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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
Amendment No. 1
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-9977
MERITAGE CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
MARYLAND 86-0611231
(State or Other Jurisdiction (I.R.S. Employer of
Incorporation or Organization) Identification No.)
6613 NORTH SCOTTSDALE ROAD, SUITE 200
SCOTTSDALE, ARIZONA 85250
(Address of Principal Executive Offices) (Zip Code)
(480) 998-8700
(Registrant's Telephone Number, Including Area Code)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS: YES [X] NO [ ].
AS OF MAY 1, 2000, 5,563,796 SHARES OF MERITAGE CORPORATION COMMON STOCK WERE
OUTSTANDING.
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<PAGE>
MERITAGE CORPORATION
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000
TABLE OF CONTENTS
Page No.
--------
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION..................................... 3
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...................... 3
SIGNATURES ............................................................ S-1
2
<PAGE>
PART II OTHER INFORMATION
ITEM 5. Other Information
This Amendment to Form 10-Q for the period ended March 31, 2000 is
submitted for the purpose of including Exhibits 10.1, 10.2, 10.3, 10.4, 10.5 and
10.6 that were inadvertently omitted from the 10-Q.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit Page or
Number Description Method of Filing
------ ----------- ----------------
10.1 Modification to Guaranty Federal Bank Loan, Filed herewith
Dated as of March 29, 2000
10.2 $3.3 Million Construction Loan Agreement, Filed herewith
by and between the Company and Compass Bank,
Dated as of February 10, 2000
10.3 Change of Control Agreement between the Filed herewith
Company and Steven J. Hilton
10.4 Change of Control Agreement between the Filed herewith
Company and John R. Landon
10.5 Change of Control Agreement between the Filed herewith
Company and Larry W. Seay
10.6 Change of Control Agreement between the Filed herewith
Company and Richard T. Morgan
27 Financial Data Schedule Previously filed
as Exhibit 27 to
Form 10-Q for the
period ended
March 31, 2000
99 Private Securities Litigation Reform Act Previously filed
of 1995 Safe Harbor Compliance Statement as Exhibit 99 to
for Forward-Looking Statements Form 10-Q for the
period ended
March 31, 2000
(b) REPORTS ON FORM 8-K
We filed no reports on Form 8-K during the quarter ended March 31, 2000.
3
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly cause this report on Form 10-Q to
be signed on its behalf by the undersigned, thereunto duly authorized, this 16th
day of May, 2000.
MERITAGE CORPORATION,
a Maryland Corporation
By /s/ Larry W. Seay
-------------------------------------
Larry W. Seay
Chief Financial Officer and
Vice President-finance (Principal
Financial Officer and Duly
Authorized Officer)
S-1
March 29, 2000
Guaranty Federal Bank, F.S.B.
8333 Douglas Avenue
Dallas, Texas 75225
Re: Modification of an existing $80,000,000.00 guidance line from Guaranty
Federal Bank, F.S.B. ("Lender") to Legacy/Monterey Homes L.P., an
Arizona corporation ("Borrower"); such loan and other indebtedness
being guaranteed by Meritage Corporation, a Maryland corporation,
MTH-Texas GP, Inc., an Arizona corporation and MTH-Texas LP, Inc., an
Arizona corporation (collectively referred to as "Guarantor").
Gentlemen:
Reference is made to that certain Master Loan Agreement dated as of January
31, 1993 (and all amendments thereto, if any) (the "Loan Agreement") between
Lender and Borrower governing a $80,000,000.00 loan (as increased) (the "Loan")
for the acquisition and/or refinancing of residential lots located in certain
counties in the State of Texas as described therein, and the construction of
single-family residences thereon. Unless otherwise expressly defined herein,
each term used herein with its initial letter capitalized shall have the meaning
given to such term in the Loan Agreement. As used in this letter agreement, the
term "Loan Instruments" shall mean and include (i) the "Loan Instruments" as
defined in the Loan Agreement, (ii) the Fifth Modification Agreement dated as of
even date herewith, executed by and between the parties hereto, and (iii) this
letter agreement and all other documents executed in conjunction herewith (and
all amendments thereto, if any).
Borrower and Lender desire to decrease the Loan Amount to the stated
principal amount of $65,000,000.00 and to-amend and modify certain terms and
provisions of the Loan and the Loan Instruments as follows: .
1. The Loan Amount is hereby decreased from $80,000,000.00 to
$65,000,000.00. All references in the Loan Instruments to the amount of
$80,000,000.00 are hereby decreased to $65,000,000.00.
2. PARAGRAPH 8 of the Loan Agreement is hereby deleted in its entirety and
replaced with the following:
8. REVOLVING LOAN. All or any portion of the principal of the Loan may
be borrowed, paid, prepaid, repaid and reborrowed from time to time prior
<PAGE>
Guaranty Federal Bank, F.S.B.
March 29, 2000
Page 2
to maturity in accordance with the provisions of the Loan Instruments. The
excess of borrowing (advances and re-advances) over repayments shall
evidence the principal balance of the Loan from time to time and at any
time. The aggregate amount of all advances under the Loan may exceed the
Loan Amount, but neither the outstanding principal balance of the Loan nor
the outstanding aggregate amount of the Loan Allocations shall ever exceed
the Loan Amount. The Loan shall not be governed by or be subject to Chapter
15 of the Texas Credit Code Title 79, Revised Civil Statutes of Texas,
1925, as amended.
The maximum total Loan Allocations and Letters of Credit under the Loan at
any time shall be limited to $110,000,000.00, which sum shall consist of
the following:
(a) the total of all Loan Allocations for Property secured by
Mortgages, plus;
(b) the amount of any Letters of Credit (when issued, if any);
provided, however, that the $110,000,000.00 Loan Allocation limitation set
forth in this sentence shall be increased by an amount equal to any cash
deposits made by Borrower with Lender as security for the Loan and as a
Borrower's Deposit under PARAGRAPH 5 of the Loan Agreement (with each such
deposit to be advanced by Lender to Borrower prior to the disbursement of
loan proceeds upon the satisfaction of conditions for advances under this
Loan Agreement). Borrower shall execute and deliver to Lender such
documents as may be necessary to establish such account and to grant Lender
a security interest in the same.
Notwithstanding any provision in the Loan Instruments to the contrary, in
no event shall the sum of (i) the aggregate amounts advanced under the
Note, and (ii) the amount of any Letters of Credit (when issued, if any)
exceed a total of $65,000,000.00, notwithstanding that the maximum total
Loan Allocations and Letters of Credit under the Loan may exceed such
$65,000,000.00 total; and consequently, Lender shall have no obligation to
disburse additional funds in the event the sum of (i) the aggregate amounts
advanced or to be advanced (including all Loan Allocations) under the Note,
and (ii) the amount of any Letters of Credit (when issued, if any) exceed a
total of $65,000,000.00.
Notwithstanding any provisions in the Loan Instruments to the contrary, if
at anytime the aggregate disbursed and unpaid principal balance of the Loan
(together with the aggregate amount of any Letters of Credit under the
Loan) exceed $65,000,000.00, then Borrower shall immediately (following
written demand by Lender) deliver to Lender a cash amount equal to such
excess, which cash amount shall be applied to the principal balance of the
Loan in order that such aggregate amount shall be reduced to
$65,000,000.00.
<PAGE>
Guaranty Federal Bank, F.S.B.
March 29, 2000
Page 3
3. EXHIBIT A to the Loan Agreement is hereby modified by deleting such
exhibit in its entirety and replacing it with EXHIBIT A attached hereto.
4. All Loan Instruments hereby are amended and modified in a manner
consistent with the modifications, terms and/or provisions contained herein.
Except as modified hereby, all the terms, provisions and conditions of the Loan
Instruments shall remain in full force and effect.
5. This letter agreement constitutes the "Letter Agreement" referred to in
the Fifth Modification Agreement of even date herewith executed by and between
the parties hereto.
6. The terms and provisions of this letter agreement may not be modified,
amended, altered or otherwise affected except by instrument in writing executed
by Lender and Borrower.
7. Each Guarantor by its execution hereof agree to the amendments and
modifications to the Loan Instruments set forth herein and in the prior
amendments and modifications to the Loan Instruments and agree that all of such
modifications do not and will not waive, release or iii any manner modify either
Guarantor's obligations and liabilities under and pursuant to the Guaranty.
(The balance of this page is intentionally left blank.)
<PAGE>
Guaranty Federal Bank, F.S.B.
March 29, 2000
Page 4
If this letter agreement correctly sets forth our understanding of the
subject matter contained herein, please indicate this by executing this letter
agreement in the space furnished below and then return a fully-executed copy to
the undersigned.
Very truly yours,
BORROWER:
LEGACY/MONTEREY HOMES L.P.,
an Arizona limited partnership
BY: MTH-TEXAS GP, INC.,
an Arizona corporation,
General Partner
By: /s/ Rick Morgan
--------------------------------
Name: Rick Morgan
Title: Vice President
<PAGE>
Guaranty Federal Bank, F.S.B.
March 29, 2000
Page 5
GUARANTOR:
MERITAGE CORPORATION,
a Maryland corporation
By: /s/ John R. Landon
------------------------------------
Name: John R. Landon
Title: CO-CEO
MTH-TEXAS GP, INC.,
an Arizona corporation,
By: /s/ Rick Morgan
------------------------------------
Name: Rick Morgan
Title: Vice President
MTH-TEXAS LP, Inc.,
an Arizona corporation
By: /s/ Rick Morgan
------------------------------------
Name: Rick Morgan
Title: Vice President
<PAGE>
Guaranty Federal Bank, F.S.B.
March 29, 2000
Page 6
ACCEPTED AND AGREED TO:
LENDER:
GUARANTY FEDERAL BANK, F.S.B.,
a federal savings bank
By: /s/ Sam A. Meade
-------------------------------
Name: Sam A. Meade
Title: Senior Vice President
<PAGE>
EXHIBIT A
TO LOAN AGREEMENT
1. Introductory Paragraph. RESIDENCE AND INVENTORY LOT LIMITATIONS. At any
given time, Residences and Inventory Lots financed under the Loan shall be
limited to the following numbers, unless modified by Lender in writing:
Total Residences: Seven Hundred Seventy-five (775).
Specs: One Hundred Twelve (112).
Models: Sixty-three (63).
Inventory Lots: One Thousand One Hundred Twenty-five (1,125).
Borrower may increase the number of Specs allowed above by the same number
by which Borrower is short of Models allowed above. Borrower covenants and
agrees not to allow, and is prohibited from allowing, any more than ten
(10) Specs, three (3) Models or one hundred fifty (150) Inventory Lots to
exist in any Approved Subdivision (as hereinafter defined).
The outstanding aggregate amount of the Loan Allocations for all Specs and
Models at any time shall never exceed $16,800,000.00.
The outstanding aggregate amount of the Loan Allocations for all Inventory
Lots at any time shall never exceed $18,000,000.00.
The term "SPECS" means a Residence which is not a Model and is not Under
Contract. The term "MODEL" means a Residence specifically utilized for the
purposes of marketing other residential products. The term ".'UNDER
CONTRACT" shall mean Residences under written contract to sell to bona fide
third parties unrelated to Borrower, having no contingency or any other
conditions not reasonably susceptible to being satisfied, providing for
earnest money deposits of at least $2,000.00, and for which Lender has
received preliminary loan approval from a bona fide residential permanent
lender.
The term "INVENTORY RESIDENCE" means any Residence which is not a Model.
2. Introductory Paragraph. APPROVED SUBDIVISIONS. The following subdivisions
and any additional subdivisions approved in writing by Lender (the
"APPROVED SUBDIVISIONS") are approved by Lender for the Residences and
Inventory Lots:
Subdivision County
----------- ------
Stone Canyon (Fern Bluff) Williamson
Oakmont Forest Williamson
Settlers Ridge/Creekside Travis
Round Rock Ranch Williamson
The Meadows (Thunderbird Est.) Collin
Brighton Estates - Arlington Tarrant
Bristol Park (Fountain Creek) Collin
Chase-Oaks Collin
Cottonwood Bend Collin
Country Club Park Dallas
Creekwood Estates Denton
Crestwood Collin
Cross Creek West Collin
Eden Road Estates Tarrant
El Dorado Heights Collin
Heritage Park - Allen Collin
Highland Parkway Collin
Hillcrest Estates Collin
EXHIBIT A, - Page 1
<PAGE>
Hunters Glen Collin
Independence Hill Collin
Meadow Glen PH IIB Denton
Oakwood Glen Collin
Orchard Valley Estates Denton
Parkdale - Plano Collin
Shadow Lakes Collin
Shadow Lakes North Collin
Lakes of Valley Ranch Dallas
Vista Ridge Estates Denton
Windhaven Farms (Carelle Custom) Collin
Ravenglass Estates Collin
Frankford Meadows Dallas
Hunter Trail Tarrant
Fossil Beach Tarrant
3. Introductory Paragraph. APPROVED PRICE RANGE. The Residences shall be in
the $70,000.00 to $350,000.00 price range.
4. Paragraph 1(c). GUARANTOR. Guarantor of the Loan shall be: Meritage
Corporation, am Maryland corporation (formerly known as "Monterey Homes
Corporation"); MTH-Texas G.P., Inc., an Arizona corporation; and MTH-Texas
L.P., Inc., an Arizona corporation.
5. Paragraph 2(h). LOAN FINANCE CHARGE. None.
6. Paragraph 2(k) and 6(g). INSPECTION FEE. An inspection fee of $30.00 per
Residence shall be paid to Lender on the day the Mortgage pertaining to
such Residence is recorded in the Real Property Records.
7. Paragraph 4(c). LOAN RATIOS. With respect to Residences Under Contract, the
Loan Allocation shall not exceed the lesser of (1) one hundred percent
(100%) of the direct costs of a Property, as determined by Lender or, (2)
eighty percent (80%) of the lowest of the values as provided in PARAGRAPH
4(C) (I) (II) AND III) of this Loan Agreement.
With respect to Specs, Models and Inventory Lots, the Loan Allocation shall
not exceed the lesser of (1) one hundred percent (100%) of the direct costs
of a Property, as determined by Lender or, (2) seventy-five percent (75%)
of the lowest of the values as provided in PARAGRAPH 4(C) (I ,~(II) AND
(III) of this Loan Agreement.
8. Paragraph 6(q). OTHER ENTITIES. The Mortgages shall additionally secure all
other indebtedness now or hereafter owed by the following entities to
Lender: None.
9. Paragraph 6(s). REQUIRED RELEASES. Borrower shall cause: (a) Inventory
Residences to be released from a Mortgage nine (9) months from the day such
Mortgage is recorded in the Real Property Records, (b) Models to be
released from a Mortgage twenty-four (24) months from the day such Mortgage
is recorded in the Real Property Records, and (c) Inventory Lots to be
released from a Mortgage twelve (12) months from the day such Mortgage is
recorded in the Real Property Records; provided, however, if no default
then exists under any Loan Instruments, Lender may, at its option, extend
the Required Release Date for periods of three (3) months (the "EXTENDED
RELEASE DATE"); provided, such Extended Release Date shall in no event go
beyond the Stated Maturity Date (as hereinafter defined) or the Extended
Maturity Date (as hereinafter defined), if applicable.
10. Paragraph 7. REQUIRED PRINCIPAL REDUCTIONS. Prior to the date that Lender
gives Borrower the notice described in PARAGRAPH 4(F) above, the following
shall apply: in the event a Property has been granted an Extended Release
Date (as provided in PARAGRAPH 9 of this EXHIBIT A) and a Mortgage remains
covering such Property beyond the following periods from the date such
Mortgage is recorded, then Borrower shall make a principal payment of the
Note in an amount equal to ten percent (10%) of the Loan Allocation with
EXHIBIT A, - Page 2
<PAGE>
respect to such Property (and the Loan Allocation for such Property shall
be reduced by the same amount), as determined by Lender:
Inventory Residences: Fifteen (15) months.
Models: Twenty-four (24) months.
Inventory Lots: Twelve (12) months.
From and after the date that Lender gives Borrower the notice described in
PARAGRAPH 4(FL of the Loan Agreement, the following shall apply: in the
event a Property has been granted an Extended Release Date, as provided in
PARAGRAPH 9 of this EXHIBIT A, Borrower shall make a principal payment on
the Note of ten percent (10%) of that portion of the Loan advanced by
Lender for such Property, within the following periods from the date a
Mortgage covering such Property is recorded in the Real Property Records:
Inventory Residences: Fifteen (15) months.
Models: Twenty-four (24) months.
Inventory Lots: Twelve (12) months.
11. Paragraph 9. MATURITY AND EXTENSION. The maturity date of the Note shall be
the later of the maturity date as provided in the Note (July 31, 2000) (the
"STATED MATURITY DATE"), or nine (9) months after the recording in the Real
Property Records of the last Mortgage (the "EXTENDED MATURITY DATE")
approved by Lender and recorded prior to the expiration of the Stated
Maturity Date. After the Stated Maturity Date, no additional Mortgage shall
be recorded.
12. Paragraph 10. ADDITIONAL DEFAULTS. In addition to the events of default
stipulated in the Loan Instruments, it shall be a default under this Loan
Agreement if Borrower fails to comply with any of the following: None.
13. Paragraph 11. ADDITIONAL LOAN COVENANTS. Borrower shall fully perform and
satisfy the following "ADDITIONAL LOAN COVENANTS":
(a) The aggregate net worth of Borrower (determined in accordance with
generally accepted accounting principles, consistently applied) shall
not fall below $25,000,000.00.
(b) The ratio of total liabilities to equity (as determined by Lender)
shall not exceed 3.0 to 1.0.
(c) John Landon shall at all times retain management control of Borrower.
(d) In no event shall Meritage Corporation, a Maryland corporation, be in
default under any secured indebtedness.
If Borrower or Guarantor (if applicable to Guarantor) breaches any of the
Additional Loan Covenants then, at Lender's election, no additional
Mortgages shall be recorded in the Real Property Records; provided,
however, that a breach of any Additional Loan Covenants shall not be
considered a default under the Loan Instruments.
14. Paragraph 16(d). RELEASE PRICE. The partial release price shall be a cash
amount equal to the Loan Allocation for the Property multiplied by the
Stage (expressed as a percentage) of the Property, all as determined by
Lender; provided, however, if Lender shall have given Borrower the notice
described in PARAGRAPH 4(F) of the Loan Agreement, then the partial release
price shall be an amount in cash equal to one hundred and one hundred
percent (100%) of the outstanding balance of the Loan advanced by Lender
for the Property.
15. Paragraph 16(e). EXTENSION FEE. If Lender extends the Required Release
Date, as provided in PARAGRAPH 9 of this EXHIBIT A, Borrower shall pay to
Lender an extension fee of one percent (1 %) of that portion of the Loan
advanced by Lender for each such Property times a fraction, the numerator
of which is the number of days the Required Release Date is extended and
the denominator of which is 365.
EXHIBIT A, - Page 3
<PAGE>
FIFTH MODIFICATION AGREEMENT
This FIFTH MODIFICATION AGREEMENT (this "Agreement") is made and entered
into as of March 29, 2000, by and between LEGACY/MONTEREY HOMES L.P., an Arizona
limited partnership and GUARANTY FEDERAL BANK, F.S.B., a federal savings bank
organized and existing under the laws of the United States ("Lender").
WITNESSETH:
WHEREAS, pursuant to a certain Master Loan Agreement (the "LOAN
AGREEMENT':) dated as of January 31, 1993, between Lender and Borrower, Lender
made a loan (the "LOAN") to Borrower, evidenced by a certain Revolving
Promissory Note (the "NOTE") dated as of January 31, 1993, payable to Lender in
the stated principal amount of FIFTY MILLION AND NO/100 DOLLARS ($50,000,000.00)
(as increased), with interest and principal payable as set forth therein; and
WHEREAS, to secure the Note and Loan, Master Form Deed(s) of Trust (With
Security Agreement and Assignment of Rents and Leases) (hereinafter collectively
referred to as the "MASTER DEEDS OF TRUST," whether one or more), which Master
Deeds of Trust have been recorded in certain counties in the State of Texas as
more particularly described on EXHIBIT A attached hereto; and which Master Deeds
of Trust are incorporated by reference pursuant to the terms and provisions of
certain Deeds of Trust Incorporating by Reference a Master Form Deed of Trust
(With Security Agreement and Assignment of Rents and Leases) (hereafter
collectively referred to as the "SUPPLEMENTAL DEEDS OF TRUST," whether one or
more) recorded in such counties and encumbering certain real and other property
(the "Pro a ") described in such Supplemental Deeds of Trust (such Master Deeds
of Trust and Supplemental Deeds of Trust hereafter collectively referred to as
the "DEEDS OF TRUST," whether one or more); and
WHEREAS, the Deeds of Trust were modified pursuant to a Modification
Agreement (the "FIRST MODIFICATION"), and recorded in various counties in Texas,
which First Modification modified certain terms and provisions of the Loan as
set forth therein; and
WHEREAS, the Deeds of Trust were further pursuant to a Second Modification
Agreement (the "SECOND MODIFICATION") dated as of May 19, 1998, and recorded in
various counties in Texas, which Second Modification modified certain terms and
provisions of the Loan as set forth therein; and
WHEREAS, the Deeds of Trust were further pursuant to a Third Modification
Agreement (the "THIRD MODIFICATION") dated as of March , 1999, and recorded in
various counties in Texas, which Third Modification modified certain terms and
provisions of the Loan as set forth therein; and
WHEREAS, the Deeds of Trust were further pursuant to a Fourth Modification
Agreement (the "FOURTH MODIFICATION") dated as of July 31, 1999, and recorded in
various counties in Texas, which Fourth Modification modified certain terms and
provisions of the Loan as set forth therein; and
WHEREAS, the Note and the Loan are guaranteed pursuant to that certain
Guaranty Agreement dated as of June 30, 1997 (the "GUARANTY"), executed by
MTH-Texas GP, Inc., an Arizona corporation, MTH-Texas LP, Inc., an Arizona
corporation, and Meritage Corporation, a Maryland corporation (formerly known as
"Monterey Homes Corporation") ("GUARANTOR," whether one or more); and
FIFTH MODIFICATION AGREEMENT - Page 1
<PAGE>
WHEREAS, the Loan Agreement, the Note, the First Modification, the Second
Modification, the Third Modification, the Fourth Modification, the Deeds of
Trust and all other documents evidencing and/or securing the Loan are
hereinafter collectively called the "LOAN INSTRUMENTS"; and
WHEREAS, Lender, the owner and holder of the Note and the Deeds of Trust
and all rights and titles evidenced thereby, and Borrower, the record owner of
the Property and being liable for the payment of the Note and Loan, desire to
modify the Loan Instruments as herein provided.
NOW, THEREFORE, in consideration of Ten and No/100 Dollars ($10.00) and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
1. The Loan is hereby decreased from $80,000,000.00 to $65,000,000.00. All
references in the Loan Instruments to the amount of $80,000,000.00 are hereby
decreased to $65,000,000.00.
2. Borrower shall execute and deliver to Lender a letter agreement (in form
and substance satisfactory to Lender in its sole discretion) (the "LETTER
AGREEMENT") dated as of the date hereof amending certain other terms and
provisions of the Loan Instruments. (Hereafter, this Agreement and the Letter
Agreement shall be included in the defined term "LOAN INSTRUMENTS.")
3. Borrower acknowledges and agrees, that as an accommodation to Borrower,
EXHIBIT A hereto (which exhibit describes the recording information of the
Master Deeds of Trust) shall be attached to this Agreement (and to any and all
other documents which may require the attachment of a description of the
recording information of the Master Deeds of Trust) after Borrower's execution
of same. Accordingly, Borrower hereby authorizes and directs Lender to attach
such EXHIBIT A to this Agreement.
4. Notwithstanding anything to the contrary in any of the Loan Instruments,
Borrower acknowledges and agrees, that to the extent that Lender is relying on
Chapter 303 of the Texas Finance Code .to determine the Maximum Lawful Rate
(hereafter defined) payable on the Note and/or the Related Indebtedness
(hereafter defined) Lender will utilize the weekly ceiling from time to time in
effect as provided in such Chapter 303, as amended. To the extent United States
federal law permits Lender to contract for, charge, take, receive or reserve a
greater amount of interest than under Texas law, Lender will rely on United
States federal law instead of such Chapter 303 for the purpose of determining
the Maximum Lawful Rate. Additionally to the extent permitted by applicable law
now or hereafter in effect, Lender may, at its option and from time to time,
utilize any other method of establishing the Maximum Lawful Rate under such
Chapter 303 or under other applicable law by giving notice, if required, to
Borrower as provided by applicable law now or hereafter in effect. As used
herein, the term "MAXIMUM LAWFUL RATE" shall mean the maximum lawful rate of
interest which may be contracted for, charged, taken, received or reserved by
Lender in accordance with the applicable laws of the State of Texas (or
applicable United States federal law to the extent that it permits Lender to
contract for, charge, take, receive or reserve a greater amount of interest than
under Texas law), taking into account all Charges (as hereafter defined) made in
connection with the transaction evidenced by the Note and the other Loan
Instruments. As used herein, the term "CHAR YES" shall mean all fees, charges
and/or any other things of value, if any, contracted for, charged, received,
taken or reserved by Lender in connection with the transactions relating to the
Note and the other Loan Instruments, which are treated as interest under
applicable law. As used herein, the term "RELATED INDEBTEDNESS" shall mean any
and all debt paid or payable by Borrower to Lender pursuant to the Loan
Instruments or any other communication or writing by or between Borrower and
Lender related to the transaction or transactions that are the subject mater of
the Loan Instruments, except such debt which has been paid or is payable by
Borrower to Lender.
FIFTH MODIFICATION AGREEMENT - Page 2
<PAGE>
5. Notwithstanding anything to the contrary contained in the Deeds of Trust
or other Loan Instruments, with respect to any amendment to the Master Deeds of
Trust, the following terms and provisions shall apply;
With respect to any amendment or modification of the Master Deeds of Truth
now or hereafter executed by Borrower (or any future owner of the Property
if different from Borrower) and duly recorded in the appropriate official
public records, Borrower acknowledges and agrees that such amendment or
modification of the Master Deeds of Trust shall constitute an amendment or
modification to the terms and provisions of any such Supplemental Deeds of
Trust (and shall be incorporated into any such Supplemental Deeds of Trust
and made a part thereof for all purposes, as though such amendment or
modification of the Master Deeds of Trust specifically referred to such
Supplemental Deeds of Trust) without the necessity of any specific
reference in such amendment or modification to any such Supplemental Deeds
of Trust; and no such amendment or modification of the Master Deeds of
Trust shall impair the obligations of Borrower under any such Supplemental
Deeds of Trust or any other of the Loan Instruments.
6. Borrower hereby expressly promises to pay to the order of Lender, the
principal amount of the Note (as modified and increased) and all accrued and
unpaid interest now or hereafter to become due and payable under the Note, and
Borrower hereby expressly promises to perform all of the obligations of Borrower
under the Loan Instruments (as modified and increased).
7. The liens of the Deeds of Trust are hereby acknowledged by Borrower to
be good, valid and subsisting liens, and such liens are hereby renewed and
extended so as to secure the payment of the Note and Loan (as modified and
increased).
8. Borrower hereby represents and warrants to Lender that (a) Borrower is
the sole legal and beneficial owner of the Property; (b) Borrower has the full
power and authority to make the agreements contained in this Agreement without
joinder or consent of any other party; (c) the execution, delivery and
performance of this Agreement will not contravene or constitute an event which
itself or which with the passing of time or giving of notice or both would
constitute a default under any deed of trust, loan agreement, indenture or other
agreement to which Borrower or Guarantor is a party or by which Borrower or any
of its property is bound; and (d) there exists no default under the Loan
Instruments (as modified). BORROWER HEREBY AGREES TO INDEMNIFY AND HOLD LENDER
HARMLESS AGAINST ANY LOSS, CLAIM, DAMAGE, LIABILITY OR EXPENSE (INCLUDING
WITHOUT LIMITATION, ATTORNEYS' FEES) INCURRED AS A RESULT OF ANY REPRESENTATION
OR WARRANTY MADE BY BORROWER HEREIN PROVING TO BE UNTRUE IN ANY MATERIAL
RESPECT.
9. The terms and conditions hereof may not be modified, amended, altered or
otherwise affected except by instrument in writing executed by Lender and
Borrower.
10. All Loan Instruments are hereby amended and modified in a manner
consistent with the modifications, terms and/or provisions contained herein.
Except as expressly modified hereby, the terms and conditions of the Loan
Instruments are and shall remain in full force and effect.
11. Borrower agrees to pay to Lender, contemporaneously with the execution
and delivery hereof, all costs and expenses incurred in connection with this
transaction, title insurance endorsement premiums, reasonable fees of Lender's
counsel and recording fees.
12. Borrower hereby agrees to execute and deliver to Lender such further
documents and instruments evidencing or pertaining to the Loan, as modified and
increased hereby, as may be reasonably requested by Lender from time to time so
as to evidence the terms and conditions hereof.
[The balance of this page is intentionally left blank.]
FIFTH MODIFICATION AGREEMENT - Page 3
<PAGE>
EXECUTED on the date(s) set forth in the acknowledgment(s) below to be
EFFECTIVE as of the date first above written.
BORROWER:
LEGACY/MONTEREY HOMES L.P.,
an Arizona limited partnership
BY: MTH-TEXAS GP, INC.,
an Arizona corporation,
General Partner
By: /s/ Rick Morgan
-------------------------------
Name: Rick Morgan
Title: Vice President
LENDER:
GUARANTY FEDERAL BANK, F.S.B.,
a federal savings lank
By: /s/ Sam A. Meade
------------------------------------
Name: Sam A. Meade
Title: Senior Vice President
STATE OF TEXAS ss.
ss.
COUNTY OF COLLIN ss.
This instrument was ACKNOWLEDGED before me on March 28, 2000, by Rick
Morgan, Vice President of MTH-TEXAS GP, C., an Arizona corporation, as General
Partner of LEGACY/MONTEREY HOMES L.P., AN ARIZONA limited partnership on behalf
of said limited partnership.,
[SEAL]
/s/ Amy C. Kirkpatrick
----------------------------------------
Notary Public
My Commission on Expires
2/24/2001 Amy C. Kirkpatrick
- ------------------------ ----------------------------------------
Printed Name of Notary Public
FIFTH MODIFICATION AGREEMENT - Page 4
<PAGE>
STATE OF TEXAS ss.
ss.
COUNTY OF DALLAS ss.
This instrument was acknowledged before me on the 29th day of March, 2000,
by Sam A. Meade, Senior Vice President of GUARANTY FEDERAL BANK, F.S.B., a
federal savings bank, on behalf of said federal savings bank.
[Seal] /s/ Leslie Ruth Reynolds
----------------------------------------
Notary Public in and for the
above county and state
My Commission Expires:
Leslie Ruth Reynolds
02/04/2001 ----------------------------------------
- ---------------------- Printed Name of Notary
FIFTH MODIFICATION AGREEMENT - Page 5
<PAGE>
CONSENT OF GUARANTOR
Each of the undersigned, as a guarantor ("GUARANTOR," whether one or more)
of the loan (the "LOAN"), evidenced by the Note and secured by the Deeds of
Trust described in the foregoing Fifth Modification Agreement (the "Agreement")
to which this Consent is attached, hereby acknowledge and consent (jointly and
severally) to the terms of the Agreement and agree (jointly and severally) that
the execution and delivery of the Agreement will in no way change or modify
Guarantor's respective obligations under their respective Guaranty (as defined
in the Agreement); and each Guarantor acknowledges and agrees (jointly and
severally) that the Indebtedness (as defined in the respective instruments
comprising the Guaranty) includes the Loan, together with any and all other
Indebtedness now or at any time hereafter owing by Guarantor to Lender; and each
Guarantor (jointly and severally) hereby unconditionally and absolutely
guarantees to Lender the payment when due of such Indebtedness, and hereby
acknowledge and agree that their respective Guaranty is in full force and
effect, and that there are no claims, counterclaims, offsets or defenses to
their respective Guaranty; and each Guarantor acknowledges and consents (jointly
and severally) to the terms of any and all prior modifications to the terms of
the Loan (including, without limitation, any and all extensions of the term
thereof and increases in the principal thereof prior to the date hereof, if
any).
EXECUTED on the date(s) set forth in the acknowledgment(s) below to be
EFFECTIVE as of the 29th day of March, 2000.
GUARANTOR:
MERITAGE CORPORATION,
a Maryland corporation
By: /s/ John R Landon
------------------------------------
Name: John R. Landon
Title Co-CEO
MTH-TEXAS GP, INC.,
an Arizona corporation
By: /s/ Rick Morgan
------------------------------------
Name: Rick Morgan
Title: Vice President
MTH-TEXAS LP, INC.,
an Arizona corporation
By: /s/ Rick Morgan
------------------------------------
Name: Rick Morgan
Title: Vice President
FIFTH MODIFICATION AGREEMENT - Page 6
<PAGE>
STATE OF TEXAS ss.
ss.
COUNTY OF COLLIN ss.
This instrument was ACKNOWLEDGED before me on March 28, 2000, by John R.
Landon, Co-CEO of MERITAGE CORPORATION, a Maryland corporation, on behalf of
said corporation.
/s/ Amy C. Kirkpatrick
----------------------------------------
Notary Public
My Commission expires:
2/24/2001 Amy C. Kirkpatrick
- ---------------------- ----------------------------------------
Printed Name of Notary Public
STATE OF TEXAS ss.
ss.
COUNTY OF COLLIN ss.
This instrument was ACKNOWLEDGED before me on March 28, 2000, by Rick
Morgan, Vice President of MERITAGE CORPORATION, a Maryland corporation, on
behalf of said corporation.
/s/ Amy C. Kirkpatrick
----------------------------------------
Notary Public
My Commission expires:
2/24/2001 Amy C. Kirkpatrick
- ---------------------- ----------------------------------------
Printed Name of Notary Public
STATE OF TEXAS ss.
ss.
COUNTY OF COLLIN ss.
This instrument was ACKNOWLEDGED before me on March 28, 2000, by Rick
Morgan, Vice President of MERITAGE CORPORATION, a Maryland corporation, on
behalf of said corporation.
/s/ Amy C. Kirkpatrick
----------------------------------------
Notary Public
My Commission expires:
2/24/2001 Amy C. Kirkpatrick
- ---------------------- ----------------------------------------
Printed Name of Notary Public
FIFTH MODIFICATION AGREEMENT - Page 7
<PAGE>
EXHIBIT A
DESCRIPTION OF THE DEED(S) OF TRUST
LEGACY/MONTEREY, L.P.
Collin County Recorded September 4, 1996, Clerk File 96-0075977
Dallas Recorded September 5, 1996, Volume 96175 Page 00192
Denton Recorded September 5, 1996, Clerk File 96-80061921
Fort Bend Recorded January 28, 1999, Clerk File 199900703
Harris Recorded August 6, 1997, Clerk File No. 5579911
Rockwall Recorded August 19, 1997, Clerk File No. 176219
Tarrant Recorded September 5, 1996, Clerk File D196175179
Travis Recorded September 6, 1996, Volume 12766, Page 1157.
Williamson Recorded September 9, 1996, Clerk File 9648096
EXHIBIT A, DESCRIPTION OF THE DEEDS OF TRUST - Page I
<PAGE>
LOAN NO.___________
REVOLVING PROMISSORY NOTE
(Fourth Amended and Restated)
$65,000,000.00 As of May 31, 1993
FOR VALUE RECEIVED, the undersigned (sometimes referred to herein as
"MAKER"), jointly and severally if more than one, promise to pay to the order of
GUARANTY FEDERAL BANK, F.S.B., a federal savings bank organized and existing
under the laws of the United States (sometimes referred to herein as "PAYEE"),
at its principal offices at 8333 Douglas Avenue, Dallas, Texas 75225, or at such
other place as the holder hereof may from time to time designate, the principal
sum of SIXTY-FIVE MILLION AND NO/ 100 DOLLARS ($65,000,000.00), or so much
thereof as may be advanced, with interest on the principal balance from time to
time remaining unpaid prior to default or maturity at the rate hereinafter
provided, interest only being payable on the first day of each month commencing
June, 1993, and continuing until and including July 31, 2000, when, unless
extended pursuant to the terms of Loan Agreement (hereafter defined), the unpaid
principal balance of this Note, together with all accrued and unpaid interest,
shall be due and payable. The principal of this Note shall otherwise be payable
in accordance with the Loan Agreement. All payments due under this Note shall be
delivered to the holder hereof not later than twelve o'clock, noon, Dallas,
Texas time, on the date such payment becomes due and payable (or the date any
voluntary prepayment of this Note is made), in immediately available funds. Any
payment received by the holder hereof after such time will be deemed to have
been made on the next following business day.
As herein provided, the unpaid Principal Amount (hereafter defined) of this
Note (or portions thereof) from time to time outstanding shall bear interest
prior to maturity at a varying rate per annum equal to, at Maker's option, (i)
the Commercial Base Rate (hereafter defined), or (ii) the applicable LIBOR Base
Rate (hereafter defined) (as elected in the manner specified in this Note),
provided that in- no event shall the Applicable Rate (hereafter defined) exceed
the Maximum Rate (hereafter defined). Notwithstanding the foregoing, if at any
time the Applicable Rate exceeds the Maximum Rate, the rate of interest payable
under this Note shall be limited to the Maximum Rate, but any subsequent
reductions in the Commercial Base Rate or the LIBOR Base Rate, as the case may
be, shall not reduce the. Applicable Rate below the Maximum Rate until the total
amount of interest accrued on this Note equals the total amount of interest
which would have accrued at the Applicable Rate if the Applicable Rate had at
all times been in effect. Interest on this Note shall be calculated at a daily
rate equal to 1/360 of the annual percentage rate stated above, subject to the
provisions hereof specifying the maximum amount of interest which may be charged
or collected hereunder.
As used in this Note, the following terms shall have the meanings indicated
opposite them:
"ADDITIONAL COSTS" -- Any costs, losses or expenses incurred by Payee which
it determines are attributable to its making or maintaining the Loan (hereafter
defined), or its obligation to make any Loan advances, or any reduction in any
amount receivable by Payee under the Loan or this Note.
"APPLICABLE RATE -- The Commercial Base Rate (as to that portion of
.Principal Amount bearing interest at the Commercial Base Rate); provided,
however from and after May 15, 1998 , the Applicable Rate shall be either the
Commercial Base Rate (as to that portion of the Principal Amount bearing
interest at the Commercial Base Rate) or the LIBOR Base Rate (as to each
Euro-Dollar Amount) as elected in the manner specified in this Note.
"ASSESSMENTS" -- Any impositions and assessments imposed on Payee with
respect to any Euro-Dollar Amount for insurance or other fees, assessments and
surcharges.
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<PAGE>
"COMMERCIAL BASE RATE" -- One percent (I %) per annum in excess of the base
rate announced or published from time to time by Guaranty Federal Bank, F.S.B.,
which rate may not be the lowest rate charged by Guaranty Federal Bank, F.S.B.;
it being understood aril agreed that the Commercial Base Rate shall increase or
decrease, as the case may be, from time to time as of the effective date of each
change in such rate; provided, however, from and after August 1, 1995, the
"Commercial Base Rate" shall be the base rate announced or published from time
to time by Guaranty Federal Bank, F.S.B.
"EURO-DOLLAR AMOUNT" -- Each portion of the Principal Amount bearing
interest at the applicable LIBOR Base Rate pursuant to a Euro-Dollar Rate
Request. There shall be no more than seven (7) portions of the Principal Amount
bearing interest at an applicable LIBOR Base Rate outstanding at any time, each
such portion shall be in amounts of not less than $1,000,000.00 each and in no
event shall the total portions of the Principal Amount bearing interest at the
LIBOR Base Rate exceed seventy percent (70%) of the Principal Amount of the time
of any Euro-Dollar Rate Request.
"EURO-DOLLAR BUSINESS DAY" -- Any day on which commercial banks are open
for domestic and international business (including dealings in U.S. Dollar
deposits) in New York City and Dallas, Texas.
"EURO-DOLLAR RATE REQUEST" -- Maker's telephonic notice (to be promptly
confirmed in a written notice which must be received by Payee before such
Euro-Dollar Rate Request will be put into effect by Payee), to be received by
Payee by twelve o'clock noon (Dallas, Texas time) three (3) Euro-Dollar Business
Days prior to the Euro-Dollar Business Day specified in the Euro-Dollar Rate
Request for the commencement of the Interest Period, of (a) its intention to
have (1) all or any portion of the Principal Amount which is not then the
subject of an Interest Period (other than an Interest Period which is
terminating on such Euro-Dollar Business Day), and/or (2) all or any portion of
any advance of Loan proceeds which is to be made on such Euro-Dollar Business
Day, bear interest at the LIBOR Base Rate, and (b) the Interest Period desired
by Maker in respect of the amount specified. There shall be no more than three
(3) such requests for an election outstanding at any time.
"EURO-DOLLAR RATE REQUEST AMOUNT" -- The amount, to be specified by Maker
in each Euro-Dollar Rate Request and stated in increments of $1,000,000.00,
which Maker desires to bear interest at the LIBOR Base Rate; provided, however,
in no event shall an such amount be less than $1,000,000.00 in each instance.
"EURO-DOLLAR REFERENCE SOURCE" -- The display for Euro-Dollar rates
provided on The Bloomberg (a data service), viewed by accessing Page One (I) of
the global deposits segment of money-market rates (or such other page as may
replace Page One [ 1 ] for the purposes of displaying Euro-Dollar rates); or, at
the option of Payee the display for Euro-Dollar rates on such other service
selected from time to time by Payee and determined by Payee to be comparable to
The Bloomberg, which other service may include Reuters Monitor Money Rates
Service.
"INTEREST PERIOD" -- The period during which interest at the LIBOR Base
Rate, determined as provided in this Note, shall be applicable to the applicable
Euro-Dollar Rate Request Amount; provided, however, that each such period shall
be either thirty (30), ninety (90), or one hundred eighty (180) days, which
shall be measured from the date specified by Maker in each Euro-Dollar Rate
Request for the commencement of the computation of interest at the LIBOR Base
Rate, to the numerically corresponding day in the calendar month in which such
period terminates (or, if there be no numerical correspondent in such month, or
if the date selected by Maker for such commencement is the last Euro-Dollar
Business Day of a calendar month, then the last Euro-Dollar Business Day of the
calendar month in which such period terminates, or, if the numerically
corresponding day is not a Euro-Dollar Business Day, then the next succeeding
Euro-Dollar Business Day, unless such next succeeding Euro-Dollar Business Day
enters a new calendar month, in which case such period shall end on the next
preceding Euro-Dollar Business Day); and in no event shall any such period be
elected which extends beyond the Maturity Date.
-2-
<PAGE>
"LIBOR BASE RATE" -- With respect to any Euro-Dollar Amount, the rate per
annum (expressed as a percentage) determined by Payee to be equal to the sum of
(a) the quotient of the LIBOR Rate for the applicable Euro-Dollar Amount and the
applicable Interest Period, divided by (1 minus the applicable Reserve
Requirement), rounded up to the nearest 1/100 of I%, PLUS (b) the applicable
Assessments, plus (c) two and one-half percent (2.5%); provided, however from
and after March ___, 1999, the LIBOR Base Rate shall be equal to the sum of (a)
the quotient of the LIBOR Rate for the applicable Euro-Dollar Amount and the
applicable Interest Period, divided by (1 minus the applicable Reserve
Requirement), rounded up to the nearest 1/100 of 1%, PLUS (b) the applicable
Assessments, PLUS (c) two and one-quarter percent (2.25%) provided, further
however from and after March _-_, 2000, the LIBOR Base Rate shall be equal to
the sum of (a) the quotient of the LIBOR Rate for the applicable Euro-Dollar
Amount and the applicable Interest Period, divided by (1 minus the applicable
Reserve Requirement), rounded up to the nearest 1/100 of 1%, plus (b) the
applicable Assessments, plus (c) two percent (2.0%);
"LIBOR RATE" -- The rate determined by Payee (rounded upward, if necessary,
to the nearest 1/16 of 1%) equal to the offered rate (and not the bid rate) for
deposits in U.S. Dollars of amounts comparable to the Euro-Dollar Rate Request
Amount for the same period of time as the Interest Period selected by Maker in
the Euro-Dollar Rate Request, as set forth on the Euro-Dollar Reference Source
at approximately 10:00 a.m. (Dallas, Texas time) on the first day of the
applicable Interest Period.
"LOAN" -- The $65,000,000.00 loan evidenced hereby.
"MATURITY DATE" -- July 31, 2000, being the date this Note becomes due and
payable in its entirety, unless extended pursuant to the terms of the Loan
Agreement.
"MAXIMUM RATE" -- The maximum interest rate permitted under applicable law.
"PRINCIPAL AMOUNT" -- That portion of the Loan evidenced hereby as is from
time to time outstanding.
"REGULATION D" -- Regulation D of the Board of Governors of the Federal
Reserve System, as from time to time amended or supplemented.
"REGULATION" -- With respect to the charging and collecting of interest at
the LIBOR Base Rate, any United States federal, state or foreign laws, treaties,
rules or regulations whether now in effect or hereinafter enacted or promulgated
(including Regulation D) or any interpretations, directives or requests applying
to a class of depository institutions including Payee under any United States
federal, state or foreign laws or regulations (whether or not having the force
of law) by any court or governmental or monetary authority charged with the
interpretation or administration thereof, excluding any change the effect of
which is determined by Payee to be reflected in a change in the LIBOR Base Rate.
"RESERVE REQUIREMENT" -- The average maximum rate at which reserves
(including any marginal, supplemental or emergency reserves) are required to be
maintained under Regulation D by member banks of the Federal Reserve System in
New York City with deposits exceeding one billion U.S. Dollars against
"Eurocurrency Liabilities," as such quoted term is used in Regulation D. Without
limiting the effect of the foregoing, the Reserve Requirement shall reflect any
other reserves required to be maintained by such member banks by reason of any
regulatory change against (a) any category of liabilities which includes
deposits by reference to which the LIBOR Rate is to be determined as provided in
this Note, or (b) any category of extensions of credit or. other assets which
includes loans the interest rate on which is determined on the basis of rates
referred to in the definition of "LIBOR Rate" set forth above.
If Maker desires the application of the LIBOR Base Rate, it shall submit a
Euro-Dollar Rate Request to Payee. Such Euro-Dollar Rate Request shall specify
the Interest Period and the Euro-Dollar Amount and shall be irrevocable, subject
to Payee's right to convert the rate of interest payable hereunder with respect
to any Euro-Dollar Amount from the LIBOR Base Rate to the Commercial Base Rate
-3-
<PAGE>
as hereinafter provided. In the event that Maker fails to submit a Euro-Dollar
Rate Request with respect to an existing Euro-Dollar Amount not later than
twelve o'clock noon (New York time) three (3) Euro-Dollar Business Days prior to
the last day of the relevant Interest Period, then the applicable Euro-Dollar
Amount shall bear interest, commencing at the end of such Interest Period, at
the Commercial Base Rate.
In no event shall Maker have more than seven (7) Interest Periods involving
Euro-Dollar Amounts in effect at any one time, whether or not any portion of the
Principal Amount is then bearing interest at the Commercial Base Rate.
Any portion of the Principal Amount to which the LIBOR Base Rate is not (or
pursuant to the terms hereof cannot be) applicable shall bear interest at the
Commercial Base Rate.
Maker shall pay to Payee, promptly upon demand, such amounts as are
necessary to compensate Payee for Additional Costs resulting from any Regulation
which (i) subjects Payee to any tax, duty or other charge with respect to the
Loan or this Note, or changes the basis of taxation of any amounts payable to
Payee under the Loan or this Note (other than taxes imposed on the overall net
income of Payee or of its applicable lending office by the jurisdiction in which
Payee's principal office or such applicable lending office is located), (ii)
imposes, modifies or deems applicable any reserve, special deposit or similar
requirements relating to any extensions of credit or other assets of, or any
deposits with or other liabilities of, Payee, or (iii) imposes on Payee or on
the interbank Euro-Dollar market any other condition affecting the Loan or this
Note, or any of such extensions of credit or liabilities. Payee will notify
Maker of any event which would entitle Payee to compensation pursuant to this
paragraph as promptly as practicable after Payee obtains knowledge thereof and
determines to request such compensation.
Without limiting the effect of the immediately preceding paragraph, in the
event that, by reason of any Regulation, (i) Payee incurs Additional Costs based
on or measured by the amount of (1) a category of deposits or other liabilities
of Payee which includes deposits by reference to which the LIBOR Rate is
determined as provided in this Note and/or (2) a category of extensions of
credit or other assets of Payee which includes loans the interest on which is
determined on the basis of rates referred to in the definition of "LIBOR Rate"
set forth above, (ii) Payee becomes subject to restrictions on the amount of
such a category of liabilities or assets which it may hold, or (iii) it shall be
unlawful or impractical for Payee to make or maintain the Loan (or any portion
thereof) at the LIBOR Base Rate, then Payee's obligation to make or maintain the
Loan (or portions thereof) at the LIBOR Base Rate (and Maker's right to request
the same) shall be suspended and Payee shall give notice thereof to Maker and,
upon the giving of such notice, interest payable hereunder at the LIBOR Base
Rate shall be converted to the Commercial Base Rate, unless Payee may lawfully
continue to maintain the Loan (or any portion thereof) then bearing interest at
the LIBOR Base Rate to the end of the current Interest Period(s), at which time
the interest rate shall convert to the Commercial Base Rate. If subsequently
Payee determines that such Regulation has ceased to be in effect, Payee will so
advise Maker and Maker may convert the rate of interest payable hereunder with
respect to those portions of the Principal Amount bearing interest at the
Commercial Base Rate to the LIBOR Base Rate by submitting a Euro-Dollar Rate
Request in respect thereof and otherwise complying with the provisions of this
Note with respect thereto.
Determinations by Payee of the existence or effect of any Regulation on its
costs of making or maintaining the Loan, or portions thereof, at the LIBOR Base
Rate, or on amounts receivable by it in respect thereof, and of the additional
amounts required to compensate Payee with respect to Additional Costs and/or
Assessments, shall be conclusive; provided, however, that such determinations
are made without manifest error.
Anything herein to the contrary notwithstanding, if, at the time of or
prior to the determination of the LIBOR Base Rate in respect of any Euro-Dollar
Rate Request Amount as herein provided, Payee determines (which determination
shall be conclusive [provided that such determination is made on a reasonable
basis] absent manifest error) that (i) by reason of circumstances affecting the
interbank Euro-Dollar market generally, adequate and fair means do not or will
not exist for determining the LIBOR Base Rate applicable to an Interest Period,
or (ii) the LIBOR Rate, as determined by Payee, will not accurately reflect the
-4-
<PAGE>
cost to Payee of making or maintaining the Loan (or any portion thereof) at the
LIBOR Base Rate, then Payee shall give Maker prompt notice thereof, and the
applicable Euro-Dollar Rate Request Amount shall bear interest, or continue to
bear interest, as the case may be, at the Commercial Base Rate. If at any time
subsequent to the giving of such notice, Payee determines that because of a
change in circumstances the LIBOR Base Rate is again available to Maker
hereunder, Payee shall so advise Maker and Maker may convert the rate of
interest payable hereunder from the Commercial Base Rate to the LIBOR Base Rate
by submitting a Euro-Dollar Rate Request to Payee and otherwise complying with
the provisions of this Note with respect thereto.
Maker shall pay to Payee, immediately upon request and notwithstanding
contrary provisions contained in the Deeds of Trust (as hereafter defined) or
other Loan Instruments (as hereafter defined), such amounts as shall, in the
conclusive judgment of Payee reasonably exercised, compensate Payee for any
loss, cost or expense incurred by it as a result of (i) any payment or
prepayment, under any circumstances whatsoever, of any portion of the Principal
Amount bearing interest at the LIBOR Base Rate on a date other than the last day
of an applicable Interest Period, (ii) the conversion, for any reason
whatsoever, of the rate of interest payable hereunder from the LIBOR Base Rate
to the Commercial Base Rate with respect to any portion of the Principal Amount
then bearing interest at the LIBOR Base Rate on a date other than the last day
of an applicable Interest Period, (iii) the failure of all or a portion of an
advance, which was to have borne interest at the LIBOR Base Rate pursuant to a
Euro-Dollar Rate Request, to be made under the Loan Agreement, or (iv) the
failure of Maker to borrow in accordance with a Euro-Dollar Rate Request
submitted by it to Payee, which amounts shall include, without limitation, lost
profits.
Maker shall have the right to prepay, in whole or in part, the Principal
Amount of this Note accruing interest at the Commercial Base Rate, without
premium or penalty upon the payment of all accrued interest on the amount
prepaid (and any interest which has accrued at the Default Rate (hereafter
defined) and other sums that may be payable hereunder); provided, however, that
any Euro-Dollar Amount may be prepaid only on the last day of the applicable
Interest Period.
All payments of principal shall be credited first against principal amounts
bearing interest at the Commercial Base Rate and then toward the payment of
Euro-Dollar Amounts. Payments of Euro-Dollar Amounts shall be applied in such
manner as Maker shall select; provided, however, that Maker shall select
Euro-Dollar Amounts to be repaid in a manner designed to minimize any losses
incurred by virtue of such payment. If Maker shall fail to select the
Euro-Dollar Amounts to which such payments are to be applied, or if an event of
default has occurred and is continuing at the time of payment, then Payee shall
be entitled to apply the payment to such Euro-Dollar Amounts in the manner it
deems appropriate. Maker shall compensate Payee for any losses incurred by
virtue of any payment of those portions of the Loan accruing interest at the
LIBOR Base Rate prior to the last day of the relevant Interest Period, which
compensation shall be determined in accordance with the provisions set forth in
this Note, and any payment received pursuant to this paragraph shall be applied
first to losses incurred by Payee by reason of such payment.
If a default shall occur under the Deeds of Trust, interest on the
Principal Amount shall, at the option of Payee, immediately and without notice
to Maker, be converted to the Commercial Base Rate. The foregoing provisions
shall not be construed as a waiver by Payee of its right to pursue any other
remedies available to it under the Deeds of Trust or any other instrument
evidencing or securing the Loan, nor shall it be construed to limit in any way
the application of the Default Rate.
Maker hereby agrees that it shall be bound by any agreement extending the
time or modifying the above terms of payment, made by Payee and the owner or
owners of tic Property, whether with or without notice to Maker, and Maker shall
continue liable to pay the amount due hereunder, but with interest at a rate no
greater than the LIBOR Base Rate or the Commercial Base Rate, as the case may
be, according to the terms of any such agreement of extension or modification.
ALL OR ANY PORTION OF THE PRINCIPAL OF THIS NOTE MAY BE BORROWED, PAID,
PREPAID, REPAID AND REBORROWED, FROM TIME TO TIME PRIOR TO MATURITY, IN
ACCORDANCE WITH THE PROVISIONS OF THIS NOTE AND THE OTHER LOAN INSTRUMENTS (AS
HEREAFTER DEFINED). THE EXCESS OF BORROWING (ADVANCES AND READVANCES) OVER
-5-
<PAGE>
REPAYMENTS SHALL EVIDENCE THE PRINCIPAL BALANCE DUE HEREON FROM TIME TO TIME AND
AT ANY TIME. THE AGGREGATE OF ALL ADVANCES MADE UNDER THIS NOTE MAY EXCEED THE
FACE AMOUNT OF THIS NOTE, BUT THE OUTSTANDING PRINCIPAL BALANCE OF THIS NOTE AT
ANY TIME SHALL NEVER EXCEED THE FACE AMOUNT OF THIS NOTE.
At the option of the holder hereof, the entire principal balance and
accrued interest owing hereon shall, subject to applicable laws, at once become
due and payable without notice or demand upon the occurrence at any time of any
of the following events ("EVENTS OF DEFAULT"):
1. Default in the payment of any installment of principal, interest or
any other sum due hereunder or under any document evidencing,
governing, securing or guaranteeing the Loan (individually and
collectively, the "LOAN INSTRUMENTS") and the continuation of such
default or a period of fifteen (.15) days following the due date
thereof; or defaults in the performance of any of the covenants or
provisions of any of the Loan Instruments other than those covenants
or provisions involving the payment of the sums described in the
preceding clause in this PARAGRAPH 1.
2. The liquidation, termination, dissolution or (if any of the
undersigned is a natural person) the death of any of the undersigned
or any guarantor hereof.
3. The bankruptcy or insolvency of, the assignment for the benefit of
creditors by, or the appointment of a receiver for any of the property
of any party liable for the payment of this Note, whether as maker,
endorser, guarantor, surety or otherwise.
4. Default in the payment of any other indebtedness due the holder
hereof, or default in the performance of any other obligation to the
holder hereof by the undersigned or any other party liable for the
payment hereof, whether as endorser, guarantor, surety or otherwise,
it being reasonably contemplated by the undersigned that it may incur
additional indebtedness owing to the holder hereof, from time to time,
subsequent to the date hereof.
5. Notice of default given by any other lender or third party (the "OTHER
LENDERS") to the undersigned or the acceleration of any indebtedness
owed by the undersigned to the Other Lenders under any instruments
evidencing, governing, guaranteeing or securing any other indebtedness
or obligation, now or hereafter owed by the undersigned to the Other
Lenders.
The failure to exercise the option to accelerate the maturity of this Note
upon the happening of any one or more of the events of default hereunder shall
not constitute a waiver of the right of the holder hereof to exercise the same
or any other option at that time or at any subsequent time with respect to such
uncured default or any other event of uncured default hereunder or under any
other of the Loan Instruments. The remedies of the holder hereof, as provided in
this Note and in any other of the Loan Instruments, shall be cumulative and
concurrent and may be pursued separately, successively or together, as often as
occasion therefor shall arise, at the sole discretion of the holder hereof. The
acceptance by the holder hereof of any payment under this Note which is less
than payment in full of all amounts due and payable at the time of such payment
shall not constitute a waiver of or impair, reduce, release or extinguish any of
the rights or remedies of the holder hereof to exercise the foregoing option or
any other option granted to the holder hereof or in any other of the Loan
Instruments, at that time or at any subsequent time, or nullify any prior
exercise of any such option.
The unpaid principal of and, to the extent permitted by applicable law,
unpaid interest on this Note from time to time outstanding shall bear interest
from and after maturity at the rate (hereafter called the "DEFAULT RATE") of
five percent (5%) per annum above the Commercial Base Rate (as such rate may
change from time to time as provided above), provided that in no event shall
such interest rate be more than the Maximum Rate. Notwithstanding anything to
the contrary contained in this Note, at the option of the holder hereof and upon
notice to the undersigned at any time after the occurrence of a default, as
defined in the Deeds of Trust, from and after such notice and during the
continuance of such default, the unpaid principal of this Note from time to time
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<PAGE>
outstanding and all past due installments of interest shall, to the extent
permitted by applicable law, bear interest at the Default Rate (as such rate may
change from time to time with each change in the Commercial Base Rate), provided
that in no event shall such interest rate be more than the Maximum Rate.
The undersigned and all other parties now or hereafter liable for the
payment hereof, whether as endorser, guarantor, surety or otherwise, severally
waive demand, presentment, notice of dishonor, notice of intention to accelerate
the indebtedness evidenced hereby, notice of the acceleration of the maturity
hereof, diligence in collecting, grace, notice and protest, and consent to all
extensions which from time to time may be granted by the holder hereof and to
all partial payments hereon, whether before or after maturity.
If this Note is not paid when due, whether at maturity or by acceleration,
or if it is collected through a bankruptcy, probate or other court, whether
before or after maturity, the undersigned agrees to pay all costs of collection,
including but not limited to reasonable attorneys' fees and expenses, incurred
by the holder hereof.
This Note is executed pursuant to a Master Loan Agreement, dated as of
January 31, 1993, between the undersigned and the payee named herein (the "LOAN
AGREEMENT"), which Loan Agreement contains provisions for acceleration of the
maturity hereof upon the happening of certain events, and all advances made
hereunder shall be made pursuant to the Loan Agreement. This Note is secured by
one or more Deeds of Trust (With Security Agreement and Assignment of Rents and
Leases) (collectively, the "DEEDS OF TRUST") covering certain property situated
in various Counties in Texas. The proceeds of this Note are to be used for
business, commercial, investment or other similar purposes and no portion
thereof will be used for personal, family or household use.
This Note is given in renewal, replacement and rearrangement, and not in
extinguishment of, the indebtedness evidenced by that certain (i) Revolving
Promissory Note in the amount of $17,000,000.00, dated May 31, 1993, as executed
by Maker and payable to Payee, (ii) Revolving Promissory Note (Amended and
Restated) in the amount of $40,000,000.00 (as increased), dated as of May 31,
1993, as executed by Maker and payable to Payee, and (iii) Revolving Promissory
Note (Second Amended and Restated) in the amount of $50,000,000.00, dated as of
May 31, 1993, as executed by Maker and payable to Payee, and (iv) and Revolving
Promissory Note (Third Amended and Restated) in the amount of $80,000,000.00 (as
increased), dated as of May 31, 1993, as executed by Maker and payable to Payee.
All agreements between the undersigned and the holder hereof, whether now
existing or hereafter arising and whether written or oral, are hereby limited so
that in no contingency, whether by reason of acceleration of the maturity hereof
or otherwise, shall the interest contracted for, charged, received, paid or
agreed to be paid to the holder hereof exceed the Maximum Rate. If from any
circumstance the holder hereof shall ever receive anything of value deemed
interest by applicable law in excess of the Maximum Rate, an amount equal to any
excessive interest shall be applied to the reduction of the principal hereof and
not to the payment of interest, or if such excessive interest exceeds the unpaid
balance of principal hereof, such excess shall be refunded to the undersigned.
All interest paid or agreed to be paid to the holder hereof shall, to the extent
permitted by applicable law, be amortized, prorated, allocated, and spread
throughout the full period until payment in full of the principal so that the
interest hereon for such full period shall not exceed the Maximum Rate. This
paragraph shall control all agreements between the undersigned and the holder
hereof.
The undersigned acknowledges and agrees that the holder hereof may, from
time to time, sell or offer to sell interests in the Loan to one or more
participants. The undersigned authorizes the holder hereof to disseminate any
information it has pertaining to the Loan, including, without limitation,
complete and current credit information on the undersigned, any of its
principals and any guarantor of this Note, to any such participant or
prospective participant.
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<PAGE>
EXCEPT WHERE FEDERAL LAW IS APPLICABLE (INCLUDING, WITHOUT LIMITATION, ANY
FEDERAL USURY CEILING OR OTHER FEDERAL LAW WHICH, FROM TIME TO TIME, IS
APPLICABLE TO THE INDEBTEDNESS EVIDENCED HEREIN AND WHICH PREEMPTS STATE USURY
LAWS), THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
TEXAS, AND THE LAWS OF THE UNITED STATES APPLICABLE TO TRANSACTIONS IN SUCH
STATE. THE UNDERSIGNED ACKNOWLEDGES THAT THE LIEN OF THE DEEDS OF TRUST
CONSTITUTES A FIRST LIEN ON RESIDENTIAL REAL PROPERTY WITHIN THE MEANING OF PART
A, TITLE V, OF THE DEPOSITORY INSTITUTIONS DEREGULATION AND MONETARY CONTROL ACT
OF 1980, AND THE REGULATIONS PROMULGATED THEREUNDER.
MAKER:
LEGACY/MONTEREY HOMES L.P.,
an Arizona limited partnership
BY: MTH-TEXAS GP, INC.,
an Arizona corporation,
General Partner
By: /s/ Rick Morgan
-------------------------------
Name: Rick Morgan
Title: Vice President
-8-
COMPASS BANK
HULEN PARK
CONSTRUCTION LOAN AGREEMENT
THIS AGREEMENT, made this 10th day of February, 2000, by and between, HULEN
PARK VENTURE, LLC, a Texas limited liability company (the "BORROWER", whether
one or more) and COMPASS BANK, (the "LENDER");
WITNESSETH:
WHEREAS, the Borrower is, or contemporaneously herewith shall become, the
owner and holder of the fee simple title to the property described in EXHIBIT
"A" attached hereto and made a part hereof by reference (the Property; together
with the improvements, buildings and fixtures now or hereafter located on the
Property, and other personal property located or to be located thereon,
collectively, the "Premises"); and
WHEREAS, the Borrower has applied to the Lender for a construction first
mortgage loan of THREE MILLION THREE HUNDRED THOUSAND AND NO/100 DOLLARS
($3,300,000.00) (the "Loan"), to be advanced as hereinafter provided, and to be
evidenced by a promissory note executed and delivered of even date herewith by
the Borrower (the "Note"), which Note is secured by a first priority Deed of
Trust, Assignment of Rents and Leases and Security Agreement on the Premises
executed and delivered of even date herewith by the Borrower (the "Deed of
Trust"); and
WHEREAS, the Borrower has represented to the Lender that the Premises are
to be improved in the manner set forth in certain documents heretofore made
available to the Lender by the Borrower, a schedule of which are attached hereto
as EXHIBIT "B", which scheduled documents are made a part hereof by reference
(the Premises as so improved are hereinafter referred to as the "Project"); and
WHEREAS, the Lender has agreed to provide construction financing for the
Project, upon and subject to the terms, covenants, and conditions hereinafter
set forth.
NOW, THEREFORE, in consideration of the premises, the mutual promises
hereinafter contained, and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties, intending to be
legally bound hereby, agree as follows:
ARTICLE I
THE LOAN AND THE COLLATERAL
SECTION 1.01 THE LOAN AND THE COLLATERAL. The Lender shall make to the
Borrower, and the Borrower shall accept from the Lender, the Loan in the maximum
principal amount of THREE MILLION THREE HUNDRED THOUSAND AND NO/100 DOLLARS
($3,300,000.00). The Loan shall be evidenced by the Note, shall bear interest
and be payable as set forth in the Note, and shall be secured by the Deed of
CONSTRUCTION LOAN AGREEMENT - PAGE 1
<PAGE>
Trust and all the other documents and instruments executed or delivered in
connection with, or otherwise relating to, the Loan, including, without
limitation, the documents and instruments, if any, set forth in subsection (b)
below. The proceeds of the Loan shall be disbursed in accordance with the terms
and provisions of this Agreement, the disbursement schedule attached hereto as
EXHIBIT "C" and made a part hereof by reference (the "Disbursement Schedule"),
and the project budget heretofore submitted to and approved by the Lender (the
"Project Budget").
(a) The Note shall be endorsed by the following persons or entities (the
"Endorsers"):-None
(b) In addition to the Deed of Trust, the Loan shall be secured by the
following (the "Additional Security"): -None
(c) The Loan shall be guaranteed, jointly and severally, by the following
persons or entities (the "Guarantors"), pursuant to continuing, unlimited
guaranty agreements in form and substance satisfactory to Lender (the
"Guaranties"), such Guaranties to be secured by the security, if any, listed in
EXHIBIT "D", attached hereto (the "Guaranty Security"):
MTH-Texas GP, Inc., an Arizona corporation
MTH-LP, Inc., an Arizona corporation
Legacy/Monterey Homes, L.P., an Arizona Limited Partnership
Meritage Corporation, a Maryland corporation
This Agreement, the Note, the Deed of Trust, the Additional Security, the
Guaranties, the Guaranty Security, and all other documents and instruments
evidencing, securing, guaranteeing, relating to, or executed or delivered in
connection with the Loan are collectively referred to herein as the "Loan
Documents".
SECTION 1.02 COMMITMENT FEE AND OTHER INFORMATION. The amount of the
commitment fee, the name of the architect of the Project (if any), the name of
the engineer for the Project (if any), the name of the general contractor for
the Project, and information regarding the term loan commitment for the Project
(if term financing is not being provided by the Lender) are set forth below:
(a) Commitment Fee of Lender: $8,250 (Such fee shall be considered earned
and non-refundable and shall be due and payable upon the acceptance of the
Lender's commitment to make the Loan, regardless whether the Loan is funded. An
additional fee may be required for a renewal.)
(b) Architect:
(c) Engineer:
(d) General Contractor:
SECTION 1.03 USE OF PROCEEDS. The proceeds of this Loan shall be used
solely to (a) acquire the Premises if the Premises are not already owned by the
Borrower, (b) equip and develop and/or construct the Project on the Property in
accordance with the Plans (as defined below), and (c) pay expenses associated
therewith, as set forth in the Disbursement Schedule and the Project Budget.
Such proceeds may be commingled with other funds of Borrower only to the extent
records are kept sufficient in the opinion of the Lender to trace the proceeds.
The proceeds will not be used for any other work or project of the Borrower. Any
CONSTRUCTION LOAN AGREEMENT - PAGE 2
<PAGE>
disbursements hereunder which are made directly to the Borrower shall be
received by the Borrower as a trust fund to be used by the Borrower as provided
herein.
SECTION 1.04 COMMENCEMENT AND CONTINUITY OF WORK. Development or
construction of the Project shall be carried on continuously, diligently and
with dispatch until completed, and shall be completed by SEPTEMBER 30, 2000 (the
"Completion Date") (the period between the Commencement Date and the Completion
Date shall be hereinafter referred to as the "Construction Period").
SECTION 1.05 DEVELOPMENT AND/OR CONSTRUCTION OF THE PROJECT. The Project
shall comply with all restrictions, conditions, ordinances, codes, regulations,
and laws of the governmental entities, departments and agencies having direction
or jurisdiction over or an interest in the Project. The Project shall be
developed and/or constructed in accordance with the plans and specifications, as
approved by Lender and all governmental authorities having jurisdiction in
respect thereof (the "Plans"). THIS LOAN IS FOR DEVELOPMENT OF A RESIDENTIAL
SUBDIVISION, THE NATURE OF THE PROJECT AND ANY ADDITIONAL AGREEMENTS OR
OBLIGATIONS SHALL BE SET FORTH IN EXHIBIT "E", WHICH IS MADE A PART HEREOF BY
REFERENCE. No significant extra work or materials nor change in the Plans shall
be ordered or authorized by the Borrower without the written consent of the
Lender. The term "significant" in the preceding sentence means extra work or
materials or changes in the Plans that exceed $250,000 in the aggregate, when
added to all prior extra work or materials or changes in the Plans.
The Borrower shall comply with every condition, requirement, regulation, or
other restrictions that may be imposed upon the buildings and improvements being
erected hereunder by the Federal Housing Administration ("FHA"), Veterans'
Administration ("VA"), or any lending institution which may have committed
itself to make or guarantee a long-term first mortgage loan on the Premises or
any portion thereof being improved under this Agreement. If inspections of the
Project are made by the FHA, VA, or any other such lender, the Borrower shall
furnish the Lender with a copy of each such inspection report.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
In order to induce the Lender to enter into this Agreement and to make the
Loan for which provision is made herein, the Borrower and the other parties
hereto make the following warranties and representations:
SECTION 2.01 FINANCIAL AND OTHER INFORMATION. The documents furnished in
support of the Loan request are true and correct and accurately set out the
facts contained therein. The financial statements provided in support of the
Loan request were prepared in accordance with good accounting practice and are
correct and complete and fairly present the financial position of the person or
entity which each purports to reflect, and there has been no material adverse
change in the financial positions of such persons or entities since the date of
the last financial statements furnished to the Lender.
CONSTRUCTION LOAN AGREEMENT - PAGE 3
<PAGE>
SECTION 2.02 LITIGATION. Except as disclosed in writing to the Lender on
EXHIBIT "F" hereto, there are no actions, suits or proceedings pending or, to
the knowledge of the Borrower, threatened against or affecting (a) the Project
or the Borrower, or (b) any Guarantor, or any Endorser or any properties or
rights of any Guarantor or any Endorser and such actions, suits or proceedings
materially and adversely affect such Guarantor's or Endorser's financial
condition or ability to pay and perform its obligations under the Loan. A matter
involving $50,000 or more shall be deemed material. Borrower is not currently
affected by any strike or other labor disturbance, and there are no outstanding
and unpaid judgments or arbitration awards against the Borrower, any Guarantor,
or any Endorser which would have a materially adverse effect on the financial
condition or business or properties of the Borrower, any Guarantor, or any
Endorser. Neither the Borrower nor any Guarantor or Endorser is in default with
respect to any regulation, order, writ or decree of any court or governmental or
municipal department, commission, board, bureau, agency or instrumentality.
SECTION 2.03 ORGANIZATION AND AUTHORITY. If the Borrower or any Guarantor
or any Endorser is a corporation, partnership, or other entity, the Borrower and
any such Guarantor or Endorser are duly organized, validly existing and in good
standing under the laws of the state of their organization and are qualified and
in good standing in all jurisdictions where qualification is necessary. The
Borrower and any such Guarantor or Endorser have all corporate, partnership,
association, trust, or other power and authority, and have obtained all
authorizations of directors, stockholders, partners, members, or beneficiaries
and other such authorizations as are necessary to enable them to own and operate
the Project, to carry on their respective businesses, and to execute, deliver,
and perform this Agreement, the Note, the Deed of Trust and the other Loan
Documents. The disbursements and method for securing the disbursements herein
provided for are within the corporate, partnership, association, trust, or other
powers of the Borrower and have been duly authorized by all necessary and proper
corporate, partnership, association, trust, or other proceedings of the
Borrower. This Agreement, the Note, the Deed of Trust, the Guaranties, and the
other Loan Documents have each been duly executed and delivered by the Borrower,
the Guarantors, the Endorsers, and the other parties hereto and thereto, and
each is in full force and effect and constitutes the legal, valid and binding
obligation of the Borrower, the Guarantors, the Endorsers, and the other parties
hereto and thereto, enforceable in accordance with their respective terms.
SECTION 2.04 NO VIOLATIONS. Neither the Borrower nor any Guarantor or
Endorser is in default in any material respect under any agreement or instrument
to which it is a party or by which it is or may be bound. The execution and
delivery of this Agreement, the Note, the Deed of Trust, and the other Loan
Documents and the consummation of the transactions contemplated hereby and
thereby do not conflict with and will not result in the breach of any
regulation, order, writ, injunction or decree of any court or governmental or
municipal instrumentality to which the Borrower, any Guarantor, or any Endorser
is subject, or in the breach of or default under any indenture, contract,
agreement or other instrument to which the Borrower, any Guarantor, or any
Endorser is a party or by which any one of them is or may be bound.
SECTION 2.05 TITLE TO COLLATERAL. The Borrower has, and at all times shall
have, good and indefeasible title in fee simple to the Premises. Except as
described on Exhibit "A" hereto, the Premises are subject to no liens, charges
or encumbrances.
CONSTRUCTION LOAN AGREEMENT - PAGE 4
<PAGE>
SECTION 2.06 NO COMMENCEMENT OF WORK. Except for certain grading work which
has been disclosed to Lender, prior to the recordation of the Original Deed of
Trust as defined in Paragraph 5.13 hereafter and Exhibit "E", no work of any
kind incident to the proposed improvements on the Property shall have commenced,
no equipment or material shall have been delivered to or stored upon the
Property for any purpose whatsoever, and no contract (or memorandum or affidavit
thereof) for the supplying of labor or materials for the construction of the
proposed improvements nor any affidavit of commencement of construction shall
have been executed or recorded in the real property records in the county where
the Property is located.
SECTION 2.07 LICENSES AND PERMITS. The Borrower possesses such licenses and
permits as are required for the conduct of its business. No approval, consent,
or authorization of any governmental authority which has not heretofore been
obtained is necessary for the execution or delivery by the Borrower of this
Agreement, the Note, or the other Loan Documents or for the performance by the
Borrower of any of the terms or conditions hereof or thereof.
SECTION 2.08 PAYMENT OF TAXES. The Borrower and, if Borrower is a
partnership, each of Borrower's general partners, have filed or caused to be
filed all federal, state and local tax returns, which are required to be filed,
and have paid or caused to be paid all taxes as shown on said returns or on any
assessment received by them, to the extent that such taxes have become due,
except as otherwise permitted by the provisions hereof. The Borrower has no
reason to believe that any additional taxes are due for prior calendar tax years
that have not been audited by the respective tax authorities beyond the amounts
provided in the financial statements heretofore furnished to Lender.
SECTION 2.09 ENVIRONMENTAL MATTERS. Borrower represents, warrants and
covenants as follows:
(a) No Hazardous Materials (hereinafter defined) have been, are, or will be
while any part of the indebtedness secured by the Deed of Trust remains unpaid,
contained in, treated, stored, handled, located on, discharged from, or disposed
of on, or constitute a part of, the Project. As used herein, the term "HAZARDOUS
MATERIALS" include without limitation, any asbestos, urea formaldehyde foam
insulation, flammable explosives, radioactive materials, hazardous materials,
hazardous wastes, hazardous or toxic substances, or related or unrelated
substances or materials defined, regulated, controlled, limited or prohibited in
the Comprehensive Environmental Response Compensation and Liability Act of 1980
(CERCLA), as amended (42 U.S.C. Sections 9601, ET SEQ.), the Hazardous Materials
Transportation Act, as amended (49 U.S.C. Sections 1801 ET SEQ.), the Resource
Conservation and Recovery Act (RCRA), as amended (42 U.S.C. Sections 6901, ET
SEQ.), the Clean Water Act, as amended (33 U.S.C. Sections 1251, ET SEQ.), the
Clean Air Act, as amended (42 U.S.C. Sections 7401, ET SEQ.), the Toxic
Substances Control Act, as amended (15 U.S.C. Sections 2601 ET SEQ.), the Texas
Solid Waste Disposal Act, as amended, the Texas Water Code, as amended, the
Texas Clean Air Act, as amended, and in the rules and regulations adopted and
publications promulgated pursuant thereto, and in the rules and regulations of
the Occupational Safety and Health Administration (OSHA) pertaining to
occupational exposure to asbestos, as amended, or in any other federal, state or
local environmental law, ordinance, rule, or regulation now or hereafter in
effect;
CONSTRUCTION LOAN AGREEMENT - PAGE 5
<PAGE>
(b) No underground storage tanks, whether in use or not in use, are located
in, on or under any part of the Property;
(c) All of the Project complies and will comply in all respects with
applicable environmental laws, rules, regulations, and court or administrative
orders;
(d) There are no pending claims or threats of claims by private or
governmental or administrative authorities relating to environmental impairment,
conditions, or regulatory requirements with respect to the Property; and
(e) The Borrower shall give immediate oral and written notice to the Lender
of its receipt of any notice of a violation of any law, rule or regulation
covered by this Section, or of any notice of other claim relating to the
environmental condition of the Project, or of its discovery of any matter which
would make the representations, warranties and/or covenants herein to be
inaccurate or misleading in any respect.
The Borrower hereby agrees to indemnify and hold the Lender harmless from
all loss, cost, damage, claim and expense incurred by the Lender on account of
(i) the violation of any representation, warranty or covenant set forth in this
Section, (ii) Borrower's failure to perform any obligations of this Section,
(iii) Borrower's or the Project's failure to fully comply with all environmental
laws, rules and regulations, or with all occupational health and safety laws,
rules and regulations, or (iv) any other matter related to environmental
conditions on, under or affecting the Project, specifically including, without
limitation, any loss, cost, damage, claim and expense which is attributable in
whole or in part to the alleged negligence of Lender, its agents or employees.
This indemnification shall survive the closing of the Loan, payment of the Loan,
the exercise of any right or remedy under any Loan Document, any subsequent sale
or transfer of the Project, and all similar or related events or occurrences.
ARTICLE III
CONDITIONS TO DISBURSEMENTS
SECTION 3.01 CONDITIONS PRECEDENT TO INITIAL DISBURSEMENT. Lender shall not
be obligated to, but at Lender's sole option may, make the initial disbursement
hereunder (the "Initial Disbursement") until each of the following conditions
has been fully satisfied:
(a) Lender shall have received and approved a copy of a survey prepared by
an approved surveyor, showing the total square footage of the Property,
dimensions, means of ingress and egress, location of all existing and proposed
improvements, boundaries, encroachments, setback lines, rights of way and
easements, whether the Property is situated within a designated flood hazard
area and, if requested by Lender, a surveyor's certificate in substantially the
form of EXHIBIT "G" hereto;
(b) Lender shall have received UCC-11 reports and an acceptable title
policy binder from a title insurance company qualified to do business in the
state in which the Property is situated, in the amount of the Loan and covering
the Project, with any exceptions contained in such policies or reports to be
subject to approval of Lender and its counsel;
(c) Lender shall have received the properly executed Note, together with
the other Loan Documents and such other documents as Lender may require;
CONSTRUCTION LOAN AGREEMENT - PAGE 6
<PAGE>
(d) If the Property or any part thereof is located in a designated flood
zone, a flood insurance policy shall have been obtained on the Project, naming
Lender in the mortgagee clause;
(e) Borrower shall be in compliance with all of the terms and provisions
set forth herein and no Event of Default specified herein, nor any event or
condition which upon notice or lapse of time, or both, would constitute such an
Event of Default, shall have occurred and be continuing;
(f) A copy of the Plans shall have been furnished to and approved by
Lender;
(g) Lender shall have received satisfactory evidence that a proper building
permit and/or any required development permits have been obtained;
(h) Lender shall have received and approved evidence satisfactory to Lender
that Borrower has obtained liability, workmen's compensation, hazard and
builder's risk insurance with respect to the Project (as applicable), issued by
such companies and in such amounts as are satisfactory to Lender, covering all
development, construction, and improvements, with mortgagee or loss payable
clause(s) in New York standard form in favor of Lender;
(i) Lender shall have received a certificate of compliance with applicable
restrictive or protective covenants, and certifications by appropriate
governmental agencies, in forms acceptable to Lender, that the planned
development and/or construction and the use of the Property conform with all
federal, state and municipal laws, restrictions and requirements including,
without limitation, applicable zoning regulations;
(j) Lender shall have received and approved copies of the duly executed
development and/or construction contract(s) covering all improvements and costs
to be incurred in the Project, the duly executed contract for architectural
services relating to the erection of the Project, the duly executed engineering
contract for the Project (all as applicable), contractors' lien subordinations
from those contractors and subs required by Lender and an assignment to Lender
of the construction contract, the architectural contract, and/or the engineering
contract, together with the general contractor's, the Project architect's and/or
the Project engineer's consents to such assignments;
(k) A copy of the engineering and soil report shall have been received and
approved by Lender;
(l) Lender shall have received and approved certificates of the engineer,
contractor and/or architect for the Project, or other evidence satisfactory to
Lender, that there are no Hazardous Materials on the Project or on or in any
improvements existing or to be constructed thereon and that the Project, the
Plans and the proposed and existing improvements comply with all laws,
governmental standards and regulations applicable to Borrower and the Project
relating to occupational health and safety, hazardous waste and substances and
environmental matters;
(m) Lender, and if applicable, Lender's construction consultant, shall have
received and approved the Project Budget;
(n) Lender shall have received and approved a current appraisal of the
Project, addressed to the Lender and prepared by an appraiser approved by the
Lender, reflecting an appraised value satisfactory to Lender and otherwise in
form and substance satisfactory to Lender;
(o) Lender shall have received and approved all payment and performance
bonds required by the City of Fort Worth related to the Facilities Agreements
executed by the City and the Borrower. The Lender shall not be expected to issue
any such bonds;
(p) Lender shall have received such further documents and opinions as
Lender reasonably may request.
CONSTRUCTION LOAN AGREEMENT - PAGE 7
<PAGE>
SECTION 3.02 CONDITIONS TO DISBURSEMENTS AFTER INITIAL DISBURSEMENT.
Disbursements under the Note after the Initial Disbursement shall be made
monthly and at such other times as Borrower and Lender shall agree; provided,
however, that in no event shall Lender be obligated to make disbursements after
the Initial Disbursement, prior to the full satisfaction of all of the following
conditions:
(a) Lender shall have been furnished draw request in for acceptable to
Lender, properly completed and executed by the general contractor and the
Project architect or engineer, as applicable, certifying as to the percentage of
completion of each item of development and/or construction, and that the advance
requested is for work actually done and materials actually incorporated into the
Project and, to the extent approved by Lender, materials actually located and
stored on the Property, during the period preceding the date of the disbursement
and the value thereof;
(b) Lender shall have been furnished evidence satisfactory to it that the
Project architect or engineer, as applicable, has inspected the Project and
approved development and/or construction to the date of the disbursement;
(c) Lender shall have received a mechanic's and materialman's lien waiver
from the general contractor and any other subcontractors engaged in work upon
the Property, waiving their lien rights through the date of the last previous
disbursement (provided however, that with respect to any subcontractor, the lien
release shall not be required until the final payment to such subcontractor);
(d) Upon request of Lender, Borrower shall exhibit or cause to be exhibited
to Lender satisfactory evidence, by receipts, certificates or vouchers, that
there are no outstanding overdue claims or demands for labor and materials used
in the Project or improvements on the Property, and if any notice of lien be
filed against any of the collateral securing the Loan, under any mechanic's or
other lien law, Lender may suspend further disbursements under this Agreement
until such lien shall have been discharged of record, or Lender may satisfy such
lien by disbursement hereunder if such lien is not discharged of record within
thirty (30) days after Lender requests Borrower to have such lien discharged of
record;
(e) All work which is usually done at the stage of development and/or
construction when the disbursement is requested must, in the judgment of the
Project architect or engineer, as applicable, or in the judgment of an approved
representative of Lender (at Lender's election), be done in a good and
workmanlike manner, and all materials and fixtures usually furnished and
installed at such time shall be furnished and installed;
(f) Borrower shall furnish Lender with a certification by Borrower showing
full payment of all labor, materials and supplies furnished or delivered to the
Project for which a request for a disbursement has been made, or used thereon,
as of the date of the last previous disbursement;
(g) Borrower shall furnish Lender with an endorsement to the title
insurance policy binder showing title free and clear of materialmen's or
mechanics' liens or any other encumbrances as of a date not more than five (5)
days prior to the date of the disbursement request;
(h) All other conditions described in Section 3.01 hereof shall have been
and shall continue to be fully satisfied, and all other items or documents
described in Section 3.01 hereof shall have been obtained and approved by Lender
and shall be in full force and effect and unmodified, and no event shall have
occurred or failed to occur which, upon notice or lapse of time or both, would
result in the termination of any of such items or documents;
CONSTRUCTION LOAN AGREEMENT - PAGE 8
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(i) No event shall have occurred or failed to occur which would be a
default or Event of Default under this Agreement, the Note, or any of the other
Loan Documents or which upon notice or lapse of time or both would constitute
such a default or Event of Default; and
(j) Lender shall have received and approved such further documents and
information as Lender may reasonably require, including, without limitation, if
applicable, an FHA/VA compliance inspection report.
SECTION 3.03 ADDITIONAL CONDITIONS FOR FINAL DISBURSEMENT. In addition to
the conditions contained in Sections 3.01 and 3.02 hereof, prior to and as a
condition precedent to Lender's obligation to make the final disbursement
hereunder:
(a) Borrower shall have exhibited or cause to be exhibited to Lender the
final certificate of approval of the various governmental authorities having
jurisdiction over the Project, including, without limitation, as applicable, a
certificate of occupancy, a final record map recorded in the real estate records
of the county where the Project is located, any necessary development and/or
construction certificates, and certificates of the full payment and discharge of
all costs, expenses, contract payments and charges relating to development
and/or construction;
(b) Borrower shall have submitted the architect's and/or engineer's final
certificate of substantial completion and other appropriate development and/or
construction certificates relating to the completion of the Project;
(c) Lender shall have received and approved a final survey of the Project
as completed, prepared by a surveyor acceptable to Lender;
(d) Lender shall have inspected and approved the Project, if they shall
elect to do so;
(e) Lender shall have received a final mechanic's and materialman's lien
waiver and release from the general contractor and any other contractors engaged
in work upon the Property; and
(f) In addition, the final disbursement hereunder shall, at Lender's
option, be withheld until thirty (30) days after (i) the "completion" (as such
term is defined in Section 53.106 of the Texas Property Code) of the Project and
(ii) an affidavit of completion has been filed with the County Clerk of the
county in which the Property is located in compliance with Section 53.106 of the
Texas Property Code.
SECTION 3.04 ADDITIONAL REQUIREMENTS REGARDING DISBURSEMENTS. Lender may
require three (3) business days' notice in writing from Borrower prior to a
disbursement hereunder. The person or persons authorized to execute or otherwise
make disbursement requests shall be specified in a resolution of the board of
directors of Borrower or a similar authorization document, if Borrower is a
corporation or other entity, or shall be the individuals signing this Agreement
as "Borrower". Lender shall not be obligated to disburse more than ninety
percent (90%) of each requisition for direct construction costs until each of
the conditions for final disbursement in Section 3.03 hereof have been and
remain fully satisfied.
SECTION 3.05 CERTAIN DISBURSEMENTS. Prior to the satisfaction of the
conditions set forth in Sections 3.01, 3.02, 3.03 and 3.04 hereof, Lender may at
its sole option, but shall have no obligation to, disburse such sums as Lender
may elect, including without limitation amounts owed for expenses to Lender by
CONSTRUCTION LOAN AGREEMENT - PAGE 9
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Borrower under Section 4.05 hereof, and all such disbursements or payments shall
be deemed to have been made pursuant to this Agreement and not in modification
hereof.
SECTION 3.06 JOINT LIABILITY. The Borrower specifically authorizes and
directs the Lender to make disbursements on this Loan upon the request of the
person or persons designated in Section 3.04 hereof. Each Borrower whose name is
signed to this Agreement shall be liable for all such disbursements made upon
request of the above-described person or persons notwithstanding the failure of
each of the Borrowers to execute any request for disbursement, it being the
intention of each Borrower to appoint each of the above-described persons as the
agent and attorney-in-fact of the Borrower to make such requests for
disbursements. The Borrower does specifically ratify and confirm to the Lender
the Borrower's liability for disbursements made pursuant to this Section.
SECTION 3.07 LOAN PROCEEDS. The Lender shall not be required to segregate
the Loan proceeds or to ear-mark such proceeds in any manner. The sole
obligation of the Lender shall be to disburse the proceeds as set forth herein,
provided Borrower satisfies the conditions precedent to the disbursement and
provided no event has occurred or failed to occur which would constitute a
default or Event of Default (as defined herein and therein) under this
Agreement, the Note, the Deed of Trust, or any of the other Loan Documents, or
which upon notice or lapse of time, or both, would constitute such a default or
Event of Default.
ARTICLE IV
AFFIRMATIVE COVENANTS
SECTION 4.01 DEFICIENCY IN AMOUNT OF UNDISBURSED LOAN PROCEEDS. If and
whenever the Lender shall determine and notify the Borrower that the amount of
monies remaining undisbursed is less than the amount required fully to complete
and pay for the improvements contemplated under this Loan, and the Lender shall
demand that the Borrower deposit with the Lender an amount equal to such
deficiency as determined by the Lender, then and in that event the Borrower
shall comply with such demand within ten (10) days from the date thereof. The
judgment and determination of the Lender under this Section shall be final and
conclusive. A budgetary savings in one category of the Project Budget will allow
an increase in another budgeted category. In determining the amount of monies
required to fully complete the improvements contemplated by the Loan, it is
acknowledged that the Borrower will conduct certain off-site work that will be
funded by the Borrower directly. The Borrower shall keep the Lender informed of
the status of the off-site work, as well as the completion schedule, the budget
and payment schedule for the off-site work and provide from time to time such
information as the Lender shall reasonably require.
SECTION 4.02 INTEREST RESERVE. If, due to high interest rates or other
various factors, any interest reserve of the Project Budget appears to Lender to
be inadequate, Borrower shall fund the equity necessary to cure the inadequacy.
The interest reserve sufficiency is to be determined by projecting the interest
rate at the then current rate applied to the anticipated Loan balance for the
remaining term.
SECTION 4.03 INSURANCE COVERAGE AND APPLICATION OF PROCEEDS. The interest
of the Lender shall, at all times, be protected by adequate fire and multiple
perils insurance covering all development and/or construction work, buildings,
CONSTRUCTION LOAN AGREEMENT - PAGE 10
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improvements, fixtures and other personal property on or related to the Premises
and off-site and on-site materials related to the Project through a company or
companies acceptable to the Lender and in an amount equal to the full insurable
value of such work, buildings and improvements, fixtures, personal property, and
materials. Such fire and multiple perils insurance policies shall contain
mortgagee or loss payable clause(s) in New York standard form in favor of
Lender. The proceeds from any loss covered by insurance shall be, at the option
of the Lender, applied to the replacement of the loss or toward the repayment of
the Loan. The Borrower also shall provide workmen's compensation and general
liability insurance with respect to the Premises through companies acceptable to
Lender and in such amounts as are satisfactory to Lender. Lender shall be named
as an additional insured on all liability insurance policies and as a
certificate holder on all workmen's compensation insurance policies. The
originals of all insurance policies required by this Section shall be in the
possession of the Lender no later than the commencement of development work or
construction, and Lender shall have no obligation to disburse any funds for
development work or construction costs until Lender shall have received such
policies and satisfactory evidence of the payment of the premiums thereon.
SECTION 4.04 PAYMENT OF TAXES AND DEBTS. The Borrower agrees to promptly
pay and discharge any taxes, assessments or indebtedness upon the Project which
may become due or payable during the existence of this Loan.
SECTION 4.05 PAYMENT OF EXPENSES OF LENDER. The Borrower agrees to pay any
and all taxes, insurance premiums, recording fees, abstract or title policy
costs, attorneys' fees and all other expenses and costs of every kind which may
reasonably be incurred by the Lender in the making, processing, collecting,
protecting and servicing of this Loan and in maintaining unimpaired its security
and lien, or otherwise connected with or growing out of this transaction. Lender
may reimburse itself out of any disbursement hereunder, and such reimbursement
shall be deemed to be a disbursement under this Agreement covered by the Note
and secured by the Loan Documents.
SECTION 4.06 REMOVAL OF MECHANICS' AND MATERIALMEN'S LIENS. The Borrower
specifically agrees to have any mechanics' and materialmen's liens which may be
filed against the Premises released or bonded (in compliance with the
requirements of Section 53.171 et seq. of the Texas Property Code) within ten
(10) days of the date of filing of the same, time being of the essence.
SECTION 4.07 PROGRESS REPORTS. The Borrower shall deliver to the Lender a
report of the progress of the contemplated improvements to the Premises, the
cost of said improvements compared to estimates, and/or contracts, the promotion
and merchandising efforts for the sale of the Project, current sales reports,
and such other data and information concerning the Project as may be required by
the Lender. Such reports shall be required on a monthly basis unless
circumstances dictate more frequent reports in the judgment of the Lender.
SECTION 4.08 REVISED SURVEY. The Borrower agrees to locate and develop
and/or construct the improvements on the Property so as to comply with and
violate no building and use restrictions on, against or applicable to the
Property and agrees to furnish the Lender, upon request, a survey locating
roadways and other improvements, in the form and made by a competent surveyor
meeting the approval of the Lender, showing full compliance with the recorded
plat. Lender shall have no obligation to make further disbursements hereunder
until such "as built" survey is provided to and approved by Lender.
CONSTRUCTION LOAN AGREEMENT - PAGE 11
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SECTION 4.09 INSPECTIONS. (a) Lender shall have the right, and Borrower
shall allow Lender, at all times to inspect the Project and all collateral
securing the Loan. The Borrower also shall permit Lender and any of its
authorized representatives, and shall cause such persons and entities to be
permitted: (i) to visit, examine, inspect and make extracts from books and
records of the Borrower and will discuss with Lender or its representatives the
affairs, finances and accounts of the Borrower; and (ii) to inspect all
collateral securing the Loan, all at such reasonable times and as often as may
be reasonably requested;
(b) Lender's construction or development consultants, if any shall be
employed, shall have the right at all times to inspect the Project and the
status of construction and/or development and to review all architectural,
engineering, and construction drawings and other documents. The consultants
shall make such reports as required by Lender, including without limitation,
reports concerning the status of construction and/or development, compliance of
the construction and/or development with the Plans, determinations with respect
to status of compliance with construction and/or development schedules and cost
estimates, and compliance with all provisions of this Agreement. All costs and
expenses incurred by Lender in connection with the employment of a consultant
shall be reimbursed by Borrower;
(c) Any such inspections and reports made pursuant to this Section shall be
solely for the benefit of Lender, and neither Borrower nor any Guarantor, any
Endorser, or any third party shall be entitled to claim any loss or damage as
the result either of such inspections or the failure to make the same.
SECTION 4.10 SIGN. The Lender shall have the right to erect a sign on the
Project stating that financing for the Project is being provided by the Lender.
SECTION 4.11 FINANCIAL STATEMENTS. Upon request by Lender, Borrower shall
furnish or cause to be furnished to Lender such financial statements on and
other information concerning the Borrower, any Guarantor, any Endorser, and the
Project in a form suitable to, and containing such information as, Lender may
require.
SECTION 4.12 ACCESS TO BORROWER'S BOOKS AND RECORDS. The Lender, or its
agents, shall have unrestricted access to the records, accounting books,
contracts, subcontracts, bills and statements of the Borrower, including any
supporting or related vouchers or other instruments, and shall have the right to
make copies of the same. If the Lender so requires, the records, books,
vouchers, or other instruments shall be delivered to an accountant of the
Lender's choice for audit, examination, inspection, and photocopying or other
type of duplication.
SECTION 4.13 CONDEMNATION. The Borrower, for the Borrower and the
Borrower's heirs, executors, administrators, successors and assigns, does hereby
assign unto the Lender, its successors and assigns, any and all award and awards
hereto made and hereafter to be made by any federal, state or municipal
authorities to the present and all subsequent owners of the Premises, including
any award or awards for any change or changes of grade of streets affecting the
Premises, which award or awards are hereby assigned to the Lender, and the
CONSTRUCTION LOAN AGREEMENT - PAGE 12
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Lender, for itself, its successors and assigns (at its or their option) is
hereby authorized, directed and empowered to collect and receive the proceeds of
any such award or awards from the authorities making the same and to give proper
receipts and acquittances therefor, and to apply the same toward the payment of
the amount owing on account of the Note and Deed of Trust, notwithstanding the
fact that the amount owing on account of the Note and Deed of Trust may not then
be due and payable. The Borrower, for the Borrower and the Borrower's heirs,
executors, administrators, successors and assigns, hereby covenants and agrees
to and with the Lender, its successors and assigns, upon request, to make,
execute and deliver any and all assignments and other instruments sufficient for
the purpose of assigning such award or awards to the holder of the Note and Deed
of Trust, free, clear and discharged of any and all encumbrances of any kind or
nature whatsoever.
SECTION 4.14 NOTICE OF DEFAULTS UNDER THIS AGREEMENT AND OTHER CREDIT
ARRANGEMENTS. Borrower shall give prompt notice to Lender of any defaults by
Borrower hereunder or under any other Loan Document, and of any notice of
default received by Borrower under any other credit arrangement of Borrower.
SECTION 4.15 FURTHER ASSURANCES. Borrower shall do, make, execute, record
and deliver, or will cause to be done, made, executed, recorded, and delivered,
all such additional and further acts, things, deeds, assurances and instruments
as Lender may require to effect, confirm, assure to, or more completely to vest
in Lender the rights, remedies, liens and conveyances intended to be granted or
conveyed to Lender under this Agreement, the Note, the other Loan Documents, or
in the collateral securing the Loan, including without limitation, estoppel
certificates stating that the Loan is in full force and effect and that there
are no defenses or offsets thereto.
ARTICLE V
DEFAULTS AND REMEDIES UPON DEFAULT
SECTION 5.01 EVENTS OF DEFAULT. The happening of any one or more of the
following events shall constitute an event of default ("Event of Default") under
this Agreement, the Note, the Deed of Trust and the other Loan Documents:
(a) If the Borrower fails to make any payment of the principal of, or
interest on, or any other charge under, the Note, as and when the same becomes
due and payable and the continuance of such failure for a period of five(5) days
after such date;
(b) If the Borrower or any other person or entity violates or fails to
observe or perform any covenant, term, or condition contained in this Agreement,
and the continuation of such failure for a period of fifteen (15) days after
written notice to the Borrower. Nothing contained in this subsection (b) shall
be construed or deemed to require any notice or opportunity to cure for an other
Event of Default set forth in this section unless a specific notice and cure
periods is expressly provided in the subsection describing such Event of
Default. Any default or Event of Default under the Note, the Deed of Trust or
any of the other Loan Documents shall be an Event of Default hereunder;
CONSTRUCTION LOAN AGREEMENT - PAGE 13
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(c) If any representation or warranty made herein or in any of the other
Loan Documents, or if any report, certificate, financial statement or other
instrument furnished in connection with this Agreement or the borrowing
hereunder shall prove to be false or misleading in any material respect;
(d) If in the judgment of the Lender the proceeds of the Loan or any part
thereof are being or shall at any time have been diverted to a purpose other
than the payment and discharge of the cost of the materials and labor entering
into the Project, and other expenses relating solely to the Project which have
been approved by the Lender;
(e) If the construction and/or development work is substantially
discontinued without cause, in the sole determination of the Lender, for a
period of forty-five (45) days, in the aggregate, or if Borrower fails to
prosecute the work on the Project with diligence and dispatch as may be
reasonably required by the Lender;
(f) If a voluntary or involuntary petition is filed by or against the
Borrower, any Guarantor or any Endorser under any provision of the bankruptcy
laws or any other similar state or federal law, or if the Borrower, any
Guarantor or any Endorser makes any assignment for the benefit of creditors, or
if the Borrower, any Guarantor, or any Endorser becomes insolvent or admits in
writing its inability to pay its debts as they become due, or if a receiver or
trustee shall be appointed by any court of Borrower, any Guarantor or any
Endorser or of the property of Borrower, any Guarantor or any Endorser, or any
part thereof;
(g) If a foreclosure action shall be instituted against the Premises, or if
a lien shall be filed against the Premises which is not removed of record,
bonded or dismissed within fifteen (15) days after such filing;
(h) If an unreasonable delay shall occur in the construction and/or
development of the Project, as a direct or indirect result of energy shortages,
or municipal, county, state, federal or other governmental law, order, rule or
regulation relating to environmental protection, sewage treatment, zoning, or
energy conservation, or lack of utilities (which includes, but is not limited
to, gas, electricity, water and sewage treatment) or if it reasonably appears to
Lender that, upon completion of such improvements, energy (including all
utilities) will not be available in sufficient quantities to permit the
operation of the Project;
(i) If in Lender's sole judgment, the Project cannot be completed by the
Completion Date;
(j) If the Deed of Trust shall not provide Lender with a first lien on the
Project, or if any of the property described in the Deed of Trust is encumbered
in any way without the prior written consent of Lender;
(k) If the Project improvements are damaged or destroyed by fire or
otherwise to an extent such that Lender determines, in its sole judgment, that
the Project cannot be completed on or before the Completion Date, or that there
are insufficient funds remaining in the construction budget to complete the
Project, taking into account any insurance proceeds received because of the
damage;
(l) If any claim, allegation or litigation shall be made or filed against
Borrower, which claim, allegation or litigation is reasonably determined by
Lender to be material to Borrower's financial condition or ability to pay the
Loan. Any claim, allegation or litigation shall be made against any Guarantor,
or any Endorser or any properties or rights of any Guarantor or any Endorser and
such actions, suits or proceedings materially and adversely affect such
Guarantor's or Endorser's financial condition or ability to pay and perform its
obligations under the Loan and in any event a matter involving $50,000 or more
shall be deemed material;
(m) If the Borrower, any Guarantor or any Endorser shall die or be declared
incompetent;
CONSTRUCTION LOAN AGREEMENT - PAGE 14
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(n) If Borrower fails to comply with any requirement of any governmental
authority having jurisdiction within fifteen (15) days after notice in writing
of such requirement shall have been given to Borrower;
(o) If Borrower does not disclose to Lender any and all demands or notices
of default to Borrower from subcontractors or persons or parties furnishing
labor or materials on the Property within ten (10) business days after receipt
of such notice by Borrower;
(p) If Borrower is a limited liability company, if any of the managers
shall cease to be such managers, or if any of them shall die, or any action
shall be taken or if there shall be any occurrence which could or does have the
effect of terminating, dissolving, or winding-up the business of any such
manager;
(q) If any action whatsoever shall be taken, or if there shall be any
occurrence which could or does have the effect of, terminating, dissolving or
winding-up the business of the Borrower;
(r) If there shall occur any default with respect to any indebtedness
(other than the Note) of the Borrower, any Guarantor or any Endorser or with
respect to the performance of any other obligation incurred in connection with
any indebtedness for borrowed money of the Borrower, any Guarantor or any
Endorser, if the effect of such default is to accelerate the maturity of such
indebtedness or to permit the holder thereof to cause such indebtedness to
become due prior to its stated maturity, or if any such indebtedness shall not
be paid when due.
SECTION 5.02 LENDER'S REMEDIES. Upon the occurrence of any Event of Default
hereunder, then the Lender shall have the absolute right, at its option and
election, without notice to Borrower or any other person or entity (other than
such notice as may been required for an Event of Default or event of default to
occur), to do any one or more or all of the following:
(a) Institute appropriate proceedings to specifically enforce performance
hereof;
(b) Withhold further disbursements hereunder;
(c) Accelerate the maturity of the Note and demand payment of the principal
sums due thereunder, with interest, charges, advances, whereupon the same shall
be due and payable without notice of any kind, including, but not limited to,
notice of intention to accelerate or notice of acceleration, all of which
notices are waived by Borrower, and costs, and in default of said payment or any
part thereof, exercise all other rights and remedies available to Lender under
the laws of the State of Texas or any other state and under this Agreement, the
Note, the Deed of Trust, and the other Loan Documents, including, without
limitation, the right to foreclose and enforce collection of such payment by
foreclosure and/or other appropriate action in any court of competent
jurisdiction; or
(d) Exercise the right of setoff described in Section 5.03 below.
SECTION 5.03 SETOFF. Lender is hereby given a continuing lien as additional
security for the Note and all other liabilities and indebtedness of Borrower to
Lender upon any and all moneys, securities, and other property of Borrower, and
the proceeds thereof, now or hereafter held or received by or in transit to the
Lender from or for Borrower, whether for safekeeping, custody, pledge,
transmission, collection, or otherwise, and also upon any and all deposit
balances (general or special) and credits of Borrower with, and any and all
claims of Borrower against the Lender at any time existing, and upon the
occurrence of any Event of Default hereunder, the Lender may apply or set off
the same against the indebtedness and liabilities secured by the Deed of Trust
and other Loan Documents.
CONSTRUCTION LOAN AGREEMENT - PAGE 15
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SECTION 5.04 DISBURSEMENTS AFTER DEFAULT. Upon the occurrence of any one or
more of the above-listed Events of Default, all obligations on the part of
Lender to make loans and disbursements hereunder shall, if Lender so elects,
cease and terminate; provided, however, that Lender may, in its sole discretion,
make additional disbursements without becoming liable to make any other
disbursements, notwithstanding anything to the contrary contained or implied
herein or in any other Loan Document.
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 6.01 NO THIRD PARTY BENEFICIARIES. There are no third party
beneficiaries to this Agreement or to any of the other Loan Documents. All
conditions to Lender's obligations to make disbursements under this Agreement
are imposed solely and exclusively for the benefit of Lender. Neither Borrower
nor any other person or entity shall have standing to require satisfaction of
any such condition or be entitled to assume that Lender will refuse to make
disbursements in the absence of strict compliance with any or all such
conditions, and neither Borrower nor any other person or entity shall, under any
circumstances, be deemed to be a beneficiary of any conditions hereof, any or
all of which conditions may be waived freely, in whole or in part by Lender at
any time if, in its sole discretion, Lender deems it advisable so to do. Lender
makes no representations or warranties and assumes no obligation or
responsibility with respect to the quality of the development and/or
construction of the improvements or any part of the Project. This Agreement
shall not benefit, and may not be relied upon by, any person or entity other
than the Borrower and the Lender.
SECTION 6.02 WAIVERS BY BORROWER, GUARANTORS, AND ENDORSERS. This Loan may
be extended or renewed in whole or in part or the rate of interest thereon may
be changed or fees in consideration of loan extensions may be imposed, and any
related right or security therefor may be waived, exchanged, surrendered or
otherwise dealt with by the Borrower and the Lender without notice to the
co-makers, Endorsers and Guarantors of this Loan, all without affecting the
liability of the Borrower and all other obligors under this Agreement, the Note,
the Deed of Trust and the other Loan Documents. The release of any party liable
upon or in respect of the Note shall not release any other such party. The
Borrower, and each of them, hereby waives presentment, demand, protest, notice
of nonpayment and of protest, notice of intent to accelerate, notice of
acceleration, and any and all other notices and demands whatsoever, excluding,
however, any notice of default required by this Agreement.
SECTION 6.03 DELAY; NO WAIVER. No delay or failure of Lender to exercise
any option or right herein given or reserved shall constitute a waiver of such
option or right or estop Lender thereafter to exercise the same or any other
option or right at any time, and Lender's payment or contracting to pay anything
Borrower has herein agreed to pay shall not constitute a waiver of the default
of Borrower in failing to make any such payment. A waiver by Lender of any
option or right herein given or reserved on any one occasion shall not be deemed
a waiver of said option or right on any future occasion. Lender may in its
discretion extend the time of payment of the principal evidenced and secured by
the Note and other Loan Documents and any extension so granted shall be deemed
to be made in pursuance of this Agreement and not in modification thereof.
CONSTRUCTION LOAN AGREEMENT - PAGE 16
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SECTION 6.04 SURVIVAL OF COVENANTS AND REPRESENTATIONS AND WARRANTIES. All
covenants, agreements, representations and warranties made herein and in
documents delivered in support of the Loan request shall be deemed to have been
material and relied on by the Lender and shall survive the execution and
delivery to the Lender of the Note and the disbursements hereunder.
SECTION 6.05 NUMBER; SUCCESSORS AND ASSIGNS. Plural or singular words used
herein to designate the Borrower shall be construed to refer to the person or
persons, partnership, corporation or other entity, whether one or more than one,
obtaining the Loan from the Lender; and all covenants and agreements herein made
by the undersigned Borrower shall bind the heirs, personal representatives,
successors and assigns of all those undersigned designated as Borrower; and
every option, right and privilege herein reserved or secured to the Lender,
shall inure to the benefit of the Lender's successors and assigns.
SECTION 6.06 MODIFICATIONS; WAIVER. Neither this Agreement nor any
provision hereof may be changed, modified, amended, waived, discharged,
abandoned or terminated except by an instrument in writing signed by the party
against whom enforcement of the change, modification, amendment, waiver,
discharge, abandonment or termination is sought. In the event that Lender shall
waive in writing any provision or requirement hereunder, such waiver shall be
effective only for the specific purposes, circumstances and duration stated in
said waiver.
SECTION 6.07 ASSIGNMENTS. The Lender may assign this Loan or any parts
thereof. The Borrower shall not assign this Agreement or any part of any
disbursement to be made hereunder, nor convey, nor encumber the Premises by
mortgage or other liens without the prior written consent of the Lender. Any
assignment, conveyance or encumbrance without such consent of the Lender shall
constitute an immediate default under this Agreement, the Note, the Deed of
Trust, and the other Loan Documents.
SECTION 6.08 LENDER'S RIGHT TO APPEAR IN LITIGATION. The Lender shall have
the right, but not the obligation, to appear in, or to defend any action or
proceeding purporting to affect the rights or duties of the parties hereunder
and in connection therewith pay out of the Loan proceeds all necessary expenses,
employ counsel and pay reasonable attorneys' fees, all of which the Borrower
agrees to repay to the Lender upon demand.
SECTION 6.09 RIGHT TO PARTIAL RELEASES. If applicable, provided there is no
default under this Agreement, the Deed of Trust, the Note, or any of the other
Loan Documents, the Lender agrees that it will release from the lien and
operation of the Deed of Trust any unit, lot, parcel or other portion of
Premises in accordance with the Release Schedule attached hereto as EXHIBIT "H".
Any payment made for the release of any portion of the Premises hereunder shall
apply against the reduction of principal, and, unless otherwise agreed on
EXHIBIT "H" hereto, shall not reduce or otherwise affect any scheduled payments
to become due under the terms of this Agreement, the Note, the Deed of Trust,
and the other Loan Documents.
CONSTRUCTION LOAN AGREEMENT - PAGE 17
<PAGE>
SECTION 6.10 NOTICE TO PARTIES. All notices provided for herein shall be by
ordinary mail (except that all notices of default shall be by certified mail,
return receipt requested) addressed to the Lender at P.O. BOX 650561, DALLAS,
DALLAS COUNTY, TEXAS 75265-0561, or such other address as the Lender may
designate in writing, and to the Borrower at 4050 WEST PARK BLVD., PLANO, TEXAS
75093. Notice shall be completed by depositing the same in the mail addressed to
the party at such address with the proper amount of postage affixed thereto.
Actual receipt of notice shall not be required to effect notice hereunder.
SECTION 6.11 HEADINGS; AMENDMENTS. All sections and descriptive headings
are inserted for convenience only, and shall not affect any construction or
interpretation hereof. This Agreement may not be amended except by written
agreement between Borrower and Lender.
SECTION 6.12 INVALID PROVISIONS. Unenforceability for any reason of any
provision of this Agreement shall not limit or impair the operation or validity
of any other provision of this Agreement.
SECTION 6.13 SURVIVAL OF COMMITMENT. All requirements of any commitment
letter executed by Lender and Borrower relating to the Loan, and Borrower's
obligation to perform the same, except to the extent that such requirements and
obligations are inconsistent with this Agreement, the Note, or the other Loan
Documents, shall survive the execution of this Agreement and shall continue in
full force and effect until the Loan is paid in full.
SECTION 6.14 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which, when executed and delivered, shall be an original,
but such counterparts shall together constitute one and the same instrument.
SECTION 6.15 GOVERNING LAW. THIS AGREEMENT, THE NOTE, THE DEED OF TRUST,
AND THE OTHER LOAN DOCUMENTS ARE EXECUTED AND DELIVERED IN THE STATE OF TEXAS,
AND THE LAWS OF THE STATE OF TEXAS SHALL GOVERN IN THE INTERPRETATION,
ENFORCEMENT, AND ALL OTHER ASPECTS OF THE OBLIGATIONS AND DUTIES CREATED UNDER
THIS LOAN. Borrower acknowledges that the negotiation of the provisions of this
Agreement, the Note, the Deed of Trust and the other Loan Documents took place
in the State of Texas; that all such documents were executed in Dallas County,
Texas, or if executed elsewhere, will become effective only upon Lender's
receipt and acceptance thereof in said county and state (provided, however, that
Lender shall have no obligation to give, nor shall Borrower be entitled to
receive, notice of such receipt and acceptance in order for said Loan Documents
to become effective and valid and binding obligations of the Borrower); and that
all of such documents were or will be executed and delivered to Lender to induce
Lender to make the Loan to Borrower. Borrower hereby submits itself to
jurisdiction in the State of Texas for any action or cause of action arising out
of or in connection with the Loan Documents, agrees that venue for any such
action shall be in Dallas County, Texas and waives any and all rights under the
law of any state to object to jurisdiction or venue within Dallas County, Texas.
Notwithstanding the foregoing, nothing contained in this Section shall prevent
Lender from bringing any action or exercising any right in any other county,
state or jurisdiction against Borrower, any security for the Loan, any
Collateral or any of Borrower's properties. Initiating such action or proceeding
or taking any such action in any other state shall in no event constitute a
waiver by Lender of any of the foregoing.
CONSTRUCTION LOAN AGREEMENT - PAGE 18
<PAGE>
SECTION 6.16 CONFLICT IN LOAN DOCUMENTS. In the event of conflict in the
terms of any provision in this Agreement, the Note, the Deed of Trust or the
other Loan Documents, the terms of the provision most favorable to Lender shall
apply.
SECTION 6.17 NO PARTNERSHIP OR JOINT VENTURE. Notwithstanding anything to
the contrary herein contained or implied, Lender, by this Agreement, or by any
action pursuant thereto or hereto, shall not be deemed a partner, joint venturer
or participant in the venture with Borrower, and Borrower hereby indemnifies and
agrees to defend and hold Lender harmless (including the payment of reasonable
attorneys' fees) from any and all damages resulting from such a construction of
the parties' relationship. Without limitation, it is the intention of Borrower
and Borrower agrees that the foregoing indemnity shall apply with respect to
such claims, charges, losses, expenses and costs which in whole or in part are
caused by or arise out of the alleged negligence of Lender, its agents or
employees. The requirements herein, and the restrictions imposed in this
Agreement, are for the sole protection and benefit of Lender.
SECTION 6.18 REMEDIES CUMULATIVE. No right or remedy conferred upon Lender
in this Agreement is intended to be exclusive of any other right or remedy
contained in the Note, this Agreement, or any other Loan Document, and every
such right or remedy shall be cumulative and in addition to every other right or
remedy contained herein or therein or now or hereafter available to the Lender
at law, in equity, by statute or otherwise.
SECTION 6.19 INDEMNIFICATION. Borrower shall and does hereby indemnify and
hold harmless Lender from and against any and all claims, charges, losses,
expenses and costs, including without limitation reasonable attorneys' fees,
resulting from any claims, actions or proceedings in connection with the
execution, delivery and performance of this Agreement, the Note or the other
Loan Documents. Without limitation, it is the intention of Borrower and Borrower
agrees that the foregoing indemnity shall apply with respect to such claims,
charges, losses, expenses and costs which in whole or in part are caused by or
arise out of the alleged negligence of Lender, its agents or employees,
excluding however any act or omission determined by a court of competent
jurisdiction to be gross negligence or willful misconduct. The indemnification
provided in this section shall survive the payment in full of the Loan.
SECTION 6.20 THIS AGREEMENT PART OF NOTE AND DEED OF TRUST. The Note and
Deed of Trust provided for herein shall specifically incorporate this Agreement
by reference and in the event that the Note and Deed of Trust are duly assigned
by Lender, this Agreement shall be considered assigned in like manner.
SECTION 6.21 USURY NOT INTENDED; SAVINGS PROVISIONS. Notwithstanding any
provision to the contrary contained herein or in any other Loan Document, it is
expressly provided that in no case or event shall the aggregate of any amounts
accrued or paid pursuant to this Agreement which under applicable laws are or
may be deemed to constitute interest ever exceed the maximum non-usurious
interest rate permitted by applicable Texas or federal laws, whichever permit
the higher rate. In this connection, Borrower and Lender stipulate and agree
that it is their common and overriding intent to contract in strict compliance
CONSTRUCTION LOAN AGREEMENT - PAGE 19
<PAGE>
with applicable usury laws. In furtherance thereof, none of the terms of this
Agreement shall ever be construed to create a contract to pay, as consideration
for the use, forbearance or detention of money, interest at a rate in excess of
the maximum rate permitted by applicable laws. Borrower shall never be liable
for interest in excess of the maximum rate permitted by applicable laws. If, for
any reason whatever, such interest paid or received during the full term of the
applicable indebtedness produces a rate which exceeds the maximum rate permitted
by applicable laws, Lender shall credit against the principal of such
indebtedness (or, if such indebtedness shall have been paid in full, shall
refund to the payor of such interest) such portion of said interest as shall be
necessary to cause the interest paid to produce a rate equal to the maximum rate
permitted by applicable laws. All sums paid or agreed to be paid to Lender for
the use, forbearance or detention of money shall, to the extent permitted by
applicable law, be amortized, prorated, allocated and spread in equal parts
throughout the full term of the applicable indebtedness, so that the interest
rate is uniform throughout the full term of such indebtedness. The provisions of
this Section 6.22 shall control all agreements, whether now or hereafter
existing and whether written or oral, between Borrower and Lender.
SECTION 6.22 ADDITIONAL PROVISIONS. Attached hereto as EXHIBIT "I" are
additional terms and provisions of this Agreement, if any, which are
specifically made a part hereof by reference.
SECTION 6.23 STATUTE OF FRAUDS NOTICE. Lender and Borrower hereby take
notice of and agree to the following:
PURSUANT TO SUBSECTION 26.02(b) OF THE TEXAS BUSINESS AND COMMERCE CODE, A
LOAN AGREEMENT IN WHICH THE AMOUNT INVOLVED THEREIN EXCEEDS $50,000 IN VALUE IS
NOT ENFORCEABLE UNLESS THE AGREEMENT IS IN WRITING AND SIGNED BY THE PARTY TO BE
BOUND OR BY THAT PARTY'S AUTHORIZED REPRESENTATIVE. PURSUANT TO SUBSECTION
26.02(c) OF THE TEXAS BUSINESS AND COMMERCE CODE, THE RIGHTS AND OBLIGATIONS OF
THE PARTIES TO THE LOAN DOCUMENTS SHALL BE DETERMINED SOLELY FROM THE LOAN
DOCUMENTS, AND ANY PRIOR ORAL AGREEMENTS BETWEEN THE PARTIES ARE SUPERSEDED BY
AND MERGED INTO THE LOAN DOCUMENTS.
THIS AGREEMENT AND THE OTHER WRITTEN LOAN DOCUMENTS REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
CONSTRUCTION LOAN AGREEMENT - PAGE 20
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed as of the day and year first above written.
LENDER:
COMPASS BANK
By: /s/ Steve Eberhardt
------------------------------------
Name: Steve Eberhardt
Title: Vice President
BORROWER:
HULEN PARK VENTURE, LLC,
a Texas limited liability company
By: /s/ Rick Morgan
------------------------------------
Name: Rick Morgan
Title: Vice President
GUARANTORS:
MTH-TEXAS GP, INC.,
an Arizona corporation
By: /s/ Rick Morgan
------------------------------------
Name: Rick Morgan
Its: Vice President
MTH-TEXAS LP, INC.,
an Arizona corporation
By: /s/ Rick Morgan
------------------------------------
Name: Rick Morgan
Its: Vice President
CONSTRUCTION LOAN AGREEMENT - PAGE 21
<PAGE>
LEGACY/MONTEREY HOMES, L.P.,
an Arizona limited partnership
By: MTH-TEXAS GP, INC.
an Arizona Corporation, its sole general partner
By: /s/ Rick Morgan
------------------------------------
Name: Rick Morgan
Title: Vice President
MERITAGE CORPORATION,
a Maryland corporation
By: /s/ John R. Landon
------------------------------------
Name: John R. Landon
Its: Co-CEO
CONSTRUCTION LOAN AGREEMENT - PAGE 22
<PAGE>
COMPASS BANK
HULEN PARK
PROMISSORY NOTE - CONSTRUCTION
$3,300,000.00 February 10, 2000
Dallas, Texas
FOR VALUE RECEIVED, the undersigned, HULEN PARK VENTURE, a Texas limited
liability company (the "Borrower", whether one or more), jointly and severally
if more than one, hereby promises to pay to the order of COMPASS BANK (the
"BANK"; Bank and any subsequent holder hereof, as applicable, are referred to
herein as the "HOLDER"), without grace at the Bank's office at P. O. Box 650561,
Dallas, Dallas County, Texas 75265-0561, or such other place as Holder may
direct, in lawful money of the United States of America, the principal amount of
THREE MILLION THREE HUNDRED THOUSAND AND NO/100 DOLLARS ($3,300,000.00) or so
much thereof as may be advanced hereunder, with interest at the rate and
calculated in the manner described herein. Payment of principal and interest
shall be in accordance with the following provisions:
1. PAYMENT. Borrower promises to pay interest monthly, on or before the
tenth (10th) day of each month, with the first interest payment due and payable
on or before the first (1st) day of April, 2000. The unpaid balance of the
principal and all accrued and unpaid interest on this Note and all charges
hereunder and under the Loan Documents (as defined herein) shall be due and
payable on August 9, 2002, which is the maturity date of this Note.
2. INTEREST. Interest from date on the outstanding unpaid principal balance
shall be calculated by multiplying the product of the principal amount and the
applicable rate set forth herein by the actual number of days elapsed, and
dividing by 360; provided, however, that if the Maximum Allowable Rate (as
defined below) would be exceeded by virtue of the calculation of interest based
upon a 360-day year, to the extent necessary to avoid exceeding the Maximum
Allowable Rate, interest shall be computed on the basis of the actual number of
days elapsed in the applicable calendar year in which it accrued. The applicable
rate shall be equal to -ZERO- PERCENTAGE POINT (0%) in excess of COMPASS BANK
Index Rate, which is adjusted by Bank from time to time. Any change in said rate
resulting from a change in COMPASS BANK Index Rate shall take effect on the day
of such change. "COMPASS BANK Index Rate," as used herein, is a reference rate
established by the Bank for use in computing and adjusting interest. COMPASS
BANK Index Rate is subject to increase, decrease or change at the Bank's
discretion, and is only one of the reference rates or indices that the Bank
uses. The Bank may lend to others at rates of interest at, or greater or less
than, COMPASS BANK Index Rate or the rate provided herein. Any principal amounts
outstanding hereunder after maturity or acceleration of this Note shall bear
interest at an applicable rate equal to -ZERO- PERCENTAGE POINT (00.0%) in
excess of COMPASS BANK Index Rate from time to time prevailing, calculated in
the manner set forth herein. Notwithstanding the applicable interest rates
specified herein, if on any day the use of any such rate would result in an
NOTE - PAGE 1
<PAGE>
interest rate on this Note which exceeds the Maximum Allowable Rate for that
day, then the applicable interest rate hereunder shall be the Maximum Allowable
Rate on such day, but any subsequent reductions in the COMPASS BANK Index Rate
shall not reduce the applicable interest rate hereunder below the Maximum
Allowable Rate until the total amount of interest accrued on this Note equals
the total amount of interest which would have accrued at the applicable rate
hereunder if the applicable rate had at all times been in effect and there was
no limitation by the Maximum Allowable Rate. "Maximum Allowable Rate" means, on
any day, the maximum non-usurious rate of interest permitted for that day by
whichever of applicable federal or Texas law permits the higher interest rate,
stated as a rate per annum. On each day, if any, that Chapter One ("Chapter
One") of Title 79, Texas Revised Civil Statutes, 1925, as amended (the "Texas
Credit Code"), establishes the Maximum Allowable Rate, the Maximum Allowable
Rate shall be the "indicated rate ceiling" (as defined in Chapter One) for that
day. To the extent that the Maximum Allowable Rate under applicable law is
subject to fluctuation, without notice to Borrower or any other person or
entity, the Maximum Allowable Rate hereunder shall automatically fluctuate
upward and downward as, and in the amount by which, the maximum non-usurious
rate of interest permitted by applicable law fluctuates.
In no event shall the rate of interest calculated and charged hereunder
exceed the Maximum Allowable Rate. All agreements between Borrower and Bank, or
any subsequent Holder of this Note, whether now existing or hereafter arising
and whether written or oral, are expressly limited so that in no contingency or
event whatsoever, whether by reason of acceleration of the maturity of this Note
or otherwise, shall the aggregate of all amounts paid or agreed to be paid to
the Holder of this Note for the use, forbearance or detention of the funds
advanced pursuant to this Note or for the performance or payment of any covenant
or obligation contained herein or in any other document evidencing, securing or
pertaining to this Note or of any other debt evidenced hereby exceed the Maximum
Allowable Rate. If from any circumstances whatsoever, fulfillment of any
provision hereof or of any such other document, at the time performance of such
provision shall be due, shall involve transcending the limit of validity
prescribed by applicable law, then, ipso facto, the obligation to be fulfilled
shall be reduced to the limit of such validity, and if from any circumstance or
reason whatsoever, the interest paid or received on this Note during its full
term produces a rate which exceeds the Maximum Allowable Rate, Bank or any
subsequent Holder of this Note shall refund to the payor or, at Bank's or such
Holder's option, credit against the unpaid principal of this Note, if any, such
portion of said interest as shall be necessary to cause the interest paid on
this Note to produce a rate equal to the Maximum Allowable Rate. All sums paid
or agreed to be paid to any Holder of this Note for the use, forbearance or
detention of the indebtedness evidenced by this Note shall, to the extent
permitted by applicable law, be amortized, prorated, allocated and spread in
equal parts throughout the full term of this Note so that the interest is
uniform throughout the full term of this Note. The terms and provisions of this
paragraph shall control and supersede every other provision of all agreements
between Borrower and any Holder of this Note.
3. SECURITY. The indebtedness evidenced hereby is secured by, among other
things, the Loan Documents defined in the Construction Loan Agreement (the "Loan
Agreement") executed by the Borrower in favor of the Bank dated as of the date
hereof (collectively the "Loan Documents").
NOTE - PAGE 2
<PAGE>
This Note is included in the indebtedness referred to in the Loan Documents
and is entitled to the benefits of the Loan Documents, but neither this
reference to the Loan Documents nor any provisions thereof shall affect or
impair the absolute and unconditional obligation of the Borrower to pay the
principal of and interest on this Note when due.
4. PURPOSE. The Borrower represents, warrants and covenants to and with the
Bank and any other Holder of this Note that the loan evidenced by this Note and
all advances hereunder and under the other Loan Documents are and shall be for
business, commercial, investment or other similar purposes and not primarily for
personal, family, household or agricultural use, as such terms are used in
Chapter One of the Texas Credit Code.
5. DEFAULT. The happening of any one or more of the following events shall
constitute an event of default hereunder:
(a) Default in the payment of the principal of or interest on this
Note when the same becomes due and payable and the continuance of such failure
for a period of five(5) days after such date;
(b) The occurrence of any Event of Default specified in the Loan
Agreement or other Loan Documents or in any other instrument executed in
connection with or securing this Note, and the failure to cure same within any
applicable cure period specifically provided in any Loan Document;
(c) The failure by the Borrower or any other person or entity to
observe any covenant or obligation contained in the Loan Agreement or other Loan
Documents or in any other instrument executed in connection with or securing
this Note and the failure to cure same within any applicable cure period
specifically provided in any Loan Document.
Upon the occurrence of an event of default, or at any time thereafter, the
Holder may, with or without notice to the Borrower (other than such notice as
may been required for an Event of Default or event of default to occur), declare
this Note to be forthwith due and payable, whereupon this Note and the
indebtedness evidenced hereby shall forthwith be due and payable, both as to
principal and interest, without presentment, demand, protest, or other notice of
any kind, all of which are hereby expressly waived, anything contained herein or
in any of the Loan Documents or in any other instrument executed in connection
with or securing this Note to the contrary notwithstanding.
6. WAIVERS. Borrower and any endorser or guarantor of this Note hereby
waive demand, presentment for payment, notice of dishonor, protest, notice of
intent to accelerate, notice of acceleration, and notice of protest and
diligence in collection or bringing suit and agree that the Holder hereof may
accept partial payment, or release or exchange security or collateral, without
discharging or releasing any unreleased collateral or the obligations evidenced
hereby. Borrower and each such endorser and guarantor further waive any and all
rights of exemption, both as to personal and real property, under the
Constitution or laws of the United States, the State of Texas or any other
state. No failure of any Holder of this Note to accelerate the indebtedness
evidenced hereby or to exercise any other right hereunder shall be construed as
a novation or modification of this Note or a waiver of the Holder's right to
thereafter insist upon strict compliance with the terms of this Note without
prior notice of such intention being given to the Borrower.
NOTE - PAGE 3
<PAGE>
7. ATTORNEYS' FEES. Borrower and each endorser or guarantor of this Note
agree to pay reasonable attorneys' fees and costs incurred by the Holder hereof
in collecting or attempting to collect this Note, whether by suit or otherwise.
8. PREPAYMENT. Borrower may prepay this Note, in whole or in part, without
penalty. Unless being paid in full or waived by Holder, prepayment shall be in
multiples of $5,000.00. Unless otherwise elected by Holder, any prepayment shall
be applied first to accrued interest, and then to principal.
9. APPLICABLE LAW; VENUE; PARTIES. THIS NOTE IS BEING DELIVERED TO, AND
ACCEPTED BY, BANK IN THE STATE OF TEXAS AND THIS NOTE SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE UNITED
STATES OF AMERICA FROM TIME TO TIME IN EFFECT. The Borrower and the Bank
expressly agree, pursuant to Article 15.10(b) of Chapter 15 ("Chapter 15") of
the Texas Credit Code, that Chapter 15 shall not apply to this Note or to the
loan evidenced by this Note or any advance thereunder and that neither this Note
nor any such loan or advance shall be governed by or subject to the provisions
of Chapter 15 in any manner whatsoever. As used herein, the terms "Borrower",
"Bank" and "Holder" shall be deemed to include their respective successors,
legal representatives, heirs and assigns, whether by voluntary action of the
parties or by operation of law.
10. STATUTE OF FRAUDS NOTICE. THE LOAN AGREEMENT, THIS NOTE AND THE OTHER
LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
11. MODIFICATION, EXTENSION AND RESTATEMENT. This Promissory Note is a
modification, extension and restatement of that certain "Promissory Note -
Construction" dated November 18, 1999, in the original principal amount of
$250,000.00, payable to the order of the Lender. Borrower covenants and warrants
that there are no defenses, counterclaims or offsets to the Original Note.
Borrower waives and releases any and all such claims, known and unknown, present
and future, arising out of the transactions with the Lender as of the date
hereof.
NOTE - PAGE 4
<PAGE>
IN WITNESS WHEREOF, Borrower has executed, sealed and delivered this Note
in Dallas, Texas, as of the 10th day of January, 2000.
BORROWER:
HULEN PARK VENTURE, LLC
a Texas limited liability company
By: /s/ Rick Morgan
------------------------------------
Name: Rick Morgan
Title: Manager
[ACKNOWLEDGMENT]
STATE OF TEXAS
COUNTY OF COLLIN
This instrument was acknowledged before me on this the 10th day of
February, 2000, by Rick Morgan, Manager of HULEN PARK VENTURE, LLC, a Texas
limited liability company, on behalf of said limited liability company.
Ana Patterson
----------------------------------------
Notary Public, State of Texas
[Seal]
NOTE - PAGE 5
February 1, 2000
CHANGE OF CONTROL AGREEMENT
Dear Steve:
The Board of Directors believes that it is in the best interests of
Meritage Corporation ("Meritage"), and its shareholders to take appropriate
steps to allay any concerns you may have about your future employment
opportunities with Meritage and its subsidiaries (Meritage and its subsidiaries
are collectively referred to as the "Company"). As a result, the Board has
decided to offer to you the benefits described below.
Please bear in mind that these benefits are being offered only to a few,
selected employees and we accordingly ask that you refrain from discussing this
program with others. Also, please note that the benefits described below will
only be effective if you sign the extra copy of this Change of Control Agreement
(the "Agreement") which is enclosed and return it to me on or before February
20, 2000.
1. TERM OF AGREEMENT.
This Agreement is effective immediately and will continue in effect as long
as you are actively employed by Meritage, unless you and Meritage agree in
writing to its termination.
2. SEVERANCE PAYMENT.
If your employment with the Company is terminated without "Cause" (as
defined in Section 8) at any time within two years following a "Change of
Control" (as defined in Section 6), you will receive the "Severance Payment"
described below. You will also receive the Severance Payment if you terminate
your employment for "Good Reason" (as defined in Section 7) at any time within
two years following a Change of Control.
The Severance Payment equals the sum of (i) two times the higher of (x)
your base salary on the date of your termination of employment, or (y) your base
salary on the date preceding the Change in Control, and (ii) two times the
average of the higher of (x) your incentive compensation for the two years prior
to your termination of employment, or (y) your incentive compensation on the
date preceding the Change in Control.
<PAGE>
The Severance Payment will be paid in one lump sum as soon as
administratively feasible following your termination of employment, but in no
event more than 90 days following your termination of employment.
You are not entitled to receive the Severance Payment if your employment is
terminated for Cause, if you terminate your employment without Good Reason, or
if your employment is terminated by reason of your "Disability" (as defined in
Section 10(d)) or your death. In addition, you are not entitled to receive the
Severance Payment if your employment is terminated by you or the Company for any
or no reason before a Change of Control occurs or more than two years after a
Change of Control has occurred.
In order to receive the Severance Payment, you must execute any release
reasonably requested by the Company.
The Severance Payment will be paid to you without regard to whether you
look for or obtain alternative employment following your termination of
employment with the Company.
3. BENEFITS CONTINUATION.
If you are entitled to severance under Section 2, you will continue to
receive life, disability, accident and group health insurance benefits
substantially similar to those which you were receiving immediately prior to
your termination of employment for a period of 24 months following your
termination of employment. Such benefits shall be provided on substantially the
same terms and conditions as they were provided prior to the Change of Control.
The Company does not intend to provide duplicative benefits. As a result,
benefits otherwise receivable pursuant to this Section shall be reduced or
eliminated if and to the extent that you receive such benefits pursuant to any
employment agreement you may have with the Company.
Benefits otherwise receivable pursuant to this Section also shall be
reduced or eliminated if and to the extent that you receive comparable benefits
from any other source (for example, another employer); provided, however, you
shall have no obligation to seek, solicit or accept employment from another
employer in order to receive such benefits.
4. INCENTIVE COMPENSATION.
If you are employed by the Company on the day on which a Change of Control
occurs, the incentive compensation to which you will be entitled (pursuant to
any performance-based incentive compensation program established by the Company)
for the calendar year in which the Change of Control occurs will equal at least
the "Minimum Incentive Compensation Amount." The "Minimum Incentive Compensation
Amount" will equal the incentive compensation to which you would have been
entitled if the year were to end on the day on which the Change of Control
occurs, based upon performance up to that date. In measuring financial
performance, financial results through the date of the Change of Control will be
annualized.
2
<PAGE>
5. STOCK OPTION ACCELERATION.
Notwithstanding anything in this Agreement or in any option agreement to
the contrary, upon a Change of Control, any stock options granted to you under
any of the Company's stock option plans shall become immediately vested and
exercisable.
6. CHANGE OF CONTROL DEFINED.
For purposes of this Agreement, the term Change of Control shall mean and
include the following transactions or situations:
(a) A sale, transfer, or other disposition by Meritage through a
single transaction or a series of transactions of securities of Meritage
representing 50% or more of the combined voting power of Meritage's then
outstanding securities to any "Unrelated Person" or "Unrelated Persons" acting
in concert with one another. For purposes of this Section, the term "Person"
shall mean and include any individual, partnership, joint venture, association,
trust, corporation, or other entity (including a "group" as referred to in
Section 13(d)(3) of the Securities Exchange Act of 1934 (the "Act")). For
purposes of this Section, the term "Unrelated Person" shall mean and include any
Person other than the Company, or an employee benefit plan of the Company, or
any officer, director, or 10% or more shareholder of the Company as of the date
of this Agreement.
(b) A sale, transfer, or other disposition through a single
transaction or a series of transactions of all or substantially all of the
assets of Meritage to an Unrelated Person or Unrelated Persons acting in concert
with one another,
(c) Any consolidation or merger of Meritage with or into an Unrelated
Person, unless immediately after the consolidation or merger the holders of the
common stock of Meritage immediately prior to the consolidation or merger are
the Beneficial Owners of securities of the surviving corporation representing at
least 50% of the combined voting power of the surviving corporation's then
outstanding securities.
7. GOOD REASON DEFINED.
For purposes of this Agreement, the term "Good Reason" shall include the
following circumstances: (a) if the Company assigns you duties that are
materially inconsistent with, or the material reduction of powers or functions
associated with, your position, duties, or responsibilities with the Company, or
an adverse change in your titles, authority, or reporting responsibilities, or
in conditions of your employment, (b) if your base salary is reduced or the
potential incentive compensation (or bonus) to which you may become entitled to
at any level of performance by you or the Company is reduced, (c) if the Company
fails to cause any successor to expressly assume and agree to be bound by the
terms of this Agreement, (d) any purported termination by the Company of your
employment for grounds other than for "Cause," (e) if the Company relieves you
of your duties other than for "Cause," or (f) if you are required to relocate to
an employment location that is more than fifty (50) miles from Scottsdale, AZ.
3
<PAGE>
8. CAUSE DEFINED.
For purposes of this Agreement, the term "Cause" will exist in the
following circumstances: (i) you are convicted of a felony, (ii) you engage in
any fraudulent or other dishonest act to the detriment of the Company, (iii) you
fail to report for work on a regular basis, except for periods of authorized
absence or bona fide illness, (iv) you misappropriate trade secrets, customer
lists, or other proprietary information belonging to the Company for your own
benefit or for the benefit of a competitor, (v) you engage in any willful
misconduct designed to harm the Company or its stockholders, or (vi) you fail to
perform properly your assigned duties.
9. CEILING ON BENEFITS.
The Internal Revenue Code (the "Code") places significant tax burdens on
you and the Company if the total payments made to you due to a Change of Control
exceed prescribed limits. For example, if your limit is $749,999 (because your
"Base Period Income" (as defined below) is $250,000) and the "Total Payments"
(as defined below) exceed the limit by even $1.00, you are subject to an excise
tax under Section 4999 of the Code of 20% of all amounts paid to you in excess
of $250,000. If your limit is $749,999, you will not be subject to an excise tax
if you receive exactly $749,999. If you receive $750,000, you will be subject to
an excise tax of $100,000 (20% of $500,000).
In order to avoid this excise tax and the related adverse tax consequences
for the Company, by signing this Agreement, you agree that the present value of
your Total Payments will not exceed an amount equal to 2.99 times your Base
Period Income. This is the maximum amount which you may receive without becoming
subject to the excise tax imposed by Section 4999 of the Code or which the
Company may pay without loss of deduction under Section 280G of the Code.
"Base Period Income" is an amount equal to your "annualized includible
compensation" for the "base period" as defined in Sections 280G(d)(1) and (2) of
the Code and the regulations adopted thereunder. Generally, your "annualized
includible compensation" is the average of your annual taxable income from the
Company for the "base period," which is the five calendar years prior to the
year in which the Change of Control occurs. These concepts are complicated and
technical and all of the rules set forth in the applicable regulations apply for
purposes of this Agreement.
Your "Total Payments" include the sum of the Severance Payment and any
other "payments in the nature of compensation" (as defined in Section 280G of
the Code and the regulations adopted thereunder).
If Meritage believes that these rules will result in a reduction of the
payments to which you are entitled under this Agreement, it will so notify you
within 60 days following delivery of the "Notice of Termination" described in
Section 10. You and Meritage will then, at Meritage's expense, retain legal
counsel, certified public accountants, and/or a firm of recognized executive
compensation consultants to provide an opinion or opinions concerning whether
your Total Payments exceed the limit discussed above.
4
<PAGE>
Meritage will select the legal counsel, certified public accountants and
executive compensation consultants. If you do not accept one or more of the
parties selected by Meritage you may provide Meritage with the names of legal
counsel, certified public accountants and/or executive compensation consultants
acceptable to you. If Meritage does not accept the party or parties selected by
you, the legal counsel, certified public accountants and/or executive
compensation consultants selected by you and Meritage, respectively, will select
the legal counsel, certified public accountants and/or executive compensation
consultants to provide the opinions required.
At a minimum, the opinions required by this Section must set forth (a) the
amount of your Base Period Income, (b) the present value of the Total Payments
and (c) the amount and present value of any excess parachute payments.
If the opinions state that there would be an excess parachute payment, your
payments under this Agreement will be reduced to the extent necessary to
eliminate the excess.
You will be allowed to choose which payment should be reduced or
eliminated, but the payment you choose to reduce or eliminate must be a payment
determined by such legal counsel, certified public accountants, and/or executive
compensation consultants to be includible in Total Payments. You will make your
decision in writing and deliver it to Meritage within 30 days of your receipt of
such opinions. If you fail to so notify Meritage, it will decide which payments
to reduce or eliminate.
If the legal counsel, certified public accountants, and/or executive
compensation consultants selected to provide the opinions referred to above so
requests in connection with the opinion required by this Section, a firm of
recognized executive compensation consultants, selected by you and Meritage
pursuant to the procedures set forth above, shall provide an opinion, upon which
such legal counsel, certified public accountants, and/or executive compensation
consultants may rely, as to the reasonableness of any item of compensation as
reasonable compensation for services rendered before or after the Change of
Control.
If Meritage believes that your Total Payments will exceed the limitations
of this Section, it will nonetheless make payments to you, at the times stated
above, in the maximum amount that it believes may be paid without exceeding such
limitations. The balance, if any, will then be paid after the opinions called
for above have been received.
If the amount paid to you by Meritage is ultimately determined, pursuant to
the opinion referred to above or by the Internal Revenue Service, to have
exceeded the limitation of this Section, the excess will be treated as a loan to
you by Meritage and shall be repayable on the 90th day following demand by
Meritage, together with interest at the "applicable federal rate" provided in
Section 1274(d) of the Code.
In the event that the provisions of Sections 280G and 4999 of the Code are
repealed without succession, this Section shall be of no further force or
effect.
5
<PAGE>
10. TERMINATION NOTICE AND PROCEDURE.
Any termination by the Company or you of your employment shall be
communicated by written Notice of Termination to you if such Notice of
Termination is delivered by the Company and to the Company if such Notice of
Termination is delivered by you, all in accordance with the following
procedures:
(a) The Notice of Termination shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances alleged to provide a basis for termination.
(b) Any Notice of Termination by the Company shall be in writing
signed by the Chairman of the Board of Meritage specifying in detail the basis
for such termination.
(c) If the Company shall furnish a Notice of Termination for Cause and
you in good faith notify the Company that a dispute exists concerning such
termination within the 15-day period following your receipt of such notice, you
may elect to continue your employment during such dispute. If it is thereafter
determined that (i) Cause did exist, your "Termination Date" shall be the
earlier of (A) the date on which the dispute is finally determined, either by
mutual written agreement of the parties or pursuant to the alternative dispute
resolution provisions of Section 17, or (B) the date of your death; or (ii)
Cause did not exist, your employment shall continue as if the Company had not
delivered its Notice of Termination and there shall be no Termination Date
arising out of such notice.
(d) If the Company shall furnish a Notice of Termination by reason of
Disability and you in good faith notify the Company that a dispute exists
concerning such termination within the 15-day period following your receipt of
such notice, you may elect to continue your employment during such dispute. The
dispute relating to the existence of a Disability shall be resolved by the
opinion of the licensed physician selected by Meritage, provided, however, that
if you do not accept the opinion of the licensed physician selected by Meritage,
the dispute shall be resolved by the opinion of a licensed physician who shall
be selected by you; provided further, however, that if Meritage does not accept
the opinion of the licensed physician selected by you, the dispute shall be
finally resolved by the opinion of a licensed physician selected by the licensed
physicians selected by Meritage and you, respectively. If it is thereafter
determined that (i) a Disability did exist, your Termination Date shall be the
earlier of (A) the date on which the dispute is resolved, or (B) the date of
your death, or (ii) a Disability did not exist, your employment shall continue
as if the Company had not delivered its Notice of Termination and there shall be
no Termination Date arising out of such notice. For purposes of this Agreement,
"Disability" shall be given the meaning ascribed to such term in your Employment
Agreement at the time the Disability determination is being made.
(e) If you in good faith furnish a Notice of Termination for Good
Reason and the Company notifies you that a dispute exists concerning the
termination within the 15-day period following the Company's receipt of such
notice, you may elect to continue your employment during such dispute. If it is
thereafter determined that (i) Good Reason did exist, your Termination Date
shall be the earlier of (A) the date on which the dispute is finally determined,
either by mutual written agreement of the parties or pursuant to the alternative
6
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dispute resolution provisions of Section 17, (B) the date of your death, or (C)
one day prior to the second anniversary of a Change of Control, and your
payments hereunder shall reflect events occurring after you delivered Notice of
Termination; or (ii) Good Reason did not exist, your employment shall continue
after such determination as if you had not delivered the Notice of Termination
asserting Good Reason.
(f) If you do not elect to continue employment pending resolution of a
dispute regarding a Notice of Termination, and it is finally determined that the
reason for termination set forth in such Notice of Termination did not exist, if
such notice was delivered by you, you shall be deemed to have voluntarily
terminated your employment other than for Good Reason and if delivered by the
Company, the Company will be deemed to have terminated you other than by reason
of Disability or Cause.
(g) For purposes of this Agreement, a transfer from Meritage to one of
its subsidiaries or a transfer from a subsidiary to Meritage or another
subsidiary shall not be treated as a termination of employment.
11. SUCCESSORS.
Meritage will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of Meritage or any of its subsidiaries to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that Meritage or any subsidiary would be required to perform it if no
such succession had taken place. Failure of Meritage to obtain such assumption
and agreement prior to the effectiveness of any such succession shall be a
breach of this Agreement and shall entitle you to compensation in the same
amount and on the same terms to which you would be entitled hereunder if you
terminate your employment for Good Reason following a Change of Control, except
that for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Termination Date. As used in
this agreement "Company" shall mean Company, as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law or otherwise.
12. BINDING AGREEMENT.
This Agreement shall inure to the benefit of and be enforceable by you and
your personal or legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees. If you should die while any amount
would still be payable to you hereunder had you continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to your devisee, legatee or other designee or, if there
is no such designee, to your estate.
13. NOTICE.
For purposes of this Agreement, notices and all other communications
provided for in this Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States certified or
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement, provided
that all notices to Meritage shall be directed to the attention of the Chairman
of the Board of Meritage with a copy to the Secretary of Meritage, or to such
other address as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be effective
only upon receipt.
14. MISCELLANEOUS.
No provision of this Agreement may be modified, waived or discharged unless
such waiver, modification or discharge is agreed to in writing and signed by you
and the Chairman of the Board of Meritage. No waiver by either party hereto at
any time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreement or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not expressly set forth in this
Agreement. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Delaware without regard
to its conflicts of law principles. All references to sections of the Act or the
Code shall be deemed also to refer to any successor provisions to such sections.
Any payments provided for hereunder shall be paid net of any applicable
withholding required under federal, state or local law. The obligations of
Meritage that arise prior to the expiration of this Agreement shall survive the
expiration of the term of this Agreement.
15. VALIDITY.
The invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
16. COUNTERPARTS.
This Agreement may be executed in several counterparts, each of which shall
he deemed to be an original but all of which together will constitute one and
the same instrument.
17. ALTERNATIVE DISPUTE RESOLUTION.
All claims, disputes and other matters in question between the parties
arising under this Agreement shall, unless otherwise provided herein (such as in
Sections 9 and 10(d)), be resolved in accordance with the arbitration or
alternative dispute resolution provisions included in your Employment Agreement.
18. EXPENSES AND INTEREST.
If a good faith dispute shall arise with respect to the enforcement of your
rights under this Agreement or if any arbitration or legal proceeding shall be
brought in good faith to enforce or interpret any provision contained herein, or
to recover damages for breach hereof, and you are the prevailing party, you
shall recover from the Company any reasonable attorneys' fees and necessary
costs and disbursements incurred as a result of such dispute or legal
proceeding, and prejudgment interest on any money judgment obtained by you
calculated at the rate of interest announced by Bank of America, Arizona from
time to time as its prime rate from the date that payments to you should have
been made under this Agreement. It is expressly provided that the Company shall
in no event recover from you any attorneys' fees, costs, disbursements or
interest as a result of any dispute or legal proceeding involving the Company
and you.
19. PAYMENT OBLIGATIONS ABSOLUTE.
Meritage's obligation to pay you the compensation and to make the
arrangements in accordance with the provisions herein shall be absolute and
unconditional and shall not be affected by any circumstances; provided, however,
that Meritage may apply amounts payable under this Agreement to any debts owed
to the Company by you on your Termination Date. All amounts payable by Meritage
in accordance with this Agreement shall be paid without notice or demand. If
Meritage has paid you more than the amount to which you are entitled under this
Agreement, Meritage shall have the right to recover all or any part of such
overpayment from you or from whomsoever has received such amount.
20. EFFECT ON EMPLOYMENT AGREEMENT.
This Agreement supplements, and does not replace, your Employment
Agreement, as it may be amended or replaced from time to time (the "Employment
Agreement"). You will be entitled to receive all amounts due to you pursuant to
your Employment Agreement; but some payments under your Employment Agreement may
reduce your Severance Payments as provided in Section 2 and benefits due
pursuant to your Employment Agreement may reduce the benefits due pursuant to
Section 3. In addition, payments under your Employment Agreement may, in some
limited circumstances, be considered as part of your Total Payment and result in
a reduction in payments as provided in Section 9. If there is any conflict
between the provisions of this Agreement and your Employment Agreement, the
provisions of this Agreement shall control.
21. ENTIRE AGREEMENT.
This Agreement and your Employment Agreement set forth the entire agreement
between you and the Company concerning the subject matter discussed in this
Agreement and supersede all prior agreements, promises, covenants, arrangements,
communications, representations, or warranties, whether written or oral, by any
officer, employee or representative of the Company. Any prior agreements or
understandings with respect to the subject matter set forth in this Agreement
are hereby terminated and canceled.
22. DEFERRAL OF PAYMENTS.
To the extent that any payment under this Agreement, when combined with all
other payments received during the year that are subject to the limitations on
deductibility under Section 162(m) of the Code, exceeds the limitations on
deductibility under Section 162(m) of the Code, such payment shall, in the
discretion of Meritage, be deferred to the next succeeding calendar year. Such
deferred amounts shall be paid no later than the 60th day after the end of such
next succeeding calendar year, provided that such payment, when combined with
any other payments subject to the Section 162(m) limitations received during the
year, does not exceed the limitations on deductibility under Section 162(m) of
the Code.
23. PARTIES.
This Agreement is an agreement between you and Meritage. In certain cases,
though, obligations imposed upon Meritage may be satisfied by a subsidiary of
Meritage. Any payment made or action taken by a subsidiary of Meritage shall be
considered to be a payment made or action taken by Meritage for purposes of
determining whether Meritage has satisfied its obligations under this Agreement.
If you would like to participate in this special benefits program, please
sign and return the extra copy of this letter which is enclosed.
Sincerely,
MERITAGE CORPORATION
By: /s/ Larry W. Seay
------------------------------------
Name: Larry W. Seay
Its: Vice President
Enclosure
ACCEPTANCE
I hereby accept the offer to participate in this special benefits program
and I agree to be bound by all of the provisions noted above.
Dated: February 3, 2000
/s/ Steven J. Hilton
----------------------------------------
Steven J. Hilton
February 1, 2000
CHANGE OF CONTROL AGREEMENT
Dear John:
The Board of Directors believes that it is in the best interests of
Meritage Corporation ("Meritage"), and its shareholders to take appropriate
steps to allay any concerns you may have about your future employment
opportunities with Meritage and its subsidiaries (Meritage and its subsidiaries
are collectively referred to as the "Company"). As a result, the Board has
decided to offer to you the benefits described below.
Please bear in mind that these benefits are being offered only to a few,
selected employees and we accordingly ask that you refrain from discussing this
program with others. Also, please note that the benefits described below will
only be effective if you sign the extra copy of this Change of Control Agreement
(the "Agreement") which is enclosed and return it to me on or before February
20, 2000.
1. TERM OF AGREEMENT.
This Agreement is effective immediately and will continue in effect as long
as you are actively employed by Meritage, unless you and Meritage agree in
writing to its termination.
2. SEVERANCE PAYMENT.
If your employment with the Company is terminated without "Cause" (as
defined in Section 8) at any time within two years following a "Change of
Control" (as defined in Section 6), you will receive the "Severance Payment"
described below. You will also receive the Severance Payment if you terminate
your employment for "Good Reason" (as defined in Section 7) at any time within
two years following a Change of Control.
The Severance Payment equals the sum of (i) two times the higher of (x)
your base salary on the date of your termination of employment, or (y) your base
salary on the date preceding the Change in Control, and (ii) two times the
average of the higher of (x) your incentive compensation for the two years prior
to your termination of employment, or (y) your incentive compensation on the
date preceding the Change in Control.
<PAGE>
The Severance Payment will be paid in one lump sum as soon as
administratively feasible following your termination of employment, but in no
event more than 90 days following your termination of employment.
You are not entitled to receive the Severance Payment if your employment is
terminated for Cause, if you terminate your employment without Good Reason, or
if your employment is terminated by reason of your "Disability" (as defined in
Section 10(d)) or your death. In addition, you are not entitled to receive the
Severance Payment if your employment is terminated by you or the Company for any
or no reason before a Change of Control occurs or more than two years after a
Change of Control has occurred.
In order to receive the Severance Payment, you must execute any release
reasonably requested by the Company.
The Severance Payment will be paid to you without regard to whether you
look for or obtain alternative employment following your termination of
employment with the Company.
3. BENEFITS CONTINUATION.
If you are entitled to severance under Section 2, you will continue to
receive life, disability, accident and group health insurance benefits
substantially similar to those which you were receiving immediately prior to
your termination of employment for a period of 24 months following your
termination of employment. Such benefits shall be provided on substantially the
same terms and conditions as they were provided prior to the Change of Control.
The Company does not intend to provide duplicative benefits. As a result,
benefits otherwise receivable pursuant to this Section shall be reduced or
eliminated if and to the extent that you receive such benefits pursuant to any
employment agreement you may have with the Company.
Benefits otherwise receivable pursuant to this Section also shall be
reduced or eliminated if and to the extent that you receive comparable benefits
from any other source (for example, another employer); provided, however, you
shall have no obligation to seek, solicit or accept employment from another
employer in order to receive such benefits.
4. INCENTIVE COMPENSATION.
If you are employed by the Company on the day on which a Change of Control
occurs, the incentive compensation to which you will be entitled (pursuant to
any performance-based incentive compensation program established by the Company)
for the calendar year in which the Change of Control occurs will equal at least
the "Minimum Incentive Compensation Amount." The "Minimum Incentive Compensation
Amount" will equal the incentive compensation to which you would have been
entitled if the year were to end on the day on which the Change of Control
occurs, based upon performance up to that date. In measuring financial
performance, financial results through the date of the Change of Control will be
annualized.
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5. STOCK OPTION ACCELERATION.
Notwithstanding anything in this Agreement or in any option agreement to
the contrary, upon a Change of Control, any stock options granted to you under
any of the Company's stock option plans shall become immediately vested and
exercisable.
6. CHANGE OF CONTROL DEFINED.
For purposes of this Agreement, the term Change of Control shall mean and
include the following transactions or situations:
(a) A sale, transfer, or other disposition by Meritage through a
single transaction or a series of transactions of securities of Meritage
representing 50% or more of the combined voting power of Meritage's then
outstanding securities to any "Unrelated Person" or "Unrelated Persons" acting
in concert with one another. For purposes of this Section, the term "Person"
shall mean and include any individual, partnership, joint venture, association,
trust, corporation, or other entity (including a "group" as referred to in
Section 13(d)(3) of the Securities Exchange Act of 1934 (the "Act")). For
purposes of this Section, the term "Unrelated Person" shall mean and include any
Person other than the Company, or an employee benefit plan of the Company, or
any officer, director, or 10% or more shareholder of the Company as of the date
of this Agreement.
(b) A sale, transfer, or other disposition through a single
transaction or a series of transactions of all or substantially all of the
assets of Meritage to an Unrelated Person or Unrelated Persons acting in concert
with one another,
(c) Any consolidation or merger of Meritage with or into an Unrelated
Person, unless immediately after the consolidation or merger the holders of the
common stock of Meritage immediately prior to the consolidation or merger are
the Beneficial Owners of securities of the surviving corporation representing at
least 50% of the combined voting power of the surviving corporation's then
outstanding securities.
7. GOOD REASON DEFINED.
For purposes of this Agreement, the term "Good Reason" shall include the
following circumstances: (a) if the Company assigns you duties that are
materially inconsistent with, or the material reduction of powers or functions
associated with, your position, duties, or responsibilities with the Company, or
an adverse change in your titles, authority, or reporting responsibilities, or
in conditions of your employment, (b) if your base salary is reduced or the
potential incentive compensation (or bonus) to which you may become entitled to
at any level of performance by you or the Company is reduced, (c) if the Company
fails to cause any successor to expressly assume and agree to be bound by the
terms of this Agreement, (d) any purported termination by the Company of your
employment for grounds other than for "Cause," (e) if the Company relieves you
of your duties other than for "Cause," or (f) if you are required to relocate to
an employment location that is more than fifty (50) miles from Dallas, TX.
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<PAGE>
8. CAUSE DEFINED.
For purposes of this Agreement, the term "Cause" will exist in the
following circumstances: (i) you are convicted of a felony, (ii) you engage in
any fraudulent or other dishonest act to the detriment of the Company, (iii) you
fail to report for work on a regular basis, except for periods of authorized
absence or bona fide illness, (iv) you misappropriate trade secrets, customer
lists, or other proprietary information belonging to the Company for your own
benefit or for the benefit of a competitor, (v) you engage in any willful
misconduct designed to harm the Company or its stockholders, or (vi) you fail to
perform properly your assigned duties.
9. CEILING ON BENEFITS.
The Internal Revenue Code (the "Code") places significant tax burdens on
you and the Company if the total payments made to you due to a Change of Control
exceed prescribed limits. For example, if your limit is $749,999 (because your
"Base Period Income" (as defined below) is $250,000) and the "Total Payments"
(as defined below) exceed the limit by even $1.00, you are subject to an excise
tax under Section 4999 of the Code of 20% of all amounts paid to you in excess
of $250,000. If your limit is $749,999, you will not be subject to an excise tax
if you receive exactly $749,999. If you receive $750,000, you will be subject to
an excise tax of $100,000 (20% of $500,000).
In order to avoid this excise tax and the related adverse tax consequences
for the Company, by signing this Agreement, you agree that the present value of
your Total Payments will not exceed an amount equal to 2.99 times your Base
Period Income. This is the maximum amount which you may receive without becoming
subject to the excise tax imposed by Section 4999 of the Code or which the
Company may pay without loss of deduction under Section 280G of the Code.
"Base Period Income" is an amount equal to your "annualized includible
compensation" for the "base period" as defined in Sections 280G(d)(1) and (2) of
the Code and the regulations adopted thereunder. Generally, your "annualized
includible compensation" is the average of your annual taxable income from the
Company for the "base period," which is the five calendar years prior to the
year in which the Change of Control occurs. These concepts are complicated and
technical and all of the rules set forth in the applicable regulations apply for
purposes of this Agreement.
Your "Total Payments" include the sum of the Severance Payment and any
other "payments in the nature of compensation" (as defined in Section 280G of
the Code and the regulations adopted thereunder).
If Meritage believes that these rules will result in a reduction of the
payments to which you are entitled under this Agreement, it will so notify you
within 60 days following delivery of the "Notice of Termination" described in
Section 10. You and Meritage will then, at Meritage's expense, retain legal
counsel, certified public accountants, and/or a firm of recognized executive
compensation consultants to provide an opinion or opinions concerning whether
your Total Payments exceed the limit discussed above.
4
<PAGE>
Meritage will select the legal counsel, certified public accountants and
executive compensation consultants. If you do not accept one or more of the
parties selected by Meritage you may provide Meritage with the names of legal
counsel, certified public accountants and/or executive compensation consultants
acceptable to you. If Meritage does not accept the party or parties selected by
you, the legal counsel, certified public accountants and/or executive
compensation consultants selected by you and Meritage, respectively, will select
the legal counsel, certified public accountants and/or executive compensation
consultants to provide the opinions required.
At a minimum, the opinions required by this Section must set forth (a) the
amount of your Base Period Income, (b) the present value of the Total Payments
and (c) the amount and present value of any excess parachute payments.
If the opinions state that there would be an excess parachute payment, your
payments under this Agreement will be reduced to the extent necessary to
eliminate the excess.
You will be allowed to choose which payment should be reduced or
eliminated, but the payment you choose to reduce or eliminate must be a payment
determined by such legal counsel, certified public accountants, and/or executive
compensation consultants to be includible in Total Payments. You will make your
decision in writing and deliver it to Meritage within 30 days of your receipt of
such opinions. If you fail to so notify Meritage, it will decide which payments
to reduce or eliminate.
If the legal counsel, certified public accountants, and/or executive
compensation consultants selected to provide the opinions referred to above so
requests in connection with the opinion required by this Section, a firm of
recognized executive compensation consultants, selected by you and Meritage
pursuant to the procedures set forth above, shall provide an opinion, upon which
such legal counsel, certified public accountants, and/or executive compensation
consultants may rely, as to the reasonableness of any item of compensation as
reasonable compensation for services rendered before or after the Change of
Control.
If Meritage believes that your Total Payments will exceed the limitations
of this Section, it will nonetheless make payments to you, at the times stated
above, in the maximum amount that it believes may be paid without exceeding such
limitations. The balance, if any, will then be paid after the opinions called
for above have been received.
If the amount paid to you by Meritage is ultimately determined, pursuant to
the opinion referred to above or by the Internal Revenue Service, to have
exceeded the limitation of this Section, the excess will be treated as a loan to
you by Meritage and shall be repayable on the 90th day following demand by
Meritage, together with interest at the "applicable federal rate" provided in
Section 1274(d) of the Code.
In the event that the provisions of Sections 280G and 4999 of the Code are
repealed without succession, this Section shall be of no further force or
effect.
5
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10. TERMINATION NOTICE AND PROCEDURE.
Any termination by the Company or you of your employment shall be
communicated by written Notice of Termination to you if such Notice of
Termination is delivered by the Company and to the Company if such Notice of
Termination is delivered by you, all in accordance with the following
procedures:
(a) The Notice of Termination shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances alleged to provide a basis for termination.
(b) Any Notice of Termination by the Company shall be in writing
signed by the Chairman of the Board of Meritage specifying in detail the basis
for such termination.
(c) If the Company shall furnish a Notice of Termination for Cause and
you in good faith notify the Company that a dispute exists concerning such
termination within the 15-day period following your receipt of such notice, you
may elect to continue your employment during such dispute. If it is thereafter
determined that (i) Cause did exist, your "Termination Date" shall be the
earlier of (A) the date on which the dispute is finally determined, either by
mutual written agreement of the parties or pursuant to the alternative dispute
resolution provisions of Section 17, or (B) the date of your death; or (ii)
Cause did not exist, your employment shall continue as if the Company had not
delivered its Notice of Termination and there shall be no Termination Date
arising out of such notice.
(d) If the Company shall furnish a Notice of Termination by reason of
Disability and you in good faith notify the Company that a dispute exists
concerning such termination within the 15-day period following your receipt of
such notice, you may elect to continue your employment during such dispute. The
dispute relating to the existence of a Disability shall be resolved by the
opinion of the licensed physician selected by Meritage, provided, however, that
if you do not accept the opinion of the licensed physician selected by Meritage,
the dispute shall be resolved by the opinion of a licensed physician who shall
be selected by you; provided further, however, that if Meritage does not accept
the opinion of the licensed physician selected by you, the dispute shall be
finally resolved by the opinion of a licensed physician selected by the licensed
physicians selected by Meritage and you, respectively. If it is thereafter
determined that (i) a Disability did exist, your Termination Date shall be the
earlier of (A) the date on which the dispute is resolved, or (B) the date of
your death, or (ii) a Disability did not exist, your employment shall continue
as if the Company had not delivered its Notice of Termination and there shall be
no Termination Date arising out of such notice. For purposes of this Agreement,
"Disability" shall be given the meaning ascribed to such term in your Employment
Agreement at the time the Disability determination is being made.
(e) If you in good faith furnish a Notice of Termination for Good
Reason and the Company notifies you that a dispute exists concerning the
termination within the 15-day period following the Company's receipt of such
notice, you may elect to continue your employment during such dispute. If it is
thereafter determined that (i) Good Reason did exist, your Termination Date
shall be the earlier of (A) the date on which the dispute is finally determined,
either by mutual written agreement of the parties or pursuant to the alternative
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dispute resolution provisions of Section 17, (B) the date of your death, or (C)
one day prior to the second anniversary of a Change of Control, and your
payments hereunder shall reflect events occurring after you delivered Notice of
Termination; or (ii) Good Reason did not exist, your employment shall continue
after such determination as if you had not delivered the Notice of Termination
asserting Good Reason.
(f) If you do not elect to continue employment pending resolution of a
dispute regarding a Notice of Termination, and it is finally determined that the
reason for termination set forth in such Notice of Termination did not exist, if
such notice was delivered by you, you shall be deemed to have voluntarily
terminated your employment other than for Good Reason and if delivered by the
Company, the Company will be deemed to have terminated you other than by reason
of Disability or Cause.
(g) For purposes of this Agreement, a transfer from Meritage to one of
its subsidiaries or a transfer from a subsidiary to Meritage or another
subsidiary shall not be treated as a termination of employment.
11. SUCCESSORS.
Meritage will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of Meritage or any of its subsidiaries to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that Meritage or any subsidiary would be required to perform it if no
such succession had taken place. Failure of Meritage to obtain such assumption
and agreement prior to the effectiveness of any such succession shall be a
breach of this Agreement and shall entitle you to compensation in the same
amount and on the same terms to which you would be entitled hereunder if you
terminate your employment for Good Reason following a Change of Control, except
that for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Termination Date. As used in
this agreement "Company" shall mean Company, as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law or otherwise.
12. BINDING AGREEMENT.
This Agreement shall inure to the benefit of and be enforceable by you and
your personal or legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees. If you should die while any amount
would still be payable to you hereunder had you continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to your devisee, legatee or other designee or, if there
is no such designee, to your estate.
13. NOTICE.
For purposes of this Agreement, notices and all other communications
provided for in this Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States certified or
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement, provided
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that all notices to Meritage shall be directed to the attention of the Chairman
of the Board of Meritage with a copy to the Secretary of Meritage, or to such
other address as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be effective
only upon receipt.
14. MISCELLANEOUS.
No provision of this Agreement may be modified, waived or discharged unless
such waiver, modification or discharge is agreed to in writing and signed by you
and the Chairman of the Board of Meritage. No waiver by either party hereto at
any time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreement or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not expressly set forth in this
Agreement. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Delaware without regard
to its conflicts of law principles. All references to sections of the Act or the
Code shall be deemed also to refer to any successor provisions to such sections.
Any payments provided for hereunder shall be paid net of any applicable
withholding required under federal, state or local law. The obligations of
Meritage that arise prior to the expiration of this Agreement shall survive the
expiration of the term of this Agreement.
15. VALIDITY.
The invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
16. COUNTERPARTS.
This Agreement may be executed in several counterparts, each of which shall
he deemed to be an original but all of which together will constitute one and
the same instrument.
17. ALTERNATIVE DISPUTE RESOLUTION.
All claims, disputes and other matters in question between the parties
arising under this Agreement shall, unless otherwise provided herein (such as in
Sections 9 and 10(d)), be resolved in accordance with the arbitration or
alternative dispute resolution provisions included in your Employment Agreement.
18. EXPENSES AND INTEREST.
If a good faith dispute shall arise with respect to the enforcement of your
rights under this Agreement or if any arbitration or legal proceeding shall be
brought in good faith to enforce or interpret any provision contained herein, or
to recover damages for breach hereof, and you are the prevailing party, you
shall recover from the Company any reasonable attorneys' fees and necessary
costs and disbursements incurred as a result of such dispute or legal
proceeding, and prejudgment interest on any money judgment obtained by you
calculated at the rate of interest announced by Bank of America, Arizona from
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time to time as its prime rate from the date that payments to you should have
been made under this Agreement. It is expressly provided that the Company shall
in no event recover from you any attorneys' fees, costs, disbursements or
interest as a result of any dispute or legal proceeding involving the Company
and you.
19. PAYMENT OBLIGATIONS ABSOLUTE.
Meritage's obligation to pay you the compensation and to make the
arrangements in accordance with the provisions herein shall be absolute and
unconditional and shall not be affected by any circumstances; provided, however,
that Meritage may apply amounts payable under this Agreement to any debts owed
to the Company by you on your Termination Date. All amounts payable by Meritage
in accordance with this Agreement shall be paid without notice or demand. If
Meritage has paid you more than the amount to which you are entitled under this
Agreement, Meritage shall have the right to recover all or any part of such
overpayment from you or from whomsoever has received such amount.
20. EFFECT ON EMPLOYMENT AGREEMENT.
This Agreement supplements, and does not replace, your Employment
Agreement, as it may be amended or replaced from time to time (the "Employment
Agreement"). You will be entitled to receive all amounts due to you pursuant to
your Employment Agreement; but some payments under your Employment Agreement may
reduce your Severance Payments as provided in Section 2 and benefits due
pursuant to your Employment Agreement may reduce the benefits due pursuant to
Section 3. In addition, payments under your Employment Agreement may, in some
limited circumstances, be considered as part of your Total Payment and result in
a reduction in payments as provided in Section 9. If there is any conflict
between the provisions of this Agreement and your Employment Agreement, the
provisions of this Agreement shall control.
21. ENTIRE AGREEMENT.
This Agreement and your Employment Agreement set forth the entire agreement
between you and the Company concerning the subject matter discussed in this
Agreement and supersede all prior agreements, promises, covenants, arrangements,
communications, representations, or warranties, whether written or oral, by any
officer, employee or representative of the Company. Any prior agreements or
understandings with respect to the subject matter set forth in this Agreement
are hereby terminated and canceled.
22. DEFERRAL OF PAYMENTS.
To the extent that any payment under this Agreement, when combined with all
other payments received during the year that are subject to the limitations on
deductibility under Section 162(m) of the Code, exceeds the limitations on
deductibility under Section 162(m) of the Code, such payment shall, in the
discretion of Meritage, be deferred to the next succeeding calendar year. Such
deferred amounts shall be paid no later than the 60th day after the end of such
next succeeding calendar year, provided that such payment, when combined with
any other payments subject to the Section 162(m) limitations received during the
year, does not exceed the limitations on deductibility under Section 162(m) of
the Code.
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23. PARTIES.
This Agreement is an agreement between you and Meritage. In certain cases,
though, obligations imposed upon Meritage may be satisfied by a subsidiary of
Meritage. Any payment made or action taken by a subsidiary of Meritage shall be
considered to be a payment made or action taken by Meritage for purposes of
determining whether Meritage has satisfied its obligations under this Agreement.
If you would like to participate in this special benefits program, please
sign and return the extra copy of this letter which is enclosed.
Sincerely,
MERITAGE CORPORATION
By: /s/ Larry W. Seay
------------------------------------
Name: Larry W. Seay
Its: Vice President
Enclosure
ACCEPTANCE
I hereby accept the offer to participate in this special benefits program
and I agree to be bound by all of the provisions noted above.
Dated: February 24, 2000
/s/ John R. Landon
----------------------------------------
John R. Landon
10
February 1, 2000
CHANGE OF CONTROL AGREEMENT
Dear Larry:
The Board of Directors believes that it is in the best interests of
Meritage Corporation ("Meritage"), and its shareholders to take appropriate
steps to allay any concerns you may have about your future employment
opportunities with Meritage and its subsidiaries (Meritage and its subsidiaries
are collectively referred to as the "Company"). As a result, the Board has
decided to offer to you the benefits described below.
Please bear in mind that these benefits are being offered only to a few,
selected employees and we accordingly ask that you refrain from discussing this
program with others. Also, please note that the benefits described below will
only be effective if you sign the extra copy of this Change of Control Agreement
(the "Agreement") which is enclosed and return it to me on or before February
20, 2000.
1. TERM OF AGREEMENT.
This Agreement is effective immediately and will continue in effect as long
as you are actively employed by Meritage, unless you and Meritage agree in
writing to its termination.
2. SEVERANCE PAYMENT.
If your employment with the Company is terminated without "Cause" (as
defined in Section 8) at any time within two years following a "Change of
Control" (as defined in Section 6), you will receive the "Severance Payment"
described below. You will also receive the Severance Payment if you terminate
your employment for "Good Reason" (as defined in Section 7) at any time within
two years following a Change of Control.
The Severance Payment equals the sum of (i) one times the higher of (x)
your base salary on the date of your termination of employment, or (y) your base
salary on the date preceding the Change in Control, and (ii) one times the
average of the higher of (x) your incentive compensation for the two years prior
to your termination of employment, or (y) your incentive compensation on the
date preceding the Change in Control.
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The Severance Payment will be paid in one lump sum as soon as
administratively feasible following your termination of employment, but in no
event more than 90 days following your termination of employment.
You are not entitled to receive the Severance Payment if your employment is
terminated for Cause, if you terminate your employment without Good Reason, or
if your employment is terminated by reason of your "Disability" (as defined in
Section 10(d)) or your death. In addition, you are not entitled to receive the
Severance Payment if your employment is terminated by you or the Company for any
or no reason before a Change of Control occurs or more than two years after a
Change of Control has occurred.
In order to receive the Severance Payment, you must execute any release
reasonably requested by the Company.
The Severance Payment will be paid to you without regard to whether you
look for or obtain alternative employment following your termination of
employment with the Company.
3. BENEFITS CONTINUATION.
If you are entitled to severance under Section 2, you will continue to
receive life, disability, accident and group health insurance benefits
substantially similar to those which you were receiving immediately prior to
your termination of employment for a period of 24 months following your
termination of employment. Such benefits shall be provided on substantially the
same terms and conditions as they were provided prior to the Change of Control.
The Company does not intend to provide duplicative benefits. As a result,
benefits otherwise receivable pursuant to this Section shall be reduced or
eliminated if and to the extent that you receive such benefits pursuant to any
employment agreement you may have with the Company.
Benefits otherwise receivable pursuant to this Section also shall be
reduced or eliminated if and to the extent that you receive comparable benefits
from any other source (for example, another employer); provided, however, you
shall have no obligation to seek, solicit or accept employment from another
employer in order to receive such benefits.
4. INCENTIVE COMPENSATION.
If you are employed by the Company on the day on which a Change of Control
occurs, the incentive compensation to which you will be entitled (pursuant to
any performance-based incentive compensation program established by the Company)
for the calendar year in which the Change of Control occurs will equal at least
the "Minimum Incentive Compensation Amount." The "Minimum Incentive Compensation
Amount" will equal the incentive compensation to which you would have been
entitled if the year were to end on the day on which the Change of Control
occurs, based upon performance up to that date. In measuring financial
performance, financial results through the date of the Change of Control will be
annualized.
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5. STOCK OPTION ACCELERATION.
Notwithstanding anything in this Agreement or in any option agreement to
the contrary, upon a Change of Control, any stock options granted to you under
any of the Company's stock option plans shall become immediately vested and
exercisable.
6. CHANGE OF CONTROL DEFINED.
For purposes of this Agreement, the term Change of Control shall mean and
include the following transactions or situations:
(a) A sale, transfer, or other disposition by Meritage through a
single transaction or a series of transactions of securities of Meritage
representing 50% or more of the combined voting power of Meritage's then
outstanding securities to any "Unrelated Person" or "Unrelated Persons" acting
in concert with one another. For purposes of this Section, the term "Person"
shall mean and include any individual, partnership, joint venture, association,
trust, corporation, or other entity (including a "group" as referred to in
Section 13(d)(3) of the Securities Exchange Act of 1934 (the "Act")). For
purposes of this Section, the term "Unrelated Person" shall mean and include any
Person other than the Company, or an employee benefit plan of the Company, or
any officer, director, or 10% or more shareholder of the Company as of the date
of this Agreement.
(b) A sale, transfer, or other disposition through a single
transaction or a series of transactions of all or substantially all of the
assets of Meritage to an Unrelated Person or Unrelated Persons acting in concert
with one another,
(c) Any consolidation or merger of Meritage with or into an Unrelated
Person, unless immediately after the consolidation or merger the holders of the
common stock of Meritage immediately prior to the consolidation or merger are
the Beneficial Owners of securities of the surviving corporation representing at
least 50% of the combined voting power of the surviving corporation's then
outstanding securities.
7. GOOD REASON DEFINED.
For purposes of this Agreement, the term "Good Reason" shall include the
following circumstances: (a) if the Company assigns you duties that are
materially inconsistent with, or the material reduction of powers or functions
associated with, your position, duties, or responsibilities with the Company, or
an adverse change in your titles, authority, or reporting responsibilities, or
in conditions of your employment, (b) if your base salary is reduced or the
potential incentive compensation (or bonus) to which you may become entitled to
at any level of performance by you or the Company is reduced, (c) if the Company
fails to cause any successor to expressly assume and agree to be bound by the
terms of this Agreement, (d) any purported termination by the Company of your
employment for grounds other than for "Cause," (e) if the Company relieves you
of your duties other than for "Cause," or (f) if you are required to relocate to
an employment location that is more than fifty (50) miles from Scottsdale, AZ.
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8. CAUSE DEFINED.
For purposes of this Agreement, the term "Cause" will exist in the
following circumstances: (i) you are convicted of a felony, (ii) you engage in
any fraudulent or other dishonest act to the detriment of the Company, (iii) you
fail to report for work on a regular basis, except for periods of authorized
absence or bona fide illness, (iv) you misappropriate trade secrets, customer
lists, or other proprietary information belonging to the Company for your own
benefit or for the benefit of a competitor, (v) you engage in any willful
misconduct designed to harm the Company or its stockholders, or (vi) you fail to
perform properly your assigned duties.
9. CEILING ON BENEFITS.
The Internal Revenue Code (the "Code") places significant tax burdens on
you and the Company if the total payments made to you due to a Change of Control
exceed prescribed limits. For example, if your limit is $749,999 (because your
"Base Period Income" (as defined below) is $250,000) and the "Total Payments"
(as defined below) exceed the limit by even $1.00, you are subject to an excise
tax under Section 4999 of the Code of 20% of all amounts paid to you in excess
of $250,000. If your limit is $749,999, you will not be subject to an excise tax
if you receive exactly $749,999. If you receive $750,000, you will be subject to
an excise tax of $100,000 (20% of $500,000).
In order to avoid this excise tax and the related adverse tax consequences
for the Company, by signing this Agreement, you agree that the present value of
your Total Payments will not exceed an amount equal to 2.99 times your Base
Period Income. This is the maximum amount which you may receive without becoming
subject to the excise tax imposed by Section 4999 of the Code or which the
Company may pay without loss of deduction under Section 280G of the Code.
"Base Period Income" is an amount equal to your "annualized includible
compensation" for the "base period" as defined in Sections 280G(d)(1) and (2) of
the Code and the regulations adopted thereunder. Generally, your "annualized
includible compensation" is the average of your annual taxable income from the
Company for the "base period," which is the five calendar years prior to the
year in which the Change of Control occurs. These concepts are complicated and
technical and all of the rules set forth in the applicable regulations apply for
purposes of this Agreement.
Your "Total Payments" include the sum of the Severance Payment and any
other "payments in the nature of compensation" (as defined in Section 280G of
the Code and the regulations adopted thereunder).
If Meritage believes that these rules will result in a reduction of the
payments to which you are entitled under this Agreement, it will so notify you
within 60 days following delivery of the "Notice of Termination" described in
Section 10. You and Meritage will then, at Meritage's expense, retain legal
counsel, certified public accountants, and/or a firm of recognized executive
compensation consultants to provide an opinion or opinions concerning whether
your Total Payments exceed the limit discussed above.
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Meritage will select the legal counsel, certified public accountants and
executive compensation consultants. If you do not accept one or more of the
parties selected by Meritage you may provide Meritage with the names of legal
counsel, certified public accountants and/or executive compensation consultants
acceptable to you. If Meritage does not accept the party or parties selected by
you, the legal counsel, certified public accountants and/or executive
compensation consultants selected by you and Meritage, respectively, will select
the legal counsel, certified public accountants and/or executive compensation
consultants to provide the opinions required.
At a minimum, the opinions required by this Section must set forth (a) the
amount of your Base Period Income, (b) the present value of the Total Payments
and (c) the amount and present value of any excess parachute payments.
If the opinions state that there would be an excess parachute payment, your
payments under this Agreement will be reduced to the extent necessary to
eliminate the excess.
You will be allowed to choose which payment should be reduced or
eliminated, but the payment you choose to reduce or eliminate must be a payment
determined by such legal counsel, certified public accountants, and/or executive
compensation consultants to be includible in Total Payments. You will make your
decision in writing and deliver it to Meritage within 30 days of your receipt of
such opinions. If you fail to so notify Meritage, it will decide which payments
to reduce or eliminate.
If the legal counsel, certified public accountants, and/or executive
compensation consultants selected to provide the opinions referred to above so
requests in connection with the opinion required by this Section, a firm of
recognized executive compensation consultants, selected by you and Meritage
pursuant to the procedures set forth above, shall provide an opinion, upon which
such legal counsel, certified public accountants, and/or executive compensation
consultants may rely, as to the reasonableness of any item of compensation as
reasonable compensation for services rendered before or after the Change of
Control.
If Meritage believes that your Total Payments will exceed the limitations
of this Section, it will nonetheless make payments to you, at the times stated
above, in the maximum amount that it believes may be paid without exceeding such
limitations. The balance, if any, will then be paid after the opinions called
for above have been received.
If the amount paid to you by Meritage is ultimately determined, pursuant to
the opinion referred to above or by the Internal Revenue Service, to have
exceeded the limitation of this Section, the excess will be treated as a loan to
you by Meritage and shall be repayable on the 90th day following demand by
Meritage, together with interest at the "applicable federal rate" provided in
Section 1274(d) of the Code.
In the event that the provisions of Sections 280G and 4999 of the Code are
repealed without succession, this Section shall be of no further force or
effect.
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10. TERMINATION NOTICE AND PROCEDURE.
Any termination by the Company or you of your employment shall be
communicated by written Notice of Termination to you if such Notice of
Termination is delivered by the Company and to the Company if such Notice of
Termination is delivered by you, all in accordance with the following
procedures:
(a) The Notice of Termination shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances alleged to provide a basis for termination.
(b) Any Notice of Termination by the Company shall be in writing
signed by the Chairman of the Board of Meritage specifying in detail the basis
for such termination.
(c) If the Company shall furnish a Notice of Termination for Cause and
you in good faith notify the Company that a dispute exists concerning such
termination within the 15-day period following your receipt of such notice, you
may elect to continue your employment during such dispute. If it is thereafter
determined that (i) Cause did exist, your "Termination Date" shall be the
earlier of (A) the date on which the dispute is finally determined, either by
mutual written agreement of the parties or pursuant to the alternative dispute
resolution provisions of Section 17, or (B) the date of your death; or (ii)
Cause did not exist, your employment shall continue as if the Company had not
delivered its Notice of Termination and there shall be no Termination Date
arising out of such notice.
(d) If the Company shall furnish a Notice of Termination by reason of
Disability and you in good faith notify the Company that a dispute exists
concerning such termination within the 15-day period following your receipt of
such notice, you may elect to continue your employment during such dispute. The
dispute relating to the existence of a Disability shall be resolved by the
opinion of the licensed physician selected by Meritage, provided, however, that
if you do not accept the opinion of the licensed physician selected by Meritage,
the dispute shall be resolved by the opinion of a licensed physician who shall
be selected by you; provided further, however, that if Meritage does not accept
the opinion of the licensed physician selected by you, the dispute shall be
finally resolved by the opinion of a licensed physician selected by the licensed
physicians selected by Meritage and you, respectively. If it is thereafter
determined that (i) a Disability did exist, your Termination Date shall be the
earlier of (A) the date on which the dispute is resolved, or (B) the date of
your death, or (ii) a Disability did not exist, your employment shall continue
as if the Company had not delivered its Notice of Termination and there shall be
no Termination Date arising out of such notice. For purposes of this Agreement,
"Disability" shall be given the meaning ascribed to such term in your Employment
Agreement at the time the Disability determination is being made.
(e) If you in good faith furnish a Notice of Termination for Good
Reason and the Company notifies you that a dispute exists concerning the
termination within the 15-day period following the Company's receipt of such
notice, you may elect to continue your employment during such dispute. If it is
thereafter determined that (i) Good Reason did exist, your Termination Date
shall be the earlier of (A) the date on which the dispute is finally determined,
either by mutual written agreement of the parties or pursuant to the alternative
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dispute resolution provisions of Section 17, (B) the date of your death, or (C)
one day prior to the second anniversary of a Change of Control, and your
payments hereunder shall reflect events occurring after you delivered Notice of
Termination; or (ii) Good Reason did not exist, your employment shall continue
after such determination as if you had not delivered the Notice of Termination
asserting Good Reason.
(f) If you do not elect to continue employment pending resolution of a
dispute regarding a Notice of Termination, and it is finally determined that the
reason for termination set forth in such Notice of Termination did not exist, if
such notice was delivered by you, you shall be deemed to have voluntarily
terminated your employment other than for Good Reason and if delivered by the
Company, the Company will be deemed to have terminated you other than by reason
of Disability or Cause.
(g) For purposes of this Agreement, a transfer from Meritage to one of
its subsidiaries or a transfer from a subsidiary to Meritage or another
subsidiary shall not be treated as a termination of employment.
11. SUCCESSORS.
Meritage will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of Meritage or any of its subsidiaries to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that Meritage or any subsidiary would be required to perform it if no
such succession had taken place. Failure of Meritage to obtain such assumption
and agreement prior to the effectiveness of any such succession shall be a
breach of this Agreement and shall entitle you to compensation in the same
amount and on the same terms to which you would be entitled hereunder if you
terminate your employment for Good Reason following a Change of Control, except
that for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Termination Date. As used in
this agreement "Company" shall mean Company, as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law or otherwise.
12. BINDING AGREEMENT.
This Agreement shall inure to the benefit of and be enforceable by you and
your personal or legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees. If you should die while any amount
would still be payable to you hereunder had you continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to your devisee, legatee or other designee or, if there
is no such designee, to your estate.
13. NOTICE.
For purposes of this Agreement, notices and all other communications
provided for in this Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States certified or
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement, provided
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that all notices to Meritage shall be directed to the attention of the Chairman
of the Board of Meritage with a copy to the Secretary of Meritage, or to such
other address as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be effective
only upon receipt.
14. MISCELLANEOUS.
No provision of this Agreement may be modified, waived or discharged unless
such waiver, modification or discharge is agreed to in writing and signed by you
and the Chairman of the Board of Meritage. No waiver by either party hereto at
any time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreement or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not expressly set forth in this
Agreement. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Delaware without regard
to its conflicts of law principles. All references to sections of the Act or the
Code shall be deemed also to refer to any successor provisions to such sections.
Any payments provided for hereunder shall be paid net of any applicable
withholding required under federal, state or local law. The obligations of
Meritage that arise prior to the expiration of this Agreement shall survive the
expiration of the term of this Agreement.
15. VALIDITY.
The invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
16. COUNTERPARTS.
This Agreement may be executed in several counterparts, each of which shall
he deemed to be an original but all of which together will constitute one and
the same instrument.
17. ALTERNATIVE DISPUTE RESOLUTION.
All claims, disputes and other matters in question between the parties
arising under this Agreement shall, unless otherwise provided herein (such as in
Sections 9 and 10(d)), be resolved in accordance with the arbitration or
alternative dispute resolution provisions included in your Employment Agreement.
18. EXPENSES AND INTEREST.
If a good faith dispute shall arise with respect to the enforcement of your
rights under this Agreement or if any arbitration or legal proceeding shall be
brought in good faith to enforce or interpret any provision contained herein, or
to recover damages for breach hereof, and you are the prevailing party, you
shall recover from the Company any reasonable attorneys' fees and necessary
costs and disbursements incurred as a result of such dispute or legal
proceeding, and prejudgment interest on any money judgment obtained by you
calculated at the rate of interest announced by Bank of America, Arizona from
8
<PAGE>
time to time as its prime rate from the date that payments to you should have
been made under this Agreement. It is expressly provided that the Company shall
in no event recover from you any attorneys' fees, costs, disbursements or
interest as a result of any dispute or legal proceeding involving the Company
and you.
19. PAYMENT OBLIGATIONS ABSOLUTE.
Meritage's obligation to pay you the compensation and to make the
arrangements in accordance with the provisions herein shall be absolute and
unconditional and shall not be affected by any circumstances; provided, however,
that Meritage may apply amounts payable under this Agreement to any debts owed
to the Company by you on your Termination Date. All amounts payable by Meritage
in accordance with this Agreement shall be paid without notice or demand. If
Meritage has paid you more than the amount to which you are entitled under this
Agreement, Meritage shall have the right to recover all or any part of such
overpayment from you or from whomsoever has received such amount.
20. ENTIRE AGREEMENT.
This Agreement and your Employment Agreement set forth the entire agreement
between you and the Company concerning the subject matter discussed in this
Agreement and supersede all prior agreements, promises, covenants, arrangements,
communications, representations, or warranties, whether written or oral, by any
officer, employee or representative of the Company. Any prior agreements or
understandings with respect to the subject matter set forth in this Agreement
are hereby terminated and canceled.
21. DEFERRAL OF PAYMENTS.
To the extent that any payment under this Agreement, when
combined with all other payments received during the year that are subject to
the limitations on deductibility under Section 162(m) of the Code, exceeds the
limitations on deductibility under Section 162(m) of the Code, such payment
shall, in the discretion of Meritage, be deferred to the next succeeding
calendar year. Such deferred amounts shall be paid no later than the 60th day
after the end of such next succeeding calendar year, provided that such payment,
when combined with any other payments subject to the Section 162(m) limitations
received during the year, does not exceed the limitations on deductibility under
Section 162(m) of the Code.
22. PARTIES.
This Agreement is an agreement between you and Meritage. In certain cases,
though, obligations imposed upon Meritage may be satisfied by a subsidiary of
Meritage. Any payment made or action taken by a subsidiary of Meritage shall be
considered to be a payment made or action taken by Meritage for purposes of
determining whether Meritage has satisfied its obligations under this Agreement.
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<PAGE>
If you would like to participate in this special benefits program, please
sign and return the extra copy of this letter which is enclosed.
Sincerely,
MERITAGE CORPORATION
By: /s/ Steven J. Hilton
------------------------------------
Name: Steven J. Hilton
Its: Co-CEO
Enclosure
ACCEPTANCE
I hereby accept the offer to participate in this special benefits program
and I agree to be bound by all of the provisions noted above.
Dated: February 2, 2000
/s/ Larry W. Seay
----------------------------------------
Larry W. Seay
10
February 1, 2000
CHANGE OF CONTROL AGREEMENT
Dear Rick:
The Board of Directors believes that it is in the best interests of
Meritage Corporation ("Meritage"), and its shareholders to take appropriate
steps to allay any concerns you may have about your future employment
opportunities with Meritage and its subsidiaries (Meritage and its subsidiaries
are collectively referred to as the "Company"). As a result, the Board has
decided to offer to you the benefits described below.
Please bear in mind that these benefits are being offered only to a few,
selected employees and we accordingly ask that you refrain from discussing this
program with others. Also, please note that the benefits described below will
only be effective if you sign the extra copy of this Change of Control Agreement
(the "Agreement") which is enclosed and return it to me on or before February
20, 2000.
1. TERM OF AGREEMENT.
This Agreement is effective immediately and will continue in effect as long
as you are actively employed by Meritage, unless you and Meritage agree in
writing to its termination.
2. SEVERANCE PAYMENT.
If your employment with the Company is terminated without "Cause" (as
defined in Section 8) at any time within two years following a "Change of
Control" (as defined in Section 6), you will receive the "Severance Payment"
described below. You will also receive the Severance Payment if you terminate
your employment for "Good Reason" (as defined in Section 7) at any time within
two years following a Change of Control.
<PAGE>
The Severance Payment equals the sum of (i) one times the higher of (x)
your base salary on the date of your termination of employment, or (y) your base
salary on the date preceding the Change in Control, and (ii) one times the
average of the higher of (x) your incentive compensation for the two years prior
to your termination of employment, or (y) your incentive compensation on the
date preceding the Change in Control.
The Severance Payment will be paid in one lump sum as soon as
administratively feasible following your termination of employment, but in no
event more than 90 days following your termination of employment.
You are not entitled to receive the Severance Payment if your employment is
terminated for Cause, if you terminate your employment without Good Reason, or
if your employment is terminated by reason of your "Disability" (as defined in
Section 10(d)) or your death. In addition, you are not entitled to receive the
Severance Payment if your employment is terminated by you or the Company for any
or no reason before a Change of Control occurs or more than two years after a
Change of Control has occurred.
In order to receive the Severance Payment, you must execute any release
reasonably requested by the Company.
The Severance Payment will be paid to you without regard to whether you
look for or obtain alternative employment following your termination of
employment with the Company.
3. BENEFITS CONTINUATION.
If you are entitled to severance under Section 2, you will continue to
receive life, disability, accident and group health insurance benefits
substantially similar to those which you were receiving immediately prior to
your termination of employment for a period of 24 months following your
termination of employment. Such benefits shall be provided on substantially the
same terms and conditions as they were provided prior to the Change of Control.
The Company does not intend to provide duplicative benefits. As a result,
benefits otherwise receivable pursuant to this Section shall be reduced or
eliminated if and to the extent that you receive such benefits pursuant to any
employment agreement you may have with the Company.
Benefits otherwise receivable pursuant to this Section also shall be
reduced or eliminated if and to the extent that you receive comparable benefits
from any other source (for example, another employer); provided, however, you
shall have no obligation to seek, solicit or accept employment from another
employer in order to receive such benefits.
4. INCENTIVE COMPENSATION.
If you are employed by the Company on the day on which a Change of Control
occurs, the incentive compensation to which you will be entitled (pursuant to
any performance-based incentive compensation program established by the Company)
for the calendar year in which the Change of Control occurs will equal at least
the "Minimum Incentive Compensation Amount." The "Minimum Incentive Compensation
Amount" will equal the incentive compensation to which you would have been
entitled if the year were to end on the day on which the Change of Control
occurs, based upon performance up to that date. In measuring financial
performance, financial results through the date of the Change of Control will be
annualized.
2
<PAGE>
5. STOCK OPTION ACCELERATION.
Notwithstanding anything in this Agreement or in any option agreement to
the contrary, upon a Change of Control, any stock options granted to you under
any of the Company's stock option plans shall become immediately vested and
exercisable.
6. CHANGE OF CONTROL DEFINED.
For purposes of this Agreement, the term Change of Control shall mean and
include the following transactions or situations:
(a) A sale, transfer, or other disposition by Meritage through a
single transaction or a series of transactions of securities of Meritage
representing 50% or more of the combined voting power of Meritage's then
outstanding securities to any "Unrelated Person" or "Unrelated Persons" acting
in concert with one another. For purposes of this Section, the term "Person"
shall mean and include any individual, partnership, joint venture, association,
trust, corporation, or other entity (including a "group" as referred to in
Section 13(d)(3) of the Securities Exchange Act of 1934 (the "Act")). For
purposes of this Section, the term "Unrelated Person" shall mean and include any
Person other than the Company, or an employee benefit plan of the Company, or
any officer, director, or 10% or more shareholder of the Company as of the date
of this Agreement.
(b) A sale, transfer, or other disposition through a single
transaction or a series of transactions of all or substantially all of the
assets of Meritage to an Unrelated Person or Unrelated Persons acting in concert
with one another,
(c) Any consolidation or merger of Meritage with or into an Unrelated
Person, unless immediately after the consolidation or merger the holders of the
common stock of Meritage immediately prior to the consolidation or merger are
the Beneficial Owners of securities of the surviving corporation representing at
least 50% of the combined voting power of the surviving corporation's then
outstanding securities.
7. GOOD REASON DEFINED.
For purposes of this Agreement, the term "Good Reason" shall include the
following circumstances: (a) if the Company assigns you duties that are
materially inconsistent with, or the material reduction of powers or functions
associated with, your position, duties, or responsibilities with the Company, or
an adverse change in your titles, authority, or reporting responsibilities, or
in conditions of your employment, (b) if your base salary is reduced or the
potential incentive compensation (or bonus) to which you may become entitled to
at any level of performance by you or the Company is reduced, (c) if the Company
fails to cause any successor to expressly assume and agree to be bound by the
terms of this Agreement, (d) any purported termination by the Company of your
employment for grounds other than for "Cause," (e) if the Company relieves you
of your duties other than for "Cause," or (f) if you are required to relocate to
an employment location that is more than fifty (50) miles from Dallas, TX.
3
<PAGE>
8. CAUSE DEFINED.
For purposes of this Agreement, the term "Cause" will exist in the
following circumstances: (i) you are convicted of a felony, (ii) you engage in
any fraudulent or other dishonest act to the detriment of the Company, (iii) you
fail to report for work on a regular basis, except for periods of authorized
absence or bona fide illness, (iv) you misappropriate trade secrets, customer
lists, or other proprietary information belonging to the Company for your own
benefit or for the benefit of a competitor, (v) you engage in any willful
misconduct designed to harm the Company or its stockholders, or (vi) you fail to
perform properly your assigned duties.
9. CEILING ON BENEFITS.
The Internal Revenue Code (the "Code") places significant tax burdens on
you and the Company if the total payments made to you due to a Change of Control
exceed prescribed limits. For example, if your limit is $749,999 (because your
"Base Period Income" (as defined below) is $250,000) and the "Total Payments"
(as defined below) exceed the limit by even $1.00, you are subject to an excise
tax under Section 4999 of the Code of 20% of all amounts paid to you in excess
of $250,000. If your limit is $749,999, you will not be subject to an excise tax
if you receive exactly $749,999. If you receive $750,000, you will be subject to
an excise tax of $100,000 (20% of $500,000).
In order to avoid this excise tax and the related adverse tax consequences
for the Company, by signing this Agreement, you agree that the present value of
your Total Payments will not exceed an amount equal to 2.99 times your Base
Period Income. This is the maximum amount which you may receive without becoming
subject to the excise tax imposed by Section 4999 of the Code or which the
Company may pay without loss of deduction under Section 280G of the Code.
"Base Period Income" is an amount equal to your "annualized includible
compensation" for the "base period" as defined in Sections 280G(d)(1) and (2) of
the Code and the regulations adopted thereunder. Generally, your "annualized
includible compensation" is the average of your annual taxable income from the
Company for the "base period," which is the five calendar years prior to the
year in which the Change of Control occurs. These concepts are complicated and
technical and all of the rules set forth in the applicable regulations apply for
purposes of this Agreement.
Your "Total Payments" include the sum of the Severance Payment and any
other "payments in the nature of compensation" (as defined in Section 280G of
the Code and the regulations adopted thereunder).
If Meritage believes that these rules will result in a reduction of the
payments to which you are entitled under this Agreement, it will so notify you
within 60 days following delivery of the "Notice of Termination" described in
Section 10. You and Meritage will then, at Meritage's expense, retain legal
counsel, certified public accountants, and/or a firm of recognized executive
compensation consultants to provide an opinion or opinions concerning whether
your Total Payments exceed the limit discussed above.
4
<PAGE>
Meritage will select the legal counsel, certified public accountants and
executive compensation consultants. If you do not accept one or more of the
parties selected by Meritage you may provide Meritage with the names of legal
counsel, certified public accountants and/or executive compensation consultants
acceptable to you. If Meritage does not accept the party or parties selected by
you, the legal counsel, certified public accountants and/or executive
compensation consultants selected by you and Meritage, respectively, will select
the legal counsel, certified public accountants and/or executive compensation
consultants to provide the opinions required.
At a minimum, the opinions required by this Section must set forth (a) the
amount of your Base Period Income, (b) the present value of the Total Payments
and (c) the amount and present value of any excess parachute payments.
If the opinions state that there would be an excess parachute payment, your
payments under this Agreement will be reduced to the extent necessary to
eliminate the excess.
You will be allowed to choose which payment should be reduced or
eliminated, but the payment you choose to reduce or eliminate must be a payment
determined by such legal counsel, certified public accountants, and/or executive
compensation consultants to be includible in Total Payments. You will make your
decision in writing and deliver it to Meritage within 30 days of your receipt of
such opinions. If you fail to so notify Meritage, it will decide which payments
to reduce or eliminate.
If the legal counsel, certified public accountants, and/or executive
compensation consultants selected to provide the opinions referred to above so
requests in connection with the opinion required by this Section, a firm of
recognized executive compensation consultants, selected by you and Meritage
pursuant to the procedures set forth above, shall provide an opinion, upon which
such legal counsel, certified public accountants, and/or executive compensation
consultants may rely, as to the reasonableness of any item of compensation as
reasonable compensation for services rendered before or after the Change of
Control.
If Meritage believes that your Total Payments will exceed the limitations
of this Section, it will nonetheless make payments to you, at the times stated
above, in the maximum amount that it believes may be paid without exceeding such
limitations. The balance, if any, will then be paid after the opinions called
for above have been received.
If the amount paid to you by Meritage is ultimately determined, pursuant to
the opinion referred to above or by the Internal Revenue Service, to have
exceeded the limitation of this Section, the excess will be treated as a loan to
you by Meritage and shall be repayable on the 90th day following demand by
Meritage, together with interest at the "applicable federal rate" provided in
Section 1274(d) of the Code.
In the event that the provisions of Sections 280G and 4999 of the Code are
repealed without succession, this Section shall be of no further force or
effect.
5
<PAGE>
10. TERMINATION NOTICE AND PROCEDURE.
Any termination by the Company or you of your employment shall be
communicated by written Notice of Termination to you if such Notice of
Termination is delivered by the Company and to the Company if such Notice of
Termination is delivered by you, all in accordance with the following
procedures:
(a) The Notice of Termination shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances alleged to provide a basis for termination.
(b) Any Notice of Termination by the Company shall be in writing
signed by the Chairman of the Board of Meritage specifying in detail the basis
for such termination.
(c) If the Company shall furnish a Notice of Termination for Cause and
you in good faith notify the Company that a dispute exists concerning such
termination within the 15-day period following your receipt of such notice, you
may elect to continue your employment during such dispute. If it is thereafter
determined that (i) Cause did exist, your "Termination Date" shall be the
earlier of (A) the date on which the dispute is finally determined, either by
mutual written agreement of the parties or pursuant to the alternative dispute
resolution provisions of Section 17, or (B) the date of your death; or (ii)
Cause did not exist, your employment shall continue as if the Company had not
delivered its Notice of Termination and there shall be no Termination Date
arising out of such notice.
(d) If the Company shall furnish a Notice of Termination by reason of
Disability and you in good faith notify the Company that a dispute exists
concerning such termination within the 15-day period following your receipt of
such notice, you may elect to continue your employment during such dispute. The
dispute relating to the existence of a Disability shall be resolved by the
opinion of the licensed physician selected by Meritage, provided, however, that
if you do not accept the opinion of the licensed physician selected by Meritage,
the dispute shall be resolved by the opinion of a licensed physician who shall
be selected by you; provided further, however, that if Meritage does not accept
the opinion of the licensed physician selected by you, the dispute shall be
finally resolved by the opinion of a licensed physician selected by the licensed
physicians selected by Meritage and you, respectively. If it is thereafter
determined that (i) a Disability did exist, your Termination Date shall be the
earlier of (A) the date on which the dispute is resolved, or (B) the date of
your death, or (ii) a Disability did not exist, your employment shall continue
as if the Company had not delivered its Notice of Termination and there shall be
no Termination Date arising out of such notice. For purposes of this Agreement,
"Disability" shall be given the meaning ascribed to such term in your Employment
Agreement at the time the Disability determination is being made.
(e) If you in good faith furnish a Notice of Termination for Good
Reason and the Company notifies you that a dispute exists concerning the
termination within the 15-day period following the Company's receipt of such
notice, you may elect to continue your employment during such dispute. If it is
thereafter determined that (i) Good Reason did exist, your Termination Date
shall be the earlier of (A) the date on which the dispute is finally determined,
either by mutual written agreement of the parties or pursuant to the alternative
6
<PAGE>
dispute resolution provisions of Section 17, (B) the date of your death, or (C)
one day prior to the second anniversary of a Change of Control, and your
payments hereunder shall reflect events occurring after you delivered Notice of
Termination; or (ii) Good Reason did not exist, your employment shall continue
after such determination as if you had not delivered the Notice of Termination
asserting Good Reason.
(f) If you do not elect to continue employment pending resolution of a
dispute regarding a Notice of Termination, and it is finally determined that the
reason for termination set forth in such Notice of Termination did not exist, if
such notice was delivered by you, you shall be deemed to have voluntarily
terminated your employment other than for Good Reason and if delivered by the
Company, the Company will be deemed to have terminated you other than by reason
of Disability or Cause.
(g) For purposes of this Agreement, a transfer from Meritage to one of
its subsidiaries or a transfer from a subsidiary to Meritage or another
subsidiary shall not be treated as a termination of employment.
11. SUCCESSORS.
Meritage will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of Meritage or any of its subsidiaries to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that Meritage or any subsidiary would be required to perform it if no
such succession had taken place. Failure of Meritage to obtain such assumption
and agreement prior to the effectiveness of any such succession shall be a
breach of this Agreement and shall entitle you to compensation in the same
amount and on the same terms to which you would be entitled hereunder if you
terminate your employment for Good Reason following a Change of Control, except
that for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Termination Date. As used in
this agreement "Company" shall mean Company, as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law or otherwise.
12. BINDING AGREEMENT.
This Agreement shall inure to the benefit of and be enforceable by you and
your personal or legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees. If you should die while any amount
would still be payable to you hereunder had you continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to your devisee, legatee or other designee or, if there
is no such designee, to your estate.
13. NOTICE.
For purposes of this Agreement, notices and all other communications
provided for in this Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States certified or
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement, provided
7
<PAGE>
that all notices to Meritage shall be directed to the attention of the Chairman
of the Board of Meritage with a copy to the Secretary of Meritage, or to such
other address as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be effective
only upon receipt.
14. MISCELLANEOUS.
No provision of this Agreement may be modified, waived or discharged unless
such waiver, modification or discharge is agreed to in writing and signed by you
and the Chairman of the Board of Meritage. No waiver by either party hereto at
any time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreement or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not expressly set forth in this
Agreement. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Delaware without regard
to its conflicts of law principles. All references to sections of the Act or the
Code shall be deemed also to refer to any successor provisions to such sections.
Any payments provided for hereunder shall be paid net of any applicable
withholding required under federal, state or local law. The obligations of
Meritage that arise prior to the expiration of this Agreement shall survive the
expiration of the term of this Agreement.
15. VALIDITY.
The invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
16. COUNTERPARTS.
This Agreement may be executed in several counterparts, each of which shall
he deemed to be an original but all of which together will constitute one and
the same instrument.
17. ALTERNATIVE DISPUTE RESOLUTION.
All claims, disputes and other matters in question between the parties
arising under this Agreement shall, unless otherwise provided herein (such as in
Sections 9 and 10(d)), be resolved in accordance with the arbitration or
alternative dispute resolution provisions included in your Employment Agreement.
18. EXPENSES AND INTEREST.
If a good faith dispute shall arise with respect to the enforcement of your
rights under this Agreement or if any arbitration or legal proceeding shall be
brought in good faith to enforce or interpret any provision contained herein, or
to recover damages for breach hereof, and you are the prevailing party, you
shall recover from the Company any reasonable attorneys' fees and necessary
costs and disbursements incurred as a result of such dispute or legal
proceeding, and prejudgment interest on any money judgment obtained by you
calculated at the rate of interest announced by Bank of America, Arizona from
8
<PAGE>
time to time as its prime rate from the date that payments to you should have
been made under this Agreement. It is expressly provided that the Company shall
in no event recover from you any attorneys' fees, costs, disbursements or
interest as a result of any dispute or legal proceeding involving the Company
and you.
19. PAYMENT OBLIGATIONS ABSOLUTE.
Meritage's obligation to pay you the compensation and to make the
arrangements in accordance with the provisions herein shall be absolute and
unconditional and shall not be affected by any circumstances; provided, however,
that Meritage may apply amounts payable under this Agreement to any debts owed
to the Company by you on your Termination Date. All amounts payable by Meritage
in accordance with this Agreement shall be paid without notice or demand. If
Meritage has paid you more than the amount to which you are entitled under this
Agreement, Meritage shall have the right to recover all or any part of such
overpayment from you or from whomsoever has received such amount.
20. ENTIRE AGREEMENT.
This Agreement and your Employment Agreement set forth the entire agreement
between you and the Company concerning the subject matter discussed in this
Agreement and supersede all prior agreements, promises, covenants, arrangements,
communications, representations, or warranties, whether written or oral, by any
officer, employee or representative of the Company. Any prior agreements or
understandings with respect to the subject matter set forth in this Agreement
are hereby terminated and canceled.
21. DEFERRAL OF PAYMENTS.
To the extent that any payment under this Agreement, when combined with all
other payments received during the year that are subject to the limitations on
deductibility under Section 162(m) of the Code, exceeds the limitations on
deductibility under Section 162(m) of the Code, such payment shall, in the
discretion of Meritage, be deferred to the next succeeding calendar year. Such
deferred amounts shall be paid no later than the 60th day after the end of such
next succeeding calendar year, provided that such payment, when combined with
any other payments subject to the Section 162(m) limitations received during the
year, does not exceed the limitations on deductibility under Section 162(m) of
the Code.
22. PARTIES.
This Agreement is an agreement between you and Meritage. In certain cases,
though, obligations imposed upon Meritage may be satisfied by a subsidiary of
Meritage. Any payment made or action taken by a subsidiary of Meritage shall be
considered to be a payment made or action taken by Meritage for purposes of
determining whether Meritage has satisfied its obligations under this Agreement.
9
<PAGE>
If you would like to participate in this special benefits program, please
sign and return the extra copy of this letter which is enclosed.
Sincerely,
MERITAGE CORPORATION
By: /s/ John R. Landon
------------------------------------
Name: John R. Landon
Its: Co-CEO
Enclosure
ACCEPTANCE
I hereby accept the offer to participate in this special benefits program
and I agree to be bound by all of the provisions noted above.
Dated: February 25, 2000
/s/ Richard T. Morgan
------------------------------------
Richard T. Morgan
10
