be deemed to
be modified in its entirety to read as follows:
8.6(v) Liens incurred in the ordinary course of business not
otherwise permitted by this covenant, provided that (I) the Liens
encumber real property owned by the obligor of the applicable
Indebtedness (provided that a Borrower may be the obligor of such
Indebtedness and Guarantor may guarantee such Indebtedness), and (II)
the obligations secured by any Lien shall not exceed eighty percent
(80%) of the fair market value of the real property covered thereby (if
the obligations do not relate to the construction of improvements on,
or development of, the real property) or eighty percent (80%) of the
value of the real property covered thereby as if all Improvements to be
located thereon have been completed (if the obligations relate to the
construction of Improvements on the real property), as applicable.
-2-
<PAGE>
A. CHANGES AND ADDITIONS TO DEFINED TERMS.
As used in this Schedule "2.22",
"Borrowing Base" shall have the meaning set forth in the Agreement
during the first thirty (30) days after the Conversion Date. Thereafter, and
until that day that is ninety (90) days (or 120 days, as applicable, pursuant to
the provisions of Paragraph 6 below) after the Conversion Date, Borrowing Base
shall mean, with respect to an Inventory Valuation Date for which it is to be
determined, an amount equal to the sum of the following assets of each Borrower:
(i) the aggregate of the following amounts with
respect to each Presold Unit that constitutes Pledged Collateral or
Eligible Collateral: the lesser of (a) eighty percent (80%) of the
respective Unit Base Appraised Value (if a Unit Base Appraisal has been
received), or (b) eighty percent (80%) of the respective purchase price
under the applicable purchase contract, or (c) eighty percent (80%) of
the respective book value; plus
(ii) the aggregate of the following amounts with
respect to each Spec Unit that constitutes Pledged Collateral or
Eligible Collateral: the lesser of (a) seventy percent (70%) of the
respective Unit Base Appraised Value (if a Unit Base Appraisal has been
received), or (b) seventy percent (70%) of the respective book value;
plus
(iii) the aggregate of the following amounts with
respect to each Model Unit that constitutes Pledged Collateral or
Eligible Collateral: the lesser of (a) seventy percent (70%) of the
respective Unit Base Appraised Value (if a Unit Base Appraisal has been
received), or (b) seventy percent (70%) of the respective book value;
plus
(iv) the aggregate of the following amounts with
respect to each parcel of Land Under Development that constitutes
Pledged Collateral or Eligible Collateral: the lesser of (a) fifty
percent (50%) of the respective Land Appraised Value (if a Land
Appraisal has been received); or (b) fifty percent (50%) of the
respective book value;
provided, however, that (A) the aggregate of the amounts calculated
pursuant to clauses (ii) and (iv) with respect to all Borrowers shall
not exceed, on any Inventory Valuation Date, the aggregate of the
amounts calculated pursuant to clauses (i) and (iii) with respect to
all Borrowers, and (B) the aggregate of the amounts calculated pursuant
to clause (iv) shall not exceed at any time fifty percent (50%) of the
Aggregate Commitment.
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After that day that is ninety (90) days (or 120 days, as applicable, pursuant to
the provisions of Paragraph 6 below) after the Conversion Date, Borrowing Base
shall mean, with respect to an Inventory Valuation Date for which it is to be
determined, an amount equal to the sum of the following assets of each Borrower:
(I) the aggregate of the following amounts with
respect to each Presold Unit that constitutes Eligible Collateral: the
lesser of (a) eighty percent (80%) of the respective Unit Base
Appraised Value, or (b) eighty percent (80%) of the respective purchase
price under the applicable purchase contract, or (c) eighty percent
(80%) of the respective book value; plus
(II) the aggregate of the following amounts with
respect to each Spec Unit that constitutes Eligible Collateral: the
lesser of (a) seventy percent (70%) of the respective Unit Base
Appraised Value, or (b) seventy percent (70%) of the respective book
value; plus
(III) the aggregate of the following amounts with
respect to each Model Unit that constitutes Eligible Collateral: the
lesser of (a) seventy percent (70%) of the respective Unit Base
Appraised Value, or (b) seventy percent (70%) of the respective book
value; plus
(IV) the aggregate of the following amounts with
respect to each parcel of Land Under Development that constitutes
Eligible Collateral: the lesser of (a) fifty percent (50%) of the
respective Land Appraised Value, or (b) fifty percent (50%) of the
respective book value.
provided, however, that (A) the aggregate of the amounts calculated
pursuant to clauses (II) and (IV) with respect to all Borrowers shall
not exceed, on any Inventory Valuation Date, the aggregate of the
amounts calculated pursuant to clauses (I) and (III) with respect to
all Borrowers, and (B) the aggregate of the amounts calculated pursuant
to clause (IV) shall not exceed at any time fifty percent (50%) of the
Aggregate Commitment.
"Collateral Documents" is defined in Paragraph C(5).
"Due Diligence Documents" is defined in Paragraph C(6).
"Eligible Collateral" means Collateral which satisfies each of the
following requirements: (i) the applicable Borrower has provided all Collateral
Documents and otherwise satisfied the conditions precedent set forth in
Paragraph C(5) with respect to such Collateral, and (ii) the applicable Borrower
has provided all Due Diligence Documents and otherwise satisfied the
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conditions precedent set forth in Paragraph C(6) with respect to such
Collateral, and (iii) such Collateral has not become subject to Paragraph C(4).
"Finished Lots" means parcels of land owned by any Borrower which are
duly recorded and platted for use as Housing Units and zoned for such use, with
respect to which all requisite governmental consents and approvals have been
obtained and on which (i) all development activity, other than finishing detail
permitted by the local jurisdiction where such lot is located, has been
completed and (ii) water and sewer connections have been brought to the lot
shown on the plat covering such parcel and are available for hook-up to a
Housing Unit; provided, however, that the term "Finished Lots" shall not include
any real property upon which the construction of a Housing Unit has commenced.
For purposes of this definition, the construction of Housing Unit shall be
deemed to have commenced upon commencement of the trenching for the foundation
of the Housing Unit.
"Improvements" means (i) offsite improvements on the Land Under
Development (including, without limitation, curbs, grading, landscaping,
sprinklers, storm and sanitary sewers, paving, sidewalks, and utilities)
necessary to make the Land Under Development suitable for the construction of
Housing Units, and (ii) any common area improvements to be constructed on the
Land Under Development.
"Land Appraisal" means an appraisal of the Land Under Development and
the Improvements (as they exist, if completed, or as they will exist upon
completion) (i) ordered by Agent, (ii) prepared by an appraiser satisfactory to
Agent, (iii) in compliance with all federal and state standards for appraisals,
(iv) reviewed by Agent, and (v) in form and substance satisfactory to Agent in
its absolute and sole discretion.
"Land Appraised Value" means the market value for the Land Under
Development and the Improvements (as they exist, if completed, or as they will
exist upon completion), which shall be the value approved or determined by Agent
in its absolute and sole discretion after review of a Land Appraisal.
"Net Sales Proceeds" means the gross sales price of a Housing Unit set
forth in the purchase contract for such Housing Unit, less (i) any earnest money
deposit, (ii) customary tax prorations, (iii) reasonable and customary real
estate brokerage commissions payable to any Person who is neither (A) employed
by any Borrower or Guarantor, nor (B) engaged in on-site sales at the
Subdivision in which the Unit is located, and (iv) reasonable and customary
closing costs, including any "points" payable by the Borrower.
"Pledged Collateral" means Collateral where the applicable Borrower has
satisfied the conditions precedent set forth in Paragraph C(5).
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"Subdivision" means a group of lots designated on the final subdivision
plat or filing; provided, however, that with respect to multiple subdivision
plats or filings that are phases of a larger development and are in reasonable
proximity to each other, then all of the lots shown on such subdivision plats or
filing or in such phases in which a common product type is being constructed
shall be deemed in the aggregate to constitute a single Subdivision, as approved
by Agent in its reasonable discretion.
"Unit Base Appraisal" means, with respect to each type of Unit, an
appraisal of the Unit and a typical lot in the applicable Subdivision, as
selected by Agent, as such Unit will exist upon completion (i) ordered by Agent,
(ii) prepared by an appraiser satisfactory to Agent, (iii) in compliance with
all federal and state standards for appraisals, (iv) reviewed by Agent, and (v)
in form and substance satisfactory to Agent in its absolute and sole discretion.
"Unit Base Appraised Value" means the value of a Unit and a typical lot
in the applicable Subdivision, as selected by Agent, without lot premiums,
options, and upgrades, as approved or determined by Agent in its absolute and
sole discretion after review of a Unit Base Appraisal.
"Unit Budget" means, with respect to each type of Housing Unit, the
budget of the costs, expenses, and fees necessary for or related to construction
of that type of Housing Unit. Such budget shall include (i) the onsite cost of
labor and materials directly related to construction of the type of Unit, other
"hard costs," construction permits, tap fees and other fees for permits required
by any governmental authority, and costs of direct project supervision, (ii)
costs and expenses related to upgrades, options, and decorator items, (iii)
insurance costs, advertising and marketing costs, escrow and title fees,
processing and closing fees, wire transfer fees, legal fees, and appraisal fees,
and (iv) a reserve for repair and maintenance. There shall be a separate budget
for each type of Housing Unit.
"Unit Plans and Specifications" means, with respect to each type of
Housing Unit, plans and specifications for construction of that type of Housing
Unit, prepared by an architect, certified by the applicable Borrower to Agent
together with any amendments or modifications thereof.
B. BORROWERS' OBLIGATION TO PROVIDE COLLATERAL.
1. Collateral. If the Conversion Period is a Secured
Conversion or a Modified Secured Conversion Period, then Borrowers shall
provide, and Agent shall accept on behalf of Banks, Collateral as security for
the Obligations, which security shall be on the terms and conditions set forth
in this Schedule "2.22." During the first thirty (30) days after the Conversion
Date, Agent and Banks shall continue to make Advances in accordance with, and
pursuant to the limitations of, the Agreement. Thereafter, and until that day
that is ninety (90) days after the Conversion Date, Advances shall be made to
each Borrower only with respect to Pledged Collateral (as defined herein) that
is owned by such Borrower, pursuant to the terms of this Schedule "2.22."
Thereafter, Advances shall be made to each Borrower only with respect to
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Eligible Collateral (as defined herein) that is owned by such Borrower, pursuant
to the terms of this Schedule "2.22."
2. Amount of Collateral to be Provided. Within thirty
(30) days after the Conversion Date (where the Conversion Period is a Secured
Conversion Period or a Modified Secured Conversion Period), and thereafter
during the Conversion Period, Borrowers shall comply with the provisions of
Paragraph C(5) with respect to Housing Units and Land Under Development listed
on the most recent Borrowing Base Certificate in an amount sufficient to cause
Borrowers to be in compliance at all times with Section 2.1 of the Agreement.
Within ninety (90) days after the Conversion Date (where the Conversion Period
is a Secured Conversion Period or a Modified Secured Conversion Period), and
thereafter during the Conversion Period, Borrowers shall also comply with the
provisions of Section C(6) of this Schedule "2.22" with respect to Housing Units
and Land Under Development listed on the most recent Borrowing Base Certificate
in an amount sufficient to cause Borrowers to be in compliance at all times with
Section 2.1 of the Agreement.
3. Advances and Additional Collateral During Conversion
Period. Borrowers may continue to request Advances and Facility Letters of
Credit during the Conversion Period. If the Conversion Period is a Secured
Conversion Period or a Modified Secured Conversion Period, Borrowers may
continue to provide to Agent, for the benefit of Banks, additional Eligible
Collateral in accordance with the terms hereof; provided, however,
a. After Borrowers provide the initial Eligible
Collateral during the 90- day period described in Paragraph 5 above, a Borrower
may not add any new Land Under Development except Finished Lots during the
Conversion Period; and
b. A Borrower may not add any new Housing Units
to Eligible Collateral during the last six (6) months of the Conversion Period.
4. Extraordinary Events Affecting Collateral. Upon the
occurrence of any of the following events, Housing Units or Land Under
Development, as applicable, at any time constituting Pledged Collateral (or
Eligible Collateral, as applicable) may be declared by Agent to no longer be
Pledged Collateral (or Eligible Collateral, as applicable):
a. Material Damage, Destruction, or
Condemnation. Any Housing Unit is materially damaged, destroyed, or becomes
subject to any condemnation proceeding or environmental impairment (as
reasonably determined by Agent).
b. Default Regarding Title Insurance. Any
title company fails to perform its obligations under any agreement with Agent
respect to such Collateral or the requirements of the Loan Documents for title
insurance with respect to such Collateral are not satisfied.
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5. Collateral Documents to be Provided by Borrower.
Within thirty (30) days after the Conversion Date (where the Conversion Period
is a Secured Conversion Period or a Modified Secured Conversion Period),
Borrowers shall deliver to Agent, for the benefit of Banks, the following
documents, each of which shall be acceptable to Agent in its reasonable
discretion, with respect to Housing Units and Land Under Development shown on
the most recent Borrowing Base Certificate in an amount sufficient to cause
Borrowers to be in compliance at all times with Section 2.1 of the Agreement.
The documents delivered by Borrowers pursuant to this Paragraph C(5) are
referred to herein as the "Collateral Documents."
a. Deed of Trust. The applicable Borrower
shall have executed, delivered to Agent, acknowledged, and recorded and filed a
Deed of Trust (or an amendment or modification thereof), UCC-1 financing
statements (as required by Agent) and such other documents as Agent or any Bank
may reasonably require to attach, perfect or otherwise secure the Collateral,
and Agent shall execute, file and record such documents as applicable.
b. Environmental Agreement. The applicable
Borrower and Guarantor shall have executed and delivered to Agent an
Environmental Agreement covering the Collateral.
c. Title Insurance. The applicable Borrower
shall have provided to Agent an American Land Title Association loan policy or
policies of title insurance (or other reasonably acceptable policy) or an
irrevocable and unconditional commitment to issue such policy or policies, or an
endorsement to an existing title policy or policies in form satisfactory to
Agent, issued by a title company reasonably acceptable to Agent, insuring the
Deed of Trust. Such policy or policies shall have a liability limit in an amount
to be determined by Agent in its reasonable discretion shall provide coverage
and otherwise be in form and substance satisfactory to Agent (including, without
limitation, mechanic's lien coverage with respect to claims existing on the date
the Deed of Trust is recorded or that would have priority over the Deed of
Trust, if available in the jurisdiction at a reasonable premium, as determined
by Borrowers and Agent) insuring Agent's interest on behalf of Banks under the
applicable Deed of Trust as a valid first lien on the property encumbered by the
Deed of Trust. Such policy shall be accompanied by such reinsurance and
co-insurance agreements and endorsements as Agent may require. Such policy must
contain exceptions only for those items described in the definition of Permitted
Liens and such other exceptions as are satisfactory to Agent and must have
attached such endorsements (including, without limitation, endorsements insuring
over any items described in clauses (i)(B) or (ii)(B) in the definition of
Permitted Liens) as Agent may reasonably require.
d. Insurance Policies. The applicable Borrower
shall have delivered to Agent a certificate of insurance or other evidence
thereof satisfactory to Agent, and at Agent's request, certified copies of the
policies of insurance required under the Loan Documents.
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e. Opinion Letter. If requested by Agent, the
applicable Borrower shall have delivered to Agent a favorable opinion from a law
firm representing Borrowers and Guarantor covering such matters as Agent may
require.
6. Due Diligence Documents to be Provided by Borrower.
Within ninety (90) days after the Conversion Date (where the Conversion Period
is a Secured Conversion Period or a Modified Secured Conversion Period),
Borrowers shall deliver to Agent, for the benefit of Banks, the following
documents, each of which shall be acceptable to Agent in its reasonable
discretion, with respect to Housing Units and Land Under Development shown on
the most recent Borrowing Base Certificate in an amount sufficient to cause
Borrowers to be in compliance at all times with Section 2.1 of the Agreement
(except that the appraisal described in item (c) below shall be ordered by
Agent, in a diligent and timely manner, at Borrower's expense); provided,
however, that if Borrowers have diligently obtained all items described in this
Paragraph 6 during such 90-day period with respect to any Housing Unit or Land
under Development other than the appraisal described in item (c) below, then
Borrowers shall have an additional thirty (30) days to provide such appraisal.
The documents delivered by Borrowers pursuant to this Paragraph C(6) are
referred to herein as the "Due Diligence Documents."
a. Plat and/or Survey. The applicable Borrower
shall have delivered to Agent one or more recorded plats, covering the
Collateral. Each plat must contain a legal description of the land covered by
the plat, must describe and show all boundaries of and lot lines within such
land, all streets and other dedications, and all easements affecting such land.
In addition, if no plat is available, if requested by Agent, such Borrower shall
provide Agent an ALTA survey for such Collateral, in form and substance
acceptable to Agent.
b. Types of Housing Units. The applicable
Borrower shall have provided Agent a description of the types of Housing Units
to be constructed within the Subdivision relating to such Collateral together
with Unit Budgets for each such type of Unit, and a pro forma for the
Subdivision in a form satisfactory to Agent showing such Borrower's expected
profit from the Subdivision.
c. Appraisal. Agent shall have received a Land
Appraisal or, as applicable, a Unit Base Appraisal for the type of Unit in
question. Agent shall have the right to order reappraisals, at the applicable
Borrower's expense, no more frequently than annually unless otherwise required
by applicable law or regulation. The Land Appraised Value and the Unit Base
Appraised Value for the type of Unit shall have been approved by Agent in its
absolute and sole discretion.
d. Lot Information. The applicable Borrower
shall have provided Agent documentation relating to such Borrower's acquisition
of the applicable lots, including, without limitation, the identity of the
seller of such lots. The applicable Borrower also shall have
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provided to Agent documentation establishing the acquisition price of such lots,
including, without limitation, a copy of the applicable option agreement or
other agreement for purchase of such lots.
e. Approvals. If requested by Agent the
applicable Borrower shall have made available to Agent for Agent's inspection
evidence of appropriate zoning and existence of all approvals of governmental
authorities and other third parties necessary to permit the construction and
sale of Housing Units in the Subdivision relating to the Collateral for the
applicable stage of construction; including, without limitation, all applicable
public reports, architectural committee approvals and any other approvals
required under the CC&Rs.
f. Soils Tests. At Agent's request, the
applicable Borrower shall have provided a soils test report prepared by a
licensed soils engineer satisfactory to Agent showing the location of, and
containing boring logs from, all borings, together with recommendations for the
design of the foundations, paved areas and underground utilities for the
Subdivision relating to the Collateral. At Agent's request, the applicable
Borrower shall also provide such soils test reports for individual Lots within
such Subdivision.
g. Environmental Assessment. The applicable
Borrower shall have delivered to Agent a report of an environmental assessment
(including a fifty (50) year chain of title review) of each Subdivision (or
applicable phase thereof) addressed to Agent by an environmental engineer
acceptable to Agent containing such information, results, and certifications as
Agent may require, in its absolute and sole discretion, and dated not earlier
than six (6) calendar months before the Borrower's request. Depending upon the
results of the environmental assessment, the Borrower shall also provide such
follow up testing, reports, and other actions as may be required by Agent in its
absolute and sole discretion. The contents of the environmental assessment
report and any follow up must be satisfactory to Agent in its absolute and sole
discretion. If such reports are not addressed to Agent, the Borrower shall cause
a reliance letter, in form and substance satisfactory to Agent, to be provided
to Agent.
h. Environmental Questionnaire. The applicable
Borrower shall have delivered to Agent, Agent's form of environmental
questionnaire, fully completed and duly executed by such Borrower. The answers
to the questions in the questionnaire must be satisfactory to Agent.
i. Utilities. The applicable Borrower shall
have provided to Agent evidence, which may be in the form of letters from local
utility companies or local authorities (if not evidenced on the plat of the
Subdivision or disclosed by other documents provided in this Paragraph), that
(a) telephone service, electric power, storm sewer, sanitary sewer and water
facilities are or will be available to the Subdivision relating to the
Collateral and to the boundary of each lot therein; (b) such utilities are
adequate to serve the lots in such Subdivision and exist at the boundary of the
Subdivision; and (c) no conditions exist to affect such Borrower's right to
connect into and have adequate use of such utilities except for the payment of a
normal connection
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charge or tap charges and except for the payment of subsequent charges for such
services to the utility supplier.
j. Flood Report. The applicable Borrower shall
have provided to Agent evidence satisfactory to Agent as to whether (a) the
Collateral is located in an area designated by the Department of Housing and
Urban development as having special flood or mudslide hazards, and (b) if the
Collateral is located in such an area, the community in which the Collateral is
located is participating in the National Flood Insurance Program.
k. Assessments, Charges, and Taxes. For taxes,
assessments, and other charges that Agent has approved in writing for payment in
installments pursuant to the Deed of Trust, the applicable Borrower shall have
delivered to Agent evidence that such installments are current. For all other
taxes, assessments, water, sewer, and other charges levied or assessed which are
then due and payable, such Borrower shall have delivered to Agent evidence that
such amounts have been paid in full.
l. Assignments. If requested by Agent, the
applicable Borrower shall have made available to Agent for Agent's inspection
copies of the Unit Plans and Specifications and all executed contracts relating
to design and construction of the Housing Unit or the Improvements between the
Borrower and any other Person (including, without limitation, the architect and
each contractor or subcontractor for labor, materials, or services), together
with assignments thereof as Agent may request.
m. Purchase Contract. If requested by Agent,
if such Housing Unit is a Presold Unit, the applicable Borrower shall have made
available to Agent for Agent's inspection a copy of the purchase contract for
such Housing Unit if requested by Agent.
n. Distressed Improvement Districts. If
requested by Agent, the applicable Borrower shall have provided evidence that
any improvement or assessment district in which the Collateral is located shall
not (i) be insolvent under applicable law or subject to any bankruptcy or
similar proceedings; or (ii) directly or indirectly cause the Subdivision
relating to the Collateral to be subject to any suspension, disqualification, or
disapproval by FHA, FNMA, VA, FHLMC, or any similar governmental or
quasi-governmental agency that originates, purchases, insures or guarantees home
mortgage loans.
o. Other Items. The applicable Borrower shall
have provided to Agent such other agreements, documents, and instruments as
Agent may reasonably require.
p. Other Actions. Borrowers and Guarantor have
performed such other actions as Agent may reasonably require.
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7. Conditions Precedent to Adding Additional Eligible
Collateral to Borrowing Base. Each Borrower may, from time to time, request
Agent to approve additional Housing Units or Finished Lots as Eligible
Collateral for inclusion in such Borrower's Borrowing Base. Approval of new
Eligible Collateral shall be at Agent's reasonable discretion. When requesting
consideration of new Eligible Collateral, if requested by Agent a Borrower shall
deliver to Agent a completed subdivision checklist in form and substance
satisfactory to Agent, supported by such documentation as Agent may require, and
each of the following conditions precedent shall have been satisfied (or waived)
in Agent's absolute and sole discretion, and each of the following deliveries
shall have been approved by Agent in its absolute and sole discretion:
a. Defaults. No Event of Default shall have
occurred and be continuing.
b. Satisfaction of Other Conditions. Borrowers
or the applicable Borrower shall have satisfied the conditions precedent set
forth in Paragraphs C(5) and C(6) with respect to such Eligible Collateral.
8. Additional Conditions Precedent to All Advances
Against Eligible Collateral that Includes Housing Units. During a Secured
Conversion Period or a Modified Secured Conversion Period, Agent shall be
obligated to make Advances against Eligible Collateral that includes Housing
Units only upon satisfaction of the following additional conditions precedent,
as determined by Agent in its absolute and sole discretion. If any of the
following conditions precedent are not satisfied as to any Eligible Collateral,
then such Collateral shall be automatically excluded from the Borrowing Base:
a. Inspection Report. If required by Agent,
Agent shall not have received written evidence from Agent's inspector(s) or from
Agent's employee(s) performing inspections for Agent that construction of each
Housing Unit constituting Eligible Collateral does not comply with the
respective Unit Plans and Specifications in all material respects.
b. Lot Location Survey. If requested by Agent
in its absolute and sole discretion, the applicable Borrower shall have obtained
and made available to Agent for inspection a lot location survey for any Housing
Units constituting Eligible Collateral.
c. Approvals and Inspections by Governmental
Authorities. If requested by Agent, all inspections and approvals by
governmental authorities required for the stage of completion of each Housing
Unit shall have been obtained and made available to Agent to Agent for
inspection.
d. Payment of costs, Expenses, and Fees. All
costs, expenses, and fees to be paid by any Borrower or Guarantor on or before
the date of the Advance under the Loan Documents or the Guaranty have been paid
in full.
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9. Release of Collateral. So long as no Event of
Default has occurred and is continuing, a Borrower may request releases of
Housing Units and Land Under Development (including Finished Lots) from the lien
and encumbrance of a Deed of Trust from time to time; provided, however, Agent
(on behalf of Banks) shall be under no obligation to release any Housing Unit or
Land Under Development unless each of the following conditions precedent is
satisfied:
a. In the case of any Housing Unit or Land
Under Development that is being released for the purpose of sale, (i) such
Borrower shall have paid to Agent, for the benefit of Banks, from its own funds
(including Net Sales Proceeds) and not from proceeds of Advances, the greater of
(A) any amount payment then required pursuant to Section 2.2 of the Agreement as
a result of such release, or (B) the Net Sales Proceeds; and (ii) if requested
by Agent, such Borrower shall have delivered to Agent a closing report required
under Paragraph D(2)(a); or
b. With respect to releases of Land Under
Development or Housing Units for purposes other than sale, both before and after
giving effect to such release, the outstanding Advances do not exceed the
limitations in Section 2.1 of the Agreement and the applicable Borrower has made
any payments required pursuant to Section 2.2 of the Agreement; and
c. The property to be released and the property
remaining subject to the Deed of Trust shall be a legal lot(s) or parcel(s);
and
d. If requested by Agent with respect to any
Housing Unit, a Declaration of Covenants, Conditions and Restrictions shall have
been recorded covering the property providing, among other things, for the
ownership of common areas by a property owners association as common areas and
for certain easement and other rights by the owner of each lot in the common
areas. That Declaration, the documents for the property owners association, and
all other related documents and instruments shall be satisfactory to Agent in
both form and substance, and the interest of the applicable Borrower thereunder
shall have been assigned to Agent as further security for the Obligations. That
assignment and any financing statements or related documents shall be in form
required by Agent.
e. Agent shall have received such endorsements
to its policy of title insurance insuring the lien of the applicable Deed of
Trust as Agent may require; and
f. Agent shall have received a written request
for the partial release together with such documents and information as Agent
may reasonably request to verify that the conditions for such release have been
satisfied; and
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g. All costs and expenses of Agent relating to
all partial releases shall be paid by the applicable Borrower, including but not
limited to reconveyance fees, title fees, recording fees and legal expenses; and
h. No partial release shall impair or adversely
affect Banks' security in the property remaining subject to the applicable Deed
of Trust or any term or provision of the Deed of Trust as it pertains to the
property remaining subject to the Deed of Trust.
Any amounts paid to Agent under subparagraph (a) including, without limitation,
Net Sales Proceeds, shall be applied to the outstanding principal balance of all
Advances made to such Borrower, and if no unpaid Advances are then outstanding,
for deposit into a cash collateral account maintained with Agent, pledged by
such Borrower and controlled by Agent, and established with respect to such
Borrower.
Notwithstanding the foregoing, if an Event of Default or
Unmatured Event of Default has occurred and is continuing, a Borrower may
request releases of Land Under Development or Housing Units that are not
included in Eligible Collateral from the lien and encumbrance of a Deed of Trust
from time to time; provided, however, Agent (on behalf of Banks) shall be under
no obligation to release any Land Under Development or Housing Unit unless each
of the conditions precedent set forth in subparagraphs (a) and (c) through (h)
have been satisfied. For purposes of satisfying the condition precedent in
subparagraph (a)(i), such Borrower shall be required to pay to Agent, from its
own funds (including Net Sales Proceeds) and not from proceeds of Advances, the
greater of (I) the appraised value of such Land Under Development or Housing
Unit, as determined by Agent in its absolute and sole discretion, based on an
appraisal provided by such Borrower to Agent, at such Borrower's expense, or
(II) the Net Sales Proceeds (if the release is requested in connection with a
sale).
C. ADDITIONAL AFFIRMATIVE COVENANTS DURING A SECURED CONVERSION
PERIOD OR A MODIFIED SECURED CONVERSION PERIOD.
During a Secured Conversion Period or a Modified Secured
Conversion Period:
1. Appraisal Fees, Title Insurance Premium, and Other
Costs, Expenses, and Fees. Each Borrower shall pay to Agent, for the benefit of
Banks, the following fees, from such Borrower's own funds, which shall be earned
by Banks on the date due under the Loan Documents and shall be non-refundable to
such Borrower: appraisal fees, appraisal review fees, title insurance premium,
and other costs, expenses, and fees that each Borrower is obligated to pay
pursuant to the Loan Documents, including, without limitation, all fees and
costs associated with periodic inspections of the Eligible Collateral owned by
such Borrower, in the amounts specified by Agent, payable monthly during the
term of a Secured Conversion Period or a Modified Secured Conversion Period,
within five (5) days after demand by Agent.
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2. Information and Statements. If requested by Agent
Borrowers shall furnish to Agent each of the following, which shall be
segregated for each Borrower and shall be cumulated for all Borrowers so as to
include information for all Borrowers and all Eligible Collateral, as
applicable:
a. Closing Report. On each Business Day, a
report of all Housing Unit sales closed on the previous Business Day, in form
and substance satisfactory to Agent, together with a reconciliation of the most
recently submitted inventory report pursuant to clause (b) below and
recalculation of Eligible Collateral after giving effect to such closings. For
purposes of this clause (a), a sale will be deemed to have closed when the
escrow agent for the sale has received all funds necessary to close the sale and
paid to Agent, for the benefit of Banks, all sums owed to Agent pursuant to
Paragraph C(9) and is unconditionally prepared to record the deed conveying
title to such Housing Unit.
b. Sales and Inventory Reports. As soon as the
same are available and in any event within twenty-five (25) days after the end
of each calendar month, (i) a report showing sales and cancellation of sales of
Housing Units during the preceding calendar month, and (ii) a report showing the
inventory of Housing Units (including Housing Units in progress) as of the end
of the preceding calendar month. Such report shall contain such detailed
information as Agent may reasonably require.
c. Gross Profit Analysis. Within sixty (60)
days after the end of each calendar quarter, an analysis of gross profit for
each Subdivision, as of the end of such calendar quarter, and cumulatively for
the calendar year.
d. Land Holdings. Within sixty (60) days after
the end of each quarter, a detailed schedule of all land owned by each Borrower
and Guarantor, setting forth, without limitation, the location and book value of
all such holdings.
e. Unit Budgets. On each anniversary of the
Conversion Date, and at such other time as requested by Agent, updated Unit
Budgets.
f. Other Items and Information. Such other
information (including without limitation supporting schedules for financial
statements) concerning any Borrower and Guarantor, the Property, and the assets,
business, financial condition, operations, property, prospects, and results of
operations of any Borrower and Guarantor as Agent reasonably requests from time
to time. Additionally, promptly upon request of Agent, the applicable Borrower
shall deliver to Agent counterparts and/or conditional assignments as security
of any and all construction contracts, receipted invoices, bills of sale,
statements, conveyances, and other agreements, documents, and instruments of any
nature relating to the Eligible Collateral owned by such Borrower or under which
such Borrower claims title to any materials or supplies used or to be used in
the Eligible Collateral. Also, in this regard, promptly upon request of Agent,
each
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Borrower shall deliver to Agent a complete list of all contractors,
subcontractors, material suppliers, other vendors, artisans, and laborers
performing work or services or providing materials or supplies for the Eligible
Collateral owned by such Borrower.
3. Insurance. Borrowers shall obtain and maintain the
following insurance and pay all related premiums as they become due:
a. Property. Insurance of the Eligible
Collateral against damage or loss by fire, lightning, and other perils, on an
all-risks basis, such coverage to be in an amount not less than the full
replacement value of any and all Housing Units constituting Eligible Collateral.
During the period of construction of the Housing Units or Improvements, such
policy shall be written on an all-risks basis, with no coinsurance requirement,
and shall contain a provision granting the insured permission to complete and/or
occupy the Housing Units or Land Under Development, as applicable.
b. Liability. Commercial general liability
insurance protecting Borrowers, Agent and Banks against loss or losses from
standard liability, including contractual liability, and arising from bodily
injury, death, or property damage with a limit of liability of not less than the
following amounts:
Per occurrence: $ 1,000,000.
General aggregate: $ 2,000,000.
Minimum umbrella
excess liability
insurance amount: $50,000,000.
Such policies must be written on an occurrence basis so as to provide blanket
contractual liability, broad form property damage coverage, and coverage for
products and completed operations. In addition, there shall be obtained and
maintained business motor vehicle liability insurance protecting Borrowers,
Agent and Banks against loss or losses from liability relating to motor vehicles
owned, non-owned, or hired used by a Borrower with a limit of liability of not
less than $1,000,000 (combined single limit for personal injury (including
bodily injury and death) and property damage).
c. Flood. A policy or policies of flood
insurance in the maximum amount of flood insurance available with respect to all
Collateral under the Flood Disaster Protection Act of 1973, as amended. This
requirement will be waived with respect to any Collateral presentation of
evidence satisfactory to Agent that no portion of the Collateral in question is
located within an area identified by the U.S. Department of Housing and Urban
Development as having special flood hazards.
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<PAGE>
d. Worker's Compensation. Worker's
compensation insurance, disability benefits insurance, and such other forms of
insurance as required by law covering loss resulting from injury, sickness,
disability, or death of employees of each Borrower. Borrowers shall cause each
contractor and each subcontractor having employees located on or assigned to the
Collateral to obtain and maintain this same coverage for all eligible employees.
e. Additional Insurance. Each Borrower shall
obtain and maintain such other policies of insurance as Agent may reasonably
request in writing.
f. Other. All policies for required insurance
shall be in form and substance satisfactory to Agent in its absolute and sole
discretion. Such insurance may be carried under blanket policies, so long as
such policy provides the coverage for each Housing Unit as provided in Paragraph
D(3)(a) and otherwise complies with this Paragraph D(3). All required insurance
shall be procured and maintained in financially sound and generally recognized
responsible insurance companies selected by Borrowers and approved by Agent.
Such companies must be authorized to write such insurance in the State where the
Collateral is located. Each company shall be rated "A" or better by A.M. Best
Co., in Bests' Key Guide, or such other rating acceptable to Agent in Agent's
absolute and sole discretion. All property policies evidencing required
insurance shall name Agent on behalf of Banks as first mortgagee and loss payee.
All liability policies evidencing required insurance shall name Agent on behalf
of Banks as additional insured. The policies shall not be cancelable as to the
interests of Banks due to the acts of any Borrower or Guarantor. The policies
shall provide for at least thirty (30) days prior written notice of the
cancellation or modification thereof to Agent.
g. Evidence. A certificate and, if requested
by Agent, a certified copy of each insurance policy or, if acceptable to Agent
in its absolute and sole discretion, certificates of insurance evidencing that
such insurance is in full force and effect, shall be delivered to Agent,
together with proof of the payment of the premiums thereof. At least five (5)
days prior to the expiration of each such policy, Borrowers shall furnish Agent
evidence that such policy has been renewed or replaced in the form of the
original or a certified copy of the renewal or replacement policy or, if
acceptable to Agent in its absolute and sole discretion, a certificate reciting
that there is in full force and effect, with a term covering at least the next
succeeding calendar year, insurance of the types and in the amounts required in
this Paragraph D(3).
4. Appraisals. Agent shall have the right to order Unit
Base Appraisals and Land Appraisals from time to time. Each Appraisal is subject
to review and approval by Agent. Each Unit Base Appraisal shall be accompanied
by the following documents and information: (i) one (1) set of Unit Plans and
Specifications for the type of Housing Unit covered by the Unit Base Appraisal;
(ii) the proposed sales price for the type of Housing Unit; (iii) the final Unit
Budget (or the estimated Unit Budget, if the final Unit Budget is not approved)
for the type of Housing Unit covered by the Unit Base Appraisal; (iv) mini floor
plans, square footage, anticipated absorption, estimated unit mix, and number of
models (by floor plan), all for the applicable
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Subdivision; and (v) a complete legal description of the specific lots in the
Subdivision, together with applicable recording information.
The Borrower that owns the appraised Housing Units agrees,
within fifteen (15) days after demand by Agent, to pay to Agent the cost and
expense for such Unit Base Appraisals. All FNMA appraisals or other appraisals
of Housing Units accepted by Agent that do not have a specific expiration date
shall be updated at Agent's request. Based on the updated, respective Unit Base
Appraised Value approved or determined by Agent in its reasonable discretion,
Agent shall have the right to revise the most recent Borrowing Base Certificate
delivered to Agent. If the outstanding principal amount of Advances exceeds the
limitations in Section 2.1 of the Agreement as a result of such revision, then
the applicable Borrower shall be required to make a mandatory prepayment to
Agent pursuant to Section 2.2 of the Agreement.
5. Commencement and Completion of Improvements and
Housing Units. Each Borrower shall cause construction of its respective
Improvements and Housing Units to be prosecuted and completed in good faith,
with due diligence, and without delay subject to acts of God, labor strikes and
other force majeure events beyond the reasonable control of such Borrower. A
Borrower may commence construction of Housing Units at any time. Each Borrower
shall cause its respective Improvements and Housing Units to be constructed (i)
in a good and workmanlike manner, (ii) in compliance with all applicable laws,
rules and regulations, and (iii), with respect to Housing Units, unless
otherwise consented to by Agent in advance in writing in the absolute and sole
discretion of Agent, in substantial accordance with the respective Unit Plans
and Specifications. Upon demand by Agent, each Borrower shall correct any defect
in its respective Improvements or Housing Units or any material departure from
any applicable laws, rules and regulations or, to the extent not theretofore
approved in writing by Agent, the respective Unit Plans and Specifications. Each
Borrower understands and agrees that inspection of the Land Under Development
and Housing Units by or on behalf of Agent, the review by Agent of Borrowing
Notices and related documents and information, the making of Advances by Banks,
any actions by Agent pursuant to Paragraph D(6), and any other actions by Agent
or any Bank shall not be a waiver of Agent's right to require compliance with
this Paragraph D(5). If Agent shall ever be required to complete the
construction of the Improvements or any Housing Units, whether occasioned by the
occurrence of an Event of Default or for any other reason, any sums expended by
Agent or any Bank in constructing such Improvements or Housing Units shall be
treated as Advances to the applicable Borrower hereunder and shall be deemed the
legal, valid and binding obligations of such Borrower to Banks.
6. Rights of Inspection; Correction of Defects; Agency.
Agent and its agents, employees, and representatives shall have the right at any
time and from time to time to enter upon the Collateral in order to inspect the
Collateral; provided, however, any Person entering upon the Collateral shall
observe and comply with the applicable Borrower's safety requirements. So long
as no Event of Default has occurred and is continuing, Agent shall inspect each
Housing Unit and each Land Under Development no less frequently than once in any
calendar quarter;
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<PAGE>
provided, however, that if the results of any such inspection disclose with
respect to Housing Units, errors in the information provided by the applicable
Borrower with respect to Housing Units that constitute, in the aggregate, three
percent (3%) or more of the total Housing Units owned by such Borrower that
constitute Eligible Collateral, then Agent may, in its sole and absolute
discretion, (A) increase the frequency of all inspections conducted with respect
to all Housing Units that are Eligible Collateral, and/or (B) increase the
frequency of all inspections conducted with respect to all Housing Units owned
by the such Borrower.
If Agent, in its judgment, determines that any Improvements or
Housing Units or any materials or work do not conform with the applicable plans
and specifications in all material respects or with any applicable laws, rules
and regulations or are otherwise not in conformity with sound building practice,
Agent shall have the right to stop the work (unless such Collateral is removed
from Eligible Collateral) and to order replacement or correction of any such
materials or work regardless of whether or not such materials or work have
theretofore been incorporated in the Improvements or Housing Units, as
applicable, regardless of whether Agent's representatives have previously
inspected such work or materials. The Borrower that owns the Housing Unit or
Land Under Development shall promptly make such replacement or correction.
Inspection by Agent or any Bank or by Agent's or any Bank's inspectors of the
Land Under Development or the Housing Units is for the sole purpose of
protecting the security of Banks and is not to be construed as a representation
by Agent or any Bank that there has been compliance with the applicable plans
and specifications, the applicable laws, rules and regulations or that the
Housing Units or Improvements are free of defects in materials or workmanship.
Borrowers may make or cause to be made such other independent inspections as
Borrowers may desire for their own protection.
7. Miscellaneous. Any inspections or determinations
made by Agent or any Bank or lien waivers, receipts, or other agreements,
documents, and instruments obtained by Agent or any Bank are made or obtained
solely for Agent's and Bank's own benefit and not in any way for the benefit or
protection of any Borrower. Agent and Banks may accept and rely on any
information from an architect, any other Person providing labor, materials, or
services for Housing Units or Improvements, any Borrower, or any other Person as
to labor or materials furnished or incorporated in the Housing Units or the
Improvements and the cost and payment therefor and as to all other matters
relating to construction of the Housing Units and the Improvements without the
necessity of verifying such information. Agent and Banks have no obligation to
any Borrower or Guarantor to ensure compliance by contractor, engineer, or any
other Person in carrying out construction of the Housing Units or Improvements.
8. Agent's Inspector(s). Each Borrower agrees that
during construction of Housing Units and Improvements, Agent shall have the
right to employ an outside inspector or inspectors who shall review all
construction activities undertaken in regard to Housing Units and Improvements
and who shall prepare reports of such reviews. Alternatively, Agent may elect to
have employees of Agent or any Bank(s) perform such reviews and prepare such
reports. In
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<PAGE>
addition, the employees of Agent will review the inspection reports of any
outside inspector(s), will review Borrowing Notices, will perform other
activities related to Borrowing Notices, and will perform other activities in
administering and monitoring the Advances.
9. Further Assurances. Each Borrower shall promptly
execute, acknowledge, and deliver such additional agreements, documents, and
instruments and do or cause to be done such other acts as Agent may reasonably
request from time to time to better assure, preserve, protect, and perfect the
interest of Banks in the Collateral of such Borrower and the rights and remedies
of Banks under the Loan Documents.
10. Payment of Net Sales Proceeds. Each Borrower shall,
upon the closing of a sale of any Housing Unit, pay to Agent, for the benefit of
Banks, from its own funds for application to the outstanding unpaid aggregate
amount of Advances against Eligible Collateral owned by such Borrower, an amount
equal to the Net Sales Proceeds from such Housing Unit sale, and, if applicable,
any additional amounts owed pursuant to Paragraph C(9). To the extent that such
Net Sales Proceeds are held by the title company closing such sale or any other
Person, such Borrower shall take all action requested by Agent to cause such Net
Sales Proceeds to be paid directly to Agent. If a Borrower collects or receives
any such Net Sales Proceeds, such Borrower will forthwith, upon receipt,
transmit and deliver to Agent, in the form received, all cash, checks, drafts,
chattel paper, and other instruments or writings for the payment of money
(endorsed without recourse, where required, so that such items may be collected
by Agent).
11. Construction and Sales Records. Each Borrower shall,
at all times, maintain complete and accurate records of its construction and
sales activities and shall, upon prior notice thereof by Agent, permit Agent and
any Bank to review such records upon request by Agent at any time and from time
to time during regular business hours. Such records shall include, without
limitation, (i) any and all documents, instruments, contracts and agreements
relating to the construction or sale of Housing Units entered into by such
Borrower with or for the benefit of purchasers, contractors, subcontractors, or
other Persons, as applicable, (ii) lien waivers and releases with respect to all
construction in place, (iii) requests for disbursement and vouchers submitted by
contractors, subcontractors, or other Persons, and (iv) all permits, licenses
and approvals necessary for the continuation and completion of construction.
12. Discharge of Liens; Protection of Collateral. At
their option and upon written notice to Borrowers, Banks or Agent on behalf of
Banks, at the instruction of the Required Banks, may discharge taxes, Liens, or
security interests or other encumbrances at any time levied or placed on the
Collateral, may pay for insurance on the Collateral, and may pay for the
maintenance and preservation of the Collateral. Subject to Borrowers' rights to
contest the same pursuant to the provisions of the Deeds of Trust, should
Borrowers fail or refuse to make any payment, perform any covenant or
obligation, observe any condition, or take any action that Borrowers are
obligated hereunder to make, perform, observe, take, or do, at the time or in
the manner herein provided, then Agent may, on behalf of Banks, at the
instruction of the Required
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<PAGE>
Banks, without notice to or demand upon Borrowers and without releasing
Borrowers from any obligation, covenant or condition hereof, make, perform,
observe, take, or do the same in such manner and to such extent as Agent on
behalf of Banks may deem necessary to protect the security of this Agreement.
Banks shall reimburse Agent for each Bank's proportionate share of all such
expenditures upon receipt from Agent of notice of such expenditure and request
for payment. Borrowers agree to reimburse Agent, for the benefit of Banks, on
demand, for any payment made or any expense incurred by Agent pursuant to the
foregoing authorization, together with interest thereon at the rate of two
percent (2%) per annum greater than the Prime Rate, as the same may change from
time to time, from the date of expenditure; any such payments and expenditures,
together with interest thereon, shall be added to the aggregate amount of
outstanding Advances under the Loan Documents and shall be secured by the Loan
Documents.
D. ADDITIONAL PROVISIONS RELATING TO REMEDIES AND EVENTS OF
DEFAULT DURING A SECURED CONVERSION PERIOD OR A MODIFIED SECURED
CONVERSION PERIOD. During a Secured Conversion Period or a Modified Secured
Conversion Period,
1. Remedies of Banks. If any Event of Default occurs,
Agent on behalf of Banks, shall at the written request of the Required Banks, or
may, solely with the written consent of the Required Banks, at its option and
without presentment, demand, protest, or notice of legal process of any kind,
all of which are hereby expressly waived by Borrowers, do any one or more of the
following (in addition to all other rights and remedies provided for in the
Agreement):
a. Obtain the appointment of a receiver of the
businesses and assets of Borrowers;
b. Take possession of the Collateral and, as
applicable for the type of Collateral, use it or remove it from Borrowers'
business premises;
c. If applicable, require that Borrowers
assemble all or any portion of the Collateral and make it available to Agent at
a place designated by Agent;
d. As applicable, foreclose all security
interests in or liens on the Collateral in the manner provided under the Arizona
Uniform Commercial Code. Expenses of retaking, holding, preparing for sale,
selling or the like shall include Banks' reasonable attorneys' fees and legal
expenses;
e. As to any Collateral consisting of real
property, foreclose all liens in the manner provided under the laws of the state
where such property is located and pursue all other remedies thereunder;
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f. Exercise all the remedies of a secured party
under the Uniform Commercial Code as enacted in Arizona;
g. As applicable for the type of Collateral,
enter upon any premises where the Collateral may be located, exclude
Borrowers therefrom and take immediate possession of the Collateral, either
personally or by means of a receiver appointed by a court therefor, using
necessary force, and Agent may, at Agent's option, use, operate, manage and
control the Collateral in any lawful manner or business and may collect and
receive all rents and income therefrom and collect, compromise, extend, modify,
repair, renovate, alter or remove all or part of the Collateral as Agent may
determine in Agent's discretion, and any monies so collected or received by
Agent shall be applied to, or may be accumulated for application upon, the
payment of all costs and expenses payable by Borrowers hereunder, including
without limitation all costs and expenses of Agent's taking and maintaining
possession of the Collateral, reasonable management fees for such operation
thereof, all costs and expenses of such actions and counsel fees in a reasonable
sum with the remainder, if any, to be applied upon the Notes, as the same may
have been accelerated, the application of all such monies to be made in
accordance herewith;
h. Take immediate possession of all records,
instruments, documents and writings of Borrowers pertaining to the Collateral,
without notice or demand and without resort to legal process, and for such
purpose to enter upon any premises on which such records, instruments,
documents, writings or any part thereof may be situated and remove the same
therefrom;
i. Retain the funds due or to become due on the
Collateral or other rights to payment in satisfaction of the obligations secured
hereunder by sending written notice of such election to Borrowers, but unless
such written notice is sent by Agent as aforesaid, retention of such funds or
rights to payment shall not be in satisfaction of any obligation under the
Agreement;
j. If the proceeds realized from disposition of
the Collateral shall fail to satisfy all of the obligations of Borrowers to
Banks, Borrowers shall pay any deficiency balance to Agent, for the benefit of
Banks, upon demand.
2. No Waiver of Remedies. In the election of any
remedy, Agent and Banks shall not be deemed to have waived any right with
respect to any other remedies. In all cases, Agent invoking any remedy shall be
entitled to recover from Borrowers Agent's reasonable costs incurred in
connection therewith, including reasonable attorneys' fees, whether or not suit
is brought.
3. Possession by Agent. In the event Agent takes
possession of the Collateral or a receiver appointed upon Agent's application
takes possession of the Collateral, Agent or the receiver may use such
Collateral or cause the same to be used by its agents or other persons
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<PAGE>
without charge or cost whatsoever to Agent or the receiver for such use and
without compensation therefor to Borrowers during the exercise by Agent or the
receiver of any rights or powers herein contained with reference thereto, as
well as pending any sale thereof or pending any foreclosure proceedings and
during and at all times Agent may, by legal proceedings or otherwise, cause a
receiver or agent to be placed and maintained upon the premises upon which the
Collateral may be situated and neither the present nor the entry of such
receiver or such agent in or upon such premises and the use of such premises
shall be deemed a trespass thereupon or an interference with any person's
possession thereof.
4. Proceeds of Disposition. Any proceeds of any sale,
lease, or other disposition of any of the Collateral by Agent may be applied by
Agent to the payment of reasonable costs and expenses in connection with the
enforcement of this Agreement and the Loan Documents, including without
limitation the reasonable costs and expenses of retaking, holding, preparing for
and in connection with such sale, lease or other disposition, reasonable
attorneys' fees and legal expenses, and any balance of such proceeds may be
applied by Agent toward payment of the indebtedness of Borrowers to Banks in
such order of application as the Required Banks may from time to time instruct.
5. Rights of Entry. Upon the occurrence of any Event of
Default hereunder, Agent shall be entitled to enter upon and use Borrowers'
business premises and shall be entitled to use Borrowers' equipment and
facilities in selling, leasing, or otherwise disposing of any of the Collateral,
or exercising its remedies as a secured creditor under the Arizona Uniform
Commercial Code and Borrower shall not be entitled to charge or collect any
rental or other fee for such use by Agent.
6. Receipt of Proceeds. Upon any such sale, lease, or
other disposition of the Collateral by Agent (whether by virtue of a power
granted in any security agreement, pursuant to judicial process, or otherwise),
the receipt of Agent or the officer making such sale, lease, or other
disposition, shall be a sufficient discharge to the person or persons making
payment for such sale, lease, or other disposition of the Collateral and such
person or persons shall not be obligated to see to the application of any part
of the money paid over to Agent or such officer or be answerable in any way for
the misapplication or nonapplication thereof.
7. Actions Relating to Collateral. As to any matters
relating to the Collateral, Banks hereby appoint and authorize Agent to take
such action as agent on their behalf and to exercise such powers under the Loan
Documents as are delegated by the terms thereof, together with such powers as
are reasonably incidental thereto. Without limiting the generality of the
foregoing, Banks hereby authorize Agent to release Collateral, subject to the
terms of this Schedule "2.22", and to execute on behalf of Banks all documents
and to take all other actions necessary to effect such release. As to any
matters not expressly provided for by this Agreement or the other Loan Documents
(including without limitation, enforcement of rights against any Collateral
prior to or after the Facility Termination Date), Agent shall not be required to
exercise
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any discretion or take any action, but shall be required to act or to refrain
from acting (and shall be fully protected in so acting or refraining from
acting) upon the instructions of the Required Banks and such instructions shall
be binding upon all Banks; provided, however, that Agent shall not be required
to take any action that exposes Agent to personal liability or that is contrary
to this Agreement, any other Loan Documents or applicable law.
8. Agent's Reliance. Etc. Neither Agent nor any of its
directors, officers, agents or employees shall be liable for any action taken or
omitted to be taken by it or them under or in connection with this Schedule
"2.22", except for its or their own gross negligence or willful misconduct.
Without limiting the generality of the foregoing, Agent: (i) may consult with
legal counsel (including counsel for Borrowers), independent public accountants
and other experts selected by it and shall not be liable for any action taken or
omitted to be taken in good faith by it in accordance with the advice of such
counsel, accountants or experts; (ii) makes no warranty or representation to any
Bank and shall not be responsible to any Bank for any statements, warranties or
representations made in or in connection with this Agreement; (iii) shall not
have any duty to ascertain or to inquire as to the performance or observance of
any of the terms, covenants or conditions of this Agreement on the part of
Borrowers or to inspect the Collateral or other property (including the books
and records) of Borrowers; (iv) shall not be responsible to any Bank for the due
execution, legality, validity, enforceability, genuineness, sufficiency or value
of this Agreement or any other instrument or document furnished pursuant hereto;
and (v) shall incur no liability under or in respect of this Agreement by acting
upon any notice, consent, certificate or other instrument or writing (which may
be by telegram or telefax) believed by it to be genuine and signed or sent by
the proper party or parties.
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Exhibit 4.4
EXHIBIT "D"
GUARANTY
TO: BANK ONE, ARIZONA, NA, a national banking association, as Agent (in
such capacity, the "Agent") for the banks (the "Banks") parties to the
Credit Agreement dated as of April 10, 1996 (as amended, supplemented
or otherwise modified from time to time, the "Credit Agreement"), among
RICHMOND AMERICAN HOMES OF CALIFORNIA, INC., a Colorado corporation,
RICHMOND AMERICAN HOMES OF MARYLAND, INC., a Maryland corporation,
RICHMOND AMERICAN HOMES OF NEVADA, INC., a Colorado corporation,
RICHMOND AMERICAN HOMES OF VIRGINIA, INC., a Virginia corporation,
RICHMOND AMERICAN HOMES, INC., a Delaware corporation, RICHMOND HOMES,
INC. I, a Delaware corporation, and RICHMOND HOMES, INC. II, a Delaware
corporation, (severally, a "Borrower" and collectively, "Borrowers"),
Banks, and Agent, and to the Banks. Capitalized terms not otherwise
defined herein shall have the meaning set forth in the Credit
Agreement.
FOR VALUABLE CONSIDERATION, the undersigned (hereinafter
called "Guarantor"), whose address is set forth after Guarantor's signature
below, unconditionally guarantees and promises to pay to Agent, for the benefit
of Banks and their respective successors, endorsees, transferees and assigns, or
order, within one (1) business day after demand, in lawful money of the United
States, (i) the Notes, principal and interest and all other sums payable
thereunder, or at the election of Agent any one or more installments thereof, in
the event that any Borrower fail to punctually pay any one or more installments
of the Note (principal and/or interest), or any other sum payable thereunder at
the time and in the manner provided therein; and (ii) all other indebtedness of
each Borrower to Agent or to any Bank arising under or in connection with the
Notes, the Credit Agreement or any Loan Documents (the indebtedness evidenced by
the Notes together with all other indebtedness specified above is hereinafter
collectively called the "Indebtedness").
1. The obligations of Guarantor hereunder are separate and
independent of the obligations of each Borrower and of any other guarantor, and
a separate action or actions may be brought and prosecuted against Guarantor
whether action is brought against any or all Borrowers or any other guarantor or
whether any or all Borrowers or any other guarantor is joined in any action or
actions. The obligations of Guarantor hereunder shall survive and continue in
full force and effect until payment in full of the Indebtedness is actually
received by Agent for the benefit of Banks and the period of time has expired
during which any payment made by any Borrower or Guarantor to Agent for the
benefit of Banks may be determined to be a Preferential Payment (defined below),
notwithstanding any release or termination of any Borrower's or any other
guarantor's liability by express or implied agreement with Agent or any Bank or
by operation of
<PAGE>
law and notwithstanding that the Indebtedness or any part thereof is deemed to
have been paid or discharged by operation of law or by some act or agreement of
Agent or Banks. For purposes of this Guaranty, the Indebtedness shall be deemed
to be paid only to the extent that Agent, on behalf of Banks, actually receives
immediately available funds and to the extent of any credit bid by Agent, on
behalf of Banks, at any foreclosure or trustee's sale of any security for the
Indebtedness.
2. Guarantor agrees that to the extent any Borrower or Guarantor
makes any payment to Agent or Banks in connection with the Indebtedness, and all
or any part of such payment is subsequently invalidated, declared to be
fraudulent or preferential, set aside or required to be repaid by Agent or Banks
or paid over to a trustee, receiver or any other entity, whether under any
bankruptcy act or otherwise (any such payment is hereinafter referred to as a
"Preferential Payment"), then this Guaranty shall continue to be effective or
shall be reinstated, as the case may be, and, to the extent of such payment or
repayment by Agent or Banks, the Indebtedness or part thereof intended to be
satisfied by such Preferential Payment shall be revived and continued in full
force and effect as if said Preferential Payment had not been made.
3. Guarantor is providing this Guaranty at the instance and
request of Borrowers to induce Agent and Banks to extend or continue financial
accommodations to Borrowers. Guarantor hereby represents and warrants that
Guarantor is and will continue to be fully informed about all aspects of the
financial condition and business affairs of Borrowers that Guarantor deems
relevant to the obligations of Guarantor hereunder and hereby waives and fully
discharges Agent and each Bank from any and all obligations to communicate to
Guarantor any information whatsoever regarding Borrowers or Borrowers' financial
condition or business affairs. Guarantor acknowledges that Guarantor owns,
directly or indirectly, all of the issued and outstanding shares of stock of
each Borrower, that Guarantor and each Borrower are engaged in related
businesses, and that Guarantor will derive substantial direct and indirect
benefit from the extension of credit by Banks evidenced by the Indebtedness.
4. Guarantor authorizes Agent and Banks, without notice or demand
and without affecting Guarantor's liability hereunder, from time to time, to:
(a) renew, modify, compromise, extend, accelerate or otherwise change the time
for payment of, or otherwise change the terms of the Indebtedness or any part
thereof, including increasing or decreasing the rate of interest thereon; (b)
release, substitute or add any one or more Borrowers, endorsers, or other
guarantors; (c) take and hold security for the payment of this Guaranty or the
Indebtedness, and enforce, exchange, substitute, subordinate, waive or release
any such security; (d) proceed against such security and direct the order or
manner of sale of such security as Agent in its discretion may determine; and
(e) apply any and all payments from Borrowers, Guarantor or any other guarantor,
or recoveries from such security, in such order or manner as Agent in its
discretion may determine.
-2-
<PAGE>
5. Guarantor waives and agrees not to assert: (a) any right to
require Agent or Banks to proceed against any Borrower or any other guarantor,
to proceed against or exhaust any security for the Indebtedness, to pursue any
other remedy available to Agent and Banks, or to pursue any remedy in any
particular order or manner; (b) the benefit of any statute of limitations
affecting Guarantor's liability hereunder or the enforcement hereof; (c) demand,
diligence, presentment for payment, protest and demand, and notice of extension,
dishonor, protest, demand, nonpayment and acceptance of this Guaranty; (d)
notice of the existence, creation or incurring of new or additional indebtedness
of any Borrower to Agent or any Bank; (e) the benefits of any statutory
provision limiting the liability of a surety, including without limitation the
provisions of A.R.S. Sections 12-1641, et seq.; (f) any defense arising by
reason of any disability or other defense of any or all Borrowers or by reason
of the cessation from any cause whatsoever (other than payment in full of all
amounts demanded to be paid by Guarantor under this Guaranty) of the liability
of any or all Borrowers for the Indebtedness; and (g) the benefits of any
statutory provision limiting the right of Agent or any Bank to recover a
deficiency judgment, or to otherwise proceed against any person or entity
obligated for payment of the Indebtedness, after any foreclosure or trustee's
sale of any security for the Indebtedness, including without limitation the
benefits, if any, to Guarantor of A.R.S. Section 33-814. Guarantor hereby
expressly consents to any impairment of collateral, including, but not limited
to, failure to perfect a security interest and release collateral and any such
impairment or release shall not affect Guarantor's obligations hereunder. Until
payment in full of the Indebtedness, Guarantor shall have no right of
subrogation and hereby waives any right to enforce any remedy which Agent and
Banks now have, or may hereafter have, against any Borrower, and waives any
benefit of, and any right to participate in, any security now or hereafter held
by Agent on behalf of Banks.
6. If from time to time any Borrower shall have liabilities or
obligations to Guarantor, whether absolute or contingent, joint, several, or
joint and several, such liabilities and obligations (the "Subordinated
Indebtedness") and any and all assignments as security, grants in trust, liens,
mortgages, security interests, other encumbrances, and other interests and
rights securing such liabilities and obligations shall at all times be fully
subordinate to payment and performance in full of the Obligations and the right
of Agent or any Bank to realize upon any or all Collateral. Guarantor agrees
that such liabilities and obligations of any Borrower to Guarantor shall not be
secured by any assignment as security, grant in trust, lien, mortgage, security
interest, other encumbrance or other interest or right in any property,
interests in property, or rights to property of such Borrower. Guarantor and, by
their acceptance of this Guaranty, Agent and each Bank agree that (i) so long as
no Event of Default has occurred and is continuing, and so long as such payments
are not prohibited under Section 2.2 of the Credit Agreement, payments of
principal and interest on the Subordinated Indebtedness may be made by Borrowers
and accepted by Guarantor as such payments become due; and (ii) after the
occurrence and during the continuation of an Event of Default, or if such
payments are prohibited under Section 2.2 of the Credit Agreement, Borrowers
shall not make and Guarantor shall not accept any payments with respect to the
Subordinated Indebtedness. If, notwithstanding the foregoing, subsequent to an
Event of Default,
-3-
<PAGE>
Guarantor receives any payment from any Borrower, such payment shall be held in
trust by Guarantor for the benefit of Agent and Banks, shall be segregated from
the other funds of Guarantor, and shall forthwith be paid by Guarantor to Agent
for the benefit of Banks and applied to payment of the Obligations whether or
not then due.
(a) In the event of any distribution, division, or
application, partial or complete, voluntary or involuntary, by
operation of law or otherwise, of all or any part of the assets of any
Borrower, or the proceeds thereof, to creditors of such Borrower, by
reason of the liquidation, dissolution, or other winding up of such
Borrower's business, or in the event of any receivership, insolvency or
bankruptcy proceedings by or against any Borrower, or assignment for
the benefit of creditors, or of any proceedings by or against any
Borrower for any relief under any bankruptcy or insolvency laws, or
relating to the relief of debtors, readjustment of indebtedness,
reorganizations, arrangements, compositions or extensions, or of any
other event whereby it becomes necessary or desirable to file or
present claims against any Borrower for the purpose of receiving
payment thereof, or on account thereof, then and in any such event, any
payment or distribution of any kind or character, either in cash or
other property, which shall be made or shall be payable with respect to
any Subordinated Indebtedness shall be paid over to Agent on behalf of
Banks for application to the payment of the Obligations, whether due or
not due, and no payments shall be made upon or in respect of the
Subordinated Indebtedness unless and until the Obligations shall have
been paid and satisfied in full. In any such event, all claims of Agent
and Banks and all claims of Guarantor shall, at the option of Agent and
Banks, forthwith become due and payable without demand or notice.
(b) In the event of any distribution, division, or
application, partial or complete, voluntary or involuntary, by
operation of law or otherwise, of all or any part of the assets of any
Borrower, or the proceeds thereof, to creditors of such Borrower, by
reason of the liquidation, dissolution, or other winding up of such
Borrower's business, or in the event of any receivership, insolvency or
bankruptcy proceedings by or against any Borrower, or assignment for
the benefit of creditors, or of any proceedings by or against any
Borrower for any relief under any bankruptcy or insolvency laws, or
relating to the relief of debtors, readjustment of indebtedness,
reorganizations, arrangements, compositions or extensions, or of any
other event whereby it becomes necessary or desirable to file or
present claims against any Borrower for the purpose of receiving
payment thereof, or on account thereof, Guarantor irrevocably
authorizes and empowers Agent, or any person Agent may designate, to
act as attorney for Guarantor with full power and authority in the name
of Guarantor, or otherwise, to make and present such claims or proofs
of claims against such Borrower on account of the Subordinated
-4-
<PAGE>
Indebtedness as Agent, or its appointee, may deem expedient and proper
and, if necessary, to vote such claims in any proceedings and to
receive and collect for the benefit of Banks any and all dividends or
other payments and disbursements made thereon in whatever form they may
be paid or issued, and to give acquittance therefor and to apply same
to the Obligations, and Guarantor hereby agrees, from time to time and
upon request, to make, execute and deliver to Agent such powers of
attorney, assignments, endorsements, proofs of claim, pleadings,
verifications, affidavits, consents, agreements or other instruments as
may be requested by Agent in order to enable Agent and Banks to enforce
any and all claims upon, or with respect to, the Subordinated
Indebtedness, and to collect and receive any and all payments or
distributions which may be payable or deliverable at any time upon or
with respect to the Subordinated Indebtedness.
(c) Except as otherwise permitted herein, should any
payment or distribution or security or proceeds thereof be received by
Guarantor upon or with respect to the Subordinated Indebtedness prior
to the satisfaction of the Obligations, Guarantor will forthwith
deliver the same to Agent on behalf of Banks in precisely the form as
received except for the endorsement or assignment of Guarantor where
necessary for application on the Obligations, whether due or not due,
and until so delivered the same shall be held in trust by Guarantor as
property of Agent on behalf of Banks. In the event of the failure of
Guarantor to make any such endorsement or assignment, Agent, or any of
its officers or employees, on behalf of Agent, is hereby irrevocably
authorized to make the same.
(d) Guarantor agrees to maintain in its records notations
satisfactory to Agent of the rights and priorities of Agent and Banks
hereunder, and from time to time, upon request, to furnish Agent for
the benefit of Banks with sworn financial statements. Banks and Agent
may inspect the books of account and any records of Guarantor at any
time during business hours. Guarantor agrees that any promissory note
now or hereafter evidencing the Subordinated Indebtedness shall be
nonnegotiable and shall be marked with a specific statement that the
indebtedness thereby evidenced is subject to the provisions of this
Guaranty.
7. It is not necessary for Agent or any Bank to inquire into the
powers of any Borrower or the officers, directors, members, managers, partners,
trustees or agents acting or purporting to act on its behalf, and any of the
Indebtedness made or created in reliance upon the professed exercise of such
powers shall be guaranteed hereunder.
8. Guarantor agrees to deliver to Agent and Banks financial
statements and other financial information relating to Guarantor in form and
level of detail, and containing certifications, as required pursuant to Section
7.1 of the Credit Agreement. Guarantor further
-5-
<PAGE>
agrees to comply all covenants, representations and warranties in the Credit
Agreement relating to Guarantor, including without limitation the financial
covenants set forth in Article IX of the Credit Agreement.
9. Guarantor agrees to pay all attorneys' fees and all other
costs and expenses which may be incurred by Agent or any Bank in enforcing this
Guaranty or in collecting all or any part of the Indebtedness.
10. This Guaranty sets forth the entire agreement of Guarantor,
Agent and Banks with respect to the subject matter hereof and supersedes all
prior oral and written agreements and representations by Agent or any Bank to
Guarantor. No modification or waiver of any provision of this Guaranty or any
right of Agent or any Bank hereunder and no release of Guarantor from any
obligation hereunder shall be effective unless in a writing executed by an
authorized officer of Agent and each Bank. There are no conditions, oral or
otherwise, on the effectiveness of this Guaranty.
11. This Guaranty shall inure to the benefit of Agent and each
Bank and their respective successors and assigns and shall be binding upon
Guarantor and its heirs, personal representatives, successors and assigns. Agent
and each Bank may assign this Guaranty in whole or in part without notice.
12. THIS GUARANTY SHALL BE CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ARIZONA, BUT GIVING
EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.
13. Subject to the provisions of this Section 14, Guarantor
agrees, and Banks and Agent by accepting this Guaranty agree, that they shall
submit to binding arbitration any and all claims, disputes and controversies
between or among them (and their respective employees, officers, directors,
attorneys, and other agents if permitted by law or a contract between them and
such persons) relating to this Guaranty and the Loan Documents and the
negotiation, execution, collateralization, administration, repayment,
modification, extension or collection thereof or arising thereunder. Such
arbitration shall proceed in Phoenix, Arizona, shall be governed by Arizona law
and shall be conducted in accordance with the Commercial Arbitration Rules of
the American Arbitration Association (the "AAA") as modified in this Paragraph
14. Judgment upon the award rendered by each arbitrator(s) may be entered in any
court having jurisdiction.
(a) Nothing in the preceding paragraph, nor the exercise of
any right to arbitrate thereunder, shall limit the right of any party
hereto (1) to foreclose against any real or personal property
collateral encumbered by a Deed of Trust or other Loan Document, or
otherwise permitted under applicable law; (2) subject to provisions of
applicable law, to exercise self-help remedies such as setoff or
-6-
<PAGE>
repossession or other self-help remedies provided in the Credit
Agreement or any other Loan Document; or (3) to obtain provisional or
ancillary remedies such as replevin, injunctive relief, attachment, or
appointment of a receiver from a court having jurisdiction, before,
during or after the pendency of any arbitration proceeding, or (4) to
defend or obtain injunctive or other equitable relief against the
foregoing or assert mandatory counterclaims, if any, prior to and
during the pendency of a determination in arbitration of issues of
performance, default, damages and other such claims and disputes.
(b) Arbitration hereunder shall be before a three-person
panel of neutral arbitrators, consisting of one person from each of the
following categories: (1) an attorney who has practiced in the area of
commercial real estate law for at least ten (10) years; (2) a person
with at least ten (10) years' experience in real estate lending; and
(3) a person with at least ten (10) years' experience in the
homebuilding industry. The AAA shall submit a list of persons meeting
the criteria outlined above for each category of arbitrator, and the
parties shall select one person from each category in the manner
established by the AAA.
(c) In any dispute between the parties that is
arbitratable hereunder, where the aggregate of all claims and the
aggregate of all counterclaims is an amount less than Fifty Thousand
and No/100ths Dollars ($50,000.00), the arbitration shall be before a
single neutral arbitrator to be selected in accordance with the
Commercial Rules of the American Arbitration Association and shall
proceed under the Expedited Procedures of said Rules.
(d) In any arbitration hereunder, the arbitrators shall
decide (by documents only or with a hearing, at the arbitrators'
discretion) any pre-hearing motions which are substantially similar to
pre-hearing motions to dismiss for failure to state a claim or motions
for summary adjudication.
(e) In any arbitration hereunder, discovery shall be
permitted in accordance with the Arizona Rules of Civil Procedure.
Scheduling of such discovery may be determined by the arbitrators, and
any discovery disputes shall be finally determined by the arbitrators.
(f) The Arizona Rules of Evidence shall control the
admission of evidence at the hearing in any arbitration conducted
hereunder, provided, however, no error by the arbitrators in
application of the Rules of Evidence shall be grounds, as such, for
vacating the arbitrators' award.
-7-
<PAGE>
(g) Notwithstanding any AAA rule to the contrary, the
arbitration award shall be in writing and shall specify the factual and
legal basis for the award, including findings of fact and conclusions
of law.
(h) Each party shall each bear its own costs and expenses
and an equal share of the arbitrators' costs and administrative fees of
arbitration.
14. GUARANTOR, AND BANKS BY ACCEPTING THIS GUARANTY, HEREBY
IRREVOCABLY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES
FEDERAL OR ARIZONA STATE COURT SITTING IN PHOENIX, ARIZONA IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENTS AND GUARANTOR, AND
BANKS BY ACCEPTING THIS GUARANTY, HEREBY IRREVOCABLY AGREE THAT ALL CLAIMS IN
RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH
COURT AND IRREVOCABLY WAIVE ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE
VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT
SUCH COURT IS AN INCONVENIENT FORUM. NOTHING IN THIS PARAGRAPH 15 SHALL LIMIT
THE RIGHT OF AGENT OR ANY BANK OR ISSUING BANK TO BRING PROCEEDINGS AGAINST
GUARANTOR IN THE COURTS OF ANY OTHER JURISDICTION. SUBJECT TO THE PROVISIONS OF
SECTION 14, UNLESS PROHIBITED BY LAW, ANY JUDICIAL PROCEEDING BY GUARANTOR
AGAINST AGENT OR ANY BANK OR ISSUING BANK OR ANY AFFILIATE OF AGENT OR ANY BANK
OR ISSUING BANK INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING
OUT OF, RELATED TO, OR CONNECTED WITH THIS GUARANTY OR ANY OTHER LOAN DOCUMENT
SHALL BE BROUGHT IN A COURT IN PHOENIX, ARIZONA.
15. SUBJECT TO THE PROVISIONS OF SECTION 14, GUARANTOR HEREBY
WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR
INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY
WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THE GUARANTY, ANY OTHER LOAN
DOCUMENT OR THE RELATIONSHIP ESTABLISHED THEREUNDER.
-8-
<PAGE>
16. Guarantor acknowledges that the rights and responsibilities of
Agent under this Guaranty with respect to any action taken by Agent or the
exercise or non-exercise by Agent of any option, right, request, judgment or
other right or remedy provided for herein or resulting or arising out of this
Guaranty shall, as between Agent and Banks, be governed by the Credit Agreement
and by such other agreements with respect thereto as may exist from time to time
among them, but, as between Agent and Guarantor, Agent shall be conclusively
presumed to be acting as agent for Banks with full and valid authority so to act
or refrain from acting, and Guarantor shall not be under any obligation or
entitlement to make any inquiry respecting such authority.
IN WITNESS WHEREOF these presents are executed as of the 10th day of
April, 1996.
GUARANTOR:
ATTEST: M.D.C. HOLDINGS, INC., a Delaware
corporation
- ----------------------------
By:
------------------------------
Name: John J. Heaney
Title: Vice President
Address: 3600 South Yosemite, Suite 900
Denver, Colorado 80237
-9-
Exhibit 4.5
EXHIBIT "E"
PROMISSORY NOTE
$______________ April ___, 1996
Phoenix, Arizona
FOR VALUE RECEIVED, RICHMOND AMERICAN HOMES OF CALIFORNIA,
INC., a Colorado corporation, RICHMOND AMERICAN HOMES OF MARYLAND, INC., a
Maryland corporation, RICHMOND AMERICAN HOMES OF NEVADA, INC., a Colorado
corporation, RICHMOND AMERICAN HOMES OF VIRGINIA, INC., a Virginia corporation,
RICHMOND AMERICAN HOMES, INC., a Delaware corporation, RICHMOND HOMES, INC. I, a
Delaware corporation, and RICHMOND HOMES, INC., II, a Delaware corporation
(collectively "Makers" and severally a "Maker"), hereby
promise and agree to pay to the order of __________________________________
("Payee"), the principal sum of _____________________________________ DOLLARS
($_____________) in lawful money of the United States of America, or, if less
than such principal amount, the aggregate unpaid principal amount of all
Advances made to Makers by the Payee pursuant to the Credit Agreement
hereinafter referenced. Such payment shall be made on the Facility Termination
Date, as defined in the Credit Agreement.
Makers shall pay interest from the date hereof on the unpaid
principal amount of this Note from time to time outstanding during the period
from the date hereof until such principal amount is paid in full at the rates,
determined in the manner, and on the dates or occurrences specified in the
Credit Agreement (as hereinafter defined).
This promissory note is one of the Notes referred to in the
Credit Agreement dated as of April ___, 1996, among Makers, Bank One, Arizona,
NA, as Agent, and the Banks named therein (as the same may be amended, modified,
replaced, or renewed from time to time, the "Credit Agreement") and is entitled
to the benefits of the Credit Agreement and the Loan Documents. Capitalized
terms used in this Note without definition shall have the same meanings as are
ascribed to such terms in the Credit Agreement.
Both principal and interest are payable to the Agent for the
account of Payee pursuant to the terms of the Credit Agreement. All Advances
made by Payee pursuant to the Credit Agreement and all payments of the principal
amount of such Advances, shall be endorsed by the holder of this Note on the
schedule attached hereto. Failure to record such Advances or payment shall not
diminish any rights of Payee or relieve Makers of any liability hereunder or
under the Credit Agreement. This Note is subject to prepayment and its maturity
is subject to acceleration, in each case upon the terms provided in the Credit
Agreement.
<PAGE>
This Note may not be modified or discharged orally, by course
of dealing or otherwise, but only by a writing duly executed by the holder
hereof.
In the event that any action, suit or proceeding is brought by
the holder hereof to collect this Note, Makers agree to pay and shall be liable
for all costs and expenses of collection, including without limitation,
reasonable attorneys' fees and disbursements.
Makers and all sureties, guarantors and/or endorsers hereof (or of any
obligation hereunder) and accommodation parties hereon (all of which, including
Makers, are severally each hereinafter called a "Surety") each: (a) agree that
the liability under this Note of all parties hereto is several except as set
forth in Section 12.7 of the Credit Agreement; (b) severally waive any homestead
or exemption laws and right thereunder affecting the full collection of this
Note; (c) severally waive any and all formalities in connection with this Note
to the maximum extent allowed by law, including (but not limited to) demand,
diligence, presentment for payment, protest and demand, and notice of extension,
dishonor, protest, demand and nonpayment of this Note; and (d) consent that
Holder may extend the time of payment or otherwise modify the terms of payment
of any part or the whole of the debt evidenced by this Note, at the request of
any other person liable hereon, and such consent shall not alter nor diminish
the liability of any person hereon.
In addition, each Surety waives and agrees not to assert: (a) any right
to require the holder hereof to proceed against any other Surety, to proceed
against or exhaust any security for the Note, to pursue any other remedy
available to the holder hereof, or to pursue any remedy in any particular order
or manner; (b) the benefit of any statute of limitations affecting its liability
hereunder or the enforcement hereof; (c) the benefits of any legal or equitable
doctrine or principle of marshalling; (d) notice of the existence, creation or
incurring of new or additional indebtedness of any Maker to the holder hereof;
(e) the benefits of any statutory provision limiting the liability of a surety,
including without limitation the provisions of Sections 12-1641, et seq., of the
Arizona Revised Statutes; (f) any defense arising by reason of any disability or
other defense of any Maker or by reason of the cessation from any cause
whatsoever (other than payment in full) of the liability of any Maker for
payment of this Note; and (g) the benefits of any statutory provision limiting
the right of the holder hereof to recover a deficiency judgment, or to otherwise
proceed against any person or entity obligated for payment of this Note, after
any foreclosure or trustee's sale of any security for this Note, including
without limitation the benefits, if any, to a Surety of Arizona Revised Statutes
Section 33-814. Until payment in full of this Note and the holder hereof has no
obligation to make any further advances of the proceeds hereof, no Surety shall
have any right of subrogation and each hereby waives any right to enforce any
remedy which the holder hereof now has, or may hereafter have, against Maker or
any other Surety, and waives any benefit of, and any right to participate in,
any security now or hereafter held by the holder hereof.
-2-
<PAGE>
Each Maker agrees that to the extent any Surety makes any payment to
the holder hereof in connection with the indebtedness evidenced by this Note,
and all or any part of such payment is subsequently invalidated, declared to be
fraudulent or preferential, set aside or required to be repaid by Holder or paid
over to a trustee, receiver or any other entity, whether under any bankruptcy
act or otherwise (any such payment is hereinafter referred to as a "Preferential
Payment"), then the indebtedness of Makers under this Note shall continue or
shall be reinstated, as the case may be, and, to the extent of such payment or
repayment by the holder hereof, the indebtedness evidenced by this Note or part
thereof intended to be satisfied by such Preferential Payment shall be revived
and continued in full force and effect as if said Preferential Payment had not
been made.
This Note has been delivered in the City of Phoenix and State
of Arizona, and shall be enforced under and governed by the laws of the State of
Arizona applicable to contracts made and to be performed entirely within said
state, without references to any choice or conflicts of law principles.
Notwithstanding anything in this Note to the contrary, except
as otherwise indicated in Section 12.7 of the Credit Agreement, the obligations
of Makers under this Note shall not be the joint obligations of Makers, but
shall instead be the several obligations of each Maker. Each Maker shall only be
obligated to pay principal, interest, and other amounts that relate to Advances
made to such Maker, or that relate to Property owned by such Maker, or that
relate to such Maker's obligations under the Credit Agreement, this Note and the
other Loan Documents.
ATTEST: RICHMOND AMERICAN HOMES OF
CALIFORNIA, INC., a Colorado corporation
- ---------------------------
By:
--------------------------------
Name: John J. Heaney
Title: Vice President
ATTEST: RICHMOND AMERICAN HOMES OF
MARYLAND, INC., a Maryland corporation
- ---------------------------
By:
---------------------------------
Name: John J. Heaney
Title: Vice President
-3-
<PAGE>
ATTEST: RICHMOND AMERICAN HOMES OF NEVADA,
INC., a Colorado corporation
- ---------------------------
By:
--------------------------------
Name: John J. Heaney
Title: Vice President
ATTEST: RICHMOND AMERICAN HOMES OF VIRGINIA,
INC., a Virginia corporation
- ---------------------------
By:
--------------------------------
Name: John J. Heaney
Title: Vice President
ATTEST: RICHMOND AMERICAN HOMES, INC., a
Delaware corporation
- ---------------------------
By:
-------------------------------
Name: John J. Heaney
Title: Vice President
ATTEST: RICHMOND HOMES, INC. I, a Delaware
corporation
- ---------------------------
By:
-------------------------------
Name: John J. Heaney
Title: Vice President
-4-
<PAGE>
ATTEST: RICHMOND HOMES, INC., II, a Delaware
corporation
- ---------------------------
By:
------------------------------
Name: John J. Heaney
Title: Vice President
-5-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from MDC
Holdings, Inc. consolidated financial statements included in its Form 10-Q for
the quarter ended March 31, 1996 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 21,535
<SECURITIES> 6,560
<RECEIVABLES> 19,710
<ALLOWANCES> 0
<INVENTORY> 451,309
<CURRENT-ASSETS> 0
<PP&E> 9,549
<DEPRECIATION> 0
<TOTAL-ASSETS> 631,503
<CURRENT-LIABILITIES> 0
<BONDS> 294,992
0
0
<COMMON> 226
<OTHER-SE> 207,477
<TOTAL-LIABILITY-AND-EQUITY> 631,503
<SALES> 191,276
<TOTAL-REVENUES> 199,246
<CGS> 185,242
<TOTAL-COSTS> 187,984
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,851
<INCOME-PRETAX> 6,810
<INCOME-TAX> 2,486
<INCOME-CONTINUING> 4,324
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,324
<EPS-PRIMARY> .22
<EPS-DILUTED> .20
</TABLE>
Exhibit 28
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To the Board of Directors and Stockholders of
M.D.C. Holdings, Inc.
We have reviewed the accompanying condensed consolidated balance sheet of M.D.C.
Holdings, Inc. and subsidiaries (the "Company") as of March 31, 1996, and the
related condensed consolidated statements of income and of cash flows for the
three-month periods ended March 31, 1996 and 1995. These financial statements
are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements for them
to be in conformity with generally accepted accounting principles.
We previously audited in accordance with generally accepted auditing standards,
the consolidated balance sheet as of December 31, 1995, and the related
consolidated statements of income, of stockholders' equity, and of cash flows
for the year then ended (not presented herein), and in our report dated February
20, 1996 we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of December 31, 1995, is fairly stated
in all material respects in relation to the consolidated balance sheet from
which it has been derived.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Denver, Colorado
April 24, 1996
